GE INSTITUTIONAL FUNDS
ANNUAL REPORT
SEPTEMBER 30, 1999
[GE LOGO OMITTED]
WE BRING GOOD THINGS TO LIFE.
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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
EQUITY FUNDS
U.S. EQUITY FUND 3
S&P 500 INDEX FUND 7
MID-CAP GROWTH FUND 13
MID-CAP VALUE EQUITY FUND 17
SMALL-CAP VALUE EQUITY FUND 20
INTERNATIONAL EQUITY FUND 23
EUROPE EQUITY FUND 28
EMERGING MARKETS FUND 32
INCOME FUNDS 37
INCOME FUND
MONEY MARKET FUND
NOTES TO PERFORMANCE AND NOTES TO
SCHEDULES OF INVESTMENTS 45
FINANCIAL STATEMENTS
Financial Highlights 46
Notes to Financial Highlights 47
Statements of Assets and Liabilities,
Operations, and Changes in Net Assets 48
NOTES
Notes to Financial Statements 54
REPORT OF INDEPENDENT ACCOUNTANTS 60
TAX INFORMATION 61
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.
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A LETTER FROM THE PRESIDENT
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DEAR SHAREHOLDER:
We are pleased to provide you with the 1999 GE Institutional Funds Annual
Report.
MARKET REVIEW
For the past six months the U.S. stock market, as represented by the S&P 500
Index, has been in a narrow trading range, reaching a new high in July, and
testing the March lows in mid-September. The U.S. stock market has enjoyed a
high valuation level for the past few years, reflecting the uniquely favorable
investment climate of steady growth and low inflation. On the other hand, this
market remains vulnerable to high volatility given these valuation levels.
We entered 1999 with many investors fearing that the financial collapse of
Southeast Asia and Russia would cause a global recession. However, rather than
slowing down, the U.S. economy has remained very strong. Europe is improving,
and much of Asia is showing encouraging signs of recovery as well. Now the worry
is that strong non-inflationary growth might become unsustainable, causing
inflationary pressures that could put an end to the favorable investment
climate.
This fear is reflected by the long-term Treasury bond rate that rose to a high
of 6.25% and currently is around 6.0%, up 150 basis points (1.50%) from the lows
of last Fall. The Federal Reserve (the "Fed") has followed the bond market,
taking back two-thirds of last Fall's rate easing by raising short-term rates
50 basis points (0.50%), and we believe that the Fed will tighten again.
All of this is happening in an environment that exhibits few signs of potential
inflationary pressures. Oil prices have doubled from February's lows and are
back to the levels experienced in 1996. The U.S. dollar has declined against the
Japanese Yen, potentially leading to a rising cost of exports, and the
unemployment rate remains stubbornly low. However, since the oil shock of the
1970s, commodities, including oil, have shrunk significantly as a percentage of
U.S. business costs, the dollar is holding up well against the currencies of our
other trading partners, and labor costs are remarkably benign due to strong
gains in productivity. At the same time, the rest of the world is following the
U.S. example of restructuring and regulatory reform, and U.S. businesses, in the
second phase of restructuring, continue to redeploy capital into more
productive, higher-return industries, all of which is disinflationary.
OUTLOOK
Company fundamentals are strong, with earnings growth accelerating after last
Fall's slowdown. Companies that benefit from globalization and disinflation are
among the earnings leaders, but many of these companies have enjoyed extremely
high valuation levels. Thus, with the stock market still at high valuation
levels, and with market leadership remaining stubbornly narrow, we believe the
stock market will remain hostage to the bond market for the foreseeable future,
and volatility should also remain high. Therefore, our bottom up stock picking
approach should continue to add value for our investors during this period of
high volatility.
YEAR 2000
We are increasingly confident that most U.S. companies have addressed their Year
2000 ("Y2K") issues and do not anticipate any significant impact on U.S. markets
because of Y2K-related disruptions. There is some uncertainty, however, about
the Y2K readiness of companies in other parts of the world and how much effect
any lack of preparation will have on the global economy.
The GE Institutional Funds' adviser, GE Investment Management Incorporated
("GEIM") has incorporated "Year 2000 Y2K" readiness capability into its analysis
processes for the investment portfolios it manages. It has been engaged in a
multi-year effort to address its own Y2K date-related issues in a broad range of
areas including applications, process-enabling systems and facilities. GEIM also
benefits from the Y2K efforts of its parent, General Electric Company, which
systematically monitors
1
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A LETTER FROM THE PRESIDENT
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the implementation of the Y2K programs of all GE businesses and facilitates the
sharing of best practices. With respect to third-party systems, GEIM like many
similar companies, must rely largely on the efforts and affirmations of others;
however, it will continue to work closely with our most critical vendors, State
Street Bank and Trust Company, the funds' custodian and National Financial Data
Services, Inc., the funds' transfer agent. Although the interaction of various
software and hardware elements is highly complex -- and the possibility of Y2K
related problems cannot be totally eliminated -- GEIM believes it is taking the
appropriate steps.
Thank you for your continued investment in the GE Institutional Funds. We look
forward to helping you serve your financial needs in the future.
Sincerely,
/s/ SIGNATURE
Michael J. Cosgrove
MIKE COSGROVE IS THE PRESIDENT OF THE ASSET MANAGEMENT SERVICES GROUP OF GE
FINANCIAL ASSURANCE HOLDINGS, INC., AND OF GE INVESTMENT DISTRIBUTORS, INC., THE
FUNDS' DISTRIBUTOR, AND SERVES AS A TRUSTEE OF THE GE PENSION TRUST AND GE'S
EMPLOYEE SAVINGS PROGRAM. PREVIOUSLY CHIEF FINANCIAL OFFICER OF GE INVESTMENTS
AND ASSISTANT TREASURER-GE COMPANY, MIKE JOINED GE IN 1970 AND HELD A NUMBER OF
MANAGERIAL POSITIONS IN FINANCE AND SALES IN THE INTERNATIONAL OPERATION AND IN
GE TRADING COMPANY. HE HAS A B.S. IN ECONOMICS FROM FORDHAM UNIVERSITY AND AN
M.B.A. FROM ST. JOHN'S UNIVERSITY.
2
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U.S. EQUITY FUND
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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 $54
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
ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. The U.S. Equity Fund gained 28.27% for the twelve-month period. The fund's
benchmark, the S&P 500 Index, returned 27.81% for the same period.
Q. WHAT FACTORS AFFECTED FUND PERFORMANCE?
A. The fund outpaced its benchmark for the third consecutive quarter despite
the sharp narrowing of the overall market. It is worth remembering that in
October 1998, the stock market was reeling from the collapse of currencies
in Asia and Russia. The market rallied late in 1998 and in the first and
second quarters of 1999. The S&P 500 Index then declined 6.15% in the third
quarter, giving back nearly all of its second quarter gains. Despite this
volatility and the significant narrowing of the market, our valuation
discipline and longer term perspective has helped the fund to outperform
the market.
Q. WHICH INVESTMENTS STAND OUT?
A. The fund did particularly well in consumer cyclical stocks. Because of good
stock selection, these holdings outperformed both their sector and the
market. Cable TV stocks such as NTL and Comcast continued to provide
stellar performance because of strong fundamentals and the expectation that
they will begin to get a significant share of future internet traffic. The
financial sector is another area where good stock picking has paid off.
Financial stocks in general have trailed the S&P 500 Index due to rising
interest rates. However, several large holdings in the fund such as
Citigroup and American Express have significantly outperformed the market.
The capital goods sector showed the poorest relative performance. The fund
was overweight in this area and several stocks had disappointing results.
Waste Management was the worst performer, as earnings fell short of
expectations due to poor management execution. Hubbell, an electrical
components company also lagged, because of a delay in new products. The
technology sector represents the fund's greatest investment challenge
because of extremely high valuations. Most technology stocks show superb
earnings growth, very high margins and good return on capital. The question
is whether these companies can continue to grow at such high rates long
enough to justify their high price/earning ratios. We have been able to
find some good companies in this sector with reasonable valuations
considering their projected earnings growth rates. These would include EMC,
a manufacturer of computer storage products, Nortel, a telecommunications
equipment manufacturer, and Applied Materials, a maker of semiconductor
manufacturing equipment. The fund remains about 3% under the S&P 500 Index
weight of 24% in this sector. We will continue to invest in the technology
sector because of its importance to the information economy, but we plan to
stick with the cautious approach that we have been following.
Q. WHAT IS YOUR OUTLOOK FOR THE FUND?
A. We believe that the stock market will continue to be volatile in the months
ahead. The economy is strong; inflation is low; and there is little
indication of pressure on wages or prices. However, there is concern that
the economy is growing too fast which will eventually lead to inflation.
This has caused interest rates to increase, which is negative for stocks.
Longer term, as the economy slows somewhat, we expect interest rates to
decline but we could be in for a bumpy ride in the market until then. We
believe the fund is well positioned for good relative performance in this
environment.
3
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U.S. EQUITY FUND
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COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
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[LINE GRAPH OMITTED]
U.S. Equity Fund S&P 500
---------------- -------
11/25/97 $10,000.00 $10,000.00
12/97 10,298.16 10,222.19
3/98 11,529.14 11,649.34
6/98 11,819.37 12,035.49
9/98 10,628.43 10,844.74
12/98 12,743.71 13,155.76
3/99 13,467.20 13,808.61
6/99 14,562.76 14,769.59
9/99 13,632.57 13,860.54
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AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
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ONE SINCE
YEAR INCEPTION COMMENCEMENT
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U.S. Equity Fund 28.27% 18.24% 11/25/97
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S&P 500 27.81% 19.31%
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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.
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SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1999
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[PIE GRAPH OMITTED]
TECHNOLOGY 20.8%
FINANCIAL SERVICES 15.1%
CONSUMER 14.4%
HEALTHCARE 13.2%
UTILITIES 9.2%
CAPITAL GOODS 8.3%
ENERGY 7.7%
RETAIL TRADE 5.6%
CASH & OTHER+ 2.5%
BASIC MATERIALS 1.7%
TRANSPORTATION 1.5%
+ INCLUDES CASH EQUALIZED BY FUTURES OF 1.0%.
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TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
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Citigroup Inc. 3.11%
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Merck & Co. Inc. 2.48%
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Intel Corp. 2.24%
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Cisco Systems Inc. 2.21%
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Bristol-Myers Squibb Co. 2.18%
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International Business Machines 2.13%
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Microsoft Corp. 1.93%
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AlliedSignal Inc. 1.84%
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Cardinal Health Inc. 1.65%
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Exxon Corp. 1.64%
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
4
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SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
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U.S. EQUITY FUND
NUMBER
OF SHARES VALUE
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COMMON STOCK -- 97.0%
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BASIC MATERIALS -- 1.7%
Airgas Inc. 7,469 $ 86,827(a)
Barrick Gold Corp. 23,087 502,143
Du Pont de Nemours (E.I.) & Co. 6,246 380,225
Great Lakes Chemical Corp. 11,407 434,179
Mead Corp. 6,915 237,703
Newmont Mining Corp. 10,863 281,080
PPG Industries Inc. 9,099 545,940
Rayonier Inc. 8,148 342,216
2,810,313
CAPITAL GOODS -- 8.3%
AlliedSignal Inc. 49,514 2,967,745(e)
Deere & Co. 5,974 231,119
Dover Corp. 54,863 2,242,525
Emerson Electric Co. 26,294 1,661,452
Hubbell Inc. (Class B) 32,869 1,047,699
Lockheed Martin Corp. 5,432 177,559
Martin Marietta Materials Inc. 17,306 691,158
Masco Corp. 12,494 387,314
Molex Inc. (Class A) 30,420 984,848
Textron Inc. 17,980 1,391,203
United Technologies Corp. 12,710 753,862
Waste Management Inc. 41,556 799,953
13,336,437
[ICON OMITTED] CONSUMER - CYCLICAL -- 8.9%
AT&T Corp. - Liberty Media
Group (Class A) 35,309 1,310,847(a)
Carnival Corp. (Class A) 9,506 413,511
Catalina Marketing Corp. 8,828 748,725(a)
Comcast Corp. (Class A) 42,640 1,700,270
Ford Motor Co. 10,049 504,334
Gannett Inc. 23,330 1,614,144
Harman International
Industries Inc. 2,443 102,759
Interpublic Group Cos. Inc. 40,142 1,650,840
Knight-Ridder Inc. 11,678 640,830
McDonald's Corp. 26,075 1,121,225
MediaOne Group, Inc. 4,590 313,554(a)
NTL Inc. 16,838 1,618,027(a)
Stanley Works 2,173 54,732
Time Warner Inc. 9,994 607,136
Walt Disney Co. 27,756 718,186
Xerox Corp. 29,387 1,232,417
14,351,537
CONSUMER - STABLE -- 5.5%
Anheuser Busch Cos. Inc. 19,583 1,372,034
Avon Products Inc. 21,647 537,116
Bestfoods 7,333 355,651
Colgate-Palmolive Co. 3,477 159,073
General Mills Inc. 5,976 484,803
Gillette Co. 4,083 138,567
Heinz (H.J.) Co. 8,149 350,407
NUMBER
OF SHARES VALUE
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Pepsico Inc. 35,064 $ 1,060,686
Philip Morris Cos. Inc. 27,757 948,942
Procter & Gamble Co. 17,926 1,680,562
Ralston Purina Co. 33,623 935,140
Sara Lee Corp. 36,666 859,359
8,882,340
ENERGY -- 7.7%
Anadarko Petroleum Corp. 6,871 209,995
Baker Hughes Inc. 13,851 401,679
BP Amoco PLC ADR 2,988 331,108
Burlington Resources Inc. 21,049 773,551
Chevron Corp. 4,074 361,568
Conoco Inc. (Class B) 20,369 557,601
Exxon Corp. 34,812 2,643,536
Halliburton Co. 22,175 909,175
Mobil Corp. 13,852 1,395,589
Nabors Industries Inc. 6,328 158,200(a)
Royal Dutch Petroleum Co. 24,661 1,456,540
Schlumberger Ltd. 21,022 1,309,933
Texaco Inc. 6,518 411,449
Unocal Corp. 29,605 1,097,235
USX-Marathon Group 9,967 291,535
12,308,694
[ICON OMITTED] FINANCIAL -- 11.3%
American Express Co. 13,307 1,791,455
Associates First Capital
Corp. (Class A) 33,543 1,207,548
Bank of America Corp. 29,143 1,622,901
Bank of New York Inc. 10,592 354,170
BankBoston Corp. 7,801 338,368
Chase Manhattan Corp. 13,717 1,033,919
Citigroup Inc. 113,692 5,002,448
Countrywide Credit Industries Inc. 4,480 144,480
Federal National Mortgage Assoc 36,802 2,307,026
Fleet Financial Group Inc. 6,790 248,684
Goldman Sachs Group Inc. 6,247 381,067
Morgan Stanley Dean Witter & Co. 15,618 1,392,930
PNC Bank Corp. 4,617 243,258
State Street Corp. 7,529 486,562(f)
United States Bancorp 27,024 815,787
Wells Fargo & Co. 20,506 812,550
18,183,153
[ICON OMITTED] HEALTHCARE -- 13.2%
Abbott Laboratories 41,826 1,537,105
Allergan Inc. 7,386 812,460
Alza Corp. 2,717 116,321(a)
American Home Products Corp. 16,051 666,116
Amgen Inc. 12,221 996,011(a)
Bristol-Myers Squibb Co. 51,904 3,503,520
Cardinal Health Inc. 48,628 2,650,226
Dentsply International Inc. 7,604 172,991
Henry Schein Inc. 13,988 199,329(a)
Johnson & Johnson 22,027 2,023,731
Lincare Holdings Inc. 12,766 340,294(a)
Merck & Co. Inc. 61,707 3,999,385
Omnicare Inc. 5,704 54,901
Pfizer Inc. 15,970 573,922
Pharmacia & Upjohn Inc. 23,085 1,145,593
Schering Plough Corp. 15,753 687,225
Shire Pharmaceuticals Group
PLC ADR 3,530 101,708(a)
See Notes to Schedule of Investments and Notes to Financial Statements.
5
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U.S. EQUITY FUND
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NUMBER
OF SHARES VALUE
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Sybron International Corp. 18,339 $ 492,861(a)
United Healthcare Corp. 2,173 105,798
Warner-Lambert Co. 4,074 270,412
Watson Pharmaceuticals Inc. 24,716 755,383(a)
21,205,292
INSURANCE -- 3.8%
American International
Group Inc. 15,718 1,366,484
Berkshire Hathaway
Inc. (Class B) 592 1,098,752(a)
Chicago Title Corp. 656 26,199
Chubb Corp. 4,347 216,535
Hartford Financial Services
Group Inc. 7,061 288,618
Lincoln National Corp. 13,580 510,099
Loews Corp. 9,778 686,293
Marsh & McLennan Cos. Inc. 7,279 498,611
Reliastar Financial Corp. 16,296 541,842
St. Paul Cos. Inc. 6,111 168,053
UNUMProvident Corp. 26,211 771,586
6,173,072
RETAIL TRADE -- 5.6%
Costco Wholesale Corp. 12,222 879,984(a)
CVS Corp. 10,321 421,226
Dayton Hudson Corp. 38,703 2,324,599
Federated Department Stores Inc. 11,135 486,460(a)
Home Depot Inc. 22,814 1,565,611
Lowes Cos. Inc. 21,185 1,032,769
Sears Roebuck & Co. 5,431 170,397
Wal-Mart Stores Inc. 43,456 2,066,876
8,947,922
[ICON OMITTED] TECHNOLOGY -
ELECTRONICS & EQUIPMENT -- 12.0%
Analog Devices Inc. 22,679 1,162,299(a)
Applied Materials Inc. 18,903 1,468,527(a)
Cisco Systems Inc. 51,792 3,550,989(a)
Gateway Inc. 4,062 180,505(a)
Hewlett Packard Co. 4,346 399,832
Intel Corp. 48,480 3,602,670
International Business Machines 28,274 3,431,757
Nortel Networks Corp. 42,913 2,188,563
Pitney Bowes Inc. 16,703 1,017,839
Sun Microsystems Inc. 19,990 1,859,070(a)
Texas Instruments Inc. 6,246 513,733
19,375,784
TECHNOLOGY - SOFTWARE & SERVICES -- 8.3%
Acxiom Corp. 2,580 50,713(a)
Automatic Data Processing Inc. 33,733 1,505,335
Computer Sciences Corp. 9,778 687,516
EMC Corp. 31,099 2,221,635(a)
Equifax Inc. 70,084 1,971,112
First Data Corp. 59,480 2,609,685
Microsoft Corp. 34,359 3,111,637(a)
Reuters Group PLC ADR 3,387 233,280
Unisys Corp. 23,087 1,041,801(a)
13,432,714
NUMBER
OF SHARES VALUE
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TRANSPORTATION -- 1.5%
Burlington Northern
Santa Fe Corp. 32,592 $ 896,280
Canadian Pacific Ltd. 16,975 387,242
Continental Airlines Inc. (Class B) 17,246 564,807(a)
Delta Air Lines Inc. 10,320 500,520
2,348,849
[ICON OMITTED] UTILITIES -- 9.2%
AT&T Corp. 19,011 826,979
Bell Atlantic Corp. 13,037 877,553
CMS Energy Corp. 14,933 506,789
Duke Energy Corp. 16,567 913,256
Edison International 22,270 541,439
El Paso Energy Corp. 17,654 702,850
Florida Progress Corp. 9,641 445,896
FPL Group Inc. 12,765 643,037
Global Crossing Ltd. 19,487 516,413(a)
GTE Corp. 28,517 2,192,244
MCI WorldCom Inc. 8,150 585,781(a)
New Century Energies Inc. 17,110 572,116
SBC Communications Inc. 42,180 2,153,816
Sonat Inc. 2,716 107,791
Sprint Corp. 20,262 1,099,213
Texas Utilities Co. 7,605 283,762
U.S. WEST Inc. 16,568 945,412
Vodafone Group PLC ADR 3,937 936,022
14,850,369
TOTAL COMMON STOCK
(COST $135,223,517) 156,206,476
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PREFERRED STOCK -- 0.5%
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Microsoft Corp. (Series A), 2.75%
(COST $721,609) 7,740 779,321
TOTAL INVESTMENTS IN SECURITIES
(COST $135,945,126) 156,985,797
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SHORT-TERM INVESTMENT -- 2.5%
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GEI Short Term Investment Fund
(COST $3,946,748) 3,946,748 3,946,748
OTHER ASSETS AND LIABILITIES,
NET 0.0% 47,275
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NET ASSETS -- 100% $160,979,820
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OTHER INFORMATION
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The U.S. Equity Fund had the following long Futures Contracts open at September
30, 1999:
NUMBER
EXPIRATION OF UNDERLYING UNREALIZED
DESCRIPTION DATE CONTRACTS FACE VALUE LOSS
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S&P 500 Dec. 1999 5 $1,622,750 $(38,563)
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE U.S.
EQUITY FUND AT SEPTEMBER 30, 1999.
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See Notes to Schedule of Investments and Notes to Financial Statements.
6
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S&P 500 INDEX FUND
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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 $574 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
ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. The S&P 500 Index Fund posted a return of 28.41% for the one-year period
ended September 30, 1999. This compares with a 27.81% return for the S&P
500 Index for the same period.
Q. WHY DID THE FUND OVER PERFORM ITS BENCHMARK?
A. The fund over performance is credited to the optimization technique which
is used to manage the fund until the fund reaches a size sufficient to
enable it to invest in all the securities in the S&P 500 Index while
maintaining custody and trading costs at a reasonable level. As a result of
this technique, slight misweights of securities to the benchmark occur.
Those misweights cause fund performance to deviate from the benchmark.
Also, due to portfolio size constraints, the portfolio does not hold all
the securities in the S&P 500 Index. For the most part, the bottom portion
of the universe is not held by the fund. The performance of those stocks
has lagged relative to the S&P 500 Index. Omitting those stocks has
contributed to the over performance of the fund relative to the benchmark.
Q. WHAT HAPPENED IN THE DOMESTIC EQUITY MARKET DURING THE PAST TWELVE MONTHS?
A. The U. S. stock market rally continued to forge ahead over the past twelve
months with the S&P 500 Index recording a healthy return of 27.81% over
that time period. The negative monthly returns in the third quarter of 1999
took some air out of the lofty return of the S&P 500 as the index posted a
return of negative 6.15% for the quarter.
Despite a strong showing over the past year, small capitalization stocks as
measured by the Russell 2000 Index lagged large caps with a return of
19.07%. In previous years that mark would stand out. Today, that return is
dwarfed by the S&P 500.
The past year also saw the continued dominance of growth stocks. In the
large cap sector the S&P 500/BARRA Growth Index posted a 33.37% return for
the year while the S&P 500/BARRA Value Index posted a return of 21.47%.
Large cap value suffered more than growth in the third quarter of 1999 as
the S&P 500/BARRA Value Index lost 9.23% for the quarter while the S&P
500/BARRA Growth lost 3.49%.
The Federal Reserve took preemptive action twice this year raising the
federal funds rate 25 basis points (0.25%) in June and August. These
attempts to control inflation prompted many investors to move toward
companies that are more likely to continue posting strong earnings. Steve
Ballmer, President of Microsoft, added excitement to the markets and the
high flying technology sector in particular by suggesting that his company
may be overvalued. His comments spurred a sell off of technology stocks.
Q. WHAT HAS YOUR INVESTMENT STRATEGY BEEN?
A. We continue to use an optimization technique to manage the S&P 500 Index
Fund until the fund reaches a size sufficient to enable it to fully
replicate the S&P 500 Index. With this strategy, a portfolio of
approximately 420 stocks has been created to represent the characteristics
of the underlying benchmark, the S&P 500 Index. This methodology allows a
fund of limited asset size to track the Index while keeping custody and
trading costs to a minimum.
Q. WHAT IS THE OUTLOOK FOR THE FUND AND HOW HAVE YOU POSITIONED THE FUND
GOING FOWARD?
A. Due to the passive investment style of the fund, it will remain fully
exposed to the S&P 500 Index to provide as close tracking as possible.
