[front cover]
Aetna Variable Annuity Funds
Build for
Retirement. Manage
for Life.(SM)
1998
Semi-Annual
Report
Variable Funds offered through
your Aetna Variable Annuity and Life Contracts.
SA.AETNA-98 (6/98) [logo: Aetna Retirement Services(R)]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
President's Letter........................................................ 1
Capital Appreciation Portfolios:
Investment Review......................................................... 2
Portfolios of Investments:
Aetna Growth VP......................................................... 13
Aetna International VP.................................................. 15
Aetna Mid Cap VP........................................................ 18
Aetna Small Company VP.................................................. 20
Aetna Value Opportunity VP.............................................. 22
Statements of Assets and Liabilities...................................... 24
Statements of Operations.................................................. 26
Statements of Changes in Net Assets....................................... 28
Notes to Financial Statements............................................. 33
Financial Highlights...................................................... 38
Growth and Income Portfolios:
Investment Review......................................................... 43
Portfolios of Investments:
Aetna Balanced VP....................................................... 52
Aetna Growth and Income VP.............................................. 62
Aetna Real Estate Securities VP......................................... 72
Statements of Assets and Liabilities...................................... 73
Statements of Operations.................................................. 74
Statements of Changes in Net Assets....................................... 75
Notes to Financial Statements............................................. 78
Financial Highlights...................................................... 85
Income Portfolios:
Investment Review......................................................... 88
Portfolios of Investments:
Aetna Bond VP........................................................... 95
Aetna High Yield VP..................................................... 97
Aetna Money Market VP................................................... 98
Statements of Assets and Liabilities...................................... 100
Statements of Operations.................................................. 101
Statements of Changes in Net Assets....................................... 102
Notes to Financial Statements............................................. 105
Financial Highlights...................................................... 108
GET Funds:
Investment Review......................................................... 111
Portfolios of Investments:
Series B................................................................ 117
Series C................................................................ 120
Statements of Assets and Liabilities...................................... 126
Statements of Operations.................................................. 127
Statements of Changes in Net Assets....................................... 128
Notes to Financial Statements............................................. 129
Financial Highlights...................................................... 132
</TABLE>
<PAGE>
President's Letter
Dear Valued Client,
Thank you for investing in Aetna variable funds. We are pleased to bring you
this semi-annual report on the funds you have chosen to help you along the road
to your investment goals.
The first half of 1998 proved to be very good for the U.S. economy. It might be
said to have had everything going for it. Interest rates were low. Inflation was
barely detectable. The federal budget deficit disappeared. The portion of the
U.S. population with jobs stood at an all-time high, while unemployment was at
its lowest rate in 28 years. Wages continued to grow, and consumer confidence
soared. All of these factors combined to allow the U.S. stock market to continue
its climb, despite ongoing economic problems in Asia, a dramatic increase in the
U.S. trade deficit, and a deceleration in corporate earnings.
The past six months proved to be an exciting and productive period at Aeltus
Investment Management, Inc., adviser to the Aetna variable funds, as well:
[bullet] Six new Aetna variable funds were introduced in May: Aetna
International VP, Aetna Real Estate Securities VP, Aetna High Yield VP,
Aetna Index Plus Mid Cap VP, Aetna Index Plus Small Cap VP and Aetna
Index Plus Bond VP. The addition of these six funds to the Aetna
variable product line-up opens up new opportunities for investors like
you to diversify their portfolios across a broader range of asset
classes and investment styles.
[bullet] Also in May, the names of eleven existing Aetna variable funds were
changed to make it easier for investors to identify the investment
styles of the funds. For example, Aetna Variable Fund is now known as
Aetna Growth and Income VP.
[bullet] Aetna International VP and Aetna Small Company VP significantly
outperformed their benchmarks, returning 21.92% and 7.13% respectively,
for the six-month period ending June 30, 1998.
[bullet] In February, seven new portfolios were added to the Aetna Series Fund.
There are now nineteen funds in this family of "retail" funds, which
are available through brokers.
[bullet] Investors have increasingly greater access to the Aetna Series Fund,
through representatives of Aetna and Financial Network Investment
Corporation (FNIC). Acquired by Aetna in July of 1997, FNIC is one of
America's most respected financial planning firms - with over 2,600
independent investment representatives ready to serve Aetna clients
across the country.
[bullet] Aeltus investment professionals continued to achieve media recognition.
Followers of Louis Rukeyser's Wall $treet Week on PBS became acquainted
with John Kim, Aeltus' President and Chief Investment Officer, where he
remains a recurring guest panelist. Another weekly PBS program, Dollar
Signs, interviewed Vincent Fioramonti, portfolio manager of Aetna
International VP, and Jim Griffin, Aeltus Investment Strategist. Jim
was also recently featured in Barron's, where he provided an overview
of the U.S. economy as well as the world markets.
Today, Aeltus has over $48 billion in assets under management - placing it among
the country's largest investment management firms. That's important for
investors, because it represents the kind of size and strength that will allow
us to continue refining our existing investment management services and
products, adding new ones, and growing our staff to serve valued customers, like
you.
Thank you for your continued confidence in the Aetna variable funds and Aeltus
Investment Management, Inc. Sincerely,
/s/ J. Scott Fox
- ----------------
J. Scott Fox
President
1
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Aetna Growth VP
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
--------------------------
1 Year Since Inception+
--------------------------
<S> <C>
40.96% 38.82%
--------------------------
</TABLE>
<TABLE>
<CAPTION>
Dec-96 Jun-98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Growth VP 10,000 10,146 9,846 11,780 14,139 13,510 15,701 16,607
S&P 500 Index 10,000 10,165 10,437 12,259 13,178 13,556 15,447 15,957
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Portfolio commenced investment operations on December 13, 1996.
Aetna Growth VP
How did the Portfolio perform during the period?
Aetna Growth VP (Growth) generated a total return of 23.05%, net of fund
expenses, for the six month period ended June 30, 1998. The Standard & Poor's
(S&P) 500 Index(a) returned 17.71%. When compared against the Morningstar, Inc.
universe of variable annuity large blend funds, the Portfolio ranked in the top
2% (out of 613 funds) for the one year period ended June 30, 1998.
What economic or financial market conditions impacted the Portfolio?
Renewed concerns about the ability of U.S. companies to sustain their earnings
momentum in the face of decelerating Asian economic growth affected second
quarter performance. For example, energy and raw material companies, faced with
falling product prices as Asian demand declined, did not perform well. As in the
first quarter, the equity markets again favored large capitalization growth
stocks with consistent and increasing growth trends. An exposure to the U.S.
economy was a plus in the quarter.
What investments influenced the Portfolio's performance over the past six
months?
A number of changes made to the Portfolio helped performance throughout the
second quarter. Technology holdings with a sensitivity to declining Asian demand
were replaced by companies with more exposure to the U.S. economy. Compuware
Corp. and BMC Software, Inc. were good performers in the quarter. Proceeds of
sales from poorly performing oil service companies were used to bolster
positions in health care, with additions to Warner Lambert Co. and Bristol-Myers
Squibb Co. McKesson Corp., a drug distribution company added to the Portfolio
during the second quarter, was a particularly strong performer. Following
another strong quarter of overall consumer demand, our overweight position in
retail, including Wal-Mart Stores, Inc. and TJX Companies, Inc., continued to
outperform. Investments in financial stocks such as Travelers, Inc. and
SunAmerica, Inc. also added to performance.
What is your outlook going forward?
Equity valuations continue to be supported by a low interest rate environment
and a sustained low inflation rate. However, earnings estimates for the S&P 500
are declining, attributable to the ripple effects from Asian economies. If
earnings stabilize, and inflation and interest rates remain low, the market
could remain at record levels throughout the remainder of the year.
2 See Definition of Indices.
<PAGE>
Portfolio Sector Breakdown:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
% of % of Over/(Under)
Sector Portfolio S&P 500 Weighting
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Materials 2.3% 5.2% (2.9)%
Commercial Services 6.0% 2.3% 3.7 %
Consumer Discretionary 16.0% 14.5% 1.5 %
Consumer Non-Discretionary -- 10.2% (10.2)%
Energy 4.6% 8.1% (3.5)%
Finance 17.7% 14.3% 3.4 %
Healthcare 23.4% 10.9% 12.5 %
Manufacturing 9.5% 10.2% (0.7)%
Technology 12.9% 13.0% (0.1)%
Utilities 7.6% 11.3% (3.7)%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- ---------------------------------------------------------
<S> <C>
Tyco International, Ltd. 3.8%
Warner Lambert Co. 3.6%
HBO & Co. 3.2%
Schering Plough 3.1%
Allied Waste Industries, Inc. 3.0%
Compuware Corp. 2.9%
Lucent Technologies, Inc. 2.8%
New York Times Co. 2.7%
Travelers, Inc. 2.5%
McKesson Corp. 2.4%
</TABLE>
3
<PAGE>
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Aetna International VP
Growth of $10,000
Annualized Total Return for the Period Ended
June 30, 1998*
----------------
Since Inception+
----------------
25.21%
----------------
<TABLE>
<CAPTION>
Dec-97 Jun-98
<S> <C> <C> <C> <C>
Aetna International VP 10,000 10,270 12,030 12,521
MSCI-EAFE Index 10,000 10,190 11,698 11,830
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital
gain distributions. Past performance is no guarantee of future results.
Performance does not take into account any separate account charges imposed
by Aetna.
+ The Portfolio commenced investment operations on December 22, 1997.
Aetna International VP
How did the Portfolio perform during the period?
Aetna International VP (International) generated a total return of 21.92%, net
of fund expenses, for the six month period ended June 30, 1998. The Morgan
Stanley Capital International-Europe, Australia, Far East (MSCI EAFE) Index(b)
returned 16.08% for the same period.
What economic or financial market conditions impacted the Portfolio?
Asia made most of the headlines during the last six months as Japan's economy
officially slipped into a recession and smaller Asian economies declined
dramatically. In the second quarter, Asian equity markets gave up the gains they
had made from mid January through March as investors realized the magnitude of
plunging Asian economies. Toward the end of June, however, hopes were raised
when the Federal Reserve intervened to bolster Japan's depreciating currency by
selling U.S. dollars and buying Japanese yen. Talks of permanent tax cuts and a
plan to resolve the banking crisis gave Asian markets a much needed lift at the
end of June.
In Europe, economic conditions were much brighter as interest rates declined and
several economic activity measurements showed improvement. Economic Monetary
Union (EMU) continues to gain momentum in Europe. Eleven countries announced
membership in EMU's first phase in 1999.
What investments influenced the Portfolio's performance over the past six
months?
Over the past six months, the Portfolio benefited from an underweight exposure
to Hong Kong and Japan and no exposure to other Asian countries. Based on our
disciplined investment process, we continued to avoid Asia where earnings
revisions recorded large declines. An overweight position in Europe, which was
driven by positive earnings revisions activity and low interest rates, enhanced
returns. Sector selection in Europe contributed to the Portfolio's
outperformance as financial stocks and consumer cyclicals, such as automobile
stocks, were emphasized. In Japan, exposure to export-driven industrial stocks
also added to performance.
During the last six months, the Portfolio remained partially hedged versus the
Japanese yen and German deutschemark. Currency hedging added to performance over
the last six months, despite the yen's short-term rally in June, as the U.S.
dollar strengthened relative to both currencies.
What is your outlook going forward?
Looking ahead, we continue to favor European countries where low interest rates,
low inflation and corporate restructuring should continue to generate positive
earnings estimate revisions. We continue to avoid Asia where higher interest
rates and lack of a government response to remedy the financial crisis will keep
equity markets there under pressure.
4 See Definition of Indices.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
% of % of Over/(Under)
Country Weightings Portfolio MSCI EAFE Weighting
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United Kingdom 13.9% 22.4% (8.5)%
Japan 13.2% 20.6% (7.4)%
France 11.7% 9.6% 2.1 %
Germany 10.0% 11.4% (1.4)%
Switzerland 6.9% 7.9% (1.0)%
Netherlands 6.2% 5.7% 0.5 %
Sweden 5.1% 3.2% 1.9 %
Norway 4.8% 0.6% 4.2 %
Italy 4.2% 4.6% (0.4)%
Finland 3.9% 1.0% 2.9 %
Other 20.1% 13.0% 7.1 %
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- -----------------------------------------------------------
<S> <C>
Delhaize-Le Lion SA 1.5%
Kao Corp. 1.3%
Fuji Photo Film Co. 1.3%
Granada Group Plc 1.3%
ING Groep NV 1.2%
Accor SA 1.2%
Lafarge SA 1.2%
Alcatel Alsthom 1.2%
Credit Suisse Group 1.2%
Oy Nokia Corp., ADR 1.2%
</TABLE>
5
<PAGE>
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Aetna Mid Cap VP
Growth of $10,000
Annualized Total Return for the Period Ended
June 30, 1998*
----------------
Since Inception+
----------------
12.65%
----------------
<TABLE>
<CAPTION>
Dec-97 Jun-98
<S> <C> <C> <C> <C>
Aetna Mid Cap VP 10,000 10,183 11,324 11,265
S&P Midcap 400 10,000 10,285 11,418 11,174
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital
gain distributions. Past performance is no guarantee of future results.
Performance does not take into account any separate account charges imposed
by Aetna.
+ The Portfolio commenced investment operations on December 17, 1997.
Aetna Mid Cap VP
How did the Portfolio perform during the period?
Aetna Mid Cap VP (Mid Cap) generated a total return of 10.63%, net of fund
expenses, for the six month period ended June 30, 1998. The Standard & Poor's
(S&P) Midcap 400 Index(c) returned 8.64% for the same period.
What economic or financial market conditions impacted the Portfolio?
A comparison of the investing environments in the first and second quarters of
1998 reveals a study in contrasts. After initial weakness in January, the mid
cap asset class (as proxied by the S&P Midcap 400) marched steadily upward,
achieving double-digit gains in the first quarter. The second quarter of 1998
was turbulent for mid cap stocks, as uncertainty over sustainability of earnings
took hold, resulting in a slight decline in mid caps for the quarter. Mid Cap,
which is managed with risk control as well as return enhancement in mind,
managed to widen its lead over the S&P Midcap 400 during the period. Stock and
sector selection played a key role in the Portfolio's performance for the first
half of 1998.
What investments influenced the Portfolio's performance over the past six
months?
The Portfolio held large positions in several financial stocks, including Lehman
Brothers Holdings, Inc., Equitable Co., Inc., and Bear Stearns Co., Inc. Each of
these stocks performed very well during the first six months of 1998. As a
result, the Portfolio benefited from the strong performance of each of these
stocks, as well as from the overall strong performance of the financial sector
during the period.
Detracting from the Portfolio's performance was the conspicuous absence of
America Online, Inc. (AOL is the single largest component of the S&P Midcap
400). The Portfolio's performance was also held back somewhat by an early
overweight in oil services stocks.
What is your outlook going forward?
We expect to remain fully invested in the Portfolio, with no changes to our core
mid cap investment strategy for the rest of 1998.
6 See Definition of Indices.
<PAGE>
<TABLE>
<CAPTION>
Portfolio Sector Breakdown:
- -----------------------------------------------------------------------------------------------
% of % of Over/(Under)
Sector Portfolio S&P Midcap 400 Weighting
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Materials 13.5% 6.7% 6.8 %
Commercial Services 7.1% 6.7% 0.4 %
Consumer Discretionary 26.6% 16.6% 10.0 %
Consumer Non-Discretionary 1.8% 4.8% (3.0)%
Energy 0.7% 8.1% (7.4)%
Finance 18.0% 13.1% 4.9 %
Healthcare 14.1% 9.7% 4.4 %
Manufacturing 5.9% 9.7% (3.8)%
Technology 7.9% 13.4% (5.5)%
Utilities 4.4% 11.2% (6.8)%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- -----------------------------------------------------------
<S> <C>
Office Depot, Inc. 3.5%
Bear Stearns Co., Inc. 3.4%
Lehman Brothers Holdings, Inc. 3.1%
Equitable Co., Inc. 2.9%
Millennium Chemicals, Inc. 2.9%
Quintiles Transnational 2.8%
Rexall Sundown, Inc. 2.8%
Media General, Inc. 2.6%
Cordant Technologies, Inc. 2.4%
Fingerhut Companies, Inc. 2.4%
</TABLE>
7
<PAGE>
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Aetna Small Company VP
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
-------------------------------
1 Year Since Inception+
-------------------------------
<S> <C>
23.77% 27.97%
-------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dec-96 Jun-98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Small Company VP 10,000 10,113 9,968 11,773 13,982 13,614 15,505 14,570
Russell 2000 10,000 10,195 9,668 11,235 12,907 12,475 13,728 13,089
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Portfolio commenced investment operations on December 27, 1996.
Aetna Small Company VP
How did the Portfolio perform during the period?
Aetna Small Company VP (Small Company) generated a total return of 7.13%, net of
fund expenses, for the six month period ended June 30, 1998. The Russell 2000
Index(d) returned 4.93% for the same period. When compared against the
Morningstar, Inc. universe of variable annuity intermediate-term bond funds, the
Portfolio ranked in the top 30% (out of 79 funds) for the one year period ended
June 30, 1998.
What economic or financial market conditions impacted the Portfolio?
The three biggest economic factors effecting the Portfolio were: historically
low interest rates as the result of continued low inflation and the Federal
Reserve's reluctance to tighten in the face of the Asian currency crisis, the
Asian currency crisis which brought slower economic growth and dampened demand
for most commodities and the rapid decline in oil prices, particularly in the
second quarter.
What investments influenced the Portfolio's performance over the past six
months?
The low interest rate environment helped most issues tied to the housing sector.
Our holdings in cement stocks (Lone Star Industries, Inc. and Centex
Construction Products, Inc.), home builder stocks (Webb (Del E.), Kaufman &
Broad Home Corp.) and title insurance stocks (LandAmerica Financial Group Inc.)
significantly added to first half results.
Other holdings which were strong included Inso Corp., AgriBioTech, Inc., and
Zapata Corp. These stocks were strong due to internal developments in the
companies.
On the negative side, our overweight position in energy stocks hurt the
Portfolio as oil prices plummeted in the first half.
What is your outlook going forward?
We believe that the investment environment will remain challenging for the
second half. While the interest rate outlook is favorable, the market must
continue to deal with the effects of the Asian currency crisis and a slowing
corporate profit outlook. In particular, small cap managers must continue to
deal with the markets preference for larger cap stocks.
This said, we still are finding attractive valuations in the small cap sector.
Finally, we continue to believe that our investment strategy of focusing on
those stocks with the strongest business momentum and selling at reasonable
prices, will fare well in the future as it has thus far.
8 See Definition of Indices.
<PAGE>
<TABLE>
<CAPTION>
Portfolio Sector Breakdown:
- ----------------------------------------------------------------------------------------------
% of % of Over/(Under)
Sector Portfolio Russell 2000 Weighting
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Materials 12.2% 5.2% 7.0 %
Commercial Services 8.0% 8.8% (0.8)%
Consumer Discretionary 22.0% 17.7% 4.3 %
Consumer Non-Discretionary 6.4% 2.6% 3.8 %
Energy 4.1% 5.2% (1.1)%
Finance 10.1% 15.9% (5.8)%
Healthcare 6.0% 8.4% (2.4)%
Manufacturing 16.1% 11.0% 5.1 %
Real Estate Investment Trusts 1.4% 5.8% (4.4)%
Technology 9.5% 14.9% (5.4)%
Utilities 4.2% 4.5% (0.3)%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- -----------------------------------------------------------
<S> <C>
Jones Intercable, Inc. 2.9%
Alpine Group, Inc. 2.9%
Medallion Financial Corp. 2.7%
Knightsbridge Tankers Ltd. 2.5%
GP Strategies Corp. 2.4%
Associated Group, Inc. 2.4%
Proxim, Inc. 2.3%
AgriBioTech, Inc. 2.2%
Paxson Communications Corp. 2.2%
Mens Wearhouse, Inc. 2.1%
</TABLE>
9
<PAGE>
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Aetna Value Opportunity VP
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
-------------------------------
1 Year Since Inception+
-------------------------------
<S> <C>
30.16% 35.46%
-------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dec-96 Jun-98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Value Opportunity VP 10,000 10,215 10,513 12,281 14,314 14,236 15,957 15,984
S&P 500 Index 10,000 10,165 10,437 12,259 13,178 13,556 15,447 15,957
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Portfolio commenced investment operations on December 13, 1996.
Aetna Value Opportunity VP
How did the Portfolio perform during the period?
Aetna Value Opportunity VP (Value Opportunity, formerly Aetna Variable Capital
Appreciation Portfolio) generated a total return of 12.28%, net of fund
expenses, for the six month period ended June 30, 1998. The Standard & Poor's
(S&P) 500 Index(a) returned 17.71%. When compared against the Morningstar, Inc.
universe of variable annuity large blend funds, the Portfolio ranked in the top
20% (out of 613 funds) for the one year period ended June 30, 1998.
What economic or financial market conditions impacted the Portfolio?
Investors sought out stocks of the largest U.S. companies with stable growth
prospects. This put the Portfolio, which focuses on value stocks, at a relative
disadvantage.
What investments influenced the Portfolio's performance over the past six
months?
An overweight position in the energy sector significantly detracted from
performance as oil price weakness characterized the period. Poor stock selection
in the manufacturing sector also negatively impacted the results. The strongest
stocks were associated with actual or rumored mergers, including Chrysler Corp.,
Wells Fargo & Co. and American Express Co. Among the weakest performers were
Noble Drilling Corp. and McDermott International, Inc. in the energy sector and
Boeing Co. and Deere & Co. in manufacturing.
What is your outlook going forward?
The stock market has posted a very strong first half in the face of economic
turmoil in many Asian countries. This has slowed earnings gains of U.S.
companies and made continued low interest rates and inflation crucial in
supporting equity valuations. For now, prospects seem to favor continued high
market levels.
10 See Definition of Indices.
<PAGE>
<TABLE>
<CAPTION>
Portfolio Sector Breakdown:
- ---------------------------------------------------------------------------------------------
% of % of Over/(Under)
Sector Portfolio S&P 500 Weighting
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Materials 9.9% 5.2% 4.7 %
Commercial Services 6.8% 2.3% 4.5 %
Consumer Discretionary 6.5% 14.5% (8.0)%
Consumer Non-Discretionary 7.0% 10.2% (3.2)%
Energy 10.2% 8.1% 2.1 %
Finance 21.5% 14.3% 7.2 %
Healthcare 9.6% 10.9% (1.3)%
Manufacturing 10.6% 10.2% 0.4 %
Technology 13.4% 13.0% 0.4 %
Utilities 4.5% 11.3% (6.8)%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- --------------------------------------------------------------------------------
<S> <C>
American Express 5.4%
Du Pont (E.I.) De Nemours 4.2%
Kimberly Clark Corp. 3.9%
Kansas City Southern Industries, Inc. 3.8%
Compaq Computer Corp. 3.7%
IBM Corp. 3.7%
Federal Home Loan Mortgage Corp. 3.6%
Bell Atlantic 3.4%
Owen-Illinois, Inc. 3.4%
Amgen, Inc. 3.3%
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
Definition of Indices
- --------------------------------------------------------------------------------
(a) The Standard & Poor's (S&P) 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks that assumes the reinvestment of all dividends, and is
considered to be representative of the stock market in general.
(b) The Morgan Stanley Capital International-Europe, Australia, Far East (MSCI
EAFE) Index is a market value-weighted average of the performance of more than
900 securities listed on the stock exchanges of countries in Europe, Australia
and the Far East.
(c) The Standard & Poor's (S&P) Midcap 400 Index is a value-weighted, unmanaged
index of 400 common stocks that assumes the reinvestment of all dividends.
(d) The Russell 2000 Index consists of the smallest 2000 companies in the
Russell 3000 Index and represents approximately 11% of the Russell 3000 total
market capitalization. The 3000 largest U.S. companies by market capitalization,
representing nearly 98% of the U.S. equity market, comprise the Russell 3000
Index. Both indices assume reinvestment of all dividends and are unmanaged.
12
<PAGE>
Capital Appreciation Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Growth
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ----------
<S> <C> <C>
COMMON STOCKS (84.3%)
Biotech and Medical Products (5.9%)
Biomet, Inc.+......................... 26,700 $ 882,769
Mylan Laboratories, Inc............... 34,500 1,037,156
Watson Pharmaceuticals, Inc. +........ 19,900 929,081
----------
2,849,006
----------
Commercial Services (2.0%)
Omnicom Group, Inc.................... 19,900 992,513
----------
Computers (1.6%)
Dell Computer Corp.+.................. 8,200 761,063
----------
Conglomerate and Aerospace (1.3%)
Sundstrand Corp....................... 10,800 618,300
----------
Consumer Finance (1.2%)
Associates First Capital Corp......... 7,600 584,250
----------
Consumer Services (1.4%)
Carnival Corp......................... 16,800 665,700
----------
Data and Imaging Services (9.3%)
BMC Software, Inc. +.................. 15,700 815,419
Cisco Systems, Inc.+.................. 8,300 764,119
Computer Associates 16,100 894,556
International, Inc..................
Compuware Corp. +..................... 27,400 1,400,825
EMC/MASS Corp.+....................... 14,500 649,781
----------
4,524,700
----------
Discretionary Retail (8.8%)
Family Dollar Stores, Inc............. 45,900 849,150
Office Depot, Inc. +.................. 25,600 808,000
Ross Stores, Inc...................... 9,600 412,800
TJX Companies, Inc.................... 37,400 902,275
Viking Office Products, Inc.+......... 7,100 222,763
Wal-Mart Stores, Inc.................. 17,500 1,063,125
----------
4,258,113
----------
Diversified Financial Services (2.5%)
Travelers Group, Inc.................. 19,700 1,194,313
----------
Drugs (8.2%)
Bristol-Myers Squibb Co............... 6,900 793,069
Schering Plough....................... 16,200 1,484,325
Warner Lambert Co..................... 24,800 1,720,499
----------
3,997,893
----------
Electrical Machinery and Instruments (2.9%)
Herman Miller, Inc.................... 32,000 778,000
Lexmark International Group, Inc.+.... 10,400 634,400
----------
1,412,400
----------
Electronic Media (0.6%)
Capstar Broadcasting Corp. +.......... 11,900 298,988
----------
Forest Products and Building Materials (1.9%)
Owens-Illinois, Inc.+................. 21,000 939,750
----------
Health Services (5.6%)
HBO & Co.............................. 44,200 1,558,050
<CAPTION>
Number of Market
Shares Value
--------- ----------
<S> <C> <C>
Health Services (continued)
McKesson Corp......................... 14,400 $1,170,000
----------
2,728,050
----------
Industrial Services (3.0%)
Allied Waste Industries, Inc.+........ 60,400 1,449,600
----------
Insurance (6.2%)
American International Group, Inc..... 6,700 978,200
MGIC Investment Corp.................. 15,100 861,644
SunAmerica, Inc....................... 20,100 1,154,494
----------
2,994,338
----------
Investment Services (5.1%)
Franklin Resources, Inc............... 16,900 912,600
Providian Financial Corp.............. 5,500 432,094
T. Rowe Price Associates.............. 30,200 1,134,388
----------
2,479,082
----------
Major Telecommunications (1.8%)
WorldCom, Inc.+....................... 18,300 886,406
----------
Oil Services (3.9%)
BJ Services Co. +..................... 21,300 619,031
Friede Goldman International, Inc.+... 23,400 675,675
Santa Fe International Corp........... 19,400 586,850
----------
1,881,556
----------
Other Telecommunications (4.6%)
CIENA Corp.+.......................... 13,200 919,050
Lucent Technologies, Inc.............. 16,000 1,331,000
----------
2,250,050
----------
Print Media (2.7%)
New York Times Co..................... 16,700 1,323,475
----------
Producer Goods (3.8%)
Tyco International Ltd................ 29,500 1,858,498
----------
Total Common Stocks (cost
$37,683,267) 40,948,044
==========
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
SHORT-TERM INVESTMENTS (15.4%)
Federal Home Loan Mortgage Corp,
5.60%, 07/01/98..................... $7,286,000 7,286,000
U.S. Treasury Bill, 4.94%, 08/20/98@.. 100,000 99,327
U.S. Treasury Bill, 5.05%, 08/20/98@.. 100,000 99,327
-----------
Total Short-Term Investments (cost $7,484,612)
7,484,654
-----------
TOTAL INVESTMENTS (cost $45,167,879)(a) 48,432,698
Other assets less liabilities
162,965
===========
Total Net Assets
$48,595,663
===========
</TABLE>
See Notes to Portfolio of Investments. 13
<PAGE>
Capital Appreciation Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Growth (continued)
================================================================================
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$45,114,740. Unrealized gains and losses, based on identified tax cost at June
30, 1998, are as follows:
Unrealized gains ..................... $3,813,355
Unrealized losses .................... (495,397)
==========
Net unrealized gain ................ $3,317,958
==========
Information concerning open futures contracts at June 30, 1998 is shown below:
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- --------- --------- -----------
Long Contracts
- ---------------------
S&P 500 Index
Futures .......... 15 $4,195,808 Sept. 98 $90,307
========== ===========
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1998.
Category percentages are based on net assets.
14 See Notes to Financial Statements.
<PAGE>
Capital Appreciation Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
International
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS (92.4%)
Australia (3.2%)
Goodman Fielder Ltd. (Food and
Beverage) ........................... 113,709 $ 165,474
Mayne Nickless Ltd. (Commercial
Services) ........................... 13,700 72,536
Telstra Corp. Ltd. (Other
Telecommunications) +................ 82,600 211,761
Westpac Banking Corp. Ltd. (Banks and
Thrifts) ............................ 26,462 161,408
-----------
Total Australia 611,179
-----------
Belgium (1.5%)
Delhaize-Le Lion, SA (Food and
Beverage) ............................. 4,100 286,481
-----------
Canada (1.3%)
Canadian Imperial Bank of Commerce
(Banks and Thrifts) ................. 3,000 96,495
Canadian National Railway Co. (Surface
Transport) .......................... 3,000 159,375
-----------
Total Canada 255,870
-----------
Denmark (2.3%)
Carli Gry International A/S (Textiles
and Apparel) 2,200 177,548
Novo-Nordisk A/S (Drugs) .............. 1,350 186,099
Tele Danmark A/S (Major
Telecommunications) + ............... 900 86,375
-----------
Total Denmark 450,022
-----------
Finland (3.9%)
Helsingin Puhelin Oyj (Other
Telecommunications) ................. 2,300 106,900
Huhtamaki Group (Diversified) ......... 2,300 130,795
Oy Nokia Corp., ADR (Other
Telecommunications) ................. 3,200 232,200
Sampo Insurance Co. (Insurance) ....... 2,400 113,735
UPM-Kymmene Corp. (Forest Products and
Building Materials) ................. 6,100 162,327
-----------
Total Finland 745,957
-----------
France (11.7%)
Accor SA (Consumer Services) .......... 850 237,876
Alcatel Alsthom (Other
Telecommunications) ................. 1,150 234,147
Credit Commercial de France (Banks and
Thrifts) ............................ 1,700 143,119
Danone (Food and Beverage) ............ 750 206,790
Elf Aquitaine SA (Oil) ................ 1,500 210,883
Eridania Beghin-Say SA (Food and
Beverage) ........................... 700 154,565
Gemini Sogeti SA (Insurance) .......... 950 149,272
Lafarge SA (Forest Products and
Building Materials) ................. 2,300 237,761
Pernod Ricard (Food and Beverage) ..... 1,300 90,093
Renault SA (Automotive) +.............. 3,650 207,614
Rhone-Poulenc (Biotech and Medical
Products) ........................... 3,800 214,324
Scor SA (Insurance) ................... 900 57,087
Societe Generale (Diversified
Financial Services) ................. 450 93,558
-----------
Total France 2,237,089
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Germany (7.4%)
BASF AG (Chemicals) ................... 2,250 $ 106,579
Bayerische Hypotheken-und Wechsel-Bank
AG (Banks and Thrifts) .............. 2,950 186,970
BHF-Bank AG (Banks and Thrifts) ....... 3,400 128,748
Daimler-Benz AG (Automotive) .......... 990 97,080
Deutsche Pfandbrief & Hypothekenbank
AG (Banks and Thrifts) .............. 2,100 167,535
Gehe AG (Health Services) ............. 1,500 80,609
Karstadt AG (Consumer Specialties) +... 250 120,776
Mannesmann AG (Producer Goods) ........ 1,300 131,873
Merck KGAA (Drugs) .................... 1,400 62,592
VEBA AG (Electric Utilities) .......... 1,700 115,845
Volkswagen AG (Automotive) ............ 240 230,693
-----------
Total Germany 1,429,300
-----------
Hong Kong (0.7%)
Hutchison Whampoa Ltd. (Consumer
Services) ........................... 27,000 142,168
Peregrine Investments Holdings Ltd.
(Investment Services)+++............. 88,000 977
-----------
Total Hong Kong 143,145
-----------
Ireland (2.0%)
Allied Irish Banks (Banks and Thrifts) 8,195 118,313
CRH Plc (Forest Products and Building
Materials) .......................... 10,300 146,117
Waterford Wedgewood (Housing and
Furnishings) ........................ 94,000 121,942
-----------
Total Ireland 386,372
-----------
Italy (4.2%)
Banca Commerciale Italiana (Banks and
Thrifts)+ ........................... 29,000 173,424
Credito Italiano (Banks and Thrifts) .. 39,800 208,342
Istituto Nazionale delle Assicurazioni
(Insurance) +........................ 52,600 149,436
Mondadori (Arnoldo) Editore SpA (Print
Media) .............................. 11,500 135,861
Telecom Italia S.p.A. (Major
Telecommunications) ................. 17,900 131,766
-----------
Total Italy 798,829
-----------
Japan (13.2%)
Canon, Inc. (Computers) ............... 10,000 226,970
Exedy Corp. (Automotive) .............. 6,000 36,747
Fuji Photo Film (Chemicals)++++........ 7,000 243,613
Hitachi Ltd. (Semiconductors and
Electronics) ........................ 27,000 176,064
Kao Corp. (Consumer Products) +........ 15,900 245,170
Kokusai Electric (Other
Telecommunications) ................. 7,600 63,523
Minebea Co. Ltd. (Semiconductors and
Electronics) ........................ 11,000 109,457
Mizuno Corp. (Consumer Products) ...... 35,000 117,520
</TABLE>
See Notes to Portfolio of Investments. 15
<PAGE>
Capital Appreciation Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
International (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Japan (continued)
Nintendo Co. Ltd. (Semiconductors and
Electronics) ........................ 2,000 $ 185,179
Nippon Telegraph & Telephone (Major
Telecommunications) +................ 19 157,438
Orix Corp. (Investment Services) ...... 3,000 202,544
Santen Pharmaceutical Co., Ltd.
(Drugs) ............................. 16,000 175,120
Seino Transportation Co., Ltd.
(Surface Transport) ................. 17,000 94,319
Sony Corp. (Semiconductors and
Electronics) +....................... 1,900 163,598
Takefuji Corp. (Banks and Thrifts) .... 4,000 184,458
Terumo Corp. (Biotech and Medical
Products) ........................... 9,000 142,667
-----------
Total Japan 2,524,387
-----------
Mexico (1.1%)
Grupo Financiero Banamex Accival
(Investment Services) +.............. 30,800 59,982
Panamerican Beverages, Inc. (Food and
Beverage) ........................... 4,900 154,044
-----------
Total Mexico 214,026
-----------
Netherlands (6.2%)
Akzo Nobel NV (Chemicals) +............ 900 200,069
Heineken NV (Food and Beverage) +...... 3,900 153,186
Hunter Douglas NV (Consumer Services) . 3,653 198,435
ING Groep NV (Banks and Thrifts) ...... 3,635 238,020
Philips Electronics NV (Semiconductors
and Electronics) .................... 2,100 176,531
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit
(Print Media) ....................... 5,900 214,340
-----------
Total Netherlands 1,180,581
-----------
New Zealand (0.3%)
Fernz Corp., Ltd. (Chemicals) ......... 25,300 56,473
-----------
Norway (4.8%)
Christiania Bank Og Kredkasse (Banks
and Thrifts) ........................ 22,100 92,449
ContextVision AB (Data and Imaging
Services) +.......................... 6,500 107,578
Merkantildata ASA (Data and Imaging
Services) ........................... 14,500 183,293
Ocean Rig ASA (Oil) +.................. 162,000 120,336
Seateam Technology AS (Oil) +.......... 6,300 111,657
Tandberg Television ASA (Other
Telecommunications) +................ 14,100 118,518
Tomra Systems ASA (Forest Products and
Building Materials) ................. 6,300 188,832
-----------
Total Norway 922,663
-----------
Spain (2.7%)
Banco Santander (Banks and Thrifts) ... 4,800 123,065
Iberdrola SA (Electric Utilities) ..... 11,100 180,541
Telefonica de Espana (Major
Telecommunications) ................. 4,800 222,301
-----------
Total Spain 525,907
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Sweden (5.1%)
Celsius AB (Conglomerate and
Aerospace) .......................... 6,100 $ 142,271
Industrial & Financial Systems (Data
and Imaging Services)++++............. 12,700 177,563
Kinnevik AB (Industrial Services) ..... 3,800 123,650
Kinnevik Investment Free Rights
(Industrial Services) ............... 3,800 17,154
Mo och Domsjo AB (Forest Products and
Building Materials) ................. 2,200 62,897
Skandinaviska Enskilda Banken (Banks
and Thrifts) ........................ 11,300 193,413
Svenska Handelsbanken (Investment
Services) ........................... 2,300 106,710
WM-Data AB (Computers) ................ 4,300 149,356
-----------
Total Sweden 973,014
-----------
Switzerland (6.9%)
Credit Suisse Group (Banks and
Thrifts) ............................ 1,050 233,633
Fischer (Georg) AG (Auto Parts and
Hardware) ........................... 400 155,591
Holderbank Financiere Glarus AG
(Forest Products and Building
Materials) .......................... 128 162,869
Kuoni Reisen AG (Commercial Services) . 29 143,968
Nestle SA Registered Shares (Food and
Beverage) ........................... 75 160,502
Novartis AG Registered Shares (Health
Services) ........................... 55 91,522
Schweizerische
Rueckversicherungs-Gesillschaft
(Insurance) +........................ 66 166,915
Ubs AG Registered Shares (Banks and
Thrifts) +........................... 575 213,805
-----------
Total Switzerland 1,328,805
-----------
United Kingdom (13.9%)
Bank of Scotland (Banks and Thrifts) .. 11,500 128,750
Barclays Plc (Investment Services) .... 4,600 132,933
Berisford Plc (Industrial Services) +.. 23,300 89,026
British Telecommunications Plc (Major
Telecommunications) +................ 11,900 146,730
Cadbury Schweppes Plc (Food and
Beverage) +.......................... 10,000 154,753
Emap Plc (Print Media) ................ 1,400 28,311
Glaxo Wellcome Plc (Drugs) ............ 5,800 174,191
Granada Group Plc (Consumer Services) . 13,200 242,706
Kingfisher Plc (Discretionary Retail) . 10,353 166,694
McKechnie Plc (Industrial Services) ... 13,300 96,531
National Westminster Bank Plc (Banks
and Thrifts) ........................ 7,500 134,022
Pearson Plc (Print Media) ............. 7,200 131,905
Peninsular & Oriental Steam
Navigation Co. (Surface Transport) . 12,387 178,362
Railtrack Group Plc (Surface
Transport) +......................... 6,700 165,001
Shell Transport & Trading Co. (Oil) +.. 12,800 90,126
Tesco Plc (Discretionary Retail) +..... 13,492 131,692
Unilever Plc (Consumer Products) ...... 13,300 141,579
Vodafone Group Plc (Other
Telecommunications) ................. 14,600 185,259
</TABLE>
16 See Notes to Portfolios of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United Kingdom (continued)
WPP Group Plc (Commercial Services) +.. 22,100 $ 144,822
-----------
Total United Kingdom 2,663,393
-----------
Total Common Stocks (cost $15,526,472) 17,733,493
-----------
PREFERRED STOCKS (2.6%)
Germany (2.6%)
Henkel KGAA (Chemicals) ............... 1,850 183,975
Hugo Boss AG (Textiles and Apparel) ... 50 110,249
SAP AG (Data and Imaging Services) .... 290 197,136
-----------
Total Preferred Stocks (cost $308,709) 491,360
-----------
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (0.5%)
U.S. Government Obligations (0.5%)
U.S. Treasury Bill, Zero Coupon,
08/20/98............................. $100,000 99,317
-----------
Total Long-Term Bonds and Notes (cost $99,302) 99,317
-----------
TOTAL INVESTMENTS (cost
$15,934,483)(a) 18,324,170
Other assets less liabilities 873,966
-----------
Total Net Assets $19,198,136
===========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$15,979,980. Unrealized gains and losses, based on identified tax cost at June
30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains .................... $2,741,813
Unrealized losses ................... (397,623)
-----------
Net unrealized gain ............... $2,344,190
===========
</TABLE>
++ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
++++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Directors.
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 17
<PAGE>
Capital Appreciation Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Mid Cap
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
COMMON STOCKS (97.0%)
Air Transport (1.7%)
UAL Corp.+............................. 1,200 $ 93,600
-----------
Automotive (1.1%)
Meritor Automotive, Inc................ 2,600 62,400
-----------
Banks and Thrifts (5.6%)
AmSouth Bancorporation................. 2,700 106,144
Colonial BancGroup, Inc................ 800 25,800
Dime Bancorp, Inc...................... 2,000 59,875
North Fork Bancorp, Inc................ 900 21,994
Washington Federal..................... 3,700 102,213
-----------
316,026
-----------
Biotech and Medical Products (7.8%)
Arterial Vascular Engineering, Inc.+... 400 14,300
ATL Ultrasound, Inc.+.................. 2,500 114,063
Datascope Corp.+....................... 4,100 108,906
Hillenbrand Industries, Inc............ 800 48,000
Quintiles Transnational Corp.+......... 3,100 152,481
-----------
437,750
-----------
Commercial Services (2.7%)
AccuStaff, Inc.+....................... 4,000 125,000
Laidlaw Environmental Services, Inc.+.. 6,900 25,013
-----------
150,013
-----------
Conglomerate and Aerospace (3.0%)
Cordant Technologies, Inc.............. 2,800 129,150
Sundstrand Corp........................ 700 40,075
-----------
169,225
-----------
Consumer Products (1.8%)
Blyth Industries, Inc.+................ 3,000 99,750
-----------
Consumer Services (6.6%)
Brinker International, Inc.+........... 4,500 86,625
Carnival Corp.......................... 2,400 95,100
Host Marriott Corp.+................... 5,600 99,750
Promus Hotel Corp.+.................... 2,400 92,400
-----------
373,875
-----------
Data and Imaging Services (8.0%)
BMC Software, Inc.+.................... 1,500 77,906
Cadence Design Systems, Inc.+.......... 1,100 34,375
Pixar, Inc.+........................... 1,800 108,675
Symantec Corp.+........................ 4,400 114,950
Veritas Software Corp.+................ 2,800 115,850
-----------
451,756
-----------
Discretionary Retail (9.6%)
Fingerhut Companies, Inc............... 3,900 128,700
Micro Warehouse, Inc.+................. 3,800 58,900
Office Depot, Inc.+.................... 6,100 192,530
Payless ShoeSource, Inc.+.............. 1,700 125,269
Republic Industries, Inc.+............. 1,500 37,500
-----------
542,899
-----------
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
Diversified Financial Services (2.8%)
Equitable Co., Inc. (The).............. 2,100 $ 157,369
-----------
Drugs (2.7%)
Rexall Sundown, Inc.+.................. 4,300 151,575
-----------
Forest Products and Building Materials
(5.1%)
Georgia-Pacific Corp................... 3,700 85,331
Lafarge Corp........................... 2,000 78,625
Southdown, Inc......................... 1,700 121,338
-----------
285,294
-----------
Gas Utilities (0.6%)
Questar Corp........................... 1,800 35,325
-----------
Health Services (3.2%)
NovaCare, Inc.+........................ 6,500 76,375
Pacificare Health Systems, Inc.+....... 1,200 106,050
-----------
182,425
-----------
Industrial Services (0.5%)
Allied Waste Industries, Inc.+......... 1,200 28,800
-----------
Insurance (2.7%)
AMBAC, Inc............................. 1,000 58,500
Old Republic International Corp........ 3,150 92,334
-----------
150,834
-----------
Investment Services (6.4%)
Bear Stearns Co., Inc. (The)........... 3,300 187,687
Lehman Brothers Holdings, Inc.......... 2,200 170,637
-----------
358,324
-----------
Major Telecommunications (2.2%)
Southern New England
Telecommunications Corp.............. 1,900 124,450
-----------
Other Telecommunications (4.2%)
Century Telephone Enterprises, Inc..... 2,550 116,981
Liberty Media Group+................... 3,100 120,319
-----------
237,300
-----------
Print Media (2.6%)
Harte-Hanks Communications............. 200 5,163
Media General, Inc..................... 2,900 141,375
-----------
146,538
-----------
Producer Goods (1.6%)
AMETEK, Inc............................ 2,900 85,006
Kaydon Corp............................ 100 3,531
-----------
88,537
-----------
Semiconductors and Electronics (1.6%)
Maxim Integrated Products, Inc.+....... 2,800 88,725
-----------
Specialty Chemicals (4.4%)
International Specialty Products, Inc.+ 4,800 89,400
Millennium Chemicals, Inc.............. 4,600 155,825
-----------
245,225
-----------
Steel (3.7%)
AK Steel Holding Corp.................. 6,100 109,038
</TABLE>
18 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
Steel (continued)
Alumax, Inc.+.......................... 391 $ 18,133
Carpenter Technology Corp.............. 1,600 80,400
----------
207,571
----------
Surface Transport (1.3%)
Tidewater, Inc......................... 2,300 75,900
----------
Textiles and Apparel (3.5%)
Burlington Industries, Inc.+........... 5,500 77,344
Jones Apparel Group, Inc.+............. 3,200 117,000
----------
194,344
----------
TOTAL INVESTMENTS (cost $4,955,945)(a) 5,455,830
Other assets less liabilities 169,393
---------
Total Net Assets $5,625,223
==========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at June 30, 1998, are
as follows:
<TABLE>
<S> <C>
Unrealized gains ...................... $ 671,739
Unrealized losses ..................... (171,854)
-----------
Net unrealized gain ................. $ 499,885
===========
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Portfolio of Investments. 19
<PAGE>
Capital Appreciation Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Small Company
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
COMMON STOCKS (81.6%)
Automotive (1.1%)
Arvin Industries, Inc.................. 17,300 $ 628,206
Borg Warner Automotive, Inc............ 4,600 221,088
-----------
849,294
-----------
Banks and Thrifts (1.9%)
Cullen/Frost Bankers, Inc.............. 13,700 743,225
Heritage Financial Corp................ 17,800 262,550
Timberland Bancorp, Inc................ 26,800 442,200
-----------
1,447,975
-----------
Biotech and Medical Products (2.9%)
CNS, Inc.+............................. 140,700 655,134
Hologic, Inc.+......................... 26,400 480,150
ICU Medical, Inc.+..................... 74,200 1,066,625
-----------
2,201,909
-----------
Commercial Services (1.0%)
TeleSpectrum Worldwide, Inc.+.......... 84,400 738,500
-----------
Computers (1.0%)
Dunn Computer Corp.+................... 94,500 779,625
-----------
Consumer Finance (2.6%)
Medallion Financial Corp............... 59,200 1,627,999
Rock Financial Corp.................... 28,500 292,125
-----------
1,920,124
-----------
Consumer Products (3.4%)
Church & Dwight, Inc................... 22,900 741,388
Suprema Specialties, Inc.+............. 120,600 452,250
U.S.A. Floral Products, Inc.+.......... 22,800 359,100
Vlasic Foods International, Inc.+...... 51,800 1,042,475
-----------
2,595,213
-----------
Consumer Services (1.0%)
Primadonna Resorts, Inc.+.............. 52,400 751,613
-----------
Data and Imaging Services (6.1%)
Harbinger Corp.+....................... 31,992 773,807
Mapics, Inc.+.......................... 51,400 1,011,938
Proxim, Inc.+.......................... 84,700 1,408,138
QLogic Corp. +......................... 18,100 645,944
Radiant Systems, Inc.+................. 26,700 387,150
Schawk, Inc............................ 23,000 345,000
-----------
4,571,977
-----------
Discretionary Retail (5.1%)
Elder-Beerman Stores Corp. (The)+...... 35,600 950,075
Marks Bros. Jewelers, Inc.+............ 42,100 820,950
Men's Wearhouse, Inc.+................. 38,850 1,282,050
Signet Group Plc+...................... 35,900 765,119
-----------
3,818,194
-----------
Electric Utilities (1.5%)
Calpine Corp.+......................... 54,100 1,092,144
-----------
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
Electronic Media (9.1%)
Ackerley Group, Inc. (The)............. 50,600 $1,062,600
Clearview Cinema Group, Inc.+.......... 10,300 208,575
Jones Intercable, Inc.................. 71,300 1,782,499
Paxson Communications Corp.+........... 110,800 1,343,450
TCI Music, Inc.+....................... 160,600 1,254,688
Young Broadcasting Corp.+.............. 18,000 1,170,000
-----------
6,821,812
-----------
Food and Beverage (2.3%)
Hansen Natural Corp.+.................. 95,000 439,375
Lance, Inc............................. 33,600 751,800
Unimark Group, Inc.+................... 128,400 513,600
-----------
1,704,775
-----------
Forest Products and Building Materials
(5.3%)
Ball Corp.............................. 26,300 1,056,931
Centex Construction Products, Inc...... 33,200 1,278,200
Lone Star Industries, Inc.............. 5,700 439,256
Pope & Talbot, Inc..................... 44,100 515,419
Unisource Worldwide, Inc............... 61,800 668,213
-----------
3,958,019
-----------
Gas Utilities (1.5%)
Kaneb Services, Inc.+.................. 202,600 1,101,638
-----------
Health Services (1.9%)
Bindley Western Industries, Inc........ 20,133 664,389
Matria Healthcare, Inc.+............... 108,200 378,700
Renex Corp.+........................... 70,400 413,600
-----------
1,456,689
-----------
Heavy Machinery (2.4%)
Astec Industries, Inc.+................ 15,900 548,550
JLG Industries, Inc.................... 26,400 532,950
Terex Corp.+........................... 26,300 749,550
-----------
1,831,050
-----------
Housing and Furnishings (2.0%)
Schuler Homes, Inc.+................... 83,600 731,500
Winsloew Furniture, Inc.+.............. 27,600 745,200
-----------
1,476,700
-----------
Industrial Services (0.1%)
CET Environmental Services, Inc.+...... 35,100 92,138
-----------
Insurance (3.7%)
ARM Financial Group, Inc............... 38,600 854,025
LandAmerica Financial Group, Inc....... 20,000 1,145,000
Reliastar Financial Corp............... 16,700 801,600
-----------
2,800,625
-----------
Oil (0.7%)
Core Laboratories N.V.+................ 23,800 514,675
-----------
Oil Services (2.2%)
IRI International Corp.+............... 19,900 213,925
McDermott International, Inc........... 22,300 767,956
Seitel, Inc. +......................... 43,500 704,156
-----------
1,686,037
-----------
</TABLE>
20 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
Other Telecommunications (4.8%)
Associated Group, Inc.+................ 35,900 $1,471,899
Cidco, Inc.+........................... 44,300 204,888
Ortel Corp.+........................... 53,400 827,700
Price Communications Corp.+............ 72,031 1,102,979
-----------
3,607,466
-----------
Producer Goods (7.0%)
Alpine Group, Inc. (The)+.............. 84,100 1,745,074
Avondale Industries, Inc.+............. 42,100 1,161,697
Dal-Tile International, Inc.+.......... 57,300 562,256
Global Industrial Technologies, Inc.+.. 49,700 714,438
Mueller Industries, Inc.+.............. 28,400 1,054,350
-----------
5,237,815
-----------
Real Estate Investment Trusts (1.1%)
Equity Inns, Inc....................... 32,700 431,231
Glenborough Realty Trust, Inc.......... 16,200 427,275
-----------
858,506
-----------
Semiconductors and Electronics (0.3%)
Kentek Information Systems, Inc........ 24,100 207,863
-----------
Specialty Chemicals (4.8%)
Agribiotech, Inc.+..................... 49,700 1,376,069
Alcide Corp.+.......................... 17,500 741,563
Borden Chemicals and Plastics.......... 91,400 525,550
Eco Soil Systems, Inc.+................ 91,600 961,800
-----------
3,604,982
-----------
Surface Transport (4.8%)
GP Strategies Corp.+................... 102,500 1,499,062
Knightsbridge Tankers Ltd.............. 56,800 1,519,399
Royal Olympic Cruise Lines, Inc.+...... 58,300 583,000
-----------
3,601,461
-----------
Total Common Stocks (cost $60,716,659) 61,328,819
===========
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (17.4%)
Federal Home Loan Bank, 5.55%, 07/01/98 $12,800,000 12,800,000
U. S. Treasury Bill, Time Deposit,
4.91%, 08/20/98@..................... 100,000 99,317
U. S. Treasury Bill, Time Deposit,
5.00%, 08/20/98@..................... 100,000 99,327
U.S. Treasury Bill, Comm. Paper,
5.025%, 08/20/98@.................... 100,000 99,327
----------
Total Short-Term Investments (cost $13,097,925) 13,097,971
==========
TOTAL INVESTMENTS (cost $73,814,584)(a) 74,426,790
Other assets less liabilities 772,994
==========
Total Net Assets $75,199,784
==========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$74,027,271. Unrealized gains and losses, based on identified tax cost at June
30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains ..................... $ 3,522,904
Unrealized losses .................... (3,123,385)
===========
Net unrealized gain ................ $ 399,519
===========
</TABLE>
Information concerning open futures contracts at June 30, 1998 is shown below:
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- ---------- --------- -----------
Long Contracts
- ---------------------
Russell 2000 Index
Futures .......... 35 $7,937,647 Sept. 98 $153,163
========== ========
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1998.
