<PAGE>
AETNA MUTUAL FUNDS
SMART SOLUT!ONS
FROM AETNA
AETNA
INCOME
FUNDS
[GRAPHIC OF LAPTOP]
Annual Report
October 31, 2000
ENGINEERING BETTER INVESTMENTS
<PAGE>
PRESIDENT'S LETTER
Dear Fellow Shareholder,
October 31, 2000
Thank you for investing in the Aetna Series Fund, Inc. With nearly 8,000 mutual
funds available in today's market, we appreciate your confidence in us.
The twelve months ended October, 2000 witnessed much volatility in the U.S.
stock markets. For the past ten months, the major stock markets have all
declined: S&P 500 Index, off 1.8%; NASDAQ Composite Index, down 17.2%; Dow
Jones Industrial Average, minus 3.4%. Technology stocks in particular were hit
with a sharp decline in the latter part of this 12-month period. Still, each of
the indices remained in positive territory for the 12-month period, due to the
exceptionally strong performance during the last two months of 1999.
Over the course of the year, the Federal Reserve (the "Fed") continued a series
of rate increases that resulted in the Fed funds rate climbing from 5.45% to
6.5% as of October 31, 2000. The impact of rising interest rates and oil prices
was reflected in the U.S. Gross Domestic Product, which slowed from an 8.3%
annual rate in the last quarter of 1999 to an estimated 2.7% in the third
quarter of 2000. International investing was negatively affected by the spike
in oil prices and the strength of the U.S. dollar versus the Euro.
Nevertheless, U.S. economic and corporate earnings outlooks remained robust as
this report period closed, and market breadth, i.e. the number of stocks
advancing versus declining, has improved. Thus it appears that the Fed has been
able to slow the economy to a sustainable growth rate.
The Fund and its advisor, Aeltus Investment Management, Inc., continuously
strive to improve products and services for the benefit of the shareholders.
Here are some highlights of our recent efforts:
. AETNA PRINCIPAL PROTECTION FUNDS II, III AND IV enjoyed successful
offerings, as investors committed more than $450 million to the funds.
AETNA INDEX PLUS PROTECTION FUND (offering a lower minimum investment of
$5,000) is in its offering period until November 30, 2000. These funds are
designed to appeal to a broad range of investors seeking downside
protection with upside market potential.
.
On December 22, 1999, Aeltus acquired a minority equity interest in ELIJAH
ASSET MANAGEMENT, LLC (EAM), a skilled manager of specialized growth and
technology funds.
. AETNA TECHNOLOGY FUND was launched on March 1, 2000. Sub-advised by EAM,
the fund seeks long-term capital appreciation by investing primarily in
technology-sector stocks.
Following approval of shareholders and your Board of Directors, four funds
(Aetna Mid Cap Fund, Aetna Real Estate Securities Fund, Aetna High Yield Fund
and Aetna Index Plus Bond Fund) were liquidated on August 25, 2000, due to low
investor interest and resultant high fund expenses.
As 2000 draws to an end, we want to reaffirm our commitment to bring you the
best of products and services. Again, we greatly appreciate and value your
continued confidence in our funds and in Aeltus.
Sincerely,
<TABLE>
<CAPTION>
<S><C>
[LOGO]
J. Scott Fox
President
Aetna Series Fund, Inc.
</TABLE>
A prospectus containing more complete information including charges and
expenses is available from your financial advisor, at www.aetnafunds.com, or by
calling
800-238-6263, option 2. Read the prospectus carefully before investing.
i
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
President's Letter.....................................................i
INCOME FUNDS:
Investment Review......................................................1
Portfolios of Investments:
Aetna Bond Fund.......................................................9
Aetna Government Fund.................................................12
Aetna Money Market Fund...............................................13
Statements of Assets and Liabilities...................................15
Statements of Operations...............................................17
Statements of Changes in Net Assets....................................18
Notes to Financial Statements..........................................24
Additional Information.................................................31
Financial Highlights...................................................34
Independent Auditors' Report...........................................46
</TABLE>
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[LOGO]
<TABLE>
<CAPTION>
Page # Jan-92 Dec-92 Dec-93
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Bond
Fund (Class I) 1 10,000 9,900 10,290 10,860 10,670 11,160 11,470 11,771 11,820 11,530 11,333 11,428
Lehman Brothers
Aggregate
Bond Index 1 10,000 9,872 10,271 10,712 10,741 11,185 11,481 11,781 11,788 11,450 11,332 11,401
<CAPTION>
Page # Dec-94 Dec-95 Oct-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Bond
Fund (Class I) 1 11,432 11,921 12,610 12,827 13,379 13,171 13,225 13,463 13,696 13,888 13,985 14,612
Lehman Brothers
Aggregate
Bond Index 1 11,444 12,021 12,753 13,003 13,557 13,317 13,393 13,641 13,944 14,094 14,182 14,877
<CAPTION>
Page # Oct-97 Oct-98 Oct-99 Oct-00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Bond
Fund (Class I) 1 14,751 15,069 15,261 15,569 15,890 16,319 16,181 15,926 16,138 15,970 16,154 16,611 16,925
Lehman Brothers
Aggregate
Bond Index 1 15,183 15,604 15,725 16,043 16,598 16,862 16,712 16,443 16,686 16,551 16,923 17,424 17,905
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended October 31, 2000*
--------------------------------------------
<S> <C> <C> <C>
--------------------------------------------
Class I 4.88% 5.37% 6.14%
--------------------------------------------
Class A:
POP (1) -0.35% 3.86% 4.95%
NAV (2) 4.62% 4.88% 5.53%
--------------------------------------------
Class B:
w/CDSC (3) -1.21% 3.98% 5.09%
NAV 3.76% 4.32% 5.09%
--------------------------------------------
Class C:
w/CDSC (4) 2.77% 4.31% 5.08%
NAV 3.76% 4.31% 5.08%
--------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. For periods prior to the inception of Class A, Class B and Class
C, the performance of each class is calculated by using the performance of Class
I since its inception date (01/03/92), adjusted for fees and expenses charged to
the appropriate class. Class I, Class A, Class B and Class C shares participate
in the same portfolio of securities. Past performance is no guarantee of future
results. Investment return and principal of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA BOND FUND
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Aetna Bond Fund Class I shares generated a 4.88% total return, net of fund
expenses, for the year ended October 31, 2000. The benchmark, Lehman Brothers
Aggregate Bond Index(a), returned 7.30% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE FUND?
Growth, as measured by Gross Domestic Product (GDP), has moderated over the past
twelve months from 8.3% in the fourth quarter of 1999 to an estimated 2.7% in
the third quarter of 2000. However, the growth trend appears strong as
consumption shows little sign of slowing. Much of this third quarter slowing is
attributable to a temporary reduction in government spending.
See Definition of
Terms. 1
<PAGE>
During the year, the Federal Reserve ("the Fed") increased the Fed Funds rate by
100 basis points to 6.50%. (One basis point is equal to one hundredth of a
percent, or 0.01%.) These tightenings increased short-term Treasury yields,
while longer-term yields were held down by reduced Treasury supply. For the
year, two-year Treasuries increased in yield by 14 basis points, while
thirty-year Treasuries declined in yield by 38 basis points due to reduced
supply. Inflation remains tame at the consumer level. However, with tight labor
markets, the Fed will be watching wage inflation closely. Of particular concern
is the impact that slowing growth could have on productivity, and hence wage
inflation. The employment cost index has increased in the past year,
particularly the benefits component. With the moderating economy and a tempered
outlook for investment spending, the Fed is most likely to be on the sidelines
in the near term.
Spreads in most sectors have widened due to concerns about credit quality. For
the year, investment grade corporates underperformed Treasuries of similar
duration by nearly 300 basis points, while high yield corporates underperformed
by more than 900 basis points due to increased default levels. One bright spot
was emerging markets. Due to improving economies (driven by oil) and recovery of
spreads from distressed levels, emerging market securities outperformed
Treasuries by over 900 basis points. The U.S. dollar continued to be strong,
appreciating versus the Euro despite its good fundamental value. This will most
likely continue until there are signs that U.S. stock market returns revert to
more normal levels, European economies show stronger growth, and capital flows
into the U.S. rather than out. For the year, the dollar appreciated from 1.05
dollars/Euro to 0.85.
WHAT INVESTMENTS INFLUENCED THE FUND'S PERFORMANCE OVER THE PAST TWELVE MONTHS?
Performance of the Fund was negatively impacted by exposure to non-dollar
assets, specifically Euro-denominated government bonds, as the strong dollar
continued despite our expectations that this trend would begin to reverse. With
weaker domestic stock markets and much of the Euro depreciation due to capital
inflows into the U.S., we continue to expect these flows to reverse, with the
uncertainty being the timing.
Also having a negative impact on performance was our duration posture, as our
expectation that rates would increase due to Fed tightening was not realized
despite strong growth in consumption and tight labor markets. The impact of
reduced Treasury supply offset much of the expected increase in yields. However,
we continue to believe the economy has underlying strength, which could lead to
increasing inflation and higher yields.
We have correctly forecasted the deterioration in credit quality, and have been
underweight in corporates through most of the year. While our high yield
exposure has been low, we were negatively impacted at the security level by some
telecommunications issues that deteriorated.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We believe that credit quality will continue to deteriorate, and expect to
maintain an underweight position in investment grade corporates and only a
modest exposure to high yield bonds. However, spreads are more attractive than a
year ago, and at some point when pricing dictates, we expect to reverse our
stance on credit. Also, we remain more comfortable in the other investment grade
sectors - mortgage-backed securities, particularly - due to their attractive
valuations and strong credit quality versus corporates.
We continue to believe we are near the peak of dollar strength versus the Euro,
and with moderations in the stock market, we believe we could see the Euro
strengthen as European economies strengthen relative to the U.S. and capital
flows reverse. We also expect to remain short duration, as we think the current
level of yields underestimates the true strength in the domestic economy and the
inflation risks.
2 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
QUALITY RATINGS
<S> <C>
AAA 77.8%
AA 1.5%
A 10.6%
BBB 5.2%
BB 0.5%
B 0.4%
N/R* 4.0%
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
<S> <C>
0 - 1 year 30.2%
1 - 5 years 12.0%
5 - 10 years 18.8%
10 - 20 years 4.9%
20 + years 34.1%
</TABLE>
*The Not Rated (N/R) indication is used by securities rating services (such as
Standard & Poor's or Moody's) and mercantile agencies (such as Dun & Bradstreet)
to show that a security or a company has not been rated. It has neither negative
nor positive implications.
The opinions expressed reflect those of the portfolio manager only through
October 31, 2000. The manager's opinions are subject to change at any time based
on market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
See Definition of
Terms. 3
<PAGE>
<TABLE>
<CAPTION>
Page # Jan-94 Dec-94 Dec-95
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna
Government
Fund (Class I) 4 10,000 9,790 9,739 9,784 9,811 10,254 10,779 10,932 11,380 11,173 11,196 11,382
Lehman Brothers
Intermediate
Government
Bond Index 4 10,000 9,815 9,760 9,835 9,825 10,234 10,712 10,878 11,241 11,165 11,240 11,433
<CAPTION>
Page # Oct-96 Oct-97 Oct-98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna
Government
Fund (Class I) 4 11,583 11,677 11,737 12,310 12,554 12,894 12,959 13,205 13,625 13,787 13,721 13,545
Lehman Brothers
Intermediate
Government
Bond Index 4 11,621 11,743 11,827 12,243 12,472 12,766 12,852 13,077 13,658 13,730 13,668 13,606
<CAPTION>
Page # Oct-99 Oct-00
<S> <C> <C> <C> <C> <C> <C>
Aetna
Government
Fund (Class I) 4 13,705 13,605 13,944 14,298 14,654
Lehman Brothers
Intermediate
Government
Bond Index 4 13,769 13,689 13,955 14,308 14,694
</TABLE>
[LOGO]
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended October 31, 2000*
--------------------------------------------
<S> <C> <C> <C>
--------------------------------------------
Class I 6.92% 5.73% 5.76%
--------------------------------------------
Class A:
POP (1) 1.58% 4.23% 4.45%
NAV (2) 6.65% 5.25% 5.19%
--------------------------------------------
Class B:
w/CDSC (3) 0.88% 4.33% 4.70%
NAV 5.88% 4.67% 4.70%
--------------------------------------------
Class C:
w/CDSC (4) 4.89% 4.68% 4.71%
NAV 5.89% 4.68% 4.71%
--------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. For periods prior to the inception of Class A, Class B and Class
C, the performance of each class is calculated by using the performance of Class
I since its inception date (01/04/94), adjusted for fees and expenses charged to
the appropriate class. Class I, Class A, Class B and Class C shares participate
in the same portfolio of securities. Past performance is no guarantee of future
results. Investment return and principal of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA GOVERNMENT FUND
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Aetna Government Fund Class I shares generated a 6.92% total return, net of
fund expenses, for the year ended October 31, 2000. The benchmark, Lehman
Brothers Intermediate Government Bond Index(b), returned 6.73% for the same
period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE FUND?
