<TABLE>
<CAPTION>
Table of Contents
<S> <C>
President's Letter.....................................................1
Capital Appreciation Funds:
Investment Review......................................................3
Portfolios of Investments:
Aetna Growth Fund.....................................................17
Aetna International Fund..............................................19
Aetna Mid Cap Fund....................................................21
Aetna Small Company Fund..............................................23
Aetna Value Opportunity Fund..........................................25
Statements of Assets and Liabilities...................................26
Statements of Operations...............................................28
Statements of Changes in Net Assets....................................30
Notes to Financial Statements..........................................38
Additional Information.................................................45
Financial Highlights...................................................47
Independent Auditors' Report...........................................62
Growth and Income Funds:
Investment Review......................................................63
Portfolios of Investments:
Aetna Balanced Fund...................................................73
Aetna Growth and Income Fund..........................................82
Aetna Real Estate Securities Fund.....................................90
Statements of Assets and Liabilities...................................91
Statements of Operations...............................................93
Statements of Changes in Net Assets....................................94
Notes to Financial Statements..........................................99
Additional Information.................................................108
Financial Highlights...................................................109
Independent Auditors' Report...........................................118
Income Funds:
Investment Review......................................................119
Portfolios of Investments:
Aetna Bond Fund.......................................................128
Aetna Government Fund.................................................130
Aetna High Yield Fund.................................................131
Aetna Money Market Fund...............................................133
Statements of Assets and Liabilities...................................136
Statements of Operations...............................................138
Statements of Changes in Net Assets....................................140
Notes to Financial Statements..........................................148
Additional Information.................................................153
Financial Highlights...................................................154
Independent Auditors' Report...........................................166
</TABLE>
<PAGE>
President's Letter
Dear Fellow Shareholder,
First, thank you for investing in Aetna Series Fund, Inc. Since you have
hundreds of other investment options from which to choose, we truly appreciate
the confidence you've placed in us to help you reach your investment goals. It's
a trust we are honored by and appreciate. While the enclosed annual report will
give you a detailed review of the funds you have chosen, I'd like to share a few
observations about the market in general and some specific news about the Aetna
Series Fund and its adviser, Aeltus Investment Management, Inc.
The past twelve months have been memorable for both the stock market and the
U.S. economy overall. It was a year of ups and downs in the market, with a
record high in July, followed by a severe correction during the third quarter.
Market volatility achieved and sustained levels not seen since the aftershocks
of the Crash of '87. Despite this volatility, there was plenty of good news. The
American economy was generally healthy, with low interest and inflation rates,
the federal budget deficit whittled away, and unemployment falling to the lowest
levels registered in many years. In addition, wages continued to grow, and
consumer confidence held steady. All of these positive factors have allowed the
U.S. stock market to recoup much of the ground lost during the correction,
despite ongoing economic problems in Asia, Russia and Latin America.
With so much happening "on the Street", the past year was also an exciting and
productive time for Aeltus and the Aetna Series Fund. In February we launched
seven new funds and introduced Class A and Class I shares, replacing the old
Adviser and Select classes. Then, on June 30, we introduced Class C shares,
offering a third investment option.
We also improved service to our shareholders. On July 4, the Aetna Series Fund
began a relationship with a new transfer agent, First Data Corporation, one of
the most prominent in the mutual fund industry, offering us increased ability to
respond to your evolving needs by adding new services in the future. In
addition, we introduced a reformatted consolidated statement that is easier to
read, provides helpful graphic illustrations and also reports distribution
summaries. Shareholders received the new statement at the end of the third
calendar quarter, and feedback has been positive. Our web site,
WWW.AETNAFUNDS.COM, was up and running in September. I invite you to use it to
get instant information about our funds, profiles on Aeltus portfolio managers
and updates on market developments.
In addition, we have been actively assessing and updating Aeltus' computer
systems with respect to "Year 2000" dating issues so they will be able to
perform their intended functions adequately after 1999. We look forward to
complete remediation and testing of all relevant systems by mid-1999.
Today, with almost $46 billion in assets under management, Aeltus is one of the
country's largest investment management firms. This leading position is
important to investors, because it represents the kind of size and strength that
will allow us to continue refining our existing investment management services
and products, adding new ones, and growing our staff to serve valued customers
like you.
Thank you for your continued confidence in the Aetna Series Fund and Aeltus
Investment Management, Inc. We look forward to a mutually prosperous new year.
Sincerely,
/s/ J. Scott Fox
J. Scott Fox
President
Aetna Series Fund, Inc.
1
<PAGE>
2
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Growth Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Growth Fund (Class I) S&P 500 Index
<S> <C> <C>
Jan-94 10000 10000
10250 9621
9900 9661
10552 10134
Dec-94 10559 10132
11343 11119
12682 12180
13883 13149
Dec-95 14181 13940
15048 14689
15638 15349
16322 15823
Oct-96 16622 16260
18613 18214
17845 18653
22177 22320
Oct-97 21434 21483
21612 23118
25876 26317
26171 26628
Oct-98 24603 26210
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- ------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- ------------------------------------------------
Inception Date 1 Year Inception*
- ------------------------------------------------
<S> <C> <C> <C>
Class I 01/04/94 14.78% 20.53%
- ------------------------------------------------
Class A: 04/15/94
POP (1) 7.76% 18.29%
NAV (2) 14.34% 19.75%
- ------------------------------------------------
Class C: 06/30/98
12.61% 19.32%
w/CDSC (3)
NAV 13.61% 19.32%
- ------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
Aetna Growth Fund
How did the Fund perform during the period?
The Aetna Growth Fund Class I shares generated a 14.78% total return, net of
fund expenses, for the year ended October 31, 1998. The benchmark, Standard &
Poor's (S&P) 500 Index(a), returned 21.98% for the same period. Among growth
funds tracked by Morningstar, Inc., Class I shares' performance over the year
ended October 31, 1998 ranked in the top 50% (out of 791 funds) and Class A
shares' performance over the year ended October 31, 1998 placed it in the top
54% (out of 791 funds).
What economic or financial market conditions impacted the Fund?
Throughout 1998, equity valuations were buoyed by positive domestic economic
conditions. For example, long term interest rates declined throughout the year,
from 6.2% to 5.1%, and inflation remained at relatively low levels. Earnings
growth, although slower than the prior year, was better than expected at the
beginning of the year.
Financial crisis and slowing growth in Asia and Latin America threatened to
disrupt these positive domestic developments.
See Definition of Terms. 3
<PAGE>
Equity market volatility increased significantly as developments in Asia and
Latin America caused investors to question the sustainability of earnings growth
rates. These concerns were evident in the more cyclically sensitive holdings in
the portfolio. Investor confidence improved late in the fourth fiscal quarter,
as the Federal Reserve Board lowered interest rates.
In addition, large capitalization stocks outperformed their smaller
capitalization brethren throughout the year. As in the prior year, money flowed
into a relatively small group of very large companies that appeared to have
superior earnings visibility. The market's emphasis on size detracted from the
performance of our more diversified portfolio relative to the S&P 500.
What investments influenced the Fund's performance over the past twelve months?
Reflecting concerns over the course of the year about slowing growth, the Fund's
exposure to stocks with earnings more dependent on the pace of the economy was
reduced. In addition, companies with earnings at risk due to an exposure to
developments in Asia and Latin America were eliminated. Finance, an
outperforming sector in the first half of the year, underperformed in the second
half. Holdings in the finance industry were reduced significantly as concerns
about the availability of credit and slower growth caused financial stocks to
underperform. The reinvestment of the proceeds in sectors with strong and more
sustainable earnings growth rates accounted for most of the Fund's positive
performance for the year. For example, exposure to the healthcare sector was
increased during the year. Fund performance benefited from both an overweight
position and good stock performance. Sofamor Danek, Biomet and McKesson all
outperformed as new product innovations accelerated volume growth. The
technology sector also added to performance. Dell and EMC/MASS Corp. were
particularly strong performers during the year.
The Fund's performance relative to the S&P 500, was most affected by holdings in
the oil field services, telephone equipment and consumer discretionary
industries. In oil field services, Friede Goldman Corp. and Halliburton
underperformed, as softening demand caused world oil prices to plummet. Results
in the telephone equipment industry posted mixed results for the year due to
misperceptions that overall equipment demand had peaked. This concern negatively
affected our holdings in Lucent Technologies and Ciena. Performance in the
consumer discretionary sector also was mixed. For example, performance in the
second half of the year was hurt as retail stocks underperformed due to concerns
that declining consumer confidence would affect holiday spending patterns.
What is your outlook going forward?
The outlook for the equity markets is problematic. Several of the factors that
affect equity valuations remain positive. As mentioned previously, inflation
remains at low levels and long-term interest rates have declined. However, there
currently is considerably more uncertainty about the pace of the economy and the
sustainability of earnings growth rates than there was earlier this year. In
this uncertain environment, we will continue our policy of owning reasonably
priced companies with good earnings momentum.
<TABLE>
<CAPTION>
Portfolio Sector Breakdown:
% of
Common % of Over/(Under)
Sector Stocks S&P 500 Weighting
<S> <C> <C> <C>
Basic Materials -- 3.5% (3.5)%
Commercial Services 6.5% 1.9% 4.6%
Consumer Discretionary 14.0% 11.3% 2.7%
Consumer Non-Discretionary 2.1% 10.2% (8.1)%
Energy 7.0% 7.8% (0.8)%
Finance 8.8% 16.1% (7.3)%
Healthcare 27.1% 12.7% 14.4%
Manufacturing 7.8% 10.4% (2.6)%
Technology 13.4% 15.7% (2.3)%
Utilities 13.3% 10.4% 2.9%
</TABLE>
4 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
MCI Worldcom, Inc. 3.8%
Tyco International, Ltd. 3.7%
Schering Plough 3.7%
EMC/MASS Corp. 3.6%
Compuware Corp. 3.2%
Allied Waste Industries, Inc. 3.2%
Sofamor Danek Group, Inc. 3.2%
Wal-Mart Stores, Inc. 3.1%
Warner Lambert Co. 3.0%
Century Telephone Enterprises 3.0%
</TABLE>
See Definition of Terms. 5
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna International Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna International Fund (Class I) MSCI EAFE Index
<S> <C> <C>
Jan-92 10000 10000
9311 8821
9521 9016
9171 9161
Dec-92 8921 8816
9401 9881
10011 10883
10821 11612
Dec-93 11620 11720
11460 12137
11571 12766
11829 12786
Dec-94 11627 12665
11347 12910
11484 13015
12384 13568
Dec-95 12437 14128
13104 14547
13806 14788
13856 14781
Oct-96 13927 14633
15790 14504
16098 14884
18503 17008
Oct-97 17552 15353
18270 16042
21350 17748
22215 17989
Oct-98 19347 16883
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- ---------------------------------------------------------
Inception Date 1 Year 5 Years Inception*
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Class I 01/03/92 10.22% 11.65% 10.15%
- ---------------------------------------------------------
Class A: 04/15/94
POP (1) 3.45% 9.55% 8.43%
NAV (2) 9.76% 10.86% 9.37%
- ---------------------------------------------------------
Class C: 06/30/98
8.31% 10.57% 9.08%
w/CDSC (3)
NAV 9.31% 10.57% 9.08%
- ---------------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
Aetna International Fund
How did the Fund perform during the period?
The Aetna International Fund recorded another solid year of outperformance
against its competitors. The Aetna International Fund Class I shares generated a
10.22% total return, net of fund expenses, for the year ended October 31, 1998.
The benchmark, Morgan Stanley Capital International-Europe, Australia and Far
East (MSCI EAFE) Index(b), returned 9.95% for the same period. Among foreign
stock funds tracked by Morningstar, Inc., Class I shares' performance over the
one year and five year periods ended October 31, 1998 ranked in the top 16% (out
of 520 funds) and 9% (out of 150 funds), respectively, and Class A shares'
performance over the year ended October 31, 1998 placed it in the top 17% (out
of 520 funds).
What economic or financial market conditions impacted the Fund?
For the last year, world equities markets have experienced some of the highest
volatility in the last 50 years. The Asian currency crisis, which began in the
summer of 1997, reached its low point in the summer of 1998. The Russian
currency devaluation and the default of Russian government debt in August
surprised the market during the illiquid summer holiday
6 See Definition of Terms.
<PAGE>
trading. Brazil, under the collapse of other emerging markets currencies, fended
off devaluation concerns. In Japan, equities sank to levels not seen in this
decade as its economy slipped into recession.
Even with these negatives, the Aetna International Fund still rose over 10% as
several positives affected world equity markets. European equities markets
performed well as the European Monetary Union (EMU) will apparently become a
reality in 1999. EMU will reduce boundaries and constraints in trading goods and
services across 11 countries in continental Europe. In addition, Japan announced
a serious banking reform bill to cleanse its huge bad debt problems and, in
October, finance leaders from several of the G7 countries lowered interest rates
to fend off global equity concerns.
What investments influenced the Fund's performance over the past twelve months?
The Aetna International Fund's overweight position in European equities was the
most significant reason for Fund outperformance. Stock selection in Japan,
mainly exporting firms like Fuji Photo and Nintendo, also contributed to
outperformance. The Fund's general weighting in emerging markets generally
helped performance.
The Fund's currency hedging policy provided mixed results as the stronger German
Deutschemark hindered performance while the weaker Japanese Yen helped Fund
performance. The Fund continues to employ a currency hedging strategy that aims
to protect the value of its underlying equity position in foreign countries.
What is your outlook going forward?
The Fund maintains a slight overweight in Europe, as the forces of EMU plus
corporate restructuring and lower interest rates look to be a boost to equities.
In Japan, economic stimulus packages and the Japanese banking bill may ignite
that economy. We will continue to monitor developments in Japan, looking for an
opportunity to increase our exposure to Japanese issuers. The Fund currently has
a slight underweight in Japan when measured against its competitors.
The Fund remains underweight in Asian equities as lower interest rates do not
provide enough incentive to overcome the real problem in Asia - overcapacity.
This structural problem may take years to solve. The Fund will also remain
underweight in Latin America until economic strength is seen in Brazil.
<TABLE>
<CAPTION>
% of Total % of Over/(Under)
Country Weightings Investments MSCI EAFE Weighting
<S> <C> <C> <C>
United Kingdom 18.7% 22.0% (3.3)%
France 11.1% 9.5% 1.6%
Japan 11.0% 21.5% (10.5)%
Germany 10.2% 10.5% (0.3)%
Switzerland 7.6% 8.3% (0.7)%
Italy 6.6% 4.7% 1.9%
Netherlands 6.2% 5.4% 0.8%
Australia 4.2% 2.7% 1.5%
Finland 3.6% 1.2% 2.4%
Ireland 3.5% 0.5% 3.0%
Sweden 3.3% 2.8% 0.5%
Norway 3.2% 0.5% 2.7%
Denmark 2.8% 0.9% 1.9%
Other 8.0% 9.5% (1.5)%
</TABLE>
See Definition of Terms. 7
<PAGE>
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
Nokia Corp., ADR 1.8%
Telstra Corp. Ltd. 1.7%
Gehe AG 1.6%
Fuji Photo Film 1.6%
LaFarge SA 1.5%
Santen Pharmaceutical Co. Ltd. 1.5%
Tele Danmark A/S 1.5%
Credito Italiano 1.4%
Allied Irish Banks 1.4%
Securitas AB 1.4%
</TABLE>
8 See Definition of Terms.
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Mid Cap Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Mid Cap Fund (Class I) MSCI EAFE Index
<S> <C> <C>
Feb-98 10000 10000
11410 11229
10530 10372
Oct-98 9290 10055
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- -------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- -------------------------------------------
Inception Date Inception*
- -------------------------------------------
<S> <C> <C>
Class I 02/04/98 -7.10%
- -------------------------------------------
Class A: 02/04/98
POP (1) -12.54%
NAV (2) -7.20%
- -------------------------------------------
Class C: 06/30/98
w/CDSC (3) -8.69%
NAV -7.77%
- -------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For the
period prior to the inception of Class C, the performance is calculated by using
the performance of Class I, adjusted for fees and expenses. Class I, Class A and
Class C shares participate in the same portfolio of securities.
Aetna Mid Cap Fund
How did the Fund perform during the period?
The Aetna Mid Cap Fund Class I shares generated a -7.10% total return, net of
fund expenses, for the period ended October 31, 1998. The benchmark, Standard &
Poor's (S&P) Midcap 400 Index(c), returned 0.55% for the same period.
What economic or financial market conditions impacted the Fund?
The market environments in evidence during the third and fourth quarters of 1998
were a study in contrasts. During the third quarter, some volatility was evident
in the equity market, probably attributable to investor worries about earnings.
This volatility paled in comparison, though, to that on display in the fourth
quarter, as market fears of a global slowdown took over. At various points
during the quarter, the S&P Midcap 400 Index was down by as much as 25%! By
quarter end, though, recovery to July 31 levels was almost complete. During the
quarter, market participants appeared to veer away from the type of valuation
approaches used at Aeltus, i.e. those which depend upon quantitative valuation
using value and growth factors. Instead the market rewarded "safe haven" stocks
such as utilities and oils, eschewing bottom up valuation for top down macro
investment ideas.
See Definition of Terms. 9
<PAGE>
What investments influenced the Fund's performance over the past nine months?
The Fund benefited over the period from an overweighting in the commercial
services sector, including investments in some oil services stocks which were
buoyed during September. Additionally, a large position in Century Telephone
Enterprises has added significant value to the fund's performance over the
period.
Unfortunately, the balance of the Fund's performance was disappointing during
the period, as a result of the fourth quarter market events and attitudes
recounted above. Particularly detracting from Fund performance was an overweight
in the chemicals industry, coupled with subpar stock selection in the form of
Millennium Chemicals and International Specialty Products.
What is your outlook going forward?
The midcap asset class continues to look attractive. The Fund looks at the
forward earnings yield of the Midcap Index to measure its valuation and compares
it to the yield on the ten year government bond. Based on this measure, the
Midcap Index looks over one standard deviation undervalued relative to
historical measures. Earnings estimate revision activity for mid caps remain
positive as well. This leads us to believe that mid cap returns may be strong in
the short run and long run.
The Fund continues to strictly control risk relative to the S&P Midcap 400
Index.
<TABLE>
<CAPTION>
Portfolio Sector Breakdown:
% of
Common % of S&P Over/(Under)
Sector Stocks Midcap 400 Weighting
<S> <C> <C> <C>
Basic Materials 12.0% 5.8% 6.2%
Commercial Services 7.7% 5.5% 2.2%
Consumer Discretionary 18.7% 12.7% 6.0%
Consumer Non-Discretionary 5.9% 3.3% 2.6%
Energy 1.7% 6.4% (4.7)%
Finance 9.7% 15.1% (5.4)%
Healthcare 12.4% 10.8% 1.6%
Manufacturing 8.0% 10.9% (2.9)%
Technology 8.1% 17.7% (9.6)%
Utilities 15.8% 11.8% 4.0%
</TABLE>
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
Century Telephone Enterprises 4.5%
Micro Warehouse, Inc. 3.0%
Georgia-Pacific Corp. 2.7%
IBP, Inc. 2.5%
America Online, Inc. 2.4%
Cordant Technologies, Inc. 2.4%
AmSouth Bancorporation 2.3%
Millennium Chemicals, Inc. 2.3%
Southdown, Inc. 2.2%
Allegheny Energy, Inc. 2.2%
</TABLE>
10 See Definition of Terms.
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Small Company Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Small Company Fund (Class I) Russell 2000 Index
<S> <C> <C>
Jan-94 10000 10000
10070 9735
9650 9356
10320 10006
Dec-94 10130 9819
11162 10271
12525 11234
14138 12343
Dec-95 15010 12611
16227 13254
16459 13917
16448 13965
Oct-96 16228 13749
17415 14986
16710 13971
20924 16944
Oct-97 22362 17784
22554 17694
25924 19893
23132 17833
Oct-98 20691 15674
</TABLE>
[END DESCRIPTION OF LINE CHART]
===============================================
<TABLE>
<CAPTION>
- -------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- -------------------------------------------------
Inception Date 1 Year Inception*
- -------------------------------------------------
<S> <C> <C> <C>
Class I 01/04/94 -7.47% 16.28%
- -------------------------------------------------
Class A: 04/15/94
POP (1) -13.07% 14.12%
NAV (2) -7.77% 15.53%
- -------------------------------------------------
Class C: 06/30/98
-9.35% 15.11%
w/CDSC (3)
NAV -8.43% 15.11%
- -------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
Aetna Small Company Fund
How did the Fund perform during the period?
The Aetna Small Company Fund Class I shares generated a -7.47% total return, net
of fund expenses, for the year ended October 31, 1998. The benchmark, Russell
2000 Index(d), returned -11.84% for the same period. Among small blend funds
tracked by Morningstar, Inc., Class I shares' performance over the year ended
October 31, 1998 ranked in the top 17% (out of 173 funds) and Class A shares'
performance over the year ended October 31, 1998 placed it in the top 18% (out
of 173 funds).
What economic or financial market conditions impacted the Fund?
For fiscal 1998 the financial markets were characterized by increasing
volatility as investors concerns centered around an international currency
crisis, lower commodity prices due to dampened worldwide demand, concerns over
credit quality, a decline in consumer confidence and reduced visibility for
corporate earnings.
See Definition of Terms. 11
<PAGE>
What investments influenced the Fund's performance over the past twelve months?
The Fund's performance was helped by strong results in capital goods,
telephones, retailing and electric utilities. We received particularly strong
performance from our technology holdings. Six of our holdings (Mapics, Emulex,
Cree Research, Sterling Software, Inso and Qlogic) all rose at least 50% or more
during the period.
Performance was hurt by holdings in raw materials, transportation and energy.
Performance in consumer cyclicals were mixed although one holding, Jones
Intercable rose 103% in the fiscal year.
What is your outlook going forward?
Looking forward we see a challenging market environment. We expect concerns over
profit growth for 1999 and international markets to persist. We continue to
believe that our strategy of focusing on those companies showing the strongest
business momentum and selling at reasonable prices will fare well.
<TABLE>
<CAPTION>
Portfolio Sector Breakdown:
% of
Common % of Russell Over/(Under)
Sector Stocks 2000 Weighting
<S> <C> <C> <C>
Basic Materials 7.8% 5.2% 2.6%
Commercial Services 12.9% 9.6% 3.3%
Consumer Discretionary 16.9% 16.5% 0.4%
Consumer Non-Discretionary 4.2% 2.8% 1.4%
Energy 4.5% 5.4% (0.9)%
Finance 8.8% 17.6% (8.8)%
Healthcare 10.6% 9.8% 0.8%
Manufacturing 15.0% 11.3% 3.7%
Technology 9.5% 16.9% (7.4)%
Utilities 9.8% 4.9% 4.9%
</TABLE>
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
Calpine Corp. 2.9%
Proxim, Inc. 2.2%
McDermott International, Inc. 1.8%
Nielson Media Research 1.8%
ICU Medical, Inc. 1.7%
Harbor Florida Bancshares, Inc. 1.7%
Alpine Group, Inc. 1.6%
Emulex Corp. 1.6%
Avondale Industries, Inc. 1.6%
Shared Medical Systems 1.6%
</TABLE>
12 See Definition of Terms.
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Value Opportunity Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Value Opportunity Fund (Class I) S&P 500 Index
<S> <C> <C>
Feb-98 10000 10000
11330 11384
10560 11518
Oct-98 9990 11339
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- -------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- -------------------------------------------
Inception Date
- -------------------------------------------
<S> <C> <C>
Class I 02/02/98 -0.10%
- -------------------------------------------
Class A: 02/02/98
POP (1) -6.03%
NAV (2) -0.30%
- -------------------------------------------
Class C: 06/30/98
w/CDSC (3) -1.89%
NAV -0.90%
- -------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For the
period prior to the inception of Class C, the performance is calculated by using
the performance of Class I, adjusted for fees and expenses. Class I, Class A and
Class C shares participate in the same portfolio of securities.
Aetna Value Opportunity Fund
How did the Fund perform during the period?
The Aetna Value Opportunity Fund Class I shares generated a -0.10% total return,
net of fund expenses, for the period ended October 31, 1998. The benchmark,
Standard & Poor's (S&P) 500 Index(a), returned 13.39% for the same period.
What economic or financial market conditions impacted the Fund?
Since its inception on February 2, 1998, the main factor impacting the Fund was
global financial market turmoil and the peaking of most domestic stock market
indices in mid July. What apparently started as a normal valuation correction
turned into a serious market rout as investor confidence was shaken by the
President's legal problems, financial chaos in emerging markets, Japan's deep
economic recession and the near failure of a giant hedge fund, Long Term Capital
Management LP.
Furthermore, stock market leadership during this period remained very narrowly
based with the largest growth issues, such as Microsoft and Dell Computer,
essentially accounting for all the market's gain. The average stock fell more
than 35% from its 52 week high with small cap issues down even more. The
following table shows the extent and variability of the stock market's gain this
summer through the October 8/th/ low:
See Definition of Terms. 13
<PAGE>
<TABLE>
<CAPTION>
Date of High Low % Performance
Index High Close Close Correction 12/31/97 to 10/08/98
<S> <C> <C> <C> <C> <C>
S&P 500 7/17/98 1,187 959 (19.2%) (1.2%)
NASDAQ 7/20/98 2,014 1,419 (29.5%) (9.9%)
Russell 2000 4/21/98 491 310 (36.9%) (28.9%)
</TABLE>
What investments influenced the Fund's performance over the past nine months?
In the extremely uncertain economic environment, traditional value-oriented
issues in the capital goods and manufacturing sectors performed poorly with
significant price declines. The weakest performance emanated from holdings in
Boeing, Deere and Eaton. An overweighting in the financial sector, particularly
in the brokerage and banking groups, also impacted performance negatively as
market volatility and actual financial stress increased with the near collapse
of Long Term Capital Management. Since the Fund had few large, richly valued
growth stocks in the portfolio, their continued market dominance allowed for few
real winners during this period. The best performance from security selection
came from positions in IBM, Compaq Computer and Amgen.
During the market's distress in October, we took the opportunity to purchase
several quality growth issues and increase weighting in the technology and
healthcare groups at very reasonable prices. The ability to purchase above
average growth at below average prices is consistent with the investment
philosophy of the Value Opportunity Fund. These purchases were funded by a
reduction in weighting in the energy sector.
What is your outlook going forward?
Despite the exaggerated turmoil over the summer and fall, the stock market now
has a more balanced tone. Market breadth has improved, well supported by the
Federal Reserve's easing of interest rate policy. While there are significant
issues still to play out concerning economic growth in Japan and the emerging
markets as well as their impact on corporate earnings, value stocks typically do
well when the Federal Reserve is lowering interest rates. The valuation
disparity between value and growth stocks therefore should continue to diminish.
The Value Opportunity Fund's investment strategy is focused on capital
preservation by utilizing strict pricing disciplines to attempt to purchase
quality companies at reasonable prices. We believe superior long term investment
performance is best achieved by owning companies whose perceived problems have
been excessively discounted and where a catalyst for positive change exists. The
fundamental difference between cheap and undervalued stocks is that, without
positive change, cheap stocks tend to remain cheap.
<TABLE>
<CAPTION>
Portfolio Sector Breakdown:
% of
Common % of S&P Over/(Under)
Sector Stocks 500 Weighting
<S> <C> <C> <C>
Basic Materials 6.0% 3.5% 2.5%
Commercial Services 3.6% 1.9% 1.7%
Consumer Discretionary 7.5% 11.3% (3.8)%
Consumer Non-Discretionary 4.0% 10.2% (6.2)%
Energy 4.5% 7.8% (3.3)%
Finance 22.4% 16.1% 6.3%
Healthcare 10.9% 12.7% (1.8)%
Manufacturing 16.4% 10.4% 6.0%
Technology 19.8% 15.7% 4.1%
Utilities 4.9% 10.4% (5.5)%
</TABLE>
14 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
Federal Home Loan Mortgage Corp. 4.4%
International Business Machines Corp. 4.3%
Bristol-Myers Squibb Co. 4.3%
American Express Co. 4.3%
Monsanto Co. 3.5%
Sterling Commerce, Inc. 3.4%
McDermott International, Inc. 3.4%
General Electric Co. 3.4%
Kansas City Southern Industries, Inc. 3.4%
Compaq Computer Corp. 3.1%
</TABLE>
See Definition of Terms. 15
<PAGE>
Definition of Terms
(1) Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase.
(2) Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
(3) Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption and assumes redemption at the end of the period.
(a) The Standard & Poor's (S&P) 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks that assumes the reinvestment of all dividends, and is
considered to be representative of the stock market in general.
(b) The Morgan Stanley Capital International-Europe, Australia and Far East
(MSCI EAFE) Index is a market value-weighted average of the performance of more
than 900 securities listed on the stock exchanges of countries in Europe,
Australia and the Far East.
(c) The Standard & Poor's (S&P) Midcap 400 Index is a value-weighted, unmanaged
index of 400 common stocks that assumes the reinvestment of all dividends, and
is considered to be representative of the stock market in general.
(d) The Russell 2000 Index consists of the smallest 2000 companies in the
Russell 3000 Index and represents approximately 11% of the Russell 3000 total
market capitalization. The 3000 largest U.S. companies by market capitalization,
representing nearly 98% of the U.S. equity market, comprise the Russell 3000
Index. Both indices assume reinvestment of all dividends and are unmanaged.
The opinions expressed reflect those of the portfolio manager only through
October 31, 1998. The manager's opinions are subject to change at any time based
on market and other conditions. The composition, industries and holdings of the
portfolio are subject to change.
16
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
Growth
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- -------------
<S> <C> <C>
COMMON STOCKS (88.3%)
Banks and Thrifts (1.1%)
Firststar Corp. ...................... 26,700 $ 1,515,225
-------------
Biotech and Medical Products (11.1%)
Amgen, Inc. + ........................ 38,400 3,016,800
Becton, Dickinson & Co. ............. 75,600 3,184,650
Biomet, Inc. ......................... 68,800 2,334,900
Sofamor Danek Group, Inc. + .......... 44,000 4,471,500
Watson Pharmaceuticals, Inc. + ....... 49,300 2,742,312
---------------
15,750,162
---------------
Commercial Services (2.6%)
Omnicom Group, Inc. .................. 73,200 3,618,825
-------------
Computers (2.0%)
Computer Sciences Corp. .............. 23,400 1,234,350
Dell Computer Corp. + ................ 25,400 1,666,875
---------------
2,901,225
---------------
Consumer Finance (3.6%)
Associates First Capital Corp. ....... 22,100 1,558,050
Federal National Mortgage Association 50,000 3,540,625
---------------
5,098,675
---------------
Consumer Products (1.8%)
Clorox Co. ........................... 23,800 2,600,150
-------------
Data and Imaging Services (9.8%)
America Online, Inc. ................. 18,600 2,363,363
Cisco Systems, Inc. + ................ 28,000 1,764,000
Compuware Corp. + .................... 84,600 4,584,262
EMC/MASS Corp. + ..................... 79,800 5,137,125
---------------
13,848,750
---------------
Discretionary Retail (6.4%)
Family Dollar Stores, Inc. ........... 187,300 3,394,812
TJX Companies, Inc. .................. 65,600 1,242,300
Wal-Mart Stores, Inc. ................ 64,300 4,436,700
---------------
9,073,812
---------------
Drugs (7.9%)
Pfizer, Inc. ......................... 16,400 1,759,925
Schering Plough ...................... 51,300 5,277,487
Warner Lambert Co. ................... 54,100 4,240,088
---------------
11,277,500
---------------
Electrical Machinery and Instruments (2.3%)
Lexmark International Group, Inc. + .. 47,000 3,287,063
-------------
Electronic Media (2.2%)
CBS Corp. ............................ 113,400 3,168,113
-------------
Food and Drug Retail (2.5%)
Safeway, Inc. + ...................... 72,800 3,480,750
-------------
Gas Utilities (4.7%)
El Paso Energy Corp. ................. 80,800 2,863,350
Enron Corp. .......................... 72,900 3,845,475
---------------
6,708,825
---------------
Health Services (4.9%)
Allegiance Corp. ..................... 36,000 1,338,750
HBO & Co. ............................ 114,300 3,000,375
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Health Services (continued)
McKesson Corp. ....................... 33,600 $ 2,587,200
-------------
6,926,325
-------------
Housing and Furnishings (1.4%)
Maytag Corp. ......................... 38,800 1,918,175
-------------
Industrial Services (3.2%)
Allied Waste Industries, Inc. + ...... 206,900 4,474,212
-------------
Insurance (2.1%)
SunAmerica, Inc. ..................... 42,000 2,961,000
-------------
Investment Services (1.0%)
Star Banc Corp. ...................... 18,800 1,421,750
-------------
Major Telecommunications (6.4%)
MCI Worldcom, Inc. + ................. 97,100 5,364,775
SBC Communications, Inc. ............. 80,000 3,705,000
-------------
9,069,775
-------------
Oil Services (1.4%)
Halliburton Co. ...................... 55,800 2,005,313
-------------
Other Telecommunications (6.2%)
Century Telephone Enterprises ........ 74,600 4,238,212
Nokia Corp., ADR ..................... 13,500 1,256,344
Tellabs, Inc. + ...................... 61,200 3,366,000
-------------
8,860,556
-------------
Producer Goods (3.7%)
Tyco International Ltd. .............. 85,600 5,301,850
-------------
Total Common Stocks 125,268,031
(Cost $102,975,566) -------------
<CAPTION>
Principal
Amount
--------------
<S> <C> <C>
Short-Term Investments (16.9%)
Federal Home Loan Mortgage Corp.,
5.42%, 11/02/98 ..................... $ 23,023,000 23,023,000
U.S. Treasury Bill, 3.98%, 02/18/99 .. 200,000 197,492
U.S. Treasury Bill, 4.50%, 02/18/99 @. 100,000 98,746
U.S. Treasury Bill, 4.98%, 02/18/99 .. 700,000 691,222
---------------
Total Short-Term Investments 24,010,460
(Cost $24,008,814)
---------------
Total Investments
(Cost $126,984,380)(a) 149,278,491
Other Assets Less Liabilities (7,379,401)
Total Net Assets $141,899,090
===============
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$127,230,414. Unrealized gains and losses, based on identified tax cost at
October 31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................. $22,266,898
Unrealized losses............................ (218,821)
-----------
Net unrealized gain......................... $22,048,077
===========
</TABLE>
See Notes to Financial Statements. 17
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
Growth (continued)
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments (continued)
Information concerning open futures contracts at October 31, 1998 is shown
below:
<TABLE>
<CAPTION>
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
---------- ----------- ----------- --------------
Long Contracts
- ------------------------
<S> <C> <C> <C> <C>
S & P 500 Index Futures 25 $6,741,544 Dec 98 $ 165,731
========== ============
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at October 31, 1998.
Category percentages are based on net assets.
18 See Notes to Financial Statements.
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
International
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
COMMON STOCKS (92.4%)
Australia (4.0%)
Mayne Nickless Ltd.(Commercial Services)
+...................................... 99,764 $ 458,137
Mayne Nickless Ltd. Rights
(Commercial Services) ................. 156,320 69,268
Telstra Corp. Ltd.(Other
Telecommunications) + ................. 204,500 808,038
Westpac Banking Corp. Ltd.(Banks and
Thrifts)............................... 108,626 657,675
------------
Total Australia 1,993,118
------------
Belgium (0.6%)
Delhaize-le Lion SA(Food and Beverage) . 3,280 280,375
------------
Canada (1.4%)
BCE Inc.(Major Telecommunications) ..... 6,000 202,844
Canadian National Railway Co.
(Surface Transport) ................... 10,000 503,112
------------
Total Canada 705,956
------------
Denmark (2.7%)
Den Danske Bank(Investment Services) ... 4,800 651,832
Tele Danmark A/S(Major
Telecommunications).................... 6,400 697,321
------------
Total Denmark 1,349,153
------------
Finland (3.5%)
Helsingin Puhelin Oyj
(Other Telecommunications) ............ 5,600 306,980
Nokia Corp., ADR
(Other Telecommunications)............. 9,200 856,175
Sampo Insurance Co.(Insurance) ......... 6,300 196,308
Tamro Oyj(Health Services) ............. 72,900 390,652
------------
Total Finland 1,750,115
------------
France (10.7%)
Accor SA(Consumer Services) ............ 2,700 567,015
Credit Commercial de France
(Banks and Thrifts) + ................. 6,700 470,459
Elf Aquitaine SA(Oil) .................. 4,900 566,979
Etablissements Economiques du Casino
Guichard-Perrachon SA(Commercial
Services) + ........................... 2,950 293,567
Gemini Sogeti SA(Insurance) ............ 3,850 578,505
Groupe Danone(Food and Beverage) ....... 2,330 615,938
Lafarge SA
(Forest Products and Building
Materials)............................. 7,100 725,715
Renault SA(Automotive) ................. 9,750 416,704
Scor(Insurance) ........................ 4,800 275,199
Societe Generale(Banks and Thrifts) .... 2,430 321,405
Vivendi(Utilities - Water) ............. 2,160 493,259
------------
Total France 5,324,745
------------
Germany (7.9%)
Bayericshe HypoVereinsbank(Chemicals) + 7,275 577,625
BHF-Bank AG(Banks and Thrifts) ......... 11,800 454,202
Daimler-Benz AG(Automotive) ............ 4,300 333,625
Deutsche Lufthansa AG(Air Transport) + . 13,850 301,051
Deutsche Pfandbrief & Hypothekenbank
AG(Banks and Thrifts) ................. 6,700 529,948
Douglas Holding AG(Discretionary Retail) 4,300 246,649
<CAPTION>
Number of Market
Shares Value
------------- ------------
<S> <C> <C>
Germany (continued)
Gehe AG(Health Services) ............... 10,500 $ 789,307
Mannesmann AG(Producer Goods) .......... 3,550 349,384
Merck KGaA(Commercial Services) ........ 7,900 324,357
------------
Total Germany 3,906,148
------------
Ireland (3.3%)
Allied Irish Banks(Banks and Thrifts) .. 46,812 676,095
CRH Plc
(Forest Products and Building
Materials)............................. 41,000 600,624
Waterford Wedgewood
(Housing and Furnishings) ............. 428,082 385,916
------------
Total Ireland 1,662,635
------------
Italy (6.4%)
Arnoldo Mondadori Editor(Print Media) .. 53,200 589,397
Banca Commerciale Italiana(Banks and
Thrifts)............................... 95,000 587,426
Credito Italiano(Banks and Thrifts) + .. 128,800 691,860
Eni Spa(Oil) ........................... 58,500 348,161
Istituto Nazionale delle Assicurazioni
(Insurance) + ......................... 198,600 547,340
Telecom Italia SpA(Commercial Services) 58,600 423,873
------------
Total Italy 3,188,057
------------
Japan (10.6%)
Fuji Photo Film(Chemicals) ............. 21,000 769,501
Fujikura Ltd.(Semiconductors and
Electronics)........................... 68,000 315,112
Hitachi Ltd.(Semiconductors and
Electronics)........................... 55,000 279,885
Kao Corp.(Consumer Products) ........... 32,800 664,275
Mizuno Corp.(Consumer Products) ........ 80,000 250,579
Nintendo Co. Ltd.
