As filed with the Securities and Exchange File No. 333-05173
Commission on September 30, 1998 File No. 811-7651
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 6
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7
AETNA VARIABLE PORTFOLIOS, INC.
151 Farmington Avenue RE4A, Hartford, Connecticut 06156
(860) 275-2032
Amy R. Doberman, Counsel
Aeltus Investment Management, Inc.
242 Trumbull Street, Hartford, Connecticut 06103
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
[X] on October 1, 1998 pursuant to paragraph (b)
<PAGE>
Aetna Variable Portfolios, Inc.
Cross-Reference Sheet
<TABLE>
<CAPTION>
Form N-1A Caption in Prospectus
Item No. Part A
<S> <C> <C>
1 Cover Page........................................... Cover Page
2 Synopsis............................................. Not applicable
3 Condensed Financial Information...................... Financial Highlights
4 General Description of Registrant.................... Cover Page
The Fund
Description of the Variable
Portfolios
Investment Techniques
Risk Factors and Other
Considerations
Concentration
5 Management of the Fund............................... Management of the Variable
Portfolios
5A Management's Discussion of Fund Performance..........
Not applicable
6 Capital Stock and Other Securities................... Purchase and Redemption of
Shares
Net Asset Value
General Information
Tax Matters
7 Purchase of Securities Being Offered................. The Fund
Purchase and Redemption of
Shares
Net Asset Value
8 Redemption or Repurchase............................. Purchase and Redemption of
Shares
Net Asset Value
9 Pending Legal Proceedings............................ Not applicable
</TABLE>
<PAGE>
Aetna Variable Portfolios, Inc.
Cross-Reference Sheet
<TABLE>
<CAPTION>
Form N-1A Item No. Caption in Statement of Additional
Part B Information
<S> <C> <C>
10 Cover Page........................................... Cover Page
11 Table of Contents.................................... Table of Contents
12 General Information and History...................... General Information and History
13 Investment Objectives and Policies................... Additional Investment Restrictions
and Policies of the Variable
Portfolios
Description of Various Securities and
Investment Techniques
14 Management of the Fund............................... Directors and Officers
15 Control Persons and Principal Holders of Securities.. Control Persons and Principal
Shareholders
16 Investment Advisory and Other Services............... The Investment Advisory Agreement The
Administrative Services
Agreement
Custodian
Independent Auditors
17 Brokerage Allocation and Other Practices............. Brokerage Allocation and Trading
Polices
18 Capital Stock and Other Securities................... Description of Shares
Purchase and Redemption of Shares
Voting Rights
19 Purchase, Redemption and Pricing of Securities Being
Offered.............................................. Purchase and Redemption of Shares
Net Asset Value
20 Tax Status........................................... Tax Status
21 Underwriters......................................... Principal Underwriter
22 Calculation of Performance Data...................... Performance Information
23 Financial Statements................................. Financial Statements
</TABLE>
<PAGE>
Part C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Part A and B
The Prospectus is incorporated into Part A of this Post-Effective Amendment No.
6 by reference to the Fund's filing under Rule 497(j) under the Securities Act
of 1933 (1933 Act), as filed electronically on May 4, 1998 (Accession No.
0000950146-98-0000761). The Statement of Additional Information is incorporated
into Part B of this Post-Effective Amendment No. 6 by reference to the Fund's
filing under Rule 497(j) under the 1933 Act as filed electronically on May 4,
1998 (Accession No. 0000950146-98-0000761).
<PAGE>
AETNA VARIABLE PORTFOLIOS, INC.
Supplement dated October 1, 1998
The information in this Supplement for Aetna Variable Portfolios, Inc. (Fund)
updates and amends the information contained in the Prospectus dated May 1,
1998. This Supplement should be read with the Prospectus. Capitalized terms not
defined herein are used as defined in the Prospectus.
The following replaces the last sentence of the third paragraph of the section
entitled "Investment Techniques--Options, Futures and Other Derivative
Instruments" on page 13:
Each Portfolio may invest up to 30% of its assets in lower risk derivatives for
hedging or to gain additional exposure to certain markets for investment
purposes while maintaining liquidity to meet shareholder redemptions and
minimizing trading costs. Forward exchange contracts are not subject to this
30% limitation.
The following replaces the sections entitled "Performance--Performance of
Similarly Managed Funds" and "Performance--Private Account Performance" on
pages 17 through 19:
Performance of Similarly Managed Funds
Small Company, International, Index Plus Large Cap and Growth are recently
organized and do not yet have long-term performance records. However, these
Portfolios have the same investment objective and follow substantially the same
investment strategies as certain series of an investment company registered
under the Investment Company Act of 1940 (1940 Act) whose shares are currently
sold to the public (public fund) and are managed by Aeltus.
Set forth below is the historical performance of each comparable series of the
public fund. Investors should not consider the performance data of the series
of the public fund as an indication of the future performance of the
Portfolios. The performance figures shown below reflect the deduction of the
historical fees and expenses paid by the series of the public fund, and not
those paid by the Portfolios. The results shown reflect the reinvestment of
dividends and distributions, and were calculated in the same manner that will
be used by the Portfolios to calculate their own performance.
The figures also do not reflect the deduction of any insurance fees or charges
that are imposed by the insurance company in connection with its sale of the VA
Contracts and VLI Policies. Investors should refer to the separate account
prospectus describing the VA Contracts and VLI Policies for information
pertaining to these insurance fees and charges. The insurance separate account
fees decrease the performance of the Portfolios.
Each Portfolio calculates average annual total return by determining the
redemption value at the end of specified periods (assuming reinvestment of all
dividends and distributions) of a $1,000 investment in the Portfolio at the
beginning of the period, deducting the initial $1,000 investment, annualizing
the increase or decrease over the specified period and expressing the result as
a percentage.
The performance of the Portfolios may, from time to time, be compared to that
of other mutual funds tracked by mutual fund rating services, to broad groups
of comparable mutual funds, or to unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs.
The following table shows average annual total returns for the period ended
June 30, 1998 for the Portfolios, the comparable series and their respective
benchmark indices.
<TABLE>
<CAPTION>
Since
SMALL COMPANY 1 Year 3 Years Inception
<S> <C> <C> <C>
Aetna Variable Portfolios, Inc., Small Company
(unaudited) 23.77% N/A 27.97% (12/27/96)
Aetna Series Fund, Inc., Aetna Small Company Fund
(Class I) (unaudited) 23.23% 24.62% 22.32% (12/23/93)
Russell 2000 Index 16.50% 18.85% N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Since
INTERNATIONAL 1 Year 3 Years 5 Years Inception
<S> <C> <C> <C> <C>
Aetna Variable Portfolios, Inc., International
(unaudited) N/A N/A N/A 25.21% (12/22/97)*
Aetna Series Fund, Inc., Aetna International
Fund (Class I) (unaudited) 21.20% 23.62% 16.73% 12.68% (12/27/91)
MSCI-EAFE Index 6.38% 11.01% 10.34% N/A
</TABLE>
<TABLE>
<CAPTION>
Since
INDEX PLUS LARGE CAP 1 Year Inception
<S> <C> <C>
Aetna Variable Portfolios, Inc., Index Plus
Large Cap (unaudited) 31.24% 36.44% (09/16/96)
Aetna Series Fund, Inc., Aetna Index Plus
Large Cap Fund (Class I) (unaudited) 31.83% 34.16% (12/10/96)
S&P 500 Stock Index 30.16% N/A
</TABLE>
<TABLE>
<CAPTION>
Since
GROWTH 1 Year 3 Years Inception
<S> <C> <C> <C>
Aetna Variable Portfolios, Inc., Growth (unaudited) 40.96% N/A 38.82% (12/13/96)
Aetna Series Fund, Inc., Aetna Growth Fund
(Class I) (unaudited) 32.63% 27.70% 24.29% (12/23/93)
S&P 500 Stock Index 30.16% 30.24% N/A
</TABLE>
* not annualized
Private Account Performance
Index Plus Large Cap, Value Opportunity, Growth, Index Plus Bond and High Yield
are recently organized and do not yet have long-term performance records.
However, each of those Portfolios has an investment objective, policies and
strategies which are substantially similar to those employed by Aeltus with
respect to certain Private Accounts. The performance of Index Plus Large Cap,
Value Opportunity, Growth, Index Plus Bond and High Yield may vary from the
Private Account performance because the Private Accounts are not subject to
certain investment limitations, diversification requirements and other
restrictions imposed by the 1940 Act and the Internal Revenue Code of 1986, as
amended, which if applicable, may have adversely affected the performance
results of the Private Accounts.
The Private Account Performance data, shown below, was calculated in accordance
with recommended standards of the Association for Investment Management and
Research (AIMR). AIMR is a non-profit membership and education organization
that, among other things, has formulated a set of performance presentation
standards for investment advisers.
The Private Account performance figures are time-weighted rates of return which
include all dividends and interest, accrued income and realized and unrealized
gains and losses. The results also reflect the reinvestment of dividends and
distributions. All returns reflect the deduction of investment advisory fees
and brokerage commissions paid by Aeltus' Private Accounts, but do not reflect
the deduction of custodian fees. Cash and cash equivalents are included in
performance returns. The historical fees and expenses paid by the Private
Accounts are significantly lower than those paid by any Portfolio. Had
Portfolio-level expenses been charged to the Private Accounts, performance
would have been lower.
The following table shows average annual total returns for the period ended
June 30, 1998 for the Portfolios, the comparable Private Accounts and their
respective benchmark indices. Investors should not consider the performance
data of these Private Accounts as an indication of the future performance of a
Portfolio.
2
<PAGE>
PRIVATE ACCOUNT AND FUND PERFORMANCE (Unaudited)
<TABLE>
<CAPTION>
Since
INDEX PLUS LARGE CAP 1 Year 5 Years Inception
<S> <C> <C> <C>
Aetna Variable Portfolios, Inc.,
Index Plus Large Cap 31.24% N/A 36.44% (9/16/96)
Index Plus Large Cap Composite 32.68% 24.41% N/A
S&P 500 Stock Index 30.16% 23.08% N/A
</TABLE>
<TABLE>
<CAPTION>
Since
VALUE OPPORTUNITY 1 Year 5 Years Inception
<S> <C> <C> <C>
Aetna Variable Portfolios, Inc.,
Value Opportunity 30.16% N/A 35.46% (12/13/96)
Value Opportunity Composite 19.92% 21.57% N/A
S&P 500 Stock Index 30.16% 23.08% N/A
</TABLE>
<TABLE>
<CAPTION>
Since
GROWTH 1 Year 5 Years 10 Years Inception
<S> <C> <C> <C> <C>
Aetna Variable Portfolios, Inc., Growth 40.96% N/A N/A 38.82% (12/13/96)
Growth Composite 36.17% 24.16% 20.28% N/A
S&P 500 Stock Index 30.16% 23.08% 18.56% N/A
</TABLE>
<TABLE>
<CAPTION>
12/31/97
Through Since
HIGH YIELD 6/30/98* 1 Year Inception*
<S> <C> <C> <C>
Aetna Variable Portfolios, Inc., High Yield 7.12% N/A 8.73% (12/10/97)
High Yield Account 7.24% 19.25% N/A
Merrill Lynch High Yield Index 4.51% 11.40% N/A
</TABLE>
<TABLE>
<CAPTION>
12/31/97
Through Since
INDEX PLUS BOND 6/30/98* 1 Year 5 Years 10 Years Inception*
<S> <C> <C> <C> <C> <C>
Aetna Variable Portfolios, Inc.,
Index Plus Bond 3.76% N/A N/A N/A 4.08% (12/18/97)
Index Plus Bond Composite 4.01% 10.28% 7.05% 9.15% N/A
LBAB Index 3.93% 10.54% 6.88% 9.07% N/A
</TABLE>
* not annualized
The following new information is added prior to the section entitled
"Management of the Variable Portfolios--Portfolio Management" on page 20:
Subadviser Effective October 1, 1998, Bradley, Foster & Sargent, Inc.
("Bradley") has been appointed subadviser to Value Opportunity pursuant to an
agreement entered into by Aeltus, the Fund on behalf of Value Opportunity, and
Bradley. Bradley is a Connecticut corporation organized in 1993, with its
primary office located at City Place II--185 Asylum Street, Hartford,
Connecticut 06103, and is registered with the SEC as an investment adviser.
While Bradley has not previously served as an investment adviser or subadviser
to a mutual fund, it does manage private client assets as well as 401(k),
profit sharing and other retirement plan assets. As of June 1, 1998, Bradley
managed in excess of $350 million.
The Subadvisory Agreement gives Bradley broad latitude to select securities for
Value Opportunity consistent with the investment objective and policies of that
Portfolio, and subject to Aeltus' oversight. The Agreement contemplates that
Bradley will be responsible only for making and communicating investment
decisions. Aeltus will remain responsible for all other aspects of managing and
administering Value Opportunity, including trade execution.
3
<PAGE>
The Subadvisory Agreement for Value Opportunity provides that, for the duration
of the Agreement, Aeltus will pay Bradley a subadvisory fee, to be paid monthly
at an annual rate of 0.15% of the Portfolio's average daily net assets on the
first $250 million of assets, and 0.10% of the Portfolio's average daily net
assets on assets above $250 million.
The following replaces the section entitled "Management of the Variable
Portfolios--Value Opportunity" on page 20:
Value Opportunity Peter Canoni, Principal, Bradley, Foster & Sargent, Inc., has
been managing the Portfolio since October 1, 1998. Before joining Bradley, Mr.
Canoni was a Managing Director of Aeltus and the portfolio manager of Value
Opportunity from its inception in December 1996 through August 3, 1998. Mr.
Canoni had been with the Aetna organization since 1980 and has over 26 years of
investment experience.
The following new paragraph is added at the end of the section entitled
"Purchase and Redemption of Shares" on page 22:
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund and each Portfolio
reserves the right to reject any specific purchase or exchange request,
including a request made by a market timer.
The following replaces the reference to "Transfer, Dividend Disbursing and
Redemption Agent" on the back cover of the Prospectus:
TRANSFER, DIVIDEND DISBURSING
AND REDEMPTION AGENT
First Data Investors Services Group, Inc.
4400 Computer Drive
Westborough, Massachusetts 01581
4
<PAGE>
The following financial information replaces the section entitled
"Financial Highlights" on pages 3 through 7:
FINANCIAL HIGHLIGHTS
The selected data presented below for the periods ended December 31, 1997
is obtained from the Financial Statements of Aetna Variable Portfolios,
Inc., which have been audited by KPMG Peat Marwick LLP, independent
auditors. The selected data presented below for the six months ended June
30, 1998 have been taken from the records of the Portfolios, which are
unaudited.
Additional information about the performance of the Portfolios included in
this table is contained in the Fund's Annual and Semi-Annual Reports dated
December 31, 1997 and June 30, 1998, respectively. The Fund's Annual
Reports, the Independent Auditors' Reports thereon and the Fund's
Semi-Annual Reports are incorporated herein by reference and are available,
without charge, by writing to the Fund at the address listed on the cover
of this Prospectus or by calling 1-800-525-4225.
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
Growth International
----------------------------------------- --------------------------
Six month Period from Six month Period from
period ended Dec. 13, period ended Dec. 22,
June 30, Year ended 1996 to June 30, 1997 to
1998 Dec. 31, Dec. 31, 1998 Dec. 31,
(Unaudited) 1997 1996 (Unaudited) 1997
----------- ---- ---- ----------- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.846 $10.146 $10.000 $10.274 $10.000
------- ------- ------- ------- -------
Income From Investment Operations:
Net investment income 0.017 0.039 0.011 0.089 (0.002)
Net realized and change in unrealized gain or
loss on investments 2.253 3.271 0.147 2.163 0.276
------- ------- ------- ------- -------
Total from investment operations 2.270 3.310 0.158 2.252 0.274
------- ------- ------- ------- -------
Less Distributions:
From net investment income (loss) -- (0.034) (0.012) (0.011) --
From net realized gains on investments -- (3.576) -- -- --
------- -------- -------- ------- -------
Total distributions -- (3.610) (0.012) (0.011) --
------- -------- -------- ------- -------
Net asset value, end of period $12.116 $ 9.846 $10.146 $12.515 $10.274
======= ======== ======== ======= -------
Total Return* 23.05% 33.01% 1.57% 21.92% 2.74%
Net assets, end of period (000's) $48,596 $ 5,964 $ 5,175 $19,198 $15,412
Ratio of total expenses to average net assets 0.75%(1) 0.75% 0.67%(1) 1.15%(1) 1.15%(1)
Ratio of net investment income (loss) to
average net assets 0.57%(1) 0.29% 1.99%(1) 1.46%(1) (0.98)%(1)
Ratio of net expense before reimbursement
and waiver to average net assets -- -- -- 1.44%(1) --
Ratio of net investment income before
reimbursement and waiver to average net
assets -- -- -- 1.17%(1) --
Portfolio turnover rate 74.97% 207.41% 1.97% 80.86% 0.71%
Average commission rate paid per share on
equity securities traded $0.0414 $0.0589 $0.0364 $0.0250 $0.0440
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account
charges under variable annuity contracts and life policies.
5
<PAGE>
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
Mid Cap Small Company
------------------------------ -----------------------------------------
Six month Period from Six month Period from
period ended Dec. 17, period ended Dec. 27,
June 30, 1997 to June 30, Year ended 1996 to
1998 Dec. 31, 1998 Dec. 31, Dec. 31,
(Unaudited) 1997 (Unaudited) 1997 1996
----------- ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $102.167 $10.000 $12.770 $10.113 $10.000
------- ------- ------- -------- --------
Income From Investment Operations:
Net investment income 0.002 0.009 0.029 0.042 0.008
Net realized and change in unrealized gain or
loss on investments 1.083 0.171 0.881 3.439 0.115
------- ------- ------- -------- --------
Total from investment operations 1.085 0.180 0.910 3.481 0.123
------- ------- ------- -------- --------
Less Distributions:
From net investment income (0.002) (0.013) (0.005) (0.030) (0.010)
From net realized gains on investments -- -- (0.043) (0.794) --
------- ------- ------- -------- --------
Total distributions (0.002) (0.013) (0.048) (0.824) (0.010)
------- ------- ------- -------- --------
Net asset value, end of period $11.250 $10.167 $13.632 $12.770 $10.113
======== ======== ======= ======== ========
Total Return* 10.63% 1.80% 7.13% 34.49% 1.23%
Net assets, end of period (000's) $ 5,625 $ 5,084 $ 75,200 $18,102 $ 5,158
Ratio of total expenses to average net assets 0.95%(1) 0.95%(1) 0.89%(1) 0.90% 0.55%(1)
Ratio of net investment income to average net
assets 0.05%(1) 2.10%(1) 0.84%(1) 0.78% 5.96%(1)
Ratio of net expense before reimbursement
and waiver to average net assets 1.05%(1) -- -- -- --
Ratio of net investment income (loss) before
reimbursement and waiver to average net
assets (0.05)%(1) -- -- -- --
Portfolio turnover rate 81.58% 0.95% 99.35% 180.25% --
Average commission rate paid per share on
equity securities traded $0.0384 $0.0286 $ 0.0489 $0.0519 --
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account
charges under variable annuity contracts and life policies.
6
<PAGE>
<TABLE>
<CAPTION>
Value Opportunity Real Estate High Yield
- ---------------------------------------- ---------------------------- ----------------------------
Six month Period from Six month Period from Six month
period ended Dec. 13, period ended Dec. 15, period ended Period from
June 30, Year ended 1996 to June 30, 1997 to June 30, Dec. 10, 1997
1998 Dec. 31, Dec. 31, 1998 Dec. 31, 1998 to
(Unaudited) 1997 1996 (Unaudited) 1997 (Unaudited) Dec. 31, 1997
----------- ---- ---- ----------- ---- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$11.916 $10.199 $10.000 $10.306 $10.000 $10.098 $10.000
------- ------- ------- ------- ------- ------- -------
0.053 0.107 0.015 0.206 0.050 0.509 0.050
1.409 3.899 0.200 (0.598) 0.309 0.209 0.098
------- ------- ------- ------- ------- ------- -------
1.462 4.006 0.215 (0.392) 0.359 0.718 0.148
------- ------- ------- ------- ------- ------- -------
(0.006) (0.104) (0.016) -- (0.053) (0.049) (0.050)
(0.081) (2.185) -- -- -- (0.020) --
------- ------- ------- ------- ------- ------- -------
(0.087) (2.289) (0.016) -- (0.053) (0.069) (0.050)
------- ------- ------- ------- ------- ------- -------
$13.291 $11.916 $10.199 $ 9.914 $10.306 $10.747 $10.098
======= ======= ======= ======= ======= ======= =======
12.28% 39.36% 2.15% (3.88)% 3.59% 7.12% 1.48%
$56,595 $ 9,147 $ 5,202 $ 5,837 $ 5,153 $11,069 $10,098
0.74%(1) 0.75% 0.67%(1) 0.95%(1) 0.95%(1) 0.80%(1) 0.80%(1)
1.25%(1) 1.06% 2.73%(1) 4.75%(1) 9.99%(1) 8.99%(1) 7.81%(1)
-- -- -- 1.07%(1) -- 0.86%(1) --
-- -- -- 4.63%(1) -- 8.93%(1) --
66.64% 187.84% -- 29.38% -- 96.58% 69.39%
$0.0593 $0.0599 $0.0300 $0.0525 $0.0448 -- --
</TABLE>
7
<PAGE>
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
Index Plus Bond Index Plus Large Cap
------------------------------ -------------------------------------------
Six month Six month Period from
period ended Period from period ended Sept. 16,
June 30, Dec. 18, 1997 June 30, Year ended 1996 to
1998 to 1998 Dec. 31, Dec. 31,
(Unaudited) Dec. 31, 1997 (Unaudited) 1997 1996
--------------- -------------- ---------------------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.006 $10.000 $ 14.017 $ 10.906 $10.000
------- ------- -------- -------- -------
Income From Investment Operations:
Net investment income 0.289 0.022 0.065 0.102 0.047
Net realized and change in unrealized gain
or loss on investments 0.090 0.005 2.550 3.594 0.919
------- ------- -------- -------- -------
Total from investment operations 0.379 0.027 2.615 3.696 0.966
------- ------- -------- -------- -------
Less Distributions:
From net investment income (0.066) (0.021) (0.006) (0.096) (0.047)
From net realized gains on investments -- -- (0.091) (0.489) (0.013)
------- ------- -------- -------- -------
Total distributions (0.066) (0.021) (0.097) (0.585) (0.060)
------- ------- -------- -------- -------
Net asset value, end of period $10.319 $10.006 $ 16.535 $ 14.017 $10.906
======= ======= ======== ======== =======
Total Return* 3.76% 0.27% 18.66% 33.89% 9.64%
Net assets, end of period (000's) $15,602 $15,009 $281,057 $132,517 $19,410
Ratio of total expenses to average net
assets 0.45%(1) 0.45%(1) 0.48%(1) 0.50% 0.50%(1)
Ratio of net investment income to average
net assets 5.79%(1) 5.23%(1) 1.11%(1) 1.38% 1.89%(1)
Ratio of net expense before reimbursement
and waiver to average net assets 0.48%(1) -- -- -- --
Ratio of net investment income before
reimbursement and waiver to average net
assets 5.76%(1) -- -- -- --
Portfolio turnover rate 3.09% -- 54.54% 76.83% 5.18%
Average commission rate paid per share on
equity securities traded -- -- $ 0.0418 $ 0.0372 $0.0358
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account
charges under variable annuity contracts and life policies.
8
<PAGE>
<TABLE>
<CAPTION>
Index Plus Mid Cap Index Plus Small Cap
- ---------------------------- -------------------------------
Six month Period from Six month Period from
period ended Dec. 16, period ended Dec. 19,
June 30, 1997 to June 30, 1997 to
1998 Dec. 31, 1998 Dec. 31,
(Unaudited) 1997 (Unaudited) 1997
----------- ---- ----------- ----
<S> <C> <C> <C>
$10.342 $10.000 $10.423 $10.000
------ -------- ------- -------
0.029 0.006 0.013 0.007
0.960 0.344 0.451 0.426
------- ------- ------- -------
0.989 0.350 0.464 0.433
------- ------- ------- -------
-- (0.008) -- (0.010)
-- -- -- --
------- ------- -------- --------
-- (0.008) -- (0.010)
------- ------- -------- --------
$11.331 $10.342 $10.887 $10.423
======= ======= ======== ========
9.57% 3.50% 4.51% 4.33%
$ 8,814 $ 7,756 $ 8,630 $ 7,817
0.60%(1) 0.60%(1) 0.60%(1) 0.60%(1)
0.57%(1) 1.37%(1) 0.31%(1) 1.90%(1)
0.65%(1) -- 0.65%(1) --
0.52%(1) -- 0.26%(1) --
76.84% -- 62.97% --
$0.0249 $0.0481 $0.0252 $0.0797
</TABLE>
X.AETNA-98-4 October 1998
9
<PAGE>
AETNA VARIABLE PORTFOLIOS, INC.
