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Previous: FLAG INVESTORS EMERGING GROWTH FUND INC, DEFS14A, 1998-08-21 |
Next: UNITED NATIONAL BANCORP, S-4/A, 1998-08-21 |
<PAGE>
AHA INVESTMENT
FUNDS, INC.
ANNUAL REPORT TO
SHAREHOLDERS
As of June 30, 1998
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
Portfolio of Investments 1
Full Maturity Fixed Income Portfolio
Limited Maturity Fixed Income Portfolio
Diversified Equity Portfolio
Balanced Portfolio
Financial Statements 41
Notes to Financial Statements 45
Report of Independent Public Accountants 56
Manager Discussion and Performance Graphs 57
Full Maturity Fixed Income Portfolio
Limited Maturity Fixed Income Portfolio
Diversified Equity Portfolio
Balanced Portfolio
- --------------------------------------------------------------------------------
Hewitt Associates ii
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS 94.2%
---------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 58.5%
-------------------------------------
United States Treasury Bonds
$ 175,000 10.750% 08/15/05 $ 227,719
4,750,000 9.250% 02/15/16 6,611,410
1,990,000 6.375% 08/15/27 2,186,514
United States Treasury Notes
350,000 7.750% 12/31/99 361,047
400,000 5.625% 11/30/00 401,000
2,010,000 6.625% 03/31/02 2,082,235
616,000 6.500% 05/31/02 636,598
470,000 5.750% 10/31/02 473,966
200,000 5.750% 11/30/02 201,688
2,490,000 5.500% 02/28/03 2,489,223
680,000 5.750% 04/30/03 686,801
United States Treasury Inflation Index
233,253 3.625% 07/15/02 230,947
1,507,617 3.375% 01/15/07 1,460,976
2,353,549 3.625% 01/15/08 2,327,808
100,464 3.625% 04/15/28 99,334
Federal Home Loan Mortgage Corporation
114,431 8.750% 04/01/09 116,733
70,576 10.500% 01/01/10 77,278
310,471 9.300% 04/15/19 324,648
700,000 7.000% 06/15/21 711,532
1,285,740 7.000% 09/15/21 1,303,797
387,480 7.000% 05/01/24 394,226
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
--------------------------------------------------
Federal National Mortgage Association
(mortgage-backed securities)
$ 283,679 7.500% 03/25/03 $ 291,788
641,106 9.500% 07/25/19 679,996
500,342 7.600% 11/25/19 515,229
900,000 7.000% 04/25/20 909,933
530,266 6.500% 09/25/20 531,376
329,194 7.500% 09/25/20 331,335
621,768 8.500% 09/25/20 646,952
592,383 7.000% 10/25/20 601,703
1,415,153 7.000% 01/25/21 1,430,752
800,000 8.000% 02/25/21 825,354
653,601 8.500% 09/25/21 679,071
224,694 9.500% 02/01/25 241,908
600,000 6.000% 07/01/13 593,436
2,780,000 6.500% 07/01/13 2,795,651
290,000 6.500% 07/01/28 288,733
1,800,000 6.000% 07/01/28 1,752,192
900,000 7.500% 07/01/28 923,067
Government National Mortgage Association
(mortgage-backed securities)
336,589 9.500% 12/15/17 366,444
1,280,000 6.500% 07/01/28 1,277,197
1,860,000 7.000% 07/01/28 1,889,072
1,000,000 7.500% 07/01/28 1,027,810
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 42,004,479
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
ASSET BACKED OBLIGATIONS 12.4%
------------------------
AT&T Universal Card Master
$ 272,000 5.950% 10/17/00 $ 273,413
Advanta Credit Card Master Trust
675,000 6.050% 08/01/03 Series 1995-F 680,005
Amresco Commercial Master Trust 1997-C1
600,000 7.190% 06/17/29 Series 1995-F 635,127
Asset Security Corporation
192,117 7.100% 08/13/29 Series 1995-A1 201,131
Banc One Credit Card Trust
650,000 6.300% 09/15/00 Series 1995-B 657,998
Capital Equipment Trust
600,000 6.280% 06/15/00 Series 1996-1 602,763
Chase Commingled Mortgage Security
508,000 7.370% 02/19/07 Series 1997- A2 527,822
Chevy Chase Home Loan
372,856 7.150% 05/15/15 Series 1996-1 382,177
First Chicago Master Trust
600,000 7.150% 10/15/01 Series 1994-L 609,105
Ford Motor Credit Company
180,000 7.700% 05/15/97 Series 1995-A 203,768
500,000 6.500% 08/15/02 Series 1995-A 507,148
250,000 9.220% 09/15/21 Series 1996-A 323,628
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
ASSET BACKED OBLIGATIONS (CONTINUED)
------------------------------------
Green Tree Financial Corporation
$ 353,273 6.900% 02/15/04 $ 352,582
279,825 7.850% 07/15/04 284,572
Keystone Owner Trust
184,811 6.620% 11/25/08 Series 1998-P1 184,801
Nomura Asset Securities Corporation
200,000 7.120% 04/13/36 Series 1996-M 212,053
Resolution Trust Corporation
416,330 6.605% 04/25/22 Series 1992-9 415,004
215,261 7.500% 08/25/23 Series 1992-1 214,597
500,024 7.076% 06/25/24 499,897
Rural Housing Trust
72,764 3.330% 04/01/26 Series 1987-1 72,013
Student Loan Marketing Association
997,729 5.787% 04/25/06 997,729
Standard Credit Card Trust Series 1993-2
65,000 8.250% 11/07/03 69,421
------------
TOTAL ASSET BACKED OBLIGATIONS 8,906,754
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
CORPORATE OBLIGATIONS 22.7%
---------------------
BANKS 1.9%
-----
Chase Manhattan Bank
$ 610,000 8.500% 02/15/02 $ 658,436
National Bank of Detroit
220,000 8.250% 11/01/24 270,139
NCNB Corporation
325,000 10.200% 07/15/15 449,402
------------
1,377,977
COMMUNICATION 1.2%
Continental Cablevision Incorporated
200,000 8.875% 09/15/05 228,524
200,000 9.000% 09/01/08 238,154
325,000 9.500% 08/01/13 387,535
------------
854,213
DISTRIBUTION 0.5%
Federal Express
300,000 9.650% 06/15/12 392,543
FINANCIAL 8.5%
Auburn Hills Trust
280,000 12.000% 05/01/20 461,794
Bankers Trust Company
1,000,000 8.125% 04/01/02 1,064,433
British Aerospace Financial
650,000 7.500% 07/01/27 728,788
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
FINANCIAL- (CONTINUED)
----------------------
Dresdner Bank New York
$ 250,000 7.250% 09/15/15 $ 267,057
GEICO Corporation
125,000 9.150% 09/15/21 142,154
General Motors Acceptance Corporation
800,000 0.000% 06/15/15 effective yield 6.35% 280,169
227,000 9.625% 05/15/00 241,359
660,000 6.750% 05/01/28 675,279
JPM Capital Trust
50,000 7.950% 02/01/27 54,643
Lehman Brothers Incorporated
375,000 11.625% 05/15/05 484,400
Paine Webber Incorporated
150,000 6.730% 01/20/04 152,836
Security Pacific Corporation
200,000 11.000% 03/01/01 223,793
Westam Mortgage Financial
750,000 6.360% 08/26/20 749,766
Zurich Capital Trust
500,000 8.376% 06/01/37 557,085
------------
6,083,556
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
INDUSTRIAL 1.9%
----------
Caterpillar Incorporated
$ 1,000,000 9.750% 06/01/19 $ 1,072,915
Nabisco Incorporated
300,000 6.375% 02/01/35 298,951
------------
1,371,866
PAPER 0.5%
Georgia Pacific Corporation
75,000 9.875% 11/01/21 83,813
200,000 9.625% 03/15/22 228,258
50,000 9.500% 05/15/22 56,741
------------
368,812
RAILROAD 1.7%
Hocking Valley Railway
670,000 4.500% 07/01/99 659,697
Louisville & Nashville Railroad
600,000 3.375% 04/01/03 528,497
------------
1,188,194
RETAIL STORES 0.9%
Dayton Hudson Corporation
286,000 10.000% 01/01/11 374,860
J.C. Penney Incorporated
250,000 9.750% 06/15/21 279,308
------------
654,168
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
CORPORATE OBLIGATIONS (CONTINUED)
----------------------------------
TELECOMMUNICATION 0.6%
-----------------
TCI Communications Incorporated
$ 130,000 8.750% 08/01/15 $ 159,263
U.S. West Communication
225,000 8.750% 06/01/31 248,753
------------
408,016
UTILITIES 0.9%
Commonwealth Edison
250,000 9.875% 06/15/20 293,637
System Energy
359,345 7.430% 01/15/11 373,623
------------
667,260
MISCELLANEOUS 0.8%
News American Holdings
400,000 8.875% 04/26/23 483,868
100,000 7.130% 04/08/28 101,116
------------
584,984
INTERNATIONAL 3.3%
Hydro-Quebec
800,000 11.750% 02/01/12 1,179,336
Korea Development Bank
95,000 7.125% 09/17/01 83,792
Korea Electric Power
95,000 7.750% 04/01/13 69,959
75,000 6.750% 08/01/27 58,571
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
CORPORATE OBLIGATIONS (CONTINUED)
----------------------------------
INTERNATIONAL- (CONTINUED)
--------------------------
Midland Bank
$ 375,000 6.950% 03/15/11 $ 388,399
National Bank Hungary
75,000 8.875% 11/01/13 88,940
Pohang Iron & Steel
65,000 7.125% 07/15/04 52,657
Wharf Capital International
175,000 7.625% 03/13/07 138,152
YPF Sociedad Anomia
300,000 7.750% 08/27/07 291,947
------------
2,351,753
TOTAL CORPORATE OBLIGATIONS 16,303,342
------------
PREFERRED OBLIGATIONS 0.6%
IBJ Preferred Capital Company
150,000 8.790% 12/29/49 137,324
SB Treasury Company
280,000 9.400% 12/29/49 275,983
------------
TOTAL PREFERRED OBLIGATIONS 413,307
------------
TOTAL LONG-TERM OBLIGATIONS (COST $66,148,910) 67,627,882
------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL AMORTIZED COST
--------- --------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 20.8%
----------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 0.2%
--------------------------------------
U.S. Treasury Bills
(A) $ 200,000 5.120% 09/03/98 $ 198,261
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 198,261
DEMAND NOTES 20.6%
American Family Demand Note
1,668,359 5.265% 12/31/31 1,668,359
Firstar Bank Demand Note
3,320,269 5.660% 12/31/31 3,320,269
General Mills Demand Note
1,760,505 5.265% 12/31/31 1,760,506
Johnson Controls Demand Note
2,071,504 5.265% 12/31/31 2,071,504
Pitney Bowes Demand Note
2,531,587 5.265% 12/31/31 2,531,587
Sara Lee Demand Note
974,314 5.256% 12/31/31 974,314
Warner Lambert Demand Note
1,653,243 5.266% 12/31/31 1,653,243
Wisconsin Electric Demand Note
792,487 5.265% 12/31/31 792,487
------------
TOTAL DEMAND NOTES 14,772,269
------------
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $14,970,530) 14,970,530
------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES, PRINCIPAL OR
NUMBER OF CONTRACTS MARKET VALUE
------------------- ------------
<S> <C> <C>
OPTIONS-PURCHASED 0.0%
-----------------
Call Options Eurodollar Futures
10 Exercise Price $94.50, Expiring September 1998 $ 500
Call Options 5 Year Treasury Note
14 Exercise Price $110.50, Expiring August 1998 2,625
------------
TOTAL OPTIONS PURCHASED 3,125
(COST $7,524) ------------
TOTAL INVESTMENTS
(COST BASIS $81,126,964) 82,601,537
------------
OPTIONS-WRITTEN 0.0%
Put Options Treasury Bond
1 Exercise Price $120.00, Expiring July 1998 (94)
Call Options Treasury Bond
3 Exercise Price $121.00, Expiring July 1998 (8,344)
Call Options Bond Futures
6 Exercise Price $124.00, Expiring August 1998 (7,594)
Call Options Bond Futures
3 Exercise Price $125.00, Expiring August 1998 (1,219)
Call Options Bond Futures
3 Exercise Price $127.00, Expiring July 1998 (235)
Call Options Long Treasury Bond
5 Exercise Price $128.00, Expiring November 1998 (3,905)
------------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $13,155) (21,391)
------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<S> <C> <C>
TOTAL INVESTMENTS NET OF
OUTSTANDING WRITTEN OPTIONS 115.0% 82,580,146
CASH AND OTHER ASSETS, LESS
LIABILITIES -15.0% (10,750,808)
------------
TOTAL NET ASSETS 100.0% $ 71,829,338
------------
------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
(A) $100,000 OF U.S. TREASURY BILLS PLEDGED AS MARGIN FOR FUTURES CONTRACTS. THE PORTFOLIO HAD
THE FOLLOWING OPEN FUTURES CONTRACTS AT JUNE 30, 1998:
OPEN FUTURES CONTRACTS:
UNREALIZED
NUMBER OF PRINCIPAL GAINS (LOSSES)
TYPE CONTRACTS AMOUNT POSITION EXPIRATION JUNE 30, 1998
---- --------- --------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
5 Year Treasury Notes 56 56,000 Long September 1998 ($18,646)
10 Year U.S. Treasury Notes 27 27,000 Short September 1998 6,079
Bond Futures 2 2,000 Long September 1998 516
-------------
($12,051)
-------------
-------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS 97.9%
---------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 61.0%
--------------------------------------
<S> <C> <C>
United States Treasury Notes
$ 6,575,000 6.000% 06/30/99 $ 6,607,881
10,190,000 6.875% 08/31/99 10,346,038
4,160,000 5.625% 10/31/99 4,165,204
7,920,000 7.875% 11/15/99 8,162,557
7,465,000 5.625% 11/30/99 7,476,667
11,770,000 7.750% 01/31/00 12,159,892
8,346,000 6.875% 03/31/00 8,533,793
2,890,000 6.125% 07/31/00 2,925,223
4,425,000 5.750% 10/31/00 4,448,510