7
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE GRAPH OMITTED]
S&P 500 INDEX FUND S&P 500
11/25/97 10,000.00 10,000.00
12/97 10,212.03 10,222.19
3/98 11,643.72 11,649.34
6/98 12,044.19 12,035.49
9/98 10,862.80 10,844.74
12/98 13,198.03 13,155.76
3/99 13,888.39 13,808.61
6/99 14,873.17 14,769.59
9/99 13,949.31 13,860.54
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
ONE SINCE
YEAR INCEPTION COMMENCEMENT
- ---------------------------------------------------------------------------
S&P 500 Index Fund 28.41% 19.72% 11/25/97
- ---------------------------------------------------------------------------
S&P 500 27.81% 19.31%
- ---------------------------------------------------------------------------
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, 1999
- --------------------------------------------------------------------------------
[PIE GRAPH OMITTED]
TECHNOLOGY 23.7%
CONSUMER 14.4%
FINANCIAL SERVICES 13.8%
UTILITIES 10.8%
HEALTHCARE 10.4%
CAPITAL GOODS 8.3%
ENERGY 6.2%
RETAIL TRADE 5.9%
BASIC MATERIALS 3.3%
CASH & OTHER* 2.3%
TRANSPORTATION 0.9%
- ------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
- ------------------------------------------------------------
Microsoft Corp. 4.29%
- ------------------------------------------------------------
General Electric Co. 3.60%
- ------------------------------------------------------------
Intel Corp. 2.26%
- ------------------------------------------------------------
Cisco Systems Inc. 2.03%
- ------------------------------------------------------------
International Business Machines 2.03%
- ------------------------------------------------------------
Wal-Mart Stores Inc. 1.93%
- ------------------------------------------------------------
Lucent Technologies Inc. 1.82%
- ------------------------------------------------------------
Exxon Corp. 1.70%
- ------------------------------------------------------------
Merck & Co. Inc. 1.43%
- ------------------------------------------------------------
Citigroup Inc. 1.36%
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
8
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
S&P 500 INDEX FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.7%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 3.3%
Air Products & Chemicals Inc. 700 $ 20,344
Alcan Aluminum Ltd. 900 28,125
Alcoa Inc. 1,000 62,062
Allegheny Teldyne Inc. 800 13,500
Avery Dennison Corp. 300 15,825
Barrick Gold Corp. 1,400 30,450
Champion International Corp. 400 20,550
Crown Cork & Seal Inc. 500 12,125
Dow Chemical Co. 600 68,175
Du Pont de Nemours (E.I.) & Co. 2,703 167,857
Eastman Chemical Co. 100 4,000
Ecolab Inc. 200 6,825
Fort James Corp. 600 16,012
Freeport McMoran Copper
& Gold Inc. (Class B) 100 1,556
Georgia Pacific Corp. 600 24,300
Hercules Inc. 100 2,863
Homestake Mining Co. 100 919
Inco Ltd. 300 6,413
International Paper Co. 1,097 52,725
Mead Corp. 400 13,750
Monsanto Co. 1,500 53,531
Newmont Mining Corp. 800 20,700
Nucor Corp. 300 14,287
Owens-Illinois Inc. 200 3,963(a)
Placer Dome Inc. 300 4,463
PPG Industries Inc. 600 36,000
Praxair Inc. 500 23,000
Reynolds Metals Co. 300 18,112
Rohm & Haas Co. 500 18,062
Sealed Air Corp. 100 5,131(a)
Sherwin-Williams Co. 600 12,563
Sigma-Aldrich Corp. 200 6,350
Union Carbide Corp. 400 22,725
Weyerhaeuser Co. 600 34,575
Willamette Industries Inc. 400 17,250
859,088
CAPITAL GOODS -- 8.3%
AlliedSignal Inc. 1,400 83,912
Boeing Co. 2,300 98,037
Case Corp. 100 4,981
Caterpillar Inc. 1,000 54,812
Cooper Industries Inc. 400 18,700
Corning Inc. 600 41,137
Danaher Corp. 400 21,075
Deere & Co. 700 27,081
Dover Corp. 700 28,613
Eaton Corp. 300 25,894
Emerson Electric Co. 1,100 69,506
Fluor Corp. 100 4,025
General Dynamics Corp. 300 18,731
General Electric Co. 8,000 948,500(e)
Grainger (W.W.) Inc. 300 14,419
Honeywell Inc. 400 44,525
Illinois Tool Works Inc. 600 44,737
Ingersoll Rand Co. 500 27,469
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Johnson Controls Inc. 300 $ 19,894
Lockheed Martin Corp. 1,000 32,688
Minnesota Mining &
Manufacturing Co. 1,000 96,062
Navistar International Corp. Inc. 100 4,650(a)
Northrop Grumman Corp. 300 19,069
PACCAR Inc. 100 5,088
Parker Hannifin Corp. 400 17,925
Raytheon Co. (Class B) 800 39,700
Rockwell International Corp. 600 31,500
Tenneco Inc. 700 11,900
Textron Inc. 400 30,950
Thermo Electron Corp. 200 2,688(a)
Tyco International Ltd. 2,049 211,559
United Technologies Corp. 1,100 65,244
Waste Management Inc. 1,470 28,298
2,193,369
CONSUMER - CYCLICAL -- 6.4%
Black & Decker Corp. 300 13,706
Block H & R Inc. 300 13,031
Brunswick Corp. 100 2,488
Carnival Corp. (Class A) 1,500 65,250
CBS Corp. 1,800 83,250(a)
Cendant Corp. 2,138 37,949(a)
Clear Channel
Communications Inc. 800 63,900(a)
Comcast Corp. (Class A) 1,800 71,775
Dana Corp. 600 22,275
Delphi Automotive Systems Corp. 1,118 17,958
Donnelley (R.R.) & Sons Co. 500 14,438
Dow Jones & Co. Inc. 300 16,012
Dun & Bradstreet Corp. 300 8,963
Eastman Kodak Co. 800 60,350
Ford Motor Co. 2,900 145,544
Gannett Inc. 700 48,431
General Motors Corp. 1,600 100,700
Genuine Parts Co. 700 18,594
Goodyear Tire & Rubber Co. 500 24,062
Harrahs Entertainment Inc. 100 2,775(a)
Hasbro Inc. 550 11,791
Hilton Hotels Corp. 400 3,950
Interpublic Group Cos. Inc. 800 32,900
ITT Industries Inc. 400 12,725
Laidlaw Environmental
Services Inc. 100 675
Marriott International Inc.
(Class A) 700 22,881
Masco Corp. 1,000 31,000
Mattel Inc. 900 17,100
Maytag Corp. 300 9,994
McGraw Hill Cos. Inc. 500 24,187
MediaOne Group Inc. 1,500 102,469(a)
Mirage Resorts Inc. 300 4,219(a)
New York Times Co. (Class A) 600 22,500
Nike Inc. (Class B) 700 39,812
Omnicom Group Inc. 400 31,675
Service Corp. International 1,000 10,563
Time Warner Inc. 2,900 176,175
Times Mirror Co. 300 19,744
Tribune Co. 600 29,850
TRW Inc. 400 19,900
VF Corp. 400 12,400
Viacom Inc. (Class B) 1,700 71,825(a)
Walt Disney Co. 4,900 126,787
Whirlpool Corp. 300 19,594
1,686,167
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
9
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
CONSUMER - STABLE -- 8.0%
Anheuser Busch Cos. Inc. 1,100 $ 77,069
Archer-Daniels Midland Co. 1,858 22,638
Avon Products Inc. 700 17,369
Bestfoods 700 33,950
Brown-Forman Corp. (Class B) 100 6,238
Campbell Soup Co. 1,100 43,037
Clorox Co. 600 22,950
Coca-Cola Enterprises Inc. 1,000 22,563
Coca-Cola Co. 6,000 288,375(e)
Colgate-Palmolive Co. 1,400 64,050
Conagra Inc. 1,300 29,331
Darden Restaurants Inc. 200 3,913
Fortune Brands Inc. 500 16,125
General Mills Inc. 400 32,450
Gillette Co. 2,600 88,237
Heinz (H.J.) Co. 900 38,700
Hershey Foods Corp. 400 19,475
International Flavours 100 3,450
Kellogg Co. 1,000 37,438
Kimberly Clark Corp. 1,300 68,250
McDonald's Corp. 3,200 137,600
Nabisco Group Holdings Corp. 1,000 15,000
Newell Rubbermaid Inc. 715 20,422
Pepsico Inc. 3,500 105,875
Philip Morris Cos. Inc. 5,800 198,287(e)
Procter & Gamble Co. 3,200 300,000
Quaker Oats Co. 400 24,750
Ralston Purina Co. 900 25,031
Safeway Inc. 1,200 45,675(a)
Sara Lee Corp. 2,300 53,906
Seagram Ltd. 1,000 45,500
Supervalu Inc. 100 2,181
Sysco Corp. 900 31,556
Tricon Global Restaurants Inc. 400 16,375(a)
Tupperware Corp. 100 2,025
Unilever N.V 1,339 91,219
UST Inc. 700 21,131
Wendy's International Inc. 100 2,638
Wrigley (W.M.) Junior Co. 300 20,644
2,095,423
ENERGY -- 6.2%
Amerada Hess Corp. 400 24,500
Anadarko Petroleum Corp. 200 6,113
Apache Corp. 200 8,638
Ashland Oil Inc. 400 13,450
Atlantic Richfield Co. 800 70,900
Baker Hughes Inc. 970 28,130
Burlington Resources Inc. 600 22,050
Chevron Corp. 1,500 133,125
Conoco Inc. (Class B) 1,542 42,212
Exxon Corp. 5,900 448,031(e)
Halliburton Co. 1,100 45,100
Kerr-McGee Corp. 400 22,025
Mobil Corp. 1,800 181,350
Occidental Petroleum Corp. 1,300 30,062
Phillips Petroleum Co. 800 39,000
Royal Dutch Petroleum Co. ADR 5,100 301,219
Schlumberger Ltd. 1,300 81,006
Texaco Inc. 1,400 88,375
Union Pacific Resources Group Inc. 500 8,031
Unocal Corp. 700 25,944
USX-Marathon Group 900 26,325
1,645,586
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
[ICON OMITTED] FINANCIAL -- 11.1%
American Express Co. 1,100 $ 148,087
American General Corp. 600 37,913
AmSouth Bancorp 600 14,063
Associates First Capital
Corp. (Class A) 1,714 61,704
Bank of America Corp. 4,203 234,055
Bank of New York Inc. 1,800 60,187
Bank One Corp. 2,764 96,222
BankBoston Corp. 800 34,700
BB&T Corp. 800 25,900
Bear Stearns Cos. Inc. 400 15,375
Capital One Financial Corp. 600 23,400
Charles Schwab Corp. 1,900 64,006
Chase Manhattan Corp. 2,000 150,750
Citigroup Inc. 8,162 359,128
Comerica Inc. 450 22,781
Countrywide Credit Industries 400 12,900
Federal Home Loan
Mortgage Corp. 1,600 83,200
Federal National Mortgage Assoc 2,400 150,450
Fifth Third Bancorp 600 36,506
First Union Corp. 2,210 78,593
Firstar Corp. 2,545 65,216
Fleet Financial Group Inc. 1,400 51,275
Franklin Resources Inc. 700 21,525
Golden West Financial Corp. 100 9,825
Household International Inc. 1,206 48,391
Huntington Bancshares Inc. 726 19,284
KeyCorp 1,200 30,975
Lehman Brothers Holdings Inc. 300 17,494
MBIA Inc. 300 13,988
MBNA Corp. 2,050 46,766
Mellon Bank Corp. 1,200 40,500
Merrill Lynch & Co. Inc. 800 53,750
MGIC Investment Corp. 200 9,550
Morgan (J.P.) & Co. Inc. 400 45,700
Morgan Stanley, Dean
Witter & Co. 1,400 124,862
National City Corp. 1,400 37,363
Northern Trust Corp. 300 25,050
PNC Bank Corp. 700 36,881
Providian Financial Corp. 300 23,756
Regions Financial Corp. 700 21,000
Republic of New York Corp. 300 18,431
SLM Holding Corp. 500 21,500
SouthTrust Corp. 500 17,938
State Street Corp. 400 25,850(f)
Summit Bancorp 600 19,463
Suntrust Banks Inc. 800 52,600
Synovus Financial Corp. 800 14,950
Union Planters Corp. 500 20,375
United States Bancorp 1,700 51,319
Wachovia Corp. 500 39,312
Washington Mutual Inc. 1,522 44,518
Wells Fargo & Co. 3,900 154,537
2,933,864
[ICON OMITTED] HEALTHCARE -- 10.4%
Abbott Laboratories 3,700 135,975
Aetna Inc. 400 19,700
Allergan Inc. 200 22,000
Alza Corp. 200 8,563(a)
American Home Products Corp. 3,200 132,800
Amgen Inc. 1,200 97,800(a)
Bard (C.R.) Inc. 100 4,706
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
10
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Bausch & Lomb Inc. 100 $ 6,594
Baxter International Inc. 700 42,175
Becton Dickinson & Co. 700 19,644
Biomet Inc. 200 5,263
Boston Scientific Corp. 1,000 24,687(a)
Bristol-Myers Squibb Co. 4,900 330,750
Cardinal Health Inc. 750 40,875
Columbia/HCA Healthcare Corp. 1,800 38,137
Eli Lilly & Co. 2,700 172,800(e)
Guidant Corp. 800 42,900
Healthsouth Corp. 1,400 8,488(a)
Humana Inc. 200 1,375(a)
Johnson & Johnson 3,300 303,187(e)
Mallinckrodt Inc. 100 3,019
McKesson HBOC Inc. 744 21,576
Medtronic Inc. 2,800 99,400
Merck & Co. Inc. 5,800 375,912
Pfizer Inc. 9,600 345,000
Pharmacia & Upjohn Inc. 1,300 64,512
Schering Plough Corp. 3,600 157,050
St. Jude Medical Inc. 100 3,150(a)
Tenet Healthcare Corp. 1,000 17,563(a)
United Healthcare Corp. 500 24,344
Warner-Lambert Co. 2,100 139,387
Watson Pharmaceuticals Inc. 200 6,113(a)
Wellpoint Health
Networks Inc. (Class A) 200 11,400(a)
2,726,845
INSURANCE -- 2.7%
AFLAC Inc. 600 25,125
Allstate Corp. 1,900 47,381
American International Group Inc. 3,766 327,407
Aon Corp. 600 17,737
Chubb Corp. 400 19,925
CIGNA Corp. 500 38,875
Cincinnati Financial Corp. 500 18,766
Conseco Inc. 874 16,879
Hartford Financial Services
Group Inc. 600 24,525
Jefferson-Pilot Corp. 300 18,956
Lincoln National Corp. 600 22,537
Loews Corp. 400 28,075
Marsh & McLennan Cos. Inc. 600 41,100
Progressive Corp. 200 16,338
Safeco Corp. 500 14,000
St. Paul Cos. Inc. 700 19,250
Torchmark Corp. 200 5,175
UNUMProvident Corp. 546 16,073
718,124
RETAIL TRADE -- 5.9%
Albertsons Inc. 1,041 41,185
Autozone Inc. 300 8,419(a)
Best Buy Co. Inc. 500 31,031(a)
Circuit City Stores Inc. 600 25,313
Consolidated Stores Corp. 200 4,413(a)
Costco Cos. Inc. 500 36,000(a)
CVS Corp. 1,000 40,812
Dayton Hudson Corp. 1,100 66,069
Dillards Inc. (Class A) 100 2,031
Dollar General Corp. 593 18,309
Federated Department Stores Inc. 600 26,212(a)
Gap Inc. 2,062 65,984
Home Depot Inc. 3,600 247,050
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
J.C. Penney Co. Inc. 800 $ 27,500
K Mart Corp. 1,500 17,531(a)
Kohl's Corp. 400 26,450(a)
Kroger Co. 2,000 44,125(a)
Limited Inc. 658 25,169
Lowes Cos. Inc. 900 43,875
May Department Stores Co. 1,000 36,437
Nordstrom Inc. 200 5,400
Office Depot Inc. 800 8,150(a)
Rite Aid Corp. 700 9,669
Sears Roebuck & Co. 1,000 31,375
Staples Inc. 1,200 26,175(a)
Tandy Corp. 600 31,012
TJX Cos. Inc. 900 25,256
Toys 'R Us Inc. 800 12,000(a)
Wal-Mart Stores Inc. 10,700 508,919
Walgreen Co. 2,400 60,900
Winn Dixie Stores Inc. 400 11,875
1,564,646
[ICON OMITTED] TECHNOLOGY -
ELECTRONICS & EQUIPMENT -- 15.0%
3Com Corp. 1,000 28,750(a)
Advanced Micro Devices Inc. 200 3,438(a)
Andrew Corp. 100 1,738(a)
Apple Computer 300 18,994(a)
Applied Materials Inc. 1,000 77,687(a)
Cabletron Systems Inc. 300 4,706(a)
Cisco Systems Inc. 7,800 534,787(a)
Compaq Computer Corp. 4,172 95,695
Data General Corp. 100 2,106(a)
Dell Computer Corp. 6,200 259,237(a)
Gateway 2000 Inc. 800 35,550(a)
General Instrument Corp. 500 24,063(a)
Hewlett Packard Co. 2,500 230,000
Ikon Office Solutions Inc. 200 2,138
Intel Corp. 8,000 594,500(e)
International Business Machines 4,400 534,050
KLA-Tencor Corp. 200 13,000(a)
LSI Logic Corp. 300 15,450(a)
Lucent Technologies Inc. 7,390 479,426(e)
Micron Technology Inc. 700 46,594(a)
Motorola Inc. 1,500 132,000
National Semiconductor Corp. 300 9,150(a)
Network Appliance Inc. 100 7,163(a)
Nortel Networks Corp. 3,240 165,240
Pitney Bowes Inc. 700 42,656
Qualcomm Inc. 300 56,756
Scientific-Atlanta Inc. 100 4,956
Seagate Technology 700 21,569(a)
Silicon Graphics Inc. 300 3,281(a)
Solectron Corp. 700 50,269(a)
Sun Microsystems Inc. 1,900 176,700(a)
Tektronix Inc. 100 3,350
Tellabs Inc. 1,000 56,938(a)
Texas Instruments Inc. 2,000 164,500
Xerox Corp. 1,600 67,100
3,963,537
[ICON OMITTED] TECHNOLOGY -
SOFTWARE & SERVICES -- 8.7%
Adobe Systems Inc. 100 11,350
America Online Inc. 2,700 280,800
Automatic Data Processing Inc. 1,500 66,937
BMC Software Inc. 700 50,094(a)
Ceridian Corp. 300 7,463(a)
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
11
<PAGE>
S&P 500 INDEX FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Computer Associates
International Inc. 1,450 $ 88,812
Computer Sciences Corp. 400 28,125
Compuware Corp. 1,100 28,669(a)
Electronic Data Systems Corp. 1,200 63,525
EMC Corp. 2,400 171,450(a)
Equifax Inc. 300 8,438
First Data Corp. 1,100 48,262
IMS Health Inc. 800 18,250
Microsoft Corp. 12,500 1,132,031(a,e)
Novell Inc. 1,000 20,688(a)
Oracle Systems Corp. 3,550 161,525(a)
Parametric Technology Corp. 500 6,750(a)
Paychex Inc. 600 20,475
PE Corp. 400 28,900
PeopleSoft Inc. 400 6,775(a)
Unisys Corp. 700 31,587(a)
2,280,906
TRANSPORTATION -- 0.9%
AMR Corp. 500 27,250(a)
Burlington Northern
Santa Fe Corp. 1,200 33,000
CSX Corp. 600 25,425
Delta Air Lines Inc. 400 19,400
FDX Corp. 800 31,000(a)
Kansas City Southern
Industries Inc. 300 13,931
Norfolk Southern Corp. 1,000 24,500
Southwest Airlines Co. 1,200 18,225
U.S. Airways Group Inc. 100 2,625(a)
Union Pacific Corp. N.V 600 28,838
224,194
[ICON OMITTED] UTILITIES -- 10.8%
AES Corp. 500 29,500(a)
Alltel Corp. 700 49,262
Ameren Corp. 200 7,563
American Electric Power Inc. 500 17,062
AT&T Corp. 7,762 337,647
Ameritech Corp. 2,700 181,406
Bell Atlantic Corp. 3,800 255,787
Bellsouth Corp. 4,600 207,000
Carolina Power & Light Co. 400 14,150
Central & South West Corp. 300 6,338
CenturyTel Inc. 400 16,250
CINergy Corp. 600 16,987
CMS Energy Corp. 100 3,394
Coastal Corp. 700 28,656
Columbia Energy Corp. 100 5,538
Consolidated Edison Inc. 600 24,900
Consolidated Natural Gas Co. 400 24,950
Constellation Energy Group 200 5,625
Dominion Resources Inc. 500 22,562
DTE Energy Co. 200 7,225
Duke Energy Corp. 800 44,100
Edison International 1,100 26,744
Enron Corp. 1,600 66,000
Entergy Corp. 700 20,256
FirstEnergy Corp. 700 17,850
Florida Progress Corp. 200 9,250
FPL Group Inc. 400 20,150
Global Crossing Ltd. 1,025 27,162(a)
GPU Inc. 400 13,050
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
GTE Corp. 2,300 $ 176,812
MCI WorldCom Inc. 4,514 324,444(a)
New Century Energies Inc. 500 16,719
Nextel Communications
Inc. (Class A) 800 54,250(a)
Niagara Mohawk Power Corp. 200 3,088(a)
Northern States Power Co. 100 2,156
Pacificorp 1,100 22,137
Peco Energy Co. 500 18,750
PG&E Corp. 1,000 25,875
PP&L Resources Inc. 200 5,413
Public Service Enterprise Group 600 23,175
Reliant Energy Inc. 800 21,650
SBC Communications Inc. 4,800 245,100
Sempra Energy 300 6,244
Sonat Inc. 100 3,969
Southern Co. 1,600 41,200
Sprint Corp. 2,200 119,350
Sprint Corp.(PCS Group) 1,050 78,291(a)
Texas Utilities Co. 700 26,119
U.S. WEST Inc. 1,246 71,100
Unicom Corp. 600 22,162
Williams Cos. Inc. 1,100 41,181
2,855,549
TOTAL INVESTMENTS IN SECURITIES
(COST $19,778,451) 25,747,298
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.2%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund 227,039 227,039
Money Market Obligations Trust 263,604 263,604
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT -- 0.3%
UNITED STATES TREASURY BILL
4.634% 12/16/99 $85,000 84,151(d)
TOTAL SHORT-TERM INVESTMENTS
(COST $574,794) 574,794
OTHER ASSETS AND LIABILITIES,
NET 0.1% 37,322
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $26,359,414
================================================================================
OTHER INFORMATION
- --------------------------------------------------------------------------------
The S&P 500 Index Fund had the following long Futures Contracts open at
September 30, 1999:
NUMBER
EXPIRATION OF UNDERLYING UNREALIZED
DESCRIPTION DATE CONTRACTS FACE VALUE LOSS
- --------------------------------------------------------------------------------
S&P 500 Dec. 1999 2 $649,100 $(27,500)
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE U.S.
EQUITY FUND AT SEPTEMBER 30, 1999.
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
12
<PAGE>
MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
Q&A
RALPH (CHIP) E. WHITMAN IS THE PORTFOLIO MANAGER OF THE MID-CAP GROWTH FUND
SINCE DECEMBER 1998. HE IS CURRENTLY A SENIOR VICE PRESIDENT OF GE INVESTMENTS.
CHIP HAS MORE THAN 11 YEARS OF INVESTMENT EXPERIENCE AND HAS HELD POSITIONS WITH
GE INVESTMENTS SINCE 1987. CHIP IS A CHARTERED FINANCIAL ANALYST. HE HOLDS A
B.A. IN MATHEMATICS FROM HAMILTON COLLEGE AND A M.S. IN MANAGEMENT FROM THE
SLOAN SCHOOL AT MIT.
BETWEEN OCTOBER 1997 AND NOVEMBER 1998, ELAINE G. HARRIS WAS THE PORTFOLIO
MANAGER OF THE FUND.
Q. HOW DID THE MID-CAP GROWTH FUND PERFORM COMPARED TO ITS BENCHMARK FOR THE
ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. The Mid-Cap Growth Fund returned 15.19%, compared to its benchmark, the
Standard & Poor's MidCap 400 Index, which returned 25.16% for the one-year
period ended September 30, 1999.
