PRESIDENT'S LETTER
Dear Valued Shareholder,
Thank you for investing in Aetna variable funds. Since there are so many
investment choices available in today's market, we are particularly appreciative
of the confidence you have placed in us to help you reach your investment goals.
The following pages of this Semi-Annual Report will provide you with detailed
information on the performance of the funds you have chosen.
The financial market environment has continued to improve dramatically since you
received the Annual Report last winter. That report focused on all of 1998, a
year marked by high market volatility. As confidence in the global economic
outlook was shaken, a sharp sell-off took place in U.S. and global stock
markets. In the last months of the year, however, the situation began to
improve. Despite all of the events negatively affecting the market at various
times in 1998, the S&P 500 Index and the Dow Jones Industrial Average both
finished the year with double-digit returns - for the fourth year in a row! (Of
course, this unprecedented performance is no guarantee of future results.)
The past two years witnessed a "flight to quality" that has benefited the few at
the expense of the many. It is fair to characterize the past two years as a
narrow bull market, or a stealth bear market, or both. U.S. dollar investments
have prospered vs. those of most other currencies; U.S. Treasury bonds have
outperformed other fixed income instruments; and the so-called "nifty fifty"
leading large-cap growth stocks, as exemplified by the New Nifty Fifty Index,
have generated a highly disproportionate share of record-setting equity market
returns. Economic and financial market developments so far this year provide a
sound basis for hope that the world is returning to a semblance of normalcy
after two years of extraordinary turbulence.
During the second quarter of this year, signs of financial improvement, such as
rebounds in emerging markets, became clear. Economic recoveries in Asia and
Europe and stabilization in Latin America caused yields on fixed income
investments to move up around the world. Credit spreads (the yield difference
between A-rated corporate and U.S. Treasury bonds) have closed only marginally
due to lingering concerns around the future of local businesses and a greater
number of corporate bonds entering the market at a time when government bonds
are being retired. Within the U.S. equity market, these signs took the form of
improving market breadth as more stocks took part in the ongoing advance.
Earnings prospects were up sharply for the cyclical businesses (such as housing,
automobiles and paper) that have been so disadvantaged by the crises and
concerns of the past two years. The equity market paid more attention to value
stocks and other issues that had been ignored over the past two years.
Cyclicals, small-caps, REITs and international investments - value themes all -
outperformed the S&P 500 as well as the New Nifty Fifty Index. These
developments are encouraging, although their persistence is not assured. They
imply a broader participation by more investment segments than just the narrow
few beneficiaries of the past two years. This could tend to encourage investors
to remain committed to strategies that more broadly diversify the risk and
return opportunities presented by this complex world.
At Aeltus Investment Management, Inc./ (R)/, adviser to the Aetna variable
funds, these past six months have also been very productive.
Y2K INITIATIVES have remained a high priority. We have completed remediation
and testing of all of Aeltus' computer systems as of June 30. In addition, on
January 1 of this year, we successfully converted our operating systems to
accept the Euro, the new standard monetary unit of the eleven countries that
compose the European Monetary Union.
NEW SIMPLIFIED PROSPECTUSES WERE INTRODUCED on May 1. Plain English wording
and clear graphics make them truly "user-friendly."
Again, we very much appreciate and value your continued confidence in our
portfolios and in Aeltus.
Sincerely,
/s/ J. Scott Fox
- -----------------
J. Scott Fox
President
i
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
President's Letter.....................................................i
CAPITAL APPRECIATION PORTFOLIOS:
Investment Review......................................................1
Portfolios of Investments:
Aetna Growth VP.......................................................12
Aetna International VP................................................14
Aetna Small Company VP................................................16
Aetna Value Opportunity VP............................................18
Statements of Assets and Liabilities...................................20
Statements of Operations...............................................22
Statements of Changes in Net Assets....................................24
Notes to Financial Statements..........................................28
Additional Information.................................................33
Financial Highlights...................................................34
GROWTH AND INCOME PORTFOLIOS:
Investment Review......................................................38
Portfolios of Investments:
Aetna Balanced VP.....................................................48
Aetna Growth and Income VP............................................56
Aetna Real Estate Securities VP.......................................65
Statements of Assets and Liabilities...................................66
Statements of Operations...............................................67
Statements of Changes in Net Assets....................................68
Notes to Financial Statements..........................................71
Additional Information.................................................77
Financial Highlights...................................................78
INCOME PORTFOLIOS:
Investment Review......................................................81
Portfolios of Investments:
Aetna Bond VP.........................................................88
Aetna High Yield VP...................................................90
Aetna Money Market VP.................................................92
Statements of Assets and Liabilities...................................94
Statements of Operations...............................................95
Statements of Changes in Net Assets....................................96
Notes to Financial Statements..........................................99
Additional Information.................................................103
Financial Highlights...................................................104
<PAGE>
GET FUNDS:
Investment Review......................................................107
Portfolios of Investments:
Series C..............................................................117
Series D..............................................................122
Series E..............................................................128
Statements of Assets and Liabilities...................................129
Statements of Operations...............................................130
Statements of Changes in Net Assets....................................131
Notes to Financial Statements..........................................134
Additional Information.................................................137
Financial Highlights...................................................138
</TABLE>
<PAGE>
AETNA GROWTH VP
Growth of $10,000
<TABLE>
<CAPTION>
Growth VP 12/13/99 12/31/96 12/31/97 12/31/98 06/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Growth VP 10,000 10,146 9,846 11,780 14,139 13,510 15,701 16,607 14,939 18,580 19,816 21,206
S&P 500 Index 10,000 10,165 10,437 12,259 13,178 13,556 15,447 15,957 14,369 17,430 18,298 19,588
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date 1 Year Inception
- ---------------------------------------
12/13/96 27.10% 34.13%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA GROWTH VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Growth VP (Growth) generated a total return of 13.60%, net of fund
expenses, for the six month period ended June 30, 1999. The benchmark, Standard
& Poor's (S&P) 500 Index(a), returned 12.38% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
In the first half of 1999, the financial crisis in Asia and Latin America
bottomed, easing the fears of a large global economic recession. Equity markets
apparently ignored the bottoming of the crisis, creating a bull "relief" rally
for most of the period. This came amidst an increase in short-term interest
rates from 5.1% to 6.0%. As Asia and Latin America emerged from this crisis,
economic growth expectations rose sharply, and domestic demand continued strong.
This phenomenon had a positive effect on the more economically sensitive
companies, particularly in the industrial and cyclical areas, boosting their
valuation levels. Throughout the period, inflation continued to remain
historically low and constant, helping to support overall valuation levels among
stocks. Additionally, the price of oil increased dramatically from its lows, due
to anticipated acceleration in demand. Energy stocks outperformed the market as
investors discounted the improved earnings outlook of energy stocks. Toward the
latter half of the period, the market started to broaden - with more types of
stocks participating in what has been primarily a large-cap bull market. This
helped our portfolio, which is more diversified than the S&P 500 Index of
large-cap companies.
See Definition of Terms. 1
<PAGE>
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE IN THE PAST SIX MONTHS?
The Portfolio outperformed its benchmark index during the six months covered by
this report. Here are some of the reasons for the strong results produced by the
Portfolio:
. Technology was our best-performing sector for the first half of 1999. Stocks
such as America Online, Inc., Sun Microsystems, Inc., and Cisco Systems, Inc.
significantly outperformed the S&P 500 throughout the period, due in part to
the increased proliferation of the Internet.
. Throughout the period, companies with significant international exposure were
added to the Portfolio, as we sought to capture the acceleration of global
growth. We increased our weighting of such stocks as Tyco International Ltd.,
United Technologies Corp., and General Electric Co.
. Telephone equipment manufacturers, including Tellabs, Inc. and Ascend
Communications, Inc., outperformed the market due to strong demand for
equipment to offer improved data services. We added to our holdings in this
industry over the first half.
The Portfolio's outperformance would have been even greater, had it not been
held back by the following:
. The finance sector detracted from performance in the first half. Fannie Mae,
Firstar Corp., and American General Corp. all underperformed the market
throughout the period, due to fear that increasing interest rates would slow
earnings growth.
. While telephone-equipment manufacturers added to our performance, our
telephone-service holdings detracted from performance. CenturyTel, Inc. and
MCI Worldcom, Inc. both lagged the market due to concerns over future growth
prospects. During the first half, however, we did reduce our weighting in this
sector.
WHAT IS YOUR OUTLOOK GOING FORWARD?
The uncertainty about economic growth due to the Asian financial crisis has
abated, and has been less important in the recent bull market run. Debate now
centers on whether the acceleration in global growth will continue to dominate
investor sentiment, which may create anxiety over increasing inflation and
interest rates. We believe that our focus on owning reasonably priced companies
with strong earnings growth will benefit the Portfolio throughout this period.
PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF
COMMON % OF OVER/(UNDER)
SECTOR STOCKS S&P 500 WEIGHTING
<S> <C> <C> <C>
Basic Materials 0.7% 3.3% (2.6)%
Commercial Services 3.6% 1.7% 1.9%
Consumer Discretionary 18.3% 12.2% 6.1%
Consumer Non-Discretionary 1.0% 7.7% (6.7)%
Energy 9.9% 6.6% 3.3%
Finance 12.3% 15.8% (3.5)%
Healthcare 11.1% 11.1% --
Manufacturing 14.3% 10.0% 4.3%
Technology 15.8% 21.1% (5.3)%
Utilities 13.0% 10.5% 2.5%
</TABLE>
2 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Tyco International, Ltd. 4.3%
Microsoft Corp. 3.4%
International Business Machines Corp. 3.1%
Enron Corp. 2.9%
CBS Corp. 2.7%
Tellabs, Inc. 2.7%
General Electric Co. 2.6%
Wal-Mart Stores, Inc. 2.5%
Young And Rubicam, Inc. 2.2%
Amgen, Inc. 2.2%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Portfolio are subject to change.
See Definition of Terms. 3
<PAGE>
AETNA INTERNATIONAL VP
Growth of $10,000
<TABLE>
<CAPTION>
International VP 12/13/97 12/31/97 12/31/98 06/10/99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna International VP 10,000 10,270 12,030 12,521 10,549 12,213 12,686 13,476
MSCI EAFE Index 10,000 10,190 11,698 11,830 10,156 12,263 12,442 12,767
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date 1 Year Inception
- ---------------------------------------
12/22/97 7.63% 21.68%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA INTERNATIONAL VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna International VP (International) generated a 10.35% total return, net of
fund expenses, for the six month ended June 30, 1999. The benchmark, Morgan
Stanley International-Europe, Australia, Far East (MSCI EAFE) Index(b), returned
4.11% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
Rebounds in several sectors/markets affected the Portfolio's strong performance:
. Growth in emerging markets experienced a sudden rebound, which had a positive
effect on the Portfolio.
. Asia, led by Japan, also rebounded from its late-1998 difficulties.
Historically, the Portfolio has dramatically underweighted Japan, but now we
have increased our holdings in Japan.
. In turn, the rebound in economic growth spurred oil prices sharply higher,
helping the Portfolio's oil-industry exposures, especially in oil-service
stocks.
4 See Definition of Terms.
<PAGE>
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
Stock selection accounted for most of the Portfolio's outperformance against the
MSCI EAFE in the second half of this reporting period.
. Stock selection in Japan overwhelmed the Portfolio's underweighting in that
country.
. Technology names in Europe and Japan dominated, as Nokia Corp., ADR in Finland
and SoftBank Corp. in Japan were major gainers for the Portfolio.
. Our growth-oriented strategy withstood a rotation in the market to value
stocks in the second quarter. The Portfolio's modest growth stocks
participated in the value march led by industrials stocks Electrolux AB in
Sweden and Canadian National Railway Co.
Our currency hedging process was a small positive to the Portfolio. Surprising
U.S. growth led the U.S. dollar higher against the Japanese yen and the recently
introduced Euro, where the Portfolio maintains a small hedge. In addition, the
U.S. dollar traded in a tight band through the quarter. Underweighting Asia's
emerging markets, especially Hong Kong, hindered the Portfolio's performance as
the liquidity inflows to that region were unexpected.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Corporate restructuring continues in all developed major countries with Europe
leading with an increase of 50% over last year. Japan's economy posted a
positive surprise for economic growth in the first quarter. The Japanese
business sentiment survey, the Tankan, showed positive improvement for large
companies, although smaller companies remain in the doldrums. We have increased
our Japanese weighting to reflect both increased corporate restructuring and
positive economic growth. Emerging markets may cool their outperformance in 1999
as expectations for higher interest rates may thwart a rally engineered by
liquidity and positive economic growth. Corporate restructuring actually has not
increased in emerging markets and debt levels remain high, though another sharp
market pullback is unlikely. Sharp market gains are equally unlikely in Asia and
Latin America. Overall, the outlook for international equity investing looks
promising.
International investments involve risks not present in U.S. securities,
including currency fluctuations, less public information and political and
economic uncertainty.
PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF TOTAL % OF OVER/(UNDER)
COUNTRY WEIGHTINGS COMMON STOCK MSCI EAFE WEIGHTING
<S> <C> <C> <C>
United Kingdom 19.1% 22.3% (3.2)%
Japan 15.9% 24.0% (8.1)%
France 10.5% 9.7% 0.8%
Germany 8.8% 9.8% (1.0)%
Netherlands 7.7% 5.6% 2.1%
Sweden 5.4% 2.3% 3.1%
Denmark 4.7% 0.8% 3.9%
Finland 4.0% 1.9% 2.1%
Norway 3.8% 0.4% 3.4%
Ireland 3.3% 0.4% 2.9%
Other 16.8% 22.8% (6.0)%
</TABLE>
See Definition of Terms. 5
<PAGE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Mannesmann AG 1.8%
SoftBank Corp. 1.8%
Sony Corp. 1.7%
British Telecom Plc 1.7%
Ericsson ADR 1.3%
Vodafone Group Plc 1.3%
Nokia Corp., ADR 1.3%
Dixons Group Plc 1.3%
Telefonica de Espana 1.2%
Carli Gry International A/S 1.2%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Portfolio are subject to change.
6 See Definition of Terms.
<PAGE>
AETNA SMALL COMPANY VP
Growth of $10,000
<TABLE>
<CAPTION>
Small Company VP 12/27/96 12/31/96 12/31/97 12/31/98 06/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Small Company VP 10,000 10,113 9,968 11,773 13,982 13,614 15,505 14,570 11,746 13,750 13,105 15,015
Russell 2000 Index 10,000 10,195 9,668 11,235 12,907 12,475 13,728 13,089 10,451 12,156 11,497 13,285
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date 1 Year Inception
- ---------------------------------------
<S> <C> <C>
12/27/96 3.05% 17.63%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA SMALL COMPANY VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Small Company VP (Small Company) generated a 9.20% total return, net of
fund expenses, for the six month period ended June 30, 1999. The benchmark,
Russell 2000 Index(c), returned 9.28% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
After a dismal outlook last fall, the Asian economies turned out to be stronger
than expected. This boosted demand for basic materials and energy, two areas
where we took an overweight position early in the period. The strong employment
market led to positive consumer sentiment. On the whole, consumer discretionary
industries were strong - most notably retailing. Our decision to overweight
retailers in January resulted in strong performance for the Portfolio from that
group.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
Our highly competitive performance - in relation to the benchmark index - over
the six-month period was attributable to several factors. Most prominent among
them were:
. Our overweight positions in the areas of energy, basic materials, and
retailing led to some strong performance from stocks such as Union Pacific
Resources Group Inc., Genesco Inc., and Kafus Environmental Industries Ltd.
. Strong stock selection in technology (Cree Research Inc., Emulex Corp.,
Terayon Communications Systems, Inc.) and utilities (Calpine Corp.) also added
to results.
. Our process of focusing on the enterprise value of the business as well as the
security valuation resulted in our having five
See Definition of Terms. 7
<PAGE>
companies in the Portfolio that went on to receive offers to merge with other
companies - and all at attractive prices.
. Performance was hindered by selected stocks that did not meet earnings
expectations.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Looking forward, we have a more positive outlook for small-cap stocks.
Valuations are still historically low versus large-cap issues. While investors
continue to prefer the larger companies, we believe the market is starting to
broaden (beginning to favor more than just the large-cap sector). We note a
number of sectors - energy, basic materials and technology - where performance
has been strong in both large and small-cap names. We continue to believe that
our investment strategy - which focuses on those companies with the strongest
business momentum and whose stocks are selling at reasonable prices - will
continue to benefit the Portfolio, as it has thus far.
The risks of investing in small company stocks may include low trading volumes,
a greater degree of change in earnings and greater short-term volatility.
PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF
COMMON % OF RUSSELL OVER/(UNDER)
SECTOR STOCKS 2000 WEIGHTING
<S> <C> <C> <C>
Basic Materials 11.8% 4.4% 7.4%
Commercial Services 8.4% 9.9% (1.5)%
Consumer Discretionary 22.1% 16.3% 5.8%
Consumer Non-Discretionary 0.9% 2.1% (1.2)%
Energy 11.0% 4.6% 6.4%
Finance 12.5% 15.7% (3.2)%
Healthcare 3.4% 8.8% (5.4)%
Manufacturing 8.3% 10.1% (1.8)%
Technology 13.2% 21.9% (8.7)%
Utilities 8.4% 6.2% 2.2%
</TABLE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Burr-Brown Corp. 2.4%
Kafus Environmental Industries Ltd. 1.9%
Potlatch Corp. 1.8%
Union Pacific Resources Group Inc. 1.8%
Zapata Corp. 1.7%
York Research Corp. 1.6%
McDermott International, Inc. 1.6%
First Sierra Financial, Inc. 1.6%
IHOP Corp. 1.6%
Atlantic Bank and Trust Co. 1.5%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Portfolio are subject to change.
8 See Definition of Terms.
<PAGE>
AETNA VALUE OPPORTUNITY VP
Growth of $10,000
<TABLE>
<CAPTION>
Value Opportunity VP 12/13/96 12/31/96 12/31/97 12/31/98 06/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Value Opportunity VP 10,000 10,215 10,513 12,281 14,314 14,236 15,957 15,984 13,324 17,423 17,591 19,250
S&P 500 Index 10,000 10,165 10,437 12,259 13,178 13,556 15,447 15,957 14,369 17,430 18,298 19,588
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date 1 Year Inception
- ---------------------------------------
<S> <C> <C>
12/13/96 20.44% 29.35%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA VALUE OPPORTUNITY VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Value Opportunity VP (Value Opportunity) generated a 10.49% total return,
net of fund expenses, for the six month period ended June 30, 1999. The
benchmark, Standard & Poor's (S&P) 500 Index(a), returned 12.38% for the same
period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
Over the report period, long-term interest rates moved higher, in anticipation
of a change in monetary policy by the Federal Reserve (the "Fed"). This caused
pressure on stock market P/E (price-earnings ratio) multiples, resulting in a 5%
valuation correction in the second quarter of 1999. On June 30, the Fed raised
the federal funds rate - the interest rate charged on overnight loans between
banks - by 0.25%. Although that action was no surprise, the Fed did surprise the
market by adopting a neutral stance regarding future action. Economic growth
continued to be strong, receiving some assistance from substantial tax refunds
and the benefits of previous mortgage-refinancing. While intense competition has
worked to keep inflation subdued, oil prices rebounded sharply. Cyclical stocks
also rebounded during the period - led by basic materials, energy, and capital
goods sectors. As a result, we have seen improved market breadth as investors
show interest in "value" stocks as well as "growth" stocks and in other sectors
beyond the large-cap sector. Emerging stock markets also gave off signs of
improving health. Led by Japan, they stabilized and rallied - quite the opposite
of last fall's global swoon.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
Our strongest individual performers were Sun Microsystems, Inc., Amgen, Inc.,
International Business Machines Corp., and Citigroup Inc.; and we took healthy
profits in Amgen, Inc. in the first quarter of the year. While America Online,
Inc. is still up more than 40% for the year, its price took quite a roller
coaster ride along the way - doubling in the first quarter, then giving up half
of that gain in the second quarter. During the first quarter, the Portfolio
benefited from our decision to take
See Definition of Terms. 9
<PAGE>
some profits from holdings of the stock. Sector-weighting decisions that helped
performance were the overweighting of manufacturing and underweighting of
consumer staples. Sector-weighting decisions that hurt performance were the
underweighting of energy and basic materials and the investment move into
healthcare. In the second quarter, we doubled the Portfolio's weighting in the
underperforming healthcare sector, with the addition of Merck & Co., Inc.,
Pharmacia & Upjohn, Inc., and Warner Lambert Co. Looking at individual holdings,
we find the Portfolio's weakest performers to be Network Associates, Inc.,
Compaq Computer Corp., Centex Corp., and Albertson's, Inc.
WHAT IS YOUR OUTLOOK GOING FORWARD?
If interest rates move higher, we could see further erosion of valuation support
for the stock market, which is at historically rich valuation levels. Other than
that, however, the substantial federal budget surplus, a generally quiet tone to
inflation, and resumption of profit growth suggest that the financial
environment is in good shape. Stock market rotation should continue, with
investors favoring companies and sectors with the best profit performance.
However, growth stocks could rebound, reversing the short-lived strength of
cyclical issues. With our value opportunity approach, we will continue to
maintain a core portfolio of reasonably valued stocks with good earnings
prospects - while we also opportunistically search for quality growth stocks at
distressed prices.
PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF
COMMON % OF S&P OVER/(UNDER)
SECTOR STOCKS 500 WEIGHTING
<S> <C> <C> <C>
Basic Materials -- 3.3% (3.3)%
Commercial Services -- 1.7% (1.7)%
Consumer Discretionary 2.0% 12.2% (10.2)%
Consumer Non-Discretionary -- 7.7% (7.7)%
Energy 6.7% 6.6% 0.1%
Finance 21.4% 15.8% 5.6%
Healthcare 19.2% 11.1% 8.1%
Manufacturing 20.3% 10.0% 10.3%
Technology 22.8% 21.1% 1.7%
Utilities 7.6% 10.5% (2.9)%
</TABLE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
International Business Machines Corp. 5.6%
Citigroup Inc. 4.9%
Oracle Corp. 4.7%
Bristol-Myers Squibb Co. 4.4%
Warner Lambert Co. 4.3%
AT&T Corp. 4.2%
America Online, Inc. 4.1%
Xerox Corp. 4.1%
Sun Microsystems, Inc. 3.7%
Merck & Co., Inc. 3.7%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Portfolio are subject to change.
10 See Definition of Terms.
<PAGE>
DEFINITION OF TERMS
(a) The S&P 500 is the Standard & Poor's 500 Index. Performance is calculated on
a total return basis and dividends are reinvested, as reported by Frank
Russell Company.
(b) The MSCI EAFE Index (Morgan Stanley Capital International-Europe, Australia
and Far East) is a market value-weighted average of the performance of more
than 900 securities listed on the stock exchanges of countries in Europe,
Australia and the Far East. Performance is calculated on a total return
basis, as reported by Frank Russell Company.
(c) The Russell 2000 Index consists of the smallest 2,000 of the 3,000 largest
companies, based on market capitalization.
These are unmanaged indices and are not available for individual investment.
11
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
GROWTH
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
------------- ---------------
<S> <C> <C>
COMMON STOCKS ( 92.2% )
AUTO PARTS AND HARDWARE ( 1.0% )
Black & Decker Corp. ................. 42,400 $2,676,500
-------------
BANKS AND THRIFTS ( 2.3% )
Firstar Corp. ........................ 165,004 4,620,112
Mercantile Bancorporation, Inc. ...... 20,700 1,182,488
-------------
5,802,600
-------------
BIOTECH AND MEDICAL PRODUCTS ( 5.7% )
Amgen, Inc. + ........................ 90,600 5,515,275
Biogen, Inc. + ....................... 58,400 3,755,850
Boston Scientific Corp. + ............ 60,800 2,671,400
Guidant Corp. ........................ 48,200 2,479,287
-------------
14,421,812
-------------
COMMERCIAL SERVICES ( 3.3% )
Omnicom Group, Inc. .................. 34,700 2,776,000
Young And Rubicam, Inc. + ............ 125,600 5,706,950
-------------
8,482,950
-------------
COMPUTERS ( 3.7% )
International Business Machines Corp. 60,200 7,780,850
Sun Microsystems, Inc. + ............. 23,400 1,611,675
-------------
9,392,525
-------------
CONGLOMERATE AND AEROSPACE ( 4.1% )
General Electric Co. ................. 59,000 6,667,000
United Technologies Corp. ............ 54,000 3,871,125
-------------
10,538,125
-------------
CONSUMER FINANCE ( 1.7% )
Capital One Financial Corp. .......... 76,600 4,265,663
-------------
DATA AND IMAGING SERVICES ( 6.3% )
America Online, Inc. ................. 10,000 1,105,000
Cisco Systems, Inc. + ................ 62,300 4,018,350
EMC Corp. + .......................... 42,400 2,332,000
Microsoft Corp. + .................... 96,900 8,739,169
-------------
16,194,519
-------------
DISCRETIONARY RETAIL ( 9.5% )
Abercrombie & Fitch Co. + ............ 54,700 2,625,600
Circuit City Stores, Inc. ............ 46,200 4,296,600
Dayton Hudson Co. .................... 15,500 1,007,500
Home Depot, Inc. ..................... 50,000 3,221,875
Lowe's Co., Inc. ..................... 41,800 2,369,537
TJX Companies, Inc. .................. 129,500 4,313,969
Wal-Mart Stores, Inc. ................ 133,500 6,441,375
-------------
24,276,456
-------------
DIVERSIFIED FINANCIAL SERVICES ( 2.4% )
Citigroup Inc. ....................... 95,500 4,536,250
Providian Financial Corp. ............ 17,500 1,636,250
-------------
6,172,500
-------------
DRUGS ( 4.6% )
Allergan, Inc. ....................... 12,800 1,420,800
Bristol-Myers Squibb Co. ............. 41,500 2,923,156
Johnson & Johnson .................... 23,500 2,303,000
NUMBER OF MARKET VALUE
SHARES
----------- -------------
DRUGS (CONTINUED)
Schering Plough ...................... 94,500 $5,008,500
-------------
11,655,456
-------------
ELECTRICAL MACHINERY AND INSTRUMENTS ( 2.9% )
Lexmark International Group, Inc. + .. 46,000 3,038,875
Waters Corp. + ....................... 82,000 4,356,250
-------------
7,395,125
-------------
ELECTRONIC MEDIA ( 2.7% )
CBS Corp. + .......................... 160,300 6,963,031
-----------
FOOD AND BEVERAGE ( 0.9% )
Anheuser-Busch Co., Inc. ............. 31,700 2,248,719
-----------
FOOD AND DRUG RETAIL ( 1.9% )
Safeway, Inc. + ...................... 99,600 4,930,200
-----------
FOREST PRODUCTS AND BUILDING MATERIALS ( 0.7% )
Georgia-Pacific Corp. ................ 35,600 1,686,550
-----------
GAS UTILITIES ( 2.9% )
Enron Corp. .......................... 89,700 7,332,975
-----------
HOUSING AND FURNISHINGS ( 1.7% )
Maytag Corp. ......................... 62,000 4,320,625
-----------
INSURANCE ( 3.5% )
American General Corp. ............... 47,800 3,602,925
American International Group, Inc. ... 45,581 5,335,826
-------------
8,938,751
-------------
INVESTMENT SERVICES ( 1.5% )
Goldman Sachs Group, Inc. (The) ...... 21,300 1,538,925
Morgan Stanley Dean Witter & Co. ..... 21,300 2,183,250
-------------
3,722,175
-------------
MAJOR TELECOMMUNICATIONS ( 6.7% )
Ameritech Corp. ...................... 47,300 3,476,550
CenturyTel, Inc. ..................... 126,600 5,032,350
MCI Worldcom, Inc. + ................. 61,400 5,284,237
SBC Communications, Inc. ............. 59,200 3,433,600
-------------
17,226,737
-------------
OIL ( 0.9% )
Texaco, Inc. ......................... 35,700 2,231,250
-------------
OIL SERVICES ( 5.4% )
Baker Hughes, Inc. ................... 132,000 4,422,000
Halliburton Co. ...................... 104,600 4,733,150
Schlumberger, Ltd. ................... 71,600 4,560,025
-------------
13,715,175
-------------
PRODUCER GOODS ( 6.1% )
Allied Signal, Inc. .................. 74,700 4,706,100
Tyco International Ltd. .............. 115,400 10,934,150
-------------
15,640,250
-------------
SEMICONDUCTORS AND ELECTRONICS ( 9.8% )
Applied Materials, Inc. + ............ 32,300 2,386,163
General Instrument Corp. + ........... 56,700 2,409,750
Lucent Technologies, Inc. ............ 60,885 4,105,932
Nokia Corp., ADR ..................... 58,700 5,374,719
Tellabs, Inc. + ...................... 100,900 6,817,056
Texas Instruments, Inc. .............. 14,800 2,146,000
12 See Definition of Terms.
<PAGE>
NUMBER OF MARKET VALUE
SHARES
----------- -------------
SEMICONDUCTORS AND ELECTRONICS (CONTINUED)
Vitesse Semiconductor Corp. + ........ 25,600 $1,726,400
24,966,020
-------------
TOTAL COMMON STOCKS (COST $201,240,337) 235,196,689
-------------
PRINCIPAL
AMOUNT
------------
SHORT-TERM INVESTMENTS ( 7.4% )
Federal Home Loan Bank,4.60%,07/01/99 $17,916,000 17,916,000
U.S. Treasury Bill,4.43%,08/19/99 @ .. 700,000 695,779
U.S. Treasury Bill,4.48%,08/19/99 @ .. 100,000 99,409
U.S. Treasury Bill,4.80%,08/19/99 @ .. 100,000 99,391
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $18,810,579) 18,810,579
---------------
TOTAL INVESTMENTS (COST $220,050,916)(A) 254,007,268
OTHER ASSETS LESS LIABILITIES 999,470
---------------
TOTAL NET ASSETS $255,006,738
===============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$223,736,666. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $33,799,446
Unrealized losses........................... (3,528,844)
---------------------
Net unrealized gain........................ $30,270,602
=====================
</TABLE>
<TABLE>
Information concerning open futures contracts at June 30, 1999 is shown below:
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
----------- ------------- ------------ ---------------
LONG CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
S&P 500 Index Futures. 42 $13,881,180 Sept 99 $ 626,292
=========== ==========
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1999.
Category percentages are based on net assets.
See Notes to Financial Statements. 13
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
INTERNATIONAL
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
------------ --------------
<S> <C> <C>
COMMON STOCKS ( 90.8% )
AUSTRALIA ( 2.7% )
Amcor Ltd.
(Forest Products and Building Materials) 45,000 $250,139
Foster's Brewing Group Ltd. (Food and
Beverage)............................... 90,000 253,653
Telstra Corp. Ltd. (Other
Telecommunications) + .................. 26,200 150,128
--------------
TOTAL AUSTRALIA 653,920
--------------
BRAZIL ( 0.8% )
Telecomunicaciones Brasileiras SA, ADR
(Other Telecommunications) ............. 2,180 196,609
--------------
CANADA ( 2.2% )
BCE Inc. (Other Telecommunications) ..... 5,600 271,468
Canadian National Railway Co.
(Surface Transport) .................... 3,800 254,546
--------------
TOTAL CANADA 526,014
--------------
DENMARK ( 4.3% )
Carli Gry International A/S (Textiles and
Apparel)................................ 14,200 300,111
Novo-Nordisk A/S (Drugs) ................ 1,650 178,261
SAS Danmark A/S (Air Transport) ......... 7,500 78,212
Tele Danmark A/S (Other
Telecommunications)..................... 5,400 265,795
Vestas Wind Systems AS (Producer Goods) + 2,400 211,902
--------------
TOTAL DENMARK 1,034,281
--------------
FINLAND ( 3.6% )
Nokia Corp., ADR
(Semiconductors and Electronics) ....... 3,400 311,313
Perlos Oyj (Semiconductors and
Electronics)............................ 9,200 134,723
Pohjola Group Insurance Corp. (Insurance) 5,200 266,784
Tieto Corp. (Data and Imaging Services) . 3,900 162,484
--------------
TOTAL FINLAND 875,303
--------------
FRANCE ( 9.5% )
Accor SA (Consumer Services) ............ 700 175,777
Aerospatiale Matra
(Conglomerate and Aerospace) ........... 5,900 135,986
Alstom (Industrial Services) + .......... 8,100 254,770
Axa (Insurance) ......................... 2,100 256,193
Carrefour SA (Food and Drug Retail) ..... 1,290 189,570
Elf Aquitaine SA (Oil) .................. 1,500 220,120
Galeries Lafayette (Discretionary Retail) 1,290 170,679
Gemini Sogeti SA (Data and Imaging
Services)............................... 1,300 204,311
Groupe Danone (Food and Beverage) ....... 850 219,141
Societe Generale (Banks and Thrifts) .... 1,150 202,677
Vivendi (Conglomerate and Aerospace) .... 3,469 281,006
--------------
TOTAL FRANCE 2,310,230
--------------
GERMANY ( 8.0% )
Bayericshe Hypo-und Vereinsb
(Banks and Thrifts) + .................. 2,712 176,195
Buderus AG
(Forest Products and Building Materials) 680 272,786
DaimlerChrysler AG (Automotive) ......... 2,296 198,891
NUMBER OF MARKET VALUE
SHARES
------------ --------------
GERMANY (CONTINUED)
Deutsche Pfandbrief & Hypothekenbank AG
(Banks and Thrifts) .................... 2,500 $226,875
Douglas Holding AG (Discretionary Retail) 2,500 112,148
Fresenius Medical Care AG
(Biotech and Medical Products) ......... 3,950 235,852
Gehe AG (Health Services) ............... 3,900 179,376
Mannesmann AG (Producer Goods) .......... 3,000 447,666
Siemens AG
(Electrical Machinery and Instruments) . 1,200 92,565
--------------
TOTAL GERMANY 1,942,354
--------------
HONG KONG ( 1.7% )
China Telecom Ltd.
(Other Telecommunications) + ........... 78,000 216,643
First Pacific Co. Ltd. (Producer Goods) . 222,000 188,842
--------------
TOTAL HONG KONG 405,485
--------------
IRELAND ( 3.0% )
Allied Irish Banks (Banks and Thrifts) .. 19,195 252,384
CRH Plc (Forest Products and Building
Materials).............................. 16,482 292,349
Waterford Wedgewood (Housing and
Furnishings)............................ 175,600 181,088
--------------
TOTAL IRELAND 725,821
--------------
ITALY ( 1.9% )
Banca del Nazionale Lavoro (Banks and
Thrifts) + ............................. 70,000 220,172
Telecom Italia SpA (Other
Telecommunications)..................... 23,000 239,085
--------------
TOTAL ITALY 459,257
--------------
JAPAN ( 14.4% )
Asatsu-DK Inc. (Commercial Services) .... 8,100 214,144
Citizen Watch Co. (Consumer Specialties) 23,000 199,521
Fuji Heavy Industries Ltd. (Automotive) . 36,000 277,792
Kita Kyushu Coca-Cola Bottling Co.
(Food and Beverage) .................... 3,800 215,995
Meitec Corp. (Commercial Services) ...... 8,600 287,756
Mizuno Corp. (Consumer Specialties) ..... 56,000 211,897
NTT Mobile Communication Network, Inc.
(Other Telecommunications) + ........... 21 281,229
Promise Co., Ltd. (Consumer Finance) .... 4,700 277,636
Seino Transportation Co. Ltd. (Surface
Transport).............................. 32,000 190,350
Shin-Etsu Chemical Co., Ltd.
(Specialty Chemicals) .................. 7,000 234,220
SoftBank Corp. (Semiconductors and
Electronics)............................ 2,200 445,489
Sony Corp. (Housing and Furnishings) .... 3,900 420,481
Terumo Corp. (Biotech and Medical
Products)............................... 10,600 236,013
--------------
TOTAL JAPAN 3,492,523
--------------
MEXICO ( 2.1% )
Cemex SA de CV
(Forest Products and Building Materials) 29,518 145,876
Grupo Financiero Bancomer, SA de CV
(Investment Services) .................. 364,000 131,376
14 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET VALUE
SHARES
------------ --------------
MEXICO (CONTINUED)
Telefonos de Mexico SA, ADR
(Other Telecommunications) ............. 2,800 $226,275
TOTAL MEXICO 503,527
--------------
NETHERLANDS ( 7.0% )
Akzo Nobel NV (Specialty Chemicals) ..... 5,100 214,583
ING Groep NV (Diversified Financial
Services)............................... 5,421 293,496
Koninklijke Ahold NV (Food and Drug
Retail)................................. 5,913 203,666
Nutreco Holding NV (Food and Drug Retail) 7,282 258,329
STMicroelectronics
(Semiconductors and Electronics) ....... 3,200 213,180
United Pan-Europe Communications NV
(Electronic Media) + ................... 4,300 233,248
Vendex KBB N.V. (Discretionary Retail) .. 7,646 204,220
VNU-Verenigde Nederlandes
Uitgeversbedrijven Verenigd Bezit (Print
Media).................................. 1,950 77,924
--------------
TOTAL NETHERLANDS 1,698,646
--------------
NORWAY ( 3.4% )
Christiania Bank Og Kredkasse
(Banks and Thrifts) .................... 57,400 206,341
Merkantildata ASA (Data and Imaging
Services)............................... 19,000 183,423
Ocean Rig ASA (Oil Services) + .......... 513,000 154,438
Petroleum Geo-Services (Oil Services) + . 8,600 129,451
Tomra Systems ASA (Producer Goods) ...... 4,100 154,157
--------------
TOTAL NORWAY 827,810
--------------
SPAIN ( 1.3% )
Telefonica de Espana
(Major Telecommunications) ............. 6,284 302,698
------------
SWEDEN ( 4.9% )
Electrolux AB (Housing and Furnishings) . 5,000 104,681
Ericsson ADR (Other Telecommunications) . 9,600 316,200
Securitas AB (Commercial Services) ...... 19,500 291,284
Skandinaviska Enskilda Banken
(Banks and Thrifts) .................... 18,100 210,762
Svenska Cellulosa AB (Consumer Products) 10,200 263,938
--------------
TOTAL SWEDEN 1,186,866
--------------
SWITZERLAND ( 2.7% )
Fischer (Georg) AG (Producer Goods) ..... 190 61,964
Roche Holding AG (Drugs) ................ 13 133,629
Sulzer AG (Conglomerate and Aerospace) + 410 249,228
UBS AG (Banks and Thrifts) .............. 715 213,405
--------------
TOTAL SWITZERLAND 658,227
--------------
UNITED KINGDOM ( 17.3% )
BAA Plc (Commercial Services) ........... 29,500 283,646
Bank of Scotland (Banks and Thrifts) .... 13,932 184,467
Bass Plc (Food and Beverage) ............ 18,000 261,169
British Telecom Plc (Other
Telecommunications)..................... 23,903 400,508
Cable & Wireless Plc
(Other Telecommunications) + ........... 10,100 128,714
Dixons Group Plc (Discretionary Retail) . 16,541 308,962
General Electric Co. Plc
(Conglomerate and Aerospace) ........... 28,300 288,613
Granada Group Plc (Electronic Media) + .. 12,186 226,080
NUMBER OF MARKET VALUE
SHARES
------------ --------------
UNITED KINGDOM (CONTINUED)
Hanson Plc (Conglomerate and Aerospace) . 21,400 $190,078
Kingfisher Plc (Discretionary Retail) ... 25,277 290,853
MEPC Plc (Diversified Financial Services) 35,600 289,551
National Westminster Bank Plc
(Banks and Thrifts) .................... 10,900 231,086
Railtrack Group (Surface Transport) ..... 5,500 112,442
Shell Transport & Trading Co. (Oil) ..... 37,000 277,463
SmithKline Beecham Plc (Drugs) .......... 18,674 242,691
Vodafone Group Plc (Other
Telecommunications)..................... 16,012 315,486
WPP Group Plc (Commercial Services) ..... 20,100 169,976
--------------
TOTAL UNITED KINGDOM 4,201,785
--------------
TOTAL COMMON STOCKS (COST $19,593,436) 22,001,356
--------------
PRINCIPAL
AMOUNT
------------
SHORT-TERM INVESTMENTS ( 2.1% )
Federal Home Loan Mortgage Corp.,
Zero Coupon,07/01/99 ................... $403,000 403,000
U.S. Treasury Bill,4.43%,08/19/99 @ ..... 100,000 99,372
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $502,372) 502,372
--------------
TOTAL INVESTMENTS (COST $20,095,808)(A) 22,503,728
OTHER ASSETS LESS LIABILITIES 1,725,443
--------------
TOTAL NET ASSETS $24,229,171
==============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$20,530,555. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $2,473,918
Unrealized losses........................... (500,745)
---------------------
Net unrealized gain........................ $1,973,173
=====================
</TABLE>
<TABLE>
Information concerning open futures contracts at June 30, 1999 is shown below:
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
----------- ------------- ------------ ---------------
LONG CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
TOPIX Index Futures....... 3 $344,969 Sept 99 $3,759
=========== ==========
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1999.
Category percentages are based on net assets.
See Notes to Financial Statements. 15
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
SMALL COMPANY
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
------------- ---------------
<S> <C> <C>
COMMON STOCKS ( 82.4% )
AIR TRANSPORT ( 1.3% )
America West Holdings Corp. + .......... 77,100 $1,455,263
-------------
BANKS AND THRIFTS ( 5.1% )
Atlantic Bank and Trust Co. + .......... 99,000 1,757,250
Citizens Banking Corp. ................. 52,000 1,563,250
Harbor Florida Bancshares, Inc. ........ 133,200 1,631,700
Republic Security Financial Corp. ...... 101,400 849,225
-------------
5,801,425
-------------
BIOTECH AND MEDICAL PRODUCTS ( 1.2% )
i-STAT Corp. + ......................... 155,800 1,421,675
-------------
COMMERCIAL SERVICES ( 0.7% )
Copart, Inc. + ......................... 37,100 788,375
-------------
CONSUMER FINANCE ( 3.4% )
American Capital Strategies, Ltd. ...... 68,500 1,250,125
First Sierra Financial, Inc. + ......... 71,500 1,787,500
Medallion Financial Corp. .............. 42,500 810,156
-------------
3,847,781
-------------
CONSUMER SERVICES ( 4.2% )
IHOP Corp. + ........................... 73,900 1,778,219
OroAmerica, Inc. + ..................... 59,400 415,800
Prime Hospitality Corp. + .............. 92,000 1,104,000
Taco Cabana, Inc. + .................... 145,400 1,481,262
-------------
4,779,281
-------------
CONSUMER SPECIALTIES ( 0.5% )
THQ, Inc. + ............................ 20,500 589,375
-------------
DATA AND IMAGING SERVICES ( 7.7% )
Advanced Digital Information Corp. + ... 31,400 1,271,700
Brooktrout Technology, Inc. + .......... 88,600 1,423,138
Fundtech Ltd. + ........................ 29,100 754,781
GoTo.com, Inc. + ....................... 26,000 728,000
Harbinger Corp. + ...................... 42,400 530,000
Intergraph Corp. + ..................... 160,900 1,246,975
JDA Software Group, Inc. + ............. 173,400 1,614,787
WorldGate Communications, Inc. + ....... 22,600 1,158,250
-------------
8,727,631
-------------
DISCRETIONARY RETAIL ( 6.6% )
Audio Book Club, Inc. + ................ 130,200 1,692,600
Central Garden & Pet Co. + ............. 87,700 898,925
Dress Barn, Inc. + ..................... 97,300 1,556,800
Gadzooks, Inc. + ....................... 59,300 948,800
Genesco Inc. + ......................... 93,300 1,358,681
REX Stores Corp. + ..................... 33,800 1,007,663
-------------
7,463,469
-------------
ELECTRIC UTILITIES ( 2.0% )
Otter Tail Power Co. ................... 23,700 913,931
UniSource Energy Corp. + ............... 112,200 1,339,388
-------------
2,253,319
-------------
ELECTRICAL MACHINERY AND INSTRUMENTS ( 1.5% )
Nam Tai Electronics, Inc., ADR ......... 133,500 1,685,438
-------------
NUMBER OF MARKET VALUE
SHARES
------------- ---------------
ELECTRONIC MEDIA ( 2.8% )
Ascent Entertainment Group, Inc. + ..... 114,000 $1,610,250
Granite Broadcasting Corp. + ........... 142,100 1,110,156
Radio One, Inc. + ...................... 11,100 516,150
---------------
3,236,556
---------------
FOOD AND BEVERAGE ( 2.4% )
Suprema Specialties, Inc. + ............ 126,300 876,206
Zapata Corp. ........................... 222,100 1,887,850
---------------
2,764,056
---------------
FOOD AND DRUG RETAIL ( 0.8% )
Casey's General Stores, Inc. ........... 61,700 925,500
-------------
FOREST PRODUCTS AND BUILDING MATERIALS ( 3.8% )
Elcor Corp. ............................ 19,300 843,169
Potlatch Corp. ......................... 47,000 2,065,062
Texas Industries, Inc. ................. 35,500 1,375,625
---------------
4,283,856
---------------
HEALTH SERVICES ( 1.5% )
MedPartners, Inc. + ................... 229,600 1,736,350
-------------
HEAVY MACHINERY ( 1.1% )
Gehl Co. + ............................. 62,900 1,273,725
-------------
HOUSING AND FURNISHINGS ( 2.3% )
Fairfield Communities, Inc. + .......... 37,000 596,625
Libbey Inc. ............................ 23,600 684,400
Webb (Del E) Corp. ..................... 54,100 1,291,637
---------------
2,572,662
---------------
INDUSTRIAL SERVICES ( 4.6% )
Insituform Technologies, Inc. + ........ 67,700 1,464,013
Kaneb Services, Inc. + ................. 236,000 1,003,000
Park-Ohio Holdings Corp. + ............. 54,000 914,625
York Research Corp. + .................. 293,800 1,817,887
---------------
5,199,525
---------------
INSURANCE ( 1.7% )
American Heritage Life Investment Corp. 42,300 1,036,350
Provident American Corp. + ............. 30,400 847,400
---------------
1,883,750
---------------
INVESTMENT SERVICES ( 0.1% )
National Discount Brokers Group, Inc. + 2,900 168,200
-------------
OIL ( 3.4% )
Devon Energy Corp. ..................... 24,600 879,450
Triton Energy Ltd. + ................... 92,000 989,000
Union Pacific Resources Group Inc. ..... 123,500 2,014,594
---------------
3,883,044
---------------
OIL SERVICES ( 3.1% )
Marine Drilling Companies, Inc. + ...... 49,300 674,794
McDermott International, Inc., ADR ..... 63,300 1,788,225
Seitel, Inc. + ......................... 66,700 1,079,706
---------------
3,542,725
---------------
OTHER TELECOMMUNICATIONS ( 5.7% )
Associated Group, Inc. + ............... 24,100 1,569,512
Cidco, Inc. + .......................... 221,100 1,637,522
Davox Corp. + .......................... 88,900 1,061,244
Powertel, Inc. + ....................... 45,100 1,347,363
16 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET VALUE
SHARES
------------- ---------------
OTHER TELECOMMUNICATIONS (CONTINUED)
Price Communications Corp. + ........... 61,077 $916,155
---------------
6,531,796
---------------
PRINT MEDIA ( 0.5% )
Ziff-Davis Inc. + ...................... 34,100 526,419
-------------
PRODUCER GOODS ( 5.3% )
4Front Technologies, Inc. + ............ 32,500 320,938
Curtis International Ltd. + ............ 63,000 409,500
Kafus Environmental Industries Ltd. + .. 222,800 2,144,450
MacDermid, Inc. ........................ 28,700 1,334,550
Millipore Corp. ........................ 17,800 722,012
Varlen Corp. ........................... 26,400 1,069,200
---------------
6,000,650
---------------
SEMICONDUCTORS AND ELECTRONICS ( 3.1% )
Burr-Brown Corp. + ..................... 74,600 2,732,225
Dallas Semiconductor Corp. ............. 200 10,100
Terayon Communication Systems, Inc. + .. 14,500 810,187
---------------
3,552,512
---------------
SPECIALTY CHEMICALS ( 3.2% )
Alcide Corp. + ......................... 71,600 1,288,800
ChiRex Inc. + .......................... 26,900 864,162
Geon Co. (The) ......................... 45,600 1,470,600
---------------
3,623,562
---------------
STEEL ( 0.8% )
Bethlehem Steel Corp. + ................ 122,800 944,025
---------------
SURFACE TRANSPORT ( 2.0% )
Knightsbridge Tankers Ltd. ............. 57,500 1,006,250
Roadway Express, Inc. .................. 67,100 1,300,063
---------------
2,306,313
---------------
TOTAL COMMON STOCKS (COST $84,972,227) 93,768,258
---------------
PRINCIPAL
AMOUNT
-------------
SHORT-TERM INVESTMENTS ( 16.1% )
Federal Home Loan Bank,4.60%,07/01/99 .. $17,559,000 17,559,000
U.S. Treasury Bill,4.43%,08/19/99 @ .... 600,000 596,383
U.S. Treasury Bill,4.48%,08/19/99 ...... 100,000 99,390
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $18,254,772) 18,254,773
---------------
TOTAL INVESTMENTS (COST $103,226,999)(A) 112,023,031
OTHER ASSETS LESS LIABILITIES 1,760,712
---------------
TOTAL NET ASSETS $113,783,743
---------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$105,730,625. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $11,997,139
Unrealized losses........................... (5,704,733)
---------------------
Net unrealized gain........................ $6,292,406
=====================
</TABLE>
<TABLE>
Information concerning open futures contracts at June 30, 1999 is shown below:
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
----------- ------------- ------------ ---------------
LONG CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
Russell 2000 Index
Futures.......... 56 $12,548,835 Sept 99 $ 386,661
=========== ==========
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1999.
Category percentages are based on net assets.