(Semiconductors and Electronics) ...... 5,300 448,451
NTT Mobile Communication Network,
Inc.(Other Telecommunications) ........ 9 325,152
Santen Pharmaceutical Co. Ltd.(Drugs) .. 42,000 720,484
Seino Transportation Co. Ltd.(Surface
Transport)............................. 49,000 285,935
Shimachu Co., Ltd.(Discretionary Retail) 5,500 92,980
Shohkoh Fund(Banks and Thrifts) ........ 1,300 395,478
Sony Corp.(Consumer Products) .......... 5,200 330,215
Takefuji Corp.(Banks and Thrifts) ...... 7,600 405,012
------------
Total Japan 5,283,059
------------
Mexico (0.8%)
Grupo Financiero Banamex Accival, SA de
CV (Banacci)(Banks and Thrifts) + ..... 150,200 155,794
Panamerican Beverages, Inc.(Food and
Beverage).............................. 11,000 222,750
------------
Total Mexico 378,544
------------
Netherlands (6.0%)
Akzo Nobel(Chemicals) .................. 7,100 275,987
Fortis Amev NV(Insurance) .............. 3,100 201,333
Hunter Douglas NV(Consumer Services) ... 11,394 408,737
ING Groep NV(Banks and Thrifts) ........ 10,169 492,198
Koninklijke Ahold NV(Commercial
Services).............................. 16,311 542,332
Laurus Scrips(Food and Beverage) ....... 45,500 114,499
Philips Electronic Nv(Heavy Machinery) + 5,700 312,788
</TABLE>
See Notes to Portfolio of Investments. 19
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
International
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Netherlands (continued)
Vendex N.V.(Discretionary Retail) ...... 6,500 $ 165,310
VNU-Verenigde Nederlandes
Uitgeversbedrijven Verenigd Bezit(Print
Media)................................. 13,000 449,644
------------
Total Netherlands 2,962,828
------------
New Zealand (0.7%)
Fernz Corp. Ltd.(Chemicals) ............ 122,360 356,276
------------
Norway (3.1%)
Det Sondenfjelds-Norske
Dampskibsselskab(Oil) + ............... 21,100 299,090
Merkantildata ASA(Data and Imaging
Services).............................. 42,400 425,599
Ocean Rig ASA(Oil) + ................... 1,319,600 590,689
Saga Petroleum ASA(Oil) ................ 19,000 239,684
------------
Total Norway 1,555,062
------------
Spain (2.2%)
Iberdrola SA(Electric Utilities) + ..... 36,200 583,581
Telefonica de Espana
(Major Telecommunications) ............ 11,500 518,282
------------
Total Spain 1,101,863
------------
Sweden (3.2%)
Industrial & Financial Systems(Data and
Imaging Services) + ................... 45,000 425,989
Securitas AB(Consumer Services) ........ 54,400 668,074
Svenska Handelsbanken(Investment
Services) + ........................... 12,000 504,279
------------
Total Sweden 1,598,342
------------
Switzerland (7.3%)
Adecco SA(Surface Transport) ........... 1,070 426,688
Fischer (Georg) AG(Auto Parts and
Hardware).............................. 1,050 362,109
Nestle SA Registered Shares(Food and
Beverage).............................. 275 584,869
Novartis AG Registered Shares
(Health Services) + ................... 330 594,616
Roche Holdings(Biotech and Medical
Products).............................. 25 291,696
Swiss Common(Other Telecommunications) + 1,430 484,710
Swiss Re(Insurance) .................... 227 505,581
UBS AG(Banks and Thrifts) .............. 1,450 397,796
------------
Total Switzerland 3,648,065
------------
United Kingdom (18.0%)
Bank of Scotland(Banks and Thrifts) + .. 48,685 525,871
Berisford Plc(Industrial Services) ..... 115,900 304,724
British Aerospace Plc
(Conglomerate and Aerospace) .......... 64,800 485,300
British Petroleum Co. Plc(Oil Services) 13,500 202,227
British Telecom Plc
(Major Telecommunications) ............ 37,923 490,280
Cable & Wireless Plc(Other
Telecommunications) + ................. 35,800 401,682
Dixons Group Plc(Discretionary Retail) . 47,300 505,366
Glaxo Wellcome Plc(Drugs) .............. 12,717 395,263
Granada Group Plc(Consumer Services) + . 43,817 647,445
Kingfisher Plc(Discretionary Retail) ... 57,079 504,510
National Westminster Bank Plc
(Banks and Thrifts) ................... 31,500 522,240
<CAPTION>
Number of Market
Shares Value
------------- ---------------
<S> <C> <C>
United Kingdom (continued)
Pearson Plc(Print Media) ............... 27,300 $ 476,381
Peninsular & Oriental Steam Navigation
Co.(Surface Transport) + .............. 50,756 583,090
Railtrack Group(Surface Transport) ..... 15,425 415,422
Tomkins Plc(Consumer Services) ......... 109,700 507,956
Unilever Plc(Consumer Products) ........ 49,200 494,357
Vodafone Group Plc(Consumer Products) .. 49,702 665,034
Whitbread Plc(Consumer Services) ....... 22,800 308,129
Williams Holdings(Forest Products) ..... 84,400 526,846
------------
Total United Kingdom 8,962,123
------------
Total Common Stocks (Cost $41,003,800) 46,006,464
------------
PREFERRED STOCKS (2.1%)
Germany (2.1%)
Henkel KGAA(Chemicals) ................. 5,050 431,455
Hugo Boss AG(Textiles and Apparel) + ... 200 311,557
SAP AG(Data and Imaging Services) + .... 550 267,993
------------
Total Preferred Stocks (Cost $865,840) 1,011,005
------------
<CAPTION>
Principal
Amount
-------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.9%)
Federal Home Loan Mortgage Corp.,
Zero Coupon, 11/02/98 ................. 280,000 $ 279,958
U.S. Treasury, Zero Coupon, 02/18/99 ... 100,000 98,749
Wood Saint Funding Corp.,
Zero Coupon, 11/02/98 ................. 589,000 588,907
------------
Total Short-Term Investments 967,614
(Cost $967,440) ------------
Total Investments (Cost $42,837,080)(a) 47,985,083
Other Assets Less Liabilities 1,804,989
------------
Total Net Assets $49,790,072
============
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$43,682,188. Unrealized gains and losses, based on identified tax cost at
October 31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains ............................ $ 6,607,184
------------
Unrealized losses ........................... (2,304,289)
------------
Net unrealized gain .................... $ 4,302,895
============
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
20 See Notes to Financial Statements.
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
Mid Cap
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
COMMON STOCKS (99.3%)
Air Transport (0.8%)
UAL Corp. + ............................. 600 $ 38,963
-----------
Automotive (1.2%)
Meritor Automotive, Inc. ................ 3,100 57,931
-----------
Banks and Thrifts (8.2%)
AmSouth Bancorporation .................. 2,700 108,169
Dime Bancorp, Inc. ...................... 3,600 85,725
North Fork Bancorp, Inc. ................ 2,200 43,725
Trustmark Corp. ......................... 2,900 55,644
UnionBanCal Corp. ....................... 1,000 92,500
-----------
385,763
-----------
Biotech and Medical Products (9.9%)
Agouron Pharmaceuticals + ............... 1,300 50,375
Arterial Vascular Engineering, Inc. + ... 2,400 73,800
Biogen, Inc. + .......................... 400 27,800
Datascope Corp. + ....................... 4,000 90,250
Immunex Corp. + ......................... 500 34,531
Mylan Laboratories, Inc. ................ 2,100 72,319
Steris Corp. + .......................... 1,400 32,200
Watson Pharmaceuticals, Inc. + .......... 1,500 83,437
-----------
464,712
-----------
Commercial Services (2.6%)
ACNielsen Corp. + ....................... 2,200 58,850
U.S. Foodservice + ...................... 1,300 61,750
-----------
120,600
-----------
Conglomerate and Aerospace (2.9%)
Cordant Technologies, Inc. .............. 2,800 113,925
Gulfstream Aerospace Corp. + ............ 500 22,125
-----------
136,050
-----------
Consumer Products (0.9%)
Blyth Industries, Inc. + ................ 1,600 44,200
-----------
Consumer Services (4.7%)
Bob Evans Farms, Inc. ................... 3,900 76,781
Brinker International, Inc. + ........... 2,000 48,375
Premier Parks Inc. + ................... 1,400 31,063
Promus Hotel Corp. + .................... 2,100 66,937
-----------
223,156
-----------
Data and Imaging Services (6.6%)
America Online, Inc. .................... 900 114,356
Compuware Corp. + ....................... 1,400 75,862
Keane, Inc. + ........................... 1,500 49,875
Network Associates, Inc. + .............. 500 21,250
Sterling Software, Inc. + ............... 1,800 47,138
-----------
308,481
-----------
Discretionary Retail (7.8%)
Abercrombie & Fitch Co. + ............... 2,000 79,375
Best Buy Co., Inc. + .................... 900 43,200
Fingerhut Companies, Inc. ............... 2,100 17,718
Micro Warehouse, Inc. + ................. 6,400 139,600
Office Depot, Inc. + .................... 3,400 85,000
<CAPTION>
Number of Market
Shares Value
------------- -------------
<S> <C> <C>
Discretionary Retail (continued)
Payless ShoeSource, Inc. + ............. 100 $ 4,694
-----------
369,587
-----------
Drugs (0.5%)
Rexall Sundown, Inc. + .................. 1,200 21,525
-----------
Electric Utilities (9.1%)
Allegheny Energy, Inc. .................. 3,300 101,475
CalEnergy Co., Inc. + ................... 1,900 52,013
Energy East Corp. ....................... 1,700 83,087
Florida Progress Corp. .................. 1,200 50,325
Kansas City Power & Light Co. ........... 1,500 43,219
OGE Energy Corp. ........................ 3,600 95,625
-----------
425,744
-----------
Electronic Media (1.2%)
Pixar, Inc. + ........................... 1,100 52,250
USA Networks, Inc. + ................... 100 2,250
-----------
54,500
-----------
Food and Beverage (4.9%)
Aurora Foods, Inc. + .................... 3,900 68,250
IBP, Inc. ............................... 4,300 116,369
Interstate Bakeries Corp. ............... 1,900 47,619
-----------
232,238
-----------
Food and Drug Retail (1.6%)
Safeway, Inc. + ......................... 1,600 76,500
-----------
Forest Products and Building Materials (7.0%)
Georgia-Pacific Corp. ................... 5,700 126,469
Lafarge Corp. ........................... 2,900 97,694
Southdown, Inc. ......................... 1,900 103,431
-----------
327,594
-----------
Health Services (2.0%)
PacifiCare Health Systems, Inc. + ....... 1,200 94,500
-----------
Industrial Services (2.2%)
Allied Waste Industries, Inc. + ......... 1,500 32,438
Safety-Kleen Corp. + .................... 22,800 69,825
-----------
102,263
-----------
Insurance (1.5%)
Old Republic International Corp. ........ 3,600 68,400
-----------
Major Telecommunications (0.6%)
Alltel Corp. ............................ 592 27,713
-----------
Oil (1.7%)
Tosco Corp. ............................. 2,800 78,575
-----------
Other Telecommunications (6.0%)
Century Telephone Enterprises ........... 3,750 213,047
Cincinnati Bell Inc. .................... 2,600 67,437
-----------
280,484
-----------
Print Media (1.7%)
Media General, Inc. + ................... 1,800 80,550
-----------
Producer Goods (3.8%)
Kaydon Corp. ............................ 200 7,025
</TABLE>
See Notes to Portfolio of Investments. 21
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
Mid Cap (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Producer Goods (continued)
Tecumseh Products Co. ................... 1,400 $ 72,800
Trinity Industries, Inc. ................ 2,700 100,237
-----------
180,062
-----------
Semiconductors and Electronics (2.7%)
ADC Telecommunications, Inc. + .......... 2,400 55,200
Altera Corp. + .......................... 1,100 45,787
Cirrus Logic, Inc. + .................... 2,600 25,269
-----------
126,256
-----------
Specialty Chemicals (4.6%)
Albemarle Corp. ......................... 400 7,625
International Specialty Products, Inc. + 4,700 63,156
Millennium Chemicals, Inc. + ............ 4,400 107,250
Schulman (A.), Inc. ..................... 2,000 39,750
-----------
217,781
-----------
Steel (0.3%)
Cleveland-Cliffs, Inc. .................. 400 15,875
-----------
Surface Transport (2.3%)
Modis Professional Services + ........... 600 10,575
Tidewater, Inc. ......................... 3,400 96,263
-----------
106,838
-----------
Total Common Stocks (Cost $4,678,533) 4,666,841
-----------
Total Investments (Cost $4,678,533)(a) 4,666,841
Other Assets Less Liabilities 33,982
-----------
Total Net Assets $4,700,823
===========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$4,714,400. Unrealized gains and losses, based on identified tax cost at October
31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................... $ 335,052
Unrealized losses.............................. (382,611)
---------
Net unrealized loss........................... $ (47,559)
=========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
22 See Notes to Financial Statements.
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
Small Company
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
COMMON STOCKS (76.2%)
Air Transport (1.0%)
Airborne Freight Corp. ................ 17,600 $ 412,500
------------
Automotive (1.9%)
Arvin Industries, Inc. ................ 12,500 495,312
Borg-Warner Automotive, Inc. .......... 5,700 267,188
------------
762,500
------------
Banks and Thrifts (5.2%)
Cullen/Frost Bankers, Inc. ............ 9,000 479,250
Emulex Corp. + ........................ 33,300 649,350
Riggs National Corp. .................. 21,000 506,625
Shiva Corp. + ......................... 41,500 234,734
Timberland Bancorp, Inc. .............. 14,700 196,613
------------
2,066,572
------------
Biotech and Medical Products (4.2%)
CNS, Inc. + ........................... 83,500 349,656
CONMED Corp. + ........................ 10,500 278,250
i-STAT Corp. + ........................ 45,900 352,856
ICU Medical, Inc. + ................... 43,800 695,325
------------
1,676,087
------------
Chemicals (1.0%)
Geon Co. (The) ........................ 17,800 386,038
------------
Commercial Services (3.8%)
Nielsen Media Research ................ 50,133 711,262
OroAmerica, Inc. + .................... 37,100 329,262
Telespectrum Worldwide, Inc. + ........ 46,100 481,169
------------
1,521,693
------------
Computers (1.5%)
Cree Research, Inc. + ................. 10,900 275,225
Saville Systems PLC + ................. 18,000 303,750
------------
578,975
------------
Consumer Finance (1.5%)
Medallion Financial Corp. ............. 34,100 605,275
------------
Consumer Products (2.0%)
Church & Dwight, Inc. ................. 13,600 417,350
Herbalife International, Inc. ......... 14,500 130,500
Suprema Specialties, Inc. + ........... 65,300 261,200
------------
809,050
------------
Consumer Services (2.3%)
GP Strategies Corp. + ................. 28,200 326,063
Ruby Tuesday, Inc. .................... 34,000 573,750
------------
899,813
------------
Consumer Specialties (0.4%)
Russ Berrie & Co., Inc. ............... 8,800 173,800
------------
Data and Imaging Services (4.3%)
JDA Software Group, Inc. + ........... 23,400 222,300
Mapics, Inc. + ........................ 33,700 636,087
Proxim, Inc. + ....................... 57,700 861,894
------------
1,720,281
------------
Discretionary Retail (0.7%)
Marks Brothers Jewlers, Inc. + ........ 20,900 271,700
------------
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Drugs (1.3%)
Dura Pharmaceuticals, Inc. + .......... 43,100 $ 519,894
------------
Electric Utilities (4.7%)
Calpine Corp. + ....................... 51,300 1,141,425
Montana Power Co. ..................... 8,300 359,494
Philadelphia Suburban Corp. ........... 14,500 356,156
------------
1,857,075
------------
Electronic Media (6.2%)
Ackerley Group, Inc. .................. 27,300 551,119
Clearview Cinema Group, Inc. + ........ 8,900 211,931
Jones Intercable, Inc. + .............. 20,500 575,281
Paxson Communications Corp. + ......... 60,300 505,012
Scandinavian Broadcasting System SA + . 9,600 220,800
Young Broadcasting Corp. + ............ 13,000 410,313
------------
2,474,456
------------
Food and Beverage (1.3%)
Hain Food Group, Inc. (The) + ......... 12,900 259,612
Hansen Natural Corp. + ................ 44,700 236,072
------------
495,684
------------
Food and Drug Retail (1.4%)
Ruddick Corp. ......................... 29,000 563,688
------------
Forest Products and Building Materials (0.9%)
Centex Construction Products, Inc. .... 11,000 369,875
------------
Gas Utilities (1.4%)
Kaneb Services, Inc. + ................ 117,500 536,094
------------
Health Services (2.8%)
Renex Corp. + ......................... 51,800 233,100
Shared Medical Systems Corp. .......... 12,800 638,400
Sierra Health Services, Inc. + ........ 10,100 235,456
------------
1,106,956
------------
Heavy Machinery (1.1%)
Astec Industries, Inc. + ............. 8,600 440,750
------------
Housing and Furnishings (1.3%)
Webb (Del E) Corp. .................... 21,700 509,950
------------
Industrial Services (1.1%)
Park-Ohio Holdings Corp. + ............ 28,300 415,656
------------
Investment Services (2.1%)
Greater Bay Bancorp ................... 5,700 182,400
Harbor Florida Bancshares, Inc. ....... 60,900 666,094
------------
848,494
------------
Oil (0.5%)
Basin Exploration, Inc. + ............. 12,900 206,400
------------
Oil Services (3.4%)
Cliffs Drilling Co. + ................. 8,300 189,863
McDermott International, Inc. ......... 24,600 721,087
Seitel, Inc. + ........................ 33,300 441,225
------------
1,352,175
------------
Other Telecommunications (4.0%)
Associated Group, Inc. + .............. 13,100 442,125
Cilcorp, Inc. ......................... 5,300 272,950
ICG Communications, Inc. + ............ 17,200 355,825
International Fibercom, Inc. + ........ 42,400 323,300
</TABLE>
See Notes to Portfolio of Investments. 23
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
Small Company (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Other Telecommunications (continued)
Kushner-Locke Co. (The) + ............. 43,100 $ 92,934
Price Communications Corp. + .......... 13,450 110,122
------------
1,597,256
------------
Producer Goods (6.4%)
Alpine Group, Inc. (The) + ............ 38,800 654,750
Avondale Industries, Inc. + ........... 24,800 646,350
Dal-Tile International Inc. + ......... 59,000 527,312
Eagle USA Airfreight, Inc. + .......... 14,200 181,938
Superior TeleCom Inc. ................. 12,100 520,300
------------
2,530,650
------------
Semiconductors and Electronics (2.7%)
Boston Acoustics, Inc. ................ 21,650 519,600
Kentek Information Systems, Inc. ...... 17,100 98,325
Nam Tai Electronics, Inc. ............. 39,800 457,700
------------
1,075,625
------------
Specialty Chemicals (2.4%)
Alcide Corp. + ........................ 24,300 438,919
Eco Soil Systems, Inc. + .............. 67,900 513,493
------------
952,412
------------
Surface Transport (1.4%)
Knightsbridge Tankers Ltd. ............ 26,200 569,850
------------
Total Common Stocks 30,307,224
(Cost $29,955,373) ------------
<CAPTION>
Principal
Amount
-------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (24.9%)
Federal Home Loan Mortgage Corp.,
5.42%,11/02/98 ....................... $ 9,607,000 9,607,000
U.S. Treasury Bill,3.75%,02/18/99 @ ... 100,000 98,746
U.S. Treasury Bill,4.98%,02/18/99 ..... 200,000 197,492
------------
Total Short-Term Investments 9,903,238
(Cost $9,902,932) ------------
Total Investments (Cost $39,858,305)(a) 40,210,462
Other Assets Less Liabilities (460,796)
------------
Total Net Assets $39,749,666
============
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$39,943,091. Unrealized gains and losses, based on identified tax cost at
October 31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................. $ 2,980,808
Unrealized losses............................ (2,713,437)
-----------
Net unrealized gain......................... $ 267,371
===========
</TABLE>
Information concerning open futures contracts at October 31, 1998 is shown
below:
<TABLE>
<CAPTION>
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
----------- ------------ ------------ ---------------
Long Contracts
- --------------------
<S> <C> <C> <C> <C>
Russell 2000 Index
Futures.... 22 $3,884,647 Dec 98 $ 306,155
=========== ============
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at October 31, 1998.
Category percentages are based on net assets.
24 See Notes to Financial Statements.
<PAGE>
Capital Appreciation Funds
Portfolio of Investments - October 31, 1998
Value Opportunity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
COMMON STOCKS (94.8%)
Automotive (1.9%)
Dana Corp. ............................. 2,300 $ 96,169
-----------
Banks and Thrifts (5.0%)
PNC Bank Corp. ......................... 2,200 110,000
Wells Fargo & Co. ...................... 400 148,000
-----------
258,000
-----------
Biotech and Medical Products (6.6%)
Amgen, Inc. + .......................... 2,000 157,125
Monsanto Co. ........................... 4,500 182,812
-----------
339,937
-----------
Computers (7.3%)
Compaq Computer Corp. .................. 5,000 158,125
International Business Machines Corp.... 1,500 222,656
-----------
380,781
-----------
Conglomerate and Aerospace (7.4%)
General Dynamics Corp. ................. 1,500 88,781
General Electric Co. ................... 2,000 175,000
Lockheed Martin Corp. .................. 1,100 122,513
-----------
386,294
-----------
Consumer Finance (4.4%)
Federal Home Loan Mortgage Corp. ....... 4,000 230,000
-----------
Consumer Products (1.7%)
American Greeting Corp. ................ 2,200 88,275
-----------
Consumer Services (1.5%)
Darden Restaurants, Inc. ............... 4,600 75,900
-----------
Data and Imaging Services (11.0%)
America Online, Inc. ................... 1,200 152,475
Computer Associates International, Inc. 3,700 145,687
Oracle Corp. + ......................... 3,200 94,600
Sterling Commerce, Inc. + .............. 5,000 176,250
-----------
569,012
-----------
Discretionary Retail (1.4%)
Officemax, Inc. + ...................... 8,000 73,000
-----------
Diversified Financial Services (6.7%)
American Express Co. ................... 2,500 220,937
Citigroup Inc. ......................... 2,700 127,069
-----------
348,006
-----------
Drugs (7.1%)
American Home Products Corp. ........... 3,000 146,250
Bristol-Myers Squibb Co. ............... 2,000 221,125
-----------
367,375
-----------
Electric Utilities (2.7%)
Exel Ltd. .............................. 1,800 137,588
-----------
Food and Beverage (1.9%)
PepsiCo, Inc. .......................... 3,000 101,250
-----------
Food and Drug Retail (2.4%)
Albertson's, Inc. ...................... 2,200 122,238
-----------
Forest Products and Building Materials (2.1%)
Owens-Illinois, Inc. + ................. 3,500 106,969
-----------
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Gas Utilities (2.2%)
Enron Corp. ............................ 2,200 $ 116,050
-----------
Heavy Machinery (2.5%)
Deere & Co. ............................ 3,600 127,350
-----------
Housing and Furnishings (1.6%)
Centex Corp. ........................... 2,500 83,750
-----------
Insurance (2.0%)
Orion Capital Corp. .................... 3,000 102,563
-----------
Major Telecommunications (2.0%)
Bell Atlantic Corp. .................... 2,000 106,250
-----------
Oil (1.9%)
Conoco Inc. + .......................... 4,000 99,500
-----------
Oil Services (3.4%)
McDermott International, Inc. .......... 6,000 175,875
-----------
Other Telecommunications (2.5%)
Century Telephone Enterprises .......... 2,300 130,669
-----------
Real Estate Investment Trusts (2.3%)
Duke Realty Investments, Inc. .......... 5,000 119,375
-----------
Surface Transport (3.3%)
Kansas City Southern Industries, Inc. .. 4,500 173,812
-----------
Total Common Stocks (Cost $4,725,005) 4,915,988
-----------
<CAPTION>
Principal
Amount
------------
<S> <C> <C>
Short-Term Investments (6.6%)
Federal Home Loan Mortgage Corp.,
5.42%,11/02/98 ........................ $ 242,000 242,000
U.S. Treasury Bill,4.98%,02/18/99 ...... 100,000 98,746
-----------
Total Short-Term Investments 340,746
(Cost $340,508) -----------
Total Investments (Cost $5,065,513)(a) 5,256,734
Other Assets Less Liabilities (72,320)
-----------
Total Net Assets $5,184,414
===========
</TABLE>
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 October 31, 1998,
are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $ 500,380
Unrealized losses........................... (309,159)
---------
Net unrealized gain........................ $ 191,221
=========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 25
<PAGE>
Capital Appreciation Funds
Statements of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value ..........................................
Cash ..................................................................
Cash denominated in foreign currencies ................................
Receivable for:
Dividends and interest ...............................................
Investments sold .....................................................
Fund shares sold .....................................................
Recoverable foreign taxes ............................................
Variation margin .....................................................
Reimbursement from Investment Adviser ................................
Prepaid expenses ......................................................
Gross unrealized gain on forward foreign currency exchange contracts ..
Total assets .....................................................
Liabilities:
Payable for:
Investments purchased ................................................
Fund shares redeemed .................................................
Other liabilities .....................................................
Gross unrealized loss on forward foreign currency exchange contracts ..
Total liabilities ................................................
NET ASSETS ..........................................................
Net assets represented by:
Paid-in capital .......................................................
Net unrealized gain (loss) on investments, open futures contracts and
foreign currency related transactions ................................
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 C:
Outstanding ..........................................................
Net Assets ...........................................................
Net Asset Value, offering and redemption price per share (net assets
divided by shares outstanding) .......................................
Cost of investments ...................................................
Cost of cash denominated in foreign currencies ........................
</TABLE>
26 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth International Mid Cap Small Company Value Opportunity
--------------- -------------- -------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
$149,278,491 $47,985,083 $4,666,841 $40,210,462 $5,256,734
589 1,000,104 29,347 359 365
-- 2,352,383 -- -- --
46,397 66,409 1,476 24,135 4,418
6,833,703 3,515,216 225,987 964,987 --
108,994 10,352 -- 153,157 --
-- 63,137 -- -- --
54,375 -- -- 35,200 --
-- 21,522 15,383 10,621 15,412
2,020 1,910 78 681 78
-- 22,685 -- -- --
------------ ----------- ---------- ----------- ----------
156,324,569 55,038,801 4,939,112 41,399,602 5,277,007
------------ ----------- ---------- ----------- ----------
14,285,718 4,439,197 203,429 1,580,435 57,616
9,536 37,713 -- 7,517 --
130,225 114,835 34,860 61,984 34,977
-- 656,984 -- -- --
------------ ----------- ---------- ----------- ----------
14,425,479 5,248,729 238,289 1,649,936 92,593
------------ ----------- ---------- ----------- ----------
$141,899,090 $49,790,072 $4,700,823 $39,749,666 $5,184,414
============ =========== ========== =========== ==========
$117,996,176 $42,967,524 $5,055,932 $39,106,961 $5,231,187
22,459,842 4,503,421 (11,692) 658,312 191,221
46,944 452,764 -- 133,733 14,246
1,396,128 1,866,363 (343,417) (149,340) (252,240)
------------ ----------- ---------- ----------- ----------
$141,899,090 $49,790,072 $4,700,823 $39,749,666 $5,184,414
============ =========== ========== =========== ==========
7,743,533 2,911,125 484,548 2,833,890 463,030
$128,666,683 $34,556,118 $4,502,668 $29,543,311 $4,625,276
$ 16.62 $ 11.87 $ 9.29 $ 10.43 $ 9.99
786,805 1,274,096 12,386 895,778 46,531
$ 12,876,508 $15,077,916 $ 114,882 $ 9,088,737 $ 464,008
$ 16.37 $ 11.83 $ 9.28 $ 10.15 $ 9.97
$ 17.37 $ 12.55 $ 9.85 $ 10.77 $ 10.58
21,487 13,163 8,993 107,612 9,556
$ 355,899 $ 156,038 $ 83,273 $ 1,117,618 $ 95,130
$ 16.56 $ 11.85 $ 9.26 $ 10.39 $ 9.95
$126,984,380 $42,837,080 $4,678,533 $39,858,305 $5,065,513
$ -- $ 2,365,735 $ -- $ -- $ --
</TABLE>
See Notes to Financial Statements. 27
<PAGE>
Capital Appreciation Funds
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends .............................................................
Interest ..............................................................
Foreign taxes withheld on dividends ...................................
Total investment income ..........................................
Investment Expenses:
Investment advisory fee ...............................................
Administrative services fees ..........................................
Distribution Plan and shareholder services fees .......................
Printing and postage ..................................................
Custody fees ..........................................................
Transfer agent fees ...................................................
Audit fees ............................................................
Directors' fees .......................................................
Registration fees .....................................................
Miscellaneous expenses ................................................
Expenses before reimbursement and waiver from Investment Adviser ......
Expense reimbursement and waiver from Investment Adviser ..............
Total expenses ...................................................
Net investment income (loss) ..........................................
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Investments ..........................................................
Futures and forward foreign currency exchange contracts ..............
Foreign currency related transactions ................................
Net realized gain (loss) on investments ..........................
Net change in unrealized gain or loss on:
Investments ..........................................................
Futures and forward foreign currency exchange contracts ..............
Foreign currency related transactions ................................
Net change in unrealized gain or loss on investments .............
Net realized and change in unrealized gain or loss on investments
Net increase (decrease) in net assets resulting from operations .......
</TABLE>
28 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Mid Cap Value Opportunity
Period From Period From
February 4, 1998 February 2, 1998
Growth International (Commencement of Small Company (Commencement of
Year Ended Year Ended Operations) Year Ended Operations)
October 31, 1998 October 31, 1998 to October 31, 1998 October 31, 1998 to October 31,1998
- ---------------- ---------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
$ 547,247 $ 978,511 $ 28,874 $ 327,539 $ 43,764
688,138 78,828 7,691 297,849 15,850
----------- ---------- --------- ----------- ---------
1,235,385 1,057,339 36,565 625,388 59,614
(1,749) (108,640) (297) -- --
----------- ---------- --------- ----------- ---------
1,233,636 948,699 36,268 625,388 59,614
----------- ---------- --------- ----------- ---------
809,670 493,627 29,053 298,442 28,337
149,789 82,614 3,874 45,674 4,048
34,543 60,303 507 29,313 861
10,704 9,826 5,027 5,143 5,029
7,935 248,730 2,863 9,098 2,597
73,548 50,127 18,524 57,884 18,534
18,576 22,232 13,733 18,469 13,733
3,530 1,124 125 825 124
73,039 57,030 65,419 65,561 65,567
5,358 4,257 213 1,875 175
----------- ---------- --------- ----------- ---------
1,186,692 1,029,870 139,338 532,284 139,005
-- (110,044) (94,309) (40,629) (93,637)
----------- ---------- --------- ----------- ---------
1,186,692 919,826 45,029 491,655 45,368
----------- ---------- --------- ----------- ---------
46,944 28,873 (8,761) 133,733 14,246
----------- ---------- --------- ----------- ---------
1,978,309 4,514,214 (343,417) 312,330 (254,413)
(538,517) 74,297 -- (445,157) 2,173
-- 23,606 -- -- --
----------- ---------- --------- ----------- ---------
1,439,792 4,612,117 (343,417) (132,827) (252,240)
----------- ---------- --------- ----------- ---------
11,137,094 1,134,780 (11,692) (4,188,365) 191,221
165,731 (309,260) -- 298,655 --
-- (85,840) -- -- --
----------- ---------- --------- ----------- ---------
11,302,825 739,680 (11,692) (3,889,710) 191,221
----------- ---------- --------- ----------- ---------
12,742,617 5,351,797 (355,109) (4,022,537) (61,019)
----------- ---------- --------- ----------- ---------
$12,789,561 $5,380,670 $(363,870) $(3,888,804) $ (46,773)
=========== ========== ========= =========== =========
</TABLE>
See Notes to Financial Statements. 29
<PAGE>
Capital Appreciation Funds
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth
----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income........................ $ 46,944 $ 6,696
Net realized gain on investments............. 1,439,792 13,674,563
Net change in unrealized gain or loss on
investments................................. 11,302,825 2,952,774
------------ ------------
Net increase in net assets resulting from
operations.................................. 12,789,561 16,634,033
------------ ------------
Distributions to Shareholders:
Class I:
From net investment income.................. -- (105,591)
From net realized gains on investments...... (12,310,889) (4,009,137)
Class A:
From net realized gains on investments...... (1,306,575) (397,394)
------------ -------------
Decrease in net assets from distributions to
shareholders................................ (13,617,464) (4,512,122)
------------ ------------
From Fund Share Transactions:
Class I:
Proceeds from shares sold................... 56,817,825 31,803,299
Net asset value of shares issued upon
reinvestment of distributions.............. 12,292,734 4,107,903
Payments for shares redeemed................ (21,664,296) (10,259,791)
Class A:
Proceeds from shares sold................... 11,982,901 3,877,854
Net asset value of shares issued upon
reinvestment of distributions.............. 1,299,155 394,605
Payments for shares redeemed................ (9,193,125) (1,300,776)
Class C:
Proceeds from shares sold................... 358,367 --
Payments for shares redeemed................ (157) --
------------ ------------
Net increase in net assets from fund share
transactions................................ 51,893,404 28,623,094
------------ ------------
Net change in net assets..................... 51,065,501 40,745,005
Net Assets:
Beginning of period.......................... 90,833,589 50,088,584
------------ ------------
End of period................................ $141,899,090 $ 90,833,589
============ ============
End of period net assets includes
undistributed net investment income......... $ 46,944 $ --
============ ============
</TABLE>
30 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth
----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold....................... 3,385,454 2,008,535
Number of shares issued upon reinvestment of
distributions.............................. 863,254 294,473
Number of shares redeemed................... (1,332,867) (642,569)
------------ ------------
Net increase................................ 2,915,841 1,660,439
============ ============
Class A:
Number of shares sold....................... 772,646 244,633
Number of shares issued upon reinvestment of
distributions.............................. 92,401 28,553
Number of shares redeemed................... (594,336) (82,842)
------------ ------------
Net increase................................ 270,711 190,344
============ ============
Class C:
Number of shares sold....................... 21,497 --
Number of shares redeemed................... (10) --
------------ ------------
Net increase................................ 21,487 --
============ ============
</TABLE>
See Notes to Financial Statements. 31
<PAGE>
Capital Appreciation Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International
-----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income (loss)................. $ 28,873 $ (28,189)
Net realized gain on investments............. 4,612,117 17,124,520
Net change in unrealized gain or loss on
investments................................. 739,680 (438,764)
------------- ------------
Net increase in net assets resulting from
operations.................................. 5,380,670 16,657,567
------------- ------------
Distributions to Shareholders:
Class I:
From net investment income.................. (1,662,611) (638,500)
From net realized gains on investments...... (10,149,981) (3,470,621)
Class A:
From net investment income.................. (440,511) (234,230)
From net realized gains on investments...... (3,463,760) (1,729,395)
------------- ------------
Decrease in net assets from distributions to
shareholders................................ (15,716,863) (6,072,746)
------------- ------------
From Fund Share Transactions:
Class I:
Proceeds from shares sold................... 7,518,675 8,286,965
Net asset value of shares issued upon
reinvestment of distributions.............. 6,766,090 2,046,351
Payments for shares redeemed................ (27,933,953) (7,135,984)
Class A:
Proceeds from shares sold................... 2,206,713 2,003,620
Net asset value of shares issued upon
reinvestment of distributions.............. 918,001 183,050
Payments for shares redeemed................ (4,946,707) (9,217,016)
Class C:
Proceeds from shares sold................... 166,506 --
Payments for shares redeemed................ (114) --
------------- ------------
Net decrease in net assets from fund share
transactions................................ (15,304,789) (3,833,014)
------------- ------------
Net change in net assets..................... (25,640,982) 6,751,807
Net Assets:
Beginning of period.......................... 75,431,054 68,679,247
------------- ------------
End of period................................ $ 49,790,072 $75,431,054
============= ============
End of period net assets includes
undistributed net investment income......... $ 452,764 $ 2,263,190
============= ============
</TABLE>
32 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International
-----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold....................... 656,589 630,372
Number of shares issued upon reinvestment of
distributions.............................. 578,793 172,688
Number of shares redeemed................... (2,454,649) (556,978)
------------- ------------
Net increase (decrease)..................... (1,219,267) 246,082
============= ============
Class A:
Number of shares sold....................... 186,374 151,961
Number of shares issued upon reinvestment of
distributions.............................. 78,529 15,434
Number of shares redeemed................... (395,669) (707,347)
------------- ------------
Net decrease................................ (130,766) (539,952)
============= ============
Class C:
Number of shares sold....................... 13,173 --
Number of shares redeemed................... (10) --
------------- ------------
Net increase ............................... 13,163 --
============= ============
</TABLE>
See Notes to Financial Statements. 33
<PAGE>
Capital Appreciation Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Mid Cap
---------------------
Period From
February 4, 1998
(Commencement of
Operations)
to October 31, 1998
-------------------
<S> <C>
From Operations:
Net investment loss..................................... $ (8,761)
Net realized loss on investments........................ (343,417)
Net change in unrealized gain or loss on investments.... (11,692)
----------
Net decrease in net assets resulting from operations... (363,870)
----------
From Fund Share Transactions:
Class I:
Proceeds from shares sold.............................. 4,950,432
Payments for shares redeemed........................... (111,022)
Class A:
Proceeds from shares sold.............................. 125,364
Payments for shares redeemed........................... (81)
Class C:
Proceeds from shares sold.............................. 100,000
----------
Net increase in net assets from fund share transactions 5,064,693
----------
Net change in net assets................................ 4,700,823
Net Assets:
Beginning of period..................................... --
----------
End of period........................................... $4,700,823
==========
End of period net assets includes undistributed net
investment income...................................... $ --
==========
Share Transactions:
Class I:
Number of shares sold.................................. 494,694
Number of shares redeemed.............................. (10,146)
----------
Net increase........................................... 484,548
==========
Class A:
Number of shares sold.................................. 12,395
Number of shares redeemed.............................. (9)
----------
Net increase........................................... 12,386
==========
Class C:
Number of shares sold.................................. 8,993
----------
Net increase........................................... 8,993
==========
</TABLE>
34 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Company
----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income (loss)................. $ 133,733 $ (154,521)
Net realized gain (loss) on investments...... (132,827) 8,002,725
Net change in unrealized gain or loss on
investments................................. (3,889,710) 979,948
------------ ------------
Net increase (decrease) in net assets
resulting from operations................... (3,888,804) 8,828,152
------------ ------------
Distributions to Shareholders:
Class I:
From net realized gains on investments...... (5,713,656) (7,329,361)
Class A:
From net realized gains on investments...... (2,110,367) (972,925)
------------ ------------
Decrease in net assets from distributions to
shareholders................................ (7,824,023) (8,302,286)
------------ ------------
From Fund Share Transactions:
Class I:
Proceeds from shares sold................... 21,312,922 16,815,478
Net asset value of shares issued upon
reinvestment of distributions.............. 5,093,695 1,837,628
Payments for shares redeemed................ (10,817,779) (28,092,572)
Class A:
Proceeds from shares sold................... 4,873,997 2,870,705
Net asset value of shares issued upon
reinvestment of distributions.............. 2,020,035 911,095
Payments for shares redeemed................ (1,879,360) (1,139,498)
Class C:
Proceeds from shares sold................... 1,196,494 --
Payments for shares redeemed................ (75,405) --
------------ ------------
Net increase (decrease) in net assets from
fund share transactions..................... 21,724,599 (6,797,164)
------------ ------------
Net change in net assets..................... 10,011,772 (6,271,298)
Net Assets:
Beginning of period.......................... 29,737,894 36,009,192
------------ ------------
End of period................................ $ 39,749,666 $ 29,737,894
============ ============
End of period net assets includes
undistributed net investment income......... $ 133,733 $ --
============ ============
</TABLE>
See Notes to Financial Statements. 35
<PAGE>
Capital Appreciation Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Company
----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold....................... 1,756,205 1,328,482
Number of shares issued upon reinvestment of
distributions.............................. 447,994 157,196
Number of shares redeemed................... (827,622) (2,218,247)
------------ ------------
Net increase (decrease)..................... 1,376,577 (732,569)
============ ============
Class A:
Number of shares sold....................... 410,840 203,638
Number of shares issued upon reinvestment of
distributions.............................. 182,314 79,225
Number of shares redeemed................... (162,947) (86,725)
------------ ------------
Net increase................................ 430,207 196,138
============ ============
Class C:
Number of shares sold....................... 115,726 --
Number of shares redeemed................... (8,114) --
------------ ------------
Net increase................................ 107,612 --
============ ============
</TABLE>
36 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value Opportunity
---------------------
Period From
February 2, 1998
(Commencement of
Operations)
to October 31, 1998
-------------------
<S> <C>
From Operations:
Net investment income................................... $ 14,246
Net realized loss on investments........................ (252,240)
Net change in unrealized gain or loss on investments.... 191,221
----------
Net decrease in net assets resulting from operations... (46,773)
----------
From Fund Share Transactions:
Class I:
Proceeds from shares sold.............................. 5,002,155
Payments for shares redeemed........................... (369,095)
Class A:
Proceeds from shares sold.............................. 528,702
Payments for shares redeemed........................... (35,490)
Class C:
Proceeds from shares sold.............................. 104,915
----------
Net increase in net assets from fund share transactions 5,231,187
----------
Net change in net assets................................ 5,184,414
Net Assets:
Beginning of period..................................... --
----------
End of period........................................... $5,184,414
==========
End of period net assets includes undistributed net
investment income...................................... $ 14,246
==========
Share Transactions:
Class I:
Number of shares sold.................................. 499,755
Number of shares redeemed.............................. (36,725)
----------
Net increase........................................... 463,030
==========
Class A:
Number of shares sold.................................. 50,077
Number of shares redeemed.............................. (3,546)
----------
Net increase........................................... 46,531
==========
Class C:
Number of shares sold.................................. 9,556
----------
Net increase........................................... 9,556
==========
</TABLE>
See Notes to Financial Statements. 37
<PAGE>
Capital Appreciation Funds
Notes to Financial Statements
October 31, 1998
- --------------------------------------------------------------------------------
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 (Funds), each of which
has its own investment objective, policies and restrictions.
The Company currently offers nineteen funds. This report covers Aetna Growth
Fund, (Growth) Aetna International Fund, (International), Aetna Mid Cap Fund
(Mid Cap), Aetna Small Company Fund (Small Company) and Aetna Value Opportunity
Fund (Value Opportunity).
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 three classes of shares, Class I, Class A and
Class C. Class I is offered principally to institutions and is not subject to
sales charges or distribution fees. Class I shares were first made available as
follows: International on December 27, 1991, Growth and Small Company on January
4, 1994, Value Opportunity on February 2, 1998, and Mid Cap on February 4, 1998.
Class A and Class C shares are offered to accounts not eligible to buy Class I
shares. Class A shares are generally subject to a front end sales charge and a
distribution fee pursuant to Rule 12b-1 of the Act. Class A shares were first
made available to the public on April 15, 1994 for all Funds except Value
Opportunity and Mid Cap, which were made available to the public February 2,
1998 and February 4, 1998, respectively. Class C shares are generally subject to
a contingent deferred sales charge on redemptions made within eighteen months of
purchase, a distribution fee pursuant to Rule 12b-1 of the Act and a service
fee. Class C shares were first made available to the public on June 30, 1998.
The following is each Fund's investment objective:
Growth seeks growth of capital through investment in a diversified
portfolio consisting primarily of common stocks and securities convertible
into common stocks believed to offer growth potential.
International seeks long-term capital growth primarily through investment
in a diversified portfolio of common stocks principally traded in countries
outside of North America. International will not target any given level of
current income.
Mid Cap seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into
common stocks of companies having medium market capitalizations.
Small Company seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into
common stocks of companies with smaller market capitalizations.
Value Opportunity seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into
common stock. Value Opportunity will use a value-oriented approach to stock
selection.
Aeltus Investment Management, Inc. (Aeltus) serves as the Investment Adviser to
each Fund. Prior to February 2, 1998, the Investment Adviser was Aetna Life
Insurance and Annuity Company (ALIAC). Effective October 1, 1998, Bradley,
Foster & Sargent, Inc. (Bradley) was appointed Sub-Adviser to Value Opportunity.
Aetna Investment Services, Inc. (AISI) was the principal underwriter for each
Fund through April 30, 1998. On May 1, 1998, Aeltus Capital, Inc. (ACI) became
each Fund's principal underwriter. Aeltus, ALIAC, AISI and ACI are all indirect
wholly-owned subsidiaries of Aetna Inc. (Aetna).
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.
38
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
A. Valuation of Investments
Investments are stated at market values based upon closing sales prices 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.
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.
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.
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.
39
<PAGE>
Capital Appreciation Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
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. Each Fund may invest up to 15% of its total assets in
illiquid securities. The Funds will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any.
D. Federal Income Taxes
Each Fund has met the requirements to be taxed as a regulated investment company
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.
Futhermore, 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.
E. 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, certain
futures contracts, certain investments in foreign equity securities 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.
F. 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 effective annual rates before waivers as
of October 31, 1998:
<TABLE>
<CAPTION>
FEE RANGE EFFECTIVE RATE
--------- --------------
<S> <C> <C>
Growth 0.70%-0.550% 0.70%
International 0.85%-0.700% 0.85%
Mid Cap 0.75%-0.700% 0.75%
Small Company 0.85%-0.725% 0.85%
Value Opportunity 0.70%-0.550% 0.70%
</TABLE>
40
<PAGE>
- --------------------------------------------------------------------------------
3. Investment Advisory, Shareholder Services and Distribution Fees (continued)
Aeltus has served as the Investment Adviser for all Funds since February 2,
1998. Prior to February 2, 1998, ALIAC served as Growth, International and Small
Company's Investment Adviser and Aeltus served as Sub-Adviser. As Sub-Adviser,
Aeltus supervised the investment and reinvestment of cash and securities and
provided certain related administrative services. For the period November 1,
1997 through February 1, 1998, ALIAC received $357,735 from the Funds, of which
it paid $230,807 to Aeltus.
Effective October 1, 1998, Aeltus has entered into a subadvisory agreement with
Bradley for Value Opportunity. As Sub-Adviser, Bradley supervises the investment
and reinvestment of cash and equity securities. The Subadvisory Agreement
provides that Aeltus will pay Bradley a subadvisory fee at an annual rate of
0.15% of Value Opportunity's average daily net assets on the first $250 million
and 0.10% of Value Opportunity's average daily net assets above $250 million.
For the period October 1, 1998 through October 31, 1998 Aeltus paid Bradley
$629.
Aeltus has entered into a consulting agreement with Bradley for Value
Opportunity and Aetna Value Opportunity VP, a portfolio of Aetna Variable
Portfolios, Inc. under which Bradley will provide assistance with shareholder
communications, contribute to marketing efforts and other non-investment
advisory services for the Value Opportunity Funds in exchange for payment from
the Investment Adviser. For the period October 1, 1998 through October 31, 1998
Aeltus paid Bradley $13,000.
Effective February 2, 1998, the Company and Aeltus 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. Prior to February 2, 1998, ALIAC acted as administrator for each
Fund and was paid an administrative services fee at an annual rate of 0.25% of
each Fund's average daily net assets.
Aeltus has entered into a Service Agreement with 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 0.425% of the average daily net assets
associated with those shares. For the period February 1, 1998 through October
31, 1998, Aeltus paid ALIAC $530,070.
The Shareholder Services Plan for the Class A shares terminated on December 31,
1997. Under the Shareholder Services Plan, AISI was paid a service fee at an
annual rate of 0.25% of the average daily net assets of Class A of each Fund.
This fee was used as compensation for expenses incurred in servicing
shareholders' accounts.
The Company has adopted a Shareholder Services Plan for the Class C shares.
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 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 and Class C shares. The Distribution Plan provides for payments
to the principal underwriter at an annual rate of 0.25% (prior to February 2,
1998, the 12b-1 fee was 0.50%) of the average daily net assets of Class A shares
of each Fund and 0.75% of the average daily net assets of Class C shares of each
Fund. Amounts paid by the Funds are used to pay expenses incurred by the
principal underwriter in promoting the sale of Class A and Class C shares. The
plan may be terminated as to each class of shares upon a majority vote of the
Company's independent directors.
Presently, the Funds' class-specific expenses are limited to Rule 12b-1 fees
incurred by Class A and Class C shares and service fees incurred by Class C
shares.
41
<PAGE>
Capital Appreciation Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
4. Reimbursement and Waiver From Investment Adviser
Aeltus may, from time to time, make reimbursements to a Fund for some or all of
its operating expenses or it may waive fees. Reimbursement and waiver
arrangements, which may be terminated at any time without notice, will increase
a Fund's yield and total return.
5. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended October 31, 1998 were:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------- -------------------
<S> <C> <C>
Growth $202,852,358 $174,884,484
International 84,141,016 113,431,828
Mid Cap 10,812,922 5,790,972
Small Company 72,914,631 64,814,505
Value Opportunity 11,634,080 6,655,189
</TABLE>
6. Capital Loss Carryforwards
As of October 31, 1998 Mid Cap and Value Opportunity incurred capital loss
carryforwards of $307,550 and $252,240, respectively. These capital loss
carryforwards may be used to offset future capital gains until October 31, 2006,
at which time the carryforwards will expire. 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. Forward Foreign Currency Exchange Contracts
At October 31, 1998, International had the following open forward foreign
currency exchange contracts that obligate the Fund to deliver currencies at
specified future dates. The net unrealized loss of $634,299 on these contracts,
is included in the accompanying financial statements. The terms of the open
contracts are as follows:
<TABLE>
<CAPTION>
International
- -------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered October 31, 1998 be Received October 31, 1998 Gain (Loss)
---- ------------ ---------------- ----------- ---------------- -----------
Contracts to Buy
- ----------------
<S> <C> <C> <C> <C> <C>
11/23/98 528 $528 1,000 $536 $8
U.S. Dollar Netherlands
Guilders
- ------------------------------------------------------------------------------------------
Contracts to Sell
- -----------------
11/16/98 4,566,000 822,337 810,724 810,724 (11,613)
French Franc U.S. Dollar
- ------------------------------------------------------------------------------------------
11/16/98 107,000 19,469 19,469 198
French Franc 19,271 U.S. Dollar
- ------------------------------------------------------------------------------------------
11/16/98 2,160,000 383,523 383,523 2,604
French Franc 380,919 U.S. Dollar
- ------------------------------------------------------------------------------------------
11/16/98 123,000 21,839 21,839 (254)
French Franc 22,093 U.S. Dollar
- ------------------------------------------------------------------------------------------
12/21/98 5,109,000 936,640 936,640 14,886
French Franc 921,754 U.S. Dollar
- ------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
- --------------------------------------------------------------------------------
7. Forward Foreign Currency Exchange Contracts (continued)
<TABLE>
<CAPTION>
International (continued)
- -------------------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered October 31, 1998 be Received October 31, 1998 Gain (Loss)
---- ------------ ---------------- ----------- ---------------- -----------
Contracts to Sell (continued)
- -----------------------------
<S> <C> <C> <C> <C> <C>
12/21/98 196,000 $35,668 35,933 $35,933 $265
French Franc U.S. Dollar
- ----------------------------------------------------------------------------------------------
11/3/98 1,200,300 725,257 680,057 680,057 (45,200)
German Deutschemark U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/8/98 700,000 406,645 405,308 405,308 (1,337)
German Deutschemark U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/8/98 118,000 71,136 68,323 68,323 (2,813)
German Deutschemark U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/8/98 884,000 534,757 511,847 511,847 (22,910)
German Deutschemark U.S. Dollar
- ----------------------------------------------------------------------------------------------
1/21/99 316,000 191,538 194,581 194,581 3,043
German Deutschemark U.S. Dollar
- ----------------------------------------------------------------------------------------------
2/3/99 1,200,300 727,905 728,249 728,249 344
German Deutschemark U.S. Dollar
- ----------------------------------------------------------------------------------------------
2/19/99 910,000 113,509 114,078 114,078 569
Hong Kong Dollar U.S. Dollar
- ----------------------------------------------------------------------------------------------
2/19/99 640,000 80,813 80,231 80,231 (582)
Hong Kong Dollar U.S. Dollar
- ----------------------------------------------------------------------------------------------
11/27/98 74,930,000 645,404 527,676 527,676 (117,728)
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/17/98 309,006,200 2,669,621 2,353,436 2,353,436 (316,185)
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/17/98 4,470,000 38,618 37,836 37,836 (782)
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/17/98 57,060,000 492,963 491,600 491,600 (1,363)
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/17/98 14,670,000 111,720 111,729 111,729 9
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/17/98 26,280,000 199,393 200,152 200,152 759
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
12/17/98 105,930,000 903,554 806,778 806,778 (96,776)
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
1/27/99 120,270,000 1,045,796 1,031,475 1,031,475 (14,321)
Japanese Yen U.S. Dollar
- ----------------------------------------------------------------------------------------------
11/23/98 1,499,000 792,032 791,948 791,948 (84)
Netherlands Guilders U.S. Dollar
- ----------------------------------------------------------------------------------------------
11/24/98 2,380,000 313,265 305,893 305,893 (7,372)
Norwegian Kroner U.S. Dollar
- ----------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
Capital Appreciation Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
7. Forward Foreign Currency Exchange Contracts (continued)
<TABLE>
<CAPTION>
International (continued)
- -------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered October 31, 1998 be Received October 31, 1998 Gain (Loss)
---- ------------ ---------------- ----------- ---------------- -----------
Contracts to Sell (continued)
- -----------------------------
<S> <C> <C> <C> <C> <C>
11/24/98 3,240,000 $419,841 416,425 $416,425 ($3,416)
Norwegian Kroner U.S. Dollar
- ----------------------------------------------------------------------------------------------
11/24/98 2,810,000 369,863 355,615 355,615 (14,248)
Norwegian Kroner U.S. Dollar
- ----------------------------------------------------------------------------------------------
($634,299)
===============
</TABLE>
8. Authorized Capital Shares
The Company is authorized to issue a total of 9.7 billion shares. Of those 9.7
billion shares, the following have been designated to the Funds described in
this report as follows: all of the Funds, except International, have been
allocated 100 million shares each of Class I, Class A and Class C shares.
International has been allocated 200 million shares each of Class I, Class A and
Class C shares. As of October 31, 1998, the following shares of the Funds were
owned by ALIAC and its affiliates:
<TABLE>
<CAPTION>
Class I Class A Class C
------- ------- -------
<S> <C> <C> <C>
Growth -- -- 5,599
International 12,358 776,940 7,524
Mid Cap 479,857 10,000 8,993
Small Company -- -- 8,258
Value Opportunity 453,649 10,000 9,058
</TABLE>
9. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Funds' capital accounts on a
tax basis. These reclassifications have no impact on the net asset value of the
Funds.
<TABLE>
<CAPTION>
Undistributed Net Accumulated
Paid-in Capital Investment Income Net Realized Gain (Loss)
Increase/(Decrease) Increase/(Decrease) on Investments
------------------- ------------------- Increase/(Decrease)
-------------------
<S> <C> <C> <C>
International $ -- $263,823 ($263,823)
Mid Cap (8,761) 8,761 --
</TABLE>
44
<PAGE>
Capital Appreciation Funds
Additional Information
October 31, 1998
- --------------------------------------------------------------------------------
Federal Tax Status of Dividends Declared During the Fiscal Year (Unaudited)
In accordance with federal tax authorities, certain portions of the dividends
taxable as ordinary income qualify for the corporate dividends received
deduction. The following percentages reflect the portions of such dividends
paid:
<TABLE>
<S> <C>
Growth 9.42%
Small Company 4.56%
</TABLE>
In accordance with federal tax authorities, the Funds paid the following amounts
of dividends which qualify to be taxed at long-term capital gain rates:
<TABLE>
<CAPTION>
Aggregate Per Share
--------- ---------
<S> <C> <C>
Growth $7,048,803 $1.29
International 5,213,762 0.86
Small Company 3,081,696 1.68
</TABLE>
The International Fund intends to elect to pass through the credit for taxes
paid in foreign countries during its fiscal year ended October 31, 1998. In
accordance with current tax laws, the foreign income and foreign tax per share
(for a share outstanding on October 31, 1998) are as follows:
<TABLE>
<CAPTION>
Country Dividends Foreign Tax
- -------
<S> <C> <C>
Australia 0.0163 0.0001
Belgium 0.0022 0.0003
Brazil 0.0017 0.0003
Canada 0.0047 0.0007
Chile 0.0009 0.0003
Switzerland 0.0147 0.0022
Germany 0.0224 0.0022
Denmark 0.0043 0.0007
Spain 0.0082 0.0012
Finland 0.0069 0.0010
France 0.0235 0.0000
United Kingdom 0.0540 0.0075
Hong Kong 0.0063 0.0000
Ireland 0.0055 0.0000
Italy 0.0077 0.0012
Japan 0.0173 0.0027
Netherlands 0.0097 0.0017
Norway 0.0065 0.0010
New Zealand 0.0028 0.0004
Panama 0.0010 0.0000
Sweden 0.0161 0.0024
</TABLE>
The pass through of the foreign tax credit will affect only those shareholders
of the Fund who are holders on the dividend record date in December 1998.
Accordingly, shareholders will receive more detailed information along with
their Form 1099-DIV in January 1999.
45
<PAGE>
Capital Appreciation Funds
Additional Information (continued)
October 31, 1998
- --------------------------------------------------------------------------------
Special Meeting of Shareholders (Unaudited)
On September 4, 1998, a Special Shareholder Meeting was held for Value
Opportunity. Shareholders of record on June 30, 1998 were entitled to vote at
the meeting. The shareholders of Value Opportunity voted to approve a
Subadvisory Agreement with Bradley. See Note 3 of Notes to Financial Statements
for a description of the services provided and the compensation arrangement
defined by the terms of the agreement. Results of the vote were:
<TABLE>
<CAPTION>
Votes Cast Votes Cast
For Against Abstentions
--- ------- -----------
<S> <C> <C> <C>
Value Opportunity 475,245 -- 16,916
</TABLE>
Year 2000 (Unaudited)
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 assurances 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.
46
<PAGE>
Capital Appreciation Funds
Financial Highlights
Growth
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
January 4, 1994
(Commencement of
Year Ended Year Ended Year Ended Year Ended Operations)
October 31, October 31, October 31, October 31, to October 31,
CLASS I 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 17.02 $ 14.36 $ 13.75 $ 10.78 $ 10.00
-------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.01 0.01 0.03 0.04 0.09
Net realized and
change in unrealized
gain or loss on
investments.......... 2.09 3.88 2.39 3.02 0.69
-------- ------- ------- ------- -------
Total from
investment
operations........ 2.10 3.89 2.42 3.06 0.78
-------- ------- ------- ------- -------
Less distributions:
From net investment
income............... -- (0.03) (0.05) (0.08) --
From net realized
gains on investments (2.50) (1.20) (1.76) (0.01) --
-------- ------- ------- ------- -------
Total distributions (2.50) (1.23) (1.81) (0.09) --
-------- ------- ------- ------- -------
Net asset value, end
of period ........... $ 16.62 $ 17.02 $ 14.36 $ 13.75 $ 10.78
======== ======= ======= ======= =======
Total return ......... 14.78% 28.95% 19.82% 28.79% 7.70%
Net assets, end of
period (000's) ...... $128,667 $82,186 $45,473 $36,936 $27,188
Ratio of total
expenses to average
net assets .......... 1.00% 1.17% 1.28% 1.20% 0.92%(1)
Ratio of net
investment income to
average net assets .. 0.07% 0.08% 0.20% 0.36% 1.10%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.00% 1.17% 1.28% 1.30% 1.42%(1)
Ratio of net
investment income
before reimbursement
and waiver to
average net assets .. 0.07% 0.08% 0.20% 0.26% 0.60%(1)
Portfolio turnover
rate................. 170.46% 141.07% 144.19% 171.75% 120.32%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 47
<PAGE>
Capital Appreciation Funds
Financial Highlights (continued)
Growth
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
CLASS A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 16.76 $ 14.17 $ 13.63 $ 10.74 $ 10.26
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income (0.04) (0.11) (0.08) (0.06) (0.02)
Net realized and
change in unrealized
gain or loss on
investments.......... 2.05 3.84 2.38 3.00 0.50
------- ------- ------- ------- -------
Total from
investment
operations......... 2.01 3.73 2.30 2.94 0.48
------- ------- ------- ------- -------
Less distributions:
From net investment
income............... -- -- -- (0.05) --
From net realized
gains on investments (2.40) (1.14) (1.76) -- --
------- ------- ------- ------- -------
Total distributions (2.40) (1.14) (1.76) (0.05) --
------- ------- ------- ------- -------
Net asset value, end
of period ............ $ 16.37 $ 16.76 $ 14.17 $ 13.63 $ 10.74
======= ======= ======= ======= =======
Total return ......... 14.34% 28.05% 18.97% 27.92% 4.58%
Net assets, end of
period (000's) ...... $12,877 $ 8,647 $ 4,615 $ 1,727 $ 417
Ratio of total
expenses to average
net assets .......... 1.32% 1.92% 2.03% 2.03% 1.72% (1)
Ratio of net
investment income to
average
net assets .......... (0.25)% (0.67)% (0.59)% (0.47)% (0.25)%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.32% 1.92% 2.03% 2.14% 2.17% (1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... (0.25)% (0.67)% (0.59)% (0.58)% (0.71)%(1)
Portfolio turnover
rate................. 170.46% 141.07% 144.19% 171.75% 120.32%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
48 See Notes to Financial Statements.
<PAGE>
Growth
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
CLASS C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 17.86
-------
Income from investment operations:
Net investment income .................................... (0.05)
Net realized and change in unrealized gain or loss on
investments............................................... (1.25)
-------
Total from investment operations ....................... (1.30)
-------
Net asset value, end of period ............................ $ 16.56
=======
Total return .............................................. (7.28)%
Net assets, end of period (000's) ......................... $ 356
Ratio of total expenses to average net assets ............. 1.99% (1)
Ratio of net investment income to average net assets ...... (0.92)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 1.99% (1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (0.92)%(1)
Portfolio turnover rate ................................... 170.46%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 49
<PAGE>
Capital Appreciation Funds
Financial Highlights (continued)
International
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Ten Month
Year Ended Year Ended Year Ended Year Ended Period Ended Year Ended
October 31, October 31, October 31, October 31, October 31, December 31,
CLASS I 1998 1997 1996 1995 1994 1993
- ---------------------------------------------- ----------- ----------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 13.65 $ 11.79 $ 10.62 $ 11.56 $ 11.17 $ 8.88
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ....................... 0.02 0.02 0.03 0.11 0.06 0.05
Net realized and change in unrealized gain or
loss on investments ......................... 1.06 2.89 1.59 (0.09) 0.33 2.65
------- ------- ------- ------- ------- -------
Total from investment operations .......... 1.08 2.91 1.62 0.02 0.39 2.70
------- ------- ------- ------- ------- -------
Less distributions:
From net investment income .................. (0.40) (0.16) (0.19) (0.40) -- (0.39)
From net realized gains on investments ...... (2.46) (0.89) (0.26) (0.56) -- (0.02)
------- ------- ------- ------- ------- -------
Total distributions ....................... (2.86) (1.05) (0.45) (0.96) -- (0.41)
------- ------- ------- ------- ------- -------
Net asset value, end of period ............... $ 11.87 $ 13.65 $ 11.79 $ 10.62 $ 11.56 $ 11.17
======= ======= ======= ======= ======= =======
Total return ................................. 10.22% 26.02% 15.61% (0.04)% 3.49% 30.37%
Net assets, end of period (000's) ............ $34,556 $56,369 $45,786 $25,102 $31,479 $39,847
Ratio of total expenses to average net assets 1.48% 1.72% 2.17% 1.37% 1.66%(1) 1.48%
Ratio of net investment income to average net
assets....................................... 0.15% 0.18% 0.40% 1.02% 0.71%(1) 0.50%
Ratio of net expense before reimbursement and
waiver to average net assets ................ 1.67% 1.72% 2.17% 1.50% 1.80%(1) 1.77%
Ratio of net investment income before
reimbursement and waiver to average
net assets .................................. (0.04)% 0.18% 0.40% 0.88% 0.57%(1) 0.20%
Portfolio turnover rate ...................... 152.73% 194.41% 135.92% 32.91% 81.67% 110.38%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
50 See Notes to Financial Statements.
<PAGE>
International
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
CLASS A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 13.57 $ 11.77 $ 10.59 $ 11.51 $ 11.24
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income (0.02) (0.07) (0.05) 0.03 0.01
Net realized and
change in unrealized
gain or loss on
investments.......... 1.05 2.88 1.57 (0.20) 0.26
------- ------- ------- ------- -------
Total from
investment
operations........ 1.03 2.81 1.52 (0.17) 0.27
------- ------- ------- ------- -------
Less distributions:
From net investment
income............... (0.31) (0.12) (0.08) (0.27) --
From net realized
gains on investments (2.46) (0.89) (0.26) (0.48) --
------- ------- ------- ------- -------
Total distributions (2.77) (1.01) (0.34) (0.75) --
------- ------- ------- ------- -------
Net asset value, end
of period ........... $ 11.83 $ 13.57 $ 11.77 $ 10.59 $ 11.51
======= ======= ======= ======= =======
Total return ......... 9.76% 25.07% 14.67% (0.81)% 2.40%
Net assets, end of
period (000's) ...... $15,078 $19,063 $22,893 $26,464 $26,647
Ratio of total
expenses to average
net assets .......... 1.82% 2.47% 2.94% 2.12% 2.27%(1)
Ratio of net
investment income to
average net assets .. (0.19)% (0.57)% (0.42)% 0.27% 0.17%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 2.01% 2.47% 2.94% 2.25% 2.41%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... (0.38)% (0.57)% (0.42)% 0.14% 0.02%(1)
Portfolio turnover
rate................. 152.73% 194.41% 135.92% 32.91% 81.67%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 51
<PAGE>
Capital Appreciation Funds
Financial Highlights (continued)
International
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
CLASS C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 13.29
-------
Income from investment operations:
Net investment income .................................... (0.03)
Net realized and change in unrealized gain or loss on
investments............................................... (1.41)
-------
Total from investment operations ....................... (1.44)
-------
Net asset value, end of period ............................ $ 11.85
=======
Total return .............................................. (10.84)%
Net assets, end of period (000's) ......................... $ 156
Ratio of total expenses to average net assets ............. 2.36% (1)
Ratio of net investment income to average net assets ...... (0.73)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 2.55% (1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (0.92)%(1)
Portfolio turnover rate ................................... 152.73%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
52 See Notes to Financial Statements.
<PAGE>
Mid Cap
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 4, 1998
(Commencement of
Operations)
to October 31,
CLASS I 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income..................................... (0.02)
Net realized and change in unrealized gain or loss on
investments............................................... (0.69)
-------
Total from investment operations ....................... (0.71)
-------
Net asset value, end of period ............................ $ 9.29
=======
Total return .............................................. (7.10)%
Net assets, end of period (000's) ......................... $ 4,503
Ratio of total expenses to average net assets ............. 1.15%(1)
Ratio of net investment income to average net assets ...... (0.21)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 3.59%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (2.65)%(1)
Portfolio turnover rate ................................... 113.99 %
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 53
<PAGE>
Capital Appreciation Funds
Financial Highlights (continued)
Mid Cap
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 4, 1998
(Commencement of
Operations)
to October 31,
CLASS A 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income .................................... (0.04)
Net realized and change in unrealized gain or loss on
investments............................................... (0.68)
-------
Total from investment operations ....................... (0.72)
-------
Net asset value, end of period ............................ $ 9.28
=======
Total return .............................................. (7.20)%
Net assets, end of period (000's) ......................... $ 115
Ratio of total expenses to average net assets ............. 1.40%(1)
Ratio of net investment income to average net assets ...... (0.46)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 3.84%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (2.90)%(1)
Portfolio turnover rate ................................... 113.99%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
54 See Notes to Financial Statements.
<PAGE>
Mid Cap
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
CLASS C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 11.12
-------
Income from investment operations:
Net investment income .................................... (0.04)
Net realized and change in unrealized gain or loss on
investments............................................... (1.82)
-------
Total from investment operations ....................... (1.86)
-------
Net asset value, end of period ............................ $ 9.26
=======
Total return .............................................. (16.73)%
Net assets, end of period (000's) ......................... $ 83
Ratio of total expenses to average net assets ............. 2.15%(1)
Ratio of net investment income to average net assets ...... (1.21)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 4.59%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (3.65)%(1)
Portfolio turnover rate ................................... 113.99%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 55
<PAGE>
Capital Appreciation Funds
Financial Highlights (continued)
Small Company
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
January 4, 1994
(Commencement of
Year Ended Year Ended Year Ended Year Ended Operations)
October 31, October 31, October 31, October 31, to October 31,
CLASS I 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 15.55 $ 14.67 $ 13.52 $ 10.39 $ 10.00
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.09 (0.06) (0.08) -- 0.02
Net realized and
change in unrealized
gain or loss on
investments.......... (0.90) 4.45 2.64 3.15 0.37
------- ------- ------- ------- -------
Total from
investment
operations........ (0.81) 4.39 2.56 3.15 0.39
------- ------- ------- ------- -------
Less distributions:
From net investment
income............... -- -- -- (0.02) --
From net realized
gains on investments (4.31) (3.51) (1.41) -- --
------- ------- ------- ------- -------
Total distributions (4.31) (3.51) (1.41) (0.02) --
------- ------- ------- ------- -------
Net asset value, end
of period ........... $ 10.43 $ 15.55 $ 14.67 $ 13.52 $ 10.39
======= ======= ======= ======= =======
Total return ......... (7.47)% 37.80% 19.78% 30.39% 3.90%
Net assets, end of
period (000's) ...... $29,543 $22,661 $32,125 $33,511 $25,879
Ratio of total
expenses to average
net assets .......... 1.32% 1.58% 1.44% 1.41% 1.15%(1)
Ratio of net
investment income to
average net assets .. 0.46% (0.42)% (0.53)% (0.01)% 0.21%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.43% 1.58% 1.44% 1.49% 1.58%(1)
Ratio of net
investment income
before reimbursement
and waiver to
average net assets .. 0.35% (0.42)% (0.53)% (0.08)% (0.22)%(1)
Portfolio turnover
rate................. 211.87% 150.43% 163.21% 156.43% 116.28%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
56 See Notes to Financial Statements.
<PAGE>
Small Company
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
CLASS A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 15.20 $ 14.42 $ 13.39 $ 10.35 $ 10.24
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.01 (0.16) (0.18) (0.11) (0.04)
Net realized and
change in unrealized
gain or loss on
investments.......... (0.84) 4.36 2.62 3.15 0.15
------- ------- ------- ------- -------
Total from
investment
operations......... (0.83) 4.20 2.44 3.04 0.11
------- ------- ------- ------- -------
Less distributions:
From net realized
gains on investments (4.22) (3.42) (1.41) -- --
------- ------- ------- ------- -------
Total distributions (4.22) (3.42) (1.41) -- --
------- ------- ------- ------- -------
Net asset value, end
of period ........... $ 10.15 $ 15.20 $ 14.42 $ 13.39 $ 10.35
======= ======= ======= ======= =======
Total return ......... (7.77)% 36.73% 19.02% 29.44% 0.98%
Net assets, end of
period (000's) ...... $ 9,089 $ 7,077 $ 3,884 $ 1,285 $ 205
Ratio of total
expenses to average
net assets .......... 1.63% 2.33% 2.20% 2.23% 1.78%(1)
Ratio of net
investment income to
average
net assets .......... 0.15% (1.17)% (1.26)% (0.89)% (0.72)%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.74% 2.33% 2.20% 2.30% 2.14%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... 0.04% (1.17)% (1.26)% (0.97)% (1.07)%(1)
Portfolio turnover
rate................. 211.87% 150.43% 163.21% 156.43% 116.28%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 57
<PAGE>
Capital Appreciation Funds
Financial Highlights (continued)
Small Company
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
CLASS C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 12.11
-------
Income from investment operations:
Net investment income .................................... (0.02)
Net realized and change in unrealized gain or loss on
investments............................................... (1.70)
-------
Total from investment operations ....................... (1.72)
-------
Net asset value, end of period ............................ $ 10.39
=======
Total return .............................................. (14.21)%
Net assets, end of period (000's) ......................... $ 1,118
Ratio of total expenses to average net assets ............. 2.30%(1)
Ratio of net investment income to average net assets ...... (0.52)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 2.41%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (0.63)%(1)
Portfolio turnover rate ................................... 211.87%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
58 See Notes to Financial Statements.
<PAGE>
Value Opportunity
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 2, 1998
(Commencement of
Operations)
to October 31,
CLASS I 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income .................................... 0.03
Net realized and change in unrealized gain or loss on
investments............................................... (0.04)
-------
Total from investment operations........................ (0.01)
-------
Net asset value, end of period ............................ $ 9.99
=======
Total return .............................................. (0.10)%
Net assets, end of period (000's) ......................... $ 4,625
Ratio of total expenses to average net assets ............. 1.10%(1)
Ratio of net investment income to average net assets ...... 0.37%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 3.41%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (1.94)%(1)
Portfolio turnover rate ................................... 132.45%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 59
<PAGE>
Capital Appreciation Funds
Financial Highlights (continued)
Value Opportunity
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 2, 1998
(Commencement of
Operations)
to October 31,
CLASS A 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income..................................... 0.01
Net realized and change in unrealized gain or loss on
investments............................................... (0.04)
-------
Total from investment operations........................ (0.03)
-------
Net asset value, end of period ............................ $ 9.97
=======
Total return .............................................. (0.30)%
Net assets, end of period (000's) ......................... $ 464
Ratio of total expenses to average net assets ............. 1.35%(1)
Ratio of net investment income to average net assets ...... 0.12%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 3.66%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (2.19)%(1)
Portfolio turnover rate ................................... 132.45%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
60 See Notes to Financial Statements.
<PAGE>
Value Opportunity
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
CLASS C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 11.04
-------
Income from investment operations:
Net investment income .................................... (0.02)
Net realized and change in unrealized gain or loss on
investments............................................... (1.07)
-------
Total from investment operations ....................... (1.09)
-------
Net asset value, end of period ............................ $ 9.95
=======
Total return .............................................. (9.88)%
Net assets, end of period (000's) ......................... $ 95
Ratio of total expenses to average net assets ............. 2.10%(1)
Ratio of net investment income to average net assets ...... (0.63)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 4.41%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (2.94)%(1)
Portfolio turnover rate ................................... 132.45%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 61
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Series Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of Aetna
Growth Fund, Aetna International Fund, Aetna Mid Cap Fund, Aetna Small Company
Fund and Aetna Value Opportunity Fund, portfolios of Aetna Series Fund, Inc.
(collectively the Capital Appreciation Funds), including the portfolios of
investments as of October 31, 1998, and the related statements of operations for
the year or period then ended, the statements of changes in net assets for each
of the years or periods in the two-year period then ended, and financial
highlights for Class I shares of Aetna Growth Fund, Aetna Small Company Fund and
Aetna International Fund for each of the years in the four year period ended
October 31, 1998 and the period from January 4, 1994 (commencement of
operations) to October 31, 1994, for Aetna Growth Fund and Aetna Small Company
Fund and the ten month period ended October 31, 1994 and the year ended December
31, 1993 for Aetna International Fund, financial highlights for Class A shares
of Aetna Growth Fund, Aetna Small Company Fund and Aetna International Fund for
each of the years in the four year period ended October 31, 1998 and the period
from April 15, 1994 (date of initial public offering) to October 31, 1994,
financial highlights for Class I and Class A shares of Aetna Mid Cap Fund for
the period from February 4, 1998 (commencement of operations) to October 31,
1998, of Aetna Value Opportunity Fund for the period from February 2, 1998
(commencement of operations) to October 31, 1998, and financial highlights for
Class C shares for the period from June 30, 1998 (date of initial public
offering) to October 31, 1998. These financial statements and financial
highlights are the responsibility of the Capital Appreciation Funds' management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Capital Appreciation Funds as of October 31, 1998, results of their operations
for the year or period then ended, changes in their net assets for each of the
years or periods in the two-year period then ended and the financial highlights
for each of the years or periods specified in the first paragraph above in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
December 11, 1998
62
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Balanced Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Balaced Fund (Class I) 60% S&P 500 Index/40% Lehman Aggregate
<S> <C> <C>
Jan-92 10000 10000
10020 9797
10309 10068
10459 10433
Dec-92 10669 10758
10989 11219
11119 11373
11449 11668
Dec-93 11709 11833
11398 11429
11268 11412
11531 11775
Dec-94 11509 11794
12053 12720
13078 13758
13890 14520
Dec-95 14522 15294
14907 15671
15460 16129
16066 16555
Oct-96 16394 16975
17289 18264
17040 18580
19685 21107
Oct-97 19602 20813
20417 21991
22145 23865
22211 24230
Oct-98 21711 24441
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- ---------------------------------------------------------
Inception Date 1 Year 5 Years Inception*
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Class I 01/03/92 10.81% 13.42% 12.03%
- ---------------------------------------------------------
Class A: 04/15/94
POP (1) 4.09% 11.30% 10.27%
NAV (2) 10.44% 12.63% 11.23%
- ---------------------------------------------------------
Class C: 06/30/98
8.74% 12.30% 10.92%
w/CDSC (3)
NAV 9.74% 12.30% 10.92%
- ---------------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
Aetna Balanced Fund
How did the Fund perform during the period?
The Aetna Balanced Fund Class I shares generated a 10.81% total return, net of
fund expenses, for the year ended October 31, 1998. The benchmark, 60% Standard
& Poor's (S&P) 500 Index(a)/40% Lehman Brothers Aggregate Bond Index(b),
returned 17.45% for the same period. Among domestic hybrid funds tracked by
Morningstar, Inc., Class I shares' performance over the one year and five year
periods ended October 31, 1998 ranked in the top 31% (out of 660 funds) and 26%
(out of 249 funds), respectively, and Class A shares' performance over the year
ended October 31, 1998 placed it in the top 34% (out of 660 funds).
What economic or financial market conditions impacted the Fund?
Twelve months ago the market was working its way through the Pacific Rim
financial crisis, the first serious exogenous shock to the system in a few
years. Prior to that, the environment was often referred to as Goldilocks-like;
inflation was falling, profits were rising and stocks were soaring. Over the
last four to six months, a series of shocks such as the Long Term Capital
See Definition of Terms. 63
<PAGE>
Hedge Fund debacle, the Russian devaluation, continuing malaise in Asia, and a
perceived threat of over-capacity and global deflation have left the perception
of a Goldilocks economy tattered. As a result, a flight to quality and liquidity
occurred throughout the equity and fixed income markets, causing large cap
stocks to outperform small cap stocks and Treasuries to be the asset class of
choice within the fixed income market. The Federal Reserve lowered the Fed Funds
rate by 0.25% in both September and October to prevent these negative forces
from significantly weakening domestic growth.
What investments influenced the Fund's performance over the past twelve months?
The main driver of the Fund's underperformance versus its benchmark over the
past twelve months has been an underweight position in large cap stocks in favor
of small cap stocks. Over the past year, while the S&P 500 ran up an almost
21.98% return, the Russell 2000 has declined 11.84%. This spread (+33.82%), with
one exception, is the largest recorded since 1927 (Ibbotson small cap returns
were used for this analysis prior to 1990). In addition, being overweight in
high yield bonds hurt relative performance as the market's global economic
concerns caused investors to favor issues of the highest quality and liquidity.
What is your outlook going forward?
Many investors remain skeptical about the market as a result of the sharp third
quarter correction. However, given the emphatic nature of the recent rally and
the Fed's relatively prompt response to the worldwide deterioration in credit
conditions, stocks in general could work their way higher over the next three to
six months. The combination of an easing Fed confirmed by advancing prices has
historically been quite bullish. We will continue to monitor the Fund's exposure
to small cap stocks over the next few months in order to take advantage of
attractive valuations that arise. Within the bond portion of the Fund, we
recently sold most of the Treasuries and swapped into mortgage-backed securities
and investment grade corporates to take advantage of historically wide spreads.
We will maintain this yield advantage in the bond portion as long as the
risk/return tradeoff remains favorable. The Fund's asset allocation target as of
October 31, 1998 reflects our near term market outlook; 45% large company
stocks, 10% small company stocks, 35% bonds, and 10% cash.
Large Cap Portfolio Sector Breakdown:
<TABLE>
<CAPTION>
% of Equity % of S&P Over/(Under)
Sector Stocks 500 Weighting
<S> <C> <C> <C>
Basic Materials 2.2% 3.5% (1.3)%
Commercial Services 3.4% 1.9% 1.5%
Consumer Discretionary 14.8% 11.3% 3.5%
Consumer Non-Discretionary 6.5% 10.2% (3.7)%
Energy 4.9% 7.8% (2.9)%
Finance 17.1% 16.1% 1.0%
Healthcare 12.2% 12.7% (0.5)%
Manufacturing 13.0% 10.4% 2.6%
Technology 12.8% 15.7% (2.9)%
Utilities 13.1% 10.4% 2.7%
</TABLE>
64 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
Microsoft Corp. 2.0%
General Electric Co. 1.3%
Wal-Mart Stores, Inc. 1.2%
Pfizer, Inc. 1.1%
AT&T Corp. 0.9%
Lucent Technologies, Inc. 0.8%
Exxon Corp. 0.8%
Cisco Systems, Inc. 0.8%
Coca-Cola Co. 0.8%
Merck & Co., Inc. 0.7%
</TABLE>
<TABLE>
<CAPTION>
% of Net
Top Five Income Holdings Assets
<S> <C>
Government National Mortgage Association, 7.50%, 12/15/23 3.6%
Government National Mortgage Association, 6.50%, 05/15/28 3.4%
Government National Mortgage Association, 8.00%, 12/15/23 3.3%
Federal National Mortgage Asscociation, 6.50%, 11/12/28 1.4%
African Development Bank, 8.80%, 09/01/19 1.1%
</TABLE>
See Definition of Terms. 65
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Growth and Income Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Growth and Income Fund (Class I) S&P 500 Index
<S> <C> <C> <C>
Jan-92 10000 10000
9940 9747
9940 9932
10299 10245
Dec-92 10779 10760
11060 11231
10929 11286
11199 11577
Dec-93 11489 11845
11149 11396
11093 11444
11413 12004
Dec-94 11449 12002
12127 13170
13225 14428
14350 15575
Dec-95 15059 16513
15884 17400
16701 18181
17397 18743
Oct-96 17955 19260
20306 21575
20225 22095
24486 26439
Oct-97 24677 25447
25126 27384
28458 31174
27667 31542
Oct-98 25619 31047
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- ---------------------------------------------------------
Inception Date 1 Year 5 Years Inception*
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Class I 01/03/92 3.80% 17.67% 14.78%
- ---------------------------------------------------------
Class A: 04/15/94
POP (1) -2.52% 15.57% 13.06%
NAV (2) 3.42% 16.95% 14.04%
- ---------------------------------------------------------
Class C: 06/30/98
1.85% 16.51% 13.65%
w/CDSC (3)
NAV 2.85% 16.51% 13.65%
- ---------------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
Aetna Growth and Income Fund
How did the Fund perform during the period?
The Aetna Growth and Income Fund Class I shares generated a 3.80% total return,
net of fund expenses, for the year ended October 31, 1998. The benchmark,
Standard & Poor's (S&P) 500 Index(a), returned 21.98% for the same period. Among
large blend funds tracked by Morningstar, Inc., Class I shares' performance over
the one year and five year periods ended October 31, 1998 ranked in the top 92%
(out of 791 funds) and 46% (out of 354 funds), respectively, and Class A shares'
performance over the year ended October 31, 1998 placed it in the top 93% (out
of 791 funds).
What economic or financial market conditions impacted the Fund?
The past year was an extremely difficult one for Aetna Growth and Income Fund.
For the past several years we have used asset class diversification as a means
of: 1) reducing the expected volatility of the Fund, 2) enhancing expected
return by participating in asset classes with high historical returns, and 3)
boosting the income of the Fund through ownership of high yielding asset
classes. During the twelve months ended October 31, 1998, the return of the S&P
500 far outpaced that of other
66 See Definition of Terms.
<PAGE>
equity asset classes, and the Fund's return was held back because of this
diversified posture.
[BEGIN DESCRIPTION OF BAR CHART]
- --------------------------------------------------------------------------------
1 Year Asset Class Returns
As of 10/31/98
22.0%
10.0%
6.7% 5.0%
------------------------------------------------------------------------
-11.8% -12.8%
S&P Russell S&P MSCI NAREIT 91 Day
500 2000 Midcap EAFE Equity T-bill
------------------------------------------------------------------------
Lg. Cap Sm. Cap Midcap Int'l REITs Cash
Stocks Stocks Stocks Stocks Equity
- --------------------------------------------------------------------------------
[END DESCRIPTION OF BAR CHART]
In particular, small cap and mid cap stocks trailed the S&P 500 by an unusual
margin. Historically, these three indices have had a fairly high correlation to
each other, so the enormous divergence in performance was very surprising.
In managing the Growth and Income Fund, we balance two risk control objectives.
First, we want to deliver below-average downside absolute risk. That is the
historic competitive positioning of the Fund, and what our investors have come
to expect. Second, we want to deliver returns that are consistently competitive
within our style category. We tend to use Morningstar's categories, and they
classify the Growth and Income Fund as a "large blend" fund, meaning that on
average over time we emphasize large cap stocks, but do not have an exclusive
emphasis on either growth stocks or value stocks.
Over the past year, our valuation disciplines guided us to prefer small cap and
mid cap stocks to large cap stocks to a greater than average extent because they
were unusually inexpensive relative to large cap stocks in order to lower our
benchmark risk. However, the unusual divergence of returns among these asset
classes caused us to increase our estimate of the expected benchmark risk
relative to other funds in our category, and as a result, we reduced our weight
in small cap and mid cap stocks in favor of large cap stocks. In addition, we
increased our weight in equity real estate investment trusts (REITs) in order to
take advantage of extremely attractive values found in that asset class.
<TABLE>
<CAPTION>
Asset Allocation: % of Notional Value* Economic Exposure*
Asset Class Investment of Futures of Options 10/31/98 10/31/97
<S> <C> <C> <C>
Large Cap Stocks 59% 12% -- 71% 46%
Mid Cap Stocks 4% -- (1)% 3% 14%
Small Cap Stocks 11% -- (10)% 1% 21%
International Stocks 4% -- -- 4% 6%
Real Estate Stocks 8% -- -- 8% 2%
Convertible Securities 1% -- -- 1% 1%
Special Situations** 3% -- -- 3% 3%
Cash Equivalents 10% (12)% 11% 9% 7%
--------------------------------------------------------------------------
100% -- -- 100% 100%
==========================================================================
</TABLE>
See Definition of Terms. 67
<PAGE>
* Notional value refers to the economic value at risk or the exposure to the
financial instruments underlying the options and futures positions. Economic
exposure reflects the Fund's exposure to both changes in the value of the
portfolio of investments as well as the financial instruments underlying the
options and futures positions.
** The special situations category was created to take advantage of investment
opportunities which are "special" in the sense that they do not fit well into
our normal valuation and modeling framework. The largest category within this
group is initial public offerings, but other categories include spin-offs, newly
created securities, and stocks of companies which derive their value from
something other than current assets, earnings and dividends.
What investments influenced the Fund's performance over the past twelve months?
The basis of our stock and industry selection process is a quantitative factor
model, which is primarily comprised of value and momentum factors. Because both
our industry and our stock selection techniques use value as a very important
factor, our portfolios have a decided value tilt. Currently, the value tilt is
even stronger than usual because of the underperformance, and consequent
attractive relative value, of value-oriented stocks. Growth stocks have
outperformed value stocks by a wide margin thus far in 1998, which shows up both
in higher returns for more growth-oriented industries and sectors and also in
higher returns for the higher growth stocks within the same industry or sector.
Our disciplines currently indicate that value-oriented stocks are unusually
inexpensive relative to high P/E, growth stocks.
[BEGIN DESCRIPTION OF BAR CHART]
- --------------------------------------------------------------------------------
S&P 500 Growth vs S&P Value
1 Year Return as of 10/31/98
21.83%
------
3.62%
-----
------ -----
Growth Value
- --------------------------------------------------------------------------------
[END DESCRIPTION OF BAR CHART]
Value investing is a proven long-term strategy. Normally, value stocks provide
both downside protection in a choppy market and long-term above-average returns,
two attributes that we like very much. We are not about to abandon value
investing because we have hit a rough patch in performance.
What is your outlook going forward?
The "one-two" punch that has hurt us this year is primarily our active
positioning of the Fund towards attractively priced small cap and value stocks.
Currently, the market is at an historical extreme with respect to these two
characteristics, which cut across all layers of our arrangement of portfolios:
asset allocation, industry selection and stock selection. We expect to benefit
when the market returns to more normal pricing with respect to these
characteristics.
The long-term story behind the Aetna Growth and Income Fund hasn't changed.
Diversification works well over the long-term. Value investing works well over
the long-term. Patience, discipline and sound analysis are crucial, especially
at times like these when emotions are running high.
68 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
% of
Common % of S&P Over/(Under)
Sector Stocks 500 Weighting
<S> <C> <C> <C>
Basic Materials 2.3% 3.5% (1.2)%
Commercial Services 5.0% 1.9% 3.1%
Consumer Discretionary 22.6% 11.3% 11.3%
Consumer Non-Discretionary 1.5% 10.2% (8.7)%
Energy 4.9% 7.8% (2.9)%
Finance 11.8% 16.1% (4.3)%
Healthcare 13.4% 12.7% 0.7%
Manufacturing 10.8% 10.4% 0.4%
Technology 13.8% 15.7% (1.9)%
Utilities 13.9% 10.4% 3.5%
</TABLE>
Large Cap Portfolio Sector Breakdown:
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
Eli Lilly and Co. 1.7%
AT&T Corp. 1.7%
BellSouth Corp. 1.7%
Intel Corp. 1.5%
Ford Motor Co. 1.5%
Allstate Corp. (The) 1.5%
Merck & Co., Inc. 1.4%
Sun Microsystems, Inc. 1.4%
Johnson & Johnson 1.3%
Abbott Laboratories 1.2%
</TABLE>
See Definition of Terms. 69
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Real Estate Securities Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Real Estate Securities Fund (Class I) NAREIT Index
<S> <C> <C>
Feb-98 10000 10000
9660 9680
9030 8927
Oct-98 8320 8384
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- -------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- -------------------------------------------
Inception Date Inception*
- -------------------------------------------
<S> <C> <C>
Class I 02/02/98 -16.80%
- -------------------------------------------
Class A: 02/02/98
POP (1) -21.77%
NAV (2) -17.00%
- -------------------------------------------
Class C: 06/30/98
w/CDSC (3) -18.26%
NAV -17.44%
- -------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For the
period prior to the inception of Class C, the performance is calculated by using
the performance of Class I, adjusted for fees and expenses. Class I, Class A and
Class C shares participate in the same portfolio of securities.
Aetna Real Estate Securities Fund
How did the Fund perform during the period?
Since its February 2, 1998 inception through October 31, 1998, the Aetna Real
Estate Securities Fund Class I returned -16.80, net of fund expenses, versus
- -16.16 for the National Association of Real Estate Investment Trusts Equity
(REIT) Index(c).
What economic and financial market conditions impacted the Fund?
The public debt and equity markets remain largely closed for capital raising by
real estate companies, with joint ventures or asset sales providing relatively
limited capital for new investments. We believe equity REITs have demonstrated a
healthy sensitivity to the capital markets; with acquisitions virtually coming
to a halt and development activity slowing dramatically. The market's 'checks
and balances' appear to be materially better than prior real estate cycles.
Overall, real estate securities continued to lag the broader markets during the
quarter, a trend which began in the first quarter. However, the negative
sentiment pervasive since the first quarter (stemming mostly from slowing growth
expectations for real estate) appears to have peaked. The real estate sector
enjoyed a brief, if unsustainable, reprieve in September, as the sector
70 See Definition of Terms.
<PAGE>
gained 12% in a two-week period but ended the month up only 5.7%. Real estate
stocks' high dividend yields and sizable discounts to net asset value sparked
the bounce and appear to provide some support for the group. Despite companies
posting double digit per share growth on average, the market continues to shrug
off the good news and focus on the potential negatives: that real estate
development could push the industry toward oversupply and that an economic
slowdown could dampen demand for space.
What investments influenced the Fund's performance over the past nine months?
The Fund's under-weight position in hotels has been a large and consistent
positive contributor to performance. Strong stock selection within the hotel
sector, particularly underweighting of Patriot American Hospitality remained
positive for the Fund. With hotel REIT valuations appearing to offer an
attractive risk/reward profile, the Fund increased its exposure to the sector,
although it remains underweight. In the multi-family sector, the Fund maintained
an overweight exposure with the belief that this group could provide stability
in a turbulent environment. The multi-family overweight has provided a modest
benefit to the Fund year-to-date. At the same time, exposure to the commercial
mortgage sector, especially Criimi Mae, produced a substantial drag on
performance over the last two months. Unusually wide credit spreads in the
commercial mortgage-backed securities market triggered a drastic repricing of
mortgage inventories, and corresponding drop in value.
What is your outlook going forward?
With the increasing possibility of a "soft landing" in the national economy,
real estate markets should remain in equilibrium, with generally stable
conditions expected in most property types. Alternatively, if global financial
market turmoil or deflationary pressures were to persist, a domestic,
dollar-denominated business with contractual rental income streams - such as
real estate - should perform more predictably than the broader market.