Q. WHAT FACTORS CONTRIBUTED TO FUND PERFORMANCE?
A. Our performance benefited from a rebound in oil service stocks as well as
strength in telecommunications equipment and the diversified industrial
sector. Additionally, several companies in the portfolio were targets of
acquisitions over the last year.
Although the fund's technology holdings generally were strong performers,
our underweight position, relative to the benchmark, hurt overall
performance of the fund because of that sector's superb return. Negative
returns in the consumer stable sector, especially healthcare services, also
contributed to the underperformance for the 12 month period.
Q. WHICH STOCKS STAND OUT FOR THE ONE YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. In the technology sector, Nokia was up 130% and Nortel gained 218% as
strength in telecommunications continued. Other top performers include
Analog Devices, in the vibrant semiconductor industry, which rose 219% and
Qwest Communications International, which gained 89% as it continued to
execute its data network strategy. Companies in the portfolio that were
acquired include Morton International and AirTouch Communications. Sealed
Air, another recent acquisition, returned 61% after its merger with
Cryovac, proved to be a long-term win for the company.
Unfortunately, companies such as Allied Waste Industries, in the pollution
control industry, and Service Corp. International, a funeral provider, once
viewed as growth stocks, could not generate a sufficient amount of internal
growth since industry trends were deteriorating. The stocks were punished
accordingly. Within healthcare services, Henry Schein suffered because of
merger integration and McKesson HBOC declined after accounting
irregularities were exposed.
Q. WHAT CHANGES HAVE YOU MADE TO THE FUND?
A. Over the last 12 months, we refocused the fund on fewer stocks. We will
continue to invest in companies with strong earnings growth, high quality
management and reasonable valuations. Given the uncertainty of the current
economic environment, we are overweight in the sectors we believe show the
best stability and growth for a reasonable valuation. These include
financial services and capital goods issues.
Q. WHAT IS THE OUTLOOK FOR THE FUND?
A. We believe the fund is well positioned to take advantage of an expected
rotation away from technology, telecommunications and internet stocks.
These areas have produced astounding returns over the past few years and
now trade at exceptionally high valuations. While the fund has holdings in
these sectors, recent purchases include stocks in sectors such as capital
goods, consumer stables and financial industries.
With fewer stocks in the portfolio and an emphasis on the highest quality
stocks within each sector, we hope to improve the fund's performance and
generate returns in excess of our benchmark.
13
<PAGE>
MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
- ----------------------------------------------------------------------
[LINE GRAPH OMITTED]
MID-CAP GROWTH FUND S&P MID CAP 400
11/25/97 $ 10,000.00 $ 10,000.00
12/97 10,136.02 10,338.10
3/98 11,276.71 11,532.24
6/98 10,856.45 11,285.16
9/98 8,875.28 9,652.59
12/98 10,605.93 12,373.80
3/99 10,595.87 11,584.29
6/99 11,531.69 13,224.34
9/99 10,223.56 12,113.76
- ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
ONE SINCE
YEAR INCEPTION COMMENCEMENT
- ----------------------------------------------------------------------
Mid-Cap Growth Fund 15.19% 1.20% 11/25/97
- ----------------------------------------------------------------------
S&P MidCap 400 25.16% 10.93%
- ----------------------------------------------------------------------
INVESTMENT PROFILE
A mutual fund designed for investors who seek long-term growth of capital
by investment 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, 1999
- ----------------------------------------------------------------------
[PIE GRAPH OMITTED]
FINANCIAL SERVICES 16.5%
CONSUMER 16.4%
CAPITAL GOODS 15.7%
TECHNOLOGY 13.6%
CASH & OTHER+ 11.3%
HEALTHCARE 8.3%
RETAIL TRADE 8.3%
ENERGY 4.2%
UTILITIES 3.5%
BASIC MATERIALS 2.2%
+INCLUDES CASH EQUALIZED BY FUTURES OF 1.3%.
- ----------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
Analog Devices Inc. 3.84%
- ----------------------------------------------------------------------
Nokia Corp. ADR 3.22%
- ----------------------------------------------------------------------
Tyco International Ltd. 2.75%
- ----------------------------------------------------------------------
Federated Department Stores Inc. 2.61%
- ----------------------------------------------------------------------
Viad Corp. 2.35%
- ----------------------------------------------------------------------
Masco Corp. 2.32%
- ----------------------------------------------------------------------
Bank of New York Inc. 2.14%
- ----------------------------------------------------------------------
Knoll Inc. 2.14%
- ----------------------------------------------------------------------
Nortel Networks Corp. 2.11%
- ----------------------------------------------------------------------
Clear Channel Communications Inc. 2.06%
- ----------------------------------------------------------------------
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
14
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
MID-CAP GROWTH FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 88.7%
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 2.2%
CK Witco Corp. 6,097 $ 88,788
Rohm & Hass Co. 1,731 62,532
Sealed Air Corp. 3,659 187,752(a)
339,072
[ICON OMITTED] CAPITAL GOODS -- 15.7%
Allied Waste Industries Inc. 3,260 38,101(a)
AlliedSignal Inc. 3,963 237,532
Dover Corp. 5,000 204,375
Gerber Scientific Inc. 1,525 34,122
Hubbell Inc. (Class B) 3,476 110,798
Martin Marietta Materials Inc. 6,585 262,988
Masco Corp. 11,463 355,353
Mettler-Toledo International Inc. 8,171 242,066(a)
Molex Inc. (Class A) 5,183 167,800
Textron Inc. 3,293 254,796
Thermo Electron Corp. 6,097 81,928(a)
Tyco International Ltd. 4,085 421,776
2,411,635
[ICON OMITTED] CONSUMER - CYCLICAL -- 15.2%
Clear Channel
Communications Inc. 3,952 315,666(a)
Dial Corp. 11,463 292,307
Interpublic Group Cos. Inc. 6,708 275,867
ITT Industries Inc. 9,146 290,957
Jones Apparel Group Inc. 6,280 180,550(a)
Knoll Inc. 12,196 327,767(a)
Service Corp. International 6,975 73,673
U.S. Industries Inc. 13,110 206,483
Viad Corp. 12,195 359,752
2,323,022
CONSUMER - STABLE -- 1.2%
Manor Care Inc. 10,671 183,408(a)
ENERGY -- 4.2%
BJ Services Co. 4,146 131,895(a)
Nabors Industries Inc. 4,207 105,175(a)
Schlumberger Ltd. 2,012 125,373
Tosco Corp. 6,585 166,271
USX-Marathon Group 4,146 121,270
649,984
[ICON OMITTED] FINANCIAL -- 12.9%
AXA Financial Inc. 3,963 221,185
Bank of New York Inc. 9,817 328,256
CIT Group Inc. (Class A) 6,585 135,404
Comdisco Inc. 15,244 294,400
FINOVA Group Inc. 6,829 249,258
Firstar Corp. 10,245 262,528
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
GATX Corp. 5,122 $ 159,102
SouthTrust Corp. 3,049 109,383
Waddell & Reed Financial
Inc. (Class A) 9,817 217,815
1,977,331
[ICON OMITTED] HEALTHCARE -- 8.3%
Allergan Inc. 609 66,990
Cardinal Health Inc. 3,537 192,766
Covance Inc. 7,805 75,611(a)
Genentech Inc. 658 96,274(a)
Henry Schein Inc. 9,146 130,330(a,e)
McKesson HBOC Inc. 4,573 132,617
Sybron International Corp. 9,146 245,799(a,e)
Tenet Healthcare Corp. 8,171 143,503(a,e)
Watson Pharmaceuticals Inc. 6,097 186,340(a)
1,270,230
INSURANCE -- 3.6%
American International
Group Inc. 3,048 264,985(e)
Hartford Financial
Services Group Inc. 3,780 154,508
UNUMProvident Corp. 4,451 131,026
550,519
RETAIL TRADE -- 8.3%
Costco Wholesale Corp. 3,658 263,376(a)
Federated Department Stores Inc. 9,146 399,566(a)
Kroger Co. 9,878 217,933(a)
Office Depot Inc. 15,244 155,298(a)
Zale Corp. 5,976 228,956(a)
1,265,129
[ICON OMITTED] TECHNOLOGY -
ELECTRONICS & EQUIPMENT -- 10.6%
ADC Telecommunications Inc. 5,244 219,920(a)
Analog Devices Inc. 11,463 587,479(a)
Nokia Corp. ADR 5,488 492,891
Nortel Networks Corp. 6,342 323,442
1,623,732
TECHNOLOGY - SOFTWARE & SERVICES -- 3.0%
Cadence Design Systems Inc. 6,158 81,594(a)
Compuware Corp. 7,926 206,571(a)
SunGard Data Systems Inc. 6,463 170,058(a)
458,223
UTILITIES -- 3.5%
El Paso Energy Corp. 4,573 182,063
Qwest Communications
International Inc. 7,926 234,312(a)
Sonat Inc. 3,048 120,968
537,343
TOTAL INVESTMENTS IN SECURITIES
(COST $13,200,603) 13,589,628
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
15
<PAGE>
MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 11.2%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $1,711,235) 1,711,235 $ 1,711,235
OTHER ASSETS AND LIABILITIES,
NET 0.1% 11,978
================================================================================
NET ASSETS -- 100% $15,312,841
================================================================================
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
The Mid-Cap Growth Fund had the following long Futures Contracts open at
September 30, 1999:
NUMBER
EXPIRATION OF UNDERLYING UNREALIZED
DESCRIPTION DATE CONTRACTS FACE VALUE LOSS
- --------------------------------------------------------------------------------
S&P Mid-Cap 400 Dec. 1999 1 $192,700 $(14,151)
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE U.S.
EQUITY FUND AT SEPTEMBER 30, 1999.
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
16
<PAGE>
MID-CAP VALUE EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
JON D. BOSSE OF NWQ INVESTMENT MANAGEMENT COMPANY (NWQ) IS THE PORTFOLIO MANAGER
OF THE MID-CAP VALUE EQUITY FUND. NWQ IS THE FUND'S SUB-ADVISER, WHICH HAS TOTAL
ASSETS UNDER MANAGEMENT EXCEEDING $6 BILLION. PRIOR TO JOINING NWQ IN 1996, JON
SPENT TEN YEARS WITH ARCO INVESTMENT MANAGEMENT COMPANY WHERE HE WAS DIRECTOR OF
EQUITY RESEARCH AND MANAGED A VALUE-ORIENTED FUND. PREVIOUS TO THIS, HE SPENT
FOUR YEARS IN THE CORPORATE FINANCE DEPARTMENT OF ARCO. JON RECEIVED HIS B.A.
(SUMMA CUM LAUDE) IN ECONOMICS FROM WASHINGTON UNIVERSITY IN ST. LOUIS WHERE HE
RECEIVED THE JOHN M. OLIN AWARD FOR EXCELLENCE IN ECONOMICS AND HIS M.B.A. FROM
WHARTON BUSINESS SCHOOL, UNIVERSITY OF PENNSYLVANIA. JON IS ALSO A CHARTERED
FINANCIAL ANALYST AND A MEMBER OF THE ASSOCIATION FOR INVESTMENT MANAGEMENT AND
RESEARCH AND THE LOS ANGELES SOCIETY OF FINANCIAL ANALYSTS.
Q. HOW DID THE MID-CAP VALUE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK FOR
THE PERIOD FROM THE FUND'S INCEPTION (DECEMBER 31, 1998) THROUGH SEPTEMBER
30, 1999?
A. During the period from inception of the fund (December 31, 1998) through
September 30, 1999, the Mid-Cap Value Equity Fund posted an aggregate total
return of negative 0.90%. This compares with a negative 2.07% return for
the Standard & Poor's MidCap 400 Index for the same period.
Q. WHY DID THE FUND OUTPERFORM ITS BENCHMARK?
A. A number of significant factors attributed to the outperformance of the
fund over its benchmark for the last nine months, in particular, favorable
sector concentration and strong individual stock selection. These factors
significantly benefited the fund during the first half of the year.
However, we gave up some of these early gains as the market sentiment
turned unfavorable towards midcap stocks and our core portfolio holdings of
Aetna, Bank One, UNUMProvident, and Waste Management incurred abrupt
sell-offs on reduced earnings expectations. We view these situations as
severe overreactions by investors and expect these investments to be
positive contributors to the fund going forward.
Q. WHICH INVESTMENTS STAND OUT?
A. During the last nine months, the fund held positions in four companies that
received takeover proposals. These companies include MediaOne Group,
Cellular Communications of Puerto Rico, First Security, and Case. Our
investments in telecommunication and media companies Alltel, Telephone &
Data Systems, CoreComm, Cox Communications, NTL, and AT&T Liberty Media
also helped drive performance. Our energy investments BJ Services and Noble
Affiliates benefited due to higher energy prices.
Q. HOW DO YOU PICK STOCKS?
A. Our investment philosophy is to identify undervalued companies with
catalysts present to improve profitability and unlock value. Catalysts may
include new management, industry consolidation, restructuring, and a
positive turn in the fundamentals. We are value-oriented and invest in
attractive risk/reward opportunities. We do not chase the market mania for
Internet, technology, and other growth stocks where we find risk/reward and
valuation parameters extremely unattractive.
Q. WHAT IS THE OUTLOOK FOR THE FUND AND HOW HAVE YOU POSITIONED THE FUND GOING
FORWARD?
A. Recently, the leadership of the stock market has been focused almost
exclusively on a small number of very high P/E (price/earning) stocks,
primarily in the technology sector. This narrowness has created many
attractive opportunities in other sectors of the market where expectations
and valuations are relatively low. We have been aggressively reviewing such
situations, making investments in those companies that we feel meet our
investment objectives with strong catalysts in place that will improve
profitability and increase the company's stock price. Recently added
positions in the fund that met these conditions include Delta Airlines,
Nabisco Group Holdings, and New Holland. As a group, we are maintaining our
large position in the financial sector of the market, which we feel
continues to benefit from reasonable earnings growth opportunities,
increasing industry-wide consolidation, and attractive valuations.
17
<PAGE>
MID-CAP VALUE EQUITY FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE GRAPH OMITTED]
Mid-Cap Value Equity Fund S&P MidCap 400
------------------------- --------------
12/31/98 $ 10,000.00 $ 10,000.00
1/99 10,070.00 9,610.70
2/99 9,590.00 9,107.48
3/99 10,120.00 9,361.95
4/99 11,100.00 10,100.42
5/99 11,160.00 10,144.15
6/99 11,550.00 10,687.37
7/99 11,010.00 10,460.26
8/99 10,420.00 10,101.69
9/99 9,910.00 9,789.25
- ----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
SINCE
INCEPTION COMMENCEMENT
- ----------------------------------------------------------------------
Mid-Cap Value Equity Fund (0.90)% 12/31/98
- ----------------------------------------------------------------------
S&P MidCap 400 (2.07)%
- ----------------------------------------------------------------------
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 the fund's management considers as undervalue by the
market and have above-average growth potential.
----------------------------------------------------------------------
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1999
----------------------------------------------------------------------
[PIE GRAPH OMITTED]
TRANSPORTATION 1.9%
FINANCIAL SERVICES 26.1%
CONSUMER 24.1%
TELECOMMUNICATIONS 15.0%
ENERGY 6.6%
CAPITAL GOODS 6.1%
MATERIALS & PROCESSING 6.0%
TECHNOLOGY 5.1%
MISCELLANEOUS 4.2%
HEALTHCARE 2.8%
CASH & OTHER 2.1%
- ----------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
NTL Inc. 4.72%
- ----------------------------------------------------------------------
Telephone & Data Systems Inc. 4.71%
- ----------------------------------------------------------------------
AT&T Corp. - Liberty Media Group 4.38%
- ----------------------------------------------------------------------
MediaOne Group Inc. 3.29%
- ----------------------------------------------------------------------
Praxair Inc. 3.12%
- ----------------------------------------------------------------------
Loews Corp. 2.83%
- ----------------------------------------------------------------------
CoreComm Ltd. 2.81%
- ----------------------------------------------------------------------
The E.W. Scripps Co. Inc. 2.80%
- ----------------------------------------------------------------------
Alltel Corp. 2.76%
- ----------------------------------------------------------------------
Cox Communications Inc. 2.71%
- ----------------------------------------------------------------------
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
18
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
MID-CAP VALUE EQUITY FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.9%
- --------------------------------------------------------------------------------
CAPITAL GOODS -- 6.1%
Case Corp. 5,400 $ 268,988
New Holland N.V 7,000 112,000
Waste Management Inc. 6,500 125,125
York International Corp. 3,200 115,000
621,113
[ICON OMITTED] CONSUMER -
DISCRETIONARY -- 19.2%
AT&T Corp. - Liberty
Media Group (Class A) 12,000 445,500(a)
Cox Communications Inc. 6,600 275,550(a)
Ford Motor Co. 5,000 250,937
Hasbro Inc. 9,500 203,656
Lear Corp. 4,500 158,344(a)
MediaOne Group Inc. 4,900 334,731(a)
The E.W. Scripps Co. Inc. 5,800 284,925
1,953,643
CONSUMER - STABLE -- 4.9%
Alberto-Culver Co. (Class A) 4,000 78,250
Nabisco Group Holdings Corp. 9,700 145,500
Philip Morris Cos. Inc. 8,000 273,500
497,250
[ICON OMITTED] ENERGY -- 6.6%
BJ Services Co. 7,300 232,231(a)
Noble Affiliates Inc. 8,200 237,800
Tosco Corp. 8,000 202,000
672,031
[ICON OMITTED] FINANCIAL -- 18.3%
Bank of America Corp. 4,100 228,319
Bank One Corp. 4,900 170,581
Bear Stearns Cos. Inc. 5,565 213,905
Chase Manhattan Corp. 3,300 248,737
First Union Corp. 5,300 188,481
Heller Financial Inc. 8,900 200,250
Indymac Mortgage Holdings Inc. 14,200 213,000
UnionBanCal Corp. 5,900 213,875
Waddell & Reed
Financial Inc. (Class A) 8,500 188,594
1,865,742
HEALTHCARE -- 2.8%
Aetna Inc. 3,800 187,150
Pharmacia & Upjohn Inc. 2,000 99,250
286,400
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
[ICON OMITTED] INSURANCE -- 7.8%
Hartford Financial Services
Group Inc. 5,400 $ 220,725
MGIC Investment Corp. 5,000 238,750
Torchmark Corp. 7,300 188,887
UNUMProvident Corp. 4,745 139,681
788,043
MATERIALS & PROCESSING -- 6.0%
Allegheny Teldyne Inc. 8,000 135,000
Lyondell Chemical Co. 12,000 160,500
Praxair Inc. 6,900 317,400
612,900
MISCELLANEOUS -- 4.2%
Loews Corp. 4,100 287,769
Tenneco Inc. 8,200 139,400
427,169
TECHNOLOGY - ELECTRONICS & EQUIPMENT -- 5.1%
Galileo International Inc. 5,000 201,250
Quantum Corp. -DLT &
Storage Systems 12,500 175,781(a)
Quantum Corp. -Hard Disk Drive 19,400 144,288(a)
521,319
[ICON OMITTED] TELECOMMUNICATIONS -- 15.0%
Alltel Corp. 4,000 281,500
CoreComm Ltd. 8,700 286,556(a)
NTL Inc. 5,000 480,469(a)
Telephone & Data Systems Inc. 5,400 479,588
1,528,113
TRANSPORTATION -- 1.9%
Delta Air Lines Inc. 4,000 194,000
TOTAL INVESTMENTS IN SECURITIES
(COST $10,072,193) 9,967,723
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 2.0%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $206,643) 206,643 206,643
OTHER ASSETS AND LIABILITIES,
NET 0.1% 7,548
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $10,181,914
================================================================================
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE U.S.
EQUITY FUND AT SEPTEMBER 30, 1999.
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
19
<PAGE>
SMALL-CAP VALUE EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
PALISADE CAPITAL MANAGEMENT, L.L.C. ("PALISADE"), WITH TOTAL ASSETS UNDER
MANAGEMENT EXCEEDING $2 BILLION, IS THE FUND'S SUB-ADVISER. THE FUND IS MANAGED
BY PALISADE'S SENIOR INVESTMENT COMMITTEE WHICH IS COMPOSED OF THE FOLLOWING
MEMBERS: JACK FEILER, MARTIN L. BERMAN, STEVEN E. BERMAN AND RICHARD MEISENBERG.
JACK FEILER, CHIEF INVESTMENT OFFICER OF PALISADE, HAS DAY-TO-DAY RESPONSIBILITY
FOR MANAGING THE FUND AND WORKS WITH THE SENIOR INVESTMENT COMMITTEE IN
DEVELOPING AND EXECUTING THE FUND'S INVESTMENT PROGRAM.
JACK HAS MORE THAN 30 YEARS OF INVESTMENT EXPERIENCE AND HAS SERVED AS THE
PRINCIPAL SMALL-CAP PORTFOLIO MANAGER AT PALISADE SINCE THE COMMENCEMENT OF
PALISADE'S OPERATIONS IN APRIL 1995. 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 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 VALUE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK
FOR THE ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. The Small-Cap Value Equity Fund was up 13.98% for the one-year period ended
September 30, 1999. The fund's benchmark, the Russell 2000, was up 19.07%
during the same period.
Q. WHY DID THE FUND UNDERPERFORM ITS BENCHMARK?
A. The fund's underperformance to its benchmark was primarily due to the fact
that the fund was not invested in many of the high flying internet stocks
which were included in the index at the time. These stocks were excluded
from the fund because they grew so quickly they became mid-cap to large-cap
companies which exceeded the market capitalization parameters of the fund
guidelines. Russell rebalanced the index on June 30, 1999, removing these
companies from the index membership. After the rebalancing, the fund's
performance compared favorably to the index. Due to widespread weakness in
virtually all small-cap sectors, we were somewhat defensive during the
third quarter of 1999, maintaining cash levels of approximately 5%. Because
of this defensive posture, the fund outperformed the Russell 2000 during
the period.
Q. WHAT HAS YOUR INVESTMENT STRATEGY BEEN?
A. Despite the general weakness in virtually all small-cap sectors, we are
encouraged by the overall strength of the economy which is being driven by
consumers who have benefited from full employment and increased wages.
Based on this, we believe that conditions are in place for a strong holiday
season. Accordingly, the portfolios are overweighted in consumer cyclicals.
We have also increased our exposure to the financial services sector which
had been out of favor and now represents good value.
Q. WHAT DOMESTIC/WORLD EVENTS HAD A MAJOR IMPACT ON THE FINANCIAL MARKETS?
A. Domestically, concerns over the direction of interest rates dominated U.S.
markets while on the international front, the dollar's weakness vs. the Yen
was the major story. Both events caused considerable uncertainty which was
responsible for the widespread volatility of the financial markets. Gold
surged for the first time in nearly 20 years due to inflation fears.
Overseas, strong economies in Europe and Asia were responsible for an
upsurge in international markets although the earthquake in Taiwan resulted
in fears regarding computer chip shortages which held back the technology
sector.
Q. WHAT IS THE OUTLOOK FOR THE FUND AND HOW HAVE YOU POSITIONED THE FUND GOING
FORWARD?
A. Come January, we believe that Year 2000 concerns will have largely subsided
which means that we can once again focus on fundamentals. Low interest
rates and benign inflation will enable the strong domestic economy, which
has been fueled by consumers, to continue. As noted above, the portfolio is
well positioned to benefit from this trend by being overweighted in
consumer cyclicals. We also believe the convergence between
telecommunications and utilities which were recently deregulated represents
an interesting opportunity and we have invested in companies who we believe
will benefit in this environment.
