-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vm6FJhKTJvpWAGor0iQTjebZy4UUNCBdOBsdkK8VRTs1s926MqBhnFOzmL8endmz 6EsjprHNTLpIlCpsGnJvlw== 0000746687-05-000068.txt : 20050831 0000746687-05-000068.hdr.sgml : 20050831 20050831103645 ACCESSION NUMBER: 0000746687-05-000068 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050831 DATE AS OF CHANGE: 20050831 EFFECTIVENESS DATE: 20050831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GE INVESTMENT FUNDS INC CENTRAL INDEX KEY: 0000746687 IRS NUMBER: 541278621 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04041 FILM NUMBER: 051060538 BUSINESS ADDRESS: STREET 1: 3003 SUMMER STREET CITY: STANFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 8042816935 MAIL ADDRESS: STREET 1: 3003 SUMMER STREET CITY: STAMFORD STATE: CT ZIP: 06905 FORMER COMPANY: FORMER CONFORMED NAME: LIFE OF VIRGINIA SERIES FUND INC DATE OF NAME CHANGE: 19920703 N-CSRS 1 geinvest.txt GE INVESTMENTS FUNDS - CERTIFICATION OF SHAREHOLDER REPORT FOR THE PERIOD ENDING 30TH JUNE, 2005 OMB APPROVAL OMB Number: 3235-0570 Expires: SEPT. 30, 2007 Estimated average burden hours per response: 19.4 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 - ----------------------------------------------------------------- GE INVESTMENTS FUNDS, INC. - ------------------------------------------------------------------ (Exact name of registrant as specified in charter) 3001, SUMMER STREET,STAMFORD, CONNECTICUT, 06905 - ------------------------------------------------------------------- (Address of principal executive offices) (Zip code) GE ASSET MANAGEMENT INC,3001, SUMMER STREET,STAMFORD,CONNECTICUT, 06905 - ------------------------------------------------------------------ (Name and address of agent for service) Registrant"s telephone number, including area code: 800-242-0134 ---------------------------- Date of fiscal year end: December 31, 2005 --------------------------- Date of reporting period: : January 1, 2005 - June 30, 2005 ------------------------- ITEM 1. REPORTS TO STOCKHOLDERS. Semi Annual Report JUNE 30, 2005 [GE LOGO OMITTED] GE Investments Funds, Inc. U.S. Equity Fund Semi-Annual Report JUNE 30, 2005 [LOGO OMITTED] GE Investments Funds, Inc. U.S. Equity Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................ 1 NOTES TO PERFORMANCE .................................................. 7 NOTES TO SCHEDULE OF INVESTMENTS ...................................... 7 FINANCIAL STATEMENTS Financial Highlights ............................................. 8 Statement of Assets and Liabilities .............................. 9 Statement of Operations .......................................... 10 Statements of Changes in Net Assets .............................. 11 Notes to Financial Statements .................................... 12 ADDITIONAL INFORMATION ................................................ 18 INVESTMENT TEAM ....................................................... 21 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. U.S. Equity Fund Q&A - -------------------------------------------------------------------------------- THE U.S. EQUITY FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES RICHARD L. SANDERSON, PAUL C. REINHARDT, STEPHEN V. GELHAUS, AND CHRISTOPHER D. BROWN (PICTURED BELOW FROM TOP LEFT TO BOTTOM RIGHT). EACH OF THE FOREGOING PORTFOLIO MANAGERS MANAGES ONE OF THREE SUB-PORTFOLIOS, WHICH COMPRISE THE FUND. MR. BROWN MANAGES THE DISCIPLINED GROWTH PORTFOLIO, MESSRS. REINHARDT AND GELHAUS CO-MANAGE THE LARGE-CAP VALUE PORTFOLIO AND MR. SANDERSON MANAGES THE RESEARCH SELECT PORTFOLIO. RICHARD L. SANDERSON IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A PORTFOLIO MANAGER OF THE U.S. EQUITY FUND SINCE SEPTEMBER 1997 AS VICE PRESIDENT -- DOMESTIC EQUITIES. PAUL C. REINHARDT IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A PORTFOLIO MANAGER FOR THE U.S. EQUITY FUND SINCE JANUARY 2001. MR. REINHARDT JOINED GE ASSET MANAGEMENT IN 1982 AS AN EQUITY ANALYST AND HAS BEEN A PORTFOLIO MANAGER SINCE 1987. MR. REINHARDT HOLDS AN MBA FROM COLUMBIA UNIVERSITY, A BA IN ECONOMICS FROM HARTWICK COLLEGE AND IS A MEMBER OF THE NEW YORK SOCIETY OF SECURITY ANALYSTS. HE IS ALSO A HOLDER OF A CHARTERED FINANCIAL ANALYST DESIGNATION. 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. MR. BROWN IS A CUM LAUDE GRADUATE IN ECONOMICS FROM BUCKNELL UNIVERSITY AND IS THE HOLDER OF A CHARTERED FINANCIAL ANALYST DESIGNATION. Q. HOW DID THE US EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the U.S. Equity Fund returned (1.19)%. The S&P 500 Index, the Fund's benchmark, returned (0.81)% and the Fund's Lipper peer group of 223 Large-Cap Core Funds returned an average of (0.76)% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE? A. During the period, record-high oil prices, slowing global economies, and uncertainty over the future path of Federal Reserve Board tightening in the U.S. created concerns about slowing economic growth. Several other market conditions, including a flattening yield curve, perceptions of an inflating housing bubble, and an over-leveraged consumer, also weighed on U.S. equity markets. Faced with this [photo omitted] 1 U.S. Equity Fund Q&A - -------------------------------------------------------------------------------- mounting wall of worry, investors rotated out of cyclicals into more defensive stocks such as Healthcare companies. Larger capitalization companies outperformed smaller capitalization companies during the period, in a reversal of the trend that has dominated the market for the past few years. In addition, value stocks continued to perform better than their growth counterparts during the period. Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE? A. Strength within Materials, Healthcare and Energy contributed most to Fund performance. The portfolio's allocation to the Materials sector benefited most from strong performance in Monsanto (+13.9%). In Healthcare, the Fund's holdings in pharmaceutical stocks performed particularly well. Throughout the first half of 2005, investors returned to the Healthcare sector, finding its steady growth relatively attractive at this point in the business cycle. An overweight position in Schlumberger (+14.1%) and stock selection in the oil and gas industry contributed to outperformance in Energy. Consumer Staples, Industrials, and Utilities were the primary detractors from Fund performance. An underweight in tobacco company Altria (+8.2%) hurt performance as the stock reacted to positive legal developments. Industrials detracted from performance as Tyco (-17.8%), Dover (-12.5%) and Eaton (-16.4%) declined. Investors continued to look to Utilities for higher dividend yields, driving up performance in the sector; however, the portfolio's holdings did not keep pace with the benchmark sector, detracting from performance. Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD? A. The Fund increased its exposure to Healthcare stocks, especially healthcare provider and pharmaceuticals companies, during the period, based on their attractiveness at this point in the business cycle. Positions in names such as UnitedHealth and Pfizer were increased during the period. The Fund's exposure to the Financials was decreased due to concern over the potential effects of a rising rate environment on the sector. 2 U.S. Equity Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 988.10 3.08 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,021.43 3.17 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.63% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS (1.19)%. 3 U.S. Equity Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] U.S. Equity Fund S&P 500 Index 06/01/95 10,000 10,000 12/01/95 11,323 11,439 12/01/96 13,783 14,084 12/01/97 18,212 18,772 12/01/98 22,475 24,159 12/01/99 26,882 29,249 12/01/00 26,723 26,563 12/01/01 24,459 23,399 12/01/02 19,748 18,227 12/01/03 24,344 23,463 12/01/04 26,332 26,017 06/01/05 26,019 25,806 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- SIX ONE FIVE TEN MONTHS YEAR YEAR YEAR - -------------------------------------------------------------------------------- U.S. Equity Fund -1.19% 4.81% -0.70% 10.03% - -------------------------------------------------------------------------------- S&P 500 Index -0.81% 6.33% -2.38% 9.94% - -------------------------------------------------------------------------------- Lipper peer group average* -0.76% 5.53% -3.12% 7.70% - -------------------------------------------------------------------------------- Inception date 1/3/95 - -------------------------------------------------------------------------------- U.S. Equity Fund (ending value $26,019) S&P 500 Index (ending value $25,806) INVESTMENT PROFILE A fund designed for investors who seek long-term growth of capital by investing at least 80% of its net assets in equity securities of issuers that are tied economically to the U.S. under normal market conditions. TOP TEN HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Pfizer Inc. 3.60% - -------------------------------------------------------------------------------- Exxon Mobil Corp. 3.31% - -------------------------------------------------------------------------------- Microsoft Corp. 3.22% - -------------------------------------------------------------------------------- Citigroup Inc. 2.96% - -------------------------------------------------------------------------------- Industrial Select Sector SPDR Fund 2.69% - -------------------------------------------------------------------------------- First Data Corp. 2.23% - -------------------------------------------------------------------------------- Abbott Laboratories 2.19% - -------------------------------------------------------------------------------- PepsiCo, Inc. 2.13% - -------------------------------------------------------------------------------- Johnson & Johnson 1.87% - -------------------------------------------------------------------------------- Liberty Media Corp. (Series A) 1.77% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $106,316 (in thousands) [Pie chart omitted -- plot points are as follows:] Financials 18.7% Information Technology 16.0% Healthcare 13.6% Consumer Discretionary 11.8% Industrials 10.0% Consumer Staples 9.4% Energy 8.9% Utilities 3.3% Materials 2.9% Telecommunication Services 2.9% Short-Term 2.5% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE LARGE-CAP CORE PEER GROUP CONSISTING OF 223, 222, 133, AND 57 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 7 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 U.S. EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- U.S. EQUITY FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 95.5% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 11.9% Bed Bath & Beyond Inc. 5,133 $ 214,457(a) Cablevision Systems Corp. (Class A) 7,384 237,765(a,e) Carnival Corp. 16,208 884,146 Comcast Corp. (Class A) 376 11,543(a) Comcast Corp. (Class A) (Special) 55,952 1,675,762(a) eBay Inc. 3,987 131,611(a) Family Dollar Stores, Inc. 12,786 333,715 Kohl's Corp. 3,062 171,196(a) Liberty Global Inc. (Series A) 10,892 508,330(a,e) Liberty Media Corp. (Series A) 184,973 1,884,875(a,d) Lowe's Companies, Inc. 16,197 942,989 News Corp. (Class A) 27,464 444,368 Omnicom Group 9,004 719,059 Target Corp. 24,492 1,332,610 The Home Depot, Inc. 23,227 903,530 Time Warner Inc. 45,022 752,318(a) Tribune Co. 2,701 95,021 Viacom Inc. (Class B) 39,412 1,261,972 12,505,267 CONSUMER STAPLES -- 9.6% Altria Group, Inc. 1,401 90,589 Anheuser-Busch Companies, Inc. 9,275 424,331 Avon Products, Inc. 6,303 238,569 Clorox Co. 21,256 1,184,384 Colgate-Palmolive Co. 24,638 1,229,683 Kellogg Co. 15,839 703,885 Kimberly-Clark Corp. 18,906 1,183,327 PepsiCo, Inc. 41,950 2,262,364 Procter & Gamble Co. 11,075 584,206 Sara Lee Corp. 35,117 695,668 The Coca-Cola Co. 19,990 834,583 Wal-Mart Stores, Inc. 12,660 610,212 10,041,801 ENERGY -- 9.0% Amerada Hess Corp. 2,719 289,601 Burlington Resources Inc. 24,989 1,380,392 ConocoPhillips Co. 10,805 621,179 EnCana Corp. 13,903 550,420 Exxon Mobil Corp. 61,230 3,518,888(d) Halliburton Co. 8,104 387,533 Nabors Industries Ltd. 5,853 354,809(a) Occidental Petroleum Corp. 8,851 680,907 Schlumberger Ltd. 21,834 1,658,074 9,441,803 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- FINANCIALS -- 18.3% AFLAC Incorporated 7,294 $ 315,684 Allstate Corp. 20,867 1,246,803 American International Group, Inc. 26,994 1,568,351 Bank of America Corp. 35,478 1,618,152(d) Berkshire Hathaway Inc. (Class B) 14139 2,474(a) Chubb Corp. 9,898 847,368 Citigroup Inc. 67,984 3,142,900(d) Federal Home Loan Mortgage Corp. 5,199 339,131 Federal National Mortgage Association 30,062 1,755,621 HCC Insurance Holdings, Inc. 3,422 129,591 JPMorgan Chase & Co. 10,445 368,917 MBNA Corp. 38,539 1,008,180 Mellon Financial Corp. 28,675 822,686 Merrill Lynch & Co., Inc. 8,009 440,575 Morgan Stanley 14,407 755,935 Principal Financial Group 14,641 613,458 Prudential Financial, Inc. 6,499 426,724 State Street Corp. 35,623 1,718,810(c) SunTrust Banks, Inc. 5,403 390,313 US Bancorp 13,237 386,520 Wachovia Corp. 7,365 365,304 Wells Fargo & Co. 8,284 510,129 19,163,626 HEALTHCARE -- 13.8% Abbott Laboratories 47,439 2,324,985(d) Aetna Inc. 1,694 140,297 Amgen Inc. 13,493 815,787(a) Boston Scientific Corp. 3,636 98,172(a) Bristol-Myers Squibb Co. 16,208 404,876 Cardinal Health, Inc. 1,351 77,791 GlaxoSmithKline PLC ADR 14,892 722,411 HCA Inc. 7,384 418,451 Johnson & Johnson 30,529 1,984,385 Lincare Holdings Inc. 12,336 503,802(a) Medtronic Inc. 3,119 161,533 Merck & Co., Inc. 13,777 424,332 Pfizer Inc. 138,854 3,829,593 Smith & Nephew PLC ADR 1,981 97,881 UnitedHealth Group Incorporated 19,183 1,000,202 Wyeth 33,273 1,480,649 14,485,147 INDUSTRIALS -- 7.5% Burlington Northern Santa Fe Corp. 10,445 491,751 Corinthian Colleges, Inc. 8,334 106,425(a,e) Danaher Corp. 3,847 201,352 Deere & Co. 11,976 784,308 Dover Corp. 24,784 901,642(d) See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 5 U.S. EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Eaton Corp. 9,708 $ 581,509 Emerson Electric Co. 3,110 194,779 General Dynamics Corp. 3,942 431,807 Northrop Grumman Corp. 13,056 721,344 Southwest Airlines Co. 22,531 313,857 3M Co. 2,971 214,803 Tyco International Ltd. 54,284 1,585,093 Union Pacific Corp. 3,782 245,074 United Technologies Corp. 14,929 766,604 Waste Management, Inc. 9,725 275,606 7,815,954 INFORMATION TECHNOLOGY -- 16.2% Analog Devices, Inc. 24,532 915,289 Applied Materials, Inc. 36,018 582,771(d) Automatic Data Processing, Inc. 12,066 506,410 Certegy Inc. 10,571 404,024 Checkfree Corp. 3,203 109,094(a) Cisco Systems, Inc. 83,291 1,591,691(a) Dell Inc. 21,213 838,126(a) EMC Corp. 39,169 537,007(a) First Data Corp. 59,037 2,369,745 Intel Corp. 51,415 1,339,875 International Business Machines Corp. 13,366 991,757 Intuit Inc. 17,490 788,974(a) Microsoft Corp. 137,768 3,422,157 Molex Inc. (Class A) 28,076 659,224 Novellus Systems, Inc. 3,699 91,402(a) Oracle Corp. 115,360 1,522,752(a) Paychex, Inc. 2,721 88,541 Unisys Corp. 10,806 68,402(a) Yahoo! Inc. 5,911 204,816(a) 17,032,057 MATERIALS -- 3.0% Alcoa Inc. 8,104 211,758 Barrick Gold Corp. 11,526 288,496 Freeport-McMoRan Copper & Gold Inc. (Class B) 8,232 308,206 Monsanto Co. 10,049 631,781 Newmont Mining Corp. 12,992 507,078 Praxair, Inc. 11,706 545,500 Rohm & Haas Co. 5,853 271,228 Weyerhaeuser Co. 5,223 332,444 3,096,491 TELECOMMUNICATION SERVICES -- 2.9% Alltel Corp. 4,052 252,359 Sprint Corp. 25,933 650,659 Verizon Communications Inc. 16,208 559,986(d) Vodafone Group PLC ADR 65,732 1,598,602 3,061,606 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- UTILITIES -- 3.3% American Electric Power Company, Inc. 11,706 $ 431,600 Constellation Energy Group Inc. 10,085 581,804 Dominion Resources, Inc. 11,616 852,498 Entergy Corp. 7,204 544,262 PG&E Corp. 19,543 733,644(e) PPL Corp. 2,600 154,388 Southern Co. 4,727 163,885 3,462,081 TOTAL COMMON STOCK (COST $90,158,567) 100,105,833 - -------------------------------------------------------------------------------- EXCHANGE TRADED FUNDS -- 3.4% - -------------------------------------------------------------------------------- Financial Select Sector SPDR Fund 24,924 734,510 Industrial Select Sector SPDR Fund 97,319 2,859,232 TOTAL EXCHANGE TRADED FUNDS (COST $3,266,376) 3,593,742 TOTAL INVESTMENTS IN SECURITIES (COST $93,424,943) 103,699,575 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 2.5% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.0% GEI Short Term Investment Fund 3.20% 1,042,423 1,042,423(b,f) SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL FROM SECURITIES ON LOAN -- 1.5% State Street Navigator Securities Lending Prime Portfolio 3.31% 1,573,609 1,573,609(b,c) TOTAL SHORT-TERM INVESTMENTS (COST $2,616,032) 2,616,032 TOTAL INVESTMENTS (COST $96,040,975) 106,315,607 LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.4)% (1,426,321) ------------ NET ASSETS -- 100.0% $104,889,286 ============ See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 6 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. 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. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise the index. The S&P 500 is a market capitalization-weighted index of stocks of 500 large U.S. companies, which is widely used as a measure of large-cap stock market performance. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Coupon amount represents effective yield. (c) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (d) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures, options, forward foreign currency contracts and/or TBA's. (e) All or a portion of the security is out on loan. (f) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. + Percentages are based on net assets as of June 30, 2005. Abbreviations: ADR American Depositary Receipt 7
Financial Highlights Selected data based on a share outstanding throughout the periods indicated - ------------------------------------------------------------------------------------------------------------------------------------ U.S. EQUITY FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE -- -- -- -- -- 1/3/95 Net asset value, beginning of period ................ $33.61 $31.48 $25.75 $32.21 $35.56 $37.90 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ............................ 0.18 0.44 0.26 0.24 0.23 0.26 Net realized and unrealized gains/(losses) on investments ................. (0.58) 2.13 5.73 (6.45) (3.24) (0.59) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ...... (0.40) 2.57 5.99 (6.21) (3.01) (0.33) - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income ............................ -- 0.44 0.26 0.25 0.22 0.26 Net realized gains ............................... -- -- -- -- 0.12 1.75 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ................................. -- 0.44 0.26 0.25 0.34 2.01 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD ...................... $33.21 $33.61 $31.48 $25.75 $32.21 $35.56 ==================================================================================================================================== TOTAL RETURN (A) .................................... (1.19)% 8.17% 23.28% (19.26)% (8.47)% (0.59)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ......... $104,889 $112,545 $114,123 $102,112 $115,578 $99,423 Ratios to average net assets: Net investment income* ........................ 1.07% 1.30% 0.95% 0.87% 0.78% 0.79% Expenses* ..................................... 0.63% 0.63% 0.61% 0.58% 0.58% 0.59% Portfolio turnover rate .......................... 14% 30% 39% 37% 48% 40%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 8
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) U.S. EQUITY FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at market* (cost $93,424,943) ........................................ $103,699,575 Short-term Investments (at amortized cost) ...................................................... 1,573,609 Short-term affiliated investments (at amortized cost) ........................................... 1,042,423 Receivable for investments sold ................................................................. 276,438 Income receivables .............................................................................. 157,231 Receivable for fund shares sold ................................................................. 1,626 - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ............................................................................... 106,750,902 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Payable upon return of securities loaned ........................................................ 1,573,609 Payable for investments purchased ............................................................... 176,692 Payable for fund shares redeemed ................................................................ 56,481 Payable to GEAM ................................................................................. 54,834 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................................................... 1,861,616 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS $104,889,286 =========================================================================================================================== NET ASSETS CONSIST OF: Capital paid in ................................................................................. 109,648,047 Undistributed net investment income ............................................................. 573,241 Accumulated net realized loss ................................................................... (15,606,634) Net unrealized appreciation on: Investments ................................................................................. 10,274,632 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ......................................................................................... $104,889,286 =========================================================================================================================== Shares outstanding ($0.01 par value) ............................................................... 3,158,044 Net asset value per share .......................................................................... $33.21
* Includes $1,534,443 of securities on loan. See Notes to Financial Statements. 9
Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) U.S. EQUITY FUND - --------------------------------------------------------------------------------------------------------------------------- IINVESTMENT INCOME INCOME: Dividend ...................................................................... $ 893,110 Interest* ..................................................................... 360 Interest from affliated investments ........................................... 14,582 Less: Foreign taxes withheld .................................................. (5,296) - --------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME .................................................................... 902,756 - --------------------------------------------------------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees .............................................. 293,613 Custody and accounting expenses ............................................... 20,533 Professional fees ............................................................. 11,402 Transfer agent ................................................................ 109 Trustee's fees ................................................................ 1,797 Registration expenses ......................................................... 444 Other expenses ................................................................ 7,485 - --------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES .................................................................. 335,383 - --------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME ........................................................... 567,373 =========================================================================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN ON: Investments ................................................................ 2,849,798 Futures .................................................................... 38,548 INCREASE (DECREASE) IN UNREALIZED APPRECIATION/ (DEPRECIATION) ON: Investments ................................................................ (4,819,692) Futures .................................................................... (625) Foreign currency transactions .............................................. 1 - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments ............................... (1,931,970) - --------------------------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................................... $(1,364,597) ===========================================================================================================================
* Income attributable to security lending activity, net of rebate expenses, was $360. See Notes to Financial Statements. 10
Statements of Changes in Net Assets U.S. EQUITY FUND - ------------------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ............................................................. $ 567,373 $ 1,448,232 Net realized gain on investments, futures, written options, foreign currency transactions and swaps .......................................... 2,888,346 3,405,421 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation ............................................................. (4,820,316) 3,718,272 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) from operations ............................................ (1,364,597) 8,571,925 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income .............................................................. -- (1,456,440) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS .................................................................. -- (1,456,440) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations and distributions .................. (1,364,597) 7,115,485 - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: Proceeds from sale of shares ....................................................... 1,429,581 7,341,779 Value of distributions reinvested .................................................. -- 1,456,454 Cost of shares redeemed ............................................................ (7,721,175) (17,491,217) - ------------------------------------------------------------------------------------------------------------------------------------ Net decrease from share transactions .............................................. (6,291,594) (8,692,984) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DECREASE IN NET ASSETS ......................................................... (7,656,191) (1,577,499) NET ASSETS Beginning of period .................................................................. 112,545,477 114,122,976 - ------------------------------------------------------------------------------------------------------------------------------------ End of period ....................................................................... $104,889,286 $112,545,477 ==================================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ...................................... $ 573,241 $ 5,868 - ------------------------------------------------------------------------------------------------------------------------------------ CHANGES IN PORTFOLIO SHARES Shares sold ........................................................................ 43,287 230,695 Issued for distributions reinvested ................................................ -- 43,360 Shares redeemed .................................................................... (233,805) (550,499) - ------------------------------------------------------------------------------------------------------------------------------------ Net decrease in fund shares ............................................................. (190,518) (276,444) ====================================================================================================================================
See Notes to Financial Statements. 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 their 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 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes.
At June 30, 2005, information on the tax components of capital is as follows: Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $100,507,441 $8,677,987 $(2,869,821) $5,808,166
As of December 31, 2004, the Fund has the capital loss carryover as indicated below. The capital loss carryover is 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 - -------------------------------------------------------------------------------- $2,587,920 12/31/09 6,357,685 12/31/10 5,082,284 12/31/11 During the year ended December 31, 2004, the Fund utilized approximately $2,316,369 of capital loss carryovers. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Ordinary Long-Term Income Capital Gains Total - -------------------------------------------------------------------------------- $1,456,440 $ -- $1,456,440 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 and unrealized gains and losses on forward foreign currency contracts and losses deferred due to wash sale transactions. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 the borrowing Fund. The maximum amount allowed to be borrowed by any one Fund is the lesser of its prospectus limitation, 20% of its net assets, or $25 million. The credit facility was not utilized by the Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .55%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the six-month period ending June 30, 2005, $1,726 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement of the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same 15 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreement with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Funds benefit from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Funds with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The 16 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those lower fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $15,083,262 $19,810,037 SECURITY LENDING At June 30, 2005, the Fund participated in securities lending: Loaned securities at Cash market value Collateral - -------------------------------------------------------------------------------- $1,534,443 $1,573,609 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE Funds, GE Institutional Funds and GE LifeStyle Funds since their inception. Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1987. 18 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General Counsel - Marketing and Client Services (formerly Asset Management Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since October 2003. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A 19 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 20 Investment Team - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND ADMINISTRATOR GE Asset Management Incorporated BOARD OF DIRECTORS Michael J.Cosgrove, CHAIRMAN John R. Costantino Alan M. Lewis William J. Lucas Robert P. Quinn SECRETARY Matthew J. Simpson TREASURER Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company Independent Registered Public Accounting Firm KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, Chief Executive Officer David B. Carlson, EVP, Domestic Equities Michael J. Cosgrove, EVP, Chief Commercial Officer Kathryn Karlic, EVP, Fixed Income Ralph R. Layman, EVP, International Equities Alan M. Lewis, EVP, General Counsel and Secretary Robert A. MacDougall, EVP, Fixed Income Don W. Torey, EVP, Alternative Investments and Real Estate John J. Walker, EVP, Chief Financial Officer 21 [This page intentionally left blank.] GE Investments Funds, Inc. S&P 500 Index Fund Semi-Annual Report JUNE 30, 2005 [LOGO OMITTED] GE Investments Funds, Inc. S&P 500 Index Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................ 1 NOTES TO PERFORMANCE .................................................. 11 NOTES TO SCHEDULE OF INVESTMENTS ...................................... 11 FINANCIAL STATEMENTS Financial Highlights ............................................. 12 Statement of Assets and Liabilities .............................. 13 Statement of Operations .......................................... 14 Statements of Changes in Net Assets .............................. 15 Notes to Financial Statements .................................... 16 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. S&P 500 Index Fund Q&A - -------------------------------------------------------------------------------- SSGA FUNDS MANAGEMENT, INC. ("SSGA FM") IS THE SUB-ADVISER FOR THE S&P 500 INDEX FUND. SSGA IS ONE OF THE STATE STREET GLOBAL ADVISORS COMPANIES, WHICH CONSTITUTE THE INVESTMENT MANAGEMENT BUSINESS OF STATE STREET CORPORATION. STATE STREET GLOBAL ADVISORS HAS BEEN IN THE BUSINESS OF PROVIDING INVESTMENT ADVISORY SERVICES SINCE 1978. SSGA FM WAS FORMED IN MAY 2001 AS A RESULT OF A CHANGE IN FEDERAL LAW. THE FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS COMPOSED OF THE FOLLOWING MEMBERS: KARL SCHNEIDER, JAMES MAY, MICHAEL FEEHILY, TOM RAWLINGS, AND DAVID CHIN. KARL SCHNEIDER, LEAD PORTFOLIO MANAGER FOR THE FUND, IS A PRINCIPAL OF STATE STREET GLOBAL ADVISORS, SSGA FM AND A PORTFOLIO MANAGER WITHIN THE GLOBAL STRUCTURED PRODUCTS GROUP. HE JOINED STATE STREET IN 1996 AND CURRENTLY MANAGES THE FIRM'S COMMINGLED WILSHIRE 5000, WILSHIRE 4500, AND RUSSELL 2000 FUNDS, AS WELL AS OTHER COMMINGLED AND SEPARATELY MANAGED DOMESTIC AND INTERNATIONAL FUNDS. PRIOR TO JOINING THE GLOBAL STRUCTURED PRODUCTS GROUP, KARL WORKED AS A PORTFOLIO MANAGER IN SSGA'S CURRENCY MANAGEMENT GROUP, MANAGING BOTH ACTIVE CURRENCY SELECTION AND TRADITIONAL PASSIVE HEDGING OVERLAY PORTFOLIOS. PRIOR TO THIS, HE WORKED AS AN ANALYST IN STATE STREET'S PROCESS ENGINEERING DIVISION WHERE HE BOTH ASSISTED AND LED A NUMBER OF INTERNAL CONSULTING ENGAGEMENTS AIMED AT IMPROVING OPERATIONAL EFFICIENCIES WITHIN THE CUSTODY BANK. KARL HOLDS A BACHELOR 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. JAMES MAY IS A PRINCIPAL OF STATE STREET GLOBAL ADVISORS, SSGA FM AND A SENIOR PORTFOLIO MANAGER IN THE FIRM'S GLOBAL STRUCTURED PRODUCTS GROUP. HE MANAGES A VARIETY OF PORTFOLIOS FOR THE DEVELOPED MARKETS TEAM BENCHMARKED TO INDEXES INCLUDING MSCI, STANDARD & POOR'S, AND RUSSELL. JIM IS ALSO RESPONSIBLE FOR MANAGING SEVERAL MUTUAL FUNDS. JIM JOINED SSGA IN 1991. PRIOR TO THE GLOBAL STRUCTURED PRODUCTS GROUP, JIM WORKED IN THE FIRM'S PASSIVE U.S. EQUITY OPERATIONS DEPARTMENT AS A SENIOR ANALYST. AS A MEMBER OF THE DEVELOPED MARKETS TEAM, HE WORKED ON THE FORMULATION OF TRADING STRATEGIES FOR INDEX CHANGE TRADES, RUSSELL RECONSTITUTION, AND MSCI QUARTERLY REBALANCING AND PROVISIONAL TRADES. JIM ALSO SERVED ON THE RUSSELL 1000 ADVISORY COMMITTEE AT THE NEW YORK BOARD OF TRADE. HE HAS BEEN WORKING IN THE INVESTMENT MANAGEMENT FIELD SINCE 1989 WHEN HE JOINED STATE STREET CORPORATION'S CUSTODY OPERATION. JIM HOLDS AN MBA FROM BOSTON COLLEGE AND A BS IN FINANCE FROM BENTLEY COLLEGE, AND EARNED THE CHARTERED FINANCIAL ANALYST DESIGNATION. HE IS A MEMBER OF THE BOSTON SECURITY ANALYSTS SOCIETY AND THE ASSOCIATION FOR INVESTMENT MANAGEMENT AND RESEARCH (AIMR). MICHAEL FEEHILY IS A PRINCIPAL OF STATE STREET GLOBAL ADVISORS, SSGA FM AND HEAD OF THE U.S. EQUITY TEAM WITHIN THE GLOBAL STRUCTURED PRODUCTS GROUP. MIKE IS RESPONSIBLE FOR OVERSEEING THE MANAGEMENT OF ALL U.S. EQUITY INDEX FUNDS FOR STATE STREET GLOBAL ADVISORS. HE ALSO SERVES AS PORTFOLIO MANAGER FOR SEVERAL MUTUAL FUNDS, IN ADDITION TO SEVERAL OTHER COMMINGLED AND SEPARATELY MANAGED PRODUCTS. MIKE JOINED SSGA IN 1997, INITIALLY WORKING IN THE PERFORMANCE AND ANALYTICS GROUP. PRECEDING THIS, HE WAS PART OF THE GLOBAL OPERATIONS DEPARTMENT OF STATE STREET CORPORATION WHERE HE HELPED TO DEVELOP PRIVATE EDGE, A PROPRIETARY APPLICATION USED TO ANALYZE VENTURE CAPITAL, REAL ESTATE, AND OTHER PRIVATE INVESTMENTS. MIKE HAS BEEN WORKING IN THE INVESTMENT MANAGEMENT FIELD SINCE 1992. MIKE HOLDS A BACHELOR OF SCIENCE DEGREE IN FINANCE, INVESTMENTS, AND ECONOMICS FROM BABSON COLLEGE AND AN MBA IN FINANCE FROM BENTLEY COLLEGE. HE EARNED THE CHARTERED FINANCIAL ANALYST DESIGNATION, AND IS A MEMBER OF THE BOSTON SECURITY ANALYSTS SOCIETY AND THE ASSOCIATION FOR INVESTMENT MANAGEMENT AND RESEARCH (AIMR). TOM RAWLINGS IS A PRINCIPAL AT STATE STREET GLOBAL ADVISORS, SSGA FM AND A PORTFOLIO MANAGER IN THE GLOBAL STRUCTURED PRODUCTS GROUP. THROUGHOUT HIS CAREER TOM HAS MANAGED A WIDE VARIETY OF FUNDS, RANGING FROM EMERGING MARKETS TO THE US MARKET. TOM'S CURRENT FOCUS AREAS INCLUDE FUNDS BENCHMARKED TO THE STANDARD AND POOR'S, DOW JONES, AND RUSSELL INDICES. IN ADDITION TO HIS FUND RESPONSIBILITIES, TOM HAS WORKED ON FORMULATING TRADE STRATEGIES FOR INDEX CHANGES, AND THE RUSSELL RECONSTITUTION, AND HAS WORKED ON SEVERAL PROJECT GROUPS FOCUSING ON PROCESS EFFICIENCY, REVIEW, AND RECOVERY SERVICES. TOM ALSO CONDUCTS OPTIMIZATION ANALYSIS FOR SOCIALLY SCREENED PORTFOLIOS, AND PERFORMS ANALYSIS FOR GENERAL RESEARCH TOPICS WITHIN THE GLOBAL STRUCTURED PRODUCTS GROUP. PRIOR TO TOM'S CURRENT POSITION, HE WAS THE EQUITY TECHNICAL SUPPORT ANALYST IN THE OPERATIONS GROUP. IN THIS ROLE TOM'S RESPONSIBILITIES INCLUDED PROJECT MANAGEMENT, TECHNICAL ASSISTANCE AND TRAINING, AND PROGRAMMING AND OPERATIONS PROCESS REVIEW WORLDWIDE. TOM HOLDS A BS IN MANAGEMENT WITH A CONCENTRATION IN FINANCE FROM THE UNIVERSITY OF MASSACHUSETTS, BOSTON, AND 1 S&P 500 Index Fund Q&A - -------------------------------------------------------------------------------- HOLDS HIS MBA IN MANAGEMENT FROM BOSTON UNIVERSITY, WHERE HE CONCENTRATED IN CORPORATE FINANCIAL MANAGEMENT AND FINANCIAL INSTITUTIONS ANALYSIS. TOM HAS BEEN WORKING IN THE INVESTMENT MANAGEMENT FIELD SINCE HE JOINED SSGA IN DECEMBER 1995. DAVID CHIN IS A PRINCIPAL AND SENIOR PORTFOLIO MANAGER IN THE GLOBAL STRUCTURED PRODUCTS GROUP AT STATE STREET GLOBAL ADVISORS AND SSGA FM. HE IS RESPONSIBLE FOR MANAGING BOTH U.S. AND INTERNATIONAL FUNDS. PRIOR TO JOINING SSGA IN 1999, DAVID WAS A PRODUCT ANALYST IN THE ANALYTICAL SERVICES GROUP AT FRANK RUSSELL COMPANY. BEFORE THIS, HE WORKED AT ONESOURCE INFORMATION SYSTEMS DEVELOPING INVESTMENT SOFTWARE. PRECEDING THIS, HE WAS AFFILIATED WITH PANAGORA ASSET MANAGEMENT IN THE RESEARCH AND DEVELOPMENT GROUP CREATING QUANTITATIVE INVESTMENT MODELS FOR INTERNATIONAL EQUITIES. DAVID HAS BEEN WORKING IN THE INVESTMENT MANAGEMENT FIELD SINCE 1992. DAVID HOLDS A BS IN MANAGEMENT INFORMATION SYSTEMS FROM THE UNIVERSITY OF MASSACHUSETTS/BOSTON AND AN MBA FROM THE UNIVERSITY OF ARIZONA. Q. HOW DID THE S&P 500 INDEX FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the S&P 500 Index Fund returned (0.99)%. The S&P 500 Index, the Fund's benchmark, returned (0.81)% and the Fund's Lipper peer group of 52 of S&P 500 Index Objective Funds returned an average of (0.96)% for the same period. Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK? A. The Fund slightly underperformed its benchmark due to the investment of Fund cash flows and Fund fees and expenses. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE? A. The S&P 500 rose 1.37% for the second quarter bringing the 2005 return to (0.81)%. After a lackluster first quarter but a slightly sunnier spring, the U.S. equity markets consolidated in June. Crude oil futures topped the $60 mark for the first time, and investors hoping for an indication that the U.S. Federal Reserve would end its steady rate-hiking campaign were disappointed. Still, bonds remained resilient, keeping equities attractive on a relative basis. Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND IMPACTED PERFORMANCE? A. We are utilizing a full replication strategy to manage the Fund. With this strategy, all 500 constituents of the S&P 500 Index are owned by the Fund in the approximate capitalization weight of the Index. Cash is generally held to less than 5% of the total portfolio value, and is equitized using S&P 500 Index futures contracts. This methodology has provided consistent tracking. Q. WHICH STOCKS/SECTORS HAVE YOU LIKED? A. By utilizing a passive, full replication investment style, the fund owns the same stocks and sectors in approximately the same weights as the S&P 500 Index. As of June 30th, 2005, the four largest sectors in the S&P 500 Index were Financials (20.3%), Information Technology (15.1%), Healthcare (13.4%) and Consumer Discretionary (11.4%). Q. DID THE WEIGHTINGS/COUNTRY ALLOCATION OF THE FUND CHANGE? A. By utilizing a passive, full replication investment style, the Fund owns the same stocks and sectors in approximately the same weights as the S&P 500 Index. Q. WHICH STOCKS/SECTORS HAVE PERFORMED WELL? WHICH HAVE NOT PERFORMED WELL? A. The top five returning stocks for the last six months were Valero Energy (+74%), EOG Resources (+59%), LSI Logic (+54%), Unocal Corp (+51%) and KB Home (+46%). The bottom five returning stocks for the first half of 2005 were JDS Uniphase (-52%), Avaya Inc (-51%), Delta Airlines (-49%), Biogen Idec (-48%), and Delphi Corp (-47%). The highest returning sectors for the last six months were Energy (+23%) and Utilities (+15%). The lowest returning sectors were Materials (-7%) and Consumer Discretionary (-6%). Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE QUARTER AND WHY? A. For the 2nd quarter of 2005, there were no additions or deletions within the S&P 500 Index. 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 June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 990.13 1.99 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,022.51 2.04 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.41% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS (0.99)%. 3 S&P 500 Index Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] S&P 500 Index Fund S&P 500 Index 06/01/95 10,000 10,000 12/01/95 11,396 11,439 12/01/96 14,189 14,084 12/01/97 18,492 18,772 12/01/98 23,715 24,159 12/01/99 28,603 29,249 12/01/00 25,907 26,563 12/01/01 22,729 23,399 12/01/02 17,645 18,227 12/01/03 22,634 23,463 12/01/04 25,002 26,017 06/01/05 24,755 25,806 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- SIX ONE FIVE TEN MONTHS YEAR YEAR YEAR - -------------------------------------------------------------------------------- S&P 500 Index Fund -0.99% 5.96% -2.73% 9.49% - -------------------------------------------------------------------------------- S&P 500 Index -0.81% 6.33% -2.38% 9.94% - -------------------------------------------------------------------------------- Lipper peer group average* -0.96% 5.95% -2.70% 9.60% - -------------------------------------------------------------------------------- Inception date 4/15/85 - -------------------------------------------------------------------------------- S&P 500 Index Fund (ending value $24,755) S&P 500 Index (ending value $25,806) INVESTMENT PROFILE A fund designed for investors who seek growth of capital and accumulation of income that corresponds to the investment return of the Standard & Poor's 500 Composite Stock Index by investing at least 80% of its net assets in equity securities of companies contained in that Index. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- General Electric Co. 3.33% - -------------------------------------------------------------------------------- Exxon Mobil Corp. 3.31% - -------------------------------------------------------------------------------- Microsoft Corp. 2.26% - -------------------------------------------------------------------------------- Citigroup Inc. 2.18% - -------------------------------------------------------------------------------- Pfizer Inc. 1.86% - -------------------------------------------------------------------------------- Johnson & Johnson 1.75% - -------------------------------------------------------------------------------- Bank of America Corp. 1.66% - -------------------------------------------------------------------------------- Wal-Mart Stores, Inc. 1.46% - -------------------------------------------------------------------------------- Intel Corp. 1.46% - -------------------------------------------------------------------------------- American International Group, Inc. 1.37% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $550,803 (in thousands) [Pie chart omitted -- plot points are as follows:] Financials 20.1% Information Technology 14.9% Healthcare 13.2% Consumer Discretionary 11.3% Industrials 11.1% Consumer Staples 10.0% Energy 8.7% Utilities 3.4% Telecommunication Services 3.1% Materials 2.9% Short-Term 1.3% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE S&P 500 INDEX OBJECTIVE PEER GROUP CONSISTING OF 52, 50, 39, AND 16 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 11 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 S&P 500 INDEX FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- S&P 500 INDEX FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 98.4% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 11.2% Apollo Group, Inc. (Class A) 8,100 $ 633,582(a) Autonation, Inc. 10,800 221,616(a) Autozone, Inc. 3,144 290,694(a) Bed Bath & Beyond Inc. 15,000 626,700(a) Best Buy Co., Inc. 14,900 1,021,395 Big Lots, Inc. 6,600 87,384(a) Black & Decker Corp. 4,007 360,029 Brunswick Corp. 5,068 219,546 Carnival Corp. 26,600 1,451,030 Centex Corp. 6,520 460,768 Circuit City Stores, Inc. 9,926 171,621 Clear Channel Communications, Inc. 25,100 776,343 Coach, Inc. 19,400 651,258(a) Comcast Corp. (Class A) 109,639 3,365,917(a) Cooper Tire & Rubber Co. 2,923 54,280 D.R. Horton, Inc. 1,000 37,724 Dana Corp. 8,441 126,699 Darden Restaurants, Inc. 7,129 235,114 Delphi Corp. 30,258 140,700 Dillard's Inc. (Class A) 3,695 86,537 Dollar General Corp. 14,791 301,145 Dow Jones & Company, Inc. 3,242 114,929 Eastman Kodak Co. 14,275 383,284 eBay Inc. 60,700 2,003,707(a) Family Dollar Stores, Inc. 8,600 224,460 Federated Department Stores 8,404 615,845 Ford Motor Co. 91,099 932,854 Fortune Brands, Inc. 7,241 643,001 Gannett Co., Inc. 12,408 882,581 General Motors Corp. 28,347 963,798 Genuine Parts Co. 8,696 357,319 Goodyear Tire & Rubber Co. 9,419 140,343(a) H&R Block, Inc. 8,004 467,033 Harley-Davidson, Inc. 14,000 694,400 Harrah's Entertainment, Inc. 8,935 643,945 Hasbro, Inc. 7,896 164,158 Hilton Hotels Corp. 19,888 474,329 International Game Technology 17,600 495,440 Interpublic Group of Companies, Inc. 22,230 270,761(a) J.C. Penney Company, Inc. 12,887 677,598 Johnson Controls, Inc. 9,482 534,121 Jones Apparel Group, Inc. 6,000 186,240 KB Home 3,960 301,871 Knight-Ridder, Inc. 3,800 233,092 Kohl's Corp. 16,400 916,924(a) Leggett & Platt Incorporated 9,300 247,194 Limited Brands 19,688 421,717 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Liz Claiborne Inc. 5,130 $ 203,969 Lowe's Companies, Inc. 38,428 2,237,278 Marriott International Inc. (Class A) 10,122 690,523 Mattel, Inc. 19,851 363,273 May Department Stores Co. 14,484 581,677 Maytag Corp. 4,395 68,826 McDonald's Corp. 63,734 1,768,618 McGraw-Hill Companies Inc. 18,940 838,095 Meredith Corp. 1,998 98,022 New York Times Co. (Class A) 7,088 220,791 Newell Rubbermaid Inc. 13,756 327,943 News Corp. (Class A) 145,100 2,347,718 Nike, Inc. (Class B) 11,504 996,246 Nordstrom, Inc. 5,992 407,276 Office Depot, Inc. 16,100 367,724(a) OfficeMax, Inc. 3,023 89,995 Omnicom Group 9,200 734,712 Pulte Homes, Inc. 5,844 492,357 RadioShack Corp. 8,456 195,926 Reebok International Ltd. 2,730 114,196 Sears Holdings Corp. 4,819 722,224(a) Sherwin-Williams Co. 6,163 290,216 Snap-On Incorporated 3,309 113,499 Stanley Works 3,526 160,574 Staples, Inc. 36,850 785,642 Starbucks Corp. 19,300 997,038(a) Starwood Hotels & Resorts Worldwide Inc. (Class B) 10,400 609,128 Target Corp. 43,952 2,391,428 The Gap, Inc. 38,218 754,805 The Home Depot, Inc. 106,818 4,155,220 The Walt Disney Co. 102,237 2,574,328 Tiffany & Co. 7,200 235,872 Time Warner Inc. 233,014 3,893,664(a,d) TJX Companies, Inc. 22,980 559,563 Toys R Us, Inc. 10,835 286,911(a) Tribune Co. 14,518 510,743 Univision Communications Inc. (Class A) 15,000 413,250(a) VF Corp. 4,902 280,492 Viacom Inc. (Class B) 83,127 2,661,727 Visteon Corp. 7,486 45,141 Wendy's International, Inc. 5,731 273,082 Whirlpool Corp. 3,409 239,005 Yum! Brands, Inc. 14,722 766,722 62,176,465 CONSUMER STAPLES -- 10.0% Alberto-Culver Co. 4,099 177,610 Albertson's, Inc. 17,961 371,433(d) Altria Group, Inc. 103,179 6,671,554 Anheuser-Busch Companies, Inc. 38,908 1,780,041(d) Archer-Daniels-Midland Co. 31,486 673,171 Avon Products, Inc. 23,428 886,750 Brown-Forman Corp. (Class B) 4,658 281,623 Campbell Soup Co. 15,876 488,505 Clorox Co. 7,584 422,580 See Notes to Schedule of Investments on page 11 and Notes to Financial Statements. 5 S&P 500 INDEX FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Coca-Cola Enterprises Inc. 18,300 $ 402,783 Colgate-Palmolive Co. 26,272 1,311,236 ConAgra Foods, Inc. 25,868 599,103 Constellation Brands, Inc. (Class A) 800 23,774(a) Costco Wholesale Corp. 23,566 1,056,228 CVS Corp. 40,312 1,171,870 General Mills, Inc. 18,422 861,965 Gillette Co. 49,466 2,504,464 Hershey Foods Corp. 10,884 675,896 HJ Heinz Co. 17,897 633,912 Kellogg Co. 17,590 781,700 Kimberly-Clark Corp. 23,836 1,491,895 Kroger Co. 37,330 710,390(a) McCormick & Company, Inc. 7,200 235,296 Molson Coors Brewing Co. (Class B) 3,865 239,630 Pepsi Bottling Group, Inc. 10,300 294,683 PepsiCo, Inc. 83,574 4,507,146 Procter & Gamble Co. 123,276 6,502,809 Reynolds American Inc. 6,000 472,800 Safeway Inc. 22,300 503,757 Sara Lee Corp. 39,557 783,624 SUPERVALU Inc. 6,400 208,704 Sysco Corp. 31,244 1,130,720 The Coca-Cola Co. 113,151 4,724,054(d) UST Inc. 8,079 368,887 Walgreen Co. 51,400 2,363,886 Wal-Mart Stores, Inc. 167,124 8,055,377 WM Wrigley Jr. Co. 9,868 679,313 55,049,169 ENERGY -- 8.7% Amerada Hess Corp. 4,190 446,277(d) Anadarko Petroleum Corp. 11,628 955,240 Apache Corp. 16,548 1,069,001 Ashland Inc. 3,507 252,048(a) Baker Hughes Incorporated 17,050 872,278 BJ Services Co. 8,000 419,840 Burlington Resources Inc. 19,382 1,070,662 ChevronTexaco Corp. 104,832 5,862,205 ConocoPhillips Co. 69,242 3,980,723 Devon Energy Corp. 23,492 1,190,575 El Paso Corp. 32,682 376,497 EOG Resources, Inc. 11,800 670,240 Exxon Mobil Corp. 317,424 18,242,357(d) Halliburton Co. 25,460 1,217,497 Kerr-McGee Corp. 5,648 430,999 Kinder Morgan, Inc. 5,300 440,960 Marathon Oil Corp. 17,092 912,200 Nabors Industries Ltd. 7,100 430,402(a) National Oilwell Varco Inc. 8,500 404,090(a) Noble Corp. 6,600 405,966 Occidental Petroleum Corp. 19,810 1,523,983 Rowan Companies, Inc. 5,177 153,809 Schlumberger Ltd. 29,354 2,229,143 Sunoco, Inc. 3,488 396,516 The Williams Companies, Inc. 27,886 529,834 Transocean Inc. 16,266 877,876(a) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Unocal Corp. 13,538 $ 880,647 Valero Energy Corp. 13,000 1,028,430 XTO Energy Inc. 17,433 592,548 47,862,843 FINANCIALS -- 20.0% ACE Ltd. 14,200 636,870 AFLAC Incorporated 25,000 1,082,000 Allstate Corp. 33,176 1,982,266(d) AMBAC Financial Group, Inc. 5,300 369,728 American Express Co. 58,222 3,099,157(d) American International Group, Inc. 129,609 7,530,283(d) AmSouth Bancorp 17,750 461,500 Aon Corp. 15,936 399,037 Apartment Investment & Management Co. (Class A) (REIT) 5,100 208,692 Archstone-Smith Trust (REIT) 10,300 397,786 Bank of America Corp. 200,984 9,166,880 BB&T Corp. 27,700 1,107,169 Capital One Financial Corp. 12,400 992,124 Charles Schwab Corp. 57,711 650,980 Chubb Corp. 9,597 821,599 Cincinnati Financial Corp. 8,292 328,032 CIT Group Inc. 10,600 455,482 Citigroup Inc. 259,276 11,986,329(d) Comerica Incorporated 8,456 488,757 Compass Bancshares, Inc. 6,400 288,000 Countrywide Financial Corp. 29,398 1,135,057 E*TRADE FINANCIAL Corp. 19,700 275,603(a) Equity Office Properties Trust (REIT) 20,4006 75,240 Equity Residential (REIT) 14,200 522,844 Federal Home Loan Mortgage Corp. 34,665 2,261,198 Federal National Mortgage Association 48,176 2,813,478 Federated Investors Inc. (Class B) 4,4001 32,044 Fifth Third Bancorp 26,116 1,076,240 First Horizon National Corp. 6,400 270,080 Franklin Resources, Inc. 9,900 762,102 Golden West Financial Corp. 14,130 909,689 Goldman Sachs Group, Inc. 22,000 2,244,440 Huntington Bancshares Incorporated 11,234 271,189 Janus Capital Group Inc. 12,100 181,984 Jefferson-Pilot Corp. 7,023 354,100 JPMorgan Chase & Co. 175,776 6,208,408(d) Keycorp 20,628 683,818 Lehman Brothers Holdings Inc. 13,900 1,379,992 Lincoln National Corp. 8,812 413,459 Loews Corp. 7,832 606,980 M&T Bank Corp. 4,800 504,768 Marsh & McLennan Companies, Inc. 26,208 725,962 Marshall & Ilsley Corp. 10,700 475,615 MBIA Inc. 7,035 417,246 MBNA Corp. 63,761 1,667,988 Mellon Financial Corp. 20,928 600,424 See Notes to Schedule of Investments on page 11 and Notes to Financial Statements. 6 S&P 500 INDEX FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Merrill Lynch & Co., Inc. 47,434 $ 2,609,344 Metlife, Inc. 36,500 1,640,310 MGIC Investment Corp. 4,859 316,904 Moody's Corp. 13,684 615,233 Morgan Stanley 54,596 2,864,652 National City Corp. 29,964 1,022,372 North Fork Bancorporation, Inc. 23,500 660,115 Northern Trust Corp. 10,500 478,695 Plum Creek Timber Co. Inc. (REIT) 9,100 330,330 Principal Financial Group 14,400 603,360 Progressive Corp. 10,000 988,100 Prologis (REIT) 8,900 358,136 Providian Financial Corp. 13,994 246,714(a) Prudential Financial, Inc. 26,100 1,713,726 Regions Financial Corp. 23,482 795,570 Safeco Corp. 6,481 352,178 Simon Property Group, Inc. (REIT) 11,200 811,888 SLM Corp. 20,700 1,051,560 Sovereign Bancorp, Inc. 18,400 411,056 State Street Corp. 16,500 796,125(c) SunTrust Banks, Inc. 17,129 1,237,399 Synovus Financial Corp. 15,450 442,951 T Rowe Price Group, Inc. 6,100 381,860 The Bank of New York Company, Inc. 39,210 1,128,464(d) The Bear Stearns Companies Inc. 5,569 578,842 The Hartford Financial Services Group, Inc. 14,904 1,114,521 The PNC Financial Services Group, Inc. 14,108 768,322 The St. Paul Travelers Companies, Inc. 33,699 1,332,121 Torchmark Corp. 5,300 276,660 UnumProvident Corp. 14,089 258,110 US Bancorp 91,299 2,665,931 Wachovia Corp. 78,411 3,889,186 Washington Mutual, Inc. 43,877 1,785,355 Wells Fargo & Co. 84,018 5,173,828 XL Capital Ltd. 7,000 520,940 Zions Bancorp 4,600 338,238 110,581,715 HEALTHCARE -- 13.2% Abbott Laboratories 77,396 3,793,178(d) Aetna Inc. 14,404 1,192,939 Allergan, Inc. 6,552 558,492 AmerisourceBergen Corp. 5,271 364,490 Amgen Inc. 61,548 3,721,192(a,d) Applera Corp. - Applied Biosystems Group 9,500 186,865 Bausch & Lomb Inc. 2,628 218,124 Baxter International Inc. 30,648 1,137,041 Becton Dickinson & Co. 12,670 664,795 Biogen Idec Inc. 17,000 585,650(a) Biomet, Inc. 12,615 436,984 Boston Scientific Corp. 36,976 998,352(a) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 97,508 $ 2,435,750(d) C.R. Bard, Inc. 5,202 345,985 Cardinal Health, Inc. 21,501 1,238,028 Caremark Rx, Inc. 23,070 1,027,076(a) Chiron Corp. 7,700 268,653(a) Cigna Corp. 6,563 702,438 Eli Lilly & Co. 56,816 3,165,219 Express Scripts, Inc. 7,400 369,852(a) Fisher Scientific International 5,900 382,910(a) Forest Laboratories, Inc. 16,700 648,795(a) Genzyme Corp. 12,400 745,116(a) Gilead Sciences, Inc. 21,600 950,184(a) Guidant Corp. 16,224 1,091,875 HCA Inc. 20,800 1,178,736 Health Management Associates Inc. (Class A) 12,000 314,160 Hospira, Inc. 7,539 294,021(a) Humana Inc. 8,427 334,889(a) IMS Health Inc. 11,357 281,313 Johnson & Johnson 148,193 9,632,545 King Pharmaceuticals, Inc. 11,933 124,342(a) Laboratory Corp. of America Holdings 6,800 339,320(a) Manor Care, Inc. 4,237 168,336 McKesson Corp. 14,861 665,624 Medco Health Solutions, Inc. 13,783 735,461(a) Medimmune, Inc. 12,400 331,328(a) Medtronic Inc. 60,132 3,114,236 Merck & Co., Inc. 110,450 3,401,860 Millipore Corp. 2,745 155,724(a) Mylan Laboratories 13,300 255,892 PerkinElmer, Inc. 6,810 128,709 Pfizer Inc. 371,677 10,250,852 Quest Diagnostics 9,400 500,738 Schering-Plough Corp. 74,358 1,417,263(d) St. Jude Medical, Inc. 18,092 788,992(a) Stryker Corp. 18,800 894,128 Tenet Healthcare Corp. 23,295 285,131(a) Thermo Electron Corp. 7,828 210,338(a) UnitedHealth Group Incorporated 63,176 3,293,997 Waters Corp. 6,300 234,171(a) Watson Pharmaceuticals, Inc. 5,800 171,448(a) WellPoint, Inc. 30,500 2,124,020(a) Wyeth 66,754 2,970,553(d) Zimmer Holdings, Inc. 12,500 952,125(a) 72,780,235 INDUSTRIALS -- 11.0% Allied Waste Industries, Inc. 13,100 103,883(a) American Power Conversion Corp. 9,300 219,387 American Standard Companies Inc. 9,300 389,856 Avery Dennison Corp. 5,055 267,713 Boeing Co. 41,016 2,707,056(d) Burlington Northern Santa Fe Corp. 18,849 887,411 See Notes to Schedule of Investments on page 11 and Notes to Financial Statements. 