AHA INVESTMENT FUNDS INC, 497, 1997-11-05

AHA INVESTMENT FUNDS INC
497, 1997-11-05

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PROSPECTUS DATED OCTOBER 31, 1997

AHA INVESTMENT FUNDS, INC.
100 HALF DAY ROAD
LINCOLNSHIRE, ILLINOIS 60069
- --------------------------------------------------------------------------------

AHA Investment Funds, Inc. (the "Fund"), is an open-end, diversified,
management investment company (commonly known as a "mutual fund"). Shares of the
Fund are available only to participants in the American Hospital Association
Investment Program (the "Program"), and to the American Hospital Association
(and its affiliated companies). The Fund is designed to provide Participants in
the Program with a cost-effective method of pursuing a professionally managed,
diversified program for investment of their pension funds and corporate assets,
and implementing asset allocation decisions. The Fund is comprised of four
investment portfolios, each managed by two or more Investment Managers with the
exception of the Limited Maturity Fixed Income Portfolio. Hewitt Associates LLC
is the Fund's Investment Consultant. Shares of the following Portfolios are
offered directly by the Fund, without any sales charge ("no-load"), and are
redeemable, at the respective Portfolios' current net asset values per share:
- --------------------------------------------------------------------------------

LIMITED MATURITY FIXED INCOME PORTFOLIO: Seeks a high level of current income,
consistent with preservation of capital and liquidity. Invests primarily in high
quality fixed income securities and maintains an average dollar weighted
portfolio maturity of five years or less.

FULL MATURITY FIXED INCOME PORTFOLIO: Seeks over the long term the highest level
of income consistent with preservation of capital. Invests primarily in high
quality fixed income securities. There is no restriction on the maximum maturity
of the securities purchased. The average dollar weighted portfolio maturity will
vary and may exceed 20 years.

DIVERSIFIED EQUITY PORTFOLIO: Seeks long-term capital growth. Invests primarily
in equity securities and securities having equity characteristics.

BALANCED PORTFOLIO: Seeks a combination of growth of capital and income. Invests
varying proportions of its assets in equity and fixed income securities, with
not less than 25 percent of total assets invested in fixed income securities.
- --------------------------------------------------------------------------------

In pursuing their investment objectives, the Portfolios may utilize a
variety of investment techniques. See "Investment Descriptions and Practices."
Options on securities and financial futures and related options may be utilized
by each of the Portfolios and involve certain risks. See "Special Investment
Techniques."

INVESTMENT CONSULTANT:

HEWITT ASSOCIATES LLC
100 Half Day Road
Lincolnshire, Illinois 60069

This Prospectus provides the basic information you should know before
investing in the Fund. Please read it and keep it for future reference. A
Statement of Additional Information dated October 31, 1997 containing further
information about the Fund has been filed with the Securities and Exchange
Commission. You can obtain a copy without charge by writing AHA Investment
Funds, Inc., c/o Firstar Trust Company, P.O. Box 701, Milwaukee, WI 53201-0701
or by calling 1 (800) 445-1341.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THE STATEMENT OF ADDITIONAL INFORMATION, DATED AUGUST 31,
1997, IS HEREBY INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 3
SUMMARY OF FUND EXPENSES................................................................................... 5
CONDENSED FINANCIAL INFORMATION............................................................................ 7
ABOUT THE FUND............................................................................................. 10
INVESTMENT OBJECTIVES AND POLICIES......................................................................... 11
INVESTMENT RESTRICTIONS.................................................................................... 18
SPECIAL INVESTMENT TECHNIQUES.............................................................................. 18
MANAGEMENT ARRANGEMENTS.................................................................................... 22
EXPENSES AND FEES.......................................................................................... 23
HOW SHARES CAN BE PURCHASED................................................................................ 24
HOW TO REDEEM SHARES....................................................................................... 25
SERVICES PROVIDED BY THE FUND.............................................................................. 27
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES........................................................... 28
FUND PERFORMANCE........................................................................................... 29
ADDITIONAL INFORMATION..................................................................................... 30
INVESTMENT CONSULTANT PROFILE.............................................................................. 31
INVESTMENT MANAGER PROFILES................................................................................ 31
CORPORATE SECURITIES RATINGS (Appendix).................................................................... A-1
</TABLE>

2
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PROSPECTUS SUMMARY

<TABLE>
<S> <C>
THE FUND The Fund, a Maryland corporation, is an open-end,
diversified, management investment company. It is
comprised of four investment portfolios (the
"Portfolios"), each with different investment objectives
and policies. See "Investment Objectives and Policies."

THE OFFERING Shares of common stock, $0.01 par value, of each of the
Portfolios, are offered on a continuous basis directly by
the Fund to participants in the American Hospital
Association Investment Program (the "Program") and to the
American Hospital Association ("AHA") and its affiliates.
Participants in the Program are member hospitals of AHA
and their affiliated organizations, including employee
benefit plans. Other hospital associations affiliated
with AHA and their sponsored and affiliated organizations
are also eligible to become Participants. Hewitt
Associates LLC provides asset management consulting
services to participants in the Program. Participants can
implement asset allocation policies and pursue their
investment goals through investment in shares of one or
more of the Portfolios. See "About The Fund."

SHARE PRICE Shares of each Portfolio are offered at the net asset
value per share of the Portfolio next computed after
receipt of an order to purchase shares in proper form
without any sales charge. See "How Shares Can Be
Purchased."

MINIMUM PURCHASE Minimum initial investment in the Fund is $1 million,
with a $100,000 per Portfolio minimum. Subsequent
investments in a Portfolio must be at least $100,000. See
"How Shares Can Be Purchased."

INVESTMENT CONSULTANT Hewitt Associates LLC ("Hewitt") is the Fund's Investment
Consultant. Hewitt selects the Investment Managers of the
Portfolios, subject to the Board of Directors' approval.
In addition, it supervises and evaluates the performance
of the Investment Managers, allocates assets among them
and provides certain other services. See "Management
Arrangements."

THE INVESTMENT MANAGERS The investments of the Portfolios are managed by various
advisory organizations which serve as the Investment
Managers. See "Management Arrangements." The
organizations presently serving as Investment Managers
are listed and described under "Investment Manager
Profiles."

FEES AND EXPENSES The Fund pays no fees to Hewitt or to the Investment
Managers. Fees of the Investment Managers are paid by
Hewitt. Participants in the Program pay fees to Hewitt
for the services they receive. See "Expenses and Fees."
The Fund directly bears certain expenses of its
operations, including the fees and expenses accounting
and other services provided by Firstar Trust Company. See
"Additional Information."
</TABLE>

3
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<TABLE>
<S> <C>
DIVIDENDS AND CAPITAL Income dividends of the Limited Maturity Fixed Income
GAINS DISTRIBUTIONS Portfolio and the Full Maturity Fixed Income Portfolio
are declared daily and payable monthly. The Diversified
Equity Portfolio and the Balanced Portfolio declare and
pay income dividends quarterly. Capital gains, if any,
are distributed at least annually. Dividends and capital
gains distributions are automatically reinvested in
additional shares at net asset value unless a shareholder
elects to have them paid by check. See "Dividends,
Capital Gains Distributions and Taxes."

REDEMPTION OF SHARES Shares can be redeemed at net asset value of the
Portfolio next determined after receipt of a redemption
request in proper form, without any charge. Requests can
be made in writing or by telephone and will be paid by
wire or, if requested, by check. Shares may be subject to
involuntary redemption under certain circumstances. See
"How to Redeem Shares."

EXCHANGE PRIVILEGE Shares of any Portfolio may be exchanged for shares of
any other Portfolio on the basis of relative net asset
values of the Portfolios at the time of exchange, without
charge, subject to the minimum investment requirements of
each Portfolio. See "Services Provided by the Fund."

RISKS The net asset values per share and dividends of the
Portfolios will fluctuate. Investors should review
carefully the investment objectives, policies and
procedures of the Portfolios and consider their ability
to assume the risks involved in owning shares. Some
investment practices of the Portfolios involve certain
risks. These practices include: use of repurchase
agreements; purchase of foreign securities; lending
securities; use of options on securities, stock index
options, interest rate futures and related options, and
stock index futures and related options. See "Investment
Objectives And Policies" and "Special Investment
Techniques."
</TABLE>

THE ABOVE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.

4
<PAGE>
SUMMARY OF FUND EXPENSES

The following table illustrates the expenses and fees that each Portfolio of
the Fund expects to incur and that shareholders can expect to bear. The expenses
of the Portfolios are illustrated based upon the actual expenses incurred by
each Portfolio during the fiscal year ended June 30, 1997. Actual expenses of
the Portfolios in the future may be more or less than the expenses set forth in
the table and the examples that follow.

<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load Imposed on Redemptions None
Redemption Fees None
Exchange Fees None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES
(AS A PERCENTAGE OF NET ASSETS)

<TABLE>
<CAPTION>
LIMITED MATURITY
FULL MATURITY DIVERSIFIED EQUITY
FIXED INCOME FIXED INCOME BALANCED PORTFOLIO
PORTFOLIO PORTFOLIO PORTFOLIO
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees None None None None
12b-1 Fees None None None None
Other Expenses
1. Custody fees 0.05% 0.02% 0.03% 0.07%
2. Audit, legal,
administration and
miscellaneous 0.16% 0.10% 0.14% 0.16%
3. Fee to Hewitt Associates
LLC* 0.50% 0.50% 0.75% 0.75%
-------- -------- -------- --------
Total Other Expenses 0.71% 0.62% 0.92% 0.98%
-------- -------- -------- --------
Total Portfolio Operating
Expenses 0.71% 0.62% 0.92% 0.98%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

EXAMPLE:
You would pay the following expenses on a $1,000 investment assuming a 5% annual
return and redemption at the end of each time period.

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year.................................. $ 7 $ 6 $ 9 $ 10
3 Years................................. 23 20 29 31
5 Years................................. 40 35 51 54
10 Years................................ 89 78 112 120
</TABLE>

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* As discussed below, shareholders will incur this fee directly as Participants
in the American Hospital Association Investment Program. The table assumes the
standard fee applicable for the standard level of Program services.

The expense table and example above are based upon the actual expenses
incurred by each Portfolio during the fiscal year ended June 30, 1997. Hewitt
has voluntarily agreed to pay certain of the expenses of the Portfolios (or to
reimburse the Portfolios for such expenses) in such amounts as may be necessary
to limit total expenses of the Portfolios and their shareholders (including the
standard level of program fees payable to Hewitt, but exclusive of any taxes,
interest, brokerage

5
<PAGE>
commissions and any extraordinary non-recurring expenses including, without
limitation, litigation expenses) to the following specified annual percentage
amounts as a percentage of average net assets of the Portfolios:

<TABLE>
<S> <C>
Full Maturity Fixed Income Portfolio........................................ 1.00 %
Limited Maturity Fixed Income Portfolio..................................... 1.00 %
Diversified Equity Portfolio................................................ 1.25 %
Balanced Portfolio.......................................................... 1.25 %
</TABLE>

It is Hewitt's present intention to pay or reimburse expenses of the Portfolios
as may be necessary to limit actual expenses to the percentage amounts set forth
above, but it is not required to do so. The Portfolios may reimburse Hewitt for
the expenses of the Portfolios it voluntarily has absorbed on or after September
1, 1989, provided that such reimbursement does not cause the percentage expense
limitations set forth above to be exceeded and is approved by the Board of
Directors of the Fund. There is no commitment, however, by the Fund to make any
such reimbursement and no reimbursement has been made as of the date of this
Prospectus. As of June 30, 1997, expenses absorbed by Hewitt since September 1,
1989 were: $101,400 for the Full Maturity Fixed Income Portfolio; $41,000 for
the Limited Maturity Fixed Income Portfolio; $116,000 for the Diversified Equity
Portfolio; and $10,900 for the Balanced Portfolio. See "ADDITIONAL INFORMATION
- -- Arrangements with AHA and Other Organizations".

THE TABLE AND EXPENSES SET FORTH ABOVE SHOULD NOT BE CONSIDERED AS
REPRESENTATIONS OF FUTURE EXPENSES OR PERFORMANCE, WHICH WILL VARY. Their
purpose is to assist investors in understanding the various costs and expenses
that they will bear directly and indirectly. Fees that investors will bear as
Participants in the Program are included in the tables and may vary based upon
the level of services they elect to receive as Participants in the Program and
other factors, including the particular Portfolios in which they invest and the
amount of assets committed to the Program. For Hewitt's standard level of
services, a Participant's fee is presently determined by applying the following
annual percentage rates to the Participant's assets invested in the Portfolios:
.75% of assets invested in the Diversified Equity Portfolio and the Balanced
Portfolio; and .50% of assets invested in the Limited Maturity Fixed Income
Portfolio and the Full Maturity Fixed Income Portfolio. The expenses shown above
assume that average account sizes will exceed the minimum initial investment in
the Fund of $1,000,000. Reduced fees may be negotiated by Hewitt with
Participants committing in excess of $50 million to the Program and in other
special circumstances. For a more complete description of fees and expenses, see
"Expenses and Fees".

6
<PAGE>
CONDENSED FINANCIAL INFORMATION

The tables below reflect the results of the Fund's operations for a share
outstanding throughout the periods shown below and have been audited by Arthur
Andersen LLP, the Fund's independent public accountants. These tables should be
read in conjunction with the respective Portfolio's financial statements and
notes thereto, which are contained in the Fund's Statement of Additional
Information and can be obtained from the Fund upon request without charge.
Further information regarding the investment performance of the Portfolios is
contained in the Fund's annual report to shareholders, a copy of which can also
be obtained without charge.

FULL MATURITY FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1989(A) 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.00 $ 10.30 $ 10.01 $ 10.03 $ 10.58 $ 10.76 $ 9.48
Income From Investment Operations:
Net investment income................. 0.55* 0.78* 0.79* 0.75 0.72 0.59 0.65
Net realized and unrealized gain
(loss) on investments and futures.... 0.30 (0.29) 0.02 0.64 0.53 (0.64) 0.40
--------- --------- --------- --------- --------- --------- ---------
Total Income from Investment
Operations......................... 0.85 0.49 0.81 1.39 1.25 (0.05) 1.05
Less Distributions:
Net investment income................. (0.55) (0.78) (0.79) (0.75) (0.72) (0.59) (0.65)
Net realized capital gain (loss)...... -- -- -- (0.09) (0.35) (0.64) --
--------- --------- --------- --------- --------- --------- ---------
Total Distributions................. (0.55) (0.78) (0.79) (0.84) (1.07) (1.23) (0.65)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 10.30 $ 10.01 $ 10.03 $ 10.58 $ 10.76 $ 9.48 $ 9.88
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Return on Net Asset Value(B)...... 8.60% 4.62% 7.87% 13.66% 11.98% (1.43%) 10.99%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $1,422 $11,134 $19,893 $47,500 $52,094 $48,752 $39,874
Ratio of Expenses to Average Net
Assets............................... 0.50%* 0.50%* 0.50%* 0.42% 0.27% 0.24% 0.21%
Ratio of Net Investment Income to
Average Net Assets................... 8.12%* 8.44%* 8.06%* 7.37% 6.77% 5.67% 6.88%
Ratio of Expenses to Average Net
Assets(C)............................ 1.94% 1.36% 0.89% 0.42% 0.27% 0.24% 0.21%
Ratio of Net Investment Income to
Average Net Assets(C)................ 6.67% 7.56% 7.68% 7.37% 6.77% 5.67% 6.88%
Portfolio Turnover Rate............... 234.20% 203.83% 411.24% 252.89% 266.03% 331.63% 279.42%

<CAPTION>
JUNE 30, JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $ 9.88 $ 9.63
Income From Investment Operations:
Net investment income................. 0.65 0.65
Net realized and unrealized gain
(loss) on investments and futures.... (0.25) 0.16
--------- ---------
Total Income from Investment
Operations......................... 0.40 0.81
Less Distributions:
Net investment income................. (0.65) (0.65)
Net realized capital gain (loss)...... -- (0.00)
--------- ---------
Total Distributions................. (0.65) (0.65)
--------- ---------
Net Asset Value, End of Period.......... $ 9.63 $ 9.79
--------- ---------
--------- ---------
Total Return on Net Asset Value(B)...... 3.58% 8.09%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $53,292 $50,796
Ratio of Expenses to Average Net
Assets............................... 0.21% 0.21%
Ratio of Net Investment Income to
Average Net Assets................... 6.52% 6.63%
Ratio of Expenses to Average Net
Assets(C)............................ 0.21% 0.21%
Ratio of Net Investment Income to
Average Net Assets(C)................ 6.52% 6.63%
Portfolio Turnover Rate............... 283.13% 304.93%
</TABLE>

- ------------
* Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Investment Consultant.
(A) Commencement date for the Full Maturity Fixed Income Portfolio was October
20, 1988.
(B) Total Return on Net Asset Value is net of the standard management fee of
0.50%.
(C) Ratios include all standard management fees and expenses.

7
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1989(A) 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.00 $ 10.07 $ 9.98 $ 10.11 $ 10.48 $ 10.52 $ 10.09
Income From Investment Operations:
Net investment income................. 0.43* 0.77* 0.74* 0.64 0.49 0.49 0.62
Net realized and unrealized gain
(loss) on investments and futures.... 0.07 (0.09) 0.13 0.45 0.12 (0.32) 0.13
--------- --------- --------- --------- --------- --------- ---------
Total Income from Investment
Operations......................... 0.50 0.68 0.87 1.09 0.61 0.17 0.75
Less Distributions:
Net investment income................. (0.43) (0.77) (0.74) (0.64) (0.49) (0.49) (0.62)
Net realized capital gain (loss)...... -- -- -- (0.08) (0.08) (0.11) --
--------- --------- --------- --------- --------- --------- ---------
Total Distributions................. (0.43) (0.77) (0.74) (0.72) (0.57) (0.60) (0.62)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 10.07 $ 9.98 $ 10.11 $ 10.48 $ 10.52 $ 10.09 $ 10.22
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Return on Net Asset Value(B)...... 5.01% 6.52% 8.49% 10.46% 5.49% 1.14% 7.19%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $6,284 $18,522 $30,151 $101,881 $162,694 $189,542 $186,856
Ratio of Expenses to Average Net
Assets............................... 0.50%* 0.50%* 0.50%* 0.29% 0.17% 0.14% 0.12%
Ratio of Net Investment Income to
Average Net Assets................... 8.49%* 8.04%* 7.49%* 6.02% 4.66% 4.73% 6.17%
Ratio of Expenses to Average Net
Assets(C)............................ 1.97% 0.88% 0.55% 0.29% 0.17% 0.14% 0.12%
Ratio of Net Investment Income to
Average Net Assets(C)................ 7.01% 7.66% 7.45% 6.02% 4.66% 4.73% 6.17%
Portfolio Turnover Rate............... 0.00% 137.50% 279.16% 99.86% 167.38% 178.01% 155.12%

<CAPTION>
JUNE 30, JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.22 $ 10.12
Income From Investment Operations:
Net investment income................. 0.62 0.61
Net realized and unrealized gain
(loss) on investments and futures.... (0.10) 0.04
--------- ---------
Total Income from Investment
Operations......................... 0.52 0.65
Less Distributions:
Net investment income................. (0.62) (0.61)
Net realized capital gain (loss)...... -- --
--------- ---------
Total Distributions................. (0.62) (0.61)
--------- ---------
Net Asset Value, End of Period.......... $ 10.12 $ 10.16
--------- ---------
--------- ---------
Total Return on Net Asset Value(B)...... 4.66% 6.03%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $201,196 $141,023
Ratio of Expenses to Average Net
Assets............................... 0.10% 0.12%
Ratio of Net Investment Income to
Average Net Assets................... 6.03% 6.04%
Ratio of Expenses to Average Net
Assets(C)............................ 0.10% 0.12%
Ratio of Net Investment Income to
Average Net Assets(C)................ 6.03% 6.04%
Portfolio Turnover Rate............... 132.75% 121.70%
</TABLE>

- ------------
* Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Investment Consultant.
(A) Commencement date for the Limited Maturity Fixed Income Portfolio was
December 22, 1988.
(B) Total Return on Net Asset Value is net of the standard management fee of
0.50%.
(C) Ratios include all standard management fees and expenses.

8
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1989(A) 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.00 $ 11.16 $ 11.42 $ 11.47 $ 12.95 $ 13.95 $ 13.90
Income From Investment Operations:
Net investment income................. 0.35* 0.43* 0.35* 0.31* 0.25* 0.26 0.29
Net realized and unrealized gain on
investments and futures.............. 1.12 0.52 0.08 1.52 1.70 0.45 2.34
--------- --------- --------- --------- --------- --------- ---------
Total Income from Investment
Operations......................... 1.47 0.95 0.43 1.83 1.95 0.71 2.63
Less Distributions:
Net investment income................. (0.31) (0.44) (0.34) (0.31) (0.25) (0.26) (0.29)
Net realized capital gain (loss)...... -- (0.25) (0.04) (0.04) (0.70) (0.50) (1.48)
--------- --------- --------- --------- --------- --------- ---------
Total Distributions................. (0.31) (0.69) (0.38) (0.35) (0.95) (0.76) (1.77)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 11.16 $ 11.42 $ 11.47 $ 12.95 $ 13.95 $ 13.90 $ 14.76
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Return on Net Asset Value(B)...... 14.45% 7.76% 3.24% 15.14% 14.47% 4.21% 20.11%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $3,556 $7,920 $10,725 $13,878 $21,087 $22,547 $39,634
Ratio of Expenses to Average Net
Assets............................... 0.50%* 0.50%* 0.50%* 0.50%* 0.50%* 0.40% 0.31%
Ratio of Net Investment Income to
Average Net Assets................... 4.88%* 4.45%* 3.37%* 2.13%* 1.90%* 1.83% 2.30%
Ratio of Expenses to Average Net
Assets(C)............................ 2.68% 1.33% 1.08% 0.66% 0.53% 0.40% 0.31%
Ratio of Net Investment Income to
Average Net Assets(C)................ 2.70% 3.61% 2.80% 1.97% 1.87% 1.83% 2.30%
Portfolio Turnover Rate............... 29.99% 33.57% 72.49% 65.89% 45.87% 100.45% 68.12%
Average Commission Rate(D).............. N/A N/A N/A N/A N/A N/A N/A

<CAPTION>
JUNE 30, JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $ 14.76 $ 17.59
Income From Investment Operations:
Net investment income................. 0.35 0.34
Net realized and unrealized gain on
investments and futures.............. 3.57 5.18
--------- ---------
Total Income from Investment
Operations......................... 3.92 5.52
Less Distributions:
Net investment income................. (0.35) (0.34)
Net realized capital gain (loss)...... (0.74) (2.05)
--------- ---------
Total Distributions................. (1.09) (2.39)
--------- ---------
Net Asset Value, End of Period.......... $ 17.59 $ 20.72
--------- ---------
--------- ---------
Total Return on Net Asset Value(B)...... 26.42% 32.97%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $54,435 $70,590
Ratio of Expenses to Average Net
Assets............................... 0.18% 0.17%
Ratio of Net Investment Income to
Average Net Assets................... 2.09% 1.83%
Ratio of Expenses to Average Net
Assets(C)............................ 0.18% 0.17%
Ratio of Net Investment Income to
Average Net Assets(C)................ 2.09% 1.83%
Portfolio Turnover Rate............... 57.76% 67.31%
Average Commission Rate(D).............. N/A 0.0368
</TABLE>

- ------------
* Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Investment Consultant.
(A) Commencement date for the Diversified Equity Portfolio was October 20, 1988.
(B) Total Return on Net Asset Value is net of the standard management fee of
0.75%.
(C) Ratios include all standard management fees and expenses.
(D) Disclosure not applicable to prior periods.

