<PAGE>
AHA INVESTMENT FUNDS, INC.
Annual Report to Shareholders
As of June 30, 1999
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
Portfolio of Investments 1
Full Maturity Fixed Income Portfolio
Limited Maturity Fixed Income Portfolio
Diversified Equity Portfolio
Balanced Portfolio
Financial Statement 55
Notes to Financial Statements 59
Report of Independent Public Accountants 70
Manager Discussion and Performance Graph 72
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i
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS 97.8% MARKET VALUE
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 62.0%
<S><C>
United States Treasury Bonds
$ 1,950,000 10.750% 08/15/05 $ 2,425,313
125,000 9.875% 11/15/15 170,274
5,725,000 9.250% 02/15/16 7,442,500
2,453,000 6.375% 08/15/27 2,506,659
970,000 6.125% 11/15/27 961,210
240,000 5.250% 11/15/28 212,475
United States Treasury Notes
350,000 7.750% 12/31/99 354,485
400,000 5.625% 11/30/00 401,000
30,000 5.250% 08/15/03 29,484
United States Treasury Inflation Index Bonds
1,327,111 3.375% 01/15/07 1,273,198
1,254,782 3.625% 01/15/08 1,219,884
2,229,306 3.625% 04/15/28 2,105,999
636,773 3.875% 04/15/29 628,614
United States Treasury Strips
2,575,000 0.000% 11/15/04 1,879,235
410,000 0.000% 02/15/23 96,238
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
<S><C>
Federal Home Loan Mortgage Corporation
$ 77,909 8.750% 04/01/09 $ 78,965
50,828 10.500% 01/01/10 55,004
2,359,462 5.500% 02/01/14 2,238,537
213,601 9.300% 04/15/19 221,950
426,042 7.000% 06/15/21 429,674
797,578 7.000% 09/15/21 802,161
300,498 7.000% 05/01/24 298,680
1,200,000 6.500% 07/01/29 1,160,256
300,000 7.000% 07/01/29 297,189
320,000 7.500% 07/01/29 323,802
190,000 6.000% 08/01/29 179,016
Federal National Mortgage Association
(mortgage-backed securities)
231,950 7.500% 03/25/03 235,981
300,000 6.000% 07/01/14 289,968
407,995 9.500% 07/25/19 430,514
311,744 7.600% 11/25/19 318,145
350,000 6.500% 02/25/20 345,774
323,050 6.500% 09/25/20 319,549
365,350 8.500% 09/25/20 377,992
385,422 7.000% 10/25/20 388,068
701,330 7.000% 01/25/21 702,116
566,030 8.000% 02/25/21 577,487
700,000 7.000% 03/25/21 704,701
416,985 8.500% 09/25/21 431,917
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
<S><C>
Federal National Mortgage Association- (Continued)
(mortgage-backed securities)
$ 373,864 7.000% 06/25/22 $ 374,098
138,229 9.500% 02/01/25 147,766
2,310,000 6.000% 07/01/29 2,173,571
4,600,000 6.500% 07/01/29 4,443,324
1,500,000 7.000% 07/01/29 1,484,070
680,000 7.500% 07/01/29 687,439
Government National Mortgage Association
(mortgage-backed securities)
219,062 9.500% 12/15/17 236,530
830,000 6.000% 07/01/29 775,793
574,000 6.500% 07/01/29 552,653
900,000 7.500% 07/01/29 909,000
Sally Mae Floating Rate Note
792,161 5.090% 04/25/06 788,041
-------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 45,486,299
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
ASSET BACKED OBLIGATIONS 10.9%
Capital Equipment Trust
$ 411,145 6.280% 06/15/00 Series 1996-1 $ 411,916
Chase Commingled Mortgage Security
508,000 7.370% 02/19/07 Series 1997- A2 520,680
Chevy Chase Home Loan
243,676 7.150% 05/15/15 Series 1996-1 245,274
Contimortgage Home Equity Loan
250,000 7.280% 04/25/14 252,074
300,000 6.630% 12/15/20 299,234
300,000 7.090% 04/15/28 302,993
250,000 7.120% 08/15/28 248,771
DLJ Commercial Mortgage Corporation
677,681 5.880% 11/12/31 654,622
Fairbanks Capital Mortgage
500,000 5.810% 05/25/28 500,000
Ford Motor Credit Company
180,000 7.700% 05/15/97 Series 1995-A 180,442
1,075,000 6.500% 08/15/02 Series 1995-A 1,084,326
250,000 9.220% 09/15/21 Series 1996-A 292,412
30,000 6.625% 10/01/28 27,253
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
ASSET BACKED OBLIGATIONS (CONTINUED)
<S><C>
Green Tree Financial Corporation
$ 300,000 5.816% 07/15/03 $ 299,813
196,747 6.900% 02/15/04 196,349
215,143 7.850% 07/15/04 216,500
375,000 6.900% 04/15/27 378,981
375,000 6.760% 07/15/29 377,784
Household Automobile Revenue Trust
490,000 5.719% 05/17/02 491,134
Keystone Owner Trust
69,679 6.620% 11/25/08 Series 1998-P1 69,679
Nomura Asset Securities Corporation
200,000 7.120% 04/13/36 Series 1996-M 202,005
Resolution Trust Corporation
1,800,000 0.000% 10/15/19 488,725
Rural Housing Trust
22,882 3.330% 04/01/26 Series 1987-1 22,396
Standard Credit Card Trust Series 1993-2
65,000 8.250% 11/07/01 67,691
U.S. West Capital Funding
200,000 5.546% 06/15/00 199,916
-------
TOTAL ASSET BACKED OBLIGATIONS 8,030,970
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
CORPORATE OBLIGATIONS 24.4%
BANKS 3.5%
Bankers Trust Company
$ 1,000,000 8.125% 04/01/02 $ 1,034,228
Dryden Investor Trust
580,232 7.157% 07/23/08 559,495
J.P. Morgan
80,000 6.000% 01/15/09 73,524
JPM Capital Trust
50,000 7.950% 02/01/27 49,746
National Bank of Detroit
220,000 8.250% 11/01/24 246,279
NCNB Corporation
325,000 10.200% 07/15/15 410,157
Security Pacific Corporation
200,000 11.000% 03/01/01 213,254
-------
2,586,683
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
COMMUNICATION & MEDIA 1.4%
<S><C>
AT&T Universal Card Master
$ 70,000 5.625% 03/15/04 $ 67,847
130,000 6.500% 03/15/29 117,280
Continental Cablevision Incorporated
200,000 8.875% 09/15/05 218,432
200,000 9.000% 09/01/08 224,993
325,000 9.500% 08/01/13 375,590
-------
1,004,142
DISTRIBUTION 0.5%
Federal Express
300,000 9.650% 06/15/12 353,187
ELECTRIC 0.6%
System Energy
344,857 7.430% 01/15/11 342,886
Union Pacific Corporation
100,000 6.625% 02/01/29 87,863
------
430,749
FINANCIAL 4.8%
Auburn Hills Trust
280,000 12.000% 05/01/20 424,522
Chase Manhattan Bank
610,000 8.500% 02/15/02 638,277
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
FINANCIAL- (CONTINUED)
<S><C>
CIT Group Incorporated
$ 375,000 5.570% 12/08/03 $ 358,140
General Motors Acceptance Corporation
800,000 0.000% 06/15/15 effective yield 6.35% 251,762
60,000 5.950% 03/14/03 58,730
Lehman Brothers Incorporated
375,000 11.625% 05/15/05 448,529
Merrill Lynch Company
375,000 6.875% 11/15/18 350,262
172,871 6.310% 11/15/26 171,388
Paine Webber Incorporated
150,000 6.730% 01/20/04 147,764
Westam Mortgage Financial
179,000 6.360% 08/26/20 177,820
Zurich Capital Trust
500,000 8.376% 06/01/37 511,046
-------
3,538,240
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
FOOD & BEVERAGES 0.6%
Archer Daniels Midland
$ 20,000 6.625% 05/01/29 $ 18,409
J. Seagram & Sons
170,000 6.400% 12/15/03 167,446
120,000 6.800% 12/15/08 114,728
140,000 7.500% 12/15/18 135,665
30,000 7.600% 12/15/28 29,019
------
465,267
INDUSTRIAL 1.4%
Caterpillar Incorporated
1,000,000 9.750% 06/01/19 1,048,201
INSURANCE 0.2%
GEICO Corporation
125,000 9.150% 09/15/21 133,623
OIL & GAS 0.3%
Petrozuata Financial Guarantee
260,000 8.220% 04/01/17 200,850
PAPER 0.5%
Georgia Pacific Corporation
75,000 9.875% 11/01/21 81,566
200,000 9.625% 03/15/22 215,362
50,000 9.500% 05/15/22 53,061
------
349,989
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
CORPORATE OBLIGATIONS (CONTINUED)
<S><C>
RAILROAD 1.7%
Conrail
$ 40,000 7.875% 05/15/43 $ 41,184
Hocking Valley Railway
670,000 4.500% 07/01/99 670,000
Louisville & Nashville Railroad
600,000 3.375% 04/01/03 533,785
-------
1,244,969
RETAIL STORES 1.1%
Dayton Hudson Corporation
286,000 10.000% 01/01/11 347,781
J.C. Penney Incorporated
250,000 9.750% 06/15/21 271,460
200,000 8.250% 08/15/22 210,603
-------
829,844
TELECOMMUNICATION 1.5%
Lucent Technologies Incorporated
400,000 6.450% 03/15/29 366,643
TCI Communications Incorporated
500,000 7.875% 02/15/26 526,168
U.S. West Communications
225,000 8.875% 06/01/31 233,409
-------
1,126,220
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
CORPORATE OBLIGATIONS (CONTINUED)
<S><C>
UTILITIES 0.4%
Commonwealth Edison
$ 250,000 9.875% 06/15/20 $ 282,812
MISCELLANEOUS 2.3%
British Aerospace Financial
650,000 7.500% 07/01/27 661,886
ML Mortgage Investors
226,781 6.220% 02/15/30 224,218
News America Holdings
200,000 8.875% 04/26/23 218,385
300,000 7.625% 11/30/28 288,394
Pepsi Bottling
300,000 7.000% 03/01/29 281,274
-------
1,674,157
INTERNATIONAL 3.6%
Dresdner Bank New York
250,000 7.250% 09/15/15 241,423
80,000 8.151% 06/30/31 75,855
Hydro-Quebec
800,000 11.750% 02/01/12 1,083,264
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
CORPORATE OBLIGATIONS (CONTINUED)
INTERNATIONAL (CONTINUED)
<S><C>
Korea Development Bank
$ 95,000 7.125% 09/17/01 $ 94,786
Korea Electric Power
95,000 7.750% 04/01/13 86,102
75,000 6.750% 08/01/27 70,939
Midland Bank
375,000 6.950% 03/15/11 365,138
National Bank Hungary
75,000 8.875% 11/01/13 81,772
Pohang Iron & Steel
65,000 7.125% 07/15/04 62,240
Wharf Capital International
175,000 7.625% 03/13/07 155,859
YPF Sociedad Anomia
300,000 7.750% 08/27/07 282,400
-------
2,599,778
---------
TOTAL CORPORATE OBLIGATIONS 17,868,711
----------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
PREFERRED OBLIGATIONS 0.5%
<S><C>
IBJ Preferred Capital Company
$ 150,000 8.790% 12/29/49 $ 125,843
SB Treasury Company
280,000 9.400% 12/29/49 270,680
-------
TOTAL PREFERRED OBLIGATIONS 396,523
-------
TOTAL LONG-TERM OBLIGATIONS (COST $72,777,194) 71,782,503
----------
SHORT-TERM OBLIGATIONS 18.5% AMORTIZED COST
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 0.3%
Federal Home Loan Mortgage Corporation
(A) 200,000 4.720% 11/12/99 196,486
-------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 196,486
DEMAND NOTES * 18.2%
American Family Demand Note
1,583,426 4.700% 12/31/31 1,583,426
Firstar Bank Demand Note
1,770,516 4.970% 12/31/31 1,770,516
General Mills Demand Note
3,460,835 4.825% 12/31/31 3,460,835
Pitney Bowes Demand Note
1,369,623 4.825% 12/31/31 1,369,623
Warner Lambert Demand Note
1,770,000 4.701% 12/31/31 1,770,000
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMORTIZED COST
SHORT-TERM OBLIGATIONS (CONTINUED)
DEMAND NOTES (CONTINUED)
<S><C>
Wisconsin Corporation Credit Union Demand Note
$ 1,626,534 4.890% 12/31/31 $ 1,626,534
Wisconsin Electric Demand Note
1,777,734 4.701% 12/31/31 1,777,734
---------
TOTAL DEMAND NOTES 13,358,668
Total Short-Term Obligations
(Amortized cost $13,555,154) 13,555,154
----------
Total Investments
(Cost basis $86,332,348) 85,337,657
----------
NUMBER OF CONTRACTS MARKET VALUE
OPTIONS-WRITTEN -0.1%
Call Options 5 Year T-Note Futures
5 Exercise Price $110.00, Expiring August 1999 (1,563)
Call Options 5 Year T-Note Futures
8 Exercise Price $112.00, Expiring August 1999 (375)
Call Options 5 Year T-Note Futures
4 Exercise Price $109.50, Expiring August 1999 (1,938)
Call Options Bond Futures
11 Exercise Price $117.00, Expiring August 1999 (5,672)
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
NUMBER OF CONTRACTS MARKET VALUE
OPTIONS-WRITTEN (CONTINUED)
<S><C>
Call Options Bond Futures
6 Exercise Price $118.00, Expiring August 1999 (4,031)
Put Options Bond Futures
3 Exercise Price $114.00, Expiring August 1999 (2,250)
Put Options Bond Futures
16 Exercise Price $116.00, Expiring August 1999 (24,750)
Call Options Treasury Bond Futures
11 Exercise Price $120.00, Expiring November 1999 (9,453)
-------
Call Options Treasury Bond Futures
5 Exercise Price $122.00, Expiring November 1999 (2,578)
-------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $50,701) (52,610)
--------
Total Investments net of
Outstanding Written Options 116.2% 85,285,047
Cash and Other Assets, Less
Liabilities -16.2% (11,864,824)
-------------------
Total Net Assets 100.0% $ 73,420,223
-------------------
-------------------
</TABLE>
* These security have a maturity of more than one year, but have variable
rate and demand features which qualify it as a short-term security. These
rates disclosed is that currently in effect. These rates change
periodically based on market conditions or a specified market index.
