TABLE OF CONTENTS
President's Letter.....................................................1
INCOME FUNDS:
Investment Review......................................................3
Portfolios of Investments:
Aetna Bond Fund.......................................................12
Aetna Government Fund.................................................14
Aetna High Yield Fund.................................................15
Aetna Money Market Fund...............................................17
Statements of Assets and Liabilities...................................20
Statements of Operations...............................................22
Statements of Changes in Net Assets....................................24
Notes to Financial Statements..........................................32
Additional Information.................................................37
Financial Highlights...................................................38
<PAGE>
PRESIDENT'S LETTER
Dear Valued Shareholder,
Thank you for investing in the Aetna Series Funds. We are pleased to provide you
with this Semi-Annual Report on the funds you have chosen to help pursue your
investment goals. Please note that the format has been changed from two reports
that combined all of our different investment categories to five individual
reports: Capital Appreciation, Growth & Income, Income, Index Plus and
Generations. These reports will provide detailed information on the performance
of your funds.
The financial market environment has changed dramatically since you received the
last Aetna Series Fund Annual Report. At October 31, 1998, there prevailed an
atmosphere of deep anxiety as the immediately preceding 12-month period had been
marked by high market volatility, default on Russian debts and the collapse of a
prominent U.S. hedge fund. Confidence in the global economic outlook was shaken,
which culminated in a sharp sell-off in U.S. and global stock markets.
Today, those fears seem misplaced. With the U.S. economy contributing its
remarkable combination of robust growth and negligible inflation, the global
economic and financial picture is on the mend. U.S. and foreign stock markets
have rebounded, risk premiums are shrinking and capital is once again flowing to
emerging markets. Within the U.S., small- and mid-cap stocks have begun to
participate more meaningfully in the ongoing bull market as improvement in
corporate earnings has broadened out to more cyclically sensitive businesses.
Credit spreads have diminished for lower-rated debt securities and the REIT
sector has shown signs of improvement. The S&P 500 Index and the Dow Jones
Industrial Average ("the Dow") both finished 1998 with double-digit returns -
the fourth year in a row. The Dow, which has a more cyclical bias than the S&P
500 Index, managed to reach an unprecedented 10,000 by the end of March and
closed at 10,789 on April 30, 1999! Of course, there is no guaranty that the
markets will continue to reflect this trend.
I am pleased to report that at Aetna Series Fund, Inc. and Aeltus Investment
Management, Inc., we have continued to work to further improve our products and
services:
CLASS "B" SHARES WERE INTRODUCED on March 1. This new class of shares has a
back-end load contingent on redemption rather than a front-end load. It was
designed for the mid- to longer-term investor, making it particularly
attractive for investing in our enhanced index funds.
AETNA INDEX PLUS LARGE CAP FUND AND AETNA INDEX PLUS MID CAP FUND
outperformed their benchmarks for the one-year period ending April 30,
1999.
NEW SIMPLIFIED PROSPECTUSES were introduced on March 1. Plain English
wording and clear graphics make them truly "user-friendly." We recommend
that you keep them with your other Aetna Series Fund records.
COMPUTER SYSTEMS INITIATIVES, specifically year 2000 dating issues, have
remained a high priority. We have completed remediation and plan to
complete testing all of Aeltus' relevant computer systems by mid-1999. In
addition, on January 1, we successfully converted our operating systems to
accept the new Euro currency, the new standard monetary unit of the eleven
countries that comprise the European Monetary Union.
With more than $50 billion in assets under management, Aeltus Investment
Management, Inc., investment adviser to the Aetna Series Funds, continues to
rank among the largest of investment management firms. This kind of size and
market presence is important to you as an investor as it gives us the ability to
continue to bring you competitive product offerings as well as quality customer
service.
We appreciate the continued confidence you have placed in us and look forward to
an ongoing and mutually prosperous relationship.
Sincerely,
/s/ J. Scott Fox
- ----------------
J. Scott Fox
President
Aetna Series Fund, Inc.
1
<PAGE>
AETNA BOND FUND
Growth of $10,000
[PLOT POINTS FOR MOUNTAIN CHART]
<TABLE>
<CAPTION>
Aetna Bond Fund Lehman Brothers
Bond (Class I) Aggregate Bond Index
<S> <C> <C>
Jan. 92 10000 10000
9900 9872
10290 10271
10860 10712
Dec. 92 10670 10741
11160 11185
11470 11481
11771 11781
Dec. 93 11820 11788
11530 11450
11333 11332
11428 11401
Dec. 94 11432 11444
11921 12021
12610 12753
12827 13003
Dec. 95 13379 13557
13171 13317
13225 13393
13463 13641
Oct. 96 13696 13944
13888 14091
13985 14182
14612 14877
Oct. 97 14751 15183
15069 15604
15261 15725
15569 16043
Oct. 98 15890 16598
16319 16862
Apr. 99 16181 16712
</TABLE>
[END PLOT POINTS]
<TABLE>
<CAPTION>
- ----------------------------------------
Average Annual Total Returns
for the period ended April 30, 1999*
- ----------------------------------------
1 Year 5 Years Inception
- ----------------------------------------
<S> <C> <C> <C>
Class I 6.04% 7.32% 6.80%
- ----------------------------------------
Class A:
POP (1) 0.77% 5.65% 5.39%
NAV (2) 5.80% 6.69% 6.10%
- ----------------------------------------
Class B:
w/CDSC (3) 0.05% 5.95% 5.74%
NAV 5.05% 6.26% 5.74%
- ----------------------------------------
Class C:
w/CDSC (4) 3.96% 6.25% 5.73%
NAV 4.96% 6.25% 5.73%
- ----------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. For periods prior to the inception of Class A, Class B and Class
C, the performance of each class is calculated by using the performance of Class
I since its inception date (01/03/92), adjusted for fees and expenses charged to
the appropriate class. Class I, Class A, Class B and Class C shares participate
in the same portfolio of securities. Past performance is no guarantee of future
results. Investment return and principal of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA BOND FUND
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Aetna Bond Fund Class I shares generated a 1.84% total return, net of fund
expenses, for the six month period ended April 30, 1999. The benchmark, Lehman
Brothers Aggregate Bond Index(a), returned 0.69% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE FUND?
The past six months have been marked by calming fears of deflation and global
instability and a return to the blissful investment environment that has existed
for much of the past several years. The economic environment continues to be one
of strong domestic growth combined with tame inflation. We have seen a reversal
of much of the market movement of the third quarter of last year, including
rising U.S. Treasury yields and declining risk premiums. For the six month
period, interest rates have risen 80 basis points for U.S. Treasuries with
maturities of two to four years.
See Definition of Terms. 3
<PAGE>
Whereas it paid to be in low risk sectors (i.e., U.S. Treasuries) in the third
quarter of 1998, the market has handsomely rewarded those who have ventured into
the higher risk asset classes (i.e., high yield and emerging markets) since
then. Of the major asset classes, U.S. Treasuries are the only asset class with
negative returns the past six months, as measured by Lehman Brothers Indices.
Investment grade corporates, mortgage-backed securities and asset-backed
securities all had modest positive returns in the 1.50% to 2.50% range, while
the high yield sector returned 8.25% and emerging markets 17.38%.
WHAT INVESTMENTS INFLUENCED THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS?
The Fund took advantage of this environment by temporarily increasing high yield
exposure, capturing the excess returns and bringing high yield exposure back to
a more normal weighting. We have continued to keep emerging markets exposure to
a minimum due to the volatility in the sector.
Other reasons for the outperformance were the overweighting of other spread
sectors (non-U.S. Treasury sectors), such as investment grade corporate bonds
and commercial mortgage-backed securities, which enjoyed healthy outperformance
versus U.S. Treasuries. We maintained an underweight position in U.S. Treasuries
throughout this period.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Absent any action by the Federal Reserve to raise or lower rates, we expect
rates for U.S. Treasuries to have low volatility. With strong domestic growth,
weak foreign growth, high productivity gains and low inflation, the Federal
Reserve has no reason to change policy at this time. However, we would foresee
increasing interest rates should there be a pickup in foreign demand and
increases in inflation pressures.
In the spread sectors, we see prices much more at equilibrium levels than was
the case six months ago. Therefore, we do not see a compelling reason to venture
too far from benchmarks. We expect lower volatility in spreads of corporate
bonds absent a correction in the equity markets. Normally, lower volatility of
interest rates favors mortgage-backed securities, however, currently much of
this lower volatility is already priced into the market. For these reasons, we
expect to maintain a fairly low risk position in the Fund.
<TABLE>
<CAPTION>
- ----------------------------------------
QUALITY RATINGS
- ----------------------------------------
<S> <C>
AAA 38.4%
AA 18.4%
A 26.1%
BBB 8.7%
BB 3.1%
B 3.7%
N/R* 1.6%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
MATURITY DISTRIBUTION
- -----------------------------------------
<S> <C>
0 - 1 years 11.8%
1 - 5 years 41.6%
5 - 10 years 33.5%
10 - 20 years 8.1%
20 + years 5.0%
</TABLE>
*The Not Rated indication is used by securities rating services (such as
Standard & Poor's or Moody's) and mercantile agencies (such as Dun & Bradstreet)
to show that a security or a company has not been rated. It has neither negative
nor positive implications.
The opinions expressed reflect those of the portfolio manager only through April
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
4 See Definition of Terms.
<PAGE>
AETNA GOVERNMENT FUND
Growth of $10,000
[PLOT POINTS FOR MOUNTAIN CHART]
<TABLE>
<CAPTION>
Lehman Brothers Lehman Brothers
Aetna Government Intermediate Government Government
Government Fund (Class I) Bond Index** Bond Index
<S> <C> <C> <C>
Jan. 94 10000 10000 10000
9790 9815 9699
9739 9760 9588
9784 9835 9629
Dec. 94 9811 9825 9662
10254 10234 10118
10779 10712 10745
10932 10878 10935
Dec. 95 11380 11241 11435
11173 11165 11176
11196 11240 11230
11382 11433 11419
Oct. 96 11583 11621 11670
11677 11743 11764
11737 11827 11824
12310 12243 12403
Oct. 97 12554 12472 12680
12894 12766 13071
12959 12852 13131
13205 13077 13437
Oct. 98 13625 13658 14110
13787 13730 14229
Apr. 99 13721 13668 13977
</TABLE>
[END PLOT POINTS]
<TABLE>
<CAPTION>
- ----------------------------------------
Average Annual Total Returns
for the period ended April 30, 1999*
- ----------------------------------------
1 Year 5 Year Inception
- ----------------------------------------
<S> <C> <C> <C>
Class I 5.88% 7.14% 6.13%
- ----------------------------------------
Class A:
POP (1) 0.53% 5.43% 4.50%
NAV (2) 5.54% 6.47% 5.46%
- -------------------- -----------
Class B:
w/CDSC (3) -0.23% 5.75% 4.91%
NAV 4.77% 6.06% 5.06%
- -------------------- -----------
Class C:
3.77% 6.06% 5.06%
w/CDSC (4)
NAV 4.77% 6.06% 5.06%
- ----------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. For periods prior to the inception of Class A, Class B and Class
C, the performance of each class is calculated by using the performance of Class
I since its inception date (01/04/94), adjusted for fees and expenses charged to
the appropriate class. Class I, Class A, Class B and Class C shares participate
in the same portfolio of securities. Past performance is no guarantee of future
results. Investment return and principal of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the original
cost.
**The Aetna Government Fund has changed its benchmark from the Lehman Brothers
Government Bond Index to the Lehman Brothers Intermediate Government Index due
to the fact that the Fund invests in more intermediate-term bonds versus
long-term bonds.
AETNA GOVERNMENT FUND
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Aetna Government Fund Class I shares generated a 0.70% total return, net of
fund expenses, for the six month period ended April 30, 1999. The benchmark,
Lehman Brothers Intermediate Government Bond Index(b), returned 0.08% for the
same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE FUND?
The U.S. economy experienced strong growth in the fourth quarter of 1998 and the
first quarter of 1999. The evident health of the U.S. economy, coupled with
stabilization in some of the crisis economies in Latin America and Asia,
improved market liquidity and investors' appetite for bonds other than U.S.
Treasuries.
See Definition of Terms. 5
<PAGE>
Partially in response to the strong economy, domestic interest rates rose and
market volatility declined. The rise in interest rates (which helped diminish
pre-payment fears) had a favorable impact on the mortgage pass-through sector of
the bond market. This sector outperformed comparable duration U.S. Treasuries by
1.44%. Because the Lehman Brothers Intermediate Government Bond Index does not
include mortgage pass-throughs (although many other government mutual funds do)
the strong performance of this sector contributed significantly to the Fund's
positive performance relative to its benchmark for the period.
WHAT INVESTMENTS INFLUENCED THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS?
The Fund's holdings of U.S. government agency securities also outperformed U.S.
Treasuries during the period. The agency sector of the bond market outperformed
comparable duration U.S. Treasuries by 0.64% during the last six months.
Agencies benefited from the improved outlook for the global economy, better
market liquidity and investors' restored belief in the health of the U.S.
financial system.
Both the Fund's average duration and its allocation to Agencies, mortgage
pass-throughs and U.S. Treasuries are based on fundamental economic analysis and
on internal computer models designed to identify favorable market trends and the
richness/cheapness of individual securities.
WHAT IS YOUR OUTLOOK GOING FORWARD?
The future course of U.S. interest rates will be heavily influenced by the rate
at which the Japanese and European economies recover. The Federal Reserve has
been willing to accommodate strong growth in the U.S. economy largely because of
the strong downward pressures on inflation arising from very weak economic
growth abroad. Stronger economic growth overseas would reverse many of these
favorable downward forces on inflation. Faced with stronger global growth, the
Federal Reserve could only forestall implementing tighter monetary policy if the
U.S. economy simultaneously slows. Recent data from the housing and business
investment sectors hint that the U.S. economy may be decelerating. However,
domestic consumption will continue to be the key to U.S. economic growth.
Domestic demand, at least for now, appears to be well supported by a strong job
market and the wealth effect of prior stock market gains.