Supplement dated October 1, 1998 to the Statement of
Additional Information dated May 1, 1998
The information in this Supplement for Aetna Variable Portfolios, Inc. (Fund)
updates and amends the information contained in the Statement of Additional
Information (Statement) dated May 1, 1998 and should be read with that Statement
and the Fund's Prospectus.
The following replaces the first table in the section entitled "Directors and
Officers" on pages 19 through 21:
<TABLE>
<CAPTION>
Position(s) Principal Occupation During Past Five Years
Held with (and Positions held with Affiliated Persons
Name Address and Age the Fund or Principal Underwriters of the Fund)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox* Director and President Director, Managing Director, Chief Operating Officer and
242 Trumbull Street Chief Financial Officer, Aeltus Investment Management,
Hartford, Connecticut Inc., October 1997 to present; Vice President, Aetna
Age 43 Retirement Services, Inc., April 1997 to present; Director
and Senior Vice President, Aetna Life Insurance and
Annuity Company, March 1997 to February 1998; Director,
Managing Director, Chief Operating Officer, Chief
Financial Officer and Treasurer, Aeltus, April 1994 to
March 1997; Managing Director and Treasurer, Equitable
Capital Management Corp., March 1987 to September 1993.
Wayne F. Baltzer Vice President Vice President, Aetna Investment Services, Inc., July 1993
242 Trumbull Street to present.
Hartford, Connecticut
Age 55
Albert E. DePrince, Jr. Director Professor, Middle Tennessee State University, 1991 to
3029 St. Johns Drive present.
Murfreesboro, Tennessee
Age 57
Amy R. Doberman Secretary Vice President, Law, Aeltus Investment Management, Inc.,
242 Trumbull Street April 1998 to present; Counsel, Aetna Life Insurance and
Hartford, Connecticut Annuity Company, December 1996 to present; Attorney,
Age 36 Securities and Exchange Commission, March 1990 to
November 1996.
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation and
Closter, New Jersey Alcohol Services, 1973 to present.
Age 55
David L. Grove Director, Chairperson Private Investor; Economic/Financial Consultant,
5 The Knoll Contract Committee December 1985 to present.
Armonk, New York
Age 80
John Y. Kim* Director Director, President, Chief Executive Officer and Chief
242 Trumbull Street Investment Officer, Aeltus Investment Management, Inc.,
Hartford, Connecticut December 1995 to present; Director, Aetna Life Insurance
Age 38 and Annuity Company, February 1995 to March 1998;
Senior Vice President, Aetna Life Insurance and Annuity
Company, September 1994 to present.
Sidney Koch Director Financial Adviser, self-employed, January 1993 to present.
455 East 86th Street
New York, New York
Age 63
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Position(s) Principal Occupation During Past Five Years
Held with (and Positions held with Affiliated Persons
Name Address and Age the Fund or Principal Underwriters of the Fund)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank Litwin Vice President Managing Director, Aeltus Investment Management, Inc.,
242 Trumbull Street August 1997 to present; Vice President, Fidelity
Hartford, Connecticut Investments Institutional Services Company, April 1992 to
Age 49 August 1997.
Shaun P. Mathews* Director Vice President/Senior Vice President, Aetna Life Insurance
151 Farmington Avenue and Annuity Company, March 1991 to present; Vice
Hartford, Connecticut President, Aetna Life Insurance Company, 1991 to present;
Age 43 Director and Senior Vice President, Aetna Investment
Services, Inc., July 1993 to present; Director and Senior
Vice President, Aetna Insurance Company of America,
September 1992 to present.
Corine T. Norgaard Director Dean of the Barney School of Business, University of
556 Wormwood Hill Hartford (West Hartford, CT), August 1996 to present;
Mansfield Center, Professor, Accounting and Dean of the School of
Connecticut Management, Binghamton University (Binghamton, NY),
Age 61 August 1993 to August 1996; Professor, Accounting,
University of Connecticut (Storrs, CT), September 1969 to
June 1993; Director, The Advest Group (holding company for
brokerage firm) through September 1996.
Richard G. Scheide Director, Chairperson Trust and Private Banking Consultant, David Ross Palmer
11 Lily Street Audit Committee Consultants, July 1991 to present.
Nantucket, Massachusetts
Age 69
Stephanie A. DeSisto Vice President, Treasurer Vice President Mutual Fund Accounting, Aeltus
242 Trumbull Street and Chief Financial Investment Management, Inc., November 1995 to present;
Hartford, Connecticut Officer Director Mutual Fund Accounting, Aetna Life Insurance
Age 45 and Annuity Company, August 1994 to November 1995;
Assistant Vice President, Investors Bank & Trust,
January 1993 to August 1994.
</TABLE>
* Indicates those Directors who are interested persons as defined in the
Investment Company Act of 1940 (1940 Act).
The following replaces the section entitled "Control Persons and Principal
Shareholders" on page 22:
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of August 31, 1998, Aetna Life Insurance Company (ALIC) owned 77.03% of Aetna
International VP's outstanding voting securities, and Aetna Life Insurance and
Annuity Company (Aetna) had a controlling interest in the following Portfolios:
<TABLE>
<CAPTION>
% Aetna
<S> <C>
Aetna Value Opportunity VP 92.26%
Aetna Growth VP 94.05%
Aetna Index Plus Large Cap VP 96.82%
Aetna Small Company VP 95.19%
Aetna Index Plus Bond VP 100.00%
Aetna Index Plus Mid Cap VP 100.00%
Aetna Mid Cap VP 100.00%
Aetna Index Plus Small Cap VP 100.00%
Aetna High Yield VP 100.00%
Aetna Real Estate Securities VP 99.38%
</TABLE>
Shares of the Portfolios may be owned directly by insurance companies or by
insurance companies as depositors of separate accounts which are used to fund
variable annuity contracts (VA Contracts) and variable life insurance policies
(VLI Policies). See "Voting Rights".
2
<PAGE>
As of August 31, 1998, officers and Directors owned less than 1% of the
outstanding shares of any of the Portfolios.
Aetna (like Aeltus) is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc., which is in turn an indirect wholly-owned subsidiary of Aetna
Inc. ALIC is a wholly-owned subsidiary of Aetna Services, Inc. which is in turn
a wholly-owned subsidiary of Aetna Inc. Aetna's and ALIC's principal office is
located at 151 Farmington Avenue, Hartford, Connecticut 06156. Aetna is
registered with the Commission as an investment adviser.
The following new information is added prior to the section entitled "The
Administrative Services Agreement" on page 23:
THE SUBADVISORY AGREEMENT
Aeltus and the Fund, on behalf of Aetna Value Opportunity VP (Value
Opportunity), have entered into an agreement (Subadvisory Agreement) with
Bradley, Foster & Sargent, Inc. (Bradley) effective October 1, 1998 appointing
Bradley as subadviser of Value Opportunity. Bradley is managed by its six
principals, Robert H. Bradley, Peter B. Canoni, Timothy H. Foster, Jeffrey G.
Marsted, J. Edward Roney, Jr., and Joseph D. Sargent. The Subadvisory Agreement
was approved by the Fund's Directors on June 24, 1998 and approved by the
shareholders of Value Opportunity on September 4, 1998. The Subadvisory
Agreement will be effective through December 31, 1999. The Subadvisory Agreement
will remain in effect thereafter if approved at least annually by a majority of
the Directors, including a majority of the Independent Directors of the Fund, at
a meeting called for that purpose and held in person. The Subadvisory Agreement
may be terminated without penalty at any time by the Directors or by a majority
of the outstanding voting securities of Value Opportunity or on sixty (60) days'
written notice by Aeltus, the Fund or the Subadviser. The Subadvisory Agreement
terminates automatically in the event of its assignment.
The Subadvisory Agreement gives Bradley broad latitude to select securities for
Value Opportunity consistent with the investment objective and policies of that
Portfolio, and subject to Aeltus' oversight. The Agreement contemplates that
Bradley will be responsible only for making and communicating investment
decisions. Aeltus will remain responsible for all other aspects of managing and
administering Value Opportunity, including trade execution.
For the services under the Subadvisory Agreement, Bradley will receive an annual
fee payable monthly as described in the Prospectus.
The following replaces the section entitled "Performance Information" on Pages
26 through 28:
PERFORMANCE INFORMATION
Performance information for each Portfolio including the yield of High Yield VP
and Index Plus Bond VP and the total return of all Portfolios, may appear in
reports or promotional literature to current or prospective shareholders.
Average Annual Total Return
Total return of a Portfolio for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $1,000 investment
in the Portfolio made at the beginning of each period, then calculating the
average annual compounded rate of return which would produce the same investment
return on the $1,000 investment in the Portfolio during that period. Total
return calculations assume that all Portfolio distributions are reinvested at
net asset value on their respective reinvestment dates.
From time to time, Aeltus may reduce its compensation or assume expenses in
respect of the operations of a Portfolio in order to reduce the Portfolio's
expenses. Any such waiver or assumption would increase a Portfolio's yield and
total return during the period of the waiver or assumption.
The performance of the Portfolios may, from time to time, be compared to that of
other mutual funds tracked by mutual fund rating services, to broad groups of
comparable mutual funds, or to unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
The performance of the Portfolios are commonly measured as total return. An
average annual compounded rate of return (T) may be computed by using the
redeemable value at the end of a specified period (ERV) of a hypothetical
initial investment of $1,000 (P) over a period of time (n) according to a
formula:
P(1 + T)(n) = ERV
3
<PAGE>
Total Return Quotations as of August 31, 1998:
<TABLE>
<CAPTION>
1 Year Since Inception Inception Date
<S> <C> <C> <C>
High Yield N/A 0.54% 12/10/97
Real Estate N/A -12.96% 12/15/97
Value Opportunity -8.04% 14.95% 12/13/96
Growth 4.63% 19.80% 12/13/96
Mid Cap N/A -13.58% 12/17/97
Small Company -15.79% 6.09% 12/27/96
International N/A 10.10% 12/22/97
Index Plus Large Cap 9.68% 22.38% 09/16/96
Index Plus Mid Cap N/A -9.03% 12/16/97
Index Plus Small Cap N/A -16.82% 12/19/97
Index Plus Bond N/A 5.29% 12/18/97
</TABLE>
Investors should not consider this performance data as an indication of the
future performance of any of the Portfolios of the Fund.
A Portfolio's investment results will vary from time to time depending upon
market conditions, the composition of its investment portfolio and its operating
expenses. Performance information of any Portfolio will not be compared in
advertisements with such information for funds that offer their shares directly
to the public, because Portfolio performance data does not reflect charges
imposed by the insurance company on the VA Contracts and VLI Policies. The total
return for a Portfolio should be distinguished from the rate of return of a
corresponding division of the insurance company's separate account, which rate
will reflect the deduction of additional insurance charges, including mortality
and expense risk charges, and will therefore be lower. Accordingly, performance
figures for a Portfolio will only be advertised publicly if comparable
performance figures for the corresponding division of the separate account are
included in the advertisements. VA Contract owners and VLI Policy owners should
consult their contract and policy prospectuses, respectively, for further
information. Each Portfolio's results also should be considered relative to the
risks associated with its investment objectives and policies.
30-Day Yield
Quotations of yield for High Yield and Index Plus Bond will be based on all
investment income per share earned during a particular 30-day period, less
expenses accrued during the period (net investment income), and will be computed
by dividing net investment income by the value of a share on the last day of the
period, according to the following formula:
YIELD = 2 [(a-b) + 1)(6) - 1]
---
cd
Where:
a = dividends and interest earned during the period
b = the expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
The yield for High Yield and Index Plus Bond for the 30-day period ended August
31, 1998 was 10.37% and 5.75%, respectively.
The following replaces the section entitled "Financial Statements" on Page 34:
The Financial Statements and the independent auditors' reports, thereon,
appearing in the Fund's Annual Report for the fiscal year ended December 31,
1997 (for Value Opportunity, Growth, Small Company and Index Plus Large Cap) are
incorporated by reference in this Statement of Additional Information. The
Financial Statements and the independent auditors' reports, thereon, for the
periods ended December 31, 1997 (for High Yield (formerly Aetna High Yield
Portfolio), International (formerly Aetna International Portfolio), Mid Cap
(formerly Aetna Mid Cap Portfolio), Real Estate (formerly Aetna Real Estate
Securities Portfolio), Index Plus Bond (formerly Aetna Index Plus Bond
Portfolio), Index Plus Mid Cap (formerly Aetna Index Plus Mid Cap Portfolio),
and Index Plus Small Cap (formerly Aetna Index Plus Small Cap Portfolio)) are
presented below. The Financial Statements (unaudited) appearing in the Fund's
Semi-Annual Report for all Portfolios for the six months ended June 30, 1998 are
incorporated by reference in this Statement of Additional Information. The
Fund's Annual and Semi-Annual Reports are available upon request and without
charge by calling 1-800-525-4225 or by writing to Aetna Variable Portfolios,
Inc. at 151 Farmington Avenue, Hartford, CT 06156.
4
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna High Yield Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
-------------- --------------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (96.8%)
Corporate Bonds (94.3%)
Acme Metal, Inc., 10.88%, 12/15/07[dbldag] ............... $ 250,000 $ 247,188
Alliance Imaging, 9.63%, 12/15/05[dbldag] ................ 400,000 408,000
America Lawyer Holding, 12.25%, 12/15/08[dbldag] ......... 250,000 141,250
American Banknote Corp., 11.25%, 12/01/07[dbldag] ........ 300,000 300,750
American Lawyer Media, 9.75%, 12/15/07[dbldag] ........... 300,000 304,500
Ameristar Casinos, Inc., 10.50%, 08/01/04[dbldag] ........ 250,000 252,500
Amscan Holdings, Inc., 9.88%, 12/15/07[dbldag] ........... 250,000 255,625
Casino Magic-Louisiana, 13.00%, 08/15/03 ................. 250,000 238,750
Equimar Shipholdings Ltd., 9.88%, 07/01/07[dbldag] ....... 250,000 233,750
Esprit Telecom Group PLC, 11.50%, 12/15/07 ............... 250,000 257,500
Fox Kids Worldwide, Inc., 9.25%, 11/01/07[dbldag] ........ 500,000 483,750
Galaxy Telecom L.P., 12.38%, 10/01/05 .................... 250,000 276,250
Hollywood Casino Corp., 12.75%, 11/01/03 ................. 500,000 538,749
Intelcom Group, Inc., Zero Coupon, 05/01/06 .............. 250,000 188,750
Intermedia Communications of Florida, Zero
Coupon, 05/15/06 ....................................... 350,000 274,750
Iridium LLC/Capital Corp., 11.25%, 07/15/05[dbldag] ...... 500,000 493,750
Jones Intercable, Inc., 9.63%, 03/15/02 .................. 400,000 428,000
Jordan Telecom Products, 9.88%, 08/01/07[dbldag] ......... 250,000 255,625
Majestic Star Casino LLC, 12.75%, 05/15/03 ............... 500,000 537,500
Metronet Communications, Zero Coupon,
11/01/07[dbldag] ....................................... 500,000 308,750
Microcell Telecommunications, Zero Coupon,
06/01/06 ............................................... 500,000 337,500
Nextel Communications, Inc., Zero Coupon,
01/15/04 ............................................... 500,000 451,250
Penn National Gaming, Inc., 10.63%, 12/15/04[dbldag] ..... 400,000 414,000
Perry--Judd, 10.63%, 12/15/07[dbldag] .................... 500,000 520,000
Pillowtex Corp., 9.00%, 12/15/07[dbldag] ................. 300,000 307,500
Richmont Marketing Special, 10.13%, 12/15/07[dbldag] 300,000 304,500
Star Choice Communication, 13.00%, 12/15/05 .............. 250,000 257,500
Trench Electric & Trench, Inc., 10.25%,
12/15/07[dbldag] ....................................... 500,000 508,750
-----------
Total Corporate Bonds (cost $9,449,839) 9,526,687
-----------
U.S. Government Obligations (2.5%)
U. S. Treasury Note, 5.63%, 12/31/02 ..................... 250,000 249,141
-----------
Total U.S. Government Obligations
(cost $248,458) 249,141
-----------
Total Long-Term Bonds and Notes
(cost $9,698,297) 9,775,828
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
-------------- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.5%)
Federal Home Loan Bank, Comm. Paper, 4.90%,
01/02/98 ............................................... $ 254,000 $ 254,000
-----------
Total Short-Term Investments (cost $254,000) 254,000
-----------
TOTAL INVESTMENTS (cost $9,952,297)(a) 10,029,828
Other assets less liabilities 68,584
-----------
Total Net Assets $10,098,412
===========
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, 1997,
are as follows:
Unrealized gains ......................................... $ 95,830
Unrealized losses ........................................ (18,299)
-----------
Net unrealized gain ..................................... $ 77,531
===========
</TABLE>
[dbldag] Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant 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.
Category percentages are based on net assets.
See Notes to Financial Statements. 5
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Assets and Liabilities--December 31, 1997
Aetna High Yield Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value ............................................................. $ 10,029,828
Cash ..................................................................................... 494
Receivable for:
Dividends and interest .................................................................. 123,163
------------
Total assets .......................................................................... 10,153,485
------------
Liabilities:
Payable for:
Dividends to shareholders ............................................................... 50,000
Accrued investment advisory fees ......................................................... 4,134
Accrued administrative services fees ..................................................... 939
------------
Total liabilities ..................................................................... 55,073
------------
NET ASSETS .............................................................................. $ 10,098,412
============
Net assets represented by:
Paid-in capital .......................................................................... $ 10,000,000
Net unrealized gain on investments ....................................................... 77,531
Accumulated net realized gain on investments ............................................. 20,881
------------
NET ASSETS .............................................................................. $ 10,098,412
============
Capital Shares, $0.001 par value:
Outstanding .............................................................................. 1,000,000
Net Asset Value, offering and redemption price per share (net assets divided by shares $ 10.098
outstanding)
Cost of investments ...................................................................... $ 9,952,297
</TABLE>
6 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Operations--Period from December 10, 1997 to December 31, 1997
Aetna High Yield Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest ................................................................. $ 54,752
--------
Total investment income ............................................... 54,752
--------
Expenses:
Investment advisory fee .................................................. 4,133
Administrative services fees ............................................. 954
--------
Total expenses ........................................................ 5,087
--------
Net investment income .................................................... 49,665
--------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ..................................................... 21,216
--------
Net realized gain on investments ...................................... 21,216
--------
Net change in unrealized gain or loss on:
Investments ............................................................. 77,531
--------
Net change in unrealized gain or loss on investments .................. 77,531
--------
Net realized and change in unrealized gain (loss) on investments ......... 98,747
--------
Net increase in net assets resulting from operations ..................... $148,412
========
</TABLE>
See Notes to Financial Statements. 7
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Changes in Net Assets
Aetna High Yield Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 10, 1997
to December 31, 1997
---------------------
<S> <C>
Operations:
Net investment income ................................................ $ 49,665
Net realized gain on investments ..................................... 21,216
Net change in unrealized gain or loss on investments ................. 77,531
-----------
Net increase in net assets resulting from operations ............... 148,412
-----------
Distributions to Shareholders:
From net investment income ........................................... (50,000)
-----------
Decrease in net assets from distributions to shareholders .......... (50,000)
-----------
Fund Share Transactions:
Proceeds from shares sold ............................................ 10,000,000
-----------
Net increase in net assets from fund share transactions ............ 10,000,000
-----------
Net change in net assets ............................................. 10,098,412
Net assets:
Beginning of period .................................................. --
-----------
End of period ........................................................ $10,098,412
===========
End of period net assets includes undistributed net investment income --
===========
Share Transactions:
Number of shares sold ................................................ 1,000,000
-----------
Net increase ....................................................... 1,000,000
===========
</TABLE>
8 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna High Yield Portfolio
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
organized under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate Portfolios each of which has its
own investment objective, policies and restrictions.
The Fund offers eleven Portfolios, one of which, Aetna High Yield Portfolio
(Portfolio), which commenced operations on December 10, 1997, is described in
this report.
The Portfolio seeks high current income and growth of capital primarily through
investment in a diversified portfolio of fixed income securities.
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. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as a
subadviser to the Portfolio.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
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. Securities below investment grade (rated
BB and below) are valued at the bid price. Short-term investments maturing in
more than sixty days for which market quotations are readily available are
valued at current market value. Short-term investments maturing in less than
sixty days are valued at amortized cost, which when combined with accrued
interest, approximates market value. Securities for which market quotations are
not considered to be readily available are valued using methods approved by the
Board of Directors.
B. Illiquid and Restricted Securities
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Portfolio to sell them promptly at
an acceptable price. Restricted securities are subject to legal or contractual
restrictions on resale and may not be publicly sold without registration under
the Securities Act of 1933 (the 1933 Act), under Rule 144(A) or are securities
offered pursuant to Section 4(2) of the 1933 Act. The Portfolio may invest up to
15% of its total assets in illiquid securities. Illiquid and restricted
securities are valued using market quotations when readily available. In the
absence of market quotations, the securities are valued based upon their fair
value determined under procedures approved by the Board of Directors. The
Portfolio will not pay the costs of disposition of restricted securities other
than ordinary brokerage fees, if any.
C. Federal Income Taxes
As a qualified regulated investment company, the Portfolio 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.
9
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna High Yield Portfolio (continued)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
D. Distributions
The Portfolio distributes all of its net investment income and capital gains, if
any, to 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 due to distributions in excess of ordinary income
reclassified as income against short-term capital gains.
E. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, 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 Fee and Other Expenses
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.65% of its average daily net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and 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, directors' 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 average daily net assets of the Portfolio.
Under the terms of a Subadvisory Agreement among the Portfolio, ALIAC and
Aeltus, Aeltus supervises the investment and reinvestment of cash and securities
and provides certain related administrative services to the Portfolio in
exchange for a fee (payable by ALIAC) of up to 0.40% of average daily net assets
of the Portfolio. For the period ended December 31, 1997, ALIAC paid Aeltus
$2,541 in accordance with the terms of the Subadvisory Agreement.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended December 31, 1997, were $16,452,858 and $6,783,711
respectively.
5. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Portfolio's capital accounts
on a tax baisis. These reclassifications have no impact on the net asset value
of the Portfolio.
<TABLE>
<CAPTION>
Undistributed Net Accumulated Net Realized
Investment Income Gain (Loss) on Investments
Paid-in Capital Increase Decrease
----------------- ------------------- --------------------------
<S> <C> <C>
-- $335 ($335)
</TABLE>
10
<PAGE>
Aetna Variable Portfolios, Inc.
Financial Highlights
Aetna High Yield Portfolio
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout the period.