9
<PAGE>
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1989(A) 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 10.00 $ 10.68 $ 10.69 $ 10.87 $ 12.03 $ 12.76 $ 11.66
Income From Investment Operations:
Net investment income................. 0.39* 0.56* 0.54* 0.44 0.44 0.42 0.32
Net realized and unrealized gain on
investments and futures.............. 0.64 0.11 0.21 1.16 1.18 (0.26) 1.44
--------- --------- --------- --------- --------- --------- ---------
Total Income from Investment
Operations......................... 1.03 0.67 0.75 1.60 1.62 0.16 1.76
Less Distributions:
Net investment income................. (0.35) (0.56) (0.57) (0.44) (0.44) (0.42) (0.32)
Net realized capital gain (loss)...... -- (0.10) -- -- (0.45) (0.84) (0.47)
--------- --------- --------- --------- --------- --------- ---------
Total Distributions................. (0.35) (0.66) (0.57) (0.44) (0.89) (1.26) (0.79)
--------- --------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 10.68 $ 10.69 $ 10.87 $ 12.03 $ 12.76 $ 11.66 $ 12.63
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Total Return on Net Asset Value(B)...... 9.96% 5.34% 6.62% 13.99% 13.02% 0.29% 14.97%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $13,545 $34,565 $33,547 $34,853 $41,313 $46,523 $46,646
Ratio of Expenses to Average Net
Assets............................... 0.50%* 0.50%* 0.50%* 0.38% 0.31% 0.26% 0.21%
Ratio of Net Investment Income to
Average Net Assets................... 6.06%* 6.12%* 4.92%* 3.73% 3.51% 3.39% 4.12%
Ratio of Expenses to Average Net
Assets(C)............................ 1.27% 0.52% 0.52% 0.38% 0.31% 0.26% 0.21%
Ratio of Net Investment Income to
Average Net Assets(C)................ 5.29% 6.11% 4.89% 3.73% 3.51% 3.89% 4.12%
Portfolio Turnover Rate............... 106.23% 132.60% 201.36% 201.93% 132.14% 208.31% 160.41%
Average Commission Rate(D).............. N/A N/A N/A N/A N/A N/A N/A

<CAPTION>
JUNE 30, JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
Net Asset Value, Beginning of Period.... $ 12.63 $ 13.38
Income From Investment Operations:
Net investment income................. 0.41 0.37
Net realized and unrealized gain on
investments and futures.............. 1.98 2.65
--------- ---------
Total Income from Investment
Operations......................... 2.39 3.02
Less Distributions:
Net investment income................. (0.41) (0.39)
Net realized capital gain (loss)...... (1.23) (1.15)
--------- ---------
Total Distributions................. (1.64) (1.54)
--------- ---------
Net Asset Value, End of Period.......... $ 13.38 $ 14.86
--------- ---------
--------- ---------
Total Return on Net Asset Value(B)...... 19.20% 23.23%
Ratios/Supplemental Data:
Net Assets, End of Period (in
thousands)........................... $43,130 $52,137
Ratio of Expenses to Average Net
Assets............................... 0.23% 0.23%
Ratio of Net Investment Income to
Average Net Assets................... 3.08% 2.81%
Ratio of Expenses to Average Net
Assets(C)............................ 0.23% 0.23%
Ratio of Net Investment Income to
Average Net Assets(C)................ 3.08% 2.81%
Portfolio Turnover Rate............... 146.69% 173.60%
Average Commission Rate(D).............. N/A 0.0571
</TABLE>

ABOUT THE FUND

The Fund is registered with the Securities and Exchange Commission as an
open-end, diversified management investment company. It was incorporated on
March 14, 1988 under the laws of Maryland and is designed for use by
Participants in the American Hospital Association Investment Program (the
"Program"). The Program is a service offered by Hewitt Associates LLC ("Hewitt")
pursuant to arrangements with American Hospital Association Services, Inc. and
is available to American Hospital Association ("AHA") member hospitals and their
affiliated organizations, including employee benefit plans and hospital
insurance funds ("Member Organizations"). To become a Participant, a Member
Organization must enter into a Program Services Agreement ("Program Agreement")
with Hewitt. Other hospital associations affiliated with AHA and their sponsored
and affiliated organizations are also eligible to become Participants by
entering into a Program Agreement.

Participants receive individualized asset management consulting services to
assist in determining an appropriate investment program for their specific
needs. Hewitt consults with each Participant to define its investment
objectives, desired returns and tolerance for risk, and develops a plan for the
allocation of the Participant's assets among different asset classes.
Participants can implement the recommendations they receive by investing in the
Fund and may change the allocation of assets among the Portfolios or withdraw
assets from the Portfolios at any time by redeeming shares. Fees paid to Hewitt
by Participants cover the costs of both Hewitt's consulting services and the
fees of the

10
<PAGE>
Fund's Investment Managers. The Fund itself pays no fees to Hewitt or the
Investment Managers, but bears certain direct costs and expenses. For a more
complete description of fees and expenses, see "Expenses and Fees" in the
Prospectus and the Statement of Additional Information.

The Fund is comprised of four independently managed investment portfolios,
and is designed to provide Participants with a cost-effective method of pursuing
a professionally managed, diversified investment program. The Fund provides
flexibility, liquidity and a range of investment vehicles. There can, however,
be no assurance that any Portfolio of the Fund will achieve its investment
objective.

MANAGER DIVERSIFICATION

Each Portfolio, with the exception of the Limited Maturity Fixed Income
Portfolio, has multiple Investment Managers. The assets of each Portfolio are
divided into segments to be invested using specific investment styles. An
Investment Manager is selected for each segment based upon its expertise in a
particular investment technique. This structure permits investors to obtain
investment fund manager expertise on a pooled and cost-effective basis.

Hewitt Associates LLC, 100 Half Day Road, Lincolnshire, Illinois 60069,
serves as the Fund's Investment Consultant. Hewitt selects the Fund's Investment
Managers after quantitative and qualitative evaluations of each manager's skills
and results. These selections are subject to approval of the Fund's Board of
Directors. In making its evaluations, Hewitt considers the management of
specific assets, investment style and strategies. Hewitt believes that except
for the shorter term fixed income portfolios (like Limted Maturity Fixed Income
Portfolio) combining investment styles may provide more consistent returns over
a longer period of time with less risk, although a particular investment style
may not achieve above-average performance at any given point in the market. The
Fund seeks to achieve increased returns by utilizing a combination of investment
styles and multiple Investment Managers within each Portfolio, except the
Limited Maturity Fixed Income Portfolio.

INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and policies of the Fund's Portfolios are
described below. Although the Portfolios' investment objectives are fundamental,
and may not be changed without the approval of shareholders, their investment
policies may be changed by the Fund's Board of Directors (except as otherwise
noted). Descriptions of certain investments and investment practices of the
Portfolios are described under "Investment Descriptions and Practices." The
Portfolios may, in addition, engage in certain techniques involving the use of
options and futures contracts, which involve certain risks. See "Special
Investment Techniques."

LIMITED MATURITY FIXED INCOME PORTFOLIO

The investment objective of this Portfolio is to provide shareholders with a
high level of current income, consistent with the preservation of capital and
liquidity. The Portfolio seeks to achieve this objective by investing in a
diversified portfolio consisting primarily of high quality fixed income (i.e.,
debt) securities. Securities will be purchased and sold, and average portfolio
maturity adjusted, by the Investment Manager based upon its assessment of
interest rate trends or movements, analyses of yields and quality of the
Portfolio and analyses of the risk return characteristics of alternative
investments.

The dollar weighted average maturity of the Portfolio will not exceed five
years. Under most market conditions it is expected that the dollar weighted
average maturity of the Portfolio will be less than three years. However, there
is no limitation on the maturities of the individual securities that may be
purchased. For purposes of computing the dollar weighted average maturity of the
Portfolio, if the Portfolio expects to be able to receive, or to be able to
realize upon sale or other disposition, approximately the stated principal
amount of an investment at a time earlier than the stated maturity of the
investment, either because the holder has the right to receive such amount from
the issuer or a

11
<PAGE>
third party at any time or at specified intervals (a demand or "put" feature) or
because the value of the investment reflects the effect of regular or periodic
adjustments to the interest rate payable on the investment in accordance with
market conditions (a variable or floating rate obligation), the Portfolio will
treat such investment as though it matures at such earlier time. Also,
investments such as mortgage pass-through obligations, on which principal
pay-downs and prepayments reduce the outstanding principal amount over time will
be treated as having maturities equal to their expected average life. Other
investments having features that result in price characteristics equivalent to
those of investments with maturities shorter than their own stated maturities
may be similarly treated.

At least 75% of the Portfolio's total assets is at all times invested in
fixed income securities. The investments of this Portfolio are limited to: fixed
income securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (see "Government Securities"); non-convertible debt
securities, including short-term debt, of other issuers, which securities, at
the time of purchase are rated as "high quality" or, if not rated, are of
comparable quality as determined by the Investment Manager; and money market
instruments, including short-term Government Securities, certificates of
deposit, bankers' acceptances, commercial paper, and repurchase agreements (see
"Short-Term Investments"); and subject to certain limitations, options on
securities, interest rate futures and options on such futures (see "Special
Investment Techniques"). For this purpose, high quality debt securities are
considered to be those debt securities having one of the three highest grades
issued by Moody's Investors Service, Inc. (Aaa, Aa or A) or Standard & Poor's
Corporation (AAA, AA or A). See Appendix "Corporate Securities Ratings" for a
description of securities ratings. Debt securities may include bonds, notes and
debentures.

FULL MATURITY FIXED INCOME PORTFOLIO

The investment objective of this Portfolio is to provide shareholders over
the long-term with the highest level of income consistent with preservation of
capital. The Portfolio seeks to achieve this objective by investing in a
diversified portfolio consisting primarily of high quality fixed income (i.e.,
debt) securities. The Investment Managers may vary the average maturity of the
Portfolio's assets substantially, based upon their individual market analysis.
At times, the Portfolio's dollar weighted average maturity may be in excess of
20 years, while at other times the average maturity may be less than 5 years.
There is no limit upon the maximum or minimum maturity of securities the
Portfolio may purchase. Securities will be purchased and sold, and average
portfolio maturity adjusted, by the Investment Managers based upon their
assessments of interest rate trends or movements, analyses of yields and quality
of the Portfolio and analyses of the risk return characteristics of alternative
investments. The Portfolio differs from the Limited Maturity Fixed Income
Portfolio in that it seeks higher income, generally purchases securities of
longer maturity and generally maintains a dollar weighted average portfolio
maturity of greater than five years. These policies involve the assumption of a
greater degree of risk of fluctuation in the value of investments. See
"Portfolio Characteristics."

At least 75% of the Portfolio's total assets is at all times invested in:
Government Securities (see "Government Securities"); non-convertible debt
securities, including short-term debt, of other issuers, which securities, at
the time of purchase, are rated as "high quality" (i.e., rated A or better) or,
if unrated, are of comparable quality as determined by the Investment Manager;
and money market instruments, including short-term Government Securities,
certificates of deposit, bankers' acceptances, commercial paper and repurchase
agreements (see "Short-Term Investments"). The Portfolio may invest not more
than 25% of its total assets in debt securities rated Baa by Moody's or BBB by
Standard & Poor's (or which, if unrated, are in the Investment Manager's opinion
of comparable quality). See Appendix "Corporate Securities Ratings" for a
description of securities ratings. Bonds rated Baa or BBB have certain
speculative characteristics. Issuers of obligations rated Baa or BBB are more
likely than issuers of higher rated obligations to experience a weakened
capacity to make principal and interest payments during periods of adverse
economic or other conditions. Debt securities may include bonds, notes and
debentures.

12
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO

The investment objective of this Portfolio is long-term capital growth. It
pursues this objective by investing in a diversified portfolio consisting
primarily of equity securities, such as common stocks and preferred and
convertible preferred stocks, and securities having equity characteristics, such
as warrants, rights and convertible debt securities. Investment strategies of
the Investment Managers will emphasize securities which, in their opinion, offer
one or more of the following characteristics: security prices that are judged to
be significantly below the estimated intrinsic value of the company; favorable
earnings growth prospects; above average return on equity and dividend yield;
and sound overall financial condition of the issuer. While payment of current
dividends and income may be considered in selecting investments, they are not
primary factors due to the overall objective of the Portfolio of seeking
long-term capital growth.

Under normal market conditions, the Portfolio invests at least 75% of its
total assets in equity securities and securities having equity characteristics.
The balance of the Portfolio's assets may be invested in high quality debt
securities, including: Government Securities; debt securities (including bonds,
notes and debentures) of other issuers, which securities at the time of
purchase, are rated as "high quality" (i.e., rated A or better) or if unrated,
are of comparable quality as determined by the Investment Manager; and money
market instruments (see "Short-Term Investments"), including repurchase
agreements. Investments in debt securities will generally be made to reduce the
Portfolio's equity exposure and for liquidity purposes. Through adjustments to
the Portfolio's equity exposure from time to time, the Investment Managers will
seek to enhance the opportunity for capital appreciation in periods of rising
stock prices and to reduce the amount of capital depreciation in periods of
declining stock prices. During times when equity securities cannot be identified
which meet the Investment Manager's security selection criteria, and during
periods of adverse market conditions, all or any portion of the Portfolio's
assets may be invested temporarily in Government Securities, high quality debt
securities or money market instruments, or held as cash.

BALANCED PORTFOLIO

The investment objective of this Portfolio is to provide shareholders with a
combination of growth of capital and income. The Portfolio seeks this objective
by investing in equity securities (including common and preferred stocks) for
growth, in equity securities that offer both growth and income and in fixed
income securities, some of which may be convertible to common stocks. The
Portfolio's assets will be managed by three or more Investment Managers with
specialized investment approaches.

The Portfolio's investments in equity securities and securities having
equity characteristics is limited to no more than 75% of the Portfolio's total
assets. At least 25% of its total assets is invested in fixed income securities.
Investment policies are structured so as to allow the Investment Managers to
pursue the Portfolio's objectives in a way that seeks to minimize the magnitude
and rapidity of short-term movements in the net asset value of its shares.
During periods of adverse economic or market conditions, all or a substantial
portion of the Portfolio's assets may be invested temporarily in Government
Securities, high quality debt securities or money market instruments, or held as
cash.

Equity securities purchased by the Portfolio may include securities which
have equity characteristics such as warrants, rights and convertible preferred
and debt securities. Investments in fixed income securities will consist of:
Government Securities; non-convertible debt securities of other issuers, which
securities, at the time of purchase, are rated "investment grade" or, if
unrated, are of comparable quality as determined by the Investment Manager; and
high quality money market instruments. Investment grade securities are those
rated Baa or higher by Moody's or BBB or higher by Standard & Poor's. See
Appendix "Corporate Securities Ratings." Bonds rated Baa or BBB have certain
speculative characteristics. Investments in fixed income securities are not
subject to any maturity restrictions. As a result, the average maturity of the
Portfolio's fixed income securities may vary substantially over time. Up to 25%
of the Portfolio's total assets may be invested in corporate

13
<PAGE>
debt securities rated Baa by Moody's, or BBB by Standard & Poor's. Issuers of
obligations rated Baa or BBB are more likely than issuers of higher rated
obligations to experience a weakened capacity to make principal and interest
payments during periods of adverse economic or other conditions.

INVESTMENT DESCRIPTIONS AND PRACTICES

Described below are some of the various types of investments that may be
made by the Portfolios and certain investment practices in which they may
engage. The permissible investments and practices of the Portfolios are
described in greater detail in the Statement of Additional Information. In
addition, the Portfolios are authorized to engage in a variety of techniques
involving the use of options and futures contracts. See "Special Investment
Techniques."

GOVERNMENT SECURITIES. Each of the Portfolios, to varying degrees, may
invest in securities issued or guaranteed by the U.S. Government or by one of
its agencies or instrumentalities ("Government Securities"). Obligations issued
by the U.S. Government include U.S. Treasury bills, notes and bonds, which
differ as to their maturities at the time of issuance. Obligations guaranteed by
the U.S. Government or issued by its agencies or instrumentalities include, for
example, obligations of the Export-Import Bank of the United States, the General
Services Administration, Federal Land Banks, Farmers Home Administration and
Federal Home Loan Banks. Some Government Securities, such as U.S. Treasury
obligations and obligations issued by the Export-Import Bank and the Federal
Housing Administration, are backed by the full faith and credit of the U.S.
Treasury. Others, such as those issued by Federal Home Loan Banks, are backed by
the issuer's right to borrow from the U.S. Treasury. Some, such as those issued
by the Federal National Mortgage Association and Federal Farm Credit Banks, are
backed only by the issuer's own credit, with no guarantee of U.S. Treasury
backing.

SHORT-TERM INVESTMENTS. Each of the Portfolios may invest in various types
of short-term debt securities ("money market instruments"). The Portfolios make
these types of investments to provide liquidity and for temporary defensive
purposes. Money market instruments purchased by these Portfolios will generally
have remaining maturities of one year or less and may include: Government
Securities, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate securities, and repurchase agreements (see "Repurchase
Agreements"). All short-term debt securities must be of high quality. Under this
standard, the Portfolios limit short-term investments to: Government Securities;
obligations of banks and savings institutions having total assets of $1 billion
or more; commercial paper rated within the two highest grades by Standard &
Poor's or the highest grade by Moody's or unrated paper issued by a company with
an outstanding debt issue rated AA, Aa or better; corporate debt rated A or
higher, or if unrated, determined to be of comparable quality by the Investment
Manager; and other obligations subject to a repurchase agreement with, or a
guarantee by, an issuer meeting the foregoing quality standards or a foreign
government having securities rated AA, Aa or higher. Further information
regarding these investments and quality restrictions and the other types of
short-term obligations in which the Portfolios may invest is included in the
Statement of Additional Information.

MORTGAGE-BACKED SECURITIES. Each of the Portfolios may invest in
mortgage-backed securities issued or guaranteed by the U.S. Government, or one
of its agencies or instrumentalities, or issued by private issuers. The
mortgage-backed securities in which these Portfolios may invest include
collateralized mortgage obligations ("CMOs") and REMICs. CMOs are debt
instruments issued by special purpose entities and secured by mortgages or other
mortgage-backed securities, which provide by their terms for aggregate payments
of principal and interest based on the payments made on the underlying mortgages
or securities. CMOs are typically issued in separate classes with varying
coupons and stated maturities. REMICs are mortgage-backed securities as to which
the issuers have qualified to be treated as real estate mortgage investment
conduits under the Internal Revenue Code of 1986 and have the same
characteristics as CMOs. As a result of current interpretations of the Staff

14
<PAGE>
of the Securities and Exchange Commission, the amount of privately issued
mortgage-backed securities that may be purchased by the Portfolios may not
exceed 10% of the value of a Portfolio's total assets, and the securities of any
one such issuer purchased by a Portfolio may not exceed 5% of the value of a
Portfolio's total assets.

The Portfolios may from time to time also invest in "stripped"
mortgage-backed securities. These are securities which operate like CMOs but
entitle the holder to disproportionate interests with respect to the allocation
of interest or principal on the underlying mortgages or securities. A stripped
mortgage-backed security is created by the issuer separating the interest and
principal on a mortgage pool to form two or more independently tradeable
securities. The result is the creation of classes of discount securities which
can be structured to produce faster or slower prepayment expectations based upon
the particular underlying mortgage interest rate payments assigned to each
class. These obligations exhibit risk characteristics similar to mortgage-backed
securities generally and zero coupon securities. See "Portfolio
Characteristics." Due to existing market characteristics, "interest only" and
"principal only" mortgage-backed securities are considered to be illiquid. See
"Restricted Securities."

Because the mortgages underlying mortgage-backed securities are subject to
prepayment at any time, most mortgage-backed securities are subject to the risk
of prepayment in an amount differing from that anticipated at the time of
issuance. Prepayments generally are passed through to the holders of the
securities. Any such prepayments received by a Portfolio must be reinvested in
other securities. As a result, prepayments in excess of that anticipated could
adversely affect yield to the extent reinvested in instruments with a lower
interest rate than that of the original security. Prepayments on a pool of
mortgages are influenced by a variety of economic, geographic, social and other
factors. Generally, however, prepayments will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Accordingly, amounts required to be reinvested are likely to be greater (and the
potential for capital appreciation less) during a period of declining interest
rates than during a period of rising interests rates. Mortgage-backed securities
may be purchased at a premium over the principal or face value in order to
obtain higher income. The recovery of any premium that may have been paid for a
given security is solely a function of the ability to liquidate such security at
or above the purchase price.

ASSET-BACKED SECURITIES. Each of the Portfolios may invest in asset-backed
securities issued by private issuers. Asset-backed securities represent
interests in pools of consumer loans (generally unrelated to mortgage loans) and
most often are structured as pass-through securities. Interest and principal
payments ultimately depend on payment of the underlying loans by individuals,
although the securities may be supported by letters of credit or other credit
enhancements. The value of asset-backed securities may also depend on the
creditworthiness of the servicing agent for the loan pool, the originator of the
loans, or the financial institution providing the credit enhancement.
Asset-backed securities may be "stripped" into classes in a manner similar to
that described under "Mortgage-Backed Securities," above, and are subject to the
prepayment risks described therein.