Improving global growth and declining market volatility should continue to
support performance in the mortgage pass-through and agency sectors. The yield
offered by these sectors relative to U.S. Treasury yields remains favorable on a
long-term historical basis.
<TABLE>
<CAPTION>
- ------------------------------------------
QUALITY RATINGS
- ------------------------------------------
<S> <C>
AAA 90.0%
N/R* 10.0%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
MATURITY DISTRIBUTION
- ------------------------------------------
<S> <C>
0 - 1 years 4.6%
1 - 5 years 30.5%
5 - 10 years 37.4%
10 - 20 years 17.7%
20 + years 9.8%
</TABLE>
*The Not Rated indication is used by securities rating services (such as
Standard & Poor's or Moody's) and mercantile agencies (such as Dun & Bradstreet)
to show that a security or a company has not been rated. It has neither negative
nor positive implications.
The opinions expressed reflect those of the portfolio manager only through April
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
6 See Definition of Terms.
<PAGE>
AETNA HIGH YIELD FUND
Growth of $10,000
[PLOT POINTS FOR MOUNTAIN CHART]
<TABLE>
<CAPTION>
Aetna High Yield Merrill Lynch High Yield
High Yield Fund (Class I) Aggregate Index
<S> <C> <C>
Feb. 98 10000 10000
10304 10176
10551 10356
Oct. 98 9350 9766
10086 10315
Apr. 99 10401 10486
</TABLE>
[END PLOT POINTS]
<TABLE>
<CAPTION>
- ----------------------------------------
Average Annual Total Returns
for the period ended April 30, 1999*
- ----------------------------------------
1 Year Inception
- ----------------------------------------
<S> <C> <C>
Class I 0.95% 3.23%
- ----------------------------------------
Class A:
POP (1) -4.06% -0.98%
NAV (2) 0.73% 2.99%
- ----------------------------------------
Class B:
w/CDSC (3) -5.11% -1.12%
NAV -0.17% 2.11%
- ----------------------------------------
Class C:
w/CDSC (4) -1.01% 1.42%
NAV -0.07% 2.19%
- ----------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. For the period prior to the inception of Class B and Class C, the
performance is calculated by using the performance of Class I since its
inception date (02/02/98), adjusted for fees and expenses charged to the
appropriate class. Class I, Class A, Class B and Class C shares participate in
the same portfolio of securities. Past performance is no guarantee of future
results. Investment return and principal of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA HIGH YIELD FUND
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Aetna High Yield Fund Class I shares generated a 11.25% total return, net of
fund expenses, for the six month period ended April 30, 1999. The benchmark,
Merrill Lynch High Yield Aggregate Trust(c), returned 7.37% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE FUND?
The high yield market recovered from its 1998 underperformance to outperform
both the investment grade corporate and treasury markets over the last six
months. Historically attractive spread levels drew new money to the high yield
asset class. This combined with moderate new issuance resulted in favorable
supply/demand technicals and higher returns.
See Definition of Terms. 7
<PAGE>
WHAT INVESTMENTS INFLUENCED THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS?
The recovery in the telecommunications sector, particularly the deferred coupon
portion, contributed to the outperformance of the Fund versus the Merrill Lynch
High Yield Aggregate Trust. Metronet Communications, a Canadian telecom issuer,
announced a merger with AT&T Corp. Canada, which resulted in significant
outperformance by this holding. Overweighting in the gaming sector also
contributed to outperformance, as strong financial results and consolidation in
this sector boosted returns. Underweighting in the cyclical commodity and energy
sectors offset some of the Fund's outperformance, as the expected recovery in
paper and steel prices and the realized recovery in oil prices resulted in
strong performance in these sectors. We have remained cautious on the commodity
sectors until evidence of a sustained recovery becomes more evident.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We continue to believe that the high yield market is attractive in an
environment of economic strengthening and moderate long-term default rates. We
believe that demand for yield and lower volatility in the markets will benefit
some of the smaller, less liquid issues which have not participated in the
recovery to date.
Currently, we maintain our overweighting in the media/telecom sectors as we see
the growth in data and internet applications continuing at an accelerating pace.
We have begun to gradually add selected cyclical names to the portfolio as
evidence of strengthening demand warrants. We continue to view this as a good
environment to utilize a strong credit research effort to buy mispriced and
undervalued securities.
High yielding fixed income securities are subject to greater market fluctuations
and risk of loss of income and principal than investments in lower yielding
fixed income securities.
<TABLE>
<CAPTION>
- -------------------------------------------
QUALITY RATINGS
- -------------------------------------------
<S> <C>
BB 11.0%
B 62.3%
CCC 14.4%
N/R* 12.3%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------
MATURITY DISTRIBUTION
- -------------------------------------------
<S> <C>
0 - 1 years 2.2%
1 - 5 years 4.0%
5 - 10 years 85.5%
10 - 20 years 8.3%
</TABLE>
*The Not Rated indication is used by securities rating services (such as
Standard & Poor's or Moody's) and mercantile agencies (such as Dun & Bradstreet)
to show that a security or a company has not been rated. It has neither negative
nor positive implications.
The opinions expressed reflect those of the portfolio manager only through April
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
8 See Definition of Terms.
<PAGE>
AETNA MONEY MARKET FUND
Growth of $10,000
[PLOT POINTS FOR MOUNTAIN CHART]
<TABLE>
<CAPTION>
Aetna Money Market Fund IBC's Money Fund Average/
Bond (Class I) All Taxable Index
<S> <C> <C>
Jan. 92 10000 10000
10104 10096
10210 10184
10308 10263
Dec. 92 10404 10334
10488 10404
10572 10472
10656 10541
Dec. 93 10744 10611
10834 10684
10934 10773
11057 10878
Dec. 94 11205 11003
11365 11148
11536 11299
11706 11446
Dec. 95 11875 11592
12031 11731
12187 11869
12347 12009
Oct. 96 12402 12056
12574 12200
12731 12346
12905 12498
Oct. 97 13083 12653
13259 12811
13426 12969
13608 13128
Oct. 98 13783 13287
13951 13434
Apr. 99 14119 13578
</TABLE>
[END PLOT POINTS]
<TABLE>
<CAPTION>
- ----------------------------------------
Average Annual Total Returns
for the period ended April 30, 1999*
- ----------------------------------------
1 Year 5 Years Inception
- ----------------------------------------
<S> <C> <C> <C>
Class I 5.12% 5.38% 4.82%
- ----------------------------------------
Class A 5.12% 5.38% 4.82%
- ----------------------------------------
Class B:
w/CDSC (3) -0.93% 3.98% 3.78%
NAV 4.07% 4.32% 3.78%
- ----------------------------------------
Class C 5.12% 5.38% 4.82%
- ----------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. For periods prior to the inception of Class A, Class B and Class
C, the performance of each class is calculated by using the performance of Class
I since its inception date (01/03/92), adjusted for fees and expenses charged to
the appropriate class. Class I, Class A, Class B and Class C shares participate
in the same portfolio of securities. Past performance is no guarantee of future
results. Investment return and principal of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA MONEY MARKET FUND
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Aetna Money Market Fund Class I shares generated a 2.40% total return, net
of fund expenses, for the six month period ended April 30, 1999. The benchmark,
IBC's Money Fund Average/All Taxable Index(d), returned 2.20% for the same
period. As of April 30, 1999, the Fund reported a 7-day yield of 4.55% with an
average weighted maturity of 65 days.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE FUND?
Overseas developments dominated the financial markets during late 1998 and early
1999. Investors remained concerned about the spread of economic contagion from
Asia to Latin American and potentially to the United States. Capital market
conditions improved during that period in response to three interest rate cuts
by the Federal Reserve and similar cuts by major central banks around the world.
Market liquidity remained below pre-crisis levels and credit risk premiums
remained high as investors sought the safety of U.S. Treasury and high-quality
short-term securities.
WHAT INVESTMENTS INFLUENCED THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS?
The market dislocations and supply/demand imbalances which occurred during the
period allowed the Fund to opportunistically shift sector weights to add value.
The market instability of late 1998 and heavy corporate issuance in early
See Definition of Terms. 9
<PAGE>
1999 caused yield spreads to widen and we took advantage of this by increasing
the allocation to medium-term notes and commercial paper. Asset-backed exposure
was reduced as issuance declined and yield spreads compressed. We added a modest
position in Tier 2* securities to take advantage of higher yields as strong
domestic economic fundamentals remained supportive of corporate credit quality.
WHAT IS YOUR OUTLOOK GOING FORWARD?
In the near-term, we expect the Federal Reserve to keep monetary policy
unchanged. However, we remain vigilant as we look forward. Monetary policy will
likely be influenced not only by domestic economic activity, but by global
economic developments as well. The Federal Reserve has been willing to
accommodate strong domestic growth due to strong downward pressure on inflation
resulting from weak overseas economies. Should Asian, European or Latin
economies experience a stronger or faster than expected rebound in 1999, those
disinflationary forces may diminish and the Federal Reserve may reconsider its
patient accommodation of strong domestic growth. While unlikely in the
near-term, the risks of such a policy shift may increase later in 1999.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------
QUALITY RATINGS*
- ------------------------------------------
<S> <C>
Tier 1 98.4%
Tier 2 1.6%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------
MATURITY DISTRIBUTION
- ------------------------------------------
<S> <C>
1 - 30 days 40.0%
31 - 60 days 12.7%
61 - 90 days 14.1%
91 - 120 days 1.6%
121 - 180 days 3.1%
181 - 397 days 28.5%
</TABLE>
*Tier 1 securities are, or are comparable to, securities which are rated in the
highest short-term rating category by at least two nationally recognized
statistical rating organizations (NRSROs) or by the only NRSRO that has rated
the security. Tier 2 securities are securities that have received the requisite
rating in one of the two highest categories, but are not Tier 1.
The opinions expressed reflect those of the portfolio manager only through April
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
10 See Definition of Terms.
<PAGE>
DEFINITION OF TERMS
(1) On February 2, 1998, the Funds redesignated Adviser Class shares as Class A
shares. For periods prior to that date, Class A performance is calculated
by using the performance of Class I shares and deducting the Class A
front-end load and internal fees and expenses applicable to the Class A
shares. The maximum load for the Funds is 4.75%, excluding the Money Market
Fund. The POP (public offering price) returns reflect this maximum load.
(2) NAV (net asset value) returns are net of Fund expenses only and do not
reflect the deduction of a front-end load or contingent deferred sales
charges. This charge, if reflected, would reduce the performance results
shown.
(3) The Funds began offering Class B shares on March 1, 1999. For periods prior
to that date, Class B performance is calculated using the performance of
Class I shares and deducting the internal fees and expenses applicable to
the Class B shares. Class B share returns with CDSC (contingent deferred
sales charge) reflect the deduction of a maximum CDSC, assuming full
redemption at the end of the period. The CDSC applies for all shares
redeemed prior to the end of the first six years of ownership. The CDSC
charges are as follows: Year 1 - 5%, Year 2 - 4%, Year 3 - 3%, Year 4 - 3%,
Year 5 - 2%, Year 6 - 1%.
(4) The Funds began offering Class C shares on June 30, 1998. For periods prior
to that date, Class C performance is calculated using the performance of
Class I shares and deducting the internal fees and expenses applicable to
the Class C shares. Class C share returns for periods less than 18 months
reflect the deduction of the contingent deferred sales charge of 1%.
(a) The Lehman Brothers Aggregate Bond Index is an unmanaged index and is
composed of securities from Lehman Brothers Government/Corporate Bond
Index, Mortgage-Backed Securities Index and the Asset-Backed Securities
Index.
(b) The Lehman Brothers Intermediate Government Bond Index is composed of all
publicly issued, nonconvertible, domestic debt of the U.S. government or
agency, quasi-federal corporations, or corporate debt guaranteed by the
U.S. government with maturities between one and 9.99 years. Total return
comprises price appreciation/depreciation and income as a percentage of the
original investment.
(c) The Merrill Lynch High Yield Aggregate Index is an unmanaged index of
secured and subordinated debt securities rated by Standard & Poor's or by
Moody's Investors Service as less than investment grade (i.e. BBB or Baa)
but not in default.
(d) The IBC's Money Fund Average/All Taxable Index is an average of the returns
of more than 250 money market mutual funds surveyed each month by
IBC/Donaghue, Inc.
These are unmanaged indices and are not available for individual investment.
