Dear Customer,
In this space last year, I wrote to you about the significant changes taking
place within our investment organization. Our goal was and is to enhance our
portfolio management capabilities in order to better assist you in achieving
your long term savings and investment objectives. As I reflect back on the
initiatives that were undertaken in 1995, I am happy to report that the positive
changes that were implemented have brought about a renewed confidence in the
abilities of the investment team and portfolio management strategies that are
now in place. This confidence is partially due to the improvements in our equity
and balanced fund performance rankings that were evident in 1995. These
improvements are addressed in greater detail within the Fund Manager Reports
which follow, but, in summary, both the Aetna Variable Fund and the Aetna
Investment Advisers Fund, Inc. generated better performance within their
competitive universes in 1995 than was the case in 1994.
The positive changes that have taken place include the addition of eight equity
and fixed income investment professionals within the last two years, upgrading
the asset class specialization within the department as well as our quantitative
and fundamental analytical skills. Information systems hardware, software,
database services and support staff have also been enhanced to improve the
speed and frequency of information delivery. These changes reflect our belief
that the rapid receipt and analysis of quality information is a critical success
factor for pursuing outstanding investment performance.
Our investment team and information management capabilities served us well in
what was, quite simply, one of the best years on record for U.S. stock and bond
investors in 1995. Money poured into mutual funds at a record pace in response
to the stock and bond markets' exceptionally strong returns, which, in turn, can
be primarily attributed to the ideal combination of favorable interest rates,
low inflation and attractive corporate earnings. Large domestic stocks, as
characterized by the Standard and Poor's 500 Stock Index, an unmanaged index,
led the way among investment asset classes, providing a return in excess of 30%
for the year. While the results of 1995 are certainly no guarantee of things to
come, the retirement savings accounts and variable life policies of many of our
customers enjoyed an attractive increase in value during the year as a result of
the generous financial markets and the commensurate returns of our investment
funds.
Our efforts to successfully manage your investments for the long term, and to
assist your pursuit of achieving retirement security, were further emphasized in
1995 through the launch of Aetna Retirement Services, Inc., an organization that
offers a comprehensive approach to the information, product choices and service
options you'll need to develop an effective retirement strategy.
Aetna Retirement Services is built on an understanding of how our customers view
retirement. Many of you have told us that retirement is a new beginning -- a
chance to
<PAGE>
return to school, start a second career or pursue a long held dream. You have
also said that you need assistance in understanding how to invest in order to
achieve the financial freedom to pursue any number of retirement goals.
Our formula for redefining retirement is sophisticated yet simple: Build for
retirement; manage for life. By continuing to provide a wide range of products
and investment options, a team of retirement specialists to help you design a
customized retirement strategy, and life insurance to help provide for your
family, we can improve your ability to enjoy financial independence at
retirement and beyond.
We are excited about the value which the Aetna Retirement Services organization
can deliver to each one of our customers, and look forward to working closely
with you in the years ahead. Thank you for your business and for your continued
support.
Sincerely,
/s/ Daniel P. Kearney
Daniel P. Kearney
President
Aetna Life Insurance and Annuity Company
<PAGE>
ALIAC's General Account assets are in excellent condition
To illustrate the value of ALIAC's General Account investment portfolio, it has
been broken down by asset type and credit quality. This breakdown is based on
the market value of the assets. We believe the salient points are:
1. The overall portfolio is high quality. Over 45% of invested assets are rated
AAA or are cash and equivalents, while the average rating for the debt
securities in the portfolio is AA-.
2. Below investment grade securities are limited -- roughly 5% of debt
securities.
3. Direct investment in commercial real estate loans is minimal -- two-tenths
of one percent of invested assets.
4. The amount of assets in default is negligible -- one issue comprising .0002%
of invested assets.
5. Most of the portfolio is comprised of publicly traded securities -- 99%.
6. We have continued to reduce our investments in residential mortgage-backed
securities as a result of changes in their risk and return characteristics,
and are comfortable with our current exposure.
7. We have increased our holdings of other loan-backed securities. These are
comprised of asset-backed securities (backed by auto loans, credit card
receivables, etc.) and securitized pools of commercial and multifamily
mortgages. These bonds are predominantly AAA rated, and are not subject to
the prepayment risk of residential mortgages. ALIAC's assets: What we own to
back our Fixed Annuities, Guaranteed Accumulation Account, Universal Life,
and Settlement Obligations.