REPURCHASE AGREEMENTS. Each of the Portfolios may enter into repurchase
agreements with respect to any of the types of securities in which they are
authorized to invest without regard to the maturity of the underlying security.
Repurchase agreements will be effected only with banks, savings institutions and
broker-dealers. They involve the purchase by a Portfolio of a debt security with
the condition that after a stated period of time, the original seller will buy
back the same security at a predetermined price or yield. Repurchase agreements
are used to enhance liquidity and to earn income for periods as short as
overnight. In the event the original seller defaults on its obligation to
repurchase the securities, as a result of its bankruptcy or otherwise, a
Portfolio will seek to sell the securities, which action could involve costs or
delays. In such a case, however, a Portfolio's ability to dispose of the
securities may be restricted. To minimize risk, the securities underlying each
repurchase agreement will be maintained with the Fund's custodian, or a
subcustodian, in an amount at least equal to the repurchase price under the
agreement (including accrued interest thereunder), and

15
<PAGE>
such agreements will only be effected with parties that meet certain
creditworthiness standards. However, in the event the other party to the
repurchase agreement fails to repurchase the securities subject to such
agreement, a Portfolio could suffer a loss to the extent it is precluded from
selling the securities or, if due to delays, proceeds from the sale are less
than the repurchase price.

RESTRICTED SECURITIES. Each Portfolio may invest up to 10% of its total
assets in securities subject to restrictions on disposition under the Securities
Act of 1933, as amended ("restricted securities") or which are otherwise
illiquid. Portfolios are not required to receive registration rights in
connection with the purchase of restricted and illiquid securities and, in the
absence of such rights, marketability and value can be adversely affected. The
policies of the Portfolios regarding restricted and illiquid securities are
fundamental and cannot be changed without shareholder approval. These policies
enable the Portfolios to invest a limited portion of their assets in investments
considered to be attractive by the Investment Managers but which are subject to
resale restrictions or limitations. Repurchase agreements maturing in more than
seven days are considered to be illiquid.

FOREIGN SECURITIES. Each of the Portfolios may invest up to 10% of its total
assets in foreign securities. In addition, up to 20% of the total assets of each
Portfolio may be invested in American Depository Receipts ("ADRs") and
securities of Canadian issuers registered under the Securities Exchange Act of
1934. Investments in foreign securities, including such securities acquired
through the purchase of ADRs, involve special considerations. With respect to
foreign securities, there may be more limited information publicly available
concerning the issuer than would be the case with respect to domestic
securities, different accounting standards may be used by foreign issuers and
foreign trading markets may not be as liquid as U.S. markets. Foreign securities
may also entail certain risks, such as currency risks, possible imposition of
withholding or confiscatory taxes, possible currency transfer restrictions,
expropriation or other adverse political or economic developments, and the
difficulty of enforcing obligations in other countries. The purchase of
securities denominated in foreign currencies will subject the value of a
Portfolio's investments in those securities to fluctuations due to changes in
foreign exchange rates.

To hedge against the effects of changes in foreign exchange rates, a
Portfolio investing in foreign securities may enter into forward foreign
currency exchange contracts ("forward contracts"). These contracts represent
agreements to exchange an amount of currency at an agreed upon future time and
rate. The Portfolios will generally use forward contracts only to "lock in" the
price in U.S. dollars of a foreign security intended to be purchased or sold,
but in certain limited cases may use such contracts to hedge against an
anticipated substantial decline in the price of a foreign currency against the
U.S. dollar. These contracts will not be used in all cases and, in any event,
cannot protect the Portfolios against declines in the prices of the securities,
nor do they completely protect against all changes in the values of foreign
securities due to fluctuations in foreign exchange rates.

LENDING SECURITIES. In order to earn additional income, each Portfolio may
lend up to one-third of the value of its total assets to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Portfolio and are at all time secured by collateral, consisting of cash
or securities issued or guaranteed by the United States Government or its
agencies, or any combination thereof, equal to not less than 100% of the market
value, determined daily, of the securities loaned. Lending securities involves
certain risks, the most significant of which is the risk that a borrower may
fail to return a portfolio security. The Fund's Board of Directors has adopted
policies designed to minimize such risks.

WHEN-ISSUED SECURITIES. In order to help ensure the availability of suitable
securities, each of the Portfolios may purchase securities on a "when-issued" or
on a "forward delivery" basis. This means that the obligations will be delivered
to the purchasing Portfolio at a future date beyond the customary settlement
time. It is expected that, in normal circumstances, a Portfolio purchasing
securities on a

16
<PAGE>
"when-issued" or "forward delivery" basis will take delivery of such securities.
In general, a Portfolio does not pay for the securities or start earning
interest on them until the obligations are scheduled to be settled. There are no
percentage of asset limitations on this practice. However, while awaiting
delivery of the obligations purchased on such a basis, a Portfolio will
establish a segregated account consisting of cash or high quality debt or liquid
equity securities equal to the amount of the commitments to purchase
"when-issued" securities.

PORTFOLIO MANAGEMENT

There are no fixed limitations regarding portfolio turnover. Although the
Portfolios generally do not trade for short-term profits, securities may be sold
without regard to the time they have been held when investment considerations
warrant such action. As a result, under certain market conditions, the turnover
rate for a particular Portfolio will be higher than that of other investment
companies and portfolios with similar investment objectives. It is estimated
that the portfolio turnover rates of the Limited Maturity Fixed Income Portfolio
and the Full Maturity Fixed Income Portfolio will not exceed 350%. The turnover
rates of these Portfolios reflect the effect of their policies to alter their
maturity structures in response to market conditions. It is estimated that the
turnover rate for the fixed income segment of the Balanced Portfolio will not
exceed 200%, and that the portfolio turnover rate of the Diversified Equity
Portfolio and the equity segment of the Balanced Portfolio will not exceed 150%.
The Balanced Portfolio's assets may be shifted between fixed income and equity
securities in the discretion of the Investment Manager, but it is estimated that
overall portfolio turnover rate of this Portfolio will not exceed 200%.
Decisions to buy and sell securities are made by the Portfolios' Investment
Managers for the assets assigned to them. Investment Managers make decisions to
buy or sell securities independently from other Investment Managers. Thus, one
Investment Manager may sell a security while another Investment Manager for the
same Portfolio is purchasing the same security. In addition, when an Investment
Manager's services are terminated, the new Investment Manager may restructure
the Portfolio. These practices will result in higher portfolio turnover rates.
Brokerage costs are commensurate with the rate of portfolio activity so that a
Portfolio with higher turnover will incur higher brokerage costs.

PORTFOLIO CHARACTERISTICS

The investment performance of each Portfolio will vary over time based upon
changes in the values of the securities in which it invests and the dividends
and interest it receives on those investments. The value of the securities held
by each Portfolio will be affected by a variety of factors, including the
perceived financial condition and earnings of the issuers; market and industry
trends; economic, social and political developments; and interest rates.

In the case of the Limited Maturity and Full Maturity Fixed Income
Portfolios, the value of shares will fluctuate based primarily upon changes in
market rates of interest. Generally, the values of fixed income securities vary
inversely with changes in interest rates, with such securities increasing in
value when interest rates decline and decreasing in value when interest rates
rise. Typically, the longer the maturity of a fixed income security (or the
longer the average maturity of a fixed income portfolio), the greater the impact
of changing interest rates will be. For this reason, the net asset value of the
Full Maturity Fixed Income Portfolio should be subject to greater fluctuation
than the Limited Maturity Fixed Income Portfolio. The value of shares of the
Portfolios investing in fixed income securities will also depend upon the
ability of the issuers to make timely payment of interest and principal when
due. The net asset values per share of each of the Portfolios can be expected to
fluctuate daily.

Debt securities purchased by each of the Portfolios may include variable and
floating rate securities. See "Investment Policies and Practices" in the
Statement of Additional Information. Because the interest rates payable on
variable and floating rate securities are subject to periodic adjustments to
reflect changes in prevailing levels of interest rates, the values of these
securities will generally not fluctuate as much as the values of comparable
non-variable rate securities of similar stated maturity. The Portfolios may also
purchase zero coupon obligations. These debt securities, which do not pay

17
<PAGE>
interest until maturity, are generally subject to greater fluctuations in value
than ordinary debt obligations of comparable maturity. Although interest is not
paid until maturity, the accrued discount on zero coupon obligations is treated
as income each year by the Portfolios and can be realized through sales of such
obligations.

INVESTMENT RESTRICTIONS

As previously noted, the investment objective of each Portfolio, but not its
investment policies, are fundamental policies which may not be changed without
shareholder approval. Such approval requires the affirmative vote of the holders
of a majority of the outstanding voting securities of the Portfolio, as defined
in the Investment Company Act of 1940. In addition, the Portfolios have certain
investment restrictions which may not be altered without such a vote of
shareholders. Among these restrictions are that no Portfolio may:

1. Purchase a security, other than Government Securities, if as a
result of such purchase more than 5% of the value of the Portfolio's assets
would be invested in the securities of any one issuer, or the Portfolio
would own more than 10% of the voting securities, or of any class of
securities, of any one issuer. For purposes of this restriction, all
outstanding indebtedness of an issuer is deemed to be a single class.

2. Purchase a security, other than Government Securities, if as a
result of such purchase 25% or more of the value of the Portfolio's total
assets would be invested in the securities of issuers in any one industry.

3. Purchase the securities of any issuer, if as a result of such
purchase more than 10% of the value of the Portfolio's total assets would be
invested in securities that are subject to legal or contractual restrictions
on resale or that are illiquid. (As a matter of non-fundamental policy,
repurchase agreements maturing in more than seven days, certain time
deposits and over-the-counter options are considered to be illiquid.)

4. Issue senior securities as defined in the ACT or borrow money,
except that a Portfolio may borrow from banks for temporary or emergency
purposes (but not for investment), in an amount up to 10% of the value of
its total assets (including the amount borrowed) less liabilities (not
including the amount borrowed) at the time the borrowing was made. While any
such borrowings exist for a Portfolio, it will not purchase securities.
(However, a Portfolio which is authorized to do so by its investment
policies may lend securities, enter into repurchase agreements without limit
and reverse repurchase agreements in an amount not exceeding 10% of its
total assets, purchase securities on a when-issued or delayed delivery basis
and enter into forward foreign currency contracts.)

The Fund is a member of the American Medical Association ("AMA") Coalition
of Tobacco-Free Investments and has adopted a non-fundamental policy under which
the Portfolios will not purchase the stocks or bonds of companies that are
identified by the AMA as engaged in growing, processing or otherwise handling
tobacco. If a Portfolio holds any such securities of an issuer which is
subsequently identified by the AMA as engaged in such activities, the securities
will be sold within a reasonable time period, consistent with prudent investment
practice. (The AMA does not endorse any investment vehicle and does not
guarantee any rate of return.)

SPECIAL INVESTMENT TECHNIQUES

In pursuing their investment objectives, each of the Portfolios may pursue a
variety of special investment techniques involving the use of options and
futures contracts. Certain of these techniques involve certain risks which
should be considered by investors. See "Risks" below. The Portfolios engage in
these transactions in order to protect against declines in the value of
securities they hold or increases in the costs of securities to be acquired.
Options on securities or on an index of securities

18
<PAGE>
may be used to increase a Portfolio's income, which income also operates as a
partial hedge to the extent of the premium income received. More detailed
descriptions of the Portfolios' special investment techniques are contained in
the Fund's Statement of Additional Information. The Portfolios may engage in the
following techniques:

<TABLE>
<S> <C> <C>
LIMITED MATURITY FIXED
INCOME PORTFOLIO: Options on Securities
Interest Rate Futures and Related
Options
FULL MATURITY FIXED
INCOME PORTFOLIO:
Options on Securities
Interest Rate Futures and Related
Options
DIVERSIFIED EQUITY
PORTFOLIO:
Options on Securities
Stock Index Options
Stock Index Futures and Related
Options
BALANCED PORTFOLIO:
Options on Securities
Stock Index Options
Stock Index Futures and Related
Options
Interest Rate Futures and Related
Options
</TABLE>

OPTIONS ON SECURITIES

Each of the Portfolios may purchase put and call options in anticipation of
changes in securities prices or interest rates or in anticipation of other
factors which may adversely affect the value of its investments or the prices of
securities it anticipates purchasing at a later date. Adverse effects resulting
from such changes and factors may be offset, in whole or part, through the
purchase of options. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by a Portfolio upon
exercise or liquidation of the option, and unless the price of the underlying
security changes sufficiently the option may expire without value. The
Portfolios may also from time to time sell (write) covered call and covered put
options in order to obtain additional income or to protect against declines in
the values of their securities investments.

A call option gives the purchaser of the option, in return for a premium
paid, the right to buy the security underlying the option at a specified price
at any point during the term of the option. The seller ("writer") of the call
option who receives the premium has the obligation to sell the underlying
security to the purchaser at the exercise price during the option period, if
assigned an exercise notice. A put option gives the purchaser the right to sell,
and the writer has the obligation to buy, the security underlying the option at
the exercise price during the option period. A writer of an option may terminate
the obligation to purchase or sell prior to expiration of the option by making
an offsetting purchase of an identical option ("closing purchase transaction").
Similarly, the buyer of an option may, prior to expiration, make an offsetting
sale of an identical option ("closing sale transaction"). A closing purchase or
sale transaction cancels out an investor's previous position as the holder or
the writer of an option.

By writing a call, in return for the premium income received, a Portfolio
gives up the opportunity to profit from an increase in the price of the
underlying security above the option exercise price during the term of the
option. A call option is "covered" if written against securities owned by the
Portfolio writing the option or if written against related securities the
Portfolio holds. A security is considered related if its price movements
correlate to the price movements of another Security. A Portfolio's ability to
sell the underlying securities will be limited while the call option it has
written is in effect. By

19
<PAGE>
writing a put, in return for the premium received, a Portfolio is obligated
during the term of the option, upon the assignment of an exercise notice, to buy
the underlying securities at a specified price. A put option is "covered" if the
Portfolio writing the option maintains at all times cash, liquid securities
having a value equal to the option exercise price in a segregated account with
the Fund's custodian, or if it has bought and holds a put on the same security
(and on the same amount of securities) where the exercise price of the put held
by the Portfolio is equal to or greater than the exercise price of the put
written by the Portfolio. As a put writer, a Portfolio bears the risk that it
will be required to purchase the underlying security at a price that is higher
than the market price of the security.

In addition, transactions in options on securities may be effected
over-the-counter through financial institutions dealing in such options as well
as the underlying instruments. OTC options are purchased from or sold (written)
to dealers or financial institutions which have entered into direct agreements
with the Fund. With OTC options, such variables as expiration date, exercise
price and premium will be agreed upon between the Fund and the transacting
dealer, without the intermediation of a third party. If the transacting dealer
fails to make or take delivery of the securities underlying an option it has
written, in accordance with the terms of that option as written, the Portfolio
would lose the premium paid for the option as well as any anticipated benefit of
the transaction.

All options on securities purchased and written by the Portfolios will be
traded on a U.S. securities exchange or through the quotation system operated by
the National Association of Securities Dealers, Inc., or will be effected in
privately negotiated transactions with a primary government securities dealer
recognized by the Board of Governors of the Federal Reserve System.

STOCK INDEX OPTIONS

The Diversified Equity Portfolio and the Balanced Portfolio may purchase and
write put and call options on stock indices. Transactions in stock index options
by these Portfolios are subject to the restrictions described above for options
transactions, except to the extent set forth below. Transactions in stock index
options will be effected to increase income, in the case of the Balanced
Portfolio, or by either Portfolio, for purposes of hedging against adverse price
movements in the stock market generally or in particular market segments (i.e.,
decreases in the values of securities owned or increases in the values of
securities to be acquired). A stock index is a method of reflecting in a single
number the market value of many different stocks. An index may be designed to be
representative of the market as a whole, of a broad market segment (e.g.,
industrials), or of a particular industry (e.g., computers). A put option on an
index may be purchased to hedge against a decline in a market or industry
segment. A call option on an index may be purchased to attempt to reduce the
risk of missing a market or industry segment advance. In such cases, the
possible loss to the Portfolio will be limited to the premium paid to purchase
the option, plus related transaction costs. A stock index assigns relative
values to the stocks included in the index and the index fluctuates with changes
in the market values of those stocks. Stock index options are similar to options
on securities, except that, when an index option is exercised, the exercise is
settled by the payment of cash rather than by the delivery of stock.

Put and call options on stock indices written by the Portfolios must be
"covered." This means that when a Portfolio writes a call option on an index, it
will segregate in a separate account, either cash or liquid securities having a
value equal to its obligations under the option, should the option be exercised,
or securities qualified to serve as "cover" under applicable rules of the
national securities exchanges with a value at least equal to the value of the
index times the multiplier. A put option on an index written by a Portfolio will
be covered if the Portfolio maintains cash or liquid securities having a value
equal to the exercise price in a segregated account with its custodian, or if it
has bought and holds a put on the same index (and in the same amount) where the
exercise price of the put held is equal to or greater than the exercise price of
the put written.

20
<PAGE>
Transactions in stock index options pose various risks, including the same
types of risks as do transactions in options on securities. See "Risks" below.
Also, because exercise of stock index options is settled in cash and not by the
delivery of securities comprising the index, call writers cannot provide in
advance for their potential settlement obligations. The writing of options on a
stock index are only partial hedges against adverse price fluctuations because
the fluctuations are offset only by the amount of premium income received. In
addition, if the value of an index moves adversely to a Portfolio's option
position, the option may be exercised and the Portfolio could experience a loss
which would only be offset by the amount of premium income received.

FUTURES CONTRACTS

The Diversified Equity Portfolio and the Balanced Portfolio, may for hedging
purposes, and other non-speculative purposes consistent with applicable rules of
the Commodity Futures Trading Commission ("CFTC"), purchase and sell stock index
futures contracts. The Limited Maturity Fixed Income Portfolio, the Full
Maturity Fixed Income Portfolio, and the Balanced Portfolio may purchase and
sell interest rate futures contracts for similar purposes. Stock index futures
contracts are bilateral agreements pursuant to which two parties agree to take
or make delivery of an amount of cash equal to a specified dollar amount times
the difference between the stock index value at the close of the last trading
day of the contract and the futures contract price. No physical delivery of the
stocks comprising the index is made. Interest rate futures contracts are
bilateral agreements pursuant to which two parties agree to take or make
delivery of the specific type of debt security called for in the contract at a
specified future time and at a specified price.

Purchases and sales of stock index futures are used to protect a Portfolio's
current or intended equity investments from broad fluctuations in securities
prices. Interest rate futures are purchased and sold to attempt to hedge against
the effects of interest rate changes on a Portfolio's current or intended
investments in fixed income securities. In the event that an anticipated
decrease in the value of a Portfolio's securities occurs, as a result of a
general decline in the stock market or a general increase in interest rates,
these adverse effects may be offset, in whole or part, by gains on the sale of a
futures contract by the Portfolio. Similarly, increases in costs of securities
proposed to be acquired by a Portfolio, as a result of a general increase in the
stock market or a general decline in interest rates, may be offset, in whole or
part, by gains on futures contracts purchased by the Portfolio. Brokerage fees
are incurred in transactions in futures contracts, and the Portfolios will be
required to maintain certain required margin deposits in connection with these
contracts.

OPTIONS ON FUTURES CONTRACTS

The Portfolios may purchase and write call and put options on the futures
contracts in which they may effect transactions and may enter into closing
transactions with respect to such options to terminate existing positions. The
Portfolios will not engage in transactions in options on futures for
speculation, but only as a hedge against changes in the value of securities held
by them or which they intend to purchase and where the transactions are
economically appropriate to the reduction of risks inherent in the ongoing
management of the Portfolios. Options on futures are similar to options on
securities, except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
(a long position if the option is a call and a short position if the option is a
put).

Generally, a Portfolio may hedge its investments against a period of market
decline by purchasing puts on futures contracts. A Portfolio may purchase call
options on futures contracts as a means of protecting against an increase in the
prices of securities which the Portfolio intends to purchase. The Portfolios may
write options on futures contracts for similar purposes. Purchases of options on
futures may present less risk than the purchase and sale of the underlying
futures contracts because the potential loss to a Portfolio is limited to the
premium paid, plus related transaction costs. The writing

21
<PAGE>
of options on futures, however, does not present less risk than the purchase and
sale of the underlying futures contracts and only constitutes a partial hedge up
to the amount of premium income received. If an option on a futures contract
written by a Portfolio is exercised, the Portfolio may suffer a loss.

RISKS

Although the options and futures transactions of the Portfolios are engaged
in for hedging and other non-speculative purposes, they involve certain risks.
Certain of these risks are discussed above. If the Investment Manager is
incorrect in its assessment of interest rate movements or stock prices, the
Portfolio would have been better off if it did not effect a hedge. Investors
should also recognize that a lack of correlation between the value of an
instrument underlying an option or futures contract on the one hand and the
value of the assets being hedged on the other hand, or unexpected adverse price
movements, could render a hedging strategy ineffective and could result in a
loss. It is expected that there will generally be a close, but not perfect,
correlation between the futures contracts and related options used and the
securities subject to the hedge. In addition, options transactions effected for
other than hedging purposes involve a greater degree of risk. There can be no
assurance that liquid secondary markets will exist for all options and futures
contracts purchased and sold by the Portfolios; particularly with respect to
options transactions which are not effected on a securities exchange or which
are privately negotiated. Under such conditions, a Portfolio may be required to
maintain a position until exercise or expiration, which could result in a loss.
Options on a stock index are subject to the risk of price distortions or
interruption if there is a trading halt in the securities comprising the index,
and may be subject to a timing risk to the extent exercised prior to the final
determination of the closing index value for the day. These and other risks are
described in greater detail in the Statement of Additional Information.

LIMITATIONS ON OPTIONS AND FUTURES TRANSACTIONS

No Portfolio will purchase a call or put option on a security or a stock
index if as a result the premium paid for the option, together with premiums
paid for all other options on securities and options on stock indices then held
by that Portfolio, exceed 10% of the value of the Portfolio's total assets. In
addition, a Portfolio may not write options on securities or stock indices with
aggregate exercise prices in excess of 30% of the value of the Portfolio's total
assets measured at the time an option is written. The Portfolios may hedge up to
the full value of their portfolios through the use of options and futures.
However, a Portfolio will not purchase or sell a stock index or interest rate
future or an option on such futures if immediately thereafter the sum of the
amount of initial margin deposits on the Portfolio's existing futures positions
and premiums paid for options on such futures which are still outstanding would
exceed 5% of the value of the Portfolio's total assets.

MANAGEMENT ARRANGEMENTS

The Fund's Board of Directors is responsible for overseeing the general
operations of the Fund and its Portfolios and is responsible for reviewing and
approving the Fund's contracts with Hewitt and the Investment Managers. The
Fund's officers are all principals or employees of Hewitt or employees of the
American Hospital Association and are responsible for the ongoing management and
administration of the Fund's operations. Investment Managers of the Portfolios
are responsible for the investment of the assets or segments of the Portfolios
assigned to them.