Category percentages are based on net assets.
See Notes to Financial Statements. 21
<PAGE>
Capital Appreciation Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Value Opportunity
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
---------- -----------
<S> <C> <C>
COMMON STOCKS (93.8%)
Air Transport (2.8%)
UAL Corp.+............................. 20,000 $1,560,000
-----------
Automotive (2.5%)
Dana Corp.............................. 25,900 1,385,650
-----------
Banks and Thrifts (4.6%)
Citicorp............................... 10,000 1,492,500
Wells Fargo & Co....................... 3,000 1,107,000
-----------
2,599,500
-----------
Biotech and Medical Products (3.1%)
Amgen, Inc.+........................... 27,000 1,765,125
-----------
Chemicals (6.1%)
Du Pont (E.I.) de Nemours.............. 30,000 2,238,750
Rohm & Haas Co......................... 11,900 1,236,856
-----------
3,475,606
-----------
Computers (9.5%)
Compaq Computer Corp................... 70,000 1,986,250
Hewlett Packard Co..................... 24,000 1,437,000
International Business Machines, Inc... 16,900 1,940,331
-----------
5,363,581
-----------
Conglomerate and Aerospace (2.0%)
Boeing Co.............................. 25,000 1,114,063
-----------
Consumer Finance (3.3%)
Federal Home Loan Mortgage Corp........ 40,000 1,882,500
-----------
Consumer Products (3.6%)
Kimberly-Clark Corp.................... 45,000 2,064,375
-----------
Consumer Services (1.3%)
Hilton Hotels Corp..................... 25,000 712,500
-----------
Discretionary Retail (3.8%)
Federated Department Stores, Inc.+..... 22,000 1,183,875
OfficeMax, Inc.+....................... 58,800 970,200
-----------
2,154,075
-----------
Diversified Financial Services (7.1%)
American Express Co.................... 25,000 2,849,999
Travelers Group, Inc................... 19,500 1,182,188
-----------
4,032,187
-----------
Drugs (5.8%)
American Home Products Corp............ 30,500 1,578,375
Bristol-Myers Squibb Co................ 15,000 1,724,063
-----------
3,302,438
-----------
Electric Utilities (2.3%)
Exel Ltd............................... 16,400 1,276,125
-----------
Food and Beverage (2.9%)
PepsiCo, Inc........................... 40,000 1,647,500
-----------
Forest Products and Building Materials
(3.2%)
Owens-Illinois, Inc.+.................. 40,000 1,790,000
-----------
Gas Utilities (2.9%)
Enron Corp............................. 30,000 1,621,875
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Heavy Machinery (2.8%)
Deere & Co............................. 29,600 $1,565,100
-----------
Housing and Furnishings (1.0%)
Centex Corp............................ 15,500 585,125
-----------
Investment Services (2.9%)
Franklin Resources, Inc................ 30,000 1,620,000
-----------
Major Telecommunications (4.2%)
AT&T Corp.............................. 10,000 571,250
Bell Atlantic Corp..................... 40,000 1,825,000
-----------
2,396,250
-----------
Oil (5.0%)
Lyondell Petrochemical Co.............. 43,500 1,324,031
Murphy Oil Corp........................ 30,000 1,520,625
-----------
2,844,656
-----------
Oil Services (4.4%)
McDermott International, Inc........... 45,000 1,549,688
Noble Drilling Corp.+.................. 40,000 962,500
-----------
2,512,188
-----------
Semiconductors and Electronics (3.1%)
Intel Corp............................. 15,800 1,171,175
PRI Automation, Inc.+.................. 35,000 597,188
-----------
1,768,363
-----------
Surface Transport (3.6%)
Kansas City Southern Industries, Inc... 41,000 2,034,625
-----------
Total Common Stocks (cost $52,065,767) 53,073,407
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.8%)
Federal Home Loan Mortgage Corp.,
5.60%, 07/01/98...................... $4,694,000 4,694,000
U. S. Treasury Bill, 5.05%, 08/20/98... 100,000 99,326
U. S. Treasury Bill, 5.03%, 08/20/98... 200,000 198,654
-----------
Total Short-Term Investments (cost
$4,991,902) 4,991,980
-----------
TOTAL INVESTMENTS (cost
$57,057,669)(a) 58,065,387
Other assets less liabilities (1,470,433)
===========
Total Net Assets $56,594,954
===========
</TABLE>
22 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$57,052,895. Unrealized gains and losses, based on identified tax cost at June
30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains ................. $ 2,769,581
Unrealized losses ................ (1,757,089)
--------------
Net unrealized gain ............ $ 1,012,492
==============
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 23
<PAGE>
Capital Appreciation Portfolios
Statements of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
Assets:
<S> <C>
Investments, at market value ................................................................................
Cash ........................................................................................................
Cash denominated in foreign currencies ......................................................................
Receivable for:
Dividends and interest ....................................................................................
Investments sold ..........................................................................................
Fund shares sold ..........................................................................................
Recoverable foreign taxes .................................................................................
Variation margin ..........................................................................................
Reimbursement from Investment Adviser .....................................................................
Prepaid expenses ............................................................................................
Gross unrealized gain on forward foreign currency exchange contracts ........................................
Total assets .......................................................................................
Liabilities:
Payable for:
Investments purchased .....................................................................................
Fund shares redeemed ......................................................................................
Variation margin ..........................................................................................
Accrued investment advisory fees ............................................................................
Accrued administrative service fees .........................................................................
Accrued custodian fees ......................................................................................
Other liabilities ...........................................................................................
Gross unrealized loss on forward foreign currency exchange contracts ........................................
Total liabilities ..................................................................................
NET ASSETS ................................................................................................
Net assets represented by:
Paid-in capital .............................................................................................
Net unrealized gain on investments, open futures contracts and foreign currency related transactions ........
Undistributed net investment income .........................................................................
Accumulated net realized gain on investments ................................................................
NET ASSETS ................................................................................................
Capital Shares:
Authorized ..................................................................................................
Par value ...................................................................................................
Outstanding .................................................................................................
Net Asset Value, offering and redemption price per share (net assets divided by shares outstanding) .........
Cost of investments .........................................................................................
Cost of cash denominated in foreign currencies ..............................................................
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Small Value
Growth International Mid Cap Company Opportunity
- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
$ 48,432,698 $18,324,170 $ 5,455,830 $74,426,790 $ 58,065,387
1,874 75,378 112,347 5,996 10,346
-- 693,572 -- -- --
19,378 21,888 1,939 20,201 40,537
-- 1,563,721 80,857 2,650,949 --
394,139 -- -- 97,148 9,536
-- 19,731 -- -- --
-- -- -- 41,125 --
-- 11,505 566 -- --
68 158 53 80 89
-- 50,889 -- -- --
- ------------- ------------ ------------ ------------ -------------
48,848,157 20,761,012 5,651,592 77,242,289 58,125,895
- ------------- ------------ ------------ ------------ -------------
191,547 1,486,406 19,253 1,988,097 1,481,337
-- -- -- -- 14,575
31,875 -- -- -- --
20,422 13,708 3,169 41,138 25,439
2,549 1,210 299 4,081 3,163
1,141 28,994 952 2,855 764
4,960 3,002 2,696 6,334 5,663
-- 29,556 -- -- --
- ------------- ------------ ------------ ------------ -------------
252,494 1,562,876 26,369 2,042,505 1,530,941
- ------------- ------------ ------------ ------------ -------------
$ 48,595,663 $19,198,136 $ 5,625,223 $75,199,784 $ 56,594,954
============= ============ ============ ============ =============
$ 44,531,675 $15,429,208 $ 5,000,000 $73,005,005 $ 53,036,243
3,355,126 2,401,773 499,885 765,369 1,007,718
63,698 119,107 246 193,634 207,023
645,164 1,248,048 125,092 1,235,776 2,343,970
- ------------- ------------ ------------ ------------ -------------
$ 48,595,663 $19,198,136 $ 5,625,223 $75,199,784 $ 56,594,954
============= ============ ============ ============ =============
Two Billion Two Billion Two Billion Two Billion Two Billion
$ 0.001 $ 0.001 $ 0.001 $ 0.001 $ 0.001
4,010,794 1,533,954 500,000 5,516,259 4,258,043
$ 12.116 $ 12.515 $ 11.250 $ 13.632 $ 13.291
$ 45,167,879 $15,934,483 $ 4,955,945 $73,814,584 $ 57,057,669
-- $ 693,621 -- -- --
</TABLE>
25
<PAGE>
Capital Appreciation Portfolios
Statements of Operations
Six Month Period Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends ..................................................................................
Interest ...................................................................................
Foreign taxes withheld on dividends ........................................................
Total investment income ...........................................................
Investment Expenses:
Investment advisory fee ....................................................................
Administrative services fees ...............................................................
Printing and postage .......................................................................
Custody fees ...............................................................................
Transfer agent fees ........................................................................
Audit fees .................................................................................
Directors' fees ............................................................................
Registration fees ..........................................................................
Miscellaneous expenses .....................................................................
Expenses before reimbursement and waiver from Adviser ......................................
Expense reimbursement and waiver from Adviser ..............................................
Total expenses ....................................................................
Net investment income ......................................................................
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ......................................................................
Futures and forward foreign currency exchange contracts ..................................
Foreign currency related transactions ....................................................
Net realized gain on investments ..................................................
Net change in unrealized gain or loss on:
Investments ..............................................................................
Futures and forward foreign currency exchange contracts ..................................
Foreign currency related transactions ....................................................
Net change in unrealized gain or loss on investments ..............................
Net realized and change in unrealized gain or loss on investments ..........................
Net increase in net assets resulting from operations .......................................
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Small Value
Growth International Mid Cap Company Opportunity
- ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C>
$ 51,182 $ 241,297 $ 23,598 $ 203,160 $ 174,250
97,247 14,857 3,239 215,559 192,165
- ----------- ----------- --------- ----------- -----------
148,429 256,154 26,837 418,719 366,415
(275) (26,178) (240) -- --
- ----------- ----------- --------- ----------- -----------
148,154 229,976 26,597 418,719 366,415
- ----------- ----------- --------- ----------- -----------
66,863 74,708 19,985 179,868 109,851
11,806 19,109 4,184 27,645 20,974
867 891 768 1,198 1,101
1,141 28,994 952 2,854 755
443 436 434 448 446
2,428 2,171 1,759 1,766 1,763
73 62 20 216 173
415 7 -- 851 617
27 40 13 74 61
- ----------- ----------- --------- ----------- -----------
84,063 126,418 28,115 214,920 135,741
-- (24,872) (2,514) -- --
- ----------- ----------- --------- ----------- -----------
84,063 101,546 25,601 214,920 135,741
- ----------- ----------- --------- ----------- -----------
64,091 128,430 996 203,799 230,674
- ----------- ----------- --------- ----------- -----------
732,889 1,214,147 124,437 1,552,660 1,858,822
46,951 74,446 -- (270,181) 520,576
-- (25,609) -- -- --
- ----------- ----------- --------- ----------- -----------
779,840 1,262,984 124,437 1,282,479 2,379,398
- ----------- ----------- --------- ----------- -----------
2,982,768 1,986,848 416,877 (245,998) 598,244
90,307 2,555 -- 107,863 --
-- (5,570) -- -- --
- ----------- ----------- --------- ----------- -----------
3,073,075 1,983,833 416,877 (138,135) 598,244
- ----------- ----------- --------- ----------- -----------
3,852,915 3,246,817 541,314 1,144,344 2,977,642
- ----------- ----------- --------- ----------- -----------
$3,917,006 $3,375,247 $542,310 $1,348,143 $3,208,316
=========== =========== ========= =========== ===========
</TABLE>
27
<PAGE>
Capital Appreciation Portfolios
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Growth
-------------------------------------
Six Month
Period Ended
June 30, Year Ended
1998 December 31,
(Unaudited) 1997
----------- ----------------
<S> <C> <C>
From Operations:
Net investment income .............................................................. $ 64,091 $ 17,877
Net realized gain on investments ................................................... 779,840 1,465,898
Net change in unrealized gain or loss on investments ............................... 3,073,075 204,394
------------ -----------
Net increase in net assets resulting from operations ............................. 3,917,006 1,688,169
------------ -----------
Distributions to Shareholders:
From net investment income ..................................................... -- (15,218)
From net realized gains......................................................... -- (1,600,576)
------------ -----------
Decrease in net assets from distributions to shareholders ........................ -- (1,615,794)
------------ -----------
From Fund Share Transactions:
Proceeds from shares sold ...................................................... 41,248,092 6,712,100
Net asset value of shares issued upon reinvestment of distributions ............ -- 1,436,186
Payments for shares redeemed ................................................... (2,533,279) (7,431,424)
------------ -----------
Net increase in net assets from fund share transactions ......................... 38,714,813 716,862
------------ -----------
Change in net assets ............................................................... 42,631,819 789,237
Net Assets:
Beginning of period ................................................................ 5,963,844 5,174,607
------------ -----------
End of period ...................................................................... $48,595,663 $5,963,844
============ ===========
End of period net assets includes undistributed (distributions in excess of) net
investment income ................................................................ $ 63,698 $ (393)
============ ===========
Share Transactions:
Number of shares sold .......................................................... 3,634,178 500,364
Number of shares issued upon reinvestment of distributions ..................... -- 147,415
Number of shares redeemed ...................................................... (229,066) (552,097)
------------ -----------
Net increase ..................................................................... 3,405,112 95,682
============ ===========
</TABLE>
See Notes to Financial Statements.
28
<PAGE>
================================================================================
<TABLE>
<CAPTION>
International
------------------------------------
Six Month Period From
Period Ended December 22,
June 30, 1997 to
1998 December 31,
(Unaudited) 1997
------------ ---------------
<S> <C> <C>
From Operations:
Net investment income .............................................................. $ 128,430 $ (3,667)
Net realized gain (loss) on investments ............................................ 1,262,984 (2,665)
Net change in unrealized gain or loss on investments ............................... 1,983,833 417,940
------------ ------------
Net increase in net assets resulting from operations ............................. 3,375,247 411,608
------------ ------------
Distributions to Shareholders:
From net investment income ..................................................... (17,927) --
------------ ------------
Decrease in net assets from distributions to shareholders ........................ (17,927) --
------------ ------------
From Fund Share Transactions:
Proceeds from shares sold ...................................................... 1,749,048 15,000,000
Net asset value of shares issued upon reinvestment of distributions............. 1,277 --
Payments for shares redeemed ................................................... (1,321,117) --
------------ ------------
Net increase in net assets from fund share transactions ......................... 429,208 15,000,000
------------ ------------
Change in net assets ............................................................... 3,786,528 15,411,608
Net Assets:
Beginning of period ................................................................ 15,411,608 --
------------ ------------
End of period ...................................................................... $19,198,136 $15,411,608
============ ============
End of period net assets includes undistributed net investment income .............. $ 119,107 $ 8,604
============ ============
Share Transactions:
Number of shares sold .......................................................... 140,325 1,500,000
Number of shares issued upon reinvestment of distributions...................... 102 --
Number of shares redeemed ...................................................... (106,473) --
------------ ------------
Net increase ..................................................................... 33,954 1,500,000
============ ============
</TABLE>
See Notes to Financial Statements. 29
<PAGE>
Capital Appreciation Portfolios
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
Mid Cap
----------------------------------
Six Month Period From
Period Ended December 17,
June 30, 1997 to
1998 December 31,
(Unaudited) 1997
------------ -----------------
<S> <C> <C>
From Operations:
Net investment income ................................................................ $ 996 $ 4,574
Net realized gain on investments ..................................................... 124,437 2,331
Net change in unrealized gain or loss on investments ................................. 416,877 83,008
----------- ----------
Net increase in net assets resulting from operations ............................... 542,310 89,913
----------- ----------
Distributions to Shareholders:
From net investment income ....................................................... (750) (6,250)
----------- ----------
Decrease in net assets from distributions to shareholders .......................... (750) (6,250)
----------- ----------
From Fund Share Transactions:
Proceeds from shares sold ........................................................ -- 5,000,000
----------- ----------
Net increase in net assets from fund share transactions ........................... -- 5,000,000
----------- ----------
Change in net assets ................................................................. 541,560 5,083,663
Net Assets:
Beginning of period .................................................................. 5,083,663 --
----------- ----------
End of period ........................................................................ $5,625,223 $5,083,663
=========== ==========
End of period net assets includes undistributed net investment income ................ $ 246 $ --
=========== ==========
Share Transactions:
Number of shares sold ............................................................ -- 500,000
----------- ----------
Net increase ....................................................................... -- 500,000
=========== ==========
</TABLE>
See Notes to Financial Statements.
30
<PAGE>
<TABLE>
<CAPTION>
Small Company
------------------------------------
Six Month
Period
Ended
June 30, Year Ended
1998 December 31,
(Unaudited) 1997
------------ --------------
<S> <C> <C>
From Operations:
Net investment income .............................................................. $ 203,799 $ 54,197
Net realized gain on investments ................................................... 1,282,479 1,204,297
Net change in unrealized gain or loss on investments ............................... (138,135) 845,007
------------ ------------
Net increase in net assets resulting from operations ............................. 1,348,143 2,103,501
------------ ------------
Distributions to Shareholders:
From net investment income ..................................................... (24,738) (38,702)
From net realized gains......................................................... (230,169) (1,020,831)
------------ ------------
Decrease in net assets from distributions to shareholders ........................ (254,907) (1,059,533)
------------ ------------
From Fund Share Transactions:
Proceeds from shares sold ...................................................... 61,459,148 18,008,547
Net asset value of shares issued upon reinvestment of distributions ............ 254,906 1,059,533
Payments for shares redeemed ................................................... (5,709,321) (7,167,808)
------------ ------------
Net increase in net assets from fund share transactions ......................... 56,004,733 11,900,272
------------ ------------
Change in net assets ............................................................... 57,097,969 12,944,240
Net Assets:
Beginning of period ................................................................ 18,101,815 5,157,575
------------ ------------
End of period ...................................................................... $75,199,784 $18,101,815
============ ============
End of period net assets includes undistributed net investment income .............. $ 193,634 $ 14,573
============ ============
Share Transactions:
Number of shares sold .......................................................... 4,499,323 1,353,068
Number of shares issued upon reinvestment of distributions ..................... 18,933 83,662
Number of shares redeemed ...................................................... (419,548) (529,179)
------------ ------------
Net increase ..................................................................... 4,098,708 907,551
============ ============
</TABLE>
See Notes to Financial Statements. 31
<PAGE>
Capital Appreciation Portfolios
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
Value Opportunity
------------------------------------
Six Month
Period Ended
June 30, Year Ended
1998 December 31,
(Unaudited) 1997
----------- --------------
<S> <C> <C>
From Operations:
Net investment income .............................................................. $ 230,674 $ 67,766
Net realized gain on investments ................................................... 2,379,398 1,683,762
Net change in unrealized gain or loss on investments ............................... 598,244 307,085
------------ -----------
Net increase in net assets resulting from operations ............................. 3,208,316 2,058,613
------------ -----------
Distributions to Shareholders:
From net investment income ..................................................... (25,086) (65,555)
From net realized gains......................................................... (339,496) (1,379,694)
------------ -----------
Decrease in net assets from distributions to shareholders ........................ (364,582) (1,445,249)
------------ -----------
From Fund Share Transactions:
Proceeds from shares sold ...................................................... 47,460,722 9,237,674
Net asset value of shares issued upon reinvestment of distributions ............ 364,582 1,445,249
Payments for shares redeemed ................................................... (3,220,861) (7,351,123)
------------ -----------
Net increase in net assets from fund share transactions ......................... 44,604,443 3,331,800
------------ -----------
Change in net assets ............................................................... 47,448,177 3,945,164
Net Assets:
Beginning of period ................................................................ 9,146,777 5,201,613
------------ -----------
End of period ...................................................................... $56,594,954 $9,146,777
============ ===========
End of period net assets includes undistributed net investment income .............. $ 207,023 $ 1,435
============ ===========
Share Transactions:
Number of shares sold .......................................................... 3,703,494 664,790
Number of shares issued upon reinvestment of distributions ..................... 27,706 121,772
Number of shares redeemed ...................................................... (240,776) (528,943)
------------ -----------
Net increase ..................................................................... 3,490,424 257,619
============ ===========
</TABLE>
32 See Notes to Financial Statements.
<PAGE>
Capital Appreciation Portfolios
Notes to Financial Statements
June 30, 1998 (Unaudited)
================================================================================
1. Organization
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 (the Act) as an open-end management investment company. It
was incorporated under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Company to offer separate portfolios, each of which has
its own investment objective, policies and restrictions.
The Fund currently offers eleven portfolios. This report covers five portfolios:
Aetna Growth VP, Aetna International VP, Aetna Mid Cap VP, Aetna Small Company
VP and Aetna Value Opportunity VP (Portfolios).
The following is each Portfolio's investment objective:
Aetna Growth VP (Growth, formerly Aetna Variable Growth Portfolio) seeks
growth of capital through investment in a diversified portfolio of common
stocks and securities convertible into common stocks believed to offer
growth potential.
Aetna International VP (International, formerly Aetna International
Portfolio) seeks long-term capital growth primarily through investment in a
diversified portfolio of common stocks principally traded in countries
outside of the U.S. International will not target any given level of
current income.
Aetna Mid Cap VP (Mid Cap) seeks growth of capital primarily through
investment in a diversified portfolio of common stocks and securities
convertible into common stocks of companies having medium market
capitalizations.
Aetna Small Company VP (Small Company, formerly Aetna Variable Small
Company Portfolio) seeks growth of capital primarily through investment in
a diversified portfolio of common stocks and securities convertible into
common stocks of companies with smaller market capitalizations.
Aetna Value Opportunity VP (Value Opportunity, formerly Aetna Variable
Capital Appreciation Portfolio) seeks growth of capital primarily through
investment in a diversified portfolio of common stocks and securities
convertible into common stock.
Shares of each Portfolio are owned by insurance companies as depositors of
separate accounts which are used to fund variable annuity contracts and variable
life insurance policies. It is currently expected that all shares will be held
by separate accounts of Aetna Life Insurance and Annuity Company (ALIAC) and its
subsidiary, Aetna Insurance Company of America.
Effective May 1, 1998, Aeltus Investment Management, Inc. (Aeltus) became the
Investment Adviser to each Portfolio. Prior to May 1, 1998, ALIAC acted as
Investment Adviser and Aeltus served as Sub-Adviser to the Portfolios. ALIAC
serves as the principal underwriter to each Portfolio. Aeltus and ALIAC are both
wholly-owned subsidiaries of Aetna Retirement Holdings, Inc. and are indirect
wholly-owned subsidiaries of Aetna Inc.
2. Summary of Significant Accounting Policies
The accompanying financial statements of the Portfolios 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
Portfolios.
A. Valuation of Investments
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter securities,
at the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market
33
<PAGE>
Capital Appreciation Portfolios
Notes to Financial Statements (continued)
June 30, 1998 (Unaudited)
================================================================================
2. Summary of Significant Accounting Policies (continued)
A. Valuation of Investments (continued)
value. Securities and fixed income investments for which market quotations are
not considered to be readily available are valued using methods approved by the
Board of Directors.
The accounting records of the Portfolios 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. Options Contracts
The Portfolios may purchase and write (sell) call and put options, including
options on securities, indices and futures. Call options on securities may be
written only if covered.
Option contracts are valued daily and unrealized gains or losses are recorded
based upon the last sales price on the principal exchange on which the options
are traded.
The Portfolios will realize a gain or loss upon the expiration or closing of the
option contract. When an option is exercised, the proceeds on sales of the
underlying security for a written call option, the purchase cost of the security
for a written put option, or the cost of the security for a purchased put or
call option is adjusted by the amount of premium received or paid. Realized and
unrealized gains or losses on option contracts are reflected in the accompanying
Financial Statements.
The risk in writing a call option is that the Portfolios give up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Portfolios may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Portfolios pay a premium whether or not
the option is exercised. Risks may also arise from an illiquid secondary market
or from the inability of counterparties to meet the terms of the contract.
C. Futures and Forward Foreign Currency Exchange Contracts
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument including an
index of stocks at a set price on a future date. The Portfolios "sell" futures
contracts as a hedge against declines in the value of portfolio securities. The
Portfolios may enter into futures contracts to manage the risk of changes in
interest rates, equity prices, currency exchange rates or in anticipation of
future purchases and sales of portfolio securities.
Upon entering into a futures contract, the Portfolios are required to deposit
with a broker an amount (initial margin) equal to a percentage of the purchase
price indicated by the futures contract. Subsequent deposits (variation margin)
are received or paid each day by the Portfolios equal to the daily fluctuations
in the market value of the contract. These amounts are recorded by the
Portfolios as unrealized gains or losses. When a contract is closed, the
Portfolios record a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. Generally, futures contracts held by the Portfolios are closed prior to
expiration.
A forward foreign currency exchange contract is an agreement to pay or receive
specific amounts of a currency at a future date in exchange for another currency
at an agreed upon exchange rate. The Portfolios, where authorized, 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 futures and forward foreign currency exchange
contracts may arise from an imperfect correlation between the change in market
value of the securities held by the 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.
34
<PAGE>
================================================================================
2. Summary of Significant Accounting Policies (continued)
C. Futures and Forward Foreign Currency Exchange Contracts (continued)
Realized and unrealized gains or losses on futures and forward foreign currency
exchange contracts are reflected in the accompanying financial statements. The
amounts at risk under such futures and forward foreign currency exchange
contracts may exceed the amounts reflected in the financial statements. The
notional amounts (economic exposure) of these contracts are disclosed elsewhere
in the Notes to Financial Statements. For federal income tax purposes, any
futures contracts and forward foreign currency exchange contracts which remain
open at year end are marked-to-market and the resultant net gain or loss is
reported to shareholders as federal taxable income.
D. Illiquid and Restricted Securities
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Portfolios to sell them promptly
at an acceptable price. Restricted securities are those sold pursuant to Rule
144A and Section 4(2) of the Securities Act of 1933 (1933 Act), and are subject
to legal or contractual restrictions on resale and may not be publicly sold
without registration under the 1933 Act. Each 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 Portfolios will not pay
the costs of disposition of restricted securities other than ordinary brokerage
fees, if any.
E. Federal Income Taxes
As a qualified regulated investment company, each Portfolio is relieved of
federal income and excise 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.
F. Distributions
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for futures and foreign currency
transactions, investments in certain foreign issuers that derive a majority of
their income from passive investments (e.g., interest or dividends) and deferred
losses on wash sales.
G. Other
Investment transactions are accounted for on the day following the trade date,
except same day settlements which are accounted for on the trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, using an effective yield
method over the life of the security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.
3. Investment Advisory and Administrative Services Fees
Effective May 1, 1998, Aeltus became the Investment Adviser and Administrator to
the Fund. Prior to that time, ALIAC acted as Investment Adviser and
Administrator to the Fund and Aeltus acted as Sub-Adviser to the Fund.
35
<PAGE>
Capital Appreciation Portfolios
Notes to Financial Statements (continued)
June 30, 1998 (Unaudited)
================================================================================
3. Investment Advisory and Administrative Services Fees (continued)
As Investment Adviser, Aeltus (ALIAC prior to May 1, 1998) is paid a monthly fee
expressed as a percentage of the average daily net assets of each Portfolio.
Below are each Portfolio's Investment Advisory fees as of June 30, 1998:
<TABLE>
<CAPTION>
Advisory
Fee
-----------------
<S> <C>
Growth 0.60%
International 0.85%
Mid Cap 0.75%
Small Company 0.75%
Value Opportunity 0.60%
</TABLE>
Prior to May 1, 1998, ALIAC served as Investment Adviser and Aeltus served as
the Sub-Adviser to the Fund. As Sub-Adviser, Aeltus supervised the investment
and reinvestment of cash and securities and provided certain related
administrative services. For the period January 1, 1998 through April 30, 1998,
ALIAC collected $243,091 from the Portfolios, of which it paid $149,925 to
Aeltus.
Effective May 1, 1998, each Portfolio pays expenses incurred in exchange for
services provided by auditors, legal firms, transfer agents, custodian banks and
financial printers. Each Portfolio pays its proportionate share of compensation
paid to the Fund's Board of Directors and its proportionate share of insurance
premiums of the Fund. Each Portfolio pays its direct costs incurred to mail
shareholder reports, register its shares with the Securities Exchange Commission
and any other costs incurred by the Portfolio. In addition, each Portfolio pays
Aeltus an administrative services fee in exchange for receiving certain
administrative and shareholder services and to compensate Aeltus for supervising
the Fund's other service providers. Each Portfolio pays Aeltus an administrative
services fee at an annual rate based on average daily net assets of the
Portfolio. The rate is 0.075% on the first $5 billion in Portfolio assets and
0.050% on all Portfolio assets over $5 billion.
Prior to May 1, 1998, ALIAC acted as Administrator to the Fund. As
Administrator, ALIAC paid all the expenses of the Fund on behalf of the Fund,
supervised the Fund's other service providers and provided the Fund with certain
administrative and shareholder services. In exchange for these services, ALIAC
received an administrative services fee at an annual rate of up to 0.30% of each
portfolio's average daily net assets. For the period January 1, 1998 through
April 30, 1998, ALIAC collected $61,016 in administrative services fees from the
Portfolios.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Portfolio in
exchange for fees, payable by Aeltus, of up to 0.425% of the Portfolios' average
daily net assets. For the period May 1, 1998 through June 30, 1998, Aeltus paid
ALIAC $105,811.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1998 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- -------------------
<S> <C> <C>
Growth $47,387,098 $15,209,272
International 13,995,915 13,852,657
Mid Cap 4,308,419 4,472,364
Small Company 85,218,105 40,394,941
Value Opportunity 52,654,312 20,204,283
</TABLE>
36
<PAGE>
5. Reimbursement from Investment Adviser
The Investment Adviser may, from time to time, make reimbursements to a
Portfolio for some or all of its operating expenses or it may waive fees.
Reimbursement and waiver arrangements, which may be terminated at any time
without notice, will increase a Portfolio's yield and total return. For the
period ended June 30, 1998, reimbursements were as follows:
<TABLE>
<CAPTION>
Portfolio Total
---------------
<S> <C>
International $24,872
Mid Cap 2,514
</TABLE>
6. Forward Foreign Currency Exchange Contracts
At June 30, 1998, International had the following open forward foreign currency
exchange contracts that obligate that Portfolio to deliver currencies at
specified future dates. The net unrealized gain of $21,333 on these contracts,
is included in the accompanying financial statements. The terms of the open
contracts are as follows:
International
- -------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered June 30, 1998 Be Received June 30, 1998 Gain (Loss)
---- ------------ ------------- ----------- ------------- -----------
Contracts to Sell
- -----------------
<S> <C> <C> <C> <C> <C>
7/20/98 180,000 $299,936 292,218 $292,218 ($7,718)
British Pound U.S. Dollar
- -----------------------------------------------------------------------------------------
7/20/98 213,000 104,855 106,826 106,826 1,971
Dutch Guilder U.S. Dollar
- -----------------------------------------------------------------------------------------
8/24/98 284,000 140,119 141,589 141,589 1,470
Dutch Guilder U.S. Dollar
- -----------------------------------------------------------------------------------------
7/6/98 469,000 77,603 77,622 77,622 19
French Franc U.S. Dollar
- -----------------------------------------------------------------------------------------
7/15/98 4,642,000 768,532 781,206 781,206 12,674
French Franc U.S. Dollar
- -----------------------------------------------------------------------------------------
8/21/98 1,276,000 211,740 210,596 210,596 (1,144)
French Franc U.S. Dollar
- -----------------------------------------------------------------------------------------
7/9/98 410,000 227,114 224,196 224,196 (2,918)
German Deutschemarks U.S. Dollar
- -----------------------------------------------------------------------------------------
8/3/98 346,000 192,134 195,923 195,923 3,789
German Deutschemarks U.S. Dollar
- -----------------------------------------------------------------------------------------
7/27/98 33,890,000 245,176 260,122 260,122 14,946
Japanese Yen U.S. Dollar
- -----------------------------------------------------------------------------------------
7/27/98 11,780,000 85,222 84,233 84,233 (989)
Japanese Yen U.S. Dollar
- -----------------------------------------------------------------------------------------
8/26/98 80,220,000 583,276 599,152 599,152 15,876
Japanese Yen U.S. Dollar
- -----------------------------------------------------------------------------------------
9/17/98 46,318,000 337,638 320,851 320,851 (16,787)
Japanese Yen U.S. Dollar
- -----------------------------------------------------------------------------------------
2/19/99 500,000 62,536 62,680 62,680 144
Hong Kong Dollar U.S. Dollar
- -----------------------------------------------------------------------------------------
$21,333
========
</TABLE>
37
<PAGE>
Capital Appreciation Portfolios
Financial Highlights
Growth
================================================================================
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month Period From
Period Ended Year Ended December 13, 1996
June 30, 1998 December 31, to
(Unaudited) 1997 December 31, 1996
------------------ --------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period ........................... $ 9.846 $ 10.146 $ 10.000
--------- --------- ---------
Income from investment operations:
Net investment income ........................................ 0.017 0.039 0.011
Net realized and change in unrealized gain or loss on
investments ................................................ 2.253 3.271 0.147
--------- --------- ---------
Total from investment operations ...................... 2.270 3.310 0.158
--------- --------- ---------
Less distributions:
From net investment income ................................... -- (0.034) (0.012)
From net realized gains on investments ....................... -- (3.576) --
--------- --------- ---------
Total distributions .................................... -- (3.610) (0.012)
--------- --------- ---------
Net asset value, end of period ................................. $ 12.116 $ 9.846 $ 10.146
========= ========= =========
Total return*................................................... 23.05% 33.01% 1.57%
Net assets, end of period (000's) .............................. $ 48,596 $ 5,964 $ 5,175
Ratio of total expenses to average net assets .................. 0.75%(1) 0.75% 0.67%(1)
Ratio of net investment income to average net assets ........... 0.57%(1) 0.29% 1.99%(1)
Portfolio turnover rate ........................................ 74.97% 207.41% 1.97%
Average commission rate paid per share on equity securities
traded ....................................................... $ 0.0414 $ 0.0589 $ 0.0364
</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.
38
<PAGE>
International
================================================================================
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended Period From
June 30, 1998 December 22, 1997 to
(Unaudited) December 31, 1997
---------------- --------------------
<S> <C> <C>
Net asset value, beginning of period ......................................... $ 10.274 $ 10.000
--------- ---------
Income from investment operations:
Net investment income (loss)................................................ 0.089 (0.002)
Net realized and change in unrealized gain or loss on investments .......... 2.163 0.276
--------- ---------
Total from investment operations ..................................... 2.252 0.274
--------- ---------
Less distributions:
From net investment income ................................................. (0.011) --
--------- ---------
Total distributions .................................................. (0.011) --
--------- ---------
Net asset value, end of period ............................................... $ 12.515 $ 10.274
========= =========
Total return*................................................................. 21.92% 2.74%
Net assets, end of period (000's) ............................................ $ 19,198 $ 15,412
Ratio of total expenses to average net assets ................................ 1.15%(1) 1.15% (1)
Ratio of net investment income to average net assets ......................... 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 ...................................................... 80.86% 0.71%
Average commission rate paid per share on equity securities traded............ $ 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.
See Notes to Financial Statements.
39
<PAGE>
Capital Appreciation Portfolios
Financial Highlights (continued)
Mid Cap
================================================================================
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended Period From
June 30, 1998 December 17, 1997 to
(Unaudited) December 31, 1997
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period ......................................... $ 10.167 $ 10.000
--------- ---------
Income from investment operations:
Net investment income ...................................................... 0.002 0.009
Net realized and change in unrealized gain or loss on investments .......... 1.083 0.171
--------- ---------
Total from investment operations ..................................... 1.085 0.180
--------- ---------
Less distributions:
From net investment income ................................................. (0.002) (0.013)
--------- ---------
Total distributions .................................................. (0.002) (0.013)
--------- ---------
Net asset value, end of period ............................................... $ 11.250 $ 10.167
========= =========
Total return*................................................................. 10.63% 1.80%
Net assets, end of period (000's) ............................................ $ 5,625 $ 5,084
Ratio of total expenses to average net assets ................................ 0.95% (1) 0.95%(1)
Ratio of net investment income to average net assets ......................... 0.05% (1) 2.10%(1)
Ratio of net expense before reimbursement and waiver to average net assets ... 1.05% (1) --
Ratio of net investment income before reimbursement and waiver to average net
assets ..................................................................... (0.05)%(1) --
Portfolio turnover rate ...................................................... 81.58% 0.95%
Average commission rate paid per share on equity securities traded ........... $ 0.0384 $ 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.
40
<PAGE>
Small Company
================================================================================
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended Year Ended Period From
June 30, 1998 December 31, December 27, 1996 to
(Unaudited) 1997 December 31, 1996
-------------- --------------- --------------------
<S> <C> <C> <C>
Net asset value, beginning of period ........................... $ 12.770 $ 10.113 $ 10.000
--------- --------- ---------
Income from investment operations:
Net investment income ........................................ 0.029 0.042 0.008
Net realized and change in unrealized gain or loss on
Investments ................................................ 0.881 3.439 0.115
--------- --------- ---------
Total from investment operations ....................... 0.910 3.481 0.123
--------- --------- ---------
Less distributions:
From net investment income ................................... (0.005) (0.030) (0.010)
From net realized gains on investments ....................... (0.043) (0.794) --
--------- --------- ---------
Total distributions .................................... (0.048) (0.824) (0.010)
--------- --------- ---------
Net asset value, end of period ................................. $ 13.632 $ 12.770 $ 10.113
========= ========= =========
Total return*................................................... 7.13% 34.49% 1.23%
Net assets, end of period (000's) .............................. $ 75,200 $ 18,102 $ 5,158
Ratio of total expenses to average net assets .................. 0.89%(1) 0.90% 0.55%(1)
Ratio of net investment income to average net assets ........... 0.84%(1) 0.78% 5.96%(1)
Portfolio turnover rate ........................................ 99.35% 180.25% --
Average commission rate paid per share on equity securities
traded ....................................................... $ 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.
See Notes to Financial Statements.
41
<PAGE>
Capital Appreciation Portfolios
Financial Highlights (continued)
Value Opportunity
================================================================================
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended Year Ended Period From
June 30, 1998 December 31, December 13, 1996 to
(Unaudited) 1997 December 31, 1996
-------------- ------------ --------------------
<S> <C> <C> <C>
Net asset value, beginning of period ........................... $ 11.916 $ 10.199 $ 10.000
--------- --------- ---------
Income from investment operations:
Net investment income ........................................ 0.053 0.107 0.015
Net realized and change in unrealized gain or loss on
investments ................................................ 1.409 3.899 0.200
--------- --------- ---------
Total from investment operations ....................... 1.462 4.006 0.215
--------- --------- ---------
Less distributions:
From net investment income ................................... (0.006) (0.104) (0.016)
From net realized gains on investments ....................... (0.081) (2.185) --
--------- --------- ---------
Total distributions .................................... (0.087) (2.289) (0.016)
--------- --------- ---------
Net asset value, end of period ................................. $ 13.291 $ 11.916 $ 10.199
========= ========= =========
Total return*................................................... 12.28% 39.36% 2.15%
Net assets, end of period (000's) .............................. $ 56,595 $ 9,147 $ 5,202
Ratio of total expenses to average net assets .................. 0.74%(1) 0.75% 0.67%(1)
Ratio of net investment income to average net assets ........... 1.25%(1) 1.06% 2.73%(1)
Portfolio turnover rate ........................................ 66.64% 187.84% --
Average commission rate paid per share on equity securities
traded ....................................................... $ 0.0593 $ 0.0599 $ 0.0300
</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.
42
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna Balanced Fund VP
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
------------------------------------
1 Year 5 Year Since Inception+
------------------------------------
<S> <C> <C>
23.13% 15.94% 13.05%
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Apr-89
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced Fund VP, Inc. 10,000 10,730 11,339 13,429 14,289 15,699 15,627 19,882
Lehman Aggregate Bond Index 10,000 11,325 12,340 14,314 15,373 16,872 16,380 19,405
S&P 500 Index 10,000 12,297 11,915 15,545 16,729 18,416 18,659 25,671
60% S&P 500/
40% Lehman Aggregate 10,000 11,913 12,129 15,133 16,281 17,908 17,849 23,143
<CAPTION>
Jun-98
<C> <C> <C> <C> <C> <C> <C>
Aetna Balanced Fund VP, Inc. 22,898 22,793 25,220 27,490 28,048 30,356 31,055
Lehman Aggregate Bond Index 20,109 19,997 20,731 21,419 22,051 22,390 22,914
S&P 500 Index 31,562 32,408 38,067 40,918 42,092 47,964 49,547
60% S&P 500/
40% Lehman Aggregate 26,607 26,985 30,167 31,962 32,940 35,875 36,929
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Fund commenced investment operations on April 3, 1989.
Aetna Balanced VP, Inc.
How did the Fund perform during the period?
Aetna Balanced VP, Inc. (Balanced, formerly Aetna Investment Advisers Fund,
Inc.) generated a total return of 10.73%, net of fund expenses, for the six
month period ended June 30, 1998. The return of the 60% Standard & Poor's (S&P)
500 Index(a)/40% Lehman Brothers Aggregate Bond Index(b), returned 12.11% for
the same period. When compared against the Morningstar, Inc. universe of
variable annuity domestic hybrid stock funds, the Fund ranked in the top 12%
(out of 550 funds) and 6% (out of 313 funds) for the past one and five year
periods ended June 30, 1998, respectively.
What economic or financial market conditions impacted the Fund?
The equity markets produced solid returns for the first half of 1998 as
investors continued to demonstrate confidence that the Asian economic crisis
will not drag down the domestic economy enough to put the U.S. into recession.
The economy grew at over 5% in the first quarter, fueled by strong consumer
confidence and a robust employment market. Expectations are that the second
quarter has slowed to a more sustainable rate. Though the second quarter began
with increased market volatility on the heels of continued weakness in Asia, the
market was encouraged by continued economic data that suggests the economy is
growing at a healthy pace with limited inflationary pressures. With Asian
weakness as a backdrop, the Federal Reserve has continued to maintain monetary
policy at current levels which, combined with a strong U.S. dollar, has created
an environment with the lowest interest rates in some time.
What investments influenced the Fund's performance over the past six months?
The Fund's underperformance stems primarily from the underweight position in
large cap stocks in favor of small cap stocks. Investors have continued to put
money in large cap stocks to the detriment of small cap stocks, seeking the
liquidity that large cap stocks provide. Good stock selection has helped offset
some of the underperformance caused by the underweight position in large caps.
What is your outlook going forward?