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
(A) $100,000 OF U.S. GOVERNMENT AGENCY SECURITIESS PLEDGED AS MARGIN
FOR FUTURES CONTRACTS. THE PORTFOLIO HAD THE FOLLOWING OPEN
FUTURES CONTRACTS AT JUNE 30, 1999:
OPEN FUTURES CONTRACTS:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF PRINCIPAL GAINS (LOSSES)
TYPE CONTRACTS AMOUNT POSITION EXPIRATION JUNE 30, 1999
---- ---------- ------- -------- ---------- -------------
<S><C>
5 Year Treasury Notes 16 16,000 Short September 1999 ($11,862)
10 Year U.S. Treasury Notes 8 8,000 Short September 1999 (4,154)
Bond Futures 14 14,000 Long September 1999 8,622
Bond Futures 2 2,000 Long March 2000 (8,828)
-------
($16,222)
-------
</TABLE>
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, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
LONG-TERM OBLIGATIONS 98.2% MARKET VALUE
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 67.9%
<S><C>
United States Treasury Bonds
$ 3,235,000 4.500% 09/30/00 $ 3,198,606
United States Treasury Notes
10,580,000 6.125% 07/31/00 10,662,662
7,800,000 5.750% 10/31/00 7,831,691
2,740,000 5.500% 12/31/00 2,741,713
5,180,000 5.250% 01/31/01 5,163,813
4,965,000 5.375% 02/15/01 4,957,245
3,110,000 5.000% 04/30/01 3,083,761
665,000 6.500% 05/31/01 676,846
2,285,000 6.625% 06/30/01 2,332,128
4,980,000 6.625% 07/31/01 5,085,825
7,520,000 6.375% 09/30/01 7,646,900
4,415,000 6.125% 12/31/01 4,468,810
4,060,000 6.625% 03/31/02 4,162,771
Federal Home Loan Bank
3,500,000 4.875% 01/26/01 3,454,444
Federal National Mortgage Association
(mortgage-backed securities)
2,130,000 4.450% 10/16/00 2,096,840
2,040,000 6.375% 01/16/02 2,062,371
1,465,000 5.375% 03/15/02 1,444,905
---------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 71,071,331
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED)
<S><C>
ASSET BACKED OBLIGATIONS 9.8%
AT&T Universal Card Master Trust
$ 1,550,000 5.950% 10/17/00 $ 1,554,642
Chase Manhattan Grantor Trust
2,100,000 6.300% 04/15/03 Series 1997-2 2,115,572
Citibank Credit Card Trust
1,825,000 5.850% 04/10/03 1,819,589
Discovery Card Master Trust
1,550,000 5.750% 10/16/03 1,541,669
First USA Credit
1,930,000 6.420% 03/17/05 1,940,181
Premier Auto Trust
1,230,000 6.340% 01/06/02 Series 1997-3 1,239,182
---------
TOTAL ASSET BACKED OBLIGATIONS 10,210,835
CORPORATE OBLIGATIONS 20.5%
BANKS 2.1%
Nations Bank
2,250,000 5.750% 03/15/01 2,234,419
COMPUTER & OFFICE EQUIPMENT 1.9%
International Business Machine Corporation
2,000,000 6.375% 06/15/00 2,008,570
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
<S><C>
FINANCIAL 12.3%
American Express Credit Corporation
$ 650,000 6.125% 11/15/01 $ 646,437
Associates Corporation
1,740,000 5.850% 01/15/01 1,732,695
CIT Group Holdings
2,500,000 6.000% 05/08/01 2,486,855
Ford Credit Grantor Trust
2,275,000 6.375% 10/06/00 Series 2,283,363
1,000,000 5.500% 02/15/03 Series 992,245
General Electric Capital Corporation
1,250,000 5.920% 04/03/01 1,246,291
General Motors Acceptance Corporation
Grantor Trust
1,600,000 5.800% 04/09/01 1,588,374
International Lease Financial Corporation
710,000 5.625% 05/01/02 697,111
Merrill Lynch Corporation
1,250,000 6.050% 03/06/01 1,245,849
---------
12,919,220
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
<S><C>
RETAIL STORES 3.0%
Wal-Mart Stores
$ 3,000,000 9.100% 07/15/00 $ 3,087,942
TELECOMMUNICATION 1.2%
Lucent Technologies Incorporated
1,250,000 6.900% 07/15/01 1,270,954
---------
TOTAL CORPORATE OBLIGATIONS 21,521,105
----------
TOTAL LONG-TERM OBLIGATIONS
(COST $103,521,540) 102,803,271
-----------
SHORT-TERM OBLIGATIONS 0.3%
COMMERCIAL PAPER
American Express
286,000 5.500% 07/01/99 286,000
-------
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $286,000) 286,000
-------
TOTAL INVESTMENTS
(COST BASIS $103,807,540) 98.5% 103,089,271
CASH AND OTHER ASSETS, LESS
LIABILITIES 1.5% 1,585,441
---------
TOTAL NET ASSETS 100.0% $ 104,674,712
-----------
-----------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES 97.0% MARKET VALUE
<S><C>
AEROSPACE & AIR TRANSPORTATION 0.8%
4,600 Delta Airlines $ 265,075
1,600 FDX Corporation 86,800
8,700 United Technologies Corporation 623,681
-------
975,556
APPLIANCE 0.1%
500 Maytag Corporation 34,843
400 Whirlpool Corporation 29,600
------
64,443
AUTOMOTIVE 5.0%
2,500 Cummins Engine 142,813
700 Danaher Corporation 40,688
5,871 Delphi Automotive Systems 108,980
20,800 Ford Motor Company 1,173,900
8,400 General Motors Corporation 554,400
36,500 Lear Corporation 1,815,875
400 Navistar International 20,000
1,900 PACCAR Incorporated 101,413
43,200 Ryder System 1,123,200
95,000 Volkswagen ADR 1,226,004
---------
6,307,273
BANKS 9.6%
30,000 Argentaria ADR 1,380,000
24,800 Bank One Corporation 1,477,150
9,892 Bank of America Corporation 725,207
4,400 Bank of New York Corporation 161,425
4,400 BankBoston Corporation 224,950
300 BB&T Corporation 11,006
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
BANKS (CONTINUED)
16,300 Chase Manhattan $ 1,411,988
22,550 Citigroup Incorporated 1,071,125
300 Golden West Financial 29,400
4,000 Federal Home Loan Mortgage Corporation 232,000
46,200 First Union Corporation 2,171,400
18,000 Firstar Corporation 504,000
11,100 Fleet Financial Group, Incorporated 492,563
1,000 J.P. Morgan & Company Incorporated 140,500
82,000 Pacific Century Financial Corporation 1,768,125
1,300 PNC Financial Corporation 74,913
1,200 Wachovia Corporation 102,675
4,300 Wells Fargo Company 183,825
-------
12,162,252
BUILDING & HOUSING 0.5%
5,800 Applied Materials Incorporated 428,475
300 Centex Corporation 11,269
5,100 Kaufman & Broad Home Corporation 126,863
5,000 Pulte Corporation 115,313
-------
681,920
BUSINESS MECHANICS & SOFTWARE 6.4%
5,300 America Online Incorporated 585,650
7,400 Apple Computers Incorporated 342,713
79,200 Borders Group 1,252,350
4,700 General Instruments Corporation 199,750
17,400 International Business Machines Corporation 2,248,950
42,650 Oracle Systems 1,583,381
5,000 Sun Microsystems* 344,375
15,400 Unisys Corporation 599,638
17,000 Xerox Corporation 1,004,063
---------
8,160,870
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
BUSINESS SERVICE 7.7%
3,000 Eastman Kodak $ 203,250
50,650 Equifax 1,807,572
50,200 First Data 2,456,663
49,500 Manpower Incorporated 1,119,938
63,000 Owens Illinois, Incorporated 2,059,313
55,000 Stewart Enterprises Incorporated 800,938
52,800 Wallace Computer Services Incorporated 1,320,000
---------
9,767,674
CHEMICALS 1.3%
3,500 Air Products & Chemical Incorporated 140,875
7,200 Dow Chemical Company 913,500
3,200 Great Lakes Chemical 147,400
3,400 Monsanto Company 134,088
2,800 Praxair Incorporated 137,025
2,900 Union Carbide Corporation 141,375
-------
1,614,263
COMMUNICATION 1.7%
20,800 Comcast Corporation 799,500
2,600 Harcourt General Incorporated 134,063
1,200 McGraw Hill Company Incorporated 64,725
1,000 Omnicom Group 80,000
15,500 Time Warner Incorporated 1,139,250
---------
2,217,538
CONGLOMERATE 0.3%
4,600 Tyco International Ltd. 435,850
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
CONSTRUCTION 0.8%
34,000 Masco Corporation $ 981,750
CONSUMER NON-DURABLES 0.6%
5,700 Tupperware Corporation 145,350
8,214 Unilever 572,946
-------
718,296
COMPUTER & OFFICE EQUIPMENT 5.3%
1,500 Avery Dennison Company 90,563
14,200 Dell Computer Corporation 525,400
9,200 EMC Corporation 506,000
800 Ikon Office Solution 12,000
25,900 Microsoft Corporation 2,335,856
122,000 Novell 3,233,000
---------
6,702,819
COSMETIC & SOAP 0.1%
600 Clorox 64,088
600 Int'l Flavors & Fragrance 26,625
900 Proctor & Gamble 80,325
------
171,038
ELECTRICAL EQUIPMENT 1.2%
12,300 General Electric Company 1,389,900
2,300 Johnson Controls 159,419
-------
1,549,319
ELECTRIC 1.6%
4,700 Hewlett-Packard Company 472,350
26,600 Intel Corporation 1,582,700
500 Kla-Tencor Corporation 32,438
---------
2,087,488
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
ELECTRONICS 2.1%
800 Motorola Incorporated $ 75,800
22,540 Philips Electronics 2,273,723
1,400 Solectron Corporation 93,363
1,100 Texas Instruments 159,500
-------
4,689,874
ENTERTAINMENT & LEISURE 0.3%
5,400 Brunswick Corporation 150,525
4,000 Viacom Incorporated 176,000
-------
326,525
FINANCIAL COMPANY & SERVICES 3.7%
2,100 American Express Company 273,263
5,000 Merrill Lynch Company 399,688
2,300 Charles Schwab Corporation 252,713
37,200 Fannie Mae 2,543,550
4,600 MBNA Corporation 140,875
4,070 Morgan Stanley Group Incorporated 417,175
15,500 Student Loan Corporation 689,750
-------
4,717,014
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
FOOD & BEVERAGES 2.6%
3,200 Archer Daniels Midland Company $ 49,400
19,400 Anheuser-Busch Companies, Incorporated 1,376,188
4,400 Coca-Cola Company 275,000
2,300 Coca-Cola Enterprises 68,425
15,900 Conagra Incorporated 423,338
2,600 Coors Adolph 128,700
4,500 Fortune Brands Incorporated 186,188
4,200 General Mills 337,575
2,700 Safeway Incorporated 133,650
5,000 Tricon Global Restaurants 270,625
-------
3,249,089
HEALTH CARE 10.1%
47,200 Abbott Labs Company 2,147,600
400 Allergan 44,400
7,600 American Home Products Corporation 437,000
2,900 Bard C.R. Incorporated 138,656
1,900 Bausch & Lomb Incorporated 145,350
25,000 Baxter International Incorporated 1,515,625
19,600 Bristol-Meyers/ Squibb 1,380,575
2,700 Guidant Corporation 138,881
5,500 Johnson & Johnson Company 539,000
6,400 Lilly Eli & Company 458,400
56,000 Mallincrokdt Incorporated 2,037,000
17,700 Merck & Company 1,309,800
28,000 Novo-Nordisk ADR 1,498,000
3,100 Pfizer Incorporated 340,225
12,600 Schering Plough Corporation 667,800
-------
12,798,312
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
HEALTH CARE SERVICES 0.3%
2,300 Boston Scientific Corporation $ 101,056
11,500 Columbia/HCA Healthcare Corporation 262,344
900 United Healthcare Corporation 56,363
------
419,763
INSURANCE 3.8%
3,700 Aflac Corporation 177,138
49,602 Allstate Corporation 1,779,472
1,600 American General Corporation 120,600
1,997 American International Group 233,774
4,400 Chubb Group 305,800
5,600 CIGNA Corporation 498,400
1,100 Hartford Financial Services 64,144
650 Jefferson Pilot 43,022