HEWITT ASSOCIATES LLC

Pursuant to a Corporate Management Agreement, Hewitt, as the Fund's
Investment Consultant, is responsible for evaluating, nominating and monitoring
the Fund's Investment Managers, and providing certain additional services to the
Fund. Services and facilities provided to the Fund by Hewitt include: the
supervision, monitoring and evaluation of services provided by the Investment
Managers and of administrative, accounting and other services provided by the
custodian and its affiliate; development of investment programs; recommendation
of Investment Managers for approval by the Board of Directors; allocation of
assets among Investment Managers for Portfolios with

22
<PAGE>
more than one Investment Manager; and furnishing such office space, equipment
and personnel as are required to perform such services. Hewitt is a limited
liability company having 303 principals and is engaged in providing a variety of
consulting services, principally in the areas of employee benefits, compensation
and asset management. Since the 1960s, Hewitt has provided asset management,
allocation and manager selection consulting services to institutional investors,
including employee benefit plans.

The Fund and its Portfolios do not pay any fees to Hewitt. Hewitt is
compensated for its services by Participants from the fees paid by Participants
pursuant to the Program Agreements. Under the Corporate Management Agreement,
Hewitt is responsible for paying the fees of the Investment Managers.

INVESTMENT MANAGERS

The Investment Managers listed under "Investment Manager Profiles" currently
provide investment advisory services to the Portfolios. The allocation of assets
among these Investment Managers may be changed by Hewitt. Subject to approval by
the Fund's Board of Directors, Investment Managers may be employed or their
services terminated at any time by Hewitt. Although the approval by shareholders
of mutual funds of investment advisory contracts is generally required by the
Investment Company Act of 1940, the Fund has obtained an exemptive order from
the Securities and Exchange Commission, based upon the structure of the Fund
under which Hewitt selects and pays the fees of the Investment Managers,
pursuant to which the Fund's agreements with the Investment Managers need not be
approved by shareholders. Among other things, the order also exempts the Fund
from the need to disclose in various documents, including its prospectus, the
fees of the Investment Managers. Shareholders of a Portfolio will be notified
promptly when a new Investment Manager is assigned to that Portfolio. Subject to
supervision by the Fund's Board of Directors, the Investment Managers have
complete discretion as to the purchase and sale of portfolio securities for
their segment of a Portfolio consistent with the Portfolio's investment
objectives, policies and restrictions. Although the activities of the Investment
Managers are subject to general supervision by the Fund's Board of Directors and
officers, neither the Board, the officers nor Hewitt evaluates the merits of
individual investment selections or investment decisions made by the Investment
Managers.

The fees of each Investment Manager are paid by Hewitt. All such fees
presently are based upon a percentage of assets under management and do not
involve any performance or incentive fees. Under procedures adopted by the
Fund's Board of Directors, and subject to the requirements of applicable law and
regulations, brokerage transactions in securities purchased and sold by the
Portfolios may be effected through brokerage affiliates of the Investment
Managers (or an Investment Manager if it is a registered broker-dealer) which
will receive commissions for their services.

EXPENSES AND FEES

Each Portfolio's expenses are deducted from total income before dividends
are paid. Portfolios pay all of their expenses other than those expressly
assumed by Hewitt. Expenses of the Portfolios include but are not limited to:
fees of the Fund's independent public accountants, transfer agent, registrar,
custodian, dividend disbursing agent fees and expenses; shareholder and
administrative servicing, accounting and recordkeeping fees and expenses; taxes;
brokerage fees and commissions; interest; costs incident to corporate meetings,
printing and mailing prospectuses and reports to shareholders, and the filing of
reports with regulatory bodies and the maintenance of the Fund's corporate
existence; legal fees; fees to federal and state authorities for the
registration of shares; directors' fees and expenses to directors who are not
principals, employees or officers of Hewitt or the American Hospital
Association; and any extraordinary expenses of a non-recurring nature. The
Fund's custodian provides various accounting and administrative services. See
"Additional Information." As discussed under "Summary of Fund Expenses," under
certain circumstances, Hewitt has voluntarily undertaken to pay certain expenses
of the Portfolios (or to reimburse the Portfolios for certain expenses) as may
be necessary to limit total expenses of the Portfolios to specified amounts and
the Portfolios may

23
<PAGE>
reimburse Hewitt for absorbing certain of these expenses at some time in the
future. American Hospital Association Services, Inc. has, in this regard, agreed
to reimburse Hewitt for one half of the amounts incurred by Hewitt pursuant to
this undertaking.

Shareholders, as Participants in the Program, pay certain fees directly to
Hewitt under the Program Agreements. Fees paid to Hewitt by Participants may
vary based upon a number of factors, including the level of services provided to
a Participant by Hewitt and the amount of assets of the Participant committed to
the Program, and may, in certain cases, be subject to certain minimums to
compensate Hewitt for its consulting services. Fees payable to Hewitt also vary
based upon the particular Portfolios in which such assets are invested. For
Hewitt's standard level of service in the Program, a Participant's fee is
presently determined and payable quarterly by applying one-fourth of the
following annual percentage rates to the Participant's average daily assets
invested in the Portfolios: .75% of assets invested in the Diversified Equity
Portfolio and the Balanced Portfolio; and .50% of assets invested in the Limited
Maturity Fixed Income Portfolio and the Full Maturity Fixed Income Portfolio.
Reduced fees may be negotiated by Hewitt with Participants committing in excess
of $50 million to the Program and in other special circumstances.

HOW SHARES CAN BE PURCHASED

Shares of each Portfolio are available only to Participants which have
entered into Program Agreements and may be purchased on a continuous basis
directly from the Fund at the net asset value per share of the Portfolio next
calculated after receipt of a purchase order and federal funds. Shares are not
available for purchase by individuals. Shares may be redeemed (see "How to
Redeem Shares"), but are non-transferable.

Orders to purchase shares and federal funds in the amount of the purchase
order must be received by the Fund's custodian prior to 4:00 p.m. Eastern time
to be effected on that day. The minimum initial investment in the Fund is $1
million. The initial minimum investment and subsequent investments in any
Portfolio must be at least $100,000. These minimum investment requirements may
be waived for Participants which do not have available for investment assets
sufficient to satisfy the minimums. To open an account, an application form must
be forwarded to Firstar Trust Company, at the address set forth below:

BY MAIL: Shares of one or more Portfolios of the Fund may be purchased
by sending a check drawn on a U.S. bank and made payable to AHA Investment
Funds, Inc., together with a completed application form, to: AHA Investment
Funds, Inc., c/o Firstar Trust Company, P.O. Box 701, Milwaukee, WI
53201-0701. Purchase orders will be effected at the net asset value per
share next computed after the check has been converted into federal funds.
Checks drawn on a member bank of the Federal Reserve System will normally be
converted into federal funds within two business days of receipt; however,
checks drawn on other banks may take considerably longer. Prior to
conversion into federal funds, an investor's money will not be invested in
the Fund. Shares purchased by check will not begin to be entitled to
dividends until the day following receipt of federal funds. Checks are
accepted subject to collection. Payment for redemptions of shares purchased
by check may be delayed to assure that the purchase check clears, which may
take up to 15 days from the date of purchase.

24
<PAGE>
BY WIRE: The purchase of shares can be expedited by wiring federal
funds to the custodian. This procedure avoids the delays and restrictions
that apply in the case of shares purchased by check. To wire federal funds
to the custodian, have your bank transmit funds to:

Firstar Bank Milwaukee, N.A.
Account of Firstar Trust Co.
777 East Wisconsin Ave.
Milwaukee, WI
ABA Number 075000022
For Credit to AC #112-952-137
Account Name: Name of Investor
Portfolio Name:
Limited Maturity Fixed Income Portfolio (051)
Full Maturity Fixed Income Portfolio (052)
Diversified Equity Portfolio (053)
Balanced Portfolio (054)

ALL PURCHASE ORDERS MUST SPECIFY THE PORTFOLIO OR PORTFOLIOS IN WHICH
INVESTMENTS ARE TO BE MADE.

For further information regarding the procedures to be used when purchasing
shares, you may call: 1 (800) 445-1341.

The Fund reserves the right in its sole discretion to reject any order for
purchase of its shares (including purchase by exchange) when in the judgment of
management such rejection is in the best interest of the Fund.

SHARE PRICE

Shares of each Portfolio of the Fund are offered for sale at the net asset
value per share next determined after receipt of an order and federal funds,
without any sales charge. Net asset value is computed separately for each
Portfolio once daily as of the close of trading on the New York Stock Exchange
(presently 4:00 p.m., New York time). A Portfolio's net asset value per share
may also be computed on other days when there is a sufficient degree of trading
in the securities held by that Portfolio if a purchase or redemption request is
received on that day. The net asset value per share will not be determined on
holidays observed by the New York Stock Exchange.

Net asset value per share for each Portfolio is calculated by dividing the
market value of all of the Portfolio's investment securities plus the value of
its other assets (including dividends and interest accrued but not collected),
less all liabilities (including accrued expenses, but excluding capital and
surplus), by the number of shares of that Portfolio outstanding. Prices of
shares of each Portfolio should be expected to fluctuate daily based on the
current values of securities held by that Portfolio. If market quotations are
not readily available, a security will be valued at fair value as determined
under procedures adopted by the Board of Directors of the Fund. Debt securities
held by the Portfolios with remaining maturities of 60 days or less, will be
valued at amortized cost, absent unusual circumstances.

HOW TO REDEEM SHARES

Shares of each Portfolio may be redeemed on any business day at their
current net asset value next determined after a request in proper form is
received as described below. The business days on which net asset values are
determined are described under "Share Price." If shares are represented by stock
certificates, a written request for redemption, together with a stock power,
each signed on behalf of the registered shareholder by an authorized signatory,
and the certificates must be forwarded to the Transfer Agent. If no certificates
have been issued, only a properly signed written redemption request must be
submitted.

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<PAGE>
All requests to redeem shares should be sent to:

AHA Investment Funds, Inc.
c/o Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701

For further information regarding the procedures to be used for redemptions,
please call: 1 (800) 445-1341.

Payment of redemption proceeds will ordinarily be made within seven days by
wire transfer of federal funds to the shareholder's account at a commercial bank
which is a member of the Federal Reserve System. The bank account must be
designated by the shareholder on the application form used in opening an account
with the Fund. Upon request of a shareholder, redemption proceeds will be paid
by check mailed to the shareholder's address of record. There is no fee
currently imposed for wire redemptions, but the Fund reserves the right to
impose such a fee in the future.

The Fund reserves the right to suspend the right of redemption or postpone
the date of payment (including redemption through an exchange of shares) if
unlikely emergency conditions, which are specified in the Investment Company Act
of 1940 or determined by the Securities and Exchange Commission, should exist.

EXPEDITED REDEMPTION PROCEDURES. Telephone redemption orders may be placed,
avoiding the need to submit a written redemption request, provided that
certificates for shares have not been issued. Arrangements for telephone
redemptions must be established prior to the time of redemption. Call the
Transfer Agent at 1 (800) 445-1341 for further information.

In the event a shareholder cannot reach the Transfer Agent to place a
telephonic redemption order as a result of telephone system problems or during
periods of unusual economic or market change, a redemption request may be
expedited by sending a written request by overnight service to:

AHA Investment Funds, Inc.
c/o Firstar Trust Company
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202

The Fund's transfer agent employs reasonable procedures to confirm that
telephone redemption instructions are genuine such as recording telephone calls,
providing written confirmation of transactions, or requiring a form of personal
identification or other information prior to effecting a telephone redemption.
To the extext such procedures are used, neither the Fund, nor the Hewitt, or the
transfer agent, will be liable for any loss due to fraudulent or unauthorized
telephone instructions.

INVOLUNTARY AND AUTOMATIC REDEMPTION. The Board of Directors has the
authority to effect the redemption of the accounts of a shareholder having an
aggregate value, as a result of redemptions, of less than $1 million in all
Portfolios or such lesser amount as may be established by the Board. In such
situations, the shareholder will be notified that the account will be redeemed,
and the proceeds paid to the shareholder, unless additional investments are made
to increase the account value to $1 million or such lesser prescribed amount
within 60 days. There is no present intention to utilize this procedure.
However, if it is utilized, any redemption of a minimum $1 million investment in
the Fund would subject a shareholder to involuntary redemption. In addition,
under the Program Agreements, shares may be automatically redeemed upon a
termination of such an agreement or failure to pay applicable fees.

26
<PAGE>
SERVICES PROVIDED BY THE FUND

SHAREHOLDER ACCOUNTS

The Fund's Transfer Agent maintains an account for each shareholder
reflecting that shareholder's current holdings. Share certificates will be
issued only upon specific request and are non-transferable. Shareholders are
sent confirmations for each transaction in shares of the Portfolios. Shares for
which certificates have been issued cannot be redeemed or exchanged by telephone
request. For information regarding the status of an account and transactions, or
to request certificates for shares, please call: 1 (800) 445-1341.

REINVESTMENT OF DISTRIBUTIONS

Income dividends and capital gains distributions are automatically
reinvested in additional shares of the Portfolio making the distribution at the
net asset value per share of that Portfolio. See "Dividends, Capital Gains
Distributions and Taxes." A shareholder may, however, elect to receive payment
of all dividends and distributions by check by giving written notice to the
Transfer Agent at least two weeks prior to the record date on which the change
is to take effect. Dividends and distributions payable by check will be mailed
on the payable date.

EXCHANGE PRIVILEGE

Shares of any Portfolio may be exchanged for shares of any other Portfolio
of the Fund on the basis of their respective net asset values at the time of
exchange. Exchanges must be in the amount of $100,000 or more.

An exchange involves the redemption of shares of one Portfolio of the Fund
and investment of the redemption proceeds in shares of another Portfolio.
Redemption will, except as noted below, be made at the net asset value per share
next determined after receipt of an exchange request in proper order. Shares of
the Portfolio to be acquired will be purchased when the proceeds from redemption
become available (normally on the day the request is received, but under certain
circumstances up to seven days thereafter if a Portfolio determines to delay the
payment of redemption proceeds) at the net asset value of those shares next
determined after satisfaction of the purchase order requirements of the
Portfolio whose shares are being acquired. Any gain or loss realized on an
exchange is recognized for federal income tax purposes.

Before making an exchange, the investment objectives and policies of the
Portfolios involved should be reviewed and their differences considered.
Instructions to effect an exchange may be given in writing or by telephone. The
exchange privilege is not available if certificates for the shares to be
exchanged have been issued. To effect an exchange, or for further information,
contact the Transfer Agent at: 1 (800) 445-1341. In the event the Transfer Agent
cannot be reached by telephone as a result of telephone system problems or
during periods of unusual economic or market changes, an order to exchange
shares may be expedited by sending a written request by overnight service to:

AHA Investment Funds, Inc.
c/o Firstar Trust Company
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202

The Fund reserves the right to modify or terminate the exchange privilege
and to impose fees for and limitations on its use upon not less than sixty days
written notice to shareholders.

As in the case of telephone redemption requests, the transfer agent employs
reasonable procdures to confirm that telephone exchange instructions are
genuine. To the extent these procedures are used, neither the Fund, nor Hewitt,
or the transfer agent, will be liable for any loss due to fraudulent or
unauthorized telephone exchange instructions.

27
<PAGE>
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES

DIVIDENDS

In addition to any increase in the value of a Portfolio's shares which may
occur from increases in the values of investments, each Portfolio may earn
income in the form of dividends or interest on its investments. The Fund's
policy with respect to each Portfolio is to distribute substantially all of this
income, less expenses, to shareholders of that Portfolio at the discretion of
the Fund's Board of Directors. Unless requested otherwise, dividends are
automatically reinvested in additional shares of the Portfolio making the
dividend distribution at the net asset value on the payment date in the case of
Portfolios which pay monthly dividends, or on the day after the record date in
the case of Portfolios which pay quarterly dividends. See "Services Provided by
the Fund."

It is expected that dividends from net investment income will be declared on
the following schedule:

<TABLE>
<CAPTION>
DECLARED PAYABLE PORTFOLIOS
- ------------ ----------------------------------- ------------------------------------------------
<S> <C> <C>
Daily Last day of each month. Limited Maturity Fixed Income Portfolio
Full Maturity Fixed Income Portfolio
Quarterly Mid: March, June, September, and Diversified Equity Portfolio
December Balanced Portfolio
</TABLE>

CAPITAL GAINS

Each Portfolio's capital gains or losses are the result of the sale of its
investment securities at prices that are higher or lower than the prices paid by
the Portfolio to purchase those securities. Total profits from such sales, less
any losses from such sales (including losses carried forward from prior years)
represent net realized capital gains. The Portfolios distribute net realized
capital gains, if any, to shareholders at least once annually. An additional
distribution will be paid if required for a Portfolio to avoid imposition of a
federal income or excise tax on undistributed capital gains. Capital gains and
other distributions are automatically reinvested in additional shares of the
Portfolio making the distribution at the net asset value on the day after the
record date, unless requested otherwise. See "Services Provided by the Fund."

TAXES

Because the Portfolios intend to distribute all of their net investment
income and capital gains to shareholders, it is not expected that the Portfolios
themselves will be required to pay any federal income taxes. The Portfolios may
be subject to nominal, if any, state taxes. Should a Portfolio fail to
distribute the amount required by the Tax Reform Act of 1986 to be distributed
during any calendar year, the Portfolio would be required to pay a four percent,
nondeductible excise tax on the amount of the under-distribution.

Shareholders that are subject to federal income taxation normally will have
to pay any applicable federal income taxes, and any state income taxes, on the
dividends and distributions they receive from the Portfolios, whether paid in
cash or in additional shares. Dividends and distributions may also be subject to
state or local taxes. Annually, shareholders are sent full information on
dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the amount of dividends eligible for the dividends
received deduction available for corporations.

Redemptions of shares (including redemptions to pay fees to Hewitt if a
shareholder has elected to pay fees in such manner) and exchanges of shares
among the Portfolios will result in the recognition of any gain or loss for
federal income tax purposes for those shareholders subject to federal income
taxation.

28
<PAGE>
FUND PERFORMANCE

From time to time the Fund may provide reports of a Portfolio's total return
performance or yield to shareholders and prospective investors in advertisements
and other materials. Certain sales materials, but not advertisements, may quote
distribution rates for the Portfolios. These reports are based upon investment
results during specified periods and in the case of total return, assume
reinvestment of all dividends and capital gains, if any, paid during that
period. Quotations of total return, yield and distribution rate will be adjusted
to include the effect of the standard fees that shareholders pay to Hewitt.
These adjustments will be made by using the applicable fees for Hewitt's
standard level of service for the average size shareholder account in the
Portfolio. Quotations will reflect the effect of Hewitt's agreement to absorb
certain expenses of the Portfolios. Because dividends, net asset value and
expenses of the Portfolios will fluctuate, any given report of total return,
yield or distribution rate should not be considered as representative or a
prediction of a Portfolio's performance for any specified period in the future.
Rankings and comparisons appearing in publications such as Money, Forbes, and
similar sources, or based upon data disseminated by Lipper Analytical Services
Corporation or other similar services, and comparisons to recognized market
indices, may also be used in advertisements and other materials. Certain
additional comparisons may also be made. See "Performance Information" in the
Statement of Additional Information.

YIELD QUOTATIONS

Yield quotations may be disseminated by each of the Portfolios except the
Diversified Equity Portfolio and the Balanced Portfolio and used in advertising
and sales materials. They are based on historical earnings and will reflect net
investment income generated over a 30 day period based on the average number of
shares of the Portfolio outstanding entitled to receive dividends over the
period. This income is then "annualized" and shown as a percentage of the
shareholder's investment at net asset value per share on the last day of the
period.

Yield quotations do not generally reflect the impact of changes in net asset
value on an investor's return.

TOTAL RETURN

The total return of a Portfolio may also be disseminated. Total return is
calculated by determining the difference between the net asset value of all
shares held at the end of the period for each share held at the beginning of the
period (assuming reinvestment of dividends and other distributions), and then
dividing that difference by the net asset value per share at the beginning of
the period. These calculations implicitly reflect the compounding of dividends
and distributions by assuming reinvestment. The average annual compounded rate
of return is the yearly rate that, when applied evenly to each annual period and
compounded, would produce the total return for the period quoted. Unlike yield
and distribution rate quotations, total return reflects all changes in a
Portfolio's net asset value.

29
<PAGE>
ADDITIONAL INFORMATION

VOTING RIGHTS

All shares of each Portfolio, $.01 par value per share, have equal voting
rights on matters affecting the Fund or that Portfolio. Shares have no
preemptive or conversion rights. When shareholders are entitled to vote upon a
matter, each shareholder is entitled to one vote for each share owned. There are
no cumulative voting rights. The Fund is not required and therefore does not
intend to hold annual meetings of shareholders, but special meetings may be held
as may be necessary or as required by the Fund's Articles of Incorporation or
By-Laws or by applicable law. On any matter which affects only a particular
Portfolio, only shareholders of that Portfolio vote unless otherwise required by
the Investment Company Act.

ARRANGEMENTS WITH AHA AND OTHER ORGANIZATIONS

The American Hospital Association has granted Hewitt a non-exclusive right
for the use of the name "American Hospital Association" and derivations thereof
in connection with the Program and the Fund. Hewitt pays a royalty for these
rights. Any termination of the licensing arrangement would require the Fund
promptly to take steps to change its name. For its assistance to Hewitt in
making the Program available to members of AHA and their affiliated
organizations, and in communicating to members, Hewitt also pays from its own
resources a fee to American Hospital Association Services, Inc. Similar fees may
be paid by Hewitt to other organizations which provide similar services. The
Fund may contract directly with American Hospital Association Services, Inc. for
certain non-distribution related services such as printing.

CONTROL PERSONS

As of July 31, 1997, American Hospital Association may be deemed to control
the Fund through its direct and indirect beneficial ownership of more than 25
percent of the Fund's outstanding shares. In addition, as of such date, American
Hospital Association and American Hospital Association Retirement Trust may be
deemed to control the Limited Maturity Fixed Income, Full Maturity Fixed Income,
Balanced and Diversified Equity Portfolios through their direct and indirect
beneficial ownership of more than 25 percent of the outstanding shares of such
Portfolios.

CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES

Firstar Trust Company ("Firstar") acts as the custodian, transfer agent and
accounting servicing agent for the Fund. As the Fund's custodian Firstar holds
all securities and cash of the Portfolios. The Custodian is authorized to
deposit securities in securities depositories and to use sub-custodians approved
by the Fund. Firstar serves as the Fund's transfer agent, dividend disbursing
agent and registrar and acts as shareholder servicing agent. Firstar also
provides the Fund with accounting services.

