AETNA GENERATION PORTFOLIOS, INC.
Aetna Ascent Variable Portfolio
Aetna Crossroads Variable Portfolio
Aetna Legacy Variable Portfolio
151 Farmington Avenue
Hartford, CT 06156-8962
1-800-525-4225
Prospectus dated: May 1, 1996
Aetna Generation Portfolios, Inc. (the "Company") is an open-end diversified
management investment company authorized to issue multiple series of shares,
each representing a diversified portfolio of investments (individually, a
"Portfolio" and collectively, the "Portfolios"). The Company currently has
three series authorized. The Company's shares are offered only to insurance
company separate accounts to fund benefits under their variable annuity
contracts (VA Contracts) and variable life insurance policies (VLI Policies).
Each Portfolio is an asset allocation fund, designed for Participants having
different risk tolerances. See "Description of the Generation Portfolios" and
"Risk Factors and Other Considerations."
This Prospectus sets forth concisely the information that a prospective
contract holder or policy holder should know before directing an investment
to a Portfolio and should be read and kept for future reference. A Statement
of Additional Information (SAI) dated May 1, 1996 contains more information
about the Generation Portfolios. For a free copy of the SAI, call
1-800-525-4225 or write to Aetna Generation Portfolios, Inc., at the address
listed above. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is incorporated into this Prospectus by reference.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the Company in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this Prospectus carefully before investing and retain for future
reference.
<PAGE>
TABLE OF CONTENTS
Financial Highlights 3
The Company 4
Description of the Generation Portfolios 4
Investment Strategies 4
Investment Techniques 7
Risk Factors and Other Considerations 10
Investment Restrictions 11
Management of the Generation Portfolios 12
Sale and Redemption of Shares 13
Net Asset Value 13
General Information 13
Tax Matters 14
Appendix A -- Glossary of Investment Terms 15
Appendix B -- Description of Corporate Bond Ratings 17
2 Aetna Generation Portfolios, Inc.
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FINANCIAL HIGHLIGHTS
The selected data presented below as of December 31, 1995 and for the period
from July 5, 1995 to December 31, 1995 are derived from the financial
statements of the Portfolios, which statements have been audited by KPMG Peat
Marwick LLP, independent auditors. The financial statements as of December
31, 1995 and for the period from July 5, 1995 to December 31, 1995, and the
independent auditors' report thereon, are included in the SAI.
Aetna Aetna Aetna
Ascent Crossroads Legacy
Net asset value, beginning of period $10.000 $10.000 $10.000
Income from Investment Operations
Net investment income .116 .131 .148
Net realized and change in unrealized
gain .929 .799 .679
------- ---------- --------
Total from investment operations $ 1.045 $ .930 $ .827
Less Distributions
From net investment income (.250) (.190) (.190)
------- ---------- --------
Net asset value, end of period $10.795 $10.740 $10.637
------- ---------- --------
Total Return* 10.45% 9.30% 8.27%
Net assets, end of period (000's) $18,850 $18,813 $18,253
Ratio of total expenses to average
net assets** 1.59% 1.60% 1.62%
Ratio of net investment income to
average net assets** 2.26% 2.56% 2.91%
Portfolio turnover rate* 39.77% 49.38% 62.43%
Per share data calculated using average number of shares outstanding
throughout the period.
* Not annualized. The total return percentage does not reflect the
mortality and expense charges, or other expenses, applicable to the
separate accounts that invest in the Portfolios. Inclusion of these
expenses would reduce the total return figures.
** Annualized.
Additional information about the performance of the Portfolios is contained
in the Portfolios' Annual Report dated December 31, 1995. The Annual Report
is incorporated herein by reference and is available, without charge, by
writing to the Portfolios at the address listed on the cover of this
Prospectus or by calling 1-800-525-4225.
Aetna Generation Portfolios, Inc. 3
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THE COMPANY
The Company is an open-end, management investment company, consisting of
multiple series. It currently has authorized three series, Aetna Ascent
Variable Portfolio (Aetna Ascent), Aetna Crossroads Variable Portfolio (Aetna
Crossroads) and Aetna Legacy Variable Portfolio (Aetna Legacy). The Company
may authorize additional series in the future. The Company is intended to
serve as one of the funding vehicles for VA Contracts and VLI Policies to be
offered through the separate accounts of insurance companies. The insurance
companies, not Participants, are shareholders of the Company. See "General
Information."
The Company does not foresee any disadvantages to the Participants in funding
both VA Contracts and VLI Policies through the Portfolios or in offering the
Portfolios through more than one insurance company. The Company's Board of
Directors has agreed to monitor the Portfolios' activities to identify any
potentially material, irreconcilable conflicts and to take appropriate action
if necessary to resolve any conflicts which may arise.
DESCRIPTION OF THE GENERATION PORTFOLIOS
The Portfolios are asset allocation funds that seek to maximize long-term
investment returns at varying levels of risk.
Aetna Ascent's investment objective is to provide capital appreciation. The
Portfolio is designed for Participants who have an investment horizon
exceeding 15 years and who have a high level of risk tolerance.
Aetna Crossroads' investment objective is to provide total return (i.e.,
income and capital appreciation, both realized and unrealized). The Portfolio
is designed for Participants who have an investment horizon exceeding 10
years and who have a moderate level of risk tolerance.
Aetna Legacy's investment objective is to provide total return consistent
with preservation of capital. The Portfolio is designed for Participants who
have an investment horizon exceeding five years and who have a low level of
risk tolerance.
Each Portfolio's investment objective is fundamental and may not be changed
without the vote of a majority of the holders of that Portfolio's outstanding
shares. There can be no assurance that a Portfolio will meet its investment
objective. Each Portfolio is subject to investment policies and restrictions
described in this Prospectus and in the SAI, some of which are fundamental.
No fundamental investment policy or restriction may be changed without the
approval of a majority of the outstanding shares of that Portfolio.
INVESTMENT STRATEGIES
A glossary describing various investment terms used in this Prospectus is
contained in Appendix A.
The Portfolios each have specific asset allocation strategies, which
correspond to their respective investment objectives. Each strategy contains
unique asset allocation ranges and benchmark allocations for the seven asset
classes utilized by the Portfolios. The ranges show what is permissible for
allocations to each asset class in a given Portfolio. The Investment Adviser
may adjust the asset class mix of a Portfolio within the ranges. The
benchmarks describe a typical asset allocation strategy under neutral market
conditions. Benchmarks are also used by the Investment Adviser to monitor a
"hypothetical benchmark portfolio" consisting of the benchmark allocation in
each comparative index. Comparing the actual performance of each Portfolio
against its respective "hypothetical benchmark portfolio" is useful in
evaluating the impact of ongoing asset allocation decisions.
4 Aetna Generation Portfolios, Inc.
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The allocation ranges, benchmarks and comparative indexes are as follows:
<TABLE>
<CAPTION>
Aetna Aetna Aetna
Asset Class Ascent Crossroads Legacy Comparative Index
------------------------------ -------- ------------ -------- ------------------------------
<S> <C> <C> <C> <C>
Equities
Large Capitalization Stocks
Range 0-60% 0-45% 0-30% Standard & Poor's 500
Stock Index
Benchmark 20% 15% 10%
Small Capitalization Stocks
Range 0-40% 0-30% 0-20% Russell 2000 Small Cap
Benchmark 20% 15% 10% Stock Index
International Stocks
Range 0-40% 0-30% 0-20% Morgan Stanley Capital
Benchmark 20% 15% 10% International Europe
Australia and Far East Index
Real Estate Stocks
Range 0-40% 0-30% 0-20% National Association of Real
Estate Investment Trust
Benchmark 20% 15% 10% Equity REIT Index
Fixed Income
U. S. Dollar Bonds
Range 0-30% 0-70% 0-100% Salomon Brothers Broad
Benchmark 10% 25% 40% Investment Grade Index
International Bonds
Range 0-20% 0-20% 0-20% Salomon Brothers Non-U.S.
Benchmark 10% 10% 10% World Government Bond
Index
Money Market Securities
Range 0-30% 0-30% 0-30% 91 Day T-Bill
Benchmark 0% 5% 10%
</TABLE>
The Investment Adviser will invest the assets of each Portfolio within the
specified ranges. The actual allocation of assets of each Portfolio may be
above or below the benchmark allocation at any given time, depending on the
Investment Adviser's ongoing evaluation of the expected returns and risks of
each asset class. For example, if the Investment Adviser believes, based on a
review of various economic and financial market factors, that the expected
return and risk for a particular asset class will be better than other
classes, the allocation of assets to that class may be higher than the
benchmark percentage.
In addition to investing within the asset allocation ranges, Aetna Crossroads
will invest no more than 60% of its assets and Aetna Legacy will invest no
more than 35% of its assets in the following types of securities: securities
in the Small Capitalization Stock Class with capitalization of less than $0.5
billion, securities in the U.S. Dollar Bond Class that are below investment
grade which are known as high risk, high-yield securities or "junk bonds"
(hereinafter, "high risk, high-yield securities"), securities in the
International Stock Class, and securities in the International Bond Class.
Aetna Ascent has no such restrictions. These restrictions apply at the time
of purchase of the particular securities and are designed to limit the amount
of risk assumed by each Portfolio.
The Portfolios may also invest in options contracts, futures contracts, and
other derivative instruments which are described in greater detail under
"Investment Techniques" and "Risk Factors and Other Considerations" and in
the SAI.
Aetna Generation Portfolios, Inc. 5
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Asset allocation strategies are supplemented by security selection decisions
within each asset class. Selection of particular securities will be based on
the Investment Adviser's evaluation of various factors including the
particular issuer or industry, the expected return from the investment, the
price to earnings ratio, dividend payments, yields and inflation factors. The
following describes the securities in each of the asset classes (some of
these securities involve risks which are described in "Risk Factors and Other
Considerations"):
Equity Securities
Each Portfolio may invest its assets in equity securities that the Investment
Adviser believes have the potential for capital appreciation. These may
include the equity securities of larger, widely-traded issuers; smaller,
less well-known issuers; foreign issuers; and real estate-related issuers.
Securities in this asset class include preferred and common stocks,
securities convertible into stock, and warrants to purchase stock.
Large Capitalization Stock Class. Issuers of equity securities in this class
generally have equity market capitalizations at the time of purchase of more
than $1 billion, are U.S. domiciled and their securities generally are widely
traded on U.S. exchanges.
Small Capitalization Stock Class. Equity securities in this class are issued
by smaller, less well-known U.S. companies with equity market capitalization
generally less than $1.0 billion. These securities may involve greater risks
because their issuers may be untested in adverse market conditions, may have
limited product lines or financial resources, or their securities may trade
less frequently than those of larger-capitalized companies. As a result, the
prices of these securities may fluctuate more than prices of more
widely-traded securities of larger companies.
International Stock Class. Equity securities in this class may be issued by
companies domiciled or engaged in business principally in countries outside
of the United States. The Investment Adviser believes that investment in
foreign securities offers significant potential for long-term capital
appreciation and affords substantial opportunities for investment
diversification. Each Portfolio may invest in ordinary foreign shares,
American Depositary Receipts ("ADRs"), futures contracts or foreign stock
indices and other derivative securities within the limits set forth below.
Investments in securities of foreign companies and in securities denominated
in foreign currencies involve certain risks, which are described below under
"Risk Factors and Other Considerations."
Real Estate Stock Class. Equity securities in this class include equity real
estate investment trusts ("REITs"), real estate development and real estate
operating companies, and shares of companies engaged in other real estate
related businesses. Each Portfolio will invest the real estate portion of its
portfolio primarily in equity REITs, which are trusts that sell shares to
investors and use the proceeds to invest in real estate or interests in real
estate. A REIT may focus on a particular project, such as apartment
complexes, or a geographic region, such as the Northeastern United States, or
both.
Fixed Income Securities
Each Portfolio may invest in fixed income securities, including obligations
of the United States and foreign governments as well as obligations of
corporations.
The value of fixed income securities fluctuates in response to changes in
interest rates. Generally, when interest rates fall, the value of fixed
income securities increases. Conversely, when interest rates rise, the value
of fixed income securities decreases. The amount of the increase or decrease
in value is affected by other factors, including the maturity of the
security. Fixed income securities are subject to various risks, including the
creditworthiness of the issuer and economic factors.
U.S. Dollar Bonds Class. Securities in this class consist of any fixed income
security denominated in U.S. dollars, including obligations of the U.S.
Government, debt securities issued by U.S. corporations and supranational
agencies and mortgage-backed securities.
6 Aetna Generation Portfolios, Inc.
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U.S. Government Securities consist of direct obligations of the U.S.
Government, such as treasury bills, notes and bonds that are backed by the
full faith and credit of the United States, or obligations, such as notes and
bonds that are guaranteed by agencies and instrumentalities of the U.S.
Government. Securities of these agencies and instrumentalities are backed by
either the full faith and credit of the United States, the right of the
issuer to borrow from the U.S. Treasury, or the credit of the agency or
instrumentality. Securities in this group also include repurchase agreements
collateralized by U.S. Government agency securities and zero coupon bonds.
See "Investment Techniques."
Corporate Bonds include investment grade debt securities, high risk,
high-yield securities, and mortgage-backed and other asset-backed securities
which are rated in the four highest categories by Standard & Poor's
Corporation or Moody's Investors Service, Inc. Corporate bonds may also
include other debt instruments with similar ratings by other nationally
recognized statistical rating organizations or other unrated debt securities
which are considered by the Investment Adviser to be of similar quality. High
risk, high-yield securities or "junk bonds" carry more risk than do
investment grade debt securities. Each Portfolio will not invest more than
15% of its assets in high risk, high-yield securities and will not invest in
any security rated lower than B.
Mortgage-backed securities are securities that represent part ownership of a
pool of mortgage loans where principal is scheduled to be paid back by the
borrower over the length of the loan or returned in a lump sum at maturity.
They consist of pass-through securities issued by the U.S. Government and
corporations. Payments of interest and principal on U.S. mortgage-backed
securities may be guaranteed by an agency or instrumentality of the United
States. These agencies and instrumentalities include, but are not limited to,
the Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Private mortgage
pass-through securities are backed by pools of conventional fixed-rate or
adjustable-rate mortgage loans but are not guaranteed as to payment of
interest and/or principal by the issuer. Also included in this class are
collateralized mortgage obligations ("CMOs") and securities issued by real
estate mortgage investment conduits ("REMICs"). Additional information about
CMOs and REMICs is contained in the SAI. Mortgage-backed securities are
subject to prepayment risk resulting from early prepayment by individual
homeowners.
International Bond Class includes debt securities denominated in currencies
other than the U.S. dollar. Generally, these securities are issued by foreign
corporations and foreign governments and are traded on foreign markets.
Investment in international debt securities that are denominated in foreign
currencies involve certain risks, which are described under "Risk Factors and
Other Considerations."
Money Market Securities
Each Portfolio may invest in high quality money market obligations that
present minimal credit risk.
Money market securities include U.S. Government obligations, repurchase
agreements, certificates of deposit, banker's acceptances, bank deposits,
other financial institution obligations, commercial paper and other
short-term commercial obligations. These securities may include instruments
that have variable interest rates which, in the opinion of the Investment
Adviser, will maintain a value at or close to the face value of the security.
Each Portfolio may keep a portion of its assets in cash.
INVESTMENT TECHNIQUES
The Generation Portfolios may use the following investment techniques (see
Appendix A for the definition of certain terms used below):
Borrowing. A Portfolio may borrow up to 5% of the value of its total assets
for temporary or emergency purposes. The Portfolios do not intend to borrow
for leveraging purposes. They have the authority to do so, but only if, after
the borrowing, the value of the Portfolio's net assets, including proceeds
from the borrowings, is equal to at least 300% of all outstanding borrowings.
Leveraging can increase the volatility of a Portfolio since it exaggerates
the effects of changes in the value of the securities purchased with the
borrowed funds.
Aetna Generation Portfolios, Inc. 7
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Securities Lending. A Portfolio may lend its portfolio securities; however,
the value of the loaned securities (together with all other assets that are
loaned, including those subject to repurchase agreements) may not exceed
one-third of the Portfolio's total assets. A Portfolio will not lend
portfolio securities to affiliates. Though fully collateralized, lending
portfolio securities involves certain risks, including the possibility that
the borrower may become insolvent or default on the loan. In the event of a
disparity between the value of the loaned security and the collateral, there
is the additional risk that the borrower may fail to return the securities or
provide additional collateral.
Repurchase Agreements. Under a repurchase agreement, a Portfolio may acquire
a debt instrument for a relatively short period subject to an obligation by
the seller to repurchase and by the Portfolio to resell the instrument at a
fixed price and time.