<TABLE>
<CAPTION>
Period from
December 10, 1997
to December 31, 1997
---------------------
<S> <C>
Net asset value, beginning of period ......................... $ 10.000
----------
Income from investment operations:
Net investment income ....................................... 0.050
Net realized and unrealized gain on investments ............. 0.098
----------
Total from investment operations ........................... 0.148
----------
Less distributions:
From net investment income .................................. ( 0.050)
----------
Total distributions ........................................ ( 0.050)
----------
Net asset value, end of period ............................... $ 10.098
==========
Total return* ................................................ 1.48%
Net assets, end of period (000's) ............................ $ 10,098
Ratio of total expenses to average net assets ................ 0.80%(1)
Ratio of net investment income to average net assets ......... 7.81%(1)
Portfolio turnover rate ...................................... 69.39%
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
See Notes to Financial Statements. 11
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
High Yield Portfolio, a portfolio of Aetna Variable Portfolios, Inc. (the
Portfolio), including the portfolio of investments, as of December 31, 1997, and
the related statements of operations, changes in net assets and the financial
highlights for the period from December 10, 1997 (date of commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio'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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1997, 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
High Yield Portfolio, as of December 31, 1997, the results of its operations,
changes in its net assets and financial highlights for the period from December
10, 1997 to December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
12
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna International Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ --------------
<S> <C> <C>
COMMON STOCKS (95.1%)
Argentina (1.2%)
Banco de Galicia y Buenos Aires SA (Banks) ........ 5,200 $ 133,900
YPF Sociedad Anonima (Oil and Gas) ................ 1,500 51,281
-----------
Total Argentina 185,181
-----------
Australia (3.9%)
Goodman Fielder Ltd. (Foods and Beverages) ........ 113,400 180,281
Mayne Nickless Ltd. (Commercial Services) ......... 13,700 72,392
Westpac Banking Corp. Ltd. (Banks) ................ 29,000 185,473
Woolworth Ltd. (Foods and Beverages) .............. 49,700 166,120
-----------
Total Australia 604,266
-----------
Belgium (1.8%)
Delhaize-Le Lion, SA (Foods and Beverages) ........ 2,500 126,852
Societe Generale De Belgique
(Financial Services) ............................ 1,650 150,968
-----------
Total Belgium 277,820
-----------
Brazil (1.1%)
Telecomunicaciones Brasileiras SA
(Utilities--Telephone) .......................... 1,400 163,013
-----------
Canada (2.7%)
Canadian Imperial Bank of Commerce (Banks) ........ 4,300 134,013
Canadian National Railway Co. (Transportation) 3,000 141,750
Petro-Canada (Oil and Gas) ........................ 7,400 134,447
-----------
Total Canada 410,210
-----------
Denmark (4.3%)
Bang Olufsen Holding Co. (Electronics) ............ 2,300 137,045
Carli Gry International A/S (Apparel) ............. 2,600 146,187
Novo-Nordisk A/S (Pharmaceuticals) ................ 1,750 250,459
Unidanmark A/S (Banks) ............................ 1,850 135,898
-----------
Total Denmark 669,589
-----------
Finland (2.2%)
Huhtamaki Group (Diversified) ..................... 3,100 128,084
UPM-Kymmene Corp. (Paper and Containers) .......... 5,100 101,894
Valmet Oyj (Diversified) .......................... 8,200 113,085
-----------
Total Finland 343,063
-----------
France (8.8%)
Accor SA (Hotels and Restaurants) ................. 950 176,704
Alcatel Alsthom (Telecommunications) .............. 1,450 184,383
Credit Commercial de France (Banks) ............... 2,700 185,131
Elf Aquitaine SA (Oil and Gas) .................... 1,200 139,628
Gemini Sogeti SA (Insurance) ...................... 1,850 151,758
Lafarge SA (Building Materials and
Construction) ................................... 2,900 190,361
Pernod Ricard (Foods and Beverages) ............... 1,000 58,843
Schneider SA (Machinery and Equipment) ............ 2,200 119,508
Union des Assurances Federales (Insurance) ........ 1,100 144,448
-----------
Total France 1,350,764
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ --------------
<S> <C> <C>
Germany (7.4%)
Bayerische Hypotheken-und Wechsel-Bank AG
(Banks) ......................................... 2,950 $ 143,148
Deutsche Lufthansa AG (Transportation) ............ 6,700 125,948
Deutsche Pfandbrief & Hypothekenbank AG
(Banks) ......................................... 2,900 171,769
Gehe AG (Health Services) ......................... 2,700 136,648
Mannesmann AG (Machinery and Equipment) ........... 350 175,774
VEBA AG (Utilities--Electric) ..................... 2,000 136,259
Viag AG (Diversified) ............................. 250 136,954
Volkswagen AG (Autos and Auto Equipment) .......... 200 111,788
-----------
Total Germany 1,138,288
-----------
Hong Kong (1.4%)
Hutchison Whampoa Ltd. (Diversified) .............. 25,000 156,482
Peregrine Investments Holdings Ltd.
(Financial Services) ............................ 88,000 62,464
-----------
Total Hong Kong 218,946
-----------
India (0.6%)
Videsh Sanchar Nigam Ltd.
(Telecommunications)+ ........................... 6,300 88,358
-----------
Indonesia (0.2%)
Putra Surya Multidana (Financial Services)+ ....... 300,000 28,662
-----------
Ireland (2.4%)
Iona Technologies Plc, ADR
(Consumer Products)+ ............................ 5,400 110,700
Irish Life Plc (Insurance) ........................ 23,000 132,111
Waterford Wedgewood
(Home Furnishings and Appliances) ............... 94,000 127,279
-----------
Total Ireland 370,090
-----------
Italy (5.0%)
Assicurazioni Generali (Insurance) ................ 5,800 142,536
Credito Italiano (Banks) .......................... 55,600 171,544
La Rinascente S.p.A. (Retail) ..................... 22,400 167,235
Pirelli & Co. (Financial Services) ................ 92,300 149,305
Telecom Italia S.p.A. (Utilities--Telephone)+ ..... 22,400 143,163
-----------
Total Italy 773,783
-----------
Japan (9.7%)
Bank of Tokyo-Mitsubishi (Banks) .................. 7,000 96,904
Capcom Company
(Computers and Office Equipment) ................ 6,000 61,834
Dai Nippon Ink & Chemicals, Inc. (Chemicals) ...... 30,000 76,139
Daiichi Pharmaceutical (Pharmaceuticals) .......... 11,000 124,361
DDI Corp. (Utilities--Telephone) .................. 20 53,067
Exedy Corp. (Autos and Auto Equipment) ............ 6,000 45,637
Fuji Photo Film (Chemicals) ....................... 4,000 153,817
Hoya Corp. (Medical Supplies) ..................... 4,000 126,130
Matsushita Kotobuki Electronics Industries
(Electronics) ................................... 3,000 75,678
Minebea Co. Ltd. (Electronics) .................... 13,000 139,973
Seino Transportation Co., Ltd. (Diversified) ...... 21,000 105,141
</TABLE>
See Notes to Portfolio of Investments. 13
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna International Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ --------------
<S> <C> <C>
Japan (continued)
Sony Corp. (Electronics) ........................ 2,300 $ 205,191
Takefuji Corp. (Banks) .......................... 3,000 138,204
West Japan Railway (Transportation) ............. 30 95,982
-----------
Total Japan 1,498,058
-----------
Mexico (2.9%)
Cifra SA (Retail) ............................... 35,900 80,599
Grupo Financiero Banamex Accival
(Financial Services) .......................... 42,800 128,209
Grupo Radio Centro SA
(Media and Entertainment) ..................... 3,700 52,725
Panamerican Beverages, Inc.
(Foods and Beverages)+ ........................ 5,700 185,963
-----------
Total Mexico 447,496
-----------
Netherlands (5.6%)
Akzo Nobel NV (Chemicals) ....................... 800 137,960
Bols Wessanen CVA (Foods and Beverages) ......... 3,600 55,760
ING Groep NV (Banks) ............................ 3,600 151,654
KLM Royal Dutch Air Line (Transportation) ....... 1,500 55,494
Philips Electronics NV (Electronics) ............ 1,800 107,969
Vendex International NV (Retail) ................ 2,700 149,034
VNU-Verenigde Nederlandse Uitgeversbedrijven
Verenigd Bezit (Printing and Publishing) ...... 7,100 200,331
-----------
Total Netherlands 858,202
-----------
New Zealand (0.4%)
Fernz Corp., Ltd. (Chemicals) ................... 25,300 65,372
-----------
Norway (5.8%)
Christiania Bank Og Kredkasse (Banks) ........... 37,100 149,962
Det Sondenfjelds-Norske Dampskibsselskab
(Oil and Gas)+ ................................ 7,800 162,932
Merkantildata ASA (Computer Software) ........... 1,300 44,789
Ocean Rig ASA (Oil and Gas)+ .................... 162,000 171,396
Saga Petroleum ASA, Class A (Oil and Gas) ....... 4,700 80,964
Tandberg Television ASA
(Telecommunications)+ ......................... 13,300 153,342
Tomra Systems ASA (Paper and Containers) ........ 5,600 125,332
-----------
Total Norway 888,717
-----------
Portugal (0.7%)
Portugal Telecom SA SP ADR
(Utilities--Telephone) ........................ 2,300 108,100
-----------
Singapore (0.5%)
Jardine Matheson Holdings (Diversified) ......... 16,000 81,600
-----------
Spain (2.8%)
Cortefiel, SA (Retail) .......................... 5,400 108,411
Iberdrola SA (Utilities--Electric) .............. 11,100 146,014
Telefonica de Espana (Utilities--Telephone) ..... 6,200 176,945
-----------
Total Spain 431,370
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ --------------
<S> <C> <C>
Sweden (4.3%)
Ericsson ADR (Telecommunications) ............... 2,900 $ 108,206
Oxigene, Inc. (Pharmaceuticals)+ ................ 3,400 60,847
Prosolvia AB (Computers and Office
Equipment)+ ................................... 4,300 171,792
Skandia Forsakrings AB (Insurance) .............. 3,000 141,595
Svenska Handelsbanken (Financial Services) ...... 5,100 176,436
-----------
Total Sweden 658,876
-----------
Switzerland (5.3%)
Credit Suisse Group (Banks) ..................... 1,200 185,932
Georg Fischer AG (Machinery and Equipment) ...... 80 109,694
Kuoni Reisen AG (Commercial Services) ........... 35 131,376
Nestle SA Registered Shares
(Foods and Beverages) ......................... 75 112,557
Novartis AG Registered Shares
(Health Services) ............................. 135 219,354
Union Bank of Switzerland (Banks) ............... 40 57,919
-----------
Total Switzerland 816,832
-----------
United Kingdom (13.6%)
3i Group Plc (Financial Services) ............... 8,600 71,458
Bank of Scotland (Banks) ........................ 17,400 158,319
Barclays Plc (Financial Services) ............... 3,800 101,337
Boots Co. Plc (Retail) .......................... 11,200 161,521
Cadbury Schweppes Plc (Foods and
Beverages) .................................... 4,000 40,441
Glaxo Wellcome Plc (Pharmaceuticals) ............ 5,700 136,127
Granada Group Plc (Diversified) ................. 13,200 201,983
Lonrho Plc (Diversified) ........................ 68,200 105,480
Morgan Crucible Plc (Diversified) ............... 18,500 140,932
National Westminster Bank Plc (Banks) ........... 10,500 174,835
NFC Plc (Transportation) ........................ 20,300 50,101
Pearson Plc (Printing and Publishing) ........... 7,700 100,213
Shell Transport & Trading Co. (Oil and Gas) ..... 24,800 174,236
Tomkins Plc (Diversified) ....................... 18,700 88,612
Unilever Plc (Consumer Products) ................ 22,200 191,291
Vodafone Group Plc (Telecommunications) ......... 28,200 204,155
-----------
Total United Kingdom 2,101,041
-----------
Venezuela (0.5%)
Compania Anonima Nacional Telefonos de
Venezuela (Utilities--Telephone) .............. 2,000 83,250
-----------
Total Common Stocks (cost $14,262,816) 14,660,947
-----------
PREFERRED STOCKS (1.4%)
Germany (1.4%)
Henkel KGAA (Chemicals) ......................... 2,450 153,291
Hugo Boss AG (Apparel) .......................... 50 63,958
-----------
Total Preferred Stocks (cost $212,660) 217,249
-----------
</TABLE>
14 See Notes to Portfolio of Investments.
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna International Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
---------- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.4%)
Federal Home Loan Bank, Comm. Paper, 7.50%,
01/02/98 ................................ $831,000 $ 831,000
-----------
Total Short-Term Investments
(cost $830,881) 831,000
-----------
TOTAL INVESTMENTS (cost $15,306,357)(a) 15,709,196
Other assets less liabilities (297,588)
-----------
Total Net Assets $15,411,608
===========
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$15,318,628. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains .......................... $ 456,667
Unrealized losses ......................... (66,099)
-----------
Net unrealized gain ...................... $ 390,568
===========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 15
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Assets and Liabilities--December 31, 1997
Aetna International Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value ..................................................... $15,709,196
Cash ............................................................................. 787
Receivable for:
Investments sold ................................................................ 651,649
Gross unrealized gain on forward foreign currency exchange contracts ............. 13,930
-----------
Total assets .................................................................. 16,375,562
-----------
Liabilities:
Payable for:
Investments purchased ........................................................... 958,633
Accrued investment advisory fees ................................................. 3,178
Accrued administrative services fees ............................................. 1,122
Gross unrealized loss on forward foreign currency exchange contracts ............. 1,021
Total liabilities ............................................................. 963,954
-----------
NET ASSETS ...................................................................... $15,411,608
===========
Net assets represented by:
Paid-in capital .................................................................. $15,000,000
Net unrealized gain on investments and foreign currency related transactions ..... 417,940
Undistributed net investment income .............................................. 8,604
Accumulated net realized loss on investments ..................................... (14,936)
-----------
NET ASSETS ...................................................................... $15,411,608
===========
Capital Shares, $0.001 par value:
Outstanding ...................................................................... 1,500,000
Net asset value per share (net assets divided by shares outstanding) ............. $ 10.274
Cost of investments .............................................................. $15,306,357
</TABLE>
16 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Operations--Period from December 22, 1997 to December 31, 1997
Aetna International Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest ................................................................. $ 633
--------
Total investment income ............................................... 633
--------
Expenses:
Investment advisory fees ................................................. 3,178
Administrative services fees ............................................. 1,122
--------
Total expenses ........................................................ 4,300
--------
Net investment loss ...................................................... (3,667)
--------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ..................................................... (2,665)
--------
Net realized loss on investments ...................................... (2,665)
--------
Net change in unrealized gain or loss on:
Investments ............................................................. 402,839
Forward foreign currency exchange contracts ............................. 12,909
Foreign currency related transactions ................................... 2,192
--------
Net change in unrealized gain or loss on investments .................. 417,940
--------
Net realized and change in unrealized gain (loss) on investments ......... 415,275
--------
Net increase in net assets resulting from operations ..................... $411,608
========
</TABLE>
See Notes to Financial Statements. 17
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Changes in Net Assets
Aetna International Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 22,1997
to December 31, 1997
---------------------
<S> <C>
Operations:
Net investment loss .................................................. $ (3,667)
Net realized loss on investments ..................................... (2,665)
Net change in unrealized gain or loss on investments ................. 417,940
-----------
Net increase in net assets resulting from operations ............... 411,608
-----------
Fund Share Transactions:
Proceeds from shares sold ............................................ 15,000,000
-----------
Net increase in net assets from fund share transactions ............ 15,000,000
-----------
Net change in net assets ............................................. 15,411,608
===========
Net assets:
Beginning of period .................................................. --
-----------
End of period ........................................................ $15,411,608
===========
End of period net assets includes undistributed net investment income $ 8,604
===========
Share Transactions:
Number of shares sold ................................................ 1,500,000
-----------
Net increase ....................................................... 1,500,000
===========
</TABLE>
18 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna International Portfolio
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
organized under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate Portfolios each of which has its
own investment objective, policies and restrictions.
The Fund offers eleven Portfolios, one of which, Aetna International Portfolio
(Portfolio), which commenced operations on December 22, 1997, is described in
this report.
The Portfolio seeks long-term capital growth primarily through investment in a
diversified portfolio of common stocks principally traded in countries outside
of the United States.
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. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as a
subadviser to the Portfolio.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or for over-the-counter securities, at
the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued using methods approved by the
Board of Directors.
The accounting records of the Portfolio 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.
B. Federal Income Taxes
As a qualified regulated investment company, the Portfolio 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.
C. Distributions
The Portfolio distributes all of its net investment income and capital gains, if
any, to 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 losses deferred due to wash sales and
certain foreign currency transactions.
19
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna International Portfolio (continued)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
D. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, 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 Fee and Other Expenses
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.85% of its average daily net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and 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, directors' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at a rate of 0.30% of the average daily net assets of the Portfolio.
Under the terms of a Subadvisory Agreement among the Portfolio, ALIAC and
Aeltus, Aeltus supervises the investment and reinvestment of cash and securities
and provides certain related administrative services to the Portfolio in
exchange for a fee (payable by ALIAC) of up to 0.575% of average daily net
assets of the Portfolio. For the period ended December 31, 1997, ALIAC paid
Aeltus $2,150 in accordance with the terms of the Subadvisory Agreement.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended December 31, 1997 were $14,586,904 and $108,762
respectively.
5. Forward Foreign Currency Exchange Contracts
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 Portfolios may use forward foreign currency
exchange contracts to hedge certain foreign currency assets. Contracts are
recorded at market value and marked-to-market daily.
The risks associated with forward foreign currency exchange contracts may arise
from an imperfect correlation between the change in market value of the
securities held by the Portfolios 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 forward foreign currency exchange
contracts are reflected in the accompanying financial statements. The amounts at
risk under such forward foreign currency exchange contracts may exceed the
amounts reflected in the financial statements. The notional amounts of these
contracts are disclosed in the Portfolio of Investments and elsewhere in the
Notes to Financial Statements. For federal income tax purposes, any forward
foreign currency exchange contracts which remain open at year end are
marked-to-market and the resultant net gain or loss is included in federal
taxable income.
5. Forward Foreign Currency Exchange Contracts
At December 31, 1997, the Portfolio had the following open forward foreign
currency exchange contracts that obligate the Portfolio to deliver currencies at
specified future dates. The net unrealized gain of $12,909 on these contracts is
included in the accompanying financial statements. The terms of the open
contracts are as follows:
20
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna International Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered December 31, 1997 be Received December 31, 1997 Gain (Loss)
- ------------------ ---------------------- ------------------- ------------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Contracts to Sell
- ------------------
1/26/98 610,000 $301,392 304,863 $ 304,863 $ 3,471
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/18/98 318,000 157,335 157,571 157,571 236
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/26/98 3,700,000 615,939 622,476 622,476 6,537
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/13/98 250,000 41,661 41,598 41,598 (63)
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/9/98 80,000 44,598 44,598 44,598 0
German Deutschemarks U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
3/24/98 610,000 340,888 344,574 344,574 3,686
German Deutschemarks U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/24/98 160,000,000 1,240,211 1,239,253 1,239,253 (958)
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
$12,909
========
</TABLE>
6. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Portfolio's capital accounts
on a tax basis. These reclassifications have no impact on the net asset value of
the Portfolio.
<TABLE>
<CAPTION>
Accumulated Net
Realized
Undistributed Net Gain (Loss) on
Investment Income Investments
Paid-in Capital Increase Decrease
- ----------------- ------------------- ----------------
<S> <C> <C>
-- $12,271 ($12,271)
</TABLE>
21
<PAGE>
Aetna Variable Portfolios, Inc.
Financial Highlights
Aetna International Portfolio
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout the period:
<TABLE>
<CAPTION>
Period from
December 22, 1997
to December 31, 1997
---------------------
<S> <C>
Net asset value, beginning of period ..................................... $ 10.000
---------
Income from investment operations:
Net investment income ................................................... ( 0.002)
Net realized and unrealized gain on investments ......................... 0.276
---------
Total from investment operations ....................................... 0.274
---------
Net asset value, end of period ........................................... $ 10.274
=========
Total return* ............................................................ 2.74%
Net assets, end of period (000's) ........................................ $ 15,412
Ratio of total expenses to average net assets ............................ 1.15%(1)
Ratio of net investment income to average net assets ..................... (0.98)%(1)
Portfolio turnover rate .................................................. 0.71%
Average commission rate paid per share on equity securities traded ....... $ 0.0440
</TABLE>
(1) Annualized
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
22 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
International Portfolio, a portfolio of Aetna Variable Portfolios, Inc. (the
Portfolio), including the portfolio of investments, as of December 31, 1997, and
the related statements of operations, changes in net assets and the financial
highlights for the period from December 22, 1997 (date of commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio'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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1997, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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
International Portfolio, as of December 31, 1997, the results of its operations,
changes in its net assets and financial highlights for the period from December
22, 1997 to December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
23
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
COMMON STOCKS (99.9%)
Aerospace and Defense (2.9%)
General Motors, Class H ...................... 900 $ 33,244
Thiokol Corp. ................................ 1,400 113,750
----------
146,994
----------
Autos and Auto Equipment (2.2%)
Bandag, Inc. ................................. 2,100 112,219
----------
Banks (12.0%) ................................
AmSouth Bancorporation ....................... 2,000 108,625
Colonial BancGroup, Inc. ..................... 800 27,550
Dime Bancorp, Inc. ........................... 5,000 151,249
Mercantile Bankshares Corp. .................. 3,500 136,938
North Fork Bancorp, Inc. ..................... 2,300 77,194
Star Banc Corp. .............................. 1,900 109,013
----------
610,569
----------
Building Materials and Construction (2.0%)
Southdown, Inc. .............................. 1,700 100,300
----------
Chemicals (4.4%)
Goodrich (B.F.) Co. .......................... 490 20,304
Lyondell Petrochemical Co. ................... 3,500 92,750
Millennium Chemicals, Inc. ................... 4,600 108,388
----------
221,442
----------
Commercial Services (4.2%)
AccuStaff, Inc.+ ............................. 4,000 92,000
Ogden Corp. .................................. 100 2,819
Quintiles Transnational Corp.+ ............... 3,100 118,575
----------
213,394
----------
Computer Software (2.4%)
Cambridge Technology Partners, Inc.+ ......... 2,900 120,713
----------
Computers and Office Equipment (2.2%)
SMART Modular Technologies, Inc.+ ............ 4,800 110,400
----------
Consumer Products (1.5%)
Blyth Industries, Inc.+ ...................... 2,600 77,838
----------
Financial Services (6.0%)
Bear Stearns Co., Inc. ....................... 3,300 156,749
Edwards (A.G.), Inc. ......................... 600 23,850
Greenpoint Financial Corp. ................... 200 14,513
Lehman Brothers Holdings, Inc. ............... 2,200 112,200
----------
307,312
----------
Foods and Beverages (4.7%)
Dean Foods Co. ............................... 1,600 95,200
Interstate Bakeries Corp. .................... 3,800 142,025
----------
237,225
----------
Health Services (2.1%)
Total Renal Care Holdings, Inc.+ ............. 3,900 107,250
----------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Insurance (4.4%)
Equitable Co., Inc. (The) .................... 2,100 $ 104,475
Transatlantic Holdings, Inc. ................. 1,700 121,550
----------
226,025
----------
Media and Entertainment (5.2%)
Chancellor Media Corp.+ ...................... 1,000 74,625
Lin Television Corp.+ ........................ 300 16,350
Media General, Inc. .......................... 2,900 121,256
Omnicom Group, Inc. .......................... 1,200 50,850
----------
263,081
----------
Medical Supplies (7.0%)
ATL Ultrasound, Inc.+ ........................ 2,500 115,000
Datascope Corp.+ ............................. 4,100 106,088
Mylan Laboratories, Inc. ..................... 6,500 136,094
----------
357,182
----------
Oil and Gas (5.8%)
El Paso Natural Gas Co. ...................... 1,500 99,750
Tidewater, Inc. .............................. 1,800 99,225
Valero Energy Corp. .......................... 2,400 75,450
Weatherford Enterra, Inc.+ ................... 500 21,875
----------
296,300
----------
Pharmaceuticals (2.6%)
Rexall Sundown, Inc.+ ........................ 4,300 129,806
----------
Printing and Publishing (5.2%)
Central Newspapers, Inc., Class A ............ 1,600 118,300
Washington Post Co. .......................... 300 145,949
----------
264,249
----------
Retail (5.8%)
Fingerhut Companies, Inc. .................... 3,800 81,225
Office Depot, Inc.+ .......................... 6,100 146,018
Safeway, Inc.+ ............................... 1,100 69,575
----------
296,818
----------
Telecommunications (5.5%)
ADC Telecommunications, Inc.+ ................ 4,100 171,174
Adtran, Inc.+ ................................ 3,400 93,500
CIENA Corp.+ ................................. 200 12,225
----------
276,899
----------
Transportation (4.5%)
Alaska Air Group, Inc.+ ...................... 3,100 120,125
UAL Corp.+ ................................... 1,200 111,000
----------
231,125
----------
Utilities--Electric (5.5%)
Atlantic Energy, Inc. ........................ 1,700 36,019
Boston Edison Co. ............................ 2,900 109,838
New York State Electric & Gas Corp. .......... 3,800 134,900
----------
280,757
----------
</TABLE>
24 See Notes to Portfolio of Investments.
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Mid Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------- -------------
<S> <C> <C>
Utilities--Telephone (1.8%)
Southern New England Telecommunications
Corp. ............................... 1,800 $ 90,563
----------
Total Common Stocks (cost $4,995,453) 5,078,461
----------
Principal
Amount
---------
SHORT-TERM INVESTMENTS (3.4%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98 ..................... $ 172,000 172,000
----------
Total Short-Term Investments (cost $172,000) 172,000
----------
TOTAL INVESTMENTS (cost $5,167,453)(a) 5,250,461
----------
Other assets less liabilities (166,798)
----------
Total Net Assets $5,083,663
==========
</TABLE>
<TABLE>
<S> <C>
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,
1997, are as follows:
Unrealized gains ................ $ 152,910
Unrealized losses ............... (69,902)
---------
Net unrealized gain ............ $ 83,008
=========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 25
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Assets and Liabilities--December 31, 1997
Aetna Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value ............................................................. $ 5,250,461
Cash ..................................................................................... 1,375
Receivable for:
Dividends and interest .................................................................. 1,631
Investments sold ........................................................................ 48,237
-----------
Total assets .......................................................................... 5,301,704
-----------
Liabilities:
Payable for:
Dividends to shareholders ............................................................... 6,250
Investments purchased ................................................................... 209,730
Accrued investment advisory fees ......................................................... 1,627
Accrued administrative services fees ..................................................... 434
-----------
Total liabilities ..................................................................... 218,041
-----------
NET ASSETS .............................................................................. $ 5,083,663
===========
Net assets represented by:
Paid-in capital .......................................................................... $ 5,000,000
Net unrealized gain on investments ....................................................... 83,008
Accumulated net realized gain on investments ............................................. 655
-----------
NET ASSETS .............................................................................. $ 5,083,663
===========
Capital Shares, $0.001 par value:
Outstanding .............................................................................. 500,000
Net asset value, offering and redemption price per share (net assets divided by shares $ 10.167
outstanding)
Cost of investments ...................................................................... $ 5,167,453
</TABLE>
26 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Operations--Period from December 17, 1997 to December 31, 1997
Aetna Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends ................................................................ $ 2,331
Interest ................................................................. 4,304
-------
Total investment income ............................................... 6,635
-------
Expenses:
Investment advisory fees ................................................. 1,627
Administrative services fees ............................................. 434
-------
Total expenses ........................................................ 2,061
-------
Net investment income .................................................... 4,574
-------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ..................................................... 2,331
-------
Net realized gain on investments ...................................... 2,331
-------
Net change in unrealized gain or loss on:
Investments ............................................................. 83,008
-------
Net change in unrealized gain or loss on investments .................. 83,008
-------
Net realized and change in unrealized gain (loss) on investments ......... 85,339
-------
Net increase in net assets resulting from operations ..................... $89,913
=======
</TABLE>
See Notes to Financial Statements. 27
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Changes in Net Assets
Aetna Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 17, 1997
to December 31, 1997
---------------------
<S> <C>
Operations:
Net investment income ................................................ $ 4,574
Net realized gain on investments ..................................... 2,331
Net change in unrealized gain or loss on investments ................. 83,008
----------
Net increase in net assets resulting from operations ............... 89,913
----------
Distributions to Shareholders:
From net investment income ........................................... (6,250)
----------
Decrease in net assets from distributions to shareholders .......... (6,250)
----------
Fund Share Transactions:
Proceeds from shares sold ............................................ 5,000,000
----------
Net increase in net assets from fund share transactions ............ 5,000,000
----------
Net change in net assets ............................................. 5,083,663
Net assets:
Beginning of period .................................................. --
----------
End of period ........................................................ $5,083,663
==========
End of period net assets includes undistributed net investment income --
==========
Share Transactions:
Number of shares sold ................................................ 500,000
----------
Net increase ....................................................... 500,000
==========
</TABLE>
28 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Mid Cap Portfolio
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
organized under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate Portfolios each of which has its
own investment objective, policies and restrictions.