SHAREHOLDER INQUIRIES

For questions concerning shareholder accounts, dividends and share purchase
and redemption procedures, contact the Transfer Agent at: 1 (800) 445-1341.

REPORTS

The Fund sends annual and semi-annual reports to its shareholders without
charge. The financial statements appearing in annual reports will be audited by
the Fund's independent accountants.

30
<PAGE>
INVESTMENT CONSULTANT PROFILE

The following personnel of Hewitt are primarily responsible for formulating
the recommendations made by Hewitt, as Investment Consultant, to the Fund's
Board of Directors regarding the selection and continued retention of investment
managers for the Portfolios and the portions of the assets of each Portfolio
allocated to the investment managers. These persons have acted in such
capacities since the Fund's inception in 1988 or since commencement of their
employment by Hewitt, if later. Such recommendations are considered by the Board
of Directors of the Fund, which has responsibility for the approval of the
retention of investment managers.

<TABLE>
<S> <C>
Ronald A. Jones John M. Ryan
Hewitt Associates LLC (1978-present) Hewitt Associates LLC (1985-present)
James B. Lee Timothy G. Solberg
Hewitt Associates LLC (1990-present) Hewitt Associates LLC (1989-present)
Stein Roe & Farnham (1985-1990) SEI Corporation (1985-1989)
</TABLE>

INVESTMENT MANAGER PROFILES

The Investment Managers have no affiliation with Hewitt or the Fund's
officers and directors. Each manager is principally engaged in managing
institutional investment accounts. These managers may also serve as managers or
advisers to other investment companies and other clients, including clients of
Hewitt.

The present Investment Managers of the Fund, and the year in which they
commenced providing services to the Portfolios are as follows:

<TABLE>
<S> <C>
LIMITED MATURITY FIXED INCOME PORTFOLIO DIVERSIFIED EQUITY PORTFOLIO
The Patterson Capital Corporation Cambiar Investors, Inc. (1988)
(1988) Investment Research Company (1993)
FULL MATURITY FIXED INCOME PORTFOLIO BALANCED PORTFOLIO
Firstar Investment Research & Western Asset Management Company (1995)
Management Company, LLC (1996) Cambiar Investors, Inc. (1993)
Western Asset Management
Company (1995)
</TABLE>

The following profiles set forth information regarding the Investment
Managers and the persons (or groups) within such organizations responsible for
making investment decisions for the Portfolios:

CAMBIAR INVESTORS, INC. ("CAMBIAR"), 8400 E. Prentice Avenue, Englewood,
Colorado 80111, since 1990 has been a wholly owned subsidiary of United Asset
Management Corporation, a publicly held company. Cambiar was organized in 1973
and has approximately $840 million of assets under management.

<TABLE>
<S> <C>
Michael S. Barish Kathleen M. McCarty
President Senior Vice President
Cambiar Investors, Inc. (1973-present) Cambiar Investors, Inc. (1987-present)
AHA Investment Funds, Inc. AHA Investment Funds, Inc.
Portfolio Manager, (1988-present) Portfolio Manager, (1988-present)

Darrel D. Hershey Michael J. Gardner
Senior Vice President Vice President
Cambiar Investors, Inc. (1985-present) Cambiar Investors, Inc. (1995-present)
AHA Investment Funds, Inc. Simmons & Company (1991-1995)
Portfolio Manager, (1988-present) AHA Investment Funds, Inc.
Portfolio Manager, (1996-present)
</TABLE>

31
<PAGE>
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY, LLC ("FIRMCO"), 777 East
Wisconsin Avenue, Suite 800, Milwaukee, Wisconsin 53202, is a wholly owned
subsidiary of Firstar Corporation, a publicly owned company. FIRMCO is an
investment management firm and has approximately $20.9 billion in assets under
management.

<TABLE>
<S> <C>
Gary A. Elfe Teresa R. Westman
Senior Vice President Senior Vice President
Firstar Investment Research & Firstar Investment Research &
Management Company, LLC Management Company, LLC
(1978-present) (1987-present)
AHA Investment Funds, Inc. AHA Investment Funds, Inc.
Portfolio Manager Portfolio Manager
(1996-present) (1996-present)
</TABLE>

INVESTMENT RESEARCH COMPANY ("INVESTMENT RESEARCH"), 16256 San Dieguito Road
#2-20, P.O. Box 9210, Rancho Santa Fe, California 92067, since 1994 has been a
wholly owned subsidiary of United Asset Management Corporation, a publicly held
Company. Investment Research was organized in 1985 and has approximately $2.2
billion of assets under management.

<TABLE>
<S> <C>
F.J. (Jerry) Gould C.B. (Tom) Garcia
President and CIO Senior Vice President
Investment Research Company Investment Research Company (1985-present)
(1985-present) AHA Investment Funds, Inc.
AHA Investment Funds, Inc. Portfolio Manager, (1993-present)
Portfolio Manager, (1993-present)

John D. Freeman
Executive Vice President
Investment Research Company
(1996-present)
AHA Investment Funds, Inc.
Portfolio Manager (1996-present)
</TABLE>

32
<PAGE>
THE PATTERSON CAPITAL CORPORATION ("PATTERSON CAPITAL"), 2029 Century Park
East #2950, Los Angeles, California 90067, is a privately held advisory
organization headed by Joseph B. Patterson. Patterson Capital provides
investment management services to a variety of institutions including investment
companies and employee benefit plans and has approximately $2.5 billion under
management.

<TABLE>
<S> <C>
Brian S. Allen Jean M. Clark
Portfolio Manager Sr. Vice President/Portfolio Manager
The Patterson Capital Corporation The Patterson Capital Corporation
(1993-present) (1983-1988) (1991-present)
Nations Bank (1987-1991) AHA Investment Funds, Inc.
AHA Investment Funds, Inc. Portfolio Manager, (1991-present)
Portfolio Manager, (1993-present)

Joseph B. Patterson
Chief Investment Strategist
The Patterson Capital Corporation
(1977-present)
AHA Investment Funds, Inc.
Portfolio Manager, (1988-present)
</TABLE>

WESTERN ASSET MANAGEMENT COMPANY ("WAMCO"), 117 East Colorado Boulevard,
Pasadena, California 91105, is a wholly owned subsidiary of Legg Mason, Inc., a
publicly held financial services organization that engages through its
subsidiaries in the businesses of securities brokerage, investment management,
corporate and public finance and real estate services. WAMCO manages more than
$27.4 billion for its institutional clients, plus $4.2 billion of assets for
mutual funds. WAMCO's Fixed-Income team has responsibility for the management of
the Portfolios.

33
<PAGE>
APPENDIX
CORPORATE SECURITIES RATINGS

STANDARD & POOR'S BOND RATINGS. A Standard & Poor's corporate debt rating is
a current assessment of the creditworthiness of an obligor with respect to a
specific obligation. Debt rated "AAA" has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong. Debt rated "AA" has a very strong capacity to pay interest and to repay
principal and differs from the highest rated issues only in small degree. Debt
rated "A" has a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt of a higher rated category. Debt rated "BBB"
is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions, or changing circumstances are more likely to lead to a weakened
capacity to pay interest and to repay principal for debt in this category than
for higher rated categories. Ratings below "AAA" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

MOODY'S BOND RATINGS. Bonds rated "Aaa" by Moody's are judged to be of the
best quality and to carry the smallest degree of investment risk. Bonds rated
"Aa" are judged to be of high quality by all standards. Bonds rated "A" possess
many favorable investment attributes and are to be considered as upper medium
grade obligations. Bonds rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured and have speculative
characteristics as well. Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue. Moody's applies numerical modifiers "1", "2" and "3" in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the issue ranks at the lower end of its generic
rating category.

A-1
<PAGE>
- -----------------------------------------------------

AHA INVESTMENT FUNDS, INC.
- -----------------------------------------------------

INVESTMENT CONSULTANT
Hewitt Associates LLC
100 Half Day Road
Lincolnshire, Illinois 60069

CUSTODIAN
Firstar Trust Company
615 East Michigan Street
Milwaukee, WI 53202

TRANSFER AGENT
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701

LEGAL COUNSEL
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022

INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen LLP
33 West Monroe Street
Chicago, Illinois 60603

SHAREHOLDER INQUIRIES
1 (800) 445-1341

- --------------------------------------------------------------------------------

THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION DO NOT
CONSTITUTE AN OFFER BY THE FUND TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL FOR THE FUND TO MAKE SUCH OFFER IN SUCH JURISDICTION.
- --------------------------------------------------------------------------------
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 31, 1997

AHA INVESTMENT FUNDS, INC.

AHA Investment Funds, Inc. (the "Fund") is an open-end, diversified
management investment company. Shares of the Fund's four investment portfolios
(the "Portfolios") are available only to participants in the American Hospital
Association Investment Program (the "Program") and to the American Hospital
Association (and its affiliated companies). Hewitt Associates LLC is the Fund's
Investment Consultant and, subject to approval of the Fund's Board of Directors,
selects the investment managers of the Portfolios. Shares of the following
Portfolios are currently offered directly by the Fund, without any sales charge
("no-load"), and are sold and redeemable at their current net asset values per
share:

LIMITED MATURITY FIXED INCOME PORTFOLIO: Seeks a high level of current income,
consistent with preservation of capital and liquidity. Invests primarily in
high quality fixed income securities and maintains an average dollar weighted
portfolio maturity of five years or less.

FULL MATURITY FIXED INCOME PORTFOLIO: Seeks over the long term the highest
level of income consistent with preservation of capital. Invests primarily in
high quality fixed income securities. There is no restriction on the maximum
maturity of the securities purchased. The average dollar weighted portfolio
maturity will vary and may exceed 20 years.

DIVERSIFIED EQUITY PORTFOLIO: Seeks long-term capital growth. Invests
primarily in equity securities and securities having equity characteristics.

BALANCED PORTFOLIO: Seeks a combination of growth of capital and income.
Invests varying proportions of its assets in equity and fixed income securities,
with not less than 25 percent of total assets invested in fixed income
securities.

A Prospectus for the Fund dated October 31, 1997, which provides the
basic information you should know before investing, may be obtained without
charge by calling the Fund's transfer agent at: 1-(800) 445-1341. This
Statement of Additional Information is not a Prospectus. It contains
information in addition to and more detailed than that set forth in the
Prospectus and is intended to provide you additional information regarding the
activities and operations of the Fund. The Statement of Additional Information
should be read in conjunction with the Prospectus.

B-1
<PAGE>

INVESTMENT CONSULTANT:

HEWITT ASSOCIATES LLC
100 Half Day Road
Lincolnshire, Illinois 60069

TABLE OF CONTENTS
-----------------

Page
----
THE FUND AND ITS MANAGEMENT. . . . . . . . . . . . . . . . . . . . . B-3
INVESTMENT POLICIES AND PRACTICES. . . . . . . . . . . . . . . . . . B-9
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . B-16
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . B-17
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . B-19
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-20
PURCHASES AND REDEMPTIONS OF SHARES. . . . . . . . . . . . . . . . . B-22
SPECIAL INVESTMENT TECHNIQUES. . . . . . . . . . . . . . . . . . . . B-23
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . B-25
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . B-27
FINANCIAL STATEMENTS AND REPORT THEREON. . . . . . . . . . . . . . . B-32
APPENDIX -- FUTURES AND OPTIONS. . . . . . . . . . . . . . . . . . . APP-1

B-2
<PAGE>

THE FUND AND ITS MANAGEMENT

The Fund was organized under the laws of the State of Maryland on
March 14, 1988.

THE INVESTMENT CONSULTANT

Hewitt Associates LLC ("Hewitt") serves as the Fund's Investment
Consultant, pursuant to a Corporate Management Agreement dated as of July 15,
1988 (the "Management Agreement"). Under the Management Agreement, Hewitt is
responsible to provide various services to the Fund. Among other things, Hewitt
evaluates, selects (subject to Board of Director approval) and monitors the
performance of the investment managers of the Fund's investment portfolios (the
"Portfolios"), and is required to pay the fees of the investment managers for
the services they render to the Portfolios. Hewitt is also responsible for
allocating the assets of the Portfolios with more than one manager among such
Portfolios' investment managers, and supervising the services provided by the
Fund's custodian, transfer agent, and other organizations which provide
accounting, recordkeeping and administrative services. Hewitt is required to
provide such office space, equipment and personnel as may reasonably be
necessary to render the services under the Management Agreement, and bears the
costs of telephone service, heat, light, power and other utilities in connection
therewith.

Expenses not expressly assumed by Hewitt under the Management
Agreement are paid by the Fund. Expenses borne by the Fund include, but are not
limited to: charges and expenses of the Fund's registrar, custodian, transfer
agent, dividend disbursing agent and shareholder servicing agent; brokerage fees
and commissions; taxes; engraving and printing of share certificates;
registration costs of the Fund and its shares under federal and state securities
laws and expenses associated with the preparation and filing of required reports
and the maintenance of the Fund's corporate existence; the costs and expense of
printing prospectuses, proxy statements and reports, including typesetting, and
of distributing these materials to shareholders; expenses of shareholders' and
directors' meetings; fees and expenses of directors who are not principals or
employees of Hewitt Associates LLC or the American Hospital Association ("AHA");
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of outside services used in preparing and maintaining the books and
records (including accounting records) of the Fund; pricing shares of the
Portfolios and rendering administrative services; membership dues in industry
organizations; interest on borrowings; postage; insurance premiums on property
and personnel (including directors and officers); the fees and expenses of the
Fund's independent accountants and its legal counsel; extraordinary expenses
including, but not limited to, legal claims and liabilities, litigation costs
and indemnification; and all other costs of the Fund's operations. The Fund has
entered into arrangements with Firstar Trust Company to obtain accounting
services necessary for its operations. As discussed in the Prospectus under
"Expenses and Fees," under certain circumstances, Hewitt has voluntarily agreed
to absorb certain expenses of the Portfolios and American Hospital Association
Services, Inc. has agreed to bear one half of the amounts absorbed by Hewitt.
As described in the Prospectus under "Summary of Fund Expenses," the Portfolios
may reimburse Hewitt for a portion of the expenses absorbed.

In consideration of the services provided by Hewitt, the Fund makes
its shares available to clients of Hewitt, and maintains all federal and state
registrations necessary for the offering of its shares. The only such clients
that are permitted to purchase shares are those which are participants in the
American Hospital Association Investment Program (the "Program"). Participants
in the Program ("Participants") are member organizations of AHA and their
affiliated organizations, including employee benefit plans. Other hospital

B-3
<PAGE>

associations affiliated with AHA and their sponsored and affiliated
organizations are also eligible to become Participants. Shares may also be
purchased by AHA and its affiliated companies. Fees paid by Participants to
Hewitt in the Program entitle the Participants to various consulting services
provided by Hewitt and to implement asset allocation and objective decisions by
investing in the Portfolios. Neither the Fund nor any of its Portfolios pays
any fees to Hewitt or to the investment managers.

Pursuant to the Management Agreement, total operating expenses of
the Portfolios are subject to applicable limitations under the regulations of
states in which shares of the Portfolios are registered for sale. Operating
expenses are thus effectively subject to the most restrictive of such
limitations as they may be amended from time to time, or as they may be
waived or modified. No such limitations are presently applicable to the
Portfolios. The Management Agreement also provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, Hewitt is not liable to the Fund or any of its
investors for any act or omission or for any losses.

The Management Agreement was initially approved on June 22, 1988 by
the Fund's Board of Directors, including a majority of the directors who are not
"interested persons," as defined in the Investment Company Act of 1940 (the
"Act"), of the Fund or Hewitt (the "Independent Directors"), by vote cast in
person at a meeting called for such purpose. It was also approved on July 25,
1988 by American Hospital Association Services, Inc., as the sole shareholder of
the Fund at that time, for an initial term expiring June 30, 1990. The
shareholders of each Portfolio voted to approve the Management Agreement at a
special meeting of shareholders held on February 9, 1990. The Management
Agreement may continue in effect from year to year after its initial term
provided that each continuance is approved at least annually by shareholders of
each Portfolio by a majority shareholder vote as defined by the Act or by the
Board of Directors. Each such continuance must also be approved by the vote of
a majority of the Independent Directors. Pursuant to such approvals by the
Board of Directors, the Management Agreement has continued in effect from year
to year. At a meeting of the Fund's Board of Directors held in person on May
14, 1997, the Management Agreement was renewed for an additional one year period
expiring June 30, 1998. The Management Agreement may be terminated at any time,
without penalty, on sixty days' notice by the Fund's Board of Directors, by the
holders of a majority of the shares of a Portfolio, or by Hewitt. In addition,
the Management Agreement provides for its automatic termination in the event of
its "assignment" (as defined by the Act and the rules thereunder). Shareholders
of each Portfolio are required to vote separately on all proposals to approve,
renew or terminate the Management Agreement, which would remain in effect for
those Portfolios which vote to approve or renew that agreement.

The Fund has acknowledged that the name "AHA" is a property right of
AHA and that its right to use that name is nonexclusive. The Fund also has
acknowledged that both AHA and Hewitt have the right to withdraw the right to
use the name "AHA" from the Fund.

THE INVESTMENT MANAGERS

Each of the investment managers has entered into a Portfolio Advisory
Agreement with the Fund (the "Advisory Agreements"). These agreements provide
that the investment managers are responsible for the investments of the assets
of the Portfolios allocated to them by Hewitt on behalf of the Fund. Under the
Advisory Agreements, the investment managers are required to invest the assets
of the Portfolio or Portfolios allocated to them in a manner consistent with the
investment objectives, policies, and restrictions of the Portfolio, and in
accordance with all procedures adopted by the Fund and its Board of

B-4
<PAGE>

Directors. Hewitt has assumed the responsibility for the payment of all fees
payable to the investment managers, which fees are each computed as a percentage
of the assets of the Fund under the management of the investment manager. The
investment managers assume all of the costs associated with providing the
services they render to the Portfolios. In addition, under the Advisory
Agreements, the investment managers are not liable to the Fund for any act or
omission in the absence of willful misfeasance, bad faith, negligence or
reckless disregard of their obligations.

The following organizations presently serve as investment managers of
the Fund pursuant to Advisory Agreements, and manage the Portfolios indicated:

LIMITED MATURITY FIXED INCOME PORTFOLIO
The Patterson Capital Corporation ("Patterson")

FULL MATURITY FIXED INCOME PORTFOLIO
Firstar Investment Research & Management Company, LLC ("FIRMCO")
Western Asset Management Company ("WAMCO")

DIVERSIFIED EQUITY PORTFOLIO
Investment Research Company ("IRC")
Cambiar

BALANCED PORTFOLIO
Cambiar
WAMCO

Cambiar is a wholly owned subsidiary of United Asset Management
Corporation ("UAM"), a publicly held company. IRC is an investment firm that
is a wholly owned subsidiary of UAM. Patterson is a privately held company
that is controlled by Joseph B. Patterson. WAMCO is a wholly owned
subsidiary of Legg Mason, Inc., a publicly held company. FIRMCO is a
publicly held company.

The Advisory Agreements with the investment managers were each
initially approved by the Board of Directors of the Fund, including a
majority of the Independent Directors. The continuation of each such
agreement was approved by the Fund's Board of Directors at a meeting held in
person on May 14, 1997, and will remain in effect until June 30, 1998,
unless terminated prior thereto. These agreements may continue in effect
from year to year thereafter, provided that each such continuance is approved
by the Board of Directors of the Fund, including a majority of the
Independent Directors. The Advisory Agreements may be terminated at any
time, without penalty, on thirty days' notice by the Fund's Board of
Directors or by the investment managers. In accordance with an exemptive
order issued by the Securities and Exchange Commission, the Advisory
Agreements need not be approved by shareholders and shareholders need not be
given the right to terminate the agreements. As a result, the Board of
Directors may select, retain and remove the investment managers without the
approval of shareholders. The Advisory Agreements provide for their automatic
termination in the event of an "assignment" (as defined by the Act and the
rules thereunder).

Hewitt has certain responsibilities regarding the supervision of the
investment managers (see "The Investment Consultant," above); however, neither
Hewitt nor the Fund's officers or directors evaluate the investment merits of
investment selections or decisions made by the investment managers. The
investment managers and their affiliated brokers may be authorized to execute
brokerage transactions for the Portfolios and receive commissions for their
services. See "Portfolio Transactions and Brokerage."

B-5
<PAGE>

Additional information concerning each of the Fund's investment
managers is contained in the Fund's Prospectus under "Investment Manager
Profiles." Such information is incorporated herein by reference.

DIRECTORS AND OFFICERS

The Fund's Board of Directors has the overall responsibility for
supervising the operations of the Fund and the services provided to the Fund and
its Portfolios by Hewitt, the investment managers and other organizations. The
directors and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations with Hewitt and
AHA, if any, are shown below. None of the Independent Directors is an
affiliated person of Hewitt or AHA.* None of the directors or officers is an
affiliated person of any investment manager of the Fund.
Name, Age, Position

Name, Age, Position Occupations and Affiliation
with Fund and Address with AHA and Hewitt
-------------------------------- --------------------------------

Frank A. Ehmann, 63 Formerly, President and Director, United
Director Stationers, Executive Vice-President and
864 Bryant Avenue Director, Baxter Corp. and President and
Winnetka, Illinois Director, American Hospital Supply Corp.
Director of various companies in health
products field.

James A. Henderson, 55 Vice President, Associate General
Vice President Counsel, Assistant Secretary, American
One North Franklin Hospital Association; Assistant
Chicago, Illinois Secretary, American Hospital Association
Services, Inc.; Trustee, AHA Multiple
Employer Group Insurance Trust;
Formerly, Assistant Secretary, Health
Providers Service Company.

- -------------------------

* Although Messrs. Boyke and Jacob are not considered by the Fund to be
"interested persons" of the Fund, as defined by the Act, the Fund does not treat
these directors, who are affiliated persons of the American Hospital
Association, as "disinterested" for purposes of voting on matters required by
the Act or the rules thereunder to be approved by the Fund's Independent
Directors, due to the indirect interest that the American Hospital Association
may have in certain of these matters.