11
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - APRIL 30, 1999 (UNAUDITED)
BOND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- --------------
<S> <C> <C>
LONG-TERM BONDS AND NOTES ( 92.6% )
CORPORATE BONDS ( 56.9% )
ELECTRIC AND TELEPHONE BONDS ( 7.3% )
Comcast Cellular Holdings, Inc.,
9.50%,05/01/07 * .................... $ 500,000 $ 571,250
ITC Deltacom, Inc.,9.75%,11/15/08 .... 200,000 214,000
Nextlink Communications Inc.,
10.75%,11/15/08 ++ .................. 500,000 532,500
Qwest Communications International,
7.50%,11/01/08 # .................... 500,000 522,500
WorldCom, Inc.,6.25%,08/15/03 * ...... 1,500,000 1,510,650
--------------
3,350,900
--------------
FINANCIAL BONDS ( 22.8% )
American Express Credit Corp.,
8.50%,06/15/99 ...................... 1,000,000 1,003,480
Associates Corp. N.A.,5.75%,11/01/03 . 850,000 842,580
Associates Corp. N.A.,8.55%,07/15/09 . 1,000,000 1,156,330
Bombardier Capital Inc.,6.00%,01/15/02 500,000 496,900
Chase Manhattan Corp.,9.38%,07/01/01 . 1,500,000 1,608,645
Commercial Credit Co.,8.70%,06/15/09 . 1,000,000 1,166,750
EOP Operating L.P.,6.38%,02/15/03 .... 250,000 247,620
First Empire Capital Trust
II,8.28%,06/01/27.................... 350,000 361,305
Ford Motor Credit Co.,5.13%,10/15/01 . 1,000,000 985,600
General Motors Acceptance Corp.,
5.33%,10/20/00 ...................... 1,500,000 1,494,090
Heller Financial, Inc.,6.35%,08/15/99
++................................... 500,000 500,920
Merrill Lynch & Co.,
Inc.,6.00%,02/17/09.................. 700,000 674,996
--------------
10,539,216
--------------
FOREIGN AND SUPRANATIONALS ( 13.0% )
Bayerische Landesbank,6.25%,03/15/00 . 500,000 503,700
British Columbia Corp.,5.38%,10/29/08 2,000,000 1,900,260
Chile (Republic of),6.88%,04/28/09 ... 270,000 267,553
Inter-American Development Bank,
12.25%,12/15/08 ..................... 500,000 727,320
KFW International
Finance,8.85%,06/15/99............... 500,000 502,030
Sprint Capital Corp.,6.13%,11/15/28 .. 600,000 581,064
Tyco International Group
SA,6.13%,06/15/01 * ................. 1,500,000 1,509,075
--------------
5,991,002
--------------
OTHER PUBLIC CORPORATE BONDS ( 13.8% )
Conoco Inc.,5.90%,04/15/04 ........... 680,000 676,600
Continental Airlines,
Inc.,8.00%,12/15/05.................. 250,000 246,250
Enron Oil & Gas Corp.,6.50%,12/01/07 . 500,000 496,730
Ford Motor Credit Co.,5.49%,02/15/28 . 500,000 480,360
Ford Motor Credit Co.,6.38%,02/01/29 . 400,000 369,924
International Home
Foods,10.38%,11/01/06................ 500,000 540,000
Motorola, Inc.,5.80%,10/15/08 ........ 1,000,000 976,510
Procter & Gamble Co.,5.25%,09/15/03 .. 1,200,000 1,176,960
Safeway, Inc.,5.75%,11/15/00 ......... 500,000 500,040
Scotts Co. (The),8.63%,01/15/09 ...... 300,000 310,500
Time Warner, Inc.,9.13%,01/15/13 ..... 500,000 608,830
6,382,704
--------------
TOTAL CORPORATE BONDS (COST $25,950,374) 26,263,822
--------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- --------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ( 11.7% )
AGENCY MORTGAGE-BACKED SECURITIES ( 11.7% )
Federal National Mortgage Association,
6.50%,06/01/29 # .................... $2,000,000 $ 1,984,680
Federal National Mortgage Association,
7.50%,10/01/28 - 11/01/28 ........... 676,486 695,942
Government National Mortgage
Association,
7.00%,04/15/26 ...................... 692,070 703,699
Government National Mortgage
Association,
7.50%,12/15/22 - 10/15/26 ........... 1,873,665 1,934,517
Government National Mortgage
Association,
9.50%,07/15/18 ...................... 58,324 62,924
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES (COST $5,355,772) 5,381,762
--------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS ( 24.0% )
ASSET-BACKED SECURITIES ( 0.5% )
First Security Auto Grantor Trust,
6.10%,04/15/03 ...................... 207,079 207,945
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS ( 14.2% )
Commercial Mortgage Acceptance Corp.,
5.80%,03/15/06 ...................... 1,928,569 1,891,878
General Motors Acceptance Corp.,
6.42%,05/15/35 ...................... 1,500,000 1,499,273
Marine Midland 1992-1,8.00%,04/25/23 . 533,638 533,638
Private Export Funding
Corp.,5.48%,09/15/03................. 900,000 897,030
Prudential Home
Mortgage,7.00%,12/25/07.............. 613,882 613,115
Prudential Home
Mortgage,7.50%,06/25/07.............. 424,020 427,332
Small Business Administration 92-20K,
7.55%,11/01/12 ...................... 664,806 689,321
--------------
6,551,587
--------------
U.S. TREASURY OBLIGATIONS ( 9.3% )
U.S. Treasury Note,4.75%,
02/15/04 - 11/15/08.................. 3,350,000 3,258,878
U.S. Treasury Note,5.25%,02/15/29 .... 300,000 281,625
U.S. Treasury Note,5.50%,08/15/28 .... 800,000 762,376
--------------
4,302,879
--------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (COST
$11,198,062) 11,062,411
--------------
TOTAL LONG-TERM BONDS AND NOTES (COST $42,504,208) 42,707,995
--------------
SHORT-TERM INVESTMENTS ( 10.0% )
AT&T Capital Corp.,6.52%,05/14/99 .... 1,350,000 1,350,487
Federal Home Loan Bank,4.80%,05/03/99 1,779,000 1,779,000
TRW, Inc.,5.15%,05/05/99 ++ .......... 1,500,000 1,499,571
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $4,629,058) 4,629,058
--------------
TOTAL INVESTMENTS (COST $47,133,266)(A) 47,337,053
OTHER ASSETS LESS LIABILITIES (1,209,464)
--------------
TOTAL NET ASSETS $46,127,589
==============
</TABLE>
12 See Notes to Portfolio of Investments.
<PAGE>
-------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at April 30, 1999,
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized gains............................. $ 624,039
Unrealized losses............................ (420,252)
----------
Net unrealized gain......................... $ 203,787
==========
</TABLE>
* Segregated securities for purchases of delayed delivery or when-issued
securities held at April 30, 1999.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
# When-issued or delayed delivery security.
Information concerning restricted securities at April 30, 1999 is shown
below:
<TABLE>
<CAPTION>
ACQUISITION
DATE COST
-------------------- ---------------------
<S> <C> <C>
Heller Financial, Inc. ........... 08/15/97 $ 500,060
Nextlink Communications Inc. ..... 11/04/98 500,000
TRW, Inc. ........................ 04/06/99 1,499,571
----------
$2,499,631
==========
</TABLE>
The market value of the total restricted securities above represent 5.49% of the
total net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 13
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - APRIL 30, 1999 (UNAUDITED)
AETNA GOVERNMENT FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- --------------
<S> <C> <C>
LONG-TERM BONDS AND NOTES ( 94.5% )
FOREIGN AND SUPRANATIONALS ( 3.1% )
Inter-American Development Bank,
12.25%,12/15/08 ..................... $ 300,000 $ 436,392
---------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ( 54.8% )
Federal Home Loan Mortgage
Association,
11.50%,02/01/16 ..................... 197,829 217,770
Federal Home Loan Mortgage Corp.,
9.50%,07/01/20 ...................... 100,301 106,695
Federal Home Loan Mortgage Corp.,
10.50%,07/01/20 ..................... 339,527 372,811
Federal Home Loan Mortgage Corp. -
Gold,
9.50%,12/01/22 ...................... 204,787 220,463
Federal National Mortgage Association,
6.50%,06/01/29 # .................... 1,900,000 1,885,446
Federal National Mortgage Association,
9.50%,02/01/17 ...................... 368,976 396,904
Federal National Mortgage Association,
10.00%,06/01/20 - 10/01/20 .......... 769,965 833,812
Federal National Mortgage Corp.,
10.50%,04/01/19 ..................... 78,982 85,694
Government National Mortgage
Association,
6.50%,04/15/26 * .................... 608,162 605,458
Government National Mortgage
Association,
7.00%,12/15/23 ...................... 391,712 398,294
Government National Mortgage
Association,
7.00%,04/15/26 * .................... 816,222 829,937
Government National Mortgage
Association,
7.00%,07/06/26 # .................... 720,000 730,577
Government National Mortgage
Association,
9.00%,05/15/16 - 07/15/16 ........... 592,305 632,877
Government National Mortgage
Association,
9.50%,11/15/21 ...................... 147,327 158,948
Government National Mortgage
Association - II,9.50%,09/20/19 ..... 156,011 166,757
-----------
7,642,440
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS ( 16.8% )
Federal National Mortgage Association,
5.13%,02/13/04 ...................... 600,000 586,500
Private Export Funding Corp.,
5.48%,09/15/03 ...................... 450,000 448,515
Small Business Administration 91-20K,
8.25%,11/01/11 ...................... 592,734 627,041
Small Business Administration 92-20K,
7.55%,11/01/12 ...................... 664,806 689,321
-----------
2,351,377
-----------
U.S. TREASURY OBLIGATIONS ( 19.8% )
Treasury Inflation
Indexed,3.63%,04/15/28 * ............ 1,000,000 973,797
U.S. Treasury Bond,6.63%,02/15/27 .... 100,000 109,984
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- --------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (CONTINUED)
U.S. Treasury Note,8.13%,08/15/19 .... $ 225,000 $ 282,868
U.S. Treasury Note,8.75%,05/15/17 * .. 850,000 1,114,562
U.S. Treasury Strip,Zero
Coupon,08/15/05 * ................... 400,000 285,232
------------
2,766,443
------------
TOTAL LONG-TERM BONDS AND NOTES (COST $13,198,087) 13,196,652
------------
SHORT-TERM INVESTMENTS ( 23.0% )
Federal Home Loan Bank,4.80%,05/03/99 3,107,000 3,107,000
U.S. Treasury Bill,4.43%,08/19/99 @ .. 100,000 98,659
------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,205,671) 3,205,659
------------
TOTAL INVESTMENTS (COST $16,403,758)(A) 16,402,311
OTHER ASSETS LESS LIABILITIES (2,442,184)
------------
TOTAL NET ASSETS $13,960,127
============
</TABLE>
<TABLE>
<CAPTION>
NOTES TO PORTFOLIO OF INVESTMENTS
<S> <C>
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at April 30, 1999,
are as follows:
Unrealized gains............................. $ 122,321
Unrealized losses............................ (123,768)
----------
Net unrealized loss......................... $ (1,447)
==========
</TABLE>
<TABLE>
<CAPTION>
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
--------- ------------ ---------- -------------
SHORT CONTRACTS
- -----------------
<S> <C> <C> <C> <C>
U.S. Teasury Note 10 $ (1,115,469) Jun 99 $ 4,013
============ ===========
</TABLE>
# When-issued or delayed delivery security.
* Segregated securities for purchases of delayed delivery or when-issued
securities held at April 30, 1999.
@ Security pledged to cover initial margin requirements on open futures
contracts at April 30, 1999.
Category percentages are based on net assets.