Growth, as measured by Gross Domestic Product (GDP), has moderated over the past
twelve months from 8.3% in the fourth quarter of 1999 to an estimated 2.7% in
the third quarter of 2000. However, trend growth appears strong as consumption
shows little sign of slowing. Much of the third quarter slowing was attributable
to a temporary reduction in government spending.
4 See Definition of Terms.
<PAGE>
During the year, the Federal Reserve ("the Fed") has increased the Fed Funds
rate 100 basis points to 6.50%. (One basis point is equal to one hundredth of a
percent, or 0.01%.) With the economy moderating and a tempered outlook for
investment spending, the Fed is most likely to remain on the sidelines in the
near term. These tightenings increased short term Treasury yields, while
longer-term yields were held down by reduced Treasury supply. For the year,
two-year Treasuries increased in yield by 14 basis points, while thirty-year
Treasuries declined in yield by 38 basis points, due to reduced supply.
Inflation remains tame at the consumer level. However, with tight labor markets,
the Fed will be watching wage inflation closely. Of particular concern is the
impact that slowing growth could have on productivity, and hence wage inflation.
The employment cost index has increased in the past year, particularly the
benefits component.
WHAT INVESTMENTS INFLUENCED THE FUND'S PERFORMANCE OVER THE PAST TWELVE MONTHS?
Performance for the year was positively impacted by an overweight in the
back-end of the Treasury curve which outperformed all other parts of the curve,
mostly due to the larger than expected Treasury buy-back program. The overweight
was removed in the third quarter of 2000 as the back-end began to under-perform
due to a combination of higher oil prices, fears of an economic hard landing,
and the market rethinking its expectations of the elimination of the long bond.
The Fund also had exposure to Treasury Inflation Index bonds which performed
very well during the period due to higher oil prices and rising fears of
inflation.
Duration was mixed. A short duration posture through much of the first quarter
was a detriment. However, we remained short duration through much of the April
sell-off and neutral to modestly long during the rally in mid-May, leading to
gains. Our short duration posture during the third quarter of 2000 had a
negative impact on results as short and intermediate Treasuries all rallied.
The Fund has exposure to both government agencies and mortgage-backed
securities. In total this led to modest positive performance versus Treasuries,
with agencies slightly underperforming and mortgages modestly outperforming.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We remain comfortable with our government agency and mortgage-backed securities
positions, particularly due to their attractive valuations and strong credit
quality versus corporates. Agencies are looking more attractive now as most of
the regulatory risk that surfaced during the year and created uncertainty has
past. We also expect to remain short duration, as we think the current level of
yields underestimates the true strength in the domestic economy and the
inflation risks.
<TABLE>
<CAPTION>
QUALITY RATINGS
<S> <C>
AAA 100.0%
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
<S> <C>
0 - 1 year 22.5%
1 - 5 years 27.5%
5 - 10 years 15.5%
10 - 20 years 15.0%
20 + years 19.5%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through
October 31, 2000. The manager's opinions are subject to change at any time based
on market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
See Definition of
Terms. 5
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
Page # Jan-92 Dec-92 Dec-93
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Money
Market Fund
(Class I) 6 10,000 10,104 10,210 10,308 10,404 10,488 10,572 10,656 10,744 10,834 10,934 11,057
IBC's Money
Fund Average/
All Taxable
Index 6 10,000 10,096 10,184 10,263 10,334 10,404 10,472 10,541 10,611 10,684 10,773 10,878
<CAPTION>
Page # Dec-94 Dec-95 Oct-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Money
Market Fund
(Class I) 6 11,205 11,365 11,536 11,706 11,875 12,031 12,187 12,347 12,402 12,574 12,731 12,905
IBC's Money
Fund Average/
All Taxable
Index 6 11,003 11,148 11,299 11,446 11,592 11,731 11,869 12,009 12,056 12,200 12,346 12,498
<CAPTION>
Page # Oct-97 Oct-98 Oct-99 Oct-00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Money
Market Fund
(Class I) 6 13,083 13,259 13,426 13,608 13,783 13,951 14,113 14,277 14,450 14,652 14,855 15,079 15,313
IBC's Money
Fund Average/
All Taxable
Index 6 12,653 12,811 12,969 13,128 13,287 13,434 13,578 13,725 13,881 14,053 14,237 14,440 14,652
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended October 31, 2000*
--------------------------------------------
<S> <C> <C> <C>
--------------------------------------------
Class I 5.97% 5.42% 4.95%
--------------------------------------------
Class A 5.97% 5.42% 4.95%
--------------------------------------------
Class B:
w/CDSC (3) -0.08% 4.04% 3.91%
NAV 4.92% 4.38% 3.91%
--------------------------------------------
Class C 5.97% 5.42% 4.95%
--------------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. For periods prior to the inception of Class A, Class B and Class
C, the performance of each class is calculated by using the performance of Class
I since its inception date (01/03/92), adjusted for fees and expenses charged to
the appropriate class. Class I, Class A, Class B and Class C shares participate
in the same portfolio of securities. Past performance is no guarantee of future
results. Investment return and principal of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than the original
cost.
**Effective April 3, 2000, the benchmark of the fund, IBC's Money Fund
Average/All Taxable Index, has changed its name to the iMoneyNet All Taxable
Average Index.
AETNA MONEY MARKET FUND
HOW DID THE FUND PERFORM DURING THE PERIOD?
The Aetna Money Market Fund Class I shares generated a 5.97% total return, net
of fund expenses, for the year ended October 31, 2000. The benchmark, iMoneyNet
All Taxable Average Index(c), returned 5.54% for the same period. As of October
31, 2000, the Fund reported a 7-day yield of 6.20% with an average weighted
maturity of 40 days.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE FUND?
The beginning of the year reflected market expectations of continued Federal
Reserve ("the Fed") tightenings and higher short-term rates. As a result, the
yield curve was inverted for much of this time. Volatility in the capital
markets throughout the year led investors to increase their cash holdings. This
incremental demand at the short end of the yield curve has caused spreads to
narrow.
Recently, Treasury bond yields have declined, factoring in a slowing economy and
the market expectation that no further action by the Fed will be necessary. The
yield curve has become less inverted due to declines in 30-year Treasury yields
and
6 See Definition of Terms.
<PAGE>
large investor demand in the three-month area of the money market curve.
Expecting no additional tightening in the Fed's monetary policy for the
foreseeable future, money markets have virtually removed this factor from their
pricing.
WHAT INVESTMENTS INFLUENCED THE FUND'S PERFORMANCE OVER THE PAST TWELVE MONTHS?
The Fund maintained an overweight position in both the floating rate and
asset-backed (ABS) note sectors throughout much of the year. The Fund's
overweight position in floating rate instruments enabled the Fund to quickly
reflect Fed tightenings. The Fund strategically adjusted its weighted average
maturity, shortening its days before anticipated Fed tightenings and lengthening
at the end of June and September, in order to maximize the benefits of higher
yields.
Asset-backed issuance for the second calendar quarter surged, causing spreads to
widen considerably. We added numerous ABS purchases as a result. ABS spreads
tightened later in the reporting period as investor demand increased in the
short end. The Fund continued to add to the sector because yield pickup remained
more attractive than traditional money market instruments.
WHAT IS YOUR OUTLOOK GOING FORWARD?
While Treasury yields have declined on the expectation that the Fed is done
tightening, consumer demand continues to be strong, largely financed by prior
stock market and housing asset inflation as well as consumer debt. Given tight
labor markets, this growth is above sustainable levels under most reasonable
assumptions for productivity growth. The large current account deficit provides
support for our view that the dollar could weaken. Combined with high oil
prices, this could cause inflation to continue to increase at the same time that
growth decelerates. This scenario could cause interest rates to rise or spreads
to widen.
There continues to be strong demand throughout the curve, especially in the two-
to six-month maturity range where the supply is lighter and the yield pickup is
greater. The strong bid for ABS paper should also continue, as term investors
shorten up and use ABS as a cash surrogate.
Against this framework, we expect to maintain a weighted average maturity that
is modestly shorter than our competitors, until technical or other factors cause
market conditions to reverse and there is greater value in term paper. Despite
narrower spreads, we plan on maintaining our overweight in the ABS sector, both
as a means to acquire incremental yield and to provide credit quality stability.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
<TABLE>
<CAPTION>
QUALITY RATINGS*
<S> <C>
Tier 1 100.0%
Tier 2 --
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
<S> <C>
1 - 30 days 41.3%
31 - 60 days 17.3%
61 - 90 days 2.7%
91 - 120 days 1.1%
121 - 180 days 5.4%
181 - 397 days 32.2%
</TABLE>
*Tier 1 securities are, or are comparable to, securities which are rated in the
highest short-term rating category by at least two nationally recognized
statistical rating organizations (NRSROs) or by the only NRSRO that has rated
the security. Tier 2 securities are securities that have received the requisite
rating in one of the two highest categories, but are not Tier 1.
The opinions expressed reflect those of the portfolio manager only through
October 31, 2000. The manager's opinions are subject to change at any time based
on market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
See Definition of
Terms. 7
<PAGE>
<TABLE>
<CAPTION>
DEFINITION OF TERMS
<S><C>
(1)
On February 2, 1998, the Funds redesignated Adviser Class shares as Class A
shares. For periods prior to that date, Class A performance is calculated by
using the performance of Class I shares and deducting the Class A front-end
load and internal fees and expenses applicable to the Class A shares. The
maximum load for the Income Funds is 4.75%, excluding the Money Market Fund.
The POP (public offering price) returns reflect this maximum load.
(2)NAV (net asset value) returns are net of Fund expenses only and do not
reflect the deduction of a front-end load or contingent deferred sales
charges. This charge, if reflected, would reduce the performance results
shown.
(3)
The Funds began offering Class B shares on March 1, 1999. For periods prior
to that date, Class B performance is calculated using the performance of
Class I shares and deducting the internal fees and expenses applicable to the
Class B shares. Class B share returns with CDSC (contingent deferred sales
charge) reflect the deduction of a maximum CDSC, assuming full redemption at
the end of the period. The CDSC applies for all shares redeemed prior to the
end of the first six years of ownership. The CDSC charges are as follows:
Year 1 - 5%, Year 2 - 4%, Year 3 - 3%, Year 4 - 3%, Year 5 - 2%, Year 6 - 1%.
(4)
The Funds began offering Class C shares on June 30, 1998. For periods prior
to that date, Class C performance is calculated using the performance of
Class I shares and deducting the internal fees and expenses applicable to the
Class C shares. Class C share returns for periods less than 18 months reflect
the deduction of the contingent deferred sales charge of 1%.
(a)The Lehman Brothers Aggregate Bond Index is an unmanaged index and is
composed of securities from Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index and the Asset-Backed Securities Index.
(b)The Lehman Brothers Intermediate Government Bond Index is composed of all
publicly issued, nonconvertible, domestic debt of the U.S. government or
agency, quasi-federal corporations, or corporate debt guaranteed by the U.S.
government with maturities between one and 9.99 years. Total return comprises
price appreciation/depreciation and income as a percentage of the original
investment.