B-6
<PAGE>

Name, Age, Position Occupations and Affiliation
with Fund and Address with AHA and Hewitt
-------------------------------- --------------------------------

Sidney Jacob, 55 Vice President of Finance and Treasury
Director Operations, American Hospital
One North Franklin Association.
Chicago, Illinois

Ronald A. Jones,** 47* Investment Consultant, Hewitt Associates
Director and President LLC.
100 Half Day Road
Lincolnshire, Illinois

James B. Lee, 35 Program Administrator, AHA Investment
Treasurer Program, Hewitt Associates LLC.
100 Half Day Road
Lincolnshire, Illinois

John D. Oliverio, 44 Executive Vice President and Director,
Director Wheaton Franciscan Services Inc.;
26 West 171 Roosevelt Road Director, Oak Park Hospital; Director,
Wheaton, IL 60189 Synergon Health System.

John M. Ryan, 50 Attorney, Hewitt Associates LLC;
Secretary Formerly, Partner, Wilson & McIlvaine
100 Half Day Road (a Chicago law firm).
Lincolnshire, Illinois

Timothy G. Solberg,** 44 Director of Marketing and Client
Director Services, Hewitt Associates LLC,
100 Half Day Road Investment Services Division.
Lincolnshire, Illinois

Thomas J. Tucker, 65 Former Vice President, Incarnate Word
Director Health Services. Formerly, Vice
8 Rock Creek President and Chief Financial Officer,
Corpus Christi, TX 78412 Spohn Hospital. Fellow of the
Healthcare Financial Management
Association.

- -------------------------

* Although Mr.Jacob is not considered by the Fund to be "interested
persons" of the Fund, as defined by the Act, the Fund does not treat these
directors, who are affiliated persons of the American Hospital Association,
as "disinterested" for purposes of voting on matters required by the Act or
the rules thereunder to be approved by the Fund's Independent Directors, due
to the indirect interest that the American Hospital Association may have in
certain of these matters.

** Director who is an "interested person" of the Fund as defined by the Act.

B-7
<PAGE>

Name, Age, Position Occupations and Affiliati
with Fund and Address with Aha and Hewitt
-------------------------------- --------------------------------

John L. Yoder, 66 Vice President, The Princeton Agency,
Director Princeton Insurance Co., Formerly
19 Tankard President, Rahway Hospital, Rahway
Washington Crossing, PA Hospital Foundation and Recovery Health
System (parent of Rahway Hospital), BICO
Corporation (health ventures); Vice
Chairman and Director, Health Care
Insurance Exchange Princeton Insurance
Co. Formerly, Trustee, American
Hospital Association.

The Fund pays an attendance fee to each director who is not a
principal, director, officer or employee of Hewitt or AHA of $1,000 for each
quarterly meeting and $500 for each special meeting of the Board of Directors
and for any committee meeting (not held on the date of a quarterly Board
meeting), and reimburses such directors for travel and other out-of-pocket
expenses incurred in attending such meetings. Directors and officers of the
Fund who are principals, directors or officers of or employed by Hewitt or AHA
(or any affiliated company of either) receive no compensation or expense
reimbursement from the Fund. During the fiscal year ended June 30, 1997, the
Fund paid directors' fees (including expenses) of $22,747.13 as follows:

COMPENSATION TABLE
------------------

Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part Benefits And Fund
Name of Person, From Of Fund Upon Complex Paid
Position Registrant Expenses Retirement To Directors
- --------------- ------------ ----------- ---------- ------------

Frank A. Ehmann, $5,458.46 0 0 $5,458.46
Director

Sidney Jacob, 0 0 0 0
Director

Ronald A. Jones, 0 0 0 0
Director and President

B-8
<PAGE>

John D. Oliverio, $4,063.72 0 0 $4,063.72
Director

Timothy G. Solberg, 0 0 0 0
Director

Thomas J. Tucker, $6,331.20 0 0 $6,331.20
Director

John L. Yoder, $6,893.75 0 0 $6,893.75
Director

By virtue of certain positions held by officers and directors of the
Fund with organizations that are shareholders of the Fund, including AHA and
American Hospital Association Retirement Trust, the officers and directors of
the Fund, as a group, may be deemed to have shared, indirect beneficial
ownership of 37% of the Fund's outstanding shares as of July 31, 1997.

INVESTMENT POLICIES AND PRACTICES

The sections below describe, in greater detail than in the Fund's
Prospectus, some of the different types of investments which may be made by
the Portfolios and the different investment practices in which the Portfolios
may engage. The use of options and futures contracts by the Portfolios are
discussed on p. 30 under "Special Investment Techniques." The general
investment policies of the Portfolios are set forth in the Prospectus.

SHORT-TERM INVESTMENTS

As discussed in the Prospectus, each of the Portfolios may invest in a
variety of short-term debt securities ("money market instruments"), including
instruments issued or guaranteed by the U.S. Government or one of its agencies
or instrumentalities ("Government Securities") and repurchase agreements for
such securities. Money market instruments are generally considered to be debt
securities having remaining maturities of approximately one year or less.
Government Securities are described in the Prospectus. Other types of money
market instruments include: certificates of deposit, bankers' acceptances,
commercial paper, letters of credit, short-term corporate obligations, and the
other obligations discussed below.

The short-term investments of the Portfolios in bank obligations
(including certificates of deposit, bankers' acceptances, time deposits and
letters of credit) are limited to: (1) obligations of U.S. commercial banks and
savings institutions having total assets of $1 billion or more, and instruments
secured by such obligations, including obligations of foreign branches of U.S.
banks and (2) similar obligations of foreign commercial banks having total

B-9
<PAGE>

assets of $1 billion or more or their U.S. branches which are denominated in
U.S. dollars. Obligations of foreign banks and their U.S. branches are subject
to the additional risks of the types generally associated with investment in
foreign securities. See "Foreign Securities." Similar risks may apply to
obligations of foreign branches of U.S. banks. There currently are no reserve
requirements applicable for obligations issued by foreign banks or foreign
branches of U.S. banks. Also, not all of the federal and state banking laws and
regulations applicable to domestic banks relating to maintenance of reserves,
loan limits and promotion of financial soundness apply to foreign branches of
domestic banks, and none of them apply to foreign banks.

Commercial paper constituting the short-term investments of the
Portfolios must be rated within the two highest grades by Standard & Poor's
Corporation ("S&P") or the highest grade by Moody's Investors Service, Inc.
("Moody's") or, if not rated, must be issued by a company having an outstanding
debt issue rated at least AA by S&P or Aa by Moody's. Other types of short-term
corporate obligations (including loan participations and master demand notes)
must be rated at least A by S&P or Moody's to qualify as a short-term investment
of the Portfolios, or, if not rated, must be issued by a company having an
outstanding debt issue rated at least A by Moody's or S&P. The quality
standards described above may be modified by the Fund upon the approval of its
Board of Directors.

Bank time deposits may be non-negotiable until expiration and may
impose penalties for early withdrawal. Master demand notes are corporate
obligations which permit the investment of fluctuating amounts at varying rates
of interest pursuant to direct arrangements with the borrower. They permit
daily changes in the amounts borrowed. The amount under the note may be
increased at any time by the Portfolio making the investment up to the full
amount provided by the note agreement, or may be decreased by the Portfolio.
The borrower may prepay up to the full amount of the note without penalty.
These notes may in some cases be backed by bank letters of credit. Because
these notes are direct lending arrangements between the lender and borrower, it
is not generally contemplated that they will be traded, and there is no
secondary market for them, although they are redeemable (and thus immediately
repayable by the borrower) at principal amount, plus accrued interest, at any
time. Investments in bank time deposits and master demand notes are subject to
limitations on the purchase of securities that are restricted or illiquid. See
"Restricted and Illiquid Securities." No Portfolio intends to purchase any
non-negotiable bank time deposits or master demand notes during the coming year.

REPURCHASE AGREEMENTS

As discussed in the Prospectus, each of the Portfolios may enter into
repurchase agreements involving the types of securities which are eligible for
purchase by that Portfolio. However, there is no limitation upon the maturity
of the securities underlying the repurchase agreements.

Repurchase agreements, which may be viewed as a type of secured
lending by the Portfolios, typically involve the acquisition by a Portfolio of
Government Securities or other securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Portfolio will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The Portfolio will receive interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed to be the maturity date of a repurchase agreement, the maturities of
securities subject to repurchase agreements are not subject to any limits and
may exceed one year.

B-10
<PAGE>

While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include a requirement that the investment
managers effect repurchase transactions only with large, well capitalized United
States financial institutions approved by them as creditworthy based upon
periodic review under guidelines established and monitored by the directors of
the Fund. In addition, the value of the collateral underlying the repurchase
agreement, which will be held by the Fund's custodian in a segregated account on
behalf of the Portfolio, will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, the Portfolio
will seek to liquidate such collateral. However, the exercise of a Portfolio's
right to liquidate such collateral could involve certain costs or delays and, to
the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Portfolio could suffer a
loss. It is the current policy of each Portfolio not to invest in repurchase
agreements that do not mature within seven days if any such investment, together
with any other illiquid assets held by the Portfolio, amount to more than 10% of
its total assets. Investments in repurchase agreements may at times be
substantial when, in the view of the investment managers, liquidity or other
considerations warrant.

REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into
reverse repurchase agreements. These agreements, in which the Portfolio
would be the seller of the security underlying the repurchase agreement for
cash and be obligated to repurchase the security, involve a form of leverage
to the extent the Portfolio may invest the cash received and involve risks
similar to repurchase agreements. Although this practice, if successful, may
help a Portfolio increase its income or net assets through the investment of
the cash received in a reverse repurchase agreement, if the return on those
investments is inadequate or they decline in value during the term of the
agreement, the income or the net assets of the Portfolio would be adversely
affected as compared to its income and net assets absent the transaction.
The fundemental policies set forth in the Prospectus concerning borrowings by
the Portfolios covers bank borrowings and reverse repurchase agreements. No
Portfolio intends to enter into reverse repurchase agreements during the
coming year.

TYPES OF DEBT SECURITIES

The types of debt obligations in which the Portfolios may invest are
described in the Prospectus. These investments are subject to certain quality
limitations and other restrictions and include money market instruments and
other types of obligations. See "Short-Term Investments" and "Convertible
Securities." Debt obligations are subject to various risks as described in the
Prospectus. In addition, investors should recognize that, although securities
ratings issued by a securities rating service provide a generally useful guide
as to credit risks, they do not offer any criteria to evaluate interest rate
risk. As discussed in the Prospectus, changes in interest rate levels cause
fluctuations in the prices of debt obligations and will, therefore, cause
fluctuations in net asset values per share of the Portfolios.

Applicable quality limitations of the Portfolios, as described in the
Prospectus, require that debt securities purchased by the Limited Maturity Fixed
Income Portfolio and the Diversified Equity Portfolio be rated at the time of
purchase A or higher by S&P or Moody's (or, if unrated, be of comparable quality
as determined by the investment manager) and that such securities purchased by
the Full Maturity Fixed Income Portfolio and the Balanced Portfolio be rated at
the time of purchase BBB or higher by S&P or Baa or higher by Moody's (or, if
unrated, be of comparable quality as determined by the investment manager).
Although unrated securities eligible for purchase by the Portfolios must be
determined to be comparable in quality to securities having certain specified
ratings, the market for unrated securities may not be as broad as for rated
securities since many investors rely on rating organizations for credit
appraisal.

B-11
<PAGE>

Subsequent to the purchase of a debt security by a Portfolio, the
ratings or credit quality of a debt security may deteriorate. Any such
subsequent adverse changes in the rating or quality of a security held by a
Portfolio would not require the Portfolio to sell the security. However, the
investment managers of the Portfolios will evaluate and monitor the quality of
all investments, including bonds rated lower than BBB or Baa, and will dispose
of investments which have deteriorated in their creditworthiness or ratings as
determined to be necessary to assure that the Portfolios' overall investments
are constituted in a manner consistent with their investment objectives.

The economy and interest rates affect lower rated obligations
differently from other securities. For example, the prices of these obligations
have been found to be less sensitive to interest rate changes than higher rated
investments, but more sensitive to adverse economic changes or individual
corporate developments. Also, during an economic downturn or substantial period
of rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal and
interest payment obligations, to meet projected business goals, and to obtain
additional financing. To the extent that there is no established retail
secondary market, there may be thin trading of lower rated obligations which may
adversely impact the ability of the Portfolios' investment managers to
accurately value such obligations and the Portfolios' assets, and may also
adversely impact the Portfolios' ability to dispose of the obligations. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower rated obligations,
especially in a thinly traded market.

ZERO COUPON SECURITIES. Debt securities purchased by the Portfolios
may include zero coupon securities. These securities do not pay any interest
until maturity and, for this reason, zero coupon securities of longer maturities
may trade at a deep discount from their face or par values and may be subject to
greater fluctuations in market value than ordinary debt obligations of
comparable maturity. Current federal tax law requires the holder of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment that year. It is not anticipated that any Portfolio will invest more
than 5% of its assets in zero coupon securities in the coming year.

VARIABLE RATE SECURITIES. Debt obligations purchased by the
Portfolios may also include variable and floating rate securities. The interest
rates payable on these securities are adjusted either at predesignated periodic
intervals or whenever there is a change in an established market rate of
interest. Other features may include a right whereby the Portfolio which holds
the security may demand prepayment of the principal amount prior to the stated
maturity (a "demand feature") and the right of an issuer to prepay the principal
amount prior to maturity. One benefit of variable and floating rate securities
is that, because of interest rate adjustments on the obligation, changes in
market value that would normally result from fluctuations in prevailing interest
rates are reduced. The benefit of a demand feature is enhanced liquidity.

TYPES OF EQUITY SECURITIES

Equity securities may be purchased by the Diversified Equity Portfolio
and Balanced Portfolio and may include common and preferred and convertible
preferred stocks, and securities having equity characteristics such as rights,
warrants and convertible debt securities. See "Convertible Securities." Common
stocks and preferred stocks represent equity ownership interests in a
corporation and participate in the corporation's earnings through dividends
which may be declared by the corporation. Unlike common stocks, preferred
stocks are entitled to stated dividends payable from the corporation's earnings,
which in some cases may be "cumulative" if prior stated dividends have not been
paid. Dividends

B-12
<PAGE>

payable on preferred stock have priority over distributions to holders of common
stock, and preferred stocks generally have preferences on the distribution of
assets in the event of the corporation's liquidation. Preferred stocks may be
"participating" which means that they may be entitled to dividends in excess of
the stated dividend in certain cases. The rights of common and preferred stocks
are generally subordinate to rights associated with a corporation's debt
securities. Rights and warrants are securities which entitle the holder to
purchase the securities of a company (generally, its common stock) at a
specified price during a specified time period. Because of this feature, the
values of rights and warrants are affected by factors similar to those which
determine the prices of common stocks and exhibit similar behavior. Rights and
warrants may be purchased directly or acquired in connection with a corporate
reorganization or exchange offer. The purchase of rights and warrants are
subject to certain limitations. See "Investment Restrictions."

CONVERTIBLE SECURITIES

Securities of this type may be purchased by the Diversified Equity
Portfolio and the Balanced Portfolio. They include convertible debt obligations
and convertible preferred stock. A convertible security entitles the holder to
exchange it for a fixed number of shares of common stock (or other equity
security), usually at a fixed price within a specified period of time. Until
conversion, the holder receives the interest paid on a convertible bond or the
dividend preference of a preferred stock.

Convertible securities have an "investment value" which is the
theoretical value determined by the yield it provides in comparison with similar
securities without the conversion feature. The investment value changes based
upon prevailing interest rates and other factors. They also have a "conversion
value" which is the worth in market value if the security were exchanged for the
underlying equity security. Conversion value fluctuates directly with the price
of the underlying security. If conversion value is substantially below
investment value, the price of the convertible security is governed principally
by its investment value. If the conversion value is near or above investment
value, the price of the convertible security generally will rise above
investment value and may represent a premium over conversion value due to the
combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. A convertible security's price, when price is influenced primarily by
its conversion value, will generally yield less than a senior nonconvertible
security of comparable investment value. Convertible securities may be
purchased at varying price levels above their investment values or conversion
values. However, there is no assurance that any premium above investment value
or conversion value will be recovered because prices change and, as a result,
the ability to achieve capital appreciation through conversion may never be
realized.

FOREIGN SECURITIES

Each Portfolio may invest up to 10% of its total assets, at the time
of purchase, in foreign securities. As discussed in the Prospectus, each
Portfolio may in addition invest in securities of certain Canadian issuers and
securities purchased by means of American Depository Receipts ("ADRs") in an
amount not to exceed 20% of a Portfolio's total assets at the time of purchase.
Investments in foreign securities will be affected by a number of factors which
ordinarily do not affect investments in domestic securities.

Foreign securities may be affected by changes in currency exchange
rates, exchange control regulations, changes in governmental administration or
economic or monetary policy (in the U.S. and abroad), political events,
expropriation or nationalization or confiscatory taxation. Dividends and
interest paid on foreign securities may be subject to foreign withholding and
other foreign taxes. In addition, there may be less publicly available

B-13
<PAGE>

information concerning foreign issuers than domestic issuers, and foreign
issuers may not be subject to uniform accounting, auditing and financial
reporting standards comparable to those of domestic issuers. Securities of
certain foreign issuers and in certain foreign markets are less liquid and more
volatile than domestic issues and markets, and foreign brokerage commissions are
generally higher than in the U.S. There is also generally less regulation and
supervision of exchanges, brokers and issuers in foreign countries.

Securities denominated in foreign currencies may be affected favorably
or unfavorably by changes in foreign currency exchange rates and costs will be
incurred in converting one currency to another. Exchange rates are determined
by forces of supply and demand which forces are affected by a variety of factors
including international balances of payments, economic and financial conditions,
government intervention and speculation. Foreign currency exchange transactions
of the Portfolios may be effected on a "spot" basis (cash basis) at the
prevailing spot rate for purchasing or selling currency. The Portfolios may
also utilize forward foreign currency contracts as described below.

FORWARD FOREIGN CURRENCY CONTRACTS

As discussed in the Prospectus, the Portfolios authorized to invest in
foreign securities may enter into forward currency contracts to purchase or sell
foreign currencies as a hedge against possible variations in foreign exchange
rates. A forward foreign currency exchange contract is an agreement between the
contracting parties to exchange an amount of currency at some future time at an
agreed upon rate. The rate can be higher or lower than the spot rate between
the currencies that are the subject of the contract. A forward contract
generally has no deposit requirement, and such transactions do not involve
commissions. By entering into a forward contract for the purchase or sale of
the amount of foreign currency invested in a foreign security, a Portfolio can
hedge against possible variations in the value of the dollar versus the subject
currency either between the date the foreign security is purchased or sold and
the date on which payment is made or received ("transaction hedging"), or during
the time the Portfolio holds the foreign security ("position hedging"). Hedging
against a decline in the value of a currency through the use of forward
contracts does not eliminate fluctuations in the prices of securities or prevent
losses if the prices of securities decline. Hedging transactions preclude the
opportunity for gain if the value of the hedged currency should rise. The
Portfolios will not speculate in forward currency contracts. If a Portfolio
enters into a "position hedging transaction," which is the sale of forward
non-U.S. currency with respect to a security held by it and denominated in such
foreign currency, the Fund's custodian will place cash or liquid securities in a
separate account in an amount equal to the value of the Portfolio's total assets
committed to the consummation of such forward contract. If the value of the
securities placed in the account declines, additional cash or securities will be
placed in the account so that the value of cash or securities in the account
will equal the amount of the Portfolio's commitments with respect to such
contracts. A Portfolio will not attempt to hedge all of its non-U.S. portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by its investment managers. The Portfolios will not enter
into forward contracts for terms of more than one year.

Each Portfolio also has the authority to engage in transactions in
foreign currency options and futures, but the Portfolios have no intention to do
so during the coming year. These options and futures are similar to options and
futures on securities, except they represent an option to purchase or to sell an
amount of a specified currency prior to expiration of the option at a designated
price (in the case of a currency option), or a contract to purchase or deliver a
specified amount of currency at an agreed upon future time and price (in the
case of a currency future). Such transactions would be used for purposes
similar to those described above for forward foreign currency contracts.

B-14
<PAGE>

SECURITIES LOANS

Consistent with applicable regulatory requirements, the Portfolios may
lend their United States portfolio securities to brokers, dealers and other
financial institutions, provided that such loans are callable at any time by the
Fund (subject to notice provisions described below), and are at all times
secured by cash or cash equivalents, which are maintained in a segregated
account pursuant to applicable regulations and that are equal to at least the
market value, determined daily, of the loaned securities. The advantage of such
loans is that the Portfolio continues to receive the income on the loaned
securities while at the same time earning interest on the cash amounts deposited
as collateral, which will be invested in short-term investments.

A loan may be terminated by the borrower on one business day's notice,
or by the Fund on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Fund could
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost exceeding the collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, loans of securities will only be made to firms deemed by
the Fund's management to be creditworthy (such creditworthiness will be
monitored on an ongoing basis) and when the income which can be earned from such
loans justifies the attendant risks. Upon termination of the loan, the borrower
is required to return the securities. Any gain or loss in the market price
during the loan period would inure to the Portfolio which made the loan.

When voting or consent rights which accompany loaned securities pass
to the borrower, the Fund will follow the policy of calling the loaned
securities, to be delivered within one day after notice, to permit the exercise
of such rights if the matters involved would have a material effect on the
investment in such loaned securities. The Portfolios will pay reasonable
finder's, administrative and custodial fees in connection with loans of
securities. A Portfolio will not lend securities if to do so would cause it to
have loaned securities in excess of one third of the value of the Portfolio's
total assets, measured at the time of such loan. The Portfolios may lend
foreign securities consistent with the foregoing requirements, but have no
intention of doing so in the foreseeable future.

RESTRICTED AND ILLIQUID SECURITIES

Each Portfolio may invest up to 10% of the value of its total assets,
measured at the time of investment, in restricted and illiquid securities.
Restricted securities are securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933.
Illiquid securities are securities which may be subject to other types of resale
restrictions or which have no readily available markets for their disposition.
These limitations on resale and marketability may have the effect of preventing
a Portfolio from disposing of a security at the time desired or at a reasonable
price. In addition, in order to resell a restricted security, the Portfolio
might have to bear the expense and incur the delays associated with effecting
registration. In purchasing restricted securities, the Portfolios do not intend
to engage in underwriting activities, except to the extent a Portfolio may be
deemed to be a statutory underwriter under the Securities Act of 1933 in
disposing such securities. Restricted securities will be purchased for
investment purposes only and not for the purpose of exercising control or
management of other companies. Under the Fund's present policies, securities
available for purchase and sale in accordance with Rule 144A under the
Securities Act of 1933 are treated as restricted securities for the purposes of
the limitation set forth above.