The Portfolios may enter into repurchase agreements with domestic banks and
broker-dealers. Such agreements, although fully collateralized, involve the
risk that the seller of the securities may fail to repurchase them. In that
event, a Portfolio may incur costs in liquidating the collateral or a loss if
the collateral declines in value. If the default on the part of the seller is
due to insolvency and the seller initiates bankruptcy proceedings, the
ability of a Portfolio to liquidate the collateral may be delayed or limited.
The Board of Directors has established credit standards for repurchase
transactions entered into by the Portfolios.
Asset-Backed Securities. Each Portfolio may purchase securities
collateralized by a specified pool of assets, including, but not limited to,
credit card receivables, automobile loans, home equity loans, mobile home
loans, or recreational vehicle loans. These securities are subject to
prepayment risk. In periods of declining interest rates, reinvestment of
prepayment proceeds would be made at lower and less attractive interest
rates.
Zero coupon and Pay-in-Kind Bonds. Each Portfolio may invest in zero coupon
securities and pay-in-kind bonds. Zero coupon securities are debt securities
that pay no cash income but are sold at substantial discounts to their value
at maturity. Some zero coupon securities call for the commencement of regular
interest payments at a deferred date. Pay-in-kind bonds pay all or a portion
of their interest in the form of additional debt or equity securities. Zero
coupon securities and pay-in-kind bonds are subject to greater price
fluctuations in response to changes in interest rates than are ordinary
interest-paying instruments with similar maturities; The value of zero coupon
securities and pay-in-kind bonds appreciate more during periods of declining
interest rates and depreciate more during periods of rising interest rates.
Bank Obligations. Each Portfolio may invest in obligations (including
banker's acceptances, commercial paper, bank notes, time deposits and
certificates of deposit) issued by domestic or foreign banks provided the
issuing bank has a minimum of $5 billion in assets and a primary capital
ratio of at least 4.25%.
Options, Futures and Other Derivative Instruments. A derivative is a
financial instrument, the value of which is "derived" from the performance of
an underlying asset (such as a security or index of securities). In addition
to futures and options, derivatives include, but are not limited to, forward
contracts, swaps, structured notes, and CMOs.
A Portfolio may engage in various strategies using derivatives including
managing its exposure to changing interest rates, securities prices and
currency exchange rates (collectively known as hedging strategies), or
increasing its investment return. For purposes other than hedging, a
Portfolio will invest no more than 5% of its total assets in derivatives
which at the time of purchase are considered by management to involve high
risk to the Portfolio. These would include inverse floaters, interest-only
and principal-only securities.
8 Aetna Generation Portfolios, Inc.
<PAGE>
Each Portfolio may buy and sell options including index options and options
on foreign securities. There is no limit on the amount of a Portfolio's total
assets that may be subject to call options; however, writing a put option
requires the segregation of liquid assets to cover the contract. A Portfolio
will not write a put option if it will require more than 50% of the
Portfolio's net assets to be segregated to cover the put obligation nor will
it write a put option if after it is written more than 3% of the Portfolio's
assets would consist of put options.
Investments in futures contracts and related options with respect to foreign
currencies, fixed income securities and foreign stock indices may also be
made by a Portfolio. Although these investments are primarily made to hedge
against price fluctuations, in some cases, a Portfolio may buy a futures
contract for the purpose of increasing its exposure in a particular asset
class or market segment, which strategy may be considered speculative. This
strategy is typically used to manage better portfolio transaction costs. The
aggregate futures market prices of financial instruments required to be
delivered or purchased under open futures contracts may not exceed 30% of
Aetna Legacy's total assets, 60% of Aetna Crossroads' total assets, and 100%
of Aetna Ascent's total assets. With respect to futures contracts or related
options that may be entered into for speculative purposes, the aggregate
initial margin for futures contracts and premiums for options will not exceed
5% of a Portfolio's net assets, after taking into account realized profits
and unrealized losses on such futures contracts.
A Portfolio may invest in forward contracts on foreign currency ("forward
exchange contracts"). These contracts may involve "cross-hedging," a
technique in which a Portfolio hedges with currencies which differ from the
currency in which the underlying asset is denominated.
A Portfolio may also invest in interest rate swap transactions. Interest rate
swaps are subject to credit risks (if the other party fails to meet its
obligations) and also interest rate risks, because a Portfolio could be
obligated to pay more under its swap agreements than it receives under them
as a result of interest rate changes.
U.S. Government Derivatives. Each Portfolio may purchase separately traded
principal and interest components of certain U.S. Government securities
("Strips"). In addition, a Portfolio may acquire custodial receipts that
represent ownership in a U.S. Government security's future interest or
principal payments. These securities are known by such exotic names as TIGRS
and CATS and may be issued at a discount to face value. They are generally
more volatile than normal fixed income securities because interest payments
are accrued rather than paid out in regular installments.
Supranational Agencies. Each Portfolio may invest up to 10% of its net assets
in securities of supranational agencies such as: the International Bank for
Reconstruction and Development (commonly referred to as the "World Bank"),
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization
engaged in cooperative economic activities; the European Coal and Steel
Community, which is an economic union of various European nations' steel and
coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.
Securities of supranational agencies are not considered government securities
and are not supported directly or indirectly by the U.S. Government.
Illiquid and Restricted Securities. Each Portfolio may invest up to 15% of
its total assets in illiquid securities. Illiquid securities are securities
that are not readily marketable or cannot be disposed of promptly within
seven days in the ordinary course of business without taking a materially
reduced price. In addition, a Portfolio may invest in securities that are
subject to legal or contractual restrictions on resale, including securities
purchased under Rule 144A and Section 4(2) of the Securities Act of 1933.
Because of the absence of a trading market for illiquid and certain
restricted securities, it may take longer to liquidate these securities than
it would unrestricted, liquid securities. A Portfolio may realize less than
the amount originally paid by the Portfolio for the security. The Board of
Directors has established a policy to monitor the liquidity of such
securities.
Aetna Generation Portfolios, Inc. 9
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Cash or Cash Equivalents. Each Portfolio reserves the right to depart from
its investment objectives temporarily by investing up to 100% of its assets
in cash or securities in the Money Market Class for defense against potential
market declines.
Other Investments. Each Portfolio may use other investment techniques,
including "when-issued" and "delayed-delivery securities" and variable rate
instruments. These techniques are described in Appendix A and the SAI.
RISK FACTORS AND OTHER CONSIDERATIONS
General Considerations. The different types of securities purchased and
investment techniques used by a Portfolio involve varying amounts of risk.
For example, equity securities are subject to a decline in the stock market
or in the value of the issuer, and preferred stocks have price risk and some
interest rate and credit risk. The value of debt securities may be affected
by changes in general interest rates and in the creditworthiness of the
issuer. Debt securities with longer maturities (for example, over ten years)
are generally more affected by changes in interest rates and provide less
price stability than securities with short term maturities (for example, one
to ten years). Also, on each debt security, the risk of principal and
interest default is greater with higher-yielding, lower-grade securities.
High risk, high-yield securities may provide a higher return but with added
risk. In addition, foreign securities have currency risk. Some of the risks
involved in the securities acquired by the Portfolios are discussed in this
section. Additional discussion is contained above under "Investment
Techniques" and in the SAI.
Portfolio Turnover. Portfolio turnover refers to the frequency of portfolio
transactions and the percentage of portfolio assets being bought and sold in
the aggregate during the year. Although the Portfolios do not purchase
securities with the intention of profiting from short-term trading, each
Portfolio may buy and sell securities when the Investment Adviser believes
such action is advisable. It is anticipated that under normal market
conditions the average annual portfolio turnover rate for each Portfolio will
not exceed 125%. A high turnover rate will result in increased brokerage
commissions and may increase taxable capital gains. See "Taxes" and the SAI
for additional information.
International Securities. Investments in securities of foreign issuers or
securities denominated in foreign currencies involve risks not present in
domestic markets. Such risks include: currency fluctuations and related
currency conversion costs; less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic
developments; different accounting procedures and auditing standards; the
possible imposition of withholding taxes on interest income payable on
securities; the possible seizure or nationalization of foreign assets; the
possible establishment of exchange controls or other foreign laws or
restrictions which might adversely affect the payment and transferability of
principal, interest and dividends on securities; higher transaction costs;
possible settlement delays; and less publicly available information about
foreign issuers.
Depositary Receipts. The Portfolios can invest in both sponsored and
unsponsored depositary receipts. Unsponsored depositary receipts, which are
typically traded in the over-the-counter market, may be less liquid than
sponsored depositary receipts and therefore may involve more risk. In
addition, there may be less information available about issuers of
unsponsored depositary receipts.
The Portfolios will generally acquire American Depositary Receipts (ADRs)
which are dollar denominated, although their market price is subject to
fluctuations of the foreign currency in which the underlying securities are
denominated. All depositary receipts will be considered foreign securities
for purposes of a Portfolio's investment limitation concerning investment in
foreign securities. See Appendix A and the SAI for more information.
Real Estate Securities. A Portfolio's investments in real estate securities
may be subject to certain of the same risks associated with the direct
ownership of real estate. These risks include: declines in the value of real
estate; risks related to general and local economic conditions, overbuilding
and competition;
10 Aetna Generation Portfolios, Inc.
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increases in property taxes and operating expenses; and variations in rental
income. In addition, equity REITS may be dependent upon management skill, may
not be diversified, and may be subject to the risks of obtaining adequate
financing for projects on favorable terms. Equity REITS are also subject to
the possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code and failing to maintain exemption from the
Investment Company Act of 1940, as amended ("1940 Act").
High Risk, High-Yield Securities. A Portfolio may invest in high risk,
high-yield securities, often called "junk bonds." These securities tend to
offer higher yields than investment-grade bonds because of the additional
risks associated with them. These risks include: a lack of liquidity; an
unpredictable secondary market; a greater likelihood of default; increased
sensitivity to difficult economic and corporate developments; call provisions
which may adversely affect investment returns; and loss of the entire
principal and interest. Although junk bonds are high risk investments, the
Investment Adviser may purchase these securities if they are thought to offer
good value. This may happen if, for example, the rating agencies have, in the
Investment Adviser's opinion, misclassified the bonds or overlooked the
potential for the issuer's enhanced creditworthiness.
Derivatives. The Portfolios may use derivative instruments as described above
under "Investment Techniques--Options, Futures and Other Derivative
Instruments." Derivatives can be volatile investments and involve certain
risks. A Portfolio may be unable to limit its losses by closing a position
due to lack of a liquid market or similar factors. Losses may also occur if
there is not a perfect correlation between the value of futures or forward
contracts and the related securities. The use of futures may involve a high
degree of leverage because of low margin requirements. As a result, small
price movements in futures contracts may result in immediate and potentially
unlimited gains or losses to a Portfolio. Leverage may exaggerate losses of
principal. The amount of gains or losses on investments in futures contracts
depends on the Investment Adviser's ability to predict correctly the
direction of stock prices, interest rates and other economic factors.
The use of forward exchange contracts may reduce the gain that would
otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. In an attempt to limit their risk in forward exchange
contracts, the Portfolios limit their exposure to the amount of their
respective assets denominated in the foreign currency being cross-hedged.
Cross-hedging entails a risk of loss on both the value of the security that
is the basis of the hedge and the currency contract that was used in the
hedge. These risks are described in greater detail in the SAI.
Variable Rate Instruments, When-Issued and Delayed-Delivery Transactions.
When-issued, delayed-delivery and variable rate instruments may be subject to
liquidity risks and risks of loss of principal due to market fluctuations.
Each Portfolio will establish a segregated account in which it will maintain
liquid assets in an amount at least equal to the Portfolio's commitments to
purchase securities on a when-issued or delayed-delivery basis. For more
information about these securities, see Appendix A and the SAI.
Special Considerations. The investment results of the Portfolios depend in
part upon the Investment Adviser's ability to anticipate correctly the
relative performance of stocks, bonds and money market instruments. While the
Investment Adviser has substantial experience in managing all asset classes,
there can be no assurance that it will always allocate assets to the best
performing sectors. A Portfolio's performance would suffer if a major portion
of its assets were allocated to stocks in a declining market or, similarly,
if a major portion of a Portfolio's assets were allocated to bonds at a time
of adverse interest rate movement.
INVESTMENT RESTRICTIONS
In addition to the restrictions discussed under "Investment Strategies" and
"Investment Techniques," a Portfolio will not concentrate its investments in
any one industry, except that a Portfolio may invest up to 25% of its total
assets in securities issued by companies principally engaged in any one
industry. For purposes of this restriction, finance companies will be
classified as separate industries according to the end users of their
services, such as automobile finance, computer finance and consumer finance.
This
Aetna Generation Portfolios, Inc. 11
<PAGE>
limitation will not apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
Additionally, a Portfolio will not invest more than 5% of its total assets in
the securities of any one issuer (excluding securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) or purchase more
than 10% of the outstanding voting securities of any one issuer. This
restriction applies only to 75% of a Portfolio's total assets.
MANAGEMENT OF THE GENERATION PORTFOLIOS
Directors. The operations of each Portfolio are managed under the direction
of the Board of Directors ("Directors"). The Directors set broad policies for
the Company and each Portfolio. Information about the Directors is found in
the SAI.
Investment Adviser. Aetna Life Insurance and Annuity Company ("ALIAC" or the
"Investment Adviser"), serves as the Investment Adviser for each of the
Portfolios. ALIAC is a Connecticut insurance corporation with its principal
offices at 151 Farmington Avenue, Hartford, Connecticut 06156, and is
registered with the SEC as an investment adviser. As of December 31, 1995,
ALIAC managed over $22 billion in assets. The Investment Adviser is an
indirect wholly owned subsidiary of Aetna Retirement Services, Inc., which is
in turn a wholly owned subsidiary of Aetna Life and Casualty Company.
Under the terms of Investment Advisory Agreements between the Company and
ALIAC with respect to each of the Portfolios, ALIAC is responsible for
managing the assets of each Portfolio in accordance with their respective
investment objectives and policies as described under "Description of the
Generation Portfolios" and "Investment Strategies." The Investment Adviser
furnishes all necessary facilities for, and pays the salaries and other
related costs of personnel engaged in providing investment advice to, the
Company. The Investment Adviser also pays any fees and expenses for Directors
and officers of the Company who are employees or affiliated persons of the
Investment Adviser. The Investment Adviser receives a fee at an annual rate
of 0.50% of the average daily net assets of each Portfolio for its services.
The Company intends to solicit shareholders of each Portfolio for a change in
the fee to 0.60% of the average daily net assets of each Portfolio to be
effective August 1, 1996. Any change in the fee is subject to the approval of
the shareholders.
Portfolio Management. Kevin M. Means is the lead portfolio manager for the
Generation Portfolios and has been responsible for determining the allocation
of each Portfolio's investments among the seven asset classes described under
"Investment Strategies" since their inception in July 1995. Mr. Means joined
ALIAC in July of 1994 after serving as Chief Investment Officer at INVESCO
Management and Research, Boston from 1993 to 1994. He also served from 1987
to 1993 as the Director of Quantitative Research and Equity Portfolio Manager
at INVESCO Capital Management, Atlanta. At INVESCO, Mr. Means managed mutual
funds and institutional accounts. Mr. Means is responsible for the selection
of securities for the Generation Portfolios in the Large Capitalization
Stocks class.
The following individuals are responsible for the selection of securities for
the Generation Portfolios in each of the asset classes other than the Large
Capitalization Stock class:
Vince Fioramonti, International Stocks and International Bonds, joined ALIAC
in 1994 after serving as Vice President for The Travelers Investment
Management Company. He began his investment career with Travelers in 1988.
Yaniv Tepper, Real Estate Stocks, joined ALIAC in early 1994 as an Associate
in the Real Estate Investments Group. Prior to joining ALIAC, Mr. Tepper
consulted in the area of real estate finance, valuations, and asset
restructuring.
Donald Townswick, Small Capitalization Stocks, joined ALIAC in July of 1994
after serving as Vice President at INVESCO Management and Research, Boston.
Mr. Townswick was at INVESCO from 1992 to 1994. Prior to his position at
INVESCO, he was an engineer in the Aerospace Industry with Rockwell
International and Douglas Aircraft Company.
Jeanne Wong-Boehm, Money Market Investments, joined ALIAC in 1983 as a fixed
income portfolio analyst, and shortly thereafter assumed portfolio
responsibilities for various general account segments within
12 Aetna Generation Portfolios, Inc.
<PAGE>
the Aetna group of companies. In 1989 she was also assigned primary
responsibility for the money market operations.
Karen Powell, U.S. Dollar Bonds, joined ALIAC in August of 1994 after serving
as an Investment Associate with the Investment Strategy and Policy Group and
as a Fixed Income Analyst in the Fixed Income Quantitative Research Area at
Aetna Life and Casualty Company (Aetna). She began her career with Aetna in
1989.
