<PAGE>
AHA INVESTMENT FUNDS, INC.
Annual Report to Shareholders
As of June 30, 2000
<PAGE>
CONTENTS
<TABLE>
----------------------------------------------------
<S> <C>
Portfolio of Investments 1
Full Maturity Fixed Income Portfolio
Limited Maturity Fixed Income Portfolio
Diversified Equity Portfolio
Balanced Portfolio
Financial Statements 48
Notes to Financial Statements 52
Report of Independent Public Accountants 63
Manager Discussion and Performance Graph 64
</TABLE>
i
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS 96.8%
U.S. GOVERNMENT AGENCY OBLIGATIONS 55.4%
United States Treasury Bonds
<S> <C> <C> <C>
$ 20,000 11.875% 11/15/03 $ 23,300
500,000 10.750% 08/15/05 596,094
10,000 6.000% 08/15/09 9,922
1,175,000 9.875% 11/15/15 1,592,493
3,375,000 9.250% 02/15/16 4,373,791
3,275,000 8.000% 11/15/21 3,953,541
240,000 6.125% 08/15/29 242,625
United States Treasury Notes
2,000,000 6.250% 05/15/07 2,041,876
20,000 6.250% 05/15/30 21,000
United States Treasury Inflation Index Bonds
1,038,486 3.625% 01/15/08 1,007,332
2,265,126 3.625% 04/15/28 2,161,073
1,041,376 3.875% 04/15/29 1,038,773
United States Treasury Strips
110,000 0.000% 05/15/17 38,766
Federal Home Loan Mortgage Corporation
80,000 5.750% 04/15/08 73,464
29,195 8.750% 04/01/09 29,167
1,300,000 6.625% 09/15/09 1,255,838
40,308 10.500% 01/01/10 42,940
158,980 9.300% 04/15/19 163,719
308,574 7.000% 06/15/21 301,448
553,227 7.000% 09/15/21 539,969
745,189 6.000% 04/15/22 704,125
261,081 7.000% 05/01/24 253,024
1,158,539 6.500% 06/01/29 1,094,279
292,345 7.000% 08/01/29 282,608
106,698 7.500% 08/01/29 105,337
50,000 6.750% 09/15/29 47,961
188,320 6.000% 10/01/29 172,604
199,776 7.500% 10/01/29 197,228
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
1
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
<S> <C> <C> <C>
Federal National Mortgage Association
(mortgage-backed securities)
$ 70,000 5.750% 02/15/08 $ 64,441
70,000 6.000% 05/15/08 65,251
280,000 7.125% 02/15/05 281,242
210,000 7.250% 01/15/10 212,075
100,000 5.500% 07/01/15 92,531
1,400,000 7.500% 07/01/15 1,394,750
305,847 9.500% 07/25/19 317,974
222,471 7.600% 11/25/19 220,475
293,456 6.500% 02/25/20 281,968
437,537 7.000% 07/25/20 427,637
235,141 6.500% 09/25/20 224,604
252,235 7.000% 09/25/20 246,584
263,571 8.500% 09/25/20 269,459
271,921 7.000% 10/25/20 265,655
289,697 7.000% 01/25/21 282,647
317,069 6.500% 02/25/21 304,486
332,451 8.000% 02/25/21 334,740
525,919 7.000% 03/25/21 513,889
314,365 6.500% 06/25/21 301,718
313,119 8.500% 09/25/21 320,127
339,396 7.500% 08/25/21 396,311
290,403 7.000% 06/25/22 283,239
99,411 9.500% 02/01/25 103,392
1,162,294 6.000% 01/01/29 1,065,662
366,632 6.000% 06/01/29 335,483
1,101,649 6.500% 06/01/29 1,039,405
2,820,011 6.500% 07/01/29 2,659,929
719,353 6.000% 09/01/29 658,801
745,039 7.500% 09/01/29 735,101
327,073 6.500% 10/01/29 308,593
1,162,039 7.500% 10/01/29 1,146,538
900,000 7.500% 07/01/30 886,779
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
2
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
<S> <C> <C> <C>
FICO Strip
$ 50,000 0.000% 04/05/19 $ 13,870
Government National Mortgage Association
(mortgage-backed securities)
370,000 6.000% 07/01/15 351,615
168,654 9.500% 12/15/17 176,604
99,990 7.500% 04/15/28 99,421
100,241 6.500% 08/15/28 95,184
92,202 6.500% 09/15/28 87,551
99,990 7.000% 08/15/28 97,305
160,153 7.500% 03/15/29 159,178
2,544,000 6.500% 07/01/30 2,412,831
300,000 7.000% 07/01/30 291,564
280,000 7.500% 07/01/30 277,813
200,000 8.000% 07/01/30 202,062
Sally Mae Floating Rate Note
595,159 5.090% 04/25/06 592,522
45,640 5.598% 04/25/07 45,416
------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 43,308,719
U.S. GOVERNMENT AGENCY OBLIGATIONS SOLD SHORT -0.5%
Government National Mortgage Association
(mortgage-backed securities)
(200,000) 6.500% 07/01/30 (189,688)
(200,000) 7.500% 07/01/30 (198,438)
---------
(388,126)
ASSET BACKED OBLIGATIONS 12.2%
Advantage Mortgage Loan Trust
750,000 6.150% 03/25/13 Series 1998-2 713,966
400,000 7.350% 05/25/27 Series 1997-1 395,074
Amresco Residential Securities
350,000 6.405% 12/25/27 332,477
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
3
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
ASSET BACKED OBLIGATIONS (CONTINUED)
<S> <C> <C> <C>
Autonation 99-A
$ 47,355 6.540% 11/15/02 Series 1999-A $ 47,258
Chase Commingled Mortgage Security
508,000 7.370% 02/19/07 Series 1997- A2 506,791
Chevy Chase Home Loan
175,545 7.150% 05/15/15 Series 1996-1 173,346
Contimortgage Home Equity Loan
250,000 7.280% 04/25/14 Series 1999-3 243,706
300,000 6.630% 12/15/20 Series 1997-5 291,926
300,000 7.090% 04/15/28 Series 1997-2 295,046
354,000 7.120% 08/15/28 Series 1997-3 344,784
DLJ Commercial Mortgage Corporation
631,913 5.880% 11/12/31 595,999
Fairbanks Capital Mortgage
362,331 5.810% 05/25/28 362,331
Ford Motor Credit Company
40,000 7.875% 06/15/10 40,013
1,075,000 6.500% 08/15/00 1,074,919
250,000 9.215% 09/15/21 277,981
180,000 7.700% 05/15/97 167,166
Green Tree Financial Corporation
106,453 5.816% 07/15/03 106,396
69,212 7.850% 07/15/04 69,192
375,000 6.130% 02/15/19 357,756
375,000 6.900% 04/15/27 372,238
375,000 6.760% 07/15/29 367,119
Household Automobile Revenue Trust
287,530 5.719% 05/17/02 286,715
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
4
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
LONG-TERM OBLIGATIONS (CONTINUED)
ASSET BACKED OBLIGATIONS (CONTINUED)
<S> <C> <C> <C>
Nomura Asset Securities Corporation
$ 200,000 7.120% 04/13/36 Series 1996-M $ 196,981
Residential Funding Mortgage Securities
460,151 6.162% 06/25/07 460,375
500,000 6.445% 03/25/28 473,728
Resolution Funding Corporation STRIP
160,000 0.000% 04/15/30 24,124
RFMSI
400,000 7.000% 12/25/07 393,254
SBM7 Series 1997
500,000 6.820% 12/25/27 486,158
Standard Credit Card Trust Series 1993-2
65,000 8.250% 11/07/01 65,771
------
TOTAL ASSET BACKED OBLIGATIONS 9,522,590
CORPORATE OBLIGATIONS 28.9%
AEROSPACE & DEFENSE 0.2%
Lockheed Martin
150,000 8.500% 12/01/29 153,155
BANKS 5.4%
Ace Capital Trust
70,000 9.700% 04/01/30 73,627
Bank One Corporation
325,000 7.600% 05/01/07 318,400
Bank of Boston
400,000 6.351% 11/16/03 399,844
Bank of Tokyo
170,000 8.400% 04/15/10 171,914
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
5
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED) ------------
CORPORATE OBLIGATIONS (CONTINUED)
BANKS (CONTINUED)
-----------------
Bankers Trust Company
<S> <C> <C> <C> <C>
$ 1,000,000 8.125% 04/01/02 $ 1,010,217
Dresdner Bank New York
250,000 7.250% 09/15/15 229,157
Dryden Investor Trust
538,549 7.157% 07/23/08 506,543
J.P. Morgan
80,000 6.000% 01/15/09 71,025
139,995 6.902% 04/15/10 140,091
JPM Capital Trust
50,000 7.950% 02/01/27 44,651
Key Bank - Washington
400,000 7.125% 08/15/06 387,830
National Bank of Detroit
220,000 8.250% 11/01/24 231,522
NCNB Corporation
325,000 10.200% 07/15/15 384,761
Security Pacific Corporation
200,000 11.000% 03/01/01 204,709
-------
4,174,291
CHEMICAL 0.1%
Dow Chemical Company
60,000 7.375% 11/01/29 58,509
COMMUNICATION & MEDIA 1.0%
Continental Cablevision Incorporated
200,000 8.875% 09/15/05 214,405
200,000 9.000% 09/01/08 212,010
325,000 9.500% 08/01/13 352,366
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
6
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED) ------------
CORPORATE OBLIGATIONS (CONTINUED)
COMMUNICATION & MEDIA (CONTINUED)
---------------------------------
<S> <C> <C> <C> <C>
Cox Communications Incorporated
$ 40,000 7.875% 08/15/09 $ 39,982
--------
818,763
COMPUTER 0.4%
Electronic Data Systems
300,000 7.450% 10/15/29 289,284
DISTRIBUTION 0.4%
Federal Express
300,000 9.650% 06/15/12 329,317
ELECTRIC 0.5%
System Energy
329,097 7.430 01/15/11 314,115
Union Pacific Corporation
100,000 6.625% 02/01/29 82,880
------
396,995
FINANCIAL 8.3%
Associates Corporation NA
350,000 7.625% 04/27/05 349,561
Auburn Hills Trust
280,000 12.000% 05/01/20 409,126
Chase Manhattan Bank
610,000 8.500% 02/15/02 620,405
CIT Group Incorporated
375,000 5.570% 12/08/03 349,415
Conseco Financial
400,000 8.170% 12/15/25 405,926
Dean Witter Discover Senior Note
300,000 6.750% 10/15/13 270,122
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
7
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED) ------------
CORPORATE OBLIGATIONS (CONTINUED)
FINANCIAL (CONTINUED)
---------------------
<S> <C> <C> <C>
Delta Home Equity Loan Trust
$ 350,000 6.860% 10/25/28 $ 341,731
Deutsche Telcom International Financial
170,000 8.250% 06/15/30 176,001
General Motors Acceptance Corporation
100,000 6.869% 08/15/07 96,873
800,000 0.000% 06/15/15 effective yield 6.457% 255,123
60,000 5.950% 03/14/03 57,798
40,000 7.750% 01/19/10 39,864
Lehman Brothers Incorporated
300,000 6.482% 07/08/02 300,048
550,000 7.750% 01/15/05 545,293
375,000 11.625% 05/15/05 425,761
Merrill Lynch Company
154,684 6.310% 11/15/26 147,010
205,291 6.220% 02/15/30 198,821
375,000 6.875% 11/15/18 333,417
Paine Webber Incorporated
150,000 6.730% 01/20/04 145,143
Raytheon Company
70,000 7.200% 08/15/27 61,219
The Money Store Home Equity
350,000 6.900% 07/15/38 341,490
68,035 5.506% 10/15/26 68,013
Zurich Capital Trust
500,000 8.376% 06/01/37 465,806
-------
6,403,966
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
8
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED) ------------
CORPORATE OBLIGATIONS (CONTINUED)
---------------------------------
<S> <C> <C> <C> <C>
FOOD & BEVERAGES 0.7%
J. Seagram & Sons
$ 30,000 7.600% 12/15/28 $ 28,452
80,000 6.800% 12/15/08 75,143
170,000 6.400% 12/15/03 163,675
Pepsi Bottling
300,000 7.000% 03/01/29 269,933
-------
537,203
INDUSTRIAL 1.0%
Caterpillar Incorporated
774,000 9.750% 06/01/19 810,435
INSURANCE 0.2%
GEICO Corporation
125,000 9.150% 09/15/21 131,557
OIL & GAS 0.6%
PSI Energy
250,000 7.850% 10/15/07 247,281
Tennessee Valley Authority
60,000 6.750% 11/01/25 56,233
140,000 7.125% 05/01/30 137,906
--------
441,420
PAPER 0.4%
Georgia Pacific Corporation
200,000 9.625% 03/15/22 204,100
75,000 9.875% 11/01/21 76,772
50,000 9.500% 05/15/22 50,197
-------
331,069
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
9
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED) ------------
CORPORATE OBLIGATIONS (CONTINUED)
---------------------------------
<S> <C> <C> <C> <C>
PIPELINE 0.2%
Williams COS
$ 200,000 7.625% 07/15/19 $ 192,788
POLLUTION CONTROL 0.4%
USA Waste Services
375,000 7.000% 07/15/28 290,538
RAILROAD 0.7%
Conrail
40,000 7.875% 05/15/43 37,964
Louisville & Nashville Railroad
600,000 3.375% 04/01/03 538,685
-------
576,649
RETAIL STORES 0.8%
J.C. Penney Incorporated
250,000 9.750% 06/15/21 223,277
200,000 8.250% 08/15/22 155,051
Nordstrom Incorporated
300,000 5.625% 01/15/09 251,328
-------
629,656
TELECOMMUNICATION 1.4%
Lucent Technologies Incorporated
100,000 6.450% 03/15/29 88,588
SPRINT
300,000 7.147% 06/10/02 300,038
50,000 6.900% 05/01/19 44,491
TCI Communications Incorporated
390,000 7.875% 02/15/26 388,460
70,000 6.375% 05/01/03 68,329
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
10
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED) ------------
CORPORATE OBLIGATIONS (CONTINUED)
---------------------------------
<S> <C> <C> <C> <C>
TELECOMMUNICATION (CONTINUED)
U.S. West Communications
$ 225,000 8.875% 06/01/31 $ 227,591
-------
1,117,497
UTILITIES 0.3%
Commonwealth Edison
250,000 9.875% 06/15/20 269,606