(c)The iMoneyNet All Taxable Average Index (formerly the IBC Money Fund
Average/All Taxable Index) is an average of the returns of more than 250
money market mutual funds surveyed each month by iMoneyNet, Inc.
The unmanaged indices described above are not available for individual
investment.
</TABLE>
8
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2000
BOND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF MARKET VALUE
CONTRACTS
-------------- --------------
CALL OPTIONS (0.1%)
Euro Currency Option Callable .8490,
03/05/01.............................. 5,967 $ 18,927
Euro Currency Option Callable .8609,
03/05/01.............................. 7,017 18,912
Euro Currency Option Callable .8925,
02/05/01.............................. 6,041 7,839
Euro Currency Option Callable .9025,
02/05/01.............................. 9,676 10,908
TOTAL CALL OPTIONS (COST $103,215) 56,586
--------------
PUT OPTIONS (0.1%)
U.S. Treasury Option Put 6.25%,
02/05/01.............................. 1,080 1,308
U.S. Treasury Option Put 6.38%,
01/05/01.............................. 4,895 2,677
U.S. Treasury Option Put 6.75%,
01/05/01.............................. 2,480 6,975
Venezuela DBC Option Put 83.75,
02/05/01.............................. 267 6,513
Venezuela DBC Option Put 84.50,
02/05/01.............................. 267 7,282
TOTAL PUT OPTIONS (COST $71,080) 24,755
--------------
PRINCIPAL
AMOUNT
--------------
LONG-TERM BONDS AND NOTES (108.0%)
CORPORATE BONDS (31.5%)
AEROSPACE/DEFENSE (3.0%)
Lockheed Martin Corp.,8.95%,05/15/01 * $ 1,550,000 1,565,500
--------------
AUTO PARTS & EQUIPMENT (2.9%)
TRW, Inc.,6.45%,06/15/01 .............. 1,500,000 1,492,500
--------------
AUTOMOTIVE (0.2%)
DaimlerChrysler NA Holdings Inc., 135,000 130,704
7.20%,09/01/09 .......................
--------------
BEVERAGES - ALCOHOLIC (0.3%)
Diageo Capital Plc,7.25%,11/01/09 ..... 140,000 135,846
--------------
CELLULAR/WIRELESS TELECOMMUN. (1.5%)
AT&T Canada Inc.,Zero Coupon,06/15/08 . 305,000 244,052
Telephonica Europe BV,7.75%,09/15/10 .. 285,000 285,351
Vodafone AirTouch Plc,7.75%,02/15/10 ++ 260,000 264,781
794,184
--------------
COMMUNICATIONS EQUIPMENT (0.5%)
Cox Communications Inc.,6.85%,01/15/18 260,000 235,300
--------------
CORPORATE FINANCE (5.5%)
Bank One Corp.,7.88%,08/01/10 ......... 260,000 261,074
CIT Group, Inc. (The),7.63%,08/16/05 .. 295,000 294,693
First Union Corp.,7.55%,08/18/05 ...... 255,000 256,372
Ford Motor Credit Corp.,7.60%,08/01/05 1,055,000 1,060,592
Ford Motor Credit Corp.,7.88%,06/15/10 390,000 391,080
General Electric Capital Corp.,
8.30%,09/20/09 ....................... 80,000 87,077
General Motors Acceptance Corp.,
7.50%,07/15/05 ....................... 260,000 262,335
Southern Energy,7.90%,07/15/09 ........ 260,000 248,752
2,861,975
--------------
CORPORATE FOREIGN (0.0%)
RSL Communications Plc,10.50%,11/15/08 105,000 14,700
--------------
CORP. INDUSTRIAL - CAPITAL GOODS (4.5%)
Boeing Capital Corp.,7.38%,09/27/10 ... 265,000 268,572
Bombardier Capital Inc.,7.50%,10/17/05 130,000 129,779
-------------- --------------
CORP. INDUSTRIAL - CAPITAL GOODS
(CONTINUED)
Raytheon Co.,5.95%,03/15/01 * ......... 1,500,000 $ 1,490,625
Raytheon Co.,6.15%,11/01/08 ........... 260,000 237,993
Tyco International Group
SA,5.88%,11/01/04..................... 195,000 185,615
2,312,584
--------------
CORP. INDUSTRIAL - CONSUMER CYCLICAL
(0.4%)
WestPoint Stevens
Inc.,7.88%,06/15/05-06/15/08.......... 310,000 229,500
--------------
CORPORATE INDUSTRIAL - ENERGY (0.9%)
Baker Hughes Inc.,6.25%,01/15/09 ...... 30,000 28,323
Repsol International
Finance,7.45%,07/15/05................ 416,000 418,105
446,428
--------------
CORPORATE UTILITIES (1.4%)
Duke Energy Field Services, Inc.,
7.88%,08/16/10 ....................... 290,000 295,565
Hyperion Telecom Corp.,
Zero Coupon,04/15/03 ................. 75,000 58,500
IMPSAT Fiber Networks
Inc.,13.75%,02/15/05.................. 148,000 120,620
Unilever Capital Corp.,6.88%,11/01/05.. 1260,000 258,131
--------------
732,816
--------------
DISTRIBUTORS - FOOD & HEALTH (0.7%)
ConAgra Foods, Inc.,7.50%,09/15/05 .... 345,000 348,298
--------------
ELECTRIC COMPANIES (5.1%)
Dominion Resources, Inc.,8.13%,06/15/10 260,000 268,076
Edison International
Inc.,6.88%,09/15/04................... 115,000 111,857
Pacific Gas & Electric
Co.,7.38%,11/01/05.................... 330,000 329,429
Reliant Energy Inc.,6.95%,01/10/01 * .. 2,000,000 1,973,900
2,683,262
--------------
FINANCIAL - DIVERSIFIED (1.3%)
Citigroup Inc.,7.25%,10/01/10 ......... 260,000 258,344
Qwest Capital Funding
Inc.,7.75%,08/15/06 ++ ............... 250,000 254,480
Qwest Capital Funding
Inc.,7.90%,08/15/10................... 150,000 152,161
664,985
--------------
LODGING - HOTELS (2.9%)
Hilton Hotel Corp.,7.35%,01/03/01 ..... 1,500,000 1,481,940
--------------
NATURAL GAS - DISTRIBUTION - PIPE LINE
(0.4%)
Tennessee Gas Pipeline,7.00%,10/15/28 . 230,000 205,664
--------------
TOTAL CORPORATE BONDS (COST $16,345,572) 16,336,186
--------------
FOREIGN AND SUPRANATIONALS (7.4%)
CORPORATE FOREIGN (0.1%)
Inter-American Development Bank
(Electric Companies),7.38%,01/15/10 .. 55,000 57,311
--------------
INTERNATIONAL BONDS (7.3%)
Bundesrepub. Deutschland,5.25%,01/04/11 600,000 509,679
Bundesschatzanweisungen,4.50%,03/15/02 1,005,000 844,853
French Treasury Note,5.50%,04/25/10 ... 2,845,000 2,436,018
3,790,550
--------------
TOTAL FOREIGN AND SUPRANATIONALS 3,847,861
(COST $4,093,551)
--------------
-------------- --------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(38.6%)
INTEREST ONLY (0.4%)
Federal Home Loan Mortgage $ 4,898,195 $ 203,569
Corp.,6.50%,12/15/05..................
--------------
U.S. MORTGAGE BACKED - FHLMC (9.5%)
Federal Home Loan Mortgage
Corp.,6.88%,09/15/10.................. 1,705,000 1,726,841
Federal Home Loan Mortgage
Corp.,7.50%,12/01/11.................. 476,663 480,681
Federal Home Loan Mortgage
Corp.,7.50%,12/15/30 # ............... 1,950,000 1,948,791
Federal Home Loan Mortgage
Corp.,8.00%,11/15/30 # ............... 780,000 790,483
4,946,796
--------------
U.S. MORTGAGE BACKED - FNMA (22.7%)
Federal National Mortgage
Assoc.,6.00%,07/01/29................. 25,604 24,012
Federal National Mortgage
Assoc.,6.50%,11/15/15 # .............. 1,000,000 979,380
Federal National Mortgage
Assoc.,6.50%,08/01/29................. 2,849,837 2,738,494
Federal National Mortgage
Assoc.,7.00%,12/15/29 # .............. 3,330,000 3,262,368
Federal National Mortgage
Assoc.,7.00%,01/01/30................. 973,967 954,176
Federal National Mortgage
Assoc.,7.50%,07/01/11-10/01/30........ 937,990 939,617
Federal National Mortgage
Assoc.,8.00%,12/15/30 # .............. 1,550,000 1,568,894
Federal National Mortgage
Assoc.,8.50%,11/01/23-12/01/29........ 1,232,024 1,263,398
11,730,339
--------------
U.S. MORTGAGE BACKED - GNMA (6.0%)
Government National Mortgage
Assoc.,7.00%,04/15/26................. 581,939 573,937
Government National Mortgage
Assoc.,7.38%,04/20/28................. 192,377 193,489
Government National Mortgage
Assoc.,7.50%,12/15/22-10/15/26........ 1,478,270 1,486,715
Government National Mortgage
Assoc.,7.50%,11/15/30 # .............. 800,000 800,000
Government National Mortgage
Assoc.,9.50%,07/15/18................. 29,173 30,790
3,084,931
--------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED 19,965,635
SECURITIES (COST $19,939,774)
--------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (4.2%)
COLLATERALIZED MORTGAGE OBLIGATION
(2.0%)
Marine Midland 1992-1,8.00%,04/25/23 + 287,962 284,362
Prudential Home Mortgage Corp.,
7.00%,12/25/07 ....................... 466,962 457,878
-------------- --------------
COLLATERALIZED MORTGAGE OBLIGATION (CONTINUED)
Prudential Home Mortgage Corp.,
7.50%,06/25/07 ....................... 299,693 $ 298,394
1,040,634
--------------
U.S. GOVERNMENT - AGENCY (2.2%)
Private Export Funding
Corp.,5.48%,09/15/03.................. 600,000 587,214
Small Business Administration 92-20K,
7.55%,11/01/12 ....................... 551,979 558,499
1,145,713
--------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (COST 2,186,347
$2,229,497)
--------------
U.S. TREASURY OBLIGATIONS (26.3%)
Treasury Inflation Index,3.38%,01/15/07 660,000 700,635
Treasury Inflation Index,4.25%,01/15/10 931,000 984,751
U.S. Treasury Bond,6.13%,08/15/29 ..... 2,604,000 2,696,754
U.S. Treasury Bond,6.25%,02/15/07 ..... 304,000 310,080
U.S. Treasury Bond,8.13%,05/15/21 ..... 715,000 891,848
U.S. Treasury Note,5.50%,08/31/01 * ... 4,060,000 4,032,067
U.S. Treasury Note,5.75%,08/15/10 ..... 6,000 5,994
U.S. Treasury Note,6.25%,05/15/30 ..... 292,000 310,980
U.S. Treasury Note,6.38%,06/30/02 ..... 180,000 180,815
U.S. Treasury Note,6.75%,05/15/05 * ... 2,164,000 2,243,462
U.S. Treasury Note,7.00%,07/15/06 ..... 322,000 339,308
U.S. Treasury Note,8.13%,08/15/21 ..... 715,000 893,078
13,589,772
--------------
TOTAL U.S. TREASURY OBLIGATIONS 13,589,772
(COST $13,463,714)
--------------
TOTAL LONG-TERM BONDS AND NOTES 55,925,801
(COST $56,072,108)
--------------
SHORT-TERM INVESTMENTS (12.4%)
Cox Communications Inc.,6.72%,11/27/00
*..................................... 1,700,000 1,691,749
Crown Cork & Seal Co., Inc.,
7.15%,11/06/00 ....................... 1,500,000 1,498,510
Federal National Mortgage
Assoc.,6.43%,11/02/00................. 933,000 932,833
MCN Energy Enterprises
Inc.,7.10%,11/01/00................... 2,200,000 2,200,000
U.S. Treasury Bill,6.14%,11/09/00 @ ... 100,000 99,864
TOTAL SHORT-TERM INVESTMENTS 6,422,956
(COST $6,422,956)
--------------
TOTAL INVESTMENTS (COST $62,669,359)(A) 62,430,098
OTHER ASSETS LESS LIABILITIES (10,678,935 )
--------------
TOTAL NET ASSETS $ 51,751,163
--------------
</TABLE>
See Notes to Portfolio of Investments . 9
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2000
BOND (CONTINUED)
10 See Notes to Portfolio of Investments.
<PAGE>
<TABLE>
<CAPTION>
NOTES TO PORTFOLIO OF INVESTMENTS
<S> <C>
(a) The cost of investments for federal income tax purposes amounts to
$62,695,813. Unrealized gains and losses, based on identified tax cost at
October 31, 2000, are as follows:
Unrealized gains.............................. $ 248,458
Unrealized losses............................. (514,173)
--------------------
Net unrealized loss.......................... $(265,715)
====================
</TABLE>
<TABLE>
Information concerning open futures contracts at October 31, 2000 is shown
below:
NOTIONAL
NO. OF MARKET EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
---------- ------------- ----------- --------------
SHORT CONTRACTS
-----------------------
<S> <C> <C> <C> <C>
U.S. 2 Yr. Treasury $(1,000,625) $ (5,103)
Bond................... 5 Dec 00
U.S. 5 Yr. Treasury (100,688) (982)
Bond................... 1 Dec 00
U.S. 10 Yr. Treasury
Bond...................