5,400 Lincoln National Corporation 282,488
14,000 MBIA Corporation 906,500
3,300 Providian Financial Corporation 308,550
700 SAFECO Corporation 30,888
600 Transamerica Corporation 45,000
------
4,795,776
METAL & MINERAL 3.3%
1,100 Alcoa Incorporated 68,063
93,000 De Beers Construction Mines ADR 2,220,375
32,000 Minerals Technologies, Incorporated 1,786,000
15,900 USX- US Steel 126,900
-------
4,201,338
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
PAPER & FOREST PRODUCTS 0.4%
3,200 Boise Cascade $ 137,200
4,700 Georgia Pacific Company 222,663
2,000 Temple Inland 136,500
-------
496,363
PETROLEUM 2.4%
2,900 Amerada Hess Corporation 172,550
600 Apache Corporation 23,400
2,600 Ashland Incorporated 104,325
3,600 Atlantic Richfield 300,825
12,600 Exxon Corporation 971,775
4,300 Mobil Corporation 425,700
200 Oneok Incorporated 6,350
2,000 Royal Dutch Petroleum ADR 120,500
2,600 Texaco 162,500
31,000 Transocean Offshore, Incorporated 813,750
-------
3,101,675
PRINTING & PUBLISHING 0.7%
39,500 Journal Register Company 888,750
RAILROADS 0.1%
2,900 Union Pacific Corporation 169,106
RESTAURANTS 0.8%
59,100 CKE Restaurants Incorporated 960,375
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
RETAIL STORES 6.6%
1,100 Best Buy Incorporated $ 74,250
600 Circuit City Stores Incorporated 55,800
1,200 Costco Companies Incorporated 96,075
2,200 CVS Corporation 111,650
7,300 Dayton Hudson Corporation 474,500
4,800 GAP Incorporated 241,800
5,700 Federated Department Stores 301,744
1,100 Hasbro Incorporated 30,731
9,000 Home Depot 579,938
3,500 Long Drug Stores 120,969
4,200 Lowes Companies 238,088
97,000 Office Depot 2,045,184
2,600 Staples Incorporated 80,438
10,400 Supervalu Incorporated 267,150
1,000 Tandy Corporation 48,875
39,000 The Limited Incorporated 1,769,625
1,900 TJX Companies Incorporated 63,294
29,800 Wal-Mart Stores Incorporated 1,437,850
13,300 Walgreen Company 390,688
-------
8,428,649
SERVICES 0.1%
1,900 Briggs & Stratton 109,725
900 Ingersoll Rand Company 58,163
------
167,888
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
TECHNOLOGY 5.6%
300 Adobe Systems Incorporated $ 24,647
14,700 Amgen 894,863
17,800 Cisco Systems Incorporated 1,146,988
31,800 Electronic Data Systems Corporation 1,798,688
36,500 Genzyme Corporation 1,770,250
6,533 Genzyme Surgical Products 28,789
68,000 J.D. Edwards 1,258,000
800 LSI Logic Corporation 36,900
1,400 Micron Technology Incorporated 56,437
1,900 Seagate Technology Incorporated 48,688
------
7,064,250
TELECOMMUNICATION 2.6%
40,000 COMSAT Corporation 1,300,000
27,048 Lucent Technologies 1,824,050
400 Scientific -Atlanta Incorporated 14,400
2,200 Tellabs Incorporated 148,638
-------
3,287,088
TEXTILE & APPAREL 0.2%
6,900 Spring Industries 301,013
TRAVEL & RECREATION 0.1%
3,500 Carnival Corporation 169,750
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
UTILITIES-ELECTRIC & ENERGY 1.5%
1,500 Ameren Corporation $ 57,563
6,200 Edison International 165,850
1,400 General Public Utilities Corporation 59,063
1,600 Texas Utilities Company 66,000
900 American Electric Power Company 33,806
1,500 Caroline Power & Light 64,219
4,700 DTE Energy Company 188,000
1,900 Enron 155,325
6,700 Entergy Corporation 209,375
2,300 First Energy Corporation 71,300
6,300 PECO Energy Company 263,813
12,500 PG&E Corporation 406,250
4,000 Public Service Enterprises 163,500
900 Unicom Corporation 34,706
------
1,938,770
UTILITIES-TELEPHONE 5.3%
1,600 Alltell Corporation 114,400
5,900 American Telephone and Telegraph 329,294
24,100 Ameritech Corporation 1,771,350
14,100 Bell Atlantic Corporation 921,788
10,100 Bell South Corporation 473,438
10,000 GTE Corporation 757,500
10,100 MCI Worldcom Incorporated 869,231
3,500 Mediaone Group 260,313
5,600 SBC Communication, Incorporated 324,800
4,000 Sprint Corporation 211,250
14,000 US West Incorporated 822,500
-------
6,855,864
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
MISCELLANEOUS 1.1%
1,300 Corning Corporation $ 91,163
38,200 Elan Corporation 1,060,050
4,400 FMC Corporation 300,560
-------
1,451,773
TOTAL COMMON STOCK (COST $97,287,531) 122,989,866
SHORT-TERM OBLIGATIONS 2.7% AMORTIZED COST
DEMAND NOTES** 2.7%
American Family Demand Note
$ 7,654 4.700% 12/31/31 $ 7,654
Firstar Bank Demand Note
2,163,325 4.970% 12/31/31 2,163,325
Warner Lambert Demand Note
731,239 4.701% 12/31/31 731,239
Wisconsin Electric Demand Note
564,549 4.700% 12/31/31 564,549
-------
(AMORTIZED COST $3,466,767) 3,466,767
---------
Total Investments
(Cost basis $100,754,298) 99.7% 126,456,633
CASH AND OTHER ASSETS, LESS
LIABILITIES 0.3% 435,519
-------
Total Net Assets 100.0% $ 126,892,152
--------------
--------------
</TABLE>
* Non-income producing stocks.
** These security have a maturity of more than one year, but have variable
rate and demand features which qualify it as a short-term security. These
rates disclosed is that currently in effect. These rates change periodically
based on market conditions or a specified market index.
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 1999
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES 72.8% MARKET VALUE
<S><C>
AEROSPACE & AIR TRANSPORTATION 0.3%
3,800 Boeing $ 167,913
800 Delta Airlines 46,100
------
214,013
APPLIANCE 0.1%
100 Maytag Corporation 6,969
AUTOMOTIVE 4.8%
900 BF Goodrich Company 38,250
700 Cummins Engine 39,988
2,800 Delphi Automotive Systems 51,975
500 Eaton Corporation 46,000
2,700 Ford Motor Company 152,381
2,100 General Motors Corporation 138,600
20,200 Lear Corporation 1,004,950
100 Navistar International 5,000
700 PACCAR Incorporated 37,363
32,400 Ryder System 842,400
52,500 Volkswagen ADR 677,528
-------
3,034,435
BANKS 7.2%
17,000 Argentaria ADR 782,000
13,700 Bank One Corporation 816,006
100 Bank of America Corporation 7,331
2,500 Chase Manhattan 216,563
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
BANKS (CONTINUED)
6,400 Citigroup Incorporated $ 304,000
800 Federal Home Loan Mortgage Corporation 46,400
22,500 First Union Corporation 1,057,500
3,600 Firstar Corporation 100,800
3,100 Fleet Financial Group, Incorporated 137,563
200 J.P. Morgan & Company Incorporated 28,100
45,300 Pacific Century Financial Corporation 976,781
1,600 PNC Financial Corporation 92,200
------
4,565,244
BUILDING & HOUSING 0.3%
400 Applied Materials Incorporated 29,550
1,000 Centex Corporation 37,563
1,200 Crane Company 37,725
1,600 Kaufman & Broad Home Corporation 39,800
1,600 Pulte Corporation 36,900
------
181,538
BUSINESS MECHANICS & SOFTWARE 4.0%
900 America Online Incorporated 99,450
900 Apple Computers Incorporated 41,681
43,800 Borders Group 692,588
1,100 General Instruments Corporation 46,750
2,000 International Business Machines Corporation 258,500
20,800 Oracle Systems 772,200
1,500 Unisys Corporation 58,406
9,400 Xerox Corporation 555,188
-------
2,524,763
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
BUSINESS SERVICE 6.7%
27,950 Equifax $ 997,466
29,300 First Data 1,433,869
700 Laidlaw Incorporated 5,163
27,400 Manpower Incorporated 619,925
30,400 Stewart Enterprises Incorporated 442,700
29,200 Wallace Computer Services Incorporated 730,000
-------
4,229,123
CHEMICALS 0.5%
1,200 Air Products & Chemical Incorporated 48,300
1,100 Dow Chemical Company 139,563
800 Great Lakes Chemical 36,850
700 Monsanto Company 27,606
900 Praxair Incorporated 44,044
800 Union Carbide Corporation 39,000
------
335,363
COMMUNICATION 0.5%
700 Harcourt General Incorporated 36,094
400 Interpublic Group Companies 34,650
1,000 Omnicom Group 80,000
2,100 Time Warner Incorporated 154,350
-------
305,094
COMPUTER & OFFICE EQUIPMENT 3.7%
100 Avery Dennison Company 6,038
600 Computer Associates 33,000
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES MARKET VALUE
(CONTINUED)
<S><C>
COMPUTER & OFFICE EQUIPMENT (CONTINUED)
1,400 Dell Computer Corporation $ 51,800
800 Gateway Incorporated 47,200
5,200 Microsoft Corporation 468,975
66,600 Novell 1,764,900
---------
2,371,913
CONGLOMERATE 0.1%
900 Tyco International Ltd. 85,275
CONSTRUCTION 0.9%
18,800 Masco Corporation 542,850
CONTAINER 1.9%
800 Ball Corporation 33,800
34,800 Owens Illinois, Incorporated 1,137,525
---------
1,171,325
COSMETIC & SOAP 0.4%
300 Avon Products Incorporated 16,650
2,800 Proctor & Gamble 249,900
-------
266,550
ELECTRIC 0.6%
2,400 General Electric Company 271,200
1,300 Emerson Electric Company 81,738
600 Johnson Controls 41,588
------
394,526
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
ELECTRONICS 3.4%
1,100 Hewlett-Packard Company $ 110,550
5,700 Intel Corporation 339,150
2,000 Motorola Incorporated 189,500
2,100 Nortel Networks Corporation 182,306
12,500 Philips Electronics 1,260,938
400 Texas Instruments 58,000
------
2,140,444
ENTERTAINMENT & LEISURE 0.1%
1,600 Brunswick Corporation 44,600
FINANCIAL COMPANY 0.8%
1,500 American Express Company 195,188
1,000 Bear Stearns Companies Incorporated 46,750
2,000 Merrill Lynch Company 159,875
1,700 National City Corporation 111,350
-------
513,163
FINANCIAL SERVICE 2.5%
3,700 Associates First Capital Corporation 163,956
15,600 Fannie Mae 1,066,650
8,600 Student Loan Corporation 382,700
-------
1,613,306
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
FOOD & BEVERAGES 1.8%
10,400 Anheuser-Busch Companies, Incorporated $ 737,750
600 Archer Daniels Midland Company 9,263
1,100 Bestfoods 54,450
900 Coca-Cola Company 56,250
500 Conagra Incorporated 13,313
700 Coors Adolph 34,650
1,700 Dardeen Restaurants 37,081
1,000 Fortune Brands Incorporated 41,375
800 General Mills 64,300
1,600 Pepsico Incorporated 61,900
900 Tricon Global Restaurants 48,713
------
1,159,045
HEALTH CARE 7.4%
14,400 Abbott Labs Company 655,200
3,600 American Home Products Corporation 207,000
800 Bard C.R. Incorporated 38,250
600 Bausch & Lomb Incorporated 45,900
15,400 Baxter International Incorporated 933,625
3,900 Bristol-Meyers/ Squibb 274,706
200 Johnson & Johnson Company 19,600
30,000 Mallincrokdt Incorporated 1,091,250
4,300 Merck & Company 318,200
15,500 Novo-Nordisk ADR 829,250
200 Pfizer Incorporated 21,950
1,400 Schering Plough Corporation 74,200