The Fund offers eleven Portfolios, one of which, Aetna Mid Cap Portfolio
(Portfolio), which commenced operations on December 17, 1997, is described in
this report.
The Portfolio seeks growth of capital primarily through investment in a
diversified portfolio consisting of common stocks.
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. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as a
subadviser to the Portfolio.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or for over-the-counter securities, at
the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued 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 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.
C. Distributions
The Portfolio distributes all of its net investment income and capital gains, if
any, to 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 due to distributions in excess of ordinary income
reclassified as income against short-term capital gains.
D. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, 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.
29
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Mid Cap Portfolio (continued)
- --------------------------------------------------------------------------------
3. Investment Advisory Fee and Other Expenses
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.75% of its average daily net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and 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, directors' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at a rate of 0.20% of the average daily net assets of the Portfolio.
Under the terms of a Subadvisory Agreement among the Portfolio, ALIAC and
Aeltus, Aeltus supervises the investment and reinvestment of cash and securities
and provides certain related administrative services to the Portfolio in
exchange for a fee (payable by ALIAC) of up to 0.475% of average daily net
assets of the Portfolio. For the period ended December 31, 1997, ALIAC paid
Aeltus $1,031 in accordance with the terms of the Subadvisory Agreement.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended December 31, 1997, were $5,041,359 and $48,237
respectively.
5. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Portfolio's capital accounts
on a tax basis. These reclassifications have no impact on the net asset value of
the Portfolio.
<TABLE>
<CAPTION>
Undistributed Accumulated Net Realized
Net Investment Income Gain (Loss) on Investments
Paid-in Capital Increase Decrease
- ----------------- ----------------------- ---------------------------
<S> <C> <C>
-- $1,676 ($1,676)
</TABLE>
30
<PAGE>
Aetna Variable Portfolios, Inc.
Financial Highlights
Aetna Mid Cap Portfolio
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout the period:
<TABLE>
<CAPTION>
Period from
December 17, 1997
to December 31, 1997
---------------------
<S> <C>
Net asset value, beginning of period .................................... $ 10.000
---------
Income from investment operations:
Net investment income .................................................. 0.009
Net realized and unrealized gain on investments ........................ 0.171
---------
Total from investment operations ..................................... 0.180
---------
Less distributions:
From net investment income .............................................. (0.013)
---------
Total distributions .................................................. (0.013)
---------
Net asset value, end of period .......................................... $ 10.167
=========
Total return* ........................................................... 1.80%
Net assets, end of period (000's) ....................................... $ 5,084
Ratio of total expenses to average net assets ........................... 0.95%(1)
Ratio of net investment income to average net assets .................... 2.10%(1)
Portfolio turnover rate ................................................. 0.95%
Average commission rate paid per share on purchases of equity securities $ 0.0286
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
See Notes to Financial Statements. 31
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
Mid Cap Portfolio, a portfolio of Aetna Variable Portfolios, Inc. (the
Portfolio), including the portfolio of investments, as of December 31, 1997, and
the related statements of operations, changes in net assets and the financial
highlights for the period from December 17, 1997 (date of commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio'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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1997, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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
Mid Cap Portfolio, as of December 31, 1997, the results of its operations,
changes in its net assets and financial highlights for the period from December
17, 1997 to December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
32
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Real Estate Securities Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- ------------
<S> <C> <C>
COMMON STOCKS (97.6%)
Real Estate Investment Trusts (97.6%)
Apartment Investment & Management Co. ......... 6,800 $ 249,900
Bedford Property Investors, Inc. .............. 6,200 135,625
Burnham Pacific Properties, Inc. .............. 15,800 241,938
Catellus Development Corp.+ ................... 11,000 220,000
CBL & Associates Properties, Inc. ............. 3,500 86,406
Colonial Properties Trust ..................... 8,100 244,013
Cousins Properties, Inc. ...................... 7,800 228,638
Crescent Real Estate Equities, Inc. ........... 6,600 259,875
Equity Inns, Inc. ............................. 7,700 113,575
Equity Office Properties Trust ................ 7,100 224,094
Equity Residential Properties Trust ........... 4,900 247,756
Essex Property Trust, Inc. .................... 7,000 245,000
General Growth Properties ..................... 3,800 137,275
Glenborough Realty Trust, Inc. ................ 7,400 219,225
Golf Trust of America, Inc. ................... 5,000 145,000
JDN Realty Corp. .............................. 6,600 213,675
Koger Equity, Inc. ............................ 7,500 164,531
Manufactured Home Communities, Inc. ........... 5,500 148,500
Parkway Properties, Inc. ...................... 3,300 113,231
Post Properties, Inc. ......................... 6,200 251,875
Prentiss Properties Trust ..................... 4,700 131,306
Public Storage, Inc. .......................... 7,300 214,438
Security Capital Industrial Trust ............. 6,200 154,225
Starwood Lodging Trust ........................ 4,400 254,650
Storage Trust Realty .......................... 9,700 255,230
Weeks Corp. ................................... 4,000 128,000
----------
Total Common Stocks (cost $4,873,727) 5,027,981
==========
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.5%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98 .......................... $129,000 $ 129,000
----------
Total Short-Term Investments (cost $129,000) 129,000
----------
TOTAL INVESTMENTS (cost $5,002,727)(a) 5,156,981
Other assets less liabilities (4,070)
----------
Total Net Assets $5,152,911
==========
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$5,003,686. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains ........................... $ 177,920
Unrealized losses .......................... (24,625)
----------
Net unrealized gain ....................... $ 153,295
==========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 33
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Assets and Liabilities--December 31, 1997
Aetna Real Estate Securities Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value ............................................................. $5,156,981
Cash ..................................................................................... 4,489
Receivable for:
Dividends and interest .................................................................. 20,058
----------
Total assets .......................................................................... 5,181,528
----------
Liabilities:
Payable for:
Dividends to shareholders ............................................................... 26,250
Accrued investment advisory fees ......................................................... 1,869
Accrued administrative services fees ..................................................... 498
----------
Total liabilities ..................................................................... 28,617
----------
NET ASSETS .............................................................................. $5,152,911
==========
Net assets represented by:
Paid-in capital .......................................................................... $5,000,000
Net unrealized gain on investments ....................................................... 154,254
Distributions in excess of net investment income ......................................... (2,302)
Accumulated net realized gain on investments ............................................. 959
----------
NET ASSETS .............................................................................. $5,152,911
==========
Capital Shares, $0.001 par value:
Outstanding .............................................................................. 500,000
Net asset value, offering and redemption price per share (net assets divided by shares $ 10.306
outstanding)
Cost of investments ...................................................................... $5,002,727
</TABLE>
34 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Operations--Period from December 15, 1997 to December 31, 1997
Aetna Real Estate Securities Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends ................................................................ $ 24,008
Interest ................................................................. 3,266
--------
Total investment income ............................................... 27,274
--------
Expenses:
Investment advisory fees ................................................. 1,869
Administrative services fees ............................................. 498
--------
Total expenses ........................................................ 2,367
--------
Net investment income .................................................... 24,907
--------
Net Realized and Unrealized Gain (Loss):
Net change in unrealized gain or loss on:
Investments ............................................................. 154,254
--------
Net change in unrealized gain or loss on investments .................. 154,254
--------
Net realized and change in unrealized gain (loss) on investments ......... 154,254
--------
Net increase in net assets resulting from operations ..................... $179,161
========
</TABLE>
See Notes to Financial Statements. 35
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Changes in Net Assets
Aetna Real Estate Securities Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 15, 1997
to December 31, 1997
---------------------
<S> <C>
Operations:
Net investment income ............................................................. $ 24,907
Net change in unrealized gain or loss on investments .............................. 154,254
----------
Net increase in net assets resulting from operations ............................ 179,161
----------
Distributions to Shareholders:
From net investment income ........................................................ (26,250)
----------
Decrease in net assets from distributions to shareholders ....................... (26,250)
----------
Fund Share Transactions:
Proceeds from shares sold ......................................................... 5,000,000
----------
Net increase in net assets from fund share transactions ......................... 5,000,000
----------
Net change in net assets .......................................................... 5,152,911
Net assets:
Beginning of period ............................................................... --
----------
End of period ..................................................................... $5,152,911
==========
End of period net assets includes distributions in excess of net investment income $ (2,302)
==========
Share Transactions:
Number of shares sold ............................................................. 500,000
----------
Net increase .................................................................... 500,000
==========
</TABLE>
36 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Real Estate Securities Portfolio
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
organized under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate Portfolios each of which has its
own investment objective, policies and restrictions.
The Fund offers eleven Portfolios, one of which, Aetna Real Estate Securities
Portfolio (Portfolio), which commenced operations on December 15, 1997, is
described in this report.
The Portfolio seeks maximum total return primarily through investment in a
diversified portfolio of equity securities issued by real estate companies.
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. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as a
subadviser to the Portfolio.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or for over-the-counter securities, at
the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued 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 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.
C. Distributions
The Portfolio distributes all of its net investment income and capital gains, if
any, to shareholders annually. Distributions from net investment income are
based on taxable net investment 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 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 trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, 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.
37
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Real Estate Securities Portfolio (continued)
- --------------------------------------------------------------------------------
3. Investment Advisory Fee and Other Expenses
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.75% of its average daily net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and 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, directors' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at a rate of 0.20% of the average daily net assets of the Portfolio.
Under the terms of a Subadvisory Agreement among the Portfolio, ALIAC and
Aeltus, Aeltus supervises the investment and reinvestment of cash and securities
and provides certain related administrative services to the Portfolio in
exchange for a fee (payable by ALIAC) of up to 0.475% of average daily net
assets of the Portfolio. For the period ended December 31, 1997, ALIAC paid
Aeltus $1,183 in accordance with the terms of the Subadvisory Agreement.
4. Purchases of Investment Securities
Purchases of investment securities, excluding short-term investments, for the
period ended December 31, 1997, were $4,873,727.
5. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Portfolio's capital accounts
on a tax basis. These reclassifications have no impact on the net asset value of
the Portfolio.
<TABLE>
<CAPTION>
Accumulated Net
Undistributed Realized Gain (Loss) on
Net Investment Income Investments
Paid-in Capital Decrease Increase
- ----------------- ----------------------- ------------------------
<S> <C> <C>
-- ($959) $959
</TABLE>
6. Concentration of Risk
Due to the Portfolio's policy of concentration in the real estate industry,
adverse developments in that industry could have a greater impact on the
Portfolio, and consequently shareholders' account values, than a fund with
broader industry diversification.
38
<PAGE>
Aetna Variable Portfolios, Inc.
Financial Highlights
Aetna Real Estate Securities Portfolio
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout the period:
<TABLE>
<CAPTION>
Period from
December 15, 1997
to December 31, 1997
---------------------
<S> <C>
Net asset value, beginning of period .................................... $ 10.000
---------
Income from investment operations:
Net investment income .................................................. 0.050
Net realized and unrealized gain on investments ........................ 0.309
---------
Total from investment operations ..................................... 0.359
---------
Less distributions:
From net investment income ............................................. (0.053)
---------
Total distributions .................................................. (0.053)
---------
Net asset value, end of period .......................................... $ 10.306
=========
Total return* ........................................................... 3.59%
Net assets, end of period (000's) ....................................... $ 5,153
Ratio of total expenses to average net assets ........................... 0.95%(1)
Ratio of net investment income to average net assets .................... 9.99%(1)
Average commission rate paid per share on purchases of equity securities $ 0.0448
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
See Notes to Financial Statements. 39
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
Real Estate Portfolio, a portfolio of Aetna Variable Portfolios, Inc. (the
Portfolio), including the portfolio of investments, as of December 31, 1997, and
the related statements of operations, changes in net assets and the financial
highlights for the period from December 15, 1997 (date of commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio'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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1997, 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
Real Estate Portfolio, as of December 31, 1997, the results of its operations,
changes in its net assets and financial highlights for the period from December
15, 1997 to December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
40
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Bond Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------------- ---------------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (89.4%)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (48.5%)
Agency Mortgage-Backed Securities (25.6%)
Federal Home Loan Mortgage Corp., 9.00%,
07/01/16-09/01/16 .............................. $ 147,565 $ 156,925
Federal National Mortgage Association--
Conventional, 6.50%, 01/01/10[sec] ............. 800,000 801,500
Federal National Mortgage Association--Gold,
6.50%, 11/01/17[sec] ........................... 1,000,000 988,750
Federal National Mortgage Association--Gold,
7.50%, 04/01/16[sec] ........................... 600,000 614,813
Government National Mortgage Association--
Single Family, 7.00%, 04/01/16[sec] ............ 350,000 352,953
Government National Mortgage Association--
Single Family, 7.50%, 10/15/22 ................. 90,616 92,910
Government National Mortgage Association--
Single Family, 8.00%, 04/15/17-08/15/17 ........ 487,043 505,613
Government National Mortgage Association--
Single Family, 9.50%, 08/15/21 ................. 300,014 324,953
------------
3,838,417
------------
U.S. Treasuries (22.9%)
U.S. Treasury Bond, 6.13%, 08/15/07 .............. 525,000 539,604
U.S. Treasury Bond, 6.38%, 01/15/00 .............. 400,000 405,561
U.S. Treasury Bond, 6.75%, 08/15/26 .............. 275,000 302,801
U.S. Treasury Bond, 7.25%, 05/15/16 .............. 690,000 786,059
U.S. Treasury Bond, 8.13%, 05/15/21 .............. 550,000 693,174
U.S. Treasury Note, 6.50%, 08/15/05 .............. 675,000 704,427
------------
3,431,626
------------
Total U.S. Government and Agency
Obligations (cost $7,261,305) 7,270,043
------------
Corporate Bonds (40.9%)
Electric and Telephone Bonds (3.4%)
Airtouch Communications, 7.13%, 07/15/01 ......... 250,000 256,540
Puget Sound Energy, Inc., 7.02%, 12/01/27 ........ 250,000 253,774
------------
510,314
------------
Financial Bonds (23.1%)
Associates Corp. N.A., 6.88%, 11/15/08 ........... 200,000 204,683
Capital One Bank, 6.83%, 05/17/99 ................ 385,000 389,154
Chase Manhatten Corp., 7.13%, 06/15/09 ........... 200,000 207,702
First Maryland Bancorp, 8.38%, 05/15/02 .......... 300,000 322,055
Ford Motor Credit Co., 5.75%, 01/25/01 ........... 250,000 246,712
General Motors Acceptance Corp.,
7.38%, 04/15/99 ................................ 350,000 355,779
Ikon Capital Resources, 6.52%, 10/29/99 .......... 375,000 377,475
International Lease Finance Corp.,
6.38%, 01/18/00 ................................ 300,000 301,157
Merrill Lynch & Co., Inc., 6.50%, 04/01/01 ....... 250,000 252,510
Paine Webber Group, Inc., 9.18%, 03/12/99 ........ 300,000 311,019
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------------- ---------------
<S> <C> <C>
Financial Bonds (continued)
Salomon Smith Barney Holdings, 6.63%,
11/15/03 ....................................... $ 250,000 $ 252,140
Travelers Group, Inc., 7.88%, 05/15/25 ........... 225,000 253,127
Foreign Bonds (3.5%)
Quebec Province, 7.50%, 07/15/02 ................. 300,000 314,139
Santander Finance Issuances, 6.38%, 02/15/11 ..... 225,000 218,314
------------
532,453
------------
Other Public Corporate Bonds (10.9%)
Conrail, 9.75%, 06/01/00 ......................... 130,000 139,814
Crown Cork & Seal, 6.75%, 04/15/03 ............... 300,000 305,091
Dayton Hudson Co., 6.63%, 03/01/03 ............... 175,000 176,939
Dayton Hudson Co., 9.75%, 07/01/02 ............... 100,000 113,232
Federated Department Stores, 8.13%, 10/15/02 ..... 200,000 213,581
Lockheed Martin Corp., 7.25%, 05/15/06 ........... 210,000 220,444
Royal Caribbean, 8.25%, 04/01/05 ................. 140,000 151,808
Sears Roebuk Acceptance, 7.05%, 09/17/01 ......... 300,000 308,052
------------
1,628,961
------------
Total Corporate Bonds (cost $6,145,902) 6,145,241
------------
Total Long-Term Bonds and Notes
(cost $13,407,207) 13,415,284
------------
SHORT-TERM INVESTMENTS (28.1%)
Federal Home Loan Bank, Comm. Paper, 4.90%,
01/02/98 ....................................... 1,362,000 1,362,000
Federal Home Loan Mortgage, Comm. Paper,
5.68%, 01/23/98[sec][sec] ...................... 450,000 448,509
Federal Home Loan Mortgage, Comm. Paper,
5.72%, 01/14/98[sec][sec] ...................... 1,607,000 1,603,935
Federal Home Loan Mortgage, Comm. Paper,
5.73%, 01/20/98[sec][sec] ...................... 803,000 800,699
------------
Total Short-Term Investments (cost $4,215,145) 4,215,143
------------
TOTAL INVESTMENTS (cost $17,622,352)(a) 17,630,427
Other assets less liabilities (2,621,553)
------------
Total Net Assets $ 15,008,874
============
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, 1997, are as follows:
Unrealized gains ................................. $ 24,780
Unrealized losses ................................ (16,705)
------------
Net unrealized gain ............................. $ 8,075
============
</TABLE>
[sec] When-issued or delayed delivery security.
[sec][sec] Segregated securities for purchases of delayed delivery or
when-issued securities held at December 31, 1997.
Category percentages are based on net assets.
See Notes to Financial Statements. 41
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Assets and Liabilities--December 31, 1997
Aetna Index Plus Bond Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value ............................................................. $ 17,630,427
Cash ..................................................................................... 989
Receivable for:
Dividends and interest .................................................................. 175,627
------------
Total assets .......................................................................... 17,807,043
------------
Liabilities:
Payable for:
Dividends to shareholders ............................................................... 31,500
Investments purchased ................................................................... 2,763,888
Accrued investment advisory fees ......................................................... 1,854
Accrued administrative services fees ..................................................... 927
------------
Total liabilities ..................................................................... 2,798,169
------------
NET ASSETS .............................................................................. $ 15,008,874
============
Net assets represented by:
Paid-in capital .......................................................................... $ 15,000,000
Net unrealized gain on investments ....................................................... 8,075
Undistributed net investment income ...................................................... 799
------------
NET ASSETS .............................................................................. $ 15,008,874
============
Capital Shares, $0.001 par value:
Outstanding .............................................................................. 1,500,000
Net asset value, offering and redemption price per share (net assets divided by shares $ 10.006
outstanding)
Cost of investments ...................................................................... $ 17,622,352
</TABLE>
42 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Operations--Period from December 18, 1997 to December 31, 1997
Aetna Index Plus Bond Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest ................................................................. $35,080
-------
Total investment income ............................................... 35,080
-------
Expenses:
Investment advisory fees ................................................. 1,854
Administrative services fees ............................................. 927
-------
Total expenses ........................................................ 2,781
-------
Net investment income .................................................... 32,299
-------
Net Realized and Unrealized Gain (Loss):
Net change in unrealized gain or loss on:
Investments ............................................................. 8,075
-------
Net change in unrealized gain or loss on investments .................. 8,075
-------
Net realized and change in unrealized gain (loss) on investments ......... 8,075
-------
Net increase in net assets resulting from operations ..................... $40,374
=======
</TABLE>
See Notes to Financial Statements. 43
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Changes in Net Assets
Aetna Index Plus Bond Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 18, 1997 to
December 31, 1997
---------------------
<S> <C>
Operations:
Net investment income ................................................ $ 32,299
Net change in unrealized gain or loss on investments ................. 8,075
-----------
Net increase in net assets resulting from operations ............... 40,374
-----------
Distributions to Shareholders:
From net investment income ........................................... (31,500)
-----------
Decrease in net assets from distributions to shareholders .......... (31,500)
-----------
Fund Share Transactions:
Proceeds from shares sold ............................................ 15,000,000
-----------
Net increase in net assets from fund share transactions ............ 15,000,000
-----------
Net change in net assets ............................................. 15,008,874
Net assets:
Beginning of period .................................................. --
-----------
End of period ........................................................ $15,008,874
===========
End of period net assets includes undistributed net investment income $ 799
===========
Share Transactions:
Number of shares sold ................................................ 1,500,000
-----------
Net increase ....................................................... 1,500,000
===========
</TABLE>
44 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Index Plus Bond Portfolio
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
organized under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate Portfolios each of which has its
own investment objective, policies and restrictions.
The Fund offers eleven Portfolios, one of which, Aetna Index Plus Bond Portfolio
(Portfolio), which commenced operations on December 18, 1997, is described in
this report.
The Portfolio seeks to maximize total return consistent with preservation of
capital primarily through investment in a diversified portfolio of fixed income
securities, which will be chosen to substantially replicate the characteristics
of the Lehman Brothers Aggregate Bond Index, an unmanaged index comprised of
approximately 6,000 securities.
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. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as a
subadviser to the Portfolio.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or for over-the-counter securities, at
the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued using methods approved by the
Board of Directors.
B. Delayed Delivery Transactions
The Portfolio 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 transactions
are negotiated. The market value of the securities purchased or sold are
identified in the Fund's 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 accordance with the 1940
Act, a Fund holding securities purchased on a when-issued or delayed delivery
basis will maintain a segregated account at its custodian containing securities
in an amount equal to the market value of the securities purchased on a
when-issued or delayed delivery basis.
C. Federal Income Taxes
As a qualified regulated investment company, the Portfolio 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.
45
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Index Plus Bond Portfolio (continued)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
D. Distributions
The Portfolio distributes all of its net investment income and capital gains, if
any, to 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.
For the period ended December 31, 1997 there were no differences.
E. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, 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 Fee and Other Expenses
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.30% of its average daily net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and 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, directors' 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 average daily net assets of the Portfolio.
Under the terms of a Subadvisory Agreement among the Portfolio, ALIAC and
Aeltus, Aeltus supervises the investment and reinvestment of cash and securities
and provides certain related administrative services to the Portfolio in
exchange for a fee (payable by ALIAC) of up to 0.225% of average daily net
assets of the Portfolio. For the period ended December 31, 1997, ALIAC paid
Aeltus $1,389 in accordance with the terms of the Subadvisory Agreement.