[Bar Chart Data]
$13,929,775,000
4.2% Cash and Equivalents
4.4% Treasury Securities
23.1% Residential Mortgage-Backed Securities
13.0% Other Loan-Backed Securities
53.3% Corporate Bonds
2.0% Other*
12-31-95
$11,301,200,000
6.2% Cash and Equivalents
11.6% Treasury Securities
28.9% Residential Mortgage-Backed Securities
9.5% Other Loan-Backed Securities
41.3% Corporate Bonds
2.5% Other*
12-31-94
$11,260,000,000
4.8% Cash and Equivalents
7.5% Treasury Securities
57.5% Residential Mortgage-Backed Securities
2.0% Other Loan-Backed Securities
26.7% Corporate Bonds
1.5% Other*
12-31-93
* As of 12/31/95: 1.8% stock, 0.2% commercial mortgages.
As of 12/31/94: 2.2% stock, 0.3% commercial mortgages.
As of 12/31/93: 1.2% stock, 0.3% commercial mortgages.
<PAGE>
ALIAC's Portfolio Value: The credit quality of what we own according to
Standard & Poor's Corporation
<TABLE>
<CAPTION>
12-31-95 12-31-94 12-31-93
<S> <C> <C> <C>
AAA "highest rating . . . capacity to pay interest and repay
principal is extremely strong." Example: Government National
Mortgage Association (GNMA) Pass Throughs 41.0% 49.8% 68.2%
AA "very strong capacity to pay interest and repay principal."
Example: McDonald's Corporation 10.3 7.3 5.7
A "strong capacity to pay interest and repay principal."
Example: PepsiCo. 24.3 21.8 12.7
BBB "adequate capacity to pay interest and repay principal."
Example: Nabisco, Inc. 11.0 7.7 4.2
Cash and Equivalents 4.2 6.2 4.8
Total Investment Grade (Rated Securities Only) 90.8% 92.8% 95.6%
Not Rated private and public securities that Standard & Poor's did not rate
(Average "AA-" quality according to internal ratings, though some are deemed to
be below investment grade).
Example: Capitol One Bank Medium Term Note 4.8% 5.2% 2.4%
BB "predominantly speculative . . . lowest degree of
speculation." Example: Safeway, Inc. 3.4 1.5 1.0
B "greater vulnerability to default but currently has the
capacity to meet interest payments and principal payments."
Example: Stone Container Corp. 1.0 0.4 0.9
D in payment default. Example: Pittsburgh Lake Erie Notes 0.0 0.1 0.1
100.0% 100.0% 100.0%
</TABLE>
Portfolio Composition
ALIAC's portfolio allocation to Residential Mortgage Pass Through Securities and
Residential Collateralized Mortgage Obligations (CMOs) has been reduced.
[Pie Chart Data]
12-31-95
Residential CMOs 18.3%
Residential Mortgage Pass Throughs 4.7%
Other 77.0%
12-31-94
Residential CMOs 22.7%
Residential Mortgage Pass Throughs 6.2%
Other 71.1%
12-31-94
Residential CMOs 46.3%
Residential Mortgage Pass Throughs 11.2%
Other 42.5%
<PAGE>
How ALIAC's investments are doing
Recent declines in the level of interest rates have caused the market value of
our securities to increase relative to their costs.
<TABLE>
<CAPTION>
12-31-95 12-31-94 12-31-93
Fair Val. Fair Val. Fair Val.
Versus Versus Versus
Current Amortized Amortized Current Amortized Amortized Current Amortized Amortized
(millions) Fair Val. Cost Cost Fair Val. Cost Cost Fair. Val. Cost Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio
Including Below
Investment Grade $13,930 $13,085 +6.5% $11,301 $11,693 -3.4% $11,260 $10,557 +6.7%
Below Investment
Grade 673 652 +3.2% 323 340 -5.0% 220 215 +2.3%
</TABLE>
ALIAC Claims Paying Ratings
ALIAC has maintained excellent to superior credit ratings.
<TABLE>
<CAPTION>
Description A.M. Best Duff & Phelps Moody's Investors Service Standard & Poor's Corp.
<S> <C> <C> <C> <C>
Superior A++ AAA Aaa AAA
A+
Excellent A AA+ Aa1 AA+
A- AA Aa2 AA
AA- Aa3 AA-
Good B++ A+ A1 A+
B+ A A2 A
A- A3 A-
Adequate B BBB+ Baa1 BBB+
B- BBB Baa2 BBB
BBB- Baa3 BBB-
Below Average C++ BB+ Ba1 BB+
C+ BB Ba2 BB
BB- Ba3 BB-
B+ B1 B+
Poor C B B2 B
C- B- B3 B-
Very Poor CCC Caa CCC
CC Ca CC
C C C
Default D D D
</TABLE>
Fixed Account
For calendar year 1995, the bond market reversed its dismal 1994 performance by
providing total returns of nearly 20% (considering both dividend yield and
capital appreciation). Moderate economic growth, a rebounding dollar, foreign
demand for U.S. bonds, and high levels of investible liquidity all contributed
to this performance. Interest rates fell nearly 2.00% for the 30-year Treasury
and over 2.25% across all maturities from 2 years to 10 years. Based on the
weakening economy and benign inflation, the Federal Reserve lowered interest
rates at mid-year and at year-end, and as we enter 1996 the expectation is for
further reductions in Fed Funds from the current 5.50% level.
