- --------------------------------------------------------------------------------
Table of Contents
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President's Letter........................................... 1
Investment Review:
Aetna Variable Fund........................................ 3
Aetna Income Shares........................................ 6
Aetna Variable Encore Fund................................. 8
Aetna Investment Advisers Fund, Inc........................ 10
Portfolios of Investments:
Aetna Variable Fund........................................ 13
Aetna Income Shares........................................ 24
Aetna Variable Encore Fund................................. 26
Aetna Investment Advisers Fund, Inc........................ 28
Statements of Assets and Liabilities......................... 38
Statements of Operations..................................... 39
Statements of Changes in Net Assets.......................... 40
Notes to Financial Statements................................ 42
Financial Highlights......................................... 48
Independent Auditors' Report................................. 52
Additional Information....................................... 53
Aetna Generations Portfolios, Inc.
Investment Review............................................ 54
Portfolios of Investments.................................... 58
Statements of Assets and Liabilities......................... 79
Statements of Operations..................................... 80
Statements of Changes in Net Assets.......................... 81
Notes to Financial Statements................................ 84
Financial Highlights......................................... 90
Independent Auditors' Report................................. 93
Additional Information....................................... 94
Aetna Variable Portfolios, Inc.
Investment Review............................................ 95
Portfolios of Investments.................................... 103
Statements of Assets and Liabilities......................... 113
Statements of Operations..................................... 114
Statements of Changes in Net Assets.......................... 115
Notes to Financial Statements................................ 117
Financial Highlights......................................... 121
Independent Auditors' Report................................. 125
Additional Information....................................... 126
Aetna GET Funds
Investment Review............................................ 127
Portfolios of Investments.................................... 131
Statements of Assets and Liabilities......................... 139
Statements of Operations..................................... 140
Statements of Changes in Net Assets.......................... 141
Notes to Financial Statements................................ 142
Financial Highlights......................................... 145
Independent Auditors' Report................................. 147
Additional Information....................................... 148
<PAGE>
President's Letter
Dear Valued Client,
Thank you for placing your investment with the Aetna Variable Funds. We are
pleased to send this annual report on the funds you have chosen to pursue your
investment goals.
Certainly the past year in the markets was an interesting and eventful one.
While it is quite rare for the stock market to experience two consecutive years
of 20%-plus gains, 1997 saw the S&P 500 index of large company U.S. stocks turn
in its third 20%-plus year in a row! The index returned 33.4% for 1997, after
23.0% in 1996 and 37.5% in 1995. And that gain came despite three distinct
market declines over the course of the year, in the March/April period, in
August and again in late October.
While the unstable financial markets in Asia played a pivotal role in the
October stumble of the U.S. stock market, it also provided a boost to bond
prices - as global investors sought safe haven in U.S. Treasury securities.
Strong economic fundamentals in the U.S. remained largely intact, interest rates
declined, and inflation was subdued at a mere 1.7% (Consumer Price Index through
December 00 1997) versus 3.3% in the prior year.
The past year proved to be an exciting and eventful one for Aetna's Variable
Funds as well.
The Generation Portfolios, our three "lifestyle" or "asset allocation"
funds, turned in another strong year of solid performance while exhibiting
controlled levels of risk. For the year ended December 31, 1997, each of
the three Portfolios (Aetna Ascent Variable, Aetna Crossroads Variable and
Aetna Legacy Variable) outpaced their respective benchmark indices.
A number of the Aetna Variable Funds provided results that far outpaced
those of their peers or benchmarks. Such notable Funds were Capital
Appreciation, Index Plus, Small Company and Investment Advisers. Across all
fund styles, the Aetna funds continued to provide competitive results.
Three new variable funds were introduced to increase investors' choices:
Aetna Variable Growth Portfolio, Aetna Variable Capital Appreciation
Portfolio and Aetna Variable Small Company Portfolio.
Followers of Louis Rukeyser's Wall Street Week on PBS became acquainted
with John Kim, President and Chief Investment Officer of Aeltus Investment
Management, Inc., the subadviser to the Portfolios. John has been a regular
guest panelist on the program since July and he will continue to appear on
the program in the coming months.
In this past year, Aetna Retirement Services and Aeltus made measurable
advancements in investment choices, fund performance and 00 money management
services. Assets under management - now in excess of $44 billion - place Aeltus
among the largest investment management firms. That represents the size and
strength which will allow Aetna and Aeltus to continue refining and adding to
existing services and products to better serve you.
Thank you for your continued confidence in the Aetna Variable Funds.
Sincerely,
/s/ J. Scott Fox
J. Scott Fox
President, Aetna Variable Funds
1
<PAGE>
Aetna Variable Fund
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year 5 Year 10 Year
- ------ ------ -------
29.89% 17.70% 16.63%
<TABLE>
<CAPTION>
- --------------------------------------------------[Aetna Variable Fund Line Chart]--------------------------------------------------
Jan-88 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Fund 10,000 11,464 14,797 15,286 19,322 20,617 22,006 21,784 28,809 35,856 36,609 41,987 47,365 46,573
S&P 500 Index 10,000 11,661 15,356 14,879 19,412 20,892 22,997 23,301 32,058 39,415 40,471 47,537 51,098 52,564
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
How did the Fund perform during the period?
The Aetna Variable Fund (Variable Fund) provided a total return of 29.89%, net
of fund expenses, for the year ended December 31, 1997. In comparison, the total
return for the Standard & Poor's (S&P) 500 Index(a), was 33.36% for the same
period. The Fund's returns have placed it in the top 42% (of 515 funds), 87% (of
278 funds), and 58% (of 143 funds) for the one, five and ten year periods ended
December 31, 1997, respectively, among Morningstar, Inc.'s variable annuity
growth and income stock fund universe.
What economic or financial market conditions impacted the Fund?
Once again this has been a great year overall for the U.S. stock market. 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.
Small company and real estate stocks, while returning in excess of 20% for the
past year, still lagged the S&P 500 by a little more than 10%. Performance for
international stocks also fell far behind large company stocks, mostly due to
turmoil in markets abroad. The Asian market crisis of late 1997 led to a "flight
to quality," boosting large company stocks and the U.S. dollar, and widening the
performance gap between U.S. and international stock markets. The following
chart of unmanaged indices compares the performance of different types of assets
for the twelve months ended December 31, 1997:
--------------------------------------------------------------
Asset Class Benchmark Index Return
--------------------------------------------------------------
Large Cap Stocks S&P 500 33.36 %
Small Cap Stocks Russell 2000 22.36 %
International Stocks MSCI EAFE 2.06 %
Real Estate Stocks NAREIT 20.29 %
U.S. Dollar Bonds Salomon Broad 9.62 %
International Bonds S.B. Non-U.S. WGBI (2.88)%
Cash Equivalents U.S. 90 Day T-Bill 5.24 %
See Definition of Indices.
3
<PAGE>
What investments influenced the Fund's performance over the past twelve months?
In order to better control risk and pursue enhanced return potential over the
long run, we complement our large company U.S. stock holdings with investments
in a variety of asset classes. During the past twelve months, domestic large
company stocks, as represented by the S&P 500, had a particularly strong showing
relative to other asset classes. Thus, our strategic decision to structure the
fund to be well-diversified, which we strongly believe is a sound one, did not
benefit us as much as we expected. Our exposure to diversified asset classes,
particularly international stocks and cash equivalents, held back overall
performance and the Fund subsequently trailed the S&P 500 slightly.
What is your outlook going forward?
At present, U.S. stocks appear fairly valued to us. 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 drives our asset allocation
decisions. As of early January 1998, interest rates fell enough to bring the
spread back into neutral territory from negative territory, where it was for
most of 1997. Consequently, we decreased our cash reserves in favor of equities.
Our current cash target for the Fund is 5%, which we consider to be a neutral
stance.
Due to their underperformance compared to large company stocks, small company
stocks currently offer unusual relative value. Consequently, we maintain our
emphasis on mid-sized company and small company domestic stocks. In addition, we
continue to carefully and selectively favor international markets, but we remain
more or less hedged (for potential protection against sudden shifts in values)
against the Japanese Yen, German Deutschemark, French Franc and Dutch Guilder.
Past performance is no guarantee of future results.
Investment Summary:
- --------------------------------------------------------
Top Ten Equity Holdings % of Portfolio
- --------------------------------------------------------
Dell Computer Corp. 2.7%
Travelers Group, Inc. 1.9%
Compaq Computer Corp. 1.9%
Intel Corp. 1.6%
BankAmerica Corp. 1.6%
Procter & Gamble Co. 1.5%
Schering Plough 1.5%
Dayton Hudson Corp. 1.5%
Allstate Corp. 1.4%
Ford Motor Co. 1.3%
Large Cap Portfolio Sector Breakdown*:
- --------------------------------------------------------------------------------
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
- --------------------------------------------------------------------------------
Basic Materials 3.0% 4.9% (1.9)%
Energy 13.1% 8.4% 4.7 %
Consumer Non-Discretionary 10.9% 22.6% (11.7)%
Consumer Discretionary 15.8% 11.1% 4.7 %
Commercial Services 2.5% 2.0% 0.5 %
Manufacturing 13.4% 11.9% 1.5 %
Technology 13.7% 11.1% 2.6 %
Finance 23.8% 17.1% 6.7 %
Utilities 3.8% 10.9% (7.1)%
* This does not constitute the entire fund. The securities in these sectors
only represent those that are in the S&P 500 Index.
4
<PAGE>
Asset Allocation:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
% of Notional Value* of Economic Exposure*
Portfolio Options Futures 12/31/97 12/31/96
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Large Cap Stocks 61.9% -- -- 61.9% 76.0%
Mid Cap Stocks 10.3% -- -- 10.3% 3.9%
Small Cap Stocks 8.9% -- -- 8.9% 5.7%
International Stocks 5.6% -- -- 5.6% 5.9%
Real Estate Stocks 2.9% -- -- 2.9% 3.8%
Special Situations ** 1.7% 0.6 % -- 2.3% 1.9%
Convertible Securities 1.2% -- -- 1.2% 1.4%
Cash Equivalents 7.5% (0.6)% -- 6.9% 1.4%
----------- --------- --------- ------------ ------------
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 the Fund's exposure to both changes in value of the portfolios
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
the Fund's normal valuation and modeling framework. The largest category within
this group is initial public offerings.
5
<PAGE>
Aetna Income Shares
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year 5 Year 10 Year
- ------ ------ -------
8.30% 6.93% 9.22%
<TABLE>
<CAPTION>
- --------------------------------------------------[Aetna Income Shares Line Chart]--------------------------------------------------
Jan-88 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Income
Shares 10,000 10,763 12,331 13,458 16,075 17,272 18,944 18,205 21,526 22,299 22,241 22,959 23,733 24,152
Lehman Aggregate
Bond Index 10,000 10,789 12,357 13,464 15,618 16,774 18,409 17,872 21,173 21,941 21,818 22,619 23,370 24,059
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
How did the Fund perform during the period?
Aetna Income Shares (Income Shares) generated a total return of 8.30%, net of
fund expenses, for the year ended December 31, 1997. This return compares to the
Lehman Brothers Aggregate Bond Index(d) and Lehman Brothers Intermediate
Aggregate Index(h) returns of 9.65% and 8.46%, respectively, for the same time
period. When compared against the Morningstar, Inc. universe of variable annuity
intermediate-term bond funds, the Fund ranked in the 88% (of 241 funds), 83% (of
154 funds), and 43% (of 99 funds) for the past one, five and ten year periods
ended December 31, 1997, respectively.
What economic or financial market conditions impacted the Fund?
The bond market delivered mediocre performance in the first half of 1997.
Interest rates rose slightly as concerns over strong domestic growth were
partially offset by the absence of inflationary pressures. As the year
progressed, the bond market improved as the economy began to display signs of
slower growth while inflation remained muted. Bonds also responded favorably to
the progress made by Congress towards a balanced budget and deficit reduction. A
stronger dollar spurred demand for U.S. assets at a time when bond issuance by
the U.S. Treasury was declining. The turmoil in the Asian currency and equity
markets occupied center stage in the final months of 1997. The increased
volatility boosted bond prices as investors flocked to the safe haven of the
U.S. Treasury market.
The yield curve, which plots bond yields against maturities, flattened as
monetary policy remained on hold and inflation premiums declined. Securities
with longer maturities outperformed, as 30-year Treasury rates declined by 0.71%
to yield 5.92%. Credit spreads, which represent the default risk premiums (the
extra money paid for increased potential return with accompanying risk)
expressed as yield differentials over Treasuries, also compressed in 1997 as
balance sheets in corporate America improved. Mortgages performed well in the
low volatility environment that prevailed earlier, but lagged when interest
rates fell. However, neither mortgage nor corporate returns kept pace with the
Treasury rally as spreads widened in the fourth quarter.
What investments influenced the Fund's performance over the past twelve months?
Even with the spread widening later in the year, corporate bonds outperformed
other types of investment grade bonds over the twelve month period. The Fund's
overweight allocation in this sector, particularly in holdings of industrials
and high quality supranationals(1), contributed positively to performance.
Improving business fundamentals and consolidations helped strengthen credit
profiles for selected high yield issuers. In particular, bond holdings in the
media, cable and telecommunication industries provided attractive returns.
6 See Definition of Indices.
<PAGE>
Duration was a primary contributor to the Fund's underperformance in the latter
part of the year as interest rates fell. We reduced the interest rate exposure
based upon strong economic growth and a bias towards restraint by the Federal
Reserve. In addition, the foreign holdings in the Fund were negatively impacted
by the financial turmoil in Thailand, Indonesia and Korea. Poor market
technicals and lack of liquidity caused spreads to widen significantly. The
effect was not limited to the Pacific Rim but had a broader impact on all
developing countries.
What is your outlook going forward?
We anticipate that the U.S. economy will continue on the path of moderate growth
and low inflation. In 1997, strong job growth and tight labor markets along with
high utilization rates generated concerns over potential inflationary pressures.
U.S. exports are now likely to slow in response to dollar strength and weaker
Asian economies. Competitive pressures abroad should limit pricing power and
keep inflationary pressures in check. The overseas markets are likely to remain
volatile over the near term and provide support to the Treasury market. We have
moved the Fund closer to a neutral duration position relative to its peer group.
Credit spreads are now under pressure as market technicals and liquidity remain
poor. We believe deflationary forces will narrow profit margins in some sectors.
On a longer term basis, those countries and companies with strong fundamentals
should outperform as liquidity and confidence return. We are also cautious on
the mortgage sector in this environment of heightened volatility and lower
interest rates. This sector will continue to come under pressure as homeowners
begin to exercise their option to refinance their mortgages. We maintain an
underweight allocation to this sector and expect to increase our Treasury
exposure.
(1) Supranationals are high quality bonds issued by financial institutions that
are owned by a group of sovereign governments, to provide financial
assistance to member countries.
Past performance is no guarantee of future results.
Investment Summary:
<TABLE>
<CAPTION>
- -------------------------------- ---------------------------------------------------------------
Quality Ratings % of Portfolio Top Ten Long-Term Holdings % of Portfolio
- -------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C>
AAA 44.3% FNMA, 7.50%, 01/14/28 4.3%
AA 3.9% U.S. Treasury Note, 6.88% 03/31/00 3.6%
A 31.3% U.S. Treasury Bond, 6.63%, 02/15/27 3.2%
BBB 6.7% U.S. Treasury Note, 6.25%, 05/31/00 2.8%
BB 6.3% Associates Corp. N.A., 7.95%, 02/15/10 2.3%
B 3.1% U.S. Treasury Note, 6.50%, 05/31/01 2.1%
CCC 1.1% U.S. Treasury Note, 6.25%, 04/30/01 2.1%
N/R 3.3% Ford Motor Credit Corp., FRN, 6.13%, 02/22/99 2.1%
Average AA- International Bank for Reconstruction &
Development, 9.25%, 07/15/17 2.0%
TRW, Inc., 9.35%, 06/04/20 1.9%
</TABLE>
7
<PAGE>
Aetna Variable Encore Fund
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year 5 Year 10 Year
- ------ ------ -------
5.47% 4.82% 5.95%
<TABLE>
<CAPTION>
- ------------------------------------------------[Aetna Variable Encore Fund Line Chart]---------------------------------------------
Jan-88 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable
Encore Fund 10,000 10,753 11,762 12,755 13,588 14,086 14,535 15,127 16,042 16,903 17,115 17,349 17,587 17,828
IBC/Donoghue Public
Money Market Funds 10,000 10,685 11,596 12,473 13,167 13,606 13,970 14,485 15,260 15,997 16,188 16,385 16,587 16,792
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
How did the Fund perform during the period?
The Aetna Variable Encore Fund (Encore Fund) generated a total return of 5.47%,
net of fund expenses, for the year ended December 31, 1997. The Fund
outperformed the average IBC(g) money market fund return of 4.97% over the same
period. Within the universe of variable money market funds tracked by
Morningstar, Inc., the Fund's returns have placed it in the top 18% (of 300
funds), 12% (of 224 funds), and 9% (of 168 funds) for the one, five and ten year
periods, respectively, ended December 31, 1997. As of December 31, 1997, the
Fund reported a 7-day average yield of 5.48%, net of fund expenses, and
maintained an average portfolio maturity of 55 days.
What economic or financial market conditions impacted the Fund?
Domestic monetary policy has been stable since March 1997, when the Federal
Reserve Open Market Committee (FOMC) raised the Federal funds rate by 0.25%. The
action was taken in response to a robust economy fueled by strong consumer
demand and high utilization rates. Since then, slower growth and lack of
inflationary pressures have provided the FOMC with little reason to raise
interest rates further. With policy on hold, interest rates trended lower.
Higher tax receipts and reduced federal spending this year moved the U.S. closer
toward a balanced budget. The Treasury's reduced financing needs, along with
strong cash flows into money funds and foreign buying, placed downward pressures
on Treasury Bill yields. The Treasury Bill yield curve, which plots yields
against Treasury Bill maturities, flattened as yields on one-year Treasury Bills
fell by 0.18% in the second half of 1997.
What investments influenced the Fund's performance over the past twelve months?
With a flat money market curve and relatively tight credit spreads, emphasis was
placed on securities with short maturities and high credit quality. Adjustable
rate securities were selected that utilized LIBOR(i) as the index to reset
coupons. While short term interest rates declined, LIBOR levels remained
relatively stable and hence attractive relative to other indices. Additionally,
the Fund increased its allocation to asset backed securities to add incremental
yield. Asset-backed securities held by the Fund are high quality securities with
a AAA-rating and are collateralized by a pool of assets such as automobile
loans, credit card receivables or home equity loans. Price appreciation from the
Fund's Treasury position contributed to the returns as interest rates declined
in the second half of 1997.
8 See Definition of Indices
<PAGE>
What is your outlook going forward?
We believe that the Federal Reserve (the Fed) will continue to keep monetary
policy on hold. The likelihood of an interest rate hike has diminished due to
the recent turmoil in the foreign equity and currency markets. Slower global
growth and reduced demand will likely exert some restraint on the pace of
domestic growth. Unless the crisis in Asian markets worsens, we also believe the
Fed is unlikely to lower interest rates. High consumer confidence levels and
tight labor market conditions should discourage a move towards a more
stimulative policy. In this stable interest rate environment, we will maintain
Encore Fund's current investment strategy and asset allocations.
Past performance is no guarantee of future results.
Investment Summary:
- ----------------------------------- -----------------------------------------
Quality Ratings* % of Portfolio Maturity Distribution % of Portfolio
- ----------------------------------- -----------------------------------------
Tier 1 100.0% 1-30 days 45.5%
Tier 2 -- 31-60 days 13.4%
61-90 days 9.7%
91 days or more 31.4%
* Tier 1 securities are securities which are rated by at least two nationally
recognized statistical rating organizations (NRSROs) or by the only NRSRO
that has rated the security, in the highest short-term rating category, or
comparable unrated securities. Tier 2 securities are securities that are
not rated as Tier 1.
9
<PAGE>
Aetna Investment Advisers Fund, Inc.
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year 5 Year Since Inception+
- ------ ------ ------------------------
22.49% 14.44% 12.52%
<TABLE>
<CAPTION>
- --------------------------------------[Aetna Investment Advisers Fund, Inc. Line Chart]---------------------------------------------
Apr-89 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Investment
Advisers Fund 10,000 10,730 11,339 13,429 14,289 15,699 15,627 19,882 22,898 22,793 25,220 27,490 28,048
Lehman Aggregate
Bond Index 10,000 11,325 12,340 14,314 15,373 16,872 16,380 19,405 20,109 19,997 20,731 21,419 22,051
S&P 500 Index 10,000 12,297 11,915 15,545 16,729 18,416 18,659 25,671 31,562 32,408 38,067 40,918 42,092
60% S&P 500/40%
Lehman Aggregate 10,000 11,913 12,129 15,133 16,281 17,908 17,849 23,143 26,607 26,985 30,167 31,962 32,940
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
How did the Fund perform during the period?
The Aetna Investment Advisers Fund, Inc. (Investment Advisers Fund) generated a
total return of 22.49%, net of fund expenses, as compared to the 23.62% return
of the 60%/40% mix of the Standard & Poor's (S&P) 500 Index(a) and the Lehman
Brothers Aggregate Bond Index(d) for the year ended December 31, 1997. The
Fund's performance over the last one and five year periods ended December 31,
1997 placed in the top 13% (of 524 funds), and 12% (of 301 funds), respectively,
among Morningstar, Inc.'s variable annuity domestic hybrid stock fund universe.
What economic or financial market conditions impacted the Fund?
After the Federal Reserve increased the federal funds rate in March 1997,
interest rates peaked in mid-to-late April and began to decline through the
summer as economic data continued to reflect moderate growth and low inflation.
Consensus on the economy developed into a "Goldilocks" or "just right" scenario,
and corporate profits continued to rise until currency turmoil in Asia began to
affect markets worldwide. Pressure on key Asian currencies raised fears that
these Asian economies could show slower growth and weaker currencies against the
U.S. dollar. The U.S. multinational companies were hit hardest as concerns
mounted over their ability to remain competitive amid slower demand in Asia and
increased price competitiveness of Asian imports. Global investors sought
stability in U.S. Government bonds for some protection of their investment
assets. This rush into U.S. Treasuries combined with the impact of anticipated
weaker demand from Asia, prompted the Federal Reserve to refrain from taking
immediate action on interest rates despite still robust domestic economic data.
Other sectors hard hit by the currency pressures were emerging market bonds and,
to a lesser extent, domestic high yield bonds. In this scene, however, the U.S.
economy stood intact: inflation was subdued, interest rates remained low and
corporate bond spreads continued to tighten from earlier in the year.
What investments influenced the Fund's performance over the past twelve months?
The Fund slightly underperformed its benchmark index primarily because of its
underweight position in large company stocks in favor of small company stocks.
Small company stocks, while having posted solid returns in 1997, lagged the
large company universe by over 10%, as measured by the unmanaged Russell 2000
Index(b) and S&P 500 index, respectively, through December 31, 1997. The Fund's
cash position also hampered performance. However, good stock selection,
particularly in small company holdings, helped benefit performance.
The Fund's shortened duration posture relative to the Lehman Brothers Aggregate
Bond Index benefited performance in the first half of the year as rates rose. In
late March, as the long-bond breached the 7% level, the Fund's duration relative
to the Lehman Brothers Aggregate Bond Index was increased. This move boosted the
Fund's performance as rates fell from over
10 See Definition of Indices
<PAGE>
7% to below 6% by the end of the year. The duration stance's positive effect on
performance was somewhat offset by the Fund's emerging market debt holdings.
Exposure to diversifying assets such as high yield corporate bonds and
commercial mortgage-backed securities benefited performance over the past twelve
months despite their recent volatility.
What is your outlook going forward?
The Fund's asset allocation target is 45% large company stocks, 10% small
company stocks, 30% bonds and 15% cash. The domestic economy continues to grow
moderately, and despite tight labor markets and strong consumer sentiment,
inflation continues to be fairly tame. With Asian markets continuing to struggle
with currency pressures, growth in this area of the world is likely to slow.
With this in mind, we believe an interest rate hike by the Federal Reserve is
unlikely over the near term. Additionally, we believe the bond market will
likely receive continued support over the near term if Asian and other
international markets continue their volatility.
Past performance is no guarantee of future results.
Investment Summary:
- -------------------------------------------------------------------
Top Ten Long-Term Holdings % of Portfolio
- -------------------------------------------------------------------
U.S. Treasury Note, 5.75%, 10/31/00 5.3%
U.S. Treasury Note, 6.25%, 07/31/98 2.1%
U.S. Treasury Bond, 6.75%, 08/15/26 1.7%
General Electric Co. 1.5%
U.S. Treasury Bond, 7.25%, 05/15/16 1.3%
U.S. Treasury Note, 5.75%, 09/30/99 1.2%
TCI Communications, Inc., 6.38%, 09/15/99 1.1%
Microsoft Corp. 1.1%
Coca-Cola, Co. 1.0%
Pitney Bowes Credit Corp., 8.55%, 09/15/09 0.9%
Large Cap Portfolio Sector Breakdown*:
- -----------------------------------------------------------------------
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
- -----------------------------------------------------------------------
Basic Materials 3.5% 4.9% (1.4)%
Energy 9.7% 8.4% 1.3 %
Consumer Non-Discretionary 20.3% 22.6% (2.3)%
Consumer Discretionary 10.3% 11.1% (0.8)%
Commercial Services 1.7% 2.0% (0.3)%
Manufacturing 12.3% 11.9% 0.4 %
Technology 11.6% 11.1% 0.5 %
Finance 20.7% 17.1% 3.6 %
Utilities 9.9% 10.9% (1.0)%
* This does not constitute the entire fund. The securities in these
sectors only represent those that are in the S&P 500 Index.
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 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.
(c) The Morgan Stanley Capital International-Europe, Australia and Far East
(MSCI EAFE) Index is a market value-weighted unmanaged average of the
performance of more than 900 securities listed on the stock exchanges of
countries in Europe, Australia and the Far East.
(d) The Lehman Brothers Aggregate Bond Index is an unmanaged index of
corporate, government and mortgage bonds.
(e) Lehman Brothers High-Yield Bond Index is an unmanaged index composed of
fixed rate, publicly issued, noninvestment grade debt registered with the
SEC.
(f) Lehman Brothers Emerging Markets Index is an unmanaged composite index of
U.S. dollar-denominated, below investment grade bonds issued from within
foreign developing markets.
(g) IBC's Money Funds Report Average/All Taxable (IBC) Index is an average of
the returns of over 250 money market mutual funds surveyed each month by
IBC.
(h) The Lehman Brothers Intermediate Aggregate Bond Index is an unmanaged index
which includes fixed rate debt issues with maturities of up to ten years.
All issues must have at least one year left to maturity and have an
outstanding par value of at least $100 million.
(i) LIBOR (London Interbank Offered Rate) is a rate that the most creditworthy
international banks dealing in Eurodollars charge each other for large
loans. The LIBOR rate is usually the base for other large Eurodollar loans
to less creditworthy corporate and government borrowers.
(j) 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.
(k) Salomon Brothers Broad Investment-Grade Bond (Salomon Broad) Index is an
unmanaged, market-weighted index that contains approximately 4,700
individually priced investment-grade bonds rated BBB or better. The index
includes U.S. Treasury/Agency issues, mortgage pass-through securities, and
corporate issues.
(l) The Salomon Brothers Non-U.S. World Government Bond (S.B. Non-U.S. WGBI)
Index serves as an unmanaged benchmark to evaluate the performance of
government bonds with a maturity of one year or greater in the following 12
countries: Japan, United Kingdom, Germany, France, Canada, the Netherlands,
Australia, Denmark, Italy, Belgium, Spain and Sweden.
(m) Three-month Treasury bills are government-backed short-term investments
considered to be risk-free, and equivalent to cash because their maturity
is only three months.
12
<PAGE>
Variable Fund
Portfolio of Investments
December 31, 1997
- -----------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
COMMON STOCKS (90.6%)
United States (85.1%)
Aerospace and Defense (1.0%)
Alliant Techsystems, Inc.+......... 91,600 $ 5,106,700
General Dynamics Corp.............. 684,600 59,175,112
General Motors, Class H............ 180,000 6,648,750
Gulfstream Aerospace Corp.+........ 125,600 3,673,800
Raytheon Co........................ 29,921 1,475,474
Thiokol Corp....................... 164,100 13,333,125
------------
89,412,961
------------
Apparel (0.4%)
American Eagle Outfitters, Inc.+... 108,800 3,794,400
Liz Claiborne, Inc................. 824,800 34,486,950
------------
38,281,350
------------
Auto Parts and Accessories (0.8%)
Arvin Industries, Inc.............. 384,200 12,798,663
Dana Corp.......................... 478,200 22,714,500
Echlin, Inc........................ 930,100 33,657,994
Lear Corp.+........................ 22,900 1,087,750
------------
70,258,907
------------
Autos and Auto Equipment (2.7%)
Bandag, Inc........................ 103,000 5,504,063
Borg Warner Automotive, Inc........ 205,300 10,675,600
Budget Group, Inc., Class A+....... 171,500 5,927,469
Chrysler Corp...................... 2,047,600 72,049,924
Dura Automotive Systems, Inc.+..... 63,900 1,581,525
Ford Motor Co...................... 2,460,300 119,785,855
General Motors Corp................ 469,200 28,445,250
Kaydon Corp........................ 201,000 6,557,625
Leasing Solutions, Inc.+........... 5,000 119,375
PACCAR, Inc........................ 23,300 1,223,250
Westinghouse Air Brake Co.......... 42,800 1,096,750
------------
252,966,686
------------
Banks (5.4%)
AmSouth Bancorporation............. 271,000 14,718,688
Bank United Corp................... 46,500 2,275,594
BankAmerica Corp................... 1,941,000 141,692,999
Centura Banks, Inc................. 48,500 3,346,500
City National Corp................. 37,600 1,388,850
Commerce Bancshares, Inc........... 1,600 108,400
Dime Bancorp, Inc.................. 576,700 17,445,175
First American Corp. (Tenn.)....... 86,000 4,278,500
First Chicago NBD Corp............. 1,210,672 101,091,111
First Commercial Corp.............. 15,800 926,275
First Commonwealth Financial Corp.. 12,200 427,763
First Empire State Corp............ 13,400 6,231,000
First of America Bank Corp......... 326,750 25,200,594
First Tennessee National Corp...... 51,800 3,457,650
Firstfed Financial Corp.+.......... 65,400 2,534,250
Imperial Bancorp+.................. 348,400 17,180,475
Banks (continued)
Investors Financial Services Corp.. 80,000 $ 3,680,000
Mercantile Bankshares Corp......... 346,100 13,541,163
NationsBank Corp................... 637,200 38,749,724
North Fork Bancorp, Inc............ 460,700 15,462,244
ONBANCorp, Inc..................... 82,682 5,829,081
Prime Bancshares, Inc.............. 25,000 521,875
Security Capital Group, Inc.,
Warrants+........................ 11,789 61,892
Southtrust Corp.................... 371,200 23,548,000
Sovereign Bancorp, Inc............. 817,868 16,970,761
Star Banc Corp..................... 112,200 6,437,475
State Street Corp.................. 270,500 15,739,719
TR Financial Corp.................. 41,500 1,379,875
UnionBancal Corp................... 65,000 6,987,500
USBANCORP, Inc..................... 13,200 963,600
------------
492,176,733
------------
Building Materials and Construction (2.4%)
American Buildings Co.+............ 60,500 1,527,625
Centex Construction Products, Inc.. 290,700 8,757,338
Centex Corp........................ 615,900 38,763,205
Continental Homes Holding Corp..... 235,500 9,478,875
Florida Rock Industries, Inc....... 108,000 2,457,000
Lafarge Corp....................... 394,200 11,653,538
Lone Star Industries, Inc.......... 285,900 15,188,438
Martin Marietta Materials, Inc..... 31,700 1,159,031
Masco Corp......................... 1,612,000 82,010,499
Southdown, Inc..................... 258,200 15,233,800
Standard Pacific Corp.............. 261,900 4,124,925
Stone & Webster, Inc............... 39,300 1,842,188
Texas Industries, Inc.............. 273,200 12,294,000
Tredegar Industries, Inc........... 48,300 3,181,763
USG Corp.+......................... 300,700 14,734,300
------------
222,406,525
------------
Chemicals (1.4%)
Dow Chemical Co.................... 868,800 88,183,199
General Chemical Group, Inc. (The). 102,100 2,731,175
Goodrich (B.F.) Co................. 235,080 9,741,128
Lyondell Petrochemical Co.......... 588,300 15,589,950
Solutia, Inc....................... 100,700 2,687,431
Waters Corp.+...................... 100,000 3,762,500
Wellman, Inc....................... 82,300 1,604,850
------------
124,300,233
------------
Commercial Services (1.0%)
AccuStaff, Inc.+................... 580,700 13,356,100
Aviall, Inc.+...................... 93,400 1,395,163
Crescent Operating, Inc.+.......... 46,200 1,131,900
Deluxe Corp........................ 388,500 13,403,250
FactSet Research Systems, Inc.+.... 43,700 1,343,775
Galileo International, Inc......... 208,700 5,765,338
Interim Services, Inc.+............ 190,600 4,931,775
See Notes to Portfolio of Investments. 13
<PAGE>
Variable Fund
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
United States (continued)
Commercial Services (continued)
Mail-Well, Inc.+................... 56,100 $ 2,272,050
Maximus, Inc.+..................... 59,900 1,448,831
Ogden Corp......................... 579,100 16,323,381
Quintiles Transnational Corp.+..... 405,600 15,514,200
Service Corporation International.. 303,500 11,210,531
Terra Industries, Inc.............. 122,100 1,594,931
U.S. Filter Corp.+................. 76,500 2,290,219
------------
91,981,444
------------
Computer Software (2.3%)
BMC Software, Inc.+................ 189,700 12,449,063
Cadence Design Systems, Inc.+...... 324,200 7,942,900
Cambridge Technology Partners, 21,200 882,450
Inc.+............................ 1,052,762 55,664,790
Computer Associates
International, Inc...............
Computer Horizons Corp.+........... 11,300 508,500
Computer Learning Centers, Inc.+... 104,900 6,425,125
Computer Task Group, Inc........... 31,800 1,130,888
Compuware Corp.+................... 535,201 17,126,484
Edify Corp.+....................... 27,800 521,250
Engineering Animation, Inc.+....... 90,100 4,144,600
Hyperion Software Corp.+........... 86,200 3,081,650
Manugistics Group, Inc.+........... 65,000 2,900,625
Microsoft Corp.+................... 625,300 80,820,024
Symantec Corp.+.................... 624,900 13,708,744
------------
207,307,093
------------
Computers and Office Equipment (5.5%)
Adaptec, Inc.+..................... 275,300 10,220,513
Compaq Computer Corp............... 3,077,350 173,677,940
CompUSA, Inc.+..................... 142,600 4,420,600
Comverse Technology, Inc.+......... 94,451 3,683,589
Dell Computer Corp.+............... 2,955,000 248,219,999
Digital Equipment Corp.+........... 45,200 1,672,400
FORE Systems, Inc.+................ 100,000 1,525,000
Herman Miller, Inc................. 276,000 15,059,250
Magnetek, Inc.+.................... 65,200 1,271,400
Moore Corp. Ltd.................... 667,400 10,094,425
MTS Systems Corp................... 25,600 960,000
Quantum Corp.+@.................... 190,600 3,823,913
Silicon Graphics, Inc.+............ 93,100 1,157,931
Sun Microsystems, Inc.+............ 475,000 18,940,625
Unisys Corp.+...................... 844,700 11,720,213
------------
506,447,798
------------
Consumer Products (2.1%)
American Greetings Corp., Class A.. 202,900 7,938,463
Blyth Industries, Inc.+............ 376,500 11,271,469
Conmed Corp.+...................... 109,900 2,884,875
Dial Corp.......................... 625,900 13,026,544
Herbalife International, Inc.+..... 33,133 712,360
Premark International, Inc......... 501,900 14,555,100
Consumer Products (continued)
Procter & Gamble Co................ 1,762,500 $140,669,530
------------
191,058,341
------------
Diversified (2.3%)
Aeroquip-Vickers, Inc.............. 276,000 13,541,250
Amway Asia Pacific Ltd............. 64,200 1,251,900
CBS Corp........................... 146,200 4,303,763
CIT Group, Inc. (The)+............. 50,000 1,612,500
Cooper Industries, Inc............. 44,000 2,156,000
Deere & Co......................... 1,212,900 70,727,230
Eaton Corp......................... 191,500 17,091,375
ITT Industries, Inc................ 628,300 19,712,913
NACCO Industries, Inc.............. 97,800 10,482,938
Paragon Trade Brands, Inc.+........ 27,700 356,638
Rohm & Haas Co..................... 607,900 58,206,424
Tyco International Ltd............. 126,878 5,717,440
Varlen Corp........................ 109,050 2,673,429
------------
207,833,800
------------
Electrical Equipment (0.1%)
C & D Technologies, Inc............ 77,900 3,758,675
Cymer, Inc.+....................... 70,000 1,050,000
Encore Wire Corp.+................. 34,950 1,072,528
Esterline Technologies+............ 1,900 68,400
Popular, Inc....................... 4,700 232,650
Vitesse Semiconductor Corp.+....... 147,000 5,549,250
------------
11,731,503
------------
Electronics (3.0%)
Analog Devices, Inc.+.............. 100,000 2,768,750
Avid Technology, Inc.+............. 63,200 1,690,600
Berg Electronics Corp.+............ 200,000 4,550,000
Cellstar Corp.+.................... 221,800 4,408,275
Essex International, Inc.+......... 221,500 6,589,625
Intel Corp......................... 2,072,800 145,614,199
KLA Instruments Corp.+............. 982,100 37,933,612
PMC-Sierra, Inc.+.................. 100,000 3,100,000
QLogic Corp.+...................... 106,300 3,135,850
Solectron Corp.+................... 45,300 1,882,781
Technitrol, Inc.................... 103,200 3,096,000
Tektronix, Inc..................... 1,384,650 54,953,296
VLSI Technology, Inc.+............. 275,400 6,506,325
------------
276,229,313
------------
Financial Services (8.3%)
Affiliated Managers Group, Inc.+... 43,200 1,252,800
Ahmanson (H. F.) & Co.............. 1,611,900 107,896,555
AMRESCO, Inc.+..................... 271,900 8,224,975
Bankers Trust New York Corp........ 519,942 58,460,978
Bear Stearns Co., Inc.............. 436,596 20,738,310
ContiFinancial Corp.+.............. 46,600 1,173,738
Donaldson, Lufkin & Jenrette, Inc.. 188,600 14,993,700
FIRSTPLUS Financial Group, Inc.+... 277,700 10,656,738
14 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
United States (continued)
Financial Services (continued)
Golden West Financial Corp......... 676,100 $66,131,030
Greenpoint Financial Corp.......... 27,600 2,002,725
Lehman Brothers Holdings, Inc...... 275,400 14,045,400
Life Financial Corp.+.............. 27,900 352,238
Merrill Lynch & Co., Inc........... 1,252,000 91,317,749
Metris Companies, Inc.............. 22,400 767,200
MGIC Investment Corp............... 77,300 5,140,450
Money Store, Inc. (The)............ 234,200 4,918,200
Morgan Stanley, Dean Witter,
Discover & Co.................... 915,900 54,152,587
Nationwide Financial Services,
Inc., Class A.................... 177,200 6,401,350
Paine Webber Group, Inc............ 302,850 10,467,253
Republic New York Corp............. 636,300 72,657,505
SunAmerica, Inc.................... 575,050 24,583,388
TCF Financial Corp................. 47,400 1,608,638
Trans Financial, Inc............... 59,800 2,324,725
Travelers Group, Inc............... 3,268,924 176,113,280
Webster Financial Corp............. 59,100 3,930,150
WSFS Financial Corp.+.............. 65,400 1,308,000
------------
761,619,662
------------
Foods and Beverages (2.9%)
Canandaigua Wine Co., Inc., Class
A+............................... 153,900 8,522,213
Conagra, Inc....................... 2,121,700 69,618,280
Coors (Adolph) Co.................. 84,000 2,793,000
Dean Foods Co...................... 281,400 16,743,300
Earthgrains Co..................... 163,900 7,703,300
International Home Foods, Inc.+.... 113,000 3,164,000
Interstate Bakeries Corp........... 484,400 18,104,450
Kroger Co. (The)+.................. 2,737,200 101,105,324
Quaker Oats Co..................... 97,800 5,158,950
Ralcorp Holdings, Inc.+............ 171,500 2,904,781
Smithfields Foods, Inc.+........... 453,600 14,968,800
Suiza Foods Corp.+................. 335,500 19,983,219
------------
270,769,617
------------
Health Services (0.8%)
Alpharma, Inc. Class A............. 184,017 4,002,370
Beverly Enterprises, Inc.+......... 1,768,200 22,986,600
Lincare Holdings, Inc.+............ 58,900 3,357,300
MedPartners, Inc.+................. 120,900 2,705,138
Phycor, Inc.+...................... 794,900 21,462,300
Sybron International Corp.+........ 354,300 16,629,956
Total Renal Care Holdings, Inc.+... 140,000 3,850,000
------------
74,993,664
------------
Home Furnishings and Appliances (0.4%)
Carlisle Co., Inc.................. 136,600 5,839,650
Chicago Miniature Lamp, Inc.+...... 67,200 2,268,000
Ethan Allen Interiors, Inc......... 483,000 18,625,688
Furniture Brands International,
Inc.+............................ 82,700 1,695,350
Home Furnishings and Appliances (continued)
O' Sullivan Industries Holdings,
Inc.+............................ 141,400 $ 1,414,000
Sunbeam Corp....................... 75,200 3,167,800
------------
33,010,488
------------
Hotels and Restaurants (0.5%)
Foodmaker, Inc.+................... 246,500 3,712,906
Marriott International, Inc........ 293,200 20,304,100
Promus Hotel Corp.+................ 346,320 14,545,440
Ruby Tuesday, Inc.+................ 76,200 1,962,150
Silverleaf Resorts, Inc.+.......... 46,500 1,139,250
Sonic Corp.+....................... 129,700 3,647,813
Suburban Lodges of America, Inc.+.. 134,900 1,795,856
------------
47,107,515
------------
Insurance (6.5%)
Allied Group, Inc.................. 75,500 2,161,188
Allmerica Financial Corp........... 222,700 11,121,081
Allstate Corp...................... 1,374,000 124,862,249
Chartwell Re Corp.................. 112,000 3,780,000
CIGNA Corp......................... 279,800 48,422,887
Cincinnati Financial Corp.......... 26,500 3,729,875
Conseco, Inc....................... 1,758,487 79,901,252
Equitable Co., Inc. (The).......... 315,600 15,701,100
ESG Re Ltd.+....................... 57,700 1,355,950
Everest Re Holdings, Inc........... 347,000 14,313,750
FBL Financial Group, Inc........... 65,900 2,644,238
Financial Security Assurance
Holdings Ltd..................... 71,300 3,440,225
First American Financial Corp...... 55,900 4,129,613
Hartford Financial Services
Group, Inc....................... 766,100 71,678,230
Hartford Life, Inc., Class A....... 130,600 5,917,813
IPC Holdings Ltd................... 159,300 5,127,469
Jefferson-Pilot Corp............... 534,100 41,593,037
LaSalle Re Holdings Ltd............ 33,100 1,170,913
Lawyers Title Corp................. 220,100 6,919,394
Loews Corp......................... 631,300 66,996,712
Mutual Risk Management Ltd......... 210,932 6,314,777
Old Republic International Corp.... 378,328 14,069,073
Orion Capital Corp................. 222,200 10,318,413
Reliance Group Holdings, Inc....... 478,800 6,763,050
RLI Corp........................... 53,400 2,659,988
Selective Insurance Group, Inc..... 32,100 866,700
Torchmark Corp..................... 660,400 27,778,075
Transatlantic Holdings, Inc........ 121,950 8,719,425
USF&G Corp......................... 21,190 467,511
Vesta Insurance Group, Inc......... 128,200 7,611,875
------------
600,535,863
------------
Machinery and Equipment (2.0%)
Applied Power, Inc................. 96,500 6,658,500
Barnes Group, Inc.................. 77,600 1,765,400
Case Corp.......................... 486,300 29,390,756
Caterpillar, Inc................... 1,377,600 66,899,699
15
<PAGE>
Variable Fund
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
United States (continued)
Machinery and Equipment (continued)
Chart Industries, Inc.............. 58,500 $ 1,334,531
Commercial Intertech Corp.......... 64,800 1,344,600
Cummins Engine Company, Inc........ 177,600 10,489,500
Graco, Inc......................... 58,000 2,164,125
Ingersoll-Rand Co.................. 80,700 3,268,350
Parker-Hannifin Corp............... 619,300 28,410,388
Snap-On, Inc....................... 474,900 20,717,513
Terex Corp.+....................... 637,700 14,985,950
------------
187,429,312
------------
Media and Entertainment (0.3%)
Allen Telecom, Inc.+............... 46,300 853,656
Belo Corp. Class A................. 50,000 2,806,250
Clear Channel Communications, Inc.+ 62,800 4,988,675
Fleetwood Enterprises, Inc......... 190,000 8,063,125
Gaylord Entertainment Co........... 125,500 4,008,156
Grand Casinos, Inc.+............... 169,300 2,306,713
GTECH Holdings Corp.+.............. 79,300 2,532,644
Lin Television Corp.+.............. 57,900 3,155,550
Midway Games, Inc.+................ 82,300 1,496,831
Speedway Motorsports, Inc.+........ 72,100 1,788,981
------------
32,000,581
------------
Medical Supplies (0.7%)
ATL Ultrasound, Inc.+.............. 38,500 1,771,000
Datascope Corp.+................... 80,800 2,090,700
Hanger Orthopedic Group, Inc.+..... 98,400 1,266,900
Heartport, Inc.+................... 45,600 929,100
Marquette Medical Systems, Inc.+... 25,500 678,938
Maxxim Medical, Inc.+.............. 236,000 5,133,000
Mylan Laboratories, Inc............ 124,300 2,602,531
OEC Medical Systems, Inc.+......... 111,500 2,223,031
Osteotech, Inc.+................... 143,000 3,896,750
Perrigo Co.+....................... 821,400 10,986,225
ResMed, Inc.+...................... 3,500 98,438
Safeskin Corp.+.................... 366,200 20,781,850
Spine-Tech, Inc.+.................. 243,400 12,519,888
Vivus, Inc.+....................... 53,400 567,375
------------
65,545,726
------------
Metals and Mining (0.9%)
National Steel Corp., Class B+..... 725,600 8,389,750
RMI Titanium Co.+.................. 290,100 5,802,000
Schnitzer Steel Industries, Inc.... 44,200 1,240,363
Special Metals Corp.+.............. 49,300 887,400
Timken Co.......................... 1,671,000 57,440,624
Titanium Metals Corp.+............. 217,500 6,280,313
Trinity Industries, Inc............ 98,600 4,400,025
------------
84,440,475
------------
Oil and Gas (9.1%)
Ashland Oil, Inc................... 1,002,200 53,805,612
Oil and Gas (continued)
Bayard Drilling Technologies, Inc.+ 45,100 $ 732,875
Cliffs Drilling Co.+............... 243,400 12,139,575
Columbia Gas System, Inc........... 923,100 72,521,043
Comstock Resources, Inc.+.......... 691,000 8,248,813
Devon Energy Corp.................. 31,800 1,224,300
Domain Energy Corp.+............... 153,000 2,409,750
Ensco International, Inc........... 250,000 8,375,000
Global Marine, Inc.+............... 537,100 13,158,950
Gulf Indonesia Resources Ltd.+..... 67,000 1,474,000
Helmerich & Payne, Inc............. 903,300 61,311,487
Input/Output, Inc.+................ 200,400 5,949,375
Kerr-McGee Corp.................... 1,144,800 72,480,149
Marine Drilling Co., Inc.+......... 581,800 12,072,350
National Fuel Gas Co............... 130,500 6,353,719
Occidental Petroleum Corp.......... 3,276,700 96,048,268
Oryx Energy Co.+................... 1,822,700 46,478,849
Phillips Petroleum Co.............. 2,240,900 108,963,762
Pool Energy Services Co.+.......... 425,700 9,471,825
Rowan Co., Inc.+................... 276,300 8,427,150
Santa Fe International Corp........ 137,800 5,606,738
SEACOR SMIT Holdings+.............. 290,100 17,478,525
Seitel, Inc.+...................... 49,600 849,400
Sun Company, Inc................... 148,400 6,242,075
Tesoro Petroleum Corp.+............ 46,000 713,000
Texaco, Inc........................ 956,300 51,998,812
Tidewater, Inc..................... 225,200 12,414,150
Triton Energy Ltd.+................ 50,000 1,459,375
Union Texas Petroleum Holdings, 550,900 11,465,606
Inc..............................
USX-Marathon Group................. 2,615,100 88,259,624
Valero Energy Corp................. 392,900 12,351,794
Vastar Resources, Inc.............. 23,100 825,825
Veritas DGC, Inc.+................. 408,100 16,119,950
Vintage Petroleum, Inc............. 385,600 7,326,400
------------
834,758,126
------------
Paper and Containers (0.2%)
Ball Corp.......................... 440,100 15,541,031
Buckeye Technologies, Inc.+........ 23,200 1,073,000
------------
16,614,031
------------
Pharmaceuticals (4.7%)
Bindley Western Industries, Inc.... 46,910 1,448,346
Bristol-Myers Squibb Co............ 1,210,100 114,505,712
Crescendo Pharmaceuticals Corp.+... 1,329 15,367
Dura Pharmaceuticals, Inc.+........ 222,600 10,211,775
Eli Lilly & Co..................... 1,431,700 99,682,112
Medicis Pharmaceutical Corp.+...... 223,100 11,405,988
Merck & Co., Inc................... 150,700 16,011,875
Pharmerica, Inc.+.................. 804,707 8,348,835
Rexall Sundown, Inc.+.............. 503,300 15,193,369
Schering Plough.................... 2,201,500 136,768,187
16 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
United States (continued)
Pharmaceuticals (continued)
Theragenics Corp.+................. 41,800 $ 1,504,800
Watson Pharmaceuticals, Inc.+...... 502,600 16,303,088
------------
431,399,454
------------
Printing and Publishing (2.7%)
Central Newspapers, Inc., Class A.. 224,300 16,584,181
Devon Group, Inc.+................. 29,400 1,352,400
Dow Jones & Co., Inc............... 92,600 4,971,463
Gannett Co., Inc................... 646,500 39,961,780
Hollinger International, Inc....... 179,800 2,517,200
Lexmark International Group, Inc.+. 232,500 8,835,000
McClatchy Newspapers, Inc.......... 217,900 5,924,156
New York Times Co.................. 1,304,900 86,286,512
Times Mirror Co.................... 162,000 9,963,000
Tribune Co......................... 763,700 47,540,324
Valassis Communications, Inc.+..... 679,500 25,141,500
------------
249,077,516
------------
Real Estate Investment Trusts (2.8%)
Alexandria Real Estate Equities,
Inc.............................. 19,300 609,156
AMB Property Corp.................. 30,400 763,800
American Residential Investment
Trust, Inc....................... 31,900 378,813
Apartment Investment &
Management Co.................... 237,900 8,742,825
Arden Realty Group, Inc............ 93,800 2,884,350
Bay Apartment Communities, Inc..... 66,700 2,601,300
Bedford Property Investors, Inc.... 56,700 1,240,313
Berkshire Realty Co., Inc.......... 108,900 1,306,800
Brandywine Realty Trust............ 25,900 650,738
BRE Properties, Inc., Class A...... 84,400 2,373,750
Camden Property Trust.............. 25,400 787,400
Capstone Capital Trust, Inc........ 78,700 2,011,769
Captec Net Lease Realty, Inc....... 77,000 1,323,438
Carramerica Realty Corp............ 102,000 3,232,125
CBL & Associates Properties, Inc... 169,500 4,184,531
Chelsea GCA Realty, Inc............ 61,400 2,344,713
Colonial Properties Trust.......... 159,800 4,813,975
Cornerstone Properties, Inc........ 38,200 732,963
Crescent Real Estate Equities, Inc. 397,500 15,651,563
Criimi Mae, Inc.................... 54,100 811,500
Crown America Realty Trust......... 228,300 2,126,044
Developers Diversified Realty Corp. 56,400 2,157,300
Duke Realty Investments, Inc....... 608,800 14,763,400
Eastgroup Properties, Inc.......... 74,450 1,609,981
Equity Office Properties Trust..... 221,366 6,986,864
Equity Residential Properties Trust 246,550 12,466,184
Essex Property Trust, Inc.......... 119,100 4,168,500
Felcor Suite Hotels, Inc........... 183,600 6,517,800
First Industrial Realty Trust, Inc. 120,000 4,335,000
General Growth Properties.......... 151,200 5,462,100
Glenborough Realty Trust, Inc...... 146,100 4,328,213
Health Care REIT, Inc.............. 104,000 2,925,000
Real Estate Investment Trusts (continued)
Healthcare Realty Trust, Inc....... 95,300 $ 2,757,744
Highwood Properties, Inc........... 85,100 3,164,656
Home Properties of New York, Inc... 44,800 1,218,000
Imperial Credit Commercial
Mortgage Investment Corp......... 40,600 593,775
Innkeepers USA Trust............... 135,900 2,106,450
JDN Realty Corp.................... 62,400 2,020,200
Kimco Realty Corp.................. 290,200 10,229,550
Koger Equity, Inc.................. 100,000 2,193,750
Lasalle Partners, Inc.+............ 27,200 969,000
Lexington Corporate Properties,
Inc.............................. 67,200 1,037,400
LTC Properties, Inc................ 56,900 1,180,675
Mack-Cali Realty Corp.............. 130,900 5,366,900
Manufactured Home Communities, Inc. 126,000 3,402,000
Meridian Industrial Trust, Inc..... 16,500 420,750
Merry Land & Investment Co., Inc... 100,000 2,287,500
MGI Properties, Inc................ 75,500 1,812,000
Mid-America Apartment
Communities, Inc................. 50,300 1,436,694
National Golf Properties, Inc...... 175,700 5,765,156
National Health Investors, Inc..... 54,500 2,282,188
Oasis Residential, Inc............. 172,200 3,842,213
OMEGA Healthcare Investors, Inc.... 48,000 1,854,000
Post Properties, Inc............... 33,301 1,352,841
Prentiss Properties Trust.......... 85,900 2,399,831
Prime Retail, Inc.................. 46,900 665,394
Public Storage, Inc................ 291,700 8,568,688
Ramco-Gerhenson Properties Trust... 18,075 355,852
Reckson Associates Realty Corp..... 52,500 1,332,188
Regency Realty Corp................ 19,300 534,369
Security Capital Industrial Trust.. 223,725 5,565,159
Simon Debartolo Group, Inc......... 254,544 8,320,407
SL Green Realty Corp............... 42,100 1,091,969
Spieker Properties, Inc............ 283,400 12,150,775
Starwood Lodging Trust............. 258,900 14,983,838
Sunstone Hotel Investors, Inc...... 145,400 2,508,150
Tanger Factory Outlet Centers, Inc. 94,100 2,875,931
Tower Realty Trust, Inc............ 33,600 827,400
United Dominion Realty Trust, Inc.. 150,008 2,090,737
Universal Health Realty Income
Trust............................ 32,100 702,188
Walden Residential Properties, Inc. 164,800 4,202,400
Weeks Corp......................... 41,100 1,315,200
Weingarten Realty Investors........ 51,000 2,285,438
------------
255,361,564
------------
Retail (5.1%)
Ames Department Stores, Inc.+...... 252,900 4,425,750
Barnes & Noble, Inc.+.............. 96,600 3,224,025
Burlington Coat Factory Warehouse.. 391,920 6,442,185
Casey's General Stores, Inc........ 45,000 1,141,875
Costco Companies, Inc.+............ 495,800 22,125,075
CVS Corp........................... 91,600 5,868,125
17
<PAGE>
Variable Fund
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
United States (continued)
Retail (continued)
Dayton Hudson Corp................. 2,021,100 $136,424,249
Dress Barn, Inc.+.................. 117,000 3,319,875
Fabri-Centers of America, Class A+. 46,000 1,026,375
Federated Department Stores, Inc.+. 1,343,300 57,845,855
Fingerhut Companies, Inc........... 705,500 15,080,063
Footstar, Inc.+.................... 581,016 15,614,805
Funco, Inc.+....................... 41,400 615,825
Goody's Family Clothing, Inc.+..... 41,700 1,133,719
Hasbro, Inc........................ 92,000 2,898,000
Linens 'n Things, Inc.+............ 37,200 1,622,850
Mac Frugal's Bargains+............. 69,500 2,858,188
Maxim Group, Inc. (The)+........... 3,600 56,025
Pacific Sunwear of California+..... 53,700 1,587,506
Payless ShoeSource, Inc.+.......... 224,592 15,075,738
Rite Aid Corp...................... 93,000 5,457,938
Ross Stores, Inc................... 674,500 24,534,938
Russ Berrie & Co., Inc............. 222,100 5,830,125
Stage Stores, Inc.+................ 68,000 2,541,500
TJX Companies, Inc................. 3,348,300 115,097,812
Urban Shopping Centers, Inc........ 125,000 4,359,375
Williams-Sonoma, Inc.+............. 22,900 958,938
Woolworth Corp.+................... 488,700 9,957,263
------------
467,123,997
------------
Telecommunications (0.4%)
ADC Telecommunications, Inc.+...... 72,500 3,026,875
Aliant Communications, Inc......... 40,700 1,276,963
Ameritech Corp..................... 300,100 24,158,050
Magyar Tavkozlesi Route+........... 80,000 2,080,000
Teleport Communications Group,
Inc.+............................ 73,300 4,022,338
------------
34,564,226
------------
Transportation (2.5%)
Airborne Freight Corp.............. 257,500 15,997,188
Alaska Air Group, Inc.+............ 121,600 4,712,000
America West Holdings Corp.+....... 83,700 1,558,913
Amerus Life Holdings, Inc., Class A 64,900 2,393,188
AMR Corp.+......................... 532,400 68,413,399
CNF Transportation, Inc............ 304,800 11,696,700
Comair Holdings, Inc............... 51,525 1,243,041
Continental Airlines, Inc., Class
B+............................... 196,500 9,456,563
CSX Corp........................... 197,600 10,670,400
Delta Air Lines, Inc............... 276,100 32,855,900
Eagle USA Airfreight, Inc.+........ 33,900 966,150
Trico Marine Services, Inc.+....... 574,100 16,864,188
U.S. Freightways Corp.............. 561,200 18,239,000
U.S. Rentals, Inc.+................ 66,300 1,558,050
UAL Corp.+......................... 168,500 15,586,250
US Airways Group, Inc.+............ 93,300 5,831,250
Yellow Corp.+...................... 530,700 13,333,838
------------
231,376,018
------------
Utilities - Electric (0.5%)
Atlantic Energy, Inc............... 530,500 $11,239,969
Boston Edison Co................... 197,100 7,465,163
Calenergy, Inc.+................... 132,100 3,797,875
Montana Power Co................... 446,500 14,204,281
New York State Electric & Gas Corp. 254,500 9,034,750
Pinnacle West Capital Corp......... 117,300 4,970,588
------------
50,712,626
------------
Utilities - Oil and Gas (1.0%)
Coastal Corp. (The)................ 964,400 59,732,524
Energen Corp....................... 107,100 4,257,225
KeySpan Energy Corp................ 95,700 3,522,956
NUI Corp........................... 80,200 2,300,738
ONEOK, Inc......................... 70,000 2,826,250
Pacific Enterprises................ 301,600 11,347,700
People's Energy Corp............... 104,200 4,102,875
Southwestern Energy Co............. 255,500 3,289,563
------------
91,379,831
------------
Utilities - Telephone (2.4%)
Aerial Communications, Inc.+....... 213,900 1,524,038
Alltel Corp........................ 273,600 11,234,700
Bell Atlantic Corp................. 1,255,323 114,234,392
BellSouth Corp..................... 1,096,300 61,735,393
Century Telephone Enterprises...... 357,400 17,802,988
Cincinnati Bell, Inc............... 110,600 3,428,600
MCI Communications Corp............ 36,500 1,562,656
Southern New England
Telecommunications Corp.......... 109,100 5,489,094
U.S. West Communications Group..... 69,900 3,154,238
------------
220,166,099
------------
Total United States 7,822,379,078
------------
Foreign Common Stocks (5.5%)
Argentina (0.1%)
Banco de Galicia y Buenos Aires SA
(Banks) ......................... 177,900 4,580,925
YPF Sociedad Anonima (Oil and Gas) 59,100 2,020,481
------------
Total Argentina
6,601,406
------------
Australia (0.2%)
Goodman Fielder Ltd.