MISCELLANEOUS 1.7%
British Aerospace Financial
750,000 7.500% 07/01/27 692,066
Dillards Incorporated
200,000 6.430% 08/01/04 178,977
News America Holdings
200,000 8.875% 04/26/23 205,470
300,000 7.625% 11/30/28 268,532
-------
1,345,045
INTERNATIONAL 4.2%
ARGENTINA- SOVEREIGN 0.8%
Argentina Republic
100,000 0.000% 10/15/04 effective yield 6.25% 60,750
Republic of Argentina
190,000 0.000% 10/15/01 168,150
160,000 0.000% 10/15/03 112,400
YPF Sociedad Anomia
300,000 7.750% 08/27/07 285,000
-------
626,300
CANADA- ELECTRIC 1.3%
Hydro-Quebec
800,000 11.750% 02/01/12 1,052,653
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
11
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
LONG-TERM OBLIGATIONS (CONTINUED) ------------
CORPORATE OBLIGATIONS (CONTINUED)
---------------------------------
<S> <C> <C> <C> <C>
INTERNATIONAL (CONTINUED)
CAYMAN ISLANDS 0.4%
FINANCE
Wharf Capital International
$ 175,000 7.625% 03/13/07 $ 160,123
OIL & PETROLEUM
Petroleos Mexicanos
140,000 9.030% 02/15/11 144,537
-------
304,660
HUNGARY- SOVEREIGN 0.1%
National Bank Hungary
75,000 8.875% 11/01/13 78,750
SOUTH KOREA 0.4%
FINANCE
Korea Development Bank
95,000 7.125% 09/17/01 94,201
ELECTRIC
Korea Electric Power
95,000 7.750% 04/01/13 87,024
75,000 6.750% 08/01/27 71,023
STEEL MANUFACTURING
Pohang Iron & Steel
65,000 7.125% 07/15/04 62,536
------
314,784
POLAND- SOVEREIGN 0.5%
Republic of Poland
406,000 6.000% 10/27/14 363,295
UNITED KINGDOM- FINANCE 0.4%
Midland Bank
375,000 6.950% 03/15/11 347,399
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
12
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
INTERNATIONAL (CONTINUED)
VENEZUELA-FINANCE 0.3%
Petrozuata Financial Guarantee
$ 300,000 8.220% 04/01/17 $ 231,750
----------
3,319,591
TOTAL CORPORATE OBLIGATIONS 22,617,324
NUMBER OF CONTRACTS
OPTIONS-PURCHASED 0.0%
Put Options Euro Futures
67 Exercise Price $92.70, Expiring September 2000 21,938
PREFERRED OBLIGATIONS 0.3%
SB Treasury Company
280,000 9.400% 12/29/49 273,629
----------
TOTAL PREFERRED OBLIGATIONS 273,629
----------
TOTAL LONG-TERM OBLIGATIONS (COST $77,130,938) 75,744,200
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
13
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C> <C>
SHORT-TERM OBLIGATIONS
U.S. GOVERNMENT AGENCY OBLIGATIONS 9.4% AMORTIZED COST
0.4%
Federal Home Loan Mortgage Corporation
(A) $300,000 6.610% 11/09/00 $ 292,784
DEMAND NOTES * 9.0%
American Family Demand Note
1,623,647 6.306% 12/31/31 1,623,647
Firstar Bank Demand Note
3,108,912 6.423% 12/31/31 3,108,912
General Mills Demand Note
150,000 6.278% 12/31/31 150,000
Sara Lee Demand Note
2,079,954 6.278% 12/31/31 2,079,954
Wisconsin Corporation Demand Note
110,969 6.348% 12/31/31 110,969
------------
TOTAL DEMAND NOTES 7,073,482
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $7,366,266) 7,366,266
------------
TOTAL INVESTMENTS
(COST BASIS $84,497,204) 83,110,466
============
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
14
<PAGE>
FULL MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS MARKET VALUE
------------------- -------------
<S> <C> <C>
OPTIONS-WRITTEN
Put Options 5 Year Treasury Note Futures
8 Exercise Price $98.50, Expiring August 2000 $ (3,000)
Put Options 10 Year Treasury Note Futures
10 Exercise Price $100.00, Expiring September 2000 (3,750)
Put Options Bond Futures
9 Exercise Price $100.00, Expiring September 2000 (4,078)
Call Options 10 Year Treasury Note Futures
4 Exercise Price $99.00, Expiring September 2000 (2,813)
Put Options Bond Futures
4 Exercise Price $92.00, Expiring September 2000 (563)
Put Options Bond Futures
4 Exercise Price $94.00, Expiring November 2000 (4,313)
Call Options Bond Futures
28 Exercise Price $98.00, Expiring September 2000 (30,188)
Put Options Bond Futures
6 Exercise Price $94.00, Expiring September 2000 (2,154)
-------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $48,698) (50,859)
-------
TOTAL INVESTMENTS NET OF
OUTSTANDING WRITTEN OPTIONS 106.2% 83,059,607
CASH AND OTHER ASSETS, LESS
LIABILITIES -6.2% (4,871,339)
------------
TOTAL NET ASSETS 100.0% $ 78,188,268
============
</TABLE>
* THESE SECURITIES HAVE A MATURITY OF MORE THAN ONE YEAR, BUT HAVE VARIABLE RATE
AND DEMAND FEATURES WHICH QUALIFY THEM AS SHORT-TERM SECURITIES. THE RATES
DISCLOSED ARE THOSE CURRENTLY IN EFFECT. THE 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.
15
<PAGE>
FULL MATURITY FIXED INCOME 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, 2000:
<TABLE>
<CAPTION>
OPEN FUTURES CONTRACTS:
UNREALIZED
NUMBER OF PRINCIPAL GAINS (LOSSES)
TYPE CONTRACTS AMOUNT POSITION EXPIRATION JUNE 30, 2000
---- ---------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
5 Year U.S. Treasury Notes 15 15,000 Short Sept. 2000 ($5,934)
U.S. Govt Bond Futures 7 7,000 Long Sept. 2000 (21,506)
10 Year U.S. Treasury Notes 3 3,000 Long Sept. 2000 (8,270)
10 Year U.S.Agency 6 6,000 Long Sept. 2000 1,980
90 Day Euro Future 2 2,000 Long Sept. 2000 239
---
($33,491)
=========
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
16
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C> <C>
LONG-TERM OBLIGATIONS 92.4%
U.S. GOVERNMENT AGENCY OBLIGATIONS 58.5%
United States Treasury Notes
$ 4,445,000 6.500% 05/31/01 $ 4,447,778
4,415,000 6.625% 06/30/01 4,423,278
5,040,000 6.625% 07/31/01 5,049,450
5,965,000 6.375% 09/30/01 5,955,683
6,030,000 5.875% 11/30/01 5,979,125
6,435,000 6.125% 12/31/01 6,400,817
1,500,000 6.375% 01/31/02 1,497,188
1,350,000 6.625% 03/31/02 1,352,954
1,360,000 6.250% 06/30/02 1,355,750
3,400,000 6.250% 08/31/02 3,388,314
3,565,000 5.750% 04/30/03 3,511,525
Federal Home Loan Bank
1,060,000 6.000% 08/15/02 1,041,567
Freddie Mac
725,000 5.500% 05/15/02 707,657
Federal National Mortgage Association
(mortgage-backed securities)
860,000 4.625% 10/15/01 836,592
2,040,000 6.375% 01/16/02 2,024,992
1,465,000 5.375% 03/15/02 1,430,010
860,000 5.250% 01/15/03 827,411
-------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 50,230,091
ASSET BACKED OBLIGATIONS 4.2%
First USA Credit
1,930,000 6.420% 03/17/05 1,906,502
IBM Credit Corporation
830,000 6.640% 10/29/01 823,953
Nissan Auto Series 2000-Bb
830,000 7.250% 04/15/04 833,697
-------
TOTAL ASSET BACKED OBLIGATIONS 3,564,152
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
17
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS 29.7%
BANKS 2.4%
Nations Bank
$ 1,000,000 8.125% 06/15/02 $ 1,013,519
Wells Fargo
1,050,000 6.500% 09/03/02 1,035,487
---------
2,049,006
COMPUTER & OFFICE EQUIPMENT 1.0%
International Business Machine Corporation
820,000 7.250% 11/01/02 821,068
CONSUMER- DURABLE 3.3%
BMW Vehicle Owner Trust
865,000 6.410% 04/25/03 857,894
Tyco International Group
1,200,000 6.125% 06/15/01 1,185,178
Hertz Corporation
825,000 7.000% 05/01/02 820,000
---------
2,863,072
FINANCIAL 17.7%
American Express Credit Corporation
650,000 6.125% 11/15/01 639,625
Capital Auto Receivable
660,000 5.680% 08/15/04 647,470
CIT Group Holdings
2,500,000 6.000% 05/08/01 2,474,120
Commercial Credit Company
790,000 6.875% 05/01/02 784,878
1,010,000 8.250% 11/01/01 1,021,651
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
18
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
FINANCIAL (CONTINUED)
Ford Credit Grantor Trust
$ 540,000 7.090% 11/17/03 $ 540,370
2,000,000 7.500% 01/15/03 1,998,508
General Electric Capital Corporation
850,000 7.000% 03/01/02 847,799
1,435,000 7.000% 02/03/03 1,429,999
General Motors Acceptance Corporation Grantor Trust
750,000 5.875% 01/22/03 722,950
International Lease Financial Corporation
710,000 5.625% 02/15/06 689,137
MBNA MasterCard
930,000 5.250% 05/01/02 881,505
Merrill Lynch and Company
860,000 6.000% 02/12/03 832,620
Morgan Stanley
730,000 8.100% 06/24/02 740,484
1,000,000 7.125% 01/15/03 993,911
----------
15,245,027
RETAIL STORES 1.2%
Dayton Hudson Corporation
1,000,000 6.800% 10/01/01 994,679
TELECOMMUNICATION 1.2%
DuPont EI Nemours
1,000,000 6.5000% 09/01/02 991,301
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
19
<PAGE>
LIMITED MATURITY FIXED INCOME PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
TELEPHONE 1.2%
---------
WorldCom Incorporated
$ 1,020,000 7.8750% 05/15/03 $ 1,029,343
MISCELLANEOUS 1.7%
Daimler Chrysler
760,000 7.1250% 03/01/02 759,885
Daimler Chrysler
750,000 7.2300% 01/06/05 752,732
-------
1,512,617
TOTAL CORPORATE OBLIGATIONS 25,506,113
----------
TOTAL LONG-TERM OBLIGATIONS
(COST $ 79,656,477) 79,300,356
----------
SHORT-TERM OBLIGATIONS
COMMERCIAL PAPER 6.0%
American Express
3,000,000 6.9790% 07/03/00 2,998,853
Ford Motor Credit Company
2,122,000 6.5400% 07/03/00 2,121,293
---------
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $5,120,146) 5,120,146
TOTAL INVESTMENTS
(COST BASIS $84,776,623) 98.4% 84,420,502
CASH AND OTHER ASSETS, LESS
LIABILITIES 1.6% 1,392,677
---------
TOTAL NET ASSETS 100.0% $ 85,813,179
==============
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THIS SCHEDULE.
20
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES 91.3% MARKET VALUE
-------- ------------
<S> <C> <C>
AEROSPACE & AIR TRANSPORTATION 1.2%
7,100 AMR Corporation $ 187,706
11,000 Boeing 459,938
4,600 Delta Airlines 232,588
1,600 FedEx Corporation 60,800
10,900 United Technologies Corporation 641,738
-------
1,582,770
APPLIANCE 0.3%
9,300 Snap On Tools Incorporated 247,613
3,700 Whirlpool Corporation 172,513
-------
420,126
AUTOMOTIVE 1.3%
3,100 Cummins Engine 84,475
18,300 Ford Motor Company 786,900
11,278 General Motors Corporation 654,829
600 Harley Davidson 23,100
3,600 TRW Incorporated 156,150
2,396 Visteon Corporation* 29,052
------
1,734,506
BANKS 3.8%
13,192 Bank of America Corporation 567,256
4,400 Bank of New York Corporation 204,600
14,550 Chase Manhattan 670,209
23,750 Citigroup Incorporated 1,430,938
11,911 Fleet Boston Financial Group, Corporation 404,974
3,700 J.P. Morgan & Company Incorporated 407,463
4,600 Pinnacle West 155,825
6,700 PNC Financial Corporation 314,063
1,400 State Street Corporation 148,488
7,300 Sun Trust Banks Incorporated 333,519
13,100 Washington Mutual Incorporated 378,263
-------
5,015,598
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THIS SCHEDULE.
21
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C>
BUILDING & HOUSING 0.6%
6,100 Applied Materials Incorporated* $ 552,813
10,200 Centex Corporation 239,700
1,800 Kaufman & Broad Home Corporation 35,663
------
828,176
BUSINESS MECHANICS & SOFTWARE 7.8%
11,700 America Online Incorporated 617,175
1,800 Apple Computers Incorporated 94,275
38,800 Borders Group* 603,825
126,600 Compaq Computers Corporation 3,236,213
13,200 International Business Machines Corporation 1,446,225
18,700 Oracle Systems* 1,571,969
13,400 Sun Microsystems* 1,218,563
33,600 Synopsys Incorporated* 1,161,300
2,800 YAHOO! Incorporated* 346,850
-------
10,296,395
BUSINESS SERVICE 3.6%
7,200 Eastman Kodak 428,400
38,100 First Data 1,890,713
49,500 Manpower Incorporated 1,584,000
70,000 Owens-Illinois, Incorporated* 818,125
-------
4,721,238
CHEMICALS 0.7%
15,000 Dow Chemical Company 452,813
5,200 Eastman Chemical Company 248,300
3,800 Sigma-Aldrich Corporation 111,150
13,300 W.R. Grace & Company 161,263
-------
973,526
COMMUNICATION 1.4%
27,400 Infinity Broadcasting* 998,388
4,000 Omnicom Group 356,250
6,700 Time Warner Incorporated 509,200
-------
1,863,838
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THIS SCHEDULE.