1 (100,703) Dec 00 (997)
------------ ------------
$(1,202,016) $ (7,082)
============ ============
</TABLE>
* Segregated securities for purchases of delayed delivery or when-issued
securities held at October 31, 2000.
+ Non-income producing security.
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
# When-issued or delayed delivery security.
@ Security pledged to cover initial margin requirements on open futures
contracts at October 31, 2000.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
<TABLE>
<CAPTION>
Acquisition date and cost of illiquid securities at October 31, 2000 is shown
below:
ACQUISITION
DATE COST
----------------- ----------------
<S> <C> <C>
Marine Midland 1992-1, 8.00%, 04/25/23.... 03/30/92 $317,882
============
</TABLE>
The market value of the total illiquid securities above is $284,362 which
represents 0.55% of the total net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 11
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2000
AETNA GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRINCIPAL MARKET VALUE
AMOUNT
------------- --------------
LONG-TERM BONDS AND NOTES (85.0%)
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(48.0%)
Federal Home Loan Mortgage
Assoc.,9.50%,07/01/20.................. $ 84,253 88,413
Federal Home Loan Mortgage
Assoc.,10.50%,07/01/20................. 218,278 236,149
Federal Home Loan Mortgage
Assoc.,11.50%,02/01/16................. 102,929 113,681
Federal Home Loan Mortgage
Corp.,6.50%,11/15/29 # ................ 1,900,000 1,825,786
Federal Home Loan Mortgage
Corp.,7.00%,07/15/05................... 2,535,000 2,582,531
Federal Home Loan Mortgage Corp. -
Gold,9.50%,12/01/22.................... 134,765 141,464
Federal National Mortgage
Assoc.,5.13%,12/26/01.................. 2,000,000 1,966,240
Federal National Mortgage
Assoc.,7.00%,12/15/29 # ............... 720,000 705,377
Federal National Mortgage
Assoc.,7.25%,01/15/10.................. 585,000 606,388
Federal National Mortgage
Assoc.,9.50%,02/01/17.................. 282,114 295,965
Federal National Mortgage
Assoc.,10.00%,06/01/20-10/01/20........ 412,199 441,696
Federal National Mortgage
Assoc.,10.50%,04/01/19................. 52,471 55,578
Government National Mortgage
Assoc.,7.00%,12/15/23-04/15/26......... 1,046,863 1,033,263
Government National Mortgage
Assoc.,9.00%,05/15/16-07/15/16......... 559,591 587,218
Government National Mortgage
Assoc.,9.50%,11/15/21.................. 98,020 103,594
Government National Mortgage Assoc. -
II,
9.50%,09/20/19 ........................ 86,327 88,795
10,872,138
--------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (6.1%)
Private Export Funding
Corp.,5.48%,09/15/03................... 300,000 293,607
Small Business Administration
91-20K,8.25%,11/01/11 ................. 503,185 516,705
Small Business Administration
92-20K,7.55%,11/01/12 ................. 551,979 558,499
1,368,811
--------------
U.S. TREASURY OBLIGATIONS (30.9%)
Treasury Inflation Index,3.63%,04/15/28
*...................................... 1,000,000 1,025,865
Treasury Inflation Index,4.25%,01/15/10 1,000,000 1,057,734
U.S. Treasury Bond,10.38%,11/15/12 * ... 1,750,000 2,180,657
U.S. Treasury Note,6.13%,08/31/02 ...... 500,000 500,935
U.S. Treasury Note,6.75%,05/15/05....... 1,430,000 1,482,510
U.S. Treasury Note,8.13%,08/15/19 ...... 325,000 401,575
U.S. Treasury Note,9.88%,11/15/15 * .... 250,000 344,960
6,994,236
--------------
TOTAL LONG-TERM BONDS AND NOTES 19,235,185
(COST $19,136,003)
--------------
------------- --------------
SHORT-TERM INVESTMENTS (24.7%)
Student Loan Marketing
Assoc.,6.45%,11/01/00.................. $ 5,488,000 $ 5,488,000
U.S. Treasury Bill,6.14%,11/09/00 @ .... 100,000 99,864
TOTAL SHORT-TERM INVESTMENTS 5,587,864
(COST $5,587,864)
--------------
TOTAL INVESTMENTS (COST $24,723,867)(A) 24,823,049
OTHER ASSETS LESS LIABILITIES (2,192,860 )
--------------
TOTAL NET ASSETS $22,630,189
--------------
</TABLE>
<TABLE>
<CAPTION>
NOTES TO PORTFOLIO OF INVESTMENTS
<S> <C>
(a) The cost of investments for federal income tax purposes amounts to
$24,724,956. Unrealized gains and losses, based on identified tax cost at
October 31, 2000, are as follows:
Unrealized gains.............................. $ 180,530
Unrealized losses............................. (82,437)
--------------------
Net unrealized gain.......................... $ 98,093
====================
</TABLE>
<TABLE>
Information concerning open futures contracts at October 31, 2000 is shown
below:
NOTIONAL
NO. OF MARKET EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
----------- ------------ ------------ ---------------
SHORT CONTRACTS
----------------------
<S> <C> <C> <C> <C>
U.S. 10 Yr. Treasury
Bond..................
8 $(805,625) Dec 00 $ (8,540)
=========== ============
</TABLE>
# When-issued or delayed delivery security.
* Segregated securities for purchases of delayed delivery or when-issued
securities held at October 31, 2000.
@ Security pledged to cover initial margin requirements on open futures
contracts at October 31, 2000.
Category percentages are based on net assets.
12 See Notes to Financial Statements.
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2000
MONEY MARKET
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRINCIPAL VALUE
AMOUNT
-------------- --------------
ASSET-BACKED SECURITIES (52.4%)
Americredit Auto Receivables Trust,
6.89%,06/05/01 ....................... $ 7,794,552 $ 7,794,202
ANRC Auto Owner Trust,6.72%,08/15/01 .. 10,822,200 10,822,200
Chevy Chase Auto Receivables Trust,
6.87%,07/12/01 ....................... 4,852,568 4,852,568
CIT Equipment Collateral Owner Trust,
6.64%,06/20/01 ....................... 15,637,542 15,637,542
CNH Equipment Trust,6.18%,04/09/01 .... 386,492 386,492
CNH Equipment Trust,6.66%,10/12/01 .... 2,728,057 2,728,057
Conseco Finance Lease LLC,
6.84%,08/20/01 ....................... 9,765,684 9,765,684
Copelco Capital Funding LLC,
6.51%,05/14/01 ....................... 6,081,869 6,081,869
Dealers Capital Acceptance Trust, Inc.,
6.70%,11/01/00 ....................... 21,500,000 21,500,000
DVI Receivables,6.72%,05/14/01 ........ 8,228,245 8,228,245
Eureka Securitization
Plc,6.52%,11/07/00 ++................. 15,000,000 14,983,700
First Security Auto Owner Trust,
6.77%,07/15/01 ....................... 5,377,791 5,377,791
Ford Credit Auto Owner Trust,
6.67%,06/15/01........................ 9,000,000 9,000,000
Ford Credit Auto Owner Trust,
6.82%,03/15/01........................ 8,072,544 8,072,544
Great America Leasing,6.96%,06/20/01 .. 6,084,783 6,084,783
Honda Auto Receivables Owner Trust,
6.71%,11/15/01 ....................... 10,000,000 10,000,000
Huntington Auto Trust,6.32%,04/15/01 .. 3,053,788 3,053,789
Long Lane Master Trust IV - Series A,
6.75%,11/13/00 ++ .................... 4,754,000 4,743,304
MMCA Auto Owner Trust 2000-1,
6.73%,05/15/01 ....................... 13,612,213 13,612,213
Onyx Acceptance Owner Trust,
6.41%,05/15/01 ....................... 2,951,227 2,951,227
Onyx Acceptance Owner Trust,
6.79%,08/15/01 ....................... 5,016,483 5,016,483
Orix Credit Alliance Owner Trust,
6.76%,09/15/01 ....................... 16,566,661 16,567,596
Orix Credit Alliance Receivables Trust,
6.24%,03/15/01 ....................... 1,917,727 1,917,727
Racers Series 2000mm,6.64%,05/30/01 ++ 20,000,000 19,996,939
Syndicated Loan Funding Trust,
6.77%,03/15/01 ++ .................... 11,000,000 11,000,000
Textron Financial Corp. Receivables
Trust,
6.67%,10/15/01 ++ .................... 4,237,105 4,237,105
Variable Funding Capital,6.65%,11/01/00
++.................................... 11,445,000 11,445,000
TOTAL ASSET-BACKED SECURITIES 235,857,060
--------------
COMMERCIAL PAPER - DOMESTIC (17.0%)
Block Financial Corp.,6.62%,11/30/00 ++ 5,000,000 4,973,336
PHH Corp.,6.70%,12/14/00 .............. 13,000,000 12,895,964
PHH Corp.,6.80%,11/01/00 .............. 8,500,000 8,500,000
Popular North America Inc.,6.68%,
11/14/00-12/20/00 .................... 8,505,000 8,467,751
PRINCIPAL VALUE
AMOUNT
-------------- --------------
COMMERCIAL PAPER - DOMESTIC (CONTINUED)
Popular North America Inc.,6.70%,
11/13/00-11/21/00 .................... $ 13,436,000 $ 13,391,944
Washington Mutual Financial Corp.,
6.75%,01/24/01 ++ .................... 7,000,000 6,889,750
Wheels Inc.,6.65%,11/07/00 + .......... 2,000,000 1,997,783
Wheels Inc.,6.78%,11/01/00 + .......... 19,500,000 19,500,000
TOTAL COMMERCIAL PAPER - DOMESTIC 76,616,528
--------------
CORPORATE NOTES (11.1%)
Bank One Corp.,6.93%,01/16/01 ......... 5,000,000 5,001,019
Countrywide Home Loans, Inc.,
6.73%,09/15/01 ....................... 20,000,000 19,993,709
Eaton Corp.,6.58%,11/14/00 ++ ......... 5,000,000 4,988,120
Vodafone AirTouch Plc,6.76%,06/05/01 ++ 20,000,000 20,000,000
TOTAL CORPORATE NOTES 49,982,848
--------------
AGENCY OBLIGATIONS (3.8%)
Student Loan Marketing Assoc.,
6.82%,11/13/00-02/01/01 .............. 13,500,000 13,502,329
Student Loan Marketing Assoc.,
6.85%,03/23/01 ....................... 3,450,000 3,451,499
TOTAL AGENCY OBLIGATIONS 16,953,828
--------------
MEDIUM-TERM NOTES - DOMESTIC (12.5%)
American Express Centurion
Bank,6.59%,10/16/01................... 8,000,000 8,000,000
Associates Corp. N.A.,6.65%,10/01/01 ++ 11,000,000 11,000,000
Associates Corp. N.A.,6.66%,10/01/01 ++ 6,000,000 6,000,000
Ciesco Lp,6.59%,10/15/01 .............. 11,000,000 11,000,000
Lehman Brothers Holdings Inc.,
6.87%,09/04/01 ....................... 4,600,000 4,607,549
Lehman Brothers Holdings Inc.,
7.09%,11/06/00 ....................... 6,350,000 6,350,275
Pacific Gas & Electric
Co.,7.06%,10/31/01 ++ ................ 4,500,000 4,500,000
Washington Mutual Financial Corp.,
5.88%,02/27/01 ++ .................... 5,000,000 4,983,962
TOTAL MEDIUM-TERM NOTES - DOMESTIC 56,441,786
--------------
MEDIUM-TERM NOTES - FOREIGN (2.4%)
Republic of Argentina,
Zero Coupon,04/15/01 ................. 11,000,000 10,670,883
TOTAL MEDIUM-TERM NOTES - FOREIGN 10,670,883
--------------
TOTAL INVESTMENTS
(COST $446,522,933)(A) 446,522,933
OTHER ASSETS LESS LIABILITIES 3,476,159
--------------
TOTAL NET ASSETS $449,999,092
--------------
</TABLE>
See Notes to Portfolio of Investments. 13
<PAGE>
INCOME FUNDS
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2000
MONEY MARKET (CONTINUED)
<TABLE>
<CAPTION>
NOTES TO PORTFOLIO OF INVESTMENTS
<S> <C>
(a) The cost of investments for federal income tax purposes is identical.