Corporate bonds were the best performers for the year, returning 22.25%
according to Lehman Brothers. Our allocation to corporates has increased
steadily from 27% at year-end 1993 to 41% at year-end 1994 to our current 51%.
This strategic shift we initiated in 1993 has enabled us to capitalize on these
high returns. We remain positive on the corporate bond market, but will adopt a
more cautious posture, purchasing high quality corporate bonds that are expected
to perform well in a weakening economic environment.
Since most of our increased corporate allocation came from reducing exposure to
mortgage-backed securities, we were able to avoid much of the prepayment related
fears and underperformance in this sector. For the year, mortgage-backed
securities underperformed corporates by nearly 4.00% and Treasuries by 1.50%.
However, their return of nearly 17% was still very good on an absolute basis.
Our allocation to this sector now stands at 23.1%, much of that with some
prepayment protection, but we have no plans to increase from these levels.
Looking ahead to 1996, we see economic weakness and expect volatility arising
from the existing economic and political uncertainty. Key factors are a budget
deal (or lack thereof), election year politics, uncertainty as to the magnitude
of Federal Reserve easing to come, the decline in corporate earnings, and the
extent to which foreign economies recover. In the context of this environment,
the Fixed Account will continue to maintain a high quality, diversified
portfolio of assets which will enable us to continue providing attractive
long-term returns and security to our contractholders.
Aetna Guaranteed Accumulation Account
New rates are announced monthly for the Guaranteed Accumulation Account (GAA).
Typically, we have a short-term offering with a maturity of approximately one
year and a long-term offering with a maturity of four to five years. The
specific maturity offered may vary from month to month.
Rates for new GAA offerings are based on prevailing market interest rates. This
gives clients an opportunity each month to invest in a guaranteed fixed rate
product with a competitive rate.
The portfolio backing the GAA is invested primarily in high-grade corporate
bonds and asset-backed securities. As of December 31, 1995 these positions were
72% and 17% of the portfolio, respectively. Although the specific mix of
securities in the portfolio may change from time to time, the portfolio targets
an average credit rating of "A".
GAA also offers investors the ability to withdraw their funds at any time
subject to a market value adjustment (MVA). The MVA will vary based on market
interest rates, just as the value of fixed income securities will change as
interest rates change. Thus, clients taking funds out of the GAA may find the
proceeds to be larger or smaller than the accumulated value in the account. This
difference can be determined before making the actual withdrawal.
<PAGE>
Aetna GET Fund, Series B
[GRAPH LINE DATA]
Growth of a $10,000 Investment
- -------------------------------------------------------------------------------
GET PLOT POINTS FROM CUSTOMER
- -------------------------------------------------------------------------------
Average Annual Total Return
1 Year Since Inception*
28.38% 19.52%
Total Return is calculated including reinvestment of income and capital gains
distributions. Past performance is no guarantee of future results. Performance
does not include any separate account charges imposed by ALIAC.
*The Fund commenced investment operations on July 1, 1994.
The GET Fund (the Fund) achieved a total return of 28.38% (net of investment
management fees and other fund expenses), for the year ended December 31, 1995,
compared to a 37.50% return for the S&P 500, an unmanaged index.
In order to support the guarantee feature of the Fund, we are not fully invested
in the stock market, and have not been since the inception of the Fund. However,
the percentage of assets invested in stocks continued to increase last year
because strong equity market returns have enabled us to build up an appreciable
amount of capital gain relative to the original principal. At year-end, 76% of
the Fund was invested in stocks, with the remainder primarily invested in bonds
maturing at roughly the same time as the maturity of the Fund. Cash and cash
equivalents were approximately 10% of the Fund. This compares with 58% in stocks
and 6% in cash and cash equivalents at year-end 1994.
The past year has been one full of important improvements in the management of
your Fund. Additions to the portfolio management team have led to some major
enhancements to the investment process used in the management of the GET Fund.
Increased emphasis has been placed upon a very disciplined, objective stock
selection process driven by a set of factors, or characteristics, which our
research has shown, could lead to superior performance. These factors include
positive earnings surprises, upward revisions of earnings estimates, low
price/earnings, low price to book value, and high insider ownership and stock
purchases. As has been the case for most periods in the past, stocks that
exhibit these factors were well-rewarded by the market over the past year.
As we look ahead to 1996, we observe that conditions appear to be favorable for
stock investors. Although corporate profit growth has and probably will continue
to slow, inflation remains under control, interest rates are quite low, and
monetary policy seems to point towards continued easing. Because all financial
assets compete with each other for the investor's dollar, the expected return of
stocks compared to bonds is an important relationship, and one which, we
believe, favors stocks at this time.