22
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C>
COMPUTER & OFFICE EQUIPMENT 8.6%
111,100 3 COM Corporation $ 6,402,138
2,000 Analog Devices 152,000
6,800 Dell Computer Corporation* 335,325
11,800 EMC Corporation 907,863
28,000 Microsoft Corporation 2,240,000
135,000 Novell* 1,248,750
600 Veritas Software Corporation 67,809
------
11,353,885
CONGLOMERATE 0.3%
9,500 Tyco International Ltd. 450,063
CONSTRUCTION 0.5%
34,000 Masco Corporation 614,125
CONSUMER NON-DURABLES 0.3%
11,700 Tupperware Corporation 257,400
4,700 Unilever ADR 202,100
-------
459,500
CONTAINER
6,500 Ball Corporation 0.2% 209,219
COSMETIC & SOAP 0.4%
5,600 Colgate Palmolive Company 335,300
2,900 Procter & Gamble 166,025
-------
501,325
ELECTRICAL EQUIPMENT 2.1%
48,000 General Electric Company 2,544,000
3,200 Teradyne Incorporated* 235,200
--------
2,779,200
ELECTRONICS 4.2%
2,860 Agilent Technologies Incorporated 210,925
1,100 Broadcom Corporation* 240,831
7,500 Hewlett-Packard Company 936,563
14,800 Intel Corporation 1,978,575
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THIS SCHEDULE.
23
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C>
ELECTRONICS (CONTINUED)
4,100 Kla-Tencor Corporation* $ 240,106
6 Motorola Incorporated 174
2,300 National Semiconductor* 130,525
18,600 Nortel Networks Corporation 1,269,450
8,200 Texas Instruments 563,238
-------
5,570,387
ENTERTAINMENT & LEISURE 1.2%
9,700 Brunswick Corporation 160,656
43,000 Fox Entertainment Group Incorporated* 1,306,125
1,410 Viacom Incorporated* 96,144
------
1,562,925
FINANCIAL COMPANY & SERVICES 2.4%
7,500 American Express Company 390,938
18,900 Fannie Mae 986,344
10,700 Household International 444,718
3,100 Lehman Brothers Holdings 293,144
4,600 MBNA Corporation 124,775
10,400 Morgan Stanley Group Incorporated 869,130
-------
3,109,049
FOOD & BEVERAGES 3.2%
2,900 Anheuser-Busch Companies, Incorporated 216,594
3,400 Archer-Daniels-Midland Company 33,363
4,900 Bestfoods 339,325
2,400 Coca-Cola Company 137,850
59,900 Diageo PLC ADR 2,130,194
1,800 General Mills 68,850
611 Kellogg Company 18,177
13,000 PepsiCo Incorporated 577,688
9,000 Safeway Incorporated* 406,125
3,900 Seagrams LTD 226,200
-------
4,154,366
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THIS SCHEDULE.
24
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C>
HEALTH CARE 11.6%
62,000 Abbott Labs Company $ 2,762,875
17,900 American Home Products Corporation 1,051,625
3,200 Bausch & Lomb Incorporated 247,600
25,000 Baxter International Incorporated 1,757,813
94,300 Global Telesystems Incorporated* 1,137,494
5,100 Guidant Corporation 252,450
10,600 Johnson & Johnson Company 1,079,875
500 Lilly Eli & Company 49,938
36,900 Mallincrokdt Incorporated 1,602,844
59,400 Mylan Laboratories 1,084,050
13,200 Merck & Company 1,011,450
25,275 Pfizer Incorporated 1,213,200
4,700 Pharmacia Corporation 242,931
30,400 Watson Pharmaceuticals Incorporated* 1,634,000
3,000 Wellpoint Health Networks 217,313
-------
15,345,458
HEALTH CARE SERVICES 0.3%
4,500 United Healthcare Corporation 385,875
INSURANCE 5.3%
3,700 Aflac Corporation 169,969
62,500 Allstate Corporation 1,390,625
8,796 American International Group 1,033,530
400 Lincoln National Corporation 14,450
30,700 MBIA Corporation 1,479,356
130,300 MetLife Incorporated 2,744,444
3,600 MGIC Investment 163,800
-------
6,996,174
METAL & MINERAL 0.8%
23,500 Minerals Technologies, Incorporated 1,081,000
PAPER & FOREST PRODUCTS 0.2%
7,300 Boise Cascade 188,888
1,300 Weyerhaeuser Company 55,900
------
244,788
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THIS SCHEDULE.
25
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C>
PETROLEUM 3.7%
600 Apache Corporation $ 35,288
14,776 Exxon Mobil Corporation 1,159,916
2,300 Kerr-McGee Company 135,556
13,100 Royal Dutch Petroleum ADR 806,469
14,000 Schlumberger 1,044,750
3,200 Texaco 170,400
22,800 Transocean Offshore, Incorporated 1,218,375
12,900 Union Pacific Resource Group 283,800
-------
4,854,554
RAILROADS 1.8%
85,100 Conoco Incorporated 2,090,269
6,600 Union Pacific Corporation 245,438
-------
2,335,707
RETAIL STORES 4.6%
73,500 Abercrombie & Fitch 895,781
4,800 Best Buy Incorporated* 303,600
5,700 Circuit City Stores Incorporated 189,169
8,700 Great Atlantic & Pacific 144,638
2,900 Federated Department Stores* 97,875
10,800 Home Depot 539,325
4,200 Lowes Companies 172,463
112,500 Office Depot* 703,125
8,700 Sears Roebuck & Company 283,838
2,300 Target Corporation 133,400
72,200 The Limited Incorporated 1,561,325
16,900 Toys "R" Us* 246,106
14,500 Wal-Mart Stores Incorporated 835,563
-------
6,106,208
SERVICES 0.2%
13,700 Timken Company 255,163
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE
AN INTEGRAL PART OF THIS SCHEDULE.
26
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C> <C>
TECHNOLOGY 5.0%
2,200 Adobe Systems Incorporated $ 286,000
15,500 Amgen* 1,088,875
43,100 Cisco Systems Incorporated* 2,739,544
10,700 Electronic Data Systems Corporation 441,375
74,000 J.D. Edwards 1,114,625
2,000 LSI Logic Corporation 108,250
6,500 Micron Technology Incorporated 572,406
3,400 Network Appliance Incorporated* 273,700
-------
6,624,775
TELECOMMUNICATION 0.7%
1,800 ADC Telecommunication Incorporated 150,975
6,248 Lucent Technologies 370,194
3,800 Nextel Communications Incorporated* 232,513
3,800 Qualcom Incorporated 228,000
-------
981,682
TELECOMMUNICATION EQUIPMENT 1.2%
3,800 Northrop Grumman Corporation 251,750
70,500 Raytheon Company 1,357,125
---------
1,608,875
TEXTILE & APPAREL 0.1%
4,400 Spring Industries 140,800
TRAVEL & RECREATION 1.5%
70,500 Galileo International Incorporated 1,471,688
500 Harrahs Entertainment Incorporated 10,469
11,700 Walt Disney Company 454,106
-------
1,936,263
UTILITIES-ELECTRIC & ENERGY 0.7%
3,100 Ameren Corporation 104,625
4,700 DTE Energy Company 143,644
4,000 Public Service Enterprises 138,500
11,400 Reliant Energy Incorporated 337,013
12,500 Sempra Energy 212,500
-------
936,282
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
27
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C> <C>
UTILITIES-TELEPHONE 6.9%
89,300 American Telephone and Telegraph $ 2,824,113
43,200 Bell Atlantic Corporation 2,195,100
5,600 GTE Corporation 348,600
5,900 NCR Corporation* 229,731
55,415 SBC Communication, Incorporated 2,396,699
4,300 Sprint Corporation 219,300
4,800 Sprint PCS Group 285,600
4,900 US West Incorporated 420,175
-------
8,919,318
MISCELLANEOUS 2.6%
4,000 Corning Corporation 1,079,500
39,200 Elan Corporation ADR 1,898,750
3,400 FMC Corporation 197,200
7,700 National Service Industries 150,131
-------
3,325,581
TOTAL EQUITIES (COST $ 104,205,486) 120,278,720
<CAPTION>
SHORT-TERM OBLIGATIONS 5.6% AMORTIZED COST
DEMAND NOTES** 5.6% --------------
----------------------
<S> <C> <C> <C>
American Family Demand Note
$ 1,600,000 6.306% 12/31/31 $ 1,600,000
Firstar Bank Demand Note
3,121,893 6.423% 12/31/31 3,121,893
General Mills Demand Note
431,915 6.279% 12/31/31 431,915
Sara Lee Demand Note
2,263,327 6.274% 12/31/31 2,263,327
---------
TOTAL SHORT TERM OBLIGATIONS
(AMORTIZED COST $ 7,417,135) 7,417,135
---------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
28
<PAGE>
DIVERSIFIED EQUITY PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(COST BASIS $111,622,621) 96.9% 127,695,855
CASH AND OTHER ASSETS, LESS
LIABILITIES 3.1% 4,090,031
---------
TOTAL NET ASSETS 100.0% $131,785,886
============
</TABLE>
* NON-INCOME PRODUCING STOCKS.
** THESE SECURITIES HAVE A MATURITY OF MORE THAN ONE YEAR, BUT HAVE VARIABLE
RATE AND DEMAND FEATURES WHICH QUALIFY THEM AS SHORT-TERM SECURITIES. THE RATES
DISCLOSED ARE THOSE CURRENTLY IN EFFECT. THE 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.
29
<PAGE>
BALANCED PORTFOLIO
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES 64.8% MARKET VALUE
-------------------- ------------
<S> <C> <C> <C>
AEROSPACE & AIR TRANSPORTATION 0.5%
1,100 AMR Corporation $ 29,081
1,600 Boeing 66,900
700 Delta Airlines 35,394
200 FedEx Corporation 7,600
1,600 United Technologies Corporation 94,200
------
233,175
APPLIANCE 0.1%
1,400 Snap On Tools Incorporated 37,275
500 Whirlpool Corporation 23,313
------
60,588
AUTOMOTIVE 0.5%
500 Cummins Engine 13,625
2,700 Ford Motor Company 116,100
1,625 General Motors Corporation 94,352
100 Harley Davidson 3,850
500 TRW Incorporated 21,688
354 Visteon Corporation* 4,286
------
253,901
BANKS 1.5%
1,900 Bank of America Corporation 81,700
700 Bank of New York Corporation 32,550
2,150 Chase Manhattan 99,034
3,500 Citigroup Incorporated 210,875
1,700 Fleet Boston Financial Group, Incorporated 57,800
600 J.P. Morgan & Company Incorporated 66,075
700 Pinnacle West 23,713
1,000 PNC Financial Corporation 46,875
200 State Street Corporation 21,213
1,100 Sun Trust Banks Incorporated 50,256
1,900 Washington Mutual Incorporated 54,863
------
744,954
BUILDING & HOUSING 0.3%
900 Applied Materials Incorporated* 81,563
1,500 Centex Corporation 35,250
300 Kaufman & Broad Home Corporation 5,944
------
122,757
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
30
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C> <C>
BUSINESS MECHANICS & SOFTWARE 5.6%
1,700 America Online Incorporated $ 89,675
300 Apple Computers Incorporated 15,713
15,400 Borders Group 239,663
50,100 Compaq Computers Corporation 1,280,681
1,900 International Business Machines Corporation 208,169
2,800 Oracle Systems 235,375
2,000 Sun Microsystems 181,875
13,000 Synopsys Incorporated* 449,313
400 YAHOO! Incorporated* 49,550
------
2,750,014
BUSINESS SERVICE 3.5%
1,100 Eastman Kodak 65,450
13,000 First Data 645,125
21,900 Manpower Incorporated 700,800
26,900 Owens-Illinois, Incorporated* 314,394
-------
1,725,769
CHEMICALS 0.3%
2,200 Dow Chemical Company 66,413
800 Eastman Chemical Company 38,200
600 Sigma-Aldrich Corporation 17,550
2,000 W.R. Grace & Company 24,250
------
146,413
COMMUNICATION 1.1%
100 Comcast Corporation 4,050
10,900 Infinity Broadcasting* 397,169
600 Omnicom Group 53,438
1,000 Time Warner Incorporated 76,000
------
530,657
COMPUTER & OFFICE EQUIPMENT 7.4%
45,200 3 COM Corporation 2,604,628
300 Analog Devices 22,800
1,000 Dell Computer Corporation* 49,313
1,700 EMC Corporation Massachusetts 130,794
4,100 Microsoft Corporation 328,000
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
31
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C> <C>
COMPUTER & OFFICE EQUIPMENT (CONTINUED)
53,100 Novell $ 491,175
100 Veritas Software Corporation 11,301
------
3,638,011
CONGLOMERATE 0.1%
1,400 Tyco International Ltd. 66,325
CONSTRUCTION 0.5%
14,000 Masco Corporation 252,875
CONSUMER NON-DURABLES 0.1%
1,700 Tupperware Corporation 37,400
700 Unilever ADR 30,100
------
67,500
CONTAINER 0.1%
1,000 Ball Corporation 32,188
COSMETIC & SOAP 0.1%
800 Colgate Palmolive Company 47,900
400 Procter & Gamble 22,900
------
70,800
ELECTRICAL EQUIPMENT 0.8%
7,100 General Electric Company 376,300
500 Teradyne Incorporated 36,750
-------
413,050
ELECTRONICS 1.7%
457 Agilent Technologies Incorporated 33,704
200 Broadcom Corporation* 43,788
1,100 Hewlett-Packard Company 137,363
2,200 Intel Corporation 294,113
600 Kla-Tencor Corporation* 35,138
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
32
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
EQUITIES (CONTINUED) MARKET VALUE
-------------------- ------------
<S> <C> <C> <C>
ELECTRONICS (CONTINUED)
1 Motorola Incorporated $ 29
300 National Semiconductor* 17,025
2,800 Nortel Networks Corporation 191,100
1,200 Texas Instruments 82,425
------
834,685
ENTERTAINMENT & LEISURE 1.1%
1,400 Brunswick Corporation 23,188
16,600 Fox Entertainment Group Incorporated 504,225
242 Viacom Incorporated 16,501
------
543,914
FINANCIAL COMPANY & SERVICES 0.8%
1,100 American Express Company 57,338
1,000 Fannie Mae 52,188
1,600 Household International 66,500
500 Lehman Brothers Holdings 47,281
700 MBNA Corporation 18,988
1,500 Morgan Stanley Group Incorporated 124,875
-------
367,170
FOOD & BEVERAGES 2.4%
400 Anheuser-Busch Companies, Incorporated 29,875
500 Archer-Daniels-Midland Company 4,906
700 Bestfoods 48,475
