Aetna Variable Small Company Portfolio
Portfolio of Investments - December 31, 1996
================================================================================
Number of Market
Shares Value
--------- ---------
COMMON STOCKS (94.7%)
Aerospace and Defense (1.9%)
BE Aerospace, Inc. + ............................... 3,600 $ 97,650
--------
Apparel (1.4%)
Wolverine World Wide, Inc. ......................... 2,400 69,600
--------
Banks (4.5%)
Cullen/Frost Bankers, Inc. ......................... 4,500 149,625
Provident Bankshares Corp. ......................... 2,100 81,900
--------
231,525
--------
Building Materials and Construction (4.2%)
EMCOR Group, Inc. + ................................ 2,600 33,800
Fibreboard Corp. + ................................. 3,600 121,500
Lone Star Industries, Inc. ......................... 1,700 62,688
--------
217,988
--------
Chemicals (6.2%)
Church & Dwight, Inc. .............................. 4,500 102,938
Crompton & Knowles Corp. ........................... 7,200 138,600
Fuller (H.B.) Co. .................................. 1,700 79,900
--------
321,438
--------
Computer Software (6.3%)
Computer Task Group, Inc. .......................... 1,700 73,313
Macromedia + ....................................... 5,400 97,200
National Data Corp. ................................ 3,600 156,599
--------
327,112
--------
Computers and Office Equipment (2.8%)
Amdahl Corp. + ..................................... 7,200 87,300
Cyberguard Corp. + ................................. 4,500 54,563
--------
141,863
--------
Electrical and Electronics (6.7%)
Aeroflex, Inc. + ................................... 11,800 56,050
BMC Industries, Inc. ............................... 3,600 113,400
Chips & Technologies, Inc. + ....................... 3,600 65,700
Silicon Valley Group, Inc. + ....................... 5,400 108,675
--------
343,825
--------
Financial Services (4.0%)
AmeriCredit Corp. + ................................ 3,600 73,800
RCSB Financial, Inc. ............................... 4,500 130,500
--------
204,300
--------
Foods and Beverages (1.6%)
Interstate Bakeries Corp. .......................... 1,700 83,513
--------
Health Services (1.9%)
Curative Health Services, Inc. + ................... 3,600 99,675
--------
Insurance (8.4%)
CapMAC Holdings, Inc. .............................. 4,500 149,063
Delphi Financial Group, Inc. + ..................... 5,400 159,299
LaSalle Re Holdings Ltd. ........................... 4,200 122,850
--------
431,212
--------
Machinery and Equipment (1.1%)
Global Industrial Technologies, Inc. + ............. 2,600 57,525
--------
Number of Market
Shares Value
--------- ---------
Media and Entertainment (4.8%)
Anacomp, Inc. .................................. 5,400 $ 45,900
Telemundo Group, Inc. Class A + ................ 4,500 130,500
Topps Co., Inc. + .............................. 18,200 72,800
---------
249,200
---------
Medical Supplies (5.3%)
Fisher Scientific International ................ 3,600 169,649
PerSeptive Biosystems + ........................ 3,600 24,975
PLC Systems, Inc. + ............................ 3,600 81,000
---------
275,624
---------
Metals and Mining (3.9%)
Reynolds Metals Co. ............................ 3,600 202,949
---------
Oil and Gas (11.2%)
Basic Petroleum International Ltd. + ........... 3,600 118,800
Camco International, Inc. ...................... 1,700 78,413
Chesapeake Energy Corp. + ...................... 2,600 144,625
Pool Energy Services Co. + ..................... 4,500 69,188
Stone Energy Corp. + ........................... 3,600 107,550
World Fuel Services Corp. ...................... 2,600 57,850
---------
576,426
---------
Pharmaceuticals (6.9%)
Alcide Corp. + ................................. 6,300 130,725
Biovail Corp. International + .................. 3,600 92,250
Celgene Corp. + ................................ 10,000 111,250
Draxis Health, Inc. + .......................... 9,000 19,688
---------
353,913
---------
Retail (4.7%)
CML Group, Inc. ................................ 21,800 73,575
Dress Barn, Inc. + ............................. 6,300 94,500
Family Dollar Stores, Inc. ..................... 3,600 73,350
---------
241,425
---------
Telecommunications (5.3%)
Associated Group, Inc. Class A + ............... 2,600 79,950
Comsat Corp. ................................... 5,400 132,975
Teledata Communication Ltd. + .................. 2,600 59,800
---------
272,725
---------
Utilities - Electric (1.6%)
El Paso Electric Co. + ......................... 12,700 82,550
---------
Total Common Stocks (cost $4,823,541) .......... 4,882,038
---------
Principal Market
Amount Value
--------- ---------
SHORT-TERM INVESTMENTS (5.4%)
Federal Home Loan Mortgage Corp.,
Mortgage-Backed Securities, 5.40%, 01/02/97 ... $ 277,000 $ 277,000
----------
Total Short-Term Investments (cost $277,000) ...... 277,000
----------
TOTAL INVESTMENTS (cost $5,100,541)(a) ............ 5,159,038
Other assets less liabilities
(1,463)
----------
Total Net Assets .................................. $5,157,575
==========
See Notes to Portfolio of Investments
1
<PAGE>
Aetna Variable Small Company Portfolio
Portfolio of Investments - December 31, 1996 (continued)
================================================================================
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at December 31, 1996,
are as follows:
Unrealized gains ........................................ $ 92,500
Unrealized losses ....................................... (34,003)
--------
Net unrealized gain .................................. $ 58,497
========
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements.