(Foods and Beverages) ........... 3,678,129 5,847,567
Mayne Nickless Ltd. (Commercial 636,500 3,363,393
Services)
Westpac Banking Corp. Ltd. (Banks) 864,500 5,529,145
Woolworth Ltd. (Foods and
Beverages) ...................... 1,780,856 5,952,571
------------
Total Australia 20,692,676
------------
Austria (0.0%)
VA Technologie AG (Commercial
Services).......................... 11,700 1,773,842
------------
18 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Belgium (0.1%)
Delhaize-Le Lion, SA
(Foods and Beverages) ........... 72,300 $ 3,668,674
Societe Generale De Belgique
(Financial Services) ............ 43,100 3,943,574
------------
Total Belgium 7,612,248
------------
Brazil (0.1%)
Telecomunicaciones Brasileiras SA
(Utilities - Telephone) ......... 46,950 5,466,741
Unibanco Brasileiros SA
(Financial Services) +........... 30,700 988,156
------------
Total Brazil 6,454,897
------------
Canada (0.1%)
Canadian Imperial Bank of Commerce
(Banks) ......................... 102,843 3,205,265
Canadian National Railway Co.
(Transportation) ................ 71,600 3,381,997
Petro-Canada (Oil and Gas) ........ 309,300 5,619,632
------------
Total Canada 12,206,894
------------
Chile (0.0%)
Cia. de Telecomuncaciones de Chile
(Utilities - Telephone) ......... 94,900 2,835,138
------------
Denmark (0.2%)
Bang & Olufsen Holding Co.
(Electronics) ................... 88,400 5,267,430
Carli Gry International A/S
(Apparel) ....................... 66,885 3,760,762
Novo-Nordisk A/S (Pharmaceuticals) 53,300 7,628,509
Unidanmark A/S (Banks) ............ 57,500 4,223,983
------------
Total Denmark 20,880,684
------------
Finland (0.2%)
Huhtamaki Group (Diversified) ..... 90,200 3,726,941
Jaakko Poyry Group
(Commercial Services) + 205,530 2,189,106
Oy Nokia Corp., ADR A
(Telecommunications) +........... 15,000 1,050,000
UPM-Kymmene Corp.
(Paper and Containers) .......... 156,500 3,132,596
Valmet Oyj (Diversified) .......... 209,500 2,893,113
------------
Total Finland 12,991,756
------------
France (0.4%)
Accor SA (Hotels and Restaurants) . 21,910 4,075,441
Alcatel Alsthom
(Telecommunications) ............ 42,205 5,366,949
Credit Commercial de France
(Banks) ......................... 86,500 5,931,195
Elf Aquitaine SA (Oil and Gas) .... 35,600 4,142,382
Gemini Sogeti SA (Insurance) ...... 63,600 5,217,307
Lafarge SA
(Building Materials and
Construction) ................... 59,700 3,918,895
Pernod Ricard (Foods and
Beverages) ...................... 13,000 764,978
France (continued)
Schneider SA (Machinery and
Equipment) ...................... 77,375 $ 4,203,246
Union des Assurances Federales
(Insurance) ..................... 32,500 4,267,884
------------
Total France 37,888,277
------------
Germany (0.4%)
Bayerische Hypotheken-und
Wechsel-Bank AG (Banks) ......... 83,850 4,094,468
Deutsche Lufthansa AG
(Transportation) ................ 217,000 4,079,213
Deutsche Pfandbrief &
Hypothekenbank AG (Banks) ....... 89,300 5,294,301
Gehe AG (Health Services) ......... 88,100 4,409,794
Ispat International (Metals and
Mining) +........................ 105,900 2,290,088
Mannesmann AG
(Machinery and Equipment) ....... 12,715 6,428,064
VEBA AG (Utilities - Electric) .... 35,850 2,442,447
Viag AG (Diversified) ............. 7,100 3,826,327
Volkswagen AG
(Autos and Auto Equipment) ...... 3,950 2,207,817
------------
Total Germany 35,072,519
------------
Hong Kong (0.1%)
Hutchison Whampoa Ltd.
(Diversified) ................... 613,000 3,844,963
Lai Sun Development Co., Ltd.
(Real Estate Investment Trusts) . 3,443,000 1,133,111
Peregrine Investments Holdings
Ltd. (Financial Services) ....... 3,006,000 2,133,767
Regent Pacific Group Ltd.
(Financial Services) ............ 90,000 27,877
------------
Total Hong Kong 7,139,718
------------
India (0.0%)
Videsh Sanchar Nigam Ltd.
(Telecommunications) +........... 218,000 3,057,450
------------
Indonesia (0.0%)
Bank International Indonesia
(Banks) ......................... 3,443,000 203,641
Putra Surya Multidana (Financial
Services) + .................... 9,415,500 899,596
------------
Total Indonesia 1,103,237
------------
Ireland (0.1%)
Iona Technologies Plc, ADR
(Consumer Products) +............ 204,000 4,182,000
Irish Life Plc (Insurance) ........ 614,935 3,532,233
Waterford Wedgewood
(Home Furnishings and
Appliances) ..................... 2,797,999 3,788,666
------------
Total Ireland 11,502,899
------------
Israel (0.0%)
Tefron Ltd. (Apparel) +............ 92,600 2,129,800
------------
Italy (0.3%)
Assicurazioni Generali (Insurance) 130,750 3,213,291
Credito Italiano (Banks) .......... 2,636,000 8,133,150
19
<PAGE>
Variable Fund
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Italy (continued)
La Rinascente S.p.A. (Retail) ..... 834,800 $ 6,232,683
Pirelli & Co. (Financial Services) 2,814,600 4,553,039
Telecom Italia S.p.A. (Utilities -
Telephone) + .................... 755,000 4,825,519
------------
Total Italy 26,957,682
------------
Japan (0.6%)
Bank of Tokyo-Mitsubishi (Banks) .. 139,000 1,924,303
Dai Nippon Ink & Chemicals, Inc.
(Chemicals) ..................... 1,321,400 3,353,779
Daiichi Pharmaceutical
(Pharmaceuticals) ............... 453,000 5,121,554
DDI Corp. (Utilities - Telephone) . 1,122 2,977,132
Exedy Corp. (Autos and Auto
Equipment) ...................... 256,400 1,950,296
Fuji Photo Film (Chemicals) ....... 156,000 5,999,027
Fujitec Co. Ltd.
(Building Materials and
Construction) ................... 213,000 1,179,501
Fujitsu Denso (Diversified) ....... 94,500 1,039,331
Hoya Corp. (Medical Supplies) ..... 130,000 4,099,335
Minebea Co. Ltd. (Electronics) .... 328,000 3,531,735
Mitsui Chemicals, Inc. (Chemicals) 860,000 1,587,435
Mizuno Corp. (Consumer Products) .. 500,000 1,518,984
Seino Transportation Co., Ltd.
(Diversified) ................... 975,000 4,881,708
Sekisui Chemical Co. (Chemicals) .. 295,000 1,504,256
Sony Corp. (Electronics) .......... 70,400 6,280,827
Takefuji Corp. (Banks) ............ 98,330 4,530,009
West Japan Railway
(Transportation) ................ 873 2,793,147
------------
Total Japan 54,272,359
------------
Mexico (0.2%)
ALFA SA de C.V. (Diversified) ..... 392,228 2,656,433
Cifra SA (Retail) ................. 2,173,500 4,852,882
Grupo Financiero Banamex Accival
(Financial Services) ............ 1,186,000 3,545,433
Grupo Radio Centro SA
(Media and Entertainment) ....... 214,600 3,058,050
Panamerican Beverages, Inc.
(Foods and Beverages) ........... 183,000 5,970,375
------------
Total Mexico 20,083,173
------------
Netherlands (0.3%)
Akzo Nobel NV (Chemicals) ......... 26,800 4,621,722
Bols Wessanen CVA
(Foods and Beverages) ........... 221,500 3,430,844
ING Groep NV (Banks) .............. 119,964 5,053,665
KLM Royal Dutch Air Line
(Transportation) ................ 75,730 2,801,734
Philips Electronics NV
(Electronics) ................... 80,100 4,804,672
Vendex International NV (Retail) .. 60,600 3,345,032
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd
Bezit (Printing and Publishing) . 180,300 5,087,324
------------
Total Netherlands 29,144,993
------------
New Zealand (0.0%)
Fernz Corp., Ltd. (Chemicals) ..... 824,500 2,130,434
------------
Norway (0.3%)
Christiania Bank Og Kredkasse
(Banks) ......................... 682,600 $ 2,759,218
Det Sondenfjelds-Norske
Dampskibsselskab (Oil and Gas) +. 185,000 3,864,524
Merkantildata ASA (Computer
Software) ....................... 30,700 1,057,732
Ocean Rig ASA (Oil and Gas) ....... 8,710,400 9,215,868
Saga Petroleum ASA, Class A (Oil
and Gas) ........................ 183,800 3,166,305
Seateam Technology AS (Oil and
Gas) +........................... 94,650 1,733,237
Tandberg Television ASA
(Telecommunications) +........... 54,000 622,610
Tomra Systems ASA
(Paper and Containers) .......... 157,000 3,513,882
------------
Total Norway 25,933,376
------------
Portugal (0.0%)
Portugal Telecom SA SP ADR
(Utilities - Telephone) ......... 67,000 3,149,000
------------
Singapore (0.1%)
Clipsal Industries Ltd.
(Electrical Equipment) .......... 639,700 818,816
Jardine Matheson Holdings
(Diversified) ................... 576,174 2,938,487
------------
Total Singapore 3,757,303
------------
Spain (0.1%)
Cortefiel, SA (Retail) ............ 163,170 3,275,917
Iberdrola SA (Utilities -
Electric) ....................... 294,800 3,878,046
Telefonica de Espana (Utilities -
Telephone) ...................... 161,000 4,595,008
------------
Total Spain 11,748,971
------------
Sweden (0.2%)
Enator AB (Commercial Services) +.. 46,600 922,091
Ericsson ADR (Telecommunications) . 112,000 4,179,000
Frontec AB (Computer Software) +... 209,000 1,830,708
Industrial & Financial Systems
(Computer Software) +............ 165,000 1,138,560
Oxigene, Inc. (Pharmaceuticals) +.. 155,350 2,780,274
Prosolvia AB
(Computers and Office Equipment)
+................................ 8,000 319,622
Securitas AB (Diversified) ........ 25,000 756,204
Skandia Forsakrings AB (Insurance) 125,300 5,914,130
Svenska Handelsbanken
(Financial Services) ............ 109,600 3,791,760
------------
Total Sweden 21,632,349
------------
Switzerland (0.3%)
Credit Suisse Group (Banks) ....... 34,500 5,345,716
Georg Fischer AG
(Machinery and Equipment) ....... 1,970 2,701,311
Kuoni Reisen AG (Commercial
Services) ....................... 1,405 5,273,984
Nestle SA Registered Shares
(Foods and Beverages) ........... 2,635 3,954,620
Novartis AG Registered Shares
(Health Services) ............... 3,780 6,142,123
20 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Switzerland (continued)
Union Bank of Switzerland (Banks) . 1,080 $ 1,563,853
------------
Total Switzerland 24,981,607
------------
Thailand (0.0%)
Total Access Communication Public
Company Ltd.
(Telecommunications) ............ 955,200 324,768
------------
United Kingdom (1.0%)
3i Group Plc (Financial Services) . 293,000 2,391,227
Bank of Scotland (Banks) .......... 697,517 6,427,089
Barclays Plc (Financial Services) . 191,959 5,110,442
Boots Co. Plc (Retail) ............ 418,500 6,035,578
Cadbury Schweppes Plc
(Foods and Beverages) ........... 272,000 2,745,712
Glaxo Wellcome Plc
(Pharmaceuticals) ............... 202,094 4,788,367
Granada Group Plc (Diversified) ... 449,039 6,871,294
Lonrho Plc (Diversified) .......... 2,098,000 3,210,406
Millennium Chemicals, Inc.
(Chemicals) ..................... 618,600 14,575,763
Morgan Crucible Plc (Diversified) . 629,900 4,788,341
National Westminster Bank Plc
(Banks) ......................... 287,400 4,785,626
NFC Plc (Transportation) .......... 648,000 1,615,322
Pearson Plc (Printing and
Publishing) ..................... 409,800 5,333,594
Shell Transport & Trading Co. (Oil
and Gas) ........................ 705,800 5,109,823
Tomkins Plc (Diversified) ......... 688,000 3,294,222
Unilever Plc (Consumer Products) .. 491,200 4,210,829
Vodafone Group Plc
(Telecommunications) ............ 682,679 4,931,199
------------
Total United Kingdom 86,224,834
------------
Venezuela (0.1%)
Compania Anonima Nacional
Telefonos de Venezuela
(Utilities - Telephone) ......... 119,600 4,978,350
------------
Total Foreign Common Stocks 505,262,640
------------
Total Common Stocks (cost $6,352,850,207) 8,327,641,718
--------------
PREFERRED STOCKS (0.3%)
United States (0.2%)
AMC Entertainment
(Media and Entertainment) ....... 15,850 610,225
Case Corp. (Machinery and
Equipment) ++..................... 14,200 2,009,300
Corning Delaware L.P.
(Foods and Beverages) ........... 13,900 856,588
Equity Residential Properties
(Real Estate Investment Trusts) . 27,900 802,125
International Paper Co.
(Paper and Containers)++......... 9,300 454,538
Salomon, Inc. (Financial Services) 69,800 4,135,650
Sea Containers Ltd. (Diversified) . 36,000 2,007,000
Security Capital Pacific Trust
(Real Estate Investment Trusts) . 19,400 635,350
Tanger Factory Outlet Centers,
Inc.
(Real Estate Investment Trusts) . 55,800 1,520,550
Union Planters Co. (Foods and
Beverages) ...................... 18,600 1,590,300
United States (continued)
William Cos., Inc. (Commercial
Services) ....................... 27,900 $ 3,738,600
------------
Total United States 18,360,226
------------
Foreign Preferred Stocks (0.1%)
Germany (0.1%)
Henkel KGAA (Chemicals) ........... 67,300 4,248,258
Hugo Boss AG (Apparel) ............ 1,900 2,430,420
------------
Total Foreign Preferred Stocks 6,678,678
------------
Total Preferred Stocks (cost $19,860,943) 25,038,904
------------
Principal
Amount
---------
LONG-TERM BONDS AND NOTES (1.0%)
Corporate and Convertible Bonds (1.0%)
Agnico-Eagle Mines Ltd., 3.50%,
01/27/04......................... $2,900,000 1,777,077
Altera Corp., 5.75%, 06/15/02...... 930,000 1,314,788
Alza Corp., 5.00%, 05/01/06........ 930,000 984,638
Apache Corp., 6.00%, 01/15/02...... 1,470,000 1,683,150
Automatic Data Processing, Inc.,
Zero Coupon, 02/20/12............ 3,800,000 3,056,667
Baker Hughes, Inc., Zero Coupon,
05/05/08......................... 8,075,000 6,817,929
Boston Chicken, Inc., Zero Coupon,
06/01/15......................... 3,730,000 587,475
Career Horizons, Inc., 7.00%,
11/01/02......................... 930,000 1,975,088
Cellstar Corp., 5.00%, 10/15/02++... 1,860,000 1,376,400
Checkpoint Systems, Inc., 5.25%,
11/01/05......................... 1,162,000 1,233,173
Comverse Technology, Inc., 5.75%,
10/01/06++........................ 4,600,000 4,950,750
Consolidated Natural Gas Co.,
7.25%, 12/15/15.................. 950,000 1,075,875
Continental Airlines, Inc., 6.75%,
04/15/06++........................ 1,860,000 3,141,075
Continental Homes Holding Corp.,
6.88%, 11/01/02.................. 700,000 1,221,500
Credence Systems Corp., 5.25%,
09/15/02++........................ 3,700,000 2,904,500
Dovatron International, 6.00%,
10/15/02......................... 930,000 1,363,613
Einstein/Noah Bagel Corp., 7.25%,
06/01/04++........................ 4,630,000 3,032,650
EMC/Mass Corp., 3.25%, 03/15/02++... 5,580,000 7,505,100
FPA Medical Management, Inc.,
6.50%, 12/15/01.................. 1,860,000 1,906,500
Fremont General Corp., Zero
Coupon, 10/12/13................. 930,000 990,450
Hewlett Packard Co., Zero Coupon,
10/14/17++....................... 8,370,000 4,373,325
Home Depot, Inc., 3.25%, 10/01/01.. 930,000 1,221,788
Homebase, Inc., 5.25%, 11/01/04.... 2,790,000 2,821,388
Integrated Health Services, 5.75%,
01/01/01......................... 930,000 982,313
Marriott International, Inc., Zero
Coupon, 03/25/11++................ 2,730,000 1,767,675
NAC Re Corp., 5.25%, 12/15/02++..... 930,000 999,750
National Semiconductor Corp.,
6.50%, 10/01/02++................. 4,650,000 4,562,813
Office Depot, Inc., Zero Coupon,
12/11/07......................... 1,100,000 770,000
21
<PAGE>
Variable Fund
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------------
Corporate and Convertible Bonds
(continued)
Ogden Corp., 6.00%, 06/01/02....... $ 475,000 $ 461,938
Pennzoil Co., 4.75%, 10/01/03...... 1,000,000 1,330,000
Pennzoil Co., 6.50%, 01/15/03...... 465,000 873,038
Phycor Inc., 4.50%, 02/15/03....... 1,395,000 1,353,150
Phymatrix Corp., 6.75%, 06/15/03... 2,300,000 2,081,500
Pioneer Financial Services, 6.50%,
04/01/03......................... 1,395,000 2,369,756
Pogo Producing, 5.50%, 03/15/04.... 310,000 400,675
Potomac Electric Power, 7.00%,
01/15/18......................... 750,000 755,625
Prime Hospitality Corp., 7.00%,
04/15/02......................... 795,000 1,452,863
Read-Rite Corp., 6.50%, 09/01/04... 930,000 774,225
Richey Electronics, Inc., 7.00%,
03/01/06++........................ 1,859,000 1,840,410
Roche Holdings, Zero Coupon,
05/06/12++........................11,625,000 5,367,879
Sanmina Corp., 5.50%, 08/15/02++.... 930,000 2,194,800
SCI Systems, Inc., 5.00%, 05/01/06++ 695,000 1,271,850
Tel-Save Holding, Inc., 5.00%,
12/15/04......................... 1,400,000 1,328,250
Thermo Instrument System, 4.50%,
10/15/03++........................ 930,000 1,069,500
U.S. Cellular Corp., Zero Coupon,
06/15/15......................... 2,325,000 839,906
U.S. Office Products Co., 5.50%,
02/01/01......................... 930,000 1,092,750
Vantive Corp., 4.75%, 09/01/02++... 930,000 859,041
Veterinary Centers of America,
5.25%, 05/01/06++................ 465,000 358,050
------------
Total Long-Term Bonds and Notes (cost
$85,428,345) 94,472,656
------------
Number
of
Shares
---------
CALL OPTIONS PURCHASED (0.0%)
Russell 2000 Index, Strike $420,
March 98 ........................ 122,000 3,705,750
------------
Total Call Options Purchased (cost
$2,865,914) 3,705,750
------------
Principal
Amount
---------
SHORT-TERM INVESTMENTS (7.4%)
AT&T Capital Corp., Comm. Paper,
6.60%, 01/09/98.................. $13,113,000 13,096,172
AT&T Capital Corp., Comm. Paper,
6.90%, 01/02/98.................. 8,673,000 8,673,000
Central & South West Corp., Comm.
Paper, 6.45%, 01/09/98++.......... 12,000,000 11,984,950
Central & South West Corp., Comm.
Paper, 6.75%, 01/09/98++.......... 11,994,000 11,978,258
Citicorp, Comm. Paper, 6.50%,
01/02/98......................... 31,542,000 31,542,000
Conagra, Inc., Comm. Paper, 6.30%,
01/06/98......................... 24,956,000 24,938,531
Conagra, Inc., Comm. Paper, 6.40%,
01/05/98......................... 30,000,000 29,984,000
Cooperative Assoc. of Tractor
Dealers, Inc., Comm. Paper,
5.72%, 02/02/98.................. 10,100,000 10,049,702
CSW Credit, Inc., Comm. Paper,
5.75%, 02/12/98.................. 18,000,000 17,881,920
SHORT-TERM INVESTMENTS (continued)
Dakota Certificates - Standard
Credit Card Master Trust 1,
Comm. Paper, 6.00%, 01/07/98++.... $16,000,000 $15,986,667
Dealers Capital Access Trust,
Inc., Comm. Paper, 6.80%,
01/02/98......................... 10,700,000 10,700,000
Detroit Edison Co., Comm. Paper,
6.22%, 01/15/98.................. 35,000,000 35,000,117
Detroit Edison Co., Comm. Paper,
6.29%, 01/22/98.................. 10,000,000 10,000,000
Federal Home Loan Bank, Comm.
Paper, 4.75%, 01/02/98........... 2,704,000 2,704,000
Ford Motor Credit Corp., Comm.
Paper, 6.25%, 01/06/98........... 23,600,000 23,583,611
Houston Industries, Inc., Comm.
Paper, 6.00%, 01/09/98++.......... 14,000,000 13,983,667
Houston Industries, Inc., Comm.
Paper, 6.20%, 01/07/98++.......... 11,000,000 10,990,528
Occidental Petroleum, Comm. Paper,
6.12%, 01/22/98.................. 60,000,000 59,796,000
Occidental Petroleum, Comm. Paper,
7.50%, 01/02/98.................. 27,000,000 27,000,000
Peco Energy Co., Comm. Paper,
6.40%, 01/08/98.................. 16,000,000 15,982,933
Pennsylvania Power & Light, Comm.
Paper, 6.60%, 01/09/98........... 2,725,000 2,721,503
Raytheon Co., Comm. Paper, 6.15%,
02/26/98++........................ 15,000,000 14,997,600
Renaissance Energy, Comm. Paper,
7.50%, 01/08/98.................. 9,612,000 9,599,985
Republic Industries, Comm. Paper,
6.00%, 01/16/98.................. 8,000,000 7,981,333
Sheffield Receivables Corp., Comm.
Paper, 5.85%, 02/12/98++.......... 20,800,000 20,661,420
Sheffield Receivables Corp., Comm.
Paper, 6.10%, 01/20/98++.......... 49,200,000 49,049,940
Sprint Capital Corp., Comm. Paper,
7.25%, 01/02/98++................. 19,205,000 19,205,000
Tenneco, Inc., Comm. Paper, 6.75%,
01/07/98++........................ 30,000,000 29,971,875
U. S. Treasury Bill, 4.94%,
02/05/98......................... 1,500,000 1,492,770
U. S. Treasury Bill, 5.02%,
02/05/98......................... 49,000,000 48,763,820
U. S. Treasury Bill, 5.03%,
02/05/98......................... 22,000,000 21,893,960
U.S. Treasury Bill, 5.05%, 02/05/98 500,000 497,590
U.S. Treasury Bill, 5.17%,
02/05/98@@....................... 22,200,000 22,092,996
Union Pacific, Comm. Paper, 5.95%,
02/27/98++........................ 20,000,000 19,817,200
22 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------------
SHORT-TERM INVESTMENTS (continued)
Whirlpool Corp., Comm. Paper,
7.50%, 01/02/98++................. $28,000,000 $ 28,000,000
-------------
Total Short-Term Investments (cost
$682,607,683) 682,603,048
-------------
TOTAL INVESTMENTS (cost $7,143,613,092)(a) 9,133,462,076
Other assets less liabilities
54,797,418
-------------
Total Net Assets $9,188,259,494
=============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$7,155,148,978. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains .................. $2,152,760,324
Unrealized losses ................. (174,447,226)
--------------
Net unrealized gain ............. $1,978,313,098
==============
Information concerning open futures contracts at December 31, 1997 is shown
below:
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- ---------- ---------- -----------
Long Contracts
- -------------------
FTSE 100 Index
Future 2 $ 437,387 March 98 $ (6,952)
===========
Information concerning written option contracts at December 31, 1997 is shown
below:
Exercise Expiration Market
Contracts Price Date Value
--------- ---------- ---------- -----------
Call Options
- ------------
Quantum Corp. 1,000 $ 20 Feb 98 $ (231,250)
Put Options
- -----------
Russell 2000
Index 1,220 420 March 98 (1,204,750)
-----------
$(1,436,000)
===========
+ Non-income producing security.
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
@ Security partially pledged to cover requirements of written call options at
December 31, 1997.
@@ Security pledged to cover initial margin requirements on open futures
contracts at December 31, 1997.
Category percentages are based on net assets.
See Notes to Financial Statements. 23
<PAGE>
Income Shares
Portfolio of Investments
December 31, 1997
- --------------------------------------------------------------------------------
Principal Market
Amount Value
-------- -----------
LONG-TERM BONDS AND NOTES (84.4)
U.S. Government and Agency Obligations (38.0%)
Agency Mortgage-Backed Securities (13.3%)
Federal National Mortgage
Association, Principal Only,
06/25/19..........................$ 678,178 $ 652,470
Federal National Mortgage
Association, 7.00%, 08/01/25 -
03/01/26.......................... 13,605,020 13,715,561
Federal National Mortgage
Association, 7.50%, 01/14/28S..... 30,000,000 30,703,124
Federal National Mortgage
Association, 8.00%, 12/11/27S..... 10,000,000 10,356,250
Government National Mortgage
Association, 7.00%, 04/15/26...... 9,496,762 9,579,859
Government National Mortgage
Association, 7.50%, 03/15/24 -
10/15/25.......................... 8,303,090 8,513,266
Government National Mortgage
Association, 10.00%, 10/15/09 -
01/15/21.......................... 7,771,128 8,475,386
Government National Mortgage
Association, 10.50%, 02/15/13 -
01/15/21.......................... 8,233,354 9,059,261
Government National Mortgage
Association, 11.00%, 02/15/10..... 29,042 31,883
-----------
91,087,060
-----------
U.S. Government Agency Obligations (1.3%)
Small Business Administration
92-20K, 7.55%, 11/01/12........... 8,297,544 8,774,653
-----------
8,774,653
-----------
U.S. Treasuries (23.4%)
U. S. Treasury Bond, 6.63%, 02/15/27 21,000,000 22,801,300
U. S. Treasury Bond, 10.38%,
11/15/12SS........................ 10,000,000 13,289,063
U. S. Treasury Note, 5.63%, 02/15/06 7,300,000 7,219,016
U. S. Treasury Note, 5.75%, 11/30/02 10,000,000 10,009,363
U. S. Treasury Note, 5.75%, 08/15/03 10,000,000 10,007,763
U. S. Treasury Note, 6.25%, 05/31/00 20,000,000 20,253,125
U. S. Treasury Note, 6.25%, 04/30/01 15,000,000 15,236,644
U. S. Treasury Note, 6.38%, 08/15/27 10,000,000 10,548,463
U. S. Treasury Note, 6.50%, 05/31/01 15,000,000 15,358,594
U. S. Treasury Note, 6.88%, 07/31/99 10,000,000 10,179,663
U. S. Treasury Note, 6.88%,
03/31/00SS........................ 25,000,000 25,621,155
-----------
160,524,149
-----------
Total U.S. Government and Agency
Obligations (cost $255,400,593) 260,385,862
-----------
Corporate Bonds (44.0%)
Banking and Financial Services (13.5%)
American General, 8.13%, 08/15/09... 10,000,000 11,163,000
Associates Corp. N.A., 7.95%,
02/15/10.......................... 15,000,000 16,777,350
Chase Manhattan Corp., 6.63%,
01/15/98.......................... 10,000,000 10,001,350
Dean Witter, Discover & Co., 6.00%,
03/01/98.......................... 6,000,000 6,001,620
First Empire Capital Trust II,
8.28%, 06/01/27................... 7,150,000 7,670,609
Ford Motor Credit Corp., FRN,
6.13%, 02/22/99SS................. 15,000,000 15,049,233
Banking and Financial Services (continued)
Ford Motor Credit Corp., FRN, 6.30%,
06/02/98......................... $7,000,000 $7,013,177
General Electric Capital Corp.,
8.63%,
06/15/08.......................... 10,000,000 11,743,150
HSBC America, 7.81%, 12/15/26++...... 6,500,000 6,745,862
-----------
92,165,351
-----------
Foreign and Supranationals (19.1%)
Bayerische Landesbank, 6.25%,
03/15/00 .......................... 12,000,000 12,058,019
China International Trust, 9.00%,
10/15/06 .......................... 10,000,000 10,587,500
Hutchison Whampoa Financial, 6.95%,
08/01/07++ ........................ 13,000,000 12,180,480
Indah Kiat Finance, 10.00%,
07/01/07++ ........................ 7,400,000 6,068,000
Inter-American Development Bank,
12.25%, 12/15/08 .................. 7,775,000 11,495,960
International Bank For
Reconstruction & Development,
9.25%, 07/15/17 ................... 11,000,000 14,660,084
Korea Electric, 6.38%, 12/01/03 ..... 4,500,000 3,451,635
Korean Development Bank, 9.25%,
06/15/98 .......................... 5,000,000 4,949,150
Panama (Republic of), 7.88%,
02/13/02++ ........................ 6,200,000 6,014,000
Polysindo International Finance
Co., 11.38%, 06/15/06 ............. 3,000,000 2,460,000
Rogers Cablesystem, 10.00%, 03/15/05 8,500,000 9,371,250
Skanidinavinska Enskilda Bank,
6.91%, 06/29/49 ................... 5,000,000 5,056,250
Svenska Handlesbanken, 6.41%,
03/29/49 .......................... 10,000,000 9,993,000
Swire Pacific Ltd., 8.50%, 09/29/04++ 5,500,000 5,720,825
Telewest Plc, 11.00%, 10/01/07 ...... 6,850,000 5,351,563
Zurich Capital Trust, 8.38%,
06/01/37++ ........................ 10,500,000 11,477,393
----------
130,895,109
----------
Other Corporate Bonds (11.4%)
Echostar DBS Corp., 12.50%, 07/01/02 7,800,000 8,502,000
Echostar Satellite Broadcast, Zero
Coupon, 03/15/04.................. 9,700,000 8,148,000
Enron Oil & Gas, 6.50%, 12/01/07... 8,000,000 8,046,560
Paramount Communications, Inc.,
7.50%, 07/15/23................... 5,500,000 5,117,695
Tenet Healthcare Corp., 7.88%,
01/15/03.......................... 6,400,000 6,538,176
Tenet Healthcare Corp., 9.63%,
09/01/02.......................... 5,000,000 5,437,500
Time Warner, Inc., 7.95%, 02/01/00.. 7,000,000 7,232,071
Time Warner, Inc., 9.13%, 01/15/13.. 10,000,000 11,968,460
TRW, Inc., 9.35%, 06/04/20.......... 10,500,000 13,439,370
Worldcom, Inc., 8.88%, 01/15/06..... 3,689,000 3,965,675
-----------
78,395,507
-----------
Total Corporate Bonds (cost $292,180,843) 301,455,967
-----------
Non-Agency Mortgage-Backed Securities (2.4%)
Asset-Backed Securities (1.4%)
First Security Auto Grantor Trust,
6.10%, 04/15/03................... 9,527,454 9,527,454
-----------
24 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
-------- -----------
Mortgage-Backed Securities (1.0%)
Chase Mortgage Finance, 6.75%,
11/25/09.......................... $4,910,602 $4,906,673
Security Pacific National Bank,
8.50%, 04/25/17++++................. 1,772,954 1,769,076
-----------
6,675,749
-----------
Total Non-Agency Mortgage-Backed
Securities (cost $16,130,660)
16,203,203
-----------
Total Long-Term Bonds and Notes (cost
$563,712,096) 578,045,032
-----------
Number of
Shares
----------
PREFERRED STOCKS (0.7%)
California Federal Preferred
Capital Corp........................ 172,000 4,515,000
-----------
Total Preferred Stocks (cost
$4,300,000) 4,515,000
-----------
Principal
Amount
--------
SHORT-TERM INVESTMENTS (20.0%)
CSW Credit, Inc., Comm. Paper,
5.75%, 02/12/98................... $5,000,000 4,967,257
Dakota Certificiates - Standard
Credit Card Master Trust 1, Comm.
Paper, 5.82%, 01/29/98++........... 9,000,000 8,960,715
Detroit Edison Co., Comm. Paper,
6.22%, 01/15/98................... 10,000,000 10,000,033
Detroit Edison Co., Comm. Paper,
6.29%, 01/22/98................... 5,000,000 5,000,000
Enron Oil & Gas Co., Comm. Paper,
7.00%, 01/02/98................... 15,000,000 15,000,000
General Electric Capital Corp.,
7.96%, 02/02/98................... 10,000,000 10,014,200
Houston Industries, Inc., Comm.
Paper, 6.00%, 01/09/98++........... 3,000,000 2,996,500
Mid-Atlantic Fuel Comp, Comm.
Paper, 7.25%, 01/02/98............ 23,830,000 23,830,000
Occidental Petroleum, Comm. Paper,
6.12%, 01/22/98................... 10,000,000 9,966,000
Occidental Petroleum, Comm. Paper,
6.90%, 01/12/98................... 6,000,000 5,988,500
Raytheon Co., Comm. Paper, 6.15%,
02/26/98++......................... 10,000,000 9,999,552
Sprint Capital Corp., Comm. Paper,
7.25%, 01/02/98++.................. 5,295,000 5,295,000
Union Pacific, Comm. Paper, 5.95%,
02/27/98++......................... 5,000,000 4,953,722
Whirlpool Corp., Comm. Paper,
7.50%, 01/02/98++.................. 20,000,000 20,000,000
-----------
Total Short-Term Investments (cost $136,956,915) 136,971,479
-----------
TOTAL INVESTMENTS (cost $704,969,011)(a) 719,531,511
Other assets less liabilities (34,571,018)
-----------
Total Net Assets $684,960,493
===========
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses based on identified tax cost at December 31,
1997, are as follows:
Unrealized gains .................... $18,928,885
Unrealized losses ................... (4,366,385)
-----------
Net unrealized gain ............... $14,562,500
===========
S When-issued or delayed delivery security.
SS Segregated securities for purchases of delayed delivery or when-issued
securities held at December 31, 1997.
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
++++ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Trustees. See Note 2D of Notes to
Financial Statements.
Category percentages are based on net assets.
See Notes to Financial Statements 25
<PAGE>
Encore Fund
Portfolio of Investments
December 31, 1997
- --------------------------------------------------------------------------------
Principal Market
Amount Value
-------- -----------
Asset-Backed Securities (31.9%)
Asset Backed Securities Investment
Trust 1997-A, 6.01%, 02/16/98++....$21,600,000 $21,600,000
Asset Backed Securities Investment
Trust 1997-C, 5.96%, 06/15/98++.... 24,000,000 24,000,000
Asset Backed Securities Investment
Trust 1997-E, 5.96%, 08/15/98++.... 19,000,000 19,000,000
Barnett Auto Trust 1997-A, 5.65%,
10/15/98.......................... 7,564,826 7,562,462
Capital Equipment Receivables Trust
1996-1, 5.79%, 12/15/98........... 29,275,672 29,272,745
CARCO Auto Loan Master Trust
1993-2, 5.86%, 11/15/98........... 15,500,000 15,551,150
Case Equipment Loan Trust 1997-B,
5.61%, 10/13/98................... 15,525,379 15,522,953
Caterpillar Financial Asset Trust
1997-A, 5.72%, 05/25/98........... 1,536,329 1,536,329
Chase Manhattan Auto Owner Trust
1997-B, 5.74%, 07/10/98........... 2,823,694 2,823,553
Ford Credit Auto Owner Trust
1997-B, 5.75%, 10/15/98........... 21,206,127 21,205,703
Green Tree Financial Corp. 1997-4,
5.74%, 06/15/98................... 68,438 68,413
Green Tree Financial Corp. 1997-6,
5.70%, 09/15/98................... 7,337,778 7,336,310
Green Tree Financial Corp. 1997-7,
5.69%, 10/30/98................... 5,067,835 5,067,835
Long Lane Trust III Series 1997,
5.78%, 11/02/98++++............... 11,300,000 11,300,000
MMCA Auto Owner Trust 1997-1,
5.63%, 11/15/9S.................. 24,564,114 24,556,438
Navistar Financial Owner Trust
1997-B, 5.72%, 11/15/98........... 13,535,708 13,533,593
-----------
Total Asset-Backed Securities 219,937,484
-----------
Commercial Paper - Domestic (30.0%)
Bankers Trust New York Corp.,
5.58%, 09/23/98................... 7,000,000 6,713,560
Bridgestone Firestone Master Trust,
Inc., 6.15%, 01/28/98++++...........6,800,000 6,800,000
BT Alex Brown, Inc., 5.64%, 07/13/98 7,000,000 6,789,440
Citicorp, 6.50%, 01/02/98........... 9,705,000 9,705,000
Cooperative Assoc. of Tractor
Dealers, Inc., 5.60%, 03/13/98.... 3,100,000 3,065,156
Cooperative Assoc. of Tractor
Dealers, Inc., 5.75%, 03/05/98.... 1,100,000 1,088,967
Cooperative Assoc. of Tractor
Dealers, Inc., 5.76%, 03/04/98.... 2,000,000 1,980,260
Cooperative Assoc. of Tractor
Dealers, Inc., 5.80%, 03/16/98.... 2,500,000 2,470,675
Cooperative Assoc. of Tractor
Dealers, Inc., 5.80%, 03/17/98.... 2,000,000 1,976,220
Cooperative Assoc. of Tractor
Dealers, Inc., 5.85%, 02/13/98.... 12,100,000 12,017,418
Commercial Paper - Domestic (continued)
Cooperative Assoc. of Tractor
Dealers, Inc., 5.95%, 01/06/98.... $2,000,000 $1,998,678
Corporate Asset Funding Co., Inc.,
5.60%, 04/09/98................... 6,000,000 5,909,467
Corporate Asset Funding Co., Inc.,
5.75%, 02/27/98++.................. 6,000,000 5,946,333
Countrywide Home Loans, Inc.,
6.50%, 01/05/98................... 2,000,000 1,998,917
Countrywide Home Loans, Inc.,
6.50%, 01/08/98................... 1,300,000 1,298,592
Countrywide Home Loans, Inc.,
6.60%, 01/05/98................... 6,000,000 5,996,700
Countrywide Home Loans, Inc.,
7.25%, 01/08/98................... 1,700,000 1,697,946
CSW Credit, Inc., 5.70%, 02/04/98... 8,200,000 8,157,155
CSW Credit, Inc., 5.87%, 02/26/98... 3,000,000 2,973,096
Dealers Capital Access Trust, Inc.,
5.73%, 03/04/98................... 6,500,000 6,435,650
Dealers Capital Access Trust, Inc.,
5.85%, 01/26/98................... 5,000,000 4,980,500
EG&G, Inc., 6.00%, 01/14/98++,++++.. 5,000,000 4,990,000
Finova Capital Corp., 5.60%,
01/29/98.......................... 3,000,000 2,987,400
Finova Capital Corp., 5.60%,
03/04/98.......................... 3,620,000 3,583,981
Finova Capital Corp., 5.60%,
04/13/98.......................... 5,000,000 4,919,200
Finova Capital Corp., 5.68%,
06/24/98.......................... 9,000,000 8,754,750
Finova Capital Corp., 5.70%,
04/28/98.......................... 3,500,000 3,435,355
Finova Capital Corp., 5.70%,
05/13/98.......................... 6,000,000 5,874,840
Finova Capital Corp., 5.81%,
03/24/98.......................... 1,200,000 1,184,340
Frontier Corp., 6.05%, 01/16/98++... 6,000,000 5,985,883
General Electric Capital Corp.,
5.55%, 02/23/98................... 5,000,000 4,959,917
General Electric Capital Corp.,
5.55%, 02/24/98................... 5,000,000 4,959,146
General Motors Acceptance Corp.,
5.58%, 02/25/98................... 5,000,000 4,958,150
General Signal Corp., 6.25%,
01/21/98++......................... 5,000,000 4,983,507
Jefferson Smurfit Finance Corp.,
5.73%, 02/17/98................... 3,600,000 3,573,642
Jefferson Smurfit Finance Corp.,
5.76%, 03/10/98................... 5,300,000 5,242,760
Jefferson Smurfit Finance Corp.,
5.80%, 01/15/98................... 5,000,000 4,989,528
Jefferson Smurfit Finance Corp.,
5.80%, 03/16/98................... 2,500,000 2,470,575
Jefferson Smurfit Finance Corp.,
6.75%, 01/02/98................... 5,000,000 5,000,000
Republic Industries Funding Corp.,
5.85%, 01/28/98................... 5,000,000 4,978,875
Sears Roebuck Acceptance Corp.,
5.55%, 03/16/98................... 4,000,000 3,952,760
Sheffield Receivables Corp., 5.82%,
01/27/98++......................... 9,000,000 8,963,625
Sheffield Receivables Corp., 5.85%,
02/12/98.......................... 6,000,000 5,960,025
-----------
Total Commercial Paper - Domestic 206,707,989
-----------
26 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
-------- -----------
Commercial Paper - Foreign (6.9%)
Abbey National North America Corp.,
5.55%, 03/10/98...................$10,000,000 $9,892,900
Abbey National North America Corp.,
8.25%, 01/02/98................... 6,000,000 6,000,000
Province of British Columbia,
5.66%, 04/14/98................... 15,000,000 14,758,500
Svenska Handelsbanken, Inc., 5.55%,
03/02/98.......................... 5,000,000 4,952,300
Xerox Mexicana S.A. de C.V., 5.77%,
01/28/98.......................... 5,500,000 5,477,080
Xerox Mexicana S.A. de C.V., 5.84%,
02/09/98.......................... 5,000,000 4,969,178
Xerox Mexicana S.A. de C.V., 5.85%,
02/11/98.......................... 1,700,000 1,688,950
-----------
Total Commercial Paper - Foreign 47,738,908
-----------
Corporate Notes (10.5%)
BankBoston Corp., 5.82%, 06/10/98... 5,000,000 5,000,400
Bankers Trust New York Corp.,
6.23%, 02/13/98++.................. 19,000,000 19,000,000
First National Bank Commerce,
5.68%, 07/31/98................... 30,000,000 29,991,000
First National Bank of Boston,
6.03%, 12/10/98................... 7,500,000 7,499,700
First USA Bank, 5.75%, 01/15/99..... 3,000,000 2,992,500
GMAC International Finance, 5.94%,
09/11/98.......................... 4,700,000 4,700,470
PNC Bank NA, 5.62%, 02/20/98........ 3,300,000 3,299,730
-----------
Total Corporate Notes 72,483,800
-----------
Medium-Term Notes (16.9%)
AmSouth Bank of Alabama, 5.85%,
10/15/98.......................... 30,000,000 29,976,599
AVCO Financial Services, Inc.,
5.87%, 03/31/98................... 14,000,000 13,995,379
Chrysler Financial Corp., 5.65%,
01/30/98.......................... 4,000,000 3,999,316
Chrysler Financial Corp., 5.66%,
01/16/98.......................... 6,200,000 6,199,476
Chrysler Financial Corp., 5.70%,
01/12/98.......................... 6,500,000 6,499,739
Chrysler Financial Corp., 7.26%,
07/01/98.......................... 2,500,000 2,516,200
Ciesco L.P., 5.70%, 02/10/98++....... 9,000,000 8,999,904
Countrywide Funding Corp., 6.16%,
01/26/98.......................... 5,100,000 5,101,213
General Motors Acceptance Corp.,
5.90%, 04/09/98................... 7,800,000 7,803,822
General Motors Acceptance Corp.,
6.22%, 04/13/98................... 10,500,000 10,503,150
PHH Corp., 5.69%, 08/04/98.......... 21,000,000 20,993,489
-----------
Total Medium-Term Notes 116,588,287
-----------
U.S. Government and Agency Obligations
(3.5%)
Federal Home Loan Bank, 5.90%,
04/27/98.......................... 20,000,000 20,000,000
U.S. Treasury Note, 5.88%, 02/28/99. 4,000,000 4,011,720
-----------
Total U.S. Government and Agency Obligations 24,011,720
-----------
TOTAL INVESTMENTS (cost $687,441,929)(a) 687,468,188
Other assets less liabilities 1,287,560
-------------
Total Net Assets $688,755,748
=============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at December 31,
1997, are as follows:
Unrealized gains .................... $ 83,526
Unrealized losses ................... (57,267)
-----------
Net unrealized gain ............... $ 26,259
===========
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
++++ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Trustees. See Note 2D of Notes to
Financial Statements.
Category percentages are based on net assets.