7,745,000 5.250% 01/31/01 7,699,017
1,375,000 6.500% 05/31/01 1,410,236
Federal Home Loan Mortgage Corporation
849,198 6.000% 07/01/01 849,172
Federal National Mortgage Association
(mortgage-backed securities)
500,000 5.830% 11/12/99 501,085
1,900,000 6.200% 06/06/00 1,920,375
1,858,398 7.000% 09/01/04 1,888,007
----------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 79,093,657
ASSET BACKED OBLIGATIONS 7.9%
AT&T Universal Card Master Trust
1,550,000 5.950% 10/17/00 1,558,052
Chase Manhattan Grantor Trust
2,100,000 6.300% 04/15/03 Series 1997-2 2,125,043
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
ASSET BACKED OBLIGATIONS (CONTINUED)
------------------------------------
<S> <C> <C>
Citibank Credit Card Trust
$ 1,825,000 5.850% 04/10/03 $ 1,831,889
Discovery Card Master Trust
1,550,000 5.750% 10/16/03 1,564,531
Premier Auto Trust
1,230,000 6.340% 01/06/02 Series 1997-3 1,244,004
Western Financial Grantor Trust
650,000 6.400% 07/20/02 658,798
World Omni Auto Lease Trust
1,299,328 6.850% 06/25/03 1997-A 1,311,665
----------------
TOTAL ASSET BACKED OBLIGATIONS 10,293,982
CORPORATE OBLIGATIONS 29.0%
BANKS 1.0%
Nations Bank
1,250,000 5.750% 03/15/01 1,246,422
COMPUTER & OFFICE EQUIPMENT 1.6%
International Business Machine Corporation
2,000,000 6.375% 06/15/00 2,018,042
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
CORPORATE OBLIGATIONS (CONTINUED)
----------------------------------
FINANCIAL 20.3%
---------
<S> <C> <C>
Associates Corporation
$ 2,050,000 6.680% 09/17/99 $ 2,067,449
700,000 7.450% 03/30/00 717,679
Caterpillar Financial Service
670,000 6.110% 07/15/99 671,441
Chrysler Financial Corporation
1,500,000 6.375% 01/28/00 1,509,880
CIT Group Holdings
2,500,000 6.000% 05/08/01 2,504,530
Citicorp Capital
1,570,000 6.650% 05/15/00 1,585,833
Commercial Credit
2,100,000 6.750% 05/15/00 2,129,305
Ford Credit Grantor Trust
2,000,000 7.900% 05/17/99 Series 1996-1 2,032,318
525,000 7.470% 07/29/99 Series 1996-1 532,788
810,000 7.600% 03/29/00 Series 1996-1 831,495
General Electric Capital Corporation
1,140,000 5.600% 01/14/00 1,136,840
1,250,000 5.920% 04/03/01 1,254,327
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------
CORPORATE OBLIGATIONS (CONTINUED)
----------------------------------
FINANCIAL (CONTINUED)
----------------------------------
<S> <C> <C>
General Motors Acceptance Corporation Grantor Trust
$ 515,000 6.050% 10/04/99 $ 514,983
1,600,000 5.800% 04/09/01 1,590,337
International Lease Financial Corporation
1,000,000 6.600% 07/06/99 1,005,848
1,130,000 6.375% 01/18/00 1,137,139
Merrill Lynch Corporation
1,250,000 6.050% 03/06/01 1,253,984
Norwest Financial Corporation
2,050,000 7.250% 03/15/00 2,094,237
Travelers/Aetna P&C
1,780,000 6.750% 09/01/99 1,796,118
----------------
26,366,531
INDUSTRIAL 1.1%
Caterpillar Corporation
1,400,000 6.320% 09/01/00 1,412,850
RETAIL STORES 5.0%
J.C. Penney Incorporated
1,750,000 6.950% 04/01/00 1,772,363
1,600,000 6.375% 09/15/00 1,614,571
Wal-Mart Stores
3,000,000 9.100% 07/15/00 3,184,116
----------------
6,571,050
TOTAL CORPORATE OBLIGATIONS 37,614,895
----------------
TOTAL LONG-TERM OBLIGATIONS
(COST $126,573,098) 127,002,534
----------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL AMORTIZED COST
--------- --------------
SHORT-TERM OBLIGATIONS 0.6%
----------------------
COMMERCIAL PAPER 0.6%
----------------
<S> <C> <C>
American Express Credit Corporation
$ 770,000 5.500% 07/01/98 $ 770,000
----------------
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $770,000) 770,000
----------------
TOTAL INVESTMENTS
(COST BASIS $127,343,098) 98.5% 127,772,534
CASH AND OTHER ASSETS, LESS
LIABILITIES 1.5% 1,944,062
----------------
TOTAL NET ASSETS 100.0% $ 129,716,596
----------------
----------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES 95.9%
--------
AEROSPACE & DEFENSE 0.5%
-------------------
<S> <C> <C>
400 General Dynamics Corporation $ 18,600
1 Raytheon Company 58
8,800 Rockwell International 422,950
300 Tektronix Incorporated 10,613
----------------
452,221
AIR TRANSPORTATION 0.5%
5,200 AMR Corporation 432,900
AUTOMOTIVE 5.5%
200 Aeroquip-Vickers, Incorporated 11,675
2,500 Chrysler Corporation 140,938
9,200 Cummins Engine 471,500
300 Eaton Corporation 23,325
9,400 Ford Motor Company 554,600
5,800 General Motors Corporation 387,513
700 Genuine Parts Company 24,194
25,000 Lear Corporation 1,282,813
9,500 Volkswagen ADR 1,834,702
----------------
4,731,260
BANKS 6.3%
1,500 Bank of New York Corporation 91,031
12,100 BankAmerica Corporation 1,045,894
1,800 Bank Boston Corporation 100,125
400 Bankers Trust New York 46,425
9,800 Chase Manhattan 739,900
5,100 Citicorp 761,175
36,000 Corporation Bancaria Espana ADR 1,624,500
1,200 First Chicago NBD Corporation 106,350
2,300 First Union Corporation 133,975
1,100 Fleet Financial Group, Incorporated 91,850
200 Golden West Financial 21,263
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
BANK (CONTINUED)
----------------
<S> <C> <C>
2,800 NationsBank Corporation $ 214,200
3,100 Norwest Corporation 115,863
1,300 PNC Financial Corporation 69,956
400 Republic New York Corporation 25,175
900 Sun Trust Banks, Incorporated 73,181
2,400 U.S. Bancorp 103,200
1,050 Washington Mutual, Incorporated 45,609
----------------
5,409,672
BASIC INDUSTRIES 0.3%
12,200 Asarco Incorporated 271,450
1,000 Alcan Aluminum Ltd. 27,625
----------------
299,075
BUSINESS SERVICE 2.6%
15,200 Autodesk Incorporated 587,100
5,700 Computer Associates International Incorporated 316,706
900 H.& R. Block 37,913
52,800 Wallace Computer Services Incorporated 1,254,000
----------------
2,195,719
CHEMICALS 2.0%
5,200 Dow Chemical Company 502,775
15,000 E.I. duPont de Nemours and Company 1,119,375
200 Hercules 8,225
900 PPG Industries 62,606
300 Rohm & Haas Company 31,181
100 Sigma-Aldrich Corporation 3,513
----------------
1,727,675
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
COMMUNICATION 0.1%
-------------
<S> <C> <C>
500 Interpublic Group Companies $ 30,344
----------------
30,344
COMPUTERS & OFFICE EQUIPMENT 7.0%
20,300 Compaq Computers Corporation 576,013
15,300 Intel Corporation 1,134,113
16,400 International Business Machines Corporation 1,882,925
110,000 Novell 1,402,500
1,200 Pitney Bowes Incorporated 57,750
9,000 Xerox Corporation 914,625
----------------
5,967,926
CONSTRUCTION 1.0%
300 Johnson Controls 17,156
13,500 Masco Corporation 816,750
----------------
833,906
CONSUMER DURABLES 0.1%
700 Cognizant Corporation 44,100
400 Maytag Corporation 19,750
----------------
63,850
CONSUMER NON-DURABLES 2.4%
22,300 American Greetings Company 1,135,906
14,300 Bandag Incorporated 557,700
400 Clorox 38,150
900 Colgate Palmolive Company 79,200
3,300 Warner-Lambert Company 228,938
----------------
2,039,894
CONTAINER 1.2%
22,000 Crown Cork & Seal 1,045,000
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
ELECTRONICS 1.9%
-----------
<S> <C> <C>
800 AMP Incorporated $ 27,500
5,200 General Electric Company 473,200
400 Grainger WW Incorporated 19,925
67,200 Vishay Intertechnology Incorporated 1,205,400
----------------
1,726,025
ENERGY & RELATED (RAW MATERIALS) 0.1%
1,400 Occidental Petroleum Corporation 37,800
ENTERTAINMENT & LEISURE 0.6%
4,600 Brunswick Corporation 113,850
6,400 King World Productions Incorporated 163,200
2,800 McDonald's Corporation 193,200
1,200 Service Corporation International 51,450
500 Wendy's International 11,750
----------------
533,450
FINANCIAL COMPANY 3.5%
400 Ahmanson H.F. & Company 28,400
2,100 American Express Company 239,400
4,200 Merrill Lynch Company 387,450
900 National City Corporation 63,900
52,000 Pacific Century Financial Corportaion 1,248,000
16,734 Travelers Group Incorporated 1,014,499
----------------
2,981,649
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
FINANCIAL SERVICE 3.9%
-----------------
<S> <C> <C>
2,437 Associates First Capital Corporation $ 187,344
800 Conseco Incorporated 37,400
20,700 Equifax 751,669
18,000 Fannie Mae 1,093,500
400 MBIA Corporation 29,950
5,470 Morgan Stanley Group Incorporated 499,821
15,500 Student Loan Corporation 729,469
----------------
3,329,153
FOOD, BEVERAGES & TOBACCO 3.9%
19,600 Adolph Coors 666,400
13,500 Anheuser-Busch Companies, Incorporated 637,031
300 Brown Foreman Class B 19,275
6,500 Coca-Cola Company 555,750
26,900 Conagra Incorporated 852,394
700 Fortune Brands Incorporated 26,906
2,400 Kellogg Company 90,150
11,300 McCormick and Company 403,622
100 Quaker Oats 5,494
1,400 Sysco Corporation 35,875
2,500 Tricon Global Restaurants 79,219
----------------
3,372,116
GOLD & PRECIOUS METALS 1.6%
7,100 Barrick Gold Corporation 136,231
63,500 De Beers Construction Mines ADR 1,111,250
10,500 Freeport McMoran Copper 159,469
----------------
1,406,950
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
HEALTH CARE 8.2%
-----------
<S> <C> <C>
29,400 Abbott Labs Company $ 1,201,725
12,600 American Home Products Corporation 652,050
20,200 Baxter International Incorporated 1,087,013
6,800 Bristol-Meyers/ Squibb 781,575
4,500 Eli Lilly 297,281
5,500 Johnson & Johnson 405,625
4,900 Merck & Company 655,375
3,600 Pfizer Incorporated 391,275
6,300 Schering Plough Corporation 577,238
800 Shared Medical Systems 58,750
25,000 St. Jude Medical * 920,313
----------------
7,028,220
HEALTH CARE SERVICES 0.1%
100 Columbia/HCA Healthcare Corporation 2,913
200 United Healthcare Corporation 12,700
----------------
15,613
INSURANCE 1.1%
7,001 Allstate Corporation 641,029
1,800 CIGNA Corporation 124,200
600 SAFECO Corporation 27,225
600 St. Paul Companies 25,238
600 Torchmark Corporation 27,450
450 Jefferson Pilot 26,072
300 General Re Corporation 76,050
300 Transamerica Corporation 34,538
----------------
981,802
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
METAL & MINERAL 2.2%
---------------
<S> <C> <C>
600 Allegheny Teledyne Incorporated $ 13,725
17,400 Inland Steel Industries 490,463
25,000 Minerals Technologies, Incorporated 1,271,875
3,300 USX- US Steel 108,900
----------------
1,884,963
PAPER & FOREST PRODUCTS 0.6%
200 Georgia Pacific Company 11,788
5,800 Kimberly Clark 266,075
6,000 Mead Corporation 190,500
200 Temple Inland 10,775
300 Union Camp Corporation 14,888
1,200 Weyerhaeuser Company 55,425
----------------
549,451
PETROLEUM 7.7%
19,000 Amoco Corporation 790,875
6,600 Atlantic Richfield 515,625
450 Columbia Energy Group 25,031
400 Exxon Corporation 28,525
5,800 Mobil Corporation 444,425
1,400 Phillips Petroleum Company 67,463
35,400 R&B Falcon Corporation 800,925
12,000 Texaco 716,250
25,000 Transocean Offshore, Incorporated 1,112,500
15,400 USX Marathon Group 528,413
46,000 Western Gas Resource, Incorporated 672,750
30,000 YPF S.A. ADR 901,875
----------------
6,604,657
POLLUTION CONTROL 0.2%
37,000 Philip Services Corporation 152,625
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
PRINTING & PUBLISHING 1.1%
---------------------
<S> <C> <C>
39,500 Journal Register Company $ 661,625
3,400 McGraw Hill Company 277,313
----------------
938,938
RAILROADS 0.3%
7,900 Norfolk Southern Company 235,519
RESTAURANTS 1.6%
87,000 Dardeen Restaurants, Incorporated 1,381,125
RETAIL STORES 5.8%
15 Abercrombie & Fitch 660
1,000 Albertson's Incorporated 51,813
8,400 Dayton Hudson Corporation 407,400
400 Dillard's Incorporated 16,575
900 Federated Department Stores 48,431
37,100 K Mart 714,175
1,000 Kroger 42,875
200 Mercantile Stores Company 15,788
45,000 Office Depot 1,420,313
4,200 Supervalu Incorporated 186,375
43,100 The Limited Incorpoated 1,427,688
2,600 TJX Companies Incorporated 62,725
9,300 Wal-Mart Stores Incorporated 564,975
----------------
4,959,793
SERVICES 3.9%
15,500 Caterpillar Incorporated 819,563
21,900 Cooper Industries 1,203,131
650 Ingersoll Rand Company 28,641
6,100 John Deere & Company 322,538
31,500 Raychem 931,219
----------------
3,305,092
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL
---------