20
<PAGE>
SMALL-CAP VALUE EQUITY FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE GRAPH OMITTED]
Small-Cap Value Equity Fund Russell 2000
--------------------------- ------------
8/3/98 $ 10,000.00 $ 10,000.00
9/98 8,910.00 8,688.62
12/98 10,316.52 10,105.88
3/99 8,680.73 9,557.63
6/99 10,647.69 11,043.63
9/99 10,155.95 10,345.68
- ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
ONE SINCE
YEAR INCEPTION COMMENCEMENT
- --------------------------------------------------------------------------------
Small-Cap Value Equity Fund 13.98% 1.34% 8/3/98
- --------------------------------------------------------------------------------
Russell 2000 19.07% 2.95%
- --------------------------------------------------------------------------------
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, 1999
----------------------------------------------------------------------
[PIE GRAPH OMITTED]
CONSUMER 31.0%
TECHNOLOGY 20.2%
FINANCIAL SERVICES 14.5%
UTILITIES 11.4%
MATERIALS & PROCESING 6.0%
HEALTHCARE 5.6%
PRODUCER DURABLES 5.2%
CASH & OTHER 4.8%
AUTO & TRANSPORTATION 1.3%
- ----------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
InterTAN Inc. 4.54%
- ----------------------------------------------------------------------
Eastern Enterprises 3.84%
- ----------------------------------------------------------------------
Dollar Tree Stores Inc. 3.57%
- ----------------------------------------------------------------------
NOVA Corp. 3.33%
- ----------------------------------------------------------------------
Park Electrochemical Corp. 3.23%
- ----------------------------------------------------------------------
Applebee's International Inc. 3.08%
- ----------------------------------------------------------------------
Comdisco Inc. 2.97%
- ----------------------------------------------------------------------
New England Business Service Inc. 2.50%
- ----------------------------------------------------------------------
Handleman Co. 2.49%
- ----------------------------------------------------------------------
Polaroid Corp. 2.40%
- ----------------------------------------------------------------------
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
21
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
SMALL-CAP VALUE EQUITY FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 95.2%
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION -- 1.3%
AAR Corp. 4,600 $ 82,800
Kirby Corp. 2,500 49,062(a)
131,862
[ICON OMITTED] CONSUMER -
DISCRETIONARY -- 31.0%
AnnTaylor Stores Corp. 5,000 204,375(a)
Applebee's International Inc. 9,400 316,662
Callaway Golf Co. 3,400 41,438
Corporate Express Inc. 7,000 65,844(a)
Dollar Tree Stores Inc. 9,200 367,425(a)
Handleman Co. 19,300 255,725(a)
Interim Services Inc. 5,100 83,512(a)
InterTAN Inc. 23,800 467,075(a)
Iron Mountain Inc. 4,400 149,050(a)
ITC Deltacom Inc. 3,900 107,250(a)
Korn/Ferry International 4,300 99,169(a)
Kroll-O' Gara Co. 2,900 48,394(a)
New Horizons Worldwide Inc. 6,625 105,172(a)
Pier 1 Imports Inc. 19,508 131,679
Pierce Leahy Corp. 7,300 173,375(a)
School Specialty Inc. 3,300 55,687(a)
Strayer Education Inc. 4,600 91,425
United Stationers Inc. 7,300 155,581(a)
Volt Information Sciences Inc. 8,700 210,975(a)
Zale Corp. 1,500 57,469(a)
3,187,282
[ICON OMITTED] FINANCIAL SERVICES -- 14.5%
AmeriCredit Corp. 11,500 171,781
Dain Rauscher Corp. 5,000 245,000
Duff & Phelps Credit Rating Co. 1,200 95,925
Fair, Issac and Co. Inc. 2,000 56,125
Indymac Mortgage Holdings Inc. 3,500 52,500
Investment Technology Group Inc. 8,100 186,300
Jeffries Group Inc. 1,400 29,225
National Data Corp. 5,400 140,400
NOVA Corp. 13,700 342,500(a)
Penn Treaty American Corp. 3,500 73,063(a)
The BISYS Group Inc. 2,000 93,812(a)
1,486,631
HEALTHCARE -- 5.6%
Chattem Inc. 9,000 198,563(a)
Techne Corp. 4,600 144,325(a)
The Cooper Cos. Inc. 7,700 237,737
580,625
[ICON OMITTED] MATERIALS & PROCESSING -- 6.0%
Airgas Inc. 8,600 99,975(a)
Ball Corp. 3,000 132,187
Elcor Corp. 3,000 75,000
Kaydon Corp. 1,900 47,263
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
MKS Instruments Inc. 400 $ 8,900(a)
New England Business Service Inc. 9,000 257,062
620,387
PRODUCER DURABLES -- 5.2%
Graco Inc. 1,500 49,219
HEICO Corp. (Class A) 4,900 94,325
L-3 Communications
Holdings Inc. 2,700 101,925(a)
Scott Technologies Inc. 10,200 201,450(a)
Terex Corp. 2,900 91,350(a)
538,269
[ICON OMITTED] TECHNOLOGY -- 20.2%
Affiliated Computer Services Inc. 1,900 77,188(a)
Arrow Electronics Inc. 7,400 130,425(a)
Comdisco Inc. 15,800 305,137
Credence Systems Corp. 1,700 76,288(a)
Etec Systems Inc. 1,300 48,913(a)
Galileo Technology Ltd 2,600 65,000(a)
Jones Intercable Inc. (Class A) 2,200 118,938(a)
National Computer Systems Inc. 5,600 214,725
Nichols Research Corp. 6,100 162,412(a)
Park Electrochemical Corp. 10,100 332,037
Polaroid Corp. 9,500 247,000
SLI Inc. 6,600 140,662(a)
Transaction Systems
Architects Inc. (Class A) 3,700 99,669(a)
Ultratech Stepper Inc. 1,000 12,979(a)
Zebra Technologies
Corp. (Class A) 1,100 50,016(a)
2,081,389
[ICON OMITTED] UTILITIES -- 11.4%
Citizens Utilities Co. (Class B) 9,200 104,076
Eastern Enterprises 8,500 394,719
GST Telecommunications Inc. 4,200 29,531(a)
Intermedia Communications Inc. 7,900 171,825(a)
Niagara Mohawk Power Corp. 7,800 120,413(a)
NUI Corp. 700 17,325
Potomac Electric Power Co. 8,700 221,306
United Illuminating Co. 1,000 48,375
Washington Gas Light Co. 2,200 59,675
1,167,245
TOTAL INVESTMENTS IN SECURITIES
(COST $9,502,194) 9,793,690
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 5.6%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $575,592) 575,592 575,592
OTHER ASSETS AND LIABILITIES,
NET (0.8)% (82,358)
================================================================================
NET ASSETS -- 100% $10,286,924
================================================================================
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE U.S.
EQUITY FUND AT SEPTEMBER 30, 1999.
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
22
<PAGE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
RALPH LAYMAN MANAGES THE INTERNATIONAL EQUITY INVESTMENT PROCESS AT GE
INVESTMENTS. TOTAL ASSETS UNDER HIS MANAGEMENT EXCEED $12 BILLION. HE LEADS A
TEAM OF PORTFOLIO MANAGERS FOR THE INTERNATIONAL EQUITY FUND. PRIOR TO JOINING
GE INVESTMENTS IN 1991, RALPH WAS EXECUTIVE VICE PRESIDENT, 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, 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 INTERNATIONAL EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK FOR
THE ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. The International Equity Fund posted a return of 29.50% for the one-year
period ended September 30, 1999. For the same period the MSCI EAFE Index
rose 30.95%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. At the start of the period in October 1998, the fund had a significantly
underweight position in Japan of 5.0% compared with the 20.4% weight in the
MSCI EAFE Index. With the Japanese index surging 77.4% during this period,
the underweighting has severely hindered performance. This was compensated
by good stock selection around the world, primarily in Europe. By September
our Japanese weighting had increased to 12.1% as we found more companies
restructuring as the year progressed, meeting our investment criteria of
cash earnings growth exceeding the price to cash earnings.
Top performance contributors were telecoms equipment manufacturer, Nokia of
Finland, cellular telecoms operator, Mannesmann of Germany, the Taiwanese
semiconductor manufacturer Taiwan Semiconductor, and the British
engineering company Invensys.
Q. WHAT CHANGES HAVE YOU MADE IN THE FUND RECENTLY BASED ON CURRENT MARKET
EVENTS?
A. During the last several months, a number of Japanese companies announced
restructuring plans. After extensive research and analysis, we found a few
companies where the increase in cash flows is accompanied by reasonable
valuations. As a result, we increased our exposure to the Japanese market
by starting new positions in Asahi Bank, Fuji Bank, Fujitsu and Asahi
Chemical. Other new investments include the French utility company Vivendi
and the German engineering company Metallgesellschaft.
Q. WHAT IS YOUR OUTLOOK FOR THE FUND?
A. The economic environment in Europe has slowed somewhat since the beginning
of the year, with Gross Domestic Product growth forecasts for 1999 being in
the 1.5% to 2.0% range, compared with 2.5% to 3.0% range earlier this year.
Economies are expected to improve in 2000, as the benefits of the
introduction of the Euro, lower interest rates and the recent deregulatory
changes take effect. In addition, there has been a very high level of
corporate merger activity which will lead to improvements in efficiencies
and higher margins. So far, the merger and acquisition activity has been
mainly within countries, we expect there will be more cross border activity
in the future.
Europe is not the only region of the world to experience a high level of
corporate merger and acquisition activity. Japan is also experiencing
mergers, the high profile ones have been between banks and other financial
companies, within the chemical sector and also in the car manufacturing
sector with the link between Renault of France and Nissan. With
profitability within corporate Japan being so poor, we anticipate that
there will be further corporate link-ups in the future, especially as the
Japanese government introduces legislation which will break down some of
the barriers which have previously deterred such restructuring. This should
lead to corporate managements' becoming more profit oriented and
shareholder friendly. However, corporate Japan is at the start of a
restructuring period. When assessing restructuring progress, heavy
skepticism needs to be applied to wean out the winners from the losers.
23
<PAGE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE CHART OMITTED]
International Equity Fund MSCI EAFE
------------------------- ---------
11/25/97 $ 10,000.00 $ 10,000.00
12/97 10,266.29 10,207.24
3/98 12,027.37 11,708.71
6/98 12,237.50 11,833.11
9/98 10,066.17 10,151.26
12/98 12,044.22 12,248.56
3/99 12,472.13 12,419.00
6/99 12,847.86 12,734.62
9/99 13,035.72 13,293.48
- ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
ONE SINCE
YEAR INCEPTION COMMENCEMENT
- -----------------------------------------------------------------------
International Equity Fund 29.50% 15.41% 11/25/97
- -----------------------------------------------------------------------
MSCI EAFE 30.95% 16.64%
- -----------------------------------------------------------------------
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, 1999
- ----------------------------------------------------------------------
[PIE CHART OMITTED]
EUROPE 70.8%
JAPAN 12.1%
OTHER REGIONS 8.0%
PACIFIC RIM 7.9%
CASH & OTHER 1.2%
- -------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
- -------------------------------------------------------------------
Mannesmann AG 3.09%
- -------------------------------------------------------------------
AXA-UAP 2.44%
- -------------------------------------------------------------------
Taiwan Semiconductor
Manufacturing Co. 2.36%
- -------------------------------------------------------------------
ING Groep N.V. 2.32%
- -------------------------------------------------------------------
Total S.A. 2.28%
- -------------------------------------------------------------------
Preussag AG 2.01%
- -------------------------------------------------------------------
Autoliv Inc. SDR 1.83%
- -------------------------------------------------------------------
Invensys PLC 1.70%
- -------------------------------------------------------------------
Schneider S.A. 1.63%
- -------------------------------------------------------------------
Telefonica S.A. 1.62%
- -------------------------------------------------------------------
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
24
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 98.5%
- --------------------------------------------------------------------------------
AUSTRALIA -- 2.1%
Brambles Industries Ltd. 110,608 $ 3,203,486
Cable & Wireless Optus Ltd. 432,189 930,968(a)
4,134,454
AUSTRIA -- 0.4%
VA Technologie AG 9,162 735,451
BRAZIL -- 0.4%
Uniao de Bancos Brasilieros
S.A. GDR 40,839 722,340
CANADA -- 2.1%
Celestica Inc. 19,453 958,266(a)
CGI Group Inc. (Class A) 55,051 1,086,558(a)
Clarica Life Insurance Co. 28,012 421,333(a)
Nortel Networks Corp. 32,871 1,676,421
4,142,578
DENMARK -- 1.2%
Novo-Nordisk AS (Series B) 20,441 2,428,958
FINLAND -- 3.1%
Helsingin Puhelin Oyj 2,168 91,813
Merita PLC (Series A) 269,405 1,513,566
Nokia Oyj (Series A) 22,323 1,997,608
Pohjola Group Insurance
Corp. (Series B) 11,222 531,364
Sampo Insurance Co.
Ltd. (Series A) 61,001 2,025,132
6,159,483
[ICON OMITTED] FRANCE -- 19.9%
Aerospatiale Matra (Regd.) 50,855 1,078,998(a)
Alstom 93,742 3,130,033(a)
AXA-UAP 38,176 4,825,793
Cap Gemini S.A 20,319 3,199,822
Carrefour S.A 18,078 2,891,153
Coflexip S.A. ADR 29,722 1,419,225
Elf Aquitaine S.A. ADR 5,628 982,109
Lagardere S.C.A 64,010 2,655,601
Lyonnaise Des Eaux S.A 10,406 1,683,020
Michelin CGDE (Regd.) (Class B) 58,332 2,750,859
Rhone-Poulenc S.A. (Class A) 53,339 2,752,634
Schneider S.A 44,252 3,234,830
Societe Generale 8,912 1,834,923
STMicroelectronics N.V 21,459 1,671,408
Total S.A. (Class B) 35,997 4,519,705
Vivendi 10,758 754,933
39,385,046
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
[ICON OMITTED] GERMANY -- 12.3%
Bayerische Vereinsbank AG 17,873 $ 1,042,173
DaimlerChrysler AG 22,390 1,541,417
Deutsche Bank AG 35,522 2,375,552
Fresenius Medical Care AG 39,810 2,634,780
Mannesmann AG 38,322 6,116,475
Metallgesellschaft AG 87,458 1,768,133
Muenchener Rueckversicherungs-
Gesellschaft AG (Regd.) 11,223 2,265,364(a)
Preussag AG 78,904 3,971,202
Veba AG 46,402 2,540,293
24,255,389
GREECE -- 1.0%
Alpha Credit Bank (Regd.) 2,773 222,224
Hellenic Telecommunication
Organization S.A. ADR 54,500 609,719
Hellenic Telecommunication
Organization S.A. GDR 45,510 1,060,977
1,892,920
HONG KONG -- 1.3%
Giordano International Ltd. 896,000 709,381
Johnson Electric Holdings Ltd. 394,400 1,903,989
2,613,370
IRELAND -- 1.5%
Bank of Ireland 182,550 1,485,953
CRH PLC 82,461 1,568,837
3,054,790
ISRAEL -- 3.4%
Comverse Technology Inc. 32,195 3,036,391(a)
ECI Telecommunications Ltd. 79,629 1,965,841
Teva Pharmaceutical Industries
Ltd. ADR 33,900 1,705,594
6,707,826
ITALY -- 2.4%
Banca Intesa S.p.A 351,748 1,470,910
Montedison S.p.A 112,311 219,888
Saipem 372,433 1,604,963
Telecom Italia Mobile S.p.A 63,324 393,498
Telecom Italia S.p.A 128,381 1,114,686
Unicredito Italiano S.p.A 3,224 15,746
4,819,691
[ICON OMITTED] JAPAN-- 12.1%
Asahi Bank Ltd. 58,000 415,527
Asahi Chemical Industry Co. Ltd. 241,000 1,338,388
Canon Inc. 86,000 2,496,722
Fujitsu Ltd. 78,000 2,425,173
Mazda Motor Corp. 362,000 1,810,339
Minebea Co. Ltd. 206,000 2,614,066
Mitsukoshi Ltd. 138,000 825,829(a)
NAMCO Ltd. 5,900 232,066
Promise Co. Ltd. 9,000 722,326
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
25
<PAGE>
INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Shin-Etsu Chemical Co. 52,000 $ 2,162,203
Sony Corp. 20,100 2,994,859
Sumitomo Electric Industries 175,000 2,392,770
The Fuji Bank Ltd. 57,000 690,747
Toshiba Corp. 395,000 2,933,462
24,054,477
MEXICO -- 2.0%
Desc S.A. de C.V. (Series B) 216,200 184,984
Desc S.A. de C.V. ADR (Class C) 32,634 546,620
Grupo Carso S.A. de C.V. ADR 131,709 1,078,367
Grupo Financiero Banamex
Accival S.A. de C.V. (Class B) 567,912 1,021,634(a)
Grupo Televisa S.A. GDR 30,264 1,208,669(a)
4,040,274
[ICON OMITTED] NETHERLANDS -- 6.8%
CSM N.V 2,218 106,557
IHC Caland N.V 40,566 2,011,453
ING Groep N.V 84,517 4,586,443
Ispat International N.V
(Regd.) (Class A) 40,986 427,791
Koninklijke Ahold N.V 67,017 2,203,460
Philips Electronics N.V 31,099 3,127,088
Vendex KBB N.V 37,009 1,063,244
13,526,036
PANAMA -- 0.1%
Panamerican Beverages
Inc. (Class A) 6,475 107,242
PHILIPPINES -- 0.2%
San Miguel Corp. S.A 244,790 371,075
POLAND -- 0.4%
Telekomunikacja Polska S.A
GDR (Series A) 184,784 886,963(b)
PORTUGAL -- 0.7%
Banco Comercial
Portugues (Regd.) 33,120 891,605
Jeronimo Martins, SGPS, S.A 15,539 439,812
Portugal Telecom S.A 1,103 45,866
1,377,283
SOUTH KOREA -- 1.7%
Kookmin Bank GDR 42,900 537,793
Korea Telecom Corp. ADR 16,281 602,397(a)
Korea Telecom Corp. 7,640 471,652
Pohang Iron & Steel Co. Ltd. 10,916 1,224,853
Pohang Iron & Steel Co. Ltd. ADR 14,947 468,028
3,304,723
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SPAIN -- 2.5%
Argentaria, Caja Postal y Banco
Hipotecario de Espana, S.A 51,231 $ 1,126,224
Repsol S.A 28,580 559,250
Telefonica S.A 200,883 3,212,654(a)
4,898,128
SWEDEN -- 4.3%
Autoliv Inc. SDR 96,036 3,622,009
Ericsson LM Telephone (Series B) 75,658 2,345,555
Investor AB (Series B) 23,756 281,256
Invik & Co. AB 5,122 328,213
Kinnevik AB (Series B) 9,950 176,703
NetCom Systems AB (Series B) 21,542 799,313(a)
Pharmacia & Upjohn Inc. 18,002 893,349
8,446,398
SWITZERLAND -- 2.7%
ABB AG 760 1,249,384
ABB Ltd 1,738 179,295(a)
Credit Suisse AG 8,401 1,537,621
Novartis AG (Regd.) 1,122 1,662,277
Zurich Allied AG 1,421 791,599
5,420,176
TAIWAN -- 2.6%
Synnex Technology International
Corp. GDR 22,841 419,703(b)
Taiwan Semiconductor
Manufacturing Co. 1,110,413 4,668,981(a)
5,088,684
[ICON OMITTED] UNITED KINGDOM -- 11.3%
Airtours PLC 475,582 3,031,975
British Energy PLC 25,358 172,206
British Steel PLC 474,999 1,204,265
Cable & Wireless
Communication PLC 215,034 2,198,404(a)
Cable & Wireless PLC 10,715 116,513
Commercial Union PLC 53,930 829,251
FKI PLC 434,416 1,365,991
Granada Group PLC 332,170 2,860,032
Invensys PLC 691,121 3,356,486
Nycomed Amersham PLC 230,032 1,427,705
Railtrack Group PLC 38,633 815,371
Reed International PLC 154,459 928,143
Royal & Sun Alliance
Insurance Group PLC 253,347 2,014,521
Saatchi & Saatchi PLC 70,630 243,486
SEMA Group PLC 34,160 417,283
Somerfield PLC 497,180 1,072,244
Williams PLC 59,509 317,422
22,371,298
TOTAL COMMON STOCK
(COST $183,334,426) 194,945,053
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
26
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.3%
- --------------------------------------------------------------------------------
Henkel KGaA
(COST $ 730,606) 9,663 $ 606,632
- --------------------------------------------------------------------------------
WARRANTS -- 0.0%
- --------------------------------------------------------------------------------
GERMANY -- 0.0%
Muenchener Rueckversicherungs-
Gesellschaft AG (Regd.), 06/03/02
(COST $ 0) 181 6,202(a)
TOTAL INVESTMENTS IN SECURITIES
(COST $184,065,032) 195,557,887
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 0.0%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $1,000) 1,000 1,000
OTHER ASSETS AND LIABILITIES,
NET 1.2% 2,415,292
================================================================================
NET ASSETS -- 100% $197,974,179
================================================================================
- --------------------------------------------------------------------------------
OTHER INFORMATION (UNAUDITED)
The International Equity Fund invested in the following sectors at September 30,
1999:
PERCENTAGE (BASED ON
SECTOR TOTAL NET ASSETS)
- ---------------------------------------------------
Capital Equipment 28.59%
Services 23.67%
Finance 18.31%
Consumer Goods 13.73%
Multi Industry 5.50%
Materials 4.55%
Energy 4.43%
Cash and Other 1.22%
---------
100.00%
=========
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE
U.S. EQUITY FUND AT SEPTEMBER 30, 1999.
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
27
<PAGE>
EUROPE EQUITY FUND
- --------------------------------------------------------------------------------
Q&A
MICHAEL J. SOLECKI IS THE PORTFOLIO MANAGER OF THE EUROPE EQUITY FUND AND HAS
SERVED THE FUND IN THAT CAPACITY SINCE ITS INCEPTION. MIKE ALSO SERVES AS
PORTFOLIO MANAGER OF THE GEEUROPE EQUITY FUND AND AS CO-PORTFOLIO MANAGER OF THE
GE GLOBAL EQUITY FUND. MIKE HAS MORE THAN 9 YEARS OF INVESTMENT EXPERIENCE AND
JOINED GEINVESTMENTS IN 1990. HE IS CURRENTLY A VICE PRESIDENT OF GE
INVESTMENTS. MIKE IS A CHARTERED FINANCIAL ANALYST AND A MEMBER OF THE NEW YORK
SOCIETY OF SECURITY ANALYSTS. HE HOLDS A B.S. IN FINANCE FROM WESTERN NEW
ENGLAND COLLEGE.
Q. HOW DID THE EUROPE EQUITY FUND PERFORM COMPARED TO ITS BENCHMARK FOR THE
PERIOD FROM THE FUND'S INCEPTION (JANUARY 29,1999) THROUGH SEPTEMBER 30,
1999?
A. The Europe Equity Fund posted a return of negative 0.30% for the period
since inception (January 29, 1999) through September 30, 1999. For the same
period the MSCI Europe Index posted a negative 0.63% return.
Q. WHAT CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The largest performance drivers in the fund since its inception, in
January, were within the telecommunications, energy and capital equipment
sectors. United Kingdom based Kingston Communication, Finnish based Sonera
and German based Mannesmann were positive contributors to performance.
Capital equipment groups ABB and Alstom merged their power generation
equipment businesses to create the world's largest such company. French
based oil company Elf Aquitaine agreed to merge with newly created Total
Fina to create one of the world's largest oil groups.
Q. DESCRIBE THE INVESTMENT OPPORTUNITIES IN EUROPE.
A. Europe has changed considerably throughout the 1990s and a number of
positive catalysts have developed along the way that will continue to drive
growth. Interest rates have fallen significantly during the decade as
inflation rates have converged. Long-term interest rates in Spain and Italy
were in the double digits as recently as four years ago -- today they have
converged to near 5.5%. Inflation rates are currently 1.5% and likely to
remain below the ECB (European Central Bank) target of 2% for the near
future. We believe the combination of low inflation with deregulation and
increased competition creates a dynamic environment rich in restructuring
and re-engineering opportunities. Using 1980 as a base year, France and
Germany managed to reduce their manufacturing workforce by nearly 30%. With
double-digit unemployment rates, the Europeans are very familiar with the
concept of "Corporate Downsizing". During this process many industrial
conglomerates successfully re-balanced their business mix by reducing their
dependence on pure manufacturing and increased their service and technology
content. As a result, companies have managed to improve their returns and
equity investors have re-rated their shares. Deregulation, low interest
rates and a single economic zone have accelerated merger and acquisition
activity in Europe recently. After $840 billion in activity in 1998, 1999
is set to break the $1 trillion level. These business combinations are
creating global leaders at reasonable valuations. For example, French based
Carrefour and Promodes merged to form one of the world's largest retailers;
Siebe and BTR merged to form a leading process control group; and BNP and
Paribas, two French based banks, have created the largest bank in Europe.