Top Ten Long-Term Holdings %
U.S. Treasury Strips
5/15/99 6.6
U.S. Treasury Strips
8/15/99 6.5
Exxon Corp. 2.6
Royal Dutch Petroleum 1.9
Bristol-Meyers Squibb 1.6
Johnson and Johnson 1.6
Mobil Corp. 1.4
Ameritech Corp. 1.3
Travelers, Inc. 1.3
Nike, Inc. Class B 1.3
Large Cap Sectors %
Consumer Goods 22.5
Basic Materials 18.5
Utilities 15.6
Financial Services 14.2
Technology 10.3
Producer Goods and
Services 9.8
Services 9.1
<PAGE>
Aetna GET Fund, Series B
Portfolio of Investments - December 31, 1995
- -------------------------------------------------------------------------------
Number Market
of Value
Shares
------- -------
78
COMMON STOCKS (73.2%)
Aerospace and Defense (1.2%)
Lockheed Martin Corp...... 2,700 $213,300
McDonnell-Douglas Corp.... 8,800 809,600
-------
1,022,900
-------
Apparel and Cosmetics (1.7%)
Nike, Inc................. 16,000 1,113,999
TJX Companies, Inc. (The). 18,200 343,525
-------
1,457,524
-------
Autos and Auto Equipment (0.8%)
Snap On, Inc.............. 7,200 325,800
Varity Corp.+............. 9,000 334,125
-------
659,925
-------
Banks (4.3%)
Bank of Boston Corp....... 10,000 462,500
Chemical Banking Corp..... 14,700 863,625
CITICORP.................. 14,054 945,132
First Chicago Corp........ 20,091 793,595
Nations Bank, Inc......... 11,200 779,800
-------
3,844,652
-------
Building Materials and
Consontruction (0.3%)
Centex Corp............... 900 31,275
Pulte Corp................ 7,500 252,188
-------
283,463
-------
Chemicals (1.5%)
Dow Chemical Co........... 8,700 612,263
Du Pont (E.I.) de Nemours. 100 6,988
Eastman Chemical Co....... 3,400 212,925
Goodrich (B.F.) Co........ 1,000 68,125
Great Lakes Chemical Corp. 1,900 136,800
PPG Industries, Inc....... 7,200 329,400
-------
1,366,501
-------
Computer Software (2.9%)
Cisco Systems, Inc.+...... 10,500 783,563
Computer Associates 9,650 548,844
International, Inc......
Computer Sciences Corp.+.. 10,400 730,600
Microsoft Corp.+.......... 5,800 508,950
-------
2,571,957
-------
Computers and Office Equipment
(2.8%)
Ceridian Corp.+........... 4,700 193,875
Compaq Computer Corp.+.... 7,700 369,600
Harris Corp............... 1,000 54,625
International Business 1,300 119,275
Machines, Inc...........
Moore Corp., Ltd.......... 31,000 577,375
Sun Microsystems, Inc.+... 13,800 629,625
Xerox Corp................ 3,700 506,900
-------
2,451,275
-------
Consumer Products (1.0%)
Eastman Kodak Co.......... 6,100 408,700
Liz Claiborne, Inc........ 16,900 468,975
-------
877,675
-------
Diversified (2.4%)
Dover Corp................ 19,200 $708,000
Johnson Controls, Inc..... 6,100 419,375
Textron, Inc.............. 7,000 472,500
VF Corp................... 9,300 490,575
-------
2,090,450
-------
Electrical and Electronics (2.2%)
Applied Materials, Inc.+.. 3,400 133,875
Hewlett Packard Co........ 11,500 963,125
Intel Corp................ 1,600 90,800
Micron Technology, Inc.... 5,900 233,788
Texas Instruments, Inc.... 10,800 558,900
-------
1,980,488
-------
Electrical Equipment (2.0%)
Emerson Electric Co....... 100 8,175
General Electric Co....... 15,000 1,080,000
Honeywell, Inc............ 3,400 165,325
Raychem Corp.............. 8,300 472,063
Tektronix, Inc............ 1,100 54,038
-------
1,779,601
-------
Financial Services (3.4%)
Dean Witter Discover and 5,700 267,900
Co......................
Federal National Mortgage 4,000 496,500
Association.............
Household International, 3,100 183,288
Inc.....................