7 S&P 500 INDEX FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Caterpillar Inc. 17,116 $ 1,631,326 Cendant Corp. 53,046 1,186,639(d) Cintas Corp. 7,700 297,220 Cooper Industries Ltd. 4,571 292,087 CSX Corp. 10,638 453,817 Cummins Inc. 2,289 170,782 Danaher Corp. 13,800 722,292 Deere & Co. 12,520 819,935 Delta Air Lines, Inc. 7,282 27,380(a) Dover Corp. 10,158 369,548 Eaton Corp. 7,600 455,240 Emerson Electric Co. 20,774 1,301,076 Equifax Inc. 6,600 235,686 FedEx Corp. 15,260 1,236,213 Fluor Corp. 4,352 250,632 General Dynamics Corp. 10,082 1,104,382 General Electric Co. 528,795 18,322,747(f) Goodrich Corp. 5,701 233,513 Honeywell International Inc. 42,216 1,546,372 Illinois Tool Works Inc. 13,497 1,075,441 Ingersoll-Rand Co. (Class A) 8,199 584,999 ITT Industries, Inc. 4,763 465,012 L-3 Communications Holdings, Inc. 5,600 428,848 Lockheed Martin Corp. 20,252 1,313,747 Masco Corp. 21,390 679,346 Monster Worldwide, Inc. 6,400 183,552(a) Navistar International Corp. 3,595 115,040(a) Norfolk Southern Corp. 20,001 619,231 Northrop Grumman Corp. 18,222 1,006,765 PACCAR Inc. 8,710 592,280 Pall Corp. 5,878 178,456 Parker Hannifin Corp. 6,215 385,392 Pitney Bowes Inc. 11,232 489,154 Raytheon Co. 23,024 900,699 Robert Half International Inc. 8,400 209,748 Rockwell Automation, Inc. 8,768 427,089 Rockwell Collins, Inc. 8,868 422,826 RR Donnelley & Sons Co. 10,552 364,150 Ryder System, Inc. 3,531 129,235 Southwest Airlines Co. 36,849 513,307 Textron Inc. 6,868 520,938 3M Co. 38,580 2,789,334 Tyco International Ltd. 100,539 2,935,739 Union Pacific Corp. 13,054 845,899 United Parcel Service Inc. (Class B) 55,400 3,831,464 United Technologies Corp. 51,172 2,627,682 W.W. Grainger, Inc. 4,082 223,653 Waste Management, Inc. 28,812 816,532 60,907,751 INFORMATION TECHNOLOGY -- 14.9% ADC Telecommunications, Inc. 6,157 134,038(a) Adobe Systems Incorporated 24,184 692,146(d) Advanced Micro Devices, Inc. 18,274 316,871(a,d) Affiliated Computer Services Inc. (Class A) 6,100 311,710(a) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Agilent Technologies, Inc. 21,107 $ 485,883(a) Altera Corp. 18,000 356,760(a) Analog Devices, Inc. 18,100 675,311 Andrew Corp. 8,656 110,451(a) Apple Computer, Inc. 40,540 1,492,277(a) Applied Materials, Inc. 81,600 1,320,288(d) Applied Micro Circuits Corp. 18,100 46,336(a) Autodesk, Inc. 11,248 386,594 Automatic Data Processing, Inc. 29,118 1,222,082 Avaya Inc. 23,301 193,864(a) BMC Software, Inc. 10,900 195,655(a) Broadcom Corp. (Class A) 14,200 504,242(a) Ciena Corp. 31,000 64,790(a) Cisco Systems, Inc. 319,204 6,099,988(a,d) Citrix Systems, Inc. 8,400 181,944(a) Computer Associates International, Inc. 26,581 730,446 Computer Sciences Corp. 9,382 409,993(a) Compuware Corp. 21,300 153,147(a) Comverse Technology, Inc. 9,500 224,675(a) Convergys Corp. 7,900 112,338(a) Corning Incorporated 71,339 1,185,654(a) Dell Inc. 120,448 4,758,900(a,d) Electronic Arts Inc. 15,400 871,794(a) Electronic Data Systems Corp. 26,200 504,350 EMC Corp. 119,414 1,637,166(a) First Data Corp. 38,660 1,551,812 Fiserv, Inc. 9,650 414,468(a) Freescale Semiconductor Inc. (Class B) 19,219 407,058(a) Gateway, Inc. 19,200 63,360(a) Hewlett-Packard Co. 143,465 3,372,862 Intel Corp. 308,408 8,037,112 International Business Machines Corp. 80,530 5,975,326 Intuit Inc. 9,100 410,501(a) Jabil Circuit, Inc. 9,000 276,570(a) JDS Uniphase Corp. 77,300 117,496(a) KLA-Tencor Corp. 9,700 423,890 Lexmark International Inc. (Class A) 6,500 421,395(a) Linear Technology Corp. 15,300 561,357 LSI Logic Corp. 18,592 157,846(a) Lucent Technologies Inc. 226,118 658,003(a,d) Maxim Integrated Products, Inc. 16,400 626,644 Mercury Interactive Corp. 4,500 172,620(a) Micron Technology, Inc. 31,554 322,166(a) Microsoft Corp. 500,812 12,440,170(d) Molex, Inc. 8,050 209,622 Motorola, Inc. 122,850 2,243,241 National Semiconductor Corp. 17,566 386,979 NCR Corp. 9,400 330,128(a) Network Appliance, Inc. 18,600 525,822(a) Novell, Inc. 20,466 126,889(a) Novellus Systems, Inc. 7,500 185,325(a) Nvidia Corp. 7,900 211,088(a) Oracle Corp. 220,332 2,908,382(a) See Notes to Schedule of Investments on page 11 and Notes to Financial Statements. 8 S&P 500 INDEX FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Parametric Technology Corp. 14,906 $ 95,100(a) Paychex, Inc. 17,825 580,026 PMC - Sierra, Inc. 9,900 92,367(a) QLogic Corp. 4,400 135,828(a) QUALCOMM, Inc. 81,100 2,677,111 Sabre Holdings Corp. (Class A) 6,908 137,815 Sanmina-SCI Corp. 28,600 156,442(a) Scientific-Atlanta, Inc. 7,406 246,398 Siebel Systems, Inc. 25,900 230,510 Solectron Corp. 45,200 171,308(a) Sun Microsystems, Inc. 165,760 618,285(a) Sungard Data Systems Inc. 14,100 495,897(a) Symantec Corp. 35,700 776,118(a) Symbol Technologies, Inc. 13,050 128,804 Tektronix, Inc. 4,676 108,811 Tellabs, Inc. 22,252 193,592(a) Teradyne, Inc. 9,500 113,715(a) Texas Instruments Incorporated 83,436 2,342,049 Unisys Corp. 17,809 112,731(a) Veritas Software Corp. 21,300 519,720(a) Xerox Corp. 47,590 656,266(a) Xilinx, Inc. 17,300 441,150 Yahoo! Inc. 65,600 2,273,040(a) 82,220,908 MATERIALS -- 2.9% Air Products & Chemicals, Inc. 11,532 695,380(d) Alcoa Inc. 44,040 1,150,765(d) Allegheny Technologies Incorporated 5,151 113,631 Ball Corp. 5,716 205,547 Bemis Co. 5,062 134,345 Dow Chemical Co. 47,794 2,128,267 E.I. du Pont de Nemours and Co. 49,413 2,125,253 Eastman Chemical Co. 4,159 229,369 Ecolab Inc. 11,352 367,351 Engelhard Corp. 5,946 169,758 Freeport-McMoRan Copper & Gold Inc. (Class B) 9,284 347,593 Georgia-Pacific Corp. 12,743 405,227 Great Lakes Chemical Corp. 2,797 88,022 Hercules Incorporated 6,128 86,711(a) International Flavors & Fragrances Inc. 4,747 171,936 International Paper Co. 24,175 730,327 Louisiana-Pacific Corp. 5,622 138,189 MeadWestvaco Corp. 7,900 221,516 Monsanto Co. 13,258 833,530 Newmont Mining Corp. 22,328 871,462 Nucor Corp. 7,918 361,219 Pactiv Corp. 8,048 173,676(a) Phelps Dodge Corp. 4,710 435,675 PPG Industries, Inc. 8,637 542,058 Praxair, Inc. 16,470 767,502 Rohm & Haas Co. 9,514 440,879 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Sealed Air Corp. 4,157 $ 206,977(a) Sigma-Aldrich Corp. 3,691 206,844 Temple-Inland Inc. 6,052 224,832 United States Steel Corp. 5,765 198,143 Vulcan Materials Co. 5,000 324,950 Weyerhaeuser Co. 12,160 773,984 15,870,918 TELECOMMUNICATION SERVICES -- 3.1% Alltel Corp. 16,394 1,021,018 AT&T Corp. 40,039 762,343 BellSouth Corp. 90,898 2,415,160(d) CenturyTel, Inc. 6,450 223,364 Citizens Communications Co. 17,800 239,232 Nextel Communications Inc. (Class A) 56,100 1,812,591(a) Qwest Communications International 82,048 304,398(a) SBC Communications Inc. 165,269 3,925,139 Sprint Corp. 73,915 1,854,527 Verizon Communications Inc. 138,286 4,777,781 17,335,553 UTILITIES -- 3.4% AES Corp. 32,600 533,988(a) Allegheny Energy, Inc. 7,300 184,106(a) Ameren Corp. 9,642 533,203 American Electric Power Company, Inc. 19,125 705,139(d) Calpine Corp. 24,100 81,940(a) CenterPoint Energy, Inc. 13,818 182,536 Cinergy Corp. 9,053 405,755 CMS Energy Corp. 7,700 115,962(a) Consolidated Edison, Inc. 12,107 567,092 Constellation Energy Group Inc. 9,103 525,152 Dominion Resources, Inc. 17,218 1,263,629 DTE Energy Co. 8,466 395,955 Duke Energy Corp. 46,032 1,368,531 Dynegy Inc. (Class A) 15,500 75,330(a) Edison International 16,242 658,613 Entergy Corp. 10,747 811,936 Exelon Corp. 33,026 1,695,225 FirstEnergy Corp. 16,420 789,966 FPL Group, Inc. 19,662 826,984 KeySpan Corp. 7,900 321,530 Nicor Inc. 2,043 84,110 NiSource Inc. 13,015 321,861 Peoples Energy Corp. 1,921 83,487 PG&E Corp. 18,354 689,009 Pinnacle West Capital Corp. 4,700 208,915 PPL Corp. 9,622 571,354 Progress Energy, Inc. 12,356 558,985 Public Service Enterprise Group Incorporated 11,959 727,346 See Notes to Schedule of Investments on page 11 and Notes to Financial Statements. 9 S&P 500 INDEX FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Sempra Energy 12,275 $ 507,080 Southern Co. 37,058 1,284,801 TECO Energy, Inc. 10,200 192,882 TXU Corp. 11,886 987,608 Xcel Energy Inc. 20,180 393,914 18,653,924 TOTAL INVESTMENTS IN SECURITIES (COST $568,330,640) 543,439,481 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.3% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.0% GEI Short Term Investment Fund 3.20% 5,871,077 5,871,077(b,e) Money Market Obligations Trust 3.08% 409 410 5,871,487 PRINCIPAL AMOUNT - ------------------------------------------- U.S. GOVERNMENT -- 0.3% U. S. Treasury Bill 2.93% 09/08/05 $1,500,000 1,491,576 TOTAL SHORT-TERM INVESTMENTS (COST $7,363,063) 7,363,063 TOTAL INVESTMENTS (COST $575,693,703) 550,802,544 OTHER ASSETS AND LIABILITIES, NET -- 0.3% 1,584,077 ------------ NET ASSETS -- 100.0% $552,386,621 ============ - -------------------------------------------------------------------------------- OTHER INFORMATION - -------------------------------------------------------------------------------- The GEI S&P 500 Index had the following Long futures contracts open at June 30, 2005: NUMBER CURRENT EXPIRATION OF NOTIONAL UNREALIZED DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION - -------------------------------------------------------------------------------- S&P Mini 500 Index Futures September 2005 158 $9,444,450 $(83,819) See Notes to Schedule of Investments on page 11 and Notes to Financial Statements. 10 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise the index. The S&P 500 is a market capitalization-weighted index of stocks of 500 large U.S. companies, which is widely used as a measure of large-cap stock market performance. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. The S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation or warranty, express or implied, to the investors of the Fund or any member of the public regarding the advisability of investing in the securities generally or in this Fund particularly or the ability of the S&P 500 Index Fund to track general stock market performance. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Coupon amount represents effective yield. (c) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (d) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures, options, forward foreign currency contracts and/or TBA's. (e) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. (f) General Electric Co. is the parent company of GE Asset Management Incorporated, the Fund's investment adviser. + Percentages are based on net assets as of June 30, 2005. Abbreviations: REIT Real Estate Investment Trust 11
Financial Highlights Selected data based on a share outstanding throughout the periods indicated - ------------------------------------------------------------------------------------------------------------------------------------ S&P 500 INDEX FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE -- -- -- -- -- 4/15/85 Net asset value, beginning of period .............. $22.30 $20.51 $16.18 $21.19 $24.71 $28.10 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income .......................... 0.16 0.36 0.24 0.24 0.22 0.22 Net realized and unrealized gains/(losses) on investments ............... (0.38) 1.79 4.33 (4.98) (3.25) (2.90) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS .... (0.22) 2.15 4.57 (4.74) (3.03) (2.68) - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income .......................... -- 0.36 0.24 0.24 0.22 0.22 Net realized gains ............................. -- -- -- 0.03 0.27 0.49 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ............................... -- 0.36 0.24 0.27 0.49 0.71 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD .................... $22.08 $22.30 $20.51 $16.18 $21.19 $24.71 ==================================================================================================================================== TOTAL RETURN (A) .................................. (0.99)% 10.46% 28.27% (22.37)% (12.27)% (9.43)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ....... $552,387 $601,008 $597,185 $449,173 $650,169 $723,442 Ratios to average net assets: Net investment income* ...................... 1.43% 1.62% 1.41% 1.20% 0.99% 0.87% Expenses* ................................... 0.41% 0.40% 0.37% 0.40% 0.39% 0.39% Portfolio turnover rate ........................ 1% 5% 5% 11% 7% 5%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 12
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) S&P 500 INDEX FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at market (cost $547,679,664) ........................................ $525,116,734 Investments in affiliated securities, at market (cost $20,650,976) .............................. 1,322,747 Short-term Investments (at amortized cost) ...................................................... 1,491,986 Short-term affiliated investments (at amortized cost) ........................................... 5,871,077 Receivable for investments sold ................................................................. 1,377,447 Income receivables .............................................................................. 671,763 Receivable for fund shares sold ................................................................. 48,123 - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ................................................................................ 552,899,877 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Payable for investments purchased ............................................................... 61,498 Payable for fund shares redeemed ................................................................ 206,651 Payable to GEAM ................................................................................. 186,647 Variation margin payable ........................................................................ 58,460 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................................................... 513,256 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ......................................................................................... $552,386,621 =========================================================================================================================== NET ASSETS CONSIST OF: Capital paid in ................................................................................. 582,860,366 Undistributed net investment income ............................................................. 4,048,312 Accumulated net realized loss ................................................................... (9,547,079) Net unrealized depreciation on: Investments ................................................................................. (24,891,159) Futures ..................................................................................... (83,819) - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ......................................................................................... $552,386,621 =========================================================================================================================== Shares outstanding ($0.01 par value; unlimites shares authorized) .................................. 25,022,361 Net asset value per share .......................................................................... $22.08
See Notes to Financial Statements. 13
Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) S&P 500 INDEX FUND - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend .......................................................................... $5,084,429 Interest .......................................................................... 19,024 Interest from affliated investments ............................................... 89,089 - --------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME ........................................................................ 5,192,542 - --------------------------------------------------------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees .................................................. 994,517 Custody and accounting expenses ................................................... 23,917 Professional fees ................................................................. 61,154 Transfer agent .................................................................... 86 Trustee's fees .................................................................... 10,174 Registration expenses ............................................................. 35,021 Other expenses .................................................................... 27,386 - --------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES ...................................................................... 1,152,255 - --------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME ............................................................... 4,040,287 =========================================================================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN (LOSS) ON: Investments .................................................................... 2,285,422 Futures ........................................................................ (104,867) DECREASE IN UNREALIZED DEPRECIATION ON: Investments .................................................................... (12,324,478) Futures ........................................................................ (189,728) - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments ................................... (10,333,651) - --------------------------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................ $(6,293,364) ===========================================================================================================================
See Notes to Financial Statements. 14
Statements of Changes in Net Assets S&P 500 INDEX FUND - ------------------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ............................................................ $ 4,040,287 $ 9,448,801 Net realized gain on investments, futures, written options, foreign currency transactions and swaps ......................................... 2,180,555 7,333,434 Net increase (decrease) in unrealized appreciation / (depreciation) on investments, futures, written options, foreign currency translation .......... (12,514,206) 40,789,693 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) from operations ........................................... (6,293,364) 57,571,928 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ............................................................. -- (9,455,276) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ................................................................. -- (9,455,276) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations and distributions ................. (6,293,364) 48,116,652 - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: Proceeds from sale of shares ...................................................... 7,005,130 40,343,468 Value of distributions reinvested ................................................. -- 9,455,217 Cost of shares redeemed ........................................................... (49,333,227) (94,091,872) - ------------------------------------------------------------------------------------------------------------------------------------ Net decrease from share transactions ............................................... (42,328,097) (44,293,187) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCREASE (DECREASE) IN NET ASSETS ........................................... (48,621,461) 3,823,465 NET ASSETS Beginning of period ................................................................. 601,008,082 597,184,617 - ------------------------------------------------------------------------------------------------------------------------------------ End of period ....................................................................... $552,386,621 $601,008,082 ==================================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ..................................... $ 4,048,312 $ 8,025 - ------------------------------------------------------------------------------------------------------------------------------------ CHANGES IN PORTFOLIO SHARES Shares sold ....................................................................... 321,105 1,921,018 Issued for distributions reinvested ............................................... -- 423,621 Shares redeemed ................................................................... (2,254,957) (4,511,931) - ------------------------------------------------------------------------------------------------------------------------------------ Net decrease in fund shares ............................................................ (1,933,852) (2,167,292) ====================================================================================================================================
See Notes to Financial Statements. 15 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the 16 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- repurchase price. In the event the seller defaults and the value of the security declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial institutions determined by GEAM to be creditworthy, subject to certain limitations. The Fund continues to receive the interest and dividends on the loaned securities during the term of the loan. The loans of securities are secured by collateral in the form of cash or other liquid assets, which are segregated and maintained with the custodian in an amount at least equal to 102% of the current market value of the loaned securities. During the term of the loan, the Fund will record any gain or loss in the market value of its loaned securities and of securities in which cash collateral is invested. The Fund will also earn interest, net of any rebate, from securities in which cash collateral is invested. In the event the counterparty (borrower) does not meet its contracted obligation to return the securities, the Fund may be exposed to the risk of loss of reacquiring the loaned securities at prevailing market prices using the proceeds of the sale of the collateral. FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments denominated in foreign currencies are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period. Such fluctuations are included in the net realized or unrealized gain or loss from investments. Net realized gains or losses on foreign currency transactions represent net gains or losses on sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income and withholding taxes accrued and the U.S. dollar amount actually received or paid, and gains or losses between the trade and settlement date on purchases and sales of securities. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases or decreases in unrealized appreciation/depreciation on foreign currency related transactions. 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 their 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 17 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax cost of investments is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Depreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $574,743,367 $93,392,030 $(123,203,930) $(29,811,900)
As of December 31, 2004, the Fund has the capital loss carryover as indicated below. The capital loss carryover is 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 - -------------------------------------------------------------------------------- $5,843,181 12/31/10 857,803 12/31/11 During the year ended December 31, 2004, the Fund utilized approximately $8,102,624 of capital loss carryovers. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Ordinary Long-Term Income Capital Gains Total - -------------------------------------------------------------------------------- $9,455,276 $ -- $9,455,276 18 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS The Fund declares and pays dividends from net investment income annually. The Fund declares and pays net realized capital gains in excess of capital loss carryforwards distributions annually. The character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include (but are not limited to) futures, distributions from Real Estate Investment Trusts (REITS), and losses deferred due to wash sale transactions. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .35%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $4,666 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. The Board, including the independent directors, also at that meeting unanimously approved the sub-advisory agreement between SsgA Funds Management, Inc. and GEAM on behalf of the S&P 500 Index Fund. In considering whether to approve the investment advisory and sub-advisory agreement, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM and the sub-adviser at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement and the related sub-advisory agreement for the S&P 500 Index Fund, the independent directors reviewed the proposed continuance of the agreements with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuances. The independent directors also discussed the proposed continuances in a private session with their independent legal counsel at which no representatives of GEAM or the sub-adviser were present. In reaching their determinations relating to continuance of the agreements with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. 19 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the sub-adviser, and the independent directors concurred that GEAM and the sub-adviser provide high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Funds. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board also recognized GEAM's responsibility for supervising the sub-adviser's services. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Funds benefit from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Funds with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM and, where relevant, representatives of the sub-adviser, discussed in detail their 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were in line with the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors reviewed comparative fee information for the sub-adviser, as well as an analysis of the profitability to the sub-adviser of the sub-advisory agreement, and did not find the sub-advisory fee to be excessive on the basis of this information. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the competitive fees it has charged to the Fund since inception means that GEAM is already sharing the fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those competitive fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM and the sub-adviser in concluding that the contractual advisory and sub-advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The 20 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of each advisory and sub-advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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 investment sub-advisory agreements with GEAM, SSgA Funds Management, Inc. ("SSgA") is the Sub-Adviser to the S&P 500 Index Fund. SSgA is responsible for the day-to-day portfolio management of the assets of the Fund, including the responsibility for making decisions to buy, sell or hold a particular security, under the general supervision of GEAM and the Board. For its services, GEAM pays SSgA monthly sub-advisory fees which are calculated as a percentage of the average daily net assets of the Fund. 5. INVESTMENT TRANSACTIONS PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from sales of investments, other than short-term securities and options, for the period ended June 30, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $7,275,620 $43,538,274 21 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 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) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General Counsel - Marketing and Client Services (formerly Asset Management Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since October 2003. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A 23 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 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 Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 25 [This page intentionally left blank.] GE Investments Funds, Inc. Premier Growth Equity Fund Semi-Annual Report JUNE 30, 2005 [LOGO OMITTED] GE Investments Funds, Inc. Premier Growth Equity Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ........................... 1 NOTES TO PERFORMANCE ................................................. 5 NOTES TO SCHEDULE OF INVESTMENTS ..................................... 5 FINANCIAL STATEMENTS Financial Highlights ............................................ 6 Statement of Assets and Liabilities ............................. 7 Statement of Operations ......................................... 8 Statements of Changes in Net Assets ............................. 9 Notes to Financial Statements ................................... 10 ADDITIONAL INFORMATION ............................................... 16 INVESTMENT TEAM ...................................................... 19 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Premier Growth Equity Fund Q&A - -------------------------------------------------------------------------------- DAVID B. CARLSON IS A DIRECTOR AND EXECUTIVE VICE PRESIDENT OF GE ASSET MANAGEMENT. HE MANAGES THE OVERALL U.S. EQUITY INVESTMENTS FOR GE ASSET MANAGEMENT. MR. CARLSON IS PORTFOLIO MANAGER FOR THE PREMIER GROWTH EQUITY FUND AND HAS SERVED IN THAT CAPACITY SINCE THE FUND'S COMMENCEMENT. MR. CARLSON JOINED GE ASSET MANAGEMENT IN 1982 AS A SECURITIES ANALYST FOR INVESTMENT OPERATIONS. HE BECAME A VICE PRESIDENT FOR MUTUAL FUND PORTFOLIOS IN 1987, A SENIOR VICE PRESIDENT IN 1989 AND A DIRECTOR AND EXECUTIVE VICE PRESIDENT IN 2003. DAVE IS A GRADUATE OF INDIANA UNIVERSITY WITH A BS IN FINANCE. HE IS A MEMBER OF THE NEW YORK SOCIETY OF SECURITY ANALYSTS AND IS A HOLDER OF A CHARTERED FINANCIAL ANALYST DESIGNATION. Q. HOW DID THE PREMIER GROWTH FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the Premier Growth Fund returned (2.90)%. The S&P 500 Index, the Fund's benchmark, returned (0.81)% and the Fund's Lipper peer group of 172 Large-Cap Growth Funds returned an average of (1.42)% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE? A. Most stock market indexes have been lower this year, despite strong corporate earnings growth. High energy prices have been weighing on the market. With crude oil around $60 a barrel, investors have been worried about the economy slowing. Another sign of investor concern over future economic growth was reflected in the bond market where long-term interest rates have fallen this year, despite further Fed tightening of short rates. Within the stock market, energy stocks remained strong, many cyclical stocks declined, and non-cyclical stocks such as utilities and staples outperformed. Value stocks continued to outperform growth stocks. Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE? A. Energy stocks have been the best performing sector rising nearly 20% in the first half of the year. Utility stocks have been the second best performing sector, rising 15%. As a growth oriented portfolio, Premier Growth has no utility stocks and only one energy stock, Schlumberger, making it difficult to perform inline with the major market averages during this time period. Health Care stocks rose modestly in the period, and United Healthcare was the Fund's best performing Healthcare stock with a rise of 18%. Monsanto rose 13% due to the favorable outlook for genetically modified agricultural seeds. Media stocks have been weak, and holdings such as Comcast, Liberty Media, and Interactive Corp. all declined in the period. Technology stocks were mixed with Intel rising 11%, Intuit up 3%, but Dell and Microsoft both declined about 6%. Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND DURING THE PERIOD? A. Three new positions were added to the portfolio, and four positions were eliminated. We initiated positions in eBay and Qualcomm after they sold off sharply during the period. We also initiated a position in Analog Devices, the leading analog semiconductor company in the world. At the end of the period, the fund had 36 stocks in the portfolio and Technology and Healthcare remained the two largest sectors with weights of 30% and 20%, respectively. We continue the strategy of owning industry-leading companies that the portfolio manager believes have above average long-term growth prospects. [photo omitted] 1 Premier Growth Equity Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 971.05 3.46 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,020.98 3.63 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.72% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS (2.90)%. 2 Premier Growth Equity Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] Premier Growth Equity Fund S&P 500 Index 12/12/97 10,000 10,000 06/01/98 12,193 11,972 12/01/98 14,125 13,087 06/01/99 16,968 14,691 12/01/99 19,247 15,844 06/01/00 19,145 15,772 12/01/00 18,241 14,389 06/01/01 17,172 13,427 12/01/01 16,574 12,675 06/01/02 14,685 11,007 12/01/02 13,091 9,873 06/01/03 14,779 11,036 12/01/03 16,876 12,710 06/01/04 17,032 13,147 12/01/04 18,062 14,093 06/01/05 17,539 13,979 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- SIX ONE FIVE SINCE MONTHS YEAR YEAR INCEPTION - -------------------------------------------------------------------------------- Premier Growth Equity Fund -2.90% 2.98% -1.74% 7.73% - -------------------------------------------------------------------------------- S&P 500 Index -0.81% 6.33% -2.38% 4.52% - -------------------------------------------------------------------------------- Lipper peer group average* -1.42% 4.12% -8.18% N/A - -------------------------------------------------------------------------------- Inception date 12/12/97 - -------------------------------------------------------------------------------- Premier Growth Equity Fund (ending value $17,539) S&P 500 Index (ending value $13,979) INVESTMENT PROFILE A fund designed for investors who seek long-term growth of capital and future income rather than current income by investing at least 80% of its net assets in equity securities under normal market conditions. The Fund invests primarily in a limited number of large- and medium-sized companies that the portfolio manager believes have above-average growth histories and/or growth potential. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Intuit Inc. 4.00% - -------------------------------------------------------------------------------- Schlumberger Ltd. 3.95% - -------------------------------------------------------------------------------- First Data Corp. 3.91% - -------------------------------------------------------------------------------- State Street Corp. 3.58% - -------------------------------------------------------------------------------- Liberty Media Corp. (Series A) 3.54% - -------------------------------------------------------------------------------- Vodafone Group PLC ADR 3.51% - -------------------------------------------------------------------------------- Amgen Inc. 3.47% - -------------------------------------------------------------------------------- Microsoft Corp. 3.28% - -------------------------------------------------------------------------------- Carnival Corp. 3.28% - -------------------------------------------------------------------------------- Johnson & Johnson 3.21% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $141,698 (in thousands) [Pie chart omitted -- plot points are as follows:] Information Technology 27.7% Consumer Discretionary 18.8% Healthcare 18.5% Financials 14.4% Short-Term 8.1% Energy 4.0% Telecommunication Services 3.5% Industrials 3.1% Materials 1.9% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, AND FIVE-YEAR PERIODS INDICATED IN THE LARGE-CAP GROWTH PEER GROUP CONSISTING OF 172, 168, AND 90 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 5 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 3 PREMIER GROWTH EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PREMIER GROWTH EQUITY FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 96.9% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 19.8% Carnival Corp. 85,103 $ 4,642,369 Comcast Corp. (Class A) (Special) 136,166 4,078,172(a) eBay Inc. 72,622 2,397,252(a) IAC/InterActiveCorp 98,342 2,365,125(a,e) Liberty Global Inc. (Series A) 81,321 3,795,251(a) Liberty Media Corp. (Series A) 491,709 5,010,515(a,d) The Home Depot, Inc. 109,689 4,266,902 26,555,586 ENERGY -- 4.2% Schlumberger Ltd. 73,756 5,601,031 FINANCIALS -- 15.2% AFLAC Incorporated 98,342 4,256,242(d) American Express Co. 25,720 1,369,076(e) Citigroup Inc. 54,845 2,535,484 Federal National Mortgage Association 45,389 2,650,718 SLM Corp. 88,886 4,515,409 State Street Corp. 105,150 5,073,487(c) 20,400,416 HEALTHCARE -- 19.5% Amgen Inc. 81,321 4,916,668(a) Johnson & Johnson 69,974 4,548,310 Lincare Holdings Inc. 62,409 2,548,783(a) Medtronic Inc. 55,601 2,879,576(e) Pfizer Inc. 141,839 3,911,920 UnitedHealth Group Incorporated 83,212 4,338,674 Zimmer Holdings, Inc. 40,850 3,111,544(a,e) 26,255,475 INDUSTRIALS -- 3.3% Dover Corp. 121,036 4,403,290(d) INFORMATION TECHNOLOGY -- 29.2% Analog Devices, Inc. 40,093 1,495,870 Certegy Inc. 43,497 1,662,455 Cisco Systems, Inc. 170,207 3,252,656(a,d) Dell Inc. 94,559 3,736,026(a) First Data Corp. 138,057 5,541,608 Intel Corp. 62,409 1,626,378 Intuit Inc. 125,575 5,664,688(a) Microsoft Corp. 187,228 4,650,744 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Molex Inc. (Class A) 175,880 $ 4,129,662(e) Paychex, Inc. 117,254 3,815,445 QUALCOMM, Inc. 44,632 1,473,302 Yahoo! Inc. 64,300 2,227,995(a) 39,276,829 MATERIALS -- 2.0% Monsanto Co. 43,497 2,734,656 TELECOMMUNICATION SERVICES -- 3.7% Vodafone Group PLC ADR 204,248 4,967,311(d) TOTAL INVESTMENTS IN SECURITIES (COST $117,595,086) 130,194,594 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 8.6% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.6% GEI Short Term Investment Fund 3.20% 2,148,147 2,148,147(b,f) SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL FROM SECURITIES ON LOAN -- 7.0% State Street Navigator Securities Lending Prime Portfolio 3.31% 9,355,492 9,355,492(b,c) TOTAL SHORT-TERM INVESTMENTS (COST $11,503,639) 11,503,639 TOTAL INVESTMENTS (COST $129,098,725) 141,698,233 LIABILITIES IN EXCESS OF OTHER ASSETS -- (5.5)% (7,269,186) ------------ NET ASSETS -- 100.0% $134,429,047 ============ - -------------------------------------------------------------------------------- OTHER INFORMATION - -------------------------------------------------------------------------------- The GEI Premier Growth Equity had the following short futures contracts open at June 30, 2005: NUMBER CURRENT EXPIRATION OF NOTIONAL UNREALIZED DESCRIPTION DATE CONTRACTS VALUE APPRECIATION - -------------------------------------------------------------------------------- S&P 500 Index Futures September 2005 1 $(300,925) $2,046 See Notes to Schedule of Investments on page 5 and Notes to Financial Statements. 4 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. In addition, GE Asset Management waived certain fees for the Money Market Fund prior to fiscal 2002. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise the index. The S&P 500 is a market capitalization-weighted index of stocks of 500 large U.S. companies, which is widely used as a measure of large-cap stock market performance. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Coupon amount represents effective yield. (c) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (d) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures, options, forward foreign currency contracts and/or TBA's. (e) All or a portion of the security is out on loan. (f) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. + Percentages are based on net assets as of June 30, 2005. Abbreviations: ADR American Depositary Receipt 5
Financial Highlights Selected data based on a share outstanding throughout the periods indicated - ------------------------------------------------------------------------------------------------------------------------------------ PREMIER GROWTH EQUITY FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE -- -- -- -- -- 12/12/97 Net asset value, beginning of period ............ $74.95 $70.46 $54.74 $69.34 $78.68 $88.65 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ........................ 0.11 0.47 0.11 0.03 0.06 0.10 Net realized and unrealized gains/(losses) on investments ............. (2.28) 4.48 15.72 (14.60) (7.24) (5.03) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS .. (2.17) 4.95 15.83 (14.57) (7.18) (4.93) - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income ........................ -- 0.46 0.11 0.03 0.07 0.10 Net realized gains ........................... -- -- -- -- 2.09 4.94 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ............................. -- 0.46 0.11 0.03 2.16 5.04 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD .................. $72.78 $74.95 $70.46 $54.74 $69.34 $78.68 ==================================================================================================================================== TOTAL RETURN (A) ................................ (2.90)% 7.03% 28.91% (21.02)% (9.14)% (5.23)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ..... $134,429 $137,801 $143,202 $87,569 $104,185 $90,704 Ratios to average net assets: Net investment income* .................... 0.31% 0.62% 0.20% 0.05% 0.10% 0.15% Net expenses* ............................. 0.72% 0.71% 0.70% 0.67% 0.67% 0.67% Gross Expenses* ........................... 0.72% 0.71% 0.70% 0.67% 0.67% 0.68% Portfolio turnover rate ...................... 17% 22% 24% 25% 21% 21%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 6
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) PREMIER GROWTH EQUITY FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at market* (cost $117,595,086) ...................................... $130,194,594 Short-term Investments (at amortized cost) ..................................................... 9,355,492 Short-term affiliated investments (at amortized cost) .......................................... 2,148,147 Receivable for investments sold ................................................................ 2,741,230 Income receivables ............................................................................. 153,421 Receivable for fund shares sold ................................................................ 24,734 Variation margin receivable .................................................................... 2,050 - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS .............................................................................. 144,619,668 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Payable upon return of securities loaned ....................................................... 9,355,492 Payable for investments purchased .............................................................. 272,090 Payable for fund shares redeemed ............................................................... 482,671 Payable to GEAM ................................................................................ 80,368 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES .......................................................................... 10,190,621 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ........................................................................................ $134,429,047 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital paid in ................................................................................ 134,090,652 Undistributed net investment income ............................................................ 217,550 Accumulated net realized loss .................................................................. (12,480,709) Net unrealized appreciation on: Investments ................................................................................ 12,599,508 Futures .................................................................................... 2,046 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ........................................................................................ $134,429,047 - --------------------------------------------------------------------------------------------------------------------------- Shares outstanding ($0.01 par value; unlimited shares authorized) ................................. 1,847,004 Net asset value per share ......................................................................... $72.78
* Includes $9,072,317 of securities on loan. See Notes to Financial Statements. 7
Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) PREMIER GROWTH EQUITY FUND - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend ...................................................................... $ 647,032 Interest* ..................................................................... 1,916 Interest from affliated investments ........................................... 51,857 Less: Foreign taxes withheld .................................................. (9,521) - --------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME .................................................................... 691,284 - --------------------------------------------------------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees .............................................. 435,393 Custody and accounting expenses ............................................... 17,700 Professional fees ............................................................. 15,336 Transfer agent ................................................................ 109 Trustee's fees ................................................................ 2,744 Registration expenses ......................................................... 607 Other expenses ................................................................ 11,060 - --------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES .................................................................. 482,949 - --------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME ........................................................... 208,335 =========================================================================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN (LOSS) ON: Investments ................................................................ 2,389,182 Futures .................................................................... (64,063) INCREASE (DECREASE) IN UNREALIZED APPRECIATION/ (DEPRECIATION) ON: Investments ................................................................ (6,538,838) Futures .................................................................... 5,225 - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments ............................... (4,208,494) - --------------------------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................................................... $(4,000,159) ===========================================================================================================================
* Income attributable to security lending activity, net of rebate expenses, was $1,916. See Notes to Financial Statements. 8
Statements of Changes in Net Assets PREMIER GROWTH EQUITY FUND - ------------------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ............................................................. $ 208,335 $ 853,012 Net realized gain on investments, futures, written options, foreign currency transactions and swaps .......................................... 2,325,119 809,496 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation ............................................................. (6,533,613) 7,021,414 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) from operations ............................................ (4,000,159) 8,683,922 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income .............................................................. -- (848,815) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS .................................................................. -- (848,815) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations and distributions .................. (4,000,159) 7,835,107 - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: Proceeds from sale of shares ....................................................... 12,832,999 12,671,278 Value of distributions reinvested .................................................. -- 848,814 Cost of shares redeemed ............................................................ (12,204,506) (26,756,524) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) from share transactions ................................... 628,493 (13,236,432) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DECREASE IN NET ASSETS ......................................................... (3,371,666) (5,401,325) NET ASSETS Beginning of period .................................................................. 137,800,713 143,202,038 - ------------------------------------------------------------------------------------------------------------------------------------ End of period ....................................................................... $134,429,047 $137,800,713 ==================================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ..................................... $ 217,550 $ 9,215 - ------------------------------------------------------------------------------------------------------------------------------------ CHANGES IN PORTFOLIO SHARES Shares sold ........................................................................ 178,224 178,487 Issued for distributions reinvested ................................................ -- 11,322 Shares redeemed .................................................................... (169,684) (383,795) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in fund shares .................................................. 8,540 (193,986) ====================================================================================================================================
See Notes to Financial Statements. 9 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTION Securities for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the repurchase price. In the event the seller defaults and the 10 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 their 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 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax cost of investments is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $134,834,034 $10,944,203 $(4,080,003) $6,864,199