We continue to believe equity real estate securities represent an attractive
total return opportunity, especially at current levels. Dividend yields average
7.3%, with healthy coverage ratios and strong prospects for continued dividend
growth. Consensus Funds From Operations (FFO) estimates per share for the sector
(already incorporating reduced external growth assumptions) are currently in the
5% to 7% range, which still compare favorably with the growth expectations of
the broader market. Furthermore, REITs currently trade at historically low
levels based on the S&P 500 relative earnings multiple. We believe balance sheet
strength, stable property fundamentals, access to alternative financing sources
(such as joint ventures) and potential for internal growth will continue to
differentiate real estate companies in this environment.
Real estate securities involve certain risks, including dependency on a firm's
management skills, general and regional economic impact on the industry, changes
in the value of properties owned, refinancing and risks similar to those linked
to small company investing.
<TABLE>
<CAPTION>
% of Net
Top Ten Equity Holdings Assets
<S> <C>
Equity Office Properties Trust 5.0%
Equity Residential Properties Trust 5.0%
PS Business Parks, Inc. 4.7%
Camden Property Trust 4.7%
Kimco Realty Corp. 4.5%
Brandywine Realty Trust 4.3%
CBL & Associates Properties, Inc. 4.2%
Post Properties, Inc. 4.2%
Glenborough Realty Trust, Inc. 4.1%
Vornado Realty Trust 4.0%
</TABLE>
See Definition of Terms. 71
<PAGE>
Definition of Terms
(1) Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase.
(2) Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
(3) Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption and assumes redemption at the end of the period.
(a) The Standard & Poor's (S&P) 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks that assumes reinvestment of all dividends, and is
considered to be representative of the stock market in general.
(b) The Lehman Brothers Aggregate Bond Index is an unmanaged index of corporate,
government and mortgage bonds.
(c) The National Association of Real Estate Investment Trusts (NAREIT) Equity
REIT Index is an unmanaged, market-weighted average of the performance for
tax-qualified real estate investment trusts listed on the New York Stock
Exchange, American Stock Exchange and the NASDAQ National Market System.
The opinions expressed reflect those of the portfolio manager only through
October 31, 1998. The manager's opinions are subject to change at any time based
on market and other conditions. The composition, industries and holdings of the
portfolio are subject to change.
72
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Balanced
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
COMMON STOCKS (54.6%)
Air Transport (0.5%)
Airborne Freight Corp. .................... 1,700 $ 39,844
Alaska Air Group, Inc. + ................. 600 21,563
AMR Corp. + ............................... 2,200 147,400
ASA Holdings, Inc. ....................... 1,800 64,575
Atlantic Coast Airlines Holdings + ........ 2,400 57,600
Atlas Air, Inc. + ......................... 1,000 34,500
Delta Air Lines, Inc. ..................... 500 52,781
Midwest Express Holdings, Inc. + .......... 1,500 47,437
SkyWest, Inc. ............................ 2,000 51,000
Southwest Airlines Co. .................... 2,250 47,672
US Airways Group, Inc. + .................. 900 50,906
----------------
615,278
----------------
Aluminum (0.1%)
Alcan Aluminum Ltd. ....................... 900 22,781
Aluminum Co. of America ................... 1,000 79,250
Reynolds Metals Co. ....................... 500 29,969
----------------
132,000
----------------
Auto Parts and Hardware (0.3%)
Black & Decker Corp. ...................... 700 36,181
Carlisle Co., Inc. ........................ 2,000 77,250
CLARCOR, Inc. ............................. 1,800 30,375
Genuine Parts Co. ......................... 1,300 40,950
Goodyear Tire & Rubber Co. (The)........... 900 48,487
Snap-On, Inc. ............................. 300 10,631
SPX Corp. + ............................... 600 32,663
Standard Motor Products, Inc. ............ 1,500 33,375
Stanley Works ............................. 600 18,000
Wynn's International, Inc. ................ 1,350 25,397
----------------
353,309
----------------
Automotive (1.3%)
Arvin Industries, Inc. .................... 1,500 59,437
Chrysler Corp. ............................ 6,300 303,187
Coach USA, Inc. + ......................... 1,600 42,900
Dana Corp. ................................ 700 29,269
Dura Automotive Systems, Inc. + ........... 3,600 85,950
Eaton Corp. ............................... 400 27,075
Ford Motor Co. ............................ 11,500 623,875
General Motors Corp. ...................... 3,600 227,025
Gentex Corp. + ............................ 2,600 38,188
Johnson Controls, Inc. ................... 600 33,750
Smith (A.O.) Corp. ........................ 1,350 27,591
Standard Products Co. 1,200 18,825
TRW, Inc. ................................. 900 51,244
----------------
1,568,316
----------------
Banks and Thrifts (3.7%)
Bank of New York Co., Inc. ............... 4,400 138,875
Bank One Corp. ............................ 6,466 316,026
BankAmerica Corp. ......................... 9,415 540,788
BankBoston Corp. .......................... 1,600 58,900
Number of Market
Shares Value
------------- --------------
Banks and Thrifts (continued)
BB&T Corp. ................................ 1,800 $ 64,237
Charter One Financial, Inc. ............... 2,807 77,017
Chase Manhattan Corp. ..................... 4,600 261,337
City National Corp. ....................... 1,500 51,281
Comerica, Inc. ............................ 1,650 106,425
Fifth Third Bancorp ....................... 1,800 119,250
First Republic Bank + ..................... 1,400 34,650
First Union Corp. ......................... 5,406 313,548
FirstFed Financial Corp. + ................ 3,000 49,125
Fleet Financial Group, Inc. .............. 5,800 231,637
Flushing Financial Corp. .................. 2,250 34,453
Golden West Financial Corp. ............... 500 45,344
HUBCO, Inc. .............................. 2,731 73,737
Huntington Bancshares ..................... 1,230 35,363
Imperial Bancorp + ........................ 3,960 54,945
J.P. Morgan & Co. ......................... 600 56,550
KeyCorp ................................... 2,500 75,781
Mellon Bank Corp. ......................... 2,400 144,300
Mercantile Bancorporation, Inc. ........... 900 41,119
National City Corp. ....................... 1,600 102,900
North Fork Bancorp, Inc. .................. 4,668 92,776
Northern Trust Corp. ...................... 800 59,000
Norwest Corp. ............................. 4,500 167,344
PNC Bank Corp. ............................ 1,800 90,000
Republic New York Corp. ................... 400 16,725
Resource Bancshares Mortgage
Group, Inc. .............................. 2,000 29,500
Riggs National Corp. ...................... 1,300 31,363
Silicon Valley Bancshares + ............... 1,800 36,900
State Street Corp. ........................ 1,400 87,325
Summit Bancorporation ..................... 1,000 37,938
Suntrust Banks, Inc. ...................... 1,600 111,500
U.S. Bancorp .............................. 4,700 171,550
Wachovia Corp. ...... 1,100 99,962
Washington Mutual, Inc. ................... 3,298 123,469
Webster Financial Corp. ................... 1,600 39,500
Wells Fargo & Co. ......................... 500 185,000
----------------
4,407,440
----------------
Biotech and Medical Products (0.7%)
Alpharma, Inc. ............................ 1,500 41,531
Alza Corp. + .............................. 400 19,150
Amgen, Inc. + ............................. 2,600 204,263
Becton, Dickinson & Co. .................. 1,800 75,825
Boston Scientific Corp. + ................. 1,100 59,881
Cooper Companies, Inc. + .................. 1,000 23,750
Guidant Corp. ............................. 1,600 122,400
Hanger Orthopedic Group, Inc. + ........... 2,100 41,475
Maxxim Medical, Inc. + .................... 1,300 32,825
Medtronic, Inc. .......................... 1,600 104,000
Monsanto Co. .............................. 1,400 56,875
ResMed Inc. + ............................. 700 35,700
Visx, Inc. + .............................. 600 30,075
</TABLE>
See Notes to Portfolio of Investments. 73
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Balanced (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Biotech and Medical Products (continued)
Xomed Surgical Products, Inc. + ........... 900 $ 40,444
----------------
888,194
----------------
Chemicals (0.5%)
Dow Chemical Co. .......................... 1,300 121,712
Du Pont (E.I.) de Nemours ................. 6,200 356,500
Eastman Chemical Co. ...................... 500 29,375
Hercules, Inc. ........................... 600 19,988
Rohm & Haas Co. ........................... 1,800 60,750
----------------
588,325
----------------
Commercial Services (0.7%)
ADVO, Inc. + ............................. 2,500 63,594
Aviation Sales Co. + ...................... 1,100 36,575
Big Flower Holdings, Inc. + ............... 2,400 46,800
Bowne & Co., Inc. ......................... 1,800 24,188
Consolidated Graphics, Inc. + ............ 400 18,975
Day Runner, Inc. + ........................ 1,600 32,000
Insight Enterprises, Inc. + .............. 1,350 39,150
Interim Services, Inc. + ................ 2,200 46,750
Interpublic Group of Co., Inc.............. 900 52,650
Lason, Inc. + ............................ 1,000 54,750
Mail-Well, Inc. + ......................... 2,800 36,575
Matthews International Corp. .............. 1,500 41,437
Nielsen Media Research .................... 1,800 25,538
NVR, Inc. + ............................... 900 30,600
Omnicom Group, Inc. ....................... 1,500 74,156
Pulte Corp. ............................... 1,200 30,900
RCM Technologies, Inc. + ................ 4,100 61,756
RR Donnelley & Sons Co. ................... 1,000 43,125
Staff Leasing, Inc. + .................... 1,000 12,375
Staffmark, Inc. + ......................... 1,200 21,075
TMP Worldwide Inc. + ...................... 1,200 36,000
Valassis Communications, Inc. + ........... 1,600 63,800
----------------
892,769
----------------
Computers (2.2%)
Bell & Howell Co. + ....................... 1,300 34,450
Compaq Computer Corp. ..................... 9,412 297,654
Computer Sciences Corp. ................... 600 31,650
Computer Task Group, Inc. ................. 1,600 49,000
Dell Computer Corp. + .................... 12,200 800,625
Electronic Data Systems Corp. ............. 2,700 109,856
Gateway 2000, Inc. + ..................... 900 50,231
Henry (Jack) & Associates, Inc. ........... 900 41,063
Hewlett Packard Co. ....................... 3,600 216,675
International Business Machines Corp. .. .. 5,300 786,719
Sun Microsystems, Inc. + .................. 2,600 151,450
Unisys Corp. + ............................ 1,200 31,950
----------------
2,601,323
----------------
Conglomerate and Aerospace (2.3%)
AAR Corp. ................................. 1,350 31,219
Alliant Techsystems, Inc. + ............... 1,000 70,000
Aviall, Inc. + ............................ 3,100 33,519
Number of Market
Shares Value
-------------- --------------
Conglomerate and Aerospace (continued)
BE Aerospace, Inc. + ...................... 1,400 $ 30,100
Boeing Co. ................................ 3,400 127,500
Cordant Technologies, Inc. ................ 1,400 56,962
General Dynamics Corp. .................... 1,000 59,187
General Electric Co. ...................... 17,800 1,557,500
Goodrich (B. F.) Co. ...................... 200 7,200
Kellstrom Industries, Inc. + ............. 1,900 42,750
Kroll O' Gara Co. (The) + ................. 1,800 44,325
Lockheed Martin Corp. ..................... 1,400 155,925
National Service Industries, Inc. ......... 200 7,175
Northrop Grumman Corp. .................... 400 31,900
Raytheon Co. + ............................ 2,300 133,544
Tenneco, Inc. ............................. 900 27,338
Textron, Inc. ............................. 1,200 89,250
United Technologies Corp. ................. 2,300 219,075
----------------
2,724,469
----------------
Consumer Finance (1.3%)
Associates First Capital Corp. ............ 2,752 194,016
Avis Rent A Car, Inc. + .................. 1,800 36,675
Capital One Financial Corp. ............... 700 71,225
Countrywide Credit Industries, Inc. ....... 800 34,550
Electro Rent Corp. + ...................... 5,300 51,675
Federal Home Loan Mortgage Corp. .......... 4,400 253,000
Federal National Mortgage Association .. .. 10,200 722,287
Household International, Inc. ............. 2,100 76,781
MBNA Corp. ................................ 5,250 119,766
Resource America, Inc. ................... 4,100 40,488
----------------
1,600,463
----------------
Consumer Products (1.7%)
Avon Products, Inc. ....................... 1,800 71,438
Bestfoods ................................. 2,000 109,000
Clorox Co. ................................ 800 87,400
Colgate-Palmolive Co. ..................... 1,600 141,400
Eastman Kodak Co. ......................... 3,100 240,250
Fossil, Inc. + ........................... 3,600 65,925
Gillette Co. .............................. 6,300 283,106
International Flavors & Fragrances, Inc.... 600 22,463
Kimberly-Clark Corp. ...................... 2,300 110,975
Procter & Gamble Co. ...................... 7,300 648,787
Twinlab Corp. + ........................... 800 17,750
Unilever NV ............................... 3,900 293,475
----------------
2,091,969
----------------
Consumer Services (1.0%)
Anchor Gaming + ........................... 200 10,175
Applebee's International, Inc. ............ 1,600 32,600
Bob Evans Farms, Inc. ..................... 2,500 49,219
Brinker International, Inc. + ............. 1,900 45,956
Buffets, Inc. + ........................... 4,000 43,250
CEC Entertainment, Inc. + ................. 1,500 42,375
Cendant Corp. + ........................... 4,743 54,248
CKE Restaurants, Inc. .................... 1,230 32,364
</TABLE>
74 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Consumer Services (continued)
Dover Downs Entertainment, Inc. ........... 4,000 $ 54,500
Education Management Corp. + .............. 1,500 55,125
Foodmaker, Inc. + ......................... 2,000 31,625
H & R Block, Inc. ......................... 1,300 58,256
Hilton Hotels Corp. ....................... 1,500 30,094
International Speedway Corp. .............. 1,200 37,050
ITI Technologies, Inc. + ................. 1,200 34,650
Marriott International, Inc. .............. 900 24,188
McDonald's Corp. .......................... 4,000 267,500
Metris Companies, Inc. .................... 1,341 44,085
O' Charleys, Inc. + ....................... 1,950 23,400
Rental Service Corp. + ................... 1,500 33,375
Ruby Tuesday, Inc. ........................ 3,800 64,125
Service Corp. International ............... 1,700 60,562
Servico, Inc. + ........................... 1,000 4,875
Tricon Global Restaurants, Inc. + ......... 580 25,230
United Rentals, Inc. + ................... 1,700 45,688
Veterinary Centers of America, Inc. + ..... 1,700 30,175
----------------
1,234,690
----------------
Consumer Specialties (0.2%)
Action Performance Co., Inc. + ............ 1,200 35,850
Brunswick Corp. ........................... 600 11,663
Hasbro, Inc. .............................. 900 31,556
Jostens, Inc. ............................. 300 6,769
Mattel, Inc. ............................. 1,700 60,987
Steinway Musical Instruments, Inc. + ...... 1,400 30,887
Sturm, Ruger & Co., Inc. ................ 2,200 30,388
Sunterra Corp. + .......................... 1,200 11,400
----------------
219,500
----------------
Data and Imaging Services (3.7%)
Autodesk, Inc. ............................ 200 6,238
Automatic Data Processing, Inc............. 2,000 155,625
AVT Corp. + ............................... 2,000 43,750
Cisco Systems, Inc. + ..................... 14,750 929,250
Computer Associates International, Inc. ... 3,050 120,094
Computer Horizons Corp. + ................. 1,200 27,600
EMC/MASS Corp. + .......................... 5,100 328,312
First Data Corp. .......................... 1,600 42,400
Learning Co., Inc. (The) + ............... 1,800 46,463
Mapics, Inc. + ............................ 2,100 39,638
Microsoft Corp. + ......................... 22,700 2,403,362
Oracle Corp. + ............................ 5,600 165,550
Parametric Technology Co. + ............... 800 13,300
Progress Software Corp. + ................. 1,800 46,912
Reynolds And Reynolds ..................... 1,900 34,200
Symantec Corp. + .......................... 1,500 24,000
TSI International Software Ltd. +.......... 1,200 37,650
----------------
4,464,344
----------------
Discretionary Retail (3.6%)
99 Cents Only Stores + .................... 1,400 64,750
American Eagle Outfitters, Inc. +.......... 800 32,400
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Discretionary Retail (continued)
AnnTaylor Stores Corp. + .................. 2,000 $ 58,000
AutoZone, Inc. + .......................... 1,000 26,313
Buckle, Inc. + ............................ 2,100 38,062
Cato Corp. (The) .......................... 3,300 43,931
Consolidated Stores Corp. + ............... 600 9,863
Costco Companies, Inc. + ................ 1,900 107,825
CSK Auto Corp. + .......................... 1,000 26,063
Dayton Hudson Corp. ....................... 4,000 169,500
Dillards, Inc. ............................ 600 18,638
Eagle Hardware & Garden, Inc. + ........... 2,400 55,800
Federated Department Stores, Inc. + ....... 1,400 53,812
Fingerhut Companies, Inc. ................. 1,700 14,344
Fred's, Inc. ............................. 4,300 56,169
Gap, Inc. ................................. 4,050 243,506
Goody's Family Clothing, Inc. + ........... 3,000 32,063
Home Depot, Inc. ......................... 13,900 604,650
J.C. Penney Co., Inc. ..................... 1,400 66,500
Kmart Corp. + ............................. 3,600 50,850
Kohl's Corp. + ............................ 1,500 71,719
Linens 'n Things, Inc. + .................. 2,200 68,062
Lowe's Co., Inc. .......................... 3,900 131,381
May Department Stores Co. ................. 1,500 91,500
Men's Wearhouse, Inc. + .................. 2,550 61,837
Michaels Stores, Inc. + .................. 1,300 26,000
Musicland Stores Corp. + .................. 3,900 51,431
Nordstrom, Inc. ........................... 1,200 32,775
Pacific Sunwear of California + ........... 1,800 38,925
Pier 1 Imports, Inc. ..................... 3,150 29,138
Renters Choice, Inc. + .................... 1,700 42,181
Sears, Roebuck & Co. ..................... 2,200 98,862
Tandy Corp. ............................... 800 39,650
The Limited, Inc. ......................... 1,800 46,125
TJX Companies, Inc. ....................... 4,200 79,537
Toys "R" Us, Inc. + ....................... 1,000 19,563
Trans World Entertainment Corp. + ......... 3,000 61,875
Tweeter Home Entertainment Group + ........ 2,400 33,600
Wal-Mart Stores, Inc. ..................... 20,700 1,428,300
Williams-Sonoma, Inc. + ................... 1,800 49,050
Zale Corp. + .............................. 1,300 30,794
----------------
4,305,344
----------------
Diversified Financial Services (1.1%)
American Express Co. ...................... 3,700 326,987
American General Corp. .................... 2,600 178,100
Citigroup Inc. ............................ 12,283 578,069
Morgan Stanley, Dean Witter,
Discover & Co. ........................... 3,300 213,675
Transamerica Corp. ........................ 500 52,000
----------------
1,348,831
----------------
Drugs (5.4%)
Abbott Laboratories ....................... 11,800 553,863
American Home Products Corp. .............. 7,100 346,125
Baxter International, Inc. ................ 1,100 65,931
</TABLE>
See Notes to Portfolio of Investments. 75
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Balanced (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
-------------- --------------
<S> <C> <C>
Drugs (continued)
Bristol-Myers Squibb Co. .................. 5,600 $ 619,150
Eli Lilly & Co. ........................... 6,500 526,094
Johnson & Johnson ......................... 7,600 619,400
Jones Medical Industries, Inc. ........... 1,200 38,775
Medicis Pharmaceutical Corp. + ........... 1,000 50,125
Merck & Co., Inc. ......................... 6,600 892,650
Pfizer, Inc. .............................. 12,100 1,298,481
Pharmacia & Upjohn, Inc. .................. 2,100 111,169
Roberts Pharmaceutical Corp. + ............ 700 15,575
Schering Plough ........................... 7,100 730,412
Warner Lambert Co. ........................ 7,600 595,650
----------------
6,463,400
----------------
Electric Utilities (1.5%)
Ameren Corp. .............................. 700 27,956
American Electric Power Co. ............... 1,400 68,512
Baltimore Gas & Electric Co. .............. 1,100 34,513
Black Hills Corp. ......................... 1,300 33,556
Calpine Corp. + ........................... 1,800 40,050
Carolina Power & Light Co. ................ 1,100 50,463
Central & South West Corp. ................ 1,500 41,719
Central Hudson Gas & Electric Co. ......... 1,800 72,900
Central Vermont Public Service ........... 4,300 46,494
Cinergy Corp. ............................. 1,200 41,400
Cleco Corp. ............................... 1,000 33,813
Commonwealth Energy System Co. ............ 2,000 74,625
Consolidated Edison ....................... 1,800 90,225
Dominion Resources, Inc. .................. 1,400 64,662
DTE Energy Co. ............................ 800 34,100
Edison International ...................... 2,900 76,487
Entergy Corp. ............................. 1,700 48,875
FirstEnergy Corp. ......................... 1,500 45,000
GPU, Inc. ................................. 900 38,813
Houston Industries, Inc. .................. 1,800 55,913
Independent Energy Holdings + ............ 3,900 26,325
Interstate Energy Corp. ................... 2,922 90,399
Minnesota Power, Inc. .................... 800 33,550
Northern States Power Co. ................. 1,000 27,000
Peco Energy Co. ........................... 1,100 42,556
PG&E Corp. ................................ 1,100 33,481
Philadelphia Suburban Corp. ............... 1,400 34,388
PP & L Resources, Inc. .................. 1,200 32,550
Public Service Co. of New Mexico .......... 3,200 70,600
Public Service Enterprise Group, Inc. .. .. 1,600 60,800
Sierra Pacific Resources .................. 1,500 54,656
Southern Co. .............................. 4,200 118,387
Texas Utilities Co. ....................... 1,200 52,500
Triumph Group Inc. + ..................... 1,300 42,088
Unicom Corp. .............................. 1,600 60,300
----------------
1,799,656
----------------
Electrical Machinery and Instruments (0.5%)
Harris Corp. .............................. 500 17,531
<CAPTION>
Number of Market
Shares Value
-------------- --------------
<S> <C> <C>
Electrical Machinery and Instruments (continued)
Knoll, Inc. + ............................. 1,500 $ 40,500
Mettler-Toledo International,
Inc. + ................................... 1,800 39,375
Pitney Bowes, Inc. ....................... 2,000 110,125
Tektronix, Inc. .......................... 50 894
Virco Manufacturing Corp. ................. 1,320 26,070
Waters Corp. + ............................ 1,200 88,200
Xerox Corp. ............................... 2,700 261,562
----------------
584,257
----------------
Electronic Media (0.7%)
Citadel Communications Corp. + ............ 2,600 53,300
Clear Channel Communications,
Inc. + .................................. 1,400 63,788
Tele-Communications, Inc. + ............. 3,200 134,800
Time Warner, Inc. ......................... 3,300 306,281
Viacom, Inc. + ............................ 1,700 101,787
Walt Disney Co. (The) ..................... 6,900 185,869
----------------
845,825
----------------
Food and Beverage (2.0%)
Anheuser-Busch Co., Inc. .................. 3,100 184,256
Archer-Daniels-Midland Co. ................ 1,785 29,787
Beringer Wine Estates Holdings,
Inc. + ................................... 800 36,300
Brown-Forman Corp. + ...................... 500 33,969
Campbell Soup Co. ......................... 1,900 101,294
Canandiagua Brands, Inc. + ................ 900 45,112
Coca-Cola Co. ............................. 13,600 919,700
Conagra, Inc. ............................ 2,000 60,875
Coors (Adolph) Co. ........................ 300 15,000
Earthgrains Co. (The) ..................... 2,000 60,000
Fortune Brands, Inc. ..................... 600 19,838
General Mills, Inc. ....................... 1,200 88,200
Hain Food Group, Inc. (The) + ............ 1,800 36,225
Heinz (H.J.) Co. .......................... 2,200 127,875
Hershey Foods Corp. ....................... 1,100 74,594
Michael Foods, Inc. ....................... 1,700 40,800
PepsiCo, Inc. ............................. 5,000 168,750
Pioneer Hi-Bred International,
Inc...................................... 1,500 42,000
Quaker Oats Co. ........................... 1,000 59,062
Ralcorp Holdings, Inc. + .................. 2,000 35,250
Ralston-Ralston Purina Group .............. 900 30,038
Robert Mondavi Corp. + .................... 900 30,544
Sara Lee Corp. ............................ 2,600 155,187
Wrigley (Wm.) Jr. Co. .................... 600 48,562
----------------
2,443,218
----------------
Food and Drug Retail (0.7%)
Albertson's, Inc. ......................... 1,800 100,012
American Stores Co. ....................... 1,900 61,869
Casey's General Stores, Inc. .............. 2,400 33,600
CVS Corp. ................................. 2,500 114,219
Duane Reade, Inc. + ....................... 1,200 46,350
Great Atlantic & Pacific Tea
Co., Inc. ................................ 200 4,700
Kroger Co. (The) + ........................ 1,800 99,900
Rite Aid Corp. ............................ 1,800 71,437
</TABLE>
76 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Food and Drug Retail (continued)
SUPERVALU, Inc. ........................... 1,400 $ 33,600
Sysco Corp. ............................... 1,800 48,488
Walgreen Co. .............................. 2,900 141,194
Winn-Dixie Stores, Inc. ................... 800 27,150
----------------
782,519
----------------
Forest Products and Building Materials (0.4%)
Armstrong World Industries, Inc. .......... 300 18,600
Centex Construction Products, Inc. ........ 1,300 43,713
Crown Cork & Seal Co., Inc. ............... 500 15,938
Elcor Corp. ............................... 1,400 40,600
Fort James Corp. .......................... 1,300 52,406
Ivex Packaging Corp. + .................... 900 15,919
Lone Star Industries, Inc. ................ 1,100 77,481
Masco Corp. ............................... 2,200 62,012
Owens-Illinois, Inc. + .................... 900 27,506
Sealed Air Corp. + ........................ 268 9,497
Simpson Manufacturing Co., Inc. + ......... 1,000 32,750
Southdown, Inc. ........................... 500 27,219
Westvaco Corp. ............................ 400 9,850
----------------
433,491
----------------
Gas Utilities (0.3%)
Coastal Corp. (The) ....................... 1,600 56,400
Columbia Energy Group ..................... 600 34,725
Consolidated Natural Gas Co. .............. 500 26,406
Energen Corp. ............................. 2,000 36,000
Enron Corp. ............................... 1,300 68,575
Piedmont Natural Gas, Inc. ................ 500 17,375
Williams Co., Inc. (The) .................. 2,200 60,363
----------------
299,844
----------------
Health Services (0.6%)
Bindley Western Industries, Inc. .......... 1,900 68,875
Cardinal Health, Inc. ..................... 1,000 94,562
Carematrix Corp. + ........................ 1,000 24,625
Columbia/HCA Healthcare Corp. ............. 2,700 56,700
HBO & Co. ................................. 3,800 99,750
HEALTHSOUTH Corp. + ....................... 2,600 31,525
Humana, Inc. + ............................ 600 11,363
IDX Systems Corp. + ....................... 700 29,663
IMS Health, Inc. .......................... 1,200 79,800
Integrated Health Services,
Inc. ..................................... 2,200 35,612
Medical Manager Corp. + .................. 1,700 42,287
Shared Medical Systems Corp. .............. 100 4,988
Sunrise Assisted Living, Inc. + .......... 1,300 55,981
Tenet Healthcare Corp. + ................. 2,100 58,669
United Healthcare Corp. ................... 700 30,494
Universal Health Services, Inc. + ......... 500 25,656
----------------
750,550
----------------
Heavy Machinery (0.4%)
Astec Industries, Inc. + ................. 1,900 97,375
Caterpillar, Inc. ......................... 2,000 90,000
Cummins Engine Co., Inc. ................. 200 6,825
<CAPTION>
Number of Market
Shares Value
-------------- --------------
<S> <C> <C>
Heavy Machinery (continued)
Deere & Co. ............................... 900 $ 31,837
Gardner Denver Machinery, Inc. + ......... 3,300 47,437
Manitowoc Co., Inc. (The) ................. 2,200 77,000
Navistar International Corp. + ............ 800 16,700
PACCAR, Inc. ............................. 700 30,538
Terex Corp. + ............................. 3,400 73,950
----------------
471,662
----------------
Housing and Furnishings (0.8%)
American Homestar Corp. + ................. 2,550 41,756
Centex Corp. .............................. 600 20,100
Champion Enterprises, Inc. + ............. 2,600 51,675
D.R. Horton, Inc. ......................... 2,500 39,688
Department 56, Inc. + .................... 1,000 31,188
Ethan Allen Interiors, Inc. .............. 1,000 34,375
Fairfield Communities, Inc. ............... 1,100 10,794
Furniture Brands International,
Inc. + .................................. 1,700 36,550
Helen of Troy Ltd. + ...................... 4,400 65,450
Interface, Inc. ........................... 1,900 23,394
Kaufman & Broad Home Corp. ................ 1,600 45,700
Kenneth Cole Productions, Inc. + .......... 1,800 30,375
La-Z-Boy, Inc. ............................ 3,000 55,125
Maytag Corp. .............................. 1,000 49,437
MDC Holdings, Inc. ........................ 2,100 36,881
Mohawk Industries, Inc. + ................. 2,400 72,450
Newell Co. ................................ 1,100 48,400
Pillowtex Corp. ........................... 1,600 52,000
Rent-Way, Inc. + ......................... 1,900 44,887
Rubbermaid, Inc. .......................... 1,100 36,506
Ryland Group, Inc. ........................ 1,800 44,775
Standard Pacific Corp. .................... 3,700 35,844
Webb (Del E) Corp. ........................ 2,200 51,700
Whirlpool Corp. ........................... 500 25,625
----------------
984,675
----------------
Industrial Services (0.4%)
Allied Waste Industries, Inc. + ........... 2,640 57,090
Browning-Ferris Industries, Inc. .......... 1,000 35,438
Casella Waste Systems, Inc. + ............. 1,100 32,450
Granite Construction, Inc. ............... 2,050 68,291
Jacobs Engineering Group, Inc. + .......... 1,200 39,150
Jersey Ray Mcdermott, S.A. + .............. 1,400 43,925
Laidlaw, Inc. ............................. 2,100 19,819
Tokheim Corp. + ........................... 1,500 13,125
Waste Management, Inc. .................... 3,300 148,912
Watsco, Inc. .............................. 2,700 45,731
----------------
503,931
----------------
Insurance (2.6%)
Allstate Corp. (The) ...................... 6,300 271,294
American Annuity Group, Inc. .............. 1,500 34,500
American International Group, Inc. ........ 9,900 843,975
Aon Corp. ................................. 1,200 74,400
Arm Financial Group, Inc. ................ 1,800 34,538
</TABLE>
See Notes to Portfolio of Investments. 77
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Balanced (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
-------------- --------------
<S> <C> <C>
Insurance (continued)
Capital Re Corp. .......................... 2,400 $ 43,950
Century Business Services, Inc. + ......... 1,900 26,481
Chartwell Re Corp. ........................ 1,000 24,875
Chicago Title Corp. ....................... 800 33,450
Chubb Corp. .............................. 1,000 61,500
CIGNA Corp. .............................. 1,500 109,406
Cincinnati Financial Corp.................. 1,000 37,313
CMAC Investment Corp. ..................... 1,600 67,000
Conseco, Inc. ............................ 1,800 62,437
Enhance Financial Services Group, Inc. ... 1,800 44,212
ESG Re Ltd. ............................... 900 16,650
FBL Financial Group, Inc. ................. 3,100 78,856
Fidelity National Financial, Inc. ......... 1,430 43,973
First American Financial Corp. ............ 2,000 62,625
FPIC Insurance Group, Inc. + ............ 1,700 49,512
Gallagher (Arthur J.) & Co. ............... 900 38,138
General Re Corp. .......................... 500 109,844
Hartford Financial Services Group, Inc. ... 1,600 85,000
Hooper Holmes, Inc. ...................... 2,100 50,006
Jefferson-Pilot Corp. .................... 750 45,562
LandAmerica Financial Group, Inc. ......... 1,300 67,519
LaSalle Re Holdings Ltd. .................. 500 11,813
Life Re Corp. ............................. 700 65,319
Lincoln National Corp. .................... 1,000 75,875
Marsh & Mclennan Co., Inc. ................ 1,700 94,350
MBIA, Inc. ............................... 800 48,900
MGIC Investment Corp. ..................... 1,500 58,500
Mutual Risk Management Ltd. ............... 1,200 40,575
Progressive Corp. ......................... 500 73,625
Safeco Corp. .............................. 500 21,656
St. Paul Co., Inc. ........................ 850 28,156
State Auto Financial Corp. ................ 2,000 28,250
SunAmerica, Inc. .......................... 1,250 88,125
Torchmark Corp. ........................... 800 35,000
Triad Guaranty Inc. + ..................... 500 10,625
UNUM Corp. ................................ 1,000 44,437
----------------
3,142,222
----------------
Investment Services (0.5%)
Affiliated Managers Group, Inc. + ......... 1,000 22,250
Bear Stearns Co., Inc. (The) .............. 700 24,981
Charles Schwab Corp. ...................... 1,800 86,287
Conning Corp. ............................. 1,400 20,650
Doral Financial Corp. ..................... 3,600 63,000
Duff & Phelps Credit Rating Co. ........... 1,100 52,113
Everen Capital Corp. ..................... 800 16,300
Franklin Resources, Inc. ................. 1,500 56,719
Golden State Bancorp, Inc. ................ 2,000 38,375
Harbor Florida Bancshares, Inc. ........... 3,200 35,000
Lehman Brothers Holdings, Inc. ............ 700 26,556
Merrill Lynch & Co., Inc. ................. 1,100 65,175
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Investment Services (continued)
Providian Financial Corp. ................. 700 $ 55,563
----------------
562,969
----------------
Major Telecommunications (4.2%)
Alltel Corp. .............................. 1,400 65,538
Ameritech Corp. ........................... 8,800 474,650
AT&T Corp. ................................ 16,700 1,039,575
Bell Atlantic Corp. ....................... 9,200 488,750
BellSouth Corp. ........................... 9,100 726,294
GTE Corp. ................................. 6,000 352,125
MCI Worldcom, Inc. + ...................... 9,458 522,555
SBC Communications, Inc. .................. 17,800 824,362
Sprint Corp. .............................. 2,700 207,225
U.S. WEST, Inc. ........................... 4,809 275,916
----------------
4,976,990
----------------
Miscellaneous Metals (0.1%)
Johnstown America Industries, Inc. + ...... 5,100 72,038
--------------
Oil (2.1%)
Amoco Corp. ............................... 3,200 179,600
Ashland Oil, Inc. ......................... 500 24,063
Chevron Corp. ............................. 2,500 203,750
Exxon Corp. ............................... 13,800 983,250
Mobil Corp. ............................... 4,400 333,025
Royal Dutch Petroleum Co................... 12,000 591,000
Sun Company, Inc. ......................... 600 20,588
Texaco, Inc. .............................. 1,800 106,762
USX- Marathon Group ....................... 1,000 32,687
----------------
2,474,725
----------------
Oil Services (0.3%)
Cal Dive International, Inc. + ............ 2,200 47,025
Cooper Cameron Corp. + .................... 1,000 34,750
Friede Goldman International, Inc. + ...... 1,200 20,100
Halliburton Co. ........................... 2,900 104,218
Pool Energy Services Co. + ................ 1,000 13,344
Schlumberger, Ltd. ....................... 1,800 94,500
SEACOR SMIT Holdings + .................... 700 33,469
Veritas DGC, Inc. + ....................... 800 14,900
----------------
362,306
----------------
Other Telecommunications (1.7%)
AirTouch Communications, Inc. + ........... 3,200 179,200
Ascend Communications, Inc. + ........... 1,200 57,900
Associated Group, Inc. + .................. 900 30,375
Comcast Corp. ............................. 2,300 113,562
Empire District Electric Co. .............. 1,500 34,312
General Cable Corp. ....................... 2,500 49,375
General Instrument Corp. + ................ 1,000 25,688
ITC Deltacom, Inc. + ...................... 800 14,100
L-3 Communications Holdings, Inc. + ....... 500 21,500
Lucent Technologies, Inc. ................. 12,700 1,018,381
Mediaone Group Inc. + ..................... 3,600 152,325
Northern Telecom Ltd. .................... 3,100 132,719
Scientific-Atlanta, Inc. .................. 400 5,975
</TABLE>
78 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Other Telecommunications (continued)
SIGCORP, Inc. ............................. 1,100 $ 37,744
Tekelec + ................................. 2,400 43,050
Tellabs, Inc. + ........................... 1,600 88,000
----------------
2,004,206
----------------
Print Media (0.4%)
Dun & Bradstreet Corp. .................... 1,000 28,375
Equifax, Inc. ............................ 1,100 42,556
Gannett Co., Inc. ........................ 1,900 117,562
Knight-Ridder, Inc. ....................... 500 25,469
McGraw-Hill Co., Inc. ..................... 700 62,956
New York Times Co. ........................ 1,800 50,850
Times Mirror Co. .......................... 700 38,806
Tribune Co. ............................... 900 51,863
----------------
418,437
----------------
Producer Goods (2.0%)
AFC Cable Systems, Inc. + ................ 1,200 29,550
Allegheny Teledyne, Inc. .................. 1,200 24,675
Allied Signal, Inc. ....................... 3,300 128,494
Alpine Group, Inc. (The) + ................ 1,900 32,062
Applied Power, Inc. ....................... 2,520 69,457
Avery Dennison Corp. ...................... 900 37,294
Avondale Industries, Inc. + .............. 2,400 62,550
C & D Technologies, Inc. .................. 2,300 56,062
Cooper Industries, Inc. ................... 700 30,887
Dover Corp. ............................... 1,300 41,275
Ecolab, Inc. .............................. 1,000 29,875
Emerson Electric Co. ...................... 3,100 204,600
FMC Corp. + ............................... 200 10,213
Graco, Inc. ............................... 2,100 55,387
Grainger (W.W.), Inc. ..................... 600 27,638
Honeywell, Inc. ........................... 900 71,887
Hughes Supply, Inc. ....................... 1,900 50,469
Illinois Tool Works, Inc. ................. 1,700 109,012
Ingersoll-Rand Co. ........................ 1,500 75,750
ITT Industries, Inc. ...................... 800 28,600
Kaydon Corp. .............................. 1,400 49,175
Kuhlman Corp. ............................. 500 13,250
Minnesota Mining and Manufacturing Co. .... 1,400 112,000
Monaco Coach Corp. + ...................... 2,700 82,012
Motivepower Industries, Inc. + ............ 1,400 35,612
Mueller Industries, Inc. + .............. 2,600 58,500
Parker-Hannifin Corp. ..................... 600 21,450
PPG Industries, Inc. ...................... 1,000 57,187
Raychem Corp. ............................. 600 18,338
Shaw Group, Inc. + ........................ 1,500 14,438
Sherwin-Williams Co. ...................... 1,000 25,188
Spartech Corp. ............................ 2,300 41,400
Superior TeleCom Inc. ..................... 1,300 55,900
Thermo Electron Corp. + ................... 500 9,969
Thomas Industries, Inc. ................... 300 5,438
Timken Co. ................................ 200 3,563
<CAPTION>
Number of Market
Shares Value
------------- --------------
<S> <C> <C>
Producer Goods (continued)
Tower Automotive, Inc. + 3,300 $ 73,425
Tredegar Industries, Inc. 2,900 65,431
Tyco International Ltd. 5,700 353,044
United Stationers, Inc. + 1,600 42,400
Varlen Corp. ........ 1,800 53,775
Westinghouse Air Brake Co. 1,500 32,250
----------------
2,399,482
----------------
Real Estate Investment Trusts (0.5%)
Apartment Investment & Management Co. ..... 1,800 62,887
Brandywine Realty Trust ................... 1,600 28,600
CBL & Associates Properties, Inc. ......... 2,100 54,731
Duke Realty Investments, Inc. ............. 1,200 28,650
Eastgroup Properties, Inc. ................ 1,600 30,500
Essex Property Trust, Inc. ................ 1,000 31,375
General Growth Properties, Inc. ........... 1,700 60,456
Glenborough Realty Trust, Inc. ............ 1,300 27,869
Health Care REIT, Inc. .................... 1,000 22,625
Healthcare Realty Trust, Inc. ............. 1,200 28,125
Hospitality Properties Trust .............. 1,100 29,150
Koger Equity, Inc. ........................ 1,200 20,250
Lasalle Partners, Inc. + ................. 600 17,550
MeriStar Hospitality Corp. ................ 1,779 32,912
Parkway Properties, Inc. .................. 1,200 34,200
Prentiss Properties Trust ................ 1,500 30,938
U S Restaurant Properties, Inc. ........... 2,000 48,875
----------------
589,693
----------------
Semiconductors and Electronics (1.0%)
CHS Electronics, Inc. + ................... 1,600 15,600
CTS Corp. ................................. 900 26,663
Esterline Technologies + ................. 2,800 56,000
Flextronics International Ltd. + .......... 900 46,744
Inacom Corp. + ............................ 1,900 36,812
Intel Corp. ............................... 9,100 811,606
Level One Communications, Inc. + .......... 1,350 35,522
Lincoln Electric Holdings ................. 1,600 35,100
Texas Instruments, Inc. ................... 1,300 83,119
----------------
1,147,166
----------------
Specialty Chemicals (0.1%)
Air Products and Chemicals, Inc. .......... 1,300 49,075
Engelhard Corp. ........................... 700 14,700
Grace (W.R.) & Co. ........................ 500 8,688
Morton International, Inc. ................ 800 19,900
Praxair, Inc. ............................. 900 36,225
Sigma-Aldrich Corp. ....................... 700 21,634
----------------
150,222
----------------
Steel (0.1%)
Carpenter Technology Corp. ................ 700 24,544
Nucor Corp. ............................... 300 13,594
Reliance Steel & Aluminum Co. ............ 1,100 34,031
USX-US Steel Group, Inc. .................. 300 6,975
</TABLE>
See Notes to Portfolio of Investments. 79
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Balanced (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Steel (continued)
Worthington Industries ..................... 300 $ 4,069
-----------
83,213
-----------
Surface Transport (0.3%)
Burlington Northern Santa Fe
Corp ...................................... 2,800 86,450
CSX Corp. .................................. 500 19,625
FDX Corp. Holding Co. + .................... 800 42,050
Knightsbridge Tankers Ltd. ................. 1,200 26,100
Norfolk Southern Corp. ..................... 2,200 72,462
Rollins Truck Leasing Corp. ................ 5,250 61,031
Swift Transportation Co.,
Inc. + .................................... 1,900 41,978
U.S. Freightways Corp. ..................... 1,400 35,088
-----------
384,784
-----------
Textiles and Apparel (0.1%)
Gerber Childrenswear, Inc. + ............... 1,700 14,450
Liz Claiborne, Inc. ........................ 500 14,688
Maxwell Shoe Co., Inc. + ................... 1,600 18,800
Nautica Enterprises, Inc. + ................ 1,400 28,962
Novel Denim Holdings Ltd. + ................ 1,500 22,875
Oshkosh B'Gosh, Inc. ....................... 2,200 45,925
Venator Group, Inc. ........................ 400 3,375
VF Corp. ................................... 700 29,269
-----------
178,344
-----------
Total Common Stocks
(Cost $53,058,606) 65,346,389
-----------
PREFERRED STOCKS (0.5%)
California Federal Preferred
Capital Corp. .............................