2,800 Warner-Lambert Company 194,250
-------
4,703,381
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
HEALTH CARE SERVICES 0.2%
400 Boston Scientific Corporation $ 17,575
3,000 Columbia/HCA Healthcare Corporation 68,438
900 United Healthcare Corporation 56,363
------
142,376
INSURANCE 2.4%
1,500 Aflac Corporation 71,813
19,900 Allstate Corporation 713,913
300 American International Group 35,119
200 Aon Corporation 8,250
900 Chubb Group 62,550
1,000 Lincoln National Corporation 52,313
8,300 MBIA Corporation 537,425
1,000 Provident Companies 40,000
200 Providian Financial Corporation 18,700
100 SAFECO Corporation 4,413
-----
1,544,496
METAL & MINERAL 3.6%
400 Alcoa Incorporated 24,750
51,400 De Beers Construction Mines ADR 1,227,175
300 Freeport McMoran Copper 5,381
17,700 Minerals Technologies, Incorporated 987,881
300 USX- US Steel 8,100
-----
2,253,287
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
PAPER & FOREST PRODUCTS 0.2%
900 Boise Cascade $ 38,588
900 Georgia Pacific Company 42,638
500 Temple Inland 34,125
300 WeyerhaeuserCompany 20,625
100 Willamette Industries 4,606
-----
140,582
PETROLEUM 1.5%
100 Amerada Hess Corporation 5,950
100 Apache Corporation 3,900
1,000 Atlantic Richfield 83,563
1,900 Exxon Corporation 146,538
300 Mobil Corporation 29,700
3,300 Royal Dutch Petroleum ADR 198,825
17,100 Transocean Offshore, Incorporated 448,875
1,300 Unocal Corporation 51,513
------
968,864
PRINTING & PUBLISHING 0.8%
21,800 Journal Register Company 490,500
RAILROADS 0.1%
300 Union Pacific Corporation 17,494
RESTAURANTS 0.8%
32,700 CKE Restaurants Incorporated 531,375
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
RETAIL STORES 4.4%
200 Best Buy Incorporated $ 13,500
100 Circuit City Stores Incorporated 9,300
500 Dayton Hudson Corporation 32,500
900 GAP Incorporated 45,338
1,100 Federated Department Stores 58,231
1,600 Home Depot 103,100
2,800 Kmart 46,025
1,000 Long Drug Stores 34,563
400 Lowes Companies 22,675
1,800 May Department Stores 73,575
47,700 Office Depot 1,052,381
1,500 Supervalu Incorporated 38,531
200 Tandy Corporation 9,775
21,900 The Limited Incorporated 993,713
300 TJX Companies Incorporated 9,994
4,800 Wal-Mart Stores Incorporated 231,600
-------
2,774,801
SERVICES 0.3%
600 Briggs & Stratton 34,650
800 Caterpillar Incorporated 48,000
100 General Dynamics Corporation 6,850
1,300 Rockwell International Corporation 78,975
------
168,475
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
TECHNOLOGY 5.2%
2,700 Amgen $ 164,363
300 BMC Software, Incorporated 16,200
3,400 Cisco Systems Incorporated 219,088
20,200 Electronic Data Systems Corporation 1,142,563
20,200 Genzyme Corporation 979,700
3,616 Genzyme Surgical Products 15,933
37,600 J.D. Edwards 695,600
200 LSI Logic Corporation 9,225
1,400 Seagate Technology Incorporated 35,875
------
3,278,547
TELECOMMUNICATION 1.4%
22,100 COMSAT Corporation 718,250
2,000 Lucent Technologies 134,875
100 Scientific -Atlanta Incorporated 3,600
-----
856,725
TRAVEL & RECREATION 0.1%
700 Carnival Corporation 33,950
UTILITIES-ELECTRIC 0.1%
1,500 Texas Utilities Company 61,875
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
<S><C>
UTILITIES-ENERGY 0.2%
1,200 Coastal Corporation $ 48,000
1,300 Entergy Corporation 40,625
2,100 PG&E Corporation 68,250
------
156,875
UTILITIES-TELEPHONE 2.6%
300 Alltell Corporation 21,450
2,400 American Telephone and Telegraph 133,950
10,200 Ameritech Corporation 749,700
2,600 Bell Atlantic Corporation 169,975
2,300 Bell South Corporation 107,813
400 GTE Corporation 30,300
2,000 MCI Worldcom Incorporated 172,125
3,200 SBC Communication, Incorporated 185,600
1,800 Sprint Corporation 95,063
------
1,665,976
MISCELLANEOUS 0.9%
21,100 Elan Corporation 585,525
500 FMC Corporation 34,141
------
619,666
-------
TOTAL COMMON STOCK (COST $37,648,883) 46,108,784
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
TOTAL LONG-TERM OBLIGATIONS 24.7% MARKET VALUE
<S><C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 16.5%
United States Treasury Bonds
20,000 5.250% 11/15/28 $ 17,706
280,000 6.125% 11/15/27 277,463
United States Treasury Inflation Index Bonds
125,396 3.375% 01/15/07 120,302
1,028,510 3.625% 01/15/08 999,905
1,345,802 3.625% 04/15/28 1,271,363
192,043 3.875% 04/15/29 189,582
United States Treasury Notes
200,000 7.500% 02/15/05 215,438
10,000 6.125% 08/15/07 10,113
United States Treasury Strips
210,000 0.000% 02/15/23 49,293
Federal Home Loan Mortgage Corporation
600,000 6.500% 07/01/29 580,128
100,000 7.000% 07/01/29 99,063
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
TOTAL LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage Association
(mortgage-backed securities)
$ 178,819 9.000% 08/01/07 $ 186,695
1,000,000 6.000% 07/01/29 940,940
1,590,000 6.500% 07/01/29 1,535,845
600,000 7.000% 07/01/29 593,628
600,000 7.500% 07/01/29 705,220
Government National Mortgage Association
(mortgage-backed securities)
68,289 10.000% 12/15/20 74,702
685,555 6.500% 09/15/28 661,987
200,000 6.000% 07/01/29 186,938
395,000 6.500% 07/01/29 380,310
900,000 7.000% 07/01/29 889,029
Student Loan Marketing Association
410,483 5.090% 04/25/06 408,348
-------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 10,393,998
U.S. GOVERNMENT AND AGENCY OBLIGATIONS SOLD SHORT -0.2%
Federal National Mortgage Association
(mortgage-backed securities)
(100,000) 6.500% 07/01/04 (98,656)
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
TOTAL LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
ASSET BACKED OBLIGATIONS 3.5%
Chase Commingled Mortgage Security
$ 287,000 7.370% 02/19/07 $ 294,164
Chevy Chase Home Loan
97,470 7.150% 05/15/15 Series 1996-1 98,110
Contimortgage Home Equity Loan
230,000 6.420% 04/25/14 229,995
DLJ Commercial Mortgage Corporation
290,435 5.880% 11/12/31 280,552
Fairbanks Capital Mortgage
200,000 5.810% 05/25/28 200,000
Ford Motor Company
180,000 7.700% 05/15/97 180,442
Green Tree Financial Corporation
100,000 5.816% 07/15/03 99,938
76,513 6.900% 02/15/04 76,358
79,456 7.850% 07/15/04 79,957
Keystone Owner Trust
40,340 6.620% 11/25/08 Series 1998-P1 40,340
Merrill Lynch Mortgage Investors
100,000 6.960% 11/21/28 Series 1996-C2 100,299
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
TOTAL LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
ASSET BACKED OBLIGATIONS (CONTINUED)
Nomura Asset Securities Corporation
$ 70,000 7.120% 04/13/36 Series 1996-M $ 70,702
Resolution Funding Corporate Strip
1,700,000 0.000% 10/15/19 461,574
-------
TOTAL ASSET BACKED OBLIGATIONS 2,212,431
CORPORATE OBLIGATIONS 4.5%
BANKS 0.4%
Dryden Investor Trust
290,116 7.157% 07/23/08 279,747
-------
279,747
COMMUNICATION & MEDIA 0.3%
AT&T Universal Card Master
30,000 5.625% 03/15/04 29,077
50,000 6.500% 03/15/29 45,108
Continental Cablevision Incorporated
100,000 9.000% 09/01/08 112,497
-------
186,682
ELECTRIC 0.2%
System Energy
125,011 7.430% 01/15/11 124,296
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
TOTAL LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
FINANCIAL 1.6%
British Aerospace Financial
$ 350,000 7.500% 07/01/27 $ 356,400
General Electric Capital Corporation
260,000 8.200% 10/30/03 280,577
General Motors Acceptance Corporation
250,000 0.000% 06/15/15 effective yield 6.54% 78,676
JPM Capital Trust
20,000 7.950% 02/01/27 19,898
Zurich Capital Trust
300,000 8.376% 06/01/37 306,628
-------
1,042,179
FOOD & BEVERAGES 0.4%
Archer Daniels Midland Company
10,000 6.625% 05/01/29 9,204
J Seagram & Sons
80,000 6.400% 12/15/03 78,798
50,000 6.800% 12/15/08 47,803
70,000 7.500% 12/15/18 67,833
10,000 7.600% 12/15/28 9,673
-----
213,311
OIL & GAS 0.1%
Petrozuata Financial Guarantee
110,000 8.220% 04/01/17 84,975
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
TOTAL LONG-TERM OBLIGATIONS (CONTINUED) MARKET VALUE
<S><C>
RAILROAD 0.1%
Conrail
$ 20,000 7.875% 05/15/43 $ 20,592
TELECOMMUNICATION 0.5%
Lucent Technologies Incorporated
200,000 6.450% 03/15/29 183,321
TCI Communications Incorporated
120,000 6.375% 05/01/03 119,426
-------
302,747
MISCELLANEOUS 0.5%
News America Holdings
100,000 8.875% 04/26/23 109,193
100,000 7.625% 11/30/28 96,131
Pepsi Bottling Company
150,000 7.000% 03/01/29 140,637
-------
345,961
INTERNATIONAL 0.4%
Dresdner Bank New York
40,000 8.151% 06/30/31 37,928
YPF Sociedad Anonima
200,000 7.750% 08/27/07 188,267
-------
226,195
-------
TOTAL CORPORATE OBLIGATIONS 2,826,685
---------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
TOTAL LONG-TERM OBLIGATIONS (CONTINUED)
<S><C>
PREFERRED OBLIGATIONS 0.3% MARKET VALUE
IBJ Preferred Capital Company
$ 80,000 8.790% 12/29/49 $ 67,116
SB Treasury Company
190,000 9.400% 12/29/49 183,675
TOTAL PREFERRED OBLIGATIONS 250,791
-------
TOTAL LONG-TERM OBLIGATIONS
(COST $15,692,184) 15,683,905
----------
SHORT-TERM OBLIGATIONS 10.2% AMORTIZED COST
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 0.2%
Federal Home Loan Mortgage Corporation
(A) 100,000 4.720% 11/12/99 98,243
------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 98,243
DEMAND NOTES** 10.0%
American Family Demand Note
799,000 4.700% 12/31/31 799,000
Firstar Bank Demand Note
878,283 4.970% 12/31/31 878,283
General Mills Demand Note
798,160 4.825% 12/31/31 798,160
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
SHORT-TERM OBLIGATIONS (CONTINUED) AMORTIZED COST
<S><C>
DEMAND NOTES** (CONTINUED)
Pitney Bowes Demand Note
$ 1,204,907 4.825% 12/31/31 $ 1,204,907
Warner Lambert Demand Note
798,853 4.701% 12/31/31 798,853
Wisconsin Corporation Credit Union
Demand Note
799,282 4.890% 12/31/31 799,282
Wisconsin Electric Demand Note
1,054,663 4.701% 12/31/31 1,054,663
TOTAL DEMAND NOTES 6,333,148
---------
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $6,431,391) 6,431,391
---------
TOTAL INVESTMENTS
(COST BASIS $59,772,458) 68,125,424
----------
</TABLE>
** These security have a maturity of more than one year, but have variable
rate and demand features which qualify it as a short-term security. These
rates disclosed is that currently in effect. These rates change periodically
based on market conditions or a specified market index.
