[GE Logo Omitted]
GE INSTITUTIONAL FUNDS
Annual Report
September 30, 1998
Emerging Markets Fund
International Equity Fund
U.S. Equity Fund
Small-Cap Value Equity Fund
Mid-Cap Growth Fund
S&P 500 Index Fund
Income Fund
Money Market Fund
[GE Logo in background Omitted]
<PAGE>
GE Institutional Funds
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Understanding Your Report
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A LETTER FROM THE PRESIDENT ...................... 1
REVIEW OF PERFORMANCE AND SCHEDULES OF INVESTMENTS
GE Institutional Funds' Portfolio Managers'
Q&A and Schedules of Investments
EMERGING MARKETS FUND ......................... 3
INTERNATIONAL EQUITY FUND ..................... 8
U.S. EQUITY FUND .............................. 13
SMALL-CAP VALUE EQUITY FUND ................... 19
MID-CAP GROWTH FUND ........................... 23
S&P 500 INDEX FUND ............................ 27
INCOME FUNDS .................................. 34
INCOME FUND
MONEY MARKET FUND
NOTES TO PERFORMANCE AND NOTES TO SCHEDULES OF
INVESTMENTS ................................ 41
FINANCIAL STATEMENTS
Financial Highlights .......................... 42
Notes to Financial Highlights ................. 43
Statements of Assets and Liabilities,
Operations, and Changes in Net Assets ....... 44
NOTES
Notes to Financial Statements ................. 50
REPORT OF INDEPENDENT ACCOUNTANTS ................ 56
GE INSTITUTIONAL FUNDS' INVESTMENT TEAM .......... INSIDE BACK COVER
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a current prospectus.
<PAGE>
A Letter from the President
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DEAR SHAREHOLDER:
We are pleased to report on the performance of the GE Institutional Funds for
the period since the funds' inception through September 30, 1998.
During the period, currency devaluation spread through Asia. Capital flight
affected Russia, then Latin America. The Dow broke through the 9000 barrier for
the first time, then dropped steeply as growing global economic turmoil shook
the U.S. financial system. Reflecting market uncertainty, assets flowed from
equities and equity mutual funds into the preceived safety of fixed-income
securities.
For most of 1998, rising stock prices, falling long-term interest rates and a
strong job market fueled the American economy and insulated it from global
economic problems. In August, the S&P 500's year-long gain of nearly 15% was
eliminated. By the end of September, the S&P 500 made a partial recovery,
managing a return of 6% for the nine-month period.
MARKET OVERVIEW
Early in 1998, the stock market seemed to be setting the pace for a fourth year
of more than 20% annual gains. The economy was steady, the ongoing crisis in
Asia had lessened and the controversies surrounding the White House abated. In
mid-July, the Dow reached 9337.97, its highest historic level.
The collapse of the Russian stock market in August triggered a world-wide stock
market slide. With valuations historically high, the market could not tolerate a
negative surprise. As uncertainty in Asia came back to the forefront, the
turbulence in Russia spread to Latin America and other emerging markets where
U.S. companies have much larger exposure than they do in Russia, U.S. corporate
earnings came under pressure and exports fell to their lowest levels in a
decade.
Continental Europe was a bright spot for much of the period, with markets
posting double-digit gains through August. Barring unforeseen events, European
markets should quickly snap back from blows delivered by their investments in
Russia and other emerging markets.
Three events fueled U.S. market jitters as the period closed. In Washington, the
U.S. Congress began deliberating whether to impeach the President. The U.S.
Federal Reserve Bank helped organize the rescue of a large American investment
fund whose collapse could have threatened world financial markets. And in hopes
of cushioning the U.S. economy, the Federal Reserve (the"Fed") cut the
short-term interest rate by a quarter-percentage point, the first reduction in
nearly three years.
At the end of September, the yield on the benchmark 30-year Treasury Bond fell
below 5% for the first time in three decades. U.S. Treasuries and other
government securities were major beneficiaries of the Fed's actions and of world
market volatility. For two quarters now, global investors have moved into
Treasuries because of their safety and liquidity. Concern that people will
pre-pay mortgages as interest rates fall affected mortgage-backed securities.
Corporate debt spreads have widened as investors worry that economic slowing
here and abroad could impair credit quality.
OUR OUTLOOK
We expect market volatility to continue through early 1999. We believe the
market has the potential to test the August low level before it stabilizes
within the next six months. This scenario could change if hedge fund problems or
other unexpected events cause further global instability
This is a period for caution but there are some positives. The U.S. economy's
underlying fundamentals are strong. Interest rates and inflation are low,
companies are productive and unemployment numbers, while beginning to rise, are
still good. However, Fed Chairman Alan Greenspan cautioned recently that a
market shift in investor psychology and global turmoil could dampen growth. In
that case, the Fed may decide on another round of interest rate reductions.
1
<PAGE>
A Letter from the President
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In light of Fed policy, fixed income investments should continue to perform well
as investors trade risk for safety. With respect to the stock market, bargains
exist in small-caps, where we recently launched a fund for institutional
investors; in capital goods; financial and energy sectors; and in large
pharmaceuticals whose earnings are driven by new products, rather than the
economic cycle.
On the international front, Asia's woes show no signs of abating. However, the
outlook for European equities is favorable. European economies and corporate
profits continue to grow as companies restructure, merge, acquire other firms
and ready themselves for a single currency in 1999. Finally, a new wave of
capital should infuse European equity markets as European companies open their
pension plans to individual funding.
On a final note, many shareholders have inquired about the Year 2000. GE
Investments Management (GEIM) has incorporated Year 2000 analysis into its
investment decision making process. GEIM has also been working to identify and
address Year 2000 date-related issues in a broad range of areas including
applications, process-enabling systems and facilities. With respect to
third-party systems, GEIM, like many other similarly situated companies, must
largely rely on the efforts and affirmations of others. Although the interaction
of various software and hardware elements is highly complex - and the
possibility of Year 2000 related problems cannot be totally eliminated - GEIM
believes it is taking appropriate steps.
Sincerely,
/s/ signature omitted
Michael J. Cosgrove
Mike Cosgrove is the President of the Investment Services Group of GE Financial
Assurance Holdings, Inc. and GE Investment Distributors, Inc., the funds'
distributor. In this role, he is responsible for the marketing, product
development and sales of the funds. Mike is also a Trustee of the GE Pension
Trust and GE's employee savings program.
In Mike's previous position as Chief Financial Officer of GE Investments and
Assistant Treasurer-GE Company, he had financial responsibility for all assets
under GE Investments' management. Mike joined GE in 1970. After completing the
GE Financial Management Program he held a number of managerial positions in
finance and sales in the International Operation, including serving as Vice
President and Treasurer and later as the Vice President - Countertrade and
Barter for GE Trading Company.
Mike graduated from Fordham University in 1970 with a B.S. degree in
Economics and received his M.B.A. degree from St. John's University in 1973.
2
<PAGE>
Emerging Markets Fund
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Q&A
Ralph Layman manages the international equity investment process at GE
Investments. Total assets under his management exceed $9 billion. He leads a
team of portfolio managers for the Emerging Markets Fund. Prior to joining GE
Investments in 1991, Ralph was Executive Vice President and Partner and
Portfolio Manager of International Equity Operations at Northern Capital
Management. Previously, he was a Vice President and Portfolio Manager at
Templeton Investment Counsel, Inc. He was instrumental in forming Templeton's
Emerging Markets Fund, the first listed emerging markets equity fund in the U.S.
Ralph is a Trustee of the GE Pension Trust, and GE's employee savings program,
and serves on the GE Investments' Asset Allocation Committee. He is a Chartered
Financial Analyst (CFA), a charter member of the International Society of
Security Analysts and a member of the New York Society of Security Analysts.
Ralph is a graduate of the University of Wisconsin with a B.S. in Economics and
a M.S. in Finance.
Q. How did the Emerging Markets Fund perform against its benchmark for the
period since inception, November 25, 1997 through September 30, 1998?
A. The fund generated a negative return of 31.96% for the period since
inception, November 25, 1997 through September 30, 1998, but outperformed
its benchmark, the Morgan Stanley Emerging Markets Free Index, which fell
34.44% during the same period.
Q. What factors influenced the fund's performance?
A. The fund had a strong stock selection in Asia and in Europe's emerging
markets, India stands out. Our Indian software stocks posted year-to-date
increases of up to 250%. In Europe, the fund benefited from its Greek
positions, as that market rose 39% year to date.
Although Egypt is not part of our benchmark index, our holdings there did
well because the country is insulated from the global market turmoil.
During the second quarter, the fund divested its holdings in Malaysia,
sparing us from the market's 40% drop in the past three months.
On the minus side, the fund was overweighted in Brazilian stocks for much
of the period. In the third quarter, currency concerns made Brazil a
difficult market. Currently, the fund is neutrally weighted in that
country. In Mexico, the fund's growth stock investments were outpaced by
more defensive names.
Q. Which stocks were noteworthy performers?
A. Two technology services providers in India, Pentafour Software & Exports
(+352%) and Satyam Computer Services (+239%) performed outstandingly for
the 10 months since the inception of the fund. Food retailer Alfa Beta
Vassilopolos of Greece (+60%) also showed strong performance.
Q. What changes did you make in the fund?
A. The fund's regional weightings were largely unchanged, with an overweight
in Europe's emerging markets and an underweight position in Asia. Our
exposure to Latin America remains roughly in-line with the index. As for
our holdings, the fund started a position in Pliva, the leading
pharmaceutical manufacturer in Croatia whose best-selling antibiotic,
Zithromax, is marketed by Pfizer. We divested Brazilian beer-maker Brahma,
because consumer activity should remain weak in Brazil next year.
Q. What is your outlook for the fund?
A. This is a very difficult environment but our portfolio contains many
well-run companies with good fundamentals and attractive valuations. At
these prices, our stocks are discounting a very bleak outlook for the
coming years. If the current pessimism over the global economy proves
unwarranted, then the emerging markets should deliver strong returns in the
future.
3
<PAGE>
Emerging Markets Fund
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=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
EMERGING MARKETS FUND MS EMERGING MARKETS FREE
11/25/97 10000 10000
11/97 10200 10117
12/97 10215.36 10360.82
1/98 9723.66 9548.22
2/98 10526.43 10544.86
3/98 11068.31 11002.51
4/98 11329.21 10882.58
5/98 10125.04 9391.23
6/98 9392.51 8406.09
7/98 9653.41 8672.65
8/98 6723.27 6165.04
9/98 6803.55 6556.09
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
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Emerging Markets Fund -31.96% 11/25/97
- --------------------------------------------------------------------------------
MSCI EMF -34.44%
================================================================================
Legend as follows:
Emerging Markets Fund
MS Emerging Markets Free
INVESTMENT PROFILE
A mutual fund designed for investors who seek long-term growth of capital
by investing primarily in equity securities of issuers that are located in
emerging markets countries.
======================================================================
REGIONAL ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Cash and Other 10.0%
Middle East and Africa 14.6%
Asia 20.5%
Europe 21.6%
Latin America 33.3%
================================================================================
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1998
================================================================================
Telecomunicacoes Brasileiras S.A. ADR 4.67%
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NIIT Ltd. 2.61%
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Pentafour Software & Exports Ltd. GDR 2.00%
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New Dimension Software Ltd. 1.92%
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Companhia Energetica de Minas Gerais 1.65%
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Telecomunicacoes de Sao Paulo
S.A.-Telesp 1.61%
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Gruma S.A. de C.V. (Series B) 1.57%
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Grupo Continental S.A. 1.53%
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Prokom Software S.A. GDR 1.48%
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Orbotech Ltd. 1.41%
================================================================================
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
<PAGE>
Schedule of Investments September 30, 1998
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EMERGING MARKETS FUND
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Number
of Shares Value
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Common Stock -- 83.7%
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ARGENTINA -- 3.4%
Banco De Galicia y Buenos Aires
S.R. ADR (Class B) 2,808 $ 44,577
Disco S.A. ADR 1,507 21,852(a)
Telefonica de Argentina S.A. ADR
(Class B) 1,896 55,813
YPF S.A. ADR (Class D) 1,945 50,570
172,812
[GRAPHIC OF BRAZILIAN FLAG OMITTED]
BRAZIL -- 6.9%
Companhia de Eletricidade de
Estado de Rio de
Janeiro-CERJ 91,300,000 32,347(a)
Companhia de Saneamento
Basico de Estado de Sao Paulo 691,416 42,986
Companhia Paranaense de
Energia-Copel 200,000 965(a)
Telecomunicacoes Brasileiras S.A
ADR 3,355 236,318(a)
Uniao de Banco Brasiliero
S.A. GDR 2,803 37,840
350,456
CHILE -- 1.3%
Companhia de Telecomunicaciones de
Chile S.A. ADR 3,461 66,192
CHINA -- 0.2%
Brilliance China Automotive
Holdings Ltd. 430 2,983
Founder Hong Kong Ltd. 9,600 1,673
Guangdong Kelon Electrical
Holdings Co. Ltd. 4,000 2,684
Huaneng Power International Inc.
ADR 199 2,040(a)
9,380
CROATIA -- 1.5%
Pliva D D GDR (Regd.) 3,892 51,180
Zagrebacka Banka GDR 3,079 25,094(b)
76,274
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
CZECH REPUBLIC -- 0.8%
Ceske Radiokomunikace GDR 1,225 $ 31,636(a,b)
CKD Praha Diz 1,435 9,558
41,194
EGYPT -- 1.0%
Olympic Group Financial
Investment Co. 11,757 51,958(a)
[GRAPHIC OF FLAG OF GREECE OMITTED]
GREECE -- 8.7%
A.G. Petzetakis S.A 13,530 60,181
Agricultural Bank of Greece 2,460 42,572
Alfa Beta Vassilopoulos S.A. (Regd.) 2,630 44,782
Alpha Credit Bank (Regd.) 648 48,189
Attica Enterprises S.A 5,533 39,704
Delta Informatics S.A 1,176 21,782
Delta Informatics S.A. (Regd.) 2,134 39,525
Intrasoft S.A 3,260 59,361
STET Hellas Telecommunications
S.A. ADR 1,524 47,244(a)
Strintzis Lines 7,790 38,440
441,780
HUNGARY -- 1.9%
Demaz RT GDR 4,191 49,035
Mezogazdasagi Gepgyarto RT 3,507 36,839(a)
North American Business
Intelligence Systems Inc. 1,857 11,347(a)
97,221
[GRAPHIC OF FLAG OF INDIA OMITTED]
INDIA -- 8.5%
Aptech Ltd. 1,000 12,756(a)
Bharat Heavy Electricals Ltd. 1,900 12,592
Cipla Ltd. 1,200 24,393
CMC Ltd. 1,200 6,001
Housing Development Finance
Corp. Ltd. 180 10,260
Leading Edge Systems Ltd. 800 8,804(a)
NIIT Ltd. 4,100 132,094
Pentafour Software & Exports Ltd.
GDR 6,000 101,426
Ranbaxy Laboratories Ltd. GDR 1,962 34,669(b)
Satyam Computer Services Ltd. 3,300 45,071
Sun Pharmaceutical Industries Ltd. 4,800 39,595
427,661
INDONESIA -- 0.4%
PT Astra International Inc. 174,500 6,116
PT Gudang Garam 2,500 1,337
- ----------
See Notes to Schedule of Investments and Financial Statements.
5
<PAGE>
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
PT Hanjaya Mandala Sampoerna 11,000 $ 2,339
PT International Nickel 20,000 5,047
PT Modern Photo Film Co. 41,000 1,628
PT Mulia Industrindo 118,500 2,215
PT Unilever Indonesia 500 654
19,336
ISRAEL -- 11.3%
Comverse Technology Inc. 1,370 55,999(a)
ECI Telecommunications Ltd. 2,119 51,916
Formula Systems Ltd. 1,700 36,075(a)
Fundtech Ltd. 2,007 21,575(a)
Geo Interactive Media Group PLC 21,532 12,446(a)
MEMCO Software Ltd. 3,133 43,862(a)
New Dimension Software Ltd. 3,901 97,037(a)
NICE Systems Ltd. ADR 1,868 27,553(a)
Orbotech Ltd. 2,216 71,327(a)
Paradigm Geophysical Ltd. 4,262 25,039(a)
Sapiens International Corp. N.V 8,468 41,282(a)
Tecnomatix Technologies Ltd. 3,191 29,916(a)
Teva Pharmaceutical Industries
Ltd. ADR 1,556 58,933
572,960
KAZAKHSTAN -- 1.2%
Efes Sinai Yatirim Holding A.S 3,822,000 37,183
Kazkommertsbank GDR 4,279 22,465(a)
59,648
[FLAG GRAPHIC OMITTED]
MEXICO -- 13.7%
Cemex S.A. de C.V 19,923 49,720
Coca-Cola Femsa S.A. de C.V. ADR 3,559 43,375
Controladora Comercial Mexicana
S.A. de C.V 59,280 31,855
Desc S.A. de C.V. ADR (Class C) 928 12,760
Desc S.A. de C.V. (Series B) 47,270 36,433
Fomento Economico Mexicano S.A
de C.V. ADR 2,766 54,283
Geo S.A. de C.V 20,632 40,463(a)
Gruma S.A. de C.V. (Series B) 38,494 79,268
Grupo Carso S.A. de C.V. ADR 6,908 37,994
Grupo Continental S.A 29,300 77,574
Grupo Financiero Banamex Accival
S.A. de C.V 65,186 57,528(a)
Grupo Financiero Bancomer
S.A. ADR (Series C) 15,228 53,298(b)
Grupo Financiero Banorte S.A
de C.V 84,274 44,624(a)
Grupo Televisa S.A. GDR 1,754 33,874
Tubos de Acero de Mexico
S.A. ADR 5,748 41,673
694,722
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
PAKISTAN -- 0.3%
Hub Power Co. 23,352 $ 6,533
Muslim Commercial Bank 25,000 9,534
16,067
PANAMA -- 1.7%
Banco Latinoamericano de
Exportaciones S.A. (Class E) 2,090 33,571
Panamerican Beverages Inc.
(Class A) 2,825 50,320
83,891
PHILIPPINES -- 1.9%
Benpres Holdings Corp. 438,200 28,045(a)
C & P Homes Inc. 336,200 1,806
Metropolitan Bank & Trust Co. 6,120 20,983
Philippine Commercial
International Bank 9,900 22,176
San Miguel Corp. S.A 10,500 13,560
Solid Group Inc. 437,600 5,101
SPI Technologies Inc. 8,800 3,419
95,090
POLAND -- 3.0%
Elektrim Spolka Akcyjna S.A 3,701 37,497
Okocimskie Zaklady Piwowarskie
S.A 5,657 39,581
Prokom Software S.A. GDR 4,269 74,921(b)
151,999
RUSSIA -- 1.4%
Oyj Hartwall Abp 2,343 25,345
PLD Telekom Inc. 12,787 21,578(a)
Premier Telesports Ltd. 1,344 17,158(a)
Sun Brewing Ltd. GDR 3,894 8,372(a)
72,453
SINGAPORE -- 1.2%
Datacraft Asia Ltd. 23,000 62,100
SOUTH AFRICA -- 2.3%
Dimension Data Holdings Ltd. 9,520 38,710
Metro Cash & Carry Ltd. 67,074 33,550
Nedcor Ltd. 2,737 44,237
116,497
SOUTH KOREA -- 2.3%
Dae Duck Electronics Co. 380 22,132
Hyundai Heavy Industries 1,133 16,945
Medison Co. Ltd. 3,630 36,019
Medison Co. Ltd. 330 928(a,f)
- ----------
See Notes to Schedule of Investments and Financial Statements.
6
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Pohang Iron & Steel Co. Ltd. 520 $ 20,446
S1 Corp. 54 6,252
Sindo Ricoh Co. 560 12,865
115,587
TAIWAN -- 5.0%
Cathay Construction Corp. 31,500 16,550
Compal Electronics Inc. 21,000 62,177
Far Eastern Textile Ltd. 96,320 58,435
Kee Tai Properties Co. Ltd. 29,700 29,743
Taiwan Fund Inc. 4,116 50,421
Taiwan Semiconductor
Manufacturing Co. 17,400 33,335
Taiwan Semiconductor
Manufacturing Co. ADR 275 3,369(a)
254,030
THAILAND -- 0.7%
Banpu Public Co. Ltd. 5,000 10,746
Hana Microelectronics Public Co.