EQUITIES (CONTINUED)
--------------------
SOFTWARE 2.2% MARKET VALUE
-------- ------------
<S> <C> <C>
43,100 Sun Microsystems* $ 1,872,156
TECHNOLOGY 2.8%
36,000 Electronic Data Systems Corporation 1,440,000
300 Harris Corporation 13,406
9,000 Hewlett-Packard Company 538,875
2,500 Microsoft Corporation 270,938
2,000 Northern Telecom 113,500
----------------
2,376,719
TELECOMMUNICATION 3.6%
21,000 Airtouch Communications 1,227,188
32,000 COMSAT Corporation 906,000
11,874 Lucent Technologies 987,768
----------------
3,120,956
TEXTILE & APPAREL 0.9%
1,400 CVS Corporation 54,513
15,800 Spring Industries 728,775
500 VF Corporation 25,750
----------------
809,038
TRAVEL & RECREATION 1.6%
30,000 Budget Group Incorporated 958,125
1,000 Marriott International 32,375
700 Mirage Resorts Incorporated 14,919
125 Sodexho-Marriott Services 3,625
3,100 Walt Disney Company 325,694
----------------
1,334,738
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
UTILITIES-ELECTRIC 0.5%
------------------
<S> <C> <C>
8,300 Consolidated Edison $ 382,319
500 General Public Utilities Corporation 18,906
1,200 Pacificorp 27,150
1,000 People's Energy Corporation 38,625
----------------
467,000
UTILITIES-ENERGY 0.5%
900 American Electric Power Company 40,838
500 Coastal Corporation 34,906
600 DTE Energy Company 24,225
3,500 Entergy Corporation 100,625
800 First Energy Corporation 24,600
900 FPL Group Incorporated 56,700
1,900 PECO Energy Company 55,456
1,600 PG&E Corporation 50,500
451 Sempra Energy 12,519
900 Unicom Corporation 31,556
----------------
431,925
UTILITIES-TELEPHONE 5.2%
11,900 American Telephone and Telegraph 679,788
49,500 Ameritech Corporation 2,221,313
7,600 Bell Atlantic Corporation 346,750
10,000 GTE Corporation 556,250
14,800 US West Incorporated 695,600
----------------
4,499,701
MISCELLANEOUS 0.8%
8,300 Unilever 655,166
TOTAL COMMON STOCK (COST $65,102,976) 82,221,782
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL AMORTIZED COST
--------- --------------
SHORT-TERM OBLIGATIONS 3.9%
----------------------
<S> <C> <C>
DEMAND NOTES 3.9%
------------
Firstar Bank Demand Note
$ 1,171,893 5.660% 12/31/31 $ 1,171,893
General Mills Demand Note
583,363 5.265% 12/31/31 586,363
Johnson Controls Demand Note
538,708 5.265% 12/31/31 538,708
Pitney Bowes Demand Note
1,023,651 5.265% 12/31/31 1,023,651
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $3,320,615) 3,320,615
----------------
TOTAL INVESTMENTS
(COST BASIS $68,423,591) 99.8% 85,542,397
CASH AND OTHER ASSETS, LESS
LIABILITIES 0.2% 193,359
----------------
TOTAL NET ASSETS 100.0% $ 85,735,756
----------------
----------------
* NON-INCOME PRODUCING STOCKS.
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES 65.6%
--------
AUTOMOTIVE 4.9%
----------
<S> <C> <C>
22,700 Lear Seating Corporation * $ 1,164,794
9,000 Volkswagen ADR 1,738,138
----------------
2,902,932
BANKS 2.5%
33,000 Corp Bancaria Espana ADR 1,489,125
BUSINESS SERVICES 2.0%
50,000 Wallace Computer Services Incorporated 1,187,500
COMPUTERS & OFFICE EQUIPMENT 4.9%
10,000 International Business Machines Corporation 1,148,125
90,000 Novell 1,147,500
6,000 Xerox Corporation 609,750
----------------
2,905,375
CONSTRUCTION 1.2%
11,500 Masco Corporation 695,750
CONSUMER NON-DURABLES 2.5%
19,000 American Greetings Company 967,813
13,000 Bandag Incorporated 507,000
----------------
1,474,813
CONTAINER 1.6%
20,000 Crown Cork & Seal 950,000
ELECTRONICS 1.8%
59,193 Vishay Intertechnology Incorporated 1,061,774
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
FINANCIAL COMPANY 2.0%
-----------------
<S> <C> <C>
49,000 Pacific Century Financial Corporation $ 1,176,000
FINANCIAL SERVICES 4.6%
30,000 Equifax 1,089,375
17,400 Fannie Mae 1,057,040
12,000 Student Loan Corporation 564,750
----------------
2,711,165
FOOD, BEVERAGES & TOBACCO 2.2%
17,000 Anheuser-Busch Companies, Incorporated 802,188
14,800 McCormick and Company 528,638
----------------
1,330,826
GOLD & PRECIOUS METALS 1.7%
56,000 De Beers Construction Mines ADR 980,000
HEALTH CARE 4.8%
21,000 Abbott Labs 858,375
20,000 Baxter International Incorporated 1,076,250
25,500 St. Jude Medical* 938,718
----------------
2,873,343
METAL & MINERAL 1.3%
15,300 Minerals Technologies, Incorporated 778,388
PETROLEUM 5.4%
27,140 R&B Falcon Corporation 614,043
22,000 Transocean Offshore, Incorporated 979,000
38,000 Western Gas Resources, Incorporated 555,750
36,000 YPF S.A. ADR 1,082,250
----------------
3,231,043
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
POLLUTION CONTROL 0.2%
-----------------
<S> <C> <C>
35,500 Philip Services Corporation $ 146,438
PRINTING & PUBLISHING 1.4%
48,000 Journal Register Company 804,000
RESTAURANTS 2.1%
80,000 Dardeen Restaurants, Incorporated 1,270,000
RETAIL STORES 4.1%
41,000 Office Depot 1,294,063
34,000 The Limited Incorporated 1,126,250
----------------
2,420,313
SERVICES 3.4%
20,700 Cooper Industries 1,137,206
30,000 Raychem 886,875
----------------
2,024,081
SOFTWARE 2.0%
27,000 Sun Microsystems* 1,172,813
TECHNOLOGY 2.2%
32,800 Electronic Data Systems Corporation 1,312,000
TELECOMMUNICATION 3.3%
20,000 Airtouch Communications 1,168,750
28,500 COMSAT Corporation 806,906
----------------
1,975,656
TRAVEL & RECREATION 1.5%
27,000 Budget Group Incorporated 862,313
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
EQUITIES (CONTINUED)
--------------------
UTILITIES-TELEPHONE 2.0%
--------------------
<S> <C> <C>
26,000 Ameritech Corporation $ 1,166,755
----------------
TOTAL COMMON STOCK (COST $30,135,846) 38,902,403
TOTAL LONG-TERM OBLIGATIONS 34.2%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 26.2%
United States Treasury Bonds
$ 970,000 6.375% 08/15/27 1,065,788
United States Treasury Inflation Index
202,916 3.625% 07/15/02 200,824
123,071 3.375% 01/15/07 119,263
1,981,406 3.625% 01/15/08 1,959,735
80,371 3.625% 04/15/28 79,467
United States Treasury Notes
320,000 5.500% 02/29/00 320,000
300,000 5.875% 09/30/02 303,844
3,400,000 5.500% 02/28/03 3,398,939
940,000 5.750% 04/30/03 949,401
Federal National Mortgage Association
(mortgage-backed securities)
275,050 9.000% 08/01/07 286,806
100,000 6.000% 07/01/13 98,906
500,000 6.000% 07/01/28 486,720
290,000 6.500% 07/01/28 288,733
400,000 7.500% 07/01/28 410,252
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
TOTAL LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
--------------------------------------------------
<S> <C> <C>
Government National Mortgage Association
(mortgage-backed securities)
$ 106,811 10.000% 12/15/20 $ 117,640
2,000,000 6.500% 07/01/28 1,995,620
2,300,000 7.000% 07/01/28 2,335,949
600,000 7.500% 07/01/28 616,686
Student Loan Marketing Association
517,005 5.790% 04/25/06 517,005
----------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 15,551,578
ASSET BACKED OBLIGATIONS 3.4%
Amresco Commercial Master Trust
340,000 7.190% 06/17/29 Series 1997-C1 359,905
Chase Commingled Mortgage Security
287,000 7.370% 02/19/07 298,199
Chevy Chase Home Loan
149,142 7.150% 05/15/15 Series 1996-1 152,871
Ford Motor Company
180,000 7.700% 05/15/97 203,768
Green Tree Financial Corporation
137,383 6.900% 02/15/04 137,115
103,344 7.850% 07/15/04 105,098
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
TOTAL LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------------
ASSET BACKED OBLIGATIONS (CONTINUED)
------------------------------------
<S> <C> <C>
Keystone Owner Trust
$ 106,996 6.620% 11/25/08 Series 1998-P1 $ 106,990
Merrill Lynch Mortgage Investors
100,000 6.960% 11/21/28 Series 1996-C2 104,436
Nomura Asset Securities Corporation
70,000 7.120% 04/13/36 Series 1996-M 74,219
Resolution Trust Corporation
206,386 6.605% 04/25/22 Series 1992-9 205,729
250,012 7.076% 06/25/24 249,948
----------------
TOTAL ASSET BACKED OBLIGATIONS 1,998,278
CORPORATE OBLIGATIONS 4.2%
COMMUNICATION 0.2%
Continental Cablevision Incorporated
100,000 9.000% 09/01/08 119,077
FINANCIAL 2.6%
British Aerospace Financial
350,000 7.500% 07/01/27 392,425
General Electric Capital Corporation
260,000 8.200% 10/30/03 291,525
General Motors Acceptance Corporation
250,000 0.000% 06/15/15 effective yield 6.54% 87,553
400,000 6.750% 05/01/28 409,260
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
TOTAL LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------------
FINANCIAL (CONTINUED)
---------------------
<S> <C> <C>
JPM Capital Trust
$ 20,000 7.950% 02/01/27 $ 21,857
Zurich Capital Trust
300,000 8.376% 06/01/37 334,251
----------------
1,536,871
INDUSTRIAL 0.3%
Nabisco Incorporated
200,000 6.375% 02/01/35 199,300
TELECOMMUNICATION 0.2%
TCI Communications Incorporated
10,000 8.750% 08/01/15 12,251
100,000 9.250% 01/15/23 115,089
----------------
127,340
UTILITIES 0.2%
System Energy
130,263 7.430% 01/15/11 135,438
MISCELLANEOUS 0.4%
News American Holdings
200,000 8.875% 04/26/23 241,934
INTERNATIONAL 0.3%
YPF Sociedad Anonima
200,000 7.750% 08/27/07 194,632
----------------
TOTAL CORPORATE OBLIGATIONS 2,554,592
----------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
TOTAL LONG-TERM OBLIGATIONS (CONTINUED)
---------------------------------------
PREFERRED OBLIGATIONS 0.4%
---------------------
<S> <C> <C>
IBJ Preferred Capital Company
$ 80,000 8.790% 12/29/49 $ 73,240
SB Treasury Company
190,000 9.400% 12/29/49 187,270
----------------
TOTAL PREFERRED OBLIGATIONS 260,510
----------------
TOTAL LONG-TERM OBLIGATIONS
(COST $20,063,870) 20,364,958
----------------
SHORT-TERM OBLIGATIONS 10.8% AMORTIZED COST
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 0.2% --------------
United States Treasury Bills
(A) 100,000 5.120% 09/03/98 99,132
----------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 99,132
DEMAND NOTES 10.6%
Firstar Bank Demand Note
1,312,685 5.660% 12/31/31 1,312,685
General Mills Demand Note
1,439,463 5.265% 12/31/31 1,439,463
Johnson Controls Demand Note
1,259,212 5.265% 12/31/31 1,259,212
Pitney Bowes Demand Note
1,314,695 5.265% 12/31/31 1,314,695
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES, PRINCIPAL OR
NUMBER OF CONTRACTS AMORTIZED COST
-------------------- --------------
TOTAL SHORT-TERM OBLIGATIONS (CONTINUED)
----------------------------------------
DEMAND NOTES (CONTINUED)
------------------------
<S> <C> <C>
Warner Lambert Demand Note
$ 935,000 5.266% 12/31/31 $ 935,000
Wisconsin Electric Demand Note
45,270 5.266% 12/31/31 45,270
----------------
TOTAL DEMAND NOTES 6,306,325
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $6,405,457) 6,405,457
----------------
OPTIONS-PURCHASED 0.0%
Call Options Eurodollar Futures
6 Exercise Price $94.50, Expiring September 1998 300
Call Options 5 Year Treasury Note
7 Exercise Price $110.50, Expiring August 1998 1,313
----------------
TOTAL OPTIONS PURCHASED 1,613
(COST $4,154) ----------------
TOTAL INVESTMENTS
(COST BASIS $56,609,327) 65,674,431
----------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
SHARES, PRINCIPAL OR
NUMBER OF CONTRACTS MARKET VALUE
------------------- ------------
OPTIONS-WRITTEN 0.0%
---------------
<S> <C> <C>
Put Options Treasury Bond
1 Exercise Price $120.00, Expiring July 1998 $ (94)
Call Options Treasury Bond
2 Exercise Price $121.00, Expiring July 1998 (5,562)
Call Options Bond Futures
4 Exercise Price $124.00, Expiring August 1998 (5,063)
Call Options Bond Futures
2 Exercise Price $125.00, Expiring August 1998 (812)
Call Options Bond Futures
2 Exercise Price $127.00, Expiring July 1998 (156)
Call Options Long Treasury Bond
3 Exercise Price $128.00, Expiring November 1998 (2,344)
----------------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $8,786) (14,031)
----------------
----------------
TOTAL INVESTMENTS NET OF
OUTSTANDING WRITTEN OPTIONS 110.6% 65,660,400
CASH AND OTHER ASSETS, LESS
LIABILITIES -10.6% (6,300,705)
----------------
TOTAL NET ASSETS 100.0% $ 59,359,695
----------------
----------------
* NON-INCOME PRODUCING STOCKS.