(Banks and Thrifts) ....................... 12,000 307,500
Duke Energy Corp.(Electric
Utilities) ................................ 2,500 161,719
FPL Group, Inc.(Electric
Utilities) ................................ 1,400 87,587
Union Carbide Corp.(Chemicals) ............. 500 19,250
-----------
Total Preferred Stocks (Cost
$516,504) ................................. 576,056
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (34.5%)
Corporate and Convertible Bonds (6.5%)
BankAmerica Corp., 7.88%,
12/01/02 ............................................ $ 250,000 268,070
Ford Motor Credit Corp., 6.63%,
10/01/28 ............................................ 1,130,000 1,082,111
Household Finance Corp., 5.88%,
09/25/04 ............................................ 850,000 836,927
International Lease Finance
Corp., 5.56%, 09/18/01 .............................. 1,000,000 1,006,250
MBIA, Inc., 6.63%, 10/01/28 .......................... 550,000 540,188
Norwest Financial, Inc., 5.38%,
09/30/03 ............................................ 1,000,000 994,360
Rite Aid Corp., 6.00%, 10/01/03 ...................... 850,000 851,700
TCI Communications, Inc.,
6.38%, 09/15/99 ..................................... 1,000,000 1,013,130
Tenet Healthcare Corp., 7.88%,
01/15/03 ............................................ 300,000 307,584
USA Waste Management, Inc.,
6.13%, 07/15/01 ..................................... 880,000 898,049
-----------
Total Corporate and Convertible Bonds ................ 7,798,369
-----------
Corporate Bonds (10.6%)
American General Finance Corp.,
8.45%, 10/15/09 ..................................... 1,000,000 1,181,290
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- -----------
<S> <C> <C>
Corporate Bonds (continued)
Anheuser Busch Companies,
5.65%, 09/15/08 ........................... $ 300,000 $ 298,875
BCH Cayman Islands Ltd., 7.70%,
07/15/06 .................................. 900,000 939,618
Centennial Cellular Corp.,
10.13%, 05/15/05 .......................... 450,000 517,500
Chrysler Financial Corp.,
5.25%, 10/19/00 ........................... 400,000 403,836
Citicorp, Inc., 6.69%, 08/01/00 ............ 500,000 511,235
Comcast Cellular Holdings,
Inc., 9.50%, 05/01/07 ..................... 1,000,000 1,022,500
Commercial Mortgage Acceptance
Corp., 5.80%, 03/15/06 .................... 447,643 447,782
Exide Corp., 10.00%, 04/15/05 B ............ 525,000 448,875
First Empire Capital Trust II,
8.28%, 06/01/27 ........................... 500,000 538,395
Flag Ltd., 8.25%, 01/30/08 ................. 375,000 343,125
Fred Meyer, Inc., 7.38%,
03/01/05 .................................. 700,000 724,479
Globo Communicacoes, 10.63%,
12/05/08 B ................................ 400,000 215,000
HSBC America, 7.81%, 12/15/26 B ............ 750,000 686,408
Kaman Corp., 6.00%, 03/15/12 ............... 449,000 453,490
Korean Development Bank, 7.90%,
02/01/02 .................................. 650,000 581,685
Merrill Lynch & Co., Inc.,
5.75%, 11/04/02 ........................... 650,000 648,375
Panama (Republic of), 7.88%,
02/13/02 B ................................ 400,000 385,000
Raytheon Co., 6.75%, 08/15/07 .............. 1,000,000 1,043,200
Riggs Capital Trust, 8.63%,
12/31/26 B ................................ 300,000 311,544
Rogers Cantel, Inc., 9.38%,
06/01/08 .................................. 400,000 402,000
Russia-Interest Notes, 6.63%,
12/15/15 .................................. 699,155 72,100
Tenet Healthcare Corp., 8.00%,
01/15/05 .................................. 200,000 204,860
WorldCom, Inc., 8.88%, 01/15/06 ............ 258,000 282,737
-----------
Total Corporate Bonds ...................... 12,663,909
-----------
Foreign and Supranationals (2.1%)
African Development Bank,
8.80%, 09/01/19 ........................... 1,000,000 1,264,490
Argent-Global Bond (Republic of
Argentina), 11.38%, 01/30/17 .............. 400,000 388,000
Transport De Gas Del Sur,
7.75%, 12/23/98 ........................... 400,000 400,776
United Mexican States Government,
11.38%, 09/15/16 .......................... 400,000 388,000
-----------
Total Foreign and Supranationals ........... 2,441,266
-----------
Non-agency Mortgage-backed Securities (1.2%)
CS First Boston Mortgage Corp.,
6.48%, 05/17/08 ........................... 500,000 508,300
DLJ Mortgage Acceptance Corp.,
8.10%, 06/18/04 ........................... 350,000 350,109
Merrill Lynch Mortgage Investors, Inc.,
7.79%, 06/15/21 ........................... 589,517 602,413
-----------
Total Non-agency Mortgage-backed Securities 1,460,822
-----------
U.S. Government Agency Mortgage-Backed
Securities (12.8%)
Federal National Mortgage
Association, 6.50%, 11/12/28 BB ........... 1,700,000 1,713,281
Federal National Mortgage Association,
9.50%, 10/01/16 ........................... 792,000 848,182
GMAC Commercial Mortgage,
6.87%, 08/15/07 ........................... 500,000 524,798
Government National Mortgage Association,
6.50%, 05/15/28 ........................... 3,987,461 4,036,068
</TABLE>
80 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- -----------
<S> <C> <C>
U.S. Government Agency Mortgage-Backed
Securities (continued)
Government National Mortgage Association,
7.50%, 12/15/23 ........................... $ 4,151,858 $ 4,282,903
Government National Mortgage Association,
8.00%, 12/15/23 ........................... 3,812,126 3,953,899
-----------
Total U.S. Government Agency Mortgage-Backed 15,359,131
Securities ................................ -----------
U.S. Government Obligations (1.3%)
U.S. Treasury Bond, 6.75%,
08/15/26 BBB .............................. 490,000 587,539
U.S. Treasury Note, 5.75%,
10/31/00 .................................. 925,000 950,003
-----------
Total U.S. Government Obligations .......... 1,537,542
-----------
Total Long-Term Bonds and Notes
(Cost $41,286,844) ........................ 41,261,039
-----------
SHORT-TERM INVESTMENTS (11.9%)
Federal Home Loan Bank, 5.40%,
11/02/98 .................................. 7,551,000 7,551,000
Federal Home Loan Mortgage
Corp., 5.00%, 11/17/98 .................... 1,700,000 1,696,459
Occidental Petroleum, 5.60%,
11/18/98 B ................................ 2,000,000 1,995,022
Textron, Inc., 5.75%, 11/02/98 ............. 3,000,000 3,000,000
-----------
Total Short-Term Investments
(Cost $14,242,481) ........................ 14,242,481
-----------
Total Investments (Cost $109,104,435)(a) .. 121,425,965
Other Assets Less Liabilities .............. (1,778,622)
-----------
Total Net Assets ........................... $119,647,343
===========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$109,368,922. Unrealized gains and losses, based on identified tax cost at
October 31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................. $15,066,359
Unrealized losses............................ (3,009,316)
-----------
Net unrealized gain......................... $12,057,043
===========
</TABLE>
+ Non-income producing security.
B 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 securites have been determined
to be liquid under guidelines established by the Board of Directors.
BB When-issued or delayed delivery security.
BBB Segregated securities for purchases of delayed delivery or when-issued
securities held at October 31, 1998.
Category percentages are based on net assets.
See Notes to Financial Statements. 81
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Growth and Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS (88.6%)
United States (84.4%)
Air Transport (2.0%)
Airborne Freight Corp. ..................... 5,600 $ 131,250
AMR Corp. + ................................ 103,500 6,934,500
Delta Air Lines, Inc. ...................... 56,600 5,974,837
-----------
13,040,587
-----------
Auto Parts and Hardware (0.7%)
Black & Decker Corp. ....................... 87,700 4,532,994
WD-40 Co. .................................. 2,000 53,000
-----------
4,585,994
-----------
Automotive (1.7%)
Dana Corp. ................................. 28,623 1,196,799
Dura Automotive Systems, Inc. + ............ 4,100 97,888
Ford Motor Co. ............................. 176,500 9,575,125
-----------
10,869,812
-----------
Banks and Thrifts (2.6%)
Bank One Corp. ............................. 7,452 364,217
Bank United Corp. .......................... 3,500 139,469
Comerica, Inc. ............................. 60,750 3,918,375
Dime Bancorp, Inc. ......................... 37,900 902,494
Fifth Third Bancorp ........................ 38,100 2,524,125
FirstFed Financial Corp. + ................. 16,600 271,825
Fleet Financial Group, Inc. ............... 21,500 858,656
Golden West Financial Corp. ................ 54,800 4,969,675
Meridian Industrial Trust, Inc. ............ 1,000 22,000
Prime Bancshares, Inc. ..................... 3,300 56,925
Suntrust Banks, Inc. ....................... 33,600 2,341,500
-----------
16,369,261
-----------
Biotech and Medical Products (3.8%)
ADAC Laboratories + ........................ 8,500 251,813
Alpharma, Inc. ............................. 46,500 1,287,469
Amgen, Inc. + .............................. 45,500 3,574,594
Barr Laboratories, Inc. + .................. 36,400 1,244,425
Bio-Rad Labs, Inc. + ....................... 45,800 1,010,462
Biogen, Inc. + ............................. 10,800 750,600
Datascope Corp. + .......................... 29,200 658,825
Guidant Corp. .............................. 24,600 1,881,900
Hanger Orthopedic Group, Inc. + ............ 146,200 2,887,450
Maxxim Medical, Inc. + ..................... 109,200 2,757,300
Mylan Laboratories, Inc. ................... 15,500 533,781
OEC Medical Systems, Inc. + ................ 28,000 700,000
Osteotech, Inc. + .......................... 54,300 1,367,681
Thermo BioAnalysis Corp. + ................. 200,000 2,112,500
Trex Medical Corp. + ....................... 6,900 84,525
Visx, Inc. + ............................... 49,000 2,456,125
Watson Pharmaceuticals, Inc. + ............. 16,000 890,000
-----------
24,449,450
-----------
Commercial Services (1.4%)
ACNielsen Corp. + .......................... 22,100 591,175
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Commercial Services (continued)
Day Runner, Inc. + ......................... 75,400 $ 1,508,000
Deluxe Corp. ............................... 89,400 2,894,325
Engineering Animation, Inc. + .............. 10,350 453,459
Galileo International, Inc. ................ 80,700 3,061,556
Modis Professional Services + .............. 6,167 108,700
URS Corp. + ................................ 9,100 153,563
-----------
8,770,778
-----------
Computers (3.3%)
Apple Computer, Inc. + ..................... 140,900 5,230,912
Ceridian Corp. + ........................... 22,700 1,302,412
International Business Machines Corp. ...... 36,100 5,358,594
Micron Electronics, Inc. + ................ 7,000 146,563
NCR Corp. + ................................ 9,200 309,350
Power Integrations, Inc. + ................. 13,200 211,200
Sun Microsystems, Inc. + ................... 149,400 8,702,550
-----------
21,261,581
-----------
Conglomerate and Aerospace (2.6%)
Cordant Technologies, Inc. ................. 25,300 1,029,394
General Dynamics Corp. ..................... 22,200 1,313,963
Goodrich (B. F.) Co. ....................... 174,500 6,282,000
Gulfstream Aerospace Corp. + ............... 18,200 805,350
Loews Corp. ................................ 63,000 5,918,062
Northrop Grumman Corp. ..................... 12,900 1,028,775
-----------
16,377,544
-----------
Consumer Finance (0.4%)
Avis Rent A Car, Inc. + .................... 38,200 778,325
Countrywide Credit Industries, Inc. ........ 37,000 1,597,937
Crescent Operating, Inc. + ................. 1,800 8,888
-----------
2,385,150
-----------
Consumer Products (0.9%)
American Greetings Corp. ................... 42,450 1,703,306
Dial Corp. ................................. 9,200 253,575
Intimate Brands, Inc. ..................... 13,700 306,538
M & F Worldwide Corp. + .................... 28,100 279,244
National R.V. Holdings, Inc. + ............. 105,000 2,375,625
Procter & Gamble Co. ....................... 10,000 888,750
-----------
5,807,038
-----------
Consumer Services (2.2%)
Brinker International, Inc. + .............. 20,300 491,006
Darden Restaurants, Inc. ................... 254,700 4,202,550
Extended Stay America, Inc. + .............. 33,800 325,325
Grand Casinos, Inc. + ...................... 97,900 862,744
International Speedway Corp. ............... 36,001 1,111,532
Red Roof Inns, Inc. + ...................... 21,000 363,562
RFS Hotel Investors, Inc. .................. 8,800 114,400
Servico, Inc. + ............................ 6,600 32,175
</TABLE>
82 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Consumer Services (continued)
Sonic Corp. + .............................. 11,700 $ 222,300
Tricon Global Restaurants, Inc. + .......... 149,700 6,511,950
-----------
14,237,544
-----------
Consumer Specialties (0.1%)
Brunswick Corp. ............................ 5,200 101,075
Hasbro, Inc. ............................... 6,700 234,919
-----------
335,994
-----------
Data and Imaging Services (5.3%)
America Online, Inc. ....................... 14,000 1,778,875
Avant! Corp. + ............................. 13,400 228,638
Computer Associates International,
Inc ....................................... 161,200 6,347,250
Computer Horizons Corp. + .................. 1,200 27,600
Compuware Corp. + .......................... 18,400 997,050
EMC/MASS Corp. + ........................... 58,100 3,740,187
Factset Research Systems, Inc. + ........... 7,000 210,000
Intuit Inc. + .............................. 8,600 434,300
Microsoft Corp. + .......................... 55,700 5,897,237
Network Associates, Inc. + ................. 6,800 289,000
Oracle Corp. + ............................. 168,400 4,978,325
Progress Software Corp. + .................. 81,800 2,131,913
QLogic Corp. + ............................. 58,700 5,422,412
Quantum Corp. + ............................ 13,800 241,500
Sterling Software, Inc. + .................. 10,300 269,731
THQ, Inc. + ................................ 1,000 21,563
Veritas Software Corp. + ................... 1,000 50,125
Visio Corp. + .............................. 20,500 545,813
-----------
33,611,519
-----------
Discretionary Retail (4.9%)
Abercrombie & Fitch Co. + .................. 88,800 3,524,250
99 Cents Only Stores + ..................... 3,000 138,750
American Eagle Outfitters, Inc. + .......... 78,000 3,159,000
Ames Department Stores, Inc. + ............. 59,200 1,087,800
Barnes & Noble, Inc. + ..................... 7,400 241,425
Best Buy Co., Inc. + ....................... 28,600 1,372,800
CompUSA, Inc. + ............................ 8,900 123,488
CSK Auto Corp. + ........................... 7,700 200,681
Dayton Hudson Corp. ........................ 51,100 2,165,362
Federated Department Stores, Inc. + ........ 65,200 2,506,125
Fingerhut Companies, Inc. .................. 30,300 255,656
Global DirectMail Corp. + .................. 10,300 146,775
Kmart Corp. + .............................. 18,900 266,963
Linens 'n Things, Inc. + ................... 5,600 173,250
Lowe's Co., Inc. ........................... 101,100 3,405,806
Micro Warehouse, Inc. + .................... 57,300 1,249,856
Musicland Stores Corp. + ................... 127,400 1,680,087
Office Depot, Inc. + ....................... 18,700 467,500
Renters Choice, Inc. + ..................... 24,200 600,463
Tandy Corp. ................................ 52,100 2,582,206
TJX Companies, Inc. ........................ 282,000 5,340,375
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Discretionary Retail (continued)
Zale Corp. + ............................... 13,400 $ 317,413
-----------
31,006,031
-----------
Diversified Financial Services (0.9%)
Morgan Stanley, Dean Witter, Discover
& Co. ..................................... 79,981 5,178,752
Transamerica Corp. ......................... 4,300 447,200
-----------
5,625,952
-----------
Drugs (6.3%)
Abbott Laboratories ........................ 168,300 7,899,581
Eli Lilly & Co. ............................ 136,600 11,056,062
IDEC Pharmaceuticals Corp. + ............... 14,200 424,225
Johnson & Johnson .......................... 99,600 8,117,400
Medicis Pharmaceutical Corp. + ............. 9,200 461,150
Merck & Co., Inc. .......................... 66,500 8,994,125
Rexall Sundown, Inc. + ..................... 6,100 109,419
Roberts Pharmaceutical Corp. + ............. 130,900 2,912,525
Theragenics Corp. + ........................ 18,600 375,488
-----------
40,349,975
-----------
Electric Utilities (1.3%)
Allegheny Energy, Inc. ..................... 25,800 793,350
Black Hills Corp. .......................... 8,000 206,500
Calpine Corp. + ............................ 700 15,575
Central & South West Corp. ................. 12,600 350,438
Cleco Corp. ................................ 6,300 213,019
Conectiv, Inc. ............................. 3,000 68,625
Energy East Corp. .......................... 21,200 1,036,150
Kansas City Power & Light Co. .............. 20,100 579,131
Minnesota Power, Inc. ...................... 4,600 192,913
Niagara Mohawk Power Corp. + ............... 301,500 4,409,437
OGE Energy Corp. ........................... 27,700 735,781
-----------
8,600,919
-----------
Electrical Machinery and Instruments (1.2%)
Waters Corp. + ............................. 7,000 514,500
Xerox Corp. ................................ 72,500 7,023,437
-----------
7,537,937
-----------
Electronic Media (0.8%)
Cablevision Systems Corp. + ................ 20,800 1,003,600
Capstar Broadcasting Corp. + ............... 18,500 321,438
CBS Corp. .................................. 12,800 357,600
Jacor Communications, Inc. + ............... 10,000 550,000
USA Networks, Inc. + ...................... 8,400 189,000
Viacom, Inc. + ............................. 42,700 2,556,662
-----------
4,978,300
-----------
Food and Beverage (0.6%)
Aurora Foods, Inc. + ....................... 52,700 922,250
Earthgrains Co. (The) ...................... 49,600 1,488,000
IBP, Inc. .................................. 29,300 792,931
Interstate Bakeries Corp. .................. 23,300 583,956
Ralcorp Holdings, Inc. + ................... 8,800 155,100
-----------
3,942,237
-----------
</TABLE>
See Notes to Portfolio of Investments. 83
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Growth and Income (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Food and Drug Retail (3.3%)
Casey's General Stores, Inc. ............... 76,000 $ 1,064,000
CVS Corp. .................................. 149,500 6,830,281
Duane Reade, Inc. + ........................ 2,700 104,287
Kroger Co. (The) + ......................... 39,400 2,186,700
Longs Drug Stores, Inc. .................... 117,900 4,605,469
Safeway, Inc. + ............................ 14,300 683,719
SUPERVALU, Inc. ............................ 207,700 4,984,800
U.S. Foodservice + ......................... 13,000 617,500
-----------
21,076,756
-----------
Forest Products and Building Materials (1.6%)
Ball Corp. ................................. 27,000 1,139,062
Boise Cascade Corp. ........................ 83,800 2,346,400
Chesapeake Corp. ........................... 2,400 84,000
Delta & Pine Land Co. ...................... 6,600 220,275
Florida Rock Industries, Inc. .............. 40,600 1,007,388
Georgia-Pacific Corp. ...................... 58,600 1,300,187
Lafarge Corp. .............................. 28,100 946,619
Lone Star Industries, Inc. ................. 34,400 2,423,050
Masco Corp. ................................ 15,800 445,363
Owens Corning .............................. 16,500 599,156
-----------
10,511,500
-----------
Gas Utilities (2.2%)
Coastal Corp. (The) ........................ 30,000 1,057,500
Columbia Energy Group ...................... 62,400 3,611,400
Eastern Enterprises ........................ 44,000 1,806,750
Energen Corp. .............................. 106,600 1,918,800
Enron Corp. ................................ 8,000 422,000
ONEOK, Inc. ................................ 49,200 1,685,100
Sempra Energy .............................. 138,199 3,593,174
Southwest Gas Corp. ........................ 10,100 239,244
-----------
14,333,968
-----------
Health Services (0.2%)
Lincare Holdings, Inc. + ................... 27,700 1,106,269
-----------
Housing and Furnishings (2.6%)
Centex Corp. ............................... 147,000 4,924,500
D.R. Horton, Inc. .......................... 4,736 75,184
Department 56, Inc. + ...................... 14,100 439,744
Fleetwood Enterprises, Inc. ................ 60,300 1,944,675
Kaufman & Broad Home Corp. ................. 119,000 3,398,937
Pulte Corp. ................................ 167,400 4,310,550
Ryland Group, Inc. ......................... 49,700 1,236,287
Standard Pacific Corp. ..................... 36,900 357,469
-----------
16,687,346
-----------
Industrial Services (0.2%)
Fluor Corp. ................................ 12,000 465,750
Foster Wheeler Corp. ....................... 52,100 827,088
Milacron, Inc. ............................. 6,600 127,875
-----------
1,420,713
-----------
Insurance (4.1%)
Allstate Corp. (The) ....................... 216,400 9,318,725
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Insurance (continued)
Americredit Corp. + ........................ 5,800 $ 77,575
CIGNA Corp. ................................ 47,700 3,479,119
Conseco, Inc. .............................. 108,000 3,746,250
ESG Re Ltd. ................................ 3,000 55,500
First American Financial Corp. ............. 24,600 770,287
Guarantee Mutual Life Companies, Inc. ...... 15,000 288,750
Hartford Life, Inc. ........................ 9,800 453,250
LandAmerica Financial Group, Inc. .......... 4,500 233,719
MGIC Investment Corp. ...................... 70,800 2,761,200
Mutual Risk Management Ltd. ................ 15,732 531,938
Nationwide Financial Services, Inc. ........ 4,800 199,200
SunAmerica, Inc. ........................... 63,800 4,497,900
-----------
26,413,413
-----------
Investment Services (1.1%)
Golden State Bancorp, Inc. ................. 124,200 2,383,087
Investors Financial Services Corp. ......... 1,000 53,875
Providian Financial Corp. .................. 51,200 4,064,000
Telebanc Financial Corp. + ................. 6,900 125,925
Vermont Financial Services Corp. ........... 4,400 99,550
-----------
6,726,437
-----------
Major Telecommunications (7.9%)
Alltel Corp. ............................... 82,100 3,843,306
AT&T Corp. ................................. 177,200 11,030,700
Bell Atlantic Corp. ........................ 126,000 6,693,750
BellSouth Corp. ............................ 132,700 10,591,119
SBC Communications, Inc. ................... 60,785 2,815,118
Sprint Corp. ............................... 100,300 7,698,025
U.S. WEST, Inc. ............................ 131,700 7,556,288
-----------
50,228,306
-----------
Oil (1.2%)
Ashland Oil, Inc. .......................... 103,600 4,985,750
Conoco Inc. + .............................. 13,300 330,838
Sun Company, Inc. .......................... 21,400 734,287
Tesoro Petroleum Corp. + ................... 49,000 725,812
Tosco Corp. ................................ 24,400 684,725
-----------
7,461,412
-----------
Oil Services (0.8%)
BJ Services Co. + .......................... 8,600 175,763
Cal Dive International, Inc. + ............. 8,000 171,000
Eagle Geophysical, Inc. + .................. 20,000 136,250
Helmerich & Payne, Inc. .................... 84,600 2,014,538
McDermott International, Inc. .............. 89,400 2,620,537
Santa Fe International Corp. ............... 5,200 95,875
-----------
5,213,963
-----------
Other Telecommunications (1.6%)
Aerial Communications, Inc. + .............. 16,100 90,563
Century Telephone Enterprises .............. 34,951 1,985,643
L-3 Communications Holdings, Inc. + ........ 3,200 137,600
Nokia Corp., ADR ........................... 6,400 595,600
SIGCORP, Inc. .............................. 12,600 432,337
Swisscom AG + .............................. 7,600 255,550
</TABLE>
84 See Notes to Portfolio of Investments.
<PAGE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Other Telecommunications (continued)
Teligent, Inc. + ........................... 8,600 $ 264,450
Tellabs, Inc. + ............................ 117,800 6,479,000
-----------
10,240,743
-----------
Print Media (2.3%)
Knight-Ridder, Inc. ........................ 101,000 5,144,688
McClatchy Co. (The) ........................ 31,725 1,076,667
McGraw-Hill Co., Inc. ...................... 48,800 4,388,950
New York Times Co. ......................... 141,600 4,000,200
-----------
14,610,505
-----------
Producer Goods (2.5%)
American Power Conversion Corp. + .......... 6,400 271,600
C & D Technologies, Inc. ................... 64,400 1,569,750
Graco, Inc. ................................ 21,900 577,613
Hanover Compressor Co. + ................... 15,000 378,750
Honeywell, Inc. ............................ 50,300 4,017,712
Ingersoll-Rand Co. ......................... 135,500 6,842,750
Special Metals Corp. + ..................... 6,600 66,000
Tower Automotive, Inc. + ................... 6,500 144,625
Tyco International Ltd. .................... 31,836 1,971,842
Varlen Corp. ............................... 15,000 448,125
-----------
16,288,767
-----------
Real Estate Investment Trusts (7.6%)
AMB Property Corp. ......................... 1,700 39,100
American Health Properties, Inc. ........... 7,700 171,325
Apartment Investment & Management Co. ...... 41,400 1,446,412
Archstone Communities Trust ................ 15,000 301,875
Arden Realty Group, Inc. ................... 20,200 436,825
Avalon Bay Communities, Inc. ............... 21,691 696,823
Beacon Capital + BBB ....................... 26,000 452,400
Bedford Property Investors, Inc. ........... 3,000 53,625
Berkshire Realty Co., Inc. ................. 5,800 52,200
Boston Properties, Inc. .................... 8,600 245,100
Boykin Lodging Co. ......................... 5,800 82,650
Bradley Real Estate, Inc. .................. 3,400 71,400
Brandywine Realty Trust .................... 50,900 909,837
Cabot Industrial Trust ..................... 4,100 82,000
Camden Property Trust ...................... 24,977 671,257
Captec Net Lease Realty, Inc. .............. 11,000 138,875
Carramerica Realty Corp. ................... 7,900 177,750
CBL & Associates Properties, Inc. .......... 99,000 2,580,187
Cca Prison Realty Trust .................... 17,100 401,850
Chateau Communities, Inc. .................. 11,500 337,813
Colonial Properties Trust .................. 14,500 398,750
Cornerstone Properties, Inc. ............... 18,200 282,100
Cousins Properties, Inc. ................... 12,000 343,500
Crescent Real Estate Equities, Inc. ....... 45,600 1,142,850
Criimi Mae, Inc. ........................... 20,100 27,638
Crown America Realty Trust ................. 16,800 134,400
Duke Realty Investments, Inc. .............. 34,400 821,300
Eastgroup Properties, Inc. ................. 5,050 96,266
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Real Estate Investment Trusts (continued)
Equity Office Properties Trust ............. 105,300 $ 2,527,200
Equity One, Inc. ........................... 5,600 51,100
Equity Residential Properties Trust ........ 70,349 2,954,658
Essex Property Trust, Inc. ................. 12,500 392,187
Felcor Suite Hotels, Inc. .................. 17,000 400,562
First Industrial Realty Trust, Inc. ........ 21,000 538,125
Franchise Finance Corp. of America ......... 19,500 485,062
Gables Residential Trust ................... 11,600 305,225
General Growth Properties, Inc. ............ 19,500 693,469
Glenborough Realty Trust, Inc. ............. 42,100 902,519
Glimcher Realty Trust ...................... 6,800 110,075
Golf Trust of America, Inc. ................ 6,000 160,500
Health Care REIT, Inc. ..................... 90,700 2,052,087
Healthcare Realty Trust, Inc. .............. 13,755 322,386
Highwood Properties, Inc. .................. 18,400 514,050
Home Properties of New York, Inc. .......... 6,200 166,625
Hospitality Properties Trust ............... 29,000 768,500
HRPT Properties Trust ...................... 142,800 2,275,875
Imperial Credit Commercial Mortgage
Investment Corp. .......................... 5,600 46,900
Kilroy Realty Corp. ........................ 14,200 315,063
Kimco Realty Corp. ......................... 66,050 2,629,616
Koger Equity, Inc. ......................... 15,000 253,125
Lexington Corporate Properties Trust ....... 3,800 47,500
Liberty Property Trust ..................... 107,500 2,472,500
LTC Healthcare, Inc. + ..................... 3,510 8,336
LTC Properties, Inc. ....................... 35,100 601,087
Mack-Cali Realty Corp. ..................... 9,800 290,325
Manufactured Home .......................... 9,800 244,388
Meditrust Companies ........................ 11,400 185,250
MeriStar Hospitality Corp. ................. 8,136 150,516
Merry Land Properties, Inc. + .............. 665 3,242
National Health Investors, Inc. ............ 2,900 81,744
OMEGA Healthcare Investors, Inc. ........... 32,400 1,004,400
Parkway Properties, Inc. ................... 7,900 225,150
Patriot American Hospitality, Inc. ......... 15,900 141,113
Post Properties, Inc. ...................... 63,800 2,468,262
Prentiss Properties Trust .................. 22,900 472,312
Prime Retail, Inc. ......................... 23,800 230,563
Prologis Trust ............................. 16,100 351,181
PS Business Parks, Inc. .................... 23,600 474,950
Public Storage, Inc. ....................... 22,700 605,806
Ramco-Gerhenson Properties Trust ........... 1,225 19,217
Reckson Associates Realty Corp. ............ 23,600 535,425
Reckson Service Industries + ............... 2,512 4,867
Regency Realty Corp. ....................... 8,800 202,950
Shurgard Storage Centers, Inc. ............. 6,900 185,869
Simon Property Group ....................... 32,700 978,956
SL Green Realty Corp. ...................... 4,600 87,113
Sovran Self Storage, Inc. .................. 3,700 94,813
Spieker Properties, Inc. ................... 23,800 821,100
Starwood Financial Trust ................... 183 12,993
</TABLE>
See Notes to Portfolio of Investments. 85
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Growth and Income (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Real Estate Investment Trusts (continued)
Starwood Lodging Trust ..................... 61,900 $ 1,752,544
Sun Communities, Inc. ...................... 8,250 275,859
Sunstone Hotel Investors, Inc. ............. 4,100 37,156
Tanger Factory Outlet Centers, Inc. ........ 7,100 155,756
Tower Realty Trust, Inc. ................... 1,800 36,450
United Dominion Realty Trust, Inc. ......... 21,367 237,708
Universal Health Realty Income Trust ....... 2,100 41,081
Urban Shopping Centers, Inc. ............... 14,500 478,500
Vornado Operating Co. + .................... 1,290 8,063
Vornado Realty Trust ....................... 25,800 869,137
Walden Residential Properties, Inc. ........ 12,600 290,588
Weeks Corp. ................................ 7,800 226,688
-----------
48,872,475
-----------
Semiconductors and Electronics (1.8%)
Altera Corp. + ............................. 11,400 474,525
Intel Corp. ................................ 110,100 9,819,544
Lattice Semiconductor Corp. + .............. 22,000 748,000
Novellus Systems, Inc. + ................... 11,600 450,225
SLI, Inc. + ................................ 11,700 195,975
-----------
11,688,269
-----------
Specialty Chemicals (0.2%)
Engelhard Corp. ............................ 4,701 98,716
Millennium Chemicals, Inc. + ............... 33,300 811,687
Solutia, Inc. .............................. 7,800 171,113
-----------
1,081,516
-----------
Surface Transport (0.2%)
Burlington Northern Santa Fe Corp. ......... 7,800 240,825
Tidewater, Inc. ............................ 30,800 872,025
-----------
1,112,850
-----------
Textiles and Apparel (0.0%)
Gerber Childrenswear, Inc. + ............... 3,600 30,600
-----------
Total United States (Cost $491,548,840) .... 539,249,411
-----------
Foreign Common Stocks (4.2%)
Australia (0.2%)
Mayne Nickless Ltd.(Commercial
Services) + ............................... 58,900 270,502
Mayne Nickless Ltd. Rights(Commercial
Services) + ............................... 94,240 41,822
Telstra Corp. Ltd. .........................
(Other Telecommunications) + .............. 146,600 579,305
Westpac Banking Corp. Ltd.(Banks and
Thrifts) .................................. 68,148 412,635
-----------
Total Australia ............................ 1,304,264
-----------
Belgium (0.1%)
Delhaize-le Lion SA(Food and
Beverage) ................................. 3,600 307,737
-----------
Canada (0.1%)
BCE Inc.(Major Telecommunications) ......... 2,000 67,616
Canadian National Railway Co. ..............
(Surface Transport) ....................... 7,001 351,826
-----------
Total Canada ............................... 419,442
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Denmark (0.1%)
Den Danske Bank(Investment Services) ....... 1,700 $ 230,857
Tele Danmark A/S
(Major Telecommunications) ................ 3,900 424,930
-----------
Total Denmark .............................. 655,787
-----------
Finland (0.0%)
Helsingin Puhelin Oyj
(Other Telecommunications) ................ 3,800 208,157
-----------
France (0.5%)
Accor SA(Consumer Services) ................ 1,600 336,009
Credit Commercial de France(Banks and
Thrifts) + ................................ 4,400 308,958
Danone(Food and Beverage) .................. 700 185,046
Elf Aquitaine SA(Oil) ...................... 3,400 393,414
Etablissements Economiques du Casino
Guichard-Perrachon SA(Commercial
Services) + ............................... 1,200 119,417
Gemini Sogeti SA(Insurance) ................ 2,400 360,626
Lafarge SA
(Forest Products and Building
Materials) ................................ 4,300 439,518
Renault SA(Automotive) ..................... 8,800 376,102
Scor(Insurance) ............................ 1,000 57,333
Societe Generale(Banks and Thrifts) ........ 1,700 224,851
Vivendi(Utilities - Water) ................. 1,400 319,705
-----------
Total France ............................... 3,120,979
-----------
Germany (0.4%)
Bayericshe Hypo-und Vereinsb
(Chemicals) + ............................. 3,600 285,839
BHF-Bank AG(Banks and Thrifts) ............. 3,900 150,473
Daimler-Benz AG(Automotive) ................ 2,420 187,764
Deutsche Pfandbrief & Hypothekenbank
AG(Banks and Thrifts) ..................... 5,100 403,399
Douglas Holding AG(Discretionary
Retail) ................................... 5,300 296,653
Gehe AG(Health Services) ................... 7,100 533,729
Mannesmann AG(Producer Goods) .............. 4,300 423,204
-----------
Total Germany .............................. 2,281,061
-----------
Ireland (0.2%)
Allied Irish Banks(Banks and Thrifts) ...... 28,165 406,784
CRH Plc (Forest Products and Building
Materials) ................................ 26,000 380,887
Waterford Wedgewood
(Housing and Furnishings) ................. 342,879 309,108
-----------
Total Ireland .............................. 1,096,779
-----------
Italy (0.2%)
Arnoldo Mondadori Editor(Print Media) ...... 30,800 341,230
Banca Commerciale Italiana
(Banks and Thrifts) ....................... 54,000 333,905
Credito Italiano(Banks and Thrifts) + ...... 78,400 421,132
Istituto Nazionale delle
Assicurazioni(Insurance) + ................ 58,500 161,225
</TABLE>
86 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Italy (continued)
Telecom Italia SpA (Commercial
Services) ................................. 44,000 $ 318,267
-----------
Total Italy ................................ 1,575,759
-----------
Japan (0.5%)
Fuji Photo Film(Chemicals) ................. 13,000 476,372
Hitachi Ltd.(Semiconductors and
Electronics) .............................. 14,000 71,246
Kao Corp.(Consumer Products) ............... 23,000 465,817
Mizuno Corp.(Consumer Products) ............ 90,000 281,910
Nintendo Co. Ltd.
(Semiconductors and Electronics) .......... 2,000 169,232
NTT Mobile Communication Network,
Inc .......................................
(Other Telecommunications) ................ 50 180,645
Santen Pharmaceutical Co. Ltd.(Drugs) ...... 17,000 291,633
Seino Transportation Co. Ltd.
(Surface Transport) ....................... 67,000 390,984
Shohkoh Fund(Banks and Thrifts) ............ 800 243,378
Sony Corp.(Consumer Products) .............. 4,700 298,473
Takefuji Corp.(Banks and Thrifts) .......... 4,800 255,804
-----------
Total Japan ................................ 3,125,494
-----------
Mexico (0.1%)
Cifra SA(Discretionary Retail) + ........... 150,000 195,891
Panamerican Beverages, Inc.
(Food and Beverage) ....................... 12,900 261,225
-----------
Total Mexico ............................... 457,116
-----------
Netherlands (0.2%)
Hunter Douglas NV(Consumer Services) ....... 4,029 144,534
ING Groep NV(Banks and Thrifts) ............ 6,931 335,477
Koninklijke Ahold NV(Commercial
Services) ................................. 9,898 329,107
Laurus Scrips(Food and Beverage) + ......... 41,300 103,931
Philips Electronic Nv(Heavy
Machinery) + .............................. 3,000 164,625
Vendex N.V.(Discretionary Retail) + ........ 5,900 150,052
VNU-Verenigde Nederlandes
Uitgeversbedrijven Verenigd Bezit
(Print Media) ............................. 9,600 332,049
-----------
Total Netherlands .......................... 1,559,775
-----------
New Zealand (0.0%)
Fernz Corp. Ltd.(Chemicals) ................ 50,000 145,589
-----------
Norway (0.2%)
Det Sondenfjelds-Norske
Dampskibsselskab(Oil) + ................... 30,700 435,169
Merkantildata Asa(Data and Imaging
Services) ................................. 33,000 331,244
Ocean Rig ASA(Oil) + ....................... 630,000 282,005
Tandberg Television ASA(Electronic
Media) + .................................. 21,600 199,235
-----------
Total Norway ............................... 1,247,653
-----------
Spain (0.1%)
Iberdrola SA(Electric Utilities) + ......... 31,000 499,767
Telefonica de Espana
(Major Telecommunications) ................ 8,900 401,117
-----------
Total Spain ................................ 900,884
-----------
Sweden (0.2%)
Celsius AB(Conglomerate and
Aerospace) ................................ 16,100 257,448
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Sweden (continued)
Industrial & Financial Systems(Data
and Imaging Services) + BB ................ 22,000 $ 208,261
Securitas AB(Consumer Services) ............ 24,000 294,739
Svenska Handelsbanken(Investment
Services) + ............................... 10,300 432,840
-----------
Total Sweden ............................... 1,193,288
-----------
Switzerland (0.4%)
Adecco SA(Surface Transport) ............... 900 358,883
Fischer (Georg) AG(Auto Parts and
Hardware) ................................. 750 258,640
Nestle SA Registered Shares
(Food and Beverage) ....................... 220 467,878
Novartis AG Registered Shares(Health
Services) + ............................... 265 477,478
Schweizerische
Rueckversicherungs-Gesellschaft
(Swiss Re)(Insurance) ..................... 110 244,986
Swiss Common(Other
Telecommunications) + ..................... 900 305,051
UBS AG(Banks and Thrifts) .................. 450 123,449
-----------
Total Switzerland .......................... 2,236,365
-----------
United Kingdom (0.7%)
Bank of Scotland(Banks and Thrifts) + ...... 40,441 439,545
British Aerospace Plc
(Conglomerate and Aerospace) .............. 49,800 366,126
British Telecom Plc
(Major Telecommunications) ................ 10,000 130,794
Cable & Wireless Plc(Other
Telecommunications) + ..................... 18,100 204,152
Dixons Group Plc(Discretionary
Retail) ................................... 31,000 331,222
Glaxo Wellcome Plc(Drugs) .................. 6,534 203,093
Granada Group Plc(Consumer
Services) + ............................... 32,811 494,812
Kingfisher Plc(Discretionary Retail) ....... 44,054 386,962
National Westminster Bank Plc
(Banks and Thrifts) ....................... 19,800 334,575
Pearson Plc(Print Media) ................... 18,400 321,087
Peninsular & Oriental Steam
Navigation Co.(Surface Transport) + ....... 13,500 141,642
Tomkins Plc(Consumer Services) ............. 66,200 306,542
Unilever Plc(Consumer Products) ............ 30,900 310,489
Vodafone Group Plc(Consumer Products) ...... 28,030 375,535
Williams Holdings(Forest Products) ......... 32,000 199,758
Total United Kingdom ....................... 4,546,334
-----------
Total Foreign Common Stocks
(Cost $23,302,723) ........................ 26,382,463
-----------
Total Common Stocks
(Cost $514,851,563) ....................... 565,631,874
-----------
PREFERRED STOCKS (0.3%)
Germany (0.1%)
Henkel KGAA(Chemicals) ..................... 3,800 324,663
Hugo Boss AG(Textiles and Apparel) + ....... 120 186,936
SAP AG(Data and Imaging Services) + ........ 600 292,360
-----------
Total Germany .............................. 803,959
-----------
United States (0.2%)
Case Corp.(Heavy Machinery) + BB ........... 800 47,600
</TABLE>
See Notes to Portfolio of Investments. 87
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Growth and Income (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Chancellor Media Corp.(Electronic
Media) + .................................. 1,400 $ 156,100
Corning Delware L.P.(Food and
Beverage) + ............................... 1,100 63,319
Equity Residential Properties(Real
Estate Investment Trusts) + ............... 2,100 49,350
Ingersoll-Rand Co.(Producer Goods) + ....... 4,200 106,575
International Paper Co.(Forest
Products and Building Materials) +
BB ........................................ 700 34,825
Kaufman & Broad Home
Corp.(Engineering Services) + ............. 19,200 144,000
Lincoln National Corp.(Electric
Utilities) + .............................. 5,600 138,600
Merrill "Dg" (Strypes)(Discretionary
Retail) + ................................. 5,300 173,906
Merrill CBR(Data and Imaging
Services) + ............................... 2,100 93,450
Owens-ill Inc.(Industrial Services) + ...... 1,400 56,175
Salomon, Inc.(Investment Services) + ....... 5,200 256,750
Tanger Factory Outlet Centers,
Inc.(Real Estate Investment
Trusts) + ................................. 4,200 83,475
Union Planters Co.(Food and
Beverage) + ............................... 1,400 77,000
-----------
Total United States ........................ 1,481,125
-----------
Total Preferred Stocks
(Cost $2,276,543) ......................... 2,285,084
-----------
PUT OPTION PURCHASED (0.2%)
Russell 2000 Index, Strike $350,
December 98 ............................... 141,400 830,725
Russell 2000 Index, Strike $360,
December 98 ............................... 28,000 213,500
S&P 400 Midcap Index, Strike $300,
December 98 ............................... 25,000 100,000
-----------
Total Put Options Purchased
(Cost $4,691,785) ........................ 1,144,225
-----------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (1.0%)
Corporate Bonds (1.0%)
Agnico-Eagle Mines Ltd., 3.50%,
01/27/04 .................................. $ 100,000 63,750
Alza Corp., 5.00%, 05/01/06 ................ 70,000 94,238
American Express Credit Corp.,
1.13%, 02/19/03 ........................... 180,000 182,700
Automatic Data Processing, Inc.,
Zero Coupon, 02/20/12 ..................... 30,000 30,300
Baker Hughes, Inc., Zero Coupon,
05/05/08 .................................. 175,000 116,594
Brightpoint Convertible,
Zero Coupon, 03/11/18 ..................... 245,000 75,950
Checkpoint Systems, Inc., 5.25%,
11/01/05 .................................. 88,000 72,600
Comverse Technology, Inc., 5.75%,
10/01/06 BB ............................... 400,000 451,500
Continental Airlines, Inc., 6.75%,
04/15/06 BB ............................... 140,000 191,187
Credence Systems Corp., 5.25%,
09/15/02 BB ............................... 300,000 225,000
Dovatron International, 6.00%,
10/15/02 .................................. 70,000 66,850
Einstein/Noah Bagel Corp., 7.25%,
06/01/04 .................................. 370,000 144,300
EMC/MASS Corp., 3.25%, 03/15/02 BB ......... 340,000 984,511
Fremont General Corp.,
Zero Coupon, 10/12/13 ..................... 370,000 354,275
Hewlett Packard Co.,
Zero Coupon, 10/14/17 BB .................. 630,000 340,200
<CAPTION>
Principal Market
Amount Value
--------- ------------
<S> <C> <C>
Corporate Bonds (continued)
Home Depot, Inc., 3.25%, 10/01/01 ......... $140,000 $ 266,000
Homebase, Inc., 5.25%, 11/01/04 ............ 210,000 180,075
Integrated Health Services, Inc.,
5.75%, 01/01/01 ........................... 105,000 90,038
Marriott International, Inc., Zero
Coupon, 03/25/11 BB ....................... 270,000 167,231
NAC Re Corp., 5.25%, 12/15/02 BB ........... 70,000 73,850
National Semiconductor Corp., 6.50%,
10/01/02 BB ............................... 350,000 283,500
Office Depot, Inc., Zero Coupon,
12/11/07 .................................. 275,000 206,937
Ogden Corp., 5.75%, 10/20/02 ............... 70,000 66,500
Ogden Corp., 6.00%, 06/01/02 ............... 25,000 24,000
Oryx Energy Co., 7.50%, 05/15/14 ........... 50,000 49,875
Pennzoil Co., 4.90%, 08/15/08 .............. 39,851 39,054
Phycor, Inc., 4.50%, 02/15/03 .............. 105,000 63,656
Phymatrix Corp., 6.75%, 06/15/03 ........... 200,000 70,000
Pioneer Financial Services, 6.50%,
04/01/03 .................................. 105,000 91,350
Potomac Electric Power, 7.00%,
01/15/18 .................................. 250,000 256,250
Richey Electronics, Inc., 7.00%,
03/01/06 BB ............................... 141,000 137,475
Roche Holdings, Zero Coupon, 05/06/12
BB ........................................ 875,000 461,562
SCI Systems, Inc., 5.00%, 05/01/06
BB ........................................ 55,000 90,922
Tel-Save Holding, Inc., 5.00%,
12/15/04 BB ............................... 100,000 40,000
Thermo Instrument System, 4.50%,
10/15/03 BB ............................... 70,000 61,425
U.S. Cellular Corp., Zero Coupon,
06/15/15 .................................. 175,000 69,015
Vantive Corp., 4.75%, 09/01/02 BB .......... 70,000 48,300
Veterinary Centers of America, 5.25%,
05/01/06 BB ............................... 35,000 27,650
-----------
Total Corporate Bonds ...................... 6,258,620
-----------
Total Long-Term Bonds and Notes
(Cost $5,764,187) ......................... 6,258,620
-----------
SHORT-TERM INVESTMENTS (9.9%)
Detroit Edison Co., 5.75%, 11/03/98 ........ 10,000,000 9,998,404
Federal Home Loan Bank, 5.40%,
11/02/98 .................................. 47,897,000 47,897,000
U.S. Treasury, 4.63%, 02/18/99 ............. 300,000 296,238
U.S. Treasury Bill, 4.50%, 02/18/99 ........ 400,000 394,984
U.S. Treasury Bill, 4.98%, 02/18/99 @ ...... 5,000,000 4,937,300
Total Short-Term Investments
(Cost $63,511,212) 63,523,926
-----------
Total Investments
(Cost $591,095,290)(A) .................... 638,843,729
Other assets less liabilities .............. (178,957)
-----------
Total net Assets ........................... $638,664,772
-----------
</TABLE>
88 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$593,681,392. Unrealized gains and losses, based on identified tax cost at
October 31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $ 76,433,369
Unrealized losses........................... (31,271,032)
------------
Net unrealized gain........................ $ 45,162,337
============
</TABLE>
Information concerning open futures contracts at October 31, 1998 is shown
below:
<TABLE>
<CAPTION>
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(loss)
---------- ------------ ----------- --------------
Long Contracts
- ------------------------
<S> <C> <C> <C> <C>
Russell 2000 Index
Futures....