Merrill Lynch & Co., Inc.. 8,500 433,500
Transamerica Corp......... 7,300 531,988
Travelers, Inc............ 17,800 1,119,174
-------
3,032,350
-------
Foods and Beverages (5.6%)
Campbell Soup Co.......... 1,700 102,000
Coca-Cola Co.............. 10,800 801,900
Conagra, Inc.............. 5,100 210,375
Coors (Adolph) Co......... 4,600 101,775
CPC International, Inc.... 11,100 761,738
Heinz (H.J.) Co........... 4,500 149,063
Hershey Foods Corp........ 1,700 110,500
Kroger Co. (The)+......... 10,000 375,000
PepsiCo, Inc.............. 17,000 949,875
Quaker Oats Co............ 8,100 279,450
Sara Lee Corp............. 18,600 592,875
Supervalu, Inc............ 15,000 472,500
Unilever N.V.............. 600 84,450
-------
4,991,501
-------
Hotels and Restaurants (1.8%)
Marriott International,
Inc..................... 13,400 512,550
McDonald's Corp...........
23,000 1,037,875
-------
1,550,425
-------
Household Products (0.2%)
Premark International,
Inc....................... 4,000 202,500
-------
See Notes to Portfolio of Investments.
<PAGE>
Aetna GET Fund, Series B
Portfolio of Investments - December 31, 1995 (continued)
- -------------------------------------------------------------------------------
Number Market
of Value
Shares
------- -------
Insurance (2.1%)
Allstate Corp............. 19,763 $812,753
American General Corp..... 4,400 153,450
Cigna Corp................ 3,000 309,750
General Re Corp........... 2,900 449,500
Safeco Corp............... 3,600 124,200
Transport Holdings, Inc.+. 89 3,627
-------
1,853,280
-------
Machinery and Equipment (0.9%)
Fluor Corp................ 3,000 198,000
Illinois Tool Works, Inc.. 2,200 129,800
Parker-Hannifin Corp...... 13,800 472,650
-------
800,450
-------
Media and Entertainment (0.6%)
King World Production,
Inc.+..................... 13,600 528,700
-------
Medical Supplies (1.2%)
Baxter International, Inc. 8,000 335,000
Guidant Corp.............. 3,521 148,762
Medtronic, Inc............ 11,000 614,625
-------
1,098,387
-------
Metals and Mining (2.2%)
Alcan Aluminum Ltd........ 2,400 74,700
Aluminum Co. of America... 7,100 375,413
Asarco, Inc............... 9,800 313,600
Cyprus Amax Minerals Co... 13,700 357,913
Phelps Dodge Corp......... 13,900 865,275
-------
1,986,901
-------
Oil and Gas (8.3%)
Amoco Corp................ 1,219 87,619
Atlantic Richfield Co..... 900 99,675
Columbia Gas System, Inc.+ 800 35,100
Exxon Corp................ 28,000 2,243,499
Halliburton Co............ 15,400 779,625
Mobil Corp................ 11,200 1,254,399
Panhandle Eastern Corp.... 4,800 133,800
Royal Dutch Petroleum Co.. 11,800 1,665,274
Sun Company, Inc.......... 8,600 235,425
Texaco, Inc............... 10,500 824,250
-------
7,358,666
-------
Paper and Containers (2.3%)
Champion International 8,800 369,600
Corp....................
Georgia-Pacific Corp...... 2,100 144,113
Mead Corp................. 11,800 616,550
Temple-Inland, Inc........ 11,000 485,375
Willamette Industries, 7,300 410,625
Inc.....................
-------
2,026,263
-------
Pharmaceuticals (7.4%)
Abbott Laboratories....... 9,500 396,625
Becton, Dickinson & Co.... 10,800 810,000
Bristol-Myers Squibb Co... 16,200 1,391,174
Eli Lilly & Co............ 3,982 223,988
Pharmaceuticals (continued)
Johnson & Johnson......... 16,000 $1,369,999
Merck & Co., Inc.......... 10,100 664,075
Pfizer, Inc............... 11,200 705,600
Schering Plough........... 17,800 974,550
-------
6,536,011
-------
Printing and Publishing (1.6%)
Gannett Company, Inc...... 4,600 282,325
Tribune Co................ 7,500 458,438
Washington Post Co........ 2,300 648,600
-------
1,389,363
-------
Retail (0.8%)
Sears, Roebuck & Co....... 14,400 561,600
Wal-Mart Stores, Inc...... 5,100 114,113
-------
675,713
-------
Telecommunications (2.1%)
Ameritech Corp............ 19,600 1,156,399
AT&T Corp................. 11,300 731,675
-------
1,888,074
-------
Transportation (0.8%)
AMR Corp.+................ 5,800 430,650
Conrail, Inc.............. 2,600 182,000
Navistar International 10,400 109,200
Corp.+..................
-------
721,850
-------
Utilities - Electric (3.9%)
Consolidated Edison Co. 22,100 707,200
of New York, Inc........
Entergy Corp.............. 11,500 336,375
General Public Utilities 7,500 255,000
Corp....................
Northern States Power Co.. 2,600 127,725
Pacific Gas and Electric 9,600 272,400
Co......................