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
(A) $100,000 OF U.S. TREASURY BILLS PLEDGED AS MARGIN FOR FUTURES CONTRACTS. THE PORTFOLIO HAD
THE FOLLOWING OPEN FUTURES CONTRACTS AT JUNE 30, 1998:
OPEN FUTURES CONTRACTS:
UNREALIZED
NUMBER OF PRINCIPAL GAINS (LOSSES)
TYPE CONTRACTS AMOUNT POSITION EXPIRATION JUNE 30, 1998
---- --------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
5 Year U.S. Treasury Notes 20 20,000 Long September 1998 ($6,574)
10 Year U.S. Treasury Notes 7 7,000 Short September 1998 823
----------------
($5,751)
----------------
----------------
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS SCHEDULE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AHA INVESTMENT FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
FULL LIMITED
MATURITY MATURITY DIVERSIFIED
FIXED INCOME FIXED INCOME EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at market value $82,601,537 $127,772,534 $85,542,397 $65,674,431
Receivable for investments sold 398,939 0 35,640 1,638,898
Receivable for shares sold 0 0 1,670,000 0
Cash 0 410 0 0
Dividends and interest receivable 910,918 1,971,671 78,706 295,002
Futures variation margin 3,375 0 0 1,500
Prepaid Insurance 6,406 11,740 5,847 7,976
----------- ------------ ----------- -----------
Total Assets $83,921,175 $129,756,355 $87,332,590 $67,617,807
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
LIABILITIES:
Payable for investments purchased $12,059,097 $ 0 $ 1,588,127 $ 8,224,400
Payable for dividends 0 15,169 0 0
Payable for options 21,391 0 0 14,031
Accrued expenses and other
liabilities 11,349 24,590 8,707 19,681
----------- ------------ ----------- -----------
Total Liabilities 12,091,837 39,759 1,596,834 8,258,112
----------- ------------ ----------- -----------
NET ASSETS $71,829,338 $129,716,596 $85,735,756 $59,359,695
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Net Assets consist of:
Capital Stock ($0.01 par value and 200
million shares authorized) and
Paid-in Capital $71,433,959 $132,414,817 $60,701,654 $45,996,474
Undistributed net investment
income 0 0 54,567 777,628
Accumulated net realized gain
(loss) on investments sold (1,058,907) (3,127,657) 7,860,729 3,531,485
Net unrealized appreciation of
investments and futures 1,454,286 429,436 17,118,806 9,054,108
----------- ------------ ----------- -----------
TOTAL NET ASSETS $71,829,338 $129,716,596 $85,735,756 $59,359,695
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Number of Shares Outstanding at
the end of year 7,057,541 12,687,403 4,208,919 4,061,886
----------- ------------ ----------- -----------
NET ASSET VALUE
PER SHARE $ 10.18 $ 10.22 $ 20.37 $ 14.61
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
AHA INVESTMENT FUNDS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
FULL LIMITED
MATURITY MATURITY DIVERSIFIED
FIXED INCOME FIXED INCOME EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $4,028,358 $7,200,021 $ 82,604 $1,253,616
Dividends 0 0 1,181,117 520,284
----------- ------------ ----------- -----------
Total investment income $4,028,358 $7,200,021 $ 1,263,721 $1,773,900
EXPENSES:
Custodian fees $ 16,706 $ 26,055 $ 19,877 $ 23,527
Accounting fees 43,282 46,847 33,856 29,976
Transfer agent fees 10,042 19,010 12,166 9,129
Legal fees 8,130 8,130 8,130 8,130
Audit and tax return fees 12,175 12,175 12,175 12,175
Director fees and expenses 5,602 5,602 5,602 5,602
Officers and directors insurance 8,074 21,891 10,628 8,295
Administrative and other fees 5,418 3,908 5,896 6,639
----------- ------------ ----------- -----------
Total Expenses $ 109,429 $ 143,618 $ 108,330 $ 103,473
NET INVESTMENT INCOME $3,918,929 $7,056,403 $ 1,155,391 $1,670,427
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) on
investments sold $ 800,595 $ 603,041 $14,530,821 $7,605,898
Net realized gain (loss) on
closed futures and options contracts (25,458) 0 0 (181,840)
Net change in unrealized appreciation
of investments, futures, and options 1,500,369 111,803 910,168 283,712
----------- ------------ ----------- -----------
NET GAIN ON INVESTMENTS 2,275,506 714,844 15,440,989 7,707,770
----------- ------------ ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $6,194,435 $7,771,247 $16,596,380 $9,378,197
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
AHA INVESTMENT FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
FULL MATURITY LIMITED MATURITY
FIXED INCOME PORTFOLIO FIXED INCOME PORTFOLIO
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,644,349 $ 3,918,929 $ 9,244,472 $ 7,056,403
Net realized gain (loss) on
investments sold and closed
futures and options contracts 439,748 775,137 (497,904) 603,041
Net change in unrealized appreciation
of investments, futures and options 246,747 1,500,369 1,347,681 111,803
----------- ------------ ----------- -----------
Net increase in net assets resulting
from operations 4,330,844 6,194,435 10,094,249 7,771,247
----------- ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (3,644,349) (3,918,929) (9,244,472) (7,056,403)
Capital gains distribution -- -- -- --
----------- ------------ ----------- -----------
Net decrease in net assets
resulting from distributions $(3,644,349) $ (3,918,929) $ (9,244,472) $ (7,056,403)
SHARE TRANSACTIONS:
Subscriptions of fund shares 7,167,137 19,714,754 41,527,272 66,599,835
Investment income dividends
reinvested 3,194,795 3,905,490 7,817,387 6,698,745
Capital gains distributions
reinvested -- -- -- --
----------- ------------ ----------- -----------
Gross increase in fund shares 10,361,932 23,620,244 49,344,659 73,298,580
Redemptions of fund shares (13,544,206) (4,862,697) (110,367,401) (85,320,203)
----------- ------------ ----------- -----------
Net increase (decrease) from
share transactions (3,182,274) 18,757,547 (61,022,742) (12,021,623)
----------- ------------ ----------- -----------
Net increase (decrease) in net assets $(2,495,779) $ 21,033,053 $(60,172,965) $(11,306,779)
TOTAL NET ASSETS
Beginning of period 53,292,064 50,796,285 201,196,340 141,023,375
----------- ------------ ----------- -----------
End of period $50,796,285 $ 71,829,338 $141,023,375 $129,716,596
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Undistributed net investment
income $ 0 $ 0 $ 0 $ 0
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
AHA INVESTMENT FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY PORTFOLIO BALANCED PORTFOLIO
-------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,089,534 $1,155,391 $ 1,315,989 $ 1,670,427
Net realized gain on investments sold
and closed futures and options
contracts 9,896,588 14,530,821 6,202,694 7,424,058
Net change in unrealized appreciation
of investments, futures, and options 6,641,228 910,168 2,988,361 283,712
----------- ------------ ----------- -----------
Net increase in net assets resulting
from operations 17,627,350 16,596,380 10,507,044 9,378,197
----------- ------------ ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment
income (1,087,240) (1,146,547) (1,333,326) (1,662,939)
Capital gains distribution (6,206,933) (14,645,221) (3,710,927) (7,943,151)
----------- ------------ ----------- -----------
Net decrease in net assets
resulting from distributions $(7,294,173) $(15,791,768) $(5,044,253) $(9,606,090)
SHARE TRANSACTIONS:
Subscriptions of fund shares 11,595,747 20,167,552 10,056,065 8,202,099
Investment income dividends
reinvested 1,087,240 1,146,547 1,139,292 1,377,522
Capital gains distributions
reinvested 6,206,933 14,645,221 3,180,507 6,594,632
----------- ------------ ----------- -----------
Gross increase in fund shares 18,889,920 35,959,320 14,375,864 16,174,253
Redemptions of fund shares (13,067,587) (21,618,574) (10,831,841) (8,723,903)
----------- ------------ ----------- -----------
Net increase from
share transactions 5,822,333 14,340,746 3,544,023 7,450,350
----------- ------------ ----------- -----------
Net increase in net assets $16,155,510 $ 15,145,358 $ 9,006,814 $ 7,222,457
TOTAL NET ASSETS
Beginning of period 54,434,888 70,590,398 43,130,424 52,137,238
----------- ------------ ----------- -----------
End of period $70,590,398 $ 85,735,756 $52,137,238 $59,359,695
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Undistributed net investment
income $ 45,723 $ 54,567 $ 770,140 $ 777,628
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THESE STATEMENTS.
- -------------------------------------------------------------------------------
<PAGE>
AHA INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
- --------------------------------------------------------------------------------
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies of Full Maturity Fixed
Income, Limited Maturity Fixed Income, Diversified Equity and Balanced
Portfolios (the "Portfolios"), each a series of AHA Investment Funds, Inc., a
Maryland corporation, ("Fund").
SECURITY VALUATIONS
All securities are recorded at fair market value as of June 30, 1998. Securities
traded on national securities exchanges are valued at last reported sales prices
or, if there are no sales, at the latest bid quotation. Each over-the-counter
security for which the last sale price is available from NASDAQ is valued at
that price. All other over-the-counter securities for which reliable quotations
are available are valued at the latest bid quotation. Securities convertible
into equity securities are valued at the greater of latest bid valuation or net
conversion value. Other assets and securities are valued by a method that the
Board of Directors believes represents a fair value.
ACCOUNTING FOR FUTURES
The Fund may enter into long or short positions in futures contracts in order to
hedge against the effect of changing values on portfolio securities held. When
the Fund enters into a futures contract, it is required to deposit, into a
segregated account at its custodian bank, U.S. Government securities as
guarantee that it will meet the futures commitment. Each day the Fund receives
or pays cash, called "variation margin," equal to the daily change in the market
value of the futures contracts. Such receipts and payments are recorded as
unrealized gains or losses until the futures contracts expire or are closed out.
Risks of entering into futures contracts include the possibility that there may
be an illiquid market at the time the Portfolios seek to close out a contract
and changes in the value of the futures contract may not correlate with changes
in the value of the portfolio securities being hedged. The Full Maturity Fixed
Income and Balanced Portfolios had open futures contracts as of June 30, 1998.
ACCOUNTING FOR OPTIONS
The Fund may purchase and write (sell) put and call options on U.S. securities,
stock indices, and futures contracts that are traded on U.S. securities
exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of premium and change in market value should the counterparty not perform
under the contract. Put and call options purchased are accounted for in the same
manner as portfolio securities. The cost of securities acquired through the
exercise of call options is increased by premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING FOR OPTIONS (CONTINUED)
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a close purchase transaction, including brokerage commissions, is also
treated as a realized gain, or if the premium is less than the amount paid for
the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security or currency purchased by the Fund. In writing an option, the Fund bears
the market risk of an unfavorable change in the price of the security or
currency underlying the written option. Exercise of an option written by the
Fund could result in the Fund selling or buying a security or currency at a
price different from the current market value. Transactions in put options
written for the year ending June 30, 1998, for the Fund were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FULL MATURITY FIXED INCOME BALANCED
--------------------------------- ---------------------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS (000's) CONTRACTS (000's)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options Outstanding at Beginning of Year 0 $ 0 0 $ 0
Options Written 270 $ 169,610 155 $ 97,594
Options Terminated in Closing 201 $ 131,596 114 $ 74,760
Purchase Transactions
Options Expired 48 $ 24,859 27 $ 14,048
Options Outstanding 06/30/98 21 $ 13,155 14 $ 8,786
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Limited Maturity and Diversified Equity Portfolios did not purchase or hold
any options during the fiscal year.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INVESTMENT OPTIONS
FULL MATURITY FIXED INCOME PORTFOLIO
Seeks over the long term the highest level of income consistent with
preservation of capital. Invests primarily on high quality fixed income
securities. There is no restriction on the maximum maturity of the securities
purchased. The average dollar-weighted maturity will vary and may exceed 20
years.
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.
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.
REPURCHASE AGREEMENTS
The Fund 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. 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 in value to the
repurchase price under the agreement (including accrued interest thereunder),
and 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 same are less
than the repurchase price. The Fund had no outstanding repurchase agreements as
of June 30, 1998.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEDERAL INCOME TAXES
No provision is made for Federal Income Taxes since the Portfolios elect to be
taxed as "regulated investment companies" and make such distributions to their
shareholders as to be relieved of all Federal income taxes under provisions of
current Federal tax law. At June 30, 1998, the Funds' most recent fiscal year
end, the approximate capital loss carryforward for U.S. Federal income tax
purposes for the Full Maturity Fixed Income Portfolio and Limited Maturity Fixed
Income Portfolio were approximately $1.0 million and $3.1 million respectively.