See Notes to Financial Statements. 27
<PAGE>
Investment Advisers
Portfolio of Investments
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
COMMON STOCKS (55.8%)
Aerospace and Defense (0.4%)
AAR Corp........................... 14,100 $ 546,375
General Dynamics Corp.............. 6,600 570,488
Lockheed Martin Corp............... 19,100 1,881,350
Northrop Grumman Corp.............. 6,200 713,000
Raytheon Co........................ 23,800 1,201,909
Thiokol Corp....................... 5,500 446,875
United Technologies Corp........... 23,700 1,725,656
------------
7,085,653
------------
Agriculture (0.0%)
Pioneer Hi-Bred International, Inc. 6,700 718,575
------------
Apparel (0.3%)
Candie's, Inc.+.................... 68,500 402,438
Gap, Inc........................... 54,600 1,934,888
Liz Claiborne, Inc................. 12,100 505,931
Nike, Inc., Class B................ 10,900 427,825
North Face, Inc. (The)+............ 21,100 464,200
Reebok International Ltd.+......... 4,200 121,013
Wolverine World Wide, Inc.......... 27,300 617,663
------------
4,473,958
------------
Auto Parts and Accessories (0.4%)
Arvin Industries, Inc.............. 22,100 736,206
Cooper Tire & Rubber Co............ 8,200 199,875
Dana Corp.......................... 15,400 731,500
Dollar Thrifty Automotive Group,
Inc.+............................ 21,600 442,800
Echlin, Inc........................ 5,900 213,506
Federal-Mogul Corp................. 13,100 530,550
Genuine Parts Co................... 18,700 634,631
Goodyear Tire & Rubber Co. (The)... 21,700 1,380,663
Motorcar Parts and
Accesories, Inc.+................ 25,100 420,425
Standard Motor Products, Inc....... 20,800 469,300
TRW, Inc........................... 12,500 667,188
------------
6,426,644
------------
Autos and Auto Equipment (1.2%)
Budget Group, Inc., Class A+....... 10,400 359,450
Chrysler Corp...................... 69,800 2,456,088
Excel Industries, Inc.............. 23,900 431,694
Ford Motor Co...................... 158,800 7,731,574
General Motors Corp................ 71,400 4,328,625
Intermet Corp...................... 68,000 1,190,000
Kaydon Corp........................ 30,000 978,750
PACCAR, Inc........................ 12,600 661,500
SPX Corp........................... 16,500 1,138,500
Tower Automotive, Inc.+............ 20,000 841,250
Wynn's International, Inc.......... 7,650 243,844
------------
20,361,275
------------
Banks (4.4%)
Banc One Corp...................... 54,400 2,954,600
Bank of New York Co., Inc.......... 38,000 2,196,875
Banks (continued)
BankAmerica Corp................... 126,200 $ 9,212,599
BankBoston Corp.................... 15,800 1,484,213
Barnett Banks, Inc................. 26,200 1,883,125
BB&T Corp.......................... 13,800 884,063
Charter One Financial, Inc......... 17,676 1,115,798
CitFed Bancorp, Inc................ 3,750 146,250
Citicorp........................... 47,100 5,955,205
City National Corp................. 22,300 823,706
Comerica, Inc...................... 14,900 1,344,725
Community First Bankshares, Inc.... 31,000 1,650,750
Countrywide Credit Industries, Inc. 11,100 471,051
Cullen/Frost Bankers, Inc.......... 27,900 1,693,181
Fifth Third Bancorp................ 16,000 1,308,000
First Chicago NBD Corp............. 29,500 2,463,250
First Republic Bank+............... 5,300 169,269
First Savings Bank of Washington
Bancorp, Inc..................... 15,200 418,000
First Union Corp................... 63,300 3,244,125
Flushing Financial Corp............ 21,300 508,538
Golden State Bancorp, Inc.+........ 17,900 669,013
HUBCO, Inc......................... 40,314 1,577,285
Huntington Bancshares.............. 18,700 673,200
Imperial Bancorp+.................. 39,600 1,952,775
KeyCorp............................ 22,200 1,572,038
Mellon Bank Corp................... 35,900 2,176,438
NationsBank Corp................... 75,062 4,564,708
North Fork Bancorp, Inc............ 54,770 1,838,218
Norwest Corp....................... 106,900 4,129,013
Silicon Valley Bancshares+......... 10,600 596,250
Sovereign Bancorp, Inc............. 40,080 831,660
State Street Corp.................. 25,800 1,501,238
Suntrust Banks, Inc................ 21,600 1,541,700
U.S. Bancorp....................... 24,800 2,776,050
Wachovia Corp...................... 17,600 1,427,800
Washington Mutual, Inc............. 26,100 1,665,506
Wells Fargo & Co................... 3,700 1,255,919
Westamerica Bancorp................ 10,900 1,114,525
------------
71,790,659
------------
Building Materials and Construction (0.4%)
Ameron, Inc........................ 10,300 651,475
Armstrong World Industries, Inc.... 4,200 313,950
Centex Construction Products, Inc.. 18,400 554,300
Centex Corp........................ 12,800 805,600
Interface, Inc..................... 20,000 580,000
Kaufman & Broad Home Corp.......... 22,200 498,113
Masco Corp......................... 11,200 569,800
Oakwood Homes Corp................. 26,400 876,150
Owens Corning...................... 2,800 95,550
Sherwin-Williams Co................ 18,800 521,700
Southdown, Inc..................... 12,600 743,400
Texas Industries, Inc.............. 10,400 468,000
28 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Building Materials and Construction (continued)
Tredegar Industries, Inc........... 7,500 $ 494,063
------------
7,172,101
------------
Chemicals (1.1%)
Air Products and Chemicals, Inc.... 12,500 1,028,125
Carbide/Graphite Group, Inc.+...... 13,900 469,125
Church & Dwight, Inc............... 14,200 398,488
Dexter Corp........................ 17,900 773,056
Dow Chemical Co.................... 22,900 2,324,350
Du Pont (E.I.) de Nemours.......... 117,600 7,063,349
Eastman Chemical Co................ 3,200 190,600
Engelhard Corp..................... 10,600 184,175
FMC Corp.+......................... 3,900 262,519
Geon Co. (The)..................... 20,400 476,850
Great Lakes Chemical Corp.......... 5,600 251,300
Hercules, Inc...................... 9,200 460,575
Morton International, Inc.......... 14,200 488,125
PPG Industries, Inc................ 17,500 999,688
Praxair, Inc....................... 15,700 706,500
Sigma-Aldrich Corp................. 10,100 401,475
W.R. Grace & Co.................... 7,200 579,150
Waters Corp.+...................... 27,000 1,015,875
------------
18,073,325
------------
Commercial Services (0.9%)
American Disposal Services, Inc.+.. 15,600 569,400
Automatic Data Processing, Inc..... 28,900 1,773,738
Big Flower Holdings, Inc.+......... 19,200 463,200
Browning-Ferris Industries, Inc.... 21,300 788,100
Cendant Corp.+..................... 82,891 2,849,394
Daisytek International Corp.+...... 19,000 660,250
Deluxe Corp........................ 8,600 296,700
Dun & Bradstreet Corp.............. 7,200 222,750
Ecolab, Inc........................ 6,700 371,431
Education Management Corp.+........ 22,000 682,000
Electro Rent Corp.+................ 26,000 929,500
First Data Corp.................... 22,000 643,500
H & R Block, Inc................... 5,600 250,950
Ha-Lo Industries, Inc.+............ 16,800 436,800
Hospitality Worldwide Services+.... 28,300 371,438
Mail-Well, Inc.+................... 20,300 822,150
Maximus, Inc.+..................... 11,700 282,994
Renters Choice, Inc.+.............. 25,000 512,500
Service Corp. International........ 26,500 978,844
Wackenhut Corp., Class B........... 31,600 667,550
------------
14,573,189
------------
Computer Software (1.9%)
Adobe Systems, Inc................. 5,200 214,500
Autodesk, Inc...................... 8,600 318,200
Black Box Corp.+................... 13,400 474,025
CHS Electronics, Inc.+............. 22,200 380,175
Cisco Systems, Inc.+............... 102,300 5,703,224
Computer Software (continued)
Computer Associates
International, Inc............... 55,200 $ 2,918,700
Computer Horizons Corp.+........... 17,100 769,500
Computer Sciences Corp.+........... 8,100 676,350
Microsoft Corp.+................... 134,800 17,422,899
Parametric Technology Co.+......... 12,900 611,138
QAD, Inc.+......................... 35,100 443,138
Viasoft, Inc.+..................... 9,500 401,375
------------
30,333,224
------------
Computers and Office Equipment (2.7%)
Bay Networks, Inc.+................ 21,400 547,038
Cabletron Systems, Inc.+........... 6,500 97,500
Compaq Computer Corp............... 138,000 7,788,374
Comverse Technology, Inc.+......... 20,000 780,000
Data General Corp.+................ 6,600 115,088
Dell Computer Corp.+............... 61,500 5,165,999
Digital Equipment Corp.+........... 21,800 806,600
EMC/MASS Corp.+.................... 73,100 2,005,681
Harris Corp........................ 10,800 495,450
HBO & Co........................... 18,500 888,000
Hewlett Packard Co................. 100,400 6,274,999
Ikon Office Solutions, Inc......... 13,400 376,875
International Business
Machines, Inc.................... 98,100 10,257,580
Knoll, Inc.+....................... 22,700 729,238
Pitney Bowes, Inc.................. 20,000 1,798,750
Shelby Williams Industries, Inc.... 30,500 503,250
Silicon Graphics, Inc.+............ 18,900 235,069
Stratus Computer, Inc.+............ 14,000 529,375
Sun Microsystems, Inc.+............ 38,700 1,543,163
Unisys Corp.+...................... 31,800 441,225
Xerox Corp......................... 32,900 2,428,431
------------
43,807,685
------------
Consumer Products (1.6%)
Action Performance Co., Inc.+...... 16,900 640,088
American Greetings Corp., Class A.. 7,500 293,438
Avon Products, Inc................. 13,000 797,875
Clorox Co.......................... 10,100 798,531
Colgate-Palmolive Co............... 28,600 2,102,100
Dan River, Inc.+................... 21,000 345,188
Equity Corporation International+.. 11,100 256,688
Gillette Co........................ 57,900 5,815,330
Helen of Troy Ltd.+................ 62,200 1,002,975
International Flavors &
Fragrances, Inc.................. 4,300 221,450
Mattel, Inc........................ 30,600 1,139,850
Newell Co.......................... 15,800 671,500
Polaroid Corp...................... 4,900 238,569
Procter & Gamble Co................ 135,500 10,814,593
Rubbermaid, Inc.................... 14,800 370,000
WestPoint Stevens, Inc.+........... 14,000 661,500
------------
26,169,675
------------
29
<PAGE>
Investment Advisers
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Diversified (2.9%)
Aeroquip-Vickers, Inc.............. 3,700 $ 181,531
Allied Signal, Inc................. 56,600 2,203,863
CBS Corp........................... 71,900 2,116,556
Cognizant Corp..................... 16,700 744,194
Cooper Industries, Inc............. 12,700 622,300
Corning, Inc....................... 23,300 865,013
Crane Co........................... 6,000 260,250
Deere & Co......................... 45,800 2,670,713
Dover Corp......................... 22,800 823,650
Eaton Corp......................... 13,900 1,240,575
Fortune Brands, Inc................ 16,800 622,650
General Electric Co................ 331,000 24,287,124
Griffon Corp.+..................... 21,600 315,900
ITT Industries, Inc................ 12,100 379,638
Johnson Controls, Inc.............. 8,700 415,425
Kulicke & Soffa Industries, Inc.+.. 8,800 163,900
MascoTech, Inc..................... 22,600 415,275
Minnesota Mining and Manufacturing
Co............................... 40,900 3,356,356
Raychem Corp....................... 9,000 387,563
Robbins & Myers, Inc............... 14,000 554,750
Rohm & Haas Co..................... 6,400 612,800
Tenneco, Inc....................... 17,800 703,100
Textron, Inc....................... 17,100 1,068,750
Tyco International Ltd............. 54,000 2,433,375
VF Corp............................ 13,000 597,188
------------
48,042,439
------------
Electrical Equipment (0.4%)
ANADIGICS, Inc.+................... 14,800 445,850
Brightpoint, Inc.+................. 31,200 432,900
Brooks Automation, Inc.+........... 14,600 268,275
Electro Scientific Industries,
Inc.+............................ 11,600 440,800
Emerson Electric Co................ 44,800 2,528,400
Encore Wire Corp.+................. 12,600 386,663
Esterline Technologies+............ 12,600 453,600
General Signal Corp................ 5,800 244,688
Jabil Circuit, Inc.+............... 17,200 683,700
Power-One, Inc.+................... 12,800 176,000
Tele-Communications, Inc.+......... 19,000 530,813
------------
6,591,689
------------
Electronics (1.9%)
Advanced Micro Devices, Inc.+...... 14,000 251,125
AMP, Inc........................... 21,500 903,000
Applied Materials, Inc.+........... 69,000 2,078,625
Berg Electronics Corp.+............ 48,000 1,092,000
C.P. Clare Corp.+.................. 37,300 484,900
Cellstar Corp.+.................... 10,900 216,638
CTS Corp........................... 15,600 498,225
Honeywell, Inc..................... 12,900 883,650
Integrated Circuit Systems, Inc.+.. 9,700 276,450
Intel Corp......................... 155,900 10,951,974
Electronics (continued)
KLA Instruments Corp.+............. 14,800 $ 571,650
LeCroy Corp.+...................... 14,300 432,575
LSI Logic Corp.+................... 7,000 138,250
Motorola, Inc...................... 62,000 3,537,875
National Semiconductor Corp.+...... 25,900 671,781
Perkin-Elmer Corp.................. 4,600 326,888
Phototronics, Inc.+................ 16,600 402,550
Plexus Corp.+...................... 17,600 261,800
Rockwell International Corp........ 21,000 1,097,250
Sanmina Corp.+..................... 11,600 785,900
SpeedFam International, Inc.+...... 12,700 336,550
Symbol Technologies, Inc........... 21,150 798,413
Technitrol, Inc.................... 48,000 1,440,000
Tektronix, Inc..................... 7,200 285,750
Texas Instruments, Inc............. 39,500 1,777,500
Thomas & Betts Corp................ 5,500 259,875
Veeco Instruments, Inc. +.......... 9,000 198,000
------------
30,959,194
------------
Financial Services (4.5%)
Affiliated Managers Group, Inc.+... 10,000 290,000
Ahmanson (H. F.) & Co.............. 16,200 1,084,388
ALBANK Financial Corp.............. 13,100 673,831
American Express Co................ 65,200 5,819,099
Bankers Trust New York Corp........ 10,200 1,146,863
Beneficial Corp.................... 5,400 448,875
Charles Schwab Corp................ 26,850 1,126,022
Chase Manhattan Corp............... 42,200 4,620,900
Conning Corp.+..................... 19,500 326,625
Corestates Financial Corp.......... 20,000 1,601,250
Duff & Phelps Credit Rating Co..... 7,600 308,750
Equifax, Inc....................... 6,000 212,625
Federal Home Loan Mortgage Corp.... 70,300 2,948,206
Federal National Mortgage
Association...................... 151,200 8,627,849
FIRSTPLUS Financial Group, Inc.+... 13,700 525,738
Fleet Financial Group, Inc......... 25,700 1,925,894
Golden West Financial Corp......... 10,300 1,007,469
Great Financial Corp............... 27,200 1,387,200
Green Tree Financial Corp.......... 18,900 494,944
Household International, Inc....... 11,200 1,428,700
J.P. Morgan & Co................... 16,300 1,839,863
MBNA Corp.......................... 50,650 1,383,378
Medallion Financial Corp........... 21,600 475,200
Merrill Lynch & Co., Inc........... 50,700 3,697,931
MGIC Investment Corp............... 20,800 1,383,200
Morgan Stanley, Dean Witter,
Discover & Co.................... 111,400 6,586,524
National City Corp................. 21,000 1,380,750
Ocwen Financial Corp.+............. 21,800 554,538
Peoples Heritage Financial Group... 10,400 478,400
PNC Bank Corp...................... 31,700 1,808,881
Provident Financial Group, Inc..... 14,550 705,675
30 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Financial Services (continued)
Providian Financial Corp........... 9,700 $ 438,319
Quick & Reilly Group, Inc.......... 25,650 1,102,950
Republic New York Corp............. 8,000 913,500
Ryland Group, Inc.................. 25,200 595,350
St. Paul Co., Inc.................. 8,400 689,325
SunAmerica, Inc.................... 25,300 1,081,575
Synovus Financial Corp............. 18,100 592,775
Transamerica Corp.................. 6,600 702,900
Travelers Group, Inc............... 212,550 11,451,130
Webster Financial Corp............. 11,600 771,400
------------
74,638,792
------------
Foods and Beverages (3.0%)
Anheuser-Busch Co., Inc............ 19,800 871,200
Archer-Daniels-Midland Co.......... 22,100 479,294
Brown-Forman Corp., Class B........ 7,000 386,750
Campbell Soup Co................... 46,200 2,685,375
Canandaigua Wine Co., Inc., Class
A+............................... 12,100 670,038
Coca-Cola Co....................... 237,000 15,790,124
Conagra, Inc....................... 47,700 1,565,156
Coors (Adolph) Co.................. 5,000 166,250
CPC International, Inc.+........... 13,800 1,486,950
Earthgrains Co..................... 13,200 620,400
Fleming Companies, Inc............. 3,600 48,375
General Mills, Inc................. 16,000 1,146,000
Heinz (H.J.) Co.................... 37,000 1,880,063
Hershey Foods Corp................. 15,400 953,838
Kellogg Co......................... 39,500 1,960,188
Kroger Co. (The)+.................. 25,900 956,681
Lance, Inc......................... 27,800 731,488
Michael Foods, Inc................. 23,800 580,125
PepsiCo, Inc....................... 155,900 5,680,605
Quaker Oats Co..................... 14,800 780,700
Quality Food Centers, Inc.+........ 12,800 857,600
Ralston-Ralston Purina Group....... 4,300 399,631
Sara Lee Corp...................... 47,200 2,657,950
Suiza Foods Corp.+................. 7,400 440,763
Supervalu, Inc..................... 8,200 343,375
Sysco Corp......................... 12,600 574,088
Unilever N.V....................... 64,200 4,008,488
Wrigley (Wm) Jr. Co................ 9,300 739,931
------------
49,461,426
------------
Health Services (0.3%)
Alpharma, Inc. Class A............. 21,800 474,150
Healthdyne Technologies, Inc.+..... 28,000 570,500
HEALTHSOUTH Corp.+................. 40,400 1,121,100
Humana, Inc.+...................... 15,400 319,550
Manor Care, Inc.................... 6,700 234,500
Tenet Healthcare Corp.+............ 31,000 1,026,875
United Healthcare Corp............. 18,400 914,250
Universal Health Services, Inc.+... 15,100 760,663
------------
5,421,588
------------
Home Furnishings and Appliances (0.3%)
American Homestar Corp.+........... 35,700 $ 589,050
Carlisle Co., Inc.................. 29,000 1,239,750
Chicago Miniature Lamp, Inc.+...... 14,200 479,250
Ethan Allen Interiors, Inc......... 16,300 628,569
La-Z-Boy, Inc...................... 11,900 513,188
Mohawk Industries, Inc.+........... 37,050 812,784
Triangle Pacific Corp.+............ 15,500 525,063
------------
4,787,654
------------
Hotels and Restaurants (0.5%)
Bob Evans Farms, Inc............... 24,500 542,063
CKE Restaurants, Inc............... 20,400 859,350
Darden Restaurants, Inc............ 14,700 183,750
Hilton Hotels Corp................. 23,800 708,050
ITT Corp.+......................... 11,700 969,638
Landry's Seafood Restaurants, Inc.+ 16,800 403,200
Marriott International, Inc........ 12,400 858,700
McDonald's Corp.................... 27,600 1,317,900
Rio Hotel and Casino, Inc.+........ 15,800 331,800
Ruby Tuesday, Inc.+................ 19,200 494,400
Showbiz Pizza Time, Inc.+.......... 21,200 487,600
Signature Resorts, Inc.+........... 16,800 367,500
Tricon Global Restaurants, Inc.+... 15,680 455,700
Wendy's International, Inc......... 11,600 279,125
------------
8,258,776
------------
Household Appliances (0.1%)
Maytag Corp........................ 10,400 388,050
Whirlpool Corp..................... 7,400 407,000
------------
795,050
------------
Insurance (3.0%)
Alfa Corp.......................... 9,800 169,050
Allstate Corp...................... 60,800 5,525,199
American Annuity Group, Inc........ 21,200 466,400
American Bankers Insurance Group... 24,200 1,111,688
American General Corp.............. 25,200 1,362,375
American International Group, Inc.. 99,350 10,804,312
Aon Corp........................... 16,800 984,900
Capital RE Corp.................... 18,700 1,160,569
Chartwell Re Corp.................. 14,000 472,500
Chubb Corp......................... 17,200 1,300,750
CIGNA Corp......................... 10,000 1,730,625
Cincinnati Financial Corp.......... 5,600 788,200
CMAC Investment Corp............... 24,000 1,449,000
Conseco, Inc....................... 30,000 1,363,125
Enhance Financial Services Group,
Inc.............................. 8,600 511,700
ESG Re Ltd.+....................... 13,600 319,600
Executive Risk, Inc................ 8,900 621,331
FBL Financial Group, Inc........... 9,100 365,138
Fidelity National Financial, Inc... 20,790 647,089
Fremont General Corp............... 17,000 930,750
General Re Corp.................... 8,200 1,738,400
31
<PAGE>
Investment Advisers
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Insurance (continued)
Hartford Financial Services
Group, Inc....................... 16,200 $ 1,515,713
Horace Mann Educators Corp......... 46,400 1,319,500
Jefferson-Pilot Corp............... 7,400 576,275
Life Re Corp....................... 10,100 658,394
Lincoln National Corp.............. 10,300 804,688
Marsh & McLennan Co., Inc.......... 17,400 1,297,388
MBIA, Inc.......................... 8,900 594,631
Mutual Risk Management Ltd......... 17,700 529,894
Orion Capital Corp................. 30,800 1,430,275
Progressive Corp................... 7,500 899,063
Protective Life Corp............... 9,600 573,600
Safeco Corp........................ 13,100 638,625
Selective Insurance Group, Inc..... 35,400 955,800
Stirling Cooke Brown Holdings Ltd.+ 5,300 129,850
Torchmark Corp..................... 25,200 1,059,975
UNUM Corp.......................... 12,300 668,813
USF&G Corp......................... 11,400 251,513
Vesta Insurance Group, Inc......... 11,800 700,625
------------
48,427,323
------------
Machinery and Equipment (1.2%)
Advanced Energy Industries, Inc.+.. 20,400 304,725
Applied Industrial Technologies,
Inc.............................. 8,300 222,025
Applied Power, Inc................. 9,700 669,300
Black & Decker Corp................ 4,900 191,406
Brunswick Corp..................... 10,200 309,188
Case Corp.......................... 9,800 592,288
Caterpillar, Inc................... 70,000 3,399,375
Cognex Corp.+...................... 28,500 776,625
Cooper Cameron Corp.+.............. 14,400 878,400
Cummins Engine Company, Inc........ 6,800 401,625
Denison International Plc+......... 32,300 557,175
Fluor Corp......................... 3,500 130,813
Grainger (W. W.), Inc.............. 5,100 495,656
Harnischfeger Industries, Inc...... 4,900 173,031
Hughes Supply, Inc................. 20,550 717,966
Illinois Tool Works, Inc........... 35,500 2,134,438
Ingersoll-Rand Co.................. 30,050 1,217,025
Kuhlman Corp....................... 14,100 551,663
Manitowoc Co., Inc. (The).......... 10,400 338,000
Millipore Corp..................... 4,300 145,931
Oceaneering International, Inc.+... 32,000 632,000
Parker-Hannifin Corp............... 20,700 949,613
Snap-On, Inc....................... 8,500 370,813
Stanley Works...................... 8,900 419,969
Terex Corp.+....................... 24,400 573,400
Thermo Electron Corp.+............. 14,100 627,450
Watts Industries, Inc.............. 19,600 554,925
Zero Corp.......................... 17,300 512,513
------------
18,847,338
------------
Media and Entertainment (0.7%)
Clear Channel Communications, Inc.+ 9,900 $ 786,431
Dover Downs Entertainment, Inc..... 20,500 470,219
Interpublic Group of Co., Inc...... 12,800 637,600
Mirage Resorts, Inc.+.............. 7,100 161,525
Premier Parks, Inc.+............... 12,800 518,400
Steinway Musical Instruments, Inc.+ 20,000 462,500
Time Warner, Inc................... 21,000 1,302,000
Walt Disney Co. (The).............. 64,600 6,399,437
------------
10,738,112
------------
Medical Supplies (0.7%)
Alza Corp.+........................ 6,000 190,875
American Home Products Corp........ 67,400 5,156,099
Bard (C.R.), Inc................... 5,400 169,088
Baxter International, Inc.......... 28,800 1,452,600
Biomet, Inc........................ 11,500 294,688
Cooper Companies, Inc.+............ 14,200 580,425
Guidant Corp....................... 14,700 915,075
Medtronic, Inc..................... 45,000 2,354,063
Warner Chilcott Laboratories+...... 8,700 107,663
------------
11,220,576
------------
Metals and Mining (0.6%)
Alcan Aluminum Ltd................. 23,200 640,900
Allegheny Teledyne, Inc............ 18,600 481,275
Aluminum Co. of America............ 19,400 1,365,275
Amcol International Corp........... 37,800 600,075
Armco, Inc.+....................... 84,700 418,206
Barrick Gold Corp.................. 15,100 281,238
Bethlehem Steel Corp.+............. 18,100 156,113
Freeport-McMoRan Copper & Gold,
Inc.............................. 7,900 124,425
Inland Steel Industries, Inc....... 7,900 135,288
Ispat International+............... 12,100 261,663
Kaynar Technologies, Inc.+......... 12,300 350,550
Kennametal, Inc.................... 10,400 538,850
Maverick Tube Corp.+............... 13,900 351,844
Mueller Industries, Inc.+.......... 19,400 1,144,600
Nucor Corp......................... 9,100 439,644
Oregon Steel Mills, Inc............ 8,100 172,631
Phelps Dodge Corp.................. 6,000 373,500
Reynolds Metals Co................. 7,600 456,000
Steel Dynamics, Inc.+.............. 22,300 356,800
Timken Co.......................... 10,800 371,250
Titanium Metals Corp.+............. 14,900 430,238
USX-US Steel Group, Inc............ 14,100 440,625
------------
9,890,990
------------
Oil and Gas (5.0%)
Amoco Corp......................... 49,300 4,196,663
Apache Corp........................ 8,400 294,525
Ashland Oil, Inc................... 12,300 660,356
Atlantic Richfield Co.............. 33,600 2,692,200
Baker Hughes, Inc.................. 14,500 632,563
32 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Oil and Gas (continued)
Bayard Drilling Technologies, Inc.+ 12,600 $ 204,750
Burlington Resources, Inc.......... 16,900 757,331
Cal Dive International, Inc.+...... 15,000 367,500
Chevron Corp....................... 66,500 5,120,499
Cliffs Drilling Co.+............... 9,300 463,838
Coflexip SA........................ 8,400 466,200
Columbia Gas System, Inc........... 5,800 455,663
Consolidated Natural Gas Co........ 9,300 562,650
Devon Energy Corp.................. 11,300 435,050
Dresser Industries, Inc............ 17,400 729,713
Enron Corp......................... 30,300 1,259,344
Exxon Corp......................... 248,700 15,217,330
Friede Goldman International, Inc.+ 16,600 495,925
Global Industries Ltd.+............ 48,600 826,200
Grey Wolf, Inc.+................... 82,300 442,363
Halliburton Co..................... 48,100 2,498,194
Helmerich & Payne, Inc............. 22,200 1,506,825
Houston Exploration Co. (The)+..... 28,300 520,013
Input/Output, Inc.+................ 17,000 504,688
Laclede Gas Co..................... 24,100 676,306
McDermott International, Inc....... 5,400 197,775
Mitcham Industries, Inc.+.......... 21,600 394,200
Mobil Corp......................... 81,500 5,883,280
Occidental Petroleum Corp.......... 34,300 1,005,419
Oryx Energy Co.+................... 7,400 188,700
Patterson Energy, Inc.+............ 16,400 634,475
Pennzoil Co........................ 5,000 334,063
Phillips Petroleum Co.............. 28,100 1,366,363
Pool Energy Services Co.+.......... 14,200 315,950
Rowan Co., Inc.+................... 14,300 436,150
Royal Dutch Petroleum Co........... 216,400 11,726,174
Santa Fe Energy Resources, Inc. +.. 56,700 637,875
Schlumberger Ltd................... 72,800 5,860,399
SEACOR SMIT Holdings+.............. 11,400 686,850
Sun Company, Inc................... 12,700 534,194
Superior Energy Services, Inc.+.... 20,800 210,600
Swift Energy Co.+.................. 36,960 778,470
Texaco, Inc........................ 63,000 3,425,625
Tuboscope Vetco International
Corp.+........................... 57,400 1,381,188
Union Pacific Resources Group, Inc. 23,100 560,175
Unocal Corp........................ 9,900 384,244
USX-Marathon Group................. 29,300 988,875
Vintage Petroleum, Inc............. 39,000 741,000
Western Atlas, Inc.+............... 3,900 288,600
Williams Co., Inc. (The)........... 31,400 890,975
------------
81,838,308
------------
Paper and Containers (0.6%)
Aptargroup, Inc.................... 9,200 510,600
Avery Dennison Corp................ 12,100 541,475
Bemis Co., Inc..................... 5,500 242,344
Champion International Corp........ 9,600 435,000
Paper and Containers (continued)
Fort James Corp.................... 18,700 $ 715,275
Georgia-Pacific Corp............... 13,200 801,900
Georgia-Pacific Corp. (Timber)+.... 13,200 299,475
International Paper Co............. 12,200 526,125
Kimberly-Clark Corp................ 52,600 2,593,838
Mead Corp.......................... 10,200 285,600
Owens-Illinois, Inc.+.............. 22,600 857,388
Pope & Talbot, Inc................. 24,000 361,500
Union Camp Corp.................... 9,900 531,506
Wausau-Mosinee Paper Corp.......... 26,040 524,055
Westvaco Corp...................... 10,600 333,238
------------
9,559,319
------------
Pharmaceuticals (4.1%)
Abbott Laboratories................ 77,500 5,081,093
Amgen, Inc.+....................... 10,600 573,725
Becton, Dickinson & Co............. 12,600 630,000
Bristol-Myers Squibb Co............ 100,600 9,519,274
Cardinal Health, Inc............... 11,100 833,888
Eli Lilly & Co..................... 112,200 7,811,924
Intelligent Polymers Ltd.+......... 12,100 267,713
Johnson & Johnson.................. 136,100 8,965,587
Merck & Co., Inc................... 120,400 12,792,499
Pfizer, Inc........................ 131,000 9,767,687
Schering Plough.................... 133,500 8,293,687
Warner Lambert Co.................. 28,200 3,496,800
------------
68,033,877
------------
Printing and Publishing (0.5%)
Bowne & Co., Inc................... 13,900 554,263
Gannett Co., Inc................... 27,000 1,668,938
Knight-Ridder, Inc................. 9,100 473,200
McGraw-Hill Co., Inc............... 14,000 1,036,000
Meredith Corp...................... 20,000 713,750
Merrill Corp....................... 34,800 809,100
New York Times Co.................. 13,500 892,688
RR Donnelley & Sons Co............. 14,400 536,400
Times Mirror Co.................... 9,800 602,700
Tribune Co......................... 9,000 560,250
Valassis Communications, Inc.+..... 24,500 906,500
------------
8,753,789
------------
Real Estate Investment Trusts (0.6%)
AMB Property Corp.................. 15,800 396,975
American Health Properties, Inc.... 18,000 496,125
Apartment Investment &
Management Co.................... 17,400 639,450
Bay Apartment Communities, Inc..... 8,600 335,400
BRE Properties, Inc., Class A...... 13,000 365,625
Capstead Mortgage Corp............. 17,700 352,894
CBL & Associates Properties, Inc... 14,800 365,375
Developers Diversified Realty Corp. 10,300 393,975
Duke Realty Investments, Inc....... 25,800 625,650
Eastgroup Properties, Inc.......... 23,100 499,538
33
<PAGE>
Investment Advisers
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Real Estate Investment Trusts (continued)
Equity Inns, Inc................... 32,200 $ 474,950
Essex Property Trust, Inc.......... 14,200 497,000
Fairfield Communities, Inc.+....... 18,250 805,281
General Growth Properties.......... 12,800 462,400
Health Care REIT, Inc.............. 13,100 368,438
Healthcare Realty Trust, Inc....... 18,400 532,450
Imperial Credit Mortgage Holdings.. 28,600 511,225
INMC Mortgage Holding, Inc......... 36,000 843,750
Koger Equity, Inc.................. 15,800 346,613
National Golf Properties, Inc...... 11,500 377,344
Security Capital Group, Inc.+...... 5,200 169,000
------------
9,859,458
------------
Retail (3.1%)
Albertson's, Inc................... 25,300 1,198,588
American Stores Co................. 27,400 563,413
Arbor Drugs, Inc................... 29,250 541,125
AutoZone, Inc.+.................... 15,900 461,100
Buckle, Inc. (The)+................ 20,700 708,975
Carson Pirie Scott & Co.+.......... 21,200 1,062,650
Costco Companies, Inc.+............ 38,900 1,735,913
CVS Corp........................... 17,900 1,146,719
Dayton Hudson Corp................. 52,700 3,557,250
Dillards, Inc., Class A............ 11,600 408,900
Federated Department Stores, Inc.+. 29,500 1,270,344
Fingerhut Companies, Inc........... 25,100 536,513
Footstar, Inc.+.................... 17,500 470,313
Fred's, Inc........................ 5,400 110,700
Goody's Family Clothing, Inc.+..... 21,100 573,656
Hasbro, Inc........................ 13,300 418,950
Home Depot, Inc.................... 73,800 4,344,975
Hot Topic, Inc.+................... 17,500 398,125
Inacom Corp.+...................... 29,800 836,263
J.C. Penney Co., Inc............... 10,400 627,250
Kmart Corp.+....................... 51,000 589,688
Lazare Kaplan International, Inc.+. 20,000 270,000
Linens 'n Things, Inc.+............ 15,500 676,188
Lowe's Co., Inc.................... 17,400 829,763
Mac Frugal's Bargains+............. 15,200 625,100
May Department Stores Co........... 17,300 911,494
Mens Wearhouse, Inc.+.............. 24,400 847,900
Mercantile Stores Co., Inc......... 3,400 206,975
Microage, Inc.+.................... 19,300 290,706
Nordstrom, Inc..................... 7,900 476,963
Pacific Sunwear of California+..... 17,850 527,691
Pier 1 Imports, Inc................ 28,200 638,025
Proffitt's, Inc.+.................. 16,300 463,531
Rite Aid Corp...................... 12,200 715,988
Russ Berrie & Co., Inc............. 23,800 624,750
Sears, Roebuck & Co................ 41,300 1,868,825
Shopko Stores, Inc.+............... 13,800 300,150
Stage Stores, Inc.+................ 14,800 553,150
Retail (continued)
Stein Mart, Inc.+.................. 18,900 $ 505,575
Stride Rite Corp................... 26,100 313,200
Tandy Corp......................... 19,400 748,113
Tech Data Corp.+................... 22,100 859,138
The Limited, Inc................... 26,100 665,550
TJX Companies, Inc................. 70,200 2,413,125
Toys "R" Us, Inc.+................. 28,500 895,969
Wal-Mart Stores, Inc............... 228,200 8,999,637
Walgreen Co........................ 50,700 1,590,713
Williams-Sonoma, Inc.+............. 13,600 569,500
Winn-Dixie Stores, Inc............. 14,600 637,838
Woolworth Corp.+................... 18,500 376,938
------------
50,963,905
------------
Telecommunications (1.2%)
AirTouch Communications, Inc.+..... 49,500 2,057,344
Ameritech Corp..................... 78,000 6,278,999
Associated Group, Inc., Class A+... 10,500 311,063
Davox Corp.+....................... 11,100 362,138
DSC Communications Corp.+.......... 16,200 388,800
Lucent Technologies, Inc........... 64,500 5,151,937
Mobile Telecommunications
Technologies Corp.+.............. 33,400 734,800
Nextlevel Systems, Inc.+........... 14,600 260,975
Northern Telecom Ltd............... 27,200 2,420,800
P-Com, Inc.+....................... 25,300 436,425
Scientific Atlanta, Inc............ 8,100 135,675
Tekelec+........................... 39,400 1,201,700
Vimpel Communications ADR+......... 12,800 456,000
------------
20,196,656
------------
Transportation (1.2%)
Airborne Freight Corp.............. 17,300 1,074,763
Alaska Air Group, Inc.+............ 16,400 635,500
America West Holdings Corp.+....... 33,000 614,625
AMR Corp.+......................... 16,700 2,145,950
Avis Rent A Car, Inc.+............. 12,900 411,994
Avondale Industries, Inc.+......... 28,700 852,031
Burlington Northern Santa Fe Corp.. 16,300 1,514,881
Caliber System, Inc................ 6,400 311,600
Circle International Group, Inc.... 17,300 396,819
CSX Corp........................... 22,200 1,198,800
Delta Air Lines, Inc............... 7,700 916,300
Expeditors International of
Washington, Inc.................. 18,200 700,700
Federal Express Corp.+............. 20,000 1,221,250
Laidlaw, Inc....................... 32,700 445,538
Motivepower Industries, Inc........ 20,400 474,300
Navistar International Corp.+...... 12,500 310,156
Norfolk Southern Corp.............. 40,200 1,238,663
Roadway Express, Inc............... 24,000 531,000
SkyWest, Inc....................... 20,100 595,463
34 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ------------
Transportation (continued)
Southwest Airlines Co.............. 21,750 $ 535,594
Swift Transportation Co., Inc.+.... 16,700 540,663
Trico Marine Services, Inc.+....... 17,800 522,875
U.S. Freightways Corp.............. 18,100 588,250
U.S. Rentals, Inc.+................ 17,700 415,950
US Airways Group, Inc.+............ 13,300 831,250
Werner Enterprises, Inc............ 22,500 461,250
Yellow Corp.+...................... 28,100 706,013
------------
20,192,178
------------
Utilities - Electric (1.4%)
American Electric Power Co......... 12,800 660,800
Baltimore Gas & Electric Co........ 15,300 521,156
Carolina Power & Light Co.......... 15,000 636,563
Central & South West Corp.......... 8,400 227,325
Central Hudson Gas & Electric Co... 28,500 1,250,438
Central Vermont Public Service..... 19,200 292,800
Cinergy Corp....................... 16,900 647,481
Commonwealth Energy System Co...... 30,000 997,500
Consolidated Edison Co. of
New York, Inc.................... 24,300 996,300
Dominion Resources, Inc............ 19,400 825,713
DTE Energy Co...................... 10,400 360,750
Edison International............... 42,300 1,150,031
Entergy Corp....................... 20,000 598,750
FirstEnergy Corp.+................. 15,000 435,000
GPU, Inc........................... 12,500 526,563
Houston Industries, Inc............ 26,300 701,881
IES Industries, Inc................ 16,200 596,363
Interstate Power Co................ 18,000 673,875
KU Energy Corp..................... 27,300 1,071,525
Northern States Power Co........... 7,700 448,525
PacifiCorp......................... 32,300 882,194
Peco Energy Co..................... 15,900 385,575
PG&E Corp.......................... 16,300 496,131
PP&L Resources, Inc................ 17,100 409,331
Public Service Company of New
Mexico........................... 20,500 485,594
Public Service Enterprise
Group, Inc....................... 23,100 731,981
Sierra Pacific Resources........... 30,600 1,147,500
Southern Co........................ 71,000 1,837,125
Texas Utilities Co................. 17,400 723,188
Unicom Corp........................ 21,300 654,975
Union Electric Co.................. 10,600 458,450
Washington Gas Light Co............ 22,400 693,000
------------
22,524,383
------------
Utilities - Oil and Gas (0.3%)
Coastal Corp. (The)................ 15,400 953,838
Energen Corp....................... 15,500 616,125
NICOR, Inc......................... 5,100 215,156
NUI Corp........................... 33,600 963,900
People's Energy Corp............... 22,600 889,875
Piedmont Natural Gas, Inc.......... 8,100 291,094
Utilities - Oil and Gas (continued)
Sonat, Inc......................... 3,400 $ 155,550
Wicor, Inc......................... 21,700 1,007,694
------------
5,093,232
------------
Utilities - Telephone (2.4%)
Alltel Corp........................ 19,700 808,931
AT&T Corp.......................... 163,700 10,026,624
Bell Atlantic Corp................. 78,700 7,161,699
BellSouth Corp..................... 102,300 5,760,768
GTE Corp........................... 94,100 4,916,724
SBC Communications, Inc............ 93,300 6,834,224
Sprint Corp........................ 14,200 832,475
Tellabs, Inc.+..................... 18,800 994,050
U.S. West Communications Group..... 50,000 2,256,250
------------
39,591,745
------------
Total Common Stocks (cost $802,924,811) 915,673,760
------------
PREFERRED STOCKS (0.5%)
Banks (0.3%)
California Federal Preferred
Capital Corp....................... 188,000 4,934,999
------------
Chemicals (0.0%)
Union Carbide Corp................. 12,300 528,131
------------
Utilities - Electric (0.2%)
Duke Energy Corp................... 35,400 1,960,275
FPL Group, Inc..................... 15,000 887,813
------------
2,848,088
------------
Total Preferred Stocks (cost $7,890,012) 8,311,218
------------
Principal
Amount
---------
LONG-TERM BONDS AND NOTES (27.3%)
U.S. Government and Agency Obligations
(12.9%)
Federal Home Loan Mortgage Corp.,
6.00%, 11/15/08.................. $8,200,000 8,094,793
U.S. Treasury Bond, 6.75%, 08/15/26 25,000,000 27,527,405
U.S. Treasury Bond, 7.25%, 05/15/16 18,000,000 20,505,892
U.S. Treasury Note, 5.75%, 09/30/99 20,000,000 20,031,324
U.S. Treasury Note, 5.75%, 10/31/00 87,300,000 87,422,765
U.S. Treasury Note, 6.25%, 07/31/98 35,000,000 35,131,118
U.S. Treasury Note, 6.375%,
03/31/01......................... 12,000,000 12,226,874
------------
Total U.S. Government and Agency
Obligations (cost $202,945,778) 210,940,171
------------
Corporate Bonds (9.9%)
American General Finance, 8.45%,
10/15/09......................... 7,000,000 8,035,999
BCH Cayman Islands Ltd., 7.70%,
07/15/06......................... 13,100,000 13,793,710
Centennial Cellular Corp., 10.13%,
05/15/05......................... 5,550,000 6,035,624
Comcast Cellular, 9.50%, 05/01/07.. 10,000,000 10,449,999
Exide Corp., 10.00%, 04/15/05...... 7,595,000 8,088,674
First Empire Capital Trust II,
8.28%, 06/01/27.................. 7,000,000 7,509,687
35
<PAGE>
Investment Advisers
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------------
Corporate Bonds (continued)
HSBC America, 7.81%, 12/15/26++ ... $12,250,000 $ 12,713,355
Kaman Corp., 6.00%, 03/15/12 ...... 5,961,000 5,901,389
News America Holdings, Inc.,
9.25%, 02/01/13 ................. 9,500,000 11,364,707
Panama (Republic of), 7.88%,
02/13/02++ ...................... 6,200,000 6,013,999
Pitney Bowes Credit Corp., 8.55%,
09/15/09 ........................ 13,100,000 15,446,994
Raytheon Co., 5.87%, 08/15/07 ..... 10,000,000 10,219,649
Riggs Capital Trust, 8.63%,
12/31/26++ ...................... 3,700,000 3,936,911
Rogers Cantel, Inc., 9.38%,
06/01/08 ........................ 6,100,000 6,450,749
Russia-Interest Notes, 6.72%,
12/15/15 ........................ 10,000,000 7,056,249
TCI Communications, Inc., 6.38%,
09/15/99 ........................ 18,000,000 18,000,359
Tenet Healthcare Corp., 7.88%,
01/15/03 ........................ 4,900,000 5,005,790
Tenet Healthcare Corp., 8.00%,
01/15/05 ........................ 2,800,000 2,856,000
Worldcom, Inc., 8.88%, 01/15/06 ... 3,431,000 3,688,325
------------
Total Corporate Bonds (cost $153,060,318) 162,568,169
------------
Foreign and Supranationals (2.8%)
African Development Bank, 8.80%,
09/01/19......................... 7,000,000 8,857,939
APP International Finance, 10.25%,
10/01/00......................... 4,650,000 4,440,750
APP International Finance, 11.75%,
10/01/05......................... 2,800,000 2,646,000
Argent-Global Bond (Republic of
Argentina), 11.38%, 01/30/17..... 5,000,000 5,478,124
Indah Kiat Finance, 10.00%,
07/01/07++........................ 4,650,000 3,813,000
Swire Pacific Ltd., 8.50%,
09/29/04++........................10,000,000 10,401,499
Transport De Gas Del Sur, 7.75%,
12/23/98......................... 4,600,000 4,618,584
United Mexican States Government,
11.38%, 09/15/16................. 4,600,000 5,289,999
------------
Total Foreign and Supranationals (cost
$43,403,353) 45,545,895
------------
Non-Agency Mortgage-Backed Securities
(1.7%)
American Southwest Financial
Securities Corp., 8.00%, 01/18/09 7,723,999 8,443,295
Chase Mortgage Finance, 6.75%,
11/25/09......................... 2,249,474 2,247,674
DLJ Mortgage Acceptance Corp.,
8.10%, 06/18/04.................. 4,650,000 4,572,984
Kidder Peabody Acceptance Corp.,
8.80%, 04/01/07.................. 5,000,000 5,487,499
Merrill Lynch Mortgage Investors,
Inc., 7.56%, 06/15/21............ 7,714,460 7,901,294
------------
Total Non-Agency Mortgage-Backed
Securities (cost $26,121,857) 28,652,746
------------
Total Long-Term Bonds and Notes (cost
$425,531,306) 447,706,981
------------
SHORT-TERM INVESTMENTS (16.2%)
AT&T Capital Corp., Comm. Paper,
6.60%, 01/09/98.................. 19,887,000 19,861,478
Central & South West Corp., Comm.
Paper, 6.75%, 01/09/98++......... 10,000,000 9,986,875
Conagra, Inc., Comm. Paper, 6.30%,
01/06/98......................... 21,960,000 21,944,628
Conagra, Inc., Comm. Paper, 6.40%,
01/05/98......................... 20,000,000 19,989,333
SHORT-TERM INVESTMENTS (continued)
Cooperative Assoc. of Tractor
Dealers, Inc., Comm. Paper,
6.05%, 01/14/98.................. $6,800,000 $ 6,786,287
Cooperative Assoc. of Tractor
Dealers, Inc., Comm. Paper,
6.05%, 01/15/98.................. 7,950,000 7,932,631
Cooperative Assoc. of Tractor
Dealers, Inc., Comm. Paper,
6.25%, 01/16/98.................. 10,225,000 10,200,148
Dakota Certificates - Standard
Credit Card Master Trust 1,
Comm. Paper, 6.00%, 01/07/98++... 30,000,000 29,975,000
Detroit Edison Co., Comm. Paper,
6.29%, 01/22/98.................. 23,000,000 23,000,000
Enron Oil & Gas Co., Comm. Paper,
7.00%, 01/02/98.................. 20,000,000 20,000,000
Houston Industries, Inc., Comm.
Paper, 6.00%, 01/09/98++......... 5,000,000 4,994,167
Occidental Petroleum, Comm. Paper,
6.90%, 01/12/98.................. 15,000,000 14,971,250
Peco Energy Co., Comm. Paper,
6.40%, 01/08/98.................. 20,000,000 19,978,667
Raytheon Co., Comm. Paper, 5.87%,
02/26/98++....................... 10,000,000 9,998,400
Sprint Capital Corp., Comm. Paper,
7.25%, 01/02/98++................ 20,000,000 20,000,000
Textron Financial Corp., Comm.
Paper, 6.25%, 01/05/98........... 10,000,000 9,994,792
Textron Financial Corp., Comm.
Paper, 7.15%, 01/02/98........... 10,999,000 10,999,000
U.S. Treasury Bill, 5.17%,
02/05/98@........................ 4,900,000 4,876,382
------------
Total Short-Term Investments (cost
$265,489,904) 265,489,038
------------
TOTAL INVESTMENTS (cost $1,501,836,033)(a) 1,637,180,997
Other assets less liabilities 4,872,560
---------------
Total Net Assets $1,642,053,557
===============
36 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$1,502,852,433. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains .................. $158,979,439
Unrealized losses ................. (24,650,875)
------------
Net unrealized gain ............. $134,328,564
============
Information concerning open futures contracts at December 31, 1997 is shown
below:
No. of
Long Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- ---------- ---------- -----------
S & P 500 Index
Futures 130 $31,733,081 March 98 $ 87,669
===========
+ Non-income producing security.
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Directors.
@ Security pledged to cover initial margin requirements on open futures
contracts at December 31, 1997.
Category percentages are based on net assets.
See Notes to Financial Statements. 37
<PAGE>
Statements of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income Investment
Variable Fund Shares Encore Fund Advisers Fund
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Assets:
Investments, at market value .................................... $9,133,462,076 $719,531,511 $687,468,188 $1,637,180,997
Cash ............................................................ 377,892 98,960 203,296 668,259
Cash denominated in foreign currencies .......................... 13,997,990 -- -- --
Receivable for:
Dividends and interest ........................................ 11,939,878 9,691,824 2,789,065 8,881,863
Investments sold .............................................. 108,726,349 1,346 -- 9,178,976
Premium options written ....................................... 234,492 -- -- --
Fund shares sold .............................................. 29,936 23,270 2,356 --
Recoverable foreign taxes ..................................... 388,735 -- -- --
Gross unrealized gain on forward foreign currency exchange
contracts ..................................................... 4,436,775 -- -- --
--------------- ------------- ------------- --------------
Total assets ........................................... 9,273,594,123 729,346,911 690,462,905 1,655,910,095
--------------- ------------- ------------- --------------
Liabilities:
Payable for:
Dividends to shareholders ..................................... 544,693 37,695 -- --
Investments purchased ......................................... 60,355,460 41,050,764 -- 7,110,174
Fund shares redeemed .......................................... 18,401,768 3,010,361 1,496,171 5,909,234
Variation margin .............................................. 781 -- -- 6,500
Deferred premiums received on options written, at market value .. 1,436,000 -- -- --
Accrued investment advisory fees ................................ 3,983,518 239,665 150,704 716,060
Accrued administrative services fees ............................ 478,022 47,933 60,282 114,570
Gross unrealized loss on forward foreign currency exchange
contracts ..................................................... 134,387 -- -- --
--------------- ------------- ------------- --------------
Total liabilities ...................................... 85,334,629 44,386,418 1,707,157 13,856,538
--------------- ------------- ------------- --------------
NET ASSETS .................................................... $9,188,259,494 $684,960,493 $688,755,748 $1,642,053,557
=============== ============= ============= ==============
Net assets represented by:
Paid-in capital ................................................. $7,054,762,581 $673,733,207 $654,342,533 $1,253,111,247
Net unrealized gain on investments, options written, open
futures contracts and foreign currency related transactions ... 1,994,790,217 14,562,500 26,259 135,432,633
Undistributed (distributions in excess of) net investment income (4,047,705) 2,498,642 34,446,454 --
Accumulated net realized gain (loss) on investments ............. 142,754,401 (5,833,856) (59,498) 253,509,677
--------------- ------------- ------------- --------------
NET ASSETS .................................................... $9,188,259,494 $684,960,493 $688,755,748 $1,642,053,557
=============== ============= ============= ==============
Capital Shares:
Authorized ...................................................... Unlimited Unlimited Unlimited Two Billion
Par value ....................................................... $ 1.00 $ 1.00 $ 1.00 $ 0.001
Outstanding ..................................................... 273,174,905 53,302,798 51,537,204 102,419,479
Net Asset Value, offering and redemption price per share (net
assets divided by shares outstanding) ......................... $ 33.635 $ 12.850 $ 13.364 $ 16.033
Cost of investments ............................................. $7,143,613,092 $704,969,011 $687,441,929 $1,501,836,033
Cost of cash denominated in foreign currencies .................. $ 14,205,578 -- -- --
</TABLE>
See Notes to Financial Statements.
38
<PAGE>
Statements of Operations
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment
Income Encore Advisers
Variable Fund Shares Fund Fund
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Investment Income:
Dividends ........................................................... $ 123,815,615 $ 360,767 $ -- $ 9,237,014
Interest ............................................................ 44,585,816 43,289,145 36,848,744 44,999,843
--------------- ------------ ------------ -------------
168,401,431 43,649,912 36,848,744 54,236,857
Foreign taxes withheld on dividends ................................. (1,185,101) -- -- (6,842)
--------------- ------------ ------------ -------------
Total investment income .................................... 167,216,330 43,649,912 36,848,744 54,230,015
--------------- ------------ ------------ -------------
Expenses:
Investment advisory fees ............................................ 41,563,182 2,576,345 1,622,840 7,561,696
Administrative services fees ........................................ 4,987,583 515,269 649,136 1,209,871
--------------- ------------ ------------ -------------
Total expenses ............................................. 46,550,765 3,091,614 2,271,976 8,771,567
--------------- ------------ ------------ -------------
Net investment income ............................................... 120,665,565 40,558,298 34,576,768 45,458,448
--------------- ------------ ------------ -------------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ............................................... 1,567,256,013 3,644,569 -- 295,548,817
Closed and expired options ........................................ (9,444,468) -- -- --
Futures and forward foreign currency exchange contracts ........... 40,746,179 -- -- 6,220,225
Foreign currency related transactions ............................. (1,438,872) -- -- --
--------------- ------------ ------------ -------------
Net realized gain on investments ........................... 1,597,118,852 3,644,569 -- 301,769,042
--------------- ------------ ------------ -------------
Net change in unrealized gain or loss on:
Investments ....................................................... 383,725,920 7,019,888 (58,463) (42,194,745)
Written options ................................................... 1,532,874 -- -- --
Open futures and forward foreign currency exchange contracts ...... (1,848,876) -- -- 173,419
Foreign currency related transactions ............................. (149,353) -- -- --
--------------- ------------ ------------ -------------
Net change in unrealized gain or loss on investments ....... 383,260,565 7,019,888 (58,463) (42,021,326)
--------------- ------------ ------------ -------------
Net realized and change in unrealized gain (loss) on investments .... 1,980,379,417 10,664,457 (58,463) 259,747,716
--------------- ------------ ------------ -------------
Net increase in net assets resulting from operations ................ $2,101,044,982 $51,222,755 $34,518,305 $305,206,164
=============== ============ ============ =============
</TABLE>
See Notes to Financial Statements.
39
<PAGE>
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Variable Fund Income Shares
---------------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
--------------- ---------------- -------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income ........................................ $ 120,665,565 $ 126,290,821 $ 40,558,298 $ 41,568,771
Net realized gain on investments ............................. 1,597,118,852 942,130,499 3,644,569 4,197,867
Net change in unrealized gain or loss on investments ......... 383,260,565 311,341,413 7,019,888 (23,388,378)
--------------- -------------- ------------- -------------
Net increase in net assets resulting from operations ....... 2,101,044,982 1,379,762,733 51,222,755 22,378,260
--------------- -------------- ------------- -------------
Distributions to Shareholders:
From net investment income ................................... (130,095,758) (142,295,877) (40,513,113) (41,091,489)
From net realized gains ...................................... (1,737,875,271) (587,939,494) -- --
--------------- -------------- ------------- -------------
Decrease in net assets from distributions to shareholders .. (1,867,971,029) (730,235,371) (40,513,113) (41,091,489)
--------------- -------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold .................................... 322,401,783 157,493,741 54,764,238 20,171,265
Net asset value of shares issued upon reinvestment of
distributions .............................................. 1,867,325,252 730,007,966 40,445,062 41,016,709
Payments for shares redeemed ................................. (188,771,990) (244,305,179) (64,687,878) (65,705,805)
--------------- -------------- ------------- -------------
Net increase (decrease) in net assets from fund share
transactions ............................................. 2,000,955,045 643,196,528 30,521,422 (4,517,831)
--------------- -------------- ------------- -------------
Net change in net assets ..................................... 2,234,028,998 1,292,723,890 41,231,064 (23,231,060)
Net Assets:
Beginning of year ............................................ 6,954,230,496 5,661,506,606 643,729,429 666,960,489
--------------- -------------- ------------- -------------
End of year .................................................. $9,188,259,494 $6,954,230,496 $684,960,493 $643,729,429
=============== ============== ============= =============
End of year net assets includes undistributed (distributions
in excess of) net investment income ........................ $ (4,047,705) $ (116,078) $ 2,498,642 $ 2,453,457
=============== ============== ============= =============
Share Transactions:
Number of shares sold ........................................ 8,739,687 4,987,093 4,174,206 1,561,711
Number of shares issued upon reinvestment of distributions ... 54,916,035 22,399,165 3,169,762 3,242,212
Number of shares redeemed .................................... (5,175,087) (7,542,873) (5,037,165) (5,105,607)
--------------- -------------- ------------- -------------
Net increase (decrease) .................................... 58,480,635 19,843,385 2,306,803 (301,684)
=============== ============== ============= =============
</TABLE>
See Notes to Financial Statements.
40
<PAGE>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Encore Fund Investment Advisers Fund
-------------------------------- ---------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
-------------------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Operations:
Net investment income ........................................ $ 34,576,768 $ 29,048,325 $ 45,458,448 $ 41,234,206
Net realized gain on investments ............................. -- 874 301,769,042 114,927,727
Net change in unrealized gain or loss on investments ......... (58,463) (22,687) (42,021,326) 26,548,475
-------------- -------------- --------------- ---------------
Net increase in net assets resulting from operations ....... 34,518,305 29,026,512 305,206,164 182,710,408
-------------- -------------- --------------- ---------------
Distributions to Shareholders:
From net investment income ................................... (24,537,119) (33,468,844) (105,283,441) (30,353,948)
From net realized gains ...................................... -- -- (109,284,309) (90,460,584)
-------------- -------------- --------------- ---------------
Decrease in net assets from distributions to shareholders .. (24,537,119) (33,468,844) (214,567,750) (120,814,532)
-------------- -------------- --------------- ---------------
Fund Share Transactions:
Proceeds from shares sold .................................... 469,580,959 314,151,025 43,252,366 55,639,226
Net asset value of shares issued upon reinvestment of
distributions .............................................. 24,537,119 33,468,844 214,567,750 120,814,532
Payments for shares redeemed ................................. (428,848,854) (243,708,802) (70,446,645) (70,295,042)
-------------- -------------- --------------- ---------------
Net increase in net assets from fund share transactions .... 65,269,224 103,911,067 187,373,471 106,158,716
-------------- -------------- --------------- ---------------
Net change in net assets ..................................... 75,250,410 99,468,735 278,011,885 168,054,592
Net Assets:
Beginning of year ............................................ 613,505,338 514,036,603 1,364,041,672 1,195,987,080
-------------- -------------- --------------- ---------------
End of year .................................................. $ 688,755,748 $ 613,505,338 $1,642,053,557 $1,364,041,672
============== ============== =============== ===============
End of year net assets includes undistributed net investment
income ..................................................... $ 34,446,455 $ 24,410,184 $ -- $ 12,606,830
============== ============== =============== ===============
Share Transactions:
Number of shares sold ........................................ 35,877,859 23,539,460 2,713,055 3,743,359
Number of shares issued upon reinvestment of distributions ... 1,929,274 2,593,663 13,885,971 8,699,680
Number of shares redeemed .................................... (32,769,382) (18,290,210) (4,406,176) (4,685,746)
-------------- -------------- --------------- ---------------
Net increase ............................................... 5,037,751 7,842,913 12,192,850 7,757,293
============== ============== =============== ===============
</TABLE>
See Notes to Financial Statements.
41
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Fund (Variable Fund), Aetna Income Shares (Income Shares), Aetna
Variable Encore Fund (Encore Fund) and Aetna Investment Advisers Fund, Inc.
(Investment Advisers Fund) are each referred to individually as a Fund, and
collectively as the Funds.
Each Fund is registered under the Investment Company Act of 1940 (the 1940 Act)
as a diversified, open-end management investment company whose shares are
currently sold to Aetna Life Insurance and Annuity Company (ALIAC), an Aetna
Life Insurance Company Separate Account, and in the case of Variable Fund and
Income Shares, to existing shareholders through reinvestment of distributions.
ALIAC's shares are allocated to certain of its variable life/annuity accounts.
At December 31, 1997, ALIAC's separate accounts and affiliates held all of
Encore Fund's and Investment Advisers Fund's shares outstanding and 99.6% and
99.2% respectively, of Variable Fund's and Income Shares' total shares
outstanding.
The following is a brief description of each Fund's investment objective:
Variable Fund seeks to maximize total return through investments in a
diversified portfolio of stocks and securities convertible into common
stock.
Income Shares seeks to maximize total return, consistent with reasonable
risk, through investments in a diversified portfolio consisting primarily
of debt securities.
Encore Fund seeks to provide high current return, consistent with
preservation of capital and liquidity, through investment in high-quality
money market instruments.
Investment Advisers Fund seeks to produce the maximum investment return
consistent with reasonable safety of principal.
ALIAC serves as the Investment Adviser and principal underwriter to each Fund.
ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement Services, Inc.
which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus Investment
Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as the subadviser
to the Funds.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
The accompanying financial statements of the Funds 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 Funds.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter securities,
at the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued using methods approved by the
Board of Trustees/Directors.
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchange at the end
of each day. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
B. Option Contracts
The Funds (except Encore Fund) may purchase and write (sell) put options,
purchase call options and write (sell) covered call options as a hedge against
adverse movements in the value of portfolio holdings or to increase market
exposure.
Option contracts are valued daily and unrealized gains or losses are recorded
based upon the last sales price on the principal exchange on which the options
are traded.
42
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
B. Option Contracts (continued)
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 are adjusted by the amount of premium received or paid. Realized and
unrealized gains or losses on option contracts are reflected in the accompanying
financial statements.
The risk in writing a call option is that the Funds give up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Funds may incur a loss
if the market price of the security decreases and the option is exercised. The
risk in buying an option is that the Funds pay a premium whether or not the
option is exercised. Risks may also arise from an illiquid secondary market or
from the inability of counterparties to meet the terms of the contract.
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 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, a Fund 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 the Fund equal to the daily fluctuation in the
market value of the contract. These amounts are recorded by the Fund as
unrealized gains or losses. When a contract is closed, the Fund 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.
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 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
contracts may exceed the amounts reflected in the financial statements. The
notional amounts 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 included in 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 subject to legal or contractual
restrictions on resale and may not be publicly sold without registration under
the Securities Act of 1933 (1933 Act), under Rule 144A or are securities offered
pursuant to Section 4(2) of the 1933 Act. Each Fund, except Encore Fund, may
invest up to 15% of its total assets in illiquid securities. Encore Fund may
invest up to 10% 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
43
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
D. Illiquid and Restricted Securities (continued)
fair value determined under procedures approved by the Board of
Trustees/Directors. The Funds will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any. Information
regarding illiquid securities held at December 31, 1997, is shown below:
<TABLE>
<CAPTION>
Average % of Net
Security Description Acquisition Dates Par Value Cost Market Value Assets
-------------------- ----------------- --------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Encore Fund:
- ------------
EG&G, Inc., 6.00%, 1/14/98 12/31/97 $5,000,000 99.80 $ 4,990,000 0.7%
Bridgestone Firestone, 6.15%, 01/28/98 12/15/97 6,800,000 100.00 6,800,000 1.0%
Long Lane Trust III Series, 5.78%, 11/02/98 11/06/97 11,300,000 100.00 11,300,000 1.6%
Income Shares:
- --------------
Security Pacific National Bank, 8.50%, 4/25/17 6/11/92, 8/13/91 1,772,954 98.76 1,769,076 0.3%
</TABLE>
E. Delayed Delivery Transactions
The Funds may purchase or sell securities on a when-issued or forward commitment
basis. The price of the underlying securities and date when the securities will
be delivered and paid for are fixed at the time the transaction is negotiated.
The market value of the securities purchased or sold are identified in the
Funds' Portfolio of Investments. Losses may arise due to changes in the market
value of the securities or from the inability of counterparties to meet the
terms of the contract. In accordance with the 1940 Act, a Fund holding
securities purchased on a when-issued or delayed delivery basis will maintain a
segregated account at its custodian containing securities in an amount equal to
the market value of the securities purchased on a when-issued or delayed
delivery basis.
F. Federal Income Taxes
As qualified regulated investment companies, the Funds are relieved of federal
income and excise taxes by distributing all of their net taxable investment
income and capital gains, if any, in compliance with the applicable provisions
of the Internal Revenue Code.
G. Distributions
The Funds distribute all of their net investment income and net capital gains,
if any, to shareholders annually. Distributions from net investment income are
based on taxable net income. Distributions are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of 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.
H. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on the trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, using an effective yield
method over the life of the security. Dividend income and stock splits are
recorded on the ex-dividend date. Realized gains and losses from investment
transactions are determined on an identified cost basis.
3. Investment Advisory and Administrative Services Fees
Each Fund pays the Investment Adviser an annual fee expressed as a percentage of
its average daily net assets. Each Fund's Investment Advisory fee in effect at
December 31, 1997, is shown below:
Variable Fund 0.50%
Encore Fund 0.25%
Income Shares 0.40%
Investment Advisers Fund 0.50%
44
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Services Fees (continued)
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and provides all administrative services necessary for the Funds'
operations and is responsible for the supervision of the Funds' other service
providers. ALIAC also assumes all ordinary, recurring costs of the Funds, such
as custodian fees, trustees'/directors' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at an annual rate expressed as a percentage of the average daily net
assets of each Fund. Each Fund's Administrative Service fee in effect at
December 31, 1997, is shown below:
Variable Fund 0.06%
Encore Fund 0.10%
Income Shares 0.08%
Investment Advisers Fund 0.08%
Under the terms of a Subadvisory Agreement among the Funds, ALIAC and Aeltus,
Aeltus supervises the investment and reinvestment of cash and securities and
provides certain related administrative services to the Funds in exchange for a
fee payable by ALIAC at an annual rate expressed as a percentage of the average
daily net assets of each Fund. Each Fund's Subadvisory fee in effect at December
31, 1997, is shown below:
Variable Fund 0.28%
Encore Fund 0.15%
Income Shares 0.24%
Investment Advisers Fund 0.29%
For the year ended December 31, 1997, ALIAC paid Aeltus $23,193,883, $1,540,855,
$970,030 and $4,370,818 for Variable Fund, Income Shares, Encore Fund and
Investment Advisers Fund, respectively, in accordance with the terms of the
Subadvisory Agreement.
4. Purchases and Sales of Investments
Purchases and sales of investment securities, excluding short-term investments,
for the year ended December 31, 1997 were:
Cost of Purchases Proceeds from Sales
----------------- -------------------
Variable Fund $8,029,448,959 $8,417,184,383
Income Shares 802,657,320 778,458,378
Encore Fund -- --
Investment Advisers Fund 1,421,960,149 1,461,898,771
5. Capital Loss Carryforward
At December 31, 1997, for federal income tax purposes, Income Shares and Encore
Fund had the following capital loss carryforwards:
Capital Loss Carryforward Year of Expiration
------------------------- ------------------
Income Shares $5,833,856 2002
Encore Fund 59,498 2003
The Board of Trustees/Directors will not authorize the distribution of any
realized gains until the above capital loss carryforwards have been offset or
have expired.