Peco Energy Co............ 15,000 451,875
SCEcorp................... 35,300 626,575
Unicom Corp............... 20,500 671,375
-------
3,448,525
-------
Utilities - Oil and Gas (0.8%)
Coastal Corp. (The)....... 3,700 137,825
Pacific Enterprises....... 5,600 158,200
Williams Cos., Inc........ 8,400 368,550
-------
664,575
-------
Utilities - Telephone (4.1% )
Bell Atlantic Corp........ 11,100 742,313
BellSouth Corp............ 23,200 1,009,200
GTE Corp.................. 1,000 44,000
NYNEX Corp................ 6,500 351,000
SBC Communications, Inc... 12,000 690,000
Sprint Corp............... 20,500 817,438
-------
3,653,951
-------
Total Common Stocks (cost
$53,509,220) ........... $64,793,896
-------
See Notes to Portfolio of Investments.
<PAGE>
Aetna GET Fund, Series B
Portfolio of Investments - December 31, 1995 (continued)
Number Market
of Value
Shares
------- -------
PREFERRED STOCKS (2.4%)
Banks (1.2%)
BankAmerica Corp.......... 16,300 $1,055,425
-------
Chemicals (0.6%)
Union Carbide Corp........ 13,900 521,250
-------
Electrical Equipment (0.6%)
FPL Group, Inc............ 12,700 588,963
-------
Total Preferred Stocks
(cost $1,872,618) ...... $2,165,638
-------
Principal Market
Amount Value
------ -------
LONG-TERM BONDS AND NOTES (13.0%)
U.S. Treasury Strips PO,
Zero Coupon, 5.33%, $6,900,000 $5,783,967
05/15/99................
U.S. Treasury Strips PO,
Zero Coupon, 5.36%, 6,900,000 5,702,720
08/15/99................
Total Long Term Bonds and
Notes
(cost $10,916,385) ..... $11,486,687
-------
SHORT-TERM INVESTMENTS (10.2%)
Detroit Edison Co., Corp.
Note, 6.15%, 01/02/96... 3,400,000 3,400,000
Mid-Atlantic Fuel Co.,
Comm. Paper, 6.25%,
01/03/96................ 1,000,000 999,826
TCI Communications, Inc.,
Comm. Paper, 6.20%,
01/22/96................ 3,636,000 3,636,000
U.S. Treasury Note++,
Time Deposit, 9.25%,
01/15/96................ 1,000,000 1,001,830
-------
Total Short-Term
Investments
(cost $9,037,035) ...... $9,037,656
-------
TOTAL INVESTMENTS
(cost $75,335,258)(a) .. $87,483,877
Other assets less
liabilities ............ 1,085,756
=======
Total Net Assets ......... $88,569,633
=======
Notes to Portfolio of Investments
Category percentages are based on net assets.
+Non-income producing security
(a) The cost of investments for federal income tax purposes amount to
$75,383,017. Unrealized gains and losses, based on identified tax cost at
December 31, 1995 are as follows:
Unrealized gains ......... $12,858,824
Unrealized losses ........ (757,964
=======
Net unrealized gain..... $12,100,860
=======
++Security pledged to cover initial margin deposits on open futures contracts at
December 31, 1995. Information concerning open futures contracts is shown
below:
No. of Long Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
-------- ------- ---------- ----------
S & P 500 Index
Futures 29 $9,119,050 March 96 $(152,047)
========
$(152,047)
========
See Notes to Financial Statements.
<PAGE>
Aetna GET Fund, Series B
Statement of Assets and Liabilities
December 31, 1995
Assets:
Investments, at market value
(Note 1) ....................... $87,483,877
Cash ............................. 1,109
Receivable for:
Dividends and interest ......... 160,820
Investments sold ............... 1,142,672
Variation margin ............... 9,628
----------
Total assets ................ 88,798,106
----------
Liabilities:
Payable for investments purchased 80,770
Payable for fund shares redeemed 4,990
Accrued investment advisory fees . 58,277
Accrued administrative and 6,132
service fees ...................
Accrued custodian fees ........... 19,698
Other liabilities ................ 58,606
-------
Total liabilities ........... 228,473
-------
Net assets applicable to $88,569,633
outstanding shares .............
=========
Net assets represented by:
Paid-in capital ................ $71,509,068
Net unrealized gain............. 11,996,572
Distributions in excess of net
investment income ............. (19,095)
Accumulated net realized gain... 5,083,088
=======
Total--representing net assets
applicable to outstanding
shares ........................ $88,569,633
==========
Shares authorized ................ Unlimited
Shares outstanding, par value 7,141,879
$0.10 ..........................
Net asset value per share ........ $12.40
Cost of investments .............. $75,335,258
See Notes to Financial Statements.