B-15
<PAGE>

INVESTMENT RESTRICTIONS

In addition to the investment restrictions enumerated in the
Prospectus, the investment restrictions listed below have been adopted as
fundamental policies. Under the Act, a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities, as defined
in the Act. For a Portfolio to alter a fundamental policy requires the
affirmative vote of the holders of (a) 67% or more of the shares of a Portfolio
present at a meeting of shareholders, if the holders of at least 50% of the
outstanding shares of the Portfolio are present or represented by proxy or (b)
more than 50% of the outstanding shares of the Portfolio, whichever is less.

No Portfolio may:

1. Purchase the securities of any issuer if, to the knowledge of the
Fund, any officer or director of the Fund, or any officer, partner or director
of Hewitt or any investment manager, owns more than 1% of the outstanding
securities of such issuer and such officers, partners and directors who own more
than such 1% also own in the aggregate more than 5% of the outstanding
securities of such issuer.

2. Purchase the securities (other than Government Securities) of an
issuer having a record, together with predecessors, of less than three years'
continuous operations, if as a result of such purchase more than 5% of the value
of the Portfolio's total assets would be invested in such securities.

3. Purchase the securities of another investment company, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.

4. Make short sales of securities or purchase securities on margin,
except for such short-term loans as are necessary for the clearance of purchases
of securities.

5. Engage in the underwriting of securities except insofar as a
Portfolio may be deemed an underwriter under the Securities Act of 1933 in
disposing of a security.

6. Purchase or sell real estate or interests therein, or purchase
oil, gas or other mineral leases, rights or royalty contracts or development
programs, except that a Portfolio may invest in the securities of issuers
engaged in the foregoing activities and may invest in securities secured by real
estate or interests therein.

7. Invest for the purpose of exercising control or management of
another company.

8. Make loans of money or securities, except through the purchase of
permitted investments (including repurchase and reverse repurchase agreements)
and through the loan of securities (in an amount not exceeding one-third of
total assets) by any Portfolio.

B-16
<PAGE>

9. Purchase or sell commodities, except that the Portfolios may
purchase and sell financial futures contracts and options on such contracts and
may enter into forward foreign currency contracts and engage in the purchase and
sale of foreign currency options and futures.

10. Invest more than 5% of the value of a Portfolio's total assets in
warrants, including not more than 2% of such assets in warrants not listed on a
U.S. stock exchange. (Rights and warrants attached to, received in exchange
for, or as a distribution on, other securities are not subject to this
restriction.)

11. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except as necessary to secure permitted borrowings. (Collateral arrangements
and initial margin with respect to permitted options on securities, financial
futures contracts and related options, and arrangements incident to other
permitted practices, are not deemed to be subject to this restriction.)

For purposes of these investment restrictions and those set forth in
the Prospectus, and other limitations, all percentage limitations apply at the
time of a purchase or initial investment. Any subsequent change in a percentage
resulting from market fluctuations or other changes in the amount of total
assets does not require the sale or disposition of an investment or any other
action.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to the general supervision of the Fund's Board of Directors,
the investment managers are responsible for decisions to buy and sell securities
for the Portfolios, the selection of brokers and dealers to effect the
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with non-affiliated dealers
acting as principal for their own accounts without a stated commission, although
the price of the security usually includes a profit to the dealer. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. Certain money market instruments may be
purchased directly from an issuer, in which case no commission or discounts are
paid. The Fund anticipates that its transactions involving foreign securities
will be effected primarily on principal stock exchanges for such securities.
Fixed commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign stock exchanges and brokers than in the
United States.

The investment managers currently serve as investment advisers to a
number of clients, including other investment companies, and may in the future
act as investment advisers to others. It is the practice of each of the
investment managers to cause purchase and sale transactions to be allocated
among the Portfolios and others whose assets it manages in such manner as it
deems equitable. In making such allocations, the main factors considered are
the respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment, the
size of investment commitments generally held and the opinions of the persons
responsible for managing the Portfolios and the other client accounts. This
procedure may, under certain circumstances, have an adverse effect on the
Portfolios.

B-17
<PAGE>

The policy of the Fund regarding purchases and sales of securities for
its Portfolios is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Board of Directors of the Fund believes that a
requirement always to seek the lowest commission cost could impede effective
management and preclude the Portfolios and the investment managers from
obtaining high quality brokerage and research services. In seeking to determine
the reasonableness of brokerage commissions paid in any transaction, the
investment managers rely on their experience and knowledge regarding commissions
generally charged by various brokers and on their judgment in evaluating the
brokerage and research services received from the broker effecting the
transaction. Such determinations are necessarily subjective and imprecise, as
in most cases an exact dollar value for those services is not ascertainable.

In seeking to implement the Fund's policies, the investment managers
effect transactions with those brokers and dealers who they believe provide the
most favorable prices and which are capable of providing efficient executions.
If the investment managers believe such price and execution are obtainable from
more than one broker or dealer, they may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the investment managers. Such services may include, but
are not limited to, any one or more of the following: information as to the
availability of securities for purchase or sale; statistical or factual
information or opinions pertaining to investments; wire services; and appraisals
or evaluations of portfolio securities. The information and services received
by the investment managers from brokers and dealers may be of benefit in the
management of accounts of other clients and may not in all cases benefit the
Fund directly. While such services are useful and important in supplementing
their own research and facilities, the investment managers believe the value of
such services is not determinable and does not significantly reduce their
expenses.

Consistent with the policies described above, brokerage transactions
in securities listed on exchanges or admitted to unlisted trading privileges may
be effected through investment managers or their affiliates which are registered
brokers. In order for such transactions to be effected, the commissions, fees
or other remuneration received by the broker must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. This
standard would allow an investment manager or its affiliate to receive no more
than the remuneration which would be expected to be received by an unaffiliated
broker in a commensurate arm's-length transaction. In approving the use of an
affiliated broker, the Board of Directors of the Fund, including a majority of
the Independent Directors, has adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid are consistent
with the foregoing standard.

The directors have considered the possibilities of seeking to
recapture, for the benefit of the Portfolios, brokerage commissions and other
expenses of portfolio transactions. For example, brokerage commissions received
by affiliated brokers could be offset against the advisory fees paid by the
Portfolios. After considering all factors deemed relevant, the directors made a
determination not to seek such recapture. The directors will reconsider this
matter from time to time.

Brokerage Comissions paid by the Diversified Equity Portfolio and
Balanced Portfolio for the fiscal year ending June 30, were:

Diversified Equity Balanced
1997 66,076 69,738
1996 53,652 75,967
1995 34,915 47,277

B-18
<PAGE>

the fiscal year ended June 30, 1997 were $2,150 by the Diversified Equity
Portfolio (in transactions having an aggregate value of $7,250,000) and $3,200
by the Balanced Portfolio (in transactions having an aggregate value of
$8,700,000). During the period, no brokerage commissions were paid by the other
two Portfolios.

During the fiscal year ended June 30, 1997, the Portfolios held
securities of Lehman Brothers Incorporated ("Lehman Brothers"); Merrill Lynch &
Company ("Merrill Lynch"); Morgan Stanley Company ("Morgan Stanley"); and Paine
Webber Incorporated ("Paine Webber") which are companies which may be deemed to
be the Fund's "regular brokers or dealers," as defined by Rule 10b-1 under the
Act, or the parents of such brokers or dealers.

Securities of such companies were held by the Full Maturity Fixed
Income Portfolio (Lehman Brothers, Pain Webber and Morgan Stanley), and the
Diversified Equity Portfolio (J.P. Morgan, Merrill Lynch and Morgan Stanley).

Aggregate holdings, as of June 30, 1997, were as follows:

FULL MATURITY FIXED INCOME

Lehman Brothers 11.625% $375,000 principal amount
Due 05/15/05

Paine Webber 6.730% $150,000 principal amount
Due 01/20/04

DIVERSIFIED EQUITY PORTFOLIO
J.P. Morgan 900 Common stock shares
Merrill Lynch 4,200 Common stock shares
Morgan Stanley 4,570 Common stock shares

DETERMINATION OF NET ASSET VALUE

The Prospectus describes the days on which the net asset values per
share of the Portfolios are computed for purposes of purchases and
redemptions of shares by investors, and also sets forth the times as of which
such computations are made and the requirements applicable to the processing
of purchase and redemption orders. Net asset value is computed once daily
each day the New York Stock Exchange is open and on each other day on which
there is a sufficient degree of trading in a Portfolio's investments to
affect net asset value, except that no computation need be made on a day on
which no orders to purchase or redeem shares have been received. The New
York Stock Exchange currently observes the following holidays: New Year's
Day; Presidents' Day (third Monday in February); Good Friday (Friday before
Easter); Memorial Day (last Monday in May); Independence Day;

B-19
<PAGE>

Labor Day (first Monday in September); Thanksgiving Day (last Thursday in
November); and Christmas Day.

In valuing the assets of the Portfolios for purposes of computing net
asset value, securities are appraised at market value as of the close of trading
on each business day when the NYSE is open. Securities, other than stock
options, listed on the NYSE or other exchanges are valued on the basis of the
last sale price on the exchange on which they are primarily traded. However, if
the last sale price on the NYSE is different than the last sale price on any
other exchange, the NYSE price will be used. If there are no sales on that day,
then the securities are valued at the bid price on the NYSE or other primary
exchange for that day. Securities traded in the over-the-counter market are
valued on the basis of the last sales price as reported by NASDAQ. If there are
no sales on that day, then the securities are valued at the mean between the
closing bid and asked prices as reported by NASDAQ. Stock options traded on
national securities exchanges are valued at the last sales price prior to the
time of computation of net asset value per share. Futures contracts and options
thereon, which are traded on commodities exchanges, are valued at their daily
settlement value as of the close of such commodities exchanges. Securities for
which quotations are not readily available and other assets are appraised at
fair value as determined pursuant to procedures adopted in good faith by the
Board of Directors of the Fund. Short-term debt securities will be valued at
their current market value when available or fair value, which for securities
with remaining maturities of 60 days or less has been determined in good faith
by the Board of Directors to be represented by amortized cost value, absent
unusual circumstances. A pricing service may be utilized to determine the fair
value of securities held by the Portfolios. Any such service might value the
investments based on methods which include consideration of: yields or prices
of securities of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. The service may also
employ electronic data processing techniques, a matrix system or both to
determine valuation. The Board of Directors will review and monitor the methods
used by such services to assure itself that securities are valued at their fair
values.

The values of securities held by the Portfolios and other assets used
in computing net asset value are determined as of the time trading in such
securities is completed each day, which, in the case of foreign securities,
generally occurs at various times prior to the close of the NYSE. Foreign
currency exchange rates are also generally determined prior to the close of the
NYSE. On occasion, the values of such securities and exchange rates may be
affected by events occurring between the time as of which determinations of such
values or exchange rates are made and the close of the NYSE. When such events
materially affect the value of securities held by the Portfolios or their
liabilities, such securities and liabilities will be valued at fair value in
accordance with procedures adopted in good faith by the Fund's Board of
Directors. The values of any assets and liabilities initially expressed in
foreign currencies will be converted to U.S. dollars at the mean between the bid
and offer prices of the currencies against U.S. dollars last quoted by any major
bank.

TAXES

It is the policy of the Fund each fiscal year to distribute
substantially all of each Portfolio's net investment income and net realized
capital gains, if any, to its shareholders. The Fund intends that each
Portfolio will qualify as a regulated investment company under the provisions of
the Internal Revenue Code. If so qualified, a Portfolio will not be subject to
federal income tax on that part of its net investment income and net realized
capital gains which it distributed to its shareholders. To qualify for such tax
treatment, a Portfolio must generally, among other things, (a) derive at least
90% of its annual gross income from dividends, interest (including payments
received with respect to loans of stock and securities) and gains

B-20
<PAGE>

from the sale or other disposition of stock or securities and certain related
income; (b) derive less than 30% of its annual gross income from the sale or
other disposition for tax years commencing prior to August 6, 1997, of stock
or securities or options or futures thereon and certain other investments
held less than three months; and (c) diversify its holdings so that at the
end of each fiscal quarter (i) 50% of the market value of the Portfolio's
assets is represented by cash, Government Securities and other securities
limited, in respect of any one issuer, to an amount not greater than 5% of
the Portfolio's assets or 10% of the voting securities of the issuer, and
(ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than Government Securities). These
requirements may limit the ability of the Portfolios to engage in
transactions involving options and futures.

Under present Maryland law, the Fund is not subject to any state
income taxation during any fiscal year in which the Portfolios each qualify as a
regulated investment company. However, the Fund might be subject to Maryland
income taxes for any taxable year in which the Portfolios did not so qualify.
Further, the Fund may be subject to tax in certain states where it does
business. In those states which have income tax laws, the tax treatment of the
Fund and its shareholders in respect to distributions may differ from federal
tax treatment.

Shareholders will be notified annually by the Fund as to the federal
tax status of dividends and distributions paid to or reinvested by the
shareholder for the preceding taxable year. In addition, dividend and long-term
capital gains distributions may also be subject to state and local taxes. Each
shareholder is advised to consult its own tax adviser concerning the tax effects
of share ownership.

It should be noted that both dividends and capital gains distributions
received by an investor have the effect of reducing the net asset value of the
shares by the exact amount of the dividend or capital gains distribution. If
the net asset value of the shares should be reduced below a shareholder's cost
as a result of the distribution of realized long-term capital gains, such
distribution would be at least a partial return of capital but nonetheless
taxable at capital gains rates. Therefore, an investor should consider the tax
consequences of purchasing shares immediately prior to a distribution record
date.

Dividends and interest received by the Portfolios on foreign
investments may give rise to withholding and other taxes imposed by foreign
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes.

Distributions by a Portfolio of net investment income and the excess
of net short-term capital gains over net long-term capital loss are taxable to
shareholders of that Portfolio as ordinary income regardless of whether such
distributions are reinvested in additional shares or paid in cash.
Distributions of net long-term gains, if any, are taxable as long-term capital
gains regardless of how long the investor has held the shares and regardless of
whether the distribution is received in additional shares or in cash.

The Taxpayer Relief Act of 1997 (the "Act"), enacted in August 1997,
dramatically changes the taxation of net capital gains by applying different
rates thereto depending on the taxpayer's holding period and marginal rate of
federal income tax. The Act, however, does not address the application of
these rules to distributions by regulated investment companies and instead
authorizes the issuance of regulations to do so. Accordingly, shareholders
should consult their tax adviser as to the effect of the Act on distributions
by the Fund to them of net capital gain.

FUTURES CONTRACTS AND RELATED OPTIONS. Accounting for futures
contracts and options on futures contracts will be in accordance with generally
accepted accounting principles. Initial margin deposits made by a Portfolio
upon entering into futures contracts will be recognized as assets. During the
period the futures contract is open, changes in the value of the contract will
be recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Maintenance margin payments will be made or received, depending upon
whether gains or losses are incurred.

B-21
<PAGE>

Futures contracts, options on futures contracts and options on debt
securities held by a Portfolio at the end of each fiscal year of each Fund may
be required to be "marked to market" for federal income tax purposes; that is,
treated as having been sold at market value. The straddle rules of Section 1092
of the Code may require a Portfolio to defer losses incurred in certain
transactions involving securities and options or futures on securities, and may
affect a Portfolio's holding period in the asset offsetting the option or
future. A Portfolio's ability to engage in the options and futures transactions
may be limited by these rules.

PURCHASES AND REDEMPTIONS OF SHARES

Shares of the Portfolios are offered for sale in a continuous offering
directly by the Fund, without the use of any underwriter. They may be purchased
and redeemed at their current net asset values per share, without any sales or
redemption charges or fees, at the times and days, and in the manner described
in the Prospectus. Shares are offered to member hospitals of the American
Hospital Association and their affiliated organizations and to other eligible
organizations and their members which have entered into Program Services
Agreements with Hewitt and to the American Hospital Association (and its
affiliated companies). Other hospital associations affiliated with AHA and
their sponsored and affiliated organizations are also eligible to become
Participants. The Board of Directors of the Fund in its sole discretion may at
some future time permit additional types of organizations and their members
which have entered into Program Service Agreements with Hewitt to purchase
shares, but has no present plans to offer shares of the Fund to organizations
other than those described under "The Fund and its Management - The Investment
Consultant." Shares are not available for purchase by individual investors and
are non-transferable.

Payments for shares presented for redemption or repurchase will be
made within seven days following receipt of the required documents as discussed
in the Prospectus. Such payment may be postponed or the right of redemption
suspended at a time when: (a) the NYSE is closed for other than customary
weekends and holidays; (b) trading on that exchange is restricted; (c) an
emergency exists as a result of which disposal by a Portfolio of securities
owned by it is not reasonably practical or it is not reasonably practicable for
the Fund fairly to determine the value of a Portfolio's net assets; or (d) the
SEC, by order, so permits for the protection of shareholders.

The following table shows the calculation of the net asset value per
share (offering price) of each Portfolio as of June 30, 1997:

(a) (b) (c)
Offering
Price
Net Assets Shares Outstanding (a)-(b)
------------ ------------------ --------
Full Maturity Fixed
Income Portfolio $ 50,798,580 5,190,424 $ 9.79
Limited Maturity Fixed
Income Portfolio $141,023,375 13,873,901 $ 10.16

B-22
<PAGE>

Offering
Price
Net Assets Shares Outstanding (a)-(b)
------------ ------------------ --------
Diversified Equity
Portfolio $ 70,590,398 3,407,458 $ 20.72
Balanced Portfolio $ 52,137,138 3,507,529 $ 14.86

SPECIAL INVESTMENT TECHNIQUES

As discussed in the Prospectus, each Portfolio may engage in certain
transactions in options and futures contracts and options on futures contracts.
The specific transactions in which each Portfolio may engage are noted and
described in the Prospectus. The discussion below provides additional
information regarding the use of options on stock indices and stock index
futures. The Appendix to this Statement of Additional Information sets forth
further details regarding options and futures.

REGULATORY MATTERS

The Portfolios will comply with and adhere to all limitations on the
manner and extent to which they effect transactions in futures and options on
such futures currently imposed by the rules and policy guidelines of the
Commodity Futures Trading Commission as conditions for exemption of a mutual
fund, or investment advisers thereto, from registration as a commodity pool
operator. Under those restrictions, the Portfolios will not, as to any
positions, whether long, short or a combination thereof, enter into futures and
options thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of its assets after taking into account unrealized
profits and losses on options it has entered into. In the case of an option
that is "in-the-money," the in-the-money amount may be excluded in computing
such 5%. (In general, a call option on a future is "in-the-money" if the value
of the future exceeds the exercise ("strike") price of the call; a put option on
a future is "in-the-money" if the value of the future which is the subject of
the put is exceeded by the strike price of the put.) The Portfolios may use
futures and options thereon solely for bona fide hedging or for other
non-speculative purposes within the meaning and intent of the applicable
provisions of the Commodities Exchange Act and regulations thereunder. As to
long positions which are used as part of a Portfolio's investment strategy and
are incidental to its activities in the underlying cash market, the "underlying
commodity value" of the Portfolio's futures and options thereon must not exceed
the sum of (i) cash set aside in an identifiable manner, or short-term U.S. debt
obligations or other dollar-denominated high-quality, short-term money
instruments so set aside, plus sums deposited on margin; (ii) cash proceeds from
existing investments due in 30 days; and (iii) accrued profits held at the
futures commission merchant. The "underlying commodity value" of a future is
computed by multiplying the size of the future by the daily settlement price of
the future. For an option on a future, that value is the underlying commodity
value of the future underlying the option.

RISKS OF OPTIONS ON STOCK INDICES

As discussed in the Prospectus, the purchase and sale of options on
stock indices will be subject to risks applicable to options transactions
generally. In addition, the distinctive characteristics of options on indices
create certain risks that are not present with stock options. Index prices may
be distorted if trading of certain stocks included in the index

B-23
<PAGE>

is interrupted. Trading in index options also may be interrupted in certain
circumstances such as if trading were halted in a substantial number of stocks
included in the index or if dissemination of the current level of an underlying
index is interrupted. If this occurred, a Portfolio would not be able to close
out options which it had purchased and, if restrictions on exercise were
imposed, may be unable to exercise an option it holds, which could result in
losses if the underlying index moves adversely before trading resumes. However,
it is a policy to purchase options only on indices which include a sufficient
number of stocks so that the likelihood of a trading halt in the index is
minimized.

The purchaser of an index option may also be subject to a timing risk.
If an option is exercised by a Portfolio before final determination of the
closing index value for that day, the risk exists that the level of the
underlying index may subsequently change. If such a change caused the exercised
option to fall out-of-the-money (that is, the exercising of the option would
result in a loss, not a gain), the Portfolio would be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer. Although the
Portfolio may be able to minimize this risk by withholding exercise instructions
until just before the daily cutoff time, it may not be possible to eliminate
this risk entirely because the exercise cutoff times for index options may be
earlier than those fixed for other types of options and may occur before
definitive closing index values are announced. Alternatively, when the index
level is close to the exercise price, a Portfolio may sell rather than exercise
the option. Although the markets for certain index option contracts have
developed rapidly, the markets for other index options are not as liquid. The
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid secondary market. It is not certain
that this market will develop in all index option contracts. A Portfolio will
not purchase or sell any index option contract unless and until in the opinion
of the investment manager the market for such options has developed sufficiently
that such risk in connection with such transactions is no greater than such risk
in connection with options on stocks.

STOCK INDEX FUTURES CHARACTERISTICS

Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. A determination as to which of the index contracts would be
appropriate for purchase or sale by a Portfolio will be based upon, among other
things, the liquidity offered by such contracts and the volatility of the
underlying index.

Unlike when a Portfolio purchases or sells a security, no price is
paid or received by a Portfolio upon the purchase or sale of a futures
contract. Instead, the Portfolio will be required to deposit in its
segregated asset account an amount of cash or qualifying securities
(currently U.S. Treasury bills) currently ranging from approximately 10% to
15% of the contract amount. This is called "initial margin." Such initial
margin is in the nature of a performance bond or good faith deposit on the
contract which is returned to the Portfolio upon termination of the futures
contract. Gains and losses on open contracts are required to be reflected in
cash in the form of variation margin payments which a Portfolio may be
required to make during the term of the contracts to its broker. Such
payments would be required where, during the term of a stock index futures
contract purchased by a Portfolio, the price of the underlying stock index
declined, thereby making the Portfolio's position less valuable. In all
instances involving the purchase of stock index futures contracts by a
Portfolio, an amount of cash together with such other securities as permitted
by applicable regulatory authorities to be utilized for such purpose, at
least equal to the market value of the futures contracts, will be deposited
in a segregated account with the Fund's custodian to collateralize the
position. At any time prior to the expiration of a futures contract, the
Portfolio may elect to close its position by taking an opposite position
which will operate to terminate its position in the

B-24
<PAGE>

futures contract. For a more complete discussion of the risks involved in stock
index futures, refer to the Appendix ("Futures and Options").