The Federal Reserve is likely to continue to maintain existing monetary policy
without a material increase in inflationary pressure. This combined with the
current strength in the dollar will likely keep rates fairly low by historical
standards. Low rates will continue to bolster the consumer sector which is
likely to continue to sustain a moderate growth rate in the economy. Corporate
profits have shown some signs of weakness in certain sectors, but on the whole,
continue to show positive trends, albeit at lower growth rates. This should
provide an environment that should sustain the current bull market for the rest
of the year.
See Definition of Indices. 43
<PAGE>
Large Cap Portfolio Sector Breakdown*:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
% of % of Over/(Under)
Sector Portfolio S&P 500 Weighting
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Materials 2.9% 5.2% (2.3)%
Commercial Services 3.0% 2.3% 0.7 %
Consumer Discretionary 14.8% 14.5% 0.3 %
Consumer Non-Discretionary 7.6% 10.2% (2.6)%
Energy 6.2% 8.1% (1.9)%
Finance 20.8% 14.3% 6.5 %
Healthcare 11.5% 10.9% 0.6 %
Manufacturing 13.2% 10.2% 3.0 %
Technology 8.9% 13.0% (4.1)%
Utilities 11.1% 11.3% (0.2)%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- --------------------------------------------------------------
<S> <C>
General Electric Co. 1.5%
Microsoft Corp. 1.4%
Wal-Mart Stores, Inc. 1.2%
Coca-Cola Co. 1.1%
Pfizer, Inc. 1.0%
Exxon Corp. 0.9%
AT&T Corp. 0.8%
Merck & Co., Inc. 0.8%
Bristol Meyers Squibb Co. 0.8%
Proctor and Gamble Co. 0.6%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
% of
Top Five Income Holdings Portfolio
- ---------------------------------------------------------------
<S> <C>
U.S. Treasury Note, 5.75%, 10/31/00 4.8%
U.S. Treasury Note, 6.38%, 03/31/01 3.3%
U.S. Treasury Bond, 6.75%, 08/15/26 1.6%
U.S. Treasury Note, 5.75%, 09/30/99 1.1%
TCI Communications, Inc., 6.38%, 09/15/99 1.0%
</TABLE>
* This does not constitute the entire Fund. The securities in these sectors only
represent those that are in the S&P 500 Index.
44
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna Growth and Income VP
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
--------------------------------
1 Year 5 Year 10 Year
--------------------------------
<S> <C> <C>
25.06% 20.20% 16.75%
--------------------------------
</TABLE>
<TABLE>
<CAPTION>
Jan-88
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Growth and Income VP 10,000 11,464 14,797 15,286 19,322 20,617 22,006 21,784
S&P 500 Index 10,000 11,661 15,356 14,879 19,412 20,892 22,997 23,301
<CAPTION>
Jun-98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Growth and Income VP 28,809 35,856 36,609 41,987 47,365 46,573 52,120 52,506
S&P 500 Index 32,058 39,415 40,471 47,537 51,098 52,564 59,897 61,874
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
Aetna Growth and Income VP
How did the Fund perform during the period?
Aetna Variable Fund d/b/a Aetna Growth and Income VP (Growth and Income,
formerly Aetna Variable Fund) generated a total return of 12.75%, net of fund
expenses, for the six month period ended June 30, 1998. The Standard & Poor's
(S&P) 500 Index(a) returned 17.71% for the same period. When compared against
the Morningstar, Inc. universe of variable annuity large blend stock funds, the
Fund ranked in the top 62% (out of 613 funds), 60% (out of 347 funds) and 38%
(out of 212 funds) for the past one, five and ten year periods ended June 30,
1998, respectively.
What economic or financial market conditions impacted the Fund?
Over the past six months, the performance of large cap stocks dominated all
other major asset classes, making it difficult for a broadly diversified fund
such as Aetna Growth and Income VP to outperform the large cap-dominated S&P
500.
In a sense, asset allocation did its job--returns were smoothed out and
volatility reduced. Our strategic decision to diversify the Fund by investing in
a variety of asset classes is designed to dampen volatility and boost returns
over the long-run. Unfortunately, the returns of the diversifying asset classes
in which we invest fell short of the S&P 500 over the past six months. For
example, the S&P 500 posted a return of 17.71%, compared to 4.93% for the
Russell 2000 Index(c) and -5.04% for the NAREIT Equity REIT Index(d).
In addition to our long-term strategic commitment to diversification, we are
also guided in the shorter-term by the relative valuation of the various asset
classes. For the entire six month period under review, U.S. large cap stocks
appeared to us to be expensive compared to other equity alternatives, causing us
to hold a smaller allocation to S&P 500 type stocks than we would normally.
What investments influenced the Fund's performance over the past six months?
The factors that we favor in our stock selection disciplines--attractive value,
positive earnings momentum, and pro-shareholder management--were out of synch
with the market during much of the past six months. We have kept track of how
well our predicted returns for stocks correlate with actual returns for the past
several years on a calendar quarterly basis, and as seen in the graph below, the
first and second quarters of 1998 were both below average performing quarters
for our models.
See Definition of Indices. 45
<PAGE>
- ----------------------------------[BAR CHART]----------------------------------
Average Correlation of
Large Cap Model vs Actual Returns
<TABLE>
<S> <C>
1Q 1995 -0.3%
2Q 1995 2.0%
3Q 1995 8.9%
4Q 1995 7.2%
1Q 1996 3.1%
2Q 1996 5.2%
3Q 1996 10.1%
4Q 1996 12.9%
1Q 1997 2.9%
2Q 1997 4.9%
3Q 1997 13.1%
4Q 1997 -7.0%
1Q 1998 2.6%
2Q 1998 3.6%
</TABLE>
- --------------------------------[END BAR CHART]--------------------------------
No model will work well every quarter, but we continue to invest heavily in our
ongoing investment modeling efforts, always striving to make our disciplines,
which we believe are among the very best, even better.
What is your outlook going forward?
Large Cap stocks still appear overvalued. We use essentially the same method to
measure equity market valuation that Alan Greenspan, Chairman of the Federal
Reserve, does. For us, the relevant question is, how much can you expect to
receive in earnings for each dollar invested in the S&P 500, and how does this
"earnings yield" compare to the yield on the 10-year government bond? As shown
below, this measure of the "equity risk premium" is unusually low--more than one
standard deviation below the trailing five-year standard deviation of the
relationship.
- ----------------------------------[LINE CHART]----------------------------------
Relative Value:
Large Cap Stocks vs. Bonds
S&P 500 FWD E/P - 10 Yr. Govt't.
Stocks Attractive
Stocks Unattractive
as of 6/30/98
<TABLE>
<S> <C>
Jan-87 -0.15
2/87 -0.32
3/87 -0.77
4/87 -1.26
5/87 -1.42
6/87 -1.56
7/87 -2.05
8/87 -2.24
9/87 -2.31
Oct-87 -0.02
Nov-87 0.57
Dec-87 0.24
Jan-88 0.56
2/88 0.55
3/88 0.52
4/88 0.32
5/88 0.3
6/88 0.4
7/88 0.28
8/88 0.7
9/88 0.76
Oct-88 0.83
Nov-88 0.72
Dec-88 0.61
Jan-89 0.27
2/89 0.4
3/89 0.28
4/89 0.11
5/89 0.23
6/89 0.89
7/89 0.44
8/89 -0.16
9/89 -0.08
Oct-89 0.37
Nov-89 0.2
Dec-89 -0.04
Jan-90 0.1
2/90 -0.11
3/90 -0.47
4/90 -0.67
5/90 -1.04
6/90 -0.64
7/90 -0.46
8/90 -0.08
9/90 0.55
Oct-90 0.72
Nov-90 0.28
Dec-90 0.2
Jan-91 -0.19
2/91 -1.01
3/91 -1.33
4/91 -1.35
5/91 -1.68
6/91 -1.45
7/91 -1.65
8/91 -1.38
9/91 -0.68
Oct-91 -0.74
Nov-91 -0.31
Dec-91 -0.33
Jan-92 -0.88
2/92 -0.79
3/92 -0.97
4/92 -1.16
5/92 -0.74
6/92 -0.17
7/92 0.15
8/92 0.43
9/92 0.79
Oct-92 0.23
Nov-92 -0.27
Dec-92 0.03
Jan-93 0.47
2/93 0.88
3/93 0.75
4/93 0.94
5/93 0.7
6/93 1.27
7/93 1.29
8/93 1.47
9/93 1.67
Oct-93 1.49
Nov-93 1.15
Dec-93 1.1
Jan-94 1.1
2/94 0.76
3/94 0.46
4/94 0.05
5/94 -0.05
6/94 0.14
7/94 0.25
8/94 -0.03
9/94 -0.18
Oct-94 -0.51
Nov-94 -0.04
Dec-94 0.1
Jan-95 0.4
2/95 0.78
3/95 0.53
4/95 0.61
5/95 1.48
6/95 1.5
7/95 0.94
8/95 1.23
9/95 1.14
Oct-95 1.43
Nov-95 1.4
Dec-95 1.54
Jan-96 1.18
2/96 0.39
3/96 0.03
4/96 -0.53
5/96 -0.85
6/96 -0.65
7/96 -0.26
8/96 -0.56
9/96 -0.64
10/96 -0.31
11/96 -0.37
12/96 -0.65
Jan-97 -1.13
2/97 -1.16
3/97 -1.24
4/97 -1.31
5/97 -1.5
6/97 -1.53
7/97 -1.34
8/97 -1.33
9/97 -1.27
10/97 -0.54
11/97 -0.87
12/97 -0.74
Jan-98 -0.46
Feb-98 -1.05
Mar-98 -1.44
Apr-98 -1.48
May-98 -1.08
Jun-98 -1.23
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
Small cap stocks still look relatively attractive to us compared to large cap
stocks. Using the same "earnings yield" measurement method for both large cap
and small cap stocks, we find that small cap stocks are unusually inexpensive
right now. Also, although earnings growth has slowed down for most large
companies, it has not for most small companies, which are expected to grow their
earnings at rates a good bit higher than large companies.
46
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Relative Value:
Large Cap vs. Small Cap Stocks
S&P 500 FWD E/P - Russell 2000 FWD E/P
Large Stocks Attractive
Small Stocks Attractive
as of 6/30/98
<TABLE>
<S> <C>
Jan-87 -0.26
2/87 -0.31
3/87 -0.04
4/87 -0.52
5/87 -0.32
6/87 -0.39
7/87 -0.46
8/87 -0.42
9/87 0.6
Oct-87 0.32
Nov-87 0.44
Dec-87 0.53
Jan-88 -1.01
2/88 -1.01
3/88 -0.52
4/88 -0.59
5/88 -0.52
6/88 -0.34
7/88 -0.52
8/88 -0.52
9/88 1.31
Oct-88 1.27
Nov-88 1.33
Dec-88 1.46
Jan-89 1.4
2/89 1.65
3/89 1.72
4/89 1.32
5/89 1.34
6/89 1.18
7/89 0.94
8/89 0.98
9/89 1.01
Oct-89 0.84
Nov-89 0.78
Dec-89 0.82
Jan-90 0.71
2/90 0.91
3/90 1.28
4/90 0.64
5/90 0.53
6/90 0.54
7/90 0.32
8/90 0.22
9/90 0.04
Oct-90 -0.4
Nov-90 -0.13
Dec-90 0.36
Jan-91 0.74
2/91 0.81
3/91 1.21
4/91 0.65
5/91 0.61
6/91 0.63
7/91 0.49
8/91 0.54
9/91 0.76
Oct-91 0.78
Nov-91 0.73
Dec-91 0.74
Jan-92 0.85
2/92 0.97
3/92 1.53
4/92 0.66
5/92 0.67
6/92 0.46
7/92 0.34
8/92 0.46
9/92 0.43
Oct-92 0.53
Nov-92 0.63
Dec-92 0.7
Jan-93 0.62
2/93 0.44
3/93 1.04
4/93 0.48
5/93 0.57
6/93 0.56
7/93 0.55
8/93 0.73
9/93 1.27
Oct-93 1.17
Nov-93 1.24
Dec-93 1.3
Jan-94 0.88
2/94 0.98
3/94 2.4
4/94 0.94
5/94 0.76
6/94 0.67
7/94 0.53
8/94 0.58
9/94 0.57
Oct-94 0.37
Nov-94 0.7
Dec-94 0.64
Jan-95 0.52
2/95 0.28
3/95 1.22
4/95 0.08
5/95 -0.2
6/95 0.09
7/95 0.22
8/95 0.46
9/95 0.4
Oct-95 0.08
Nov-95 -0.1
Dec-95 -0.5
Jan-96 -0.76
2/96 -1.21
3/96 -1
4/96 -0.54
5/96 -0.59
6/96 -1.35
7/96 -2.17
8/96 -1.49
9/96 0.25
10/96 -0.35
11/96 -0.67
12/96 0.28
Jan-97 -0.28
2/97 -0.87
3/97 -1.2
4/97 -2.07
5/97 -1.26
6/97 -1.31
7/97 -1.34
8/97 -0.56
9/97 -0.51
10/97 -0.69
11/97 -1.62
12/97 -1.68
Jan-98 -1.42
Feb-98 -1.46
Mar-98 -1.49
Apr-98 -1.32
May-98 -1.71
Jun-98 -2.14
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
In response to current relative values, we continue to be heavily weighted in
asset classes other than U.S. large cap stocks, including small cap, real estate
and international stocks.
Large Cap Portfolio Sector Breakdown*:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
% of % of Over/(Under)
Sector Portfolio S&P 500 Weighting
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Materials 4.3% 5.2% (0.9)%
Commercial Services 5.6% 2.3% 3.3 %
Consumer Discretionary 22.6% 14.5% 8.1 %
Consumer Non-Discretionary 3.2% 10.2% (7.0)%
Energy 4.8% 8.1% (3.3)%
Finance 20.8% 14.3% 6.5 %
Healthcare 10.3% 10.9% (0.6)%
Manufacturing 15.2% 10.2% 5.0 %
Technology 6.8% 13.0% (6.2)%
Utilities 6.4% 11.3% (4.9)%
</TABLE>
* This does not constitute the entire Fund. The securities in these sectors only
represent those that are in the S&P 500 Index.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- ----------------------------------------------------------------
<S> <C>
Chase Manhattan 1.6%
Ford Motor Co. 1.5%
BellSouth Corp. 1.5%
Allstate Corp. 1.5%
TJX Co., Inc. 1.5%
Chrysler Corp. 1.4%
PepsiCo, Inc. 1.4%
Johnson & Johnson Co. 1.3%
Xerox Corp. 1.3%
Morgan Stanley, Dean Witter, Discover & Co. 1.3%
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Asset Allocation:
- ---------------------------------------------------------------------------------------------------------
% of Notional Value* Economic Exposure*
Asset Class Fund of Futures of Options 06/30/98 12/31/97
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Large Cap Stocks 66.2% 2.5% -- 68.7% 61.9%
Mid Cap Stocks 5.5% -- (1.3)% 4.2% 10.3%
Small Cap Stocks 11.2% -- (1.5)% 9.7% 8.9%
Real Estate Stocks 4.5% -- -- 4.5% 5.6%
U.S. Dollar Bonds 1.0% -- -- 1.0% 2.9%
International Stocks 5.7% -- -- 5.7% 2.3%
Special Situations** 1.9% -- 0.4% 2.3% 1.2%
Cash Equivalents 4.0% (2.5)% 2.4% 3.9% 6.9%
------------- ---------- ---------- ----------- -----------
100.0% -- -- 100.0% 100.0%
============= ========== ========== =========== ===========
</TABLE>
* Notional value refers to the economic value at risk or the exposure to the
financial instruments underlying the options and futures positions. Economic
exposure reflects the Fund's exposure to both changes in the value of the
portfolio of investments as well as the financial instruments underlying the
options and futures positions.
** The special situations category was created to take advantage of investment
opportunities which are "special" in the sense that they do not fit well into
our normal valuation and modeling framework. The largest category within this
group is initial public offerings, but other categories include spin-offs, newly
created securities, and stocks of companies which derive their value from
something other than current assets, earnings and dividends.
48
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna Real Estate Securities VP
Growth of $10,000
Annualized Total Return for the Period Ended
June 30, 1998*
----------------
Since Inception+
----------------
-0.40%
----------------
<TABLE>
<CAPTION>
Dec-97 Jun-98
<S> <C> <C> <C> <C>
Aetna Real Estate VP 10,000 10,363 10,343 9,960
NAREIT 10,000 10,236 10,188 9,720
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Portfolio commenced investment operations on December 15, 1997.
Aetna Real Estate Securities VP
How did the Portfolio perform during the period?
Aetna Real Estate Securities VP (Real Estate) generated a total return of
- -3.88%, net of fund expenses, for the six month period ended June 30, 1998. The
National Association of Real Estate Investment Trusts (NAREIT) Equity REIT
Index**(d) returned -5.04% during the same period.
** The NAREIT Index return is calculated from December 1, 1997 through June 30,
1998, where the Real Estate return is calculated from its inception date of
December 15, 1997.
What economic or financial market conditions impacted the Portfolio?
Real estate securities continued their slow start this year, especially compared
to the broader markets, for various reasons. First and foremost, as one would
expect, investors showed general apathy towards defensive low beta stocks such
as REITs in this very bullish market environment. Secondly, the sector was
impacted excessively from certain legislative proposals, which only targeted a
few paired share REITs. Also hampering price performance, cash inflows into real
estate mutual funds slowed modestly while equity issuance at the company level
remained brisk. And finally, stock multiples contracted on investor concern
about the completeness of a real estate recovery, and the sense that most of the
inexpensive acquisitions and easy growth have already occurred, and companies
are digesting their recent rapid growth.
With the continuing concerns about the impact of the Asian crisis on corporate
earnings, most real estate companies continued to be relatively unaffected,
especially at the asset level. The domestic nature of most of their holdings, as
well as the contractual and credit nature of their leases, tend to insulate them
from such foreign market instabilities.
Development activity has also picked up in certain markets, especially in the
office sector, although in modest volumes when compared to 1980's levels.
Although most have been pre-leased and demand driven, its effect on slowing rent
growth while competing with older space gives cause for some concern as well.
What investments influenced the Portfolio's performance over the past six
months?
The Portfolio was even to ahead of its benchmark five out of the six months to
date, outpacing the NAREIT Equity REIT Index by 1.16% in a generally negative
environment.
Good relative performance can be attributed to both good stock selection and
strong industry rotation. Underweighting the hotel industry (down 12.5% year to
date) and strong stock selection in the defensive and high yielding triple-net
lease industry, which are fixed income in nature because they allow some
property level expenses to be passed through to tenants (Golf Trust of America),
both contributed to outperformance for the period. In terms of stock selection,
the
See Definition of Indices. 49
<PAGE>
overweight position in Apartment Investment & Management Co. posted nearly 10%
return for the period, as it continues to be one of the largest and leading
consolidators able to consistently grow earnings with good multi-family
acquisitions.
February was the only appreciable down month primarily due to a group of growth
oriented west coast stocks which first showed weakness as momentum oriented
investors exited the REIT sector to pursue the broader markets. Concern
surrounding the impact of the Asia crisis on Pacific rim economies, including
California, also softened these stocks including Glenborough Realty Trust, Inc.,
Essex Property Trust, Inc., Catellus Development Corp. and Bedford Property
Investors, Inc. Underweighting the retail industries and overweighting the
self-storage industry both slightly hampered performance as well.
What is your outlook going forward?
We believe equity REITs are now very attractively valued both relative to their
own history and on a growth-to-multiple basis relative to other asset classes.
After accounting for somewhat lower acquisition yields and volumes due to the
heated property markets, we believe secular trends and strong internal growth
should support 11-13% FFO* growth. We believe REITs will be delivering higher
growth than the broader markets, at lower multiples, which in part supports our
positive outlook from a stock valuation standpoint.
From a real estate standpoint, the ongoing health of the underlying property
fundamentals should underpin longer term stock performance. Cashflows are
growing as older leases roll into stronger rental markets, and REITs are able to
achieve both occupancy gains and improved margins. In terms of their balance
sheets, payout ratios remain low, suggesting the continuing need for REITs to
boost their dividends, at least in-line with growth, in order to observe their
minimum distribution requirements.
We remain on the lookout for large levels of new construction, or an extended
rise in interest rates, as potential signs of softness - neither of which seem
to be at hand. Ultimately, we believe the robust fundamentals, defensive yield,
domestic nature of the real estate, and the sector's ability to provide defense
and diversification during an extended bull cycle, will make for a more positive
trend going forward.
Real estate securities involve certain risks, including dependency on a firm's
management skills, general and regional economic impact on the industry, changes
in the value of properties owned, refinancing and risks similar to those linked
to small company investing.
*FFO stands for Funds from Operations and is the Real Estate equivalent of
earnings per share.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
% of
Top Ten Equity Holdings Portfolio
- ---------------------------------------------------------------
<S> <C>
Kimco Realty 4.9%
Equity Office Properties Trust 4.7%
CBL & Associates Property, Inc. 4.4%
Omega Healthcare 4.2%
Apartment Investment & Management 4.1%
Post Properties, Inc. 4.1%
Healthcare REIT 4.0%
Starwood Hotels & Resort 4.0%
Equity Residential Property Trust 3.9%
Storage Trust Realty 3.8%
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
Definition of Indices
- --------------------------------------------------------------------------------
(a) The Standard & Poor's (S&P) 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks that assumes the reinvestment of all dividends, and is
considered to be representative of the stock market in general.
(b) The Lehman Brothers Aggregate Bond Index is an unmanaged index of corporate,
government and mortgage bonds.
(c) The Russell 2000 Index consists of the smallest 2000 companies in the
Russell 3000 Index and represents approximately 11% of the Russell 3000 total
market capitalization. The 3000 largest U.S. companies by market capitalization,
representing nearly 98% of the U.S. equity market, comprise the Russell 3000
Index. Both indices assume reinvestment of all dividends and are unmanaged.
(d) The National Association of Real Estate Investment Trusts (NAREIT) Equity
REIT Index is an unmanaged, market-weighted average of the performance for
tax-qualified real estate investment trusts listed on the New York Stock
Exchange, American Stock Exchange and the NASDAQ National Market System.
51
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Balanced
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
COMMON STOCKS (55.9%)
Air Transport (0.5%)
Alaska Air Group, Inc.+........... 7,300 $ 398,306
America West Holdings Corp. +..... 16,700 476,994
AMR Corp. +....................... 31,000 2,580,750
ASA Holdings, Inc................. 10,900 540,913
Comair Holdings, Inc.............. 13,000 401,375
Delta Air Lines, Inc.............. 6,700 865,975
Expeditors International of
Washington, Inc................. 18,200 800,800
Midwest Express Holdings, Inc.+... 13,950 504,816
SkyWest, Inc...................... 28,800 806,400
Southwest Airlines Co............. 20,950 620,644
US Airways Group, Inc.+........... 13,300 1,054,025
--------------
9,050,998
--------------
Aluminum (0.1%)
Alcan Aluminum Ltd................ 22,800 629,850
Aluminum Co. of America........... 19,400 1,279,188
Reynolds Metals Co................ 7,600 425,125
--------------
2,334,163
--------------
Auto Parts and Hardware (0.4%)
Black & Decker Corp............... 4,900 298,900
Carlisle Co., Inc................. 29,000 1,248,813
CLARCOR, Inc...................... 25,650 538,650
Cooper Tire & Rubber Co........... 8,200 169,125
Echlin, Inc....................... 5,900 289,469
Genuine Parts Co.................. 18,700 646,319
Goodyear Tire & Rubber Co. (The).. 15,200 979,450
Snap-On, Inc...................... 8,500 308,125
SPX Corp.+........................ 16,500 1,062,188
Standard Motor Products, Inc.+.... 20,800 462,800
Stanley Works..................... 8,900 369,906
Wynn's International, Inc......... 11,475 220,894
--------------
6,594,639
--------------
Automotive (1.1%)
Arvin Industries, Inc............. 22,100 802,506
Chrysler Corp..................... 60,600 3,416,325
Dana Corp......................... 15,400 823,900
Dura Automotive Systems, Inc. +... 14,500 465,813
Eaton Corp........................ 6,700 520,925
Ford Motor Co..................... 111,700 6,590,299
General Motors Corp............... 66,400 4,436,350
Gentex Corp.+..................... 35,800 648,875
Johnson Controls, Inc............. 8,700 497,531
Standard Products Co.............. 16,500 464,063
TRW, Inc.......................... 12,500 682,813
--------------
19,349,400
--------------
Banks and Thrifts (5.3%)
Ahmanson (H. F.) & Co............. 16,200 1,150,200
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Banks and Thrifts (continued)
Banc One Corp..................... 59,840 $ 3,339,820
Bank of New York Co., Inc......... 38,000 2,306,125
BankAmerica Corp.................. 90,900 7,857,168
BankBoston Corp................... 31,600 1,757,750
Bankers Trust New York Corp....... 16,300 1,891,819
BB&T Corp......................... 13,800 933,225
Charter One Financial, Inc........ 35,352 1,190,921
Chase Manhattan Corp.............. 80,000 6,039,999
Citicorp.......................... 44,600 6,656,549
City National Corp................ 22,300 823,706
Comerica, Inc..................... 22,350 1,480,688
Dataworks Corp.+.................. 8,500 112,625
Fifth Third Bancorp............... 27,769 1,749,431
First Chicago NBD Corp............ 38,200 3,385,475
First Republic Bank+.............. 10,600 382,925
First Union Corp.................. 95,700 5,574,524
FirstFed Financial Corp. +........ 14,200 738,400
Fleet Financial Group, Inc........ 26,700 2,229,450
Flushing Financial Corp........... 21,300 607,050
Golden West Financial Corp........ 5,500 584,719
HUBCO, Inc........................ 40,314 1,443,745
Huntington Bancshares............. 18,700 626,450
Imperial Bancorp+................. 59,400 1,782,000
J.P. Morgan & Co.................. 16,300 1,909,138
KeyCorp........................... 44,400 1,581,750
Mellon Bank Corp.................. 34,500 2,402,063
Mercantile Bancorporation, Inc.... 12,800 644,800
National City Corp................ 32,100 2,279,100
NationsBank Corp.................. 94,287 7,212,955
North Fork Bancorp, Inc........... 82,155 2,007,663
Northern Trust Corp............... 11,200 854,000
Norwest Corp...................... 96,000 3,588,000
PNC Bank Corp..................... 31,700 1,705,856
Republic Banking.................. 29,100 465,600
Republic New York Corp............ 16,000 1,007,000
Silicon Valley Bancshares+........ 21,200 754,588
State Street Corp................. 25,800 1,793,100
Summit Bancorporation............. 17,700 840,750
Suntrust Banks, Inc............... 26,700 2,171,044
Trans Financial, Inc.............. 12,900 740,138
U.S. Bancorp...................... 74,400 3,199,200
Wachovia Corp..................... 17,600 1,487,200
Washington Mutual, Inc............ 51,150 2,221,828
Webster Financial Corp............ 23,200 771,400
Wells Fargo & Co.................. 8,400 3,099,600
--------------
97,381,537
--------------
Biotech and Medical Products (0.6%)
Alpharma, Inc..................... 21,800 479,600
Alza Corp.+....................... 6,000 259,500
</TABLE>
52 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Biotech and Medical Products (continued)
Amgen, Inc. +..................... 24,300 $ 1,588,613
Becton, Dickinson & Co............ 12,600 978,075
Biomet, Inc.+..................... 11,500 380,219
Cooper Companies, Inc.+........... 14,200 517,413
ESC Medical Systems Ltd.+......... 21,600 729,000
Guidant Corp...................... 25,300 1,804,206
Hanger Orthopedic Group, Inc...... 28,800 586,800
Maxxim Medical, Inc. +............ 19,000 551,000
Medtronic, Inc.................... 45,000 2,868,750
ResMed, Inc. +.................... 1,700 77,456
--------------
10,820,632
--------------
Chemicals (0.6%)
Dow Chemical Co................... 22,900 2,214,144
Du Pont (E.I.) de Nemours......... 110,100 8,216,212
Eastman Chemical Co............... 3,200 199,200
Hercules, Inc..................... 9,200 378,350
Rohm & Haas Co.................... 6,400 665,200
--------------
11,673,106
--------------
Commercial Services (0.7%)
ADVO, Inc.+....................... 19,200 541,200
Aviation Sales Co.+............... 6,300 249,638
Big Flower Holdings, Inc.+........ 23,000 690,000
Bowne & Co., Inc.................. 13,900 625,500
Cognizant Corp.................... 16,700 1,052,100
Consolidated Graphics, Inc.+...... 6,400 377,600
Day Runner, Inc. +................ 22,800 574,275
Deluxe Corp....................... 8,600 307,988
Interpublic Group of Co., Inc..... 12,800 776,800
Lason, Inc.+...................... 13,800 752,100
Mail-Well, Inc.+.................. 40,600 880,513
Merrill Corp...................... 34,800 767,775
Omnicom Group, Inc................ 21,400 1,067,325
RR Donnelley & Sons Co............ 14,400 658,800
SOS Staffing Services, Inc.+...... 26,700 468,919
Staff Leasing, Inc.+.............. 13,700 404,150
Staffmark, Inc.+.................. 16,800 615,300
Valassis Communications, Inc. +... 24,500 944,781
Wackenhut Corp.................... 31,600 679,400
--------------
12,434,164
--------------
Computers (1.6%)
Ceridian Corp. +.................. 7,300 428,875
Compaq Computer Corp.............. 69,441 1,970,388
Computer Sciences Corp.+.......... 20,600 1,318,400
Data General Corp.+............... 6,600 98,588
Dell Computer Corp.+.............. 102,300 9,494,718
Gateway 2000, Inc.+............... 15,200 769,500
Hewlett Packard Co................ 38,800 2,323,150
International Business
Machines, Inc................... 88,600 10,172,387
Sun Microsystems, Inc. +.......... 36,900 1,602,844
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Computers (continued)
Unisys Corp.+..................... 31,800 $ 898,350
--------------
29,077,200
--------------
Conglomerate and Aerospace (2.3%)
AAR Corp.......................... 21,150 625,247
Alliant Techsystems, Inc.+........ 12,100 765,325
Aviall, Inc. +.................... 34,600 473,588
BE Aerospace, Inc.+............... 20,700 602,888
Cordant Technologies, Inc......... 11,000 507,375
Crane Co.......................... 6,000 291,375
General Dynamics Corp............. 13,200 613,800
General Electric Co............... 306,100 27,855,099
Kroll O' Gara Co. (The)+.......... 25,300 540,788
Lockheed Martin Corp.............. 19,100 2,022,213
Northrop Grumman Corp............. 9,000 928,125
Raytheon Co....................... 23,800 1,407,175
Rockwell International Corp....... 17,900 860,319
Tenneco, Inc...................... 17,800 677,513
Textron, Inc...................... 16,100 1,154,169
United Technologies Corp.......... 22,400 2,072,000
--------------
41,396,999
--------------
Consumer Finance (1.3%)
Associates First Capital Corp..... 44,469 3,418,554
Avis Rent A Car, Inc. +........... 12,900 319,275
Countrywide Credit Industries,
Inc............................. 11,100 563,325
Electro Rent Corp.+............... 52,000 1,166,750
Federal Home Loan Mortgage Corp... 86,100 4,052,081
Federal National Mortgage
Association..................... 137,200 8,334,899
FIRSTPLUS Financial Group, Inc.+.. 13,700 493,200
Household International, Inc...... 33,600 1,671,600
MBNA Corp......................... 47,050 1,552,650
Medallion Financial Corp.......... 21,600 594,000
Resource America, Inc............. 20,100 595,463
Rollins Truck Leasing Corp........ 39,900 493,763
Ryder System, Inc................. 10,400 328,250
--------------
23,583,810
--------------
Consumer Products (1.7%)
American Greetings Corp........... 7,500 382,031
Avon Products, Inc................ 13,000 1,007,500
Bestfoods......................... 27,600 1,602,525
Clorox Co......................... 10,100 963,288
Colgate-Palmolive Co.............. 28,600 2,516,800
Eastman Kodak Co.................. 12,100 884,056
Fossil, Inc.+..................... 25,350 630,581
Gillette Co....................... 102,400 5,804,799
International Flavors &
Fragrances, Inc................. 4,300 186,781
Kimberly-Clark Corp............... 21,800 1,000,075
Procter & Gamble Co............... 127,400 11,601,362
Twinlab Corp. +................... 11,500 502,406
Unilever NV....................... 62,600 4,941,488
--------------
32,023,692
--------------
</TABLE>
53
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Balanced (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Consumer Services (0.9%)
Bob Evans Farms, Inc.............. 35,400 $ 750,038
Cendant Corp.+.................... 78,800 1,644,950
CKE Restaurants, Inc.............. 12,940 533,775
Darden Restaurants, Inc........... 14,700 233,363
Dover Downs Entertainment, Inc.... 28,500 883,500
Education Management Corp.+....... 22,000 723,250
Foodmaker, Inc. +................. 28,500 480,938
H & R Block, Inc.................. 17,900 754,038
Hilton Hotels Corp................ 9,700 276,450
Marriott International, Inc....... 12,400 401,450
McDonald's Corp................... 62,600 4,319,400
Metris Companies, Inc............. 11,600 739,500
Mirage Resorts, Inc.+............. 7,100 151,319
O'Charleys, Inc.+................. 28,650 429,750
Rio Hotel and Casino, Inc.+....... 15,800 298,225
Ruby Tuesday, Inc................. 38,400 595,200
Service Corp. International....... 26,500 1,136,188
Servico, Inc. +................... 14,600 219,000
Showbiz Pizza Time, Inc. +........ 21,200 854,625
Tricon Global Restaurants, Inc. +. 15,680 496,860
United Rentals, Inc.+............. 4,900 205,800
--------------
16,127,619
--------------
Consumer Specialties (0.2%)
Action Performance Co., Inc.+..... 16,900 543,969
Brunswick Corp.................... 10,200 252,450
Coastcast Corp.+.................. 32,100 577,800
Hasbro, Inc....................... 13,300 522,856
Mattel, Inc....................... 30,600 1,294,763
Russ Berrie & Co., Inc............ 23,800 595,000
Steinway Musical Instruments,
Inc.+........................... 20,000 645,000
--------------
4,431,838
--------------
Data and Imaging Services (2.8%)
Adobe Systems, Inc................ 5,200 220,675
Applied Voice Technology, Inc.+... 29,000 667,000
Autodesk, Inc..................... 8,600 332,175
Automatic Data Processing, Inc.... 29,300 2,135,238
Cisco Systems, Inc.+.............. 97,200 8,948,474
Computer Associates
International, Inc.............. 90,900 5,050,631
Computer Horizons Corp. +......... 17,100 633,769
EMC/MASS Corp.+................... 82,600 3,701,513
Inktomi Corp.+.................... 5,300 210,675
Learning Company, Inc. (The)+..... 21,000 622,125
Mapics, Inc.+..................... 31,100 612,281
Microsoft Corp. +................. 231,500 25,088,812
Oracle Corp. +.................... 91,500 2,247,469
Parametric Technology Co.+........ 25,800 699,825
Symantec Corp. +.................. 20,800 543,400
Symbol Technologies, Inc.......... 12,125 457,719
--------------
52,171,781
--------------
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Discretionary Retail (3.8%)
99 Cents Only Stores+............. 18,400 $ 763,600
American Eagle Outfitters, Inc. +. 13,900 536,019
AutoZone, Inc.+................... 15,900 507,806
Buckle, Inc. (The)+............... 31,050 915,975
Cato Corp. (The).................. 35,500 617,922
Central Garden and Pet Co.+....... 15,700 488,663
Consolidated Stores Corp.+........ 18,300 663,375
Costco Companies, Inc. +.......... 27,300 1,721,606
CSK Auto Corp. +.................. 14,100 356,025
Dayton Hudson Corp................ 57,800 2,803,300
Dillards, Inc..................... 11,600 480,675
Dress Barn, Inc. +................ 10,800 268,650
Federated Department Stores,
Inc.+.......................... 20,400 1,097,775
Fingerhut Companies, Inc.......... 25,100 828,300
Footstar, Inc. +.................. 16,900 811,200
Fred's, Inc....................... 26,800 683,400
Gap, Inc.......................... 67,500 4,159,688
Genesco, Inc.+.................... 31,400 512,213
Goody's Family Clothing, Inc. +... 21,100 1,157,863
Home Depot, Inc................... 117,100 9,726,618
Insight Enterprises, Inc.+........ 13,300 532,000
J.C. Penney Co., Inc.............. 25,100 1,815,044
Kmart Corp. +..................... 51,000 981,750
Linens 'n Things, Inc. +.......... 31,000 947,438
Lowe's Co., Inc................... 34,800 1,411,575
May Department Stores Co.......... 23,200 1,519,600
Men's Wearhouse, Inc.+............ 36,600 1,207,800
Mercantile Stores Co., Inc........ 3,400 268,388
Nordstrom, Inc.................... 7,900 610,275
Pacific Sunwear of California+.... 26,775 937,125
Pier 1 Imports, Inc............... 28,200 673,275
Renters Choice, Inc. +............ 25,000 709,375
Sears, Roebuck & Co............... 41,300 2,521,881
Shopko Stores, Inc.+.............. 13,800 469,200
Tandy Corp........................ 19,400 1,029,413
The Limited, Inc.................. 26,100 864,563
TJX Companies, Inc................ 46,000 1,109,750
Toys "R" Us, Inc.+................ 11,200 263,900
Trans World Entertainment+........ 15,100 651,188
Wal-Mart Stores, Inc.............. 345,900 21,013,424
Williams-Sonoma, Inc.+............ 27,200 865,300
Zale Corp. +...................... 18,600 591,713
--------------
70,094,650
--------------
Diversified Financial Services (1.3%)
American Express Co............... 45,500 5,186,999
American General Corp............. 25,200 1,793,925
AMRESCO, Inc.+.................... 17,000 495,125
Morgan Stanley, Dean Witter,
Discover & Co................... 79,400 7,255,174
</TABLE>
54 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Diversified Financial Services (continued)
Signature Resorts, Inc.+.......... 16,800 $ 277,200
Transamerica Corp................. 6,600 759,825
Travelers Group, Inc.............. 145,450 8,817,905
--------------
24,586,153
--------------
Drugs (5.2%)
Abbott Laboratories............... 155,000 6,335,624
American Home Products Corp....... 119,400 6,178,949
Baxter International, Inc......... 26,700 1,436,794
Bristol-Myers Squibb Co........... 126,200 14,505,112
Eli Lilly & Co.................... 106,700 7,048,868
IDEC Pharmaceuticals Corp.+....... 12,700 299,244
Intelligent Polymers Ltd.+........ 12,100 247,294
Johnson & Johnson................. 122,500 9,034,374
Merck & Co., Inc.................. 108,900 14,565,374
Pfizer, Inc....................... 165,200 17,955,174
Pharmacia & Upjohn, Inc........... 19,100 880,988
Schering Plough................... 117,200 10,738,449
Warner Lambert Co................. 76,800 5,327,999
--------------
94,554,243
--------------
Electric Utilities (1.2%)
Ameren Corp....................... 10,600 421,350
American Electric Power Co........ 12,800 580,800
Baltimore Gas & Electric Co....... 15,300 475,256
Carolina Power & Light Co......... 15,000 650,625
Central & South West Corp......... 8,400 225,750
Central Hudson Gas & Electric Co.. 28,500 1,307,438
Central Vermont Public Service.... 19,200 286,800
Cinergy Corp...................... 16,900 591,500
Commonwealth Energy System Co..... 30,000 1,132,500
Consolidated Edison............... 24,300 1,119,319
Dominion Resources, Inc........... 19,400 790,550
DTE Energy Co..................... 10,400 419,900
Edison International.............. 42,300 1,250,494
Entergy Corp...................... 20,000 575,000
FirstEnergy Corp.................. 15,000 461,250
GPU, Inc.......................... 12,500 472,656
Houston Industries, Inc........... 26,300 812,013
Interstate Energy Corp............ 38,448 1,249,560
Northern States Power Co.......... 15,400 440,825
PacifiCorp........................ 32,300 730,788
Peco Energy Co.................... 15,900 464,081
PG&E Corp......................... 36,200 1,142,563
PP&L Resources, Inc............... 17,100 387,956
Public Service Co. of New Mexico.. 20,500 465,094
Public Service Enterprise
Group, Inc...................... 23,100 795,506
Sierra Pacific Resources.......... 30,600 1,111,163
Southern Co....................... 71,000 1,965,813
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Electric Utilities (continued)
Texas Utilities Co................ 24,000 $ 999,000
Unicom Corp....................... 8,400 294,525
--------------
21,620,075
--------------
Electrical Machinery and Instruments (0.6%)
Harris Corp....................... 10,800 482,625
IFR Systems, Inc.+................ 15,800 284,400
Knoll, Inc.+...................... 22,700 669,650
Mettler-Toledo International,
Inc.+........................... 25,300 507,581
Pitney Bowes, Inc................. 25,700 1,236,813
Technitrol, Inc................... 48,000 1,917,000
Tektronix, Inc.................... 7,200 254,700
Virco Manufacturing Corp.......... 17,700 423,694
Waters Corp. +.................... 27,000 1,591,313
Xerox Corp........................ 32,000 3,252,000
--------------
10,619,776
--------------
Electronic Media (0.9%)
CBS Corp.......................... 69,900 2,219,325
Clear Channel Communications,
Inc.+........................... 9,900 1,080,338
Comcast Corp...................... 31,100 1,262,466
Tele-Communications, Inc.+........ 44,700 1,718,156
Time Warner, Inc.................. 20,100 1,717,294
Viacom, Inc. +.................... 28,000 1,631,000
Walt Disney Co. (The)............. 61,900 6,503,368
--------------
16,131,947
--------------
Food and Beverage (2.6%)
Anheuser-Busch Co., Inc........... 45,400 2,142,313
Archer-Daniels-Midland Co......... 56,000 1,085,000
Beringer Wine Estates
Holdings, Inc.+................. 10,700 471,469
Brown-Forman Corp................. 7,000 449,750
Campbell Soup Co.................. 17,800 945,625
Canandaigua Brands, Inc. +........ 12,100 595,169
Coca-Cola Co...................... 225,000 19,237,499
Conagra, Inc...................... 18,800 595,725
Coors (Adolph) Co................. 5,000 170,000
Earthgrains Co.................... 13,200 737,550
Fortune Brands, Inc............... 16,800 645,750
General Mills, Inc................ 16,000 1,094,000
Heinz (H.J.) Co................... 37,000 2,076,625
Herbalife International, Inc...... 26,800 552,750
Hershey Foods Corp................ 15,400 1,062,600
Kellogg Co........................ 39,500 1,483,719
Michael Foods, Inc................ 23,800 699,125
NBTY, Inc. +...................... 5,900 108,413
PepsiCo, Inc...................... 130,100 5,358,493
Pioneer Hi-Bred International,
Inc............................. 20,100 831,638
Quaker Oats Co.................... 14,800 813,075
Ralcorp Holdings, Inc. +.......... 27,500 519,063
Ralston-Ralston Purina Group...... 10,000 1,168,125
</TABLE>
55
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Balanced (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Food and Beverage (continued)
Sara Lee Corp..................... 47,200 $ 2,640,250
Suiza Foods Corp. +............... 4,900 292,469
Wrigley (Wm.) Jr. Co.............. 9,300 911,400
--------------
46,687,595
--------------
Food and Drug Retail (0.5%)
Albertson's, Inc.................. 25,300 1,310,856
American Stores Co................ 10,300 249,131
CVS Corp.......................... 35,800 1,393,963
Kroger Co. (The) +................ 24,100 1,033,288
Rite Aid Corp..................... 24,400 916,525
SUPERVALU, INC.................... 8,200 363,875
Sysco Corp........................ 25,200 645,750
Walgreen Co....................... 50,700 2,094,544
Winn-Dixie Stores, Inc............ 14,600 747,338
--------------
8,755,270
--------------
Forest Products and Building Materials (0.5%)
Armstrong World Industries, Inc... 4,200 282,975
Bemis Co., Inc.................... 5,500 224,813
Centex Construction Products, Inc. 18,400 708,400
Crown Cork & Seal Co., Inc........ 12,200 579,500
Elcor Corp........................ 19,600 494,900
Fort James Corp................... 18,700 832,150
Ivex Packaging Corp.+............. 12,900 299,925
Lone Star Industries, Inc......... 8,400 647,325
Masco Corp........................ 21,800 1,318,900
Mead Corp......................... 10,200 323,850
Owens-Illinois, Inc.+............. 22,600 1,011,350
Sealed Air Corp.+................. 3,859 141,818
Simpson Manufacturing Co., Inc.+.. 13,000 502,125
Southdown, Inc.................... 12,600 899,325
Triangle Pacific Corp.+........... 7,700 423,500
Wausau-Mosinee Paper Corp......... 26,040 595,665
Westvaco Corp..................... 10,600 299,450
Weyerhaeuser Co................... 7,800 360,263
--------------
9,946,234
--------------
Gas Utilities (0.3%)
Coastal Corp. (The)............... 17,600 1,228,700
Columbia Gas System, Inc.......... 8,700 483,938
Consolidated Natural Gas Co....... 9,300 547,538
Energen Corp...................... 31,000 623,875
Enron Corp........................ 12,900 697,406
NICOR, Inc........................ 5,100 204,638
Piedmont Natural Gas, Inc......... 8,100 272,363
Williams Co., Inc. (The).......... 31,400 1,059,750
--------------
5,118,208
--------------
Health Services (0.7%)
Cardinal Health, Inc.............. 11,100 1,040,625
Carematrix Corp.+................. 14,100 379,819
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Health Services (continued)
Columbia/HCA Healthcare Corp...... 58,500 $ 1,703,813
HBO & Co.......................... 71,400 2,516,850
HEALTHSOUTH Corp.+................ 40,400 1,078,175
Humana, Inc.+..................... 15,400 480,288
Manor Care, Inc................... 6,700 257,531
Mariner Health Group, Inc.+....... 33,000 548,625
Medical Manager Corp.+............ 24,500 676,813
Sunrise Assisted Living, Inc.+.... 18,400 632,500
Tenet Healthcare Corp.+........... 31,000 968,750
United Healthcare Corp............ 17,600 1,117,600
Universal Health Services, Inc.+.. 15,100 881,463
--------------
12,282,852
--------------
Heavy Machinery (0.4%)
Case Corp......................... 9,800 472,850
Caterpillar, Inc.................. 34,400 1,818,900
Cummins Engine Company, Inc....... 6,800 348,500
Deere & Co........................ 41,300 2,183,738
Gardner Denver Machinery, Inc. +.. 22,900 632,613
Manitowoc Co., Inc. (The)......... 16,200 653,063
Navistar International Corp. +.... 12,500 360,938
PACCAR, Inc....................... 12,600 658,350
Terex Corp.+...................... 24,400 695,400
--------------
7,824,352
--------------
Housing and Furnishings (0.8%)
American Homestar Corp.+.......... 35,700 854,569
Centex Corp....................... 7,800 294,450
Champion Enterprises, Inc.+....... 24,600 719,550
D.R. Horton, Inc.................. 29,600 617,900
Department 56, Inc. +............. 14,700 521,850
Ethan Allen Interiors, Inc........ 16,300 813,981
Fairfield Communities, Inc.+...... 16,900 324,269
Furniture Brands International, 24,400 684,725
Inc.+...........................