See Notes to Financial Statements. 17
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
VALUE OPPORTUNITY
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
------------ --------------
<S> <C> <C>
COMMON STOCKS ( 94.2% )
AUTOMOTIVE ( 2.9% )
Dana Corp. ............................ 50,000 $2,303,125
------------
BANKS AND THRIFTS ( 3.5% )
J.P. Morgan & Co. ..................... 20,000 2,810,000
------------
COMPUTERS ( 9.3% )
International Business Machines Corp. . 35,000 4,523,750
Sun Microsystems, Inc. + .............. 43,000 2,961,625
------------
7,485,375
------------
CONGLOMERATE AND AEROSPACE ( 9.0% )
General Dynamics Corp. ................ 35,000 2,397,500
General Electric Co. .................. 20,000 2,260,000
General Motors Corp. - Class H ........ 45,000 2,531,250
------------
7,188,750
------------
CONSUMER FINANCE ( 3.6% )
Federal Home Loan Mortgage Corp. ...... 50,000 2,900,000
------------
DATA AND IMAGING SERVICES ( 8.8% )
America Online, Inc. .................. 30,000 3,315,000
Oracle Corp. + ........................ 100,750 3,740,344
------------
7,055,344
------------
DIVERSIFIED FINANCIAL SERVICES ( 4.9% )
Citigroup Inc. ........................ 82,500 3,918,750
------------
DRUGS ( 18.1% )
American Home Products Corp. .......... 40,000 2,300,000
Bristol-Myers Squibb Co. .............. 50,000 3,521,875
Merck & Co., Inc. ..................... 40,000 2,960,000
Pharmacia & Upjohn, Inc. .............. 40,000 2,272,500
Warner Lambert Co. .................... 50,000 3,468,750
------------
14,523,125
------------
ELECTRICAL MACHINERY AND INSTRUMENTS ( 4.0% )
Xerox Corp. ........................... 55,000 3,248,438
------------
HOUSING AND FURNISHINGS ( 1.9% )
Centex Corp. .......................... 40,000 1,502,500
------------
INSURANCE ( 4.6% )
AFLAC, Inc. ........................... 50,000 2,393,750
Allstate Corp. (The) .................. 35,000 1,255,625
------------
3,649,375
------------
INVESTMENT SERVICES ( 3.6% )
T. Rowe Price & Associates ............ 75,000 2,878,125
------------
MAJOR TELECOMMUNICATIONS ( 7.2% )
AT&T Corp. ............................ 60,000 3,348,750
CenturyTel, Inc. ...................... 60,050 2,386,987
------------
5,735,737
------------
OIL ( 3.3% )
Chevron Corp. ......................... 27,500 2,617,656
------------
OIL SERVICES ( 3.0% )
McDermott International, Inc., ADR .... 85,000 2,401,250
------------
PRODUCER GOODS ( 3.2% )
Ingersoll-Rand Co. .................... 40,000 2,585,000
------------
NUMBER OF MARKET VALUE
SHARES
------------ --------------
SEMICONDUCTORS AND ELECTRONICS ( 3.3% )
Intel Corp. ........................... 45,000 $2,677,500
------------
TOTAL COMMON STOCKS (COST $61,216,741) 75,480,050
------------
PRINCIPAL
AMOUNT
------------
SHORT-TERM INVESTMENTS ( 5.4% )
Federal Home Loan Bank,4.60%,07/01/99 . $4,067,000 4,067,000
U.S. Treasury Bill,4.48%,08/19/99 @ ... 300,000 298,008
------------
TOTAL SHORT-TERM INVESTMENTS (COST $4,365,191) 4,365,008
------------
TOTAL INVESTMENTS (COST $65,581,932)(A) 79,845,058
OTHER ASSETS LESS LIABILITIES 304,716
------------
TOTAL NET ASSETS $80,149,774
============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at June 30, 1999,
are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $14,779,099
Unrealized losses........................... (515,973)
---------------------
Net unrealized gain........................ $14,263,126
=====================
</TABLE>
<TABLE>
Information concerning open futures contracts at June 30, 1999 is shown below:
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
----------- ------------ ------------ ---------------
LONG CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
S&P 500 Index Futures. 4 $1,335,700 Sept 99 $ 45,964
========== =========
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1999.
Category percentages are based on net assets.
18 See Notes to Financial Statements.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS:
Investments, at market value ..........................................
Cash ..................................................................
Cash denominated in foreign currencies.................................
Receivable for:
Dividends and interest ...............................................
Investments sold .....................................................
Fund shares sold .....................................................
Variation margin .....................................................
Recoverable foreign taxes.............................................
Reimbursement from Investment Adviser ................................
Prepaid expenses ......................................................
Gross unrealized gain on forward foreign currency exchange contracts...
Total assets .....................................................
LIABILITIES:
Payable for:
Investments purchased ................................................
Fund shares redeemed .................................................
Variation margin .....................................................
Accrued investment advisory fees ......................................
Accrued administrative service fees ...................................
Accrued custody fees ..................................................
Other liabilities .....................................................
Gross unrealized loss on forward foreign currency exchange contracts...
Total liabilities ................................................
NET ASSETS ...........................................................
NET ASSETS REPRESENTED BY:
Paid-in capital .......................................................
Net unrealized gain on investments, open futures contracts and foreign
currency related transactions ........................................
Undistributed net investment income ...................................
Accumulated net realized gain (loss) on investments ...................
NET ASSETS ...........................................................
CAPITAL SHARES:
Authorized ............................................................
Par Value .............................................................
Outstanding ...........................................................
Net asset value, offering and redemption price per share (net assets
divided by shares outstanding) .......................................
Cost of investments ...................................................
Cost of cash denominated in foreign currencies.........................
20 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
GROWTH INTERNATIONAL SMALL COMPANY VALUE OPPORTUNITY
--------------- -------------- --------------- -------------------
<S> <C> <C> <C>
$254,007,268 $ 22,503,728 $112,023,031 $ 79,845,058
1,291 12 826 875
-- 1,000,487 -- --
61,274 23,923 23,120 87,652
4,025,163 862,465 1,956,840 --
1,856,886 700,553 542,638 237,263
-- 21,167 -- --
262,500 -- 128,800 25,000
602 11,070 -- 542
101 72 140 102
-- 21,629 -- --
------------ ------------ ------------ ------------
260,215,085 25,145,106 114,675,395 80,196,492
------------ ------------ ------------ ------------
5,059,382 861,696 622,209 --
-- 8 185,268 3
-- 4,713 -- --
117,792 15,950 66,694 37,380
14,724 1,407 6,669 4,673
7,919 22,059 7,199 3,951
8,530 1,661 3,613 711
-- 8,441 -- --
------------ ------------ ------------ ------------
5,208,347 915,935 891,652 46,718
------------ ------------ ------------ ------------
$255,006,738 $ 24,229,171 $113,783,743 $ 80,149,774
============ ============ ============ ============
$212,204,691 $ 20,176,022 $104,757,168 $ 63,379,079
34,582,644 2,421,192 9,182,693 14,309,090
178,885 261,767 377,137 278,631
8,040,518 1,370,190 (533,255) 2,182,974
------------ ------------ ------------ ------------
$255,006,738 $ 24,229,171 $113,783,743 $ 80,149,774
============ ============ ============ ============
Two Billion Two Billion Two Billion Two Billion
$ 0.001 $ 0.001 $ 0.001 $ 0.001
16,591,599 1,922,028 8,150,844 5,035,476
$ 15.37 $ 12.61 $ 13.96 $ 15.92
$220,050,916 $ 20,095,808 $103,226,999 $ 65,581,932
-- $ 1,002,454 -- --
</TABLE>
See Notes to Financial Statements. 21
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
INVESTMENT INCOME:
Dividends .............................................................
Interest ..............................................................
Foreign taxes withheld on dividends ...................................
Total investment income ..........................................
INVESTMENT EXPENSES:
Investment advisory fees ..............................................
Administrative services fees ..........................................
Printing and postage ..................................................
Custody fees ..........................................................
Transfer agent fees ...................................................
Audit fees ............................................................
Directors' fees .......................................................
Registration fees .....................................................
Miscellaneous expenses ................................................
Expenses before reimbursement and waiver from Investment Adviser ......
Expense reimbursement and waiver from Investment Adviser ..............
Net expenses .....................................................
Net investment income .................................................
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ..........................................................
Futures and forward foreign currency exchange contracts ..............
Foreign currency related transactions.................................
Net realized gain on investments .................................
Net change in unrealized gain or loss on:
Investments ..........................................................
Futures and forward foreign currency exchange contracts ..............
Foreign currency related transactions.................................
Net change in unrealized gain or loss on investments .............
Net realized and change in unrealized gain or loss on investments .....
Net increase in net assets resulting from operations ..................
22 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
GROWTH INTERNATIONAL SMALL COMPANY VALUE OPPORTUNITY
------------------ ------------------ ------------------- -----------------------
<S> <C> <C> <C>
$ 463,510 $ 202,899 $ 338,261 $ 419,051
434,196 72,456 472,509 146,425
----------- ---------- ---------- ----------
897,706 275,355 810,770 565,476
(1,893) (19,008) -- (16,505)
----------- ---------- ---------- ----------
895,813 256,347 810,770 548,971
----------- ---------- ---------- ----------
602,503 85,121 368,991 220,004
75,313 7,511 36,899 27,500
1,104 1,405 1,745 1,558
6,100 69,647 6,525 3,763
1,278 649 1,278 1,278
12,047 10,519 11,917 11,876
2,822 303 1,506 1,123
15,286 1,033 3,810 2,848
1,077 334 1,086 803
----------- ---------- ---------- ----------
717,530 176,522 433,757 270,753
(602) (64,415) (361) (542)
----------- ---------- ---------- ----------
716,928 112,107 433,396 270,211
----------- ---------- ---------- ----------
178,885 144,240 377,374 278,760
----------- ---------- ---------- ----------
13,787,739 1,465,854 5,312,401 4,295,991
606,197 161,028 1,078,513 398,427
-- (73,464) -- --
----------- ---------- ---------- ----------
14,393,936 1,553,418 6,390,914 4,694,418
----------- ---------- ---------- ----------
11,998,902 281,618 2,974,798 2,761,181
228,269 76,797 (265,615) (153,047)
-- (6,500) -- --
----------- ---------- ---------- ----------
12,227,171 351,915 2,709,183 2,608,134
----------- ---------- ---------- ----------
26,621,107 1,905,333 9,100,097 7,302,552
----------- ---------- ---------- ----------
$26,799,992 $2,049,573 $9,477,471 $7,581,312
=========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements. 23
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH
---------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 178,885 $ 223,542
Net realized gain (loss) on investments... 14,393,936 (6,218,742)
Net change in unrealized gain or loss on
investments.............................. 12,227,171 22,073,422
------------ ------------
Net increase in net assets resulting from
operations............................... 26,799,992 16,078,222
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............... -- (233,463)
------------ ------------
Decrease in net assets from distributions
to shareholders.......................... -- (233,463)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................ 97,701,812 133,494,697
Net asset value of shares issued upon
reinvestment of distributions........... -- 233,463
Payments for shares redeemed............. (11,858,305) (13,173,524)
------------ ------------
Net increase in net assets from fund
share transactions....................... 85,843,507 120,554,636
------------ ------------
Net change in net assets.................. 112,643,499 136,399,395
NET ASSETS:
Beginning of period....................... 142,363,239 5,963,844
------------ ------------
End of period............................. $255,006,738 $142,363,239
============ ============
End of period net assets includes
undistributed net investment income...... $ 178,885 $ --
============ ============
SHARE TRANSACTIONS:
Number of shares sold.................... 6,888,229 11,095,048
Number of shares issued upon reinvestment
of distributions........................ -- 17,449
Number of shares redeemed................ (819,647) (1,195,162)
------------ ------------
Net increase............................. 6,068,582 9,917,335
============ ============
</TABLE>
24 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL
--------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income ..................... $ 144,240 $ 94,747
Net realized gain on investments........... 1,553,418 1,023,371
Net change in unrealized gain or loss on
investments............................... 351,915 1,651,337
----------- ------------
Net increase in net assets resulting from
operations................................ 2,049,573 2,769,455
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................ -- (17,927)
From net realized gains on investments.... (345,941) (813,619)
----------- ------------
Decrease in net assets from distributions
to shareholders........................... (345,941) (831,546)
----------- ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................. 14,214,626 11,492,897
Net asset value of shares issued upon
reinvestment of distributions............ 373,527 814,794
Payments for shares redeemed.............. (8,304,950) (13,414,872)
----------- ------------
Net increase (decrease) in net assets from
fund share transactions................... 6,283,203 (1,107,181)
----------- ------------
Net change in net assets................... 7,986,835 830,728
NET ASSETS:
Beginning of period........................ 16,242,336 15,411,608
----------- ------------
End of period.............................. $24,229,171 $ 16,242,336
=========== ============
End of period net assets includes
undistributed net investment income....... $ 261,767 $ 117,527
=========== ============
SHARE TRANSACTIONS:
Number of shares sold..................... 1,171,323 971,299
Number of shares issued upon reinvestment
of distributions......................... 27,587 70,485
Number of shares redeemed................. (678,708) (1,139,958)
----------- ------------
Net increase (decrease)................... 520,202 (98,174)
=========== ============
</TABLE>
See Notes to Financial Statements. 25
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SMALL COMPANY
---------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 377,374 $ 579,644
Net realized gain (loss) on investments... 6,390,914 (6,877,466)
Net change in unrealized gain or loss on
investments.............................. 2,709,183 5,570,006
------------ ------------
Net increase (decrease) in net assets
resulting from operations................ 9,477,471 (727,816)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............... (49,889) (544,565)
From net realized gains on investments... -- (230,169)
------------ ------------
Decrease in net assets from distributions
to shareholders.......................... (49,889) (774,734)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................ 30,821,247 109,090,666
Net asset value of shares issued upon
reinvestment of distributions........... 49,889 774,734
Payments for shares redeemed............. (26,337,949) (26,641,691)
------------ ------------
Net increase in net assets from fund
share transactions....................... 4,533,187 83,223,709
------------ ------------
Net change in net assets.................. 13,960,769 81,721,159
NET ASSETS:
Beginning of period....................... 99,822,974 18,101,815
------------ ------------
End of period............................. $113,783,743 $ 99,822,974
============ ============
End of period net assets includes
undistributed net investment income...... $ 377,137 $ 49,652
============ ============
SHARE TRANSACTIONS:
Number of shares sold.................... 2,405,987 8,539,090
Number of shares issued upon reinvestment
of distributions........................ 3,660 60,652
Number of shares redeemed................ (2,065,231) (2,210,865)
------------ ------------
Net increase............................. 344,416 6,388,877
============ ============
</TABLE>
26 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
VALUE OPPORTUNITY
---------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 278,760 $ 437,647
Net realized gain (loss) on investments... 4,694,418 (2,499,205)
Net change in unrealized gain or loss on
investments.............................. 2,608,134 11,291,482
------------ ------------
Net increase in net assets resulting from
operations............................... 7,581,312 9,229,924
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............... (7,523) (387,014)
From net realized gains on investments... -- (339,496)
------------ ------------
Decrease in net assets from distributions
to shareholders.......................... (7,523) (726,510)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................ 8,030,336 67,879,273
Net asset value of shares issued upon
reinvestment of distributions........... 7,522 726,510
Payments for shares redeemed............. (11,570,579) (10,147,268)
------------ ------------
Net increase (decrease) in net assets
from fund share transactions............. (3,532,721) 58,458,515
------------ ------------
Net change in net assets.................. 4,041,068 66,961,929
NET ASSETS:
Beginning of period....................... 76,108,706 9,146,777
------------ ------------
End of period............................. $ 80,149,774 $ 76,108,706
============ ============
End of period net assets includes
undistributed net investment income...... $ 278,631 $ 7,394
============ ============
SHARE TRANSACTIONS:
Number of shares sold.................... 542,560 5,269,016
Number of shares issued upon reinvestment
of distributions........................ 491 53,123
Number of shares redeemed................ (790,661) (806,672)
------------ ------------
Net increase (decrease).................. (247,610) 4,515,467
============ ============
</TABLE>
See Notes to Financial Statements. 27
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
1. ORGANIZATION
Aetna Variable Portfolios, Inc. (Fund) is registered under the Investment
Company Act of 1940 (the Act) as an open-end management investment company. It
was incorporated under the laws of Maryland on June 4, 1996. The Articles of
Incorporation permit the Fund to offer separate portfolios, each of which has
its own investment objective, policies and restrictions.
The Fund currently offers ten portfolios. This report covers four diversified
portfolios: Aetna Growth VP, Aetna International VP, Aetna Small Company VP and
Aetna Value Opportunity VP (Portfolios).
The following is each Portfolio's investment objective:
AETNA GROWTH VP (Growth) seeks growth of capital through investment in a
diversified portfolio consisting primarily of common stocks and securities
convertible into common stocks believed to offer growth potential.
AETNA INTERNATIONAL VP (International) seeks long-term capital growth
primarily through investment in a diversified portfolio of common stocks
principally traded in countries outside of the U.S. International will not
target any given level of current income.
AETNA SMALL COMPANY VP (Small Company) seeks growth of capital primarily
through investment in a diversified portfolio of common stocks and securities
convertible into common stocks of companies with smaller market
capitalizations.
AETNA VALUE OPPORTUNITY VP (Value Opportunity) seeks growth of capital
primarily through investment in a diversified portfolio of common stocks and
securities convertible into common stock.
Shares of each Portfolio are currently owned by insurance companies as
depositors of separate accounts which are used to fund variable annuity
contracts and variable life insurance policies. All shares are currently held by
separate accounts of Aetna Life Insurance and Annuity Company (ALIAC) and its
subsidiary, Aetna Insurance Company of America.
Aeltus Investment Management, Inc. (Aeltus) serves as the investment adviser to
each Portfolio. Bradley, Foster & Sargent, Inc. (Bradley) serves as the
subadviser to Value Opportunity. ALIAC serves as the principal underwriter to
each Portfolio. Aeltus and ALIAC are both indirect wholly-owned subsidiaries of
Aetna Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Portfolios have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolios.
A. VALUATION OF INVESTMENTS
Investments are stated at market values based upon prices furnished by external
pricing sources 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 exchanges
at the end of each day of each applicable foreign market. 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. The Portfolios do not isolate the portion
28
<PAGE>
of the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in their market prices.
Such fluctuations are included in net realized and unrealized gain or loss on
investments.
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 invest in
financial futures contracts as a hedge against existing portfolio securities, to
manage the risk of changes in interest rates, equity prices, currency exchange
rates or in anticipation of future purchases and sales of portfolio securities.
Upon entering into a futures contract, the Portfolios are required to deposit
with a broker an amount (initial margin) equal to a percentage of the purchase
price indicated by the futures contract. Subsequent deposits (variation margin)
are received or paid each day by the Portfolios equal to the daily fluctuations
in the market value of the contract. These amounts are recorded by the
Portfolios as unrealized gains or losses. When a contract is closed, the
Portfolios record a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it was
closed. Generally, futures contracts held by the Portfolios are closed prior to
expiration.
A forward foreign currency exchange contract is an agreement to pay or receive
specific amounts of a currency at a future date in exchange for another currency
at an agreed upon exchange rate. The Portfolios, where authorized, may use
forward foreign currency exchange contracts to hedge against foreign currency
exchange rate risks on their non-U.S. dollar denominated portfolio securities.
Contracts are recorded at market value and marked-to-market daily.
The risks associated with financial 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 financial futures and forward foreign
currency exchange contracts are reflected in the accompanying financial
statements. The amounts at risk under such futures and forward foreign currency
exchange contracts may exceed the amounts reflected in the financial statements.
The notional amounts (economic exposure) of these contracts are disclosed in the
Portfolios of Investments and elsewhere in the Notes to Financial Statements.
For federal income tax purposes, any futures and forward foreign currency
exchange contracts which remain open at the end of the fiscal year are
marked-to-market and the resultant net gain or loss is reported to shareholders
as federal taxable income.
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 those which can only be sold
under Rule 144A of the Securities Act of 1933 (1933 Act) or are securities
offered pursuant to Section 4(2) of the 1933 Act, and are subject to legal or
contractual restrictions on resale and may not be publicly sold without
registration under the 1933 Act. 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. Each Portfolio may invest
up to 15% of its total assets in illiquid securities. The Portfolios will not
pay the costs of disposition of restricted securities other than ordinary
brokerage fees, if any.
D. FEDERAL INCOME TAXES
Each Portfolio has met the requirements to be taxed as a regulated investment
company for the year ended December 31, 1998 and intends to meet the
requirements for the current year. As such, each Portfolio is relieved of
federal income taxes by distributing all of its net taxable investment income
and capital gains, if any, in compliance with the applicable provisions of the
Internal Revenue Code. Futhermore, by distributing substantially all of its net
taxable investment income and capital gains during the calendar year, each
Portfolio will avoid federal excise taxes in accordance with the applicable
provisions of the Internal Revenue Code. Thus, the financial statements contain
no provision for federal taxes.
29
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
E. DISTRIBUTIONS
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currency transactions, certain
futures contracts, certain investments in foreign equity securities and certain
losses deferred due to transactions characterized as "wash sales" by federal tax
regulations. In addition, distributions of realized gains from sales of
securities held one year or less are taxable to shareholders at ordinary income
tax rates rather than preferred capital gain tax rates in accordance with the
applicable provisions of the Internal Revenue Code.
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, 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 Portfolio pays Aeltus a monthly fee expressed as a percentage of its
average daily net assets. Below are the Portfolios' annual investment advisory
fees, as of June 30, 1999:
<TABLE>
<CAPTION>
ADVISORY FEE
------------
<S> <C>
Growth 0.60%
International 0.85%
Small Company 0.75%
Value Opportunity 0.60%
</TABLE>
Aeltus and the Fund, on behalf of Value Opportunity, have entered into an
agreement with Bradley appointing Bradley as subadviser of Value Opportunity. As
subadviser, Bradley supervises the investment and reinvestment of equity
securities. The Subadvisory Agreement provides that Aeltus will pay Bradley a
subadvisory fee at an annual rate of 0.15% of Value Opportunity's average daily
net assets on the first $250 million and 0.10% of Value Opportunity's average
daily net assets above $250 million. For the period January 1, 1999 through June
30, 1999, Aeltus paid Bradley $55,793.
Aeltus has entered into a consulting agreement with Bradley for Value
Opportunity and Aetna Value Opportunity Fund, a portfolio of Aetna Series Fund,
Inc., under which Bradley will provide assistance with shareholder
communications, contribute to marketing efforts and other non-investment
advisory services for the Value Opportunity funds in exchange for payment from
the investment adviser. For the period January 1, 1999 through June 30, 1999,
Aeltus paid Bradley $78,000.
Each Portfolio pays Aeltus an administrative services fee in exchange for
receiving certain administrative and shareholder services and to compensate
Aeltus for supervising the Portfolios' other service providers. Each Portfolio
pays Aeltus an administrative services fee at an annual rate based on its
average daily net assets. The rate is 0.075% on the first $5 billion in
Portfolio assets and 0.050% on all Portfolio assets over $5 billion.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Portfolio, in
exchange for fees payable by Aeltus, of up to 0.425% of the Portfolios' average
daily net assets. For the period January 1, 1999 through June 30, 1999, Aeltus
paid ALIAC $646,915.
4. REIMBURSEMENT AND WAIVER FROM INVESTMENT ADVISER
Aeltus is contractually obligated through December 31, 1999 to reimburse each
Portfolio for some or all of its operating expenses or to waive fees in order to
maintain a certain expense ratio. Reimbursement and waiver arrangements will
increase a Portfolio's yield and total return.
30
<PAGE>
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1999 were:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------- -------------------
<S> <C> <C>
Growth $234,273,737 $134,579,359
International 20,458,049 15,708,585
Small Company 112,424,995 105,001,471
Value Opportunity 52,393,380 47,122,838
</TABLE>
6. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
As of June 30, 1999, International had the following open forward foreign
currency exchange contracts that obligate the Portfolio to deliver currencies at
specified future dates. The net unrealized gain of $13,188 on these contracts,
is included in the accompanying financial statements. The terms of the open
contracts are as follows:
<TABLE>
<CAPTION>
INTERNATIONAL
EXCHANGE CURRENCY TO U.S. $ VALUE CURRENCY TO U.S. $ VALUE UNREALIZED
DATE BE DELIVERED JUNE 30, 1999 BE RECEIVED JUNE 30, 1999 GAIN (LOSS)
---- ------------ ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
CONTRACTS TO SELL
- -----------------
7/19/99 175,135 $180,867 189,803 $189,803 $8,936
Euro U.S. Dollar
- -------------------------------------------------------------------------------------
7/19/99 4,000 4,131 4,343 4,343 212
Euro U.S. Dollar
- -------------------------------------------------------------------------------------
8/25/99 47,119 48,799 48,695 48,695 (104)
Euro U.S. Dollar
- -------------------------------------------------------------------------------------
5/18/00 1,460,000 186,433 186,116 186,116 (317)
Hong Kong Dollar U.S. Dollar
- -------------------------------------------------------------------------------------
7/27/99 39,790,000 330,092 336,861 336,861 6,769
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------
7/27/99 2,934,000 24,340 24,942 24,942 602
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------
7/27/99 9,100,000 75,492 75,827 75,827 335
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------
7/27/99 8,210,000 68,109 68,065 68,065 (44)
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------
8/26/99 50,900,000 424,166 416,190 416,190 (7,976)
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------
9/17/99 98,813,000 826,285 831,060 831,060 4,775
Japanese Yen U.S. Dollar
- -------------------------------------------------------------------------------------
$13,188
=============
</TABLE>
31
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
7. CAPITAL LOSS CARRYFORWARD
In accordance with applicable provisions of the Internal Revenue Code, the
following capital loss carryforwards have been incurred at June 30, 1999:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRATION DATE
------------ ---------------
<S> <C> <C>
Growth $5,846,950 2006
Small Company 5,927,829 2006
Value Opportunity 2,312,434 2006
</TABLE>
These capital loss carryforwards may be used to offset future capital gains
until their respective expiration dates. It is the policy of each Portfolio to
reduce future distributions of realized gains to shareholders to the extent of
unexpired capital loss carryforwards.
32
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
ADDITIONAL INFORMATION
JUNE 30, 1999 (UNAUDITED)
YEAR 2000
The Portfolios receive services from a number of providers which rely on the
effective functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not be able to perform their intended functions adequately after 1999
because of the inability of computer systems and software to distinguish the
year 2000 from the year 1900. Aeltus is taking steps that it believes are
reasonably designed to address this potential "Year 2000" problem and to obtain
satisfactory information that comparable steps are being taken by each of the
Portfolios' other major service providers. There can be no assurance, however,
that these steps will be sufficient to avoid any adverse impact on the
Portfolios from this problem.
33
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
FINANCIAL HIGHLIGHTS
GROWTH
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH DECEMBER 13, 1996
PERIOD ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT OF
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, OPERATIONS)
(UNAUDITED) 1998 1997 TO DECEMBER 31, 1996
------------- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 13.53 $ 9.85 $ 10.15 $10.00
-------- -------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.01 0.03 0.04+ 0.01+
Net realized and
change in unrealized
gain or loss on
investments.......... 1.83 3.68 3.27 0.15
-------- -------- ------- ------
Total from
investment
operations........ 1.84 3.71 3.31 0.16
-------- -------- ------- ------
LESS DISTRIBUTIONS:
From net investment
income............... -- (0.03) (0.03) (0.01)
From net realized
gains on investments -- -- (3.58) --
-------- -------- ------- ------
Total distributions -- (0.03) (3.61) (0.01)
-------- -------- ------- ------
Net asset value, end
of period ........... $ 15.37 $ 13.53 $ 9.85 $10.15
======== ======== ======= ======
Total return* ........ 13.60% 37.68% 33.01% 1.57%
Net assets, end of
period (000's) ...... $255,007 $142,363 $ 5,964 $5,175
Ratio of net expenses
to average net assets 0.71%(1) 0.75% 0.75% 0.67%(1)
Ratio of net
investment income to
average net assets .. 0.18%(1) 0.40% 0.29% 1.99%(1)
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 0.71%(1) -- -- --
Portfolio turnover
rate................. 68.78% 152.99% 207.41% 1.97%
</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.
34 See Notes to Financial Statements.
<PAGE>
INTERNATIONAL
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH DECEMBER 22, 1997
PERIOD ENDED YEAR ENDED (COMMENCEMENT OF
JUNE 30, 1999 DECEMBER 31, OPERATIONS)
(UNAUDITED) 1998 TO DECEMBER 31, 1997
------------- ------------ --------------------
<S> <C> <C> <C>
Net asset value, beginning
of period ............... $ 11.59 $ 10.27 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ... 0.09 0.07 --
Net realized and change
in unrealized gain or
loss on investments ..... 1.12 1.87 0.27
------- ------- -------
Total from investment
operations............ 1.21 1.94 0.27
------- ------- -------
LESS DISTRIBUTIONS:
From net investment
income................... -- (0.01) --
From net realized gains
on investments .......... (0.19) (0.61) --
------- ------- -------
Total distributions ... (0.19) (0.62) --
------- ------- -------
Net asset value, end of
period................... $ 12.61 $ 11.59 $ 10.27
======= ======= =======
Total return* ............ 10.35% 18.92% 2.74%
Net assets, end of period
(000's).................. $24,229 $16,242 $15,412
Ratio of net expenses to
average net assets ...... 1.12%(1) 1.15% 1.15% (1)
Ratio of net investment
income to average net
assets................... 1.44%(1) 0.55% (0.98)%(1)
Ratio of expenses before
reimbursement and waiver
to
average net assets ...... 1.76%(1) 1.77% --
Portfolio turnover rate .. 78.77% 158.02% 0.71%
</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. 35
<PAGE>
CAPITAL APPRECIATION PORTFOLIOS
FINANCIAL HIGHLIGHTS (CONTINUED)
SMALL COMPANY
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH DECEMBER 27, 1996
PERIOD ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT OF
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, OPERATIONS)
(UNAUDITED) 1998 1997 TO DECEMBER 31, 1996
------------- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 12.79 $ 12.77 $ 10.11 $10.00
-------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.05 0.07 0.04+ 0.01+
Net realized and
change in unrealized
gain or loss on
investments.......... 1.13 0.07 3.44 0.11
-------- ------- ------- ------
Total from
investment
operations........ 1.18 0.14 3.48 0.12
-------- ------- ------- ------
LESS DISTRIBUTIONS:
From net investment
income............... (0.01) (0.08) (0.03) (0.01)
From net realized
gains on investments -- (0.04) (0.79) --
-------- ------- ------- ------
Total distributions (0.01) (0.12) (0.82) (0.01)
-------- ------- ------- ------
Net asset value, end
of period ........... $ 13.96 $ 12.79 $ 12.77 $10.11
======== ======= ======= ======
Total return* ........ 9.20% 1.10% 34.49% 1.23%
Net assets, end of
period (000's) ...... $113,784 $99,823 $18,102 $5,158
Ratio of net expenses
to average net assets 0.88%(1) 0.89% 0.90% 0.55%(1)
Ratio of net
investment income to
average net assets .. 0.77%(1) 0.93% 0.78% 5.96%(1)
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 0.88%(1) -- -- --
Portfolio turnover
rate................. 129.58% 185.29% 180.25% --
</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.
36 See Notes to Financial Statements.
<PAGE>
VALUE OPPORTUNITY
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH DECEMBER 13, 1996
PERIOD ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT OF
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, OPERATIONS)
(UNAUDITED) 1998 1997 TO DECEMBER 31, 1996
------------- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 14.41 $ 11.92 $ 10.20 $10.00
------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.05 0.09 0.11+ 0.02+
Net realized and
change in unrealized
gain or loss on
investments.......... 1.46 2.56 3.90 0.20
------- ------- ------- ------
Total from
investment
operations........ 1.51 2.65 4.01 0.22
------- ------- ------- ------
LESS DISTRIBUTIONS:
From net investment
income............... -- (0.08) (0.10) (0.02)
From net realized
gains on investments -- (0.08) (2.19) --
------- ------- ------- ------
Total distributions -- (0.16) (2.29) (0.02)
------- ------- ------- ------
Net asset value, end
of period ........... $ 15.92 $ 14.41 $ 11.92 $10.20
======= ======= ======= ======
Total return* ........ 10.49% 22.39% 39.36% 2.15%
Net assets, end of
period (000's) ...... $80,150 $76,109 $ 9,147 $5,202
Ratio of net expenses
to average net assets 0.74%(1) 0.74% 0.75% 0.67%(1)
Ratio of net
investment income to
average net assets .. 0.76%(1) 0.93% 1.06% 2.73%(1)
Ratio of expenses
before reimbursement
and waiver to average
net assets .......... 0.74%(1) -- -- --
Portfolio turnover
rate................. 67.65% 125.72% 187.84% --
</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. 37
<PAGE>
AETNA BALANCED VP, INC.
Growth of $10,000
<TABLE>
<CAPTION>
Balanced Fund VP, Inc. Apr-89 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Jun-99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Balanced Fund VP, Inc. 10,000 10,730 11,339 13,429 14,289 15,699 15,627 19,882 22,898 28,046 32,798 34,929
Lehman Brothers Aggregate
Bond Index 10,000 11,325 12,340 14,314 15,373 16,872 16,380 19,405 20,109 22,051 23,965 23,635
S&P 500 Index 10,000 12,297 11,915 15,545 16,729 18,416 18,659 25,671 31,562 42,092 54,120 60,821
60% S&P 500 500/40%
Lehman Brothers A 10,000 11,913 12,129 15,133 16,281 17,908 17,849 23,143 26,607 32,940 40,065 42,772
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------
<S> <C> <C>
12.48% 18.20% 13.13%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA BALANCED VP, INC.
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Balanced VP, Inc. (Balanced) generated a 6.51% total return, net of fund
expenses, for the six month period ended June 30, 1999. For the same period the
benchmark, Standard & Poor's (S&P) 500 Index(a) returned 12.38%, while the
composite index, 60% S&P 500 Index/40% Lehman Brothers Aggregate Bond Index(b),
returned 6.76%.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
On the last day of June, the Federal Reserve (the "Fed") raised the Fed funds
rate - the interest rate charged on overnight loans between banks - by 0.25%.
That action says a lot about how economic conditions had developed during the
first half of the year. Earlier in the year, with 1998's financial panic and
fears of global meltdown fresh in memory, prevailing views on economic growth
and the outlook for corporate earnings were still quite cautious. It soon became
apparent that U.S. domestic demand was booming and the worst fears about the
impact of last year's financial crisis on this year's economic picture were not
being borne out.
The mood shift was reflected in a recovery in the relative performance of
cyclical stocks, as analysts' expectations for their forward earnings were
increased sharply. Small-capitalization stocks - which had fallen from grace in
the market's enthusiasm for "trophy stocks," a relative handful of globally
recognizable names - made-up some of what had been a historic performance gap
relative to large-caps. Market breadth widened as "value" themes and small-cap
ideas regained respectability with investors, within the context of what
appeared to be a much more successful global economy than had been priced in
earlier.
38 See Definition of Terms.
<PAGE>
Within the U.S. equity market, the rank order of market performance by broad
indexes during the second quarter shows the Russell 2000, Value Line, Amex, and
Dow Jones Industrials with a clear lead over the NASDAQ, NYSE Composites, and
the S&P 500. The previously out-of-favor deep cyclicals - such as non-ferrous
metals, machinery, forest products, and commodity chemicals - were among the
best-performing industry groups. At the same time, earlier stalwarts such as
technology and pharmaceuticals turned in more-modest results. Investors'
widening horizons were best expressed in the performance of overseas markets:
China, Indonesia, Malaysia, Russia, Korea, Thailand, Venezuela, Hong Kong,
Argentina, Mexico - the list of the world's leading equity market performances
during the second quarter - reads almost country-for-country like the list of
casualties during the turbulence of 1997-98. Each of these national markets
outperformed the best of the broad U.S. market indices during the quarter. Even
Japan, the habitual wet blanket of global growth, reported an eye-popping
(though suspect) economic bounce and solidly respectable equity-market returns.
The deflationary fears that still lingered at the opening of the second quarter
had dispersed well before the Fed, in its new transparent operating style, had
begun to prepare the markets for a reversal in policy. The Fed adopted and
announced, at the May meeting of its Federal Open Market Committee, a "bias"
toward raising its target rate for the cost of overnight bank reserves.
Fixed-income markets had already sensed which way the economy was going and had
anticipated that monetary policy would follow. Yield curves steepened as the
more buoyant economic outlook cast a pall over the prospects for bond market
returns. The issue under debate as the third quarter opens is whether the
freshening of global growth, which so affected market results during the spring
quarter, will continue to dominate investor sentiment and policymakers'
concerns. If so, we can expect a continuing improvement in earnings estimates
and an ongoing anxiety about an adverse shift in inflation and interest-rate
trends. If not, there may be a return to the same sort of high-quality, reliable
growth themes that provided investors with a sense of comfort last year.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
Equities
- --------
The equity portion of this portfolio is run in the "enhanced index" style, which
slightly underperformed the S&P 500 during the first half of the year. The
quantitative model used to rank the stocks in the S&P 500 did not perform well
in the first half of the year. The principal reason for this was the emphatic
rotation to deep "value" stocks that occurred in April and extended into May.
Quantitative models in general tend to have difficulty at inflection points, and
the model's behavior proved to be no exception. The strong performance of
cyclical stocks in April signaled a reversal in the market that was confirmed by
the Fed's rate hike at the end of June. The model's effectiveness has gradually
improved as the new trend has become established. One of the best-performing
stocks in the S&P 500 during the first half of the year was Nalco Chemical Co.
(maker of process chemicals). This stock provides a good illustration of what
happened to many cyclical stocks during the last six months.
. At the beginning of the year, Nalco Chemical Co. was poorly ranked (and
therefore underweight in the Portfolio) due to its declining expected earnings
and poor price momentum.
. By the end of the six-month period, its rank had improved to a middle decile
(due to better-than-expected earnings). It is now owned at a market weight in
the Portfolio.
. It is interesting to note that the actual earnings of many industrial
cyclicals are still declining; but because of the stronger world economy, the
market is pricing the stocks with an expectation for better earnings ahead.
The worst performing stock in the S&P 500 over this period was McKesson HBOC,
Inc. McKesson HBOC, Inc. started the year poorly ranked. By the end of the
quarter, it was no longer owned in the Portfolio. Among the best-performing S&P
500 industry groups were the basic materials and other deep cyclical industries.
As mentioned earlier, we were underweight many of these industries in April
because of their weak business fundamentals, but the prospect of an improving
world economy sent these stocks soaring. As expected earnings of some issues in
these industries improved, the weighting of these industries in the Portfolio
has risen.
Fixed Income
- ------------
With continued strength evident in the economy, higher-risk asset classes
continued to reverse some of the damage they suffered in the third quarter of
1998. For example, emerging-market debt and high-yield securities were the best
performers in the fixed-income arena during the first half. Mortgage-backed
securities also performed well, as rising interest rates caused prepayment fears
to abate. As interest rates increase, the likelihood of homeowners' refinancing
their mortgages decreases. The main reasons why the fixed-income allocation
outperformed its benchmark during the first six months of the year were:
See Definition of Terms. 39
<PAGE>
. The maintenance of a short duration posture. ("Duration" measures a bond's
sensitivity to increases or decreases in interest rates. The longer the
duration, the more a bond - or a bond portfolio - will be affected by rate
changes.)
. Overweighting in the high yield sector, specifically telecommunications
issuers.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Equities
- --------
For four straight months this year, the estimate-trend variable in the
stock-evaluation model has been perverse: that is, we would have had better
returns by buying stocks whose expected earnings were declining rather than
stocks whose expected earnings were rising. The market was placing much higher
value on other characteristics (such as cyclical exposure) than on expected
earnings. This has happened in the past, but normally the market will eventually
turn its attention back to earnings. In June, this estimate-trend variable was
once again very effective in discriminating between good stocks and bad stocks.
That is, in general, stocks with rising expected earnings went up in price,
while stocks with falling expected earnings went down. This might be a signal
that the most violent portion of the transition from a market priced for slow
economic growth to a market priced for faster economic growth is over.
Fixed Income
- ------------
We expect to favor lower-risk asset classes, such as Treasuries and
higher-quality corporate bonds. Uncertainty still exists as to the ultimate
degree of Fed tightening, and any protracted tightening would be negative for
the credit markets. While this defensive posture will result in giving-up a
slight amount of yield, we believe the risk/return tradeoff - combined with
current market levels - makes this an attractive posture.
LARGE CAP PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF EQUITY % OF S&P OVER/(UNDER)
SECTOR STOCKS 500 WEIGHTING
<S> <C> <C> <C>
Basic Materials 3.7% 3.3% 0.4%
Commercial Services 3.7% 1.7% 2.0%
Consumer Discretionary 14.8% 12.2% 2.6%
Consumer Non-Discretionary 4.1% 7.7% (3.6)%
Energy 6.1% 6.6% (0.5)%
Finance 16.2% 15.8% 0.4%
Healthcare 8.9% 11.1% (2.2)%
Manufacturing 11.6% 10.0% 1.6%
Technology 18.5% 21.1% (2.6)%
Utilities 12.4% 10.5% 1.9%
</TABLE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Microsoft Corp. 2.2%
General Electric Co. 1.5%
International Business Machines Corp. 1.4%
Wal-Mart Stores, Inc. 1.3%
Lucent Technologies, Inc. 1.2%
Citigroup Inc. 0.9%
Cisco Systems, Inc. 0.9%
MCI Worldcom, Inc. 0.8%
Intel Corp. 0.8%
Exxon Corp. 0.8%
</TABLE>
40 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
% OF NET
TOP FIVE INCOME HOLDINGS ASSETS
<S> <C>
U.S. Treasury Note, 6.50%, 08/15/05 2.5%
Government National Mortgage Association, 8.00%, 12/15/23 2.4%
Government National Mortgage Association, 7.50%, 12/15/23 1.8%
Federal National Mortgage Association, 6.50%, 12/01/28 1.6%
Government National Mortgage Association, 6.50%, 05/15/28 1.4%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
See Definition of Terms. 41
<PAGE>
AETNA GROWTH AND INCOME VP
Growth of $10,000
<TABLE>
<CAPTION>
Growth and Income VP Jan-89 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Jun-99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Growth and Income VP 10,000 12,907 13,334 16,854 17,984 19,196 19,002 25,130 31,277 40,626 46,512 51,142
S&P 500 Index 10,000 13,169 12,759 16,647 17,916 19,722 19,982 27,491 33,800 45,077 57,958 65,134
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------
<S> <C> <C>
11.67% 22.49% 16.12%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA GROWTH AND INCOME VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Growth and Income VP (Growth and Income) generated a 9.96% total return,
net of fund expenses, for the six month period ended June 30, 1999. The
benchmark, Standard & Poor's (S&P) 500 Index(a), returned 12.38% for the same
period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
The market's mood shifted quite dramatically from the beginning of 1999 to the
middle of the year. Earlier, with the fear of a global economic slowdown very
much the center of attention, the stocks in favor tended to be dominant growth
stocks, which could continue to make earnings gains despite a slow-growth
economy. Beginning in April, the focus shifted to fear of too-strong economic
growth and potential for the Federal Reserve to adopt a tightening bias, or
tendency to increase interest rates as the global economy showed signs of
warming. Suddenly, economically sensitive value-oriented stocks gained favor,
along with relatively inexpensive mid-cap and small-cap stocks. The lofty P/E's
(price/earnings ratio) of the favored large-cap growth stocks made them look
vulnerable in the face of increased interest rates.
<TABLE>
<CAPTION>
ASSET CLASS BENCHMARK INDEX INDEX RETURN
<S> <C> <C>
Large Company Stocks S&P 500 (a) 12.38%
Mid Company Stocks S&P MidCap 400 (c) 6.87%
Small Company Stocks Russell 2000 (d) 9.28%
International Stocks MSCI EAFE (e) 4.11%
Real Estate Stocks NAREIT Equity (f) 4.78%
Domestic Bonds Salomon Broad (g) -1.38%
Cash Equivalents U.S. 90 Day T-Bill (h) 2.24%
</TABLE>
42 See Definition of Terms.
<PAGE>
<TABLE>
<CAPTION>
% OF
ASSET ALLOCATION: INVESTMENT NOTIONAL VALUE* ECONOMIC EXPOSURE*
ASSET CLASS 06/30/99 OF FUTURES OF OPTIONS 06/30/99 12/31/98
<S> <C> <C> <C> <C> <C>
Large Cap Stocks 80.5% 1.5% -- 82.0% 78.4%
Mid Cap Stocks 2.1% -- (0.4)% 1.7% 2.7%
Small Cap Stocks 2.3% 0.1% (1.6)% 0.8% 2.3%
International Stocks 5.4% -- -- 5.4% 4.2%
International Bonds 0.1% -- -- 0.1% 0.1%
Real Estate Stocks 3.2% -- -- 3.2% 4.4%
Convertible Securities 1.1% -- -- 1.1% 1.0%
Special Situations** 2.3% 0.3% -- 2.6% 2.5%
Cash Equivalents 3.0% (1.9)% 2.0% 3.1% 4.4%
---------------------------------------------------------
100.0% -- -- 100.0% 100.0%
=========================================================
</TABLE>
* Notional value refers to the economic value at risk or the exposure to the
financial instruments underlying the options and futures positions. Economic
exposure reflects the Fund's exposure to both changes in the value of the
portfolio of investments as well as the financial instruments underlying the
options and futures positions.
** The special situations category was created to take advantage of investment
opportunities which are "special" in the sense that they do not fit well into
our normal valuation and modeling framework. The largest category within this
group is initial public offerings, but other categories include spin-offs, newly
created securities and stocks of companies which derive their value from
something other than current assets, earnings and dividends.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
Our approach has been to position the Portfolio defensively by favoring good
relative value and very broad diversification. This strategy performed poorly
early in the year, when a few large cap growth stocks dominated the market, but
worked quite well later when sentiment shifted back towards relative value. For
the full six month period, the Portfolio's performance trailed the S&P 500
Index, which, fueled by the advances of large-cap stocks early in the period,
far outpaced other equity asset classes. For example, for the six months ended
June 30, 1999, the S&P 500 returned 12.38%, while the S&P MidCap 400 returned
only 6.87%, and the S&P SmallCap 600(i) return was a relatively paltry 5.03%.
Of course, industry and individual stock positions also help explain performance
over the past six months. For example, the Portfolio's overweight position in
consumer discretionary stocks had a negative impact on its performance relative
to the S&P 500. In particular, rising mortgage rates caused many of the
homebuilding stocks owned in the Portfolio to underperform despite their very
cheap prices.
Although we were more-or-less market weight in technology stocks over the past
six months, the technology stocks that we owned were often not those most in
favor. Our valuation disciplines tend to orient us toward stocks with earnings,
for example, but for much of the past six months, internet stocks soared upwards
despite often having little or no earnings nor near-term prospects for earnings.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We still believe that many of the large cap growth stocks, which dominate the
S&P 500, are quite richly priced relative to most other equities. Nonetheless,
we significantly decreased our allocation to small-cap stocks during the past
six months. This move was influenced by two factors:
. First, the unusual divergence of return between large and small-cap stocks has
increased the risk of being overweight in small-cap stocks.
. Second, current market conditions seem likely to continue to favor large-cap
stocks over small-caps. For example, credit spreads (the yield difference
between corporate and U.S. Treasury bonds) are unusually wide. Our research
has shown that during periods when credit spreads are wide, investors are
nervous, and they tend to prefer larger-cap stocks to smaller-cap stocks. In
addition, when market leadership within the S&P 500 is narrow (with a few
stocks garnering most of the price appreciation), the trend tends to persist
for some time.
We will be watching for a change in market conditions as a signal to take
advantage of the attractive valuation in smaller-cap stocks.
See Definition of Terms. 43
<PAGE>
Value-oriented stocks have rarely been as cheap relative to growth-oriented
stocks as they are today. In addition, the economic and market environment
appears favorable for value stocks. Economic growth is strong, and expectations
for corporate earnings have rarely risen as quickly as they have over the past
several months in reaction to stronger-than-expected first-quarter earnings and
rising expectations regarding second-quarter earnings. ("Value" companies are
what investors see as good buys; their stock price looks cheap in relation to
earnings and assets. "Growth" companies have rapidly growing earnings and
profits and are expected to increase them into the future.) We are especially
emphasizing value at this time, although we find that through careful stock
selection we can still maintain a portfolio which has a higher average rate of
earnings growth than the S&P 500.
In general, the U.S. equity market looks overpriced to us. Relative to bond
yields, the consensus forward earnings yield on the S&P 500 has not been this
low since the summer of 1987. (Earnings yield is earnings divided by price, so a
low earnings yield means that prices are high relative to earnings.) In
addition, two short-term tactical indicators adding to our concern about the
equity market are: 1) interest rates, which appear likely to continue to
increase; and 2) investor sentiment, which is unusually bullish.
In response to the high valuation of the S&P 500, we have increased the
Portfolio's cash holdings modestly -- to roughly 8%-10%.