Ltd 1,300 3,714
Industrial Finance Corp. of
Thailand 24,000 4,733
Industrial Finance Corp. of
Thailand 12,000 0(a,f)
Land & House Public Co. Ltd. 6,500 1,266
Siam Cement Public Co. Ltd. 1,500 14,412
34,871
TURKEY -- 3.1%
Aksigorta A.S 887,892 23,034
Dogan Yayin Holding 4,718,120 40,801(a)
Enka Holding Yatirim A.S 35,022 7,571
Global Menkul Degerler A.S 1,890,000 11,407
Migros Turk T.A.S 38,858 28,003
Tansas A.S 325,489 30,493
Yatas Yatak ve Yorgan Sanayi ve
Ticaret A.S 448,080 14,531
155,840
Total Common Stock
(COST $6,415,838) 4,240,019
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 6.3%
- --------------------------------------------------------------------------------
Companhia Energetica de Minas
Gerais 3,840,557 $ 83,585
Companhia Paranaense de
Energia-Copel 8,700,000 57,244
Companhia Riograndense
de Telecomunicacoes 28,800 8,673
Petroleo Brasiliero S.A 290,000 29,843
Telecomunicacoes de
Rio de Janiero S.A 766,200 21,652
Telecomunicacoes de
Sao Paulo S.A.-Telesp 560,673 81,350
Telerj Celular S.A 517,800 10,702(a)
Telesp Celular S.A 598,000 24,718(a)
TOTAL PREFERRED STOCK
(COST $444,011) 317,767
TOTAL INVESTMENTS IN SECURITIES
(COST $6,859,849) 4,557,786
- --------------------------------------------------------------------------------
Short-Term Investments -- 8.8%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $446,255) 446,255 446,255
OTHER ASSETS AND LIABILITIES,
NET 1.2% 59,295
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $5,063,336
================================================================================
- --------------------------------------------------------------------------------
Other Information (unaudited)
- --------------------------------------------------------------------------------
The Emerging Markets Fund invested in the following sectors at September 30,
1998:
PERCENTAGE (BASED ON
SECTOR TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Services 23.24%
Capital Equipment 22.40%
Consumer Goods 16.30%
Finance 12.92%
Energy 6.41%
Materials 4.88%
Multi Industry 3.87%
Cash and Other 9.98%
---------
100.00%
=========
- ----------
See Notes to Schedule of Investments and Financial Statements.
[GRAPHIC OMITTED]
ICONS REPRESENT THE TOP FIVE COUNTRY WEIGHTINGS IN THE
EMERGING MARKETS FUND AT SEPTEMBER 30, 1998.
7
<PAGE>
International Equity Fund
- --------------------------------------------------------------------------------
Q&A
Ralph Layman leads a team of portfolio managers for the International Equity
Fund. Refer to page 3 for his biographical details.
Q. How did the International Equity Fund perform compared to its benchmark for
the period since inception, November 25, 1997 through September 30, 1998?
A. The fund returned 0.66% for the period since inception, November 25, 1997
through September 30, 1998 while its benchmark, the Morgan Stanley Capital
International EAFE Index, returned 1.51% over the same period.
Q. What drove the fund's performance?
A. Overweighting in Europe, which helped the fund outperform its benchmark for
most of the year, was neutralized in August when the Asian economic crisis
suddenly spread to Russia, then to Latin America. United Kingdom (U.K.)
holdings with exposure in Asia and Russia suffered the largest losses.
Latin American equities, which toppled by an average of 40%, also
undermined performance while Asian and Japanese equities had a slight
positive effects.
Q. Which investments stand out?
A. A few stocks did well for the 10 month period since inception. Railtrack
Group (+74%), a rail and bus operator in the U.K., benefited from favorable
government policies; France's Total, a well-run major oil company (+22%);
and Pharmacia & Upjohn (+52%), a merged Swedish and U.S. pharmaceutical in
an industry whose revenues are largely unaffected by economic turmoil.
Q. What changed in the portfolio?
A. Because Latin America's investment picture is shaky, we sold a significant
portion of Telebras (Telecommunicacoes Brasileiras, the Brazilian
telecommunications company), when the government privatized it. Hong
Kong-based HSBC was sold when the government began buying stock to fend off
speculators. We added two restructuring retailers, Netherlands-based
Koninklijke Ahold and Somerfield from the U.K. Another buy was Cable and
Wireless Communications, the U.K. `s second largest telecommunications
provider, which has 25% growth and good margins.
Q. What is your outlook for the fund?
A. Until the Russian ruble collapsed, Europe's economic growth looked strong
as countries readied for a common currency. Because long-term growth still
appears favorable, we do not plan to make any major changes in our
portfolio. In Asia, Japan holds the key to economic recovery. Weakness
should continue in the region until the Japanese government enacts
significant structural changes. Because most companies in other parts of
Asia are in deep recession, investments there would be highly speculative.
However, we continue to have a small but significant investment in emerging
markets, particularly in Latin America and Israel. Even though investments
in these regions became riskier in the third quarter, some undervalued
companies should deliver over the long term.
8
<PAGE>
International Equity Fund
- --------------------------------------------------------------------------------
=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
INTERNATIONAL EQUITY FUND EAFE
11/25/97 10000 10000
11/97 10090 10119
12/97 10266.29 10207.24
1/98 10446.4 10674.01
2/98 11266.9 11358.97
3/98 12027.37 11708.71
4/98 12387.59 11801.21
5/98 12527.67 11743.97
6/98 12237.5 11832.87
7/98 12537.68 11952.86
8/98 10366.35 10472.14
9/98 10066.17 10151.06
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
- --------------------------------------------------------------------------------
International Equity Fund 0.66% 11/25/97
- --------------------------------------------------------------------------------
MSCI EAFE 1.51%
================================================================================
Legend as follows:
International Equity Fund
MSCI EAFE
INVESTMENT PROFILE
A mutual fund designed for investors who seek long-term growth of capital by
investing primarily in foreign equity securities.
======================================================================
REGIONAL ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Cash and Other 3.4%
Pacific Rim 3.9%
Japan 5.0%
Other 6.6%
Europe 81.1%
======================================================================
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1998
======================================================================
Total S.A. (Class B) 3.39%
- -----------------------------------------------------
Mannesmann AG 3.10%
- -----------------------------------------------------
Nokia Oyj (Series A) 2.90%
- -----------------------------------------------------
Cap Gemini S.A. 2.52%
- -----------------------------------------------------
AXA-UAP 2.43%
- -----------------------------------------------------
Preussag AG 2.36%
- -----------------------------------------------------
Siebe PLC 2.35%
- -----------------------------------------------------
ING Groep N.V. 2.32%
- -----------------------------------------------------
Pharmacia & Upjohn Inc. 2.10%
- -----------------------------------------------------
Airtours PLC 2.00%
=====================================================
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
9
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 96.3%
- --------------------------------------------------------------------------------
AUSTRALIA -- 1.8%
Brambles Industries Ltd. 85,722 $ 1,850,345
Coca Cola Amatil Ltd. 71,435 188,321
2,038,666
AUSTRIA -- 0.4%
VA Technologie AG 5,022 455,632
BRAZIL -- 1.0%
Telecomunicacoes Brasileiras S.A.
ADR 11,088 781,011(a)
Uniao de Banco Brasiliero
S.A. GDR 27,953 377,366
1,158,377
CANADA -- 0.3%
Newcourt Credit Group Inc. 14,733 381,496
CROATIA -- 0.2%
Pliva D D GDR (Regd.) 14,481 190,425
FINLAND -- 5.2%
Merita Ltd. (Series A) 208,428 1,061,714
Nokia Oyj (Series A) 41,725 3,315,351
Pohjola Group Insurance Ltd. Co.
(Series B) 6,902 272,849
Sampo Insurance Co.
Ltd. (Series A) 43,336 1,236,710
5,886,624
[GRAPHIC OF FLAG OF FRANCE OMITTED]
FRANCE -- 19.9%
Alstom 45,123 966,956(a)
AXA-UAP 30,298 2,775,612
Cap Gemini S.A. 18,781 2,877,620
Carrefour S.A. 3,127 1,982,924
Coflexip S.A. ADR 33,945 1,345,071
Elf Aquitaine S.A. ADR 8,578 1,058,502
Lyonnaise Des Eaux S.A. 11,404 1,942,822
Michelin CGDE (Regd.) (Class B) 11,296 443,787
Renault S.A. 31,153 1,246,165
Rhone-Poulenc S.A. (Class A) 31,528 1,323,097
Schneider S.A. 33,725 1,758,581
Societe Generale 10,686 1,183,135
Total S.A. (Class B) 30,750 3,876,835
22,781,107
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
[GRAPHIC OF FLAG OF GERMANY OMITTED]
GERMANY -- 12.4%
Bayerische Vereinsbank AG 26,856 $ 1,978,076
Daimler-Benz AG 19,980 1,672,627
Fresenius Medical Care AG 23,328 1,243,266
Mannesmann AG 38,757 3,550,897
Muenchener Rueckversicherungs-
Gesellschaft AG (Regd.) 4,706 2,076,685
Preussag AG 7,821 2,704,649
Volkswagen AG 13,633 983,728
14,209,928
GREECE -- 0.6%
Alpha Credit Bank (Regd.) 7,288 541,972
National Bank Greece S.A. GDR 6,242 165,413(b)
707,385
HONG KONG -- 0.6%
Giordano International Ltd. 694,000 94,041
Johnson Electric Holdings 300,400 569,879
663,920
ISRAEL -- 2.8%
Comverse Technology Inc. 18,933 773,886(a)
ECI Telecommunications Ltd. 59,749 1,463,850
Teva Pharmaceutical Industries
Ltd. ADR 24,483 927,294
3,165,030
[GRAPHIC OF FLAG OF ITALY OMITTED]
ITALY -- 7.3%
Assicurazioni Generali 35,711 1,161,773
Banca Intesa S.p.A. 220,039 926,466
Credito Italiano 294,631 1,228,038
Industrie Natuzzi S.p.A. ADR 10,679 210,910
Montedison S.p.A. 1,336,134 1,277,327
Saipem 264,019 1,119,640
Telecom Italia Mobile S.p.A. 261,649 1,524,892
Telecom Italia S.p.A 123,264 849,440
8,298,486
JAPAN -- 5.0%
Canon Inc. 94,000 1,906,079
Honda Motor Co. 14,000 425,314
Minebea Co. Ltd. 39,000 317,185
NTT Data Corp. 250 911,387
Shin-Etsu Chemical Co. 28,000 443,761
Sony Corp. 23,200 1,611,712
Sumitomo Realty & Development 81,000 148,238
5,763,676
- ----------
See Notes to Schedule of Investments and Financial Statements.
10
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
LUXEMBOURG -- 0.0%
Societe Europeene de Communicion 7,583 44,506(a,f)
MEXICO -- 1.4%
Desc S.A. de C.V. (Series B) 164,020 $ 126,417
Desc S.A. de C.V. ADR (Class C) 21,293 292,779
Gruma S.A. de C.V. (Series B) 90,754 186,883
Grupo Carso S.A. de C.V. ADR 100,380 552,090
Grupo Financiero Bancomer S.A.
ADR (Series C) 123,282 431,487(b)
1,589,656
[GRAPHIC OF FLAG OF NETHERLANDS OMITTED]
NETHERLANDS -- 5.9%
IHC Caland N.V. 33,378 1,559,595
ING Groep N.V. 58,856 2,653,196
Ispat International N.V. (Regd.)
(Class A) 21,151 158,632(a)
Koninklijke Ahold N.V. 34,754 1,038,920
Philips Electronics N.V. 25,810 1,390,987
6,801,330
NORWAY -- 0.1%
Den Norske Bank ASA 49,303 154,697
PANAMA -- 0.6%
Panamerican Beverages Inc.
(Class A) 35,261 628,087
PHILIPPINES -- 0.2%
Metro Bank & Trust Co. 9,220 31,611
San Miguel Corp. S.A. 172,100 222,255
253,866
PORTUGAL -- 1.7%
Banco Comercial Portugues (Regd.) 48,322 1,306,008
Jeronimo Martins, SGPS S.A. 17,028 577,262
1,883,270
SOUTH AFRICA -- 0.3%
Barlow Ltd. 63,709 238,458
Iscor Ltd. 258,053 57,953
296,411
SOUTH KOREA -- 0.5%
Hyundai Heavy Industries 26,370 394,388
Pohang Iron & Steel Co. Ltd. 5,606 220,427
614,815
SPAIN -- 2.7%
Argentaria S.A. 101,540 2,020,999
Repsol S.A. 26,310 1,112,199
3,133,198
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
SWEDEN -- 5.4%
Autoliv Inc. SDR 64,135 $ 1,972,126
Ericson LM Telephone (Series B) 25,565 482,758
Investor AB (Series B) 4,526 175,554
Invik & Co. AB 3,790 273,218
Kinnevik AB (Series B) 7,583 199,311
NetCom Systems AB (Series B) 17,301 580,563
Pharmacia & Upjohn Inc. 47,843 2,401,121
6,084,651
SWITZERLAND -- 3.5%
ABB AG 1,073 1,092,122
Novartis AG (Regd.) 955 1,535,167
Zurich Allied AG (Regd.) 2,863 1,424,863(a)
4,052,152
TAIWAN -- 0.8%
Taiwan Semiconductor
Manufacturing Co. 493,450 945,361
[GRAPHIC OF FLAG OF UNITED KINGDOM OMITTED]
UNITED KINGDOM -- 15.7%
Airtours PLC 378,482 2,284,272
Bank of Scotland PLC 97,029 926,244
Cable & Wireless Communication PLC 156,360 1,063,310(a)
Coca-Cola Beverages PLC 173,825 412,000(a)
Commercial Union PLC 59,704 925,197
FKI PLC 308,694 593,036
Granada Group PLC 134,240 1,688,838
Johnson Matthey PLC 40,298 208,471
LucasVarity PLC 515,943 1,587,649
Railtrack Group PLC 28,465 820,751
Reed International PLC 104,335 879,804
Royal & Sun Alliance Insurance
Group PLC 208,168 1,804,922
Saatchi & Saatchi PLC 107,503 190,076
SEMA Group PLC 80,867 801,520
Siebe PLC 833,751 2,693,173
Somerfield PLC 93,628 664,563
Vodafone Group PLC 37,395 434,219
17,978,045
Total Common Stock
(COST $124,664,383) 110,160,797
- ----------
See Notes to Schedule of Investments and Financial Statements.
11
<PAGE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 0.3%
- --------------------------------------------------------------------------------
Fresenius Medical Care AG 4,992 $ 188,327
Telecomunicacoes de
Rio de Janiero S.A. 3,367,593 95,166
Telerj Celular S.A. 6,785,523 140,238(a)
TOTAL PREFERRED STOCK
(COST $837,019) 423,731
- --------------------------------------------------------------------------------
Warrants -- 0.0%
- --------------------------------------------------------------------------------
GERMANY -- 0.0%
Muenchener Rueckvericherungs-
Gesellschaft AG, 06/03/02
(COST $0) 181 7,153(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $125,501,402) 110,591,681
- --------------------------------------------------------------------------------
Short-Term Investments -- 1.7%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $1,917,657) 1,917,657 1,917,657
OTHER ASSETS AND LIABILITIES,
NET 1.7% 1,904,459
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $114,413,797
================================================================================
- --------------------------------------------------------------------------------
Other Information (unaudited)
- --------------------------------------------------------------------------------
The International Equity Fund invested in the following sectors at September 30,
1998:
PERCENTAGE (BASED ON
SECTOR TOTAL NET ASSETS)
- --------------------------------------------------------------------------------
Finance 24.05%
Capital Equipment 22.37%
Consumer Goods 18.65%
Services 17.14%
Energy 7.88%
Multi Industry 3.37%
Materials 3.20%
Cash and Other 3.34%
---------
100.00%
=========
- ----------
See Notes to Schedule of Investments and Financial Statements.
[GRAPHIC OMITTED]
ICONS REPRESENT THE TOP FIVE COUNTRY WEIGHTINGS IN THE
INTERNATIONAL EQUITY FUND AT SEPTEMBER 30, 1998.
12
<PAGE>
U.S. Equity Fund
- --------------------------------------------------------------------------------
Q&A
Gene Bolton is responsible for the overall management of the U.S. equity
investment process at GE Investments with total U.S. equity assets of over $26
billion. He leads a team of portfolio managers for the U.S. Equity Fund. Gene
joined GE in 1964. After completing GE's Financial Management Program, he held a
number of financial and strategic planning positions in the U.S. and Europe.
Joining GE Investments in 1984 as Chief Financial Officer, he moved to equities
as a Portfolio Manager in 1986 and was named to his present position in 1991.
Gene is a Trustee of the GE Pension Trust and GE's employee savings program, as
well as Chairman of the Asset Allocation Committee of GE Investments. He also
serves as a Trustee of the Investment Management Workshop, sponsored by the
Association for Investment Management and Research. Gene is a graduate of
Mundelein College with a B.A. in Business Management.
Q. How did the U.S. Equity Fund perform compared to its benchmark for the
period since inception, November 25, 1997 through September 30, 1998?
A. The U.S. Equity Fund posted a return of 6.28% for the period since
inception, November 25, 1997 through September 30, 1998 while the Standard
& Poor's 500 Composite Index returned 8.45% for the same period.
Q. What factors contributed to the fund's performance?
A. The fund is overweighted in healthcare stocks which performed well over
this period as their earnings were less affected by market cycles. On the
downside, the fund was underweighted in technology stocks and utilities,
two sectors that performed well during the third quarter. Fast-growing
technology companies may be well run but many have high valuation levels
that our valuation disciplines don't allow us to own. Utilities are a
favorite with investors when the stock market slows, but we don't believe
they will show much long-term earnings growth.
Q. Which investments stand out?
A. Many noteworthy performers were in the healthcare sector: Cardinal Health
(+37%) Allergan (+76%) Watson Pharmaceuticals (+59%) Abbott Laboratories
(+33%) and Johnson & Johnson (+19%). Investors see them as companies which
can grow earnings even in a slowing global economy.
Q. Please comment on any changes you made in the portfolio since inception.
A. The fund increased its holdings in healthcare, beverages and utilities, all
of which can show earnings growth in an economic slowdown. We reduced our
position in energy stocks, which were battered by the warm winter and
slower Asian demand. Financial stocks, hit hard by the worldwide economic
crisis, and overvalued technology stocks, also were reduced.
Q. What is your outlook for the fund?
A. We expect market volatility to continue over the next six months. Corporate
earnings, especially those of multi-nationals, are under pressure because
of the ongoing instability in Asia, Russia and Latin America. Balancing
that is the expectation of a weaker dollar, which should help the earnings
of companies that do business abroad. We watch stock valuations closely.
Overvalued stocks get hurt in volatile markets such as the one we are in
now. However, stocks with strong fundamentals and attractive valuations
should be positioned to perform well when this correction is over.
13
<PAGE>
U.S. Equity Fund
- --------------------------------------------------------------------------------
=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
U.S. EQUITY FUND S&P 500 (VESTEK)
11/25/97 10000 10000
11/97 10030 10052.9
12/97 10298.16 10222.19
1/98 10318.18 10337.91
2/98 11028.74 11080.89
3/98 11529.14 11649.34
4/98 11729.3 11770.03
5/98 11499.12 11565.58
6/98 11819.37 12035.49
7/98 11679.26 11907.8
8/98 10007.93 10188.31
9/98 10628.43 10844.74
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
- ----------------------------------------------------------------------
U.S. Equity Fund 6.28% 11/25/97
- ----------------------------------------------------------------------
S&P 500 Index 8.45%
======================================================================
Legend as follows:
U.S. Equity Fund
S&P 500
INVESTMENT PROFILE
A mutual fund designed for investors who seek long-term growth of capital by
investing primarily in equity securities of U.S. companies.