There were no unrealized gains or losses as of October 31, 2000.
</TABLE>
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
<TABLE>
<CAPTION>
Acquisition date and cost of illiquid securities at October 31, 2000 is shown
below:
ACQUISITION
DATE COST
-------------------- ----------------------
<S> <C> <C>
Wheels Inc., 6.65%, 11/07/00..... 10/06/00 $ 1,997,783
Wheels Inc., 6.78%, 11/01/00..... 10/31/00 19,500,000
----------------
$21,497,783
================
</TABLE>
The market value of the total illiquid securities above is $21,497,783 which
represents 4.78% of the total net assets.
Category percentages are based on net assets.
14 See Notes to Financial Statements.
<PAGE>
INCOME FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
<TABLE>
<CAPTION>
BOND AETNA GOVERNMENT FUND MONEY MARKET
------------ --------------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments, at market
value................ $62,430,098 $24,823,049 $446,522,933
Cash .................. -- 167 15,886
Cash denominated in
foreign currencies ... 520 -- --
Receivable for:
Dividends and interest 713,054 352,574 1,569,875
Investments sold ..... 2,689,230 -- 5,512,938
Fund shares sold ..... 255,173 1,746 1,812,037
Variation margin ..... -- 1,875 --
Reimbursement from
Investment Adviser ... -- 5,048 --
Prepaid expenses ...... 544 234 4,523
----------- ----------- ------------
Total assets ..... 66,088,619 25,184,693 455,438,192
----------- ----------- ------------
LIABILITIES:
Payable for:
Dividends to
shareholders......... 18,102 1,689 76,514
Investments purchased 13,645,763 2,531,661 4,500,000
Fund shares redeemed . 622,694 -- 607,023
Variation margin ..... 15 -- --
Other liabilities ..... 50,882 21,154 255,563
----------- ----------- ------------
Total liabilities 14,337,456 2,554,504 5,439,100
----------- ----------- ------------
NET ASSETS ...... $51,751,163 $22,630,189 $449,999,092
=========== =========== ============
NET ASSETS REPRESENTED
BY:
Paid-in capital ....... $52,963,213 $22,871,101 $450,020,403
Net unrealized gain
(loss) on investments
and open futures
contracts............ (250,391) 90,642 --
Undistributed net
investment income .... 133,393 19,328 --
Accumulated net
realized loss on
investments.......... (1,095,052) (350,882) (21,311)
----------- ----------- ------------
NET ASSETS ...... $51,751,163 $22,630,189 $449,999,092
=========== =========== ============
Cost of investments ... $62,669,359 $24,723,867 $446,522,933
Cost of cash
denominated in foreign
currencies........... $ 518 $ -- $ --
CAPITAL SHARES, $.001
PAR VALUE:
Class I:
Outstanding .......... 3,122,261 1,108,669 245,786,073
Net Assets ........... $31,000,000 $11,020,595 $245,774,283
Net Asset Value,
offering and
redemption price per
share (net assets
divided by shares
outstanding)......... $ 9.93 $ 9.94 $ 1.00
Class A:
Outstanding .......... 1,995,718 1,148,294 194,463,263
Net Assets ........... $19,808,238 $11,412,987 $194,454,258
Net Asset Value and
redemption price per
share
(net assets divided by
shares outstanding) .. $ 9.93 $ 9.94 $ 1.00
Offering Price (net
asset value divided by
1 minus maximum sales
load)................ $ 10.43 $ 10.44 $ 1.00
Class B:
Outstanding .......... 34,752 6,798 159,202
Net Assets ........... $ 344,680 $ 67,617 $ 159,195
Net Asset Value,
offering and
redemption price per
share (net assets
divided by shares
outstanding)......... $ 9.92 $ 9.95 $ 1.00
Class C:
Outstanding .......... 60,363 12,989 9,611,865
Net Assets ........... $ 598,245 $ 128,990 $ 9,611,356
Net Asset Value,
offering and
redemption price per
share (net assets
divided by shares
outstanding)......... $ 9.91 $ 9.93 $ 1.00
</TABLE>
See Notes to Financial Statements. 15
<PAGE>
INCOME FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
OCTOBER 31, 2000
16 See Notes to Financial Statements.
<PAGE>
INCOME FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 2000
<TABLE>
<CAPTION>
BOND AETNA GOVERNMENT FUND MONEY MARKET
----------- --------------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................. $ 5,648 $ -- $ --
Interest .................. 3,249,055 1,335,352 28,901,149
---------- ---------- -----------
Total investment
income................ 3,254,703 1,335,352 28,901,149
---------- ---------- -----------
INVESTMENT EXPENSES:
Investment advisory fees .. 241,025 101,137 1,808,423
Administrative services
fees...................... 48,205 20,227 451,856
Distribution plan fees -
Class A ................. 38,357 23,557 --
Distribution plan fees -
Class B ................. 1,666 1,063 1,215
Distribution plan fees -
Class C ................. 4,792 879 --
Shareholder services fees -
Class B .................. 556 354 405
Shareholder services fees -
Class C .................. 1,597 293 --
Printing and postage fees . 6,632 4,195 46,321
Custody fees .............. 26,636 9,492 17,024
Transfer agent fees ....... 40,171 27,135 493,921
Audit fees ................ 21,368 20,240 21,281
Directors' fees ........... 1,057 457 11,663
Registration fees ......... 17,632 12,892 61,350
Miscellaneous expenses .... 2,414 319 9,634
---------- ---------- -----------
Expenses before
reimbursement and waiver
from Investment Adviser .. 452,108 222,240 2,923,093
Expense reimbursement and
waiver from Investment
Adviser................... (42,932) (54,409) (236,100)
---------- ---------- -----------
Net investment
expenses.............. 409,176 167,831 2,686,993
---------- ---------- -----------
Net investment income ..... 2,845,527 1,167,521 26,214,156
---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss)
on:
Investments .............. (87,800) (125,683) (21,311)
Options Written .......... 37,574 -- --
Futures contracts ........ (117,245) (9,124) --
Foreign currency related
transactions.............. (260,575) -- --
---------- ---------- -----------
Net realized loss on
investments........... (428,046) (134,807) (21,311)
---------- ---------- -----------
Net change in unrealized
gain or loss on:
Investments .............. (110,923) 355,085 --
Futures contracts ........ (26,089) (7,968) --
Foreign currency related
transactions.............. (5,172) -- --
---------- ---------- -----------
Net change in
unrealized gain or
loss on investments .. (142,184) 347,117 --
---------- ---------- -----------
Net realized and change in
unrealized gain or loss on
investments............... (570,230) 212,310 (21,311)
---------- ---------- -----------
Net increase in net assets
resulting from operations $2,275,297 $1,379,831 $26,192,845
========== ========== ===========
</TABLE>
See Notes to Financial Statements. 17
<PAGE>
INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BOND
----------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ................... $ 2,845,527 $ 2,474,333
Net realized loss on investments......... (428,046) (743,025)
Net change in unrealized gain or loss on
investments............................. (142,184) (1,075,698)
----------- ------------
Net increase in net assets resulting
from operations......................... 2,275,297 655,610
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Class I:
From net investment income.............. (1,684,227) (2,104,287)
Class A:
From net investment income.............. (767,862) (333,647)
Class B:
From net investment income.............. (9,281) (4,549)
Class C:
From net investment income.............. (26,235) (30,718)
----------- ------------
Decrease in net assets from
distributions to shareholders........... (2,487,605) (2,473,201)
----------- ------------
FROM FUND SHARE TRANSACTIONS:
Class I:
Proceeds from shares sold............... 5,423,027 9,189,628
Net asset value of shares issued upon
reinvestment of distributions.......... 1,525,481 1,907,667
Payments for shares redeemed............ (9,995,317) (17,127,490)
Class A:
Proceeds from shares sold............... 15,786,617 12,315,085
Net asset value of shares issued upon
reinvestment of distributions.......... 726,412 323,857
Payments for shares redeemed............ (8,691,299) (2,284,603)
Class B:
Proceeds from shares sold............... 256,981 198,698
Net asset value of shares issued upon
reinvestment of distributions.......... 5,240 863
Payments for shares redeemed............ (112,368) --
Class C:
Proceeds from shares sold............... 1,408,642 1,079,999
Net asset value of shares issued upon
reinvestment of distributions.......... 17,262 13,200
Payments for shares redeemed............ (1,864,715) (122,954)
----------- ------------
Net increase in net assets from fund
share transactions...................... 4,485,963 5,493,950
----------- ------------
Net change in net assets................. 4,273,655 3,676,359
NET ASSETS:
Beginning of period...................... 47,477,508 43,801,149
----------- ------------
End of period............................ $51,751,163 $ 47,477,508
=========== ============
End of period net assets includes
undistributed net investment income..... $ 133,393 $ 35,547
=========== ============
----------- ------------
=========== ============
SHARE TRANSACTIONS:
Class I:
Number of shares sold................... 548,816 898,536
Number of shares issued upon
reinvestment of distributions.......... 155,038 186,800
Number of shares redeemed............... (1,014,897) (1,680,650)
----------- ------------
Net decrease............................ (311,043) (595,314)
=========== ============
Class A:
Number of shares sold................... 1,601,442 1,210,580
Number of shares issued upon
reinvestment of distributions.......... 73,813 31,994
Number of shares redeemed............... (878,469) (225,829)
----------- ------------
Net increase............................ 796,786 1,016,745
=========== ============
Class B:
Number of shares sold................... 26,143 19,478
Number of shares issued upon
reinvestment of distributions.......... 533 86
Number of shares redeemed............... (11,488) --
----------- ------------
Net increase............................ 15,188 19,564
=========== ============
Class C:
Number of shares sold................... 143,274 105,601
Number of shares issued upon
reinvestment of distributions.......... 1,757 1,303
Number of shares redeemed............... (190,160) (11,792)