4. Purchases of Investment Securities
Purchases of investment securities, excluding short-term investments, for the
period ended December 31, 1997, were $13,409,257.
46
<PAGE>
Aetna Variable Portfolios, Inc.
Financial Highlights
Aetna Index Plus Bond Portfolio
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout the period.
<TABLE>
<CAPTION>
Period from
December 18, 1997
to December 31, 1997
---------------------
<S> <C>
Net asset value, beginning of period ......................... $ 10.000
----------
Income from investment operations:
Net investment income ....................................... 0.022
Net realized and unrealized gain on investments ............. 0.005
----------
Total from investment operations ........................... 0.027
----------
Less distributions:
From net investment income .................................. (0.021)
----------
Total distributions ........................................ (0.021)
----------
Net asset value, end of period ............................... $ 10.006
==========
Total return* ................................................ 0.27%
Net assets, end of period (000's) ............................ $ 15,009
Ratio of total expenses to average net assets ................ 0.45%(1)
Ratio of net investment income to average net assets ......... 5.23%(1)
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
See Notes to Financial Statements. 47
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
Index Plus Bond Portfolio, a portfolio of Aetna Variable Portfolios, Inc. (the
Portfolio), including the portfolio of investments, as of December 31, 1997, and
the related statements of operations, changes in net assets and the financial
highlights for the period from December 18, 1997 (date of commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio'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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1997, 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
Index Plus Bond Portfolio, as of December 31, 1997, the results of its
operations, changes in its net assets and financial highlights for the period
from December 18, 1997 to December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
48
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
COMMON STOCKS (96.2%)
Aerospace and Defense (2.3%)
Gencorp, Inc. ................................... 600 $ 15,000
Litton Industries, Inc.+ ........................ 400 23,000
Newport News Shipbuilding, Inc. ................. 500 12,719
Pittston Brink's Group .......................... 400 16,100
Puget Sound Power & Light ....................... 500 15,094
Sundstrand Corp. ................................ 1,100 55,412
Thiokol Corp. ................................... 300 24,375
Viad Corp. ...................................... 900 17,381
----------
179,081
----------
Apparel (1.0%)
Burlington Industries, Inc.+ .................... 800 11,050
Jones Apparel Group, Inc.+ ...................... 1,000 43,000
Warnaco Group, Inc. (The) ....................... 800 25,100
----------
79,150
----------
Auto Parts and Accessories (0.9%)
Arvin Industries, Inc. .......................... 300 9,994
Federal-Mogul Corp. ............................. 700 28,350
Meritor Automotive, Inc. ........................ 1,000 21,063
Superior Industries International, Inc. ......... 300 8,044
----------
67,451
----------
Autos and Auto Equipment (0.6%)
Borg Warner Automotive, Inc. .................... 400 20,800
Kaydon Corp. .................................... 500 16,313
Lancaster Colony Corp. .......................... 200 11,275
----------
48,388
----------
Banks (11.8%)
Associated Banc-Corp. ........................... 300 16,538
Charter One Financial, Inc. ..................... 600 37,875
City National Corp. ............................. 400 14,775
Dime Bancorp, Inc. .............................. 1,700 51,424
First of America Bank Corp. ..................... 800 61,699
First Security Corp. ............................ 1,100 46,063
First Tennessee National Corp. .................. 600 40,050
First Virginia Banks, Inc. ...................... 500 25,844
Firststar Corp. ................................. 1,300 55,168
Hibernia Corp. Class A .......................... 1,200 22,575
Marshall & Ilsley Corp. ......................... 1,400 86,974
Mercantile Bancorporation, Inc. ................. 800 49,199
Mercantile Bankshares Corp. ..................... 1,300 50,862
Northern Trust Corp. ............................ 1,600 111,599
Old Kent Financial Corp. ........................ 300 11,888
Pacific Century Financial Corp. ................. 400 9,900
Regions Financial Corp. ......................... 1,300 54,843
Southtrust Corp. ................................ 1,000 63,437
Summit Bancorporation ........................... 1,100 58,574
Wachovia Corp. .................................. 315 25,554
Wilmington Trust Corp. .......................... 300 18,713
----------
913,554
----------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Building Materials and Construction (1.8%)
Clayton Homes, Inc. ............................. 1,100 $ 19,800
Martin Marietta Materials, Inc. ................. 900 32,906
Southdown, Inc. ................................. 400 23,600
Vulcan Materials Co. ............................ 600 61,274
----------
137,580
----------
Chemicals (4.5%)
Albemarle Corp. ................................. 500 11,938
BetzDearborn, Inc. .............................. 200 12,213
Cabot Corp. ..................................... 400 11,050
Crompton & Knowles Corp. ........................ 1,400 37,100
Cytec Industries+ ............................... 300 14,081
Dexter Corp. .................................... 200 8,638
Ethyl Corp. ..................................... 1,200 9,225
Ferro Corp. ..................................... 400 9,725
Georgia Gulf Corp. .............................. 600 18,375
Goodrich (B.F.) Co. ............................. 350 14,503
Hanna (M. A.) Co. ............................... 500 12,625
IMC Global, Inc. ................................ 600 19,650
Lubrizol Corp. .................................. 500 18,438
Lyondell Petrochemical Co. ...................... 1,500 39,750
Olin Corp. ...................................... 500 23,438
RPM, Inc. ....................................... 600 9,150
Solutia, Inc. ................................... 2,200 58,712
Witco Corp. ..................................... 500 20,406
----------
349,017
----------
Commercial Services (3.1%)
ACNielsen Corp.+ ................................ 400 9,750
Cintas Corp. .................................... 600 23,400
GATX Corp. ...................................... 200 14,513
Manpower, Inc. .................................. 500 17,625
Ogden Corp. ..................................... 300 8,456
Olsten Corp. .................................... 600 9,000
Paychex, Inc. ................................... 700 35,438
Robert Half International, Inc.+ ................ 800 32,000
Stewart Enterprises, Inc. ....................... 300 13,988
USA Waste Services, Inc.+ ....................... 2,000 78,499
----------
242,669
----------
Computer Software (3.9%)
America Online, Inc.+ ........................... 1,000 89,187
BMC Software, Inc.+ ............................. 900 59,062
Compuware Corp.+ ................................ 1,600 51,199
Fiserv, Inc.+ ................................... 300 14,738
Network Associates, Inc.+ ....................... 400 21,150
Policy Management Systems+ ...................... 200 13,913
Reynolds & Reynolds Co. ......................... 500 9,219
Sungard Data Systems, Inc.+ ..................... 800 24,800
Symantec Corp.+ ................................. 800 17,550
----------
300,818
----------
</TABLE>
See Notes to Portfolio of Investments. 49
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Mid Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Computers and Office Equipment (2.1%)
Comdisco, Inc. ................................. 500 $ 16,719
CompUSA, Inc.+ ................................. 800 24,800
Diebold, Inc. .................................. 400 20,250
Herman Miller, Inc. ............................ 900 49,105
Quantum Corp.+ ................................. 900 18,056
Storage Technology Corp.+ ...................... 300 18,581
Stratus Computer, Inc.+ ........................ 500 18,906
----------
166,417
----------
Consumer Products (0.8%)
Dial Corp. ..................................... 900 18,731
Flowers Industries, Inc. ....................... 600 12,338
McCormick & Company, Inc. ...................... 400 11,200
Premark International, Inc. .................... 600 17,400
----------
59,669
----------
Diversified (0.6%)
Harsco Corp. ................................... 300 12,938
Mark IV Industries, Inc. ....................... 900 19,688
Pentair, Inc. .................................. 400 14,375
----------
47,001
----------
Electrical Equipment (1.3%)
Avnet, Inc. .................................... 300 19,800
Beckman Instruments, Inc. ...................... 300 12,000
Linear Technology Corp. ........................ 500 28,813
UCAR International, Inc.+ ...................... 400 15,975
Varian Associates, Inc. ........................ 200 10,113
Vishay Intertechnology, Inc.+ .................. 500 11,813
----------
98,514
----------
Electronics (3.3%)
American Power Conversion Corp.+ ............... 600 14,175
Arrow Electronics, Inc.+ ....................... 900 29,194
Atmel Corp.+ ................................... 600 11,138
Hubbell, Inc. .................................. 400 19,725
Maxim Integrated Products, Inc.+ ............... 800 27,600
Molex, Inc. .................................... 700 22,488
SCI Systems, Inc.+ ............................. 800 34,850
Solectron Corp.+ ............................... 700 29,094
Symbol Technologies, Inc. ...................... 300 11,325
TCA Cable TV, Inc. ............................. 200 9,200
Teradyne, Inc.+ ................................ 1,500 48,000
----------
256,789
----------
Financial Services (7.7%)
Bear Stearns Co., Inc. ......................... 2,200 104,499
Capital One Financial Corp. .................... 600 32,513
Crestar Financial Corp. ........................ 700 39,900
Edwards (A.G.), Inc. ........................... 1,800 71,549
Finova Group, Inc. (The) ....................... 500 24,844
Franklin Resources, Inc. ....................... 1,800 156,487
Paine Webber Group, Inc. ....................... 2,500 86,405
T. Rowe Price Associates ....................... 500 31,438
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Financial Services (continued)
Union Planters Corp. ........................... 700 $ 47,556
----------
595,191
----------
Foods and Beverages (4.0%)
Coca-Cola Enterprises, Inc. .................... 3,600 128,024
Dean Foods Co. ................................. 800 47,600
Dole Food Company, Inc. ........................ 600 27,450
Hormel Foods Corp. ............................. 500 16,375
Interstate Bakeries Corp. ...................... 1,400 52,324
Universal Corp. ................................ 700 28,788
Universal Foods Corp. .......................... 200 8,450
----------
309,011
----------
Health Services (2.4%)
Allegiance Corp. ............................... 500 17,719
Bergen Brunswig Corp., Class A ................. 900 37,913
Beverly Enterprises, Inc.+ ..................... 700 9,100
Foundation Health Systems, Inc.+ ............... 1,000 22,375
Health Care & Retirement Corp.+ ................ 400 16,100
Health Management Associates, Inc.+ ............ 1,100 27,775
HealthCare Compare Corp.+ ...................... 200 10,225
Quorum Health Group, Inc.+ ..................... 500 13,063
Sybron International Corp.+ .................... 400 18,775
Vencor, Inc. ................................... 600 14,663
----------
187,708
----------
Home Furnishings and Appliances (1.6%)
Carlisle Co., Inc. ............................. 300 12,825
Hon Industries, Inc. ........................... 600 35,400
Leggett & Platt, Inc. .......................... 900 37,688
Shaw Industries, Inc. .......................... 900 10,463
Unifi, Inc. .................................... 600 24,413
----------
120,789
----------
Hotels and Restaurants (0.5%)
Bob Evans Farms, Inc. .......................... 600 13,275
Cracker Barrel Old Country Store, Inc. ......... 400 13,350
Outback Steakhouse, Inc.+ ...................... 300 8,625
----------
35,250
----------
Insurance (3.7%)
Aflac, Inc. .................................... 900 46,013
AMBAC, Inc. .................................... 1,300 59,799
American Financial Group, Inc. ................. 400 16,125
HSB Group, Inc. ................................ 200 11,038
Old Republic International Corp. ............... 1,300 48,343
PMI Group, Inc. (The) .......................... 300 21,694
Provident Companies, Inc. ...................... 1,300 50,212
Transatlantic Holdings, Inc. ................... 500 35,750
----------
288,974
----------
Machinery and Equipment (1.3%)
AGCO Corp. ..................................... 900 26,325
Danaher Corp. .................................. 500 31,563
Donaldson Company, Inc. ........................ 200 9,013
</TABLE>
50 See Notes to Portfolio of Investments.
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Mid Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Machinery and Equipment (continued)
Flowserve Corp. ............................ 300 $ 8,381
Modine Manufacturing Co. ................... 300 10,238
Teleflex, Inc. ............................. 500 18,875
----------
104,395
----------
Media and Entertainment (2.2%)
Belo Corp., Class A ........................ 300 16,838
Callaway Golf Co. .......................... 700 19,994
GTECH Holdings Corp.+ ...................... 400 12,775
International Game Technology .............. 800 20,200
Media General, Inc. ........................ 200 8,363
Omnicom Group, Inc. ........................ 2,200 93,224
----------
171,394
----------
Medical Supplies (1.7%)
DENTSPLY International, Inc. ............... 400 12,200
Hillenbrand Industries, Inc. ............... 600 30,713
McKesson Corp. ............................. 400 43,275
Mylan Laboratories, Inc. ................... 800 16,750
Perrigo Co.+ ............................... 700 9,363
Stryker Corp. .............................. 600 22,350
----------
134,651
----------
Metals and Mining (1.6%)
Alumax, Inc.+ .............................. 500 17,000
Carpenter Technology Corp. ................. 300 14,419
Cleveland-Cliffs, Inc. ..................... 200 9,163
Kennametal, Inc. ........................... 400 20,725
Precision Castparts Corp. .................. 400 24,125
Trinity Industries, Inc. ................... 800 35,700
----------
121,132
----------
Oil and Gas (8.9%)
BJ Services Co.+ ........................... 400 28,775
El Paso Natural Gas Co. .................... 600 39,900
Ensco International, Inc. .................. 2,600 87,099
Global Marine, Inc.+ ....................... 3,200 78,399
Mapco, Inc. ................................ 400 18,500
Murphy Oil Corp. ........................... 300 16,256
Nabors Industries, Inc.+ ................... 1,900 59,730
National Fuel Gas Co. ...................... 400 19,475
Noble Drilling Corp.+ ...................... 1,200 36,750
Parker Drilling Co.+ ....................... 700 8,531
Smith International, Inc.+ ................. 700 42,963
Tidewater, Inc. ............................ 600 33,075
Tosco Corp. ................................ 1,400 52,937
Transocean Offshore, Inc. .................. 1,400 67,462
Ultramar Diamond Shamrock Corp. ............ 600 19,125
Valero Energy Corp. ........................ 1,000 31,438
Varco International, Inc.+ ................. 900 19,294
Weatherford Enterra, Inc.+ ................. 700 30,625
----------
690,334
----------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Paper and Containers (1.3%)
Bowater, Inc. .............................. 400 $ 17,775
Consolidated Papers, Inc. .................. 400 21,350
Rayoner, Inc. .............................. 300 12,769
Sealed Air Corp.+ .......................... 300 18,525
Sonoco Products Co. ........................ 900 31,219
----------
101,638
----------
Pharmaceuticals (0.6%)
Forest Laboratories, Inc.+ ................. 300 14,794
Omnicare, Inc. ............................. 500 15,500
Watson Pharmaceuticals, Inc.+ .............. 600 19,463
----------
49,757
----------
Printing and Publishing (1.0%)
Lexmark International Group, Inc.+ ......... 700 26,600
Washington Post Co. ........................ 100 48,649
----------
75,249
----------
Retail (5.8%)
Barnes & Noble, Inc.+ ...................... 600 20,025
Bed, Bath & Beyond, Inc.+ .................. 400 15,400
Best Buy Co., Inc.+ ........................ 400 14,750
BJ's Wholesale Club, Inc.+ ................. 300 9,413
Claire's Stores, Inc. ...................... 600 11,663
Consolidated Stores Corp.+ ................. 500 21,969
Dollar General Corp. ....................... 900 32,625
Family Dollar Stores, Inc. ................. 1,200 35,175
Fingerhut Companies, Inc. .................. 900 19,238
Fred Meyer, Inc.+ .......................... 800 29,100
General Nutrition Companies, Inc.+ ......... 1,100 37,400
Hannaford Brothers Co. ..................... 300 13,031
Kohl's Corp.+ .............................. 700 47,688
Land's End, Inc.+ .......................... 300 10,519
Mac Frugal's Bargains+ ..................... 200 8,225
Office Depot, Inc.+ ........................ 1,000 23,938
Officemax, Inc.+ ........................... 1,200 17,100
Payless ShoeSource, Inc.+ .................. 500 33,563
Staples, Inc.+ ............................. 1,500 41,625
Tiffany & Co. .............................. 300 10,819
----------
453,266
----------
Telecommunications (0.6%)
Aliant Communications, Inc. ................ 900 28,238
Comsat Corp. ............................... 600 14,550
----------
42,788
----------
Transportation (2.2%)
Airborne Freight Corp. ..................... 400 24,850
Alexander & Baldwin ........................ 600 16,388
ASA Holdings, Inc. ......................... 300 8,531
CNF Transportation, Inc. ................... 800 30,700
Harley-Davidson, Inc. ...................... 1,000 27,375
Illinois Central Corp. ..................... 500 17,031
</TABLE>
See Notes to Portfolio of Investments. 51
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Mid Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Transportation (continued)
Kansas City Southern Industries, Inc. ........... 900 $ 28,575
Overseas Shipholding Group, Inc. ................ 600 13,088
Wisconsin Central Transportation Corp.+ ......... 300 7,013
----------
173,551
----------
Utilities--Electric (8.7%)
AES Corp.+ ...................................... 2,400 111,899
Allegheny Energy, Inc. .......................... 800 26,000
Atlantic Energy, Inc. ........................... 700 14,831
Calenergy, Inc.+ ................................ 1,500 43,125
CMS Energy Corp. ................................ 900 39,656
Delmarva Power & Light Co. ...................... 400 9,225
Florida Progress Corp. .......................... 600 23,550
Idaho Power Co. ................................. 300 11,288
IPALCO Enterprises, Inc. ........................ 600 25,163
Kansas City Power & Light Co. ................... 400 11,825
LG&E Corp. ...................................... 400 9,900
Midamerican Energy Holdings Corp. ............... 900 19,800
Minnesota Power & Light Co. ..................... 500 21,781
Montana Power Co. ............................... 500 15,906
Nevada Power Co. ................................ 500 13,281
New Century Energies, Inc. ...................... 700 33,556
New England Electric System ..................... 600 25,650
New York State Electric & Gas Corp. ............. 600 21,300
Nipsco Industries, Inc. ......................... 600 29,663
Oge Energy Corp. ................................ 400 21,875
Pinnacle West Capital Corp. ..................... 800 33,900
Potomac Electric Power Co. ...................... 800 20,650
Public Service Co. of New Mexico ................ 400 9,475
SCANA Corp. ..................................... 700 20,956
TECO Energy, Inc. ............................... 900 25,313
Washington Gas Light Co. ........................ 600 18,563
Wisconsin Energy Corp. .......................... 700 20,125
----------
678,256
----------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Utilities--Oil and Gas (1.0%)
KeySpan Energy Corp. ............................ 300 $ 11,044
MCN Corp. ....................................... 700 28,263
Questar Corp. ................................... 400 17,850
UtiliCorp United, Inc. .......................... 500 19,406
----------
76,563
----------
Utilities--Telephone (1.2%)
Century Telephone Enterprises ................... 700 34,869
Southern New England Telecommunications
Corp. ......................................... 1,100 55,343
----------
90,212
----------
Utilities--Water (0.2%)
American Water Works Co., Inc. .................. 700 19,119
----------
Total Common Stocks (cost $7,208,084) 7,465,326
==========
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.8%)
Federal Home Loan Bank, Comm. Paper, 4.90%,
1/2/98 ................................................................ $296,000 $ 296,000
Total Short-Term Investments
(cost $296,000) 296,000
----------
TOTAL INVESTMENTS (cost $7,504,084)(a) 7,761,326
Other assets less liabilities (4,932)
----------
Total Net Assets $7,756,394
==========
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, 1997,
are as follows:
Unrealized gains ........................................................ $ 340,882
Unrealized losses ....................................................... (83,640)
----------
Net unrealized gain .................................................... $ 257,242
==========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
52 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Assets and Liabilities--December 31, 1997
Aetna Index Plus Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value .......................................................... $7,761,326
Cash .................................................................................. 323
Receivable for:
Dividends and interest ............................................................... 2,464
----------
Total assets ....................................................................... 7,764,113
----------
Liabilities:
Payable for:
Dividends to shareholders ............................................................ 5,625
Accrued investment advisory fees ...................................................... 1,396
Accrued administrative services fees .................................................. 698
----------
Total liabilities .................................................................. 7,719
----------
NET ASSETS ........................................................................... $7,756,394
==========
Net assets represented by:
Paid-in capital ....................................................................... $7,500,000
Net unrealized gain on investments .................................................... 257,242
Distributions in excess of net investment income ...................................... (848)
----------
NET ASSETS ........................................................................... $7,756,394
==========
Capital Shares, $0.001 par value:
Outstanding ........................................................................... 750,000
Net asset value, offering and redemption price per share (net assets divided by shares $ 10.342
outstanding)
Cost of investments ................................................................... $7,504,084
</TABLE>
See Notes to Financial Statements. 53
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Operations--Period from December 15, 1997 to December 31, 1997
Aetna Index Plus Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends ................................................................ $ 2,759
Interest ................................................................. 4,112
--------
Total investment income ............................................... 6,871
--------
Expenses:
Investment advisory fees ................................................. 1,396
Administrative services fees ............................................. 698
--------
Total expenses ........................................................ 2,094
--------
Net investment income .................................................... 4,777
--------
Net Realized and Unrealized Gain (Loss):
Net change in unrealized gain or loss on:
Investments ............................................................. 257,242
--------
Net change in unrealized gain or loss on investments .................. 257,242
--------
Net realized and change in unrealized gain (loss) on investments ......... 257,242
--------
Net increase in net assets resulting from operations ..................... $262,019
========
</TABLE>
54 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Changes in Net Assets
Aetna Index Plus Mid Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 15, 1997 to
December 31, 1997
---------------------
<S> <C>
Operations:
Net investment income ............................................................. $ 4,777
Net change in unrealized gain or loss on investments .............................. 257,242
----------
Net increase in net assets resulting from operations ............................ 262,019
----------
Distributions to Shareholders:
From net investment income ........................................................ (5,625)
----------
Decrease in net assets from distributions to shareholders ....................... (5,625)
----------
Fund Share Transactions:
Proceeds from shares sold ......................................................... 7,500,000
----------
Net increase in net assets from fund share transactions ......................... 7,500,000
----------
Net change in net assets .......................................................... 7,756,394
Net assets:
Beginning of period ............................................................... --
----------
End of period ..................................................................... $7,756,394
==========
End of period net assets includes distributions in excess of net investment income $ (848)
==========
Share Transactions:
Number of shares sold ............................................................. 750,000
----------
Net increase .................................................................... 750,000
==========
</TABLE>
See Notes to Financial Statements. 55
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Index Plus Mid Cap Portfolio
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
organized under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate Portfolios each of which has its
own investment objective, policies and restrictions.
The Fund offers eleven Portfolios, one of which, Aetna Index Plus Mid Cap
Portfolio (Portfolio), which commenced on December 15, 1997, is described in
this report.
The Portfolio seeks to outperform the total return performance of publicly
traded common stock represented in the Standard and Poor's (S&P) 400 Index, a
stock market index composed of 400 common stocks selected by the S&P.
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. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as a
subadviser to the Portfolio.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or for over-the-counter securities, at
the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued 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 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.
C. Distributions
The Portfolio distributes all of its net investment income and capital gains, if
any, to 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.
For the period ended December 31, 1997, there were no differences.
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 accreted or amortized, respectively, 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.
56
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Index Plus Mid Cap Portfolio (continued)
- --------------------------------------------------------------------------------
3. Investment Advisory Fee and Other Expenses
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.40% of its average daily net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and 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, directors' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at a rate of 0.20% of the average daily net assets of the Portfolio.
Under the terms of a Subadvisory Agreement among the Portfolio, ALIAC and
Aeltus, Aeltus supervises the investment and reinvestment of cash and securities
and provides certain related administrative services to the Portfolio in
exchange for a fee (payable by ALIAC) of up to 0.30% of average daily net assets
of the Portfolio. For the period ended December 31, 1997, ALIAC paid Aeltus
$1,047 in accordance with the terms of the Subadvisory Agreement.
4. Purchases of Investment Securities
Purchases of investment securities, excluding short-term investments, for the
period ended December 31, 1997, were $7,208,084.
57
<PAGE>
Aetna Variable Portfolios, Inc.
Financial Highlights
Aetna Index Plus Mid Cap Portfolio
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout the period.