With high savings rates, low interest rates and a dynamic corporate
environment, Europeans are allocating more to equities. We believe it will
continue.
Q. WHAT IS THE OUTLOOK FOR THE FUND?
The fund is currently overweight in capital goods and telecommunications
companies with positions in Invensys, ABB, Ericsson and Mannesmann. We are
currently underweighted in banks preferring the low valuations of insurance
companies within the European financial services sector.
28
<PAGE>
EUROPE EQUITY FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE GRAPH OMITTED]
Europe Equity Fund MSCI Europe
------------------ -----------
1/29/99 $ 10,000.00 $ 10,000.00
2/99 9,460.00 9,746.20
3/99 9,620.00 9,852.43
4/99 9,910.00 10,146.04
5/99 9,390.00 9,658.72
6/99 9,700.00 9,821.76
7/99 10,150.00 9,913.01
8/99 10,280.00 10,013.72
9/99 9,970.00 9,936.52
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------------
SINCE
INCEPTION COMMENCEMENT
- ---------------------------------------------------------------------------
Europe Equity Fund (0.30)% 1/29/99
- ---------------------------------------------------------------------------
MSCI Europe (0.63)%
- ---------------------------------------------------------------------------
INVESTMENT PROFILE
A mutual fund designed for investors who seek long-term growth of capital
by investing primarily in equity securities of issuers located in developed
European countries.
----------------------------------------------------------------------
REGIONAL ALLOCATION
AS OF SEPTEMBER 30, 1999
----------------------------------------------------------------------
[PIE GRAPH OMITTED]
DEVELOPED EUROPE 93.1%
EMERGING EUROPE 3.1%
CASH & OTHER 2.4%
OTHER (U.S.) 1.4%
- ----------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
Mannesmann AG 3.65%
- ----------------------------------------------------------------------
Total S.A 3.62%
- ----------------------------------------------------------------------
AXA-UAP 3.26%
- ----------------------------------------------------------------------
Kingston Communication (Hull) PLC 2.88%
- ----------------------------------------------------------------------
Rhone-Poulenc S.A 2.85%
- ----------------------------------------------------------------------
Philips Electronics N.V 2.69%
- ----------------------------------------------------------------------
ING Groep N.V 2.40%
- ----------------------------------------------------------------------
Invensys PLC 2.24%
- ----------------------------------------------------------------------
Ericsson LM Telephone 2.20%
- ----------------------------------------------------------------------
Autoliv Inc. 2.19%
- ----------------------------------------------------------------------
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
29
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
EUROPE EQUITY FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 97.4%
- --------------------------------------------------------------------------------
BELGIUM -- 0.2%
Telinfo N.V 209 $ 20,015
DENMARK -- 1.9%
Novo-Nordisk AS (Series B) 1,211 143,901
Tele Danmark AS (Series B) 740 44,072
187,973
[ICON OMITTED] FINLAND -- 4.5%
Nokia Oyj (Series A) 1,038 92,887
Perlos Oyj 1,913 25,750(a)
Pohjola Group Insurance
Corp. (Series B) 611 28,931
Sampo Insurance Co.
Ltd. (Series A) 3,520 116,858
Sonera Group Oyj 6,561 189,889(a)
454,315
[ICON OMITTED] FRANCE -- 25.1%
Aerospatiale Matra (Regd.) 2,741 58,156(a)
Alstom 5,128 171,223(a)
AXA-UAP 2,603 329,043
Cap Gemini S.A 878 138,267
Carrefour S.A 860 137,537
Coflexip S.A. ADR 522 24,926
Credit Lyonnais 4,596 135,023(a)
Elf Aquitaine S.A. ADR 525 91,615
Lagardere S.C.A 4,825 200,176
Michelin CGDE (Regd.) (Class B) 2,736 129,026
Rhone-Poulenc S.A. (Class A) 5,575 287,706
Schneider S.A 2,839 207,531
Societe Generale 640 131,772
STMicroelectronics N.V 1,271 98,996
Total S.A. (Class B) 2,904 364,620
Vivendi 336 23,578
2,529,195
[ICON OMITTED] GERMANY -- 11.6%
Deutsche Bank AG 1,312 87,741
Fresenius Medical Care AG 3,036 200,934
Mannesmann AG 2,306 368,055
Metallgesellschaft AG 6,049 122,292
Muenchener Rueckversicherungs-
Gesellschaft AG (Regd.) 143 28,864(a)
Preussag AG 4,196 211,183
Veba AG 2,693 147,429
1,166,498
GREECE -- 2.6%
Antenna TV S.A. ADR 10,550 97,587(a)
Hellenic Telecommunication
Organization S.A. ADR 6,782 75,874
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Hellenic Telecommunication
Organization S.A. GDR 3,340 $ 77,865
STET Hellas
Telecommunications S.A. ADR 841 15,874(a)
267,200
IRELAND -- 3.4%
Bank of Ireland 16,358 133,154(a)
CRH PLC 9,330 177,505
Jefferson Smurfit Group PLC 10,354 30,563
341,222
ITALY -- 2.7%
Banca Intesa S.p.A 6,605 27,620
Saipem 31,132 134,160
Telecom Italia S.p.A 13,000 112,875
274,655
[ICON OMITTED] NETHERLANDS -- 10.1%
CSM N.V 359 17,247
IHC Caland N.V 4,001 198,388
ING Groep N.V 4,457 241,866
Ispat International N.V. (Regd.)
(Class A) 1,261 13,162
Koninklijke Ahold N.V 4,036 132,700
Koninklijke Hoogovens N.V 185 10,492
Koninklijke KPN N.V 408 17,865
Philips Electronics N.V 2,697 271,190
Unique International N.V 1,364 31,495
Vendex KBB N.V 3,029 87,021
1,021,426
POLAND -- 0.5%
Telekomunikacja Polska S.A
GDR (Series A) 10,735 51,528(b)
PORTUGAL -- 2.1%
Jeronimo Martins, SGPS, S.A 2,253 63,768
Portugal Telecom S.A 258 10,728
Telecel-Comunicacoes
Pessoais S.A 1,091 134,523
209,019
SPAIN -- 3.5%
Argentaria, Caja Postal y Banco
Hipotecario de Espana, S.A 2,853 62,718
Sol Melia S.A 7,486 90,169(a)
Telefonica Publicidad e
Informacion S.A 1,353 31,313(a)
Telefonica S.A 10,356 165,620(a)
349,820
SWEDEN -- 4.4%
Autoliv Inc. SDR 5,863 221,124
Ericsson LM Telephone (Series B) 7,168 222,223
443,347
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
30
<PAGE>
EUROPE EQUITY FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
SWITZERLAND -- 3.5%
ABB AG 71 $116,719
ABB Ltd. 307 31,670(a)
Credit Suisse Group 416 76,140
Novartis AG (Regd.) 87 128,893
353,422
[ICON OMITTED] UNITED KINGDOM -- 19.9%
Airtours PLC 19,907 126,913
BG PLC 6,484 37,254
British Energy PLC 7,203 48,915(a)
British Steel PLC 11,312 28,679
Cable & Wireless
Communication PLC 16,518 168,872(a)
Cable & Wireless PLC 15,257 165,902
Commercial Union PLC 7,364 113,232
Dixons Group PLC 555 9,950
FKI PLC 10,857 34,139
Granada Group PLC 23,198 199,738
Invensys PLC 46,488 225,773
Kingston Communication
(Hull) PLC 42,957 290,660(a)
Mayflower Corp. PLC 8,385 30,991
Nycomed Amersham PLC 12,614 78,289
Reed International PLC 19,962 119,952
Royal & Sun Alliance
Insurance Group PLC 14,080 111,959
Somerfield PLC 40,695 87,765
Tesco PLC 4,989 15,605
United Assurance Group PLC 14,326 92,453
Williams PLC 4,577 24,414
2,011,455
UNITED STATES -- 1.4%
Global TeleSystems Group Inc. 4,737 93,408(a)
UnitedGlobalCom Inc. 484 34,666(a)
Viatel Inc. 388 11,470(a)
139,544
TOTAL COMMON STOCK
(COST $9,859,377) 9,820,634
- ----------------------------------------------------------------------
PREFERRED STOCK -- 0.2%
- ----------------------------------------------------------------------
ProSieben Media AG
(COST $20,291) 444 19,134
TOTAL INVESTMENTS IN SECURITIES
(COST $9,879,668) 9,839,768
- ----------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 0.7%
- ----------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $73,485) 73,485 73,485
OTHER ASSETS AND LIABILITIES,
NET 1.7% 166,431
======================================================================
NET ASSETS -- 100% $10,079,684
======================================================================
OTHER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The Europe Equity Fund invested in the following sectors at September 30, 1999:
PERCENTAGE (BASED ON
SECTOR TOTAL NET ASSETS)
- ------------------------------------------------------
Services 34.35%
Capital Equipment 17.82%
Finance 17.04%
Consumer Goods 13.69%
Energy 6.84%
Multi Industry 5.29%
Materials 2.58%
Cash and Other 2.39%
--------
100.00%
========
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE U.S.
EQUITY FUND AT SEPTEMBER 30, 1999.
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
31
<PAGE>
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
Q&A
RALPH LAYMAN LEADS A TEAM OF PORTFOLIO MANAGERS FOR THE EMERGING MARKETS FUND.
REFER TO PAGE 23 FOR HIS BIOGRAPHICAL DETAILS.
Q. HOW DID THE EMERGING MARKETS FUND PERFORM COMPARED TO ITS BENCHMARK FOR THE
ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. The Emerging Markets Fund posted a return of 69.62% for the one-year period
ended September 30, 1999. For the same period, the MSCI Emerging Markets
Free Index posted a return of 56.52%.
Q. WHAT DROVE THE FUND'S PERFORMANCE?
A. Stock selection in Asia and Emerging Europe were the primary drivers of our
performance this year. Our holdings in India have strongly outperformed the
Asian index, especially our media and information technology ("IT")
services stocks. In Emerging Europe, our Greek names have posted large
returns, especially Petzetakis, a pipe manufacturer (+733% for the 12 month
period), and Delta Informatics, an IT services firm (+328% for the 12 month
period). Our regional asset allocation has been hurt by our underweight in
Asia, especially in the strong Korean market.
Q. WHAT CHANGES HAVE YOU MADE RECENTLY IN THE FUND BASED ON CURRENT MARKET
EVENTS?
A. In Emerging Asia, we reduced our exposure to Korea in the last quarter, and
increased the weights of our Taiwan holdings. Despite continuing financial
and corporate restructuring, and the strong commitment of the government to
reform, we felt that the Korean market was being driven by excess domestic
liquidity and that prices had moved ahead of the fundamentals.
In Emerging Europe/Africa, recent trading has been largely limited to the
existing names in the portfolio. We consistently trimmed positions in
Greece, taking advantage of the market's strength, and in some cases, the
increased liquidity. The proceeds were partly used to increase our exposure
to the technology holdings in Israel. Other new positions initiated include
Johnnies Industrial in South Africa as an alternative route to investing in
the cellular provider M-Cell, and Netia Holdings, which provides telecom
services for businesses in Poland.
In Latin America, we started a position in Alfa, a Mexican conglomerate
that will benefit from rising petrochemical prices.
Q. WHAT IS YOUR OUTLOOK FOR THE FUND?
A. Despite the reasonably positive backdrop, we have modest expectations for
the emerging markets in the fourth quarter of 1999. Our concern is that
global money managers will adopt a wait-and-see stance ahead of the Year
2000 computer issue, and the U.S. Federal Reserve's decision on future
interest rate hikes. We expect to turn more positive on the asset class in
2000 when stronger economic growth worldwide should translate into another
good year.
We continue to emphasize stock picking in our fund. Emerging markets are
increasingly populated with entrepreneurial firms in the
telecommunications, media and technology sectors which tend to offer
investors high growth with reasonable valuations. We are optimistic on the
outlook for these companies and would highlight the following -- first
these newer firms offer higher value-added services than the traditional
emerging market enterprises. Secondly, the large percentage of overseas
revenues for these firms should shield them from local economic troubles.
Finally, these firms appear to be attractively valued relative to their
peers in the developed world.
32
<PAGE>
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE GRAPH OMITTED]
Emerging Markets Fund MSCI EMF
--------------------- --------
11/25/97 $ 10,000.00 $ 10,000.00
12/97 10,215.36 10,360.82
3/98 11,068.31 11,002.51
6/98 9,392.51 8,406.09
9/98 6,803.55 6,556.09
12/98 8,159.95 7,735.48
3/99 9,467.96 8,697.53
6/99 11,258.92 10,819.45
9/99 11,691.57 10,261.85
- ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
ONE SINCE
YEAR INCEPTION COMMENCEMENT
- ----------------------------------------------------------------------
Emerging Markets Fund 69.62% 8.06% 11/25/97
- ----------------------------------------------------------------------
MSCI EMF 56.52% 1.41%
- ----------------------------------------------------------------------
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, 1999
- ----------------------------------------------------------------------
[PIE GRAPH OMITTED]
ASIA 39.0%
LATIN AMERICA 23.6%
EUROPE 20.2%
MIDDLE EAST & AFRICA 14.9%
CASH & OTHER 2.3%
----------------------------------------------------------------------
TOP TEN LARGEST HOLDINGS
AT SEPTEMBER 30, 1999
----------------------------------------------------------------------
Taiwan Semiconductor
Manufacturing Co. 2.98%
- --------------------------------------------------------------------------------
NIIT Ltd. 2.65%
- --------------------------------------------------------------------------------
Satyam Computer Services Ltd. 2.07%
- --------------------------------------------------------------------------------
Datacraft Asia Ltd. 1.98%
- --------------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A. ADR 1.96%
- --------------------------------------------------------------------------------
Mastek Ltd. 1.90%
- --------------------------------------------------------------------------------
Compal Electronics Inc. 1.87%
- --------------------------------------------------------------------------------
Grupo Televisa S.A. GDR 1.84%
- --------------------------------------------------------------------------------
A.G. Petzetakis S.A. 1.80%
- --------------------------------------------------------------------------------
Delta Informatics S.A. (Regd.) 1.78%
- --------------------------------------------------------------------------------
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
33
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
EMERGING MARKETS FUND
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK -- 90.4%
- --------------------------------------------------------------------------------
ARGENTINA -- 1.0%
Banco De Galicia y Buenos
Aires S.R. ADR (Class B) 1,098 $ 22,852
CEI Citicorp Holdings S.A.
(Class B) 9,432 28,584(a)
Telecom Argentina S.A. ADR 955 25,486
Telefonica de Argentina
S.A. ADR (Class B) 378 9,970
86,892
BRAZIL -- 1.2%
Companhia Cervejaria
Brahma ADR 953 11,436
Companhia de Eletricidade do
Estado do Rio de Janeiro 37,700,000 7,265(a)
Companhia de Saneamento
Basico de Estado de Sao Paulo 292,689 18,903
Companhia Siderurgica
Nacional ADR 118 3,039
Petroleo Brasiliero S.A. ADR 343 5,377
Telecomunicacoes
Brasileiras S.A. ADR 1,640 51(a)
Uniao de Bancos
Brasilieros S.A. GDR 3,169 56,052
102,123
CHILE -- 0.8%
Companhia de Telecomunicaciones
de Chile S.A. ADR 826 14,920
Enersis S.A. ADR 739 15,426
Vina Concha Y Toro ADR 972 36,693
67,039
CHINA -- 0.3%
Brilliance China Automotive
Holdings Ltd. 160 4,210
Guangdong Kelon Electrical
Holdings Co. Ltd. 9,000 9,037
Huaneng Power
International Inc. ADR 199 2,475
Jiangsu Expressway Co. Ltd. 18,000 2,920
Shenzhen Expressway Co. Ltd. 56,000 9,011
27,653
CROATIA -- 0.8%
Pliva D D GDR (Regd.) 3,595 35,590
Zagrebacka Banka GDR 4,285 32,995(b)
68,585
CZECH REPUBLIC -- 0.5%
Ceske Radiokomunikace GDR 1,225 43,794(a,b)
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
DOMINICAN REPUBLIC -- 0.5%
TRICOM S.A. ADR 4,958 $ 39,664(a)
EGYPT -- 2.4%
Al-Ahram Beverage Co.
S.A.E. GDR 1,535 44,822(a)
EFG-Hermes Holding
S.A.E. GDR 1,299 14,938(b)
Egypt Mobile Phone 4,990 116,905(a)
Olympic Group Financial
Investment Co. 8,753 28,068
204,733
ESTONIA -- 0.8%
AS Eesti Telekom GDR 4,166 68,739
GHANA -- 0.1%
Home Finance Co. 18,516 5,143(a)
[ICON OMITTED] GREECE -- 10.6%
A.G. Petzetakis S.A 4,672 154,301(a)
Agricultural Bank of Greece 4,686 105,604
Alfa Beta Vassilopoulos
S.A. (Regd.) 3,535 134,205
Alpha Credit Bank (Regd.) 940 75,330
Attica Enterprises S.A 2,883 70,572
Delta Informatics S.A. (Regd.) 1,670 152,947
Intrasoft S.A 1,690 87,389
Panafon Hellenic
Telecom S.A 1,200 32,638
STET Hellas Telecommunications
S.A. ADR 5,139 96,999(a)
909,985
HUNGARY -- 1.5%
BorsodChem RT 796 22,430
Magyar Tavkozlesi RT ADR 1,538 41,910
OTP Bank RT 684 30,381
Synergon Information
Systems GDR 2,627 30,605(a,b)
125,326
[ICON OMITTED] INDIA -- 13.3%
Aptech Ltd. 2,400 46,747
Aptech Ltd. 2,190 42,657(a)
Bharat Heavy Electricals Ltd. 761 4,768(a)
BSES Ltd. 1,450 6,106
Cipla Ltd. 650 58,907
Dr. Reddy's Laboratories Ltd. 1,200 40,565
HDFC Bank Ltd. 1,310 7,989(a)
Leading Edge Systems Ltd. 400 4,747(a)
Mastek Ltd. 2,300 163,190
NIIT Ltd. 3,517 228,050(h)
Pentafour Software & Exports Ltd. 10,400 143,201
Satyam Computer Services Ltd. 6,928 178,228
Sun Pharmaceutical
Industries Ltd. 1,889 50,633(h)
Tata Infotech Ltd. 225 3,627(a)
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
34
<PAGE>
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Wipro Ltd. 2,210 $ 68,468
Zee Telefilms Ltd. 900 92,344
1,140,227
INDONESIA -- 0.6%
PT Astra International Inc. 32,500 9,662(a)
PT Gudang Garam 2,500 5,060
PT Hanjaya Mandala Sampoerna 11,000 19,522(a)
PT International Nickel 13,000 10,150(a)
PT Mulia Industrindo 118,500 6,050
50,444
[ICON OMITTED] ISRAEL -- 8.3%
AudioCodes Ltd. 1,838 69,155(a)
Comverse Technology Inc. 1,352 127,510(a)
ECI Telecommunications Ltd. 2,893 71,421
Elbit Ltd. 4,024 51,809(a)
Fundtech Ltd. 4,009 89,451(a)
Geo Interactive Media
Group PLC 18,783 53,805(a)
Orbotech Ltd. 1,471 91,018(a)
Sapiens International
Corp. N.V 8,218 91,425(a)
Teva Pharmaceutical
Industries Ltd. ADR 1,312 66,010
711,604
KAZAKHSTAN -- 0.7%
Efes Sinai Yatirim Holding A.S 3,485,597 33,240(a)
Kazkommertsbank GDR 3,994 30,954(a)
64,194
[ICON OMITTED] MEXICO -- 12.6%
Alfa S.A. (Series A) 5,390 22,799
Cemex S.A. de CV ADR 1,400 33,775(a)
Cifra S.A. de CV 34,179 53,809(a)
Coca-Cola Femsa S.A. de C.V. ADR 3,308 45,692
Controladora Comercial
Mexicana S.A. de C.V 44,447 38,600
Desc S.A. de C.V. (Series B) 39,311 33,635
Empresas ICA Sociedad
Controladora S.A. de C.V. ADR 1,858 5,458
Fomento Economico
Mexicano S.A. de C.V. ADR 1,194 37,387
Geo S.A. de C.V 35,748 90,421(a)
Grupo Carso S.A. de C.V. ADR 3,305 27,060
Grupo Continental S.A 43,823 52,963
Grupo Elektra S.A. de C.V. GDR 3,787 18,225
Grupo Financiero Banamex
Accival S.A. de C.V. (Class B) 32,911 59,205(a)
Grupo Financiero Bancomer
S.A. ADR (Series C) 12,664 55,405(b)
Grupo Financiero Banorte
S.A. de C.V 88,544 91,858(a)
Grupo Industrial Bimbo
S.A. de C.V 23,682 49,644
Grupo Iusacell S.A. ADR 3,641 34,590(a)
Grupo Televisa S.A. GDR 3,962 158,232(a)
Pepsi-Gemex S.A. GDR 1,430 8,133(a)
Telefonos De Mexico S.A. ADR 1,766 125,827
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Tubos de Acero de Mexico
S.A. ADR 1,876 $ 22,981
TV Azteca S.A. de C.V. ADR 4,312 21,560
1,087,259
NETHERLANDS -- 0.3%
Indigo N.V 9,338 28,306(a)
PANAMA -- 0.2%
Banco Latinoamericano de
Exportaciones, S.A. (Class E) 694 15,875
PHILIPPINES -- 1.6%
Benpres Holdings Corp. 178,700 31,021(a)
Equitable Bank 12,030 25,001(a)
Metropolitan Bank & Trust Co. 6,800 49,878
San Miguel Corp. S.A 16,170 24,512
Solid Group Inc. 192,600 5,557(a)
SPI Technologies Inc. 18,150 4,770
140,739
POLAND -- 2.4%
Bank Slaski S.A 282 14,099
BRE Bank S.A 445 11,559
Elektrim Spolka Akcyjna S.A 4,592 42,558
Netia Holdings S.A. ADR 1,347 23,572(a)
Powszechny Bank Kredytowy S.A 939 15,802
Prokom Software S.A. GDR 3,954 37,168(b)
Telekomunikacja Polska S.A
GDR (Series A) 13,021 62,501(b)
207,259
RUSSIA -- 1.0%
LUKoil Holding ADR 893 24,111
PLD Telekom Inc. 11,433 28,583(a)
Premier Telesports Ltd. 1,156 9,840(a)
Sun Interbrew Ltd. GDR (Class B) 3,894 13,901(a)
Sun Interbrew Ltd. GDR (Class A) 3,894 13,902(a)
90,337
SINGAPORE -- 2.0%
Datacraft Asia Ltd. 38,689 170,232
SOUTH AFRICA -- 4.1%
Dimension Data Holdings Ltd. 19,767 78,541(a)
Education Investment Corp. Ltd. 30,202 17,761
Johnnies Industrial Corp. Ltd. 9,865 64,918
M-Cell Ltd. 16,686 27,520
Nedcor Investment Bank Holdings 2,442 1,465(a)
Nedcor Ltd. 4,343 85,087
Network Healthcare Holdings Ltd. 234,808 23,471
Softline Ltd. 52,837 55,456(a)
354,219
SOUTH KOREA -- 7.2%
Dae Duck Electronics Co. 10,882 120,762
Hanvit Bank GDR 1,348 9,436(a,b)
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
35
<PAGE>
EMERGING MARKETS FUND
- --------------------------------------------------------------------------------
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Kookmin Bank 3,430 $ 42,998(a)
Korea Telecom Corp. ADR 390 14,430(a)
Korea Telecom Corp. 1,060 65,439
Medison Co. Ltd. 7,317 78,192
Pohang Iron & Steel Co. Ltd. ADR 1,070 120,062
S1 Corp. 251 42,194
Samsung Electronics 559 90,524
Sindo Ricoh Co. 292 10,778
Youngone Corp. 11,450 21,460
616,275
[ICONOMITTED] TAIWAN -- 12.7%
Asustek Computer Inc. 9,605 95,596
Chroma Ate Inc. 14,800 39,156(a)
Compal Electronics Inc. 50,850 160,958
Compeq Manufacturing Co. Ltd. 12,700 60,000(a)
D-Link Corp. 22,000 39,496
Far Eastern Textile Ltd. 93,130 132,289
Hitron Technology Inc 18,000 77,386(a)
Hon Hai Precision Industry 10,800 70,753(a)
Ritek Inc 10,008 67,140(a)
Synnex Technology
International Corp. GDR 1,221 22,436(b)
Taiwan Semiconductor
Manufacturing Co. 60,922 256,160(a)
Yageo Corp. 55,300 70,018
1,091,388
THAILAND -- 0.6%
Banpu Public Co. Ltd. (foreign) 4,400 7,198
Hana Microelectronics
Public Co. Ltd. (foreign) 7,500 24,722(a)
Siam Cement Public Co.
