Aetna Variable Growth Portfolio
Portfolio of Investments - December 31, 1996
================================================================================
Number of Market
Shares Value
--------- ---------
COMMON STOCKS (95.7%)
Aerospace and Defense (10.4%)
Boeing Co. ....................................... 1,900 $202,112
General Motors - Class H ......................... 2,800 157,500
United Technologies Corp. ........................ 2,700 178,199
--------
537,811
--------
Agriculture (2.9%)
Delta & Pine Land Co. ............................ 4,700 150,400
--------
Autos and Auto Equipment (2.7%)
Ford Motor Co. ................................... 4,300 137,063
--------
Banks (3.1%)
Wells Fargo & Co. ................................ 600 161,850
--------
Chemicals (2.5%)
Monsanto Co. ..................................... 3,300 128,288
--------
Computer Software (8.2%)
Cadence Design Systems, Inc. + ................... 2,600 103,350
Cisco Systems, Inc. + ............................ 1,900 120,888
Computer Associates International, Inc. .......... 1,600 79,600
National Data Corp. .............................. 2,800 121,800
--------
425,638
--------
Computers and Office Equipment (3.2%)
HBO & Co. ........................................ 2,800 166,249
--------
Consumer Products (2.1%)
Gillette Co. ..................................... 1,400 108,850
--------
Diversified (1.9%)
Deere & Co. ...................................... 2,400 97,500
--------
Electrical and Electronics (4.8%)
Intel Corp. ...................................... 1,100 144,031
Xilinx, Inc. + ................................... 2,800 103,075
--------
247,106
--------
Electrical Equipment (3.2%)
Avnet, Inc. ...................................... 2,800 163,100
--------
Financial Services (14.8%)
Federal National Mortgage Association ............ 3,300 122,925
Franklin Resources, Inc. ......................... 2,200 150,425
Salomon, Inc. .................................... 3,300 155,513
SunAmerica, Inc. ................................. 4,000 177,499
Travelers Group, Inc. ............................ 3,500 158,813
--------
765,175
--------
Foods and Beverages (6.7%)
Anheuser-Busch Co., Inc. ......................... 2,300 92,000
Coca-Cola Co. .................................... 2,800 147,350
Interstate Bakeries Corp. ........................ 2,200 108,075
--------
347,425
--------
Hotels and Restaurants (4.0%)
Hilton Hotels Corp. .............................. 5,400 141,075
Quality Dining, Inc. + ........................... 3,800 67,925
--------
209,000
--------
Number of Market
Shares Value
--------- ----------
Machinery and Equipment (1.9%)
Caterpillar, Inc. .............................. 1,300 $ 97,825
----------
Oil and Gas (9.3%)
Burlington Resources, Inc. ..................... 1,900 95,713
Pennzoil Co. ................................... 2,100 118,650
Schlumberger Ltd. .............................. 1,600 159,800
Tidewater, Inc. ................................ 2,400 108,600
----------
482,763
----------
Pharmaceuticals (8.1%)
American Home Products Corp. ................... 1,200 70,350
Amgen, Inc. + .................................. 1,800 97,875
Bristol-Myers Squibb Co. ....................... 900 97,875
Merck & Co., Inc. .............................. 1,900 150,575
----------
416,675
----------
Retail (3.1%)
Safeway, Inc. + ................................ 3,800 162,450
----------
Transportation (2.8%)
Burlington Northern Santa Fe Corp. ............. 1,700 146,838
----------
Total Common Stocks (cost $4,874,349) .......... 4,952,006
----------
Principal Market
Amount Value
--------- ---------
SHORT-TERM INVESTMENTS (5.6%)
Federal Home Loan Mortgage Corp.,
Mortgage-Backed Securities, 5.40%, 01/02/97 .. $ 290,000 $ 290,000
-----------
Total Short-Term Investments (cost $290,000) ... 290,000
-----------
TOTAL INVESTMENTS
(cost $5,164,349)(a) ......................... 5,242,006
Other assets less liabilities .................. (67,399)
-----------
Total Net Assets ............................... $ 5,174,607
===========
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 ....................................... $ 171,629
Unrealized losses ...................................... (93,972)
=========
Net unrealized gain .................................. $ 77,657
=========
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements.