<TABLE>
<CAPTION>
Period from
December 15, 1997
to December 31, 1997
---------------------
<S> <C>
Net asset value, beginning of period .................................... $ 10.000
---------
Income from investment operations:
Net investment income .................................................. 0.006
Net realized and unrealized gain on investments ........................ 0.344
---------
Total from investment operations ..................................... 0.350
---------
Less distributions:
From net investment income ............................................. (0.008)
---------
Total distributions .................................................. (0.008)
---------
Net asset value, end of period .......................................... $ 10.342
=========
Total return* ........................................................... 3.50%
Net assets, end of period (000's) ....................................... $ 7,756
Ratio of total expenses to average net assets ........................... 0.60%(1)
Ratio of net investment income to average net assets .................... 1.37%(1)
Average commission rate paid per share on purchases of equity securities $ 0.0481
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
58 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
Index Plus Mid Cap Portfolio, a portfolio of Aetna Variable Portfolios, Inc.
(the Portfolio), including the portfolio of investments, as of December 31,
1997, and the related statements of operations, changes in net assets and the
financial highlights for the period from December 15, 1997 (date of commencement
of operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio'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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1997, 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
Index Plus Mid Cap Portfolio, as of December 31, 1997, the results of its
operations, changes in its net assets and financial highlights for the period
from December 15, 1997 to December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
59
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Small Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
COMMON STOCKS (98.5%)
Aerospace and Defense (1.7%)
AAR Corp. .................................. 500 $ 19,375
Alliant Techsystems, Inc.+ ................. 500 27,875
Anixter International, Inc.+ ............... 1,300 21,450
BE Aerospace, Inc.+ ........................ 600 16,050
Kaman Corp. Class A ........................ 500 8,188
Orbital Sciences Corp.+ .................... 600 17,850
Tracor Inc.+ ............................... 700 21,263
----------
132,051
----------
Apparel (2.1%)
Authentic Fitness Corp. .................... 600 11,063
Galey & Lord, Inc.+ ........................ 600 10,725
Gymboree Corp. (The)+ ...................... 600 16,425
Justin Industries .......................... 700 9,538
Kellwood Co. ............................... 600 18,000
Nautica Enterprises, Inc.+ ................. 700 16,275
Oxford Industries, Inc. .................... 500 16,250
St. John Knits, Inc. ....................... 300 12,000
Timberland Co. (The)+ ...................... 200 11,613
Wolverine World Wide, Inc. ................. 1,700 38,463
----------
160,352
----------
Auto Parts and Accessories (0.6%)
Myers Industries, Inc. ..................... 1,000 17,063
Standard Motor Products, Inc. .............. 500 11,281
TBC Corp.+ ................................. 900 8,606
Titan International, Inc. .................. 600 12,038
----------
48,988
----------
Autos and Auto Equipment (1.1%)
Intermet Corp. ............................. 1,000 17,500
SPX Corp. .................................. 500 34,500
Standard Products Co. ...................... 900 23,063
Wynn's International, Inc. ................. 300 9,563
----------
84,626
----------
Banks (7.1%)
CCB Financial Corp. ........................ 500 53,749
Centura Banks, Inc. ........................ 500 34,500
Coast Savings Financial, Inc.+ ............. 500 34,281
Commercial Federal Corp. ................... 600 21,338
Cullen/Frost Bankers, Inc. ................. 600 36,413
First Commercial Corp. ..................... 700 41,038
FirstBank Puerto Rico ...................... 600 20,438
FirstMerit Corp. ........................... 1,600 45,399
Magna Group, Inc. .......................... 900 41,175
ONBANCorp, Inc. ............................ 500 35,250
Riggs National Corp. ....................... 600 16,125
Sovereign Bancorp, Inc. .................... 2,400 49,799
St. Paul Bancorp, Inc. ..................... 900 23,625
U.S. Trust Corp. ........................... 400 25,050
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Banks (continued)
Zion Bancorporation ........................ 1,600 $ 72,599
----------
550,779
----------
Building Materials and Construction (5.9%)
Apogee Enterprises, Inc. ................... 500 5,938
Butler Manufacturing Co. ................... 400 12,900
Champion Enterprises, Inc.+ ................ 900 18,506
Continental Homes Holding Corp. ............ 300 12,075
Interface, Inc. ............................ 800 23,200
Lone Star Industries, Inc. ................. 600 31,875
MDC Holdings, Inc. ......................... 900 13,556
Medusa Corp. ............................... 900 37,631
Morrison Knudsen Corp.+ .................... 2,100 20,475
Oakwood Homes Corp. ........................ 1,200 39,825
Republic Group, Inc. ....................... 500 8,188
Smith (A.O.) Corp. ......................... 300 12,675
Standard Pacific Corp. ..................... 1,600 25,200
Stone & Webster, Inc. ...................... 700 32,813
Texas Industries, Inc. ..................... 1,100 49,499
Thomas Industries, Inc. .................... 600 11,850
TJ International, Inc. ..................... 400 9,900
Toll Brothers, Inc.+ ....................... 1,400 37,450
Tredegar Industries, Inc. .................. 500 32,938
U.S. Home Corp.+ ........................... 600 23,550
----------
460,044
----------
Chemicals (1.2%)
Cambrex Corp. .............................. 300 13,800
Chemed Corp. ............................... 200 8,288
ChemFirst, Inc. ............................ 400 11,300
Geon Co. (The) ............................. 900 21,038
MacDermid, Inc. ............................ 200 16,975
Mississippi Chemical Corp. ................. 500 9,125
OM Group, Inc. ............................. 400 14,650
----------
95,176
----------
Commercial Services (4.4%)
ABM Industries, Inc. ....................... 500 15,281
ADVO, Inc.+ ................................ 1,000 19,500
American Management Systems, Inc.+ ......... 800 15,600
BancTec, Inc.+ ............................. 900 24,131
Billing Information Concepts+ .............. 300 14,400
BISYS Group, Inc. (The)+ ................... 500 16,625
CDI Corp.+ ................................. 500 22,875
Devry, Inc.+ ............................... 600 19,125
Fair Isaac & Co., Inc. ..................... 200 6,663
Franklin Covey Co.+ ........................ 700 15,400
G & K Services, Inc. ....................... 400 16,800
Gerber Scientific, Inc. .................... 400 7,950
Interim Services, Inc.+ .................... 1,000 25,875
National Data Corp. ........................ 500 18,063
Norrell Corp. .............................. 700 13,913
OHM Corp.+ ................................. 1,400 10,675
</TABLE>
60 See Notes to Portfolio of Investments.
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Small Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Commercial Services (continued)
Orthodontic Centers of America, Inc.+ ......... 800 $ 13,300
Regis Corp. Minn. ............................. 600 15,075
True North Communications, Inc. ............... 500 12,375
Volt Information Sciences, Inc.+ .............. 400 21,550
World Color Press, Inc.+ ...................... 700 18,594
----------
343,770
----------
Computer Software (2.0%)
Analysts International Corp. .................. 400 13,800
Boole & Babbage, Inc.+ ........................ 300 8,963
Ciber, Inc.+ .................................. 400 23,200
Hyperion Software Corp.+ ...................... 300 10,725
Keane, Inc.+ .................................. 1,700 69,062
Sterling Software, Inc.+ ...................... 700 28,700
----------
154,450
----------
Computers and Office Equipment (1.3%)
Comverse Technology, Inc.+ .................... 700 27,300
Henry (Jack) & Associates ..................... 300 8,175
Komag, Inc.+ .................................. 1,400 20,825
National Computer Systems, Inc. ............... 300 10,575
New England Business Service, Inc. ............ 400 13,500
Read-Rite Corp.+ .............................. 1,300 20,475
----------
100,850
----------
Consumer Products (2.2%)
Arctic Cat, Inc. .............................. 900 8,719
Chiquita Brands International, Inc. ........... 1,600 26,100
Dekalb Genetics Corp. Class B ................. 500 19,625
DIMON, Inc. ................................... 2,300 60,374
Guilford Mills, Inc. .......................... 600 16,425
Scotts Co. (The)+ ............................. 700 21,175
Sturm, Ruger & Co., Inc. ...................... 700 12,906
WD-40 Co. ..................................... 300 8,700
----------
174,024
----------
Diversified (1.8%)
Brady (WH) Co. ................................ 500 15,500
CLARCOR, Inc. ................................. 600 17,775
Griffon Corp.+ ................................ 1,200 17,550
Helix Technology Corp. ........................ 800 15,600
Kulicke & Soffa Industries, Inc.+ ............. 600 11,175
Robbins & Myers, Inc. ......................... 400 15,850
SPS Technologies, Inc.+ ....................... 500 21,813
Standex International Corp. ................... 300 10,575
Triarc Co., Inc.+ ............................. 600 16,350
----------
142,188
----------
Electrical Equipment (4.3%)
Belden, Inc. .................................. 500 17,625
C-Cube Microsystems, Inc.+ .................... 700 11,419
Cable Design Technologies+ .................... 500 19,438
Dionex Corp.+ ................................. 300 15,075
Electro Scientific Industries, Inc.+ .......... 600 22,800
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Electrical Equipment (continued)
Etec Systems, Inc.+ ........................... 400 $ 18,600
Hadco Corp.+ .................................. 700 31,675
Innovex, Inc. ................................. 800 18,350
Kemet Corp.+ .................................. 1,000 19,375
Lattice Semiconductor Corp.+ .................. 400 18,950
Marshall Industries+ .......................... 300 9,000
Microchip Technology, Inc.+ ................... 1,000 30,000
Novellus Systems, Inc.+ ....................... 1,800 58,162
Trimble Navigation Ltd.+ ...................... 400 8,725
Valmont Industries ............................ 700 13,650
Vitesse Semiconductor Corp.+ .................. 700 26,425
----------
339,269
----------
Electronics (5.0%)
Baldor Electric Co. ........................... 500 10,844
Benchmark Electronics, Inc.+ .................. 500 11,156
BMC Industries, Inc. .......................... 500 8,063
Dallas Semiconductor Corp. .................... 1,400 57,049
Dynatech Corp.+ ............................... 300 14,063
Fluke Corp. ................................... 500 13,031
Gentex Corp.+ ................................. 700 18,813
Integrated Circuit Systems, Inc.+ ............. 700 19,950
Kent Electronics Corp.+ ....................... 700 17,588
Methode Electronics, Inc. Class A ............. 600 9,750
Paxar Corp.+ .................................. 900 13,331
Phototronics, Inc.+ ........................... 600 14,550
Pioneer Standard Electronics .................. 800 12,200
Plexus Corp.+ ................................. 800 11,900
Sanmina Corp.+ ................................ 500 33,875
SpeedFam International, Inc.+ ................. 800 21,200
Unitrode Corp.+ ............................... 600 12,900
Vicor Corp.+ .................................. 600 16,275
VLSI Technology, Inc.+ ........................ 1,900 44,887
Westwood One, Inc.+ ........................... 800 29,700
----------
391,125
----------
Financial Services (7.6%)
AMRESCO, Inc.+ ................................ 1,400 42,349
Astoria Financial Corp. ....................... 500 27,875
Downey Financial Corp. ........................ 700 19,906
Eaton Vance Corp. ............................. 500 18,875
Interra Financial, Inc. ....................... 700 48,299
JSB Financial, Inc. ........................... 300 15,019
Keystone Financial, Inc. ...................... 1,000 40,250
Legg Mason, Inc. .............................. 1,000 55,937
National Auto Credit, Inc.+ ................... 1,500 7,969
Pioneer Group, Inc. ........................... 500 14,063
Piper Jaffray Companies, Inc. ................. 500 18,219
Provident Financial Group, Inc. ............... 1,100 53,349
Quick & Reilly Group, Inc. .................... 1,000 42,999
Raymond James Financial, Inc. ................. 1,700 67,468
Rollins Truck Leasing Corp. ................... 1,100 19,663
</TABLE>
See Notes to Portfolio of Investments. 61
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Small Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Financial Services (continued)
Ryland Group, Inc. ............................. 400 $ 9,450
SEI Investments Co. ............................ 300 12,600
TCF Financial Corp. ............................ 1,700 57,693
Whitney Holding Corp. .......................... 400 22,800
----------
594,783
----------
Foods and Beverages (1.4%)
Canandaigua Wine Co., Inc., Class A+ ........... 400 22,150
Earthgrains Co. ................................ 400 18,800
Express Scripts, Inc.+ ......................... 200 12,000
Smithfields Foods, Inc.+ ....................... 1,000 33,000
Whole Foods Market, Inc.+ ...................... 400 20,450
----------
106,400
----------
Health Services (4.6%)
Cerner Corp.+ .................................. 600 12,675
Coventry Corp.+ ................................ 900 13,725
Genesis Health Ventures, Inc.+ ................. 600 15,825
Integrated Health Services, Inc. ............... 2,300 71,730
Invacare Corp. ................................. 500 10,875
Lincare Holdings, Inc.+ ........................ 500 28,500
Magellan Health Services, Inc.+ ................ 500 10,750
Mariner Health Group, Inc.+ .................... 1,600 26,000
North American Vaccine, Inc.+ .................. 600 14,963
Patterson Dental Co.+ .......................... 400 18,100
Pediatrix Medical Group, Inc.+ ................. 300 12,825
Phycor, Inc.+ .................................. 1,200 32,400
Renal Care Group, Inc.+ ........................ 400 12,800
Renal Treatment Centers, Inc.+ ................. 500 18,063
Sierra Health Services, Inc.+ .................. 500 16,813
Universal Health Services, Inc.+ ............... 800 40,300
----------
356,344
----------
Home Furnishings and Appliances (2.0%)
D.R. Horton, Inc. .............................. 1,000 17,375
Ethan Allen Interiors, Inc. .................... 1,500 57,843
La-Z-Boy, Inc. ................................. 500 21,563
Mohawk Industries, Inc.+ ....................... 2,100 46,068
Pillowtex Corp. ................................ 400 13,950
----------
156,799
----------
Hotels and Restaurants (2.3%)
Applebees International, Inc. .................. 600 10,838
CKE Restaurants, Inc. .......................... 800 33,700
Foodmaker, Inc.+ ............................... 2,100 31,631
IHOP Corp.+ .................................... 300 9,750
Landry's Seafood Restaurants, Inc.+ ............ 700 16,800
Prime Hospitality Corp.+ ....................... 1,200 24,450
Ruby Tuesday, Inc.+ ............................ 700 18,025
Ryan's Family Steak Houses, Inc.+ .............. 2,500 21,406
Showbiz Pizza Time, Inc.+ ...................... 700 16,100
----------
182,700
----------
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Insurance (7.0%)
Allied Group, Inc. ............................. 800 $ 22,900
American Bankers Insurance Group ............... 1,100 50,530
Capital RE Corp. ............................... 400 24,825
CMAC Investment Corp. .......................... 600 36,225
Enhance Financial Services Group, Inc. ......... 700 41,649
Executive Risk, Inc. ........................... 300 20,944
Fidelity National Financial, Inc. .............. 440 13,695
First American Financial Corp. ................. 500 36,938
Fremont General Corp. .......................... 1,300 71,174
Frontier Insurance Group, Inc. ................. 1,300 29,738
Gallagher (Arthur J.) & Co. .................... 400 13,775
Life Re Corp. .................................. 400 26,075
Mutual Risk Management Ltd. .................... 1,000 29,938
Orion Capital Corp. ............................ 1,100 51,080
Protective Life Corp. .......................... 800 47,799
Selective Insurance Group, Inc. ................ 800 21,600
Trenwick Group, Inc. ........................... 300 11,288
----------
550,173
----------
Machinery and Equipment (3.3%)
Applied Industrial Technologies, Inc. .......... 600 16,050
Applied Power, Inc. ............................ 400 27,600
Blount, Inc. Class A ........................... 700 18,681
Cognex Corp.+ .................................. 1,100 29,975
Global Industrial Technologies, Inc.+ .......... 1,200 20,325
Hughes Supply, Inc. ............................ 300 10,481
JLG Industries, Inc. ........................... 800 11,300
Kuhlman Corp. .................................. 900 35,213
Lindsay Manufacturing Co. ...................... 200 8,675
Manitowoc Co., Inc. (The) ...................... 900 29,250
Regal Beloit ................................... 500 14,781
Toro Co. ....................................... 300 12,788
Wabash National Corp. .......................... 500 14,219
Zero Corp. ..................................... 300 8,888
----------
258,226
----------
Media and Entertainment (1.3%)
Allen Telecom, Inc.+ ........................... 500 9,219
Carmike Cinemas, Class A+ ...................... 300 8,606
Grand Casinos, Inc.+ ........................... 2,200 29,975
Hollywood Park, Inc.+ .......................... 500 11,000
K2, Inc. ....................................... 700 15,925
Regal Cinemas, Inc.+ ........................... 1,000 27,875
----------
102,600
----------
Medical Supplies (1.3%)
Ballard Medical Products ....................... 500 12,125
Bio-Technology General Corp.+ .................. 900 9,675
Coherent, Inc.+ ................................ 300 10,538
Fisher Scientific International ................ 400 19,100
Respironics, Inc.+ ............................. 400 8,950
</TABLE>
62 See Notes to Portfolio of Investments.
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Small Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Medical Supplies (continued)
Safeskin Corp.+ ...................................... 500 $ 28,375
Sola International, Inc.+ ............................ 500 16,250
----------
105,013
----------
Metals and Mining (1.8%)
Amcast Industrial Corp. .............................. 400 9,175
Amcol International Corp. ............................ 700 11,113
Castle (A.M.) & Co. .................................. 700 16,013
Commercial Metals Co. ................................ 600 18,938
Commonwealth Industries, Inc. ........................ 800 11,600
Mueller Industries, Inc.+ ............................ 700 41,300
Quanex Corp. ......................................... 400 11,250
Wolverine Tube, Inc.+ ................................ 600 18,600
----------
137,989
----------
Oil and Gas (4.7%)
Cabot Oil & Gas Corp. ................................ 500 9,719
Camco International, Inc. ............................ 1,000 63,687
Cross Timbers Oil Co. ................................ 500 12,469
Daniel Industries .................................... 500 9,625
Devon Energy Corp. ................................... 900 34,650
Input/Output, Inc.+ .................................. 800 23,750
KCS Energy, Inc. ..................................... 800 16,600
Offshore Logistics, Inc.+ ............................ 400 8,550
Pool Energy Services Co.+ ............................ 1,000 22,250
Pride International, Inc.+ ........................... 2,500 63,124
Roper Industries, Inc. ............................... 600 16,950
Snyder Oil Corp. ..................................... 600 10,950
St. Mary Land & Exploration Co. ...................... 300 10,500
Tuboscope Vetco International Corp.+ ................. 1,700 40,906
Vintage Petroleum, Inc. .............................. 1,400 26,600
----------
370,330
----------
Paper and Containers (1.3%)
Aptargroup, Inc. ..................................... 500 27,750
Buckeye Technologies, Inc.+ .......................... 700 32,375
Caraustar Industries, Inc. ........................... 500 17,125
Schweitzer-Mauduit International, Inc. ............... 400 14,900
Zebra Technologies, Inc.+ ............................ 400 11,900
----------
104,050
----------
Pharmaceuticals (1.3%)
ICN Pharmaceuticals, Inc. ............................ 1,700 82,980
Roberts Pharmaceutical Corp.+ ........................ 1,500 14,344
----------
97,324
----------
Printing and Publishing (1.6%)
Bowne & Co., Inc. .................................... 700 27,913
Merrill Corp. ........................................ 900 20,925
Valassis Communications, Inc.+ ....................... 2,100 77,699
----------
126,537
----------
Retail (6.4%)
Arbor Drugs, Inc. .................................... 700 12,950
Carson Pirie Scott & Co.+ ............................ 400 20,050
</TABLE>
<TABLE>
<CAPTION>
Number of Market
Shares Value
------------ -------------
<S> <C> <C>
Retail (continued)
Casey's General Stores, Inc. ......................... 500 $ 12,688
Dress Barn, Inc.+ .................................... 900 25,538
Eagle Hardware & Garden, Inc.+ ....................... 800 15,500
Fabri-Centers of America, Class A+ ................... 500 11,156
Footstar, Inc.+ ...................................... 1,500 40,313
Juno Lighting, Inc. .................................. 500 8,750
Mens Wearhouse, Inc.+ ................................ 600 20,850
Michaels Stores, Inc.+ ............................... 800 23,400
O'Reilly Automotive, Inc.+ ........................... 400 10,500
Pier 1 Imports, Inc. ................................. 1,800 40,725
Proffitt's, Inc.+ .................................... 1,100 31,281
Ross Stores, Inc. .................................... 1,900 69,112
Russ Berrie & Co., Inc. .............................. 1,200 31,500
Shopko Stores, Inc.+ ................................. 1,400 30,450
Sports Authority, Inc. (The)+ ........................ 600 8,850
Stein Mart, Inc.+ .................................... 600 16,050
Stride Rite Corp. .................................... 1,300 15,600
Tech Data Corp.+ ..................................... 900 34,988
Williams-Sonoma, Inc.+ ............................... 500 20,938
----------
501,189
----------
Telecommunications (1.0%)
Boston Technology, Inc.+ ............................. 700 17,588
Dialogic Corp.+ ...................................... 300 13,125
Digital Microwave Corp.+ ............................. 700 10,150
P-Com, Inc.+ ......................................... 800 13,800
Tel-Save Holdings, Inc.+ ............................. 1,200 23,850
----------
78,513
----------
Transportation (3.6%)
Air Express International Corp. ...................... 600 18,300
American Freightways Corp.+ .......................... 800 7,900
Arkanas Best Corp.+ .................................. 1,000 9,750
Comair Holdings, Inc. ................................ 1,800 43,424
Expeditors International of Washington, Inc. ......... 600 23,100
Halter Marine Group, Inc.+ ........................... 800 23,100
Heartland Express, Inc.+ ............................. 600 16,125
Landstar Systems, Inc.+ .............................. 300 7,913
M.S. Carriers, Inc.+ ................................. 500 12,438
Pittston Burlington Group ............................ 1,100 28,875
U.S. Freightways Corp. ............................... 1,000 32,500
Werner Enterprises, Inc. ............................. 1,000 20,500
Yellow Corp.+ ........................................ 1,500 37,688
----------
281,613
----------
Utilities--Electric (2.6%)
Aquarion Co. ......................................... 300 10,369
Central Hudson Gas & Electric Co. .................... 300 13,163
Central Vermont Public Service ....................... 600 9,150
CILCORP, Inc. ........................................ 300 14,663
Commonwealth Energy System Co. ....................... 1,100 36,575
Eastern Utilities Associates ......................... 500 13,125
Interstate Power Co. ................................. 300 11,231
</TABLE>
See Notes to Portfolio of Investments. 63
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments--December 31, 1997
Aetna Index Plus Small Cap Portfolio (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -------------
<S> <C> <C>
Utilities--Electric (continued)
Orange & Rockland Utilities, Inc. ............ 400 $ 18,625
Sierra Pacific Resources ..................... 800 30,000
TNP Enterprises, Inc. ........................ 300 9,975
United Illuminating Co. ...................... 400 18,375
United Water Resources, Inc. ................. 1,000 19,563
----------
204,814
----------
Utilities--Oil and Gas (2.5%)
Atmos Energy Corp. ........................... 500 15,125
Connecticut Energy Corp. ..................... 300 9,038
Energen Corp. ................................ 400 15,900
KN Energy, Inc. .............................. 800 43,199
New Jersey Resources Corp. ................... 500 20,031
Northwest Natural Gas Co. .................... 600 18,600
Piedmont Natural Gas, Inc. ................... 800 28,750
Public Service Co. of North Carolina ......... 400 9,150
Southwest Gas Corp. .......................... 500 9,344
Wicor, Inc. .................................. 500 23,219
----------
192,356
----------
Utilities--Water (0.2%)
Philadelphia Suburban Corp. .................. 400 11,775
----------
Total Common Stocks (cost $7,377,995) 7,697,220
==========
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- -------------
<S> <C> <C>
Short-Term Investments (1.6%)
Federal Home Loan Bank, Comm. Paper, 4.90%,
01/02/98 $127,000 $ 127,000
----------
Total Short-Term Investments
(cost $127,000) 127,000
----------
TOTAL INVESTMENTS (cost $7,504,995)(a) 7,824,220
Other assets less liabilities (6,959)
----------
Total Net Assets $7,817,261
==========
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, 1997,
are as follows:
Unrealized gains ........................................................ $ 384,066
Unrealized losses ....................................................... (64,841)
----------
Net unrealized gain .................................................... $ 319,225
==========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
64 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Assets and Liabilities--December 31, 1997
Aetna Index Plus Small Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments, at market value ............................................................. $7,824,220
Cash ..................................................................................... 793
Receivable for:
Dividends and interest .................................................................. 1,486
----------
Total assets .......................................................................... 7,826,499
----------
Liabilities:
Payable for:
Dividends to shareholders ............................................................... 7,500
Accrued investment advisory fees ......................................................... 1,159
Accrued administrative services fees ..................................................... 579
----------
Total liabilities ..................................................................... 9,238
----------
NET ASSETS .............................................................................. $7,817,261
==========
Net assets represented by:
Paid-in capital .......................................................................... $7,500,000
Net unrealized gain on investments ....................................................... 319,225
Distributions in excess of net investment income ......................................... (1,964)
----------
NET ASSETS .............................................................................. $7,817,261
==========
Capital Shares, $0.001 par value:
Outstanding .............................................................................. 750,000
Net asset value, offering and redemption price per share (net assets divided by shares $ 10.423
outstanding)
Cost of investments ...................................................................... $7,504,995
</TABLE>
See Notes to Financial Statements. 65
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Operations--Period from December 19, 1997 to December 31, 1997
Aetna Index Plus Small Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends ................................................................ $ 1,486
Interest ................................................................. 5,788
--------
Total investment income ............................................... 7,274
--------
Expenses:
Investment advisory fees ................................................. 1,159
Administrative services fees ............................................. 579
--------
Total expenses ........................................................ 1,738
--------
Net investment income .................................................... 5,536
--------
Net Realized and Unrealized Gain (Loss):
Net change in unrealized gain or loss on:
Investments ............................................................. 319,225
--------
Net change in unrealized gain or loss on investments .................. 319,225
--------
Net realized and change in unrealized gain (loss) on investments ......... 319,225
--------
Net increase in net assets resulting from operations ..................... $324,761
========
</TABLE>
66 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statement of Changes in Net Assets
Aetna Index Plus Small Cap Portfolio
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period from
December 19, 1997
to December 31, 1997
---------------------
<S> <C>
Operations:
Net investment income ............................................................. $ 5,536
Net change in unrealized gain or loss on investments .............................. 319,225
----------
Net increase in net assets resulting from operations ............................ 324,761
----------
Distributions to Shareholders:
From net investment income ........................................................ (7,500)
----------
Decrease in net assets from distributions to shareholders ....................... (7,500)
----------
Fund Share Transactions:
Proceeds from shares sold ......................................................... 7,500,000
----------
Net increase in net assets from fund share transactions ......................... 7,500,000
----------
Net change in net assets .......................................................... 7,817,261
Net assets:
Beginning of period ............................................................... --
----------
End of period ..................................................................... $7,817,261
==========
End of period net assets includes distributions in excess of net investment income $ (1,964)
==========
Share Transactions:
Number of shares sold ............................................................. 750,000
----------
Net increase .................................................................... 750,000
==========
</TABLE>
See Notes to Financial Statements. 67
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Index Plus Small Cap Portfolio
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 as an open-end management investment company. It was
organized under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate Portfolios each of which has its
own investment objective, policies and restrictions.