======================================================================
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Transportation 2.2%
Cash and Other 3.3%
Retail Trade 4.5%
Insurance 5.5%
Utilities 9.0%
Capital Goods 10.3%
Financials 10.8%
Energy & Basic Materials 11.5%
Technology 11.8%
Healthcare 15.2%
Consumer 15.9%
======================================================================
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1998
======================================================================
Merck & Co. Inc. 2.40%
- ----------------------------------------------------------------------
Federal National Mortgage Assoc. 2.31%
- ----------------------------------------------------------------------
Bristol-Myers Squibb Co. 2.12%
- ----------------------------------------------------------------------
International Business Machines 2.04%
- ----------------------------------------------------------------------
AlliedSignal Inc. 1.88%
- ----------------------------------------------------------------------
Johnson & Johnson 1.79%
- ----------------------------------------------------------------------
Exxon Corp. 1.79%
- ----------------------------------------------------------------------
Cardinal Health Inc. 1.58%
- ----------------------------------------------------------------------
Abbott Laboratories 1.58%
- ----------------------------------------------------------------------
Airtouch Communications Inc. 1.52%
======================================================================
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
14
<PAGE>
Schedule of Investments September 30, 1998
- -----------------------------------------------------
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 96.7%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 2.8%
Air Products & Chemicals Inc. 8,419 $ 250,465
Airgas Inc. 8,113 98,370(a)
Avery Dennison Corp. 2,262 98,821
Barrick Gold Corp. 7,056 141,120
Champion International Corp. 1,764 55,235
Delta & Pine Land Co. 3,290 144,760
Du Pont de Nemours (E.I.) & Co. 16,757 940,487(e)
FMC Corp. 440 22,688(a)
Fort James Corp. 1,028 33,731
Great Lakes Chemical Corp. 2,982 115,925
IMC Global Inc. 1,336 25,885
Mead Corp. 6,703 197,320
Morton International Inc. 15,229 333,134
Newmont Mining Corp. 18,761 454,954
Rayonier Inc. 5,023 195,897
Union Camp Corp. 1,102 43,391
Weyerhaeuser Co. 2,558 107,916
3,260,099
[GRAPHIC OF FACTORY OMITTED]
CAPITAL GOODS -- 10.3%
AlliedSignal Inc. 60,765 2,149,562(e)
Cooper Industries Inc. 6,168 251,346
Deere & Co. 9,458 286,104
Dover Corp. 55,235 1,705,381
Emerson Electric Co. 20,238 1,259,815
Hubbell Inc. (Class B) 26,935 956,192
Lockheed Martin Corp. 4,452 448,817
Mannesmann AG 771 70,639
Martin Marietta Materials Inc. 14,601 630,581
Masco Corp. 9,642 237,434
Minnesota Mining &
Manufacturing Co. 360 26,528
Molex Inc. (Class A) 12,877 349,289
National Service Industries Inc. 2,796 89,123
Parker Hannifin Corp. 3,289 97,642
Safety-Kleen Corp. 10,936 36,226
Sherwin-Williams Co. 11,802 255,218
Tenneco Inc. 2,159 70,977
Textron Inc. 18,414 1,116,349
Timken Co. 2,467 37,313
Tyco International Ltd. 3,236 178,789
United Technologies Corp. 6,624 506,322
Waste Management Inc. 20,897 1,004,362
11,764,009
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
CONSUMER - CYCLICAL -- 8.3%
ACNielsen Corp. 8,255 $ 183,674(a)
Carnival Corp. (Class A) 7,710 245,274
Catalina Marketing Corp. 6,065 285,055(a)
Cendant Corp. 2,998 34,852(a)
Circus Circus Enterprises Inc. 4,762 44,941(a)
Comcast Corp. (Class A) 18,479 867,358
Comcast UK Cable Partners Ltd.
(Class A) 7,585 117,567(a)
Ford Motor Co. 6,343 297,725
Gannett Inc. 17,091 915,437
General Motors Corp. 1,121 61,305
Goodyear Tire & Rubber Co. 3,084 158,440
Harman International Industries Inc. 3,351 122,940
Interpublic Group Cos. Inc. 16,978 915,751
ITT Industries Inc. 3,674 124,457
Knight-Ridder Inc. 8,331 370,729
McDonald's Corp. 10,487 625,943
Metromedia International Group Inc. 2,021 7,831(a)
NTL Inc. 18,829 809,647(a)
Stanley Works 6,810 202,597
Tele-Communications Inc. (Series A) 20,890 817,321(a)
Tele-Communications Inc.
Liberty Media Group (Series A) 7,089 260,078(a)
Tele-Communications TCI Ventures Group 7,199 129,132(a)
Time Warner Inc. 3,150 275,822
Walt Disney Co. 35,273 892,848
Xerox Corp. 8,729 739,783
9,506,507
CONSUMER - STABLE -- 7.6%
Anheuser Busch Cos. Inc. 16,287 879,498
Archer-Daniels Midland Co. 8,635 144,636
Avon Products Inc. 20,045 562,513
Bestfoods 7,521 364,298
Coca Cola Co. 744 42,873
Colgate-Palmolive Co. 5,757 394,355
Conagra Inc. 6,168 166,151
Diageo PLC 2,878 27,400
General Mills Inc. 4,112 287,840
Gillette Co. 2,850 109,013
Hershey Foods Corp. 1,676 114,701
International Multifoods Corp. 925 15,205
Kellogg Co. 3,084 101,579
Kimberly Clark Corp. 16,131 653,306
Nestle S.A. (Regd.) 137 273,325
Pepsico Inc. 35,869 1,055,894
- ----------
See Notes to Schedule of Investments and Financial Statements.
15
<PAGE>
U.S. EQUITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Philip Morris Cos. Inc. 27,375 $1,260,961
Procter & Gamble Co. 8,857 628,293
Ralston Purina Co. 16,448 481,104
Sara Lee Corp. 15,214 821,556
Sysco Corp. 4,939 116,375
Unilever N.V 2,621 160,536
8,661,412
[GRAPHIC OF GAS PUMP OMITTED]
ENERGY -- 8.7%
Anadarko Petroleum Co. 5,646 221,958
Atlantic Richfield Co. 2,508 177,911
Baker Hughes Inc. 16,654 348,693
British Petroleum PLC ADR 5,906 515,288
Burlington Resources Inc. 21,787 814,289
Chevron Corp. 4,688 394,085
Elf Aquitaine S.A. ADR 1,676 104,226
Exxon Corp. 29,259 2,053,616
Halliburton Co. 1,764 50,384
Mobil Corp. 14,012 1,064,036
Nabors Industries Inc. 11,814 179,425(a)
Newpark Resources Inc. 3,804 26,153(a)
R & B Falcon Corp. 7,196 86,352(a)
Royal Dutch Petroleum Co. ADR 20,159 960,073
Schlumberger Ltd. 28,065 1,412,020
Texaco Inc. 7,488 469,404
Tosco Corp. 3,440 73,960
Total S.A. ADR 3,290 206,653
Unocal Corp. 18,276 662,505
USX-Marathon Group 1,028 36,430
YPF S.A. ADR (Class D) 4,190 108,940
9,966,401
[GRAPHIC OF MONEY OMITTED]
FINANCIAL -- 10.8%
American Express Co. 14,057 1,091,175
AmSouth Bancorp 2,262 77,191
Associates First Capital Corp.
(Class A) 4,883 318,616
Bank of New York Inc. 7,377 201,945
BankAmerica Corp. 15,230 915,704
BankBoston Corp. 15,574 513,942
Chase Manhattan Corp. 11,463 495,775
Citicorp 13,019 1,209,953
Comerica Inc. 1,322 72,462
Countrywide Credit Industries 2,282 94,988
Crestar Financial Corp. 1,881 106,747
Edwards A.G. Inc. 3,417 103,578
Federal National Mortgage Assoc 41,176 2,645,558
First Union Corp. 2,969 151,976
Fleet Financial Group Inc. 1,587 116,545
GATX Corp. 1,388 45,891
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Household International Inc. 360 $ 13,500
ING Groep N.V. ADR 2,262 99,245
Morgan Stanley, Dean Witter 13,128 565,325
National City Corp. 6,734 444,023
NationsBank Corp. 2,056 109,996
Norwest Corp. 3,705 132,685
State Street Corp. 5,325 290,545(h)
T. Rowe Price & Associates 2,467 72,468
Travelers Group Inc. 41,644 1,561,650
United States Bancorp. 8,230 292,679
Wachovia Corp. 1,941 165,470
Waddell & Reed Financial Inc.
(Class A) 4,112 78,128
Wells Fargo & Co. 935 331,925
12,319,685
[GRAPHIC OF HEALTH SIGN OMITTED]
HEALTHCARE -- 15.2%
Abbott Laboratories 41,537 1,804,263
Allergan Inc. 14,751 861,090
American Home Products Corp. 20,704 1,084,372
Bristol-Myers Squibb Co. 23,350 2,425,481
Cardinal Health Inc. 17,475 1,804,294
Dentsply International Inc. 5,909 132,214
Eli Lilly & Co. 1,499 117,390
Henry Schein Inc. 2,694 93,616(a)
Johnson & Johnson 26,272 2,055,784
Lincare Holdings Inc. 6,785 262,919(a)
Merck & Co. Inc. 21,208 2,747,761
Mylan Laboratories Inc. 1,645 48,528
Omnicare Inc. 1,850 65,212
Pfizer Inc. 10,177 1,078,126
Pharmacia & Upjohn Inc. 9,561 479,843
Pharmerica Inc. 3,174 17,259(a)
Schering Plough Corp. 8,018 830,364
Shire Pharmaceuticals Group
PLC ADR 2,364 51,712(a)
Smithkline Beecham PLC ADR 1,029 56,338
Sun Healthcare Group Inc. 3,289 21,379(a)
Sybron International Corp. 10,280 196,605(a)
Tenet Healthcare Corp. 7,813 224,624(a)
Watson Pharmaceuticals Inc. 17,681 897,311(a)
17,356,485
INSURANCE -- 5.5%
Allstate Corp. 2,056 85,710
American International Group Inc. 12,297 946,869
AXA-UAP 1,028 94,176
Chubb Corp. 5,136 323,568
General Reinsurance Corp. 5,864 1,190,392
- ----------
See Notes to Schedule of Investments and Financial Statements.
16
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Hartford Financial Services Group Inc. 4,112 $ 195,063
Jefferson-Pilot Corp. 1,542 93,291
Lincoln National Corp. 5,757 473,513
Loews Corp. 10,042 847,294
Marsh & McLennan Cos. Inc. 15,177 755,056
Progressive Corp. 514 57,954
Provident Cos. Inc. 15,626 527,377
Reliastar Financial Corp. 5,552 216,528
St. Paul Cos. Inc. 5,325 173,062
SunAmerica Inc. 411 25,071
UNUM Corp. 6,409 318,447
6,323,371
RETAIL TRADE -- 4.5%
Costco Cos. Inc. 5,757 272,738(a)
CVS Corp. 7,300 319,831
Dayton Hudson Corp. 22,871 817,638
Federated Department Stores Inc. 9,252 336,542(a)
Home Depot Inc. 25,009 987,856
Lowes Cos. Inc. 12,926 411,208
Sears Roebuck & Co. 17,116 756,313
Wal-Mart Stores Inc. 23,952 1,308,378
5,210,504
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 7.3%
3Com Corp. 2,673 80,357(a)
Analog Devices Inc. 9,920 159,340(a)
Applied Materials Inc. 5,240 132,310(a)
Cisco Systems Inc. 19,763 1,221,570(a)
EG & G Inc. 3,341 75,590
EMC Corp. 12,398 709,011(a)
GTECH Holdings Corp. 2,029 53,895(a)
Hewlett Packard Co. 9,211 487,607
Intel Corp. 16,746 1,435,969
International Business Machines 18,245 2,335,360
Perkin Elmer Corp. 1,233 84,692
Pitney Bowes Inc. 18,489 971,828
Storage Technology Corp. 4,061 103,302(a)
Sun Microsystems Inc. 10,475 521,786(a)
Varian Associates Inc. 1,182 41,665
8,414,282
TECHNOLOGY - SOFTWARE & SERVICES -- 4.5%
Automatic Data Processing Inc. 15,667 1,171,108
Computer Associates
International Inc. 1,075 39,775
Computer Sciences Corp. 1,236 67,362
Equifax Inc. 42,764 1,526,140
First Data Corp. 62,298 1,464,003
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Microsoft Corp. 3,035 $ 334,040(a)
Reuters Holdings PLC ADR 9,260 460,685
Symantec Corp. 3,598 47,449(a)
UNOVA Inc. 1,201 19,741(a)
5,130,303
TRANSPORTATION -- 2.2%
AMR Corp. 2,615 144,969(a)
Burlington Northern Santa Fe 28,694 918,208
Canadian Pacific Ltd. 13,469 278,640
Continental Airlines Inc. (Class B) 13,175 497,356(a)
Delta Air Lines Inc. 5,140 499,865
FDX Corp. 2,056 92,777(a)
Pittston Brinks Group 3,440 120,400
2,552,215
[GRAPHIC OF PLUG OMITTED]
UTILITIES -- 9.0%
Airtouch Communications Inc. 30,608 1,744,656(a,e)
American Electric Power Inc. 6,990 341,199
American Telephone & Telegraph Corp. 12,369 722,813
Bell Atlantic Corp. 17,373 841,505
Bellsouth Corp. 2,878 216,570
Cincinnati Bell Inc. 2,878 74,828
CMS Energy Corp. 6,929 301,845
Duke Energy Corp. 12,850 850,509
Edison International 5,140 132,034
El Paso Energy Corp. 5,788 187,748
Florida Progress Corp. 5,551 240,428
FPL Group Inc. 4,560 317,775
GTE Corp. 8,944 491,920
Illinova Corp. 2,981 85,517
MCI WorldCom Inc. 12,618 616,700(a)
MCN Energy Group Inc. 4,934 84,186
New Century Energies Inc. 3,705 180,387
Niagara Mohawk Power Corp. 5,140 79,028(a)
Northern States Power Co. 6,168 173,090
Peco Energy Co. 1,748 63,911
SBC Communications Inc. 36,083 1,603,438
Sprint Corp. 4,359 313,848
Texas Utilities Co. 5,345 248,877
U.S. WEST Inc. 6,785 355,788
10,268,600
TOTAL COMMON STOCK
(COST $109,530,981) 110,733,873
- ----------
See Notes to Schedule of Investments and Financial Statements.
17
<PAGE>
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 0.6%
- --------------------------------------------------------------------------------
Microsoft Corp. (Series A), $2.20
(COST $693,593) 7,761 $ 747,966
TOTAL INVESTMENTS IN SECURITIES
(COST $110,224,574) 111,481,839
- --------------------------------------------------------------------------------
Short-Term Investments -- 2.9%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $3,291,243) 3,291,243 3,291,243
OTHER ASSETS AND LIABILITIES,
NET (0.2)% (220,569)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $114,552,513
================================================================================
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
The U.S. Equity Fund had the following long Futures Contracts open at September
30,1998:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Gain
- --------------------------------------------------------------------------------
S&P 500 Dec. 1998 3 $ 769,500 $33,469
- ----------
See Notes to Schedule of Investments and Financial Statements.
[GRAPHIC OMITTED]
ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE
U.S. EQUITY FUND AT SEPTEMBER 30, 1998.
18
<PAGE>
Small-Cap Value Equity Fund
- --------------------------------------------------------------------------------
Q&A
The Small-Cap Value Equity Fund is managed by an investment advisory committee
at Palisade Capital Management, L.L.C. ("Palisade") which is composed of the
following members: Jack Feiler, Martin L. Berman, Steven E. Berman, Richard
Meisenberg and Mark Degenhart. Jack Feiler, Chief Investment Officer of
Palisade, has day-to-day responsibility for managing the fund and with the
Investment Committee in developing and executing the Fund's investment program.
Jack has more than 30 years of investment experience. Prior to joining Palisade,
Jack worked for Burnham & Co. as an Account Executive and was promoted to Senior
Executive Vice President of Broad Street Investment Management in 1981. In 1990
he joined Smith Barney as Senior Vice President of Investments. Jack was a
founding Partner of Palisade, which was formed in 1995, and served as Chief
Financial Officer, since its inception. Jack received his Bachelor's degree in
1964 from City College of New York and his Juris Doctor degree from Brooklyn Law
School in 1967.
Q. How did the Small-Cap Equity Value Fund perform compared to its benchmark
for the period since inception, August 3, 1998 through September 30, 1998?
A. The Small-Cap Value Equity Fund posted a return of negative 10.90% for the
period since its inception. This compares with a negative 13.11% return for
the Russell 2000 Index for the same period.
Q. Why did the fund outperform its benchmark?
A. Compared to many other small-cap managers, we are conservative in nature.
We tend to avoid "high flyers" such as those commonly found in the
technology sector. Instead we attempt to look for companies with solid
management teams who are personally known to us. The companies we look for
typically have predictable recurring earnings streams, which make them less
volatile. Companies such as these tend to outperform their peers during
general downturns and are less affected by "flight-to-quality" concerns
during periods of market turbulence.
Q. What is your strategy for selecting stocks for the fund?
A. Intensive research is the key element in our process of selecting small-cap
equities. We devote a significant amount of time and budget to research of
which approximately 80% is internally generated. Once a company is
selected, our on-site visits provide an opportunity to meet with management
and tour operational facilities to gain additional insight of the business.
Our stock selection process is to identify management's plans and goals and
compare these to actual performance. Other factors we consider include how
extensively a company is covered by other analysts, who the niche market
players are, the potential for takeover, the amount of stock owned by
insiders, the competitive environment and barriers to entry.
Q. What recent domestic/world events had a major impact on the financial
markets and how did this impact your fund?
A. The deterioration of economic conditions in Asia, Russia and Latin America,
combined with political uncertainties in the U.S., have buffeted the stock
market. For the first time in several years, a number of the major indices
are in negative territory year-to-date. Small-cap stocks have been hit
especially hard as investors have poured cash into large-cap securities in
a "flight-to-quality". The desire for liquidity, combined with increasing
foreign investment in blue-chip U.S. equities, has contributed to the
negative performance of the small-cap sector.
Q. What is the outlook for the fund and how have you positioned the fund going
forward?
A. Despite recent uncertainties, there is still reason for optimism regarding
the future outlook for small-cap stocks. Interest rates remain low,
consumer confidence is relatively high, and investors continue to buy on
market dips. Small-cap stocks are at a 20 year low with respect to
large-cap stocks and valuations appear cheap. In light of this, we feel
small-caps have significant upside potential, and should be well positioned
to participate when the market rallies. We will continue to invest in
companies that have demonstrated an ability to perform in uncertain
environments, when the strength of management, and our outlook for their
business warrants it.
19
<PAGE>
Small-Cap Value Equity Fund
- --------------------------------------------------------------------------------
=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
SMALL-CAP VALUE FUND RUSSELL 2000
8/3/98 10000 10000
8/98 8380 8058
9/98 8910 8688.62
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund -10.90% 8/3/98
- --------------------------------------------------------------------------------
Russell 2000 Index -13.11%
================================================================================
Legend as follows:
Small Cap Value Equity Fund
Russell 2000
INVESTMENT PROFILE
A mutual fund designed for investors who seek long-term growth of capital by
investing primarily in equity securities of companies with small-sized market
capitalizations that the fund's Management considers to be undervalued by the
market.