This capital loss carryforward expires beginning in the year ending June 30,
2003, and is available to offset future capital gains.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
OTHER INFORMATION
The accounts of the Fund are kept on the accrual basis of accounting. Securities
transactions are recorded on the trade date. Realized gains or losses from sales
of securities are determined on the specific identification cost basis. Dividend
income is recognized on the ex-dividend date.
NOTE 2.
FUND DISTRIBUTIONS
The Full Maturity Fixed Income Portfolio and the Limited Maturity Fixed Income
Portfolio declare income dividends from net investment income daily and pay
these dividends monthly, on the last day of every month.
In the Diversified Equity Portfolio and Balanced Portfolio, dividends from net
investment income are declared on the thirteenth day of the last month of each
quarter; the ex-dividend date is the fourteenth; and payment is made on the
fifteenth. The aggregate distributions of net investment income for the
Diversified Equity Portfolio and Balanced Portfolio were $0.32 and $0.44 per
share, respectively, during the year ended June 30, 1998.
During the year ended June 30, 1998, the Diversified Equity and Balanced
Portfolios made a long-term capital gain distribution of $3.211 and $1.519 per
share, respectively.
During the year ended June 30, 1998, the Diversified Equity and Balanced
Portfolios made a short-term capital gain distribution of $1.282 and $0.7130 per
share, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3.
DIRECTORS' FEES AND TRANSACTIONS WITH AFFILIATES
Directors not affiliated with Hewitt Associates LLC ("Hewitt") or American
Hospital Association ("AHA") receive $1,000 for each quarterly meeting and $500
for each special meeting of the Board of Directors, or committee thereof, (plus
travel expenses). No remuneration has been paid to any principal or employee of
the Fund's investment consultant, Hewitt, or any director or officer of AHA. The
investments of the Portfolios are managed by various advisory organizations
which serve as the investment managers. The Fund pays no fees to Hewitt or to
the investment managers.
Hewitt is compensated for its services by the shareholders pursuant to The
Program Services Agreement it has with each shareholder, under which Hewitt
provides asset allocation consulting and certain other services. Fees of the
investment managers are paid by Hewitt.
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. 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. The
maximum expense as a percent of average net assets for the Full Maturity Fixed
Income Portfolio, the Limited Maturity Fixed Income Portfolio, the Diversified
Equity Portfolio, and the Balanced Portfolio is 0.50% (annual percentage). The
Portfolios have reached asset levels which allow the reduction of expenses to
percentage amounts below that set forth above. 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. As of June 30, 1998, approximate expenses paid
on behalf of or reimbursed to the Portfolio 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.
NOTE 4.
SHORT-TERM DEBT
To facilitate portfolio liquidity, each Portfolio is authorized to borrow
against portfolio securities. During the year ended June 30, 1998, there were no
borrowings.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5.
INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of securities (exclusive
of short-term obligations) for the year ended June 30, 1998, is presented below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PORTFOLIO PURCHASES SALES
- -------------------------------------------------------------------------------
<S> <C> <C>
Full Maturity Fixed Income $138,051,943 $120,184,118
Limited Maturity Fixed Income $173,479,029 $184,226,267
Diversified Equity $ 49,904,540 $ 52,531,634
Balanced $106,190,029 $103,300,291
- -------------------------------------------------------------------------------
</TABLE>
At June 30, 1998, gross unrealized appreciation and depreciation of investments
and futures on a tax basis and the cost of investments for financial reporting
purposes and for Federal income tax purposes were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF INVESTMENTS
--------------------------------------------
FINANCIAL FEDERAL
PORTFOLIO APPRECIATION DEPRECIATION REPORTING INCOME TAX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Full Maturity Fixed Income $ 1,720,624 $ 266,338 $ 81,126,964 $ 81,126,964
Limited Maturity Fixed Income $ 462,519 $ 33,083 $ 127,343,098 $ 127,343,098
Diversified Equity $ 19,622,607 $ 2,503,801 $ 68,423,591 $ 68,423,591
Balanced $ 10,744,822 $ 1,690,714 $ 56,609,327 $ 56,609,327
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6.
TRANSACTIONS IN CAPITAL STOCK SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1998
-------------------------------------------------------------------------------------
FULL LIMITED
MATURITY MATURITY DIVERSIFIED
FIXED INCOME FIXED INCOME EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transactions in capital stock shares were
as follows:
Subscriptions of fund shares 1,961,116 6,517,696 993,893 582,923
Investment income dividends
reinvested 387,960 655,990 54,313 90,950
Capital Gains Distribution reinvested 0 0 822,303 484,187
---------- ----------- ---------- ----------
Gross increase in fund shares 2,349,076 7,173,686 1,870,509 1,158,060
Redemptions of fund shares (481,959) (8,360,183) (1,069,048) (603,703)
---------- ----------- ---------- ----------
Net increase (decrease) in fund 1,867,117 (1,186,497) 801,461 554,357
shares
Beginning of Year 5,190,424 13,873,900 3,407,458 3,507,529
---------- ----------- ---------- ----------
End of Year 7,057,541 12,687,403 4,208,919 4,061,886
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1997
-------------------------------------------------------------------------------------
FULL LIMITED
MATURITY MATURITY DIVERSIFIED
FIXED INCOME FIXED INCOME EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transactions in capital stock shares were
as follows:
Subscriptions of fund shares 728,559 4,085,237 626,127 749,529
Investment income dividends
reinvested 328,533 770,472 57,517 81,362
Capital Gains Distribution reinvested 0 0 354,075 238,777
---------- ----------- ---------- ----------
Gross increase in fund shares 1,057,092 4,855,709 1,037,719 1,069,668
Redemptions of fund shares (1,402,731) (10,872,326) (724,547) (784,519)
---------- ----------- ---------- ----------
Net increase (decrease) in fund shares (345,639) (6,016,617) 313,172 285,149
Beginning of Year 5,536,063 19,890,517 3,094,286 3,222,380
---------- ----------- ---------- ----------
End of Year 5,190,424 13,873,900 3,407,458 3,507,529
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
FULL MATURITY FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED JUNE 30
-----------------------------------------------------------------------------------------------
1989 (A) 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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 $9.88 $9.63 $9.79
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.55(1) 0.78(1) 0.79(1) 0.75 0.72 0.59 0.65 0.65 0.65 0.64
Net realized and unrealized gain
(loss) on investments and futures
Total from Investment Operations 0.30 (0.29) 0.02 0.64 0.53 (0.64) 0.40 0.25 0.16 0.39
-----------------------------------------------------------------------------------------------
0.85 0.49 0.81 1.39 1.25 (0.05) 1.05 0.40 0.81 1.02
LESS DISTRIBUTIONS:
Net investment income (0.55) (0.78) (0.79) (0.75) (0.72) (0.59) (0.65) (0.65) (0.65) (0.64)
Net realized capital gains (0.00) (0.00) (0.00) (0.09) (0.35) (0.64) (0.00) (0.00) (0.00) (0.00)
-----------------------------------------------------------------------------------------------
Total Distributions (0.55) (0.78) (0.79) (0.84) (1.07) (1.23) (0.65) (0.65) (0.65) (0.64)
-----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.30 $10.01 $10.03 $10.58 $10.76 $9.48 $9.88 $9.63 $9.79 $10.18
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (B) 8.60% 4.62% 7.87% 13.66% 11.98% (1.43)% 10.99% 3.58% 8.09% 10.20%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in
thousands) $1,422 $11,134 $19,893 $47,500 $52,094 $48,752 $39,874 $53,292 $50,796 $71,829
Ratio of Expenses to Average Net
Assets 0.50%(1) 0.50%(1) 0.50%(1) 0.42% 0.27% 0.24% 0.21% 0.21% 0.21% 0.17%
Ratio of Net Investment Income to
Average Net Assets 8.12%(1) 8.44%(1) 8.06%(1) 7.37% 6.77% 5.67% 6.88% 6.52% 6.63% 6.19%
Ratio of Expenses to Average Net
Assets (C) 1.94% 1.36% 0.89% 0.42% 0.27% 0.24% 0.21% 0.21% 0.21% 0.17%
Ratio of Net Investment Income to
Average Net Assets (C) 6.67% 7.56% 7.68% 7.37% 6.77% 5.67% 6.88% 6.52% 6.63% 6.19%
Portfolio turnover rate 234.20% 203.83% 411.24% 252.89% 266.03% 331.63% 279.42% 283.13% 304.93% 178.52%
</TABLE>
- -----------------------------
(1) Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Investment Advisor.
(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 management fee of 0.50%
per annum.
(C) Ratios include all management fees and expenses.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
LIMITED MATURITY FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED JUNE 30
------------------------------------------------------------------------------------------------
1989 (A) 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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 $10.22 $10.12 $10.16
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.43(1) 0.77(1) 0.74(1) 0.64 0.49 0.49 0.62 0.62 0.61 0.60
Net realized and unrealized gain
(loss) on investments and
futures 0.07 (0.09) 0.13 0.45 0.12 (0.32) 0.13 (0.10) 0.04 0.06
------------------------------------------------------------------------------------------------
Total from Investment Operations 0.50 0.68 0.87 1.09 0.61 0.17 0.75 0.52 0.65 0.66
LESS DISTRIBUTIONS:
Net investment income (0.43) (0.77) (0.74) (0.64) (0.49) (0.49) (0.62) (0.62) (0.61) (0.60)
Net realized capital gains (0.00) (0.00) (0.00) (0.08) (0.08) (0.11) (0.00) (0.00) (0.00) (0.00)
------------------------------------------------------------------------------------------------
Total Distributions (0.43) (0.77) (0.74) (0.72) (0.57) (0.60) (0.62) (0.62) (0.61) (0.60)
-------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.07 $9.98 $10.11 $10.48 $10.52 $10.09 $10.22 $10.12 $10.16 $10.22
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
TOTAL RETURN ON NET ASSET
VALUE (B) 5.01% 6.52% 8.49% 10.46% 5.49% 1.14% 7.19% 4.66% 6.03% 6.11%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in
thousands) $6,284 $18,522 $30,151 $101,881 $162,694 $189,542 $186,856 $201,196 $141,023 $129,717
Ratio of Expenses to Average Net
Assets 0.50%(1) 0.50%(1) 0.50%(1) 0.29% 0.17% 0.14% 0.12% 0.10% 0.12% 0.12%
Ratio of Net Investment Income to
Average Net Assets 8.49%(1) 8.04%(1 7.49%(1) 6.02% 4.66% 4.73% 6.17% 6.03% 6.04% 5.92%
Ratio of Expenses to Average Net
Assets (C) 1.97% 0.88% 0.55% 0.29% 0.17% 0.14% 0.12% 0.10% 0.12% 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% 6.03% 6.04% 5.92%
Portfolio turnover rate 0.00% 137.50% 279.16% 99.86% 167.38% 178.01% 155.12% 132.75% 121.70% 144.97%
</TABLE>
- -----------------------------
(1) Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Investment Advisor.
(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 management fee of 0.50% per
annum.
(C) Ratios include all management fees and expenses.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
DIVERSIFIED EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PERIOD ENDED JUNE 30
---------------------------------------------------------
1989 (A) 1990 1991 1992 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $11.16 $11.42 $11.47 $12.95
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.35(1) 0.43(1) 0.35(1) 0.31(1) 0.25(1)
Net realized and unrealized gain
(loss) on investments and futures 1.12 0.52 0.08 1.52 1.70
---------------------------------------------------------
Total from Investment Operations 1.47 0.95 0.43 1.83 1.95
LESS DISTRIBUTIONS:
Net investment income (0.31) (0.44) (0.34) (0.31) (0.25)
Net realized capital gains (0.00) (0.25) (0.04) (0.04) (0.70)
---------------------------------------------------------
Total Distributions (0.31) (0.69) (0.38) (0.35) (0.95)
---------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.16 $11.42 $11.47 $12.95 $13.95
---------------------------------------------------------
---------------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (B) 14.45% 7.76% 3.24% 15.14% 14.47%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in
thousands) $3,556 $7,920 $10,725 $13,878 $21,087
Ratio of Expenses to Average Net
Assets 0.50%(1) 0.50%(1) 0.50%(1) 0.50%(1) 0.50%(1)
Ratio of Net Investment Income to
Average Net Assets 4.88%(1) 4.45%(1) 3.37%(1) 2.13%(1) 1.90%(1)
Ratio of Expenses to Average Net
Assets (C) 2.68% 1.33% 1.08% 0.66% 0.53%
Ratio of Net Investment Income to
Average Net Assets (C) 2.70% 3.61% 2.80% 1.97% 1.87%
Portfolio turnover rate 29.99% 33.57% 72.49% 65.89% 45.87%
<CAPTION>
----------------------------------------------------
PERIOD ENDED JUNE 30
----------------------------------------------------
1994 1995 1996 1997 1998
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.95 $13.90 $14.76 $17.59 $20.72
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.26 0.29 0.35 0.34 0.32
Net realized and unrealized gain
(loss) on investments and futures 0.45 2.34 3.57 5.18 4.14
----------------------------------------------------
Total from Investment Operations 0.71 2.63 3.92 5.52 4.46
LESS DISTRIBUTIONS:
Net investment income (0.26) (0.29) (0.35) (0.34) (0.32)
Net realized capital gains (0.50) (1.48) (0.74) (2.05) (4.49)
----------------------------------------------------
Total Distributions (0.76) (1.77) (1.09) (2.39) (4.81)
----------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.90 $14.76 $17.59 $20.72 $20.37
----------------------------------------------------
----------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (B) 4.21% 20.11% 26.42% 32.97% 24.05%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in
thousands) $22,547 $39,634 $54,435 $70,590 $85,736
Ratio of Expenses to Average Net
Assets 0.40% 0.31% 0.18% 0.17% 0.14%
Ratio of Net Investment Income to
Average Net Assets 1.83% 2.30% 2.09% 1.83% 1.51%
Ratio of Expenses to Average Net
Assets (C) 0.40% 0.31% 0.18% 0.17% 0.14%
Ratio of Net Investment Income to
Average Net Assets (C) 1.83% 2.30% 2.09% 1.83% 1.51%
Portfolio turnover rate 100.45% 68.12% 57.76% 67.31% 65.82%
</TABLE>
- -----------------------------
(1) Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Investment Advisor.