Garden Ridge Corp.+............... 28,100 544,438
Helen of Troy Ltd.+............... 62,200 1,368,400
Kaufman & Broad Home Corp......... 22,200 704,850
La-Z-Boy, Inc..................... 11,900 672,350
Maytag Corp....................... 10,400 513,500
MDC Holdings, Inc................. 29,300 578,675
Mohawk Industries, Inc.+.......... 37,050 1,174,022
Newell Co......................... 15,800 787,038
Oneida, Ltd....................... 18,300 560,438
Rent-Way, Inc.+................... 26,500 808,250
Rubbermaid, Inc................... 14,800 491,175
Ryland Group, Inc................. 25,200 661,500
Standard Pacific Corp............. 34,900 719,813
Whirlpool Corp.................... 7,400 508,750
--------------
14,924,493
--------------
Industrial Services (0.1%)
American Disposal Services, Inc.+. 15,600 731,250
</TABLE>
56 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Industrial Services (continued)
Browning-Ferris Industries, Inc... 21,300 $ 740,175
Granite Construction, Inc......... 17,000 520,625
Laidlaw, Inc...................... 32,700 398,531
--------------
2,390,581
--------------
Insurance (3.0%)
Alfa Corp......................... 9,800 203,350
Allstate Corp. (The).............. 70,300 6,436,843
American Annuity Group, Inc.+..... 21,200 510,125
American Bankers Insurance Group.. 14,900 895,863
American International Group, Inc. 65,750 9,599,499
Amerus Life Holdings, Inc......... 14,200 459,725
Aon Corp.......................... 16,800 1,180,200
ARM Financial Group, Inc.......... 26,600 588,525
Capital RE Corp................... 18,700 1,339,388
Chartwell Re Corp................. 14,000 412,125
Chubb Corp........................ 17,200 1,382,450
CIGNA Corp........................ 21,600 1,490,400
Cincinnati Financial Corp......... 16,800 644,700
CMAC Investment Corp.............. 24,000 1,476,000
Conseco, Inc...................... 30,000 1,402,500
Enhance Financial Services Group,
Inc............................. 17,200 580,500
ESG Re Ltd........................ 13,600 294,100
FBL Financial Group, Inc.......... 37,400 958,375
Fidelity National Financial, Inc.. 20,790 827,702
First American Financial Corp..... 9,600 864,000
FPIC Insurance Group, Inc.+....... 9,200 309,350
Gallagher (Arthur J.) & Co........ 12,800 572,800
General Re Corp................... 6,900 1,749,150
Hartford Financial Services
Group, Inc...................... 11,100 1,269,563
Hooper Holmes, Inc................ 30,300 636,300
Horace Mann Educators Corp........ 46,400 1,600,800
Jefferson-Pilot Corp.............. 11,100 643,106
LandAmerica Financial Group, Inc.. 18,600 1,064,850
LaSalle Re Holdings Ltd........... 12,900 488,588
Life Re Corp...................... 10,100 828,200
Lincoln National Corp............. 10,300 941,163
Marsh & McLennan Co., Inc......... 34,500 2,085,094
MBIA, Inc......................... 16,400 1,227,950
MGIC Investment Corp.............. 20,800 1,186,900
Mutual Risk Management Ltd........ 17,700 644,944
Orion Capital Corp................ 30,800 1,720,950
Progressive Corp.................. 12,000 1,692,000
Safeco Corp....................... 13,100 595,231
Selective Insurance Group, Inc.... 16,800 376,425
St. Paul Co., Inc................. 23,230 977,112
State Auto Financial Corp......... 13,800 439,875
SunAmerica, Inc................... 29,900 1,717,381
Torchmark Corp.................... 13,200 603,900
UNUM Corp......................... 12,300 682,650
--------------
55,600,652
--------------
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Investment Services (0.6%)
Affiliated Managers Group, Inc.+.. 15,200 $ 564,300
Charles Schwab Corp............... 26,850 872,625
Conning Corp...................... 19,500 380,250
Doral Financial Corp.............. 26,000 455,000
Duff & Phelps Credit Rating Co.... 7,600 423,700
Everen Capital Corp............... 10,800 302,400
Franklin Resources, Inc........... 24,700 1,333,800
Lehman Brothers Holdings, Inc..... 20,100 1,559,006
Merrill Lynch & Co., Inc.......... 43,900 4,049,775
Providian Financial Corp.......... 9,700 762,056
--------------
10,702,912
--------------
Major Telecommunications (3.5%)
Alltel Corp....................... 19,700 916,050
Ameritech Corp.................... 139,300 6,251,087
AT&T Corp......................... 258,900 14,789,662
Bell Atlantic Corp................ 196,400 8,960,749
BellSouth Corp.................... 158,300 10,625,887
GTE Corp.......................... 91,000 5,061,875
MCI Communications Corp........... 21,500 1,249,688
SBC Communications, Inc........... 233,200 9,327,999
Sprint Corp....................... 31,400 2,213,700
WorldCom, Inc.+................... 99,500 4,819,531
--------------
64,216,228
--------------
Miscellaneous Metals (0.0%)
Johnstown America Industries,
Inc.+........................... 13,500 234,563
Phelps Dodge Corp................. 2,300 131,531
--------------
366,094
--------------
Oil (2.6%)
Amoco Corp........................ 37,700 1,569,263
Ashland Oil, Inc.................. 12,300 634,988
Atlantic Richfield Co............. 12,700 992,188
Chevron Corp...................... 62,000 5,149,874
Exxon Corp........................ 235,500 16,794,093
Giant Industries, Inc............. 8,300 144,213
Houston Exploration Co. (The)+.... 28,300 649,131
Mobil Corp........................ 76,600 5,869,474
Occidental Petroleum Corp......... 33,100 893,700
Pennzoil Co....................... 5,000 253,125
Phillips Petroleum Co............. 26,900 1,296,244
Royal Dutch Petroleum Co.......... 194,900 10,682,955
Sun Company, Inc.................. 12,700 492,919
Texaco, Inc....................... 20,300 1,211,656
USX-Marathon Group................ 29,300 1,005,356
--------------
47,639,179
--------------
Oil Services (0.6%)
Baker Hughes, Inc................. 14,500 501,156
Cal Dive International, Inc. +.... 15,000 413,438
Coflexip SA....................... 14,200 867,975
</TABLE>
57
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Balanced (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Oil Services (continued)
Cooper Cameron Corp.+............. 14,400 $ 734,400
Friede Goldman International,
Inc.+........................... 16,600 479,325
Halliburton Co.................... 28,400 1,265,575
Helmerich & Payne, Inc............ 4,800 106,800
Input/Output, Inc.+............... 17,000 302,813
IRI International Corp.+.......... 38,700 416,025
McDermott International, Inc...... 5,400 185,963
Pool Energy Services Co........... 14,200 209,450
Rowan Co., Inc.+.................. 14,300 277,956
Schlumberger Ltd.................. 49,900 3,408,794
SEACOR SMIT Holdings+............. 11,400 698,963
Veritas DGC, Inc. +............... 10,900 544,319
Western Atlas, Inc.+.............. 3,900 331,013
--------------
10,743,965
--------------
Other Telecommunications (1.4%)
AirTouch Communications, Inc.+.... 49,500 2,892,656
Associated Group, Inc.+........... 13,700 561,700
Frontier Corp..................... 16,700 526,050
General Cable Corp................ 22,000 635,250
General Instrument Corp.+......... 14,600 396,938
ITC Deltacom, Inc.+............... 15,700 670,930
L-3 Communications Holdings,
Inc.+........................... 6,900 225,544
Lucent Technologies, Inc.......... 123,300 10,257,018
MediaOne Group, Inc.+............. 22,800 1,001,775
Northern Telecom Ltd.............. 19,800 1,123,650
Scientific Atlanta, Inc........... 8,100 205,538
SkyTel Communications, Inc.+...... 33,400 781,769
Tekelec+.......................... 39,400 1,763,150
Tellabs, Inc.+.................... 6,800 487,050
U S WEST, Inc..................... 65,676 3,086,762
Vimpel-Communications+............ 12,800 572,800
--------------
25,188,580
--------------
Print Media (0.4%)
Dun & Bradstreet Corp............. 7,200 260,100
Equifax, Inc...................... 6,000 217,875
Gannett Co., Inc.................. 25,700 1,826,306
Knight-Ridder, Inc................ 9,100 501,069
McGraw-Hill Co., Inc.............. 14,000 1,141,875
New York Times Co................. 13,500 1,069,875
Times Mirror Co................... 9,800 616,175
Tribune Co........................ 16,600 1,142,288
--------------
6,775,563
--------------
Producer Goods (2.5%)
Aeroquip-Vickers, Inc............. 3,700 215,988
AFC Cable Systems, Inc.+.......... 17,700 628,350
Allegheny Teledyne, Inc........... 18,600 425,475
Alpine Group, Inc. (The)+......... 26,700 554,025
Allied Signal, Inc................ 56,600 2,511,625
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Producer Goods (continued)
Applied Power, Inc................ 21,200 $ 728,750
Avery Dennison Corp............... 12,100 650,375
Avondale Industries, Inc.+........ 34,300 946,466
C & D Technologies, Inc........... 10,500 609,000
Cable Design Technologies+........ 11,000 226,875
Chart Industries, Inc............. 22,600 539,575
Citation Corp.+................... 16,700 334,000
Cooper Industries, Inc............ 11,300 620,794
Daisytek International Corp.+..... 38,000 966,625
Denison International Plc+........ 32,300 637,925
Dover Corp........................ 22,800 780,900
Dresser Industries, Inc........... 17,400 766,688
Ecolab, Inc....................... 13,400 415,400
Emerson Electric Co............... 44,800 2,704,800
Encore Wire Corp.+................ 15,100 243,488
FMC Corp.+........................ 3,900 265,931
General Signal Corp............... 5,800 208,800
Grainger (W. W.), Inc............. 10,200 508,088
Hexcel Corp.+..................... 27,400 619,925
Honeywell, Inc.................... 12,900 1,077,956
Hughes Supply, Inc................ 26,250 961,406
Illinois Tool Works, Inc.......... 24,400 1,627,175
Ingersoll-Rand Co................. 20,950 923,109
Intermet Corp..................... 68,000 1,232,500
ITT Industries, Inc............... 12,100 452,238
Kaydon Corp....................... 30,000 1,059,375
Kaynar Technologies, Inc.+........ 12,300 289,050
Kuhlman Corp...................... 7,600 300,675
Minnesota Mining and
Manufacturing Co................ 39,500 3,246,406
Monaco Coach Corp.+............... 19,600 573,300
Motivepower Industries, Inc.+..... 20,400 499,800
Mueller Industries, Inc.+......... 38,800 1,440,450
Parker-Hannifin Corp.............. 20,700 789,188
PPG Industries, Inc............... 17,500 1,217,344
Raychem Corp...................... 9,000 266,063
Shaw Group, Inc.+................. 22,100 574,600
Sherwin-Williams Co............... 18,800 622,750
Spartech Corp..................... 32,400 694,575
Superior Telecom.................. 13,000 541,125
Thermo Electron Corp. +........... 14,100 482,044
Thomas & Betts Corp............... 5,500 270,875
Thomas Industries, Inc............ 4,400 107,525
Timken Co......................... 10,800 332,775
Tokheim Corp.+.................... 25,100 514,550
Tower Automotive, Inc.+........... 20,000 857,500
Tredegar Industries, Inc.......... 9,200 780,850
Tyco International Ltd............ 73,800 4,649,400
United Dominion Industries Ltd.... 15,500 517,313
United Stationers, Inc.+.......... 10,100 653,975
</TABLE>
58 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Producer Goods (continued)
Varlen Corp....................... 16,200 $ 558,900
Westinghouse Air Brake Co......... 22,600 596,075
ZERO Corp......................... 17,300 490,888
--------------
46,311,623
--------------
Real Estate Investment Trusts (0.6%)
American General Hospitality Corp. 29,100 618,375
Apartment Investment &
Management Co................... 17,400 687,300
Brandywine Realty Trust........... 22,200 496,725
BRE Properties, Inc............... 13,000 338,813
CBL & Associates Properties, Inc.. 14,800 358,900
Developers Diversified
Realty Corp..................... 10,300 403,631
Duke Realty Investments, Inc...... 17,600 416,900
Eastgroup Properties, Inc......... 23,100 463,444
Equity Inns, Inc.................. 32,200 424,638
Essex Property Trust, Inc......... 14,200 440,200
General Growth Properties......... 12,800 478,400
Glenborough Realty Trust, Inc..... 18,700 493,213
Health Care REIT, Inc............. 13,100 334,050
Healthcare Realty Trust, Inc...... 18,400 501,400
Hospitality Properties Trust...... 15,600 501,150
Impac Mortgage Holdings, Inc...... 29,400 457,538
Indymac Mortgage Holdings, Inc.... 36,000 819,000
Koger Equity, Inc................. 15,800 318,963
Lasalle Partners, Inc.+........... 9,200 409,400
National Golf Properties, Inc..... 11,500 345,719
Parkway Properties, Inc........... 16,600 489,700
Prentiss Properties Trust......... 21,000 510,563
Security Capital Group, Inc.+..... 5,200 138,450
Sunstone Hotel Investors, Inc..... 33,300 443,306
U.S. Restaurant Properties, Inc... 18,200 492,538
--------------
11,382,316
--------------
Semiconductors and Electronics (0.6%)
C.P. Clare Corp.+................. 20,400 193,800
Cellstar Corp.+................... 21,800 282,038
CHS Electronics, Inc.+............ 22,200 396,825
CTS Corp.......................... 15,600 460,200
Esterline Technologies+........... 25,200 518,175
Flextronics International Ltd.+... 12,800 556,800
Inacom Corp.+..................... 29,800 946,150
Integrated Circuit Systems, Inc.+. 20,300 337,488
Intel Corp........................ 64,200 4,758,825
ITI Technologies, Inc.+........... 17,500 495,469
Level One Communications, Inc.+... 20,250 475,875
Phototronics, Inc.+............... 16,600 366,238
Power-One, Inc.+.................. 12,800 120,800
Sanmina Corp.+.................... 23,200 1,006,300
--------------
10,914,983
--------------
Specialty Chemicals (0.2%)
Air Products and Chemicals, Inc... 25,000 1,000,000
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
Specialty Chemicals (continued)
Dexter Corp....................... 17,900 $ 569,444
Engelhard Corp.................... 10,600 214,650
Grace (W.R.) & Co.+............... 7,200 122,850
Great Lakes Chemical Corp......... 5,600 220,850
Morton International, Inc......... 14,200 355,000
Praxair, Inc...................... 5,900 276,194
Sigma-Aldrich Corp................ 10,100 354,763
--------------
3,113,751
--------------
Steel (0.1%)
Bethlehem Steel Corp. +........... 18,100 225,119
Ispat International+.............. 12,100 226,875
Nucor Corp........................ 9,100 418,600
Reliance Steel & Aluminum Co...... 16,300 629,588
Texas Industries, Inc............. 10,400 551,200
USX-US Steel Group, Inc........... 14,100 465,300
--------------
2,516,682
--------------
Surface Transport (0.4%)
Burlington Northern Santa Fe Corp. 16,300 1,600,456
Consolidated Freightways Corp.+... 31,800 443,213
CSX Corp.......................... 8,200 373,100
FDX Corp. Holding Co.+............ 14,320 898,580
Knightsbridge Tankers Ltd......... 17,800 476,150
Norfolk Southern Corp............. 40,200 1,198,463
Royal Olympic Cruise Lines, Inc.+. 15,200 152,000
Swift Transportation Co., Inc.+... 27,450 543,853
U.S. Freightways Corp............. 20,100 660,159
Werner Enterprises, Inc........... 28,125 536,133
--------------
6,882,107
--------------
Textiles and Apparel (0.4%)
Brylane, Inc.+.................... 9,300 427,800
Dan River, Inc.+.................. 21,000 357,000
Gerber Childrenswear, Inc. +...... 23,800 367,413
Liz Claiborne, Inc................ 12,101 632,250
Maxwell Shoe Co., Inc.+........... 24,300 482,963
Nautica Enterprises, Inc.+........ 19,900 533,569
Novel Denim Holdings Ltd.+........ 21,900 569,400
Oshkosh B'Gosh, Inc............... 15,700 698,650
Venator Group, Inc.+.............. 18,500 353,813
VF Corp........................... 13,000 669,500
WestPoint Stevens, Inc.+.......... 28,000 924,000
Wolverine World Wide, Inc......... 27,300 592,069
--------------
6,608,427
--------------
Total Common Stocks (cost $832,300,537) 1,022,951,069
--------------
PREFERRED STOCKS (0.5%)
California Federal Preferred
Capital Corp. (Banks and
Thrifts) +...................... 188,000 5,134,749
Duke Energy Corp. (Electric
Utilities) ..................... 35,400 2,097,450
</TABLE>
59
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Balanced (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- --------------
<S> <C> <C>
PREFERRED STOCKS (continued)
FPL Group, Inc. (Electric
Utilities) ..................... 28,900 $ 1,820,700
Union Carbide Corp. (Chemicals) .. 12,300 656,513
--------------
Total Preferred Stocks (cost $8,774,383) 9,709,412
--------------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (24.6%)
U.S. Government Obligations (12.4%)
U.S. Treasury Bond, 6.75%,
08/15/26........................ $25,000,000 28,628,812
U.S. Treasury Bond, 7.25%,
08/15/04........................ 10,000,000 10,881,262
U.S. Treasury Bond, 7.25%,
05/15/16........................ 7,000,000 8,203,107
U.S. Treasury Note, 5.75%,
09/30/99........................ 20,000,000 20,056,324
U.S. Treasury Note, 5.75%,
10/31/00........................ 87,300,000 87,723,077
U.S. Treasury Note, 6.38%,
03/31/01........................ 59,000,000 60,262,968
U.S. Treasury Note, 6.50%,
10/15/06........................ 9,500,000 10,089,248
--------------
Total U.S. Government Obligations
(cost $217,691,403) 225,844,798
--------------
U.S. Government and Agency Obligations
(0.4%)
Federal Home Loan Mortgage Corp.,
6.00%, 11/15/08................. 8,200,000 8,101,312
--------------
Total U.S. Government and Agency Obligations
(cost $8,147,513) 8,101,312
--------------
Non-Agency Mortgage-Backed Securities
(1.5%)
American Southwest Financial
Securities Corp., 8.00%,
01/18/09........................ 7,724,000 8,346,745
Chase Mortgage Finance, 6.75%,
11/25/09........................ 1,358,460 1,359,735
DLJ Mortgage Acceptance Corp.,
8.10%, 06/18/04................. 4,650,000 4,637,649
Kidder Peabody Acceptance Corp.,
8.80%, 04/01/07................. 5,000,000 5,518,749
Merrill Lynch Mortgage Investors,
Inc., 7.71%, 06/15/21........... 7,060,661 7,249,312
--------------
Total Non-Agency Mortgage-Backed
Securities (cost $24,690,776) 27,112,190
--------------
Foreign and Supranationals (1.3%)
African Development Bank, 8.80%,
09/01/19........................ 7,000,000 9,092,789
Argent-Global Bond (Republic of
Argentina), 11.38%, 01/30/17.... 5,000,000 5,318,749
Transport De Gas Del Sur, 7.75%,
12/23/98........................ 4,600,000 4,607,405
United Mexican States Government,
11.38%, 09/15/16................ 4,600,000 5,129,000
--------------
Total Foreign and Supranationals
(cost $21,319,457) 24,147,943
--------------
<CAPTION>
Principal Market
Amount Value
--------- --------------
<S> <C> <C>
Corporate Bonds (9.0%)
American General Finance, 8.45%,
10/15/09........................ $ 7,000,000 $ 8,156,679
BCH Cayman Islands Ltd., 7.70%,
07/15/06........................ 13,100,000 14,071,299
Centennial Cellular Corp.,
10.13%, 05/15/05................ 5,550,000 6,243,749
Comcast Cellular, 9.50%, 05/01/07. 10,000,000 10,374,999
Exide Corp., 10.00%, 04/15/05++... 7,595,000 7,908,293
First Empire Capital Trust II,
8.28%, 06/01/27................. 7,000,000 7,728,314
Fred Meyer, Inc., 7.38%, 03/01/05. 9,300,000 9,322,784
Globo Communicacoes Prt 10 5/8
12/8, 10.63%, 12/05/08++........ 4,900,000 4,336,500
HSBC America, 7.81%, 12/15/26++... 12,250,000 12,749,309
Kaman Corp., 6.00%, 03/15/12...... 5,646,000 5,702,459
Panama (Republic of), 7.88%,
02/13/02++...................... 6,200,000 6,091,499
Pitney Bowes Credit Corp., 8.55%,
09/15/09........................ 13,100,000 15,592,274
Raytheon Co., 6.75%, 08/15/07..... 10,000,000 10,271,699
Riggs Capital Trust, 8.62%,
12/31/26++...................... 3,700,000 4,075,809
Rogers Cantel, Inc., 9.38%,
06/01/08........................ 6,100,000 6,366,874
Russia-Interest Notes, 6.63%,
12/15/15........................ 9,987,936 5,555,788
TCI Communications, Inc., 6.38%,
09/15/99........................ 18,000,000 18,088,019
Tenet Healthcare Corp., 7.88%,
01/15/03........................ 4,900,000 5,030,830
Tenet Healthcare Corp., 8.00%,
01/15/05........................ 2,800,000 2,884,000
Worldcom, Inc., 8.88%, 01/15/06... 3,431,000 3,735,707
-----------
Total Corporate Bonds (cost $156,495,600) 164,286,884
-----------
Total Long-Term Bonds and Notes (cost
$428,344,749) 449,493,127
-----------
SHORT-TERM INVESTMENTS (18.7%)
Dakota Certificate-Standard
Credit Card Master Trust-1,
Comm. Paper, 5.85%, 07/07/98++.. 90,000,000 89,912,250
Enron Corp., Comm. Paper, 7.00%,
07/01/98........................ 32,197,000 32,197,000
General Electric Capital Corp.,
Commercial Paper - Domestic,
6.50%, 07/01/98................. 31,560,000 31,560,000
Houston Industries Fin., Comm.
Paper, 5.71%, 07/01/98++........ 23,000,000 23,000,000
Houston Industries Fin., Comm.
Paper, 5.75%, 07/10/98++........ 11,750,000 11,733,109
Occidental Petroleum, Comm.
Paper, 5.77%, 07/09/98++........ 10,000,000 9,987,178
Occidental Petroleum, Comm.
Paper, 5.84%, 07/13/98++........ 31,500,000 31,438,733
PS Co. of Colorado, Comm. Paper,
7.00%, 07/01/98................. 9,000,000 9,000,000
Raytheon Co., Comm. Paper, 5.80%,
07/07/98++...................... 20,000,000 19,980,667
Raytheon Co., Comm. Paper, 5.86%,
08/31/98++...................... 40,000,000 40,016,800
</TABLE>
60 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------- --------------
<S> <C>
SHORT-TERM INVESTMENTS (continued)
Sprint Capital Corp., Comm.
Paper, 7.00%, 07/01/98++......... $43,165,000 $ 43,165,000
--------------
Total Short-Term Investments (cost
$341,973,938) 341,990,737
--------------
TOTAL INVESTMENTS (cost $1,611,393,607)(a) 1,824,144,345
Other assets less liabilities 4,513,493
--------------
Total Net Assets $1,828,657,838
==============
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$1,611,270,238. Unrealized gains and losses, based on identified tax cost at
June 30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains ................. $ 227,282,881
Unrealized losses ................ (14,408,774)
--------------
Net unrealized gain ............ $ 212,874,107
==============
</TABLE>
+ Non-income producing security.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
Category percentages are based on net assets.
See Notes to Financial Statements. 61
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Growth and Income
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
COMMON STOCKS (94.7%)
United States (89.4%)
Air Transport (2.5%)
Airborne Freight Corp................ 445,100 $ 15,550,681
America West Holdings Corp. +........ 742,900 21,219,081
AMR Corp. +.......................... 1,450,600 120,762,450
Delta Air Lines, Inc................. 658,300 85,085,275
UAL Corp. +.......................... 135,400 10,561,200
------------
253,178,687
------------
Auto Parts and Hardware (1.4%)
Black & Decker Corp.................. 1,831,000 111,691,000
Echlin, Inc.......................... 699,100 34,299,594
------------
145,990,594
------------
Automotive (4.2%)
Chrysler Corp........................ 2,566,300 144,675,163
Daimler Benz......................... 5,280 513,810
Dana Corp. .......................... 530,200 28,365,700
Dura Automotive Systems, Inc. +...... 63,900 2,052,788
Ford Motor Co........................ 2,620,200 154,591,800
General Motors Co.................... 469,200 31,348,425
Johnson Controls, Inc. .............. 1,104,200 63,146,437
------------
424,694,123
------------
Banks and Thrifts (7.3%)
AmSouth Bancorporation............... 261,100 10,264,494
Bank United Corp..................... 46,500 2,226,188
BankAmerica Corp..................... 1,227,800 106,127,963
Chase Manhattan Corp. ............... 2,11,400 159,410,700
Comerica, Inc........................ 1,067,700 70,735,125
Commerce Bancshares, Inc............. 178,500 8,713,031
Dime Bancorp, Inc.................... 473,700 14,181,394
Downey Financial Corp. .............. 46,515 1,520,459
Fifth Third Bancorp.................. 677,500 42,682,500
First Chicago NBD Corp............... 45,400 4,023,575
FirstFed Financial Corp. +........... 195,100 10,145,200
First Union Corp..................... 137,700 7,980,658
Golden West Financial Corp........... 751,900 79,936,367
Life Financial Corp. +............... 27,900 509,175
Meridian Industrial Trust, Inc....... 16,501 380,030
Nationsbank Corp..................... 989,800 75,719,700
Prime Bancshares, Inc................ 25,000 634,375
Republic New York Corp............... 1,272,600 80,094,263
Security Capital Group, Inc.,
Warrants+.......................... 11,789 4,052
State Street Corp.................... 264,400 18,375,800
Suntrust Banks, Inc.................. 237,200 19,287,325
Webster Financial Corp............... 101,000 3,358,250
Wells Fargo & Co..................... 80,000 29,520,000
------------
745,830,624
------------
Biotech and Medical Products (2.9%)
ADAC Laboratories.................... 360,700 8,115,750
Alpharma, Inc........................ 184,017 4,048,374
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Biotech and Medical Products (continued)
Amgen, Inc. +........................ 1,440,600 $ 94,179,225
Arterial Vascular Engineering, Inc. + 632,800 22,622,600
ATL Ultrasound, Inc. +............... 135,700 6,191,313
Bio-Rad Labs, Inc. +................. 54,600 1,672,125
ConMed Corp. +....................... 109,900 2,527,700
Datascope Corp. +.................... 429,900 11,419,219
Guidant Corp. ....................... 426,200 30,393,388
Hanger Orthopedic Group, Inc. +...... 168,600 3,435,225
Hillenbrand Industries, Inc.......... 154,100 9,246,000
Maxxim Medical, Inc. +............... 240,600 6,977,400
Ocular Sciences, Inc. +.............. 135,200 4,394,000
OEC Medical Systems, Inc.+........... 147,100 3,309,750
Osteotech, Inc. +.................... 143,000 2,538,250
Quintiles Transnational Corp. +...... 291,100 14,318,481
ResMed, Inc. +....................... 31,000 1,412,435
Safeskin Corp. +..................... 746,500 30,699,813
Thermo Bioanalysis Corp. +........... 162,700 2,948,938
Trex Medical Corp. +................. 326,200 5,382,300
Visx, Inc. +......................... 503,300 29,946,350
Watson Pharmaceuticals, Inc. +....... 21,000 980,438
West Company, Inc. (The)............. 8,200 232,163
------------
296,991,237
------------
Chemicals (0.2%)
Dow Chemical Co. .................... 228,800 22,122,100
------------
Commercial Services (1.6%)
AccuStaff, Inc. +.................... 636,500 19,890,625
Anicom, Inc. +....................... 80,000 1,190,000
Banta Corp. ......................... 20,500 632,938
Boron Lepore & Associates, Inc. +.... 111,200 4,225,600
Bowne & Co., Inc..................... 269,200 12,114,000
Catalina Marketing Corp. +........... 27,300 1,417,894
Consolidation Capital Corp. +........ 116,700 2,623,927
Cyrk, Inc. +......................... 54,700 601,700
Day Runner, Inc. +................... 255,600 6,437,925
Deluxe Corp.......................... 1,399,500 50,119,592
Dycom Industries, Inc. +............. 49,300 1,663,875
Engineering Animation, Inc........... 135,150 8,244,150
Galileo International, Inc........... 561,400 25,298,088
Laidlaw Environmental Services, Inc.
+.................................. 250,700 908,788
SPS Transaction Services, Inc. ...... 96,400 3,024,550
URS Corp. +.......................... 21,200 360,400
Valassis Communications, Inc. +...... 559,300 21,568,006
World Color Press, Inc. +............ 115,900 4,056,500
------------
164,378,558
------------
Computers (1.4%)
Ceridian Corp. +..................... 487,100 28,617,125
Micron Electronics, Inc.............. 100,000 1,206,250
SPR, Inc. +.......................... 48,600 1,512,675
Sun Microsystems, Inc. +............. 2,642,600 114,787,938
------------
146,123,988
------------
</TABLE>
62 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
United States (continued)
<S> <C> <C>
Conglomerate and Aerospace (2.5%)
Aviall, Inc. +....................... 93,400 $ 1,278,413
Cordant Technologies, Inc. .......... 332,200 15,322,725
General Dynamics Corp................ 1,307,200 60,784,800
Goodrich (B.F.) Co................... 827,280 41,053,770
Gulfstream Aerospace Corp. +......... 298,600 13,884,900
Kellstrom Industries, Inc. +......... 537,800 15,579,393
Loews Corp........................... 386,800 33,699,950
Sundstrand Corp. .................... 16,201 927,508
United Technologies Corp............. 835,500 77,283,750
-----------
259,815,209
-----------
Consumer Finance (1.3%)
Associates First Capital Corp........ 591,807 45,495,163
Avis Rent A Car, Inc. +.............. 506,600 12,538,350
CIT Group, Inc. (The) ............... 110,400 4,140,000
ContiFinancial Corp+................. 87,000 2,011,875
Countrywide Credit Industries, Inc... 1,266,200 64,259,650
Crescent Operating, Inc. +........... 46,200 785,400
Leasing Solutions, Inc. +............ 66,800 1,920,500
Resource America, Inc................ 50,000 1,481,250
-----------
132,632,188
-----------
Consumer Products (1.0%)
American Greetings Corp.............. 815,200 41,524,250
Blyth Industries, Inc. +............. 344,800 11,464,600
Dial Corp............................ 124,800 3,237,000
M & F Worldwide Corp. +.............. 222,500 2,211,094
National R.V. Holdings, Inc. +....... 250,300 11,294,788
Suiza Foods Corp..................... 441,700 26,363,969
Twinlab Corp. +...................... 136,600 5,967,712
-----------
102,063,413
-----------
Consumer Services (2.5%)
Anchor Gaming+....................... 140,900 10,937,363
Applebees International, Inc. +...... 835,000 18,683,125
Brinker International, Inc. +........ 577,100 11,109,175
Championship Auto Racing Team, Inc. + 41,700 761,025
Darden Restaurants, Inc.............. 2,628,700 41,730,611
Foodmaker, Inc. +.................... 246,500 4,159,688
Grand Casinos, Inc. +................ 1,165,700 19,525,475
Harvey's Casino Resorts.............. 70,300 1,906,888
Host Marriott Corp. +................ 24,800 441,750
Marriott International, Inc. ........ 965,100 31,245,113
Promus Hotel Corp. +................. 347,720 13,387,220
RFS Hotel Investors, Inc. ........... 105,500 2,004,500
Service Corp. International.......... 1,510,800 64,775,550
Servico, Inc. +...................... 69,700 1,045,500
Showbiz Pizza Time, Inc. +........... 92,400 3,724,875
Sonic Corp. +........................ 280,950 6,286,256
Tricon Global Restaurants, Inc....... 618,900 19,611,394
-----------
251,335,508
-----------
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Consumer Specialties (0.4%)
Brunswick Corp....................... 1,409,600 $34,887,600
Hasbro, Inc.......................... 92,000 3,616,750
Russ Berrie & Co., Inc............... 214,200 5,355,000
-----------
43,859,350
-----------
Data and Imaging Services (3.6%)
3Dfx Interactive, Inc. +............. 69,900 1,197,038
Applied Graphics Technologies, Inc. . 17,640 807,030
Aspen Technology, Inc. +............. 52,900 2,671,450
AutoDesk, Inc. ...................... 375,800 14,515,275
Avant! Corp. +....................... 65,000 1,608,750
AXENT Technologies, Inc. +........... 65,000 1,990,625
BMC Software, Inc. +................. 365,200 18,967,575
Cadence Design Systems, Inc. +....... 460,700 14,396,875
Citrix Systems, Inc. +............... 312,750 21,384,281
Computer Horizons Corp. +............ 11,300 418,806
Compuware Corp. +.................... 335,200 17,137,100
Digi International, Inc. +........... 69,900 1,415,475
Edify Corp. +........................ 27,800 281,475
FactSet Research Systems, Inc........ 77,700 2,525,250
FORE Systems, Inc. +................. 100,000 2,650,000
Geotel Communications Corp. +........ 41,600 1,695,200
Information Management Resources,
Inc. +............................. 141,300 4,777,706
JDA Software Group, Inc. +........... 153,000 6,693,750
Keane, Inc. +........................ 333,700 18,687,200
Microsoft Corp. +.................... 1,011,600 109,632,150
Mindspring Enterprises, Inc. +....... 24,500 2,520,438
Oracle Corp. +....................... 1,100,700 27,035,944
Pinnacle Systems, Inc. +............. 48,600 1,573,425
Progress Software Corp. +............ 219,300 8,991,300
Project Software & Development,
Inc.+.............................. 61,300 1,229,831
QLogic Corp. +....................... 204,400 7,294,525
Quantum Corp. +...................... 136,200 2,826,150
Siebel Systems, Inc. +............... 532,300 17,166,675
Software AG Systems, Inc. +.......... 290,800 8,505,900
Sterling Software, Inc. + ........... 154,200 4,558,538
Symantec Corp. +..................... 620,600 16,213,175
Viasoft, Inc. +...................... 214,100 3,465,743
Visio Corp. +........................ 400,600 19,128,650
-----------
363,963,305
-----------
Discretionary Retail (5.9%)
American Eagle Outfitters, Inc. +.... 491,400 18,949,613
Ames Department Stores, Inc. +....... 238,500 6,275,531
Barnes & Noble, Inc. +............... 96,600 3,616,463
Best Buy Co., Inc. +................. 55,300 1,997,713
Cato Corp. (The) .................... 494,400 8,605,650
CompUSA, Inc. +...................... 91,100 1,645,494
Computer Center...................... 202,200 2,540,401
Costco Companies, Inc. +............. 562,300 35,460,044
CSK Auto Corp. +..................... 79,800 2,014,950
Dayton Hudson Corp................... 1,097,000 53,204,500
Dress Barn, Inc. +................... 216,300 5,380,463
</TABLE>
63
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Growth and Income (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Discretionary Retail (continued)
Eagle Hardware & Garden, Inc. +...... 63,600 $ 1,470,750
Fabri-Centers of America+............ 10,600 290,175
Federated Department Stores, Inc. +.. 1,660,900 89,377,181
Fingerhut Companies, Inc............. 761,300 25,122,900
Footstar, Inc. +..................... 557,800 26,774,400
Goody's Family Clothing, Inc. +...... 66,300 3,638,213
Kmart Corp. +........................ 196,100 3,774,925
Linens 'n Things, Inc. +............. 74,400 2,273,850
Lowe's Co., Inc...................... 2,516,800 102,087,700
Maxim Group, Inc. (The) +............ 22,000 437,250
Micro Warehouse, Inc. +.............. 479,000 7,435,350
Musicland Stores Corp. +............. 341,900 4,786,600
Office Depot, Inc. +................. 353,900 11,169,969
Payless ShoeSource, Inc. +........... 98,992 7,294,473
Renters Choice, Inc. +............... 232,900 6,608,538
Ross Stores, Inc..................... 467,100 20,085,300
TJX Companies, Inc................... 6,253,400 150,863,275
Trans World Entertainment+........... 25,000 1,078,125
Zale Corp. +......................... 68,600 2,182,335
------------
606,442,131
------------
Diversified Financial Services (2.3%)
Morgan Stanley, Dean Witter,
Discover & Co...................... 1,434,100 131,040,888
Travelers Group, Inc................. 1,639,324 99,384,017
------------
230,424,905
------------
Drugs (4.9%)
Abbott Laboratories.................. 2,905,100 118,745,963
Eli Lilly & Co....................... 1,539,100 101,676,794
Johnson & Johnson.................... 1,830,700 135,014,125
Medicis Pharmaceutical Corp. +....... 113,300 4,135,450
Merck & Co., Inc..................... 770,100 103,000,875
Rexall Sundown, Inc. +............... 307,700 10,846,425
Roberts Pharmaceutical Corp. +....... 941,300 21,649,900
Theragenics Corp. +.................. 321,400 8,376,488
------------
503,446,020
------------
Electric Utilities (0.0%)
EDP-Electricidade de Portugal, S.A. . 62,000 2,855,875
------------
Electrical Machinery and Instruments (1.9%)
Harris Corp.......................... 38,600 1,724,938
Technitrol, Inc...................... 56,600 2,260,463
Tektronix, Inc....................... 1,384,650 48,981,994
Waters Corp. +....................... 100,000 5,893,750
Xerox Corp........................... 1,298,200 131,929,575
------------
190,790,720
------------
Electronic Media (1.7%)
Cablevision Systems Corp. +.......... 478,200 39,929,700
Capstar Broadcasting Corp. +......... 195,500 4,911,938
CBS Corp............................. 146,200 4,641,850
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Electronic Media (continued)
Gaylord Entertainment Co............. 181,700 $ 5,859,825
Hollywood Park, Inc. +............... 25,000 315,625
Jones Intercable, Inc. +............. 101,300 2,532,500
Speedway Motorsports, Inc. +......... 238,000 6,083,875
Tele-Comm Liberty Media Group........ 366,300 14,217,019
Univision Communications, Inc. +..... 90,900 3,386,025
Viacom, Inc. +....................... 1,539,200 89,658,400
------------
171,536,757
------------
Food and Beverage (1.6%)
Canandaigua Brands, Inc. +........... 239,200 11,765,650
NBTY, Inc. +......................... 450,300 8,274,263
PepsiCo, Inc. ....................... 3,433,100 141,400,806
Ralcorp Holdings, Inc. +............. 78,500 1,481,688
------------
162,922,407
------------
Food and Drug Retail (2.3%)
Casey's General Stores, Inc.......... 90,000 1,490,625
CVS Corp............................. 2,516,100 97,970,644
Duane Reade, Inc. +.................. 27,300 819,000
Fleming Companies, Inc............... 987,500 17,342,969
Kroger Co. (The) +................... 2,737,200 117,357,450
------------
234,980,688
------------
Forest Products and Building Materials (2.5%)
Ball Corp............................ 491,100 19,736,081
Centex Construction Products, Inc.... 290,700 11,191,950
Crown Cork & Seal Co., Inc. ......... 395,700 18,795,750
Delta & Pine Land Co. ............... 68,400 3,043,800
Florida Rock Industries, Inc......... 76,900 2,244,519
Georgia-Pacific Corp................. 1,176,100 57,750,294
Lafarge Corp......................... 281,700 11,074,331
Lone Star Industries, Inc............ 117,600 9,062,550
Masco Corp........................... 1,471,600 89,031,800
Mead Corp. .......................... 507,800 16,122,650
Owens Corning........................ 142,601 5,819,870
Southdown, Inc....................... 200,400 14,303,550
------------
258,177,145
------------
Gas Utilities (1.3%)
Coastal Corp. (The) ................. 410,500 28,658,031
Columbia Gas System, Inc............. 1,191,600 66,282,750
Energen Corp......................... 159,200 3,203,900
Enron Corp........................... 3,783,000 7,974,938
Questar Corp. ....................... 82,400 1,617,100
Sempra Energy+....................... 735,208 20,402,017
Southwestern Energy Co............... 255,500 2,347,406
------------
130,486,142
------------
Health Services (1.0%)
Beverly Enterprises, Inc. +.......... 916,300 12,656,394
Bindley Western Industries, Inc. .... 68,533 2,261,589
Cerner Corp. +....................... 431,800 12,225,338
Integrated Health Services, Inc. +... 909,600 34,110,000
</TABLE>
64 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Health Services (continued)
NovaCare, Inc........................ 752,100 $ 8,837,175
Pacificare Health Systems, Inc. +.... 114,300 10,101,263
Pediatrix Medical Group, Inc. ....... 98,000 3,644,375
Trigon Healthcare, Inc. +............ 629,200 22,769,175
------------
106,605,309
------------
Heavy Machinery (1.4%)
Case Corp............................ 486,300 23,463,975
Catepillar, Inc. .................... 700,400 37,033,650
Deere & Co. ......................... 185,700 9,818,888
Gardner Denver Machinery, Inc. +..... 71,900 1,986,238
NACCO Industries, Inc................ 91,200 11,787,600
Navistar International Corp. +....... 1,895,500 54,732,563
PACCAR, Inc.......................... 162,300 8,480,175
------------
147,303,089
------------
Housing and Furnishings (2.0%)
Centex Corp.......................... 2,149,600 81,147,400
Department 56, Inc................... 273,900 9,723,450
Fleetwood Enterprises, Inc........... 697,200 27,888,000
Kaufman & Broad Home Corp............ 710,900 22,571,075
Lennar Corp.......................... 156,100 4,604,950
MDC Holdings, Inc. .................. 100,100 1,976,975
Pulte Corp........................... 966,000 28,859,250
Recoton Corp......................... 108,700 3,641,450
Ryland Group, Inc.................... 187,400 4,919,250
Standard Pacific Corp................ 786,000 16,211,250
------------
201,543,050
------------
Industrial Services (0.2%)
American Buildings Co. +............. 53,300 1,585,675
Fluor Corp. ......................... 282,900 14,427,900
Walter Industries, Inc. +............ 177,800 3,367,088
------------
19,380,663
------------
Insurance (4.2%)
Allstate Corp. (The)................. 1,661,700 152,149,406
CIGNA Corp. ......................... 68,100 4,698,900
Conseco, Inc......................... 1,758,487 82,209,267
Equitable Co., Inc. (The)............ 237,000 17,760,188
ESG Re Ltd........................... 57,700 1,247,763
Everest Re Holdings, Inc............. 32,100 1,233,844
First American Financial Corp........ 76,550 7,159,500
Hartford Life, Inc................... 130,600 7,436,038
LandAmerica Financial Group, Inc..... 190,600 10,911,850
Lasalle Re Holdings Ltd.............. 45,500 1,723,313
MGIC Investment Corp................. 806,200 46,003,788
Mutual Risk Management Ltd........... 210,932 7,685,835
Nationwide Financial Services, Inc... 67,200 3,427,200
Old Republic International Corp...... 494,442 14,493,331
Stewart Information Services Corp.... 35,600 1,728,825
SunAmerica, Inc...................... 882,650 50,697,209
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Insurance (continued)
Torchmark Corp....................... 405,900 $ 18,569,925
------------
429,136,182
------------
Investment Services (2.7%)
Bear Stearns Co., Inc. (The)......... 307,496 17,488,835
Donaldson, Lufkin & Jenrette, Inc.... 247,500 12,576,094
Investors Financial Services Corp.... 80,000 4,240,000
Lehman Brothers Holdings, Inc........ 1,636,900 126,962,056
Merrill Lynch & Co., Inc. ........... 832,600 76,807,350
Providian Financial Corp............. 460,600 36,185,888
------------
274,260,223
------------
Major Telecommunications (3.8%)
AT&T Corp............................ 436,000 24,906,500
BellSouth Corp....................... 2,302,600 154,562,025
MCI Communications Corp.............. 1,569,400 91,221,375
Sprint Corp. ........................ 1,674,400 118,045,200
------------
388,735,100
------------
Oil (1.9%)
Ashland Oil, Inc..................... 1,219,200 62,941,200
Belco Oil & Gas Corp. +.............. 25,000 215,625
Comstock Resources, Inc. +........... 758,300 5,639,856
Mobil Corp........................... 211,500 16,206,188
Penn Virginia Corp. ................. 9,400 243,225
Phillips Petroleum Co................ 672,100 32,386,819
Shell Transport & Trading Co. ....... 575,800 4,054,248
Sun Company, Inc..................... 1,823,000 70,770,713
Tesoro Petroleum Corp. +............. 3,000 47,625
------------
192,505,499
------------
Oil Services (1.0%)
BJ Services Co. +.................... 91,400 2,656,313
Cal Dive International, Inc. +....... 50,000 1,378,125
Helmerich & Payne, Inc............... 1,806,600 40,196,850
McDermott International, Inc......... 80,000 2,755,000
Pool Energy Services Co. ............ 126,700 1,868,825
Santa Fe International Corp.......... 137,800 4,168,450
SEACOR SMIT Holdings+................ 346,200 21,226,388
Seitel, Inc. +....................... 514,300 8,325,231
Trico Marine Services, Inc. +........ 574,100 7,857,994
Veritas DGC, Inc. +.................. 241,000 12,034,938
------------
102,468,114
------------
Other Telecommunications (1.7%)
360 Communications Co. +............. 76,501 2,448,052
ADC Telecommunications, Inc. +....... 202,300 7,390,272
Aerial Communications, Inc. +........ 213,900 1,336,875
Alltel Corp.......................... 476,200 22,143,300
Century Telephone Enterprises, Inc... 437,750 20,081,781
Excel Switching Corp................. 37,500 932,813
L-3 Communications Holdings, Inc. +.. 34,300 1,121,181
Southern New England
Telecommunications Corp............ 182,100 11,927,550
</TABLE>
65
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Growth and Income (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Other Telecommunications (continued)
Teligent, Inc. +..................... 91,400 $ 2,690,588
U S WEST, Inc. ...................... 2,270,900 106,732,300
------------
176,804,712
------------
Print Media (2.1%)
Central Newspaper, Inc. ............. 25,000 1,743,750
Knight-Ridder, Inc................... 1,284,300 70,716,769
McClatchy Newspapers, Inc............ 217,900 7,544,788
Media General, Inc................... 116,600 5,684,250
New York Times Co. .................. 1,304,900 103,413,325
Tribune Co........................... 434,600 29,905,913
------------
219,008,795
------------
Producer Goods (3.2%)
Aeroquip-Vickers, Inc................ 661,300 38,603,388
C & D Technologies, Inc.............. 77,900 4,518,200
Chart Industries, Inc. .............. 68,200 1,628,275
Cincinnati Milacron, Inc............. 527,500 12,824,844
Commercial Intertech Corp............ 64,800 1,174,500
Gleason Corp......................... 87,200 2,452,500
Graco, Inc........................... 486,900 16,980,638
Honeywell, Inc....................... 123,400 10,311,613
Ingersoll-Rand Co.................... 1,505,700 66,344,906
ITT Industries, Inc.................. 628,300 23,482,713
Kaydon Corp.......................... 239,100 8,443,219
Parker-Hannifin Corp................. 754,200 28,753,875
RMI Titanium Co. +................... 335,200 7,625,800
SLI, Inc. +.......................... 100,800 2,633,400
Special Metals Corp. +............... 76,700 1,073,800
Thermo Electron Corp. +.............. 221,000 7,555,438
Thomas & Betts Corp.................. 663,100 32,657,675
Timken Co............................ 1,355,200 41,757,100
Trinity Industries, Inc. ............ 12,200 506,300
Tyco International Ltd............... 126,878 7,993,314
U.S. Filter Corp. +.................. 76,500 2,146,781
Varlen Corp.......................... 139,950 4,828,275
------------
324,296,554
------------
Real Estate Investment Trusts (4.4%)
Alexandria Real Estate Equities, Inc. 19,300 577,794
AMB Property Corp.................... 30,400 744,800
American General Hospitality Corp.... 124,200 2,639,250
American Health Properties, Inc...... 91,600 2,290,000
American Residential Investment
Trust, Inc......................... 31,900 309,031
Apartment Investment & Management Co. 237,900 9,397,050
Arden Realty Corp.................... 165,900 4,292,663
Avalon Bay Communities............... 200,692 7,626,296
Beacon Capital+++..................... 267,600 5,485,800
Bedford Property Investors, Inc...... 56,700 1,034,775
Berkshire Realty Co., Inc............ 108,900 1,272,769
Boston Properties, Inc............... 115,800 3,995,100
Boykin Lodging Co.................... 77,700 1,685,119
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Real Estate Investment Trusts (continued)
Bradley Real Estate, Inc. ........... 43,700 $ 923,163
Brandywine Realty Trust.............. 151,300 3,385,338
BRE Properties, Inc. ................ 84,400 2,199,675
Burnham Pacific Properties, Inc...... 41,400 587,363
Cabot Industrial Trust............... 73,200 1,564,650
Camden Property Trust................ 220,099 6,547,945
Capstone Capital Trust, Inc.......... 157,400 3,620,200
Captec Net Lease Realty, Inc......... 154,000 2,348,500
Carramerica Realty Corp.............. 208,400 5,913,350
CBL & Associates Properties, Inc..... 224,600 5,446,550
CCA Prison Realty Trust.............. 183,700 5,625,813
Chateau Communities, Inc. ........... 92,600 2,662,250
Chelsea GCA Realty, Inc. ............ 61,400 2,456,000
Colonial Properties Trust............ 516,100 15,999,100
Commercial Net Lease Realty.......... 203,100 3,287,681
Cornerstone Properties, Inc.......... 251,800 4,437,975
Cousins Properties, Inc.............. 92,000 2,748,500
Crescent Real Estate Equities, Inc... 512,700 17,239,538
Criimi Mae, Inc...................... 222,600 3,088,575
Crown America Realty Trust........... 228,300 2,211,656
Developers Diversified Realty Corp. . 56,400 2,210,175
Duke Realty Investments, Inc......... 608,800 14,420,950
Eastgroup Properties, Inc............ 74,450 1,493,653
Equity Inns, Inc..................... 66,700 879,606
Equity Office Properties Trust....... 820,566 23,283,525
Equity One, Inc. .................... 69,300 710,325
Equity Residential Properties Trust.. 321,450 15,248,784
Essex Property Trust, Inc............ 119,100 3,692,100
Felcor Suite Hotels, Inc. ........... 196,800 6,174,600
First Industrial Realty Trust, Inc. . 120,000 3,810,000
Franchise Finance Corp. of America... 122,100 3,166,969
Gables Residential Trust............. 68,600 1,860,775
General Growth Properties............ 181,200 6,772,350
Glenborough Realty Trust, Inc........ 146,100 3,853,388
Glimcher Realty Trust................ 81,400 1,582,213
Health and Retirement Property Trust. 262,600 4,940,163
Health Care REIT, Inc................ 135,500 3,455,250
Healthcare Realty Trust, Inc......... 95,300 2,596,925
Highwood Properties, Inc. ........... 186,800 6,035,975
Home Properties of New York, Inc..... 58,900 1,571,894
Horizon Group Properties, Inc. +..... 2,345 15,462
Hospitality Properties Trust......... 108,200 3,475,925
Imperial Credit Commercial Mortgage
Investment Corp.................... 40,600 530,338
Innkeepers USA Trust................. 135,900 1,715,738
JDN Realty Corp...................... 62,400 1,989,000
Kilroy Realty Corp................... 113,000 2,825,000
Kimco Realty Corp.................... 577,400 23,673,400
Koger Equity, Inc. .................. 150,000 3,028,125
Lexington Corporate Properties Trust. 67,200 982,800
Liberty Property Trust............... 177,500 4,537,344
</TABLE>
66 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United States (continued)
Real Estate Investment Trusts (continued)
LTC Properties, Inc.................. 56,900 $1,059,763
Mack-Cali Realty Corp................ 145,300 4,994,688
Manufactured Home Communities, Inc. . 109,400 2,639,275
Meditrust Companies.................. 253,400 7,079,363
Merry Land & Investment Co., Inc..... 143,900 3,030,894
MGI Properties, Inc.................. 75,500 1,977,156
Mid-America Apartment Communities,
Inc. .............................. 50,300 1,323,519
National Golf Properties, Inc. ...... 230,100 6,917,381
National Health Investors, Inc....... 44,500 1,479,625
OMEGA Healthcare Investors, Inc...... 164,600 5,781,575
Parkway Properties, Inc.............. 121,001 3,569,514
Post Properties, Inc................. 63,300 2,437,050
Prentiss Properties Trust............ 237,600 5,776,650
Prime Retail, Inc.................... 46,900 559,869
PS Business Parks, Inc. ............. 51,800 1,217,300
Public Storage, Inc.................. 295,600 8,276,800
Ramco-Gerhenson Properties Trust..... 18,075 343,425
Reckson Associates Realty Corp. +.... 163,300 3,857,963
Reckson Service Industries, Inc. .... 13,064 43,275
Regency Realty Corp.................. 118,600 2,979,825
Security Capital Industrial Trust.... 223,725 5,593,125
Shurgard Storage Centers, Inc. ...... 98,400 2,730,600
Simon Debartolo Group, Inc........... 267,244 8,685,430
SL Green Realty Corp................. 84,200 1,894,500
Spieker Properties, Inc.............. 256,300 9,931,625
Starwood Financial Trust+............ 2,450 137,200
Starwood Lodging Trust............... 515,900 24,924,419
Sun Communities, Inc................. 73,300 2,428,063
Sunstone Hotel Investors, Inc........ 145,400 1,935,638
Tanger Factory Outlet Centers, Inc... 105,500 3,343,031
Tower Realty Trust, Inc.............. 33,600 751,800
TriNet Corporate Realty Trust, Inc. . 125,100 4,253,400
United Dominion Realty Trust, Inc.... 392,608 5,447,436
Universal Health Realty Income Trust. 80,700 1,614,000
Urban Shopping Centers, Inc.......... 150,000 4,725,000
Vornado Realty Trust................. 301,400 11,961,813
Walden Residential Properties, Inc... 249,600 6,115,200
Weeks Corp........................... 52,300 1,653,988
Weingarten Realty Investors.......... 51,000 2,132,438
-----------
449,780,637
-----------
Semiconductors and Electronics (0.5%)
Analog Devices, Inc. +............... 100,000 2,456,250
Avid Technologies, Inc. +............ 476,900 15,976,150
Berg Electronics Corp. +............. 200,000 3,912,500
Cymer, Inc. +........................ 70,000 1,128,750
Maxim Integrated Products, Inc. +.... 426,500 13,514,719
PMC-Sierra, Inc. +................... 100,000 4,687,500
Solectron Corp. +.................... 45,300 1,905,431
Special Devices, Incorporated........ 25,400 898,525
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Semiconductors and Electronics (continued)
Vitesse Semiconductor Corp. +........ 347,400 $ 10,725,975
--------------
55,205,800
--------------
Specialty Chemicals (0.3%)
International Specialty Products,
Inc. +............................. 59,100 1,100,738
Millennium Chemicals, Inc. .......... 542,900 18,390,738
Solutia, Inc......................... 100,700 2,888,831
Wellman, Inc......................... 272,300 6,177,806
--------------
28,558,113
--------------
Steel (0.5%)
AK Steel Holding Corp................ 94,500 1,689,188
Bethlehem Steel Corp. +.............. 2,734,000 34,004,125
USX-US Steel Group, Inc.............. 420,300 13,869,900
--------------
49,563,213
--------------
Surface Transport (0.6%)
Amerus Life Holdings, Inc............ 100,000 3,237,500
Burlington Northern Sante Fe Corp.... 256,300 25,165,456
Sea Containers, Ltd. ................ 62,280 2,389,995
Tidewater, Inc....................... 261,000 8,613,000
U.S. Freightways Corp................ 561,200 18,431,913
--------------
57,837,864
--------------
Textiles and Apparel (0.7%)
Abercrombie & Fitch Co. +............ 672,300 29,581,200
Burlington Industries, Inc. +........ 632,800 8,898,750
Gerber Childrenswear, Inc. +......... 36,300 560,381
Liz Claiborne, Inc. ................. 166,900 8,720,525
Players International, Inc........... 131,100 651,403
Tefron Ltd. +........................ 92,600 2,037,200
Timberland Co. (The) +............... 308,900 22,221,494
--------------
72,670,953
--------------
Total United States 9,140,705,544
--------------
Foreign Common Stocks (5.3%)
Australia (0.2%)
Goodman Fielder Ltd. (Food and
Beverage) ......................... 3,678,438 5,353,433
Mayne Nickless Ltd. (Commercial
Services) ......................... 836,500 4,429,280
Telstra Corp. Ltd.