300 Coca-Cola Company 17,231
24,200 Diageo PLC ADR 860,613
300 General Mills 11,475
100 Kellogg Company 2,975
1,900 PepsiCo Incorporated 84,431
1,300 Safeway Incorporated* 58,663
600 Seagrams LTD 34,800
------
1,153,444
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
33
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<C> <S> <C>
EQUITIES (CONTINUED)
HEALTH CARE 9.8%
24,500 Abbott Labs Company $ 1,091,781
5,200 American Home Products Corporation 305,500
500 Bausch & Lomb Incorporated 38,688
9,800 Baxter International Incorporated 689,063
37,400 Global Telesystems Incorporated* 451,138
800 Guidant Corporation 39,600
1,600 Johnson & Johnson Company 163,000
100 Lilly Eli & Company 9,988
13,100 Mallincrokdt Incorporated 569,031
23,500 Mylan Laboratories 428,875
1,900 Merck & Company 145,588
3,700 Pfizer Incorporated 177,600
700 Pharmacia Corporation 36,181
11,600 Watson Pharmaceuticals Incorporated 623,500
400 Wellpoint Health Networks 28,975
------------
4,798,508
HEALTH CARE SERVICES 0.1%
700 United Healthcare Corporation 60,025
INSURANCE 5.0%
500 Aflac Corporation 22,969
25,000 Allstate Corporation 556,250
1,275 American International Group 149,813
100 Lincoln National Corporation 3,613
12,200 MBIA Corporation 587,888
51,900 MetLife Incorporated 1,093,144
500 MGIC Investment 22,750
------------
2,436,427
METAL & MINERAL 0.8%
8,000 Minerals Technologies, Incorporated 368,000
PAPER & FOREST PRODUCTS 0.1%
1,100 Boise Cascade 28,463
200 Weyerhaeuser Company 8,600
------------
37,063
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
34
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<C> <S> <C>
EQUITIES (CONTINUED)
PETROLEUM 2.5%
100 Apache Corporation $ 5,881
2,224 Exxon Mobil Corporation 174,584
300 Kerr-McGee Company 17,681
1,900 Royal Dutch Petroleum ADR 116,969
4,800 Schlumberger 358,200
500 Texaco 26,625
9,097 Transocean Offshore, Incorporated 486,121
1,900 Union Pacific Resource Group 41,800
------------
1,227,861
RAILROADS 1.7%
33,000 Conoco Incorporated 810,563
1,000 Union Pacific Corporation 37,188
------------
847,751
RETAIL STORES 3.2%
28,500 Abercrombie & Fitch 347,344
700 Best Buy Incorporated* 44,275
800 Circuit City Stores Incorporated 26,550
1,300 Great Atlantic & Pacific 21,613
400 Federated Department Stores* 13,500
1,600 Home Depot 79,900
600 Lowes Companies 24,638
45,500 Office Depot 284,375
700 Radioshack Corporation 33,163
1,300 Sears Roebuck & Company 42,413
300 Target Corporation 17,400
21,200 The Limited Incorporated 458,450
2,500 Toys "R" Us* 36,406
2,100 Wal-Mart Stores Incorporated 121,013
------------
1,551,040
SERVICES 0.1%
2,000 Timken Company 37,250
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
35
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<C> <S> <C>
EQUITIES (CONTINUED)
TECHNOLOGY 2.6%
300 Adobe Systems Incorporated $ 39,000
2,300 Amgen* 161,575
6,400 Cisco Systems Incorporated* 406,800
1,600 Electronic Data Systems Corporation 66,000
29,400 J.D. Edwards 442,838
300 LSI Logic Corporation 16,238
1,000 Micron Technology Incorporated 88,063
500 Network Appliance Incorporated* 40,250
------------
1,260,764
TELECOMMUNICATION 0.3%
300 ADC Telecommunication Incorporated 25,163
900 Lucent Technologies 53,325
600 Nextel Communications Incorporated* 36,713
600 Qualcom Incorporated 36,000
------------
151,201
TELECOMMUNICATION EQUIPMENT 1.2%
600 Northrop Grumman Corporation 39,750
28,100 Raytheon Company 540,925
------------
580,675
TEXTILE & APPAREL 0.0%
700 Spring Industries 22,400
TRAVEL & RECREATION 1.3%
27,300 Galileo International Incorporated 569,888
100 Harrahs Entertainment Incorporated 2,094
1,800 Walt Disney Company 69,863
------------
641,845
UTILITIES-ELECTRIC & ENERGY 0.3%
400 Ameren Corporation 13,500
700 DTE Energy Company 21,394
600 Public Service Enterprises 20,775
1,600 Reliant Energy Incorporated 47,300
1,800 Sempra Energy 30,600
------------
133,569
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
36
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<C> <S> <C>
EQUITIES (CONTINUED)
UTILITIES-TELEPHONE 5.2%
26,800 American Telephone and Telegraph $ 847,550
14,800 Bell Atlantic Corporation 752,025
800 GTE Corporation 49,800
900 NCR Corporation* 35,044
17,195 SBC Communication, Incorporated 743,684
600 Sprint Corporation 30,600
700 Sprint PCS Group 41,650
700 US West Incorporated 60,025
------------
2,560,378
MISCELLANEOUS 2.1%
600 Corning Corporation 161,925
15,600 Elan Corporation ADR 755,625
500 FMC Corporation 29,000
1,100 National Service Industries 21,450
------------
968,000
TOTAL EQUITIES
(COST $27,259,776) 31,690,947
* NON-INCOME PRODUCING STOCKS.
NUMBER OF CONTRACTS
OPTIONS-PURCHASED 0.0%
Put Options OTC CMBS 8.5 Year Index
8 Exercise Price $798.33, Expiring September 2000 8,125
Put Options 5 Year Treasury Note Futures
5 Exercise Price $98.50, Expiring August 2000 4,820
------------
12,945
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
37
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<C> <S> <C>
LONG-TERM OBLIGATIONS 29.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS 18.7%
United States Treasury Bonds
$ 10,000 0.000% 05/15/17 stripped principal $ 3,524
975,000 8.000% 11/15/21 1,177,008
United States Treasury Inflation Index Bonds
1,365,426 3.625% 04/15/28 1,302,703
270,222 3.875% 04/15/29 269,546
United States Treasury Notes
150,000 7.500% 02/15/05 157,359
70,000 4.750% 11/15/08 63,591
10,000 6.500% 02/15/10 10,344
10,000 6.250% 05/15/30 10,500
Federal Home Loan Mortgage Corporation
30,000 5.700% 04/15/08 27,549
297,671 7.000% 08/01/29 287,757
97,448 7.000% 08/01/29 94,202
579,270 6.500% 06/01/29 547,140
Federal National Mortgage Association
(mortgage-backed securities)
60,000 7.125% 02/15/05 60,266
121,740 9.000% 08/01/07 125,366
10,000 5.750% 02/15/08 9,206
20,000 6.000% 05/15/08 18,643
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
38
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<C> <S> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal National Mortgage Association
(mortgage-backed securities)
$ 110,000 7.250% 01/15/10 $ 111,087
377,037 6.000% 03/01/29 345,300
944 6.000% 07/01/29 866
298,017 7.500% 09/01/29 294,041
586,351 7.500% 10/01/29 578,530
170,000 6.500% 06/01/30 160,225
200,000 7.500% 07/01/30 197,062
Government National Mortgage Association
(mortgage-backed securities)
460,000 6.000% 07/01/15 437,143
50,522 10.000% 12/15/20 53,270
300,000 7.000% 08/15/28 291,943
642,767 6.500% 09/15/28 610,336
200,000 6.000% 07/01/30 189,688
630,000 6.500% 07/01/30 597,517
800,000 7.000% 07/01/30 777,504
Student Loan Marketing Association
308,400 5.090% 04/25/06 307,034
19,560 5.598% 04/25/07 19,464
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 9,135,714
ASSET BACKED OBLIGATIONS 2.8%
Autonation 99-A
15,784 6.540% 11/15/02 15,753
Chase Commingled Mortgage Security
287,000 7.370% 02/19/07 286,317
Chevy Chase Home Loan
70,218 7.150% 05/15/15 Series 1996-1 69,338
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
39
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<C> <S> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
ASSET BACKED OBLIGATIONS (CONTINUED)
Contimortgage Home Equity Loan
$ 122,756 6.420% 04/25/14 $ 121,999
DLJ Commercial Mortgage Corporation
270,820 5.880% 11/12/31 255,428
Fairbanks Capital Mortgage
144,933 5.810% 05/25/28 144,933
Ford Motor Company
180,000 7.700% 05/15/97 167,166
Green Tree Financial Corporation
35,484 5.816% 07/15/03 35,465
25,561 7.850% 07/15/04 25,554
Nomura Asset Securities Corporation
70,000 7.120% 04/13/36 Series 1996-M 68,943
Residential Funding Mortgage
153,383 6.162% 06/25/07 153,458
Resolution Funding Corporate Strip
80,000 0.000% 04/15/30 effective yield 6.274% 12,062
------------
TOTAL ASSET BACKED OBLIGATIONS 1,356,416
CORPORATE OBLIGATIONS 7.4%
AEROSPACE & DEFENSE 0.2%
Lockheed & Martin
80,000 8.500% 12/01/29 81,683
BANKS 1.2%
Bank Boston
200,000 6.351% 11/16/03 199,922
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE.
40
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
BANKS (CONTINUED)
Bank of Tokyo
$ 60,000 8.400% 04/15/10 $ 60,675
Dryden Investor Trust
269,274 7.157% 07/23/08 253,271
J.P. Morgan
59,998 6.903% 04/15/10 60,039
------
573,907
CHEMICALS 0.0%
Dow Chemical Company
20,000 7.375% 11/01/29 19,503
COMMUNICATION & MEDIA 0.3%
Continental Cablevision Incorporated
100,000 9.000% 09/01/08 107,202
Cox Communications Incorporated
20,000 7.875% 08/15/09 19,991
------
127,193
COMPUTER 0.2%
Electronic Data Systems
100,000 7.450% 10/15/29 96,428
ELECTRIC 0.2%
System Energy
119,298 7.430% 01/15/11 113,867
FINANCIAL 1.9%
Conseco Financial
93,000 8.750% 02/09/04 65,100
100,000 8.410% 12/15/25 100,000
Deutsche Telcom International Financial
60,000 8.250% 06/15/30 62,118
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
41
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
FINANCIAL (CONTINUED)
General Electric Capital Corporation
$ 260,000 8.200% 10/30/03 $ 268,325
General Motors Acceptance Corporation
250,000 0.000% 06/15/15 effective yield 6.452% 79,726
JPM Capital Trust
20,000 7.950% 02/01/27 17,860
Lehman Brothers Incorporated
100,000 6.482% 07/08/02 100,016
The Money Store Home Equity
47,625 5.506% 10/15/26 47,609
Raytheon Company
40,000 7.200% 08/01/27 34,982
Zurich Capital Trust
150,000 8.376% 06/01/37 139,742
-------
915,478
FOOD & BEVERAGES 0.5%
J. Seagram & Sons
80,000 6.400% 12/15/03 77,024
30,000 7.500% 12/15/18 28,387
10,000 7.600% 12/15/28 9,484
Pepsi Bottling Company
150,000 7.000% 03/01/29 134,966
-------
249,861
OIL & GAS 0.1%
Tennessee Valley Authority
40,000 7.125% 05/01/30 39,402
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
42
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
POLLUTION CONTROL 0.2%
USA Waste Services
$ 150,000 7.000% 07/15/28 $ 116,215
RAILROAD 0.0%
Conrail
20,000 7.875% 05/15/43 18,982
TELECOMMUNICATION 0.8%
Lucent Technologies Incorporated
100,000 6.450% 03/15/29 88,588
Sprint
100,000 7.148% 06/10/02 100,013
50,000 6.900% 05/01/19 44,491
TCI Communications Incorporated
150,000 6.375% 05/01/03 146,419
-------
379,511
MISCELLANEOUS 0.5%
News America Holdings
100,000 8.875% 04/26/23 102,735
100,000 7.625% 11/30/28 89,511
CSX Corporation
50,000 7.950% 05/01/27 47,633
------
239,879
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
43
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS (CONTINUED)
CORPORATE OBLIGATIONS (CONTINUED)
INTERNATIONAL 1.3%
ARGENTINA- SOVEREIGN 0.6%
Republic of Argentina
$ 70,000 0.000% 10/15/01 $ 61,950
60,000 0.000% 10/15/03 42,150
50,000 0.000% 10/15/04 30,375
YPF Sociedad Anonima
200,000 7.750% 08/27/07 190,000
-------
324,475
CAYMAN ISLANDS- OIL & PETROLEUM 0.2%
Petroleos Mexicanos
70,000 9.030% 02/15/11 72,268
POLAND- SOVEREIGN 0.3%
Republic of Poland
152,000 6.000% 10/27/14 136,012
VENEZUELA-FINANCE 0.2%
Petrozuata Financial Guarantee
130,000 8.220% 04/01/17 100,425
-------
633,180
TOTAL CORPORATE OBLIGATIONS 3,605,089
PREFERRED OBLIGATIONS 0.4%
SB Treasury Company
190,000 9.400% 12/29/49 185,677
-------
TOTAL PREFERRED OBLIGATIONS 185,677
-------
TOTAL LONG-TERM OBLIGATIONS
(COST $16,180,481) 14,282,896
----------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
44
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR MARKET VALUE
PRINCIPAL AMORTIZED COST
--------- --------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS 9.9%
U.S. GOVERNMENT AGENCY OBLIGATIONS 0.6%
Federal Home Loan Mortgage Corporation
(A) $300,000 6.610% 11/09/00 $ 292,784
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
DEMAND NOTES** 9.3%
American Family Demand Note
594,227 6.306% 12/31/31 594,227
Firstar Bank Demand Note
1,587,232 6.423% 12/31/31 1,587,232
General Mills Demand Note
436,925 6.278% 12/31/31 436,925
Sara Lee Demand Note
1,473,124 6.274% 12/31/31 1,473,124
Wisconsin Corporation Demand Note
471,311 6.306% 12/31/31 471,311
-------
TOTAL DEMAND NOTES 4,562,819
TOTAL SHORT-TERM OBLIGATIONS
(AMORTIZED COST $4,855,603) 4,855,603
---------
TOTAL INVESTMENTS
(COST BASIS $48,295,860) $ 50,842,391
==========
</TABLE>
* NON-INCOME PRODUCING STOCKS.