As of December 31, 2004, the Fund has the capital loss carryover as indicated below. The capital loss carryover is 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 - -------------------------------------------------------------------------------- $6,034,994 12/31/10 3,038,704 12/31/11 During the year ended December 31, 2004, the Fund utilized approximately $1,204,997 of capital loss carryovers. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Ordinary Long-Term Income Capital Gains Total - -------------------------------------------------------------------------------- $848,815 $ -- $848,815 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 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .65%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $1,892 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement of the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreements with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its investment process, focusing on the relevant 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Funds since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those lower fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $23,934,148 $22,478,847 SECURITY LENDING At June 30, 2005, the Fund participated in securities lending: Loaned securities at Cash market value Collateral - -------------------------------------------------------------------------------- $9,072,317 $9,294,880 15 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 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. 16 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year 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 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 18 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 Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 19 [This page intentionally left blank.] [This page intentionally left blank.] [This page intentionally left blank.] GE Investments Funds, Inc. Value Equity Fund Semi-Annual Report JUNE 30, 2005 [GE Logo omitted] GE Investments Funds, Inc. Value Equity Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ........................... 1 NOTES TO PERFORMANCE ................................................. 7 NOTES TO SCHEDULE OF INVESTMENTS ..................................... 7 FINANCIAL STATEMENTS Financial Highlights ............................................ 8 Statement of Assets and Liabilities ............................. 9 Statement of Operations ......................................... 10 Statements of Changes in Net Assets ............................. 11 Notes to Financial Statements ................................... 12 ADDITIONAL INFORMATION ............................................... 18 INVESTMENT TEAM ...................................................... 21 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Value Equity Fund Q&A - -------------------------------------------------------------------------------- THE VALUE EQUITY FUND IS CO-MANAGED BY PAUL C. REINHARDT AND STEPHEN V. GELHAUS. MR. REINHARDT AS LEAD MANAGER IS VESTED WITH THE AUTHORITY TO PURCHASE SECURITIES THAT ARE NEW TO THE FUND OR TO DIVEST THE FUND OF ITS ENTIRE POSITION IN A SECURITY. MR. REINHARDT ALSO HAS VETO AUTHORITY OVER MR. GELHAUS' TRADE DECISIONS. PAUL REINHARDT (PICTURED BELOW) IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT AND LEAD PORTFOLIO MANAGER OF THE VALUE EQUITY FUND. HE HAS SERVED IN THIS CAPACITY SINCE APRIL 2002. MR. REINHARDT JOINED GE ASSET MANAGEMENT IN 1982 AS AN EQUITY ANALYST AND HAS BEEN A PORTFOLIO MANAGER SINCE 1987. MR. REINHARDT HOLDS AN MBA FROM COLUMBIA UNIVERSITY, A BA IN ECONOMICS FROM HARTWICK COLLEGE, AND IS A MEMBER OF THE NEW YORK SOCIETY OF SECURITY ANALYSTS. HE IS ALSO A HOLDER OF A CHARTERED FINANCIAL ANALYST DESIGNATION. STEPHEN V. GELHAUS IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE VALUE EQUITY FUND SINCE JANUARY 2002. MR. GELHAUS JOINED GE ASSET MANAGEMENT IN JUNE 1991 AND WAS A RESEARCH ANALYST IN THE U.S. EQUITY DEPARTMENT FROM 1995 THROUGH 2001 AND BECAME AN ASSOCIATE PORTFOLIO MANAGER FOR THE VALUE EQUITY FUND IN AUGUST 1999. Q. HOW DID THE VALUE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 2005, the Value Equity Fund returned (0.20)%. The S&P 500 Index, the Fund's benchmark, returned (0.81)% and the Fund's Lipper peer group of 693 Multi-Cap Value Funds returned an average of 0.80% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE? A. While the broad equity markets were down in the first three months of the year, they rallied in the second three months--resulting in unspectacular equity performance year to date. In flat-to-down markets, value strategies tend to outperform, as they can provide better down-market protection to investors than less conservative growth strategies. Accordingly, the Value Equity Fund outperformed its S&P 500 benchmark in this environment. Larger capitalization companies outperformed smaller cap companies during the period, in a reversal of the trend that has dominated the market for the past few years. An issue that has created concerns about slowing growth going forward is sky-high oil prices. While it has contributed to investor uncertainty, record-high oil has clearly benefited Energy sector performance within the S&P 500, up almost 20% year to date. Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE? A. The primary driver leading to the Fund's outperformance of its benchmark was strong stock selection within Healthcare, particularly within pharmaceuticals. As the economic cycle matures, many investors have been drawn to the stable growth offered by healthcare companies such as Abbott Laboratories (+6.3%) and GlaxoSmithKline (+4.1%) in the pharmaceutical space, as well as HCA (+42.6%) in health care services. In addition, since the beginning of the year Energy and Utilities companies have led performance within the benchmark, up 19.9% and 15.2% respectively. Our overweight 1 Value Equity Fund Q&A - -------------------------------------------------------------------------------- positioning in these key sectors also contributed to our success against the S&P 500 Index during the period. Among our Energy holdings, oil and gas companies EnCana Corp. (+39.2%), Burlington Resources (+27.4%), and Occidental Petroleum (+32.9%) led performance. With an attractive mix of regulated and non-regulated businesses, Constellation Energy Group (+33.7%) drove outperformance within Utilities. The largest detractor from performance year-to-date has been stock selection within Consumer Staples, with Sara Lee (-16.4%) hurting the most. This factor, coupled the with the slight negative effects of an overweight in Materials and weak stock selection within Wireless Telecommunications Services, was not enough to offset the positives cited above. Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD? A. Our process has remained consistent during the first half of the year, and we continue to employ a bottom-up relative value process to seek out underappreciated stocks with catalysts for growth or improving fundamentals. During the period we have seen the yield curve flatten, and evidence of slowing economic growth both in the U.S. and around the globe. We have positioned the portfolio for a mid-cycle slowdown, including lightening up in some heavy industrial names that tend to do better early in the economic cycle (e.g., eliminating Caterpillar, and reducing Unisys). We have also tilted away from financials on concerns that the flattening yield curve could pressure earnings power for the group (e.g., reducing our weightings in Citigroup, Morgan Stanley and Bank of America). We have increased our weighting in steadier growth sectors such as health care, initiating a position in Bristol Myers Squibb, and increasing weightings in UnitedHealth Group and Aetna. Finally, we increased our Energy holdings, amidst sustained high oil prices, and increased capital spending to build out spare capacity (a trend involving services companies such as Halliburton, a new position). 2 Value Equity Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - ---------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - ---------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 997.95 3.92 - ---------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,020.62 4.00 - ----------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.80% (FROM PERIOD JANUARY 1, 2005 -- JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS (0.20)%. 3 Value Equity Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] Value Equity Fund S&P 500 Index - -------------------------------------------------------------------------------- 04/28/00 10,000 10,000 06/01/00 9,970 10,035 12/01/00 9,979 9,155 06/01/01 9,486 8,543 12/01/01 9,105 8,064 06/01/02 8,357 7,004 12/01/02 7,506 6,282 06/01/03 8,220 7,022 12/01/03 9,311 8,087 06/01/04 9,517 8,365 12/01/04 10,202 8,967 06/01/05 10,181 8,894 - -------------------------------------------------------------------------------- Value Equity Fund (ending value $10,181) S&P 500 Index (ending value $8,894) - --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - ------------------------------------------------------------------------------------------------------------------------------ SIX ONE FIVE SINCE MONTHS YEAR YEAR INCEPTION - ------------------------------------------------------------------------------------------------------------------------------ Value Equity Fund -0.20% 6.97% 0.42% 0.35% - ------------------------------------------------------------------------------------------------------------------------------ S&P 500 Index -0.81% 6.33% -2.38% -2.24% - ------------------------------------------------------------------------------------------------------------------------------ Lipper peer group average* 0.80% 9.71% 4.85% N/A - ------------------------------------------------------------------------------------------------------------------------------ Inception date 4/28/00 - ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PROFILE A fund designed for investors who seek long-term growth of capital and future income by investing at least 80% of its net assets in equity securities under normal market conditions. The Fund invests primarily in U.S. companies that the portfolio manager believes are undervalued by the market but have solid growth prospects. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - --------------------------------------------------------------- Exxon Mobil Corp. 4.14% - --------------------------------------------------------------- Pfizer Inc. 3.15% - --------------------------------------------------------------- Industrial Select Sector SPDR Fund 2.70% - --------------------------------------------------------------- Microsoft Corp. 2.54% - --------------------------------------------------------------- Abbott Laboratories 2.30% - --------------------------------------------------------------- Citigroup Inc. 2.15% - --------------------------------------------------------------- Bank of America Corp. 2.12% - --------------------------------------------------------------- PepsiCo, Inc. 1.70% - --------------------------------------------------------------- Kimberly-Clark Corp. 1.60% - --------------------------------------------------------------- Allstate Corp. 1.55% - --------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $37,044 (in thousands) [Pie chart omitted -- plot points are as follows:] Financials 18.9% Healthcare 13.1% Information Technology 12.1% Industrials 12.1% Consumer Staples 10.4% Energy 9.5% Consumer Discretionary 9.3% Materials 5.2% Utilities 5.0% Telecommunication Services 3.2% Short Term 1.2% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, AND FIVE-YEAR PERIODS INDICATED IN THE MULTI-CAP VALUE PEER GROUP CONSISTING OF 693, 691, AND 417 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 7 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 VALUE EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- VALUE EQUITY FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 95.4% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 9.3% Cablevision Systems Corp. (Class A) 4,592 $ 147,862(a,d) Comcast Corp. (Class A) (Special) 9,602 287,580(a) Family Dollar Stores, Inc. 5,324 138,956 Liberty Global Inc. (Series A) 2,390 111,541(a) Liberty Media Corp. (Series A) 28,378 289,172(a) Lowe's Companies, Inc. 7,283 424,016 News Corp. (Class A) 16,971 274,591 Omnicom Group 4,451 355,457 Ross Stores, Inc. 3,922 113,385 Starwood Hotels & Resorts Worldwide Inc. (Class B) 2,236 130,963 Target Corp. 6,677 363,296 Time Warner Inc. 27,822 464,906(a) Tribune Co. 1,688 59,384 Viacom Inc. (Class B) 9,293 297,562 3,458,671 CONSUMER STAPLES -- 10.4% Altria Group, Inc. 858 55,478 Anheuser-Busch Companies, Inc. 5,731 262,193 Avon Products, Inc. 1,938 73,353 Clorox Co. 9,375 522,375 Colgate-Palmolive Co. 1,849 92,284 Kellogg Co. 7,289 323,923 Kimberly-Clark Corp. 9,487 593,791 Pepsi Bottling Group, Inc. 1,315 37,622 PepsiCo, Inc. 11,685 630,172 Procter & Gamble Co. 6,844 361,021 Sara Lee Corp. 16,693 330,688 The Coca-Cola Co. 7,234 302,019 Wal-Mart Stores, Inc. 5,564 268,185 3,853,104 ENERGY -- 9.5% Amerada Hess Corp. 616 65,610 Burlington Resources Inc. 8,291 457,995 ConocoPhillips Co. 6,677 383,861 EnCana Corp. 8,591 340,118 Exxon Mobil Corp. 26,709 1,534,966 Halliburton Co. 280 13,390 Nabors Industries Ltd. 1,402 84,989(a) Occidental Petroleum Corp. 3,867 297,488 Schlumberger Ltd. 4,563 346,514 3,524,931 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- FINANCIALS -- 18.2% Allstate Corp. 9,639 $ 575,930 American International Group, Inc. 5,564 323,268 Bank of America Corp. 17,250 786,772 Blackrock Inc. (Class A) 2,891 232,581 CB Richard Ellis Group, Inc. (Class A) 280 12,281(a) Chubb Corp. 3,728 319,154 CIT Group Inc. 451 19,380 Citigroup Inc. 17,250 797,467 Federal Home Loan Mortgage Corp. 3,213 209,584 Federal National Mortgage Association 6,399 373,702 JPMorgan Chase & Co. 6,455 227,991 MBNA Corp. 10,016 262,019 Mellon Financial Corp. 9,515 272,985 Merrill Lynch & Co., Inc. 3,240 178,232 Morgan Stanley 8,903 467,140 Principal Financial Group 5,843 244,822 Prudential Financial, Inc. 4,016 263,691 Rayonier Inc. (REIT) 1,457 77,265 SLM Corp. 1,727 87,732 State Street Corp. 7,512 362,454(c) SunTrust Banks, Inc. 1,116 80,620 US Bancorp 8,180 238,856 Waddell & Reed Financial Inc. (Class A) 1,128 20,868 Wells Fargo & Co. 5,119 315,228 6,750,022 HEALTHCARE -- 13.1% Abbott Laboratories 17,416 853,558 Aetna Inc. 3,394 281,091 Boston Scientific Corp. 3,021 81,567(a) Bristol-Myers Squibb Co. 10,016 250,200 GlaxoSmithKline PLC ADR 9,237 448,087 HCA Inc. 4,563 258,585 Johnson & Johnson 5,564 361,660 Medco Health Solutions, Inc. 1,835 97,916(a) Merck & Co., Inc. 8,513 262,200 Pfizer Inc. 42,289 1,166,331 UnitedHealth Group Incorporated 8,404 438,185 Wyeth 8,068 359,026 4,858,406 INDUSTRIALS -- 9.4% Avery Dennison Corp. 168 8,897 Burlington Northern Santa Fe Corp. 6,455 303,901 Deere & Co. 7,401 484,692 Eaton Corp. 3,194 191,321 See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 5 VALUE EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Emerson Electric Co. 1,937 $ 121,314 FedEx Corp. 811 65,699 General Dynamics Corp. 2,436 266,839 Honeywell International Inc. 5,453 199,743 ITT Industries, Inc. 1,948 190,183 Northrop Grumman Corp. 8,068 445,757 Rockwell Collins, Inc. 2,020 96,314 3M Co. 1,836 132,743 Tyco International Ltd. 17,528 511,818 Union Pacific Corp. 2,355 152,604 United Technologies Corp. 5,731 294,287 3,466,112 INFORMATION TECHNOLOGY -- 12.1% Analog Devices, Inc. 11,240 419,364 Applied Materials, Inc. 11,129 180,067 Cisco Systems, Inc. 21,701 414,706(a) EMC Corp. 11,129 152,579(a) First Data Corp. 8,903 357,366 Hewlett-Packard Co. 6,694 157,376 Intel Corp. 16,693 435,020 International Business Machines Corp. 7,069 524,520 Microsoft Corp. 37,949 942,653 Motorola, Inc. 3,511 64,111 Novell, Inc. 7,531 46,692(a,d) Oracle Corp. 41,176 543,523(a) Siebel Systems, Inc. 7,558 67,266(d) Sun Microsystems, Inc. 11,188 41,731(a) Symantec Corp. 3,349 72,807(a) Texas Instruments Incorporated 817 22,933 Unisys Corp. 6,735 42,633(a) 4,485,347 MATERIALS -- 5.2% Air Products & Chemicals, Inc. 2,236 134,831 Alcan Inc. 4,260 127,800 Alcoa Inc. 5,008 130,859 Barrick Gold Corp. 7,122 178,264 Dow Chemical Co. 3,032 135,015 Freeport-McMoRan Copper & Gold Inc. (Class B) 5,087 190,457 Monsanto Co. 2,409 151,454 Newmont Mining Corp. 4,712 183,909 Praxair, Inc. 7,234 337,104 Rohm & Haas Co. 3,617 167,612 Weyerhaeuser Co. 3,227 205,399 1,942,704 TELECOMMUNICATION SERVICES -- 3.2% Alltel Corp. 4,674 291,097 Sprint Corp. 10,016 251,301 Verizon Communications Inc. 10,016 346,053 Vodafone Group PLC ADR 11,685 284,179 1,172,630 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- UTILITIES -- 5.0% American Electric Power Company, Inc. 7,234 $ 266,718 Constellation Energy Group Inc. 6,232 359,524 Dominion Resources, Inc. 7,178 526,793 Entergy Corp. 4,451 336,273 PG&E Corp. 9,292 348,822 1,838,130 TOTAL COMMON STOCK (COST $31,190,676) 35,350,057 EXCHANGE TRADED FUNDS -- 3.4% Financial Select Sector SPDR Fund 8,580 252,853 Industrial Select Sector SPDR Fund 34,043 1,000,183 TOTAL EXCHANGE TRADED FUNDS (COST $1,147,888) 1,253,036 TOTAL INVESTMENTS IN SECURITIES (COST $32,338,564) 36,603,093 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.2% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 0.5% GEI Short Term Investment Fund 3.20% 171,976 171,976(b,e) SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL FROM SECURITIES ON LOAN -- 0.7% State Street Navigator Prime Lending Portfolio 3.31% 268,510 268,510(b,c) TOTAL SHORT-TERM INVESTMENTS (COST $440,486) 440,486 TOTAL INVESTMENTS (COST $32,779,050) 37,043,579 OTHER ASSETS AND LIABILITIES, NET-- 0.0%* 4,867 ----------- NET ASSETS-- 100.0% $37,048,446 =========== See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 6 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) and Russell 1000 Value Index (Russell 1000 Value) are unmanaged indices and do not reflect the actual cost of investing in the instruments that comprise each index. The S&P 500 is an unmanaged, market capitalization-weighted index of stocks of 500 large U.S. companies, which is widely used as a measure of large-cap stock market performance. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Coupon amount represents effective yield. (c) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (d) All or a portion of the security is out on loan. (e) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. + Percentages are based on net assets as of June 30, 2005. * Less than 0.1% Abbreviations: ADR American Depositary Receipt REIT Real Estate Investment Trust SPDR Standard & Poors Depository Receipts 7 Financial Highlights Selected data based on a share outstanding throughout the periods indicated - --------------------------------------------------------------------------------
VALUE EQUITY FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00(B) - ---------------------------------------------------------------------------------------------------------------------------------- INCEPTION DATE -- -- -- -- -- 4/28/00 Net asset value, beginning of period ............... $ 9.77 $ 9.02 $ 7.36 $9.01 $9.93 $10.00 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ........................... 0.06 0.11 0.11 0.07 0.05 0.05 Net realized and unrealized gains/(losses) on investments ................ (0.08) 0.75 1.66 (1.65) (0.92) (0.07) - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ..... (0.02) 0.86 1.77 (1.58) (0.87) (0.02) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income ........................... -- 0.11 0.11 0.07 0.05 0.05 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ................................ -- 0.11 0.11 0.07 0.05 0.05 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD ..................... $ 9.75 $ 9.77 $ 9.02 $7.36 $9.01 $9.93 ================================================================================================================================== TOTAL RETURN (A) ................................... (0.20)% 9.57% 24.05% (17.57)% (8.75)% (0.21)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ........ $37,048 $37,128 $29,989 $24,623 $18,202 $10,182 Ratios to average net assets: Net investment income* ....................... 1.15% 1.26% 1.16% 1.01% 0.76% 0.71% Expenses* .................................... 0.80% 0.80% 0.73% 0.74% 0.79% 0.84% Portfolio turnover rate ......................... 13% 53% 78% 76% 103% 28%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. Periods less than one year are not annualized. (b) Information is for the period April 28, 2000, commencement of investment operations, through December 31, 2000. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 8
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) - ---------------------------------------------------------------------------------- VALUE EQUITY FUND - ---------------------------------------------------------------------------------- ASSETS Investments in securities, at market* (cost $32,338,564) ........ $ 36,603,093 Short-term Investments (at amortized cost) ...................... 268,510 Short-term affiliated investments (at amortized cost) ........... 171,976 Receivable for investments sold ................................. 431,683 Income receivables .............................................. 61,383 Receivable for fund shares sold ................................. 69,917 - ---------------------------------------------------------------------------------- TOTAL ASSETS ............................................... 37,606,562 - ---------------------------------------------------------------------------------- LIABILITIES Payable upon return of securities loaned ........................ 268,510 Payable for investments purchased ............................... 265,229 Payable to GEAM ................................................. 24,377 - ---------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................... 558,116 - ---------------------------------------------------------------------------------- NET ASSETS ......................................................... $ 37,048,446 ================================================================================== NET ASSETS CONSIST OF: Capital paid in ................................................. 33,535,245 Undistributed net investment income ............................. 213,462 Accumulated net realized loss ................................... (964,790) Net unrealized appreciation on: Investments ................................................. 4,264,529 - ---------------------------------------------------------------------------------- NET ASSETS ......................................................... $ 37,048,446 ================================================================================== Shares outstanding ($0.01 par value; unlimited shares authorized) .. 3,799,780 Net asset value per share .......................................... $ 9.75
* Includes $261,821 of securities on loan. See Notes to Financial Statements. 9 Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) - -------------------------------------------------------------------------- VALUE EQUITY FUND - -------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend ............................................... $ 352,643 Interest* .............................................. 148 Interest from affliated investments .................... 5,883 Less: Foreign taxes withheld ........................... (1,639) - ------------------------------------------------------------------------- TOTAL INCOME ............................................. 357,035 - ------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees ....................... 120,064 Custody and accounting expenses ........................ 19,772 Professional fees ...................................... 3,138 Transfer agent ......................................... 105 Trustee's fees ......................................... 463 Registration expenses .................................. 121 Other expenses ......................................... 2,316 - ------------------------------------------------------------------------- TOTAL EXPENSES ........................................... 145,979 - ------------------------------------------------------------------------- NET INVESTMENT INCOME .................................... 211,056 ========================================================================= NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN (LOSS) ON: Investments ......................................... 549,776 Futures ............................................. (10,973) DECREASE IN UNREALIZED DEPRECIATION ON: Investments ......................................... (802,883) Futures ............................................. (2,063) - ------------------------------------------------------------------------- Net realized and unrealized loss on investments ........ (266,143) - ------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ (55,087) ========================================================================= * Income attributable to security lending activity, net of rebate expenses, was $148. See Notes to Financial Statements. 10
VALUE Statements of EQUITY Changes in Net Assets FUND - ----------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - ----------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ................................................. $ 211,056 $ 423,677 Net realized gain on investments, futures, written options, foreign currency transactions and swaps .............................. 538,803 1,450,082 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation (804,946) 1,311,332 - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) from operations ................................ (55,087) 3,185,091 - ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income .................................................. -- (424,576) - ---------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ...................................................... -- (424,576) - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations and distributions ...... (55,087) 2,760,515 - ---------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: Proceeds from sale of shares ........................................... 1,711,834 6,996,302 Value of distributions reinvested ...................................... -- 424,564 Cost of shares redeemed ................................................ (1,736,755) - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) from share transactions ....................... (24,921) 4,378,480 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS .................................. (80,008) 7,138,995 NET ASSETS Beginning of period ...................................................... 37,128,454 29,989,459 - ---------------------------------------------------------------------------------------------------------------------- End of period ........................................................... $37,048,446 $ 37,128,454 ====================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD .......................... $ 213,462 $ 2,406 - ---------------------------------------------------------------------------------------------------------------------- CHANGES IN PORTFOLIO SHARES Shares sold ............................................................ 177,455 766,154 Issued for distributions reinvested .................................... -- 43,500 Shares redeemed ........................................................ (179,782) - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in fund shares ...................................... (2,327) 476,404 ======================================================================================================================
See Notes to Financial Statements. 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the repurchase price. In the event the seller defaults and the 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 their exposure to the stock and bond markets and fluctuations in foreign currency values. Writing puts and buying calls tend to increase the Fund's exposure to the underlying instrument while buying puts and writing calls tend to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. The Fund will not enter into a transaction involving options for speculative purposes. The Fund's risks in using these contracts include changes in the value of the underlying instruments, non-performance of the counterparties under the contracts' terms and changes in the liquidity of the secondary market for the contracts. Options are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- When the Fund writes an option, the amount of the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase, as a realized loss. When an option is exercised, the proceeds from the sale of the underlying security or the cost basis of the securities purchased is adjusted by the original premium received or paid. INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates of inflation, repatriation on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, tariffs and taxes, subject to delays in settlements, and their prices may be more volatile. The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax components of capital is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $33,181,992 $4,753,992 $(892,405) $3,861,587
As of December 31, 2004, the Fund has the capital loss carryover as indicated below. The capital loss carryover is 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 - -------------------------------------------------------------------------------- $570,001 12/31/10 528,587 12/31/11 During the year ended December 31, 2004, the Fund utilized approximately $1,248,052 of capital loss carryovers. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Long-Term Ordinary Capital Income Gains Total - -------------------------------------------------------------------------------- $424,576 $ -- $424,576 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 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 and unrealized gains and losses on forward foreign currency contracts, and losses deferred due to wash sale transactions. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .65%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $1,239 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement of the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreement with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. 15 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Funds since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those lower fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. 16 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $5,568,195 $4,904,396 SECURITY LENDING At June 30, 2005, the Fund participated in securities lending: Loaned securities at Cash market value Collateral - -------------------------------------------------------------------------------- $261,821 $270,399 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE Funds, GE Institutional Funds and GE LifeStyle Funds since their inception. Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1987. 18 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General Counsel - Marketing and Client Services (formerly Asset Management Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since October 2003. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A 19 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 20 Investment Team - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND ADMINISTRATOR GE Asset Management Incorporated BOARD OF DIRECTORS Michael J.Cosgrove, CHAIRMAN John R. Costantino Alan M. Lewis William J. Lucas Robert P. Quinn SECRETARY Matthew J. Simpson TREASURER Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 21 [This page intentionally left blank.] GE Investments Funds, Inc. Mid-Cap Equity Fund Semi-Annual Report JUNE 30, 2005 [GE Logo omitted] GE Investments Funds, Inc. Mid-Cap Equity Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS .............................. 1 NOTES TO PERFORMANCE .................................................... 7 NOTES TO SCHEDULE OF INVESTMENTS ........................................ 7 FINANCIAL STATEMENTS Financial Highlights ............................................... 8 Statement of Assets and Liabilities ................................ 9 Statement of Operations ............................................ 10 Statements of Changes in Net Assets ................................ 11 Notes to Financial Statements ...................................... 12 ADDITIONAL INFORMATION .................................................. 18 INVESTMENT TEAM ......................................................... 21 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Mid-Cap Equity Fund Q&A - -------------------------------------------------------------------------------- DIANE M. WEHNER IS A VICE PRESIDENT OF GE ASSET MANAGEMENT AND PORTFOLIO MANAGER OF THE MID-CAP EQUITY FUND (FORMERLY NAMED THE MID-CAP VALUE EQUITY FUND). SHE HAS SERVED IN THIS CAPACITY SINCE SEPTEMBER 2004. BEFORE JOINING GE ASSET MANAGEMENT, MS. WEHNER WAS A VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER FROM JANUARY 1997 TO JUNE 2001, AND ASSOCIATE PORTFOLIO MANAGER FROM MAY 1995 TO JANUARY 1997, WITH BENEFIT CAPITAL MANAGEMENT CORPORATION. MS. WEHNER HAS SERVED AS AN ANALYST/PORTFOLIO MANAGER IN THE INVESTMENT MANAGEMENT INDUSTRY SINCE 1985. Q. HOW DID THE MID-CAP EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the Mid-Cap Equity Fund returned 3.16%. The Russell Mid-Cap Index, the Fund's benchmark, returned 3.91% and the Lipper peer group of 77 Mid-Cap Core Funds returned an average of 3.18% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE? A. During the first half of 2005, value stocks continued to outperform growth, thus disadvantaging this more growth-oriented Fund. More specifically, the portfolio was underweight in the slow growth, high dividend paying, utility sector which was the second best performing sector year-to-date. At the same time, surprisingly benign interest rates negatively impacted portfolio performance, as the Fund was underweight REITs and Consumer Durable stocks whose stock performance is negatively correlated with interest rates. However, stock selection within the commercial real estate and residential industries helped to overcome the impact of these industry underweights with homebuilder Pulte Homes, up 32%, and real estate services company C.B. Richard Ellis, up 31%. The portfolio was underweight Healthcare Services stocks and in particular HMOs, which outperformed due to industry consolidation and strong earnings growth. Some offset to this underweight was the Fund's investment in Caremark RX, up 19%, a pharmacy benefit manager, which continues to deliver strong earnings growth and is a beneficiary of the upcoming implementation of the Medicare drug benefit. Finally, high oil prices continued to fuel stock price appreciation in the Energy Sector. The Fund's overweight in Energy, the best performing sector year-to-date, and investments in Valero, a refinery company, up 75%, and EOG and Murphy Oil, both exploration and production companies, which increased 59% and 30%, respectively, added positively to performance. Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE? A. Detractors from performance included Biotechnology companies Biogen Idec and Martek Biosciences. Biogen Idec declined 48% due to a recall of its once-promising multiple sclerosis drug. We exited our position in the stock due to our expectations that Tysabri, an important driver of earnings growth, will likely not return to the market. Martek Biosciences declined 26% as the company announced disappointing quarterly results and lowered near-term earnings expectations. We maintained our position in Martek due to our positive outlook for their nutritional supplement products. 1 Mid-Cap Equity Fund Q&A - -------------------------------------------------------------------------------- Outside of biotechnology, after appreciating 156% since going public in 2004, Kinetic Concepts declined by 21% in this six-month period due to near-term earnings disappointments. Finally, Polycom, a communications equipment company, declined 36% after posting disappointing quarterly results. On the positive side, the Fund continued to benefit from our overweight in Energy as highlighted above. Additional outperformance within the sector included Devon Energy up 31%, GlobalSantaFe, which rose 24%, and Pioneer Natural Resources which increased 20%. Within Financials, our stock selection was strong, with Legg Mason up 43%, as this asset manager continues to grow assets under management. Greenhill & Co., an investment bank, appreciated 42% as the company benefited from an active M&A environment. Michaels Stores, a specialty retailer, rose 39% due to continued growth in comparable store sales resulting from upgraded internal systems. Within Healthcare, Alcon, an ophthalmology company, rose 37%, due to strong earnings growth and the launch of promising new products. Generic pharmaceutical companies IVAX and Barr Pharmaceuticals, up 36% and 9%, respectively also added nicely to overall performance. Biotechnology company Gilead Sciences, which rose 26%, also benefited the fund, due to the success of its AIDS drug Truvada. Q. WERE THERE ANY SIGNIFICANT CHANGES TO THE FUND OVER THE PERIOD? A. The Funds' sector weightings did not change dramatically during the first half of 2005. We maintain our underweight in Financial Services as well as Consumer Discretionary companies. We focus on investing in attractively valued companies with solid earnings prospects, strong market share and superior long-term fundamentals. With an emphasis on growth, we continue to look to invest in innovative companies that provide prospects for above-average earnings growth. Therefore Healthcare and Information Technology companies represent a more meaningful percentage of the portfolio. 2 Mid-Cap Equity Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 1,031.64 3.49 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,021.05 3.55 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.71% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS 3.16%. 3 Mid-Cap Equity Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:]
Mid-Cap Equity Fund Russell Midcap Index Russell MidCap Value Index - ------------------------------------------------------------------------------------------------------ 05/01/97 10,000 10,000 10,000 06/01/97 11,450 11,085 10,983 12/01/97 13,256 12,690 12,877 06/01/98 14,975 13,849 13,798 12/01/98 14,142 13,966 13,525 06/01/99 17,393 15,410 14,574 12/01/99 16,583 16,507 13,515 06/01/00 15,869 17,342 13,402 12/01/00 17,958 17,870 16,093 06/01/01 18,343 17,521 16,626 12/01/01 18,016 16,862 16,472 06/01/02 18,005 15,900 16,944 12/01/02 15,536 14,134 14,886 06/01/03 17,476 16,322 16,840 12/01/03 20,654 19,803 20,554 06/01/04 21,729 21,119 22,023 12/01/04 23,963 23,797 25,409 06/01/05 24,722 24,727 26,808
- -------------------------------------------------------------------------------- Mid-Cap Equity Fund (ending value $24,722) Russell MidCap Index (ending value $24,727) Russell MidCap Value Index (ending value $26,808) - --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - ------------------------------------------------------------------------------------------------------------------------------ SIX ONE FIVE SINCE MONTHS YEAR YEAR INCEPTION - ------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund 3.16% 13.77% 9.27% 11.72% - ------------------------------------------------------------------------------------------------------------------------------ Russell MidCap Index 3.91% 17.09% 7.35% 11.72% - ------------------------------------------------------------------------------------------------------------------------------ Russell MidCap Value Index* 5.51% 21.73% 14.87% 12.83% - ------------------------------------------------------------------------------------------------------------------------------ Lipper peer group average** 3.18% 15.21% 8.50% N/A - ------------------------------------------------------------------------------------------------------------------------------ Inception date 5/1/97 - ------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PROFILE A fund designed for investors who seek long-term growth of capital and future income by investing at least 80% of its net assets in equity securities of mid cap companies under normal market conditions. The Fund invests primarily in mid-cap companies that the portfolio manager believes are undervalued by the market and have above-average growth potential. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - --------------------------------------------------------------- Alcon Inc. 1.58% - --------------------------------------------------------------- Barr Pharmaceuticals, Inc. 1.55% - --------------------------------------------------------------- Legg Mason, Inc. 1.54% - --------------------------------------------------------------- Michaels Stores, Inc. 1.36% - --------------------------------------------------------------- Harris Corp. 1.33% - --------------------------------------------------------------- CB Richard Ellis Group, Inc. (Class A) 1.33% - --------------------------------------------------------------- L-3 Communications Holdings, Inc. 1.32% - --------------------------------------------------------------- Bed Bath & Beyond Inc. 1.29% - --------------------------------------------------------------- Thermo Electron Corp. 1.28% - --------------------------------------------------------------- Caremark Rx, Inc. 1.24% - --------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $256,358 (in thousands) [Pie chart omitted -- plot points are as follows:] Information Technology 17.5% Healthcare 15.9% Financials 13.6% Short Term 13.4% Consumer Discretionary 10.3% Industrials 10.2% Energy 7.3% Utilities 4.1% Materials 3.7% Consumer Staples 3.6% Telecommunication Services 0.4% * EFFECTIVE AUGUST 31, 2004, THE RUSSELL MIDCAP INDEX REPLACED THE RUSSELL MIDCAP VALUE INDEX AS THE BENCHMARK USED TO MEASURE THE FUND'S PERFORMANCE. ** LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, AND FIVE-YEAR PERIODS INDICATED IN THE MID-CAP CORE PEER GROUP CONSISTING OF 77, 77, AND 38 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 7 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 MID-CAP EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 96.4% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 11.5% Bed Bath & Beyond Inc. 79,107 $ 3,305,090(a) Cheesecake Factory 44,826 1,556,807(a) DreamWorks Animation SKG Inc. (Class A) 13,873 363,473(a) Family Dollar Stores, Inc. 69,825 1,822,432 Federated Department Stores 12,128 888,740(d) Getty Images, Inc. 26,925 1,999,451(a) Jones Apparel Group, Inc. 56,963 1,768,132 Michaels Stores, Inc. 84,158 3,481,616 Pulte Homes, Inc. 26,093 2,198,335 Regal Entertainment Group (Class A) 81,027 1,529,790(e) Starwood Hotels & Resorts Worldwide Inc. (Class B) 12,863 755,795 The E.W. Scripps Co. (Class A) 42,374 2,067,851 Univision Communications Inc. (Class A) 48,510 1,336,451(a) Westwood One Inc. 70,194 1,434,063 Williams-Sonoma, Inc. 48,878 1,934,102(a) 26,442,128 CONSUMER STAPLES -- 4.1% Clorox Co. 34,913 1,945,352 Kroger Co. 73,206 1,393,110(a,d) Pepsi Bottling Group, Inc. 42,263 1,209,144 Reynolds American Inc. 21,499 1,694,121(e) The Estee Lauder Companies Inc. (Class A) 24,114 943,581 Weight Watchers International Inc. 41,895 2,162,201(a,e) 9,347,509 ENERGY -- 8.1% BJ Services Co. 42,594 2,235,333 EOG Resources, Inc. 49,613 2,818,018 GlobalSantaFe Corp. 62,692 2,557,834 Murphy Oil Corp. 47,775 2,495,288 Peabody Energy Corp. 27,114 1,411,013 Pioneer Natural Resources Co. 66,505 2,798,530 Valero Energy Corp. 29,076 2,300,202 Weatherford International Ltd. 36,383 2,109,486(a) 18,725,704 FINANCIALS -- 15.1% Affiliated Managers Group 41,344 2,825,036(a,e) Amegy Bancorp, Inc. 69,826 1,562,706(e) Calamos Asset Management Inc. (Class A) 84,038 2,289,195(e) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- CB Richard Ellis Group, Inc. (Class A) 77,607 $ 3,403,843(a) City National Corp. 26,828 1,923,836 Everest Re Group, Ltd. 31,238 2,905,134 Greenhill & Co., Inc. 25,725 1,042,120(e) HCC Insurance Holdings, Inc. 42,263 1,600,500 Legg Mason, Inc. 37,853 3,940,876 M&T Bank Corp. 14,322 1,506,102 Maguire Properties Inc. (REIT) 41,174 1,166,871 MBIA Inc. 18,375 1,089,821 North Fork Bancorporation, Inc. 93,162 2,616,921 SEI Investments Co. 60,454 2,257,957 The Hartford Financial Services Group, Inc. 28,974 2,166,676 Zions Bancorp 34,322 2,523,697 34,821,291 HEALTHCARE -- 17.7% Advanced Medical Optics, Inc. 31,238 1,241,711(a) Alcon Inc. 37,118 4,058,853 Amylin Pharmaceuticals, Inc. 95,551 1,999,882(a,e) Angiotech Pharmaceuticals, Inc. 110,251 1,528,079(a) Barr Pharmaceuticals, Inc. 81,402 3,967,533(a) Caremark Rx, Inc. 71,682 3,191,283(a) DENTSPLY International Inc. 54,942 2,966,868 Gilead Sciences, Inc. 67,673 2,976,935(a) Henry Schein, Inc. 70,468 2,925,831(a) IVAX Corp. 61,327 1,318,531(a) Kinetic Concepts, Inc. 36,750 2,205,000(a) Manor Care, Inc. 55,833 2,218,245 Martek Biosciences Corp. 42,998 1,631,774(a,e) Quest Diagnostics 51,818 2,760,345 Smith & Nephew PLC ADR 49,658 2,453,602(e) Thermo Electron Corp. 121,937 3,276,447(a) 40,720,919 INDUSTRIALS -- 11.4% AGCO Corp. 51,450 983,724(a) ChoicePoint Inc. 33,821 1,354,531(a) Corinthian Colleges, Inc. 87,098 1,112,241(a,e) Corporate Executive Board Co. 27,930 2,187,757 CoStar Group (CoStar), Inc. 38,588 1,682,437(a,e) Danaher Corp. 60,936 3,189,390 Dover Corp. 36,015 1,310,226 Eaton Corp. 33,075 1,981,193 Harsco Corp. 42,895 2,339,922 L-3 Communications Holdings, Inc. 44,100 3,377,178 MoneyGram International, Inc. 108,784 2,079,950(e) Rockwell Collins, Inc. 45,938 2,190,324 Stericycle, Inc. 46,305 2,330,068(a,e) 26,118,941 INFORMATION TECHNOLOGY -- 19.4% Activision, Inc. 147,573 2,437,906(a) Affiliated Computer Services Inc. (Class A) 36,178 1,848,696(a) Analog Devices, Inc. 38,048 1,419,571(d) See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 5 MID-CAP EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- CDW Corp. 30,499 $ 1,741,188 Cogent, Inc. 84,155 2,402,625(a,e) Comverse Technology, Inc. 117,601 2,781,264(a) Dolby Laboratories Inc. (Class A) 13,241 292,096(a) DST Systems Inc. 36,383 1,702,724(a) Fiserv, Inc. 28,206 1,211,448(a) Harris Corp. 109,516 3,417,994 Intuit Inc. 45,415 2,048,671(a) Juniper Networks, Inc. 55,347 1,393,637(a) Lexmark International Inc. (Class A) 19,110 1,238,901(a) Linear Technology Corp. 53,288 1,955,137 Macrovision Corp. 46,672 1,051,987(a,e) Manhattan Associates, Inc. 107,678 2,068,494(a,e) Mettler Toledo International Inc. 31,027 1,445,238(a) Microchip Technology Inc. 60,270 1,785,197 Molex Inc. (Class A) 114,661 2,692,240(d) NAVTEQ Corp. 40,425 1,503,002(a) Neustar, Inc. (Class A) 40,311 1,031,962(a) Novellus Systems, Inc. 51,450 1,271,330(a) Paychex, Inc. 41,528 1,351,321 Polycom, Inc. 96,525 1,439,188(a) Symantec Corp. 49,533 1,076,847(a) Synopsys, Inc. 55,493 925,068(a) Veritas Software Corp. 49,245 1,201,578(a) 44,735,310 MATERIALS -- 4.1% Cabot Corp. 33,075 1,091,475 Martin Marietta Materials, Inc. 31,421 2,171,820 Monsanto Co. 23,888 1,501,839 Phelps Dodge Corp. 8,085 747,863 Praxair, Inc. 52,627 2,452,418 Sealed Air Corp. 30,391 1,513,168(a) 9,478,583 TELECOMMUNICATION SERVICES -- 0.4% Telephone & Data Systems Inc. 12,292 471,275 Telephone and Data Systems Inc. 12,292 501,637(e) 972,912 UTILITIES -- 4.6% Ameren Corp. 49,613 2,743,599 DTE Energy Co. 52,185 2,440,692 PPL Corp. 45,938 2,727,798 SCANA Corp. 63,665 2,719,132 10,631,221 TOTAL COMMON STOCK (COST $184,444,133) 221,994,518 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 15.0% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 4.0% GEI Short Term Investment Fund 3.20% 9,182,428 $ 9,182,428(b,f) SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL FROM SECURITIES ON LOAN -- 11.0% State Street Navigator Securities Lending Prime Portfolio 3.31% 25,180,639 25,180,639(b,c) TOTAL SHORT-TERM INVESTMENTS (COST $34,363,067) 34,363,067 TOTAL INVESTMENTS (COST $218,807,200) 256,357,585 LIABILITIES IN EXCESS OF OTHER ASSETS-- (11.4)% (26,215,348) ------------ NET ASSETS-- 100.0% $230,142,237 ============ - -------------------------------------------------------------------------------- OTHER INFORMATION - -------------------------------------------------------------------------------- The GEI Mid-Cap Equity had the following short futures contracts open at June 30, 2005: NUMBER CURRENT EXPIRATION OF NOTIONAL UNREALIZED DESCRIPTION DATE CONTRACTS VALUE APPRECIATION - -------------------------------------------------------------------------------- S&P 400 Mid-Cap Futures Index September 2005 3 $(1,032,525) $100 See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 6 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Russell Mid Cap Index (Russell Mid Cap) is an unmanaged index and does not reflect the actual cost of investing in the instruments that comprise each index. Russell Mid Cap is a market capitalization-weighted index of the smallest 800 companies included in the Russell 1000 Index that represent approximately 25% of the total market capitalization of the Russell 1000 Index. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Coupon amount represents effective yield. (c) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (d) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures. (e) All or a portion of the security is out on loan. (f) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. + Percentages are based on net assets as of June 30, 2005. Abbreviations: ADR American Depositary Receipt REIT Real Estate Investment Trust 7 Financial Highlights Selected data based on a share outstanding throughout the periods indicated - --------------------------------------------------------------------------------
MID-CAP EQUITY FUND 6/30/05+ 12/31/04(C) 12/31/03 12/31/02 12/31/01 12/31/00(B) - ----------------------------------------------------------------------------------------------------------------------------------- INCEPTION DATE -- -- -- -- -- 5/1/97 Net asset value, beginning of period .......... $18.33 $17.48 $13.30 $15.66 $16.31 $15.78 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ...................... 0.03 0.17 0.19 0.12 0.11 0.16 Net realized and unrealized gains/(losses) on investments ........... 0.55 2.63 4.19 (2.28) (0.06) 1.11 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ...................... 0.58 2.80 4.38 (2.16) 0.05 1.27 - ----------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income ...................... -- 0.14 0.18 0.12 0.11 0.16 Net realized gains ......................... -- 1.81 0.02 0.08 0.59 0.58 - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ........................... -- 1.95 0.20 0.20 0.70 0.74 - ----------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD ................ $18.91 $18.33 $17.48 $13.30 $15.66 $16.31 =================================================================================================================================== TOTAL RETURN (A) .............................. 3.16% 16.02% 32.94% (13.76)% 0.33% 8.29% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ...$230,142 $239,831 $226,929 $170,422 $179,044 $117,586 Ratios to average net assets: Net investment income* .................. 0.28% 0.89% 1.36% 0.82% 0.85% 1.05% Expenses* ............................... 0.71% 0.70% 0.69% 0.68% 0.68% 0.70% Portfolio turnover rate .................... 14% 78% 28% 37% 42% 95%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. (b) As of April 28, 2000, the Fund's name was changed to Mid-Cap Value Equity Fund from Value Equity Fund. (c) As of August 31, 2004, the Fund's name was changed to Mid-Cap Equity Fund from Mid-Cap Value Equity Fund. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 8
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) - -------------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------------- ASSETS Investments in securities, at market* (cost $184,444,133) .... $221,994,518 Short-term Investments (at amortized cost) ................... 25,180,639 Short-term affiliated investments (at amortized cost) ........ 9,182,428 Receivable for investments sold .............................. 1,240,786 Income receivables ........................................... 197,298 Receivable for fund shares sold .............................. 39,685 Variation margin receivable .................................. 3,975 - ------------------------------------------------------------------------------------- TOTAL ASSETS ............................................. 257,839,329 - ------------------------------------------------------------------------------------- LIABILITIES Payable upon return of securities loaned ..................... 25,180,639 Payable for investments purchased ............................ 2,239,418 Payable for fund shares redeemed ............................. 144,506 Payable to GEAM .............................................. 132,529 - ------------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................ 27,697,092 - ------------------------------------------------------------------------------------- NET ASSETS ...................................................... $230,142,237 ===================================================================================== NET ASSETS CONSIST OF: Capital paid in .............................................. 183,348,081 Undistributed net investment income .......................... 431,897 Accumulated net realized gain ................................ 8,811,774 Net unrealized appreciation on: Investments .............................................. 37,550,385 Futures .................................................. 100 - ------------------------------------------------------------------------------------- NET ASSETS ...................................................... $230,142,237 ===================================================================================== Shares outstanding ($0.01 par value; unlimited shares authorized) 12,170,367 Net asset value per share ....................................... $ 18.91
* Includes $24,498,830 of securities on loan. See Notes to Financial Statements. 9
Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) - ------------------------------------------------------------------------------------------ MID-CAP EQUITY FUND - ------------------------------------------------------------------------------------------ INVESTMENT INCOME INCOME: Dividend ........................................................ $ 997,125 Interest* ....................................................... 10,962 Interest from affliated investments ............................. 112,820 Less: Foreign taxes withheld .................................... (5,567) - ------------------------------------------------------------------------------------------ TOTAL INCOME ...................................................... 1,115,340 - ------------------------------------------------------------------------------------------ EXPENSES: Advisory and administrative fees ................................ 739,349 Custody and accounting expenses ................................. 21,170 Professional fees ............................................... 23,058 Transfer agent .................................................. 82 Trustee's fees .................................................. 3,799 Registration expenses ........................................... 903 Other expenses .................................................. 15,067 - ------------------------------------------------------------------------------------------ TOTAL EXPENSES .................................................... 803,428 - ------------------------------------------------------------------------------------------ NET INVESTMENT INCOME ............................................. 311,912 - ------------------------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN (LOSS) ON: Investments .................................................. 7,927,349 Futures ...................................................... (170,210) INCREASE (DECREASE) IN UNREALIZED APPRECIATION/(DEPRECIATION) ON: Investments .................................................. (1,333,956) Futures ...................................................... 24,375 - ------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments ................. 6,447,558 - ------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............. $ 6,759,470 - ------------------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses, was $10,962. See Notes to Financial Statements. 10
Statements of Changes in Net Assets - ----------------------------------------------------------------------------------------------------------------- MID-CAP EQUITY FUND - ----------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - ----------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income .......................................... $ 311,912 $ 1,697,801 Net realized gain on investments, futures, written options, foreign currency transactions and swaps ....................... 7,757,139 22,472,727 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation .......................................... (1,309,581) 9,399,305 - ----------------------------------------------------------------------------------------------------------------- Net increase from operations .................................... 6,759,470 33,569,833 - ----------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ........................................... -- (1,626,264) Net realized gains .............................................. -- (21,434,077) - ----------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ............................................... -- (23,060,341) - ----------------------------------------------------------------------------------------------------------------- Increase in net assets from operations and distributions .......... 6,759,470 10,509,492 - ----------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: Proceeds from sale of shares .................................... 1,145,257 11,551,811 Value of distributions reinvested ............................... -- 23,060,403 Cost of shares redeemed ......................................... (17,593,978) (32,218,761) - ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) from share transactions ................ (16,448,721) 2,393,453 - ----------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS ........................... (9,689,251) 12,902,945 NET ASSETS Beginning of period ............................................... 239,831,488 226,928,543 - ----------------------------------------------------------------------------------------------------------------- End of period .................................................... $ 230,142,237 $ 239,831,488 ================================================================================================================= UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD .................. $ 431,897 $ 119,985 - ----------------------------------------------------------------------------------------------------------------- CHANGES IN PORTFOLIO SHARES Shares sold ..................................................... 63,416 635,489 Issued for distributions reinvested ............................. -- 1,258,756 Shares redeemed ................................................. (975,773) (1,794,333) - ----------------------------------------------------------------------------------------------------------------- Net increase (decrease) in fund shares ............................... (912,357) 99,912 =================================================================================================================
See Notes to Financial Statements. 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Effective August 31, 2004, the name of the GE Investments Mid-Cap Equity Fund was changed from GE Investments Mid-Cap Value Equity Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 their 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 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax cost of investments is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $219,196,373 $41,324,983 $(4,163,772) $37,161,212