======================================================================
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Producer Durables 4.8%
Cash and Other 5.2%
Utilities 5.3%
Auto and Transportation 5.9%
Materials and Processing 6.1%
Healthcare 7.4%
REIT 7.8%
Financial Services 11.2%
Technology 11.5%
Consumer 34.8%
======================================================================
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1998
======================================================================
Eastern Enterprises 3.40%
- ---------------------------------------------------------------------------
ABM Industries Inc. 3.17%
- ---------------------------------------------------------------------------
National Computer Systems Inc. 2.87%
- ---------------------------------------------------------------------------
Assisted Living Concepts Inc. 2.66%
- ---------------------------------------------------------------------------
Sterling Software Inc. 2.65%
- ---------------------------------------------------------------------------
Fresh Del Monte Produce Inc. 2.57%
- ---------------------------------------------------------------------------
Claire's Stores Inc. 2.48%
- ---------------------------------------------------------------------------
Littelfuse Inc. 2.44%
- ---------------------------------------------------------------------------
Regis Corp. 2.43%
- ---------------------------------------------------------------------------
U. S. Foodservice Inc. 2.39%
===========================================================================
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
20
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
SMALL-CAP VALUE EQUITY FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 94.8%
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION -- 5.9%
AAR Corp. 5,700 $111,862
Air Express International Corp. 4,900 78,400
AirNet Systems Inc. 6,700 110,969(a)
Eagle USA Airfreight Inc. 10,000 140,000(a)
Keystone Automotive Industries Inc. 4,900 96,775(a)
538,006
[GRAPHIC OF COMPUTER OMITTED]
CONSUMER - CYCLICAL -- 28.1%
Aaron Rents Inc. 9,900 148,500
ABM Industries Inc. 9,800 286,650
Claire's Stores Inc. 12,500 225,000
Cole National Corp. (Class A) 6,600 137,362(a)
Furniture Brands International Inc. 5,100 99,450(a)
Haverty Furniture Companies Inc. 7,200 136,800
Helen of Troy Ltd. 5,700 110,437(a)
Iron Mountain Inc. 1,200 36,000(a)
Maytag Corp. 2,300 109,825
New Horizons Worldwide Inc. 5,300 88,113(a)
Pierce Leahy Corp. 4,200 88,725(a)
Pillowtex Corp. 3,000 88,125
Quest Education Corp. 5,000 32,500(a)
Regis Corp. 7,000 220,500
Russell Corp. 2,900 76,125
ShopKo Stores Inc. 5,300 172,250
Stage Stores Inc. 6,300 76,781(a)
Unifirst Corp. 3,600 96,975
Value City Department Stores Inc. 2,600 22,913(a)
Volt Information Sciences Inc. 9,000 179,437(a)
Wendy's International Inc. 4,900 108,719
2,541,187
CONSUMER - STABLE -- 6.7%
Alberto-Culver Co. (Class A) 4,100 87,637
Fresh Del Monte Produce Inc. 13,700 232,900(a)
Triarc Cos. Inc. (Class A) 4,700 73,144(a)
U. S. Foodservice Inc. 5,200 216,450(a)
610,131
[GRAPHIC OF MONEY OMITTED]
FINANCIAL SERVICES -- 11.2%
Affiliated Computer Services Inc. 2,800 85,400(a)
AmeriCredit Corp. 5,800 141,375(a)
Commerce Bancorp Inc. 2,400 94,950
CORT Business Services Corp. 3,300 86,831(a)
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
DVI Inc. 4,700 $ 69,031(a)
Enhance Financial Services Group Inc. 3,400 100,512
Franchise Mortgage Acceptance Co. 6,500 43,063(a)
Headlands Mortgage Co. 5,300 84,800(a)
Jefferies Group Inc. 1,200 31,800
Legg Mason Inc. 1,800 47,363
Penn Treaty American Corp. 3,500 84,438(a)
Sovereign Bancorp Inc. 6,400 85,200
Travelers Group Inc. 1,600 60,000
1,014,763
[GRAPHIC OF HEALTH SIGN OMITTED]
HEALTHCARE -- 7.4%
Alternative Living Services Inc. 4,100 109,675(a)
Assisted Living Concepts Inc. 17,000 241,187(a)
Beverly Enterprises Inc. 10,800 86,400(a)
Chattem Inc. 6,200 169,338(a)
Sun Healthcare Group Inc. 10,100 65,650(a)
672,250
MATERIALS & PROCESSING-- 6.1%
Cambrex Corp. 2,700 63,619
Dan River Inc. (Class A) 5,300 58,300(a)
Harland (John H.) Co. 1,700 23,056
Integrated Electrical Services Inc. 1,500 22,313(a)
New England Business Service Inc. 6,800 210,375
Service Experts Inc. 3,100 86,219(a)
Watsco Inc. 5,700 85,500
549,382
PRODUCER DURABLES -- 4.8%
Baldor Electric Co. 6,900 150,937
Hussmann International Inc. 5,900 83,706
International Comfort Products Products Corp. 9,500 77,781(a)
L- 3 Communications Holdings Inc. 900 35,719(a)
Lindsay Manufacturing Co. 4,400 65,450
Lumen Technologies Inc. 5,100 25,500(a)
439,093
[GRAPHIC OF HOUSE OMITTED]
REAL ESTATE INVESTMENT TRUST -- 7.8%
Entertainment Properties Trust 5,000 92,500
Home Properties of New York Inc. 8,000 210,000
LTC Properties Inc. 5,100 88,931
Mid-Atlantic Realty Trust 8,000 108,000
National Health Insurance Co. 3,800 117,800
Summit Properties Inc. 4,700 89,300
706,531
- ----------
See Notes to Schedule of Investments and Financial Statements.
21
<PAGE>
Small-Cap Value Equity Fund
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
[GRAPHIC OF DISC OMITTED]
TECHNOLOGY - SOFTWARE & SERVICES -- 11.5%
Advanced Communications Systems Inc. 4,600 $ 43,413(a)
Kronos Inc. 2,000 74,000(a)
Littelfuse Inc. 11,100 220,612
National Computer Systems Inc. 8,800 259,600
National Data Corp. 1,300 40,138
Nichols Research Corp. 8,300 159,775(a)
Sterling Software Inc. 8,700 239,794(a)
1,037,332
UTILITIES -- 5.3%
Colonial Gas Co. 1,700 49,194
Eastern Enterprises 7,300 307,512
Philadelphia Suburban Corp. 4,500 120,657
477,363
TOTAL INVESTMENTS IN SECURITIES
(COST $9,345,907) 8,586,038
- --------------------------------------------------------------------------------
Short-Term Investments -- 5.2%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $472,977) 472,977 472,977
OTHER ASSETS AND LIABILITIES,
NET 0.0% (2,549)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $ 9,056,466
================================================================================
- ----------
See Notes to Schedule of Investments and Financial Statements.
[GRAPHIC OMITTED]
ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE
SMALL-CAP VALUE EQUITY FUND AT SEPTEMBER 30, 1998.
22
<PAGE>
Mid-Cap Growth Fund
- --------------------------------------------------------------------------------
Q&A
Elaine G. Harris is the Portfolio Manager of the Mid-Cap Growth Fund. Elaine is
currently a Senior Vice President of GE Investments and manages equity assets
exceeding $1 billion. She has more than 14 years of investment experience and
has held positions with GE Investments since 1993. From 1991 to 1993, Elaine
served as Senior Vice President and Portfolio Manager at SunAmerica Asset
Management and, before that, as Portfolio Manager at Alliance Capital Management
Company and as an analyst and a Portfolio Manager at Fidelity Investments.
Elaine is a member of the New York Society of Security Analysts. She holds an
MBA in Finance from the Wharton School and a BA in Math and Computer Science
from Tufts University.
Q. How did the Mid-Cap Growth Fund perform compared to its benchmark for the
period since inception, November 25, 1997 through September 30, 1998?
A. The Mid-Cap Growth Fund dropped 11.25% for the period since inception,
November 25, 1997 through September 30, 1998 while its benchmark, the
Standard & Poor's Composite Mid-Cap 400 Index was down 2.56% over the same
period.
Q. What factors contributed to the fund's performance?
A. The fund did not perform as well as its benchmark. In this market downturn,
consumer goods and healthcare stocks held up best. We were underinvested in
both areas because these stocks looked expensive, selling at a
price/earnings ratio greater than their growth rate. We were overweighted
in the capital goods sector. Many companies in cyclical industries declined
as much as 30% to 50%, in line with their industry group, even though
corporate performance was on track.
Q. Which stocks in the portfolio did well since inception?
A. In technology, Compuware, a software company with strong year 2000 and
client/server business, was up 69%; Berg Electronics, a semiconductor
company with a new corporate parent, rose 50%. Gilat Satellite Networks, a
leader in satellite communications, advanced nearly 38%. In healthcare,
which tends to do well in a slowing economy, top performers included drug
distributors McKesson (+65%) and Cardinal Health (+37%), and a drug maker,
Mylan Laboratories (+34%).
Q. What changes have you made in the portfolio?
A. We eliminated the fund's exposure in the agricultural area out of concern
that the marketplace may not recover quickly. We plan to add to our
position in healthcare, especially if stock prices become cheaper. Many
consumer goods companies are attractive because stock prices have dropped
as much as 50%. Given the current economic environment, we do not plan to
increase holdings in industrial or capital goods companies.
Q. What is your outlook for the fund?
A. Because of the uncertain global economic climate, we plan to invest in
companies whose business is focused in the U.S. Attractive industries are
healthcare and consolidating industries where momentum is independent of
economic considerations. Providers of outsourced services also are
promising investments as companies continue to look for ways to remove cost
from operations.
23
<PAGE>
Mid-Cap Growth Fund
- --------------------------------------------------------------------------------
=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
MID-CAP GROWTH FUND S&P 400 MID CAP INDEX (R&T)
11/25/97 10000 10000
11/97 10020 10049
12/97 10136.02 10446.94
1/98 9975.93 10243.23
2/98 10876.46 11087.27
3/98 11276.7 11591.74
4/98 11306.72 11800.39
5/98 10776.4 11270.55
6/98 10856.45 11353.95
7/98 10396.18 10915.01
8/98 8465.03 8901.19
9/98 8875.28 9744.25
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
- --------------------------------------------------------------------------------
Mid-Cap Growth Fund -11.25% 11/25/97
- --------------------------------------------------------------------------------
S&P 400 Mid-Cap Index -2.56%
================================================================================
Legend as follows:
Mid-Cap Growth Fund
S&P 400 Mid Cap Index
INVESTMENT PROFILE
A mutual fund designed for investors who seek long-term growth of capital by
investing primarily in equity securities of companies with medium-sized market
capitalization that have the potential for above-average growth.
======================================================================
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Transportation 2.3%
Utilities 4.0%
Insurance 5.0%
Retail Trade 6.6%
Consumer 6.7%
Energy & Basic Materials 9.7%
Cash and Other 10.3%
Healthcare 12.7%
Financial Services 12.9%
Technology 13.6%
Capital Goods 16.2%
======================================================================
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1998
======================================================================
McKesson Corp. 2.15%
- ---------------------------------------------------------------------------
Nokia Corp. ADR 2.05%
- ---------------------------------------------------------------------------
Airtouch Communications Inc. 1.84%
- ---------------------------------------------------------------------------
Cardinal Health Inc. 1.75%
- ---------------------------------------------------------------------------
Berg Electronics Corp. 1.71%
- ---------------------------------------------------------------------------
HBO & Co. 1.68%
- ---------------------------------------------------------------------------
HealthCare Financial Partners Inc. 1.66%
- ---------------------------------------------------------------------------
Tyco International Ltd. 1.61%
- ---------------------------------------------------------------------------
MCI WorldCom Inc. 1.60%
- ---------------------------------------------------------------------------
Firstar Corp. 1.54%
===========================================================================
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
24
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 89.7%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 3.5%
Crompton & Knowles Corp. 6,870 $ 100,044
Minerals Technologies Inc. 3,497 154,087
Morton International Inc. 4,259 93,166
Sealed Air Corp. 3,496 111,435(a)
458,732
[GRAPHIC OF FACTORY OMITTED]
CAPITAL GOODS -- 16.2%
Allied Waste Industries Inc. 2,212 51,706(a)
AlliedSignal Inc. 3,549 125,546
Berg Electronics Corp. 6,506 225,270(a)
Dover Corp. 4,753 146,749
Gerber Scientific Inc. 2,611 70,497
Hexcel Corp. 2,448 26,316(a)
Hubbell Inc. (Class B) 3,135 111,293
JLK Direct Distribution Inc.
(Class A) 2,980 32,035(a)
Kennametal Inc. 3,017 81,270
Martin Marietta Materials Inc. 4,411 190,500
Masco Corp. 6,740 165,972
Mettler-Toledo International Inc. 6,145 132,118(a)
Molex Inc. (Class A) 4,658 126,348
Oak Industries Inc. 2,627 70,929(a)
Textron Inc. 2,436 147,682
Thermo Electron Corp. 3,786 57,027(a)
Thomas & Betts Corp. 2,662 101,322
Tyco International Ltd. 3,849 212,657
U.S. Filter Corp. 4,164 66,624(a)
2,141,861
[GRAPHIC OF COMPUTER OMITTED]
CONSUMER - CYCLICAL -- 6.7%
Cendant Corp. 4,833 56,184(a)
CKS Group Inc. 3,786 66,965(a)
Interpublic Group Cos. Inc. 3,178 171,413
Jacor Communications Inc. 3,492 176,782(a)
Jones Apparel Group Inc. 6,012 137,900(a)
Laidlaw Enviormental Services Inc. 4,550 42,941
United Rentals Inc. 4,460 106,761(a)
Walter Industries Inc. 3,766 46,840(a)
Wolverine World Wide Inc. 6,789 73,830
879,616
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
ENERGY -- 6.2%
Anadarko Petroleum Co. 4,140 $ 162,754
Apache Corp. 3,549 95,158
BJ Services Co. 4,022 65,357(a)
Burlington Resources Inc. 2,886 107,864
Nabors Industries Inc. 3,786 57,500(a)
Schlumberger Ltd. 1,834 92,273
Tosco Corp. 4,436 95,374
USX-Marathon Group 4,022 142,530
818,810
[GRAPHIC OF MONEY OMITTED]
FINANCIAL -- 12.9%
American Express Co. 1,930 149,816
Comdisco Inc. 9,924 135,214
Crestar Financial Corp. 3,306 187,615
FINOVA Group Inc. 3,364 167,990
First American Corp. 3,135 120,306
Firstar Corp. 4,022 203,614
GATX Corp. 4,854 160,485
HealthCare Financial Partners Inc. 5,226 219,492(a)
Imperial Credit Industries Inc. 5,856 36,600(a)
New Century Financial Corp. 8,399 63,517(a)
Summit Bancorp. 3,571 133,913
Travelers Group Inc. 3,357 125,888
1,704,450
[GRAPHIC OF HEALTH SIGN OMITTED]
HEALTHCARE -- 12.7%
Baxter International Inc. 2,839 168,920
Cardinal Health Inc. 2,236 230,867
Covance Inc. 7,039 182,574(a)
Henry Schein Inc. 4,455 154,811(a,e)
McKesson Corp. 3,102 284,221
MedPartners Inc. 2,662 8,652(a)
Mylan Laboratories Inc. 4,880 143,960
Sybron International Corp. 7,360 140,760(a,e)
Tenet Healthcare Corp. 5,536 159,160(a,e)
Teva Pharmaceutical Industries Ltd. ADR 2,662 100,823
United Healthcare Corp. 3,043 106,505
1,681,253
INSURANCE -- 5.0%
American International Group Inc. 2,334 179,718(e)
Equitable Cos. Inc. 3,708 153,419
Hartford Financial Services Group Inc. 3,612 171,344
Provident Cos. Inc. 4,637 156,499(e)
660,980
- ----------
See Notes to Schedule of Investments and Financial Statements.
25
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
RETAIL TRADE -- 6.6%
Barnes & Noble Inc. 5,911 $ 159,597(a,e)
Consolidated Stores Corp. 3,490 68,491(a)
Federated Department Stores Inc. 3,577 130,113(a)
Pier 1 Imports Inc. 7,713 57,848
Polo Ralph Lauren Corp. (Class A) 4,553 90,775(a)
St. John Knits Inc. 3,253 52,455
The Timberland Co. 1,761 64,277(a)
Tiffany & Co. 3,312 103,914
Zale Corp. 5,383 137,939(a)
865,409
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 6.1%
ADC Telecommunications Inc. 1,905 40,243(a)
Analog Devices Inc. 4,637 74,482(a)
Gilat Satellite Networks Ltd. 4,081 183,645(a)
Nokia Corp. ADR 3,460 271,394
Northern Telecom Ltd. 3,004 96,128
Perkin Elmer Corp. 2,011 138,130
804,022
[GRAPHIC OF DISCS OMITTED]
TECHNOLOGY - SOFTWARE & SERVICES -- 7.5%
Cadence Design Systems Inc. 5,837 149,208(a)
Compuware Corp. 2,573 151,485(a)
HBO & Co. 7,682 221,818
National Data Corp. 3,845 118,714
Sterling Commerce Inc. 4,612 159,691(a,e)
SunGard Data Systems Inc. 6,139 193,379(a)
994,295
TRANSPORTATION -- 2.3%
Canadian Pacific Ltd. 5,028 104,017
CNF Transportation Inc. 3,549 103,364
U.S. Xpress Enterprises Inc. (Class A) 3,411 41,785(a)
Wisconsin Central
Transportation Corp. 4,022 56,308(a)
305,474
UTILITIES -- 4.0%
Airtouch Communications Inc. 4,275 243,675(a,e)
MCI WorldCom Inc. 4,318 211,042(a)
Qwest Communications
International Inc. 2,473 77,436(a)
532,153
TOTAL INVESTMENTS IN SECURITIES
(COST $13,238,012) 11,847,055
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Short-Term Investments -- 10.2%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $1,354,282) 1,354,282 $ 1,354,282
OTHER ASSETS AND LIABILITIES,
NET 0.1% 7,161
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $13,208,498
================================================================================
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
The Mid-Cap Growth Fund had the following long Futures Contracts open at
September 30, 1998:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Gain
- --------------------------------------------------------------------------------
S&P Mid-Cap
400 Dec. 1998 1 $ 155,600 $1,500
- ----------
See Notes to Schedule of Investments and Financial Statements.
[GRAPHIC OMITTED]
ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE
MID-CAP GROWTH FUND AT SEPTEMBER 30, 1998.
26
<PAGE>
S&P 500 Index Fund
- --------------------------------------------------------------------------------
Q&A
James B. May leads a team of portfolio managers at State Street Global Advisors,
the sub-adviser for the S&P 500 Index Fund. Since 1994, James has been an
investment officer and portfolio manager in the U.S. Structured Products Group
at State Street Bank and Trust Company with total assets under management
exceeding $441 billion. From 1991 to 1993, James served as an Investment Support
Analyst in the U.S. Passive Services Group at State Street. James holds a B.S.
in finance from Bentley College and an M.B.A. from Boston College.
Q. How did the S&P 500 Index Fund perform compared to its benchmark for the
period since inception, November 25, 1997, through September 30, 1998?
A. The S&P 500 Index Fund posted a return of 8.63% for the period since
inception, November 25, 1997 through September 30, 1998. This compares with
an 8.45% return for the Standard & Poor's 500 Composite Index over the same
period.
Q. What factors contributed to the fund's performance?
A. The fund's performance is credited to the optimization technique used to
manage the fund while it is still of relatively small asset size. As a
result of this technique, misweightings of securities relative to the
benchmark occur. Those misweights cause fund performance to deviate from
the benchmark. Portfolio optimization attempts to keep the tracking to a
minimum while creating the most efficient portfolio possible.
Q. What is your strategy for selecting stocks for the fund?
A. We continue to utilize an optimization technique to manage the S&P 500
Index Fund. With this strategy, a portfolio of approximately 350 stocks has
been created to represent the characteristics of the underlying benchmark,
the S&P 500 Index. This allows a fund of limited asset size to track the
index while keeping custody and trading costs to a minimum. This
methodology has provided consistent tracking.
Q. What domestic and world events had a major impact on the financial markets
during the period and how did this impact your fund?
A. Several global events have prompted increased volatility and concern in the
U.S. equity markets in recent months.