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
NUMBER OF CONTRACTS MARKET VALUE
<S><C>
OPTIONS-WRITTEN 0.0%
Call Options 5 Year T-Note Futures
2 Exercise Price $110.00, Expiring August 1999 $ (625)
Call Options 5 Year T-Note Futures
4 Exercise Price $112.00, Expiring August 1999 (188)
Call Options 5 Year T-Note Futures
2 Exercise Price $109.50, Expiring August 1999 (969)
Call Options Bond Futures
5 Exercise Price $117.00, Expiring August 1999 (2,578)
3 Call Options Bond Futures
Exercise Price $118.00, Expiring August 1999 (2,016)
Put Options Bond Futures
2 Exercise Price $114.00, Expiring August 1999 (1,500)
Put Options Bond Futures
7 Exercise Price $116.00, Expiring August 1999 (10,828)
Call Options Treasury Bond Futures
5 Exercise Price $120.00, Expiring November 1999 (4,297)
Call Options Treasury Bond Futures
3 Exercise Price $122.00, Expiring November 1999 (1,547)
-------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $23,831) (24,547)
--------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS NET OF
OUTSTANDING WRITTEN OPTIONS 107.6% $ 68,100,877
CASH AND OTHER ASSETS, LESS
LIABILITIES -7.6% (4,799,973)
TOTAL NET ASSETS 100.0% $ 63,300,904
-------------------------
</TABLE>
* 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. GOVERNMENT AGENCY SECURITIES PLEDGED AS MARGIN FOR
FUTURES CONTRACTS. THE PORTFOLIO HAD THE FOLLOWING OPEN FUTURES
CONTRACTS AT JUNE 30, 1999:
OPEN FUTURES CONTRACTS:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF PRINCIPAL GAINS (LOSSES)
TYPE CONTRACTS AMOUNT POSITION EXPIRATION JUNE 30, 1999
---- --------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
5 Year U.S. Treasury Notes 10 10,000 Short September 1999 ($7,489)
10 Year U.S. Treasury Notes 11 11,000 Long September 1999 12,808
U.S. Govt Bond Futures 9 9,000 Long September 1999 7,495
U.S. Govt Bond Futures 1 1,000 Long March 2000 (4,414)
-------
$8,400
-------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
<PAGE>
AHA INVESTMENT FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
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 $ 85,337,657 $ 103,089,271 $ 126,456,633 $ 68,125,424
Receivable for investments sold 439,458 0 0 1,199,300
Receivable for shares sold 0 0 400,000 0
Cash 1 911 0 0
Dividends and interest receivable 985,735 1,591,657 98,852 182,554
Other Assets 1,353 8,888 10,906 16,791
--------------- ---------------- ---------------- ---------------
Total Assets $ 86,764,204 $ 104,690,727 $ 126,966,391 $ 69,524,069
--------------- ---------------- ---------------- ---------------
--------------- ---------------- ---------------- ---------------
LIABILITIES:
Payable for investments purchased $ 13,285,535 $ 0 $ 69,058 $ 6,084,826
Payable for dividends 0 369 0 0
Options written and securities sold short at
market value 52,610 0 0 123,203
Accrued expenses and other liabilities 5,836 15,646 5,181 15,136
--------------- ---------------- ---------------- ---------------
Total Liabilities $ 13,343,981 $ 16,015 $ 74,239 $ 6,223,165
--------------- ---------------- ---------------- ---------------
NET ASSETS $ 73,420,223 $ 104,674,712 $ 126,892,152 $ 63,300,904
--------------- ---------------- ---------------- ---------------
--------------- ---------------- ---------------- ---------------
Net Assets consist of:
Capital Stock ($0.01 par value and
200 million shares authorized) and
Paid-in Capital $ 75,440,444 $ 107,446,727 $ 91,266,972 $ 49,088,392
Undistributed net investment income 0 0 41,993 766,209
Accumulated net realized gain (loss)
on investments sold (1,019,308) (2,053,746) 9,880,852 5,084,937
Net unrealized appreciation
(depreciation)of investments and
futures (1,000,913) (718,269) 25,702,335 8,361,366
--------------- ---------------- ---------------- ---------------
TOTAL NET ASSETS $ 73,420,223 $ 104,674,712 $ 126,892,152 $ 63,300,904
--------------- ---------------- ---------------- ---------------
--------------- ---------------- ---------------- ---------------
Number of Shares Outstanding at
the end of year 7,452,459 10,266,996 5,729,370 4,309,240
--------------- ---------------- ---------------- ---------------
NET ASSET VALUE PER SHARE $ 9.85 $ 10.20 $ 22.15 $ 14.69
--------------- ---------------- ---------------- ---------------
--------------- ---------------- ---------------- ---------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
- --------------------------------------------------------------------------------
55
<PAGE>
AHA INVESTMENT FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FULL LIMITED
MATURITY MATURITY DIVERSIFIED
FIXED INCOME FIXED INCOME EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 4,597,092 $ 5,542,282 $ 134,128 $ 1,122,337
Dividends 0 0 1,551,524 515,447
------------- ------------- ------------- -------------
Total investment income $ 4,597,092 $ 5,542,282 $ 1,685,652 $ 1,637,784
EXPENSES:
Custodian fees $ 26,459 $ 19,947 $ 24,488 $ 30,323
Accounting fees 49,191 42,196 36,173 31,021
Transfer agent fees 11,152 15,199 15,751 8,619
Legal fees 6,132 6,132 6,132 6,132
Audit and tax return fees 12,774 12,775 12,775 12,775
Director fees and expenses 5,131 5,131 5,132 5,131
Officers and directors insurance 7,006 12,548 6,838 8,483
Administrative and other fees 6,284 6,834 6,887 4,203
------------- ------------- ------------- -------------
Total Expenses $ 124,129 $ 120,762 $ 114,175 $ 106,687
NET INVESTMENT INCOME $ 4,472,963 $ 5,421,520 $ 1,571,477 $ 1,531,097
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) on $ (25,643) $ 1,073,910 $ 10,655,846 $ 7,371,464
investments sold
Net realized gain (loss) on closed futures
and options contracts 65,242 0 0 (56,604)
Net change in unrealized appreciation
(depreciation) of investments, futures,
and options (2,455,200) (1,147,704) 8,583,529 (692,742)
------------- ------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS $ (2,415,601) $ (73,794) $ 19,239,375 $ 6,622,118
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,057,362 $ 5,347,726 $ 20,810,852 $ 8,153,215
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
- --------------------------------------------------------------------------------
56
<PAGE>
AHA INVESTMENT FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FULL MATURITY LIMITED MATURITY
FIXED INCOME PORTFOLIO FIXED INCOME PORTFOLIO
---------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 3,918,929 $ 4,472,963 $ 7,056,403 $ 5,421,520
Net realized gain on
investments sold and closed
futures and options contracts 775,137 39,599 603,041 1,073,910
Net change in unrealized
appreciation (depreciation) of
investments, futures and
options 1,500,369 (2,455,200) 111,803 (1,147,704)
--------------- ----------------- --------------- -----------------
Net increase in net assets
resulting from operations 6,194,435 2,057,362 7,771,247 5,347,726
--------------- ---------------- --------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment
income (3,918,929) (4,472,963) (7,056,403) (5,421,520)
Capital gains distribution -- -- -- --
--------------- ---------------- --------------- ----------------
Net decrease in net assets
resulting from distributions $ (3,918,929) $ (4,472,963) $ (7,056,403) $ (5,421,520)
SHARE TRANSACTIONS:
Subscriptions of fund shares 19,714,754 10,557,454 66,599,835 29,136,977
Investment income dividends
reinvested 3,905,490 4,466,909 6,698,745 5,341,148
Capital gains distributions
reinvested -- -- -- --
--------------- ---------------- --------------- ----------------
Gross increase in fund shares 23,620,244 15,024,363 73,298,580 34,478,125
Redemptions of fund shares (4,862,697) (11,017,877) (85,320,203) (59,446,215)
--------------- ---------------- --------------- ----------------
Net increase (decrease) from
share transactions 18,757,547 4,006,486 (12,021,623) (24,968,090)
--------------- ---------------- --------------- ----------------
Net increase (decrease) in net
assets $ 21,033,053 $ 1,590,885 $ (11,306,779) $ (25,041,884)
TOTAL NET ASSETS
Beginning of Year 50,796,285 71,829,338 141,023,375 129,716,596
--------------- ---------------- --------------- ----------------
End of Year $ 71,829,338 $ 73,420,223 $ 129,716,596 $ 104,674,712
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
Undistributed net
investment income $ 0 $ 0 $ 0 $ 0
--------------- ---------------- --------------- ----------------
--------------- ---------------- --------------- ----------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
- --------------------------------------------------------------------------------
57
<PAGE>
AHA INVESTMENT FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY PORTFOLIO BALANCED PORTFOLIO
------------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,155,391 $ 1,571,477 $ 1,670,427 $ 1,531,097
Net realized gain on
investments sold and closed
futures and options contracts 14,530,821 10,655,846 7,424,058 7,314,860
Net change in unrealized
appreciation (depreciation)
of investments, futures, and
options 910,168 8,583,529 283,712 (692,742)
------------- --------------- ------------- ---------------
Net increase in net assets
resulting from operations 16,596,380 20,810,852 9,378,197 8,153,215
------------- --------------- ------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment
income (1,146,547) (1,584,051) (1,662,939) (1,542,516)
Capital gains distribution (14,645,221) (8,635,723) (7,943,151) (5,761,408)
------------- --------------- ------------- ---------------
Net decrease in net assets
resulting from distributions $(15,791,768) $ (10,219,774) $ (9,606,090) $ (7,303,924)
SHARE TRANSACTIONS:
Subscriptions of fund shares 20,167,552 29,559,964 8,202,099 1,380,210
Investment income dividends
reinvested 1,146,547 1,584,051 1,377,522 1,278,332
Capital gains distributions
reinvested 14,645,221 8,635,723 6,594,632 5,761,408
------------- --------------- ------------- ---------------
Gross increase in fund shares 35,959,320 39,779,738 16,174,253 8,419,950
Redemptions of fund shares (21,618,574) (9,214,420) (8,723,903) (5,328,032)
------------- --------------- ------------- ---------------
Net increase from
share transactions 14,340,746 30,565,318 7,450,350 3,091,918
------------- --------------- ------------- ---------------
Net increase in net assets $ 15,145,358 41,156,396 $ 7,222,457 3,941,209
TOTAL NET ASSETS
Beginning of Year 70,590,398 85,735,756 52,137,238 59,359,695
------------- --------------- ------------- ---------------
End of Year $ 85,735,756 $ 126,892,152 $ 59,359,695 $ 63,300,904
------------- --------------- ------------- ---------------
------------- --------------- ------------- ---------------
Undistributed net investment
income $ 54,567 $ 41,993 $ 777,628 $ 766,209
------------- --------------- ------------- ---------------
------------- --------------- ------------- ---------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
- --------------------------------------------------------------------------------
58
<PAGE>
AHA INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
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, 1999. 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, 1999.
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.
- --------------------------------------------------------------------------------
59
<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 closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase 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 options written
for the year ended June 30, 1999 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 21 $ 13,155 14 $ 8,786
of Year
Options Written 519 342,637 211 145,139
Options Terminated in Closing (383) (271,306) (154) (116,107)
Purchase Transactions
Options Expired (88) (33,783) (38) (13,987)
---- -------- ---- --------
Options Outstanding at June 30, 1999 69 $ 50,701 33 $ 23,831
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Limited Maturity and Diversified Equity Portfolios did not purchase or hold
any options during the year ended June 30, 1999.
- --------------------------------------------------------------------------------
60
<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, 1999.
- --------------------------------------------------------------------------------
61
<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, 1999, the Funds' most recent fiscal year
end, the approximate capital loss carryforwards for U.S. Federal income tax
purposes for the Full Maturity Fixed Income Portfolio and Limited Maturity Fixed
Income Portfolio were approximately $650,000 and $2.0 million respectively.
These capital loss carryforwards expire beginning in the year ending June 30,
2003, and are 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 $0.292 and $0.364 per
share, respectively, during the year ended June 30, 1999.
During the year ended June 30, 1999, the Diversified Equity and Balanced
Portfolios made a long-term capital gain distribution of $1.628 and $1.263 per
share, respectively.
During the year ended June 30, 1999, the Diversified Equity and Balanced
Portfolios made a short-term capital gain distribution of $0.015 and $0.111 per
share, respectively.
- --------------------------------------------------------------------------------
62
<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. The Program Service Fee is equal to .50%
for the Full Maturity and Limited Maturity Portfolios and 0.75% for the Balanced
and Diversified Equity Portfolios and is reflected in the total return as
disclosed in the financial highlights tables.
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, 1999, 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, 1999, there were no
borrowings.
- --------------------------------------------------------------------------------
63
<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, 1999 is presented below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PORTFOLIO PURCHASES SALES
- -------------------------------------------------------------------------------
<S> <C> <C>
Full Maturity Fixed Income 250,868,104 237,820,298
Limited Maturity Fixed Income 182,614,677 205,738,148
Diversified Equity 101,845,453 80,211,641
Balanced 135,438,163 138,966,269
- -------------------------------------------------------------------------------
</TABLE>
At June 30, 1999, 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 425,832 1,410,523 86,332,348 86,332,348
Limited Maturity Fixed Income 77,511 795,788 103,807,540 103,807,540
Diversified Equity 28,332,649 2,630,314 100,754,298 100,754,298
Balanced 8,999,945 646,979 59,772,458 59,772,458
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
64
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6.
TRANSACTIONS IN CAPITAL STOCK SHARES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1999
------------------------------------------------------------
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 1,035,517 2,837,605 1,444,628 104,870
Investment income dividends
reinvested 438,828 519,500 79,595 92,172
Capital Gains Distribution reinvested 0 0 450,011 436,139
----------- ----------- ----------- -----------
Gross increase in fund shares 1,474,345 3,357,105 1,974,234 633,181
Redemptions of fund shares (1,079,427) (5,777,512) (453,783) (385,827)
----------- ----------- ----------- -----------
Net increase (decrease) in fund shares 394,918 (2,420,407) 1,520,451 247,354
Beginning of Year 7,057,541 12,687,403 4,208,919 4,061,886
----------- ----------- ----------- -----------
End of Year 7,452,459 10,266,996 5,729,370 4,309,240
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------------
</TABLE>
<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 shares 1,867,117 (1,186,497) 801,461 554,357
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>
- --------------------------------------------------------------------------------
65
<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>
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------------
1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.48 $9.88 $9.63 $9.79 $10.18
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.65 0.65 0.65 0.64 0.60
Net realized and unrealized gain (loss)
on investments and futures 0.40 (0.25) 0.16 0.39 (0.33)
--------------------------------------------------------------------
Total from Investment Operations 1.05 0.40 0.81 1.02 0.27
LESS DISTRIBUTIONS:
Net investment income (0.65) (0.65) (0.65) (0.64) (0.60)
Net realized capital gains (0.00) (0.00) (0.00) (0.00) (0.00)
--------------------------------------------------------------------
Total Distributions (0.65) (0.65) (0.65) (0.64) (0.60)
--------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.88 $9.63 $9.79 $10.18 $9.85
--------------------------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (A) 10.99% 3.58% 8.09% 10.20% 2.11%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $39,874 $53,292 $50,796 $71,829 $73,420
Ratio of Expenses to Average Net Assets (B) 0.21% 0.21% 0.21% 0.17% 0.16%
Ratio of Net Investment Income to
Average Net Assets (B) 6.88% 6.52% 6.63% 6.19% 5.90%
Portfolio turnover rate 279.42% 283.13% 304.93% 178.52% 273.61%
</TABLE>
- ------------------------------
(A) Total Return on Net Asset Value is net of the management fee of 0.50% per
annum.
(B) Ratios include all management fees and expenses except for the program
services fees.