LARGE CAP PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF
COMMON % OF S&P OVER/(UNDER)
SECTOR STOCKS 500 WEIGHTING
<S> <C> <C> <C>
Basic Materials 2.4% 3.3% (0.9)%
Commercial Services 2.0% 1.7% 0.3%
Consumer Discretionary 20.8% 12.2% 8.6%
Consumer Non-Discretionary 2.2% 7.7% (5.5)%
Energy 6.2% 6.6% (0.4)%
Finance 14.7% 15.8% (1.1)%
Healthcare 10.6% 11.1% (0.5)%
Manufacturing 12.1% 10.0% 2.1%
Technology 19.9% 21.1% (1.2)%
Utilities 9.1% 10.5% (1.4)%
</TABLE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Microsoft Corp. 3.3%
Intel Corp. 2.6%
Bristol-Myers Squibb Co. 2.3%
Johnson & Johnson 2.2%
Hewlett Packard Co. 2.2%
TJX Companies, Inc. 2.1%
Chase Manhattan Corp. 1.9%
Lowe's Co., Inc. 1.7%
Ford Motor Co. 1.6%
Citigroup Inc. 1.6%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
44 See Definition of Terms.
<PAGE>
AETNA REAL ESTATE SECURITIES VP
Growth of $10,000
<TABLE>
<CAPTION>
Real Estate VP 12/15/97 12/31/97 12/31/98 06/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Real Estate VP 10,000 10,363 10,343 9,960 9,217 9,031 8,513 9,585
NAREIT Equity REIT Index 10,000 10,236 10,188 9,720 8,698 8,444 8,037 8,848
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date 1 Year Inception
- ---------------------------------------
<S> <C> <C>
12/15/97 -3.78% -2.72%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA REAL ESTATE SECURITIES VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Real Estate Securities VP (Real Estate) generated a 6.12% total return,
net of fund expenses, for the six month period ended June 30, 1999. The
benchmark, NAREIT Equity REIT Index(f), returned 4.78% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
After disappointing returns in 1998, real estate securities have enjoyed
positive returns in 1999, driven by the following factors:
. Interest-Rate Concerns: REITs (Real Estate Investment Trusts) are generally
less leveraged than in past cycles, and they have mostly fixed-rate debt on
their balance sheets, which partially mitigates the traditional concern
regarding interest rates and REITs. On the other hand, because REITs are often
viewed as growth-and-income investments, rising interest rates could make
REITs less attractive to investors seeking yield.
. Equity-Market Volatility: During the second quarter, investors' concerns about
slowing economic growth sparked a rotation in the equity markets from growth
stocks to value stocks. REITs had been trading at historically large discounts
to their underlying net asset value, benefited from this broadening of the
market. Additionally, high-profile value investors investing in REITs helped
draw attention to the sector during April.
. U.S. Currency Strength: REITs are generally focused on the U.S., with
virtually no direct impact to currency fluctuations.
See Definition of Terms. 45
<PAGE>
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
There were several investments which made a positive contribution to the
Portfolio:
. A large overweighting in the multifamily sector of the industry contributed
positively to performance; apartment REITs - Essex Property Trust, Inc.,
Camden Property Trust, and Apartment Investment & Management Co. in particular
- helped performance during the period.
. Increasing the Portfolio's exposure to office REITs, from neutral to
overweight, made a positive contribution.
. Larger-capitalization REIT stocks (those with market capitalization greater
than $1.5 billion) led the April recovery in the sector and enhanced portfolio
performance.
At the same time, there were several investments that had a negative influence:
. Although the Portfolio decreased its exposure to hotels, its exposure to the
sector was a drag on relative performance. An underweight exposure to Host
Marriott Corp., which elected REIT status beginning in 1999, contributed to
this effect.
. Exposure to the health-care sector, which faces uncertainty due to potential
government reimbursement cutbacks to nursing-home operators, was a modest drag
on performance during the period.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Given expectations of a stable national economy, most property types are
expected to operate under equilibrium conditions over the next 18 months with
moderate levels of new construction accompanied by healthy demand for space. The
outlook for real estate stocks appears favorable, though the exceptional
performance enjoyed early in the real estate recovery phase of the REIT cycle is
not likely to be repeated. Given the dramatic correction during 1998 and current
valuations averaging 6% below NAV, we believe REITs should provide attractive
total returns on a risk-adjusted basis. We believe the average 7% current
dividend yield plus earnings growth of 4% to 7% per share should provide
positive total returns. As real estate continues to operate in an equilibrium
environment with limited property-acquisition opportunities, we favor companies
with strong balance sheets, ample financial flexibility, strong internal growth
potential, development expertise, and ancillary sources of revenue.
The Portfolio invests in real estate investment securities that involve certain
risks including management skills, changes in general or regional economy,
changes in property value and refinancing.
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Equity Office Properties Trust 5.5%
PS Business Parks, Inc. 4.7%
Camden Property Trust 4.6%
Apartment Investment & Management Co. 4.5%
Equity Residential Properties Trust 4.5%
Essex Property Trust, Inc. 4.2%
CBL & Associates Properties, Inc. 4.1%
Health Care REIT, Inc. 3.7%
Kimco Realty Corp. 3.4%
Post Properties, Inc. 3.3%
</TABLE>
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Portfolio are subject to change.
46 See Definition of Terms.
<PAGE>
DEFINITION OF TERMS
(a) The S&P 500 is the Standard & Poor's 500 Index. Performance is calculated on
a total return basis and dividends are reinvested, as reported by Frank
Russell Company.
(b) The Lehman Brothers Aggregate Bond Index is an unmanaged index and is
composed of securities from Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index and the Asset-Backed Securities Index.
(c) The Standard & Poor's (S&P) MidCap 400 Index is an unmanaged index used to
measure stock market performance composed of companies with a weighted
average market value of $3.6 billion. Performance is calculated on a total
return basis and dividends are reinvested, as reported by Frank Russell
Company.
(d) The Russell 2000 Index consists of the smallest 2,000 of the 3,000 largest
companies, based on market capitalization.
(e) The MSCI EAFE Index (Morgan Stanley Capital International-Europe, Australia
and Far East) is a market value-weighted average of the performance of more
than 900 securities listed on the stock exchanges of countries in Europe,
Australia and the Far East. Performance is calculated on a total return
basis, as reported by Frank Russell Company.
(f) The NAREIT Equity REIT Index is a market weighted total return of all
tax-qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System as reported by Frank Russell
Company.
(g) Salomon Smith Barney 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.
(h) Three-month Treasury bills are backed by full faith and credit of the U.S.
Government, short-term investments are equivalent to cash because their
maturity is only three months.
(i) The Standard & Poor's (S&P) SmallCap 600 Index is an unmanaged index used to
measure stock market performance composed of companies with a weighted
average market value of $903 million. Performance is calculated on a total
return basis and dividends are reinvested, as reported by Frank Russell
Company.
These are unmanaged indices and are not available for individual investment.
47
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
BALANCED
<TABLE>
<CAPTION>
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
<S> <C> <C>
COMMON STOCKS ( 58.2% )
AIR TRANSPORT ( 0.5% )
Airborne Freight Corp. ......... 16,200 $ 448,538
America West Holdings Corp. + .. 272,800 5,149,100
AMR Corp. + .................... 6,700 457,275
Delta Air Lines, Inc. .......... 11,600 668,450
FDX Corp. Holding Co. + ........ 28,640 1,553,720
Midwest Express Holdings, Inc. + 26,950 916,300
Southwest Airlines Co. ......... 31,425 978,103
US Airways Group, Inc. + ....... 3,200 139,400
-----------------
10,310,886
-----------------
ALUMINUM ( 0.1% )
Alcoa Inc. ..................... 29,400 1,819,125
Reynolds Metals Co. ............ 7,600 448,400
-----------------
2,267,525
-----------------
AUTO PARTS AND HARDWARE ( 0.2% )
Black & Decker Corp. ........... 4,900 309,312
Cooper Tire & Rubber Co. ....... 8,200 193,725
Genuine Parts Co. .............. 18,700 654,500
Goodyear Tire & Rubber Co. (The) 15,200 893,950
Snap-On, Inc. .................. 8,500 307,594
Standard Motor Products, Inc. .. 24,500 600,250
Stanley Works (The) ............ 8,900 286,469
Wynn's International, Inc. ..... 30,875 569,258
-----------------
3,815,058
-----------------
AUTOMOTIVE ( 0.9% )
Dana Corp. ..................... 20,882 961,877
Delphi Automotive Systems Corp. 53,888 1,000,287
Eaton Corp. .................... 6,700 616,400
Ford Motor Co. ................. 138,900 7,839,169
General Motors Corp. + ......... 77,100 5,088,600
Johnson Controls, Inc. ......... 8,700 603,019
Monaco Coach Corp. + ........... 37,650 1,593,066
TRW, Inc. ...................... 12,500 685,937
-----------------
18,388,355
-----------------
BANKS AND THRIFTS ( 3.9% )
AmSouth Bancorporation ......... 17,250 399,984
Bank of America Corp. .......... 179,206 13,138,040
Bank of New York Co., Inc. ..... 63,700 2,336,994
Bank One Corp. ................. 93,600 5,575,050
BankBoston Corp. ............... 22,800 1,165,650
BB&T Corp. ..................... 27,600 1,012,575
Chase Manhattan Corp. .......... 92,800 8,038,800
Citizens Banking Corp. ......... 92,400 2,777,775
Comerica, Inc. ................. 13,250 787,547
Fifth Third Bancorp ............ 21,400 1,424,437
First Republic Bank + .......... 19,800 572,963
Firstar Corp. .................. 78,400 2,195,200
FirstFed Financial Corp. + ..... 49,600 954,800
Fleet Financial Group, Inc. ... 67,600 2,999,750
Flushing Financial Corp. ....... 43,850 674,194
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
BANKS AND THRIFTS (CONTINUED)
Golden State Bancorp, Inc. ..... 36,600 $ 805,200
Golden West Financial Corp. .... 5,500 539,000
Harbor Florida Bancshares, Inc. 254,400 3,116,400
Huntington Bancshares Inc. ..... 20,570 719,950
J.P. Morgan & Co. .............. 20,800 2,922,400
KeyCorp ........................ 44,400 1,426,350
Mellon Bank Corp. .............. 43,400 1,578,675
Mercantile Bancorporation, Inc. 12,800 731,200
National City Corp. ............ 24,700 1,617,850
Northern Trust Corp. ........... 11,200 1,086,400
PNC Bank Corp. ................. 24,800 1,429,100
Regions Financial Corp. ........ 18,200 699,562
Republic New York Corp. ........ 3,600 245,475
Republic Security Financial
Corp........................... 75,300 630,637
SouthTrust Corp. ............... 12,800 491,200
State Street Corp. ............. 14,400 1,229,400
Summit Bancorp ................. 17,700 740,081
Suntrust Banks, Inc. ........... 25,200 1,749,825
Synovus Financial Corp. ........ 21,500 427,313
U.S. Bancorp ................... 57,800 1,965,200
Union Planters Co. ............. 11,000 491,563
Wachovia Corp. ................. 17,600 1,505,900
Washington Mutual, Inc. ........ 50,478 1,785,659
Wells Fargo & Co. .............. 128,400 5,489,100
-----------------
77,477,199
-----------------
BIOTECH AND MEDICAL PRODUCTS ( 0.6% )
Amgen, Inc. + .................. 51,200 3,116,800
Becton, Dickinson & Co. ........ 20,100 603,000
Biomet, Inc. ................... 11,500 457,125
Boston Scientific Corp. + ...... 45,200 1,985,975
Guidant Corp. .................. 24,200 1,244,788
Medtronic, Inc. ................ 23,100 1,798,912
VISX, Inc. + ................... 30,400 2,407,300
-----------------
11,613,900
-----------------
CHEMICALS ( 0.6% )
Dow Chemical Co. ............... 17,400 2,207,625
Du Pont (E.I.) de Nemours ...... 89,100 6,086,644
Eastman Chemical Co. ........... 3,200 165,600
Hercules, Inc. ................. 9,200 361,675
Monsanto Co. ................... 47,100 1,857,506
Rohm & Haas Co. ................ 24,437 1,047,720
Union Carbide Corp. ............ 4,500 219,375
-----------------
11,946,145
-----------------
COMMERCIAL SERVICES ( 0.5% )
ADVO, Inc. + ................... 42,300 877,725
Bell & Howell Co. + ............ 23,300 881,031
Copart, Inc. + ................. 83,900 1,782,875
Deluxe Corp. ................... 8,600 334,863
Interpublic Group of Co., Inc.
(The).......................... 12,800 1,108,800
Lason, Inc. + .................. 19,400 962,725
Mail-Well, Inc. + .............. 57,200 925,925
48 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
COMMERCIAL SERVICES (CONTINUED)
Omnicom Group, Inc. ............ 13,900 $ 1,112,000
Paychex, Inc. .................. 21,300 678,937
RCM Technologies, Inc. + ....... 48,200 638,650
RR Donnelley & Sons Co. ........ 14,400 533,700
World Color Press, Inc. + ...... 20,600 566,500
-----------------
10,403,731
-----------------
COMPUTERS ( 2.8% )
Apple Computer, Inc. + ......... 19,400 898,463
Dell Computer Corp. + .......... 196,800 7,281,600
Gateway 2000, Inc. + ........... 12,900 761,100
Hewlett Packard Co. ............ 120,300 12,090,150
International Business Machines
Corp........................... 214,200 27,685,350
Sun Microsystems, Inc. + ....... 83,900 5,778,612
Unisys Corp. + ................. 31,800 1,238,212
-----------------
55,733,487
-----------------
CONGLOMERATE AND AEROSPACE ( 2.2% )
Alliant Techsystems Inc. + ..... 21,100 1,825,150
Aviall, Inc. + ................. 51,600 970,725
Boeing Co. ..................... 77,200 3,411,275
Crane Co. ...................... 9,000 282,938
General Dynamics Corp. ......... 13,200 904,200
General Electric Co. ........... 258,500 29,210,500
Kroll O' Gara Co. (The) + ...... 43,300 955,306
Raytheon Co. ................... 23,800 1,674,925
Textron, Inc. .................. 13,600 1,119,450
Triumph Group, Inc. + .......... 28,500 726,750
United Technologies Corp. ...... 35,000 2,509,062
-----------------
43,590,281
-----------------
CONSUMER FINANCE ( 1.3% )
Associates First Capital Corp. . 57,138 2,531,928
Avis Rent A Car, Inc. + ........ 43,800 1,275,675
Capital One Financial Corp. .... 14,700 818,606
Countrywide Credit Industries,
Inc............................ 11,100 474,525
Doral Financial Corp. .......... 73,700 1,271,325
Federal Home Loan Mortgage Corp. 73,700 4,274,600
Federal National Mortgage
Association.................... 79,400 5,428,975
First Sierra Financial, Inc. + . 155,200 3,880,000
Household International, Inc. .. 33,600 1,591,800
MBNA Corp. ..................... 60,375 1,848,984
Rollins Truck Leasing Corp. .... 85,500 951,187
Ryder System, Inc. ............. 6,600 171,600
SLM Holding Corp. .............. 15,000 687,188
-----------------
25,206,393
-----------------
CONSUMER PRODUCTS ( 0.9% )
Avon Products, Inc. ............ 26,000 1,443,000
Clorox Co. ..................... 10,100 1,078,806
Colgate-Palmolive Co. .......... 21,900 2,162,625
International Flavors &
Fragrances, Inc. .............. 4,300 190,813
Kimberly-Clark Corp. ........... 48,100 2,741,700
Procter & Gamble Co. ........... 101,500 9,058,875
-----------------
16,675,819
-----------------
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
CONSUMER SERVICES ( 1.0% )
Brinker International, Inc. + .. 23,000 $ 625,313
Buffets, Inc. + ................ 66,500 764,750
Carnival Corp. ................. 24,200 1,173,700
CEC Entertainment, Inc. + ...... 29,800 1,259,050
Cendant Corp. + ................ 32,000 656,000
Darden Restaurants, Inc. ....... 14,700 320,644
Foodmaker, Inc. + .............. 47,300 1,342,137
H&R Block, Inc. ................ 9,000 450,000
Hilton Hotels Corp. ............ 9,700 137,619
IHOP Corp. + ................... 92,500 2,225,781
Marriott International, Inc. ... 12,400 463,450
McDonald's Corp. ............... 107,400 4,436,962
O'Charleys, Inc. + ............. 49,750 796,000
Prime Hospitality Corp. + ...... 281,400 3,376,800
Taco Cabana, Inc. + ............ 101,100 1,029,956
Tricon Global Restaurants, Inc.
+.............................. 15,680 848,680
Veterinary Centers of America,
Inc. + ........................ 43,800 594,038
-----------------
20,500,880
-----------------
CONSUMER SPECIALTIES ( 0.2% )
Brunswick Corp. ................ 10,200 284,325
Hasbro, Inc. ................... 19,950 557,353
Mattel, Inc. ................... 8,800 232,650
Steinway Musical Instruments,
Inc. + ........................ 22,700 601,550
THQ, Inc. + .................... 55,400 1,592,750
-----------------
3,268,628
-----------------
DATA AND IMAGING SERVICES ( 5.6% )
3Com Corp. + ................... 29,400 784,612
Advanced Digital Information
Corp. + ....................... 72,400 2,932,200
America Online, Inc. ........... 85,900 9,491,950
American Management Systems,
Inc. + ........................ 29,500 945,844
Automatic Data Processing, Inc. 49,800 2,191,200
BMC Software, Inc. + ........... 16,800 907,200
Ceridian Corp. + ............... 14,600 477,238
Cisco Systems, Inc. + .......... 261,700 16,879,650
Computer Associates
International, Inc. ........... 41,600 2,288,000
Computer Sciences Corp. + ...... 12,700 878,681
Computer Task Group, Inc. ...... 31,800 540,600
Compuware Corp. + .............. 28,400 903,475
Eastman Kodak Co. .............. 26,600 1,802,150
Electronic Data Systems Corp. .. 42,000 2,375,625
EMC Corp. + .................... 116,400 6,402,000
First Data Corp. ............... 37,800 1,849,837
Fundtech Ltd. + ................ 68,000 1,763,750
Harbinger Corp. + .............. 76,200 952,500
Intergraph Corp. + ............. 430,800 3,338,700
JDA Software Group, Inc. + ..... 137,500 1,280,469
Microsoft Corp. + .............. 487,200 43,939,350
Novell, Inc. + ................. 30,700 813,550
Oracle Corp. + ................. 111,700 4,146,862
Peregrine Systems, Inc. + ...... 31,600 811,725
Pinnacle Systems, Inc. + ....... 40,200 1,351,725
See Notes to Portfolio of Investments. 49
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
BALANCED (continued)
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
DATA AND IMAGING SERVICES (CONTINUED)
Seagate Technology, Inc. + ..... 20,700 $ 530,438
-----------------
110,579,331
-----------------
DISCRETIONARY RETAIL ( 4.0% )
AutoZone, Inc. + ............... 15,900 478,988
Central Garden & Pet Co. + ..... 218,600 2,240,650
Circuit City Stores, Inc. ...... 10,400 967,200
Costco Companies, Inc. + ....... 24,700 1,977,544
CSK Auto Corp. + ............... 33,600 907,200
Dayton Hudson Co. .............. 35,900 2,333,500
Dillards, Inc. ................. 11,600 407,450
Dollar General Corp. ........... 23,000 667,000
Dress Barn, Inc. + ............. 235,400 3,766,400
Federated Department Stores,
Inc. + ........................ 20,400 1,079,925
Gap, Inc. ...................... 99,375 5,006,016
Genesco Inc. + ................. 147,700 2,150,881
Home Depot, Inc. ............... 165,700 10,677,294
Insight Enterprises, Inc. + .... 49,575 1,226,981
J.C. Penney Co., Inc. .......... 7,600 369,075
Kmart Corp. + .................. 51,000 838,313
Kohl's Corp. + ................. 13,500 1,042,031
Linens 'n Things, Inc. + ....... 45,300 1,981,875
Lowe's Co., Inc. ............... 40,600 2,301,512
May Department Stores Co. ...... 34,800 1,422,450
Nordstrom, Inc. ................ 15,800 529,300
RARE Hospitality International,
Inc. + ........................ 37,900 966,450
Regis Corp. .................... 40,800 782,850
Sears, Roebuck & Co. ........... 33,400 1,488,387
Staples, Inc. + ................ 48,600 1,503,562
Tandy Corp. .................... 24,200 1,182,775
The Limited, Inc. .............. 26,100 1,184,288
TJX Companies, Inc. ............ 46,000 1,532,375
Toys "R" Us, Inc. + ............ 11,200 231,700
Tweeter Home Entertainment Group
+.............................. 40,300 1,581,775
Wal-Mart Stores, Inc. .......... 517,800 24,983,850
Zale Corp. + ................... 37,600 1,504,000
-----------------
79,313,597
-----------------
DIVERSIFIED FINANCIAL SERVICES ( 1.3% )
American Express Co. ........... 33,900 4,411,237
Citigroup Inc. ................. 392,550 18,646,125
Providian Financial Corp. ...... 14,550 1,360,425
Resource America, Inc. ......... 67,900 984,550
Transamerica Corp. ............. 13,200 990,000
-----------------
26,392,337
-----------------
DRUGS ( 4.2% )
Abbott Laboratories ............ 117,700 5,355,350
Allergan, Inc. ................. 7,700 854,700
American Home Products Corp. ... 98,800 5,681,000
Baxter International, Inc. ..... 26,700 1,618,687
Bristol-Myers Squibb Co. ....... 200,200 14,101,587
Eli Lilly & Co. ................ 89,400 6,403,275
Johnson & Johnson .............. 142,000 13,916,000
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
DRUGS (CONTINUED)
Jones Medical Industries, Inc. . 24,900 $ 980,438
Medicis Pharmaceutical Corp. + . 31,300 794,238
Merck & Co., Inc. .............. 177,100 13,105,400
Pfizer, Inc. ................... 50,200 5,509,450
Pharmacia & Upjohn, Inc. ....... 45,100 2,562,244
Roberts Pharmaceutical Corp. + . 28,900 700,825
Schering Plough ................ 116,300 6,163,900
Warner Lambert Co. ............. 63,500 4,405,312
-----------------
82,152,406
-----------------
ELECTRIC UTILITIES ( 1.4% )
AES Corp. + .................... 14,900 866,062
Ameren Corp. ................... 10,600 406,775
American Electric Power Co. .... 12,800 480,800
Black Hills Corp. .............. 26,500 612,813
Carolina Power & Light Co. ..... 15,000 642,188
Central & South West Corp. ..... 18,500 432,438
Central Hudson Gas & Electric
Co............................. 31,100 1,306,200
Cinergy Corp. .................. 16,900 540,800
Cleco Corp. .................... 21,800 662,175
Consolidated Edison, Inc. ...... 24,300 1,099,575
Constellation Energy Group ..... 15,300 453,263
Dominion Resources, Inc. ....... 19,400 840,262
DTE Energy Co. ................. 21,500 860,000
Duke Energy Corp. .............. 30,500 1,658,437
Edison International ........... 30,200 807,850
Empire District Electric Co. ... 27,000 703,688
Entergy Corp. .................. 20,000 625,000
FirstEnergy Corp. .............. 15,000 465,000
FPL Group, Inc. ................ 14,500 792,062
GPU, Inc. ...................... 12,500 527,344
Independent Energy Holdings + .. 77,700 1,058,662
Northern States Power Co. ...... 15,400 372,488
Peco Energy Co. ................ 25,600 1,072,000
PG&E Corp. ..................... 36,200 1,176,500
PP&L Resources, Inc. ........... 17,100 525,825
Public Service Enterprise Group,
Inc............................ 23,100 944,212
Reliant Energy Inc. ............ 26,300 726,538
Southern Co. ................... 59,600 1,579,400
Texas Utilities Co. ............ 24,000 990,000
Unicom Corp. ................... 18,500 713,406
UniSource Energy Corp. + ....... 302,700 3,613,481
-----------------
27,555,244
-----------------
ELECTRICAL MACHINERY AND INSTRUMENTS ( 0.4% )
Harris Corp. ................... 10,800 423,225
Mettler-Toledo International,
Inc. + ........................ 43,000 1,066,937
PE Corp-PE Biosystems Group .... 5,100 585,225
Pitney Bowes, Inc. ............. 23,400 1,503,450
Rockwell International Corp. ... 16,200 984,150
Xerox Corp. .................... 54,000 3,189,375
-----------------
7,752,362
-----------------
50 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
ELECTRONIC MEDIA ( 1.1% )
Ascent Entertainment Group, Inc.
+.............................. 262,300 $ 3,704,987
CBS Corp. + .................... 56,400 2,449,875
Citadel Communications Corp. + . 38,000 1,375,125
Comcast Corp. .................. 62,200 2,390,813
International Speedway Corp. ... 30,300 1,439,250
Mediaone Group, Inc. + ......... 45,500 3,384,062
Time Warner, Inc. .............. 89,600 6,585,600
Viacom, Inc. + ................. 22,300 981,200
-----------------
22,310,912
-----------------
FOOD AND BEVERAGE ( 1.6% )
Anheuser-Busch Co., Inc. ....... 52,400 3,717,125
Archer-Daniels-Midland Co. ..... 18,115 279,650
Beringer Wine Estates Holdings,
Inc. + ........................ 15,500 647,609
Bestfoods ...................... 27,600 1,366,200
Brown-Forman Corp. + ........... 7,000 456,313
Canandiagua Brands, Inc. + ..... 19,300 1,012,044
Coca-Cola Co. .................. 127,800 7,987,500
Conagra, Inc. .................. 41,700 1,110,262
Coors (Adolph) Co. ............. 5,000 247,500
Earthgrains Co. (The) .......... 24,600 634,988
Fortune Brands, Inc. ........... 16,800 695,100
General Mills, Inc. ............ 16,000 1,286,000
Heinz (H.J.) Co. ............... 27,000 1,353,375
Kellogg Co. .................... 31,100 1,026,300
Pioneer Hi-Bred International,
Inc............................ 20,100 782,644
Quaker Oats Co. ................ 14,800 982,350
Ralston-Ralston Purina Group ... 26,400 803,550
Robert Mondavi Corp. + ......... 20,500 745,687
Sara Lee Corp. ................. 73,300 1,662,994
Unilever NV .................... 42,768 2,983,058
Wrigley (Wm.) Jr. Co. .......... 9,300 837,000
-----------------
30,617,249
-----------------
FOOD AND DRUG RETAIL ( 0.8% )
Albertson's, Inc. .............. 40,357 2,080,908
Casey's General Stores, Inc. ... 161,400 2,421,000
CVS Corp. ...................... 35,800 1,816,850
Kroger Co. (The) + ............. 77,400 2,162,363
Safeway, Inc. + ................ 52,000 2,574,000
SUPERVALU, Inc. ................ 16,400 421,275
Sysco Corp. .................... 25,200 751,275
Walgreen Co. ................... 100,200 2,943,375
Winn-Dixie Stores, Inc. ........ 5,100 188,381
-----------------
15,359,427
-----------------
FOREST PRODUCTS AND BUILDING MATERIALS ( 0.8% )
Armstrong World Industries, Inc. 4,200 242,813
Bemis Co., Inc. ................ 5,500 218,625
Centex Construction Products,
Inc............................ 27,000 921,375
Crown Cork & Seal Co., Inc. .... 12,200 347,700
Elcor Corp. .................... 55,200 2,411,550
Fort James Corp. ............... 18,700 708,263
Georgia-Pacific Corp. .......... 17,600 833,800
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
FOREST PRODUCTS AND BUILDING MATERIALS (CONTINUED)
International Paper Co. ........ 31,000 $ 1,565,500
Masco Corp. .................... 30,300 874,912
Mead Corp. ..................... 10,200 425,850
Potlatch Corp. ................. 52,300 2,297,931
Simpson Manufacturing Co., Inc.
+.............................. 17,900 850,250
Texas Industries, Inc. ......... 68,700 2,662,125
Westvaco Corp. ................. 10,600 307,400
Weyerhaeuser Co. ............... 16,400 1,127,500
-----------------
15,795,594
-----------------
GAS UTILITIES ( 0.4% )
Coastal Corp. (The) ............ 18,100 724,000
Columbia Energy Group .......... 8,700 545,381
Consolidated Natural Gas Co. ... 9,300 564,975
Enron Corp. .................... 23,900 1,953,825
NICOR, Inc. .................... 5,100 194,119
Piedmont Natural Gas, Inc. ..... 23,000 715,875
Sempra Energy .................. 20,400 461,550
Southwest Gas Corp. ............ 38,800 1,110,650
Williams Co., Inc. (The) ....... 16,700 710,794
-----------------
6,981,169
-----------------
HEALTH SERVICES ( 0.5% )
Cardinal Health, Inc. .......... 16,300 1,045,238
Columbia/HCA Healthcare Corp. .. 48,200 1,099,562
HEALTHSOUTH Corp. + ............ 13,600 203,150
IMS Health, Inc. ............... 33,401 1,043,761
MedPartners, Inc. + ........... 515,300 3,896,956
Priority Healthcare Corp. + .... 20,698 714,058
United Healthcare Corp. ........ 17,000 1,064,625
-----------------
9,067,350
-----------------
HEAVY MACHINERY ( 0.3% )
Caterpillar, Inc. .............. 27,600 1,656,000
Cummins Engine Co., Inc. ....... 6,800 388,450
Manitowoc Co., Inc. (The) ...... 51,300 2,135,363
Navistar International Corp. + . 12,500 625,000
PACCAR, Inc. ................... 12,600 672,525
-----------------
5,477,338
-----------------
HOUSING AND FURNISHINGS ( 0.6% )
Centex Corp. ................... 7,800 292,988
Champion Enterprises, Inc. + ... 40,200 748,725
Fairfield Communities, Inc. + .. 131,200 2,115,600
Kaufman & Broad Home Corp. ..... 46,900 1,166,637
Libbey Inc. .................... 42,300 1,226,700
Maytag Corp. ................... 10,400 724,750
MDC Holdings, Inc. ............. 49,000 1,053,500
Newell Rubbermaid Inc. ......... 15,800 734,700
Ryland Group, Inc. ............. 42,400 1,258,750
Webb (Del E) Corp. ............. 111,900 2,671,612
Whirlpool Corp. ................ 7,400 547,600
-----------------
12,541,562
-----------------
See Notes to Portfolio of Investments. 51
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
BALANCED (continued)
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
INDUSTRIAL SERVICES ( 0.6% )
Browning-Ferris Industries, Inc. 21,300 $ 915,900
Dycom Industries, Inc. + ....... 26,000 1,456,000
Granite Construction, Inc. ..... 48,100 1,409,931
Insituform Technologies, Inc. + 169,300 3,661,113
Jacobs Engineering Group, Inc. + 26,800 1,018,400
USA Waste Management, Inc. ..... 49,700 2,671,375
-----------------
11,132,719
-----------------
INSURANCE ( 2.0% )
AFLAC, Inc. .................... 27,400 1,311,775
Allstate Corp. (The) ........... 65,000 2,331,875
American Annuity Group, Inc. ... 42,400 1,028,200
American General Corp. ......... 20,200 1,522,575
American International Group,
Inc............................ 92,500 10,828,281
Aon Corp. ...................... 25,200 1,039,500
Chubb Corp. .................... 5,300 368,350
CIGNA Corp. .................... 15,500 1,379,500
Cincinnati Financial Corp. ..... 16,800 631,050
Conseco, Inc. .................. 30,000 913,125
FBL Financial Group, Inc. ...... 50,800 990,600
Fidelity National Financial,
Inc............................ 38,789 814,569
Gallagher (Arthur J.) & Co. .... 19,300 955,350
Hartford Financial Services
Group, Inc. ................... 22,200 1,294,538
Hooper Holmes, Inc. ............ 102,000 2,078,250
Jefferson-Pilot Corp. .......... 11,100 734,681
Lincoln National Corp. ......... 20,600 1,077,638
Marsh & McLennan Co., Inc. ..... 28,900 2,181,950
MBIA, Inc. ..................... 11,100 718,725
Medical Assurance, Inc. + ...... 25,160 710,770
MGIC Investment Corp. .......... 9,700 471,663
Progressive Corp. .............. 2,700 391,500
Provident American Corp. + ..... 74,700 2,082,262
Provident Companies, Inc. ...... 11,500 460,000
Radian Group Inc. .............. 23,300 1,137,331
Safeco Corp. ................... 4,800 211,800
St. Paul Co., Inc. ............. 8,030 255,454
Torchmark Corp. ................ 13,200 450,450
Triad Guaranty, Inc. + ......... 34,800 624,225
UNUM Corp. ..................... 12,300 673,425
-----------------
39,669,412
-----------------
INVESTMENT SERVICES ( 0.9% )
Bear Stearns Co., Inc. (The) ... 3,885 181,624
Charles Schwab Corp. ........... 43,100 4,735,612
Duff & Phelps Credit Rating Co. 18,800 1,257,250
Franklin Resources, Inc. ....... 8,800 357,500
Lehman Brothers Holdings Inc. .. 13,400 834,150
Merrill Lynch & Co., Inc. ...... 35,100 2,805,806
Morgan Stanley Dean Witter & Co. 62,800 6,437,000
National Discount Brokers Group,
Inc. + ........................ 5,100 295,800
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
INVESTMENT SERVICES (CONTINUED)
Paine Webber Group Inc. ........ 17,800 $ 832,150
Wit Capital Group, Inc. + ...... 2,800 95,200
-----------------
17,832,092
-----------------
MAJOR TELECOMMUNICATIONS ( 4.0% )
ALLTEL Corp. ................... 19,700 1,408,550
Ameritech Corp. ................ 112,900 8,298,150
AT&T Corp. ..................... 253,800 14,165,212
Bell Atlantic Corp. ............ 119,100 7,786,162
BellSouth Corp. ................ 149,700 7,017,188
CenturyTel, Inc. ............... 15,600 620,100
Frontier Corp. + ............... 16,700 985,300
GTE Corp. ...................... 72,200 5,469,150
MCI Worldcom, Inc. + ........... 191,100 16,446,544
SBC Communications, Inc. ....... 147,100 8,531,800
Sprint Corp. ................... 52,800 2,788,500
Sprint PCS + ................... 33,800 1,930,825
U.S. WEST, Inc. ................ 38,875 2,283,906
-----------------
77,731,387
-----------------
MISCELLANEOUS METALS ( 0.0% )
Barrick Gold Corp. ............. 32,800 635,500
Placer Dome, Inc. .............. 21,100 249,244
-----------------
884,744
-----------------
OIL ( 2.8% )
Ashland Oil, Inc. .............. 12,300 493,538
Atlantic Richfield Co. ......... 24,900 2,080,706
Chevron Corp. .................. 47,300 4,502,369
Devon Energy Corp. ............. 77,700 2,777,775
Exxon Corp. .................... 191,800 14,792,575
Mobil Corp. .................... 80,400 7,959,600
Phillips Petroleum Co. ......... 19,500 981,094
Royal Dutch Petroleum Co. ...... 169,400 10,206,350
Sunoco Inc. .................... 12,700 383,381
Texaco, Inc. ................... 40,700 2,543,750
Triton Energy Ltd. + ........... 198,000 2,128,500
Union Pacific Resources Group
Inc............................ 262,200 4,277,137
Unocal Corp. ................... 18,700 740,987
USX-Marathon Group ............. 9,800 319,113
-----------------
54,186,875
-----------------
OIL SERVICES ( 0.6% )
BJ Services Co. + .............. 136,800 4,027,050
Marine Drilling Companies, Inc.
+.............................. 136,800 1,872,450
McDermott International, Inc.,
ADR............................ 142,600 4,028,450
SEACOR SMIT Holdings + ......... 16,200 866,700
Seitel, Inc. + ................. 90,000 1,456,875
-----------------
12,251,525
-----------------
OTHER TELECOMMUNICATIONS ( 0.3% )
Associated Group, Inc. + ....... 61,200 3,985,650
Powertel, Inc. + ............... 64,500 1,926,938
-----------------
5,912,588
-----------------
PRINT MEDIA ( 0.4% )
Dun & Bradstreet Corp. ......... 7,200 255,150
52 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
PRINT MEDIA (CONTINUED)
Equifax, Inc. .................. 6,000 $ 214,125
Factset Research Systems, Inc. + 16,800 951,300
Gannett Co., Inc. .............. 25,700 1,834,337
Knight-Ridder, Inc. ............ 9,100 499,931
McGraw-Hill Co., Inc. .......... 17,800 960,088
New York Times Co. ............. 16,100 592,681
Scholastic Corp. + ............. 14,500 734,063
Times Mirror Co. ............... 9,800 580,650
Tribune Co. .................... 10,400 906,100
Ziff-Davis Inc. + .............. 79,800 1,231,912
-----------------
8,760,337
-----------------
PRODUCER GOODS ( 2.4% )
Allegheny Teledyne, Inc. ....... 18,600 420,825
Allied Signal, Inc. ............ 48,000 3,024,000
Avery Dennison Corp. ........... 12,100 730,538
Aviation Sales Co. + ........... 21,600 853,200
C&D Technologies, Inc. ......... 40,300 1,234,188
Cooper Industries, Inc. ........ 11,300 587,600
Corning, Inc. .................. 18,000 1,262,250
Danaher Corp. .................. 14,800 860,250
Dover Corp. .................... 6,800 238,000
Ecolab, Inc. ................... 13,400 584,575
Emerson Electric Co. ........... 37,800 2,376,675
FMC Corp. + .................... 3,900 266,419
Grainger (W.W.), Inc. .......... 10,200 548,888
Honeywell, Inc. ................ 12,900 1,494,787
Hughes Supply, Inc. ............ 34,750 1,031,641
Illinois Tool Works, Inc. ...... 24,400 2,000,800
Ingersoll-Rand Co. ............. 20,950 1,353,894
ITT Industries, Inc. ........... 12,100 461,313
Kafus Environmental Industries
Ltd. + ........................ 46,200 444,675
Lincoln Electric Holdings, Inc. 36,100 740,050
MacDermid, Inc. ................ 77,000 3,580,500
Millipore Corp. ................ 31,400 1,273,662
Minnesota Mining and
Manufacturing Co. ............. 31,900 2,773,306
MotivePower Industries, Inc. + . 33,750 607,500
Mueller Industries, Inc. + ..... 43,400 1,472,887
Pall Corp. ..................... 10,100 224,094
Parker-Hannifin Corp. .......... 9,200 420,900
PPG Industries, Inc. ........... 6,500 383,906
Raychem Corp. .................. 9,000 333,000
Sherwin-Williams Co. ........... 18,800 521,700
Spartech Corp. ................. 41,300 1,306,112
Thomas & Betts Corp. ........... 5,500 259,875
Thomas Industries, Inc. ........ 24,300 498,150
Tredegar Industries, Inc. ...... 48,300 1,050,525
Tyco International Ltd. ........ 84,300 7,987,425
Varlen Corp. ................... 90,600 3,669,300
Westinghouse Air Brake Co. ..... 24,300 630,281
-----------------
47,507,691
-----------------
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
REAL ESTATE INVESTMENT TRUSTS ( 0.3% )
CBL & Associates Properties,
Inc............................ 29,900 $ 788,613
General Growth Properties, Inc. 23,300 827,150
Health Care REIT, Inc. ......... 38,000 883,500
Koger Equity, Inc. ............. 36,400 671,125
Parkway Properties, Inc. ....... 28,400 940,750
Prentiss Properties Trust ...... 35,900 843,650
U.S. Restaurant Properties, Inc. 28,600 607,750
-----------------
5,562,538
-----------------
SEMICONDUCTORS AND ELECTRONICS ( 4.0% )
Applied Materials, Inc. + ...... 37,100 2,740,762
Burr-Brown Corp. + ............. 174,200 6,380,075
Dallas Semiconductor Corp. ..... 400 20,200
Esterline Technologies Corp. + . 53,300 766,188
Flextronics International Ltd. + 34,100 1,892,550
General Instrument Corp. + ..... 14,600 620,500
Intel Corp. .................... 253,100 15,059,450
L-3 Communications Holdings,
Inc. + ........................ 16,500 797,156
Lucent Technologies, Inc. ...... 344,520 23,233,567
Micron Technology, Inc. + ...... 20,000 806,250
Motorola, Inc. ................. 70,000 6,632,500
Nortel Networks Corp. .......... 51,200 4,444,800
Plexus Corp. + ................. 25,100 756,138
Solectron Corp. + .............. 30,800 2,053,975
Tellabs, Inc. + ................ 43,200 2,918,700
Terayon Communication Systems,
Inc. + ........................ 47,400 2,648,475
Texas Instruments, Inc. ........ 46,500 6,742,500
-----------------
78,513,786
-----------------
SPECIALTY CHEMICALS ( 0.4% )
Air Products and Chemicals, Inc. 25,000 1,006,250
ChiRex Inc. + .................. 85,600 2,749,900
Engelhard Corp. ................ 10,600 239,825
Geon Co. (The) ................. 90,300 2,912,175
Grace (W.R.) & Co. + ........... 7,200 132,300
Praxair, Inc. .................. 5,900 288,731
Sigma-Aldrich Corp. ............ 10,100 347,819
-----------------
7,677,000
-----------------
STEEL ( 0.2% )
Bethlehem Steel Corp. + ........ 393,500 3,025,032
Nucor Corp. .................... 9,100 431,681
USX-US Steel Group, Inc. ....... 7,200 194,400
-----------------
3,651,113
-----------------
SURFACE TRANSPORT ( 0.5% )
Burlington Northern Santa Fe
Corp........................... 39,100 1,212,100
CSX Corp. ...................... 16,800 761,250
Kansas City Southern Industries,
Inc............................ 13,100 835,944
Knightsbridge Tankers Ltd. ..... 125,100 2,189,250
Norfolk Southern Corp. ......... 15,000 451,875
Roadway Express, Inc. .......... 126,700 2,454,812
Union Pacific Corp. ............ 19,600 1,142,925
-----------------
9,048,156
-----------------
See Notes to Portfolio of Investments. 53
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
BALANCED (continued)
NUMBER OF SHARES MARKET
VALUE
------------------ -----------------
TEXTILES AND APPAREL ( 0.1% )
Liz Claiborne, Inc. ............ 12,100 $ 441,650
Nike, Inc. ..................... 14,600 924,363
VF Corp. ....................... 13,000 555,750
-----------------
1,921,763
-----------------
TOTAL COMMON STOCKS (COST $902,182,713) 1,145,337,891
-----------------
PREFERRED STOCKS ( 0.5% )
California Federal Preferred
Capital Corp. (Banks and
Thrifts) + .................... 188,000 4,935,000
Global Crossing Holdings Ltd.
(Other Telecommunications) + .. 56,000 5,880,000
-----------------
TOTAL PREFERRED STOCKS (COST $10,300,000) 10,815,000
-----------------
PRINCIPAL AMOUNT
------------------
LONG-TERM BONDS AND NOTES ( 34.2% )
CORPORATE BONDS ( 12.0% )
Abitibi-Consolidated
Inc.,6.95%,04/01/08............ $ 9,350,000 8,846,503
Allied Waste North America,
7.38%,01/01/04 ................ 8,900,000 8,410,500
American General Finance Corp.,
8.45%,10/15/09 ................ 7,000,000 7,689,920
BankAmerica Corp.,7.88%,12/01/02 1,500,000 1,571,280
Capital One Bank,6.57%,01/27/03 9,850,000 9,700,871
Celulosa Arauco Constitution,
6.95%,09/15/05 ................ 4,650,000 4,132,306
Chemical Master Credit Card
Trust,
7.09%,02/15/09 ................ 9,705,000 9,886,969
Chrysler Financial
Corp.,5.25%,10/19/00........... 6,150,000 6,084,195
Comcast Cellular Holdings, Inc.,
9.50%,05/01/07 ................ 10,000,000 11,150,000
Conoco Inc.,5.90%,04/15/04 ..... 5,150,000 5,025,267
CSX Corp.,7.45%,05/01/07 ....... 10,835,000 11,028,296
ERAC USA Finance
Co.,6.95%,03/01/04 ++ ......... 9,687,000 9,557,000
Ford Motor Credit
Corp.,6.63%,10/01/28........... 13,020,000 11,720,344
Garden State Newspapers,
8.63%,07/01/11 ++ ............. 3,050,000 2,851,750
Globo
Communicacoes,10.63%,12/05/08
++............................. 4,900,000 3,479,000
Guidant Corp.,6.15%,02/15/06 ... 5,725,000 5,297,629
Household Finance
Corp.,5.88%,09/25/04........... 12,150,000 11,692,066
IMC Global, Inc.,7.63%,11/01/05 9,250,000 9,376,447
Integrated Electric Services
Inc.,
9.38%,02/01/09 ++ ............. 2,800,000 2,758,000
Isle of Capri
Casinos,8.75%,04/15/09 ++ ..... 3,750,000 3,543,750
Kaman Corp.,6.00%,03/15/12 ..... 5,331,000 5,331,000
Merrill Lynch & Co.,
Inc.,5.75%,11/04/02............ 9,350,000 9,163,468
Mohegan Tribal
Gaming,8.13%,01/01/06.......... 1,900,000 1,866,750
Norwest Financial,
Inc.,5.38%,09/30/03............ 4,700,000 4,510,496
Petroliam Nasional
Berhd,7.75%,08/15/15........... 4,675,000 4,020,500
Pitney Bowes,
Inc.,8.55%,09/15/09............ 13,100,000 14,696,104
Raytheon Co.,6.75%,08/15/07 .... 5,000,000 4,949,100
PRINCIPAL AMOUNT MARKET
VALUE
------------------ -----------------
CORPORATE BONDS (CONTINUED)
Riggs Capital
Trust,8.63%,12/31/26 ++ ....... $ 3,700,000 $ 3,495,501
Rite Aid Corp.,6.00%,10/01/03 .. 6,550,000 6,204,815
Rogers Cantel,
Inc.,9.38%,06/01/08............ 6,100,000 6,313,500
Tenet Healthcare
Corp.,7.88%,01/15/03........... 4,900,000 4,804,548
TV Guide Inc.,8.13%,03/01/09 ... 4,700,000 4,465,000
Tyco International Group SA,
6.38%,06/15/05 ................ 9,350,000 9,124,936
USA Waste Management, Inc.,
6.13%,07/15/01 ................ 12,750,000 12,673,627
-----------------
TOTAL CORPORATE BONDS (COST $239,504,719) 235,421,438
-----------------
FOREIGN AND SUPRANATIONALS ( 0.7% )
African Development Bank,
8.80%,09/01/19 ................ 7,000,000 8,435,560
United Mexican States
Government,
11.38%,09/15/16 ............... 4,600,000 4,853,000
-----------------
TOTAL FOREIGN AND SUPRANATIONALS
(COST $11,745,650) 13,288,560
-----------------
FOREIGN OBLIGATIONS ( 0.7% )
Argentina (Republic
of),6.63%,03/31/05............. 2,325,000 1,978,575
Panama (Republic
of),9.38%,04/01/29............. 4,650,000 4,371,000
Republic of
Brazil,11.63%,04/15/04......... 3,000,000 2,827,500
Republic of
Philippines,9.88%,01/15/19..... 4,800,000 4,698,048
-----------------
TOTAL FOREIGN OBLIGATIONS (COST $14,369,082) 13,875,123
-----------------
NON-AGENCY MORTGAGE-BACKED SECURITIES ( 2.1% )
American Southwest Financial
Securities Corp.,8.00%,01/18/09 7,723,998 8,020,600
Commercial Mortgage Acceptance
Corp.,
5.80%,03/15/06 ................ 6,193,620 6,043,890
CS First Boston Mortgage Corp.,
6.48%,05/17/08 ................ 7,500,000 7,235,156
DLJ Mortgage Acceptance Corp.,
8.10%,06/18/04 ................ 4,650,000 4,309,969
GMAC Commercial Mortgage Corp.,
6.87%,08/15/07 ................ 4,500,000 4,476,847
Kidder Peabody Acceptance Corp.,
8.80%,04/01/07 ................ 5,000,000 5,318,750
Merrill Lynch Mortgage
Investors, Inc.,
7.71%,06/15/21 ................ 5,446,143 5,448,458
-----------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(COST $40,553,597) 40,853,670
-----------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES ( 12.9% )
Federal National Mortgage
Association,6.00%,11/01/23 -
01/01/29....................... 36,424,101 34,295,188
Federal National Mortgage
Association,6.50%,11/01/28 -
02/01/29....................... 59,953,645 57,859,306
Federal National Mortgage
Association,9.50%,10/01/16..... 8,548,603 9,130,814
Government National Mortgage
Association,6.50%,05/15/28 -
10/20/28....................... 52,012,940 50,035,587
Government National Mortgage
Association,7.00%,09/15/24 -
11/15/24....................... 18,613,985 18,417,050
54 See Notes to Portfolio of Investments.
<PAGE>
PRINCIPAL AMOUNT MARKET
VALUE
------------------ -----------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
Government National Mortgage
Association,7.50%,12/15/23..... $ 35,884,609 $ 36,329,973
Government National Mortgage
Association,8.00%,12/15/23 -
07/15/24....................... 47,472,104 48,858,069
-----------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES (COST $263,021,637) 254,925,987
-----------------
U.S. GOVERNMENT OBLIGATIONS ( 5.9% )
U.S. Treasury
Bond,5.25%,11/15/28............ 17,000,000 15,068,970
U.S. Treasury
Bond,6.75%,08/15/26............ 1,220,000 1,306,156
U.S. Treasury Bond,7.25%,
08/15/04 - 05/15/16............ 2,605,000 2,821,595
U.S. Treasury
Note,4.75%,02/15/04............ 2,185,000 2,101,686
U.S. Treasury Note,5.25%,
05/15/04 - 02/15/29............ 11,130,000 10,412,315
U.S. Treasury
Note,5.50%,05/15/09............ 14,850,000 14,506,519
U.S. Treasury
Note,5.63%,05/15/08............ 1,705,000 1,670,099
U.S. Treasury
Note,5.75%,10/31/00............ 3,931,000 3,948,178
U.S. Treasury Note,6.50%,
08/15/05 - 10/15/06............ 50,393,000 51,948,397
U.S. Treasury
Note,7.50%,02/15/05............ 10,600,000 11,411,536
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $114,498,410) 115,195,451
-----------------
TOTAL LONG-TERM BONDS AND NOTES
(COST $683,693,095) 673,560,229
-----------------
SHORT-TERM INVESTMENTS ( 6.4% )
Federal National Mortgage
Association,
4.60%,07/01/99 ................ 1,500,000 1,500,001
Lockheed Martin
Corp.,6.14%,07/01/99 ++ ....... 30,000,000 30,000,000
PHH Corp.,5.32%,07/01/99 ....... 18,479,000 18,479,000
Rohm & Haas Co.,6.30%,07/01/99 . 50,000,000 50,000,000
Time Warner, Inc.,5.25%,07/15/99 10,000,000 9,979,583
TRW, Inc.,6.15%,07/01/99 ++ .... 14,343,000 14,343,000
U.S. Treasury
Bill,4.48%,08/19/99 @ ......... 900,000 894,530
U.S. Treasury
Bill,4.80%,08/19/99 @ ......... 300,000 298,170
-----------------
TOTAL SHORT-TERM INVESTMENTS (COST $125,494,285) 125,494,284
-----------------
TOTAL INVESTMENTS (COST $1,721,670,093)(A) 1,955,207,404
OTHER ASSETS LESS LIABILITIES 13,482,173
-----------------
TOTAL NET ASSETS $1,968,689,577
=================
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$1,740,101,236. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $258,213,730
Unrealized losses........................... (43,107,562)
----------------------
Net unrealized gain........................ $215,106,168
======================
</TABLE>
<TABLE>
Information concerning open futures contracts at June 30, 1999 is shown below:
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
------------ -------------- ------------- ----------------
LONG CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
Russell 2000 Index
Futures..............