Ltd. (foreign) 1,000 20,804(a)
52,724
TURKEY -- 2.3%
Aksigorta A.S 742,990 20,934
Dogan Yayin Holding 6,341,622 25,427(a)
Enka Holding Yatirim A.S 68,489 13,063
Migros Turk T.A.S 108,647 47,095
Tansas A.S 723,612 69,007
Yapi ve Kredi Bankasi A.S 1,790,328 24,446
199,972
TOTAL COMMON STOCK
(COST $5,899,936) 7,770,730
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 7.3%
- --------------------------------------------------------------------------------
Banco do Estado de Sao Paulo S.A 601,804 14,262
Celular CRT Participacoes S.A 14,839 1,623(a)
Companhia Brasileira de
Distribuicao Grupo Pao
de Acucar GDR 607,312 12,241
Companhia Energetica
de Minas Gerais 991,553 14,977
Companhia Paranaense
de Energia-Copel 8,667,753 58,236
Companhia Riograndense
de Telecomunicacoes 14,839 3,324
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
Companhia Siderurgica
de Tubarao 1,300,000 $ 10,901(a)
Companhia Vale Do Rio Doce 1,656 35,276(a)
Eletropaulo Metropolitana 400,000 18,958
Embratel Participacoes S.A. ADR 1,971 22,543
Petroleo Brasiliero S.A 510,000 76,234
Tele Centro Sul Participacoes
S.A. ADR 813 45,122
Tele Norte Leste Participacoes
S.A. ADR 3,146 48,763
Tele Sudeste Celular Participacoes
S.A. ADR 1,428 30,702
Telecomunicacoes Brasileiras
S.A. ADR 2,243 168,085
Telecomunicacoes de Sao
Paulo S.A.-Telesp 302,479 26,806
Telesp Celular Participacoes
S.A. ADR 291 7,602
Telesp Celular S.A 598,000 31,146
TOTAL PREFERRED STOCK
(COST $644,418) 626,801
TOTAL INVESTMENTS IN SECURITIES
(COST $6,544,354) 8,397,531
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT -- 1.1%
- --------------------------------------------------------------------------------
GEI Short Term Investment Fund
(COST $93,585) 93,585 93,585
OTHER ASSETS AND LIABILITIES,
NET 1.2% 101,032
================================================================================
NET ASSETS -- 100% $8,592,148
================================================================================
OTHER INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
The Emerging Markets Fund invested in the following sectors at September 30,
1999:
PERCENTAGE (BASED ON
SECTOR TOTAL NET ASSETS)
- ---------------------------------------------------
Services 39.64%
Capital Equipment 23.34%
Consumer Goods 13.21%
Finance 9.80%
Materials 5.12%
Multi Industry 3.87%
Energy 2.75%
Cash and Other 2.27%
--------
100.00%
--------
[ICON OMITTED] ICONS REPRESENT THE TOP FIVE INDUSTRY WEIGHTINGS IN THE U.S.
EQUITY FUND AT SEPTEMBER 30, 1999.
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
36
<PAGE>
INCOME FUNDS
- --------------------------------------------------------------------------------
Q&A
ROBERT MACDOUGALL LEADS THE FIXED INCOME TEAM AT GE INVESTMENTS. ASSETS UNDER
HIS MANAGEMENT EXCEED $28 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 DURING THE ONE-YEAR
PERIOD ENDED SEPTEMBER 30, 1999.
A. During the past twelve months, the bond market retraced the rally of the
previous year. From September 1997 to September 1998 the yield of the
30-year U.S. Treasury Bond fell from 6.04% to 4.97%. At September 30, 1999
it was back to 6.05%. The double-digit returns we enjoyed in 1998 were
followed by negative returns in 1999. The global market turmoil in the fall
of 1998 prompted the Federal Reserve Board (the "Fed") to ease monetary
policy three times for a total of 75 basis points (0.75%). As we entered
1999 and the crisis subsided, investors turned their attention back to the
domestic economy.
Strong growth and the low unemployment rate raised fears of inflation which
pushed bond yields higher. Fed policy became restrictive and the targeted
rate for Federal Funds was raised 50 basis points (0.50%) in two steps.
Overall, the market, as represented by the Lehman Brothers Aggregate Bond
Index, had a negative return of 0.37% for the period. Interest income of
6.6% was offset by a price decline of 7.0% due to the rise in interest
rates. The government and corporate sectors had similar returns (-1.7% and
-1.4%, respectively) while mortgage backed securities posted a positive
2.3% return. This was attributable primarily to their shorter duration
(interest rate exposure).
INCOME FUND
Q. HOW DID THE INCOME FUND PERFORM COMPARED TO ITS BENCHMARK FOR THE ONE-YEAR
PERIOD ENDED SEPTEMBER 30, 1999?
A. The Income Fund posted a negative 0.72% return while the Lehman Brothers
Aggregate Bond Index returned a negative 0.37%.
Q. WHAT WERE THE KEY-DRIVERS OF FUND PERFORMANCE?
A. A longer average duration (sensitivity to interest rates) during this
period of rising rates was a drag on performance. Offsetting this was
favorable sector allocation (overweight mortgage backed securities) and
good security selection in the corporate bond sector.
MONEY MARKET FUND
Q. HOW DID THE MONEY MARKET FUND PERFORM COMPARED TO ITS BENCHMARK FOR THE
ONE-YEAR PERIOD ENDED SEPTEMBER 30, 1999?
A. The Money Market Fund returned 4.92% while its benchmark, the 90-day U.S.
Treasury Bill, returned 4.63%.
Q. WHAT WERE THE KEY-DRIVERS OF FUND PERFORMANCE?
A. By keeping the average maturity of the portfolio relatively short during
the period of Fed tightening we were able to reinvest at higher levels as
rates increased.
OVERALL
Q. WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
A. We are in the ninth year of the current economic expansion with no end in
sight. Growth continues to be strongly fueled by consumer spending and
business capital investment. Exports are picking up as foreign economies
improve. With unemployment at a 30 year low, the market and the Fed worry
that inflationary pressures are building. Yet, reported inflation remains
benign. Core (excluding food and energy) CPI (Consumer Price Index) is
running at a 1.6% rate in 1999, the slowest pace in 33 years. We believe
that the Fed's pre-emptive tightening of monetary policy will be successful
in controlling inflation. While this may result in some additional
volatility in the near term, it suggests lower rates in the future.
37
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE GRAPH OMITTED]
Income Fund LB Aggregate
----------- ------------
11/21/97 $ 10,000.00 $ 10,000.00
12/97 10,112.09 10,101.00
3/98 10,290.76 10,256.86
6/98 10,544.23 10,496.62
9/98 10,921.11 10,940.26
12/98 10,967.82 10,977.14
3/99 10,904.74 10,921.35
6/99 10,783.19 10,825.13
9/99 10,842.60 10,899.26
- ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
ONE SINCE
YEAR INCEPTION COMMENCEMENT
- ----------------------------------------------------------------------
Income Fund (0.72)% 4.44% 11/21/97
- ----------------------------------------------------------------------
LB Aggregate (0.37)% 4.81%
- ----------------------------------------------------------------------
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, 1999
- ----------------------------------------------------------------------
[PIE GRAPH OMITTED]
MORTGAGE BACKED 33.3%
TREASURIES 20.3%
FEDERAL AGENCIES 19.7%
CORPORATE NOTES 19.9%
CASH & OTHER 6.8%
----------------------------------------------------------------------
QUALITY RATINGS AT
SEPTEMBER 30, 1999
----------------------------------------------------------------------
Moody's/ Percentage of
S&P Rating Net Assets
---------------------------------------
Aaa/AAA 88.8%
---------------------------------------
A to A/A 12.7%
---------------------------------------
Below A/A 6.3%
---------------------------------------
Other (7.8)%
---------------------------------------
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.
38
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INCOME FUND
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
BONDS AND NOTES -- 95.2%
- --------------------------------------------------------------------------------
U.S. TREASURIES -- 20.3%
U.S. Treasury Bonds
8.125% 08/15/19 $4,948,000 $ 5,856,404(e)
8.125% 05/15/21 1,051,000 1,253,643(e)
5.25% 02/15/29 775,000 678,249(e)
7,788,296
U.S. Treasury Notes
5.00% 04/30/01 417,000 413,155(e)
5.25% 05/31/01 842,000 836,872(e)
5.75% 06/30/01 3,840,000 3,845,414(e)
6.50% 08/31/01 519,000 527,107(e)
6.625% 03/31/02 125,000 127,618(e)
4.75% 02/15/04 995,000 954,424(e)
7.00% 07/15/06 815,000 856,003(e)
5.50% 05/15/09 3,498,000 3,384,875(e)
6.00% 08/15/09 210,000 211,705(e)
11,157,173
U.S. Treasury STRIPS
6.51% 02/15/12 1,020,000 461,713(d,e,i)
TOTAL U.S. TREASURIES
(COST $19,839,152) 19,407,182
FEDERAL AGENCIES -- 19.7%
Federal Home Loan Bank
5.625% 03/19/01 425,000 423,007
5.875% 08/15/01 2,845,000 2,833,876
5.25% 04/25/02 475,000 465,201
6.247% 03/17/21 223,000 208,435
3,930,519
Federal Home Loan Mortgage Corp.
6.22% 03/18/08 490,000 462,516
5.75% 04/15/08 360,000 339,073
5.125% 10/15/08 280,000 250,905
6.625% 09/15/09 1,975,000 1,968,522
6.50% 02/01/29 - 08/01/29 3,449,067 3,308,931
6,329,947
Federal National Mortgage Assoc.
5.38% 01/16/01 185,000 183,411
5.125% 02/13/04 1,785,000 1,700,766
5.78% 05/05/04 515,000 497,938
6.99% 07/09/07 300,000 296,202
5.64% 12/10/08 290,000 269,172
6.04% 02/25/09 1,105,000 1,037,496
7.50% 12/01/09 2,055,919 2,086,757
9.50% 11/01/17 159,377 171,231
8.00% 12/01/17 217,088 222,785
9.00% 12/01/17 158,873 166,418
9.50% 08/01/22 283,418 304,497
9.00% 12/01/22 173,227 181,590
6.16% 08/07/28 700,000 633,717
7,751,980
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Small Business Administration
6.55% 12/01/17 $449,875 $ 440,807
6.125% 01/01/18 316,152 302,320
743,127
TOTAL FEDERAL AGENCIES
(COST $19,209,770) 18,755,573
AGENCY MORTGAGE BACKED -- 25.7%
Federal Home Loan Mortgage Corp.
7.50% 09/01/12 201,260 204,341
8.00% 08/01/24 18,922 19,359
8.00% 10/01/25 17,993 18,403
8.00% 11/01/26 23,932 24,478
8.00% 02/01/28 27,355 27,980
6.50% TBA 390,000 374,217(c)
7.00% TBA 5,937,960 5,838,677(c)
7.50% TBA 250,000 251,133(c)
6,758,588
Federal National Mortgage Assoc.
9.00% 06/01/09 210,517 222,227
8.00% 01/01/13 999,752 1,024,426
6.50% 04/01/13 862,290 846,122
7.00% 08/01/13 86,298 86,257
7.50% 02/01/14 493,595 500,999
9.00% 04/01/16 118,859 125,916
7.50% 12/01/18 99,573 100,366
7.50% 12/01/23 427,237 430,172
6.42% 12/25/23 1,480,000 1,402,300
5.73% 10/01/24 641,619 628,183
7.00% 10/01/27 - 12/01/27 2,923,741 2,868,137
7.50% 10/01/27 1,311,101 1,314,785
6.50% 01/01/29 - 06/01/29 1,281,476 1,228,614
8.00% TBA 1,090,000 1,112,138(c)
11,890,642
Government National Mortgage Assoc.
7.00% 03/15/12 607,908 610,376
9.00% 11/15/16 735,730 776,651
9.00% 01/15/17 - 11/15/17 226,202 238,768
8.50% 10/15/17 255,695 267,084
9.50% 12/15/17 285,926 306,848
9.00% 12/15/21 33,157 34,898
7.50% 10/15/22 1,787,761 1,800,043
6.50% 03/15/24 462,080 445,472
7.00% 10/15/27 160,311 157,355
6.50% 04/15/28 556,882 532,340
7.00% 04/15/28 399,724 392,101
8.00% TBA 351,000 358,789(c)
5,920,725
TOTAL AGENCY MORTGAGE BACKED
(COST $24,994,369) 24,569,955
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 2.0%
Federal Home Loan Mortgage Corp.
5.75% 06/15/23 155,000 148,219
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
39
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Federal National Mortgage Assoc.
6.00% 03/25/19 $466,320 $425,950
7.50% 01/19/39 925,019 928,199
1,354,149
Federal National Mortgage Assoc. REMIC
6.17% 05/25/14 412,642 405,098
TOTAL AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $1,983,794) 1,907,466
ASSET BACKED -- 2.0%
Capital One Master Trust
5.43% 01/15/07 245,000 234,434
Chase Credit Card Master Trust
6.00% 08/15/05 138,000 136,318
Citibank Credit Card Master Trust
5.75% 01/15/03 72,000 71,730
5.50% 02/15/06 137,000 130,920
Discover Card Master Trust I
5.75% 10/16/03 101,000 100,210
5.30% 08/15/04 183,000 178,225
5.60% 05/16/06 395,000 379,385
First USA Credit Card Master Trust
5.28% 09/18/06 214,000 203,634
Ford Credit Auto Loan Master Trust
5.50% 02/15/03 109,000 107,818
Green Tree Financial Corp.
Series 1993-1
6.90% 04/15/18 75,734 75,804
6.97% 04/01/31 116,000 115,783
Peco Energy Transport Trust
5.80% 03/01/07 90,000 86,456
6.05% 03/01/09 90,000 85,021
TOTAL ASSET BACKED
(COST $1,954,814) 1,905,738
CORPORATE NOTES -- 19.9%
Abbey National PLC
7.35% 10/29/49 200,000 194,022
Aetna Services Inc.
6.97% 08/15/36 95,000 93,728
Amerada Hess Corp.
7.875% 10/01/29 300,000 295,230
American Airlines Inc.
6.855% 04/15/09 300,000 299,613
Arizona Public Service Co.
6.25% 01/15/05 80,000 76,606
Armstrong World Industries Inc.
7.45% 05/15/29 80,000 74,734
Associates Corporation of
North America
6.375% 10/15/02 400,000 397,476
5.75% 11/01/03 125,000 120,679
AT&T Corp.
6.50% 03/15/29 140,000 123,522
Atlantic City Electric Co.
6.19% 01/17/06 205,000 196,769
Bank of Scotland
7.00% 11/29/49 75,000 70,190(b)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Bank One Corp.
6.40% 08/01/02 $250,000 $248,415
Beckman Instruments Inc.
7.10% 03/04/03 65,000 63,045
Bell Telephone Co. - Pennsylvania
8.35% 12/15/30 368,000 408,366
Bellsouth Telecomm Inc.
6.375% 06/01/28 250,000 217,062
Bertelsmann US Finance
5.375% 01/28/04 150,000 141,544
Boston University
7.625% 07/15/97 250,000 238,537
Brascan Ltd.
7.375% 10/01/02 80,000 79,225
Burlington Northern Santa Fa
6.23% 07/02/18 125,000 114,073
Coastal Corp.
6.375% 02/01/09 100,000 92,377
Conseco Inc.
6.40% 06/15/01 191,000 187,262
6.80% 06/15/05 120,000 111,144
8.70% 11/15/26 59,000 52,522
Corporacion Andina De Fomento
6.75% 03/15/05 130,000 123,026
Crown Cork & Seal Co. Inc.
8.00% 04/15/23 85,000 79,965
CSX Corp.
6.25% 10/15/08 250,000 230,512
DaimlerChrysler AG
7.20% 09/01/09 225,000 226,089
Delphi Auto Systems Corp.
6.125% 05/01/04 95,000 91,366
Diageo Capital PLC
6.625% 06/24/04 65,000 64,752
Dresdner Funding Trust I
8.15% 06/30/31 480,000 451,637(b)
Duke Capital Corp.
7.25% 10/01/04 200,000 200,098
Duke Energy Corp.
5.375% 01/01/09 100,000 87,442
FDX Corp.
7.85% 01/30/15 79,582 79,865
Federated Department Stores Inc.
6.125% 09/01/01 110,000 108,897
Ford Motor Credit Co.
6.70% 07/16/04 300,000 298,314
5.80% 01/12/09 100,000 90,853
7.45% 07/16/31 300,000 295,788
General Motors Acceptance Corp.
5.75% 11/10/03 70,000 67,354
6.15% 04/05/07 160,000 150,507
Goldman Sachs Group L.P.
6.65% 05/15/09 455,000 432,464
HCR Manor Care
7.50% 06/15/06 75,000 70,204
Heritage Media Corp.
8.75% 02/15/06 130,000 134,225
Household Finance Corp.
6.125% 07/15/02 50,000 49,068
Hydro-Quebec
8.05% 07/07/24 302,000 324,272
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
40
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Israel Electric Corp. Ltd.
7.125% 07/15/05 $ 60,000 $ 58,320(b)
J.P. Morgan & Co.
6.00% 01/15/09 125,000 114,481
Kroger Co.
6.34% 06/01/01 185,000 183,905(b)
7.375% 03/01/05 175,000 172,638
Landesbank Baden-Wuerttember
7.875% 04/15/04 292,000 304,933
LCI International Inc.
7.25% 06/15/07 90,000 88,476
Lehman Brothers Holdings Inc.
8.50% 08/01/15 220,000 230,650
7.50% 08/01/26 145,000 146,650
LG&E Capital Corp.
5.75% 11/01/01 120,000 118,328(b)
Liberty Media Group
7.875% 07/15/09 110,000 110,087(b)
Liberty Property Ltd. Partnership
7.50% 01/15/18 90,000 76,353
Lumbermens Mutual Casualty
8.30% 12/01/37 40,000 34,965(b)
MBNA Corp.
6.306% 04/22/03 150,000 146,802
MCI Communications Corp.
6.48% 04/15/02 300,000 297,573(d)
MCI WorldCom Inc.
6.40% 08/15/05 105,000 101,454
8.875% 01/15/06 150,000 158,291
Merita Bank Ltd.
7.15% 12/29/49 250,000 243,472(b)
Monsanto Co.
5.75% 12/01/05 80,000 74,873
6.85% 12/01/28 80,000 69,293(b,d)
Morgan Stanley, Dean Witter
5.625% 01/20/04 65,000 62,105
Nabisco Inc.
6.125% 02/01/03 95,000 91,739
NATEXIS AMBS CO. LLC
- --------------------------------------------------------------------------------
8.44% 12/29/49 85,000 81,207(b)
National Rural Utilities Cooperative
6.05% 04/15/03 100,000 98,141
5.50% 01/15/05 45,000 42,430
National Westminster Bank PLC
7.75% 04/29/49 271,000 262,510
Newell Co.
6.35% 07/15/08 70,000 67,082
News America Holdings Inc.
8.15% 10/17/36 368,000 350,281
Noram Energy Corp.
6.375% 11/01/03 80,000 78,186
Northrop-Grumman Corp.
8.625% 10/15/04 75,000 79,057
Occidental Petroleum Corp.
7.375% 11/15/08 115,000 113,594
Pepsi Bottling Holdings Inc.
5.375% 02/17/04 200,000 189,740(b)
5.625% 02/17/09 70,000 62,966(b)
Philip Morris Cos. Inc.
7.25% 09/15/01 80,000 80,748
6.95% 06/01/06 55,000 55,223
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Phillips Petroleum Co.
9.375% 02/15/11 $ 200,000 $ 232,836
Pitney Bowes Credit
9.25% 06/15/08 100,000 115,218
Principal Financial Group
8.20% 08/15/09 140,000 140,529(b)
Procter & Gamble Co.
6.875% 09/15/09 135,000 135,510
Quebec Province of Canada
7.50% 09/15/29 120,000 120,088
Raytheon Co.
6.75% 08/15/07 100,000 96,388
Reynolds Tobacco Holding
7.375% 05/15/03 100,000 98,601(b)
Rohm & Haas Co.
6.95% 07/15/04 475,000 475,921(b)
7.85% 07/15/29 100,000 101,564(b)
Safeway Inc.
5.75% 11/15/00 75,000 74,392
7.50% 09/15/09 300,000 300,156
Sprint Capital Corp.
5.70% 11/15/03 70,000 66,845
6.875% 11/15/28 95,000 86,121
Stop & Shop Cos. Inc.
9.75% 02/01/02 50,000 53,100
Sun Life Canada Capital Trust
8.526% 05/29/49 201,000 191,983(b)
SunAmerica Inc.
5.60% 07/31/97 390,000 271,959
Suntrust Bank Inc.
6.00% 01/15/28 80,000 74,362
Tele-Communications Inc.
9.80% 02/01/12 80,000 96,885
7.875% 08/01/13 60,000 63,192
Teleglobe Inc.
7.20% 07/20/09 100,000 94,541
Texas Utilities Co.
5.94% 10/15/01 340,000 335,230
Textron Inc.
6.375% 07/15/04 85,000 83,657
Time Warner Inc.
10.15% 05/01/12 263,000 314,590
Time Warner Pass-Through
Asset Trust
6.10% 12/30/01 90,000 89,508(b)
Tosco Corp.
7.625% 05/15/06 55,000 55,557
Turner Broadcasting Systems Inc.
8.375% 07/01/13 115,000 121,618
TXU Eastern Funding Co.
6.45% 05/15/05 170,000 160,905(b)
6.75% 05/15/09 65,000 60,271(b)
Tyco International Group S.A.
6.25% 06/15/03 140,000 135,632
6.125% 11/01/08 85,000 78,558
7.00% 06/15/28 95,000 86,606
U.S. West Capital Funding Inc.
6.875% 08/15/01 400,000 399,452(b)
6.125% 07/15/02 40,000 39,111
6.875% 07/15/28 60,000 53,193
Union Oil Co.
7.35% 06/15/09 60,000 59,457
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
41
<PAGE>
INCOME FUND
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Union Pacific Corp.
7.00% 02/01/16 $ 45,000 $ 41,568
United Illuminating Co.
6.25% 12/15/02 30,000 29,251
United Parcel Service Inc.
8.375% 04/01/30 147,000 162,872
US Airways Pass-Through Trust
8.36% 07/20/20 150,000 151,045
US West Communications Inc.
5.625% 11/15/08 125,000 110,949
USA Waste Services Inc.
6.125% 07/15/01 150,000 145,023
USX Marathon Group
9.80% 07/01/01 80,000 83,899
Viacom Inc.
7.75% 06/01/05 307,000 311,298
Wal-Mart Stores Inc.
6.88% 08/10/09 225,000 225,416
Waste Management Inc.
6.65% 05/15/05 105,000 104,215
Westdeutsche Landesbank
6.75% 06/15/05 150,000 147,288
Williams Cos. Inc.
6.125% 02/15/02 155,000 152,816
Yale University
7.375% 04/15/96 321,000 313,970
TOTAL CORPORATE NOTES
(COST $19,757,426) 18,942,538
NON-AGENCY MORTGAGE BACKED SECURITIES -- 4.4%
Chase Commercial Mortgage
Securities Corp.
6.39% 11/18/08 104,000 99,044
Commercial Mortgage
Acceptance Corp.
6.49% 5/15/08 138,000 131,596
Credit Suisse First Boston
Mortgage Securities Corp.
6.30% 11/15/08 300,000 281,484
First Union Lehman Brothers-
Bank of America
6.56% 11/18/08 300,000 288,187
GMAC Commercial Mortgage
Security Inc.