The Fund offers eleven Portfolios, one of which, Aetna Index Plus Small Cap
Portfolio (Portfolio), which commenced operations on December 19, 1997, is
described in this report.
The Portfolio seeks to outperform the total return performance of publicly
traded common stocks represented by the Standard & Poor's (S&P) 600 Small Cap
Index, a stock market index composed of 600 common stocks selected by the S&P.
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. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as a
subadviser to the Portfolio.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or for over-the-counter securities, at
the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued 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 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.
C. Distributions
The Portfolio distributes all of its net investment income and capital gains, if
any, to 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.
For the period ended December 31, 1997, there were no differences.
D. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, 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.
68
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements--December 31, 1997
Aetna Index Plus Small Cap Portfolio (continued)
- --------------------------------------------------------------------------------
3. Investment Advisory Fee and Other Expenses
The Portfolio pays the Investment Adviser a monthly fee at an annual rate of
0.40% of its average daily net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and 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, directors' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at a rate of 0.20% of the average daily net assets of the Portfolio.
Under the terms of a Subadvisory Agreement among the Porfolio, ALIAC and Aeltus,
Aeltus supervises the investment and reinvestment of cash and securities and
provides certain related administrative services to the Portfolio in exchange
for a fee (payable by ALIAC) of up to 0.30% of average daily net assets of the
portfiolio. For the period ended December 31, 1997, ALIAC paid Aeltus $869 in
accordance with the terms of the Subadvisory Agreement.
4. Purchases of Investment Securities
Purchases of investment securities, excluding short-term investments, for the
period ended December 31, 1997, were $7,377,995.
69
<PAGE>
Aetna Variable Portfolios, Inc.
Financial Highlights
Aetna Index Plus Small Cap Portfolio
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout the period.
<TABLE>
<CAPTION>
Period from
December 19, 1997
to December 31, 1997
---------------------
<S> <C>
Net asset value, beginning of period .................................... $ 10.000
---------
Income from investment operations:
Net investment income .................................................. 0.007
Net realized and unrealized gain on investments ........................ 0.426
---------
Total from investment operations ..................................... 0.433
---------
Less distributions:
From net investment income ............................................. (0.010)
---------
Total distributions .................................................. (0.010)
---------
Net asset value, end of period .......................................... $ 10.423
=========
Total return* ........................................................... 4.33%
Net assets, end of period (000's) ....................................... $ 7,817
Ratio of total expenses to average net assets ........................... 0.60%(1)
Ratio of net investment income to average net assets .................... 1.90%(1)
Average commission rate paid per share on purchases of equity securities $ 0.0797
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
70 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statement of assets and liabilities of Aetna
Index Plus Small Cap Portfolio, a portfolio of Aetna Variable Portfolios, Inc.
(the Portfolio), including the portfolio of investments, as of December 31,
1997, and the related statements of operations, changes in net assets and the
financial highlights for the period from December 19, 1997 (date of commencement
of operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Portfolio'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 and
financial highlights. Our procedures included confirmation of securities owned
as of December 31, 1997, 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
Index Plus Small Cap Portfolio, as of December 31, 1997, the results of its
operations, changes in its net assets and financial highlights for the period
from December 19, 1997 to December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
X.SAIAET-98-1 October 1998
71
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights
(2)(i) Incorporated by reference in Part B to the Fund's Annual
Report dated December 31, 1997 on Form N-30D (File No.
811-7651), as filed electronically with the Securities and
Exchange Commission on March 5, 1998 (Accession No.
0000950146-98-000359):
Audited Financial Statements for Aetna Variable Index
Plus Portfolio(1), Aetna Variable Small Company
Portfolio(2), Aetna Variable Capital Appreciation
Portfolio(3) and Aetna Variable Growth Portfolio(4)
as of December 31, 1997, which include the following:
Portfolios of Investments
Statements of Assets and Liabilities as of December
31, 1997
Statements of Operations for the year ended December
31, 1997
Statements of Changes in Net Assets for the year
ended December 31, 1997 and the periods ended
December 31, 1996
Notes to Financial Statements
Independent Auditors' Reports
1. Renamed Aetna Index Plus Large Cap VP
effective May 1, 1998.
2. Renamed Aetna Small Company VP effective May
1, 1998.
3. Renamed Aetna Value Opportunity VP effective
May 1, 1998.
4. Renamed Aetna Growth VP effective May 1, 1998.
(ii) Included in Part B:
Audited Financial Statements as of December 31, 1997,
which include the following:
Aetna High Yield Portfolio(1)
Portfolio of Investments
Statement of Assets and Liabilities as of December
31, 1997
Statements of Operations and Changes in Net Assets
for the period from December 10, 1997 to December
31, 1997
Notes to Financial Statements
Independent Auditors' Report
Aetna Index Plus Bond Portfolio(2)
Portfolio of Investments
Statement of Assets and Liabilities as of December
31, 1997
<PAGE>
Statements of Operations and Changes in Net Assets
for the period from December 18, 1997 to December
31, 1997
Notes to Financial Statements
Independent Auditors' Report
Aetna Index Plus Mid Cap Portfolio(3)
Portfolio of Investments
Statement of Assets and Liabilities as of December
31, 1997
Statements of Operations and Changes in Net Assets
for the period from December 15, 1997 to December
31, 1997
Notes to Financial Statements
Independent Auditors' Report
Aetna Index Plus Small Cap Portfolio(4)
Portfolio of Investments
Statement of Assets and Liabilities as of December
31, 1997
Statements of Operations and Changes in Net Assets
for the period from December 19, 1997 to December
31, 1997
Notes to Financial Statements
Independent Auditors' Report
Aetna International Portfolio(5)
Portfolio of Investments
Statement of Assets and Liabilities as of December
31, 1997
Statements of Operations and Changes in Net Assets
for the period from December 22, 1997 to December
31, 1997
Notes to Financial Statements
Independent Auditors' Report
Aetna Mid Cap Portfolio(6)
Portfolio of Investments
Statement of Assets and Liabilities as of December
31, 1997
Statements of Operations and Changes in Net Assets
for the period from December 17, 1997 to December
31, 1997
Notes to Financial Statements
Independent Auditors' Report
Aetna Real Estate Securities Portfolio(7)
Portfolio of Investments
Statement of Assets and Liabilities as of December
31, 1997
Statements of Operations and Changes in Net Assets
for the period from December 16, 1997 to December
31, 1997
Notes to Financial Statements
Independent Auditors' Report
1. Renamed Aetna High Yield VP effective May 1,
1998.
2. Renamed Aetna Index Plus Bond VP effective May
1, 1998.
<PAGE>
3. Renamed Aetna Index Plus Mid Cap VP effective
May 1, 1998.
4. Renamed Aetna Index Plus Small Cap VP
effective May 1, 1998.
5. Renamed Aetna International VP effective May
1, 1998.
6. Renamed Aetna Mid Cap VP effective May 1,
1998.
7. Renamed Aetna Real Estate Securities VP
effective May 1, 1998.
(iii) Incorporated by reference in Part B to the Fund's
Semi-annual Reports dated June 30, 1998, as filed
electronically with the Securities and Exchange Commission
on September 2, 1998 and September 3, 1998 (File Nos.
811-7651) (Accession Nos. 0000950146-98-001491 and
0000950146-98-001507, respectively):
Unaudited Financial Statements for Aetna Index Plus
Large Cap VP, Aetna Small Company VP, Aetna Value
Opportunity VP, Aetna Growth VP, Aetna High Yield VP,
Aetna Index Plus Bond VP, Aetna Index Plus Mid Cap
VP, Aetna Index Plus Small Cap VP, Aetna
International VP, Aetna Mid Cap VP and Aetna Real
Estate Securities VP for the period ended June 30,
1998 which include the following:
Portfolios of Investments
Statements of Assets and Liabilities as of June
30, 1998
Statements of Operations for the six month period
ended June 30, 1998
Statements of Changes in Net Assets for the six
month period ended June 30, 1998 and the
periods ended December 31, 1997
Notes to Financial Statements
(b) Exhibits
(1)(a) Articles of Incorporation (June 4, 1996)(1)
(1)(b) Articles of Amendment (October 15, 1996)(2)
(1)(c) Articles Supplementary (October 29, 1997)(3)
(1)(d) Articles of Amendment (May 1, 1998)(4)
(2) Amended Bylaws(2)
(3) Not applicable
(4) Instruments Defining Rights of Holders (set forth in the
Articles of Incorporation which are incorporated by
reference)(1)
(5)(a) Investment Advisory Agreement between Aeltus Investment
Management, Inc. ("Aeltus") and Aetna Variable Portfolios,
Inc., on behalf of Aetna Value Opportunity VP, Aetna Growth
VP, Aetna Small Company VP, Aetna Index Plus Large Cap VP,
Aetna High Yield VP, Aetna Index Plus Bond VP, Aetna Index
Plus Mid Cap VP, Aetna Index Plus Small Cap VP, Aetna
International VP, Aetna Mid Cap VP and Aetna Real Estate
Securities VP(3)
(5)(b) Subadvisory Agreement between Bradley, Foster & Sargent, Inc.
and Aetna Variable Portfolios, Inc., on behalf of Aetna Value
Opportunity VP
(6) Underwriting Agreement between Aetna Variable Portfolios, Inc.
and Aetna Life Insurance and Annuity Company(2)
(7) Directors' Deferred Compensation Plan(3)
(8)(a) Custodian Agreement between Aetna Variable Portfolios, Inc.
and Mellon Bank, N.A. for Aetna Value Opportunity VP, Aetna
Growth VP, Aetna Index Plus Large Cap VP and Aetna Small
Company VP(2)
<PAGE>
(8)(b) Amendment to Custodian Agreement between Aetna Variable
Portfolios, Inc. and Mellon Bank, N.A. for Aetna Index Plus
Bond VP, Aetna Index Plus Mid Cap VP, Aetna Mid Cap VP, Aetna
Index Plus Small Cap VP, Aetna High Yield VP and Aetna Real
Estate Securities VP(3)
(8)(c) Custodian Agreement between Aetna Variable Portfolios, Inc.
and Brown Brothers Harriman & Co. for Aetna International
VP(4)
(9)(a) Administrative Services Agreement between Aeltus and Aetna
Variable Portfolios, Inc., on behalf of Aetna Value
Opportunity VP, Aetna Growth VP, Aetna Small Company VP, Aetna
Index Plus Large Cap VP, Aetna High Yield VP, Aetna Index Plus
Bond VP, Aetna Index Plus Mid Cap VP, Aetna Index Plus Small
Cap VP, Aetna International VP, Aetna Mid Cap VP and Aetna
Real Estate Securities VP(3)
(9)(b) License Agreement(2)
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Not applicable
(13)(a) Agreement re: Initial Contribution to Working Capital for
Aetna Value Opportunity VP, Aetna Growth VP, Aetna Index Plus
Large Cap VP and Aetna Small Company VP(2)
(13)(b) Agreement re: Initial Contribution to Working Capital for
Aetna Index Plus Bond VP, Index Plus Mid Cap VP, Aetna Mid Cap
VP, Index Plus Small Cap VP, Aetna High Yield VP, Aetna Real
Estate Securities VP and Aetna International VP(5)
(14) Not applicable
(15) Not applicable
(16) Schedule for Computation of Performance Data(2)
(17) See exhibit 27 below
(18) Not applicable
(19)(a) Power of Attorney (December 10, 1997)(6)
(19)(b) Power of Attorney (June 24, 1998)(7)
(19)(c) Power of Attorney (September 29, 1998)(8)
(19)(d) Authorization for Signatures(5)
(27) Financial Data Schedule
1. Incorporated by reference to the Registration Statement on Form N-1A (File
No. 333-05173), as filed electronically with the Securities and Exchange
Commission on June 4, 1996 (Accession No. 0000928389-96-000122).
2. Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement on Form N-1A (File No. 333-05173), as filed electronically on
March 7, 1997 (Accession No. 0000950146-97-000336).
3. Incorporated by reference to Post-Effective Amendment No. 3 to Registration
Statement on Form N-1A (File No. 333-05173), as filed electronically on
February 26, 1998 (Accession No. 0000950146-98-000289).
4. Incorporated by reference to Post-Effective Amendment No. 4 to Registration
Statement on Form N-1A (File No. 333-05173), as filed electronically on
April 27, 1998 (Accession No. 0000950146-98-000686).
5. Incorporated by reference to Post-Effective Amendment No. 2 to Registration
Statement on Form N-1A (File No. 333-05173), as filed electronically on
September 26, 1997 (Accession No. 0000950146-97-001480).
<PAGE>
6. Incorporated by reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically on January 16, 1998 (Accession No. 0000950146-98-000093).
7. Incorporated by reference to Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically on June 29, 1998 (Accession No. 0000950146-98-001122).
8. Incorporated by reference to Post-Effective Amendment No. 28 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically on September , 1998 (Accession No. 0000950146-98- ).
<PAGE>
Item 25. Persons Controlled by or Under Common Control
Registrant is a Maryland corporation for which separate financial
statements are filed. As of August 31, 1998, Aetna Life Insurance Company
owned 77.03% of Aetna International VP's outstanding voting securities
and Aetna Life Insurance and Annuity Company ("Aetna") had a controlling
interest in the following portfolios of the Registrant:
<TABLE>
<CAPTION>
% Aetna
<S> <C>
Aetna Value Opportunity VP 92.26%
Aetna Growth VP 94.05%
Aetna Index Plus Large Cap VP 96.28%
Aetna Small Company VP 95.19%
Aetna Index Plus Bond VP 100.00%
Aetna Index Plus Mid Cap VP 100.00%
Aetna Mid Cap VP 100.00%
Aetna Index Plus Small Cap VP 100.00%
Aetna High Yield VP 100.00%
Aetna Real Estate Securities VP 99.38%
</TABLE>
Aetna and Aetna Life Insurance Company are indirect wholly-owned
subsidiaries of Aetna Inc.
A list of all persons directly or indirectly under common control with
the Registrant and a list which indicates the principal business of each
such company referenced in the diagram are incorporated herein by
reference to Item 26 of the Registration Statement on Form N-4 (File No.
333-01107), as filed electronically with the Securities and Exchange
Commission on September 10, 1998 (Accession No.
0000950146-98-001550).
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
(1) Title of Class (2) Number of Record Holders
as of August 31, 1998
<S> <C>
Aetna Value Opportunity VP 2
Aetna Growth VP 2
Aetna Index Plus Large Cap VP 2
Aetna Small Company VP 2
Aetna Index Plus Bond VP 3
Aetna Index Plus Mid Cap VP 3
Aetna Mid Cap VP 2
Aetna Index Plus Small Cap VP 3
Aetna High Yield VP 3
Aetna Real Estate Securities VP 4
Aetna International VP 5
</TABLE>
<PAGE>
Item 27. Indemnification
Article 10, Section (iv) of the Registrant's Articles of Incorporation,
which are incorporated by reference to Registrant's Registration
Statement on Form N-1A (File No. 333-05173), as filed electronically on
June 4, 1996 (Accession No. 0000950146-96-000122), provides for
indemnification of directors and officers. In addition, the Registrant's
officers and directors are covered under a directors and officers errors
and omissions liability insurance policy issued by Gulf Insurance Company
which expires October 1, 1999.
Section XI.B of the Administrative Services Agreement filed herewith as
Exhibit 9(a) provides for indemnification of the Administrator.
Reference is also made to Section 2-418 of the Corporations and
Associations Article of the Annotated Code of Maryland which provides
generally that (1) a corporation may (but is not required to) indemnify
its directors for judgments, fines and expenses in proceedings in which
the director is named a party solely by reason of being a director,
provided the director has not acted in bad faith, dishonestly or
unlawfully, and provided further that the director has not received any
"improper personal benefit"; and (2) that a corporation must (unless
otherwise provided in the corporation's charter or articles of
incorporation) indemnify a director who is successful on the merits in
defending a suit against him by reason of being a director for
"reasonable expenses." The statutory provisions are not exclusive; i.e.,
a corporation may provide greater indemnification rights than those
provided by statute.
Item 28. Business and Other Connections of Investment Adviser
The investment adviser, Aeltus Investment Management, Inc. ("Aeltus"), is
registered as an investment adviser with the Securities and Exchange
Commission. In addition to serving as investment adviser and
administrator for the Registrant, Aeltus acts as investment adviser and
administrator for Aetna Variable Fund, Aetna Income Shares, Aetna
Variable Encore Fund, Aetna Balanced VP, Inc., Aetna GET Fund, Aetna
Generation Portfolios, Inc., and Aetna Series Fund, Inc. (all management
investment companies registered under the Investment Company Act of 1940
(the "1940 Act")). It also acts as investment adviser to certain private
accounts.
The following table summarizes the business connections of the directors
and principal officers of the investment adviser.
<TABLE>
<CAPTION>
- ----------------------------- -------------------------------- ---------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1995/Addresses*/**
- ----------------------------- -------------------------------- ---------------------------------------------------------
<S> <C> <C>
John Y. Kim Director, President, Chief Director (since February 1995) -- Aetna Life Insurance
Executive Officer, Chief and Annuity Company; Senior Vice President (since
Investment Officer September 1994) -- Aetna Life Insurance and Annuity
Company.
<PAGE>
J. Scott Fox Director, Managing Director, Vice President (since April 1997) -- Aetna Retirement
Chief Operating Officer, Chief Services, Inc.; Director and Senior Vice President
Financial Officer (March 1997 - February 1998) -- Aetna Life Insurance
and Annuity Company; Managing Director, Chief Operating
Officer, Chief Financial Officer, Treasurer (April 1994 -
March 1997) -- Aeltus Investment Management, Inc.
Thomas J. McInerney Director President (since August 1997) -- Aetna Retirement
Services, Inc.; Director and President (since September
1997) -- Aetna Life Insurance and Annuity Company;
Executive Vice President (since August 1997) -- Aetna
Inc.; Vice President, Strategy (March 1997 - August
1997) -- Aetna Inc.; Vice President, Marketing and
Sales (December 1996 - March 1997) -- Aetna U.S.
Healthcare; Vice President, National Accounts (April
1996 - December 1996) -- Aetna U.S. Healthcare; Vice
President, Strategy, Finance, & Administration (July
1995 - April 1996) -- Aetna Inc.
Catherine H. Smith Director Director, Senior Vice President and Chief Financial
Officer (since February 1998) -- Aetna Life Insurance
and Annuity Company; Chief Financial Officer (since
February 1998) -- Aetna Retirement Services, Inc.; Vice
President, Strategy, Finance and Administration,
Financial Relations (September 1996 - February 1998) --
Aetna Inc.; Chief of Staff, Health/Group Life, Strategy
and Communication (April 1993 - September 1996) --
Aetna U.S. Healthcare.
Lennart A. Carlson Managing Director, Fixed Managing Director (since January 1996) -- Aeltus Trust
Income Investments Company.
<PAGE>
Steven C. Huber Managing Director, Fixed Portfolio Manager (August 1991 - August 1996) -- Aetna
Income Investments Life Insurance and Annuity Company; Managing Director
(since August 1996) -- Aeltus Trust Company.
Brian K. Kawakami Vice President, Chief Chief Compliance Officer & Director (since January
Compliance Officer 1996) -- Aeltus Trust Company; Chief Compliance Officer
(since August 1993) -- Aeltus Capital, Inc.
Neil Kochen Managing Director, Product Managing Director (since April 1996) -- Aeltus Trust
Development Company; Managing Director (since August 1996) --
Aeltus Capital, Inc.; Managing Director (July 1994 -
August 1996) -- Aetna Life Insurance and Annuity
Company.
Frank Litwin Managing Director, Retail Vice President, Strategic Marketing (April, 1992 -
Marketing and Sales August, 1997) -- Fidelity Investments Institutional
Services Company.
Kevin M. Means Managing Director, Equity Managing Director (July 1994 - August 1996) -- Aetna
Investments Life Insurance and Annuity Company; Managing Director
(since August 1996) -- Aeltus Trust Company.
L. Charles Meythaler Managing Director, Institutional Director (since July 1997) -- Aeltus Trust Company;
Marketing Managing Director (since June 1997) -- Aeltus Trust
and Sales Company; President (June 1993 - April 1997) -- New
England Investment Association.
Jeanne Wong-Boehm Managing Director, Fixed Portfolio Manager (March 1982 - August 1996) -- Aetna
Income Investments Life Insurance and Annuity Company; Portfolio Manager
(March 1982 - August 1996) -- Aetna Inc.; Managing
Director (since August 1996) -- Aeltus Trust Company.
</TABLE>
* Except with respect to Mr. McInerney and Ms. Smith, the principal business
address of each person named is 242 Trumbull Street, Hartford, Connecticut
06103-1205. The address of Mr. McInerney and Ms. Smith is 151 Farmington
Avenue, Hartford, Connecticut 06156.
<PAGE>
** Certain officers and directors of the investment adviser currently hold (or
have held during the past two years) other positions with affiliates of the
Registrant that are not deemed to be principal positions.
For information regarding Bradley, Foster & Sargent, Inc. (Bradley), the
subadviser for Aetna Value Opportunity VP, reference is hereby made to the
section entitled "Subadviser" in the supplements dated October 1, 1998 (filed
herewith) to the Prospectus dated May 1, 1998 and the Statement of Additional
Information dated May 1, 1998. For information as to the business, profession,
vocation or employment of a substantial nature of each of the officers of
Bradley, reference is hereby made to the current Form ADV (File No. 801-46616)
of Bradley filed under the Investment Advisers Act of 1940, incorporated herein
by reference.
Item 29. Principal Underwriters
(a) In addition to serving as the principal underwriter for the Registrant,
Aetna also acts as the principal underwriter for Aetna Variable Fund,
Aetna Income Shares, Aetna Variable Encore Fund, Aetna Balanced VP,
Inc., Aetna GET Fund and Aetna Generation Portfolios, Inc. and as
investment adviser, principal underwriter and administrator for
Portfolio Partners, Inc. (all management investment companies
registered under the 1940 Act). Additionally, Aetna acts as the
principal underwriter and depositor for Variable Annuity Account B of
Aetna, Variable Annuity Account C of Aetna, Variable Annuity Account G
of Aetna, and Variable Life Account B of Aetna (separate accounts of
Aetna registered as unit investment trusts under the 1940 Act). Aetna
is also the principal underwriter for Variable Annuity Account I of
Aetna Insurance Company of America ("AICA") (a separate account of AICA
registered as a unit investment trust under the 1940 Act).