First, the Asian financial crisis continues to be a significant event that
should have global consequences for months to come. The onset of the
Japanese recession and the weakened state of Japanese financial
institutions deepened the severity of the crisis. Also, the inability of
the Japanese government to take strong economic measures to rescue its
ailing economy added to the market's uneasiness and fear. The uncertainty
of the magnitude of the global fallout from the crisis has pushed many
investors to well known large cap stocks. Many investors believe that
large-cap stocks, most of which are in the S&P 500 Index, should fare
better than their small-cap counterparts if the markets experience any
protracted downturn.
The second event that increased volatility and investor concern was the
economic and political instability in Russia. Although Russia is not the
same world power that the former Soviet Union once was, the possibility of
its economic and political collapse sent fear through the world markets.
Finally, the scandals and crisis in the White House had an impact on the
U.S. equity markets. The uncertainty of President Clinton's political power
and ability to effectively lead the United States through the current world
crisis has been brought into question.
Q. What is the outlook for the fund?
A. In addition to the current crisis, the economies of Brazil and other South
American nations are being carefully watched. As all these events develop
on the world stage, the U.S. economy may experience slower economic growth
if U. S. firms experience lower-than-expected earnings. While the Federal
Reserve has indicated that it will use its powers to protect the U.S.
economy, it is unclear how effective their intervention will be. With the
passively managed strategy of the fund, it should remain properly
positioned to track the return of the S&P 500 Index.
27
<PAGE>
S&P 500 Index Fund
- --------------------------------------------------------------------------------
=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
S&P 500 INDEX FUND S&P 500 (VESTEK)
11/26/97 10000 10000
11/97 10040 10052.9
12/97 10212.03 10222.19
1/98 10332.17 10337.91
2/98 11073.05 11080.89
3/98 11643.72 11649.34
4/98 11763.86 11770.03
5/98 11563.62 11565.58
6/98 12044.19 12035.49
7/98 11914.04 11907.8
8/98 10202.02 10188.31
9/98 10862.8 10844.74
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
- --------------------------------------------------------------------------------
S&P 500 Index Fund 8.63% 11/25/97
- --------------------------------------------------------------------------------
S&P 500 Index 8.45%
================================================================================
Legend as follows:
S&P 500 IndexFund
S&P 500
INVESTMENT PROFILE
A mutual 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 Price Index by investing in common
stocks comprising that Index.
======================================================================
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Transportation 1.0%
Insurance 3.3%
Cash and Other 5.3%
Retail Trade 5.3%
Capital Goods 7.9%
Energy & Basic Materials 10.8%
Utilities 10.8%
Financials 11.1%
Healthcare 12.7%
Technology 14.7%
Consumer 17.1%
======================================================================
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1998
======================================================================
Microsoft Corp. 3.11%
- --------------------------------------------------------------------------------
General Electric Co. 3.00%
- --------------------------------------------------------------------------------
Exxon Corp. 2.02%
- --------------------------------------------------------------------------------
Merck & Co. Inc. 1.80%
- --------------------------------------------------------------------------------
Coca Cola Co. 1.63%
- --------------------------------------------------------------------------------
Intel Corp. 1.61%
- --------------------------------------------------------------------------------
Pfizer Inc. 1.57%
- --------------------------------------------------------------------------------
International Business Machines 1.46%
- --------------------------------------------------------------------------------
Wal-Mart Stores Inc. 1.38%
- --------------------------------------------------------------------------------
Philip Morris Cos. Inc. 1.25%
================================================================================
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
28
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Common Stock -- 94.7%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 3.4%
Air Products & Chemicals Inc. 800 $ 23,800
Alcan Aluminum Ltd. 900 21,094
Aluminum Co. of America 700 49,700
Barrick Gold Corp. 1,500 30,000
Champion International Corp. 400 12,525
Dow Chemical Co. 600 51,262
Du Pont de Nemours (E.I.) & Co. 2,600 145,925
Eastman Chemical Co. 400 20,175
Fort James Corp. 700 22,969
Freeport McMoran Copper & Gold Inc. (Class B) 1,500 17,813
Georgia Pacific Corp. 300 13,688
Hercules Inc. 400 12,025
International Paper Co. 800 37,300
Monsanto Co. 1,400 78,925
Phelps Dodge Corp. 400 20,875
PPG Industries Inc. 600 32,737
Praxair Inc. 500 16,344
Rohm & Haas Co. 600 16,688
Union Camp Corp. 400 15,750
Union Carbide Corp. 500 21,562
Weyerhaeuser Co. 600 25,312
686,469
CAPITAL GOODS -- 7.9%
AlliedSignal Inc. 1,400 49,525
AMP Inc. 700 25,025
Boeing Co. 2,300 78,919
Browning-Ferris Industries Inc. 700 21,175
Case Corp. 300 6,525
Caterpillar Inc. 900 40,106
Cooper Industries Inc. 500 20,375
Corning Inc. 600 17,663
Deere & Co. 700 21,175
Dover Corp. 800 24,700
Eaton Corp. 300 18,806
Emerson Electric Co. 1,100 68,475
Fluor Corp. 200 8,213
General Electric Co. 7,600 604,675(e)
Grainger (W.W.) Inc. 400 16,850
Honeywell Inc. 400 25,625
Illinois Tool Works Inc. 700 38,150
Ingersoll Rand Co. 600 22,762
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Lockheed Martin Corp. 500 $ 50,406
Masco Corp. 1,200 29,550
Minnesota Mining & Manufacturing Co. 900 66,319
Northrop Grumman Corp. 200 14,600
PACCAR Inc. 200 8,238
Parker Hannifin Corp. 500 14,844
Raytheon Co. (Class A) 108 5,596
Raytheon Co. (Class B) 800 43,150
Rockwell International Corp. 600 21,675
Sherwin-Williams Co. 700 15,138
Tenneco Inc. 600 19,725
Textron Inc. 500 30,312
Thermo Electron Corp. 500 7,531(a)
Tyco International Ltd. 1,300 71,825
United Technologies Corp. 600 45,862
Waste Management Inc. 870 41,814
1,595,329
CONSUMER - CYCLICAL-- 8.1%
Black & Decker Corp. 200 8,325
Block H & R Inc. 200 8,275
CBS Corp. 1,800 43,650
Cendant Corp. 2,061 23,959(a)
Chrysler Corp. 1,700 81,387
Clear Channel Communications Inc. 600 28,500(a)
Comcast Corp. (Class A) 1,000 46,937
Dana Corp. 400 14,925
Donnelley (R.R.) & Sons Co. 600 21,113
Dow Jones & Co. Inc. 400 18,600
Dun & Bradstreet Corp. 900 24,300
Eastman Kodak Co. 800 61,850
Ford Motor Co. 2,700 126,731
Fortune Brands Inc. 700 20,738
Gannett Inc. 700 37,494
General Motors Corp. 1,700 92,969
Genuine Parts Co. 900 27,056
Goodyear Tire & Rubber Co. 500 25,688
Hasbro Inc. 300 8,850
Hilton Hotels Corp. 800 13,650
Marriott International Inc. (Class A) 800 19,100
Mattel Inc. 800 22,400
McDonald's Corp. 1,600 95,500
McGraw Hill Cos. Inc. 300 23,775
MediaOne Group Inc. 1,700 75,544
New York Times Co. 600 16,500
Newell Co. 500 23,031
Nike Inc. 800 29,450
Omnicom Group Inc. 300 13,500
Rubbermaid Inc. 400 9,575
- ----------
See Notes to Schedule of Investments and Financial Statements.
29
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Seagram Ltd. 1,000 $ 28,688
Service Corp. International 800 25,500
Tele-Communications Inc. (Series A) 1,300 50,862(a)
Time Warner Inc. 1,300 113,831
Times Mirror Co. 400 21,250
Tribune Co. 400 20,125
Tricon Global Restaurants Inc. 600 23,400(a)
TRW Inc. 500 22,188
VF Corp. 600 22,275
Viacom Inc. (Class B) 1,000 58,000(a)
Walt Disney Co. 4,500 113,906
Xerox Corp. 800 67,800
1,631,197
[GRAPHIC OF COMPUTER OMITTED]
CONSUMER - STABLE -- 9.0%
Anheuser Busch Cos. Inc. 1,100 59,400
Archer-Daniels Midland Co. 1,470 24,623
Avon Products Inc. 800 22,450
Bestfoods 600 29,063
Campbell Soup Co. 1,100 55,206
Clorox Co. 300 24,750
Coca Cola Co. 5,700 328,462(e)
Colgate-Palmolive Co. 700 47,950
Conagra Inc. 1,100 29,631
Crown Cork & Seal Inc. 400 10,700
General Mills Inc. 400 28,000
Gillette Co. 2,600 99,450
Heinz (H.J.) Co. 800 40,900
Hershey Foods Corp. 400 27,375
Kellogg Co. 1,000 32,938
Kimberly Clark Corp. 1,300 52,650
Owens-Illinois Inc. 400 10,000(a)
Pepsico Inc. 3,500 103,031
Philip Morris Cos. Inc. 5,500 253,344(e)
Pioneer Hi-Bred International Inc. 500 13,125
Procter & Gamble Co. 3,100 219,906
Quaker Oats Co. 500 29,500
Ralston Purina Co. 900 26,325
RJR Nabisco Holdings Corp. 700 17,631
Sara Lee Corp. 1,100 59,400
Sysco Corp. 1,200 28,275
Unilever N.V. 1,400 85,750
UST Inc. 800 23,650
Wrigley (W.M.) Junior Co. 300 22,781
1,806,266
ENERGY -- 7.4%
Amerada Hess Corp. 400 23,075
Amoco Corp. 2,400 129,300
Anadarko Petroleum Co. 400 15,725
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Atlantic Richfield Co. 800 $ 56,750
Baker Hughes Inc. 770 16,122
Burlington Resources Inc. 600 22,425
Chevron Corp. 1,600 134,500
Exxon Corp. 5,800 407,087(e)
Halliburton Co. 1,200 34,275
Mobil Corp. 1,900 144,281
Occidental Petroleum Corp. 1,100 23,650
Phillips Petroleum Co. 700 31,588
Royal Dutch Petroleum Co. ADR 5,100 242,887
Schlumberger Ltd. 1,100 55,344
Texaco Inc. 1,400 87,762
Union Pacific Resources Group Inc. 1,000 12,313
Unocal Corp. 900 32,625
USX-Marathon Group 800 28,350
1,498,059
[GRAPHIC OF MONEY OMITTED]
FINANCIAL -- 11.1%
Ahmanson (H.F.) & Co. 400 22,200
American Express Co. 1,100 85,387
American General Corp. 600 38,325
Associates First Capital Corp. (Class A) 707 46,132
Banc One Corp. 1,630 69,479
Bank of New York Inc. 1,800 49,275
BankAmerica Corp. 1,600 96,200
BankBoston Corp. 800 26,400
Bankers Trust New York Corp. 300 17,700
BB&T Corp. 600 17,963
Charles Schwab Corp. 700 27,563
Chase Manhattan Corp. 1,900 82,175
Citicorp 1,000 92,937
Comerica Inc. 450 24,666
Countrywide Credit Industries 600 24,975
Federal Home Loan Mortgage Corp. 1,700 84,044
Federal National Mortgage Assoc. 2,400 154,200
Fifth Third Bancorp 600 34,500
First Chicago NBD Corp. 700 47,950
First Union Corp. 2,210 113,124
Fleet Financial Group Inc. 600 44,062
Franklin Resources Inc. 600 18,000
Household International Inc. 1,206 45,225
Huntington Bancshares Inc. 660 16,583
KeyCorp 1,000 28,875
Lehman Brothers Holdings Inc. 200 5,650
Mellon Bank Corp. 600 33,037
Mercantile Bancorp. Inc. 300 14,513
Merrill Lynch & Co. Inc. 800 37,900
MGIC Investment Corp. 400 14,750
Morgan (J.P.) & Co. Inc. 400 33,850
Morgan Stanley, Dean Witter 1,300 55,981
National City Corp. 800 52,750
- ----------
See Notes to Schedule of Investments and Financial Statements.
30
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
NationsBank Corp. 2,193 $ 117,325
Northern Trust Corp. 300 20,475
Norwest Corp. 1,700 60,881
PNC Bank Corp. 700 31,500
Providian Financial Corp. 200 16,963
Regions Financial Corp. 500 18,125
Republic of New York Corp. 400 15,800
State Street Corp. 400 21,825(h)
Summit Bancorp. 400 15,000
Suntrust Banks Inc. 500 31,000
Synovus Financial Corp. 700 13,825
Transamerica Corp. 200 21,200
Travelers Group Inc. 2,708 101,550
United States Bancorp. 1,600 56,900
Wachovia Corp. 500 42,625
Washington Mutual Inc. 850 28,687
Wells Fargo & Co. 200 71,000
2,241,052
[GRAPHIC OF HEALTH SIGN OMITTED]
HEALTHCARE -- 12.7%
Abbott Laboratories 3,600 156,375
Aetna Inc. 400 27,800
Allergan Inc. 200 11,675
Alza Corp. 200 8,675
American Home Products Corp. 3,000 157,125
Amgen Inc. 700 52,894(a)
Baxter International Inc. 700 41,650
Becton Dickinson & Co. 1,000 41,125
Boston Scientific Corp. 500 25,688(a)
Bristol-Myers Squibb Co. 2,300 238,912
Cardinal Health Inc. 300 30,975
Columbia/HCA Healthcare Corp. 1,600 32,100
Eli Lilly & Co. 2,600 203,612(e)
Guidant Corp. 500 37,125
HBO & Co. 1,200 34,650
Healthsouth Corp. 1,100 11,619(a)
IMS Health Inc. 500 30,969
Johnson & Johnson 3,100 242,575(e)
Medtronic Inc. 1,200 69,450
Merck & Co. Inc. 2,800 362,775
Pfizer Inc. 3,000 317,812
Pharmacia & Upjohn Inc. 1,300 65,244
Schering Plough Corp. 1,700 176,056
Tenet Healthcare Corp. 900 25,875(a)
United Healthcare Corp. 500 17,500
United States Surgical Corp. 200 8,338
Warner-Lambert Co. 1,900 143,450
2,572,044
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
INSURANCE -- 3.3%
Allstate Corp. 2,000 $ 83,375
American International Group Inc. 2,400 184,800
Aon Corp. 400 25,800
Chubb Corp. 400 25,200
CIGNA Corp. 600 39,675
Cincinnati Financial Corp. 400 12,300
Conseco Inc. 774 23,655
General Reinsurance Corp. 200 40,600
Hartford Financial Services
Group Inc. 800 37,950
Lincoln National Corp. 300 24,675
Loews Corp. 300 25,313
Marsh & McLennan Cos. Inc. 600 29,850
Progressive Corp. 200 22,550
St. Paul Cos. Inc. 600 19,500
SunAmerica Inc. 600 36,600
Torchmark Corp. 300 10,781
UNUM Corp. 400 19,875
662,499
RETAIL TRADE -- 5.3%
Abercrombie & Fitch Co. 1 44(a)
Albertsons Inc. 800 43,300
American Stores Co. 600 19,313
Autozone Inc. 300 7,388(a)
Circuit City Stores Inc. 200 6,663
Consolidated Stores Corp. 200 3,925(a)
Costco Cos. Inc. 600 28,425(a)
CVS Corp. 1,000 43,812
Dayton Hudson Corp. 1,200 42,900
Dollar General Corp. 375 9,984
Federated Department Stores Inc. 600 21,825(a)
Gap Inc. 1,050 55,387
Home Depot Inc. 3,400 134,300
J.C. Penney Company Inc. 600 26,963
K Mart Corp. 1,600 19,100(a)
Kohl's Corp. 300 11,700(a)
Kroger Co. 700 35,000(a)
Limited Inc. 900 19,744
Lowes Cos. Inc. 1,000 31,812
May Department Stores Co. 600 30,900
Rite Aid Corp. 800 28,400
Sears Roebuck & Co. 1,000 44,187
Tandy Corp. 200 10,700
TJX Cos. Inc. 1,000 17,813
Toys 'R Us Inc. 800 12,950(a)
Wal-Mart Stores Inc. 5,100 278,587
Walgreen Co. 1,300 57,281
Winn Dixie Stores Inc. 600 22,313
1,064,716
- ----------
See Notes to Schedule of Investments and Financial Statements.
31
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
[GRAPHIC OF COMPUTER OMITTED]
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 10.1%
3Com Corp. 900 $ 27,056(a)
Advanced Micro Devices Inc. 300 5,569(a)
Apple Computer 300 11,438(a)
Applied Materials Inc. 1,000 25,250(a)
Ascend Communications Inc. 400 18,200(a)
Cabletron Systems Inc. 400 4,500(a)
Cisco Systems Inc. 3,600 222,525(a)
Compaq Computer Corp. 4,072 128,777
Dell Computer Corp. 3,200 210,400(a)
EMC Corp. 1,300 74,344(a)
Gateway 2000 Inc. 300 15,637(a)
General Instrument Corp. 300 6,488(a)
Hewlett Packard Co. 2,400 127,050
Ikon Office Solutions Inc. 300 2,156
Intel Corp. 3,800 325,850(e)
International Business Machines 2,300 294,400
LSI Logic Corp. 300 3,788(a)
Lucent Technologies Inc. 3,200 221,000(e)
Micron Technology Inc. 500 15,219(a)
Motorola Inc. 1,400 59,762
National Semiconductor Corp. 500 4,844(a)
Northern Telecom Ltd. 1,820 58,240
Pitney Bowes Inc. 800 42,050
Seagate Technology 800 20,050(a)
Sun Microsystems Inc. 1,000 49,812(a)
Tellabs Inc. 500 19,906(a)
Texas Instruments Inc. 1,000 52,750
2,047,061
TECHNOLOGY - SOFTWARE & SERVICES -- 4.6%
Automatic Data Processing Inc. 800 59,800
Computer Associates International Inc. 1,350 49,950
Computer Sciences Corp. 600 32,700
Electronic Data Systems Corp. 1,200 39,825
First Data Corp. 1,200 28,200
Microsoft Corp. 5,700 627,356(a,e)
Novell Inc. 800 9,800(a)
Oracle Systems Corp. 2,300 66,988(a)
Parametric Technology Corp. 800 8,050(a)
Unisys Corp. 500 11,375(a)
934,044
TRANSPORTATION -- 1.0%
AMR Corp. 600 33,262(a)
Burlington Northern Santa Fe 1,200 38,400
CSX Corp. 600 25,237
Delta Air Lines Inc. 400 38,900
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
FDX Corp. 300 $ 13,538(a)
Norfolk Southern Corp. 1,000 29,062
U.S. Airways Group Inc. 100 5,063(a)
Union Pacific Corp. 600 25,575
209,037
[GRAPHIC OF PLUG OMITTED]
UTILITIES -- 10.8%
Airtouch Communications Inc. 1,400 79,800(a)
Alltel Corp. 700 33,162
American Electric Power Inc. 500 24,406
American Telephone & Telegraph Corp. 4,100 239,594
Ameritech Corp. 2,600 123,175
Bell Atlantic Corp. 3,600 174,375
Bellsouth Corp. 2,300 173,075
Central & South West Corp. 1,000 28,563
Coastal Corp. 800 27,000
Consolidated Edison Inc. 700 36,487
Consolidated Natural Gas Co. 400 21,800
Dominion Resources Inc. 500 22,313
Duke Energy Corp. 800 52,950
Edison International 1,000 25,688
Enron Corp. 700 36,969
Entergy Corp. 1,000 30,750
FirstEnergy Corp. 500 15,531
FPL Group Inc. 400 27,875
Frontier Corp. 800 21,900
GPU Inc. 700 29,750
GTE Corp. 2,200 121,000
Houston Industries Inc. 1,100 34,237
MCI WorldCom Inc. 4,015 196,215(a)
Nextel Communications Inc. 600 12,113(a)
Pacificorp 700 13,431
Peco Energy Co. 1,100 40,219
PG&E Corp. 1,100 35,131
Public Service Enterprise Group Inc. 500 19,656
SBC Communications Inc. 4,200 186,637
Southern Co. 1,500 44,156
Sprint Corp. 1,100 79,200
Texas Utilities Co. 700 32,594
U.S. WEST Inc. 1,246 65,337
Unicom Corp. 1,000 37,375
Williams Cos. Inc. 1,000 28,751
2,171,215
TOTAL COMMON STOCK
(COST $17,921,928) 19,118,988
- ----------
See Notes to Schedule of Investments and Financial Statements.