----------- ------------
Net increase (decrease)................. (45,129) 95,112
=========== ============
</TABLE>
18 See Notes to Financial Statements.
<PAGE>
See Notes to Financial Statements. 19
<PAGE>
INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
AETNA GOVERNMENT FUND
----------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ................... $ 1,167,521 $ 690,021
Net realized loss on investments......... (134,807) (116,795)
Net change in unrealized gain or loss on
investments............................. 347,117 (486,031)
------------ -----------
Net increase in net assets resulting
from operations......................... 1,379,831 87,195
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Class I:
From net investment income.............. (618,911) (542,676)
Class A:
From net investment income.............. (538,903) (121,821)
Class B:
From net investment income.............. (6,367) (3,253)
Class C:
From net investment income.............. (5,735) (6,134)
------------ -----------
Decrease in net assets from
distributions to shareholders........... (1,169,916) (673,884)
------------ -----------
FROM FUND SHARE TRANSACTIONS:
Class I:
Proceeds from shares sold............... 4,871,446 4,279,736
Net asset value of shares issued upon
reinvestment of distributions.......... 614,571 476,891
Payments for shares redeemed............ (4,390,868) (8,443,194)
Class A:
Proceeds from shares sold............... 16,940,547 5,805,058
Net asset value of shares issued upon
reinvestment of distributions.......... 531,302 119,308
Payments for shares redeemed............ (12,157,015) (699,786)
Class B:
Proceeds from shares sold............... 78,960 154,439
Net asset value of shares issued upon
reinvestment of distributions.......... 2,915 689
Payments for shares redeemed............ (167,822) --
Class C:
Proceeds from shares sold............... 42,444 126,145
Net asset value of shares issued upon
reinvestment of distributions.......... 3,338 1,491
Payments for shares redeemed............ (41,728) (113,612)
------------ -----------
Net increase in net assets from fund
share transactions...................... 6,328,090 1,707,165
------------ -----------
Net change in net assets................. 6,538,005 1,120,476
NET ASSETS:
Beginning of period...................... 16,092,184 14,971,708
------------ -----------
End of period............................ $ 22,630,189 $16,092,184
============ ===========
End of period net assets includes
undistributed net investment income..... $ 19,328 $ 21,723
============ ===========
SHARE TRANSACTIONS:
Class I:
Number of shares sold................... 500,004 424,983
Number of shares issued upon
reinvestment of distributions.......... 62,626 47,455
Number of shares redeemed............... (449,006) (836,164)
------------ -----------
Net increase (decrease)................. 113,624 (363,726)
============ ===========
Class A:
Number of shares sold................... 1,716,596 582,416
Number of shares issued upon
reinvestment of distributions.......... 54,110 11,963
Number of shares redeemed............... (1,232,057) (69,747)
------------ -----------
Net increase............................ 538,649 524,632
============ ===========
Class B:
Number of shares sold................... 8,034 15,367
Number of shares issued upon
reinvestment of distributions.......... 297 70
Number of shares redeemed............... (16,970) --
------------ -----------
Net increase (decrease)................. (8,639) 15,437
============ ===========
Class C:
Number of shares sold................... 4,340 12,499
Number of shares issued upon
reinvestment of distributions.......... 340 155
Number of shares redeemed............... (4,239) (11,456)
------------ -----------
Net increase............................ 441 1,198
============ ===========
</TABLE>
20 See Notes to Financial Statements.
<PAGE>
See Notes to Financial Statements. 21
<PAGE>
INCOME FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET
----------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ................... $ 26,214,156 $ 22,062,472
Net realized loss........................ (21,311) --
------------- -------------
Net increase in net assets resulting
from operations......................... 26,192,845 22,062,472
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Class I:
From net investment income.............. (14,947,032) (13,482,333)
Class A:
From net investment income.............. (10,781,081) (8,371,429)
Class B:
From net investment income.............. (7,815) (4,484)
Class C:
From net investment income.............. (478,228) (204,226)
------------- -------------
Decrease in net assets from
distributions to shareholders........... (26,214,156) (22,062,472)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Class I:
Proceeds from shares sold............... 149,181,425 230,408,465
Net asset value of shares issued upon
reinvestment of distributions.......... 14,291,758 12,949,579
Payments for shares redeemed............ (202,281,370) (234,788,242)
Class A:
Proceeds from shares sold............... 525,344,636 642,480,787
Net asset value of shares issued upon
reinvestment of distributions.......... 10,469,206 8,131,090
Payments for shares redeemed............ (522,973,185) (630,445,060)
Class B:
Proceeds from shares sold............... 273,849 388,741
Net asset value of shares issued upon
reinvestment of distributions.......... 6,651 2,948
Payments for shares redeemed............ (269,084) (243,904)
Class C:
Proceeds from shares sold............... 12,119,509 9,145,791
Net asset value of shares issued upon
reinvestment of distributions.......... 442,590 183,320
Payments for shares redeemed............ (9,715,182) (3,479,776)
------------- -------------
Net increase (decrease) in net assets
from fund share transactions............ (23,109,197) 34,733,739
------------- -------------
Net change in net assets................. (23,130,508) 34,733,739
NET ASSETS:
Beginning of period...................... 473,129,600 438,395,861
------------- -------------
End of period............................ $ 449,999,092 $ 473,129,600
============= =============
End of period net assets includes
undistributed net investment income..... $ -- $ --
============= =============
============= =============
SHARE TRANSACTIONS:
Class I:
Number of shares sold................... 149,181,424 230,408,465
Number of shares issued upon
reinvestment of distributions.......... 14,291,758 12,949,579
Number of shares redeemed............... (202,281,370) (234,788,242)
------------- -------------
Net increase (decrease)................. (38,808,188) 8,569,802
============= =============
Class A:
Number of shares sold................... 525,344,637 642,480,787
Number of shares issued upon
reinvestment of distributions.......... 10,469,206 8,131,090
Number of shares redeemed............... (522,973,185) (630,445,060)
------------- -------------
Net increase............................ 12,840,658 20,166,817
============= =============
Class B:
Number of shares sold................... 273,850 388,741
Number of shares issued upon
reinvestment of distributions.......... 6,651 2,948
Number of shares redeemed............... (269,084) (243,904)
------------- -------------
Net increase............................ 11,417 147,785
============= =============
Class C:
Number of shares sold................... 12,119,508 9,145,791
Number of shares issued upon
reinvestment of distributions.......... 442,590 183,320
Number of shares redeemed............... (9,715,182) (3,479,776)
------------- -------------
Net increase............................ 2,846,916 5,849,335
============= =============
</TABLE>
22 See Notes to Financial Statements.
<PAGE>
See Notes to Financial Statements. 23
<PAGE>
INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
1. ORGANIZATION
Aetna Series Fund, Inc. (Company) is registered under the Investment Company Act
of 1940 (the Act) as an open-end management investment company. It was
incorporated under the laws of Maryland on June 17, 1991. The Articles of
Incorporation permit the Company to offer separate funds, each of which has its
own investment objective, policies and restrictions.
This report covers three funds, (each a Fund; collectively, the Funds), Aetna
Bond Fund (Bond), Aetna Government Fund, and Aetna Money Market Fund (Money
Market).
The Funds are authorized to offer four classes of shares, Class I, Class A,
Class B and Class C. Class I is offered principally to institutions. Information
regarding sales charges and fees pursuant to Rule 12b-1 of the Act are as
follows:
CLASS I: No sales charges or distribution fees.
CLASS A: Generally, subject to a front-end sales charge; distribution fees of
0.25% (of average net assets of the class per year), except for Money
Market.
CLASS B: No front-end sales charge; contingent deferred sales charge (CDSC)
applies if you sell your shares within six years of purchase;
distribution fees of 0.75%; service fees of 0.25%; automatic conversion
to Class A shares after eight years.
CLASS C: No front-end sales charge; CDSC on redemptions made within 18 months
of purchase; distribution fees of 0.75% (except for Money Market);
service fees of 0.25% (except for Money Market).
Shares in each Class were first made available to the public on the following
dates:
<TABLE>
<CAPTION>
CLASS I CLASS A CLASS B CLASS C
------- ------- ------- -------
<S> <C> <C> <C> <C>
BOND December 27, 1991 April 15, 1994 March 1, 1999 June 30, 1998
AETNA GOVERNMENT FUND December 22, 1993 April 15, 1994 March 1, 1999 June 30, 1998
MONEY MARKET December 27, 1991 April 15, 1994 March 1, 1999 June 30, 1998
</TABLE>
The following is each Fund's investment objective:
BOND seeks to provide as high a level of total return as is consistent with
reasonable risk, primarily through investment in a diversified portfolio of
investment-grade corporate bonds, and debt securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
AETNA GOVERNMENT FUND seeks to provide income consistent with the preservation
of capital through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
MONEY MARKET seeks to provide high current return, consistent with the
preservation of capital and liquidity, through investment in high-quality
money market instruments.
Aeltus Investment Management, Inc. (Aeltus) serves as the investment adviser to
each Fund. Aeltus Capital, Inc. (ACI) is each Fund's principal underwriter.
Aeltus and ACI are indirect wholly owned subsidiaries of Aetna Inc. (Aetna).
24
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Funds have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported therein. Actual results
could differ from these estimates.
A. VALUATION OF INVESTMENTS
Except for Money Market, exchange traded equity investments are stated at market
values based upon prices furnished by external pricing sources as reported on
national securities exchanges or, for over-the-counter securities, at the mean
of the bid and asked prices. Fixed income securities, with the exception of high
yield securities, maturing in more than sixty days for which market quotations
are readily available are valued at the mean of the last bid and asked price.
High yield securities are priced at bid by external pricing sources or brokers
making a market in the security. Short-term investments maturing sixty days or
less are valued at amortized cost, which when combined with accrued interest,
approximates market value. Equity 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 (Board).
Money Market, as permitted by Rule 2a-7 under the Act, carries all investments
at amortized cost, which approximates market value.
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchange at the end
of each day. Purchases and sales of securities, income receipts, and expense
payments are translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions. The Funds do not isolate the portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in their market prices.
Such fluctuations are included in net realized and unrealized gain or loss on
investments.
B. FUTURES AND FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument including an
index of stocks at a set price on a future date. The Funds (except for Money
Market) may invest in financial futures contracts as a hedge against their
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. Money Market may not
invest in forward foreign currency exchange contracts.
The risks associated with financial futures and forward foreign currency
exchange contracts may arise from an imperfect
25
<PAGE>
INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
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.
C. OPTIONS CONTRACTS
The Funds (except for Money Market) may purchase put and call options and may
write (sell) put options and covered call options. The Funds may engage in
option transactions 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.
D. SWAP CONTRACTS
Bond may enter into interest rate swaps, currency swaps and other types of swap
agreements, including swaps on securities and indices. A swap is an agreement
between two parties pursuant to which each party agrees to make one or more
payments to the other on regularly scheduled dates over a stated term, based on
different interest rates, currency exchange rates, security prices, the prices
or rates of other types of financial instruments or assets or the levels of
specified indices. During the term of the swap, changes in the value of the swap
are recognized as unrealized gains or losses by marking-to-market to reflect the
market value of the swap. When the swap is terminated, Bond will record a
realized gain or loss. As of October 31, 2000, Bond had no outstanding swap
agreements.
E. ILLIQUID AND RESTRICTED SECURITIES
Illiquid securities 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. The Funds will not pay the costs of disposition of restricted securities
other than ordinary brokerage fees, if any.
26
<PAGE>
F. 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.
G. 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 on a delayed delivery basis at an agreed upon
price. The mortgage-backed securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized by different
pools of mortgages with different prepayment histories.
H. FEDERAL INCOME TAXES
Each Fund intends to meet 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 (Code). Furthermore, by declaring such distributions during the
calendar year, each Fund will avoid federal excise taxes in accordance with the
applicable provisions of the Code. Thus, the financial statements contain no
provision for federal income taxes.
I. 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 accounting principles generally accepted in the United States of
America. These differences are primarily due to differing treatments for foreign
currency transactions, certain futures contracts and repurchases of certain
securities sold at a loss. 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 Code.
J. LINE OF CREDIT
Certain series of the Company (including Bond and Aetna Government Fund),
certain portfolios of Aetna Variable Portfolios, Inc., Aetna Generation
Portfolios, Inc., Aetna Balanced VP, Inc., Aetna Variable Fund, Aetna Income
Shares and certain series of Aetna GET Fund, collectively Aetna Mutual Funds,
have entered into a revolving credit facility, of up to $300,000,000, with a
syndicate of banks led by Citibank, N.A. The revolving credit facility requires
the payment of an annual commitment fee of 0.09% based on the average daily
unutilized amount of the credit facility. Each of the funds will pay its pro
rata share of both the agent fee and commitment fee. Generally, borrowings under
the facility accrue interest at the Federal Funds Rate plus a specified margin.