Expenses and Fund Administration Under an Administrative Services Agreement
with the Fund, ALIAC provides all administrative services necessary for the
Fund's operations and is responsible for the supervision of the Fund's other
service providers. ALIAC also assumes all ordinary recurring direct costs of
the Fund, such as custodian fees, directors fees, transfer agency costs and
accounting expenses. For the services provided under the Administrative
Services Agreement, ALIAC receives an annual fee, payable monthly, at a rate
of 0.15% of the average daily net assets of the Fund.
SALE AND REDEMPTION OF SHARES
Purchases and redemptions of shares may be made only by insurance companies
for their separate accounts at the direction of Participants. Please refer to
the prospectus for your contract or policy for information on how to direct
investments in or redemptions from a Portfolio and any fees that may apply.
Generally, insurance companies aggregate orders received from Participants
during a day and place an order to purchase or redeem the net number of
shares during the night. Orders are generally executed at the net asset value
per share ("NAV") determined at the end of the previous business day. The
Portfolios reserve the right to suspend the offering of shares, or to reject
any specific purchase order. The Portfolios may suspend redemptions or
postpone payments when the New York Stock Exchange is closed or when trading
is restricted for any reason (other than weekends or holidays) or under
emergency circumstances as determined by the SEC.
NET ASSET VALUE
The NAV of each Portfolio is determined as of 4:15 p.m. New York time on each
day that the New York Stock Exchange is open for trading. Each Portfolio's
NAV is computed by taking the total value of a Portfolio's securities, plus
any cash or other assets (including dividends and interest accrued but not
collected) and subtracting all liabilities (including accrued expenses), and
dividing the total by the number of shares outstanding. Portfolio securities
are valued primarily by independent pricing services, based on market
quotations. Short-term debt instruments maturing in less than 60 days are
valued at amortized cost. Securities for which market quotations are not
readily available, are valued at their fair value in such manner as may be
determined under the authority of the Directors.
GENERAL INFORMATION
Incorporation The Company was incorporated under the laws of Maryland on
October 14, 1994.
Capital Stock The Company is authorized to issue two billion shares of
capital stock, par value $0.001 per share. All shares are nonassessable,
transferable and redeemable. There are no preemptive rights.
Shareholder Meetings The Company is not required and does not intend to hold
annual shareholder meetings. The Company's Articles of Incorporation provide
for meetings of shareholders to elect Directors at such times as may be
determined by the Directors or as required by the 1940 Act. If requested by
the holders of at least 10% of the Company's outstanding shares, the Company
will hold a shareholder meeting for the purpose of voting on the removal of
one or more Directors and will assist with communication concerning that
shareholder meeting.
Voting Rights Each share of the Company is entitled to one vote for each full
share and fractional votes for fractional shares. Separate votes are taken by
Portfolio only if the matter affects or requires the vote of only that
Portfolio. The insurance companies holding the shares in their separate
accounts will gen-
Aetna Generation Portfolios, Inc. 13
<PAGE>
erally request voting instructions from the Participants and generally must
vote the shares in proportion to the voting instructions received. Voting
rights for VA Contracts and VLI Policies are discussed in the prospectus for
the applicable contract or policy.
TAX MATTERS
Each Portfolio intends to continue to qualify as a regulated investment
company by satisfying the requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), including requirements with
respect to diversification of assets, distribution of income and sources of
income. As a regulated investment company, a Portfolio generally will not be
subject to tax on its ordinary income and net realized capital gains.
Each Portfolio also intends to comply with the diversification requirements
of Section 817(h) of the Code for variable annuity contracts so that the
Participants should not be subject to federal tax on distributions of
dividends and income from a Portfolio to the insurance company separate
accounts. Participants should review the prospectus for their VA Contract or
VLI Policy for information regarding the tax consequences to them of
purchasing a contract or policy.
14 Aetna Generation Portfolios, Inc.
<PAGE>
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
Banker's Acceptance A time draft drawn on and accepted by a bank, customarily
used by corporations as a means of financing payment for traded goods. When a
draft is accepted by a bank, the bank guarantees to pay the face value of the
debt at maturity.
Call Option The right to buy a security, currency or stock index at a stated
price, or strike price, within a fixed period. A call option will be
exercised if the market price rises above the strike price; if not, the
option expires worthless.
Certificates of Deposit For large deposits not withdrawable on demand, banks
issue certificates of deposit ("CDs") as evidence of ownership. CDs are
usually negotiable and traded among investors such as mutual funds and banks.
Collateralized Mortgage Obligations (CMOs) Mortgage-backed bonds that
separate mortgage pools into various classes or tranches in a predetermined,
specified order such as short-, medium-, and long-term portions.
Commercial Paper Unsecured short-term debt instruments issued by banks,
corporations or other borrowers with a maturity ranging from two to 270 days.
Convertible Securities Corporate securities (usually bonds or preferred
stock) that can be exchanged for a set number of shares of another security,
usually common stock.
Depositary Receipts Negotiable certificates evidencing ownership of shares of
a non-U.S. corporation, government, or foreign subsidiary of a U.S.
Corporation. A U.S. bank typically issues depositary receipts, which are
backed by ordinary shares that remain on deposit with a custodian bank in the
issuer's home market. A depositary receipt can either be "sponsored" by the
issuing company or established without the involvement of the company, which
is referred to as "unsponsored."
Forward Contracts A purchase or sale of a specific quantity of a commodity,
government security, foreign currency, or other financial instrument at the
current price, with delivery and settlement at a specified future date.
Futures Contracts An agreement to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated
future date. A futures contract obligates the buyer to purchase and the
seller to sell, unlike an option where one party can choose whether or not to
exercise the option.
High Risk, High-Yield Securities debt instruments rated BB or below by
Standard & Poor's Corporation or Ba or below by Moody's Investors Service,
Inc., or securities of comparable ratings by other agencies or, if unrated,
considered by the Investment Adviser to be of comparable quality. These
securities are often called "junk bonds" because of the greater possibility
of default.
Preferred Stock Stock which has a preference over common stock, whether as to
payment of dividends or to assets on liquidation. It ordinarily pays a fixed
dividend.
Primary Capital Ratio The ratio used to evaluate the credit worthiness of
foreign banks which is based on the ratio of total assets to the common and
preferred stock, loan loss reserves, minority interests and mandatory
convertibles.
Put Option The right to sell a security, currency or stock index at a stated
price, or strike price, within a fixed period. A put option will be exercised
if the market price falls below the strike price; if not, the option expires
worthless.
Swap An exchange of one security for another. A swap may be executed to
change the maturities of a bond portfolio or the quality of the issues in a
stock or bond portfolio.
Aetna Generation Portfolios, Inc. 15
<PAGE>
Variable Rate Instruments An instrument the terms of which provide for the
adjustment of its interest rate on set dates and which can reasonably be
expected to have a market value close to par value.
Warrants A security, normally offered with bonds or preferred stock, that
entitles the holder to buy shares of stock at a prescribed price within a
named or stated period, or to perpetuity. The time period is usually longer
than that of a call option.
When-Issued and Delayed-Delivery Transactions When-issued is a transaction
that is made as of a current date, but conditioned on the actual issuance of
a security that is authorized but not yet issued. A delayed-delivery
transaction is one where both parties agree that the security will be
delivered and the transaction completed at a future date.
Yankee Bonds A dollar denominated bond issued in the United States by foreign
corporations and banks. Similarly, Yankee CDs are issued in the U.S. by
branches and agencies of foreign banks.
16 Aetna Generation Portfolios, Inc.
<PAGE>
APPENDIX B
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Service, Inc.
"Aaa" Rating Bonds rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
"Aa" Rating Bonds rated Aa are judged to be of high-quality by all standards.
Together with the Aaa group, they are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat greater than in Aaa securities.
"A" Rating Bonds rated A possess many favorable investment attributes and are
considered upper-medium-grade obligations. Factors relating to security of
principal and interest are considered adequate but elements may be present
which suggest possible impairment sometime in the future.
"Baa" Rating Bonds rated Baa are considered medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and have speculative characteristics.
"Ba" Rating Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes this class of bond.
"B" Rating Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its rating
category.
Standard & Poor's Corporation
"AAA" Rating Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
"AA" Rating Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
"A" Rating Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB" Rating Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB" Rating Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, the bonds face major uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
Aetna Generation Portfolios, Inc. 17
<PAGE>
"B" Rating Bonds rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal.
The ratings from "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
18 Aetna Generation Portfolios, Inc.
<PAGE>
Statement of Additional Information dated: May 1, 1996
AETNA GENERATION
PORTFOLIOS, INC.
151 Farmington Avenue
Hartford, Connecticut 06156-8962
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus for Aetna Generation
Portfolios, Inc. dated May 1, 1996.
A free prospectus is available upon request by writing to Aetna Generation
Portfolios, Inc. at the address listed above or calling 1-800-525-4225.
Read the prospectus before you invest.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
General Information and History 2
Additional Investment Restrictions and Policies of the Generation Portfolios 2
Description of Various Securities and Investment Techniques 4
Directors and Officers of the Company 17
Control Persons and Principal Shareholders 20
Investment Advisory Agreement 21
Administrative Services Agreement 22
Custodian 22
Independent Auditors 22
Brokerage Allocation and Trading Policies 22
Description of Shares 24
Sale and Redemption of Shares 24
Net Asset Value 24
Tax Status 24
Voting Rights 30
Financial Statements F-1
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Generation Portfolios, Inc. (the "Company") was incorporated in 1994 in
Maryland. The Company is an open-end diversified management investment
company. The Company is authorized to issue multiple series of shares, each
representing a diversified portfolio of investments with different investment
objectives, policies and restrictions (individually, a "Portfolio" and
collectively, the "Portfolios"). The Company currently has authorized three
series: Aetna Ascent Variable Portfolio (Aetna Ascent); Aetna Crossroads
Variable Portfolio (Aetna Crossroads); and Aetna Legacy Variable Portfolio
(Aetna Legacy).
The investment objective and general investment policies of each Portfolio
are described in the Prospectus.
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES OF THE GENERATION PORTFOLIOS
The investment policies and restrictions of the Portfolios, set forth below,
are matters of fundamental policy for purposes of the Investment Company Act
of 1940 (the "1940 Act") and therefore cannot be changed, with regard to a
particular Portfolio, without the approval of a majority of the outstanding
voting securities of that Portfolio as defined by the 1940 Act. This means
the lesser of: (i) 67% of the shares of a Portfolio present at a
shareholders' meeting if the holders of more than 50% of the shares of that
Portfolio then outstanding are present in person or by proxy; or (ii) more
than 50% of the outstanding voting securities of a Portfolio.
As a matter of fundamental policy, the Portfolios will not:
(1) hold more than 5% of the value of its total assets in the securities of
any one issuer or hold more than 10% of the outstanding voting
securities of any one issuer; this restriction applies only to 75% of
the value of a Portfolio's total assets; securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities are excluded
from this restriction;
(2) concentrate its investments in any one industry, except that a Portfolio
may invest up to 25% of its total assets in securities issued by
companies principally engaged in any one industry. For purposes of this
restriction, finance companies will be classified as separate industries
according to the end user of their services, such as automobile finance,
computer finance and consumer finance. In addition, for purposes of this
restriction, real estate stocks will be classified as separate
industries according to property type, such as apartment, retail, office
and industrial. This limitation will not, however, apply to securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities;
(3) make loans, except that, to the extent appropriate under its investment
program, a Portfolio may (a) purchase bonds, debentures or other debt
securities, including short-term obligations; (b) enter into repurchase
transactions; and (c) lend portfolio securities provided that the value
of such loaned securities does not exceed one-third of the Portfolio's
total assets;
(4) issue any senior security (as defined in the 1940 Act), except that (a)
a Portfolio may enter into commitments to purchase securities in
accordance with that Portfolio's investment program, including reverse
repurchase agreements, delayed delivery and when-issued securities,
which may be considered the issuance of senior securities; (b) a
Portfolio may engage in transactions that may result in the issuance of
a senior security to the extent permitted under applicable regulations,
interpretations of the 1940 Act or an exemptive order; (c) a Portfolio
may engage in short sales of securities to the extent permitted in its
investment program and other restrictions; (d) the purchase or sale of
futures contracts and related options shall not be considered to involve
the issuance of senior securities; and (e) subject to fundamental
restrictions, a Portfolio may borrow money as authorized by the 1940
Act;
(5) purchase real estate, interests in real estate or real estate limited
partnership interests except that: (a) to the extent appropriate under
its investment program, a Portfolio may invest in securities
2 Aetna Generation Portfolios, Inc.
<PAGE>
secured by real estate or interests therein or issued by companies,
including real estate investment trusts, which deal in real estate or
interests therein; or (b) a Portfolio may acquire real estate as a
result of ownership of securities or other interests (this could occur
for example if a Portfolio holds a security that is collateralized by an
interest in real estate and the security defaults);
(6) invest in commodity contracts, except that a Portfolio may, to the
extent appropriate under its investment program, purchase securities of
companies engaged in such activities; may enter into transactions in
financial and index futures contracts and related options; may engage in
transactions on a when-issued or forward commitment basis; and may enter
into forward currency contracts;
(7) borrow money, except that (a) a Portfolio may enter into certain futures
contracts and options related thereto; (b) a Portfolio may enter into
commitments to purchase securities in accordance with that Portfolio's
investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, a Portfolio may borrow money in amounts not
exceeding 5% of the value of its total assets at the time the loan is
made; and (d) for purposes of leveraging, a Portfolio may borrow money
from banks (including its custodian bank) only if, immediately after
such borrowing, the value of that Portfolio's assets, including the
amount borrowed, less its liabilities, is equal to at least 300% of the
amount borrowed, plus all outstanding borrowings. If, at any time, the
value of that Portfolio's assets fails to meet the 300% asset coverage
requirement relative only to leveraging, that Portfolio will, within
three days (not including Sundays and holidays), reduce its borrowings
to the extent necessary to meet the 300% test; or
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by a Portfolio,
that Portfolio may be deemed to be an underwriter under the provisions
of the Securities Act of 1933, as amended (the "1933 Act").
The Company has also adopted certain other investment restrictions reflecting
the current investment practices of the Portfolios which may be changed by
the Company's directors and without shareholder vote. Some of these
restrictions are described in the prospectus. In addition, the Portfolios
will not:
(1) make short sales of securities, other than short sales "against the
box," or purchase securities on margin except for short-term credits
necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures
contracts and related options, in the manner otherwise permitted by the
investment restrictions, policies and investment programs of each
Portfolio, as described here and in the prospectus;
(2) invest in companies for the purpose of exercising control or management;
(3) purchase the securities of any other investment company, except as
permitted under the 1940 Act;
(4) purchase interests in oil, gas or other mineral exploration programs;
however, this limitation will not prohibit the acquisition of securities
of companies engaged in the production or transmission of oil, gas, or
other minerals; or
(5) invest more than 15% of its total assets in illiquid securities.
Illiquid securities are securities that are not readily marketable or
cannot be disposed of promptly within seven days and in the usual course
of business without taking a materially reduced price. Such securities
include, but are not limited to, time deposits and repurchase agreements
with maturities longer than seven days. Securities that may be resold
under Rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended, shall not be deemed illiquid solely
by reason of being unregistered. The Investment Adviser shall determine
whether a particular security is deemed to be liquid based on the
trading markets for the specific security and other factors.
Where a Portfolio's investment objective or policies restrict it to a
specified percentage of its total assets in any type of instrument, that
percentage is measured at the time of purchase. There will be no violation
Aetna Generation Portfolios, Inc. 3
<PAGE>
of any investment policy or restriction if that restriction is complied with
at the time the relevant action is taken, notwithstanding a later change in
the market value of an investment, in net or total assets, in the securities
rating of the investment or any other change.
DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES
Options, Futures and Other Derivative Instruments
The Portfolios may use derivative instruments as described in the prospectus
under "Investment Techniques." The following provides additional information
about these instruments.
Futures Contracts--Each Portfolio may enter into futures contracts as
described in the prospectus. A Portfolio may enter into futures contracts
which are traded on national futures exchanges and are standardized as to
maturity date and underlying financial instrument. The futures exchanges and
trading in the United States are regulated under the Commodity Exchange Act
by the Commodities Futures Trading Commission (the "CFTC").
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific commodity, financial
instrument(s) or a specific stock market index for a specified price at a
designated date and time. Brokerage fees are incurred when a futures contract
is bought or sold and at expiration, and margin deposits must be maintained.
Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments or commodities, those
contracts are usually closed out before the delivery date. Stock index
futures contracts do not contemplate actual future delivery and will be
settled in cash at expiration or closed out prior to expiration. Closing out
an open futures contract sale or purchase is effected by entering into an
offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the identical type of underlying instrument and the same
delivery date. There can be no assurance, however, that a Portfolio will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If a Portfolio is not able to enter into an
offsetting transaction, it will continue to be required to maintain the
margin deposits on the contract.