6. Options
The following reflects the call and put option activity of Variable Fund for the
year ended December 31, 1997:
Call Options Written
----------------------------------------------
Number of Deferred Premium Realized
Contracts Received Gain (Loss)
--------- -------- -----------
Outstanding December 31, 1996.. 16,661 $28,866,891 $ --
Written..................... 6,890 5,225,907 --
Closed...................... (19,753) (33,279,230) (11,962,904)
Expired..................... (2,100) (409,563) 409,563
Exercised................... (698) (169,513) --
--------- ------------ -------------
Outstanding December 31, 1997.. 1,000 $ 234,492 $(11,553,341)
========= ============ =============
45
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
6. Options (continued)
Put Options Written
---------------------------------------------
Number of Deferred Premium Realized
Contracts Received Gain
--------- -------- ----
Outstanding December 31, 1996..... 2,713 $2,933,064 $ --
Written........................ 3,020 4,311,229 --
Closed......................... (4,513) (5,183,525) 2,108,873
Expired........................ -- -- --
Exercised...................... -- -- --
--------- ----------- -----------
Outstanding December 31, 1997..... 1,220 $2,060,768 $2,108,873
========= =========== ===========
7. Forward Foreign Currency Exchange Contracts
At December 31, 1997, Variable Fund had the following open forward foreign
currency exchange contracts that obligate the Fund to deliver currencies at
specified future dates. The net unrealized gain of $4,302,388 on these contracts
is included in the accompanying financial statements. The terms of the open
contracts are as follows:
Variable
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered December 31, 1997 be Received December 31, 1997 Gain (Loss)
---- ------------- ------------------- ------------ ------------------ -----------
<S> <C> <C> <C> <C> <C>
Contracts to Buy
- ----------------
1/5/98 390,575 $390,575 789,000 $389,337 ($1,238)
U.S. Dollar Dutch Guilder
- -------------------------------------------------------------------------------------------------------------------
1/20/98 468,015 468,015 935,000 461,863 (6,152)
U.S. Dollar Dutch Guilder
- -------------------------------------------------------------------------------------------------------------------
1/14/98 1,101,588 1,101,588 6,542,000 1,088,468 (13,120)
U.S. Dollar French Franc
- -------------------------------------------------------------------------------------------------------------------
1/26/98 815,316 815,316 103,850,000 801,769 (13,547)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
3/17/98 1,342,442 1,342,442 171,940,000 1,336,868 (5,574)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
1/5/98 466,122 466,122 668,000 458,237 (7,885)
U.S. Dollar Swiss Franc
- -------------------------------------------------------------------------------------------------------------------
1/5/98 9,065,925 9,065,925 13,195,000 9,051,564 (14,361)
U.S. Dollar Swiss Franc
- -------------------------------------------------------------------------------------------------------------------
Contracts to Sell
- -----------------
1/20/98 8,143,600 4,022,705 4,163,395 4,163,395 140,690
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/18/98 23,352,000 11,557,002 11,678,386 11,678,386 121,384
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/2/98 8,177,000 1,359,420 1,375,673 1,375,673 16,253
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/14/98 68,334,600 11,369,621 11,661,194 11,661,194 291,573
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/13/98 66,904,300 11,153,530 11,740,209 11,740,209 586,679
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
7. Forward Foreign Currency Exchange Contracts (continued)
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered December 31, 1997 be Received December 31, 1997 Gain (Loss)
---- ------------- ------------------- ------------ ------------------ -----------
Contracts to Sell (continued)
<S> <C> <C> <C> <C> <C>
2/9/98 26,449,000 $14,749,061 14,978,747 $14,978,747 $229,686
German Deutschemark U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
3/5/98 16,431,600 9,177,067 9,335,303 9,335,303 158,236
German Deutschemark U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
1/26/98 3,443,015,000 26,581,621 28,609,454 28,609,454 2,027,833
Japanese Yen U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
2/12/98 1,809,040,000 13,999,936 14,735,431 14,735,431 735,495
Japanese Yen U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
3/17/98 1,602,759,000 12,461,777 12,390,774 12,390,774 (71,003)
Japanese Yen U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
1/5/98 13,532,000 9,282,741 9,393,523 9,393,523 110,782
Swiss Franc U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
1/5/98 331,000 227,061 225,554 225,554 (1,507)
Swiss Franc U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
2/5/98 13,195,000 9,081,836 9,100,000 9,100,000 18,164
Swiss Franc U.S. Dollar
- ---------------------------------------------------------------------------------------------------------------
$4,302,388
=============
</TABLE>
8. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Funds' capital accounts on a
tax basis. These reclassifications have no impact on the net asset value of the
Funds.
Accumulated Net
Undistributed Net Realized Gain (Loss)
Paid-in Capital Investment Income on Investments
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
------------------- ------------------- --------------------
Variable $3,963,619 $ 5,498,566 ($ 9,462,185)
Encore Fund -- (3,379) 3,379
Investment
Advisers Fund (2) 47,218,163 ( 47,218,161)
47
<PAGE>
Variable Fund
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995 + 1994 + 1993 +
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................................. $32.391 $29.055 $26.229 $31.245 $31.602
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ............................................. 0.544 0.651 0.724 0.765 0.822
Net realized and change in unrealized gain (loss) on investments .. 8.939 6.446 7.620 (1.071) 1.287
-------- -------- -------- -------- --------
Total from investment operations ............................ 9.483 7.097 8.344 (0.306) 2.109
-------- -------- -------- -------- --------
Less distributions:
From net investment income ........................................ (0.578) (0.733) (0.723) (0.811) (0.814)
From net realized gains on investments ............................ (7.661) (3.028) (4.795) (3.899) (1.652)
-------- -------- -------- -------- --------
Total distributions ......................................... (8.239) (3.761) (5.518) (4.710) (2.466)
-------- -------- -------- -------- --------
Net asset value, end of year ........................................ $33.635 $32.391 $29.055 $26.229 $31.245
======== ======== ======== ======== ========
Total return* ....................................................... 29.89% 24.46% 32.25% (0.96)% 6.74%
Net assets, end of year (millions) .................................. $9,188 $6,954 $5,662 $4,424 $4,988
Ratio of total expenses to average net assets ....................... 0.56% 0.43% 0.29% 0.30% 0.29%
Ratio of net investment income to average net assets ................ 1.46% 2.02% 2.42% 2.52% 2.57%
Portfolio turnover rate ............................................. 107.01% 85.03% 96.63% 84.27% 25.22%
Average commission rate paid per share on equity securities traded... $0.0397 $0.0418 -- -- --
</TABLE>
* 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 year.
See Notes to Financial Statements.
48
<PAGE>
Income Shares
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995 + 1994 + 1993 +
---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........................... $12.623 $13.001 $11.719 $13.052 $12.759
---------- --------- ---------- --------- ---------
Income from investment operations:
Net investment income ...................................... 0.801 0.844 0.885 0.791 0.854
Net realized and change in unrealized gain (loss) on
investments .............................................. 0.228 (0.387) 1.237 (1.294) 0.365
---------- --------- ---------- --------- ---------
Total from investment operations ..................... 1.029 0.457 2.122 (0.503) 1.219
---------- --------- ---------- --------- ---------
Less distributions:
From net investment income ................................. (0.802) (0.835) (0.840) (0.830) (0.852)
From net realized gains on investments ..................... -- -- -- -- (0.074)
---------- --------- ---------- --------- ---------
Total distributions .................................. (0.802) (0.835) (0.840) (0.830) (0.926)
---------- --------- ---------- --------- ---------
Net asset value, end of year ................................. $12.850 $12.623 $13.001 $11.719 $13.052
========== ========= ========== ========= =========
Total return* ................................................ 8.30% 3.60% 18.24% (3.80)% 9.68%
Net assets, end of year (000's) .............................. $ 684,960 $643,729 $ 666,960 $561,704 $641,429
Ratio of total expenses to average net assets ................ 0.48% 0.39% 0.32% 0.33% 0.31%
Ratio of net investment income to average net assets ......... 6.31% 6.39% 6.97% 6.38% 6.47%
Portfolio turnover rate ...................................... 134.92% 96.41% 113.72% 74.24% 56.37%
</TABLE>
* 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 year.
See Notes to Financial Statements.
49
<PAGE>
Encore Fund
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1997 1996 + 1995 + 1994 + 1993 +
---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......................... $13.194 $13.298 $12.544 $12.535 $12.557
---------- --------- ---------- --------- ---------
Income from investment operations:
Net investment income ..................................... 0.668 0.697 0.755 0.526 0.397
Net realized and change in unrealized gain (loss) on
investments ............................................. 0.027 (0.001) 0.009 (0.022) 0.001
---------- --------- ---------- --------- ---------
Total from investment operations .................... 0.695 0.696 0.764 0.504 0.398
---------- --------- ---------- --------- ---------
Less distributions:
From net investment income ................................ (0.525) (0.800) (0.010) (0.495) (0.420)
---------- --------- ---------- --------- ---------
Total distributions ................................. (0.525) (0.800) (0.010) (0.495) (0.420)
---------- --------- ---------- --------- ---------
Net asset value, end of year ................................ $13.364 $13.194 $13.298 $12.544 $12.535
========== ========= ========== ========= =========
Total return* ............................................... 5.47% 5.37% 6.05% 4.09% 3.19%
Net assets, end of year (000's) ............................. $ 688,756 $613,505 $ 514,037 $483,039 $380,249
Ratio of total expenses to average net assets ............... 0.35% 0.34% 0.30% 0.32% 0.31%
Ratio of net investment income to average net assets ........ 5.34% 5.24% 5.82% 4.16% 3.14%
</TABLE>
* The total return percentage does not reflect any separate account charges
under variable annuity contracts or life policies.
+ Per share data calculated using weighted average number of shares outstanding
throughout the year.
See Notes to Financial Statements.
50
<PAGE>
Investment Advisers Fund
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995 + 1994 + 1993 +
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................................ $15.118 $14.502 $12.226 $12.798 $12.066
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ........................................... 0.499 0.469 0.539 0.480 0.441
Net realized and change in unrealized gain (loss) on investments 2.731 1.585 2.737 (0.532) 0.741
-------- -------- -------- -------- --------
Total from investment operations .......................... 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 .......................... (1.215) (1.088) (0.330) (0.069) (0.010)
-------- -------- -------- -------- --------
Total distributions ....................................... (2.315) (1.438) (1.000) (0.520) (0.450)
-------- -------- -------- -------- --------
Net asset value, end of year ...................................... $16.033 $15.118 $14.502 $12.226 $12.798
======== ======== ======== ======== ========
Total return* ..................................................... 22.49% 15.17% 27.23% (0.35)% 9.90%
Net assets, end of year (millions) ................................ $1,642 $1,364 $1,196 $958 $920
Ratio of total expenses to average net assets ..................... 0.58% 0.45% 0.31% 0.32% 0.31%
Ratio of net investment income to average net assets .............. 3.01% 3.21% 3.96% 3.83% 3.53%
Portfolio turnover rate ........................................... 112.03% 107.80% 141.21% 112.05% 24.71%
Average commission rate paid per share on equity securities traded. $0.0535 $0.0576 -- -- --
</TABLE>
* 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 year.
See Notes to Financial Statements.
51
<PAGE>
Independent Auditors' Report
The Board of Trustees/Directors and Shareholders of Aetna Variable Fund, Aetna
Income Shares, Aetna Variable Encore Fund and Aetna Investment Advisers Fund,
Inc.:
We have audited the accompanying statements of assets and liabilities of Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund and Aetna
Investment Advisers Fund, Inc. (the Funds), including the portfolios of
investments, as of December 31, 1997, and the related statements of operations
for the year then ended, statements of changes in net assets for each of the
years in the two-year period then ended, and financial highlights for each of
the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund and Aetna
Investment Advisers Fund, Inc. as of December 31, 1997, the results of their
operations for the year then ended, changes in their net assets for each of the
years in the two-year period then ended and financial highlights for each of the
years in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
52
<PAGE>
Additional Information
(Unaudited)
- --------------------------------------------------------------------------------
Federal Tax Status of Dividends Declared During the Fiscal Year
During the fiscal year ended December 31, 1997, the funds paid the following
long-term gains distributions:
Total Long-Term Taxable at 28% Taxable at 20%
Distributions
----------------- -------------- --------------
Variable $1,494,364,648 $898,226,169 596,138,479
Investment Advisers Fund 86,702,304 86,702,304 --
The percentage of income dividends that were qualifying dividends for the
corporate dividends received deduction were:
Variable Fund 30.50%
Income Shares 0.89%
Investment Advisers Fund 6.18%
53
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Variable Portfolio
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year Since Inception+
- ------ ------------------------
19.90% 21.85%
<TABLE>
<CAPTION>
- ---------------------------[Aetna Ascent Variable Portfolio Line Chart]-------------------------------------
Jul-95 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Ascent
Variable Portfolio 10,000 10,601 11,045 11,453 12,049 12,654 13,650 13,617 15,103 16,524 16,366
Ascent Index 10,000 10,531 10,949 11,256 11,621 11,921 12,793 12,652 14,036 15,026 14,854
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Aetna Crossroads Variable Portfolio
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year Since Inception+
- ------ ------------------------
17.57% 18.50%
<TABLE>
<CAPTION>
- --------------------------[Aetna Crossroads Variable Portfolio Line Chart]----------------------------------
Jul-95 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Crossroads
Variable Portfolio 10,000 10,532 10,930 11,233 11,739 12,207 12,985 12,995 14,151 15,323 15,268
Crossroads Index 10,000 10,433 10,836 11,031 11,318 11,593 12,302 12,184 13,274 14,064 14,106
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Aetna Legacy Variable Portfolio
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year Since Inception+
- ------ ------------------------
14.50% 14.96%
<TABLE>
<CAPTION>
- --------------------------------[Aetna Legacy Variable Portfolio Line Chart]--------------------------------
Jul-95 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Legacy
Variable Portfolio 10,000 10,451 10,827 11,036 11,403 11,773 12,363 12,347 13,236 14,088 14,156
Legacy Index 10,000 10,334 10,723 10,810 11,021 11,270 11,827 11,729 12,546 13,154 13,223
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 Portfolios commenced investment operations on July 5, 1995.
54 See Definition of Indices.
<PAGE>
How did the Portfolios perform during the period?
Returns for the year ended December 31, 1997, were quite favorable as each of
the three Generation Portfolios (the Funds or Portfolios) outperformed their
relative benchmark indices for the period. These benchmark indices are unmanaged
and are comprised of the seven stock and bond indices listed below in weights
that correspond to the particular benchmark weights for each Portfolio.
- --------------------------------------------------------------------------------
Generation Portfolio Portfolio Return Benchmark Index Return
- --------------------------------------------------------------------------------
Ascent 19.90% 16.10%
Crossroads 17.57% 13.96%
Legacy 14.50% 11.82%
What economic or financial market conditions impacted the Portfolios?
Serving as a backdrop for each of the Portfolio's performance are the returns
for the various indices for each of the asset classes among which the Portfolios
allocate investments (shown below). The combination of these seven indices in
different weights comprise the overall benchmarks against which we measure each
Generation Portfolio's performance (shown above).
- --------------------------------------------------------------------------------
Asset Class Benchmark Index Return
- --------------------------------------------------------------------------------
Large Cap Stocks S&P 500 (a) 33.36 %
Small Cap Stocks Russell 2000 (b) 22.36 %
International Stocks MSCI EAFE (c) 2.06 %
Real Estate Stocks NAREIT (d) 20.29 %
U.S. Dollar Bonds Salomon Broad (e) 9.62 %
International Bonds S.B. Non-U.S. WGBI (f) (2.88)%
Cash Equivalents U.S. 90 Day T-Bill (g) 5.24 %
This has been a strong year overall for the U.S. stock market. 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.
International markets were challenged, however, as the Asian market crisis led
investors to seek safe havens for their assets. This "flight to quality" boosted
U.S. bonds and large company stocks, thus widening the performance gap between
U.S. and international capital markets.
What investments influenced the Funds' performance over the past twelve months?
In order to better control risk and pursue enhanced return potential over the
long run, the Portfolios are designed to invest in a variety of asset classes
with varying degrees of risk. During these past twelve months, domestic large
company stocks, as represented by the S&P 500, had a particularly strong showing
relative to other asset classes. (Keep in mind, all indices referenced are
unmanaged.) The Portfolios were able to outperform their relative benchmarks
this year, primarily due to strong stock selection results. However, because our
valuation disciplines indicated that U.S. stocks were overvalued for most of
1997, we maintained an unusually high level of cash reserves. In retrospect, we
were somewhat too conservative, as the large U.S. company stock market continued
to climb despite its stretched valuation level.
What is your outlook going forward?
At present, U.S. stocks appear fairly valued to us. 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 decisions. As of January 1998, interest rates fell enough to return
this spread to neutral territory from negative territory, where it was for most
of 1997. Consequently, we recently increased our large company stock target
allocations somewhat, although we remain slightly underweight in U.S. stocks.
See Definition of Indices 55
<PAGE>
Because of their underperformance relative to large company stocks, small
company stocks currently offer unusual relative value. Consequently, we plan to
maintain our overweighted allocation to small company domestic stocks in the
near term. The U.S. yield curve is unusually flat, which means that U.S. bond
investors are being offered an unusually low yield advantage for taking on the
interest rate risk of owning longer term bonds (higher relative risk) relative
to short term cash equivalents (shorter relative risk). Consequently, we
recently reduced our target allocations to U.S. bonds to a neutral benchmark
weight. We continue to favor selective international markets, especially Europe,
but remain more-or-less hedged (for potential protection against sudden shifts
in values) against the Japanese Yen, German Deutschemark, French Franc and Dutch
Guilder.
Past performance is no guarantee of future results.
<TABLE>
<CAPTION>
Asset Allocation:
- --------------------------------------------------------------------------------------------------------------------
Portfolio of Notional Value* Economic Exposure*
Asset Class Investments of Futures 12/31/97 12/31/96 Benchmark Range
- --------------------------------------------------------------------------------------------------------------------
Ascent
- ------
<S> <C> <C> <C> <C> <C> <C>
Large Cap Stocks 14.9% -- 14.9% 23.0% 20.0% 0 - 60%
Small Cap Stocks 24.3% -- 24.3% 19.0% 20.0% 0 - 40%
Real Estate Stocks 15.2% -- 15.2% 16.0% 20.0% 0 - 40%
U.S. Dollar Bonds 14.6% -- 14.6% 9.0% 10.0% 0 - 30%
International Stocks 17.2% 0.1% 17.3% 16.0% 20.0% 0 - 40%
International Bonds -- 2.0% 2.0% -- 10.0% 0 - 20%
Cash Equivalents 13.8% (2.1)% 11.7% 17.0% -- 0 - 30%
------------- --------- ----------- ---------- -----------
100.0% -- 100.0% 100.0% 100.0%
============= ========= =========== ========== ===========
Crossroads
- ----------
Large Cap Stocks 11.0% -- 11.0% 17.0% 15.0% 0 - 45%
Small Cap Stocks 19.4% -- 19.4% 15.0% 15.0% 0 - 30%
Real Estate Stocks 11.2% -- 11.2% 13.0% 15.0% 0 - 30%
U.S. Dollar Bonds 29.1% -- 29.1% 19.0% 25.0% 0 - 70%
International Stocks 14.1% 0.2% 14.3% 14.0% 15.0% 0 - 30%
International Bonds -- 2.3% 2.3% -- 10.0% 0 - 20%
Cash Equivalents 15.2% (2.5)% 12.7% 22.0% 5.0% 0 - 30%
------------- --------- ----------- ---------- -----------
100.0% -- 100.0% 100.0% 100.0%
============= ========= =========== ========== ===========
Legacy
- ------
Large Cap Stocks 7.0% -- 7.0% 11.0% 10.0% 0 - 30%
Small Cap Stocks 12.8% -- 12.8% 10.0% 10.0% 0 - 20%
Real Estate Stocks 7.0% -- 7.0% 9.0% 10.0% 0 - 20%
U.S. Dollar Bonds 43.1% -- 43.1% 29.0% 40.0% 0 - 100%
International Stocks 10.0% 0.3% 10.3% 10.0% 10.0% 0 - 20%
International Bonds -- 2.4% 2.4% -- 10.0% 0 - 20%
Cash Equivalents 20.1% (2.7)% 17.4% 31.0% 10.0% 0 - 30%
------------- --------- ----------- ---------- -----------
100.0% -- 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 Funds' exposure to both changes in value of
the portfolio of investments as well as the financial instruments
underlying the options and futures positions.
56
<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 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.
(c) The Morgan Stanley Capital International-Europe, Australia and Far East
(MSCI EAFE) Index is an unmanaged, 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.
(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.
(e) Salomon Brothers Broad Investment-Grade Bond (Salomon Broad) Index is an
unmanaged, market-weighted index that contains approximately 4,700
individually priced investment-grade bonds rated BBB or better. The index
includes U.S. Treasury/Agency issues, mortgage pass-through securities, and
corporate issues.
(f) The Salomon Brothers Non-U.S. World Government Bond (S.B. Non-U.S. WGBI)
Index serves as an unmanaged benchmark to evaluate the performance of
government bonds with a maturity of one year or greater in the following 12
countries: Japan, United Kingdom, Germany, France, Canada, the Netherlands,
Australia, Denmark, Italy, Belgium, Spain and Sweden.
(g) Three-month Treasury bills (U.S. 90 Day T-Bill) are government-backed
short-term investments considered to be risk-free, and equivalent to cash
because their maturity is only three months.
57
<PAGE>
Aetna Generation Portfolios, Inc.
Portfolio of Investments - December 31, 1997
Ascent
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
COMMON STOCKS (70.7%)
United States (53.8%)
Aerospace and Defense (0.2%)
Alliant Techsystems, Inc.+........... 1,100 $ 61,325
General Motors, Class H.............. 800 29,550
Raytheon Co.......................... 217 10,692
United Technologies Corp............. 2,500 182,031
-----------
283,598
-----------
Apparel (0.1%)
American Eagle Outfitters, Inc.+..... 4,500 156,938
-----------
Auto Parts and Accessories (0.2%)
Arvin Industries, Inc................ 1,600 53,300
Cooper Tire & Rubber Co.............. 3,400 82,875
Echlin, Inc.......................... 4,700 170,081
Lear Corp.+.......................... 200 9,500
-----------
315,756
-----------
Autos and Auto Equipment (0.7%)
Borg Warner Automotive, Inc.......... 1,300 67,600
Chrysler Corp........................ 4,600 161,863
Ford Motor Co........................ 6,400 311,600
General Motors Corp.................. 4,400 266,750
PACCAR, Inc.......................... 3,800 199,500
-----------
1,007,313
-----------
Banks (1.9%)
AmSouth Bancorporation............... 1,300 70,606
BankAmerica Corp..................... 3,800 277,400
Comerica, Inc........................ 2,200 198,550
Dime Bancorp, Inc.................... 2,700 81,675
Fifth Third Bancorp.................. 2,400 196,200
First Chicago NBD Corp............... 1,000 83,500
First of America Bank Corp........... 1,500 115,688
First Republic Bank+................. 3,500 111,781
Firstfed Financial Corp.+............ 200 7,750
Golden State Bancorp, Inc.+.......... 1,800 67,275
Imperial Bancorp+.................... 9,300 458,606
NationsBank Corp..................... 3,900 237,169
Southtrust Corp...................... 1,600 101,500
Sovereign Bancorp, Inc............... 4,100 85,075
Star Banc Corp....................... 700 40,163
State Street Corp.................... 1,400 81,463
TR Financial Corp.................... 1,600 53,200
USBANCORP, Inc....................... 7,000 511,000
-----------
2,778,601
-----------
Building Materials and Construction (3.4%)
Centex Construction Products, Inc.... 14,300 430,788
Centex Corp.......................... 3,500 220,281
Continental Homes Holding Corp....... 23,600 949,899
Florida Rock Industries, Inc......... 4,200 95,550
Lone Star Industries, Inc............ 11,200 595,000
Martin Marietta Materials, Inc....... 300 10,969
Building Materials and Construction (continued)
MDC Holdings, Inc.................... 47,900 $ 721,493
Southdown, Inc....................... 1,200 70,800
Standard Pacific Corp................ 55,400 872,549
Tredegar Industries, Inc............. 10,850 714,743
USG Corp.+........................... 1,500 73,500
Webb (Del E.) Corp................... 12,500 325,000
-----------
5,080,572
-----------
Chemicals (0.2%)
Dow Chemical Co...................... 2,500 253,750
Lyondell Petrochemical Co............ 2,500 66,250
-----------
320,000
-----------
Commercial Services (0.5%)
AccuStaff, Inc.+..................... 2,200 50,600
ACNielsen Corp.+..................... 2,700 65,813
Deluxe Corp.......................... 4,800 165,600
Galileo International, Inc........... 2,500 69,063
Ogden Corp........................... 2,800 78,925
Quintiles Transnational Corp.+....... 1,600 61,200
Service Corp. International.......... 5,000 184,688
Thermo Ecotek Corp.+................. 300 5,475
-----------
681,364
-----------
Computer Software (1.9%)
Avant! Corp.+........................ 10,100 169,175
BMC Software, Inc.+.................. 1,300 85,313
Cadence Design Systems, Inc.+........ 3,300 80,850
CHS Electronics, Inc.+............... 1,550 26,544
Computer Learning Centers, Inc.+..... 11,200 686,000
Compuware Corp.+..................... 2,400 76,800
Keane, Inc.+......................... 29,300 1,190,312
Microsoft Corp.+..................... 3,300 426,525
Symantec Corp.+...................... 3,100 68,006
-----------
2,809,525
-----------
Computers and Office Equipment (1.2%)
Compaq Computer Corp................. 5,450 307,584
Dell Computer Corp.+................. 6,800 571,200
Harris Corp.......................... 3,200 146,800
Herman Miller, Inc................... 300 16,369
International Business Machines, Inc. 1,800 188,213
Magnetek, Inc.+...................... 3,300 64,350
Moore Corp. Ltd...................... 9,000 136,125
SMART Modular Technologies, Inc.+.... 1,400 32,200
Sun Microsystems, Inc.+.............. 3,700 147,538
Unisys Corp.+........................ 10,400 144,300
-----------
1,754,679
-----------
Consumer Products (0.2%)
Blyth Industries, Inc.+.............. 1,600 47,900
Herbalife International, Inc.+....... 10,133 217,859
Procter & Gamble Co.................. 1,300 103,756
-----------
369,515
-----------
58 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
United States (continued)
Diversified (0.5%)
Aeroquip-Vickers, Inc................ 3,700 $ 181,531
Deere & Co........................... 2,300 134,119
Eaton Corp........................... 1,900 169,575
ITT Industries, Inc.................. 4,200 131,775
NACCO Industries, Inc................ 1,300 139,344
Paragon Trade Brands, Inc.+.......... 3,000 38,625
-----------
794,969
-----------
Electrical Equipment (0.4%)
C & D Technologies, Inc.............. 13,700 661,025
-----------
Electronics (0.8%)
AMP, Inc............................. 4,700 197,400
Intel Corp........................... 3,400 238,850
KLA Instruments Corp.+............... 4,800 185,400
QLogic Corp.+........................ 3,800 112,100
SCI Systems, Inc.+................... 1,700 74,056
Technitrol, Inc...................... 10,900 327,000
Tektronix, Inc....................... 1,150 45,641
-----------
1,180,447
-----------
Financial Services (3.4%)
Ahmanson (H. F.) & Co................ 1,200 80,325
AMRESCO, Inc.+....................... 3,200 96,800
Bankers Trust New York Corp.......... 800 89,950
Bear Stearns Co., Inc................ 1,962 93,195
Donaldson, Lufkin & Jenrette, Inc.... 800 63,600
Edwards (A.G.), Inc.................. 2,400 95,400
FIRSTPLUS Financial Group, Inc.+..... 12,400 475,850
Golden West Financial Corp........... 2,200 215,188
Greenpoint Financial Corp............ 200 14,513
Lehman Brothers Holdings, Inc........ 1,500 76,500
Merrill Lynch & Co., Inc............. 2,000 145,875
MGIC Investment Corp................. 200 13,300
Money Store, Inc. (The).............. 1,100 23,100
Morgan Stanley, Dean Witter,
Discover & Co...................... 3,575 211,372
Paine Webber Group, Inc.............. 2,550 88,134
Republic New York Corp............... 900 102,769
Ryland Group, Inc.................... 36,100 852,862
SunAmerica, Inc...................... 2,100 89,775
TCF Financial Corp................... 9,400 319,013
Trans Financial, Inc................. 20,900 812,487
Travelers Group, Inc................. 4,500 242,438
Webster Financial Corp............... 8,400 558,600
WSFS Financial Corp.+................ 16,000 320,000
-----------
5,081,046
-----------
Foods and Beverages (1.6%)
Canandaigua Wine Co., Inc., Class A+. 10,600 586,975
Coors (Adolph) Co.................... 5,500 182,875
Dean Foods Co........................ 1,400 83,300
Foods and Beverages (continued)
Interstate Bakeries Corp............. 2,200 $ 82,225
J & J Snack Foods Corp.+............. 10,100 165,388
Kroger Co. (The)+.................... 8,600 317,663
Quaker Oats Co....................... 200 10,550
Suiza Foods Corp.+................... 15,200 905,349
-----------
2,334,325
-----------
Health Services (0.7%)
Alpharma, Inc. Class A............... 32,000 696,000
Beverly Enterprises, Inc.+........... 8,200 106,600
Phycor, Inc.+........................ 7,200 194,400
-----------
997,000
-----------
Home Furnishings and Appliances (0.6%)
Carlisle Co., Inc.................... 1,400 59,850
Ethan Allen Interiors, Inc........... 18,600 717,262
Stanley Furniture Co., Inc.+......... 2,500 69,688
-----------
846,800
-----------
Hotels and Restaurants (0.4%)
Darden Restaurants, Inc.............. 15,700 196,250
Foodmaker, Inc.+..................... 22,500 338,906
Promus Hotel Corp.+.................. 1,573 66,045
Sonic Corp.+......................... 2,000 56,250
-----------
657,451
-----------
Insurance (1.7%)
Allied Group, Inc.................... 4,650 133,106
Allstate Corp........................ 3,200 290,800
American Bankers Insurance Group..... 3,100 142,406
CIGNA Corp........................... 600 103,838
Conseco, Inc......................... 4,300 195,381
Equitable Co., Inc. (The)............ 4,400 218,900
Everest Re Holdings, Inc............. 1,300 53,625
Financial Security Assurance
Holdings Ltd....................... 3,500 168,875
First American Financial Corp........ 3,800 280,725
Hartford Financial Services
Group, Inc......................... 2,200 205,838
Lawyers Title Corp................... 5,500 172,906
Loews Corp........................... 1,400 148,575
Old Republic International Corp...... 2,200 81,813
Reliance Group Holdings, Inc......... 2,200 31,075
RLI Corp............................. 2,600 129,513
Torchmark Corp....................... 4,400 185,075
-----------
2,542,451
-----------
Machinery and Equipment (0.6%)
Case Corp............................ 1,700 102,744
Caterpillar, Inc..................... 3,400 165,113
Cincinnati Milacron, Inc............. 3,700 95,969
Commercial Intertech Corp............ 20,800 431,600
Ingersoll-Rand Co.................... 200 8,100
Parker-Hannifin Corp................. 900 41,288
-----------
844,814
-----------
59
<PAGE>
Aetna Generation Portfolios, Inc.
Portfolio of Investments - December 31, 1997 (continued)
Ascent
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
United States (continued)
Media and Entertainment (1.7%)
Clear Channel Communications, Inc.+.. 2,500 $ 198,594
Fleetwood Enterprises, Inc........... 300 12,731
Gaylord Entertainment Co............. 25,500 814,405
Harvey's Casino Resorts.............. 5,100 105,825
Lin Television Corp.+................ 500 27,250
Midway Games, Inc.+.................. 34,500 627,469
Panavision, Inc.+.................... 10,400 268,450
Speedway Motorsports, Inc.+.......... 21,400 530,988
-----------
2,585,712
-----------
Medical Supplies (1.7%)
American Home Products Corp.......... 3,700 283,050
Marquette Medical Systems, Inc.+..... 2,000 53,250
Maxxim Medical, Inc.+................ 20,700 450,225
OEC Medical Systems, Inc.+........... 4,100 81,744
Safeskin Corp.+...................... 17,500 993,124
Spine-Tech, Inc.+.................... 8,400 432,075
Vivus, Inc.+......................... 1,300 13,813
West Company, Inc. (The)............. 5,300 157,675
-----------
2,464,956
-----------
Metals and Mining (0.5%)
National Steel Corp., Class B+....... 14,600 168,813
RMI Titanium Co.+.................... 10,900 218,000
Timken Co............................ 9,400 323,125
Trinity Industries, Inc.............. 500 22,313
-----------
732,251
-----------
Oil and Gas (4.2%)
Ashland Oil, Inc..................... 3,700 198,644
Atlantic Richfield Co................ 1,900 152,238
Clayton Williams Energy, Inc.+....... 16,700 250,500
Cliffs Drilling Co.+................. 13,100 653,363
Columbia Gas System, Inc............. 2,500 196,406
Devon Energy Corp.................... 1,200 46,200
Ensco International, Inc............. 200 6,700
Helmerich & Payne, Inc............... 2,600 176,475
Kerr-McGee Corp...................... 2,800 177,275
Marine Drilling Co., Inc.+........... 24,900 516,675
Occidental Petroleum Corp............ 5,700 167,081
Oryx Energy Co.+..................... 4,000 102,000
Phillips Petroleum Co................ 5,400 262,575
SEACOR SMIT Holdings+................ 13,500 813,374
Sun Company, Inc..................... 4,100 172,456
Tesoro Petroleum Corp.+.............. 40,500 627,750
Texaco, Inc.......................... 3,400 184,875
Tidewater, Inc....................... 1,300 71,663
Union Texas Petroleum Holdings, Inc.. 3,000 62,438
USX-Marathon Group................... 7,100 239,625
Oil and Gas (continued)
Valero Energy Corp................... 600 $ 18,863
Veritas DGC, Inc.+................... 12,300 485,850
Vintage Petroleum, Inc............... 36,400 691,600
-----------
6,274,626
-----------
Paper and Containers (0.1%)
Ball Corp............................ 4,200 148,313
-----------
Pharmaceuticals (1.3%)
Abbott Laboratories.................. 3,200 209,800
Dura Pharmaceuticals, Inc.+.......... 1,200 55,050
Eli Lilly & Co....................... 5,100 355,088
Medicis Pharmaceutical Corp.+........ 13,000 664,625
Merck & Co., Inc..................... 4,500 478,125
Pharmerica, Inc.+.................... 3,731 38,709
Rexall Sundown, Inc.+................ 2,400 72,450
Watson Pharmaceuticals, Inc.+........ 2,000 64,875
-----------
1,938,722
-----------
Printing and Publishing (1.3%)
Central Newspapers, Inc., Class A.... 1,100 81,331
Dow Jones & Co., Inc................. 3,400 182,538
Gannett Co., Inc..................... 800 49,450
Lexmark International Group, Inc.+... 2,100 79,800
McClatchy Newspapers, Inc............ 9,175 249,445
RR Donnelley & Sons Co............... 4,400 163,900
Valassis Communications, Inc.+....... 32,000 1,183,999
-----------
1,990,463
-----------
Real Estate Investment Trusts (14.5%)
Alexandria Real Estate Equities, Inc. 2,100 66,281
AMB Property Corp.................... 2,400 60,300
American Residential Investment
Trust, Inc......................... 2,500 29,688
Apartment Investment & Management Co. 30,600 1,124,549
Arden Realty Group, Inc.............. 1,800 55,350
Bay Apartment Communities, Inc....... 11,500 448,500
Bedford Property Investors, Inc...... 6,000 131,250
Berkshire Realty Co., Inc............ 13,800 165,600
Brandywine Realty Trust.............. 8,500 213,563
Capstone Capital Trust, Inc.......... 26,600 679,963
Captec Net Lease Realty, Inc......... 6,100 104,844
CBL & Associates Properties, Inc..... 14,000 345,625
Chateau Communities, Inc............. 6,500 204,750
Colonial Properties Trust............ 35,200 1,060,399
Cornerstone Properties, Inc.......... 30,100 577,544
Crescent Real Estate Equities, Inc... 19,900 783,562
Criimi Mae, Inc...................... 4,800 72,000
Developers Diversified Realty Corp... 3,400 130,050
Duke Realty Investments, Inc......... 16,400 397,700
Eastgroup Properties, Inc............ 5,700 123,263
Equity Inns, Inc..................... 10,000 147,500
Equity Office Properties Trust....... 1,500 47,344
60 See Notes to Portfolio of Investments.
<PAGE>
- -------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
United States (continued)
Real Estate Investment Trusts (continued)
Equity Residential Properties Trust.. 21,900 $1,107,318
Essex Property Trust, Inc............ 12,800 448,000
General Growth Properties............ 18,400 664,700
Glenborough Realty Trust, Inc........ 37,200 1,102,049
Glimcher Realty Trust................ 7,100 160,194
Health Care REIT, Inc................ 16,000 450,000
Highwood Properties, Inc............. 8,700 323,531
Home Properties of New York, Inc..... 4,700 127,781
Imperial Credit Commercial Mortgage
Investment Corp.................... 3,900 57,038
Innkeepers USA Trust................. 29,400 455,700
JDN Realty Corp...................... 15,700 508,288
Kimco Realty Corp.................... 24,200 853,049
Koger Equity, Inc.................... 6,600 144,788
Lexington Corporate Properties, Inc.. 8,400 129,675
Mack-Cali Realty Corp................ 18,900 774,899
Manufactured Home Communities, Inc... 18,500 499,500
Merry Land & Investment Co., Inc..... 10,000 228,750
Mid-America Apartment
Communities, Inc................... 9,800 279,913
National Golf Properties, Inc........ 9,800 321,563
Parkway Properties, Inc.............. 9,900 339,694
Post Properties, Inc................. 26,500 1,076,562
Prentiss Properties Trust............ 15,400 430,238
Prime Retail, Inc.................... 10,400 147,550
Ramco-Gerhenson Properties Trust..... 8,400 165,375
Reckson Associates Realty Corp....... 5,400 137,025
Regency Realty Corp.................. 16,800 465,150
SL Green Realty Corp................. 2,200 57,063
Sovran Self Storage, Inc............. 27,900 905,005
Spieker Properties, Inc.............. 11,800 505,925
Starwood Lodging Trust............... 6,250 361,719
Sunstone Hotel Investors, Inc........ 4,000 69,000
Tanger Factory Outlet Centers, Inc... 16,400 501,225
Tower Realty Trust, Inc.............. 1,800 44,325
Trammell Crow Co.+................... 9,000 231,750
Walden Residential Properties, Inc... 14,800 377,400
Weeks Corp........................... 2,900 92,800
-----------
21,514,167
-----------
Retail (3.5%)
Ames Department Stores, Inc.+........ 19,600 343,000
Burlington Coat Factory Warehouse.... 25,680 422,115
Cash America International, Inc...... 26,800 346,725
Costco Companies, Inc.+.............. 1,500 66,938
Dayton Hudson Corp................... 3,300 222,750
Dress Barn, Inc.+.................... 11,100 314,963
Federated Department Stores, Inc.+... 2,200 94,738
Fingerhut Companies, Inc............. 2,700 57,713
Footstar, Inc.+...................... 22,300 599,313
Lowe's Co., Inc...................... 3,600 171,675
Maxim Group, Inc. (The)+............. 12,700 197,644
Retail (continued)
Payless ShoeSource, Inc.+............ 1,100 $ 73,838
Rite Aid Corp........................ 300 17,606
Ross Stores, Inc..................... 10,400 378,300
Russ Berrie & Co., Inc............... 21,700 569,625
TJX Companies, Inc................... 15,000 515,625
Urban Shopping Centers, Inc.......... 23,600 823,049
-----------
5,215,617
-----------
Telecommunications (0.3%)
Aliant Communications, Inc........... 2,700 84,713
Ameritech Corp....................... 100 8,050
CIENA Corp.+......................... 1,100 67,238
CommNet Cellular, Inc.+.............. 10,100 359,181
-----------
519,182
-----------
Transportation (1.8%)
Airborne Freight Corp................ 1,100 68,338
Alaska Air Group, Inc.+.............. 1,800 69,750
America West Holdings Corp.+......... 16,300 303,588
AMR Corp.+........................... 1,700 218,450
CNF Transportation, Inc.............. 1,600 61,400
Continental Airlines, Inc., Class B+. 1,500 72,188
CSX Corp............................. 3,100 167,400
Delta Air Lines, Inc................. 1,500 178,500
Trico Marine Services, Inc.+......... 24,300 713,812
U.S. Freightways Corp................ 1,400 45,500
UAL Corp.+........................... 800 74,000
US Airways Group, Inc.+.............. 300 18,750
Yellow Corp.+........................ 25,200 633,150
-----------
2,624,826
-----------
Utilities - Oil and Gas (1.0%)
Energen Corp......................... 16,300 647,925
NUI Corp............................. 14,800 424,575
ONEOK, Inc........................... 3,200 129,200
Pacific Enterprises.................. 4,200 158,025
People's Energy Corp................. 4,500 177,188
-----------
1,536,913
-----------
Utilities - Telephone (0.7%)
Bell Atlantic Corp................... 1,700 154,700
BellSouth Corp....................... 5,100 287,194
MCI Communications Corp.............. 5,300 226,906
Premiere Technologies, Inc.+......... 13,100 361,888
-----------
1,030,688
-----------
Total United States 80,074,625
-----------
Foreign Common Stocks (16.9%)
Argentina (0.2%)
Banco de Galicia y Buenos Aires SA
(Banks) ............................. 9,400 242,050
-----------
Australia (0.7%)
Goodman Fielder Ltd. (Foods and
Beverages) ........................ 205,773 327,142
Mayne Nickless Ltd. (Commercial
Services) ......................... 33,600 177,549
61
<PAGE>
Aetna Generation Portfolios, Inc.
Portfolio of Investments - December 31, 1997 (continued)
Ascent
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
Australia (continued)
Westpac Banking Corp. Ltd. (Banks) .. 41,200 $ 263,506
Woolworth Ltd. (Foods and Beverages) 99,256 331,767
-----------
Total Australia 1,099,964
-----------
Austria (0.1%)
VA Technologie AG (Commercial
Services) ........................... 650 98,547
-----------
Belgium (0.3%)
Delhaize-Le Lion, SA (Foods and
Beverages) ........................ 6,100 309,529
Societe Generale De Belgique
(Financial Services) .............. 1,900 173,847
-----------
Total Belgium 483,376
-----------
Brazil (0.2%)
Telecomunicaciones Brasileiras SA
(Utilities - Telephone)............ 2,650 308,559
-----------
Canada (0.5%)
Canadian Imperial Bank of Commerce
(Banks) ........................... 9,764 304,301
Canadian National Railway Co.
(Transportation) .................. 3,500 165,375
Petro-Canada (Oil and Gas) .......... 11,400 207,125
-----------
Total Canada 676,801
-----------
Chile (0.1%)
Cia. de Telecomuncaciones de Chile
(Utilities - Telephone) ........... 7,300 218,088
-----------
Denmark (0.8%)
Bang & Olufsen Holding Co.
(Electronics) ..................... 4,700 280,056
Carli Gry International A/S
(Apparel) ......................... 4,800 269,891
Novo-Nordisk A/S (Pharmaceuticals) .. 2,400 343,498
Unidanmark A/S (Banks) .............. 4,700 345,265
-----------
Total Denmark 1,238,710
-----------
Finland (0.4%)
Huhtamaki Group (Diversified) ....... 4,400 181,802
Oy Nokia Corp., ADR A
(Telecommunications) .............. 1,000 70,000
UPM-Kymmene Corp. (Paper and
Containers) ....................... 5,000 100,083
Valmet Oyj (Diversified) ............ 15,000 207,144
-----------
Total Finland 559,029
-----------
France (1.5%)
Accor SA (Hotels and Restaurants) ... 1,340 249,251
Alcatel Alsthom (Telecommunications) 2,300 292,477
Credit Commercial de France (Banks) . 4,600 315,416
Elf Aquitaine SA (Oil and Gas) ...... 2,150 250,172
Gemini Sogeti SA (Insurance) ........ 3,800 311,726
Lafarge SA
(Building Materials and
Construction) ..................... 5,200 341,344
Schneider SA (Machinery and
Equipment) ........................ 5,475 297,419
Union des Assurances Federales
(Insurance) ....................... 1,600 210,111
-----------
Total France 2,267,916
-----------
Germany (1.4%)
Bayerische Hypotheken-und
Wechsel-Bank AG (Banks) ........... 7,200 $ 351,582
Deutsche Lufthansa AG
(Transportation) .................. 9,200 172,944
Deutsche Pfandbrief & Hypothekenbank
AG (Banks) ........................ 4,400 260,861
Gehe AG (Health Services) ........... 5,400 270,294
Mannesmann AG (Machinery and
Equipment) ........................ 600 303,330
VEBA AG (Utilities - Electric) ...... 2,900 197,576
Viag AG (Diversified) ............... 550 296,406
Volkswagen AG (Autos and Auto
Equipment) ........................ 300 167,682
-----------
Total Germany 2,020,675
-----------
Hong Kong (0.2%)
Hutchison Whampoa Ltd. (Diversified) 51,000 319,891
-----------
India (0.2%)
Videsh Sanchar Nigam Ltd.
(Telecommunications) +............. 16,700 234,218
-----------
Indonesia (0.1%)
Bank International Indonesia (Banks) 249,500 14,757
Putra Surya Multidana (Financial
Services) +........................ 917,000 87,614
-----------
Total Indonesia 102,371
-----------
Ireland (0.5%)
Iona Technologies Plc, ADR
(Consumer Products) +.............. 12,000 246,000
Irish Life Plc (Insurance) .......... 35,643 204,736
Waterford Wedgewood
(Home Furnishings and Appliances) . 207,199 280,560
-----------
Total Ireland 731,296
-----------
Italy (0.8%)
Assicurazioni Generali (Insurance) .. 8,300 203,979
Credito Italiano (Banks) ............ 129,200 398,635
La Rinascente S.p.A. (Retail) ....... 37,400 279,231
Pirelli & Co. (Financial Services) .. 145,800 235,853
Telecom Italia S.p.A. (Utilities -
Telephone) +....................... 18,700 119,519
-----------
Total Italy 1,237,217
-----------
Japan (2.0%)
Bank of Tokyo-Mitsubishi (Banks) .... 7,000 96,907
Capcom Company
(Computers and Office Equipment) .. 7,000 72,142
Dai Nippon Ink & Chemicals, Inc.
(Chemicals) ....................... 80,000 203,044
Daiichi Pharmaceutical
(Pharmaceuticals) ................. 23,000 260,035
DDI Corp. (Utilities - Telephone) ... 72 191,046
Fuji Photo Film (Chemicals) ......... 7,000 269,187
Fujitec Co. Ltd.
(Building Materials and
Construction) ..................... 19,000 105,214
Fujitsu Denso (Diversified) ......... 3,000 32,995
Hoya Corp. (Medical Supplies) ....... 8,000 252,267
Matsushita Kotobuki Electronics
Industries (Electronics) .......... 4,400 110,997
62 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
Japan (continued)
Minebea Co. Ltd. (Electronics) ...... 28,000 $ 301,490
Seino Transportation Co., Ltd.
(Diversified) ..................... 48,000 240,330
Sekisui Chemical Co. (Chemicals) .... 38,000 193,769
Sony Corp. (Electronics) ............ 3,300 294,414
Takefuji Corp. (Banks) .............. 5,000 230,347
West Japan Railway (Transportation) . 30 95,984
-----------
Total Japan 2,950,168
-----------
Mexico (0.5%)
Cifra SA (Retail) ................... 150,001 334,919
Grupo Financiero Banamex Accival
(Financial Services) +............. 62,000 185,343
Panamerican Beverages, Inc.
(Foods and Beverages) ............. 6,700 218,588
-----------
Total Mexico 738,850
-----------
Netherlands (1.1%)
Akzo Nobel NV (Chemicals) ........... 1,600 275,924
Bols Wessanen CVA (Foods and
Beverages) ........................ 11,500 178,125
ING Groep NV (Banks) ................ 5,748 242,143
KLM Royal Dutch Air Line
(Transportation) .................. 5,100 188,681
Philips Electronics NV (Electronics) 4,400 263,927
Vendex International NV (Retail) .... 3,500 193,195
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit
(Printing and Publishing) ......... 10,800 304,732
-----------
Total Netherlands 1,646,727
-----------
New Zealand (0.1%)
Fernz Corp., Ltd. (Chemicals) ....... 62,200 160,719
-----------
Norway (0.7%)
Christiania Bank Og Kredkasse
(Banks) ........................... 49,000 198,069
Det Sondenfjelds-Norske
Dampskibsselskab (Oil and Gas) +... 10,000 208,893
Ocean Rig ASA (Oil and Gas) +........ 362,500 383,536
Tomra Systems ASA (Paper and
Containers) ....................... 11,300 252,910
-----------
Total Norway 1,043,408
-----------
Portugal (0.1%)
Portugal Telecom SA SP ADR
(Utilities - Telephone) ........... 3,800 178,600
-----------
Singapore (0.0%)
Jardine Matheson Holdings
(Diversified) ....................... 296 1,510
-----------
Spain (0.5%)
Cortefiel, SA (Retail) .............. 13,600 273,043
Iberdrola SA (Utilities - Electric) . 23,800 313,085
Telefonica de Espana (Utilities -
Telephone) ........................ 6,000 171,243
-----------
Total Spain 757,371
-----------
Sweden (0.8%)
Ericsson ADR (Telecommunications) ... 5,500 205,219
Frontec AB (Computer Software) +..... 9,000 78,834
Sweden (continued)
Industrial & Financial Systems
(Computer Software) +.............. 30,000 $ 207,011
Oxigene, Inc. (Pharmaceuticals) +.... 10,500 187,917
Skandia Forsakrings AB (Insurance) .. 5,200 245,439
Svenska Handelsbanken (Financial
Services) ......................... 8,500 294,069
-----------
Total Sweden 1,218,489
-----------
Switzerland (0.7%)
Credit Suisse Group (Banks) ......... 1,800 278,907
Kuoni Reisen AG (Commercial
Services) ......................... 60 225,224
Nestle SA Registered Shares
(Foods and Beverages) ............. 100 150,080
Novartis AG Registered Shares
(Health Services) ................. 200 324,980
------------
Total Switzerland 979,191
------------
United Kingdom (2.3%)
3i Group Plc (Financial Services) ... 30,100 245,652
Bank of Scotland (Banks) ............ 34,826 320,895
Barclays Plc (Financial Services) ... 5,048 134,391
Boots Co. Plc (Retail) .............. 21,900 315,840
Glaxo Wellcome Plc (Pharmaceuticals) 11,191 265,157
Granada Group Plc (Diversified) ..... 23,214 355,226
Millennium Chemicals, Inc.
(Chemicals) ....................... 2,400 56,550
Morgan Crucible Plc (Diversified) ... 18,100 137,592
National Westminster Bank Plc
(Banks) ........................... 16,200 269,753
Pearson Plc (Printing and
Publishing) ....................... 13,900 180,910
Shell Transport & Trading Co. (Oil
and Gas) .......................... 38,700 280,179
Tomkins Plc (Diversified) ........... 56,800 271,965
Unilever Plc (Consumer Products) .... 38,700 331,757
Vodafone Group Plc
(Telecommunications) .............. 35,800 258,594
------------
Total United Kingdom 3,424,461
------------
Venezuela (0.1%)
Compania Anonima Nacional Telefonos
de Venezuela (Utilities -
Telephone) ........................ 5,500 228,938
------------
Total Foreign Common Stocks
25,167,140
------------
Total Common Stocks (cost
$94,255,943) 105,241,765
------------
PREFERRED STOCKS (0.2%)
Germany (0.2%)
Henkel KGAA (Chemicals) ............. 5,000 315,621
------------
Total Preferred Stocks (cost
$281,446) 315,621
------------
Principal
Amount
---------
LONG-TERM BONDS AND NOTES (14.5%)
U.S. Government Obligations (9.2%)
U.S. Treasury Note, 5.88%, 02/15/00.. $1,500,000 1,506,098
U.S. Treasury Note, 6.50%, 05/31/02.. 1,500,000 1,544,063
U.S. Treasury Note, 6.50%, 10/15/06.. 5,600,000 5,864,242
63
<PAGE>
Aetna Generation Portfolios, Inc.
Portfolio of Investments - December 31, 1997 (continued)
Ascent
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----------
U.S. Government Obligations (continued)
U.S. Treasury Note, 6.88%, 05/15/06.. $1,050,000 $ 1,123,663
U.S. Treasury Note, 7.50%, 10/31/99.. 300,000 309,329
U.S. Treasury Note, 7.50%, 11/15/01.. 3,120,000 3,308,186
------------
Total U.S. Government Obligations (cost
$13,208,216) 13,655,581
------------
Corporate Bonds (5.3%)
Associates Corporation of North
America, 7.40%, 05/15/06........... 1,000,000 1,064,479
Comcast Cellular, 9.50%, 05/01/07.... 700,000 731,499
Echostar Communications, Zero
Coupon, 06/01/04................... 675,000 617,625
Fifth Third Bank, 6.75%, 07/15/05.... 450,000 458,779
Ford Motor Credit Corp., 6.63%,
06/30/03........................... 700,000 710,504
Heller Financial, 6.35%, 08/15/99++... 800,000 793,095
HSBC Americas, Inc., 7.00%, 11/01/06. 900,000 917,130
Raytheon Co., 6.45%, 08/15/02........ 500,000 502,950
Skanidinavinska Enskilda Bank,
6.91%, 06/29/49.................... 800,000 808,999
Tenet Healthcare Corp., 7.88%,
01/15/03........................... 800,000 817,271
Time Warner, Inc., 9.13%, 01/15/13... 475,000 568,502
------------
Total Corporate Bonds (cost
$7,820,878) 7,990,833
------------
Total Long-Term Bonds and Notes (cost
$21,029,094) 21,646,414
------------
SHORT-TERM INVESTMENTS (13.7%)
Citicorp, Comm. Paper, 6.50%,
01/02/98........................... 6,000,000 6,000,000
Dealers Capital Access Trust, Inc.,
Comm. Paper, 6.80%, 01/02/98....... 5,000,000 5,000,000
Federal Home Loan Bank, Comm. Paper,
4.75%, 01/02/98.................... 4,668,000 4,668,000
Jefferson Smurfit, Comm. Paper,
6.00%, 01/07/98.................... 4,000,000 3,996,667
U.S. Treasury Bill, 5.17%, 02/05/98@. 675,000 671,747
-------------
Total Short-Term Investments (cost $20,336,374) 20,336,414
-------------
TOTAL INVESTMENTS (cost $135,902,857)(a) 147,540,214
Other assets less liabilities 1,270,183
-------------
Total Net Assets $148,810,397
=============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$136,107,443. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains .................... $15,167,386
Unrealized losses ................... (3,734,615)
-----------
Net unrealized gain ............... $11,432,771
===========
Information concerning open futures contracts at December 31, 1997 is shown
below:
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- ---------- ---------- -----------
Long Contracts
- -------------------
Long-Term German
Government Bond
Futures ........ 13 $1,894,582 March 98 $13,376
French Notional
Bond Futures ... 5 425,408 March 98 (831)
FTSE 100 Index 1 218,693 March 98 (3,476)
Future
Swiss Government
Bond Futures ... 7 585,099 March 98 2,063
---------- --------
$3,123,782 $11,132
========== ========
+ Non-income producing security.
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Directors.
@ Security pledged to cover initial margin requirements on open futures
contracts at December 31, 1997.
Category percentages are based on net assets.