- --------------------------------------------------------------------------------
66
<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>
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
------------------------------------------------------------
1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $10.22 $10.12 $10.16 $10.22
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.62 0.62 0.61 0.60 0.53
Net realized and unrealized gain (loss)
on investments and futures 0.13 (0.10) 0.04 0.06 (0.02)
------------------------------------------------------------
Total from Investment Operations 0.75 0.52 0.65 0.66 0.51
LESS DISTRIBUTIONS:
Net investment income (0.62) (0.62) (0.61) (0.61) (0.53)
Net realized capital gains (0.00) (0.00) (0.00) (0.00) (0.00)
------------------------------------------------------------
Total Distributions (0.62) (0.62) (0.61) (0.61) (0.53)
------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.22 $10.12 $10.16 $10.22 $10.20
------------------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (A) 7.19% 4.66% 6.03% 6.11% 4.59%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $186,856 $201,196 $141,023 $129,717 $104,675
Ratio of Expenses to Average Net Assets (B) 0.12% 0.10% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to
Average Net Assets (B) 6.17% 6.03% 6.04% 5.92% 5.30%
Portfolio turnover rate 155.12% 132.75% 121.70% 144.97% 176.78%
</TABLE>
- -----------------------
(A) Total Return on Net Asset Value is net of the management fee of 0.50% per
annum.
(B) Ratios include all management fees and expenses except for the program
services fees.
- --------------------------------------------------------------------------------
67
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
DIVERSIFIED EQUITY PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
---------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.90 $14.76 $17.59 $20.72 $20.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.35 0.34 0.32 0.29
Net realized and unrealized gain (loss)
on investments and futures 2.34 3.57 5.18 4.14 3.42
---------------------------------------------------------------------------------
Total from Investment Operations 2.63 3.92 5.52 4.46 3.71
LESS DISTRIBUTIONS:
Net investment income (0.29) (0.35) (0.34) (0.32) (0.29)
Net realized capital gains (1.48) (0.74) (2.05) (4.49) (1.64)
---------------------------------------------------------------------------------
Total Distributions (1.77) (1.09) (2.39) (4.81) (1.93)
---------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.76 $17.59 $20.72 $20.37 $22.15
---------------------------------------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (A) 20.11% 26.42% 32.97% 24.05% 18.90%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $39,634 $54,435 $70,590 $85,736 $126,892
Ratio of Expenses to Average Net
Assets (B) 0.31% 0.18% 0.17% 0.14% 0.10%
Ratio of Net Investment Income to
Average Net Assets (B) 2.30% 2.09% 1.83% 1.51% 1.43%
Portfolio turnover rate 68.12% 57.76% 67.31% 65.82% 74.35%
</TABLE>
- ------------------------------
(A) Total Return on Net Asset Value is net of the management fee of 0.75% per
annum.
(B) Ratios include all management fees and expenses except for the program
services fees.
- --------------------------------------------------------------------------------
68
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
-----------------------------------------------------------------
1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.66 $12.63 $13.38 $14.86 $14.61
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.41 0.37 0.41 0.36
Net realized and unrealized gain (loss)
on investments and futures 1.44 1.98 2.65 2.01 1.45
-----------------------------------------------------------------
Total from Investment Operations 1.76 2.39 3.02 2.42 1.81
LESS DISTRIBUTIONS:
Net investment income (0.32) (0.41) (0.39) (0.44) (0.36)
Net realized capital gains (0.47) (1.23) (1.15) (2.23) (1.37)
-----------------------------------------------------------------
Total Distributions (0.79) (1.64) (1.54) (2.67) (1.73)
-----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.63 $13.38 $14.86 $14.61 $14.69
-----------------------------------------------------------------
TOTAL RETURN ON NET ASSET VALUE (A) 14.97% 19.20% 23.23% 16.79% 13.10%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Period (in thousands) $46,646 $43,130 $52,137 $59,360 $63,301
Ratio of Expenses to Average Net
Assets (B) 0.21% 0.23% 0.23% 0.18% 0.18%
Ratio of Net Investment Income to
Average Net Assets (B) 4.12% 3.08% 2.81% 2.86% 2.55%
Portfolio turnover rate 160.41% 146.69% 173.60% 169.04% 206.43%
</TABLE>
- --------------------------------
(A) Total Return on Net Asset Value is net of the management fee of 0.75% per
annum.
(B) Ratios include all management fees and expenses except for the program
services fees.
- --------------------------------------------------------------------------------
69
<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
INVESTMENTS 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, 1999, 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, 1999, by correspondence with the custodian and brokers. As to securities
purchased but not received, we requested confirmations from brokers and, when
replies were not received, we carried out 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.
- --------------------------------------------------------------------------------
70
<PAGE>
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, 1999, 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.
Chicago, Illinois
August 13, 1999
- --------------------------------------------------------------------------------
71
<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, 1999 and a description of the principal 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, 1999. 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%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIMITED MATURITY FIXED INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
The Patterson Capital Corporation December 22, 1988 100%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY PORTFOLIO
- -----------------------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cambiar Investors, Inc. October 20, 1988 50%
Investment Research Company December 1, 1993 50%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
- -----------------------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cambiar Investors, Inc. December 1, 1993 50%
Western Asset Management Co. July 1, 1995 30%
Investment Research Co. June 15, 1999 20%
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
72
<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, 1999, the total return of the Full
Maturity Fixed Income Portfolio, net of all fees and expenses, was 2.11%
compared to the Lehman Brothers Aggregate Bond Index (LB Aggregate Index) which
had a total return of 3.13% for the same period. The gross return of the segment
of the Portfolio, managed by Western Asset Management Company (WAMCO) was 2.38%.
The principal factors which affected performance during this period are
discussed below.
Global fixed income markets were particularly volatile for the year ending June
30, 1999. The period can be divided into two halves, representing distinct
underlying market sentiment and performance. Overall, the broad market managed
to eke out a small positive return of 2.11% for the LB Aggregate Index.
The first half of the period, the third and fourth quarters of 1998 saw U.S.
Treasury yields fall sharply as investors sought liquidity and quality in the
midst of global currency and financial crises. World wide, the spread between
yields on non-sovereign issues (corporate, mortgage, asset backed securities
etc.) and Treasuries widened in the wake of the Russian devaluation and
repudiation of debt late last summer, causing these sectors to sharply
underperform the broad market. In the fall of 1998, the Fed lowered the Fed
Funds rates three times (by 0.25% each time) to 4.75% in order to provide
liquidity to the market and stave off further global economic deterioration.
A sharp reversal of sentiment began late in 1998 and continued in the first half
of 1999, with yields on Treasuries rising sharply as fears of a reflationary
boom quickly supplanted prior recessionary worries. The Fed reversed policy and
raised the Fed Funds' rate at the end of June 1999 to 5.00%, citing inflation
fears in the wake of evidence of continued strong growth.
In terms of returns, year-to-date market sector performance is virtually a
mirror image of the second half of 1998. Sovereign issues, including US Treasury
securities lagged other sectors of the fixed income markets for the first six
months of 1999. The "riskiest" sectors of the market, high yield and emerging
market debt, those that suffered most acutely in the crises of 1998, have
rebounded sharply, posting the highest returns of any broad market sector
year-to-date.
WAMCO's Portfolio underperformed its benchmark for the 12 month period, with a
total return of 2.38 % vs. 3.13 % for the LB Aggregate Index, as portfolio
strategies produced mixed results. The Portfolio's long relative duration was
the largest detriment to performance as interest rates ended the period sharply
higher. Consistent with internal risk management policies, the Portfolio
duration ranged between 110 and 120% of benchmark duration. The long duration
position was adopted based on a view that inflation fundamentals were solid, and
that interest rates remained relatively high compared to what was likely to
prove a benign inflationary environment. While this view has been borne out by
inflation reports, fear that continued strong growth must eventually lead to
inflation has caused the Fed to adopt an extremely hawkish stance.
- ---------------------------------------------------------------------------
73
<PAGE>
Yield curve positioning (term structure) somewhat mitigated the effect of rising
yields. In the first 6 months of the period, emphasis on intermediate maturities
was a positive as the curve steepened. During the second half of the year long
period, the manager shifted to an emphasis on long maturities which also
contributed to performance as long term rates rose less than those of
intermediate securities.
The Portfolio's overweight exposure (relative to the LB Aggregate Index) to non
Treasury sectors, including mortgages and corporate and asset-backed securities,
detracted from performance for the 12 month period. Overweight exposure to the
mortgage sector was a drag on performance, as was the manager's emphasis on
discount coupons, which slightly underperformed the broad sector. A moderate
overweighting to the corporate sector also had a negative impact on results,
since the fallout from the Asian crisis, and later inflationary fears tended to
cause credit spreads to widen, even as equity markets rose to new highs on the
same reports of strong growth. This effect was offset somewhat, however, by
strong performance of select issues.
Finally, a moderate exposure to inflation-indexed bonds proved to be a drag on
performance, as real rates rose over the period. The manager continues to
believe that inflation-indexed bonds offer attractive hedging characteristics as
well as solid intrinsic value.
- --------------------------------------------------------------------------------
74
<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, 1999, the total return of the
Full Maturity Fixed Income Portfolio, net of all fees and expenses, was 2.11%
compared to the Lehman Brothers Aggregate Bond Index (LB Aggregate Index) which
had a total return of 3.13% for the same period. The gross return of the segment
of the Portfolio, managed by Firstar Investment Research & Management Company,
LLC ("FIRMCO") was 3.25%. The principal factors, which affected performance
during this period are discussed below.
In the portion of the AHA FULL MATURITY FIXED INCOME FUND, ("the Fund"), which
is managed by FIRMCO, they seek to provide an annual rate of total return
comparable to that of the LB Aggregate Index, before Fund expenses. The
Benchmark is a widely accepted composite of securities representing the bond
market in its entirety.
OBJECTIVE
In order to achieve this objective, we must first match the performance of the
Benchmark. We do this by keeping the assets of the Fund "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), we do not. Regardless of our interest rate forecast, we
hold the duration of the Fund equivalent to that of the Benchmark. This ensures
that the Fund has the same sensitivity to changes in interest rates as the
Benchmark. We have 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.
Once we track the performance of the Benchmark, we then focus on adding value in
the Fund using three broad-based investment decision strategies:
1) YIELD CURVE POSITIONING Selecting the "maturity mix" of securities
in the Fund, 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.
2) SECTOR ALLOCATION Selecting sectors of the bond market to
overweight or underweight in the Fund 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.
- --------------------------------------------------------------------------------
75
<PAGE>
3) ISSUE SELECTION Selecting securities for the Fund is the
"basic building block" of all of our added
value work. Every security that is evaluated
for purchase in the Fund is thoroughly
researched and tested. With just 68
securities in the Fund, (compared to the
Benchmark which has over 5,300), we are very
opinionated about each and every security
that we choose to buy and hold.
* 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.
The last twelve months have been difficult for fixed income investors. For the
fiscal year ended June 30, 1999, the Fund, in its entirety, had a total return
comparable to its Benchmark. The Fund appreciated +2.11%, net of expenses, while
the Lehman Brothers Aggregate Bond Index appreciated +3.15%.
Since year-end 1998, the Full Maturity Fixed Income Fund, in it's entirety,
returned (1.19)% compared to the Benchmark return of (0.88)%. FIRMCO has been an
investment manager for a portion of the Fund since December 1996. During the
last twelve months, on the portion of the Fund that FIRMCO manages, the Fund had
a total return of +3.25%, before expenses, versus the Benchmark return of
+3.13%. During this time, yields on U.S. Treasury bonds and notes increased
approximately 40 basis points. For example, the 10 year U.S. Treasury note
yielded 5.4% on 6/30/98 and yielded 5.8% on 6/30/99.
The Fund's duration is the single most significant determinant of its total
return. In attempting to achieve its objective, the Fund may invest in
securities with very long remaining maturities, (30 years or longer), in
addition to shorter bonds and notes. As of June 30, 1999, the FIRMCO-managed
portion of this Fund has an overall AVERAGE PORTFOLIO MATURITY OF 9.6 YEARS, and
a DURATION OF 4.9 YEARS. This duration is equivalent to that of the Lehman
Brothers Aggregate Bond Index.
In the FIRMCO-managed portion of the Fund, we tracked the return of the
Benchmark and added 9 basis points of incremental value, before fund expenses.
We attribute this added value to successful implementation of our three broad
investment strategies: yield curve positioning, sector allocation, and issue
selection.
Yield Curve Positioning: Opportunities within the yield curve have been rather
limiting because of the curve's relatively flat shape (45 basis points between 2
year and 30 year U.S. Treasury securities). We have been under-weighted in the
short end of the curve, and over-weighted in the 7 year and 20 year slice. This
maturity structure can be referred to as a "modified bullet." Overall, we
believe the Portfolio maturity structure will continue to generate a modest
performance benefit for the balance of 1999.
- --------------------------------------------------------------------------------
76
<PAGE>
Sector Allocation: The Fund is over-weighted in several sectors. Within the
asset-backed sector, we utilize securities backed by credit card receivables,
home equity loans and manufactured housing loans as a substitute for other
non-U.S. Treasury securities. The asset-backed securities that we own tend to be
very highly rated (Aaa/AAA), and very liquid. We believe they have contributed
favorably to the Fund's performance. Other sectors that have helped the Fund are
finance, banking, and brokerage issues, international securities (all are
denominated in U.S. dollars), and mortgage-backed securities. GIVEN THE HEALTHY
U.S. ECONOMIC OUTLOOK, WE ANTICIPATE THAT OUR NON-TREASURY HOLDINGS WILL
CONTINUE TO ADD VALUE TO THE FUND.
IN TERMS OF QUALITY, TWO-THIRDS OF THE FUND 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 Fund has significant
exposure to "A" and "Baa" rated securities. These investment-grade bonds
contributed favorably to the Fund's outperformance during the last twelve
months.