As of December 31, 2004, the Fund has no capital loss carryover. The capital loss carryover is available to offset future realized capital gains to the extent provided in the Internal Revenue Code and regulations thereunder. To the extent that these carryover losses are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders because they would be taxable as ordinary income. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund has no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Long-Term Ordinary Capital Income Gains Total - -------------------------------------------------------------------------------- $2,345,466 $20,714,875 $23,060,341 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 are made to the Fund's capital accounts to reflect income and gains available for distribution (or 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .65%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $2,503 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement of the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreement with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. 15 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those lower fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. 16 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- DIRECTORS' COMPENSATION The Fund pays no compensation to their 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 Effective October 1, 2000, GEAM, as Investment Adviser to the Mid-Cap Equity Fund assumed day-to-day portfolio management responsibility from NWQ Investment Management Company, the previous Sub-Advisers to the Mid-Cap Equity Fund. 6. INVESTMENT TRANSACTIONS PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from sales of investments, other than short-term securities and options, for the period ended June 30, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $31,623,155 $45,688,786 SECURITY LENDING At June 30, 2005, the Fund participated in securities lending: Loaned securities at Cash market value Collateral - -------------------------------------------------------------------------------- $24,498,830 $25,107,357 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE Funds, GE Institutional Funds and GE LifeStyle Funds since their inception. Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1987. 18 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General Counsel - Marketing and Client Services (formerly Asset Management Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since October 2003. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A 19 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 20 Investment Team - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND ADMINISTRATOR GE Asset Management Incorporated BOARD OF DIRECTORS Michael J.Cosgrove, CHAIRMAN John R. Costantino Alan M. Lewis William J. Lucas Robert P. Quinn SECRETARY Matthew J. Simpson TREASURER Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 21 [This page intentionally left blank.] GE Investments Funds, Inc. Small-Cap Value Equity Fund Semi-Annual Report JUNE 30, 2005 [GE Logo omitted] GE Investments Funds, Inc. Small-Cap Value Equity Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ........................... 1 NOTES TO PERFORMANCE ................................................. 7 NOTES TO SCHEDULE OF INVESTMENTS ..................................... 7 FINANCIAL STATEMENTS Financial Highlights ............................................ 8 Statement of Assets and Liabilities ............................. 9 Statement of Operations ......................................... 10 Statements of Changes in Net Assets ............................. 11 Notes to Financial Statements ................................... 12 ADDITIONAL INFORMATION ............................................... 17 INVESTMENT TEAM ...................................................... 20 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Small-Cap Value 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 VALUE EQUITY FUND SINCE ITS INCEPTION. SMALL-CAP VALUE EQUITY FUND IS MANAGED BY JACK FEILER, JEFFREY SCHWARTZ AND DENNISON VERU, MEMBERS OF PALISADE'S INVESTMENT POLICY COMMITTEE. JACK FEILER, PRESIDENT AND CHIEF INVESTMENT OFFICER, HAS DAY-TO-DAY RESPONSIBILITY FOR MANAGING THE SMALL-CAP VALUE 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 VALUE 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. Q. HOW DID THE SMALL-CAP VALUE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six months ended June 30, 2005, the Small-Cap Value Fund returned 3.89%. The Russell 2000 Index, the Fund's benchmark, returned (1.26)% and the Fund's Lipper peer group 114 Small-Cap Core Funds returned an average of (0.71)% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE? A. Inflation fears and interest-rate worries sent stocks sharply lower in the first quarter. Equity markets moved higher in the second quarter, and are now essentially flat for the year. The rally was fairly broad-based with almost all sectors participating. We saw low-to-moderate inflation levels and more moderate growth in corporate profits and earnings. Estimates of profit gains in the broad market have slowed over last year's pace. We anticipated this and positioned the Fund for more consistent earnings growth. Consistency of earnings has mattered this year, as low-priced stocks (under $5), non-earnings stocks, and the lowest Return-on-Equity quintile are all trailing behind. Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES IMPLEMENTED BY THE FUND IMPACTED PERFORMANCE? A. Strong stock selection combined with disciplined buying and selling is imperative to Fund performance. We sought high-quality companies that can finance internal growth to grow earnings. The valuation metrics on which we focused included predictable earnings, recurring revenues, high return on equity, high return on invested capital, and the generation of significant free cash flow. Q. WHICH PARTICULAR STOCKS/SECTORS SIGNIFICANTLY CONTRIBUTED TO THE FUND'S PERFORMANCE? A. The sectors that contributed significantly to the Fund's performance include: Information Technology (+343 basis points (bps)), Consumer Discretionary (+122 bps), Healthcare (+116 bps), and Industrials (+107 bps). We have found many compelling and 1 Small-Cap Value Equity Fund Q&A - -------------------------------------------------------------------------------- reasonably valued stocks in the Healthcare and Industrials sectors. We redistributed the Fund's Information Technology holdings to include more software and productivity-enhancement stocks, as we believe these investments offer better value in the Information Technology sector. Q. WHY DID THE FUND OUTPERFORM ITS BENCHMARK FOR THE PAST SIX MONTHS? A. The Fund outperformed its benchmark primarily due to strong stock selection. For the six-month period, holdings in the Information Technology, Consumer Discretionary, Healthcare, and Industrials sectors provided strong results and were the primary contributors to return. The market has rewarded companies with strong financial standing and attractive risk-reward profiles. Q. DID THE WEIGHTINGS OF THE FUND CHANGE? WHY? A. The most significant changes in sector allocation include reductions in the Financials sector and increases in the Healthcare and Energy sectors. Investors' fears of inflation increased selling pressure on the Financials sector. We realigned the Fund's holdings in very select stocks within these sectors. Our selection screens indicated attractive profiles of many companies within the Healthcare and Energy sectors. Q. WHICH STOCKS/SECTORS HAVE PERFORMED WELL? WHICH HAVE NOT PERFORMED WELL? A. Among the top contributors to return over the last six months were: Itron Inc. (+101 bps), Standard Pacific Corp (+85 bps), Computer Programs & Systems (+75 bps), Centene Corp. (+69 bps), and DRS Technologies (+58 bps). The common theme remains: profitability, free cash flow and good valuations. Among the detractors were W Holdings (-65 bps), Commercial Metals (-46 bps), Cooper Companies (-45 bps), and KV Pharmaceuticals (-42 bps), although all continue to have strong fundamentals. The Fund's holdings in Santarus (-34 bps) were sold due to disappointing earnings, and the assets redeployed among stocks with stronger, near-term catalysts. Q. WHICH INVESTMENTS STAND OUT IN TERMS OF OVER PERFORMANCE IMPACT? A. Holdings in the Energy, Information Technology, Consumer Discretionary, Industrials, and Healthcare sectors have provided the strongest near-term returns. Comprehensive analysis and stock selection continued to make the difference in stock performance. 2 Small-Cap Value Equity Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 1,038.91 4.32 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,020.26 4.37 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.87% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS 3.89%. 3 Small-Cap Value Equity Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] Small-Cap Value Equity Fund Russell 2000 Index - -------------------------------------------------------------------------------- 04/28/00 10,000 10,000 06/01/00 9,890 10,241 12/01/00 11,326 9,650 06/01/01 12,029 10,312 12/01/01 12,455 9,896 06/01/02 12,466 9,433 12/01/02 10,730 7,876 06/01/03 11,116 9,288 12/01/03 13,317 11,601 06/01/04 14,247 12,385 12/01/04 15,334 13,728 06/01/05 15,931 13,555 - -------------------------------------------------------------------------------- Small-Cap Value Equity Fund (ending value $15,931) Russell 2000 Index (ending value $13,555) - --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- SIX ONE FIVE SINCE MONTHS YEAR YEAR INCEPTION - --------------------------------------------------------------------------------------------------------------------------- Small-Cap Value Equity Fund 3.89% 11.82% 10.00% 9.42% - --------------------------------------------------------------------------------------------------------------------------- Russell 2000 Index -1.26% 9.44% 5.77% 6.06% - --------------------------------------------------------------------------------------------------------------------------- Lipper peer group average* -0.71% 10.47% 6.50% N/A - --------------------------------------------------------------------------------------------------------------------------- Inception date 4/28/00 - ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT PROFILE A fund designed for investors who seek long-term growth of capital by investing at least 80% of its net assets in equity securities of small-cap companies under normal market conditions. The Fund invests primarily in small-cap companies that the portfolio managers believe are undervalued by the market but have solid growth prospects. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - --------------------------------------------------------------- Centene Corp. 3.17% - --------------------------------------------------------------- DRS Technologies, Inc. 2.30% - --------------------------------------------------------------- The Cooper Companies, Inc. 2.09% - --------------------------------------------------------------- Genesee & Wyoming Inc. (Class A) 2.09% - --------------------------------------------------------------- Standard-Pacific Corp. 1.87% - --------------------------------------------------------------- Oshkosh Truck Corp. 1.87% - --------------------------------------------------------------- Manitowoc Co. 1.77% - --------------------------------------------------------------- Federal Realty Investment Trust 1.71% - --------------------------------------------------------------- Parametric Technology Corp. 1.63% - --------------------------------------------------------------- Computer Programs and Systems, Inc. 1.60% - --------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $137,638 (in thousands) [Pie chart omitted -- plot points are as follows:] Short-Term Investments 15.8% Financial Services 15.5% Technology 14.3% Consumer Discretionary 12.4% Healthcare 11.8% Producer Durables 9.3% Real Estate Investment Trusts 5.0% Energy 4.9% Materials & Processing 4.9% Autos & Transportation 4.2% Consumer Staples 1.4% Utilities 0.5% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, AND FIVE-YEAR PERIODS INDICATED IN THE SMALL-CAP CORE PEER GROUP CONSISTING OF 114, 114, AND 57 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 7 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 SMALL-CAP VALUE EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- SMALL-CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 96.4% - -------------------------------------------------------------------------------- AUTOS & TRANSPORTATION -- 4.9% Genesee & Wyoming Inc. (Class A) 105,500 $ 2,870,655(a) Oshkosh Truck Corp. 32,800 2,567,584 RailAmerica, Inc. 35,500 422,450(a) 5,860,689 CONSUMER DISCRETIONARY -- 14.3% ADESA, Inc. 86,100 1,874,397 American Eagle Outfitters 63,100 1,934,015 Arbitron, Inc. 20,900 896,610 Brinker International, Inc. 18,900 756,945(a) Finish Line (Class A) 83,600 1,581,712 Linens 'n Things, Inc. 45,200 1,069,432(a) Marvel Enterprises, Inc. 58,100 1,145,732(a,d) Meritage Homes Corp. 16,500 1,311,750(a) School Specialty Inc. 17,400 809,100(a,d) TeleTech Holdings Inc. 125,400 1,022,010(a,d) The Talbots, Inc. 37,000 1,201,390(d) The Warnaco Group, Inc. 30,400 706,800(a,d) Timberland Co. (Class A) 49,600 1,920,512(a) Triarc Companies, Inc. (Class B) 62,700 931,722(d) 17,162,127 CONSUMER STAPLES -- 1.6% Gold Kist Inc. 16,600 358,228(a,d) Smithfield Foods, Inc. 58,200 1,587,114(a) 1,945,342 ENERGY -- 5.6% Chesapeake Energy Corp. 74,100 1,689,480 Hydril Company LP 20,700 1,125,045(a) Oil States International, Inc. 85,500 2,152,035(a) St. Mary Land & Exploration Co. 62,900 1,822,842 6,789,402 FINANCIALS -- 17.7% Cullen/Frost Bankers, Inc. 27,700 1,319,905 Digital Insight Corp. 54,200 1,296,464(a) HCC Insurance Holdings, Inc. 46,600 1,764,742 Hilb Rogal & Hobbs Co. 45,800 1,575,520(d) Interactive Data Corp. 80,300 1,668,634 Jones Lang LaSalle Inc. 24,700 1,092,481(a) MoneyGram International, Inc. 102,200 1,954,064 NCO Group, Inc. 11,800 255,234(a) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Platinum Underwriters Holdings Ltd. 24,500 $ 779,590 Raymond James Financial, Inc. 53,150 1,501,488 Sandy Spring Bancorp, Inc. 21,700 760,151(d) Sky Financial Group, Inc. 40,100 1,130,018(d) Sterling Bancorp 32,060 684,481(d) The BISYS Group, Inc. 58,900 879,966(a) W Holding Company, Inc. 136,782 1,397,912(d) Webster Financial Corp. 36,200 1,690,178 Westamerica Bancorp 29,200 1,542,052(d) 21,292,880 HEALTHCARE -- 13.5% Centene Corp. 129,800 4,358,684(a) Computer Programs and Systems, Inc. 59,000 2,198,930(d) Immunicon Corp. 65,000 329,550(a,d) KV Pharmaceutical Co. (Class A) 68,500 1,147,375(a,d) LifePoint Hospitals, Inc. 26,900 1,358,988(a) Medical Action Industries Inc. 37,700 672,945(a) Noven Pharmaceuticals Inc. 106,200 1,856,376(a,d) The Cooper Companies, Inc. 47,200 2,872,592 Thoratec Corp. 91,100 1,397,474(a,d) 16,192,914 MATERIALS & PROCESSING -- 5.6% Comfort Systems USA, Inc. 60,800 400,064(a) Commercial Metals co. 59,800 1,424,436 Harsco Corp. 32,200 1,756,510 Mueller Industries, Inc. 42,200 1,143,620 Packaging Corp. of America 57,200 1,204,060 Quanta Services, Inc. 84,900 747,120(a,d) 6,675,810 PRODUCER DURABLES -- 10.6% Itron, Inc. 25,400 1,134,872(a,d) Manitowoc Co. 59,400 2,436,588(d) Mine Safety Appliances Co. 28,700 1,325,940 Photon Dynamics, Inc. 39,500 814,095(a,d) Rudolph Technologies, Inc. 60,900 872,697(a,d) Semitool, Inc. 25,500 243,270(a,d) Standard-Pacific Corp. 29,200 2,568,140 Teledyne Technologies Inc. 49,500 1,612,710(a) Woodward Governor Co. 20,700 1,739,421(d) 12,747,733 REAL ESTATE INVESTMENT TRUSTS -- 5.7% BioMed Realty Trust Inc. 75,400 1,798,290 Federal Realty Investment Trust 39,900 2,354,100 Omega Healthcare Investors Inc. 102,000 1,311,720 Sizeler Property Investors 55,800 736,560 The Mills Corp. 11,300 686,927 6,887,597 See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 5 SMALL-CAP VALUE EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- TECHNOLOGY -- 16.4% CSG Systems International 53,700 $ 1,019,226(a) DRS Technologies, Inc. 61,700 3,163,976 EDO Corp. 27,000 807,570 Intergraph Corp. 62,200 2,143,412(a,d) Intermagnetics General Corp. 69,200 2,128,592(a,d) Manhattan Associates, Inc. 40,900 785,689(a,d) Micros Systems, Inc. 47,900 2,143,525(a) Mobility Electronics, Inc. 112,400 1,028,460(a,d) Parametric Technology Corp. 351,900 2,245,122(a) Plantronics Inc. 12,700 461,772 Varian, Inc. 49,000 1,851,710(a) Websense, Inc. 40,600 1,950,830(a) 19,729,884 UTILITIES -- 0.5% IDACORP, Inc. 20,700 634,041(d) TOTAL INVESTMENTS IN SECURITIES (COST $96,832,256) 115,918,419 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 18.1% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 3.4% GEI Short Term Investment Fund 3.20% 4,112,754 4,112,754(b,e) SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL FROM SECURITIES ON LOAN -- 14.7% State Street Navigator Security Lending Prime Portfolio 3.31% 17,606,392 17,606,392(b,c) TOTAL SHORT-TERM INVESTMENTS (COST $21,719,146) 21,719,146 - -------------------------------------------------------------------------------- VALUE - -------------------------------------------------------------------------------- TOTAL INVESTMENTS (COST $118,551,402) $137,637,565 LIABILITIES IN EXCESS OF OTHER ASSETS-- (14.5)% (17,461,818) ------------ NET ASSETS-- 100.0% $120,175,747 ============ - -------------------------------------------------------------------------------- OTHER INFORMATION - -------------------------------------------------------------------------------- The GEI Small-Cap Value Equity had the following written option contracts open at June 30, 2005: EXPIRATION DATE/ NUMBER OF CALL OPTIONS STRIKE PRICE CONTRACTS VALUE - -------------------------------------------------------------------------------- Micro Systems Inc. (Written Option Premium $87,099) July 2005/ 45.00 479 $(45,505) Drs Technologies Inc. (Written Option Premium $17,719) Sept 2005/50.00 81 (26,730) -------- $(72,235) ======== See Notes to Schedule of Investments on page 7 and Notes to Financial Statements. 6 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Russell 2000 Index (Russell 2000) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise the index. The Russell 2000 Index is a market capitalization-weighted index consisting of approximately 2,000 of the smallest U.S.-domiciled publicly traded common stocks that are included in the Russell 3000(R) Index. The Russell 3000 Index is comprised of the 3,000 largest U.S. domiciled companies. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Coupon amount represents effective yield. (c) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (d) All or a portion of the security is out on loan. (e) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. + Percentages are based on net assets as of June 30, 2005. 7 Financial Highlights Selected data based on a share outstanding throughout the periods indicated - --------------------------------------------------------------------------------
SMALL-CAP VALUE EQUITY FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00(B) - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE -- -- -- -- -- 4/28/00 Net asset value, beginning of period ............... $13.62 $12.74 $10.27 $12.01 $11.27 $10.00 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ........................... 0.01 0.08 0.02 0.03 0.04 0.05 Net realized and unrealized gains/(losses) on investments ................ 0.52 1.85 2.46 (1.69) 1.08 1.27 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ..... 0.53 1.93 2.48 (1.66) 1.12 1.32 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income ........................... -- 0.07 0.01 0.02 0.04 0.04 Net realized gains .............................. -- 0.98 -- 0.05 0.34 -- Return of capital ............................... -- -- -- 0.01 -- 0.01 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ................................ -- 1.05 0.01 0.08 0.38 0.05 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD ..................... $14.15 $13.62 $12.74 $10.27 $12.01 $11.27 ==================================================================================================================================== TOTAL RETURN (A) ................................... 3.89% 15.15% 24.11% (13.86)% 9.97% 13.26% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ........ $120,176 $117,158 $86,330 $52,359 $32,787 $11,393 Ratios to average net assets: Net investment income* ....................... 0.21% 0.67% 0.17% 0.34% 0.56% 0.76% Expenses* .................................... 0.87% 0.88% 0.86% 0.84% 0.91% 0.99% Portfolio turnover rate ......................... 22% 101% 119% 108% 130% 111%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. Periods less than one year are not annualized. (b) Information is for the period April 28, 2000, commencement of investment operations, through December 31, 2000. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 8
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) - ------------------------------------------------------------------------------------- SMALL-CAP VALUE EQUITY FUND - ------------------------------------------------------------------------------------- ASSETS Investments in securities, at market * (cost $96,832,256) .... $115,918,419 Short-term Investments (at amortized cost) ................... 17,606,392 Short-term affiliated investments (at amortized cost) ........ 4,112,754 Income receivables ........................................... 169,275 Receivable for fund shares sold .............................. 132,301 - ------------------------------------------------------------------------------------- TOTAL ASSETS ............................................. 137,939,141 - ------------------------------------------------------------------------------------- LIABILITIES Payable upon return of securities loaned ..................... 17,606,392 Payable to GEAM .............................................. 84,767 Options written at market (premium received $104,818) ........ 72,235 - ------------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................ 17,763,394 - ------------------------------------------------------------------------------------- NET ASSETS ...................................................... $120,175,747 ===================================================================================== NET ASSETS CONSIST OF: Capital paid in .............................................. 98,562,223 Undistributed net investment income .......................... 150,516 Accumulated net realized gain ................................ 2,344,262 Net unrealized appreciation on: Investments .............................................. 19,086,163 Written options .......................................... 32,583 - ------------------------------------------------------------------------------------- NET ASSETS ...................................................... $120,175,747 ===================================================================================== Shares outstanding ($0.01 par value; unlimited shares authorized) 8,494,034 Net asset value per share ....................................... $ 14.15
* Includes $17,135,929 of securities on loan. See Notes to Financial Statements. 9 Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) - ------------------------------------------------------------------------------- SMALL-CAP VALUE EQUITY FUND - ------------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend ............................................. $ 576,691 Interest* ............................................ 8,233 Interest from affliated investments .................. 35,576 Less: Foreign taxes withheld ......................... (1,030) - ------------------------------------------------------------------------------- TOTAL INCOME ........................................... 619,470 - ------------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees ..................... 458,950 Custody and accounting expenses ...................... 19,867 Professional fees .................................... 9,528 Transfer agent ....................................... 83 Trustee's fees ....................................... 1,716 Registration expenses ................................ 378 Other expenses ....................................... 7,930 - ------------------------------------------------------------------------------- TOTAL EXPENSES ......................................... 498,452 - ------------------------------------------------------------------------------- NET INVESTMENT INCOME .................................. 121,018 =============================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN ON: Investments ....................................... 2,019,362 Written options ................................... 139,339 Increase in unrealized appreciation/(depreciation) on: Investments ....................................... 1,936,363 Written options ................................... 73,678 - ------------------------------------------------------------------------------- Net realized and unrealized gain on investments ...... 4,168,742 - ------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ... $ 4,289,760 =============================================================================== * Income attributable to security lending activity, net of rebate expenses, was $8,233. See Notes to Financial Statements. 10
Statements of Changes in Net Assets - ---------------------------------------------------------------------------------------------------------------------------- SMALL-CAP VALUE EQUITY FUND - ---------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - ---------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income (loss) .............................................. $ 121,018 $ 578,820 Net realized gain on investments, futures, written options, foreign currency transactions and swaps ................................................... 2,158,701 10,226,228 Net increase in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation ... 2,010,041 3,230,752 - ---------------------------------------------------------------------------------------------------------------------------- Net increase from operations ............................................... 4,289,760 14,035,800 - ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ...................................................... -- (568,969) Net realized gains ......................................................... -- (7,815,312) - ---------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS .......................................................... -- (8,384,281) - ---------------------------------------------------------------------------------------------------------------------------- Increase in net assets from operations and distributions ..................... 4,289,760 5,651,519 - ---------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: Proceeds from sale of shares ............................................... 9,272,400 36,966,138 Value of distributions reinvested .......................................... -- 8,384,229 Cost of shares redeemed .................................................... (10,544,697) (20,173,962) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) from share transactions ........................... (1,272,297) 25,176,405 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS ...................................... 3,017,463 30,827,924 NET ASSETS Beginning of period .......................................................... 117,158,284 86,330,360 - ---------------------------------------------------------------------------------------------------------------------------- End of period ............................................................... $ 120,175,747 $ 117,158,284 ============================================================================================================================ UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD .............................. $ 150,516 $ 29,498 - ---------------------------------------------------------------------------------------------------------------------------- CHANGES IN PORTFOLIO SHARES Shares sold ................................................................ 685,684 2,753,656 Issued for distributions reinvested ........................................ -- 613,780 Shares redeemed ............................................................ (791,373) (1,546,267) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in fund shares .......................................... (105,689) 1,821,169 ============================================================================================================================
See Notes to Financial Statements. 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund (the "Fund"), International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the repurchase price. In the event the seller defaults and the value of the security declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial institutions determined by GEAM to be creditworthy, subject to certain limitations. The Fund continues to receive the interest and dividends on the loaned securities during the term of the loan. The loans of securities are secured by collateral in the form of cash or other liquid assets, which are segregated and maintained with the custodian in an amount at least equal to 102% of the current market value of the loaned securities. During the term of the loan, the Fund will record any gain or loss in the market value of its loaned securities and of securities in which cash collateral is invested. The Fund will also earn interest, net of any rebate, from securities in which cash collateral is invested. In the event the counterparty (borrower) does not meet its contracted obligation to return the securities, the Fund may be exposed to the risk of loss of reacquiring the loaned securities at prevailing market prices using the proceeds of the sale of the collateral. FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments denominated in foreign currencies are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period. Such fluctuations are included in the net realized or unrealized gain or loss from investments. Net realized gains or losses on foreign currency transactions represent net gains or losses on sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income and withholding taxes accrued and the U.S. dollar amount actually received or paid, and gains or losses between the trade and settlement date on purchases and sales of securities. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases or decreases in unrealized appreciation/depreciation on foreign currency related transactions. INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates of inflation, repatriation on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, tariffs and taxes, subject to delays in settlements, and their prices may be more volatile. The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes.
- --------------------------------------------------------------------------------------------------------------------------- At June 30, 2005, information on the tax cost of investments is as follows: Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $118,642,244 $22,130,833 $(3,135,512) $18,995,321
As of December 31, 2004, the Fund has no capital loss carryover. During the year ended December 31, 2004, the Fund utilized approximately $2,220,032 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. 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Ordinary Long-Term Income Capital Gains Total - -------------------------------------------------------------------------------- $6,124,109 $2,260,172 $8,384,281 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 are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .80%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $1,592 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. The Board, including the independent directors, also at that meeting unanimously approved the sub-advisory agreement between Palisade Capital Management, L.L.C. and GEAM on behalf of the Small-Cap Value Equity Fund. In considering whether to approve the investment advisory and sub-advisory agreement, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM and the sub-adviser at the Board's request. The Board also considered detailed information regarding performance and expenses of other 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- investment companies with similar investment objectives and sizes, which was prepared by an independent third party provider, Lipper Inc. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreements and the related sub-advisory agreement for the Small-Cap Value Equity Fund, the independent directors reviewed the proposed continuance of the agreements with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuances. The independent directors also discussed the proposed continuances in a private session with their independent legal counsel at which no representatives of GEAM or the sub-adviser were present. In reaching their determinations relating to continuance of the agreements with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the sub-adviser, and the independent directors concurred that GEAM and the sub-adviser provide high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Funds. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board also recognized GEAM's responsibility for supervising the sub-adviser's services. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM and, where relevant, representatives of the sub-adviser, discussed in detail their 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors reviewed comparative fee information for the sub-adviser, as well as an analysis of the profitability to the sub-adviser of the sub-advisory agreement, and did not find the sub-advisory fee to be excessive on the basis of this information. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. 15 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those lower fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM and the sub-adviser in concluding that the contractual advisory and sub-advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of each advisory and sub-advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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 investment sub-advisory agreements with GEAM, Palisade Capital Management, LLC ("Palisade") is the Sub-Adviser to the Small-Cap Value Equity Fund. Palisade is responsible for the day-to-day portfolio management of the assets of the Fund, including the responsibility for making decisions to buy, sell or hold a particular security, under the general supervision of GEAM and the Board. For their services, GEAM pays Palisade monthly sub-advisory fees which are calculated as a percentage of the average daily net assets of the Fund. 6. INVESTMENT TRANSACTIONS PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from sales of investments, other than short-term securities and options, for the period ended June 30, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $25,255,691 $25,956,093 OPTIONS During the period ended June 30, 2005, the following option contracts were written: Number of Contracts Premium - ------------------------------------------------------------- Balance as of December 31, 2004 (292) $(93,225) Written (718) (150,932) - ------------------------------------------------------------- Closed and expired 450 139,339 - ------------------------------------------------------------- Balance as of June 30, 2005 (560) (104,818) - ------------------------------------------------------------- SECURITY LENDING At June 30, 2005, the Fund participated in securities lending: Loaned securities at Cash market value Collateral - -------------------------------------------------------------------------------- $17,135,929 $17,586,715 16 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 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. 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year 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 18 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 19 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 Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 20 [This page intentionally left blank.] [This page intentionally left blank.] GE Investments Funds, Inc. International Equity Fund Semi-Annual Report JUNE 30, 2005 [GE Logo omitted] GE Investments Funds, Inc. International Equity Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS .............................. 1 NOTES TO PERFORMANCE .................................................... 8 NOTES TO SCHEDULE OF INVESTMENTS ........................................ 8 FINANCIAL STATEMENTS Financial Highlights ............................................... 9 Statement of Assets and Liabilities ................................ 10 Statement of Operations ............................................ 11 Statements of Changes in Net Assets ................................ 12 Notes to Financial Statements ...................................... 13 ADDITIONAL INFORMATION .................................................. 19 INVESTMENT TEAM ......................................................... 22 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. International Equity Fund Q&A - -------------------------------------------------------------------------------- THE INTERNATIONAL EQUITY FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES BRIAN HOPKINSON, RALPH R. LAYMAN, JONATHAN L. PASSMORE, MICHAEL J. SOLECKI AND JUDITH A. STUDER. AS LEAD PORTFOLIO MANAGER FOR THE FUND, MR. LAYMAN (PICTURED BELOW) OVERSEES THE ENTIRE TEAM AND ASSIGNS A PORTION OF THE FUND TO EACH MANAGER, INCLUDING HIMSELF. RALPH R. LAYMAN IS A DIRECTOR AND EXECUTIVE VICE PRESIDENT OF GE ASSET MANAGEMENT. HE MANAGES THE OVERALL INTERNATIONAL EQUITY INVESTMENTS FOR GE ASSET MANAGEMENT. MR. LAYMAN HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE FUND SINCE 1997. MR. LAYMAN JOINED GE ASSET MANAGEMENT IN 1991 AS SENIOR VICE PRESIDENT FOR INTERNATIONAL INVESTMENTS AND BECAME AN EXECUTIVE VICE PRESIDENT IN 1992. MR. LAYMAN IS THE HOLDER OF A CHARTERED FINANCIAL ANALYST DESIGNATION, A CHARTER MEMBER OF THE INTERNATIONAL SOCIETY OF SECURITY ANALYSTS AND A MEMBER OF THE NEW YORK SOCIETY OF SECURITY ANALYSTS. HE IS ALSO A MEMBER OF THE NEW YORK STOCK EXCHANGE INTERNATIONAL CAPITAL MARKETS ADVISORY COMMITTEE AND A MEMBER OF THE FRANK RUSSELL 20/20 EXECUTIVE COMMITTEE. HE HOLDS A BS IN ECONOMICS AND AN MS IN FINANCE FROM THE UNIVERSITY OF WISCONSIN. BRIAN HOPKINSON IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A PORTFOLIO MANAGER FOR THE FUND SINCE SEPTEMBER 1997. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. HOPKINSON WORKED FOR FIDUCIARY TRUST INTERNATIONAL IN BOTH LONDON AND NEW YORK. JONATHAN L. PASSMORE IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE JANUARY 2002. PRIOR TO JOINING GE ASSET MANAGEMENT IN JANUARY 2001, HE WAS WITH MERRILL LYNCH FOR SIX YEARS, MOST RECENTLY AS DIRECTOR, INTERNATIONAL EQUITY. MICHAEL J. SOLECKI IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE SEPTEMBER 1997 HE JOINED GE ASSET MANAGEMENT IN 1990 AS AN INTERNATIONAL EQUITY ANALYST. HE BECAME A VICE PRESIDENT FOR INTERNATIONAL EQUITY PORTFOLIOS IN 1996 AND SENIOR VICE PRESIDENT IN 2000. JUDITH A. STUDER IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SHE HAS SERVED AS A PORTFOLIO MANAGER OF THE FUND SINCE SEPTEMBER 1997. MS. STUDER JOINED GE ASSET MANAGEMENT IN AUGUST 1984. SHE BECAME SENIOR VICE PRESIDENT-- DOMESTIC EQUITIES IN 1991 AND SENIOR VICE PRESIDENT-- INTERNATIONAL EQUITIES IN 1995. Q. HOW DID THE INTERNATIONAL EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the International Equity Fund returned (0.82)%. The MSCI EAFE, the Fund's benchmark, returned (1.17)% and the Fund's Lipper peer group of 116 International Core Funds returned an average of (0.80)% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE? A. Rising oil, gas and other commodity prices created uncertainty in some major economies already concerned about consumer fatigue. A strong rally from the U.S. Dollar served to reduce the extent of overseas returns. 1 International Equity Fund Q&A - -------------------------------------------------------------------------------- Q. WHICH PARTICULAR STOCK/SECTORS SIGNIFICANTLY CONTRIBUTED TO FUND PERFORMANCE? A. Energy was the runaway best performer on the back of the rising price environment. In the worst performing telecommunication sector, fixed and mobile companies weakened on increased competition combined with the need to increase investment to fight their increasingly aggressive rivals. Q. WHAT WORLD EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS? A. Oil started the year around $40 per barrel and rose to around $60 by the end of June. Technical (non-fundamental) issues provided a floor for the Dollar in early 2005 but increasing support for the U.S. unit came from Europe's political and economic woes, Japan's lack of material reform, and the prospect of lower rates in the U.K. Q. WHICH STOCKS/SECTORS HAVE PERFORMED WELL? WHICH HAVE NOT PERFORMED WELL? A. In the technology sector, Taiwan Semiconductor (+17.8%) was the biggest contributor to returns with Samsung Electronics (+9.25%) also helping, as the semi-conductor industry appeared to regain momentum. Mining stock BHP Billiton (UK) (+9.92%) was a sizeable gainer but was countered by the presence of Alcan (Canada - aluminium) (-31.0%) which fell on higher input costs and a strong Canadian Dollar. The absence of key energy stocks more than offset the gains from the Fund's own oil and gas holdings. However, industrial companies engaged in oil support services were major gainers. Q. WHAT WERE THE MAJOR BUYS AND SELLS FOR THE PERIOD AND WHY? A. Positions were reduced in Financials, especially European banks and insurance, based on valuations and concerns regarding the weakening European economy and troubles looming for the UK housing industry. Stocks were selectively added in oil support services and telecommunication services where new technology is adding a growth component to attractive valuations, and Japanese investment banking, to take advantage of the new environment of M&A developing in Japan currently. 2 International Equity Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 991.80 5.64 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,018.96 5.71 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.14% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS (0.82)%. 3 International Equity Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] International Equity Fund MSCI EAFE - -------------------------------------------------------------------------------- 06/01/95 10,000 10,000 12/01/95 10,660 10,839 12/01/96 11,717 11,494 12/01/97 12,908 11,698 12/01/98 15,160 14,037 12/01/99 19,758 17,822 12/01/00 17,245 15,297 12/01/01 13,648 11,991 12/01/02 10,396 10,079 12/01/03 14,337 13,971 12/01/04 16,609 16,799 06/01/05 16,473 16,602 - -------------------------------------------------------------------------------- International Equity Fund (ending value $16,473) MSCI EAFE (ending value $16,602) - --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - ----------------------------------------------------------------------------------------------------------------- SIX ONE FIVE TEN MONTHS YEAR YEAR YEAR - ----------------------------------------------------------------------------------------------------------------- International Equity Fund -0.82% 13.43% -4.01% 5.12% - ----------------------------------------------------------------------------------------------------------------- MSCI EAFE -1.17% 13.65% -0.59% 5.20% - ----------------------------------------------------------------------------------------------------------------- Lipper peer group average* -0.80% 13.41% -1.66% 6.11% - ----------------------------------------------------------------------------------------------------------------- Inception date 5/1/95 - -----------------------------------------------------------------------------------------------------------------
INVESTMENT PROFILE A fund designed for investors who seek long-term growth of capital by investing at least 80% of its net assets in equity securities under normal market conditions. The Fund invests primarily in developed and developing countries outside the United States. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - --------------------------------------------------------------- Total S.A. 2.39% - --------------------------------------------------------------- BHP Billiton PLC 2.31% - --------------------------------------------------------------- GlaxoSmithKline PLC 2.18% - --------------------------------------------------------------- Ente Nazionale Idrocarburi S.p.A. 1.95% - --------------------------------------------------------------- Roche Holding AG 1.85% - --------------------------------------------------------------- Nestle S.A. (Regd.) 1.67% - --------------------------------------------------------------- Taiwan Semiconductor Manufacturing Co. Ltd. 1.63% - --------------------------------------------------------------- Telefonica S.A. 1.63% - --------------------------------------------------------------- Nokia Oyj 1.62% - --------------------------------------------------------------- Smiths Group PLC 1.58% - --------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $69,605 (in thousands) [Pie chart omitted -- plot points are as follows:] Continental Europe 39.2% United Kingdom 19.5% United States 16.7% Japan 12.6% Emerging Asia 5.4% Latin America 3.3% Pac Basin (excluding Japan) 2.0% Canada 0.8% Emerging Europe 0.5% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE INTERNATIONAL CORE PEER GROUP CONSISTING OF 116, 110, 62, AND 34 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 8 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 INTERNATIONAL EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 98.4% - -------------------------------------------------------------------------------- BRAZIL -- 2.9% Cia Vale do Rio Doce ADR 35,440 $ 1,037,683 Empresa Brasileira de Aeronautica S.A. ADR 12,455 411,887(f) Petroleo Brasileiro S.A. ADR. 5,751 264,776 1,714,346 CANADA -- 0.9% Alcan Inc. 6,938 208,344(f) Manulife Financial Corp. 3,871 184,922 Nortel Networks Corp. 61,032 158,958(a) 552,224 CHINA -- 0.8% China Petroleum & Chemical Corp. 656,000 257,394 Huaneng Power International, Inc. 323,136 236,949(f) 494,343 DENMARK -- 0.6% Group 4 Securicor PLC 129,396 348,963 FINLAND -- 2.0% Nokia Oyj 67,379 1,129,777 Sampo Oyj (Series A) 4,107 64,041 1,193,818 FRANCE -- 14.1% Accor S.A. 2,197 103,120(f) AXA S.A. 29,548 739,413 BNP Paribas 15,719 1,079,012(e,f) Carrefour S.A. 10,276 498,869(f) Credit Agricole S.A. 22,358 567,339(f) France Telecom S.A. 12,631 369,448 Lagardere S.C.A. (Regd.) 11,255 834,584(f) LVMH Moet Hennessy Louis Vuitton S.A. 5,653 437,319(f) Renault S.A. 6,973 615,411(f) Sanofi-Aventis 6,860 563,913(f) Total S.A. 7,072 1,663,541(f) Veolia Environnement 22,093 831,025(f) 8,302,994 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- GERMANY -- 6.0% Allianz AG (Regd.) 3,714 $ 427,018 BASF AG 9,338 621,777 Bayerische Motoren Werke AG 8,110 370,447 E.ON AG 10,505 937,053 Linde AG 4,762 321,809(f) Siemens AG (Regd.) 12,028 878,652 3,556,756 HONG KONG -- 2.4% Hongkong Land Holdings Ltd. 128,999 359,907 Jardine Matheson Holdings Ltd. 13,600 240,720 Sun Hung Kai Properties Ltd. (REIT) 81,000 799,757 1,400,384 INDIA -- 1.0% ICICI Bank Ltd. ADR 8,106 177,116 Reliance Industries Ltd. GDR 14,365 418,165(b) 595,281 ITALY -- 5.1% Banca Intesa S.p.A. 101,475 464,990(f) Ente Nazionale Idrocarburi S.p.A. 52,682 1,359,140(f) Mediaset S.p.A. 6,207 73,191(f) Telecom Italia S.p.A 56,474 146,654 UniCredito Italiano S.p.A. 183,894 972,342(f) 3,016,317 JAPAN -- 14.9% Acom Co. Ltd. 13,513 867,047 Aiful Corp. 4,675 348,906 Asahi Glass Co. Ltd. 83,003 873,400(f) Canon Inc. 11,200 590,272(f) Chiyoda Corp. 45,618 566,057(f) Chugai Pharmaceutical Co. Ltd. 13,500 208,573(f) Daikin Industries Ltd. 6,000 150,257(f) Honda Motor Co. Ltd. 8,600 424,528 Hoya Corp. 5,200 600,668 Komatsu Ltd. 42,811 332,644 Kubota Corp. 27,000 148,145 Lawson, Inc. 3,852 134,530 Mitsubishi Estate Co. Ltd. (REIT) 42,000 462,792(f) Mitsui & Co. Ltd. 49,000 464,308 Mitsui OSK Lines Ltd. 58,834 363,697(f) Mitsui Sumitomo Insurance Co. Ltd. 71,000 640,096 Nidec Corp. 4,152 439,892 Nomura Holdings, Inc. 38,000 455,067 SMC Corp. 4,571 499,135 Toto Ltd. 11,000 87,059(f) Toyota Motor Corp. 3,297 118,264 8,775,337 See Notes to Schedule of Investments on page 8 and Notes to Financial Statements. 5 INTERNATIONAL EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- MALAYSIA -- 0.5% Malaysia International Shipping Corp. BHD 56,366 $ 265,514 MEXICO -- 1.0% America Movil S.A. de C.V. ADR (Series L) 10,079 600,809 NETHERLANDS -- 2.7% ING Groep N.V. 19,960 564,726 Koninklijke Philips Electronics N.V. 40,589 1,027,006 1,591,732 NORWAY -- 1.4% Stolt Offshore S.A. 45,815 418,711(a) Telenor ASA 47,135 376,702 795,413 RUSSIA -- 0.6% LUKOIL ADR 7,080 260,402(b) LUKOIL ADR 2,480 91,289 351,691 SOUTH KOREA -- 2.1% Kookmin Bank ADR 8,805 401,332 Samsung Electronics Co. Ltd. GDR 3,511 840,007(b) 1,241,339 SPAIN -- 4.0% ACS Actividades de Construccion y Servicios S.A. 13,951 390,829(f) Banco Santander Central Hispano S.A. (Regd.) 68,864 799,520(f) Telefonica S.A. 69,166 1,133,782(f) Telefonica S.A. ADR 295 14,447 2,338,578 SWEDEN -- 2.4% Sandvik AB 19,904 740,447(f) Telefonaktiebolaget LM Ericsson (Series B) 217,284 698,407 1,438,854 SWITZERLAND -- 8.0% ABB Ltd. (Regd.) 85,854 562,933(a) Adecco S.A. 7,323 333,825 Credit Suisse Group (Regd.) 21,687 855,732(e) Holcim Ltd. 5,373 327,136 Nestle S.A. (Regd.) 4,548 1,164,424(e) Novartis AG (Regd.) 3,579 170,555 Roche Holding AG 10,161 1,286,484 4,701,089 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- TAIWAN -- 1.9% Taiwan Semiconductor Manufacturing Co. Ltd. 651,889 $ 1,136,123 UNITED KINGDOM -- 23.1% BG Group PLC 64,855 533,584 BHP Billiton PLC 126,122 1,609,599(e) Brambles Industries PLC 173,031 949,057 Diageo PLC 56,145 828,243 GlaxoSmithKline PLC 62,726 1,518,972(e) Group 4 Securicor PLC 94,320 248,524 Kingfisher PLC 110,979 489,353 Lloyds TSB Group PLC 63,411 537,616 National Grid Transco PLC 13,091 126,945 Prudential PLC 50,133 445,934 Reed Elsevier PLC 87,273 836,131 Rio Tinto PLC (Regd.) 21,158 647,753 Royal Bank of Scotland Group PLC 28,955 875,040 Smith & Nephew PLC 69,358 685,007 Smiths Group PLC 66,906 1,102,116 Tesco PLC 174,475 996,851 Vodafone Group PLC 427,910 1,043,129(e) Wolseley PLC 5,510 115,949 13,589,803 TOTAL INVESTMENTS IN SECURITIES (COST $49,906,033) 58,001,708 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 19.7% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 1.1% GEI Short Term Investment Fund 3.20% 636,055 636,055(c,g) SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL FROM SECURITIES ON LOAN -- 18.6% State Street Navigator Securities Lending Prime Portfolio 3.31% 10,967,411 10,967,411(c,d) TOTAL SHORT-TERM INVESTMENTS (COST $11,603,466) 11,603,466 TOTAL INVESTMENTS (COST $61,509,499) 69,605,174 LIABILITIES IN EXCESS OF OTHER ASSETS-- (18.1)% (10,668,786) ----------- NET ASSETS-- 100.0% $58,936,388 =========== See Notes to Schedule of Investments on page 8 and Notes to Financial Statements. 6 INTERNATIONAL EQUITY FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- OTHER INFORMATION - -------------------------------------------------------------------------------- The GEI International Equity had the following long futures contracts open at June 30, 2005: NUMBER CURRENT EXPIRATION OF NOTIONAL UNREALIZED DESCRIPTION DATE CONTRACTS VALUE APPRECIATION - -------------------------------------------------------------------------------- Topix Index Futures September 2005 1 $105,992 $4,061 The GEI International Equity was invested in the following sectors at June 30, 2005: SECTOR PERCENTAGE (BASED ON MARKET VALUE) - -------------------------------------------------------------------------------- Financials 19.15% Short-Term 16.67% Industrials 14.13% Information Technology 8.04% Consumer Discretionary 7.66% Energy 7.57% Materials 6.86% Healthcare 6.37% Telecommunication Services 5.29% Consumer Staples 5.20% Utilities 3.06% ------- 100.00% ======= See Notes to Schedule of Investments on page 8 and Notes to Financial Statements. 7 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Morgan Stanley Capital International EAFE Index (MSCI EAFE) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise the index. The MSCI(R) EAFE(R) Index is a market capitalization-weighted index of equity securities of companies domiciled in various countries. The Index is designed to represent the performance of developed stock markets outside the U.S. and Canada and excludes certain market segments unavailable to U.S. based investors. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Pursuant to Rule 144A of the Securities Act of 1933, these securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, these securities amounted to $1,518,574 or 2.58% of net assets for the GE Investments International Equity Fund. These securities have been determined to be liquid using procedures established by the Board of Trustees. (c) Coupon amount represents effective yield. (d) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (e) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures, forward foreign currency contracts and/or TBA's. (f) All or a portion of the security is out on loan. (g) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. + Percentages are based on net assets as of June 30, 2005. Abbreviations: ADR American Depositary Receipt GDR Global Depositary Receipt REGD. Registered REIT Real Estate Investment Trust 8
Financial Highlights Selected data based on a share outstanding throughout the periods indicated - ---------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ---------------------------------------------------------------------------------------------------------------------------------- INCEPTION DATE -- -- -- -- -- 5/1/95 Net asset value, beginning of period .................. $9.76 $8.52 $6.23 $8.28 $10.61 $14.47 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income .............................. 0.11 0.11 0.07 0.07 0.09 0.09 Net realized and unrealized gains/(losses) on investments ................... (0.19) 1.24 2.29 (2.04) (2.30) (2.02) - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ........ (0.08) 1.35 2.36 (1.97) (2.21) (1.93) - ---------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income .............................. -- 0.11 0.07 0.08 0.08 0.06 Net realized gains ................................. -- -- -- -- 0.04 1.87 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ................................... -- 0.11 0.07 0.08 0.12 1.93 - ---------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD ........................ $9.68 $9.76 $8.52 $6.23 $8.28 $10.61 ================================================================================================================================== TOTAL RETURN (A) ......................................(0.82)% 15.85% 37.91% (23.83)% (20.86)% (12.72)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ...........$58,936 $55,714 $45,198 $31,683 $42,119 $52,110 Ratios to average net assets: Net investment income* .......................... 2.35% 1.31% 1.13% 0.88% 0.99% 0.72% Expenses* ....................................... 1.14% 1.15% 1.07% 1.09% 1.07% 1.06% Portfolio turnover rate ............................ 25% 38% 35% 42% 42% 49%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 9
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) - -------------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------------- ASSETS Investments in securities, at market* (cost $49,906,033) ..... $ 58,001,708 Short-term Investments (at amortized cost ) .................. 10,967,411 Short-term affiliated investments (at amortized cost) ........ 636,055 Restricted cash** ............................................ 280,120 Foreign cash (cost $366,121) ................................. 364,637 Receivable for investments sold .............................. 785,828 Income receivables ........................................... 194,387 Receivable for fund shares sold .............................. 508 Variation margin receivable .................................. 564 - -------------------------------------------------------------------------------------- TOTAL ASSETS ............................................ 71,231,218 - -------------------------------------------------------------------------------------- LIABILITIES Payable upon return of securities loaned ..................... 10,967,411 Payable for investments purchased ............................ 1,257,563 Payable for fund shares redeemed ............................. 13,975 Payable to GEAM .............................................. 55,881 - -------------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................ 12,294,830 - -------------------------------------------------------------------------------------- NET ASSETS ...................................................... $ 58,936,388 ====================================================================================== NET ASSETS CONSIST OF: Capital paid in .............................................. 61,287,227 Undistributed net investment income .......................... 720,870 Accumulated net realized loss ................................ (11,165,642) Net unrealized appreciation/(depreciation) on: Investments .............................................. 8,095,675 Futures .................................................. 4,061 Foreign currency related transactions .................... (5,803) - -------------------------------------------------------------------------------------- NET ASSETS ...................................................... $ 58,936,388 ====================================================================================== Shares outstanding ($0.01 par value; unlimited shares authorized) 6,086,366 Net asset value per share ....................................... $9.68
* Includes $10,447,473 of securities on loan. ** Cash on deposit with a broker as collateral for international futures contracts. See Notes to Financial Statements. 10 Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) - --------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - --------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend ......................................... $ 1,086,408 Interest* ........................................ 41,657 Interest from affliated investments .............. 22,524 Less: Foreign taxes withheld ..................... (140,105) - --------------------------------------------------------------------------- TOTAL INCOME ....................................... 1,010,484 - --------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees ................. 290,565 Transfer agent ................................... 109 Trustee's fees ................................... 887 Custody and accounting expenses .................. 31,548 Professional fees ................................ 4,307 Registration expenses ............................ 197 Other expenses ................................... 2,738 - --------------------------------------------------------------------------- TOTAL EXPENSES ..................................... 330,351 - --------------------------------------------------------------------------- NET INVESTMENT INCOME .............................. 680,133 =========================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN (LOSS) ON: Investments ................................... 2,964,286 Futures ....................................... 90,615 Foreign currency transactions ................. (62,576) DECREASE IN UNREALIZED DEPRECIATION ON: Investments ................................... (4,083,465) Futures ....................................... (10,794) Foreign currency transactions ................. (11,487) - --------------------------------------------------------------------------- Net realized and unrealized loss on investments .. (1,113,421) - --------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (433,288) =========================================================================== * Income attributable to security lending activity, net of rebate expenses was $36,329. See Notes to Financial Statements. 11
Statements of Changes in Net Assets - --------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - --------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ................................................. $ 680,133 $ 627,917 Net realized gain on investments, futures, written options, foreign currency transactions and swaps .............................. 2,992,325 3,272,608 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation (4,105,746) 3,550,278 - --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) from operations ................................ (433,288) 7,450,803 - --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income .................................................. -- (615,816) - --------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ...................................................... -- (615,816) - --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations and distributions ...... (433,288) 6,834,987 - --------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: Proceeds from sale of shares ........................................... 11,509,186 17,104,398 Value of distributions reinvested ...................................... -- 615,816 Cost of shares redeemed ................................................ (7,853,550) (14,039,465) - --------------------------------------------------------------------------------------------------------------------------- Net increase from share transactions .................................. 3,655,636 3,680,749 - --------------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS .................................. 3,222,348 10,515,736 NET ASSETS Beginning of period ...................................................... 55,714,040 45,198,304 - --------------------------------------------------------------------------------------------------------------------------- End of period ........................................................... $ 58,936,388 $ 55,714,040 =========================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ......................... $ 720,870 $ 40,737 - --------------------------------------------------------------------------------------------------------------------------- CHANGES IN PORTFOLIO SHARES Shares sold ............................................................ 1,186,957 1,955,767 Issued for distributions reinvested .................................... -- 63,421 Shares redeemed ........................................................ (806,395) (1,620,965) - --------------------------------------------------------------------------------------------------------------------------- Net increase in fund shares ................................................. 380,562 398,223 ===========================================================================================================================