93 $20,898,730 Sept 99 $ 583,433
============ =============
</TABLE>
+ Non-income producing security.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1999.
<TABLE>
<CAPTION>
Information concerning restricted securities at June 30, 1999 is shown below:
ACQUISITION
DATE COST
----------------- -------------------
<S> <C> <C>
ERAC USA Finance Co. ................... 03/01/97 $10,031,432
Garden State Newspapers ................ 03/16/99 3,031,329
Globo Communicacoes .................... 03/19/98 4,913,398
Integrated Electric Services Inc. ...... 01/28/99 2,778,185
Isle of Capri Casinos .................. 04/23/99 3,750,000
Lockheed Martin Corp. .................. 06/29/99 30,000,000
Riggs Capital Trust .................... 12/13/96 3,700,000
TRW, Inc. .............................. 06/29/99 14,343,000
-----------
$72,547,344
===========
</TABLE>
The market value of the total restricted securities above represent 3.56% of the
total net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 55
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
GROWTH AND INCOME
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
<S> <C> <C>
COMMON STOCKS ( 95.8% )
UNITED STATES ( 90.5% )
AIR TRANSPORT ( 0.7% )
Airborne Freight Corp. ............ 55,000 $ 1,522,812
Alaska Air Group, Inc. + .......... 63,500 2,651,125
Delta Air Lines, Inc. ............. 1,170,801 67,467,388
-----------------
71,641,325
-----------------
AUTO PARTS AND HARDWARE ( 1.4% )
Black & Decker Corp. .............. 2,144,800 135,390,500
Cooper Tire & Rubber Co. .......... 163,800 3,869,775
-----------------
139,260,275
-----------------
AUTOMOTIVE ( 3.8% )
Delphi Automotive Systems Corp. ... 1,318,671 24,477,835
Dura Automotive Systems, Inc. + + . 63,900 2,124,675
Ford Motor Co. .................... 2,862,400 161,546,700
General Motors Corp. + ............ 1,786,700 117,922,200
Johnson Controls, Inc. ............ 1,104,200 76,534,862
-----------------
382,606,272
-----------------
BANKS AND THRIFTS ( 5.3% )
Astoria Financial Corp. ........... 124,400 5,465,825
Bank One Corp. .................... 73,548 4,380,703
Bank United Corp. ................. 46,500 1,868,719
Chase Manhattan Corp. ............. 2,219,900 192,298,837
Chittenden Corp. .................. 48,792 1,524,750
Comerica, Inc. .................... 1,067,700 63,461,419
Dime Bancorp, Inc. ................ 237,800 4,785,725
Fifth Third Bancorp ............... 659,000 43,864,687
First American Corp. .............. 91,600 3,807,125
Firstar Corp. ..................... 21,000 588,000
FirstFed Financial Corp. + ........ 202,500 3,898,125
Golden State Bancorp, Inc. ........ 156,800 3,449,600
Golden West Financial Corp. ....... 902,200 88,415,600
J.P. Morgan & Co. ................. 551,100 77,429,550
Prime Bancshares, Inc. ............ 16,700 298,513
Republic New York Corp. ........... 298,300 20,340,331
Summit Bancorp .................... 73,300 3,064,856
Telebanc Financial Corp. + ........ 109,600 4,247,000
UnionBanCal Corp. ................. 116,400 4,204,950
Washington Mutual, Inc. ........... 192,800 6,820,300
-----------------
534,214,615
-----------------
BIOTECH AND MEDICAL PRODUCTS ( 1.7% )
Alpharma, Inc. .................... 184,117 6,547,661
Amgen, Inc. + ..................... 2,119,400 129,018,475
Bio-Rad Labs, Inc. + .............. 54,600 1,426,425
Datascope Corp. + ................. 371,600 11,937,650
Genzyme Corp. + ................... 50,600 2,454,100
Genzyme Surgical Products Corp. ... 9,058 39,911
Hanger Orthopedic Group, Inc. + ... 220,400 3,126,925
Immunex Corp. + ................... 20,000 2,548,750
OEC Medical Systems, Inc. + ....... 147,100 3,603,950
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
BIOTECH AND MEDICAL PRODUCTS (CONTINUED)
Osteotech, Inc. + ................. 88,201 $ 2,535,767
VISX, Inc. + ...................... 67,400 5,337,238
Xomed Surgical Products, Inc. + ... 78,000 3,797,625
-----------------
172,374,477
-----------------
CHEMICALS ( 0.1% )
Dow Chemical Co. .................. 81,700 10,365,687
-----------------
COMMERCIAL SERVICES ( 0.6% )
Deluxe Corp. ...................... 1,220,200 47,511,537
Engineering Animation, Inc. + ..... 135,150 2,863,491
Galileo International, Inc. ....... 50,400 2,693,250
Mail-Well, Inc. + ................. 20,000 323,750
Modis Professional Services + ..... 372,000 5,115,000
Ogden Corp. ....................... 24,600 662,663
Valassis Communications, Inc. + ... 75,000 2,746,875
World Color Press, Inc. + ......... 60,600 1,666,500
-----------------
63,583,066
-----------------
COMPUTERS ( 4.7% )
Apple Computer, Inc. + ............ 3,371,900 156,161,119
Hewlett Packard Co. ............... 2,158,600 216,939,300
International Business Machines
Corp.............................. 726,400 93,887,200
-----------------
466,987,619
-----------------
CONGLOMERATE AND AEROSPACE ( 3.0% )
Boeing Co. ........................ 901,100 39,817,356
Cordant Technologies, Inc. ........ 96,300 4,351,556
General Dynamics Corp. ............ 979,502 67,095,976
Goodrich (B.F.) Co. ............... 1,253,880 53,289,900
Gulfstream Aerospace Corp. + ...... 125,600 8,485,850
Kellstrom Industries, Inc. + ...... 310,300 5,662,975
Loews Corp. ....................... 1,042,300 82,471,988
Northrop Grumman Corp. ............ 35,000 2,320,938
United Technologies Corp. ......... 510,700 36,610,806
-----------------
300,107,345
-----------------
CONSUMER FINANCE ( 2.3% )
Countrywide Credit Industries, Inc. 1,048,700 44,831,925
Crescent Operating, Inc. + ........ 41,800 284,763
Federal Home Loan Mortgage Corp. .. 2,021,900 117,270,200
Federal National Mortgage
Association....................... 1,022,700 69,927,112
-----------------
232,314,000
-----------------
CONSUMER PRODUCTS ( 1.1% )
Church & Dwight Co., Inc. ......... 136,500 5,937,750
Dial Corp. ........................ 124,800 4,641,000
Procter & Gamble Co. .............. 1,116,200 99,620,850
-----------------
110,199,600
-----------------
CONSUMER SERVICES ( 1.5% )
Applebee's International, Inc. .... 155,200 4,675,400
Brinker International, Inc. + ..... 93,800 2,550,188
Darden Restaurants, Inc. .......... 2,628,700 57,338,519
Foodmaker, Inc. + ................. 286,600 8,132,275
56 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
CONSUMER SERVICES (CONTINUED)
Lakes Gaming, Inc. + .............. 246,850 $ 2,699,922
Mandaley Resort Group + ........... 135,900 2,870,887
MGM Grand, Inc. + ................. 76,500 3,748,500
National R.V. Holdings, Inc. + .... 295,950 7,176,787
Papa John's International, Inc. + . 37,400 1,671,313
Park Place Entertainment Corp. + .. 907,800 8,794,312
Sonic Corp. + ..................... 144,650 4,719,206
Sotheby's Holdings, Inc. .......... 91,600 3,492,250
Tricon Global Restaurants, Inc. + . 825,200 44,663,950
-----------------
152,533,509
-----------------
CONSUMER SPECIALTIES ( 0.1% )
Hasbro, Inc. ...................... 138,000 3,855,375
JAKKS Pacific, Inc. + ............. 92,700 2,763,619
Russ Berrie & Co., Inc. ........... 70,200 1,737,450
THQ, Inc. + ....................... 131,100 3,769,125
-----------------
12,125,569
-----------------
DATA AND IMAGING SERVICES ( 7.8% )
Advanced Digital Information Corp.
+................................. 13,200 534,600
America Online, Inc. .............. 547,000 60,443,500
BMC Software, Inc. + .............. 1,339,300 72,322,200
Computer Associates International,
Inc............................... 2,838,900 156,139,500
Compuware Corp. + ................. 201,800 6,419,762
Electronic Data Systems Corp. ..... 36,900 2,087,156
First Data Corp. .................. 339,200 16,599,600
GoTo.com, Inc. + .................. 53,700 1,503,600
Intuit Inc. + ..................... 104,200 9,391,025
Juniper Networks, Inc. + .......... 14,600 2,175,400
Microsoft Corp. + ................. 3,646,000 328,823,625
Mindspring Enterprises, Inc. + .... 24,000 1,063,500
Oracle Corp. + .................... 2,758,100 102,394,462
Perot Systems Corp. + ............. 28,400 837,800
Progress Software Corp. + ......... 125,950 3,558,088
Quantum Corp. + ................... 136,200 3,285,825
Siebel Systems, Inc. + ............ 19,700 1,307,588
Sterling Software, Inc. + ......... 113,100 3,018,356
VERITAS Software Corp. + .......... 13,800 1,310,138
WorldGate Communications, Inc. + .. 32,500 1,665,625
-----------------
774,881,350
-----------------
DISCRETIONARY RETAIL ( 7.4% )
American Eagle Outfitters, Inc. + . 404,000 18,382,000
Best Buy Co., Inc. + .............. 71,900 4,853,250
Cato Corp. (The) .................. 350,400 4,073,400
CDW Computer Centers, Inc. + ...... 29,200 1,284,800
CSK Auto Corp. + .................. 120,000 3,240,000
Dayton Hudson Co. ................. 392,900 25,538,500
Federated Department Stores, Inc. + 2,435,200 128,913,400
Footstar, Inc. + .................. 96,800 3,599,750
Gap, Inc. ......................... 2,618,775 131,920,791
Lowe's Co., Inc. .................. 2,933,600 166,298,450
Micro Warehouse, Inc. + ........... 5,000 89,375
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
DISCRETIONARY RETAIL (CONTINUED)
Musicland Stores Corp. + .......... 863,100 $ 7,660,013
Tandy Corp. ....................... 527,400 25,776,675
TJX Companies, Inc. ............... 6,253,400 208,316,387
Zale Corp. + ...................... 141,000 5,640,000
-----------------
735,586,791
-----------------
DIVERSIFIED FINANCIAL SERVICES ( 2.2% )
Citigroup Inc. .................... 3,332,400 158,289,000
Providian Financial Corp. ......... 690,900 64,599,150
-----------------
222,888,150
-----------------
DRUGS ( 7.2% )
Abbott Laboratories ............... 2,905,100 132,182,050
Bristol-Myers Squibb Co. .......... 3,306,000 232,866,375
Johnson & Johnson ................. 2,227,400 218,285,200
Merck & Co., Inc. ................. 1,690,400 125,089,600
Roberts Pharmaceutical Corp. + .... 424,800 10,301,400
-----------------
718,724,625
-----------------
ELECTRIC UTILITIES ( 0.9% )
Allegheny Energy, Inc. ............ 66,900 2,144,981
Black Hills Corp. ................. 87,000 2,011,875
Cleco Corp. ....................... 68,700 2,086,763
Conectiv, Inc. .................... 202,800 4,955,925
DTE Energy Co. .................... 75,400 3,016,000
Entergy Corp. ..................... 322,500 10,078,125
Florida Progress Corp. ............ 181,900 7,514,744
Minnesota Power, Inc. ............. 100,800 2,003,400
Mony Group Inc. + ................. 58,600 1,911,825
Niagara Mohawk Holdings Inc. + .... 2,890,900 46,435,081
OGE Energy Corp. .................. 183,000 4,346,250
SIGCORP, Inc. ..................... 137,400 3,890,137
-----------------
90,395,106
-----------------
ELECTRICAL MACHINERY AND INSTRUMENTS ( 0.3% )
Rockwell International Corp. ...... 242,300 14,719,725
Waters Corp. + .................... 200,000 10,625,000
-----------------
25,344,725
-----------------
ELECTRONIC MEDIA ( 1.3% )
Capstar Broadcasting Corp. + ...... 195,500 5,351,812
CBS Corp. + ....................... 1,058,100 45,961,219
Citadel Communications Corp. + .... 27,500 995,156
Entercom Communications Corp. + ... 91,800 3,924,450
Hispanic Broadcasting Corp. + ..... 49,900 3,786,162
Hollywood Park, Inc. + ............ 54,300 923,100
Infinity Broadcasting Corp. + ..... 100,000 2,975,000
International Speedway Corp. ...... 91,200 4,332,000
King World Production, Inc. + ..... 1,619,900 56,392,769
Pixar, Inc. + ..................... 22,000 948,750
Speedway Motorsports, Inc. + ...... 17,900 703,694
USA Networks, Inc. + .............. 91,600 3,675,450
Viacom, Inc. + .................... 52,900 2,327,600
-----------------
132,297,162
-----------------
See Notes to Portfolio of Investments. 57
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
GROWTH AND INCOME (continued)
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
FOOD AND BEVERAGE ( 0.9% )
Aurora Foods, Inc. + .............. 71,000 $ 1,242,500
Coca-Cola Co. ..................... 1,275,600 79,725,000
Corn Products International, Inc. . 10,100 307,419
IBP, Inc. ......................... 237,000 5,628,750
M&F Worldwide Corp. + ............. 222,500 1,766,093
Quaker Oats Co. ................... 20,200 1,340,775
-----------------
90,010,537
-----------------
FOOD AND DRUG RETAIL ( 2.8% )
Casey's General Stores, Inc. ...... 90,000 1,350,000
CVS Corp. ......................... 2,126,700 107,930,025
Duane Reade, Inc. + ............... 27,300 836,063
Kroger Co. (The) + ................ 87,400 2,441,737
Longs Drug Stores, Inc. ........... 1,161,700 40,151,256
Safeway, Inc. + ................... 1,906,900 94,391,550
SUPERVALU, Inc. ................... 1,067,300 27,416,269
-----------------
274,516,900
-----------------
FOREST PRODUCTS AND BUILDING MATERIALS ( 2.0% )
Ball Corp. ........................ 386,500 16,329,625
Boise Cascade Corp. ............... 388,700 16,665,512
Centex Construction Products, Inc. 148,500 5,067,563
Georgia-Pacific Corp. ............. 1,858,400 88,041,700
Georgia-Pacific Corp. ............. 143,100 3,613,275
Lafarge Corp. ..................... 344,300 12,201,131
Lone Star Industries, Inc. ........ 43,400 1,630,213
Masco Corp. ....................... 914,600 26,409,075
Owens Corning ..................... 230,600 7,926,875
Southdown, Inc. ................... 141,200 9,072,100
USG Corp. ......................... 110,200 6,171,200
Willamette Industries, Inc. ....... 45,700 2,105,056
-----------------
195,233,325
-----------------
GAS UTILITIES ( 1.5% )
Coastal Corp. (The) ............... 917,100 36,684,000
Columbia Energy Group ............. 756,200 47,404,287
Enron Corp. ....................... 79,000 6,458,250
Questar Corp. ..................... 149,200 2,853,450
Sempra Energy ..................... 2,067,107 46,768,296
Southwest Gas Corp. ............... 109,900 3,145,888
Southwestern Energy Co. ........... 255,500 2,698,719
-----------------
146,012,890
-----------------
HEALTH SERVICES ( 0.5% )
Lincare Holdings Inc. + ........... 353,500 8,837,500
PacifiCare Health Systems, Inc. ... 41,100 2,959,200
Trigon Healthcare, Inc. + ......... 88,100 3,204,638
United Healthcare Corp. ........... 518,100 32,446,012
-----------------
47,447,350
-----------------
HEAVY MACHINERY ( 0.3% )
Case Corp. ........................ 32,214 1,550,299
JLG Industries, Inc. .............. 50,200 1,022,825
NACCO Industries, Inc. ............ 91,200 6,703,200
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
HEAVY MACHINERY (CONTINUED)
Navistar International Corp. + .... 490,100 $ 24,505,000
-----------------
33,781,324
-----------------
HOUSING AND FURNISHINGS ( 1.4% )
Centex Corp. ...................... 2,149,600 80,744,350
Kaufman & Broad Home Corp. ........ 1,375,500 34,215,562
Pulte Corp. ....................... 1,155,800 26,655,638
Ryland Group, Inc. ................ 92,800 2,755,000
Toll Brothers, Inc. + ............. 4,700 100,756
-----------------
144,471,306
-----------------
INDUSTRIAL SERVICES ( 0.0% )
Reckson Service Industries, Inc. + 23,180 350,598
Safety-Kleen Corp. + .............. 62,675 1,135,984
-----------------
1,486,582
-----------------
INSURANCE ( 2.0% )
Allstate Corp. (The) .............. 1,545,600 55,448,400
Conseco, Inc. ..................... 1,758,487 53,523,948
Hartford Life, Inc. ............... 130,600 6,872,825
Lincoln National Corp. ............ 625,600 32,726,700
MGIC Investment Corp. ............. 887,300 43,144,963
Nationwide Financial Services, Inc. 67,200 3,040,800
-----------------
194,757,636
-----------------
INVESTMENT SERVICES ( 1.2% )
Donaldson, Lufkin & Jenrette, Inc.
- DLJ Direct + ................... 87,000 2,566,500
Edwards (A.G.), Inc. ............. 17,100 551,475
Goldman Sachs Group, Inc. (The) ... 36,600 2,644,350
Investors Financial Services Corp. 68,400 2,736,000
Lehman Brothers Holdings Inc. ..... 710,700 44,241,075
Morgan Stanley Dean Witter & Co. .. 529,000 54,222,500
Paine Webber Group Inc. ........... 153,700 7,185,475
TD Waterhouse Group, Inc. + ....... 41,200 1,032,575
Wit Capital Group, Inc. + ......... 3,400 115,600
-----------------
115,295,550
-----------------
MAJOR TELECOMMUNICATIONS ( 4.8% )
ALLTEL Corp. ...................... 124,410 8,895,315
AT&T Corp. ........................ 42,100 2,349,706
Bell Atlantic Corp. ............... 1,881,400 122,996,525
BellSouth Corp. ................... 2,690,800 126,131,250
CenturyTel, Inc. .................. 103,575 4,117,106
GTE Corp. ......................... 515,000 39,011,250
MCI Worldcom, Inc. + .............. 452,300 38,926,069
Network Plus Corp. + .............. 13,700 285,987
Sprint Corp. ...................... 1,740,700 91,930,719
U.S. WEST, Inc. ................... 776,500 45,619,375
-----------------
480,263,302
-----------------
OIL ( 2.4% )
Ashland Oil, Inc. ................. 903,100 36,236,888
Atlantic Richfield Co. ............ 898,500 75,080,906
Chevron Corp. ..................... 210,300 20,017,931
58 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
OIL (CONTINUED)
Kerr-McGee Corp. .................. 439,800 $ 22,072,463
Pennzoil-Quaker State Co. + ....... 176,500 2,647,500
Shell Transport & Trading Co. ..... 129,500 971,153
Sunoco Inc. ....................... 2,039,100 61,555,331
Tesoro Petroleum Corp. + .......... 792,400 12,628,875
Ultramar Diamond Shamrock Corp. ... 240,100 5,237,181
Union Pacific Resources Group Inc. 254,800 4,156,425
-----------------
240,604,653
-----------------
OIL SERVICES ( 0.8% )
Atwood Oceanics, Inc. + ........... 6,500 203,125
BJ Services Co. + ................. 186,400 5,487,150
Cal Dive International, Inc. + .... 100,000 2,987,500
Eagle Geophysical, Inc. + ......... 31,217 23,413
Global Marine Inc. + .............. 146,100 2,255,419
Halliburton Co. ................... 943,900 42,711,475
McDermott International, Inc., ADR 80,000 2,260,000
Pride International, Inc. + ....... 139,500 1,473,469
Santa Fe International Corp. ...... 137,800 3,169,400
Seitel, Inc. + .................... 485,700 7,862,268
Tidewater, Inc. ................... 136,500 4,163,250
Transocean Offshore, Inc. ......... 262,800 6,898,500
Trico Marine Services, Inc. + ..... 320,700 2,104,594
-----------------
81,599,563
-----------------
OTHER TELECOMMUNICATIONS ( 0.2% )
Aerial Communications, Inc. + ..... 213,900 2,887,650
Allegiance Telecom, Inc. + ........ 45,800 2,513,275
Cincinnati Bell Inc. .............. 57,500 1,433,906
Citizens Utilities Co. + .......... 91,861 1,021,954
Global TeleSystems Group, Inc. + . 32,000 2,592,000
Rhythms NetConnections Inc. + ..... 32,000 1,868,000
Teligent, Inc. + .................. 91,400 5,466,862
-----------------
17,783,647
-----------------
PRINT MEDIA ( 2.4% )
Central Newspapers, Inc. .......... 50,000 1,881,250
Factset Research Systems, Inc. + .. 116,550 6,599,644
Knight-Ridder, Inc. ............... 2,225,600 122,268,900
McClatchy Co. ..................... 149,900 4,965,438
McGraw-Hill Co., Inc. ............. 52,300 2,820,931
New York Times Co. ................ 2,609,800 96,073,262
-----------------
234,609,425
-----------------
PRODUCER GOODS ( 3.4% )
C&D Technologies, Inc. ............ 130,500 3,996,563
Corning, Inc. ..................... 21,322 1,495,205
FMC Corp. + ....................... 59,200 4,044,100
Graco, Inc. ....................... 43,000 1,263,125
Ingersoll-Rand Co. ................ 2,254,500 145,697,062
Milacron, Inc. .................... 460,800 8,524,800
RTI International Metals, Inc. + .. 319,800 4,697,063
SLI, Inc. + ....................... 131,000 3,537,000
Tecumseh Products Co. ............. 71,000 4,299,938
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
PRODUCER GOODS (CONTINUED)
Transportation Technologies
Industries, Inc. + ............... 22,400 $ 296,800
Tyco International Ltd. ........... 1,625,972 154,060,847
-----------------
Varlen Corp. ...................... 172,437 6,983,698
-----------------
338,896,201
-----------------
REAL ESTATE INVESTMENT TRUSTS ( 3.1% )
AMB Property Corp. ................ 30,400 714,400
American Health Properties, Inc. .. 82,800 1,666,350
Apartment Investment & Management
Co................................ 215,200 9,199,800
Archstone Communities Trust ....... 250,000 5,484,375
Arden Realty Group, Inc. .......... 116,000 2,856,500
Avalon Bay Communities, Inc. ...... 123,692 4,576,604
Beacon Capital + + ................ 267,600 4,114,350
Bedford Property Investors, Inc. .. 56,700 1,013,513
Boston Properties, Inc. ........... 44,800 1,607,200
Boykin Lodging Co. ................ 68,400 1,051,650
Brandywine Realty Trust ........... 238,000 4,715,375
Cabot Industrial Trust ............ 88,300 1,876,375
Camden Property Trust ............. 259,299 7,195,547
Captec Net Lease Realty, Inc. ..... 139,300 1,889,256
Carramerica Realty Corp. .......... 138,400 3,460,000
CBL & Associates Properties, Inc. . 353,300 9,318,287
Chelsea GCA Realty, Inc. .......... 41,600 1,544,400
Colonial Properties Trust ......... 446,500 12,613,625
Commercial Net Lease Realty ....... 143,100 1,842,413
Cornerstone Properties, Inc. ...... 204,500 3,246,437
Crescent Real Estate Equities, Inc. 348,000 8,265,000
Criimi Mae, Inc. .................. 222,600 500,850
Crown America Realty Trust ........ 206,500 1,510,031
Developers Diversified Realty Corp. 112,800 1,875,300
Duke Realty Investments, Inc. ..... 381,800 8,614,362
Eastgroup Properties, Inc. ........ 72,050 1,445,503
Equity Office Properties Trust .... 708,866 18,164,691
Equity One, Inc. .................. 69,300 684,338
Equity Residential Properties Trust 355,417 16,015,979
Essex Property Trust, Inc. ........ 148,000 5,235,500
FelCor Lodging Trust Inc. ......... 76,200 1,581,150
First Industrial Realty Trust, Inc. 104,100 2,856,244
Franchise Finance Corp. of America 155,600 3,423,200
Gables Residential Trust .......... 53,100 1,281,038
General Growth Properties, Inc. ... 172,300 6,116,650
Glenborough Realty Trust, Inc. .... 132,100 2,311,750
Glimcher Realty Trust ............. 81,400 1,322,750
Golf Trust of America, Inc. ....... 65,700 1,605,544
Health Care REIT, Inc. ............ 188,400 4,380,300
Healthcare Realty Trust, Inc. ..... 207,473 4,356,933
Home Properties of New York, Inc. . 18,900 522,113
Hospitality Properties Trust ...... 137,500 3,729,687
HRPT Properties Trust ............. 423,400 6,483,312
Imperial Credit Commercial Mortgage
Investment Corp. ................. 49,900 539,544
See Notes to Portfolio of Investments. 59
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
GROWTH AND INCOME (continued)
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Innkeepers USA Trust .............. 135,900 $ 1,359,000
Kilroy Realty Corp. ............... 53,300 1,299,188
Kimco Realty Corp. ................ 315,500 12,343,937
Koger Equity, Inc. ................ 150,000 2,765,625
Lexington Corporate Properties
Trust............................. 22,200 258,075
Liberty Property Trust ............ 335,400 8,343,075
Manufactured Home Communities, Inc. 128,900 3,351,400
Meditrust Companies Corp. ......... 253,400 3,310,037
MeriStar Hospitality Corp. ........ 50,003 1,121,942
Mid-America Apartment
Communities, Inc. ................ 50,300 1,163,188
National Golf Properties, Inc. .... 185,500 4,509,969
National Health Investors, Inc. ... 22,500 513,281
OMEGA Healthcare Investors, Inc. .. 106,200 2,741,287
Parkway Properties, Inc. .......... 74,100 2,454,563
Post Properties, Inc. ............. 266,900 10,942,900
Prentiss Properties Trust ......... 214,900 5,050,150
Prime Retail, Inc. ................ 142,600 1,238,838
Prison Realty Trust ............... 166,100 1,629,856
ProLogis Trust .................... 111,925 2,266,481
PS Business Parks, Inc. ........... 51,800 1,262,625
Public Storage, Inc. .............. 348,146 9,748,088
Reckson Associates Realty Corp. ... 147,700 3,470,950
Reckson Associates Realty Corp. ... 19,379 462,674
Regency Realty Corp. .............. 107,300 2,353,894
RFS Hotel Investors, Inc. ......... 95,400 1,198,463
Shurgard Storage Centers, Inc. .... 15,000 406,875
Simon Property Group, Inc. ........ 401,144 10,179,029
SL Green Realty Corp. ............. 76,100 1,555,294
Spieker Properties, Inc. .......... 66,201 2,573,587
Starwood Hotels & Resort Worldwide,
Inc............................... 154,200 4,712,737
Sun Communities, Inc. ............. 84,000 2,982,000
Sunstone Hotel Investors, Inc. .... 100,000 850,000
Trinet Corporate Realty Trust, Inc. 62,550 1,731,853
United Dominion Realty Trust, Inc. 130,708 1,535,819
Universal Health Realty Income
Trust............................. 36,700 722,531
Urban Shopping Centers, Inc. ...... 77,000 2,425,500
Vornado Realty Trust .............. 272,600 9,626,187
Walden Residential Properties, Inc. 49,100 1,055,650
Weeks Corp. ....................... 52,300 1,595,150
-----------------
309,919,924
-----------------
SEMICONDUCTORS AND ELECTRONICS ( 7.0% )
ADC Telecommunications, Inc. + .... 53,300 2,428,481
Alpha Industries, Inc. + .......... 12,300 585,788
Altera Corp. + .................... 96,200 3,541,363
ANADIGICS, Inc. + ................. 19,700 728,900
Analog Devices, Inc. + ............ 100,000 5,018,750
Applied Materials, Inc. + ......... 951,800 70,314,225
C-Cube Microsystems, Inc. + ....... 24,800 785,850
Comverse Technology, Inc. + ....... 60,001 4,530,037
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
SEMICONDUCTORS AND ELECTRONICS (CONTINUED)
Intel Corp. ....................... 4,310,300 $ 256,462,850
L-3 Communications Holdings, Inc. + 34,300 1,657,119
Lattice Semiconductor Corp. + ..... 42,500 2,645,625
Linear Technology Corp. ........... 20,300 1,365,175
LSI Logic Corp. + ................. 412,300 19,017,337
Lucent Technologies, Inc. ......... 1,614,600 108,884,587
Methode Electronics, Inc. ......... 18,700 427,763
QUALCOMM Inc. ..................... 30,000 4,305,000
Sawtek, Inc. ...................... 20,500 940,438
Solectron Corp. + ................. 37,000 2,467,438
Tellabs, Inc. + ................... 1,393,000 94,114,562
Teradyne, Inc. + .................. 35,000 2,511,250
Texas Instruments, Inc. ........... 785,700 113,926,500
TriQuint Semiconductor, Inc. + .... 24,100 1,369,181
Vitesse Semiconductor Corp. + ..... 59,400 4,005,787
Xilinx, Inc. + .................... 38,500 2,204,125
-----------------
704,238,131
-----------------
SPECIALTY CHEMICALS ( 0.0% )
Albemarle Corp. ................... 26,800 619,750
Solutia, Inc. ..................... 100,700 2,146,169
-----------------
2,765,919
-----------------
STEEL ( 0.0% )
Cleveland-Cliffs, Inc. ............ 92,200 2,984,975
---------------
SURFACE TRANSPORT ( 0.3% )
Union Pacific Corp. ............... 490,400 28,596,450
---------------
TEXTILES AND APPAREL ( 0.1% )
Authentic Fitness Corp. ........... 64,900 1,135,750
Jones Apparel Group, Inc. + ....... 165,200 5,668,425
K-Swiss Inc. ...................... 114,600 5,328,900
-----------------
12,133,075
-----------------
TOTAL UNITED STATES (COST $7,677,199,398) 9,045,839,933
-----------------
FOREIGN COMMON STOCKS ( 5.3% )
AUSTRALIA ( 0.1% )
Amcor Ltd.
(Forest Products and Building
Materials)........................ 300,000 1,667,591
Foster's Brewing Group Ltd.
(Food and Beverage) .............. 1,607,800 4,531,376
Telstra Corp. Ltd.
(Other Telecommunications) + ..... 749,900 4,296,978
-----------------
TOTAL AUSTRALIA 10,495,945
-----------------
BRAZIL ( 0.0% )
Telecomunicaciones Brasileiras SA,
ADR (Other Telecommunications) ... 15,020 1,354,616
---------------
CANADA ( 0.1% )
BCE Inc. (Other Telecommunications) 46,099 2,234,716
60 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
CANADA (CONTINUED)
Canadian National Railway Co.
(Surface Transport) .............. 81,000 $ 5,422,460
Trizec Hahn Corp.
(Real Estate Investment Trusts) .. 78,800 1,605,550
-----------------
TOTAL CANADA 9,262,726
-----------------
DENMARK ( 0.2% )
Carli Gry International A/S
(Textiles and Apparel) ........... 356,500 7,534,483
Falck A/S (Consumer Services) ..... 15,000 1,230,534
Novo-Nordisk A/S (Drugs) .......... 39,790 4,298,780
Sondagsavisen AS (Print Media) .... 6,000 383,760
Tele Danmark A/S
(Other Telecommunications) ....... 150,600 7,412,736
Vestas Wind Systems AS
(Producer Goods) + ............... 27,500 2,428,045
-----------------
TOTAL DENMARK 23,288,338
-----------------
FINLAND ( 0.2% )
Nokia Corp., ADR
(Semiconductors and Electronics) . 94,000 8,606,875
Pohjola Group Insurance Corp.
(Insurance)....................... 93,800 4,812,613
Teleste Corp.
(Major Telecommunications) ....... 118,000 1,070,902
Tieto Corp. (Data and Imaging
Services)......................... 38,800 1,616,583
-----------------
TOTAL FINLAND 16,106,973
-----------------
FRANCE ( 0.6% )
Accor SA (Consumer Services) ...... 10,000 2,511,215
Aerospatiale Matra
(Conglomerate and Aerospace) ..... 140,000 3,226,938
Alstom (Industrial Services) + .... 210,100 6,608,622
Axa (Insurance) ................... 53,100 6,478,348
Carrefour SA (Food and Drug Retail) 30,870 4,536,663
Elf Aquitaine SA (Oil) ............ 36,500 5,356,521
Galeries Lafayette (Discretionary
Retail)........................... 44,360 5,869,528
Gemini Sogeti SA
(Data and Imaging Services) ...... 33,400 5,249,482
Groupe Danone (Food and Beverage) . 21,100 5,440,107
Societe Generale (Banks and
Thrifts).......................... 10,100 1,780,117
STMicroelectronics
(Semiconductors and Electronics) . 95,062 6,333,219
Vivendi (Conglomerate and
Aerospace)........................ 120,272 9,743,068
-----------------
TOTAL FRANCE 63,133,828
-----------------
GERMANY ( 0.4% )
Adidas-Salomon AG
(Textiles and Apparel) ........... 25,800 2,560,976
Bayericshe Hypo-und Vereinsb
(Banks and Thrifts) + ............ 72,687 4,722,613
Buderus AG
(Forest Products and Building
Materials)........................ 9,120 3,658,722
DaimlerChrysler AG (Automotive) ... 41,763 3,617,895
Debitel (Banks and Thrifts) ....... 30,000 860,104
Deutsche Pfandbrief &
Hypothekenbank AG (Banks and
Thrifts).......................... 62,300 5,653,999
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
GERMANY (CONTINUED)
Douglas Holding AG
(Discretionary Retail) ........... 11,700 $ 524,880
Fresenius Medical Care AG
(Biotech and Medical Products) ... 74,350 4,439,607
Gehe AG (Health Services) ......... 92,500 4,254,628
Mannesmann AG (Producer Goods) .... 76,350 11,393,643
Siemens AG
(Electrical Machinery and
Instruments)...................... 26,740 2,062,757
-----------------
TOTAL GERMANY 43,749,824
-----------------
HONG KONG ( 0.0% )
China Telecom Ltd.
(Other Telecommunications) + ..... 486,000 1,349,843
First Pacific Co. Ltd. (Producer
Goods)............................ 3,025,510 2,573,608
-----------------
TOTAL HONG KONG 3,923,451
-----------------
IRELAND ( 0.2% )
Allied Irish Banks (Banks and
Thrifts).......................... 443,833 5,835,993
CRH Plc
(Forest Products and Building
Materials)........................ 393,030 6,971,708
Waterford Wedgewood
(Housing and Furnishings) ........ 5,197,999 5,360,696
-----------------
TOTAL IRELAND 18,168,397
-----------------
ITALY ( 0.1% )
Banca del Nazionale Lavoro
(Banks and Thrifts) + ............ 1,214,000 3,818,595
Telecom Italia SpA
(Other Telecommunications) ....... 493,500 5,130,181
-----------------
TOTAL ITALY 8,948,776
-----------------
JAPAN ( 0.5% )
Asatsu-DK Inc. (Commercial
Services)......................... 4,800 126,900
Citizen Watch Co. (Consumer
Specialties)...................... 90,000 780,734
Fuji Heavy Industries Ltd.
(Automotive)...................... 492,000 3,796,497
Meitec Corp. (Commercial Services) 96,800 3,238,929
Mizuno Corp. (Consumer Specialties) 674,000 2,550,330
NTT Mobile Communication Network,
Inc. (Other Telecommunications) + 4,800 6,503,635
Promise Co., Ltd. (Consumer
Finance).......................... 75,800 4,477,611
Seino Transportation Co. Ltd.
(Surface Transport) .............. 900,000 5,353,602
Shin-Etsu Chemical Co., Ltd.
(Specialty Chemicals) ............ 142,000 4,751,322
Shohkoh Fund & Co. (Consumer
Finance).......................... 2,100 1,505,948
SoftBank Corp.
(Semiconductors and Electronics) . 30,600 6,196,348
Sony Corp. (Housing and
Furnishings)...................... 48,500 5,229,057
Terumo Corp.
(Biotech and Medical Products) ... 162,800 3,624,802
-----------------
TOTAL JAPAN 48,135,715
-----------------
MEXICO ( 0.0% )
Cemex SA de CV
(Forest Products and Building
Materials)........................ 323,000 1,658,633
See Notes to Portfolio of Investments. 61
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
GROWTH AND INCOME (continued)
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
MEXICO (CONTINUED)
Telefonos de Mexico SA, ADR
(Other Telecommunications) ....... 17,500 $ 1,414,219
-----------------
TOTAL MEXICO 3,072,852
-----------------
NETHERLANDS ( 1.3% )
Akzo Nobel NV (Specialty Chemicals) 74,100 3,117,909
ING Groep NV
(Diversified Financial Services) . 193,322 10,467,081
Koninklijke Ahold NV
(Food and Drug Retail) ........... 135,256 4,658,950
Libertel NV (Other) ............... 75,000 1,469,603
Nutreco Holding NV
(Food and Drug Retail) ........... 180,600 6,407,096
Royal Dutch Petroleum Co. (Oil) ... 1,439,000 86,699,750
United Pan-Europe Communications NV
(Electronic Media) + ............. 39,100 2,121,033
United Pan-Europe Communications NV
(Electronic Media) ............... 45,000 2,486,250
Vendex KBB N.V. (Discretionary
Retail)........................... 140,973 3,765,483
VNU-Verenigde Nederlandes
Uitgeversbedrijven Verenigd Bezit
(Print Media) .................... 122,400 4,891,456
-----------------
TOTAL NETHERLANDS 126,084,611
-----------------
NEW ZEALAND ( 0.0% )
Fernz Corp. Ltd. (Specialty
Chemicals)........................ 579,500 1,676,641
---------------
NORWAY ( 0.2% )
Christiania Bank Og Kredkasse
(Banks and Thrifts) .............. 580,000 2,084,980
Contextvision AB
(Data and Imaging Services) + .... 340,700 973,738
Merkantildata ASA
(Data and Imaging Services) ...... 461,900 4,459,117
Ocean Rig ASA (Oil Services) + .... 24,274,300 7,307,728
Petroleum Geo-Services (Oil
Services) + ...................... 232,400 3,498,177
Tomra Systems ASA (Producer Goods) 63,000 2,368,752
-----------------
TOTAL NORWAY 20,692,492
-----------------
SPAIN ( 0.1% )
Telefonica de Espana
(Major Telecommunications) ....... 133,334 6,422,969
Telefonica Publicidad e
Informacion, S.A. (Consumer
Services)......................... 100,000 1,995,565
-----------------
TOTAL SPAIN 8,418,534
-----------------
SWEDEN ( 0.2% )
Autoliv, Inc. (Automotive) ........ 22,900 697,612
Ericsson ADR
(Other Telecommunications) ....... 62,600 2,061,887
Securitas AB (Commercial Services) 580,400 8,669,819
Skandinaviska Enskilda Banken
(Banks and Thrifts) .............. 348,400 4,056,881
Svenska Cellulosa AB
(Consumer Products) .............. 57,600 1,490,473
-----------------
TOTAL SWEDEN 16,976,672
-----------------
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
SWITZERLAND ( 0.3% )
Fischer (Georg) AG (Producer Goods) 9,970 $ 3,251,505
Roche Holding AG (Drugs) .......... 774 7,956,079
Sulzer AG
(Conglomerate and Aerospace) + ... 6,470 3,932,941
Swiss Common
(Other Telecommunications) + ..... 16,500 6,208,993
UBS AG (Banks and Thrifts) ........ 21,100 6,297,697
-----------------
TOTAL SWITZERLAND 27,647,215
-----------------
UNITED KINGDOM ( 0.8% )
BAA Plc (Commercial Services) ..... 630,900 6,066,375
Bank of Scotland (Banks and
Thrifts).......................... 486,613 6,443,204
Bass Plc (Food and Beverage) ...... 42,500 616,668
British Aerospace Plc
(Conglomerate and Aerospace) ..... 85,957 557,897
British Telecom Plc
(Other Telecommunications) ....... 383,489 6,425,768
Cable & Wireless Plc
(Other Telecommunications) + ..... 512,700 6,534,046
Dixons Group Plc (Discretionary
Retail)........................... 376,737 7,037,129
General Electric Co. Plc
(Conglomerate and Aerospace) ..... 337,600 3,443,068
Glaxo Wellcome Plc (Drugs) ........ 1,696 47,132
Granada Group Plc (Electronic
Media) + ......................... 362,962 6,734,052
Hanson Plc (Conglomerate and
Aerospace)........................ 320,600 2,847,714
Kingfisher Plc (Discretionary
Retail)........................... 426,312 4,905,568
MEPC Plc (Diversified Financial
Services)......................... 456,102 3,709,794
National Westminster Bank Plc
(Banks and Thrifts) .............. 179,750 3,810,922
Railtrack Group (Surface Transport) 70,000 1,431,123
SmithKline Beecham Plc (Drugs) .... 473,079 6,148,415
Vodafone Group Plc
(Other Telecommunications) ....... 482,914 9,515,217
WPP Group Plc (Commercial Services) 651,785 5,512,048
-----------------
TOTAL UNITED KINGDOM 81,786,140
-----------------
TOTAL FOREIGN COMMON STOCKS (COST $471,976,859) 532,923,746
-----------------
TOTAL COMMON STOCKS (COST $8,149,176,257) 9,578,763,679
-----------------
PREFERRED STOCKS ( 0.2% )
UNITED STATES ( 0.2% )
Archstone Communities Trust
(Real Estate Investment Trusts) .. 19,400 577,150
Chancellor Media Corp.
(Electronic Media) + ............. 18,600 2,856,428
Equity Residential Properties Trust
(Real Estate Investment Trusts) + 27,900 704,475
Ingersoll-Rand Co. (Producer Goods)
+................................. 55,800 1,674,000
International Paper Co. (Forest
Products and Building Materials) +
++................................ 9,300 483,600
Kaufman & Broad Home Corp.
(Housing and Furnishings) + ...... 255,800 2,078,375
62 See Notes to Portfolio of Investments.
- --------------------------------------------------------------------------------
<PAGE>
NUMBER OF MARKET
SHARES VALUE
--------------- -----------------
UNITED STATES (CONTINUED)
Lincoln National Corp. (Insurance)
+................................. 74,400 $ 2,022,750
Merrill "Dg" (Strypes)
(Discretionary Retail) + ......... 69,700 2,988,387
Merrill CBR (Investment Services) + 27,900 1,171,800
Owens-Illinois, Inc. (Forest
Products and Building Materials) + 18,600 813,750
Salomon, Inc. (Investment Services)
+................................. 69,800 5,374,600
Tanger Factory Outlet Centers, Inc.
(Real Estate Investment Trusts) + 55,800 1,318,275
Union Planters Co. (Banks and
Thrifts) + ....................... 18,600 1,036,950
-----------------
TOTAL UNITED STATES 23,100,540
-----------------
TOTAL PREFERRED STOCKS (COST $20,833,501) 23,100,540
-----------------
NUMBER OF
CONTRACTS
---------------
PUT OPTIONS PURCHASED ( 0.0% )
Russell 2000 Index, Strike $440,
Sept. 99.......................... 3,515 3,822,563
S&P MidCap 400 Index, Strike $400,
Sept. 99.......................... 987 999,338
-----------------
TOTAL PUT OPTIONS PURCHASED (COST $8,987,971) 4,821,901
-----------------
PRINCIPAL
AMOUNT
---------------
LONG-TERM BONDS AND NOTES ( 1.0% )
CORPORATE BONDS ( 1.0% )
Agnico-Eagle Mines
Ltd.,3.50%,01/27/04............... $ 2,900,000 1,816,125
Alza Corp.,5.00%,05/01/06 ......... 930,000 1,275,262
American Express Credit Corp.,
1.13%,02/19/03 ................... 2,820,000 3,426,300
Automatic Data Processing, Inc.,
Zero Coupon,02/20/12 ............. 970,000 1,090,037
Baker Hughes, Inc.,Zero
Coupon,05/05/08................... 3,325,000 2,493,750
Brightpoint Convertible,Zero
Coupon,
03/11/18 ......................... 3,255,000 813,750
Checkpoint Systems,
Inc.,5.25%,11/01/05............... 1,162,000 880,215
Comcast Corp.,Zero Coupon,05/15/59 6,470,000 5,596,550
Comverse Technology, Inc.,
5.75%,10/01/06 ++ ................ 4,600,000 11,845,000
Credence Systems
Corp.,5.25%,09/15/02 ++ .......... 3,700,000 3,330,000
Einstein/Noah Bagel Corp.,
7.25%,06/01/04 ................... 4,630,000 2,643,796
EMC Corp.,3.25%,03/15/02 ++ ...... 3,660,000 17,943,150
Fremont General Corp.,Zero Coupon,
10/12/13 ......................... 930,000 671,925
Hewlett Packard Co.,Zero Coupon,
10/14/17 ++ ...................... 8,370,000 5,283,562
Home Depot, Inc.,3.25%,10/01/01 ... 1,860,000 5,203,350
Homebase, Inc.,5.25%,11/01/04 ..... 2,790,000 2,427,300
Integrated Health Services,
Inc.,5.75%,01/01/01............... 1,395,000 896,288
Marriott International, Inc.,Zero
Coupon,
03/25/11 ++ ...................... 2,730,000 1,951,950
PRINCIPAL AMOUNT MARKET
VALUE
------------------ -----------------
CORPORATE BONDS (CONTINUED)
National Semiconductor Corp.,
6.50%,10/01/02 ++ ................ $ 4,650,000 $ 4,417,500
Office Depot, Inc.,Zero
Coupon,12/11/07................... 3,425,000 3,442,125
Ogden Corp.,5.75%,10/20/02 ........ 930,000 868,388
Ogden Corp.,6.00%,06/01/02 ........ 475,000 448,875
Pennzenergy Co.,4.90%,08/15/08 .... 532,000 572,565
Pennzenergy Co.,4.95%,08/15/08 .... 727,000 748,810
Phycor, Inc.,4.50%,02/15/03 ....... 1,395,000 779,456
Phymatrix Corp.,6.75%,06/15/03 .... 2,300,000 1,035,000
Pioneer Financial
Services,6.50%,04/01/03........... 1,395,000 1,508,344
Roche Holdings,Zero Coupon,05/06/12
++................................ 11,625,000 5,565,469
Tel-Save Holding,
Inc.,5.00%,12/15/04 ++ ........... 1,400,000 896,000
Thermo Instrument System,
4.50%,10/15/03 ++ ................ 930,000 830,025
Tribune Co.,Zero Coupon,05/15/29 .. 3,530,000 4,421,325
U.S. Cellular Corp.,Zero
Coupon,06/15/15................... 2,325,000 1,162,500
Vantive Corp.,4.75%,09/01/02 ++ ... 930,000 696,338
Veterinary Centers of America,
Inc.,
5.25%,05/01/06 ++ ................ 465,000 339,450
-----------------
TOTAL CORPORATE BONDS 97,320,480
-----------------
TOTAL LONG-TERM BONDS AND NOTES (COST $76,431,358) 97,320,480
-----------------
SHORT-TERM INVESTMENTS ( 2.3% )
Central & South West Corp.,
6.25%,07/01/99 ++ ................ 58,333,000 58,333,000
Conagra, Inc.,5.30%,06/12/00 ...... 25,000,000 24,998,250
Lockheed Martin
Corp.,6.14%,07/01/99 ++ .......... 43,105,000 43,105,000
Rohm & Haas Co.,6.30%,07/01/99 .... 48,485,000 48,485,000
TRW, Inc.,6.15%,07/01/99 ++ ....... 42,754,000 42,754,000
U.S. Treasury Bill,4.43%,08/19/99 @ 16,200,000 16,102,319
U.S. Treasury Bill,4.48%,08/19/99 @ 1,200,000 1,192,704
-----------------
TOTAL SHORT-TERM INVESTMENTS (COST $234,934,197) 234,970,273
-----------------
TOTAL INVESTMENTS (COST $8,490,363,284)(A) 9,938,976,873
OTHER ASSETS LESS LIABILITIES 60,384,494
-----------------
TOTAL NET ASSETS $9,999,361,367
=================
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$8,540,125,749. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains........................... $1,693,311,744
Unrealized losses.......................... (294,460,620)
-----------------------
Net unrealized gain....................... $1,398,851,124
=======================
</TABLE>
See Notes to Financial Statements. 63
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
GROWTH AND INCOME (continued)
NOTES TO PORTFOLIO OF INVESTMENTS (CONTINUED)
Information concerning open futures contracts at June 30, 1999 is shown below:
<TABLE>
<CAPTION>
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
---------- ------------- ----------- ----------------
LONG CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
Russell 2000 Index
Futures............... 30 $ 6,667,275 Sept 99 $ 262,725
S&P 500 Index Futures. 533 176,923,382 Sept 99 7,188,143
DAX Index Futures..... 67 9,431,092 Sept 99 (119,193)
CAC 40 Index Futures.. 55 2,554,959 Sept 99 39,138
------------ ------------
$195,576,708 $ 7,370,813
============ ============
</TABLE>
<TABLE>
<CAPTION>
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
--------- -------------- ---------- ---------------
SHORT CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
FTSE 100 Index Futures 47 $ (4,883,992) Sept 99 $ 134,427
TOPIX Index Futures... 60 (6,800,370) Sept 99 (294,696)
-------------- -------------
(11,684,362) (160,269)
============== =============
</TABLE>
<TABLE>
Information concerning options written at June 30, 1999 is shown below:
NO. OF EXERCISE EXPIRATION MARKET
CONTRACTS PRICE DATE VALUE
---------- --------- ----------- ----------------
CALL OPTIONS
- ---------------------
<S> <C> <C> <C> <C>
Russell 2000 Index... 3,515 $440.00 Sept 99 $(11,335,875)
S&P MidCap 400 Index. 987 400.00 Sept 99 (2,874,638)
------------
$(14,210,513)
============
</TABLE>
+ Non-income producing security.