8 $ 1,452,800 Dec 98 $ 71,200
S & P 500 Index Futures 292 75,875,131 Dec 98 4,804,469
----------- ----------
$77,327,931 $4,875,669
=========== ==========
</TABLE>
Information concerning options written at October 31, 1998 is shown below:
<TABLE>
<CAPTION>
No. of Exercise Expiration Market
Contracts Price Date Value
---------- --------- ----------- ---------------
Call Options
- ------------------------
<S> <C> <C> <C> <C>
Russell 2000 Index...... 1,414 $350.00 Dec 98 $(5,178,775)
Russell 2000 Index...... 280 360.00 Dec 98 (794,500)
S & P 400 Mid Cap Index. 250 300.00 Dec 98 (998,437)
Tyco International Ltd.. 60 55.00 Jan 99 (54,750)
------------
$(7,026,462)
============
</TABLE>
+ Non-income producing security.
B Restricted security. This security has been determined to be illiquid
under guidelines established by the Board of Directors.
BB 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 securites have been determined
to be liquid under guidelines established by the Board of Directors.
BBB This security has been determined to be illiquid under guidelines
established by the Board of Directors.
@ Security pledged to cover initial margin requirements on open futures
contracts at October 31, 1998.
Category percentages are based on net assets.
See Notes to Financial Statements. 89
<PAGE>
Growth and Income Funds
Portfolio of Investments - October 31, 1998
Real Estate
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------------
<S> <C> <C>
Common Stocks (95.0%)
Real Estate Investment Trusts (95.0%)
Apartment Investment & Management Co. ...... 4,600 $ 160,712
Archstone Communities Trust ................ 1,100 22,138
Arden Realty Group, Inc. ................... 600 12,975
Avalon Bay Communities, Inc. ............... 1,600 51,400
Beacon Capital + B ......................... 6,600 114,840
Bedford Property Investors, Inc. ........... 4,000 71,500
Brandywine Realty Trust .................... 10,300 184,112
Camden Property Trust ...................... 7,600 204,250
Captec Net Lease Realty, Inc. .............. 300 3,788
CBL & Associates Properties, Inc. .......... 7,000 182,437
Chateau Communities, Inc. .................. 1,400 41,125
Colonial Properties Trust .................. 2,700 74,250
Cousins Properties, Inc. ................... 1,500 42,937
Criimi Mae, Inc. ........................... 15,300 21,038
Equity Office Properties Trust ............. 9,100 218,400
Equity One, Inc. ........................... 900 8,213
Equity Residential Properties Trust ........ 5,200 218,400
Essex Property Trust, Inc. ................. 4,800 150,600
First Industrial Realty Trust, Inc. ........ 1,700 43,562
Franchise Finance Corp. of America ......... 1,100 27,363
General Growth Properties, Inc. ............ 2,500 88,906
Glenborough Realty Trust, Inc. ............. 8,300 177,931
Golf Trust of America, Inc. ................ 2,800 74,900
Health Care REIT, Inc. ..................... 6,700 151,587
Home Properties of New York, Inc. .......... 700 18,813
HRPT Properties Trust ...................... 2,800 44,625
Imperial Credit Commercial Mortgage
Investment Corp. .......................... 500 4,188
Kilroy Realty Corp. ........................ 1,600 35,500
Kimco Realty Corp. ......................... 4,900 195,081
Koger Equity, Inc. ......................... 5,700 96,187
Kranzco Realty Trust ....................... 2,100 31,238
Liberty Property Trust ..................... 4,600 105,800
OMEGA Healthcare Investors, Inc. ........... 1,800 55,800
Parkway Properties, Inc. ................... 2,400 68,400
Patriot American Hospitality, Inc. ......... 1,500 13,313
Post Properties, Inc. ...................... 4,700 181,831
Prime Retail, Inc. ......................... 900 8,719
PS Business Parks, Inc. .................... 10,200 205,275
Public Storage, Inc. ....................... 1,200 32,025
Regency Realty Corp. ....................... 5,600 129,150
Simon Property Group ....................... 2,800 83,825
Sovran Self Storage, Inc. .................. 400 10,250
Starwood Lodging Trust ..................... 5,430 153,737
Trizec Hahn Corp. .......................... 300 5,756
Vornado Operating Co. + .................... 260 1,625
Vornado Realty Trust ....................... 5,200 175,175
Weeks Corp. ................................ 3,800 110,437
-----------
4,114,114
-----------
Total Common Stocks (Cost $4,952,678) ...... 4,114,114
-----------
<CAPTION>
Principal Market
Amount Value
----------- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.2%)
Federal Home Loan Mortgage Corp.,
5.42%, 11/02/98 ........................... $ 224,000 $ 224,000
-----------
Total Short-Term Investments
(Cost $224,000) ........................... 224,000
-----------
Total Investments (Cost $5,176,678)(a) ..... 4,338,114
-----------
Other assets less liabilities .............. (7,044)
-----------
Total Net Assets ........................... $ 4,331,070
===========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$5,214,875. Unrealized gains and losses, based on identified tax cost at
October 31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................... $ 41,056
Unrealized losses.............................. (917,817)
---------
Net unrealized loss........................... $(876,761)
=========
</TABLE>
+ Non-income producing security.
B Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
Category percentages are based on net assets.
90 See Notes to Financial Statements.
<PAGE>
Growth and Income Funds
Statements of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth and
Balanced Income Real Estate
------------- --------------- ----------------
<S> <C> <C> <C>
Assets:
Investments, at market
value.................. $121,425,965 $638,843,729 $4,338,114
Cash ................... 5,247 73,727 3,270
Cash denominated in
foreign currencies .... -- 961,578 --
Receivable for :
Dividends and interest 594,592 803,040 9,319
Investments sold ...... 632,785 20,939,337 --
Fund shares sold ...... 76,847 240,208 --
Recoverable foreign
taxes.................. -- 39,329 --
Variation margin ...... -- 647,900 --
Reimbursement from
Investment Adviser .... -- -- 14,913
Prepaid expenses ....... 2,500 13,996 79
Gross unrealized gain on
forward foreign
currency exchange
contracts.............. -- 151,150 --
------------ ------------ ----------
Total assets ...... 122,737,936 662,713,994 4,365,695
------------ ------------ ----------
Liabilities:
Payable for:
Investments purchased . 2,945,721 15,704,008 --
Fund shares redeemed .. 1,700 58,537 --
Other liabilities ...... 143,172 562,905 34,625
Gross unrealized loss on
forward foreign
currency exchange
contracts.............. -- 697,310 --
Options written, at
market value (Premiums
received
Growth and Income
$4,287,813)............ -- 7,026,462 --
------------ ------------ ----------
Total liabilities . 3,090,593 24,049,222 34,625
------------ ------------ ----------
NET ASSETS............. $119,647,343 $638,664,772 $4,331,070
============ ============ ==========
Net Assets represented by:
Paid-in capital ........ $100,533,439 $518,966,656 $5,198,215
Net unrealized gain
(loss) on investments,
open futures contracts,
options and foreign
currency
related transactions .. 12,321,530 49,331,483 (838,564)
Undistributed net
investment income ..... 1,461,159 3,230,020 127,208
Accumulated net realized
gain (loss) on
investments............ 5,331,215 67,136,613 (155,789)
------------ ------------ ----------
NET ASSETS ............ $119,647,343 $638,664,772 $4,331,070
============ ============ ==========
</TABLE>
See Notes to Financial Statements. 91
<PAGE>
Growth and Income Funds
Statements of Assets and Liabilities (continued)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth and
Balanced Income Real Estate
------------- --------------- ----------------
<S> <C> <C> <C>
Capital Shares, $.001 par value:
Class I:
Outstanding ........... 8,711,510 40,258,690 477,258
Net Assets ............ $111,887,129 $614,492,643 $3,969,811
Net Asset Value,
offering and redemption
price per share (net
assets divided by
shares outstanding) ... $ 12.84 $ 15.26 $ 8.32
Class A:
Outstanding ........... 588,040 1,550,590 31,986
Net Assets ............ $ 7,544,392 $ 23,603,306 $ 265,517
Net Asset Value and
redemption price per
share (net assets
divided by shares
outstanding)........... $ 12.83 $ 15.22 $ 8.30
Offering price (net
asset value divided by
1 minus
maximum sales load).... $ 13.61 $ 16.15 $ 8.81
Class C:
Outstanding ........... 16,865 37,382 11,549
Net Assets ............ $ 215,822 $ 568,823 $ 95,742
Net Asset Value,
offering and redemption
price per share (net
assets divided by
shares outstanding) ... $ 12.80 $ 15.22 $ 8.29
Cost of investments .... $109,104,435 $591,095,290 $5,176,678
Cost of cash denominated
in foreign currencies . $ -- $ 967,419 $ --
</TABLE>
92 See Notes to Financial Statements.
<PAGE>
Growth and Income Funds
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced Growth and Income Real Estate
Year Ended Year Ended Period From February 2, 1998
October 31, October 31, (Commencement of Operations)
1998 1998 to October 31, 1998
------------ ----------------- ------------------------------
<S> <C> <C> <C>
Investment Income:
Dividends ............ $ 963,041 $ 8,784,905 $ 215,054
Interest ............. 3,412,594 1,929,586 7,376
----------- ------------ ---------
4,375,635 10,714,491 222,430
Foreign taxes withheld
on dividends ........ (3,760) (82,701) --
----------- ------------ ---------
Total investment
income............ 4,371,875 10,631,790 222,430
----------- ------------ ---------
Investment Expenses:
Investment advisory
fee.................. 955,035 4,429,415 28,481
Administrative
services fees ....... 162,126 903,105 3,560
Distribution Plan and
shareholder services
fees................. 24,151 65,703 656
Printing and postage . 13,048 75,159 5,027
Custody fees ......... 39,589 112,943 1,875
Transfer agent fees .. 72,185 187,219 18,478
Audit fees ........... 21,143 20,997 13,733
Directors' fees ...... 3,361 21,358 118
Registration fees .... 61,802 95,836 65,462
Miscellaneous Expenses 7,230 37,369 176
----------- ------------ ---------
Expenses before
reimbursement and
waiver from
Investment Adviser .. 1,359,670 5,949,104 137,566
----------- ------------ ---------
Expense reimbursement
and waiver from
Investment Adviser .. -- -- (42,344)
----------- ------------ ---------
Total expenses .... 1,359,670 5,949,104 95,222
----------- ------------ ---------
Net investment income 3,012,205 4,682,686 127,208
----------- ------------ ---------
Net Realized and Unrealized Gain (Loss):
Net realized gain
(loss) on:
Investments ......... 5,300,774 69,789,354 (155,789)
Options written ..... -- 5,587,516 --
Futures and forward
foreign currency
exchange contracts (31,538) (6,953,007) --
Foreign currency
related transactions -- (77,600) --
----------- ------------ ---------
Net realized gain
(loss) on
investments.... 5,269,236 68,346,263 (155,789)
----------- ------------ ---------
Net change in
unrealized gain or
loss on:
Investments ......... 3,836,866 (51,127,014) (838,564)
Options written ..... -- (2,749,805) --
Futures and forward
foreign currency
exchange contracts . 81,575 4,485,372 --
Foreign currency
related transactions. -- (1,764) --
----------- ------------ ---------
Net change in
unrealized gain
or loss on
investments..... 3,918,441 (49,393,211) (838,564)
----------- ------------ ---------
Net realized and
change in unrealized
gain or loss on
investments.......... 9,187,677 18,953,052 (994,353)
----------- ------------ ---------
Net increase
(decrease) in net
assets resulting from
operations........... $12,199,882 $ 23,635,738 $(867,145)
=========== ============ =========
</TABLE>
See Notes to Financial Statements. 93
<PAGE>
Growth and Income Funds
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced
----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income........................ $ 3,012,205 $ 2,428,888
Net realized gain on investments............. 5,269,236 18,297,657
Net change in unrealized gain or loss on
investments................................. 3,918,441 (2,736,577)
------------ ------------
Net increase in net assets resulting from
operations................................. 12,199,882 17,989,968
------------ ------------
Distributions to Shareholders:
Class I:
From net investment income.................. (2,517,099) (2,069,845)
From net realized gains..................... (17,098,126) (9,749,919)
Class A:
From net investment income.................. (124,633) (67,543)
From net realized gains..................... (1,050,028) (460,490)
------------ -------------
Decrease in net assets from distributions to
shareholders............................... (20,789,886) (12,347,797)
------------ ------------
Fund Share Transactions:
Class I:
Proceeds from shares sold................... 14,655,810 15,726,792
Net asset value of shares issued upon
reinvestment of distributions.............. 19,424,551 11,705,785
Payments for shares redeemed................ (19,929,395) (15,578,642)
Class A:
Proceeds from shares sold................... 2,486,906 2,469,631
Net asset value of shares issued upon
reinvestment of distributions.............. 1,086,605 472,425
Payments for shares redeemed................ (1,807,735) (744,656)
Class C:
Proceeds from shares sold................... 219,047 --
Payments for shares redeemed................ (35) --
------------ ------------
Net increase in net assets from fund share
transactions............................... 16,135,754 14,051,335
------------ ------------
Net change in net assets..................... 7,545,750 19,693,506
Net Assets:
Beginning of period.......................... 112,101,593 92,408,087
------------ ------------
End of period................................ $119,647,343 $112,101,593
============ ============
End of period net assets includes
undistributed net investment income......... $ 1,461,159 $ 1,090,686
============ ============
</TABLE>
94 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Balanced
----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold....................... 1,132,731 1,194,562
Number of shares issued upon reinvestment of
distributions.............................. 1,600,420 950,985
Number of shares redeemed................... (1,531,060) (1,188,932)
------------ ------------
Net increase................................ 1,202,091 956,615
============ ============
Class A:
Number of shares sold....................... 191,352 185,352
Number of shares issued upon reinvestment of
distributions.............................. 89,446 38,485
Number of shares redeemed................... (140,421) (56,646)
------------ ------------
Net increase................................ 140,377 167,191
============ ============
Class C:
Number of shares sold....................... 16,867 --
Number of shares redeemed................... (2) --
------------ ------------
Net increase................................ 16,865 --
============ ============
</TABLE>
See Notes to Financial Statements. 95
<PAGE>
Growth and Income Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth and Income
-----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income....................... $ 4,682,686 $ 4,607,981
Net realized gain on investments............ 68,346,263 116,644,162
Net change in unrealized gain or loss on
investments................................ (49,393,211) 30,507,974
------------- ------------
Net increase in net assets resulting from
operations................................. 23,635,738 151,760,117
------------- ------------
Distributions to Shareholders:
Class I:
From net investment income................. (4,791,113) (5,489,380)
From net realized gains.................... (111,685,312) (62,913,602)
Class A:
From net investment income................. (44,536) (48,234)
From net realized gains.................... (3,276,091) (1,192,597)
------------- ------------
Decrease in net assets from distributions
to shareholders............................ (119,797,052) (69,643,813)
------------- ------------
Fund Share Transactions:
Class I:
Proceeds from shares sold.................. 87,079,753 99,302,839
Net asset value of shares issued upon
reinvestment of distributions............. 116,279,112 68,298,587
Payments for shares redeemed............... (91,334,416) (29,637,734)
Class A:
Proceeds from shares sold.................. 33,833,963 8,639,437
Net asset value of shares issued upon
reinvestment of distributions............. 3,244,173 1,190,765
Payments for shares redeemed............... (26,766,561) (2,407,633)
Class C:
Proceeds from shares sold.................. 870,297 --
Payments for shares redeemed............... (304,290) --
------------- ------------
Net increase in net assets from fund share
transactions.............................. 122,902,031 145,386,261
------------- ------------
Net change in net assets.................... 26,740,717 227,502,565
Net Assets:
Beginning of period......................... 611,924,055 384,421,490
------------- ------------
End of period............................... $ 638,664,772 $611,924,055
============= ============
End of period net assets includes
undistributed net investment income........ $ 3,230,020 $ 2,909,165
============= ============
</TABLE>
96 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth and Income
-----------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold...................... 5,298,233 6,028,007
Number of shares issued upon reinvestment
of distributions.......................... 7,727,547 4,758,866
Number of shares redeemed.................. (5,721,922) (1,833,650)
------------- ------------
Net increase............................... 7,303,858 8,953,223
============= ============
Class A:
Number of shares sold...................... 2,255,360 520,948
Number of shares issued upon reinvestment
of distributions.......................... 216,176 83,377
Number of shares redeemed.................. (1,806,982) (141,258)
------------- ------------
Net increase............................... 664,554 463,067
============= ============
Class C:
Number of shares sold...................... 57,776 --
Number of shares redeemed.................. (20,394) --
------------- ------------
Net increase............................... 37,382 --
============= ============
</TABLE>
See Notes to Financial Statements. 97
<PAGE>
Growth and Income Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Real Estate
---------------------
Period From
February 2, 1998
(Commencement of
Operations)
to October 31, 1998
-------------------
<S> <C>
From Operations:
Net investment income................................... $ 127,208
Net realized loss on investments........................ (155,789)
Net change in unrealized gain or loss on investments.... (838,564)
----------
Net decrease in net assets resulting from operations... (867,145)
----------
Fund Share Transactions:
Class I:
Proceeds from shares sold.............................. 4,990,040
Payments for shares redeemed........................... (198,474)
Class A:
Proceeds from shares sold.............................. 301,137
Payments for shares redeemed........................... (3,008)
Class C:
Proceeds from shares sold.............................. 108,520
----------
Net increase in net assets from fund share transactions 5,198,215
----------
Net change in net assets................................ 4,331,070
Net Assets:
Beginning of period..................................... --
----------
End of period........................................... $4,331,070
==========
End of period net assets includes undistributed net
investment income...................................... $ 127,208
==========
Share Transactions:
Class I:
Number of shares sold.................................. 499,402
Number of shares redeemed.............................. (22,144)
----------
Net increase........................................... 477,258
==========
Class A:
Number of shares sold.................................. 32,338
Number of shares redeemed.............................. (352)
----------
Net increase........................................... 31,986
==========
Class C:
Number of shares sold.................................. 11,549
----------
Net increase........................................... 11,549
==========
</TABLE>
98 See Notes to Financial Statements.
<PAGE>
Growth and Income Funds
Notes to Financial Statements
October 31, 1998
- --------------------------------------------------------------------------------
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 (Funds), each of which
has its own investment objective, policies and restrictions.
The Company currently offers nineteen funds. This report covers Aetna Balanced
Fund (Balanced), Aetna Growth and Income Fund (Growth and Income) and Aetna Real
Estate Securities Fund (Real Estate).
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 three classes of shares, Class I, Class A and
Class C. Class I is offered principally to institutions and is not subject to
sales charges or distribution fees. Class I shares were first made available as
follows: Balanced and Growth and Income on December 27, 1991, and Real Estate on
February 2, 1998. Class A and Class C shares are offered to accounts not
eligible to buy Class I shares. Class A shares are generally subject to a front
end sales charge and a distribution fee pursuant to Rule 12b-1 of the Act. Class
A shares were first made available to the public on April 15, 1994 for all Funds
except Real Estate, which were made available to the public February 2, 1998.
Class C shares are generally subject to a contingent deferred sales charge on
redemptions made within eighteen months of purchase, a distribution fee pursuant
to Rule 12b-1 of the Act and a service fee. Class C shares were first made
available to the public on June 30, 1998.
The following is each Fund's investment objective:
Balanced seeks to maximize total return with reasonable safety of principal
by investing in a diversified portfolio of stocks, bonds and money market
instruments.
Growth and Income seeks long-term growth of capital and income through
investment in a diversified portfolio consisting primarily of common stocks
and securities convertible into common stocks believed to offer
above-average growth potential.
Real Estate seeks maximum total return primarily through investment in a
diversified portfolio of equity securities of real estate companies, the
majority of which are real estate investment trusts.
Aeltus Investment Management, Inc. (Aeltus) serves as the Investment Adviser to
each Fund. Prior to February 2, 1998 the Investment Adviser was Aetna Life
Insurance and Annuity Company (ALIAC). Aetna Investment Services, Inc. (AISI)
was the principal underwriter for each Fund through April 30, 1998. On May 1,
1998, Aeltus Capital, Inc. (ACI) became each Fund's principal underwriter.
Aeltus, ALIAC, AISI and ACI are all indirect wholly-owned subsidiaries of Aetna
Inc. (Aetna).
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
Investments are stated at market values based upon closing sales prices 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.
99
<PAGE>
Growth and Income Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
A. Valuation of Investments (continued)
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. 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.
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.
B. Options Contracts
The Funds may purchase and write (sell) call options and put options and write
(sell) covered call options as a hedge against adverse movements in the value of
portfolio holdings or to increase market exposure.
Option contracts are valued daily and unrealized gains or losses are recorded
based upon the last sales price on the principal exchange on which the options
are traded. The Funds will realize a gain or loss upon the expiration or closing
of the option contract. When an option is exercised, the proceeds on sales of
the underlying security for a written call option, the purchase cost of the
security for a written put option, or the cost of the security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Realized and unrealized gains or losses on option contracts are reflected in the
accompanying financial statements.
The risk in writing a call option is that the Funds give up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Funds may incur a loss
if the market price of the security decreases and the option is exercised. The
risk in buying an option is that the Funds pay a premium whether or not the
option is exercised. Risks may also arise from an illiquid secondary market or
from the inability of counterparties to meet the terms of the contract.
C. 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.
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 demoninated portfolio securities. Contracts
are recorded at market value and marked-to-market daily.
100
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
C. Futures and Forward Foreign Currency Exchange Contracts (continued)
The risks associated with 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.
D. 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.
Each Fund may invest up to 15% of its total assets in illiquid securities.
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 October 31, 1998:
<TABLE>
<CAPTION>
% of Net
Cost Market Value Assets
---- ------------ ------
<S> <C> <C> <C>
Growth and Income 520,000 452,400 0.07%
Real Estate 132,000 114,840 2.65%
</TABLE>
E. 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.
F. Federal Income Taxes
Each Fund has met the requirements to be taxed as a regulated investment company
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.
Futhermore, 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.
101
<PAGE>
Growth and Income Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
G. Distributions
Distributions from net investment income are based on taxable net income. Income
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These distributions from net investment income are based on taxable net income.
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, certain futures contracts, certain investments in foreign equity
securities 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.
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 monthly fee expressed as a percentage of the average daily
net assets of each Fund. As the Funds' 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 October 31, 1998:
<TABLE>
<CAPTION>
Fee Effective
Range Rate
----- ----
<S> <C> <C>
Balanced 0.80% - 0.65% 0.800%
Growth and Income 0.70% - 0.55% 0.625%
Real Estate 0.80% - 0.65% 0.800%
</TABLE>
Aeltus has served as the Investment Adviser for all Funds since February 2,
1998. Prior to February 2, 1998, ALIAC served as Growth and Income and Balanced
Funds' Investment Adviser and Aeltus served as Sub-Adviser. As Sub-Adviser,
Aeltus supervised the investment and reinvestment of cash and securities and
provided certain related administrative services. For the period November 1,
1997 through February 1, 1998, ALIAC received $1,263,833 from the Funds, of
which it paid $810,740 to Aeltus.
Effective February 2, 1998, the Company and Aeltus 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. Prior to February 2, 1998 ALIAC acted as administrator for each Fund
and was paid an administrative services fee at an annual rate of 0.25% of each
Fund's average daily net assets.
102
<PAGE>
- --------------------------------------------------------------------------------
3. Investment Advisory, Shareholder Services and Distribution Fees (continued)
Aeltus has entered into a Service Agreement with 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 0.40% of the average daily assets associated
with those shares. For the period February 1, 1998 through October 31, 1998,
Aeltus paid ALIAC $2,000,091.
The Shareholder Services Plan for Class A shares terminated on December 31,
1997. Under the Shareholder Services Plan, AISI was paid a service fee at an
annual rate of 0.25% of the average daily net assets of Class A of each Fund.
This fee was used as compensation for expenses incurred in servicing
shareholders' accounts.
The Company has adopted a Shareholder Services Plan for the Class C shares.
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 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 and Class C shares. The Distribution Plan provides for payments
to the principal underwriter at an annual rate of 0.25% (prior to February 2,
1998, the 12b-1 fee was 0.50%) of the average daily net assets of Class A shares
of each Fund and 0.75% of the average daily net assets of Class C shares of each
Fund. Amounts paid by the Funds are used to pay expenses incurred by the
principal underwriter in promoting the sale of Class A and Class C shares. The
plan may be terminated as to each class of shares upon a majority vote of the
Company's independent directors.
Presently, the Funds' class-specific expenses are limited to Rule 12b-1 fees
incurred by Class A and Class C shares and service fees incurred by Class C
shares.
4. Reimbursement and Waiver from Investment Adviser
Aeltus may, from time to time, make reimbursements to a Fund for some or all of
its operating expenses or it may waive fees. Reimbursement and waiver
arrangements, which may be terminated at any time without notice, will increase
a Fund's yield and total return.
5. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended October 31, 1998 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- -------------------
<S> <C> <C>
Balanced $ 88,832,597 $ 83,888,813
Growth and Income 1,012,598,851 1,016,744,244
Real Estate 8,067,313 2,958,846
</TABLE>
6. Capital Loss Carryforwards
As of October 31, 1998 Real Estate incurred a capital loss carryforward of
$117,592. This capital loss carryforward may be used to offset future capital
gains until October 31, 2006, at which time the carryforward will expire. It is
the policy of each of the Funds to reduce future distributions of realized gains
to shareholders to the extent of the unexpired capital loss carryforward.
103
<PAGE>
Growth and Income Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
7. Options
All Funds may use options. For the period ended October 31, 1998, the following
reflects the written covered call activity:
<TABLE>
<CAPTION>
Call Options Written
--------------------
Number of Premium Realized
Growth and Income Contracts Received Gain (Loss)
--------- -------- ----------
<S> <C> <C> <C>
Outstanding October
31, 1997 136 $23,606 $ --
Written 6,618 11,972,162 --
Closed (4,578) (7,670,454) 5,563,910
Expired (136) (23,606) 23,606
Exercised (36) (13,895) --
-----------------------------------------------------
Outstanding October
31, 1998 2,004 $ 4,287,813 $5,587,516
=====================================================
</TABLE>
8. Forward Foreign Currency Exchange Contracts
As of October 31, 1998, Growth and Income had open forward foreign currency
exchange contracts that obligate the Fund to deliver currencies at specified
future dates. The net unrealized loss of $546,160 on these contracts are
included in the accompanying financial statements. The terms of the open
contracts are as follows:
<TABLE>
<CAPTION>
Growth and Income
- -----------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered October 31, 1998 be Received October 31, 1998 Gain (Loss)
---- ------------ ---------------- ----------- ---------------- -----------
Contracts to Buy
- ----------------
<S> <C> <C> <C> <C> <C>
11/3/98 113,886 $113,886 68,000 $114,132 $246
U.S. Dollar British Pound
- -------------------------------------------------------------------------------------------------
11/4/98 107,315 107,315 64,000 107,417 102
U.S. Dollar British Pound
- -------------------------------------------------------------------------------------------------
11/23/98 449,118 449,118 850,000 457,516 8,398
U.S. Dollar Dutch Guilder
- -------------------------------------------------------------------------------------------------
11/16/98 747,729 747,729 4,240,000 767,193 19,464
U.S. Dollar French Franc
- -------------------------------------------------------------------------------------------------
11/16/98 23,171 23,171 129,000 23,341 170
U.S. Dollar French Franc
- -------------------------------------------------------------------------------------------------
12/21/98 93,719 93,719 515,000 93,417 (302)
U.S. Dollar French Franc
- -------------------------------------------------------------------------------------------------
12/21/98 151,162 151,162 836,000 151,645 483
U.S. Dollar French Franc
- -------------------------------------------------------------------------------------------------
12/8/98 106,357 106,357 175,000 106,333 (24)
U.S. Dollar German Deutschemark
- -------------------------------------------------------------------------------------------------
12/8/98 295,207 295,207 487,000 295,908 701
U.S. Dollar German Deutschemark
- -------------------------------------------------------------------------------------------------
2/19/99 16,335 16,335 130,000 16,773 438
U.S. Dollar Hong Kong Dollar
- -------------------------------------------------------------------------------------------------
2/19/99 160,364 160,364 1,270,000 163,860 3,496
U.S. Dollar Hong Kong Dollar
- -------------------------------------------------------------------------------------------------
</TABLE>
104
<PAGE>
- --------------------------------------------------------------------------------
8. Forward Foreign Currency Exchange Contracts (continued)
<TABLE>
<CAPTION>
Growth and Income (continued)
- -----------------------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered October 31, 1998 be Received October 31, 1998 Gain (Loss)
---- ------------ ---------------- ----------- ---------------- -----------
Contracts to Buy (continued)
- ----------------------------
<S> <C> <C> <C> <C> <C>
2/19/99 88,562 88,562 710,000 $91,607 $3,045
U.S. Dollar Hong Kong Dollar
- ------------------------------------------------------------------------------------------------
11/27/98 463,662 463,662 53,910,000 464,148 486
U.S. Dollar Japanese Yen
- ------------------------------------------------------------------------------------------------
12/17/98 323,672 323,672 42,660,000 368,431 44,759
U.S. Dollar Japanese Yen
- ------------------------------------------------------------------------------------------------
12/17/98 727,160 727,160 85,250,000 736,257 9,097
U.S. Dollar Japanese Yen
- ------------------------------------------------------------------------------------------------
11/24/98 1,010,872 1,010,872 7,680,000 1,041,791 30,919
U.S. Dollar Norwegian Krone
- ------------------------------------------------------------------------------------------------
11/2/98 1,128,540 1,128,540 1,513,000 $1,128,097 (443)
U.S. Dollar Swiss Franc
- ------------------------------------------------------------------------------------------------
Contracts to Sell
- -----------------
11/23/98 1,846,000 993,616 975,275 975,275 (18,341)
Dutch Guilder U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/3/98 1,030,000 186,193 187,018 187,018 825
French Franc U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/5/98 257,000 46,465 46,137 46,137 (328)
French Franc U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/9/98 1,672,000 302,380 301,707 301,707 (673)
French Franc U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/16/98 9,661,000 1,748,077 1,715,376 1,715,376 (32,701)
French Franc U.S. Dollar
- ------------------------------------------------------------------------------------------------
12/21/98 8,006,000 1,452,232 1,467,752 1,467,752 15,520
French Franc U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/3/98 1,641,000 994,561 929,745 929,745 (64,816)
German Deutschemark U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/4/98 973,000 589,750 588,840 588,840 (910)
German Deutschemark U.S. Dollar
- ------------------------------------------------------------------------------------------------
12/8/98 2,152,000 1,307,587 1,246,034 1,246,034 (61,553)
German Deutschemark U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/21/98 1,932,000 1,177,644 1,189,655 1,189,655 12,011
German Deutschemark U.S. Dollar
- ------------------------------------------------------------------------------------------------
2/19/99 2,110,000 272,240 264,510 264,510 (7,730)
Hong Kong Dollar U.S. Dollar
- ------------------------------------------------------------------------------------------------
11/5/98 59,900,000 513,854 513,722 513,722 (132)
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------------
</TABLE>
105
<PAGE>
Growth and Income Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
8. Forward Foreign Currency Exchange Contracts (continued)
<TABLE>
<CAPTION>
Growth and Income (continued)
- -----------------------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered October 31, 1998 be Received October 31, 1998 Gain (Loss)
---- ------------ ---------------- ----------- ---------------- -----------
Contracts to Sell (continued)
- -----------------------------
<S> <C> <C> <C> <C> <C>
11/27/98 74,400,000 $640,560 523,944 $523,944 ($116,616)
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------
12/17/98 276,670,000 2,389,445 2,107,159 2,107,159 (282,286)
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------
12/17/98 1,650,000 14,250 13,966 13,966 (284)
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------
12/17/98 37,750,000 326,026 325,235 325,235 (791)
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------
1/27/99 138,910,000 1,207,595 1,191,338 1,191,338 (16,257)
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------
11/3/98 1,016,000 99,253 99,862 99,862 609
Mexican New Peso U.S. Dollar
- --------------------------------------------------------------------------------------
11/24/98 5,120,000 694,528 658,055 658,055 (36,473)
Norwegian Krone U.S. Dollar
- --------------------------------------------------------------------------------------
11/24/98 2,560,000 347,264 323,977 323,977 (23,287)
Norwegian Krone U.S. Dollar
- --------------------------------------------------------------------------------------
11/3/98 2,288,000 294,481 292,897 292,897 (1,584)
Swedish Krona U.S. Dollar
- --------------------------------------------------------------------------------------
11/2/98 1,350,000 1,006,564 975,434 975,434 (31,130)
Swiss Franc U.S. Dollar
- --------------------------------------------------------------------------------------
11/2/98 163,000 121,533 120,884 120,884 (649)
Swiss Franc U.S. Dollar
- --------------------------------------------------------------------------------------
12/2/98 1,513,000 1,132,104 1,132,485 1,132,485 381
Swiss Franc U.S. Dollar
- --------------------------------------------------------------------------------------
($546,160)
-------------
</TABLE>
9. Authorized Capital Shares
The Company is authorized to issue a total of 9.7 billion shares. Of those 9.7
billion shares, the following have been designated to the Funds described in
this report as follows: all of the Funds have been allocated 100 million shares
each of Class I, Class A and Class C shares. As of October 31, 1998, the
following shares of the Funds were owned by ALIAC and its affiliates:
<TABLE>
<CAPTION>
Class I Class A Class C
------- ------- -------
<S> <C> <C> <C>
Balanced -- -- 7,536
Growth and Income -- -- 5,910
Real Estate 470,004 10,000 10,582
</TABLE>
106
<PAGE>
- --------------------------------------------------------------------------------
10. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Funds' capital accounts on a
tax basis. These reclassifications have no impact on the net asset value of the
Funds.
<TABLE>
<CAPTION>
Undistributed Net Accumulated
Investment Income Net Realized Gain (Loss)
Increase/(Decrease) on Investments
------------------- Increase/(Decrease)
-------------------
<S> <C> <C>
Growth and Income $473,818 ($473,818)
</TABLE>
107
<PAGE>
Growth and Income Funds
Additional Information
October 31, 1998
- --------------------------------------------------------------------------------
Federal Tax Status of Dividends Declared During the Fiscal Year (Unaudited)
In accordance with federal tax authorities, certain portions of the dividends
taxable as ordinary income qualify for the corporate dividends received
deduction. The following percentages reflect the portions of such dividends
paid:
<TABLE>
<S> <C>
Balanced 9.53%
Growth and Income 12.00%
</TABLE>
In accordance with federal tax authorities, the Funds paid the following amounts
of dividends which qualify to be taxed at long-term capital gain rates:
<TABLE>
<CAPTION>
Aggregate Per Share
--------- ---------
<S> <C> <C>
Balanced $11,666,255 $1.47
Growth and Income 58,247,499 1.68
</TABLE>
Year 2000 (Unaudited)
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 assurances 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.
108
<PAGE>
Growth and Income Funds
Financial Highlights
Balanced Fund
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Ten Month
Year Ended Year Ended Year Ended Year Ended Period Ended Year Ended
October 31, October 31, October 31, October 31, October 31, December 31,
Class I 1998 1997 1996 1995 1994 1993
- ---------------------------------------------- ----------- ----------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 14.09 $ 13.52 $ 12.36 $ 10.65 $ 10.82 $ 10.18
-------- -------- ------- ------- ------- -------
Income from investment operations:
Net investment income ....................... 0.33 0.33 0.31 0.35 0.23 0.34
Net realized and change in unrealized gain or
loss on investments ........................ 1.02 2.04 1.77 1.69 (0.28) 0.64
-------- -------- ------- ------- ------- -------
Total from investment operations .......... 1.35 2.37 2.08 2.04 (0.05) 0.98
-------- -------- ------- ------- ------- -------
Less distributions:
From net investment income .................. (0.32) (0.30) (0.35) (0.33) (0.12) (0.31)
From net realized gains on investments ...... (2.28) (1.50) (0.57) -- -- (0.03)
-------- -------- ------- ------- ------- -------
Total distributions ....................... (2.60) (1.80) (0.92) (0.33) (0.12) (0.34)
-------- -------- ------- ------- ------- -------
Net asset value, end of period ............... $ 12.84 $ 14.09 $ 13.52 $ 12.36 $ 10.65 $ 10.82
======== ======== ======= ======= ======= =======
Total return ................................. 10.81% 19.57% 17.63% 19.45% (0.42)% 9.84%
Net assets, end of period (000's) ............ $111,887 $105,813 $88,625 $83,941 $76,267 $63,982
Ratio of total expenses to average net assets 1.12% 1.24% 1.31% 1.27% 1.09%(1) 0.93%
Ratio of net investment income to average net
assets....................................... 2.54% 2.43% 2.42% 3.14% 2.65%(1) 3.21%
Ratio of net expense before reimbursement and
waiver to average net assets ................ 1.12% 1.24% 1.31% 1.30% 1.32%(1) 1.34%
Ratio of net investment income before
reimbursement and waiver to
average net assets .......................... 2.54% 2.43% 2.42% 3.11% 2.42%(1) 2.79%
Portfolio turnover rate ...................... 84.55% 116.69% 117.88% 129.05% 86.10% 19.95%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 109
<PAGE>
Growth and Income Funds
Financial Highlights (continued)
Balanced
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
Class A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $14.05 $ 13.49 $ 12.34 $ 10.62 $ 10.54
------ ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.29 0.23 0.20 0.23 0.19
Net realized and
change in unrealized
gain or loss on
investments......... 1.01 2.03 1.79 1.91 --
------ ------- ------- ------- -------
Total from
investment
operations........ 1.30 2.26 1.99 2.14 0.19
------ ------- ------- ------- -------
Less distributions:
From net investment
income .............. (0.24) (0.20) (0.27) (0.42) (0.11)
From net realized
gains on investments. (2.28) (1.50) (0.57) -- --
------ ------- ------- ------- -------
Total distributions (2.52) (1.70) (0.84) (0.42) (0.11)
------ ------- ------- ------- -------
Net asset value, end
of period ........... $12.83 $ 14.05 $ 13.49 $ 12.34 $ 10.62
====== ======= ======= ======= =======
Total return ......... 10.44% 18.64% 16.83% 18.32% 1.84%
Net assets, end of
period (000's) ...... $7,544 $ 6,289 $ 3,783 $ 1,362 $26,396
Ratio of total
expenses to average
net assets .......... 1.44% 1.99% 2.07% 2.04% 1.87%(1)
Ratio of net
investment income to
average net assets .. 2.22% 1.68% 1.60% 2.61% 1.90%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.44% 1.99% 2.07% 2.07% 2.06%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... 2.22% 1.68% 1.60% 2.58% 1.67%(1)
Portfolio turnover
rate................. 84.55% 116.69% 117.88% 129.05% 86.10%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
110 See Notes to Financial Statements.
<PAGE>
Balanced
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
Class C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $13.27
------
Income From Investment Operations:
Net investment income .................................... 0.07
Net realized and change in unrealized gain or loss on
investments.............................................. (0.54)
------
Total from investment operations ....................... (0.47)
------
Net asset value, end of period ............................ $12.80
======
Total return .............................................. (3.54)%
Net assets, end of period (000's) ......................... $ 216
Ratio of total expenses to average net assets ............. 2.11%(1)
Ratio of net investment income to average net assets ...... 1.55%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 2.11%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 1.55%(1)
Portfolio turnover rate ................................... 84.55%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 111
<PAGE>
Growth and Income Funds
Financial Highlights (continued)
Growth and Income
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Ten Month
Year Ended Year Ended Year Ended Year Ended Period Ended Year Ended
October 31, October 31, October 31, October 31, October 31, December 31,
Class I 1998 1997 1996 1995 1994 1993
- ---------------------------------------------- ----------- ----------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 18.08 $ 15.74 $ 13.46 $ 11.11 $ 11.03 $ 10.51
-------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income ....................... 0.12 0.15 0.19 0.21 0.12 0.19
Net realized and change in unrealized gain or
loss on investments ........................ 0.51 5.00 3.09 2.27 0.04 0.50
-------- -------- -------- -------- -------- -------
Total from investment operations .......... 0.63 5.15 3.28 2.48 0.16 0.69
-------- -------- -------- -------- -------- -------
Less distributions:
From net investment income .................. (0.13) (0.21) (0.24) (0.13) (0.08) (0.16)
From net realized gains on investments ...... (3.32) (2.60) (0.76) -- -- (0.01)
-------- -------- -------- -------- -------- -------
Total distributions ....................... (3.45) (2.81) (1.00) (0.13) (0.08) (0.17)
-------- -------- -------- -------- -------- -------
Net asset value, end of period ............... $ 15.26 $ 18.08 $ 15.74 $ 13.46 $ 11.11 $ 11.03
======== ======== ======== ======== ======== =======
Total return ................................. 3.80% 37.44% 25.69% 22.58% 1.40% 6.58%
Net assets, end of period (000's) ............ $614,493 $595,969 $377,784 $356,803 $301,360 $60,127
Ratio of total expenses to average net assets 0.88% 1.00% 1.08% 1.10% 0.92%(1) 1.13%
Ratio of net investment income to average net
assets....................................... 0.71% 0.93% 1.35% 1.73% 1.51%(1) 1.77%
Ratio of net expense before reimbursement and
waiver to average net assets ................ 0.88% 1.00% 1.08% 1.10% 1.03%(1) 1.27%
Ratio of net investment income before
reimbursement and waiver to
average net assets .......................... 0.71% 0.93% 1.35% 1.73% 1.39%(1) 1.55%
Portfolio turnover rate ...................... 160.48% 157.92% 106.09% 127.43% 54.13 23.60%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
112 See Notes to Financial Statements.
<PAGE>
Growth and Income
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
Class A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 18.01 $ 15.69 $ 13.43 $ 11.08 $10.75
------- ------- ------- ------- ------
Income from investment
operations:
Net investment income 0.06 0.03 0.08 0.12 0.11
Net realized and
change in unrealized
gain or loss on
investments ........ 0.51 4.99 3.08 2.31 0.30
------- ------- ------- ------- ------
Total from
investment
operations........ 0.57 5.02 3.16 2.43 0.41
------- ------- ------- ------- ------
Less distributions:
From net investment
income ............. (0.04) (0.10) (0.14) (0.08) (0.08)
From net realized
gains on investments (3.32) (2.60) (0.76) -- --
------- ------- ------- ------- ------
Total distributions (3.36) (2.70) (0.90) (0.08) (0.08)
------- ------- ------- ------- ------
Net asset value, end
of period ........... $ 15.22 $ 18.01 $ 15.69 $ 13.43 $11.08
======= ======= ======= ======= ======
Total return ......... 3.42% 36.49% 24.70% 21.90% 3.71%
Net assets, end of
period (000's) ...... $23,603 $15,955 $ 6,638 $ 2,217 $5,740
Ratio of total
expenses to average
net assets .......... 1.20% 1.75% 1.83% 1.84% 2.32%(1)
Ratio of net
investment income to
average net assets .. 0.39% 0.18% 0.55% 1.14% 1.74%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.20% 1.75% 1.83% 1.84% 2.42%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... 0.39% 0.18% 0.55% 1.14% 1.65%(1)
Portfolio turnover
rate................. 160.48% 157.92% 106.09% 127.43% 54.13%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 113
<PAGE>
Growth and Income Funds
Financial Highlights (continued)
Growth and Income
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
Class C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 16.92
-------
Income from investment operations:
Net investment income .................................... (0.01)
Net realized and change in unrealized gain or loss on
investments.............................................. (1.69)
-------
Total from investment operations ....................... (1.70)
-------
Net asset value, end of period ............................ $ 15.22
=======
Total return .............................................. (10.05)%
Net assets, end of period (000's) ......................... $ 569
Ratio of total expenses to average net assets ............. 1.86%(1)
Ratio of net investment income to average net assets ...... (0.27)%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 1.86%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. (0.27)%(1)
Portfolio turnover rate ................................... 160.48%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
114 See Notes to Financial Statements.
<PAGE>
Real Estate
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 2, 1998
(Commencement of
Operations)
to October 31,
Class I 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income .................................... 0.25
Net realized and change in unrealized gain or loss on
investments ............................................. (1.93)
-------
Total from investment operations ....................... (1.68)
-------
Net asset value, end of period ............................ $ 8.32
=======
Total return .............................................. (16.80)%
Net assets, end of period (000's) ......................... $ 3,970
Ratio of total expenses to average net assets ............. 2.00%(1)
Ratio of net investment income to average net assets ...... 2.70%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 2.89%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 1.81%(1)
Portfolio turnover rate ................................... 63.79%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 115
<PAGE>
Growth and Income Funds
Financial Highlights (continued)
Real Estate
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 2, 1998
(Commencement of
Operations)
to October 31,
Class A 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income .................................... 0.25
Net realized and change in unrealized gain or loss on
investments ............................................. (1.95)
-------
Total from investment operations ....................... (1.70)
-------
Net asset value, end of period ............................ $ 8.30
=======
Total return .............................................. (17.00)%
Net assets, end of period (000's) ......................... $ 266
Ratio of total expenses to average net assets ............. 2.19%(1)
Ratio of net investment income to average net assets ...... 2.51%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 3.08%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 1.62%(1)
Portfolio turnover rate ................................... 63.79%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
116 See Notes to Financial Statements.
<PAGE>
Real Estate
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
Class C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 9.45
-------
Income from investment operations:
Net investment income .................................... 0.05
Net realized and change in unrealized gain or loss on
investments ............................................. (1.21)
-------
Total from investment operations ....................... (1.16)
-------
Net asset value, end of period ............................ $ 8.29
=======
Total return .............................................. (12.28)%
Net assets, end of period (000's) ......................... $ 96
Ratio of total expenses to average net assets ............. 3.00%(1)
Ratio of net investment income to average net assets ...... 1.70%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 3.89%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 0.81%(1)
Portfolio turnover rate ................................... 63.79%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 117
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Aetna Series Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of Aetna
Balanced Fund, Aetna Growth and Income Fund and Aetna Real Estate Securities
Fund, portfolios of Aetna Series Fund, Inc. (collectively the Growth and Income
Funds), including the portfolios of investments as of October 31, 1998, and the
related statements of operations for the year or period then ended, the
statements of changes in net assets for each of the years or periods in the
two-year period then ended, and financial highlights for Class I shares for each
of the years in the four-year period ended October 31, 1998, the ten month
period ended October 31, 1994 and the year ended December 31, 1993 for Aetna
Balanced Fund and Aetna Growth and Income Fund, financial highlights for Class A
shares for each of the years in the four-year period ended October 31, 1998 and
the period from April 15, 1994 (date of initial public offering) to October 31,
1994 for Aetna Balanced Fund and Aetna Growth and Income Fund and financial
highlights for Class I and Class A shares for Aetna Real Estate Securities Fund
for the period from February 2, 1998 (commencement of operations) to October 31,
1998, and financial highlights for Class C shares from June 30, 1998 (date of
initial public offering) to October 31, 1998. These financial statements and
financial highlights are the responsibility of the Growth and Income Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Growth and Income Funds as of October 31, 1998, results of their operations for
the year or period then ended, changes in their net assets for each of the years
or periods in the two-year period then ended and the financial highlights for
the years and periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
December 11, 1998
118
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Bond Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Bond Fund (Class I) Lehman Brothers Aggregate Bond Index
<S> <C> <C>
Jan-92 10000 10000
9900 9872
10290 10271
10660 10712
Dec-92 10860 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 14094
13985 14182
14612 14877
Oct-97 14751 15183
15069 15604
15261 15725
15569 16043
Oct-98 15890 16598
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- ---------------------------------------------------------
Inception Date 1 Year 5 Years Inception*
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Class I 01/03/92 7.72% 6.07% 7.02%
- ---------------------------------------------------------
Class A: 04/15/94
POP (1) 2.18% 4.33% 5.52%
NAV (2) 7.27% 5.35% 6.28%
- ---------------------------------------------------------
Class C: 06/30/98
5.54% 4.99% 5.94%
w/CDSC (3)
NAV 6.54% 4.99% 5.94%
- ---------------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
Aetna Bond Fund
How did the Fund perform during the period?