2
<PAGE>
Aetna Variable Small Company Portfolio
Statement of Assets and Liabilities
December 31, 1996
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments, at market value ............................................. $ 5,159,038
Cash ..................................................................... 977
Receivable for:
Dividends and interest ................................................ 3,046
-----------
Total assets .................................................. 5,163,061
-----------
Liabilities:
Payable for:
Dividends to shareholders ............................................. 5,100
Accrued investment advisory fees ......................................... 322
Accrued administrative fees .............................................. 64
-----------
Total liabilities ............................................. 5,486
-----------
Net assets applicable to outstanding shares .............................. $ 5,157,575
===========
Net assets represented by:
Paid-in capital .......................................................... $ 5,100,000
Net unrealized gain on investments ....................................... 58,497
Distribution in excess of net investment income .......................... (922)
-----------
Total--representing net assets applicable to outstanding shares $ 5,157,575
===========
Shares authorized ........................................................ Unlimited
Par value ................................................................ $ 0.001
Shares outstanding ....................................................... 510,000
Net asset value per share ................................................ $ 10.113
Cost of investments ...................................................... $ 5,100,541
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
Aetna Variable Small Company Portfolio
Statement of Operations
Period from December 27, 1996 to December 31, 1996
================================================================================
Investment Income:
Dividends ........................................................... $ 3,046
Interest ............................................................ 1,518
-------
Total investment income .................................. 4,564
-------
Expenses:
Investment advisory fees ............................................ 322
Administrative services fees ........................................ 64
-------
Total expenses ........................................... 386
-------
Net investment income ............................................... 4,178
-------
Net change in unrealized gain or loss on:
Investments ...................................................... 58,497
-------
Net change in unrealized gain or loss on investments ..... 58,497
-------
Net increase in net assets resulting from operations ................ $62,675
=======
See Notes to Financial Statements.
4
<PAGE>
Aetna Variable Small Company Portfolio
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Period from
December 27, 1996
to December 31,
1996
----------------
<S> <C>
Operations:
Net investment income ........................................................... $ 4,178
Net change in unrealized gain or loss ........................................... 58,497
-----------
Net increase in net assets resulting from operations ......................... 62,675
-----------
Distributions to Shareholders:
From net investment income ...................................................... (5,100)
-----------
Decrease in net assets from distributions to shareholders .................... (5,100)
-----------
Share Transactions:
Proceeds from shares sold ....................................................... 5,100,000
-----------
Net increase in net assets from share transactions ........................... 5,100,000
-----------
Change in net assets ............................................................ 5,157,575
Net assets:
Beginning of period ............................................................. $ --
-----------
End of period ................................................................... $ 5,157,575
===========
End of period net assets include distributions in excess of net investment income $ (922)
===========
Share Transactions
Number of shares sold ........................................................... 510,000
-----------
Net increase ................................................................. 510,000
===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
Aetna Variable Small Company Portfolio
Notes to Financial Statements - December 31, 1996
================================================================================
1. Summary of Significant Accounting Policies
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
incorporated under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate portfolios (Portfolios) each of
which has its own investment objective, policies and restrictions.
The Fund offers four Portfolios, one of which, Aetna Variable Small Company
Portfolio (Portfolio), is described in this report.