Since beginning our work on behalf of the AHA Full Maturity Fund in December of
1996, we have adhered to the same investment management discipline. We have been
managing fixed income portfolios using this approach for more than fourteen
years. THE HALLMARK OF OUR APPROACH HAS BEEN CONSISTENT PERFORMANCE IN ALL
MARKET ENVIRONMENTS. Our goal is to continue to deliver consistent performance.
We look forward to continuing to serve AHA Fund shareholders.
- --------------------------------------------------------------------------------
77
<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 2.11%
SINCE INCEPTION 7.42%
</TABLE>
EDGAR REPRESENTATION OF GRAPHIC
<TABLE>
<CAPTION>
FULL MATURITY LB AGGREGATE INDEX
<S> <C> <C>
1988 100000 100000
1989 108602 110010
1990 113624 118641
1991 122561 131321
1992 139302 149778
1993 155986 167442
1994 153756 165249
1995 170647 185987
1996 176763 195313
1997 191072 211220
1998 210559 233458
1999 214994 240765
</TABLE>
INCEPTION DATE FOR THE FULL MATURITY FIXED INCOME PORTFOLIO WAS OCTOBER 20,
1988.
<PAGE>
MANAGEMENT'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, 1999, the total return of the Limited
Maturity Fixed Income Portfolio ("the Portfolio"), net of all fees and expenses,
was 4.59% compared to the 90-Day U.S. Treasury Bills, which had a total return
of 4.52% and the Lehman Brothers 1-3 year Government Bond Index, which had a
total return of 5.05% for the same period. The gross return of the Portfolio,
managed by The Patterson Capital Corporation ("Patterson") was 5.27%. The
principal factors, which affected performance during the fiscal year are
discussed below.
The recent twelve-month period has been one of the most tumultuous on record in
recent years. The markets were heating up as we entered the 3Q of 1998 with the
devaluation of the Russian ruble. As is most often the case, any global malaise
generally affects other regions and thus the problems in Russia spread to other
emerging markets in both South America and Southeast Asia. While such global
crisis had been weathered in recent years (the Southeast Asian meltdown in late
1997), the markets were completely unprepared for what occurred last summer and
fall as many large hedge funds, which had huge leveraged positions in the
affected foreign countries, saw their portfolio values nearly wiped out.
What resulted for our domestic fixed income market was twofold in nature. As is
always the case in times of international crisis, the U.S. Treasury market
served as a safe haven for investors and the increased demand for Treasuries
caused yields to fall nearly 100 basis points (1%). While the performance of
Treasuries was stellar, non-Treasury markets, corporates, asset-backeds,
mortgages, etc., were suddenly gripped with fear and literally froze. Trading
virtually came to a halt, and even investment grade debt, such as is found in
the AHA Limited Maturity Portfolio, was not easily traded. The result was that
yields on all non-Treasuries rose, especially in the emerging and high yield
markets.
The second result was that the Federal Reserve felt compelled to take control of
this global liquidity crisis before it spiraled further out of control.
Consequently, the Fed lowered rates three times in the latter half of 1998 from
5.50% to 4.75%. This move of the Fed, along with Wall Street's monetary
commitment to aid in the hedge fund rescue mission, was just the tonic the fixed
income markets needed to stabilize.
While the Fed's actions did open up the markets and non-Treasuries began to do
better moving into the first half of 1999, yields nonetheless were inching up
since October of 1998. Ultimately, since rates fell during the "flight to
quality" in 3Q '98, but rose in the following three quarters, there is virtually
little difference in yields on shorter dated issues between 6/98 and 6/99. For
example, the 2-year Treasury, a reasonable proxy for the AHA portfolio, yielded
5.47% in June of 1998, and 5.53% in June of 1999. From five years on out in
maturity, rates actually rose slightly over the last year with the 30-year
Treasury moving from 5.62% to 5.99%.
- --------------------------------------------------------------------------------
79
<PAGE>
The gross return on the Patterson's Portfolio for the fiscal year ending 6/30/99
was 5.28% versus its benchmark, the Lehman Brothers 1-3 Government Index, of
5.90%. This return BESTED ALL TREASURY RETURNS for the year as indicated by the
Lehman returns of 4.89%, 4.58% and -2.84% for 3-month T-bills, 2-year notes and
30-year bonds, respectively. For the first six months of 1999, the return for
the fund is 1.44% vs 1.17% for the index. At the same time, the yield on the
portfolio is 5.66% vs its index of 5.49%, and T-bills at 4.48%.
Because of the turbulence of the markets and the fact that short-term rates have
been unchanged year-over-year, we maintained a fairly neutral maturity stance in
the Portfolio. Maturities typically ranged between 1 and 3 years, with the
overall maturity of the Portfolio averaging just under two years. This
particular year would not have been one in which taking maturity risk would have
been rewarded. The NEGATIVE total return of the 30-year bond noted above is
indicative of this fact.
The second factor that contributed to this year's performance is the amount of
non-Treasury exposure the portfolio has had at certain times. While we have
historically weighted non-Treasuries at an average of about 40%, we've altered
this exposure during the course of the year as non-Treasury securities performed
poorly through the second half of 1998, then rebounded and again faded in 1999.
In 2H 1998, non-Treasury exposure was roughly 30% during the time of global
crisis. As the markets began to free up after the Fed stepped in, we increased
exposure to 50% by 12/98 and corporates and ABS did very well in the first few
months of 1999. Finally, as non-Treasuries fared poorly in May and June,
exposure was decreased to just 35%.
Another strategy has been to tap into the growing government agency market. In
the last year both Fannie Mae and Freddie Mac have begun programs to issue
large, $1 billion+ issues on a specific calendar basis. Buying these larger
issues has brought agency exposure from 2% to 9% and has increased the liquidity
of the Portfolio.
Lastly, the traditionally high quality and liquidity of the Portfolio provided
protection in late 1998. The Portfolio has a AA+ average quality. Lower rated
issues performed abysmally in the year ending June 30, 1999.
- --------------------------------------------------------------------------------
80
<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 4.59%
Since Inception 622%
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
Limited Maturity 90-Day T-Bills LB GOV'T 1-3 YEAR
<S> <C> <C> <C>
1988 100000 100000 100000
1989 105014 104515 106346
1990 111860 112875 115243
1991 121362 120518 127050
1992 134059 125978 140173
1993 141425 129889 149344
1994 143031 134334 151614
1995 153312 141602 163238
1996 160454 148911 172183
1997 170125 156441 183507
1998 180517 164350 195908
1999 188807 169914 205815
</TABLE>
INCEPTION DATE FOR THE DIVERSIFIED EQUITY PORTFOLIO WAS DECEMBER 22, 1988
- --------------------------------------------------------------------------------
81
<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, 1999, the total return of the Diversified
Equity Portfolio, net of all fees and expenses, was 18.90%, compared to the S&P
500 Stock Index, which had a total return of 22.71% for the same period. The
gross return of the segment of the Portfolio, managed by Investment Research
Company ("IRC"), was 21.17%. The principal factors which affected the
performance during the fiscal year are discussed below.
These last twelve months were characterized by the dominance of large growth
stocks and very limited participation by stocks outside this cluster. From June
30,1998 to June 30, 1999, the S&P500/BARRA Growth index rose 28.2% versus 16.6%
for the S&P500/BARRA Value index. Investors concerned with the effects of a
global financial crisis flocked to the large capitalization growth companies,
favoring growth scenarios over fundamental values. It was a very difficult
environment for most disciplined investment strategists who could not
wholeheartedly endorse the `value' of the current favorites of the market.
During this period, in spite of an investment environment unfavorable to stocks
selling at a discount to the fundamental values, IRC's AHA account produced a
return almost equal to that of the S&P500. To recap, IRC's investment strategy
is one of relative fundamental value with comprehensive risk control. IRC
invests in stocks selling at a discount to the fundamental worth. For example,
the Price/Earnings ratio of IRC's Portfolio is 28.8 versus 35.1 for the S&P 500
index. IRC's portfolio has more than 20% greater earnings per dollar invested
than does the index. The concept of relative value relates to our focus on
valuations among comparable stocks (a utility stock will not be compared with a
technology stock). We use a risk-forecast model to avoid excess portfolio
volatility. In addition we limit our industry bets to less than 1.5% and our
individual security bets to less than 2%.
Over the past year, the value orientation of the Portfolio hurt our active (or
relative) performance. While investors ignored the fundamentals, a small number
of high price/earnings stocks were pushed to even higher price ratios. However,
our `relative' approach and risk control limited the adverse impact of these
extreme growth stocks by maintaining a neutral policy to technology and other
growth sectors. By employing careful risk control policies, we avoided the heavy
losses suffered by many deep value managers over the past year. But this also
had its flip side. In April, growing optimism of stronger global economic growth
led to a strong rebound for cyclical sectors. The cyclical/industrial stocks
outperformed the broad market by more than 10% in anticipation of stronger
earnings for cyclical stocks. Traditional Value managers with heavy exposure to
these stocks experience significant gains. By maintaining our sector neutral
policies, IRC participated less than most deep Value managers.
- --------------------------------------------------------------------------------
82
<PAGE>
Our risk control process also helped our performance in that the Portfolio holds
a market weight among large capitalization stocks, albeit tilted towards the
value end. The weighted average capitalization of the AHA portfolio is $101.7
billion on June 30, 1999, versus that of $103.5 billion for the S&P500 index.
For the 12 months ending on June 30, 1999 the S&P500 index returned 22.71%
whereas the S&P Smallcap 600 returned -2.3%. Portfolios managed without careful
attention to capitalization characteristics ran the risk of substantial
underperformance
While Value investing is the basis of our strategy, IRC recognizes that `value'
is not simply defined by price/earnings. We also monitor Cashflow and Earnings
Momentum which allows us to have a richer measure of the quality and dynamics of
earnings of those companies in our universe. While many investors flocked to
what they perceived as `quality' in the last twelve months, our attention to the
quality of fundamentals certainly contributed to the performance of the
Portfolio.
In summary, our style of relative value investing, with emphasis on quality of
earnings and risk control, has helped the performance and lowered the volatility
of our portfolio, during that long stretch of months and years when growth
stocks simply dominated.
With the global economy making the transition from crisis to recovery, the
dispersion between growth and value stocks has diminished and even shows signs
of a resurgence across Value stocks. While there may be rotations among the
leading sectors, it is unlikely that performance will be as concentrated as what
we have witnessed recently. We are optimistic that IRC's investment approach,
making risk-controlled bets based on fundamentals, is well situated to provide
superior investment returns in the months ahead.
- --------------------------------------------------------------------------------
83
<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, 1999 the total return of the Diversified
Equity Portfolio, net of all fees and expenses, was 18.90%, compared to the S&P
500 Stock Index, which had a total return of 22.71% for the same period. The
gross return for the segment of the Portfolio, managed by Cambiar Investors,
Inc. ("Cambiar") was 17.76%. The principal factors which affected performance
during the fiscal year are discussed below.
Fiscal Year 1999 was one of the most unique investment environments witnessed in
the history of the stock market. The S&P 500 Index, which is the benchmark index
for the AHA Diversified Equity Portfolio, reached an intermediate peak on July
20, 1998. The index performance had been driven primarily by a select group of
very large capitalization growth stocks. Prior to the market peaking, however,
we were seeing weakness in broader sectors of the market,including capital goods
stocks, and most small and mid-cap stocks. Market participants worried about the
future business prospects of these companies given economic weakness in Japan
and the rest of the Far East, a sluggish Europe, and the resultant impact on the
emerging markets of Latin America. The combination of ongoing problems in Asia,
including the conundrum of loan problems at Japanese banks and the sliding
Japanese yen, and the collapse in early August of the Russian ruble, created a
market environment in which fear became the more prevalent emotion. These events
had a tremendous impact on highly leveraged hedge funds, which responded by
trying to close positions - further exacerbating price moves. In all, the S&P
declined close to 20% between the end of July and late August/early September.
The market continued to vacillate at lower levels until the announcement of the
collapse and necessary bailout of the Long-Term Capital Management hedge fund.
Federal Reserve Chairman Allen Greenspan was so concerned with the leveraged
size of this fund's positions and the potential impact on global capital
markets, that the Fed moved aggressively to reduce interest rates. This included
a surprise 25 basis point reduction in both the Fed Funds rate and Discount Rate
between Fed meetings. The market reacted positively to these rate cuts and
quickly made up lost ground. The S&P 500 reached a new high on December 18th,
1998 and has been on an upward track since.
During this past Fiscal Year, the portion of the AHA Diversified Equity
Portfolio managed by Cambiar Investors, has witnessed two distinct performance
periods. During the first part of the Fiscal Year, performance lagged since
Cambiar Investors has a value orientation, which underperformed
large-capitalization growth stocks leading into the market peak in July. In
addition, with the focus on relative value, Cambiar portfolios had a tilt toward
mid-cap stock investments where we found compelling values, but which also
performed poorly going into the July peak. Traditionally, when markets falter,
the value strategy has protected client capital well. Unusually, in the
August-October market decline, the value investing strategy did not provide the
usual support as market participants were afraid to be invested in any other
than the past year's market darlings. The Cambiar's Portfolio clearly
underperformed the benchmark in the first quarter of the Fiscal Year, followed
by performance, which closely matched the market in the second quarter as the
market rebound was more broadly-based.