(A) Commencement date for the Diversified Equity Portfolio was October 20, 1988.
(B) Total Return on Net Asset Value is net of the management fee of 0.75% per
annum.
(C) Ratios include all management fees and expenses.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
PERIOD ENDED JUNE 30
--------------------------------------------------------
1989 (A) 1990 1991 1992 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.68 $10.69 $10.87 $12.03
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.39(1) 0.56(1) 0.54(1) 0.44 0.44
Net realized and unrealized gain
(loss) on investments and futures 0.64 0.11 0.21 1.16 1.18
--------------------------------------------------------
Total from Investment Operations 1.03 0.67 0.75 1.60 1.62
LESS DISTRIBUTIONS:
Net investment income (0.35) (0.56) (0.57) (0.44) (0.44)
Net realized capital gains (0.00) (0.10) (0.00) (0.00) (0.45)
--------------------------------------------------------
Total Distributions (0.35) (0.66) (0.57) (0.44) (0.89)
--------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.68 $10.69 $10.87 $12.03 $12.76
--------------------------------------------------------
--------------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (B) 9.96% 5.34% 6.62% 13.99% 13.02%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in
thousands) $13,545 $34,565 $33,547 $34,853 $41,313
Ratio of Expenses to Average Net
Assets 0.50%(1) 0.50%(1) 0.50%(1) 0.38% 0.31%
Ratio of Net Investment Income to
Average Net Assets 6.06%(1) 6.12%(1) 4.92%(1) 3.73% 3.51%
Ratio of Expenses to Average Net
Assets (C) 1.27% 0.52% 0.52% 0.38% 0.31%
Ratio of Net Investment Income to
Average Net Assets (C) 5.29% 6.11% 4.89% 3.73% 3.51%
Portfolio turnover rate 106.23% 132.60% 201.36% 201.93% 132.14%
<CAPTION>
-----------------------------------------------------
PERIOD ENDED JUNE 30
-----------------------------------------------------
1994 1995 1996 1997 1998
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.76 $11.66 $12.63 $13.38 $14.86
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42 0.32 0.41 0.37 0.41
Net realized and unrealized gain
(loss) on investments and futures (0.26) 1.44 1.98 2.65 2.01
-----------------------------------------------------
Total from Investment Operations 0.16 1.76 2.39 3.02 2.42
LESS DISTRIBUTIONS:
Net investment income (0.42) (0.32) (0.41) (0.39) (0.44)
Net realized capital gains (0.84) (0.47) (1.23) (1.15) (2.23)
-----------------------------------------------------
Total Distributions (1.26) (0.79) (1.64 ) (1.54) (2.67)
-----------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.66 $12.63 $13.38 $14.86 $14.61
-----------------------------------------------------
-----------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (B) 0.29% 14.97% 19.20% 23.23% 16.79%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in
thousands) $46,523 $46,646 $43,130 $52,137 $59,360
Ratio of Expenses to Average Net
Assets 0.26% 0.21% 0.23% 0.23% 0.18%
Ratio of Net Investment Income to
Average Net Assets 3.39% 4.12% 3.08% 2.81% 2.86%
Ratio of Expenses to Average Net
Assets (C) 0.26% 0.21% 0.23% 0.23% 0.18%
Ratio of Net Investment Income to
Average Net Assets (C) 3.39% 4.12% 3.08% 2.81% 2.86%
Portfolio turnover rate 208.31% 160.41% 146.69% 173.60% 169.04%
</TABLE>
- -----------------------------
(1) Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Investment Advisor.
(A) Commencement date for the Balanced Portfolio was October 20, 1988.
(B) Total Return on Net Asset Value is net of the management fee of 0.75% per
annum.
(C) Ratios include all management fees and expenses.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
AHA Investment Funds, Inc.-
Full Maturity Fixed Income Portfolio
Limited Maturity Fixed Income Portfolio
Diversified Equity Portfolio
Balanced Portfolio:
We have audited the accompanying statements of assets and liabilities of AHA
INVESTMENT FUNDS, INC. (a Maryland corporation, comprising the Full Maturity
Fixed Income Portfolio, Limited Maturity Fixed Income Portfolio, Diversified
Equity Portfolio and Balanced Portfolio), including the portfolios of
investments, as of June 30, 1998, and the related statements of operations,
statements of changes in net assets and financial highlights for the periods
indicated thereon. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmation from brokers and, when
replies were not received, we carried out other alternative auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the AHA Investment Funds, Inc. as of
June 30, 1998, and the results of their operations, the changes in their net
assets and their financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
August 5, 1998
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
For each of the investment managers of AHA Investment Funds, Inc., a performance
discussion is provided on its segment of the Portfolio. Each of the investment
managers' discussions includes an analysis of investment performance during the
fiscal year ended June 30, 1998, and a description of the principle factors,
including market conditions, investment strategies, and techniques that affected
performance. Past performance is not predictive of future performance.
Also included are graphs comparing the performance of the Portfolios to the
performance of broad based securities market indices. These graphs show the
growth of $100,000.00 invested in each Portfolio and the growth of the same
amount invested in a comparable index since inception of the Portfolio through
June 30, 1998. The graph of each of the Portfolios is shown, net of all fees and
expenses. These fees include the program services fee of the AHA Program. The
graphs assume the reinvestment of all dividends/interest for both the Portfolios
and indices. Listed below is additional information related to the Portfolios.
<TABLE>
<CAPTION>
FULL MATURITY FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C> <C>
Western Asset Management Company July 1, 1995 50%
Firstar Investment Research & Mgmt. Co.,
LLC December 1, 1996 50%
- --------------------------------------------------------------------------------
LIMITED MATURITY FIXED INCOME PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
- --------------------------------------------------------------------------------
The Patterson Capital Corporation December 22, 1988 100%
- --------------------------------------------------------------------------------
DIVERSIFIED EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
- --------------------------------------------------------------------------------
Cambiar Investors, Inc. October 20, 1988 50%
Investment Research Company December 1, 1993 50%
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
- --------------------------------------------------------------------------------
Cambiar Investors, Inc. December 1, 1993 70%
Western Asset Management Co. July 1, 1995 30%
- --------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
FULL MATURITY FIXED INCOME PORTFOLIO
WESTERN ASSET MANAGEMENT COMPANY (MANAGES 50% OF THE PORTFOLIO)
During the fiscal year ended June 30, 1998, the total return of the Full
Maturity Fixed Income Portfolio, net of all fees and expenses, was 10.20%,
compared to the Lehman Brothers Aggregate Bond Index ("LB Aggregate Index"),
which had a total return of 10.53% for the same period. The gross return of the
segment of the Portfolio managed by Western Asset Management Company ("WAMCO")
was 11.11%. The principal factors which affected performance during the fiscal
year are discussed below.
The bond market was relatively strong for the 12-month period ending June 30,
1998, as long-term interest rates fell to new historic lows. Tight monetary
policy and a developing crisis in Southeastern Asian economies were the two
factors primarily responsible for lower interest rates. Inflation fell below 2%,
the dollar strengthened, commodity prices fell and domestic economic activity
appeared to moderate in the wake of the Asian crisis.
The Portfolio outperformed its benchmark for the period, with a total return of
11.11% vs. 10.53% for the Lehman Aggregate, as Portfolio strategies produced
mixed but generally positive results. As in the previous year, the Portfolio's
long duration posture was rewarded as interest rates fell. WAMCO continued to
believe that inflation fundamentals were solid, and that interest rates remained
relatively high compared to what was likely to prove a benign inflationary
environment. Consistent with the WAMCO's desire to avoid excessive risk, the
Portfolio's duration ranged from 105% to 120% of its benchmark duration.
Yield curve positioning made a significant contribution to results, as a barbell
exposure to maturities was rewarded by a pronounced flattening of the yield
curve, as intermediate- and long-term rates fell while short-term rates remained
relatively stable. In very rare fashion, the yield curve became even partially
inverted by the end of the period, suggesting that the bond market was fairly
comfortable with the stance of monetary policy which was judged to be
appropriately tight.
An overweighting to mortgages detracted somewhat from performance for the
period, since spreads widened as prepayment risk rose due to the lowest mortgage
rates in 30 years. Within the mortgage sector, the manager's emphasis on
discount coupons had a mixed impact on results, since they underperformed in the
first half of the period but outperformed in the second half. A moderate
overweighting to the corporate sector also had a negative impact on results,
since the fallout from the Asian crisis tended to cause credit spreads to widen.
This was offset substantially, however, by the strong performance of issues in
the cable and media subsectors, an area that had been emphasized strongly by the
manager.
- --------------------------------------------------------------------------------
58
<PAGE>
Finally, a moderate exposure to inflation-indexed bonds proved to be a modest
drag on performance, as nominal interest rates fell but real interest rates held
fairly steady. This was not completely unexpected, however, since the manager
felt that the bonds would provide a good hedge against a long duration position
in the event that interest rates rose, and that, conversely, they would lag as
interest rates fell. WAMCO continues to believe that inflation-indexed bonds
offer attractive hedging characteristics as well as solid intrinsic value.
- --------------------------------------------------------------------------------
59
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY, LLC (MANAGES 50% OF THE
PORTFOLIO)
During the fiscal year ended June 30, 1998, the total return of the Full
Maturity Fixed Income Portfolio, net of all fees and expenses, was 10.20%
compared to the Lehman Brothers Aggregate Bond Index (LB Aggregate Index) which
had a total return of 10.53% for the same period. The gross return of the
segment of the Portfolio, managed by Firstar Investment Research & Management
Company, LLC ("FIRMCO") was 10.71%. The principal factors which affected
performance during this period are discussed below.
OBJECTIVE
In the portion of the AHA FULL MATURITY FIXED INCOME PORTFOLIO, ("The
Portfolio"), Which is managed by Firstar Investment Research & Management
Company, ("FIRMCO"), the subadvisor seeks to provide an annual rate of total
return comparable to that of the Lehman Brothers Aggregate Bond Index ("the
Benchmark"), before Portfolio expenses. The Benchmark is a widely accepted
composite of securities representing the bond market in its entirety.
INVESTMENT TECHNIQUES AND STRATEGIES
In order to achieve this objective, we must first match the price sensitivity of
the Benchmark. FIRMCO does this by keeping the assets of the Portfolio
"DURATION NEUTRAL (*)" to the assets of the Benchmark. Whereas many fixed
income managers lengthen (shorten) a Portfolio's average maturity or duration
when they expect interest rates to decline (rise), FIRMCO does not. Regardless
of their interest rate forecast, FIRMCO holds the duration of the Portfolio
equivalent to that of the Benchmark. This ensures that the Portfolio has the
same sensitivity to changes in interest rates as the Benchmark. FIRMCO has
found that even professional fixed income managers cannot consistently, over
long periods of time, add value to portfolios by implementing interest rate
forecasts as duration bets.
FIRMCO then focuses on adding value in the portfolio using three broad-based
investment decision strategies:
(1) YIELD CURVE POSITIONING: Selecting the "maturity mix" of securities in the
Portfolio which may overweight or underweight certain maturity segments
versus their Benchmark weightings. This is done while maintaining the
overall portfolio duration equivalent to that of its Benchmark.
- ------------------------
(*) DURATION is a mathematical measure of a bond or bond portfolio's potential
sensitivity to changes in interest rates. It is similar to "average
maturity" in that it is a measure in years, but it is more precise.
Whereas a bond's average maturity takes into account only its final
principal cash flow, duration takes into account a bond's periodic coupon
payments and its principal cash flow, weighting each of these by the time
until their receipt.
- --------------------------------------------------------------------------------
60
<PAGE>
(2) SECTOR ALLOCATION: Selecting sectors of the bond market to overweight or
underweight in the Portfolio versus the Benchmark weightings. The various
sectors include U.S. Treasury, U.S. Government Agency, Mortgage-Backed
Securities, Asset-Backed Securities, Cash Equivalents, and various
corporate sectors such as: Industrials, Utilities, Finance, and
International.
(3) ISSUE SELECTION: Selecting securities for the Portfolio is the "basic
building block" of added-value work. Every security that is evaluated for
purchase in the Portfolio is thoroughly researched and tested. With 60
securities in the Portfolio, (compared to the Benchmark which has over
6,800), we are very opinionated about each and every security that we
choose to buy and hold.
PORTFOLIO PERFORMANCE
The last twelve months have been very favorable for fixed income investors. For
the fiscal year ended June 30, 1998, the Portfolio, in its entirety, had a total
return comparable to its Benchmark: The Portfolio's total return was +10.20%,
net of expenses, while the Lehman Brothers Aggregate Bond Index appreciated
+10.53%.
Since June 30, 1997, on the portion of the Portfolio that FIRMCO manages, the
Portfolio had a total return of +10.71%, before expenses, versus the Benchmark
return of +10.53%. During this time, yields on U.S. Treasury bonds and notes
decreased significantly. For example, the 10 year U.S. Treasury note yielded
6.5% on 6/30/97 and yielded 5.4% on 6/30/98. Thus, in addition to its coupon
income, the Benchmark's total return consists of significant price appreciation
due to the decrease in interest rates.