(b) The following are the directors and principal officers of the
Underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices
Business Address* Principal Underwriter with Registrant
----------------- --------------------- ---------------
<S> <C> <C>
Thomas J. McInerney Director and President None
Shaun P. Mathews Director and Senior Vice President Director
Catherine H. Smith Director, Senior Vice President and Chief None
Financial Officer
Robert D. Friedhoff Senior Vice President None
Steven A. Haxton Senior Vice President None
Frederick D. Kelsven Vice President and Chief Compliance Officer None
John Y. Kim Senior Vice President Director
Deborah Koltenuk Vice President, Treasurer and Corporate None
Controller
Kirk P. Wickman Vice President, General Counsel and None
Corporate Secretary
</TABLE>
<PAGE>
* Except with respect to Mr. Kim, the principal business address of all
directors and officers listed is 151 Farmington Avenue, Hartford,
Connecticut 06156. Mr. Kim's address is 242 Trumbull Street, Hartford,
Connecticut 06103-1205.
(c) Not applicable
Item 30. Location of Accounts and Records
As required by Section 31(a) of the 1940 Act and the rules thereunder,
the Registrant and its investment adviser, Aeltus, maintain physical
possession of each account, book or other document, at 151 Farmington
Avenue, Hartford, Connecticut 06156 or 242 Trumbull Street, Hartford,
Connecticut 06103-1205.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant undertakes that if requested by the holders of at least
10% of the Registrant's outstanding shares, the Registrant will hold a
shareholder meeting for the purpose of voting on the removal of one or
more Directors and will assist with communication concerning that
shareholder meeting as if Section 16(c) of the 1940 Act applied.
The Registrant undertakes to furnish to each person to whom a prospectus
is delivered a copy of its latest annual report to shareholders, upon
request and without charge.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed
in the 1933 Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant certifies that it meets the requirements of Rule 485(b) under the
Securities Act of 1933 for effectiveness of this Post-Effective Amendment to the
Registration Statement on Form N-1A (File No. 333-05173) and has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Hartford and State of Connecticut on the
30th day of September, 1998.
AETNA VARIABLE PORTFOLIOS, INC.
-------------------------------
Registrant
By: J. Scott Fox*
-------------------------------
J. Scott Fox
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following persons
on September 30, 1998 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
J. Scott Fox* President and Director )
- ------------------------------------ (Principal Executive Officer) )
J. Scott Fox )
)
Albert E. DePrince, Jr.** Director )
- ------------------------------------ )
Albert E. DePrince, Jr. )
)
Maria T. Fighetti* Director ) September
- ------------------------------------ )
Maria T. Fighetti ) 30, 1998
)
David L. Grove* Director )
- ------------------------------------ )
David L. Grove )
)
John Y. Kim* Director )
- ------------------------------------ )
John Y. Kim )
)
Sidney Koch* Director )
- ------------------------------------ )
Sidney Koch )
)
Shaun P. Mathews* Director )
- ------------------------------------ )
Shaun P. Mathews )
)
<PAGE>
Corine T. Norgaard* Director )
- ------------------------------------ )
Corine T. Norgaard )
)
Richard G. Scheide* Director )
- ------------------------------------ )
Richard G. Scheide )
)
Stephanie A. DeSisto *** Treasurer and Chief Financial Officer )
- ------------------------------------ (Principal Financial and Accounting Officer) )
Stephanie A. DeSisto )
</TABLE>
By: /s/
-----------------------------------------------
*Amy R. Doberman
Attorney-in-Fact
* Executed pursuant to Power of Attorney dated December 10, 1997 and filed
with the Securities and Exchange Commission on January 16, 1998 (Accession
No. 0000950146-98-000093).
** Executed pursuant to Power of Attorney dated June 24, 1998 and filed with
the Securities and Exchange Commission on June 29, 1998 (Accession No.
0000950146-98-001122).
*** Executed pursuant to Power of Attorney dated September , 1998 and filed
with the Securities and Exchange Commission on September , 1998 (Accession
No. 0000950146-98-______).
<PAGE>
Aetna Variable Portfolios, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.1(a) Articles of Incorporation (June 4, 1996) *
99-B.1(b) Articles of Amendment (October 15, 1996) *
99-B.1(c) Articles Supplementary (October 29, 1997) *
99-B.1(d) Articles of Amendment (May 1, 1998) *
99-B.2 Amended Bylaws *
99-B.4 Instruments Defining Rights of Holders *
99-B.5(a) Investment Advisory Agreement between Aeltus Investment Management, Inc. *
("Aeltus") and Aetna Variable Portfolios, Inc., on behalf of Aetna Value
Opportunity VP, Aetna Growth VP, Aetna Small Company VP, Aetna Index Plus Large
Cap VP, Aetna High Yield VP, Aetna Index Plus Bond VP, Aetna Index Plus Mid Cap
VP, Aetna Index Plus Small Cap VP, Aetna International VP, Aetna Mid Cap VP and
Aetna Real Estate Securities VP
99-B.5(b) Subadvisory Agreement between Bradley, Foster & Sargent, Inc. and Aetna
Variable Portfolios, Inc., on behalf of Aetna Value Opportunity VP __________
99-B.6 Underwriting Agreement between Aetna Variable Portfolios, Inc. and Aetna Life *
Insurance and Annuity Company
99-B.7 Directors' Deferred Compensation Plan *
99-B.8(a) Custodian Agreement between Aetna Variable Portfolios, Inc. and Mellon Bank, N.A. *
for Aetna Value Opportunity VP, Aetna Growth VP, Aetna Index Plus Large Cap VP
and Aetna Small Company VP
99-B.8(b) Amendment to Custodian Agreement between Aetna Variable Portfolios, Inc. and *
Mellon Bank, N.A. for Aetna Index Plus Bond VP, Aetna Index Plus Mid Cap VP,
Aetna Mid Cap VP, Aetna Index Plus Small Cap VP, Aetna High Yield VP and Aetna
Real Estate Securities VP
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-B.8(c) Custodian Agreement between Aetna Variable Portfolios, Inc. and Brown Brothers *
Harriman & Co. for Aetna International VP
99-B.9(a) Administrative Services Agreement between Aeltus and Aetna Variable Portfolios, *
Inc., on behalf of Aetna Value Opportunity VP, Aetna Growth VP, Aetna Small
Company VP, Aetna Index Plus Large Cap VP, Aetna High Yield VP, Aetna Index Plus
Bond VP, Aetna Index Plus Mid Cap VP, Aetna Index Plus Small Cap VP, Aetna
International VP, Aetna Mid Cap VP and Aetna Real Estate Securities VP
99-B.9(b) License Agreement *
99-B.10 Opinion and Consent of Counsel __________
99-B.11 Consent of Independent Auditors __________
99-B.13(a) Agreement re: Initial Contribution to Working Capital for Aetna Value Opportunity *
VP, Aetna Growth VP, Aetna Index Plus Large
Cap VP and Aetna Small Company VP
99-B.13(b) Agreement re: Initial Contribution to Working Capital for *
Aetna Index Plus Bond VP, Index Plus Mid Cap VP, Aetna Mid
Cap VP, Index Plus Small Cap VP, Aetna High Yield VP, Aetna
Real Estate Securities VP and Aetna International VP
99-B.16 Schedule for Computation of Performance Data *
99-B.19(a) Power of Attorney (December 10, 1997) *
99-B.19(b) Power of Attorney (June 24, 1998) *
99-B.19(c) Power of Attorney (September 29, 1998) *
99-B.19(d) Authorization for Signatures *
27 Financial Data Schedule __________
</TABLE>
*Incorporated by reference
Exhibit 99-B.5(b)
FORM OF
SUBADVISORY AGREEMENT
THIS AGREEMENT is made by AELTUS INVESTMENT MANAGEMENT, INC., a Connecticut
corporation (the "Adviser"), AETNA VARIABLE PORTFOLIOS, INC., a Maryland
Corporation (the "Fund"), on behalf of its AETNA VALUE OPPORTUNITY VP (the
"Portfolio") and Bradley, Foster & Sargent, Inc., a Connecticut corporation (the
"Subadviser"), as of the date set forth below.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company
consisting of multiple investment portfolios, under the Investment Company Act
of 1940, as amended (the "1940 Act"); and
WHEREAS, pursuant to authority granted by the Fund's Articles of Incorporation,
the Fund has established the Portfolio as a separate investment portfolio; and
WHEREAS, both the Adviser and the Subadviser are registered with the Commission
as investment advisers under the Investment Advisers Act of 1940, as amended
(the "Advisers Act") and both are in the business of acting as investment
advisers; and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement with the
Fund, on behalf of the Portfolio (the "Investment Advisory Agreement"), which
appoints the Adviser as the investment adviser for the Portfolio; and
WHEREAS, Article IV of the Investment Advisory Agreement authorizes the Adviser
to delegate all or a portion of its obligations under the Investment Advisory
Agreement to a subadviser;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement, the Adviser and the Fund,
on behalf of the Portfolio, hereby appoint the Subadviser to manage the assets
of the Portfolio as set forth below in Section II, under the supervision of the
Adviser and subject to the approval and direction of the Fund's Board of
Directors (the "Board"). The Subadviser hereby accepts such appointment and
agrees that it shall, for all purposes herein, undertake such obligations as an
independent contractor and not as an agent of the Adviser. The Subadviser
agrees, that except as required to carry out its duties under this Agreement or
as otherwise expressly authorized, it has no authority to act for or represent
the Portfolio, the Fund or the Adviser in any way. The Subadviser agrees that
the Adviser shall have the right at all times to inspect the offices and the
records of the Subadviser that relate to the Subadviser's performance of this
Agreement.
<PAGE>
II. DUTIES OF THE SUBADVISER AND THE ADVISER
A. Duties of the Subadviser
The Subadviser shall regularly provide investment advice with respect
to the assets held by the Portfolio and shall continuously supervise
the investment and reinvestment of securities, instruments or other
property (excluding cash and cash instruments) comprising the assets of
the Portfolio. In carrying out these duties, the Subadviser shall:
1. select the securities to be purchased, sold or exchanged by the
Portfolio or otherwise represented in the Portfolio's investment
portfolio, communicate trade orders to the Adviser for all such
securities, and regularly report thereon to the Adviser and, at
the request of the Adviser, to the Board;
2. formulate and implement continuing programs for the purchase and
sale of securities and regularly report thereon to the Adviser
and, at the request of the Adviser or the Portfolio, to the
Board;
3. inform the Adviser of the amount of Portfolio assets which will
need to be invested or reinvested in cash and cash instruments;
and
4. establish and maintain appropriate policies and procedures
including, but not limited to, a code of ethics, which are
designed to ensure that the management of the Portfolio is
implemented in compliance with the 1940 Act, the Advisers Act,
and the rules thereunder.
B. Duties of the Adviser
The Adviser shall retain responsibility for oversight of all activities
of the Subadviser and for monitoring its activities on behalf of the
Portfolio. The Adviser also is responsible for the investment and
reinvestment of cash and cash instruments maintained by the Portfolio.
In carrying out its obligations under this Agreement and the Investment
Advisory Agreement, the Adviser shall:
1. monitor the investment program maintained by the Subadviser for
the Portfolio and the Subadviser's compliance program to ensure
that the Portfolio's assets are invested in compliance with the
Subadvisory Agreement and the Portfolio's investment objectives
and policies as adopted by the Board and described in the most
current effective amendment of the registration statement for
the Portfolio, as filed with the Commission under the Securities
Act of 1933, as amended (the "1933 Act"), and the 1940 Act
("Registration Statement");
2
<PAGE>
2. place all trade orders communicated by the Subadviser with
brokers or dealers selected by the Adviser. The Adviser shall
use its best efforts to seek to execute portfolio transactions
at prices that are advantageous to the Portfolio giving
consideration to the services and research provided and at
commission rates that are reasonable in relation to the benefits
received;
3. review all reports prepared by the Subadviser to assure that
they are in compliance with applicable requirements and meet the
provisions of applicable laws and regulations;
4. formulate and implement continuing programs for the purchase and
sale of cash and cash instruments and regularly report thereon,
at the request of the Portfolio to the Board;
5. file all periodic reports required to be filed by the Portfolio
with the applicable regulatory authorities;
6. review and deliver to the Board all financial, performance and
other reports prepared by the Subadviser and/or Adviser under
the provisions of this Agreement or as requested by the Board;
7. maintain contact with and enter into arrangements with the
custodian, transfer agent, auditors, outside counsel, and other
third parties providing services to the Portfolio;
8. give instructions to the custodian and/or sub-custodian of the
Portfolio, concerning deliveries of securities, transfers of
currencies and payments of cash for the Portfolio, as required
to carry out the investment activities of the Portfolio as
contemplated by this Agreement;
9. provide such administrative and other services, such as
preparation of financial data, determination of the Portfolio's
net asset value, and preparation of financial and performance
reports; and
10. oversee all matters relating to (i) the offer and sale of shares
of the Portfolio, including promotions, marketing materials,
preparation of prospectuses, filings with the Commission and
state securities regulators, and negotiations with
broker-dealers; (ii) shareholder services, including,
confirmations, correspondence and reporting to shareholders;
(iii) all corporate matters on behalf of the Portfolio,
including monitoring the corporate records of the Portfolio,
maintaining contact with the Board, preparing for, organizing
and attending meetings of the Board and the Portfolio's
shareholders; (iv) preparation of proxies when required; and (v)
any other matters not expressly delegated to the Subadviser by
this Agreement.
3
<PAGE>
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Subadviser
The Subadviser hereby represents and warrants to the Adviser as
follows:
1. Due Incorporation and Organization. The Subadviser is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Registration. The Subadviser is registered as an investment
adviser with the Commission under the Advisers Act. The
Subadviser shall maintain such registration in effect at all
times during the term of this Agreement.
3. Regulatory Orders. The Subadviser is not subject to any stop
orders, injunctions or other orders of any regulatory authority
affecting its ability to carry out the terms of this Agreement.
The Subadviser will notify the Adviser and the Portfolio
immediately if any such order is issued or if any proceeding is
commenced that could result in such an order.
4. Compliance. The Subadviser has in place compliance systems and
procedures designed to meet the requirements of the Advisers Act
and the 1940 Act and it shall at all times assure that its
activities in connection with managing the Portfolio follow
these procedures.
5. Authority. The Subadviser is authorized to enter into this
Agreement and carry out the terms hereunder.
6. Best Efforts. The Subadviser at all times shall provide its best
judgment and effort to the Portfolio in carrying out its
obligations hereunder.
B. Representations and Warranties of the Adviser
The Adviser hereby represents and warrants to the Subadviser as
follows:
1. Due Incorporation and Organization. The Adviser is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Registration. The Adviser is registered as an investment adviser
with the Commission under the Advisers Act. The Adviser shall
maintain such registration or license in effect at all times
during the term of this Agreement.
4
<PAGE>
3. Regulatory Orders. The Adviser is not subject to any stop
orders, injunctions or other orders of any regulatory authority
affecting its ability to carry out the terms of this Agreement.
The Adviser will notify the Subadviser and the Portfolio
immediately if any such order is issued or if any proceeding is
commenced that could result in such an order.
4. Compliance. The Adviser shall at all times assure that its
activities in connection with managing the Portfolio follow
these procedures.
5. Authority. The Adviser is authorized to enter into this
Agreement and carry out the terms hereunder.
6. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Portfolio in carrying out its
obligations hereunder.
C. Representations and Warranties of the Fund
The Fund hereby represents and warrants to the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been duly
incorporated as a Corporation under the laws of the State of
Maryland and it is authorized to enter into this Agreement and
carry out its obligations hereunder.
2. Registration. The Fund is registered as an investment company
with the Commission under the 1940 Act and shares of the Fund
are registered or qualified for offer and sale to the public
under the 1933 Act and all applicable state securities laws.
Such registrations or qualifications, will be kept in effect
during the term of this Agreement.
IV. CONTROL BY THE BOARD OF DIRECTORS
Any investment program undertaken by the Subadviser pursuant to this Agreement,
as well as any other activities undertaken by the Subadviser at the direction of
the Adviser on behalf of the Portfolio, shall at all times be subject to any
directives of the Board.
V. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Subadviser shall at
all times conform to:
1. all applicable provisions of the 1940 Act, the Advisers Act and
any rules and regulations adopted thereunder;
5
<PAGE>
2. all policies and procedures of the Portfolio as adopted by the
Board and as described in the Registration Statement;
3. the provisions of the Articles of Incorporation of the Fund, as
amended from time to time;
4. the provisions of the Bylaws of the Fund, as amended from time
to time; and
5. any other applicable provisions of state or federal law.
VI. COMPENSATION
The Adviser shall pay the Subadviser, as compensation for services
rendered hereunder, from its own assets, an annual fee based on the
average daily net assets in the Portfolio, according to the following
schedule:
<TABLE>
<CAPTION>
Net Assets in Portfolio Annual Fee
<S> <C>
$0 - $250 MM 0.15% of the Portfolio's average daily net assets
> $250 MM 0.10% of the Portfolio's average daily net assets
</TABLE>
The fee shall be payable monthly. Except as hereinafter set forth,
compensation under this Agreement shall be calculated and accrued daily
at the rate of 1/365 of the annual fee applied to the daily net assets
of the Portfolio. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the
fees set forth above.
VII. ALLOCATION OF EXPENSES
The Subadviser shall pay the salaries, employment benefits and other related
costs of those of its personnel engaged in providing investment advice to the
Portfolio hereunder, including, but not limited to, office space, office
equipment, telephone and postage costs.
VIII. NONEXCLUSIVITY
The services of the Subadviser with respect to the Portfolio are not to be
deemed to be exclusive, and the Subadviser shall be free to render investment
advisory and administrative or other services to others (including other
investment companies) and to engage in other activities; provided, however, that
the Subadviser will not undertake to manage a registered investment company with
substantially similar objectives, policies and restrictions to those of the
Portfolio without obtaining the Adviser's prior written approval. It is
understood that officers or directors of the Subadviser
6
<PAGE>
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
advisory companies.
IX. TERM
This Agreement shall become effective at the close of business on the date
hereof and shall remain in force and effect through December 31, 1999, unless
earlier terminated under the provisions of Article X. Following the expiration
of its initial term, the Agreement shall continue in force and effect for one
year periods, provided such continuance is specifically approved at least
annually:
1. (a) by the Board or (b) by the vote of a majority of the
Portfolio's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
2. by the affirmative vote of a majority of the directors who are
not parties to this Agreement or interested persons of a party
to this Agreement (other than as a director of the Fund), by
votes cast in person at a meeting specifically called for such
purpose.
X. TERMINATION
This Agreement may be terminated:
1. at any time, without the payment of any penalty, by vote of the
Board or by vote of a majority of the outstanding voting
securities of the Portfolio; or
2. by the Adviser, the Fund, on behalf of the Portfolio, or the
Subadviser on sixty (60) days' written notice to the other
party, unless written notice is waived by the party required to
be notified; or
3. automatically in the event there is an "assignment" of this
Agreement, as defined in the 1940 Act.
XI. LIABILITY
The Subadviser shall be liable to the Portfolio and the Subadviser and shall
indemnify the Portfolio and the Adviser for any losses incurred by the Portfolio
or the Adviser whether in the purchase, holding, or sale of any security or
otherwise, to the extent that such losses resulted from an act or omission on
the part of the Subadviser or its officers, directors or employees, that is
found to involve willful misfeasance, bad faith or negligence, or reckless
disregard by the Subadviser of its duties under this Agreement, in connection
with the services rendered by the Subadviser hereunder.
7
<PAGE>
Nothing herein shall relieve the Adviser of its responsibilities to the Fund, as
set forth in the Investment Advisory Agreement.
XII. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such address shall be:
if to the Fund, on behalf of the Portfolio or the Adviser:
242 Trumbull Street ALT5
Hartford, Connecticut 06103-1205
Fax number: 860/275-2158
Attn: Secretary
if to the Subadviser:
185 Asylum Street
Hartford, Connecticut 06103
Fax number: 860/520-1557
Attention: President
XIII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Commission issued pursuant to the 1940 Act. In addition, where the effect
of a requirement of the 1940 Act reflected in any provision of the Agreement is
revised by rule, regulation or order of the Commission, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
XIV. SALES PROMOTION
The Subadviser may not use any sales literature, advertising material
(including material disseminated through radio, television, or other electronic
media) or other communications concerning Portfolio shares or that include the
name of the Portfolio or the Adviser without obtaining the Adviser's prior
written approval.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the 30th day of
September, 1998.
Aeltus Investment Management, Inc.
Attest:
/s/ Katherine Cheng By /s/ Lennart A. Carlson
- ------------------------- -----------------------------
Name Katherine Cheng Name Lennart A. Carlson
Title Assistant Secretary Title Managing Director
Bradley, Foster & Sargent, Inc.
Attest:
/s/ Nadine G. Alderucci By /s/ R. H. Bradley
- ------------------------- -----------------------------
Name Nadine G. Alderucci Name Robert H. Bradley
Title Operations Officer Title President
Aetna Variable Portfolios, Inc.
on behalf of
Aetna Value Opportunity VP
Attest:
/s/ Amy R. Doberman By /s/ Stephanie A. DeSisto
- ------------------------- -----------------------------
Name Amy R. Doberman Name Stephanie A. DeSisto
Title Secretary Title Vice President
[Aetna letterhead] Aetna Inc.
[Aetna logo] 242 Trumbull Street
Hartford, CT 06103-1205
Amy R. Doberman
Counsel
September 30, 1998 Law Division, ALT5
Investments & Financial Services
(860) 275-2032
Fax: (860) 275-2158
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Aetna Variable Portfolios, Inc.
Post-Effective Amendment No. 6 to
Registration Statement on Form N-1A
(File No. 333-05173 and 811-7651)
Dear Sir or Madam:
The undersigned serves as counsel to Aeltus Investment Management, Inc., the
investment adviser to Aetna Variable Portfolios, Inc., a Maryland corporation
(the "Company"). It is my understanding that the Company has registered an
indefinite number of shares of beneficial interest under the Securities Act of
1933 (the "1933 Act") pursuant to Rule 24f-2 under the Investment Company Act of
1940 (the "1940 Act").
Insofar as it relates or pertains to the Company, I have reviewed the prospectus
and the Company's Registration Statement on Form N-1A, as amended to the date
hereof, filed with the Securities and Exchange Commission under the 1933 Act and
the 1940 Act, pursuant to which the Shares will be sold (the "Registration
Statement"). I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents and other instruments I have
deemed necessary or appropriate for the purpose of this opinion. For purposes of
such examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, Maryland and the District of
Columbia. My opinion herein as to Maryland law is based upon a limited inquiry
thereof that I have deemed appropriate under the circumstances.
<PAGE>
Page 2
September 30, 1998
Based upon the foregoing, and assuming the securities are issued and sold in
accordance with the provisions of the Company's Articles of Incorporation and
the Registration Statement, I am of the opinion that the securities will when
sold be legally issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Amy R. Doberman
Amy R. Doberman
Counsel
Consent of Independent Auditors
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We consent to the use of our reports dated February 13, 1998 included herein
this Post-Effective Amendment No. 6 to the Registration Statement (File No.
333-05173) on Form N-1A relating to Aetna High Yield Portfolio, Aetna Index Plus
Bond Portfolio, Aetna Index Plus Mid Cap Portfolio, Aetna Index Plus Small Cap
Portfolio, Aetna International Portfolio, Aetna Mid Cap Portfolio and Aetna Real
Estate Securities Portfolio, and to the incorporation by reference of our
reports dated February 13, 1998 relating to Aetna Variable Index Plus Portfolio,
Aetna Variable Small Company Portfolio, Aetna Variable Capital Appreciation
Portfolio and Aetna Variable Growth Portfolio and to the reference to our firm
under the heading "Financial Highlights" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
September 30, 1998
<TABLE> <S> <C>
<ARTICLE> 6
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<NAME> Aetna Variable Growth Portfolio
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<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Variable Index Plus Portfolio
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Variable Small Company Portfolio
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<NAME> Aetna High Yield Portfolio
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<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Mid Cap Portfolio
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<NAME> Aetna Real Estate Securities Portfolio
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<NAME> Aetna Index Plus Small Cap Portfolio
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
<SERIES>
<NUMBER> 01
<NAME> Aetna Value Opportunity VP
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Growth VP
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Small Company VP
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna High Yield VP
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Index Plus Bond VP
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<NAME> Aetna Index Plus Mid Cap VP
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<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Real Estate Securities VP
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<CIK> 0001015965
<NAME> Aetna Variable Portfolio, Inc.
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<NAME> Aetna Index Plus Small Cap VP
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