* THESE SECURITIES HAVE A MATURITY OF MORE THAN ONE YEAR, BUT HAVE VARIABLE
RATE AND DEMAND FEATURES THAT QUALIFY THEM AS SHORT-TERM SECURITIES. THE RATES
DISCLOSED ARE THOSE CURRENTLY IN EFFECT. THE 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.
45
<PAGE>
BALANCED PORTFOLIO (CONTINUED)
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL MARKET VALUE
--------- ------------
<S> <C> <C> <C>
NUMBER OF CONTRACTS
OPTIONS-WRITTEN 0.1%
Put Options OTC CMBS 8.5 Year Index
400 Exercise Price $798.33, Expiring September 2000 $ 0
Put Options 5 Year Treasury Note Futures
3 Exercise Price $98.50, Expiring August 2000 (1,125)
Put Options Bond Futures
3 Exercise Price $100.00, Expiring September 2000 (1,359)
Call Options 10 Year Treasury Note Futures
14 Exercise Price $98.00, Expiring September 2000 (15,094)
Call Options 10 Year Treasury Note Futures
5 Exercise Price $100.00, Expiring August 2000 (1,875)
Call Options 10 Year Treasury Note Futures
1 Exercise Price $99.00, Expiring August 2000 (703)
Put Options Bond Futures
1 Exercise Price $92.00, Expiring September 2000 (141)
Put Options Bond Futures
5 Exercise Price $94.00, Expiring September 2000 (1,797)
Put Options Bond Futures
2 Exercise Price $94.00, Expiring September 2000 (2,156)
-------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $26,830) (24,250)
-------
TOTAL INVESTMENTS NET OF
OUTSTANDING WRITTEN OPTIONS 103.8% 50,818,141
CASH AND OTHER ASSETS, LESS
LIABILITIES -3.8% (1,882,185)
TOTAL NET ASSETS 100.0% $ 48,935,956
-------------
-------------
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
46
<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, 2000:
OPEN FUTURES CONTRACTS:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF PRINCIPAL GAINS (LOSSES)
TYPE CONTRACTS AMOUNT POSITION EXPIRATION JUNE 30, 2000
---- --------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
5 Year U.S. Treasury Notes 15 15,000 Short Sept. 2000 ($9,692)
U.S. Govt Bond Futures 7 7,000 Long Sept. 2000 1,020
10 Year U.S. Treasury Notes 3 3,000 Long Sept. 2000 2,993
10 Year U.S.Agency 6 6,000 Long Sept. 2000 1,048
90 Day Euro Future 2 2,000 Long Sept. 2000 1,028
-----
($3,603)
========
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF
THIS SCHEDULE.
47
<PAGE>
AHA INVESTMENT FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
FULL LIMITED
MATURITY MATURITY DIVERSIFIED
FIXED INCOME FIXED INCOME EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C>
Investments, at market value $ 83,110,466 $ 84,420,502 $127,695,855 $ 50,842,391
Receivable for investments sold 738,211 0 0 20,873
Receivable for shares sold 0 400,000 3,500,000 0
Cash 115,790 172,878 995,511 358,997
Dividends and interest receivable 977,574 1,000,526 114,037 175,028
Other Assets 7,333 6,779 13,012 3,594
------------ ------------ ------------ ------------
Total Assets $ 84,949,374 $ 86,000,685 $132,318,415 $ 51,400,883
============ ============ ============ ============
LIABILITIES:
Payable for investments purchased $ 6,317,555 $ 0 $ 0 $ 2,430,071
Payable for shares redeemed 0 174,048 524,387 0
Options written and securities sold short
at market value 438,986 0 0 24,250
Accrued expenses and other liabilities 4,565 13,458 8,142 10,606
------------ ------------ ------------ ------------
Total Liabilities $ 6,761,106 $ 187,506 $ 532,529 $ 2,464,927
------------ ------------ ------------ ------------
NET ASSETS $ 78,188,268 $ 85,813,179 $131,785,886 $ 48,935,956
============ ============ ============ ============
Net Assets consist of:
Capital Stock ($0.01 par value and
200 million shares authorized) and
Paid-in Capital $ 81,560,147 $ 89,295,427 $102,338,715 $ 42,711,980
Undistributed net investment income 0 0 49,335 741,424
Accumulated net realized gain (loss)
on investments sold (1,951,660) (3,126,127) 13,324,602 2,939,622
Net unrealized appreciation
(depreciation) of investments and
futures (1,420,219) (356,121) 16,073,234 2,542,928
------------ ------------ ------------ ------------
TOTAL NET ASSETS $ 78,188,268 $ 85,813,179 $131,785,886 $ 48,935,956
============ ============ ============ ============
Number of Shares Outstanding at
the end of year 8,080,309 8,484,336 6,264,210 3,933,074
------------ ------------ ------------ ------------
NET ASSET VALUE PER SHARE $ 9.68 $ 10.11 $ 21.04 $ 12.44
============ ============ ============ ============
</TABLE>
48
<PAGE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THESE
STATEMENTS.
AHA INVESTMENT FUNDS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
<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 $ 5,088,026 $ 4,811,057 $ 179,768 $ 1,093,531
Dividends 0 0 1,377,666 373,404
------------ ------------ ------------ ------------
Total investment income $ 5,088,026 $ 4,811,057 $ 1,557,434 $ 1,466,935
EXPENSES:
Custodian fees $ 17,531 $ 13,714 $ 26,534 $ 26,730
Accounting fees 54,584 38,458 38,991 43,777
Transfer agent fees 11,379 12,659 19,192 7,872
Legal fees 17,922 17,922 17,922 17,922
Audit and tax return fees 12,710 13,250 13,250 13,250
Director fees and expenses 4,560 4,560 4,560 4,560
Officers and directors insurance 7,258 9,504 12,089 6,023
Administrative and other fees 4,644 6,066 4,692 4,280
------------ ------------ ------------ ------------
Total Expenses $ 130,588 $ 116,133 $ 137,230 $ 124,414
NET INVESTMENT INCOME $ 4,957,438 $ 4,694,924 $ 1,420,204 $ 1,342,521
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gain (loss) on
investments sold $ (955,050) $ (1,072,381) $ 15,906,232 $ 6,288,324
Net realized gain (loss) on closed futures
and options contracts 22,698 0 0 10,493
Net change in unrealized appreciation
(depreciation) of investment, futures,
and options (419,306) 362,148 (9,629,101) (5,818,438)
------------ ------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS $ (1,351,658) $ (710,233) $ 6,277,131 $ 480,379
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,605,780 $ 3,984,691 $ 7,697,335 $ 1,822,900
============ ============ ============ ============
</TABLE>
49
<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, 1999 JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
----------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income $ 4,472,963 $ 4,957,438 $ 5,421,520 $ 4,694,924
Net realized gain on
investments sold and closed
futures and options contracts 39,599 (932,352) 1,073,910 (1,072,381)
Net change in unrealized
appreciation (depreciation) of
investments, futures and
options (2,455,200) (419,306) (1,147,704) 362,148
-------------- -------------- -------------- --------------
Net increase in net assets
resulting from operations 2,057,362 3,605,780 5,347,726 3,984,691
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net investment
income (4,472,963) (4,957,438) (5,421,520) (4,694,924)
Capital gains distribution -- -- -- --
-------------- -------------- -------------- --------------
Net decrease in net assets
resulting from distributions $ (4,472,963) $ (4,957,438) $ (5,421,520) $ (4,694,924)
SHARE TRANSACTIONS:
Subscriptions of fund shares 10,557,454 4,528,656 29,136,977 26,740,119
Investment income dividends
reinvested 4,466,909 4,954,460 5,341,148 4,622,712
Capital gains distributions
reinvested -- -- -- --
-------------- -------------- -------------- --------------
Gross increase in fund shares 15,024,363 9,483,116 34,478,125 31,362,831
Redemptions of fund shares (11,017,877) (3,363,413) (59,446,215) (49,514,131)
-------------- -------------- -------------- --------------
Net increase (decrease) from
share transactions 4,006,486 6,119,703 (24,968,090) (18,151,300)
-------------- -------------- -------------- --------------
Net increase (decrease) in net
assets $ 1,590,885 $ 4,768,045 $ (25,041,884) $ (18,861,533)
TOTAL NET ASSETS
Beginning of Year 71,829,338 73,420,223 129,716,596 104,674,712
-------------- -------------- -------------- --------------
End of Year $ 73,420,223 $ 78,188,268 $ 104,674,712 $ 85,813,179
============== ============== ============== ==============
Undistributed net
investment income $ 0 $ 0 $ 0 $ 0
============== ============== ============== ==============
</TABLE>
50
<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, 1999 JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
----------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income $ 1,571,477 $ 1,420,204 $ 1,531,097 $ 1,342,521
Net realized gain on
investments sold and closed
futures and options contracts 10,655,846 15,906,232 7,314,860 6,298,817
Net change in unrealized
appreciation (depreciation)
of investments, futures, and
options 8,583,529 (9,629,101) (692,742) (5,818,438)
-------------- -------------- -------------- --------------
Net increase in net assets
resulting from operations 20,810,852 7,697,335 8,153,215 1,822,900
-------------- -------------- -------------- --------------
DISTRIBUTIONS TO
SHAREHOLDERS:
Dividends from net investment
income (1,584,051) (1,412,862) (1,542,516) (1,367,306)
Capital gains distribution (8,635,723) (12,462,482) (5,761,408) (8,444,132)
-------------- -------------- -------------- --------------
Net decrease in net assets
resulting from distributions $(10,219,774) $ (13,875,344) $ (7,303,924) $ (9,811,438)
SHARE TRANSACTIONS:
Subscriptions of fund shares 29,559,964 9,863,259 1,380,210 200,891
Investment income dividends
reinvested 1,584,051 1,412,862 1,278,332 1,367,306
Capital gains distributions
reinvested 8,635,723 12,462,482 5,761,408 8,444,132
-------------- -------------- -------------- --------------
Gross increase in fund shares 39,779,738 23,738,603 8,419,950 10,012,329
Redemptions of fund shares (9,214,420) (12,666,860) (5,328,032) (16,388,739)
-------------- -------------- -------------- --------------
Net increase (decrease) from
share transactions 30,565,318 11,071,743 3,091,918 (6,376,410)
-------------- -------------- -------------- --------------
Net increase (decrease) in
net assets 41,156,396 4,893,734 3,941,209 (14,364,948)
TOTAL NET ASSETS
Beginning of Year 85,735,756 126,892,152 59,359,695 63,300,904
-------------- -------------- -------------- --------------
End of Year $126,892,152 $ 131,785,886 $ 63,300,904 $ 48,935,956
============== ============== ============== ==============
Undistributed net investment
income $ 41,993 $ 49,335 $ 766,209 $ 741,424
============== ============== ============== ==============
</TABLE>
51
<PAGE>
AHA INVESTMENT FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
-------------------------------------------------------------------------------
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, 2000. 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. Short-term securities are valued using the amortized cost
method, which approximates market 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, 2000.
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.
52
<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, 2000 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 69 $ 50,701 33 $ 23,831
of Year
Options Written 626 398,431 685 187,181
Options Terminated in Closing (401) (287,121) (184) (132,024)
Purchase Transactions
Options Expired (221) (113,313) (100) (52,158)
---- --------- ------ ---------
Options Outstanding at June 30, 2000 73 $ 48,698 434 $ 26,830
-----------------------------------------------------------------------------------------------
</TABLE>
The Limited Maturity and Diversified Equity Portfolios did not purchase or hold
any options during the year ended June 30, 2000.
53
<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 in 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 affected 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 sub-custodian, 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 affected 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 for
the year ended June 30, 2000.
54
<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, 2000, 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 $1,700,000 and $2,500,000 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 accounting principles
generally accepted in the United States 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 $0.238 and $0.367 per
share, respectively, during the year ended June 30, 2000.
During the year ended June 30, 2000, the Diversified Equity and Balanced
Portfolios made a long-term capital gain distribution of $1.825 and $2.039 per
share, respectively.
During for the year ended June 30, 2000, the Diversified Equity and Balanced
Portfolios made a short-term capital gain distribution of $0.336 and $0.475 per
share, respectively.
55
<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") received $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. The 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, 2000, 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.
HOLDERS OF SECURITIES
AHA, either directly or through AHA affiliated companies and trusts, owns 39% of
the total outstanding shares of the Fund. Such AHA affiliated companies are
separately operated and administered by separate boards, a majority of the
members of which are persons who are not directors, officers or employees of
AHA. AHA and its affiliated companies and trusts have direct and indirect
beneficial ownership of shares of the Portfolios as follows: 29%, 52%, 54%
and 33% of Limited Maturity Fixed Income Portfolio, Full Maturity Fixed Income
Portfolio, Balanced Portfolio and Diversified Equity Portfolio, respectively.
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5.
SHORT-TERM DEBT
To facilitate portfolio liquidity, each Portfolio is authorized to borrow
against portfolio securities. During the year ended June 30, 2000, there were no
borrowings.
NOTE 6.
INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of securities (exclusive
of short-term obligations) for the year ended June 30, 2000 is presented below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
PORTFOLIO PURCHASES SALES
----------------------------------------------------------------------------
<S> <C> <C>
Full Maturity Fixed Income $160,233,378 $156,169,233
Limited Maturity Fixed Income 132,988,609 155,556,909
Diversified Equity 83,240,112 92,214,350
Balanced 86,892,210 101,077,595
----------------------------------------------------------------------------
</TABLE>
At June 30, 2000 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 $ 303,665 $ 1,723,884 $ 84,497,204 $ 84,497,204
Limited Maturity Fixed Income 63,485 419,606 84,776,623 84,776,623
Diversified Equity 27,535,423 11,462,189 111,622,621 111,622,621
Balanced 6,425,381 3,882,453 48,295,860 48,295,860
--------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7.