The Portfolio's duration is the single most significant determinant of its total
return: In attempting to achieve its objective, the Portfolio may invest in
securities with very long remaining maturities, (30 years or longer), in
addition to shorter bonds and notes. As of June 30, 1998, the FIRMCO-managed
portion of this Portfolio has an overall AVERAGE PORTFOLIO MATURITY OF 9.1
YEARS, and a DURATION OF 4.5 YEARS. This duration is equivalent to that of the
Lehman Brothers Aggregate Bond Index.
The FIRMCO-managed portion of the Portfolio, tracked the return of the Benchmark
and added 16 basis points of incremental value, before Portfolio expenses. This
added value is attributed to successful implementation of three broad investment
strategies: yield curve positioning, sector allocation, and issue selection.
YIELD CURVE POSITIONING: In terms of the Portfolio's maturity structure, FIRMCO
UNDER-weighted bonds with two years and less remaining to maturity. This
strategy has worked well, during the past year, as shorter maturities
underperformed longer maturities on a relative basis. This performance
advantage was somewhat offset by the Portfolio's position in assets with
three-to-four year maturities which also appreciated less than the longest
securities. Positive performance was also attributable to the Portfolio's
holdings in the 15-20 year maturity area. This sector performed particularly
well during the year.
- --------------------------------------------------------------------------------
61
<PAGE>
SECTOR ALLOCATION: The Portfolio is over-weighted in several sectors: within
the asset-backed sector, we utilize securities backed by credit card receivables
and auto loan receivables are utilized as a substitute for other non-U.S.
Treasury securities. The asset-backed securities held tend to be very highly
rated (Aaa/AAA), and very liquid; they have contributed favorably to the
Portfolio's performance. Other sectors that have helped the Portfolio are
finance, banking, and brokerage issues, and mortgage-backed securities. A
modest over-weighting in international securities (all are denominated in U.S.
dollars) hurt during the first half of the period but made a significant
recovery during the first six months of 1998. In particular, investments in
Korean Yankee securities demonstrated notable price deterioration in the first
half of the period but are anticipated to outperform in the future.
In terms of quality, over two-thirds of the Portfolio is invested in obligations
rated "AAA" or higher. These obligations are primarily composed of U.S.
Treasury bonds, agency mortgage-backed obligations and asset-backed securities.
While the majority of the assets are of the highest quality, the Portfolio also
has significant exposure (30%) to investment-grade securities rated "A" and
below. Purchases are restricted to those securities that are rated
"investment-grade" at the time of purchase.
Since beginning work on behalf of the AHA Full Maturity Portfolio in December of
1996, FIRMCO has adhered to the same investment management discipline and has
been managing fixed income portfolios using this approach for more than twelve
years. THE HALLMARK OF THE APPROACH HAS BEEN CONSISTENT PERFORMANCE IN ALL
MARKET ENVIRONMENTS with a goal to continue to deliver consistent performance.
- --------------------------------------------------------------------------------
62
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE FULL MATURITY FIXED
INCOME PORTFOLIO AND THE LEHMAN BROTHERS AGGREGATE BOND INDEX FOR THE YEARS
ENDED JUNE 30,
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C>
1 Year 10.20%
Since Inception 7.98%
</TABLE>
[GRAPH]
INCEPTION DATE FOR THE FULL MATURITY FIXED INCOME PORTFOLIO WAS
OCTOBER 20, 1988.
<TABLE>
<CAPTION>
FULL MATURITY LB AGGREGATE INDEX
<S> <C> <C>
1988 $ 100,000 $ 100,000
1989 $ 108,602 $ 110,010
1990 $ 113,624 $ 118,641
1991 $ 122,561 $ 131,321
1992 $ 139,302 $ 149,778
1993 $ 155,986 $ 167,442
1994 $ 153,756 $ 165,249
1995 $ 170,647 $ 185,987
1996 $ 176,763 $ 195,313
1997 $ 191,072 $ 211,220
1998 $ 210,559 $ 233,458
</TABLE>
- --------------------------------------------------------------------------------
63
<PAGE>
MANAGEMENTS'S DISCUSSION OF FUND PERFORMANCE:
- --------------------------------------------------------------------------------
LIMITED MATURITY FIXED INCOME PORTFOLIO
The Patterson Capital Corporation (manages 100% of the Portfolio)
During the fiscal year ended June 30, 1998, the total return of the Limited
Maturity Fixed Income Portfolio ("the Portfolio"), net of all fees and expenses,
was 6.11% compared to the 90-Day U.S. Treasury Bills, which had a total return
of 5.06% and the Lehman Brothers 1-3 year Government Bond Index, which had a
total return of 6.80% for the same period. The gross return of the Portfolio,
managed by The Patterson Capital Corporation ("Patterson") was 6.88%. The
principal factors which effected performance during the fiscal year are
discussed below.
With the Federal Reserve having been on hold for the last year and a half, bond
yields have had little incentive to move much one way or the other. The Federal
Reserve last changed short-term interest rates in March of 1997 when the
overnight bank lending rate, the Fed Funds rate, was changed from 5.25% to
5.50%. With the Fed on the sidelines, bond yields have trended slightly lower
over the last year primarily in reaction to global forces.
Both in fourth quarter 1997 and again in second quarter 1998, concerns with the
economic stability of Southeast Asia and Russia, caused a "flight to quality"
into U.S. Treasuries. As serious problems arose in these countries, investors
sought the safe haven of U.S. markets. Further supporting bond yields has been
the continued strength of the dollar that also makes dollar denominated assets
attractive. Despite the fact that the U.S. economy has continued to grow at a
brisk pace and the unemployment rate is at a 20-year low, both of which usually
lead to higher interest rates, the increasingly interdependent nature of global
markets has nudged interest rates lower.
The total return for the AHA Limited Maturity Fixed Income Portfolio for the
year ended June 30, 1998 was 6.88% before expenses and fees. The portfolio
benchmark, the Merrill 1-2.99 Treasury index returned 6.80% (or the Lehman 1-3
Year Government Index at 6.78%) while T-bills returned just 5.06%. For the
first six months of 1998, the AHA Limited Maturity Portfolio returned 3.14% vs.
3.02% for the index and 2.49% for T-bills.
The above returns are clearly indicative of the low level of interest rates.
Over the last year, the 2-year Treasury, a good maturity proxy for the AHA
Limited Maturity Portfolio, has moved down in yield from 6.00% to 5.50%, a very
small range by historical standards. At the same time, longer maturity
securities, which typically offer a yield advantage to shorter maturity
securities, have dropped to the same 5.50% level. For example, on June 30, 1998
the 30-year bond yielded only 5.63%, while the 2-year yielded 5.47% and 3-month
T-bills yield 5.07%.
In this low rate environment, one of the goals of the Portfolio has been to
increase yield by purchasing non-Treasury holdings. While maintaining high
quality (AAA-A), non-Treasuries purchased for the portfolio currently offer
marginal excess yield. Exposure to short term corporates and asset-backeds has
ranged between 37% and 44%. Despite some intermittent volatility in these
market sectors, for the overall period they contributed positively to the
Portfolio's performance.
- --------------------------------------------------------------------------------
64
<PAGE>
The extremely high quality of the total Portfolio (AA+ overall and no security
less than A) and its domestic bias has been prudent. Lower rated corporates and
yankees (dollar denominated foreign issues) have experienced extreme volatility
in reaction to the overseas markets. In addition, the high quality of the
Portfolio, together with its high liquidity, has made it possible to accommodate
the frequency and size of the Portfolio's cash flows with no negative impact to
performance. Over the last year, an average of 10% of the Portfolio was turned
over monthly due to subscriptions or liquidations.
The increase of price volatility at low rates, coupled with an increase in
volatility stemming from the overseas turmoil, cautioned the portfolio manager
to adopt a neutral maturity posture with respect to the index. Maturities
typically ranged between 1 and 3 years, with the overall maturity of the
Portfolio averaging about 2 years. Patterson Capital Corporation did not hold
maturities under one year as these yields have been significantly less than
those in the 1-3 year area. As of June 30, 1998, 3-month T-bills yielded 5.07%
while the yield to maturity of the AHA Limited Maturity Portfolio was 5.85%.
- --------------------------------------------------------------------------------
65
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE LIMITED MATURITY
FIXED INCOME PORTFOLIO, 90 DAY T-BILLS AND LEHMAN BROTHERS 1-3 YEAR GOVERNMENT
BOND INDEX FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C>
1 Year 6.11%
Since Inception 6.40%
</TABLE>
[GRAPH]
INCEPTION DATE FOR THE LIMITED MATURITY FIXED INCOME PORTFOLIO WAS
DECEMBER 20, 1988.
<TABLE>
<CAPTION>
LIMITED MATURITY 90-DAY T-BILLS LB GOVT 1-3 YEAR
<S> <C> <C> <C>
1988 $ 100,000 $ 100,000 $ 100,000
1989 $ 105,014 $ 104,515 $ 106,346
1990 $ 111,860 $ 112,875 $ 115,243
1991 $ 121,362 $ 120,518 $ 127,050
1992 $ 134,059 $ 125,978 $ 140,173
1993 $ 141,425 $ 129,889 $ 149,344
1994 $ 143,031 $ 134,334 $ 151,614
1995 $ 153,312 $ 141,602 $ 163,238
1996 $ 160,454 $ 148,911 $ 172,183
1997 $ 170,125 $ 156,441 $ 183,507
1998 $ 180,517 $ 164,350 $ 195,908
</TABLE>
- --------------------------------------------------------------------------------
66
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
DIVERSIFIED EQUITY PORTFOLIO
INVESTMENT RESEARCH COMPANY (MANAGES 50% OF THE PORTFOLIO)
During the fiscal year ended June 30, 1998, the total return of the Diversified
Equity Portfolio, net of all fees and expenses, was 24.05%, compared to the S&P
500 Stock Index, which had a total return of 30.19% for the same period. The
gross return of the segment of the Portfolio, managed by Investment Research
Company ("IRC"), was 28.19%. The principal factors which affected the
performance during the fiscal year are discussed below.
For the twelve months ending June 30, 1998, the S&P 500 index advanced 30.19%.
IRC's portfolio rose nearly as much with slightly lower volatility, returning
28.19% (gross of fees) over the same period.
As a disciplined fundamental manager, IRC's underperformance relative to the S&P
500 index benchmark is substantially attributable to the continued relative
outperformance of growth stocks. To an extent even greater than for the fiscal
year ending June 30, 1997, growth stocks significantly outperformed value stocks
over the twelve months ending June 30, 1998, with the S&P 500/BARRA Growth index
rising 34.88% in comparison with a 25.12% increase in the S&P 500/BARRA Value
index. This discrepancy in relative performance favoring growth stocks was
accentuated at the end of fiscal 1998 when, for the month of June 1998, growth
stocks outpaced value stocks within the S&P 500 index by an extraordinary 6.37
percentage points (as again measured by the respective S&P 500/BARRA indices.)
Since 1975, growth stocks had outperformed value stocks by more than 6% in only
two months, with the last such occurrence being November 1980.
Large capitalization U.S. stocks advanced over this fiscal year again ahead of
mid-cap stocks, which themselves rose as a group more than small-cap stocks.
Within the S&P 500 index, despite earnings pressures and uncertainties at many
of the largest companies, investors maintained their relative preference for the
liquidity and perceived safety of large-cap stocks. While there was not as
pronounced an overall positive correlation between the beginning of the fiscal
year weights of the stocks in the S&P 500 and their fiscal year returns, in
comparison with the previous fiscal year, the extraordinary performance of
certain large-cap growth stocks did again outdistance the performance of
well-diversified groups of fundamentally attractive stocks within the S&P 500.
Value managers struggled again to keep pace.
IRC's investment process, while biased toward the value style of investing, did
over the course of the last 12 months capture more of the dominant growth trend
in the market with successive rebalancings of the AHA Diversified Equity
Portfolio, as evidenced by the changes in the portfolio's underlying
characteristics. From June 30, 1997 to June 30, 1998, the 5 year earnings
growth rate of the portfolio rose from 24.2% to 25.7%, in comparison with an
actual decrease from 21.5% to 16.1% for the capitalization-weighted S&P 500.
However, during this period, whereas the weighted average market capitalization
of the portfolio climbed from $46.9 billion to $55.2 billion, the capitalization
weighted S&P 500 rose more strongly from $51.1 billion to $70.8 billion, part
reflecting the dominance of the larger capitalization stocks.
- --------------------------------------------------------------------------------
67
<PAGE>
The portfolio remained value-tilted over the fiscal year, as measured in part by
its price/earnings ratio. At the end of June 1997, the price/earnings ratio of
the portfolio was 18.5 in comparison with 22.5 for the capitalization weighted
S&P 500; by the end of June, 1998, the price/earnings ratio of the portfolio had
risen slightly to 18.7, but still beneath that of the capitalization weighted
S&P 500, which had climbed to 26.5. While remaining fully invested, IRC
continued to avoid those growth stocks selling at inflated premiums relative to
their industry cohorts, as an integral component of IRC's strategy is to control
the risk of significant under-performance in the event of a market downturn.
IRC's approach to valuation and portfolio management centers around diversified
positions in stable, fundamentally attractive securities. Portfolios are kept
as fully invested as practicable and the economic sector weights of all
portfolios closely reflect the weights of the benchmark index. Typically,
performance will be strongest when investors link securities' prices to
underlying fundamentals. Over this past year, the return on the portfolio,
gross of fees, exceeded the return of the S&P 500 in 6 of the 12 months, and
would have surpassed the performance of the benchmark for the fiscal year as a
whole had not growth stocks so overwhelmed value stocks in performance in June
1998.