Statement of Operations
Year Ended December 31, 1995
Investment income: (Note 1)
Interest ....................... $1,638,907
Dividends ...................... 1,442,017
----------
3,080,924
Foreign taxes withheld ......... (1,320)
----------
Total investment income ..... 3,079,604
----------
Expenses: (Note 2)
Investment advisory fee .......... 613,806
Custodian and transfer agent fees 51,328
Trustees' fees ................... 15,098
Printing and postage fees ........ 44,414
Audit fees ....................... 22,700
Administrative and service fees .. 70,133
Miscellaneous .................... 23,614
--------
Total expenses .............. 841,093
--------
Net investment income............. 2,238,511
---------
Net realized and change in unrealized gain (loss):
(Notes 1 and 3)
Net realized gain on:
Sales of investments............ 5,070,748
Futures contracts .............. 662,847
---------
Net realized gain................. 5,733,595
---------
Net change in unrealized gain (loss):
Investments .................... 12,530,348
Futures contracts .............. (194,372)
---------
Net change in unrealized gain..... 12,335,976
---------
Net realized and change in
unrealized gain................. 18,069,571
=========
Net increase in net assets
resulting from operations ...... $20,308,082
=========
<PAGE>
Aetna GET Fund, Series B
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Six-Month
Year Period
Ended Ended
December December
31, 31,
1995 1994
---------- ----------
Operations:
Net investment income . $2,238,511 $1,829,846
Net realized gain...... 5,733,595 115,962
Net change in
unrealized gain
(loss)............... 12,335,976 (339,404)
----------- -----------
Net increase in net
assets resulting
from operations .... 20,308,082 1,606,404
----------- -----------
Distributions to shareholders:
From net investment
income .............. (2,274,766) (1,829,846)
In excess of net
investment income ... -- (454,239)
From net realized
gains ............... -- (273,657)
In excess of net
realized gains ...... -- (21,413)
--------
Net decrease in net
assets resulting
from distributions
to shareholders .... (2,274,766) (2,579,155)
--------
Share transactions:
Proceeds from shares
sold ................ 503,629 102,292,322
Net asset value of
shares issued to
shareholders upon
reinvestment of
distributions ....... 2,274,766 2,579,155
Payment for shares
redeemed ............ (6,386,680) (29,754,124)
----------- -----------
Net increase
(decrease) in net
assets from share
transactions ...... (3,608,285) 75,117,353
Change in net assets .. 14,425,031 74,144,602
Net assets:
Beginning of period ... 74,144,602 --
End of period ......... $88,569,633 $74,144,602
=========== ===========
End of period net
assets include
distributions in
excess of net
investment income ... $(19,095) $(339,404)
- ------------------------ =========== ===========
Share transactions:
Shares sold ........... 44,217 10,151,896
Shares issued upon
reinvestment ........ 190,069 259,999
Shares redeemed ....... (566,518) (2,937,784)
=========== ===========
Net increase
(decrease).......... (332,232) 7,474,111
=========== ===========
See Notes to Financial Statements.
Financial Highlights
Selected data for each share outstanding
throughout each period:
Net asset value,
beginning of period .. $9.920 $10.092
----- ------
Income from investment operations:
Net investment income 0.309 0.250
Net realized and
unrealized gain
(loss)............... 2.492 (0.064)
Total from
investment ----- ------
operations ....... 2.801 0.186
----- ------
Less distributions:
From net investment
income .............. (0.320) (0.254)
In excess of net
investment income ... 0.000 (0.063)
From net realized
gains on investments 0.000 (0.038)
In excess of net
realized gains on
investments ......... 0.000 (0.003)
----- ------
Total
distributions .... (0.320) (0.358)
----- ------
===== ======
Net asset value, end of
period ............... $12.401 $9.920
===== ======
Total return* .......... 28.38% 1.83%
Net assets, end of
period (000's) ....... $88,570 $74,145
Ratio of total expenses
to average net assets 1.03% 0.53%
Ratio of net investment
income to average net
assets ............... 2.74% 4.52%
Ratio of net expenses
before fee waiver to 1.03% 0.84%
average net assets ...
Portfolio turnover rate 90.25% 36.12%
*The total return percentage does not reflect any separate account charges under
variable annuity contracts.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
<PAGE>
Aetna GET Fund, Series B
Notes to Financial Statements
December 31, 1995 (continued)
1. Summary of Significant Accounting Policies
Aetna GET Fund, Series B ("Fund") is registered under the Investment Company Act
of 1940 as a diversified open-end management investment company whose shares are
currently sold to Aetna Life Insurance and Annuity Company ("Company") for
allocation to certain of its variable life/annuity accounts ("Accounts"). The
Company's Accounts held 100% of the Fund's outstanding shares at December 31,
1995. The investment objective for the Fund is 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, the
"Guaranteed Period", from July 1, 1994 to June 30, 1999, the maturity date.