32
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 0.2%
- --------------------------------------------------------------------------------
Ceridian Corp. 100 $ 5,738(a)
MBNA Corp. 1,300 37,212
TOTAL PREFERRED STOCK
(COST $40,196) 42,950
TOTAL INVESTMENTS IN SECURITIES
(COST $17,962,124) 19,161,938
- --------------------------------------------------------------------------------
Short-Term Investments -- 5.1%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund 599,148 599,148
Money Market Obligations Trust 343,092 343,092
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT
United States Treasury Bill
4.27% 12/24/98 $85,000 84,167(d)
TOTAL SHORT-TERM INVESTMENTS
(COST $1,026,407) 1,026,407
OTHER ASSETS AND LIABILITIES,
NET 0.0% (1,920)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $20,186,425
================================================================================
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
The S&P 500 Index Fund had the following long Futures Contracts open at
September 30, 1998:
Number
Expiration of Underlying Unrealized
Description Date Contracts Face Value Loss
- --------------------------------------------------------------------------------
S&P 500 Dec. 1998 4 $ 1,026,000 $(10,300)
- ----------
See Notes to Schedule of Investments and Financial Statements.
[GRAPHIC OMITTED]
ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE
S&P 500 INDEX FUND AT SEPTEMBER 30, 1998.
33
<PAGE>
Income Funds
- --------------------------------------------------------------------------------
Q&A
Bob MacDougall leads the fixed income team at GE Investments. Assets under his
management exceed $29 billion. His responsibilities include managing the Income
and Money Market Funds. Bob joined GE Investments in 1986 as a Mutual Fund
Portfolio Manager and was appointed to head the Taxable Fixed Income team in
1992, and the Tax-exempt Fixed Income team in 1997. Previously he was with GE's
Corporate Treasury Operation managing the Company's $2 billion portfolio of
marketable securities and supporting the Treasurer in the areas of debt
management and capital structure planning. Prior to that, Bob has held various
financial management positions since joining GE in 1973. He holds Bachelor's and
Master's degrees in Business Administration from the University of
Massachusetts.
Q. Describe what happened in the fixed income markets for the ten-month period
ended September 30, 1998.
A. The past ten months have seen a significant rally in the bond market.
Yields on 30-Year U.S. Treasury Bonds fell 107 basis points (1.07%) from
6.04% to 4.97%. Similar declines occurred in Treasuries of shorter
maturities as well. During the first half of the year the Federal Reserve
(the "Fed"), concerned about the tight labor market, had a bias to raise
interest rates to help slow our economy and prevent an acceleration of
inflation. Uncertainty about the impact of the Asian crisis and whether it
would spread to other regions of the world kept them on the sidelines. As
the Asian financial crisis worsened and spread to Russia and Latin America,
investors were increasingly attracted to the U.S. Treasury market's
quality, liquidity and value. Signs of a slowing of domestic economic
activity and continued low inflation, together with the global market
turmoil, prompted the Fed to ease monetary policy in late September.
Not all sectors of the fixed income market fared as well, however.
Declining interest rates caused many homeowners to refinance their
mortgages. This had a dampening effect on the price performance of
securities backed by home mortgages. The mortgage sector, as measured by
the Lehman Brothers Mortgage Index returned 7.31% for the ten months ended
September 1998 compared with a 10.75% return for the Treasury index. While
mortgage backed securities were affected by "prepayment" risk (the
uncertainty about the cash flow due to the prepayment option granted to
homeowners) , corporate and other non-U.S. government bonds were hit with
fears of "repayment" risk. For years investors have increasingly "reached
for yield" by buying lower rated corporates and driving credit spreads
tighter and tighter. After the Russian debt default in August the markets
reassessed - and repriced - the credit risk premiums in the corporate bond
market. Lower quality bonds were sold in favor of high quality U.S.
Treasuries. This "flight-to-quality" pushed corporate yields up while
driving Treasury yields down. The yield differential or spread widened in
some cases to levels not seen since the 1990-91 recession. Emerging market
debt declined 16.16% while high yield corporate bonds eked out a 62% return
over the past ten months. Over the life of a bond its return is generally
equal to its yield (barring a default). During the past couple of months
there has been an inverse correlation between yield and return. The lowest
yielding sectors (Treasuries) outperformed higher yielding corporates and
mortgages.
Income Fund
Q. How did the Income Fund perform against its benchmark for the ten-month
period ended September 30, 1998?
A. The Income Fund posted a return of 9.21% for the period since inception,
November 21, 1997 through September 30, 1998 while its benchmark, the
Lehman Brothers Aggregate Bond Index, returned 9.40% for the ten-month
period ended September 30, 1998.
What were the key drivers of fund performance?
A. Our strategy was to hold a portfolio which yielded more than the benchmark
and was well diversified as to sectors and issuers. During the last couple
of months this approach did not provide the results we anticipated. Our
holdings of government agency mortgage backed securities and our lower
rated corporate bond positions underperformed. Partially offsetting that
was a positive contribution from having an average duration (interest rate
exposure) longer than the index. Overall, however, the return is clearly
higher than we would have expected to achieve when the period began.
Money Market Fund
Q. How did the Money Market Fund perform compared to its industry benchmark
for the period since inception December 2, 1997 through September 30, 1998?
A. The Money Market Fund posted a return of 4.53% for the period since
inception, December 2, 1997 through September 30, 1998 while its benchmark,
the 90-day U.S. Treasury Bill, returned 4.19% for the same period.
Q. What were the key drivers of fund performance?
A. While the Federal Reserve waited until the end of September to ease
monetary policy, the markets didn't. The money market yield curve became
inverted. Shorter maturities yielded more than longer maturities. By
holding our average maturity shorter we were able to capture these higher
rates.
Q. What is your outlook for the bond market?
A. With bond yields at multi-year and, in some cases, record lows, it is
difficult to expect further declines. Having said that, however, bonds
continue to offer good value on both a fundamental (real) basis as well as
on a relative (to other asset classes) basis. Inflation remains low and
well controlled, fiscal policy is supportive and monetary policy has been
effective. The widening of mortgage and credit spreads has presented many
opportunities for value in those sectors. We believe that high quality
bonds will continue to play an important role in a well balanced portfolio.
34
<PAGE>
Income Funds
- --------------------------------------------------------------------------------
=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
INCOME FUND LB AGGREGATE
11/21/97 10000 10000
11/97 10014.43 10000
12/97 10112.09 10101
1/98 10252.98 10230.29
2/98 10241.99 10222.11
3/98 10290.76 10256.86
4/98 10339.73 10310.2
5/98 10451.54 10408.15
6/98 10544.23 10496.62
7/98 10566.63 10518.66
8/98 10691.39 10690.11
9/98 10921.11 10940.26
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
- --------------------------------------------------------------------------------
Income Fund 9.21% 11/21/97
- --------------------------------------------------------------------------------
LB Aggregate 9.40%
================================================================================
Legend as follows:
Income Fund
LB Aggregate
INVESTMENT PROFILE
A mutual fund designed for investors who seek maximum income consistent
with prudent investment management and the preservation of capital by
investing in fixed income securities.
======================================================================
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Cash and Other 7.0%
Corporate Notes 20.1%
Mortgage Backed 32.2%
U.S. Government 40.7%
======================================================================
QUALITY RATINGS AT
SEPTEMBER 30, 1998
======================================================================
Moody's/ Percentage of
S&P Rating+ Net Assets
========================================
Aaa/AAA 78.4%
- ----------------------------------------
A to A/A 7.4%
- ----------------------------------------
Below A/A 11.7%
- ----------------------------------------
Other 2.5%
========================================
+ Moody's Investors Services, Inc. and Standard & Poor's are nationally
recognized statistical rating organizations.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
35
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
INCOME FUND
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Bonds and Notes -- 96.9%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 28.0%
U.S. Treasury Bonds
12.50% 08/15/14 $ 64,000 $ 105,330
10.625% 08/15/15 346,000 565,222
8.125% 08/15/19 1,872,000 2,564,340
6.125% 11/15/27 1,491,000 1,718,840(e)
5.50% 08/15/28 520,000 562,089
5,515,821
U.S. Treasury Notes
5.625% 10/31/99 4,175,000 4,218,712(e)
5.50% 05/31/00 1,860,000 1,891,378
5.375% 06/30/00 1,614,000 1,639,727
5.25% 08/31/00 895,000 907,718
6.25% 04/30/01 971,000 1,014,850
6.625% 07/31/01 555,000 587,606
6.625% 03/31/02 291,000 312,008
5.375% 06/30/03 230,000 240,530
5.25% 08/15/03 1,702,000 1,778,062
6.625% 05/15/07 300,000 345,609
5.625% 05/15/08 960,000 1,050,000
13,986,200
U.S. Treasury STRIP
5.62% 02/15/12 1,020,000 520,833(d,g)
TOTAL U.S. TREASURIES
(COST $19,282,940) 20,022,854
FEDERAL AGENCIES -- 12.7%
Federal Home Loan Bank
5.62% 08/10/00 1,000,000 1,015,470
Federal Home Loan Mortgage Corp.
6.22% 03/18/08 210,000 220,204
5.75% 04/15/08 360,000 380,588
6.247% 03/17/21 223,000 231,781
832,573
Federal National Mortgage Assoc.
5.60% 03/27/00 725,000 733,722
5.67% 05/26/00 900,000 912,933
5.56% 07/24/00 695,000 704,667
5.38% 01/16/01 185,000 187,486
5.625% 03/15/01 780,000 798,767
5.75% 04/15/03 1,250,000 1,303,900
6.99% 07/09/07 300,000 321,984
6.00% 05/15/08 715,000 770,856
6.16% 08/07/28 615,000 656,759
6,391,074
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Small Business Administration
6.55% 12/01/17 $ 472,983 $ 499,736
6.125% 01/01/18 333,273 344,938
844,674
TOTAL FEDERAL AGENCIES
(COST $8,812,304) 9,083,791
AGENCY MORTGAGE BACKED -- 28.5%
Federal Home Loan Mortgage Corp.
7.50% 09/01/12 304,932 314,175
6.50% 04/01/28 - 05/01/28 2,001,471 2,037,737
2,351,912
Federal National Mortgage Assoc.
6.424% 12/25/23 1,480,000 1,552,150
6.131% 10/01/24 792,000 800,910
7.00% 10/01/27 - 12/01/27 3,217,999 3,318,041
6.50% 02/01/28 - 08/01/28 6,071,567 6,173,993
6.153% 03/01/33 192,536 194,702
6.00% TBA 2,330,000 2,353,300(c)
14,393,096
Government National Mortgage Assoc.
7.00% 03/15/12 768,382 794,057
8.50% 10/15/17 382,681 408,030
6.50% 03/15/24 538,280 551,058
7.00% 10/15/27 185,263 191,225
7.50% 01/15/28 - 03/15/28 590,209 612,342
6.50% 04/15/28 595,132 608,332
7.00% 04/15/28 404,130 417,135
3,582,179
TOTAL AGENCY MORTGAGE BACKED
(COST $19,962,491) 20,327,187
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.3%
Federal Home Loan Mortgage Corp.
6.50% 04/15/28 - 06/15/28 1,044,000 1,074,821
Federal National Mortgage Assoc. REMIC
6.225% 05/25/14 526,507 539,340
TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $1,570,998) 1,614,161
CORPORATE NOTES -- 20.1%
Abbey National PLC
7.35% 10/29/49 200,000 221,534
Applied Materials Inc.
7.125% 10/15/17 100,000 99,945
Arizona Public Service Co.
6.25% 01/15/05 80,000 82,166
- ----------
See Notes to Schedule of Investments and Financial Statements.
36
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Atlantic City Electric Co.
6.19% 01/17/06 $ 205,000 $ 213,020
Bank of Scotland
7.00% 11/29/49 75,000 77,102(b)
Beckman Instruments Inc.
7.10% 03/04/03 105,000 107,834
Bell Telephone Co. - Pennsylvania
8.35% 12/15/30 368,000 482,967
Bellsouth Telecomm Inc.
6.375% 06/01/28 250,000 262,550
Black & Decker Holdings Inc.
7.05% 07/01/28 90,000 91,912(b)
Boston University
7.625% 07/15/2097 250,000 297,257
Brascan Ltd.
7.375% 10/01/02 80,000 83,442
Carnival Corp.
5.65% 10/15/00 300,000 302,991
Conseco Inc.
6.40% 06/15/01 391,000 393,929
6.80% 06/15/05 180,000 182,381
8.70% 11/15/26 274,000 285,190
Corporacion Andina De Fomento
6.75% 03/15/05 130,000 124,050
Dow Chemical Co.
8.55% 10/15/09 80,000 97,905
Fairfax Financial Holdings Ltd.
7.375% 04/15/18 200,000 195,062
Federated Department Stores Inc.
6.125% 09/01/01 60,000 61,152
Goldman Sachs Group L.P.
6.20% 12/15/00 130,000 133,643(b)
Heritage Media Corp.
8.75% 02/15/06 130,000 139,750
Household Finance Corp.
6.125% 07/15/02 50,000 50,750
Hydro-Quebec
8.05% 07/07/24 302,000 361,491
International Lease Finance Corp.
5.62% 02/01/00 300,000 302,442
Israel Electric Corp. Ltd.
7.125% 07/15/05 60,000 61,495(b)
Landeskreditbank Baden
7.875% 04/15/04 292,000 331,411
Lasmo USA Inc.
6.75% 12/15/07 120,000 118,708
LCI International Inc.
7.25% 06/15/07 90,000 91,973
Lehman Brothers Holdings Inc.
6.90% 03/30/01 112,000 112,038
8.05% 01/15/19 220,000 221,650
7.50% 08/01/26 145,000 147,182
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
Liberty Property Ltd. Partnership
7.50% 01/15/18 $ 90,000 $ 85,556
Loewen Group International Inc.
6.70% 10/01/99 411,000 397,642(b)
7.50% 04/15/01 473,000 448,759
MBNA Corp.
6.306% 04/22/03 150,000 155,365
MCI Communications Corp.
6.125% 04/15/12 200,000 205,014
MCI WorldCom Inc.
6.125% 08/15/01 70,000 71,615
6.40% 08/15/05 105,000 110,798
8.875% 01/15/06 150,000 164,544
6.95% 08/15/28 40,000 42,142
Nabisco Inc.
6.125% 02/01/33 95,000 95,424
National Rural Utilities Cooperative
6.046% 04/15/03 100,000 103,658
National Westminster Bank PLC
7.75% 04/29/49 271,000 290,263
News America Holdings Inc.
8.15% 10/17/36 368,000 409,746
Norfolk Southern Corp.
7.90% 05/15/2097 439,000 516,093
NWCG Holding Corp.
6.66% 06/15/99 379,000 365,553
Philip Morris Cos. Inc.
7.25% 09/15/01 80,000 83,795
RJR Nabisco Inc.
7.625% 09/15/03 225,000 222,997
Stop & Shop Companies Inc.
9.75% 02/01/02 50,000 53,250
Sun Life Canada Capital Trust
8.526% 05/29/49 301,000 325,643(b)
SunAmerica Inc.
5.60% 07/31/2097 390,000 330,076
Suntrust Banks Inc.
6.00% 01/15/28 80,000 82,886
Tele-Communications Inc.
9.80% 02/01/12 80,000 106,937
Time Warner Entertainment Co. L.P.
10.15% 05/01/12 263,000 355,552
Time Warner Inc.
4.90% 07/29/99 600,000 596,904(b)
Toledo Edison Co.
7.38% 03/31/00 411,000 421,612
Turner Broadcasting Systems Inc.
8.375% 07/01/13 115,000 130,857
Tyco International Group S.A.
6.25% 06/15/03 140,000 144,963
7.00% 06/15/28 95,000 99,400
- ----------
See Notes to Schedule of Investments and Financial Statements.
37
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. West Capital Funding Inc.
6.125% 07/15/02 $ 40,000 $ 41,334
6.875% 07/15/28 60,000 63,604
United Illuminating Co.
6.25% 12/15/02 30,000 30,434
United Parcel Service Inc.
8.375% 04/01/30 147,000 187,177
USA Waste Services Inc.
6.125% 07/15/01 150,000 152,834
USX Marathon Group
9.80% 07/01/01 80,000 87,766
8.125% 07/15/23 80,000 85,855
Viacom Inc.
7.75% 06/01/05 557,000 601,482
Westdeutsche Landesbank
6.75% 06/15/05 150,000 160,213
Williams Cos. Inc.
6.125% 02/15/02 155,000 157,342
Yale University Notes
7.375% 04/15/2096 461,000 555,376
Zurich Capital Trust
8.376% 06/01/37 100,000 109,383(b)
TOTAL CORPORATE NOTES
(COST $14,114,787) 14,384,766
NON-AGENCY MORTGAGE BACKED SECURITIES -- 3.7%
BHN Mortgage Trust
7.916% 07/25/09 183,572 124,829(b)
GS Mortgage Securities Corp.
6.86% 07/13/30 250,000 265,078(d)
Merrill Lynch Mortgage Investors Inc.
6.39% 02/15/30 114,000 118,685
Morgan Stanley Capital Inc.
6.52% 01/15/08 130,000 138,409
6.86% 07/15/29 283,594 299,547(b)
Salomon Brothers Mortgage Securities Inc.
7.00% 10/01/27 755,241 735,888
Sawgrass Finance REMIC Trust
6.45% 01/20/06 334,000 341,045
Vornado Finance Corp.
6.36% 12/01/00 640,000 652,600(b)
TOTAL NON-AGENCY MORTGAGE BACKED SECURITIES
(COST $2,687,781) 2,676,081
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.6%
Blackrock Capital Finance
6.348% 11/25/28 133,981 137,666
7.22% 11/25/28 350,000 361,703
7.25% 11/25/28 209,217 200,521
Residential Assets Securitization Trust
7.75% 04/25/27 390,000 406,819
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
TOTAL NON-AGENCY COLLATERALIZED
MORTGAGE OBLIGATIONS
(COST $1,086,832) $ 1,106,709
TOTAL BONDS AND NOTES
(COST $67,518,133) 69,215,549
Number
of Shares Value
- --------------------------------------------------------------------------------
Preferred Stock -- 0.6%
- --------------------------------------------------------------------------------
CORPORATE PREFERRED
Banesto Holdings Ltd.