The Aetna Bond Fund Class I shares generated a 7.72% total return, net of fund
expenses, for the year ended October 31, 1998. The benchmark, Lehman Brothers
Aggregate Bond Index(a), returned 9.34% for the same period. Among
intermediate-term bond funds tracked by Morningstar, Inc., Class I shares'
performance over the one year and five year periods ended October 31, 1998
ranked in the top 55% (out of 474 funds) and 49% (out of 216 funds),
respectively, and Class A shares' performance over the year ended October 31,
1998 placed it in the top 65% (out of 474 funds).
What economic or financial market conditions impacted the Fund?
The impact of declining interest rates in the third quarter was offset by
widening risk premiums on virtually all non-Treasury securities. Fears of
inflation were replaced with fears of deflation as global instability and
weakness combined with hedge fund unwinding, lead to a flight to the quality
inherent in U.S. Treasuries. These fears began to subside during October as the
Federal Reserve showed a willingness to ease monetary policy to avoid a further
downward spiral of the economy.
See Definition of Terms. 119
<PAGE>
Over the past year, interest rates declined by 1% to 1.5% across all maturities.
Spreads on investment grade corporates widened by close to 1% as fears that
economic weakness would flow through to lower corporate profits caused investors
to shy away from the inherent risks. High yield bonds were impacted to a much
greater extent as the sustained period inflows into high yield funds reversed
course, combining with hedge fund unwinding activity and the aforementioned
profit concerns to put high yield bonds out of favor. Bonds of foreign issuers
and corporates with foreign exposure, especially to emerging markets countries,
took it on the chin. Even mortgage-backed securities investors were not
unscathed as unprecedented levels of low interest rates increased prepayment
fears. As a result, Treasuries have been the asset class of choice, not only for
the safety provided, but also for the liquidity that was so highly valued in the
recent volatile markets.
What investments influenced the Fund's performance over the past twelve months?
Fund performance over the past half year was negatively impacted by an
overweight position in Asian securities, European banks and callable bonds. In
conjunction with a change of portfolio managers in August, the composition of
the portfolio was restructured to reduce exposure to these sectors and increase
exposure to domestic corporate bonds. Recently, the overweight in domestic
corporate bonds and declining spreads across nearly all sectors has led to
outperformance versus the Lehman Aggregate.
What is your outlook going forward?
With the Fed showing their willingness to act to avert a recession, we are
comfortable taking a slightly shorter duration posture, looking for rates to
increase from these levels as hedge fund selling and other technical factors
abate. With spreads at or close to historical wides in many sectors, we are also
comfortable taking an overweight position in credit sectors, especially domestic
corporate bonds. While we do not think that spreads will return to the levels we
saw at the beginning of the year any time soon, we see the risk/return tradeoff
from these levels favoring increasing credit exposure in a risk-controlled
fashion. We expect foreign volatility to begin to decline, but the violent
shifts in prices in the emerging market sectors will cause us to underweight
this sector until events appear to stabilize. While mortgage-backed securities
trade at spreads much wider than historical averages, we are maintaining an
underweight position as we see more value in the corporate sector, without the
inherent prepayment risk.
<TABLE>
<CAPTION>
Quality Ratings
<S> <C>
AAA 36.9%
AA 17.8%
A 21.8%
BBB 11.1%
BB 3.6%
B 5.6%
CCC+ 0.6%
N/R 2.6%
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution
<S> <C>
0 - 1 years 5.9%
1 - 5 years 45.8%
5 - 10 years 25.8%
10 - 20 years 12.4%
20 - 30 years 2.0%
30 + years 8.1%
</TABLE>
120 See Definition of Terms.
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Government Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Government Lehman Brothers Intermediate Lehman Brothers Government
Fund (Class I) Government Index** Bond Index
<S> <C> <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 Fund's Class I Shares at NAV
12959 12852 13131
13205 13077 13437
Oct-98 13625 13858 14110
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- ------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- ------------------------------------------------
Inception Date 1 Year Inception*
- ------------------------------------------------
<S> <C> <C> <C>
Class I 01/04/94 8.54% 6.63%
- ------------------------------------------------
Class A: 04/15/94
POP (1) 3.05% 4.87%
NAV (2) 8.19% 5.93%
- ------------------------------------------------
Class C: 06/30/98
6.46% 5.57%
w/CDSC (3)
NAV 7.46% 5.57%
- ------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
**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 an 8.54% total return, net of
fund expenses, for the year ended October 31, 1998. The benchmark, Lehman
Brothers Intermediate Government Bond Index(b), returned 9.52% for the same
period. Among intermediate government bond funds tracked by Morningstar, Inc.,
Class I shares' performance over the year ended October 31, 1998 ranked in the
top 41% (out of 334 funds) and Class A shares' performance over the year ended
October 31, 1998 placed it in the top 46% (out of 334 funds).
What economic or financial market conditions impacted the Fund?
The Fund's return was enhanced by the impact of falling interest rates. Bond
yields declined by 1% to 1.5% across the maturity spectrum as investors
anticipated that weaker growth in Asia and Latin America would begin to slow the
U.S.
See Definition of Terms. 121
<PAGE>
economy. Declining economic growth prospects also caused market participants to
increase their perception of the value of the safety and liquidity of U.S.
Treasury bonds.
The Fund's return lagged that of the Lehman Intermediate Government Index due to
the underperformance of the Fund's mortgage pass-through holdings relative to
equal duration Treasuries. The Lehman benchmark does not include mortgage
pass-throughs, although many government bond mutual funds invest in them. The
entire pass-through sector underperformed as the Lehman Mortgage Pass-through
Index return of 7.30% and lagged the Intermediate Government Index by 2.22%.
Mortgage pass-through performance relative to Treasuries was hurt by investors'
fears that declining interest rates would accelerate pass-through prepayments as
homeowners refinance their mortgages.
What investments influenced the Fund's performance over the past twelve months?
The Fund's holdings of U.S. Government agency securities also underperformed
equal duration Treasuries during the period. Again, the entire agency sector
underperformed, with the Lehman Intermediate Agency Index lagging the Lehman
Intermediate Government Index by 0.76%. This underperformance reflected
investors' extreme preference for the liquidity of U.S. Treasuries to the
exclusion of other U.S. Government securities. This was especially acute in
September and October as the poor performance of hedge funds temporarily
increased anxiety about the health of the U.S. financial system.
Both the Fund's average duration and its allocation to agencies, mortgage
pass-throughs and 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?
Gauging the extent of the slowing in the U.S. economy and its consequences for
interest rates will be the focus of bond investors in the upcoming quarter.
Particularly important will be the trends in retail sales and business
investment. Slowing in these two sectors, which had exhibited strong growth over
the last year, would add to the drag from declining exports. The Federal Reserve
can be expected to act promptly to offset signs of weakness with additional cuts
in the Fed Funds rate that should increase both consumption and investment.
The Fund's exposure to mortgage pass-throughs has been increased to 44% from 35%
a year ago because mortgage pass-through yield spreads relative to Treasuries
are now more than two standard deviations above their long-term average. While
that yield spread could increase further, historically, overweighting
pass-throughs at current spread levels has been profitable versus Treasuries
over an intermediate investment horizon. That pattern of performance recovery is
largely due to the Federal Reserve's past success in stimulating economic growth
once it begins lowering the Fed Funds rate.
<TABLE>
<CAPTION>
Quality Ratings
<S> <C>
AAA 81.1%
N/R 18.9%
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution
<S> <C>
0 - 1 years 6.7%
1 - 5 years 23.4%
5 - 10 years 44.3%
10 - 20 years 16.2%
20 + years 9.4%
</TABLE>
122 See Definition of Terms.
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna High Yield Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna High Yield Fund (Class I) Merrill Lynch High Yield Master Trust Index
<S> <C> <C>
Feb-98 10000 10000
10304 10176
10551 10356
Oct-98 9350 9766
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- -------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- -------------------------------------------
Inception Date Inception*
- -------------------------------------------
<S> <C> <C>
Class I 02/02/98 -6.50%
- -------------------------------------------
Class A: 02/02/98
POP (1) -11.10%
NAV (2) -6.67%
- -------------------------------------------
Class C: 06/30/98
w/CDSC (3) -8.19%
NAV -7.26%
- -------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For the
period prior to the inception of Class C, the performance is calculated by using
the performance of Class I, adjusted for fees and expenses charged to the
appropriate class. Class I, Class A and Class C shares participate in the same
portfolio of securities.
Aetna High Yield Fund
How did the Fund perform during the period?
The Aetna High Yield Fund Class I shares generated a -6.50% total return, net of
fund expenses, for the period ended October 31, 1998. The benchmark, Merrill
Lynch High Yield Master Trust(c), returned -2.34% for the same period.
What economic or financial market conditions impacted the Fund?
The high yield market suffered a significant decline in the last quarter, as
capital left the riskiest asset classes. This resulted from fears of a credit
crunch across global markets, increased concerns related to U.S. economic growth
and the unwillingness of investment banks, battered by emerging market and hedge
fund losses, to provide liquidity in the secondary market. Year-to-date gains in
the market turned negative with the magnitude of the August decline in
performance. It was the second worst monthly performance in the high yield
market (as measured by the First Boston Index), only surpassed by third quarter
1990 when defaults had risen to over 10%. Spreads widened by 300 basis points
during the quarter, bringing them to levels not seen since the 1990-1991 era as
well.
See Definition of Terms. 123
<PAGE>
What investments influenced the Fund's performance over the past nine months?
The telecommunications sector, particularly the deferred coupon portion,
contributed to the significant underperformance versus the Merrill Lynch High
Yield Master Index in the fourth quarter. Year-to-date outperformance versus the
peer group is attributable to overweighting in the media/telecom sector, which
outperformed the market during the first two quarters, as well as underweighting
in cyclicals. This was offset somewhat by underperformance in the transportation
sector.
What is your outlook going forward?
We believe that the high yield market is very attractive currently on a
fundamental basis, with spreads pricing similar to those in a severe
recessionary environment. However, we still see hazards - primarily questions
related to the willingness of investment banks to provide liquidity in the
secondary markets, and the need to see stable to improving underlying equity
valuations.
In this environment we continue to be somewhat cautious, upgrading slightly in
quality, doing ever-more intensive credit work and looking to continue our bets
on the high growth media/telecom sectors, as we see the growth in data and
internet applications continuing at an accelerating pace. These applications
require use of broad-band fiber connections into businesses and homes, which the
competitive local exchange carriers and cable companies in this sector provide.
Caution is required in ascertaining which companies will be able to finance
their growth plans in a captial constrained environment, and we have therefore
upgraded our holdings in this sector to the higher and medium tier credits who
have the financing in place to take them through a potentially difficult 1999 in
terms of access to capital.
We will likely avoid the metal and paper sectors as cheap Asian imports are
expected to continue to cause financial pressure for the weaker issuers in these
sectors and put pressure on all names in the sectors. Nevertheless, we continue
to watch these sectors for opportunities to add exposure to the better quality
names as the cycle troughs. In similar fashion, we will likely avoid the energy
sector, believing that low oil prices will continue for some time, pressuring
credits in this sector. We have used the turbulent markets as an opportunity to
add to some of the previously difficult names to find in the gaming sector - one
of our favorites - at very attractive levels as portfolios which needed to raise
cash to fund outflows sold credits which they might not have otherwise.
<TABLE>
<CAPTION>
Quality Ratings
<S> <C>
BB 7.4%
B 74.9%
CCC 4.4%
CCC+ 0.8%
N/R 12.5%
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution
<S> <C>
0 - 1 years 10.6%
1 - 5 years 14.3%
5 - 10 years 68.2%
10 - 20 years 6.9%
</TABLE>
124 See Definition of Terms.
<PAGE>
[BEGIN DESCRIPTION OF LINE CHART]
Aetna Money Market Fund
Growth of $10,000
<TABLE>
<CAPTION>
Aetna Money Market Fund (Class I) IBC
<S> <C> <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
11355 11148
11538 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 Fund's Class I Shares at NAV
13426 12969
13608 13078
Oct-98 13783 13183
</TABLE>
[END DESCRIPTION OF LINE CHART]
<TABLE>
<CAPTION>
- --------------------------------------------------------
Average Annual Total Returns
for the period ended October 31, 1998*
- --------------------------------------------------------
Inception Date 1 Year 5 Years Inception*
- --------------------------------------------------------
<S> <C> <C> <C> <C>
Class I 01/03/92 5.36% 5.23% 4.82%
- --------------------------------------------------------
Class A 04/15/94 5.36% 5.23% 4.82%
- --------------------------------------------------------
Class C 06/30/98 5.36% 5.23% 4.82%
- --------------------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. For periods
prior to the inception of Class A and Class C, the performance of each class is
calculated by using the performance of Class I, adjusted for fees and expenses
charged to the appropriate class. Class I, Class A and Class C shares
participate in the same portfolio of securities.
Aetna Money Market Fund
How did the Fund perform during the period?
The Aetna Money Market Fund Class I shares generated a 5.36% total return, net
of fund expenses, for the year ended October 31, 1998. The benchmark, IBC's
Money Fund Report Average/All Taxable Index(d), returned 5.01% for the same
period. As of October 31, 1998, the Fund reported a 7-day yield of 4.96% with an
average weighted maturity of 74 days.
What economic or financial market conditions impacted the Fund?
The year was largely dominated by events and developments overseas. The U.S.
markets are still feeling the effects of the global crisis that began over a
year ago in southeast Asia and rapidly spread to Russia and Latin America.
Reduced demand and slower export growth have already impacted the manufacturing
sector. Lower earnings expectations, capital flight and decreasing availability
of credit reinforced concerns of negative pressures on the U.S. economy. At the
September 29th Federal Open Market Committee meeting, policy makers lowered the
Federal Funds rate to counter these negative pressures on domestic growth. The
absence of inflationary pressures afforded monetary authorities some leeway to
change policy. The Federal Reserve quickly followed up with two additional cuts
to short term interest rates.
Concerns over a weakening economy were reflected in the dramatic widening of
corporate credit spreads over the past few months. Liquidity and credit risk
premiums rose as investors turned to Treasuries and other high quality
securities. Deposit flows into money funds reached record levels in the third
quarter as investors began to reassess their risks. Strong investor demand
provided support to spread levels for top tier money market issuers, while
spread differentials widened for less liquid or lower quality issuers.
See Definition of Terms. 125
<PAGE>
What investments influenced the Fund's performance over the past twelve months?
Strategic positioning of maturities contributed positively to performance as the
money market curve remained flat to inverted over most of the period. The Fund
implemented a barbell strategy to take advantage of higher yields provided in
very short maturities. The allocation to longer maturities was raised in order
to extend average portfolio maturity in anticipation of further interest rates
cuts. Correspondingly, the Fund reduced its emphasis on adjustable rate
securities except for those securities with coupons that reset off higher
yielding London Interbank Offered Rate indices. The allocation to asset backed
securities was raised to take advantage of attractive yields provided due to
supply and liquidity concerns. These AAA-rated securities are generally backed
by cash flows of receivables or leases that are held in a separate trust
structure.
What is your outlook going forward?
We have revised our outlook on domestic growth and interest rates based upon
increasing risk factors. The effects of the Asian contagion that began over a
year ago seem likely to last well into 1999. Consumer spending growth is
expected to slow as confidence declines. The drag from the trade sector should
persist, which should reduce capital spending over the next year. Corporate
profitability will continue to come under pressure and there is evidence of
tightening credit standards. While we are not calling for a recession, we do
anticipate that growth will slow dramatically over the next several months.
Monetary authorities have twice eased short-term interest rates since the end of
September out of concern for financial market conditions and the potential
negative impact on the economy. The moves appear to have been prudent and well
justified. More importantly, their actions signal that policy makers are
committed to reducing the risks of a recession. We believe that the Federal
Reserve will now pause to assess the impact of its actions with a bias towards
further interest rate reductions in 1999 if needed.
An investment in Money Market is neither insured nor guaranteed by the United
States Government, and there can be no assurance that the fund will be able to
maintain a stable net asset value of $1.00 per share.
<TABLE>
<CAPTION>
Quality Ratings*
<S> <C>
Tier 1 100.0%
Tier 2 --%
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution
<S> <C>
1 - 30 days 44.7%
31 - 60 days 3.3%
61 - 90 days 8.2%
91 - 120 days 3.7%
121 - 180 days 8.5%
181 - 397 days 31.6%
</TABLE>
*Tier 1 securities are securities which are rated in the highest short-term
rating category by at least two nationally recognized statistical rating
orgainzations (NRSROs) or by the only NRSRO that has rated the security or
comparable unrated securites. Tier 2 securities are securities that are not
rated as Tier 1.
126 See Definition of Terms.
<PAGE>
Definition of Terms
(1) Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase.
(2) Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
(3) Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption and assumes redemption at the end of the period.
(a) The Lehman Brothers Aggregate Bond Index is an unmanaged index of corporate,
government and mortgage bonds.
(b) The Lehman Brothers Intermediate Government Index, an unmanaged index,
includes those indices found in the Lehman Brothers Government Index which have
a maturity of one to three years.
(c) The Merrill Lynch High Yield Master Index is an unmanaged, broad gauge of
the high yield bond market and does not take into account any fees and expenses
of the individual securities that they track.
(d) IBC's Money Funds Report Average/All Taxable Index (IBC) is an average of
the returns of over 250 money market mutual funds surveyed each month by IBC.
The opinions expressed reflect those of the portfolio manager only through
October 31, 1998. The manager's opinions are subject to change at any time based
on market and other conditions. The composition, industries and holdings of the
portfolio are subject to change.
127
<PAGE>
Income Funds
Portfolio of Investments - October 31, 1998
Bond
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- -----------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (100.5%)
Corporate and Convertible Bonds (6.0%)
Financial Bonds (4.6%)
Rite Aid Corp., 6.00%, 10/01/03 ............ $ 2,000,000 $ 2,004,000
-----------
Other Public Corporate Bonds (1.4%)
Time Warner, Inc., 9.13%, 01/15/13 ......... 500,000 603,635
-----------
Total Corporate and Convertible Bonds
(Cost $2,538,049) ......................... 2,607,635
-----------
Corporate Bonds (65.4%)
Electric and Telephone Bonds (5.8%)
Comcast Cellular Holdings, Inc.,
9.50%, 05/01/07 B ......................... 500,000 511,250
Level 3 Communications, 9.13%, 05/01/08 .... 500,000 470,000
WorldCom, Inc., 6.25%, 08/15/03 ............ 1,500,000 1,555,980
-----------
2,537,230
-----------
FINANCIAL BONDS (29.6%)
American Express Credit Corp.,
8.50%, 06/15/99 ........................... 1,000,000 1,023,360
Associates Corp. N.A., 5.75%, 11/01/03 ..... 850,000 853,187
Associates Corp. N.A., 8.55%, 07/15/09 ..... 1,000,000 1,173,100
Chase Manhattan Corp., 9.38%, 07/01/01 ..... 1,500,000 1,635,240
Commercial Credit Co., 8.70%, 06/15/09 ..... 1,000,000 1,175,330
Commercial Mortgage Acceptance Corp.,
5.80%, 03/15/06 ........................... 1,989,523 1,990,144
EOP Operating L.P., 6.38%, 02/15/03 ........ 250,000 245,618
First Empire Capital Trust II, 8.28%,
06/01/27 .................................. 350,000 376,877
Ford Motor Credit Corp., 5.13%,
10/15/01 .................................. 1,000,000 993,410
General Motors Acceptance Corp.,
5.33%, 10/20/00 ........................... 1,500,000 1,502,550
General Motors Acceptance Corp.,
6.42%, 05/15/35 ........................... 1,500,000 1,522,500
Heller Financial, Inc., 6.35%, 08/15/99
BB ........................................ 500,000 492,500
-----------
12,983,816
-----------
Foreign and Supranationals (9.6%)
Bayerische Landesbank, 6.25%, 03/15/00 ..... 500,000 507,530
Inter-American Development Bank,
12.25%, 12/15/08 .......................... 500,000 753,585
International Bank Reconstruction &
Development, 9.25%, 07/15/17 B ............ 1,000,000 1,367,180
KFW International Finance, 8.85%,
06/15/99 .................................. 500,000 511,350
Qwest Communications International,
7.50%, 11/01/08 BBB ....................... 500,000 506,250
Rogers Cablesystem, 10.00%, 03/15/05 ....... 500,000 542,500
-----------
4,188,395
-----------
Other Public Corporate Bonds (20.4%)
British Columbia Corp., 5.38%, 10/29/08 .... 2,000,000 1,980,000
Echostar Satellite Broadcast,
Zero Coupon, 03/15/04 ..................... 300,000 264,000
Enron Oil & Gas, 6.50%, 12/01/07 ........... 500,000 514,610
Flag Ltd., 8.25%, 01/30/08 ................. 470,000 430,050
Ford Motor Credit Corp., 6.63%,
02/15/28 .................................. 500,000 496,220
International Home Foods, 10.38%,
11/01/06 .................................. 500,000 522,500
ITC Deltacom, Inc., 9.75%, 11/15/08
BBB ....................................... 200,000 203,000
<CAPTION>
Principal Market
Amount Value
----------- -----------
<S> <C> <C>
Other Public Corporate Bonds (continued)
Motorola, Inc., 5.80%, 10/15/08 ............ $ 1,000,000 $ 1,005,010
Procter & Gamble Co., 5.25%, 09/15/03 ...... 1,200,000 1,220,232
PSINET, Inc., 10.00%, 02/15/05 ............. 300,000 291,000
Station Casinos Corp., 10.13%, 03/15/06 .... 500,000 495,000
Tyco International Group, 6.13%,
06/15/01 .................................. 1,500,000 1,530,330
-----------
8,951,952
-----------
Total Corporate Bonds (Cost $27,930,118) ... 28,661,393
-----------
U.S. Government and Agency Obligations (29.1%)
Agency Mortgage-Backed Securities (18.7%)
Federal National Mortgage Association,
6.00%, 12/10/28 BBB ....................... 750,000 740,625
Federal National Mortgage Association,
6.50%, 12/10/28 BBB ....................... 1,000,000 1,006,875
Federal National Mortgage Association,
7.50%, 11/13/27 BBB ....................... 750,000 769,219
Federal National Mortgage Corp.,
4.95%, 12/17/98 B ......................... 1,089,000 1,082,262
Government National Mortgage
Association, 6.50%, 12/17/28 BBB .......... 1,000,000 1,010,312
Government National Mortgage
Association, 7.00%, 04/15/26 .............. 778,820 797,558
Government National Mortgage
Association, 7.50%, 10/15/26 .............. 855,033 882,020
Marine Midland 1992-1, 8.00%, 04/25/23 ..... 739,577 741,426
Prudential Home Mortgage, 7.00%,
12/25/07 .................................. 687,839 690,634
Prudential Home Mortgage, 7.50%,
06/25/07 .................................. 485,898 489,087
-----------
8,210,018
-----------
Asset-Backed Securities (0.7%)
First Security Auto Grantor Trust,
6.10%, 04/15/03 ........................... 288,594 291,164
-----------
U.S. Government Agency Mortgage-Backed
Securities (0.9%)
Federal Home Loan Mortgage Corp.,
7.81%, 11/01/22 ........................... 262,710 269,757
Government National Mortgage
Association, 9.50%, 07/15/18 .............. 116,301 125,605
-----------
395,362
-----------
U.S. Government Agency Obligations (4.1%)
Private Export Funding Corp., 5.48%,
09/15/03 .................................. 1,000,000 1,016,000
Small Business Administration 92-20K,
7.55%, 11/01/12 ........................... 723,207 770,893
-----------
1,786,893
-----------
U.S. Treasuries (4.7%)
U.S. Treasury Note, 6.88%, 03/31/00 B ...... 2,000,000 2,067,180
Total U.S. Government and Agency
Obligations (Cost $12,583,987) ............ 12,750,617
-----------
Total Long-Term Bonds and Notes
(Cost $43,052,154) ........................ 44,019,645
-----------
Short-Term Investments (7.9%)
CSW Corp., 5.60%, 11/17/98 BB .............. 1,726,000 1,721,973
</TABLE>
128 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- -----------
<S> <C> <C>
Short-Term Investments (continued)
Texas Utilities Co., 5.67%, 12/10/98 B ..... $ 1,760,000 $ 1,749,466
-----------
Total Short-Term Investments
(Cost $3,471,439) ......................... 3,471,439
-----------
Total Investments (Cost $46,523,593)(a) .... 47,491,084
Other assets less liabilities .............. (3,689,935)
-----------
Total Net Assets ........................... $43,801,149
-----------
</TABLE>
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 October 31,
1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $1,092,186
Unrealized losses........................... (124,695)
----------
Net unrealized gain........................ $ 967,491
==========
</TABLE>
B Segregated securities for purchases of delayed delivery or when-issued
securities held at October 31, 1998.
BB 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 securites have been determined
to be liquid under guidelines established by the Board of Directors.
BBB When-issued or delayed delivery security.
Category percentages are based on net assets.
See Notes to Financial Statements. 129
<PAGE>
Income Funds
Portfolio of Investments - October 31, 1998
Aetna Government Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- ------------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (89.2%)
Foreign and Supranationals (3.0%)
Inter-American Development Bank,
12.25%, 12/15/08 .......................... $ 300,000 $ 452,151
-----------
U.S. Government Agency Mortgage-Backed
Securities (43.7%)
Federal Home Loan Mortgage Association,
11.50%, 02/01/16 .......................... 253,344 279,114
Federal Home Loan Mortgage Corp.,
9.50%, 07/01/20 ........................... 131,726 140,206
Federal Home Loan Mortgage Corp. -
Gold, 9.50%, 12/01/22 ..................... 256,579 273,417
Federal National Mortgage Association,
6.50%, 12/10/28 B ......................... 1,900,000 1,913,062
Federal National Mortgage Corp.,
10.50%, 04/01/19 .......................... 91,260 99,901
Government National Mortgage
Association, 6.50%, 04/15/26 .............. 633,005 640,721
Government National Mortgage
Association, 7.00%, 12/15/23 .............. 441,874 452,506
Government National Mortgage
Association, 7.00%, 04/15/26 .............. 876,253 897,335
Government National Mortgage
Association, 7.00%, 12/17/28 B ............ 720,000 741,488
Government National Mortgage
Association, 9.00%, 05/15/16 .............. 280,474 299,055
Government National Mortgage
Association, 9.00%, 07/15/16 .............. 375,821 400,719
Government National Mortgage
Association, 9.50%, 11/15/21 .............. 183,481 198,160
Government National Mortgage
Association - II, 9.50%, 09/20/19 ......... 198,455 212,595
-----------
6,548,279
-----------
U.S. Government and Agency
Obligations (17.5%)
Federal National Mortgage Association,
4.75%, 11/14/03 ........................... 600,000 599,454
Private Export Funding Corp., 5.48%,
09/15/03 .................................. 500,000 508,000
Small Business Administration 91-20K,
8.25%, 11/01/11 ........................... 689,202 746,061
Small Business Administration 92-20K,
7.55%, 11/01/12 ........................... 723,207 770,894
-----------
2,624,409
-----------
U.S. Treasury Obligations (25.0%)
U.S. Treasury Bond, 6.63%, 02/15/27 ........ 100,000 118,406
Treasury Inflation Indexed, 3.63%,
04/15/28 .................................. 1,000,000 1,010,496
U.S. Treasury Note, 8.13%, 08/15/19 ........ 225,000 300,901
U.S. Treasury Note, 8.75%, 05/15/17 ........ 850,000 1,187,212
U.S. Treasury Note, 10.75%, 08/15/05 ....... 610,000 825,123
U.S. Treasury Strip, Zero Coupon,
08/15/05 .................................. 400,000 292,044
-----------
3,734,182
-----------
Total Long-Term Bonds and Notes
(Cost $13,127,034) ........................ 13,359,021
-----------
<CAPTION>
Principal Market
Amount Value
----------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (31.3%)
Federal Home Loan Bank, 4.90%, 12/18/98
BB ........................................ $ 745,000 $ 740,335
Federal Home Loan Mortgage Corp.,
4.95%, 12/10/98 BB ........................ 1,920,000 1,909,969
Federal Home Loan Mortgage Corp.,
5.42%, 11/02/98 ........................... 1,933,000 1,933,000
U.S. Treasury Bill, 4.58%, 02/18/99 @ ...... 100,000 98,746
Total Short-Term Investments
(Cost $4,681,929) ......................... 4,682,050
-----------
Total Investments (Cost $17,808,963)(a) .... 18,041,071
Other assets less liabilities .............. (3,069,363)
-----------
Total Net Assets ........................... $14,971,708
===========
</TABLE>
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 October 31,
1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................. $246,558
Unrealized losses............................ (14,450)
--------
Net unrealized gain......................... $232,108
========
</TABLE>
Information concerning open futures contracts at October 31, 1998 is shown
below:
<TABLE>
<CAPTION>
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(loss)
----------- -------------- ------------ ---------------
Short Contracts
- --------------------
<S> <C> <C> <C> <C>
U.S. Treasury Note 26 $(2,978,234) Dec 98 $ (2,552)
============= ============
</TABLE>
B When-issued or delayed delivery security.
BB Segregated securities for purchases of delayed delivery or when-issued
securities held at October 31, 1998.
@ Security pledged to cover initial margin requirements on open futures
contracts at October 31, 1998.
Category percentages are based on net assets.
130 See Notes to Financial Statements.
<PAGE>
Income Funds
Portfolio of Investments - October 31, 1998
High Yield
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS (0.1%)
American Banknote Corp. Warrants ........... 250 $ 400
KMC Telcom Holdings, Inc. Warrants ......... 500 5,000
-----------
Total Common Stocks (Cost $0) .............. 5,400
-----------
PREFERRED STOCKS (3.2%)
Cluett American Corp. B .................... 1,500 127,500
Cumulus Media, Inc. + ...................... 78 79,905
Nebco Evans Holdings Co. ................... 1,583 79,158
-----------
Total Preferred Stocks (Cost $383,316) ..... 286,563
-----------
<CAPTION>
Principal
Amount
-----------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (88.8%)
Corporate Bonds (88.8%)
Adelphia Communications, 8.13%, 07/15/03
B ........................................ $ 100,000 99,250
America Banknote Corp., 11.25%, 12/01/07 ... 250,000 187,500
America Lawyer Media Corp., 9.75%,
12/15/07 .................................. 60,000 59,550
America Skiing Co., 12.00%, 07/15/06 ....... 100,000 102,000
Aztar Corp., 11.00%, 10/01/02 .............. 125,000 123,125
Bell Sports, Inc., 11.00%, 08/15/08 B ...... 50,000 49,000
Benedek Communications Corp., 11.50%,
05/15/08 .................................. 150,000 123,000
Chancellor Media Corp., 8.13%, 12/15/07
BB ........................................ 300,000 286,500
Cluett American Corp., 10.13%, 05/15/08 B .. 200,000 178,000
Convergent Communication, 13.00%, 04/01/08 . 200,000 140,000
Crown Castle International Corp.,
Zero Coupon, 11/15/07 ..................... 500,000 300,000
Cumulus Media, Inc., 10.38%, 07/01/08 ...... 50,000 50,875
Dialogic Corp. Plc, 11.00%, 11/15/07 ....... 100,000 102,750
Dimac Corp., 12.50%, 10/01/08 B ............ 150,000 145,875
Drypers Corp., 10.25%, 06/15/07 ............ 300,000 279,000
Echostar Communications, Zero Coupon,
06/01/04 .................................. 250,000 242,500
Empress Entertainment Corp., 8.13%,
07/01/06 B ................................ 100,000 98,500
Esprit Telecom Group Plc, 10.88%, 06/15/08 . 200,000 174,000
Great Lakes Dredge, 11.25%, 08/15/08 B ..... 50,000 48,500
Hermes Euro Rail Corp., 11.50%, 08/15/07 ... 125,000 130,000
Hollywood Park, Inc., 9.50%, 08/01/07 ...... 125,000 122,500
Hyperion Telecom Corp., Zero Coupon,
04/15/03 .................................. 200,000 130,000
Hyperion Telecom Corp., 12.25%, 09/01/04 ... 100,000 98,000
Iridium LLC/Capital Corp., 11.25%,
07/15/05 .................................. 100,000 74,000
ISP Holdings, Inc., 9.00%, 10/15/03 ........ 125,000 129,375
ITC Deltacom, Inc., 9.75%, 11/15/08 BBB .... 150,000 152,250
KMC Telcom Holdings, Inc.,
Zero Coupon, 02/15/08 ..................... 500,000 235,000
Majestic Star Casino LLC, 12.75%, 05/15/03 . 250,000 253,750
Mcleodusa, Inc., 8.38%, 03/15/08 ........... 200,000 192,000
Mcleodusa, Inc., 9.50%, 11/01/08 B ......... 100,000 102,000
Metronet Communications,
Zero Coupon, 11/01/07 ..................... 350,000 203,000
Microcell Telecommunications,
Zero Coupon, 06/01/06 ..................... 150,000 99,000
Mohegan Tribal Gaming, 13.50%, 11/15/02
BB ........................................ 350,000 434,000
Neenah Corp., 11.13%, 05/01/07 ............. 100,000 102,250
<CAPTION>
Principal Market
Amount Value
----------- ------------
<S> <C> <C>
Corporate Bonds (continued)
Nortek, Inc., 9.13%, 09/01/07 .............. $ 100,000 $ 99,000
NTLI, Inc., 11.50%, 10/01/08 BBB B ......... 200,000 207,000
Optel, Inc., 11.50%, 07/01/08 B ............ 150,000 133,500
Park N' View, Inc., 13.00%, 05/15/08 B ..... 150,000 123,000
Penhall Acquisition Corp., 12.00%,
08/01/06 B ................................ 75,000 63,750
Price Communications Corp., 11.25%,
08/15/08 B ................................ 100,000 88,000
PSINET, Inc., 10.00%, 02/15/05 ............. 100,000 97,000
Purina Mills, Inc., 9.00%, 03/15/10 ........ 100,000 100,000
RAB Enterprises, Inc., 10.50%, 05/01/05 B .. 150,000 137,250
Radio Unica Corp., Zero Coupon, 08/01/06
B ......................................... 75,000 37,500
Rogers Cantel, Inc., 9.38%, 06/01/08 ....... 40,000 40,200
Rural Cellular Corp., 11.38%, 05/15/10 B ... 154,000 138,600
SBA Communications Corp.,
Zero Coupon, 03/01/08 ..................... 500,000 215,000
Simcala, Inc., 9.63%, 04/15/06 ............. 200,000 140,000
Station Casinos Corp., 9.63%, 06/01/03 ..... 125,000 125,000
Sun International Hotels, 9.00%, 03/15/07 .. 100,000 103,500
TBS Shipping International Ltd.,
10.00%, 05/01/05 B ........................ 200,000 136,000
Telecomm Techniques Co., 9.75%, 05/15/08
B ......................................... 200,000 170,000
Telewest Plc, 11.00%, 10/01/07 ............. 100,000 78,250
VIASystems, Inc., 9.75%, 06/01/07 .......... 100,000 87,500
Verio, Inc., 10.38%, 04/01/05 .............. 250,000 237,500
Winstar Communications, Inc., 10.00%,
03/15/08 .................................. 75,000 61,500
Total Long-Term Bonds and Notes
(COST $8,701,489) ......................... 7,866,100
SHORT-TERM INVESTMENTS (10.0%)
Federal Home Loan Mortgage Corp.,
5.42%, 11/02/98 ........................... 881,000 881,000
-----------
Total Short-Term Investments
(Cost $881,000) ........................... 881,000
-----------
Total Investments (Cost $9,965,805)(a) ..... 9,039,063
Other assets less liabilities .............. (183,828)
-----------
Total Net Assets ........................... $ 8,855,235
===========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$9,966,071. Unrealized gains and losses, based on identified tax cost at
October 31, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................... $ 53,516
Unrealized losses.............................. (980,524)
---------
Net unrealized loss........................... $(927,008)
=========
</TABLE>
B 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 securites have been determined
to be liquid under guidelines established by the Board of Directors.
See Notes to Financial Statements. 131
<PAGE>
Income Funds
Portfolio of Investments - October 31, 1998
High Yield (continued)
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments (continued)
BB Segregated securities for purchases of delayed delivery or when-issued
securities held at October 31, 1998.
BBB When-issued or delayed delivery security.
+ Non-income producing security.
Category percentages are based on net assets.