14 See Notes to Financial Statements.
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - APRIL 30, 1999 (UNAUDITED)
HIGH YIELD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES VALUE
------------ -------------
<S> <C> <C>
COMMON STOCKS (0.1%)
American Banknote Corp. Warrants ......... 225,000 $ 22
KMC Telcom Holdings, Inc. Warrants ....... 300,000 3,000
Park N' View, Inc. Warrants .............. 150,000 1,500
-------------
TOTAL COMMON STOCKS (COST $0) 4,522
-------------
PREFERRED STOCKS (5.3%)
Benedek Communications Corp. ............. 150,000 111,750
Cluett American Corp. ++ ................. 92 8,096
Cumulus Media, Inc. + .................... 81 91,935
Global Crossing Holdings Ltd. + .......... 1,200 138,600
Rural Cellular Corp. ++ .................. 162,000 165,240
-------------
TOTAL PREFERRED STOCKS (COST $517,444) 515,621
-------------
PRINCIPAL
AMOUNT
------------
LONG-TERM BONDS AND NOTES (91.2%)
CORPORATE BONDS (90.7%)
Adelphia Communications,7.75%,01/15/09 ++ $ 100,000 99,000
Adelphia Communications,8.13%,07/15/03 ... 100,000 101,500
Allegiance Telecom, Inc.,Zero
Coupon,02/15/08.......................... 150,000 100,875
America Skiing Co.,12.00%,07/15/06 ....... 100,000 92,000
Biovail Corp.,10.88%,11/15/05 ............ 150,000 154,500
Borden Chemicals and
Plastics,9.50%,05/01/05.................. 50,000 49,500
Bresnan Communications,Zero
Coupon,02/01/09.......................... 150,000 103,500
California Steel Industries,8.50%,04/01/09
++....................................... 50,000 51,125
Centennial Cellular Corp.,10.75%,12/15/08
++....................................... 100,000 108,500
Clearnet Communications,Zero Coupon,
12/15/05 - 05/01/09 ..................... 350,000 295,500
Coast Hotels & Casinos,9.50%,04/01/09 ++ . 150,000 152,625
Condor Systems Inc.,11.88%,05/01/09 ++ ... 100,000 99,500
Covad Communications Group Inc.,
12.50%,02/15/09 ++ ...................... 50,000 50,750
Crown Castle International Corp.,Zero
Coupon,
11/15/07 ................................ 500,000 360,000
CSC Holdings Inc.,7.63%,07/15/18 ......... 125,000 125,938
Dimac Corp.,12.50%,10/01/08 + ............ 150,000 120,000
Echostar DBS Corp.,9.25%,02/01/06 ++ ..... 200,000 207,000
ESAT Telecom Group Plc,11.88%,12/01/08 ++ 200,000 216,000
Esprit Telecom Group Plc,10.88%,06/15/08 . 200,000 215,500
Fairchild Semiconductor
Inc.,10.38%,10/01/07..................... 100,000 102,000
Fruit of The Loom, Inc.,8.88%,04/15/06 ++ 100,000 98,000
Garden State Newspapers,8.63%,07/01/11 ++ 150,000 152,250
Great Lakes Dredge & Dock,11.25%,08/15/08 50,000 52,500
Hermes Euro Rail Corp.,11.50%,08/15/07 ... 125,000 136,250
Hyperion Telecom Corp.,12.25%,09/01/04 ... 100,000 108,500
Iridium LLC/Capital Corp.,11.25%,07/15/05
+........................................ 100,000 28,000
ITC Deltacom, Inc.,9.75%,11/15/08 ........ 150,000 160,500
Jordan Telecom Products,Zero
Coupon,08/01/07.......................... 75,000 63,750
Jupiters Ltd.,8.50%,03/01/06 ++ .......... 125,000 126,875
KMC Telcom Holdings, Inc.,Zero Coupon,
02/15/08 ................................ 300,000 174,000
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
Majestic Star Casino LLC,12.75%,05/15/03 . $ 250,000 $ 280,000
McLeodUSA, Inc.,9.50%,11/01/08 ........... 100,000 107,750
Metromedia International Group, Inc.,
10.00%,11/15/08 ......................... 200,000 215,000
Metronet Communications,Zero
Coupon,11/01/07.......................... 350,000 286,125
Microcell Telecommunications,Zero Coupon,
06/01/06 ................................ 150,000 126,750
Mohegan Tribal Gaming,8.13%,01/01/06 ..... 200,000 204,000
National Wine & Spirits,10.13%,01/15/09 ++ 125,000 130,000
Neenah Corp.,11.13%,05/01/07 ............. 100,000 101,000
Nextel Partners Inc.,Zero Coupon,02/01/09
++....................................... 200,000 126,500
Nextlink Communications
Inc.,10.75%,11/15/08 ++ ................. 150,000 159,750
NTLI, Inc.,Zero Coupon,10/01/08 ++ ....... 125,000 88,125
NTLI, Inc.,11.50%,10/01/08 ++ ............ 200,000 225,000
Ono Finance Plc,13.00%,05/01/09 ++ ....... 100,000 102,000
Optel, Inc.,11.50%,07/01/08 .............. 150,000 139,500
Panolam Industries International Inc.,
11.50%,02/15/09 ++ ...................... 100,000 105,000
Park N' View, Inc.,13.00%,05/15/08 + ..... 150,000 72,000
Penhall Acquisition Corp.,12.00%,08/01/06 75,000 75,750
Price Communications Wireless Inc.,
11.75%,07/15/07 ......................... 200,000 225,000
PSINET, Inc.,11.50%,11/01/08 ............. 175,000 194,687
Qwest Communications International,
7.25%,11/01/08 ++ ....................... 200,000 206,338
R&B Falcon Corp.,9.50%,12/15/08 ++ ....... 50,000 47,500
Radio Unica Corp.,Zero Coupon,08/01/06 ... 75,000 42,375
Rhythms NetConnections Inc.,Zero Coupon,
05/15/08 ................................ 100,000 56,500
Rogers Cantel, Inc.,9.38%,06/01/08 ....... 40,000 44,000
SBA Communications Corp.,Zero Coupon,
03/01/08 ................................ 500,000 325,000
Scotts Co. (The),8.63%,01/15/09 .......... 75,000 77,625
Sun International Hotels,9.00%,03/15/07 .. 100,000 105,250
Telecommunication Techniques Co.,
9.75%,05/15/08 .......................... 100,000 101,000
Telewest Plc,Zero Coupon,04/15/09 ++ ..... 100,000 67,750
Telewest Plc,11.00%,10/01/07 ............. 100,000 89,250
Teligent, Inc.,Zero Coupon,03/01/08 ...... 175,000 101,500
Tembec Industries Inc.,8.63%,06/30/09 .... 75,000 77,719
TV Guide Inc.,8.13%,03/01/09 ............. 75,000 76,500
Verio, Inc.,10.38%,04/01/05 .............. 250,000 267,500
Verio, Inc.,11.25%,12/01/08 ++ ........... 150,000 167,250
VIASystems, Inc.,9.75%,06/01/07 .......... 100,000 93,000
Winstar Communications,
Inc.,10.00%,03/15/08..................... 75,000 65,250
-----------
8,881,182
-----------
FOREIGN OBLIGATIONS (0.5%)
NTLI, Inc.,Zero Coupon,04/15/09 .......... 50,000 48,907
-----------
TOTAL LONG-TERM BONDS AND NOTES (COST $8,809,533) 8,930,089
-----------
</TABLE>
See Notes to Portfolio of Investments. 15
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - APRIL 30, 1999 (UNAUDITED)
HIGH YIELD (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------------- ------------
<S> <C> <C>
------- -----------
SHORT-TERM INVESTMENTS (1.2%)
Federal Home Loan Bank,4.80%,05/03/99 .... $ 121,000 $ 121,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $121,000) 121,000
-----------
TOTAL INVESTMENTS (COST $9,447,977)(A) 9,571,232
OTHER ASSETS LESS LIABILITIES 217,763
-----------
TOTAL NET ASSETS $9,788,995
===========
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$9,454,119. Unrealized gains and losses, based on identified tax cost at
April 30, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized gains.............................. $ 422,398
Unrealized losses............................. (305,285)
-----------
Net unrealized gain.......................... $ 117,113
===========
</TABLE>
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
+ Non-income producing security.
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
Information concerning restricted securities at April 30, 1999 is shown
below:
<TABLE>
<CAPTION>
ACQUISITION
DATE COST
----------------- ------------------
<S> <C> <C>
Adelphia Communications ................ 01/29/99 $ 101,474
California Steel Industries ............ 03/30/99 50,000
Centennial Cellular Corp. .............. 12/09/98 100,000
Cluett American Corp. .................. 02/03/99 9,375
Coast Hotels & Casinos ................. 03/18/99 150,000
Condor Systems Inc. .................... 04/22/99 98,502
Covad Communications Group Inc. ........ 02/11/99 48,971
Dimac Corp. ............................ 10/16/98 145,963
Echostar DBS Corp. ..................... 01/15/99 200,000
ESAT Telecom Group Plc ................. 11/20/98 200,000
Fruit of The Loom, Inc. ................ 03/25/99 99,357
Garden State Newspapers ................ 03/10/99 148,579
Iridium LLC/Capital Corp. .............. 02/02/98 102,138
Jupiters Ltd. .......................... 03/08/99 124,212
National Wine & Spirits ................ 01/25/99 125,000
Nextel Partners Inc. ................... 01/22/99 105,409
Nextlink Communications Inc. ........... 11/04/98 150,000
NTLI, Inc. ............................. 10/30/98 73,692
NTLI, Inc. ............................. 10/26/98 200,000
Ono Finance Plc ........................ 04/29/99 100,000
Panolam Industries International Inc. .. 02/18/99 100,000
Qwest Communications International ..... 11/19/98 200,000
R&B Falcon Corp. ....................... 04/27/99 47,003
05/07/98-
Rural Cellular Corp. ................... 05/01/99 162,000
Telewest Plc ........................... 04/01/99 63,870
Verio, Inc. ............................ 11/20/98 150,000
----------
$3,055,545
==========
</TABLE>
The market value of the total restricted securities above represent 31.75% of
the total net assets.
Category percentages are based on net assets.
16 See Notes to Financial Statements.
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - APRIL 30, 1999 (UNAUDITED)
MONEY MARKET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
<S> <C> <C>
ASSET-BACKED SECURITIES ( 24.8% )
ABS Investor Trust Series 1997-E,
5.41%,08/15/99 ++ .................. $ 12,000,000 $ 12,000,000
Americredit Corp.,4.98%,03/12/00 .... 4,946,117 4,946,117
Bishops Gate Residential Mortgage
Trust,
5.76%,11/22/99 ..................... 6,000,000 6,000,000
ContiMortgage Home Equity Loan Trust,
5.51%,09/15/99 ..................... 3,501,691 3,501,691
Copelco Capital
Funding,5.02%,03/15/00.............. 7,413,962 7,413,962
Distribution Finance Service,
4.97%,03/15/00 ..................... 17,649,945 17,649,945
DVI Business Trust
1998,5.24%,12/13/99................. 9,241,909 9,241,909
First Security Auto Owner Trust,
4.96%,03/15/00 ..................... 5,391,434 5,391,434
First Security Auto Owner Trust,
5.25%,11/15/99 ..................... 1,480 1,480
Ford Credit Auto Owner Trust,
5.09%,01/18/00 ..................... 18,000,000 17,999,999
Green Tree Financial
Corp.,4.95%,02/01/00................ 5,900,266 5,900,266
Green Tree Recreational Equipment &
Consumer Trust,5.55%,08/15/99 ...... 222,154 222,154
Long Lane Master Trust,4.95%,04/28/00 7,500,000 7,127,719
MMCA Auto Owner Trust,5.07%,01/18/00 3,573,846 3,573,846
Newcourt Equipment Trust Securities,
5.01%,11/20/99 ..................... 9,204,316 9,204,276
Onyx Acceptance Owner Trust,
5.26%,12/15/99 ..................... 2,317,398 2,316,974
Provident Equipment Lease Trust,
5.28%,10/25/99 ..................... 4,309,805 4,309,805
-----------
TOTAL ASSET-BACKED SECURITIES 116,801,577
-----------
CERTIFICATES OF DEPOSIT ( 1.2% )
Abbey National
Treasury,5.58%,08/19/99 ++ ......... 5,600,000 5,608,711
-----------
COMMERCIAL PAPER - DOMESTIC ( 26.1% )
American Honda Finance Corp.,
4.80%,06/29/99 ..................... 8,500,000 8,435,400
Associated Financial Series Co.,
4.87%,05/06/99 ..................... 3,499,000 3,497,580
Dakota Certificates - Standard Credit
Card Master Trust 1,4.80%,06/22/99 . 4,000,000 3,973,333
Dakota Certificates - Standard Credit
Card Master Trust 1,4.81%,07/27/99 . 4,000,000 3,954,572
Dakota Certificates - Standard Credit
Card Master Trust 1,4.88%,06/08/99 . 5,800,000 5,771,696
Detroit Edison Co.,5.00%,05/03/99 ... 4,540,000 4,540,000
Finova Capital Corp.,5.00%,07/13/99 . 6,000,000 5,940,833
Frontier Corp.,4.88%,05/19/99 ++ .... 5,800,000 5,787,420
Frontier Corp.,4.91%,05/14/99 -
06/14/99 ++ ........................ 8,500,000 8,468,222
Heller Financial Inc.,7.88%,11/01/99 2,000,000 2,025,920
Jefferson Smurfit Finance Corp.,
4.90%,06/08/99 ..................... 3,000,000 2,985,300
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
<S> <C> <C>
COMMERCIAL PAPER - DOMESTIC (CONTINUED)
Peco Energy Co.,4.98%,05/03/99 ...... $ 16,500,000 $16,500,000
PHH Corp.,5.05%,05/03/99 ............ 5,600,000 5,600,000
PHH Corp.,5.15%,05/03/99 ............ 8,500,000 8,500,000
Sheffield Receivables Corp.,
4.83%,05/17/99 ++ .................. 4,000,000 3,992,487
Torchmark Corp.,4.85%,05/20/99 ...... 5,280,000 5,267,907
Torchmark Corp.,4.88%,06/30/99 ...... 8,000,000 7,937,102
Zions Bancorporation,
4.99%,06/11/99 - 06/29/99........... 20,000,000 19,864,855
-----------
TOTAL COMMERCIAL PAPER - DOMESTIC 123,042,627
-----------
CORPORATE NOTES ( 19.2% )
Abbey National
Treasury,5.54%,08/17/99............. 15,000,000 14,996,589
Banc One Corp.,4.88%,10/01/99 ....... 4,000,000 3,999,553
BankBoston N.A.,5.14%,09/08/99 ...... 5,000,000 5,000,000
FCC National Bank,5.55%,06/01/99 .... 18,000,000 17,999,013
First Allmerica Financial Life
Insurance Co.,
5.59%,09/17/99 + ................... 12,000,000 12,000,000
General Motors Acceptance Corp.,
7.00%,03/01/00 ..................... 1,520,000 1,542,718
GTE Corp.,4.95%,05/07/99 ............ 1,100,000 1,099,395
International Lease Finance Corp.,
6.13%,11/01/99 ..................... 5,000,000 5,025,615
International Lease Finance Corp.,
6.38%,01/18/00 ..................... 5,000,000 5,038,370
PNC Bank N.A.,5.25%,08/03/99 ........ 20,000,000 19,996,639
Textron Financial
Corp.,5.68%,11/15/99................ 4,000,000 4,000,000
------------
TOTAL CORPORATE NOTES 90,697,892
------------
MEDIUM-TERM NOTES ( 31.5% )
American Honda Finance Corp.,
5.67%,05/07/99 ..................... 6,000,000 6,000,000
Associates Corp. N.A.,6.13%,11/12/99 8,350,000 8,407,479
Chrysler Financial
Corp.,7.89%,10/12/99................ 3,000,000 3,036,757
CIT Group Holdings,
Inc.,4.94%,02/24/00................. 11,900,000 11,894,293
CIT Group Holdings,
Inc.,5.54%,01/14/00................. 5,000,000 4,997,319
Countrywide Home Loans, Inc.,
5.46%,10/27/99 ..................... 4,000,000 3,999,362
Countrywide Home Loans, Inc.,
5.70%,08/13/99 ..................... 17,000,000 16,997,805
Eaton Corp.,5.13%,04/17/00 ++ ....... 18,000,000 18,000,000
Finova Capital Corp.,6.19%,10/20/99 . 4,125,000 4,141,770
Finova Capital Corp.,6.30%,11/01/99 . 1,500,000 1,506,370
Finova Capital Corp.,8.00%,02/01/00 . 3,200,000 3,253,104
Ford Motor Credit
Corp.,7.45%,07/12/99................ 2,500,000 2,511,350
General Motors Acceptance Corp.,
7.50%,05/24/99 - 08/05/99 .......... 5,500,000 5,517,226
Heller Financial, Inc.,5.36%,07/06/99
*................................... 21,000,000 20,998,255
Lehman Brothers Holdings Inc.,
5.35%,01/14/00 ..................... 9,150,000 9,151,311
</TABLE>
See Notes to Portfolio of Investments. 17
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - APRIL 30, 1999 (UNAUDITED)
MONEY MARKET (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
--------------- ---------------
<S> <C> <C>
MEDIUM-TERM NOTES (CONTINUED)
Lehman Brothers Holdings Inc.,
5.37%,05/14/99 ..................... $ 4,000,000 $ 4,000,056
Lehman Brothers Holdings Inc.,
6.15%,03/15/00 ..................... 7,000,000 7,029,441
PHH Corp.,5.61%,02/22/00 ............ 4,000,000 4,000,000
Sundstrand Corp.,5.77%,10/15/99 + ... 4,000,000 4,000,000
USL Capital Corp.,6.18%,11/08/99 .... 1,400,000 1,407,431
Wells Fargo & Co.,
5.31%,03/31/00 - 04/03/00 .......... 8,000,000 7,997,222
------------
TOTAL MEDIUM-TERM NOTES 148,846,551
------------
TOTAL INVESTMENTS (COST $484,997,358)(A) 484,997,358
------------
OTHER ASSETS LESS LIABILITIES (13,314,548)
------------
TOTAL NET ASSETS $471,682,810
============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes is identical.
