As discussed in the Compensation Committee Report beginning on page 15, stock options were granted in 1999 as an incentive for future superior performance leading to increased share owner value. Each stock option permits the holder, generally for a period of ten years, to purchase one share of GE stock from the Company at the market price of GE stock on the date of grant. The relationship between the potential gains in share owner value and the stock options granted to employees in 1999 is illustrated in the examples set forth in the first table on the opposite page.

That table shows, among other data, hypothetical potential gains from stock options granted in 1999 and the corresponding hypothetical potential gains in total share owner value. These hypothetical gains are based entirely on assumed annual growth rates of 5% and 10% in the value of the Company’s stock price over the ten-year life of the stock options granted in 1999 (which would equal a total increase in stock price of 63% and 159%, respectively). These assumed rates of growth were selected by the Securities and Exchange Commission for illustration purposes only and are not intended to predict future stock prices, which will depend upon market conditions and the Company’s future performance and prospects.

The stock options granted to Mr. Welch in 1999, for example, would produce the pre-tax gain of $118,443,750 shown in the first table only if the Company’s stock price rises to more than $308 per share before Mr. Welch exercises the stock options. Based on the number of shares of GE stock outstanding at the end of 1999, such an increase in the Company’s stock price would produce a corresponding aggregate pre-tax gain of more than $622,000,000,000 for the Company’s share owners. In other words, Mr. Welch’s potential gain from stock options granted in 1999 would equal less than two-hundredths of one percent (i.e., 0.019%) of the potential gain to all share owners resulting from the assumed future stock price increases.

The second table on the opposite page provides information on previously granted Stock Appreciation Rights (SARs) and stock options exercised by the five most highly compensated executive officers during 1999, as well as information on their SAR and stock option holdings at the end of 1999. In 1996, the Committee changed its practice and began granting stock options instead of SARs to executive officers and also replaced all outstanding SARs that had not become exercisable in 1996 with stock options. The replacement stock options have grant prices, forfeiture provisions, and vesting and expiration dates identical to the SARs they replaced in order to provide the same incentive values as the original SARs without increasing the economic benefit to any executive officer. As shown in the table, Mr. Welch received an actual pre-tax gain of $48,487,500 from SARs exercised in 1999. This gain was based solely upon increases in GE’s stock price between the date these SARs were granted and the date they were exercised. SARs expire ten years after the date of grant and permit the executive officer to receive an amount of cash, before tax, equal to the difference between the grant price of the SAR (which is equal to the closing price of the Company’s common stock on the date of grant) and the highest closing price of the Company’s common stock during a ten-business-day period, beginning on the third business day following the public release of the Company’s quarterly summary statement of sales and earnings in which the SAR is exercised.

STOCK OPTIONS GRANTED IN 1999

¹ Options expire on various dates during the year 2009. Exercise price shown is an average of all grants.
² Based on the number of shares outstanding at December 31, 1999.

AGGREGATED SARs/STOCK OPTIONS EXERCISED IN 1999, AND DECEMBER 31, 1999 SAR/OPTION VALUE

¹ SAR and option values are based upon the difference between the grant prices of all SARs and options awarded in 1999 and prior years and the December 31, 1999, closing price for the Company’s stock of $154.75 per share.