(Other Telecommunications) +....... 1,898,700 4,868,081
Westpac Banking Corp. Ltd.
(Banks and Thrifts) ............... 883,900 5,391,883
------------
Total Australia 20,042,677
------------
Belgium (0.0%)
Delhaize-Le Lion, SA (Food and
Beverage) ......................... 70,700 4,940,069
------------
Canada (0.1%)
Canadian Imperial Bank of Commerce
(Banks and Thrifts) ............... 103,575 3,331,361
Canadian National Railway Co.
(Surface Transport) ............... 71,600 3,804,003
------------
Total Canada 7,135,364
------------
</TABLE>
67
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Growth and Income (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Denmark (0.2%)
Carli Gry International A/S
(Textiles and Apparel) ............ 76,885 $ 6,204,898
Novo-Nordisk A/S (Drugs) ............ 53,300 7,347,432
Olicom A/S (Computers) +............. 73,200 1,979,812
Tele Danmark A/S
(Major Telecommunications) +....... 12,200 1,170,857
-----------
Total Denmark
16,702,999
-----------
Finland (0.2%)
Helsingin Puhelin Oyj (Other
Telecommunications) ............... 27,683 1,286,646
Huhtamaki Group (Diversified) ....... 102,200 5,849,065
Oy Nokia Corp., ADR
(Other Telecommunications) ........ 102,800 7,459,425
Sampo Insurance Co. (Insurance) ..... 64,200 3,042,386
UPM-Kymmene Corp. (Forest Products
and Building Materials) ........... 159,300 4,384,283
Valmet Oyj (Consumer Services) +..... 104,900 1,808,725
-----------
Total Finland
23,830,530
-----------
France (0.7%)
Accor SA (Consumer Services) ........ 22,110 6,187,552
Alcatel Alsthom (Other
Telecommunications) ............... 36,205 7,371,509
Alstrom (Heavy Machinery) +.......... 101,400 3,337,496
Credit Commercial de France
(Banks and Thrifts) ............... 76,500 6,440,343
Danone (Food and Beverage)........... 22,100 6,093,371
Elf Aquitaine SA (Oil) .............. 42,600 5,989,055
Eridania Beghin-Say SA (Food and
Beverage) ......................... 7,164 1,581,855
Gemini Sogeti SA (Insurance) ........ 41,600 6,536,522
Lafarge SA
(Forest Products and Building
Materials) ........................ 58,700 6,068,032
Pernod Ricard (Food and Beverage) ... 46,722 3,237,913
Renault SA (Automotive) +............ 25,000 1,422,008
Rhone-Poulenc
(Biotech and Medical Products) .... 96,800 5,459,583
Scor SA (Insurance) ................. 10,000 634,301
Societe Generale (Banks and Thrifts) 10,200 2,120,632
Union des Assurances Federales
(Insurance) ....................... 32,400 5,107,021
-----------
Total France 67,587,193
-----------
Germany (0.5%)
BASF AG (Chemicals) ................. 51,150 2,422,849
Bayerische Hypotheken-und
Wechsel-Bank AG (Banks and
Thrifts) .......................... 65,050 4,122,759
BHF-Bank AG (Banks and Thrifts) ..... 67,800 2,567,337
Daimler-Benz AG (Automotive) ........ 8,844 869,684
Deutsche Pfandbrief & Hypothekenbank
AG (Banks and Thrifts) ............ 78,300 6,263,882
Gehe AG (Health Services) ........... 84,100 4,507,768
Henkel AG (Chemicals)................ 73,300 7,248,645
Karstadt AG (Discretionary Retail) +. 4,500 2,187,632
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Germany (continued)
MAN AG (Industrial Services) +....... 4,800 $ 1,872,098
Mannesmann AG (Heavy Machinery) ..... 93,150 9,572,853
VEBA AG (Investment Services)........ 27,850 1,897,776
Viag AG (Consumer Services) +........ 5,200 3,577,994
Volkswagen AG (Automotive)........... 5,330 5,123,200
WPP Group Plc (Commercial Services) . 504,900 3,308,627
-----------
Total Germany 55,543,104
-----------
Hong Kong (0.0%)
Hutchison Whampoa Ltd.
(Consumer Services) ............... 853,000 4,502,466
Peregrine Investments Holdings Ltd.
(Investment Services)+++++..........3,006,000 33,363
-----------
Total Hong Kong 4,535,829
-----------
Ireland (0.1%)
Allied Irish Banks (Banks and
Thrifts) .......................... 222,833 3,217,088
CRH Plc
(Forest Products and Building
Materials) ........................ 155,700 2,208,781
Water Wedgewood Unit (Housing and
Furnishings)....................... 222,833 3,629,724
-----------
Total Ireland 9,055,593
-----------
Italy (0.3%)
Banca Commerciale Italiana
(Banks and Thrifts) +.............. 1,013,000 6,057,883
Credito Italiano (Banks and Thrifts) 1,881,000 9,846,532
ENI SpA (Oil) +...................... 350,000 2,293,887
Istituto Nazionale delle
Assicurazioni (Insurance) +........ 622,000 1,767,095
Mondatori (Arnoldo) Editore SpA
(Print Media)...................... 169,000 1,996,568
Telecom Italia SpA
(Major Telecommunications) ........ 655,000 4,821,622
-----------
Total Italy 26,783,587
-----------
Japan (0.7%)
Canon, Inc. (Computers) ............. 211,000 4,789,062
Exedy Corp. (Automotive) ............ 271,300 1,661,599
Fuji Photo Film (Chemicals) ......... 172,000 5,985,949
Hitachi Ltd. (Semiconductors and
Electronics)....................... 883,000 5,757,934
Kao Corp. (Consumer Products) +...... 381,300 5,879,468
Kokusai Electric (Other
Telecommunications) ............... 143,400 1,198,573
Minebea Co. Ltd.
(Semiconductors and Electronics) .. 354,000 3,432,971
Mizuno Corp. (Consumer Products) .... 825,000 2,770,112
Nintendo Co. Ltd.
(Semiconductors and Electronics) .. 60,500 5,601,649
Nippon Telegraph & Telephone
(Major Telecommunications) +....... 5,530 4,582,267
Orix Corp. (Investment Services) .... 93,000 6,278,848
Santen Pharmaceutical Co., Ltd.
(Drugs) ........................... 370,000 4,049,645
Seino Transportation Co., Ltd.
(Surface Transport) ............... 935,000 5,187,520
</TABLE>
68 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Japan (continued)
Shohkoh Fund (Banks and Thrifts)..... 4,100 $ 1,007,385
Sony Corp. (Consumer Products) +..... 53,300 4,589,364
Takefuji Corp. (Banks and Thrifts) .. 93,330 4,303,865
Terumo Corp. (Biotech and Medical
Products) ......................... 277,000 4,390,964
-----------
Total Japan 71,467,175
-----------
Mexico (0.1%)
Cifra SA de CV (Discretionary
Retail) +.......................... 1,373,500 1,895,319
Grupo Financiero Banamex Accival
(Investment Services) +........... 1,186,000 2,246,343
Panamerican Beverages, Inc.
(Food and Beverage) ............... 168,000 5,281,500
-----------
Total Mexico 9,423,162
-----------
Netherlands (0.3%)
Akzo Nobel NV (Chemicals) ........... 22,200 4,934,978
Heineken NV (Food and Beverage) +.... 69,300 2,721,960
Hunter Douglas NV (Consumer
Services) ......................... 79,773 4,333,311
ING Groep NV (Banks and Thrifts) .... 92,153 6,034,140
Philips Electronics NV (Electrical
Machinery and Instruments)......... 39,800 3,345,653
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit
(Print Media) ..................... 161,400 5,863,401
-----------
Total Netherlands 27,233,443
-----------
New Zealand (0.0%)
Fernz Corp., Ltd. (Chemicals) ....... 824,500 1,840,342
-----------
Norway (0.3%)
ASK ASA (Computers) +................ 70,000 542,774
Christiania Bank Og Kredkasse
(Banks and Thrifts) ............... 922,600 3,859,427
Contextvision AB (Electronic Media) + 131,000 2,168,100
Det Sondenfjelds-Norske
Dampskibsselskab (Oil) +........... 135,000 2,375,045
Merkantildata ASA
(Data and Imaging Services) ....... 450,400 5,693,436
Ocean Rig ASA (Oil) +................ 8,710,400 6,470,193
Saga Petroleum ASA (Oil) ............ 39,500 607,412
SeaTeam Technologies (Oil) +......... 207,950 3,821,047
Tandberg Data ASA (Computers) +...... 537,800 1,948,363
Tandberg Television ASA (Electronic
Media)............................. 400,500 3,366,406
Tomra Systems ASA
(Forest Products and Building
Materials) ........................ 187,000 5,604,976
-----------
Total Norway 36,457,179
-----------
Singapore (0.0%)
Clipsal Industries Ltd.
(Semiconductors and Electronics) +. 433,700 388,162
-----------
Spain (0.2%)
Banco Santander (Banks and Thrifts) . 135,000 3,461,199
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
Spain (continued)
Iberdrola SA (Electric Utilities) ... 364,800 $ 5,933,450
Telefonica de Espana
(Major Telecommunications) ........ 144,000 6,669,017
-----------
Total Spain 16,063,666
-----------
Sweden (0.3%)
BTL AB (Surface Transport) .......... 350,000 1,882,771
Celsius AB (Conglomerate and
Aerospace) ........................ 157,200 3,666,382
Industrial & Financial Systems
(Data and Imaging Services)++++++.. 233,800 3,276,153
Kinnevik AB (Industrial Services) ... 109,400 3,559,810
Kinnevik Rights (Industrial
Services) ......................... 109,400 493,847
Mo Och Domsjo AB
(Forest Products and Building
Materials) ........................ 86,800 2,481,571
Skandinaviska Enskilda Banken (Banks
And Thrifts) ...................... 216,500 3,705,636
Svenska Handelsbanken
(Investment Services) ............. 87,600 4,064,228
Tryckinvest I Norden AB (Banks and
Thrifts)........................... 100,000 1,855,812
WM-Data AB (Computers) .............. 127,200 4,418,136
-----------
Total Sweden 29,404,346
-----------
Switzerland (0.4%)
Barry Callebaut AG (Consumer
Products) +........................ 2,000 431,168
Credit Suisse Group (Banks and
Thrifts) .......................... 27,600 6,141,174
Fischer (Georg) AG (Auto Parts and
Hardware) ......................... 9,850 3,831,394
Gretag Imaging Group (Biotech and
Medical Products) +................ 30,000 2,877,748
HolderBank Financial Glarus (Banks
and Thrifts)....................... 1,337 1,701,207
Kuoni Reisen AG (Commercial
Services) ......................... 1,305 6,478,493
Nestle SA Registered Shares
(Food and Beverage) ............... 2,835 6,066,946
Novartis AG Registered Shares
(Health Services) ................ 2,180 3,627,558
Schweizersche
Rueckversicherungs-Geillschaft
(Insurance) +...................... 1,462 3,697,384
UBS AG (Insurance)................... 18,400 6,841,723
-----------
Total Switzerland 41,694,795
-----------
United Kingdom (0.7%)
Bank of Scotland (Banks and Thrifts) 497,517 5,570,019
Barclays Plc (Banks and Thrifts)..... 114,400 3,298,344
Berisford Plc (Industrial Services) + 257,700 984,637
British Telecommunications Plc
(Major Telecommunications) +....... 197,500 2,430,275
Cadbury Schweppes Plc
(Food and Beverage) +.............. 383,300 5,931,697
Emap Plc (Print Media) .............. 76,200 1,540,933
Glaxo Wellcome Plc (Drugs) .......... 174,094 5,225,660
Granada Group Plc (Consumer
Services) ......................... 453,614 8,340,542
Kingfisher Plc (Discretionary
Retail) ........................... 285,302 4,593,627
McKechnie Plc (Industrial Services).. 210,300 1,526,352
</TABLE>
69
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Growth and Income (continued)
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
United Kingdom (continued)
National Westminster Bank Plc
(Banks and Thrifts) ............... 245,100 $ 4,379,848
Pearson Plc (Print Media) ........... 319,800 5,858,778
Peninsular & Oriental Steam
Navigation Co. (Surface
Transport) ........................ 254,222 3,666,945
Railtrack Group (Surface Transport) + 124,400 3,052,464
Tesco Plc (Discretionary Retail) +... 200,300 1,953,402
Tomkins Plc (Consumer Services) ..... 418,652 2,271,939
Unilever Plc (Consumer Products) .... 455,600 4,849,876
Vodafone Group Plc (Consumer
Products).......................... 583,504 7,404,049
-------------
Total United Kingdom 72,879,387
-------------
Total Foreign Common Stocks 543,008,602
-------------
Total Common Stocks (cost
$8,284,607,349) 9,683,714,146
-------------
PREFERRED STOCKS (0.3%)
United States (0.2%)
Case Corp. (Heavy Machinery)++++++... 14,200 1,601,050
Chancellor Media Corp. (Electronic
Media) +........................... 18,600 2,536,575
Corning Delaware L.P. (Food and
Beverage) +........................ 13,900 785,350
Equity Residential Properties
(Real Estate Investment Trusts) ... 27,900 721,913
Ingersoll-Rand (Producer Goods)...... 55,800 1,339,200
International Paper Co.
(Forest Products and Building
Materials)++++++................... 9,300 456,863
Merrill CBR (Data and Imaging
Services).......................... 27,900 1,953,000
Merrill "DG" (Discretionary Retail) + 69,700 2,703,036
Owens-Ill, Inc. (Industrial Services) 18,600 969,525
Salomon, Inc. (Investment Services) . 69,800 3,904,438
Security Capital Pacific Trust (Real
Estate Investment Trust)........... 19,400 584,425
Tanger Factory Outlet Centers, Inc.
(Real Estate Investment Trusts) ... 55,800 1,576,350
Union Planters Co. (Food and
Beverage) ......................... 18,600 1,350,825
-------------
Total United States 20,482,550
-------------
Foreign Preferred Stocks (0.1%)
Germany (0.1%)
Hugo Boss AG (Textiles and Apparel) . 1,900 4,189,395
SAP AG (Data and Imaging Services) .. 6,950 4,716,670
Total Foreign Preferred Stocks 8,906,065
=============
Total Preferred Stocks (cost
$23,864,712) 29,388,615
-------------
<CAPTION>
Principal Market
Amount Value
--------- -----------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (0.9%)
Corporate and Convertible Bonds (0.9%)
Agnico-Eagle Mines Ltd., 3.50%,
01/27/04............................. $ 2,900,000 $ 1,933,224
Alza Corp., 5.00%, 05/01/06............ 930,000 1,181,100
American Express Credit, 1.13%,
02/19/03............................. 2,820,000 2,989,200
Automatic Data Processing, Inc.,
Zero Coupon, 02/20/12................ 970,000 894,839
Baker Hughes, Inc., Zero Coupon,
05/05/08............................. 3,325,000 2,447,406
Brightpoint Convertible, Zero
Coupon, 03/11/18..................... 3,255,000 1,318,275
Career Horizons, Inc., 7.00%,
11/01/02............................. 930,000 2,555,175
Checkpoint Systems, Inc., 5.25%,
11/01/05............................. 1,162,000 1,105,353
Comverse Technology, Inc., 5.75%,
10/01/06++++++....................... 4,600,000 5,819,000
Continental Airlines, Inc., 6.25%,
04/15/06++++++....................... 1,860,000 3,875,942
Credence Systems Corp., 5.25%,
09/15/02++++++....................... 3,700,000 2,960,000
Dr. Horton, 6.88%, 11/01/02............ 700,000 1,386,000
Dovatron International, 6.00%,
10/15/02............................. 930,000 991,613
Einstein/Noah Bagel Corp., 7.25%,
06/01/04++++++....................... 4,630,000 2,963,200
EMC/Mass Corp., 3.25%, 03/15/02++++++.. 3,660,000 7,411,500
Fremont General Corp., Zero Coupon,
10/12/13............................. 930,000 968,363
Hewlett Packard Co., Zero Coupon,
10/14/17++++++....................... 8,370,000 4,472,677
Home Depot, Inc., 3.25%, 10/01/01...... 1,860,000 3,459,600
Homebase, Inc., 5.25%, 11/01/04........ 2,790,000 2,762,100
Integrated Health Services, 5.75%,
01/01/01............................. 1,395,000 1,607,738
Marriott International, Inc., Zero
Coupon, 03/25/11++++++............... 2,730,000 1,747,200
NAC Re Corp., 5.25%, 12/15/02++++++.... 930,000 1,029,975
National Semiconductor Corp., 6.5%,
10/01/02++++++....................... 4,650,000 4,254,750
Office Depot, Inc., Zero Coupon,
12/11/07............................. 3,425,000 3,202,375
Ogden Corp., 6.00%, 6/01/02++++++...... 475,000 477,375
Ogden Corp., 5.75%, 10/20/02++++++..... 930,000 925,350
Pennzoil Co., 6.50%, 01/15/03.......... 465,000 948,600
Pennzoil Co., 4.75%, 10/01/03.......... 1,000,000 1,430,000
Phycor, Inc., 4.50%, 02/15/03.......... 1,395,000 1,170,056
Phymatrix Corp., 6.75%, 06/15/03....... 2,300,000 1,805,500
Pioneer Financial Services, 6.50%,
04/01/03............................. 1,395,000 2,376,731
Potomac Electric Power, 7.00%,
01/15/18............................. 750,000 804,375
Richey Electronics, Inc., 7.00%,
03/01/06++++++....................... 1,859,000 1,714,928
Roche Holdings, Zero Coupon,
05/06/12++++++....................... 11,625,000 5,624,931
Sanmina Corp., 5.50%, 08/15/02++++++... 930,000 2,867,888
SCI Systems, Inc., 5.00%, 05/01/06++++++ 695,000 1,122,856
Tel-Save Holding, Inc., 5.00%,
12/15/04++++++....................... 1,400,000 1,169,000
Thermo Instrument System, 4.50%,
10/15/03++++++....................... 930,000 926,513
U.S. Cellular Corp., Zero Coupon,
06/15/15............................. 2,235,000 874,781
Vantive Corp., 4.75%, 09/01/02++++++... 930,000 804,450
Veterinary Centers of America, 5.25%,
05/01/06++++++....................... 465,000 404,550
-------------
Total Long-Term Bonds and Notes (cost
$75,694,080) 88,784,489
-------------
</TABLE>
70 See Notes to Portfolio of Investments.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
<S> <C> <C>
CALL OPTIONS PURCHASED (0.0%)
Russell 2000 Index, Strike $440,
Sept. 98........................... 80,000 $ 2,170,000
--------------
Total Call Options Purchased (cost $1,442,400) 2,170,000
--------------
PUT OPTIONS PURCHASED (0.1%)
Russell 2000 Index, Strike $440,
Sept. 98........................... 159,100 1,093,813
Russell 2000 Index, Strike $460,
Sept. 98........................... 153,500 1,995,500
S & P 400 Mid Cap Index, Strike
$350, Sept. 98..................... 376,000 2,350,000
--------------
Total Put Options Purchased (cost $10,171,183) 5,439,313
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.8%)
CVS Corp., Comm. Paper,5.73%,
07/09/98........................... $ 26,375,000 26,341,416
CVS Corp., Comm. Paper,5.75%,
07/16/98........................... 25,000,000 24,940,104
Occidental Petroleum., Comm.
Paper,5.72%, 07/06/98++++++........ 23,400,000 23,381,410
Occidental Petroleum., Comm.
Paper,7.00%, 07/01/98++++++........ 40,000,000 40,000,000
Raytheon Co., Comm. Paper, 5.86%,
08/31/98++++++..................... 50,000,000 50,021,000
Raytheon Co., Comm. Paper, 7.00%,
07/01/98++++++..................... 60,000,000 60,000,000
Sprint Capital Corp., Comm. Paper,
7.00%, 07/01/98++++++.............. 41,284,000 41,284,000
Textron Financial Corp., Comm.
Paper, 7.00%, 07/01/98............. 15,500,000 15,500,000
U.S. Treasury, 5.03%, 08/20/98@...... 103,100,000 102,406,137
--------------
Total Short-Term Investments (cost $383,827,378) 383,874,067
--------------
TOTAL INVESTMENTS (cost $8,779,607,102)(a) 10,193,370,630
Other assets less liabilities 33,286,552
--------------
Total Net Assets $10,226,657,182
==============
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$8,792,329,851. Unrealized gains and losses, based on identified tax cost at
June 30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains .................... $1,518,335,991
Unrealized losses ................... (117,295,212)
--------------
Net unrealized gain ............... $1,401,040,779
==============
</TABLE>
Information concerning open futures contracts at June 30, 1998 is shown below:
<TABLE>
<CAPTION>
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- --------- ---------- -----------
Long Contracts
- --------------------
<S> <C> <C> <C> <C>
S & P 500 Index
Futures 889 $248,809,912 Sept. 98 $ 5,221,838
============ ============
</TABLE>
Information concerning written option contracts at June 30, 1998 is shown below:
<TABLE>
<CAPTION>
No. of Exercise Expiration Market
Contracts Price Date Value
--------- ---------- ---------- ---------
Call Options
- -------------------
<S> <C> <C> <C> <C>
General Dynamics
Corp. .......... 464 $ 45 Aug. 98 $ (136,300)
Russell 2000 Index 1591 440 Sept. 98 (4,315,588)
Russell 2000 Index 1535 460 Sept. 98 (2,091,437)
S & P Mid Cap
Index........... 3760 350 Sept. 98 (7,614,000)
Put Options
- -------------------
Russell 2000 Index 800 440 Sept. 98 (550,000)
------------
$(14,707,325)
============
</TABLE>
+ Non-income producing security.
++ Restricted security. This security has been determined to be illiquid
under guidelines established by the Board of Trustees.
++++ This security has been determined to be illiquid under guidelines
established by the Board of Trustees.
++++++Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be
liquid under guidelines established by the Board of Trustees.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1998.
Category percentages are based on net assets.
See Notes to Financial Statements. 71
<PAGE>
Growth and Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Real Estate
================================================================================
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- -----------
COMMON STOCKS (95.1%)
<S> <C> <C>
Real Estate Investment Trusts (95.1%)
Apartment Investment &
Management Co................... 6,200 $ 244,900
Arden Realty Group, Inc........... 3,200 82,800
Beacon Capital+++................. 6,800 139,400
Bedford Property Investors, Inc... 6,200 113,150
Brandywine Realty Trust........... 900 20,138
Burnham Pacific Properties, Inc... 15,800 224,163
Camden Property Trust............. 3,500 104,125
Carramerica Realty Corp........... 900 25,538
CBL & Associates Properties, Inc.. 10,800 261,899
Colonial Properties Trust......... 3,000 93,000
Cousins Properties, Inc........... 4,500 134,438
Crescent Real Estate Equities,
Inc............................. 6,600 221,925
Criimi Mae, Inc................... 1,500 20,813
Equity Inns, Inc.................. 9,100 120,006
Equity Office Properties Trust.... 9,900 280,912
Equity One, Inc................... 900 9,225
Equity Residential Properties
Trust........................... 4,900 232,444
Essex Property Trust, Inc......... 7,000 217,000
General Growth Properties......... 3,800 142,025
Glenborough Realty Trust, Inc..... 7,800 205,725
Golf Trust of America, Inc........ 5,000 171,875
Health Care REIT, Inc............. 9,400 239,700
Home Properties of New York, Inc.. 100 2,669
Kimco Realty Corp................. 7,100 291,099
Koger Equity, Inc................. 7,500 151,406
Liberty Property Trust............ 2,400 61,350
OMEGA Healthcare Investors, Inc... 7,100 249,388
Parkway Properties, Inc........... 5,000 147,500
Post Properties, Inc.............. 6,300 242,550
Prentiss Properties Trust......... 4,700 114,269
PS Business Parks, Inc............ 7,900 185,650
Public Storage, Inc............... 1,400 39,200
Security Capital Industrial Trust. 3,100 77,500
Simon DeBartolo Group, Inc........ 1,500 48,750
Starwood Lodging Trust............ 4,900 236,730
Storage Trust Realty.............. 9,700 226,738
Sun Communities, Inc.............. 1,400 46,375
Weeks Corp........................ 4,000 126,500
----------
5,552,875
----------
Total Common Stocks (cost $5,717,984) 5,552,875
----------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.5%)
Federal Home Loan Bank, 5.55%,
07/01/98........................ $377,000 $ 377,000
----------
Total Short-Term Investments (cost
$377,000) 377,000
----------
TOTAL INVESTMENTS (cost $6,094,984)(a) 5,929,875
Other assets less liabilities (92,673)
==========
Total Net Assets $5,837,202
==========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$6,099,039. Unrealized gains and losses, based on identified tax cost at June
30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains ................. $ 95,055
Unrealized losses ................ (264,219)
----------
Net unrealized loss ............ $(169,164)
==========
</TABLE>
+ Non-income producing security.
++ Restricted security. This security has been determined to be illiquid
under guidelines established by the Board of Directors.
Category percentages are based on net assets.
72 See Notes to Financial Statements.
<PAGE>
Growth and Income Portfolios
Statements of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Growth and Real
Balanced Income Estate
--------------- ---------------- -----------
<S> <C> <C> <C>
Assets:
Investments, at market value ..................................... $1,824,144,345 $10,193,370,630 $5,929,875
Cash ............................................................. 278,300 156,581 586
Cash denominated in foreign currencies ........................... -- 14,183,693 --
Receivable for:
Dividends and interest ....................................... 8,122,674 9,561,912 41,394
Investments sold ............................................. 17,085,076 73,962,604 6,240
Fund shares sold ............................................. -- 119,377 31,788
Recoverable foreign taxes .................................... -- 940,072 --
Prepaid expenses ................................................. 21,754 126,379 53
Gross unrealized gain on forward foreign currency exchange
contracts ...................................................... -- 3,119,092 --
--------------- ---------------- -----------
Total assets ............................................ 1,849,652,149 10,295,540,340 6,009,936
--------------- ---------------- -----------
Liabilities:
Payable for:
Investments purchased ........................................ 19,720,798 41,294,322 165,701
Fund shares redeemed ......................................... 407,251 4,555,194 --
Variation margin ............................................. -- 1,889,125 --
Accrued investment advisory fees ................................. 682,881 3,849,112 3,101
Accrued administrative service fees .............................. 102,202 481,590 292
Accrued custodian fees ........................................... 16,432 86,442 953
Other liabilities ................................................ 64,747 359,063 2,687
Gross unrealized loss on forward foreign currency exchange
contracts ...................................................... -- 1,660,985 --
Deferred premiums received on options written, at market value ... -- 14,707,325 --
--------------- ---------------- -----------
Total liabilities ....................................... 20,994,311 68,883,158 172,734
--------------- ---------------- -----------
NET ASSETS ..................................................... $1,828,657,838 $10,226,657,182 $5,837,202
=============== ================ ===========
Net assets represented by:
Paid-in capital .................................................. $1,518,329,166 $ 7,123,188,959 $5,878,405
Net unrealized gain (loss) on investments, open futures contracts
and foreign currency related transactions ...................... 212,750,738 1,418,560,072 (165,109)
Undistributed (distributions in excess of)
net investment income ......................................... 26,030,330 (1,413,189) 118,435
Accumulated net realized gain on investments ..................... 71,547,604 1,686,321,340 5,471
--------------- ---------------- -----------
NET ASSETS ..................................................... $1,828,657,838 $10,226,657,182 $5,837,202
=============== ================ ===========
Capital Shares:
Authorized ....................................................... Two Billion Unlimited Two Billion
Par value ........................................................ $ 0.001 $ 1.000 $ 0.001
Outstanding ...................................................... 119,786,496 274,907,477 588,782
Net Asset Value, offering and redemption price per share (net
assets divided by shares outstanding) .......................... $ 15.266 $ 37.200 $ 9.914
Cost of investments .............................................. $1,611,393,607 $ 8,779,607,102 $6,094,984
Cost of cash denominated in foreign currencies ................... -- $ 14,198,340 --
</TABLE>
See Notes to Financial Statements.
73
<PAGE>
Growth and Income Portfolios
Statements of Operations
Six Month Period Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Growth and Real
Balanced Income Estate
------------- --------------- ----------
<S> <C> <C> <C>
Investment Income:
Dividends ........................................................ $ 6,774,276 $ 62,203,040 $ 140,667
Interest ......................................................... 24,278,455 18,579,778 4,315
------------- --------------- ----------
31,052,731 80,782,818 144,982
Foreign taxes withheld on dividends .............................. (21,342) (800,474) --
------------- --------------- ----------
Total investment income .................................... 31,031,389 79,982,344 144,982
------------- --------------- ----------
Investment Expenses:
Investment advisory fees ......................................... 4,277,433 24,129,161 18,934
Administrative services fees ..................................... 669,692 2,934,596 3,960
Custody fees ..................................................... 16,447 86,442 953
Transfer agent fees .............................................. 769 3,786 434
Directors'/Trustees' fees ........................................ 7,906 45,259 21
Audit fees ....................................................... 4,992 8,295 2,086
Printing and postage fees ........................................ 10,984 54,279 763
Registration fees ................................................ 4,654 43,149 --
Miscellaneous expenses ........................................... 8,182 37,348 12
------------- --------------- ----------
Expenses before reimbursement and waiver from Adviser ............ 5,001,059 27,342,315 27,163
Expense reimbursement and waiver from Adviser..................... -- -- (2,918)
------------- --------------- ----------
Total expenses ............................................. 5,001,059 27,342,315 24,245
------------- --------------- ----------
Net investment income ............................................ 26,030,330 52,640,029 120,737
------------- --------------- ----------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ............................................ 74,061,748 1,662,692,975 4,512
Closed and expired options ..................................... -- 17,505,933 --
Futures and forward foreign currency exchange contracts ........ (694,626) 11,320,742 --
Foreign currency related transactions .......................... -- (4,659,375) --
------------- --------------- ----------
Net realized gain on investments ........................ 73,367,122 1,686,860,275 4,512
------------- --------------- ----------
Net change in unrealized gain or loss on:
Investments .................................................... 77,405,774 (576,944,714) (319,363)
Written options ................................................ -- (1,812,459) --
Open futures and forward foreign currency exchange contracts ... (87,669) 2,384,509 --
Foreign currency related transactions .......................... -- 142,519 --
------------- --------------- ----------
Net change in unrealized gain or loss on investments .... 77,318,105 (576,230,145) (319,363)
------------- --------------- ----------
Net realized and change in unrealized gain (loss) on investments . 150,685,227 1,110,630,130 (314,851)
------------- --------------- ----------
Net increase (decrease) in net assets resulting from operations .. $176,715,557 $1,163,270,159 $(194,114)
============= =============== ==========
</TABLE>
See Notes to Financial Statements.
74
<PAGE>
Growth and Income Portfolios
Statements of Changes in Net Assets
================================================================================
<TABLE>
<CAPTION>
Balanced
------------------------------------------
Six Month
Period Ended Year Ended
June 30, 1998 December 31,
(Unaudited) 1997
---------------- --------------
<S> <C> <C>
Operations:
Net investment income ........................................................ $ 26,030,330 $ 45,458,448
Net realized gain on investments ............................................. 73,367,122 301,769,042
Net change in unrealized gain or loss on investments ......................... 77,318,105 (42,021,326)
-------------- --------------
Net increase in net assets resulting from operations ....................... 176,715,557 305,206,164
-------------- --------------
Distributions to Shareholders:
From net investment income ................................................... -- (105,283,441)
From net realized gains ...................................................... (255,329,195) (109,284,309)
-------------- --------------
Decrease in net assets from distributions to shareholders .................. (255,329,195) (214,567,750)
-------------- --------------
Fund Share Transactions:
Proceeds from shares sold .................................................... 45,465,208 43,252,366
Net asset value of shares issued upon reinvestment of distributions .......... 255,329,195 214,567,750
Payments for shares redeemed ................................................. (35,576,484) (70,446,645)
-------------- --------------
Net increase in net assets from fund share transactions .................... 265,217,919 187,373,471
-------------- --------------
Net change in net assets ..................................................... 186,604,281 278,011,885
Net Assets:
Beginning of period .......................................................... 1,642,053,557 1,364,041,672
-------------- --------------
End of period ................................................................ $1,828,657,838 $1,642,053,557
============== ==============
End of period net assets includes undistributed net investment income ........ $ 26,030,330 $ --
============== ==============
Share Transactions:
Number of shares sold ........................................................ 2,656,900 2,713,055
Number of shares issued upon reinvestment of distributions ................... 16,795,159 13,885,971
Number of shares redeemed .................................................... (2,085,042) (4,406,176)
-------------- --------------
Net increase ............................................................... 17,367,017 12,192,850
============== ==============
</TABLE>
See Notes to Financial Statements.
75
<PAGE>
Growth and Income Portfolios
Statements of Changes in Net Assets (continued)
================================================================================
<TABLE>
<CAPTION>
Growth and Income
-------------------------------------------
Six Month
Period Ended Year Ended
June 30, 1998 December 31,
(Unaudited) 1997
-------------- ---------------
<S> <C> <C>
Operations:
Net investment income ........................................................ $ 52,640,029 $ 120,665,565
Net realized gain on investments ............................................. 1,686,860,275 1,597,118,852
Net change in unrealized gain or loss on investments ......................... (576,230,145) 383,260,565
--------------- ---------------
Net increase in net assets resulting from operations ....................... 1,163,270,159 2,101,044,982
--------------- ---------------
Distributions to Shareholders:
From net investment income ................................................... (50,005,513) (130,095,758)
From net realized gains ...................................................... (143,293,336) (1,737,875,271)
--------------- ---------------
Decrease in net assets from distributions to shareholders .................. (193,298,849) (1,867,971,029)
--------------- ---------------
Fund Share Transactions:
Proceeds from shares sold .................................................... 91,965,295 322,401,783
Net asset value of shares issued upon reinvestment of distributions .......... 193,227,011 1,867,325,252
Payments for shares redeemed ................................................. (216,765,928) (188,771,990)
--------------- ---------------
Net increase in net assets from fund share transactions .................... 68,426,378 2,000,955,045
--------------- ---------------
Net change in net assets ..................................................... 1,038,397,688 2,234,028,998
Net assets:
Beginning of period .......................................................... 9,188,259,494 6,954,230,496
--------------- ---------------
End of period ................................................................ $10,226,657,182 $ 9,188,259,494
=============== ===============
End of period net assets includes distributions in excess of net investment
income ..................................................................... $ (1,413,189) $ (4,047,705)
=============== ===============
Share Transactions:
Number of shares sold ........................................................ 2,495,477 8,739,687
Number of shares issued upon reinvestment of distributions ................... 5,239,139 54,916,035
Number of shares redeemed .................................................... (6,002,044) (5,175,087)
--------------- ---------------
Net increase ............................................................... 1,732,572 58,480,635
=============== ===============
</TABLE>
See Notes to Financial Statements.
76
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Real Estate
----------------------------------------
Six Month Period From
Period Ended December 15,
June 30, 1998 1997 to
(Unaudited) December 31,
1997
------------- -------------
<S> <C> <C>
Operations:
Net investment income ........................................................... $ 120,737 $ 24,907
Net realized gain on investments ................................................ 4,512 --
Net change in unrealized gain or loss on investments ............................ (319,363) 154,254
---------- ----------
Net increase (decrease) in net assets resulting from operations ............... (194,114) 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 ....................................................... 899,206 5,000,000
Payments for shares redeemed .................................................... (20,801) --
---------- ----------
Net increase in net assets from fund share transactions ....................... 878,405 5,000,000
---------- ----------
Net change in net assets ........................................................ 684,291 5,152,911
Net Assets:
Beginning of period ............................................................. 5,152,911 --
---------- ----------
End of period ................................................................... $5,837,202 $5,152,911
========== ==========
End of period net assets includes undistributed (distributions in excess of) net
investment income ............................................................. $ 118,435 $ (2,302)
========== ==========
Share Transactions:
Number of shares sold ........................................................... 90,853 500,000
Number of shares redeemed ....................................................... (2,071) --
---------- ----------
Net increase .................................................................. 88,782 500,000
========== ==========
</TABLE>
See Notes to Financial Statements.
77
<PAGE>
Growth & Income Funds
Notes to Financial Statements (continued)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Organization
The Statements contained herein refer to Aetna Balanced Fund VP, Inc. (Balanced,
formerly Aetna Investment Advisers Fund, Inc.), Aetna Variable Fund d/b/a Aetna
Growth and Income VP (Growth and Income), and Aetna Real Estate Securities VP
(Real Estate), a portfolio of Aetna Variable Portfolios, Inc. (Variable
Portfolios).
Growth and Income was organized under the laws of Massachusetts on January 25,
1984. Balanced was incorporated under the laws of Maryland on December 14, 1988.
Variable Portfolios was incorporated under the laws of Maryland on June 4, 1996.
The Articles of Incorporation of Variable Portfolios permit it to offer separate
portfolios, each of which has its own investment objective, policies and
restrictions. Variable Portfolios currently offers eleven separate portfolios,
including Real Estate. Growth and Income, Balanced and Variable Portfolios (each
a Fund) are each registered under the Investment Company Act of 1940 (the Act)
as open-end management investment companies.
The following is each Fund's investment objective:
Balanced seeks to maximize investment return, consistent with reasonable
safety of principal, by investing in a diversified portfolio of one or
more of the following asset classes: stocks, bonds and cash equivalents,
based on the investment adviser's judgment of which of those sectors or
mix thereof offers the best investment prospects.
Growth and Income seeks to maximize total return through investments in a
diversified portfolio of common stocks and securities convertible into
common stock. It is anticipated that capital appreciation and investment
income will both be major factors in achieving total return.
Real Estate seeks maximum total return primarily through investment in a
diversified portfolio of equity securities issued by real estate
companies, the majority of which are real estate investment trusts
(REITs).
Shares in the Funds are currently sold to Aetna Life Insurance and Annuity
Company (ALIAC), an Aetna Life Insurance Separate Account, and in the case of
Growth and Income, to existing shareholders through reinvestment of
distributions. ALIAC's shares are allocated to certain of its variable
life/annuity accounts. At June 30, 1998, ALIAC's separate accounts and
affiliates held all of Balanced's and Variable Portfolios' shares outstanding
and 99.6% of Growth and Income's shares outstanding.
Effective May 1, 1998, Aeltus Investment Management, Inc. (Aeltus) became the
Investment Adviser to the Funds. Prior to May 1, 1998, ALIAC acted as Investment
Adviser and Aeltus served as Sub-Adviser to the Funds. ALIAC serves as the
principal underwriter to each Fund. Aeltus and ALIAC are both wholly-owned
subsidiaries of Aetna Retirement Holdings, Inc., and are indirect wholly owned
subsidiaries of Aetna Inc.
2. Summary of Significant Accounting Policies
The accompanying financial statements of each Fund 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 each Fund.
A. Valuation of Investments
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter securities,
at the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities and fixed income investments for which
market quotations are not considered to be readily available are valued using
methods approved by the Board of Directors/Trustees.
78
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
A. Valuation of Investments (continued)
The accounting records of each Fund 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. Options Contracts
The Funds may purchase and write (sell) call and put options, including options
on securities, indices and futures. Call options on securities may be written
only if covered.
Option contracts are valued daily and unrealized gains or losses are recorded
based upon the last sales price on the principal exchange on which the options
are traded.
The Funds will realize a gain or loss upon the expiration or closing of the
option contract. When an option is exercised, the proceeds on sales of the
underlying security for a written call option, the purchase cost of the security
for a written put option, or the cost of the security for a purchased put or
call option is adjusted by the amount of premium received or paid. Realized and
unrealized gains or losses on option contracts are reflected in the accompanying
Financial Statements.
The risk in writing a call option is that a Fund gives up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that a Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that a Fund pays a premium whether or not the option is
exercised. Risks may also arise from an illiquid secondary market or from the
inability of counterparties to meet the terms of the contract.
C. Futures and Forward Foreign Currency Exchange Contracts
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument including an
index of stocks at a set price on a future date. The Funds "sell" futures
contracts as a hedge against declines in the value of portfolio securities. The
Funds may enter into futures contracts to manage the risk of changes in interest
rates, equity prices, currency exchange rates or in anticipation of future
purchases and sales of portfolio securities.
Upon entering into a futures contract, the Funds are required to deposit with a
broker an amount (initial margin) equal to a percentage of the purchase price
indicated by the futures contract. Subsequent deposits (variation margin) are
received or paid each day by the Funds equal to the daily fluctuations in the
market value of the contract. These amounts are recorded by the Funds as
unrealized gains or losses. When a contract is closed, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Generally,
futures contracts held by the Funds are closed prior to expiration.
A forward foreign currency exchange contract is an agreement to pay or receive
specific amounts of a currency at a future date in exchange for another currency
at an agreed upon exchange rate. The Funds, where authorized, may use forward
foreign currency exchange contracts to hedge certain foreign currency assets.
Contracts are recorded at market value and marked-to-market daily.
The risks associated with futures and forward foreign currency exchange
contracts may arise from an imperfect correlation between the change in market
value of the securities held by the Funds and the price of the contracts. Risks
may also arise from an illiquid secondary market or from the inability of
counterparties to meet the terms of the contracts.