64 See Notes to Financial Statements.
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997
Crossroads
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
COMMON STOCKS (55.1%)
United States (41.3%)
Aerospace and Defense (0.2%)
Alliant Techsystems, Inc.+........... 1,300 $ 72,475
General Motors, Class H.............. 500 18,469
Raytheon Co.......................... 108 5,346
United Technologies Corp............. 1,400 101,938
---------
198,228
---------
Apparel (0.2%)
American Eagle Outfitters, Inc.+..... 7,800 272,025
---------
Auto Parts and Accessories (0.2%)
Arvin Industries, Inc................ 900 29,981
Dana Corp............................ 1,700 80,750
Echlin, Inc.......................... 2,900 104,944
Lear Corp.+.......................... 100 4,750
---------
220,425
---------
Autos and Auto Equipment (0.7%)
Borg Warner Automotive, Inc.......... 500 26,000
Budget Group, Inc., Class A+......... 5,000 172,813
Chrysler Corp........................ 2,500 87,969
Ford Motor Co........................ 4,000 194,750
General Motors Corp.................. 2,700 163,688
PACCAR, Inc.......................... 1,700 89,250
Westinghouse Air Brake Co............ 3,200 82,000
---------
816,470
---------
Banks (1.3%)
AmSouth Bancorporation............... 700 38,019
BankAmerica Corp..................... 2,800 204,400
Comerica, Inc........................ 1,300 117,325
Dime Bancorp, Inc.................... 1,400 42,350
Fifth Third Bancorp.................. 1,500 122,625
First Chicago NBD Corp............... 300 25,050
First of America Bank Corp........... 2,700 208,238
Firstfed Financial Corp.+............ 500 19,375
Imperial Bancorp+.................... 5,700 281,081
Mercantile Bankshares Corp........... 100 3,913
NationsBank Corp..................... 2,600 158,113
Southtrust Corp...................... 800 50,750
Star Banc Corp....................... 500 28,688
State Street Corp.................... 400 23,275
TR Financial Corp.................... 1,000 33,250
USBANCORP, Inc....................... 3,600 262,800
-----------
1,619,252
-----------
Building Materials and Construction (2.7%)
Centex Construction Products, Inc.... 4,100 123,513
Centex Corp.......................... 1,900 119,581
Continental Homes Holding Corp....... 15,400 619,849
Florida Rock Industries, Inc......... 4,800 109,200
Lafarge Corp......................... 300 8,869
Lone Star Industries, Inc............ 7,600 403,750
Building Materials and Construction (continued)
Martin Marietta Materials, Inc....... 200 $ 7,313
MDC Holdings, Inc.................... 31,400 472,963
Southdown, Inc....................... 800 47,200
Standard Pacific Corp................ 34,700 546,524
Tredegar Industries, Inc............. 6,550 431,481
USG Corp.+........................... 700 34,300
Webb (Del E.) Corp................... 17,000 442,000
-----------
3,366,543
-----------
Chemicals (0.2%)
Dow Chemical Co...................... 1,600 162,400
Lyondell Petrochemical Co............ 1,300 34,450
Wellman, Inc......................... 1,300 25,350
-----------
222,200
-----------
Commercial Services (0.7%)
AccuStaff, Inc.+..................... 1,300 29,900
Crescent Operating, Inc.+............ 520 12,740
Deluxe Corp.......................... 3,100 106,950
Galileo International, Inc........... 16,900 466,863
Ogden Corp........................... 1,600 45,100
Quintiles Transnational Corp.+....... 1,000 38,250
Service Corporation International.... 3,100 114,506
Thermo Ecotek Corp.+................. 200 3,650
-----------
817,959
-----------
Computer Software (1.0%)
BMC Software, Inc.+.................. 700 45,938
CHS Electronics, Inc.+............... 9,150 156,694
Computer Learning Centers, Inc.+..... 7,500 459,375
Compuware Corp.+..................... 1,200 38,400
Keane, Inc.+......................... 3,400 138,125
Microsoft Corp.+..................... 2,500 323,125
Symantec Corp.+...................... 1,800 39,488
-----------
1,201,145
-----------
Computers and Office Equipment (1.1%)
Compaq Computer Corp................. 3,550 200,353
Dell Computer Corp.+................. 8,000 671,999
International Business Machines, Inc. 1,100 115,019
Magnetek, Inc.+...................... 1,800 35,100
Moore Corp. Ltd...................... 6,900 104,363
SMART Modular Technologies, Inc.+.... 800 18,400
Sun Microsystems, Inc.+.............. 2,700 107,663
Unisys Corp.+........................ 5,500 76,313
-----------
1,329,210
-----------
Consumer Products (0.2%)
Blyth Industries, Inc.+.............. 1,200 35,925
Herbalife International, Inc.+....... 8,801 189,221
Procter & Gamble Co.................. 800 63,850
-----------
288,996
-----------
Diversified (0.3%)
Aeroquip-Vickers, Inc................ 2,000 98,125
65
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997 (continued)
Crossroads
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
United States (continued)
Diversified (continued)
Eastern Enterprises.................. 2,400 $ 108,000
Eaton Corp........................... 900 80,325
ITT Industries, Inc.................. 4,100 128,638
Paragon Trade Brands, Inc.+.......... 1,700 21,888
-----------
436,976
-----------
Electrical Equipment (0.4%)
C & D Technologies, Inc.............. 9,600 463,200
-----------
Electronics (0.4%)
AMP, Inc............................. 2,900 121,800
Intel Corp........................... 2,300 161,575
SCI Systems, Inc.+................... 900 39,206
Technitrol, Inc...................... 7,900 237,000
-----------
559,581
-----------
Financial Services (3.0%)
Ahmanson (H. F.) & Co................ 6,700 448,481
AMRESCO, Inc.+....................... 20,200 611,049
Bankers Trust New York Corp.......... 500 56,219
Bear Stearns Co., Inc................ 1,096 52,060
Donaldson, Lufkin & Jenrette, Inc.... 400 31,800
Edwards (A.G.), Inc.................. 1,350 53,663
FIRSTPLUS Financial Group, Inc.+..... 7,900 303,163
Golden West Financial Corp........... 800 78,250
Greenpoint Financial Corp............ 100 7,256
Lehman Brothers Holdings, Inc........ 800 40,800
Merrill Lynch & Co., Inc............. 1,800 131,288
MGIC Investment Corp................. 100 6,650
Money Store, Inc. (The).............. 600 12,600
Morgan Stanley, Dean Witter,
Discover & Co...................... 2,475 146,334
Paine Webber Group, Inc.............. 1,350 46,659
Southwest Securities Group, Inc...... 2,500 64,375
SunAmerica, Inc...................... 2,250 96,188
TCF Financial Corp................... 5,800 196,838
Trans Financial, Inc................. 13,000 505,374
Travelers Group, Inc................. 3,000 161,625
Webster Financial Corp............... 5,600 372,400
WSFS Financial Corp.+................ 15,500 310,000
-----------
3,733,072
-----------
Foods and Beverages (1.4%)
Canandaigua Wine Co., Inc., Class A+. 7,400 409,775
Coors (Adolph) Co.................... 300 9,975
Dean Foods Co........................ 800 47,600
Kroger Co. (The)+.................... 5,400 199,463
Pilgrim's Pride Corp................. 31,600 491,774
Quaker Oats Co....................... 100 5,275
Suiza Foods Corp.+................... 9,200 547,974
-----------
1,711,836
-----------
Health Services (0.9%)
Alpharma, Inc. Class A............... 19,700 $ 428,475
Beverly Enterprises, Inc.+........... 3,700 48,100
Phycor, Inc.+........................ 21,300 575,099
-----------
1,051,674
-----------
Home Furnishings and Appliances (0.4%)
Carlisle Co., Inc.................... 800 34,200
Ethan Allen Interiors, Inc........... 12,600 485,888
-----------
520,088
-----------
Hotels and Restaurants (0.3%)
Darden Restaurants, Inc.............. 9,500 118,750
Foodmaker, Inc.+..................... 14,700 221,419
Promus Hotel Corp.+.................. 278 11,655
Red Roof Inns, Inc.+................. 2,800 42,875
-----------
394,699
-----------
Insurance (1.4%)
Allstate Corp........................ 1,800 163,575
American Bankers Insurance Group..... 2,700 124,031
Conseco, Inc......................... 2,700 122,681
Equitable Co., Inc. (The)............ 2,800 139,300
Everest Re Holdings, Inc............. 700 28,875
Financial Security Assurance
Holdings Ltd....................... 2,100 101,325
First American Financial Corp........ 2,900 214,238
Hartford Financial Services
Group, Inc......................... 1,300 121,631
Lawyers Title Corp................... 5,500 172,906
Lincoln National Corp................ 1,500 117,188
Loews Corp........................... 700 74,288
Old Republic International Corp...... 1,200 44,625
Reliance Group Holdings, Inc......... 1,200 16,950
RLI Corp............................. 3,800 189,288
Torchmark Corp....................... 2,800 117,775
-----------
1,748,676
-----------
Machinery and Equipment (0.4%)
Applied Power, Inc................... 2,100 144,900
Black & Decker Corp.................. 2,100 82,031
Case Corp............................ 1,400 84,613
Caterpillar, Inc..................... 1,900 92,269
Cincinnati Milacron, Inc............. 2,500 64,844
Commercial Intertech Corp............ 1,600 33,200
Cummins Engine Company, Inc.......... 200 11,813
Ingersoll-Rand Co.................... 100 4,050
Parker-Hannifin Corp................. 500 22,938
-----------
540,658
-----------
Media and Entertainment (1.4%)
Clear Channel Communications, Inc.+.. 1,500 119,156
Fleetwood Enterprises, Inc........... 2,800 118,825
Gaylord Entertainment Co............. 14,900 475,869
Harvey's Casino Resorts.............. 1,700 35,275
Lin Television Corp.+................ 300 16,350
66 See Notes to Portfolio of Investments
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
United States (continued)
Media and Entertainment (continued)
Midway Games, Inc.+.................. 20,000 $ 363,750
Panavision, Inc.+.................... 9,500 245,219
Speedway Motorsports, Inc.+.......... 13,100 325,044
-----------
1,699,488
-----------
Medical Supplies (1.2%)
Datascope Corp.+..................... 1,400 36,225
Hanger Orthopedic Group, Inc.+....... 15,400 198,275
Marquette Medical Systems, Inc.+..... 3,700 98,513
Maxxim Medical, Inc.+................ 13,100 284,925
OEC Medical Systems, Inc.+........... 4,100 81,744
Safeskin Corp.+...................... 1,000 56,750
Serologicals Corp.+.................. 5,200 135,200
Spine-Tech, Inc.+.................... 6,100 313,769
Vivus, Inc.+......................... 900 9,563
West Company, Inc. (The)............. 8,200 243,950
-----------
1,458,914
-----------
Metals and Mining (0.7%)
AK Steel Holding Corp................ 1,400 24,763
National Steel Corp., Class B+....... 10,000 115,625
RMI Titanium Co.+.................... 7,500 150,000
Timken Co............................ 6,000 206,250
Titanium Metals Corp.+............... 11,300 326,288
Trinity Industries, Inc.............. 500 22,313
-----------
845,239
-----------
Oil and Gas (2.9%)
Ashland Oil, Inc..................... 2,300 123,481
Atlantic Richfield Co................ 1,400 112,175
Clayton Williams Energy, Inc.+....... 10,100 151,500
Cliffs Drilling Co.+................. 8,500 423,938
Columbia Gas System, Inc............. 1,600 125,700
Devon Energy Corp.................... 700 26,950
Ensco International, Inc............. 100 3,350
Helmerich & Payne, Inc............... 1,600 108,600
Kerr-McGee Corp...................... 1,500 94,969
Marine Drilling Co., Inc.+........... 14,500 300,875
Occidental Petroleum Corp............ 4,200 123,113
Oryx Energy Co.+..................... 2,200 56,100
Phillips Petroleum Co................ 2,900 141,013
SEACOR SMIT Holdings+................ 8,000 482,000
Sun Company, Inc..................... 2,600 109,363
Tesoro Petroleum Corp.+.............. 13,200 204,600
Texaco, Inc.......................... 1,200 65,250
Tidewater, Inc....................... 700 38,588
Union Texas Petroleum Holdings, Inc.. 1,400 29,138
USX-Marathon Group................... 4,800 162,000
Valero Energy Corp................... 700 22,006
Veritas DGC, Inc.+................... 7,400 292,300
Vintage Petroleum, Inc............... 22,100 419,900
-----------
3,616,909
-----------
Paper and Containers (0.1%)
Ball Corp............................ 2,700 $ 95,344
-----------
Pharmaceuticals (0.9%)
Abbott Laboratories.................. 800 52,450
Dura Pharmaceuticals, Inc.+.......... 600 27,525
Eli Lilly & Co....................... 3,100 215,838
Medicis Pharmaceutical Corp.+........ 8,300 424,338
Merck & Co., Inc..................... 2,700 286,875
Pharmerica, Inc.+.................... 1,683 17,461
Rexall Sundown, Inc.+................ 1,400 42,263
Watson Pharmaceuticals, Inc.+........ 700 22,706
-----------
1,089,456
-----------
Printing and Publishing (0.9%)
Central Newspapers, Inc., Class A.... 600 44,363
Dow Jones & Co., Inc................. 2,100 112,744
Gannett Co., Inc..................... 500 30,906
Lexmark International Group, Inc.+... 100 3,800
McClatchy Newspapers, Inc............ 2,100 57,094
RR Donnelley & Sons Co............... 2,900 108,025
Thomas Nelson, Inc................... 5,900 68,219
Valassis Communications, Inc.+....... 18,400 680,799
-----------
1,105,950
-----------
Real Estate Investment Trusts (10.8%)
Alexandria Real Estate Equities, Inc. 1,400 44,188
AMB Property Corp.................... 1,400 35,175
American Residential Investment
Trust, Inc......................... 1,700 20,188
Apartment Investment & Management Co. 18,600 683,549
Bay Apartment Communities, Inc....... 6,700 261,300
Bedford Property Investors, Inc...... 4,100 89,688
Berkshire Realty Co., Inc............ 9,500 114,000
Brandywine Realty Trust+............. 4,000 100,500
Capstone Capital Trust, Inc.......... 25,700 656,955
Captec Net Lease Realty, Inc......... 3,600 61,875
CBL & Associates Properties, Inc..... 8,400 207,375
Colonial Properties Trust............ 21,400 644,674
Cornerstone Properties, Inc.......... 10,300 197,631
Crescent Real Estate Equities, Inc... 9,100 358,313
Developers Diversified Realty Corp... 2,600 99,450
Duke Realty Investments, Inc......... 12,800 310,400
Eastgroup Properties, Inc............ 3,900 84,338
Equity Inns, Inc..................... 17,100 252,225
Equity Residential Properties Trust.. 12,800 647,199
Essex Property Trust, Inc............ 19,300 675,499
General Growth Properties............ 10,200 368,475
Glenborough Realty Trust, Inc........ 22,600 669,524
Glimcher Realty Trust................ 3,300 74,456
Health Care REIT, Inc................ 4,400 123,750
Highwood Properties, Inc............. 6,000 223,125
Home Properties of New York, Inc..... 3,300 89,719
Imperial Credit Commercial Mortgage
Investment Corp.................... 2,700 39,488
67
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997 (continued)
Crossroads
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
United States (continued)
Real Estate Investment Trusts (continued)
Imperial Credit Mortgage Holdings.... 16,350 $ 292,256
Innkeepers USA Trust................. 17,600 272,800
JDN Realty Corp...................... 4,000 129,500
Kimco Realty Corp.................... 13,800 486,450
Koger Equity, Inc.................... 16,500 361,969
Lexington Corporate Properties, Inc.. 4,900 75,644
Mack-Cali Realty Corp................ 1,300 53,300
Manufactured Home Communities, Inc... 7,900 213,300
Merry Land & Investment Co., Inc..... 6,500 148,688
Mid-America Apartment
Communities, Inc................... 7,300 208,506
National Golf Properties, Inc........ 5,700 187,031
Oasis Residential, Inc............... 2,100 46,856
Parkway Properties, Inc.............. 16,100 552,430
Post Properties, Inc................. 16,100 654,062
Prentiss Properties Trust............ 9,000 251,438
Ramco-Gerhenson Properties Trust..... 4,900 96,469
Reckson Associates Realty Corp....... 2,400 60,900
Regency Realty Corp.................. 10,100 279,644
SL Green Realty Corp................. 1,500 38,906
Sovran Self Storage, Inc............. 9,600 311,400
Spieker Properties, Inc.............. 8,200 351,575
Starwood Lodging Trust............... 4,300 248,863
Sunstone Hotel Investors, Inc........ 7,700 132,825
Tanger Factory Outlet Centers, Inc... 10,700 327,019
Tower Realty Trust, Inc.............. 1,200 29,550
Trammell Crow Co.+................... 5,200 133,900
Walden Residential Properties, Inc... 5,800 147,900
Weeks Corp........................... 1,800 57,600
Weingarten Realty Investors.......... 1,500 67,219
-----------
13,351,059
-----------
Retail (2.4%)
Ames Department Stores, Inc.+........ 13,200 231,000
Burlington Coat Factory Warehouse.... 16,800 276,150
Cash America International, Inc...... 16,900 218,644
Costco Companies, Inc.+.............. 2,700 120,488
Dayton Hudson Corp................... 1,800 121,500
Dress Barn, Inc.+.................... 6,600 187,275
Federated Department Stores, Inc.+... 2,500 107,656
Fingerhut Companies, Inc............. 1,600 34,200
Footstar, Inc.+...................... 1,000 26,875
Lowe's Co., Inc...................... 2,400 114,450
Maxim Group, Inc. (The)+............. 11,000 171,188
Payless ShoeSource, Inc.+............ 600 40,275
Rite Aid Corp........................ 200 11,738
Ross Stores, Inc..................... 10,800 392,850
Russ Berrie & Co., Inc............... 8,200 215,250
TJX Companies, Inc................... 10,200 350,625
Urban Shopping Centers, Inc.......... 8,000 279,000
-----------
2,899,164
-----------
Telecommunications (0.2%)
Aliant Communications, Inc........... 500 $ 15,688
CIENA Corp.+......................... 600 36,675
CommNet Cellular, Inc.+.............. 6,100 216,931
-----------
269,294
-----------
Transportation (1.4%)
Airborne Freight Corp................ 600 37,275
Alaska Air Group, Inc.+.............. 1,100 42,625
America West Holdings Corp.+......... 10,000 186,250
AMR Corp.+........................... 900 115,650
CNF Transportation, Inc.............. 900 34,538
Continental Airlines, Inc., Class B+. 800 38,500
Delta Air Lines, Inc................. 900 107,100
Trico Marine Services, Inc.+......... 17,300 508,187
U.S. Freightways Corp................ 2,000 65,000
UAL Corp.+........................... 400 37,000
US Airways Group, Inc.+.............. 1,700 106,250
Yellow Corp.+........................ 16,100 404,513
-----------
1,682,888
-----------
Utilities - Oil and Gas (0.7%)
Energen Corp......................... 8,100 321,975
NUI Corp............................. 9,800 281,138
Pacific Enterprises.................. 3,100 116,638
People's Energy Corp................. 2,900 114,188
-----------
833,939
-----------
Utilities - Telephone (0.3%)
BellSouth Corp....................... 3,100 174,569
Premiere Technologies, Inc.+......... 7,300 201,663
-----------
376,232
-----------
Total United States 50,836,789
-----------
Foreign Common Stocks (13.8%)
Argentina (0.1%)
Banco de Galicia y Buenos Aires SA
(Banks) ............................. 6,300 162,225
-----------
Australia (0.6%)
Goodman Fielder Ltd. (Foods and
Beverages) ........................ 139,287 221,441
Mayne Nickless Ltd. (Commercial
Services) ......................... 22,900 121,008
Westpac Banking Corp. Ltd. (Banks) .. 27,200 173,965
Woolworth Ltd. (Foods and Beverages) 67,156 224,471
-----------
Total Australia 740,885
-----------
Austria (0.1%)
VA Technologie AG (Commercial
Services) ........................... 550 83,386
-----------
Belgium (0.3%)
Delhaize-Le Lion, SA (Foods and
Beverages) ........................ 4,000 202,970
Societe Generale De Belgique
(Financial Services) .............. 1,400 128,098
-----------
Total Belgium 331,068
-----------
68 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
Brazil (0.2%)
Telecomunicaciones Brasileiras SA
(Utilities - Telephone) ........... 1,700 $ 197,944
-----------
Canada (0.4%)
Canadian Imperial Bank of Commerce
(Banks) ........................... 6,543 203,913
Canadian National Railway Co.
(Transportation) .................. 3,000 141,750
Petro-Canada (Oil and Gas) .......... 8,800 159,886
-----------
Total Canada 505,549
-----------
Chile (0.1%)
Cia. de Telecomuncaciones de Chile
(Utilities - Telephone) ........... 4,800 143,400
-----------
Denmark (0.7%)
Bang & Olufsen Holding Co.
(Electronics) ..................... 3,200 190,676
Carli Gry International A/S
(Apparel) ......................... 3,200 179,927
Novo-Nordisk A/S (Pharmaceuticals) .. 1,600 228,998
Unidanmark A/S (Banks) .............. 2,700 198,344
-----------
Total Denmark 797,945
-----------
Finland (0.3%)
Huhtamaki Group (Diversified) ....... 4,600 190,066
UPM-Kymmene Corp. (Paper and
Containers) ....................... 3,500 70,058
Valmet Oyj (Diversified) ............ 8,100 111,858
-----------
Total Finland 371,982
-----------
France (1.2%)
Accor SA (Hotels and Restaurants) ... 900 167,407
Alcatel Alsthom (Telecommunications) 1,600 203,462
Credit Commercial de France (Banks) . 3,000 205,706
Elf Aquitaine SA (Oil and Gas) ...... 1,450 168,721
Gemini Sogeti SA (Insurance) ........ 2,600 213,286
Lafarge SA
(Building Materials and
Construction) ..................... 3,400 223,187
Schneider SA (Machinery and
Equipment) ........................ 3,600 195,563
Union des Assurances Federales
(Insurance) ....................... 1,050 137,885
-----------
Total France 1,515,217
-----------
Germany (1.1%)
Bayerische Hypotheken-und
Wechsel-Bank AG (Banks) ........... 4,800 234,388
Deutsche Lufthansa AG
(Transportation) .................. 6,200 116,549
Deutsche Pfandbrief & Hypothekenbank
AG (Banks) ........................ 3,500 207,503
Gehe AG (Health Services) ........... 3,600 180,196
Mannesmann AG (Machinery and
Equipment) ........................ 400 202,220
VEBA AG (Utilities - Electric) ...... 1,900 129,446
Viag AG (Diversified) ............... 400 215,568
Volkswagen AG (Autos and Auto
Equipment) ........................ 200 111,788
-----------
Total Germany 1,397,658
-----------
Hong Kong (0.2%)
Hutchison Whampoa Ltd. (Diversified) 34,000 213,261
-----------
India (0.1%)
Videsh Sanchar Nigam Ltd.
(Telecommunications) +............. 11,200 $ 157,080
-----------
Indonesia (0.1%)
Bank International Indonesia (Banks) 169,000 9,996
Putra Surya Multidana (Financial
Services) +........................ 608,500 58,139
-----------
Total Indonesia 68,135
-----------
Ireland (0.4%)
Iona Technologies Plc, ADR
(Consumer Products) +.............. 8,000 164,000
Irish Life Plc (Insurance) .......... 25,104 144,199
Waterford Wedgewood
(Home Furnishings and Appliances) . 140,482 190,221
-----------
Total Ireland
498,420
-----------
Italy (0.7%)
Assicurazioni Generali (Insurance) .. 5,600 137,625
Credito Italiano (Banks) ............ 86,000 265,346
La Rinascente S.p.A. (Retail) ....... 24,500 182,919
Pirelli & Co. (Financial Services) .. 105,900 171,309
Telecom Italia S.p.A. (Utilities -
Telephone) +....................... 13,800 88,202
-----------
Total Italy 845,401
-----------
Japan (1.6%)
Bank of Tokyo-Mitsubishi (Banks) .... 5,000 69,220
Capcom Company
(Computers and Office Equipment) .. 5,000 51,530
Dai Nippon Ink & Chemicals, Inc.
(Chemicals) ....................... 54,000 137,055
Daiichi Pharmaceutical
(Pharmaceuticals) ................. 15,000 169,588
DDI Corp. (Utilities - Telephone) ... 52 137,978
Fuji Photo Film (Chemicals) ......... 4,000 153,821
Fujitec Co. Ltd.
(Building Materials and
Construction) ..................... 10,000 55,376
Fujitsu Denso (Diversified) ......... 1,000 10,998
Hoya Corp. (Medical Supplies) ....... 6,000 189,200
Matsushita Kotobuki Electronics
Industries (Electronics) .......... 3,000 75,680
Minebea Co. Ltd. (Electronics) ...... 18,000 193,815
Seino Transportation Co., Ltd.
(Diversified) ..................... 32,000 160,220
Sekisui Chemical Co. (Chemicals) .... 25,000 127,479
Sony Corp. (Electronics) ............ 2,300 205,197
Takefuji Corp. (Banks) .............. 3,000 138,208
West Japan Railway (Transportation) . 21 67,189
-----------
Total Japan 1,942,554
-----------
Mexico (0.4%)
Cifra SA (Retail) ................... 100,000 223,275
Grupo Financiero Banamex Accival
(Financial Services) +............. 43,000 128,544
Panamerican Beverages, Inc.
(Foods and Beverages) ............. 5,400 176,175
-----------
Total Mexico 527,994
-----------
69
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997 (continued)
Crossroads
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- -----------
Netherlands (0.9%)
Akzo Nobel NV (Chemicals) ........... 1,100 $ 189,698
Bols Wessanen CVA (Foods and
Beverages) ........................ 7,800 120,815
ING Groep NV (Banks) ................ 3,882 163,535
KLM Royal Dutch Air Line
(Transportation) .................. 3,400 125,788
Philips Electronics NV (Electronics) 3,000 179,950
Vendex International NV (Retail) .... 2,600 143,516
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit
(Printing and Publishing) ......... 7,100 200,333
-----------
Total Netherlands 1,123,635
-----------
New Zealand (0.1%)
Fernz Corp., Ltd. (Chemicals) ....... 43,100 111,367
-----------
Norway (0.6%)
Christiania Bank Og Kredkasse
(Banks) ........................... 33,200 134,202
Det Sondenfjelds-Norske
Dampskibsselskab (Oil and Gas) +... 6,800 142,047
Ocean Rig ASA (Oil and Gas) +........ 272,650 288,472
Tomra Systems ASA (Paper and
Containers) ....................... 7,400 165,622
-----------
Total Norway 730,343
-----------
Singapore (0.0%)
Jardine Matheson Holdings
(Diversified) ....................... 216 1,102
-----------
Spain (0.4%)
Cortefiel, SA (Retail) .............. 8,000 160,614
Iberdrola SA (Utilities - Electric) . 15,700 206,531
Telefonica de Espana (Utilities -
Telephone) ........................ 4,000 114,162
-----------
Total Spain 481,307
-----------
Sweden (0.7%)
Ericsson ADR (Telecommunications) ... 3,800 141,788
Frontec AB (Computer Software) +..... 6,800 59,564
Industrial & Financial Systems
(Computer Software) +.............. 20,000 138,007
Oxigene, Inc. (Pharmaceuticals) +.... 6,600 118,119
Skandia Forsakrings AB (Insurance) .. 4,100 193,519
Svenska Handelsbanken (Financial
Services) ......................... 5,700 197,199
-----------
Total Sweden 848,196
-----------
Switzerland (0.5%)
Credit Suisse Group (Banks) ......... 1,200 185,938
Kuoni Reisen AG (Commercial
Services) ......................... 40 150,149
Nestle SA Registered Shares
(Foods and Beverages) ............. 80 120,064
Novartis AG Registered Shares
(Health Services) ................. 125 203,113
-----------
Total Switzerland 659,264
-----------
United Kingdom (1.9%)
3i Group Plc (Financial Services) ... 20,400 166,488
Bank of Scotland (Banks) ............ 23,049 212,379
Barclays Plc (Financial Services) ... 5,048 134,391
United Kingdom (continued)
Boots Co. Plc (Retail) .............. 14,500 $ 209,118
Glaxo Wellcome Plc (Pharmaceuticals) 7,832 185,570
Granada Group Plc (Diversified) ..... 15,012 229,717
Millennium Chemicals, Inc.
(Chemicals) ....................... 1,500 35,344
Morgan Crucible Plc (Diversified) ... 13,200 100,343
National Westminster Bank Plc
(Banks) ........................... 11,000 183,166
Pearson Plc (Printing and
Publishing) ....................... 9,400 122,342
Shell Transport & Trading Co. (Oil
and Gas) .......................... 25,800 186,786
Tomkins Plc (Diversified) ........... 38,000 181,948
Unilever Plc (Consumer Products) .... 27,300 234,030
Vodafone Group Plc
(Telecommunications) .............. 26,000 187,806
-----------
Total United Kingdom 2,369,428
-----------
Venezuela (0.1%)
Compania Anonima Nacional Telefonos
de Venezuela (Utilities -
Telephone) ........................ 2,800 116,550
-----------
Total Foreign Common Stocks 16,941,296
-----------
Total Common Stocks (cost
$60,427,954) 67,778,085
-----------
PREFERRED STOCKS (0.2%)
Germany (0.2%)
Henkel KGAA (Chemicals) ............. 3,300 208,310
-----------
Total Preferred Stocks (cost
$184,283) 208,310
-----------
Principal
Amount
---------
LONG-TERM BONDS AND NOTES (29.0%)
U.S. Government Obligations (19.5%)
U.S. Treasury Bond, 6.63%, 02/15/27.. $1,000,000 1,085,775
U.S. Treasury Note, 5.88%, 02/15/00.. 3,300,000 3,313,418
U.S. Treasury Note, 6.50%, 05/31/02.. 2,000,000 2,058,752
U.S. Treasury Note, 6.50%, 10/15/06.. 7,100,000 7,435,021
U.S. Treasury Note, 6.88%, 05/15/06.. 1,000,000 1,070,155
U.S. Treasury Note, 7.50%, 10/31/99.. 5,200,000 5,361,700
U.S. Treasury Note, 7.50%, 11/15/01.. 3,425,000 3,631,582
-----------
Total U.S. Government Obligations (cost
$23,317,399) 23,956,403
-----------
Corporate Bonds (9.5%)
American Re Corp., 7.45%, 12/15/26... 600,000 648,953
Associates Corp. of North America,
7.40%, 05/15/06.................... 750,000 798,359
Comcast Cellular, 9.50%, 05/01/07.... 800,000 835,999
Echostar Communications, Zero
Coupon, 06/01/04................... 425,000 388,875
Enron Oil & Gas, 6.50%, 12/01/07.... 800,000 804,655
Fifth Third Bank, 6.75%, 07/15/05.... 250,000 254,877
Ford Motor Credit Corp., 6.63%,
06/30/03........................... 900,000 913,504
Heller Financial, 6.35%, 08/15/99++... 200,000 198,274
HSBC Americas, Inc., 7.00%, 11/01/06. 1,400,000 1,426,648
Korea Development Bank., 7.13%,
09/17/01........................... 700,000 595,048
Raytheon Co., 6.45%, 08/15/02........ 800,000 804,719
See Notes to Portfolio of Investments.
70
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----------
Corporate Bonds (continued)
Skanidinavinska Enskilda Bank,
6.91%, 06/29/49.................... $1,100,000 $ 1,112,374
TCI Communications, Inc., 6.38%,
09/15/99........................... 700,000 700,013
Tenet Healthcare Corp., 7.88%,
01/15/03........................... 750,000 766,192
Time Warner, Inc., 9.13%, 01/15/13... 625,000 748,028
Zurich Capital Trust, 8.38%,
06/01/37++.......................... 625,000 683,177
-------------
Total Corporate Bonds (cost
$11,521,724) 11,679,695
-------------
Total Long-Term Bonds and Notes (cost
$34,839,123) 35,636,098
-------------
SHORT-TERM INVESTMENTS (15.1%)
Citicorp, Comm. Paper, 6.50%,
01/02/98........................... 5,000,000 5,000,000
Dealers Capital Access Trust, Inc.,
Comm. Paper, 6.80%, 01/02/98....... 5,000,000 5,000,000
Federal Home Loan Bank, Comm. Paper,
4.75%, 01/02/98.................... 4,049,000 4,049,000
Jefferson Smurfit, Comm. Paper,
6.00%, 01/07/98.................... 4,000,000 3,996,667
U.S. Treasury Bill, 5.17%, 02/05/98@. 525,000 522,470
-------------
Total Short-Term Investments (cost $18,568,106)
18,568,137
-------------
TOTAL INVESTMENTS (cost $114,019,466)(a) 122,190,630
Other assets less liabilities 799,118
-------------
Total Net Assets $122,989,748
=============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$114,151,689. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains .................... $10,449,389
Unrealized losses ................... (2,410,448)
------------
Net unrealized gain ............... $ 8,038,941
============
Information concerning open futures contracts at December 31, 1997 is shown
below:
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- ---------- ---------- -----------
Long Contracts
- -------------------
Canadian
Government Bond
Futures ........ 2 $ 171,485 March 98 $ 2,306
Long-Term German
Government Bond
Futures ........ 13 1,894,582 March 98 13,376
French Notional
Bond Futures ... 4 340,327 March 98 (665)
FTSE 100 Index 1 218,693 March 98 (3,476)
Future
Swiss Government
Bond Futures ... 4 334,342 March 98 1,179
----------- -----------
$2,959,429 $ 12,720
=========== ===========
+ Non-income producing security.
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Directors.
@ Security pledged to cover initial margin requirements on open futures
contracts at December 31, 1997.
Category percentages are based on net assets.
See Notes to Financial Statements. 71
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997
Legacy
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ----------
COMMON STOCKS (36.4%)
United States (26.6%)
Aerospace and Defense (0.1%)
Alliant Techsystems, Inc.+............ 600 $ 33,450
General Motors, Class H............... 200 7,388
Raytheon Co........................... 51 2,516
United Technologies Corp.............. 600 43,688
-------------
87,042
-------------
Apparel (0.0%)
American Eagle Outfitters, Inc.+...... 800 27,900
-------------
Auto Parts and Accessories (0.1%)
Arvin Industries, Inc................. 300 9,994
Echlin, Inc........................... 1,300 47,044
Lear Corp.+........................... 100 4,750
-------------
61,788
-------------
Autos and Auto Equipment (0.6%)
Borg Warner Automotive, Inc........... 200 10,400
Budget Group, Inc., Class A+.......... 2,400 82,950
Chrysler Corp......................... 1,200 42,225
Ford Motor Co......................... 1,700 82,769
General Motors Corp................... 1,200 72,750
PACCAR, Inc........................... 800 42,000
Westinghouse Air Brake Co............. 6,400 164,000
-------------
497,094
-------------
Banks (0.9%)
AmSouth Bancorporation................ 200 10,863
BankAmerica Corp...................... 1,400 102,200
Comerica, Inc......................... 600 54,150
Dime Bancorp, Inc..................... 500 15,125
Fifth Third Bancorp................... 600 49,050
First of America Bank Corp............ 1,200 92,550
Imperial Bancorp+..................... 2,700 133,144
NationsBank Corp...................... 1,100 66,894
Southtrust Corp....................... 300 19,031
Star Banc Corp........................ 200 11,475
State Street Corp..................... 300 17,456
USBANCORP, Inc........................ 1,700 124,100
-------------
696,038
-------------
Building Materials and Construction (1.7%)
Centex Construction Products, Inc..... 1,400 42,175
Centex Corp........................... 800 50,350
Continental Homes Holding Corp........ 6,900 277,724
Florida Rock Industries, Inc.......... 2,400 54,600
Lafarge Corp.......................... 100 2,956
Lone Star Industries, Inc............. 3,600 191,250
Martin Marietta Materials, Inc........ 100 3,656
MDC Holdings, Inc..................... 9,000 135,563
Southdown, Inc........................ 300 17,700
Standard Pacific Corp................. 16,200 255,149
Tredegar Industries, Inc.............. 3,100 204,213
Building Materials and Construction (continued)
USG Corp.+............................ 300 $ 14,700
Webb (Del E.) Corp.................... 5,800 150,800
----------
1,400,836
----------
Chemicals (0.1%)
Dow Chemical Co....................... 700 71,050
Lyondell Petrochemical Co............. 500 13,250
----------
84,300
----------
Commercial Services (0.2%)
AccuStaff, Inc.+...................... 500 11,500
Deluxe Corp........................... 1,400 48,300
Galileo International, Inc............ 500 13,813
Mail-Well, Inc.+...................... 400 16,200
Ogden Corp............................ 500 14,094
Quintiles Transnational Corp.+........ 400 15,300
Service Corporation International..... 900 33,244
Thermo Ecotek Corp.+.................. 100 1,825
----------
154,276
----------
Computer Software (0.8%)
BMC Software, Inc.+................... 300 19,688
Cadence Design Systems, Inc.+......... 700 17,150
CHS Electronics, Inc.+................ 6,450 110,456
Computer Learning Centers, Inc.+...... 3,600 220,500
Keane, Inc.+.......................... 3,800 154,375
Microsoft Corp.+...................... 1,100 142,175
Symantec Corp.+....................... 500 10,969
----------
675,313
----------
Computers and Office Equipment (0.8%)
Adaptec, Inc.+........................ 300 11,138
Compaq Computer Corp.................. 1,900 107,231
Dell Computer Corp.+.................. 3,400 285,599
International Business Machines, Inc.. 500 52,281
Magnetek, Inc.+....................... 600 11,700
Moore Corp. Ltd....................... 3,700 55,963
SMART Modular Technologies, Inc.+..... 200 4,600
Sun Microsystems, Inc.+............... 1,200 47,850
Unisys Corp.+......................... 2,400 33,300
Virco Manufacturing Corp.............. 1,000 28,000
----------
637,662
----------
Consumer Products (0.1%)
Blyth Industries, Inc.+............... 300 8,981
Herbalife International, Inc.+........ 266 5,719
Procter & Gamble Co................... 700 55,869
----------
70,569
----------
Diversified (0.3%)
Aeroquip-Vickers, Inc................. 1,100 53,969
Deere & Co............................ 900 52,481
Eastern Enterprises................... 1,000 45,000
Eaton Corp............................ 400 35,700
72 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ----------
United States (continued)
Diversified (continued)
ITT Industries, Inc................... 1,100 $ 34,513
Paragon Trade Brands, Inc.+........... 2,200 28,325
----------
249,988
----------
Electrical Equipment (0.3%)
C & D Technologies, Inc............... 4,500 217,125
----------
Electronics (0.3%)
AMP, Inc.............................. 1,300 54,600
Intel Corp............................ 1,000 70,250
SCI Systems, Inc.+.................... 300 13,069
Technitrol, Inc....................... 3,600 108,000
----------
245,919
----------
Financial Services (1.7%)
Ahmanson (H. F.) & Co................. 2,800 187,425
Bankers Trust New York Corp........... 200 22,488
Bear Stearns Co., Inc................. 429 20,378
Donaldson, Lufkin & Jenrette, Inc..... 200 15,900
Edwards (A.G.), Inc................... 450 17,888
FIRSTPLUS Financial Group, Inc.+...... 4,200 161,175
Golden West Financial Corp............ 500 48,906
Greenpoint Financial Corp............. 100 7,256
Lehman Brothers Holdings, Inc......... 300 15,300
Merrill Lynch & Co., Inc.............. 400 29,175
Money Store, Inc. (The)............... 200 4,200
Morgan Stanley, Dean Witter,
Discover & Co....................... 900 53,213
Paine Webber Group, Inc............... 450 15,553
SunAmerica, Inc....................... 450 19,238
TCF Financial Corp.................... 2,700 91,631
Trans Financial, Inc.................. 6,200 241,025
Travelers Group, Inc.................. 1,350 72,731
Webster Financial Corp................ 2,700 179,550
WSFS Financial Corp.+................. 7,700 154,000
----------
1,357,032
----------
Foods and Beverages (1.0%)
Canandaigua Wine Co., Inc., Class A+.. 3,500 193,813
Coors (Adolph) Co..................... 100 3,325
Dean Foods Co......................... 200 11,900
J & J Snack Foods Corp.+.............. 10,100 165,388
Kroger Co. (The)+..................... 2,600 96,038
Pilgrim's Pride Corp.................. 4,500 70,031
Quaker Oats Co........................ 100 5,275
Suiza Foods Corp.+.................... 4,200 250,163
----------
795,933
----------
Health Services (0.4%)
Alpharma, Inc. Class A................ 10,400 226,200
Phycor, Inc.+......................... 5,100 137,700
----------
363,900
----------
Home Furnishings and Appliances (0.3%)
Carlisle Co., Inc..................... 300 12,825
Home Furnishings and Appliances (continued)
Ethan Allen Interiors, Inc............ 5,800 $ 223,663
----------
236,488
----------
Hotels and Restaurants (0.2%)
Darden Restaurants, Inc............... 4,200 52,500
Foodmaker, Inc.+...................... 6,700 100,919
Promus Hotel Corp.+................... 370 15,540
Red Roof Inns, Inc.+.................. 1,200 18,375
----------
187,334
----------
Insurance (1.0%)
Allstate Corp......................... 800 72,700
American Bankers Insurance Group...... 900 41,344
Conseco, Inc.......................... 1,200 54,525
Equitable Co., Inc. (The)............. 1,100 54,725
Everest Re Holdings, Inc.............. 300 12,375
Financial Security Assurance
Holdings Ltd........................ 1,000 48,250
First American Financial Corp......... 1,900 140,363
Hartford Financial Services
Group, Inc.......................... 600 56,138
Jefferson-Pilot Corp.................. 500 38,938
Lawyers Title Corp.................... 5,400 169,763
Old Republic International Corp....... 400 14,875
Reliance Group Holdings, Inc.......... 400 5,650
RLI Corp.............................. 1,400 69,738
Torchmark Corp........................ 1,200 50,475
----------
829,859
----------
Machinery and Equipment (0.1%)
Black & Decker Corp................... 900 35,156
Caterpillar, Inc...................... 800 38,850
Commercial Intertech Corp............. 800 16,600
Cummins Engine Company, Inc........... 100 5,906
Parker-Hannifin Corp.................. 200 9,175
----------
105,687
----------
Media and Entertainment (0.9%)
Clear Channel Communications, Inc.+... 700 55,606
Fleetwood Enterprises, Inc............ 1,200 50,925
Gaylord Entertainment Co.............. 7,200 229,950
Lin Television Corp.+................. 100 5,450
Midway Games, Inc.+................... 9,500 172,781
Panavision, Inc.+..................... 3,600 92,925
Speedway Motorsports, Inc.+........... 5,600 138,950
----------
746,587
----------
Medical Supplies (1.2%)
Hanger Orthopedic Group, Inc.+........ 17,400 224,025
Maxxim Medical, Inc.+................. 5,900 128,325
OEC Medical Systems, Inc.+............ 8,000 159,500
Osteotech, Inc.+...................... 2,600 70,850
Safeskin Corp.+....................... 900 51,075
Serologicals Corp.+................... 3,400 88,400
Spine-Tech, Inc.+..................... 2,700 138,881
73
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997 (continued)
Legacy
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
------------ --------
United States (continued)
Medical Supplies (continued)
Vivus, Inc.+.......................... 400 $ 4,250
West Company, Inc. (The).............. 3,200 95,200
----------
960,506
----------
Metals and Mining (0.3%)
Kennametal, Inc....................... 300 15,544
National Steel Corp., Class B+........ 4,600 53,188
RMI Titanium Co.+..................... 3,600 72,000
Timken Co............................. 3,200 110,000
Trinity Industries, Inc............... 100 4,463
----------
255,195
----------
Oil and Gas (1.9%)
Ashland Oil, Inc...................... 1,000 53,688
Atlantic Richfield Co................. 600 48,075
BJ Services Co.+...................... 200 14,388
Clayton Williams Energy, Inc.+........ 4,800 72,000
Cliffs Drilling Co.+.................. 4,000 199,500
Columbia Gas System, Inc.............. 800 62,850
Devon Energy Corp..................... 300 11,550
Helmerich & Payne, Inc................ 700 47,513
Kerr-McGee Corp....................... 700 44,319
Marine Drilling Co., Inc.+............ 6,900 143,175
Occidental Petroleum Corp............. 1,900 55,694
Oryx Energy Co.+...................... 900 22,950
Phillips Petroleum Co................. 1,300 63,213
SEACOR SMIT Holdings+................. 3,800 228,950
Sun Company, Inc...................... 1,100 46,269
Tesoro Petroleum Corp.+............... 3,500 54,250
Texaco, Inc........................... 600 32,625
Tidewater, Inc........................ 200 11,025
Union Texas Petroleum Holdings, Inc... 600 12,488
USX-Marathon Group.................... 1,900 64,125
Valero Energy Corp.................... 100 3,144
Veritas DGC, Inc.+.................... 1,100 43,450
Vintage Petroleum, Inc................ 13,000 247,000
----------
1,582,241
----------
Paper and Containers (0.1%)
Ball Corp............................. 1,200 42,375
----------
Pharmaceuticals (0.5%)
Dura Pharmaceuticals, Inc.+........... 200 9,175
Eli Lilly & Co........................ 1,300 90,513
Medicis Pharmaceutical Corp.+......... 3,600 184,050
Merck & Co., Inc...................... 1,200 127,500
Rexall Sundown, Inc.+................. 500 15,094
----------
426,332
----------
Printing and Publishing (0.6%)
Central Newspapers, Inc., Class A..... 200 14,788
Dow Jones & Co., Inc.................. 900 48,319
Gannett Co., Inc...................... 200 12,363
Printing and Publishing (continued)
Lexmark International Group, Inc.+.... 400 $ 15,200
McClatchy Newspapers, Inc............. 2,575 70,008
RR Donnelley & Sons Co................ 1,300 48,425
Valassis Communications, Inc.+........ 8,200 303,399
----------
512,502
----------
Real Estate Investment Trusts (6.7%)
Alexandria Real Estate Equities, Inc.. 600 18,938
AMB Property Corp..................... 600 15,075
American Residential Investment
Trust, Inc.......................... 700 8,313
Apartment Investment & Management Co.. 7,600 279,299
Arden Realty Group, Inc............... 800 24,600
Bay Apartment Communities, Inc........ 3,200 124,800
Bedford Property Investors, Inc....... 1,600 35,000
Berkshire Realty Co., Inc............. 3,800 45,600
Brandywine Realty Trust............... 2,500 62,813
Capstone Capital Trust, Inc........... 6,800 173,825
Captec Net Lease Realty, Inc.......... 1,500 25,781
CBL & Associates Properties, Inc...... 3,400 83,938
Colonial Properties Trust............. 6,400 192,800
Cornerstone Properties, Inc........... 1,500 28,781
Crescent Real Estate Equities, Inc.... 5,500 216,563
Criimi Mae, Inc....................... 2,600 39,000
Developers Diversified Realty Corp.... 900 34,425
Duke Realty Investments, Inc.......... 6,600 160,050
Eastgroup Properties, Inc............. 1,500 32,438
Equity Inns, Inc...................... 7,900 116,525
Equity Residential Properties Trust... 4,750 240,172
Essex Property Trust, Inc............. 7,700 269,499
General Growth Properties............. 3,200 115,600
Glenborough Realty Trust, Inc......... 9,300 275,512
Glimcher Realty Trust................. 1,900 42,869
Health Care REIT, Inc................. 5,000 140,625
Home Properties of New York, Inc...... 1,300 35,344
Imperial Credit Commercial Mortgage
Investment Corp..................... 800 11,700
Innkeepers USA Trust.................. 8,400 130,200
JDN Realty Corp....................... 4,400 142,450
Kimco Realty Corp..................... 5,800 204,450
Koger Equity, Inc..................... 7,500 164,531
Lexington Corporate Properties, Inc... 2,000 30,875
Mack-Cali Realty Corp................. 4,900 200,900
Manufactured Home Communities, Inc.... 1,200 32,400
Merry Land & Investment Co., Inc...... 3,800 86,925
Oasis Residential, Inc................ 1,200 26,775
Parkway Properties, Inc............... 3,400 116,663
Post Properties, Inc.................. 4,200 170,625
Prentiss Properties Trust............. 3,700 103,369
Prime Retail, Inc..................... 4,300 61,006
Ramco-Gerhenson Properties Trust...... 1,300 25,594
Reckson Associates Realty Corp........ 1,000 25,375
74 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ----------
United States (continued)
Real Estate Investment Trusts (continued)
Regency Realty Corp................... 6,700 $ 185,506
SL Green Realty Corp.................. 600 15,563
Sovran Self Storage, Inc.............. 7,300 236,794
Spieker Properties, Inc............... 3,300 141,488
Starwood Lodging Trust................ 1,700 98,388
Sunstone Hotel Investors, Inc......... 3,300 56,925
Tanger Factory Outlet Centers, Inc.... 5,100 155,869
Tower Realty Trust, Inc............... 500 12,313
Trammell Crow Co.+.................... 2,100 54,075
Walden Residential Properties, Inc.... 5,400 137,700
Weeks Corp............................ 700 22,400
----------
5,489,044
----------
Retail (1.6%)
Ames Department Stores, Inc.+......... 6,300 110,250
Burlington Coat Factory Warehouse..... 8,880 145,965
Cash America International, Inc....... 6,000 77,625
Costco Companies, Inc.+............... 1,200 53,550
Dayton Hudson Corp.................... 800 54,000
Dress Barn, Inc.+..................... 3,200 90,800
Federated Department Stores, Inc.+.... 800 34,450
Fingerhut Companies, Inc.............. 700 14,963
Lowe's Co., Inc....................... 1,100 52,456
Maxim Group, Inc. (The)+.............. 4,000 62,250
Payless ShoeSource, Inc.+............. 200 13,425
Ross Stores, Inc...................... 3,300 120,038
Russ Berrie & Co., Inc................ 4,200 110,250
TJX Companies, Inc.................... 4,800 165,000
Trans World Entertainment+............ 1,600 31,000
Urban Shopping Centers, Inc........... 3,800 132,525
----------
1,268,547
----------
Telecommunications (0.2%)
Aliant Communications, Inc............ 200 6,275
CIENA Corp.+.......................... 200 12,225
CommNet Cellular, Inc.+............... 3,300 117,356
----------
135,856
----------
Transportation (0.9%)
Airborne Freight Corp................. 200 12,425
Alaska Air Group, Inc.+............... 100 3,875
America West Holdings Corp.+.......... 4,600 85,675
AMR Corp.+............................ 400 51,400
CNF Transportation, Inc............... 300 11,513
Continental Airlines, Inc., Class B+.. 300 14,438
CSX Corp.............................. 1,000 54,000
Delta Air Lines, Inc.................. 400 47,600
Trico Marine Services, Inc.+.......... 5,100 149,813
U.S. Freightways Corp................. 400 13,000
UAL Corp.+............................ 300 27,750
US Airways Group, Inc.+............... 700 43,750
Transportation (continued)
Yellow Corp.+......................... 7,800 $ 195,975
----------
711,214
----------
Utilities - Oil and Gas (0.5%)
Energen Corp.......................... 3,700 147,075
NUI Corp.............................. 4,800 137,700
ONEOK, Inc............................ 100 4,038
Pacific Enterprises................... 1,300 48,913
People's Energy Corp.................. 1,200 47,250
Southwestern Energy Co................ 1,300 16,738
----------
401,714
----------
Utilities - Telephone (0.2%)
BellSouth Corp........................ 1,300 73,206
Premiere Technologies, Inc.+.......... 3,900 107,738
----------
180,944
----------
Total United States 21,695,140
----------
Foreign Common Stocks (9.8%)
Argentina (0.1%)
Banco de Galicia y Buenos Aires SA
(Banks) .............................. 2,800 72,100
----------
Australia (0.4%)
Goodman Fielder Ltd. (Foods and
Beverages) ......................... 68,300 108,585
Mayne Nickless Ltd. (Commercial
Services) .......................... 11,200 59,183
Westpac Banking Corp. Ltd. (Banks) ... 14,100 90,180
Woolworth Ltd. (Foods and Beverages) . 32,995 110,287
----------
Total Australia 368,235
----------
Austria (0.1%)
VA Technologie AG (Commercial
Services) ............................ 300 45,483
----------
Belgium (0.2%)
Delhaize-Le Lion, SA (Foods and
Beverages) ......................... 1,900 96,411
Societe Generale De Belgique
(Financial Services) ............... 700 64,049
----------
Total Belgium 160,460
----------
Brazil (0.1%)
Telecomunicaciones Brasileiras SA
(Utilities - Telephone) ............ 600 69,863
----------
Canada (0.3%)
Canadian Imperial Bank of Commerce
(Banks) ............................ 2,919 90,977
Canadian National Railway Co. 1,400 66,150
(Transportation)
Petro-Canada (Oil and Gas) ........... 5,400 98,112
----------
Total Canada 255,239
----------
Chile (0.1%)
Cia. de Telecomuncaciones de Chile
(Utilities - Telephone) ............ 2,100 62,738
----------
Denmark (0.4%)
Bang & Olufsen Holding Co.
(Electronics) ...................... 1,200 71,504
Carli Gry International A/S (Apparel) 1,500 84,341
Novo-Nordisk A/S (Pharmaceuticals) ... 700 100,187
75
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997 (continued)
Legacy
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ----------
Denmark (continued)
Unidanmark A/S (Banks) ............... 1,500 $ 110,191
----------
Total Denmark 366,223
----------
Finland (0.2%)
Huhtamaki Group (Diversified) ........ 2,100 86,769
UPM-Kymmene Corp. (Paper and
Containers) ........................ 2,300 46,038
Valmet Oyj (Diversified) ............. 4,000 55,238
----------
Total Finland 188,045
----------
France (0.9%)
Accor SA (Hotels and Restaurants) .... 400 74,403
Alcatel Alsthom (Telecommunications) . 800 101,731
Credit Commercial de France (Banks) .. 1,700 116,567
Elf Aquitaine SA (Oil and Gas) ....... 700 81,451
Gemini Sogeti SA (Insurance) ......... 1,200 98,440
Lafarge SA
(Building Materials and
Construction) ...................... 1,500 98,465
Schneider SA (Machinery and
Equipment) ......................... 1,800 97,782
Union des Assurances Federales
(Insurance) ........................ 500 65,660
----------
Total France 734,499
----------
Germany (0.7%)
Bayerische Hypotheken-und
Wechsel-Bank AG (Banks) ............ 2,100 102,545
Deutsche Lufthansa AG
(Transportation) ................... 3,000 56,395
Deutsche Pfandbrief & Hypothekenbank
AG (Banks) ......................... 2,000 118,573
Gehe AG (Health Services) ............ 1,200 60,065
Mannesmann AG (Machinery and
Equipment) ......................... 150 75,832
VEBA AG (Utilities - Electric) ....... 1,000 68,130
Viag AG (Diversified) ................ 100 53,892
Volkswagen AG (Autos and Auto
Equipment) ......................... 100 55,894
----------
Total Germany 591,326
----------
Hong Kong (0.1%)
Hutchison Whampoa Ltd. (Diversified) . 17,000 106,630
----------
India (0.1%)
Videsh Sanchar Nigam Ltd.
(Telecommunications) +.............. 5,000 70,125
----------
Indonesia (0.1%)
Bank International Indonesia (Banks) . 66,500 3,933
Putra Surya Multidana (Financial
Services) +......................... 593,500 56,705
----------
Total Indonesia 60,638
----------
Ireland (0.3%)
Iona Technologies Plc, ADR
(Consumer Products) +............... 3,000 61,500
Irish Life Plc (Insurance) ........... 11,252 64,632
Waterford Wedgewood
(Home Furnishings and Appliances) .. 67,895 91,934
----------
Total Ireland 218,066
----------
Italy (0.5%)
Assicurazioni Generali (Insurance) ... 2,800 $ 68,812
Credito Italiano (Banks) ............. 30,000 92,562
La Rinascente S.p.A. (Retail) ........ 15,000 111,991
Pirelli & Co. (Financial Services) ... 51,100 82,662
Telecom Italia S.p.A. (Utilities -
Telephone) +........................ 7,500 47,936
----------
Total Italy 403,963
----------
Japan (1.1%)
Bank of Tokyo-Mitsubishi (Banks) ..... 3,000 41,532
Dai Nippon Ink & Chemicals, Inc.
(Chemicals) ........................ 24,000 60,913
Daiichi Pharmaceutical
(Pharmaceuticals) .................. 9,000 101,753
DDI Corp. (Utilities - Telephone) .... 27 71,642
Fuji Photo Film (Chemicals) .......... 2,000 76,911
Fujitec Co. Ltd.
(Building Materials and
Construction) ...................... 6,000 33,225
Fujitsu Denso (Diversified) .......... 1,000 10,998
Hoya Corp. (Medical Supplies) ........ 3,000 94,600
Matsushita Kotobuki Electronics
Industries (Electronics) ........... 1,000 25,227
Minebea Co. Ltd. (Electronics) ....... 8,000 86,140
Seino Transportation Co., Ltd.
(Diversified) ...................... 8,000 40,055
Sekisui Chemical Co. (Chemicals) ..... 11,000 56,091
Sony Corp. (Electronics) ............. 1,100 98,138
Takefuji Corp. (Banks) ............... 1,200 55,283
West Japan Railway (Transportation) .. 10 31,995
----------
Total Japan 884,503
----------
Mexico (0.3%)
Cifra SA (Retail) .................... 60,000 133,965
Grupo Financiero Banamex Accival
(Financial Services) +.............. 19,000 56,799
Panamerican Beverages, Inc.
(Foods and Beverages) .............. 2,900 94,613
----------
Total Mexico 285,377
----------
Netherlands (0.7%)
Akzo Nobel NV (Chemicals) ............ 500 86,226
Bols Wessanen CVA (Foods and
Beverages) ......................... 3,800 58,859
ING Groep NV (Banks) ................. 2,093 88,171
KLM Royal Dutch Air Line
(Transportation) ................... 1,700 62,894
Philips Electronics NV (Electronics) . 1,300 77,978
Vendex International NV (Retail) ..... 1,900 104,877
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit
(Printing and Publishing) .......... 3,200 90,291
----------
Total Netherlands 569,296
----------
New Zealand (0.1%)
Fernz Corp., Ltd. (Chemicals) ........ 19,300 49,869
----------
Norway (0.4%)
Christiania Bank Og Kredkasse (Banks) 16,300 65,888
76 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number Market
of Value
Shares
--------- ----------
Norway (continued)
Det Sondenfjelds-Norske
Dampskibsselskab (Oil and Gas) +.... 3,000 $ 62,668
Ocean Rig ASA (Oil and Gas) +......... 110,550 116,965
Tomra Systems ASA (Paper and
Containers) ........................ 3,300 73,859
-----------
Total Norway 319,380
-----------
Portugal (0.1%)
Portugal Telecom SA SP ADR
(Utilities - Telephone) ............ 1,800 84,600
-----------
Singapore (0.0%)
Jardine Matheson Holdings
(Diversified) ........................ 99 505
-----------
Spain (0.3%)
Cortefiel, SA (Retail) ............... 4,000 80,307
Iberdrola SA (Utilities - Electric) .. 7,100 93,399
Telefonica de Espana (Utilities -
Telephone) ......................... 2,000 57,081
-----------
Total Spain 230,787
-----------
Sweden (0.4%)
Ericsson ADR (Telecommunications) .... 1,700 63,431
Frontec AB (Computer Software) +...... 3,500 30,658
Oxigene, Inc. (Pharmaceuticals) +..... 3,400 60,849
Skandia Forsakrings AB (Insurance) ... 1,800 84,960
Svenska Handelsbanken (Financial
Services) .......................... 2,800 96,870
-----------
Total Sweden 336,768
-----------
Switzerland (0.4%)
Credit Suisse Group (Banks) .......... 600 92,969
Kuoni Reisen AG (Commercial Services) 15 56,306
Nestle SA Registered Shares
(Foods and Beverages) .............. 50 75,040
Novartis AG Registered Shares
(Health Services) .................. 70 113,743
-----------
Total Switzerland 338,058
-----------
United Kingdom (1.3%)
3i Group Plc (Financial Services) .... 10,000 81,612
Barclays Plc (Financial Services) +... 3,029 80,640
Boots Co. Plc (Retail) ............... 6,500 93,743
Glaxo Wellcome Plc (Pharmaceuticals) . 5,589 132,424
Granada Group Plc (Diversified) ...... 6,209 95,011
Millennium Chemicals, Inc.