Finally, in looking at the return to risk profiles of the two S&P/BARRA indexes,
the Growth index returned 34.9% with an annual volatility of 15.9% while the
Value index earned 25.1% with an annual volatility of 14.5%. And so while
growth stocks out performed value stocks, particularly due to their stellar
performance at the end of this fiscal year, value stocks continued to offer
excellent returns with lower volatility.
- --------------------------------------------------------------------------------
68
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
DIVERSIFIED EQUITY PORTFOLIO
CAMBIAR INVESTORS, INC. (MANAGES 50% OF THE PORTFOLIO)
During the fiscal year ended June 30, 1998, the total return of the Diversified
Equity Portfolio, net of all fees and expenses, was 24.05%, compared to the S&P
500 Stock Index, which had a total return of 30.19% for the same period. The
gross return for the segment of the Portfolio, managed by Cambiar Investors,
Inc. ("Cambiar") was 22.87%. The principal factors which affected performance
during the fiscal year are discussed below.
One of the most important attributes to consider in evaluating investment
managers is whether the manager selected continues to believe in its investment
philosophy-even when the style is not the "flavor of the day". Cambiar Investors
has traditionally selected stocks for portfolios focusing on valuation by
searching for stocks trading at the low end of historical valuation measures
such as price/earnings ratios, price/cash flow ratios, price/book value and
price/sales ratios. Cambiar also looks for a catalyst at a company which they
believe is not reflected in the current share price and build portfolios one
stock at a time using these criteria. An approximate 3% position in a
portfoliois used as a starting point as it is important to really know the
companies purchased for investment.
The subadvisor continues to follow the discipline outlined above and implemented
in the AHA Diversified Equity Portfolio, which has resulted in superior
investment performance over a long period of time. However during the first
part of 1998, Cambiar's investment style was clearly not in favor. They began
to see more and more divergence in performance relative to the broad market
averages-particularly the S&P 500. That divergence increased in the second
quarter of 1998. What began as a year in which the AHA Diversified Portfolio
would again show strong outperformance has changed to a year in which
performance has lagged. For the fiscal year ended June 30, 1998, the AHA
Diversified Stock portfolio increased 24.05% as compared with a 30.19% return
realized by the S&P 500 with dividends reinvested.
There are three primary reasons for this underperformance. First, a few stocks
in the portfolio experienced unexpected difficulties. For example, Wallace
Computer Systems is a company that the AHA Diversified Equity Portfolio has held
for many years. The Company manufactures and distributes business forms, office
products and labels and performs commercial printing. Wallace has also created
an annuity revenue stream in part of the business through supply contracts with
major corporations called the Wallace Information Network (WIN) program. The
Company has had a long tradition of increased earnings. However, in May the
Company announced an unexpected shortfall in results for their fiscal third
quarter and reduced expectations for the remainder of the fiscal year ending in
July, as a result of weakness in non-contract business and a couple of one-time
events. The stock declined 20% in one day and was off about 32% by June 30,
1998. While earnings expectations for the year have been reduced, anticipated
improved financial performance in fiscal 1999 gives Cambiar confidence that this
quality company will work through the current difficulty.
- --------------------------------------------------------------------------------
69
<PAGE>
Cambiar took a position in Philip Services, a company whose turnaround strategy
appeared solid. Unfortunately the Company's problems were greater than
anticipated, compounded by a management that was less than forthright. This
position has been sold, but the impact on portfolio performance was significant.
The second reason for the underperformance had to do with the rapid decline in
energy prices witnessed in the first part of 1998. Although the energy
weighting in the portfolio is about in line with the S&P 500, the AHA
Diversified Portfolio was more heavily weighted in oil service stocks. Oil
service stocks tend to be highly correlated with energy prices and as oil prices
dropped to around $12 barrel, these stocks performed poorly. Cambiar is more
optimistic than the market about the energy sector and believes the lower oil
price level is not sustainable. In addition, the subadvisor still likes the
prospects for Transocean Offshore with its fleet of deep offshore rigs
forecasted to be 100% utilized in 1998 and already 70% contracted for in 1999.
The final and most important factor is discussing the Portfolio's performance,
however, is what the portfolio manager sees happening in the marketplace
overall. Increasingly the S&P index performance is being driven by a few large
companies which have practically become "one decision" stocks. These stocks
have become quite pricey yet continue to perform well. Coca-Cola selling at a
price/earnings multiple 53 times 1998 earnings estimates, Pfizer priced at 55
times, Dell Computer at 60 times, are all wonderful companies with good
prospects, but the valuations more than fully reflected the potential. These
stocks and other market darlings have done very well in the first half of 1998.
Cambiar is not comfortable buying or owning these richly-priced stocks,
realizing this stance puts them at odds relative to the S&P benchmark. In
addition, the subadvisor is finding stocks that do meet their valuation criteria
in selected mid-cap investments. Mid-cap stocks have often been left behind and
ignored as new cash races into the market and into the "one decision" stocks.
Although the present period has been tough, the AHA Diversified Equity Portfolio
has seen several successes during the fiscal year. Shares of Airtouch
Communications more than doubled in the year. Office Depot, Darden Restaurants,
The Limited and Argentaria Corp. ADR were all up in excess of 55%. Nellcor,
which eventually was purchased by Mallinckrodt, increased 57%. A new holding,
the ADR of Volkswagen was up 59% in part reflecting demand for the new "Beetle".
These victories are the reason Cambiar so strongly believes that the valuation
driven stock selection process still works, and should provide the AHA
Diversified Equity Portfolio superior performance over the long-haul as it
has in previous years.
- --------------------------------------------------------------------------------
70
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE DIVERSIFIED EQUITY
PORTFOLIO AND THE S&P 500 STOCK INDEX FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C>
1 Year 24.05%
Since Inception 16.54%
</TABLE>
[GRAPH]
INCEPTION DATE FOR THE DIVERSIFIED EQUITY PORTFOLIO WAS
OCTOBER 20, 1988.
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY S&P 500 STOCK INDEX
<S> <C> <C>
1988 $ 100,000 $ 100,000
1989 $ 114,455 $ 117,967
1990 $ 123,340 $ 137,325
1991 $ 127,334 $ 147,445
1992 $ 146,610 $ 167,384
1993 $ 167,830 $ 190,174
1994 $ 174,894 $ 192,732
1995 $ 210,071 $ 242,974
1996 $ 265,563 $ 306,332
1997 $ 353,123 $ 412,566
1998 $ 438,042 $ 537,126
</TABLE>
- --------------------------------------------------------------------------------
71
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO
WESTERN ASSET MANAGEMENT COMPANY (MANAGES 30% OF THE PORTFOLIO)
During the fiscal year ended June 30, 1998, the total return, net of all fees
and expenses, of the Balanced Portfolio was 16.79%, compared to 20.36% for a mix
of 50% Lehman Brothers Aggregate Bond Index ("LB Aggregate Index") and 50% S&P
500 Stock Index. The gross return for the fixed income segment of the Portfolio,
which is managed by WAMCO, was 11.69%, compared to the LB Aggregate Index, which
had a total return of 10.53% for the same period. The principal factors which
affected performance during the fiscal year are discussed below.
WAMCO manages both Balanced and Full Maturity Portfolio. While the two
portfolios have similar investment objectives, guidelines and strategies, the
Balanced Fund enjoyed a somewhat stronger return of 11.69% for the period; the
difference can be largely attributed to cash flows and the smaller size of the
fund. Performance since inception is substantially similar for both funds.
- --------------------------------------------------------------------------------
72
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO
CAMBIAR INVESTORS, INC. (MANAGES 70% OF THE PORTFOLIO)
During the fiscal year ended June 30, 1998, the total return of the AHA Balanced
Portfolio, net of all fees and expenses, was 16.79%, compared to a total return
for the same period of 20.36% for a mix of 50% Lehman Brothers Aggregate Bond
Index and 50% S&P 500 Stock Index. The gross return for the equity segment of
the Portfolio, managed by Cambiar was 22.37%, compared to the S&P 500 Stock
Index of 30.19% for the same period. The principal factors which affected
performance are discussed below. Cambiar manages only equity securities and
accounts for 65 - 70% of the Balanced Portfolio.
One of the most important attributes to consider in evaluating investment
managers is whether the manager selected continues to believe in its investment
philosophy-even when the style is not the "flavor of the day". Cambiar Investors
has traditionally selected stocks for portfolios focusing on valuation by
searching for stocks trading at the low end of historical valuation measures
such as price/earnings ratios, price/cash flow ratios, price/book value and
price/sales ratios. Cambiar also looks for a catalyst at a company which they
believe is not reflected in the current share price and build portfolios one
stock at a time using these criteria. An approximate 3% position in a
portfoliois used as a starting point as it is important to really know the
companies purchased for investment.
The subadvisor continues to follow the discipline outlined above and implemented
in the AHA Diversified Equity Portfolio, which has resulted in superior
investment performance over a long period of time. However during the first
part of 1998, Cambiar's investment style was clearly not in favor. They began
to see more and more divergence in performance relative to the broad market
averages-particularly the S&P 500. That divergence increased in the second
quarter of 1998. What began as a year in which the AHA Diversified Portfolio
would again show strong outperformance has changed to a year in which
performance has lagged. For the fiscal year ended June 30, 1998, the AHA
Diversified Stock portfolio increased 24.05% as compared with a 30.19% return
realized by the S&P 500 with dividends reinvested.
There are three primary reasons for this underperformance. First, a few stocks
in the portfolio experienced unexpected difficulties. For example, Wallace
Computer Systems is a company that the AHA Diversified Equity Portfolio has held
for many years. The Company manufactures and distributes business forms, office
products and labels and performs commercial printing. Wallace has also created
an annuity revenue stream in part of the business through supply contracts with
major corporations called the Wallace Information Network (WIN) program. The
Company has had a long tradition of increased earnings. However, in May the
Company announced an unexpected shortfall in results for their fiscal third
quarter and reduced expectations for the remainder of the fiscal year ending in
July, as a result of weakness in non-contract business and a couple of one-time
events. The stock declined 20% in one day and was off about 32% by June 30,
1998. While earnings expectations for the year have been reduced, anticipated
improved financial performance in fiscal 1999 gives Cambiar confidence that this
quality company will work through the current difficulty.
- --------------------------------------------------------------------------------
73
<PAGE>
Cambiar took a position in Philip Services, a company whose turnaround strategy
appeared solid. Unfortunately the Company's problems were greater than
anticipated, compounded by a management that was less than forthright. This
position has been sold, but the impact on portfolio performance was significant.
The second reason for the underperformance had to do with the rapid decline in
energy prices witnessed in the first part of 1998. Although the energy
weighting in the portfolio is about in line with the S&P 500, the AHA
Diversified Portfolio was more heavily weighted in oil service stocks. Oil
service stocks tend to be highly correlated with energy prices and as oil prices
dropped to around $12 barrel, these stocks performed poorly. Cambiar is more
optimistic than the market about the energy sector and believes the lower oil
price level is not sustainable. In addition, the subadvisor still likes the
prospects for Transocean Offshore with its fleet of deep offshore rigs
forecasted to be 100% utilized in 1998 and already 70% contracted for in 1999.
The final and most important factor is discussing the Portfolio's performance,
however, is what the portfolio manager sees happening in the marketplace
overall. Increasingly the S&P index performance is being driven by a few large
companies which have practically become "one decision" stocks. These stocks
have become quite pricey yet continue to perform well. Coca-Cola selling at a
price/earnings multiple 53 times 1998 earnings estimates, Pfizer priced at 55
times, Dell Computer at 60 times, are all wonderful companies with good
prospects, but the valuations more than fully reflected the potential. These
stocks and other market darlings have done very well in the first half of 1998.
Cambiar is not comfortable buying or owning these richly-priced stocks,
realizing this stance puts them at odds relative to the S&P benchmark. In
addition, the subadvisor is finding stocks that do meet their valuation criteria
in selected mid-cap investments. Mid-cap stocks have often been left behind and
ignored as new cash races into the market and into the "one decision" stocks.
Although the present period has been tough, the AHA Diversified Equity Portfolio
has seen several successes during the fiscal year. Shares of Airtouch
Communications more than doubled in the year. Office Depot, Darden Restaurants,
The Limited and Argentaria Corp. ADR were all up in excess of 55%. Nellcor,
which eventually was purchased by Mallinckrodt, increased 57%. A new holding,
the ADR of Volkswagen was up 59% in part reflecting demand for the new "Beetle".
These victories are the reason Cambiar so strongly believes that the valuation
driven stock selection process still works, and should provide the AHA
Diversified Equity Portfolio superior performance over the long-haul as it has
in previous years.
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<PAGE>
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BALANCED PORTFOLIO,
S&P 500 STOCK INDEX AND LEHMAN BROTHERS AGGREGATE BOND INDEX FOR THE YEARS ENDED
JUNE 30,
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C>
1 Year 16.79%
Since Inception 12.55%
</TABLE>
[GRAPH]
INCEPTION DATE FOR THE BALANCED PORTFOLIO WAS OCTOBER 20, 1988.
<TABLE>
<CAPTION>
BALANCED PORTFOLIO S&P 500 STOCK INDEX LB AGGREGATE INDEX
<S> <C> <C> <C>
1988 $ 100,000 $ 100,000 $ 100,000
1989 $ 109,964 $ 117,967 $ 110,010
1990 $ 115,831 $ 137,325 $ 118,641
1991 $ 123,503 $ 147,445 $ 131,321
1992 $ 140,777 $ 167,384 $ 149,778
1993 $ 159,110 $ 190,174 $ 167,442
1994 $ 159,569 $ 192,732 $ 165,249
1995 $ 183,449 $ 242,974 $ 185,987
1996 $ 218,672 $ 306,332 $ 195,313
1997 $ 269,465 $ 412,566 $ 211,220
1998 $ 314,718 $ 537,126 $ 233,458
</TABLE>
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75
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