See Notes to Financial Statements. 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund (the "Fund"), Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the repurchase price. In the event the seller defaults and the value of the security declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial institutions determined by GEAM to be creditworthy, subject to certain limitations. The Fund continues to receive the interest and dividends on the loaned securities during the term of the loan. The loans of securities are secured by collateral in the form of cash or other liquid assets, which are segregated and maintained with the custodian in an amount at least equal to 102% of the current market value of the loaned securities. During the term of the loan, the Fund will record any gain or loss in the market value of its loaned securities and of securities in which cash collateral is invested. The Fund will also earn interest, net of any rebate, from securities in which cash collateral is invested. In the event the counterparty (borrower) does not meet its contracted obligation to return the securities, the Fund may be exposed to the risk of loss of reacquiring the loaned securities at prevailing market prices using the proceeds of the sale of the collateral. FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments denominated in foreign currencies are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period. Such fluctuations are included in the net realized or unrealized gain or loss from investments. Net realized gains or losses on foreign currency transactions represent net gains or losses on sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income and withholding taxes accrued and the U.S. dollar amount actually received or paid, and gains or losses between the trade and settlement date on purchases and sales of securities. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases or decreases in unrealized appreciation/depreciation on foreign currency related transactions. FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or bond index futures contracts subject to certain limitations. The Fund may invest in futures contracts to manage its exposure to the stock and bond markets and fluctuations in currency values. Buying futures tends to increase the Fund's exposure to the underlying instrument while selling futures tends to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. The Fund will not enter into a transaction involving futures for speculative purposes. The Fund's risks in using these contracts include changes in the value of the underlying instruments, non-performance of the counterparties under the contracts' terms and changes in the liquidity of the secondary market for the contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they principally trade. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount, known as initial margin deposit. Subsequent payments, known as variation margin, are made or received by the Fund each day, depending on the daily fluctuation in the fair value of the underlying security. The Fund records an unrealized gain or loss equal to the daily variation margin. Should market conditions move unexpectedly, the Fund may not achieve the anticipated benefits of the futures contracts and may incur a loss. The Fund recognizes a realized gain or loss on the expiration or closing of a futures contract. OPTIONS The Fund may purchase and write options, subject to certain limitations. The Fund may invest in options contracts to manage their 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. 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- When the Fund writes an option, the amount of the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase, as a realized loss. When an option is exercised, the proceeds from the sale of the underlying security or the cost basis of the securities purchased is adjusted by the original premium received or paid. 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax cost of investments is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $61,860,350 $8,444,332 $(699,508) $7,744,824
15 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- As of December 31, 2004, the Fund has the capital loss carryover as indicated below. The capital loss carryover is 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 - -------------------------------------------------------------------------------- $ 890,080 12/31/09 8,364,676 12/31/10 4,537,505 12/31/11 During the year ended December 31, 2004, the Fund utilized approximately $3,066,718 of capital loss carryovers. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Ordinary Long-Term Income Capital Gains Total - -------------------------------------------------------------------------------- $615,816 $ -- $615,816 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 are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund. The advisory and administrative fee is stated in the following schedule: 16 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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% Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $1,269 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement as it relates to the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreement with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM, and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors considered the profit margin information for GEAM's investment company business as 17 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- a whole, as well as GEAM's profitability data for the Fund. The directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were in line with the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the competitive fees it has charged to the Fund since inception means that GEAM is already sharing the fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations (through those competitive fees and through subsidies of operating expenses). The Board reviewed the applicable fee breakpoints and concluded that no changes were needed. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $19,432,980 $13,830,649 SECURITY LENDING At June 30, 2005, the Fund participated in securities lending: Loaned securities at Cash market value Collateral - -------------------------------------------------------------------------------- $10,447,473 $10,976,159 18 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE Funds, GE Institutional Funds and GE LifeStyle Funds since their inception. Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1987. 19 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General Counsel - Marketing and Client Services (formerly Asset Management Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since October 2003. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A 20 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 21 Investment Team - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND ADMINISTRATOR GE Asset Management Incorporated BOARD OF DIRECTORS Michael J.Cosgrove, CHAIRMAN John R. Costantino Alan M. Lewis William J. Lucas Robert P. Quinn SECRETARY Matthew J. Simpson TREASURER Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 22 GE Investments Funds, Inc. Total Return Fund Semi-Annual Report JUNE 30, 2005 [LOGO OMITTED] GE Investments Funds, Inc. Total Return Fund Contents - ---------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS .............................. 1 NOTES TO PERFORMANCE .................................................... 14 NOTES TO SCHEDULE OF INVESTMENTS ........................................ 15 FINANCIAL STATEMENTS Financial Highlights ............................................... 16 Statement of Assets and Liabilities ................................ 17 Statement of Operations ............................................ 18 Statements of Changes in Net Assets ................................ 19 Notes to Financial Statements ...................................... 20 ADDITIONAL INFORMATION .................................................. 27 INVESTMENT TEAM ......................................................... 30 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Total Return Fund - -------------------------------------------------------------------------------- Q&A THE TOTAL RETURN FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS LED BY RALPH R. LAYMAN, CHRISTOPHER D. BROWN, AND PAUL M. COLONNA (PICTURED BELOW FROM LEFT TO RIGHT). EACH OF THE FOREGOING PORTFOLIO MANAGERS IS RESPONSIBLE FOR MANAGING ONE OF THREE SUB-PORTFOLIOS: INTERNATIONAL EQUITY, U.S. EQUITY, AND FIXED INCOME. MR. LAYMAN MANAGES THE INTERNATIONAL EQUITY SUB-PORTFOLIO, MR. BROWN MANAGES THE U.S. EQUITY SUB-PORTFOLIO, AND MR. COLONNA MANAGES THE FIXED INCOME SUB-PORTFOLIO. RALPH R. LAYMAN IS A DIRECTOR AND EXECUTIVE VICE PRESIDENT OF GE ASSET MANAGEMENT. HE MANAGES THE OVERALL INTERNATIONAL EQUITY INVESTMENTS FOR GE ASSET MANAGEMENT. MR. LAYMAN MANAGES THE FOREIGN INVESTMENTS FOR THE TOTAL RETURN FUND. HE HAS SERVED IN THIS CAPACITY SINCE 1997. MR. LAYMAN JOINED GE ASSET MANAGEMENT IN 1991 AS SENIOR VICE PRESIDENT FOR INTERNATIONAL INVESTMENTS AND BECAME AN EXECUTIVE VICE PRESIDENT IN 1992. RALPH IS THE HOLDER OF A CHARTERED FINANCIAL ANALYST DESIGNATION, A CHARTER MEMBER OF THE INTERNATIONAL SOCIETY OF SECURITY ANALYSTS AND A MEMBER OF THE NEW YORK SOCIETY OF SECURITY ANALYSTS. HE IS ALSO A MEMBER OF THE NEW YORK STOCK EXCHANGE INTERNATIONAL CAPITAL MARKETS ADVISORY COMMITTEE AND A MEMBER OF THE FRANK RUSSELL 20/20 EXECUTIVE COMMITTEE. HE HOLDS A BS IN ECONOMICS AND AN MS IN FINANCE FROM THE UNIVERSITY OF WISCONSIN. CHRISTOPHER D. BROWN IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE MANAGES DOMESTIC EQUITY INVESTMENTS FOR THE TOTAL RETURN FUND AND HAS SERVED IN THIS CAPACITY SINCE SEPTEMBER 2003. MR. BROWN JOINED GE ASSET MANAGEMENT IN 1985 AS A MANAGER OF FUND ACCOUNTING. HE BECAME A U.S. EQUITY ANALYST IN 1989, A VICE PRESIDENT AND PORTFOLIO MANAGER IN 1992 AND A SENIOR VICE PRESIDENT IN 1996. MR. BROWN IS A CUM LAUDE GRADUATE IN ECONOMICS FROM BUCKNELL UNIVERSITY AND IS THE HOLDER OF A CHARTERED FINANCIAL ANALYST DESIGNATION. PAUL M. COLONNA IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SINCE JANUARY 2005, HE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE FIXED INCOME INVESTMENTS FOR GE ASSET MANAGEMENT AND HAS BEEN RESPONSIBLE FOR THE FIXED INCOME PORTION OF THE TOTAL RETURN FUND. MR. COLONNA HAS SERVED ON THE FUND'S PORTFOLIO MANAGEMENT TEAM SINCE JOINING GE ASSET MANAGEMENT IN 2000. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. COLONNA WAS A SENIOR PORTFOLIO MANAGER WITH THE FEDERAL HOME LOAN MORTGAGE CORPORATION, OVERSEEING THE MORTGAGE INVESTMENT GROUP. [PHOTO OMITTED] 1 Total Return Fund - -------------------------------------------------------------------------------- Q&A Q. HOW DID THE TOTAL RETURN FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the Total Return Fund returned (1.31)%. The Fund's broad-based benchmarks, the S&P 500 Index and the Lehman Brothers Aggregate Bond Index, returned (.81)% and 2.51%, respectively, and the Fund's Lipper peer group of 88 Flexible Portfolio Funds returned an average of 0.54% for the same period. Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE? A. In the domestic equities markets, strength within Materials, Healthcare, and Energy contributed most to performance of the U.S. equity portion of the Fund. The portfolio's allocation to the Materials sector benefited most from strong performance in Monsanto (+13.9%). In Healthcare, the Fund's holdings in pharmaceutical stocks performed particularly well. Throughout the first half of 2005, investors returned to the Healthcare sector, finding its steady growth relatively attractive at this point in the business cycle. An overweight position in Schlumberger (+14.1%) and stock selection in the oil and gas industry contributed to outperformance in Energy. Consumer Staples, Industrials, and Utilities were the primary detractors from Fund performance. An underweight in tobacco company Altria (+8.2%) hurt performance as the stock reacted to positive legal developments. Industrials detracted from performance as Tyco (-17.8%), Dover (-12.5%) and Eaton (-16.4%) declined. Investors continued to look to Utilities for higher dividend yields, driving up performance in the sector; however, the portfolio's holdings did not keep pace with the benchmark sector, detracting from performance. In the international equity markets, rising oil, gas, and other commodity prices created uncertainty in some major economies already concerned about consumer fatigue. A strong rally from the U.S. Dollar served to reduce the extent of overseas returns. Energy was the runaway best performer on the back of the rising price environment. In the worst performing telecommunication sector, fixed and mobile companies weakened on increased competition combined with the need to increase investment to fight their increasingly aggressive rivals. Technology stock, Taiwan Semiconductor was the biggest contributor to returns with Samsung Electronics also helping, as the semi industry appeared to regain momentum. Mining stock BHP Billiton (UK) was a sizeable gainer but was countered by the presence of Alcan (Canada - aluminium) which fell on higher input costs and a strong Canadian Dollar. The absence of key energy stocks more than offset the gains from the Fund's own oil and gas holdings. However, industrial companies engaged in oil service and construction were major gainers. In the fixed income markets, the Federal Reserve continued to remove accommodative policy at a measured pace, raising the fed funds target 25 basis points at each of its four meetings in the first half of 2005 to 3.25%. U.S. treasury yields on the short end of the maturity spectrum rose, not surprisingly, in tandem with the Fed's actions. However, in what Fed Chairman Greenspan referred to as a "conundrum", yields on longer maturity treasury securities (10 years or greater) declined during the period. Weaker economic data, benign inflation, healthy foreign demand and expected demand for long duration assets due to potential pension reform helped the rally in longer issues. Poor earnings forecasts from GM and Ford and subsequent downgrades of the two major auto companies to below investment grade by S&P rattled the corporate sector causing that sector to underperform on a duration-adjusted basis. Security selection, in particular, the underweight in auto issuers helped Fund performance. Yield curve positioning contributed positively to return as the yield difference between short and long maturity issues narrowed significantly. Exposure in treasury inflation-protected securities helped in February and March as yields rose, but then negatively affected performance in April and May as longer yields fell. The underweight in treasury securities moderately hurt relative return. 2 Total Return Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees. JANUARY 1, 2005 - JUNE 30, 2005
- --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 986.85 2.07 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,022.44 2.13 - ---------------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.42% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE\ OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). **ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS (1.31)%. 3 Total Return Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:]
Total Return Fund S&P 500 Index LB Aggregate Bond Index - ----------------------------------------------------------------------------------------------------- 06/01/95 10,000 10,000 10,000 12/01/95 11,195 11,439 10,631 12/01/96 12,381 14,084 11,017 12/01/97 14,608 18,772 12,080 12/01/98 17,106 24,159 13,130 12/01/99 19,372 29,249 13,022 12/01/00 20,330 26,563 14,536 12/01/01 19,743 23,399 15,763 12/01/02 17,904 18,227 17,380 12/01/03 21,541 23,463 18,093 12/01/04 23,305 26,017 18,878 06/01/05 22,999 25,806 19,352
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- SIX ONE FIVE TEN MONTHS YEAR YEAR YEAR - -------------------------------------------------------------------------------- Total Return Fund -1.31% 5.16% 2.85% 8.69% - -------------------------------------------------------------------------------- S&P 500 Index -0.81% 6.33% -2.38% 9.94% LB Aggregate Bond Index 2.51% 6.80% 7.40% 6.83% Lipper peer group average* 0.54% 6.90% 2.45% 8.55% Inception date 7/1/85 - -------------------------------------------------------------------------------- Total Return Fund (ending value $22,999) S&P 500 Index (ending value $25,806) LB Aggregate Bond Index (ending value $19,352) INVESTMENT PROFILE A fund designed for investors who seek the highest total return, composed of current income and capital appreciation, as is consistent with prudent investment risk by investing primarily in a combination of equity securities and investment grade debt securities. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Federal National Mortgage Assoc. 6.00% TBA 2.36% - -------------------------------------------------------------------------------- Pfizer Inc. 1.99% - -------------------------------------------------------------------------------- First Data Corp. 1.99% - -------------------------------------------------------------------------------- Citigroup Inc. 1.95% - -------------------------------------------------------------------------------- Microsoft Corp. 1.76% - -------------------------------------------------------------------------------- Liberty Media Corp. (Series A) 1.70% - -------------------------------------------------------------------------------- Vodafone Group PLC ADR 1.63% - -------------------------------------------------------------------------------- Johnson & Johnson 1.54% - -------------------------------------------------------------------------------- American International Group, Inc. 1.49% - -------------------------------------------------------------------------------- Exxon Mobil Corp. 1.48% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $787,289 (in thousands) [Pie chart omitted -- plot points are as follows:] Domestic Equity 48.6% Bonds and Notes 23.0% Foreign Equity 16.6% Short-Term Investments 11.8% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE FLEXIBLE PORTFOLIO PEER GROUP CONSISTING OF 88, 84, 58, AND 42 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 14 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- TOTAL RETURN FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- DOMESTIC EQUITY -- 52.7% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 9.0% Carnival Corp. 182,516 $ 9,956,248(g,i) Comcast Corp. (Class A) (Special) 344,752 10,325,322 (a) eBay Inc. 44,899 1,482,116(a) Family Dollar Stores, Inc. 70,978 1,852,526(i) Liberty Global Inc. (Series A) 79,050 3,689,264(a,i) Liberty Media Corp. (Series A) 1,314,052 13,390,190(a,i) Omnicom Group 20,279 1,619,481 Target Corp. 87,202 4,744,661 The Home Depot, Inc. 261,551 10,174,334 Viacom Inc. (Class B) 175,114 5,607,150 62,841,292 CONSUMER STAPLES -- 4.2% Avon Products, Inc. 35,489 1,343,259 Clorox Co. 36,503 2,033,947 Colgate-Palmolive Co. 182,516 9,109,374 PepsiCo, Inc. 168,320 9,077,498 Sara Lee Corp. 91,258 1,807,821 The Coca-Cola Co. 93,286 3,894,690 Wal-Mart Stores, Inc. 41,167 1,984,249 29,250,838 ENERGY -- 3.9% Burlington Resources Inc. 92,819 5,127,322(i) Exxon Mobil Corp. 202,795 11,654,629 Nabors Industries Ltd. 40,559 2,458,687(a) Schlumberger Ltd. 108,577 8,245,337 27,485,975 FINANCIALS -- 10.1% AFLAC Incorporated 82,132 3,554,673(g) Alleghany Corp. 337 100,089(a,i) American International Group, Inc. 202,572 11,769,433(g) Bank of America Corp. 85,174 3,884,786(g) Berkshire Hathaway Inc. (Class B) 1,544 4,297,724(a) Citigroup Inc. 331,570 15,328,481(g) Federal National Mortgage Association 185,416 10,828,294 HCC Insurance Holdings, Inc. 38,531 1,459,169(i) MBNA Corp. 150,068 3,925,779 Mellon Financial Corp. 78,537 2,253,227 Merrill Lynch & Co., Inc. 36,503 2,008,030 State Street Corp. 202,795 9,784,859(d) SunTrust Banks, Inc. 25,349 1,831,212 71,025,756 NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- HEALTHCARE -- 8.6% Abbott Laboratories 171,605 $ 8,410,361(g) Aetna Inc. 19,010 1,574,408 Amgen Inc. 98,809 5,973,992(a) Cardinal Health, Inc. 15,210 875,792(i) Johnson & Johnson 186,572 12,127,180 Lincare Holdings Inc. 138,915 5,673,289(a,i) Pfizer Inc. 567,827 15,660,669 Wyeth 227,658 10,130,781 60,426,472 INDUSTRIALS -- 3.1% Corinthian Colleges, Inc. 93,842 1,198,362(a,i) Dover Corp. 219,566 7,987,811 Southwest Airlines Co. 253,717 3,534,278(i) Tyco International Ltd. 184,544 5,388,685 United Technologies Corp. 9,734 499,841 Waste Management, Inc. 108,495 3,074,748 21,683,725 INFORMATION TECHNOLOGY -- 13.6% Applied Materials, Inc. 202,795 3,281,223 Automatic Data Processing, Inc. 135,873 5,702,590(g) Certegy Inc. 119,041 4,549,747(i) Checkfree Corp. 36,067 1,228,442(a) Cisco Systems, Inc. 335,626 6,413,813(a) Dell Inc. 192,635 7,611,009(a) EMC Corp. 278,843 3,822,938(a) First Data Corp. 389,367 15,629,191(g,i) Intel Corp. 274,787 7,160,949 International Business Machines Corp. 21,699 1,610,066 Intuit Inc. 177,446 8,004,589(a,i) Microsoft Corp. 557,687 13,852,945 Molex Inc. (Class A) 316,158 7,423,390(i) Novellus Systems, Inc. 40,559 1,002,213(a,i) Oracle Corp. 344,752 4,550,726(a) Paychex, Inc. 30,642 997,091(i) Yahoo! Inc. 66,557 2,306,200(a) 95,147,122 MATERIALS -- 0.2% Monsanto Co. 25,349 1,593,692 TOTAL DOMESTIC EQUITY (COST $359,851,683) 369,454,872 - -------------------------------------------------------------------------------- FOREIGN EQUITY -- 18.6% - -------------------------------------------------------------------------------- COMMON STOCK -- 18.5% - -------------------------------------------------------------------------------- CONSUMER DISCRETIONARY -- 1.5% Accor S.A. 3,981 186,856(i) Bayerische Motoren Werke AG 16,468 752,222(i) Honda Motor Co. Ltd. 17,600 868,802 Kingfisher PLC 225,311 993,492 See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 5 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Koninklijke Philips Electronics N.V. 82,403 $ 2,085,008 Lagardere S.C.A. (Regd.) 22,852 1,694,528(i) LVMH Moet Hennessy Louis Vuitton S.A. 11,476 887,789(i) Mediaset S.p.A. 12,185 143,682(i) Reed Elsevier PLC 171,953 1,647,420 Renault S.A. 14,157 1,249,445(i) Toyota Motor Corp. 6,794 243,702 10,752,946 CONSUMER STAPLES -- 1.1% Carrefour S.A. 20,210 981,136(i) Diageo PLC 113,992 1,681,593 Lawson, Inc. 7,903 276,009 Nestle S.A. (Regd.) 9,235 2,364,437 Tesco PLC 354,253 2,024,000 7,327,175 ENERGY -- 1.4% BG Group PLC 131,675 1,083,335 China Petroleum & Chemical Corp. 1,332,000 522,635 Ente Nazionale Idrocarburi S.p.A. 106,915 2,758,293(i) LUKOIL ADR 19,391 713,783(i) Petroleo Brasileiro S.A. ADR. 11,813 543,871(i) Stolt Offshore S.A. 93,154 851,349(a) Total S.A. 14,358 3,377,420(i) 9,850,686 FINANCIALS -- 3.9% Acom Co. Ltd. 27,376 1,756,550 Aiful Corp. 9,775 729,530 Allianz AG (Regd.) 7,540 866,914 AXA S.A. 59,995 1,501,322(i) Banca Intesa S.p.A. 205,109 939,873 Banco Santander Central Hispano S.A. (Regd.) 139,815 1,623,270(i) BNP Paribas 36,011 2,471,933(i) Credit Agricole S.A. 45,393 1,151,857(i) Credit Suisse Group (Regd.) 44,019 1,736,914 Hongkong Land Holdings Ltd. 272,999 761,667 ING Groep N.V. 40,524 1,146,540 Jardine Matheson Holdings Ltd. 27,600 488,520 Kookmin Bank 17,051 776,245 Lloyds TSB Group PLC 128,751 1,091,587 Manulife Financial Corp. 7,861 375,528(i) Mitsubishi Estate Co. Ltd. (REIT) 86,000 947,622(i) Mitsui Sumitomo Insurance Co. Ltd. 144,000 1,298,222 Nomura Holdings, Inc. 76,100 911,332 Prudential PLC 101,878 906,208 Royal Bank of Scotland Group PLC 58,793 1,776,765 Sampo Oyj (Series A) 8,351 130,218 Sun Hung Kai Properties Ltd. (REIT) 164,775 1,626,913 UniCredito Italiano S.p.A. 415,608 2,197,532(i) 27,213,062 NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- HEALTHCARE -- 1.3% Chugai Pharmaceutical Co. Ltd. 27,500 $ 424,871(i) GlaxoSmithKline PLC 127,360 3,084,148 Novartis AG (Regd.) 7,269 346,400 Roche Holding AG 20,630 2,611,963 Sanofi-Aventis 13,928 1,144,925(i) Smith & Nephew PLC 140,831 1,390,902 9,003,209 INDUSTRIALS -- 2.8% ABB Ltd. (Regd.) 174,314 1,142,953(a) ACS Actividades de Construccion y Servicios S.A. 28,326 793,537(i) Adecco S.A. 14,870 677,861 Asahi Glass Co. Ltd. 168,005 1,767,835(i) Brambles Industries PLC 351,333 1,927,024 Chiyoda Corp. 92,676 1,149,982(i) Daikin Industries Ltd. 11,000 275,472(i) Empresa Brasileira de Aeronautica S.A. ADR 25,290 836,340(i) Group 4 Securicor PLC 191,511 504,612 Group 4 Securicor PLC 262,729 708,544 Komatsu Ltd. 84,075 653,268 Kubota Corp. 55,000 301,778 Malaysia International Shipping Corp. BHD 110,991 522,826 Mitsui & Co. Ltd. 99,000 938,092 Mitsui OSK Lines Ltd. 119,784 740,475(i) Sandvik AB 40,362 1,501,503(i) Siemens AG (Regd.) 24,424 1,784,187 SMC Corp. 9,345 1,020,436 Smiths Group PLC 135,849 2,237,787 Toto Ltd. 23,000 182,032(i) Wolseley PLC 11,186 235,391 19,901,935 INFORMATION TECHNOLOGY -- 1.6% Canon Inc. 22,700 1,196,354(i) Hoya Corp. 10,500 1,212,887 Nidec Corp. 8,288 878,090 Nokia Oyj 136,872 2,295,000 Nortel Networks Corp. 127,583 332,291(a) Samsung Electronics Co. Ltd. 3,570 1,706,415 Taiwan Semiconductor Manufacturing Co. Ltd. 1,304,819 2,274,059 Telefonaktiebolaget LM Ericsson (Series B) 441,157 1,417,994(i) 11,313,090 MATERIALS -- 1.4% Alcan Inc. 14,203 426,507(i) BASF AG 31,413 2,091,657 BHP Billiton PLC 256,009 3,267,247 Cia Vale do Rio Doce ADR 48,758 1,427,634 Holcim Ltd. 10,708 651,958 See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 6 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- Linde AG 9,668 $ 653,348(i) Rio Tinto PLC (Regd.) 42,958 1,315,160 9,833,511 TELECOMMUNICATION SERVICES -- 2.9% America Movil S.A. de C.V. ADR (Series L) 20,601 1,228,026(i) France Telecom S.A. 25,637 749,864 Telecom Italia S.p.A 114,732 297,941 Telefonica S.A. 140,442 2,302,152(i) Telefonica S.A. ADR 750 36,653(i) Telenor ASA 93,360 746,132 Vodafone Group PLC 868,865 2,118,059 Vodafone Group PLC ADR 527,267 12,823,133(i) 20,301,960 UTILITIES -- 0.6% E.ON AG 21,323 1,902,025 Huaneng Power International, Inc. 618,656 453,648(i) National Grid Transco PLC 25,699 249,207 Veolia Environnement 43,804 1,647,682(i) 4,252,562 TOTAL COMMON STOCK (COST $121,081,824) 129,750,136 - -------------------------------------------------------------------------------- PREFERRED STOCK -- 0.1% - -------------------------------------------------------------------------------- Cia Vale do Rio Doce ADR (COST $421,459) 27,211 691,159(i) TOTAL FOREIGN EQUITY (COST $121,503,283) 130,441,295 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- BONDS AND NOTES -- 25.8% - -------------------------------------------------------------------------------- U.S. TREASURIES -- 5.3% U.S. Treasury Bonds 5.38% 02/15/31 $2,920,000 3,446,972 8.13% 08/15/19 - 08/15/21 540,000 772,256(g) U.S. Treasury Inflation Indexed Bonds 2.00% 01/15/14 2,232,233 2,299,892(l) 2.38% 01/15/25 273,520 299,676(l) 3.88% 04/15/29 195,274 274,757(l) 4.73% 04/15/10 775,370 756,226(c,l) U.S. Treasury Notes 3.38% 02/15/08 440,000 436,841 3.50% 12/15/09 3,600,000 3,566,052 3.63% 06/15/10 6,360,000 6,332,143(g) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- 3.75% 05/15/08 $ 3,090,000$ 3,096,767 4.00% 04/15/10 6,700,000 6,773,164 4.13% 05/15/15 9,325,000 9,461,984 37,516,730 FEDERAL AGENCIES -- 1.3% Federal Farm Credit Bank 3.75% 01/15/09 650,000 646,419 Federal Home Loan Bank 2.38% 02/15/06 1,405,000 1,393,492 2.63% 10/16/06 1,110,000 1,093,636 3.75% 08/18/09 2,000,000 1,986,915 Federal Home Loan Mortgage Corp. 3.00% 09/29/06 1,085,000 1,074,180 3.63% 09/15/08 1,215,000 1,205,410 4.50% 01/15/14 610,000 622,526 4.63% 07/18/07 610,000 610,352 4.75% 12/08/10 335,000 335,899 6.75% 03/15/31 140,000 185,132 9,153,961 AGENCY MORTGAGE BACKED -- 8.6% Federal Home Loan Mortgage Assoc. 6.00% 05/01/20 - 06/01/35 4,307,171 4,418,324 6.50% 02/01/35 356,461 368,805 7.00% 05/01/35 74,876 78,967 Federal Home Loan Mortgage Corp. 4.50% 06/01/33 - 02/01/35 341,999 334,361 6.00% 04/01/17 - 06/01/35 673,677 691,324 6.50% 01/01/27 - 12/01/34 841,639 871,247 7.00% 10/01/25 - 02/01/35 169,657 178,713 7.50% 11/01/09 - 09/01/33 97,054 103,292 8.00% 01/01/30 - 11/01/30 23,057 24,872 9.00% 10/01/25 1,389 1,532 Federal National Mortgage Assoc. 4.00% 05/01/19 - 06/01/19 337,865 331,101 4.50% 05/01/18 - 12/01/34 2,157,511 2,134,483 5.00% 03/01/34 - 10/01/34 189,684 189,742 5.50% 04/01/14 - 08/01/33 202,941 207,954 6.00% 08/01/14 - 06/01/35 1,934,379 1,987,646 6.50% 09/01/17 - 02/01/35 2,893,988 2,997,600 7.00% 04/01/17 - 04/01/35 507,150 534,560 7.50% 12/01/09 - 03/01/34 210,888 224,914 8.00% 12/01/11 - 11/01/33 94,312 100,202 8.50% 06/01/30 249 270 9.00% 06/01/09 - 12/01/22 54,483 57,646 4.50% TBA 5,265,000 5,240,318(b) 5.00% TBA 11,565,000 11,637,027(b) 5.50% TBA 6,115,000 6,197,173(b) 6.00% TBA 18,090,000 18,542,250(b) Government National Mortgage Assoc. 4.50% 08/15/33 - 09/15/34 646,238 639,024 6.00% 04/15/27 - 06/15/35 691,640 713,670 6.50% 04/15/24 - 08/15/34 202,524 211,310 7.00% 03/15/12 - 06/15/34 90,796 94,828 See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 7 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- 8.00% 03/15/30 $ 3,468 $ 3,742 9.00% 11/15/16 - 12/15/21 33,486 36,938 5.50% TBA 1,000,000 1,020,938(b) 60,174,773 AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.7% Federal Home Loan Mortgage Assoc. 5.50% 02/25/35 323,978 335,013 Federal Home Loan Mortgage Corp. 3.43% 10/15/18 484,370 42,685(f,h) 3.93% 12/15/30 657,538 40,480(f,h) 4.50% 04/15/13 - 03/15/19 949,648 87,027(f) 4.50% 05/15/17 - 11/15/19 400,000 397,469 5.00% 01/15/11 - 12/01/34 1,891,857 209,146(f) 5.00% 05/15/20 - 11/15/34 1,390,000 1,392,423 5.11% 10/15/33 70,000 58,191(h) 5.50% 04/15/17 - 06/15/33 339,590 46,613(f) 5.50% 10/15/34 321,926 336,211 6.31% 12/15/33 45,000 40,172(h) 7.50% 01/15/16 17,153 18,075 7.50% 07/15/27 9,946 1,654(f) 14.69% 09/25/43 731,621 6,859(c,f,h) Federal Home Loan Mortgage Corp. STRIPS 8.00% 02/01/23 - 07/01/24 7,435 1,498(f) Federal Home Loan Mortgage STRIPS 4.55% 08/01/27 1,702 1,492(c,e) Federal National Mortgage Assoc. 1.18% 12/25/42 438,175 11,160(f,h) 2.22% 06/25/43 562,457 26,014(f,h) 4.29% 09/25/42 441,932 34,664(f,h) 4.34% 04/25/17 - 10/25/17 285,675 26,128(f,h) 4.39% 08/25/16 125,285 8,486(f,h) 4.50% 05/25/18 202,664 22,166(f) 4.50% 12/25/19 100,000 98,250 4.75% 11/25/14 44,811 3,522(f) 5.00% 02/25/11 - 02/25/32 143,080 8,022(f) 5.00% 01/15/35 175,000 175,054 5.50% 01/25/27 81,566 8,437(f) 5.50% 07/25/34 270,865 279,425 6.00% 12/25/34 150,000 157,148 7.57% 09/25/31 72,921 73,542(h) 8.00% 07/25/14 72,306 75,583 12.44% 04/25/32 18,463 20,517(h) Federal National Mortgage Assoc. (Class 1) 6.23% 11/01/34 822,963 689,488(c,e) Federal National Mortgage Assoc. (Class S) 3.79% 02/25/31 118,065 8,191(f,h) Federal National Mortgage Assoc. REMIC 4.50% 11/25/13 308,791 16,323(f) 5.00% 10/25/22 158,635 21,465(f) 5.50% 08/25/33 777,424 158,595(f) 9.32% 03/25/31 126,852 134,031(h) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Federal National Mortgage Assoc. REMIC (Class J) 1080.91% 03/25/22 $ 25 $ 327(f) Federal National Mortgage Assoc. REMIC (Class K) 1008.00% 05/25/22 9 222(f) Federal National Mortgage Assoc. STRIPS 7.50% 11/01/23 32,961 6,433(f) 8.00% 08/01/23 - 07/01/24 15,731 3,297(f) Government National Mortgage Assoc. 5.00% 02/16/34 65,000 65,833 Vendee Mortgage Trust 17.61% 05/15/33 452,333 12,015(c,f,h) 5,159,346 ASSET BACKED -- 1.2% American Express Credit Account Master Trust (Class A) 1.69% 01/15/09 42,000 41,164 3.35% 11/17/08 2,575,000 2,577,738(h) Bank One Issuance Trust 3.59% 05/17/10 20,000 19,844 3.76% 08/15/08 62,000 61,991 Bear Stearns Asset Backed Securities Inc. (Class A) 3.68% 01/25/34 66,772 67,051(h) BMW Vehicle Owner Trust (Class B) 2.93% 03/25/09 28,000 27,669 Capital One Prime Auto Receivables Trust (Class A) 3.30% 09/17/07 156,244 156,291(h) Carmax Auto Owner Trust 4.35% 03/15/10 154,000 155,063 Citibank Credit Card Issuance Trust 3.66% 03/07/08 275,000 275,429(h) 4.45% 04/07/10 35,000 35,067 Citifinancial Mortgage Securities, Inc. 3.51% 04/25/34 310,214 310,784(h) Countrywide Home Equity Loan Trust (Class A) 3.45% 07/15/27 101,733 101,831(h) Federal National Mortgage Assoc. 3.95% 12/26/31 36,707 36,676 Fleet Credit Card Master Trust II (Class A) 5.60% 12/15/08 300,000 304,545 Ford Credit Floorplan Master Owner Trust (Class A) 3.26% 07/15/09 2,000,000 2,001,495(h) GMAC Mortgage Corp. Loan Trust (Class A) 3.41% 06/25/34 500,000 500,673(h) Honda Auto Receivables Owner Trust 4.15% 10/15/10 138,000 138,336 See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 8 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Mid-State Trust 7.54% 07/01/35 $ 6,761 $ 7,209 Peco Energy Transition Trust 6.52% 12/31/10 50,000 55,110 Residential Asset Mortgage Products, Inc. 3.55% 03/25/34 168,875 168,955(h) Residential Asset Securities Corp. 3.56% 07/25/32 41,683 41,766(h) Residential Asset Securities Corp. (Class A) 4.16% 07/25/30 350,000 348,155(h) Saxon Asset Securities Trust (Class A) 3.49% 12/25/32 11,521 11,529(h) SLM Student Loan Trust (Class A) 3.46% 06/15/18 434,865 435,156(h) Volkswagen Auto Lease Trust 3.94% 10/20/10 103,000 102,667 Wells Fargo Home Equity Trust 3.97% 09/25/24 54,000 53,477(h) 8,035,671 CORPORATE NOTES -- 5.5% Abbey National PLC 7.95% 10/26/29 340,000 463,132 Alberta Energy Co. Ltd. 7.38% 11/01/31 20,000 25,032 Allegiance Corp. 7.00% 10/15/26 245,000 281,626 Allstate Life Global Funding Trusts 3.85% 01/25/08 130,000 129,095 Alltel Corp. 4.66% 05/17/07 455,000 458,572 Altria Group, Inc. 7.20% 02/01/07 90,000 93,784 America Movil S.A. de C.V. 6.38% 03/01/35 365,000 356,829 American Electric Power Co. Inc. (Series D) 5.25% 06/01/15 540,000 557,104 American General Corp. 7.50% 08/11/10 100,000 112,718 AON Corp. 8.21% 01/01/27 350,000 408,845 Appalachian Power Co. (Series G) 3.60% 05/15/08 20,000 19,633 Appalachian Power Co. (Series K) 5.00% 06/01/17 135,000 135,436 Assurant, Inc. 6.75% 02/15/34 60,000 69,438 AT&T Wireless Services Inc. 7.35% 03/01/06 125,000 127,732 8.75% 03/01/31 100,000 140,225 Auburn Hills Trust 12.38% 05/01/20 160,000 249,342 Bank of America Corp. 3.88% 01/15/08 625,000 622,411 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Bank One Corp. 6.50% 02/01/06 $185,000 $ 187,829 BB&T Corp. 4.75% 10/01/12 25,000 25,376 Bear Stearns Companies, Inc. 4.55% 06/23/10 160,000 161,145 BellSouth Corp. 6.00% 11/15/34 535,000 569,162 Boeing Co. 8.75% 08/15/21 335,000 469,834 Burlington Northern Santa Fe Corp. 8.13% 04/15/20 60,000 79,340 Campbell Soup Co. 5.50% 03/15/07 50,000 51,036 Capital One Financial Corp. 8.75% 02/01/07 200,000 213,427 Carolina Power & Light Co. 5.15% 04/01/15 60,000 62,114 6.13% 09/15/33 35,000 39,482 Cendant Corp. 6.25% 01/15/08 265,000 275,889 Charter One Bank FSB 6.38% 05/15/12 50,000 55,351 Citigroup Inc. 5.00% 03/06/07 90,000 91,497 5.85% 12/11/34 580,000 641,157 6.63% 06/15/32 125,000 149,308 CNA Financial Corp. 5.85% 12/15/14 370,000 380,992 6.95% 01/15/18 105,000 113,572 Comcast Cable Communications Holdings, Inc. 9.46% 11/15/22 480,000 677,308 Consolidated Natural Gas Co. 5.38% 11/01/06 175,000 177,689 Consumers Energy Co. 5.15% 02/15/17 55,000 55,506 Countrywide Home Loans, Inc. 5.63% 05/15/07 50,000 51,228 COX Communications, Inc. 7.75% 11/01/10 215,000 243,731 CSX Corp. 5.50% 08/01/13 65,000 68,178 CSX Transportation, Inc. 9.75% 06/15/20 21,000 30,365 D.R. Horton, Inc. 7.50% 12/01/07 200,000 211,667 DaimlerChrysler NA Holding Corp. 4.05% 06/04/08 280,000 275,088 4.75% 01/15/08 280,000 281,005 6.40% 05/15/06 500,000 509,763 6.50% 11/15/13 90,000 97,577 Deutsche Telekom International Finance BV 3.88% 07/22/08 490,000 485,910 Dominion Resources Inc. (Series B) 4.13% 02/15/08 90,000 89,526 See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 9 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Dominion Resources Inc. (Series G) 3.66% 11/15/06 $185,000 $ 183,770 Duke Capital LLC 4.30% 05/18/06 130,000 130,270 4.33% 11/16/06 230,000 230,307 5.50% 03/01/14 100,000 102,812 5.67% 08/15/14 45,000 46,699 8.00% 10/01/19 225,000 278,933 Duke Energy Corp. 4.50% 04/01/10 30,000 30,263 El Paso Electric Co. 6.00% 05/15/35 365,000 382,435 Enterprise Products Operating LP 4.00% 10/15/07 300,000 297,003 EOP Operating LP (REIT) 7.75% 11/15/07 835,000 896,950 FirstEnergy Corp. (Series B) 6.45% 11/15/11 670,000 732,059 Ford Motor Credit Co. 6.63% 06/16/08 425,000 421,489 7.00% 10/01/13 435,000 420,863 7.38% 10/28/09 420,000 412,650 General Mills, Inc. 3.88% 11/30/07 50,000 49,609 Georgia Power Co. 4.88% 07/15/07 65,000 65,927 Goodrich Corp. 7.10% 11/15/27 240,000 286,599 GTE Corp. 6.94% 04/15/28 100,000 115,896 7.51% 04/01/09 165,000 181,813 Halliburton Co. 8.75% 02/15/21 390,000 534,669 Household Finance Corp. 6.38% 11/27/12 215,000 237,102 HSBC Bank USA NA 3.88% 09/15/09 920,000 907,412 HSBC Finance Corp. 6.75% 05/15/11 280,000 309,809 Hudson United Bank 7.00% 05/15/12 80,000 89,544 Hydro Quebec 8.25% 04/15/26 470,000 684,943 International Business Machines Corp. 3.80% 02/01/08 100,000 99,347 International Lease Finance Corp. 5.00% 04/15/10 165,000 168,253 iStar Financial Inc. 4.88% 01/15/09 55,000 55,004 6.00% 12/15/10 630,000 658,502 6.05% 04/15/15 80,000 82,703 Kellogg Co. (Series B) 6.60% 04/01/11 185,000 206,025 Kimco Realty Corp. (REIT) 4.82% 06/01/14 150,000 149,401 Kinder Morgan Energy Partners LP 5.13% 11/15/14 70,000 70,678 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Kinder Morgan, Inc. 6.50% 09/01/12 $ 140,000 $ 154,336 Kraft Foods Inc. 4.13% 11/12/09 540,000 535,146 Lehman Brothers Holdings, Inc. 4.25% 01/27/10 20,000 19,940 Marsh & McLennan Companies Inc. 3.28% 07/13/07 1,500,000 1,489,644(h) Masco Corp. 6.75% 03/15/06 55,000 55,993 Morgan Stanley 4.25% 05/15/10 405,000 401,954 Motorola, Inc. 4.61% 11/16/07 565,000 569,322 NB Capital Trust IV 8.25% 04/15/27 215,000 235,690 Nexen, Inc. 5.88% 03/10/35 210,000 212,316 Nextel Communications, Inc. 7.38% 08/01/15 170,000 183,600 Nordic Investment Bank 2.75% 01/11/06 60,000 59,737 Norfolk Southern Corp. 6.00% 04/30/08 20,000 20,866 Norfolk Southern Railway Co. 9.75% 06/15/20 29,000 41,968 Northeast Utilities (Series B) 3.30% 06/01/08 30,000 29,039 Northrop Grumman Corp. 4.08% 11/16/06 300,000 299,133 Ocean Energy, Inc. 4.38% 10/01/07 15,000 15,017 Pemex Finance Ltd. 9.03% 02/15/11 20,000 22,561 Pemex Project Funding Master Trust 7.38% 12/15/14 15,000 16,847 8.63% 02/01/22 60,000 74,037 Pepco Holdings Inc. 4.00% 06/01/10 40,000 39,972(h) 5.50% 08/15/07 305,000 312,470 Petrobras International Finance Co. 9.75% 07/06/11 540,000 639,900 Petro-Canada 5.95% 05/15/35 425,000 442,256 Pioneer Natural Resources Co. 6.50% 01/15/08 20,000 20,698 Procter & Gamble - ESOP (Series A) 9.36% 01/01/21 180,000 242,800 Protective Life Secured Trust 4.00% 10/07/09 15,000 14,830 Prudential Financial Inc. 4.75% 06/13/15 250,000 250,713 4.10% 11/15/06 250,000 250,693(j) PSI Energy, Inc. 6.65% 06/15/06 40,000 40,921 See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 10 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Public Service Company of New Mexico 4.40% 09/15/08 $ 50,000 $ 49,994 Public Service Electric & Gas 5.25% 07/01/35 135,000 136,307 Puget Energy, Inc. 5.48% 06/01/35 130,000 134,217 3.36% 06/01/08 30,000 29,196 Quest Diagnostics 6.75% 07/12/06 45,000 46,116 Raytheon Co. 4.85% 01/15/11 85,000 86,066 6.40% 12/15/18 110,000 124,447 RBS Capital Trust I 5.51% 09/29/49 95,000 98,392(h) Reckson Operating Partnership LP 5.88% 08/15/14 65,000 68,273 Royal Bank of Canada 4.13% 01/26/10 330,000 329,212 Royal Bank of Scotland Group PLC 7.65% 08/31/49 25,000 31,805(h) Royal Bank of Scotland Group PLC ADR 9.12% 03/31/49 140,000 166,731 San Diego Gas & Electric Co. 5.35% 05/15/35 55,000 56,956 SBC Communications Inc. 5.10% 09/15/14 675,000 689,703 Scottish Power PLC 4.91% 03/15/10 435,000 441,301 SLM Corp. 4.00% 01/15/09 60,000 59,565 Sprint Capital Corp. 4.78% 08/17/06 145,000 146,058(j) 6.00% 01/15/07 250,000 256,491 6.13% 11/15/08 80,000 84,436 8.38% 03/15/12 575,000 692,578 State of Illinois 4.95% 06/01/23 585,000 602,544 5.10% 06/01/33 600,000 625,560 Telefonos de Mexico S.A. de C.V. 4.50% 11/19/08 355,000 352,639 TELUS Corp. 7.50% 06/01/07 125,000 132,128 8.00% 06/01/11 110,000 128,657 Time Warner, Inc. 6.88% 05/01/12 25,000 28,217 9.13% 01/15/13 340,000 429,298 Toyota Motor Credit Corp. 3.36% 09/15/06 2,000,000 1,999,274(h) TXU Electric Delivery Co. 5.00% 09/01/07 140,000 142,030 6.38% 05/01/12 380,000 415,795 Tyco International Group S.A. 5.80% 08/01/06 185,000 188,364 Tyson Foods, Inc. 7.25% 10/01/06 425,000 440,386 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- UBS Preferred Funding Trust I 8.62% 10/29/49 $ 70,000 $ 83,091(h) UFJ Bank Ltd. 7.40% 06/15/11 165,000 187,242 Union Pacific Corp. 6.65% 01/15/11 205,000 226,755 United Utilities PLC 6.45% 04/01/08 125,000 131,500 Valero Energy Corp. 3.50% 04/01/09 150,000 143,986 Verizon 6.50% 09/15/11 50,000 54,529 Verizon Global Funding Corp. 7.75% 06/15/32 490,000 635,983 Verizon Pennsylvania Inc. (Series A) 5.65% 11/15/11 140,000 146,666 Wachovia Corp. 5.25% 08/01/14 100,000 104,299 Wells Fargo & Co. 5.25% 12/01/07 90,000 92,389 Weyerhaeuser Co. 6.13% 03/15/07 51,000 52,411 Wisconsin Electric Power 3.50% 12/01/07 70,000 68,855 Wisconsin Energy Corp. 5.88% 04/01/06 23,000 23,314 WR Berkley Corp. 5.60% 05/15/15 120,000 122,207 38,570,107 NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.8% Bank of America Alternative Loan Trust 6.50% 07/25/35 300,000 310,031 Bear Stearns Commercial Mortgage Securities 6.02% 02/14/31 75,000 79,148 Bear Stearns Commercial Mortgage Securities (Class B) 6.20% 02/14/31 40,000 43,119 CS First Boston Mortgage Securities Corp. 4.60% 03/15/35 300,000 301,781 6.13% 04/15/37 50,000 54,812 CS First Boston Mortgage Securities Corp. (Class A) 4.51% 07/15/37 500,000 502,018 4.69% 07/15/37 250,000 251,805 DLJ Commercial Mortgage Corp. 6.24% 11/12/31 228,000 241,306 GMAC Commercial Mortgage Securities Inc. 6.47% 04/15/34 400,000 439,518 GMAC Commercial Mortgage Securities Inc. (Class A) 4.92% 12/10/41 271,000 276,280(h) See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 11 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- GMAC Commercial Mortgage Securities Inc. (Class X) 4.22% 12/10/41 $4,038,000 $ 123,545(c,h) GMAC Commercial Mortgage Securities, Inc. 4.21% 12/10/41 350,000 349,493(h) 6.42% 05/15/35 496,882 524,022 Impac CMB Trust 3.57% 04/25/35 934,507 934,215(h) Impac CMB Trust (Class A) 3.69% 12/25/33 366,807 367,251(h) JPMorgan Chase Commercial Mortgage Securities Corp. 6.47% 11/15/35 40,000 44,324 JPMorgan Chase Commercial Mortgage Securities Corp. (Class A) 4.92% 10/15/37 66,000 67,775(h) LB-UBS Commercial Mortgage Trust 4.06% 09/15/27 108,000 107,247(h) 4.20% 01/18/12 5,000,000 185,019(c) 4.20% 12/15/29 135,000 134,584 4.51% 12/15/29 135,000 135,745 6.23% 03/15/26 53,000 56,491 LB-UBS Commercial Mortgage Trust (Class A) 4.31% 02/15/30 400,000 399,793 6.65% 11/15/27 704,000 783,095 Master Alternative Loans Trust 5.00% 08/25/18 78,728 10,530(f) 6.50% 08/25/34 - 05/25/35 896,729 926,238 Merrill Lynch Mortgage Trust (Class A) 4.56% 05/12/43 600,000 605,109 Morgan Stanley Capital I 5.17% 01/14/42 300,000 312,834(h) 6.53% 03/15/31 287,000 306,349 7.11% 04/15/33 73,000 80,204 Morgan Stanley Capital I (Class A) 4.66% 09/13/45 300,000 302,778 Morgan Stanley Dean Witter Capital I 6.46% 02/15/33 297,141 308,241 6.96% 10/15/33 43,649 45,891 7.20% 10/15/33 50,000 55,870 MortgageIT Trust (Class A) 3.62% 08/25/35 4,000,000 4,000,000(h) Nomura Asset Securities Corp. (Class A) 6.59% 03/15/30 500,000 530,621 Opteum Mortgage Acceptance Corp. 3.61% 02/25/35 926,973 926,973(h) Residential Asset Securitization Trust 3.71% 05/25/35 2,502,925 2,495,166(h) Wachovia Bank Commercial Mortgage Trust 4.38% 10/15/41 500,000 501,360 4.94% 04/15/42 198,000 203,050 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust (Class B) 4.89% 10/15/41 $300,000 $ 302,876 4.95% 10/15/41 700,000 709,293 Washington Mutual 3.43% 01/25/45 484,446 485,616(h) 19,821,416 SOVEREIGN BONDS -- 0.4% Government of Italy 4.50% 01/21/15 60,000 60,885 Government of Mexico 6.75% 09/27/34 530,000 557,825 Japan Finance Corp for Municipal Enterprises 4.63% 04/21/15 800,000 818,800 Ontario Electricity Financial Corp. 7.45% 03/31/13 20,000 24,224 Province of New Brunswick 3.50% 10/23/07 50,000 49,563 Province of Ontario 3.38% 01/15/08 500,000 492,780 4.50% 02/03/15 250,000 253,230 5.13% 07/17/12 260,000 275,957 2,533,264 TOTAL BONDS AND NOTES (COST $180,723,182) 180,965,268 NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- EXCHANGE TRADED FUNDS -- 1.9% Financial Select Sector SPDR Fund 90,646 2,671,338 Industrial Select Sector SPDR Fund 364,174 10,699,432 TOTAL EXCHANGE TRADED FUNDS (COST $12,768,096) 13,370,770 NUMBER OF CONTRACTS VALUE - -------------------------------------------------------------------------------- PURCHASED OPTIONS -- 0.0%* PUT OPTIONS US Treas Notes 10 Yrs 15 703 Eurodollar Futures 15 1,688 2,391 CALL OPTIONS Euro Dollar Futures 30 375 TOTAL PURCHASED OPTIONS (COST $11,359) 2,766 TOTAL INVESTMENTS IN SECURITIES (COST $674,857,603) 694,234,971 See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 12 TOTAL RETURN FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 13.3% - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 7.2% GEI Short Term Investment Fund 3.20% 50,610,698 $ 50,610,698(c,k) SHORT-TERM SECURITIES PURCHASED WITH COLLATERAL FROM SECURITIES ON LOAN -- 6.1% State Street Navigator Securities Lending Prime Portfolio 3.31% 42,442,947 42,442,947(c,d) TOTAL SHORT-TERM INVESTMENTS (COST $93,053,645) 93,053,645 TOTAL INVESTMENTS (COST $767,911,248) 787,288,616 LIABILITIES IN EXCESS OF OTHER ASSETS, NET -- (12.3)% (86,131,000) -------------- NET ASSETS -- 100.0% $701,157,616 ============= - -------------------------------------------------------------------------------- OTHER INFORMATION - -------------------------------------------------------------------------------- The GEI Total Return Fund had the following long futures contracts open at June 30, 2005: NUMBER CURRENT UNREALIZED EXPIRATION OF NOTIONAL APPRECIATION/ DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION - -------------------------------------------------------------------------------- Euro Dollar Futures September 2005 70 $16,826,250 $(18,903) S & P 500 Index Futures September 2005 12 3,586,500 (28,062) U.S. Treasury Notes 10 Yrs September 2005 27 3,063,656 14,433 U.S. Treasury Notes 5 Yrs September 2005 20 2,177,813 11,815 The GEI Total Return Fund had the following short futures contracts open at June 30, 2005: NUMBER CURRENT UNREALIZED EXPIRATION OF NOTIONAL APPRECIATION/ DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION - -------------------------------------------------------------------------------- Euro Dollar Futures December 2005 70 $(16,805,250) $ 9,413 --------- (11,304) ========= See Notes to Schedule of Investments on page 15 and Notes to Financial Statements. 13 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500) and Lehman Brothers Aggregate Bond Index (LB Aggregate) are unmanaged indices and do not reflect the actual cost of investing in the instruments that comprise each index. The S&P 500 is an unmanaged, market capitalization-weighted index of stocks of 500 large U.S. companies, which is widely used as a measure of large-cap stock market performance. The LB Aggregate Bond Index is a market value-weighted index of investment-grade debt issues, including government, corporate, asset-backed and mortgage-backed securities, with maturities of one year or more. The results shown for the foregoing indices assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. 14 Notes to Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Settlement is on a delayed delivery or when-issued basis with final maturity to be announced (TBA) in the future. (c) Coupon amount represents effective yield. (d) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (e) Principal only securities represent the right to receive the monthly principal payments on an underlying pool of mortgages. No payments of interest on the pool are passed through to the "principal only" holder. (f) Interest only securities represent the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the "interest only" holding. Abbreviations: ADR American Depositary 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 (g) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures, options, forward foreign currency contracts and/or TBA's. (h) Variable or floating rate security. The stated rate represents the rate at June 30, 2005. (i) All or a portion of the security is out on loan. (j) Step coupon bond. Security becomes interest bearing at a future date. (k) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. (l) Treasury Inflated Securities. + Percentages are based on net assets as of June 30, 2005. * Less than 0.1%. 15 Financial Highlights Selected data based on a share outstanding throughout the periods indicated
- ---------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ---------------------------------------------------------------------------------------------------------------------------------- INCEPTION DATE .................................... -- -- -- -- -- 7/1/85 Net asset value, beginning of period $15.97 $15.09 $12.68 $14.49 $15.51 $15.86 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income .......................... 0.14 0.20 0.16 0.31 0.38 0.43 Net realized and unrealized gains/(losses) on investments ............... (0.35) 1.04 2.41 (1.67) (0.83) 0.32 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS .... (0.21) 1.24 2.57 (1.36) (0.45) 0.75 - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS FROM: Net investment income .......................... -- 0.20 0.16 0.32 0.38 0.44 Net realized gains ............................. -- 0.16 -- 0.13 0.19 0.66 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ............................... -- 0.36 0.16 0.45 0.57 1.10 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD .................... $15.76 $15.97 $15.09 $12.68 $14.49 $15.51 - -------------------------------------------------------------------------------------------------------------------------------- TOTAL RETURN (A) .................................. (1.31)% 8.19% 20.31% (9.31)% (2.89)% 4.94% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ....... $701,158 $515,506 $225,867 $112,747 $130,757 $130,734 Ratios to average net assets: Net investment income* ...................... 2.04% 1.81% 1.58% 2.22% 2.54% 2.84% Expenses* ................................... 0.42% 0.49% 0.53% 0.54% 0.53% 0.54% Portfolio turnover rate ........................ 64% 141% 115% 126% 122% 117%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 16 Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED)
TOTAL RETURN FUND - ---------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at market* (cost $674,857,603) ............................. $694,234,971 Short-term Investments (at amortized cost ) ........................................... 42,442,947 Short-term affiliated investments (at amortized cost) ................................. 50,610,698 Foreign Cash (cost $284,844) ......................................................... 284,623 Receivable for investments sold ....................................................... 4,756,727 Income receivables .................................................................... 2,097,354 Receivable for fund shares sold ....................................................... 1,790,367 Variation margin receivable ........................................................... 7,734 - ---------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ..................................................................... 796,225,421 - ---------------------------------------------------------------------------------------------------------------- LIABILITIES Payable upon return of securities loaned .............................................. 42,442,947 Payable for investments purchased ..................................................... 52,375,219 Payable to GEAM ....................................................................... 226,639 Variation margin payable .............................................................. 23,000 - ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ................................................................. 95,067,805 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS ............................................................................... $701,157,616 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS CONSIST OF: Capital paid in ....................................................................... 666,351,922 Undistributed net investment income ................................................... 6,081,958 Accumulated net realized gain ......................................................... 9,357,202 Net unrealized appreciation/(depreciation) on: Investments ....................................................................... 19,377,368 Futures ........................................................................... (11,304) Foreign currency related transactions ............................................. 470 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS ............................................................................... $701,157,616 - ---------------------------------------------------------------------------------------------------------------- Shares outstanding ($0.01 par value; unlimited shares authorized) ........................ 44,498,060 Net asset value per share ................................................................ $15.76
* Includes $40,894,201 of securities on loan. See Notes to Financial Statements. 17 Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
TOTAL RETURN FUND - ---------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend .......................................................................... $ 4,302,886 Interest * ........................................................................ 2,557,703 Interest from affliated investments ............................................... 718,629 Less: Foreign taxes withheld ...................................................... (281,821) - ---------------------------------------------------------------------------------------------------------------- TOTAL INCOME ........................................................................ 7,297,397 - ---------------------------------------------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees .................................................. 1,137,780 Custody and accounting expenses ................................................... 60,282 Professional fees ................................................................. 31,010 Transfer agent .................................................................... 86 Trustee's fees .................................................................... 6,333 Registration expenses ............................................................. 1,257 Other expenses .................................................................... 21,222 - ---------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES ...................................................................... 1,257,970 - ---------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME (LOSS) ........................................................ 6,039,427 - ---------------------------------------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN (LOSS) ON: Investments .................................................................... 8,062,053 Futures ........................................................................ (105,629) Written options ................................................................ 20,685 Foreign currency transactions .................................................. (46,294) DECREASE IN UNREALIZED DEPRECIATION ON: Investments .................................................................... (19,976,313) Futures ........................................................................ (48,345) Written options ................................................................ (9,808) Foreign currency transactions .................................................. (12,250) - ---------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments ................................... (12,115,901) - ---------------------------------------------------------------------------------------------------------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERTIONS ................................. $ (6,076,474) - ----------------------------------------------------------------------------------------------------------------
* Income attributable to security lending activity, net of rebate expenses, was $72,692. See Notes to Financial Statements. 18