The Fund accumulated deposits from March 15, 1994 through June 30, 1994. The
Guaranteed Period for the Fund is from July 1, 1994 to June 30, 1999. The
minimum targeted rate of return during this period is 2.5% per year before asset
based contract charges and Series B costs of operations.
The accompanying financial statements of the 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 the Fund.
a. Valuation of Investments
Investments are stated at market values based upon closing sales prices as
reported on national securities exchanges or, for over-the-counter
securities, at the mean of the bid and asked prices. Short-term investments
maturing in more than sixty days for which market quotations are readily
available are valued at current market value. Short-term investments maturing
in less than sixty days are valued at amortized cost which when combined with
accrued interest approximates market. Securities for which market quotations
are not considered to be readily available are valued in good faith using
methods approved by the Board of Trustees.
The accounting records of the Fund are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in a foreign currency
are translated into U.S. dollars at the prevailing rates of exchange at the
end of the period. Purchases and sales of securities, income receipts, and
expense payments are translated into U.S. dollars at the prevailing exchange
rate on the respective dates of the transactions.
b. Futures 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 Fund uses futures
contracts as a hedge against declines in the value of portfolio securities.
The Fund may also purchase futures contracts to gain market exposure as it
may be more cost effective than purchasing individual securities.
Upon entering into a futures contract, the Fund is required to deposit with a
broker, an amount (initial margin) equal to a percentage of the purchase
price indicated by the futures contract. Subsequent deposits (variation
margin) are received or paid each day by the Fund equal to the daily
fluctuations in the market value of the contract. These amounts are recorded
by the Fund as unrealized gains or losses. When a contract is closed, the
Fund records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed. Generally, futures contracts are closed prior to expiration.
The risks associated with futures contracts may arise from an imperfect
correlation between the change in market value of the securities held by the
Fund and the price of futures contracts. Risks may also arise from an
illiquid secondary market, or from the inability of counterparties to meet
the terms of the contract.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
b. Futures Contracts (continued)
For federal tax purposes, any futures contracts which remain open at the end
of the fiscal period are marked-to-market and the resultant net gain or loss
is included in federal taxable income.
c. Federal Income Taxes
As a qualified regulated investment company, the Fund is relieved of federal
income and excise taxes by distributing its net taxable investment income and
capital gains, if any, in compliance with the applicable provisions of the
Internal Revenue Code.
d. 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-related
transactions and losses deferred due to wash sales.
e. Other
Investment transactions are accounted for on the day following trade date,
except same day settlements which are accounted for on the trade date.
Interest income is recorded on an accrual basis. Discounts and premiums on
securities purchased are amortized over the life of the respective security
using a yield to maturity method. Dividend income and stock splits as well as
distributions to the shareholders are recorded on the ex-dividend date.
Realized gains and losses from investment transactions are determined on an
identified cost basis.
2. Investment Advisory Fee and Other Expenses
The Fund pays the Company (its investment adviser) an investment advisory fee
at an annual rate of three-quarters of one percent (.75%) of its average
daily net assets.
In addition, the Fund has entered into a management agreement "Agreement"
with the Company. Under the Agreement, the Company is paid a fee for certain
administrative and personnel services incurred by the Funds. This fee is
equal to the direct costs incurred by the Company to administer the Funds.
For the year ended December 31, 1995, the Fund paid the Company $70,133 for
administrative and personnel services. Other than expenses specifically
assumed by the Company under the Agreement, all expenses incurred in the
operation of the Fund are borne by the Fund.
3. Purchases and Sales of Investments
The cost of purchases and proceeds from sales (including maturities) of
investments other than short-term investments for the year ended December 31,
1995 aggregated $69,147,382 and $78,674,197, respectively.
4. Post October Capital Losses
The Fund had approximately $608,000 in capital losses from November 1, 1995
to December 31, 1995 which have been treated for federal income tax purposes
as occurring on the first day of the Funds fiscal year ending December 31,
1996.
5. Federal Tax Status of Dividends Declared During the Fiscal Year (Unaudited)
All of the income dividends paid by the Fund were ordinary income for federal
income tax purposes. The percentage of income dividends that were qualifying
dividends for the corporate dividends received deduction were 26.3%.
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Trustees of Aetna GET Fund, Series B
We have audited the accompanying statement of assets and liabilities of Aetna
GET Fund, Series B (the Fund), including the portfolio of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, statements of changes in net assets and financial highlights for the year
ended December 31, 1995 and the six-month period ended December 31, 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Aetna
GET Fund, Series B as of December 31, 1995, the results of its operations for
the year then ended, changes in net assets and financial highlights for the year
ended December 31, 1995 and the six-month period ended December 31, 1994 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 16, 1996