- --------------------------------------------------------------------------------
84
<PAGE>
The second half of the Fiscal Year has been a completely different story. The
performance of the Cambiar's Portfolio improved dramatically as the value style
regained favor and mid-cap companies that had been ignored showed signs of life.
In addition, the continuing strength of the U.S. economy led market participants
to believe that capital goods stocks still might have some opportunity and the
performance of these stocks improved dramatically. Since December 31st, 1998
Cambiar has outperformed the S&P benchmark slightly with the strongest results
generated in the fourth quarter.
Throughout the turbulence, Cambiar Investors continued with our time-tested
investment management style, even through one of the most difficult periods we
have witnessed. We continue to build portfolios company-by-company focusing on
relative valuation and seeking catalysts that we believe are not presently
recognized in the stock price, but will be in the not so distant future. We
continue to believe that by concentrating on fewer stocks we know our companies
better and therefore will hold between 30 to 40 stocks in the Portfolio. Cambiar
does not focus on industry sector weightings when investing portfolios,
believing that if a portfolio is geared to imitate the S&P 500 index in some
fashion, eventually outperformance will not be possible. However, in our ongoing
practice of continuing to follow closely every stock we buy from date of
purchase through ultimate sale, we do observe performance trends. This past year
presented a clear picture of industry winners and losers, more than any year
since the mid-Eighties, when biotechnology stocks were hot. The best stocks in
the Cambiar's Portfolio during Fiscal 1999 were clearly technology stocks. The
Fund's position in Sun Microsystems tripled, the position in Novell doubled, and
other positions that had technology and telecommunications activities (primarily
related to the potential growth of data transfer and provisioning) performed
well.
On the other hand, energy-related stocks, with the exception of YPF, which is
being acquired by the Spanish oil company Repsol, had an extremely challenging
year. Negative global economic trends coupled with an ill-timed OPEC
(Organization of Petroleum Exporting Countries) production increase late in 1997
created an oil supply/demand imbalance. This caused petroleum prices as measured
by West Texas Intermediate Crude prices to plunge from around $20/Bbl in
November 1997 to near an $11/Bbl low reached in February of 1999. Needless to
say, the impact on the energy stocks in the portfolio was brutal. One other
stock that performed particularly poorly, Budget (the rental car company),
suffered from two issues. Initially, the stock, which fell into the
small/mid-cap camp, struggled when the large-cap growth stocks performed so
powerfully. But the Company committed the other cardinal sin in today's
marketplace and delivered a surprisingly poor financial result disappointing
investors. There is absolutely no forgiveness for a company that does not fit
the profile of a favored few for this kind of disappointment in today's world.
Although we continue to use a long-term investment horizon, we have increasingly
focused at Cambiar on making every effort to discern the prospects of a
Company's meeting the investment community's forecasts prior to the actual
earnings release. The severity of the market reaction, when expectations are not
met or going-forward guidance is not quite what analysts wanted to hear, can
significantly effect performance.
Although the market, as measured by the S&P 500, is trading at an all time high,
we continue to find opportunity in stocks that have either been previously left
behind or that were tainted in some fashion but are now demonstrating signs of
recovery. For example, we recently invested in shares of MBIA, the municipal
bond insurance company which late last year reported it was overexposed to a
large problem credit which resulted in reduced earnings expectations. In
addition, the Company was experiencing difficulties with some ancillary
businesses which were not key to the main activity. Since then, the Company has
brought a new CEO on board who is strengthening the underwriting practices of
the Company, has shored up the balance sheet, and is exiting poorly performing
businesses.
- --------------------------------------------------------------------------------
85
<PAGE>
We got involved with the stock selling at greater than a 50% discount to the
market multiple. We also recently purchased shares of Oracle Corporation, whose
stock price was reflecting investment community concerns that as Year 2000(Y2K)
spending slowed upon completion of many Y2K projects, Oracle's business would
fall off a cliff. Oracle demonstrated business was fine in its most recent
quarter and the stock has performed handsomely.
In other words, although Fiscal Year 1999 was difficult for Cambiar Investors
and the portion of the AHA Diversified Fund managed by Cambiar, we believe our
process still works. We are pleased with the broadening market trends as other
investors begin to look at companies we believed were attractive all along. We
believe that, given the protection offered by the valuation sensitivity we
imbue, combined with market broadening, the AHA Diversified Equity Portfolio is
once again in a position to achieve superior performance.
- --------------------------------------------------------------------------------
86
<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 18.90%
SINCE INCEPTION 16.68%
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY S&P 500 STOCK INDEX
<S> <C> <C>
1988 100000 100000
1989 114455 117967
1990 123340 137325
1991 127334 147445
1992 146610 167384
1993 167830 190174
1994 174894 192732
1995 210071 242974
1996 265563 306332
1997 353123 412566
1998 438042 537126
1999 520844 659115
</TABLE>
INCEPTION DATE FOR THE DIVERSIFIED EQUITY PORTFOLIO WAS OCTOBER 20, 1988.
- --------------------------------------------------------------------------------
87
<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, 1999, the total return, net of all fees
and expenses, of the Balanced Portfolio was 13.10%, compared to 12.92% 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 segment of the Portfolio, managed by
WAMCO was 2.33%, compared to the LB Aggregate Index, which had a total return of
3.13% for the same period. The principal factors which affected performance
during the fiscal year are discussed below. WAMCO manages the fixed income
portion of the Balanced Portfolio.
Although the two funds have similar investment objectives, guidelines and
strategies, the Balanced Fund underperformed the Full Maturity Fund with return
of 2.33% for the period; the difference can be largely attributed to cash flows
and the smaller size of the fund. Performance since inceptions remains
substantially similar for both funds.
- --------------------------------------------------------------------------------
88
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
BALANCED PORTFOLIO
CAMBIAR INVESTORS, INC. (MANAGES 50% OF THE PORTFOLIO)
During the fiscal year ended June 30, 1999, the total return, net of all fees
and expenses, of the Balanced Portfolio was 13.10%, compared to 12.92% 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 segment of the Portfolio, managed by
Cambiar Investors, Inc. ("Cambiar") was 16.74%, compared to the S&P 500 Stock
Index, which had a total return of 22.71% for the same period. The principal
factors which affected performance during the fiscal year are discussed below.
Fiscal Year 1999 was one of the most unique investment environments witnessed in
the history of the stock market. The S&P 500 index, which is the benchmark index
for the AHA Balanced Portfolio, reached an intermediate peak on July 20, 1998.
The index performance had been driven primarily by a select group of very large
capitalization growth stocks. Prior to the market peaking, however, we were
seeing weakness in broader sectors of the market including capital goods stocks,
and most small and mid-cap stocks. Market participants worried about the future
business prospects of these companies given economic weakness in Japan and the
rest of the Far East, a sluggish Europe, and the resultant impact on the
emerging markets of Latin America. The combination of ongoing problems in Asia,
including the conundrum of loan problems at Japanese banks and the sliding
Japanese yen, and the collapse in early August of the Russian ruble, created a
market environment in which fear became the more prevalent emotion. These events
had a tremendous impact on highly leveraged hedge funds, which responded by
trying to close positions - further exacerbating price moves. In all, the S&P
declined close to 20% between the end of July and late August/early September.
The market continued to vacillate at lower levels until the announcement of the
collapse and necessary bailout of the Long-Term Capital Management hedge fund.
Federal Reserve Chairman Allen Greenspan was so concerned with the leveraged
size of this fund's positions and the potential impact on global capital markets
that the Fed moved aggressively to reduce interest rates. This included a
surprise 25 basis point reduction in both the Fed Funds rate and Discount Rate
between Fed meetings. The market reacted positively to these rate cuts and
quickly made up lost ground. The S&P 500 reached a new high on December 18th,
1998 and has been on an upward track since.
During this past Fiscal Year, the portion of the AHA Balanced Portfolio managed
by Cambiar Investors has witnessed two distinct performance periods. During the
first part of the Fiscal Year, performance lagged since Cambiar Investors has a
value orientation, which underperformed large-capitalization growth stocks
leading into the market peak in July. In addition, with the focus on relative
value, Cambiar portfolios had a tilt toward mid-cap stock investments where we
found compelling values but which also performed poorly going into the July
peak. Traditionally, when markets falter, the value strategy has protected
client capital well. Unusually, in the August-October market decline, the value
investing strategy did not provide the usual support as market participants were
afraid to be invested in any other than the past year's market darlings.
- --------------------------------------------------------------------------------
89
<PAGE>
Cambiar's Portfolio clearly underperformed the benchmark in the first quarter of
the Fiscal Year, followed by performance which closely matched the market in the
second quarter as the market rebound was more broadly-based. The second half of
the Fiscal Year has been a completely different story. The performance of the
Cambiar's Portfolio improved dramatically as the value style regained favor and
mid-cap companies that had been ignored showed signs of life. In addition, the
continuing strength of the U.S. economy led market participants to believe that
capital goods stocks still might have some opportunity and the performance of
these stocks improved dramatically. Since December 31st, 1998 Cambiar has
outperformed the S&P benchmark slightly with the strongest results generated in
the fourth quarter.
Throughout the turbulence, Cambiar Investors continued with our time-tested
investment management style - even through one of the most difficult periods we
have witnessed. We continue to build portfolios company-by-company focusing on
relative valuation and seeking catalysts that we believe are not presently
recognized in the stock price, but will be in the not so distant future. We
continue to believe that by concentrating on fewer stocks we know our companies
better and therefore will hold between 30 to 40 stocks in the portfolio. Cambiar
does not focus on industry sector weightings when investing portfolios,
believing that if a portfolio is geared to imitate the S&P 500 index in some
fashion, eventually outperformance will not be possible. However, in our ongoing
practice of continuing to follow closely every stock we buy from date of
purchase through ultimate sale, we do observe performance trends. This past year
presented a clear picture of industry winners and losers, more than any year
since the mid-Eighties when biotechnology stocks were hot. The best stocks in
the Cambiar Portfolio during Fiscal 1999 were clearly technology stocks. The
Fund's position in Sun Microsystems tripled, the position in Novell doubled and
other positions that had technology and telecommunications activities (primarily
related to the potential growth of data transfer and provisioning) performed
well.
On the other hand, energy-related stocks, with the exception of YPF which is
being acquired by the Spanish oil company Repsol, had an extremely challenging
year. Negative global economic trends coupled with an ill-timed OPEC
(Organization of Petroleum Exporting Countries) production increase late in 1997
created an oil supply/demand imbalance. This caused petroleum prices as measured
by West Texas Intermediate Crude prices to plunge from around $20/Bbl in
November 1997 to near an $11/Bbl low reached in February of 1999. Needless to
say, the impact on the energy stocks in the portfolio was brutal. One other
stock that performed particularly poorly, Budget (the rental car company),
suffered from two issues. Initially, the stock, which fell into the
small/mid-cap camp, struggled when the large-cap growth stocks performed so
powerfully. But the Company committed the other cardinal sin in today's
marketplace and delivered a surprisingly poor financial result disappointing
investors. There is absolutely no forgiveness for a company that does not fit
the profile of a favored few for this kind of disappointment in today's world.
Although we continue to use a long-term investment horizon, we have increasingly
focused at Cambiar on making every effort to discern the prospects of a
Company's meeting the investment community's forecasts prior to the actual
earnings release. The severity of the market reaction when expectations are not
met or going-forward guidance is not quite what analysts wanted to hear can
significantly effect performance.
- --------------------------------------------------------------------------------
90
<PAGE>
Although the market as measured by the S&P 500 is trading at an all time high,
we continue to find opportunity in stocks that have either been previously left
behind or that were tainted in some fashion but are now demonstrating signs of
recovery. For example, we recently invested in shares of MBIA, the municipal
bond insurance company which late last year reported it was overexposed to a
large problem credit which resulted in reduced earnings expectations. In
addition, the Company was experiencing difficulties with some ancillary
businesses which were not key to the main activity. Since then, the Company has
brought a new CEO on board who is strengthening the underwriting practices of
the Company, has shored up the balance sheet, and is exiting poorly performing
businesses. We got involved with the stock selling at greater than a 50%
discount to the market multiple. We also recently purchased shares of Oracle
Corporation, whose stock price was reflecting investment community concerns that
as Year 2000(Y2K) spending slowed upon completion of many Y2K projects, Oracle's
business would fall off a cliff. Oracle demonstrated business was fine in its
most recent quarter and the stock has performed handsomely.
In other words, although Fiscal Year 1999 was difficult for Cambiar Investors
and the portion of the AHA Balanced Portfolio managed by Cambiar, we believe our
process still works. We are pleased with the broadening market trends as other
investors begin to look at companies we believed were attractive all along. We
believe that, given the protection offered by the valuation sensitivity we
imbue, combined with market broadening, the AHA Balanced Portfolio is once again
in a position to achieve superior performance.
- --------------------------------------------------------------------------------
91
<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 13.10%
SINCE INCEPTION 12.60%
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
BALANCED PORTFOLIO S&P 500 STOCK INDEX LB AGGREGATE INDEX
<S> <C> <C> <C>
1988 100000 100000 100000
1989 109964 117967 110010
1990 115831 137325 118641
1991 123503 147445 131321
1992 140777 167384 149778
1993 159110 190174 167442
1994 159569 192732 165249
1995 183449 242974 185987
1996 218672 306332 195313
1997 269465 412566 211220
1998 314718 537126 233458
1999 355958 659115 240765
</TABLE>
INCEPTION DATE FOR THE DIVERSIFIED EQUITY PORTFOLIO WAS OCTOBER 20, 1988.
- --------------------------------------------------------------------------------
92