There were no unrealized gains and losses as of April 30, 1999.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
* Segregated securities for purchases of delayed delivery or when-issued
securities held at April 30, 1999.
Information concerning restricted securities at April 30, 1999 is shown
below:
<TABLE>
<CAPTION>
ACQUISITION
DATE COST
------------ ---------------
<S> <C> <C>
Abbey National Treasury ........................ 08/17/98 $ 14,996,589
Abbey National Treasury ........................ 08/19/98 5,608,711
ABS Investor Turst Series 1997-E ............... 08/21/97 12,000,000
Banc One Corp. ................................. 09/15/98 3,999,553
Dakota Certificates - Standard Credit Card
Master Trust ................................... 04/22/99 3,954,572
Dakota Certificates - Standard Credit Card
Master Trust ................................... 04/22/99 3,973,333
Dakota Certificates - Standard Credit Card
Master Trust ................................... 02/25/99 5,771,696
Eaton Corp. .................................... 04/05/99 18,000,000
First Allmerica Financial Life Insurance Co. ... 09/17/98 12,000,000
Frontier Corp. ................................. 02/24/99 5,787,420
Frontier Corp. ................................. 03/16/99 4,474,223
Frontier Corp. ................................. 03/16/99 3,993,999
GTE Corp. ...................................... 03/30/99 1,099,395
Long Lane Master Trust ......................... 05/01/98 7,127,719
Sheffield Receivables Corp. .................... 04/16/99 3,992,487
Sundstrand Corp. ............................... 12/17/98 4,000,000
Textron Financial Corp. ........................ 11/25/98 4,000,000
------------
$114,779,697
============
</TABLE>
The market value of the total restricted securities above represent 24.33% of
the total net assets.
Category percentages are based on net assets.
18 See Notes to Financial Statements.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
INCOME FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments, at market value ..........................................
Cash ..................................................................
Receivable for:
Dividends and interest ...............................................
Investments sold .....................................................
Fund shares sold .....................................................
Variation margin .....................................................
Reimbursement from Investment Adviser ................................
Prepaid expenses ......................................................
Total assets .....................................................
LIABILITIES:
Payable for:
Dividends to shareholders ............................................
Investments purchased ................................................
Fund shares redeemed .................................................
Other liabilities .....................................................
Total liabilities ................................................
NET ASSETS ...........................................................
NET ASSETS REPRESENTED BY:
Paid-in capital .......................................................
Net unrealized gain on investments ....................................
Undistributed net investment income ...................................
Accumulated net realized gain (loss) on investments ...................
NET ASSETS ...........................................................
CAPITAL SHARES, $.001 PAR VALUE:
Class I:
Outstanding ..........................................................
Net Assets ...........................................................
Net Asset Value, offering and redemption price per share (net assets
divided by shares outstanding) .......................................
Class A:
Outstanding ..........................................................
Net Assets ...........................................................
Net Asset Value and redemption price per share (net assets divided by
shares outstanding) ..................................................
Offering Price (net asset value divided by 1 minus maximum sales load)
Class B:
Outstanding ..........................................................
Net Assets ...........................................................
Net Asset Value, offering and redemption price per share (net assets
divided by shares outstanding) .......................................
Class C:
Outstanding ..........................................................
Net Assets ...........................................................
Net Asset Value, offering and redemption price per share (net assets
divided by shares outstanding) .......................................
Cost of investments ...................................................
20 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND AETNA GOVERNMENT FUND HIGH YIELD MONEY MARKET
-------------- --------------------- -------------- -----------------
<S> <C> <C> <C>
$47,337,053 $16,402,311 $ 9,571,232 $484,997,358
11,850 2,233 473 110,964
709,206 165,554 173,705 2,610,307
2,002,028 1,901,926 177,351 --
130,080 4,876 30,300 1,795,540
-- 9,288 -- --
12,359 15,379 11,463 65,830
544 169 101 6,453
----------- ----------- ----------- ------------
50,203,120 18,501,736 9,964,625 489,586,452
----------- ----------- ----------- ------------
18,584 4,548 61,728 62,220
3,988,382 4,520,142 100,000 12,185,450
30,296 -- -- 5,343,986
38,269 16,919 13,902 311,986
----------- ----------- ----------- ------------
4,075,531 4,541,609 175,630 17,903,642
----------- ----------- ----------- ------------
$46,127,589 $13,960,127 $ 9,788,995 $471,682,810
=========== =========== =========== ============
$45,758,465 $14,072,156 $10,393,983 $471,682,810
203,787 2,566 123,255 --
21,817 15,021 80,350 --
143,520 (129,616) (808,593) --
----------- ----------- ----------- ------------
$46,127,589 $13,960,127 $ 9,788,995 $471,682,810
=========== =========== =========== ============
3,839,305 1,136,092 964,208 288,503,147
$39,486,839 $11,492,254 $ 9,059,480 $288,503,147
$ 10.28 $ 10.12 $ 9.40 $ 1.00
576,317 216,034 34,795 178,671,115
$ 5,925,553 $ 2,185,084 $ 326,926 $178,671,115
$ 10.28 $ 10.11 $ 9.40 $ 1.00
$ 10.79 $ 10.61 $ 9.87 $ 1.00
10,267 9,961 14,717 187,713
$ 105,547 $ 100,789 $ 138,226 $ 187,713
$ 10.28 $ 10.12 $ 9.39 $ 1.00
59,342 18,004 28,165 4,320,835
$ 609,650 $ 182,000 $ 264,363 $ 4,320,835
$ 10.27 $ 10.11 $ 9.39 $ 1.00
$47,133,266 $16,403,758 $ 9,447,977 $484,997,358
</TABLE>
See Notes to Financial Statements. 21
<PAGE>
INCOME FUNDS
STATEMENTS TO OPERATIONS
SIX MONTH PERIOD ENDED APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ..............................................................
Interest ...............................................................
Total investment income ...........................................
INVESTMENT EXPENSES:
Investment advisory fee ................................................
Administrative services fees ...........................................
Distribution Plan and shareholder services fees ........................
Printing and postage fees ..............................................
Custody fees ...........................................................
Transfer agent fees ....................................................
Audit fees .............................................................
Directors' fees ........................................................
Registration fees ......................................................
Miscellaneous ..........................................................
Expenses before reimbursement and waiver from Investment Adviser .......
Expense reimbursement and waiver from Investment Adviser ...............
Net expenses .......................................................
Net investment income ..................................................
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ...........................................................
Futures contracts .....................................................
Foreign currency related transactions .................................
Net realized gain (loss) on investments ............................
Net change in unrealized gain or loss on:
Investments ...........................................................
Futures contracts .....................................................
Net change in unrealized gain or loss on investments ...............
Net realized and change in unrealized gain or loss on investments ......
Net increase in net assets resulting from operations ...................
22 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND AETNA GOVERNMENT FUND HIGH YIELD MONEY MARKET
----------------- ------------------------ ----------------- --------------------
<S> <C> <C> <C>
$ -- $ -- $ 3,062 $ --
1,409,818 411,931 496,044 11,983,443
---------- --------- ---------- -----------
1,409,818 411,931 499,106 11,983,443
---------- --------- ---------- -----------
111,717 37,104 30,644 913,757
22,343 7,421 4,714 228,439
7,689 2,944 1,746 202
2,827 1,775 896 24,241
8,763 6,200 1,441 12,018
22,221 11,401 10,227 197,358
12,666 12,340 14,994 17,376
370 135 66 3,469
25,918 27,913 25,643 61,288
942 263 423 7,908
---------- --------- ---------- -----------
215,456 107,496 90,794 1,466,056
(40,202) (52,564) (44,285) (325,157)
---------- --------- ---------- -----------
175,254 54,932 46,509 1,140,899
---------- --------- ---------- -----------
1,234,564 356,999 452,597 10,842,544
---------- --------- ---------- -----------
327,787 (45,645) (508,214) --
-- 15,309 314 --
-- -- (689) --
---------- --------- ---------- -----------
327,787 (30,336) (508,589) --
---------- --------- ---------- -----------
(763,704) (233,555) 1,049,997 --
-- 6,565 -- --
---------- --------- ---------- -----------
(763,704) (226,990) 1,049,997 --
---------- --------- ---------- -----------
(435,917) (257,326) 541,408 --
---------- --------- ---------- -----------
$ 798,647 $ 99,673 $ 994,005 $10,842,544
========== ========= ========== ===========
</TABLE>
See Notes to Financial Statements. 23
<PAGE>
INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND
--------------------------------
SIX MONTH
PERIOD ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income...................... $ 1,234,564 $ 2,266,903
Net realized gain on investments........... 327,787 587,840
Net change in unrealized gain or loss on
investments............................... (763,704) 48,317
----------- -----------
Net increase in net assets resulting from
operations................................ 798,647 2,903,060
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Class I:
From net investment income................ (1,119,745) (2,221,259)
Class A:
From net investment income................ (114,776) (84,613)
Class B:
From net investment income................ (774) --
Class C:
From net investment income................ (12,077) (1,543)
----------- -----------
Decrease in net assets from distributions
to shareholders........................... (1,247,372) (2,307,415)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Class I:
Proceeds from shares sold................. 4,803,451 14,969,561
Net asset value of shares issued upon
reinvestment of distributions............ 1,014,061 1,982,243
Payments for shares redeemed.............. (7,773,701) (9,802,959)
Class A:
Proceeds from shares sold................. 4,758,717 1,361,680
Net asset value of shares issued upon
reinvestment of distributions............ 88,682 94,203
Payments for shares redeemed.............. (729,140) (592,561)
Class B:
Proceeds from shares sold................. 105,654 --
Net asset value of shares issued upon
reinvestment of distributions............ 24 --
Class C:
Proceeds from shares sold................. 604,551 107,100
Net asset value of shares issued upon
reinvestment of distributions............ 4,907 33
Payments for shares redeemed.............. (102,041) --
----------- -----------
Net increase in net assets from fund share
transactions.............................. 2,775,165 8,119,300
----------- -----------
Net change in net assets................... 2,326,440 8,714,945
NET ASSETS:
Beginning of period........................ 43,801,149 35,086,204
----------- -----------
End of period.............................. $46,127,589 $43,801,149
=========== ===========
End of period net assets includes
undistributed net investment income....... $ 21,817 $ 34,625
=========== ===========
</TABLE>
24 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND
--------------------------------
SIX MONTH
PERIOD ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
SHARE TRANSACTIONS:
Class I:
Number of shares sold..................... 461,227 1,453,940
Number of shares issued upon reinvestment
of distributions......................... 97,596 191,940
Number of shares redeemed................. (748,136) (952,243)
----------- -----------
Net increase (decrease)................... (189,313) 693,637
=========== ===========
Class A:
Number of shares sold..................... 453,706 132,099
Number of shares issued upon reinvestment
of distributions......................... 10,786 9,145
Number of shares redeemed................. (70,362) (57,572)
----------- -----------
Net increase.............................. 394,130 83,672
=========== ===========
Class B:
Number of shares sold..................... 10,265 --
Number of shares issued upon reinvestment
of distributions......................... 2 --
----------- -----------
Net increase.............................. 10,267 --
=========== ===========
Class C:
Number of shares sold..................... 58,197 10,377
Number of shares issued upon reinvestment
of distributions......................... 474 3
Number of shares redeemed................. (9,709) --
----------- -----------
Net increase.............................. 48,962 10,380
=========== ===========
</TABLE>
See Notes to Financial Statements. 25
<PAGE>
INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AETNA GOVERNMENT FUND
--------------------------------
SIX MONTH
PERIOD ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income...................... $ 356,999 $ 649,545
Net realized gain (loss) on investments.... (30,336) 324,559
Net change in unrealized gain or loss on
investments............................... (226,990) 27,704
----------- -----------
Net increase in net assets resulting from
operations................................ 99,673 1,001,808
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Class I:
From net investment income................ (305,702) (630,427)
Class A:
From net investment income................ (38,121) (28,375)
Class B:
From net investment income................ (629) --
Class C:
From net investment income................ (3,112) (1,484)
----------- -----------
Decrease in net assets from distributions
to shareholders........................... (347,564) (660,286)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Class I:
Proceeds from shares sold................. 2,281,769 7,238,257
Net asset value of shares issued upon
reinvestment of distributions............ 244,481 394,720
Payments for shares redeemed.............. (4,796,724) (4,193,654)
Class A:
Proceeds from shares sold................. 1,512,796 449,577
Net asset value of shares issued upon
reinvestment of distributions............ 36,968 25,701
Payments for shares redeemed.............. (211,957) (147,241)
Class B:
Proceeds from shares sold................. 100,800 --
Net asset value of shares issued upon
reinvestment of distributions............ 3 --
Class C:
Proceeds from shares sold................. 69,925 114,998
Net asset value of shares issued upon
reinvestment of distributions............ 249 99
Payments for shares redeemed.............. (2,000) --
----------- -----------
Net increase (decrease) in net assets from
fund share transactions................... (763,690) 3,882,457
----------- -----------
Net change in net assets................... (1,011,581) 4,223,979
NET ASSETS:
Beginning of period........................ 14,971,708 10,747,729
----------- -----------
End of period.............................. $13,960,127 $14,971,708
============ ============
End of period net assets includes
undistributed net investment income....... $ 15,021 $ 5,586
=========== ============
</TABLE>
26 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AETNA GOVERNMENT FUND
--------------------------------
SIX MONTH
PERIOD ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
SHARE TRANSACTIONS:
Class I:
Number of shares sold..................... 223,159 705,105
Number of shares issued upon reinvestment
of distributions......................... 23,968 38,991
Number of shares redeemed................. (469,806) (407,668)
----------- -----------
Net increase (decrease)................... (222,679) 336,428
=========== ===========
Class A:
Number of shares sold..................... 148,129 43,885
Number of shares issued upon reinvestment
of distributions......................... 3,631 2,537
Number of shares redeemed................. (20,739) (14,561)
----------- -----------
Net increase.............................. 131,021 31,861