Realized and unrealized gains or losses on futures and forward foreign currency
exchange contracts are reflected in the accompanying financial statements. The
amounts at risk under such futures and forward foreign currency exchange
79
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
C. Futures and Forward Foreign Currency Exchange Contracts (continued)
contracts may exceed the amounts reflected in the financial statements. The
notional amounts (economic exposure) of these contracts are disclosed in the
Portfolios of Investments and elsewhere in the Notes to Financial Statements.
For federal income tax purposes, any futures and forward foreign currency
exchange contracts which remain open at the end of the fiscal year are
marked-to-market and the resultant net gain or loss is reported to shareholders
as federal taxable income.
D. Illiquid and Restricted Securities
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Funds to sell them promptly at an
acceptable price. Restricted securities are those sold pursuant to Rule 144A and
Section 4(2) of the Securities Act of 1933 (1933 Act), and are subject to legal
or contractual restrictions on resale and may not be publicly sold without
registration under the 1933 Act. Each Fund may invest up to 15% of its total
assets in illiquid securities. Illiquid and restricted securities are valued
using market quotations when readily available. In the absence of market
quotations, the securities are valued based upon their fair value determined
under procedures approved by the Board of Directors. The Funds will not pay the
costs of disposition of restricted securities other than ordinary brokerage
fees, if any.
E. Federal Income Taxes
As a qualified regulated investment company, each Fund is relieved of federal
income and excise 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.
F. Distributions
Distributions from net investment income are based on taxable net income.
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for futures and foreign currency
transactions, investments in certain foreign issuers that derive a majority of
their income from passive investments (e.g., interest or dividends) and deferred
losses on wash sales.
G. Other
Investment transactions are accounted for on the day following the trade date,
except same day settlements which are accounted for on the trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, using an effective yield
method over the life of the security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.
3. Investment Advisory and Administrative Services Fees
Effective May 1, 1998, Aeltus became the Investment Adviser and Administrator to
the Fund. Prior to that time, ALIAC acted as Investment Adviser and
Administrator to the Fund and Aeltus acted as Sub-Adviser to the Fund.
As Investment Adviser, Aeltus (ALIAC prior to May 1, 1998) is paid a monthly fee
expressed as a percentage of the average daily net assets of each Fund. Below
are each Fund's Investment Advisory fees as of June 30, 1998:
<TABLE>
<CAPTION>
Advisory
Fee
--------
<S> <C>
Balanced 0.50%
Growth and Income 0.50%
Real Estate 0.75%
</TABLE>
80
<PAGE>
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Services Fees (continued)
Prior to May 1, 1998, ALIAC served as Investment Adviser and Aeltus served as
the Sub-Adviser to the Funds. As Sub-Adviser, Aeltus supervised the investment
and reinvestment of cash and securities and provided certain related
administrative services. For the period January 1, 1998 through April 30, 1998,
ALIAC collected $18,785,089 from the Funds, of which it paid $10,478,415 to
Aeltus.
Effective May 1, 1998, each Fund pays expenses incurred in exchange for services
provided by auditors, legal firms, transfer agents, custodian banks and
financial printers. Each Fund pays its proportionate share of compensation paid
to the Fund's Board of Directors/Trustees and its proportionate share of
insurance premiums of the Fund. Each Fund pays its direct costs incurred to mail
shareholder reports, register its shares with the Securities Exchange Commission
and any other costs incurred by the Funds. In addition, each Fund pays Aeltus an
administrative services fee in exchange for receiving certain administrative and
shareholder services and to compensate Aeltus for supervising the Funds' other
service providers. Each Fund pays Aeltus an administrative services fee at an
annual rate based on average daily net assets of the Funds. The rate is 0.075%
on the first $5 billion in Fund assets and 0.050% on all Fund assets over $5
billion.
Prior to May 1, 1998, ALIAC acted as Administrator to the Fund. As
Administrator, ALIAC paid all the expenses of the Funds on behalf of the Funds,
supervised the Funds' other service providers and provided the Funds with
certain administrative and shareholder services. In exchange for these services,
ALIAC received an administrative services fee at an annual rate of up to 0.20%
of each portfolio's average daily net assets. For the period January 1, 1998
through April 30, 1998, ALIAC collected $2,369,275 in administrative services
fees from the Funds.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Fund in
exchange for fees, payable by Aeltus, of up to 0.375% of the Funds average daily
net assets. For the period May 1, 1998 through June 30, 1998, Aeltus paid ALIAC
$4,986,517.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1998 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- -------------------
<S> <C> <C>
Balanced $ 468,228,822 $ 509,169,326
Growth and Income 7,893,490,656 7,862,468,157
Real Estate 2,338,774 1,499,029
</TABLE>
5. Reimbursement from Investment Adviser
The Investment Adviser may, from time to time, make reimbursements to a Fund for
some or all of its operating expenses or it may waive fees. Reimbursement and
waiver arrangements, which may be terminated at any time without notice, will
increase a Fund's yield and total return. For the period ended June 30, 1998,
the Investment Adviser reimbursed Real Estate in the amount of $2,918.
81
<PAGE>
6. Options
All Funds may use options. For the period ended June 30, 1998, the following
reflects the call and put activity:
<TABLE>
<CAPTION>
Call Options Written
-------------------------------------------------
Number of Deferred Premium Realized
Growth and Income Contracts Received Gain/(Loss)
-------------------------------------------------
<S> <C> <C> <C>
Outstanding December 31, 1997........ 1,000 $ 234,492 $ --
Written............................ 13,886 21,674,117 --
Closed............................. (6,536) (9,816,817) 9,585,981
Expired............................ -- -- --
Exercised.......................... (1000) (234,492) --
-------------------------------------------------
Outstanding June 30, 1998............ 7,350 $11,857,300 $ 9,585,981
=================================================
</TABLE>
<TABLE>
<CAPTION>
Put Options Written
-------------------------------------------------
Number of Deferred Premium Realized
Growth and Income Contracts Received Gain/(Loss)
-------------------------------------------------
<S> <C> <C> <C>
Outstanding December 31, 1997........ 1,220 $ 2,060,767 $ --
Written............................ 2,020 2,741,848 --
Closed............................. (2,440) (3,765,050) (6,580)
Expired............................ -- -- --
Exercised.......................... -- -- --
-------------------------------------------------
Outstanding June 30, 1998............ 800 $ 1,037,565 $ (6,580)
=================================================
</TABLE>
<TABLE>
<CAPTION>
Call Options Purchased
-------------------------------------------------
Number of Premium Realized
Growth and Income Contracts Paid Gain/(Loss)
-------------------------------------------------
<S> <C> <C> <C>
Outstanding December 31, 1997........ 1,220 $ 2,865,914 $ --
Written............................ 2,020 4,130,060 --
Closed............................. (1,220) (2,865,914) 2,879,484
Expired............................ (1,220) (2,687,660) (2,687,660)
Exercised.......................... -- -- --
-------------------------------------------------
Outstanding June 30, 1998............ 800 $ 1,442,400 $ 191,824
=================================================
</TABLE>
<TABLE>
<CAPTION>
Put Options Purchased
-------------------------------------------------
Number of Premium Realized
Growth and Income Contracts Paid Gain/(Loss)
-------------------------------------------------
<S> <C> <C> <C>
Outstanding December 31, 1997........ -- $ -- $ --
Written............................ 12,672 17,290,997 --
Closed............................. (5,786) (7,119,814) 7,734,708
Expired............................ -- -- --
Exercised.......................... -- -- --
-------------------------------------------------
Outstanding June 30, 1998............ 6,886 $10,171,183 $ 7,734,708
=================================================
</TABLE>
82
<PAGE>
7. Forward Foreign Currency Exchange Contracts
At June 30, 1998, Growth and Income had open forward foreign currency exchange
contracts that obligate the Fund to deliver currencies at specified future
dates. The net unrealized gain of $1,458,107 on these contracts are included in
the accompanying financial statements. The terms of the open contracts are as
follows:
<TABLE>
<CAPTION>
Growth and Income
-----------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered June 30, 1998 be Received June 30, 1998 Gain (Loss)
-------- ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Contracts to Buy
----------------
7/3/98 742,136 $742,136 1,224,000 $746,096 $3,960
U.S. Dollar Australian Dollar
------------------------------------------------------------------------------------------------------
7/20/98 12,344,109 12,344,109 7,408,051 12,348,974 4,865
U.S. Dollar British Pound
------------------------------------------------------------------------------------------------------
8/24/98 2,514,098 2,514,098 5,087,000 2,509,950 (4,148)
U.S. Dollar Dutch Guilder
------------------------------------------------------------------------------------------------------
8/24/98 86,351 86,351 176,000 86,839 488
U.S. Dollar Dutch Guilder
------------------------------------------------------------------------------------------------------
7/9/98 1,476,169 1,476,169 2,676,000 1,478,698 2,529
U.S. Dollar German Deutschemark
------------------------------------------------------------------------------------------------------
2/19/99 238,738 238,738 1,900,000 244,890 6,152
U.S. Dollar Hong Kong Dollar
------------------------------------------------------------------------------------------------------
7/27/98 1,642,912 1,642,912 230,070,000 1,660,568 17,656
U.S. Dollar Japanese Yen
------------------------------------------------------------------------------------------------------
9/17/98 441,145 441,145 61,950,000 451,143 9,998
U.S. Dollar Japanese Yen
------------------------------------------------------------------------------------------------------
7/1/98 175,809 175,809 1,398,000 175,529 (280)
U.S. Dollar Swedish Krona
------------------------------------------------------------------------------------------------------
Contracts to Sell
-----------------
7/2/98 1,368,000 2,278,358 2,281,728 2,281,728 3,370
British Pound U.S. Dollar
------------------------------------------------------------------------------------------------------
7/7/98 238,000 396,480 396,270 396,270 (210)
British Pound U.S. Dollar
------------------------------------------------------------------------------------------------------
7/20/98 7,048,051 12,348,974 12,011,799 12,011,799 (337,175)
British Pound U.S. Dollar
------------------------------------------------------------------------------------------------------
7/1/98 3,487,000 1,706,494 1,722,869 1,722,869 16,375
Dutch Guilder U.S. Dollar
------------------------------------------------------------------------------------------------------
7/6/98 439,000 215,086 214,743 214,743 (343)
Dutch Guilder U.S. Dollar
------------------------------------------------------------------------------------------------------
5/14/98 13,420,000 6,596,069 6,730,528 6,730,528 134,459
Dutch Guilder U.S. Dollar
------------------------------------------------------------------------------------------------------
8/24/98 6,396,600 3,156,114 3,189,052 3,189,052 32,938
Dutch Guilder U.S. Dollar
------------------------------------------------------------------------------------------------------
7/6/98 1,372,000 249,313 248,672 248,672 (641)
Finnish Markka U.S. Dollar
------------------------------------------------------------------------------------------------------
7/6/98 857,000 141,261 141,838 141,838 577
French Francs U.S. Dollar
------------------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE>
7. Forward Foreign Currency Exchange Contracts (continued)
<TABLE>
<CAPTION>
Growth and Income (continued)
-----------------------------
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered June 30, 1998 be Received June 30, 1998 Gain (Loss)
-------- ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Contracts to Sell (continued)
-----------------------------
7/15/98 60,473,300 $9,988,239 $10,149,027 $10,149,027 $160,788
French Francs U.S. Dollar
------------------------------------------------------------------------------------------------------
8/21/98 132,169,600 21,935,431 21,813,765 21,813,765 (121,666)
French Francs U.S. Dollar
------------------------------------------------------------------------------------------------------
7/1/98 5,352,000 2,952,176 2,950,874 2,950,874 (1,302)
German Deutschemark U.S. Dollar
------------------------------------------------------------------------------------------------------
7/9/98 27,208,000 15,034,536 14,870,620 14,870,620 (163,916)
German Deutschemark U.S. Dollar
------------------------------------------------------------------------------------------------------
7/9/98 386,000 213,295 217,094 217,094 3,799
German Deutschemark U.S. Dollar
------------------------------------------------------------------------------------------------------
8/3/98 24,200,600 13,438,457 13,703,624 13,703,624 265,167
German Deutschemark U.S. Dollar
------------------------------------------------------------------------------------------------------
2/19/99 25,090,000 3,233,839 3,145,293 3,145,293 (88,546)
Hong Kong Dollar U.S. Dollar
------------------------------------------------------------------------------------------------------
7/7/98 2,828,000 3,932,268 3,920,456 3,920,456 (11,812)
Irish Punt U.S. Dollar
------------------------------------------------------------------------------------------------------
7/6/98 77,440,000 549,524 545,794 545,794 (3,730)
Japanese Yen U.S. Dollar
------------------------------------------------------------------------------------------------------
7/27/98 2,510,465,000 18,119,691 19,454,710 19,454,710 1,335,019
Japanese Yen U.S. Dollar
------------------------------------------------------------------------------------------------------
7/27/98 571,540,000 4,125,183 4,089,770 4,089,770 (35,413)
Japanese Yen U.S. Dollar
------------------------------------------------------------------------------------------------------
8/26/98 3,138,540,000 22,788,025 23,373,282 23,373,282 585,257
Japanese Yen U.S. Dollar
------------------------------------------------------------------------------------------------------
9/17/98 2,499,011,000 18,198,747 17,310,966 17,310,966 (887,781)
Japanese Yen U.S. Dollar
------------------------------------------------------------------------------------------------------
7/1/98 137,880,000 896,204 902,031 902,031 5,827
Spanish Peseta U.S. Dollar
------------------------------------------------------------------------------------------------------
7/6/98 350,690,000 2,281,378 2,277,356 2,277,356 (4,022)
Spanish Peseta U.S. Dollar
------------------------------------------------------------------------------------------------------
7/2/98 23,746,000 15,571,315 16,101,183 16,101,183 529,868
Swiss Franc U.S. Dollar
------------------------------------------------------------------------------------------------------
$1,458,107
===========
</TABLE>
84
<PAGE>
Growth and Income Portfolios
Financial Highlights
Balanced
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 1998 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 1997 1996 1995+ 1994+ 1993+
------------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $16.033 $15.118 $14.502 $12.226 $12.798 $12.066
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income ....................... 0.217 0.499 0.469 0.539 0.480 0.441
Net realized and change in unrealized gain
or loss on investments ..................... 1.493 2.731 1.585 2.737 (0.532) 0.741
------- ------- ------- ------- ------- -------
Total from investment operations ...... 1.710 3.230 2.054 3.276 (0.052) 1.182
------- ------- ------- ------- ------- -------
Less distributions:
From net investment income .................. -- (1.100) (0.350) (0.670) (0.451) (0.440)
From net realized gains on investments ...... (2.477) (1.215) (1.088) (0.330) (0.069) (0.010)
------- ------- ------- ------- ------- -------
Total distributions ................... (2.477) (2.315) (1.438) (1.000) (0.520) (0.450)
------- ------- ------- ------- ------- -------
Net asset value, end of period ................ $15.266 $16.033 $15.118 $14.502 $12.226 $ 12.798
======= ======= ======= ======= ======= ========
Total return* ................................. 10.73% 22.49% 15.17% 27.23% (0.35)% 9.90%
Net assets, end of period (millions) .......... $ 1,829 $ 1,642 $ 1,364 $ 1,196 $ 958 $ 920
Ratio of total expenses to average net assets . 0.58%(1) 0.58% 0.45% 0.31% 0.32% 0.31%
Ratio of net investment income to average net
assets ...................................... 3.02%(1) 3.01% 3.21% 3.96% 3.83% 3.53%
Portfolio turnover rate ....................... 32.65% 112.03% 107.80% 141.21% 112.05% 24.71%
Average commission rate paid per share on
equity securities traded .................... $0.0558 $0.0535 $0.0576 -- -- --
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements.
85
<PAGE>
Growth and Income Portfolios
Financial Highlights (continued)
Growth and Income
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, Year Ended Year Ended Year Ended Year Ended Year Ended
1998 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 1997 1996 1995+ 1994+ 1993+
----------- ------------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $33.635 $ 32.391 $29.055 $ 26.229 $31.245 $31.602
-------- --------- -------- --------- -------- --------
Income from investment operations:
Net investment income ........................ 0.195 0.544 0.651 0.724 0.765 0.822
Net realized and change in unrealized gain or
loss on investments ........................ 4.086 8.939 6.446 7.620 (1.071) 1.287
-------- --------- -------- --------- -------- --------
Total from investment operations ....... 4.281 9.483 7.097 8.344 (0.306) 2.109
-------- --------- -------- --------- -------- --------
Less distributions:
From net investment income ................... (0.185) (0.578) (0.733) (0.723) (0.811) (0.814)
From net realized gains on investments ....... (0.531) (7.661) (3.028) (4.795) (3.899) (1.652)
-------- --------- -------- --------- -------- --------
Total distributions .................... (0.716) (8.239) (3.761) (5.518) (4.710) (2.466)
-------- --------- -------- --------- -------- --------
Net asset value, end of period ................. $37.200 $ 33.635 $32.391 $ 29.055 $26.229 $31.245
======== ========= ======== ========= ======== ========
Total return* .................................. 12.75% 29.89% 24.46% 32.25% (0.96)% 6.74%
Net assets, end of period (millions) ........... $10,227 $ 9,188 $ 6,954 $ 5,662 $ 4,424 $ 4,988
Ratio of total expenses to average net assets .. 0.56%(1) 0.56% 0.43% 0.29% 0.30% 0.29%
Ratio of net investment income to average net
assets ....................................... 1.08%(1) 1.46% 2.02% 2.42% 2.52% 2.57%
Portfolio turnover rate ........................ 85.07% 107.01% 85.03% 96.63% 84.27% 25.22%
Average commission rate paid per share on
equity securities traded ..................... $0.0503 $ 0.0397 $0.0418 -- -- --
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements.
86
<PAGE>
Real Estate
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended Period From
June 30, 1998 December 15, 1997 to
(Unaudited) December 31, 1997
---------------- ----------------------
<S> <C> <C>
Net asset value, beginning of period ............................................. $ 10.306 $ 10.000
--------- ---------
Income from investment operations:
Net investment income .......................................................... 0.206 0.050
Net realized and change in unrealized gain or loss on investments .............. (0.598) 0.309
--------- ---------
Total from investment operations ......................................... (0.392) 0.359
--------- ---------
Less distributions:
From net investment income ..................................................... -- (0.053)
--------- ---------
Total distributions ...................................................... -- (0.053)
--------- ---------
Net asset value, end of period ................................................... $ 9.914 $ 10.306
========= =========
Total return* .................................................................... (3.88)% 3.59%
Net assets, end of period (000's) ................................................ $ 5,837 $ 5,153
Ratio of total expenses to average net assets .................................... 0.95%(1) 0.95%(1)
Ratio of net investment income to average net assets ............................. 4.75%(1) 9.99%(1)
Ratio of net expense before reimbursement and waiver to average net assets ....... 1.07%(1) --
Ratio of net investment income before reimbursement and waiver to average net
assets ......................................................................... 4.63%(1) --
Portfolio turnover rate .......................................................... 29.38% --
Average commission rate paid per share on equity securities traded ............... $ 0.0525 $ 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.
87
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna Bond VP
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year
------ ------ -------
<S> <C> <C>
9.28% 6.51% 9.02%
</TABLE>
<TABLE>
<CAPTION>
Jan-88
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Bond VP 10,000 10,763 12,331 13,458 16,075 18,944 18,205 21,526
Lehman Brother Aggregate
Bond Index 10,000 10,789 12,357 13,464 16,774 18,409 17,872 21,173
<CAPTION>
Jun-98
<C> <C> <C> <C> <C> <C> <C>
Aetna Bond VP 22,299 22,241 22,959 23,733 24,152 24,546 25,089
Lehman Brother Aggregate
Bond Index 21,941 21,818 22,619 23,370 24,059 24,430 25,001
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
Aetna Bond VP
How did the Fund perform during the period?
Aetna Income Shares d/b/a Aetna Bond VP (Bond) generated a total return of
3.89%, net of fund expenses, for the six month period ended June 30, 1998. The
Lehman Brothers Aggregate Bond Index(a) returned 3.93% during the same period.
When compared against the Morningstar, Inc. universe of variable annuity
intermediate-term bond funds, the Fund ranked in the top 75% (out of 249 funds),
59% (out of 167 funds) and 47% (out of 105 funds) for the past one, five and ten
year periods ended June 30, 1998, respectively.
What economic or financial market conditions impacted the Fund?
The first half of 1998 marked a period of change and adjustment for many of the
world's economies. The equity markets of Europe responded strongly to signs of
economic growth as these countries emerged from a period of restrictive fiscal
policies designed to meet European Monetary Unit targets. On the other hand,
Asian equity and currency markets remained volatile. Pledged support from the
International Monetary Fund (IMF) provided some relief and stability to the
region, but was short lived. The yen fell sharply in response to Japan's
inability to successfully address problems with its banking system and revive
its downtrodden economy. The yen reached a low of 146.14 versus the U.S. dollar
before coordinated intervention efforts in mid-June reversed part of the
decline. Even so, the yen has lost 6.3% of its value against the dollar since
the beginning of the year.
The U.S. Treasury market continued to benefit from the turmoil in Asia and the
liquidity crisis in Russia. Although domestic growth remained strong, the
ensuing flight to safety pushed interest rates lower. The yield on 30-year
Treasury bonds fell to a new low of 5.57% in mid-June. Lower commodity prices
along with the lack of corporate pricing power have kept inflation in check. The
yield curve flattened further as monetary policy remained on hold and inflation
risk premiums declined. The yield differential between 2-year Treasury notes and
30-year Treasury bonds stood at a mere 0.15% at the end of June.
Lower interest rates spurred on housing activity and near record volume of new
corporate issuance. Concerns over accelerated prepayment activity widened
mortgages spreads while supply weighed heavily on corporate bond spreads. Supply
factors also dominated the domestic high yield market in the second quarter as
the increase in credit risk premiums eroded part of first quarter's
outperformance.
What investments influenced the Fund's performance over the past six months?
Long Treasury and agency securities that were added to extend the duration
posture of the Fund contributed to overall returns. Benefits were also derived
from the maturity barbell structure of the portfolio holdings as the yield curve
flattened over the period. Sector allocations provided mixed results. The
underweight mortgage exposure contributed to relative
88 See Definition of Indices.
<PAGE>
performance while an overweight allocation to the corporate sector detracted
from performance as yield spread differentials widened for both sectors.
Merger and consolidation activity provided some benefits to the Fund's holdings
in the cable and media industries. Considerably wider spreads in the REIT sector
provided an attractive entry level. The Fund's purchases of these securities
added incremental returns as spreads narrowed from new issue levels. The Fund
opportunistically reduced its holdings of Yankee* and foreign bonds when spreads
narrowed in response to IMF support to Korea, Indonesia and Thailand. The
results from the high yield holdings were disappointing as spreads widened with
supply concerns.
What is your outlook going forward?
We are of the opinion that interest rates will remain consistent over the next
several months. The strong 5.4% Gross Domestic Product (GDP) growth in the first
quarter is not likely to be sustained. Factors that lead to an economic slowdown
are in place. Trade impact from Asia will have a dampening effect on U.S. growth
as the economic slump across Asia grows both wider and deeper. Export growth has
already shown signs of collapsing. The drop in final sales should lead to an
inventory correction as firms reduce stockpiles from the first quarter. While
this should bode well for the U.S. bond market in the near term, we are less
optimistic longer term. A faster than expected rebound in Asia will refocus
attention on economic fundamentals. Strong domestic demand, high consumer
confidence levels and tight labor markets could still provide the underpinnings
for higher yield levels later this year.
* Yankee bonds are bonds issued by foreign corporations denominated in U.S.
dollars and sold in the United States.
<TABLE>
<CAPTION>
Quality Ratings % of Portfolio
<S> <C>
AAA 60.3%
AA 4.8%
A 10.7%
BBB 8.2%
BB 5.2%
B 4.4%
CCC 0.8%
N/R 5.6%
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution % of Portfolio
<S> <C>
0- 1 years 26.9%
1- 5 years 20.1%
5-10 years 10.8%
10-20 years 12.8%
20 + years 29.4%
</TABLE>
89
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna High Yield VP
Growth of $10,000
Average Total Returns for the Period Ended
June 30, 1998*
Since Inception+
----------------
8.73%
<TABLE>
<CAPTION>
Dec-97 Jun-98
<S> <C> <C> <C> <C>
Aetna High Yield VP 10,000 10,150 10,813 10,872
Merrill Lynch High Yield Master Trust Index 10,000 10,058 10,337 10,511
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Portfolio commenced investment operations on December 10, 1997.
Aetna High Yield VP
How did the Portfolio perform during the period?
Aetna High Yield VP (High Yield) generated a total return of 7.12%, net of fund
expenses, for the six month period ended June 30, 1998. The Merrill Lynch High
Yield Master Trust Index(b) returned 4.51% during the same period.
What economic or financial market conditions impacted the Portfolio?
Outperformance represents overweighting in the single B and telecommunications
sectors, which have outperformed over this period. This was offset somewhat by
underperformance in the transportation sector and recent underperformance in the
deferred coupon sector.
What investments influenced the Portfolio's performance over the past six
months?
The high yield market widened approximately 0.50% during the second quarter, due
to extremely heavy issuance of new securities, concerns over Asia, and declines
in mutual fund inflows. The market could widen further near-term as new supply
continues to be strong, but we believe high yield bonds offer strong relative
value versus other fixed income assets and equities in this environment.
Excluding cyclicals and Southeast Asian sectors, we would view further widening
as a compelling buying opportunity.
What is your outlook going forward?
Given the relatively strong economic fundamentals and low interest rate
environment, high yield credits should continue to do well, and we would look
for opportunities to add to strong credits at wider spreads. We continue to like
single B's when priced appropriately, as well as the high growth
telecommunications sector.
High yielding fixed income securities are subject to greater market fluctuations
and risk of loss of income and principal than investments in lower yielding
fixed income securities.
90 See Definition of Indices.
<PAGE>
Quality Ratings % of Portfolio
B 70.2%
CCC 9.9%
N/R 19.9%
Maturity Distribution % of Portfolio
0- 1 years 6.3%
1- 5 years 5.6%
5-10 years 81.6%
10-20 years 6.5%
91
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna Money Market VP
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year
------ ------ -------
<S> <C> <C>
5.52% 5.04% 5.87%
</TABLE>
<TABLE>
<CAPTION>
Jan-88
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Money Market VP 10,000 10,753 11,762 12,755 13,588 14,086 14,535 15,127
IBC/Donoghue Public Money
Market Funds 10,000 10,685 11,596 12,473 13,167 13,606 13,970 14,485
<CAPTION>
Jun-98
<C> <C> <C> <C> <C> <C> <C> <C>
Aetna Money Market VP, 16,042 16,903 17,115 17,349 17,587 17,828 18,067 18,307
IBC/Donoghue Public Money
Market Funds 15,260 15,997 16,188 16,385 16,587 16,792 17,002 17,211
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna. An
investment in this Fund is neither insured nor guaranteed by the United States
Government.
Aetna Money Market VP
How did the Fund perform during the period?
Aetna Variable Encore Fund d/b/a Aetna Money Market VP (Money Market) generated
a total return of 2.68%, net of fund expenses, for the six month period ended
June 30, 1998. The Fund outperformed the IBC's Money Funds Report Average/All
Taxable Index(c) which returned 2.49%. As of June 30, 1998, the Fund reported a
7-day yield of 5.38% with an average weighted maturity of 52 days. When compared
against the Morningstar, Inc. universe of variable annuity money market funds,
the Fund ranked in the top 20% (out of 300 funds), 13% (out of 238 funds) and
13% (out of 173 funds) for the past one, five and ten year periods ended June
30, 1998, respectively.
What economic or financial market conditions impacted the Fund?
The Federal Reserve has held monetary policy steady in the first half of the
year despite a tight labor market, strong housing activity and money supply
growth. Attention instead has been focused on the deflationary events in Asia
and the potential impact on global economic activity. Interest rates fell over
the period as investors sought the safe haven of the U.S. Treasury market. The
Treasury bill curve steepened as yields on 3 month bills fell by 0.25% while 12
month bill yields were only 0.11% lower.
Credit spreads widened in response to the large volume of new issuance in the
second quarter. Merger and acquisition activity also contributed to the supply
of commercial paper that dominated the market. Active securitization of loan
portfolios by finance companies also added asset-backed issuance to the supply.
What investments influenced the Fund's performance over the past six months?
The Fund increased its allocation to asset-backed securities to take advantage
of the attractive yields offered as a result of supply technicals. Sizable
holdings in floating rate securities also contributed to returns. London
Interbank Offered Rate (LIBOR) based floaters were particularly attractive as
LIBOR rates held relatively steady while other short term indices fell in yield.
Yankee CDs were added to the portfolio mix as the pressure on Japanese banks
caused a generally widening in all foreign bank paper.
What is your outlook going forward?
We believe that monetary policy will remain unchanged for the balance of the
year. Federal Reserve Chairman Greenspan has indicated that he believes slower
domestic growth, continued Asian weakness, and soft commodity prices will keep
U.S. inflation in check. Domestic demand overpowered the external drag on the
economy in the first part of the year and moved the Federal Reserve to a
tightening bias. However, the collapse of export growth to Asia and an inventory
overhang
92 See Definition of Indices.
<PAGE>
will take a toll on U.S. growth going forward. Domestic demand remains strong
and the degree to which it is likely to offset some of this weakness will
determine how the economy performs for the rest of the year.
Quality Ratings* % of Portfolio
Tier 1 100.0%
Tier 2 --
Maturity Distribution % of Portfolio
1- 30 days 48.5%
31- 60 days 12.4%
61- 90 days 8.2%
91-120 days 3.6%
121-180 days 1.8%
181-397 days 25.5%
* Tier 1 securities are securities which are rated in the highest short-term
rating category by at least two nationally recognized statistical rating
organizations (NRSROs) or by the only NRSRO that has rated the security or
comparable unrated securities. Tier 2 securities are securities that are not
rated as Tier 1.
93
<PAGE>
Definition of Indices
(a) The Lehman Brothers Aggregate Bond Index is an unmanaged index of corporate,
government and mortgage bonds.
(b) The Merrill Lynch High Yield Master Trust Index is an unmanaged, broad gauge
of the high yield bond market and does not take into account any fees and
expenses of the individual securities that it tracks.
(c) IBC's Money Funds Report Average/All Taxable Index (IBC) is an average of
the returns of over 250 money market mutual funds surveyed each month by IBC.
94
<PAGE>
Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Bond
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------- -----------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (83.8%)
U.S. Government and Agency Obligations (45.9%)
Agency Mortgage-Backed Securities (17.8%)
Federal National Mortgage
Association, Zero Coupon, 06/25/19 ............. $ 259,344 $ 255,005
Federal National Mortgage
Association, 6.50%, 11/01/19* .................. 15,000,000 14,943,750
Federal National Mortgage
Association, 7.00%, 08/01/25 - 05/01/28 ........ 27,270,905 27,674,337
Federal National Mortgage
Association, 7.50%, 07/14/27* .................. 15,000,000 15,389,063
Federal National Mortgage
Association, 8.00%, 07/14/27* .................. 10,000,000 10,353,125
Government National Mortgage
Association, 6.50%, 01/01/20* .................. 15,000,000 14,971,875
Government National Mortgage
Association, 7.00%, 04/15/26 - 05/01/28* ....... 19,040,506 19,355,609
Government National Mortgage
Association, 7.50%, 02/01/26* .................. 10,000,000 10,281,250
Government National Mortgage
Association, 10.00%, 10/15/09 - 01/15/21 ...... 6,397,615 6,993,390
Government National Mortgage
Association, 10.50%, 02/15/13 - 01/15/21 ....... 7,131,333 7,817,721
Government National Mortgage
Association, 11.00%, 02/15/10 .................. 28,415 31,123
------------
128,066,248
------------
U.S. Government Agency Obligations (3.7%)
Federal National Mortgage
Association, 5.75%, 04/15/03** ................. 13,000,000 13,036,563
Federal National Mortgage
Association, 6.00%, 05/15/08 ................... 5,000,000 5,093,705
Small Business Administration
92-20K, 7.55%, 11/01/12 ........................ 7,926,350 8,367,055
-----------
26,497,323
-----------
U.S. Treasuries (24.4%)
U.S. Treasury Bond, 6.13%, 11/15/27*** ........... 26,500,000 28,400,482
U.S. Treasury Bond, 6.38%, 08/15/27 .............. 6,000,000 6,590,595
U.S. Treasury Bond, 6.63%, 02/15/27 .............. 21,000,000 23,720,183
U.S. Treasury Bond, 10.38%, 11/15/12** ........... 10,000,000 13,392,163
U.S. Treasury Note, 5.75%, 11/30/02 .............. 10,000,000 10,084,363
U.S. Treasury Note, 6.25%, 05/31/00 .............. 20,000,000 20,265,525
U.S. Treasury Note, 6.25%, 04/30/01 .............. 15,000,000 15,281,194
U.S. Treasury Note, 6.50%, 05/31/01 .............. 15,000,000 15,386,644
U.S. Treasury Note, 6.63%, 03/31/02 .............. 6,000,000 6,215,618
U.S. Treasury Note, 6.88%, 07/31/99 .............. 10,000,000 10,140,663
U.S. Treasury Note, 6.88%, 03/31/00*** ........... 25,000,000 25,558,657
-----------
175,036,087
-----------
Total U.S. Government and Agency
Obligations (cost $322,998,619) 329,599,658
-----------
Principal Market
Amount Value
---------- ---------
Corporate Bonds (36.3%)
Electric and Telephone Bonds (2.7%)
Comcast Cellular, 9.50%, 05/01/07 ............ $ 5,000,000 $ 5,187,500
Level 3 Communications, 9.13%, 05/01/08++ .... 5,600,000 5,446,000
McLeod USA, Inc., 8.38%, 03/15/08 ............ 4,800,000 4,812,000
Worldcom, Inc., 8.88%, 01/15/06 .............. 3,689,000 4,016,620
------------
19,462,120
------------
Financial Bonds (14.6%)
American General, 8.13%, 08/15/09 ............ 10,000,000 11,380,100
Associates Corp. N.A., 7.95%, 02/15/10**...... 15,000,000 17,050,349
Bayerische Landesbank, 6.25%, 03/15/00 ....... 12,000,000 12,072,480
EOP Operating L.P., 6.38%, 02/15/03++ ........ 4,200,000 4,182,150
First Empire Capital Trust II, 8.28%, 06/01/27 7,150,000 7,893,922
Ford Motor Credit Corp., FRN,
5.95%, 02/22/99** .......................... 15,000,000 15,034,216
General Electric Capital Corp.,
8.63%, 06/15/08*** ......................... 10,000,000 11,942,650
HSBC America, 7.81%, 12/15/26++ .............. 6,500,000 6,764,940
Simon DeBartolo Group LP, 6.63%, 06/15/03++ .. 7,000,000 6,975,500
Zurich Capital Trust, 8.38%, 06/01/37++....... 10,500,000 11,655,525
------------
104,951,832
------------
Foreign and Supranationals (10.3%)
Globo Communicacoes, 10.63%, 12/05/08++ ...... 3,750,000 3,318,750
Hutchison Whampoa Financial, 6.95%,
08/01/07++ ................................. 7,500,000 6,476,550
Inter-American Development Bank,
12.25%, 12/15/08 ........................... 7,775,000 11,565,857
International Bank For Reconstruction
& Development, 9.25%, 07/15/17** ........... 11,000,000 15,068,460
Panama (Republic of), 7.88%, 02/13/02++ ...... 7,632,000 7,498,440
Rogers Cablesystem, 10.00%, 03/15/05 ......... 8,500,000 9,456,250
Skanidinavinska Enskilda Bank,
6.69%, 06/29/49 ............................ 5,000,000 5,062,500
Svenska Handlesbanken, 6.19%, 03/29/49 ....... 10,000,000 10,087,500
Telewest Plc, 11.00%, 10/01/07 ............... 6,850,000 5,659,813
------------
74,194,120
------------
Other Public Corporate Bonds (8.7%)
Echostar Satellite Broadcast, Zero
Coupon, 03/15/04 ........................... 4,950,000 4,560,188
Enron Oil & Gas, 6.50%, 12/01/07 ............ 8,000,000 8,087,600
Hvide Marine Inc., 8.38%, 02/15/08 ........... 6,000,000 5,730,000
PSINET, Inc., 10.00%, 02/15/05 ............... 5,050,000 5,151,000
Sun International Hotels, 9.00%, 03/15/07 .... 5,000,000 5,250,000
Time Warner, Inc., 7.95%, 02/01/00 ........... 7,000,000 7,183,757
Time Warner, Inc., 9.13%, 01/15/13 ........... 10,000,000 12,187,200
TRW, Inc., 9.35%, 06/04/20 ................... 10,500,000 13,966,628
------------
62,116,373
------------
Total Corporate Bonds (cost $247,766,141) 260,724,445
------------
</TABLE>
See Notes to Portfolio of Investments. 95
<PAGE>
Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Bond (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------- -----------
<S> <C> <C>
Non-Agency Mortgage-Backed Securities (1.6%)
Asset-Backed Securities (1.0%)
First Security Auto Grantor Trust,
6.10%, 04/15/03 ............................ $ 7,185,053 $ 7,218,732
----------
Mortgage-Backed Securities (0.6%)
Chase Mortgage Finance, 6.75%, 11/25/09 ...... 2,965,521 2,968,301
Security Pacific National Bank,
8.50%, 04/25/17++++ ........................ 1,557,526 1,554,119
----------
4,522,420
----------
Total Non-Agency Mortgage-Backed
Securities (cost $11,665,133) 11,741,152
----------
Total Long-Term Bonds and Notes (cost $582,429,893) 602,065,255
----------
SHORT-TERM INVESTMENTS (27.9%)
AT&T Capital Corp., Comm. Paper,
5.80%, 07/07/98 ............................ 15,000,000 14,985,500
Crown Cork & Seal Co., Comm. Paper,
5.73%, 07/06/98 ............................ 11,100,000 11,091,166
Houston Industries Fin., Comm. Paper,
5.72%, 07/13/98++ .......................... 10,000,000 9,980,933
Occidental Petroleum, Comm. Paper,
5.72%, 07/06/98++ .......................... 15,000,000 14,988,083
Occidental Petroleum, Comm. Paper,
5.83%, 07/09/98++ .......................... 10,000,000 9,987,044
Occidental Petroleum, Comm. Paper,
5.95%, 07/09/98++ .......................... 3,691,000 3,686,120
Pennsylvania Power & Light, Comm Paper,
5.95%, 07/14/98 ............................ 4,500,000 4,490,331
PHH Corp., Medium-Term Notes,
5.596%, 11/03/98 ........................... 9,000,000 8,995,909
PHH Corp., Comm. Paper, 5.69%, 08/04/98....... 5,000,000 4,999,317
PS Co. of Colorado, Comm. Paper,
7.00%, 07/01/98 ............................ 31,000,000 31,000,000
Raytheon Co., Comm. Paper, 5.80%,
07/08/98++ ................................. 10,000,000 9,988,722
Raytheon Co., Comm. Paper, 5.86%,
08/31/98++ ................................. 15,000,000 15,006,300
Sprint Capital Corp., Comm. Paper,
7.00%, 07/01/98++ .......................... 30,606,000 30,606,000
Textron Financial Corp., Comm. Paper,
7.00%, 07/01/98 ............................ 31,000,000 31,000,000
----------
Total Short-Term Investments (cost $200,799,112) 200,805,425
----------
TOTAL INVESTMENTS (cost $783,229,005)(a) 802,870,680
Other assets less liabilities (84,294,196)
----------
Total Net Assets $718,576,484
==========
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses based on identified tax cost at June 30, 1998, are
as follows:
<TABLE>
<S> <C>
Unrealized gains .................................. $21,730,704
Unrealized losses ................................. (2,089,029)
===========
Net unrealized gain ............................. $19,641,675
===========
</TABLE>
* When-issued or delayed delivery security.
** Segregated securities for purchases of delayed delivery or when-issued
securities held at June 30, 1998.
*** Partially segregated securities for purchases of delayed delivery or
when-issued securities held at June 30, 1998.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
+++ Restricted security. This security has been determined to be illiquid
under guidelines established by the Board of Trustees.
Category percentages are based on net assets.
96 See Notes to Portfolio of Investments.
<PAGE>
Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
High Yield
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------
<S> <C> <C>
COMMON STOCKS (0.0%)
American Banknote Corp., Warrants+ ............... 250 $ 2,500
Knology Holdings, Inc., Warrants+ ................ 200 1,000
--------
Total Common Stocks (cost $2,013) 3,500
--------
PREFERRED STOCKS (4.8%)
Cluett American Corp.++ .......................... 150,000 151,125
Cumulus Media Preferred+ ......................... 75 76,313
Nebco Evans Holding Co. .......................... 153,984 157,064
Rural Cellular Corp.++ ........................... 150,000 150,750
--------
Total Preferred Stocks (cost $528,984) 535,252
--------
Principal
Amount
--------
LONG-TERM BONDS AND NOTES (89.3%)
Corporate Bonds (89.3%)
Adelphia Communications, 8.13%, 07/15/03++ ....... $100,000 99,500
America Lawyer Holding, Zero Coupon, 12/15/08++ .. 250,000 159,063
American Banknote Corp., 11.25%, 12/01/07 ........ 250,000 243,750
Ameristar Casinos, Inc., 10.50%, 08/01/04++ ...... 250,000 260,000
ATC Group Services, Inc., 12.00%, 01/15/08++ ..... 200,000 188,500
Bestel SA, 12.75%, 05/15/05 ...................... 250,000 167,500
Casino Magic-Louisiana, 13.00%, 08/15/03++ ....... 250,000 290,625
Chancellor Media Corp., 8.13%, 12/15/07 .......... 200,000 202,750
Cumulus Media, Inc., 10.38%, 07/01/08 ............ 100,000 101,375
Empress Entertainment, 8.13%, 07/01/06++ ......... 100,000 100,250
Equimar Shipholdings Ltd., 9.88%, 07/01/07++ ..... 250,000 227,500
Esprit Telecom Group Plc, 11.50%, 12/15/07 ....... 250,000 257,500
Firstworld Communication, Zero Coupon,
04/15/08++ ..................................... 250,000 111,250
Flag Ltd., 8.25%, 01/30/08++ ..................... 175,000 176,312
Galaxy Telecom L.P., 12.38%, 10/01/05 ............ 250,000 278,125
Hollywood Casino Corp., 12.75%, 11/01/03 ......... 500,000 547,500
Intelcom Group, Inc., Zero Coupon, 05/01/06++ .... 250,000 198,750
Iridium Llc/Capital Corp., 11.25%, 07/15/05 ...... 500,000 501,250
IXC Communications, Inc., 9.00%, 04/15/08++ ...... 200,000 201,000
Jordan Telecom Products, 9.88%, 08/01/07 ......... 250,000 255,000
KMC Telcom Holdings, Inc., Zero
Coupon, 02/15/08++ ............................. 600,000 348,000
Knology Holdings, Inc., 11.88%, 10/15/07 ......... 200,000 115,000
Majestic Star Casino LLC, 12.75%, 05/15/03++ ..... 500,000 548,125
McLeod USA, Inc., Zero Coupon, 03/01/07++ ........ 250,000 185,625
Metronet Communications, 9.95%, 06/15/08++ ....... 300,000 185,625
Metronet Communications, 10.75%, 11/01/07 ........ 500,000 327,500
Microcell Telecommunications, Zero
Coupon, 06/01/06++ ............................. 500,000 373,750
National Fiberstock Corp., 11.63%, 06/15/02++ .... 60,000 63,600
Nextel Communications, Inc., Zero
Coupon, 01/15/04 ............................... 500,000 491,250
Norton Mcnaught, Inc., 12.50%, 06/01/05++ ........ 150,000 152,250
NTLI, Inc., Zero Coupon, 04/01/08++ .............. 200,000 129,000
Optel, Inc., 11.50%, 07/01/08++ .................. 150,000 150,000
<CAPTION>
Principal Market
Amount Value
-------- ------
<S> <C> <C>
Corporate Bonds (continued)
Orion Network Systems, 12.50%, 01/15/07 .......... $250,000 $ 196,250
Park N View, Inc., 13.00%, 05/15/08++ ............ 50,000 49,750
PSINET, Inc., 10.00%, 02/15/05 ................... 200,000 204,000
RAB Enterprises, Inc., 10.50%, 05/01/05++ ........ 150,000 150,750
Richmont Marketing Special, 10.13%, 12/15/07++ ... 300,000 304,500
Simcala, Inc., 9.63%, 04/15/06++ ................. 200,000 197,250
TBS Shipping International Ltd.,
10.00%, 05/01/05++ ............................. 200,000 182,000
Telecomm Techniques Co., 9.75%, 05/15/08++ ....... 100,000 102,250
Trench Electric & Trench, Inc.,
10.25%, 12/15/07 ............................... 250,000 253,125
Verio, Inc., 10.38%, 04/01/05++ .................. 250,000 257,500
Winstar Communications, Inc., Zero
Coupon, 03/15/08++ ............................. 200,000 198,500
Winstar Communications, Inc., 10.00%,
03/15/08++ ..................................... 150,000 149,250
--------
Total Long-Term Bonds and Notes (cost $9,797,770) 9,882,350
--------
SHORT-TERM INVESTMENTS (6.3%)
Federal Home Loan Mortgage Corp.,
5.50%, 07/01/98 ................................ 697,000 697,000
----------
Total Short-Term Investments (cost $697,000) 697,000
----------
TOTAL INVESTMENTS (cost $11,025,767)(a) 11,118,102
Other assets less liabilities (48,855)
==========
Total Net Assets $11,069,247
==========
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 June 30, 1998, are
as follows:
Unrealized gains ................................. $ 189,395
Unrealized losses ................................ (97,060)
---------
Net unrealized gain ............................ $ 92,335
=========
</TABLE>
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 97
<PAGE>
Income Portfolios
Portfolio of Investments - June 30, 1998 (Unaudited)
Money Market
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------- ------
<S> <C> <C>
Asset-Backed Securities (29.4%)
Americredit Auto Receivables Trust,
5.63%, 06/12/99 ........................ $11,366,869 $ 11,365,051
Americredit Auto Receivables Trust
1998-A, 5.56%, 03/05/99 ................ 20,223,945 20,214,439
Asset Backed Securities Investment
Trust 1997-E, 5.66%, 08/15/98++ ........ 19,000,000 19,000,000
Capital Equipment Receivables Trust
1997-1, 5.79%, 12/15/98 ................ 9,243,788 9,244,713
CARCO Auto Loan Master Trust
1993-2, 5.60%, 11/15/98 ................ 15,500,000 15,551,150
Case Equipment Loan Trust 1998-A,
5.55%, 03/15/99 ........................ 4,639,252 4,636,005
Chase Manhattan Auto Owner Trust
1998-A, 5.55%, 03/12/99 ................ 15,017,900 15,008,439
Chase Manhattan Auto Owner Trust
1998-B, 5.58%, 05/10/99 ................ 7,613,302 7,613,302
Chase Manhattan Auto Owner Trust
1998-C, 5.59%, 07/09/99 ................ 9,000,000 9,000,000
Compass Auto Receivable Trust
1998-A, 5.66%, 07/15/99* ............... 14,000,000 13,997,760
ContiMortgage Home Equity Loan
Trust 1998-1, 5.65%, 03/15/99 .......... 5,990,566 5,990,087
Ford Credit Auto Owner Trust,
5.62%, 05/17/99 ........................ 23,745,909 23,745,672
Ford Credit Auto Owner Trust
1997-B, 5.75%, 10/15/98 ................ 1,460,938 1,460,924
Green Tree Financial Corp., 5.68%,
06/01/99 ............................... 4,500,000 4,499,280
Green Tree Financial Corp., 5.69%,
05/01/99 ............................... 5,319,183 5,318,332
Green Tree Receivable Equipment &
Construction Trust, 5.67%, 07/15/99 .... 15,000,000 15,000,000
Long Lane Master Trust III 1997-C,
5.75%, 11/02/98++++ .................... 11,300,000 11,300,000
Long Lane Master Trust Ill 1998-B,
5.71%, 04/30/99++++ .................... 14,300,000 14,300,000
MMCA Auto Owner Trust 1997-1,
5.63%, 11/15/98 ........................ 3,334,396 3,335,163
------------
Total Asset-Backed Securities 210,580,317
------------
Certificates of Deposit (4.3%)
Deutsche Bank AG (NY), 5.70%,
03/30/99** ............................. 15,500,000 15,492,560
Svenska Handelsbanken, Inc., 5.72%,
03/31/99 ............................... 15,300,000 15,294,798
------------
Total Certificates of Deposit 30,787,358
------------
Commercial Paper - Domestic (29.9%)
AVCO Financial Services, Inc.,
5.52%, 07/06/98 ........................ 13,000,000 12,990,033
Bankers Trust New York Corp.,
5.58%, 09/23/98 ........................ 7,000,000 6,909,980
Baxter International, Inc., 6.15%,
07/07/98++ ............................. 11,000,000 10,988,725
BT Alex Brown, Inc., 5.64%, 07/13/98 ..... 7,000,000 6,986,840
Ciesco L.P., 5.62%, 07/28/98++ ........... 4,700,000 4,680,190
Commercial Credit Corp., 5.55%,
09/14/98 ............................... 8,500,000 8,401,719
<CAPTION>
Principal Market
Amount Value
--------- ------
<S> <C> <C>
Commercial Paper - Domestic (continued)
Cooperative Assoc. of Tractor Dealers,
Inc., Series A, 5.47%, 09/02/98 ........ $ 2,100,000 $ 2,079,672
Cooperative Assoc. of Tractor Dealers,
Inc., Series B, 5.40%, 07/27/98 ........ 5,100,000 5,080,110
Cooperative Assoc. of Tractor Dealers,
Inc., Series B, 5.40%, 07/31/98 ........ 3,000,000 2,986,500
Cooperative Assoc. of Tractor Dealers,
Inc., Series B, 5.52%, 07/22/98 ........ 3,800,000 3,787,764
Cooperative Assoc. of Tractor Dealers,
Inc., Series B, 5.54%, 09/14/98 ........ 4,500,000 4,448,115
Corporate Asset Funding Co., Inc.,
5.52%, 10/09/98 ........................ 15,000,000 14,771,550
Corporate Asset Funding Co., Inc.,
5.58%, 08/18/98 ........................ 9,000,000 8,933,040
CSW Credit, Inc., 5.54%, 07/17/98++ ...... 7,000,000 6,982,764
CSW Credit, Inc., 5.56%, 08/12/98++ ...... 9,000,000 8,941,620
Dakota Certificates - Standard Credit
Card Master Trust 1, 5.53%, 07/27/98++ . 8,500,000 8,466,052
Dealers Capital Access Trust, Inc.,
5.50%, 08/31/98 ........................ 11,500,000 11,391,785
Eureka Securitization, Inc., 5.53%,
07/22/98++ ............................. 6,000,000 5,980,645
Eureka Securitization, Inc., 5.53%,
09/02/98++ ............................. 5,000,000 4,951,850
Finova Capital Corp., 5.48%, 09/14/98 .... 6,000,000 5,930,220
Frontier Corp., 5.65%, 07/13/98++ ........ 1,700,000 1,696,798
Frontier Corp., 5.65%, 07/14/98++ ........ 3,330,000 3,323,206
Frontier Corp., 5.68%, 07/24/98++ ........ 5,047,000 5,028,685
Frontier Corp., 5.70%, 07/27/98++ ........ 7,500,000 7,469,125
Frontier Corp., 5.75%, 07/29/98++ ........ 18,000,000 17,919,500
General Electric Capital Corp.,
5.50%, 07/29/98 ........................ 10,000,000 9,957,222
General Electric Capital Corp.,
6.50%, 07/01/98 ........................ 8,929,000 8,929,000
Jefferson Smurfit Financial Corp.,
Series B, 5.55%, 07/28/98 .............. 5,000,000 4,979,188
Republic Industries Funding Corp.,
5.55%, 08/04/98 ........................ 9,000,000 8,952,825
------------
Total Commercial Paper - Domestic 213,944,723
------------
Commercial Paper - Foreign (4.1%)
Province of British Columbia,
5.48%, 10/09/98 ........................ 7,700,000 7,582,729
Skandinaviska Enskilda Banken
Funding, 5.54%, 09/28/98 ............... 10,000,000 9,863,700
Skandinaviska Enskilda Banken
Funding, 5.54%, 09/30/98 ............... 2,000,000 1,971,992
Svenska Handelsbanken, Inc., 5.44%,
08/24/98 ............................... 10,000,000 9,918,400
------------
Total Commercial Paper - Foreign 29,336,821
------------
Corporate Notes (10.0%)
FCC National Bank, 5.55%, 06/01/99 ....... 32,000,000 31,977,920
First National Bank Commerce,
5.68%, 07/31/98 ........................ 30,000,000 29,999,451
First USA Bank, 5.75%, 01/15/99 .......... 3,000,000 2,996,250
GMAC International Finance, 5.69%,
09/11/98 ............................... 4,700,000 4,700,578
98 See Notes to Portfolios of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
<S> <C> <C>
Corporate Notes (continued)
International Lease Finance Corp.,
7.50%, 03/01/99 ........................ $ 2,100,000 $ 2,123,226
------------
Total Corporate Notes 71,797,425
------------
Medium-Term Notes (21.2%)
American Honda Finance Corp.,
5.63%, 04/08/99 ........................ 25,500,000 25,499,490
American Honda Finance Corp.,
5.67%, 05/07/99 ........................ 10,000,000 9,992,000
AmSouth Bank of Alabama, 5.53%, 10/15/98 . 30,000,000 29,976,600
Chrysler Financial Corp., 7.26%, 07/01/98 2,500,000 2,500,000
Countrywide Funding Corp., 5.89%,
08/28/98 ............................... 6,000,000 6,002,537
Finova Capital Corp., 6.38%, 04/15/99 .... 5,500,000 5,522,715
Heller Financial, Inc., 5.74%, 07/06/99 .. 37,000,000 36,981,500
PHH Corp., 5.59%, 02/10/99 ............... 10,000,000 9,998,700
PHH Corp., 5.60%, 11/03/98 ............... 4,500,000 4,498,245
PHH Corp., 5.66%, 08/04/98 ............... 21,000,000 20,999,430
------------
Total Medium-Term Notes 151,971,217
------------
U.S. Government Agency Obligations (0.6%)
U.S. Treasury Note, 5.88%, 02/28/99 ..... 4,000,000 4,010,440
------------
Total U.S. Government Agency Obligations 4,010,440
------------
TOTAL INVESTMENTS (cost $712,416,713)(a) 712,428,301
Other assets less liabilities 3,476,211
------------
Total Net Assets $715,904,512
============
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 June 30, 1998, are
as follows:
Unrealized gains ......................... $ 75,071
Unrealized losses ........................ (63,483)
===========
Net unrealized gain .................... $ 11,588
===========
</TABLE>
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
++++ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Trustees.