The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates and equities
prices, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.
When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the securities being
hedged can be only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand
for futures and for securities, including technical influences in futures
trading, and differences between the financial instruments being hedged and
the instruments underlying the standard futures contracts available for
trading. Even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or stock market or interest rate
trends.
Most United States futures exchanges limit the amount of fluctuation
permitted in interest rate futures contract prices during a single trading
day, and temporary regulations limiting price fluctuations for stock index
futures contracts are also now in effect. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading
session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of futures
positions and subjecting some persons engaging in futures transactions to
substantial losses.
4 Aetna Generation Portfolios, Inc.
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Sales of futures contracts which are intended to hedge against a change in
the value of securities held by a Portfolio may affect the holding period of
such securities and, consequently, the nature of the gain or loss on such
securities upon disposition.
"Margin" is the amount of funds that must be deposited by a Portfolio with a
commodities broker in a custodian account in order to initiate futures
trading and to maintain open positions in a Portfolio's futures contracts. A
margin deposit is intended to assure the Portfolio's performance of the
futures contract. The margin required for a particular futures contract is
set by the exchange on which the contract is traded and may be significantly
modified from time to time by the exchange during the term of the contract.
If the price of an open futures contract changes (by increase in the case of
a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not
satisfy margin requirements, the broker will require an increase in the
margin. However, if the value of a position increases because of favorable
price changes in the futures contract so that the margin deposit exceeds the
required margin, the broker will promptly pay the excess to a Portfolio.
These daily payments to and from a Portfolio are called variation margin. At
times of extreme price volatility such as occurred during the week of October
19, 1987, intra-day variation margin payments may be required. In computing
daily net asset values, each Portfolio will mark to market the current value
of its open futures contracts. Each Portfolio expects to earn interest income
on its initial margin deposits. Furthermore, in the case of a futures
contract purchase, each Portfolio has deposited in a segregated account money
market instruments sufficient to meet all futures contract initial margin
requirements.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, small price movements in
futures contracts may result in immediate and potentially unlimited loss or
gain to a Portfolio relative to the size of the margin commitment. For
example, if at the time of purchase 10% of the value of the futures contract
is deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit before any
deduction for the transaction costs, if the contract were then closed out. A
15% decrease in the value of the futures contract would result in a loss
equal to 150% of the original margin deposit, if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount initially invested in the futures contract. However, a
Portfolio would presumably have sustained comparable losses if, instead of
the futures contract, it had invested in the underlying financial instrument
and sold it after the decline.
A Portfolio can enter into options on futures contracts. See "Covered Call
and Put Options" below. The risk involved in writing options on futures
contracts or market indices is that there could be an increase in the market
value of such contracts or indices. If that occurred, the option would be
exercised and the Portfolio involved would not benefit from any increase in
value above the exercise price. Usually, this risk can be eliminated by
entering into an offsetting transaction. However, the cost to do an
offsetting transaction and terminate the Portfolio's obligation might be more
or less than the premium received when it originally wrote the option.
Further, the Portfolio might occasionally not be able to close the option
because of insufficient activity in the options market.
Covered Call and Put Options--Each Portfolio may write (sell) covered call
options and purchase put options and may purchase call and sell put options
including options on securities, indices and futures as discussed in the
prospectus and in this Section. A call option gives the holder (buyer) the
right to buy and to obligate the writer (seller) to sell a security or
financial instrument at a stated price (strike price) at any time until a
designated future date when the option expires (expiration date). A put
option gives the holder (buyer) the right to sell and to obligate the writer
(seller) to purchase a security or financial instrument at a stated price at
any time until the expiration date. A Portfolio may write or purchase put or
call options listed on national securities exchanges in standard contracts or
may write or purchase put or call options with or directly from investment
dealers meeting the creditworthiness criteria of the Investment Adviser.
Aetna Generation Portfolios, Inc. 5
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So long as the obligation of the writer of a call option continues, the
writer may be assigned an exercise notice by the broker-dealer through which
such option was settled, requiring the writer to deliver the underlying
security against payment of the exercise price. This obligation terminates
upon the expiration of the call option, by the exercise of the call option,
or by entering into an offsetting transaction. To secure the writer's
obligation to deliver the underlying security, a writer of a call option is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the clearing corporations and of the exchanges.
A Portfolio will only write a call option on a security which it already owns
and will not write call options on when-issued securities.
When writing a call option, in return for the premium, the writer gives up
the opportunity to profit from the price increase in the underlying security
above the exercise price, but conversely retains the risk of loss should the
price of the security decline. If a call option expires unexercised, the
writer will realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying security
during the option period. If the call option is exercised, the writer would
realize a gain or loss from the transaction depending on what it received
from the call and what it paid for the underlying security.
In the case of a put option, as long as the obligation of the put writer
continues, it may be assigned an exercise notice by the broker-dealer through
which such option was sold, requiring the writer to take delivery of the
underlying security against payment of the exercise price. A writer has no
control over when it may be required to purchase the underlying security,
since it may be assigned an exercise notice at any time prior to the
expiration date. This obligation terminates earlier if the writer effects a
closing purchase transaction by purchasing a put of the same series as that
previously sold.
To secure its obligation to pay for the underlying security, the writer of a
put generally must deposit in escrow liquid assets with a value equal to or
greater than the exercise price of the put option. The writer therefore
foregoes the opportunity of investing the segregated assets or writing calls
against those assets. A Portfolio may write put options on debt securities or
futures, only if such puts are covered by segregated liquid assets.
In writing puts, there is the risk that a writer may be required to buy the
underlying security at a disadvantageous price. Writing a put covered by
segregated liquid assets equal to the exercise of the put has the same
economic effect as writing a covered call option. The premium the writer
receives from writing a put option represents a profit, as long as the price
of the underlying instrument remains above the exercise price; however, if
the put is exercised, the writer is obligated during the option period to buy
the underlying instrument from the buyer of the put at the exercise price,
even though the value of the investment may have fallen below the exercise
price. If the put lapses unexercised, the writer realizes a gain in the
amount of the premium, the writer may incur a loss, equal to the difference
between the exercise price and the current market value of the underlying
instrument.
A Portfolio may purchase put options when the Investment Adviser believes
that a temporary defensive position is desirable in light of market
conditions, but does not desire to sell a portfolio security. The purchase of
put options for these purposes may be used to protect a Portfolio's holdings
in an underlying security against a substantial decline in market value. Such
protection is, of course, only provided during the life of the put option
when a Portfolio, as the holder of the put option, is able to sell the
underlying security at the put exercise price regardless of any decline in
the underlying security's market price. By using put options in this manner,
a Portfolio will reduce any profit it might otherwise have realized in its
underlying security by the premium paid for the put option and by transaction
costs. The security covering the call or put option will be segregated at the
Portfolio's custodian.
The premium received from writing a call or put option, or paid for
purchasing a call or put option will reflect, among other things, the current
market price of the underlying security, the relationship of the exercise
price to such market price, the historical price volatility of the underlying
security, the length of the option period, and the general interest rate
environment. The premium received by a Portfolio for writing call options
will be recorded as a liability in the statement of assets and liabilities of
that Portfolio. This liability
6 Aetna Generation Portfolios, Inc.
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will be adjusted daily to the option's current market value. The liability
will be extinguished upon expiration of the option, by the exercise of the
option, or by entering into an offsetting transaction. Similarly, the premium
paid by a Portfolio when purchasing a put option will be recorded as an asset
in the statement of assets and liabilities of that Portfolio. This asset will
be adjusted daily to the option's current market value. The asset will be
extinguished upon expiration of the option, by selling an identical option in
a closing transaction, or by exercising the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security from being
called or put, or to permit the exchange or tender of the underlying
security. Furthermore, effecting a closing transaction will permit a
Portfolio to write another call option, or purchase another put option, on
the underlying security with either a different exercise price or expiration
date or both. If a Portfolio desires to sell a particular security from its
portfolio on which it has written a call option, or purchased a put option,
it will seek to effect a closing transaction prior to, or concurrently with,
the sale of the security. There is, of course, no assurance that a Portfolio
will be able to effect a closing transaction at a favorable price. If a
Portfolio cannot enter into such a transaction, it may be required to hold a
security that it might otherwise have sold, in which case it would continue
to be at market risk on the security. A Portfolio will pay brokerage
commissions in connection with the sale or purchase of options to close out
previously established option positions. Such brokerage commissions are
normally higher as a percentage of underlying asset values than those
applicable to purchases and sales of portfolio securities.
The exercise price of an option may be below, equal to, or above the current
market value of the underlying security at the time the option is written.
From time to time, a Portfolio may purchase an underlying security for
delivery in accordance with an exercise notice of a call option assignment,
rather than delivering such security from its portfolio. In such cases
additional brokerage commissions will be incurred.
A Portfolio will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option; however, any loss so incurred in a closing
purchase transaction may be partially or entirely offset by the premium
received from a simultaneous or subsequent sale of a different option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in
part by appreciation of the underlying security owned by a Portfolio. Any
profits from writing covered call options are considered short-term gain for
federal income tax purposes and, when distributed by a Portfolio, are taxable
as ordinary income.
Foreign Futures Contracts and Foreign Options--The Portfolios may engage in
transactions in foreign futures contracts and foreign options. Participation
in foreign futures contracts and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign
board of trade. Neither the CFTC, the National Futures Association ("NFA")
nor any domestic exchange regulates activities of any foreign boards of trade
including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign laws. Generally, the foreign transaction will be governed
by applicable foreign law. This is true even if the exchange is formally
linked to a domestic market so that a position taken on the market may be
liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures contracts or foreign options transaction occurs. Investors that trade
foreign futures contracts or foreign options contracts may not be afforded
certain of the protective measures provided by domestic exchanges, including
the right to use reparations proceedings before the CFTC and arbitration
proceedings provided by the NFA. In particular, funds received from customers
for foreign futures contracts or foreign options transactions may not be
provided the same protections as funds received for transactions on United
States futures exchanges. The price of any foreign futures contracts or
foreign options contract and, therefore, the potential profit and loss
thereon, may be affected by any variance in the foreign exchange rate between
the time an order is placed and the time it is liquidated, offset or
exercised.
Aetna Generation Portfolios, Inc. 7
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Options on Foreign Currencies--Each Portfolio may write and purchase calls on
foreign currencies. A Portfolio may purchase and write puts and calls on
foreign currencies that are traded on a securities or commodities exchange or
quoted by major recognized dealers in such options for the purpose of
protecting against declines in the dollar value of foreign securities and
against increases in the dollar cost of foreign securities to be acquired. If
a rise is anticipated in the dollar value of a foreign currency in which
securities to be acquired are denominated, the increased cost of such
securities may be partially offset by purchasing calls or writing puts on
that foreign currency. If a decline in the dollar value of a foreign currency
is anticipated, the decline in value of portfolio securities denominated in
that currency may be partially offset by writing calls or purchasing puts on
that foreign currency. In the event of rate fluctuations adverse to a
Portfolio's position, it would lose the premium it paid and transactions
costs. A call written on a foreign currency by a Portfolio is covered if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call may be written by a Portfolio
on a foreign currency to provide a hedge against a decline due to an expected
adverse change in the exchange rate in the U.S. dollar value of a security
which the Portfolio owns or has the right to acquire and which is denominated
in the currency underlying the option. This is a "cross-hedging" strategy. In
such circumstances, the Portfolio collateralizes the position by maintaining
in a segregated account with the Portfolio's custodian cash or U.S.
Government securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.
Forward Exchange Contracts--Each Portfolio may enter into forward contracts
for foreign currency ("forward exchange contracts"), which obligate the
seller to deliver and the purchaser to take a specific amount of a specified
foreign currency at a future date at a price set at the time of the contract.
These contracts are generally traded in the interbank market conducted
directly between currency traders and their customers. A Portfolio may enter
into a forward exchange contract in order to "lock in" the U.S. dollar price
of a security denominated in a foreign currency which it has purchased or
sold but which has not yet settled (a "transaction hedge"); or to lock in the
value of an existing portfolio security ( a "position hedge"); or to protect
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and a foreign currency. There is a risk that use of
forward exchange contracts may reduce the gain that would otherwise result
from a change in the relationship between the U.S. dollar and a foreign
currency. Forward exchange contracts include standardized foreign currency
futures contracts which are traded on exchanges and are subject to procedures
and regulations applicable to futures. Each Portfolio may also enter into a
forward exchange contract to sell a foreign currency which differs from the
currency in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign currency
of the forward exchange contract and the foreign currency of the underlying
investment than between the U.S. dollar and the foreign currency of the
underlying investment. This technique is referred to as "cross hedging." The
success of cross hedging is dependent on many factors, including the ability
of the Investment Adviser to correctly identify and monitor the correlation
between foreign currencies and the U.S. dollar. To the extent that the
correlation is not identical, a Portfolio may experience losses or gains on
both the underlying security and the cross currency hedge.
Each Portfolio may use forward exchange contracts to protect against
uncertainty in the level of future exchange rates. The use of forward
exchange contracts does not eliminate fluctuations in the prices of the
underlying securities the Portfolio owns or intends to acquire, but it does
fix a rate of exchange in advance. In addition, although forward exchange
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
There is no limitation as to the percentage of a Portfolio's assets that may
be committed to forward exchange contracts. The Portfolios will not enter
into a "cross hedge," unless it is denominated in a currency or currencies
that the Investment Adviser believes will have price movements that tend to
correlate closely with the currency in which the investment being hedged is
denominated.
8 Aetna Generation Portfolios, Inc.
<PAGE>
The Portfolios' custodian will place cash or U.S. Government securities or
other liquid high-quality debt securities in a separate account of each
Portfolio having a value equal to the aggregate amount of that Portfolio's
commitments under forward contracts entered into with respect to position
hedges and cross hedges. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of the Portfolio's commitments with respect to such contracts. As an
alternative to maintaining all or part of the separate account, a Portfolio
may purchase a call option permitting the Portfolio to purchase the amount of
foreign currency being hedged by a forward sale contract at a price no higher
than the forward contract price, or a Portfolio may purchase a put option
permitting the Portfolio to sell the amount of foreign currency subject to a
forward purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may result in poorer
overall performance for a Portfolio than if it had not entered into such
contracts.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value
of such securities in foreign currencies will change as a consequence of
market movements in the value of these securities between the date the
forward contract is entered into and the date it is sold. Accordingly, it may
be necessary for a Portfolio to purchase additional foreign currency on the
spot (i.e., cash) market (and bear the expense of such purchase), if the
market value of the security is less than the amount of foreign currency the
Portfolio is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received
upon the sale of the portfolio security if its market value exceeds the
amount of foreign currency the Portfolio is obligated to deliver. The
projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Portfolio to sustain
losses on these contracts and transactions costs.
At or before the maturity of a forward exchange contract requiring a
Portfolio to sell a currency, the Portfolio may either sell a portfolio
security and use the sale proceeds to make delivery of the currency or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Portfolio will obtain, on
the same maturity date, the same amount of the currency that it is obligated
to deliver. Similarly, a Portfolio may close out a forward contract requiring
it to purchase a specified currency by entering into a second contract
entitling it to sell the same amount of the same currency on the maturity
date of the first contract. The Portfolio would realize a gain or loss as a
result of entering into such an offsetting forward contract under either
circumstance to the extent the exchange rate(s) between the currencies
involved moved between the execution dates of the first contract and the
offsetting contract.
The cost to a Portfolio of engaging in forward exchange contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, a Portfolio
must evaluate the credit and performance risk of each particular counterparty
under a forward contract.
Although the Portfolios value their assets daily in terms of U.S. dollars,
they do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Portfolios may convert foreign currency from
time to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion, but
they do seek to realize a profit based on the difference between the prices
at which they buy and sell various currencies. Thus, a dealer may offer to
sell a foreign currency to the Portfolio at one rate, while offering a lesser
rate of exchange should the Portfolio desire to resell that currency to the
dealer.
Restrictions on the Use of Futures and Option Contracts--CFTC regulations
require that all short futures positions be entered into for the purpose of
hedging the value of securities held, and that all long futures positions
either constitute bona fide hedging transactions, as defined in such
regulations, or have
Aetna Generation Portfolios, Inc. 9
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a total value not in excess of an amount determined by reference to certain
cash and securities positions maintained, and accrued profits on such
positions. With respect to futures contracts or related options that are
entered into for purposes that may be considered speculative, the aggregate
initial margin for futures contracts and premiums for options will not exceed
5% of a Portfolio's net assets, after taking into account realized profits
and unrealized losses on such futures contracts.