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1999.
Information concerning restricted securities at June 30, 1999 is shown below:
<TABLE>
<CAPTION>
ACQUISITION
DATE COST
---------------- -------------------
<S> <C> <C>
Beacon Capital .......................... 03/17/98 $ 5,352,000
Central & South West Corp. .............. 06/29/99 58,333,000
Comverse Technology, Inc. ............... 10/04/96 4,600,000
Credence Systems Corp. .................. 09/10/97 3,700,000
EMC Corp. ............................... 03/11/97 3,660,000
Hewlett Packard Co. ..................... 10/14/97 4,747,033
International Paper Co. ................. 07/13/95 465,000
Lockheed Martin Corp. ................... 06/29/99 43,105,000
Marriott International, Inc. ............ 03/25/96 1,649,728
National Semiconductor Corp. ............ 09/27/95 4,650,000
Roche Holdings .......................... 05/06/97 5,190,061
Tel-Save Holding, Inc. .................. 12/10/97 1,400,000
Thermo Instrument System ................ 10/24/96 930,000
TRW, Inc. ............................... 06/29/99 42,754,000
Vantive Corp. ........................... 08/21/97 930,000
Veterinary Centers of America, Inc. ..... 04/17/96 458,122
------------
$181,923,944
============
</TABLE>
The market value of the total restricted securities above represent 2.02% of the
total net assets.
Category percentages are based on net assets.
64 See Notes to Financial Statements.
<PAGE>
GROWTH & INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999
REAL ESTATE
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES VALUE
------------ -------------
<S> <C> <C>
COMMON STOCKS ( 100.0% )
REAL ESTATE INVESTMENT TRUSTS ( 100.0% )
Apartment Investment & Management Co. .... 5,600 $ 239,400
Archstone Communities Trust .............. 2,600 57,038
Arden Realty Group, Inc. ................. 2,700 66,487
Avalon Bay Communities, Inc. ............. 1,700 62,900
Beacon Capital + + ....................... 6,800 104,550
Bedford Property Investors, Inc. ......... 2,600 46,475
Boston Properties, Inc. .................. 2,600 93,275
Brandywine Realty Trust .................. 3,800 75,287
Camden Property Trust .................... 8,800 244,200
Capital Automotive REIT .................. 2,200 29,150
Captec Net Lease Realty, Inc. ............ 300 4,069
CBL & Associates Properties, Inc. ........ 8,200 216,275
Colonial Properties Trust ................ 3,000 84,750
Crescent Real Estate Equities, Inc. ...... 6,600 156,750
Criimi Mae, Inc. ......................... 8,600 19,350
Developers Diversified Realty Corp. ...... 6,600 109,725
Equity Office Properties Trust ........... 11,400 292,125
Equity One, Inc. ......................... 900 8,888
Equity Residential Properties Trust ...... 5,300 238,831
Essex Property Trust, Inc. ............... 6,300 222,862
First Industrial Realty Trust, Inc. ...... 2,200 60,362
General Growth Properties, Inc. .......... 4,100 145,550
Glenborough Realty Trust, Inc. ........... 6,300 110,250
Golf Trust of America, Inc. .............. 6,600 161,287
Health Care REIT, Inc. ................... 8,400 195,300
Healthcare Realty Trust, Inc. ............ 2,500 52,500
Home Properties of New York, Inc. ........ 3,800 104,975
Hospitality Properties Trust ............. 1,800 48,825
Host Marriott Corp. ...................... 12,000 142,500
HRPT Properties Trust .................... 3,500 53,594
Imperial Credit Commercial Mortgage
Investment Corp. ........................ 700 7,569
Kimco Realty Corp. ....................... 4,600 179,975
Koger Equity, Inc. ....................... 6,900 127,219
Liberty Property Trust ................... 5,200 129,350
Manufactured Home Communities, Inc. ...... 2,200 57,200
Pan Pacific Retail Properties, Inc. ...... 1,400 27,125
Parkway Properties, Inc. ................. 1,600 53,000
Post Properties, Inc. .................... 4,200 172,200
Prentiss Properties Trust ................ 4,700 110,450
Prime Retail, Inc. ....................... 2,400 20,850
PS Business Parks, Inc. .................. 10,200 248,625
Public Storage, Inc. ..................... 2,088 58,464
Reckson Associates Realty Corp. .......... 2,400 56,400
Reckson Associates Realty Corp. .......... 451 10,768
Shurgard Storage Centers, Inc. ........... 1,400 37,975
Simon Property Group, Inc. ............... 5,800 147,175
Starwood Hotels & Resort Worldwide, Inc. . 4,400 134,475
Summit Properties Inc. ................... 3,000 59,250
Sun Communities, Inc. .................... 1,600 56,800
NUMBER OF MARKET
SHARES VALUE
------------ -------------
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Trizec Hahn Corp. ........................ 1,300 $ 26,488
Weeks Corp. .............................. 4,000 122,000
-------------
TOTAL COMMON STOCKS (COST $5,788,329) 5,290,888
-------------
TOTAL INVESTMENTS (COST $5,788,329)(A) 5,290,888
OTHER ASSETS LESS LIABILITIES 431
-------------
TOTAL NET ASSETS $5,291,319
=============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$5,810,644. Unrealized gains and losses, based on identified tax cost at June
30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................... $ 122,111
Unrealized losses.............................. (641,867)
-------------------
Net unrealized loss........................... $(519,756)
===================
</TABLE>
+ Non-income producing security.
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
<TABLE>
<CAPTION>
Information concerning restricted securities at June 30, 1999 is shown below:
ACQUISITION
DATE COST
--------------------- --------------------
<S> <C> <C>
Beacon Capital .................... 03/17/98 $136,000
========
</TABLE>
The market value of the total restricted securities above represent 1.98% of the
total net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 65
<PAGE>
GROWTH & INCOME PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
BALANCED GROWTH AND INCOME REAL ESTATE
-------------- ------------------ ----------------
<S> <C> <C> <C>
ASSETS:
Investments, at market
value................ $1,955,207,404 $ 9,938,976,873 $ 5,290,888
Cash ................. 266,499 5,050,313 47,969
Cash denominated in
foreign currencies .. -- 19,481,596 --
Receivable for:
Dividends and
interest............. 9,732,710 9,822,865 48,990
Investments sold .... 19,970,755 85,759,991 21,095
Fund shares sold .... 25,391 87,840 --
Variation margin .... 213,900 3,505,818 --
Recoverable foreign
taxes................ -- 891,431 --
Prepaid expenses ..... 7,919 45,611 24
Gross unrealized gain
on forward foreign
currency exchange
contracts............ -- 1,493,968 --
-------------- --------------- ------------
Total assets .... 1,985,424,578 10,065,116,306 5,408,966
-------------- --------------- ------------
LIABILITIES:
Payable for:
Investments purchased 13,946,895 41,687,196 --
Fund shares redeemed 1,758,070 4,663,947 109,329
Call options written,
at market value
(Premiums received,
Growth and Income,
$11,525,901)......... -- 14,210,513 --
Accrued investment
advisory fees ....... 786,205 3,969,293 3,415
Accrued
administrative
service fees ........ 117,931 499,669 342
Accrued custody fees 58,105 198,295 2,274
Other liabilities .... 67,795 275,867 2,287
Gross unrealized loss
on forward foreign
currency exchange
contracts............ -- 250,159 --
-------------- --------------- ------------
Total liabilities 16,735,001 65,754,939 117,647
-------------- --------------- ------------
NET ASSETS .......... $1,968,689,577 $ 9,999,361,367 $ 5,291,319
============== =============== ============
NET ASSETS REPRESENTED
BY:
Paid-in capital ...... $1,629,457,614 $ 7,702,472,739 $ 5,910,794
Net unrealized gain
(loss) on
investments, open
futures contracts and
foreign currency
related transactions 234,120,744 1,454,384,646 (497,441)
Undistributed net
investment income ... 27,612,947 10,411,155 150,435
Accumulated net
realized gain (loss)
on investments ...... 77,498,272 832,092,827 (272,469)
-------------- --------------- ------------
NET ASSETS .......... $1,968,689,577 $ 9,999,361,367 $ 5,291,319
============== =============== ============
CAPITAL SHARES:
Authorized ........... Two Billion Unlimited Two Billion
Par Value ............ $ 0.001 $ 1.000 $ 0.001
Outstanding .......... 126,967,325 294,870,872 584,851
Net Asset Value,
offering and
redemption price per
share (net assets
divided by shares
outstanding)......... $ 15.51 $ 33.91 $ 9.05
Cost of investments .. $1,721,670,093 $ 8,490,363,284 $ 5,788,329
Cost of cash
denominated in
foreign currencies .. $ -- $ 19,538,776 $ --
</TABLE>
66 See Notes to Financial Statements.
<PAGE>
GROWTH & INCOME PORTFOLIOS
STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
GROWTH AND
BALANCED INCOME REAL ESTATE
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ........................ $ 6,932,383 $ 61,634,418 $168,452
Interest ......................... 26,326,463 9,705,084 6,623
------------ ------------ --------
33,258,846 71,339,502 175,075
Foreign taxes withheld on
dividends........................ (78,909) (566,499) --
------------ ------------ --------
Total investment income ..... 33,179,937 70,773,003 175,075
------------ ------------ --------
INVESTMENT EXPENSES:
Investment advisory fees ......... 4,663,418 23,837,863 19,407
Administrative services fees ..... 699,513 2,993,376 1,941
Printing and postage fees ........ 26,522 143,413 1,430
Custody fees ..................... 64,325 198,757 1,185
Transfer agent fees .............. 1,262 5,814 1,279
Audit fees ....................... 22,227 31,599 13,121
Directors'/Trustees' fees ........ 27,319 145,413 87
Registration fees ................ 22,511 95,134 235
Miscellaneous expenses ........... 28,563 159,247 103
------------ ------------ --------
Expenses before reimbursement and
waiver from Investment Adviser .. 5,555,660 27,610,616 38,788
Expense reimbursement and waiver
from Investment Adviser ......... -- -- (14,181)
------------ ------------ --------
Net expenses ................ 5,555,660 27,610,616 24,607
------------ ------------ --------
Net investment income ............ 27,624,277 43,162,387 150,468
------------ ------------ --------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ..................... 82,684,850 893,485,354 (86,377)
Closed and expired options ...... -- (55,572,733) --
Futures and forward foreign
currency exchange contracts ..... 2,431,352 46,909,486 --
Foreign currency related
transactions..................... -- (2,810,452) --
------------ ------------ --------
Net realized gain (loss) on
investments.................. 85,116,202 882,011,655 (86,377)
------------ ------------ --------
Net change in unrealized gain or
loss on:
Investments ..................... 7,246,730 1,336,091 251,520
Written options ................. -- 25,140,455 --
Futures and forward foreign
currency exchange contracts ..... 583,433 (20,212,827) --
Foreign currency related
transactions..................... -- (172,593) --
------------ ------------ --------
Net change in unrealized gain
or loss on investments ...... 7,830,163 6,091,126 251,520
------------ ------------ --------
Net realized and change in
unrealized gain or loss on
investments...................... 92,946,365 888,102,781 165,143
------------ ------------ --------
Net increase in net assets
resulting from operations ....... $120,570,642 $931,265,168 $315,611
============ ============ ========
</TABLE>
See Notes to Financial Statements. 67
<PAGE>
GROWTH & INCOME PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BALANCED
-----------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 27,624,277 $ 53,056,913
Net realized gain on investments........ 85,116,202 129,611,198
Net change in unrealized gain or loss on
investments............................ 7,830,163 90,857,948
-------------- --------------
Net increase in net assets resulting
from operations........................ 120,570,642 273,526,059
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............. (8,062,898) (45,005,345)
From net realized gains................ (135,409,611) (255,329,194)
-------------- --------------
Decrease in net assets from
distributions to shareholders.......... (143,472,509) (300,334,539)
-------------- --------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............. 113,166,299 63,609,192
Net asset value of shares issued upon
reinvestment of distributions......... 143,472,509 300,334,539
Payments for shares redeemed........... (117,402,865) (126,833,307)
-------------- --------------
Net increase in net assets from fund
share transactions..................... 139,235,943 237,110,424
-------------- --------------
Net change in net assets................ 116,334,076 210,301,944
NET ASSETS:
Beginning of period..................... 1,852,355,501 1,642,053,557
-------------- --------------
End of period........................... $1,968,689,577 $1,852,355,501
============== ==============
End of period net assets includes
undistributed net investment income.... $ 27,612,947 $ 8,051,568
============== ==============
SHARE TRANSACTIONS:
Number of shares sold.................. 7,085,559 3,888,368
Number of shares issued upon
reinvestment of distributions......... 9,438,981 19,665,398
Number of shares redeemed.............. (7,323,364) (8,207,096)
-------------- --------------
Net increase........................... 9,201,176 15,346,670
============== ==============
</TABLE>
68 See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
GROWTH AND INCOME
-----------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income................... $ 43,162,387 $ 98,576,593
Net realized gain on investments........ 882,011,655 1,720,373,368
Net change in unrealized gain or loss on
investments............................ 6,091,126 (546,496,697)
-------------- ---------------
Net increase in net assets resulting
from operations........................ 931,265,168 1,272,453,264
-------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............. (31,808,432) (106,400,592)
From net realized gains................ (280,502,939) (1,621,614,754)
-------------- ---------------
Decrease in net assets from
distributions to shareholders.......... (312,311,371) (1,728,015,346)
-------------- ---------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............. 94,496,342 173,705,279
Net asset value of shares issued upon
reinvestment of distributions......... 312,049,328 1,727,349,858
Payments for shares redeemed........... (827,190,470) (832,700,179)
-------------- ---------------
Net increase (decrease) in net assets
from fund share transactions........... (420,644,800) 1,068,354,958
-------------- ---------------
Net change in net assets................ 198,308,997 612,792,876
NET ASSETS:
Beginning of period..................... 9,801,052,370 9,188,259,494
-------------- ---------------
End of period........................... $9,999,361,367 $ 9,801,052,370
============== ===============
End of period net assets includes
undistributed (distributions in excess
of) net investment income.............. $ 10,411,155 $ (942,800)
============== ===============
SHARE TRANSACTIONS:
Number of shares sold.................. 2,828,987 4,918,286
Number of shares issued upon
reinvestment of distributions......... 9,470,217 53,542,755
Number of shares redeemed.............. (24,959,805) (24,104,473)
-------------- ---------------
Net increase (decrease)................ (12,660,601) 34,356,568
============== ===============
</TABLE>
See Notes to Financial Statements. 69
<PAGE>
GROWTH & INCOME PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REAL ESTATE
--------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income...................... $ 150,468 $ 285,774
Net realized loss on investments........... (86,377) (187,051)
Net change in unrealized gain or loss on
investments............................... 251,520 (903,215)
----------- -----------
Net increase (decrease) in net assets
resulting from operations................. 315,611 (804,492)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................ (1,368) (282,137)
----------- -----------
Decrease in net assets from distributions
to shareholders........................... (1,368) (282,137)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................. 5,856,044 3,471,174
Net asset value of shares issued upon
reinvestment of distributions............ 1,368 142,761
Payments for shares redeemed.............. (6,379,954) (2,180,599)
----------- -----------
Net increase (decrease) in net assets from
fund share transactions................... (522,542) 1,433,336
----------- -----------
Net change in net assets................... (208,299) 346,707
NET ASSETS:
Beginning of period........................ 5,499,618 5,152,911
----------- -----------
End of period.............................. $ 5,291,319 $ 5,499,618
=========== ===========
End of period net assets includes
undistributed net investment income....... $ 150,435 $ 1,335
=========== ===========
SHARE TRANSACTIONS:
Number of shares sold..................... 672,293 371,334
Number of shares issued upon reinvestment
of distributions......................... 152 16,996
Number of shares redeemed................. (732,659) (243,265)
----------- -----------
Net increase (decrease)................... (60,214) 145,065
=========== ===========
</TABLE>
70 See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Statements contained herein refer to Aetna Balanced VP, Inc. (Balanced),
Aetna Variable Fund d/b/a Aetna Growth and Income VP (Growth and Income) and
Aetna Real Estate Securities VP (Real Estate), a portfolio of Aetna Variable
Portfolios, Inc. (Variable Portfolios) (individually, a Fund, and collectively,
the Funds).
Balanced was incorporated under the laws of Maryland on December 14, 1988.
Growth and Income was organized under the laws of Massachusetts on January 25,
1984. Variable Portfolios was incorporated under the laws of Maryland on June 4,
1996. The Articles of Incorporation of Variable Portfolios permit it to offer
separate portfolios, each of which has its own investment objective, policies
and restrictions. Variable Portfolios currently offers ten separate portfolios,
including Real Estate. Balanced, Growth and Income, and Variable Portfolios are
each registered under the Investment Company Act of 1940 (the Act) as open-end
management investment companies.
The following is each Fund's investment objective:
BALANCED seeks to maximize investment return, consistent with reasonable
safety of principal, by investing in a diversified portfolio of one or more
of the following asset classes: stocks, bonds and cash equivalents, based on
the judgement of the Fund's investment adviser, Aeltus Investment Management,
Inc. (Aeltus), of which of those sectors or mix thereof offers the best
investment prospects.
GROWTH AND INCOME seeks to maximize total return through investments in a
diversified portfolio of common stocks and securities convertible into common
stock. It is anticipated that capital appreciation and investment income will
both be major factors in achieving total return.
REAL ESTATE seeks maximum total return primarily through investment in a
diversified portfolio of equity securities of real estate companies, the
majority of which are real estate investment trusts (REITs).
Shares in the Funds are currently sold to Aetna Life Insurance and Annuity
Company (ALIAC), an Aetna Life Insurance Separate Account, and in the case of
Growth and Income, to existing shareholders through reinvestment of
distributions. ALIAC's shares are allocated to certain of its variable
life/annuity accounts. At June 30, 1999, ALIAC's separate accounts and
affiliates held all of Balanced's and Real Estate's shares outstanding and 99.6%
of Growth and Income's shares outstanding.
Aeltus serves as the investment adviser to the Funds. ALIAC serves as the
principal underwriter to each Fund. Aeltus and ALIAC are both indirect
wholly-owned subsidiaries of Aetna Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of each Fund have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of each Fund.
A. VALUATION OF INVESTMENTS
Investments are stated at market values based upon prices furnished by external
pricing sources as reported on national securities exchanges or, for
over-the-counter securities, at the mean of the bid and asked prices. Short-term
investments maturing in more than sixty days for which market quotations are
readily available are valued at current market value. Short-term investments
maturing in less than sixty days are valued at amortized cost, which when
combined with accrued interest, approximates market value. Securities and fixed
income investments for which market quotations are not considered to be readily
available are valued using methods approved by the Board of Directors/Trustees.
The accounting records of each Fund are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the prevailing rates of exchanges at the end
of each day of each applicable foreign market. The Funds do not isolate the
portion of the results of operations resulting from changes in
71
<PAGE>
GROWTH AND INCOME PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
foreign exchange rates on investments from the fluctuations arising from changes
in their market prices. Such fluctuations are included in net realized and
unrealized gain or loss on investments.
Purchases and sales of securities, income receipts, and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the respective
dates of the transactions.
B. OPTIONS CONTRACTS
The Funds may purchase put and call options and may write (sell) put options and
covered call options. The Funds engage in option transactions 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 Funds will realize a gain or loss upon the expiration or closing
of the option contract. When an option is exercised, the proceeds on sales of
the underlying security for a written call option, the purchase cost of the
security for a written put option, or the cost of the security for a purchased
put or call option is adjusted by the amount of premium received or paid.
Realized and unrealized gains or losses on option contracts are reflected in the
accompanying financial statements.
The risk in writing a call option is that 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 invest in financial
futures contracts as a hedge against existing portfolio securities, to manage
the risk of changes in interest rates, equity prices, currency exchange rates or
in anticipation of future purchases and sales of portfolio securities.
Upon entering into a futures contract, the Funds are required to deposit with a
broker an amount (initial margin) equal to a percentage of the purchase price
indicated by the futures contract. Subsequent deposits (variation margin) are
received or paid each day by the Funds equal to the daily fluctuations in the
market value of the contract. These amounts are recorded by the Funds as
unrealized gains or losses. When a contract is closed, the Funds record a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed. Generally,
futures contracts held by the Funds are closed prior to expiration.
A forward foreign currency exchange contract is an agreement to pay or receive
specific amounts of a currency at a future date in exchange for another currency
at an agreed upon exchange rate. The Funds, where authorized, may use forward
foreign currency exchange contracts to hedge against foreign currency exchange
rate risks on their non-U.S. dollar denominated portfolio securities. 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 financial futures and forward foreign
currency exchange contracts are reflected in the accompanying financial
statements. The amounts at risk under such futures and forward foreign currency
exchange contracts may exceed the amounts reflected in the financial statements.
The notional amounts (economic exposure) of these contracts are disclosed in the
Portfolios of Investments and elsewhere in the Notes to Financial Statements.
For federal income tax purposes, any futures and forward foreign currency
exchange contracts which remain open at the end of the fiscal year are
marked-to-market and the resultant net gain or loss is reported to shareholders
as federal taxable income.
72
<PAGE>
- --------------------------------------------------------------------------------
D. ILLIQUID AND RESTRICTED SECURITIES
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for the Funds to sell them promptly at an
acceptable price. Restricted securities are those which can only be sold under
Rule 144A of the Securities Act of 1933 (1933 Act) or are securities offered
pursuant to Section 4(2) of the 1933 Act, and are subject to legal or
contractual restrictions on resale and may not be publicly sold without
registration under the 1933 Act. Each Fund may invest up to 15% of its total
assets in illiquid securities. Illiquid and restricted securities are valued
using market quotations when readily available. In the absence of market
quotations, the securities are valued based upon their fair value determined
under procedures approved by the Board of Directors/Trustees. The Funds will not
pay the costs of disposition of restricted securities other than ordinary
brokerage fees, if any. Below is a summary of securities held which are both
illiquid and restricted as of June 30, 1999:
<TABLE>
<CAPTION>
COST MARKET VALUE % OF NET ASSETS
---- ------------ ---------------
<S> <C> <C> <C>
Growth and Income 5,352,000 $4,114,350 0.04%
Real Estate 136,000 104,550 1.98%
</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 such securities are identified in the Portfolios 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 connection with such purchases, the Funds are required to hold
liquid assets as collateral with their custodian sufficient to cover the
purchase price.
F. FEDERAL INCOME TAXES
Each Fund has met the requirements to be taxed as a regulated investment company
for the year ended December 31, 1998 and intends to meet the requirements for
the current year. As such, each Fund is relieved of federal income taxes by
distributing all of its net taxable investment income and capital gains, if any,
in compliance with the applicable provisions of the Internal Revenue Code.
Furthermore, by distributing substantially all of its net taxable investment
income and capital gains during the calendar year, each Fund will avoid federal
excise taxes in accordance with the applicable provisions of the Internal
Revenue Code. Thus, the financial statements contain no provision for federal
taxes.
G. DISTRIBUTIONS
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for foreign currency transactions, certain
futures contracts, certain investments in foreign equity securities and certain
losses deferred due to transactions characterized as "wash sales" by federal tax
regulations. In addition, distributions of realized gains from sales of
securities held one year or less are taxable to shareholders at ordinary income
tax rates rather than preferred capital gain tax rates in accordance with the
applicable provisions of the Internal Revenue Code.
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.
73
<PAGE>
GROWTH AND INCOME PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
3. INVESTMENT ADVISORY AND ADMINISTRATIVE FEES
Each Fund pays Aeltus a monthly fee expressed as a percentage of its average
daily net assets. Below are the Funds' annual investment advisory fees as of
June 30, 1999:
<TABLE>
<CAPTION>
ADVISORY FEE
------------
<S> <C>
Balanced 0.50%
Growth and Income 0.50%
Real Estate 0.75%
</TABLE>
Each Fund pays Aeltus an administrative services fee in exchange for receiving
certain administrative and shareholder services and to compensate Aeltus for
supervising the Funds' other service providers. Each Fund pays Aeltus an
administrative services fee at an annual rate based on its average daily net
assets. The rate is 0.075% on the first $5 billion in Fund assets and 0.050% on
all Fund assets over $5 billion.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Fund, in
exchange for fees payable by Aeltus, of up to 0.375% of the Funds' average daily
net assets. For the period January 1, 1999 through June 30, 1999, Aeltus paid
ALIAC $14,460,066.
4. REIMBURSEMENT AND WAIVER FROM INVESTMENT ADVISER
Aeltus is contractually obligated through December 31, 1999 to reimburse Real
Estate for some or all of its operating expenses or to waive fees in order to
maintain a certain expense ratio. Reimbursement and waiver arrangements will
increase Real Estate's yield and total return.
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1999 were:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------- -------------------
<S> <C> <C>
Balanced $ 710,045,714 $ 781,888,086
Growth and Income 4,907,866,889 5,545,439,976
Real Estate 773,576 992,592
</TABLE>
6. OPTIONS
All Funds may use options. For the period ended June 30, 1999, the following
reflects the written option activity:
<TABLE>
<CAPTION>
CALL OPTIONS WRITTEN
------------------------------------------------------------------
GROWTH AND INCOME Number of Premium Realized
Contracts Received Gain (Loss)
------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding December 31, 1998 15,136 $35,346,583 $--
Written 12,466 26,345,751 --
Closed (22,500) (49,823,245) (20,112,702)
Exercised (600) (343,188) --
------------------------------------------------------------------
Outstanding June 30, 1999 4,502 $11,525,901 $(20,112,702)
==================================================================
</TABLE>
74
<PAGE>
- --------------------------------------------------------------------------------
7. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
At June 30, 1999, Growth and Income had open forward foreign currency exchange
contracts that obligate the Fund to deliver currencies at specified future
dates. The net unrealized gain of $1,243,809 on these contracts are included in
the accompanying financial statements. The terms of the open contracts are as
follows:
<TABLE>
<CAPTION>
GROWTH AND INCOME
EXCHANGE CURRENCY TO BE U.S. $ VALUE CURRENCY TO BE U.S. $ VALUE UNREALIZED
DATE DELIVERED JUNE 30, 1999 RECEIVED JUNE 30, 1999 GAIN (LOSS)
---- --------- ------------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
CONTRACTS TO BUY
- ----------------
7/1/99 875,798 $875,798 6,280,000 $873,275 ($2,523)
U.S. Dollar Danish Krone
- ------------------------------------------------------------------------------------------
7/27/99 10,082,407 10,082,407 1,200,240,000 9,955,547 (126,860)
U.S. Dollar Japanese Yen
- ------------------------------------------------------------------------------------------
CONTRACTS TO SELL
- -----------------
7/19/99 15,912,280 16,378,930 17,244,933 17,244,933 866,003
Euro U.S. Dollar
- ------------------------------------------------------------------------------------------
7/19/99 192,000 197,631 208,474 208,474 10,843
Euro U.S. Dollar
- ------------------------------------------------------------------------------------------
7/19/99 251,000 258,361 261,617 261,617 3,256
Euro U.S. Dollar
- ------------------------------------------------------------------------------------------
7/19/99 700,000 720,528 721,546 721,546 1,018
Euro U.S. Dollar
- ------------------------------------------------------------------------------------------
7/19/99 368,000 378,792 383,416 383,416 4,624
Euro U.S. Dollar
- ------------------------------------------------------------------------------------------
8/25/99 9,518,898 9,762,582 9,837,210 9,837,210 74,628
Euro U.S. Dollar
- ------------------------------------------------------------------------------------------
5/18/00 24,424,800 3,112,867 3,113,581 3,113,581 714
Hong Kong Dollar U.S. Dollar
- ------------------------------------------------------------------------------------------
7/27/99 2,549,205,000 21,144,714 21,581,485 21,581,485 436,771
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------
7/27/99 187,670,000 1,556,653 1,592,989 1,592,989 36,336
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------
7/27/99 89,460,000 742,038 741,668 741,668 (370)
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------
7/27/99 230,070,000 1,908,346 1,923,662 1,923,662 15,316
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------
7/27/99 9,320,000 77,306 77,861 77,861 555
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------
8/26/99 776,450,000 6,469,139 6,348,733 6,348,733 (120,406)
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------
9/17/99 876,761,000 7,330,032 7,373,936 7,373,936 43,904
Japanese Yen U.S. Dollar
- ------------------------------------------------------------------------------------------
$1,243,809
=============
</TABLE>
75
<PAGE>
GROWTH AND INCOME PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
8. CAPITAL LOSS CARRYFORWARD
In accordance with applicable provisions of the Internal Revenue Code, the
following capital loss carryforwards have been incurred at June 30, 1999:
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYFORWARD EXPIRATION DATE
------------ ---------------
<S> <C> <C>
Real Estate $80,901 2006
583,835 2007
</TABLE>
These capital loss carryforwards may be used to offset future capital gains
until their respective expiration dates. It is the policy of each of the Funds
to reduce future distributions of realized gains to shareholders to the extent
of unexpired capital loss carryforwards.
76
<PAGE>
GROWTH AND INCOME PORTFOLIOS
ADDITIONAL INFORMATION
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
YEAR 2000
The Funds receive services from a number of providers which rely on the
effective functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not be able to perform their intended functions adequately after 1999
because of the inability of computer systems and software to distinguish the
year 2000 from the year 1900. Aeltus is taking steps that it believes are
reasonably designed to address this potential "Year 2000" problem and to obtain
satisfactory information that comparable steps are being taken by each of the
Funds' other major service providers. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the Funds from
this problem.
77
<PAGE>
GROWTH & INCOME PORTFOLIOS
FINANCIAL HIGHLIGHTS
BALANCED
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995+ 1994+
------------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.73 $16.03 $ 15.12 $ 14.50 $ 12.23 $ 12.80
------ ------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .............. 0.23 0.46 0.50+ 0.47+ 0.54 0.48
Net realized and change in
unrealized gain or loss on
investments......................... 0.77 2.11 2.73 1.59 2.73 (0.53)
------ ------ ------- ------- ------- -------
Total from investment operations . 1.00 2.57 3.23 2.06 3.27 (0.05)
------ ------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income ......... (0.07) (0.39) (1.10) (0.35) (0.67) (0.45)
From net realized gains on
investments......................... (1.15) (2.48) (1.22) (1.09) (0.33) (0.07)
------ ------ ------- ------- ------- -------
Total distributions .............. (1.22) (2.87) (2.32) (1.44) (1.00) (0.52)
------ ------ ------- ------- ------- -------
Net asset value, end of period ...... $15.51 $15.73 $ 16.03 $ 15.12 $ 14.50 $ 12.23
====== ====== ======= ======= ======= =======
Total return* ....................... 6.51% 16.93% 22.49% 15.17% 27.23% (0.35)%
Net assets, end of period (millions) $1,969 $1,852 $ 1,642 $ 1,364 $ 1,196 $ 958
Ratio of net expenses to average net
assets.............................. 0.60%(1) 0.59% 0.58% 0.45% 0.31% 0.32%
Ratio of net investment income to
average net assets ................. 2.96%(1) 3.01% 3.01% 3.21% 3.96% 3.83%
Portfolio turnover rate ............. 38.61% 85.83% 112.03% 107.80% 141.21% 112.05%
</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.
78 See Notes to Financial Statements.
<PAGE>
GROWTH AND INCOME
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995+ 1994+
------------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $31.87 $ 33.63 $ 32.39 $29.05 $26.23 $31.25
------ ------- ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .............. 0.15 0.38 0.54+ 0.65+ 0.72 0.76
Net realized and change in
unrealized gain or loss on
investments......................... 2.98 4.47 8.94 6.45 7.62 (1.07)
------ ------- ------- ------ ------ ------
Total from investment operations 3.13 4.85 9.48 7.10 8.34 (0.31)
------ ------- ------- ------ ------ ------
LESS DISTRIBUTIONS:
From net investment income ......... (0.11) (0.40) (0.58) (0.73) (0.72) (0.81)
From net realized gains on
investments......................... (0.98) (6.21) (7.66) (3.03) (4.80) (3.90)
------ ------- ------- ------ ------ ------
Total distributions .............. (1.09) (6.61) (8.24) (3.76) (5.52) (4.71)
------ ------- ------- ------ ------ ------
Net asset value, end of period ...... $33.91 $ 31.87 $ 33.63 $32.39 $29.05 $26.23
====== ======= ======= ====== ====== ======
Total return* ....................... 9.96% 14.49% 29.89% 24.46% 32.25% (0.96)%
Net assets, end of period (millions) $9,999 $ 9,801 $ 9,188 $6,954 $5,662 $4,424
Ratio of net expenses to average net
assets.............................. 0.58%(1) 0.57% 0.56% 0.43% 0.29% 0.30%
Ratio of net investment income to
average net assets ................. 0.91%(1) 1.03% 1.46% 2.02% 2.42% 2.52%
Portfolio turnover rate ............. 51.69% 145.64% 107.01% 85.03% 96.63% 84.27%
</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. 79
<PAGE>
GROWTH & INCOME PORTFOLIOS
FINANCIAL HIGHLIGHTS (CONTINUED)
REAL ESTATE
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH DECEMBER 15, 1997
PERIOD ENDED YEAR ENDED (COMMENCEMENT OF
JUNE 30, 1999 DECEMBER 31, OPERATIONS)
(UNAUDITED) 1998 TO DECEMBER 31, 1997
------------- ------------ --------------------
<S> <C> <C> <C>
Net asset value, beginning
of period ............... $ 8.53 $ 10.31 $10.00
------ ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ... 0.24 0.45 0.05+
Net realized and change
in unrealized gain or
loss on investments ..... 0.28 (1.78) 0.31
------ ------- ------
Total from investment
operations............ 0.52 (1.33) 0.36
------ ------- ------
LESS DISTRIBUTIONS:
From net investment
income................... -- (0.45) (0.05)
------ ------- ------
Total distributions ... -- (0.45) (0.05)
------ ------- ------
Net asset value, end of
period................... $ 9.05 $ 8.53 $10.31
====== ======= ======
Total return ............. 6.12% (12.85)% 3.59%
Net assets, end of period
(000's).................. $5,291 $ 5,500 $5,153
Ratio of total expenses to
average net assets ...... 0.95%(1) 0.95% 0.95%(1)
Ratio of net investment
income to average net
assets................... 5.81%(1) 5.24% 9.99%(1)
Ratio of expenses before
reimbursement and waiver
to average net assets ... 1.50%(1) 1.32% --
Portfolio turnover rate .. 15.38% 55.79% --
</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.
80 See Notes to Financial Statements.
<PAGE>
AETNA BOND VP
Growth of $10,000
<TABLE>
<CAPTION>
Bond VP Jan-86 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Jun-99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Bond VP 10,000 11,457 12,504 14,935 16,048 17,601 16,915 20,000 20,718 22,437 24,264 23,985
Lehman Brothers
Aggregate Bond Index 10,000 11,453 12,479 14,476 15,547 17,063 16,565 19,624 20,337 22,300 24,235 23,902
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------
<S> <C> <C>
2.90% 7.52% 8.22%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA BOND VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Bond VP (Bond) generated a -1.15% total return, net of fund expenses, for
the six month period year ended June 30, 1999. The benchmark, Lehman Brothers
Aggregate Bond Index(a), returned -1.37% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
Continued strength in the domestic economy and stock markets, coupled with
diminished fears of deflation, caused the Federal Reserve (the "Fed") to adopt a
tightening bias, or tendency to increase interest rates. Anticipation of
interest-rate increases by the Fed moved longer-term interest rates higher over
the first half of 1999. In that period, yields on five-year and ten-year U.S.
Treasury securities ("Treasuries") increased by over 100 basis points (one
percentage point). As the market had correctly expected, the Fed did raise rates
on the last day of this reporting period. At the June 30 meeting of its Federal
Open Market Committee*, the Fed increased the Fed funds rate - the interest rate
charged on overnight loans between banks - by 0.25%.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
With continued strength evident in the economy, higher-risk asset classes
continued to reverse some of the damage they suffered in the third quarter of
1998. For example, emerging-markets debt and high-yield securities were the best
performers in the fixed-income arena. Mortgage-backed securities also performed
well, as rising interest rates caused prepayment fears to abate. (As interest
rates increase, the likelihood of homeowners' refinancing their mortgages
decreases.) The main reasons why the Portfolio outperformed its benchmark during
the first six months of the year were:
See Definition of Terms. 81
<PAGE>
. The portfolio maintained a short duration posture. ("Duration" measures a
bond's sensitivity to increases or decreases in interest rates. The longer the
duration, the more a bond - or a bond portfolio - will be affected by rate
changes.)
. It was overweighted in high yield, specifically the telecommunications sector.
There were some securities which underperformed expectations, including Qwest
Communications International, Inc. and Sprint Capital Corp.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We expect to favor lower-risk asset classes, such as Treasuries and
higher-quality corporate bonds. Uncertainty still exists as to the ultimate
degree of Fed tightening, and any protracted tightening would be negative for
the credit markets. While this defensive posture will result in giving-up a
slight amount of yield, we believe the risk/return tradeoff - combined with
current market levels - makes this an attractive posture.
*FEDERAL OPEN MARKET COMMITTEE OF THE FEDERAL RESERVE SYSTEM The FOMC is the
most important policy-making body of the Federal Reserve System. It is
responsible for the formulation of a policy designed to promote economic growth,
full employment, stable prices, and a sustainable pattern of international trade
and payments. (Source: Federal Reserve Bank of Minneapolis)
<TABLE>
<CAPTION>
QUALITY RATINGS
<S> <C>
AAA 58.1%
AA 4.9%
A 16.4%
BBB 10.8%
BB 2.5%
B 4.6%
N/R/+/ 2.7%
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE LIFE TO MATURITY
<S> <C>
0 - 1 years 9.8%
1 - 5 years 41.5%
5 - 10 years 22.1%
10 - 20 years 2.5%
20 + years 24.1%
</TABLE>
/+/The Not Rated indication is used by securities rating services (such as
Standard & Poor's or Moody's) and mercantile agencies (such as Dun & Bradstreet)
to show that a security or a company has not been rated. It has neither negative
nor positive implications.
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
82 See Definition of Terms.
<PAGE>
AETNA HIGH YIELD VP
Growth of $10,000
<TABLE>
<CAPTION>
High Yield VP 12/10/97 12/31/97 12/31/98 06/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna High Yield VP 10,000 10,150 10,813 10,873 9,982 10,122 10,637 10,578
Merrill Lynch High
Yield Aggregate Index 10,000 10,058 10,337 10,511 10,135 10,425 10,538 10,609
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date 1 Year Inception
- ---------------------------------------
<S> <C> <C>
12/10/97 -2.70% 3.69%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA HIGH YIELD VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna High Yield VP (High Yield) generated a 4.51% total return, net of fund
expenses, for the six month period ended June 30, 1999. The benchmark, Merrill
Lynch High Yield Aggregate Index(b), returned 1.76% for the same period.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
After starting the year with a strong first quarter, the high yield market
suffered during the second quarter from the combination of increased volatility
in the equity markets and increasing interest rates. Also during the second
quarter, supply/ demand technicals worsened. We saw the high yield market become
less attractive as record new high-yield-bond issues came onto the market in May
($15 billion) and were followed by outflows of close to $2 billion from high
yield mutual funds. Over the same time period, yield spreads narrowed by
approximately 75 basis points (or 3/4 of 1%). As a result, the high yield market
outperformed 10-year U.S. Treasury securities and investment-grade corporate
securities.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
The fact that the Portfolio outperformed its benchmark index (the Merrill Lynch
High Yield Aggregate Index) during the first six months of 1999 was attributable
to a number of factors. Among them were the following:
. The recovery in the telecommunications sector, particularly the
deferred-coupon portion, contributed to the outperformance.
. Metronet Communications, a Canadian telecom issuer, announced a merger with
AT&T Canada, which resulted
See Definition of Terms. 83
<PAGE>
in significant outperformance by this holding.
. Overweighting the gaming sector within the Portfolio also contributed to
outperformance, especially the $116 tender of Majestic Star Casino LLC bonds.
On the other hand, the Portfolio's performance was negatively affected by the
following:
. Optel, Inc. failed to get its initial public offering done, resulting in a
drop in market price.
. Underweighting the cyclical commodity and energy sectors offset some of the
Portfolio's outperformance, during the first quarter. However, we have added
some exposure to these sectors as we have become more comfortable with
evidence of a sustained recovery in these sectors.
WHAT IS YOUR OUTLOOK GOING FORWARD?
We continue to believe that the high yield market is attractive in an
environment of economic strengthening and moderate inflation. However, default
rates have moved up over the last twelve months (primarily in commodity-related
sectors, which suffered in the aftermath of the Asian crisis). While we do not
believe that default rates will increase significantly from here, they may keep
the risk premium for non-defaulted issues higher than they would otherwise be.
We think that volatility will remain high in the near term, with interest rates
moving somewhat higher and equities maintaining a flat to downward trend. We
like bond issues with strong single-B credit ratings* and improving fundamentals
plus high coupons to cushion some of the volatility. We would underweight
deferred-coupon bonds, which underperform in volatile markets. However, this
does not apply to those in the media/telecommunications sector, where we
continue our overweighting as we see the growth of data and internet
applications continuing at an accelerating pace.
*A bond's rating refers to the bond issuer's creditworthiness, its ability to
meet the required interest and principal payments. A "high yield" bond is any
bond not rated "investment-grade" by a major rating agency. With Standard &
Poor's, that is a bond rated below BBB; with Moody's, that is a bond rated below
Baa.
High yielding fixed income securities are subject to greater market fluctuations
and risk of loss of income and principal than investments in lower yielding
fixed income securities.
<TABLE>
<CAPTION>
QUALITY RATINGS
<S> <C>
BB 6.9%
B 67.1%
CCC 14.4%
N/R/+/ 11.3%
Defaulted Security 0.3%
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
<S> <C>
0 - 1 years 15.7%
1 - 5 years 2.4%
5 - 10 years 76.8%
10 - 20 years 5.1%
</TABLE>
/+/The Not Rated indication is used by securities rating services (such as
Standard & Poor's or Moody's) and mercantile agencies (such as Dun & Bradstreet)
to show that a security or a company has not been rated. It has neither negative
nor positive implications.
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Portfolio are subject to change.
84 See Definition of Terms.
<PAGE>
AETNA MONEY MARKET VP
Growth of $10,000
<TABLE>
<CAPTION>
Money Market VP Jan-89 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Jun-99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna Money Market VP 10,000 10,938 11,862 12,637 13,099 13,517 14,067 14,918 15,720 16,579 17,485 17,891
IBC's Money Fund
Average/All Taxable 10,000 10,853 11,673 12,323 12,734 13,074 13,557 14,282 14,972 15,716 16,492 16,847
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------
<S> <C> <C>
5.09% 5.42% 5.50%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA MONEY MARKET VP
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna Money Market VP (Money Market) generated a 2.32% total return, net of fund
expenses, for the six month period ended June 30, 1999. The benchmark, IBC's
Money Funds Report Average/All Taxable Index(c), returned 2.15% for the same
period. As of June 30, 1999, the Fund reported a 7-day yield of 4.76% with an
average weighted maturity of 52 days.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIO?
The beginning of the report period was characterized by steady monetary policy
that kept U.S. interest rates moving in a narrow range. As the period moved on,
however, we saw fears of rising inflation and higher bond yields replace last
year's concern over Asian and Latin American economic turmoil. Efforts to avoid
potential Y2K problems prompted issuers to supply more commercial paper and
short-term notes maturing after year-end 1999. In the face of these factors, the
market focus shifted from a stable rate environment. In other words, the market
was not focused on whether the Federal Reserve (the "Fed") would increase
interest rates, but on how many times it would increase interest rates. These
Y2K and Fed policy concerns caused interest-rate spreads to widen over the
reporting period. By the end of the period, on June 30, the Fed did raise the
federal funds ("Fed funds") rate - the interest rate charged on overnight loans
between banks - by 0.25%. The Fed then returned to its neutral bias regarding
future interest-rate action. This caused the bond market to rally and short-term
interest rates to stabilize.
See Definition of Terms. 85
<PAGE>
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
Investments that had a positive effect on performance include:
. Our two second-tier variable-rate notes continue to add value to the
Portfolio. Both were purchased at extremely attractive spreads to LIBOR, the
London Interbank Offered Rate. (LIBOR is the rate that the most creditworthy
international banks charge each other for large loans.)
. Our relatively high weightings in the asset-backed and variable-rate note
sectors.
The Portfolio typically favors a strong weighting in the asset-backed note
market. These instruments are generally priced cheaper than commercial-paper
issues of comparable quality. We typically focus on undervalued sectors of the
marketplace in order to enhance portfolio returns. An emphasis on analyzing
issuers or instruments that are new to the short-term marketplace is another
method of providing incremental yield.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Recent economic data continues to show solid economic growth for the most part,
although some signs of an economic slowdown have emerged. Readings indicate that
inflation is no longer falling, but so far upward pressures have been relatively
modest. The world economy is now moving from crisis to recovery, removing any
further outside deflationary influences. If domestic demand does not slow
sufficiently, or labor markets tighten further, and/or inflation pressures show
signs of increasing, the Fed will have to raise rates again. We expect to
maintain our current sector allocation. We intend to avoid those areas that
appear overvalued, such as commercial paper and Yankee certificates of deposit,
and add incrementally to the asset-backed and corporate-note segments of the
Portfolio. In anticipation of future rate increases by the Fed, we shortened the
Portfolio's weighted average maturity relative to IBC-Donoghue (money market
index). We intend to maintain our shorted stance in anticipation of a further
Fed tightening in the months ahead.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The fund is a money market
fund which does not seek to maintain a stable $1.00 net asset value. While the
fund's management objective includes the preservation of capital, it is possible
to lose money by investing in the fund.
<TABLE>
<CAPTION>
QUALITY RATINGS*
<S> <C>
Tier 1 99.2%
Tier 2 0.8%
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION
<S> <C>
1 - 30 days 50.2
31 - 60 days 10.9
61 - 90 days 5.5
91 - 120 days 2.1
121 - 180 days 6.1
181 - 397 days 25.2
</TABLE>
*Tier 1 securities are, or are comparable to, securities which are rated in the
highest short-term rating category by at least two nationally recognized
statistical rating organizations (NRSROs) or by the only NRSRO that has rated
the security. Tier 2 securities are securities that have received the requisite
rating in one of the two highest categories, but are not Tier 1.
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Fund are subject to change.
86 See Definition of Terms.
<PAGE>
DEFINITION OF TERMS
(a) The Lehman Brothers Aggregate Bond Index is an unmanaged index and is
composed of securities from Lehman Brothers Government/Corporate Bond
Index, Mortgage-Backed Securities Index and the Asset-Backed Securities
Index.
(b) The Merrill Lynch High Yield Aggregate Index is an unmanaged index of
secured and subordinated debt securities rated by Standard & Poor's or by
Moody's Investors Service as less than investment grade (i.e. BBB or Baa)
but not in default.
(c) The IBC's Money Fund Average/All Taxable Index is an average of the returns
of more than 250 money market mutual funds surveyed each month by
IBC/Donaghue, Inc.
These are unmanaged indices and are not available for individual investment.