(Chemicals) ........................ 500 11,781
Morgan Crucible Plc (Diversified) .... 6,500 49,411
National Westminster Bank Plc (Banks) 5,300 88,253
Pearson Plc (Printing and Publishing) 6,200 80,694
Shell Transport & Trading Co. (Oil
and Gas) ........................... 11,700 84,705
Tomkins Plc (Diversified) ............ 14,400 68,949
Unilever Plc (Consumer Products) ..... 12,200 104,585
Vodafone Group Plc
(Telecommunications) ............... 12,600 91,014
-----------
Total United Kingdom 1,062,822
-----------
Venezuela (0.1%)
Compania Anonima Nacional Telefonos
de Venezuela (Utilities -
Telephone) ......................... 1,600 $ 66,600
-----------
Total Foreign Common Stocks 8,002,198
-----------
Total Common Stocks (cost
$26,151,078) 29,697,338
-----------
PREFERRED STOCKS (0.1%)
Germany (0.1%)
Henkel KGAA (Chemicals) .............. 1,500 94,686
-----------
Total Preferred Stocks (cost $80,647) 94,686
-----------
Principal
Amount
---------
LONG-TERM BONDS AND NOTES (42.7%)
U.S. Government Obligations (29.6%)
U.S. Treasury Note, 5.88%, 02/15/00... $3,350,000 3,363,621
U.S. Treasury Note, 6.50%, 05/31/02... 2,900,000 2,985,190
U.S. Treasury Note, 6.50%, 10/15/06... 6,100,000 6,387,835
U.S. Treasury Note, 6.88%, 05/15/06... 2,750,000 2,942,929
U.S. Treasury Note, 7.50%, 10/31/99... 4,750,000 4,897,706
U.S. Treasury Note, 7.50%, 11/15/01... 3,390,000 3,594,471
-----------
Total U.S. Government Obligations (cost
$23,584,894) 24,171,752
-----------
U.S. Government and Agency Obligations
(1.0%)
U. S. Treasury Bond, 6.63%, 02/15/27.. 700,000 760,042
-----------
Total U.S. Government and Agency Obligations
(cost $721,051)
760,042
-----------
Corporate Bonds (12.1%)
American Re Corp., 7.45%, 12/15/26.... 700,000 757,112
Associates Corporation of North
America, 7.40%, 05/15/06............ 750,000 798,359
Comcast Cellular, 9.50%, 05/01/07..... 500,000 522,499
Echostar Communications, Zero Coupon,
06/01/04............................ 500,000 457,499
Enron Oil & Gas, 6.50%, 12/01/07..... 700,000 704,073
Fifth Third Bank, 6.75%, 07/15/05..... 300,000 305,852
Ford Motor Credit Corp., 6.63%,
06/30/03............................ 825,000 837,378
Heller Financial, 6.35%, 08/15/99++.... 500,000 495,684
HSBC Americas, Inc., 7.00%, 11/01/06.. 1,000,000 1,019,034
Korea Development Bank, 7.12%,
09/17/01............................ 700,000 595,048
Raytheon Co., 6.45%, 08/15/02......... 1,000,000 1,005,899
Skanidinavinska Enskilda Bank, 6.91%,
06/29/49............................ 500,000 505,624
TCI Communications, Inc., 6.38%,
09/15/99............................ 300,000 300,005
Tenet Healthcare Corp., 7.88%,
01/15/03............................ 425,000 434,175
Time Warner, Inc., 9.13%, 01/15/13.... 625,000 748,028
Zurich Capital Trust, 8.38%, 06/01/37++ 375,000 409,906
-----------
Total Corporate Bonds (cost
$9,795,583) 9,896,175
-----------
Total Long-Term Bonds and Notes (cost
$34,101,528) 34,827,969
-----------
77
<PAGE>
Aetna Generation Funds
Portfolio of Investments - December 31, 1997 (continued)
Legacy
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ----------
SHORT-TERM INVESTMENTS (19.9%)
Citicorp, Comm. Paper, 6.50%, 01/02/98 $3,500,000 $3,500,000
Dealers Capital Access Trust, Inc.,
Comm. Paper, 6.80%, 01/02/98........ 3,500,000 3,500,000
Federal Home Loan Bank, Comm. Paper,
4.75%, 01/02/98..................... 4,140,000 4,140,000
Jefferson Smurfit, Comm. Paper,
6.25%, 01/06/98..................... 1,800,000 1,798,750
PHH Corp., Comm. Paper, 6.25%,
01/02/98............................ 3,000,000 3,000,000
U.S. Treasury Bill, 5.17%, 02/05/98@.. 350,000 348,313
----------
Total Short-Term Investments (cost $16,287,043) 16,287,063
----------
TOTAL INVESTMENTS (cost
$76,620,296)(a) 80,907,056
Other assets less liabilities 742,454
----------
Total Net Assets $81,649,510
==========
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$76,681,414. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains ..................... $5,406,454
Unrealized losses .................... (1,180,812)
----------
Net unrealized gain ................ $4,225,642
==========
Information concerning open futures contracts at December 31, 1997 is shown
below:
No. of Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
--------- ---------- ---------- -----------
Long Contracts
- -------------------
Canadian
Government Bond
Futures ........ 3 $ 257,381 March 98 $ 3,305
Long-Term German
Government Bond
Futures ........ 8 1,165,897 March 98 8,231
French Notional
Bond Futures ... 3 255,245 March 98 (498)
FTSE 100 Index 1 218,693 March 98 (3,476)
Future
Swiss Government
Bond Futures ... 3 250,757 March 98 884
---------- -----------
$2,147,973 $ 8,446
========== ===========
+ Non-income producing security.
++ Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pusuant to section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Directors.
@ Security pledged to cover initial margin requirements on open futures
contracts at December 31, 1997.
Category percentages are based on net assets.
78 See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Statements of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ascent Crossroads Legacy
------------- ------------- ------------
<S> <C> <C> <C>
Assets:
Investments, at market value .................................... $147,540,214 $122,190,630 $80,907,056
Cash ............................................................ 6,941 2,940 3,159
Cash denominated in foreign currencies .......................... 798,674 552,832 277,046
Receivable for:
Dividends and interest ...................................... 463,664 599,244 509,612
Investments sold ............................................ 586,218 684,047 286,980
Fund shares sold ............................................ 471,552 335,675 110,194
Variation margin ............................................ 4,589 4,848 3,725
Recoverable foreign taxes ................................... 10,960 7,142 4,539
Gross unrealized gain on forward foreign currency exchange
contracts ..................................................... 210,091 121,068 69,089
------------- ------------- ------------
Total assets ........................................... 150,092,903 124,498,426 82,171,400
------------- ------------- ------------
Liabilities:
Payable for:
Investments purchased ....................................... 1,176,915 1,422,147 467,346
Fund shares redeemed ........................................ 42 16 44
Accrued investment advisory fees ................................ 76,711 63,531 41,474
Accrued administrative services fees ............................ 19,178 15,883 10,369
Gross unrealized loss on forward foreign currency exchange
contracts ..................................................... 9,660 7,101 2,657
------------- ------------- ------------
Total liabilities ...................................... 1,282,506 1,508,678 521,890
------------- ------------- ------------
NET ASSETS .................................................... $148,810,397 $122,989,748 $81,649,510
============= ============= ============
Net assets represented by:
Paid-in capital ................................................. $135,821,815 $114,319,427 $77,023,157
Net unrealized gain on investments, open futures contracts and
foreign currency related transactions ......................... 11,840,044 8,293,853 4,358,193
Undistributed net investment income ............................. 402,167 263,241 97,476
Accumulated net realized gain on investments .................... 746,371 113,227 170,684
------------- ------------- ------------
NET ASSETS .................................................... $148,810,397 $122,989,748 $81,649,510
============= ============= ============
Capital Shares, two billion authorized, $.001 par value:
Outstanding ..................................................... 10,539,978 9,399,130 6,747,864
Net Asset Value, offering and redemption price per share (net
assets divided by shares outstanding) ......................... $ 14.119 $ 13.085 $ 12.100
Cost of investments ............................................. $135,902,857 $114,019,466 $76,620,296
Cost of cash denominated in foreign currencies .................. $ 811,864 $ 561,749 $ 281,588
</TABLE>
See Notes to Financial Statements.
79
<PAGE>
Aetna Generation Portfolios, Inc.
Statements of Operations
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ascent Crossroads Legacy
------------ ------------ ----------
<S> <C> <C> <C>
Investment Income:
Dividends ........................................................... $ 1,493,289 $ 993,520 $ 439,675
Interest ............................................................ 1,709,456 2,280,552 1,933,706
------------ ------------ ----------
3,202,745 3,274,072 2,373,381
Foreign taxes withheld on dividends ................................. (35,211) (25,222) (12,306)
------------ ------------ ----------
Total investment income ....................................... 3,167,534 3,248,850 2,361,075
------------ ------------ ----------
Expenses:
Investment advisory fees ............................................ 584,891 495,598 315,966
Administrative services fees ........................................ 146,223 123,899 78,991
------------ ------------ ----------
Total expenses ................................................ 731,114 619,497 394,957
------------ ------------ ----------
Net investment income ............................................... 2,436,420 2,629,353 1,966,118
------------ ------------ ----------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments ............................................... 7,380,573 5,707,905 2,840,943
Futures and forward currency exchange contracts ................... 185,704 (105,951) (276,372)
Foreign currency related transactions ............................. (12,729) 4,603 (4,610)
------------ ------------ ----------
Net realized gain on investments ........................... 7,553,548 5,606,557 2,559,961
------------ ------------ ----------
Net change in unrealized gain or loss on:
Investments ....................................................... 6,951,786 4,842,314 2,511,436
Futures and forward currency exchange contracts ................... 264,163 206,141 127,206
Foreign currency related transactions ............................. (12,136) (5,477) (3,394)
------------ ------------ ----------
Net change in unrealized gain or loss on investments ....... 7,203,813 5,042,978 2,635,248
------------ ------------ ----------
Net realized and change in unrealized gain on investments ........... 14,757,361 10,649,535 5,195,209
------------ ------------ ----------
Net increase in net assets resulting from operations ................ $17,193,781 $13,278,888 $7,161,327
============ ============ ==========
</TABLE>
See Notes to Financial Statements.
80
<PAGE>
Aetna Generation Portfolios, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ascent
----------------------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Operations:
Net investment income ................................................ $ 2,436,420 $ 622,786
Net realized gain on investments ..................................... 7,553,548 1,629,617
Net change in unrealized gain or loss on investments ................. 7,203,813 3,478,032
------------- ------------
Net increase in net assets resulting from operations ............... 17,193,781 5,730,435
------------- ------------
Distributions to Shareholders:
From net investment income ........................................... (2,979,730) (646,312)
From net realized gains .............................................. (6,365,007) (1,314,791)
------------- ------------
Decrease in net assets from distributions to shareholders .......... (9,344,737) (1,961,103)
------------- ------------
Fund Share Transactions:
Proceeds from shares sold ............................................ 91,118,652 33,848,909
Net asset value of shares issued upon reinvestment of distributions .. 9,344,736 1,961,103
Payments for shares redeemed ......................................... (4,657,488) (13,273,777)
------------- ------------
Net increase in net assets from fund share transactions ............ 95,805,900 22,536,235
------------- ------------
Net change in net assets ............................................. 103,654,944 26,305,567
Net Assets:
Beginning of year .................................................... 45,155,453 18,849,886
------------- ------------
End of year .......................................................... $148,810,397 $45,155,453
============= ============
End of year net assets includes undistributed net investment income .. $ 402,167 $ 213,667
============= ============
Share Transactions:
Number of shares sold ................................................ 6,640,539 2,852,183
Number of shares issued upon reinvestment of distributions ........... 665,526 159,062
Number of shares redeemed ............................................ (344,396) (1,179,070)
------------- ------------
Net increase ....................................................... 6,961,669 1,832,175
============= ============
</TABLE>
See Notes to Financial Statements.
81
<PAGE>
Aetna Generation Portfolios, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Crossroads
---------------------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Operations:
Net investment income ................................................. $ 2,629,353 $ 703,316
Net realized gain on investments ...................................... 5,606,557 1,447,814
Net change in unrealized gain or loss on investments .................. 5,042,978 2,213,205
------------- ------------
Net increase in net assets resulting from operations ................ 13,278,888 4,364,335
------------- ------------
Distributions to Shareholders:
From net investment income ............................................ (3,038,631) (790,607)
From net realized gains ............................................... (5,215,788) (1,203,828)
------------- ------------
Decrease in net assets from distributions to shareholders ........... (8,254,419) (1,994,435)
------------- ------------
Fund Share Transactions:
Proceeds from shares sold ............................................. 77,759,711 30,565,631
Net asset value of shares issued upon reinvestment of distributions ... 8,254,419 1,994,435
Payments for shares redeemed .......................................... (5,739,228) (16,053,016)
------------- ------------
Net increase in net assets from fund share transactions ............. 80,274,902 16,507,050
------------- ------------
Net change in net assets .............................................. 85,299,371 18,876,950
Net Assets:
Beginning of year ..................................................... 37,690,377 18,813,427
------------- ------------
End of year ........................................................... $122,989,748 $37,690,377
============= ============
End of year net assets includes undistributed net investment income ... $ 263,241 $ 171,098
============= ============
Share Transactions:
Number of shares sold ................................................. 6,075,990 2,665,935
Number of shares issued upon reinvestment of distributions ............ 634,014 169,462
Number of shares redeemed ............................................. (457,343) (1,440,613)
------------- ------------
Net increase ........................................................ 6,252,661 1,394,784
============= ============
</TABLE>
See Notes to Financial Statements.
82
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Legacy
--------------------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Operations:
Net investment income ................................................... $ 1,966,118 $ 665,451
Net realized gain on investments ........................................ 2,559,961 1,158,631
Net change in unrealized gain or loss on investments .................... 2,635,248 844,869
------------ ------------
Net increase in net assets resulting from operations .................. 7,161,327 2,668,951
------------ ------------
Distributions to Shareholders:
From net investment income .............................................. (2,194,825) (730,661)
From net realized gains ................................................. (2,305,682) (1,061,503)
------------ ------------
Decrease in net assets from distributions to shareholders ............. (4,500,507) (1,792,164)
------------ ------------
Fund Share Transactions:
Proceeds from shares sold ............................................... 50,159,922 25,960,960
Net asset value of shares issued upon reinvestment of distributions ..... 4,500,507 1,792,164
Payments for shares redeemed ............................................ (3,425,545) (19,129,539)
------------ ------------
Net increase in net assets from fund share transactions ............... 51,234,884 8,623,585
------------ ------------
Net change in net assets ................................................ 53,895,704 9,500,372
Net assets:
Beginning of year ....................................................... 27,753,806 18,253,434
------------ ------------
End of year ............................................................. $81,649,510 $27,753,806
============ ============
End of year net assets includes undistributed net investment income ..... $ 97,476 $ 10,864
============ ============
Share Transactions:
Number of shares sold ................................................... 4,187,047 2,350,084
Number of shares issued upon reinvestment of distributions .............. 373,934 160,746
Number of shares redeemed ............................................... (279,146) (1,760,792)
------------ ------------
Net increase .......................................................... 4,281,835 750,038
============ ============
</TABLE>
See Notes to Financial Statements.
83
<PAGE>
Aetna Generation Portfolios, Inc.
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. Organization
Aetna Generation Portfolios, Inc. (Company) was incorporated in 1994 under the
laws of Maryland. The Company is an open-end management investment company,
registered under the Investment Company Act of 1940 and is authorized to issue
multiple series of shares, each representing a diversified portfolio of
investments (individually, a Portfolio and collectively, the Portfolios) with
its own investment objective, policies and restrictions. Currently, the Company
offers shares of the Aetna Ascent Variable Portfolio (Ascent); Aetna Crossroads
Variable Portfolio (Crossroads); and Aetna Legacy Variable Portfolio (Legacy).
Each of these diversified Portfolios commenced investment operations on July 5,
1995. The Portfolios are asset allocation funds that seek to maximize long-term
investment returns at varying levels of risk.
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.
ALIAC serves as the Investment Adviser and principal underwriter to each
Portfolio. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as the
subadviser to the Portfolios.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
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.
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. 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 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 fluctuation
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 are closed prior to expiration.
84
<PAGE>
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
B. Futures and Forward Foreign Currency Exchange Contracts (continued)
A forward foreign currency exchange contract is an agreement to pay or receive
specific amounts of a currency at a future date in exchange for another currency
at an agreed upon exchange rate. The Portfolios may use forward foreign currency
exchange contracts to hedge certain foreign currency assets. Contracts are
recorded at market value and marked-to-market daily.
The risks associated with 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.
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 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 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 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 the Portfolios to sell them promptly
at an acceptable price. Restricted securities are subject to legal or
contractual restrictions on resale and may not be publicly sold without
registration under the Securities Act of 1933 (1933 Act), under Rule 144A, or
are securities offered pursuant to Section 4(2) of 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.
D. 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.
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 treatment for foreign currency transactions and
losses deferred due to wash sales.
F. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on the trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, over the life of the
security. Dividend income is recorded on the ex-dividend date. Realized gains
and losses from investment transactions are determined on an identified cost
basis.
85
<PAGE>
Aetna Generation Portfolios, Inc.
Notes to Financial Statements (continued)
December 31, 1997
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Services Fees
Each Portfolio pays the Investment Adviser a monthly advisory fee at an annual
rate of 0.60% of its average daily net assets. Under the terms of an
Administrative Services Agreement, ALIAC acts as administrator and provides all
administrative services necessary for the Portfolios' operations and is
responsible for the supervision of the Portfolios' other service providers.
ALIAC also assumes all ordinary, recurring costs of the Portfolios, such as
custodian fees, directors' fees, transfer agent costs and accounting expenses.
For these services, ALIAC receives an annual fee, payable monthly, at a rate of
0.15% of the average daily net assets of each Portfolio.
Under the terms of a Subadvisory Agreement among the Portfolio, ALIAC and
Aeltus, Aeltus supervises the investment and reinvestment of cash and securities
and provides certain related administrative services to the Portfolios in
exchange for a fee (payable by ALIAC) of 0.35% of the average daily net assets
of each Portfolio. For the year ended December 31, 1997, ALIAC paid Aeltus
$339,492, $288,364 and $183,371 for Ascent, Crossroads and Legacy, respectively,
in accordance with the terms of the Subadvisory Agreement.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the year ended December 31, 1997, were:
Cost of Purchases Proceeds from Sales
----------------- -------------------
Ascent $178,521,129 $100,280,929
Crossroads 134,871,999 66,363,208
Legacy 78,681,739 33,442,770
5. Forward Foreign Currency Exchange Contracts
At December 31, 1997, Ascent, Crossroads and Legacy had the following open
forward foreign currency exchange contracts that obligate the Portfolios to
deliver currencies at specified future dates. The net unrealized gains of
$200,431, $113,967 and $66,432, respectively, on these contracts are included in
the accompanying financial statements. The terms of the open contracts are as
follows:
Ascent Variable
- ---------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered December 31, 1997 be Received December 31, 1997 Gain (Loss)
---- ------------ ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Contracts to Buy
- ----------------
1/26/98 1,099 $1,099 140,000 $1,081 ($18)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
3/17/98 158,885 158,885 20,350,000 158,225 (660)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
1/5/98 531,760 531,760 772,000 529,580 (2,180)
U.S. Dollar Swiss Franc
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
86
<PAGE>
- --------------------------------------------------------------------------------
5. Forward Foreign Currency Exchange Contracts (continued)
Ascent Variable (continued)
- ---------------------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered December 31, 1997 be Received December 31, 1997 Gain (Loss)
-------- ------------ ----------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
Contracts to Sell
- -----------------
1/20/98 529,000 $261,311 270,450 $270,450 $9,139
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/18/98 1,318,000 652,284 659,000 659,000 6,716
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/14/98 2,898,000 482,174 494,539 494,539 12,365
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/13/98 5,724,000 954,241 999,838 999,838 45,597
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/9/98 1,570,000 875,497 890,023 890,023 14,526
German Deutschemark U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
3/5/98 1,321,000 737,780 750,327 750,327 12,547
German Deutschemark U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/26/98 160,170,000 1,236,585 1,314,352 1,314,352 77,767
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/12/98 62,830,000 486,233 512,480 512,480 26,247
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
3/17/98 133,080,000 1,034,724 1,028,828 1,028,828 (5,896)
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/5/98 573,000 393,069 397,365 397,365 4,296
Swiss Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/5/98 199,000 136,511 135,605 135,605 (906)
Swiss Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/5/98 647,000 445,316 446,207 446,207 891
Swiss Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
$200,431
=================
</TABLE>
Crossroads Variable
- -------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Contracts to Buy
- ----------------
1/26/98 707 707 90,000 695 (12)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
3/17/98 115,865 115,865 14,840,000 115,384 (481)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
1/5/98 336,471 336,471 489,000 335,446 (1,025)
U.S. Dollar Swiss Franc
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
87
<PAGE>
Aetna Generation Portfolios, Inc.
Notes to Financial Statements (continued)
December 31, 1997
- --------------------------------------------------------------------------------
5. Forward Foreign Currency Exchange Contracts (continued)
Crossroads Variable (continued)
- -------------------------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered December 31, 1997 be Received December 31, 1997 Gain (Loss)
---- ------------ ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Contracts to Sell
- -----------------
1/20/98 345,000 $170,420 176,380 $176,380 $5,960
Dutch Guilder U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
2/18/98 891,000 440,959 445,500 445,500 4,541
Dutch Guilder U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
1/14/98 2,210,000 367,703 377,133 377,133 9,430
French Franc U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
2/13/98 3,483,000 580,646 608,585 608,585 27,939
French Franc U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
2/9/98 1,071,000 597,234 607,143 607,143 9,909
German Deutschemark U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
3/5/98 828,000 462,439 470,296 470,296 7,857
German Deutschemark U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
1/26/98 87,090,000 672,373 711,184 711,184 38,811
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
2/12/98 31,940,000 247,180 260,522 260,522 13,342
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
3/17/98 112,330,000 873,389 868,412 868,412 (4,977)
Japanese Yen U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
1/5/98 356,000 244,210 246,879 246,879 2,669
Swiss Franc U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
1/5/98 133,000 91,236 90,630 90,630 (606)
Swiss Franc U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
2/5/98 443,000 304,907 305,517 305,517 610
Swiss Franc U.S. Dollar
- --------------------------------------------------------------------------------------------------------------
$113,967
============
</TABLE>
Legacy Variable
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Contracts to Buy
- ----------------
1/26/98 314 314 40,000 309 (5)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
3/17/98 66,443 66,443 8,510,000 66,167 (276)
U.S. Dollar Japanese Yen
- -------------------------------------------------------------------------------------------------------------------
1/5/98 143,598 143,598 209,000 143,371 (227)
U.S. Dollar Swiss Franc
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
88
<PAGE>
- --------------------------------------------------------------------------------
5. Forward Foreign Currency Exchange Contracts (continued)
Legacy Variable (continued)
- ---------------------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ Value Currency to U.S. $ Value Unrealized
Date be Delivered December 31, 1997 be Received December 31, 1997 Gain (Loss)
---- ------------ ----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Contracts to Sell
- -----------------
1/20/98 197,000 $97,312 100,716 $100,716 $3,404
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/18/98 419,000 207,365 209,500 209,500 2,135
Dutch Guilder U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/14/98 1,064,000 177,030 181,570 181,570 4,540
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/13/98 1,659,600 276,670 289,908 289,908 13,238
French Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/9/98 411,000 229,191 232,993 232,993 3,802
German Deutschemark U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
3/5/98 455,000 254,118 258,439 258,439 4,321
German Deutschemark U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/26/98 52,360,000 404,244 433,628 433,628 29,384
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/12/98 16,530,000 127,924 134,829 134,829 6,905
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
3/17/98 41,750,000 324,615 322,766 322,766 (1,849)
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/5/98 143,000 98,096 99,168 99,168 1,072
Swiss Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
1/5/98 66,000 45,275 44,975 44,975 (300)
Swiss Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
2/5/98 209,000 143,850 144,138 144,138 288
Swiss Franc U.S. Dollar
- -------------------------------------------------------------------------------------------------------------------
$66,432
=================
</TABLE>
6. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassifications were made in order to present the Portfolio's capital accounts
on a tax basis. These reclassifications have no impact the net asset value of
the Portfolios.
Accumulated Net
Undistributed Realized Gain (Loss)
Paid-in Capital Net Investment on Investments
Increase Income Increase Decrease
----------------- ----------------- -----------------------
Ascent Variable $64,552 $731,810 ($796,362)
Crossroads Variable 54,673 501,421 ( 556,094)
Legacy Variable 28,986 315,319 ( 344,305)
89
<PAGE>
Aetna Generation Portfolios, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Ascent
--------------------------------------------------------
Period from
Year Ended Year Ended July 5, 1995 to
December 31, December 31, December 31,
1997 1996 1995+
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................. $ 12.619 $ 10.795 $10.000
--------- --------- --------
Income from investment operations:
Net investment income .............................................. 0.248 0.225 0.116
Net realized and change in unrealized gain on investments .......... 2.247 2.286 0.929
--------- --------- --------
Total from investment operations ............................. 2.495 2.511 1.045
--------- --------- --------
Less distributions:
From net investment income ......................................... (0.339) (0.230) (0.250)
From net realized gains on investments ............................. (0.656) (0.457) --
--------- --------- --------
Total distributions .......................................... (0.995) (0.687) (0.250)
--------- --------- --------
Net asset value, end of period ....................................... $ 14.119 $ 12.619 $10.795
========= ========= ========
Total return* ........................................................ 19.90% 23.58% 10.45%
Net assets, end of period (000's) .................................... $148,810 $ 45,155 $18,850
Ratio of total expenses to average net assets ........................ 0.75% 0.84% 1.59%(1)
Ratio of net investment income to average net assets ................. 2.51% 2.53% 2.26%(1)
Portfolio turnover rate .............................................. 124.82% 109.77% 39.77%
Average commission rate paid per share on equity securities traded.... $ 0.0311 $ 0.0296 --
</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.
90
<PAGE>
Aetna Generation Portfolios, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Crossroads
--------------------------------------------------------
Period from
Year Ended Year Ended July 5,1995 to
December 31, December 31, December 31,
1997 1996 1995+
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period ............................... $ 11.979 $10.740 $10.000
--------- -------- --------
Income from investment operations:
Net investment income ............................................ 0.303 0.270 0.131
Net realized and change in unrealized gain on investments ........ 1.786 1.722 0.799
--------- -------- --------
Total from investment operations ........................... 2.089 1.992 0.930
--------- -------- --------
Less distributions:
From net investment income ....................................... (0.383) (0.300) (0.190)
From net realized gains on investments ........................... (0.600) (0.453) --
--------- -------- --------
Total distributions ........................................ (0.983) (0.753) (0.190)
--------- -------- --------
Net asset value, end of period ..................................... $ 13.085 $11.979 $10.740
========= ======== ========
Total return* ...................................................... 17.57% 18.81% 9.30%
Net assets, end of period (000's) .................................. $122,990 $37,690 $18,813
Ratio of total expenses to average net assets ...................... 0.75% 0.80% 1.60%(1)
Ratio of net investment income to average net assets ............... 3.20% 3.01% 2.56%(1)
Portfolio turnover rate ............................................ 103.08% 105.66% 49.38%
Average commission rate paid per share on equity securities traded.. $ 0.0325 $0.0284 --
</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.
91
<PAGE>
Aetna Generation Portfolios, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Legacy
----------------------------------------------------------
Period from
Year Ended Year Ended July 5, 1995 to
December 31, December 31, December 31,
1997 1996 1995+
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................. $11.255 $10.637 $10.000
-------- -------- --------
Income from investment operations:
Net investment income .............................................. 0.355 0.334 0.148
Net realized and change in unrealized gain on investments .......... 1.263 1.150 0.679
-------- -------- --------
Total from investment operations ............................. 1.618 1.484 0.827
-------- -------- --------
Less distributions:
From net investment income ......................................... (0.392) (0.363) (0.190)
From net realized gains on investments ............................. (0.381) (0.503) --
-------- -------- --------
Total distributions .......................................... (0.773) (0.866) (0.190)
-------- -------- --------
Net asset value, end of period ....................................... $12.100 $11.255 $10.637
======== ======== ========
Total return* ........................................................ 14.50% 14.19% 8.27%
Net assets, end of period (000's) .................................... $81,650 $27,754 $18,253
Ratio of total expenses to average net assets ........................ 0.75% 0.80% 1.62%(1)
Ratio of net investment income to average net assets ................. 3.75% 3.45% 2.91%(1)
Portfolio turnover rate .............................................. 85.01% 111.11% 62.43%
Average commission rate paid per share on equity securities traded.... $0.0297 $0.0274 --
</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.
92
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Generation Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of Aetna
Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio and Aetna Legacy
Variable Portfolio, series of Aetna Generation Portfolios, Inc. (the
Portfolios), including the portfolios of investments, as of December 31, 1997,
and the related statements of operations for the year then ended and statements
of changes in net assets for each of the years in the two-year period ended
December 31, 1997 and the financial highlights for each of the years in the
two-year period ended December 31, 1997 and the period from July 5, 1995
(commencement of investment operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Portfolios'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Aetna
Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio and Aetna Legacy
Variable Portfolio as of December 31, 1997, the results of their operations for
the year then ended, changes in their net assets for each of the years in the
two-year period ended December 31, 1997, and the financial highlights for each
of the years in the two-year period ended December 31, 1997 and the period from
July 5, 1995 (commencement of investment operations) to December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
93
<PAGE>
Additional Information
(Unaudited)
- --------------------------------------------------------------------------------
Federal Tax Status of Dividends Declared During the Fiscal Year
During the fiscal year ended December 31, 1997, the funds paid the following
long-term gains distributions:
Total Long-Term
Distributions Taxable at 28% Taxable at 20%
---------------- ---------------- ---------------
Ascent Variable $1,568,661 $1,143,387 $425,274
Crossroads Variable 1,321,479 869,847 451,632
Legacy Variable 763,244 693,875 69,369
The percentage of income dividends that were qualifying dividends for the
corporate dividends received deduction were:
Ascent Variable 14.10%
Crossroads Variable 10.86%
Legacy Variable 8.12%
94
<PAGE>
<TABLE>
<CAPTION>
Aetna Variable Growth Portfolio
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year Since Inception+
- ------ ------------------------
33.01% 33.10%
- --------------------------[Aetna Variable Growth Portfolio Line Chart]----------------------------
Dec-96 Dec-97
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Growth Portfolio 10,000 10,146 9,846 11,780 14,139 13,510
S&P 500 Index 10,000 10,165 10,437 12,259 13,178 13,556
</TABLE>
* 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 December 13, 1996.
How did the Portfolio perform during the period?
Aetna Variable Growth Portfolio (Growth) generated a return of 33.01%, net of
fund expenses, for the year ended December 31, 1997. This compares with a 33.36%
return for the Standard & Poor's 500 Index(a) for the same period. The strongest
relative performance in the Fund was achieved in the first three quarters of
1997. Fourth quarter performance lagged the market as the price of many growth
stocks weakened in response to the expanding Asian currency crisis.
What economic or financial market conditions impacted the Portfolio?
During 1997, inflation and interest rates declined. The rate of inflation, as
measured by the unadjusted consumer price index, was only 1.7% in December 1997,
compared to 3.3% in December 1996. The diminished inflation outlook resulted in
lower intermediate and long-term interest rates, as indicated by the 1997
year-end 30-year Treasury Bond which yielded 5.9%, compared with 6.6% at
year-end 1996.
Low inflation and low long-term interest rates, typically associated with higher
price/earnings ratios for stocks, were the major forces behind 1997's unusually
favorable stock market returns. Better than expected corporate earnings growth
and the continuing favorable flow of assets into mutual funds were additional
positive forces.
During 1997's fourth quarter, the Asian financial crisis increased investor
concerns regarding the sustainability of earnings. The result was a significant
increase in the relative valuation of slower, but steadier growing, defensive
industries, while valuations were reduced for companies considered more
sensitive to cyclical changes in the economy. Companies directly exposed to the
Asian crisis, such as technology stocks, were particularly hard hit in 1997's
fourth quarter.
What investments influenced the Portfolio's performance over the past twelve
months?
During 1997, the Fund's most successful investments were in the oil service
industry. Friede Goldman International, Inc., a supplier of offshore drilling
rig services, was an especially outstanding performer. Schlumberger Ltd. and BJ
Services Co. also delivered favorable returns. Strong results were achieved by
retail industry investments, such as TJX Companies, Inc. Financial sector
commitments, such as Franklin Resources, Inc. and Travelers Group, Inc.,
achieved superior returns. During the first three quarters of the year, results
were helped by the decision to underweight utilities and consumer non-durables.
However, these traditionally defensive groups performed well in the fourth
quarter when investor concerns regarding Southeast Asia negatively impacted our
growth-oriented technology investments.
During the year, the Fund further sharpened its investment process in
emphasizing growth stocks by incorporating quantitative screens to focus
fundamental analysis on rapidly expanding companies enjoying an improving or
superior outlook for earnings growth.
95
<PAGE>
What is your outlook going forward?
During 1998, the Asian financial crisis is generally expected to cause U.S.
economic growth to slow, and corporate earnings to expand at a more modest pace.
We believe this outlook could temporarily result in a near term period of
increased growth stock volatility. In the past three years, the unusually
favorable increase in stock market rates is unlikely to be repeated. Despite
these near term uncertainties, we continue to believe that over the longer term,
superior returns should result from our policy of investing in growth stocks
experiencing favorable current business results.
Past performance is no guarantee of future results.
Investment Summary:
- ---------------------------------------------------------------------
Top Ten Equity Holdings % of Portfolio
- ---------------------------------------------------------------------
HEALTHSOUTH Corp. 3.4%
Safeway, Inc. 3.2%
General Electric Co. 3.1%
Lucent Technologies, Inc. 2.9%
Owens-Illinois, Inc. 2.9%
Warner Lambert Co. 2.9%
Sunbeam Corp. 2.8%
Herman Miller, Inc. 2.7%
AES Corp. 2.7%
Travelers Group, Inc. 2.7%
Large Cap Portfolio Sector Breakdown*:
- ------------------------------------------------------------------------------
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
- ------------------------------------------------------------------------------
Basic Materials 6.4% 4.9% 1.5%
Energy 5.3% 8.4% (3.1)%
Consumer Non-Discretionary 22.7% 22.6% 0.1%
Consumer Discretionary 4.4% 11.1% (6.7)%
Commercial Services -- 2.0% (2.0)%
Manufacturing 15.3% 11.9% 3.4%
Technology 17.7% 11.1% 6.6%
Finance 16.3% 17.1% (0.8)%
Utilities 11.9% 10.9% 1.0%
* This does not constitute the entire fund. The securities in these sectors only
represent those that are in the S&P 500 Index.
(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.
96
<PAGE>
Aetna Variable Small Company Portfolio
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
-------------------------------------------------
1 Year Since Inception+
34.49% 35.58%
-------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------[Aetna Variable Small Company Portfolio]----------------------------------
Dec-96 Dec-97
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Small Company Portfolio 10,000 10,113 9,968 11,773 13,982 13,614
Russell 2000 Index 10,000 10,195 9,668 11,235 12,907 12,475
</TABLE>
* 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 December 27, 1996.
How did the Portfolio perform during the period?
The Aetna Variable Small Company Portfolio (Small Company) returned 34.49%, net
of fund expenses, for the year ended December 31, 1997. The Fund's performance
outdistanced that of its small company benchmark, the Russell 2000 Index(a),
which returned 22.36%, as well as the large company Standard & Poor's 500
Index(b) which returned 33.36% for the same period.
What economic or financial market conditions impacted the Portfolio?
For most of the year, the economic and financial markets produced strong
returns. For the most part, corporate profits exceeded expectations while
interest rates remained low. General small company stock performance, which
lagged larger stocks for the better part of three years, actually outperformed
larger issues during mid-1997. However, concerns over Asian markets caused
investors to exit the technology and energy sectors and return to larger, more
liquid issues.
What investments influenced the Portfolio's performance over the past twelve
months?
The Fund's strong performance can be attributed to a number of factors. A
significant overexposure to energy issues, particularly oil services, benefited
the Fund's returns most of the year. Our decision in January 1997 to overweight
the retail sector, combined with successful stock selection in this group, also
improved results. Two large positions significantly added to results: including
Alcide Corp., which rose 194% during the year when the company signed an
attractive marketing agreement to license a new product, and Associated Group,
Inc., which saw a 92% price advance amid progress in building up its new
telecommunications company. During the year, eight of the Fund's holdings
received attractive offers to merge with other companies.
What is your outlook going forward?
Going forward, we continue to see challenging stock markets. Concerns over the
health of Asian markets, uncertainty over the effects and costs of the Year 2000
computer problem faced by corporations and historically high stock prices which
may be unsustainable, are the core risks we face moving into 1998 and beyond. On
the positive side, we believe the cost cutting and restructuring programs seen
in the 1990's have left most corporations extremely strong both financially and
operationally. Inflation and interest rates remain low and consumer optimism is
quite high. Despite the uncertainties, we believe our investment philosophy of
focusing on those companies demonstrating the strongest business momentum and
selling at reasonable prices, will continue to support our pursuit of strong
investment returns.
97
<PAGE>
Past performance is no guarantee of future results.
Investment Summary:
- ------------------------------------------------------------------------------
Top Ten Equity Holdings % of Portfolio
- ------------------------------------------------------------------------------
Cullen/Frost Bankers, Inc. 2.8%
Jones Intercable, Inc. 2.7%
State Auto Financial Corp. 2.5%
LaSalle Re Holdings Ltd. 2.4%
Mobile Telecommunications Technologies Corp. 2.3%
Sterling Software, Inc. 2.3%
McDermott International, Inc. 2.2%
Crompton & Knowles Corp. 2.1%
Western Gas Resources, Inc. 2.0%
Knightsbridge Tankers Ltd. 2.0%
Equity Investment Sector Breakdown
- ------------------------------------------------------------------------------
Portfolio Russell 2000 Over/(Under)
Sector Weight Weight Weighting
- ------------------------------------------------------------------------------
Capital Goods 8.0% 7.4% 0.6%
Consumer Cyclical 17.9% 18.0% (0.1)%
Consumer Non-Cyclical 5.4% 3.7% 1.7%
Energy 8.8% 4.3% 4.5%
Finance 16.6% 23.1% (6.5)%
Raw Materials 8.5% 7.2% 1.3%
Healthcare 9.0% 9.6% (0.6)%
Transportation 4.8% 2.2% 2.6%
Technology 11.6% 14.3% (2.7)%
Electric Utilities -- 3.4% (3.4)%
Telephones 4.6% 2.1% 2.5%
Retail 4.8% 4.7% 0.1%
(a) The Russell 2000 Index consists of the smallest 2000 companies in the
Russell 3000 Index, and represents approximately 10% 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.
(b) 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.
98
<PAGE>
Aetna Variable Index Plus Portfolio
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
-------------------------------------------------
1 Year Since Inception+
33.89% 34.56%
-------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------[Aetna Variable Index Plus Portfolio]-----------------------------------------
Sep-96 Dec-97
<S> <C> <C> <C> <C> <C> <C> <C>
Aetna Variable Index Plus Portfolio 10,000 10,069 10,964 11,246 13,272 14,285 14,680
S&P 500 Index 10,000 10,107 10,834 11,124 13,067 14,045 14,448
</TABLE>
* 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 September 16, 1996.
How did the Portfolio perform during the period?
For the year ended December 31, 1997, the Aetna Variable Index Plus (Index Plus)
returned 33.89%, net of fund expenses, compared to the Standard & Poor's 500
Index(a) return of 33.36%. This performance was excellent for the period,
especially when compared to its peer funds' performance. Index Plus' return
placed it in the top 5% (of 517 funds) for the one year period ended December
31, 1997, among Morningstar, Inc.'s universe of variable annuity large blend
domestic equity funds.
What economic or financial market conditions impacted the Portfolio?
One of the principal features of the equity market over the last twelve months
has been the superior performance of the very largest stocks. This is most
clearly illustrated by the relative performance of the S&P 500 noted above,
compared to the Russell 2000 Index(b) return of 22.36% for the same period. This
effect was also apparent within the S&P 500 Index as the largest companies in
the index outperformed the index itself. The Fund benefited from this effect
because the quantitative model used to rank the S&P stocks favored the larger
issues and overweighted them in the portfolio. 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 ratios,
relative performance, earnings momentum and reliable growth, all of which are
important determinants in predicting which stocks are likely to do well and
which rate to underperform.
What investments influenced the Portfolio's performance over the past twelve
months?
The Fund's basic approach is to own approximately 400 to 450 of the stocks in
the S&P 500, overweighting (relative to the weight of the stock in the index)
those stocks which are expected to outperform and underweighting those expected
to underperform. Stocks in the S&P 500 with very poor expected performance
(generally about 10% to 15% of the S&P 500) are not owned at all. Other stocks,
where there is no strong expectation of either underperformance or
outperformance, are held at a weight in the fund equal to their weight in the
S&P 500.
The Fund was overweight in financial stocks (relative to the S&P 500) for the
entire twelve month period. This worked to the Fund's advantage, as these stocks
outperformed the index by a substantial margin during the course of the year.
Also working to the benefit of the Fund was an underweighting in the raw
materials sector which significantly underperformed during the year. Detracting
from the Fund's performance was an underweighting in telephone utilities (these
stocks outperformed) and an overweighting in transportation (an underperforming
sector).
99
<PAGE>
What is your outlook going forward?
We believe the current conditions in East Asia are important, especially if
considered with other factors such as the collapse of commodity prices, as well
as the Year 2000 computer problem and demographic trends which argue for more
saving. All of this suggests that the stock market will be less enthusiastic
over the course of the next year relative to the last three, and that stocks
which are cyclical in nature may fare poorly. The big rally in the bond market,
the decrease in the price of gold (which is generally seen as an indicator of
the direction of interest rates) and the virtual flattening of the yield curve
in the face of Federal Reserve inaction on interest rates suggests moderate to
low economic growth and modest inflation at best.
Normally a big bond rally should be, and has been over the last 30 years, a
positive for stocks. This may be changing, however, as suggested by the low
level of nominal Gross Domestic Product growth and the prospect of outright
deflation (a negative for corporate profits) over the next two years. The East
Asian crisis, while not the only cause, has acted as a catalyst to bring this
issue to the market's attention. In effect, the Far East's deflationary
implications are causing the financial markets to reevaluate the ground rules
and grope for ways to deal with a new environment.
Past performance is no guarantee of future results.
Investment Summary:
- --------------------------------------------------------------------
Top Ten Equity Holdings % of Portfolio
- --------------------------------------------------------------------
General Electric Co. 3.2%
Microsoft Corp. 2.6%
Coca-Cola Co. 2.0%
Exxon Corp. 1.9%
Philip Morris Co., Inc. 1.9%
Merck & Co., Inc. 1.7%
Intel Corp. 1.5%
Travelers Group, Inc. 1.5%
Royal Dutch Petroleum Co. 1.5%
Procter & Gamble Co. 1.4%
Large Cap Portfolio Sector Breakdown*:
- ------------------------------------------------------------------------------
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
- ------------------------------------------------------------------------------
Basic Materials 3.6% 4.9% (1.3)%
Energy 9.2% 8.4% 0.8%
Consumer Non-Discretionary 21.9% 22.6% (0.7)%
Consumer Discretionary 9.3% 11.1% (1.8)%
Commercial Services 1.8% 2.0% (0.2)%
Manufacturing 12.1% 11.9% 0.2%
Technology 11.9% 11.1% 0.8%
Finance 20.7% 17.1% 3.6%
Utilities 9.5% 10.9% (1.4)%
* This does not constitute the entire fund. The securities in these sectors only
represent those that are in the S&P 500 Index.
(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 Russell 2000 Index consists of the smallest 2000 companies in the
Russell 3000 Index, and represents approximately 10% 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.
100
<PAGE>
Aetna Variable Capital Appreciation Portfolio
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
-------------------------------------------------
1 Year Since Inception+
39.36% 39.89%
-------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------[Aetna Variable Capital Appreciation Portfolio]---------------------------------
Dec-96 Dec-97
<S> <C> <C> <C> <C> <C> <C>
Aetna Variable Capital Appreciation Portfolio 10,000 10,215 10,513 12,281 14,314 14,236
S&P 500 Index 10,000 10,165 10,437 12,259 13,178 13,556
</TABLE>
* 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 December 13, 1996.
How did the Porfolio perform during the period?
The Variable Capital Appreciation Portfolio (Capital Appreciation) generated a
return of 39.36%, net of fund expenses, for the year ended December 31, 1997,
outperforming the 33.36% return of the Standard & Poor's 500 Index(a) for the
same period.
What economic or financial market conditions impacted the Portfolio?
Several economic and market conditions impacted the Portfolio in 1997. The most
important of these included a steady erosion in energy prices, a significant
decline in U.S. interest rates and an increase in equity market volatility.
What investments influenced the Portfolio's performance over the past twelve
months?
From a portfolio performance perspective, the decline in energy prices hurt the
earnings prospects of several holdings, leading to poor relative price
performance. The Fund's overweighted position, in what is normally a
value-oriented group, did not contribute to the Fund's outperformance in 1997.
On the other hand, the steady decline in interest rates during the year
considerably helped the overweighted position in the finance sector. Strong
security performance in the group was produced from positions in Travelers
Group, Inc., Franklin Resources, Inc. and Wells Fargo & Co.
Finally, a general increase in equity market volatility throughout 1997 allowed
the Fund to benefit from several opportunistic purchases and sales. There were
at least three distinct equity market corrections during 1997 in March/April,
August and October. In all of these, we were able to purchase quality issues at
sharply discounted prices. Notable successes included the purchase and sale of
positions in Merck & Co., Inc., Gateway 2000, Inc., Applied Materials, Inc.,
Federated Department Stores, Inc. and Centocor, Inc.
The Capital Appreciation investment philosophy is based upon the key belief that
favorable valuation in the conventional sense is not the only reason to own a
particular security. We believe that superior long term portfolio performance is
best achieved through the ownership of sound companies which have been
inappropriately discounted because of temporary or past problems. The key to
investment in "undervalued" companies can also be the existence of a catalyst
for price appreciation. Since most value-based issues reflect low expectations,
increasing recognition of positive change can lead to improved price
performance.
101
<PAGE>
What is your outlook going forward?
Despite the U.S. equity market's superior performance over the past several
years, strong market fundamentals remain largely intact at this time. Inflation
is subdued, interest rates have declined, and while an Asian economic slowdown
may negatively impact individual companies and sectors, overall corporate
earnings growth should remain positive. Of course, any major change in these
basic market fundamentals will affect the equity market in 1998, and equity
market volatility may continue to increase. The Capital Appreciation approach
will attempt to take advantage of any increase in volatility by looking for
opportunities to supplement traditional value-oriented investments.
Past performance is no guarantee of future results.
Investment Summary:
- --------------------------------------------------------------------
Top Ten Equity Holdings % of Portfolio
- --------------------------------------------------------------------
Wells Fargo & Co. 3.4%
Gateway 2000, Inc. 3.3%
Noble Drilling Corp. 3.1%
International Business Machines, Inc. 3.1%
Deere & Co. 2.7%
Eaton Corp. 2.7%
Franklin Resources, Inc. 2.7%
Citicorp 2.5%
T. Rowe Price Associates 2.5%
Centocor, Inc. 2.5%
Large Cap Portfolio Sector Breakdown*:
- ------------------------------------------------------------------------------
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
- ------------------------------------------------------------------------------
Basic Materials 15.8% 4.9% 10.9%
Energy 11.7% 8.4% 3.3%
Consumer Non-Discretionary 8.6% 22.6% (14.0)%
Consumer Discretionary 3.8% 11.1% (7.3)%
Commercial Services -- 2.0% (2.0)%
Manufacturing 20.9% 11.9% 9.0%
Technology 12.0% 11.1% 0.9%
Finance 19.4% 17.1% 2.3%
Utilities 7.8% 10.9% (3.1)%
* This does not constitute the entire fund. The securities in these sectors only
represent those that are in the S&P 500 Index.
(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.
102
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments - December 31, 1997
Growth
- --------------------------------------------------------------------------------
Number of Market
Shares Value
------- --------
COMMON STOCKS (84.8%)
Aerospace and Defense (5.6%)
Sundstrand Corp......................... 2,900 $146,088
Thiokol Corp............................ 800 65,000
United Technologies Corp................ 1,700 123,781
---------
334,869
---------
Commercial Services (1.4%)
Allied Waste Industries, Inc.+.......... 3,500 81,594
---------
Computer Software (2.2%)
BMC Software, Inc.+..................... 2,000 131,250
---------
Computers and Office Equipment (10.7%)
Adaptec, Inc.+.......................... 3,500 129,938
Compaq Computer Corp.................... 2,500 141,094
Dell Computer Corp.+.................... 700 58,800
EMC/MASS Corp.+......................... 5,200 142,675
Herman Miller, Inc...................... 3,000 163,688
---------
636,195
---------
Diversified (5.0%)
General Electric Co..................... 2,500 183,437
Tyco International Ltd.................. 2,500 112,656
---------
296,093
---------
Electronics (4.2%)
SCI Systems, Inc.+...................... 2,400 104,550
Texas Instruments, Inc.................. 3,200 144,000
---------
248,550
---------
Financial Services (12.3%)
Franklin Resources, Inc................. 1,500 130,406
MGIC Investment Corp.................... 2,000 133,000
SunAmerica, Inc......................... 3,600 153,900
T. Rowe Price Associates................ 2,500 157,188
Travelers Group, Inc.................... 3,000 161,625
---------
736,119
---------
Health Services (3.5%)
HEALTHSOUTH Corp.+...................... 7,400 205,349
---------
Home Furnishings and Appliances (2.8%)
Sunbeam Corp............................ 4,000 168,500
---------
Media and Entertainment (1.9%)
Omnicom Group, Inc...................... 2,600 110,175
---------
Medical Supplies (1.6%)
Sofamor Danek Group, Inc.+.............. 1,500 97,594
---------
Oil and Gas (8.6%)
BJ Services Co.+........................ 1,500 107,906
EVI, Inc.+.............................. 2,300 119,025
Santa Fe International Corp............. 3,500 142,406
Schlumberger Ltd........................ 1,800 144,900
---------
514,237
---------
Paper and Containers (2.9%)
Owens-Illinois, Inc.+................... 4,600 174,513
---------
Number of Market
Shares Value
------- --------
Pharmaceuticals (7.0%)
Bristol-Myers Squibb Co................. 1,000 $ 94,625
Schering Plough......................... 2,400 149,100
Warner Lambert Co....................... 1,400 173,600
---------
417,325
---------
Retail (6.9%)
General Nutrition Companies, Inc.+...... 3,000 102,000
Safeway, Inc.+.......................... 3,000 189,749
TJX Companies, Inc...................... 3,500 120,313
---------
412,062
---------
Telecommunications (5.5%)
Lucent Technologies, Inc................ 2,200 175,725
Northern Telecom Ltd.................... 1,700 151,300
---------
327,025
---------
Utilities - Electric (2.7%)
AES Corp.+.............................. 3,500 163,188
---------
Total Common Stocks (cost $4,772,551)
5,054,638
---------
Principal
Amount
--------
SHORT-TERM INVESTMENTS (16.0%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98....................... $853,000 853,000
U. S. Treasury Bill, 5.09%, 02/05/98.... 100,000 99,483
---------
Total Short-Term Investments (cost
$952,519) 952,483
---------
TOTAL INVESTMENTS (cost $5,725,070)(a) 6,007,121
Other assets less liabilities
(43,277)
---------
Total Net Assets
$5,963,844
=========
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at December 31, 1997,
are as follows:
Unrealized gains ...................... $512,429
Unrealized losses ..................... (230,378)
---------
Net unrealized gain ................. $282,051
=========
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 103
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments - December 31, 1997
Small Company
- -------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
COMMON STOCKS (84.0%)
Aerospace and Defense (0.6%)
Orbital Sciences Corp.+.................... 3,700 $ 110,075
---------
Apparel (0.9%)
Candie's, Inc.+............................ 27,600 162,150
---------
Auto Parts and Accessories (1.9%)
Arvin Industries, Inc...................... 5,700 189,881
Dollar Thrifty Automotive Group, Inc.+..... 7,800 159,900
---------
349,781
---------
Banks (4.3%)
Cullen/Frost Bankers, Inc.................. 8,700 527,980
St. Paul Bancorp, Inc...................... 9,700 254,625
---------
782,605
---------
Building Materials and Construction (5.2%)
Gencor Industries, Inc..................... 9,000 175,500
Interface, Inc............................. 6,200 179,800
Kaufman & Broad Home Corp.................. 11,900 267,006
Webb (Del E.) Corp......................... 12,600 327,600
---------
949,906
---------
Chemicals (5.0%)
Church & Dwight, Inc....................... 9,100 255,369
Crompton & Knowles Corp.................... 14,700 389,550
Georgia Gulf Corp.......................... 8,400 257,250
---------
902,169
---------
Commercial Services (1.2%)
CET Environmental Services, Inc.+.......... 12,900 89,494
Superior Consultant Holdings Corp.+........ 4,200 126,000
---------
215,494
---------
Computer Software (7.3%)
Diamond Multimedia Systems, Inc.+.......... 18,100 160,638
Harbinger Corp.+........................... 5,395 151,734
Inso Corp.+................................ 22,200 256,688
Mapics, Inc.+.............................. 12,000 130,500
Sterling Software, Inc.+................... 10,300 422,299
Wall Data, Inc.+........................... 14,200 193,475
---------
1,315,334
---------
Electrical Equipment (2.6%)
Alpine Group, Inc.+........................ 18,200 341,250
Silicon Valley Group, Inc.+................ 5,900 133,488
---------
474,738
---------
Electronics (1.8%)
QLogic Corp.+.............................. 11,000 324,500
---------
Financial Services (2.8%)
Medallion Financial Corp................... 15,500 341,000
Ryland Group, Inc.......................... 6,700 158,288
---------
499,288
---------
Foods and Beverages (4.5%)
Dominick's Supermarkets, Inc.+............. 6,600 240,900
Lance, Inc................................. 12,700 334,169
Number of Market
Shares Value
--------- --------
Foods and Beverages (continued)
Zapata Corp................................ 35,900 $ 242,325
---------
817,394
---------
Health Services (1.0%)
MedQuist, Inc.+............................ 5,000 173,750
---------
Hotels and Restaurants (0.4%)
Primadonna Resorts, Inc.+.................. 4,600 76,763
---------
Insurance (7.8%)
Executive Risk, Inc........................ 4,200 293,213
LaSalle Re Holdings Ltd.................... 12,700 449,262
Reliastar Financial Corp................... 4,900 201,819
State Auto Financial Corp.................. 14,300 461,174
---------
1,405,468
---------
Machinery and Equipment (2.8%)
Kuhlman Corp............................... 7,200 281,700
Terex Corp.+............................... 9,600 225,600
---------
507,300
---------
Media and Entertainment (4.3%)
Clearview Cinema Group, Inc.+.............. 14,400 162,000
Jones Intercable, Inc.+.................... 28,500 500,530
Telemundo Group, Inc., Class A+............ 2,700 110,363
---------
772,893
---------
Medical Supplies (0.9%)
CNS, Inc.+................................. 23,900 159,831
---------
Metals and Mining (1.9%)
Carpenter Technology Corp.................. 3,800 182,638
Reynolds Metals Co......................... 2,700 162,000
---------
344,638
--------
Oil and Gas (5.7%)
Grey Wolf, Inc.+........................... 27,400 147,275
McDermott International, Inc............... 11,100 406,537
Norton Drilling Services, Inc.+............ 48,100 100,709
Western Gas Resources, Inc................. 16,900 373,913
---------
1,028,434
---------
Paper and Containers (1.7%)
BWay Corp.+................................ 1,300 29,738
Pope & Talbot, Inc......................... 18,700 281,669
---------
311,407
---------
Pharmaceuticals (4.8%)
Alcide Corp.+.............................. 3,500 213,500
Bindley Western Industries, Inc............ 7,200 222,300
Biovail Corp. International+............... 7,800 304,688
Intelligent Polymers Ltd.+................. 5,600 123,900
---------
864,388
---------
Printing and Publishing (1.1%)
Merrill Corp............................... 8,300 192,975
---------
Real Estate Investment Trusts (1.2%)
Equity Inns, Inc........................... 14,400 212,400
---------
104 See Notes to Portfolio of Investments.
<PAGE>
- -------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
Retail (2.7%)
99 Cents Only Stores+...................... 7,425 $ 219,038
Marks Brothers Jewelers, Inc.+............. 16,700 275,550
---------
494,588
---------
Telecommunications (3.8%)
ICG Communications, Inc.+.................. 9,500 258,875
Mobile Telecommunications Technologies
Corp.+.................................. 19,700 433,399
---------
692,274
---------
Transportation (4.0%)
Expeditors International of
Washington, Inc......................... 4,800 184,800
Knightsbridge Tankers Ltd.................. 13,000 368,063
Yellow Corp.+.............................. 7,200 180,900
---------
733,763
---------
Utilities - Oil and Gas (1.8%)
Kaneb Services, Inc.+...................... 62,600 324,738
---------
Total Common Stocks (cost $14,340,835) 15,199,044
---------
Principal
Amount
---------
SHORT-TERM INVESTMENTS (19.3%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98......................... $3,397,000 3,397,000
U.S. Treasury Bill, 5.05%, 02/05/98@....... 100,000 99,518
---------
Total Short-Term Investments (cost $3,496,523)
3,496,518
---------
TOTAL INVESTMENTS (cost $17,837,358)(a) 18,695,562
Other assets less liabilities (593,747)
---------
Total Net Assets $18,101,815
===========
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$17,838,173. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains ........................... $ 1,242,509
Unrealized losses .......................... (385,120)
-----------
Net unrealized gain ..................... $ 857,389
===========
Information concerning open futures contracts at December 31, 1997 is shown
below:
No. of Initial Expiration Unrealized
Contracts Value Date Gain/Loss
--------- ---------- ----------- ----------
Long Contracts
- -------------------
Russell 2000 Index Futures 9 $1,940,775 March 98 $ 45,300
===========
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at December 31, 1997.
Category percentages are based on net assets.