A Portfolio's ability to engage in the hedging transactions described herein
may be limited by the current federal income tax requirement that a Portfolio
derive less than 30% of its gross income from the sale or other disposition
of stock or securities held for less than three months.
Interest Rate Swap Transactions--Swap agreements entail both interest rate
risk and credit risk. There is a risk that, based on movements of interest
rates in the future, the payments made by a Portfolio under a swap agreement
will have been greater than those received by it. Credit risk arises from the
possibility that the counterparty will default. If the counterparty to an
interest rate swap defaults, a Portfolio's loss will consist of the net
amount of contractual interest payments that a Portfolio has not yet
received. The Investment Adviser will monitor the creditworthiness of
counterparties to a Portfolio's interest rate swap transactions on an ongoing
basis. A Portfolio will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting
agreement provides that all swaps done between a Portfolio and that
counterparty under that master agreement shall be regarded as parts of an
integral agreement. If on any date amounts are payable in the same currency
in respect of one or more swap transactions, the net amount payable on that
date in that currency shall be paid. In addition, the master netting
agreement may provide that if one party defaults generally or on one swap,
the counterparty may terminate the swaps with that party. Under such
agreements, if there is a default resulting in a loss to one party, the
measure of that party's damages is calculated by reference to the average
cost of a replacement swap with respect to each swap (i.e., the
mark-to-market value at the time of the termination of each swap). The gains
and losses on all swaps are then netted, and the result is the counterparty's
gain or loss on termination. The termination of all swaps and the netting of
gains and losses on termination is generally referred to as "aggregation."
Additional Risk Factors in Using Derivatives--In addition to any risk factors
which may be described elsewhere in this section, or in the prospectus under
"Investment Techniques" and "Risk Factors and Other Considerations," the
following sets forth certain information regarding the potential risks
associated with a Portfolio's transactions in derivatives.
Risk of Imperfect Correlation--A Portfolio's ability to hedge effectively all
or a portion of its portfolio through transactions in futures, options on
futures or options on securities and indexes depends on the degree to which
movements in the value of the securities or index underlying such hedging
instrument correlate with movements in the value of the assets being hedged.
If the values of the assets being hedged do not move in the same amount or
direction as the underlying security or index, the hedging strategy for a
Portfolio might not be successful and the Portfolio could sustain losses on
its hedging transactions which would not be offset by gains on its portfolio.
It is also possible that there may be a negative correlation between the
security or index underlying a futures or option contract and the portfolio
securities being hedged, which could result in losses both on the hedging
transaction and the portfolio securities. In such instances, the Portfolio's
overall return could be less than if the hedging transactions had not been
undertaken. Stock index futures or options based on a narrower index of
securities may present greater risk than options or futures based on a broad
market index, as a narrower index is more susceptible to rapid and extreme
fluctuations resulting from changes in the value of a small number of
securities. The Portfolio would, however, effect transactions in such futures
or options only for hedging purposes (or to close out open positions).
The trading of futures and options on indices involves the additional risk of
imperfect correlation between movements in the futures or option price and
the value of the underlying index. The anticipated spread between the prices
may be distorted due to differences in the nature of the markets, such as
differences in margin requirements, the liquidity of such markets and the
participation of speculators in the futures
10 Aetna Generation Portfolios, Inc.
<PAGE>
and options market. The purchase of an option on a futures contract also
involves the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
The risk of imperfect correlation, however, generally tends to diminish as
the maturity date of the futures contract or termination date of the option
approaches. The risk incurred in purchasing an option on a futures contract
is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the
option and enter into the underlying futures contract in order to realize a
profit. Under certain extreme market conditions, it is possible that a
Portfolio will not be able to establish hedging positions, or that any
hedging strategy adopted will be insufficient to completely protect the
Portfolio.
The Portfolios will purchase or sell futures contracts or options for hedging
purposes, only if, in the Investment Adviser's judgment, there is expected to
be a sufficient degree of correlation between movements in the value of such
instruments and changes in the value of the assets being hedged for the hedge
to be effective. There can be no assurance that the Investment Adviser's
judgment will be accurate.
Potential Lack of a Liquid Secondary Market--The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures markets are subject to initial deposit and variation margin
requirements. This could require a Portfolio to post additional cash or cash
equivalents as the value of the position fluctuates. Rather than meeting
additional variation margin requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of
the futures or options market may be lacking. Prior to exercise or
expiration, a futures or option position may be terminated only by entering
into a closing purchase or sale transaction, which requires a secondary
market on the exchange on which the position was originally established.
While a Portfolio will establish a futures or option position only if there
appears to be a liquid secondary market therefor, there can be no assurance
that such a market will exist for any particular futures or option contract
at any specific time. In such event, it may not be possible to close out a
position held by the Portfolio, which could require the Portfolio to purchase
or sell the instrument underlying the position, make or receive a cash
settlement, or meet ongoing variation margin requirements. The inability to
close out futures or option positions also could have an adverse impact on
the Portfolio's ability effectively to hedge its portfolio, or the relevant
portion thereof.
The liquidity of a secondary market in a futures contract or an option on a
futures contract may be adversely affected by "daily price fluctuation
limits" established by the exchanges, which limit the amount of fluctuation
in the price of a contract during a single trading day and prohibit trading
beyond such limits once they have been reached. The trading of futures and
options contracts also is subject to the risk of trading halts, suspensions,
exchange or clearing house equipment failures, government intervention,
insolvency of the brokerage firm or clearing house or other disruptions of
normal trading activity, which could at times make it difficult or impossible
to liquidate existing positions or to recover excess variation margin
payments.
Risk of Predicting Interest Rate Movements--Investments in futures contracts
on fixed income securities and related indices involve the risk that if the
Investment Adviser's judgment concerning the general direction of interest
rates is incorrect, a Portfolio's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Portfolio has
been hedged against the possibility of an increase in interest rates which
would adversely affect the price of bonds held in its portfolio and interest
rates decrease instead, the Portfolio will lose part or all of the benefit of
the increased value of its bonds which have been hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Portfolio has insufficient cash, it may have to sell bonds from its
portfolio to meet daily variation margin requirements, possibly at a time
when it may be disadvantageous to do so. Such sale of bonds may be, but will
not necessarily be, at increased prices which reflect the rising market.
Aetna Generation Portfolios, Inc. 11
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Trading and Position Limits--Each contract market on which futures and option
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting
alone or in concert with others. The Investment Adviser does not believe that
these trading and position limits will have an adverse impact on the hedging
strategies regarding the Generation Portfolios.
Repurchase Agreements
Each Portfolio may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards
established by the Company's Board of Directors. A repurchase agreement
allows a Portfolio to determine the yield during the Portfolio's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. Such underlying debt instruments serving as
collateral will meet the quality standards of a Portfolio. The market value
of the underlying debt instruments will, at all times, be equal to the dollar
amount invested. Repurchase agreements, although fully collateralized,
involve the risk that the seller of the securities may fail to repurchase
them from a Portfolio. In that event, a Portfolio may incur (a) disposition
costs in connection with liquidating the collateral, or (b) a loss if the
collateral declines in value. Also, if the default on the part of the seller
is due to insolvency and the seller initiates bankruptcy proceedings, a
Portfolio's ability to liquidate the collateral may be delayed or limited.
Under the 1940 Act, repurchase agreements are considered loans by a
Portfolio. Repurchase agreements maturing in more than seven days will not
exceed 10 percent of the total assets of a Portfolio.
Variable Rate Demand Instruments
Variable rate demand instruments (including floating rate instruments) held
by a Portfolio may have maturities of more than one year, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding one year, upon giving the prescribed notice
(which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals not to exceed one year. In
determining whether a variable rate demand instrument has a remaining
maturity of one year or less, each instrument will be deemed to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. A Portfolio will be able (at any time or during
specified periods not exceeding one year, depending upon the note involved)
to demand payment of the principal of a note. If an issuer of a variable rate
demand note defaulted on its payment obligation, a Portfolio might be unable
to dispose of the note and a loss would be incurred to the extent of the
default. A Portfolio may invest in variable rate demand notes only when the
investment is deemed to involve minimal credit risk. The continuing
creditworthiness of issuers of variable rate demand notes held by a Portfolio
will also be monitored to determine whether such notes should continue to be
held. Variable and floating rate instruments with demand periods in excess of
seven days and which cannot be disposed of promptly within seven business
days and in the usual course of business without taking a reduced price will
be treated as illiquid securities that are subject to the Portfolio's
policies and restrictions on illiquid securities.
Securities Lending
The Portfolios can lend securities in its portfolio subject to the following
conditions: (a) the borrower will provide at least 100% collateral throughout
the life of the loan; (b) loans will be made subject to the rules of the New
York Stock Exchange; (c) the loan collateral will be either cash or direct
obligations of the U.S. government or agencies thereof; (d) cash collateral
will be invested only in highly liquid short-term investments; (e) during the
existence of a loan, a Portfolio will continue to receive any distributions
paid on the borrowed securities or amounts equivalent thereto; and (f) no
more than one-third of the net assets of a Portfolio will be on loan at any
one time. A loan may be terminated at any time by the borrower or lender upon
proper notice.
In the Investment Adviser's opinion, lending portfolio securities to
qualified broker-dealers affords a Portfolio a means of increasing the yield
on its portfolio. A Portfolio will be entitled either to receive a fee from
the borrower or to retain some or all of the income derived from its
investment of cash collateral. A Portfolio
12 Aetna Generation Portfolios, Inc.
<PAGE>
will continue to receive the interest or dividends paid on any securities
loaned, or amounts equivalent thereto. Although voting rights will pass to
the borrower of the securities, whenever a material event affecting the
borrowed securities is to be voted on, the Investment Adviser will regain or
direct the vote with respect to loaned securities.
The primary risk a Portfolio assumes in loaning securities is that the
borrower may become insolvent on a day on which the loaned security is
rapidly increasing in price. In such event, if the borrower fails to return
the loaned securities, the existing collateral might be insufficient to
purchase back the full amount of the security loaned, and the borrower would
be unable to furnish additional collateral. The borrower would be liable for
any shortage, but a Portfolio would be an unsecured creditor as to such
shortage and might not be able to recover all or any of it.
Foreign Securities
Investments in securities of foreign issuers, including futures and options
contracts, offer potential benefits not available solely through investment
in securities of domestic issuers. Foreign securities offer the opportunity
to invest in foreign issuers that appear to offer growth potential, or in
foreign countries with economic policies or business cycles different from
those of the United States, or to reduce fluctuations in portfolio value by
taking advantage of foreign stock markets that may not move in a manner
parallel to U.S. markets. Investments in securities of foreign issuers
involve certain risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include fluctuations in exchange
rates, adverse foreign political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions. Since the Portfolios may invest in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates will affect the value of securities in the portfolio and the
unrealized appreciation or depreciation of investments so far as U.S.
investors are concerned. In addition, with respect to certain countries,
there is the possibility of expropriation of assets, confiscatory taxation,
political or social instability, or diplomatic developments that could
adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. issuers. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign issuers are less liquid and their
prices more volatile than securities of comparable U.S. issuers.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision
and regulation of exchanges, brokers, and issuers than there is in the United
States. The Company might have greater difficulty taking appropriate legal
action with respect to foreign investments in non-U.S. courts than with
respect to domestic issuers in U.S. courts. In addition, transactions in
foreign securities may involve greater time from the trade date until
settlement than domestic securities transactions and involve the risk of
possible losses through the holding of securities by custodians and
securities depositories in foreign countries.
Currently, direct investment in equity securities in China and Taiwan is
restricted, and investments may be made only through a limited number of
approved vehicles. At present this includes investment in listed and unlisted
investment companies, subject to limitations under the 1940 Act. Investment
in these closed-end funds may involve the payment of additional premiums to
acquire shares in the open-market and the yield of these securities will be
reduced by the operating expenses of such companies. In addition, an investor
should recognize that he will bear not only his proportionate share of the
expenses of the Portfolio, but also indirectly bear similar expenses of the
underlying closed-end fund. Also, as a result of a Portfolio's policy of
investing in closed-end mutual funds, investors in the Portfolio may receive
taxable capital gains distributions to a greater extent than if he or she had
invested directly in the underlying closed-end fund.
Dividend and interest income from foreign securities may generally be subject
to withholding taxes by the country in which the issuer is located and may
not be recoverable by a Portfolio or its investors.
Aetna Generation Portfolios, Inc. 13
<PAGE>
Depositary Receipts
Depositary receipts are typically dollar denominated, although their market
price is subject to fluctuations of the foreign currency in which the
underlying securities are denominated. Depositary receipts include: (a)
American Depositary Receipts (ADRs), which are typically designed for U.S.
investors and held either in physical form or in book entry form; (b)
European Depositary Receipts (EDRs), which are similar to ADRs but may be
listed and traded on a European exchange as well as in the United States.
Typically, these securities are traded on the Luxembourg exchange in Europe;
and (c) Global Depositary Receipts (GDRs), which are similar to EDRs although
they may be held through foreign clearing agents such as Euroclear and other
foreign depositories.
Mortgage-Related Debt Securities
Federal mortgage-related securities include obligations issued or guaranteed
by the Government National Mortgage Association (GNMA), the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). GNMA is a wholly owned corporate instrumentality of the United
States, the securities and guarantees of which are backed by the full faith
and credit of the United States. FNMA, a federally chartered and privately
owned corporation, and FHLMC, a federal corporation, are instrumentalities of
the United States with Presidentially-appointed board members. The
obligations of FNMA and FHLMC are not explicitly guaranteed by the full faith
and credit of the federal government.
Pass-through, mortgage-related securities are characterized by monthly
payments to the holder, reflecting the monthly payments made by the borrowers
who received the underlying mortgage loans. The payments to the security
holders, like the payments on the underlying loans, represent both principal
and interest. Although the underlying mortgage loans are for specified
periods of time, often twenty or thirty years, the borrowers can repay such
loans sooner. Thus, the security holders frequently receive repayments of
principal, in addition to the principal which is part of the regular monthly
payment. A borrower is more likely to repay a mortgage which bears a
relatively high rate of interest. This means that in times of declining
interest rates, some higher yielding securities held by a Portfolio might be
converted to cash, and the Portfolio could be expected to reinvest such cash
at the then prevailing lower rates. The increased likelihood of prepayment
when interest rates decline also limits market price appreciation of
mortgage-related securities. If a Portfolio buys mortgage-related securities
at a premium, mortgage foreclosures or mortgage prepayments may result in
losses of up to the amount of the premium paid since only timely payment of
principal and interest is guaranteed.
As noted in the Prospectus, the Portfolios may also invest in collateralized
mortgage obligations (CMOs) and real estate mortgage investment conduits
(REMICs). CMOs and REMICs are securities which are collateralized by mortgage
pass-through securities. Cash flows from underlying mortgages are allocated
to various classes or tranches in a predetermined, specified order. Each
sequential tranche has a "stated maturity"--the latest date by which the
tranche can be completely repaid, assuming no prepayments--and has an
"average life"--the average time to receipt of a principal payment weighted
by the size of the principal payment. The average life is typically used as a
proxy for maturity because the debt is amortized, rather than being paid off
entirely at maturity, as would be the case in a straight debt instrument.
CMOs and REMICs are typically structured as "pass-through" securities. In
these arrangements, the underlying mortgages are held by the issuer, which
then issues debt collateralized by the underlying mortgage assets. The
security holder thus owns an obligation of the issuer and payment of interest
and principal on such obligations is made from payments generated by the
underlying mortgage assets. The underlying mortgages may be guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
Government such as GNMA or otherwise backed by FNMA or FHLMC. Alternatively,
such securities may be backed by mortgage insurance, letters of credit or
other credit enhancing features. Both CMOs and REMICs are issued by private
entities. They are not directly guaranteed by any government agency and are
secured by the collateral held by the issuer.
Asset-Backed Securities
Asset-backed securities are collateralized by short-term loans such as
automobile loans, home equity loans, or credit card receivables. The payments
from the collateral are passed through to the security
14 Aetna Generation Portfolios, Inc.
<PAGE>
holder. As noted above with respect to CMOs and REMICs, the average life for
these securities is the conventional proxy for maturity. Asset-backed
securities may pay all interest and principal to the holder, or they may pay
a fixed rate of interest, with any excess over that required to pay interest
going either into a reserve account or to a subordinate class of securities,
which may be retained by the originator. The originator may guarantee
interest and principal payments. These guarantees often do not extend to the
whole amount of principal, but rather to an amount equal to a multiple of the
historical loss experience of similar portfolios.
Two varieties of asset-backed securities are CARs and CARDs. CARs are
securities, representing either ownership interests in fixed pools of
automobile receivables, or debt instruments supported by the cash flows from
such a pool. CARDs are participations in fixed pools of credit accounts.
These securities have varying terms and degrees of liquidity.