6.42% 8/15/08 62,000 58,541
10.03% 8/15/23 2,245,566 89,121(d,i)
GS Mortgage Securities Corp.
6.86% 7/13/30 250,000 249,609
Lehman Large Loan
6.79% 6/12/04 286,024 285,220
Merrill Lynch Mortgage
Investors Inc.
5.71% 1/15/02 170,000 167,251
6.39% 2/15/30 114,000 108,639
Morgan Stanley Capital I
6.86% 5/15/06 258,487 258,285(b)
6.52% 1/15/08 21,000 20,272
6.21% 9/15/08 44,000 41,491
9.92% 4/15/23 1,103,666 45,181(d,i)
6.01% 11/15/30 155,917 150,558
6.48% 11/15/30 125,000 120,039
10.04% 11/15/31 1,721,960 83,407(b,d,i)
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
Nationslink Funding Corp.
6.001% 11/20/07 $ 89,248 $ 85,845
6.48% 7/20/08 300,000 286,594
Sawgrass Finance REMIC Trust
6.45% 1/20/06 334,000 334,157
Structured Asset Securities Corp.
5.98% 8/25/00 425,231 424,965(b,g)
Vornado Finance Corp.
6.36% 12/1/00 640,000 639,200(b)
TOTAL NON-AGENCY MORTGAGE BACKED SECURITIES
(COST $4,323,679) 4,248,686
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.2%
Blackrock Capital Finance
7.22% 11/25/28 350,000 333,539(b)
7.25% 11/25/28 206,021 123,613(b)
Salomon Brothers Mortgage
Securities Inc.
7.00% 7/25/24 741,998 660,623
TOTAL NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS
(COST $1,274,267) 1,117,775
TOTAL BONDS AND NOTES
(COST $93,337,271) 90,854,913
NUMBER
OF SHARES VALUE
- --------------------------------------------------------------------------------
PREFERRED STOCK -- 0.6%
- --------------------------------------------------------------------------------
CORPORATE PREFERRED -- 0.6%
Centaur Funding Corp. (Series B),
9.08% 475 491,079(b)
TCI Communications Inc., 10.00% 3,200 83,400
TOTAL PREFERRED STOCK
(COST $589,300) 574,479
TOTAL INVESTMENTS IN SECURITIES
(COST $93,926,571) 91,429,392
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 12.0%
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 4.6%
Federal Home Loan Mortgage Corp.
5.20% 10/01/99 $4,400,000 4,400,000(d)
TIME DEPOSIT -- 7.4%
State Street Cayman Islands
5.375% 10/01/99 7,020,534 7,020,534
TOTAL SHORT-TERM INVESTMENTS
(COST $11,420,534) 11,420,534
OTHER ASSETS AND LIABILITIES,
NET (7.8)% (7,468,577)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $95,381,349
================================================================================
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
42
<PAGE>
MONEY MARKET FUND
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------------------------
[LINE GRAPH OMITTED]
Money Market Fund 90 Day T-Bill
----------------- -------------
12/2/97 $ 10,000.00 $ 10,000.00
12/97 10,045.17 10,043.00
3/98 10,178.79 10,170.85
6/98 10,313.99 10,297.38
9/98 10,453.23 10,419.19
12/98 10,585.27 10,533.60
3/99 10,709.49 10,651.26
6/99 10,833.83 10,773.32
9/99 10,967.85 10,902.15
- ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
ONE SINCE
YEAR INCEPTION COMMENCEMENT
- ----------------------------------------------------------------------
Money Market Fund 4.92% 5.18% 12/2/97
- ----------------------------------------------------------------------
90 Day T-Bill 4.63% 4.83%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
SECTOR ALLOCATION
AS OF SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
[PIE GRAPH OMITTED]
COMMERCIAL PAPER 52.1%
CERTIFICATES OF DEPOSITS & OTHER 25.5%
U.S. GOVERNMENTS 22.4%
- ----------------------------------------------------------------------
FUND YIELD
AT SEPTEMBER 30, 1999
- ----------------------------------------------------------------------
FUND IBC MONEY FUND
- ----------------------------------------------------------------------
7 day current 5.07%+ 4.71%
- ----------------------------------------------------------------------
7 day effective 5.19% 4.82%
- ----------------------------------------------------------------------
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 NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
+ The seven day current yield, rather than the total return, more closely
reflects the current earnings of the Money Market Fund at September 30,
1999.
SEE NOTES TO PERFORMANCE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
43
<PAGE>
SCHEDULE OF INVESTMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 108.0%
- --------------------------------------------------------------------------------
U.S. GOVERNMENT -- 22.4%
U.S. TREASURIES
U.S. Treasury Note
5.50% 03/31/00 $100,000 $ 100,093
U.S. AGENCIES (d)
Federal Home Loan Bank
5.60% 02/16/00 210,000 205,613
Federal National Mortgage Assoc.
5.12% 10/04/99 200,000 199,916
5.13% 10/07/99 220,000 219,814
4.81% 10/15/99 290,000 289,470
5.33% 12/06/99 150,000 148,553
5.64% 04/20/00 130,000 126,003
983,756
TOTAL U.S. GOVERNMENT
(COST $1,289,462) 1,289,462
COMMERICAL PAPER -- 52.1%
Abbey National PLC
5.31% 11/22/99 250,000 248,082
Bank of America
5.19% 10/01/99 250,000 250,000
Bank of Nova Scotia
5.301% 11/29/99 250,000 247,828
Citibank Capital Market
5.21% 10/04/99 250,000 249,891
First Union Corp.
5.29% 10/22/99 250,000 249,229
Goldman Sachs Group L.P.
5.30% 11/23/99 250,000 248,049
Halifax Building Society
5.225% 10/12/99 210,000 209,665
Merrill Lynch & Co. Inc.
5.29% 10/08/99 290,000 289,702
Morgan (J.P.) & Co. Inc.
5.14% 10/06/99 250,000 249,822
Toronto-Dominion Bank
5.295% 11/12/99 250,000 248,456
UBS Finance Delaware Inc.
5.15% 10/18/99 250,000 249,392
Wells Fargo Co.
5.315% 11/22/99 250,000 248,081
TOTAL COMMERICAL PAPER
(COST $2,988,197) 2,988,197
PRINCIPAL
AMOUNT VALUE
- --------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT -- 30.9%
ABN AMRO
5.21% 10/21/99 $ 230,000 $ 230,000
Bank of Montreal
5.34% 10/19/99 260,000 260,000
Bayerische Hypotheken Bank
5.18% 10/19/99 250,000 250,000
Canadian Imperial Bank
of Commerce
5.405% 12/07/99 250,000 250,000
Dresdner Bank AG
5.22% 10/29/99 250,000 250,000
Rabobank USA Financial Corp .
5.31% 10/26/99 280,000 280,000
Societe Generale
5.375% 10/05/99 250,000 250,000
TOTAL YANKEE CERTIFICATES OF DEPOSIT
(COST $1,770,000) 1,770,000
TIME DEPOSITS -- 2.6%
Royal Bank of Canada
5.563% 10/01/99
(COST $150,000) 150,000 150,000
TOTAL SHORT-TERM INVESTMENTS
(COST $6,197,659) 6,197,659
OTHER ASSETS AND LIABILITIES,
NET (8.0)% (461,582)
- --------------------------------------------------------------------------------
NET ASSETS -- 100% $5,736,077
================================================================================
- ----------
See Notes to Schedule of Investments and Notes to Financial Statements.
44
<PAGE>
NOTES TO PERFORMANCE SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
Information on the preceding performance pages related to the Funds' one-year
total return and top ten largest holdings is audited, all other information on
the 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), the
S&P 400 MidCap Composite Price Index of stocks (S&P MidCap 400), the Russell
2000 Index (Russell 2000), the Morgan Stanley Capital International Europe,
Australasia, Far East Index (MSCI EAFE), the Morgan Stanley Capital
International Europe Index, (MSCI Europe), the Morgan Stanley Capital
International Emerging Markets Free Index (MSCI EMF), and the Lehman Brothers
Aggregate Bond Index (LB Aggregate) are unmanaged indices and do not reflect the
actual cost of investing in the instruments that comprise each index.
The S&P 500 is a capitalization-weighted index of 500 widely held stocks
recognized by investors to be representative of the stock market in general. The
S&P MidCap 400 is a capitalization-weighted index of 400 U.S. stocks with a
median market capitalization. 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. MSCI EAFE is a composite of foreign securities traded in 20 developed
markets representing Europe, Australasia and Far East. MSCI Europe is a
composite of securities traded in 15 developed markets in Europe. MSCI EMF is a
composite of securities available to non-domestic investors traded in 25
emerging markets. LB Aggregate is a composite of short-, medium-, and long-term
bond performance and is widely recognized as a barometer of the bond market in
general.
The results shown for the foregoing indices assume the reinvestment of net
dividends or interest.
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 946 taxable money
market funds.
A number of the broad market returns are not available from the funds'
commencement of investment operations through September 30, 1999 and therefore
are calculated from the month end nearest to the funds' commencement of
operation date.
The views expressed in this document reflect our judgment as of the publication
date and are subject to change at any time without notice. The securities cited
may not represent current or future holdings and should not be considered as a
recommendation to purchase or sell a particular security. They were cited solely
for illustrative purposes. See the prospectus for complete descriptions of
investment objectives, policies, risks and permissible investments.
Standard & Poor's, S&P, and S&P 500 are trademarks of The McGraw-Hill Companies,
Inc. and have been licensed for use. The S&P 500 Index Fund is not sponsored,
endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no
representation or warranty, express or implied, to the investors of the fund or
any member of the public regarding the advisability of investing in the
securities generally or in this fund particularly or the ability of the S&P 500
Index Fund to track general stock market performance.
NOTES TO SCHEDULES OF INVESTMENTS
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Pursuant to Rule 144A of the Securities Act of 1933, these securities may
be resold in transactions exempt from registration, normally to qualified
institutional buyers. At September 30, 1999, these securities amounted to
$51,528; $309,278; $1,306,666 and $5,746,932 or 0.5%, 3.6%, 0.7%, and 6.0%
of net assets for the Europe Equity, Emerging Markets, International
Equity and Income Funds, 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, 1999, all or a portion of this security was pledged to
cover collateral requirements for futures, options and/or TBA's.
(f) State Street Corp. is the parent company of State Street Bank & Trust Co.,
the fund's custodian.
(g) Adjustable rate mortgage coupon. The stated rate represents the rate at
September 30, 1999.
(h) At September 30, 1999, GEIM has determined that the security is illiquid as
it may be difficult to resell within seven days in the ordinary course of
business at approximately the price it is valued.
(i) Interest only securities represent the right to receive the monthly
interest payments on an underlying pool of mortgages. Payments of principal
on the pool reduce the value of the interest only holding.
ABBREVIATIONS:
ADR -- American Depositary Receipt
GDR -- Global Depositary Receipt
Regd. -- Registered
REMIC -- Real Estate Mortgage Investment Conduit
SDR -- Special Drawing Rights
STRIPS -- Separate Trading of Registered Interest
and Principal of Security
45
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data based on a share outstanding throughout the periods indicated
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MID-CAP
U.S. S&P 500 MID-CAP VALUE
EQUITY INDEX GROWTH EQUITY
FUND FUND FUND FUND
9/30/99 9/30/98 9/30/99 9/30/98 9/30/99 9/30/98 9/30/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE -- 11/25/97 -- 11/25/97 -- 11/25/97 12/31/98
Net asset value, beginning of period $ 10.62 $ 10.00 $ 10.85 $ 10.00 $ 8.87 $ 10.00 $ 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.11 0.11 0.18 0.14 0.05 0.04 0.08
Net realized and unrealized
gains (losses)
on investments 2.84 0.52 2.88 0.72 1.29 (1.16) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 2.95 0.63 3.06 0.86 1.34 (1.12) (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.13 0.01 0.17 0.01 0.05 0.01 --
Net realized gains 0.25 -- -- -- -- -- --
Return of capital -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.38 0.01 0.17 0.01 0.05 0.01 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.19 $ 10.62 $ 13.74 $ 10.85 $ 10.16 $ 8.87 $ 9.91
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a) 28.27% 6.28% 28.41% 8.63% 15.19% (11.25%) (0.90%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $160,980 $114,553 $26,359 $20,186 $15,313 $13,208 $10,182
Ratios to average net assets:
Net investment income* 0.92% 1.21% 1.35% 1.57% 0.53% 0.53% 1.00%
Net Expenses* 0.41% 0.42% 0.15% 0.15% 0.55% 0.55% 0.65%
Portfolio turnover rate 45% 29% 7% 1% 52% 14% 18%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SMALL-CAP INTERNATIONAL EUROPE EMERGING
VALUE EQUITY EQUITY EQUITY MARKETS
FUND FUND FUND FUND
9/30/99 9/30/98 9/30/99 9/30/98 9/30/99 9/30/99 9/30/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION DATE -- 8/3/98 -- 11/25/97 1/29/99 -- 11/25/97
Net asset value, beginning of period $8.91 $10.00 $10.06 $ 10.00 $10.00 $6.78 $10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.01 0.02 0.09 0.14(b) 0.11 0.01 0.07
Net realized and unrealized
gains (losses)
on investments 1.23 (1.11) 2.81 (0.07)(b) (0.14) 4.70 (3.26)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS 1.24 (1.09) 2.90 0.07 (0.03) 4.71 (3.19)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.03 -- 0.12 0.01 -- 0.01 0.03
Net realized gains -- -- 0.35 -- -- -- --
Return of capital -- -- -- -- -- 0.01 --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.03 -- 0.47 0.01 -- 0.02 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.12 $ 8.91 $ 12.49 $10.06 $ 9.97 $11.47 $ 6.78
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a) 13.98% (10.90%) 29.50% 0.66% (0.30%) 69.62% (31.96%)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $10,287 $9,056 $197,974 $114,414 $10,080 $8,592 $5,063
Ratios to average net assets:
Net investment income* 0.13% 1.68% 0.99% 1.72% 1.78% 0.12% 0.82%
Net Expenses* 0.70% 0.70% 0.62% 0.64% 0.75% 1.05% 1.05%
Portfolio turnover rate 216% 19% 50% 53% 49% 79% 77%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY
INCOME MARKET
FUND FUND
9/30/99 9/30/98 9/30/99 9/30/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCEPTION DATE -- 11/21/97 -- 12/2/97
Net asset value, beginning of period $10.39 $10.00 $1.00 $1.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.55 0.51 0.05 0.04
Net realized and unrealized
gains (losses)
on investments (0.62) 0.39 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME (LOSS) FROM
INVESTMENT OPERATIONS (0.07) 0.90 0.05 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income 0.57 0.51 0.05 0.04
Net realized gains 0.18 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS 0.75 0.51 0.05 0.04
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.57 $10.39 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (a) (0.72%) 9.21% 4.92% 4.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $95,381 $71,444 $5,736 $7,012
Ratios to average net assets:
Net investment income* 5.80% 5.81% 4.81% 5.33%
Net Expenses* 0.30% 0.31% 0.25% 0.25%
Portfolio turnover rate 227% 323% N/A N/A
</TABLE>
- ----------
NOTES TO FINANCIAL HIGHLIGHTS
(a) Total returns are historical and assume changes in share price and
reinvestment of dividends and capital gains. 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.
* Annualized for periods less than one year.
46 & 47
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID-CAP
U.S. S&P 500 MID-CAP VALUE
EQUITY INDEX GROWTH EQUITY
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $135,945,126; $19,778,451;
$13,200,603; $10,072,193; $9,502,194;
$184,065,032; $9,879,668; $6,544,354;
$93,926,571 and $0 respectively) $156,985,797 $25,747,298 $13,589,628 $ 9,967,723
Short-term investments
(at amortized cost) 3,946,748 574,794 1,711,235 206,643
Cash -- -- -- --
Foreign currency (cost $0; $0; $0; $0; $0
$639,311; $71,895; $151,579; $0 and $0,
respectively) -- -- -- --
Receivable for investments sold 406,746 -- -- --
Income receivables 168,738 31,600 18,935 13,224
Receivable for fund shares sold -- -- -- --
Variation margin receivable 22,875 9,150 150 --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 161,530,904 26,362,842 15,319,948 10,187,590
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable to shareholders -- -- -- --
Payable for investments purchased 497,465 -- -- --
Payable for fund shares redeemed -- -- -- --
475,000
Payable to GEIM 53,619 3,428 7,107 5,676
Payable to Custodian -- -- -- --
Current country taxes payable -- -- -- --
Deferred country taxes payable -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 551,084 3,428 7,107 5,676
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $160,979,820 $26,359,414 $15,312,841 $10,181,914
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in $127,862,823 $19,624,524 $15,340,325 $10,312,199
Undistributed (overdistributed)
net investment income 1,052,851 270,205 59,093 79,149
Accumulated net realized gain (loss) 11,062,043 523,338 (461,451) (104,964)
Net unrealized appreciation/
(depreciation) on:
Investments 21,040,671 5,968,847 389,025 (104,470)
Futures (38,563) (27,500) (14,151) --
Foreign currency related transactions (5) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $160,979,820 $26,359,414 $15,312,841 $10,181,914
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding ($.001 par value) 12,204,729 1,918,761 1,506,706 1,027,650
Net asset value, offering and redemption
price per share $13.19 $13.74 $10.16 $9.91
</TABLE>
<TABLE>
<CAPTION>
SMALL-CAP INTERNATIONAL EUROPE EMERGING
VALUE EQUITY EQUITY EQUITY MARKETS
FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in securities, at market
(cost $135,945,126; $19,778,451;
$13,200,603; $10,072,193; $9,502,194;
$184,065,032; $9,879,668; $6,544,354;
$93,926,571 and $0 respectively) $ 9,793,690 $195,557,887 $ 9,839,768 $8,397,531
Short-term investments
(at amortized cost) 575,592 1,000 73,485 93,585
Cash -- -- -- 3,732
Foreign currency (cost $0; $0; $0; $0; $0
$639,311; $71,895; $151,579; $0 and $0,
respectively) -- 638,975 71,895 151,524
Receivable for investments sold 53,630 705,350 70,943 194,225
Income receivables 7,278 458,949 29,928 11,091
Receivable for fund shares sold -- 795,576 -- --
Variation margin receivable -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 10,430,190 198,157,737 10,086,019 8,851,688
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable to shareholders -- -- -- --
Payable for investments purchased 137,353 -- -- 144,332
Payable for fund shares redeemed -- -- -- --
475,000
Payable to GEIM 5,913 99,210 6,335 7,381
Payable to Custodian -- 84,348 -- --
Current country taxes payable -- -- -- 45,599
Deferred country taxes payable -- -- -- 62,228
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 143,266 183,558 6,335 259,540
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $10,286,924 $197,974,179 $10,079,684 $8,592,148
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in $10,004,044 $179,506,961 $10,110,050 $7,519,219
Undistributed (overdistributed)
net investment income 11,465 1,094,353 72,058 (14,156)
Accumulated net realized gain (loss) (20,081) 5,873,769 (63,393) (701,561)
Net unrealized appreciation/
(depreciation) on:
Investments 291,496 11,492,855 (39,900) 1,790,949
Futures -- -- -- --
Foreign currency related transactions -- 6,241 869 (2,303)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $10,286,924 $197,974,179 $10,079,684 $8,592,148
- ------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding ($.001 par value) 1,016,700 15,854,773 1,010,552 749,004
Net asset value, offering and redemption
price per share $10.12 $12.49 $9.97 $11.47
</TABLE>
<TABLE>
<CAPTION>
MONEY
INCOME MARKET
FUND FUND
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in securities, at market
(cost $135,945,126; $19,778,451;
$13,200,603; $10,072,193; $9,502,194;
$184,065,032; $9,879,668; $6,544,354;
$93,926,571 and $0 respectively) $91,429,392 $ --
Short-term investments
(at amortized cost) 11,420,534 6,197,659
Cash -- 6,665
Foreign currency (cost $0; $0; $0; $0; $0
$639,311; $71,895; $151,579; $0 and $0,
respectively) -- --
Receivable for investments sold 1,624,474 --
Income receivables 1,044,927 11,495
Receivable for fund shares sold -- --
Variation margin receivable -- --
- --------------------------------------------------------------------------------------------
TOTAL ASSETS 105,519,327 6,215,819
- --------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable to shareholders 65,127 3,446
Payable for investments purchased 9,970,372 --
Payable for fund shares redeemed 80,000 475,000
Payable to GEIM 22,479 1,296
Payable to Custodian -- --
Current country taxes payable -- --
Deferred country taxes payable -- --
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 10,137,978 479,742
- --------------------------------------------------------------------------------------------
NET ASSETS $95,381,349 $5,736,077
- --------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital paid in $98,833,923 $5,736,106
Undistributed (overdistributed)
net investment income (11,058) (2)
Accumulated net realized gain (loss) (944,337) (27)
Net unrealized appreciation/
(depreciation) on:
Investments (2,497,179) --
Futures -- --
Foreign currency related transactions -- --
- --------------------------------------------------------------------------------------------
NET ASSETS $95,381,349 $5,736,077
- --------------------------------------------------------------------------------------------
Shares outstanding ($.001 par value) 9,971,198 5,736,106
Net asset value, offering and redemption
price per share $9.57 $1.00
</TABLE>
- ----------
See Notes to Financial Statements.
48 & 49
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MID-CAP
U.S. S&P 500 MID-CAP VALUE
EQUITY INDEX GROWTH EQUITY
FUND FUND FUND FUND*
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
<S> <C> <C> <C> <C>
Dividends $1,805,570 $334,249 $100,934 $113,110
Interest 146,275 52,381 68,484 17,676
Less: Foreign taxes withheld (10,809) (3,354) (680) --
TOTAL INCOME 1,941,036 383,276 168,738 130,786
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and administration fees 596,183 38,140 85,788 51,327
Trustees' fees 5,718 1,033 660 310
- -------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 601,901 39,173 86,448 51,637
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,339,135 344,103 82,290 79,149
- -------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------------------------
REALIZED GAIN (LOSS) ON:
Investments 11,225,546 336,526 113,400 (104,964)
Futures 99,806 267,376 44,325 --
Written options -- -- -- --
Foreign currency related
transactions (1,595) -- (5) --
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 19,783,406 4,769,033 1,779,982 (104,470)
Futures (72,032) (17,200) (15,651) --
Written options -- -- -- --
Foreign currency related
transactions (274) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 31,034,857 5,355,735 1,922,051 (209,434)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $32,373,992 $5,699,838 $2,004,341 $(130,285)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SMALL-CAP INTERNATIONAL EUROPE EMERGING MONEY
VALUE EQUITY EQUITY EQUITY MARKETS INCOME MARKET
FUND FUND FUND** FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME:
<S> <C> <C> <C> <C> <C> <C>
Dividends $66,330 $2,481,577 $170,817 $81,875 $48,283 $ --
Interest 15,307 207,827 14,971 10,276 4,585,258 350,445
Less: Foreign taxes withheld -- (298,957) (20,843) (9,640) -- --
TOTAL INCOME 81,637 2,390,447 164,945 82,511 4,633,541 350,445
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Advisory and
administration fees 68,479 915,623 48,474 73,879 227,814 17,307
Trustees' fees 423 5,825 278 360 3,169 317
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 68,902 921,448 48,752 74,239 230,983 17,624
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 12,735 1,468,999 116,193 8,272 4,402,558 332,821
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED GAIN (LOSS) ON:
Investments 196,098 6,017,035 (63,393) (541,884) (724,883) (27)
Futures -- -- -- -- -- --
Written options -- -- -- -- 92,391 --
Foreign currency related
transactions -- (435,254) (44,135) (28,950) -- --
INCREASE (DECREASE) IN UNREALIZED
APPRECIATION/DEPRECIATION ON:
Investments 1,051,365 26,402,576 (39,900) 4,093,012 (4,142,188) --
Futures -- -- -- -- -- --
Written options -- -- -- -- (1,231) --
Foreign currency related
transactions -- (2,626) 869 (1,637) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss)
on investments 1,247,463 31,981,731 (146,559) 3,520,541 (4,775,911) (27)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM OPERATIONS $1,260,198 $33,450,730 $(30,366) $3,528,813 $(373,353) $332,794
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the period December 31, 1998 (inception) through September 30, 1999.