=========== ===========
Class B:
Number of shares sold..................... 9,961 --
----------- -----------
Net increase.............................. 9,961 --
=========== ===========
Class C:
Number of shares sold..................... 6,819 11,340
Number of shares issued upon reinvestment
of distributions......................... 30 10
Number of shares redeemed................. (195) --
----------- -----------
Net increase.............................. 6,654 11,350
=========== ===========
</TABLE>
See Notes to Financial Statements. 27
<PAGE>
INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
--------------------------------
PERIOD FROM
SIX MONTH FEBRUARY 2, 1998
PERIOD ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income...................... $ 452,597 $ 602,850
Net realized loss on investments........... (508,589) (300,004)
Net change in unrealized gain or loss on
investments............................... 1,049,997 (926,742)
----------- ------------
Net increase (decrease) in net assets
resulting from operations................. 994,005 (623,896)
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Class I:
From net investment income................ (372,654) (568,178)
Class A:
From net investment income................ (11,720) (8,356)
Class B:
From net investment income................ (1,588) --
Class C:
From net investment income................ (9,214) (3,387)
----------- ------------
Decrease in net assets from distributions
to shareholders........................... (395,176) (579,921)
----------- ------------
FROM FUND SHARE TRANSACTIONS:
Class I:
Proceeds from shares sold................. 103,206 9,992,157
Net asset value of shares issued upon
reinvestment of distributions............ 3,771 1,563
Payments for shares redeemed.............. (65,366) (372,365)
Class A:
Proceeds from shares sold................. 89,576 250,085
Net asset value of shares issued upon
reinvestment of distributions............ 5,224 2,387
Payments for shares redeemed.............. (9,618) (8,533)
Class B:
Proceeds from shares sold................. 136,688 --
Net asset value of shares issued upon
reinvestment of distributions............ 22 --
Class C:
Proceeds from shares sold................. 159,404 192,798
Net asset value of shares issued upon
reinvestment of distributions............ 5,470 965
Payments for shares redeemed.............. (93,446) (5)
----------- ------------
Net increase in net assets from fund share
transactions.............................. 334,931 10,059,052
----------- ------------
Net change in net assets................... 933,760 8,855,235
NET ASSETS:
Beginning of period........................ 8,855,235 --
----------- ------------
End of period.............................. $9,788,995 $ 8,855,235
=========== ============
End of period net assets includes
undistributed net investment income....... $ 80,350 $ 22,929
=========== ============
</TABLE>
28 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
--------------------------------
PERIOD FROM
SIX MONTH FEBRUARY 2, 1998
PERIOD ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
SHARE TRANSACTIONS:
Class I:
Number of shares sold..................... 11,055 999,239
Number of shares issued upon reinvestment
of distributions......................... 406 164
Number of shares redeemed................. (7,093) (39,563)
----------- ------------
Net increase.............................. 4,368 959,840
=========== ============
Class A:
Number of shares sold..................... 9,682 26,297
Number of shares issued upon reinvestment
of distributions......................... 564 256
Number of shares redeemed................. (1,037) (967)
----------- ------------
Net increase.............................. 9,209 25,586
=========== ============
Class B:
Number of shares sold..................... 14,715 --
Number of shares issued upon reinvestment
of distributions......................... 2 --
----------- ------------
Net increase.............................. 14,717 --
=========== ============
Class C:
Number of shares sold..................... 17,236 20,161
Number of shares issued upon reinvestment
of distributions......................... 590 109
Number of shares redeemed................. (9,930) (1)
----------- ------------
Net increase.............................. 7,896 20,269
=========== ============
</TABLE>
See Notes to Financial Statements. 29
<PAGE>
INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
---------------------------------
SIX MONTH
PERIOD ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 10,842,544 $ 22,276,969
-------------- --------------
Net increase in net assets resulting from
operations............................... 10,842,544 22,276,969
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Class I:
From net investment income............... (6,670,644) (13,914,707)
Class A:
From net investment income............... (4,106,065) (8,355,762)
Class B:
From net investment income............... (747) --
Class C:
From net investment income............... (65,088) (6,500)
-------------- --------------
Decrease in net assets from distributions
to shareholders.......................... (10,842,544) (22,276,969)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Class I:
Proceeds from shares sold................ 144,608,979 285,261,463
Net asset value of shares issued upon
reinvestment of distributions........... 6,421,780 13,180,175
Payments for shares redeemed............. (138,552,071) (296,127,010)
Class A:
Proceeds from shares sold................ 308,748,534 528,354,421
Net asset value of shares issued upon
reinvestment of distributions........... 3,985,320 8,089,499
Payments for shares redeemed............. (295,518,527) (531,518,375)
Class B:
Proceeds from shares sold................ 187,593 --
Net asset value of shares issued upon
reinvestment of distributions........... 120 --
Class C:
Proceeds from shares sold................ 4,834,461 927,490
Net asset value of shares issued upon
reinvestment of distributions........... 55,276 4,705
Payments for shares redeemed............. (1,484,516) (16,581)
-------------- --------------
Net increase in net assets from fund
share transactions....................... 33,286,949 8,155,787
-------------- --------------
Net change in net assets.................. 33,286,949 8,155,787
NET ASSETS:
Beginning of period....................... 438,395,861 430,240,074
-------------- --------------
End of period............................. $ 471,682,810 $ 438,395,861
============== ==============
End of period net assets includes
undistributed net investment income...... $ -- $ --
============== ==============
</TABLE>
30 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
---------------------------------
SIX MONTH
PERIOD ENDED
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
SHARE TRANSACTIONS:
Class I:
Number of shares sold.................... 144,608,979 285,261,463
Number of shares issued upon reinvestment
of distributions........................ 6,421,780 13,180,175
Number of shares redeemed................ (138,552,071) (296,127,010)
-------------- --------------
Net increase............................. 12,478,688 2,314,628
============== ==============
Class A:
Number of shares sold.................... 308,748,534 528,354,421
Number of shares issued upon reinvestment
of distributions........................ 3,985,320 8,089,499
Number of shares redeemed................ (295,518,527) (531,518,375)
-------------- --------------
Net increase............................. 17,215,327 4,925,545
============== ==============
Class B:
Number of shares sold.................... 187,593 --
Number of shares issued upon reinvestment
of distributions........................ 120 --
-------------- --------------
Net increase............................. 187,713 --
============== ==============
Class C:
Number of shares sold.................... 4,834,461 927,490
Number of shares issued upon reinvestment
of distributions........................ 55,276 4,705
Number of shares redeemed................ (1,484,516) (16,581)
-------------- --------------
Net increase............................. 3,405,221 915,614
============== ==============
</TABLE>
See Notes to Financial Statements. 31
<PAGE>
INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Aetna Series Fund, Inc. (Company) is registered under the Investment Company Act
of 1940 (the Act) as an open-end management investment company. It was
incorporated under the laws of Maryland on June 17, 1991. The Articles of
Incorporation permit the Company to offer separate funds, each of which has its
own investment objective, policies and restrictions.
This report covers four funds, (each a Fund; collectively, the Funds), Aetna
Bond Fund (Bond), Aetna Government Fund, Aetna High Yield Fund (High Yield) and
Aetna Money Market Fund (Money Market).
Shares of each Fund are available to all investors including employers and
employees who utilize the Funds as investment options under retirement plans.
The Funds are authorized to offer four classes of shares, Class I, Class A,
Class B and Class C. Class I is offered principally to institutions.
Shareholders not eligible to purchase Class I shares can purchase shares in any
other Class of the Funds. Information regarding sales charges and fees pursuant
to Rule 12b-1 of the Act are as follows:
CLASS I: No sales charges or distribution fees.
CLASS A: Generally subject to a front-end sales charge; distribution fees of
0.25% (of average net assets of the class per year.)
CLASS B: No front-end sales charge; contingent deferred sales charge (CDSC)
applies if you sell your shares within six years of purchase;
distribution fees of 0.75%; service fees of 0.25%; automatic
conversion to Class A shares after eight years.
CLASS C: No front-end sales charge; CDSC on redemptions made within 18 months
of purchase; distribution fees of 0.75%; service fees of 0.25%.
Shares in each Class were first made available to the public on the following
dates:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
BOND December 27, 1991 April 15, 1994 March 1, 1999 June 30, 1998
AETNA GOVERNMENT FUND December 22, 1993 April 15, 1994 March 1, 1999 June 30, 1998
HIGH YIELD February 2, 1998 February 2, 1998 March 1, 1999 June 30, 1998
MONEY MARKET December 27, 1991 April 15, 1994 March 1, 1999 June 30, 1998
</TABLE>
The following is each Fund's investment objective:
BOND seeks to provide as high a level of total return as is consistent with
reasonable risk, primarily through investment in a diversified portfolio of
investment-grade corporate bonds, and debt securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
AETNA GOVERNMENT FUND seeks to provide income consistent with the preservation
of capital through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
HIGH YIELD seeks high current income and growth of capital primarily through
investment in a diversified portfolio of fixed-income securities rated lower
than BBB- by Standard and Poor's Corporation or lower than Baa3 by Moody's
Investors Services, Inc.
MONEY MARKET seeks to provide high current return, consistent with the
preservation of capital and liquidity, through investment in high-quality
money market instruments.
Aeltus Investment Management, Inc. (Aeltus) serves as the Investment Adviser to
each Fund. Aeltus Capital, Inc. (ACI) is each Fund's principal underwriter.
Aeltus and ACI are indirect wholly-owned subsidiaries of Aetna Inc. (Aetna).
32
<PAGE>
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Funds have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Funds.
A. VALUATION OF INVESTMENTS
Except for Money Market, investments are stated at market values based upon
prices furnished by external pricing sources as reported on national securities
exchanges or, for over-the-counter securities, at the mean of the bid and asked
prices. Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value. Short-term
investments maturing in less than sixty days are valued at amortized cost, which
when combined with accrued interest, approximates market value. Securities and
fixed income investments for which market quotations are not considered to be
readily available are valued using methods approved by the Board of Directors.
Money Market, as permitted by Rule 2a-7 under the Act, carries all investments
at amortized cost, which approximates market value.
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchange at the end
of each day. Purchases and sales of securities, income receipts, and expense
payments are translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions. The Funds do not isolate the portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in their market prices.
Such fluctuations are included in net realized and unrealized gain or loss on
investments.
B. FUTURES AND FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument including an
index of stocks at a set price on a future date. The Funds invest in financial
futures contracts as a hedge against its existing portfolio securities, to
manage the risk of changes in interest rates, equity prices, currency exchange
rates or in anticipation of future purchases and sales of portfolio securities.
Money Market may not invest in futures contracts.
Upon entering into a futures contract, the Funds are required to deposit with a
broker an amount (initial margin) equal to a percentage of the purchase price
indicated by the futures contract. Subsequent deposits (variation margin) are
received or paid each day by the Funds equal to the daily fluctuations in the
market value of the contract. These amounts are recorded by the Funds as
unrealized gains or losses. When a contract is closed, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Generally,
futures contracts held by the Funds are closed prior to expiration.
A forward foreign currency exchange contract is an agreement to pay or receive
specific amounts of a currency at a future date in exchange for another currency
at an agreed upon exchange rate. The Funds, where authorized, may use forward
foreign currency exchange contracts to hedge against foreign currency exchange
rate risks on its non-U.S. dollar denominated portfolio securities. Contracts
are recorded at market value and marked-to-market daily. Money Market may not
invest in forward foreign currency exchange contracts.
The risks associated with financial futures and forward foreign currency
exchange contracts may arise from an imperfect correlation between the change in
market value of the securities held by the Funds and the price of the contracts.
Risks may also arise from an illiquid secondary market or from the inability of
counterparties to meet the terms of the contracts.
Realized and unrealized gains or losses on financial futures and forward foreign
currency exchange contracts are reflected in the accompanying financial
statements. The amounts at risk under such futures and forward foreign currency
exchange contracts may exceed the amounts reflected in the financial statements.
The notional amounts (economic exposure) of these contracts are disclosed in the
Portfolios of Investments and elsewhere in the Notes to Financial Statements.
For federal income tax purposes, any futures and forward foreign currency
exchange contracts which remain open at the end of the fiscal year are
marked-to-market and the resultant net gain or loss is reported to shareholders
as federal taxable income.
33
<PAGE>
INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
C. ILLIQUID AND RESTRICTED SECURITIES
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Funds to sell them promptly at an
acceptable price. Restricted securities are those sold under Rule 144A of the
Securities Act of 1933 (1933 Act) or are securities offered pursuant to Section
4(2) of the 1933 Act, and are subject to legal or contractual restrictions on
resale and may not be publicly sold without registration under the 1933 Act.
Illiquid and restricted securities are valued using market quotations when
readily available. In the absence of market quotations, the securities are
valued based upon their fair value determined under procedures approved by the
Board of Directors. The Funds will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any.
Below is a summary of illiquid and restricted securities held as of April 30,
1999:
<TABLE>
<CAPTION>
% OF NET
COST MARKET VALUE ASSETS
---- ------------ --------
<S> <C> <C> <C>
Money Market $11,127,719 $11,127,719 2.36%
</TABLE>
D. DELAYED DELIVERY TRANSACTIONS
The Funds may purchase or sell securities on a when-issued or forward commitment
basis. The price of the underlying securities and date when the securities will
be delivered and paid for are fixed at the time the transaction is negotiated.
The market value of the securities purchased or sold are identified in the
Funds' Portfolio of Investments. Losses may arise due to changes in the market
value of the securities or from the inability of counterparties to meet the
terms of the contract. In connection with such purchases, the Funds are required
to hold liquid assets as collateral with the Funds' custodian sufficient to
cover the purchase price.