Asset-backed securities may be subject to the type of prepayment risk
discussed above due to the possibility that prepayments on the underlying
assets will alter the cash flow. Faster prepayments will shorten the
security's average life and slower prepayments will lengthen it.
The coupon rate of interest on mortgage-related and asset-backed securities
is lower than the interest rates paid on the mortgages included in the
underlying pool, by the amount of the fees paid to the mortgage pooler,
issuer, and/or guarantor. Actual yield may vary from the coupon rate,
however, if such securities are purchased at a premium or discount, traded in
the secondary market at a premium or discount, or to the extent that the
underlying assets are prepaid as noted above.
High Risk, High-Yield Securities
The Portfolios may invest in high risk, high-yield securities ("junk bonds"),
which are fixed income securities that offer a current yield above that
generally available on higher quality debt securities. These securities are
regarded as speculative and generally involve more risk of loss of principal
and income than higher-rated securities. Also their yields and market values
tend to fluctuate more. Fluctuations in value do not affect the cash income
from the securities but are reflected in a Portfolio's net asset value. The
greater risks and fluctuations in yield and value occur, in part, because
investors generally perceive issuers of lower-rated and unrated securities to
be less creditworthy. Lower ratings, however, may not necessarily indicate
higher risks. In pursuing a Portfolio's objectives, the Investment Adviser
seeks to identify situations in which the rating agencies have not fully
perceived the value of the security or in which the Investment Adviser
believes that future developments will enhance the creditworthiness and the
ratings of the issuer.
The yields earned on high risk, high-yield securities (junk bonds) generally
are higher than those of higher quality securities with the same maturities
because of the additional risks associated with them. These risks include:
(1) Sensitivity to Interest Rate and Economic Changes. High risk, high-yield
securities (junk bonds) are more sensitive to adverse economic changes
or individual corporate developments but less sensitive to interest rate
changes than are investment grade bonds. As a result, when interest
rates rise, causing bond prices to fall, the value of these securities
may not fall as much as investment grade corporate bonds. Conversely,
when interest rates fall, these securities may underperform investment
grade corporate bonds because the prices of high risk, high-yield
securities (junk bonds) tend not to rise as much as the prices of these
other bonds.
Also, the financial stress resulting from an economic downturn or
adverse corporate developments could have a greater negative effect on
the ability of issuers of these securities to service their principal
and interest payments, to meet projected business goals and to obtain
additional financing, than on more creditworthy issuers. Holders of
these securities could also be at greater risk because these securities
are generally unsecured and subordinated to senior debt holders and
secured creditors. If the issuer of a high risk, high-yield security
(junk bonds) owned by a Portfolio defaults, the Portfolio may incur
additional expenses to seek recovery. In addition, periods of economic
uncertainty and changes can be expected to result in increased
volatility of market prices of these
Aetna Generation Portfolios, Inc. 15
<PAGE>
securities and a Portfolio's net asset value. Furthermore, in the case
of high risk, high-yield securities (junk bonds) structured as zero
coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes and thereby tend to be more
speculative and volatile than securities which pay interest periodically
and in cash.
(2) Payment Expectations. High risk, high-yield securities (junk bonds),
like other debt instruments, present risks based on payment
expectations. For example, these securities may contain redemption or
call provisions. If an issuer exercises these provisions in a declining
interest rate market, the Portfolio may have to replace the securities
with a lower yielding security, resulting in a decreased return for
investors. Also, the value of these securities may decrease in a rising
interest rate market. In addition, there is a higher risk of non-payment
of interest and/or principal by issuers of junk bonds than in the case
of investment grade bonds.
(3) Liquidity and Valuation Risks. High risk, high-yield securities (junk
bonds) are often traded among a small number of broker-dealers rather
than in a broad secondary market. Purchasers of these securities in the
past tended to be institutions rather than individuals, a factor that
further limits the secondary market. Many of these securities may not be
as liquid as investment grade bonds. The ability to value or sell these
securities will be adversely affected to the extent that such securities
are thinly traded or illiquid. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease
or increase the value and liquidity of these securities more than other
securities, especially in a thinly-traded market.
(4) Limitations of Credit Ratings. The credit ratings assigned to high risk,
high-yield securities (junk bonds) may not accurately reflect the true
risks of an investment. Credit ratings typically evaluate the safety of
principal and interest payments rather than the market value risk of
such securities. In addition, credit agencies may fail to adjust credit
ratings to reflect rapid changes in economic or company conditions that
affect a security's market value. Although the ratings of recognized
rating services such as Moody's Investors Service, Inc. and Standard &
Poor's Corporation are considered, the Investment Adviser primarily
relies on its own credit analysis which includes a study of existing
debt, capital structure, ability to service debts and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history
and the current trend of earnings. Thus the achievement of a Portfolio's
investment objective may be more dependent on the Investment Adviser's
own credit analysis than might be the case for a fund which does not
invest in these securities.
(5) Legislation. Legislation may have a negative impact on the market for
high risk, high-yield securities (junk bonds), such as legislation
requiring federally-insured savings and loan associations to divest
themselves of their investments in these securities.
Zero Coupon and Pay-in-Kind Securities
The Portfolios may invest in zero coupon securities and pay-in-kind
securities. In addition, the Portfolios may invest in STRIPS (Separate
Trading of Registered Interest and Principal of Securities). Zero coupon or
deferred interest securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or a specified
date when the securities begin paying current interest (the "cash payment
date") and therefore are issued and traded at a discount from their face
amounts or par value. The discount varies, depending on the time remaining
until maturity or cash payment date, prevailing interest rates, liquidity of
the security and the perceived credit quality of the issuer. The discount, in
the absence of financial difficulties of the issuer, decreases as the final
maturity or cash payment date of the security approaches. STRIPS are created
by the Federal reserve bank by separating the interest and principal
components of an outstanding U.S. treasury bond and selling them as
individual securities. The market prices of zero coupon, STRIPS and deferred
interest securities generally are more volatile than the market prices of
securities with similar maturities that pay interest periodically and are
likely to respond to changes in interest rates to a greater degree than do
non-zero coupon securities having similar maturities and credit quality.
16 Aetna Generation Portfolios, Inc.
<PAGE>
The risks associated with lower-rated debt securities apply to these
securities. Zero coupon and pay-in-kind securities are also subject to the
risk that in the event of a default, a Portfolio may realize no return on its
investment, because these securities do not pay cash interest.
Convertibles
A convertible bond or convertible preferred stock gives the holder the option
of converting these securities into common stock. Some convertible securities
contain a call feature whereby the issuer may redeem the security at a
stipulated price, thereby limiting the possible appreciation.
Warrants
Warrants allow the holder to subscribe for new shares in the issuing company
within a specified time period, according to a predetermined formula
governing the number of shares per warrant and the price to be paid for those
shares. Warrants may be issued separately or in association with a new issue
of bonds, preferred stock, common stock or other securities.
Covered warrants allow the holder to purchase existing shares in the issuing
company, or in a company associated with the issuer, or in a company in which
the issuer has or may have a share stake which covers all or part of the
warrants' subscription rights.
When-Issued or Delayed-Delivery Securities
During any period that a Portfolio has outstanding a commitment to purchase
securities on a when-issued or delayed-delivery basis, that Portfolio will
maintain a segregated account consisting of cash, U.S. Government securities
or other high-quality debt obligations with its custodian bank. To the extent
that the market value of securities held in this segregated account falls
below the amount that the Portfolio will be required to pay on settlement,
additional assets may be required to be added to the segregated account. Such
segregated accounts could affect the Portfolio's liquidity and ability to
manage its portfolio. When a Portfolio engages in when-issued or
delayed-delivery transactions, it is effectively relying on the seller of
such securities to consummate the trade; failure of the seller to do so may
result in the Portfolio's incurring a loss or missing an opportunity to
invest portfolios held in the segregated account more advantageously. A
Portfolio will not pay for securities purchased on a when-issued or
delayed-delivery basis, or start earning interest on such securities, until
the securities are actually received. However, any security so purchased will
be recorded as an asset of the purchasing Portfolio at the time the
commitment is made. Because the market value of securities purchased on a
when-issued or delayed-delivery basis may increase or decrease prior to
settlement as a result of changes in interest rates or other factors, such
securities will be subject to changes in market value prior to settlement and
a loss may be incurred if the value of the security to be purchased declines
prior to settlement.
Portfolio Turnover
The Portfolios' policy on portfolio turnover is discussed in the prospectus.
The portfolio turnover rates for the period ended December 31, 1995 were
39.77% for Aetna Ascent, 49.38% for Aetna Crossroads, and 62.43% for Aetna
Legacy.
DIRECTORS AND OFFICERS OF THE COMPANY
The investments and administration of the Company are under the direction of
the Board of Directors. The Directors and executive officers of the Company
and their principal occupations for the past five years are listed below.
Those directors who are "interested persons," as defined in the 1940 Act, are
indicated by an asterisk (*). All Directors and officers hold similar
positions with other investment companies in the same Fund Complex managed by
ALIAC as the Investment Adviser. Fund Complex presently consists of Aetna
Series Fund, Inc., Aetna Variable Fund, Aetna Income Shares, Aetna Variable
Encore Fund, Aetna Investment Advisors Fund, Inc., Aetna Get Fund (series B)
and Aetna Generation Portfolios, Inc.
Aetna Generation Portfolios, Inc. 17
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During Past Five Years
Position(s) Held (and Positions held with Affiliated Persons or
Name, Address and Age with Registrant Principal Underwriters of the Registrant)
<S> <C> <C>
Shaun P. Mathews* Director and Vice President, Products Group, Aetna
151 Farmington Avenue President Retirement Services, Inc., February 1996 to
Hartford, Connecticut Present; Senior Vice President, Strategic
Age 40 Markets and Products, ALIAC, February 1993 to
February 1996; Chief Executive, Aetna
Investment Services, Inc., October 1995 to
Present; President, Aetna Investment Services,
Inc., March 1994 to Present; Director and Chief
Operations Officer, Aetna Investment Services,
Inc., July 1993 to Present; Director and Senior
Vice President, Aetna Insurance Company of
America, February 1993 to Present; Senior Vice
President, Pensions, ALIAC, March 1991 to
February 1993; Vice President of Aetna Life
Insurance Company, 1991 to Present.
James C. Hamilton Vice President Chief Financial Officer, Aetna Investment
151 Farmington Avenue and Treasurer Services, Inc., July 1993 to Present; Director,
Hartford, Connecticut Vice President and Treasurer, Aetna Insurance
Age 55 Company of America, February 1993 to Present;
Director, Aetna Private Capital, Inc., November
1990 to Present; Vice President and Treasurer,
ALIAC, October 1988 to Present; Vice President
and Actuary, Aetna Life Insurance Company, 1988
to Present.
Susan E. Bryant Secretary Counsel, Aetna Life and Casualty Company, March
151 Farmington Avenue 1993 to Present; General Counsel and Corporate
Hartford, Connecticut Secretary, First Investors Corporation, April
Age 48 1991 to March 1993; Administrator, Oklahoma
Department of Securities, March 1986 to April
1991.
Morton Ehrlich Director Chairman and Chief Executive Officer,
1000 Venetian Way Integrated Management Corp. (an entrepreneurial
Miami, Florida company) and Universal Research Technologies,
Age 61 1992 to Present; Director and Chairman, Audit
Committee, National Bureau of Economic
Research, 1985 to 1992; President, LIFECO,
Travel Services Corp., October 1988 to December
1991.
Maria T. Fighetti Director Manager/Attorney, Health Services, New York
325 Piermont Road City Department of Mental Health, Mental
Closter, New Jersey Retardation and Alcohol Services, 1973 to
Age 52 Present.
18 Aetna Generation Portfolios, Inc.
<PAGE>
Principal Occupation During Past Five Years
Position(s) Held (and Positions held with Affiliated Persons or
Name, Address and Age with Registrant Principal Underwriters of the Registrant)
David L. Grove Director Private Investor; Economic/Financial
5 The Knoll Consultant, December 1985 to Present.
Armonk, New York
Age 78
Timothy A. Holt* Director Director, Senior Vice President and Chief
151 Farmington Avenue Financial Officer, ALIAC, February 1996 to
Hartford, Connecticut Present; Senior Vice President, Business
Age 43 Strategy & Finance, Aetna Retirement Services,
Inc., February 1996 to Present; Vice President,
Portfolio Management/ Investment Group, Aetna
Life and Casualty Company, June 1991 to
February 1996; Treasurer, Aetna Investment
Management, Inc., February 1990 to June 1991.
Daniel P. Kearney* Director Director, President, and Chief Executive
151 Farmington Avenue Officer, ALIAC, December 1993 to Present;
Hartford, Connecticut Executive Vice President, Aetna Life and
Age 56 Casualty Company, December 1993 to Present;
Group Executive, Aetna Life and Casualty
Company, 1991 to 1993; Director, Aetna
Investment Services, Inc., November 1994 to
Present; Director, Aetna Insurance Company of
America, May 1994 to Present.
Sidney Koch Director Financial Adviser, self-employed, January 1993
455 East 86th Street to Present; Senior Adviser, Daiwa Securities
New York, New York America, Inc., January 1992 to January 1993;
Age 61 Executive Vice President, Member of Executive
Committee, Daiwa Securities America, Inc.,
January 1986 to January 1992.
Corine T. Norgaard** Director, Chair Professor, Accounting and Dean of the School of
School of Management Audit Committee Management, Binghamton University (Binghamton,
Binghamton University and Contract NY), August 1993 to Present; Professor,
Binghamton, New York Committee Accounting, University of Connecticut (Storrs,
Age 58 Connecticut), September 1969 to June 1993;
Director, The Advest Group (holding company for
brokerage firm).
Richard G. Scheide Director Trust and Private Banking Consultant, David
11 Lily Street Ross Palmer Consultants, July 1991 to Present;
Nantucket, Massachusetts Executive Vice President and Manager, Bank of
Age 66 New England, N.A., June 1976 to July 1991.
</TABLE>
** Dr. Norgaard is a director of a holding company that has as a subsidiary a
broker-dealer that sells contracts for Aetna Life Insurance and Annuity
Company. The Portfolios are offered as investment options under the
Contracts. Her position as a director of the holding company may cause her
to be an "interested person" for purposes of the 1940 Act.
Aetna Generation Portfolios, Inc. 19
<PAGE>
During the year ended December 31, 1995, members of the Boards of the Funds
within the Aetna Mutual Fund Complex who are also directors, officers or
employees of Aetna Life and Casualty Company and its affiliates were not
entitled to any compensation from the Funds. Effective November 1, 1995,
members of the Boards who are not affiliated as employees of Aetna or its
subsidiaries are entitled to receive an annual retainer of $30,000 for
service on the Boards of the Funds within the Aetna Mutual Fund Complex. In
addition, each such member will receive a fee of $5,000 per meeting for each
regularly scheduled Board meeting; $5,000 for each Contract Committee meeting
which is held on any day on which a regular Board meeting is not scheduled;
and $3,000 for each committee meeting other than for a Contract Committee
meeting on any day on which a regular Board meeting is not scheduled. A
Committee Chairperson fee of $2,000 each will be paid to the Chairperson of
the Contract and Audit Committees. All of the above fees are to be allocated
proportionately to each Fund within the Aetna Mutual Fund Complex based on
the net assets of the Fund as of the date compensation is earned.
As of December 31, 1995, the unaffiliated members of the Board of Directors
were compensated as follows:
Aggregate Total Compensation from
Compensa- Registrant and Fund
Name of Person, tion from Complex
Position Registrant Paid to Directors
---------------------------------------------------------------------------
Corine Norgaard $1,344 $51,000
Director and Chairman,
Audit and Contract
Committees
---------------------------------------------------------------------------
Sidney Koch $1,324 $47,000
Director and Member,
Audit and Contract
Committees
---------------------------------------------------------------------------
Maria T. Fighetti $1,324 $46,000
Director and Member,
Audit and Contract
Committees
---------------------------------------------------------------------------
Morton Ehrlich $1,324 $46,000
Director and Member,
Audit and Contract
Committees
---------------------------------------------------------------------------
Richard G. Scheide $1,324 $46,500
Director and Member,
Audit and Contract
Committees
---------------------------------------------------------------------------
David L. Grove $1,324* $46,500*
Director and Member,
Audit and Contract
Committees
---------------------------------------------------------------------------
* Mr. Grove elected to defer all such compensation.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
Shares of the Generation Portfolios will be owned by insurance companies as
depositors of separate accounts which are used to fund variable annuity
contracts ("VA Contracts") and variable life insurance policies ("VLI
Policies"). It is currently expected that all shares will be held by separate
accounts of Aetna Life Insurance and Annuity Company ("ALIAC") and its
subsidiary, Aetna Insurance Company of America, Inc., on behalf of their
respective separate accounts. See "Voting Rights" below.