87
<PAGE>
INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
BOND
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
--------------- ---------------
<S> <C> <C>
PREFERRED STOCKS ( 0.8% )
Global Crossing Holdings Ltd. + ..... 60,000 $ 6,300,000
---------------
TOTAL PREFERRED STOCKS (COST $6,000,000) 6,300,000
---------------
PRINCIPAL
AMOUNT
---------------
LONG-TERM BONDS AND NOTES ( 96.8% )
CORPORATE BONDS ( 47.6% )
ELECTRIC AND TELEPHONE BONDS ( 8.2% )
Alabama Power Co.,5.49%,11/01/05 .... $ 15,000,000 13,991,550
Comcast Cellular Holdings, Inc.,
9.50%,05/01/07 ..................... 6,500,000 7,247,500
GTE North, Inc.,5.65%,11/15/08 ...... 12,500,000 11,507,375
ITC Deltacom, Inc.,9.75%,11/15/08 ... 3,000,000 3,090,000
Nextlink Communications, Inc.,
10.75%,11/15/08 .................... 6,000,000 6,120,000
Qwest Communications International
Inc.,
7.50%,11/01/08 ..................... 5,500,000 5,499,340
WorldCom, Inc.,6.25%,08/15/03 ....... 15,000,000 14,800,950
---------------
62,256,715
---------------
FINANCIAL BONDS ( 17.5% )
American General Finance Corp.,
5.75%,11/01/03 ..................... 9,000,000 8,721,000
Associates Corp. N.A.,5.75%,11/01/03
*................................... 17,400,000 16,924,632
Bombardier Capital
Inc.,6.00%,01/15/02................. 10,250,000 10,029,625
Chase Manhattan Corp.,9.38%,07/01/01 11,790,000 12,480,894
Commercial Mortgage Acceptance Corp.,
5.80%,03/15/06 ..................... 18,911,818 18,454,625
EOP Operating L.P.,6.38%,02/15/03 ... 4,200,000 4,104,912
Ford Motor Credit Co.,5.13%,10/15/01 4,000,000 3,897,440
Ford Motor Credit
Corp.,6.63%,10/01/28................ 5,000,000 4,500,900
General Electric Capital Corp.,
8.63%,06/15/08 ..................... 10,000,000 11,342,100
General Motors Acceptance Corp.,
6.42%,05/15/35 ..................... 25,000,000 24,179,875
Mellon Financial Co.,5.75%,11/15/03 . 5,000,000 4,832,350
Morgan Stanley Dean Witter & Co.,
5.63%,01/20/04 ..................... 14,300,000 13,782,912
---------------
133,251,265
---------------
FOREIGN AND SUPRANATIONALS ( 5.0% )
Bayerische Landesbank,6.25%,03/15/00 12,000,000 12,038,520
Chile (Republic of),6.88%,04/28/09 .. 4,530,000 4,226,714
Inter-American Development Bank,
12.25%,12/15/08 .................... 7,775,000 10,934,760
Sprint Capital Corp.,6.13%,11/15/28 . 11,900,000 10,982,391
---------------
38,182,385
---------------
FOREIGN BONDS ( 1.5% )
Globo Communicacoes,10.63%,12/05/08
++.................................. 3,750,000 2,662,500
Orange Plc,8.00%,08/01/08 ........... 3,000,000 2,842,500
Telewest Plc,11.00%,10/01/07 ........ 6,850,000 6,147,875
---------------
11,652,875
---------------
PRINCIPAL MARKET VALUE
AMOUNT
--------------- ---------------
CORPORATE BONDS (CONTINUED)
OTHER PUBLIC CORPORATE BONDS ( 15.4% )
Conoco Inc.,5.90%,04/15/04 .......... $3,420,000 $3,337,168
Continental Airlines,
Inc.,8.00%,12/15/05................. 3,250,000 3,102,255
Enron Oil & Gas Corp.,6.50%,12/01/07 8,000,000 7,627,920
Ford Motor Credit Co.,5.49%,02/15/28 5,500,000 4,957,590
International Home
Foods,10.38%,11/01/06............... 3,500,000 3,736,250
Jersey Seagram & Sons,6.25%,12/15/01 15,000,000 14,854,350
Monsanto Co.,5.38%,12/01/01 ......... 15,000,000 14,749,200
Procter & Gamble Co.,5.25%,09/15/03 . 8,800,000 8,453,896
Rite Aid Corp.,5.50%,12/15/00 ....... 20,000,000 19,644,000
Safeway, Inc.,5.75%,11/15/00 ........ 9,800,000 9,744,924
Sun International
Hotels,9.00%,03/15/07............... 4,000,000 4,000,000
Time Warner, Inc.,7.95%,02/01/00 .... 7,000,000 7,080,710
Verio, Inc.,11.25%,12/01/08 ......... 2,250,000 2,362,500
Xerox Corp.,5.25%,12/15/03 .......... 15,000,000 14,258,100
---------------
117,908,863
---------------
TOTAL CORPORATE BONDS (COST $371,388,132) 363,252,103
---------------
NON-AGENCY MORTGAGE-BACKED SECURITIES ( 0.1% )
MORTGAGE-BACKED SECURITIES ( 0.1% )
Security Pacific National Bank,
8.50%,04/25/17 + ................... 1,063,056 1,063,056
-------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(COST $1,057,718) 1,063,056
---------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS ( 49.1% )
AGENCY MORTGAGE-BACKED SECURITIES ( 14.4% )
Federal National Mortgage
Association,
6.50%,08/16/29 # ................... 35,000,000 33,720,400
Federal National Mortgage
Association,7.00%,08/01/25 -
03/01/26............................ 8,963,287 8,884,061
Federal National Mortgage
Association,7.50%,10/01/28 -
11/01/28............................ 41,574,787 42,070,851
Government National Mortgage
Association,
7.00%,04/15/26 ..................... 7,125,424 7,050,038
Government National Mortgage
Association,
7.50%,12/15/22 ..................... 8,577,447 8,676,603
Government National Mortgage
Association,
10.00%,10/15/09 - 01/15/21 ......... 4,251,281 4,648,719
Government National Mortgage
Association,10.50%,02/15/13 -
01/15/21............................ 4,561,343 5,046,302
Government National Mortgage
Association,
11.00%,02/15/10 .................... 20,918 23,140
---------------
110,120,114
---------------
ASSET-BACKED SECURITIES ( 1.8% )
ARG Funding Corp.,5.88%,05/20/03 .... 10,000,000 9,876,000
First Security Auto Grantor Trust,
6.10%,04/15/03 ..................... 3,651,838 3,647,844
---------------
13,523,844
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS ( 3.3% )
Fannie Mae,6.00%,05/15/08 ........... 5,000,000 4,843,225
Federal National Mortgage Corp.,
5.75%,04/15/03 ..................... 13,000,000 12,862,239
88 See Notes to Portfolio of Investments.
<PAGE>
PRINCIPAL MARKET VALUE
AMOUNT
--------------- ---------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Small Business Administration 92-20K,
7.55%,11/01/12 ..................... $6,863,841 $7,021,512
---------------
24,726,976
---------------
U.S. TREASURIES ( 29.6% )
U.S. Treasury Bond,5.25%,11/15/28 ... 3,600,000 3,191,076
U.S. Treasury Bond,6.13%,11/15/27 * . 15,000,000 14,899,200
U.S. Treasury Bond,6.50%,11/15/26 ... 18,500,000 19,153,290
U.S. Treasury Bond,6.63%,02/15/27 * . 7,000,000 7,392,630
U.S. Treasury Bond,7.25%,05/15/16 ... 8,070,000 8,875,709
U.S. Treasury Note,4.75%,
02/15/04 - 11/15/08 ................ 46,500,000 44,291,055
U.S. Treasury Note,5.25%,
05/15/04 - 02/15/04 ................ 32,000,000 31,276,680
U.S. Treasury Note,5.38%,06/30/03 ... 6,650,000 6,570,000
U.S. Treasury Note,5.50%,
05/15/09 - 08/15/28 ................ 71,172,000 68,962,292
U.S. Treasury Note,5.63%,05/15/08 ... 3,075,000 3,012,055
U.S. Treasury Note,5.75%,10/31/00 ... 14,500,000 14,563,365
U.S. Treasury Note,6.88%,07/31/99 ... 4,000,000 4,006,240
---------------
226,193,592
---------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(COST $377,100,353) 374,564,526
---------------
TOTAL LONG-TERM BONDS AND NOTES (COST $749,546,203) 738,879,685
---------------
SHORT-TERM INVESTMENTS ( 6.0% )
Central & South West Corp.,
6.25%,07/01/99 ++ .................. 10,000,000 10,000,000
Conagra, Inc.,5.30%,06/12/00 ........ 10,000,000 9,999,300
Orix Credit Alliance,5.20%,07/12/99 . 11,780,000 11,761,283
Rohm & Haas Co.,6.30%,07/01/99 ...... 14,253,000 14,253,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $45,999,153) 46,013,583
---------------
TOTAL INVESTMENTS (COST $801,545,356)(A) 791,193,268
OTHER ASSETS LESS LIABILITIES (27,416,967)
---------------
TOTAL NET ASSETS $763,776,301
===============
</TABLE>
<TABLE>
<CAPTION>
NOTES TO PORTFOLIO OF INVESTMENTS
<S> <C>
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at June 30, 1999,
are as follows:
Unrealized gains........................... $ 5,920,855
Unrealized losses.......................... (16,272,943)
----------------------
Net unrealized loss....................... $(10,352,088)
======================
</TABLE>
+ Non-income producing security.
* Segregated securities for purchases of delayed delivery or when-issued
securities held at June 30, 1999.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
# When-issued or delayed delivery security.
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
<TABLE>
<CAPTION>
Information concerning restricted securities at June 30, 1999 is shown below:
ACQUISITION
DATE COST
------------------ --------------------
<S> <C> <C>
Central & South West Corp. ........... 06/29/99 $10,000,000
Globo Communicacoes .................. 03/19/98 3,760,253
Security Pacific National Bank ....... 03/20/97 1,057,718
-----------
$14,817,971
===========
</TABLE>
The market value of the total restricted securities above represent 1.80% of the
total net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 89
<PAGE>
INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
HIGH YIELD
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
------------- --------------
<S> <C> <C>
COMMON STOCKS ( 0.0% )
American Banknote Corp. Warrants ....... 175 $ 18
KMC Telcom Holdings, Inc. Warrants ..... 300 3,000
Park N' View, Inc. Warrants ............ 50 5
--------------
TOTAL COMMON STOCKS (COST $0) 3,023
--------------
PREFERRED STOCKS ( 3.9% )
Cluett American Corp. ++ ............... 92 5,980
Cumulus Media, Inc. + .................. 84 92,158
Global Crossing Holdings Ltd. + ........ 120 126,000
Rural Cellular Corp. ++ ................ 166 165,256
--------------
TOTAL PREFERRED STOCKS (COST $377,390) 389,394
--------------
PRINCIPAL
AMOUNT
-------------
LONG-TERM BONDS AND NOTES ( 82.5% )
CORPORATE BONDS ( 81.9% )
Adelphia Communications,8.13%,07/15/03 . $ 100,000 97,000
Alestra SA,12.63%,05/15/09 ............. 75,000 72,000
Allegiance Telecom, Inc.,Zero
Coupon,02/15/08........................ 150,000 93,000
Anteon Corp.,12.00%,05/15/09 ++ ........ 125,000 123,125
ATC Group Services,12.00%,01/15/08 @@ + 200,000 24,000
Bresnan Communications,
Zero Coupon,02/01/09 .................. 125,000 82,188
California Steel
Industries,8.50%,04/01/09 ++ .......... 100,000 99,000
Clearnet Communications,Zero Coupon,
12/15/05 - 05/01/09.................... 350,000 217,250
Coast Hotels & Casinos,9.50%,04/01/09 ++ 100,000 96,000
Comcast Cable Corp.,Zero Coupon,11/15/07 250,000 230,000
Condor Systems Inc.,11.88%,05/01/09 ++ . 150,000 144,750
Covad Communications Group Inc.,
12.50%,02/15/09 ....................... 60,000 57,750
Covad Communications Group Inc.,
13.50%,03/15/08 ....................... 50,000 27,375
Dimac Corp.,12.50%,10/01/08 + .......... 150,000 90,000
ESAT Telecom Group Plc,11.88%,12/01/08 . 200,000 206,000
Esprit Telecom Group Plc,11.50%,12/15/07 250,000 262,500
Fairchild Semiconductor
Inc.,10.38%,10/01/07................... 200,000 196,000
Galaxy Telecom LP,12.38%,10/01/05 ...... 250,000 275,000
Garden State Newspapers,8.63%,07/01/11
++..................................... 150,000 140,250
Hermes Euro Rail Corp.,11.50%,08/15/07 . 125,000 131,250
Hollywood Casino Corp.,11.25%,05/01/07
++..................................... 125,000 126,250
Hyperion Telecom Corp.,12.25%,09/01/04 . 100,000 105,000
Intermedia Communications Inc.,
12.25%,03/01/09 ....................... 100,000 56,250
ITC Deltacom, Inc.,9.75%,11/15/08 ...... 150,000 154,500
Jordan Telecom Products,Zero
Coupon,08/01/07........................ 75,000 63,750
Jordan Telecom Products,9.88%,08/01/07 . 100,000 99,000
Jupiters Ltd.,8.50%,03/01/06 ++ ........ 125,000 122,812
PRINCIPAL MARKET VALUE
AMOUNT
------------- --------------
CORPORATE BONDS (CONTINUED)
KMC Telcom Holdings, Inc.,Zero Coupon,
02/15/08 .............................. $300,000 $159,000
Lyondell Petrochemical
Co.,10.88%,05/01/09.................... 125,000 129,375
McLeodUSA, Inc.,9.50%,11/01/08 ......... 100,000 100,000
Metromedia International Group, Inc.,
10.00%,11/15/08 ....................... 200,000 205,500
Metronet Communications,Zero Coupon,
11/01/07 .............................. 500,000 390,000
Microcell Telecommunications,Zero
Coupon,
06/01/06 .............................. 200,000 163,000
Mohegan Tribal Gaming,8.13%,01/01/06 ... 150,000 147,375
Netia Holdings II B.V.,13.13%,06/15/09
++..................................... 100,000 101,000
Nextel Partners Inc.,Zero
Coupon,02/01/09 ++ .................... 200,000 114,000
Nextlink Communications, Inc.,
10.75%,11/15/08 ....................... 150,000 153,000
NTL Communications Corp.,11.50%,10/01/08 200,000 219,000
NTL Communications Corp.,12.38%,10/01/08 125,000 83,750
Ono Finance Plc,13.00%,05/01/09 ++ ..... 100,000 103,500
Optel, Inc.,11.50%,07/01/08 ............ 150,000 105,750
Park N' View, Inc.,13.00%,05/15/08 + ... 50,000 15,000
Penhall Acquisition
Corp.,12.00%,08/01/06.................. 125,000 125,625
Price Communications Wireless Inc.,
11.75%,07/15/07 ....................... 150,000 166,500
Primus Telecommunications Group,
11.25%,01/15/09 ....................... 50,000 50,250
PSINET, Inc.,11.50%,11/01/08 ........... 175,000 183,750
R&B Falcon Corp.,9.50%,12/15/08 ........ 50,000 45,000
Radio Unica Corp.,Zero Coupon,08/01/06 . 300,000 172,500
RePap New Brunswick Corp.,
11.50%,06/01/04 ++ .................... 150,000 148,500
Rhythms NetConnections Inc.,Zero Coupon,
05/15/08 .............................. 200,000 106,500
Rogers Cantel, Inc.,9.38%,06/01/08 ..... 45,000 46,575
Sun International Hotels,9.00%,03/15/07 100,000 100,000
Telecommunication Techniques Co.,
9.75%,05/15/08 ........................ 100,000 98,500
Telewest Plc,Zero Coupon,04/15/09 ++ ... 100,000 67,000
Telewest Plc,11.00%,10/01/07 ........... 100,000 89,750
Teligent, Inc.,Zero Coupon,03/01/08 .... 225,000 132,750
Vectura Group Inc.,10.25%,06/30/08 ..... 300,000 303,000
Venetian Casino/LV Sands Corp.,
10.00%,11/15/05 ....................... 125,000 122,500
Verio, Inc.,10.38%,04/01/05 ............ 150,000 153,000
Verio, Inc.,11.25%,12/01/08 ............ 150,000 157,500
Waterford Gaming LLC,9.50%,03/15/10 ++ . 200,000 198,500
Winstar Communications,
Inc.,10.00%,03/15/08................... 75,000 66,000
--------------
8,114,950
--------------
FOREIGN OBLIGATIONS ( 0.6% )
NTL Inc.,Zero Coupon,04/15/09 .......... 70,000 63,446
--------------
TOTAL LONG-TERM BONDS AND NOTES (COST $8,495,595) 8,178,396
--------------
90 See Notes to Portfolio of Investments.
<PAGE>
PRINCIPAL MARKET VALUE
AMOUNT
------------- --------------
SHORT-TERM INVESTMENTS ( 15.0% )
Federal Home Loan Bank,4.60%,07/01/99 .. $1,488,000 $1,488,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,488,000) 1,488,000
--------------
TOTAL INVESTMENTS (COST $10,360,985)(A) 10,058,813
OTHER ASSETS LESS LIABILITIES (144,510)
--------------
TOTAL NET ASSETS $ 9,914,303
==============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$10,363,711. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains.............................. $ 192,669
Unrealized losses............................. (497,567)
-------------------
Net unrealized loss.......................... $(304,898)
===================
</TABLE>
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
+ Non-income producing security.
@@ Security has defaulted on its most current interest payment.
+ Restricted security. This security has been determined to be illiquid under
guidelines established by the Board of Directors.
<TABLE>
<CAPTION>
Information concerning restricted securities at June 30, 1999 is shown below:
ACQUISITION
DATE COST
-------------------- ---------------------
<S> <C> <C>
Anteon Corp. ..................... 05/11/99 $ 125,000
ATC Group Services ............... 01/29/98 200,000
California Steel Industries ...... 04/06/99 100,000
Cluett American Corp. ............ 02/03/99 9,375
Coast Hotels & Casinos ........... 03/23/99 100,000
Condor Systems, Inc. ............. 04/15/99 147,772
Dimac Corp. ...................... 10/22/98 146,000
Garden State Newspapers .......... 03/16/99 148,590
Hollywood Casino Corp. ........... 05/19/99 125,000
Jupiters Ltd. .................... 03/11/99 124,226
Netia Holdings II B.V. ........... 06/18/99 100,000
Nextel Partners Inc. ............. 01/29/99 107,784
Ono Finance Plc .................. 05/06/99 100,000
Park N' View, Inc. ............... 05/27/98 50,000
RePap New Brunswick Corp. ........ 05/28/99 150,000
Rural Cellular Corp. ............. 05/14/98 166,000
Telewest Plc ..................... 04/15/99 64,852
Waterford Gaming LLC ............. 03/17/99 197,754
----------
$2,162,353
==========
</TABLE>
The market value of the total restricted securities above represent 19.01% of
the total net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 91
<PAGE>
INCOME PORTFOLIOS
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
MONEY MARKET
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT
--------------- ---------------
<S> <C> <C>
ASSET-BACKED SECURITIES ( 25.1% )
ABFS Equipment Contract Trust 1999-A,
5.39%,06/28/00 ..................... $ 10,000,000 $10,000,000
ABS Investor Trust Series
1997-E,4.99%,08/15/99 ++ ........... 19,000,000 19,000,000
Americredit Automobile Receivables
Trust 1999-A,4.98%,03/12/00 ........ 8,259,891 8,256,587
Americredit Automobile Receivables
Trust 1999-B,4.92%,06/12/00 ........ 8,853,288 8,848,419
Bishops Gate Residential Mortgage
Trust 1998-2,5.14%,11/22/99 ........ 9,000,000 9,000,900
ContiMortgage Home Equity Loan Trust
1998-3,5.51%,09/15/99............... 1,595,705 1,599,695
Copelco Capital Funding LLC 1999-1,
5.02%,03/15/00 ..................... 14,792,789 14,775,452
Distribution Finance Services RV
Trust 1999-1,4.97%,03/15/00 ........ 18,740,374 18,740,374
DVI Business Trust
1998-2,5.24%,12/13/99............... 6,897,792 6,896,689
First Security Auto Owner Trust
1999-1,
4.96%,03/15/00 ..................... 3,636,556 3,636,120
Ford Credit Auto Owner Trust 1999-A,
5.09%,01/18/00 ..................... 20,357,019 20,323,226
Green Tree Financial
Corp.,4.95%,02/01/00................ 9,217,820 9,217,267
Green Tree Financial Corp. 1999-4,
5.25%,07/01/00 # ................... 11,650,000 11,650,000
Green Tree Recreational Equipment &
Consumer Trust,5.10%,06/15/00 ...... 5,000,000 4,988,650
Ikon Receivables LLC 1997-1,
5.11%,06/15/00 ..................... 22,098,550 22,097,003
Long Lane Master Trust
III,4.95%,04/28/00.................. 15,500,000 14,802,965
MMCA Auto Owner Trust 1999-1,
5.07%,01/18/00 ..................... 2,425,428 2,425,137
Newcourt Equipment Trust Securities
1998-1,5.01%,11/20/99............... 9,260,090 9,257,312
Premier Auto Trust
1999-2,4.94%,01/28/00............... 28,788,484 28,774,953
Provident Equipment Lease Trust
1998-A,
5.28%,10/25/99 ..................... 3,232,087 3,227,013
Syndicated Loan Funding Trust 1999-3,
5.13%,06/15/00 ++ .................. 20,000,000 19,996,000
---------------
TOTAL ASSET-BACKED SECURITIES 247,513,762
---------------
CERTIFICATES OF DEPOSIT ( 7.7% )
Abbey National
Treasury,4.85%,08/17/99............. 30,000,000 29,996,975
Abbey National
Treasury,5.58%,08/19/99............. 9,400,000 9,406,635
PNC Bank N.A.,4.82%,08/03/99 ........ 36,000,000 35,997,830
---------------
TOTAL CERTIFICATES OF DEPOSIT 75,401,440
---------------
COMMERCIAL PAPER - DOMESTIC ( 26.1% )
Baxter International,
Inc.,5.03%,01/26/00 ++ ............. 4,500,000 4,359,690
Baxter International,
Inc.,5.05%,01/25/00 ++ ............. 10,000,000 9,689,700
Dakota Certificates - Standard Credit
Card Master Trust 1,4.81%,07/27/99
++.................................. 10,000,000 9,965,261
Dakota Certificates - Standard Credit
Card Master Trust 1,5.17%,09/22/99
++.................................. 10,000,000 9,877,100
PRINCIPAL VALUE
AMOUNT
--------------- ---------------
COMMERCIAL PAPER - DOMESTIC (CONTINUED)
Dealers Capital Acceptance Trust,
Inc.,
5.98%,07/01/99 ..................... $25,476,000 $25,476,000
Detroit Edison Co.,6.05%,07/01/99 ... 48,800,000 48,800,000
Eureka Securitization,
Inc.,5.25%,08/25/99 ++ ............. 6,800,000 6,745,458
Finova Capital Corp.,5.00%,07/13/99 . 15,976,000 15,949,373
Heller Financial, Inc.,7.88%,11/01/99 4,000,000 4,029,840
Peco Energy Co.,6.10%,07/01/99 ...... 48,800,000 48,800,000
Prudential Funding
Corp.,5.13%,09/28/99................ 10,135,000 10,005,171
Torchmark Corp.,4.92%,08/12/99 ...... 15,000,000 14,913,900
Torchmark Corp.,5.05%,07/06/99 ...... 6,250,000 6,245,616
Torchmark Corp.,5.05%,07/08/99 ...... 12,490,000 12,477,736
Torchmark Corp.,6.00%,07/01/99 * .... 15,000,000 15,000,000
Zions Bancorporation,5.05%,07/19/99 . 15,000,000 14,962,125
---------------
TOTAL COMMERCIAL PAPER - DOMESTIC 257,296,970
---------------
COMMERCIAL PAPER - FOREIGN ( 4.2% )
Allied Domecq NA Corp.,4.97%,07/06/99 9,000,000 8,993,788
Allied Domecq NA Corp.,4.98%,07/07/99 17,000,000 16,985,889
Allied Domecq NA Corp.,5.15%,07/12/99
++.................................. 5,000,000 4,992,132
Allied Domecq NA Corp.,5.26%,07/27/99 3,750,000 3,735,754
Allied Domecq NA Corp.,5.35%,07/29/00 7,000,000 6,970,872
---------------
TOTAL COMMERCIAL PAPER - FOREIGN 41,678,435
---------------
CORPORATE NOTES ( 20.6% )
Associates Corp. N.A.,6.13%,11/12/99 23,000,000 23,068,540
BankBoston N.A.,4.89%,09/08/99 ...... 15,000,000 15,005,700
CIT Group Holdings,
Inc.,4.94%,02/24/00................. 23,100,000 23,085,216
Eaton Corp.,5.13%,04/17/00 .......... 27,000,000 27,000,000
Finova Capital Corp.,6.30%,11/01/99 . 1,000,000 1,002,950
Finova Capital Corp.,8.00%,02/01/00 . 5,000,000 5,066,250
First Allamerica Financial Corp.,
5.25%,09/17/99 (i) ................. 25,000,000 25,000,000
General Motors Acceptance Corp.,
7.00%,03/01/00 ..................... 3,500,000 3,537,555
Heller Financial, Inc.,6.52%,12/06/99 5,050,000 5,073,028
International Lease Finance Corp.,
6.13%,11/01/99 ..................... 10,000,000 10,023,700
International Lease Finance Corp.,
6.38%,01/18/00 ..................... 5,945,000 5,977,044
Lehman Brothers Holdings Inc.,
6.15%,03/15/00 ..................... 16,000,000 16,013,120
Lehman Brothers Holdings Inc.,
7.63%,07/15/99 ..................... 11,670,000 11,680,503
PHH Corp.,5.61%,02/22/00 ............ 9,000,000 8,988,750
Sundstrand Corp.,5.69%,10/15/99 ..... 8,000,000 8,000,000
Wells Fargo & Co.,5.31%,03/31/00 .... 14,850,000 14,842,575
---------------
TOTAL CORPORATE NOTES 203,364,931
---------------
MEDIUM-TERM NOTES ( 15.8% )
Banc One Corp.,4.87%,10/01/99 ....... 11,000,000 10,997,910
Chrysler Financial
Corp.,7.89%,10/12/99................ 7,000,000 7,047,950
92 See Notes to Portfolio of Investments.
<PAGE>
PRINCIPAL VALUE
AMOUNT
--------------- ---------------
MEDIUM-TERM NOTES (CONTINUED)
CIT Group Holdings,
Inc.,4.98%,01/14/00................. $10,000,000 $9,991,100
Countrywide Home Loans, Inc.,
5.01%,08/13/99 ..................... 33,000,000 32,993,400
Countrywide Home Loans, Inc.,
5.25%,10/27/99 ..................... 10,000,000 10,000,000
Finova Capital Corp.,6.19%,10/20/99 . 10,575,000 10,599,957
Ford Motor Credit Co.,7.45%,07/12/99 4,500,000 4,503,210
General Motors Acceptance Corp.,
7.50%,08/05/99 ..................... 5,100,000 5,111,717
Heller Financial, Inc.,5.05%,07/06/99 37,000,000 36,999,760
Lehman Brothers Holdings Inc.,
5.38%,01/14/00 ..................... 20,000,000 20,002,800
Textron Financial
Corp.,5.43%,11/15/99................ 8,000,000 8,000,000
---------------
TOTAL MEDIUM-TERM NOTES 156,247,804
---------------
TOTAL INVESTMENTS (COST $981,828,620)(A) 981,503,342
OTHER ASSETS LESS LIABILITIES 4,628,863
---------------
TOTAL NET ASSETS $986,132,205
===============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes is identical.
Unrealized gains and losses, based on identified tax cost at June 30, 1999,
are as follows:
<TABLE>
<S> <C>
Unrealized gains............................. $ 14,244
Unrealized losses............................ (339,522)
--------------------
Net unrealized loss......................... $(325,278)
====================
</TABLE>
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Directors.
# When-issued or delayed delivery security.
* Segregated securities for purchases of delayed delivery or when-issued
securities held at June 30, 1999.
(i) This security has been determined to be illiquid under guidelines
established by the Board of Directors.
<TABLE>
<CAPTION>
Information concerning restricted securities at June 30, 1999 is shown below:
ACQUISITION
DATE COST
-------------- -----------------
<S> <C> <C>
Abbey National Treasury ..................... 08/17/98 $ 29,996,975
ABS Investor Trust Series 1997-E ............ 08/15/98 19,000,000
Allied Domecq NA Corp. ...................... 06/23/99 4,992,132
Baxter International, Inc. .................. 05/10/99 9,708,222
Baxter International, Inc. .................. 05/06/99 4,368,591
Dakota Certificates - Standard Credit Card
Master Trust 1 ..............................
04/22/99 9,965,261
Dakota Certificates - Standard Credit Card
Master Trust 1 ..............................
06/24/99 9,880,803
Eaton Corp. ................................. 04/05/99 27,000,000
Eureka Securitization, Inc. ................. 06/29/99 6,745,458
Long Lane Master Trust III .................. 04/30/99 14,856,363
Sundstrand Corp. ............................ 12/17/98 8,000,000
Syndicated Loan Funding Trust 1999-3......... 06/15/99 20,000,000
Textron Financial Corp. ..................... 11/25/98 8,000,000
------------
$172,513,805
============
</TABLE>
The market value of the total restricted securities above represent 17.49% of
the total net assets.
Category percentages are based on net assets.
See Notes to Financial Statements. 93
<PAGE>
INCOME PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND HIGH YIELD MONEY MARKET
------------- -------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments, at market
value.................. $791,193,268 $ 10,058,813 $981,503,342
Cash ................... 179,357 257 469
Receivable for:
Dividends and interest 7,744,316 139,708 5,627,825
Investments sold ...... 33,626,098 507,108 --
Fund shares sold ...... 10,952 28,087 2,182,214
Prepaid expenses ....... 3,348 45 3,423
------------ ------------ ------------
Total assets ...... 832,757,339 10,734,018 989,317,273
------------ ------------ ------------
LIABILITIES:
Payable for:
Dividends to
shareholders......... -- 4,904 --
Investments purchased . 68,087,861 805,205 --
Fund shares redeemed .. 558,353 -- 2,864,872
Accrued investment
advisory fees ....... 250,087 5,202 207,955
Accrued administrative
service fees ........ 46,892 600 62,387
Accrued custody fees .. 7,929 2,465 9,536
Other liabilities ...... 29,916 1,339 40,318
------------ ------------ ------------
Total liabilities . 68,981,038 819,715 3,185,068
------------ ------------ ------------
NET ASSETS ............ $763,776,301 $ 9,914,303 $986,132,205
============ ============ ============
NET ASSETS REPRESENTED
BY:
Paid-in capital ........ $771,566,008 $ 10,467,152 $964,415,143
Net unrealized loss on
investments............ (10,352,088) (302,172) (325,278)
Undistributed net
investment income ..... 6,299,822 450,472 22,105,217
Accumulated net realized
loss on investments ... (3,737,441) (701,149) (62,877)
------------ ------------ ------------
NET ASSETS ............ $763,776,301 $ 9,914,303 $986,132,205
============ ============ ============
CAPITAL SHARES:
Authorized ............. Unlimited Two Billion Unlimited
Par value .............. $ 1.000 $ 0.001 $ 1.000
Outstanding ............ 60,611,146 1,049,831 75,487,829
Net asset value,
offering and redemption
price per share (net
assets divided by
shares outstanding) ... $ 12.60 $ 9.44 $ 13.06
Cost of investments .... $801,545,356 $ 10,360,985 $981,828,620
</TABLE>
94 See Notes to Financial Statements.
<PAGE>
INCOME PORTFOLIOS
STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND HIGH YIELD MONEY MARKET
------------- ---------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends .......................... $ 313,250 $ 15,160 $ --
Interest ........................... 23,510,728 481,810 23,807,802
------------ --------- -----------
Total investment income ....... 23,823,978 496,970 23,807,802
------------ --------- -----------
INVESTMENT EXPENSES:
Investment advisory fees ........... 1,534,412 29,966 1,161,655
Administrative services fees ....... 287,702 3,458 348,497
Printing and postage fees .......... 14,320 793 12,187
Custody fees ....................... 7,419 2,309 11,990
Transfer agent fees ................ 5,894 1,495 2,114
Audit fees ......................... 20,330 13,765 17,158
Directors'/Trustees' fees .......... 11,607 114 12,390
Registration fees .................. 5,626 150 37,818
Miscellaneous expenses ............. 11,756 193 9,671
------------ --------- -----------
Expenses before reimbursement and
waiver from Investment Adviser .... 1,899,066 52,243 1,613,480
Expense reimbursement and waiver
from Investment Adviser ........... -- (15,399) --
------------ --------- -----------
Net expenses .................. 1,899,066 36,844 1,613,480
------------ --------- -----------
Net investment income .............. 21,924,912 460,126 22,194,322
------------ --------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ....................... (3,732,346) (145,157) --
Forward foreign currency exchange
contracts........................ -- 441 --
Foreign currency related
transactions..................... -- (965) --
------------ --------- -----------
Net realized loss on
investments.................. (3,732,346) (145,681) --
------------ --------- -----------
Net change in unrealized gain or
loss on:
Investments ....................... (27,425,739) 77,263 (330,689)
------------ --------- -----------
Net change in unrealized gain
or loss on investments ...... (27,425,739) 77,263 (330,689)
------------ --------- -----------
Net realized and change in
unrealized gain or loss on
investments........................ (31,158,085) (68,418) (330,689)
------------ --------- -----------
Net increase (decrease) in net
assets resulting from operations .. $ (9,233,173) $ 391,708 $21,863,633
============ ========= ===========
</TABLE>
See Notes to Financial Statements. 95
<PAGE>
INCOME PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND
---------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 21,924,912 $ 42,765,946
Net realized gain (loss) on investments... (3,732,346) 12,113,406
Net change in unrealized gain or loss on
investments.............................. (27,425,739) 2,511,151
------------ ------------
Net increase (decrease) in net assets
resulting from operations.............. (9,233,173) 57,390,503
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............... (15,637,476) (43,159,245)
From net realized gains.................. (2,565,754) (3,718,891)
------------ ------------
Decrease in net assets from distributions
to shareholders........................ (18,203,230) (46,878,136)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................ 42,091,930 129,876,548
Net asset value of shares issued upon
reinvestment of distributions........... 18,181,002 46,816,347
Payments for shares redeemed............. (63,620,461) (77,605,522)
------------ ------------
Net increase (decrease) in net assets
from fund share transactions........... (3,347,529) 99,087,373
------------ ------------
Net change in net assets.................. (30,783,932) 109,599,740
NET ASSETS:
Beginning of period....................... 794,560,233 684,960,493
------------ ------------
End of period............................. $763,776,301 $794,560,233
============ ============
End of period net assets includes
undistributed net investment income...... $ 6,299,822 $ 12,386
============ ============
SHARE TRANSACTIONS:
Number of shares sold.................... 3,221,585 9,811,337
Number of shares issued upon reinvestment
of distributions....................... 1,452,159 3,589,303
Number of shares redeemed................ (4,885,682) (5,880,354)
------------ ------------
Net increase (decrease).................. (211,938) 7,520,286
============ ============
</TABLE>
96 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
--------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income...................... $ 460,126 $ 964,822
Net realized loss on investments........... (145,681) (555,468)
Net change in unrealized gain or loss on
investments............................... 77,263 (456,966)
----------- -----------
Net increase (decrease) in net assets
resulting from operations............... 391,708 (47,612)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................ (7,935) (916,480)
From net realized gains................... -- (70,942)
----------- -----------
Decrease in net assets from distributions
to shareholders......................... (7,935) (987,422)
----------- -----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold................ 5,726,113 3,590,850
Net asset value of shares issued upon
reinvestment of distributions.......... 3,031 199,555
Payments for shares redeemed............. (4,965,374) (4,087,023)
----------- -----------
Net increase (decrease) in net assets
from fund share transactions........... 763,770 (296,618)
----------- -----------
Net change in net assets................... 1,147,543 (1,331,652)
NET ASSETS:
Beginning of period........................ 8,766,760 10,098,412
----------- -----------
End of period.............................. $ 9,914,303 $ 8,766,760
=========== ===========
End of period net assets includes
undistributed (distributions in excess of)
net investment income.................... $ 450,472 $ (1,719)
=========== ===========
SHARE TRANSACTIONS:
Number of shares sold..................... 610,955 349,877
Number of shares issued upon reinvestment
of distributions........................ 321 22,065
Number of shares redeemed................. (530,953) (402,434)
----------- -----------
Net increase (decrease)................... 80,323 (30,492)
=========== ===========
</TABLE>
See Notes to Financial Statements. 97
<PAGE>
INCOME PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
----------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income.................... $ 22,194,322 $ 40,781,149
Net change in unrealized gain or loss on
investments............................ (330,689) (20,848)
------------- -------------
Net increase in net assets resulting
from operations....................... 21,863,633 40,760,301
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............ (40,869,907) (34,446,801)
------------- -------------
Decrease in net assets from
distributions to shareholders......... (40,869,907) (34,446,801)
------------- -------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold.............. 782,410,559 929,993,353
Net asset value of shares issued upon
reinvestment of distributions ....... 40,869,907 34,446,801
Payments for shares redeemed........... (693,310,654) (784,340,735)
------------- -------------
Net increase in net assets from fund
share transactions.................... 129,969,812 180,099,419
------------- -------------
Net change in net assets................. 110,963,538 186,412,919
NET ASSETS:
Beginning of period...................... 875,168,667 688,755,748
------------- -------------
End of period............................ $ 986,132,205 $ 875,168,667
============= =============
End of period net assets includes
undistributed net investment income..... $ 22,105,217 $ 40,780,802
============= =============
SHARE TRANSACTIONS:
Number of shares sold................. 60,303,197 70,927,540
Number of shares issued upon
reinvestment of distributions........ 3,191,341 2,701,802
Number of shares redeemed............. (53,379,367) (59,793,888)
------------- -------------
Net increase............................ 10,115,171 13,835,454
============= =============
</TABLE>
98 See Notes to Financial Statements.
<PAGE>
INCOME PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Statements contained herein refer to Aetna Income Shares d/b/a Aetna Bond VP
(Bond), Aetna High Yield VP (High Yield), a portfolio of Aetna Variable
Portfolios, Inc. (Variable Portfolios) and Aetna Variable Encore Fund d/b/a
Aetna Money Market VP (Money Market) (individually, a Fund, and collectively,
the Funds).
Bond and Money Market were organized under the laws of Massachusetts on January
25, 1984. Variable Portfolios was incorporated under the laws of Maryland on
June 4, 1996. The Articles of Incorporation of Variable Portfolios permit it to
offer separate portfolios, each of which has its own investment objective,
policies and restrictions. Variable Portfolios currently offers ten separate
portfolios, including High Yield. Bond, Money Market and Variable Portfolios are
each registered under the Investment Company Act of 1940 (the Act) as open-end
management investment companies.
The following is each Fund's investment objective:
BOND seeks to maximize total return, consistent with reasonable risk, through
investments in a diversified portfolio consisting primarily of debt
securities. It is anticipated that capital appreciation and investment income
will both be major factors in achieving total return.
HIGH YIELD seeks high current income and growth of capital primarily through
investment in a diversified portfolio of fixed-income securities rated lower
than BBB- by Standard and Poor's or lower than Baa3 by Moody's Investors
Service, Inc.
MONEY MARKET seeks to provide high current return, consistent with
preservation of capital and liquidity, through investment in high-quality
money market instruments.
Shares in the Funds are currently sold to Aetna Life Insurance and Annuity
Company (ALIAC), an Aetna Life Insurance Separate Account, and in the case of
Bond, to existing shareholders through reinvestment of distributions. ALIAC's
shares are allocated to certain of its variable life/annuity accounts. At June
30, 1999, ALIAC's separate accounts and affiliates held all of Money Market's
and High Yield's shares outstanding and 99.4% of Bond's shares outstanding.
Aeltus Investment Management, Inc. (Aeltus) serves as the investment adviser to
the Funds. ALIAC serves as the principal underwriter to each Fund. Aeltus and
ALIAC are both indirect wholly owned subsidiaries of Aetna Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of each Fund have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts
reported therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of each Fund.
A. VALUATION OF INVESTMENTS
Except with respect to Money Market, investments are stated at market values
based upon prices furnished by external pricing sources 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.
Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value. Securities
and fixed income investments for which market quotations are not considered to
be readily available are valued using methods approved by the Board of
Directors/Trustees.
B. ILLIQUID AND RESTRICTED SECURITIES
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming
99
<PAGE>
INCOME PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
negotiation and legal expenses, and it may be difficult or impossible for the
Funds to sell them promptly at an acceptable price. Restricted securities are
those which can only be sold under Rule 144A of the Securities Act of 1933 (1933
Act) or are securities offered pursuant to Section 4(2) of the 1933 Act, and are
subject to legal or contractual restrictions on resale and may not be publicly
sold without registration under the 1933 Act. Each Fund may invest up to 15% of
its total assets in illiquid securities (except Money Market which may invest up
to 10%). Illiquid and restricted securities are valued using market quotations
when readily available. In the absence of market quotations, the securities are
valued based upon their fair value determined under procedures approved by the
Board of Directors/Trustees. The Funds will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any. Below is a
summary of securities held which are both illiquid and restricted as of June 30,
1999:
<TABLE>
<CAPTION>
COST MARKET VALUE % OF NET ASSETS
---- ------------ ---------------
<S> <C> <C> <C>
Bond $1,057,718 $1,063,056 0.14%
High Yield 396,000 129,000 1.30%
</TABLE>
C. 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 such securities are identified in the Portfolios 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 connection with such purchases, the Funds are required to hold
liquid assets as collateral with their custodian sufficient to cover the
purchase price.
D. DOLLAR ROLL TRANSACTIONS
Each of the Funds may engage in dollar roll transactions with respect to
mortgage-backed securities issued by Government National Mortgage Association,
Federal National Mortgage Association and Federal Home Loan Mortgage Corp. In a
dollar roll transaction, a Fund sells a mortgage-backed security to a financial
institution, such as a bank or broker/dealer, and simultaneously agrees to
repurchase a substantially similar (i.e., same type, coupon, and maturity)
security from the institution at a later date at an agreed upon price. The
mortgage-backed securities that are repurchased will bear the same interest rate
as those sold, but generally will be collateralized by different pools of
mortgages with different prepayment histories.
E. FEDERAL INCOME TAXES
Each Fund has met the requirements to be taxed as a regulated investment company
for the year ended December 31, 1998 and intends to meet the requirements for
the current year. As such, each Fund is relieved of federal income taxes by
distributing all of its net taxable investment income and capital gains, if any,
in compliance with the applicable provisions of the Internal Revenue Code.
Furthermore, by distributing substantially all of its net taxable investment
income and capital gains during the calendar year, each Fund will avoid federal
excise taxes in accordance with the applicable provisions of the Internal
Revenue Code. Thus, the financial statements contain no provision for federal
taxes.
F. DISTRIBUTIONS
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. In addition, distributions
of realized gains from sales of securities held one year or less are taxable to
shareholders at ordinary income tax rates rather than preferred capital gain tax
rates in accordance with the applicable provisions of the Internal Revenue Code.
100
<PAGE>
- --------------------------------------------------------------------------------
G. 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 SERVICE FEES
Each Fund pays Aeltus a monthly fee expressed as a percentage of its average
daily net assets. Below are the Funds' annual investment advisory fees, as of
June 30, 1999:
<TABLE>
<CAPTION>
ADVISORY FEE
------------
<S> <C>
Bond 0.40%
High Yield 0.65%
Money Market 0.25%
</TABLE>
Each Fund pays Aeltus an administrative services fee in exchange for receiving
certain administrative and shareholder services and to compensate Aeltus for
supervising the Funds' other service providers. Each Fund pays Aeltus an
administrative services fee at an annual rate based on its average daily net
assets. The rate is 0.075% on the first $5 billion in Fund assets and 0.050% on
all Fund assets over $5 billion.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Fund, in
exchange for fees payable by Aeltus, of up to 0.325% of the Funds' average daily
net assets. For the period January 1, 1999 through June 30, 1999, Aeltus paid
ALIAC $1,385,615.
4. REIMBURSEMENT AND WAIVER FROM INVESTMENT ADVISER
Aeltus is contractually obligated through December 31, 1999 to reimburse High
Yield for some or all of its operating expenses or to waive fees in order to
maintain a certain expense ratio. Reimbursement and waiver arrangements will
increase High Yield's yield and total return.
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1999 were:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------- -------------------
<S> <C> <C>
Bond $277,444,909 $234,192,283
High Yield 7,555,426 8,003,645
</TABLE>
101
<PAGE>
INCOME PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
6. CAPITAL LOSS CARRYFORWARD
In accordance with applicable provisions of the Internal Revenue Code, the
following capital loss carryforwards have been incurred at June 30, 1999:
<TABLE>
<CAPTION>
CAPITAL LOSS YEAR OF
CARRYFORWARD EXPIRATION
------------ ----------
<S> <C> <C>
High Yield $218,483 2006
336,345 2007
- ---------------------------------------------
Money Market 62,877 2003
</TABLE>
These capital loss carryforwards may be used to offset future capital gains
until their respective expiration dates. It is the policy of each of the Funds
to reduce future distributions of realized gains to shareholders to the extent
of unexpired capital loss carryforwards.
102
<PAGE>
INCOME PORTFOLIOS
ADDITIONAL INFORMATION
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
YEAR 2000
The Funds receive services from a number of providers which rely on the
effective functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not be able to perform their intended functions adequately after 1999
because of the inability of computer systems and software to distinguish the
year 2000 from the year 1900. Aeltus is taking steps that it believes are
reasonably designed to address this potential "Year 2000" problem and to obtain
satisfactory information that comparable steps are being taken by each of the
Funds' other major service providers. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the Funds from
this problem.
103
<PAGE>
INCOME PORTFOLIOS
FINANCIAL HIGHLIGHTS
BOND
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995+ 1994+
------------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .. $ 13.06 $ 12.85 $ 12.62 $ 13.00 $ 11.72 $ 13.05
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.36 0.75 0.80+ 0.85+ 0.88 0.79
Net realized and change in unrealized
gain or loss on investments ........ (0.52) 0.28 0.23 (0.39) 1.24 (1.29)
-------- -------- -------- -------- -------- --------
Total from investment
operations ....................... (0.16) 1.03 1.03 0.46 2.12 (0.50)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income ........... (0.26) (0.76) (0.80) (0.84) (0.84) (0.83)
From net realized gains on investments (0.04) (0.06) -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions ................ (0.30) (0.82) (0.80) (0.84) (0.84) (0.83)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........ $ 12.60 $ 13.06 $ 12.85 $ 12.62 $ 13.00 $ 11.72
======== ======== ======== ======== ======== ========
Total return* ......................... (1.15)% 8.14% 8.30% 3.60% 18.24% (3.80)%
Net assets, end of period (000's) ..... $763,776 $794,560 $684,960 $643,729 $666,960 $561,704
Ratio of net expenses to average net
assets............................... 0.50%(1) 0.49% 0.48% 0.39% 0.32% 0.33%
Ratio of net investment income to
average net assets .................. 5.72%(1) 5.82% 6.31% 6.39% 6.97% 6.38%
Portfolio turnover rate ............... 31.90% 88.98% 134.92% 96.41% 113.72% 74.24%
</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.
104 See Notes to Financial Statements.
<PAGE>
HIGH YIELD
- -----------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH DECEMBER 10, 1997
PERIOD ENDED YEAR ENDED (COMMENCEMENT OF
JUNE 30, 1999 DECEMBER 31, OPERATIONS)
(UNAUDITED) 1998 TO DECEMBER 31, 1997
------------- ------------ --------------------
<S> <C> <C> <C>
Net asset value, beginning
of period ............... $ 9.04 $ 10.10 $ 10.00
------ ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income ... 0.46 1.07 0.05+
Net realized and change
in unrealized gain or
loss on investments ..... (0.05) (1.09) 0.10
------ ------- -------
Total from investment
operations............ 0.41 (0.02) 0.15
------ ------- -------
LESS DISTRIBUTIONS:
From net investment
income.................. (0.01) (1.02) (0.05)
From net realized gains
on investments ......... -- (0.02) --
------ ------- -------
Total distributions ... (0.01) (1.04) (0.05)
------ ------- -------
Net asset value, end of
period................... $ 9.44 $ 9.04 $ 10.10
====== ======= =======
Total return ............. 4.51% (0.27)% 1.48%
Net assets, end of period
(000's).................. $9,914 $ 8,767 $10,098
Ratio of net expenses to
average net assets ...... 0.80%(1) 0.80% 0.80%(1)
Ratio of net investment
income to average net
assets................... 9.98%(1) 9.14% 7.81%(1)
Ratio of expenses before
reimbursement and waiver
to average net assets ... 1.13%(1) 0.97% --
Portfolio turnover rate .. 84.19% 178.39% 69.39%
</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. 105
<PAGE>
INCOME PORTFOLIOS
FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997 1996+ 1995+ 1994+
------------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.39 $ 13.36 $ 13.19 $ 13.29 $ 12.54 $ 12.54
-------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................. 0.30 0.63 0.67+ 0.70 0.75 0.52
Net realized and change in unrealized
gain or loss on investments .......... (0.01) 0.07 0.03 -- 0.01 (0.02)
-------- -------- -------- -------- -------- --------
Total from investment
operations ......................... 0.29 0.70 0.70 0.70 0.76 0.50
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income ............ (0.62) (0.67) (0.53) (0.80) (0.01) (0.50)
-------- -------- -------- -------- -------- --------
Total distributions ................. (0.62) (0.67) (0.53) (0.80) (0.01) (0.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ......... $ 13.06 $ 13.39 $ 13.36 $ 13.19 $ 13.29 $ 12.54
======== ======== ======== ======== ======== ========
Total return* .......................... 2.32% 5.46% 5.47% 5.37% 6.05% 4.09%
Net assets, end of period (000's) ...... $986,132 $875,169 $688,756 $613,505 $514,037 $483,039
Ratio of net expenses to average net
assets................................. 0.35%(1) 0.34% 0.35% 0.34% 0.30% 0.32%
Ratio of net investment income to
average net assets .................... 4.78%(1) 5.28% 5.34% 5.24% 5.82% 4.16%
</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.
106 See Notes to Financial Statements.
<PAGE>
AETNA GET FUND, SERIES C
Growth of $10,000
<TABLE>
<CAPTION>
GET Fund, Series C 12/17/96 12/31/96 12/31/97 12/31/98 06/30/99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aetna GET Fund, Series C 10,000 10,153 10,251 11,620 12,442 12,715 14,432 15,002 13,496 16,248 17,114 18,230
S&P 500 Index 10,000 10,174 10,446 12,270 13,189 13,568 15,461 15,971 14,382 17,445 18,314 19,605
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date 1 Year Inception
- ---------------------------------------
<S> <C> <C>
12/17/96 21.52% 26.73%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA GET FUND, SERIES C
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna GET Fund, Series C (GET C) generated a return of 12.20%, net of fund
expenses, for the six month period ended June 30, 1999. The benchmark, Standard
& Poor's (S&P) 500 Index(a), returned 12.38% for the same period.