1
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Aetna Variable Growth Portfolio
Statement of Assets and Liabilities
December 31, 1996
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Assets:
Investments, at market value ..................................... $ 5,242,006
Cash ............................................................. 428
Receivable for:
Dividends and interest ......................................... 1,396
-----------
Total assets ............................................ 5,243,830
-----------
Liabilities:
Payable for:
Dividends to shareholders ...................................... 5,865
Investments purchased .......................................... 61,547
Accrued investment advisory fees ................................. 1,449
Accrued administrative service fees .............................. 362
-----------
Total liabilities ....................................... 69,223
-----------
NET ASSETS ....................................................... $ 5,174,607
===========
Net assets represented by:
Paid-in capital .................................................. $ 5,100,000
Net unrealized gain on investments ............................... 77,657
Distributions in excess of net investment income ................. (515)
Accumulated net realized loss on investments ..................... (2,535)
===========
NET ASSETS ....................................................... $ 5,174,607
===========
Shares authorized ................................................ Unlimited
Par value ........................................................ $ 0.001
Shares outstanding ............................................... 510,000
Net asset value per share (net assets divided
by shares outstanding) ......................................... $ 10.146
Cost of investments .............................................. $ 5,164,349
See Notes to Financial Statements.
2
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Aetna Variable Growth Portfolio
Statement of Operations
Period from December 13, 1996 to December 31, 1996
================================================================================
Investment Income:
Dividends ......................................................... $ 1,396
Interest .......................................................... 5,766
--------
Total investment income .................................. 7,162
--------
Expenses:
Investment advisory fees .......................................... 1,449
Administrative services fees ...................................... 362
--------
Total expenses ........................................... 1,811
--------
Net investment income ............................................. 5,351
--------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ............................................. (2,535)
--------
Net realized loss on investments ......................... (2,535)
--------
Net change in unrealized gain or loss on:
Investments ..................................................... 77,657
--------
Net change in unrealized gain or loss on investments ..... 77,657
--------
Net realized and change in unrealized gain ........................ 75,122
--------
Net increase in net assets resulting from operations .............. $ 80,473
========
See Notes to Financial Statements.
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Aetna Variable Growth Portfolio
Statement of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Period from
December 13,
1996 to
December 31,
1996
-----------
<S> <C>
Operations:
Net investment income ............................................................................................... $ 5,351
Net realized loss ................................................................................................... (2,535)
Net change in unrealized gain ....................................................................................... 77,657
-----------
Net increase in net assets resulting from operations .............................................................. 80,473
-----------
Distributions to Shareholders:
From net investment income .......................................................................................... (5,866)
-----------
Decrease in net assets from distributions to shareholders ......................................................... (5,866)
-----------
Share Transactions:
Proceeds from shares sold ........................................................................................... 5,100,000
-----------
Net increase in net assets from share transactions ................................................................ 5,100,000
-----------
Change in net assets ................................................................................................ 5,174,607
Net Assets:
Beginning of period ................................................................................................. --
-----------
End of period ....................................................................................................... $ 5,174,607
===========
End of period net assets include distributions in excess of net investment income ................................... $ (515)
===========
Share Transactions:
Number of shares sold ............................................................................................... 510,000
-----------
Net increase ...................................................................................................... 510,000
===========
</TABLE>
See Notes to Financial Statements.
4
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Aetna Variable Growth 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 Growth 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
believed to offer growth potential.
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.
5
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Aetna Variable Growth 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
0.60% 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 0.375% of
the Portfolio's average daily net assets. For the period ended December 31,
1996, ALIAC paid Aeltus $906 in accordance with the terms of the Subadvisory
Agreement.
3. Purchases and Sales of Investment Securities
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, for the period from December 13, 1996 (commencement of
operations) to December 31, 1996 were $4,974,586 and $97,701, respectively.
4. Capital Loss Carryforward
At December 31, 1996, for federal income tax purposes, the Portfolio had
approximately $2,500 in capital loss carryforwards, expiring in the year 2004,
available to offset future net capital gains.
6
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Aetna Variable Growth Portfolio
Financial Highlights
================================================================================
Selected data for a fund share outstanding throughout the period:
Period From
December 13, 1996
to December 31,
1996
-----------------
Net asset value per share, beginning of period ............... $ 10.000
-----------
Income from investment operations:
Net investment income ...................................... 0.011
Net realized and unrealized gain ........................... 0.147
-----------
Total from investment operations ..................... 0.158
-----------
Less distributions:
From net investment income ................................. (0.012)
-----------
Total distributions .................................. (0.012)
-----------
Net asset value per share, end of period ..................... $ 10.146
===========
Total return* ................................................ 1.57%
Net assets, end of period (000's) ............................ $ 5,175
Ratio of total expenses to average net assets** .............. 0.67%
Ratio of net investment income to average net assets** ....... 1.99%
Portfolio turnover rate ...................................... 1.97%
Average commission rate paid per share ....................... $ 0.0364
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies
** Annualized.
See Notes to Financial Statements.
7
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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 Growth 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 13, 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 Growth Portfolio, as of December 31, 1996, the results of its
operations, changes in its net assets and financial highlights for the period
from December 13, 1996 to December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 14, 1997
8