* When-issued or delayed delivery securities.
** Segregated securities for purchases of delayed delivery or when-issued
securities held at June 30, 1998.
Category percentages are based on net assets.
See Notes to Portfolios of Investments. 99
<PAGE>
Income Portfolios
Statements of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Money
Bond Yield Market
------------- ----------- -------------
<S> <C> <C> <C>
Assets:
Investments, at market value ................................. $ 802,870,680 $11,118,102 $ 712,428,301
Cash ......................................................... 233 509 308
Receivable for:
Dividends and interest ................................... 7,892,606 164,181 2,678,372
Investments sold ......................................... -- 224,422 --
Fund shares sold ......................................... 18,184 188 1,301,973
Variation margin ......................................... 1,346 -- --
Prepaid expenses ............................................. 9,861 105 9,466
------------- ----------- -------------
Total assets ........................................ 810,792,910 11,507,507 716,418,420
------------- ----------- -------------
Liabilities:
Payable for:
Investments purchased .................................... 91,483,590 424,488 --
Fund shares redeemed ..................................... 438,247 -- 292,774
Accrued investment advisory fees ............................. 219,094 5,511 145,002
Accrued administrative service fees .......................... 40,986 615 42,757
Accrued custodian fees ....................................... 4,770 956 2,324
Other liabilities ............................................ 29,739 6,690 31,051
------------- ----------- -------------
Total liabilities ................................... 92,216,426 438,260 513,908
------------- ----------- -------------
NET ASSETS ................................................. $ 718,576,484 $11,069,247 $ 715,904,512
============= =========== =============
Net assets represented by:
Paid-in capital .............................................. $ 695,634,893 $10,324,625 $ 697,040,652
Net unrealized gain on investments ........................... 19,641,675 92,335 11,588
Undistributed net investment income .......................... 8,115,943 474,417 18,911,770
Accumulated net realized gain (loss) on investments .......... (4,816,027) 177,870 (59,498)
------------- ----------- -------------
NET ASSETS ................................................. $ 718,576,484 $11,069,247 $ 715,904,512
============= =========== =============
Capital Shares:
Authorized ................................................... Unlimited Two Billion Unlimited
Par value .................................................... $ 1.000 $ 0.001 $ 1.000
Outstanding .................................................. 54,976,555 1,030,010 54,922,583
Net Asset Value, offering and redemption price per share (net
assets divided by shares outstanding) ...................... $ 13.071 $ 10.747 $ 13.035
Cost of investments .......................................... $ 783,229,005 $11,025,767 $ 712,416,713
</TABLE>
See Notes to Financial Statements.
100
<PAGE>
Income Portfolios
Statements of Operations
Six Month Period Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Money
Bond Yield Market
------------ ---------- ------------
<S> <C> <C> <C>
Investment Income:
Interest .......................................................... $22,286,885 $ 516,845 $20,135,855
------------ ---------- ------------
Total investment income ..................................... 22,286,885 516,845 20,135,855
------------ ---------- ------------
Expenses:
Investment advisory fees .......................................... 1,374,850 34,105 875,245
Administrative services fees ...................................... 269,158 6,523 319,854
Printing and postage fees ......................................... 6,969 818 5,710
Custody fees ...................................................... 4,851 974 2,742
Transfer agent fees ............................................... 2,150 435 562
Audit fees ........................................................ 4,113 2,252 3,903
Directors'/Trustees' fees ......................................... 3,104 52 3,206
Registration fees ................................................. 2,855 3 9,243
Miscellaneous expenses ............................................ 2,950 25 3,273
------------ ---------- ------------
Expenses before reimbursement and waiver from Adviser ............. 1,671,000 45,187 1,223,738
Expense reimbursement and waiver from Adviser ..................... -- (2,759) --
------------ ---------- ------------
Total expenses .............................................. 1,671,000 42,428 1,223,738
------------ ---------- ------------
Net investment income ............................................. 20,615,885 474,417 18,912,117
------------ ---------- ------------
Net Realized and Unrealized Gain (Loss):
Net realized gain on:
Sale of investments ............................................. 1,017,829 227,931 --
------------ ---------- ------------
Net realized gain on investments ......................... 1,017,829 227,931 --
------------ ---------- ------------
Net change in unrealized gain or loss on:
Investments ..................................................... 5,079,175 14,804 (14,671)
------------ ---------- ------------
Net change in unrealized gain or loss on investments ..... 5,079,175 14,804 (14,671)
------------ ---------- ------------
Net realized and change in unrealized gain or loss on investments . 6,097,004 242,735 (14,671)
------------ ---------- ------------
Net increase in net assets resulting from operations .............. $26,712,889 $ 717,152 $18,897,446
============ ========== ============
</TABLE>
See Notes to Financial Statements.
101
<PAGE>
Income Portfolios
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond
-------------------------------
Six Month
Period
Ended
June 30, Year Ended
1998 December 31,
(Unaudited) 1997
------------ ------------
<S> <C> <C>
Operations:
Net investment income .................................................. $ 20,615,885 $ 40,558,298
Net realized gain on investments ....................................... 1,017,829 3,644,569
Net change in unrealized gain or loss on investments ................... 5,079,175 7,019,888
------------- -------------
Net increase in net assets resulting from operations ................. 26,712,889 51,222,755
------------- -------------
Distributions to Shareholders:
From net investment income ............................................. (14,998,584) (40,513,113)
------------- -------------
Decrease in net assets from distributions to shareholders ............ (14,998,584) (40,513,113)
------------- -------------
Fund Share Transactions:
Proceeds from shares sold .............................................. 46,474,178 54,764,238
Net asset value of shares issued upon reinvestment of distributions .... 14,975,977 40,445,062
Payments for shares redeemed ........................................... (39,548,469) (64,687,878)
------------- -------------
Net increase in net assets from fund share transactions .............. 21,901,686 30,521,422
------------- -------------
Net change in net assets ............................................... 33,615,991 41,231,064
Net Assets:
Beginning of period .................................................... 684,960,493 643,729,429
------------- -------------
End of period .......................................................... $718,576,484 $684,960,493
============= =============
End of period net assets includes undistributed net investment income .. $ 8,115,943 $ 2,498,642
============= =============
Share Transactions:
Number of shares sold .................................................. 3,549,520 4,174,206
Number of shares issued upon reinvestment of distributions ............. 1,147,557 3,169,762
Number of shares redeemed .............................................. (3,023,320) (5,037,165)
------------- -------------
Net increase ......................................................... 1,673,757 2,306,803
============= =============
</TABLE>
See Notes to Financial Statements.
102
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield
-----------------------------------
Six Month
Period Period From
Ended December 10,
June 30, 1997 to
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
Operations:
Net investment income .................................................... $ 474,417 $ 49,665
Net realized gain on investments ......................................... 227,931 21,216
Net change in unrealized gain or loss on investments ..................... 14,804 77,531
------------ ------------
Net increase in net assets resulting from operations ................... 717,152 148,412
------------ ------------
Distributions to Shareholders:
From net investment income ............................................... (49,968) (50,000)
From net realized gains .................................................. (20,974) --
------------ ------------
Decrease in net assets from distributions to shareholders .............. (70,942) (50,000)
------------ ------------
Fund Share Transactions:
Proceeds from shares sold ................................................ 367,043 10,000,000
Net asset value of shares issued upon reinvestment of distributions ...... 1,942 --
Payments for shares redeemed ............................................. (44,360) --
------------ ------------
Net increase in net assets from fund share transactions ................ 324,625 10,000,000
------------ ------------
Net change in net assets ................................................. 970,835 10,098,412
Net Assets:
Beginning of period ...................................................... 10,098,412 --
------------ ------------
End of period ............................................................ $11,069,247 $10,098,412
============ ============
End of period net assets includes undistributed net investment income .... $ 474,417 $ --
============ ============
Share Transactions:
Number of shares sold .................................................... 33,938 1,000,000
Number of shares issued upon reinvestment of distributions ............... 181 --
Number of shares redeemed ................................................ (4,109) --
------------ ------------
Net increase ........................................................... 30,010 1,000,000
============ ============
</TABLE>
See Notes to Financial Statements.
103
<PAGE>
Income Portfolios
Statements of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Market
--------------------------------
Six Month
Period
Ended
June 30, Year Ended
1998 December 31,
(Unaudited) 1997
----------- -------------
<S> <C> <C>
Operations:
Net investment income ................................................. $ 18,912,117 $ 34,576,768
Net change in unrealized gain or loss on investments .................. (14,671) (58,463)
------------- -------------
Net increase in net assets resulting from operations ................ 18,897,446 34,518,305
------------- -------------
Distributions to Shareholders:
From net investment income ............................................ (34,446,801) (24,537,119)
------------- -------------
Decrease in net assets from distributions to shareholders ........... (34,446,801) (24,537,119)
------------- -------------
Fund Share Transactions:
Proceeds from shares sold ............................................. 331,877,409 469,580,959
Net asset value of shares issued upon reinvestment of distributions ... 34,446,801 24,537,119
Payments for shares redeemed .......................................... (323,626,091) (428,848,854)
------------- -------------
Net increase in net assets from fund share transactions ............. 42,698,119 65,269,224
------------- -------------
Net change in net assets .............................................. 27,148,764 75,250,410
Net assets:
Beginning of period ................................................... 688,755,748 613,505,338
------------- -------------
End of period ......................................................... $715,904,512 $688,755,748
============= =============
End of period net assets includes undistributed net investment income . $ 18,911,770 $ 34,446,455
============= =============
Share Transactions:
Number of shares sold ................................................. 25,626,519 35,877,859
Number of shares issued upon reinvestment of distributions ............ 2,701,802 1,929,274
Number of shares redeemed ............................................. (24,942,942) (32,769,382)
------------- -------------
Net increase ........................................................ 3,385,379 5,037,751
============= =============
</TABLE>
See Notes to Financial Statements.
104
<PAGE>
Income Portfolios
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Organization
The Statements contained herein refer to Aetna Income Shares d/b/a Aetna Bond VP
(Bond), Aetna Variable Encore Fund d/b/a Aetna Money Market VP (Money Market)
and Aetna High Yield VP (High Yield), a portfolio of Aetna Variable Portfolios,
Inc. (Variable Portfolios).
Bond and Money Market were organized under the laws of Massachusetts on January
25, 1984. Variable Portfolios was incorporated under the laws of Maryland on
June 4, 1996. The Articles of Incorporation of Variable Portfolios permit it to
offer separate portfolios, each of which has its own investment objective,
policies and restrictions. Variable Portfolios currently offers eleven separate
portfolios, including High Yield. Bond, Money Market and Variable Portfolios
(each a Fund) are each registered under the Investment Company Act of 1940 (the
Act) as open-end management investment companies.
The following is each Fund's investment objective:
Bond seeks to maximize total return, consistent with reasonable risk,
through investments in a diversified portfolio consisting primarily of debt
securities. It is anticipated that capital appreciation and investment
income will both be major factors in achieving total return.
High Yield seeks high current income and growth of capital primarily
through investment in a diversified portfolio of fixed income securities
rated lower than BBB- by Standard and Poor's Corporation or lower than Baa3
by Moody's Investors Service, Inc.
Money Market seeks to provide high current return, consistent with
preservation of capital and liquidity, through investment in high-quality
money market instruments.
Shares in the Funds are currently sold to Aetna Life Insurance and Annuity
Company (ALIAC), an Aetna Life Insurance Separate Account, and in the case of
Bond, to existing shareholders through reinvestment of distributions. ALIAC's
shares are allocated to certain of its variable life/annuity accounts. At June
30, 1998, ALIAC's separate accounts and affiliates held all of Money Market's
and Variable Portfolios' shares outstanding and 99.3% of Bond's shares
outstanding.
Effective May 1, 1998, Aeltus Investment Management, Inc. (Aeltus) became the
Investment Adviser to the Funds. Prior to May 1, 1998, ALIAC acted as Investment
Adviser and Aeltus served as Sub-Adviser to the Funds. ALIAC serves as the
principal underwriter to each Fund. Aeltus and ALIAC are both wholly-owned
subsidiaries of Aetna Retirement Holdings, Inc. and are indirect wholly owned
subsidiaries of Aetna Inc.
2. Summary of Significant Accounting Policies
The accompanying financial statements of each Fund 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 each Fund.
A. Valuation of Investments
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter securities,
at the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities and fixed income investments for which
market quotations are not considered to be readily available are valued using
methods approved by the Board of Directors/Trustees.
105
<PAGE>
Income Portfolios
Notes to Financial Statements (continued)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
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 a Fund to sell them promptly at an
acceptable price. Restricted securities are those sold pursuant to Rule 144A and
Section 4(2) of the Securities Act of 1933 (1933 Act), and are subject to legal
or contractual restrictions on resale and may not be publicly sold without
registration under the 1933 Act. Each Fund may invest up to 15% of its total
assets in illiquid securities (except Money Market which may invest up to 10%).
Illiquid and restricted securities are valued using market quotations when
readily available. In the absence of market quotations, the securities are
valued based upon their fair value determined under procedures approved by the
Board of Directors/Trustees. The Funds will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any.
C. Delayed Delivery Transactions
Each Fund may purchase or sell securities on a when-issued or forward commitment
basis. The price of the underlying securities and date when the securities will
be delivered and paid for are fixed at the time the transaction is negotiated.
The market value of the securities purchased or sold are identified in each
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.
D. Federal Income Taxes
As a qualified regulated investment company, each Fund is relieved of federal
income and excise 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.
E. Distributions
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for deferred losses on wash sales.
F. Other
Investment transactions are accounted for on the day following the trade date,
except same day settlements which are accounted for on the trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, using an effective yield
method over the life of the security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.
3. Investment Advisory and Administrative Service Fees
Effective May 1, 1998, Aeltus became the Investment Adviser and Administrator to
the Funds. Prior to that time, ALIAC acted as Investment Adviser and
Administrator to the Funds and Aeltus acted as Sub-Adviser to the Funds.
As Investment Adviser, Aeltus (ALIAC prior to May 1, 1998) is paid a monthly fee
expressed as a percentage of the average daily net assets of each Fund. Below
are each Fund's Investment Advisory fee as of June 30, 1998:
<TABLE>
<CAPTION>
Advisory Fee
----------------------
<S> <C>
Bond 0.40%
High Yield 0.65%
Money Market 0.25%
</TABLE>
106
<PAGE>
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Service Fees (continued)
Prior to May 1, 1998, ALIAC served as Investment Adviser and Aeltus served as
the Sub-Adviser to the Funds. As Sub-Adviser, Aeltus supervised the investment
and reinvestment of cash and securities and provided certain related
administrative services. For the period January 1, 1998 through April 30, 1998,
ALIAC collected $1,511,493 from the Funds, of which it paid $902,338 to Aeltus.
Effective May 1, 1998, each Fund pays expenses incurred in exchange for services
provided by auditors, legal firms, transfer agents, custodian banks and
financial printers. Each Fund pays its proportionate share of compensation paid
to the Fund's Board of Directors/Trustees and its proportionate share of
insurance premiums of the Funds. Each Fund pays its direct costs incurred to
mail shareholder reports, register its shares with the Securities Exchange
Commission and any other costs incurred by the Fund. In addition, each Fund pays
Aeltus an administrative services fee in exchange for receiving certain
administrative and shareholder services and to compensate Aeltus for supervising
the Fund's other service providers. Each Fund pays Aeltus an administrative
services fee at an annual rate based on average daily net assets of the Fund.
The rate is 0.075% on the first $5 billion in Fund assets and 0.050% on all Fund
assets over $5 billion.
Prior to May 1, 1998, ALIAC acted as Administrator to the Funds. As
Administrator, ALIAC paid all the expenses of each Fund on behalf of the Funds,
supervised each Fund's other service providers and provided each Fund with
certain administrative and shareholder services. In exchange for these services,
ALIAC received an administrative services fee at an annual rate of up to 0.15%
of each portfolio's average daily net assets. For the period January 1, 1998
through April 30, 1998, ALIAC collected $417,637 in administrative services fees
from the Funds.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Fund in
exchange for fees, payable by Aeltus, of up to 0.325% of the Funds' average
daily net assets. For the period May 1, 1998 through June 30, 1998, Aeltus paid
ALIAC $396,136.
4. Reimbursement from Investment Adviser
The Investment Adviser may, from time to time, make reimbursements to a Fund for
some or all of its operating expenses or it may waive fees. Reimbursement and
waiver arrangements, which may be terminated at any time without notice, will
increase a Fund's yield and total return. For the period ended June 30, 1998,
the Investment Adviser reimbursed High Yield in the amount of $2,759.
5. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1998 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- -------------------
<S> <C> <C>
Bond $621,668,090 $610,496,014
High Yield 10,192,385 9,913,537
</TABLE>
6. Capital Loss Carryforward
At June 30, 1998, for federal income tax purposes, Bond and Money Market had the
following capital loss carryforwards:
<TABLE>
<CAPTION>
Capital Loss Year of
Carryforward Expiration
------------ ----------
<S> <C> <C>
Bond $5,833,856 2002
Money Market 59,498 2003
</TABLE>
The Board of Directors/Trustees will not distribute any realized gains until the
above capital loss carryforwards have been offset or expired.
107
<PAGE>
Income Portfolios
Financial Highlights
Bond
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, Year Ended Year Ended Year Ended Year Ended Year Ended
1998 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 1997 1996 1995+ 1994+ 1993+
------------ ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 12.850 $ 12.623 $ 13.001 $ 11.719 $ 13.052 $ 12.759
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ........................ 0.379 0.801 0.844 0.885 0.791 0.854
Net realized and change in unrealized gain or
loss on investments ........................ 0.121 0.228 (0.387) 1.237 (1.294) 0.365
--------- --------- --------- --------- --------- ---------
Total from investment operations ....... 0.500 1.029 0.457 2.122 (0.503) 1.219
--------- --------- --------- --------- --------- ---------
Less distributions:
From net investment income ................... (0.279) (0.802) (0.835) (0.840) (0.830) (0.852)
From net realized gains on investments........ -- -- -- -- -- (0.074)
--------- --------- --------- --------- --------- ---------
Total distributions .................... (0.279) (0.802) (0.835) (0.840) (0.830) (0.926)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ................. $ 13.071 $ 12.850 $ 12.623 $ 13.001 $ 11.719 $ 13.052
========= ========= ========= ========= ========= =========
Total return* .................................. 3.89% 8.30% 3.60% 18.24% (3.80)% 9.68%
Net assets, end of period (000's) .............. $718,576 $684,960 $643,729 $666,960 $561,704 $641,429
Ratio of total expenses to average net assets .. 0.48%(1) 0.48% 0.39% 0.32% 0.33% 0.31%
Ratio of net investment income to average net
assets ....................................... 5.96%(1) 6.31% 6.39% 6.97% 6.38% 6.47%
Portfolio turnover rate ........................ 102.04% 134.92% 96.41% 113.72% 74.24% 56.37%
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements.
108
<PAGE>
High Yield
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, Period From
1998 December 10, 1997 to
(Unaudited) December 31, 1997
------------ --------------------
<S> <C> <C>
Net asset value, beginning of period ................................................ $10.098 $10.000
-------- --------
Income from investment operations:
Net investment income ............................................................. 0.509 0.050
Net realized and change in unrealized gain or loss on investments ................. 0.209 0.098
-------- --------
Total from investment operations ............................................ 0.718 0.148
-------- --------
Less distributions:
From net investment income ........................................................ (0.049) (0.050)
From net realized gains on investments ............................................ (0.020) --
-------- --------
Total distributions ......................................................... (0.069) (0.050)
-------- --------
Net asset value, end of period ...................................................... $10.747 $10.098
======== ========
Total return* ....................................................................... 7.12% 1.48%
Net assets, end of period (000's) ................................................... $11,069 $10,098
Ratio of total expenses to average net assets ....................................... 0.80%(1) 0.80%(1)
Ratio of net investment income to average net assets ................................ 8.99%(1) 7.81%(1)
Ratio of net expense before reimbursement and waiver to average net assets .......... 0.86%(1) --
Ratio of net investment income before reimbursement and waiver to average net assets 8.93%(1) --
Portfolio turnover rate ............................................................. 96.58% 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.
109
<PAGE>
Income Portfolios
Financial Highlights (continued)
Money Market
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 1998 December 31, December 31, December 31, December 31, December 31,
(Unaudited) 1997 1996+ 1995+ 1994+ 1993+
------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 13.364 $ 13.194 $ 13.298 $ 12.544 $ 12.535 $ 12.557
--------- --------- --------- --------- --------- ---------
Income from investment operations:
Net investment income ..................... 0.349 0.668 0.697 0.755 0.526 0.397
Net realized and change in unrealized gain
or loss on investments .................. (0.005) 0.027 (0.001) 0.009 (0.022) 0.001
--------- --------- --------- --------- --------- ---------
Total from investment operations .... 0.344 0.695 0.696 0.764 0.504 0.398
--------- --------- --------- --------- --------- ---------
Less distributions:
From net investment income ................ (0.673) (0.525) (0.800) (0.010) (0.495) (0.420)
--------- --------- --------- --------- --------- ---------
Total distributions ................. (0.673) (0.525) (0.800) (0.010) (0.495) (0.420)
--------- --------- --------- --------- --------- ---------
Net asset value, end of period .............. $ 13.035 $ 13.364 $ 13.194 $ 13.298 $ 12.544 $ 12.535
========= ========= ========= ========= ========= =========
Total return* ............................... 2.68% 5.47% 5.37% 6.05% 4.09% 3.19%
Net assets, end of period (000's) ........... $715,905 $688,756 $613,505 $514,037 $483,039 $380,249
Ratio of total expenses to average net assets 0.35%(1) 0.35% 0.34% 0.30% 0.32% 0.31%
Ratio of net investment income to average net
assets .................................... 5.37%(1) 5.34% 5.24% 5.82% 4.16% 3.14%
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements.
110
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna GET Fund Series B
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
1 Year Since Inception+
------ ----------------
<S> <C>
29.06% 25.62%
</TABLE>
<TABLE>
<CAPTION>
Jul-94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna GET Fund, Series B 10,000 10,229 10,186 10,748 11,664 12,506 13,078 13,868
S&P 500 Index 10,000 10,489 10,487 11,508 12,607 13,610 14,429 15,204
Lehman Brothers Aggregate Bond Index 10,000 10,061 10,099 10,608 11,254 11,475 11,964 11,752
60% S&P 500/40% Lehman Brothers Aggregate 10,000 10,318 10,335 11,146 12,055 12,723 13,401 13,732
<CAPTION>
Jun-98
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna GET Fund, Series B 14,443 14,824 16,153 16,439 19,286 22,130 21,722 24,533 24,891
S&P 500 Index 15,885 16,376 17,742 18,217 21,398 23,000 23,660 26,961 27,851
Lehman Brothers Aggregate Bond Index 11,819 12,038 12,399 12,329 12,782 13,206 13,596 13,805 14,128
60% S&P 500/40% Lehman Brothers Aggregate 14,132 14,505 15,406 15,624 17,467 18,506 19,072 20,771 21,382
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Series commenced investment operations on July 1, 1994.
Aetna GET Fund, Series B
How did the Series perform during the period?
Aetna GET Fund, Series B (GET B) generated a return of 14.56%, net of fund
expenses, for the six month period ended June 30, 1998. The Standard & Poor's
(S&P) 500 Index(a) generated a return of 17.71% for the same period.
Closed to new deposits, GET B invests primarily in common stocks and bonds in
varying proportions in response to market fluctuations. GET B guarantees that
the market value of an investor's assets will not be less than their market
value on the first day of the Guaranteed Period (less any applicable maintenance
fees) if the assets are held to maturity on June 30, 1999.
What economic or financial market conditions impacted the Series?
The large company stocks that make up the S&P 500 continued to lead all other
asset classes and achieved returns that were well above long-term historical
averages during the past six months. This continued progress in stock market
levels has continued to raise GET B's cumulative return cushion and stimulate an
increase in GET B's allocation to equities to its current level of 96.3%, with
the remaining 3.7% invested in fixed income and cash equivalent securities.
What investments influenced the Series' performance over the past six months?
The equity component of GET B is managed in a style similar to that used for the
portion of the Aetna Growth and Income VP that invests in large company stocks.
Based on the factors that we favor in our stock selection
disciplines--attractive value, positive earnings momentum and pro-shareholder
management--many of our large cap holdings tend to have smaller market
capitalizations than the stocks in the S&P 500. This helps explain GET B's
shortfall relative to the S&P 500. While large cap stocks have enjoyed
considerable gains so far this year, mid and small cap stocks have not performed
quite as well. Compared to the 17.71% return of the S&P 500, the S&P 400 Midcap
Index(b) and the Russell 2000 Index(c) had six-month returns of 8.64% and 4.93%,
respectively.
What is your outlook going forward?
U.S. stocks have appeared somewhat overvalued to us for most of the past year,
and still do. We use the forward earnings yield (earnings per share divided by
price) of the S&P 500 as our barometer of equity valuation and compare it to the
yield on the 10-year government bond. The spread between these two expected
return measures is what drives our asset allocation decision and is currently at
an unusually low level.
See Definition of Indices. 111
<PAGE>
<TABLE>
<CAPTION>
Top Ten Equity Holdings % of Portfolio
<S> <C>
TJX Companies, Inc. 2.7%
BellSouth Corp. 2.2%
Chase Manhattan Corp. 2.2%
Eli Lilly & Co. 2.1%
Chrysler Corp. 2.0%
Johnson & Johnson 1.9%
Morgan Stanley, Dean Witter, Discover & Co. 1.8%
Xerox Corp. 1.8%
Allstate Corp. (The) 1.8%
Lehman Brothers Holdings, Inc. 1.8%
</TABLE>
Large Cap Equity Sector Breakdown*:
<TABLE>
<CAPTION>
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
<S> <C> <C> <C>
Basic Materials 2.1% 5.2% (3.1)%
Commercial Services 4.6% 2.3% 2.3 %
Consumer Discretionary 25.6% 14.5% 11.1 %
Consumer Non-Discretionary 0.9% 10.2% (9.3)%
Energy 5.7% 8.1% (2.4)%
Finance 23.7% 14.3% 9.4 %
Healthcare 8.5% 10.9% (2.4)%
Manufacturing 16.8% 10.2% 6.6 %
Technology 4.5% 13.0% (8.5)%
Utilities 7.6% 11.3% (3.7)%
</TABLE>
* This does not constitute the entire Series. The securities in these sectors
only represent those that are in the S&P 500 Index.
Asset Allocation:
<TABLE>
<CAPTION>
% of Notional Value * Economic Exposure*
Asset Class Portfolio of Futures 6/30/98 12/31/97
<S> <C> <C> <C> <C>
Large Cap Stocks 91.7% 4.6 % 96.3% 95.5%
Small Cap Stocks -- -- -- 0.3%
U.S. Government Obligations -- -- -- 2.2%
Cash Equivalents 8.3% (4.6)% 3.7% 2.0%
========== =========== ========== ===========
Total Investments 100.0% -- 100.0% 100.0%
========== =========== ========== ===========
</TABLE>
* Notional value refers to the economic value at risk, or the exposure to the
financial instruments underlying the options and futures positions.
Economic exposure reflects GET B's exposure to both changes in value of the
portfolio of investments as well as the financial instruments underlying the
options and futures positions.
112
<PAGE>
- ----------------------------------[LINE CHART]----------------------------------
Aetna Get Fund, Series C
Growth of $10,000
Average Annual Total Returns for the Period Ended
June 30, 1998*
<TABLE>
<CAPTION>
1 Year Since Inception+
------ ----------------
<S> <C>
29.10% 30.24%
</TABLE>
<TABLE>
<CAPTION>
Dec-96 Jun-98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna GET Fund
Series C 10,000 10,153 10,251 11,620 12,442 12,715 14,432 15,002
S&P 500 Index 10,000 10,174 10,446 12,270 13,189 13,568 15,461 15,971
</TABLE>
- --------------------------------[END LINE CHART]--------------------------------
* Total Return is calculated including reinvestment of income and capital gain
distributions. Past performance is no guarantee of future results. Performance
does not take into account any separate account charges imposed by Aetna.
+ The Series commenced investment operations on December 17, 1996.
Aetna GET Fund, Series C
How did the Series perform during the period?
Aetna GET Fund, Series C (GET C) provided a total return of 17.96%, net of fund
expenses, for the six month period ended June 30, 1998 compared to returns of
17.71% and 12.11% for the Standard & Poor's (S&P) 500 Index(a) and 60% S&P 500
Index/40% Lehman Brothers Aggregate Bond Index(d), respectively, for the same
period.
Closed to new deposits, GET C invests primarily in common stocks and bonds in
varying proportions in response to market fluctuations. This strategy is
complemented by a guarantee that the market value of an investor's assets will
not be less than their market value on the first day of GET C's 5-year
Guaranteed Period if the assets are held to GET C's maturity on December 16,
2001. The common stock portion is managed in the enhanced index style, similar
to that of Aetna Index Plus Large Cap VP.
What economic or financial market conditions impacted the Series?
The principal reason GET C was able to do so well was because of the high
percentage of assets invested in stocks. That, together with good stock
selection, enabled GET C to outperform not only balanced fund benchmarks, but
equity only indexes as well.
One of the principal features of the equity market over the last six months (and
over the preceding three years as well) has been the superior performance of the
very largest stocks. This is most clearly illustrated by the relative
performance of the S&P 500 (+17.71%) compared to the small cap Russell 2000
Index(c) (+4.93%), but it was also apparent within the S&P 500 as well, as only
the biggest stocks in the index outperformed the index itself. GET C benefited
from this effect because the model used to evaluate the stocks in the S&P 500
rated the larger issues more favorably and consequently overweighted them. It
should be noted that these issues were not favored because they were large per
se, but because they generally scored well on attributes such as low price to
earnings, relative performance and earnings momentum, all of which are important
determinants in predicting which stocks are likely to do well.
What investments influenced the Series' performance over the past six months?
GET C was overweight in retail stocks (relative to the S&P 500) for the entire
period. This worked to the advantage of GET C as these stocks outperformed that
index by a substantial margin during the first six months. Also working to the
benefit of GET C was an underweighting in the raw materials sector which was a
big underperforming sector during the period. Detracting from GET C's
performance was an underweighting in technology, a sector that has done quite
well.
See Definition of Indices. 113
<PAGE>
What is your outlook going forward?
At the end of the last year, we expressed the view that what is going on in East
Asia is significant especially when it is taken together with the collapse in
commodity prices, demographic trends that argue for more saving and less
consumption, likely margin squeezes on the profits of U.S. corporations as a
result of low inflation or perhaps even deflation, and the year 2000 computer
program problem which is likely to adversely affect spending on new computer
hardware over the course of the next two years. All of this suggests that the
stock market will be much less ebullient over the course of the next year
relative to the last three and that cyclically exposed issues may fare poorly.
So far the expectations that cyclical issues would fare poorly, that U.S.
corporations would experience margin squeezes and even that the year 2000
problem might adversely effect spending on new computer hardware spending have
held up rather well. Equities, however, in the absence of a hostile Federal
Reserve, have chosen to roar ahead proving wrong the conclusion above, that
called for a "less ebullient" stock market. It's a tough business where you get
the premises right and the forecast wrong.
Perhaps in light of the first half forecast, the best action to take is an
agnostic view, something more along these lines: it doesn't matter what the
outlook is because the equity component of GET C is always fully invested in S&P
500 stocks, overweighting those with favorable prospects, underweighting those
with a poor outlook and market weighting those where the outlook is indifferent.
This approach has worked well for us in the past and we expect it to continue to
serve us well in the future.
<TABLE>
<CAPTION>
Top Ten Equity Holdings % of Portfolio
<S> <C>
General Electric Co. 3.2%
Microsoft Corp. 2.9%
Coca-Cola Co. 2.2%
Pfizer, Inc. 2.1%
Wal-Mart Stores, Inc. 2.0%
Exxon Corp. 1.9%
AT&T Corp. 1.7%
Merck & Co., Inc. 1.7%
Bristol Meyers Squibb Co. 1.7%
Procter & Gamble Co. 1.4%
</TABLE>
Large Cap Portfolio Sector Breakdown*:
<TABLE>
<CAPTION>
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
<S> <C> <C> <C>
Basic Materials 2.9% 5.2% (2.3)%
Commercial Services 1.8% 2.3% (0.5)%
Consumer Discretionary 12.3% 14.5% (2.2)%
Consumer Non-Discretionary 8.7% 10.2% (1.5)%
Energy 6.4% 8.1% (1.7)%
Finance 21.3% 14.3% 7.0 %
Healthcare 13.4% 10.9% 2.5 %
Manufacturing 11.3% 10.2% 1.1 %
Technology 9.9% 13.0% (3.1)%
Utilities 12.0% 11.3% 0.7 %
</TABLE>
* This does not constitute the entire Series. The securities in these sectors
only represent those that are in the S&P 500 Index.
114
<PAGE>
Asset Allocation:
<TABLE>
<CAPTION>
% of Notional Value* Economic Exposure*
Asset Class Portfolio of Futures 6/30/98
<S> <C> <C> <C>
Large Cap Stocks 92.8% 0.1 % 92.9%
Mid Cap Stocks 0.8% -- 0.8%
International Stocks 2.1% -- 2.1%
U.S. Government Obligations 4.0% -- 4.0%
Cash Equivalents 0.3% (0.1)% 0.2%
========== ============= =============
Total Investments 100.0% -- 100.0%
========== ============= =============
</TABLE>
* Notional value refers to the economic value at risk, or the exposure to the
financial instruments underlying the options and futures positions.
Economic exposure reflects GET C's exposure to both changes in value of the
portfolio of investments as well as the financial instruments underlying the
options and futures positions.
115
<PAGE>
Definition of Indices
(a) The Standard & Poor's (S&P) 500 Index is a value-weighted unmanaged index of
500 widely held stocks that assumes the reinvestment of all dividends, and is
considered to be representative of the stock market in general.
(b) The Standard & Poor's (S&P) Midcap 400 Index is a value-weighted, unmanaged
index of 400 common stocks that assumes the reinvestment of all dividends.
(c) The Russell 2000 Index consists of the smallest 2000 companies in the
Russell 3000 Index and represents approximately 11% of the Russell 3000 total
market capitalization. The 3000 largest U.S. companies by market capitalization,
representing nearly 98% of the U.S. equity market, comprise the Russell 3000
Index. Both indices assume reinvestment of all dividends and are unmanaged.
(d) The Lehman Brothers Aggregate Bond Index is an unmanaged index of corporate,
government and mortgage bonds.
116
<PAGE>
Aetna GET Fund
Portfolio of Investments - June 30, 1998 (Unaudited)
Series B
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Market
Shares Value
----------- -----------
<S> <C> <C>
COMMON STOCKS (93.2%)
Air Transport (2.9%)
AMR Corp.+ ....................................... 22,600 $ 1,881,450
Delta Air Lines, Inc. ............................ 10,300 1,331,275
-----------
3,212,725
-----------
Auto Parts and Hardware (2.0%)
Black & Decker Corp. ............................. 28,200 1,720,200
Echlin, Inc. ..................................... 11,100 544,594
-----------
2,264,794
-----------
Automotive (3.2%)
Chrysler Corp. ................................... 40,200 2,266,274
Ford Motor Co. ................................... 14,600 861,400
General Motors Corp. ............................. 6,300 420,919
-----------
3,548,593
-----------
Banks and Thrifts (9.3%)
BankAmerica Corp. ................................ 16,500 1,426,219
Chase Manhattan Corp. ............................ 32,600 2,461,299
Comerica, Inc. ................................... 17,400 1,152,750
Fifth Third Bancorp .............................. 10,500 661,500
Golden West Financial Corp. ...................... 11,500 1,222,594
NationsBank Corp. ................................ 14,300 1,093,950
Republic New York Corp. .......................... 18,600 1,170,638
State Street Corp. ............................... 17,200 1,195,400
-----------
10,384,350
-----------
Biotech and Medical Products (1.4%)
Amgen, Inc.+ ..................................... 16,900 1,104,838
Guidant Corp. .................................... 6,700 477,794
-----------
1,582,632
-----------
Chemicals (0.3%)
Dow Chemical Co. ................................. 3,600 348,075
-----------
Commercial Services (0.9%)
Deluxe Corp. ..................................... 26,400 945,450
-----------
Computers (2.0%)
Ceridian Corp.+ .................................. 8,400 493,500
Sun Microsystems, Inc.+ .......................... 40,700 1,767,906
-----------
2,261,406
-----------
Conglomerate and Aerospace (2.6%)
General Dynamics Corp. ........................... 24,600 1,143,900
Goodrich (B.F.) Co. .............................. 12,900 640,163
Loews Corp. ...................................... 6,000 522,750
United Technologies Corp. ........................ 6,400 592,000
-----------
2,898,813
-----------
Consumer Finance (1.6%)
Associates First Capital Corp. ................... 10,928 840,090
Countrywide Credit Industries, Inc. .............. 19,500 989,625
-----------
1,829,715
-----------
Consumer Products (0.6%)
American Greetings Corp. ......................... 13,100 667,281
-----------
Consumer Services (4.0%)
Darden Restaurants, Inc. ......................... 82,700 $1,312,863
Marriott International, Inc. ..................... 23,500 760,813
Service Corp. International ...................... 23,300 998,988
Tricon Global Restaurants, Inc.+ ................. 42,800 1,356,225
----------
4,428,889
----------
Consumer Specialties (0.5%)
Brunswick Corp. .................................. 21,600 534,600
----------
Data and Imaging Services (2.2%)
Autodesk, Inc. ................................... 5,800 224,025
Microsoft Corp.+ ................................. 16,200 1,755,675
Oracle Corp.+ .................................... 17,500 429,844
----------
2,409,544
----------
Discretionary Retail (6.7%)
Costco Companies, Inc.+ .......................... 900 56,756
Dayton Hudson Corp. .............................. 25,400 1,231,900
Federated Department Stores, Inc.+ ............... 26,200 1,409,888
Lowe's Co., Inc. ................................. 41,400 1,679,288
TJX Companies, Inc. .............................. 126,600 3,054,224
----------
7,432,056
----------
Diversified Financial Services (3.6%)
Morgan Stanley, Dean Witter, Discover & Co. ...... 22,405 2,047,256
Travelers Group, Inc. ............................ 31,450 1,906,656
----------
3,953,912
----------
Drugs (6.5%)
Abbott Laboratories .............................. 45,100 1,843,463
Eli Lilly & Co. .................................. 35,300 2,332,005
Johnson & Johnson ................................ 29,000 2,138,749
Merck & Co., Inc. ................................ 6,600 882,750
----------
7,196,967
----------
Electrical Machinery and Instruments (2.7%)
Harris Corp. ..................................... 3,200 143,000
Tektronix, Inc. .................................. 23,850 843,694
Xerox Corp. ...................................... 20,000 2,032,499
----------
3,019,193
----------
Electronic Media (1.2%)
Viacom, Inc.+ .................................... 22,700 1,322,275
----------
Food and Beverage (0.3%)
PepsiCo, Inc. .................................... 8,200 337,738
----------
Food and Drug Retail (3.0%)
CVS Corp. ........................................ 47,400 1,845,638
Kroger Co. (The)+ ................................ 35,800 1,534,925
----------
3,380,563
----------
Forest Products and Building Materials (1.1%)
Ball Corp. ....................................... 7,800 313,463
Georgia-Pacific Corp. ............................ 13,300 783,869
Owens Corning .................................... 1,700 69,381
----------
1,166,713
----------
</TABLE>
See Notes to Portfolio of Investments. 117
<PAGE>
Aetna GET Fund
Portfolio of Investments - June 30, 1998 (Unaudited)
Series B (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Market
Shares Value
--------- -----------
<S> <C> <C>
Gas Utilities (2.4%)
Coastal Corp. (The) .......................... 5,700 $ 397,931
Columbia Gas System, Inc. .................... 19,350 1,076,344
Sempra Energy+ ............................... 42,858 1,189,318
----------
2,663,593
----------
Heavy Machinery (1.4%)
NACCO Industries, Inc. ....................... 1,400 180,950
Navistar International Corp.+ ................ 30,100 869,138
PACCAR, Inc. ................................. 9,600 501,600
----------
1,551,688
----------
Housing and Furnishings (3.3%)
Centex Corp. ................................. 40,800 1,540,200
Fleetwood Enterprises, Inc. .................. 11,000 440,000
Kaufman & Broad Home Corp. ................... 10,900 346,075
Pulte Corp. .................................. 46,400 1,386,200
----------
3,712,475
----------
Industrial Services (0.2%)
Fluor Corp. .................................. 4,400 224,400
----------
Insurance (4.1%)
Allstate Corp. (The) ......................... 21,900 2,005,218
CIGNA Corp. .................................. 1,100 75,900
Conseco, Inc. ................................ 26,200 1,224,850
MGIC Investment Corp. ........................ 4,800 273,900
SunAmerica, Inc. ............................. 12,200 700,738
Torchmark Corp. .............................. 6,300 288,225
----------
4,568,831
----------
Investment Services (3.4%)
Lehman Brothers Holdings, Inc. ............... 25,500 1,977,844
Merrill Lynch & Co., Inc. .................... 13,200 1,217,700
Providian Financial Corp. .................... 7,300 573,506
----------
3,769,050
----------
Major Telecommunications (5.5%)
AT&T Corp. ................................... 6,600 377,025
BellSouth Corp. .............................. 36,700 2,463,487
MCI Communications Corp. ..................... 28,100 1,633,313
Sprint Corp. ................................. 23,600 1,663,800
----------
6,137,625
----------
Oil (2.4%)
Ashland Oil, Inc. ............................ 20,600 1,063,475
Phillips Petroleum Co. ....................... 10,800 520,425
Sun Company, Inc. ............................ 27,600 1,071,225
----------
2,655,125
----------
Oil Services (0.5%)
Helmerich & Payne, Inc. ...................... 26,400 587,400
----------
Other Telecommunications (1.5%)
US WEST, Inc. ............................... 35,900 1,687,300
------------
Print Media (2.9%)
Dun & Bradstreet Corp. ...................... 11,000 397,375
Knight-Ridder, Inc. ......................... 19,400 1,068,213
Print Media (continued)
New York Times Co. .......................... 21,200 $ 1,680,100
Tribune Co. ................................. 1,200 82,575
------------
3,228,263
------------
Producer Goods (5.8%)
Aeroquip-Vickers, Inc. ...................... 19,400 1,132,475
Cincinnati Milacron, Inc. ................... 15,700 381,706
FMC Corp.+ .................................. 14,100 961,444
Ingersoll-Rand Co. .......................... 25,300 1,114,781
ITT Industries, Inc. ........................ 39,800 1,487,525
Parker-Hannifin Corp. ....................... 11,900 453,688
Thermo Electron Corp.+ ...................... 3,500 119,656
Thomas & Betts Corp. ........................ 2,400 118,200
Timken Co. .................................. 20,800 640,900
------------
6,410,375
------------
Steel (0.6%)
Bethlehem Steel Corp.+ ...................... 42,000 522,375
USX-US Steel Group, Inc. .................... 4,800 158,400
------------
680,775
------------
Surface Transport (0.4%)
Burlington Northern Santa Fe Corp. .......... 4,100 402,569
------------
Textiles and Apparel (0.2%)
Liz Claiborne, Inc. ......................... 3,600 188,100
------------
Total Common Stocks (cost $89,178,019) 103,593,853
------------
<CAPTION>
Principal
Amount
---------
SHORT-TERM INVESTMENTS (7.3%)
<S> <C> <C>
Federal Home Loan Bank, 5.40%, 07/01/98 ....... $7,797,000 7,797,000
U.S. Treasury Bill, 5.025%, 08/20/98@ ......... 300,000 297,980
------------
Total Short-Term Investments (cost $8,094,905)
8,094,980
------------
TOTAL INVESTMENTS (cost $97,272,924)(a) 111,688,833
Other assets less liabilities
(543,138)
------------
Total Net Assets $111,145,695
============
</TABLE>
118 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$97,381,992. Unrealized gains and losses, based on identified tax cost at June
30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains .................... $15,105,284
Unrealized losses ................... (798,443)
-----------
Net unrealized gain ............... $14,306,841
===========
</TABLE>
Information concerning open future contracts at June 30, 1998 is shown below:
<TABLE>
<CAPTION>
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Long Contracts
- -------------------
S & P 500 Index
Futures......... 18 $5,038,200 Sept. 98 $ 105,300
========== ==========
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1998.