** For the period January 29, 1999 (inception) through September 30, 1999.
- ----------
See Notes to Financial Statements.
50 & 51
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
U.S. S&P 500
EQUITY INDEX
FUND FUND
- ----------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
9/30/99 9/30/98(a) 9/30/99 9/30/98(a)
- ----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income $1,339,135 $1,181,640 $344,103 $266,931
Net realized gain (loss)
on investments, futures,
written options, and
foreign currency related
transactions 11,323,757 2,418,734 603,902 (80,564)
Net increase (decrease)
in unrealized
appreciation/depreciation 19,711,100 1,291,003 4,751,833 1,189,514
- ----------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations 32,373,992 4,891,377 5,699,838 1,375,881
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1,388,813) (80,261) (320,568) (20,501)
Return of capital -- -- -- --
Net realized gains (2,679,706) -- -- --
- ----------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (4,068,519) (80,261) (320,568) (20,501)
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from
operations and distributions 28,305,473 4,811,116 5,379,270 1,355,380
- ----------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 22,447,898 112,863,469 500,000 18,862,804
Value of distributions reinvested 4,068,514 80,261 320,568 20,501
Cost of shares redeemed (8,394,578) (3,202,333) (26,849) (52,260)
- ----------------------------------------------------------------------------------------------------
Net increase(decrease)from
share transactions 18,121,834 109,741,397 793,719 18,831,045
- ----------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 46,427,307 114,552,513 6,172,989 20,186,425
NET ASSETS
Beginning of period 114,552,513 -- 20,186,425 --
- ----------------------------------------------------------------------------------------------------
End of period $160,979,820 $114,552,513 $26,359,414 $20,186,425
====================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME,
END OF PERIOD $1,052,851 $1,104,124 $ 270,205 $246,641
- ----------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES:
Shares sold by subscription 1,718,638 11,070,334 34,868 1,862,744
Issued for distributions
reinvested 349,529 7,974 26,105 2,045
Shares redeemed (650,568) (291,178) (1,902) (5,099)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares 1,417,599 10,787,130 59,071 1,859,690
====================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MID-CAP
MID-CAP VALUE SMALL-CAP
GROWTH EQUITY VALUE EQUITY
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
9/30/99 9/30/98(a) 9/30/98(b) 9/30/99 9/30/98(c)
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income $ 82,290 $ 64,857 $ 79,149 $ 12,735 $23,457
Net realized gain (loss)
on investments, futures,
written options, and
foreign currency related
transactions 157,720 (619,195) (104,964) 196,098 (207,232)
Net increase (decrease)
in unrealized
appreciation/depreciation 1,764,331 (1,389,457) (104,470) 1,051,365 (759,869)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations 2,004,341 (1,943,795) (130,285) 1,260,198 (943,644)
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (80,475) (7,583) -- (33,674) --
Return of capital -- -- -- -- --
Net realized gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (80,475) (7,583) -- (33,674) --
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from
operations and distributions 1,923,866 (1,951,378) (130,285) 1,226,524 (943,644)
- ----------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 100,002 15,291,488 33,107,697 20,948,085 10,000,110
Value of distributions reinvested 80,475 7,583 -- 33,670 --
Cost of shares redeemed -- (139,195) (22,795,498) (20,977,821) --
- ----------------------------------------------------------------------------------------------------------------------------
Net increase(decrease)from
share transactions 180,477 15,159,876 10,312,199 3,934 10,000,110
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,104,343 13,208,498 10,181,914 1,230,458 9,056,466
NET ASSETS
Beginning of period 13,208,498 -- -- 9,056,466 --
- ----------------------------------------------------------------------------------------------------------------------------
End of period $15,312,841 $13,208,498 $10,181,914 $10,286,924 $9,056,466
============================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME,
END OF PERIOD $ 59,093 $ 57,283 $ 79,149 $11,465 $23,457
- ----------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES:
Shares sold by subscription 8,795 1,502,376 3,042,924 2,029,729 1,016,007
Issued for distributions
reinvested 8,427 773 -- 3,609 --
Shares redeemed -- (13,665) (2,015,274) (2,032,645) --
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares 17,222 1,489,484 1,027,650 693 1,016,007
============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EUROPE EMERGING
EQUITY EQUITY MARKETS
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR PERIOD PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
9/30/99 9/30/98(a) 9/30/99(d) 9/30/99 9/30/98(a)
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income $1,468,999 $1,503,970 $116,193 $ 8,272 $ 47,014
Net realized gain (loss)
on investments, futures,
written options, and
foreign currency related
transactions 5,581,781 3,833,256 (107,528) (570,834) (244,962)
Net increase (decrease)
in unrealized
appreciation/depreciation 26,399,950 (14,900,854) (39,031) 4,091,375 (2,302,729)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations 33,450,730 (9,563,628) (30,366) 3,528,813 (2,500,677)
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (1,386,768) (21,580) -- (8,870) (22,361)
Return of capital -- -- -- (6,199) --
Net realized gains (4,011,536) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (5,398,304) (21,580) -- (15,069) (22,361)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from
operations and distributions 28,052,426 (9,585,208) (30,366) 3,513,744 (2,523,038)
- -------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 63,250,137 126,319,228 20,540,050 -- 7,584,622
Value of distributions reinvested 5,398,304 21,580 -- 15,068 22,361
Cost of shares redeemed (13,140,485) (2,341,803) (10,430,000) -- (20,609)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase(decrease)from
share transactions 55,507,956 123,999,005 10,110,050 15,068 7,586,374
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 83,560,382 114,413,797 10,079,684 3,528,812 5,063,336
NET ASSETS
Beginning of period 114,413,797 -- -- 5,063,336 --
- -------------------------------------------------------------------------------------------------------------------------------
End of period $197,974,179 $114,413,797 $10,079,684 $8,592,148 $5,063,336
===============================================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME,
END OF PERIOD $1,094,353 $1,447,353 $ 72,058 $ (14,156) $ 12,029
- -------------------------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES:
Shares sold by subscription 5,068,474 11,565,378 2,010,552 -- 746,750
Issued for distributions
reinvested 489,869 2,109 -- 1,957 2,224
Shares redeemed (1,081,713) (189,344) (1,000,000) -- (1,927)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares 4,476,630 11,378,143 1,010,552 1,957 747,047
===============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MONEY
INCOME MARKET
FUND FUND
- ---------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
9/30/99 9/30/98(e) 9/30/99 9/30/98(f)
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income $4,402,558 $3,197,364 $332,821 $492,085
Net realized gain (loss)
on investments, futures,
written options, and
foreign currency related
transactions (632,492) 916,815 (27) 39
Net increase (decrease)
in unrealized
appreciation/depreciation (4,143,419) 1,646,240 -- --
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from operations (373,353) 5,760,419 332,794 492,124
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income (4,410,028) (3,199,802) (332,862) (492,085)
Net realized gains (1,229,810) -- -- --
- ---------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (5,639,838) (3,199,802) (332,862) (492,085)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from
operations and distributions (6,013,191) 2,560,617 (68) 39
- ---------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
Proceeds from sale of shares 24,422,296 67,027,457 -- 32,721,555
Value of distributions reinvested 5,608,108 3,182,314 332,504 488,997
Cost of shares redeemed (80,000) (1,326,252) (1,698,585) (26,108,365)
- ---------------------------------------------------------------------------------------------------------------
Net increase(decrease)from
share transactions 29,950,404 68,883,519 (1,366,081) 7,102,187
- ---------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 23,937,213 71,444,136 (1,366,149) 7,102,226
NET ASSETS
Beginning of period 71,444,136 -- 7,102,226 --
- ---------------------------------------------------------------------------------------------------------------
End of period $95,381,349 $71,444,136 $5,736,077 $7,102,226
===============================================================================================================
UNDISTRIBUTED (OVERDISTRIBUTED)
NET INVESTMENT INCOME,
END OF PERIOD $(11,058) $366,039 $(2) $ --
- ---------------------------------------------------------------------------------------------------------------
CHANGES IN FUND SHARES:
Shares sold by subscription 2,536,572 6,692,568 -- 32,721,555
Issued for distributions
reinvested 565,769 313,760 332,504 488,997
Shares redeemed (8,359) (129,112) (26,108,365)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in fund shares 3,093,982 6,877,216 (1,366,081) 7,102,187
===============================================================================================================
</TABLE>
<PAGE>
(a) For the period November 25, 1997 (inception) through September 30, 1998.
(b) For the period December 31, 1998 (inception) through September 30, 1999.
(c) For the period August 3, 1998 (inception) through September 30, 1998.
(d) For the period January 29, 1999 (inception) through September 30, 1999.
(e) For the period November 21, 1997 (inception) through September 30, 1998.
(f) For the period December 2, 1997 (inception) through September 30, 1998.
- ----------
See Notes to Financial Statements.
52 & 53
<PAGE>
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
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 fifteen investment funds (each a "Fund" and collectively the
"Funds") only ten of which have commenced operations. The ten active funds are,
as follows: U.S. Equity Fund, S&P 500 Index Fund, Mid-Cap Growth Fund, Mid-Cap
Value Equity Fund, Small-Cap Value Equity Fund, International Equity Fund,
Europe Equity Fund, Emerging Markets 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, 1999, 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 (minimum initial investment requirements are
described in the current prospectus of the Funds).
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 at
the date of the financial statements. 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 (or NASDAQ) 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 matrix system, which considers market transactions
as well as dealer supplied valuations. Short-term investments maturing within 60
days are valued at amortized cost or original cost plus accrued interest, both
of which approximate current value. Fund positions that cannot be valued as set
forth above are valued at fair value determined in good faith 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
securities initially at cost and, thereafter, securities are assumed to have a
constant amortization to maturity of any discount or premium. Amortized cost
approximates fair value.
Security transactions are accounted for as of the trade date. Realized gains and
losses on investments sold are recorded on the basis of identified cost for both
financial statement and federal tax purposes.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. The Funds' custodian
takes possession of the collateral pledged for investments in repurchase
agreements on behalf of the Funds. 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 102% of the repurchase price. In the event the
seller defaults and the value of the security declines, or if the seller enters
an insolvency proceeding, realization of the collateral by the Funds may be
delayed or limited.
SECURITY LENDING
The Funds may loan securities to brokers, dealers, and financial institutions
determined by GE Investment Management Incorporated ("GEIM") to be creditworthy,
subject to certain limitations. The Funds receive compensation in the form of
fees in addition to the interest and dividends on the loaned securities during
the term of the loan. The loans of securities are secured by collateral in the
form of cash or other liquid assets, which are segregated and maintained with
the custodian in an amount at least equal to 102% of the current market value of
the loaned securities. During the term of the loan, the Funds will receive any
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
gain or loss in the market value of its loaned securities and of securities in
which cash collateral is invested net of any rebate. In the event the
counterparty (borrower) does not meet its contracted obligation to return the
securities, the Fund may be exposed to the risk of loss of reacquiring the
loaned securities at prevailing market prices using the proceeds of the sale of
the collateral.
FOREIGN CURRENCY
Accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in 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
denominated in foreign currencies are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the 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.
Net realized gains or losses on foreign currency transactions represent net
gains or losses on sales and maturities of foreign currency contracts,
disposition of foreign currencies, the difference between the amount of net
investment income and withholding taxes accrued and the U.S. dollar amount
actually received and paid, and gains or losses between the trade and settlement
date on purchases and sales of securities. Net unrealized foreign exchange gains
and losses arising from changes in the value of other assets and liabilities as
a result of changes in foreign exchange rates are included as increases or
decreases in unrealized appreciation/depreciation on foreign currency related
transactions.
FINANCIAL FUTURES CONTRACTS AND OPTIONS
Each of the Funds, other than the Small-Cap Value Equity Fund and the Money
Market Fund, may invest in financial futures contracts and each of the Funds,
other than the Money Market Fund, may purchase and write options, subject to
certain limitations. The Funds may invest in futures and options contracts to
manage their exposure to the stock and bond markets and fluctuations in currency
values. 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. The Fund's risks in
using these contracts include changes in the value of the underlying
instruments, non-performance of the counterparties under the contracts' terms
and changes in the liquidity of secondary market for the contracts. Futures
contracts are valued at the settlement price established each day by the board
of trade or exchange on which they principally trade. Options are valued at the
last sale price, or if no sales occurred on that day, at the last quoted bid
price.
Upon entering into a financial futures contract, the Funds are required to
pledge to the broker an amount of cash and/or other assets equal to a certain
percentage of the contract amount, know as initial margin deposit. Subsequent
payments, known as variation margins, are made or received by the Funds each
day, depending on the daily fluctuation in the fair value of the underlying
security. The Funds record an unrealized gain or loss equal to the daily
variation margin. Should market conditions move unexpectedly, the Fund may not
achieve the anticipated benefits of the financial futures contracts and may
incur a loss. The Funds recognize a realized gain or loss on the expiration or
closing of a futures contract.
When a Fund writes an option, the amount of the premium received is recorded as
a liability and is subsequently adjusted to the current fair value of the option
written. Premiums received from writing options that expire unexercised are
treated by the Funds on the expiration date as realized gains from investments.
The difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or if the premium is less than the amount paid for the closing
purchase, as a realized loss. When an option is exercised, the proceeds from the
sale of the underlying security or the cost basis of the securities purchased is
adjusted by the original premium received or paid.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
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 a month or more after entering
into the transaction. The price of the underlying securities and the date when
these securities will be delivered and paid for are fixed at the time the
transaction is negotiated. Losses may arise due to changes in the market value
of the underlying securities or if the counterparty does not perform under the
contract. 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Certain Funds may enter into forward foreign currency exchange contracts to
facilitate transactions in foreign denominated securities and to manage the
Fund's currency exposure. Forward foreign currency exchange contracts are valued
at the mean between the bid and the offered forward rates as last quoted by a
recognized dealer. The aggregate principal amounts of the contracts are not
recorded in the Fund's financial statements. Fluctuations in the value of the
contracts are recorded in the Statement of Assets and Liabilities as an asset
(or liability) and in the Statement of Operations as unrealized appreciation
(depreciation) until the contracts are closed, when they are recorded as
realized foreign currency related transactions gains or losses. The Fund's risks
in using these contracts include changes in the value of foreign currency or the
possibility that the counterparties do not perform under the contracts' terms.
When a Fund enters into a forward foreign currency exchange contract, it is
required to segregate cash or liquid securities with its custodian in an amount
equal to the value of the Fund's total assets committed to the consummation of
the forward contract. If the value of the segregated securities declines,
additional cash or securities is segregated so that the value of the account
will equal the amount of the Fund's commitment with respect to the contract.
INVESTMENT IN FOREIGN MARKETS
Investing in foreign markets may involve special risks and considerations not
typically associated with investing in the United States. These risks include
revaluation of currencies, high rates of inflation, repatriation on income and
capital, and adverse political and economic developments. Moreover, securities
issued in these markets may be less liquid, subject to government ownership
controls, tariffs and taxes, subject to delays in settlements, and their prices
may be more volatile.
The Emerging Markets Fund may be subject to capital gains and repatriation taxes
imposed by certain countries in which it invests. At September 30, 1999, the
Emerging Markets Fund has recorded an accrual in the amount of $45,599 for
capital gains taxes incurred, and a deferred tax accrual of $62,228 in respect
of unrealized appreciation on applicable investments in securities. These
accruals are included in net realized and unrealized gain (loss) on investments
in the Statements of Operations.
INCOME TAXES
The Funds intend to comply with all sections of the Internal Revenue Code
applicable to regulated investment companies including the distribution of
substantially all of their taxable net investment income, and net realized
capital gains to their shareholders. Therefore, no provision for federal income
tax has been made. Each Fund is treated as a separate taxpayer for federal
income tax purposes.
As of September 30, 1999, the following Funds have capital loss carryovers as
indicated below. The capital loss carryover is available to offset future
realized capital gains to the extent provided in the Internal Revenue Code
and regulations thereunder. To the extent that these carryover losses are
used to offset future capital gains, it is probable that the gains to offset
will not be distributed to shareholders because they would be taxable
as ordinary income.
FUND AMOUNT EXPIRES
- ----------------------------------------------------------
Emerging Markets Fund $375,590 2007
Mid-Cap Growth Fund 475,601 2007
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 after October 31, 1998 as
follows:
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
FUND CURRENCY CAPITAL
- --------------------------------------------------------------------------------
U.S. Equity Fund $ 1,581 $ --
Mid-Cap Growth Fund 5 --
Mid-Cap Value Equity Fund -- 104,964
Small Cap Value Equity Fund -- 41,030
International Equity Fund 423,145 --
Europe Equity Fund 44,135 56,174
Emerging Markets Fund 29,031 237,049
Income Fund -- 878,518
Money Market Fund -- 27
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
in excess of capital loss carryforwards distributions annually. The character of
income and gains to be distributed is determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences include 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. These reclassifications have no impact on net investment
income, realized gains or losses, or net asset value of the Funds. The
calculation of net investment income per share in the Financial Highlights table
excludes these adjustments.
INVESTMENT INCOME
Corporate actions (including cash dividends) are recorded, net of
non-reclaimable tax withholdings, on the ex-dividend date, except for certain
foreign corporate actions which are recorded as soon after ex-dividend date as
such information becomes available. Interest income is recorded on the accrual
basis. All discounts and premiums on taxable bonds 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.
3. FEES AND COMPENSATION PAID TO AFFILIATES
ADVISORY AND ADMINISTRATION FEES
Compensation of GEIM for investment advisory and administrative services, is
paid monthly based on the average daily net assets of each Fund. 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*
- --------------------------------------------------------------------------------
U.S. Equity Fund First $25 million .55%
Mid-Cap Next $25 million .45%
Growth Fund Over $50 million .35%
S&P 500
Index Fund All assets .15%
Mid-Cap Value First $25 million .65%
Equity Fund Next $25 million .60%
Over $50 million .55%
Small-Cap Value First $25 million .70%
Equity Fund Next $25 million .65%
Over $50 million .60%
International Equity First $25 million .75%
Fund Next $50 million .65%
Europe Equity Fund Over $75 million .55%
Emerging Markets First $50 million 1.05%
Fund Over $50 million .95%
Income Fund First $25 million .35%
Next $25 million .30%
Next $50 million .25%
Over $100 million .20%
Money Market First $25 million .25%
Fund 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.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
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.
4. SUB-ADVISORY FEES
Pursuant to investment sub-advisory agreements with GEIM, State Street Global
Advisers, ("SSgA"), a division of State Street Bank and Trust Company, is the
sub-adviser to the S&P 500 Index Fund; Palisade Capital Management, LLC
("Palisade") is the sub-adviser to the Small-Cap Value Equity Fund; NWQ
Investment Management Company ("NWQ") is the sub-adviser to the Mid-Cap Value
Equity Fund.
SSgA, Palisade and NWQ are responsible for the day-to-day portfolio management
of the assets of the S&P 500 Index Fund, the Small-Cap Value Equity Fund and the
Mid-Cap Value Equity Fund, respectively, including the responsibility for making
decisions to buy, sell or hold a particular security, under the general
supervision of GEIM and the Board.
For their services, GEIM pays SSgA, Palisade and NWQ monthly sub-advisory fees
which are calculated as a percentage of the average daily net assets of the
respective funds.
5. AGGREGATE UNREALIZED APPRECIATION AND DEPRECIATION
Aggregate gross unrealized appreciation/(depreciation) of investments for each
Fund at September 30, 1999, were as follows:
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION/
APPRECIATION DEPRECIATION (DEPRECIATION)
------------ ------------ --------------
U.S. Equity Fund $29,111,889 $8,071,218 $21,040,671
S&P 500
Index Fund 7,348,852 1,380,005 5,968,847
Mid-Cap
Growth Fund 2,333,577 1,944,552 389,025
Mid-Cap Value
Equity Fund 1,442,438 1,546,908 (104,470)
Small-Cap Value
Equity Fund 1,009,912 718,416 291,496
International
Equity Fund 21,638,720 10,145,865 11,492,855
Europe
Equity Fund 851,399 891,299 (39,900)
Emerging
Markets Fund 2,597,788 744,611 1,853,177
Income Fund 67,667 2,564,846 (2,497,179)
The aggregate cost of each Fund's investments was substantially the same for
book and federal income tax purposes at September 30, 1999.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
6. OPTIONS
During the year ended September 30, 1999, the following option contracts were
written:
INCOME FUND
- -------------------------------------------------------------------------
NUMBER
OF CONTRACTS PREMIUM
- -------------------------------------------------------------------------
Balance as of September 30, 1998 3,965 $15,806
Written 6,716,118 107,056
Closed and Expired (5,439,508) (99,066)
Exercised (1,280,575) (23,796)
- ---------------------------------------------------------------------
Balance as of September 30, 1999 -- $ --
7. INVESTMENT TRANSACTIONS
The cost of purchases and the proceeds from sales of investments, other than
short-term securities and options, for the period ended September 30, 1999, were
as follows:
PURCHASES SALES
- --------------------------------------------------------------------
U.S. Equity Fund $ 79,732,804 $ 65,237,797
S&P 500 Index Fund 3,158,344 1,678,643
Mid-Cap Growth Fund 7,353,629 7,504,438
Mid-Cap Value Equity Fund 12,092,393 1,915,236
Small-Cap Value
Equity Fund 20,546,756 20,586,567
International
Equity Fund 126,052,285 73,266,898
Europe Equity Fund 14,729,716 4,747,796
Emerging Markets Fund 5,483,236 5,328,686
Income Fund 198,487,093 167,493,505
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, 1999 are:
5% OR GREATER
SHAREHOLDERS
- --------------------------------------------------------------------------------
% OF % OF FUND HELD
NUMBER FUND HELD BY GE AFFILIATES*
- --------------------------------------------------------------------------------
U.S. Equity Fund 3 91% 12%
S&P 500 Index Fund 1 91% --
Mid-Cap Growth Fund 2 94% --
Mid-Cap Value Equity Fund 1 100% 100%
Small-Cap Value Equity Fund 1 100% 100%
International Equity Fund 5 96% --
Europe Equity Fund 1 100% 100%
Emerging Markets Fund 2 94% --
Income Fund 4 96% 14%
Money Market Fund 4 100% 8%
Investment activities of these shareholders could have a material impact on
these Funds.
* Included in the 5% or Greater Shareholders percentage.
59
<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
GEInstitutional Funds (the "Trust") at September 30, 1999, 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, 1999 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 12, 1999
60
<PAGE>
TAX INFORMATION, UNAUDITED
- --------------------------------------------------------------------------------
During the year ended September 30, 1999, the following GE Institutional Fund
paid to shareholders of record on December 15, 1998 the following long-term
capital gain dividend:
Fund Per Share Amount
- ----------------------------------------------------------
U.S. Equity Fund $0.01347
61
<PAGE>
GE INSTITUTIONAL FUNDS' INVESTMENT TEAM
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
U.S. EQUITY FUND
Team led by Eugene K. Bolton
S&P 500 INDEX FUND
James B. May
State Street Global Advisors
MID-CAP GROWTH FUND
Ralph E. Whitman, Jr.
MID-CAP VALUE EQUITY FUND
Jon D. Bosse
NWQ Investment Management Company
SMALL-CAP VALUE EQUITY FUND
Investment Committee:
Jack Feiler
Martin L. Berman
Steven E. Berman
Richard Meisenberg
Palisade Capital Management, L.L.C.
INTERNATIONAL EQUITY FUND
EMERGING MARKETS FUND
Team led by Ralph R. Layman
EUROPE EQUITY FUND
Michael J. Solecki
INCOME FUND
MONEY MARKET FUND
Team led by
Robert A. MacDougall
INVESTMENT ADVISER
AND ADMINISTRATOR
GE Investment Management Incorporated
TRUSTEES
Michael J. Cosgrove
John R. Costantino
Alan M. Lewis
William J. Lucas
Robert P. Quinn
SECRETARY
Matthew J. Simpson
TREASURER
Michael J. Tansley
ASSISTANT TREASURER
Michael M. D'Ambrosio
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
John J. Walker, EVP, Chief Financial Officer
Ralph R. Layman, EVP, International Equities
Alan M. Lewis, EVP, General Counsel and Secretary
Robert A. MacDougall, EVP, Fixed Income
Geoffrey R. Norman, EVP, Marketing
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
Stamford, CT 06927