(Series A), 10.50% 3,000 94,500(b)
Coastal Finance, 8.375% 1,400 34,650
New Plan Excel Realty
Trust Inc., 8.625% 278 13,413
Pinto Totta International
Finance Ltd., 7.77% 273 236,257(b)
TCI Communications, 10.00% 3,200 87,400
TOTAL PREFERRED STOCK
(COST $518,627) 466,220
TOTAL INVESTMENTS IN SECURITIES
(COST $68,036,760) 69,681,769
- --------------------------------------------------------------------------------
Short-Term Investments -- 5.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund 57,145 57,145
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES
Federal Home Loan Bank
5.40% 10/01/98 $3,900,000 3,900,000(d)
TOTAL SHORT-TERM INVESTMENTS
(COST $3,957,145) 3,957,145
Number
Expiration Date/ of
Strike Price Contracts Value
- --------------------------------------------------------------------------------
Call Options -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Notes Oct 98/110.88 (960) (4,050)
U.S. Treasury Notes Oct 98/107.88 (520) (6,094)
(WRITTEN OPTION PREMIUM $(6,163)) (10,144)
- --------------------------------------------------------------------------------
Put Options -- 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds Oct 98/102.82 (1,005) --
U.S. Treasury Notes Oct 98/107.01 (960) (4,350)
U.S. Treasury Notes Oct 98/101.88 (520) (81)
(WRITTEN OPTION PREMIUM $(9,643)) (4,431)
OTHER ASSETS AND LIABILITIES,
NET (3.1)% (2,180,203)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $71,444,136
================================================================================
38
<PAGE>
Money Market Fund
- --------------------------------------------------------------------------------
=================================================================
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
=================================================================
[LINE GRAPHIC OMITTED]
PLOT POINTS AS FOLLOWS:
MONEY MARKET FUND 90 DAY T-BILL
12/2/97 10000 10000
12/97 10045.17 10043
1/98 10091.62 10085.36
2/98 10132.93 10128.29
3/98 10178.79 10170.85
4/98 10223.34 10212.93
5/98 10269.49 10254.78
6/98 10313.99 10297.38
7/98 10360.68 10340.15
8/98 10407.71 10382.12
9/98 10453.23 10419.19
======================================================================
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
======================================================================
SINCE
INCEPTION COMMENCEMENT
- --------------------------------------------------------------------------------
Money Market Fund 4.53% 12/2/97
- --------------------------------------------------------------------------------
90 day T-Bill 4.19%
================================================================================
Legend as follows:
Money Market Fund
90 Day T-Bill
======================================================================
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1998
======================================================================
[PIE CHART OMITTED]
PLOT POINTS AS FOLLOWS:
Certificate of Deposit and Other 28.4%
Commercial Paper 29.5%
U.S. Governments 42.1%
======================================================================
FUND YIELD
AT SEPTEMBER 30, 1998
======================================================================
FUND IBC MONEY FUND
- --------------------------------------------------------------------------------
7 day current 5.29%+ 4.93%
- --------------------------------------------------------------------------------
7 day effective 5.43% 5.05%
================================================================================
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 is slightly higher because it
reflects the compounding effect of earnings on reinvested dividends.
INVESTMENT PROFILE
A mutual fund designed for investors who seek a high level of current income
consistent with the preservation of capital and maintenance of liquidity by
investing in U.S. dollar denominated, short-term money market instruments.
AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, AND NO ASSURANCE CAN BE GIVEN THAT THE MONEY MARKET FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
+ The seven day current yield, rather than the total return, more closely
reflects the current earnings of the Money Market Fund at September 30,
1998.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
39
<PAGE>
Schedule of Investments September 30, 1998
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
Principal Amortized
Amount Cost
- --------------------------------------------------------------------------------
Short-Term Investments -- 99.8%
- --------------------------------------------------------------------------------
U.S. GOVERNMENTS(d) -- 42.1%
Federal Home Loan Bank
5.07% 03/19/99 $250,000 $ 244,050
Federal Home Loan Mortgage Corp.
5.45% 10/09/98 300,000 299,636
5.44% 10/14/98 260,000 259,489
5.42% 10/16/98 - 11/06/98 660,000 657,405
1,216,530
Federal National Mortgage Assoc.
5.36% 10/08/98 300,000 299,687
5.43% 10/23/98 580,000 578,074
5.41% 11/30/98 424,000 420,179
5.11% 03/19/99 240,000 234,249
1,532,189
TOTAL U.S. GOVERNMENTS
(COST $2,992,769) 2,992,769
COMMERCIAL PAPER -- 29.5%
Abbey National PLC
5.48% 11/30/98 280,000 277,443
Associates Corp. of North America
5.48% 10/22/98 270,000 269,137
Bank of Montreal
5.49% 10/30/98 280,000 278,762
Citicorp
5.75% 10/01/98 300,000 300,000
Halifax Building Society
5.475% 10/01/98 280,000 280,000
Koch Industries
5.75% 10/01/98 250,000 250,000
Morgan Stanley Group Inc.
5.49% 10/22/98 170,000 169,456
UBS Finance Delaware Inc.
5.49% 10/13/98 270,000 269,505
TOTAL COMMERCIAL PAPER
(COST $2,094,303) 2,094,303
- --------------------------------------------------------------------------------
Principal Amortized
Amount Cost
- --------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT -- 11.8%
Bayerische Hypotheken
5.54% 10/13/98 $280,000 $ 280,000
Deutsche Bank AG
5.56% 10/30/98 280,000 280,000
Dresdner Bank AG
5.56% 10/09/98 280,000 280,000
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(COST $840,000) 840,000
TIME DEPOSITS -- 12.4%
Bank of Nova Scotia
5.813% 10/01/98 300,000 300,000
5.438% 10/02/98 280,000 280,000
Rabobank Nederland
5.75% 10/01/98 300,000 300,000
TOTAL TIME DEPOSITS
(COST $880,000) 880,000
BANKER'S ACCEPTANCE NOTE -- 4.0%
First Union Corp.
5.55% 11/25/98
(COST $280,000) 280,000 280,000
TOTAL SHORT-TERM INVESTMENTS
(COST $7,087,072) 7,087,072
OTHER ASSETS AND LIABILITIES,
NET 0.2% 15,154
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $7,102,226
================================================================================
- ----------
See Notes to Schedule of Investments and Financial Statements.
40
<PAGE>
Notes to Performance (unaudited)
- --------------------------------------------------------------------------------
Information on the preceding performance pages relating to the Funds' total
returns and top ten holdings is audited. All other information on the preceding
performance pages is unaudited.
Total returns take into account changes in share price and assume reinvestment
of dividends and capital gains, 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.
The Standard & Poor's ("S&P") 500 Composite Price Index of stocks (S&P 500
Index), S&P Composite Index of 400 mid-cap stocks (S&P Mid-Cap 400 Index), 90
Day U.S. Treasury Index (90 Day T-Bill), Morgan Stanley Capital International
Emerging Markets Free Index (MSCI EMF), Russell 2000 Index (Russell 2000),
Morgan Stanley Capital International EAFE Index (MSCI EAFE), 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 Index is a composite of the prices of 500 widely held stocks recognized by
investors to be representative of the stock market in general. The S&P Mid-Cap
400 Index is a capitalization-weighted index of 400 U.S. stocks with a median
market capitalization of approximately $700 million. The Russell 2000 measures
the performance of the smallest companies in the Russell 3000 Index, which
represents approximately 10% of the total market capitalization of the Russell
3000 Index, which measures the performance of the 3000 largest U.S. companies
based on total market capitalization, which represents approximately 98% of the
investable U.S. equity market. The MSCI EMF Index is an index of emerging
markets securities in countries open to non-local investors. MSCI EAFE Index is
a composite of 1,100 stocks of companies from 21 countries representing stock
markets of Europe, Australasia, New Zealand and the Far East. The LB Aggregate
is a composite index of short-, medium, and long-term bond performance and is
widely recognized as a barometer of the bond market in general. The 90 Day
T-Bill is the average return on three month U.S. Treasury Bills. The IBC Money
Fund Report yields represent the average yields of 887 taxable money market
funds. The results shown for the foregoing indices assume the reinvestment of
net dividends or interest.
A number of the broad market returns are not available for the funds'
commencement of investment operations through September 30, 1998. In instances
where the inception date was not at the beginning of the month, broad market
index returns are calculated from the month end nearest to some of the funds'
inception dates.
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 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.
S&P 500 is a registered trademark of The McGraw-Hill Companies, Inc. and has
been licensed for use. The S&P 500 Index Fund is not sponsored, endorsed, sold
or promoted by S&P and S&P makes no representation regarding the advisability of
investing in the S&P 500 Index Fund.
Notes to Schedules of Investments
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Pursuant to Rule 144A of Securities Act of 1933, these securities may be
resold in transactions exempt from registration, normally to qualified
institutional buyers. At September 30, 1998, these securities amounted to
$219,618, $596,900 and $3,201,457 or 4.3%, 0.5%, and 4.5% of net assets for
the Emerging Markets Fund, International Equity Fund, and Income Fund,
respectively. These securities have been determined to be liquid using
guidelines established by the Board of Trustees.
(c) Settlement is on a delayed delivery or when-issued basis with final
maturity to be announced (TBA) in the future.
(d) Coupon amount represents effective yield.
(e) At September 30, 1998, all or a portion of this security was pledged to
cover collateral requirements for futures, options and TBA's.
(f) Rights - Industrial Finance Corp. of Thailand rights- expiration date has
been postponed indefinitely. Medison Co. Ltd. rights-expire on 10/30/98.
Societe Europeene de Communicion rights were exchanged for acceptance
shares, which will convert to SEC Series A ADS and SEC Series B ADS upon
their U.S. listing date.
(g) Principal only securities represent the right to receive the monthly
principal payments on an underlying U.S. Treasury or pool of mortgages. No
payments of interest are passed through to the "principal only" holder.
(h) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the fund's custodian.
ABBREVIATIONS:
ADR -- American Depositary Receipt
GDR -- Global Depository Receipt
Regd. -- Registered
REMIC -- Real Estate Mortgage Investment Conduit
SDR -- Special Drawing Rights
STRIPS -- Separate Trading of Registered Interest and Principal of Security
41
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data based on a share outstanding throughout the period indicated
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING INTERNATIONAL U.S. SMALL-CAP MID-CAP S&P 500 MONEY
MARKETS EQUITY EQUITY VALUE EQUITY GROWTH INDEX INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
9/30/98* 9/30/98* 9/30/98* 9/30/98* 9/30/98* 9/30/98* 9/30/98* 9/30/98*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE 11/25/97 11/25/97 11/25/97 8/3/98 11/25/97 11/25/97 11/21/97 12/2/97
Net asset value,
beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $1.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income 0.07 0.14(b) 0.11 0.02 0.04 0.14 0.51 0.04
Net realized and unrealized
gains (losses)
on investments (3.26) (0.07)(b) 0.52 (1.11) (1.16) 0.72 0.39 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS (3.19) 0.07 0.63 (1.09) (1.12) 0.86 0.90 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.03 0.01 0.01 0.00 0.01 0.01 0.51 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.03 0.01 0.01 0.00 0.01 0.01 0.51 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.78 $10.06 $10.62 $8.91 $8.87 $10.85 $10.39 $1.00
====================================================================================================================================
TOTAL RETURN (a) (31.96%) 0.66% 6.28% (10.90%) (11.25%) 8.63% 9.21% 4.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $5,063 $114,414 $114,553 $9,056 $13,208 $20,186 $71,444 $7,102
Ratios to average net assets:
Net investment income** 0.82% 1.72% 1.21% 1.68% 0.53% 1.57% 5.81% 5.33%
Net expenses** 1.05% 0.64% 0.42% 0.70% 0.55% 0.15% 0.31% 0.25%
Portfolio turnover rate 77% 53% 29% 19% 14% 1% 323% N/A
</TABLE>
- ----------
See Notes to Financial Highlights.
- -----------------------------------------------
NOTES TO FINANCIAL HIGHLIGHTS
(a) Total returns are historical and assume changes in share price,
reinvestment of dividends and capital gains, and assume no sales charge.
Periods less than one year are not annualized.
(b) As a result of the timing of purchases and sales of Fund shares, per share
amounts do not accord with aggregate amounts appearing in Statement of
Changes.
* Information is for the period from Inception date through September 30,
1998.
** Annualized for periods less than one year.
42 & 43
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING INTERNATIONAL U.S. SMALL-CAP MID-CAP S&P 500 MONEY
MARKETS EQUITY EQUITY VALUE EQUITY GROWTH INDEX INCOME MARKET
FUND FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in
securities, at market(cost
$6,859,849; $125,501,402;
$110,224,574; $9,345,907;
$13,238,012; $17,962,124;
$68,036,760; and $0,
respectively) $4,557,786 $110,591,681 $111,481,839 $8,586,038 $11,847,055 $19,161,938 $69,681,769 $ --
Short-term investments
(at amortized cost) 446,255 1,917,657 3,291,243 472,977 1,354,282 1,026,407 3,957,145 7,087,072
Cash -- 12,065 -- -- -- -- -- 8,523
Foreign currency
(cost $53,011;
$1,220,236; $4,626;
$0; $0; $0; $0;
and $0, respectively) 52,473 1,224,173 4,783 -- -- -- -- --
Receivable for
investments sold 43,372 363,735 205,756 97,783 20,260 -- 2,693,754 --
Income receivables 11,011 450,291 137,768 11,587 13,869 28,854 882,608 11,196
Receivable from GEIM -- -- -- -- -- 4,109 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 5,110,897 114,559,602 115,121,389 9,168,385 13,235,466 20,221,308 77,215,276 7,106,791
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Options written,
at market* -- -- -- -- -- -- 14,575 --
Distributions payable
to shareholders -- -- -- -- -- -- 33,486 3,088
Payable for investments
purchased 43,334 83,994 136,104 104,481 17,856 -- 5,005,177 --
Payable for fund shares
redeemed -- -- 362,000 -- -- -- 700,000 --
Payable to GEIM 4,227 61,811 39,372 7,438 6,037 -- 17,902 1,477
Variation margin
on futures -- -- 31,400 -- 3,075 31,500 -- --
Payable to Custodian -- -- -- -- -- 3,383 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 47,561 145,805 568,876 111,919 26,968 34,883 5,771,140 4,565
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,063,336 $114,413,797 $114,552,513 $9,056,466 $13,208,498 $20,186,425 $71,444,136 $7,102,226
====================================================================================================================================
NET ASSETS CONSIST OF:
Capital paid in 7,586,374 123,999,005 109,740,989 10,000,110 15,159,848 18,830,834 68,883,519 7,102,187
Undistributed
(overdistributed)
net investment income 12,029 1,447,353 1,104,124 23,457 57,283 246,641 366,039 --
Accumulated net realized
gain (loss) (232,338) 3,868,293 2,416,397 (207,232) (619,176) (80,564) 548,338 39
Net unrealized
appreciation/
(depreciation) on:
Investments (2,302,063) (14,909,721) 1,257,265 (759,869) (1,390,957) 1,199,814 1,645,009 --
Futures -- -- 33,469 -- 1,500 (10,300) -- --
Written options -- -- -- -- -- -- 1,231 --
Foreign currency
related transactions (666) 8,867 269 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $5,063,336 $114,413,797 $114,552,513 $9,056,466 $13,208,498 $20,186,425 $71,444,136 $7,102,226
====================================================================================================================================
Shares outstanding
($.001 par value) 747,047 11,378,143 10,787,130 1,016,007 1,489,484 1,859,690 6,877,216 7,102,187
Net asset value, offering
and redemption
price per share $6.78 $10.06 $10.62 $8.91 $8.87 $10.85 $10.39 $1.00
</TABLE>
* Premium received for the Income Fund was $15,806.
- ----------
See Notes to Financial Statements.
44 & 45
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING INTERNATIONAL U.S. SMALL-CAP MID-CAP S&P 500 MONEY
MARKETS EQUITY EQUITY VALUE EQUITY GROWTH INDEX INCOME MARKET
FUND* FUND* FUND* FUND**** FUND* FUND* FUND** FUND***
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME:
Dividends $ 94,775 $2,183,696 $1,447,088 $ 21,758 $ 81,102 $ 248,641 $ 31,875 --
Interest 19,481 120,153 161,029 11,531 53,336 46,432 3,338,631 514,837
Less: Foreign
taxes withheld (6,565) (241,891) (13,659) -- (1,013) (1,553) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME 107,691 2,061,958 1,594,458 33,289 133,425 293,520 3,370,506 514,837
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and
administration fees 60,291 555,236 406,706 9,766 67,792 25,543 169,642 22,488
Trustees' fees 386 2,752 6,112 66 776 1,046 3,500 264
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 60,677 557,988 412,818 9,832 68,568 26,589 173,142 22,752
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 47,014 1,503,970 1,181,640 23,457 64,857 266,931 3,197,364 492,085
====================================================================================================================================
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
REALIZED GAIN (LOSS) ON:
Investments (234,297) 3,867,230 2,248,483 (207,232) (602,626) (9,704) 916,815 39
Futures -- -- 167,914 -- (16,550) (70,860) -- --
Foreign currency
related transactions (10,665) (33,974) 2,337 -- (19) -- -- --
INCREASE (DECREASE)
IN UNREALIZED
APPRECIATION/
DEPRECIATION ON:
Investments (2,302,063) (14,909,721) 1,257,265 (759,869) (1,390,957) 1,199,814 1,645,009 --
Futures -- -- 33,469 -- 1,500 (10,300) -- --
Written options -- -- -- -- -- -- 1,231 --
Foreign currency
related
transactions (666) 8,867 269 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investments (2,547,691) (11,067,598) 3,709,737 (967,101) (2,008,652) 1,108,950 2,563,055 39
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS $(2,500,677) $(9,563,628) $4,891,377 $(943,644) $(1,943,795) $1,375,881 $5,760,419 $492,124
====================================================================================================================================
</TABLE>
* For the period November 25, 1997 (inception) through September 30, 1998.
** For the period November 21, 1997 (inception) through September 30, 1998.
*** For the period December 2, 1997 (inception) through September 30, 1998.
**** For the period August 3, 1998 (inception) through September 30, 1998.
- ----------
See Notes to Financial Statements.
46 & 47
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING INTERNATIONAL U.S. SMALL-CAP MID-CAP S&P 500 MONEY
MARKETS EQUITY EQUITY VALUE EQUITY GROWTH INDEX INCOME MARKET
FUND* FUND* FUND* FUND**** FUND* FUND* FUND** FUND***
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
OPERATIONS:
Net investment income $ 47,014 $ 1,503,970 $ 1,181,640 $ 23,457 $ 64,857 $ 266,931 $ 3,197,364 $ 492,085
Net realized gain (loss)
on investments,
futures, and foreign
currency related
transactions (244,962) 3,833,256 2,418,734 (207,232) (619,195) (80,564) 916,815 39
Net increase (decrease)
in unrealized
appreciation/
depreciation (2,302,729) (14,900,854) 1,291,003 (759,869) (1,389,457) 1,189,514 1,646,240 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations (2,500,677) (9,563,628) 4,891,377 (943,644) (1,943,795) 1,375,881 5,760,419 492,124
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (22,361) (21,580) (80,261) -- (7,583) (20,501) (3,199,802) (492,085)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (22,361) (21,580) (80,261) -- (7,583) (20,501) (3,199,802) (492,085)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from
operations and
distributions (2,523,038) (9,585,208) 4,811,116 (943,644) (1,951,378) 1,355,380 2,560,617 39
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale
of shares 7,584,622 126,319,228 112,863,469 10,000,110 15,291,488 18,862,804 67,027,457 32,721,555
Value of distributions
reinvested 22,361 21,580 80,261 -- 7,583 20,501 3,182,314 488,997
Cost of shares redeemed (20,609) (2,341,803) (3,202,333) -- (139,195) (52,260) (1,326,252) (26,108,365)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase from
share transactions 7,586,374 123,999,005 109,741,397 10,000,110 15,159,876 18,831,045 68,883,519 7,102,187
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN
NET ASSETS 5,063,336 114,413,797 114,552,513 9,056,466 13,208,498 20,186,425 71,444,136 7,102,226
NET ASSETS
Beginning of period -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
End of period $5,063,336 $114,413,797 $114,552,513 $9,056,466 $13,208,498 $20,186,425 $71,444,136 $7,102,226
====================================================================================================================================
UNDISTRIBUTED
(OVERDISTRIBUTED)
NET INVESTMENT INCOME,
END OF PERIOD $ 12,029 $ 1,447,353 $ 1,104,124 $ 23,457 $ 57,283 $ 246,641 $ 366,039 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES:
Shares sold by
subscription 746,750 11,565,378 11,070,334 1,016,007 1,502,376 1,862,744 6,692,568 32,721,555
Issued for distributions
reinvested 2,224 2,109 7,974 -- 773 2,045 313,760 488,997
Shares redeemed (1,927) (189,344) (291,178) -- (13,665) (5,099) (129,112) (26,108,365)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in
fund shares 747,047 11,378,143 10,787,130 1,016,007 1,489,484 1,859,690 6,877,216 7,102,187
====================================================================================================================================
</TABLE>
* For the period November 25, 1997 (inception) through September 30, 1998.