TRANSACTIONS IN CAPITAL STOCK SHARES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 2000
--------------------------------------------------------------------
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 462,050 2,640,180 462,850 13,828
Investment income dividends reinvested 512,380 453,747 66,123 102,300
Capital Gains Distribution reinvested 0 0 602,343 684,844
--------- ---------- --------- ---------
Gross increase in fund shares 974,430 3,093,927 1,131,316 800,972
Redemptions of fund shares (346,580) (4,876,587) (596,476) (1,177,138)
--------- ---------- --------- ---------
Net increase (decrease) in fund shares 627,850 (1,782,660) 534,840 (376,166)
Beginning of Year 7,452,459 10,266,996 5,729,370 4,309,240
--------- ---------- --------- ---------
End of Year 8,080,309 8,484,336 6,264,210 3,933,074
========= ========== ========= =========
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<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>
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR:
FULL MATURITY FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------
1996 1997 1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.88 $9.63 $9.79 $10.18 $9.85
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.65 0.65 0.64 0.60 0.64
Net realized and unrealized gain (loss)
on investments and futures (0.25) 0.16 0.39 (0.33) (0.17)
--------------------------------------------------------------
Total from Investment Operations 0.40 0.81 1.02 0.27 0.47
LESS DISTRIBUTIONS:
Net investment income (0.65) (0.65) (0.64) (0.60) (0.64)
Net realized capital gains (0.00) (0.00) (0.00) (0.00) (0.00)
--------------------------------------------------------------
Total Distributions (0.65) (0.65) (0.64) (0.60) (0.64)
--------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $9.63 $9.79 $10.18 $9.85 $9.68
==============================================================
TOTAL RETURN ON NET ASSET VALUE (A) 3.58% 8.09% 10.20% 2.11% 4.41%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands) $53,292 $50,796 $71,829 $73,420 $78,188
Ratio of Expenses to Average Net Assets (B) 0.21% 0.21% 0.17% 0.16% 0.17%
Ratio of Net Investment Income to
Average Net Assets (B) 6.52% 6.63% 6.19% 5.90% 6.55%
Portfolio turnover rate 283.13% 304.93% 178.52% 273.61% 211.40%
(A) Total Return on Net Assets is net of management fee of 0.50% per annum.
(B) Ratios include all management fees and expenses except for program services fees.
</TABLE>
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR:
LIMITED MATURITY FIXED INCOME PORTFOLIO
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------
1996 1997 1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $10.22 $10.12 $10.16 $10.22 $10.20
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.62 0.61 0.60 0.53 0.58
Net realized and unrealized gain (loss)
on investments and futures (0.10) 0.04 0.06 (0.02) (0.09)
--------------------------------------------------------------
Total from Investment Operations 0.52 0.65 0.66 0.51 0.49
LESS DISTRIBUTIONS:
Net investment income (0.62) (0.61) (0.60) (0.53) (0.58)
Net realized capital gains (0.00) (0.00) (0.00) (0.00) (0.00)
--------------------------------------------------------------
Total Distributions (0.62) (0.61) (0.60) (0.53) (0.58)
--------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $10.12 $10.16 $10.22 $10.20 $10.11
==============================================================
TOTAL RETURN ON NET ASSET VALUE (A) 4.66% 6.03% 6.11% 4.59% 4.37%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands) $201,196 $141,023 $129,717 $104,675 $85,813
Ratio of Expenses to Average Net Assets (B) 0.10% 0.12% 0.12% 0.12% 0.14%
Ratio of Net Investment Income to
Average Net Assets (B) 6.03% 6.04% 5.92% 5.30% 5.70%
Portfolio turnover rate 132.75% 121.70% 144.97% 176.78% 161.89%
(A) Total Return on Net Assets is net of management fee of 0.50% per annum.
(B) Ratios include all management fees and expenses except for program services fees.
</TABLE>
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR:
DIVERSIFIED EQUITY PORTFOLIO
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------
1996 1997 1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $14.76 $17.59 $20.72 $20.37 $22.15
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.35 0.34 0.32 0.29 0.24
Net realized and unrealized gain (loss)
on investments and futures 3.57 5.18 4.14 3.42 1.05
--------------------------------------------------------------
Total from Investment Operations 3.92 5.52 4.46 3.71 1.29
LESS DISTRIBUTIONS:
Net investment income (0.35) (0.34) (0.32) (0.29) (0.24)
Net realized capital gains (0.74) (2.05) (4.49) (1.64) (2.16)
--------------------------------------------------------------
Total Distributions (1.09) (2.39) (4.81) (1.93) (2.40)
--------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $17.59 $20.72 $20.37 $22.15 $21.04
==============================================================
TOTAL RETURN ON NET ASSET VALUE (A) 26.42% 32.97% 24.05% 18.90% 5.28%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands) $54,435 $70,590 $85,736 $126,892 $131,786
Ratio of Expenses to Average Net
Assets (B) 0.18% 0.17% 0.14% 0.10% 0.11%
Ratio of Net Investment Income to
Average Net Assets (B) 2.09% 1.83% 1.51% 1.43% 1.11%
Portfolio turnover rate 57.76% 67.31% 65.82% 74.35% 66.84%
(A) Total Return on Net Assets is net of management fee of 0.75% per annum.
(B) Ratios include all management fees and expenses except for program services fees.
</TABLE>
61
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8:
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR:
BALANCED PORTFOLIO
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30
--------------------------------------------------------------
1996 1997 1998 1999 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.63 $13.38 $14.86 $14.61 $14.69
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.41 0.37 0.41 0.36 0.37
Net realized and unrealized gain (loss)
on investments and futures 1.98 2.65 2.01 1.45 0.26
--------------------------------------------------------------
Total from Investment Operations 2.39 3.02 2.42 1.81 0.63
LESS DISTRIBUTIONS:
Net investment income (0.41) (0.39) (0.44) (0.36) (0.37)
Net realized capital gains (1.23) (1.15) (2.23) (1.37) (2.51)
--------------------------------------------------------------
Total Distributions (1.64) (1.54) (2.67) (1.73) (2.88)
--------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $13.38 $14.86 $14.61 $14.69 $12.44
==============================================================
TOTAL RETURN ON NET ASSET VALUE (A) 19.20% 23.23% 16.79% 13.10% 3.99%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (in thousands) $43,130 $52,137 $59,360 $63,301 $48,936
Ratio of Expenses to Average Net
Assets (B) 0.23% 0.23% 0.18% 0.18% 0.24%
Ratio of Net Investment Income to
Average Net Assets (B) 3.08% 2.81% 2.86% 2.55% 2.58%
Portfolio turnover rate 146.69% 173.60% 169.04% 206.43% 169.10%
(A) Total Return on Net Assets is net of management fee of 0.75% per annum.
(B) Ratios include all management fees and expenses except for program services fees.
</TABLE>
62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
AHA Investment Funds, Inc.-
Full Maturity Fixed Income Portfolio
Limited Maturity Fixed Income Portfolio
Diversified Equity Portfolio
Balanced Portfolio:
We have audited the accompanying statements of assets and liabilities of AHA
INVESTMENT FUNDS, INC. (a Maryland corporation, comprising the Full Maturity
Fixed Income Portfolio, Limited Maturity Fixed Income Portfolio, Diversified
Equity Portfolio and Balanced Portfolio), including the portfolios of
investments, as of June 30, 2000, 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 auditing standards generally accepted
in the United States. 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, 2000, 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.
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, 2000, and the results of their operations, the changes in their net
assets and their financial highlights for the periods indicated thereon, in
conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
August 8, 2000
63
<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, 2000 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, 2000. 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(1) December 1, 1996 50%
----------------------------------------------------------------------------------------------
LIMITED MATURITY FIXED INCOME PORTFOLIO
----------------------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
----------------------------------------------------------------------------------------------
The Patterson Capital Corporation December 22, 1988 100%
----------------------------------------------------------------------------------------------
DIVERSIFIED EQUITY PORTFOLIO
----------------------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
----------------------------------------------------------------------------------------------
Cambiar Investors, Inc. October 20, 1988 50%
Investment Research Company December 1, 1993 50%
----------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
----------------------------------------------------------------------------------------------
INVESTMENT MANAGER STARTING DATE PERCENT OF PORTFOLIO
----------------------------------------------------------------------------------------------
Cambiar Investors, Inc. December 1, 1993 50%
Western Asset Management Co. July 1, 1995 30%
Investment Research Co. June 15, 1999 20%
</TABLE>
----------------------
(1) On July 1, 2000 the FIRMCO portion of the Full Maturity Portfolio was
transfered to Baird Advisors. The FIRMCO fixed income management team moved to
Baird and therefore the portfolio followed suit.
--------------------------------------------------------------------------------
64
<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, 2000, the total return of the Full
Maturity Fixed Income Portfolio, net of all fees and expenses, was 4.41%
compared to the Lehman Brothers Aggregate Bond Index (LB Aggregate Index), which
had a total return of 4.56% for the same period. The gross return of the segment
of the Portfolio, managed by Western Asset Management Company (WAMCO) was 4.81%.
The principal factors, which affected performance during this period, are
discussed below.
As was evident during fiscal year 1999, global fixed income markets remained
volatile for the year ending June 30, 2000. The volatility we experienced over
the most recent twelve-month period can be attributed to a number of market
factors including Y2K, historically wide swap spreads, persistent Fed tightening
and the Treasury Buy-Back Program. Overall, the broad market closed the fiscal
year 2000 with a positive return of 4.56%.
The first half of the period, the third and fourth quarters of 1999, saw the
calendar year close out as the second worst year in recorded history for the
bond market. Treasury yields rose more during this period than they declined in
the prior calendar year. Although corporate spreads narrowed during the third
and fourth quarters, they still closed the calendar year much wider than the
levels seen during 1998, despite the fact that the health of the economy and
corporate earnings had exceeded even the most optimistic of projections.
Mortgage spreads also narrowed but remained unusually wide during the second
half of 1999, despite a measurable decrease in prepayment risk.
Not only were these developments contrary to what would normally be expected,
they were difficult to explain. Monetary tightening fears - driven by the
Federal Reserve's insistence that "above-trend" economic growth would eventually
rekindle inflation pressures - wider swap spreads, and Y2K-related hedging were
also likely but not completely satisfying explanations. In what was probably an
unprecedented development during the last half of calendar year 1999, the Fed
appeared much more concerned about the prospects of future inflation than the
market. For despite the concerns about the inflationary potential of a strong
economy, core inflation fell to its lowest level in 34 years during the third
and fourth quarters of 1999. Plus, the yield curve flattened significantly, a
sign that the Fed had not fallen behind the inflation curve. The dollar
strengthened dramatically against the Euro and most other major currencies,
suggesting that dollars may actually have been in short supply relative to
demand.
--------------------------------------------------------------------------------
65
<PAGE>
The first half of calendar year 2000 saw an end to Y2K fears and a beginning of
what can only be described as a tug-of-war between a Fed bent on slowing down
the economy and a Treasury dedicated to retiring a significant portion of our
nation's long-term debt. As we look back on the first half of calendar year
2000, it appears that the Fed has done their job well and the series of
tightenings we experienced has steered the economy in the direction of a "soft
landing." Recent economic events paint a picture of a U.S. economy that is
indeed slowing in response to tight monetary policy. However, the slowing took
longer to develop for a variety of reasons, one of which was a seemingly
inexhaustible supply of productivity and confidence in the U.S. economy. In
addition, activity in the final quarter of last year was boosted by Y2K
preparations, which proved so thorough that the problem never materialized.
Earlier this calendar year, activity was likely stimulated by the widespread
expectation that the Fed was embarked on an aggressive tightening program - as
indeed it did.
Signs of weakness are now emerging in key interest-rate sensitive sectors such
as housing and durable goods, as well as in earnings disappointments for banks
and consumer staples manufacturers. Going forward, with tight money limiting
firms' ability to pass along higher input prices, recent hikes in energy prices
will act like a tax on economic activity, accentuating the monetary slowdown
already underway.
In terms of returns, year to date market sector performance was significantly
different than what was seen during fiscal year 1999. Long US Treasury
securities as well as TIPS were clearly the best performers, benefiting mostly
from the on-going Treasury Buy-Back Program and the resulting inverted yield
curve. Most spread product however was not as fortunate with the riskiest of
sectors, such as corporates, suffering the most.
Even with a very difficult year, WAMCO's portfolio outperformed its benchmark
for the twelve-month period, with a total return of 4.81% vs. 4.56% for the
Lehman Aggregate. A moderately long duration exposure added to returns as
yields fell. Additionally, our allocation to TIPS made a substantial positive
contribution to returns for the period as real yields declined and inflation
rose, benefiting handsomely our emphasis on the 30-year issue. The eventual
widening of mortgage spreads had a negative impact on overall performance, but
the overall impact was mitigated by a reduction in the exposure as spreads
narrowed earlier in the period. Wider corporate spreads produced the greatest
negative impact to returns, given our moderate duration-contribution
over-weighting to the sector.
--------------------------------------------------------------------------------
66
<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, 2000, the total return of the Full
Maturity Fixed Income Portfolio, net of all fees and expenses, was 4.41%
compared to the Lehman Brothers Aggregate Bond Index (LB Aggregate Index), which
had a total return of 4.56% for the same period. The gross return of the segment
of the Portfolio, managed by Firstar Investment Research & Management Company,
LLC ("FIRMCO") was 5.37%. 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 Firstar Investment Research & Management Company ("FIRMCO") we
seek to provide an annual rate of total return comparable to that of the Lehman
Brothers Aggregate Bond Index ("the Benchmark"), before Fund expenses. The
Benchmark is a widely accepted composite of securities representing the bond
market in its entirety.
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.
--------------------------------------------------------------------------------
67
<PAGE>
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.
(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 87 securities in the Fund,
(compared to the Benchmark which has
over 5,900), 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 it's principal cash flow, weighting each of these by
the time until their receipt.
During the last twelve months, THE PORTION OF THE FUND THAT FIRMCO MANAGES HAD A
TOTAL RETURN OF +5.37%, BEFORE EXPENSES, VERSUS THE BENCHMARK RETURN OF +4.56%.
During this time, yields on U.S. Treasury bonds and notes increased
approximately 20 basis points. For example, the 10-year U.S. Treasury note
yielded 5.8% on 6/30/99 and yielded 6.0% on 6/30/00.