Repayments generally must be made within 30 days after the date of a revolving
credit advance. No borrowings from the line of credit have been made as of
October 31, 2000.
27
<PAGE>
INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
K. 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 an investment advisory fee expressed as a percentage of
each Fund's average daily net assets. As each Fund's net assets exceed
predetermined thresholds, lower advisory fees apply. Below are the Funds'
investment advisory fee ranges and the effective rates before waivers as of
October 31, 2000:
<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%
Money Market 0.40%-0.30% 0.40%
</TABLE>
The Company and Aeltus have entered into an Administrative Services Agreement
under which Aeltus acts as administrator and provides certain administrative and
shareholder services and is responsible for the supervision of other service
providers for each Fund. Each Fund pays Aeltus an administrative services fee at
an annual rate of 0.10% of its average daily net assets.
Aeltus has entered into a Service Agreement with Aetna Life Insurance and
Annuity Company (ALIAC) under which ALIAC will provide various administrative
and shareholder services to certain Class I shareholders of the Funds that
purchased their shares through ALIAC. In exchange for these services, Aeltus
pays ALIAC a fee of up to 0.25% of the average daily net assets associated with
those shares. For the period November 1, 1999 through October 31, 2000, Aeltus
paid ALIAC $106,438.
The Company has adopted a Shareholder Services Plan for the Class B and Class C
shares, except Money Market 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 B and Class C shares. This fee is used as compensation for
expenses incurred in servicing shareholders' accounts.
The Company has adopted a Distribution Plan pursuant to Rule 12b-1 under the Act
for the Class A, Class B and Class C shares. The Distribution Plan provides for
payments to ACI at an annual rate of 0.25% of the average daily net assets of
Class A shares of each Fund (except Money Market) and 0.75% of the average daily
net assets of Class B and Class C shares of each Fund (except Class C shares of
Money Market). Amounts paid by the Funds are used to pay expenses incurred by
ACI in promoting the sale of Class A, Class B and Class C shares.
Presently, the Funds' class-specific expenses are limited to distribution fees
incurred in connection with Class A, Class B and Class C shares and service fees
in connection with Class B and Class C shares.
28
<PAGE>
4. REIMBURSEMENT AND WAIVER FROM INVESTMENT ADVISER
Aeltus is contractually obligated through December 31, 2000 to reimburse each
Fund (except Money Market) for some or all of its operating expenses or to waive
fees in order to maintain a certain expense ratio. Reimbursement and waiver
arrangements will increase a Fund's yield and total return. Actual expenses for
the year ended October 31, 2000 were at contractual limits. Actual expense
ratios are included in the Financial Highlights.
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
for the year ended October 31, 2000 were:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------- -------------------
<S> <C> <C>
Bond $162,190,748 $164,083,515
Aetna Government Fund 32,590,106 25,158,934
</TABLE>
6. CAPITAL LOSS CARRYFORWARDS
It is the policy of each of the Funds to reduce future distributions of realized
gains to shareholders to the extent of capital loss carryforwards. Such capital
loss carryforwards may be used to offset future capital gains until their
respective expiration dates. As of October 31, 2000, the following capital loss
carryforwards had been incurred:
<TABLE>
<CAPTION>
TOTAL CAPITAL LOSS YEAR OF EXPIRATION
---------------
CARRYFORWARD 2003 2005 2007 2008
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Bond $1,075,680 $184,276 $-- $594,394 $297,010
Aetna Government Fund 358,333 53,515 47,228 114,815 142,775
Money Market 21,311 -- -- -- 21,311
</TABLE>
7. OPTIONS
For the year ended October 31, 2000, the following reflects the written option
activity:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CALL OPTIONS WRITTEN
-------------------------------------------------------
BOND
-------------------------------------------------------
Outstanding October -- $-- $--
31, 1999
Written 50,373 74,352 --
Exercised -- -- --
Expired -- -- --
Closed (50,373) (74,352) 37,574
-------------------------------------------------------
Outstanding October -- $-- $37,574
31, 2000
-------------------------------------------------------
</TABLE>
29
<PAGE>
INCOME FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
8. AUTHORIZED CAPITAL SHARES
The Company is authorized to issue a total of 15 billion shares. Of those 15
billion shares, each of the Funds, except Money Market, have been allocated 100
million shares each of Class I, Class A, Class B and Class C; Money Market has
been allocated one billion shares each of Class I, Class A, Class B and Class C.
As of October 31, 2000, the following shares of the Funds were owned by ALIAC
and its affiliates:
<TABLE>
<CAPTION>
CLASS I
-------
<S> <C>
Bond 1,580,116
Aetna Government Fund 755,432
Money Market 117,703,233
</TABLE>
30
<PAGE>
INCOME FUNDS
ADDITIONAL INFORMATION
OCTOBER 31, 2000
1. FUND CLOSURE (UNAUDITED)
On March 1, 2000, the Board of Directors considered and agreed to submit to
shareholders a proposal by Aeltus to liquidate Aetna High Yield Fund (High
Yield). The Fund was closed to new direct investors on March 6, 2000 and to new
retirement plan investors on May 15, 2000. Shareholders approved the proposal on
July 28, 2000 and High Yield was closed on August 25, 2000. Below are the
results of the shareholder vote:
<TABLE>
<CAPTION>
NUMBER OF % OF VOTES
--------------------------------------------
SHARES VOTING CAST FOR CAST AGAINST ABSTAIN
--------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield
992,543 70.2% --% 29.8%
</TABLE>
2. SHAREHOLDER MEETING (UNAUDITED)
The shareholders of Aetna Inc. (Aetna), of which Aeltus was an indirect
wholly-owned subsidiary, voted in favor of a proposal to sell certain of Aetna's
businesses, including Aeltus, to ING Groep N.V. (ING), an integrated financial
services provider. Consummation of the transaction has resulted in Aeltus
becoming an indirect wholly-owned subsidiary of ING in December 2000.
Under the Act, the transaction resulted in a change in control of Aeltus and
therefore, constituted an assignment of the Company's investment advisory
agreements. Consequently, Aeltus received approval of new investment advisory
agreements from the Board and the shareholders of each Fund. The results of the
shareholder meeting held on November 22, 2000, are as follows:
A. ELECTION OF DIRECTORS
The following individuals were elected to serve as Directors of the Company.
Every individual named served as a Director prior to this election and there are
no other individuals currently serving as Directors of the Company.
<TABLE>
<CAPTION>
NUMBER OF % OF VOTES
-------------------------
SHARES VOTING CAST FOR WITHHELD
----------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Albert E. DePrince Jr.
695,450,143.647 95.737% 4.263%
Maria T. Fighetti
695,450,143.647 95.658% 4.342%
J. Scott Fox
695,450,143.647 95.644% 4.356%
David L. Grove
695,450,143.647 95.539% 4.461%
John Y. Kim
695,450,143.647 95.641% 4.359%
Sidney Koch
695,450,143.647 95.652% 4.348%
Corine T. Norgaard
695,450,143.647 95.628% 4.372%
Richard G. Scheide
695,450,143.647 95.610% 4.390%
</TABLE>
31
<PAGE>
INCOME FUNDS
ADDITIONAL INFORMATION (CONTINUED)
OCTOBER 31, 2000
B. APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
Shareholders in each Fund voted to approve a new Investment Advisory Agreement
(Agreement) between each Fund and Aeltus. The Agreement reflects the acquisition
of the financial services and international businesses of Aetna, of which Aeltus
is an indirect wholly-owned subsidiary, by ING, with no change in advisory fees
payable to Aeltus.
<TABLE>
<CAPTION>
NUMBER OF % OF VOTES
--------------------------------------------
SHARES VOTING CAST FOR CAST AGAINST ABSTAIN
----------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Bond
2,946,746.809 87.745% 1.937% 10.318%
Government
1,566,713.459 98.624% 0.121% 1.255%
Money Market
266,060,910.690 87.526% 2.981% 9.493%
</TABLE>
C. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Shareholders of all the Funds of the Company approved the selection of KPMG LLP
as independent auditors for all of the Funds for the fiscal year ending October
31, 2001.
<TABLE>
<CAPTION>
NUMBER OF % OF VOTES
--------------------------------------------
SHARES VOTING CAST FOR CAST AGAINST ABSTAIN
----------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
KPMG LLP
695,450,143.647 94.875% 1.199% 3.926%
</TABLE>
32
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS
BOND
BOND
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS I 2000 1999 1998 1997 1996
---------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 9.98 $ 10.38 $ 10.22 $ 10.09 $ 10.27
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.59++ 0.57+ 0.60+ 0.62+ 0.65+
Net realized and
change in unrealized
gain or loss on
investments.......... (0.12) (0.41) 0.17 0.13 (0.15)
------- ------- ------- ------- -------
Total income from
investment
operations........ 0.47 0.16 0.77 0.75 0.50
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income............... (0.52) (0.56) (0.61) (0.62) (0.68)
------- ------- ------- ------- -------
Total distributions (0.52) (0.56) (0.61) (0.62) (0.68)
------- ------- ------- ------- -------
Net asset value, end
of period ........... $ 9.93 $ 9.98 $ 10.38 $ 10.22 $ 10.09
======= ======= ======= ======= =======
Total return ......... 4.88% 1.56% 7.72% 7.72% 5.09%
Net assets, end of
period (000's) ...... $31,000 $34,268 $41,804 $34,080 $28,864
Ratio of net
investment expenses
to average net assets 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net
investment income to
average net assets .. 6.00% 5.52% 5.79% 6.07% 6.16%
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 0.84% 0.93% 0.97% 1.14% 1.16%
Portfolio turnover
rate................. 361.83% 174.14% 77.01% 48.56% 42.33%
</TABLE>
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
34 See Notes to Financial Statements.
<PAGE>
BOND
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS A 2000 1999 1998 1997 1996
---------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 9.98 $ 10.37 $10.22 $10.09 $10.27
------- ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.55++ 0.54+ 0.57+ 0.54+ 0.62+
Net realized and
change in unrealized
gain or loss on
investments.......... (0.10) (0.39) 0.15 0.13 (0.20)
------- ------- ------ ------ ------
Total income from
investment
operations........ 0.45 0.15 0.72 0.67 0.42
------- ------- ------ ------ ------
LESS DISTRIBUTIONS:
From net investment
income............... (0.50) (0.54) (0.57) (0.54) (0.60)
------- ------- ------ ------ ------
Total distributions (0.50) (0.54) (0.57) (0.54) (0.60)
------- ------- ------ ------ ------
Net asset value, end
of period ........... $ 9.93 $ 9.98 $10.37 $10.22 $10.09
======= ======= ====== ====== ======
Total return ......... 4.62% 1.43% 7.27% 6.89% 4.27%
Net assets, end of
period (000's) ...... $19,808 $11,963 $1,890 $1,006 $ 877
Ratio of net
investment expenses
to average net assets 1.00% 1.00% 1.05% 1.50% 1.50%
Ratio of net
investment income to
average net assets .. 5.75% 5.27% 5.49% 5.32% 5.47%
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 1.09% 1.18% 1.27% 1.89% 1.91%
Portfolio turnover
rate................. 361.83% 174.14% 77.01% 48.56% 42.33%
</TABLE>
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 35
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
BOND
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
YEAR ENDED (DATE OF INITIAL
OCTOBER 31, PUBLIC OFFERING)
CLASS B 2000 TO OCTOBER 31, 1999
------------------------------------------- ----------- -------------------
<S> <C> <C>
Net asset value, beginning of period ...... $ 9.98 $ 10.29
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.47++ 0.31+
Net realized and change in unrealized gain
or loss on investments ................... (0.11) (0.32)
------- -------
Total income from investment operations 0.36 (0.01)
------- -------
LESS DISTRIBUTIONS:
From net investment income ............... (0.42) (0.30)
------- -------
Total distributions .................... (0.42) (0.30)
------- -------
Net asset value, end of period ............ $ 9.92 $ 9.98
======= =======
Total return .............................. 3.76% (0.11)%
Net assets, end of period (000's) ......... $ 345 $ 195
Ratio of net investment expenses to average
net assets ............................... 1.75% 1.75%(1)
Ratio of net investment income to average
net assets ............................... 5.00% 4.52%(1)
Ratio of expenses before reimbursement and
waiver to average net assets ............. 1.84% 1.93%(1)
Portfolio turnover rate ................... 361.83% 174.14%
</TABLE>
(1) Annualized.