ALIAC is a wholly owned subsidiary of Aetna Retirement Holdings, Inc., which
is in turn a wholly owned subsidiary of Aetna Retirement Services, Inc. and
an indirect wholly owned subsidiary of Aetna Life and Casualty Company.
ALIAC's principal office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156. ALIAC is registered with the SEC as an investment adviser
and manages over $22 billion in assets including those held by Generation
Portfolios.
20 Aetna Generation Portfolios, Inc.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
The Company, on behalf of each Portfolio, has entered into Investment
Advisory Agreements (Advisory Agreements) with ALIAC as the Investment
Adviser. These Advisory Agreements were adopted by the Board of Directors in
1994 and shareholders in 1995.
Under the Advisory Agreements and subject to the direction of the Board of
Directors of the Company, the Investment Adviser has responsibility for (i)
supervising all aspects of the operations of each Portfolio; (ii) selecting
the securities to be purchased, sold or exchanged by each Portfolio or
otherwise represented in its investment portfolio, place trades for all such
securities; (iii) formulating and implementing continuing programs for the
purchase and sale of securities; (iv) obtaining and evaluating pertinent
information about significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether affecting the economy
generally, the Portfolios, securities held by or under consideration for each
Portfolio, or the issuers of those securities; (v) providing economic
research and securities analyses as the Adviser considers necessary or
advisable in connection with the Adviser's performance of its duties
hereunder; (vi) obtaining the services of, contracting with, and providing
instructions to custodians and/or subcustodians of each Portfolio's
securities, transfer agents, dividend paying agents, pricing services and
other service providers as are necessary to carry out the terms of this
Agreement; (vii) preparing financial and performance reports, calculating and
reporting daily net asset values, and preparing any other financial data or
reports, as the Adviser from time to time, deems necessary or as is requested
by the Board; and (viii) taking any other actions which appear to the Adviser
and the Board necessary.
For its services, the Investment Adviser receives a monthly fee at an annual
rate of 0.50% of the average daily net assets of each Portfolio. For the
period ended December 31, 1995, ALIAC received investment advisory fees of
$44,673 from Aetna Ascent; $44,352 from Aetna Crossroads; and $43,540 from
Aetna Legacy.
The Management Agreement provides that ALIAC shall pay (a) the salaries,
employment benefits and other related costs of those of its personnel engaged
in providing investment advice to the Company, including, without limitation,
office space, office equipment, telephone and postage costs and (b) any fees
and expenses of all Directors, officers and employees, if any, of the Company
who are employees of ALIAC or an affiliated entity and any salaries and
employment benefits payable to those persons. The Management Agreement
provides that each Portfolio will pay (i) investment advisory fees; (ii)
broker's commissions and certain other transaction fees including the portion
of such fees, if any, which is attributable to brokerage research services;
(iii) fees and expenses of the Portfolio's independent auditors and outside
legal counsel; (iv) expenses of printing and distributing proxies, proxy
statements, prospectuses and reports to shareholders of each Portfolio,
except as such expenses may be borne by the distributor; (v) interest and
taxes; (vi) fees and expenses of those of the Company's Directors who are not
"interested persons" (as defined by the 1940 Act) of the Company or ALIAC;
(vii) costs and expenses of promoting the sale of shares in each Portfolio,
including preparing prospectuses and reports to shareholders of each
Portfolio; (viii) administrator, transfer agent, custodian and dividend
disbursing agent fees and expenses; (ix) fees of dividend, accounting and
pricing agents appointed by each Portfolio; (x) fees payable to the SEC or in
connection with the registration of shares of each Portfolio under the laws
of any state or territory of the United States or the District of Columbia;
(xi) fees and assessments of the Investment Company Institute or any
successor organization or other association memberships approved by the Board
of Directors; (xii) such nonrecurring or extraordinary expenses as may arise;
(xiii) all other ordinary business expenses incurred in the operations of
each Portfolio, unless specifically allocable otherwise by the Management
Agreement; (xiv) costs attributable to investor services, administering
shareholder accounts and handling shareholder relations; (xv) all expenses
incident to the payment of any dividend, distribution, withdrawal of
redemption; and (xvi) insurance premiums on property and personnel (including
officers and Directors) of the Company which benefit the Company. Some of the
costs payable by each Portfolio under the Management Agreement are being
assumed by ALIAC under the terms of the Administrative Services Agreement
(see "Administrative Services Agreement").
Aetna Generation Portfolios, Inc. 21
<PAGE>
The Advisory Agreements provide that they will remain in effect from
year-to-year if approved annually by a majority vote of the Directors,
including a majority of the Directors who are not "interested persons," in
person at a meeting called for that purpose. Each Agreement may be terminated
as to a particular Portfolio without penalty at any time on sixty days'
written notice by (i) the Directors, (ii) a majority vote of the outstanding
voting securities of that Portfolio, or (iii) the Investment Adviser. The
Advisory Agreements terminate automatically in the event of assignment.
The service mark of the Generation Portfolios and the name "Aetna" have been
adopted by the Company with the permission of Aetna Life and Casualty Company
and their continued use is subject to the right of Aetna Life and Casualty
Company to withdraw this permission in the event the Investment Adviser or
another subsidiary or affiliated corporation of Aetna Life and Casualty
Company should not be the investment adviser of the Portfolios.
ADMINISTRATIVE SERVICES AGREEMENT
The Generation Portfolios entered into an Administrative Services Agreement
with ALIAC effective May 1, 1996 under which ALIAC has agreed to provide all
administrative services in support of the Portfolios. In addition, ALIAC has
agreed to pay on behalf of each Portfolio, all ordinary recurring direct
costs of the Portfolio that it would otherwise be required to pay under the
terms of the Investment Advisory Agreement except brokerage costs and other
transaction costs in connection with the purchase and sale of securities for
its portfolios (Transaction Costs). As a result, the Portfolios' costs and
fees are limited to its advisory fee, the administrative services charge and
Transaction Costs. For the services under the Administrative Services
Agreement, ALIAC will receive an annual fee, payable monthly, at a rate of
0.15% of the average daily net assets of the Portfolios. Prior to May 1,
1996, ALIAC had an Administrative Services Agreement that provided for the
reimbursement of a proportionate share of ALIAC's overhead in administering
the Portfolios. Prior to May 1, 1996, the Portfolios were obligated to pay
their own direct costs. The total of the direct costs and administrative
costs for the period ended December 31, 1995 was $96,041 for Aetna Ascent;
$96,465 for Aetna Crossroads; and $96,465 for Aetna Legacy.
The Administrative Services Agreement will remain in effect until January 1,
1997. It will then remain in effect from year-to-year if approved annually by
a majority of the Directors. It may be terminated by either party on sixty
days' written notice.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258
serves as custodian for the assets of the Portfolios. The custodian does not
participate in determining the investment policies of a Portfolio or in
deciding which securities are purchased or sold by a Portfolio. A Portfolio
may, however, invest in obligations of the custodian and may purchase or sell
securities from or to the custodian.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, City Place II, Hartford, Connecticut 06103 serves as
independent auditors to the Generation Portfolios. KPMG Peat Marwick LLP
provides audit services, assistance and consultation in connection with SEC
filings.
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the direction of the Directors, ALIAC has responsibility for
making a Portfolio's investment decisions, for effecting the execution of
trades for the Portfolios and for negotiating any brokerage commissions
thereon. It is the policy of ALIAC to obtain the best quality of execution
available, giving attention to net price (including commissions where
applicable), execution capability (including the adequacy of a firm's capital
position), research and other services related to execution; the relative
priority given to these factors will depend on all of the circumstances
regarding a specific trade.
22 Aetna Generation Portfolios, Inc.
<PAGE>
ALIAC currently receives a variety of brokerage and research services from
brokerage firms in return for the execution by such brokerage firms of trades
in securities held by a Portfolio. These brokerage and research services
include, but are not limited to, quantitative and qualitative research
information and purchase and sale recommendations regarding securities and
industries, analyses and reports covering a broad range of economic factors
and trends, statistical data relating to the strategy and performance of the
Portfolios and other investment companies, services related to the execution
of trades in a Portfolio's securities and advice as to the valuation of
securities. ALIAC considers the quantity and quality of such brokerage and
research services provided by a brokerage firm along with the nature and
difficulty of the specific transaction in negotiating commissions for trades
in a Portfolio's securities and may pay higher commission rates than the
lowest available when it is reasonable to do so in light of the value of the
brokerage and research services received generally or in connection with a
particular transaction. ALIAC's policy in selecting a broker to effect a
particular transaction is to seek to obtain "best execution," which means
prompt and efficient execution of the transaction at the best obtainable
price with payment of commissions which are reasonable in relation to the
value of the services provided by the broker, taking into consideration
research and other services provided. When the trader believes that more than
one broker can provide best execution, preference may be given to brokers who
provide additional services to ALIAC.
Consistent with Federal law, ALIAC may obtain such brokerage and research
services regardless of whether they are paid for (1) by means of commissions;
or (2) by means of separate, non-commission payments. ALIAC's judgment as to
whether and how it will obtain the specific brokerage and research services
will be based upon its analysis of the quality of such services and the cost
(depending upon the various methods of payment which may be offered by
brokerage firms) and will reflect ALIAC's opinion as to which services and
which means of payment are in the long-term best interests of a Portfolio.
The Portfolios have no present intention to effect any brokerage transactions
in portfolio securities with ALIAC or any affiliate of the Portfolios or
ALIAC except in accordance with applicable SEC rules. All transactions will
comply with Rule 17e-1 of the 1940 Act.
Certain officers of ALIAC also manage the securities portfolio of ALIAC's own
accounts. Further, ALIAC also acts as investment adviser to other investment
companies registered under the 1940 Act. ALIAC has adopted policies designed
to prevent disadvantaging the Portfolios in placing orders for the purchase
and sale of securities for the Generation Portfolios.
To the extent ALIAC desires to buy or sell the same publicly traded security
at or about the same time for more than one client, the purchases or sales
will normally be allocated as nearly as practicable on a pro rata basis in
proportion to the amounts to be purchased or sold by each, taking into
consideration the respective investment objectives of the clients, the
relative size of portfolio holdings of the same or comparable securities,
availability of cash for investment, and the size of their respective
investment commitments. Orders for different clients received at
approximately the same time may be bunched for purposes of placing trades, as
authorized by regulatory directives. Prices are averaged for those
transactions.
The Board of Directors has adopted a policy allowing trades to be made
between registered investment companies provided they meet the terms of Rule
17a-7 under the 1940 Act. Pursuant to this policy, a Portfolio may buy a
security from or sell another security to another registered investment
company advised by ALIAC.
For the period ended December 31, 1995, brokerage commissions were paid in
the amount of $58,624 from Aetna Ascent; $48,862 from Aetna Crossroads; and
$40,590 from Aetna Legacy.
The Board of Directors has also adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by, a
Portfolio. The Code allows trades to be made in securities that may be held
by a Portfolio; however, it prohibits a person from taking advantage of
Portfolio trades or from acting on inside information.
Aetna Generation Portfolios, Inc. 23
<PAGE>
For the period ended December 31, 1995, portfolio transactions in the amounts
listed below were directed to certain brokers because of research services,
of which commissions in the amounts listed below were paid with respect to
such transactions. No brokerage business was placed with any brokers
affiliated with ALIAC.
Commissions Paid on
Total Transactions Total Transactions
Aetna Ascent $6,790,870 $13,906
Aetna
Crossroads 7,236,196 12,080
Aetna Legacy 7,321,605 10,538
DESCRIPTION OF SHARES
The Articles of Incorporation authorize the Company to issue two billion
shares of common stock with a par value of $.001 per share. The shares are
nonassessable, transferable, redeemable and do not have pre-emptive rights or
cumulative voting rights. The shares may be issued as whole or fractional
shares and are uncertificated.
The shares may be issued in series or portfolios having separate assets and
separate investment objectives and policies. Upon liquidation of a portfolio,
its shareholders are entitled to share pro rata in the net assets of that
portfolio available for distribution to shareholders. Shares, when issued,
will be fully paid and nonassessable.
SALE AND REDEMPTION OF SHARES
Shares of a Portfolio are sold and redeemed at the net asset value next
determined after receipt of a purchase or redemption order in acceptable form
as described in the prospectus under "Sale and Redemption of Shares" and "Net
Asset Value."
NET ASSET VALUE
Securities of the Portfolios are generally valued by independent pricing
services. The values for equity securities traded on registered securities
exchanges are based on the last sale price or, if there has been no sale that
day, at the mean of the last bid and asked price on the exchange where the
security is principally traded. Securities traded over the counter are valued
at the mean of the last bid and asked price if current market quotations are
not readily available. Short-term debt securities which have a maturity date
of more than sixty days will be valued at the mean of the last bid and asked
price obtained from principal market makers. Long-term debt securities are
valued at the mean of the last bid and asked price of such securities
obtained from a broker who is a market-maker in the securities or a service
providing quotations based upon the assessment of market-makers in those
securities.
Options are valued at the mean of the last bid and asked price on the
exchange where the option is primarily traded. Stock index futures contracts
and interest rate futures contracts are valued daily at a settlement price
based on rules of the exchange where the futures contract is primarily
traded.
TAX STATUS
The following is only a summary of certain additional tax considerations
generally affecting each Generation Portfolio and its shareholders which are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Portfolio or its shareholders, and
the discussions here and in the Prospectus are not intended as substitutes
for careful tax planning.
Qualification as a Regulated Investment Company
Each Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, a Portfolio generally is not
subject to federal income tax on the portion of its net investment income
(i.e., taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income
24 Aetna Generation Portfolios, Inc.
<PAGE>
(i.e., the excess of capital gains over capital losses) that it distributes
to shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable
year (the "Distribution Requirement"), and satisfies certain other
requirements of the Code that are described in this section. Distributions by
a Portfolio made during the taxable year or, under specified circumstances,
within twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and can therefore
satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive of
certain gains on designated hedging transactions that are offset by realized
or unrealized losses on offsetting positions) from the sale or other
disposition of stock, securities or foreign currencies (or options, futures
or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income
includes tax-exempt income. However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options
or futures thereon). Because of the Short-Short Gain Test, a Portfolio may
have to limit the sale of appreciated securities that it has held for less
than three months. However, the Short-Short Gain Test will not prevent a
Portfolio from disposing of investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period is disregarded
for this purpose. Interest (including original issue discount) received by a
Portfolio at maturity or upon the disposition of a security held for less
than three months will not be treated as gross income derived from the sale
or other disposition of such security within the meaning of the Short-Short
Gain Test. However, income that is attributable to realized market
appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, gain or loss recognized by a Portfolio on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased
by a Portfolio at a market discount (generally, at a price less than its
principal amount) will be treated as ordinary income to the extent of the
portion of the market discount which accrued during the period of time the
Portfolio held the debt obligation. In addition, under the rules of Code
Section 988, gain or loss recognized on the disposition of a debt obligation
denominated in a foreign currency or an option with respect thereto (but only
to the extent attributable to changes in foreign currency exchange rates),
and gain or loss recognized on the disposition of a foreign currency forward
contract, futures contract, option or similar financial instrument, or of
foreign currency itself, except for regulated futures contracts or non-equity
options subject to Code Section 1256 (unless the Portfolio elects otherwise),
will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Portfolio on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset
is used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset
so used, (2) the asset is otherwise held by the Portfolio as part of a
"straddle" (which term generally excludes a situation where the asset is
stock and the Portfolio grants a qualified covered call option (which, among
other things, must not be deep-in-the-money) with respect thereto) or (3) the
asset is stock and the Portfolio grants an in-the-money qualified covered
call option with respect thereto. However, for purposes of the Short-Short
Gain Test, the holding period of
Aetna Generation Portfolios, Inc. 25
<PAGE>
the asset disposed of may be reduced only in the case of clause (1) above. In
addition, a Portfolio may be required to defer the recognition of a loss on
the disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Portfolio on the lapse of, or any gain or loss
recognized by a Portfolio from a closing transaction with respect to, an
option written by the Portfolio will be treated as a short-term capital gain
or loss. For purposes of the Short-Short Gain Test, the holding period of an
option written by a Portfolio will commence on the date it is written and end
on the date it lapses or the date a closing transaction is entered into.
Accordingly, a Portfolio may be limited in its ability to write options which
expire within three months and to enter into closing transactions at a gain
within three months of the writing of options.