The Portfolio seeks growth of capital through investment in a diversified
portfolio of common stocks and securities convertible into common stocks of
companies with smaller market capitalizations.
Shares of the Portfolio are owned by insurance companies as depositors of
separate accounts which are used to fund variable annuity contracts and variable
life insurance policies. Currently, all shares are held by separate accounts of
Aetna Life Insurance and Annuity Company (ALIAC) and its subsidiary, Aetna
Insurance Company of America.
ALIAC serves as the Investment Adviser and principal underwriter to the
Portfolio. It is an indirect wholly-owned subsidiary of Aetna Retirements
Services, Inc. which in turn is a wholly-owned subsidiary of Aetna Inc.
The accompanying financial statements of the Portfolio have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolio.
A. Valuation of Investments
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter securities,
at the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost which when combined with accrued interest
approximates market. Securities for which market quotations are not considered
to be readily available are valued in good faith using methods approved by the
Board of Directors.
B. Federal Income Taxes
As a qualified regulated investment company, the Portfolio is relieved of
federal income and excise taxes by distributing its net taxable investment
income and capital gains, if any, in compliance with the applicable provisions
of the Internal Revenue Code.
C. Distributions
The Portfolio distributes all net investment income and net capital gains, if
any, to its shareholders annually. Distributions from net investment income are
based on taxable net income. Distributions are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatment for deferred losses
on wash sales.
D. 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 amortized over the life of the respective security using a
yield-to-maturity method. Dividend income is recorded on the ex-dividend date.
Realized gains and losses from investment transactions are determined on an
identified cost basis.
6
<PAGE>
Aetna Variable Small Company Portfolio
Notes to Financial Statements - December 31, 1996 (continued)
================================================================================
2. Investment Advisory and Administrative Services Fees
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.75% of its average daily net assets.
Under an Administrative Services Agreement (Agreement), ALIAC provides all
administrative services necessary for the Portfolio's operations and is
responsible for the supervision of the Portfolio's other service providers.
ALIAC also assumes all ordinary, recurring costs of the Portfolio, such as
custodian fees, director's fees, transfer agent costs and accounting expenses.
For these services, ALIAC receives an annual fee, payable monthly, at a rate of
0.15% of the Portfolio's average daily net assets.
Under a Subadvisory Agreement, the Fund and ALIAC have engaged Aeltus Investment
Management, Inc. (Aeltus) to act as subadviser to the Portfolio. Under the terms
of the Subadvisory Agreement, Aeltus will supervise the investment and
reinvestment of cash and securities and provide certain related administrative
services to the Portfolio in exchange for a fee (payable by ALIAC) of 0.45% of
the Portfolio's average daily net assets. For the period ended December 31,
1996, ALIAC paid Aeltus $193 in accordance with the terms of the Subadvisory
Agreement.
3. Purchases and Sales of Investment Securities
Cost of purchases of investment securities, excluding short-term investments,
for the period from December 27, 1996 (commencement of operations) to December
31, 1996 was $4,823,541.
7
<PAGE>
Aetna Variable Small Company Portfolio
Financial Highlights
================================================================================
Selected data for a fund share outstanding throughout the period:
Period from
December 27,1996
to December 31,
1996
---------------
Net asset value per share, beginning of period ................ $10.000
-------
Income from investment operations:
Net investment income ...................................... 0.008
Net realized and unrealized gain ........................... 0.115
-------
Total from investment operations ..................... 0.123
-------
Less distributions:
From net investment income ................................. (0.010)
-------
Total distributions .................................. (0.010)
-------
Net asset value per share, end of period ...................... $10.113
=======
Total return* ................................................. 1.23%
Net assets, end of period (000's) ............................. $5,158
Ratio of total expenses to average net assets** ............... 0.55%
Ratio of net investment income to average net assets** ........ 5.96%
- ----------
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
** Annualized.
See Notes to Financial Statements.
8
<PAGE>
Independent Auditors' Report
The Shareholder and Board of Directors
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
Variable Small Company Portfolio (the Fund), a series of Aetna Variable
Portfolios, Inc., including the portfolio of investments, as of December 31,
1996, and the related statements of operations, changes in net assets and
financial highlights for the period from December 27, 1996 (date of commencement
of operations) to December 31, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996, by
correspondence with the custodian. 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
audit provides 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 Aetna
Variable Small Company Portfolio, as of December 31, 1996, the results of its
operations, changes in its net assets and financial highlights for the period
from December 27, 1996 to December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
9