See Notes to Financial Statements. 105
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments - December 31, 1997
Index Plus
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
COMMON STOCKS (98.0%)
Aerospace and Defense (0.8%)
General Dynamics Corp. ................... 900 $ 77,794
Lockheed Martin Corp. .................... 2,846 280,331
Northrop Grumman Corp. ................... 1,000 115,000
Raytheon Co. ............................. 3,400 171,718
United Technologies Corp. ................ 5,200 378,625
-----------
1,023,468
-----------
Agriculture (0.1%)
Pioneer Hi-Bred International, Inc. ...... 1,200 128,700
-----------
Apparel (0.4%)
Alberto-Culver Co. ....................... 200 6,413
Fruit of the Loom, Inc.+ ................. 700 17,938
Gap, Inc. ................................ 10,350 366,778
Liz Claiborne, Inc. ...................... 1,100 45,994
Nike, Inc., Class B ...................... 1,700 66,725
Reebok International Ltd.+ ............... 800 23,050
Russell Corp. ............................ 100 2,656
-----------
529,554
-----------
Auto Parts and Accessories (0.4%)
Cooper Tire & Rubber Co. ................. 1,200 29,250
Dana Corp. ............................... 2,000 95,000
Echlin, Inc. ............................. 100 3,619
Genuine Parts Co. ........................ 2,500 84,844
Goodyear Tire & Rubber Co. (The) ......... 2,900 184,513
Pep Boys ................................. 100 2,388
TRW, Inc. ................................ 1,700 90,738
-----------
490,352
-----------
Autos and Auto Equipment (2.1%)
Chrysler Corp. ........................... 14,800 520,775
Ford Motor Co. ........................... 28,300 1,377,855
General Motors Corp. ..................... 12,300 745,687
PACCAR, Inc. ............................. 1,800 94,500
-----------
2,738,817
-----------
Banks (7.9%)
Banc One Corp. ........................... 10,600 575,712
Bank of New York Co., Inc. ............... 6,600 381,563
BankAmerica Corp. ........................ 22,500 1,642,499
BankBoston Corp. ......................... 2,700 253,631
Barnett Banks, Inc. ...................... 4,500 323,438
BB&T Corp. ............................... 2,300 147,344
Citicorp ................................. 8,200 1,036,787
Comerica, Inc. ........................... 2,100 189,525
Countrywide Credit Industries, Inc. ...... 1,600 67,899
Fifth Third Bancorp ...................... 2,550 208,463
First Chicago NBD Corp. .................. 7,200 601,199
First Union Corp. ........................ 12,700 650,874
Huntington Bancshares .................... 2,900 104,400
KeyCorp .................................. 3,700 262,006
Mellon Bank Corp. ........................ 7,600 460,750
NationsBank Corp. ........................ 12,100 735,830
Number of Market
Shares Value
--------- --------
Banks (continued)
Norwest Corp. ............................ 17,800 $ 687,524
State Street Corp. ....................... 4,800 279,300
Suntrust Banks, Inc. ..................... 5,000 356,875
U.S. Bancorp ............................. 4,183 468,235
Wachovia Corp. ........................... 3,500 283,938
Washington Mutual, Inc. .................. 4,540 289,709
Wells Fargo & Co. ........................ 1,300 441,269
-----------
10,448,770
-----------
Building Materials and Construction (0.3%)
Armstrong World Industries, Inc. ......... 600 44,850
Centex Corp. ............................. 900 56,644
Foster Wheeler Corp. ..................... 100 2,706
Kaufman & Broad Home Corp. ............... 200 4,488
Masco Corp. .............................. 2,200 111,925
Owens Corning ............................ 200 6,825
Pulte Corp. .............................. 100 4,181
Sherwin-Williams Co. ..................... 2,500 69,375
Weyerhaeuser Co. ......................... 3,300 161,906
-----------
462,900
-----------
Chemicals (1.9%)
Air Products and Chemicals, Inc. ......... 1,600 131,600
Dow Chemical Co. ......................... 3,900 395,850
Du Pont (E.I.) de Nemours ................ 19,100 1,147,193
Eastman Chemical Co. ..................... 1,200 71,475
Engelhard Corp. .......................... 900 15,638
FMC Corp.+ ............................... 500 33,656
Goodrich (B.F.) Co. ...................... 800 33,150
Great Lakes Chemical Corp. ............... 400 17,950
Hercules, Inc. ........................... 1,500 75,094
Monsanto Co. ............................. 3,900 163,800
Morton International, Inc. ............... 1,900 65,313
Nalco Chemical Co. ....................... 1,000 39,563
PPG Industries, Inc. ..................... 2,200 125,675
Praxair, Inc. ............................ 2,200 99,000
Sigma-Aldrich Corp. ...................... 1,500 59,625
W.R. Grace & Co. ......................... 1,000 80,438
-----------
2,555,020
-----------
Commercial Services (0.9%)
Automatic Data Processing, Inc. .......... 4,500 276,188
Browning-Ferris Industries, Inc. ......... 2,900 107,300
Cendant Corp.+ ........................... 11,127 382,495
Deluxe Corp. ............................. 800 27,600
Dun & Bradstreet Corp. ................... 2,500 77,344
Ecolab, Inc. ............................. 900 49,894
First Data Corp. ......................... 3,000 87,750
H & R Block, Inc. ........................ 1,100 49,294
Safety-Kleen Corp. ....................... 300 8,231
Service Corp. International .............. 3,400 125,588
-----------
1,191,684
-----------
Computer Software (3.8%)
Adobe Systems, Inc. ...................... 500 20,625
106 See Notes to Portfolio of Investments.
<PAGE>
- -------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
Computer Software (continued)
Autodesk, Inc. ......................... 700 $ 25,900
Cisco Systems, Inc.+ ................... 16,800 936,599
Computer Associates International, Inc. 9,200 486,450
Computer Sciences Corp.+ ............... 1,000 83,500
Microsoft Corp.+ ....................... 27,000 3,489,749
Parametric Technology Co.+ ............. 1,300 61,588
----------
5,104,411
----------
Computers and Office Equipment (5.5%)
3Com Corp.+ ............................ 600 20,963
Bay Networks, Inc.+ .................... 3,200 81,800
Cabletron Systems, Inc.+ ............... 2,300 34,500
Compaq Computer Corp. .................. 23,782 1,342,196
Data General Corp.+ .................... 1,000 17,438
Dell Computer Corp.+ ................... 10,000 839,999
Digital Equipment Corp.+ ............... 3,100 114,700
EMC/MASS Corp.+ ........................ 13,000 356,688
Harris Corp. ........................... 2,200 100,925
HBO & Co. .............................. 3,200 153,600
Hewlett Packard Co. .................... 17,800 1,112,499
Ikon Office Solutions, Inc. ............ 2,200 61,875
International Business Machines, Inc. .. 17,100 1,788,018
Moore Corp. Ltd. ....................... 200 3,025
Pitney Bowes, Inc. ..................... 3,600 323,775
Silicon Graphics, Inc.+ ................ 4,000 49,750
Sun Microsystems, Inc.+ ................ 6,100 243,238
Unisys Corp.+ .......................... 3,300 45,788
Xerox Corp. ............................ 7,500 553,594
----------
7,244,371
----------
Consumer Products (2.9%)
American Greetings Corp., Class A ...... 1,100 43,038
Avon Products, Inc. .................... 1,600 98,200
Clorox Co. ............................. 1,400 110,688
Colgate-Palmolive Co. .................. 5,000 367,500
Eastman Kodak Co. ...................... 1,900 115,544
Gillette Co. ........................... 9,100 913,980
International Flavors & Fragrances, Inc. 1,600 82,400
Mattel, Inc. ........................... 4,000 149,000
Newell Co. ............................. 2,200 93,500
Polaroid Corp. ......................... 400 19,475
Procter & Gamble Co. ................... 23,200 1,851,649
----------
3,844,974
----------
Diversified (6.0%)
Aeroquip-Vickers, Inc. ................. 600 29,438
Allied Signal, Inc. .................... 8,600 334,863
CBS Corp. .............................. 11,800 347,363
Cognizant Corp. ........................ 2,200 98,038
Cooper Industries, Inc. ................ 1,500 73,500
Corning, Inc. .......................... 3,300 122,513
Crane Co. .............................. 350 15,181
Deere & Co. ............................ 7,700 449,006
Dover Corp. ............................ 3,000 108,375
Number of Market
Shares Value
--------- --------
Diversified (continued)
Eastern Enterprises .................... 100 $ 4,500
Eaton Corp. ............................ 2,300 205,275
Fortune Brands, Inc. ................... 2,400 88,950
General Electric Co. ................... 58,600 4,299,774
ITT Industries, Inc. ................... 1,700 53,338
Johnson Controls, Inc. ................. 1,200 57,300
Minnesota Mining and Manufacturing Co. . 7,000 574,438
National Service Industries, Inc. ...... 400 19,825
Raychem Corp. .......................... 2,100 90,431
Rohm & Haas Co. ........................ 1,200 114,900
Tenneco, Inc. .......................... 2,400 94,800
Textron, Inc. .......................... 2,200 137,500
Tyco International Ltd. ................ 10,600 477,663
VF Corp. ............................... 2,600 119,438
Whitman Corp. .......................... 200 5,213
----------
7,921,622
----------
Electrical Equipment (0.4%)
Emerson Electric Co. ................... 7,700 434,569
General Signal Corp. ................... 100 4,219
Tele-Communications, Inc.+ ............. 3,200 89,400
----------
528,188
----------
Electronics (3.2%)
AMP, Inc. .............................. 3,200 134,400
Applied Materials, Inc.+ ............... 11,500 346,438
Honeywell, Inc. ........................ 2,000 137,000
Intel Corp. ............................ 28,500 2,002,124
KLA Instruments Corp.+ ................. 2,200 84,975
LSI Logic Corp.+ ....................... 1,200 23,700
Micron Technology, Inc.+ ............... 1,500 39,000
Motorola, Inc. ......................... 10,200 582,037
National Semiconductor Corp.+ .......... 4,600 119,313
Perkin-Elmer Corp. ..................... 600 42,638
Rockwell International Corp. ........... 3,100 161,975
Tektronix, Inc. ........................ 750 29,766
Texas Instruments, Inc. ................ 12,200 549,000
Thomas & Betts Corp. ................... 500 23,625
----------
4,275,991
----------
Financial Services (8.4%)
Ahmanson (H. F.) & Co. ................. 2,800 187,425
American Express Co. ................... 11,000 981,749
Bankers Trust New York Corp. ........... 2,200 247,363
Beneficial Corp. ....................... 800 66,500
Charles Schwab Corp. ................... 3,750 157,266
Chase Manhattan Corp. .................. 7,500 821,249
Corestates Financial Corp. ............. 3,100 248,194
Equifax, Inc. .......................... 1,300 46,069
Federal Home Loan Mortgage Corp. ....... 11,100 465,506
Federal National Mortgage Association .. 25,100 1,432,268
Fleet Financial Group, Inc. ............ 3,800 284,763
Golden West Financial Corp. ............ 1,700 166,281
Green Tree Financial Corp. ............. 2,400 62,850
107
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments - December 31, 1997 (continued)
Index Plus
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
Financial Services (continued)
Household International, Inc. ......... 1,500 $ 191,344
J.P. Morgan & Co. ..................... 3,200 361,200
MBNA Corp. ............................ 9,450 258,103
Merrill Lynch & Co., Inc. ............. 9,800 714,787
MGIC Investment Corp. ................. 2,600 172,900
Morgan Stanley, Dean Witter, .......... 18,910 1,118,053
Discover & Co. .....................
National City Corp. ................... 3,700 243,275
PNC Bank Corp. ........................ 5,400 308,138
Providian Financial Corp. ............. 1,200 54,225
Republic New York Corp. ............... 900 102,769
St. Paul Co., Inc. .................... 1,200 98,475
SunAmerica, Inc. ...................... 3,900 166,725
Synovus Financial Corp. ............... 3,000 98,250
Transamerica Corp. .................... 900 95,850
Travelers Group, Inc. ................. 37,041 1,995,583
-----------
11,147,160
-----------
Foods and Beverages (5.9%)
Anheuser-Busch Co., Inc. .............. 6,700 294,800
Archer-Daniels-Midland Co. ............ 3,780 81,979
Brown-Forman Corp., Class B ........... 600 33,150
Campbell Soup Co. ..................... 7,900 459,188
Coca-Cola Co. ......................... 40,800 2,718,299
Conagra, Inc. ......................... 8,500 278,906
Coors (Adolph) Co. .................... 900 29,925
CPC International, Inc.+ .............. 2,300 247,825
General Mills, Inc. ................... 2,500 179,063
Heinz (H.J.) Co. ...................... 6,300 320,119
Hershey Foods Corp. ................... 2,100 130,069
Kellogg Co. ........................... 5,800 287,825
Kroger Co. (The)+ ..................... 3,500 129,281
PepsiCo, Inc. ......................... 26,300 958,305
Quaker Oats Co. ....................... 2,000 105,500
Ralston-Ralston Purina Group .......... 1,400 130,113
Sara Lee Corp. ........................ 7,200 405,450
Supervalu, Inc. ....................... 1,100 46,063
Sysco Corp. ........................... 3,100 141,244
Unilever N.V .......................... 11,100 693,055
Wrigley (Wm) Jr. Co. .................. 1,100 87,519
-----------
7,757,678
-----------
Health Services (0.4%)
HEALTHSOUTH Corp.+ .................... 5,800 160,950
Humana, Inc.+ ......................... 2,500 51,875
Manor Care, Inc. ...................... 500 17,500
Shared Medical Systems Corp. .......... 200 13,200
Tenet Healthcare Corp.+ ............... 4,200 139,125
United Healthcare Corp. ............... 2,600 129,188
-----------
511,838
-----------
Hotels and Restaurants (0.7%)
Hilton Hotels Corp. ................... 3,400 101,150
ITT Corp.+ ............................ 1,800 149,175
Marriott International, Inc. .......... 1,700 117,725
Number of Market
Shares Value
--------- --------
Hotels and Restaurants (continued)
McDonald's Corp. ...................... 10,700 $ 510,925
Tricon Global Restaurants, Inc.+ ...... 2,240 65,100
Wendy's International ................. 700 16,844
-----------
960,919
-----------
Household Appliances (0.1%)
Maytag Corp. .......................... 3,000 111,938
Whirlpool Corp. ....................... 700 38,500
---------
150,438
---------
Insurance (4.4%)
Allstate Corp. ........................ 12,300 1,117,762
American General Corp. ................ 3,521 190,354
American International Group, Inc. .... 16,200 1,761,749
Aon Corp. ............................. 2,350 137,769
Chubb Corp. ........................... 3,100 234,438
CIGNA Corp. ........................... 1,700 294,206
Conseco, Inc. ......................... 5,900 268,081
General Re Corp. ...................... 1,400 296,800
Hartford Financial Services Group, Inc. 2,500 233,906
Jefferson-Pilot Corp. ................. 1,100 85,663
Lincoln National Corp. ................ 2,000 156,250
Loews Corp. ........................... 2,600 275,925
Marsh & McLennan Co., Inc. ............ 2,500 186,406
MBIA, Inc. ............................ 1,800 120,263
Progressive Corp. ..................... 1,200 143,850
Safeco Corp. .......................... 1,800 87,750
Torchmark Corp. ....................... 3,300 138,806
UNUM Corp. ............................ 2,100 114,188
USF&G Corp. ........................... 1,600 35,300
---------
5,879,466
---------
Machinery and Equipment (1.4%)
Black & Decker Corp. .................. 1,300 50,781
Briggs & Stratton Corp. ............... 100 4,856
Brunswick Corp. ....................... 1,800 54,563
Case Corp. ............................ 2,100 126,919
Caterpillar, Inc. ..................... 11,100 539,044
Cincinnati Milacron, Inc. ............. 100 2,594
Cummins Engine Company, Inc. .......... 900 53,156
Fluor Corp. ........................... 500 18,688
Grainger (W. W.), Inc. ................ 700 68,031
Harnischfeger Industries, Inc. ........ 600 21,188
Illinois Tool Works, Inc. ............. 5,900 354,738
Ingersoll-Rand Co. .................... 4,900 198,450
Millipore Corp. ....................... 100 3,394
Pall Corp. ............................ 200 4,138
Parker-Hannifin Corp. ................. 3,100 142,213
Snap-On, Inc. ......................... 1,200 52,350
Stanley Works ......................... 1,300 61,344
Thermo Electron Corp.+ ................ 2,100 93,450
---------
1,849,897
---------
Media and Entertainment (1.5%)
Clear Channel Communications, Inc.+ ... 1,400 111,213
108 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
Fleetwood Enterprises, Inc. ........ 200 $ 8,488
Harrah's Entertainment, Inc.+ ...... 1,500 28,313
Interpublic Group of Co., Inc. ..... 1,750 87,172
King World Production, Inc. ........ 100 5,775
Mirage Resorts, Inc.+ .............. 1,000 22,750
Time Warner, Inc. .................. 9,000 558,000
Walt Disney Co. (The) .............. 11,100 1,099,593
-----------
1,921,304
-----------
Medical Supplies (1.4%)
Alza Corp.+ ........................ 700 22,269
American Home Products Corp. ....... 11,100 849,149
Bard (C.R.), Inc. .................. 100 3,131
Bausch & Lomb, Inc. ................ 800 31,700
Baxter International, Inc. ......... 4,900 247,144
Biomet, Inc. ....................... 900 23,063
Guidant Corp. ...................... 3,400 211,650
Mallinckrodt, Inc. ................. 400 15,200
Medtronic, Inc. .................... 7,400 387,113
U.S. Surgical Corp. ................ 200 5,863
-----------
1,796,282
-----------
Metals and Mining (0.7%)
Alcan Aluminum Ltd. ................ 3,100 85,638
Allegheny Teledyne, Inc. ........... 2,400 62,100
Aluminum Co. of America ............ 4,600 323,725
Armco, Inc.+ ....................... 3,100 15,306
Barrick Gold Corp. ................. 5,300 98,713
Bethlehem Steel Corp.+ ............. 2,500 21,563
Freeport-McMoRan Copper & Gold, Inc. 700 11,025
Inland Steel Industries, Inc. ...... 1,400 23,975
Newmont Mining Corp. ............... 800 23,500
Nucor Corp. ........................ 1,300 62,806
Phelps Dodge Corp. ................. 1,600 99,600
Reynolds Metals Co. ................ 900 54,000
Timken Co. ......................... 1,500 51,563
USX-US Steel Group, Inc. ........... 1,900 59,375
-----------
992,889
-----------
Oil and Gas (8.8%)
Amerada Hess Corp. ................. 500 27,438
Amoco Corp. ........................ 8,300 706,537
Anadarko Petroleum Corp. ........... 300 18,206
Apache Corp. ....................... 600 21,038
Ashland Oil, Inc. .................. 1,300 69,794
Atlantic Richfield Co. ............. 5,600 448,700
Baker Hughes, Inc. ................. 2,400 104,700
Burlington Resources, Inc. ......... 2,800 125,475
Chevron Corp. ...................... 11,300 870,099
Columbia Gas System, Inc. .......... 800 62,850
Consolidated Natural Gas Co. ....... 1,000 60,500
Dresser Industries, Inc. ........... 2,400 100,650
Enron Corp. ........................ 5,000 207,813
Exxon Corp. ........................ 42,600 2,606,587
Number of Market
Shares Value
--------- --------
Oil and Gas (continued)
Halliburton Co. ................... 8,400 $ 436,275
Helmerich & Payne, Inc. ........... 500 33,938
Kerr-McGee Corp. .................. 800 50,650
Mobil Corp. ....................... 13,000 938,437
Occidental Petroleum Corp. ........ 5,100 149,494
Oryx Energy Co.+ .................. 900 22,950
Pennzoil Co. ...................... 700 46,769
Phillips Petroleum Co. ............ 3,900 189,638
Rowan Co., Inc.+ .................. 1,900 57,950
Royal Dutch Petroleum Co. ......... 36,600 1,983,262
Santa Fe Energy Resources, Inc.+ .. 500 5,625
Schlumberger Ltd. ................. 11,800 949,899
Sun Company, Inc. ................. 1,600 67,300
Texaco, Inc. ...................... 12,176 662,069
Union Pacific Resources Group, Inc. 3,654 88,610
Unocal Corp. ...................... 3,500 135,844
USX-Marathon Group ................ 8,200 276,750
Western Atlas, Inc.+ .............. 700 51,800
Williams Co., Inc. (The) .......... 5,200 147,550
-----------
11,725,197
-----------
Paper and Containers (1.1%)
Avery Dennison Corp. .............. 1,500 67,125
Bemis Co., Inc. ................... 500 22,031
Champion International Corp. ...... 1,400 63,438
Crown Cork & Seal Co., Inc. ....... 800 40,100
Fort James Corp. .................. 3,700 141,525
Georgia-Pacific Corp. ............. 2,200 133,650
Georgia-Pacific Corp.+ ............ 2,200 49,913
International Paper Co. ........... 4,700 202,688
Kimberly-Clark Corp. .............. 9,300 458,606
Mead Corp. ........................ 600 16,800
Owens-Illinois, Inc.+ ............. 3,300 125,194
Union Camp Corp. .................. 1,500 80,531
Westvaco Corp. .................... 700 22,006
-----------
1,423,607
-----------
Pharmaceuticals (8.8%)
Abbott Laboratories ............... 12,900 845,755
Amgen, Inc. ....................... 4,300 232,738
Becton, Dickinson & Co. ........... 1,700 85,000
Bristol-Myers Squibb Co. .......... 17,300 1,637,012
Cardinal Health, Inc. ............. 1,500 112,688
Eli Lilly & Co. ................... 19,200 1,336,799
Johnson & Johnson ................. 21,800 1,436,074
Merck & Co., Inc. ................. 21,500 2,284,374
Pfizer, Inc. ...................... 22,300 1,662,743
Schering Plough ................... 23,600 1,466,149
Warner Lambert Co. ................ 4,500 558,000
-----------
11,657,332
-----------
Printing and Publishing (0.7%)
Gannett Co., Inc. ................. 4,400 271,975
John H. Harland Co. ............... 100 2,100
109
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments - December 31, 1997 (continued)
Index Plus
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
Printing and Publishing (continued)
Knight-Ridder, Inc. ..................... 1,200 $ 62,400
McGraw-Hill Co., Inc. ................... 2,100 155,400
Meredith Corp. .......................... 200 7,138
New York Times Co. ...................... 1,900 125,638
RR Donnelley & Sons Co. ................. 2,100 78,225
Times Mirror Co. ........................ 1,400 86,100
Tribune Co. ............................. 1,700 105,825
--------
894,801
--------
Retail (4.3%)
Albertson's, Inc. ....................... 4,100 194,238
American Stores Co. ..................... 3,700 76,081
AutoZone, Inc.+ ......................... 1,100 31,900
Circuit City Stores, Inc. ............... 1,600 56,900
Costco Companies, Inc.+ ................. 5,800 258,825
CVS Corp. ............................... 3,400 217,813
Dayton Hudson Corp. ..................... 6,600 445,500
Dillards, Inc., Class A ................. 1,500 52,875
Federated Department Stores, Inc.+ ...... 4,700 202,394
Footstar, Inc.+ ......................... 28 753
Great Atlantic & Pacific Tea Co., Inc. .. 100 2,969
Harcourt General, Inc. .................. 100 5,475
Hasbro, Inc. ............................ 1,800 56,700
Home Depot, Inc. ........................ 12,650 744,768
J.C. Penney Co., Inc. ................... 1,600 96,500
Kmart Corp.+ ............................ 6,900 79,781
Longs Drug Stores, Inc. ................. 200 6,425
Lowe's Companies, Inc. .................. 3,000 143,063
May Department Stores Co. ............... 3,300 173,869
Mercantile Stores Co., Inc. ............. 100 6,088
Nordstrom, Inc. ......................... 1,400 84,525
Rite Aid Corp. .......................... 1,800 105,638
Sears, Roebuck & Co. .................... 6,700 303,175
Tandy Corp. ............................. 2,800 107,975
The Limited, Inc. ....................... 3,800 96,900
TJX Companies, Inc. ..................... 3,000 103,125
Toys "R" Us, Inc.+ ...................... 4,300 135,181
Wal-Mart Stores, Inc. ................... 39,100 1,542,005
Walgreen Co. ............................ 7,700 241,588
Winn-Dixie Stores, Inc. ................. 2,100 91,744
Woolworth Corp.+ ........................ 1,900 38,713
----------
5,703,486
----------
Telecommunications (2.2%)
AirTouch Communications, Inc.+ .......... 8,000 332,500
Ameritech Corp. ......................... 13,700 1,102,849
Andrew Corp.+ ........................... 600 14,400
DSC Communications Corp.+ ............... 3,400 81,600
Lucent Technologies, Inc. ............... 11,018 880,062
Nextlevel Systems, Inc.+ ................ 1,600 28,600
Northern Telecom Ltd. ................... 5,100 453,900
Scientific Atlanta, Inc. ................ 1,100 18,425
----------
2,912,336
----------
Number of Market
Shares Value
--------- --------
Tobacco (2.0%)
Philip Morris Co., Inc. ................. 57,200 $2,591,874
UST, Inc. ............................... 2,800 103,425
----------
2,695,299
----------
Transportation (1.5%)
AMR Corp.+ .............................. 3,000 385,500
Burlington Northern Santa Fe Corp. ...... 2,400 223,050
Caliber System, Inc. .................... 1,000 48,688
CSX Corp. ............................... 3,000 162,000
Delta Air Lines, Inc. ................... 1,700 202,300
Federal Express Corp.+ .................. 2,900 177,081
Laidlaw, Inc. ........................... 4,700 64,038
Navistar International Corp.+ ........... 1,700 42,181
Norfolk Southern Corp. .................. 5,100 157,144
Ryder System, Inc. ...................... 1,100 36,025
Southwest Airlines Co. .................. 4,650 114,506
Union Pacific Corp. ..................... 3,500 218,531
US Airways Group, Inc.+ ................. 2,800 175,000
----------
2,006,044
----------
Utilities - Electric (1.7%)
American Electric Power Co. ............. 2,700 139,388
Baltimore Gas & Electric Co. ............ 2,100 71,531
Carolina Power & Light Co. .............. 2,100 89,119
Central & South West Corp. .............. 900 24,356
Cinergy Corp. ........................... 2,100 80,456
Consolidated Edison Co. of New York, Inc. 3,200 131,200
Dominion Resources, Inc. ................ 2,600 110,663
DTE Energy Co. .......................... 2,000 69,375
Edison International .................... 5,700 154,969
Entergy Corp. ........................... 3,200 95,800
FirstEnergy Corp.+ ...................... 2,900 84,100
GPU, Inc. ............................... 1,800 75,825
Houston Industries, Inc. ................ 4,448 118,706
Niagara Mohawk Power Corp.+ ............. 1,100 11,550
Northern States Power Co. ............... 1,000 58,250
PacifiCorp .............................. 4,000 109,250
Peco Energy Co. ......................... 2,200 53,350
PG&E Corp. .............................. 2,700 82,181
PP&L Resources, Inc. .................... 2,300 55,056
Public Service Enterprise Group, Inc. ... 3,200 101,400
Southern Co. ............................ 11,500 297,563
Texas Utilities Co. ..................... 3,867 160,722
Unicom Corp. ............................ 2,900 89,175
Union Electric Co. ...................... 600 25,950
----------
2,289,935
----------
Utilities - Oil and Gas (0.2%)
Coastal Corp. (The) ..................... 2,500 154,844
NICOR, Inc. ............................. 700 29,531
ONEOK, Inc. ............................. 100 4,038
Pacific Enterprises ..................... 700 26,338
People's Energy Corp. ................... 100 3,938
110 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
Utilities - Oil and Gas (continued)
Sonat, Inc. ................................. 1,200 $ 54,900
------------
273,589
------------
Utilities - Telephone (5.2%)
Alltel Corp. ................................ 2,500 102,656
AT&T Corp. .................................. 26,600 1,629,249
Bell Atlantic Corp. ......................... 13,247 1,205,476
BellSouth Corp. ............................. 16,200 912,262
GTE Corp. ................................... 15,200 794,199
MCI Communications Corp. .................... 3,900 166,969
SBC Communications, Inc. .................... 16,482 1,207,306
Sprint Corp. ................................ 2,300 134,838
Tellabs, Inc.+ .............................. 4,000 211,500
U.S. West Communications Group .............. 7,700 347,463
WorldCom, Inc.+ ............................. 5,300 160,325
------------
6,872,243
------------
Total Common Stocks (cost $119,936,115)
129,910,562
------------
PREFERRED STOCKS (0.4%)
Chemicals (0.1%)
Union Carbide Corp. ......................... 1,700 72,994
------------
Foods and Beverages (0.0%)
Seagram Ltd. ................................ 1,100 35,544
------------
Utilities - Electric (0.3%)
Duke Energy Corp. ........................... 4,871 269,732
FPL Group, Inc. ............................. 2,500 147,969
------------
417,701
------------
Total Preferred Stocks (cost $476,687) 526,239
------------
Principal
Amount
---------
SHORT-TERM INVESTMENTS (2.8%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98........................ $ 3,533,000 3,533,000
U. S. Treasury Bill, 5.11%, 02/05/98...... 100,000 99,518
U.S. Treasury Bill, 5.17%, 02/05/98....... 100,000 99,483
---------
Total Short-Term Investments (cost $3,732,029) 3,732,001
---------
TOTAL INVESTMENTS (cost $124,144,831)(a) 134,168,802
Other assets less liabilities (1,652,284)
------------
Total Net Assets $ 132,516,518
============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$124,578,492. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains ........................ $12,431,237
Unrealized losses ....................... (2,840,927)
-----------
Net unrealized gain .................. $ 9,590,310
===========
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 111
<PAGE>
Aetna Variable Portfolios, Inc.
Portfolio of Investments - December 31, 1997
Capital Appreciation
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
COMMON STOCKS (86.2%)
Aerospace and Defense (2.7%)
Boeing Co. ........................... 5,000 $ 244,688
----------
Autos and Auto Equipment (1.9%)
Chrysler Corp. ....................... 5,000 175,938
----------
Banks (6.5%)
Citicorp ............................. 2,000 252,875
Wells Fargo & Co. .................... 1,000 339,437
----------
592,312
----------
Chemicals (4.5%)
Du Pont (E.I.) de Nemours ............ 4,000 240,250
FMC Corp.+ ........................... 2,500 168,281
----------
408,531
----------
Computers and Office Equipment (11.5%)
Digital Equipment Corp.+ ............. 5,000 185,000
Gateway 2000, Inc.+ .................. 10,000 326,249
International Business Machines, Inc. 2,900 303,231
Quantum Corp.+ ....................... 12,000 240,750
----------
1,055,230
----------
Diversified (5.9%)
Deere & Co. .......................... 4,600 268,238
Eaton Corp. .......................... 3,000 267,750
----------
535,988
----------
Electronics (1.7%)
Intel Corp., Warrants+ ............... 3,200 158,300
----------
Financial Services (10.6%)
Federal Home Loan Mortgage Corp. ..... 5,000 209,688
Franklin Resources, Inc. ............. 3,050 265,159
T. Rowe Price Associates ............. 4,000 251,500
Travelers Group, Inc. ................ 4,500 242,438
----------
968,785
----------
Hotels and Restaurants (2.3%)
Hilton Hotels Corp. .................. 7,000 208,250
----------
Insurance (2.7%)
Reliastar Financial Corp. ............ 6,000 247,125
----------
Medical Supplies (2.7%)
Centocor, Inc.+ ...................... 7,500 249,375
----------
Metals and Mining (2.3%)
Aluminum Co. of America .............. 3,000 211,125
----------
Oil and Gas (14.2%)
Amerada Hess Corp. ................... 4,500 246,938
Atlantic Richfield Co. ............... 2,600 208,325
Murphy Oil Corp. ..................... 4,000 216,750
Noble Drilling Corp.+ ................ 10,000 306,249
Texaco, Inc. ......................... 3,200 174,000
Tosco Corp. .......................... 4,000 151,250
----------
1,303,512
----------
Paper and Containers (4.4%)
International Paper Co................ 4,000 $ 172,500
Owens-Illinois, Inc.+................. 6,000 227,625
-------------
400,125
-------------
Pharmaceuticals (5.1%)
Amgen, Inc............................ 4,000 216,500
Warner Lambert Co..................... 2,000 248,000
-------------
464,500
-------------
Transportation (2.6%)
Kansas City Southern Industries, Inc.. 7,500 238,125
-------------
Utilities - Telephone (4.6%)
AT&T Corp............................. 3,000 183,750
Bell Atlantic Corp.+.................. 2,600 236,600
-------------
420,350
-------------
Total Common Stocks (cost $7,472,785) 7,882,259
-------------
Principal
Amount
----------
SHORT-TERM INVESTMENTS (22.5%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98.......................... $ 2,056,000 2,056,000
-------------
Total Short-Term Investments (cost $2,056,000) 2,056,000
-------------
TOTAL INVESTMENTS (cost $9,528,785)(a) 9,938,259
Other assets less liabilities (791,482)
-------------
Total Net Assets $ 9,146,777
=============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$9,533,559. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains .......................... $ 705,338
Unrealized losses ......................... (300,638)
-------------
Net unrealized gain .................... $ 404,700
=============
+ Non-income producing security.
Category percentages are based on net assets.
112 See Notes to Financial Statements.
<PAGE>
Aetna Variable Portfolios, Inc.
Statements of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Capital
Growth Company Index Plus Appreciation
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments, at market value .................................. $ 6,007,121 $ 18,695,562 $ 134,168,802 $ 9,938,259
Cash .......................................................... 348 1,451 8,651 236
Receivable for:
Dividends and interest ..................................... 3,814 22,063 163,912 24,033
Investments sold ........................................... -- 173,670 226,823 --
Fund shares sold ........................................... 213,124 263,467 35,438 76,139
Variation margin ........................................... -- 11,700 -- --
------------ -------------- -------------- -------------
Total assets ....................................... 6,224,407 19,167,913 134,603,626 10,038,667
------------ -------------- -------------- -------------
Liabilities:
Payable for:
Dividends to shareholders .................................. 179,608 -- -- --
Investments purchased ...................................... -- 1,054,577 1,484,029 886,772
Fund shares redeemed ....................................... 77,035 99 545,992 34
Accrued investment advisory fees .............................. 3,136 9,518 39,961 4,069
Accrued administrative services fees .......................... 784 1,904 17,126 1,015
------------ -------------- -------------- -------------
Total liabilities .................................. 260,563 1,066,098 2,087,108 891,890
------------ -------------- -------------- -------------
NET ASSETS ................................................. $ 5,963,844 $ 18,101,815 $ 132,516,518 $ 9,146,777
============ ============== ============== =============
Net assets represented by:
Paid-in capital ............................................... $ 5,816,862 $ 17,000,272 $ 121,363,803 $ 8,431,800
Net unrealized gain on investments and open futures contracts . 282,051 903,504 10,023,971 409,474
Undistributed (distributions in excess of) net investment income (393) 14,573 53,091 1,435
Accumulated net realized gain (loss) on investments ........... (134,676) 183,466 1,075,653 304,068
------------ -------------- -------------- -------------
NET ASSETS ................................................. $ 5,963,844 $ 18,101,815 $ 132,516,518 $ 9,146,777
============ ============== ============== =============
Capital Shares, one billion authorized,
$0.001 par value:
Outstanding ................................................... 605,682 1,417,551 9,453,894 767,619
Net Asset Value, offering and redemption price per share (net
assets divided by shares outstanding) ...................... $ 9.846 $ 12.770 $ 14.017 $ 11.916
Cost of investments ........................................... $ 5,725,070 $ 17,837,358 $ 124,144,831 $ 9,528,785
</TABLE>
See Notes to Financial Statements.
113
<PAGE>
Aetna Variable Portfolios, Inc.
Statements of Operations
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Small Capital
Growth Company Index Plus Appreciation
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Investment Income:
Dividends ............................................................... $ 47,862 $ 71,019 $ 1,116,251 $ 89,294
Interest ................................................................ 15,711 46,702 146,436 26,622
---------- ---------- ----------- ----------
63,573 117,721 1,262,687 115,916
Foreign taxes withheld on dividends ..................................... (156) (115) (5,554) --
---------- ---------- ----------- ----------
Total investment income ...................................... 63,417 117,606 1,257,133 115,916
---------- ---------- ----------- ----------
Expenses:
Investment advisory fees ................................................ 36,432 52,841 235,280 38,520
Administrative services fees ............................................ 9,108 10,568 100,834 9,630
---------- ---------- ----------- ----------
Total expenses ............................................... 45,540 63,409 336,114 48,150
---------- ---------- ----------- ----------
Net investment income ................................................... 17,877 54,197 921,019 67,766
---------- ---------- ----------- ----------
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on:
Sale of investments .................................................. 1,464,300 1,248,281 5,599,605 1,732,709
Closed put and call options .......................................... -- -- -- (48,947)
Futures and forward foreign currency exchange contracts .............. 1,598 (43,984) (72,120) --
---------- ---------- ----------- ----------
Net realized gain on investments ............................. 1,465,898 1,204,297 5,527,485 1,683,762
---------- ---------- ----------- ----------
Net change in unrealized gain or loss on:
Investments .......................................................... 204,394 799,707 8,934,413 307,085
Futures contracts .................................................... -- 45,300 -- --
---------- ---------- ----------- ----------
Net change in unrealized gain or loss on investments ......... 204,394 845,007 8,934,413 307,085
---------- ---------- ----------- ----------
Net realized and change in unrealized gain on investments ............... 1,670,292 2,049,304 14,461,898 1,990,847
---------- ---------- ----------- ----------
Net increase in net assets resulting from operations .................... $1,688,169 $2,103,501 $15,382,917 $2,058,613
========== ========== =========== ==========
</TABLE>
See Notes to Financial Statements.
114
<PAGE>
Aetna Variable Portfolios, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth Small Company
----------------------------- ------------------------------
Period from Period from
December 13, December 27,
Year Ended 1996 Year Ended 1996
December 31, to December 31, December 31, to December 31,
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Operations:
Net investment income ............................................... $ 17,877 $ 5,351 $ 54,197 $ 4,178
Net realized gain (loss) on investments ............................. 1,465,898 (2,535) 1,204,297 --
Net change in unrealized gain on investments ........................ 204,394 77,657 845,007 58,497
------------- ------------ ------------- ------------
Net increase in net assets resulting from operations ............. 1,688,169 80,473 2,103,501 62,675
------------- ------------ ------------- ------------
Distributions to Shareholders:
From net investment income .......................................... (15,218) (5,866) (38,702) (5,100)
From net realized gains ............................................. (1,600,576) -- (1,020,831) --
------------- ------------ ------------- ------------
Decrease in net assets from distributions to shareholders ........ (1,615,794) (5,866) (1,059,533) (5,100)
------------- ------------ ------------- ------------
Fund Share Transactions:
Proceeds from shares sold ........................................... 6,712,100 5,100,000 18,008,547 5,100,000
Net asset value of shares issued upon reinvestment of distributions . 1,436,186 -- 1,059,533 --
Payments for shares redeemed ........................................ (7,431,424) -- (7,167,808) --
------------- ------------ ------------- ------------
Net increase in net assets from fund share transactions .......... 716,862 5,100,000 11,900,272 5,100,000
------------- ------------ ------------- ------------
Net change in net assets ............................................ 789,237 5,174,607 12,944,240 5,157,575
Net Assets:
Beginning of period ................................................. 5,174,607 -- 5,157,575 --
------------- ------------ ------------- ------------
End of period ....................................................... $ 5,963,844 $5,174,607 $18,101,815 $5,157,575
============= ============ ============= ============
End of period net assets includes undistributed (distributions in
excess of) net investment income ................................. $ (393) $ (515) $ 14,573 $ (922)
============= ============ ============= ============
Share Transactions:
Number of shares sold ............................................... 500,364 510,000 1,353,068 510,000
Number of shares issued upon reinvestment of distributions .......... 147,415 -- 83,662 --
Number of shares redeemed ........................................... (552,097) -- (529,179) --
------------- ------------ ------------- ------------
Net increase ..................................................... 95,682 510,000 907,551 510,000
============= ============ ============= ============
</TABLE>
See Notes to Financial Statements.
115
<PAGE>
Aetna Variable Portfolios, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Index Plus Capital Appreciation
---------- --------------------
Period from Period from
September 16, December 13,
Year Ended 1996 Year Ended 1996
December 31, to December 31, December 31, to December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operations:
Net investment income ...................................... $ 921,019 $ 83,803 $ 67,766 $ 7,384
Net realized gain (loss) on investments .................... 5,527,485 (1,609) 1,683,762 --
Net change in unrealized gain on investments ............... 8,934,413 1,089,558 307,085 102,389
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations .... 15,382,917 1,171,752 2,058,613 109,773
------------- ------------- ------------- -------------
Distributions to Shareholders:
From net investment income ................................. (867,859) (83,638) (65,555) (8,160)
From net realized gains .................................... (4,427,074) (23,383) (1,379,694) --
------------- ------------- ------------- -------------
Decrease in net assets from distributions to shareholders (5,294,933) (107,021) (1,445,249 (8,160)
------------- ------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold .................................. 108,547,655 23,374,816 9,237,674 5,100,000
Net asset value of shares issued upon reinvestment
of distributions ........................................ 5,294,933 70,017 1,445,249 --
Payments for shares redeemed ............................... (10,824,511) (5,099,107) (7,351,123) --
------------- ------------- ------------- -------------
Net increase in net assets from fund share transactions . 103,018,077 18,345,726 3,331,800 5,100,000
------------- ------------- ------------- -------------
Net change in net assets ................................... 113,106,061 19,410,457 3,945,164 5,201,613
Net Assets:
Beginning of period ........................................ 19,410,457 -- 5,201,613 --
------------- ------------- ------------- -------------
End of period .............................................. $ 132,516,518 $ 19,410,457 $ 9,146,777 $ 5,201,613
============= ============= ============= =============
End of period net assets include undistributed
(distributions in excess of) net investment income ...... $ 53,091 $ (69) $ 1,435 $ (776)
============= ============= ============= =============
Share Transactions:
Number of shares sold ...................................... 8,195,022 2,235,617 664,790 510,000
Number of shares issued upon reinvestment of distributions . 377,773 6,304 121,772 --
Number of shares redeemed .................................. (898,689) (462,133) (528,943) --
------------- ------------- ------------- -------------
Net increase ............................................ 7,674,106 1,779,788 257,619 510,000
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
116
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. Organization
Aetna Variable Portfolios, Inc. (Fund) was incorporated under the laws of
Maryland on June 4, 1996. The Fund is an open-end management investment
company registered under the Investment Company Act of 1940 and is authorized to
issue multiple series of shares, each representing a diversified portfolio of
investments (individually, a Portfolio and collectively, the Portfolios) with
its own investment objective, policies and restrictions. Currently, the Fund
offers shares of the Aetna Variable Growth Portfolio (Growth); Aetna Variable
Small Company Portfolio (Small Company); Aetna Variable Index Plus Portfolio
(Index Plus); and Aetna Variable Capital Appreciation Portfolio (Capital
Appreciation).
The following is a brief description of each Portfolio's investment objective:
Growth Portfolio seeks growth of capital through investments in a
diversified portfolio of common stocks and securities convertible into
common stocks believed to offer growth potential.
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.
Index Plus Portfolio will attempt to outperform the total return
performance of publicly traded common stocks represented by the S&P 500
Index (S&P 500), a stock market index composed of 500 stocks selected by
the Standard & Poor's Corporation.
Capital Appreciation Portfolio seeks growth of capital primarily through
investment in a diversified portfolio of common stocks and securities
convertible into common stock. Capital Appreciation will use a
value-oriented approach in an attempt to outperform the total return
performance of publicly traded common stocks represented by the S&P 500.
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.
ALIAC serves as the Investment Adviser and principal underwriter to each
Portfolio. ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus
Investment Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as the
subadviser to the Portfolios.
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or for over-the-counter securities, at
the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued using methods approved by the
Board of Directors.
The accounting records of the Portfolios are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a foreign
currency 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.
117
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements (continued)
December 31, 1997
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies (continued)
B. Option Contracts
The Portfolios may purchase and write (sell) put options, purchase call options
and write (sell) covered call options as a hedge against adverse movements in
the value of portfolio holdings or to increase market exposure.
Option contracts are valued daily and unrealized gains or losses are recorded
based upon the last sales price on the principal exchange on which the options
are traded.
The 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.
The following reflects the put and call option activity of Capital Appreciation
for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Call Options Written
-----------------------------------------------------------------
Number of Deferred Premium Realized
Contracts Received Gain
--------- -------- ----
<S> <C> <C> <C>
Outstanding December 31, 1996......... -- $ -- $ --
Written............................ 55 33,896 --
Closed............................. (55) (33,896) 4,856
Expired............................ -- -- --
Exercised.......................... -- -- --
------------ ---------------- ------------------
Outstanding December 31, 1997......... -- $ -- $ 4,856
============ ================ ==================
Put Options Written
-----------------------------------------------------------------
Number of Deferred Premium Realized
Contracts Received Loss
--------- -------- ----
Outstanding December 31, 1996......... -- $ -- $ --
Written............................ 50 97,347 --
Closed............................. (50) (97,347) (53,803)
Expired............................ -- -- --
Exercised.......................... -- -- --
------------ ---------------- ------------------
Outstanding December 31, 1997......... -- $ -- $ (53,803)
============ ================ ==================
</TABLE>
C. 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. The Portfolios 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, 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 fluctuation
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 are closed prior to expiration.
118
<PAGE>
2. Summary of Significant Accounting Policies (continued)
C. 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
Portfolios and the price of the contracts. Risks may also arise from an illiquid
secondary market or from the inability of counterparties to meet the terms of
the contracts.
Realized and unrealized gains or losses on 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 values of these contracts are disclosed in the Portfolio of
Investments.
For federal income tax purposes, any futures contracts which remain open at year
end are marked-to-market and the resultant net gain or loss is included in
federal taxable income.
D. 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.
E. Distributions
The Portfolios distribute all net investment income and net capital gains, if
any, annually. Distributions from net investment income are based on taxable net
income. Distributions are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for deferred losses on
wash sales.
F. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, over the life of the
security. Dividend income is 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
Each Portfolio pays the Investment Adviser a monthly advisory fee at an annual
rate expressed as a percentage of the average daily net assets of each
Portfolio. Each Portfolio's Investment Advisory fee in effect at December 31,
1997, is shown below:
Growth 0.60% Small Company 0.75%
Index Plus 0.35% Capital Appreciation 0.60%
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and provides all administrative services necessary for the
Portfolios' operations and is responsible for the supervision of the Portfolios'
other service providers. ALIAC also assumes all ordinary, recurring costs of the
Portfolios, such as custodian fees, directors' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at a rate of 0.15% of the average daily net assets of each Portfolio.
Under the terms of a Subadvisory Agreement among the Fund, ALIAC and Aeltus,
Aeltus supervises the investment and reinvestment of cash and securities and
provides certain related administrative services to the Portfolios in exchange
for a fee payable by ALIAC at an annual rate expressed as a percentage of the
average daily net assets of each Portfolio. Each Portfolio's Subadvisory fee in
effect at December 31, 1997, is shown below:
Growth 0.375% Small Company 0.450%
Index Plus 0.250% Capital Appreciation 0.375%
119
<PAGE>
Aetna Variable Portfolios, Inc.
Notes to Financial Statements (continued)
December 31, 1997
- --------------------------------------------------------------------------------
3. Investment Advisory and Administrative Services Fees (continued)
For the year ended December 31, 1997, ALIAC paid Aeltus $22,701, $31,395,
$166,680 and $23,967 for Growth, Small Company, Index Plus and Capital
Appreciation, respectively, in accordance with the terms of the Subadvisory
Agreement.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the year ended December 31, 1997 were:
Cost of Purchases Proceeds from Sales
----------------- -------------------
Growth $ 11,728,816 $13,294,915
Small Company 19,883,577 11,614,565
Index Plus 146,898,517 49,871,794
Capital Appreciation 12,213,186 11,257,699
5. Certain Reclassifications
In accordance with generally accepted accounting principles, the following
reclassification was made in order to present the Funds' capital accounts on a
tax basis. The reclassification has no impact on the net asset value of the
Fund.
<TABLE>
<CAPTION>
Accumulated Net
Undistributed Net Investment Realized Gain (Loss)
Income on Investments
Paid-in Capital Decrease Increase
---------------------------- ------------------------------------ ----------------------------
<S> <C> <C>
Growth -- ($2,537) $2,537
</TABLE>
120
<PAGE>
Aetna Variable Portfolios, Inc.
Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Growth
-----------------------------------------------
Period from
Year Ended December 13, 1996 to
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period .................................... $ 10.146 $ 10.000
--------- ---------
Income from investment operations:
Net investment income ................................................ 0.039 0.011
Net realized and change in unrealized gain on investments ............ 3.271 0.147
--------- ---------
Total from investment operations ............................... 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 .......................................... $ 9.846 $ 10.146
========= =========
Total return* ........................................................... 33.01% 1.57%
Net assets, end of period (000's) ....................................... $5,964 $5,175
Ratio of total expenses to average net assets ........................... 0.75% 0.67%(1)
Ratio of net investment income to average net assets .................... 0.29% 1.99%(1)
Portfolio turnover rate ................................................. 207.41% 1.97%
Average commission rate paid per share on equity securities traded....... $ 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.
121
<PAGE>
Aetna Variable Portfolios, Inc.
Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Small Company
-------------
Period from
Year Ended December 27, 1996 to
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period ................................ $ 10.113 $ 10.000
--------- ---------
Income from investment operations:
Net investment income ............................................ 0.042 0.008
Net realized and change in unrealized gain on investments ........ 3.439 0.115
--------- ---------
Total from investment operations ........................... 3.481 0.123
--------- ---------
Less distributions:
From net investment income ....................................... (0.030) (0.010)
From net realized gains on investments ........................... (0.794) --
--------- ---------
Total distributions ........................................ (0.824) (0.010)
--------- ---------
Net asset value, end of period ...................................... $ 12.770 $ 10.113
========= =========
Total return* ....................................................... 34.49% 1.23%
Net assets, end of period (000's) ................................... $ 18,102 $ 5,158
Ratio of total expenses to average net assets ....................... 0.90% 0.55%(1)
Ratio of net investment income to average net assets ................ 0.78% 5.96%(1)
Portfolio turnover rate ............................................. 180.25% --
Average commission rate paid per share on equity securities traded... $ 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.
122
<PAGE>
Aetna Variable Portfolios, Inc.
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Index Plus
----------
Period from
Year Ended September 16, 1996 to
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period ................................ $ 10.906 $ 10.000
---------- ---------
Income from investment operations:
Net investment income ............................................ 0.102 0.047
Net realized and change in unrealized gain on investments ........ 3.594 0.919
---------- ---------
Total from investment operations ........................... 3.696 0.966
---------- ---------
Less distributions:
From net investment income ....................................... (0.096) (0.047)
From net realized gains on investments ........................... (0.489) (0.013)
---------- ---------
Total distributions ........................................ (0.585) (0.060)
---------- ---------
Net asset value, end of period ...................................... $ 14.017 $ 10.906
========== =========
Total return* ....................................................... 33.89% 9.64%
Net assets, end of period (000's) ................................... $ 132,517 $ 19,410
Ratio of total expenses to average net assets ....................... 0.50% 0.50%(1)
Ratio of net investment income to average net assets ................ 1.38% 1.89%(1)
Portfolio turnover rate ............................................. 76.83% 5.18%
Average commission rate paid per share on equity securities traded... $ 0.0372 $ 0.0358
</TABLE>
(1) Annualized.
* The total return percentage does not reflect any separate
account charges under variable annuity contracts and life policies.
See Notes to Financial Statements.
123
<PAGE>
Aetna Variable Portfolios, Inc.
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Capital Appreciation
--------------------
Period from
Year Ended December 13, 1996 to
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period ................................ $ 10.199 $ 10.000
--------- ---------
Income from investment operations:
Net investment income ............................................ 0.107 0.015
Net realized and change in unrealized gain on investments ........ 3.899 0.200
--------- ---------
Total from investment operations ........................... 4.006 0.215
--------- ---------
Less distributions:
From net investment income ....................................... (0.104) (0.016)
From net realized gains on investments ........................... (2.185) --
--------- ---------
Total distributions ........................................ (2.289) (0.016)
--------- ---------
Net asset value, end of period ...................................... $ 11.916 $ 10.199
========= =========
Total return* ....................................................... 39.36% 2.15%
Net assets, end of period (000's) ................................... $9,147 $5,202
Ratio of total expenses to average net assets ....................... 0.75% 0.67%(1)
Ratio of net investment income to average net assets ................ 1.06% 2.73%(1)
Portfolio turnover rate ............................................. 187.84% --
Average commission rate paid per share on equity securities traded... $ 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.
124
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Aetna Variable Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of Aetna
Variable Growth Portfolio, Aetna Variable Small Company Portfolio, Aetna
Variable Index Plus Portfolio and Aetna Variable Capital Appreciation Portfolio,
series of Aetna Variable Portfolios, Inc. (the Portfolios), including the
portfolios of investments, as of December 31, 1997, and the related statements
of operations for the year then ended and the statements of changes in net
assets and financial highlights for the year then ended and for the period from
December 13, 1996 (commencement of investment operations) to December 31, 1996
for Aetna Variable Growth Portfolio and Aetna Variable Capital Appreciation
Portfolio, for the year then ended and for the period from December 27, 1996
(commencement of investment operations) to December 31, 1996 for Aetna Variable
Small Company Portfolio, and for the year then ended and the period from
September 16, 1996 (commencement of investment operations) to December 31, 1996
for Aetna Variable Index Plus Portfolio. These financial statements and
financial highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Aetna
Variable Growth Portfolio, Aetna Variable Small Company Portfolio, Aetna
Variable Index Plus Portfolio and Aetna Variable Capital Appreciation Portfolio
as of December 31, 1997, the results of their operations, changes in their net
assets and financial highlights for each of the years or periods specified in
the first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
125
<PAGE>
Additional Information
(Unaudited)
- --------------------------------------------------------------------------------
Federal Tax Status of Dividends Declared During the Fiscal Year
During the fiscal year ended December 31, 1997, the funds paid the following
long-term gains distributions:
Total Long-Term Taxable at Taxable at
Distributions 28% 20%
-------------------- ------------------ -----------------
Small Company $ 1,118 $ -- $ 1,118
Index Plus 138,060 138,060 --
Capital Appreciation 41,042 2,914 38,128
The percentage of income dividends that were qualifying dividends for the
corporate dividends received deduction were:
Growth 2.82%
Small Company 4.54%
Index Plus 16.81%
Capital Appreciation 4.94%
126
<PAGE>
Aetna GET Fund, Series B
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year Since Inception +
- ------ ------------------------
34.52% 24.79%
<TABLE>
<CAPTION>
- ---------------------------------------------[Aetna GET Fund, Series B Line Chart]--------------------------------------------------
Jul-94
<S> <C> <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
S&P 500 Index 10,000 10,489 10,487 11,508 12,607 13,610
Lehman Brothers 10,000 10,061 10,099 10,608 11,254 11,475
Aggregate Bond Index
60% S&P 500/40% 10,000 10,318 10,335 11,146 12,055 12,723
Lehman Aggregate
Dec-97
Aetna GET Fund, Series B 13,078 13,868 14,443 14,824 16,153 16,439 19,286 22,130 21,722
S&P 500 Index 14,429 15,204 15,885 16,376 17,742 18,217 21,398 23,000 23,660
Lehman Brothers 11,964 11,752 11,819 12,038 12,399 12,329 12,782 13,206 13,596
Aggregate Bond Index
60% S&P 500/40% 13,401 13,732 14,132 14,505 15,406 15,624 17,467 18,506 19,072
Lehman Aggregate
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 July 1, 1994.
How did the Fund perform during the period?
Aetna GET Fund, Series B (GET B) generated a return of 34.52%, net of fund
expenses, for the year ended December 31, 1997. GET B's return outperformed
the Standard & Poors (S&P) 500 Index(a) return of 33.36% 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. This Fund 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 Fund?
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 twelve months. This continued progress in stock market
levels has raised GET B's cumulative return cushion and helped sustain the
high allocation to stocks. The allocation as of December 31, 1997, was 95.8%
equities and 4.2% fixed income and cash equivalent securities.
What investments influenced the Fund's performance over the past twelve months?
Fund performance benefited from strong stock selection results. The
characteristics we favor in choosing which stocks to purchase for the portfolio
include attractive valuation, upward revisions of earnings estimates and
shareholder-oriented management.
What is your outlook going forward?
At present, we believe U.S. stocks are fairly valued. We use the forward
earnings yield (earnings per share divided by price) of the S&P 500 as our
measure of equity valuation and compare it to the yield on the 10-year
government bond. The spread between these two expected return measures drives
our asset allocation decision. As of January 1998, interest rates fell enough to
return the spread to neutral territory from negative levels, where it was for
most of 1997.
127
<PAGE>
Past performance is no guarantee of future results.
Investment Summary:
- ----------------------------------------------------------------------------
Top Ten Equity Holdings % of Portfolio
- ----------------------------------------------------------------------------
TJX Companies, Inc. 2.6%
Merck & Co., Inc. 2.5%
Procter & Gamble Co. 2.4%
Intel Corp. 2.2%
Ford Motor Co. 2.0%
Dell Computer Corp. 1.9%
Eli Lilly & Co. 1.9%
Allstate Corp. 1.9%
Phillips Petroleum Co. 1.8%
Compaq Computer Corp. 1.8%
Large Cap Equity Sector Breakdown*:
- ----------------------------------------------------------------------------
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
- ----------------------------------------------------------------------------
Basic Materials 2.6% 4.9% (2.3)%
Energy 14.9% 8.4% 6.5 %
Consumer Non-Discretionary 10.6% 22.6% (12.0)%
Consumer Discretionary 16.3% 11.1% 5.2 %
Commercial Services 4.1% 2.0% 2.1 %
Manufacturing 15.9% 11.9% 4.0 %
Technology 13.3% 11.1% 2.2 %
Finance 18.7% 17.1% 1.6 %
Utilities 3.6% 10.9% (7.3)%
* This does not constitute the entire fund. 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*
Portfolio of Futures 12/31/97 12/31/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Stocks 91.1% 4.4 % 95.5% 93.3%
Mid Cap Stocks -- -- -- 1.5%
Small Cap Stocks 0.3% -- 0.3% --
U.S. Government Obligations 2.2% -- 2.2% 2.5%
Cash Equivalents 6.4% (4.4)% 2.0% 2.7%
------ ------ ------ -----
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 the Fund's exposure to both changes in value of the portfolio
of investments as well as the financial instruments underlying the options and
futures positions.
(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.