Category percentages are based on net assets.
See Notes to Financial Statements. 119
<PAGE>
Aetna GET Fund
Portfolio of Investments - June 30, 1998 (Unaudited)
Series C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Market
Shares Value
--------- --------
<S> <C> <C>
COMMON STOCKS (94.9%)
Air Transport (0.6%)
AMR Corp.+ ................................... 9,800 $ 815,850
Delta Air Lines, Inc. ........................ 2,300 297,275
Southwest Airlines Co. ....................... 11,000 325,875
US Airways Group, Inc.+ ...................... 4,400 348,700
----------
1,787,700
----------
Aluminum (0.2%)
Alcan Aluminum Ltd. .......................... 6,700 185,088
Aluminum Co. of America ...................... 4,900 323,094
Reynolds Metals Co. .......................... 2,500 139,844
----------
648,026
----------
Auto Parts and Hardware (0.3%)
Black & Decker Corp. ......................... 3,100 189,100
Briggs & Stratton Corp. ...................... 300 11,231
Cooper Tire & Rubber Co. ..................... 900 18,563
Echlin, Inc. ................................. 600 29,438
Genuine Parts Co. ............................ 4,750 164,172
Goodyear Tire & Rubber Co. (The) ............. 4,600 296,413
Snap-On, Inc. ................................ 2,300 83,375
Stanley Works ................................ 2,700 112,219
----------
904,511
----------
Automotive (2.0%)
Chrysler Corp. ............................... 19,500 1,099,313
Dana Corp. ................................... 4,400 235,400
Eaton Corp. .................................. 3,100 241,025
Ford Motor Co. ............................... 34,300 2,023,699
General Motors Corp. ......................... 21,600 1,443,150
Johnson Controls, Inc. ....................... 2,500 142,969
TRW, Inc. .................................... 3,700 202,113
----------
5,387,669
----------
Banks and Thrifts (10.1%)
Ahmanson (H. F.) & Co. ..................... 6,000 426,000
Banc One Corp. ............................. 20,570 1,148,063
Bank of New York Co., Inc. ................. 10,700 649,356
BankAmerica Corp. .......................... 29,700 2,567,193
BankBoston Corp. ........................... 8,200 456,125
Bankers Trust New York Corp. ............... 5,300 615,131
BB&T Corp. ................................. 6,100 412,513
Chase Manhattan Corp. ...................... 25,400 1,917,699
Citicorp ................................... 14,500 2,164,124
Comerica, Inc. ............................. 8,600 569,750
Fifth Third Bancorp ........................ 9,525 600,075
First Chicago NBD Corp. .................... 12,400 1,098,950
First Union Corp. .......................... 30,106 1,753,674
Fleet Financial Group, Inc. ................ 9,100 759,850
Golden West Financial Corp. ................ 3,100 329,569
Huntington Bancshares ...................... 8,300 278,050
J.P. Morgan & Co. .......................... 5,200 609,050
KeyCorp .................................... 12,400 441,750
Banks and Thrifts (continued)
Mellon Bank Corp. .......................... 10,100 $ 703,213
Mercantile Bancorporation, Inc. ............ 3,800 191,425
National City Corp. ........................ 10,500 745,500
NationsBank Corp. .......................... 30,834 2,358,800
Northern Trust Corp. ....................... 6,100 465,125
Norwest Corp. .............................. 23,400 874,575
PNC Bank Corp. ............................. 9,100 489,694
Republic New York Corp. .................... 5,000 314,688
State Street Corp. ......................... 7,900 549,050
Summit Bancorporation ...................... 7,600 361,000
Suntrust Banks, Inc. ....................... 11,500 935,094
U.S. Bancorp ............................... 22,350 961,050
Wachovia Corp. ............................. 6,300 532,350
Washington Mutual, Inc. .................... 16,635 722,583
Wells Fargo & Co. .......................... 2,700 996,300
-----------
27,997,369
-----------
Biotech and Medical Products (1.0%)
Alza Corp.+ .................................... 1,900 82,175
Amgen, Inc.+ ................................... 7,900 516,463
Bausch & Lomb, Inc. ............................ 1,800 90,225
Becton, Dickinson & Co. ........................ 4,100 318,263
Biomet, Inc.+ .................................. 2,000 66,125
Boston Scientific Corp.+ ....................... 2,500 179,063
Guidant Corp. .................................. 7,300 520,581
Medtronic, Inc. ................................ 15,100 962,625
---------
2,735,520
---------
Chemicals (1.4%)
Dow Chemical Co. ............................... 6,600 638,138
Du Pont (E.I.) de Nemours ...................... 36,100 2,693,962
Eastman Chemical Co. ........................... 2,400 149,400
Hercules, Inc. ................................. 3,100 127,488
Rohm & Haas Co. ................................ 2,800 291,025
---------
3,900,013
---------
Commercial Services (0.4%)
Cognizant Corp. ................................ 4,900 308,700
Deluxe Corp. ................................... 1,500 53,719
Interpublic Group of Co., Inc. ................. 5,100 309,506
Omnicom Group, Inc. ............................ 6,300 314,213
RR Donnelley & Sons Co. ........................ 4,200 192,150
---------
1,178,288
---------
Computers (3.4%)
Apple Computer, Inc.+ .......................... 6,500 186,469
Ceridian Corp.+ ................................ 2,200 129,250
Compaq Computer Corp. .......................... 22,232 630,833
Computer Sciences Corp.+ ....................... 5,000 320,000
Data General Corp.+ ............................ 1,100 16,431
Dell Computer Corp.+ ........................... 32,800 3,044,249
Gateway 2000, Inc.+ ............................ 4,900 248,063
Hewlett Packard Co. ............................ 12,500 748,438
International Business Machines, Inc. .......... 28,400 3,260,674
</TABLE>
120 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Market
Shares Value
--------- --------
<S> <C> <C>
Computers (continued)
Sun Microsystems, Inc.+ ...................... 12,000 $ 521,250
Unisys Corp.+ ................................ 13,700 387,025
-----------
9,492,682
-----------
Conglomerate and Aerospace (4.3%)
Crane Co. .................................... 800 38,850
General Dynamics Corp. ....................... 4,400 204,600
General Electric Co. ......................... 98,200 8,936,199
Goodrich (B.F.) Co. .......................... 1,000 49,625
Lockheed Martin Corp. ........................ 6,200 656,425
National Service Industries, Inc. ............ 800 40,700
Northrop Grumman Corp. ....................... 3,400 350,625
Raytheon Co. ................................. 6,900 407,963
Tenneco, Inc. ................................ 5,600 213,150
Textron, Inc. ................................ 5,000 358,438
United Technologies Corp. .................... 7,300 675,250
-----------
11,931,825
-----------
Consumer Finance (2.2%)
Associates First Capital Corp. ............... 14,499 1,114,611
Countrywide Credit Industries, Inc. .......... 3,200 162,400
Federal Home Loan Mortgage Corp. ............. 27,600 1,298,925
Federal National Mortgage Association ........ 42,200 2,563,649
Household International, Inc. ................ 10,500 522,375
MBNA Corp. ................................... 15,050 496,650
Ryder System, Inc. ........................... 1,600 50,500
-----------
6,209,110
-----------
Consumer Products (3.5%)
Alberto-Culver Co. ........................... 1,000 29,000
American Greetings Corp. ..................... 1,200 61,125
Avon Products, Inc. .......................... 3,500 271,250
Bestfoods .................................... 8,400 487,725
Clorox Co. ................................... 2,700 257,513
Colgate-Palmolive Co. ........................ 9,400 827,200
Gillette Co. ................................. 32,800 1,859,349
International Flavors &
Fragrances, Inc. ........................... 3,300 143,344
Kimberly-Clark Corp. ......................... 7,100 325,713
Procter & Gamble Co. ......................... 40,900 3,724,455
Unilever NV .................................. 19,700 1,555,068
-----------
9,541,742
-----------
Consumer Services (1.1%)
Cendant Corp.+ ............................. 25,334 528,847
Darden Restaurants, Inc. ................... 6,200 98,425
H & R Block, Inc. .......................... 5,100 214,838
Harrah's Entertainment, Inc.+ .............. 1,200 27,900
Hilton Hotels Corp. ........................ 7,100 202,350
Marriott International, Inc. ............... 3,900 126,263
McDonald's Corp. ........................... 20,100 1,386,900
Mirage Resorts, Inc.+ ...................... 5,200 110,825
Service Corp. International ................ 6,400 274,400
Tricon Global Restaurants, Inc.+ ........... 2,470 78,268
-----------
3,049,016
-----------
Consumer Specialties (0.2%)
Brunswick Corp. ............................ 4,300 $ 106,425
Hasbro, Inc. ............................... 2,500 98,281
Mattel, Inc. ............................... 9,800 414,663
-----------
619,369
-----------
Data and Imaging Services (5.6%)
Adobe Systems, Inc. ........................ 2,000 84,875
Autodesk, Inc. ............................. 2,300 88,838
Automatic Data Processing, Inc. ............ 8,600 626,725
Cisco Systems, Inc.+ ....................... 30,800 2,835,524
Computer Associates
International, Inc. ...................... 27,950 1,552,971
EMC/MASS Corp.+ ............................ 27,100 1,214,419
Microsoft Corp.+ ........................... 74,300 8,052,262
Novell, Inc.+ .............................. 10,800 137,700
Oracle Corp.+ .............................. 29,300 719,681
Parametric Technology Co.+ ................. 7,200 195,300
-----------
15,508,295
-----------
Discretionary Retail (5.7%)
AutoZone, Inc.+ ................................ 4,500 143,719
Circuit City Stores, Inc. ...................... 3,000 140,625
Consolidated Stores Corp.+ ..................... 3,200 116,000
Costco Companies, Inc.+ ........................ 8,800 554,950
Dayton Hudson Corp. ............................ 18,200 882,700
Dillards, Inc. ................................. 3,700 153,319
Federated Department Stores, Inc.+ ............. 9,100 489,694
Gap, Inc. ...................................... 19,650 1,210,931
Home Depot, Inc. ............................... 31,550 2,620,621
J.C. Penney Co., Inc. .......................... 7,100 513,419
Kmart Corp.+ ................................... 21,100 406,175
Lowe's Companies, Inc. ......................... 10,200 413,738
May Department Stores Co. ...................... 9,300 609,150
Mercantile Stores Co., Inc. .................... 500 39,469
Nordstrom, Inc. ................................ 2,300 177,675
Sears, Roebuck & Co. ........................... 11,100 677,794
Tandy Corp. .................................... 5,000 265,313
The Limited, Inc. .............................. 6,800 225,250
TJX Companies, Inc. ............................ 15,800 381,175
Toys "R" Us, Inc.+ ............................. 8,900 209,706
Wal-Mart Stores, Inc. .......................... 89,700 5,449,274
----------
15,680,697
----------
Diversified Financial Services (2.7%)
American Express Co. ........................... 14,800 1,687,199
American General Corp. ......................... 8,164 581,175
Morgan Stanley, Dean Witter,
Discover & Co. ............................... 24,375 2,227,265
Transamerica Corp. ............................. 1,800 207,225
Travelers Group, Inc. .......................... 46,154 2,798,085
---------
7,500,949
---------
Drugs (10.8%)
Abbott Laboratories ............................ 46,400 1,896,599
American Home Products Corp. ................... 37,900 1,961,324
Baxter International, Inc. ..................... 3,600 193,725
</TABLE>
121
<PAGE>
Aetna GET Fund
Portfolio of Investments - June 30, 1998 (Unaudited)
Series C (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Market
Shares Value
--------- --------
<S> <C> <C>
Drugs (continued)
Bristol-Myers Squibb Co. ....................... 40,500 $ 4,654,968
Eli Lilly & Co. ................................ 35,600 2,351,824
Johnson & Johnson .............................. 39,300 2,898,374
Merck & Co., Inc. .............................. 35,000 4,681,249
Pfizer, Inc. ................................... 52,400 5,695,224
Pharmacia & Upjohn, Inc. ....................... 6,500 299,813
Schering Plough ................................ 37,600 3,445,099
Warner Lambert Co. ............................. 24,400 1,692,749
-----------
29,770,948
-----------
Electric Utilities (1.9%)
Ameren Corp. ................................... 4,000 159,000
American Electric Power Co. .................... 5,000 226,875
Baltimore Gas & Electric Co. ................... 4,000 124,250
Carolina Power & Light Co. ..................... 4,100 177,838
Central & South West Corp. ..................... 6,800 182,750
Cinergy Corp. .................................. 4,200 147,000
Consolidated Edison ............................ 7,800 359,288
Dominion Resources, Inc. ....................... 6,000 244,500
DTE Energy Co. ................................. 7,900 318,963
Edison International ........................... 11,200 331,100
Entergy Corp. .................................. 6,400 184,000
FirstEnergy Corp. .............................. 5,300 162,975
GPU, Inc. ...................................... 3,500 132,344
Houston Industries, Inc. ....................... 9,515 293,776
Northern States Power Co. ...................... 2,000 57,250
PacifiCorp ..................................... 8,100 183,263
Peco Energy Co. ................................ 7,100 207,231
PG&E Corp. ..................................... 11,800 372,438
PP&L Resources, Inc. ........................... 4,400 99,825
Public Service Enterprise Group, Inc. .......... 6,300 216,956
Southern Co. ................................... 20,600 570,363
Texas Utilities Co. ............................ 6,957 289,585
Unicom Corp. ................................... 5,900 206,869
-----------
5,248,439
-----------
Electrical Machinery and Instruments (0.6%)
Harris Corp. ................................... 2,700 120,656
Pitney Bowes, Inc. ............................. 8,900 428,313
Tektronix, Inc. ................................ 2,050 72,519
Xerox Corp. .................................... 10,400 1,056,900
-----------
1,678,388
-----------
Electronic Media (1.9%)
CBS Corp. ...................................... 22,800 723,900
Clear Channel Communications, Inc.+ ............ 2,800 305,550
Comcast Corp. .................................. 10,100 409,997
King World Production, Inc.+ ................... 1,200 30,600
Tele-Communications, Inc.+ ..................... 13,000 499,688
Time Warner, Inc. .............................. 6,400 546,800
Viacom, Inc.+ .................................. 9,100 530,075
Walt Disney Co. (The) .......................... 19,900 2,090,743
-----------
5,137,353
-----------
Food and Beverage (4.9%)
Anheuser-Busch Co., Inc. ......................... 14,200 $ 670,063
Archer-Daniels-Midland Co. ....................... 15,285 296,147
Brown-Forman Corp. ............................... 2,100 134,925
Campbell Soup Co. ................................ 5,800 308,125
Coca-Cola Co. .................................... 72,200 6,173,099
Conagra, Inc. .................................... 6,100 193,294
Coors (Adolph) Co. ............................... 1,000 34,000
Fortune Brands, Inc. ............................. 5,600 215,250
General Mills, Inc. .............................. 4,500 307,688
Heinz (H.J.) Co. ................................. 11,900 667,888
Hershey Foods Corp. .............................. 4,100 282,900
Kellogg Co. ...................................... 11,400 428,213
PepsiCo, Inc. .................................... 44,300 1,824,605
Pioneer Hi-Bred International, Inc. .............. 5,700 235,838
Quaker Oats Co. .................................. 4,600 252,713
Ralston-Ralston Purina Group ..................... 3,300 385,481
Sara Lee Corp. ................................... 14,100 788,719
Wrigley (Wm.) Jr. Co. ............................ 3,000 294,000
-----------
13,492,948
-----------
Food and Drug Retail (1.0%)
Albertson's, Inc. ................................ 7,500 388,594
American Stores Co. .............................. 7,300 176,569
CVS Corp. ........................................ 11,600 451,675
Kroger Co. (The)+ ................................ 7,600 325,850
Longs Drug Stores, Inc. .......................... 800 23,100
Rite Aid Corp. ................................... 9,600 360,600
SUPERVALU, INC ................................... 2,000 88,750
Sysco Corp. ...................................... 10,400 266,500
Walgreen Co. ..................................... 14,000 578,375
Winn-Dixie Stores, Inc. .......................... 4,000 204,750
-----------
2,864,763
-----------
Forest Products and Building Materials (0.6%)
Armstrong World Industries, Inc. ................. 800 53,900
Bemis Co., Inc. .................................. 1,700 69,488
Crown Cork & Seal Co., Inc. ...................... 2,500 118,750
Fort James Corp. ................................. 8,500 378,250
Masco Corp. ...................................... 6,700 405,350
Mead Corp. ....................................... 3,000 95,250
Owens-Illinois, Inc.+ ............................ 6,600 295,350
Sealed Air Corp.+ ................................ 964 35,427
Temple-Inland, Inc. .............................. 1,600 86,200
Westvaco Corp. ................................... 1,000 28,250
Weyerhaeuser Co. ................................. 2,500 115,469
-----------
1,681,684
-----------
Gas Utilities (0.5%)
Coastal Corp. (The) .............................. 5,700 397,931
Columbia Gas System, Inc. ........................ 1,500 83,438
Consolidated Natural Gas Co. ..................... 1,900 111,863
Eastern Enterprises .............................. 500 21,438
Enron Corp. ...................................... 3,700 200,031
</TABLE>
122 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Market
Shares Value
--------- --------
<S> <C> <C>
Gas Utilities (continued)
NICOR, Inc. .................................. 900 $ 36,113
ONEOK, Inc. .................................. 700 27,913
People's Energy Corp. ........................ 600 23,175
Sempra Energy+ ............................... 4,511 125,191
Williams Co., Inc. (The) ..................... 8,500 286,875
----------
1,313,968
----------
Health Services (1.0%)
Cardinal Health, Inc. ........................ 4,700 440,625
Columbia/HCA Healthcare Corp. ................ 7,900 230,088
HBO & Co. .................................... 22,200 782,550
HEALTHSOUTH Corp.+ ........................... 17,100 456,356
Humana, Inc.+ ................................ 2,000 62,375
Manor Care, Inc. ............................. 1,100 42,281
Shared Medical Systems Corp. ................. 800 58,750
Tenet Healthcare Corp.+ ...................... 8,800 275,000
United Healthcare Corp. ...................... 5,500 349,250
----------
2,697,275
----------
Heavy Machinery (0.7%)
Case Corp. ................................... 3,200 154,400
Caterpillar, Inc. ............................ 11,100 586,913
Cummins Engine Company, Inc. ................. 2,100 107,625
Deere & Co. .................................. 12,700 671,513
NACCO Industries, Inc. ....................... 200 25,850
Navistar International Corp.+ ................ 2,300 66,413
PACCAR, Inc. ................................. 4,300 224,675
----------
1,837,389
----------
Housing and Furnishings (0.3%)
Centex Corp. ................................. 3,200 120,800
Fleetwood Enterprises, Inc. .................. 700 28,000
Kaufman & Broad Home Corp. ................... 900 28,575
Maytag Corp. ................................. 3,900 192,563
Newell Co. ................................... 4,100 204,231
Pulte Corp. .................................. 1,000 29,875
Rubbermaid, Inc. ............................. 1,800 59,738
Whirlpool Corp. .............................. 2,200 151,250
----------
815,032
----------
Industrial Services (0.2%)
Browning-Ferris Industries, Inc. ............. 6,300 218,925
Fluor Corp. .................................. 2,400 122,400
Foster Wheeler Corp. ......................... 600 12,863
Laidlaw, Inc. ................................ 9,500 115,781
----------
469,969
----------
Insurance (4.3%)
Allstate Corp. (The) ......................... 22,900 2,096,780
American International Group, Inc. ........... 22,250 3,248,499
Aon Corp. .................................... 5,050 354,763
Chubb Corp. .................................. 4,600 369,725
CIGNA Corp. .................................. 6,900 476,100
Cincinnati Financial Corp. ................... 4,800 184,200
Insurance (continued)
Conseco, Inc. .............................. 7,600 $ 355,300
General Re Corp. ........................... 2,400 608,400
Hartford Financial Services
Group, Inc. .............................. 3,600 411,750
Jefferson-Pilot Corp. ...................... 4,600 266,513
Lincoln National Corp. ..................... 4,600 420,325
Marsh & McLennan Co., Inc. ................. 9,900 598,331
MBIA, Inc. ................................. 4,400 329,450
MGIC Investment Corp. ...................... 5,100 291,019
Progressive Corp. .......................... 3,900 549,900
Safeco Corp. ............................... 3,800 172,663
St. Paul Co., Inc. ......................... 5,896 248,001
SunAmerica, Inc. ........................... 9,350 537,041
Torchmark Corp. ............................ 4,200 192,150
UNUM Corp. ................................. 4,000 222,000
-----------
11,932,910
-----------
Investment Services (1.0%)
Charles Schwab Corp. ....................... 7,000 227,500
Franklin Resources, Inc. ................... 8,100 437,400
Lehman Brothers Holdings, Inc. ............. 5,700 442,106
Merrill Lynch & Co., Inc. .................. 14,100 1,300,725
Providian Financial Corp. .................. 2,800 219,975
-----------
2,627,706
-----------
Major Telecommunications (6.9%)
Alltel Corp. ............................... 4,900 227,850
Ameritech Corp. ............................ 35,300 1,584,087
AT&T Corp. ................................. 82,100 4,689,962
Bell Atlantic Corp. ........................ 62,336 2,844,079
BellSouth Corp. ............................ 50,800 3,409,949
GTE Corp. .................................. 28,100 1,563,062
SBC Communications, Inc. ................... 74,844 2,993,759
Sprint Corp. ............................... 4,400 310,200
WorldCom, Inc.+ ............................ 31,000 1,501,562
-----------
19,124,510
-----------
Oil (4.8%)
Amoco Corp. ................................ 12,300 511,988
Apache Corp. ............................... 3,000 94,500
Ashland Oil, Inc. .......................... 2,900 149,713
Atlantic Richfield Co. ..................... 3,900 304,688
Chevron Corp. .............................. 20,200 1,677,862
Exxon Corp. ................................ 73,800 5,262,862
Mobil Corp. ................................ 9,300 712,613
Occidental Petroleum Corp. ................. 10,800 291,600
Pennzoil Co. ............................... 2,300 116,438
Phillips Petroleum Co. ..................... 7,700 371,044
Royal Dutch Petroleum Co. .................. 62,700 3,436,743
Sun Company, Inc. .......................... 2,900 112,556
USX-Marathon Group ......................... 8,200 281,363
-----------
13,323,970
-----------
Oil Services (0.8%)
Baker Hughes, Inc. ......................... 5,700 197,006
</TABLE>
123
<PAGE>
Aetna GET Fund
Portfolio of Investments - June 30, 1998 (Unaudited)
Series C (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Market
Shares Value
--------- --------
<S> <C> <C>
Oil Services (continued)
Halliburton Co. .............................. 10,500 $ 467,906
Helmerich & Payne, Inc. ...................... 1,400 31,150
McDermott International, Inc. ................ 2,900 99,869
Rowan Co., Inc.+ ............................. 4,400 85,525
Schlumberger Ltd. ............................ 17,600 1,202,300
Western Atlas, Inc.+ ......................... 2,200 186,725
----------
2,270,481
----------
Other Telecommunications (2.6%)
AirTouch Communications, Inc.+ ............... 18,000 1,051,875
Frontier Corp. ............................... 5,000 157,500
General Instrument Corp.+ .................... 4,300 116,906
Lucent Technologies, Inc. .................... 39,600 3,294,224
MediaOne Group, Inc.+ ........................ 18,800 826,025
Northern Telecom Ltd. ........................ 6,300 357,525
Scientific Atlanta, Inc. ..................... 900 22,838
Tellabs, Inc.+ ............................... 5,500 393,938
U S WEST, Inc. ............................... 21,413 1,006,431
----------
7,227,262
----------
Print Media (0.8%)
Dow Jones & Co., Inc. ........................ 2,200 122,650
Dun & Bradstreet Corp. ....................... 5,100 184,238
Equifax, Inc. ................................ 4,400 159,775
Gannett Co., Inc. ............................ 8,800 625,350
Knight-Ridder, Inc. .......................... 4,300 236,769
McGraw-Hill Co., Inc. ........................ 2,700 220,219
Meredith Corp. ............................... 1,500 70,406
New York Times Co. ........................... 2,900 229,825
Times Mirror Co. ............................. 2,700 169,763
Tribune Co. .................................. 3,400 233,963
----------
2,252,958
----------
Producer Goods (3.0%)
Aeroquip-Vickers, Inc. ....................... 500 29,188
Allegheny Teledyne, Inc. ..................... 5,500 125,813
Allied Signal, Inc. .......................... 17,500 776,563
Avery Dennison Corp. ......................... 4,600 247,250
Cincinnati Milacron, Inc. .................... 900 21,881
Cooper Industries, Inc. ...................... 5,900 324,131
Corning, Inc. ................................ 2,800 97,300
Dover Corp. .................................. 6,600 226,050
Dresser Industries, Inc. ..................... 5,300 233,531
Ecolab, Inc. ................................. 3,600 111,600
Emerson Electric Co. ......................... 13,800 833,175
FMC Corp.+ ................................... 600 40,913
General Signal Corp. ......................... 900 32,400
Grainger (W. W.), Inc. ....................... 3,200 159,400
Honeywell, Inc. .............................. 3,800 317,538
Ikon Office Solutions, Inc. .................. 4,300 62,619
Illinois Tool Works, Inc. .................... 7,800 520,163
Ingersoll-Rand Co. ........................... 8,400 370,125
ITT Industries, Inc. ......................... 5,100 190,613
Producer Goods (continued)
Minnesota Mining and Manufacturing
Co. ........................................ 12,900 $ 1,060,219
Parker-Hannifin Corp. ........................ 6,000 228,750
PPG Industries, Inc. ......................... 5,100 354,769
Raychem Corp. ................................ 3,000 88,688
Sherwin-Williams Co. ......................... 4,600 152,375
Thermo Electron Corp.+ ....................... 4,500 153,844
Thomas & Betts Corp. ......................... 1,700 83,725
Timken Co. ................................... 1,700 52,381
Tyco International Ltd. ...................... 23,700 1,493,100
------------
8,388,104
------------
Semiconductors and Electronics (0.5%)
Intel Corp. .................................. 20,000 1,482,500
------------
Specialty Chemicals (0.3%)
Air Products and Chemicals, Inc. ............. 6,800 272,000
Engelhard Corp. .............................. 4,100 83,025
Grace (W.R.) & Co.+ .......................... 1,800 30,713
Great Lakes Chemical Corp. ................... 700 27,606
Morton International, Inc. ................... 4,200 105,000
Nalco Chemical Co. ........................... 1,100 38,638
Praxair, Inc. ................................ 4,700 220,019
Sigma-Aldrich Corp. .......................... 1,900 66,738
------------
843,739
------------
Steel (0.1%)
Armco, Inc.+ ................................. 3,400 21,675
Barrick Gold Corp. ........................... 4,800 92,100
Bethlehem Steel Corp.+ ....................... 3,200 39,800
Nucor Corp. .................................. 1,900 87,400
USX-US Steel Group, Inc. ..................... 4,700 155,100
------------
396,075
------------
Surface Transport (0.5%)
Burlington Northern Santa Fe Corp. ........... 4,800 471,300
CSX Corp. .................................... 5,900 268,450
FDX Corp. Holding Co.+ ....................... 4,480 281,120
Norfolk Southern Corp. ....................... 10,700 318,994
------------
1,339,864
------------
Textiles and Apparel (0.2%)
Liz Claiborne, Inc. .......................... 1,901 99,311
Venator Group, Inc.+ ......................... 4,100 78,413
VF Corp. ..................................... 4,400 226,600
------------
404,324
------------
Total Common Stocks (cost $213,981,262) 262,695,340
------------
PREFERRED STOCKS (0.4%)
Chemicals (0.1%)
Union Carbide Corp. .......................... 3,400 181,475
------------
Electric Utilities (0.3%)
Duke Energy Corp. ............................ 10,330 612,053
FPL Group, Inc. .............................. 4,800 302,400
------------
914,453
------------
Total Preferred Stocks (cost $864,320) 1,095,928
------------
</TABLE>
124 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------- --------
<S> <C> <C>
LONG-TERM BONDS AND NOTES (4.0%)
U.S. Government Obligations (4.0%)
U.S. Treasury Strip, Zero Coupon,11/15/01 ........ $8,720,000 $ 7,250,601
U.S. Treasury Strip, Zero Coupon, 02/15/02 ....... 4,671,000 3,841,900
------------
Total Long-Term Bonds and Notes (cost $10,652,432) 11,092,501
------------
SHORT-TERM INVESTMENTS (0.3%)
Federal Home Loan Bank, 5.40%, 07/01/98 .......... 510,000 510,000
U.S. Treasury Bill, 5.06%, 08/20/98@ ............ 100,000 99,327
U.S. Treasury Bill, 5.08%, 08/20/98@ ............ 100,000 99,327
------------
Total Short-Term Investments (cost $708,592) 708,654
------------
TOTAL INVESTMENTS (cost $226,206,606)(a) 275,592,423
Other assets less liabilities 1,265,965
------------
Total Net Assets $276,858,388
============
</TABLE>
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$225,620,051. Unrealized gains and losses, based on identified tax cost at June
30, 1998, are as follows:
<TABLE>
<S> <C>
Unrealized gains ......................................... $51,314,678
Unrealized losses ........................................ (1,342,306)
-----------
Net unrealized gain..................................... $49,972,372
===========
</TABLE>
Information concerning open futures contracts at June 30, 1998 is shown below:
<TABLE>
<CAPTION>
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Long Contracts
- -------------------
S & P 500 Index
Futures.......... 1 $281,770 Sept. 98 $3,971
======== ======
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1998. Category percentages are based on net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 125
<PAGE>
Aetna GET Fund
Statements of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series B Series C
------------ ------------
<S> <C> <C>
Assets:
Investments, at market value ....................................... $111,688,833 $275,592,423
Cash ............................................................... 1,230 1,209
Receivable for:
Dividends and interest ........................................... 81,420 244,034
Investments sold ................................................. 797,274 6,136,836
Prepaid Expenses ................................................... 2,302 2,497
------------ ------------
Total assets .............................................. 112,571,059 281,976,999
------------ ------------
Liabilities:
Payable for:
Investments purchased ............................................ 1,273,361 4,952,709
Fund shares redeemed ............................................. 38,813 10,466
Variation margin ................................................. 38,250 2,125
Accrued investment advisory fees ................................... 62,029 124,590
Accrued administrative services fees ............................... 5,985 15,043
Accrued custodian fees ............................................. 1,764 5,053
Other liabilities .................................................. 5,162 8,625
------------ ------------
Total liabilities ......................................... 1,425,364 5,118,611
------------ ------------
NET ASSETS ....................................................... $111,145,695 $276,858,388
============ ============
Net assets represented by:
Paid-in capital .................................................... $ 80,341,780 $208,956,126
Net unrealized gain on investments and open futures contracts ...... 14,521,208 49,389,788
Undistributed net investment income ................................ 395,487 1,169,013
Accumulated net realized gain on investments ....................... 15,887,220 17,343,461
------------ ------------
NET ASSETS ....................................................... $111,145,695 $276,858,388
============ ============
Capital Shares
Par Value .......................................................... $ 0.001 $ 0.001
Outstanding ........................................................ 7,883,485 20,601,670
Net Asset Value, redemption price per share (net assets divided
by shares outstanding) ........................................... $ 14.099 $ 13.439
Cost of investments ................................................ $ 97,272,924 $226,206,606
</TABLE>
See Notes to Financial Statements.
126
<PAGE>
Aetna GET Fund
Statements of Operations
Six Month Period Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series B Series C
------------ ------------
<S> <C> <C>
Investment Income:
Dividends ....................................................... $ 644,708 $ 1,715,564
Interest ........................................................ 283,599 504,903
------------ ------------
928,307 2,220,467
Foreign taxes withheld on dividends ............................. (2,030) (7,080)
------------ ------------
Total investment income ................................ 926,277 2,213,387
------------ ------------
Expenses:
Investment advisory fees ........................................ 395,180 777,462
Administrative services fees .................................... 65,840 161,557
Custody fees .................................................... 1,757 5,110
Transfer agent fees ............................................. 570 480
Audit fees ...................................................... 2,435 2,582
Printing and postage fees ....................................... 1,477 2,582
Trustees' fees .................................................. 499 1,213
Miscellaneous expenses .......................................... 299 625
------------ ------------
Total expenses ......................................... 468,057 951,611
------------ ------------
Net investment income ........................................... 458,220 1,261,776
------------ ------------
Net Realized and Unrealized Gain (Loss):
Net realized gain on:
Sale of investments ........................................... 15,509,332 18,314,282
Futures contracts ............................................. 499,748 171,684
------------ ------------
Net realized gain on investments ....................... 16,009,080 18,485,966
------------ ------------
Net change in unrealized gain or loss on:
Investments ................................................... (2,110,242) 23,672,008
Futures contracts ............................................. 131,400 3,971
------------ ------------
Net change in unrealized gain or loss on investments ... (1,978,842) 23,675,979
------------ ------------
Net realized and change in unrealized gain or loss on investments 14,030,238 42,161,945
------------ ------------
Net increase in net assets resulting from operations ............ $ 14,488,458 $ 43,423,721
============ ============
</TABLE>
See Notes to Financial Statements.
127
<PAGE>
Aetna GET Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series B Series C
------------------------------- --------------------------------
Six Month Six Month
Period Period
Ended Ended
June 30, June 30,
1998 Year Ended 1998 Year Ended
(Unaudited) December 31, 1997 (Unaudited) December 31, 1997
----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
Operations:
Net investment income .......................................... $ 458,220 $ 1,238,060 $ 1,261,776 $ 3,674,973
Net realized gain on investments ............................... 16,009,080 23,778,113 18,485,966 25,237,905
Net change in unrealized gain or loss on investments ........... (1,978,842) 2,699,879 23,675,979 22,900,180
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations ......... 14,488,458 27,716,052 43,423,721 51,813,058
------------- ------------- ------------- -------------
Distributions to Shareholders:
From net investment income ..................................... (299,840) (1,316,653) (499,232) (3,554,172)
From net realized gains ........................................ (23,849,952) (15,789,390) (26,131,436) (292,861)
------------- ------------- ------------- -------------
Decrease in net assets from distributions to shareholders .... (24,149,792) (17,106,043) (26,630,668) (3,847,033)
------------- ------------- ------------- -------------
Fund Share Transactions:
Proceeds from share exchanges* ................................. 3,358,268 515,787 1,327,547 2,280,242
Net asset value of shares issued upon reinvestment of
distributions ................................................ 24,149,792 17,106,043 26,630,668 3,847,033
Payments for shares redeemed ................................... (8,638,214) (9,311,023) (15,644,674) (14,783,238)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from fund share
transactions ............................................... 18,869,846 8,310,807 12,313,541 (8,655,963)
------------- ------------- ------------- -------------
Net change in net assets ....................................... 9,208,512 18,920,816 29,106,594 39,310,062
Net assets:
Beginning of period ............................................ 101,937,183 83,016,367 247,751,794 208,441,732
------------- ------------- ------------- -------------
End of period .................................................. $ 111,145,695 $ 101,937,183 $ 276,858,388 $ 247,751,794
============= ============= ============= =============
End of period net assets includes undistributed net investment
income ....................................................... $ 395,487 $ 237,107 $ 1,169,013 $ 406,469
============= ============= ============= =============
Share Transactions:
Number of shares exchanged* .................................... 192,704 32,017 97,135 208,233
Number of shares issued upon reinvestment of distributions ..... 1,718,558 1,209,626 1,990,323 317,546
Number of shares redeemed ...................................... (509,044) (598,460) (1,133,306) (1,254,289)
============= ============= ============= =============
Net increase (decrease) ...................................... 1,402,218 643,183 954,152 (728,510)
============= ============= ============= =============
</TABLE>
* Exchanges into the Series' are from initial shareholders who have exchange
privileges.
See Notes to Financial Statements.
128
<PAGE>
Aetna GET Fund
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Organization
Aetna GET Fund (Fund) is registered under the Investment Company Act of 1940 as
an open-end management investment company. It was organized under the laws of
Massachusetts as a business trust on March 9, 1987. The Declaration of Trust
permits the Fund to offer separate series (Series), each of which has its own
investment objective, policies and restrictions.
Currently there are two diversified Series of the Fund, Aetna GET Fund, Series B
(GET B) and Aetna GET Fund, Series C (GET C). Both Series seek to achieve
maximum total return by participating in favorable equity market performance
without compromising a minimum targeted rate of return during a specified five
year period (Guaranteed Period). The minimum targeted return for each Series
during its Guaranteed Period is 2.50% per year before asset based contract
charges and each Series' cost of operations.
GET B accumulated deposits from March 15, 1994 to June 30, 1994. The Guaranteed
Period for GET B is from July 1, 1994 to June 30, 1999, its maturity date. GET C
accumulated deposits from September 16, 1996 to December 16, 1996. The
Guaranteed Period for GET C is from December 17, 1996 to December 16, 2001, its
maturity date.
Shares of each Series 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.
Effective May 1, 1998, Aeltus Investment Management, Inc. (Aeltus) became the
Investment Adviser to the Fund. Prior to May 1, 1998, ALIAC acted as Investment
Adviser and Aeltus served as Sub-Adviser to the Fund. ALIAC serves as the
principal underwriter to the Fund. Aeltus and ALIAC are both wholly-owned
subsidiaries of Aetna Retirement Holdings, Inc. and are indirect wholly-owned
subsidiaries of Aetna Inc.
2. Summary of Significant Accounting Policies
The accompanying financial statements of each Series 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 each Series.
A. Valuation of Investments
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter securities,
at the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities and fixed income investments for which
market quotations are not considered to be readily available are valued using
methods approved by the Board of Trustees.
B. Futures Contracts
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument including an
index of stocks at a set price on a future date. Each Series may enter into
futures contracts to manage the risk of changes in interest rates, equity prices
or in anticipation of future purchases and sales of portfolio securities.
Upon entering into a futures contract, a Series is required to deposit with a
broker an amount (initial margin) equal to a percentage of the purchase price
indicated by the futures contract. Subsequent deposits (variation margin) are
received or paid each day by a Series equal to the daily fluctuation in the
market value of the contract. These amounts are recorded by a Series as
unrealized gains or losses. When a contract is closed, a Series records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Generally,
futures contracts are closed prior to expiration.
129
<PAGE>
Aetna GET Fund
Notes to Financial Statements (continued)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
B. Futures Contracts (continued)
The risks associated with futures contracts may arise from an imperfect
correlation between the change in market value of the securities held by the
Series and the price of futures contracts. Risks may also arise from an illiquid
secondary market or from the inability of counterparties to meet the terms of
the contract.
Realized and unrealized gains or losses on futures contracts are reflected in
the accompanying financial statements. The amounts at risk under such futures
contracts may exceed the amounts reflected in the financial statements. The
notional amounts (economic exposure) of these contracts are disclosed in the
Portfolio of Investments. For federal income tax purposes, any futures contracts
which remain open at the end of the fiscal year are marked-to-market and the
resultant net gain or loss is included in federal taxable income.
C. Illiquid and Restricted Securities
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Series to sell them promptly at an
acceptable price. Restricted securities are those sold pursuant to Rule 144A and
Section 4(2) of the Securities Act of 1933 (1933 Act), and are subject to legal
or contractual restrictions on resale and may not be publicly sold without
registration under the 1933 Act. Each Series 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 Trustees. The Series will not pay the
costs of disposition of restricted securities other than ordinary brokerage
fees, if any.
D. Federal Income Taxes
As a qualified regulated investment company, each Series is relieved of federal
income and excise 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.
E. Distributions
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for futures and deferred losses on wash
sales.
F. Other
Investment transactions are accounted for on the day following the trade date,
except same day settlements which are accounted for on the trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, using the effective yield
method over the life of the security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.
3. Investment Advisory and Administrative Services Fees
Effective May 1, 1998, Aeltus became the Investment Adviser and Administrator to
the Fund. Prior to that time, ALIAC acted as Investment Adviser and
Administrator to the Fund and Aeltus acted as Sub-Adviser to the Fund.
130
<PAGE>
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Services Fees (continued)
As Investment Adviser, Aeltus (ALIAC prior to May 1, 1998) is paid a monthly fee
expressed as a percentage of the average daily net assets of each Series. Below
are each Series' Investment Advisory fees as of June 30, 1998:
<TABLE>
<CAPTION>
Advisory
Fee
----------------
<S> <C>
Series B 0.75%
Series C 0.60%
</TABLE>
Prior to May 1, 1998, ALIAC Served as Investment Adviser and Aeltus served as
the Sub-Adviser to the Fund. As Sub-Adviser, Aeltus supervised the investment
and reinvestment of cash and securities and provided certain related
administrative services. For the period January 1, 1998 through April 30, 1998,
ALIAC collected $779,781 from the Series', of which it paid $441,411 to Aeltus.
Effective May 1, 1998, each Series pays expenses incurred in exchange for
services provided by auditors, legal firms, transfer agents, custodian banks and
financial printers. Each Series pays its proportionate share of compensation
paid to the Fund's Board of Trustees and its proportionate share of insurance
premiums of the Fund. Each Series pays its direct costs incurred to mail
shareholder reports, register its shares with the Securities Exchange Commission
and any other costs incurred by the Series. In addition, each Series pays Aeltus
an administrative services fee in exchange for receiving certain administrative
and shareholder services and to compensate Aeltus for supervising the Fund's
other service providers. Each Series pays Aeltus an administrative services fee
at an annual rate based on average daily net assets of the Series. The rate is
0.075% on the first $5 billion in Series assets and 0.050% on all Series assets
over $5 billion.
Prior to May 1, 1998, ALIAC acted as Administrator to the Fund. As
Administrator, ALIAC paid all the expenses of the Fund on behalf of the Fund,
supervised the Fund's other service providers and provided the Fund with certain
administrative and shareholder services. In exchange for these services, ALIAC
received an administrative services fee at an annual rate of up to 0.15% of each
Series' average daily net assets. For the period January 1, 1998 through April
30, 1998, ALIAC collected $181,768 in administrative services fees from the
Series'.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Series in
exchange for fees, payable by Aeltus, of up to 0.375% of the Series' average
daily net assets. For the period May 1, 1998 through June 30, 1998, Aeltus paid
ALIAC $206,436.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1998 were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- -------------------
<S> <C> <C>
GET B $ 87,710,300 $ 95,618,345
GET C 113,308,359 126,857,278
</TABLE>
131
<PAGE>
Aetna GET Fund
Financial Highlights
Series B
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month Period From
Period Ended Year Ended Year Ended Year Ended July 1, 1994 to
June 30, 1998 December 31, December 31, December 31, December 31,
(Unaudited) 1997 1996 1995+ 1994+
------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 15.728 $ 14.220 $ 12.401 $ 9.920 $ 10.092
--------- --------- ---------- --------- ----------
Income from investment operations:
Net investment income .................................... 0.062 0.203 0.283 0.309 0.250
Net realized and change in unrealized gain or loss on
investments ............................................ 2.216 4.342 2.489 2.492 (0.064)
--------- --------- ---------- --------- ----------
Total from investment operations ................... 2.278 4.545 2.772 2.801 0.186
--------- --------- ---------- --------- ----------
Less distributions:
From net investment income ............................... (0.049) (0.220) (0.230) (0.320) (0.317)
From net realized gains on investments ................... (3.858) (2.817) (0.723) -- (0.041)
--------- --------- ---------- --------- ----------
Total distributions ................................ (3.907) (3.037) (0.953) (0.320) (0.358)
--------- --------- ---------- --------- ----------
Net asset value, end of period ............................. $ 14.099 $ 15.728 $ 14.220 $ 12.401 $ 9.920
========= ========= ========== ========= ==========
Total return* .............................................. 14.56% 34.52% 23.52% 28.38% 1.83%
Net assets, end of period (000's) .......................... $111,146 $101,937 $ 83,016 $ 88,570 $ 74,145
Ratio of total expenses to average net assets .............. 0.88%(1) 0.90% 0.85% 1.03% 0.53%(1)
Ratio of net investment income to average net assets ....... 0.86%(1) 1.30% 1.96% 2.74% 4.52%(1)
Portfolio turnover rate .................................... 85.96% 214.10% 122.27% 90.25% 36.12%
Average commission rate paid per share on equity
securities traded ........................................ $ 0.0531 $ 0.0551 $ 0.0538 -- --
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate account charges
under variable annuity contracts and life policies.
+ Per share data calculated using weighted average number of shares outstanding
throughout the period.
See Notes to Financial Statements.
132
<PAGE>
Series C
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Six Month Period From
Period Ended Year Ended December 17, 1996
June 30, 1998 December 31, to December 31,
(Unaudited) 1997 1996
------------ ---------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period ..................................... $ 12.610 $ 10.230 $ 10.125
--------- --------- ---------
Income from investment operations:
Net investment income .................................................. 0.063 0.187 0.009
Net realized and change in unrealized gain or loss on investments ...... 2.196 2.388 0.146
--------- --------- ---------
Total from investment operations ................................. 2.259 2.575 0.155
--------- --------- ---------
Less distributions:
From net investment income ............................................. (0.027) (0.180) (0.050)
From net realized gains on investments ................................. (1.403) (0.015) --
--------- --------- ---------
Total distributions .............................................. (1.430) (0.195) (0.050)
--------- --------- ---------
Net asset value, end of period ........................................... $ 13.439 $ 12.610 $ 10.230
========= ========= =========
Total return* ............................................................ 17.96% 25.25% 1.52%
Net assets, end of period (000's) ........................................ $276,858 $247,752 $208,442
Ratio of total expenses to average net assets ............................ 0.73%(1) 0.75% 0.75%(1)
Ratio of net investment income to average net assets ..................... 0.96%(1) 1.58% 3.04%(1)
Portfolio turnover rate .................................................. 43.07% 126.43% 6.25%
Average commission rate paid per share on equity securities traded ....... $ 0.0475 $ 0.0437 $ 0.0342
</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.
133
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[back cover]
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