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
36 See Notes to Financial Statements.
<PAGE>
BOND
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 30, 1998
YEAR ENDED YEAR ENDED (DATE OF INITIAL
OCTOBER 31, OCTOBER 31, PUBLIC OFFERING)
CLASS C 2000 1999 TO OCTOBER 31, 1998
------------------------------ ----------- ----------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of
period....................... $ 9.97 $ 10.37 $10.31
------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 0.50++ 0.46+ 0.17+
Net realized and change in
unrealized gain or loss on
investments.................. (0.14) (0.39) 0.05
------- ------- ------
Total income from
investment operations .... 0.36 0.07 0.22
------- ------- ------
LESS DISTRIBUTIONS:
From net investment income .. (0.42) (0.47) (0.16)
------- ------- ------
Total distributions ....... (0.42) (0.47) (0.16)
------- ------- ------
Net asset value, end of period $ 9.91 $ 9.97 $10.37
======= ======= ======
Total return ................. 3.76% 0.66% 2.10%
Net assets, end of period
(000's)...................... $ 598 $ 1,052 $ 108
Ratio of net investment
expenses to average net
assets....................... 1.75% 1.75% 1.75%(1)
Ratio of net investment income
to average net assets ....... 5.00% 4.52% 4.79%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets .......... 1.84% 1.93% 1.97%(1)
Portfolio turnover rate ...... 361.83% 174.14% 77.01%
</TABLE>
(1) Annualized.
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 37
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
AETNA GOVERNMENT FUND
AETNA GOVERNMENT FUND
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS I 2000 1999 1998 1997 1996
---------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 9.86 $10.29 $ 9.99 $ 9.80 $ 10.01
------- ------ ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.57++ 0.51+ 0.53+ 0.58+ 0.56+
Net realized and
change in unrealized
gain or loss on
investments.......... 0.09 (0.45) 0.30 0.21 (0.13)
------- ------ ------- ------- -------
Total income from
investment
operations........ 0.66 0.06 0.83 0.79 0.43
------- ------ ------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income............... (0.58) (0.49) (0.53) (0.60) (0.64)
------- ------ ------- ------- -------
Total distributions (0.58) (0.49) (0.53) (0.60) (0.64)
------- ------ ------- ------- -------
Net asset value, end
of period ........... $ 9.94 $ 9.86 $ 10.29 $ 9.99 $ 9.80
======= ====== ======= ======= =======
Total return ......... 6.92% 0.58% 8.54% 8.39% 4.43%
Net assets, end of
period (000's) ...... $11,021 $9,808 $13,980 $10,217 $10,662
Ratio of net
investment expenses
to average net assets 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net
investment income to
average net assets .. 5.90% 5.00% 5.21% 5.91% 5.67%
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 0.97% 1.47% 1.51% 1.70% 1.57%
Portfolio turnover
rate................. 138.83% 30.72% 181.08% 147.78% 50.48%
</TABLE>
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
38 See Notes to Financial Statements.
<PAGE>
AETNA GOVERNMENT FUND
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS A 2000 1999 1998 1997 1996
---------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 9.86 $10.29 $ 9.99 $ 9.79 $10.00
------- ------ ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.55++ 0.48+ 0.49+ 0.51+ 0.48+
Net realized and
change in unrealized
gain or loss on
investments.......... 0.08 (0.45) 0.31 0.21 (0.13)
------- ------ ------- ------- ------
Total income from
investment
operations........ 0.63 0.03 0.80 0.72 0.35
------- ------ ------- ------- ------
LESS DISTRIBUTIONS:
From net investment
income............... (0.55) (0.46) (0.50) (0.52) (0.56)
------- ------ ------- ------- ------
Total distributions (0.55) (0.46) (0.50) (0.52) (0.56)
------- ------ ------- ------- ------
Net asset value, end
of period ........... $ 9.94 $ 9.86 $ 10.29 $ 9.99 $ 9.79
======= ====== ======= ======= ======
Total return ......... 6.65% 0.34% 8.19% 7.67% 3.75%
Net assets, end of
period (000's) ...... $11,413 $6,009 $ 875 $ 531 $ 526
Ratio of net
investment expenses
to average net assets 0.95% 0.95% 1.03% 1.45% 1.45%
Ratio of net
investment income to
average net assets .. 5.65% 4.75% 4.88% 5.16% 4.96%
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 1.22% 1.72% 1.84% 2.45% 2.32%
Portfolio turnover
rate................. 138.83% 30.72% 181.08% 147.78% 50.48%
</TABLE>
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 39
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
AETNA GOVERNMENT FUND
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
YEAR ENDED (DATE OF INITIAL
OCTOBER 31, PUBLIC OFFERING)
CLASS B 2000 TO OCTOBER 31, 1999
------------------------------------------- ----------- -------------------
<S> <C> <C>
Net asset value, beginning of period ...... $ 9.86 $10.12
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.48++ 0.27+
Net realized and change in unrealized gain
or loss on investments ................... 0.08 (0.27)
------- ------
Total income from investment operations 0.56 0.00
------- ------
LESS DISTRIBUTIONS:
From net investment income ............... (0.47) (0.26)
------- ------
Total distributions .................... (0.47) (0.26)
------- ------
Net asset value, end of period ............ $ 9.95 $ 9.86
======= ======
Total return .............................. 5.88% 0.00%
Net assets, end of period (000's) ......... $ 68 $ 152
Ratio of net investment expenses to average
net assets ............................... 1.70% 1.70%(1)
Ratio of net investment income to average
net assets ............................... 4.90% 4.00%(1)
Ratio of expenses before reimbursement and
waiver to average net assets ............. 1.97% 2.47%(1)
Portfolio turnover rate ................... 138.83% 30.72%
</TABLE>
(1) Annualized.
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
40 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
YEAR ENDED YEAR ENDED (DATE OF INITIAL
OCTOBER 31, OCTOBER 31, PUBLIC OFFERING)
CLASS C 2000 1999 TO OCTOBER 31, 1998
------------------------------ ----------- ----------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of
period....................... $ 9.85 $10.29 $ 10.11
------- ------ -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 0.47++ 0.40+ 0.15+
Net realized and change in
unrealized gain or loss on
investments.................. 0.09 (0.45) 0.17
------- ------ -------
Total income from
investment operations .... 0.56 (0.05) 0.32
------- ------ -------
LESS DISTRIBUTIONS:
From net investment income .. (0.48) (0.39) (0.14)
------- ------ -------
Total distributions ....... (0.48) (0.39) (0.14)
------- ------ -------
Net asset value, end of period $ 9.93 $ 9.85 $ 10.29
======= ====== =======
Total return ................. 5.89% (0.46)% 3.18%
Net assets, end of period
(000's)...................... $ 129 $ 124 $ 117
Ratio of net investment
expenses to average net
assets....................... 1.70% 1.70% 1.70%(1)
Ratio of net investment income
to average net assets ....... 4.90% 4.00% 4.21%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets .......... 1.97% 2.47% 2.51%(1)
Portfolio turnover rate ...... 138.83% 30.72% 181.08%
</TABLE>
(1) Annualized.
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 41
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET
MONEY MARKET
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS I 2000 1999 1998 1997 1996
---------------------- ----------- ----------- ----------- ----------- -----------
<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 0.06++ 0.05+ 0.05+ 0.05+ 0.05+
-------- -------- -------- -------- --------
Total income from
investment
operations........ 0.06 0.05 0.05 0.05 0.05
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment
income............... (0.06) (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- -------- --------
Total distributions (0.06) (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- -------- --------
Net asset value, end
of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return ......... 5.97% 4.88% 5.36% 5.49% 5.44%
Net assets, end of
period (000's) ...... $245,774 $284,594 $276,024 $273,710 $323,281
Ratio of net
investment expenses
to average net assets 0.59% 0.50% 0.48% 0.37% 0.30%
Ratio of net
investment income to
average net assets .. 5.80% 4.79% 5.24% 5.31% 5.30%
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 0.65% 0.64% 0.72% 0.81% 0.83%
</TABLE>
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
42 See Notes to Financial Statements.
<PAGE>
MONEY MARKET
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
CLASS A 2000 1999 1998 1997 1996
---------------------- ----------- ----------- ----------- ----------- -----------
<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 0.06++ 0.05+ 0.05+ 0.05+ 0.05+
-------- -------- -------- -------- --------
Total income from
investment
operations........ 0.06 0.05 0.05 0.05 0.05
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment
income............... (0.06) (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- -------- --------
Total distributions (0.06) (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- -------- --------
Net asset value, end
of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return ......... 5.97% 4.88% 5.36% 5.49% 5.44%
Net assets, end of
period (000's) ...... $194,454 $181,623 $161,456 $156,530 $119,849
Ratio of net
investment expenses
to average net assets 0.59% 0.50% 0.48% 0.37% 0.30%
Ratio of net
investment income to
average net assets .. 5.80% 4.79% 5.24% 5.31% 5.30%
Ratio of expenses
before reimbursement
and waiver to
average net assets .. 0.65% 0.64% 0.72% 0.91% 0.93%
</TABLE>
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 43
<PAGE>
INCOME FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
YEAR ENDED (DATE OF INITIAL
OCTOBER 31, PUBLIC OFFERING)
CLASS B 2000 TO OCTOBER 31, 1999
------------------------------------------- ----------- -------------------
<S> <C> <C>
Net asset value, beginning of period ...... $ 1.00 $ 1.00
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................... 0.05++ 0.03+
------ ------
Total income from investment operations 0.05 0.03
------ ------
LESS DISTRIBUTIONS:
From net investment income ............... (0.05) (0.03)
------ ------
Total distributions .................... (0.05) (0.03)
------ ------
Net asset value, end of period ............ $ 1.00 $ 1.00
====== ======
Total return .............................. 4.92% 2.56%
Net assets, end of period (000's) ......... $ 159 $ 148
Ratio of net investment expenses to average
net assets ............................... 1.59% 1.50%(1)
Ratio of net investment income to average
net assets ............................... 4.80% 3.78%(1)
Ratio of expenses before reimbursement and
waiver to average net assets ............. 1.65% 1.64%(1)
</TABLE>
(1) Annualized.
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
44 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
YEAR ENDED YEAR ENDED (DATE OF INITIAL
OCTOBER 31, OCTOBER 31, PUBLIC OFFERING)
CLASS C 2000 1999 TO OCTOBER 31, 1998
------------------------------ ----------- ----------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ....... 0.06++ 0.05+ 0.02+
------ ------ ------
Total income from
investment operations .... 0.06 0.05 0.02
------ ------ ------
LESS DISTRIBUTIONS:
From net investment income .. (0.06) (0.05) (0.02)
------ ------ ------
Total distributions ....... (0.06) (0.05) (0.02)
------ ------ ------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total return ................. 5.97% 4.88% 1.75%
Net assets, end of period
(000's)...................... $9,611 $6,765 $ 916
Ratio of net investment
expenses to average net
assets....................... 0.59% 0.50% 0.48%(1)
Ratio of net investment income
to average net assets ....... 5.80% 4.79% 5.24%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets .......... 0.65% 0.64% 0.72%(1)
</TABLE>
(1) Annualized.
++ Per share data calculated using the SEC method.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements. 45
<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 and Aetna Money Market Fund, each a series of
Aetna Series Fund, Inc. (collectively the Income Funds), including the
portfolios of investments as of October 31, 2000, and the related statements of
operations for the year then ended, statements of changes in net assets for each
of the years in the two-year period then ended and financial highlights for each
of the years or periods in the five-year period then ended. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of October 31, 2000 by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Income Funds as of October 31, 2000, the results of their operations for the
year then ended, changes in their net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years or
periods in the five-year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Hartford, Connecticut
December 8, 2000
46
<PAGE>
P168ANN (10/00)