128
<PAGE>
Aetna GET Fund, Series C
Growth of $10,000
Average Annual Total Returns for the Period Ended
December 31, 1997*
1 Year Since Inception+
- ------ ------------------------
25.25% 25.95%
<TABLE>
<CAPTION>
- ---------------------[Aetna GET Fund, Series C Line Chart]----------------------
Dec-96 Dec-97
<S> <C> <C> <C> <C> <C> <C>
Aetna GET Fund, Series C 10,000 10,153 10,251 11,620 12,442 12,715
S&P 500 Index 10,000 10,174 10,446 12,270 13,189 13,568
- --------------------------------------------------------------------------------
</TABLE>
* 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 December 17, 1996.
How did the Fund perform during the period?
The Aetna GET Fund, Series C (GET C) provided a total return of 25.25%, net of
fund expenses, for the year ended December 31, 1997 compared to returns of
33.36% and 23.62% for the Standard & Poors (S&P) 500 Index(a) and 60% S&P 500
Index/40% Lehman Brothers Aggregate Bond Index(b), 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 market value of an investor's assets will not
be less than their market value on the first day of the Fund's 5-year Guaranteed
Period if the assets are held to the Fund's maturity on December 16, 2001. The
common stock portion is managed in the enhanced index style, similar to that of
the Aetna Variable Index Plus Portfolio.
What economic or financial market conditions impacted the Fund?
The principal driver of the return was its high proportion of stock investments
over the twelve month period. At the beginning of the year, this allocation
stood at 64.1%. As the overall stock market produced strong returns during the
year, that allocation was increased to 82.6% in June 1997 and to 87.8% in
December 1997.
One of the principal features of the equity market over the last twelve months
has been the superior performance of the very largest stocks. This is most
clearly illustrated by the relative one year performance of the S&P 500 which
returned 33.36% compared to the small cap Russell 2000 Index(c), which returned
22.36% for the same one year period ended December 31, 1997. To more strikingly
illustrate this trend, only the biggest stocks in the index outperformed the
index itself. The stock holdings benefited from this effect because the
quantitative model used by Aeltus Investment Management, Inc. to rank the S&P
stocks favored the larger issues and overweighted them in the portfolio. It
should be noted that these issues were not favored just because they were large,
but because they generally scored well on attributes such as low
price-to-earnings ratios, relative performance, earnings momentum and reliable
growth, all of which are important determinants in predicting which stocks are
likely to perform well.
What investments influenced the Fund's performance over the past twelve months?
In the equity portion of GET C, the portfolio was overweight in financial stocks
(relative to the S&P 500 Index) for the entire period. This worked to the Fund's
advantage as these stocks outperformed the index by a substantial margin during
the course of the year. Also beneficial to Fund performance was an
underweighting in the raw materials sector, which
129
<PAGE>
significantly underperformed during the year. Detracting from the Fund's
performance was an underweighting in telephone utilities (these stocks performed
well) and an overweighting in transportation (an underperforming sector).
What is your outlook going forward?
We believe the current crisis in East Asia, along with the collapse of commodity
prices and demographic trends which argue for more savings, are important
concerns going forward. All of this suggests that the stock market will likely
be less robust in the next year compared to the last three years. The big bond
market rally, declining gold prices (which is generally seen as an indicator of
the direction of interest rates) and decreasing long-term bond yields in the
face of Federal Reserve inaction on interest rates, suggests moderate to low
economic growth and modest inflation.
Normally a big bond rally should be, (and has been over the last 30 years), a
positive for stocks. This may be changing, however, as suggested by the low
level of nominal Gross Domestic Product growth and the prospect of outright
deflation (a negative for corporate profits) over the next two years. The East
Asian crisis, while not the only cause, has acted to bring this issue to the
market's attention. In effect, the Far East's deflationary implications are
causing the financial markets to reevaluate the ground rules and grope for ways
to deal with a new environment.
Past performance is no guarantee of future results.
Investment Summary:
- ---------------------------------------------------------------------------
Top Ten Equity Holdings % of Portfolio
- ---------------------------------------------------------------------------
General Electric Co. 3.0%
Microsoft Corp. 2.7%
Exxon Corp. 2.2%
Coca-Cola Co. 1.9%
Merck & Co., Inc. 1.5%
Royal Dutch Petroleum Co. 1.4%
Intel Corp. 1.4%
Procter & Gamble Co. 1.3%
International Business Machines, Inc. 1.2%
Ford Motor Co. 1.2%
Large Cap Portfolio Sector Breakdown*:
- ---------------------------------------------------------------------------
Portfolio S&P 500 Over/(Under)
Sector Weight Weight Weighting
- ---------------------------------------------------------------------------
Basic Materials 3.8% 4.9% (1.1)%
Energy 10.1% 8.4% 1.7 %
Consumer Non-Discretionary 20.1% 22.6% (2.5)%
Consumer Discretionary 10.1% 11.1% (1.0)%
Commercial Services 1.9% 2.0% (0.1)%
Manufacturing 12.3% 11.9% 0.4 %
Technology 12.2% 11.1% 1.1 %
Finance 19.7% 17.1% 2.6 %
Utilities 9.8% 10.9% (1.1)%
* This does not constitute the entire fund. The securities in these sectors only
represent those that are in the S&P 500 Index.
(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 10% 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.
130
<PAGE>
Aetna GET Fund, Series B
Portfolio of Investments
December 31, 1997
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- ------
COMMON STOCKS (90.8%)
Aerospace and Defense (1.1%)
General Dynamics Corp. ........................ 13,000 $ 1,123,688
Raytheon Co. .................................. 402 19,811
------------
1,143,499
------------
Apparel (0.3%)
Liz Claiborne, Inc. ........................... 7,200 301,050
------------
Auto Parts and Accessories (0.7%)
Cooper Tire & Rubber Co. ...................... 28,400 692,250
Echlin, Inc. .................................. 1,300 47,044
------------
739,294
------------
Autos and Auto Equipment (4.6%)
Chrysler Corp. ................................ 32,800 1,154,150
Ford Motor Co. ................................ 41,700 2,030,268
General Motors Corp. .......................... 6,300 381,938
PACCAR, Inc. .................................. 21,600 1,134,000
------------
4,700,356
------------
Banks (4.7%)
BankAmerica Corp. ............................. 24,000 1,752,000
Comerica, Inc. ................................ 7,500 676,875
Fifth Third Bancorp ........................... 1,700 138,975
First Chicago NBD Corp. ....................... 6,000 501,000
NationsBank Corp. ............................. 24,000 1,459,500
State Street Corp. ............................ 4,400 256,025
------------
4,784,375
------------
Building Materials and Construction (1.3%)
Centex Corp. .................................. 20,400 1,283,925
------------
Chemicals (1.4%)
Dow Chemical Co. .............................. 14,100 1,431,150
------------
Commercial Services (2.7%)
Cendant Corp.+ ................................ 23,070 793,023
Deluxe Corp. .................................. 26,400 910,800
Service Corp. International ................... 29,300 1,082,269
------------
2,786,092
------------
Computer Software (1.8%)
Microsoft Corp.+ .............................. 14,000 1,809,500
------------
Computers and Office Equipment (7.8%)
Compaq Computer Corp. ......................... 32,750 1,848,328
Dell Computer Corp.+ .......................... 23,400 1,965,600
International Business Machines, Inc. ......... 3,100 324,144
Moore Corp. Ltd. .............................. 36,600 553,575
Silicon Graphics, Inc.+ ....................... 67,500 839,531
Sun Microsystems, Inc.+ ....................... 38,400 1,531,200
Unisys Corp.+ ................................. 66,300 919,913
------------
7,982,291
------------
Consumer Products (2.4%)
Procter & Gamble Co. .......................... 31,000 2,474,187
------------
Diversified (3.9%)
Aeroquip-Vickers, Inc. ........................ 19,400 951,813
Number of Market
Shares Value
--------- ------
Diversified (continued)
ITT Industries, Inc. .......................... 39,800 $ 1,248,725
NACCO Industries, Inc. ........................ 15,200 1,629,250
Rohm & Haas Co. ............................... 1,200 114,900
------------
3,944,688
------------
Electronics (3.9%)
AMP, Inc. ..................................... 4,000 168,000
Intel Corp. ................................... 32,300 2,269,074
KLA Instruments Corp.+ ........................ 16,000 618,000
Tektronix, Inc. ............................... 23,850 946,547
------------
4,001,621
------------
Financial Services (6.9%)
Ahmanson (H. F.) & Co. ........................ 20,500 1,372,219
Bankers Trust New York Corp. .................. 4,600 517,213
Golden West Financial Corp. ................... 13,000 1,271,563
Merrill Lynch & Co., Inc. ..................... 11,700 853,369
Morgan Stanley, Dean Witter,
Discover & Co. ............................. 6,905 408,258
Republic New York Corp. ....................... 6,500 742,219
SunAmerica, Inc. .............................. 4,500 192,375
Travelers Group, Inc. ......................... 30,950 1,667,431
------------
7,024,647
------------
Foods and Beverages (3.2%)
Conagra, Inc. ................................. 24,900 817,031
Coors (Adolph) Co. ............................ 31,100 1,034,075
Kroger Co. (The)+ ............................. 35,600 1,314,975
Quaker Oats Co. ............................... 1,700 89,675
------------
3,255,756
------------
Health Services (0.7%)
Beverly Enterprises, Inc.+ .................... 57,600 748,800
------------
Hotels and Restaurants (1.0%)
Darden Restaurants, Inc. ...................... 82,700 1,033,750
------------
Insurance (5.4%)
Allstate Corp. ................................ 21,500 1,953,813
Conseco, Inc. ................................. 26,200 1,190,463
Hartford Financial Services Group, Inc. ....... 13,300 1,244,381
Torchmark Corp. ............................... 25,800 1,085,213
------------
5,473,870
------------
Machinery and Equipment (2.3%)
Caterpillar, Inc. ............................. 21,300 1,034,381
Cincinnati Milacron, Inc. ..................... 38,300 993,406
Ingersoll-Rand Co. ............................ 900 36,450
Parker-Hannifin Corp. ......................... 6,600 302,775
------------
2,367,012
------------
Media and Entertainment (1.2%)
Clear Channel Communications, Inc.+ ........... 13,200 1,048,575
Fleetwood Enterprises, Inc. ................... 3,500 148,531
------------
1,197,106
------------
Metals and Mining (1.6%)
Timken Co. .................................... 48,100 1,653,438
------------
131
<PAGE>
Aetna GET Fund, Series B
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- ------
Oil and Gas (11.6%)
Ashland Oil, Inc. ............................. 20,600 $ 1,105,963
Columbia Gas System, Inc. ..................... 14,800 1,162,725
Helmerich & Payne, Inc. ....................... 13,200 895,950
Kerr-McGee Corp. .............................. 14,900 943,356
Occidental Petroleum Corp. .................... 46,100 1,351,306
Oryx Energy Co.+ .............................. 43,500 1,109,250
Phillips Petroleum Co. ........................ 38,500 1,872,063
Sun Company, Inc. ............................. 22,900 963,231
Texaco, Inc. .................................. 16,400 891,750
USX-Marathon Group ............................ 45,800 1,545,750
------------
11,841,344
------------
Paper and Containers (0.8%)
Ball Corp. .................................... 23,700 836,906
------------
Pharmaceuticals (4.8%)
Eli Lilly & Co. ............................... 28,200 1,963,425
Merck & Co., Inc. ............................. 24,100 2,560,624
Pharmerica, Inc.+ ............................. 26,213 271,960
Schering Plough ............................... 900 55,913
------------
4,851,922
------------
Printing and Publishing (2.1%)
Dow Jones & Co., Inc. ......................... 8,300 445,606
Gannett Co., Inc. ............................. 4,400 271,975
New York Times Co. ............................ 21,200 1,401,850
------------
2,119,431
------------
Retail (5.1%)
Costco Companies, Inc.+ ....................... 8,300 370,388
Dayton Hudson Corp. ........................... 22,800 1,539,000
Federated Department Stores, Inc.+ ............ 13,100 564,119
Rite Aid Corp. ................................ 1,600 93,900
TJX Companies, Inc. ........................... 75,400 2,591,874
------------
5,159,281
------------
Telecommunications (0.2%)
Ameritech Corp. ............................... 2,400 193,200
------------
Transportation (2.3%)
AMR Corp.+ .................................... 8,400 1,079,400
CSX Corp. ..................................... 800 43,200
Delta Air Lines, Inc. ......................... 9,400 1,118,600
US Airways Group, Inc.+ ....................... 1,600 100,000
------------
2,341,200
------------
Utilities - Oil and Gas (1.9%)
Coastal Corp. (The) ........................... 7,900 489,306
Pacific Enterprises ........................... 13,000 489,125
People's Energy Corp. ......................... 23,800 937,125
------------
1,915,556
------------
Utilities - Telephone (3.1%)
Alltel Corp. .................................. 9,700 398,306
Bell Atlantic Corp. ........................... 11,710 1,065,610
MCI Communications Corp. ...................... 4,900 209,781
Utilities - Telephone (continued)
U.S. West Communications Group ................ 32,600 $ 1,471,075
------------
3,144,772
------------
Total Common Stocks (cost $76,334,375)
92,540,019
------------
Principal
Amount
---------
LONG-TERM BONDS AND NOTES (2.2%)
U.S. Government and Agency Obligations (2.2%)
U.S. Treasury Strips PO, 05/15/99 ............. $ 2,400,000 2,223,725
------------
Total Long-Term Bonds and Notes (cost $1,903,235)
2,223,725
------------
SHORT-TERM INVESTMENTS (6.4%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98 ............................ 6,203,000 6,203,000
U.S. Treasury Bill, 5.17%, 02/05/98@ .......... 300,000 298,554
------------
Total Short-Term Investments (cost $6,501,537)
6,501,554
------------
TOTAL INVESTMENTS (cost $84,739,147)(a) 101,265,298
Other assets less liabilities 671,885
------------
Total Net Assets $101,937,183
============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$84,823,916. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains ........................ $17,789,249
Unrealized losses ....................... (1,347,867)
------------
Net unrealized gain .................. $16,441,382
=============
Information concerning open futures contracts at December 31, 1997 is shown
below:
No. of
Long Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
----------- ----------- ----------- ------------
S&P 500 Index Futures 18 $4,432,050 March 98 $(26,101)
============
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at December 31, 1997.
Category percentages are based on net assets.
132 See Notes to Financial Statements.
<PAGE>
Aetna GET Fund, Series C
Portfolio of Investments
December 31, 1997
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- ------
COMMON STOCKS (86.6%)
Aerospace and Defense (0.7%)
General Dynamics Corp. ........................ 2,200 $ 190,163
Lockheed Martin Corp. ......................... 5,600 551,600
Northrop Grumman Corp. ........................ 2,000 230,000
Raytheon Co. .................................. 2,901 146,478
United Technologies Corp. ..................... 7,400 538,813
------------
1,657,054
------------
Agriculture (0.0%)
Pioneer Hi-Bred International, Inc. ........... 800 85,800
------------
Apparel (0.4%)
Alberto-Culver Co. ............................ 1,000 32,063
Fruit of the Loom, Inc.+ ...................... 2,400 61,500
Gap, Inc. ..................................... 17,550 621,928
Liz Claiborne, Inc. ........................... 1,900 79,444
Nike, Inc., Class B ........................... 3,500 137,375
Reebok International Ltd.+ .................... 1,600 46,100
Russell Corp. ................................. 700 18,594
------------
997,004
------------
Auto Parts and Accessories (0.4%)
Cooper Tire & Rubber Co. ...................... 900 21,938
Dana Corp. .................................... 4,400 209,000
Echlin, Inc. .................................. 600 21,713
Genuine Parts Co. ............................. 4,750 161,203
Goodyear Tire & Rubber Co. (The) .............. 4,600 292,675
Pep Boys ...................................... 1,200 28,650
TRW, Inc. ..................................... 3,700 197,488
------------
932,667
------------
Autos and Auto Equipment (2.1%)
Chrysler Corp. ................................ 22,000 774,125
Ford Motor Co. ................................ 61,700 3,004,018
General Motors Corp. .......................... 21,900 1,327,687
PACCAR, Inc. .................................. 2,700 141,750
------------
5,247,580
------------
Banks (6.1%)
Banc One Corp. ................................ 16,700 907,019
Bank of New York Co., Inc. .................... 14,500 838,281
BankAmerica Corp. ............................. 21,100 1,540,299
BankBoston Corp. .............................. 6,300 591,806
Barnett Banks, Inc. ........................... 5,600 402,500
Citicorp ...................................... 13,900 1,757,480
Comerica, Inc. ................................ 4,800 433,200
Countrywide Credit Industries, Inc. ........... 3,200 135,798
Fifth Third Bancorp ........................... 6,350 519,113
First Chicago NBD Corp. ....................... 8,700 726,450
First Union Corp. ............................. 17,500 896,875
Huntington Bancshares ......................... 5,200 187,200
KeyCorp ....................................... 6,200 439,038
Mellon Bank Corp. ............................. 7,800 472,875
NationsBank Corp. ............................. 23,684 1,440,282
Number of Market
Shares Value
--------- ------
Banks (continued)
Norwest Corp. ................................. 22,600 $ 872,925
State Street Corp. ............................ 7,900 459,681
Suntrust Banks, Inc. .......................... 6,200 442,525
U.S. Bancorp .................................. 7,450 833,934
Wachovia Corp. ................................ 4,800 389,400
Washington Mutual, Inc. ....................... 7,490 477,956
Wells Fargo & Co. ............................. 1,100 373,381
------------
15,138,018
------------
Building Materials and Construction (0.3%)
Armstrong World Industries, Inc. .............. 800 59,800
Centex Corp. .................................. 500 31,469
Foster Wheeler Corp. .......................... 600 16,238
Kaufman & Broad Home Corp. .................... 900 20,194
Masco Corp. ................................... 4,300 218,763
Owens Corning ................................. 900 30,713
Pulte Corp. ................................... 500 20,906
Sherwin-Williams Co. .......................... 4,600 127,650
Weyerhaeuser Co. .............................. 3,300 161,906
------------
687,639
------------
Chemicals (1.7%)
Air Products and Chemicals, Inc. .............. 3,400 279,650
Dow Chemical Co. .............................. 5,100 517,650
Du Pont (E.I.) de Nemours ..................... 33,200 1,994,074
Eastman Chemical Co. .......................... 800 47,650
Engelhard Corp. ............................... 4,100 71,238
FMC Corp.+ .................................... 600 40,388
Goodrich (B.F.) Co. ........................... 1,000 41,438
Great Lakes Chemical Corp. .................... 700 31,413
Hercules, Inc. ................................ 1,100 55,069
Monsanto Co. .................................. 7,200 302,400
Morton International, Inc. .................... 4,200 144,375
Nalco Chemical Co. ............................ 1,100 43,519
PPG Industries, Inc. .......................... 5,100 291,338
Praxair, Inc. ................................. 4,700 211,500
Sigma-Aldrich Corp. ........................... 1,900 75,525
W.R. Grace & Co. .............................. 1,800 144,788
------------
4,292,015
------------
Commercial Services (1.0%)
Automatic Data Processing, Inc. ............... 8,500 521,688
Browning-Ferris Industries, Inc. .............. 6,300 233,100
Cendant Corp.+ ................................ 22,935 788,387
Deluxe Corp. .................................. 1,500 51,750
Dun & Bradstreet Corp. ........................ 1,800 55,688
Ecolab, Inc. .................................. 1,800 99,788
First Data Corp. .............................. 6,800 198,900
H & R Block, Inc. ............................. 1,500 67,219
Safety-Kleen Corp. ............................ 1,000 27,438
Service Corporation International ............. 6,400 236,400
Waste Management, Inc. ........................ 6,200 170,500
------------
2,450,858
------------
See Notes to Portfolio of Investments. 133
<PAGE>
Aetna GET Fund, Series C
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- ------
Computer Software (3.3%)
Adobe Systems, Inc. ........................... 2,000 $ 82,500
Autodesk, Inc. ................................ 2,300 85,100
Cisco Systems, Inc.+ .......................... 12,300 685,725
Computer Associates International, Inc. ....... 6,650 351,619
Computer Sciences Corp.+ ...................... 1,400 116,900
Microsoft Corp.+ .............................. 51,400 6,643,449
Parametric Technology Co.+ .................... 3,200 151,600
------------
8,116,893
------------
Computers and Office Equipment (4.9%)
Bay Networks, Inc.+ ........................... 2,300 58,794
Cabletron Systems, Inc.+ ...................... 4,400 66,000
Compaq Computer Corp. ......................... 40,437 2,282,162
Data General Corp.+ ........................... 1,100 19,181
Dell Computer Corp.+ .......................... 18,100 1,520,399
Digital Equipment Corp.+ ...................... 3,200 118,400
EMC/MASS Corp.+ ............................... 21,400 587,163
Harris Corp. .................................. 2,700 123,863
HBO & Co. ..................................... 6,300 302,400
Hewlett Packard Co. ........................... 30,200 1,887,499
International Business Machines, Inc. ......... 28,900 3,021,855
Moore Corp. Ltd. .............................. 2,000 30,250
Pitney Bowes, Inc. ............................ 4,400 395,725
Seagate Technology, Inc.+ ..................... 7,700 148,225
Silicon Graphics, Inc.+ ....................... 4,100 50,994
Sun Microsystems, Inc.+ ....................... 11,500 458,563
Unisys Corp.+ ................................. 2,500 34,688
Xerox Corp. ................................... 14,700 1,085,044
------------
12,191,205
------------
Consumer Products (2.7%)
American Greetings Corp., Class A ............. 1,200 46,950
Avon Products, Inc. ........................... 3,500 214,813
Clorox Co. .................................... 2,700 213,469
Colgate-Palmolive Co. ......................... 9,400 690,900
Eastman Kodak Co. ............................. 3,800 231,088
Gillette Co. .................................. 15,600 1,566,824
International Flavors & Fragrances, Inc. ...... 800 41,200
Mattel, Inc. .................................. 9,800 365,050
Newell Co. .................................... 4,100 174,250
Polaroid Corp. ................................ 500 24,344
Procter & Gamble Co. .......................... 39,800 3,176,537
Rubbermaid, Inc. .............................. 1,800 45,000
Tupperware Corp. .............................. 1,100 30,663
------------
6,821,088
------------
Diversified (5.3%)
Aeroquip-Vickers, Inc. ........................ 500 24,531
Allied Signal, Inc. ........................... 17,500 681,406
Cognizant Corp. ............................... 4,900 218,356
Cooper Industries, Inc. ....................... 3,300 161,700
Corning, Inc. ................................. 7,100 263,588
Crane Co. ..................................... 800 34,700
Number of Market
Shares Value
--------- ------
Diversified (continued)
Deere & Co. ................................... 10,600 $ 618,113
Dover Corp. ................................... 6,600 238,425
Eastern Enterprises ........................... 500 22,500
Eaton Corp. ................................... 3,100 276,675
Fortune Brands, Inc. .......................... 5,600 207,550
General Electric Co. .......................... 99,600 7,308,149
ITT Industries, Inc. .......................... 2,300 72,163
Johnson Controls, Inc. ........................ 2,500 119,375
Minnesota Mining and Manufacturing Co. ........ 12,500 1,025,781
NACCO Industries, Inc. ........................ 200 21,438
National Service Industries, Inc. ............. 800 39,650
Raychem Corp. ................................. 3,000 129,188
Rohm & Haas Co. ............................... 2,800 268,100
Tenneco, Inc. ................................. 5,600 221,200
Textron, Inc. ................................. 4,500 281,250
Tyco International Ltd. ....................... 15,700 707,481
VF Corp. ...................................... 4,400 202,125
Whitman Corp. ................................. 2,100 54,731
------------
13,198,175
------------
Electrical Equipment (0.3%)
Emerson Electric Co. .......................... 13,800 778,838
General Signal Corp. .......................... 900 37,969
------------
816,807
------------
Electronics (3.2%)
Advanced Micro Devices, Inc.+ ................. 6,700 120,181
AMP, Inc. ..................................... 6,600 277,200
Applied Materials, Inc.+ ...................... 18,700 563,338
Honeywell, Inc. ............................... 5,000 342,500
Intel Corp. ................................... 50,300 3,533,574
KLA Instruments Corp.+ ........................ 4,500 173,813
LSI Logic Corp.+ .............................. 4,200 82,950
Micron Technology, Inc.+ ...................... 2,800 72,800
Motorola, Inc. ................................ 18,400 1,049,950
National Semiconductor Corp.+ ................. 7,600 197,125
Perkin-Elmer Corp. ............................ 800 56,850
Rockwell International Corp. .................. 6,700 350,075
Tektronix, Inc. ............................... 2,050 81,359
Texas Instruments, Inc. ....................... 20,400 918,000
Thomas & Betts Corp. .......................... 1,700 80,325
------------
7,900,040
------------
Financial Services (7.4%)
Ahmanson (H. F.) & Co. ........................ 4,300 287,831
American Express Co. .......................... 19,200 1,713,599
Bankers Trust New York Corp. .................. 2,900 326,069
Beneficial Corp. .............................. 1,000 83,125
Charles Schwab Corp. .......................... 7,000 293,563
Chase Manhattan Corp. ......................... 12,500 1,368,749
Corestates Financial Corp. .................... 2,400 192,150
Equifax, Inc. ................................. 4,400 155,925
Federal Home Loan Mortgage Corp. .............. 21,400 897,463
134 See Notes to Portfolio of Investments.
<PAGE>
Number of Market
Shares Value
--------- ------
Financial Services (continued)
Federal National Mortgage Association ......... 34,300 $ 1,957,243
Fleet Financial Group, Inc. ................... 7,700 577,019
Golden West Financial Corp. ................... 2,100 205,406
Green Tree Financial Corp. .................... 5,900 154,506
Household International, Inc. ................. 3,500 446,469
J.P. Morgan & Co. ............................. 6,600 744,975
MBNA Corp. .................................... 14,750 402,859
Merrill Lynch & Co., Inc. ..................... 14,400 1,050,300
MGIC Investment Corp. ......................... 5,100 339,150
Morgan Stanley, Dean Witter,
Discover & Co. ............................. 30,575 1,807,746
National City Corp. ........................... 6,900 453,675
PNC Bank Corp. ................................ 12,400 707,575
Providian Financial Corp. ..................... 2,800 126,525
Republic New York Corp. ....................... 2,500 285,469
St. Paul Co., Inc. ............................ 2,300 188,744
SunAmerica, Inc. .............................. 9,550 408,263
Transamerica Corp. ............................ 1,800 191,700
Travelers Group, Inc. ......................... 53,154 2,863,671
------------
18,229,769
------------
Foods and Beverages (5.5%)
Anheuser-Busch Co., Inc. ...................... 5,800 255,200
Archer-Daniels-Midland Co. .................... 6,085 131,968
Brown-Forman Corp., Class B ................... 2,100 116,025
Campbell Soup Co. ............................. 14,500 842,813
Coca-Cola Co. ................................. 71,500 4,763,687
Conagra, Inc. ................................. 13,800 452,813
Coors (Adolph) Co. ............................ 1,000 33,250
CPC International, Inc.+ ...................... 2,800 301,700
Fleming Companies, Inc. ....................... 1,000 13,438
General Mills, Inc. ........................... 4,500 322,313
Heinz (H.J.) Co. .............................. 11,900 604,669
Hershey Foods Corp. ........................... 4,100 253,944
Kellogg Co. ................................... 11,400 565,725
Kroger Co. (The)+ ............................. 6,600 243,788
PepsiCo, Inc. ................................. 44,400 1,617,824
Quaker Oats Co. ............................... 4,600 242,650
Ralston-Ralston Purina Group .................. 2,800 260,225
Sara Lee Corp. ................................ 14,100 794,006
Supervalu, Inc. ............................... 2,000 83,750
Sysco Corp. ................................... 5,200 236,925
Unilever N.V .................................. 20,100 1,254,993
Wrigley (Wm) Jr. Co. .......................... 1,700 135,256
------------
13,526,962
------------
Health Services (0.4%)
HEALTHSOUTH Corp.+ ............................ 9,600 266,400
Humana, Inc.+ ................................. 2,000 41,500
Manor Care, Inc. .............................. 1,100 38,500
Shared Medical Systems Corp. .................. 800 52,800
Tenet Healthcare Corp.+ ....................... 8,800 291,500
United Healthcare Corp. ....................... 5,500 273,281
------------
963,981
------------
Number of Market
Shares Value
--------- ------
Hotels and Restaurants (0.7%)
Hilton Hotels Corp. ........................... 5,500 $ 163,625
ITT Corp.+ .................................... 2,000 165,750
Marriott International, Inc. .................. 4,300 297,775
McDonald's Corp. .............................. 19,900 950,225
Tricon Global Restaurants, Inc.+ .............. 2,470 71,784
Wendy's International ......................... 3,700 89,031
------------
1,738,190
------------
Household Appliances (0.0%)
Maytag Corp. .................................. 1,800 67,163
Whirlpool Corp. ............................... 600 33,000
------------
100,163
------------
Insurance (3.7%)
Allstate Corp. ................................ 18,500 1,681,187
American General Corp. ........................ 6,164 333,241
American International Group, Inc. ............ 22,650 2,463,187
Aon Corp. ..................................... 5,050 296,056
Chubb Corp. ................................... 4,600 347,875
CIGNA Corp. ................................... 2,300 398,044
Conseco, Inc. ................................. 8,700 395,306
General Re Corp. .............................. 3,100 657,200
Hartford Financial Services Group, Inc. ....... 6,000 561,375
Jefferson-Pilot Corp. ......................... 1,400 109,025
Lincoln National Corp. ........................ 4,600 359,375
Marsh & McLennan Co., Inc. .................... 5,200 387,725
MBIA, Inc. .................................... 4,400 293,975
Progressive Corp. ............................. 2,400 287,700
Safeco Corp. .................................. 3,800 185,250
Torchmark Corp. ............................... 6,700 281,819
UNUM Corp. .................................... 4,000 217,500
USF&G Corp. ................................... 2,300 50,744
------------
9,306,584
------------
Machinery and Equipment (1.3%)
Black & Decker Corp. .......................... 1,400 54,688
Briggs & Stratton Corp. ....................... 600 29,138
Brunswick Corp. ............................... 4,300 130,344
Case Corp. .................................... 3,200 193,400
Caterpillar, Inc. ............................. 21,800 1,058,663
Cincinnati Milacron, Inc. ..................... 900 23,344
Cummins Engine Company, Inc. .................. 2,100 124,031
Fluor Corp. ................................... 900 33,638
Grainger (W. W.), Inc. ........................ 1,600 155,500
Harnischfeger Industries, Inc. ................ 2,200 77,688
Illinois Tool Works, Inc. ..................... 7,800 468,975
Ingersoll-Rand Co. ............................ 5,800 234,900
Millipore Corp. ............................... 400 13,575
Pall Corp. .................................... 1,700 35,169
Parker-Hannifin Corp. ......................... 4,300 197,263
Snap-On, Inc. ................................. 2,300 100,338
Stanley Works ................................. 2,700 127,406
Thermo Electron Corp.+ ........................ 1,800 80,100
------------
3,138,160
------------
135
<PAGE>
Aetna GET Fund, Series C
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- ------
Media and Entertainment (1.4%)
Clear Channel Communications, Inc.+ ........... 2,800 $ 222,425
Fleetwood Enterprises, Inc. ................... 700 29,706
Harrah's Entertainment, Inc.+ ................. 2,800 52,850
Interpublic Group of Co., Inc. ................ 3,100 154,419
King World Production, Inc. ................... 600 34,650
Time Warner, Inc. ............................. 15,800 979,600
Walt Disney Co. (The) ......................... 19,500 1,931,718
------------
3,405,368
------------
Medical Supplies (1.0%)
Alza Corp.+ ................................... 1,900 60,444
American Home Products Corp. .................. 20,000 1,529,999
Bard (C.R.), Inc. ............................. 600 18,788
Baxter International, Inc. .................... 6,700 337,931
Biomet, Inc. .................................. 2,000 51,250
Boston Scientific Corp.+ ...................... 4,200 192,675
Guidant Corp. ................................. 4,900 305,025
Mallinckrodt, Inc. ............................ 1,500 57,000
U.S. Surgical Corp. ........................... 1,600 46,900
------------
2,600,012
------------
Metals and Mining (0.8%)
Alcan Aluminum Ltd. ........................... 6,700 185,088
Allegheny Teledyne, Inc. ...................... 5,500 142,313
Aluminum Co. of America ....................... 9,100 640,413
Armco, Inc.+ .................................. 3,400 16,788
Asarco, Inc. .................................. 1,200 26,925
Barrick Gold Corp. ............................ 9,900 184,388
Bethlehem Steel Corp.+ ........................ 6,100 52,613
Cyprus Amax Minerals Co. ...................... 1,100 16,913
Freeport-McMoRan Copper & Gold, Inc. .......... 2,100 33,075
Inland Steel Industries, Inc. ................. 2,400 41,100
Newmont Mining Corp. .......................... 2,100 61,688
Nucor Corp. ................................... 1,900 91,794
Phelps Dodge Corp. ............................ 1,800 112,050
Reynolds Metals Co. ........................... 2,500 150,000
Timken Co. .................................... 1,700 58,438
USX-US Steel Group, Inc. ...................... 4,700 146,875
------------
1,960,461
------------
Oil and Gas (8.6%)
Amerada Hess Corp. ............................ 1,200 65,850
Amoco Corp. ................................... 15,300 1,302,412
Apache Corp. .................................. 2,300 80,644
Ashland Oil, Inc. ............................. 4,100 220,119
Atlantic Richfield Co. ........................ 10,400 833,300
Baker Hughes, Inc. ............................ 5,700 248,663
Burlington Resources, Inc. .................... 3,700 165,806
Chevron Corp. ................................. 21,600 1,663,199
Columbia Gas System, Inc. ..................... 1,000 78,563
Consolidated Natural Gas Co. .................. 1,900 114,950
Dresser Industries, Inc. ...................... 5,200 218,075
Enron Corp. ................................... 6,300 261,844
Number of Market
Shares Value
--------- ------
Oil and Gas (continued)
Exxon Corp. ................................... 90,000 $ 5,506,874
Halliburton Co. ............................... 13,600 706,350
Helmerich & Payne, Inc. ....................... 700 47,513
Kerr-McGee Corp. .............................. 1,100 69,644
Mobil Corp. ................................... 23,900 1,725,280
Occidental Petroleum Corp. .................... 4,800 140,700
Oryx Energy Co.+ .............................. 3,200 81,600
Pennzoil Co. .................................. 2,300 153,669
Phillips Petroleum Co. ........................ 8,600 418,175
Rowan Co., Inc.+ .............................. 4,400 134,200
Royal Dutch Petroleum Co. ..................... 65,800 3,565,537
Santa Fe Energy Resources, Inc.+ .............. 2,300 25,875
Schlumberger Ltd. ............................. 15,100 1,215,549
Sun Company, Inc. ............................. 2,900 121,981
Texaco, Inc. .................................. 16,136 877,395
Union Pacific Resources Group, Inc. ........... 7,000 169,750
Unocal Corp. .................................. 6,800 263,925
USX-Marathon Group ............................ 15,200 513,000
Western Atlas, Inc.+ .......................... 1,000 74,000
Williams Co., Inc. (The) ...................... 8,500 241,188
------------
21,305,630
------------
Paper and Containers (1.0%)
Avery Dennison Corp. .......................... 4,600 205,850
Bemis Co., Inc. ............................... 1,700 74,906
Champion International Corp. .................. 2,800 126,875
Crown Cork & Seal Co., Inc. ................... 2,500 125,313
Fort James Corp. .............................. 5,800 221,850
Georgia-Pacific Corp. ......................... 3,000 182,250
Georgia-Pacific Corp.+ ........................ 3,000 68,063
International Paper Co. ....................... 9,300 401,063
Kimberly-Clark Corp. .......................... 15,300 754,481
Owens-Illinois, Inc.+ ......................... 6,600 250,388
Westvaco Corp. ................................ 1,000 31,438
------------
2,442,477
------------
Pharmaceuticals (7.7%)
Abbott Laboratories ........................... 22,600 1,481,712
Amgen, Inc. ................................... 8,000 433,000
Becton, Dickinson & Co. ....................... 4,100 205,000
Bristol-Myers Squibb Co. ...................... 29,300 2,772,512
Cardinal Health, Inc. ......................... 2,900 217,863
Eli Lilly & Co. ............................... 33,500 2,332,437
Johnson & Johnson ............................. 37,500 2,470,312
Merck & Co., Inc. ............................. 35,500 3,771,874
Pfizer, Inc. .................................. 38,000 2,833,374
Schering Plough ............................... 24,200 1,503,424
Warner Lambert Co. ............................ 8,500 1,054,000
------------
19,075,508
------------
Printing and Publishing (0.8%)
Gannett Co., Inc. ............................. 11,500 710,844
136 See Notes to Portfolio of Investments.
<PAGE>
- --------------------------------------------------------------------------------
Number of Market
Shares Value
--------- ------
Printing and Publishing (continued)
John H. Harland Co. ........................... 600 $ 12,600
Knight-Ridder, Inc. ........................... 2,500 130,000
McGraw-Hill Co., Inc. ......................... 2,700 199,800
Meredith Corp. ................................ 1,500 53,531
New York Times Co. ............................ 5,300 350,463
RR Donnelley & Sons Co. ....................... 1,600 59,600
Times Mirror Co. .............................. 2,700 166,050
Tribune Co. ................................... 3,400 211,650
------------
1,894,538
------------
Retail (4.0%)
Albertson's, Inc. ............................. 7,500 355,313
American Stores Co. ........................... 7,300 150,106
Circuit City Stores, Inc. ..................... 1,000 35,563
Costco Companies, Inc.+ ....................... 9,000 401,625
CVS Corp. ..................................... 5,700 365,156
Dayton Hudson Corp. ........................... 12,000 810,000
Dillards, Inc., Class A ....................... 3,700 130,425
Federated Department Stores, Inc.+ ............ 7,000 301,438
Great Atlantic & Pacific Tea Co., Inc. ........ 900 26,719
Harcourt General, Inc. ........................ 1,400 76,650
Hasbro, Inc. .................................. 2,500 78,750
Home Depot, Inc. .............................. 23,950 1,410,055
Kmart Corp.+ .................................. 16,000 185,000
Longs Drug Stores, Inc. ....................... 800 25,700
Lowe's Companies, Inc. ........................ 2,600 123,988
May Department Stores Co. ..................... 5,400 284,513
Mercantile Stores Co., Inc. ................... 500 30,438
Nordstrom, Inc. ............................... 3,400 205,275
Rite Aid Corp. ................................ 4,800 281,700
Sears, Roebuck & Co. .......................... 12,100 547,525
Tandy Corp. ................................... 1,700 65,556
The Limited, Inc. ............................. 4,000 102,000
TJX Companies, Inc. ........................... 6,800 233,750
Toys "R" Us, Inc.+ ............................ 8,500 267,219
Wal-Mart Stores, Inc. ......................... 67,600 2,665,974
Walgreen Co. .................................. 20,300 636,913
Winn-Dixie Stores, Inc. ....................... 1,600 69,900
Woolworth Corp.+ .............................. 4,100 83,538
------------
9,950,789
------------
Telecommunications (1.8%)
AirTouch Communications, Inc.+ ................ 15,200 631,750
Ameritech Corp. ............................... 16,900 1,360,449
Andrew Corp.+ ................................. 2,800 67,200
Lucent Technologies, Inc. ..................... 19,500 1,557,562
Nextlevel Systems, Inc.+ ...................... 4,300 76,863
Northern Telecom Ltd. ......................... 7,300 649,700
Scientific Atlanta, Inc. ...................... 2,500 41,875
------------
4,385,399
------------
Number of Market
Shares Value
--------- ------
Transportation (1.4%)
AMR Corp.+ .................................... 4,900 $ 629,650
Burlington Northern Santa Fe Corp. ............ 4,800 446,100
Caliber System, Inc. .......................... 2,100 102,244
CSX Corp. ..................................... 5,900 318,600
Delta Air Lines, Inc. ......................... 3,000 357,000
Federal Express Corp.+ ........................ 6,100 372,481
Laidlaw, Inc. ................................. 9,500 129,438
Navistar International Corp.+ ................. 2,300 57,069
Norfolk Southern Corp. ........................ 12,400 382,075
Ryder System, Inc. ............................ 1,600 52,400
Southwest Airlines Co. ........................ 6,000 147,750
Union Pacific Corp. ........................... 3,000 187,313
US Airways Group, Inc.+ ....................... 4,400 275,000
------------
3,457,120
------------
Utilities - Electric (1.7%)
American Electric Power Co. ................... 5,000 258,125
Baltimore Gas & Electric Co. .................. 4,000 136,250
Carolina Power & Light Co. .................... 4,100 173,994
Central & South West Corp. .................... 3,000 81,188
Cinergy Corp. ................................. 4,200 160,913
Consolidated Edison Co. of
New York, Inc. ............................. 7,800 319,800
Dominion Resources, Inc. ...................... 4,500 191,531
DTE Energy Co. ................................ 4,300 149,156
Edison International .......................... 11,200 304,500
Entergy Corp. ................................. 6,400 191,600
FirstEnergy Corp.+ ............................ 5,300 153,700
GPU, Inc. ..................................... 3,500 147,438
Houston Industries, Inc. ...................... 6,515 173,869
Niagara Mohawk Power Corp.+ ................... 3,800 39,900
Northern States Power Co. ..................... 1,000 58,250
PacifiCorp .................................... 8,100 221,231
Peco Energy Co. ............................... 3,200 77,600
PG&E Corp. .................................... 6,000 182,625
PP&L Resources, Inc. .......................... 4,400 105,325
Public Service Enterprise Group, Inc. ......... 6,300 199,631
Southern Co. .................................. 20,600 533,025
Texas Utilities Co. ........................... 5,157 214,338
Unicom Corp. .................................. 7,100 218,325
Union Electric Co. ............................ 1,000 43,250
------------
4,335,564
------------
Utilities - Oil and Gas (0.2%)
Coastal Corp. (The) ........................... 3,600 222,975
NICOR, Inc. ................................... 900 37,969
ONEOK, Inc. ................................... 700 28,263
Pacific Enterprises ........................... 3,000 112,875
People's Energy Corp. ......................... 600 23,625
Sonat, Inc. ................................... 2,400 109,800
------------
535,507
------------
137
<PAGE>
Aetna GET Fund, Series C
Portfolio of Investments (continued)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Market
Shares Value
--------- ------
<S> <C> <C>
Utilities - Telephone (4.8%)
Alltel Corp. .................................. 4,900 $ 201,206
AT&T Corp. .................................... 47,700 2,921,624
Bell Atlantic Corp. ........................... 23,868 2,171,987
BellSouth Corp. ............................... 29,800 1,678,112
GTE Corp. ..................................... 28,100 1,468,224
MCI Communications Corp. ...................... 6,600 282,563
SBC Communications, Inc. ...................... 26,772 1,961,048
Sprint Corp. .................................. 4,200 246,225
Tellabs, Inc.+ ................................ 5,500 290,813
U.S. West Communications Group ................ 14,000 631,750
------------
11,853,552
------------
Total Common Stocks (cost $190,471,393) 214,738,577
------------
PREFERRED STOCKS (0.5%)
Chemicals (0.1%)
Union Carbide Corp. ........................... 3,400 145,988
------------
Foods and Beverages (0.1%)
Seagram Ltd. .................................. 4,300 138,944
------------
Utilities - Electric (0.3%)
Duke Energy Corp. ............................. 10,330 572,024
FPL Group, Inc. ............................... 4,800 284,100
------------
856,124
------------
Total Preferred Stocks (cost $1,032,578)
1,141,056
------------
Principal
Amount
---------
LONG-TERM BONDS AND NOTES (12.2%)
U.S. Government Obligations (12.2%)
U.S. Treasury Strip, Zero Coupon,
11/15/01 ................................... $ 24,728,000 19,880,239
U.S. Treasury Strip, Zero Coupon,
02/15/02 ................................... 12,896,000 10,234,800
------------
Total Long-Term Bonds and Notes (cost $28,776,675)
30,115,039
------------
SHORT-TERM INVESTMENTS (0.7%)
Federal Home Loan Bank, Comm. Paper,
4.90%, 01/02/98 ............................ 913,000 913,000
U.S. Treasury Bill, 5.17%, 02/05/98 ........... 750,000 746,123
------------
Total Short-Term Investments(cost $1,659,340)
1,659,123
------------
TOTAL INVESTMENTS (cost $221,939,986)(a) ...... 247,653,795
Other assets less liabilities
97,999
------------
Total Net Assets
$247,751,794
============
Notes to Portfolio of Investments
(a) The cost of investments for federal income tax purposes amounts to
$223,062,558. Unrealized gains and losses, based on identified tax cost at
December 31, 1997, are as follows:
Unrealized gains ........................ $29,598,630
Unrealized losses ....................... (5,007,393)
------------
Net unrealized gain ............... $24,591,237
============
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
138 See Notes to Financial Statements.
<PAGE>
Aetna GET Fund
Statements of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series B Series C
-------- --------
Assets:
<S> <C> <C>
Investments, at market value .......................... $101,265,298 $ 247,653,795
Cash .................................................. 969 15,763
Receivable for:
Dividends and interest ............................. 166,525 267,535
Investments sold ................................... 1,334,760 --
Other assets .......................................... 1,161 51
------------ ---------------
Total assets ............................... 102,768,713 $ 247,937,144
------------ ---------------
Liabilities:
Payable for:
Investments purchased .............................. 744,673 --
Fund shares redeemed ............................... 5,597 23,134
Variation margin ................................... 900 --
Accrued investment advisory fees ...................... 66,968 129,773
Accrued administrative services fees .................. 13,392 32,443
------------ ---------------
Total liabilities .......................... 831,530 185,350
------------ ---------------
NET ASSETS ......................................... $101,937,183 $ 247,751,794
============ ===============
Net assets represented by:
Paid-in capital ....................................... $61,471,934 $ 196,642,585
Net unrealized gain on investments and open futures
contracts 16,500,050 25,713,809
Undistributed net investment income ................... 237,107 406,469
Accumulated net realized gain on investments .......... 23,728,092 24,988,931
------------ ---------------
NET ASSETS ......................................... $101,937,183 $ 247,751,794
============ ===============
Capital Shares, $0.001 par value:
Outstanding ........................................... 6,481,267 19,647,518
Net Asset Value, redemption price per share
(net assets divided by shares outstanding) ......... 15.728 $ 12.610
Cost of investments ................................... $84,739,147 $ 221,939,986
</TABLE>
See Notes to Financial Statements
139
<PAGE>
Aetna GET Fund
Statements of Operations
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series B Series C
-------- --------
<S> <C> <C>
Investment Income:
Dividends .............................. $ 1,533,309 $ 3,152,062
Interest ............................... 567,816 2,287,377
------------- -------------
2,101,125 5,439,439
Foreign taxes withheld on dividends .... (4,301) (16,666)
------------- -------------
Total investment income ..... 2,096,824 5,422,773
------------- -------------
Expenses:
Investment advisory fees ............... 715,637 1,398,240
Administrative services fees ........... 143,127 349,560
------------- -------------
Total expenses .............. 858,764 1,747,800
------------- -------------
Net investment income .................. 1,238,060 3,674,973
------------- -------------
Net Realized and Unrealized Gain or Loss:
Net realized gain on:
Sale of investments ................. 22,707,850 24,397,647
Futures contracts ................... 1,070,263 840,258
------------- -------------
Net realized gain on investments 23,778,113 25,237,905
------------- -------------
Net change in unrealized gain or loss on:
Investments ......................... 2,728,079 23,146,430
Futures contracts ................... (28,200) (246,250)
------------- -------------
Net change in unrealized
gain or loss on
investments ............... 2,699,879 22,900,180
------------- -------------
Net realized and change in unrealized
gain or loss on investments .......... 26,477,992 48,138,085
------------- -------------
Net increase in net assets resulting
from operations ...................... $ 27,716,052 $ 51,813,058
============= =============
</TABLE>
See Notes to Financial Statements.
140
<PAGE>
Aetna GET Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series B Series C
---------------------------- ----------------------------
Period from
Year Ended Year Ended Year Ended September 16, 1996
December 31, December 31, December 31, to December 31, 1996
1997 1996 1997
<S> <C> <C> <C> <C>
Operations:
Net investment income ...................................... $ 1,238,060 $ 1,793,200 $ 3,674,973 $ 1,301,751
Net realized gain on investments ........................... 23,778,113 15,668,922 25,237,905 43,887
Net change in unrealized gain or loss on investments ....... 2,699,879 1,803,599 22,900,180 2,813,629
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations .... 27,716,052 19,265,721 51,813,058 4,159,267
------------- ------------- ------------- -------------
Distributions to Shareholders:
From net investment income ................................. (1,316,653) (1,477,500) (3,554,172) (1,016,083)
From net realized gains .................................... (15,789,390) (4,993,546) (292,861) --
------------- ------------- ------------- -------------
Decrease in net assets from distributions
to shareholders .................................. (17,106,043) (6,471,046) (3,847,033) (1,016,083)
------------- ------------- ------------- -------------
Fund Share Transactions:
Proceeds from shares sold .................................. -- -- -- 204,744,426
Proceeds from share exchanges* ............................. 515,787 553,874 2,280,242 --
Net asset value of shares issued upon
reinvestment of distributions ............................ 17,106,043 6,471,046 3,847,033 1,016,083
Payments for shares redeemed ............................... (9,311,023) (25,372,861) (14,783,238) (461,961)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from
fund share transactions ...............................
8,310,807 (18,347,941) (8,655,963) 205,298,548
------------- ------------- ------------- -------------
Net change in net assets ................................... 18,920,816 (5,553,266) 39,310,062 208,441,732
Net assets:
Beginning of period ........................................ 83,016,367 88,569,633 208,441,732 --
------------- ------------- ------------- -------------
End of period .............................................. $ 101,937,183 $ 83,016,367 $ 247,751,794 $ 208,441,732
============== ============== =============== ==============
End of period net assets includes undistributed
net investment income ................................ $ 237,107 $ 315,700 $ 406,469 $ 285,668
============= ============= ============= =============
Share Transactions:
Number of shares sold ...................................... -- -- -- 20,323,071
Number of shares exchanged* ................................ 32,017 41,466 208,233 --
Number of shares issued upon reinvestment of distributions . 1,209,626 522,466 317,546 97,913
Number of shares redeemed .................................. (598,460) (1,867,727) (1,254,289) (44,956)
------------- ------------- ------------- -------------
Net increase (decrease) ................................. 643,183 (1,303,795) (728,510) 20,376,028
============= ============= ============= =============
</TABLE>
* Exchanges into the Fund are from initial shareholders who have exchange
privileges.
See Notes to Financial Statements.
141
<PAGE>
Aetna GET Fund
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
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) with 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.
ALIAC serves as the Investment Adviser and principal underwriter to each Series.
ALIAC is an indirect wholly-owned subsidiary of Aetna Retirement Services,
Inc. which is in turn a wholly-owned subsidiary of Aetna Inc. Aeltus Investment
Management, Inc. (Aeltus), an affiliate of ALIAC, is employed as the
subadviser to each Series.
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
A. Valuation of Investments
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.
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter securities,
at the mean of the bid and asked prices. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in less than sixty days
are valued at amortized cost, which when combined with accrued interest,
approximates market value. Securities for which market quotations are not
considered to be readily available are valued using methods approved by the
Board of 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.
142
<PAGE>
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. The amounts at risk under such
futures contracts may exceed the amounts reflected in the financial
statements. The notional amounts of these contracts are disclosed in the
Portfolio of Investments. Risks may also arise from an illiquid secondary
market or from the inability of counterparties to meet the terms of the
contract. 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 subject to legal or
contractual restrictions on resale and may not be publicly sold without
registration under the Securities Act of 1933 (the 1933 Act), under Rule
144(A) or are securities offered pursuant to Section 4(2) of the 1933 Act. 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. A Series will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any. At December
31, 1997, there were no illiquid or restricted securities held by any Series.
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 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 deferred losses on wash sales.
F. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on trade date. Interest
income is recorded on an accrual basis. Discounts and premiums on securities
purchased are accreted or amortized, respectively, over the life of the
security. Dividend income and stock splits are recorded on the ex-dividend date.
Realized gains and losses from investment transactions are determined on an
identified cost basis.
3. Investment Advisory Fee and Other Expenses
Each Series pays ALIAC an annual investment advisory fee expressed as a
percentage of its average daily net assets. Investment advisory fees for GET B
are at an annual rate of 0.75% of its average daily net assets. Investment
advisory fees for GET C are at an annual rate of 0.60% of its average daily
net assets.
Under the terms of an Administrative Services Agreement, ALIAC acts as
administrator and provides all administrative services necessary for each
Series' operations and is responsible for the supervision of each Series' other
service providers. ALIAC also assumes all ordinary, recurring costs of each
Series, such as custodian fees, trustees' fees, transfer agent costs and
accounting expenses. For these services, ALIAC receives an annual fee, payable
monthly, at a rate of 0.15% of the average daily net assets of each Series.
143
<PAGE>
Aetna GET Fund
Notes to Financial Statements (continued)
December 31, 1997
- --------------------------------------------------------------------------------
3. Investment Advisory Fee and Other Expenses (continued)
Under the terms of a Subadvisory Agreement among the Fund, ALIAC and Aeltus,
Aeltus supervises the investment and reinvestment of cash and securities and
provides certain related administrative services to each Series in exchange for
a fee payable by ALIAC of up to 0.35% of GET B's and up to 0.375% of GET C's
average daily net assets. For the year ended December 31, 1997, ALIAC paid
Aeltus $333,352 and $870,985 for GET B and GET C, respectively, in accordance
with the terms of the Subadvisory Agreement.
4. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term investments,
for the year ended December 31, 1997 were:
Cost of Purchases Proceeds from Sales
----------------- -------------------
GET B $189,282,549 $197,864,991
GET C 291,255,500 285,964,820
144
<PAGE>
Aetna GET Fund
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Series B
-------------------------------------------------------------
Period from
Year Ended Year Ended Year Ended July 1, 1994 to
December 31, December 31, December 31, December 31,
1997 1996 1995 + 1994 +
---- ---- ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 14.220 $ 12.401 $ 9.920 $ 10.092
------------- ------------- ------------- -------------
Income from investment operations:
Net investment income ................................... 0.203 0.283 0.309 0.250
Net realized and change in unrealized gain (loss)
on investments ...................................... 4.342 2.489 2.492 (0.064)
------------- ------------- ------------- -------------
Total from investment operations .................. 4.545 2.772 2.801 0.186
------------- ------------- ------------- -------------
Less distributions:
From net investment income .............................. (0.220) (0.230) (0.320) (0.317)
From net realized gains on investments .................. (2.817) (0.723) -- (0.041)
------------- ------------- ------------- -------------
Total distributions ............................... (3.037) (0.953) (0.320) (0.358)
------------- ------------- ------------- -------------
Net asset value, end of period ............................. $ 15.728 $ 14.220 $ 12.401 $ 9.920
============= ============= ============= =============
Total return* .............................................. 34.52% 23.52% 28.38% 1.83%
Net assets, end of period (000's) .......................... $ 101,937 $ 83,016 $ 88,570 $ 74,145
Ratio of total expenses to average net assets .............. 0.90% 0.85% 1.03% 0.53%(1)
Ratio of net investment income to average net assets ....... 1.30% 1.96% 2.74% 4.52%(1)
Portfolio turnover rate .................................... 214.10% 122.27% 90.25% 36.12%
Average commission rate paid per share on equity
securities traded ...................................... $ 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.
145
<PAGE>
Aetna GET Fund
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
Series C
--------------------------------------------------
Period from
Year Ended December 17, 1996
December 31, 1997 to December 31, 1996
----------------- --------------------
<S> <C> <C>
Net asset value, beginning of period ...................................... $ 10.230 $ 10.125
---------- ----------
Income from investment operations:
Net investment income .................................................. 0.187 0.009
Net realized and change in unrealized gain on investments .............. 2.388 0.146
---------- ----------
Total from investment operations ................................. 2.575 0.155
---------- ----------
Less distributions:
From net investment income ............................................. (0.180) (0.050)
From net realized gains on investments ................................. (0.015) --
---------- ----------
Total distributions .............................................. (0.195) (0.050)
---------- ----------
Net asset value, end of period ............................................ $ 12.610 $ 10.230
========== ==========
Total return* ............................................................. 25.25% 1.52%
Net assets, end of period (000's) ......................................... $ 247,752 $ 208,442
Ratio of total expenses to average net assets ............................. 0.75% 0.75%(1)
Ratio of net investment income to average net assets ...................... 1.58% 3.04%(1)
Portfolio turnover rate ................................................... 126.43% 6.25%
Average commission rate paid per share on equity
securities traded.................................................... $ 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.
146
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Aetna GET Fund:
We have audited the accompanying statements of assets and liabilities of Aetna
GET Fund, Series B and Series C (the Funds), including the portfolios of
investments, as of December 31, 1997, and the related statements of operations
for the year then ended, the statements of changes in net assets for each of
years in the two-year period then ended for Series B and for the year ended
December 31, 1997, and the period from December 17, 1996 to December 31, 1996
for Series C and the financial highlights for each of the years in the
three-year period ended December 31, 1997 and the period from July 1, 1994 to
December 31, 1994 for Series B, and for the year ended December 31, 1997, and
the period from December 17, 1996 to December 31, 1996 for Series C. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Aetna
GET Fund, Series B and Series C as of December 31, 1997, the results of their
operations, changes in their net assets and financial highlights for each of the
years or periods specified in the first paragraph above, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 13, 1998
147
<PAGE>
Additional Information
(Unaudited)
- --------------------------------------------------------------------------------
Federal Tax Status of Dividends Declared During the Fiscal Year
During the fiscal year ended December 31, 1997, the funds paid the following
long-term gains distributions:
Total Long-Term Taxable at Taxable at
Distributions 28% 20%
----------------------- ------------------ -----------------
GET B $12,062,040 $12,062,040 --
GET C 148,436 148,436 --
The percentage of income dividends that were qualifying dividends for the
corporate dividends received deduction were:
GET B 11.38%
GET C 10.46%
148