E. DOLLAR ROLL TRANSACTIONS
Each of the Funds may engage in dollar roll transactions with respect to
mortgage-backed securities issued by Government National Mortgage Association,
Federal National Mortgage Association and Federal Home Loan Mortgage Corp. In a
dollar roll transaction, a Fund sells a mortgage-backed security to a financial
institution, such as a bank or broker/dealer, and simultaneously agrees to
repurchase a substantially similar (i.e., same type, coupon, and maturity)
security from the institution at a later date at an agreed upon price. The
mortgage-backed securities that are repurchased will bear the same interest rate
as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories.
F. FEDERAL INCOME TAXES
Each Fund has met the requirements to be taxed as a regulated investment company
for the year ended October 31, 1998 and intends to meet the requirements for the
current year. As such, each Fund is relieved of federal income taxes by
distributing all of its net taxable investment income and capital gains, if any,
in compliance with the applicable provisions of the Internal Revenue Code.
Furthermore, by distributing substantially all of its net taxable investment
income and capital gains during the calendar year, each Fund will avoid federal
excise taxes in accordance with the applicable provisions of the Internal
Revenue Code. Thus, the financial statements contain no provision for federal
taxes.
G. DISTRIBUTIONS
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currency transactions and
certain losses deferred due to transactions characterized as "wash sales" by
federal tax regulations. In addition, distributions of realized gains from sales
of securities held one year or less are taxable to shareholders at ordinary
income tax rates rather than preferred capital gain tax rates in accordance with
the applicable provisions of the Internal Revenue Code.
34
<PAGE>
- --------------------------------------------------------------------------------
H. OTHER
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on the trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, using an effective yield
method over the life of the security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.
3. INVESTMENT ADVISORY, SHAREHOLDER SERVICES AND DISTRIBUTION FEES
Each Fund pays Aeltus a monthly fee expressed as a percentage of the average
daily net assets of each Fund. As each Fund's net assets exceed predetermined
thresholds, lower advisory fees are applied. Below are the Funds' annual
investment advisory fee ranges and the annual effective rates before waivers as
of April 30, 1999:
<TABLE>
<CAPTION>
FEE EFFECTIVE
RANGE RATE
----- ---------
<S> <C> <C>
Bond 0.50%-0.40% 0.50%
Aetna Government Fund 0.50%-0.40% 0.50%
High Yield 0.65%-0.50% 0.65%
Money Market 0.40%-0.30% 0.40%
</TABLE>
The Company and Aeltus have entered into an Administrative Services Agreement
under which Aeltus acts as administrator and provides certain administrative and
shareholder services and is responsible for the supervision of other service
providers for each Fund. Each Fund pays Aeltus an administrative services fee at
an annual rate of 0.10% of its average daily net assets.
Aeltus has entered into a Service Agreement with Aetna Life Insurance and
Annuity Company (ALIAC) under which ALIAC will provide various administrative
and shareholder services to certain shareholders that purchased their shares
through ALIAC. In exchange for these services, Aeltus pays ALIAC a fee of up to
0.325% of the average daily net assets associated with those shares. For the
period November 1, 1998 through April 30, 1999, Aeltus paid ALIAC $82,164.
The Company has adopted a Shareholder Services Plan for the Class B and Class C
shares, except Money Market Class C. Under the Shareholder Services Plan, ACI is
paid a service fee at an annual rate of 0.25% of the average daily net assets of
Class B and Class C shares. This fee is used as compensation for expenses
incurred in servicing shareholders' accounts.
The Company has adopted a Distribution Plan pursuant to Rule 12b-1 under the Act
for the Class A, Class B and Class C shares. The Distribution Plan provides for
payments to the principal underwriter at an annual rate of 0.25% of the average
daily net assets of Class A shares of each Fund (except Money Market) and 0.75%
of the average daily net assets of Class B and Class C shares of each Fund
(except Class C shares of Money Market). Amounts paid by the Funds are used to
pay expenses incurred by the principal underwriter in promoting the sale of
Class A, Class B and Class C shares.
Presently, the Funds' class-specific expenses are limited to distribution fees
incurred by Class A, Class B and Class C shares and service fees incurred by
Class B and Class C shares.
4. REIMBURSEMENT AND WAIVER FROM INVESTMENT ADVISER
Aeltus is contractually obligated through December 31, 1999 to reimburse each
Fund for some or all of its operating expenses or to waive fees in order to
maintain a certain expense ratio. Reimbursement and waiver arrangements will
increase a Fund's yield and total return.
35
<PAGE>
INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
for the period ended April 30, 1999 were:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------- -------------------
<S> <C> <C>
Bond $14,785,906 $10,487,840
Aetna Government Fund 3,790,371 1,928,765
High Yield 7,819,067 7,165,349
</TABLE>
6. CAPITAL LOSS CARRYFORWARD
At April 30, 1999, the following capital loss carryforwards had been incurred:
<TABLE>
<CAPTION>
CAPITAL LOSS EXPIRATION
CARRYFORWARD DATE
------------ ----------
<S> <C> <C>
Bond $184,267 10/31/2003
Aetna Government Fund 54,548 10/31/2003
47,228 10/31/2004
- --------------------------------------------------------------------------
High Yield 299,738 10/31/2006
</TABLE>
These capital loss carryforwards may be used to offset future capital gains
until their respective expiration dates. It is the policy of each of the Funds
to reduce future distributions of realized gains to shareholders to the extent
of unexpired capital loss carryforwards.
7. AUTHORIZED CAPITAL SHARES
The Company is authorized to issue a total of 12.6 billion shares. Of those 12.6
billion shares, the following have been designated to the Funds described in
this report as follows: all of the Funds, except Money Market, have been
allocated 100 million shares each of Class I, Class A, Class B and Class C
shares. Money Market has been allocated one billion shares each of Class I,
Class A, Class B and Class C shares. As of April 30, 1999, the following shares
of the Funds were owned by ALIAC and its affiliates:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Bond 2,155,495 -- 9,718 --
Aetna Government Fund 942,995 -- 9,881 9,696
High Yield 948,875 10,000 10,787 --
Money Market 144,754,586 -- 100,000 --
</TABLE>
36
<PAGE>
INCOME FUNDS
ADDITIONAL INFORMATION
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
YEAR 2000
The Funds receive services from a number of providers which rely on the
effective functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not be able to perform their intended functions adequately after 1999
because of the inability of computer systems and software to distinguish the
year 2000 from the year 1900. Aeltus is taking steps that it believes are
reasonably designed to address this potential "Year 2000" problem and to obtain
satisfactory information that comparable steps are being taken by each of the
Funds' other major service providers. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the Funds from
this problem.
37
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS
BOND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH TEN MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS I (UNAUDITED) 1998 1997 1996 1995 1994
- ---------------------------------- -------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 10.38 $ 10.22 $ 10.09 $ 10.27 $ 9.58 $ 10.37
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........... 0.29 0.60 0.62 0.65 0.65 0.52
Net realized and change in
unrealized gain or loss on
investments...................... (0.10) 0.17 0.13 (0.15) 0.65 (0.86)
------- ------- ------- ------- ------- -------
Total from investment
operations.................... 0.19 0.77 0.75 0.50 1.30 (0.34)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ...... (0.29) (0.61) (0.62) (0.68) (0.61) (0.45)
From net realized gains on
investments...................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions ........... (0.29) (0.61) (0.62) (0.68) (0.61) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of period ... $ 10.28 $ 10.38 $ 10.22 $ 10.09 $ 10.27 $ 9.58
======= ======= ======= ======= ======= =======
Total return ..................... 1.84% 7.72% 7.72% 5.09% 14.06% (3.31)%
Net assets, end of period (000's) $39,487 $41,804 $34,080 $28,864 $32,778 $27,584
Ratio of net expenses to average
net assets ...................... 0.75%(1) 0.75% 0.75% 0.75% 0.79% 0.76%(1)
Ratio of net investment income to
average net assets .............. 5.56%(1) 5.79% 6.07% 6.16% 6.56% 6.29%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets .............. 0.93%(1) 0.97% 1.14% 1.16% 1.06% 1.06%(1)
Portfolio turnover rate .......... 24.97% 77.01% 48.56% 42.33% 56.99% 51.80%
<CAPTION>
YEAR ENDED
DECEMBER 31,
CLASS I 1993
- ---------------------------------- ------------
<S> <C>
Net asset value, beginning of
period........................... $ 9.99
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........... 0.55
Net realized and change in
unrealized gain or loss on 0.45
investments...................... -------
Total from investment
operations.................... 1.00
-------
LESS DISTRIBUTIONS:
From net investment income ...... (0.55)
From net realized gains on
investments...................... (0.07)
-------
Total distributions ........... (0.62)
-------
Net asset value, end of period ... $ 10.37
=======
Total return ..................... 10.20%
Net assets, end of period (000's) $46,788
Ratio of net expenses to average 0.47%
net assets ......................
Ratio of net investment income to 5.34%
average net assets ..............
Ratio of expenses before 1.01%
reimbursement and waiver to
average net assets ..............
Portfolio turnover rate .......... 50.01%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
38 See Notes to Financial Statements.
<PAGE>
BOND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH APRIL 15, 1994
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED (DATE OF INITIAL
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, PUBLIC OFFERING)
CLASS A (UNAUDITED) 1998 1997 1996 1995 TO OCTOBER 31, 1994
- --------------------------------------- -------------- ----------- ----------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .. $10.37 $10.22 $10.09 $10.27 $ 9.58 $ 9.92
------ ------ ------ ------ ------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.28 0.57 0.54 0.62 0.56 0.28
Net realized and change in unrealized
gain or loss on investments .......... (0.09) 0.15 0.13 (0.20) 0.66 (0.35)
------ ------ ------ ------ ------ -------
Total from investment operations ... 0.19 0.72 0.67 0.42 1.22 (0.07)
------ ------ ------ ------ ------ -------
LESS DISTRIBUTIONS:
From net investment income ........... (0.28) (0.57) (0.54) (0.60) (0.53) (0.27)
------ ------ ------ ------ ------ -------
Total distributions ................ (0.28) (0.57) (0.54) (0.60) (0.53) (0.27)
------ ------ ------ ------ ------ -------
Net asset value, end of period ........ $10.28 $10.37 $10.22 $10.09 $10.27 $ 9.58
====== ====== ====== ====== ====== =======
Total return .......................... 1.82% 7.27% 6.89% 4.27% 13.28% (0.68)%
Net assets, end of period (000's) ..... $5,926 $1,890 $1,006 $ 877 $7,340 $25,405
Ratio of net expenses to average net
assets................................ 1.00%(1) 1.05% 1.50% 1.50% 1.50% 1.49%(1)
Ratio of net investment income to
average net assets ................... 5.31%(1) 5.49% 5.32% 5.47% 5.91% 5.36%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ..... 1.18%(1) 1.27% 1.89% 1.91% 1.82% 1.81%(1)
Portfolio turnover rate ............... 24.97% 77.01% 48.56% 42.33% 56.99% 51.80%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 39
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
BOND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
(DATE OF INITIAL
PUBLIC OFFERING)
TO APRIL 30, 1999
CLASS B (UNAUDITED)
- ---------------------------------------------------------- -----------------
<S> <C>
Net asset value, beginning of period ..................... $10.29
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.08
Net realized and change in unrealized gain or loss on
investments.............................................. (0.01)
------
Total from investment operations ...................... 0.07
------
LESS DISTRIBUTIONS:
From net investment income .............................. (0.08)
------
Total distributions ................................... (0.08)
------
Net asset value, end of period ........................... $10.28
======
Total return ............................................. 0.65%
Net assets, end of period (000's) ........................ $ 106
Ratio of net expenses to average net assets .............. 1.75%(1)
Ratio of net investment income to average net assets ..... 4.56%(1)
Ratio of expenses before reimbursement and waiver to
average net assets ...................................... 1.93%(1)
Portfolio turnover rate .................................. 24.97%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
40 See Notes to Financial Statements.
<PAGE>
BOND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH JUNE 30, 1998
PERIOD ENDED (DATE OF INITIAL
APRIL 30, 1999 PUBLIC OFFERING)
CLASS C (UNAUDITED) TO OCTOBER 31, 1998
- ---------------------------------------- -------------- -------------------
<S> <C> <C>
Net asset value, beginning of period ... $10.37 $10.31
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.24 0.17
Net realized and change in unrealized
gain or loss on investments ........... (0.09) 0.05
------ ------
Total from investment operations .... 0.15 0.22
------ ------
LESS DISTRIBUTIONS:
From net investment income ............ (0.25) (0.16)
------ ------
Total distributions ................. (0.25) (0.16)
------ ------
Net asset value, end of period ......... $10.27 $10.37
====== ======
Total return ........................... 1.42% 2.10%
Net assets, end of period (000's) ...... $ 610 $ 108
Ratio of net expenses to average net
assets................................. 1.75%(1) 1.75%(1)
Ratio of net investment income to
average net assets .................... 4.56%(1) 4.79%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ...... 1.93%(1) 1.97%(1)
Portfolio turnover rate ................ 24.97% 77.01%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 41
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
AETNA GOVERNMENT FUND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH TEN MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS I (UNAUDITED) 1998 1997 1996 1995 1994
- -------------------------------------------- -------------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 10.29 $ 9.99 $ 9.80 $ 10.01 $ 9.41 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ..................... 0.25 0.53 0.58 0.56 0.64 0.40
Net realized and change in unrealized gain
or loss on investments .................... (0.18) 0.30 0.21 (0.13) 0.59 (0.63)
------- ------- ------- ------- ------- -------
Total from investment operations ........ 0.07 0.83 0.79 0.43 1.23 (0.23)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ................ (0.24) (0.53) (0.60) (0.64) (0.63) (0.36)
------- ------- ------- ------- ------- -------
Total distributions ..................... (0.24) (0.53) (0.60) (0.64) (0.63) (0.36)
------- ------- ------- ------- ------- -------
Net asset value, end of period ............. $ 10.12 $ 10.29 $ 9.99 $ 9.80 $ 10.01 $ 9.41
======= ======= ======= ======= ======= =======
Total return ............................... 0.70% 8.54% 8.39% 4.43% 13.58% (2.37)%
Net assets, end of period (000's) .......... $11,492 $13,980 $10,217 $10,662 $19,154 $26,110
Ratio of net expenses to average net assets 0.70%(1) 0.70% 0.70% 0.70% 0.70% 0.41%(1)
Ratio of net investment income to average
net assets ................................ 4.85%(1) 5.21% 5.91% 5.67% 6.79% 5.29%(1)
Ratio of expenses before reimbursement and
waiver to average net assets .............. 1.41%(1) 1.51% 1.70% 1.57% 1.30% 1.16%(1)
Portfolio turnover rate .................... 13.91% 181.08% 147.78% 50.48% 117.31% 43.63%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