Currently closed to new deposits, GET C invests primarily in common stocks and
bonds in varying proportions in response to market fluctuations. This strategy
is complemented by a guarantee that the market value of an investor's assets
will not be less than their market value on the first day of GET C's 5-year
Guaranteed Period if the assets are held to GET C's maturity on December 16,
2001.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIOS?
On the last day of June, the Federal Reserve (the "Fed") raised the Fed funds
rate - the interest rate charged on overnight loans between banks - by 0.25%.
That action says a lot about how economic conditions had developed during the
first half of the year. Earlier in the year, with 1998's financial panic and
fears of global meltdown fresh in memory, prevailing views on economic growth
and the outlook for corporate earnings were still quite cautious. It soon became
apparent that U.S. domestic demand was booming, and the worst fears about the
impact of last year's financial crisis on this year's economic picture were not
being borne out.
The mood shift was reflected in a recovery in the relative performance of
cyclical stocks, as analysts' expectations for their forward earnings were
increased sharply. Small-capitalization stocks - which had fallen from grace in
the market's enthusiasm for "trophy stocks," a relative handful of globally
recognizable names - made-up some of what had been a historic
See Definition of Terms. 107
<PAGE>
performance gap relative to large-caps. Market breadth widened as "value" themes
and small-cap ideas regained respectability with investors, within the context
of what appeared to be a much more successful global economy than had been
priced in earlier.
Within the U.S. equity market, the rank order of market performance by broad
indexes during the second quarter shows the Russell 2000, Value Line, Amex, and
Dow Jones Industrials with a clear lead over the NASDAQ, NYSE Composites, and
the S&P 500. The previously out-of-favor deep cyclicals - such as non-ferrous
metals, machinery, forest products, and commodity chemicals - were among the
best-performing industry groups. At the same time, earlier stalwarts such as
technology and pharmaceuticals turned in more-modest results. Investors'
widening horizons were best expressed in the performance of overseas markets:
China, Indonesia, Malaysia, Russia, Korea, Thailand, Venezuela, Hong Kong,
Argentina, Mexico - the list of the world's leading equity market performances
during the second quarter - reads almost country-for-country like the list of
casualties during the turbulence of 1997-98. Each of these national markets
outperformed the best of the broad U.S. market indices during the quarter. Even
Japan, the habitual wet blanket of global growth, reported an eye-popping
(though suspect) economic bounce and solidly respectable equity-market returns.
The deflationary fears that still lingered at the opening of the second quarter
had dispersed well before the Fed, in its new transparent operating style, had
begun to prepare the markets for a reversal in policy. The Fed adopted and
announced, at the May meeting of its Federal Open Market Committee, a "bias"
toward raising its target rate for the cost of overnight bank reserves.
Fixed-income markets had already sensed which way the economy was going and had
anticipated that monetary policy would follow. Yield curves steepened as the
more buoyant economic outlook cast a pall over the prospects for bond market
returns. The issue under debate as the third quarter opens is whether the
freshening of global growth, which so affected market results during the spring
quarter, will continue to dominate investor sentiment and policymakers'
concerns. If so, we can expect a continuing improvement in earnings estimates
and an ongoing anxiety about an adverse shift in inflation and interest-rate
trends. If not, there may be a return to the same sort of high-quality, reliable
growth themes that provided investors with a sense of comfort last year.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
GET C had nearly 97% of its assets in equities.
Equities
- --------
The equity portion of this portfolio is run in the "enhanced index" style, which
slightly underperformed the S&P 500 during the first half of the year. The
quantitative model used to rank the stocks in the S&P 500 did not perform well
in the first half of the year. The principal reason for this was the emphatic
rotation to deep "value" that occurred in April and extended into May.
Quantitative models in general tend to have difficulty at inflection points, and
the model's behavior other than at inflection points proved to be no exception.
The strong performance of cyclical stocks in April signaled a reversal in the
market that was confirmed by the Fed's rate hike at the end of June. The model's
effectiveness has gradually improved as the new trend has become established.
One of the best-performing stocks in the S&P 500 during the first half of the
year was Nalco Chemical Co. (maker of process chemicals). This stock provides a
good illustration of what happened to many cyclical stocks during the last six
months.
. At the beginning of the year, Nalco Chemical Co. was poorly ranked (and
therefore underweight in the Portfolio) due to its declining expected earnings
and poor price momentum.
. By the end of the six-month period, its rank had improved to a middle decile
(due to better-than-expected earnings). It is now owned at a market weight in
the Portfolio.
. It is interesting to note that the actual earnings of many industrial
cyclicals are still declining; but because of the stronger world economy, the
market is pricing the stocks with an expectation for better earnings ahead.
The worst performing stock in the S&P 500 over this period was McKesson HBOC,
Inc. McKesson HBOC, Inc. started the year poorly ranked. By the end of the
quarter, it was no longer owned in the Portfolio. Among the best-performing S&P
500 industry groups were the basic materials and other deep cyclical industries.
As mentioned earlier, we were underweight in many of these industries in April
because of their weak business fundamentals, but the prospect of an improving
world economy sent these stocks soaring. As expected earnings of some issues in
these industries have improved, the weighting of these industries in the
Portfolio has risen.
108 See Definition of Terms.
<PAGE>
Fixed Income
- ------------
The portion of GET C allocated to fixed income securities was invested in U.S.
Treasury zero-coupon securities. Anticipation of the change in the Fed's
monetary policy caused interest rates to rise significantly during the first
half of the year. Short-term Treasury yields increased by nearly 1%. The
portfolio's fixed-income securities produced very little return during the
period because the yield they earned was approximately offset by the negative
market-value impact of the increase in interest rates.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Equities
- --------
For four straight months this year, the estimate-trend variable in the
stock-evaluation model has been perverse: that is, we would have had better
returns by buying stocks whose expected earnings were declining rather than
stocks whose expected earnings were rising. The market was placing much higher
value on other characteristics (such as cyclical exposure) than on expected
earnings. This has happened in the past, but normally the market will eventually
turn its attention back to earnings. In June, this estimate-trend variable was
once again very effective in discriminating between good stocks and bad stocks.
That is, in general, stocks with rising expected earnings went up in price,
while stocks with falling expected earnings went down. The return of this
factor's effectiveness might be a signal that the most violent portion of the
transition, from a market priced for slow economic growth to a market priced for
faster economic growth, is over.
Fixed Income
- ------------
The outlook for the Portfolio's fixed income holdings will be determined by the
Fed's future actions. The Fed's primary concern is the steady drop in the
unemployment rate. It is also concerned about the sustainability of the large
U.S. trade deficit. These factors may cause the Fed to raise the Fed funds rate
again. However, it is likely to proceed cautiously, because inflationary forces
are still quite weak. The Fed also does not want to interfere with nascent
recoveries in Japan and Western Europe, nor does it want to destabilize
financial markets concerns over potential Y2K-related disruptions. Thus,
interest rates are likely to show more stability during the second half of the
year.
LARGE CAP PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF % OF OVER/(UNDER)
SECTOR EQUITY STOCKS S&P 500 WEIGHTING
<S> <C> <C> <C>
Basic Materials 2.9% 3.3% (0.4)%
Commercial Services 1.8% 1.7% 0.1%
Consumer Discretionary 13.0% 12.2% 0.8%
Consumer Non-Discretionary 5.2% 7.7% (2.5)%
Energy 5.7% 6.6% (0.9)%
Finance 17.2% 15.8% 1.4%
Healthcare 9.6% 11.1% (1.5)%
Manufacturing 10.3% 10.0% 0.3%
Technology 19.8% 21.1% (1.3)%
Utilities 14.5% 10.5% 4.0%
</TABLE>
See Definition of Terms. 109
<PAGE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Microsoft Corp. 3.9%
General Electric Co. 3.1%
International Business Machines Corp. 3.0%
Wal-Mart Stores, Inc. 2.7%
Lucent Technologies, Inc. 2.5%
Citigroup Inc. 2.0%
Cisco Systems, Inc. 1.7%
Intel Corp. 1.7%
AT&T Corp. 1.6%
Exxon Corp. 1.6%
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION: % OF % OF
INVESTMENT INVESTMENTS
ASSET CLASS 06/30/99 12/31/98
<S> <C> <C>
Large Cap Stocks 92.3% 91.0%
Mid Cap Stocks 1.2% 1.9%
International Stocks 2.0% 1.9%
Fixed Income 3.1% 2.7%
Cash Equivalents 1.4% 2.5%
---------- -----------
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 Series' exposure to both changes in the value of the
portfolio of investments as well as the financial instruments underlying the
options and futures positions.
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Series are subject to change.
110 See Definition of Terms.
<PAGE>
AETNA GET FUND, SERIES D
Growth of $10,000
<TABLE>
<CAPTION>
GET Fund, Series D 1/19/99 06/30/99
<S> <C> <C> <C>
Aetna GET Fund, Series D 10,000 10,060 10,298
S&P 500 Index 10,000 10,303 11,029
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
for the period ended June 30, 1999*
- ---------------------------------------
Inception Date Inception
- ---------------------------------------
<S> <C>
01/19/99 2.99%
- ---------------------------------------
</TABLE>
*Total Return is calculated including reinvestment of income and capital gain
distributions. Performance does not take into account any separate account
charges imposed by Aetna. Past performance is no guarantee of future results.
Investment return and principal of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than the original
cost.
AETNA GET FUND, SERIES D
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
Aetna GET Fund, Series D (GET D) generated a return of 2.99%, net of fund
expenses, for the period from January 19, 1999 through June 30, 1999. The
benchmark, the Standard & Poor's (S&P) 500 Index(a), returned 11.06% for the
same period.
Currently closed to new deposits, GET D invests primarily in common stocks and
bonds in varying proportions in response to market fluctuations. This strategy
is complemented by a guarantee that the market value of an investor's assets
will not be less than their market value on the first day of GET D's 5-year
Guaranteed Period if the assets are held to GET D's maturity on January 15,
2004.
WHAT ECONOMIC OR FINANCIAL MARKET CONDITIONS IMPACTED THE PORTFOLIOS?
On the last day of June, the Federal Reserve (the "Fed") raised the Fed funds
rate - the interest rate charged on overnight loans between banks - by 0.25%.
That action says a lot about how economic conditions had developed during the
first half of the year. Earlier in the year, with 1998's financial panic and
fears of global meltdown fresh in memory, prevailing views on economic growth
and the outlook for corporate earnings were still quite cautious. It soon became
apparent that: U.S. domestic demand was booming; and the worst fears about the
impact of last year's financial crisis on this year's economic picture were not
being borne out.
The mood shift was reflected in a recovery in the relative performance of
cyclical stocks, as analysts' expectations for their forward earnings were
increased sharply. Small-capitalization stocks - which had fallen from grace in
the market's
See Definition of Terms. 111
<PAGE>
enthusiasm for "trophy stocks," a relative handful of globally recognizable
names - made-up some of what had been a historic performance gap relative to
large-caps. Market breadth widened as "value" themes and small-cap ideas
regained respectability with investors, within the context of what appeared to
be a much more successful global economy than had been priced in earlier.
Within the U.S. equity market, the rank order of market performance by broad
indexes during the second quarter shows the Russell 2000, Value Line, Amex, and
Dow Jones Industrials with a clear lead over the NASDAQ, NYSE Composites, and
the S&P 500. The previously out-of-favor deep cyclicals - such as non-ferrous
metals, machinery, forest products, and commodity chemicals - were among the
best-performing industry groups. At the same time, earlier stalwarts such as
technology and pharmaceuticals turned in more-modest results. Investors'
widening horizons were best expressed in the performance of overseas markets:
China, Indonesia, Malaysia, Russia, Korea, Thailand, Venezuela, Hong Kong,
Argentina, Mexico - the list of the world's leading equity market performances
during the second quarter - reads almost country-for-country like the list of
casualties during the turbulence of 1997-98. Each of these national markets
outperformed the best of the broad U.S. market indices during the quarter. Even
Japan, the habitual wet blanket of global growth, reported an eye-popping
(though suspect) economic bounce and solidly respectable equity-market returns.
The deflationary fears that still lingered at the opening of the second quarter
had dispersed well before the Fed, in its new transparent operating style, had
begun to prepare the markets for a reversal in policy. The Fed adopted and
announced, at the May meeting of its Federal Open Market Committee, a "bias"
toward raising its target rate for the cost of overnight bank reserves.
Fixed-income markets had already sensed which way the economy was going and had
anticipated that monetary policy would follow. Yield curves steepened as the
more buoyant economic outlook cast a pall over the prospects for bond market
returns. The issue under debate as the third quarter opens is whether the
freshening of global growth, which so affected market results during the spring
quarter, will continue to dominate investor sentiment and policymakers'
concerns. If so, we can expect a continuing improvement in earnings estimates
and an ongoing anxiety about an adverse shift in inflation and interest-rate
trends. If not, there may be a return to the same sort of high-quality, reliable
growth themes that provided investors with a sense of comfort last year.
WHAT INVESTMENTS INFLUENCED THE PORTFOLIO'S PERFORMANCE OVER THE PAST SIX
MONTHS?
GET D had slightly less than 57% of its assets in equities at the end of the
first half of the year.
Equities
- --------
The equity portion of this portfolio is run in the "enhanced index" style, which
slightly underperformed the S&P 500 during the first half of the year. The
quantitative model used to rank the stocks in the S&P 500 did not perform well
in the first half of the year. The principal reason for this was the emphatic
rotation to deep "value" that occurred in April and extended into May.
Quantitative models in general tend to have difficulty at inflection points, and
the model's behavior other than at inflection points proved to be no exception.
The strong performance of cyclical stocks in April signaled a reversal in the
market that was confirmed by the Fed's rate hike at the end of June. The model's
effectiveness has gradually improved as the new trend has become established.
One of the best-performing stocks in the S&P 500 during the first half of the
year was Nalco Chemical Co. (maker of process chemicals). This stock provides a
good illustration of what happened to many cyclical stocks during the last six
months.
. At the beginning of the year, Nalco Chemical Co. was poorly ranked (and
therefore underweight in the Portfolio) due to its declining expected earnings
and poor price momentum.
. By the end of the six-month period, its rank had improved to a middle decile
(due to better-than-expected earnings). It is now owned at a market weight in
the Portfolio.
. It is interesting to note that the actual earnings of many industrial
cyclicals are still declining; but because of the stronger world economy, the
market is pricing the stocks with an expectation for better earnings ahead.
The worst performing stock in the S&P 500 over this period was McKesson HBOC,
Inc. McKesson HBOC, Inc. started the year poorly ranked. By the end of the
quarter, it was no longer owned in the Portfolio. Among the best-performing S&P
500 industry groups were the basic materials and other deep cyclical industries.
As mentioned earlier, we were underweight in many of these industries in April
because of their weak business fundamentals, but the prospect of an improving
world
112 See Definition of Terms.
<PAGE>
economy sent these stocks soaring. As expected earnings of some issues in
these industries have improved, the weighting of these industries in the
Portfolio has risen.
Fixed Income
- ------------
The portion of GET D allocated to fixed income securities was affected
negatively by the increase in interest rates during thefirst half of the year.
Anticipation of the change in the Fed's monetary policy caused interest rates to
rise significantly during the first half of the year. Short-term Treasury yields
increased by nearly 1%. The negative impact on market value caused by the
increase in interest rates was partially offset by the outperformance of the
Portfolio's holdings in corporate bonds and mortgage-backed securities relative
to U.S. Treasury securities ("Treasuries"). Based on data from Lehman Brothers,
investment-grade corporate securities outperformed comparable-duration
Treasuries by 1.04%; and mortgage-backed securities outperformed
comparable-duration Treasuries by 0.22%. ("Duration" measures a bond's
sensitivity to increases or decreases in interest rates. The longer the
duration, the more a bond - or a bond portfolio - will be affected by rate
changes.) The positive relative performance of these sectors resulted from: the
improved outlook for the global economy; and increased liquidity in the bond
market.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Equities
- --------
For four straight months this year, the estimate-trend variable in the
stock-evaluation model has been perverse: that is, we would have had better
returns by buying stocks whose expected earnings were declining rather than
stocks whose expected earnings were rising. The market was placing much higher
value on other characteristics (such as cyclical exposure) than on expected
earnings. This has happened in the past, but normally the market will eventually
turn its attention back to earnings. In June, this estimate-trend variable was
once again very effective in discriminating between good stocks and bad stocks.
That is, in general, stocks with rising expected earnings went up in price,
while stocks with falling expected earnings went down. The return of this
factor's effectiveness might be a signal that the most violent portion of the
transition, from a market priced for slow economic growth to a market priced for
faster economic growth, is over.
Fixed Income
- ------------
The outlook for the Portfolio's fixed income holdings will be determined by the
Fed's future actions. The Fed's primary concern is the steady drop in the
unemployment rate. It is also concerned about the sustainability of the large
U.S. trade deficit. These factors may cause the Fed to raise the Fed funds rate
again. However, it is likely to proceed cautiously, because inflationary forces
are still quite weak. The Fed also does not want to interfere with nascent
recoveries in Japan and Western Europe, nor does it want to destabilize
financial markets already concerns over potential Y2K-related disruptions. Thus,
interest rates are likely to show more stability during the second half of the
year. Yield spreads in the corporate-bond market, and to a lesser extent in the
mortgage pass-through market, are higher than their long-term historical
averages. They may very well remain high for the balance of the year. It is
quite possible that investors will remain risk-averse due to concerns about
Y2K-related disruptions. More fundamentally, investors must price in the
corporate credit-quality risks arising from the fact that the Fed has increased
the Fed funds rate.
See Definition of Terms. 113
<PAGE>
LARGE CAP PORTFOLIO SECTOR BREAKDOWN:
<TABLE>
<CAPTION>
% OF % OF OVER/(UNDER)
SECTOR EQUITY STOCKS S&P 500 WEIGHTING
<S> <C> <C> <C>
Basic Materials 2.8% 3.3% (0.5)%
Commercial Services 1.6% 1.7% (0.1)%
Consumer Discretionary 12.1% 12.2% (0.1)%
Consumer Non-Discretionary 6.2% 7.7% (1.5)%
Energy 6.0% 6.6% (0.6)%
Finance 17.1% 15.8% 1.3%
Healthcare 10.5% 11.1% (0.6)%
Manufacturing 9.7% 10.0% (0.3)%
Technology 19.8% 21.1% (1.3)%
Utilities 14.2% 10.5% 3.7%
</TABLE>
<TABLE>
<CAPTION>
% OF NET
TOP TEN EQUITY HOLDINGS ASSETS
<S> <C>
Microsoft Corp. 2.4%
General Electric Co. 1.8%
International Business Machines Corp. 1.7%
Wal-Mart Stores, Inc. 1.6%
Lucent Technologies, Inc. 1.4%
Citigroup Inc. 1.2%
Cisco Systems, Inc. 1.1%
MCI Worldcom, Inc. 1.0%
Intel Corp. 1.0%
Exxon Corp. 0.9%
</TABLE>
<TABLE>
<CAPTION>
ASSET ALLOCATION: % OF
INVESTMENT NOTIONAL VALUE* ECONOMIC EXPOSURE*
ASSET CLASS 06/30/99 OF FUTURES 06/30/99
<S> <C> <C> <C>
Large Cap Stocks 53.8% 0.6% 54.4%
Mid Cap Stocks 0.9% -- 0.9%
International Stocks 1.3% -- 1.3%
International Bonds 1.0% -- 1.0%
Fixed Income 42.2% -- 42.2%
Cash Equivalents 0.8% (0.6)% 0.2%
---------- ---------------- --------------------
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 Series' exposure to both changes in the value of the
portfolio of investments as well as the financial instruments underlying the
options and futures positions.
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Series are subject to change.
114 See Definition of Terms.
<PAGE>
AETNA GET FUND, SERIES E
ACCUMULATION PERIOD
Aetna GET Fund, Series E (GET E) will be offered from June 15, 1999 through
September 14, 1999 as a funding option under certain variable annuity contracts
issued by Aetna Life Insurance and Annuity Company. GET E assets will be
invested entirely in money market instruments prior to September 15, 1999. After
that date, GET E will allocate its investments between equities and fixed income
securities in proportions that are intended to help GET E attain its investment
objectives.
WHAT IS YOUR OUTLOOK GOING FORWARD?
Equities
- --------
As noted in Aetna GET Fund, Series C and Aetna GET Fund, Series D, for four
straight months this year, the estimate-trend variable in the stock-evaluation
model has been perverse: that is, we would have had better returns by buying
stocks whose expected earnings were declining rather than stocks whose expected
earnings were rising. The market was placing much higher value on other
characteristics (such as cyclical exposure) than on expected earnings. This has
happened in the past, but normally the market will eventually turn its attention
back to earnings. In June, this estimate-trend variable was once again very
effective in discriminating between good stocks and bad stocks. That is, in
general, stocks with rising expected earnings went up in price, while stocks
with falling expected earnings went down. The return of this factor's
effectiveness might be a signal that the most violent portion of the transition,
from a market priced for slow economic growth to a market priced for faster
economic growth, is over.
Fixed Income
- ------------
The outlook for the Portfolio's fixed income holdings will be determined by the
Fed's future actions. The Fed's primary concern is the steady drop in the
unemployment rate. It is also concerned about the sustainability of the large
U.S. trade deficit. These factors may cause the Fed to raise the Fed funds rate
again. However, it is likely to proceed cautiously, because inflationary forces
are still quite weak. The Fed also does not want to interfere with nascent
recoveries in Japan and Western Europe, nor does it want to destabilize
financial markets already concerns over potential Y2K-related disruptions. Thus,
interest rates are likely to show more stability during the second half of the
year. Yield spreads in the corporate-bond market, and to a lesser extent in the
mortgage pass-through market, are higher than their long-term historical
averages. They may very well remain high for the balance of the year. It is
quite possible that investors will remain risk-averse due to concerns about
Y2K-related disruptions. More fundamentally, investors must price in the
corporate credit-quality risks arising from the fact that the Fed has increased
the Fed funds rate.
The opinions expressed reflect those of the portfolio manager only through June
30, 1999. The manager's opinions are subject to change at any time based on
market and other conditions. The composition, industries and holdings of the
Series are subject to change.
See Definition of Terms. 115
<PAGE>
DEFINITION OF TERMS
(a) The S&P 500 is the Standard & Poor's 500 Index. Performance is calculated on
a total return basis and dividends are reinvested, as reported by Frank
Russell Company.
These are unmanaged indices and are not available for individual investment.
116
<PAGE>
AETNA GET FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
SERIES C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
<S> <C> <C>
COMMON STOCKS (95.6%)
AIR TRANSPORT (0.5%)
AMR Corp. + ............................. 1,500 $ 102,375
Delta Air Lines, Inc. ................... 2,800 161,350
FDX Corp. Holding Co. + ................. 5,960 323,330
Southwest Airlines Co. .................. 7,000 217,875
US Airways Group, Inc. + ................ 1,800 78,413
---------------
883,343
---------------
ALUMINUM (0.2%)
Alcoa Inc. .............................. 6,800 420,750
-------------
AUTO PARTS AND HARDWARE (0.3%)
Black & Decker Corp. .................... 1,700 107,313
Briggs & Stratton Corp. ................. 300 17,325
Cooper Tire & Rubber Co. ................ 900 21,263
Genuine Parts Co. ....................... 4,450 155,750
Goodyear Tire & Rubber Co. (The) ........ 2,600 152,912
Snap-On, Inc. ........................... 2,300 83,231
---------------
537,794
---------------
AUTOMOTIVE (1.6%)
Dana Corp. .............................. 4,657 214,513
Delphi Automotive Systems Corp. ......... 11,742 217,961
Eaton Corp. ............................. 700 64,400
Ford Motor Co. .......................... 28,600 1,614,113
General Motors Corp. + .................. 10,800 712,800
Johnson Controls, Inc. .................. 2,400 166,350
TRW, Inc. ............................... 2,000 109,750
---------------
3,099,887
---------------
BANKS AND THRIFTS (6.8%)
Bank of America Corp. ................... 29,200 2,140,725
Bank of New York Co., Inc. .............. 12,600 462,262
Bank One Corp. .......................... 19,400 1,155,512
BankBoston Corp. ........................ 2,100 107,363
BB&T Corp. .............................. 5,100 187,106
Chase Manhattan Corp. ................... 21,200 1,836,450
Comerica, Inc. .......................... 3,400 202,088
Fifth Third Bancorp ..................... 5,531 368,040
Firstar Corp. ........................... 12,600 352,800
Fleet Financial Group, Inc. ............ 14,500 643,437
Golden West Financial Corp. ............. 900 88,200
Huntington Bancshares Inc. .............. 4,930 172,550
J.P. Morgan & Co. ....................... 4,400 618,200
KeyCorp ................................. 7,900 253,788
Mellon Bank Corp. ....................... 9,600 349,200
Mercantile Bancorporation, Inc. ......... 3,600 205,650
National City Corp. ..................... 5,800 379,900
Northern Trust Corp. .................... 2,300 223,100
PNC Bank Corp. .......................... 6,600 380,325
Regions Financial Corp. ................. 5,200 199,875
Republic New York Corp. ................. 1,100 75,006
State Street Corp. ...................... 3,700 315,888
Summit Bancorp .......................... 4,100 171,431
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
BANKS AND THRIFTS (CONTINUED)
Suntrust Banks, Inc. .................... 4,600 $ 319,413
Synovus Financial Corp. ................. 6,800 135,150
U.S. Bancorp ............................ 12,250 416,500
Wachovia Corp. .......................... 3,500 299,469
Washington Mutual, Inc. ................. 10,921 386,330
Wells Fargo & Co. ....................... 26,800 1,145,700
---------------
13,591,458
---------------
BIOTECH AND MEDICAL PRODUCTS (1.1%)
Amgen, Inc. + ........................... 11,000 669,625
Bausch & Lomb, Inc. ..................... 1,800 137,700
Becton, Dickinson & Co. ................. 5,400 162,000
Biomet, Inc. ............................ 2,000 79,500
Boston Scientific Corp. + ............... 9,700 426,194
Guidant Corp. ........................... 6,600 339,487
Medtronic, Inc. ......................... 5,000 389,375
---------------
2,203,881
---------------
CHEMICALS (1.4%)
Dow Chemical Co. ........................ 5,500 697,812
Du Pont (E.I.) de Nemours ............... 19,100 1,304,769
Eastman Chemical Co. .................... 2,300 119,025
Monsanto Co. ............................ 10,100 398,319
Rohm & Haas Co. ......................... 4,406 188,892
Union Carbide Corp. ..................... 1,300 63,375
---------------
2,772,192
---------------
COMMERCIAL SERVICES (0.4%)
Deluxe Corp. ............................ 1,500 58,406
Interpublic Group of Co., Inc. (The) .... 3,100 268,538
Omnicom Group, Inc. ..................... 3,700 296,000
Paychex, Inc. ........................... 4,950 157,781
RR Donnelley & Sons Co. ................. 2,200 81,538
---------------
862,263
---------------
COMPUTERS (6.0%)
Apple Computer, Inc. + .................. 4,200 194,512
Dell Computer Corp. + ................... 42,200 1,561,400
Gateway 2000, Inc. + .................... 2,700 159,300
Hewlett Packard Co. ..................... 25,800 2,592,900
International Business Machines Corp. ... 46,000 5,945,500
Sun Microsystems, Inc. + ................ 18,600 1,281,075
Unisys Corp. + .......................... 4,200 163,538
---------------
11,898,225
---------------
CONGLOMERATE AND AEROSPACE (4.1%)
Boeing Co. .............................. 16,500 729,094
Crane Co. ............................... 1,200 37,725
General Dynamics Corp. .................. 2,700 184,950
General Electric Co. .................... 54,500 6,158,500
Goodrich (B.F.) Co. ..................... 1,000 42,500
National Service Industries, Inc. ....... 800 28,800
Northrop Grumman Corp. .................. 500 33,156
Raytheon Co. ............................ 3,900 274,462
Textron, Inc. ........................... 2,600 214,013
See Notes to Portfolio of Investments. 117
<PAGE>
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
CONGLOMERATE AND AEROSPACE (CONTINUED)
United Technologies Corp. ............... 7,400 $ 530,487
---------------
8,233,687
---------------
CONSUMER FINANCE (2.2%)
Associates First Capital Corp. .......... 12,098 536,093
Capital One Financial Corp. ............. 3,300 183,769
Countrywide Credit Industries, Inc. ..... 3,000 128,250
Federal Home Loan Mortgage Corp. ........ 17,000 986,000
Federal National Mortgage Association ... 21,900 1,497,412
Household International, Inc. ........... 7,700 364,787
MBNA Corp. .............................. 15,675 480,047
Ryder System, Inc. ...................... 1,600 41,600
SLM Holding Corp. ....................... 4,300 196,994
---------------
4,414,952
---------------
CONSUMER PRODUCTS (1.7%)
Alberto-Culver Co. ...................... 1,000 26,625
Avon Products, Inc. ..................... 4,300 238,650
Clorox Co. .............................. 1,800 192,262
Colgate-Palmolive Co. ................... 4,700 464,125
International Flavors & Fragrances, Inc. 1,000 44,375
Kimberly-Clark Corp. .................... 9,400 535,800
Procter & Gamble Co. .................... 22,000 1,963,500
---------------
3,465,337
---------------
CONSUMER SERVICES (1.2%)
Carnival Corp. .......................... 10,200 494,700
Cendant Corp. + ......................... 14,100 289,050
Darden Restaurants, Inc. ................ 5,800 126,513
H&R Block, Inc. ......................... 2,500 125,000
Harrah's Entertainment, Inc. + .......... 1,200 26,400
Hilton Hotels Corp. ..................... 2,500 35,469
Marriott International, Inc. ............ 3,900 145,762
McDonald's Corp. ........................ 22,600 933,662
Tricon Global Restaurants, Inc. + ....... 2,470 133,689
---------------
2,310,245
---------------
CONSUMER SPECIALTIES (0.1%)
Brunswick Corp. ......................... 4,300 119,862
Hasbro, Inc. ............................ 3,750 104,766
Mattel, Inc. ............................ 2,000 52,875
---------------
277,503
---------------
DATA AND IMAGING SERVICES (9.5%)
America Online, Inc. .................... 18,400 2,033,200
Automatic Data Processing, Inc. ......... 10,500 462,000
BMC Software, Inc. + .................... 3,600 194,400
Ceridian Corp. + ........................ 4,200 137,288
Cisco Systems, Inc. + ................... 53,900 3,476,550
Computer Associates International, Inc. . 11,150 613,250
Computer Sciences Corp. + ............... 2,600 179,887
Compuware Corp. + ....................... 6,000 190,875
Eastman Kodak Co. ....................... 5,400 365,850
Electronic Data Systems Corp. ........... 8,300 469,469
EMC Corp. + ............................. 25,200 1,386,000
First Data Corp. ........................ 8,400 411,075
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
DATA AND IMAGING SERVICES (CONTINUED)
Microsoft Corp. + ....................... 86,500 $ 7,801,219
Novell, Inc. + .......................... 10,000 265,000
Oracle Corp. + .......................... 24,100 894,712
Seagate Technology, Inc. + .............. 5,500 140,937
---------------
19,021,712
---------------
DISCRETIONARY RETAIL (6.6%)
AutoZone, Inc. + ........................ 1,300 39,163
Circuit City Stores, Inc. ............... 3,000 279,000
Costco Companies, Inc. + ................ 3,600 288,225
Dayton Hudson Co. ....................... 8,600 559,000
Dillards, Inc. .......................... 3,500 122,937
Federated Department Stores, Inc. + ..... 5,300 280,569
Gap, Inc. ............................... 22,013 1,108,880
Home Depot, Inc. ........................ 35,600 2,293,975
J.C. Penney Co., Inc. ................... 4,300 208,819
Kmart Corp. + ........................... 11,900 195,606
Kohl's Corp. + .......................... 3,500 270,156
Lowe's Co., Inc. ........................ 8,800 498,850
May Department Stores Co. ............... 7,500 306,562
Nordstrom, Inc. ......................... 2,300 77,050
Sears, Roebuck & Co. .................... 6,700 298,569
Staples, Inc. + ......................... 7,650 236,672
Tandy Corp. ............................. 4,400 215,050
The Limited, Inc. ....................... 3,700 167,887
TJX Companies, Inc. ..................... 8,300 276,494
Toys "R" Us, Inc. + ..................... 2,700 55,856
Wal-Mart Stores, Inc. ................... 111,600 5,384,700
---------------
13,164,020
---------------
DIVERSIFIED FINANCIAL SERVICES (2.8%)
American Express Co. .................... 7,900 1,027,987
Citigroup Inc. .......................... 84,150 3,997,125
Providian Financial Corp. ............... 4,050 378,675
Transamerica Corp. ...................... 2,200 165,000
---------------
5,568,787
---------------
DRUGS (7.8%)
Abbott Laboratories ..................... 25,100 1,142,050
American Home Products Corp. ............ 21,200 1,219,000
Baxter International, Inc. .............. 5,300 321,313
Bristol-Myers Squibb Co. ................ 43,000 3,028,812
Eli Lilly & Co. ......................... 18,100 1,296,412
Johnson & Johnson ....................... 29,200 2,861,600
Merck & Co., Inc. ....................... 39,400 2,915,600
Pharmacia & Upjohn, Inc. ................ 8,400 477,225
Schering Plough ......................... 24,900 1,319,700
Warner Lambert Co. ...................... 13,700 950,438
---------------
15,532,150
---------------
ELECTRIC UTILITIES (2.2%)
AES Corp. + ............................. 1,500 87,187
Ameren Corp. ............................ 3,800 145,825
American Electric Power Co. ............. 1,600 60,100
Carolina Power & Light Co. .............. 3,900 166,969
118 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
ELECTRIC UTILITIES (CONTINUED)
Central & South West Corp. .............. 6,400 $ 149,600
Cinergy Corp. ........................... 4,000 128,000
Consolidated Edison, Inc. ............... 5,500 248,875
Constellation Energy Group .............. 3,800 112,575
Dominion Resources, Inc. ................ 3,200 138,600
DTE Energy Co. .......................... 2,500 100,000
Duke Energy Corp. ....................... 6,130 333,319
Edison International .................... 7,300 195,275
Entergy Corp. ........................... 6,000 187,500
FirstEnergy Corp. ....................... 5,000 155,000
FPL Group, Inc. ......................... 3,800 207,575
GPU, Inc. ............................... 3,300 139,219
Northern States Power Co. ............... 2,000 48,375
Peco Energy Co. ......................... 6,600 276,375
PG&E Corp. .............................. 8,400 273,000
PP&L Resources, Inc. .................... 4,100 126,075
Public Service Enterprise Group, Inc. ... 5,900 241,162
Reliant Energy Inc. ..................... 4,715 130,252
Southern Co. ............................ 11,500 304,750
Texas Utilities Co. ..................... 4,657 192,101
Unicom Corp. ............................ 3,600 138,825
---------------
4,286,534
---------------
ELECTRICAL MACHINERY AND INSTRUMENTS (0.7%)
Harris Corp. ............................ 2,700 105,806
Pitney Bowes, Inc. ...................... 4,700 301,975
Rockwell International Corp. ............ 4,500 273,375
Xerox Corp. ............................. 11,400 673,313
---------------
1,354,469
---------------
ELECTRONIC MEDIA (1.5%)
CBS Corp. + ............................. 5,900 256,281
Comcast Corp. ........................... 12,200 468,938
King World Production, Inc. + ........... 1,200 41,775
Mediaone Group, Inc. + .................. 9,800 728,875
Time Warner, Inc. ....................... 18,400 1,352,400
Viacom, Inc. + .......................... 4,500 198,000
---------------
3,046,269
---------------
FOOD AND BEVERAGE (3.2%)
Anheuser-Busch Co., Inc. ................ 11,200 794,500
Bestfoods ............................... 6,300 311,850
Brown-Forman Corp. + .................... 800 52,150
Coca-Cola Co. ........................... 41,200 2,575,000
Conagra, Inc. ........................... 9,500 252,938
Coors (Adolph) Co. ...................... 1,000 49,500
Fortune Brands, Inc. .................... 5,300 219,288
General Mills, Inc. ..................... 3,000 241,125
Heinz (H.J.) Co. ........................ 7,500 375,937
Kellogg Co. ............................. 6,700 221,100
Pioneer Hi-Bred International, Inc. ..... 1,600 62,300
Quaker Oats Co. ......................... 3,000 199,125
Ralston-Ralston Purina Group ............ 5,200 158,275
Sara Lee Corp. .......................... 7,600 172,425
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
FOOD AND BEVERAGE (CONTINUED)
Seagram Co. Ltd. ........................ 3,600 $ 181,350
Unilever NV ............................. 5,311 370,422
Wrigley (Wm.) Jr. Co. ................... 2,000 180,000
---------------
6,417,285
---------------
FOOD AND DRUG RETAIL (1.4%)
Albertson's, Inc. ....................... 6,935 357,586
CVS Corp. ............................... 6,500 329,875
Kroger Co. (The) + ...................... 19,400 541,987
Longs Drug Stores, Inc. ................. 800 27,650
Safeway, Inc. + ......................... 11,400 564,300
SUPERVALU, Inc. ......................... 3,800 97,613
Sysco Corp. ............................. 5,800 172,912
Walgreen Co. ............................ 22,200 652,125
Winn-Dixie Stores, Inc. ................. 1,400 51,713
---------------
2,795,761
---------------
FOREST PRODUCTS AND BUILDING MATERIALS (0.8%)
Armstrong World Industries, Inc. ........ 800 46,250
Bemis Co., Inc. ......................... 1,700 67,575
Crown Cork & Seal Co., Inc. ............. 2,500 71,250
Fort James Corp. ........................ 5,300 200,737
Georgia-Pacific Corp. ................... 4,600 217,925
International Paper Co. ................. 6,600 333,300
Masco Corp. ............................. 8,200 236,775
Mead Corp. .............................. 800 33,400
Temple-Inland Inc. ...................... 1,600 109,200
Westvaco Corp. .......................... 1,000 29,000
Weyerhaeuser Co. ........................ 3,500 240,625
---------------
1,586,037
---------------
GAS UTILITIES (0.7%)
Coastal Corp. (The) ..................... 4,900 196,000
Columbia Energy Group ................... 1,500 94,031
Consolidated Natural Gas Co. ............ 1,800 109,350
Eastern Enterprises ..................... 500 19,875
Enron Corp. ............................. 6,400 523,200
NICOR, Inc. ............................. 900 34,256
ONEOK, Inc. ............................. 700 22,225
People's Energy Corp. ................... 600 22,613
Sempra Energy ........................... 4,311 97,537
Williams Co., Inc. (The) ................ 6,900 293,681
---------------
1,412,768
---------------
HEALTH SERVICES (0.4%)
Cardinal Health, Inc. ................... 4,400 282,150
Columbia/HCA Healthcare Corp. ........... 10,300 234,969
IMS Health, Inc. ........................ 6,600 206,252
United Healthcare Corp. ................. 2,000 125,250
---------------
848,621
---------------
HEAVY MACHINERY (0.3%)
Caterpillar, Inc. ....................... 5,900 354,000
NACCO Industries, Inc. .................. 200 14,700
See Notes to Portfolio of Investments. 119
<PAGE>
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
HEAVY MACHINERY (CONTINUED)
Navistar International Corp. + .......... 2,300 $ 115,000
PACCAR, Inc. ............................ 2,300 122,763
---------------
606,463
---------------
HOUSING AND FURNISHINGS (0.3%)
Centex Corp. ............................ 3,000 112,687
Fleetwood Enterprises, Inc. ............. 700 18,506
Kaufman & Broad Home Corp. .............. 900 22,388
Maytag Corp. ............................ 3,700 257,844
Newell Rubbermaid Inc. .................. 1,100 51,150
Pulte Corp. ............................. 1,000 23,063
Whirlpool Corp. ......................... 2,100 155,400
---------------
641,038
---------------
INDUSTRIAL SERVICES (0.4%)
Browning-Ferris Industries, Inc. ........ 3,000 129,000
Fluor Corp. ............................. 2,400 97,200
Foster Wheeler Corp. .................... 600 8,475
---------------
USA Waste Management, Inc. .............. 9,900 532,125
---------------
766,800
---------------
INSURANCE (3.1%)
AFLAC, Inc. ............................. 5,900 282,462
Allstate Corp. (The) .................... 13,600 487,900
American General Corp. .................. 5,264 396,774
American International Group, Inc. ...... 20,399 2,387,958
Aon Corp. ............................... 4,275 176,344
Chubb Corp. ............................. 1,400 97,300
CIGNA Corp. ............................. 3,500 311,500
Cincinnati Financial Corp. .............. 1,200 45,075
Conseco, Inc. ........................... 7,100 216,106
Hartford Financial Services Group, Inc. . 5,100 297,394
Jefferson-Pilot Corp. ................... 2,500 165,469
Lincoln National Corp. .................. 4,200 219,712
Marsh & McLennan Co., Inc. .............. 4,500 339,750
MBIA, Inc. .............................. 2,400 155,400
MGIC Investment Corp. ................... 2,500 121,562
Progressive Corp. ....................... 1,200 174,000
Safeco Corp. ............................ 1,400 61,775
St. Paul Co., Inc. ...................... 2,296 73,042
Torchmark Corp. ......................... 2,300 78,488
UNUM Corp. .............................. 2,400 131,400
---------------
6,219,411
---------------
INVESTMENT SERVICES (1.6%)
Charles Schwab Corp. .................... 7,850 862,519
Franklin Resources, Inc. ................ 4,300 174,688
Lehman Brothers Holdings Inc. ........... 1,100 68,475
Merrill Lynch & Co., Inc. ............... 6,200 495,612
Morgan Stanley Dean Witter & Co. ........ 14,475 1,483,687
---------------
3,084,981
---------------
MAJOR TELECOMMUNICATIONS (8.3%)
ALLTEL Corp. ............................ 6,000 429,000
Ameritech Corp. ......................... 27,100 1,991,850
AT&T Corp. .............................. 55,607 3,103,566
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
MAJOR TELECOMMUNICATIONS (CONTINUED)
Bell Atlantic Corp. ..................... 25,636 $ 1,675,953
BellSouth Corp. ......................... 40,400 1,893,750
Frontier Corp. + ........................ 4,700 277,300
GTE Corp. ............................... 16,800 1,272,600
MCI Worldcom, Inc. + .................... 31,146 2,680,503
SBC Communications, Inc. ................ 31,600 1,832,800
Sprint Corp. ............................ 11,400 602,062
Sprint PCS + ............................ 4,200 239,925
U.S. WEST, Inc. ......................... 8,413 494,264
---------------
16,493,573
---------------
MISCELLANEOUS METALS (0.0%)
Barrick Gold Corp. ...................... 4,500 87,188
---------------
OIL (4.7%)
Ashland Oil, Inc. ....................... 1,300 52,163
Atlantic Richfield Co. .................. 5,300 442,881
Chevron Corp. ........................... 10,500 999,469
Exxon Corp. ............................. 40,200 3,100,425
Mobil Corp. ............................. 17,200 1,702,800
Phillips Petroleum Co. .................. 4,200 211,312
Royal Dutch Petroleum Co. ............... 35,500 2,138,875
Texaco, Inc. ............................ 8,900 556,250
USX-Marathon Group ...................... 6,800 221,425
---------------
9,425,600
---------------
OIL SERVICES (0.0%)
McDermott International, Inc., ADR ...... 2,900 81,925
---------------
PRINT MEDIA (0.7%)
Dow Jones & Co., Inc. ................... 2,200 116,738
Dun & Bradstreet Corp. .................. 2,800 99,225
Equifax, Inc. ........................... 1,200 42,825
Gannett Co., Inc. ....................... 4,900 349,737
Knight-Ridder, Inc. ..................... 1,900 104,381
McGraw-Hill Co., Inc. ................... 3,200 172,600
Meredith Corp. .......................... 1,500 51,938
New York Times Co. ...................... 5,400 198,787
Times Mirror Co. ........................ 1,000 59,250
Tribune Co. ............................. 3,200 278,800
---------------
1,474,281
---------------
PRODUCER GOODS (3.1%)
Allegheny Teledyne, Inc. ................ 5,200 117,650
Allied Signal, Inc. ..................... 9,700 611,100
Avery Dennison Corp. .................... 2,600 156,975
Cooper Industries, Inc. ................. 2,800 145,600
Corning, Inc. ........................... 5,300 371,662
Danaher Corp. ........................... 2,900 168,563
Dover Corp. ............................. 1,700 59,500
Ecolab, Inc. ............................ 3,400 148,325
Emerson Electric Co. .................... 8,100 509,287
FMC Corp. + ............................. 600 40,988
Grainger (W.W.), Inc. ................... 700 37,669
Honeywell, Inc. ......................... 2,300 266,513
Illinois Tool Works, Inc. ............... 4,400 360,800
120 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET VALUE
SHARES
------------ ---------------
PRODUCER GOODS (CONTINUED)
Ingersoll-Rand Co. ...................... 3,900 $ 252,038
ITT Industries, Inc. .................... 2,600 99,125
Milacron, Inc. .......................... 900 16,650
Minnesota Mining and Manufacturing Co. .. 6,700 582,481
Parker-Hannifin Corp. ................... 2,600 118,950
PPG Industries, Inc. .................... 3,300 194,906
Raychem Corp. ........................... 700 25,900
Sherwin-Williams Co. .................... 4,300 119,325
Thomas & Betts Corp. .................... 1,700 80,325
Tyco International Ltd. ................. 17,502 1,658,314
---------------
6,142,646
---------------
SEMICONDUCTORS AND ELECTRONICS (7.0%)
Applied Materials, Inc. + ............... 9,400 694,425
General Instrument Corp. + .............. 4,300 182,750
Intel Corp. ............................. 55,300 3,290,350
Lucent Technologies, Inc. ............... 73,840 4,979,585
Micron Technology, Inc. + ............... 4,100 165,281
Motorola, Inc. .......................... 15,000 1,421,250
Nortel Networks Corp. ................... 12,100 1,050,431
Solectron Corp. + ....................... 4,200 280,088
Tellabs, Inc. + ......................... 10,400 702,650
Texas Instruments, Inc. ................. 8,500 1,232,500
---------------
13,999,310
---------------
SPECIALTY CHEMICALS (0.3%)
Air Products and Chemicals, Inc. ........ 4,200 169,050
Engelhard Corp. ......................... 4,100 92,762
Grace (W.R.) & Co. + .................... 1,800 33,075
Great Lakes Chemical Corp. .............. 700 32,244
Nalco Chemical Co. ...................... 1,100 57,063
Praxair, Inc. ........................... 1,300 63,619
Sigma-Aldrich Corp. ..................... 1,900 65,431
---------------
513,244
---------------
STEEL (0.1%)
Nucor Corp. ............................. 1,900 90,131
USX-US Steel Group, Inc. ................ 600 16,200
---------------
106,331
---------------
SURFACE TRANSPORT (0.3%)
Burlington Northern Santa Fe Corp. ...... 7,800 241,800
Norfolk Southern Corp. .................. 6,300 189,787
Union Pacific Corp. ..................... 2,300 134,119
---------------
565,706
---------------
TEXTILES AND APPAREL (0.2%)
Liz Claiborne, Inc. ..................... 1,900 69,350
Nike, Inc. .............................. 3,800 240,588
VF Corp. ................................ 2,000 85,500
---------------
395,438
---------------
TOTAL COMMON STOCKS (COST $147,678,873) 190,609,865
---------------
PRINCIPAL MARKET VALUE
AMOUNT
------------ ---------------
LONG-TERM BONDS AND NOTES (3.1%)
U.S. Treasury Strip,Zero Coupon,11/15/01 $7,055,000 $ 6,157,714
---------------
TOTAL LONG-TERM BONDS AND NOTES (COST $6,329,284) 6,157,714
---------------
SHORT-TERM INVESTMENTS (2.1%)
Federal Home Loan Bank,4.60%,07/01/99 ... 4,108,000 4,108,000
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $4,108,000) 4,108,000
---------------
TOTAL INVESTMENTS (COST $158,116,157)(A) 200,875,579
OTHER ASSETS LESS LIABILITIES (1,520,440)
---------------
TOTAL NET ASSETS $ 199,355,139
===============
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$161,944,919. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains............................ $41,659,852
Unrealized losses........................... (2,729,192)
---------------------
Net unrealized gain........................ $38,930,660
=====================
</TABLE>
+ Non-income producing security.
Category percentages are based on net assets.