TOTAL Statements of RETURN Changes in Net Assets FUND - --------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ....................................................... $ 6,039,427 $ 6,146,470 Net realized gain on investments, futures, written options, foreign currency transactions and swaps .................................... 7,930,815 9,958,081 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation ....................................................... (20,046,716) 18,997,932 - --------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) from operations ...................................... (6,076,474) 35,102,483 - --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ........................................................ -- (6,141,806) Net realized gains ........................................................... -- (4,967,338) Return of Capital ............................................................ -- -- - --------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ............................................................ -- (11,109,144) - --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations and distributions ............ (6,076,474) 23,993,339 - --------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: Proceeds from sale of shares ................................................. 192,484,819 255,422,494 Value of distributions reinvested ............................................ -- 11,109,252 Cost of shares redeemed ...................................................... (757,175) (885,224) - --------------------------------------------------------------------------------------------------------------------------- Net increase from share transactions ........................................ 191,727,644 265,646,522 - --------------------------------------------------------------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS ................................................... 185,651,170 289,639,861 NET ASSETS Beginning of period ............................................................ 515,506,446 225,866,585 - --------------------------------------------------------------------------------------------------------------------------- End of period ................................................................. $701,157,616 $515,506,446 - --------------------------------------------------------------------------------------------------------------------------- UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ............................... $ 6,081,958 $ 42,531 - --------------------------------------------------------------------------------------------------------------------------- CHANGES IN PORTFOLIO SHARES Shares sold .................................................................. 12,267,908 16,668,080 Issued for distributions reinvested .......................................... -- 696,942 Shares redeemed .............................................................. (47,805) (58,639) - --------------------------------------------------------------------------------------------------------------------------- Net increase in fund shares ....................................................... 12,220,103 17,306,383 - ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 19 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund (the "Fund"), Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the repurchase price. In the event the seller defaults and the value of the security declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. 20 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial institutions determined by GEAM to be creditworthy, subject to certain limitations. The Fund continues to receive the interest and dividends on the loaned securities during the term of the loan. The loans of securities are secured by collateral in the form of cash or other liquid assets, which are segregated and maintained with the custodian in an amount at least equal to 102% of the current market value of the loaned securities. During the term of the loan, the Fund will record any gain or loss in the market value of its loaned securities and of securities in which cash collateral is invested. The Fund will also earn interest, net of any rebate, from securities in which cash collateral is invested. In the event the counterparty (borrower) does not meet its contracted obligation to return the securities, the Fund may be exposed to the risk of loss of reacquiring the loaned securities at prevailing market prices using the proceeds of the sale of the collateral. FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments denominated in foreign currencies are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period. Such fluctuations are included in the net realized or unrealized gain or loss from investments. Net realized gains or losses on foreign currency transactions represent net gains or losses on sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income and withholding taxes accrued and the U.S. dollar amount actually received or paid, and gains or losses between the trade and settlement date on purchases and sales of securities. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases or decreases in unrealized appreciation/depreciation on foreign currency related transactions. FUTURES CONTRACTS The Fund may invest in interest rate, financial or stock or bond index futures contracts subject to certain limitations. The Fund may invest in futures contracts to manage its exposure to the stock and bond markets and fluctuations in currency values. Buying futures tends to increase the Fund's exposure to the underlying instrument while selling futures tends to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. The Fund will not enter into a transaction involving futures for speculative purposes. The Fund's risks in using these contracts include changes in the value of the underlying instruments, non-performance of the counterparties under the contracts' terms and changes in the liquidity of the secondary market for the contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they principally trade. Upon entering into a futures contract, the Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount, known as initial margin deposit. Subsequent payments, known as variation margin, are made or received by the Fund each day, depending on the daily fluctuation in the fair value of the underlying security. The Fund records an unrealized gain or loss equal to the daily variation margin. Should market conditions move unexpectedly, the Fund may not achieve the anticipated benefits of the futures contracts and may incur a loss. The Fund recognizes a realized gain or loss on the expiration or closing of a futures contract. OPTIONS The Fund may purchase and write options, subject to certain limitations. The Fund may invest in options contracts to manage their exposure to the stock and bond markets and fluctuations in foreign currency values. Writing puts and buying calls tend to increase the Fund's exposure to the underlying instrument while buying puts and writing calls tend to decrease the Fund's exposure to the underlying instrument, or hedge other Fund investments. The Fund will not enter into a transaction involving options for speculative purposes. The Fund's risks in using these contracts include changes in the value of the underlying instruments, non-performance of the counterparties under the contracts' terms and changes in the liquidity of the secondary market for the contracts. Options are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. 21 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- When the Fund writes an option, the amount of the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase, as a realized loss. When an option is exercised, the proceeds from the sale of the underlying security or the cost basis of the securities purchased is adjusted by the original premium received or paid. SWAP CONTRACTS As part of the investment strategy, the Fund may invest in swap agreements, which are agreements to exchange the return generated by one instrument for the return generated by another instrument. Total return swap agreements involve commitments to pay interest in exchange for a market linked return based upon a notional principal amount. To the extent the total return of the security or index underlying the agreement exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. Swaps are marked to market daily based upon the underlying security or index. Payments received or made are recorded as realized gain or loss in the Statement of Operations. Entering into swap agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform and that there may be unfavorable changes in the value of the index or securities underlying the agreement. Notional principal amounts are used to express the extent of involvement in these transactions, but the amounts potentially subject to credit risk are much smaller. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Fund may purchase or sell securities on a when-issued or forward commitment basis. These transactions are arrangements in which the Fund purchases and sells securities with payment and delivery scheduled a month or more after entering into the transactions. The price of the underlying securities and the date when these securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contracts. In connection with such purchases, the Fund maintain cash or liquid assets in an amount equal to purchase commitments for such underlying securities until settlement date and for sales commitments, the Fund maintains equivalent deliverable securities as "cover" for the transaction. Unsettled commitments are valued at the current market value of the underlying security. Daily fluctuations in the value of such contracts are recorded as unrealized gains or losses. The Fund will not enter into such commitments for the purpose of investment leverage. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward foreign currency exchange contracts to facilitate transactions in foreign denominated securities and to manage the Fund's currency exposure. Forward foreign currency exchange contracts are valued at the mean between the bid and the offered forward rates as last quoted by a recognized dealer. The aggregate principal amounts of the contracts are not recorded in the Fund's financial statements. Such amounts appear under the caption forward foreign currency contracts in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (or liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains or losses on foreign currency related transactions. The Fund's risks in using these contracts include changes in the value of foreign currency or the possibility that the counterparties do not perform under the contracts' terms. When the Fund enters into a forward foreign currency exchange contract, it is required to segregate cash or liquid securities with its custodian in an amount equal to the value of the Fund's total assets committed to the consummation of the forward contract. If the value of the segregated securities declines, additional cash or securities is segregated so that the value of the account will equal the amount of the Fund's commitment with respect to the contract. INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates of 22 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax cost of investments is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $769,348,010 $30,463,154 $(12,522,548) $17,940,606
As of December 31, 2004, the Fund has no capital loss carryover. During the year ended December 31, 2004, the Fund utilized approximately $2,763,765 of capital loss carryovers. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Ordinary Long-Term Income Capital Gains Total - ---------------------------------------------------------------------------- $6,141,806 $4,967,338 $11,109,144 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) swaps, futures, treatment of realized and unrealized gains and losses on forward foreign currency contracts, paydown gains and losses on mortgage-backed securities and losses deferred due to wash sale transactions. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 23 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund. The advisory and administrative fee is stated in the following schedule: Annualized based on average daily net assets - ------------------------------------------------------------ Average Daily Advisory and Net Assets Administration of Fund Fees - ------------------------------------------------------------ First $100 million .50% Next $100 million .45% Next $100 million .40% Next $100 million .35% Over $400 million .30% Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $2,298 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement as it relates to the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreement with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM, and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the 24 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations (through those lower fees and through subsidies of operating expenses). The Board reviewed the applicable fee breakpoints and concluded that no changes were needed. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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 25 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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, 2005 were as follows: Purchases Sales ------------------------------------- $592,391,670 $376,631,716 OPTIONS During the period ended June 30, 2005, the following option contracts were written: Number of of Contracts Premium - -------------------------------------------------------------------------------- Balance as of December 31, 2004 (64) $ (24,808) Written (252) (47,964) Closed and Expired 316 72,772 - -------------------------------------------------------------------------------- Balance as of June 30, 2005 0 $ 0 - -------------------------------------------------------------------------------- SECURITY LENDING At June 30, 2005, the Fund participated in securities lending: Loaned securities at Cash market value Collateral - -------------------------------------------------------------------------------- $40,894,201 $42,338,937 26 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 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. 27 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year 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 28 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 29 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 Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 30 GE Investments Funds, Inc. Global Income Fund Semi-Annual Report JUNE 30, 2005 [GE Logo omitted] GE Investments Funds, Inc. Global Income Fund Contents - ------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ........................... 1 NOTES TO PERFORMANCE ................................................. 5 NOTES TO SCHEDULE OF INVESTMENTS ..................................... 5 FINANCIAL STATEMENTS Financial Highlights ............................................ 6 Statement of Assets and Liabilities ............................. 7 Statement of Operations ......................................... 8 Statements of Changes in Net Assets ............................. 9 Notes to Financial Statements ................................... 10 ADDITIONAL INFORMATION ............................................... 16 INVESTMENT TEAM ...................................................... 19 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. Global Income Fund Q&A - -------------------------------------------------------------------------------- WILLIAM M. HEALEY IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE IS PORTFOLIO MANAGER OF THE GLOBAL INCOME FUND AND HAS SERVED IN THIS CAPACITY SINCE SEPTEMBER 2002. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. HEALEY SPENT OVER 10 YEARS IN THE FIXED INCOME GROUP AT METLIFE. Q. HOW DID THE GLOBAL INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the Global Income Fund returned (4.29)%. The Salomon Brothers World Government Bond Index Un-hedged, the Fund's benchmark, returned (3.97)% and the Fund's Lipper peer group of 29 Global Income Funds returned an average of (0.58)% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED THE FUND DURING THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. Yields fell during the first six months of 2005 across all major government bond markets except in the short to intermediate end of the U.S. curve as the U.S. Federal Reserve raised its target fed funds rate 4 times, in 25 basis point increments, to 3.25%. Economic growth in America held steady while activity in Europe and Japan weakened. The ECB remained on hold despite softer consumer spending and slowing productivity. The 10-year euro yield fell 55 basis points to 3.13%. The euro declined nearly 11% versus the U.S. dollar to 1.2108 $/Euro. After a strong first quarter, second quarter growth in Japan weakened with a slowdown in consumer spending. The 10-year JGB yield dropped 27 basis points to 1.17%. The Yen lost roughly 8% of its value versus the U.S. dollar, ending June at 102.63 yen/$. The U.S. yield curve flattened dramatically as yields on 2-year notes rose 57 basis points to 3.64%, while yields on 10-year notes fell 30 basis points to 3.92%. Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE? A. Country allocation was maintained fairly close to that of the Index during the period. Overall portfolio duration was slightly shorter than the benchmark, which caused a modest drag on performance as rates moved downward in most major economies. [photo omitted] 1 Global Income Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 957.13 4.11 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,020.39 4.24 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.85% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS (4.29)%. 2 Global Income Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] Salomon Brothers World Global Income Fund Government Bond Index 05/01/97 10,000 10,000 06/01/97 10,190 10,394 12/01/97 10,341 10,548 06/01/98 10,729 10,843 12/01/98 11,720 12,163 06/01/99 10,874 11,290 12/01/99 10,841 11,644 06/01/00 10,717 11,647 12/01/00 10,767 11,829 06/01/01 10,314 11,289 12/01/01 10,586 11,712 06/01/02 11,526 12,866 12/01/02 12,347 13,995 06/01/03 12,962 14,989 12/01/03 13,790 16,081 06/01/04 13,554 15,836 12/01/04 15,094 17,746 06/01/05 14,447 17,041 Global Income Fund (ending value $14,447) Salomon Brothers World Government Bond Index (ending value $17,041)
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- SIX ONE FIVE SINCE MONTHS YEAR YEAR INCEPTION - --------------------------------------------------------------------------------------------------------------------------- Global Income Fund -4.29% 6.59% 6.16% 4.61% - --------------------------------------------------------------------------------------------------------------------------- Salomon Brothers World Government Bond Index -3.97% 7.61% 7.91% 6.74% - --------------------------------------------------------------------------------------------------------------------------- Lipper peer group average* -0.58% 9.81% 8.45% N/A - --------------------------------------------------------------------------------------------------------------------------- Inception date 5/1/97 - ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT PROFILE A fund designed for investors who seek high return, emphasizing current income and, to a lesser extent, capital appreciation by investing in a combination of foreign and domestic debt securities, with an emphasis in foreign debt securities. CURRENCY EXPOSURE AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $13,809 (in thousands) [Pie chart omitted -- plot points are as follows:] Euro 40.5% U.S. Dollars 27.0% Japanese Yen 24.6% Pound Sterling 4.6% Canadian Dollars 3.3% PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $13,809 (in thousands) [Pie chart omitted -- plot points are as follows:] Continental Europe 40.5% United States 27.0% Japan 24.6% United Kingdom 4.6% Canada 3.3% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, AND FIVE-YEAR PERIODS INDICATED IN THE GLOBAL INCOME PEER GROUP CONSISTING OF 29, 29, AND 25 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 5 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 3 GLOBAL INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- GLOBAL INCOME FUND - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- BONDS AND NOTES -- 87.3% - -------------------------------------------------------------------------------- AUSTRIA -- 1.9% Government of Austria 4.00% 07/15/09 EUR 219,000 $ 281,672(b) BELGIUM -- 1.9% Government of Belgium 5.00% 09/28/11 EUR 40,000 54,712(b) 5.50% 09/28/17 EUR 155,000 228,681(b) 283,393 CANADA -- 3.0% Government of Canada 5.75% 06/01/33 CAD 72,000 72,747 6.00% 06/01/11 CAD 415,000 383,536 456,283 FINLAND -- 0.9% Government of Finland 5.38% 07/04/13 EUR 93,000 132,219(b) FRANCE -- 3.6% Government of France 5.50% 04/25/10 EUR 398,000 547,055(b) GERMANY -- 19.8% Bundesobligation 4.50% 08/17/07 EUR 205,000 260,626 5.00% 02/17/06 EUR 173,000 213,182(b) Deutsche Bundesrepublik 4.13% 07/04/08 EUR 50,000 63,909(b) 5.00% 01/04/12 EUR 725,000 994,416(b) 5.50% 01/04/31 EUR 65,000 102,726(b) 6.00% 01/04/07 EUR 270,000 345,823(b) 6.25% 01/04/30 EUR 547,000 940,451(b) Kreditanstalt fuer Wiederaufbau 5.25% 07/04/12 EUR 72,000 100,281(b) 3,021,414 GREECE -- 2.4% Hellenic Republic 5.25% 05/18/12 EUR 107,000 147,723(b) 6.00% 02/19/06 EUR 172,000 213,176(b) 360,899 ITALY -- 1.0% Italy Buoni Poliennali Del Tesoro 6.75% 02/01/07 EUR 117,000 151,902(b) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- JAPAN -- 22.3% Government of Japan 0.02% 03/20/06 JPY 32,500,000 $ 294,293(a) 0.03% 12/20/06 JPY 28,500,000 258,977(a) 0.04% 03/20/07 JPY 62,500,000 568,466(a) 0.06% 09/20/07 JPY 31,600,000 286,652(a) 0.19% 12/22/08 JPY 65,000,000 600,929(a) 1.10% 12/20/05 JPY 65,000,000 589,505 1.30% 09/20/12 JPY 35,400,000 331,986 1.80% 12/20/10 JPY 48,400,000 468,114 3,398,922 NETHERLANDS -- 2.9% Government of Netherlands 5.50% 01/15/28 EUR 285,000 443,670 SPAIN -- 2.4% Government of Spain 4.25% 10/31/07 EUR 290,000 368,076 UNITED KINGDOM -- 4.1% United Kingdom Gilt 6.00% 12/07/28 GBP 102,000 231,638 7.75% 09/08/06 GBP 96,000 178,958 8.50% 12/07/05 GBP 120,000 218,921 629,517 UNITED STATES -- 21.1% U.S. Treasury Bonds 5.25% 02/15/29 USD 683,000 781,502(b) 5.38% 02/15/31 USD 350,000 413,165(b) U.S. Treasury Notes 3.50% 11/15/06 USD 700,000 699,181(b) 4.38% 05/15/07 - 08/15/12 USD 1,280,000 1,313,777(b) 3,207,625 TOTAL INVESTMENT IN SECURITIES (COST $10,907,538) 13,282,647 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 3.4% - -------------------------------------------------------------------------------- GEI Short Term Investment Fund 3.20% USD 526,173 526,173(a,c) (COST $526,173) TOTAL INVESTMENTS (COST $11,433,711) 13,808,820 OTHER ASSETS AND LIABILITIES, NET -- 9.3% 1,414,149 ----------- NET ASSETS -- 100.0% $15,222,969 =========== See Notes to Schedule of Investments on page 5 and Notes to Financial Statements. 4 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Salomon/Smith Barney World Government Bond Index (Salomon World Bond) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise this index. The Salomon World Bond Index is a market capitalization-weighted index designed to track major government debt markets. The index includes issues which must be sovereign debt issued in the domestic market in the local currency with at least one year of maturity. The following countries are included in the index: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, United Kingdom and United States. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Coupon amount represents effective yield. (b) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures and forward foreign currency contracts. (c) GEAM the investment adviser of the Fund, also serves as investment adviser of the Trust. + Percentages are based on net assets as of June 30, 2005. Abbreviations: USD United States Dollar CAD Canadian Dollar EUR Euro GBP British Pound JPY Japanese Yen 5
Financial Highlights Selected data based on a share outstanding throughout the period(s) indicated - ------------------------------------------------------------------------------------------------------------------------------------ GLOBAL INCOME FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE -- -- -- -- -- 5/1/97 Net asset value, beginning of period .......... $12.13 $11.68 $10.84 $9.35 $9.51 $9.59 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ...................... 0.13 0.31 0.31 0.21 0.32 0.40 Net realized and unrealized gains/(losses) on investments ........... (0.65) 0.79 0.96 1.35 (0.48) (0.47) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ................................. (0.52) 1.10 1.27 1.56 (0.16) (0.07) - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income ...................... -- 0.65 0.43 0.07 -- 0.01 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ........................... -- 0.65 0.43 0.07 -- 0.01 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD ................ $11.61 $12.13 $11.68 $10.84 $9.35 $9.51 ==================================================================================================================================== TOTAL RETURN (A) .............................. (4.29)% 9.46% 11.69% 16.63% (1.68)% (0.69)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ... $15,223 $16,698 $17,241 $17,806 $8,885 $9,555 Ratios to average net assets: Net investment income* .................. 2.18% 2.29% 2.23% 2.65% 3.53% 4.51% Expenses* ............................... 0.85% 0.86% 0.71% 0.69% 0.72% 0.72% Portfolio turnover rate .................... 0% 0% 33% 152% 125% 177%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year + Unaudited See Notes to Financial Statements. 6
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) GLOBAL INCOME FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at market (cost $10,907,538) .................................. $13,282,647 Short-term affiliated investments (at amortized cost) ........................................... 526,173 Foreign cash (cost $1,282,799) ................................................................. 1,240,236 Income receivables .............................................................................. 183,923 Receivable for fund shares sold ................................................................. 945 - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ................................................................................ 15,233,924 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Payable to GEAM ................................................................................. 10,955 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................................................... 10,955 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ......................................................................................... $15,222,969 =========================================================================================================================== NET ASSETS CONSIST OF: Capital paid in ................................................................................. 12,821,592 Undistributed net investment income ............................................................. 176,657 Accumulated net realized loss ................................................................... (99,885) Net unrealized appreciation/ (depreciation) on: Investments ................................................................................. 2,375,109 Foreign currency related transactions ....................................................... (50,504) - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ......................................................................................... $15,222,969 =========================================================================================================================== Shares outstanding ($0.01 par value; unlimited shares authorized) .................................. 1,310,969 Net asset value per share .......................................................................... $11.61
See Notes to Financial Statements. 7
Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) GLOBAL INCOME FUND - ------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME INCOME: Interest ............................................................................ $ 236,909 Interest from affliated investments ................................................. 5,051 - ------------------------------------------------------------------------------------------------------------------ TOTAL INCOME .......................................................................... 241,960 - ------------------------------------------------------------------------------------------------------------------ EXPENSES: Advisory and administrative fees .................................................... 49,066 Custody and accounting expenses ..................................................... 15,792 Professional fees ................................................................... 1,352 Transfer agent ...................................................................... 86 Trustee's fees ...................................................................... 174 Registration expenses ............................................................... 56 Other expenses ...................................................................... 1,059 - ------------------------------------------------------------------------------------------------------------------ TOTAL EXPENSES ........................................................................ 67,585 - ------------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME ................................................................. 174,375 ================================================================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN ON: Investments ...................................................................... 86,267 Foreign currency transactions .................................................... 46,961 DECREASE IN UNREALIZED DEPRECIATION ON: Investments ...................................................................... (795,688) Foreign currency transactions .................................................... (208,647) - ------------------------------------------------------------------------------------------------------------------ Net realized and unrealized loss on investments ................................................................... (871,107) - ------------------------------------------------------------------------------------------------------------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................................................... $(696,732) ==================================================================================================================
See Notes to Financial Statements. 8
Statements of Changes in Net Assets GLOBAL INCOME FUND - ------------------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income .............................................................. $ 174,375 $ 371,870 Net realized gain on investments, futures, written options, foreign currency transactions and swaps ........................................... 133,228 385,735 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, and foreign currency translation .................................. (1,004,335) 661,292 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) from operations ............................................. (696,732) 1,418,897 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ............................................................... -- (849,196) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ................................................................... -- (849,196) - ------------------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations and distributions ................... (696,732) 569,701 - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: Proceeds from sale of shares ........................................................ 566,759 2,401,575 Value of distributions reinvested ................................................... -- 849,193 Cost of shares redeemed ............................................................. (1,344,671) (4,363,414) - ------------------------------------------------------------------------------------------------------------------------------------ Net decrease from share transactions ............................................... (777,912) (1,112,646) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DECREASE IN NET ASSETS .......................................................... (1,474,644) (542,945) NET ASSETS Beginning of period ................................................................... 16,697,613 17,240,558 - ------------------------------------------------------------------------------------------------------------------------------------ End of period ......................................................................... $15,222,969 $16,697,613 ==================================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ...................................... $ 176,657 $ 2,282 - ------------------------------------------------------------------------------------------------------------------------------------ CHANGES IN PORTFOLIO SHARES Shares sold ......................................................................... 47,553 202,823 Issued for distributions reinvested ................................................. -- 70,531 Shares redeemed ..................................................................... (113,623) (372,730) - ------------------------------------------------------------------------------------------------------------------------------------ Net decrease in fund shares .............................................................. (66,070) (99,376) ====================================================================================================================================
See Notes to Financial Statements. 9 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund (the "Fund"), Income Fund, Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the 10 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- repurchase price. In the event the seller defaults and the value of the security declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial institutions determined by GEAM to be creditworthy, subject to certain limitations. The Fund continues to receive the interest and dividends on the loaned securities during the term of the loan. The loans of securities are secured by collateral in the form of cash or other liquid assets, which are segregated and maintained with the custodian in an amount at least equal to 102% of the current market value of the loaned securities. During the term of the loan, the Fund will record any gain or loss in the market value of its loaned securities and of securities in which cash collateral is invested. The Fund will also earn interest, net of any rebate, from securities in which cash collateral is invested. In the event the counterparty (borrower) does not meet its contracted obligation to return the securities, the Fund may be exposed to the risk of loss of reacquiring the loaned securities at prevailing market prices using the proceeds of the sale of the collateral. FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments denominated in foreign currencies are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period. Such fluctuations are included in the net realized or unrealized gain or loss from investments. Net realized gains or losses on foreign currency transactions represent net gains or losses on sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income and withholding taxes accrued and the U.S. dollar amount actually received or paid, and gains or losses between the trade and settlement date on purchases and sales of securities. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases or decreases in unrealized appreciation/depreciation on foreign currency related transactions. 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 their 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 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Fund may purchase or sell securities on a when-issued or forward commitment basis. These transactions are arrangements in which the Fund purchases and sells securities with payment and delivery scheduled a month or more after entering into the transactions. The price of the underlying securities and the date when these securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contracts. In connection with such purchases, the Fund maintain cash or liquid assets in an amount equal to purchase commitments for such underlying securities until settlement date and for sales commitments, the Fund maintains equivalent deliverable securities as "cover" for the transaction. Unsettled commitments are valued at the current market value of the underlying security. Daily fluctuations in the value of such contracts are recorded as unrealized gains or losses. The Fund will not enter into such commitments for the purpose of investment leverage. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward foreign currency exchange contracts to facilitate transactions in foreign denominated securities and to manage the Fund's currency exposure. Forward foreign currency exchange contracts are valued at the mean between the bid and the offered forward rates as last quoted by a recognized dealer. The aggregate principal amounts of the contracts are not recorded in the Fund's financial statements. Such amounts appear under the caption forward foreign currency contracts in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (or liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains or losses on foreign currency related transactions. The Fund's risks in using these contracts include changes in the value of foreign currency or the possibility that the counterparties do not perform under the contracts' terms. When the Fund enters into a forward foreign currency exchange contract, it is required to segregate cash or liquid securities with its custodian in an amount equal to the value of the Fund's total assets committed to the consummation of the forward contract. If the value of the segregated securities declines, additional cash or securities is segregated so that the value of the account will equal the amount of the Fund's commitment with respect to the contract. INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates of inflation, repatriation on income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, tariffs and taxes, subject to delays in settlements, and their prices may be more volatile. The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- At June 30, 2005, information on the tax components of capital is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $11,441,063 $2,370,698 $(2,941) $2,367,757
As of December 31, 2004, the Fund has the capital loss carryover as indicated below. The capital loss carryover is 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 - -------------------------------------------------------------------------------- $224,660 12/31/08 1,101 12/31/12 Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Long-Term Ordinary Capital Income Gains Total - -------------------------------------------------------------------------------- $849,196 $ -- $849,196 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) treatment of realized and unrealized gains and losses on forward foreign currency contracts and losses deferred due to wash sale transactions. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 of the Funds. The maximum amount allowed to be borrowed by any one 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .60%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $1,110 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement of the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM and the sub-adviser at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreements with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those lower fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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 Effective October 1, 2000, GEAM, as Investment Adviser to Global Income Fund, assumed day-to-day portfolio management responsibility from GE Asset Management Limited, formerly GE Investments (US) Limited, the previous Sub-Adviser to the Global Income Fund. 6. INVESTMENT TRANSACTIONS PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from sales of investments, other than short-term securities and options, for the period ended June 30, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $0.00 $654,875 7. FUND TERMINATION The GE Investments Funds' Board of Directors approved a plan of substitution of shares of the GE Investments Global Income Fund with shares of the Templeton Global Income Securities Fund - Class I Shares. On the close of the Valuation Day on August 25, 2005, any policy owner assets remaining in the GE Investments Global Income Fund will be transferred to the Templeton Global Income Securities Fund - Class I Shares and the GE Investments Global Income Fund will be removed as an available investment option. 15 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 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. 16 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year 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 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 18 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 Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 19 [This page intentionally left blank.] [This page intentionally left blank.] [This page intentionally left blank.] GE Investments Funds, Inc. Income Fund Semi-Annual Report JUNE 30, 2005 [LOGO OMITTED] GE Investments Funds, Inc. Income Fund Contents - ---------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ........................... 1 NOTES TO PERFORMANCE ................................................. 13 NOTES TO SCHEDULE OF INVESTMENTS ..................................... 14 FINANCIAL STATEMENTS Financial Highlights ............................................ 15 Statement of Assets and Liabilities ............................. 16 Statement of Operations ......................................... 17 Statements of Changes in Net Assets ............................. 18 Notes to Financial Statements ................................... 19 ADDITIONAL INFORMATION ............................................... 26 INVESTMENT TEAM ...................................................... 29 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Income Fund - -------------------------------------------------------------------------------- Q&A THE INCOME FUND IS MANAGED BY A TEAM OF PORTFOLIO MANAGERS THAT INCLUDES ALFREDO CHANG, PAUL M. COLONNA, MARK DELANEY, ERIC H. GOULD, WILLIAM M. HEALEY AND VITA MARIE PIKE. AS LEAD PORTFOLIO MANAGER FOR THE INCOME FUND, MR. COLONNA (PICTURED BELOW) HAS OVERSIGHT AUTHORITY BUT DOES NOT POSSESS THE POWER TO VETO THE INVESTMENT DECISIONS OF HIS CO-MANAGERS. PAUL M. COLONNA IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. SINCE JANUARY 2005, HE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE FIXED INCOME INVESTMENTS FOR GE ASSET MANAGEMENT AND HE HAS LED THE TEAM OF PORTFOLIO MANAGERS FOR THE INCOME FUND. PRIOR TO JOINING GE ASSET MANAGEMENT IN FEBRUARY 2000, MR. COLONNA WAS A SENIOR PORTFOLIO MANAGER WITH THE FEDERAL HOME LOAN MORTGAGE CORPORATION, OVERSEEING THE MORTGAGE INVESTMENT GROUP. ALFREDO CHANG IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A PORTFOLIO MANAGER OF THE INCOME FUND SINCE MARCH 2005. MR. CHANG JOINED GE ASSET MANAGEMENT IN JULY 2002 AS A PORTFOLIO MANAGER AND WAS MADE RESPONSIBLE FOR THE EMERGING MARKET FIXED INCOME EFFORT AT GE ASSET MANAGEMENT IN NOVEMBER 2003. MR. CHANG WAS AN ASSISTANT PORTFOLIO MANAGER WITH GENWORTH FINANCIAL, FORMERLY KNOWN AS GE FINANCIAL ASSURANCE, AN AFFILIATE OF GE ASSET MANAGEMENT, FROM AUGUST 2000 UNTIL HE JOINED GE ASSET MANAGEMENT IN JULY 2002. PRIOR TO THAT HE OVERSAW OFFSHORE INVESTMENT PORTFOLIOS AT AIG GLOBAL INVESTMENT CORPORATION. MARK DELANEY IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A MEMBER OF THE PORTFOLIO MANAGEMENT TEAM FOR THE INCOME FUND SINCE JOINING GE ASSET MANAGEMENT IN APRIL 2002. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. DELANEY WAS THE ASSISTANT INVESTMENT OFFICER FOR THE PUBLIC EMPLOYEES RETIREMENT SYSTEM OF OHIO. ERIC H. GOULD IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS BEEN A PORTFOLIO MANAGER FOR THE INCOME FUND SINCE JOINING GE ASSET MANAGEMENT IN SEPTEMBER 2000. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. GOULD WAS A SENIOR ASSET MANAGER FOR METROPOLITAN LIFE INSURANCE COMPANY. WILLIAM M. HEALEY IS A SENIOR VICE PRESIDENT OF GE ASSET MANAGEMENT. HE HAS SERVED ON THE PORTFOLIO MANAGEMENT TEAMS FOR THE INCOME FUND SINCE SEPTEMBER 1997. PRIOR TO JOINING GE ASSET MANAGEMENT, MR. HEALEY SPENT OVER 10 YEARS IN THE FIXED INCOME GROUP AT METLIFE. VITA MARIE PIKE IS A VICE PRESIDENT OF GE ASSET MANAGEMENT. SHE HAS SERVED ON THE PORTFOLIO MANAGEMENT TEAM FOR THE INCOME FUND SINCE JUNE 2004. PRIOR TO JOINING GE ASSET MANAGEMENT IN JANUARY 2001, SHE WAS WITH ALLIANCE CAPITAL FOR OVER NINE YEARS SERVING IN A NUMBER OF DIFFERENT CAPACITIES INCLUDING PORTFOLIO MANAGER. {PHOTO OMITTED] 1 Income Fund - -------------------------------------------------------------------------------- Q&A Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the Income Fund returned 2.04%. The Lehman Brothers Aggregate Bond Index, the Fund's benchmark, returned 2.51% and the Fund's Lipper peer group of 42 Intermediate Investment Grade Debt Funds returned an average of 2.17% for the same period. Q. WHAT MARKET CONDITIONS IMPACTED FUND PERFORMANCE OVER THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. The Federal Reserve continued to remove accommodative policy at a measured pace, raising the fed funds target 25 basis points at each of its four meetings in the first half of 2005 to 3.25%. U.S. treasury yields on the short end of the maturity spectrum rose, not surprisingly, in tandem with the Fed's actions. However, in what Fed Chairman Greenspan referred to as a "conundrum", yields on longer maturity treasury securities (10 years or greater) declined during the period. Weaker economic data, benign inflation, healthy foreign demand and expected demand for long duration assets due to potential pension reform helped the rally in longer issues. Poor earnings forecasts from GM and Ford and subsequent downgrades of the two major auto companies to below investment grade by S&P rattled the corporate sector causing that sector to underperform on a duration-adjusted basis. Q. WHAT WERE THE PRIMARY DRIVERS OF FUND PERFORMANCE? A. Security selection, in particular, the underweight in auto issuers helped Fund performance. Yield curve positioning contributed positively to return as the yield difference between short and long maturity issues narrowed significantly. Exposure in treasury inflation-protected securities helped in February and March as yields rose, but then negatively affected performance in April and May as longer yields fell. The underweight in treasury securities moderately hurt relative return. 2 Income Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees. JANUARY 1, 2005 - JUNE 30, 2005
- --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 1,020.41 2.98 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,021.59 3.00 - ---------------------------------------------------------------------------------------------------------------------------
*EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.60% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). **ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS 2.04%. 3 Income Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] Income Fund LB Aggregate Bond Index - -------------------------------------------------------------------------------- 06/01/95 10,000 10,000 12/01/95 10,605 10,631 12/01/96 10,915 11,017 12/01/97 11,897 12,080 12/01/98 12,843 13,130 12/01/99 12,660 13,022 12/01/00 14,019 14,536 12/01/01 15,061 15,763 12/01/02 16,549 17,380 12/01/03 17,145 18,093 12/01/04 17,732 18,878 06/01/05 18,093 19,352 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- SIX ONE FIVE TEN MONTHS YEAR YEAR YEAR - -------------------------------------------------------------------------------- Income Fund 2.04% 5.70% 6.69% 6.11% - -------------------------------------------------------------------------------- LB Aggregate Bond Index 2.51% 6.80% 7.40% 6.83% - -------------------------------------------------------------------------------- Lipper peer group average* 2.17% 6.46% 6.90% 6.32% - -------------------------------------------------------------------------------- Inception date 1/3/95 - -------------------------------------------------------------------------------- Income Fund (ending value $18,093) LB Aggregate Bond Index (ending value $19,352) INVESTMENT PROFILE A fund designed for investors who seek maximum income consistent with prudent investment management and the preservation of capital by investing at least 80% of its net assets in debt securities under normal market conditions. QUALITY RATINGS AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- MOODY'S/S&P/ PERCENTAGE OF FITCH RATING+ MARKET VALUE - -------------------------------------------------------------------------------- Aaa / AAA 66.99% - -------------------------------------------------------------------------------- Aa / AA 4.34% - -------------------------------------------------------------------------------- A / A 6.21% - -------------------------------------------------------------------------------- Baa / BBB 12.70% - -------------------------------------------------------------------------------- Ba / BB and lower 6.57% - -------------------------------------------------------------------------------- NR / Other 3.19% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $145,711 (in thousands) [Pie chart omitted -- plot points are as follows:] Mortgage-Backed 42.3% Corporate Notes 28.6% Asset-Backed and Other 11.4% Federal Agencies 8.9% U.S. Treasuries 8.8% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE INTERMEDIATE INVESTMENT GRADE DEBT PEER GROUP CONSISTING OF 42, 42, 27, AND 12 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. + MOODY'S INVESTORS SERVICES INC, STANDARD & POOR'S AND FITCH ARE NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATIONS. SEE NOTES TO PERFORMANCE ON PAGE 13 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- INCOME FUND - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- BONDS AND NOTES -- 108.9% - -------------------------------------------------------------------------------- U.S. TREASURIES -- 10.0% U.S. Treasury Bonds 5.38% 02/15/31 $1,970,000 $ 2,325,526(f) 8.13% 08/15/19 - 08/15/21 1,725,000 2,462,473(f) U.S. Treasury Inflation Indexed Bonds 2.00% 01/15/14 2,437,556 2,511,438(f,j) 2.38% 01/15/25 356,092 390,145(j) 3.88% 04/15/29 248,531 349,690(j) 4.73% 04/15/10 975,631 951,543(c,j) U.S. Treasury Notes 3.38% 02/15/08 900,000 893,538 3.63% 06/15/10 2,550,000 2,538,831 3.75% 05/15/08 120,000 120,263 4.00% 04/15/10 25,000 25,273 4.13% 05/15/15 295,000 299,333 12,868,053 FEDERAL AGENCIES -- 10.0% Federal Farm Credit Bank 3.75% 01/15/09 670,000 666,309(f) Federal Home Loan Bank 2.38% 02/15/06 4,355,000 4,319,328(f) 2.63% 10/16/06 2,175,000 2,142,936 Federal Home Loan Mortgage Corp. 3.00% 09/29/06 1,445,000 1,430,590(f) 3.63% 09/15/08 1,520,000 1,508,002(f) 4.50% 01/15/14 780,000 796,016 4.75% 12/08/10 1,065,000 1,067,858(f) 6.75% 03/15/31 730,000 965,331 12,896,370 AGENCY MORTGAGE BACKED -- 27.2% Federal Home Loan Mortgage Assoc. 6.00% 05/01/20 - 04/01/35 74,753 77,108 7.00% 05/01/35 49,918 52,645 Federal Home Loan Mortgage Corp. 4.50% 06/01/33 - 02/01/35 341,999 334,361 6.00% 04/01/17 - 06/01/35 1,227,898 1,260,638 6.50% 01/01/27 - 12/01/34 803,354 831,650 7.00% 10/01/16 - 02/01/35 277,058 291,907 7.50% 11/01/09 - 09/01/33 45,664 48,403 8.00% 09/01/09 - 11/01/30 45,598 48,331 8.50% 04/01/30 - 05/01/30 40,691 44,037 Federal National Mortgage Assoc. 4.00% 05/01/19 - 06/01/19 360,423 353,207 4.50% 05/01/18 - 12/01/34 2,095,964 2,072,694 5.00% 03/01/34 - 10/01/34 154,003 154,051 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- 5.50% 12/01/13 - 08/01/33 $ 558,762 $ 568,820 6.00% 06/01/14 - 06/01/35 2,794,356 2,869,817 6.50% 03/01/15 - 02/01/35 3,824,846 3,959,720 7.00% 03/01/15 - 04/01/35 1,266,998 1,334,355 7.50% 12/01/09 - 03/01/34 381,319 406,656 8.00% 12/01/12 - 11/01/33 293,725 316,388 8.50% 05/01/31 10,166 10,996 9.00% 04/01/16 - 12/01/22 50,294 54,088 4.50% TBA 2,460,000 2,448,468(b) 5.00% TBA 1,785,000 1,803,431(b) 5.50% TBA 8,010,000 8,117,638(b) 6.00% TBA 4,255,000 4,361,375(b) Government National Mortgage Assoc. 4.13% 11/20/22 - 12/20/24 11,613 11,812(g) 4.38% 02/20/23 - 02/20/26 30,751 31,199(g) 4.50% 08/15/33 - 09/15/34 709,670 701,746 6.00% 04/15/27 - 06/15/35 774,720 799,194 6.50% 04/15/19 - 08/15/34 653,248 681,708 7.00% 03/15/12 - 06/15/34 322,938 340,920 7.50% 11/15/31 - 10/15/33 19,066 20,431 8.00% 12/15/29 - 04/15/30 14,066 15,181 8.50% 10/15/17 39,926 43,453 9.00% 11/15/16 - 12/15/21 94,466 104,205 5.50% TBA 300,000 306,281(b) 34,876,914 AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.0% Federal Home Loan Mortgage Assoc. 5.50% 02/25/35 249,214 257,702 Federal Home Loan Mortgage Corp. 3.43% 10/15/18 542,495 47,807(e,g) 3.93% 12/15/30 1,479,461 91,079(e,g) 4.50% 04/15/13 - 03/15/19 1,314,087 139,585(e) 4.50% 05/15/17 - 11/15/19 350,000 346,872 5.00% 01/15/11 - 12/01/34 4,456,505 558,472(e) 5.00% 05/15/20 - 11/15/34 1,760,000 1,759,945 5.11% 10/15/33 235,000 195,356(g) 5.50% 04/15/17 - 06/15/33 844,013 138,693(e) 5.50% 10/15/34 257,541 268,969 6.25% 01/15/23 2,299 2,303 6.31% 12/15/33 150,000 133,905(g) 6.50% 02/15/21 1,989 1,983 7.50% 01/15/16 94,341 99,412 7.50% 07/15/27 23,189 3,855(e) 8.25% 06/01/26 60,000 85,495(f,h) 8.95% 06/15/33 710,752 733,851(g) 14.69% 09/25/43 3,012,558 28,243 (c,e,g) Federal Home Loan Mortgage Corp. STRIPS 8.00% 02/01/23 - 07/01/24 12,158 2,449(e) Federal Home Loan Mortgage STRIPS 4.55% 08/01/27 2,998 2,629(c,d) See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 5 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Federal National Mortgage Assoc. 1.18% 12/25/42 $ 219,087 $ 5,580(e,g) 2.22% 06/25/43 3,007,271 139,086(e,g) 3.69% 10/25/29 733,885 58,023(e,g) 3.79% 12/25/30 731,508 47,319(e,g) 4.00% 02/25/28 56,716 56,266 4.19% 05/25/18 1,281,474 108,028(e,g) 4.29% 09/25/42 2,325,956 182,442(e,g) 4.34% 04/25/17 - 10/25/17 1,634,950 147,997(e,g) 4.39% 08/25/16 541,930 36,707(e,g) 4.50% 05/25/18 221,088 24,181(e) 4.50% 12/25/19 125,000 122,813 4.75% 11/25/14 134,434 10,566(e) 4.79% 06/25/42 744,450 67,233(e,g) 5.00% 02/25/11 - 02/25/32 503,317 42,349(e) 5.00% 01/15/35 175,000 175,054 5.50% 01/25/27 428,222 44,294(e) 5.50% 07/25/34 270,865 279,425 6.00% 12/25/34 175,000 183,340 7.57% 09/25/31 465,879 469,851(g) 8.00% 07/25/14 334,752 349,920 8.77% 05/25/17 30,353 31,671(g) 12.44% 04/25/32 138,471 153,876(g) Federal National Mortgage Assoc. (Class 1) 6.23% 11/01/34 1,389,893 1,164,470(c,d) Federal National Mortgage Assoc. (Class S) 3.79% 02/25/31 700,773 48,616(e,g) Federal National Mortgage Assoc. REMIC 4.50% 11/25/13 715,987 37,618(e) 5.00% 10/25/22 187,478 25,368(e) 5.50% 08/25/33 650,419 132,686(e) 7.00% 09/25/20 1,528 1,577 9.32% 03/25/31 693,958 733,229(g) Federal National Mortgage Assoc. REMIC (Class B) 5.30% 12/25/22 808 662(c,d) Federal National Mortgage Assoc. REMIC (Class J) 1080.91% 03/25/22 25 327(e) Federal National Mortgage Assoc. REMIC (Class K) 1008.00% 05/25/22 18 443(e) Federal National Mortgage Assoc. STRIPS 7.50% 11/01/23 73,586 14,361(e) 8.00% 08/01/23 - 07/01/24 26,378 5,529(e) 8.50% 07/25/22 1,256 237(e) 9.00% 05/25/22 821 168(e) Government National Mortgage Assoc. 5.00% 02/16/34 400,000 405,125 Vendee Mortgage Trust 17.61% 05/15/33 1,865,874 49,562(c,e,g) 10,254,604 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- ASSET BACKED -- 6.4% American Express Credit Account Master Trust (Class A) 1.69% 01/15/09 $ 175,000 $ 171,518 3.34% 12/15/08 150,000 150,149(g) 3.36% 04/15/08 390,000 390,113(g) Bank One Issuance Trust 3.59% 05/17/10 85,000 84,335 3.76% 08/15/08 323,000 322,954 BMW Vehicle Owner Trust (Class B) 2.93% 03/25/09 213,000 210,484 Capital One Master Trust (Class C) 6.70% 06/15/11 200,000 213,780(a) Carmax Auto Owner Trust 4.35% 03/15/10 131,000 131,904 Chase Funding Mortgage Loan Asset-Backed Certificates 3.59% 02/25/33 273,655 274,189(g) 5.75% 05/25/32 32,000 31,987 Citibank Credit Card Issuance Trust 3.66% 03/07/08 325,000 325,507(g) 4.45% 04/07/10 274,000 274,526 6.65% 05/15/08 56,000 57,271 Countrywide Asset-Backed Certificates 3.74% 05/25/33 59,003 59,147(g) Countrywide Home Equity Loan Trust (Class A) 3.45% 07/15/27 203,466 203,662(g) Federal National Mortgage Assoc. 