42 See Notes to Financial Statements.
<PAGE>
AETNA GOVERNMENT FUND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH APRIL 15, 1994
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED (DATE OF INITIAL
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, PUBLIC OFFERING)
CLASS A (UNAUDITED) 1998 1997 1996 1995 TO OCTOBER 31, 1994
- --------------------------------------- -------------- ----------- ----------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .. $10.29 $ 9.99 $ 9.79 $10.00 $ 9.41 $ 9.67
------ ------- ------- ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.23 0.49 0.51 0.48 0.60 0.24
Net realized and change in unrealized
gain or loss on investments .......... (0.18) 0.31 0.21 (0.13) 0.56 (0.24)
------ ------- ------- ------ ------- ------
Total from investment operations ... 0.05 0.80 0.72 0.35 1.16 --
------ ------- ------- ------ ------- ------
LESS DISTRIBUTIONS:
From net investment income ........... (0.23) (0.50) (0.52) (0.56) (0.57) (0.26)
------ ------- ------- ------ ------- ------
Total distributions ................ (0.23) (0.50) (0.52) (0.56) (0.57) (0.26)
------ ------- ------- ------ ------- ------
Net asset value, end of period ........ $10.11 $ 10.29 $ 9.99 $ 9.79 $ 10.00 $ 9.41
====== ======= ======= ====== ======= ======
Total return .......................... 0.48% 8.19% 7.67% 3.75% 12.60% (0.06)%
Net assets, end of period (000's) ..... $2,185 $ 875 $ 531 $ 526 $ 405 $ 151
Ratio of net expenses to average net
assets................................ 0.95%(1) 1.03% 1.45% 1.45% 1.51% 1.28%(1)
Ratio of net investment income to
average net assets ................... 4.60%(1) 4.88% 5.16% 4.96% 6.02% 4.68%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ..... 1.66%(1) 1.84% 2.45% 2.32% 2.11% 2.11%(1)
Portfolio turnover rate ............... 13.91% 181.08% 147.78% 50.48% 117.31% 43.63%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 43
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
AETNA GOVERNMENT FUND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
(DATE OF INITIAL
PUBLIC OFFERING)
TO APRIL 30, 1999
CLASS B (UNAUDITED)
- ---------------------------------------------------------- -----------------
<S> <C>
Net asset value, beginning of period ..................... $10.12
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.07
Net realized and change in unrealized gain or loss on
investments.............................................. (0.01)
------
Total from investment operations ...................... 0.06
------
LESS DISTRIBUTIONS:
From net investment income .............................. (0.06)
------
Total distributions ................................... (0.06)
------
Net asset value, end of period ........................... $10.12
======
Total return ............................................. 0.63%
Net assets, end of period (000's) ........................ $ 101
Ratio of net expenses to average net assets .............. 1.70%(1)
Ratio of net investment income to average net assets ..... 3.85%(1)
Ratio of expenses before reimbursement and waiver to
average net assets ...................................... 2.41%(1)
Portfolio turnover rate .................................. 13.91%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
44 See Notes to Financial Statements.
<PAGE>
AETNA GOVERNMENT FUND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH JUNE 30, 1998
PERIOD ENDED (DATE OF INITIAL
APRIL 30, 1999 PUBLIC OFFERING)
CLASS C (UNAUDITED) TO OCTOBER 31, 1998
- ---------------------------------------- -------------- -------------------
<S> <C> <C>
Net asset value, beginning of period ... $10.29 $ 10.11
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.20 0.15
Net realized and change in unrealized
gain or loss on investments ........... (0.18) 0.17
------ -------
Total from investment operations .... 0.02 0.32
------ -------
LESS DISTRIBUTIONS:
From net investment income ............ (0.20) (0.14)
------ -------
Total distributions ................. (0.20) (0.14)
------ -------
Net asset value, end of period ......... $10.11 $ 10.29
====== =======
Total return ........................... 0.15% 3.18%
Net assets, end of period (000's) ...... $ 182 $ 117
Ratio of net expenses to average net
assets................................. 1.70%(1) 1.70%(1)
Ratio of net investment income to
average net assets .................... 3.85%(1) 4.21%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ...... 2.41%(1) 2.51%(1)
Portfolio turnover rate ................ 13.91% 181.08%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 45
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
HIGH YIELD
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH FEBRUARY 2, 1998
PERIOD ENDED (COMMENCEMENT OF
APRIL 30, 1999 OPERATIONS)
CLASS I (UNAUDITED) TO OCTOBER 31, 1998
- ---------------------------------------- -------------- -------------------
<S> <C> <C>
Net asset value, beginning of period ... $ 8.81 $ 10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.45 0.60
Net realized and change in unrealized
gain or loss on investments ........... 0.53 (1.21)
------ -------
Total from investment operations .... 0.98 (0.61)
------ -------
LESS DISTRIBUTIONS:
From net investment income ............ (0.39) (0.58)
------ -------
Total distributions ................. (0.39) (0.58)
------ -------
Net asset value, end of period ......... $ 9.40 $ 8.81
====== =======
Total return ........................... 11.25% (6.50)%
Net assets, end of period (000's) ...... $9,059 $ 8,452
Ratio of net expenses to average net
assets................................. 0.95%(1) 0.95%(1)
Ratio of net investment income to
average net assets .................... 9.64%(1) 8.17%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ...... 1.89%(1) 2.27%(1)
Portfolio turnover rate ................ 77.68% 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
46 See Notes to Financial Statements.
<PAGE>
HIGH YIELD
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH FEBRUARY 2, 1998
PERIOD ENDED (COMMENCEMENT OF
APRIL, 30, 1999 OPERATIONS)
CLASS A (UNAUDITED) TO OCTOBER 31, 1998
- --------------------------------------- --------------- -------------------
<S> <C> <C>
Net asset value, beginning of period .. $ 8.81 $ 10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.43 0.58
Net realized and change in unrealized
gain or loss on investments .......... 0.54 (1.21)
------ -------
Total from investment operations ... 0.97 (0.63)
------ -------
LESS DISTRIBUTIONS:
From net investment income ........... (0.38) (0.56)
------ -------
Total distributions ................ (0.38) (0.56)
------ -------
Net asset value, end of period ........ $ 9.40 $ 8.81
====== =======
Total return .......................... 11.12% (6.67)%
Net assets, end of period (000's) ..... $ 327 $ 225
Ratio of net expenses to average net
assets................................ 1.20%(1) 1.20%(1)
Ratio of net investment income to
average net assets ................... 9.39%(1) 7.92%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ..... 2.14%(1) 2.52%(1)
Portfolio turnover rate ............... 77.68% 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 47
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
HIGH YIELD
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
(DATE OF INITIAL
PUBLIC OFFERING)
TO APRIL 30, 1999
CLASS B (UNAUDITED)
- ---------------------------------------------------------- -----------------
<S> <C>
Net asset value, beginning of period ..................... $ 9.27
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.14
Net realized and change in unrealized gain or loss on
investments.............................................. 0.09
------
Total from investment operations ...................... 0.23
------
LESS DISTRIBUTIONS:
From net investment income .............................. (0.11)
Total distributions ................................... (0.11)
------
Net asset value, end of period ........................... $ 9.39
======
Total return ............................................. 2.51%
Net assets, end of period (000's) ........................ $ 138
Ratio of net expenses to average net assets .............. 1.95%(1)
Ratio of net investment income to average net assets ..... 8.64%(1)
Ratio of expenses before reimbursement and waiver to
average net assets ...................................... 2.89%(1)
Portfolio turnover rate .................................. 77.68%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
48 See Notes to Financial Statements.
<PAGE>
HIGH YIELD
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH JUNE 30, 1998
PERIOD ENDED (DATE OF INITIAL
APRIL 30, 1999 PUBLIC OFFERING)
CLASS C (UNAUDITED) TO OCTOBER 31, 1998
- ---------------------------------------- -------------- -------------------
<S> <C> <C>
Net asset value, beginning of period ... $ 8.80 $ 10.07
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.40 0.24
Net realized and change in unrealized
gain or loss on investments ........... 0.54 (1.27)
------ -------
Total from investment operations .... 0.94 (1.03)
------ -------
LESS DISTRIBUTIONS:
From net investment income ............ (0.35) (0.24)
------ -------
Total distributions ................. (0.35) (0.24)
------ -------
Net asset value, end of period ......... $ 9.39 $ 8.80
====== =======
Total return ........................... 10.77% (10.28)%
Net assets, end of period (000's) ...... $ 264 $ 178
Ratio of net expenses to average net
assets................................. 1.95%(1) 1.94%(1)
Ratio of net investment income to
average net assets .................... 8.64%(1) 7.18%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ...... 2.89%(1) 3.26%(1)
Portfolio turnover rate ................ 77.68% 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 49
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH TEN MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
CLASS I (UNAUDITED) 1998 1997 1996 1995 1994 1993
- ------------------------------- -------------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ........ 0.02 0.05 0.05 0.05 0.06 0.03 0.03
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations................. 0.02 0.05 0.05 0.05 0.06 0.03 0.03
-------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income ... (0.02) (0.05) (0.05) (0.05) (0.06) (0.03) (0.03)
-------- -------- -------- -------- -------- -------- --------
Total distributions ........ (0.02) (0.05) (0.05) (0.05) (0.06) (0.03) (0.03)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return .................. 2.40% 5.36% 5.49% 5.44% 5.95% 3.33% 3.29%
Net assets, end of period
(000's)....................... $288,503 $276,024 $273,710 $323,281 $275,524 $161,756 $107,844
Ratio of net expenses to
average net assets ........... 0.50%(1) 0.48% 0.37% 0.30% 0.27% 0.21%(1) 0.00%
Ratio of net investment income
to average net assets ........ 4.75%(1) 5.24% 5.31% 5.30% 5.78% 4.05%(1) 3.33%
Ratio of expenses before
reimbursement and waiver to
average net assets ........... 0.64%(1) 0.72% 0.81% 0.83% 0.88% 0.85%(1) 0.95%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
50 See Notes to Financial Statements.
<PAGE>
MONEY MARKET
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH APRIL 15, 1994
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED (DATE OF INITIAL
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, PUBLIC OFFERING)
CLASS A (UNAUDITED) 1998 1997 1996 1995 TO OCTOBER 31, 1994
- ------------------------------------- -------------- ----------- ----------- ----------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .............. 0.02 0.05 0.05 0.05 0.06 0.03
-------- -------- -------- -------- ------- -------
Total from investment operations . 0.02 0.05 0.05 0.05 0.06 0.03
-------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ......... (0.02) (0.05) (0.05) (0.05) (0.06) (0.03)
-------- -------- -------- -------- ------- -------
Total distributions .............. (0.02) (0.05) (0.05) (0.05) (0.06) (0.03)
-------- -------- -------- -------- ------- -------
Net asset value, end of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======= =======
Total return ........................ 2.40% 5.36% 5.49% 5.44% 5.95% 2.41%
Net assets, end of period (000's) ... $178,671 $161,456 $156,530 $119,849 $78,726 $47,350
Ratio of net expenses to average net
assets.............................. 0.50%(1) 0.48% 0.37% 0.30% 0.26% 0.21%(1)
Ratio of net investment income to
average net assets ................. 4.75%(1) 5.24% 5.31% 5.30% 5.79% 4.27%(1)
Ratio of expenses before
reimbursement and waiver to average
net assets ......................... 0.64%(1) 0.72% 0.91% 0.93% 0.87% 0.92%(1)
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 51
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
(DATE OF INITIAL
PUBLIC OFFERING)
TO APRIL 30, 1999
CLASS B (UNAUDITED)
- ---------------------------------------------------------- -----------------
<S> <C>
Net asset value, beginning of period ..................... $ 1.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.01
Total from investment operations ...................... 0.01
------
LESS DISTRIBUTIONS:
From net investment income .............................. (0.01)
Total distributions ................................... (0.01)
------
Net asset value, end of period ........................... $ 1.00
======
Total return ............................................. 0.63%
Net assets, end of period (000's) ........................ $ 188
Ratio of net expenses to average net assets .............. 1.48%(1)
Ratio of net investment income to average net assets ..... 3.77%(1)
Ratio of expenses before reimbursement and waiver to
average net assets ...................................... 1.62%(1)
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
52 See Notes to Financial Statements.
<PAGE>
MONEY MARKET
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH JUNE 30, 1998
PERIOD ENDED (DATE OF INITIAL
APRIL 30, 1999 PUBLIC OFFERING)
CLASS C (UNAUDITED) TO OCTOBER 31, 1998
- ---------------------------------------- -------------- -------------------
<S> <C> <C>
Net asset value, beginning of period ... $ 1.00 $ 1.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.02 0.02
------
Total from investment operations .... 0.02 0.02
------ ------
LESS DISTRIBUTIONS:
From net investment income ............ (0.02) (0.02)
------ ------
Total distributions ................. (0.02) (0.02)
------ ------
Net asset value, end of period ......... $ 1.00 $ 1.00
====== ======
Total return ........................... 2.40% 1.75%
Net assets, end of period (000's) ...... $4,321 $ 916
Ratio of net expenses to average net
assets................................. 0.50%(1) 0.48%(1)
Ratio of net investment income to
average net assets .................... 4.75%(1) 5.24%(1)
Ratio of expenses before reimbursement
and waiver to average net assets ...... 0.64%(1) 0.72%(1)
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 53