** For the period November 21, 1997 (inception) through September 30, 1998.
*** For the period December 2, 1997 (inception) through September 30, 1998.
**** For the period August 3, 1998 (inception) through September 30, 1998.
- ----------
See Notes to Financial Statements.
48 & 49
<PAGE>
NOTES TO FINANCIAL STATEMENTS September 30, 1998
- --------------------------------------------------------------------------------
1. Organization of the Funds
GE Institutional Funds (the "Trust") is registered under the Investment Company
Act of 1940 as amended (the "1940 Act") as an open-end management investment
company. The Trust was organized as a Delaware business trust on May 23, 1997,
and is authorized to issue an unlimited number of shares. It is currently
comprised of thirteen investment funds (each a "Fund" and collectively the
"Funds") only eight of which are currently active, as follows: Emerging Markets
Fund, International Equity Fund, U.S. Equity Fund, Small-Cap Value Equity Fund,
Mid-Cap Growth Fund, S&P 500 Index Fund, Income Fund and Money Market Fund. The
Funds (except Money Market Fund) are presently authorized to issue two classes
of shares - the Investment Class and the Service Class. However, as of September
30, 1998, only the Investment Class has investors. The Trust expects that most
of the time each Fund will have relatively few shareholders, (as compared with
most mutual funds) but that these shareholders will invest substantial amounts
in a Fund (the minimum initial investment in each Fund is $35 million).
The commencement dates of the Funds were as follows: Emerging Markets Fund,
International Equity Fund, U.S. Equity Fund, Mid-Cap Growth Fund, S&P 500 Index
Fund - November 25, 1997; Small-Cap Value Equity Fund - August 3, 1998; Income
Fund - November 21, 1997; and Money Market Fund - December 2, 1997.
These financial statements only represent the activities of the Investment
Class.
2. Summary of Significant
Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during the
reporting period. Actual results may differ from those estimates.
The following summarizes the significant accounting policies of the Trust:
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. Certain fixed income securities are valued by a dealer or by a pricing
service based upon a computerized matrix system, which considers market
transactions and dealer supplied valuations. Futures contracts are valued at the
settlement price established each day by the board of trade or exchange on which
they are principally traded. Options are valued at the last sale price, or if no
sales occurred on that day, at the last quoted bid price. Forward foreign
currency contracts are valued at the mean between the bid and the offered
forward rates as last quoted by a recognized dealer. Short-term investments
maturing within 60 days are valued at amortized cost or original cost plus
accrued interest both of which approximate fair value. Fund positions which
cannot be valued as set forth above are valued at fair value determined under
procedures approved by the Board of Trustees of the Funds.
In accordance with Rule 2a-7 of the 1940 Act, the Money Market Fund values its
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.
Transactions are accounted for as of the trade date. Realized gains and losses
on investments sold are recorded on the basis of specific identified cost for
both financial statement and federal tax purposes.
FOREIGN CURRENCY
Accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in a foreign currency
are translated to U.S. dollars at the prevailing rates of exchange at period
end. Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the respective
dates of transactions.
The Funds do not isolate the portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in their market prices. Such fluctuations are included in net
realized or unrealized gain or loss from investments. Reported net realized
exchange gains or losses from foreign currency transactions represent gain or
loss on sales of foreign currencies, currency gains or losses between the trade
date and the settlement date on securities transactions, net realized gains and
losses on sales and maturities of forward foreign currency contracts, and the
difference between the amounts of foreign investment income and
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS September 30, 1998
- --------------------------------------------------------------------------------
withholding taxes accrued on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid. Net unrealized foreign exchange gains and
losses arising from changes in the value of other assets and liabilities as a
result of changes in exchange rates are included as increases or decreases in
unrealized appreciation /depreciation on foreign currency related transactions.
INCOME TAXES
The Funds intend to comply with all sections of the Internal Revenue Code
applicable to regulated investment companies and to distribute all taxable
income and realized gains to its shareholders and, therefore, no provision for
federal income tax has been made. Each Fund is treated as a separate taxpayer
for federal income tax purposes. Any net capital and currency losses incurred
after October 31, within each 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 Funds incurred and elected to defer losses at October 31, 1997 as follows:
CURRENCY CAPITAL
-------- ---------
Emerging Markets Fund $10,665 $188,237
International Equity Fund 33,974 --
Small-Cap Value Equity Fund -- 207,232
Mid-Cap Growth Fund 19 616,491
S&P 500 Index Fund -- 90,864
INVESTMENT INCOME
Corporate actions (including cash dividends) are recorded net of non-reclaimable
tax withholdings on the ex-dividend date, except for certain foreign securities
for which corporate actions 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 or amortized to call or
maturity date, whichever is shorter, using the effective yield method.
EXPENSES
The Funds pay a "unitary fee" equivalent to the Funds' advisory and
administration fee. This fee includes any normal operating expenses payable by
the Funds, except for fees paid to the Trust's independent Trustees.
DISTRIBUTIONS TO SHAREHOLDERS
The Income Fund and Money Market Fund declare investment income dividends daily
and pay them monthly. All other Funds declare and pay dividends from net
investment income annually. All Funds declare and pay net realized capital gains
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 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 Funds' capital
accounts to reflect income and gains available for distribution (or available
capital loss carryovers) under income tax regulations. The calculation of net
investment income per share in the Financial Highlights table excludes these
adjustments.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The Funds may purchase or sell securities on a when-issued or forward commitment
basis. These transactions are arrangements in which the Funds purchase and sell
securities with payment and delivery scheduled for a future time. Settlement
dates may be a month or more after entering into these transactions, and such
transactions may involve a risk of loss if the value of the underlying security
changes prior to the settlement date. 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. This may increase the risk if the other
party involved in the transaction fails to deliver and causes the Funds to
subsequently invest at less advantageous prices and yields. In connection with
such purchases, the Funds maintain cash or liquid assets in an amount equal to
purchase commitments for such underlying securities until settlement date and
for sales commitments the Funds maintain equivalent deliverable securities as
"cover" for the transaction. Unsettled commitments are valued at current market
value of the underlying security. Daily fluctuations in the value of such
contracts are recorded as unrealized gains or losses. The Funds will not enter
into such agreements for the purpose of investment leverage.
FOREIGN SECURITIES
All Funds may invest in foreign securities, subject to certain limitations.
There are certain additional risks involved when investing in foreign securities
(including those denominated in foreign currencies) that are not inherent
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS September 30, 1998
- --------------------------------------------------------------------------------
in domestic securities. These risks may involve foreign currency exchange rate
fluctuations; changes in foreign exchange control regulations; application of
foreign tax laws, including withholding taxes; and increased uncertainty about
changes in governmental administration or economic or monetary policy (in the
United States or abroad). The Funds may be subject to restrictions on the
repatriation of foreign currencies and may be limited on the use or removal of
its assets. Additionally, investments in developing or emerging markets involve
increased uncertainty about adverse political and economic developments as
described above. The ability to hedge currency risk in these markets may be
limited, and therefore, investments in these markets may be exposed to currency
devaluation.
FOREIGN CURRENCY CONTRACTS
A foreign currency contract is an agreement between two parties to buy or sell
currency at a set price on a future date. Certain Funds may enter into foreign
currency contracts to facilitate transactions in foreign denominated securities
and to manage the Fund's currency exposure. No Funds may utilize forward
currency contracts for speculative purposes. Contracts to sell are generally
used to hedge the Fund's investments against currency fluctuations or to offset
a previous contract to buy. Contracts to buy are generally used to hedge
exposure to foreign currencies or to offset a previous contract to sell.
Currency exposure exists during the period that a foreign denominated investment
is held or during a period between the trade date and settlement date of an
investment which is purchased or sold. These contracts involve market risk in
excess of the unrealized gain or loss reflected in the fund's Statement of
Assets and Liabilities. This amount represents the aggregate exposure to each
currency the fund has acquired or hedged through currency contracts at period
end. Losses may arise from changes in the value of foreign currency or if the
counterparties do not perform under the contracts' terms.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. The Funds value the
underlying collateral daily on a mark-to-market basis to determine that the
value, including accrued interest, is at least equal to the repurchase price. In
the event of default of the obligation to repurchase, the Funds have the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. There is the risk that the collateral may be insufficient to meet
the obligation in the event of default.
FUTURES AND OPTIONS
Each Fund, other than the Money Market Fund, may invest in futures contracts and
purchase and write options, subject to certain limitations. The Funds may invest
in futures and options contracts for the following reasons: (1) for the purpose
of hedging against the effects of changes in the value of portfolio securities
or other investments due to anticipated changes in interest rates, stock market
conditions and currency market conditions, (2) to gain stock, bond, or currency
market exposure for accumulating and residual cash positions, (3) for duration
management, and (4) when such transactions are an economically appropriate way
to reduce risks inherent in the management of a Fund. Buying futures, writing
puts and buying calls tend to increase a Fund's exposure to the underlying
instrument. Selling futures, buying puts and writing calls tend to decrease a
Fund's exposure to the underlying instrument, or hedge other fund investments. A
Fund will not enter into a transaction involving futures and options on futures
for speculative purposes.
These investments involve, to varying degrees, elements of market risk and risks
in excess of the amount recognized in the Statement of Assets and Liabilities.
The face or contract amounts, shown in the Schedule of Investments under the
captions "Other Information", "Call Options" and "Put Options" reflect the
extent of the involvement the Funds have in the particular classes of these
instruments. Losses may be caused by an imperfect correlation between movements
in the price of the instruments and the price of the underlying securities and
interest rates and currency. Losses also may arise if there is an illiquid
secondary market for the instruments, or an inability of counterparties to
perform.
Upon entering into a futures contract, the Funds are required to deposit with
the Funds' custodian in a segregated account, either cash or securities in an
amount (initial margin) equal to a certain percentage of the contract value.
Subsequent payments (variation margin) are made or received by the Funds each
day. The variation margin payments are equal to the daily change in the contract
value and are recorded as unrealized gains and losses. The
52
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NOTES TO FINANCIAL STATEMENTS September 30, 1998
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Funds recognize a realized gain or loss when the futures contract is closed. The
Funds will realize a gain or loss upon the expiration or closing of an option
transaction. When an option is exercised, the proceeds on the sale of a security
as a result of exercising a written call option, the purchase cost of a security
acquired from exercising a written put option, or the proceeds on the sale of
the security from exercising a purchased put option or cost of the security
acquired from exercising a purchased call option is adjusted by the amount of
original premium received or paid.
SECURITY LENDING
The Funds may loan securities to brokers, dealers, and financial institutions
determined by GEIM to be creditworthy, up to a maximum of 30% of the total value
of the Fund's assets. The loans of securities will be secured by collateral in
the form of cash or other liquid assets, which will be segregated and maintained
with the custodian in an amount at least equal to the current market value of
the loaned securities. The Funds receive a lender fee in addition to the
interest and dividends on the loaned securities during the term of the loan. The
Funds will receive any gain or loss in the market value of its loaned securities
and of securities in which cash collateral is invested net of any rebate during
the term of the loan. 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.
3. Fees and Compensation Paid to Affiliates
ADVISORY AND ADMINISTRATION FEES
GE Investment Management, Incorporated ("GEIM"), a registered investment
adviser, was retained by the Trust's Board of Trustees effective September 10,
1997 to act as investment adviser and administrator of the Funds.
Compensation of GEIM, a wholly-owned subsidiary of General Electric Company, for
investment advisory and administrative services, is paid monthly based on the
average daily net assets of each Fund. The advisory and administration fee for
each Fund, except the S&P 500 Index Fund, declines incrementally as Fund assets
increase. The advisory and administrative fee is stated in the following
schedule:
Based on average daily net assets
AVERAGE DAILY ADVISORY AND
NET ASSETS OF FUND ADMINISTRATION FEES
- --------------------------------------------------------------------------------
Emerging Markets First $50 million 1.05%
Fund Over $50 million .95%
International First $25 million .75%
Equity Fund Next $50 million .65%
Over $75 million .55%
U.S. Equity Fund First $25 million .55%
Mid-Cap Next $25 million .45%
Growth Fund Over $50 million .35%
Small-Cap Value First $25 million .70%
Equity Fund Next $25 million .65%
Over $50 million .60%
S&P 500
Index Fund All assets .15%
Income Fund First $25 million .35%
Next $25 million .30%
Next $50 million .25%
Over $100 million .20%
Money Market Fund First $25 million .25%
Next $25 million .20%
Next $50 million .15%
Over $100 million .10%
From time to time, GEIM may waive or reimburse advisory or administrative fees
paid by a Fund.
TRUSTEE COMPENSATION
The Funds pay no compensation to their Trustees who are officers or employees of
GEIM or its affiliates. Trustees who are not such officers or employees receive
an annual fee of $5,000 and an additional fee of $500 per Trustees' meeting
attended in person. These fees are allocated proportionally among the funds
based upon the relative net assets of each fund.
4. Sub-advisory Fees
Pursuant to an investment sub-advisory agreement with GEIM, effective November
25, 1997, State Street Global Advisors ("SSgA"), a division of State Street Bank
and Trust Company, became the sub-advisor to the S&P 500 Index Fund. SSgA is
responsible for the day-to-day portfolio management of S&P 500 Index Fund,
including the responsibility for making decisions and placing orders to buy,
sell or hold a particular security, under the general supervision of GEIM and
the Board.
53
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NOTES TO FINANCIAL STATEMENTS September 30, 1998
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Pursuant to an investment sub-advisory agreement with GEIM, effective August 3,
1998, Palisade Capital Management, LLC ("Palisade") became the sub-adviser to
the Small-Cap Value Equity Fund. The Small-Cap Value Equity Fund is managed by
an investment advisory committee composed of the following members: Jack Feiler,
Martin L. Berman, Steven E. Berman, Richard Meisenberg and Mark Degenhart. Mr.
Feiler is responsible for the day-to-day portfolio management of the Small-Cap
Value Equity Fund's assets, including the responsibility for making decisions
and placing orders to buy, sell or hold a particular security, under the general
supervision of GEIM and the Board.
For their services, GEIM pays SSgA and Palisade monthly sub-advisory fees which
are calculated as a percentage of the average daily net assets of the respective
funds. The following annual rates apply for each of the fund's average daily net
assets;
S&P 500 SMALL-CAP
INDEX FUND VALUE EQUITY FUND
- --------------------------------------------------------------------------------
First $100 million .05% .35%
Next $100 million .04% .35%
Next $100 million .04% .325%
Amounts in excess
of $300 million .03% .30%
5. Aggregate Unrealized
Appreciation and Depreciation
Aggregate gross unrealized appreciation/(depreciation) of investments for each
Fund at September 30, 1998, were as follows:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
APPRECIATION DEPRECIATION (DEPRECIATION)
- --------------------------------------------------------------------------------
Emerging Markets
Fund $ 226,782 $ 2,528,845 $ (2,302,063)
International
Equity Fund 6,442,278 21,351,999 (14,909,721)
U.S. Equity Fund 10,949,938 9,692,673 1,257,265
Small-Cap Value
Equity Fund 309,130 1,068,999 (759,869)
Mid-Cap
Growth Fund 1,067,653 2,458,610 (1,390,957)
S&P 500
Index Fund 2,616,475 1,416,661 1,199,814
Income Fund 1,894,677 249,668 1,645,009
The aggregate cost of each Fund's investments was substantially the same for
book and federal income tax purposes at September 30, 1998.
6. Options
During the period ended September 30, 1998, the following option contracts were
written:
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF CONTRACTS PREMIUM
- --------------------------------------------------------------------------------
Balance as of November 25, 1997 -- $ --
Written 2 481
Closed and Expired (2) (481)
Exercised -- --
- --------------------------------------------------------------------------------
Balance as of September 30, 1998 0 $ 0
================================================================================
INCOME FUND
- --------------------------------------------------------------------------------
NUMBER
OF CONTRACTS PREMIUM
- --------------------------------------------------------------------------------
Balance as of November 21, 1997 -- $ --
Written 16,200 56,655
Closed and Expired (10,245) (32,388)
Exercised (1,990) (8,461)
- --------------------------------------------------------------------------------
Balance as of September 30, 1998 3,965 $ 15,806
================================================================================
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS September 30, 1998
- --------------------------------------------------------------------------------
7. Investment Transactions
The cost of purchases and the proceeds from sales of investments, other than
U.S. Government securities, short-term securities and options, for the period
ended September 30, 1998, were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
Emerging Markets Fund $ 11,441,494 $ 4,336,038
International
Equity Fund 170,522,587 48,888,415
U.S. Equity Fund 137,121,469 29,145,032
Small-Cap Value
Equity Fund 10,600,436 1,047,297
Mid-Cap Growth Fund 15,508,841 1,668,202
S&P 500 Index Fund 18,093,260 121,333
Income Fund 26,380,564 7,134,504
The cost of purchases and the proceeds from sales of long-term U.S. Government
securities for the period ended September 30, 1998, were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
Income Fund $ 217,761,912 $ 168,933,870
8. Beneficial Interest
The number of shareholders each owning 5% or more of a Fund and the total
percentage of the Fund held by such shareholders at September 30, 1998 are:
5% OR GREATER SHAREHOLDERS
- --------------------------------------------------------------------------------
% OF
NUMBER FUND HELD
- --------------------------------------------------------------------------------
Emerging Markets Fund 2 97%
International Equity Fund 4 91%
U.S. Equity Fund 3 98%
Small-Cap Value Equity Fund 1 100%
Mid-Cap Growth Fund 2 97%
S&P 500 Index Fund 2 99%
Income Fund 3 98%
Money Market Fund 3 100%
Investment activities of these shareholders could have a material impact on
these funds.
At September 30, 1998, GE Capital Assurance Company, an indirect wholly-owned
subsidiary of General Electric Company, owned 100% of the shares outstanding of
the GE Institutional Small-Cap Value Equity Fund.
55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of GE Institutional Funds
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds constituting GE
Institutional Funds (the "Trust") at September 30, 1998, and the results of
their operations, the changes in their net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at September 30, 1998 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 9, 1998
56
<PAGE>
GE Institutional Funds' Investment Team
- --------------------------------------------------------------------------------
Portfolio Managers
EMERGING MARKETS FUND
INTERNATIONAL EQUITY FUND
Team led by
Ralph R. Layman
U.S. EQUITY FUND
Team led by
Eugene K. Bolton
MID-CAP GROWTH FUND
Elaine G. Harris
SMALL-CAP VALUE EQUITY FUND
Investment Committee:
Jack Feiler
Martin L. Berman
Steven E. Berman
Richard Meisenberg
Mark Degenhart
Palisade Capital Mgmt., L.L.C.
S&P 500 INDEX FUND
Team led by
James B. May
State Street Global Advisors
INCOME FUND
MONEY MARKET FUND
Team led by
Robert A. MacDougall
Investment Adviser
and Administrator
GE Investment Management, Inc.
Trustees
Michael J. Cosgrove
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
Secretary
Matthew J. Simpson
Treasurer
Jeffrey A. Groh
Assistant Treasurers
Michael M. D'Ambrosio
Sandra J. O'Keefe
Michael J. Tansley
Distributor
GE Investment Distributors, Inc.
Member NASD and SIPC
Counsel
Sutherland, Asbill & Brennan, L.L.P
Custodian
State Street Bank & Trust Company
Independent Accountants
PricewaterhouseCoopers LLP
Officers of the Investment Adviser
John H. Myers, Chairman of the Board and President
Eugene K. Bolton, EVP, Domestic Equities
Michael J. Cosgrove, EVP, Mutual Funds
Ralph R. Layman, EVP, International Equities
Alan M. Lewis, EVP, General Counsel and Secretary
Robert A. MacDougall, EVP, Fixed Income
Geoffrey R. Norman, EVP, Institutional Marketing
Thomas J. Szkutak, EVP, Chief Financial Officer
Don W. Torey, EVP, Alternative Investments and Real Estate
<PAGE>
Investment Adviser
GE Investment Management Incorporated
3003 Summer Street
Stamford, CT 06905
Distributor
GE Investment Distributors, Inc.
Member NASD and SIPC
777 Long Ridge Road, Building B
Stamford, CT 06927
[GE Logo Omitted]
We bring good things to life.
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