Where futures are purchased to hedge against a possible increase in
the price of a security before a Portfolio is able to fashion its program to
invest in the security or in options on the security, it is possible that the
market may decline instead. If the Portfolio, as a result, concluded not to
make the planned investment at that time because of concern as to the possible
further market decline or for other reasons, the Portfolio would realize a loss
on the futures contract that is not offset by a reduction in the price of
securities purchased.

In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the stock index future
and the portion of the portfolio being hedged, the price of stock index futures
may not correlate perfectly with movements in the stock index due to certain
market distortions. All participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
index itself and the value of a future. Moreover, the deposit requirements in
the futures market are less onerous than margin requirements in the securities
market and may therefore cause increased participation by speculators in the
futures market. Such increased participation may also cause temporary price
distortions. Due to the possibility of price distortion in the futures market
and because of the imperfect correlation between movements in stock indices and
movements in the prices of stock index futures, the value of stock index futures
contracts as a hedging device may be reduced. In addition, if a Portfolio has
insufficient available cash, it may at times have to sell securities to meet
variation margin requirements. Such sales may have to be effected at a time
when it may be disadvantageous to do so.

PERFORMANCE INFORMATION

As discussed in the Prospectus, from time to time the Fund may
disseminate quotations of yield, total return and distribution rates. The
Portfolios may provide quotations of total return. In addition, the Limited
Maturity Fixed Income Portfolio and the Full Maturity Fixed Income Portfolio may
also quote yield. Because the investment managers of the Portfolios may be
appointed or terminated from time to time, as determined by Hewitt (subject to
the approval of the Board of Directors of the Fund), it should be recognized
that performance quotations may reflect investment results attributable in part
to the performance of investment managers which no longer serve as such.
Similarly, such quotations may not reflect, or may only reflect in part,
investment results attributable to new investment managers which may be
appointed from time to time.

From time to time, the performance of a Portfolio or of individual
accounts or mutual funds managed by an investment manager may be compared to the
performance of other mutual funds following similar objectives, to a database
including the performance of individually managed portfolios maintained by
Hewitt or to recognized market indices. A Portfolio's return may also be
compared to the cost of living (measured by the Consumer Price Index) or the
return of various categories of investments (as measured by Ibbotson Associates
or others) over the same period. In addition to performance rankings, each
Portfolio may compare its total expense ratio to the average total expense ratio
of similar funds tracked by Lipper.

In advertising materials, the Fund may quote or reprint financial or
business publications and periodicals, including model portfolios or
allocations, as they relate to current economic and political conditions, fund
management, portfolio composition, investment

B-25
<PAGE>

philosophy, investment techniques, the desirability of owning a particular
mutual fund, and Hewitt's services and products. Hewitt may provide information
designed to clarify investment goals and explore various financial strategies.
Such information may include information about current economic, market, and
political conditions; materials that describe general principles of investing,
such as asset allocation, diversification, risk tolerance, and goal setting.
Materials may also include discussions of other products and services offered by
Hewitt.

The Fund may quote various measures of the volatility and benchmark
correlation of the Portfolios in advertising. In addition, the Fund may compare
these measures to those of other funds. Measures of volatility seek to compare
a Portfolio's historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a comparative
benchmark may be. All measures of volatility and correlation are calculated
using averages of historical data. In advertising, the Fund may also discuss or
illustrate examples of interest rate sensitivity.

TOTAL RETURN. The Portfolios' quotations of total return will reflect
the average annual compounded rate of return on an assumed investment of $1,000
that equates the initial amount invested to the ending redeemable value
according to the following formula:
n
P (1 + T) = ERV

"P" represents a hypothetical initial investment of $1,000; "T"
represents average annual total return; "n" represents the number of years; and
"ERV" represents the ending redeemable value of the initial investment.
Dividends and other distributions are assumed to be reinvested in shares at the
prices in effect on the reinvestment dates. ERV will be adjusted to reflect the
effect of fees paid by Participants to Hewitt for its standard level of service
for the average size shareholder account and reflect the effect of Hewitt's
agreement to absorb certain expenses. Quotations of total return will be for a
one year and five year periods ended on the date of the most recent balance
sheet included in the Fund's registration statement and also for the 10 year
period so ended at such time as the registration statement has been in effect
for such period. Until such time as the registration has been effective for the
ten year period, the Portfolios' quotations of total return will also include a
quotation of total return for the time period during which the registration
statement has been in effect or commencement of operations, whichever is later.
The Portfolios may also provide quotations of total return for other periods and
quotations of cumulative total returns, which reflect the actual performance of
the Portfolios over the entire period for which the quotation is given..

The average annualized total returns for the Portfolios of the Fund
for the period July 1, 1996 through June 30, 1997 were as follows:

Total Return Days in Period
------------ --------------
Full Maturity Fixed
Income Portfolio 8.09% (365 days in period)

Limited Maturity Fixed
Income Portfolio 6.03% (365 days in period)

Diversified Equity
Portfolio 32.97% (365 days in period)

Balanced Portfolio 23.23% (365 days in period)

B-26
<PAGE>

YIELD. Quotations of yield by the Limited Maturity Fixed Income
Portfolio and the Full Maturity Fixed Income Portfolio are computed by dividing
net investment income per share earned during the period of the quotation by net
asset value per share on the last day of the period, according to the following
formula:
6
YIELD = 2 [(a-b + 1) - 1]
---
cd

"a" represents dividends and interest earned during the period; "b"
represents expenses accrued for the period (net of any reimbursements); "c"
represents the average daily number of shares outstanding during the period that
were entitled to receive dividends; and "d" represents net asset value per share
on the last day of the period. Expenses will be adjusted to reflect the effect
of fees paid by Participants to Hewitt, as described above with respect to yield
quotations. Yields will be quoted for one month periods, but may also be quoted
for other periods. In calculating yield, interest earned on debt securities
held is based on a computation of yield to maturity, which is then divided by
360 and multiplied by market value to determine the daily amount of interest
earned. Dividends accrued on equity securities during the applicable period are
also included, by accruing 1/360 of the stated dividend rate each day.

The annualized yields of the Portfolios for the one month period ended
June 30, 1997 were:

Yield
-----
Full Maturity Fixed
Income Portfolio 6.46%

Limited Maturity Fixed
Income Portfolio 6.07%

NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the Fund and
reflects all elements of its return.

ADDITIONAL INFORMATION

CAPITALIZATION AND VOTING

Interests in the Fund are represented by shares of common stock, $.01
par value, with interests in each of the four Portfolios represented by a
separate series of such stock. The Fund's presently authorized capital is
200,000,000 shares. Under the Fund's Articles of Incorporation, the Board of
Directors may increase the Fund's authorized shares, establish additional series
representing new Portfolios and classes within series and redesignate unissued
shares among the series. Additional classes within any series would be used to
distinguish among the rights of different categories of shareholders, as might
be required by future regulations or other unforeseen circumstances.

Each share of each series represents an equal proportionate interest
with each other share of such series in the Portfolio represented by such
shares, without any priority or preference over other shares of the same
series. All consideration received for the sales of shares of a particular
series, all assets in which such consideration is invested, and all income,
earnings and profits derived therefrom is allocated and belongs to that
series. As such, the

B-27
<PAGE>

interest of shareholders in a particular Portfolio is separate and distinct from
the interest of shareholders of the other Portfolios, and shares of a Portfolio
are entitled to dividends and distributions only out of the net income and
gains, if any, of that Portfolio as declared by the Board of Directors.

The assets of each Portfolio are segregated on the Fund's books and
are charged with the expenses and liabilities of that Portfolio and with a share
of the general expenses and liabilities of the Fund not attributable to any one
Portfolio. The Board of Directors determines those expenses and liabilities
deemed to be general, and these items are allocated among the Portfolios in
proportion to the relative total net assets of each or as deemed equitable by
the Board of Directors in its sole discretion.

VOTING RIGHTS. Each shareholder is entitled to a full vote for each
full share held (and fractional votes for fractional shares). After they have
been appointed or elected, the directors serve for terms of indefinite duration
and may appoint their own successors, provided that always at least a majority
of the directors have been elected by shareholders. Voting rights are not
cumulative, so that the holders of more than 50% of the shares voting can, if
they choose, elect all directors being elected, while the holders of the
remaining shares would be unable to elect any directors. Under Maryland law,
the Fund is not required and therefore does not intend to hold annual meetings
of shareholders. The directors may call annual or special meetings of
shareholders as may be required by the Act, Maryland law, or the Articles of
Incorporation, or as they otherwise deem necessary or appropriate. In addition,
the By-Laws of the Fund contain procedures under which a director may be removed
by the written declaration or vote of the holders of two-thirds of the Fund's
outstanding shares. A meeting of shareholders for such purpose is required to
be called upon the request of the holders of 10% of the Fund's outstanding
shares.

CONTROL PERSONS AND HOLDERS OF SECURITIES

As of July 31, 1997, AHA may be deemed to control the Fund through its
beneficial ownership, directly and through AHA affiliated companies and trusts,
of 37% of the total outstanding shares of the Portfolios. Such AHA affiliated
companies are separately operated and administered by separate boards, a
majority of the members of which are persons who are not directors, officers or
employees of AHA. AHA is a not-for-profit corporation organized under the laws
of the State of Illinois and is located at One North Franklin, Chicago, Illinois
60606. AHA may also be deemed to control the Full Maturity Fixed Income
Portfolio, the Limited Maturity Fixed Income Portfolio, the Balanced Portfolio
and the Diversified Equity Portfolio through direct and also in the case of AHA,
direct and indirect, beneficial ownership of shares of those Portfolios, as
follows:

45% direct and indirect beneficial ownership of the Full Maturity
Fixed Income Portfolio

42% direct and indirect beneficial ownership of the Limited
Maturity Fixed Income Portfolio

27% direct and indirect beneficial ownership of the Balanced
Portfolio

30% direct and indirect beneficial ownership of the Diversified
Equity Portfolio

By exercising voting rights with respect to shares of the Fund, AHA and its
affiliated entities may be able to determine the outcome of

B-28
<PAGE>

shareholder voting on matters as to which the approval of shareholders of the
Fund (or such Portfolios) is required, depending upon the number of shares
voting on such matters.

As of July 31, 1997, Aha, American Hospital Association Retirement
Trust, One North Franklin, Chicago, Illinois 60606; Baptist Health Care
Corporation, 1000 West Moreno Street, Post Office Box 17500, Pennsacola, Florida
32522; Covenant Medical Center, 3421 West 9th Street, Waterloo, IA 50702; Deaton
Specialty Hospital, 611 S. Charles Street, Baltimore, MD 21230; Graham Hospital,
210 W. Walnut Street, Canton, Illinois 61520; Lee Hospital, 320 Main Street,
Johnstown, Pennsylvania 15901 and Lewistown Hospital, 400 Highland Avenue,
Lewistown, Pennsylvania 17044 owned of record and beneficially owned directly
21%, 23%, 5%, 7%, 5%, 7%, 11% and 5%, respectively, of the outstanding shares of
the Full Maturity Fixed Income Portfolio. By aggregating its direct ownership
of shares with shares owned by affiliated entities, AHA, as of such date, may be
deemed to beneficially own, directly and indirectly, 45% of the outstanding
shares of the Full Maturity Fixed Income Portfolio.

As of July 31, 1997, Aha, Hospital Research & Education Trust, One
North Franklin, Chicago, Illinois 60606; Lewistown Hospital and Sherman
Hospital, 934 Center Street, Elgin, Illinois 60120 owned of record and
beneficially owned directly 33%, 6%, 7%, and 11%, respectively, of the
outstanding shares of the Limited Maturity Fixed Income Portfolio. By
aggregating its direct ownership of shares with shares owned by affiliated
entities, AHA, as of such date, may be deemed to beneficially own, directly and
indirectly, 27% of the outstanding shares of the Limited Maturity Fixed Income
Portfolio.

As of July 31, 1997, Aha, American Hospital Association Retirement
Trust; Baptist Health Care Corporation; Flathead Health Center, 325 Claremont
Street, Kalispell, Montana 59901; Lee Hospital AND Lutheran Health Foundation,
3024 Fairfield Avenue, Fort Wayne, Indiana 46807; Saint Mary's Regional Medical
Center, 235 West 6TH Street, Reno, Nevada 89520 owned of record and beneficially
owned directly 14%, 13%, 23%, 12%, 8%, 17% and 5%, respectively, of the
outstanding shares of the Balanced Portfolio. By aggregating its direct
ownership of shares with shares owned by affiliated entities, AHA, as of such
date, may be deemed to beneficially own, directly and indirectly, 25% of the
outstanding shares of the Balanced Portfolio.

As of July 31, 1997, Aha, American Hospital Association Retirement
Trust; Baptist Health Care Corporation; Flathead Health Center; Galesburg
Cottage Hospital, 6950 North Kellogg Street, Galesburg, Illinois 61401; Lee
Hospital and Lewistown Hospital and SAINT Mary'S Regional Medical Center
owned of record and beneficially owned directly 11%, 17%, 15%, 9%, 10%, 11%,
6% and 5%, respectively, of the outstanding shares of the Diversified Equity
Portfolio. By aggregating its direct ownership of shares with shares owned by
affiliated entities, AHA, as of such date, may be deemed to beneficially own,
directly and indirectly, 30% of the outstanding shares of the Diversified
Equity Portfolio.

B-29
<PAGE>

DIRECTOR AND OFFICER LIABILITY

Under the Fund's Articles of Incorporation and the Maryland General
Corporation Law, the directors, officers, employees and agents of the Fund are
entitled to indemnification under certain circumstances against liabilities,
claims and expenses arising from any threatened, pending or completed action,
suit or proceeding to which they are made parties by reason of the fact that
they are or were such directors, officers, employees or agents of the Fund,
subject to the limitations of the Act which prohibit indemnification which would
protect such persons against liabilities to the Fund or its shareholders to
which they would otherwise be subject by reason of their own bad faith, willful
misfeasance, gross negligence or reckless disregard of duties.

INDEPENDENT PUBLIC ACCOUNTANTS

Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois, are the
independent public accountants of the Fund. The independent accountants are
responsible for auditing the financial statements of the Fund. The selection of
the independent accountants is approved annually by the Fund's Board of
Directors.

CUSTODIAN AND TRANSFER AGENT

Firstar Trust Company (the "Custodian"), 615 East Michigan Avenue,
Milwaukee, Wisconsin, serves as custodian for the securities and cash assets of
the Fund. Cash held by the Custodian, which may at times be substantial, is
insured by the Federal Deposit Insurance Corporation up to the amount of
insurance coverage limits (presently, $100,000). Firstar Trust Company also
serves as transfer agent of the Fund's shares and dividend disbursing agent and
provides additional services as the Fund's shareholder servicing agent. For
the fiscal year ending June 30, 1997 Firstar was paid $151,900 for providing
Custodian and Transfer Agent services to the Fund.

ACCOUNTING SERVICES

Firstar Trust Company provides accounting services to the Fund
pursuant to an Accounting Servicing Agreement dated as of September 1, 1994.
Under the Agreement, it provides the Portfolios with necessary accounting
services incident to their operations and securities transactions, determines
the net asset values per share of the Portfolios in accordance with policies
adopted by the Fund's Board of Directors, maintains the Fund's books of account
and such required records as may be related to these services. In consideration
of these services, the Fund pays Firstar Trust Company a monthly fee of
$7,833.33 plus a fee computed at the annual rate of 0.02% of the average net
assets of the Fund during the month, plus certain expenses.

REPORTS TO SHAREHOLDERS

Shareholders of each Portfolio will be kept fully informed through
annual and semi-annual reports showing diversification of investments,
securities owned and other information regarding the Portfolio's activities.
The financial statements of each Portfolio must be audited at least once a year
by the Fund's independent accountants.

LEGAL COUNSEL

Schulte Roth & Zabel LLP, New York, New York serves as Counsel to the
Fund.

B-30
<PAGE>

REGISTRATION STATEMENT

This Statement of Additional Information and the Prospectus do not
contain all of the information set forth in the Registration Statement the Fund
has filed with the Securities and Exchange Commission. The complete
Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by the rules and regulations of
the Commission.

FINANCIAL STATEMENTS

The audited financial statements of the Fund as of June 30, 1997,
included in this Statement of Additional Information have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.

B-31
<PAGE>

APPENDIX
FUTURES AND OPTIONS

The following information should be read in conjunction with the
discussions of options and futures in the Prospectus and elsewhere in this
Statement of Additional Information.

OPTIONS ON SECURITIES

An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium."
The maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not covered,
it is subject to the risk of the full change in value of the underlying security
from the time the option is written until exercise.

Upon exercise of the option, the holder is required to pay the
purchase price of the underlying security, in the case of a call option, or to
deliver the security in return for the purchase price, in the case of a put
option. Conversely, the writer is required to deliver the security, in the case
of a call option, or to purchase the security, in the case of a put option.
Options on securities which have been purchased or written may be closed out
prior to exercise or expiration by entering into an offsetting transaction on
the exchange on which the initial position was established, subject to the
availability of a liquid secondary market.

Options on securities and options on indices of securities, discussed
below, are traded on national securities exchanges, such as the Chicago Board
Options Exchange and the New York Stock Exchange, which are regulated by the
Securities and Exchange Commission. The Options Clearing Corporation guarantees
the performance of each party to an exchange-traded option, by in effect taking
the opposite side of each such option. Options on securities and indices
purchased and written by the Portfolios may be traded on NASDAQ rather than on
an exchange. Any options not traded on an exchange must be effected with
primary government securities dealers recognized by the Board of Governors of
the Federal Reserve System.

An option position in an exchange traded option may be closed out only
on an exchange which provides a secondary market for an option of the same
series. Although a Portfolio will generally purchase or write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option at any particular time. In such event it might not be
possible to effect closing transactions in a particular option with the result
that a Portfolio would have to exercise the option in order to realize any
profit. This would result in the Portfolio incurring brokerage commissions upon
the disposition of underlying securities acquired through the exercise of a call
option or upon the purchase of underlying securities upon the exercise of a put
option. If a Portfolio as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, unless the Portfolio is
required to

APP-1
<PAGE>

deliver the stock pursuant to the assignment of an exercise notice, it will not
be able to sell the underlying security until the option expires.

Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume or (vi) one or more exchanges could, for economic
or other reasons decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options) in which event
the secondary market on that exchange (or in the class or series of options)
would cease to exist, although outstanding options on that exchange which had
been issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at a particular time, render certain of the facilities of any
of the clearing corporations inadequate and thereby result in the institution by
an exchange of special procedures which may interfere with the timely execution
of customers' orders. However, the Options Clearing Corporation, based on
forecasts provided by the U.S. exchanges, believes that its facilities are
adequate to handle the volume of reasonably anticipated options transactions,
and such exchanges have advised such clearing corporation that they believe
their facilities will also be adequate to handle reasonably anticipated volume.

The use of over-the-counter options is discussed in the Prospectus.
See "Special Investment Techniques."

OPTIONS ON STOCK INDICES

In contrast to an option on a security, an option on a stock index
provides the holder with the right to make or receive a cash settlement upon
exercise of the option, rather than the right to purchase or sell a security.
The amount of this settlement is equal to (i) the amount, if any, by which the
fixed exercise price of the option exceeds (in the case of a call) or is below
(in the case of a put) the closing value of the underlying index on the date of
exercise, multiplied by (ii) a fixed "index multiplier." The purchaser of the
option receives this cash settlement amount if the closing level of the stock
index on the day of exercise is greater than, in the case of a call, or less
than, in the case of a put, the exercise price of the option. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount if the option is exercised. As in the case of options on
securities, the writer or holder may liquidate positions in stock index options
prior to exercise or expiration by entering into closing transactions on the
exchange on which such positions were established, subject to the availability
of a liquid secondary market.

The index underlying a stock index option may be a "broad-based"
index, such as the Standard & Poor's 500 Index or the New York Stock Exchange
Composite Index, the changes in value of which ordinarily will reflect movements
in the stock market in general. In contrast, certain options may be based on
narrower market indices, such as the Standard & Poor's 100 Index, or on indices
of securities of particular industry groups, such as those of oil and gas or
technology companies. A stock index assigns relative values to the stock
included in the index and the index fluctuates with changes in the market values
of the stocks so included.

APP-2
<PAGE>

FUTURES CONTRACTS ON FIXED INCOME
SECURITIES AND STOCK INDICES

A futures contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument, or for the
making and acceptance of a cash settlement, at a stated time in the future, for
a fixed price. By its terms, a futures contract provides for a specified
settlement date on which, in the case of the majority of interest rate futures
contracts, the fixed income securities underlying the contract are delivered by
the seller and paid for by the purchaser, or on which, in the case of stock
index futures contracts and certain interest rate futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, futures contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.

The purchase or sale of a futures contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalent, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin." Subsequent payments to and from
the broker, referred to as "variation margin," are made on a daily basis as the
value of the index or instrument underlying the futures contract fluctuates,
making positions in the futures contract more or less valuable, a process known
as "marking to the market."

A futures contract may be purchased or sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission
must be paid on each completed purchase and sale transaction. The contract
market clearing house guarantees the performance of each party to a futures
contract by in effect taking the opposite side of such contract. At any time
prior to the expiration of a futures contract, a trader may elect to close out
its position by taking an opposite position on the contract market on which the
position was entered into, subject to the availability of a secondary market,
which will operate to terminate the initial position. At that time, a final
determination of variation margin is made and any loss experienced by the trader
is required to be paid to the contract market clearing house while any profit
due to the trader must be delivered to it.

Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury Bills, bank certificates of deposit
and commercial paper.

A stock index futures contract provides for the making and acceptance
of a cash settlement in much the same manner as the settlement of an option on a
stock index. The types of indices underlying stock index futures contracts are
essentially the same as those underlying stock index options, as described
above. The index assigns weighted values to the securities included in the
index and its composition is changed periodically.

OPTIONS ON FUTURES CONTRACTS

An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract in the
case of a put option, at a fixed exercise price

APP-3
<PAGE>

to a stated expiration date. Upon exercise of the option by the holder, the
contract market clearing house establishes a corresponding short position for
the writer of the option, in the case of a call option, or a corresponding long
position, in the case of a put option. In the event that an option is
exercised, the parties will be subject to all the risks associated with the
trading of futures contracts, such as payment of variation margin deposits. In
addition, the writer of an option on a futures contract, unlike the holder, is
subject to initial and variation margin requirements on the option position.

A position in an option on a futures contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (I.E., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.

An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.

APP-4