132 See Notes to Financial Statements.
<PAGE>
Income Funds
Portfolio of Investments - October 31, 1998
Money Market
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
----------- ------------
<S> <C> <C>
ASSET-BACKED SECURITIES (37.3%)
ABS Investor Trust Series 1997-E,
5.41%, 08/15/99 ........................... $12,000,000 $12,000,000
Amercredit Auto Receivables Trust,
5.63%, 06/12/99 ........................... 2,434,461 2,434,461
Amercredit Automobile Receivables
Trust 1998-A, 5.56%, 03/05/99 ............. 3,491,088 3,491,088
CARCO Auto Loan Master Trust 1993-2,
5.60%, 11/15/98 ........................... 4,500,000 4,500,000
Case Equipment Recreation Trust
1998-B, 5.61%, 09/15/99 ................... 8,851,306 8,851,306
Caterpillar Financial Asset Trust,
5.64%, 07/26/99 ........................... 8,473,644 8,473,644
Chase Manhattan Auto Owner Trust,
5.59%, 07/09/99 ........................... 1,853,452 1,853,452
Chase Manhattan Auto Owner Trust
1998-B, 5.58%, 05/10/99 ................... 1,521,796 1,521,769
Compass Auto Receivables Trust,
5.66%, 07/15/99 ........................... 3,948,007 3,948,007
ContiMortgage Home Equity Loan Trust,
5.51%, 09/15/99 ........................... 7,779,958 7,779,958
First Security Auto Owner Trust,
5.25%, 11/15/99 ........................... 18,500,000 18,500,000
Ford Credit Auto Owner Trust,
5.61%, 01/15/99 ........................... 1,768,015 1,768,015
Ford Credit Auto Owner Trust 1998-C,
5.62%, 05/17/99 ........................... 4,133,453 4,133,453
Green Tree Financial Corp., 5.65%,
09/01/99 .................................. 3,188,848 3,188,848
Green Tree Financial Corp., 5.68%,
06/01/99 .................................. 661,838 661,838
Green Tree Financial Corp., 5.69%,
05/01/99 .................................. 1,043,526 1,043,526
Green Tree Recreational Equipment &
Consumer Trust, 5.55%, 08/15/99 ........... 5,584,678 5,584,678
Green Tree Recreational Equipment &
Consumer Trust, 5.67%, 07/15/99 ........... 3,516,841 3,516,841
Long Lane Master Trust lll 1997-C,
5.75%, 11/02/98 B ......................... 7,200,000 7,200,000
Long Lane Trust Lll Series,
5.23%, 04/30/99 B ......................... 8,700,000 8,700,000
MMCA Auto Owner Trust 1997-1,
5.62%, 08/16/99 ........................... 13,211,375 13,211,375
Newcourt Equity Trust Security,
5.01%, 11/20/99 ........................... 21,000,000 20,999,983
Provident Equipment Lease Trust,
5.28%, 10/25/99 ........................... 13,303,000 13,303,000
Racers Series 1998, 5.33%, 01/20/99 B ...... 6,800,000 6,799,297
-----------
Total Asset-Backed Securities .............. 163,464,539
-----------
CERTIFICATES OF DEPOSIT (5.7%)
Abbey National Treasury, 5.58%,
08/19/99 .................................. 5,600,000 5,623,390
Deutsche Bank AG (NY), 5.70%, 03/30/99 ..... 9,500,000 9,497,786
Svenska Handelsbanken, Inc., 5.72%,
03/31/99 .................................. 9,700,000 9,698,862
-----------
Total Certificates of Deposit .............. 24,820,038
-----------
<CAPTION>
Principal
Amount Value
----------- ------------
<S> <C> <C>
COMMERCIAL PAPER - DOMESTIC (23.4%)
Allmerica Financial Corp., 5.47%,
11/17/98 .................................. $ 1,900,000 $ 1,895,670
Allmerica Financial Corp., 5.50%,
11/24/98 .................................. 1,694,000 1,688,306
Avon Capital Corp., 5.52%, 11/09/98
BB ........................................ 5,000,000 4,994,633
Baxter International, Inc., 5.58%,
11/12/98 BB ............................... 5,263,000 5,254,842
Baxter International, Inc., 5.65%,
11/05/98 BB ............................... 3,000,000 2,998,588
Cooperative Associates of Tractor
Dealers, Inc., 5.28%, 11/17/98 ............ 1,500,000 1,496,700
Cooperative Associates of Tractor
Dealers, Inc., 5.54%, 01/08/99 ............ 3,500,000 3,463,913
Finova Capital Corp., 5.30%, 02/19/99 ...... 2,000,000 1,967,906
Frontier Corp., 5.30%, 11/09/98 BB ......... 2,205,000 2,202,728
GTE Corp., 5.30%, 11/17/98 BB .............. 3,500,000 3,492,271
GTE Corp., 5.35%, 11/06/98 BB .............. 11,000,000 10,993,461
Household International, Inc.,
4.98%, 03/09/99 B ......................... 3,000,000 2,947,295
Household International, Inc.,
5.20%, 02/23/99 B ......................... 5,000,000 4,918,389
Jefferson Smurfit Finance Corp.,
5.19%, 12/30/98 ........................... 2,000,000 1,983,277
Jefferson Smurfit Finance Corp.,
5.35%, 12/15/98 ........................... 1,000,000 993,610
Jefferson Smurfit Finance Corp.,
5.35%, 01/05/99 ........................... 1,500,000 1,485,733
Jefferson Smurfit Finance Corp.,
5.35%, 01/12/99 ........................... 3,000,000 2,968,346
Jefferson Smurfit Finance Corp.,
5.48%, 12/08/98 ........................... 2,872,000 2,856,261
Jefferson Smurfit Finance Corp.,
5.52%, 11/10/98 ........................... 1,590,000 1,588,050
PHH Corp., 6.30%, 11/02/98 ................. 14,000,000 14,000,000
Republic Industries Funding Corp.,
5.25%, 11/02/98 ........................... 10,000,000 10,000,000
Sheffield Receivables Corp.,
5.77%, 11/02/98 BB ........................ 18,309,000 18,308,999
-----------
Total Commercial Paper - Domestic .......... 102,498,978
-----------
COMMERCIAL PAPER - FOREIGN (1.1%)
UBS Finance, Inc., 4.80%, 03/22/99 ......... 5,000,000 4,906,667
-----------
CORPORATE NOTES (17.7%)
Abbey National Treasury, 5.54%,
08/17/99 .................................. 15,000,000 14,990,733
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 17,992,820
First Allmerica Financial Life
Insurance Co., 5.59%, 09/17/99 B .......... 12,000,000 12,000,000
First USA Bank, 5.75%, 01/15/99 ............ 2,000,000 1,999,369
International Lease Finance Corp.,
7.50%, 03/01/99 ........................... 1,200,000 1,206,481
PNC Bank N.A., 5.25%, 08/03/99 ............. 20,000,000 19,989,992
Transamerica Corp., 6.80%, 03/15/99 ........ 4,504,000 4,525,413
-----------
Total Corporate Notes ...................... 77,704,808
</TABLE>
See Notes to Portfolio of Investments. 133
<PAGE>
Income Funds
Portfolio of Investments - October 31, 1998
Money Market (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Value
----------- ------------
<S> <C> <C>
MEDIUM-TERM NOTES (23.1%)
American Honda Finance Corp.,
5.63%, 04/08/99 ........................... $15,500,000 $15,500,000
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 8,461,683
Chrysler Financial Corp., 7.89%,
10/12/99 .................................. 3,000,000 3,078,052
Country Wide Home Loans, Inc.,
5.46%, 10/27/99 ........................... 4,000,000 3,998,706
Country Wide Home Loans, Inc.,
5.70%, 08/13/99 ........................... 17,000,000 16,993,889
Finova Capital Corp., 6.19%, 10/20/99 ...... 4,125,000 4,159,724
Finova Capital Corp., 6.37%, 04/15/99 ...... 1,500,000 1,506,426
Finova Capital Corp., 6.38%, 04/15/99 ...... 2,700,000 2,706,588
Ford Motor Credit Corp., 7.45%,
07/12/99 .................................. 2,500,000 2,540,859
General Motors Acceptance Corp.,
7.50%, 05/24/99 ........................... 3,500,000 3,547,231
General Motors Acceptance Corp.,
7.50%, 08/05/99 ........................... 2,000,000 2,036,233
Greyhound Financial Corp., 8.50%,
02/15/99 .................................. 2,000,000 2,014,118
Heller Financial, Inc., 5.36%,
07/06/99 BBB .............................. 21,000,000 20,993,291
PHH Corp., 5.59%, 02/10/99 ................. 5,000,000 4,999,333
PHH Corp., 5.60%, 11/03/98 ................. 1,500,000 1,499,994
USL Capital Corp., 6.18%, 11/08/99 ......... 1,400,000 1,414,586
Total Medium-term Notes .................... 101,450,713
-----------
Total Investments
(Cost $474,845,743)(a) .................... 474,845,743
Other assets less liabilities .............. (36,449,882)
-----------
Total Net Assets ........................... $438,395,861
-----------
</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 October 31, 1998.
B Restricted security. This security has been determined to be illiquid
under guidelines established by the Board of Directors.
BB 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 securites have been determined
to be liquid under guidelines established by the Board of Directors.
BBB Segregated securities for purchases of delayed delivery or when-issued
securities held at October 31, 1998.
134 See Notes to Financial Statements.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
135
<PAGE>
Income Funds
Statements of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
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 (loss) on investments .............................
Undistributed net investment income ...................................
Accumulated net realized 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 C:
Outstanding ..........................................................
Net Assets ...........................................................
Net Asset Value, offering and redemption price per share (net assets
divided by shares outstanding) .......................................
Cost of investments ...................................................
</TABLE>
136 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aetna
Bond Government Fund High Yield Money Market
- ------------- ----------------- -------------- -----------------
<S> <C> <C> <C>
$47,491,084 $18,041,071 $ 9,039,063 $474,845,743
663 945 399 127,535
562,141 162,575 184,903 2,850,871
2,771,157 2,662,072 374,103 --
67,570 736 -- 1,831,893
-- 50,616 -- --
8,866 13,410 16,222 71,003
749 222 160 9,238
- ----------- ----------- ----------- ------------
50,902,230 20,931,647 9,614,850 479,736,283
- ----------- ----------- ----------- ------------
18,236 17,051 66,476 65,134
7,037,674 5,920,912 650,000 39,500,008
-- -- -- 1,437,581
45,171 21,976 43,139 337,699
- ----------- ----------- ----------- ------------
7,101,081 5,959,939 759,615 41,340,422
- ----------- ----------- ----------- ------------
$43,801,149 $14,971,708 $ 8,855,235 $438,395,861
=========== =========== =========== ============
$42,983,300 $14,835,846 $10,059,052 $438,395,861
967,491 229,556 (926,742) --
34,625 5,586 22,929 --
(184,267) (99,280) (300,004) --
- ----------- ----------- ----------- ------------
$43,801,149 $14,971,708 $ 8,855,235 $438,395,861
=========== =========== =========== ============
4,028,618 1,358,771 959,840 276,024,459
$41,803,635 $13,980,395 $ 8,451,503 $276,024,459
$ 10.38 $ 10.29 $ 8.81 $ 1.00
182,187 85,013 25,586 161,455,788
$ 1,889,849 $ 874,555 $ 225,294 $161,455,788
$ 10.37 $ 10.29 $ 8.81 $ 1.00
$ 10.89 $ 10.80 $ 9.25 $ --
10,380 11,350 20,269 915,614
$ 107,665 $ 116,758 $ 178,438 $ 915,614
$ 10.37 $ 10.29 $ 8.80 $ 1.00
$46,523,593 $17,808,963 $ 9,965,805 $474,845,743
</TABLE>
See Notes to Financial Statements. 137
<PAGE>
Income Funds
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends .............................................................
Interest ..............................................................
Total investment income ..........................................
Investment Expenses:
Investment advisory fee ...............................................
Administrative services fees ..........................................
Distribution Plan and shareholder services fees .......................
Printing and postage ..................................................
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 ..............
Total expenses ...................................................
Net investment income .................................................
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Investments ..........................................................
Futures contracts ....................................................
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 (decrease) in net assets resulting from operations .......
</TABLE>
138 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
High Yield
Period From
February 2, 1998
Bond Aetna Government Fund (Commencement of Money Market
Year Ended Year Ended Operations) to Year Ended
October 31, 1998 October 31, 1998 October 31, 1998 October 31, 1998
- ----------------- ----------------------- ------------------- --------------------
<S> <C> <C> <C>
$ 4,563 $ -- $ -- $ --
2,561,057 739,020 673,671 24,305,231
---------- ---------- ----------- -----------
2,565,620 739,020 673,671 24,305,231
---------- ---------- ----------- -----------
196,033 62,424 47,995 1,701,171
52,793 16,722 7,384 586,393
4,918 2,207 630 26,009
5,861 3,382 5,078 47,949
7,392 3,066 6,775 8,646
39,133 26,340 18,914 519,619
19,549 17,795 13,733 15,643
1,050 319 245 8,790
57,001 58,223 66,851 126,716
2,397 806 342 28,482
---------- ---------- ----------- -----------
386,127 191,284 167,947 3,069,418
(87,410) (101,809) (97,126) (1,041,156)
---------- ---------- ----------- -----------
298,717 89,475 70,821 2,028,262
---------- ---------- ----------- -----------
2,266,903 649,545 602,850 22,276,969
---------- ---------- ----------- -----------
587,840 331,453 (300,004) --
-- (6,894) -- --
---------- ---------- ----------- -----------
587,840 324,559 (300,004) --
---------- ---------- ----------- -----------
48,317 30,256 (926,742) --
-- (2,552) -- --
---------- ---------- ----------- -----------
48,317 27,704 (926,742) --
---------- ---------- ----------- -----------
636,157 352,263 (1,226,746) --
---------- ---------- ----------- -----------
$2,903,060 $1,001,808 $ (623,896) $22,276,969
========== ========== =========== ===========
</TABLE>
See Notes to Financial Statements. 139
<PAGE>
Income Funds
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond
--------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income.......................... $ 2,266,903 $ 1,976,800
Net realized gain on investments............... 587,840 157,360
Net change in unrealized gain or loss on
investments................................... 48,317 299,928
----------- -----------
Net increase in net assets resulting from
operations .................................. 2,903,060 2,434,088
----------- -----------
Distributions to Shareholders:
Class I:
From net investment income.................... (2,221,259) (1,953,173)
Class A:
From net investment income.................... (84,613) (42,360)
Class C:
From net investment income.................... (1,543) --
----------- -----------
Decrease in net assets from distributions to
shareholders ................................ (2,307,415) (1,995,533)
----------- -----------
From Fund Share Transactions:
Class I:
Proceeds from shares sold..................... 14,969,561 12,026,343
Net asset value of shares issued upon
reinvestment of distributions................ 1,982,243 1,654,636
Payments for shares redeemed.................. (9,802,959) (8,892,172)
Class A:
Proceeds from shares sold..................... 1,361,680 382,105
Net asset value of shares issued upon
reinvestment of distributions................ 94,203 40,263
Payments for shares redeemed.................. (592,561) (304,568)
Class C:
Proceeds from shares sold..................... 107,100 --
Net asset value of shares issued upon
reinvestment of distributions................ 33 --
----------- -----------
Net increase in net assets from fund share
transactions................................ 8,119,300 4,906,607
----------- -----------
Net change in net assets....................... 8,714,945 5,345,162
Net Assets:
Beginning of period............................ 35,086,204 29,741,042
----------- -----------
End of period.................................. $43,801,149 $35,086,204
=========== ===========
End of period net assets includes undistributed
net investment income......................... $ 34,625 $ 75,137
=========== ===========
</TABLE>
140 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond
--------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold......................... 1,453,940 1,188,904
Number of shares issued upon reinvestment of
distributions................................ 191,940 163,888
Number of shares redeemed..................... (952,243) (878,448)
----------- -----------
Net increase.................................. 693,637 474,344
=========== ===========
Class A:
Number of shares sold......................... 132,099 37,594
Number of shares issued upon reinvestment of
distributions................................ 9,145 3,991
Number of shares redeemed..................... (57,572) (30,070)
----------- -----------
Net increase.................................. 83,672 11,515
=========== ===========
Class C:
Number of shares sold......................... 10,377 --
Number of shares issued upon reinvestment of
distributions................................ 3 --
----------- -----------
Net increase.................................. 10,380 --
=========== ===========
</TABLE>
See Notes to Financial Statements. 141
<PAGE>
Income Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aetna Government Fund
--------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income.......................... $ 649,545 $ 622,911
Net realized gain (loss) on investments........ 324,559 (47,229)
Net change in unrealized gain or loss on
investments................................... 27,704 276,527
----------- -----------
Net increase in net assets resulting from
operations .................................. 1,001,808 852,209
----------- -----------
Distributions to Shareholders:
Class I:
From net investment income.................... (630,427) (615,272)
Class A:
From net investment income.................... (28,375) (28,652)
Class C:
From net investment income.................... (1,484) --
----------- -----------
Decrease in net assets from distributions to
shareholders ................................ (660,286) (643,924)
----------- -----------
From Fund Share Transactions:
Class I:
Proceeds from shares sold..................... 7,238,257 1,947,425
Net asset value of shares issued upon
reinvestment of distributions................ 394,720 287,395
Payments for shares redeemed.................. (4,193,654) (2,879,647)
Class A:
Proceeds from shares sold..................... 449,577 281,300
Net asset value of shares issued upon
reinvestment of distributions................ 25,701 26,438
Payments for shares redeemed.................. (147,241) (311,704)
Class C:
Proceeds from shares sold..................... 114,998 --
Net asset value of shares issued upon
reinvestment of distributions................ 99 --
----------- ------------
Net increase (decrease) in net assets from
fund share transactions ..................... 3,882,457 (648,793)
----------- -----------
Net change in net assets....................... 4,223,979 (440,508)
Net Assets:
Beginning of period............................ 10,747,729 11,188,237
----------- -----------
End of period.................................. $14,971,708 $10,747,729
=========== ===========
End of period net assets includes undistributed
net investment income......................... $ 5,586 $ 16,327
=========== ===========
</TABLE>
142 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aetna Government Fund
--------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold......................... 705,105 199,244
Number of shares issued upon reinvestment of
distributions................................ 38,991 29,485
Number of shares redeemed..................... (407,668) (294,789)
----------- -----------
Net increase (decrease)....................... 336,428 (66,060)
=========== ===========
Class A:
Number of shares sold......................... 43,885 28,673
Number of shares issued upon reinvestment of
distributions................................ 2,537 2,716
Number of shares redeemed..................... (14,561) (31,992)
----------- -----------
Net increase (decrease)....................... 31,861 (603)
=========== ===========
Class C:
Number of shares sold......................... 11,340 --
Number of shares issued upon reinvestment of
distributions................................ 10 --
----------- -----------
Net increase.................................. 11,350 --
=========== ===========
</TABLE>
See Notes to Financial Statements. 143
<PAGE>
Income Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
---------------------
Period From
February 2, 1998
(Commencement of
Operations)
to October 31, 1998
-------------------
<S> <C>
From Operations:
Net investment income................................... $ 602,850
Net realized loss on investments........................ (300,004)
Net change in unrealized gain or loss on investments.... (926,742)
-----------
Net decrease in net assets resulting from operations... (623,896)
-----------
Distributions to Shareholders:
Class I:
From net investment income............................. (568,178)
Class A:
From net investment income............................. (8,356)
Class C:
From net investment income............................. (3,387)
-----------
Decrease in net assets from distributions to
shareholders........................................... (579,921)
-----------
From Fund Share Transactions:
Class I:
Proceeds from shares sold.............................. 9,992,157
Net asset value of shares issued upon reinvestment of
distributions......................................... 1,563
Payments for shares redeemed........................... (372,365)
Class A:
Proceeds from shares sold.............................. 250,085
Net asset value of shares issued upon reinvestment of
distributions......................................... 2,387
Payments for shares redeemed........................... (8,533)
Class C:
Proceeds from shares sold.............................. 192,798
Net asset value of shares issued upon reinvestment of
distributions......................................... 965
Payments for shares redeemed........................... (5)
-----------
Net increase in net assets from fund share transactions 10,059,052
-----------
Net change in net assets................................ 8,855,235
Net Assets:
Beginning of period..................................... --
-----------
End of period........................................... $ 8,855,235
===========
End of period net assets includes undistributed net
investment income...................................... $ 22,929
===========
</TABLE>
144 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
---------------------
Period From
February 2, 1998
(Commencement of
Operations)
to October 31, 1998
-------------------
<S> <C>
Share Transactions:
Class I:
Number of shares sold.................................. 999,239
Number of shares issued upon reinvestment of
distributions......................................... 164
Number of shares redeemed.............................. (39,563)
-----------
Net increase........................................... 959,840
===========
Class A:
Number of shares sold.................................. 26,297
Number of shares issued upon reinvestment of
distributions......................................... 256
Number of shares redeemed.............................. (967)
-----------
Net increase........................................... 25,586
===========
Class C:
Number of shares sold.................................. 20,161
Number of shares issued upon reinvestment of
distributions......................................... 109
Number of shares redeemed.............................. (1)
-----------
Net increase........................................... 20,269
===========
</TABLE>
See Notes to Financial Statements. 145
<PAGE>
Income Funds
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Market
------------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
From Operations:
Net investment income...................... $ 22,276,969 $ 23,676,989
------------- -------------
Net increase in net assets resulting from
operations............................... 22,276,969 23,676,989
------------- -------------
Distributions to Shareholders:
Class I:
From net investment income................ (13,914,707) (16,169,711)
Class A:
From net investment income................ (8,355,762) (7,507,278)
Class C:
From net investment income................ (6,500) --
------------- -------------
Decrease in net assets from distributions
to shareholders ......................... (22,276,969) (23,676,989)
------------- -------------
From Fund Share Transactions:
Class I:
Proceeds from shares sold................. 285,261,463 294,751,229
Net asset value of shares issued upon
reinvestment of distributions............ 13,180,175 13,987,672
Payments for shares redeemed.............. (296,127,010) (358,309,949)
Class A:
Proceeds from shares sold................. 528,354,421 488,605,394
Net asset value of shares issued upon
reinvestment of distributions............ 8,089,499 7,255,936
Payments for shares redeemed.............. (531,518,375) (459,180,366)
Class C:
Proceeds from shares sold................. 927,490 --
Net asset value of shares issued upon
reinvestment of distributions............ 4,705 --
Payments for shares redeemed.............. (16,581) --
------------- -------------
Net increase (decrease) in net assets from
fund share transactions ................. 8,155,787 (12,890,084)
------------- -------------
Net change in net assets................... 8,155,787 (12,890,084)
Net Assets:
Beginning of period........................ 430,240,074 443,130,158
------------- -------------
End of period.............................. $ 438,395,861 $ 430,240,074
============= =============
End of period net assets includes
undistributed net investment income....... $ -- $ --
============= =============
</TABLE>
146 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Market
------------------------------
Year Ended Year Ended
October 31, October 31,
1998 1997
----------- -----------
<S> <C> <C>
Share Transactions:
Class I:
Number of shares sold..................... 285,261,463 294,751,229
Number of shares issued upon reinvestment
of distributions......................... 13,180,175 13,987,672
Number of shares redeemed................. (296,127,010) (358,309,949)
------------- -------------
Net increase (decrease)................... 2,314,628 (49,571,048)
============= =============
Class A:
Number of shares sold..................... 528,354,421 488,605,394
Number of shares issued upon reinvestment
of distributions......................... 8,089,499 7,255,936
Number of shares redeemed................. (531,518,375) (459,180,366)
------------- -------------
Net increase.............................. 4,925,545 36,680,964
============= =============
Class C:
Number of shares sold..................... 927,490 --
Number of shares issued upon reinvestment
of distributions......................... 4,705 --
Number of shares redeemed................. (16,581) --
------------- -------------
Net increase.............................. 915,614 --
============= =============
</TABLE>
See Notes to Financial Statements. 147
<PAGE>
Income Funds
Notes to Financial Statements
October 31, 1998
- --------------------------------------------------------------------------------
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 (Funds), each of which
has its own investment objective, policies and restrictions.
The Company currently offers nineteen funds. This report covers 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 three classes of shares, Class I, Class A and
Class C. Class I is offered principally to institutions and is not subject to
sales charges or distribution fees. Class I shares were first made available as
follows: Bond and Money Market on December 27, 1991, Aetna Government Fund on
December 22, 1993, and High Yield on February 2, 1998. Class A and Class C
shares are offered to accounts not eligible to buy Class I shares. Class A
shares are generally subject to a front end sales charge and a distribution fee
pursuant to Rule 12b-1 of the Act. Class A shares were first made available to
the public on April 15, 1994 for all Funds except High Yield, which were made
available to the public February 2, 1998. Class C shares are generally subject
to a contingent deferred sales charge on redemptions made within eighteen months
of purchase, a distribution fee pursuant to Rule 12b-1 of the Act and a service
fee. Class C shares were first made available to the public on June 30, 1998.
The following is each Fund's investment objective:
Bond seeks to provide as high a level of total return (i.e., income and
capital appreciation) as is consistent with reasonable risk, primarily
through investment in a diversified portfolio of investment-grade corporate
bonds, and 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. Prior to February 2, 1998, the Investment Adviser was Aetna Life
Insurance and Annuity Company (ALIAC). Aetna Investment Services, Inc. (AISI)
was the principal underwriter for each Fund through April 30, 1998. On May 1,
1998, Aeltus Capital, Inc. (ACI) became each Fund's principal underwriter.
Aeltus, ALIAC, AISI and ACI are all indirect wholly-owned subsidiaries of Aetna
Inc. (Aetna).
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.
148
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
A. Valuation of Investments
Except in Money Market, investments are stated at market values based upon
closing sales prices 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.
B. Futures 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.
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.
The risks associated with financial futures 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 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.
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.
Each Fund may invest up to 15% of its total assets in illiquid securities
(except Money Market which may invest up to 10%). 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.
149
<PAGE>
Income Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
C. Illiquid and Restricted Securities (continued)
Below is a summary of illiquid and restricted securities held as of October 31,
1998:
<TABLE>
<CAPTION>
Cost Market Value % of Net
---- ------------ Assets
------
<S> <C> <C> <C>
Money Market $42,564,981 $42,564,981 9.7%
</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 collaterized 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 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.
Futhermore, 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. 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.
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.
150
<PAGE>
- --------------------------------------------------------------------------------
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 October 31, 1998:
<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% 0.35%
</TABLE>
Aeltus has served as the Investment Adviser for all Funds since February 2,
1998. Prior to February 2, 1998, ALIAC served as Bond, Aetna Government Fund and
Money Market's Investment Adviser and Aeltus served as Sub-Adviser. As
Sub-Adviser, Aeltus supervised the investment and reinvestment of cash and
securities and provided certain related administrative services. For the period
November 1, 1997 through February 1, 1998, ALIAC received $16,653, net of
reimbursement, from the Funds, and paid $143,164 to Aeltus.
Effective February 2, 1998, the Company has 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. Prior to February 2, 1998, ALIAC acted as administrator for each Fund
and was paid an administrative services fee at an annual rate of 0.25% of each
Fund's average daily net assets.
Aeltus has entered into a Service Agreement with 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 assets associated
with those shares. For the period February 1, 1998 through October 31, 1998,
Aeltus paid ALIAC $118,624.
The Shareholder Services Plan for the Class A shares terminated on December 31,
1997. Under the Shareholder Services Plan, AISI was paid a service fee at an
annual rate of 0.25% (0.10% for Money Market) of the average daily net assets of
Class A of each Fund. This fee was used as compensation for expenses incurred in
servicing shareholders' accounts. For the period November 1, 1997 through
December 31, 1997, the Funds paid AISI $631, net of reimbursement, in service
fees.
The Company has adopted a Shareholder Services Plan for the Class C shares,
except Money Market. 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 C
shares. This fee is used as compensation for expenses incurred in servicing
shareholders' accounts. For the period June 30, 1998 through October 31, 1998,
the Funds paid ACI $273 in service fees.
The Company has adopted a Distribution Plan pursuant to Rule 12b-1 under the Act
for the Class A and Class C shares. The Distribution Plan provides for payments
to the principal underwriter at an annual rate of 0.25% (prior to February 2,
1998, the 12b-1 fee was 0.50%) 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 C shares of each Fund (except Money Market). Amounts paid by the Funds are
used to pay expenses incurred by the principal underwriter in promoting the sale
of Class A and Class C shares.
151
<PAGE>
Income Funds
Notes to Financial Statements (continued)
October 31, 1998
- --------------------------------------------------------------------------------
3. Investment Advisory, Shareholder Services and Distribution Fees (continued)
Presently, the Funds' class-specific expenses are limited to Rule 12b-1 fees
incurred by Class A and Class C shares and service fees incurred by Class C
shares.
4. Reimbursement and Waiver From Investment Adviser
Aeltus may, from time to time, make reimbursements to a Fund for some or all of
its operating expenses or it may waive fees. Reimbursement and waiver
arrangements, which may be terminated at any time without notice, will increase
a Fund's yield and total return.
5. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended October 31, 1998 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds From Sales
----------------- -------------------
<S> <C> <C>
Bond $41,774,807 $26,510,793
Aetna Government Fund 23,641,951 19,491,563
High Yield 33,522,758 24,277,951
</TABLE>
6. Capital Loss Carryforward
At October 31, 1998, 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 9.7 billion shares. Of those 9.7
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 and Class C shares. Money
Market has been allocated one billion shares each of Class I, Class A and Class
C shares. As of October 31, 1998, the following shares of the Funds were owned
by ALIAC and its affiliates:
<TABLE>
<CAPTION>
Class I Class A Class C
------- ------- -------
<S> <C> <C> <C>
Bond -- -- 9,699
Aetna Government Fund 373,341 -- 9,891
High Yield 955,495 10,000 9,930
Money Market -- -- 100,000
</TABLE>
152
<PAGE>
Income Funds
Additional Information
October 31, 1998
- --------------------------------------------------------------------------------
Year 2000 (Unaudited)
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 assurances 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.
153
<PAGE>
Income Funds
Financial Highlights
Bond
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Ten Month
Year Ended Year Ended Year Ended Year Ended Period Ended Year Ended
October 31, October 31, October 31, October 31, October 31, December 31,
Class I 1998 1997 1996 1995 1994 1993
- ---------------------------------------------- ----------- ----------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 10.22 $ 10.09 $ 10.27 $ 9.58 $ 10.37 $ 9.99
------- ------- ------- ------- ------- -------
Income From Investment Operations:
Net investment income ....................... 0.60 0.62 0.65 0.65 0.52 0.55
Net realized and change in unrealized gain or
loss on investments ........................ 0.17 0.13 (0.15) 0.65 (0.86) 0.45
------- ------- ------- ------- ------- -------
Total from investment operations .......... 0.77 0.75 0.50 1.30 (0.34) 1.00
------- ------- ------- ------- ------- -------
Less distributions:
From net investment income .................. (0.61) (0.62) (0.68) (0.61) (0.45) (0.55)
From net realized gains on investments ...... -- -- -- -- -- (0.07)
------- ------- ------- ------- ------- -------
Total distributions ....................... (0.61) (0.62) (0.68) (0.61) (0.45) (0.62)
------- ------- ------- ------- ------- -------
Net asset value, end of period ............... $ 10.38 $ 10.22 $ 10.09 $ 10.27 $ 9.58 $ 10.37
======= ======= ======= ======= ======= =======
Total return ................................. 7.72% 7.72% 5.09% 14.06% (3.31)% 10.20%
Net assets, end of period (000's) ............ $41,804 $34,080 $28,864 $32,778 $27,584 $46,788
Ratio of total expenses to average net assets 0.75% 0.75% 0.75% 0.79% 0.76%(1) 0.47%
Ratio of net investment income to average net
assets....................................... 5.79% 6.07% 6.16% 6.56% 6.29%(1) 5.34%
Ratio of net expense before reimbursement and
waiver to average net assets ................ 0.97% 1.14% 1.16% 1.06% 1.06%(1) 1.01%
Ratio of net investment income before
reimbursement and waiver to average
net assets .................................. 5.57% 5.68% 5.75% 6.25% 5.98%(1) 4.80%
Portfolio turnover rate ...................... 77.01% 48.56% 42.33% 56.99% 51.80% 50.01%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
154 See Notes to Financial Statements.
<PAGE>
Bond
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
Class A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $10.22 $10.09 $10.27 $ 9.58 $ 9.92
------ ------ ------ ------ -------
Income from investment
operations:
Net investment income 0.57 0.54 0.62 0.56 0.28
Net realized and
change in unrealized
gain or loss on
investments ........ 0.15 0.13 (0.20) 0.66 (0.35)
------ ------ ------ ------ -------
Total from
investment
operations........ 0.72 0.67 0.42 1.22 (0.07)
------ ------ ------ ------ -------
Less Distributions:
From net investment
income ............. (0.57) (0.54) (0.60) (0.53) (0.27)
------ ------ ------ ------ -------
Total distributions (0.57) (0.54) (0.60) (0.53) (0.27)
------ ------ ------ ------ -------
Net asset value, end
of period ........... $10.37 $10.22 $10.09 $10.27 $ 9.58
====== ====== ====== ====== =======
Total return ......... 7.27% 6.89% 4.27% 13.28% (0.68)%
Net assets, end of
period (000's) ...... $1,890 $1,006 $ 877 $7,340 $25,405
Ratio of total
expenses to average
net assets .......... 1.05% 1.50% 1.50% 1.50% 1.49%(1)
Ratio of net
investment income to
average net assets .. 5.49% 5.32% 5.47% 5.91% 5.36%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.27% 1.89% 1.91% 1.82% 1.81%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... 5.27% 4.93% 5.06% 5.60% 5.04%(1)
Portfolio turnover
rate................. 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. 155
<PAGE>
Income Funds
Financial Highlights (continued)
Bond
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
Class C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $10.31
------
Income from investment operations:
Net investment income .................................... 0.17
Net realized and change in unrealized gain or loss on
investments.............................................. 0.05
------
Total from investment operations ....................... 0.22
------
Less distributions:
From net investment income ............................... (0.16)
------
Total distributions .................................... (0.16)
------
Net asset value, end of period ............................ $10.37
======
Total return .............................................. 2.10%
Net assets, end of period (000's) ......................... $ 108
Ratio of total expenses to average net assets ............. 1.75%(1)
Ratio of net investment income to average net assets ...... 4.79%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 1.97%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 4.57%(1)
Portfolio turnover rate ................................... 77.01%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
156 See Notes to Financial Statements.
<PAGE>
Aetna Government Fund
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Ten Month
Year Ended Year Ended Year Ended Year Ended Period Ended
October 31, October 31, October 31, October 31, October 31,
Class I 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 9.99 $ 9.80 $ 10.01 $ 9.41 $ 10.00
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.53 0.58 0.56 0.64 0.40
Net realized and
change in unrealized
gain or loss on
investments......... 0.30 0.21 (0.13) 0.59 (0.63)
------- ------- ------- ------- -------
Total from
investment
operations........ 0.83 0.79 0.43 1.23 (0.23)
------- ------- ------- ------- -------
Less distributions:
From net investment
income ............. (0.53) (0.60) (0.64) (0.63) (0.36)
------- ------- ------- ------- -------
Total distributions (0.53) (0.60) (0.64) (0.63) (0.36)
------- ------- ------- ------- -------
Net asset value, end
of period ........... $ 10.29 $ 9.99 $ 9.80 $ 10.01 $ 9.41
======= ======= ======= ======= =======
Total return ......... 8.54% 8.39% 4.43% 13.58% (2.37)%
Net assets, end of
period (000's) ...... $13,980 $10,217 $10,662 $19,154 $26,110
Ratio of total
expenses to average
net assets .......... 0.70% 0.70% 0.70% 0.70% 0.41%(1)
Ratio of net
investment income to
average net assets .. 5.21% 5.91% 5.67% 6.79% 5.29%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.51% 1.70% 1.57% 1.30% 1.16%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... 4.40% 4.91% 4.80% 6.19% 4.54%(1)
Portfolio turnover
rate................. 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. 157
<PAGE>
Income Funds
Financial Highlights (continued)
Aetna Government Fund
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
Class A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 9.99 $ 9.79 $10.00 $ 9.41 $ 9.67
------- ------- ------ ------- ------
Income from investment
operations:
Net investment income 0.49 0.51 0.48 0.60 0.24
Net realized and
change in unrealized
gain or loss on
investments......... 0.31 0.21 (0.13) 0.56 (0.24)
------- ------- ------ ------- ------
Total from
investment
operations........ 0.80 0.72 0.35 1.16 --
------- ------- ------ ------- ------
Less distributions:
From net investment
income.............. (0.50) (0.52) (0.56) (0.57) (0.26)
------- ------- ------ ------- ------
Total distributions (0.50) (0.52) (0.56) (0.57) (0.26)
------- ------- ------ ------- ------
Net asset value, end
of period ........... $ 10.29 $ 9.99 $ 9.79 $ 10.00 $ 9.41
======= ======= ====== ======= ======
Total return ......... 8.19% 7.67% 3.75% 12.60% (0.06)%
Net assets, end of
period (000's) ...... $ 875 $ 531 $ 526 $ 405 $ 151
Ratio of total
expenses to average
net assets .......... 1.03% 1.45% 1.45% 1.51% 1.28%(1)
Ratio of net
investment income to
average net assets .. 4.88% 5.16% 4.96% 6.02% 4.68%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 1.84% 2.45% 2.32% 2.11% 2.11%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... 4.07% 4.16% 4.09% 5.42% 3.85%(1)
Portfolio turnover
rate................. 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.
158 See Notes to Financial Statements.
<PAGE>
Aetna Government Fund
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
Class C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.11
-------
Income from investment operations:
Net investment income .................................... 0.15
Net realized and change in unrealized gain or loss on
investments ............................................. 0.17
-------
Total from investment operations ....................... 0.32
-------
Less distributions:
From net investment income ............................... (0.14)
-------
Total distributions .................................... (0.14)
-------
Net asset value, end of period ............................ $ 10.29
=======
Total return .............................................. 3.18%
Net assets, end of period (000's) ......................... $ 117
Ratio of total expenses to average net assets ............. 1.70%(1)
Ratio of net investment income to average net assets ...... 4.21%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 2.51%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 3.40%(1)
Portfolio turnover rate ................................... 181.08%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 159
<PAGE>
Income Funds
Financial Highlights (continued)
High Yield
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 2, 1998
(Commencement of
Operations)
to October 31,
Class I 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income .................................... 0.60
Net realized and change in unrealized gain or loss on
investments ............................................. (1.21)
-------
Total from investment operations ....................... (0.61)
-------
Less distributions:
From net investment income ............................... (0.58)
-------
Total distributions .................................... (0.58)
-------
Net asset value, end of period ............................ $ 8.81
=======
Total return .............................................. (6.50)%
Net assets, end of period (000's) ......................... $ 8,452
Ratio of total expenses to average net assets ............. 0.95%(1)
Ratio of net investment income to average net assets ...... 8.17%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 2.27%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 6.85%(1)
Portfolio turnover rate ................................... 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
160 See Notes to Financial Statements.
<PAGE>
High Yield
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
February 2, 1998
(Commencement of
Operations)
to October 31,
Class A 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.00
-------
Income from investment operations:
Net investment income .................................... 0.58
Net realized and change in unrealized gain or loss on
investments ............................................. (1.21)
-------
Total from investment operations ....................... (0.63)
-------
Less distributions:
From net investment income ............................... (0.56)
-------
Total distributions .................................... (0.56)
-------
Net asset value, end of period ............................ $ 8.81
=======
Total return .............................................. (6.67)%
Net assets, end of period (000's) ......................... $ 225
Ratio of total expenses to average net assets ............. 1.20%(1)
Ratio of net investment income to average net assets ...... 7.92%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 2.52%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 6.60%(1)
Portfolio turnover rate ................................... 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 161
<PAGE>
Income Funds
Financial Highlights (continued)
High Yield
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Initial
Public Offering)
to October 31,
Class C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 10.07
-------
Income from investment operations:
Net investment income .................................... 0.24
Net realized and change in unrealized gain or loss on
investments ............................................. (1.27)
-------
Total from investment operations ....................... (1.03)
-------
Less distributions:
From net investment income ............................... (0.24)
-------
Total distributions .................................... (0.24)
-------
Net asset value, end of period ............................ $ 8.80
=======
Total return .............................................. (10.28)%
Net assets, end of period (000's) ......................... $ 178
Ratio of total expenses to average net assets ............. 1.94%(1)
Ratio of net investment income to average net assets ...... 7.18%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 3.26%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 5.86%(1)
Portfolio turnover rate ................................... 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
162 See Notes to Financial Statements.
<PAGE>
Money Market
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Ten Month
Year Ended Year Ended Year Ended Year Ended Period Ended Year Ended
October 31, October 31, October 31, October 31, October 31, December 31,
Class I 1998 1997 1996 1995 1994 1993
- ---------------------------------------------- ----------- ----------- ----------- ----------- ------------ --------------
<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 ....................... 0.05 0.05 0.05 0.06 0.03 0.03
-------- -------- -------- -------- -------- --------
Total from investment operations .......... 0.05 0.05 0.05 0.06 0.03 0.03
-------- -------- -------- -------- -------- --------
Less distributions:
From net investment income .................. (0.05) (0.05) (0.05) (0.06) (0.03) (0.03)
-------- -------- -------- -------- -------- --------
Total distributions ....................... (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
======== ======== ======== ======== ======== ========
Total return ................................. 5.36% 5.49% 5.44% 5.95% 3.33% 3.29%
Net assets, end of period (000's) ............ $276,024 $273,710 $323,281 $275,524 $161,756 $107,844
Ratio of total expenses to average net assets 0.48% 0.37% 0.30% 0.27% 0.21%(1) 0.00%
Ratio of net investment income to average
net assets .................................. 5.24% 5.31% 5.30% 5.78% 4.05%(1) 3.33%
Ratio of net expense before reimbursement and
waiver to average net assets ................ 0.72% 0.81% 0.83% 0.88% 0.85%(1) 0.95%
Ratio of net investment income before
reimbursement and waiver to average
net assets .................................. 5.00% 4.87% 4.78% 5.17% 3.38%(1) 2.38%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 163
<PAGE>
Income Funds
Financial Highlights (continued)
Money Market
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
April 15, 1994
(Date of Initial
Year Ended Year Ended Year Ended Year Ended Public Offering)
October 31, October 31, October 31, October 31, to October 31,
Class A 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.05 0.05 0.05 0.06 0.03
-------- -------- -------- ------- -------
Total from
investment
operations........ 0.05 0.05 0.05 0.06 0.03
-------- -------- -------- ------- -------
Less distributions:
From net investment
income ............. (0.05) (0.05) (0.05) (0.06) (0.03)
-------- -------- -------- ------- -------
Total distributions (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
======== ======== ======== ======= =======
Total return ......... 5.36% 5.49% 5.44% 5.95% 2.41%
Net assets, end of
period (000's) ...... $161,456 $156,530 $119,849 $78,726 $47,350
Ratio of total
expenses to average
net assets .......... 0.48% 0.37% 0.30% 0.26% 0.21%(1)
Ratio of net
investment income to
average net assets .. 5.24% 5.31% 5.30% 5.79% 4.27%(1)
Ratio of net expense
before reimbursement
and waiver to average
net assets .......... 0.72% 0.91% 0.93% 0.87% 0.92%(1)
Ratio of net
investment income
before reimbursement
and waiver to average
net assets .......... 5.00% 4.77% 4.67% 5.19% 3.67%(1)
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
164 See Notes to Financial Statements.
<PAGE>
Money Market
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Period From
June 30, 1998
(Date of Intial
Public Offering)
to October 31,
Class C 1998
- ----------------------------------------------------------- ----------------
<S> <C>
Net asset value, beginning of period ...................... $ 1.00
------
Income from investment operations:
Net investment income .................................... 0.02
------
Total from investment operations ....................... 0.02
------
Less distributions:
From net investment income ............................... (0.02)
------
Total distributions .................................... (0.02)
------
Net asset value, end of period ............................ $ 1.00
======
Total return .............................................. 1.75%
Net assets, end of period (000's) ......................... $ 916
Ratio of total expenses to average net assets ............. 0.48%(1)
Ratio of net investment income to average net assets ...... 5.24%(1)
Ratio of net expense before reimbursement and waiver to
average net assets ....................................... 0.72%(1)
Ratio of net investment income before reimbursement and
waiver to average net assets ............................. 5.00%(1)
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 165
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Series Fund, Inc.:
We have audited the accompanying statements of assets and liabilities of Aetna
Bond Fund, Aetna Government Fund, Aetna High Yield Fund and Aetna Money Market
Fund, portfolios of Aetna Series Fund, Inc. (collectively the Income Funds),
including the portfolios of investments as of October 31, 1998, and the related
statements of operations for the year or period then ended, and the statements
of changes in net assets for each of the years or periods in the two-year period
then ended, and financial highlights for Class I shares for each of the years in
the four-year period ended October 31, 1998 and the ten month period ended
October 31, 1994 and Class A shares for each of the years in the four-year
period ended October 31, 1998 and the period from April 15, 1994 (date of
initial public offering) to October 31, 1994 for Aetna Bond Fund, Aetna
Government Fund, and Aetna Money Market Fund, and financial highlights for the
year ended December 31, 1993 for Class I shares of Aetna Bond Fund and Aetna
Money Market Fund, and financial highlights for Class I and A shares for Aetna
High Yield Fund for the period from February 2, 1998 to October 31, 1998
(commencement of operations) and financial highlights for Class C shares from
June 30, 1998 (date of initial public offering) to October 31, 1998. These
financial statements and financial highlights are the responsibility of the
Income Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Income Funds as of October 31, 1998, results of their operations for the year or
period then ended, changes in their net assets for each of the years or periods
in the two-year period then ended and the financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
December 11, 1998
166