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, 2000, the FIRMCO-managed
portion of this Fund had an overall AVERAGE PORTFOLIO MATURITY OF 8.4 YEARS, AND
A DURATION OF 4.9 YEARS. This duration was 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 44 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.
--------------------------------------------------------------------------------
68
<PAGE>
Yield Curve Positioning: During the early part of the fiscal year, the curve
structure of the portfolio remained relatively unchanged with overweight
positions in the 4 year and 20 year part of the curve. Later in the year,
however, we modestly reduced our exposure to the long Treasury sector and
increased our exposure to the intermediate Treasury sector to take advantage of
the atypical inverted yield curve.
Sector Allocation: The Fund is overweighted in several sectors. We purchased
asset backed securities, such as securitized residential loans in the form of
home equity loans (HEL) and manufactured housing loans (MFH) as substitutes for
the pass-through mortgages in the benchmark. This approach worked well in the
volatile interest rate environment because these assets are less pre-payment
sensitive. The asset-backed securities that we own tend to be very highly rated
(Aaa/AAA) and be very liquid We believe that these issues have contributed
favorably to the Fund's performance. We overweighted in the corporate sector
relative to the benchmark to capture the yield advantage versus Treasuries.
Specific corporate sectors that have helped the Fund are finance, banking, and
brokerage issues and international securities (all are denominated in U.S.
dollars). Finally, mortgage-backed securities have also contributed to the
fund's strong performance.
IN TERMS OF QUALITY, OVER TWO-THIRDS OF THE FIRMCO'S PORTFOLIO IS INVESTED IN
OBLIGATIONS RATED "AAA" OR HIGHER. These obligations are primarily composed of
U.S. Treasury bonds, agency mortgage-backed obligations and asset-backed
securities. While the majority of the assets are of the highest quality, the
Fund has significant exposure (28%) 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. THE HALLMARK
OF OUR APPROACH HAS BEEN CONSISTENT PERFORMANCE IN ALL MARKET ENVIRONMENTS.
(Note: the team that managed the fixed income portfolio at FIRMCO moved to Baird
Advisors. Management of this portion of the AHA Full Maturity Portfolio was
transferred to Baird on July 1, 2000.
--------------------------------------------------------------------------------
69
<PAGE>
[GRAPH]
COMPARISON OF CHANGE IN $100,000 INVESTMENT IN THE FULL
MATURITY FIXED INCOME PORTFOLIO AND
LEHMAN BROTHERS AGGREGATE BOND INDEX
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
<S> <C>
LAST YEAR 4.41%
LAST 5 YEARS 5.64%
LAST 10 YEARS 7.05%
</TABLE>
INCEPTION DATE FOR THE FULL MATURITY FIXED INCOME PORTFOLIO
WAS OCTOBER 20, 1988.
<TABLE>
<CAPTION>
FULL MATURITY LB AGGREGATE INDEX
------------- ------------------
<S> <C> <C>
$ 100,000 $ 100,000
$ 108,602 $ 110,010
$ 113,624 $ 118,641
$ 122,561 $ 131,321
$ 139,302 $ 149,778
$ 155,986 $ 167,442
$ 153,756 $ 165,249
$ 170,647 $ 185,987
$ 176,763 $ 195,313
$ 191,072 $ 211,220
$ 210,559 $ 233,458
$ 214,994 $ 240,765
$ 224,478 $ 251,743
</TABLE>
70
<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, 2000, the total return of the Limited
Maturity Fixed Income Portfolio ("the Portfolio"), net of all fees and expenses,
was 4.37% compared to the 90-Day U.S. Treasury Bills, which had a total return
of 5.26% and the Lehman Brothers 1-3 year Government Bond Index, which had a
total return of 4.86% for the same period. The gross return of the Portfolio,
managed by The Patterson Capital Corporation ("Patterson") was 4.98%. The
principal factors, which affected performance during the fiscal year, are
discussed below.
The last year in the fixed income market has been characterized by the Federal
Reserve's moves to reign in the economy by raising interest rates. The Fed felt
the need to raise interest rates for several reasons. The country's Gross
Domestic Product is running over 5%, nearly 2% higher than the Fed believes is
manageable without igniting inflation. Common measures of inflation in fact, the
Producer Price Index and the Consumer Price Index, have been rising slightly
over the last year. Finally, the unemployment rate, at 4.0%, has never been
lower and causes concern of rising wage pressure. With this economic background,
the overnight bank lending rate, or the Fed Funds rate, has been increased six
times since June of 1999 from 4.75% to 6.5%; in 2000 alone Fed Funds have risen
from 5.5% to 6.5%.
Besides rising interest rates, two other developments have factored heavily in
the bond market over the last twelve months. In January of 2000, the Treasury
Department began a "buyback" program. Because of budget surpluses, the Treasury
is not only reducing its supply of new issues, but it is also buying back, and
thereby retiring, some of its outstanding long bonds. This artificial demand for
long Treasuries has caused yield on these issues to fall below yields on shorter
maturities. For example, on 12/31/99, the 30-year bond and the 2-year note had
yields of 6.24% and 6.48%, respectively. By 6/30/00 the 2-year had risen in
yield to 6.36%, but the 30-year bond had fallen to 5.90%. This inversion of
short and long Treasury rates caught the bond market off guard and has kept the
market somewhat nervous ever since.
This nervousness in the markets caused the yield on non-Treasuries to rise even
more than Treasury yields did. The widening of yields spreads in corporates,
agencies, and asset-backeds resulted in underperformance of these sectors, while
historically, they have outperformed Treasuries. In only two of the last twenty
years have Treasuries been the best performing sector, and 2000 could become the
third such year based on year-to-date trends. For example, we've noted that the
2-year Treasury rose just 12 basis points in yield from 6.24% on 12/31/99 to
6.36% on 6/30/00. During this same period of time, however, the yield on
1-3-year corporate securities has risen from 6.96% to 7.65%, almost 70 basis
points.
--------------------------------------------------------------------------------
71
<PAGE>
During the last twelve months, despite rising interest rates and the widening in
credit spreads, the AHA LIMITED MATURITY PORTFOLIO has been able to produce a
gross return of 4.98% for the year ending 6/30/00 vs. its benchmark, the MERRILL
1-2.99 TREASURY INDEX AT 4.91%, and the 2- YEAR TREASURY AT 4.35%. FOR THE THREE
YEARS ENDING 6/30, the portfolio's performance is 5.73% vs. the index at 5.58%
AND the 2-year Treasury at 5.21%.
With rising interest rates over the last twelve months, Patterson Capital DID
NOT TAKE ANY DURATION OR MATURITY RISK in the portfolio. Duration remained just
under two years, very similar to that of the performance benchmark. This served
the portfolio well as the return of the 2-year Treasury was 4.35% for the year
ending 6/30/00, while that of the 5-year Treasury was considerably less at just
3.49%.
With yield spreads on non-Treasuries rising to recessionary levels, and with
corporate performance for the first half of 2000 being the worst on record
according to some, Patterson Capital gradually reduced its allocation to
corporates from 12/99 through 6/00. This helped mitigate against possible losses
vs. the benchmark since short corporates returned 2.78% year-to-date, while
short Treasuries outperformed at 2.99%. From a credit perspective, the quality
of the Limited Maturity Portfolio remains AA+, with 75% OF THE PORTFOLIO BEING
IN "AAA" securities. This also worked to the benefit of the portfolio, as lower
credits were the worst performers during the recent spread widening.
Being very cautious with respect to both duration and sector allocation, while
maintaining a yield advantage to the index, protected the portfolio from the
adverse affects of rising rates and deteriorating sector spreads during the last
year.
--------------------------------------------------------------------------------
72
<PAGE>
COMPARISON OF CHANGE IN $100,000 INVESTMENT IN THE
LIMITED MATURITY FIXED INCOME PORTFOLIO, 90 DAY T-BILLS
AND
LEHMAN BROTHERS 1-3 GOVERNMENT BOND INDEX
FOR THE YEARS ENDED JUNE 30
AVERAGE ANNUAL TOTAL RETURN
LAST YEAR 4.37%
LAST 5 YEARS 5.15%
LAST 10 YEARS 5.83%
[GRAPH]
<TABLE>
<CAPTION>
LIMITED MATURITY 90-DAY T-BILLS LB GOV'T 1-3 YEAR
------------------------- ------------------------- --------------------------
<S> <C> <C>
$ 100,000 $ 100,000 $ 100,000
$ 105,014 $ 104,515 $ 106,346
$ 111,860 $ 112,875 $ 115,243
$ 121,362 $ 120,518 $ 127,050
$ 134,059 $ 125,978 $ 140,173
$ 141,425 $ 129,889 $ 149,344
$ 143,031 $ 134,334 $ 151,614
$ 153,312 $ 141,602 $ 163,238
$ 160,454 $ 148,911 $ 172,183
$ 170,125 $ 156,441 $ 183,507
$ 180,517 $ 164,350 $ 195,908
$ 188,807 $ 169,914 $ 205,815
$ 197,053 $ 180,884 $ 215,802
</TABLE>
INCEPTION DATE FOR THE LIMITED MATURITY FIXED INCOME PORTFOLIO WAS DECEMBER
22, 1988.
--------------------------------------------------------------------------------
73
<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, 2000, the total return of the Diversified
Equity Portfolio, net of all fees and expenses, was 5.28%, compared to the S&P
500 Stock Index, which had a total return of 7.25% for the same period.
For the fiscal year ending June 30, 2000, the gross return of the segment
managed by IRC was 12.9%. During the same time period, the total return of the
S&P 500 index was just 7.25% and the total return of the BARRA S&P 500 Value
Index was NEGATIVE 5.1%.
Thus, the IRC segment outperformed the S&P 500 benchmark by approximately 565
basis points and outperformed the BARRA S&P Value Index by over 18%.
IRC maintains a steadfast commitment to fundamental investing while avoiding
"value traps" (also called "falling knives" or "falling pianos"), stocks that
appear undervalued only because their stock price is tanking. This has enabled
IRC to avoid such disastrous stocks as Conseco, which had its share price fall
so rapidly that by the Spring of 2000 it briefly traded with a P/E of 2! At the
same time, IRC's emphasis on fundamental factors maintains excellent value
characteristics in the portfolio. For example, the P/E of the Portfolio was 22.9
on June 30 whereas the S&P 500 Index had a P/E of 28.8. The story was similar
with the Price/Cash Flow indicator, with the IRC Portfolio enjoying an advantage
over the S&P 500 of 12.2 to 18.7.
Another reason IRC's portfolio outperformed many value managers is our risk
control policies, particularly the requirement that the portfolio's industry
composition closely match the benchmark. The fiscal year ending June 30, 2000
was notable for the extreme dispersion among stocks and industries. A Value
manager leery of sky-high fundamental valuations only needed to be slightly
underweighted in the technology sector to cost his portfolio hundreds of basis
points in performance last year.
In our continuing efforts to obtain the lowest possible total trading costs for
our clients, IRC has used principal bids when appropriate to transfer the market
impact risk to Wall Street counterparts for a known cost. During the first half
of 1999, the dominant provider of liquidity through principal bids went out of
business, and the poor prices provided by the remainder of the Wall Street
community resulted in more agency trading through traditional institutional
brokers and automated DOT-type computer systems. Recently, as Wall Street's
appetite for risk has returned somewhat, IRC has increased our use of principal
bids again. IRC continues to strive to reduce both market impact and commission
costs and now trades near two-cents/share commission on average.
IRC has increased our pursuit and execution of idiosyncratic strategies related
to corporate actions, e.g., our timely exchange of GM shares for GM/H shares in
May and our temporary substitution of Seagate for Veritas prior to that
corporate restructuring. These efforts have contributed significantly to our
fiscal year results.
--------------------------------------------------------------------------------
74
<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, 2000 the total return of the Diversified
Equity Portfolio, net of all fees and expenses, was 5.28%, compared to the S&P
500 Stock Index, which had a total return of 7.25% for the same period. The
gross return for the segment of the Portfolio, managed by Cambiar Investors,
Inc. ("Cambiar") was 0.16%. The principal factors, which affected performance
during the fiscal year, are discussed below.
The new millennium started much the same as the previous one ended. Volatility
continued with large intraday moves a common event. Companies placed in the "new
economy" camp carried valuations that could only be described as astounding
while firms relegated to the "old economy" languished at prices not seen in
decades. With price stability as the Federal Reserve's primary objective, it has
continued to raise interest rates in order to create a soft landing for the
economy. Technology and technology-enabled productivity gains continue to be the
engines behind the economy's strong performance - trends that show no signs of
abating. While higher interest rates should be a restraining influence on the
stock market, continued economic strength and strong profit performance seems to
provide comfort to the bulls.
We believe the market has become structurally more volatile in recent years and
we do not expect this to change. This turbulent environment made for a
challenging year for Cambiar. However, the persistent volatility of the markets
did help, as many opportunities surfaced to purchase strong companies at very
attractive valuations. Throughout the year we consistently applied our
investment discipline, searching for undervalued securities through a variety of
measures including low relative price to earnings, price to sales, and price to
cash flow. We were able to buy some technology companies that were statistically
cheap at the time of purchase and may have been ignored by most traditional
value managers. Although the volatility of the marketplace of today does augment
instability, as week-to-week price movements can be exorbitant, we feel that our
approach is well suited for this sort of climate over the long run.
Cambiar Investors has been managing funds for the American Hospital Association
since 1988 following a relative-value equity approach. We search for
mid-to-large cap companies that are industry leaders and control their own
fates, offering strong brands or valuable and unique intellectual property.
Investment managers such as ourselves, whose style is to try to identify
attractive values outside of the mainstream, face a very tough go in an
environment where largeness and perceived glamour generate greater interest than
relative financial valuation. We believe several indications are pointing
towards a renewed focus on fundamentals, which should bode well for our style.
--------------------------------------------------------------------------------
75
<PAGE>
The portfolios had a difficult year finishing with an average performance return
of 0.16% (gross of investment advisory fees) versus 7.25% for the S&P 500 and
-8.91% for the Russell 1000 Value Index. Our technology holdings that helped us
in the fiscal second quarter where the funds were up 17.7%, struggled in the
fiscal fourth quarter where the funds were down on average 6.9%. We did take
advantage of the continued market disparity to sell or reduce our positions in
some of our more fully valued positions. Our holdings in healthcare and energy
provided some support in an otherwise negative market. Areas of difficulty for
the fund were found in our capital goods and communication services sectors.