See Notes to Financial Statements. 121
<PAGE>
AETNA GET FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
SERIES D
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
<S> <C> <C>
COMMON STOCKS (56.0%)
AIR TRANSPORT (0.3%)
AMR Corp. + ....................... 4,300 $ 293,475
Delta Air Lines, Inc. ............. 5,600 322,700
FDX Corp. Holding Co. + ........... 16,000 868,000
Southwest Airlines Co. ............ 17,000 529,125
US Airways Group, Inc. + .......... 2,100 91,481
----------------
2,104,781
----------------
ALUMINUM (0.2%)
Alcan Aluminum Ltd. ............... 8,200 261,888
Alcoa Inc. ........................ 18,200 1,126,125
Reynolds Metals Co. ............... 1,600 94,400
----------------
1,482,413
----------------
AUTO PARTS AND HARDWARE (0.1%)
Black & Decker Corp. .............. 2,100 132,562
Genuine Parts Co. ................. 4,200 147,000
Goodyear Tire & Rubber Co. (The) .. 3,500 205,844
Snap-On, Inc. ..................... 1,500 54,281
Stanley Works (The) ............... 2,200 70,813
----------------
610,500
----------------
AUTOMOTIVE (0.9%)
Dana Corp. ........................ 3,800 175,037
Delphi Automotive Systems Corp. ... 24,043 446,302
Eaton Corp. ....................... 1,700 156,400
Ford Motor Co. .................... 64,900 3,662,794
General Motors Corp. + ............ 36,900 2,435,400
Johnson Controls, Inc. ............ 2,100 145,556
TRW, Inc. ......................... 2,900 159,138
----------------
7,180,627
----------------
BANKS AND THRIFTS (4.0%)
AmSouth Bancorporation ............ 9,600 222,600
Bank of America Corp. ............. 86,000 6,304,875
Bank of New York Co., Inc. ........ 27,700 1,016,244
Bank One Corp. .................... 44,800 2,668,400
BankBoston Corp. .................. 10,000 511,250
BB&T Corp. ........................ 11,200 410,900
Chase Manhattan Corp. ............. 48,100 4,166,662
Comerica, Inc. .................... 3,700 219,919
Fifth Third Bancorp ............... 11,300 752,156
Firstar Corp. ..................... 37,600 1,052,800
Fleet Financial Group, Inc. ...... 32,400 1,437,750
Golden West Financial Corp. ....... 3,000 294,000
Huntington Bancshares Inc. ........ 4,900 171,500
J.P. Morgan & Co. ................. 9,300 1,306,650
KeyCorp ........................... 17,000 546,125
Mellon Bank Corp. ................. 16,800 611,100
Mercantile Bancorporation, Inc. ... 3,700 211,363
National City Corp. ............... 11,500 753,250
Northern Trust Corp. .............. 2,600 252,200
PNC Bank Corp. .................... 10,900 628,112
Regions Financial Corp. ........... 5,200 199,875
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
BANKS AND THRIFTS (CONTINUED)
Republic New York Corp. ........... 4,000 $ 272,750
SouthTrust Corp. .................. 5,600 214,900
State Street Corp. ................ 5,800 495,175
Summit Bancorp .................... 4,200 175,613
Suntrust Banks, Inc. .............. 11,400 791,587
Synovus Financial Corp. ........... 6,100 121,238
U.S. Bancorp ...................... 26,100 887,400
Union Planters Co. ................ 5,100 227,906
Wachovia Corp. .................... 7,300 624,606
Washington Mutual, Inc. ........... 21,400 757,025
Wells Fargo & Co. ................. 62,700 2,680,425
----------------
30,986,356
----------------
BIOTECH AND MEDICAL PRODUCTS (0.6%)
Amgen, Inc. + ..................... 29,100 1,771,462
Bard (C.R.) Inc. .................. 1,300 62,156
Bausch & Lomb, Inc. ............... 1,900 145,350
Becton, Dickinson & Co. ........... 5,800 174,000
Biomet, Inc. ...................... 2,700 107,325
Boston Scientific Corp. + ......... 20,500 900,719
Guidant Corp. ..................... 15,900 817,856
Mallinckrodt Inc. ................. 1,800 65,475
Medtronic, Inc. ................... 9,500 739,812
Saint Jude Medical, Inc. + ........ 2,100 74,813
Watson Pharmaceuticals, Inc. + .... 3,400 119,213
----------------
4,978,181
----------------
CHEMICALS (0.7%)
Dow Chemical Co. .................. 10,000 1,268,750
Du Pont (E.I.) de Nemours ......... 42,800 2,923,775
Eastman Chemical Co. .............. 2,000 103,500
Monsanto Co. ...................... 21,100 832,131
Rohm & Haas Co. ................... 4,869 208,778
Union Carbide Corp. ............... 4,800 234,000
----------------
5,570,934
----------------
COMMERCIAL SERVICES (0.2%)
Deluxe Corp. ...................... 2,000 77,875
Interpublic Group of Co., Inc.
(The)............................. 5,300 459,112
Omnicom Group, Inc. ............... 6,100 488,000
Paychex, Inc. ..................... 5,700 181,688
RR Donnelley & Sons Co. ........... 3,200 118,600
----------------
1,325,275
----------------
COMPUTERS (3.5%)
Apple Computer, Inc. + ............ 9,000 416,813
Dell Computer Corp. + ............. 96,100 3,555,700
Gateway 2000, Inc. + .............. 7,300 430,700
Hewlett Packard Co. ............... 57,700 5,798,850
International Business Machines
Corp.............................. 103,200 13,338,600
Sun Microsystems, Inc. + .......... 38,100 2,624,137
Unisys Corp. + .................... 10,000 389,375
----------------
26,554,175
----------------
CONGLOMERATE AND AEROSPACE (2.4%)
Boeing Co. ........................ 33,800 1,493,537
122 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
CONGLOMERATE AND AEROSPACE (CONTINUED)
Crane Co. ......................... 1,700 $ 53,444
General Dynamics Corp. ............ 6,700 458,950
General Electric Co. .............. 124,000 14,012,000
Goodrich (B.F.) Co. ............... 1,900 80,750
Loews Corp. ....................... 1,800 142,425
Northrop Grumman Corp. ............ 1,100 72,944
Raytheon Co. ...................... 8,500 598,188
Textron, Inc. ..................... 5,700 469,181
United Technologies Corp. ......... 15,800 1,132,662
----------------
18,514,081
----------------
CONSUMER FINANCE (1.1%)
Associates First Capital Corp. .... 24,900 1,103,381
Capital One Financial Corp. ....... 7,800 434,363
Countrywide Credit Industries, Inc. 3,500 149,625
Federal Home Loan Mortgage Corp. .. 36,600 2,122,800
Federal National Mortgage
Association....................... 38,900 2,659,787
Household International, Inc. ..... 23,600 1,118,050
MBNA Corp. ........................ 28,900 885,062
SLM Holding Corp. ................. 3,800 174,088
----------------
8,647,156
----------------
CONSUMER PRODUCTS (1.0%)
Avon Products, Inc. ............... 9,400 521,700
Clorox Co. ........................ 5,200 555,425
Colgate-Palmolive Co. ............. 10,600 1,046,750
International Flavors & Fragrances,
Inc............................... 2,500 110,937
Kimberly-Clark Corp. .............. 20,200 1,151,400
Procter & Gamble Co. .............. 50,400 4,498,200
----------------
7,884,412
----------------
CONSUMER SERVICES (0.6%)
Carnival Corp. .................... 23,200 1,125,200
Cendant Corp. + ................... 12,400 254,200
Darden Restaurants, Inc. .......... 4,400 95,975
H&R Block, Inc. ................... 2,400 120,000
Marriott International, Inc. ...... 5,600 209,300
McDonald's Corp. .................. 51,500 2,127,594
Tricon Global Restaurants, Inc. + . 8,300 449,237
Wendy's International, Inc. ....... 5,800 164,213
----------------
4,545,719
----------------
CONSUMER SPECIALTIES (0.1%)
Brunswick Corp. ................... 2,300 64,113
Hasbro, Inc. ...................... 4,650 129,909
Mattel, Inc. ...................... 10,400 274,950
----------------
468,972
----------------
DATA AND IMAGING SERVICES (5.6%)
Adobe Systems, Inc. ............... 2,700 221,822
America Online, Inc. .............. 41,200 4,552,600
Automatic Data Processing, Inc. ... 22,200 976,800
BMC Software, Inc. + .............. 8,300 448,200
Ceridian Corp. + .................. 3,600 117,675
Cisco Systems, Inc. + ............. 127,600 8,230,200
Computer Associates International,
Inc............................... 26,400 1,452,000
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
DATA AND IMAGING SERVICES (CONTINUED)
Computer Sciences Corp. + ......... 3,800 $ 262,912
Compuware Corp. + ................. 14,400 458,100
Eastman Kodak Co. ................. 11,600 785,900
Electronic Data Systems Corp. ..... 17,700 1,001,156
EMC Corp. + ....................... 57,600 3,168,000
First Data Corp. .................. 15,700 768,319
Microsoft Corp. + ................. 202,000 18,217,875
Novell, Inc. + .................... 10,900 288,850
Oracle Corp. + .................... 54,550 2,025,169
Seagate Technology, Inc. + ........ 7,600 194,750
----------------
43,170,328
----------------
DISCRETIONARY RETAIL (4.0%)
AutoZone, Inc. + .................. 3,500 105,438
Circuit City Stores, Inc. ......... 4,000 372,000
Consolidated Stores Corp. + ....... 4,200 113,400
Costco Companies, Inc. + .......... 11,900 952,744
Dayton Hudson Co. ................. 21,800 1,417,000
Dillards, Inc. .................... 2,500 87,813
Dollar General Corp. .............. 5,875 170,375
Federated Department Stores, Inc. + 11,900 629,956
Gap, Inc. ......................... 48,900 2,463,337
Home Depot, Inc. .................. 84,100 5,419,194
J.C. Penney Co., Inc. ............. 9,600 466,200
Kmart Corp. + ..................... 23,100 379,706
Kohl's Corp. + .................... 5,300 409,094
Lowe's Co., Inc. .................. 21,500 1,218,781
May Department Stores Co. ......... 15,900 649,912
Nordstrom, Inc. ................... 3,400 113,900
Sears, Roebuck & Co. .............. 13,800 614,962
Staples, Inc. + ................... 24,900 770,344
Tandy Corp. ....................... 11,000 537,625
The Limited, Inc. ................. 9,200 417,450
TJX Companies, Inc. ............... 17,500 582,969
Toys "R" Us, Inc. + ............... 12,200 252,387
Wal-Mart Stores, Inc. ............. 253,000 12,207,250
----------------
30,351,837
----------------
DIVERSIFIED FINANCIAL SERVICES (1.6%)
American Express Co. .............. 17,100 2,225,137
Citigroup Inc. .................... 191,800 9,110,500
Providian Financial Corp. ......... 7,600 710,600
Transamerica Corp. ................ 3,000 225,000
----------------
12,271,237
----------------
DRUGS (5.0%)
Abbott Laboratories ............... 57,600 2,620,800
Allergan, Inc. .................... 2,200 244,200
American Home Products Corp. ...... 49,600 2,852,000
Baxter International, Inc. ........ 10,300 624,438
Bristol-Myers Squibb Co. .......... 97,900 6,895,831
Eli Lilly & Co. ................... 43,600 3,122,850
Johnson & Johnson ................. 69,200 6,781,600
Merck & Co., Inc. ................. 89,500 6,623,000
See Notes to Portfolio of Investments. 123
<PAGE>
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
DRUGS (CONTINUED)
Pfizer, Inc. ...................... 24,500 $ 2,688,875
Pharmacia & Upjohn, Inc. .......... 16,500 937,406
Schering Plough ................... 55,800 2,957,400
Warner Lambert Co. ................ 32,300 2,240,812
----------------
38,589,212
----------------
ELECTRIC UTILITIES (0.9%)
AES Corp. + ....................... 4,200 244,125
Ameren Corp. ...................... 3,200 122,800
American Electric Power Co. ....... 4,500 169,031
Carolina Power & Light Co. ........ 3,500 149,844
Central & South West Corp. ........ 6,600 154,275
Cinergy Corp. ..................... 3,800 121,600
CMS Energy Corp. .................. 4,400 184,250
Consolidated Edison, Inc. ......... 7,300 330,325
Constellation Energy Group ........ 3,500 103,688
Dominion Resources, Inc. .......... 4,500 194,906
DTE Energy Co. .................... 3,400 136,000
Duke Energy Corp. ................. 13,100 712,312
Edison International .............. 8,100 216,675
Entergy Corp. ..................... 5,700 178,125
FirstEnergy Corp. ................. 5,500 170,500
FPL Group, Inc. ................... 4,200 229,425
GPU, Inc. ......................... 7,100 299,531
New Century Energies, Inc. ........ 2,600 100,913
Niagara Mohawk Holdings Inc. + .... 4,400 70,675
Northern States Power Co. ......... 3,600 87,075
PacifiCorp ........................ 2,900 53,288
Peco Energy Co. ................... 12,100 506,687
PG&E Corp. ........................ 13,800 448,500
PP&L Resources, Inc. .............. 6,100 187,575
Public Service Enterprise Group,
Inc............................... 7,100 290,213
Reliant Energy Inc. ............... 11,000 303,875
Southern Co. ...................... 25,100 665,150
Texas Utilities Co. ............... 10,200 420,750
Unicom Corp. ...................... 6,800 262,225
----------------
7,114,338
----------------
ELECTRICAL MACHINERY AND INSTRUMENTS (0.4%)
Harris Corp. ...................... 2,000 78,375
PE Corp-PE Biosystems Group ....... 1,600 183,600
Pitney Bowes, Inc. ................ 9,800 629,650
Rockwell International Corp. ...... 7,200 437,400
Xerox Corp. ....................... 23,900 1,411,594
----------------
2,740,619
----------------
ELECTRONIC MEDIA (1.0%)
CBS Corp. + ....................... 25,500 1,107,656
Comcast Corp. ..................... 24,000 922,500
King World Production, Inc. + ..... 2,300 80,069
Mediaone Group, Inc. + ............ 23,000 1,710,625
Time Warner, Inc. ................. 43,100 3,167,850
Viacom, Inc. + .................... 10,900 479,600
----------------
7,468,300
----------------
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
FOOD AND BEVERAGE (1.9%)
Anheuser-Busch Co., Inc. .......... 27,000 $ 1,915,312
Archer-Daniels-Midland Co. ........ 11,100 171,356
Bestfoods ......................... 7,700 381,150
Brown-Forman Corp. + .............. 1,100 71,706
Coca-Cola Co. ..................... 93,500 5,843,750
Conagra, Inc. ..................... 12,900 343,463
Coors (Adolph) Co. ................ 1,200 59,400
Fortune Brands, Inc. .............. 4,000 165,500
General Mills, Inc. ............... 7,200 578,700
Heinz (H.J.) Co. .................. 12,900 646,613
Kellogg Co. ....................... 13,800 455,400
Pioneer Hi-Bred International, Inc. 4,500 175,219
Quaker Oats Co. ................... 6,200 411,525
Ralston-Ralston Purina Group ...... 12,300 374,381
Sara Lee Corp. .................... 35,800 812,212
Seagram Co. Ltd. .................. 8,500 428,188
Unilever NV ....................... 24,264 1,692,434
Wrigley (Wm.) Jr. Co. ............. 2,200 198,000
----------------
14,724,309
----------------
FOOD AND DRUG RETAIL (0.7%)
Albertson's, Inc. ................. 16,927 872,798
CVS Corp. ......................... 19,300 979,475
Kroger Co. (The) + ................ 26,600 743,138
Safeway, Inc. + ................... 26,800 1,326,600
SUPERVALU, Inc. ................... 3,800 97,613
Sysco Corp. ....................... 7,700 229,556
Walgreen Co. ...................... 32,300 948,812
Winn-Dixie Stores, Inc. ........... 3,400 125,588
----------------
5,323,580
----------------
FOREST PRODUCTS AND BUILDING MATERIALS (0.5%)
Armstrong World Industries, Inc. .. 1,400 80,938
Bemis Co., Inc. ................... 1,600 63,600
Champion International Corp. ...... 3,400 162,775
Crown Cork & Seal Co., Inc. ....... 2,900 82,650
Fort James Corp. .................. 5,200 196,950
Georgia-Pacific Corp. ............. 9,000 426,375
International Paper Co. ........... 15,533 784,416
Masco Corp. ....................... 12,800 369,600
Mead Corp. ........................ 5,000 208,750
Owens Corning ..................... 1,800 61,875
Sealed Air Corp. + ................ 1,300 84,338
Temple-Inland Inc. ................ 2,900 197,925
Westvaco Corp. .................... 2,500 72,500
Weyerhaeuser Co. .................. 11,400 783,750
Willamette Industries, Inc. ....... 5,800 267,162
----------------
3,843,604
----------------
GAS UTILITIES (0.3%)
Coastal Corp. (The) ............... 4,900 196,000
Columbia Energy Group ............. 2,100 131,644
Consolidated Natural Gas Co. ...... 2,300 139,725
Enron Corp. ....................... 14,300 1,169,025
124 See Notes to Portfolio of Investments.
<PAGE>
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
GAS UTILITIES (CONTINUED)
NICOR, Inc. ....................... 1,400 $ 53,288
Sempra Energy ..................... 5,600 126,700
Williams Co., Inc. (The) .......... 7,000 297,937
----------------
2,114,319
----------------
HEALTH SERVICES (0.2%)
Cardinal Health, Inc. ............. 9,800 628,425
Columbia/HCA Healthcare Corp. ..... 21,800 497,312
HEALTHSOUTH Corp. + ............... 3,900 58,256
IMS Health, Inc. .................. 7,400 231,260
United Healthcare Corp. ........... 6,600 413,325
----------------
1,828,578
----------------
HEAVY MACHINERY (0.1%)
Caterpillar, Inc. ................. 12,500 750,000
Navistar International Corp. + .... 2,200 110,000
PACCAR, Inc. ...................... 2,000 106,750
----------------
966,750
----------------
HOUSING AND FURNISHINGS (0.1%)
Centex Corp. ...................... 2,500 93,906
Kaufman & Broad Home Corp. ........ 2,000 49,750
Maytag Corp. ...................... 3,600 250,875
Newell Rubbermaid Inc. ............ 4,500 209,250
Pulte Corp. ....................... 1,800 41,513
Whirlpool Corp. ................... 1,900 140,600
----------------
785,894
----------------
INDUSTRIAL SERVICES (0.2%)
Browning-Ferris Industries, Inc. .. 3,700 159,100
Fluor Corp. ....................... 1,900 76,950
USA Waste Management, Inc. ........ 21,800 1,171,750
----------------
1,407,800
----------------
INSURANCE (1.8%)
AFLAC, Inc. ....................... 11,200 536,200
Allstate Corp. (The) .............. 29,900 1,072,662
American General Corp. ............ 11,200 844,200
American International Group, Inc. 47,000 5,501,937
Aon Corp. ......................... 9,300 383,625
Chubb Corp. ....................... 6,100 423,950
CIGNA Corp. ....................... 7,400 658,600
Cincinnati Financial Corp. ........ 6,000 225,375
Conseco, Inc. ..................... 12,300 374,381
Hartford Financial Services Group,
Inc............................... 11,200 653,100
Jefferson-Pilot Corp. ............. 3,400 225,038
Lincoln National Corp. ............ 11,000 575,438
Marsh & McLennan Co., Inc. ........ 13,900 1,049,450
MBIA, Inc. ........................ 2,400 155,400
MGIC Investment Corp. ............. 2,600 126,425
Progressive Corp. ................. 1,600 232,000
Provident Companies, Inc. ......... 3,200 128,000
St. Paul Co., Inc. ................ 8,500 270,406
Torchmark Corp. ................... 3,300 112,613
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
INSURANCE (CONTINUED)
UNUM Corp. ........................ 3,300 $ 180,675
----------------
13,729,475
----------------
INVESTMENT SERVICES (1.0%)
Bear Stearns Co., Inc. (The) ...... 5,835 272,786
Charles Schwab Corp. .............. 21,000 2,307,375
Franklin Resources, Inc. .......... 8,900 361,562
Lehman Brothers Holdings Inc. ..... 6,500 404,625
Merrill Lynch & Co., Inc. ......... 11,700 935,269
Morgan Stanley Dean Witter & Co. .. 32,400 3,321,000
Paine Webber Group Inc. ........... 5,500 257,125
----------------
7,859,742
----------------
MAJOR TELECOMMUNICATIONS (5.1%)
ALLTEL Corp. ...................... 9,100 650,650
Ameritech Corp. ................... 65,300 4,799,550
AT&T Corp. ........................ 120,650 6,733,778
Bell Atlantic Corp. ............... 58,800 3,844,050
BellSouth Corp. ................... 97,500 4,570,312
CenturyTel, Inc. .................. 7,050 280,238
Frontier Corp. + .................. 4,000 236,000
GTE Corp. ......................... 36,800 2,787,600
MCI Worldcom, Inc. + .............. 91,700 7,891,931
SBC Communications, Inc. .......... 74,400 4,315,200
Sprint Corp. ...................... 24,800 1,309,750
Sprint PCS + ...................... 15,800 902,575
U.S. WEST, Inc. ................... 18,300 1,075,125
----------------
39,396,759
----------------
MISCELLANEOUS METALS (0.0%)
Barrick Gold Corp. ................ 11,600 224,750
Placer Dome, Inc. ................. 5,800 68,513
----------------
293,263
----------------
OIL (3.1%)
Amerada Hess Corp. ................ 3,200 190,400
Anadarko Petroleum Corp. .......... 4,800 176,700
Apache Corp. ...................... 4,200 163,800
Ashland Oil, Inc. ................. 1,900 76,237
Atlantic Richfield Co. ............ 15,900 1,328,644
Burlington Resources, Inc. ........ 6,700 289,775
Chevron Corp. ..................... 24,800 2,360,650
Exxon Corp. ....................... 92,000 7,095,500
Kerr-McGee Corp. .................. 3,300 165,619
Mobil Corp. ....................... 38,600 3,821,400
Occidental Petroleum Corp. ........ 12,200 257,725
Phillips Petroleum Co. ............ 12,400 623,875
Royal Dutch Petroleum Co. ......... 81,300 4,898,325
Sunoco Inc. ....................... 2,300 69,431
Texaco, Inc. ...................... 18,800 1,175,000
Unocal Corp. ...................... 9,200 364,550
USX-Marathon Group ................ 14,100 459,131
----------------
23,516,762
----------------
PRINT MEDIA (0.3%)
Dow Jones & Co., Inc. ............. 1,700 90,206
See Notes to Portfolio of Investments. 125
<PAGE>
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
PRINT MEDIA (CONTINUED)
Dun & Bradstreet Corp. ............ 3,900 $ 138,206
Equifax, Inc. ..................... 3,500 124,906
Gannett Co., Inc. ................. 10,100 720,888
Harcourt General, Inc. ............ 1,300 67,031
Knight-Ridder, Inc. ............... 2,500 137,344
McGraw-Hill Co., Inc. ............. 6,400 345,200
New York Times Co. ................ 4,300 158,294
Times Mirror Co. .................. 1,300 77,025
Tribune Co. ....................... 2,900 252,663
----------------
2,111,763
----------------
PRODUCER GOODS (1.6%)
Allegheny Teledyne, Inc. .......... 4,500 101,813
Allied Signal, Inc. ............... 27,200 1,713,600
Avery Dennison Corp. .............. 2,800 169,050
Cooper Industries, Inc. ........... 2,500 130,000
Corning, Inc. ..................... 8,300 582,037
Danaher Corp. ..................... 6,700 389,437
Dover Corp. ....................... 5,000 175,000
Ecolab, Inc. ...................... 3,100 135,238
Emerson Electric Co. .............. 15,800 993,425
Grainger (W.W.), Inc. ............. 3,400 182,962
Honeywell, Inc. ................... 4,800 556,200
Illinois Tool Works, Inc. ......... 9,000 738,000
Ingersoll-Rand Co. ................ 7,500 484,687
ITT Industries, Inc. .............. 2,500 95,313
Minnesota Mining and Manufacturing
Co................................ 13,700 1,191,044
Pall Corp. ........................ 3,000 66,563
Parker-Hannifin Corp. ............. 4,100 187,575
PPG Industries, Inc. .............. 4,200 248,062
Sherwin-Williams Co. .............. 4,000 111,000
Thomas & Betts Corp. .............. 1,500 70,875
Tyco International Ltd. ........... 40,428 3,830,553
----------------
12,152,434
----------------
SEMICONDUCTORS AND ELECTRONICS (4.0%)
Applied Materials, Inc. + ......... 20,200 1,492,275
General Instrument Corp. + ........ 5,200 221,000
Intel Corp. ....................... 126,000 7,497,000
KLA Instruments Corp. + ........... 2,100 136,238
LSI Logic Corp. + ................. 5,100 235,237
Lucent Technologies, Inc. ......... 163,780 11,044,914
Micron Technology, Inc. + ......... 4,000 161,250
Motorola, Inc. .................... 29,700 2,814,075
Nortel Networks Corp. ............. 25,300 2,196,356
Solectron Corp. + ................. 9,400 626,862
Tellabs, Inc. + ................... 22,300 1,506,644
Texas Instruments, Inc. ........... 18,300 2,653,500
----------------
30,585,351
----------------
SPECIALTY CHEMICALS (0.1%)
Air Products and Chemicals, Inc. .. 5,300 213,325
Engelhard Corp. ................... 3,400 76,925
Great Lakes Chemical Corp. ........ 1,500 69,094
NUMBER OF MARKET VALUE
SHARES
---------------- ----------------
SPECIALTY CHEMICALS (CONTINUED)
Praxair, Inc. ..................... 3,600 $ 176,175
Sigma-Aldrich Corp. ............... 2,400 82,650
----------------
618,169
----------------
STEEL (0.0%)
Nucor Corp. ....................... 1,300 61,669
--------------
SURFACE TRANSPORT (0.2%)
Burlington Northern Santa Fe Corp. 7,600 235,600
CSX Corp. ......................... 7,600 344,375
Kansas City Southern Industries,
Inc............................... 4,000 255,250
Norfolk Southern Corp. ............ 8,700 262,088
Union Pacific Corp. ............... 11,300 658,931
----------------
1,756,244
----------------
TEXTILES AND APPAREL (0.1%)
Liz Claiborne, Inc. ............... 1,600 58,400
Nike, Inc. ........................ 7,900 500,169
VF Corp. .......................... 2,900 123,975
----------------
682,544
----------------
TOBACCO (0.5%)
Nabisco Group Holdings Corp. ...... 11,700 228,881
Philip Morris Co., Inc. ........... 91,500 3,677,157
UST, Inc. ......................... 4,300 125,775
4,031,813
----------------
TOTAL COMMON STOCKS (COST $397,785,867) 430,350,275
----------------
PRINCIPAL
AMOUNT
----------------
LONG-TERM BONDS AND NOTES (43.3%)
Bank of Boston,6.88%,07/15/03 ..... $ 5,375,000 5,421,655
Commercial Mortgage Acceptance
Corp.,
6.25%,12/17/07 @ ................. 9,876,214 9,720,318
Countrywide Funding Corp.,
6.25%,05/25/14 ................... 433,968 385,690
Dana Corp.,6.25%,03/01/04 @ ....... 10,000,000 9,777,600
Delta Air Lines,
Inc.,6.65%,03/15/04............... 7,500,000 7,354,575
DLJ Commercial Mortgage Corp.,
6.08%,08/10/08 ................... 12,334,775 12,037,938
Federal National Mortgage
Association,
6.50%,08/16/29 # ................. 203,000,000 195,578,320
Ford Motor Credit Corp.,
5.75%,02/23/04 @ ................. 10,000,000 9,650,500
GE Capital Mortgage Services, Inc.,
6.25%,03/25/14 ................... 556,413 508,075
GMAC Commercial Mortgage Corp.,
5.75%,11/10/03 @ ................. 10,000,000 9,675,400
Green Tree Financial Corp.,
8.41%,12/01/30 @ ................. 9,000,000 8,789,400
Heller Financial,
Inc.,6.00%,03/19/07 @ ............ 10,000,000 9,680,100
Household Finance Corp.,
5.88%,09/25/04 @ ................. 10,000,000 9,623,100
Korean Development Bank,
6.63%,11/21/03 ................... 8,500,000 8,058,850
126 See Notes to Portfolio of Investments.
<PAGE>
PRINCIPAL MARKET VALUE
AMOUNT
---------------- ----------------
LONG-TERM BONDS AND NOTES (CONTINUED)
Nationslink Funding Corp.,
6.04%,11/20/07 @ ................. $13,995,493 $ 13,600,610
Norwest Asset Securities Corp.,
6.75%,02/25/13 - 10/25/28......... 1,309,319 1,183,582
Raytheon Co.,5.70%,11/01/03 ....... 12,000,000 11,630,520
Saks Inc.,7.25%,12/01/04 .......... 5,000,000 4,980,600
USX Corp.,9.63%,08/15/03 .......... 4,410,000 4,832,037
----------------
TOTAL LONG-TERM BONDS AND NOTES
(COST $334,535,520) 332,488,870
----------------
SHORT-TERM INVESTMENTS (26.7%)
Federal Home Loan
Bank,4.60%,07/01/99............... 46,871,000 46,800,271
Federal Home Loan Mortgage Corp.,
4.60%,07/01/99 * ................. 24,000,000 23,958,313
Federal Home Loan Mortgage Corp.,
4.85%,07/14/99 * ................. 17,425,000 17,394,482
Federal National Mortgage
Association,
4.60%,07/01/99 ................... 85,000,000 84,862,584
Prudential Funding Corp.,
5.13%,09/28/99 @ ................. 30,000,000 29,946,050
U.S. Treasury Bill,4.80%,08/19/99 @ 2,100,000 2,087,380
----------------
TOTAL SHORT-TERM INVESTMENTS (COST $205,049,080) 205,049,080
----------------
TOTAL INVESTMENTS (COST $937,370,467)(A) 967,888,225
OTHER ASSETS LESS LIABILITIES (199,943,948)
----------------
TOTAL NET ASSETS $ 767,944,277
================
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes amounts to
$983,293,269. Unrealized gains and losses, based on identified tax cost at
June 30, 1999, are as follows:
<TABLE>
<S> <C>
Unrealized gains........................... $ 14,783,614
Unrealized losses.......................... (30,188,658)
------------
Net unrealized loss....................... $(15,405,044)
============
</TABLE>
<TABLE>
Information concerning open futures contracts at June 30, 1999 is shown below:
NO. OF INITIAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE GAIN/(LOSS)
----------- ------------ ------------ ---------------
LONG CONTRACTS
- ----------------------
<S> <C> <C> <C> <C>
S&P 500 Index Futures. 14 $4,612,593 Sept 99 $ 223,231
========== =========
</TABLE>
+ Non-income producing security.
@ Security pledged to cover initial margin requirements on open futures
contracts at June 30, 1999.
# When-issued or delayed delivery security.
* Segregated securities for purchases of delayed delivery or when-issued
securities held at June 30, 1999.
Category percentages are based on net assets.
See Notes to Financial Statements. 127
<PAGE>
AETNA GET FUND
PORTFOLIO OF INVESTMENTS - JUNE 30, 1999 (UNAUDITED)
SERIES E
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET VALUE
AMOUNT
------------- --------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (32.0%)
Cooperative Associates of Tractor
Dealers, Inc., 5.80%,07/01/99 ......... $ 1,000,000 $1,000,000
Federal Farm Credit Bank,4.60%,07/01/99 4,000,000 3,982,222
Federal Home Loan Bank,4.60%,07/01/99 .. 6,163,000 6,151,807
Federal Home Loan Mortgage Corp.,
4.60%,07/01/99 ........................ 3,460,000 3,451,991
Federal National Mortgage Association,
4.60%,07/01/99 ........................ 4,834,000 4,828,332
Gannett Co., Inc.,5.15%,07/27/99 ++ .... 1,000,000 996,281
Jefferson Smurfit Finance Corp.,
5.25%,08/24/99 ........................ 1,051,000 1,042,723
Republic Industries, Inc.,5.12%,07/20/99 1,000,000 997,298
Sheffield Receivables Corp., 5.75%,
07/01/99 ++ ........................... 1,028,000 1,028,000
U.S. Treasury Bill,4.48%,08/19/99 ...... 760,000 755,552
U.S. Treasury Bill,4.80%,08/19/99 ...... 2,500,000 2,485,368
Xerox Capital Corp.,5.70%,07/01/99 ++ .. 1,000,000 1,000,000
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $27,719,574) 27,719,574
--------------
TOTAL INVESTMENTS (COST $27,719,574)(A) 27,719,574
OTHER ASSETS LESS LIABILITIES 58,949,229
--------------
TOTAL NET ASSETS $86,668,803
--------------
</TABLE>
NOTES TO PORTFOLIO OF INVESTMENTS
(a) The cost of investments for federal income tax purposes is identical.
There were no unrealized gains and losses as of June 30, 1999.
++ Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
Information concerning restricted securities at June 30, 1999 is shown below:
<TABLE>
<CAPTION>
ACQUISITION
DATE COST
-------------------- ---------------------
<S> <C> <C>
Gannett Co., Inc. ................ 06/29/99 $ 996,281
Sheffield Receivables Corp. ...... 06/29/99 1,028,000
Xerox Capital Corp. .............. 06/29/99 1,000,000
----------
$3,024,281
==========
</TABLE>
The market value of the total restricted securities above represent 3.49% of the
total net assets.
Category percentages are based on net assets.
128 See Notes to Financial Statements.
<PAGE>
AETNA GET FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES C SERIES D SERIES E
------------- ----------------- ----------------
<S> <C> <C> <C>
ASSETS:
Investments, at market
value................ $200,875,579 $ 967,888,225 $27,719,574
Cash ................. 440 -- 28
Receivable for:
Dividends and
interest............. 150,547 2,643,753 --
Investments sold .... 608,792 401,065,707 2,487,205
Fund shares sold .... -- -- 58,945,928
Variation margin .... -- 87,500 --
Prepaid expenses .... 619 -- 5,789
------------ -------------- -----------
Total assets .... 201,635,977 1,371,685,185 89,158,524
------------ -------------- -----------
LIABILITIES:
Payable for:
Investments purchased 1,944,635 602,163,496 2,483,485
Fund shares redeemed 206,314 1,123,310 --
Accrued investment
advisory fees ....... 95,183 373,343 1,572
Accrued
administrative
service fees ........ 11,898 47,276 472
Accrued custody fees 14,023 3,038 249
Other liabilities .... 8,785 30,445 3,943
------------ -------------- -----------
Total liabilities 2,280,838 603,740,908 2,489,721
------------ -------------- -----------
NET ASSETS .......... $199,355,139 $ 767,944,277 $86,668,803
============ ============== ===========
NET ASSETS REPRESENTED
BY:
Paid-in capital ...... $136,893,358 $ 744,346,828 $86,636,499
Net unrealized gain on
investments and open
futures contracts ... 42,759,422 30,740,989 --
Undistributed net
investment income ... 633,456 11,506,094 32,304
Accumulated net
realized gain (loss)
on investments ...... 19,068,903 (18,649,634) --
------------ -------------- -----------
NET ASSETS .......... $199,355,139 $ 767,944,277 $86,668,803
============ ============== ===========
CAPITAL SHARES:
Par Value ............ $ 0.001 $ 0.001 $ 0.001
Outstanding .......... 15,901,890 74,049,365 8,651,044
Net asset value,
offering and
redemption price per
share (net assets
divided by shares
outstanding)......... $ 12.54 $ 10.37 $ 10.02
Cost of investments .. $158,116,157 $ 937,370,467 $27,719,574
</TABLE>
See Notes to Financial Statements. 129
<PAGE>
AETNA GET FUND
STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES C SERIES D SERIES E
------------ ------------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................ $ 1,192,774 $ 2,097,233 $ --
Interest ............................. 146,364 11,864,833 34,820
----------- ------------ -------
1,339,138 13,962,066 34,820
Foreign taxes withheld on dividends .. (18,177) (42,741) --
----------- ------------ -------
Total investment income ......... 1,320,961 13,919,325 34,820
----------- ------------ -------
INVESTMENT EXPENSES:
Investment advisory fees ............. 578,365 2,102,395 1,572
Administrative services fees ......... 72,296 272,491 472
Printing and postage fees ............ 5,107 9,059 1,237
Custody fees ......................... 11,410 -- 249
Transfer agent fees .................. 1,276 676 106
Audit fees ........................... 12,273 3,254 1,336
Trustees' fees ....................... 2,995 9,176 654
Registration fees .................... -- 14,281 519
Miscellaneous expenses ............... 3,347 671 91
----------- ------------ -------
Expenses before reimbursement and
waiver from Investment Adviser ...... 687,069 2,412,003 6,236
Expense reimbursement and waiver from
Investment Adviser .................. -- (4,158) (3,720)
----------- ------------ -------
Net expenses .................... 687,069 2,407,845 2,516
----------- ------------ -------
Net investment income ................ 633,892 11,511,480 32,304
----------- ------------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ......................... 21,601,043 (17,843,330) --
Futures contracts ................... 142,958 (804,008) --
----------- ------------ -------
Net realized gain (loss) on
investments...................... 21,744,001 (18,647,338) --
----------- ------------ -------
Net change in unrealized gain or loss
on:
Investments ......................... 788,018 30,517,758 --
Futures contracts ................... -- 223,231 --
----------- ------------ -------
Net change in unrealized gain or
loss on investments ............. 788,018 30,740,989 --
----------- ------------ -------
Net realized and change in unrealized
gain or loss on investments ......... 22,532,019 12,093,651 --
----------- ------------ -------
Net increase in net assets resulting
from operations ..................... $23,165,911 $ 23,605,131 $32,304
=========== ============ =======
</TABLE>
130 See Notes to Financial Statements.
<PAGE>
AETNA GET FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES C
---------------------------------
SIX MONTH
PERIOD ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 633,892 $ 2,311,496
Net realized gain on investments.......... 21,744,001 41,726,160
Net change in unrealized gain or loss on
investments.............................. 788,018 16,257,595
------------ ------------
Net increase in net assets resulting from
operations............................... 23,165,911 60,295,251
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............. (718,968) (1,999,433)
From net realized gains................ (43,258,753) (26,131,436)
------------ ------------
Decrease in net assets from distributions
to shareholders........................ (43,977,721) (28,130,869)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares exchanged ........ 26,629 1,331,190
Net asset value of shares issued upon
reinvestment of distributions......... 43,977,721 28,130,869
Payments for shares redeemed........... (51,044,383) (82,171,253)
------------ ------------
Net decrease in net assets from fund
share transactions....................... (7,040,033) (52,709,194)
------------ ------------
Net change in net assets.................. (27,851,843) (20,544,812)
NET ASSETS:
Beginning of period....................... 227,206,982 247,751,794
------------ ------------
End of period............................. $199,355,139 $227,206,982
============ ============
End of period net assets includes
undistributed net investment income...... $ 633,456 $ 718,532
============ ============
SHARE TRANSACTIONS:
Number of shares exchanged*............ 1,780 97,439
Number of shares issued upon
reinvestment of distributions......... 3,616,589 2,094,000
Number of shares redeemed.............. (3,434,437) (6,120,999)
------------ ------------
Net increase (decrease).................. 183,932 (3,929,560)
============ ============
</TABLE>
* Exchanges into the Series are from initial shareholders who have exchange
privileges.
See Notes to Financial Statements. 131
<PAGE>
AETNA GET FUND
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES D
---------------------------------
PERIOD FROM
SIX MONTH OCTOBER 15, 1998
PERIOD ENDED (COMMENCEMENT OF
JUNE 30, 1999 OPERATIONS)
(UNAUDITED) DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income..................... $ 11,511,480 $ 1,649,066
Net realized loss on investments.......... (18,647,338) (2,296)
Net change in unrealized gain or loss on
investments.............................. 30,740,989 --
------------ ------------
Net increase in net assets resulting from
operations............................. 23,605,131 1,646,770
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income............. (22,258) (1,632,194)
------------ ------------
Decrease in net assets from distributions
to shareholders.......................... (22,258) (1,632,194)
------------ ------------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold/exchanged*... 380,062,282 383,646,817
Net asset value of shares issued upon
reinvestment of distributions......... 22,258 1,632,194
Payments for shares redeemed........... (21,016,723) --
------------ ------------
Net increase in net assets from fund
share transactions....................... 359,067,817 385,279,011
------------ ------------
Net change in net assets.................. 382,650,690 385,293,587
NET ASSETS:
Beginning of period....................... 385,293,587 --
------------ ------------
End of period............................. $767,944,277 $385,293,587
============ ============
End of period net assets includes
undistributed net investment income...... $ 11,506,094 $ 16,872
============ ============
SHARE TRANSACTIONS:
Number of shares sold/exchanged*....... 37,773,768 38,171,760
Number of shares issued upon
reinvestment of distributions......... 2,191 162,473
Number of shares redeemed.............. (2,060,827) --
------------ ------------
Net increase............................. 35,715,132 38,334,233
============ ============
</TABLE>
* Exchanges into the Series are from initial shareholders who have exchange
privileges.
132 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES E
------------------
PERIOD FROM
JUNE 15, 1999
(COMMENCEMENT OF
OPERATIONS)
JUNE 30, 1999
----------------
<S> <C>
FROM OPERATIONS:
Net investment income...................................... $ 32,304
-----------
Net increase in net assets resulting from operations...... 32,304
-----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold............................... 86,636,499
-----------
Net increase in net assets from fund share transactions... 86,636,499
-----------
Net change in net assets................................... 86,668,803
NET ASSETS:
Beginning of period........................................ --
-----------
End of period.............................................. $86,668,803
===========
End of period net assets includes undistributed net
investment income......................................... $ 32,304
===========
SHARE TRANSACTIONS:
Number of shares sold................................... 8,651,044
-----------
Net increase.............................................. 8,651,044
===========
</TABLE>
See Notes to Financial Statements. 133
<PAGE>
AETNA GET FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Aetna GET Fund (Fund) is registered under the Investment Company Act of 1940 as
an open-end management investment company. It was organized under the laws of
Massachusetts as a business trust on March 9, 1987. The Declaration of Trust
permits the Fund to offer separate series, each of which has its own investment
objective, policies and restrictions.
The Fund currently offers four series. This report covers three diversified
series of the Fund, Aetna GET Fund, Series C (GET C), Aetna GET Fund, Series D
(GET D) and Aetna GET Fund, Series E (GET E) (individually, a Series and
collectively, the Series). Each 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% (except for GET E which is 1.50%) per year, before asset based
contract charges and each Series' cost of operations.
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. GET D accumulated deposits from October 15, 1998 to January 15,
1999. The Guaranteed Period for GET D is from January 16, 1999 to January 15,
2004, its maturity date. GET E will accumulate deposits from June 15, 1999
through September 14, 1999. The Guaranteed Period for GET E is from September
15, 1999 through September 14, 2004, its maturity date.
Shares of each Series are currently owned by insurance companies as depositors
of separate accounts which are used to fund variable annuity contracts and
variable life insurance policies. All shares are currently held by separate
accounts of Aetna Life Insurance and Annuity Company (ALIAC) and its subsidiary,
Aetna Insurance Company of America.
Aeltus Investment Management, Inc. (Aeltus) serves as the investment adviser to
each Series. ALIAC serves as the principal underwriter to each Series. Aeltus
and ALIAC are both indirect wholly-owned subsidiaries of Aetna Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of each Series have been prepared in
accordance with generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect amounts
reported therein. Although actual results may differ from these estimates, any
such differences are expected to be immaterial to the net assets of each Series.
A. VALUATION OF INVESTMENTS
Investments are stated at market values based upon prices furnished by external
pricing sources as reported on national securities exchanges or, for
over-the-counter securities, at the mean of the bid and asked prices. Short-term
investments maturing in more than sixty days for which market quotations are
readily available are valued at current market value. Short-term investments
maturing in less than sixty days are valued at amortized cost, which when
combined with accrued interest, approximates market value. Securities and fixed
income investments for which market quotations are not considered to be readily
available are valued using methods approved by the Board of Trustees.
B. FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security or financial instrument, including an
index of stocks, at a set price on a future date. Each Series invests in
financial futures contracts as a hedge against its existing portfolio
securities, 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, each Series is required to deposit with a
broker an amount (initial margin) equal to a
134
<PAGE>
- --------------------------------------------------------------------------------
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 fluctuations 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 held by a Series are closed prior to
expiration.
The risks associated with financial futures may arise from an imperfect
correlation between the change in market value of the securities held by the
Series 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 financial futures are reflected in
the accompanying financial statements. The amounts at risk under such futures
may exceed the amounts reflected in the financial statements. 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 reported to shareholders
as federal taxable income.
C. ILLIQUID AND RESTRICTED SECURITIES
Illiquid securities are securities that are not readily marketable. Disposing of
illiquid investments may involve time-consuming negotiation and legal expenses,
and it may be difficult or impossible for a Series to sell them promptly at an
acceptable price. Restricted securities are those which can only be sold under
Rule 144A of the Securities Act of 1933 (1933 Act) or are securities offered
pursuant to Section 4(2) of the 1933 Act, and are subject to legal or
contractual restrictions on resale and may not be publicly sold without
registration under the 1933 Act. Each Series may invest up to 15% of its total
assets in illiquid securities. In the absence of market quotations, the
securities are valued based upon their fair value determined under procedures
approved by the Board of Trustees. The Series will not pay the costs of
disposition of restricted securities other than ordinary brokerage fees, if any.
Illiquid and restricted securities are valued using market quotations when
readily available.
D. FEDERAL INCOME TAXES
Each Series has met the requirements to be taxed as a regulated investment
company for the year ended December 31, 1998 and intends to meet the
requirements for the current year. As such, each Series is relieved of federal
income taxes by distributing all of its net taxable investment income and
capital gains, if any, in compliance with the applicable provisions of the
Internal Revenue Code. Furthermore, by distributing substantially all of its net
taxable investment income and capital gains during the calendar year, each
Series will avoid federal excise taxes in accordance with the applicable
provisions of the Internal Revenue Code. Thus, the financial statements contain
no provision for federal taxes.
E. DISTRIBUTIONS
Distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for futures contracts and certain losses
deferred due to transactions characterized as "wash sales" by federal tax
regulations. In addition, distributions of realized gains from sales of
securities held one year or less are taxable to shareholders at ordinary income
tax rates rather than preferred capital gain tax rates in accordance with the
applicable provisions of the Internal Revenue Code.
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, 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.
135
<PAGE>
AETNA GET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
3. INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICE FEES
Each Series pays Aeltus a monthly fee expressed as a percentage of its average
daily net assets. GET C and GET D pay 0.60% of their respective average daily
net assets. GET E pays 0.25% of its average daily net assets during its
Accumulation Period (June 15, 1999 through September 14, 1999) and 0.60%
thereafter.
Each Series pays Aeltus an administrative services fee in exchange for receiving
certain administrative and shareholder services and to compensate Aeltus for
supervising the Series' other service providers. Each Series pays Aeltus an
administrative services fee at an annual rate based on its average daily net
assets. The rate is 0.075% on the first $5 billion in Series assets and 0.050%
on all Series assets over $5 billion.
Aeltus has entered into a Service Agreement with ALIAC under which ALIAC will
provide various administrative and shareholder services for each Series, in
exchange for fees payable by Aeltus, of up to 0.30% of the Series' average daily
net assets. For the period January 1, 1999 through June 30, 1999, Aeltus paid
ALIAC $1,334,112.
4. REIMBURSEMENT AND WAIVER FROM INVESTMENT ADVISER
Aeltus may, from time to time, make reimbursements to GET C for some or all of
its operating expenses or it may waive fees in order to maintain a certain
expense ratio. Aeltus is contractually obligated for GET D and GET E through
December 31, 1999 and September 14, 2004, respectively, to reimburse the Series'
for some or all of their operating expenses or to waive fees in order to
maintain a certain expense ratio. Reimbursement and waiver arrangements will
increase a Series' yield and total return.
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
for the period ended June 30, 1999 were:
<TABLE>
<CAPTION>
COST OF PURCHASES PROCEEDS FROM SALES
----------------- -------------------
<S> <C> <C>
GET C $42,682,469 $90,125,751
GET D 1,517,660,845 1,061,617,240
</TABLE>
136
<PAGE>
AETNA GET FUND
ADDITIONAL INFORMATION
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
YEAR 2000
Each Series receives services from a number of providers which rely on the
effective functioning of their respective systems and the systems of others to
perform those services. It is generally recognized that certain systems in use
today may not be able to perform their intended functions adequately after 1999
because of the inability of computer systems and software to distinguish the
year 2000 from the year 1900. Aeltus is taking steps that it believes are
reasonably designed to address this potential "Year 2000" problem and to obtain
satisfactory information that comparable steps are being taken by each of the
Series' other major service providers. There can be no assurance, however, that
these steps will be sufficient to avoid any adverse impact on the Series from
this problem.
137
<PAGE>
AETNA GET FUND
FINANCIAL HIGHLIGHTS
SERIES C
- --------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTH DECEMBER 17, 1996
PERIOD ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT OF
JUNE 30, 1999 DECEMBER 31, DECEMBER 31, OPERATIONS)
(UNAUDITED) 1998 1997 TO DECEMBER 31, 1996
------------- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period . $ 14.46 $ 12.61 $ 10.23 $ 10.13
-------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.05 0.14 0.19+ 0.01+
Net realized and
change in unrealized
gain or loss on
investments.......... 1.60 3.23 2.39 0.14
-------- -------- -------- --------
Total from
investment
operations........ 1.65 3.37 2.58 0.15
-------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment
income............... (0.06) (0.12) (0.18) (0.05)
From net realized
gains on investments (3.51) (1.40) (0.02) --
-------- -------- -------- --------
Total distributions (3.57) (1.52) (0.20) (0.05)
-------- -------- -------- --------
Net asset value, end
of period ........... $ 12.54 $ 14.46 $ 12.61 $ 10.23
======== ======== ======== ========
Total return* ........ 12.20% 27.76% 25.25% 1.52%
Net assets, end of
period (000's) ...... $199,355 $227,207 $247,752 $208,442
Ratio of net expenses
to average net assets 0.71%(1) 0.72% 0.75% 0.75%(1)
Ratio of net
investment income to
average net assets .. 0.66%(1) 0.89% 1.58% 3.04%(1)
Portfolio turnover
rate................. 22.00% 108.16% 126.43% 6.25%
</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.
138 See Notes to Financial Statements.
<PAGE>
SERIES D
- -------------------------------------------------------------------------------
Selected data for a fund share outstanding throughout each period:
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED
JUNE 30, 1999
(UNAUDITED)
-------------
<S> <C>
Net asset value, beginning of period ......................... $ 10.05
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ....................................... 0.15
Net realized and change in unrealized gain or loss on
investments.................................................. 0.17
--------
Total from investment operations .......................... 0.32
--------
Net asset value, end of period ............................... $ 10.37
========
Total return* ................................................ 2.99%
Net assets, end of period (000's) ............................ $767,944
Ratio of net expenses to average net assets .................. 0.71%(1)
Ratio of net investment income to average net assets ......... 3.37%(1)
Ratio of expenses before reimbursement and waiver to average
net assets .................................................. 0.71%(1)
Portfolio turnover rate ...................................... 139.85%
</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. 139