3.95% 12/26/31 283,807 283,565 Fleet Credit Card Master Trust II (Class A) 5.60% 12/15/08 200,000 203,030 Fleet Home Equity Loan Trust (Class A) 3.51% 01/20/33 672,823 673,555(g) Ford Credit Floorplan Master Owner Trust (Class A) 3.26% 07/15/09 2,500,000 2,501,868(g) Honda Auto Receivables Owner Trust 4.15% 10/15/10 146,000 146,356 MBNA Credit Card Master Note Trust (Class C) 4.05% 01/15/08 138,000 138,093 MBNA Master Credit Card Trust USA (Class A) 3.48% 08/15/08 300,000 300,557(g) Mid-State Trust 7.54% 07/01/35 3,380 3,605 Peco Energy Transition Trust 6.52% 12/31/10 192,000 211,624 Residential Asset Mortgage Products Inc. (Class A) 3.59% 06/25/32 153,244 153,450(g) Residential Asset Mortgage Products, Inc. 3.64% 12/25/33 361,580 362,714(g) See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 6 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Residential Asset Securities Corp. 3.56% 07/25/32 $ 37,894 $ 37,969(g) Saxon Asset Securities Trust (Class A) 3.71% 12/25/32 89,288 89,348(g) Volkswagen Auto Lease Trust 3.94% 10/20/10 88,000 87,716 Wells Fargo Home Equity Trust 3.97% 09/25/24 77,000 76,254(g) 8,171,230 CORPORATE NOTES -- 32.5% Abbey National PLC 7.95% 10/26/29 200,000 272,431 AIG SunAmerica Global Financing VII 5.85% 08/01/08 220,000 229,341(a) Ainsworth Lumber Co. Ltd. 6.75% 03/15/14 320,000 288,000 Air Jamaica Ltd. 9.38% 07/08/15 150,000 150,990(a) Alberta Energy Co. Ltd. 7.38% 11/01/31 65,000 81,353 Allegiance Corp. 7.00% 10/15/26 210,000 241,394 Allied Waste North America 7.25% 03/15/15 350,000 338,625(a) Allstate Life Global Funding Trusts 3.85% 01/25/08 220,000 218,468 ALROSA Finance S.A. 8.88% 11/17/14 200,000 226,000(a) Altria Group, Inc. 7.20% 02/01/07 75,000 78,153 Ameren Corp. 4.26% 05/15/07 45,000 44,993 America Movil S.A. de C.V. 6.38% 03/01/35 340,000 332,389 American Electric Power Co. Inc. (Series D) 5.25% 06/01/15 90,000 92,851 American General Corp. 7.50% 08/11/10 130,000 146,533 ANZ Capital Trust 4.48% 12/31/49 170,000 169,258(a) AON Corp. 8.21% 01/01/27 150,000 175,219 Appalachian Power Co. (Series G) 3.60% 05/15/08 150,000 147,246 Appalachian Power Co. (Series K) 5.00% 06/01/17 110,000 110,356 Argentine Beverages Financial Trust 7.38% 03/22/12 80,000 81,400(a) Assurant, Inc. 6.75% 02/15/34 130,000 150,448 AT&T Wireless Services Inc. 7.35% 03/01/06 130,000 132,841 8.75% 03/01/31 220,000 308,494 Auburn Hills Trust 12.38% 05/01/20 150,000 233,759 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Banco BMG S.A. 8.75% 07/01/10 $100,000 $ 100,750(a) Banco Santander Chile 5.38% 12/09/14 215,000 221,905(a) Bank of America Corp. 3.88% 01/15/08 215,000 214,109 7.40% 01/15/11 320,000 366,689 Barclays Bank PLC 7.38% 06/29/49 225,000 259,135(a,g) Bavaria S.A. 8.88% 11/01/10 115,000 126,673(a) BB&T Corp. 4.75% 10/01/12 80,000 81,203 BBVA Bancomer Capital Trust I 10.50% 02/16/11 30,000 31,125(a) Bear Stearns Companies, Inc. 4.55% 06/23/10 135,000 135,966 BellSouth Corp. 6.00% 11/15/34 195,000 207,452 Berkshire Hathaway Finance Corp. 4.13% 01/15/10 90,000 89,457(a) Boeing Co. 8.75% 08/15/21 105,000 147,261 Braskem International Ltd. 9.38% 06/01/15 100,000 107,750(a) British Aerospace Finance, Inc. 7.50% 07/01/27 125,000 152,276(a) Burlington Northern Santa Fe Corp. 8.13% 04/15/20 265,000 350,419 Campbell Soup Co. 5.50% 03/15/07 160,000 163,316 Capital One Financial Corp. 8.75% 02/01/07 170,000 181,413 Carolina Power & Light Co. 5.15% 04/01/15 80,000 82,819 6.13% 09/15/33 190,000 214,332 Case New Holland, Inc. 6.00% 06/01/09 480,000 460,800(a) Cendant Corp. 6.25% 01/15/08 225,000 234,245 Charter One Bank FSB 6.38% 05/15/12 115,000 127,306 Citigroup Inc. 5.85% 12/11/34 180,000 198,980 6.63% 06/15/32 80,000 95,557 Clear Channel Communications, Inc. 4.63% 01/15/08 255,000 251,443 CNA Financial Corp. 5.85% 12/15/14 260,000 267,724 CNF Inc. 6.70% 05/01/34 135,000 153,440 Comcast Cable Communications Holdings, Inc. 9.46% 11/15/22 170,000 239,880 Consolidated Natural Gas Co. 5.38% 11/01/06 255,000 258,918 Consumers Energy Co. 5.15% 02/15/17 125,000 126,151 See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 7 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Consumers Energy Co. (Series L) 5.00% 02/15/12 $160,000 $ 162,637 Controladora Comercial Mexicana S.A. de C.V. 6.63% 06/01/15 105,000 106,260(a) Corp Interamericana de Entretenimiento S.A. 8.88% 06/14/15 150,000 148,125(a) Countrywide Home Loans, Inc. 5.63% 05/15/07 100,000 102,456 COX Communications, Inc. 5.45% 12/15/14 200,000 203,940 CSX Corp. 5.50% 08/01/13 85,000 89,156 CSX Transportation, Inc. 9.75% 06/15/20 105,000 151,824 D.R. Horton, Inc. 7.50% 12/01/07 125,000 132,292 DaimlerChrysler NA Holding Corp. 4.05% 06/04/08 110,000 108,070 4.75% 01/15/08 110,000 110,395 6.50% 11/15/13 50,000 54,210 DBS Bank Ltd. 5.00% 11/15/19 235,000 237,718(a) Diamond Offshore Drilling, Inc. 4.88% 07/01/15 170,000 170,546(a) DirecTV Holdings LLC 6.38% 06/15/15 325,000 323,375(a) Dominion Resources Inc. (Series B) 4.13% 02/15/08 130,000 129,316 Dominion Resources Inc. (Series G) 3.66% 11/15/06 330,000 327,806 Duke Capital LLC 4.30% 05/18/06 90,000 90,187 4.33% 11/16/06 135,000 135,180 5.50% 03/01/14 125,000 128,516 5.67% 08/15/14 50,000 51,887 Duke Energy Corp. 4.50% 04/01/10 155,000 156,359 El Paso Electric Co. 6.00% 05/15/35 165,000 172,881 El Paso Production Holding Co. 7.75% 06/01/13 320,000 341,600 Emmis Communications Corp. 9.31% 06/15/12 140,000 142,450(a,g) Enterprise Products Operating LP 4.00% 10/15/07 245,000 242,552 EOP Operating LP (REIT) 7.75% 11/15/07 340,000 365,225 Farmers Exchange Capital 7.05% 07/15/28 115,000 124,362(a) FirstEnergy Corp. (Series B) 6.45% 11/15/11 505,000 551,776 Flextronics International Ltd. 6.25% 11/15/14 480,000 476,400 Ford Motor Credit Co. 6.63% 06/16/08 285,000 282,646 7.00% 10/01/13 280,000 270,900 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Gaz Capital for Gazprom 8.63% 04/28/34 $295,000 $ 368,750(a) Georgia Power Co. 4.88% 07/15/07 200,000 202,851 Goodrich Corp. 7.10% 11/15/27 185,000 220,920 Grupo Transportacion Ferroviaria Mexicana S.A. de C.V. 9.38% 05/01/12 100,000 104,000(a) GTE Corp. 6.94% 04/15/28 240,000 278,151 7.51% 04/01/09 110,000 121,208 Halliburton Co. 8.75% 02/15/21 365,000 500,395 Household Finance Corp. 6.38% 11/27/12 135,000 148,878 6.50% 11/15/08 150,000 160,161 HSBC Bank USA NA 3.88% 09/15/09 425,000 419,185 HSBC Capital Funding LP (Series 1) 9.55% 12/31/49 65,000 79,200(a,g) HSBC Finance Corp. 6.75% 05/15/11 535,000 591,956 Hydro Quebec 8.25% 04/15/26 95,000 138,446 Indocoal Exports Cayman Ltd. 7.13% 07/06/12 250,000 250,000(a) Indosat Tbk PT 7.13% 06/22/12 145,000 145,725(a) Intelsat Bermuda Ltd. 8.63% 01/15/15 320,000 337,600(a) International Business Machines Corp. 3.80% 02/01/08 115,000 114,249 International Lease Finance Corp. 5.00% 04/15/10 170,000 173,351 iStar Financial Inc. 4.88% 01/15/09 55,000 55,004 6.00% 12/15/10 200,000 209,048 6.05% 04/15/15 80,000 82,703 7.00% 03/15/08 40,000 42,441 Kansas Gas & Electric 5.65% 03/29/21 105,000 106,123(a) Kellogg Co. (Series B) 6.60% 04/01/11 250,000 278,412 Kimberly-Clark de Mexico S.A. de C.V. 8.88% 08/01/09 175,000 201,250(a) Kimco Realty Corp. (REIT) 4.82% 06/01/14 110,000 109,561 Kinder Morgan Energy Partners LP 5.13% 11/15/14 155,000 156,502 Kinder Morgan, Inc. 6.50% 09/01/12 160,000 176,384 Kraft Foods Inc. 4.13% 11/12/09 305,000 302,258 Lehman Brothers Holdings, Inc. 4.25% 01/27/10 30,000 29,910 See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 8 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- LG Electronics Inc. 5.00% 06/17/10 $260,000 $ 260,647(a) Masco Corp. 6.75% 03/15/06 375,000 381,771 Meritage Homes Corp. 6.25% 03/15/15 480,000 446,400 MGM Mirage 5.88% 02/27/14 495,000 480,769 Midamerican Energy Holdings Co. 3.50% 05/15/08 200,000 194,567 Monumental Global Funding III (Series A) 5.20% 01/30/07 250,000 254,380(a) Morgan Stanley 4.25% 05/15/10 80,000 79,398 Motorola, Inc. 4.61% 11/16/07 285,000 287,180 Nationwide Mutual Insurance Co. 7.88% 04/01/33 70,000 87,957(a) Navistar International Corp. 6.25% 03/01/12 495,000 477,675(a) NB Capital Trust IV 8.25% 04/15/27 110,000 120,586 Nelnet Inc. 5.13% 06/01/10 205,000 205,895 Nexen, Inc. 5.88% 03/10/35 60,000 60,662 Nexstar Finance, Inc. 7.00% 01/15/14 320,000 296,400(a) Nextel Communications, Inc. 7.38% 08/01/15 165,000 178,200 Nordea Bank AB 5.42% 12/29/49 115,000 118,437(a,g) Norfolk Southern Railway Co. 9.75% 06/15/20 145,000 209,838 Northeast Utilities (Series B) 3.30% 06/01/08 235,000 227,474 Northrop Grumman Corp. 4.08% 11/16/06 70,000 69,798 Novelis Inc. 7.25% 02/15/15 320,000 321,200(a) Ocean Energy, Inc. 4.38% 10/01/07 75,000 75,087 Ohio Power Co. (Series E) 6.60% 02/15/33 65,000 77,009 PanAmSat Corp. 9.00% 08/15/14 320,000 349,200 Pemex Finance Ltd. 9.03% 02/15/11 250,000 282,009 9.69% 08/15/09 229,500 252,442 Pemex Project Funding Master Trust 6.63% 06/15/35 295,000 289,838(a) 7.38% 12/15/14 30,000 33,695 Pepco Holdings, Inc. 4.00% 06/01/10 45,000 44,968(g) Petrobras International Finance Co. 9.75% 07/06/11 145,000 171,825 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Petro-Canada 5.95% 05/15/35 $225,000 $ 234,135 Pioneer Natural Resources Co. 6.50% 01/15/08 115,000 119,013 Potomac Edison Co. 5.35% 11/15/14 95,000 98,940(a) Principal Life Global Funding I 5.25% 01/15/13 160,000 168,354(a) Procter & Gamble - ESOP (Series A) 9.36% 01/01/21 305,000 411,411 Protective Life Secured Trust 4.00% 10/07/09 55,000 54,376 Prudential Financial, Inc. 4.75% 06/13/15 165,000 165,471 PSI Energy, Inc. 6.65% 06/15/06 115,000 117,649 Public Service Company of New Mexico 4.40% 09/15/08 185,000 184,977 Public Service Electric & Gas 5.25% 07/01/35 110,000 111,065 Puget Energy, Inc. 5.48% 06/01/35 110,000 113,569 3.36% 06/01/08 125,000 121,648 Quest Diagnostics 6.75% 07/12/06 115,000 117,851 Rabobank Capital Funding II 5.26% 12/31/49 275,000 282,905(a,g) Rabobank Capital Funding Trust 5.25% 12/29/49 130,000 133,346(a,g) Raytheon Co. 4.85% 01/15/11 130,000 131,631 6.40% 12/15/18 140,000 158,387 RBS Capital Trust I 5.51% 09/29/49 195,000 201,962(g) Reckson Operating Partnership LP 5.88% 08/15/14 140,000 147,050 Rogers Wireless Communications, Inc. 7.50% 03/15/15 255,000 277,313 Royal Bank of Canada 4.13% 01/26/10 165,000 164,606 Royal Bank of Scotland Group PLC 7.65% 08/31/49 35,000 44,528(g) San Diego Gas & Electric Co. 5.35% 05/15/35 55,000 56,956 SBC Communications Inc. 5.10% 09/15/14 170,000 173,703 Scottish Power PLC 4.91% 03/15/10 150,000 152,173 Simon Property Group LP 4.88% 08/15/10 150,000 151,239 Simon Property Group LP (REIT) 4.60% 06/15/10 115,000 115,064(a) Sinclair Broadcast Group, Inc. 8.00% 03/15/12 320,000 328,000 SLM Corp. 4.00% 01/15/09 130,000 129,057 See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 9 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Sprint Capital Corp. 4.78% 08/17/06 $ 320,000 $ 322,335(h) 6.00% 01/15/07 290,000 297,530 6.13% 11/15/08 230,000 242,753 7.63% 01/30/11 65,000 74,325 8.38% 03/15/12 75,000 90,336 8.75% 03/15/32 90,000 125,411 State of Illinois 4.95% 06/01/23 195,000 200,848 5.10% 06/01/33 130,000 135,538 Stewart Enterprises, Inc. 6.25% 02/15/13 350,000 346,500(a) Telefonos de Mexico S.A. de C.V. 4.50% 11/19/08 165,000 163,902 5.50% 01/27/15 180,000 178,674(a) TELUS Corp. 7.50% 06/01/07 220,000 232,544 8.00% 06/01/11 110,000 128,657 Tenet Healthcare Corp. 6.38% 12/01/11 320,000 304,800 Time Warner Entertainment Co. LP 8.38% 07/15/33 160,000 211,631 Time Warner, Inc. 9.13% 01/15/13 200,000 252,528 Toyota Motor Credit Corp. 3.36% 09/15/06 2,000,000 1,999,274(g) TXU Electric Delivery Co. 5.00% 09/01/07 115,000 116,667 6.38% 05/01/12 325,000 355,615 Tyco International Group S.A. 5.80% 08/01/06 200,000 203,637 Tyson Foods, Inc. 7.25% 10/01/06 120,000 124,344 UBS Preferred Funding Trust I 8.62% 10/29/49 130,000 154,311(g) Union Pacific Corp. 6.65% 01/15/11 170,000 188,040 United Rentals North America, Inc. 7.75% 11/15/13 335,000 329,138 Valero Energy Corp. 3.50% 04/01/09 125,000 119,989 Vedanta Resources PLC 6.63% 02/22/10 90,000 88,808(a) Verizon 6.50% 09/15/11 135,000 147,228 Verizon Global Funding Corp. 7.75% 06/15/32 20,000 25,958 Vornado Realty LP (REIT) 5.63% 06/15/07 100,000 101,860 Votorantim Overseas III 7.75% 06/24/20 295,000 295,000(a) VTB Capital S.A. 6.09% 07/30/07 100,000 103,779(g) 6.25% 07/02/35 295,000 295,000(a) Westar Energy, Inc. 5.15% 01/01/17 90,000 91,609 Weyerhaeuser Co. 6.13% 03/15/07 192,000 197,313 PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Wisconsin Electric Power 3.50% 12/01/07 $ 160,000 $ 157,383 Wisconsin Energy Corp. 5.88% 04/01/06 73,000 73,997 Yara International ASA 5.25% 12/15/14 130,000 130,245(a) 41,703,898 NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 12.9% Bank of America Alternative Loan Trust 6.50% 07/25/35 100,000 103,344 Bear Stearns Commercial Mortgage Securities 6.02% 02/14/31 300,000 316,594 Bear Stearns Commercial Mortgage Securities (Class B) 6.20% 02/14/31 25,000 26,949 CalSTRS Trust 4.13% 11/20/12 529,000 528,492(a) Credit Suisse First Boston 4.17% 07/15/37 2,633,000 91,879(a,c) Crusade Global Trust (Class A) 3.62% 09/18/34 214,202 214,532(g) CS First Boston Mortgage Securities Corp. 1.73% 03/15/35 3,917,646 210,162(a,g) 4.60% 03/15/35 237,000 238,407 6.13% 04/15/37 175,000 191,840 6.34% 01/15/37 1,089,150 28,440(a,c,g) First Union-Lehman Brothers- Bank of America 6.56% 11/18/35 167,258 175,787 GMAC Commercial Mortgage Securities, Inc. 6.47% 04/15/34 159,000 174,709 GMAC Commercial Mortgage Securities, Inc. (Class A) 4.92% 12/10/41 310,000 316,039(g) GMAC Commercial Mortgage Securities, Inc. (Class X) 4.22% 12/10/41 4,619,000 141,322(c,g) GMAC Commercial Mortgage Securities, Inc. 6.42% 05/15/35 358,749 378,344 6.55% 12/10/41 9,651,182 169,233(a,c,g) Granite Mortgages PLC 2.85% 01/20/43 1,304,366 1,306,369(g) GS Mortgage Securities Corp. II 3.50% 11/15/15 450,000 450,217(a,g) Impac CMB Trust (Class A) 3.69% 12/25/33 547,428 548,091(g) JPMorgan Chase Commercial Mortgage Securities Corp. 1.33% 01/12/39 2,900,131 136,915(a,g) 6.47% 11/15/35 190,000 210,540 See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 10 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- JPMorgan Chase Commercial Mortgage Securities Corp. (Class A) 4.92% 10/15/37 $ 301,000$ 309,096(g) LB-UBS Commercial Mortgage Trust 4.06% 09/15/27 495,000 491,548(g) 4.17% 07/15/37 6,232,000 103,217(a,c,g) 4.20% 01/18/12 3,527,000 130,512(c) 4.20% 12/15/29 163,000 162,497 4.32% 03/15/34 682,879 12,804(a,c,g) 4.51% 12/15/29 163,000 163,899 5.99% 02/15/40 2,743,548 61,973(a,c) 6.23% 03/15/26 130,000 138,563 7.67% 09/15/37 3,320,241 53,954(a,c,g) 8.31% 03/15/36 3,256,438 89,552(a,c,g) LB-UBS Commercial Mortgage Trust (Class A) 4.31% 02/15/30 282,000 281,854 6.13% 12/15/30 172,000 187,963 6.65% 11/15/27 144,000 160,178 LB-UBS Commercial Mortgage Trust (Class B) 6.65% 07/14/16 34,000 38,048(a) Master Alternative Loans Trust 5.00% 08/25/18 251,929 33,696(e) Master Alternative Loans Trust 6.50% 08/25/34 - 05/25/35 935,928 967,546 Merrill Lynch Mortgage Trust (Class A) 4.56% 05/12/43 150,000 151,277 Morgan Stanley Capital I 5.17% 01/14/42 400,000 417,112(g) 7.11% 04/15/33 513,000 563,626 Morgan Stanley Capital I (Class A) 4.66% 09/13/45 265,000 267,454 Morgan Stanley Dean Witter Capital I 1.06% 04/15/34 799,000 13,806(a,g) 3.95% 10/15/35 772,261 20,479(a,c,g) 6.46% 02/15/33 49,523 51,374 7.20% 10/15/33 199,000 222,365 Morgan Stanley Dean Witter Capital I (Class A) 6.39% 10/15/35 150,000 165,925 6.54% 02/15/31 49,705 52,331 Morgan Stanley Dean Witter Capital I (Class X) 1.15% 02/01/31 510,065 23,072(a,g) MortgageIT Trust (Class A) 3.62% 08/25/35 3,000,000 3,000,000(g) Nomura Asset Securities Corp. (Class A) 6.59% 03/15/30 500,000 530,621 Puma Finance Ltd. (Class A) 3.32% 10/11/34 350,199 350,315(g) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust 3.74% 03/15/15 $ 89,351 $ 89,449(a,g) 4.38% 10/15/41 271,000 271,737 4.94% 04/15/42 450,000 461,478 Wachovia Bank Commercial Mortgage Trust (Class B) 4.89% 10/15/41 256,000 258,454 4.95% 10/15/41 312,000 316,142 16,572,122 SOVEREIGN BONDS -- 1.9% Government of Argentina 4.62% 08/03/12 150,000 135,600(c,g) Government of Bahamas 6.63% 05/15/33 135,000 163,839(a) Government of Brazil 9.25% 10/22/10 120,000 133,500 Government of Colombia 10.75% 01/15/13 90,000 109,440 Government of Costa Rica 6.55% 03/20/14 120,000 117,900(a) Government of El Salvador 7.65% 06/15/35 150,000 149,250(a) Government of Indonesia 7.25% 04/20/15 90,000 91,125(a) Government of Italy 4.50% 01/21/15 110,000 111,622 Government of Jamaica 9.00% 06/02/15 175,000 178,281 Government of Mexico 6.75% 09/27/34 15,000 15,788 Government of Panama 7.25% 03/15/15 150,000 163,500 Government of Peru 8.38% 05/03/16 90,000 101,025 Government of Russia 5.00% 03/31/30 215,000 240,800(a,h) Government of Turkey 7.00% 06/05/20 150,000 146,625 Government of Ukraine 6.37% 08/05/09 115,000 124,200(a,g) Government of Uruguay 9.25% 05/17/17 100,000 107,000 Japan Finance Corp for Municipal Enterprises 4.63% 04/21/15 100,000 102,350 Ontario Electricity Financial Corp. 7.45% 03/31/13 28,000 33,914 Province of New Brunswick 3.50% 10/23/07 160,000 158,600 Province of Ontario 5.13% 07/17/12 25,000 26,534 2,410,893 TOTAL BONDS AND NOTES (COST $140,508,611) 139,754,084 See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 11 INCOME FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- NUMBER OS SHARES VALUE - -------------------------------------------------------------------------------- PREFERRED STOCK -- 0.2% - -------------------------------------------------------------------------------- Zurich Regcaps Funding Trust I (COST $268,450) 260 $ 262,626(a,g) NUMBER OF CONTRACTS VALUE - -------------------------------------------------------------------------------- PURCHASED OPTIONS -- 0.0 %* - -------------------------------------------------------------------------------- CALL OPTIONS Euro Dollar Futures 20 250 PUT OPTIONS Euro Dollar Futures 10 1,125 U.S. Treasury Notes 10 Yr. Futures 10469 1,594 TOTAL PURCHASED OPTIONS (COST $7,573) 1,844 TOTAL INVESTMENTS IN SECURITIES (COST $140,784,634) 140,018,554 NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 4.4% - -------------------------------------------------------------------------------- GEI Short Term Investment Fund 3.20% 5,692,295 5,692,295(c,i) (COST $5,692,295) TOTAL INVESTMENTS (COST $146,476,929) 145,710,849 LIABILITIES IN EXCESS OF OTHER ASSETS, NET -- (13.5)% (17,374,767) ------------ NET ASSETS -- 100.0% $128,336,082 ============ OTHER INFORMATION - -------------------------------------------------------------------------------- The GEI Income Fund had the following long futures contracts open at June 30, 2005: NUMBER CURRENT UNREALIZED EXPIRATION OF NOTIONAL APPRECIATION/ DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION - -------------------------------------------------------------------------------- Euro Dollar Futures September 2005 50 $12,018,750 $(13,734) U S Treasury Notes 5 Yr. Futures September 2005 45 4,900,078 26,266 The GEI Income Fund had the following short futures contracts open at June 30, 2005: NUMBER CURRENT UNREALIZED EXPIRATION OF NOTIONAL APPRECIATION/ DESCRIPTION DATE CONTRACTS VALUE DEPRECIATION - -------------------------------------------------------------------------------- Euro Dollar Futures December 2005 50 $(12,003,750) $ 7,196 U S Treasury Notes 10 Yr. Futures September 2005 18 (2,042,438) (16,367) ---------- $ 3,361 ========== See Notes to Schedule of Investments on page 14 and Notes to Financial Statements. 12 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Lehman Brothers Aggregate Bond Index (LB Aggregate) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise the index. The LB Aggregate Bond Index is a market value-weighted index of investment-grade debt issues, including government, corporate, asset-backed and mortgage-backed securities, with maturities of one year or more. The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. 13 Notes to Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Pursuant to Rule 144A of the Securities Act of 1933, these securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, these securities amounted to $13,315,551 or 10.38% of net assets for the GE Investments Income Fund respectively. These securities have been determined to be liquid using procedures established by the Board of Trustees. (b) Settlement is on a delayed delivery or when-issued basis with final maturity to be announced (TBA) in the future. (c) Coupon amount represents effective yield. (d) Principal only securities represent the right to receive the monthly principal payments on an underlying pool of mortgages. No payments of interest on the pool are passed through to the "principal only" holder. (e) Interest only securities represent the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the "interest only" holding. (f) At June 30, 2005, all or a portion of this security was pledged to cover collateral requirements for futures, options, forward foreign currency contracts and/or TBA's. (g) Variable or floating rate security. The stated rate represents the rate at June 30, 2005. (h) Step coupon bond. Security becomes interest bearing at a future date. (i) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. (j) Treasury Inflated Securities. + Percentages are based on net assets as of June 30, 2005. * Less then 0.1% 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 14 Financial Highlights Selected data based on a share outstanding throughout the periods indicated
- ------------------------------------------------------------------------------------------------------------------------------------ INCOME FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE -- -- -- -- -- 1/3/95 Net asset value, beginning of period ......... $12.25 $12.61 $12.93 $12.26 $11.99 $11.51 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ..................... 0.27 0.55 0.51 0.37 0.60 0.74 Net realized and unrealized gains/(losses) on investments .......... (0.02) (0.12) (0.04) 0.84 0.29 0.50 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME FROM INVESTMENT OPERATIONS ...... 0.25 0.43 0.47 1.21 0.89 1.24 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income ..................... -- 0.57 0.56 0.38 0.62 0.76 Net realized gains ........................ -- 0.22 0.23 0.16 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS .......................... -- 0.79 0.79 0.54 0.62 0.76 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD ............... $12.50 $12.25 $12.61 $12.93 $12.26 $11.99 ==================================================================================================================================== TOTAL RETURN (A) ............................. 2.04% 3.42% 3.60% 9.89% 7.43% 10.74% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) .. $128,336 $135,172 $189,318 $220,800 $117,740$81,578 Ratios to average net assets: Net investment income* ................. 4.32% 3.82% 3.24% 3.79% 5.39% 6.40% Expenses* .............................. 0.60% 0.59% 0.55% 0.53% 0.55% 0.56% Portfolio turnover rate ................... 144% 343% 419% 385% 278% 234%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 15
Statement of Assets INCOME and Liabilities JUNE 30, 2005 (UNAUDITED) FUND - ---------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at market (cost $140,784,634) ............................... $140,018,554 Short-term affiliated investments (at amortized cost) .................................. 5,692,295 Cash ................................................................................... 10,800 Receivable for investments sold ........................................................ 2,593,941 Income receivables ..................................................................... 1,147,474 Variation margin receivable ............................................................ 2,750 - ---------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ...................................................................... 149,465,814 - ---------------------------------------------------------------------------------------------------------------- LIABILITIES Payable for investments purchased ...................................................... 20,469,691 Payable for fund shares redeemed ....................................................... 597,381 Payable to GEAM ........................................................................ 62,660 - ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES .................................................................. 21,129,732 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS ................................................................................ $128,336,082 ================================================================================================================ NET ASSETS CONSIST OF: Capital paid in ........................................................................ 126,395,229 Undistributed net investment income .................................................... 2,804,768 Accumulated net realized loss .......................................................... (101,196) Net unrealized appreciation/ (depreciation) on: Investments ........................................................................ (766,080) Futures ............................................................................ 3,361 - ---------------------------------------------------------------------------------------------------------------- NET ASSETS ................................................................................ $128,336,082 - ---------------------------------------------------------------------------------------------------------------- Shares outstanding ($0.01 par value; unlimited shares authorized) ......................... 10,266,275 Net asset value per share ................................................................. $12.50
See Notes to Financial Statements. 16
Statement of Operations INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) FUND - --------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend ............................................................................. $ 7,813 Interest ............................................................................. 3,078,168 Interest from affliated investments .................................................. 106,952 - --------------------------------------------------------------------------------------------------------------------- TOTAL INCOME ........................................................................... 3,192,933 - --------------------------------------------------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees ..................................................... 326,810 Custody and accounting expenses ...................................................... 33,195 Professional fees .................................................................... 13,035 Transfer agent ....................................................................... 109 Trustee's fees ....................................................................... 891 Registration expenses ................................................................ 469 Other expenses ....................................................................... 13,656 - --------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES ......................................................................... 388,165 - --------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME .................................................................. 2,804,768 ===================================================================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN (LOSS) ON: Investments ....................................................................... (162,010) Futures ........................................................................... (160,846) Written options ................................................................... 23,891 Foreign currency transactions ..................................................... (7,013) INCREASE (DECREASE) IN UNREALIZED APPRECIATION/ (DEPRECIATION) ON: Investments ....................................................................... 211,280 Futures ........................................................................... (40,636) Written options ................................................................... (17,164) Foreign currency transactions ..................................................... (11,835) - --------------------------------------------------------------------------------------------------------------------- Net realized and unrealized loss on investments .................................................................... (164,333) - --------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................................................................... $2,640,435 =====================================================================================================================
See Notes to Financial Statements. 17
Statements of INCOME Changes in Net Assets FUND - --------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31 (UNAUDITED) 2004 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income .................................................. $ 2,804,768 $ 5,738,504 Net realized gain (loss) on investments, futures, written options, foreign currency transactions and swaps ............................... (305,978) 1,856,911 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation .................................................. 141,645 (2,460,643) - --------------------------------------------------------------------------------------------------------------------------- Net increase from operations ............................................ 2,640,435 5,134,772 - --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ................................................... -- (5,924,783) Net realized gains ...................................................... -- (2,242,508) - --------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ....................................................... -- (8,167,291) - --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations and distributions ....... 2,640,435 (3,032,519) - --------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: Proceeds from sale of shares ............................................ 2,344,732 5,445,156 Value of distributions reinvested ....................................... -- 8,167,256 Cost of shares redeemed ................................................. (11,821,158) (64,725,364) - --------------------------------------------------------------------------------------------------------------------------- Net decrease from share transactions ................................... (9,476,426) (51,112,952) - --------------------------------------------------------------------------------------------------------------------------- TOTAL DECREASE IN NET ASSETS .............................................. (6,835,991) (54,145,471) NET ASSETS Beginning of period ....................................................... 135,172,073 189,317,544 - --------------------------------------------------------------------------------------------------------------------------- End of period ............................................................ $128,336,082 $135,172,073 =========================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ........................... $ 2,804,768 $ -- - --------------------------------------------------------------------------------------------------------------------------- CHANGES IN PORTFOLIO SHARES Shares sold ............................................................. 190,597 426,297 Issued for distributions reinvested ..................................... -- 669,447 Shares redeemed ......................................................... (960,670) (5,071,450) - --------------------------------------------------------------------------------------------------------------------------- Net decrease in fund shares .................................................. (770,073) (3,975,706) ===========================================================================================================================
See Notes to Financial Statements. 18 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund (the "Fund"), Money Market Fund and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the 19 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- repurchase price. In the event the seller defaults and the value of the security declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. SECURITY LENDING The Fund may loan securities to brokers, dealers, and financial institutions determined by GEAM to be creditworthy, subject to certain limitations. The Fund continues to receive the interest and dividends on the loaned securities during the term of the loan. The loans of securities are secured by collateral in the form of cash or other liquid assets, which are segregated and maintained with the custodian in an amount at least equal to 102% of the current market value of the loaned securities. During the term of the loan, the Fund will record any gain or loss in the market value of its loaned securities and of securities in which cash collateral is invested. The Fund will also earn interest, net of any rebate, from securities in which cash collateral is invested. In the event the counterparty (borrower) does not meet its contracted obligation to return the securities, the Fund may be exposed to the risk of loss of reacquiring the loaned securities at prevailing market prices using the proceeds of the sale of the collateral. FOREIGN CURRENCY Accounting records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts and expense payments denominated in foreign currencies are translated into U.S. dollars at the prevailing exchange rate on the respective dates of such transactions. The Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period. Such fluctuations are included in the net realized or unrealized gain or loss from investments. Net realized gains or losses on foreign currency transactions represent net gains or losses on sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income and withholding taxes accrued and the U.S. dollar amount actually received or paid, and gains or losses between the trade and settlement date on purchases and sales of securities. Net unrealized foreign exchange gains and losses arising from changes in the value of other assets and liabilities as a result of changes in foreign exchange rates are included as increases or decreases in unrealized appreciation/depreciation on foreign currency related transactions. 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 their 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 20 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 maintain cash or liquid assets in an amount equal to purchase commitments for such underlying securities until settlement date and for sales commitments, the Fund maintains equivalent deliverable securities as "cover" for the transaction. Unsettled commitments are valued at the current market value of the underlying security. Daily fluctuations in the value of such contracts are recorded as unrealized gains or losses. The Fund will not enter into such commitments for the purpose of investment leverage. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward foreign currency exchange contracts to facilitate transactions in foreign denominated securities and to manage the Fund's currency exposure. Forward foreign currency exchange contracts are valued at the mean between the bid and the offered forward rates as last quoted by a recognized dealer. The aggregate principal amounts of the contracts are not recorded in the Fund's financial statements. Such amounts appear under the caption forward foreign currency contracts in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (or liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains or losses on foreign currency related transactions. The Fund's risks in using these contracts include changes in the value of foreign currency or the possibility that the counterparties do not perform under the contracts' terms. When the Fund enters into a forward foreign currency exchange contract, it is required to segregate cash or liquid securities with its custodian in an amount equal to the value of the Fund's total assets committed to the consummation of the forward contract. If the value of the segregated securities declines, additional cash or securities is segregated so that the value of the account will equal the amount of the Fund's commitment with respect to the contract. INVESTMENTS IN FOREIGN MARKETS Investments in foreign markets may involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates 21 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax components of capital is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Depreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $146,551,256 $1,474,873 $(2,304,480) $(829,607)
As of December 31, 2004, the Fund has no capital loss carryover. 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, 2004 as follows: Capital Currency - -------------------------------------------------------------------------------- $174,549 $ -- The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Long-Term Ordinary Capital Income Gains Total - -------------------------------------------------------------------------------- $6,823,082 $1,344,209 $8,167,291 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) swaps, futures, treatment of realized and unrealized gains and losses on forward foreign currency contracts, paydown gains and losses on mortgage-backed securities and losses deferred due to wash sale transactions. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or the net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as 22 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund at an annualized rate of .50%. Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $2,247 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement as it relates to the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreement with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuance. The independent directors also discussed the proposed continuance in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. 23 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with each Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations through those lower fees. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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.) 24 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $202,226,488 $199,952,539 OPTIONS During the period ended June 30, 2005, the following option contracts were written: Number of of Contracts Premium - -------------------------------------------------------------------------------- Balance as of December 31, 2004 (112) $ (43,414) Written (396) (83,532) Closed and Expired 508 126,946 - -------------------------------------------------------------------------------- Balance as of June 30, 2005 0 $ 0 - -------------------------------------------------------------------------------- 25 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee and Executive Vice President of GE Funds, GE Institutional Funds and GE LifeStyle Funds since their inception. Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1987. 26 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Vice President and Associate General Counsel - Marketing and Client Services (formerly Asset Management Services) at GEAM since May 1997; Vice President and Assistant Secretary of GE Funds, GE Institutional Funds and GE LifeStyle Funds since September 2003; Vice President and Assistant Secretary of Elfun Funds and GE Savings & Security Funds since October 2003. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A 27 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 28 Investment Team - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND ADMINISTRATOR GE Asset Management Incorporated BOARD OF DIRECTORS Michael J.Cosgrove, CHAIRMAN John R. Costantino Alan M. Lewis William J. Lucas Robert P. Quinn SECRETARY Matthew J. Simpson TREASURER Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 29 [This page intentionally left blank.] GE Investments Funds, Inc. Money Market Fund Semi-Annual Report JUNE 30, 2005 [LOGO OMITTED] GE Investments Funds, Inc. Money Market Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................ 1 NOTES TO PERFORMANCE .................................................. 6 NOTES TO SCHEDULE OF INVESTMENTS ...................................... 6 FINANCIAL STATEMENTS Financial Highlights ............................................. 7 Statement of Assets and Liabilities .............................. 8 Statement of Operations .......................................... 9 Statements of Changes in Net Assets .............................. 10 Notes to Financial Statements .................................... 11 ADDITIONAL INFORMATION ................................................ 16 INVESTMENT TEAM ....................................................... 19 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Money Market Fund Q&A - -------------------------------------------------------------------------------- DONALD J. DUNCAN IS A VICE PRESIDENT OF GE ASSET MANAGEMENT AND PORTFOLIO MANAGER OF THE MONEY MARKET FUND. MR. DUNCAN JOINED GE ASSET MANAGEMENT IN 1988 IN TRADE SUPPORT AND HELD SEVERAL POSITIONS INCLUDING MUTUAL FUND CONTROLLER. HE WAS APPOINTED INVESTMENT MANAGER - SHORT TERM SECURITIES IN 1990 AND VICE PRESIDENT - MONEY MARKETS IN 2002. MR. DUNCAN HOLDS A BACHELORS OF SCIENCE DEGREE FROM THE UNIVERSITY OF RHODE ISLAND. Q. HOW DID THE MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the Money Market Fund returned 1.11%. The 90-day Treasury bill, the Fund's benchmark, returned 1.43% and the Fund's Lipper peer group of 107 Money Market Funds returned an average of 1.07% for the same period. Q. WHAT WERE THE KEY DRIVERS OF FUND PERFORMANCE? A. We continued to actively manage the average maturity of the portfolio based on our expectations for changes in monetary policy. The Federal Reserve has held steady to its well-publicized intention to remove policy accommodation at a measured pace. The average portfolio maturity has tended to coincide with FOMC meeting dates, whereupon the Fed has raised the fed funds target 25 basis points at each meeting, allowing for reinvestment of overnight funds at higher levels. [photo omitted] 1 Money Market Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 1,011.12 2.47 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,022.09 2.49 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.50% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS 1.11%. 2 Money Market Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] Money Market Fund 90 Day T-Bill - -------------------------------------------------------------------------------- 06/01/95 10,000 10,000 12/01/95 10,287 10,270 12/01/96 10,843 10,798 12/01/97 11,429 11,360 12/01/98 12,031 11,917 12/01/99 12,632 12,487 12/01/00 13,420 13,235 12/01/01 13,955 13,691 12/01/02 14,162 13,913 12/01/03 14,273 14,056 12/01/04 14,408 14,255 06/01/05 14,568 14,458 Money Market Fund (ending value $14,568) 90-Day T-Bill (ending value $14,458) INVESTMENT PROFILE A fund designed for investors who seek a high level of current income consistent with the preservation of capital and maintenance of liquidity by investing primarily in short-term U.S. dollar-denominated money market instruments. AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- SIX ONE FIVE TEN MONTHS YEAR YEAR YEAR - -------------------------------------------------------------------------------- Money Market Fund 1.11% 1.75% 2.30% 3.83% - -------------------------------------------------------------------------------- 90 Day T-Bill 1.43% 2.33% 2.40% 3.76% - -------------------------------------------------------------------------------- Lipper peer group average* 1.07% 1.64% 2.14% 3.65% - -------------------------------------------------------------------------------- Inception date 07/01/85 - -------------------------------------------------------------------------------- FUND YIELD AT JUNE 30, 2005 - -------------------------------------------------------------------------------- FUND IBC MONEY FUND - -------------------------------------------------------------------------------- 7-DAY CURRENT 2.65%+ 2.54% - -------------------------------------------------------------------------------- 7-DAY EFFECTIVE 2.68% 2.57% - -------------------------------------------------------------------------------- CURRENT YIELD REPRESENTS INCOME EARNED ON AN INVESTMENT IN THE MONEY MARKET FUND FOR A SEVEN DAY PERIOD AND THEN ANNUALIZED. EFFECTIVE YIELD IS CALCULATED SIMILARLY BUT COULD BE SLIGHTLY HIGHER BECAUSE IT REFLECTS THE COMPOUNDING EFFECT OF EARNINGS ON REINVESTED DIVIDENDS. + THE SEVEN DAY CURRENT YIELD, RATHER THAN THE TOTAL RETURN, MORE CLOSELY REFLECTS THE CURRENT EARNINGS OF THE MONEY MARKET FUND AT JUNE 30, 2005. AN INVESTMENT IN THE MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE MONEY MARKET PEER GROUP CONSISTING OF 107, 106, 88, AND 68 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 6 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 3 MONEY MARKET FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- MONEY MARKET FUND - -------------------------------------------------------------------------------- Portfolio Composition based on a Market Value of $271,564 (in thousands) as of June 30, 2005 [Pie chart omitted -- plot points are as follows:] Commercial Paper 29.1% Corporate Notes 20.4% Certificates of Deposit 18.5% Repurchase Agreements 18.1% U.S. Governments 9.1% Bank Notes 4.7% Time Deposit 0.1% - -------------------------------------------------------------------------------- PRINCIPAL AMORTIZED AMOUNT COST - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 99.8% - -------------------------------------------------------------------------------- U.S. GOVERNMENTS -- 9.1% Federal Home Loan Mortgage Corp. 3.80% 07/12/06 $11,380,000 $11,380,000 Federal National Mortgage Assoc. 7.00% 07/15/05 13,390,000 13,413,278 24,793,278 COMMERCIAL PAPER -- 29.0% AIG Funding Inc. 3.08% 07/08/05 12,770,000 12,762,352 Citigroup Funding 3.10% 07/01/05 11,260,000 11,260,000 Credit Suisse First Boston 3.03% 07/11/05 11,680,000 11,670,169 Jupiter Securitization Corp. 3.07% 07/06/05 6,810,000 6,807,096 Rabobank USA Financial Corp. 3.35% 11/10/05 12,730,000 12,573,867 Sheffield Receivables Corp. 3.18% 07/15/05 9,390,000 9,378,406 3.19% 07/15/05 1,870,000 1,867,680 Windmill Funding Corp. 3.10% 07/20/05 12,740,000 12,719,156 79,038,726 - -------------------------------------------------------------------------------- PRINCIPAL AMORTIZED AMOUNT COST - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 18.0% Bank of America Corp. 3.35% date 06/30/05, to be repurchased at $12,001,117 on 07/01/05 collateralized by $12,240,449 U.S. Government Agency Bond, 3.8%, maturing 12/27/06 07/01/05 $12,000,000 $12,000,000 Barclays 3.37% date 06/30/05, to be repurchased at $13,001,217 on 07/01/05 collateralized by $13,260,000 U.S. Government Agency Bonds, Zero Coupons, maturing 05/15/16-08/15/16 07/01/05 13,000,000 13,000,000 Morgan Stanley 3.35% date 06/30/05, to be repurchased at $11,061,029 on 07/01/05 collateralized by $11,281,791 U.S. Government Agency Bond, 4.65%, maturing 06/13/12 07/01/05 11,060,000 11,060,000 UBS 3.40% date 06/30/05, to be repurchased at $13,001,228 on 07/01/05 collateralized by $13,260,373 U.S. Government Agency Bond, 5.75%, maturing 01/15/12 07/01/05 13,000,000 13,000,000 49,060,000 BANK NOTES -- 4.7% Bank of America N A Charlotte NC 3.20% 08/22/05 12,790,000 12,790,000 CORPORATE NOTES -- 20.4% American Express Credit Corp. 3.23% 07/05/05 6,940,000 6,946,890(b) Barclays Bank PLC 3.21% 06/21/06 12,430,000 12,428,612(b) Goldman Sachs Group Inc 3.06% 05/24/06 12,490,000 12,490,000(b) HSBC Finance Corp. 3.49% 06/22/06 12,430,000 12,440,600(b) Morgan Stanley 3.13% 07/05/05 11,130,000 11,130,000(b) 55,436,102 TIME DEPOSIT -- 0.1% State Street Corp. 3.19% 07/01/05 145,414 145,414(a) See Notes to Schedule of Investments on page 6 and Notes to Financial Statements. 4 MONEY MARKET FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMORTIZED AMOUNT COST - -------------------------------------------------------------------------------- CERTIFICATES OF DEPOSIT -- 18.5% Abbey National Treasury 3.11% 07/18/05 $12,630,000 $ 12,630,000 BNP Paribas 3.18% 08/09/05 12,770,000 12,770,000 Canadian Imperial 3.05% 07/01/05 12,040,000 12,040,000 Dexia Bank Belgium 3.06% 07/05/05 12,860,000 12,860,000 50,300,000 TOTAL SHORT-TERM INVESTMENTS (COST $271,563,520) 271,563,520 OTHER ASSETS AND LIABILITIES, NET -- 0.2% 552,719 ------------ NET ASSETS -- 100.0% $272,116,239 ============ See Notes to Schedule of Investments on page 6 and Notes to Financial Statements. 5 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. In addition, GE Asset Management waived certain fees for the Money Market Fund prior to fiscal 2002. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The 90 Day T-Bill is an unmanaged measure/index of the performance of U.S. Treasury bills currently available in the marketplace having a remaining maturity of 90 days. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) State Street Corp. is the parent company of State Street Bank & Trust Co., the Fund's custodian and accounting agent. (b) Variable or floating rate security. The stated rate represents the rate at June 30, 2005. + Percentages are based on net assets as of June 30, 2005. 6
Financial Highlights Selected data based on a share outstanding throughout the periods indicated - -------------------------------------------------------------------------------- MONEY MARKET FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE ................................ -- -- -- -- -- 7/1/85 Net asset value, beginning of period .......... 1.00 1.00 $1.00 $1.00 $1.00 $1.00 INCOME FROM INVESTMENT OPERATIONS: Net investment income ...................... 0.01 0.01 0.01 0.01 0.04 0.06 Net realized and unrealized gains on investments .................... -- -- 0.00(b) 0.00(b) 0.00(b) 0.00(b) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME FROM INVESTMENT OPERATIONS ....... 0.01 0.01 0.01 0.01 0.04 0.06 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income ...................... 0.01 0.01 0.01 0.01 0.04 0.06 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ........................... 0.01 0.01 0.01 0.01 0.04 0.06 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD ................ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ==================================================================================================================================== TOTAL RETURN (A) .............................. 1.11% 0.95% 0.78% 1.48% 3.99% 6.24% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ... $272,116 $278,703 $392,533 $685,353 $712,156 $499,561 Ratios to average net assets: Net investment income* .................. 2.23% 0.92% 0.80% 1.46% 3.80% 6.01% Net expenses* ........................... 0.50% 0.47% 0.43% 0.40% 0.34% 0.32% Gross expenses* ......................... 0.50% 0.47% 0.43% 0.40% 0.42% 0.45%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. (b) Less than $0.01 per share. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 7
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) MONEY MARKET FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Short-term Investments (at amortized cost) ....................................................... $271,563,520 Income receivables ............................................................................... 785,442 - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ................................................................................. 272,348,962 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Payable for fund shares redeemed ................................................................. 114,997 Payable to GEAM .................................................................................. 117,726 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ............................................................................ 232,723 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS .......................................................................................... $272,116,239 =========================================================================================================================== NET ASSETS CONSIST OF: Capital paid in .................................................................................. 272,170,384 Undistributed net investment income .............................................................. 9,724 Accumulated net realized loss .................................................................... (63,869) - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS .......................................................................................... $272,116,239 =========================================================================================================================== Shares outstanding ($0.01 par value; unlimited shares authorized) ................................... 272,169,401 Net asset value per share ........................................................................... $1.00
See Notes to Financial Statements. 8
Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) MONEY MARKET FUND - ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME INCOME: Interest .......................................................................... $3,994,028 - ------------------------------------------------------------------------------------------------------------ TOTAL INCOME ........................................................................ 3,994,028 - ------------------------------------------------------------------------------------------------------------ EXPENSES: Advisory and administrative fees .................................................. 662,687 Custody and accounting expenses ................................................... 18,440 Professional fees ................................................................. 29,662 Transfer agent .................................................................... 105 Trustee's fees .................................................................... 1,405 Registration expenses ............................................................. 1,046 Other expenses .................................................................... 12,122 - ------------------------------------------------------------------------------------------------------------ TOTAL EXPENSES ...................................................................... 725,467 - ------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME (LOSS) ........................................................ 3,268,561 - ------------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................................................... $3,268,561 - ------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 9
Statements of Changes in Net Assets MONEY MARKET FUND - --------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, (UNAUDITED) 2004 - --------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ............................................................ $ 3,268,561 $ 3,285,144 - --------------------------------------------------------------------------------------------------------------------------- Net increase from operations ...................................................... 3,268,561 3,285,144 - --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ............................................................. (3,268,561) (3,285,144) - --------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS ................................................................. (3,268,561) (3,285,144) - --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations and distributions ................. -- -- - --------------------------------------------------------------------------------------------------------------------------- SHARE TRANSACTIONS: Proceeds from sale of shares ...................................................... 110,034,636 231,281,670 Value of distributions reinvested ................................................. 3,242,019 3,304,813 Cost of shares redeemed ........................................................... (119,863,730) (348,415,986) - --------------------------------------------------------------------------------------------------------------------------- Net decrease from share transactions ............................................. (6,587,075) (113,829,503) - --------------------------------------------------------------------------------------------------------------------------- TOTAL DECREASE IN NET ASSETS ........................................................ (6,587,075) (113,829,503) - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS Beginning of period ................................................................. 278,703,314 392,532,817 - --------------------------------------------------------------------------------------------------------------------------- End of period ...................................................................... $ 272,116,239 $ 278,703,314 =========================================================================================================================== UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD .................................... $9,724 $9,724 - --------------------------------------------------------------------------------------------------------------------------- CHANGES IN PORTFOLIO SHARES Shares sold ....................................................................... 110,034,636 231,281,670 Issued for distributions reinvested ............................................... 3,242,019 3,304,813 Shares redeemed ................................................................... (119,863,730) (348,415,986) - --------------------------------------------------------------------------------------------------------------------------- Net decrease in fund shares ............................................................ (6,587,075) (113,829,503) ===========================================================================================================================
See Notes to Financial Statements. 10 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund (the "Fund") and Real Estate Securities Fund. Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS SECURITIES for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. In accordance with Rule 2a-7 of the 1940 Act, GE Money Market Fund values securities initially at cost and, thereafter, securities are assumed to have a constant amortization to maturity of any discount or premium. Amortized cost approximates fair value. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax cost of investments is as follows:
Net Tax Unrealized Cost of Gross Tax Gross Tax Appreciation/ Investments for Unrealized Unrealized (Depreciation) Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $271,563,520 $ -- $ -- $ --
12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- As of December 31, 2004, the Fund has the capital loss carryover as indicated below. The capital loss carryover is available to offset future realized capital gains to the extent provided in the Internal Revenue Code and regulations thereunder. To the extent that these carryover losses are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders because they would be taxable as ordinary income. Amount Expires - -------------------------------------------------------------------------------- $63,869 12/31/10 Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund had no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Long-Term Ordinary Capital Income Gains Total - -------------------------------------------------------------------------------- $3,285,144 $ -- $3,285,144 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. 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 taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund. The advisory and administrative fee is stated in the following schedule: Annualized based on average daily net assets ---------------------------------------------- Average Daily Advisory and Net Assets Administration of Fund Fees - -------------------------------------------------------------------------------- Money Market Fund First $100 million .50% Next $100 million .45% Next $100 million .40% Next $100 million .35% Over $400 million .30% Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $3,747 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. In considering whether to approve the investment advisory agreement of the Fund, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement, the independent directors reviewed the proposed continuance of the agreement with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuances. The independent directors also discussed the proposed continuances in a private session with their independent legal counsel at which no representative of GEAM was present. In determining to continue the agreement with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the independent directors concurred that GEAM provides high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Fund. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Fund benefits from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Fund with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM discussed in detail its 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past investment in the Funds' operations (through those lower fees and through subsidies of operating expenses). The Board reviewed the applicable fee breakpoints and concluded that no changes were needed. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM in concluding that the contractual advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of the advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 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. 16 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year 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 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 18 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 Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC COUNSEL Sutherland, Asbill & Brennan, LLP CUSTODIAN State Street Bank & Trust Company INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, CHIEF EXECUTIVE OFFICER David B. Carlson, EVP, DOMESTIC EQUITIES Michael J. Cosgrove, EVP, CHIEF COMMERCIAL OFFICER Kathryn Karlic, EVP, FIXED INCOME Ralph R. Layman, EVP, INTERNATIONAL EQUITIES Alan M. Lewis, EVP, GENERAL COUNSEL AND SECRETARY Robert A. MacDougall, EVP, FIXED INCOME Don W. Torey, EVP, ALTERNATIVE INVESTMENTS AND REAL ESTATE John J. Walker, EVP, CHIEF FINANCIAL OFFICER 19 [This page intentionally left blank.] [This page intentionally left blank.] [This page intentionally left blank.] GE Investments Funds, Inc. Real Estate Securities Fund Semi-Annual Report JUNE 30, 2005 [LOGO OMITTED] GE Investments Funds, Inc. Real Estate Securities Fund Contents - -------------------------------------------------------------------------------- MANAGER REVIEW AND SCHEDULE OF INVESTMENTS ............................... 1 NOTES TO PERFORMANCE ..................................................... 6 NOTES TO SCHEDULE OF INVESTMENTS ......................................... 6 FINANCIAL STATEMENTS Financial Highlights ................................................ 7 Statement of Assets and Liabilities ................................. 8 Statement of Operations ............................................. 9 Statements of Changes in Net Assets ................................. 10 Notes to Financial Statements ....................................... 11 ADDITIONAL INFORMATION ................................................... 17 INVESTMENT TEAM .......................................................... 20 This report is prepared for Policyholders of certain variable contracts and may be distributed to others only if preceded or accompanied by the variable contract's current prospectus and the current prospectus of the Funds available for investments thereunder. Real Estate Securities Fund Q&A - -------------------------------------------------------------------------------- SENECA CAPITAL MANAGEMENT ("SENECA") IS THE SUB-ADVISER FOR THE REAL ESTATE SECURITIES FUND. SENECA IS A MAJORITY OWNED SUBSIDIARY OF PHOENIX INVESTMENT PARTNERS, LTD. ("PHOENIX"). PHOENIX IS A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC. ("PNX"). PNX IS A PUBLICLY-TRADED COMPANY LISTED ON THE NEW YORK STOCK EXCHANGE. SENECA IS AN INVESTMENT ADVISER THAT PROVIDES INVESTMENT MANAGEMENT SERVICES TO FOUNDATIONS, ENDOWMENTS, CORPORATIONS, MUTUAL FUNDS AND PRIVATE CLIENTS. THE FOLLOWING PORTFOLIO MANAGERS HAVE PRIMARY RESPONSIBILITY FOR THE DAY-TO-DAY MANAGEMENT OF THE REAL ESTATE SECURITIES FUND: GAIL P. SENECA, PH.D., ALBERT J. GUTIERREZ, CFA, MICHAEL P. WHITE, MBA, AND WARREN H. GOODRICH, CFA. THE TEAM IS LED BY MR. GUTIERREZ WHO HAS ULTIMATE AUTHORITY WITH REGARD TO SECURITIES PURCHASED OR SOLD ON BEHALF OF THE FUND. GAIL P. SENECA FOUNDED SENECA IN 1989, AND SERVES AS MANAGING PARTNER AND CHIEF INVESTMENT OFFICER OF THE FIRM. MS. SENECA HAS BEEN INVOLVED IN THE MANAGEMENT OF THE REAL ESTATE SECURITIES FUND SINCE 1995. HER BACKGROUND SPANS OVER TWENTY YEARS IN THE INVESTMENT MANAGEMENT BUSINESS, INCLUDING KEY INVESTMENT ROLES AT WELLS FARGO AND CHASE BANK. MS. SENECA ALSO SERVES AS CHAIRMAN OF THE BOARD AND CEO OF LUMINENT MORTGAGE CAPITAL, INC., A REAL ESTATE INVESTMENT TRUST THAT WAS FORMED IN APRIL 2003 AND IS ADVISED BY SENECA. MS. SENECA ATTENDED NEW YORK UNIVERSITY WHERE SHE EARNED A BA, AN MA AND A PH.D. ALBERT J. GUTIERREZ IS CHIEF INVESTMENT OFFICER OF FIXED INCOME FOR SENECA AND HAS SERVED IN THAT CAPACITY SINCE APRIL 2002. PRIOR TO JOINING SENECA, MR. GUTIERREZ HEADED PORTFOLIO MANAGEMENT, TRADING AND INVESTMENT SYSTEMS AT AMERICAN GENERAL INVESTMENT MANAGEMENT FROM APRIL 2000 TO JANUARY 2002 AND HELD A SIMILAR ROLE AT CONSECO CAPITAL FOR TWELVE YEARS PRIOR TO THAT ASSIGNMENT. MR. GUTIERREZ ALSO SERVES AS PRESIDENT AND DIRECTOR OF LUMINENT MORTGAGE CAPITAL, INC. MR. GUTIERREZ HOLDS A DEGREE IN ECONOMICS FROM THE WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA AND IS A CFA CHARTERHOLDER. MICHAEL P. WHITE IS AN EQUITY ANALYST COVERING FINANCE AND INTEREST RATE SENSITIVE COMPANIES AS WELL AS HEALTHCARE COMPANIES, AND IS A PRINCIPAL FOR SENECA. MR. WHITE HAS SERVED AS AN EQUITY ANALYST SINCE FEBRUARY 1998. MR. WHITE EARNED AN MBA FROM THE UNIVERSITY OF SOUTHERN CALIFORNIA AND A BS FROM PURDUE UNIVERSITY. WARREN H. GOODRICH IS A FIXED INCOME ANALYST COVERING INTEREST RATE SENSITIVE COMPANIES, INCLUDING HOUSING AND REAL ESTATE COMPANIES, ASSET BACKED SECURITIES AND DIVERSIFIED INDUSTRIALS. MR. GOODRICH HAS SERVED AS A FIXED INCOME ANALYST SINCE MARCH 2001. PRIOR TO JOINING SENECA IN FEBRUARY 2001, MR. GOODRICH WAS A RESEARCH ANALYST FOR BARCLAYS GLOBAL INVESTORS FROM OCTOBER 1999 TO FEBRUARY 2001. MR. GOODRICH EARNED A BA IN ECONOMICS FROM WAKE FOREST UNIVERSITY. MR. GOODRICH IS ALSO A CFA AND A MEMBER OF SECURITY ANALYSTS OF SAN FRANCISCO. Q. HOW DID THE REAL ESTATE SECURITIES FUND PERFORM COMPARED TO ITS BENCHMARK AND LIPPER PEER GROUP FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2005? A. For the six-month period ended June 30, 2005, the Real Estate Securities Fund returned 4.76%. The DJ Wilshire RESI Index, the Fund's benchmark, returned 6.64% and the Fund's Lipper peer group of 40 Real Estate Funds returned an average of 5.72% for the same period. Q. WHAT INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND IMPACTED PERFORMANCE? WHICH PARTICULAR STOCKS/SECTORS SIGNIFICANTLY CONTRIBUTED TO FUND PERFORMANCE? A. The Fund benefited from overweight positions in the lodging, industrial, and retail outlet sectors during the last six months. These benefits were more than offset by our underweight positions in the office and self-storage sectors. Stock selection in the apartment and strip mall sectors also detracted from performance. General Growth Properties and Simon Property Group were the biggest contributors to performance. Northstar Capital Investment Corp was the biggest detractor to performance, and is not included in the benchmark. 1 Real Estate Securities Fund Q&A - -------------------------------------------------------------------------------- Q. WHAT EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS? A. The REIT sector performed well over the last six months, despite a difficult first quarter. Improving fundamentals, industry consolidation, and the continuation of low interest rates have continued to benefit the sector. In January of this year, profit taking and uncertainty regarding the direction of interest rates negatively impacted the REIT sector, with most stocks falling regardless of company fundamentals. However, by April the sector began to strengthen and has since more than rebounded from the early year sell-off. Q. DID THE WEIGHTINGS/COUNTRY ALLOCATION OF THE FUND CHANGE? WHY? A. Over the last six months, the Fund has increased its exposure to the office and industrial sectors. The outlook for improving rents and global trade supported this decision. The Fund modestly reduced the overweight in the lodging sector and also decreased the exposure to the local retail sector due to increased industry risk. In the second quarter, the Fund initiated a position in the self-storage sector due to the continued positive outlook in that area. Q. WHICH STOCKS/SECTORS HAVE PERFORMED WELL? WHICH HAVE NOT PERFORMED WELL? A. Over the last six months, the office, regional mall, and self-storage sectors exhibited the strongest performance, up approximately 10%, 12%, and 13% respectively. Stabilizing office fundamentals and continued strong outlooks for the mall and storage sectors were the primary drivers. The hotel and industrial sectors underperformed the benchmark, with six month returns of 1% and 0% respectively. Periodic uncertainty regarding energy prices and the economy has negatively impacted both groups. 2 Real Estate Securities Fund - -------------------------------------------------------------------------------- Understanding Your Fund's Expenses As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended June 30, 2005. ACTUAL EXPENSES The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading "Expenses Paid During Period." HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds. Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
JANUARY 1, 2005 - JUNE 30, 2005 - --------------------------------------------------------------------------------------------------------------------------- ACCOUNT VALUE AT ACCOUNT VALUE EXPENSES THE BEGINNING OF AT THE END OF PAID DURING THE PERIOD ($) THE PERIOD ($) THE PERIOD ($)* - --------------------------------------------------------------------------------------------------------------------------- Actual Fund Return** 1,000.00 1,047.59 4.30 - --------------------------------------------------------------------------------------------------------------------------- Hypothetical 5% Return (2.5% for the period) 1,000.00 1,020.17 4.46 - ---------------------------------------------------------------------------------------------------------------------------
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.89% (FROM PERIOD JANUARY 1, 2005 - JUNE 30, 2005), MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 181/365 (TO REFLECT THE SIX-MONTH PERIOD). ** ACTUAL FUND RETURN FOR SIX-MONTH PERIOD ENDED JUNE 30, 2005 WAS 4.76%. 3 Real Estate Securities Fund (unaudited) - -------------------------------------------------------------------------------- CHANGE IN VALUE OF A $10,000 INVESTMENT - -------------------------------------------------------------------------------- [Line chart omitted -- plot points are as follows:] Real Estate Securities Fund Wilshire RES Index - -------------------------------------------------------------------------------- 06/01/95 10,000 10,000 12/01/95 11,069 10,850 12/01/96 15,081 14,851 12/01/97 18,021 17,791 12/01/98 14,834 14,691 12/01/99 14,802 14,222 12/01/00 19,618 18,563 12/01/01 21,941 20,480 12/01/02 21,645 21,010 12/01/03 29,753 28,800 12/01/04 39,360 38,845 06/01/05 41,234 41,424 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED JUNE 30, 2005 - -------------------------------------------------------------------------------- SIX ONE FIVE TEN MONTHS YEAR YEAR YEAR - -------------------------------------------------------------------------------- Real Estate Securities Fund 4.76% 31.83% 19.09% 15.22% - -------------------------------------------------------------------------------- Wilshire RES Index 6.64% 34.32% 20.38% 15.27% - -------------------------------------------------------------------------------- Lipper peer group average* 5.72% 33.14% 19.53% 15.09% - -------------------------------------------------------------------------------- Inception date 5/1/95 - -------------------------------------------------------------------------------- Real Estate Securities Fund (ending value $41,234) Wilshire RES Index (ending value $41,424) INVESTMENT PROFILE A fund designed for investors who seek maximum total return through current income and capital appreciation by investing at least 80% of its net assets in equity securities and debt securities of U.S. issuers that are principally engaged in or related to the real estate industry, including those that own significant real estate assets, under normal market conditions. TOP TEN LARGEST HOLDINGS AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- General Growth Properties Inc. 6.67% - -------------------------------------------------------------------------------- Simon Property Group, Inc. 5.92% - -------------------------------------------------------------------------------- Boston Properties Inc. 5.03% - -------------------------------------------------------------------------------- Prologis 4.78% - -------------------------------------------------------------------------------- Vornado Realty Trust 4.71% - -------------------------------------------------------------------------------- Equity Residential 4.39% - -------------------------------------------------------------------------------- Trizec Properties Inc. 4.28% - -------------------------------------------------------------------------------- AMB Property Corp. 4.21% - -------------------------------------------------------------------------------- Archstone-Smith Trust 3.86% - -------------------------------------------------------------------------------- Host Marriott Corp. 3.61% - -------------------------------------------------------------------------------- PORTFOLIO COMPOSITION AS OF JUNE 30, 2005 as a % of Market Value - -------------------------------------------------------------------------------- Market Value of $145,634 (in thousands) [Pie chart omitted -- plot points are as follows:] Office/Industrial 29.2% Regional Mall 19.3% Apartments 15.6% Shopping Center 11.7% Hotels, Restaurants & Leisure 11.1% Mortgage 3.7% Diversified 3.2% Consumer Non-Cyclical 2.7% Real Estate Related Operating Companies 2.3% Diversified Financials 1.0% Short-Term 0.2% * LIPPER PERFORMANCE COMPARISONS ARE BASED ON AVERAGE ANNUAL TOTAL RETURNS FOR THE SIX-MONTH, ONE-YEAR, FIVE-YEAR, AND TEN-YEAR PERIODS INDICATED IN THE REAL ESTATE PEER GROUP CONSISTING OF 40, 39, 23, AND 6 UNDERLYING ANNUITY FUNDS, RESPECTIVELY. SEE NOTES TO PERFORMANCE ON PAGE 6 FOR FURTHER INFORMATION, INCLUDING AN EXPLANATION OF LIPPER PEER CATEGORIES. PAST PERFORMANCE DOES NOT PREDICT FUTURE PERFORMANCE AND THE GRAPH AND TABLE DO NOT REFLECT THE DEDUCTION OF TAXES. 4 REAL ESTATE SECURITIES FUND Schedule of Investments June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- REAL ESTATE SECURITIES FUND - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 98.5% - -------------------------------------------------------------------------------- APARTMENTS -- 15.6% Archstone-Smith Trust 145,437 $ 5,616,777 AvalonBay Communities, Inc. 58,580 4,733,264 Equity Residential 173,600 6,391,952 Essex Property Trust, Inc. 36,670 3,045,810 United Dominion Realty Trust, Inc. 123,020 2,958,631 22,746,434 CONSUMER NON-CYCLICAL -- 2.6% B&G Foods, Inc. 262,080 3,836,851 DIVERSIFIED -- 3.2% Duke Realty Corp. 132,930 4,208,564 Northstar Capital Investment Corp. 30,000 126,600(a,b,e) Northstar Capital Investment Corp. 75,000 316,500(a,b,e) 4,651,664 HOTELS, RESTAURANTS & LEISURE -- 11.1% Host Marriott Corp. 300,550 5,259,625 La Quinta Corp. 325,010 3,032,343(a) Marriott International, Inc. (Class A) 47,010 3,207,022 Starwood Hotels & Resorts Worldwide Inc. (Class B) 80,110 4,692,043 16,191,033 MORTGAGE -- 3.7% Capital Trust Inc. (Class A) 70,040 2,340,036 RAIT Investment Trust 103,620 3,103,419 5,443,455 OFFICE/INDUSTRIAL -- 29.1% AMB Property Corp. 141,200 6,132,316 Boston Properties, Inc. 104,620 7,323,400 Equity Office Properties Trust 151,100 5,001,410 Prologis 173,000 6,961,520 Public Storage, Inc. 64,430 4,075,198 Trizec Properties, Inc. 302,670 6,225,922 Vornado Realty Trust 85,230 6,852,492 42,572,258 - -------------------------------------------------------------------------------- NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- REAL ESTATE RELATED OPERATING COMPANIES -- 2.3% iStar Financial Inc. 79,950 $ 3,325,120 REGIONAL MALL -- 19.3% General Growth Properties, Inc. 236,470 9,716,552 Macerich Co. 62,210 4,171,181 Simon Property Group, Inc. 119,010 8,627,035 Tanger Factory Outlet Centrs 141,780 3,818,135 The Mills Corp. 29,530 1,795,129 28,128,032 SHOPPING CENTER -- 11.6% Developers Diversified Realty Corp. 96,840 4,450,766 Equity One, Inc. 95,130 2,159,451 Kimco Realty Corp. 87,860 5,175,833 Regency Centers Corp. 91,440 5,230,368 17,016,418 TOTAL COMMON STOCK (COST $115,564,545) 143,911,265 - -------------------------------------------------------------------------------- PREFERRED STOCK -- 1.0% - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIALS -- 1.0% Accredited Mortgage Loan REIT Trust (Series A) (COST $1,341,706) 53,090 1,402,638 TOTAL INVESTMENTS IN SECURITIES (COST $116,906,251) 145,313,903 - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS -- 0.2% - -------------------------------------------------------------------------------- GEI Short Term Investment Fund 3.20% 320,414 320,414(c,d) (COST $320,414) TOTAL INVESTMENTS (COST $117,226,665) 145,634,317 OTHER ASSETS AND LIABILITIES, NET -- 0.3% 490,780 ------------ NET ASSETS -- 100.0% $146,125,097 ============ See Notes to Schedule of Investments on page 6 and Notes to Financial Statements. 5 Notes to Performance June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- Total returns take into account changes in share price and assume reinvestment of dividends and capital gains distributions, if any. Investment returns and net asset value on an investment will fluctuate and you may have a gain or loss when you sell your shares. Periods less than one year are not annualized. Current performance may be lower or higher than that shown. You may call toll-free (800) 242-0134 for performance information as of the most recent month end. Certain fees and Fund expenses have been waived and/or borne by the Fund's prior investment advisers. Had these fees and expenses not been waived, the returns (and/or yields) would have been lower. Shares of the Fund are neither insured nor guaranteed by the U.S. Government, and their prices will fluctuate with market conditions. The Wilshire Real Estate Securities Index (Wilshire RES) is an unmanaged index and do not reflect the actual cost of investing in the instruments that comprise the index. The Wilshire RES Index is a market capitalization-weighted index comprised of publicly traded real estate securities, such as real estate investment trusts (REITs) and real estate operating companies (REOCs). The results shown for the foregoing index assume the reinvestment of net dividends or interest. The peer universe of the underlying annuity funds used in our peer ranking calculation is based on the blend of Lipper peer categories, as shown. Lipper is an independent mutual fund rating service. A Fund's performance may be compared to or ranked within a universe of mutual funds with investment objectives and policies similar but not necessarily identical to the Fund's. Such comparisons or rankings are made on the basis of several factors, including the Fund's objectives and policies, management style and strategy, and portfolio composition, and may change over time if any of those factors change. Lipper is an independent mutual fund rating service. Notes to Schedule of Investments - -------------------------------------------------------------------------------- The views expressed in this document reflect our judgment as of the publication date and are subject to change at any time without notice. The securities cited may not represent current or future holdings and should not be considered as a recommendation to purchase or sell a particular security. See the prospectus for complete descriptions of investment objectives, policies, risks and permissible investments. (a) Non-income producing security. (b) Pursuant to Rule 144A of the Securities Act of 1933, these securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2005, these securities amounted to $443,100 or 0.30% of net assets for the GE Investments Real Estate Securities Fund. These securities have been determined to be liquid using procedures established by the Board of Trustees. (c) Coupon amount represents effective yield (d) GEAM, the investment adviser of the Fund, also serves as investment adviser of the Trust. (e) Fair Valued Securities. + Percentages are based on net assets as of June 30, 2005. Abbreviations: REIT Real Estate Investment Trust 6
Financial Highlights Selected data based on a share outstanding throughout the periods indicated - ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE SECURITIES FUND 6/30/05+ 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 - ------------------------------------------------------------------------------------------------------------------------------------ INCEPTION DATE -- -- -- -- -- 5/1/95 Net asset value, beginning of period ............ $19.54 $16.78 $13.14 $14.78 $13.82 $10.87 INCOME/(LOSS) FROM INVESTMENT OPERATIONS: Net investment income ........................ 0.33 0.65 0.50 0.80 0.64 0.56 Net realized and unrealized gains/(losses) on investments ............ 0.60 4.76 4.42 (1.01) 1.00 2.96 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCOME/(LOSS) FROM INVESTMENT OPERATIONS ............................... 0.93 5.41 4.92 (0.21) 1.64 3.52 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS FROM: Net investment income ........................ -- 0.52 0.41 0.66 0.53 0.52 Net realized gains ........................... -- 2.13 0.87 0.77 0.15 0.05 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS ............................. -- 2.65 1.28 1.43 0.68 0.57 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD .................. $20.47 $19.54 $16.78 $13.14 $14.78 $13.82 ==================================================================================================================================== TOTAL RETURN (A) ................................ 4.76% 32.29% 37.38% (1.35)% 11.84% 32.54% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ..... $146,125 $146,221 $98,294 $70,164 $87,306 $73,799 Ratios to average net assets: Net investment income* .................... 3.45% 4.15% 4.65% 4.81% 5.05% 5.62% Expenses* ................................. 0.89% 0.90% 0.89% 0.89% 0.90% 0.92% Portfolio turnover rate ...................... 16% 78% 52% 90% 49% 56%
NOTES TO FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (a) Total returns are historical and assume changes in share price and reinvestment of dividends and capital gains. Had the adviser not absorbed a portion of expenses, total returns would have been lower. * Annualized for periods less than one year. + Unaudited See Notes to Financial Statements. 7
Statement of Assets and Liabilities JUNE 30, 2005 (UNAUDITED) REAL ESATE SECURITIES FUND - --------------------------------------------------------------------------------------------------------------------------- ASSETS Investments in securities, at market (cost $116,906,251) ..................................... $145,313,903 Short-term affiliated investments (at amortized cost) ........................................ 320,414 Income receivables ........................................................................... 658,381 Receivable for fund shares sold .............................................................. 69,961 - --------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS ............................................................................. 146,362,659 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES Payable for fund shares redeemed ............................................................. 132,677 Payable to GEAM .............................................................................. 104,885 - --------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES ........................................................................ 237,562 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ...................................................................................... $146,125,097 =========================================================================================================================== NET ASSETS CONSIST OF: Capital paid in .............................................................................. 108,470,627 Undistributed net investment income .......................................................... 2,599,312 Accumulated net realized gain ................................................................ 6,647,506 Net unrealized appreciation on: Investments .............................................................................. 28,407,652 - --------------------------------------------------------------------------------------------------------------------------- NET ASSETS ...................................................................................... $146,125,097 =========================================================================================================================== Shares outstanding ($0.01 par value; unlimited shares authorized) ............................... 7,139,807 Net asset value per share ....................................................................... $20.47
See Notes to Financial Statements. 8
Statement of Operations FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED) REAL ESATE SECURITIES FUND - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME INCOME: Dividend ......................................................................... $2,953,514 Interest from affliated investments .............................................. 32,188 - --------------------------------------------------------------------------------------------------------------------------- TOTAL INCOME ....................................................................... 2,985,702 - --------------------------------------------------------------------------------------------------------------------------- EXPENSES: Advisory and administrative fees ................................................. 576,580 Custody and accounting expenses .................................................. 14,163 Professional fees ................................................................ 11,169 Transfer agent ................................................................... 86 Trustee's fees ................................................................... 2,031 Registration expenses ............................................................ 444 Other expenses ................................................................... 8,657 - --------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES ..................................................................... 613,130 - --------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME .............................................................. 2,372,572 =========================================================================================================================== NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS REALIZED GAIN ON: Investments ................................................................... 3,810,713 DECREASE IN UNREALIZED DEPRECIATION ON: Investments ................................................................... (11,880) - --------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments ................................................................ 3,798,833 - --------------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................................................. $6,171,405 ===========================================================================================================================
See Notes to Financial Statements. 9
Statements of Changes in Net Assets REAL ESATE SECURITIES FUND - ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended Year Ended June 30, 2005 December 31, (unaudited) 2004 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investments income ............................................................. $ 2,372,572 $ 3,152,526 Net realized gain on investments, futures, written options, foreign currency transactions and swaps .......................................... 3,810,713 15,297,682 Net increase (decrease) in unrealized appreciation/(depreciation) on investments, futures, written options, foreign currency translation ............................................................. (11,880) 14,766,874 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase from operations ....................................................... 6,171,405 33,217,082 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income .............................................................. -- (3,391,797) Net realized gains ................................................................. -- (14,020,602) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL DISTRIBUTIONS .................................................................. -- (17,412,399) - ------------------------------------------------------------------------------------------------------------------------------------ Increase in net assets from operations and distributions ............................. 6,171,405 15,804,683 - ------------------------------------------------------------------------------------------------------------------------------------ SHARE TRANSACTIONS: Proceeds from sale of shares ....................................................... 7,492,523 29,780,694 Value of distributions reinvested .................................................. -- 17,412,393 Cost of shares redeemed ............................................................ (13,759,937) (15,070,866) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) from share transactions ................................... (6,267,414) 32,122,221 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL INCREASE (DECREASE) IN NET ASSETS .............................................. (96,009) 47,926,904 NET ASSETS Beginning of period .................................................................. 146,221,106 98,294,202 - ------------------------------------------------------------------------------------------------------------------------------------ End of period ....................................................................... $146,125,097 $146,221,106 - ------------------------------------------------------------------------------------------------------------------------------------ UNDISTRIBUTED NET INVESTMENT INCOME, END OF PERIOD ...................................... $ 2,599,312 $ 226,740 ==================================================================================================================================== CHANGES IN PORTFOLIO SHARES Shares sold ........................................................................ 394,026 1,604,663 Issued for distributions reinvested ................................................ -- 894,319 Shares redeemed .................................................................... (737,520) (874,623) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in fund shares .................................................. (343,494) 1,624,359 ====================================================================================================================================
See Notes to Financial Statements. 10 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 1. ORGANIZATION OF THE COMPANY GE Investments Funds, Inc. (the "Company") was incorporated under the laws of the Commonwealth of Virginia on May 14, 1984 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Company is comprised of fourteen investment portfolios (collectively the "Funds"), although only the following twelve 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 Value Equity Fund, International Equity Fund, Total Return Fund, Global Income Fund, Income Fund, Money Market Fund and Real Estate Securities Fund (the "Fund"). Shares of the Company are offered only to insurance company separate accounts that fund certain variable life insurance contracts and variable annuity contracts. These insurance companies may include insurance companies affiliated with GE Asset Management Incorporated ("GEAM"), the investment adviser and administrator of each of the Funds. As of June 30, 2005, GE Life and Annuity Assurance Company ("GE Life") and General Electric Capital Assurance Company, each an affiliated insurance company, controlled the Funds by ownership, through separate accounts, of virtually all of the Funds' shares of beneficial interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions at the date of the financial statements. Actual results may differ from those estimates. The following summarizes the significant accounting policies of the Company: SECURITY VALUATION AND TRANSACTIONS Securities for which exchange quotations are readily available are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price. Securities listed on the NASDAQ will be valued at the NASDAQ's official close price. Certain fixed income securities are valued by a dealer or by a pricing service based upon a matrix system, which considers market transactions as well as dealer supplied valuations. Short-term investments maturing within sixty days are valued at amortized cost. If quotations are not readily available for a portfolio security, or if it is believed that a quotation or other market price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund's Board of Directors that are designed to establish its "fair value". These procedures require that the fair value of a security be established by the valuation committee. The fair value committee follows different protocols for different types of investments and circumstances. Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security's primary market and before the close of regular trading on the NYSE. This independent fair value pricing service uses a computerized system to appraise affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price. GE Asset Management may also separately monitor portfolio securities and, consistent with the Fund's fair value procedures, apply a different value to a portfolio security than would be applied had it been priced using market quotations or by an independent fair value pricing service. Determining the fair value of securities involves the application of both subjective and objective considerations. Security values may differ depending on the methodology used to determine their values, and may differ from the last quoted sale or closing price. No assurance can be given that use of these fair value procedures will always better represent the price at which a Fund could sell the affected portfolio security. Security transactions are accounted for as of the trade date. Realized gains and losses on investments sold are recorded on the basis of identified cost for both financial statement and federal tax purposes. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements. The Fund's or a third party custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Fund. The Fund values the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% of the repurchase price. In the event the seller defaults and the 11 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 their 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 12 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- 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 they invest. 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 their taxable net investment income and net realized capital gains to their shareholders. Therefore, no provision for federal income tax has been made. The Fund is treated as a separate taxpayer for federal income tax purposes. At June 30, 2005, information on the tax cost of investments is as follows:
Net Tax Cost of Gross Tax Gross Tax Unrealized Investments for Unrealized Unrealized Appreciation Tax Purposes Appreciation Depreciation on Investments - --------------------------------------------------------------------------------------------------------------------------- $117,226,665 $29,870,798 $(1,463,147) $28,407,652
As of December 31, 2004, the Fund has no capital loss carryover. Any net capital and currency losses incurred after October 31, within the Fund's tax year, are deemed to arise on the first day of the Fund's next tax year if the Fund so elects to defer such losses. The Fund has no losses incurred after October 31, 2004. The tax composition of distributions paid (other than return of capital distributions for the year) during the year ended December 31, 2004 was as follows: Ordinary Long-Term Income Capital Gains Total - -------------------------------------------------------------------------------- $6,933,056 $10,479,343 $17,412,399 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 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 13 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments. INVESTMENT INCOME Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis. All discounts and premiums on taxable bonds are accreted to call or maturity date, whichever is shorter, using the effective yield method. EXPENSES Expenses of the Company which are directly identifiable to one of the Funds are allocated to that portfolio. Expenses which are not directly identifiable to one of the Funds are allocated in such a manner as deemed equitable, taking into consideration the nature and type of expenses and relative sizes of the Funds. All expenses of the Fund are paid by GEAM and reimbursed by the Fund. 3. LINE OF CREDIT Effective December 15, 2004, and expiring December 14, 2005, the Company 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 Company during the period ended June 30, 2005. 4. AMOUNTS PAID TO AFFILIATES ADVISORY AND ADMINISTRATION FEES GEAM, a registered investment adviser, was retained by the Company's Board of Directors effective May 1, 1997 to act as investment adviser and administrator of the Fund. Compensation of GEAM for investment advisory and administrative services is paid monthly based on the average daily net assets of the Fund. The advisory and administrative fee is stated in the following schedule: Annualized based on average daily net assets - -------------------------------------------------------------------------------- Average Daily Advisory and Net Assets Administration of Fund Fees - -------------------------------------------------------------------------------- First $100 million .85% Next $100 million .80% Over $200 million .75% Effective January 1, 2002, GECIS (General Electric Capital International Services) began performing certain accounting and certain administration services previously provided by an unaffiliated service provider. For the period ending June 30, 2005, $1,601 was charged to the Fund. Administrative services not performed by GEAM or GECIS were provided by an unaffiliated service provider. ADVISORY AND ADMINISTRATIVE AGREEMENT RENEWAL The Board of Directors, including the independent directors, of the GE Investments Funds, Inc. unanimously approved the continuance of the investment advisory agreement between each Fund and GE Asset Management Incorporated ("GEAM") at a meeting held on December 3, 2004. The Board, including the independent directors, also at that meeting unanimously approved the sub-advisory agreement between Seneca Capital Management, L.L.C. and GEAM on behalf of the Real Estate Securities Fund. In considering whether to approve the investment advisory and sub-advisory agreement, the Board (including the independent directors) considered and discussed a substantial amount of information and analysis prepared by GEAM and the sub-adviser at the Board's request. The Board 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. The Board reviewed the fees charged by GEAM for investment products other than mutual funds that employ the same investment strategies as the Fund. Before approving the Funds' advisory agreement and the related sub-advisory agreement for the Real Estate Securities Fund, the independent directors reviewed the proposed continuance of the agreements with management of GEAM and with experienced legal counsel who is independent of GEAM and the GE Investments Funds, Inc. That legal counsel prepared a memorandum discussing the legal standards for the consideration of the proposed continuances. The 14 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- independent directors also discussed the proposed continuances in a private session with their independent legal counsel at which no representatives of GEAM or the sub-adviser were present. In reaching their determinations relating to continuance of the agreements with respect to the Fund, the directors considered all factors they believed relevant, including the factors discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and each director attributed different weights to the various factors. NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE MANAGER The Board reviewed the services provided by GEAM and the sub-adviser, and the independent directors concurred that GEAM and the sub-adviser provide high quality advisory and administrative services because of the level of research, analysis, investment discipline and other services, such as securities trading, provided to the Funds. The independent directors specifically considered the favorable attributes of GEAM, including an investment philosophy oriented toward long-term performance, the processes used for selecting investments, selecting brokers and for compliance activities, and the quality of the investment professionals employed by GEAM. The Board also recognized GEAM's responsibility for supervising the sub-adviser's services. The Board noted that the Fund represents only a small portion of the overall assets managed by GEAM, but the Funds benefit from a full array of services and resources provided by GEAM. INVESTMENT PERFORMANCE The Board reviewed detailed performance information for the Fund for various periods, which it also monitors as part of its regular quarterly Board meetings. The Board also reviewed detailed comparisons of the performance of the Funds with relevant securities indexes and various peer groups of mutual funds prepared by Lipper with respect to various periods. GEAM and, where relevant, representatives of the sub-adviser, discussed in detail their 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 recent performance in light of GEAM's commitment to long-term satisfactory performance with respect to the Fund's investment objective and investment approach. The Board and the independent directors concluded that the Fund's performance was acceptable over the relevant periods, particularly from a longer-term perspective, which the Board believes is most relevant. COSTS OF SERVICES PROVIDED AND PROFITABILITY At the request of the independent directors, GEAM provided information concerning the profitability of GEAM's investment advisory and investment company activities and its financial condition for various past periods. The directors 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 directors reviewed GEAM's assumptions and the methods of cost allocation used by GEAM in preparing the profitability data. GEAM stated its belief that the methods of allocation used were reasonable and consistent across its business. The directors also examined the fee and expense ratios for the Fund and observed that GEAM's figures were at or below the applicable peer group. The directors noted the additional services provided by GEAM to the Fund compared to other investment products managed by GEAM. The directors reviewed comparative fee information for the sub-adviser, as well as an analysis of the profitability to the sub-adviser of the sub-advisory agreement, and did not find the sub-advisory fee to be excessive on the basis of this information. The directors recognized that GEAM should be entitled to earn a reasonable level of profits for the services it provides to the Fund and, based on their review, concluded that they were satisfied that GEAM's level of profitability from its relationship with the Fund was not unreasonable or excessive. ECONOMIES OF SCALE The Board 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 independent directors did not disagree with GEAM's assertion that the comparatively lower fees it has charged to the Fund since inception means that GEAM is already sharing the low-fee benefits of larger asset sizes compared to having charged higher fees on lower asset levels for the Fund when newer. The Board recognized the benefits to the Fund of GEAM's past 15 Notes to Financial Statements June 30, 2005 (unaudited) - -------------------------------------------------------------------------------- investment in the Funds' operations (through those lower fees and through subsidies of operating expenses). The Board reviewed the applicable fee breakpoints and concluded that no changes were needed. FALL-OUT FINANCIAL BENEFITS The Board and the independent directors considered other actual and potential financial benefits to GEAM and the sub-adviser in concluding that the contractual advisory and sub-advisory fees are reasonable for the Fund. An example of those benefits would be the soft dollars generated by portfolio transactions by the Fund. The Board 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 overall assets managed by GEAM. CONCLUSION The Board and the independent directors separately concluded that the renewal of each advisory and sub-advisory agreement was in the best interest of the shareholders of the Fund. DIRECTORS' COMPENSATION The Fund pays no compensation to their 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 investment sub-advisory agreements with GEAM, Seneca Capital Management, L.L.C. ("Seneca") is the Sub-Adviser to the Real Estate Securities Fund. Seneca is responsible for the day-to-day portfolio management of the assets of the Fund, including the responsibility for making decisions to buy, sell or hold a particular security, under the general supervision of GEAM and the Board. For their services, GEAM pays Seneca monthly sub-advisory fees which are calculated as a percentage of the average daily net assets of the Fund. 6. INVESTMENT TRANSACTIONS PURCHASES AND SALES OF SECURITIES The cost of purchases and the proceeds from sales of investments, other than short-term securities and options, for the period ended June 30, 2005 were as follows: Purchases Sales - -------------------------------------------------------------------------------- $23,774,260 $21,221,369 16 Additional Information (unaudited) - -------------------------------------------------------------------------------- INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS: The business and affairs of the Company are managed under the direction of the Company's Board of Directors. Information pertaining to the Directors and officers of the Company is set forth below. INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- MICHAEL J. COSGROVE - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 56 POSITION(S) HELD WITH FUND Chairman of the Board and President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 49 OTHER DIRECTORSHIPS HELD BY DIRECTOR Chairman of the Board and President of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception; Trustee of Elfun Funds, GE Savings & Security Funds and General Electric Pension Trust since 1988; Trustee of Fordham University since 2003 and Marymount College from 1994 through 2002. - -------------------------------------------------------------------------------- ALAN M. LEWIS - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 58 POSITION(S) HELD WITH FUND Director and Executive Vice President TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 5 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 49 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. 17 Additional Information (unaudited) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ROBERT HERLIHY - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 38 POSITION(S) HELD WITH FUND Treasurer TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 3 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Manager of Mutual Fund Operations at GEAM since March 2002; from August 1999 to March 2002, Mr. Herlihy was a manager in the Investment Company Services Group of PricewaterhouseCoopers LLP, New York; from September 1998 to August 1999 a Supervisor in the Investment Company Group at McGladrey & Pullen LLP (Acquired by PricewaterhouseCoopers LLP in August 1999); from June 1996 to September 1998 a Manager of Audit Services at Condon O'Meara McGinty & Donnelly LLP. Treasurer of GE Funds, GE Lifestyle Funds, GE Institutional Funds, Elfun Funds, and GE Savings & Security Funds since June 2002. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR N/A OTHER DIRECTORSHIPS HELD BY DIRECTOR N/A - -------------------------------------------------------------------------------- MATTHEW J. SIMPSON - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 44 POSITION(S) HELD WITH FUND Vice President and Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 39 POSITION(S) HELD WITH FUND Vice President and Assistant Secretary TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 1 year 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 18 Additional Information (unaudited) - -------------------------------------------------------------------------------- NON-INTERESTED DIRECTORS - -------------------------------------------------------------------------------- JOHN R. COSTANTINO - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 59 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Managing Director, Walden Partners, Ltd., consultants and investors, since August 1992. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 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 57 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 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 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- ROBERT P. QUINN - -------------------------------------------------------------------------------- ADDRESS c/o GEAM 3001 Summer St. Stamford, CT 06905 AGE 69 POSITION(S) HELD WITH FUND Director TERM OF OFFICE AND LENGTH OF TIME SERVED Until successor is elected and qualified - 8 years PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS Retired since 1983 from Salomon Brothers Inc. NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR 41 OTHER DIRECTORSHIPS HELD BY DIRECTOR GP Financial Corp, holding company; The Greenpoint Savings Bank, a financial institution. Trustee of GE Funds since 1993, and GE Institutional Funds and GE LifeStyle Funds since their inception. - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES You may request without charge a description of the Trust's policies and procedures for voting proxies related to the Funds' portfolio securities by calling 1-800-242-0134. You may also view a description of those policies and procedures on the Funds' website at http://www.gefunds.com or on the SEC's website at http://www.sec.gov. 19 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 Robert Herlihy ASSISTANT TREASURER Christopher M. Isaacs DISTRIBUTOR GE Investment Distributors, Inc. Member NASD and SIPC Counsel Sutherland, Asbill & Brennan, LLP Custodian State Street Bank & Trust Company Independent Registered Public Accounting Firm KPMG LLP OFFICERS OF THE INVESTMENT ADVISER John H. Myers, Chief Executive Officer David B. Carlson, EVP, Domestic Equities Michael J. Cosgrove, EVP, Chief Commercial Officer Kathryn Karlic, EVP, Fixed Income Ralph R. Layman, EVP, International Equities Alan M. Lewis, EVP, General Counsel and Secretary Robert A. MacDougall, EVP, Fixed Income Don W. Torey, EVP, Alternative Investments and Real Estate John J. Walker, EVP, Chief Financial Officer 20 [This page intentionally left blank.] [This page intentionally left blank.] ITEM 2. CODE OF ETHICS. Applicable only to an annual filing. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Applicable only to an annual filing. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Applicable only to an annual filing. ITEM 5. Audit Committee of Listed Registrants Applicable only to Closed-End Management Investment Companies. ITEM 6. Schedule of Investments. Attached as part of ITEM 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Applicable only to Closed-End Management Investment Companies. ITEM 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Applicable only to Closed-End Management Investment Companies. ITEM 9. Submission of Matters to a Vote of Security Holders. No material changes. ITEM 10. 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 11. EXHIBITS. (a) Not applicable. (b) Attached hereto as Exhibit 1 and Exhibit 2 are the Certifications of Michael J. Cosgrove and Robert Herlihy 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: August 31, 2005 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: August 31, 2005 By: /S/ROBERT HERLIHY Robert Herlihy TREASURER, GE INVESTMENTS FUNDS, INC. Date: August 31, 2005 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. EX-99.CERT 2 geicsr302cert.txt CERTIFICATIONS PURSUANT TO SECTION 302 SECTION 302 CERTIFICATIONS CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Michael J. Cosgrove, certify that: 1. I have reviewed this report on Form N-CSR of GE Investments Funds,Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding reliability of financial reporting and preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during second fiscal quarter of the period covered by this report that has materially effected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably, likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 31, 2005 /s/ Michael J. Cosgrove Michael J. Cosgrove Chairman, GE Investments Funds, Inc. CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Robert Herlihy, certify that: 1. I have reviewed this report on Form N-CSR of GE Investments Funds,Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding reliability of financial reporting and preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures as of a date within 90 days prior to the filing date of this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during second fiscal quarter of the period covered by this report that has materially effected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably, likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 31, 2005 /s/ Robert Herlihy Robert Herlihy Treasurer, GE Investments Funds, Inc. EX-99.906 CERT 3 geicsr906cert.txt CERTIFICATIONS PURSUANT TO SECTION 906 Exhibit (b)(2) In connection with this report on Form N-CSR for the Registrant as furnished to the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Registrant. By: /s/ Michael J. Cosgrove Michael J. Cosgrove Chairman, GE Investments Funds,Inc. Date: August 31, 2005 By: /s/ Robert Herlihy Robert Herlihy Treasurer, GE Investments Funds,Inc. Date: August 31, 2005 [A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.] -----END PRIVACY-ENHANCED MESSAGE-----