In the short-term our cash position is higher than normal as we sell some of the
stocks that have reached our price targets. We intend to continue to use market
volatility to our advantage and believe there could be many more opportunities
to purchase quality companies at very attractive valuations. In this
environment, we must be more vigilant than ever regarding the prospects of
companies we already own as we have seen the punishments that can await even
modest disappointments.
Overall, we are extremely optimistic regarding the outlook for our relative
performance. A great number of stocks with attributes we search for -
excellent history, low valuation, positive fundamental catalyst - are
starting to appear. Moreover, the environment that led to a select group of
substantial outperformers at very high valuations appears to be receding. We
do not profess to be able to time a turn such as this, but believe strongly a
return to more normal conditions is likely to occur in the relatively near
future. We are attempting to maintain solid performance while the current
environment persists, while still leaving our portfolios ready for the
eventual shift we expect.
--------------------------------------------------------------------------------
76
<PAGE>
[GRAPH]
COMPARISON OF CHANGE IN $100,000 INVESTMENT IN THE
DIVERSIFIED EQUITY PORTFOLIO AND
S&P 500 STOCK INDEX
FOR THE YEARS ENDED JUNE 30
AVERAGE ANNUAL TOTAL RETURN
LAST YEAR 5.28%
LAST 5 YEARS 21.15%
LAST 10 YEARS 16.09%
<TABLE>
<CAPTION>
DIVERSIFIED EQUITY S&P 500 STOCK INDEX
------------------ -------------------
<S> <C>
$ 100,000 $ 100,000
$ 114,455 $ 117,967
$ 123,340 $ 137,325
$ 127,334 $ 147,445
$ 146,610 $ 167,384
$ 167,830 $ 190,174
$ 174,894 $ 192,732
$ 210,071 $ 242,974
$ 265,563 $ 306,332
$ 353,123 $ 412,566
$ 438,042 $ 537,126
$ 520,844 $ 659,115
$ 548,363 $ 706,877
</TABLE>
INCEPTION DATE FOR THE DIVERSIFIED EQUITY WAS OCTOBER 20, 1988.
77
<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, 2000, the total return, net of all fees
and expenses, of the Balanced Portfolio was 3.99%, compared to 6.18% 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 5.12%, compared to the LB Aggregate Index, which had a total return of
4.56% 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.
As was evident during fiscal year 1999, global fixed income markets remained
volatile for the year ending June 30, 2000. The volatility we experienced over
the most recent twelve-month period can be attributed to a number of market
factors including Y2K, historically wide swap spreads, persistent Fed tightening
and the Treasury Buy-Back Program. Overall, the broad market closed the fiscal
year 2000 with a positive return of 4.56%.
The first half of the period, the third and fourth quarters of 1999, saw the
calendar year close out as the second worst year in recorded history for the
bond market. Treasury yields rose more during this period than they declined in
the prior calendar year. Although corporate spreads narrowed during the third
and fourth quarters, they still closed the calendar year much wider than the
levels seen during 1998, despite the fact that the health of the economy and
corporate earnings had exceeded even the most optimistic of projections.
Mortgage spreads also narrowed but remained unusually wide during the second
half of 1999,despite a measurable decrease in prepayment risk
Not only were these developments contrary to what would normally be expected,
they were difficult to explain. Monetary tightening fears - driven by the
Federal Reserve's insistence that "above-trend" economic growth would eventually
rekindle inflation pressures - wider swap spreads, and Y2K-related hedging were
also likely but not completely satisfying explanations. In what was probably an
unprecedented development during the last half of calendar year 1999, the Fed
appeared much more concerned about the prospects of future inflation than the
market. For despite the concerns about the inflationary potential of a strong
economy, core inflation fell to its lowest level in 34 years during the third
and fourth quarters of 1999. Plus, the yield curve flattened significantly, a
sign that the Fed had not fallen behind the inflation curve. The dollar
strengthened dramatically against the Euro and most other major currencies,
suggesting that dollars may actually have been in short supply relative to
demand.
--------------------------------------------------------------------------------
78
<PAGE>
The first half of calendar year 2000 saw an end to Y2K fears and a beginning of
what can only be described as a tug-of-war between a Fed bent on slowing down
the economy and a Treasury dedicated to retiring a significant portion of our
nation's long-term debt. As we look back on the first half of calendar year
2000, it appears that the Fed has done their job well and the series of
tightenings we experienced has steered the economy in the direction of a "soft
landing." Recent economic events paint a picture of a U.S. economy that is
indeed slowing in response to tight monetary policy. However, the slowing took
longer to develop for a variety of reasons, one of which was a seemingly
inexhaustible supply of productivity and confidence in the U.S. economy. In
addition, activity in the final quarter of last year was boosted by Y2K
preparations, which proved so thorough that the problem never materialized.
Earlier this calendar year, activity was likely stimulated by the widespread
expectation that the Fed was embarked on an aggressive tightening program - as
indeed it did.
Signs of weakness are now emerging in key interest-rate sensitive sectors such
as housing and durable goods, as well as in earnings disappointments for banks
and consumer staples manufacturers. Going forward, with tight money limiting
firms' ability to pass along higher input prices, recent hikes in energy prices
will act like a tax on economic activity, accentuating the monetary slowdown
already underway.
In terms of returns, year to date market sector performance was significantly
different than what was seen during fiscal year 1999. Long US Treasury
securities as well as TIPS were clearly the best performers, benefiting mostly
from the on-going Treasury Buy-Back Program and the resulting inverted yield
curve. Most spread product however was not as fortunate with the riskiest of
sectors, such as corporates, suffering the most.
Even with a very difficult year, the WAMCO's Portfolio outperformed its
benchmark for the twelve-month period, with a total return of 5.12% vs. 4.56%
for the Lehman Aggregate. A moderately long duration exposure added to returns
as yields fell. Additionally, our allocation to TIPS made a substantial
positive contribution to returns for the period as real yields declined and
inflation rose, benefiting handsomely our emphasis on the 30-year issue. The
eventual widening of mortgage spreads had a negative impact on overall
performance, but the overall impact was mitigated by a reduction in the
exposure as spreads narrowed earlier in the period. Wider corporate spreads
produced the greatest negative impact to returns, given our moderate
duration-contribution over-weighting to the sector.
--------------------------------------------------------------------------------
79
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
================================================================================
BALANCED PORTFOLIO
CAMBIAR INVESTORS, INC. (MANAGES 50% OF THE PORTFOLIO)
During the fiscal year ended June 30, 2000, the total return, net of all fees
and expenses, of the Balanced Portfolio was 3.99%, compared to 6.18% 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 1.68%, compared to the S&P 500 Stock
Index, which had a total return of 7.25% for the same period. The principal
factors, which affected performance during the fiscal year, are discussed below.
The new millennium started much the same as the previous one ended. Volatility
continued with large intraday moves a common event. Companies placed in the "new
economy" camp carried valuations that could only be described as astounding
while firms relegated to the "old economy" languished at prices not seen in
decades. With price stability as the Federal Reserve's primary objective, it has
continued to raise interest rates in order to create a soft landing for the
economy. Technology and technology-enabled productivity gains continue to be the
engines behind the economy's strong performance - trends that show no signs of
abating. While higher interest rates should be a restraining influence on the
stock market, continued economic strength and strong profit performance seems to
provide comfort to the bulls.
We believe the market has become structurally more volatile in recent years and
we do not expect this to change. This turbulent environment made for a
challenging year for Cambiar. However, the persistent volatility of the markets
did help, as many opportunities surfaced to purchase strong companies at very
attractive valuations. Throughout the year we consistently applied our
investment discipline, searching for undervalued securities through a variety of
measures including low relative price to earnings, price to sales, and price to
cash flow. We were able to buy some technology companies that were statistically
cheap at the time of purchase and may have been ignored by most traditional
value managers. Although the volatility of the marketplace of today does augment
instability, as week-to-week price movements can be exorbitant, we feel that our
approach is well suited for this sort of climate over the long run.
Cambiar Investors has been managing funds for the American Hospital Association
since 1988 following a relative-value equity approach. We search for
mid-to-large cap companies that are industry leaders and control their own
fates, offering strong brands or valuable and unique intellectual property.
Investment managers such as ourselves, whose style is to try to identify
attractive values outside of the mainstream, face a very tough go in an
environment where largeness and perceived glamour generate greater interest than
relative financial valuation. We believe several indications are pointing
towards a renewed focus on fundamentals, which should bode well for our style.
--------------------------------------------------------------------------------
80
<PAGE>
The portfolios had a difficult year finishing with an average performance return
of 1.68% (gross of investment advisory fees) versus 7.25% for the S&P 500 and
-8.91% for the Russell 1000 Value Index. Our technology holdings that helped us
in the fiscal second quarter where the funds were up 17.7%, struggled in the
fiscal fourth quarter where the funds were down on average 6.9%. We did take
advantage of the continued market disparity to sell or reduce our positions in
some of our more fully valued positions. Our holdings in healthcare and energy
provided some support in an otherwise negative market. Areas of difficulty for
the fund were found in our capital goods and communication services sectors.
In the short-term our cash position is higher than normal as we sell some of the
stocks that have reached our price targets. We intend to continue to use market
volatility to our advantage and believe there could be many more opportunities
to purchase quality companies at very attractive valuations. In this
environment, we must be more vigilant than ever regarding the prospects of
companies we already own as we have seen the punishments that can await even
modest disappointments.
Overall, we are extremely optimistic regarding the outlook for our relative
performance. A great number of stocks with attributes we search for -
excellent history, low valuation, positive fundamental catalyst - are
starting to appear. Moreover, the environment that led to a select group of
substantial outperformers at very high valuations appears to be receding. We
do not profess to be able to time a turn such as this, but believe strongly a
return to more normal conditions is likely to occur in the relatively near
future. We are attempting to maintain solid performance while the current
environment persists, while still leaving our portfolios ready for the
eventual shift we expect.
--------------------------------------------------------------------------------
81
<PAGE>
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
================================================================================
BALANCED PORTFOLIO
INVESTMENT RESEARCH COMPANY (MANAGES 30% OF THE PORTFOLIO)
During the fiscal year ended June 30, 2000, the total return, net of all fees
and expenses, of the Balanced Portfolio was 3.99%, compared to 6.18% 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
Investment Research Company ("IRC") was 13.1%, compared to the S&P 500 Stock
Index, which had a total return of 7.25% for the same period. The principal
factors, which affected performance during the fiscal year, are discussed below.
During the same time period, the total return of the S&P 500 index was just
7.25% and the total return of the BARRA S&P 500 Value Index was NEGATIVE 5.1%.
Thus, the IRC segment portfolios outperformed the S&P 500 benchmark by
approximately 590 basis points and outperformed the BARRA S&P Value Index by
over 18%. Some of the reasons for this performance are:
IRC maintains a steadfast commitment to fundamental investing while avoiding
"value traps" (also called "falling knives" or "falling pianos"), stocks that
appear undervalued only because their stock price is tanking. This has enabled
IRC to avoid such disastrous stocks as Conseco, which had its share price fall
so rapidly that by the Spring of 2000 it briefly traded with a P/E of 2! At the
same time, IRC's emphasis on fundamental factors maintains excellent value
characteristics in the portfolio. For example, the P/E of the Portfolio was 22.9
on June 30 whereas the S&P 500 Index had a P/E of 28.8. The story was similar
with the Price/Cash Flow indicator, with the IRC Portfolio enjoying an advantage
over the S&P 500 of 12.2 to 18.7.
Another reason IRC's portfolio outperformed many value managers is our risk
control policies, particularly the requirement that the portfolio's industry
composition closely match the benchmark. The fiscal year ending June 30, 2000
was notable for the extreme dispersion among stocks and industries. A Value
manager leery of sky-high fundamental valuations only needed to be slightly
underweighted in the technology sector to cost his portfolio hundreds of basis
points in performance last year.
In our continuing efforts to obtain the lowest possible total trading costs for
our clients, IRC has used principal bids when appropriate to transfer the market
impact risk to Wall Street counterparts for a known cost. During the first half
of 1999, the dominant provider of liquidity through principal bids went out of
business, and the poor prices provided by the remainder of the Wall Street
community resulted in more agency trading through traditional institutional
brokers and automated DOT-type computer systems. Recently, as Wall Street's
appetite for risk has returned somewhat, IRC has increased our use of principal
bids again. IRC continues to strive to reduce both market impact and commission
costs and now trades near two-cents/share commission on average.
--------------------------------------------------------------------------------
82
<PAGE>
IRC has increased our pursuit and execution of idiosyncratic strategies related
to corporate actions, e.g., our timely exchange of GM shares for GM/H shares in
May and our temporary substitution of Seagate for Veritas prior to that
corporate restructuring. These efforts have contributed significantly to our
fiscal year results.
--------------------------------------------------------------------------------
83
<PAGE>
[GRAPH]
COMPARISON OF CHANGE IN $100,000 INVESTMENT IN THE
BALANCED PORTFOLIO, S&P 500 STOCK INDEX AND
LEHMAN BROTHERS AGGREGATE BOND INDEX
FOR THE YEARS ENDED JUNE 30
AVERAGE ANNUAL TOTAL RETURN
LAST YEAR 3.99%
LAST 5 YEARS 15.07%
LAST 10 YEARS 12.32%
<TABLE>
<CAPTION>
BALANCED PORTFOLIO S&P 500 STOCK INDEX LB AGGREGATE INDEX
------------------ ------------------- ------------------
<S> <C> <C>
$ 100,000 $ 100,000 $ 100,000
$ 109,964 $ 117,967 $ 110,010
$ 115,831 $ 137,325 $ 118,641
$ 123,503 $ 147,445 $ 131,321
$ 140,777 $ 167,384 $ 149,778
$ 159,110 $ 190,174 $ 167,442
$ 159,569 $ 192,732 $ 165,249
$ 183,449 $ 242,974 $ 185,987
$ 218,672 $ 306,332 $ 195,313
$ 269,465 $ 412,566 $ 211,220
$ 314,718 $ 537,126 $ 233,458
$ 355,958 $ 659,115 $ 240,765
$ 370,150 $ 706,877 $ 251,743
</TABLE>
INCEPTION DATE FOR THE BALANCED PORTFOLIO WAS OCTOBER 20, 1988.
84