Transactions that may be engaged in by a Portfolio (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes
and futures contracts) will be subject to special tax treatment as "Section
1256 contracts." Section 1256 contracts are treated as if they are sold for
their fair market value on the last day of the taxable year, even though a
taxpayer's obligations (or rights) under such contracts have not terminated
(by delivery, exercise, entering into a closing transaction or otherwise) as
of such date. Any gain or loss recognized as a consequence of the year-end
deemed disposition of Section 1256 contracts is taken into account for the
taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section
1256 contracts (including any capital gain or loss arising as a consequence
of the year-end deemed sale of such contracts) is generally treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. A
Portfolio, however, may elect not to have this special tax treatment apply to
Section 1256 contracts that are part of a "mixed straddle" with other
investments of the Portfolio that are not Section 1256 contracts. The IRS has
held in several private rulings that gains arising from Section 1256
contracts will be treated for purposes of the Short-Short Gain Test as being
derived from securities held for not less than three months if the gains
arise as a result of a constructive sale under Code Section 1256, provided
that the contract is actually held by the Portfolio uninterrupted for a total
of at least three months.
Because only a few regulations regarding the treatment of swap agreements and
other financial derivatives have been issued, the tax consequences of
transactions in these types of instruments are not always entirely clear. The
Fund intends to account for derivatives transactions in a manner deemed by it
to be appropriate, but the Internal Revenue Service might not necessarily
accept such treatment. If it did not, the status of a Fund as a regulated
investment company and/or its compliance with the diversification requirement
under Code section 817(h) might be affected. The Fund intends to monitor
developments in this area. Certain requirements that must be met under the
Code in order for the Fund to qualify as a regulated investment company may
limit the extent to which it will be able to engage in swap agreements.
A Portfolio may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If a Portfolio invests in a PFIC, it may elect
to treat the PFIC as a qualifying electing portfolio (a "QEF") in which event
the Portfolio will each year have ordinary income equal to its pro rata share
of the PFIC's ordinary earnings for the year and long-term capital gain equal
to its pro rata share of the PFIC's net capital gain for the year, regardless
of whether the Portfolio receives distributions of any such ordinary earnings
or capital gain from the PFIC. If a Portfolio does not (because it is unable
to, chooses not to or otherwise) elect to treat the PFIC as a QEF, then in
general (1) any gain recognized by the Portfolio upon sale or other
disposition of its interest in the PFIC or any excess distribution received
by the Portfolio from the PFIC will be allocated ratably over the Portfolio's
holding period of its interest in the PFIC, (2) the portion of such gain or
excess distribution so allocated to the year in which the gain is recognized
or the excess distribution is received shall be included in the Portfolio's
gross income for such year as ordinary income (and the distribution of such
portion by the Portfolio to shareholders will be taxable as an ordinary
income dividend, but such portion will not be subject to tax at the Portfolio
level), (3) the Portfolio shall be liable for tax on the portions of such
gain or excess distribution so allocated to prior years in an amount equal
to, for each such prior year, (i) the amount of gain or excess distribution
allocated to such prior year multiplied by the highest
26 Aetna Generation Portfolios, Inc.
<PAGE>
tax rate (individual or corporate) in effect for such prior year plus (ii)
interest on the amount determined under clause (i) for the period from the
due date for filing a return for such prior year until the date for filing a
return for the year in which the gain is recognized or the excess
distribution is received at the rates and methods applicable to underpayments
of tax for such period, and (4) the distribution by the Portfolio to
shareholders of the portions of such gain or excess distribution so allocated
to prior years (net of the tax payable by the Portfolio thereon) will again
be taxable to the shareholders as an ordinary income dividend.
Under recently proposed Treasury Regulations a Portfolio can elect to
recognize as gain the excess, as of the last day of its taxable year, of the
fair market value of each share of PFIC stock over the Portfolio's adjusted
tax basis in that share ("mark to market gain"). Such mark to market gain
will be included by the Portfolio as ordinary income, such gain will not be
subject to the Short-Short Gain Test, and the Portfolio's holding period with
respect to such PFIC stock commences on the first day of the next taxable
year. If a Portfolio makes such election in the first taxable year it holds
PFIC stock, the Portfolio will include ordinary income from any mark to
market gain, if any, and will not incur the tax described in the previous
paragraph.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess
of net long-term capital gain over net short-term capital loss) for any
taxable year, to elect (unless it has made a taxable year election for excise
tax purposes as discussed below) to treat all or any part of any net capital
loss, any net long-term capital loss or any net foreign currency loss
incurred after October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Portfolio
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities
of other regulated investment companies, and securities of other issuers (as
to which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and as to which the
Portfolio does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or of two
or more issuers which the Portfolio controls and which are engaged in the
same or similar trades or businesses or related trades or businesses.
Generally, an option (call or put) with respect to a security is treated as
issued by the issuer of the security not the issuer of the option. However,
with regard to forward currency contracts, there does not appear to be any
formal or informal authority which identifies the issuer of such instrument.
For purposes of asset diversification testing, obligations issued or
guaranteed by agencies or instrumentalities of the U.S. Government such as
the Federal Agricultural Mortgage Corporation, the Farm Credit System
Financial Assistance Corporation, a Federal Home Loan Bank, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Government National Mortgage Corporation, and the Student Loan Marketing
Association are treated as U.S. Government securities.
If for any taxable year a Portfolio does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gain) will be subject to tax at regular corporate rates without any deduction
for distributions to shareholders, and such distributions will be taxable to
the shareholders as ordinary dividends to the extent of the Portfolio's
current and accumulated earnings and profits. Such distributions generally
will be eligible for the dividends-received deduction in the case of
corporate shareholders.
Qualification of Segregated Asset Accounts
Under Code section 817(h), a segregated asset account upon which a variable
annuity contract or variable life insurance policy is based must be
"adequately diversified." A segregated asset account will be adequately
diversified if it satisfies one of two alternative tests set forth in the
Treasury Regulations. Specifically, the Treasury Regulations provide, that
except as permitted by the "safe harbor" discussed below, as of the end of
each calendar quarter (or within 30 days thereafter) no more than 55% of a
Portfolio's
Aetna Generation Portfolios, Inc. 27
<PAGE>
total assets may be represented by any one investment, no more than 70% by
any two investments, no more than 80% by any three investments and no more
than 90% by any four investments. For this purpose, all securities of the
same issuer are considered a single investment, and while each U.S.
Government agency and instrumentality is considered a separate issuer, a
particular foreign government and its agencies, instrumentalities and
political subdivisions may be considered the same issuer. As a safe harbor, a
separate account will be treated as being adequately diversified if the
diversification requirements under Subchapter M are satisfied and no more
than 55% of the value of the account's total assets are cash and cash items,
U.S. Government securities and securities of other regulated investment
companies.
For purposes of these alternative diversification tests, a segregated asset
account investing in shares of a regulated investment company will be
entitled to "look-through" the regulated investment company to its pro rata
portion of the regulated investment company's assets, provided the regulated
investment company satisfies certain conditions relating to the ownership of
the shares.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net
income for the one-year period ended on October 31 of such calendar year (or,
at the election of a regulated investment company having a taxable year
ending November 30 or December 31, for its taxable year (a "taxable year
election")). Tax-exempt interest on municipal obligations is not subject to
the excise tax. The balance of such income must be distributed during the
next calendar year. For the foregoing purposes, a regulated investment
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by
the amount of any net ordinary loss for the calendar year; and (2) exclude
foreign currency gains and losses from Section 988 transactions incurred
after October 31 of any year (or after the end of its taxable year if it has
made a taxable year election) in determining the amount of ordinary taxable
income for the current calendar year (and, instead, include such gains and
losses in determining ordinary taxable income for the succeeding calendar
year).
Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income
prior to the end of each calendar year to avoid liability for the excise tax.
However, investors should note that a Portfolio may in certain circumstances
be required to liquidate portfolio investments to make sufficient
distributions to avoid excise tax liability.
Portfolio Distributions
Each Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to the shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they may qualify for the dividends-received
deduction for corporate shareholders to the extent discussed below.
Each Portfolio may either retain or distribute to the shareholders its net
capital gain for each taxable year. Each Portfolio currently intends to
distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to the shareholders
as long-term capital gain, regardless of the length of time the shareholders
have held shares or whether such gain was recognized by the Portfolio prior
to the date on which the shareholder acquired the shares. All distributions
paid to ALIAC, whether characterized as ordinary income or capital gain, are
not taxable to VA Contract or VLI Policy holders.
If a Portfolio elects to retain its net capital gain, the Portfolio will be
taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. Where a Portfolio elects to retain its net
capital gain, it is expected that the Portfolio also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of its pro rata share of such gain,
28 Aetna Generation Portfolios, Inc.
<PAGE>
with the result that each shareholder will be required to report its pro rata
share of such gain on its tax return as long-term capital gain, will receive
a refundable tax credit for its pro rata share of tax paid by the Portfolio
on the gain, and will increase the tax basis for its shares by an amount
equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by a Portfolio with respect to a taxable year
may qualify for the dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and
the personal holding company tax) to the extent of the amount of qualifying
dividends received by a Portfolio from domestic corporations for the taxable
year and if the shareholder meets eligibility requirements in the Code. A
dividend received by the Portfolio will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that
the Portfolio has held for less than 46 days (91 days in the case of certain
preferred stock), excluding for this purpose under the rules of Code Section
246(c) (3) and (4): (i) any day more than 45 days (or 90 days in the case of
certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Portfolio has an option to
sell, is under a contractual obligation to sell, has made and not closed a
short sale of, is the grantor of a deep-in-the-money or otherwise
nonqualified option to buy, or has otherwise diminished its risk of loss by
holding other positions with respect to, such (or substantially identical)
stock; (2) to the extent that the Portfolio is under an obligation (pursuant
to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property; or (3) to the extent
the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction
for a corporate shareholder may be disallowed or reduced (i) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Portfolio or (ii) by application of Code Section 246(b) which
in general limits the dividends-received deduction.
Alternative Minimum Tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate
of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the
excess of the taxpayer's alternative minimum taxable income ("AMTI") over an
exemption amount. In addition, under the Superfund Amendments and
Reauthorization Act of 1986, a tax is imposed for taxable years beginning
after 1986 and before 1996 at the rate of 0.12% on the excess of a corporate
taxpayer's AMTI (determined without regard to the deduction for this tax and
the AMT net operating loss deduction) over $2 million. For purposes of the
corporate AMT and the environmental super fund tax (which are discussed
above), the corporate dividends-received deduction is not itself an item of
tax preference that must be added back to taxable income or is otherwise
disallowed in determining a corporation's AMTI. However, corporate
shareholders will generally be required to take the full amount of any
dividend received from a Generation Portfolio into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e.,
75% of the excess of a corporate taxpayer's adjusted current earnings over
its AMTI (determined without regard to this item and the AMT net operating
loss deduction)) includable in AMTI.
Investment income that may be received by a Portfolio from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle a Portfolio to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Portfolio's assets to be invested in various
countries is not known.
Distributions by a Portfolio that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the
extent of (and in reduction of) the shareholder's tax basis in his shares;
any excess will be treated as gain from the sale of his shares, as discussed
below.
Distributions paid to shareholders are generally reinvested in additional
shares. Shareholders receiving a distribution in the form of additional
shares will be treated as receiving a distribution in an amount equal to the
fair market value of the shares received, determined as of the reinvestment
date. In addition,
Aetna Generation Portfolios, Inc. 29
<PAGE>
if the net asset value at the time a shareholder purchases shares of a
Portfolio reflects undistributed net investment income or recognized capital
gain net income, or unrealized appreciation in the value of the assets of the
Portfolio, distributions of such amounts will be taxable to the shareholder
in the manner described above, although such distributions economically
constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Portfolio
into account in the year in which the distributions are made. However,
dividends declared in October, November or December of any year and payable
to shareholders of record on a specified date in such a month will be deemed
to have been received by the shareholders (and made by the Portfolio) on
December 31 of such calendar year if such dividends are actually paid in
January of the following year. Shareholders will be advised annually as to
the U.S. federal income tax consequences of distributions made (or deemed
made) during the year.
Sale or Redemption of Shares
Shareholders generally will recognize gain or loss on the sale or redemption
of shares of a Portfolio in an amount equal to the difference between the
proceeds of the sale or redemption and the shareholder's adjusted tax basis
in the shares. All or a portion of any loss so recognized may be disallowed
if the shareholder purchases other shares of the Portfolio within 30 days
before or after the sale or redemption. In general, any gain or loss arising
from (or treated as arising from) the sale or redemption of shares of a
Portfolio will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year.
However, any capital loss arising from the sale or redemption of shares held,
or deemed under Code rules to be held, for six months or less will be treated
as a long-term capital loss to the extent of the amount of capital gain
dividends received on such shares.
Tax Effect on Participants
Participants in VA Contracts and VLI Policies are taxed through prior
ownership of such contracts and policies, as described in one's prospectus
for the applicable contract or policy.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative
or administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated
investment companies often differ from the rules for U.S. federal income
taxation described above. Shareholders are urged to consult their tax
advisers as to the consequences of these and other state and local tax rules
affecting investment in a Portfolio.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (and
fractional votes for fractional shares held) and will vote in the election of
Directors (to the extent hereinafter provided) and on other matters submitted
to the vote of the shareholders. The shareholders of the Portfolios are the
insurance companies for their separate accounts using the Portfolios to fund
VA Contracts and VLI Policies. The insurance company depositors of the
separate accounts pass voting rights attributable to shares held for VA
Contracts and VLI Policies through to Contract holders or Participants as
described in the prospectus for the applicable VA Contract or VLI Policy.
Once the initial Board is elected, no meeting of the shareholders for the
purpose of electing Directors will be held unless and until such time as less
than a majority of the Directors holding office have been elected by the
shareholders, or shareholders holding 10% or more of the outstanding shares
request such a vote. The Directors then in office will call a shareholder
meeting for election of Directors. Vacancies occurring between
30 Aetna Generation Portfolios, Inc.
<PAGE>
any such meetings shall be filled as allowed by law, provided that
immediately after filling any such vacancy, at least two-thirds of the
Directors holding office have been elected by the shareholders.
Special shareholder meetings may be called when requested in writing by the
holders of not less than 10% of the outstanding voting shares of a Portfolio.
Any request must state the purposes of the proposed meeting.
Except as set forth above, the Directors shall continue to hold office and
may appoint successor Directors. Directors may be removed from office (1) at
any time by two-thirds vote of the Directors; (2) by a majority vote of
Directors where any Director becomes mentally or physically incapacitated;
(3) at a special meeting of shareholders by a two-thirds vote of the
outstanding shares; (4) by written declaration filed with Mellon Bank, N.A.,
the Generation Portfolios' custodian, signed by two-thirds of a Portfolio's
shareholders. Any Director may also voluntarily resign from office. Voting
rights are not cumulative, so that the holders of more than 50% of the shares
voting in the election of Directors can, if they choose to do so, elect all
the Directors of the Generation Portfolios, in which event the holders of the
remaining shares will be unable to elect any person as a Director.
The Articles may be amended by an affirmative vote of a majority of the
shares at any meeting of shareholders or by written instrument signed by a
majority of the Directors and consented to by a majority of the shareholders.
The Directors may also amend the Articles without the vote or consent of
shareholders if they deem it necessary to conform the Articles to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code of
1986, as amended, but the Directors shall not be liable for failing to do so.
Aetna Generation Portfolios, Inc. 31
<PAGE>
FINANCIAL STATEMENTS
Portfolios of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
Independent Auditors' Report
F-1
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995
- -----------------------------------------------------------------------
Number of Market
Shares Value
--------- --------
COMMON STOCKS (92.5%)
United States (75.8%)
Aerospace and Defense (0.1%)
McDonnell-Douglas Corp................ 200 $ 18,400
-----------
Apparel and Cosmetics (0.2%)
Blair Corp............................ 100 3,163
Chic By H I S, Inc.+.................. 2,700 14,850
Nike, Inc............................. 200 13,925
Oshkosh B'Gosh, Inc................... 300 5,250
-----------
37,188
-----------
Autos and Auto Equipment (0.6%)
Borg Warner Automotive, Inc........... 900 28,800
Kaydon Corp........................... 1,300 39,488
Smith (A.O.) Corp..................... 1,000 20,750
Snap On, Inc.......................... 200 9,050
Varity Corp.+......................... 200 7,425
-----------
105,513
-----------
Banks (4.3%)
Bank of New York Co., Inc............. 800 39,000
BayBanks, Inc......................... 500 49,125
Chemical Banking Corp................. 300 17,625
CITICORP.............................. 400 26,900
Citizens Bancorp...................... 1,500 48,375
City National Corp.................... 2,400 33,600
Coast Savings Financial, Inc.+........ 700 24,238
Cullen/Frost Bankers, Inc............. 1,000 50,000
First American Corp. (Tenn.).......... 700 33,163
First Chicago Corp.................... 543 21,449
First Citizens Bancshares, Inc. Class 100 5,513
A...................................
First Interstate Bancorp.............. 300 40,950
First of America Bank Corp............ 1,200 53,250
Firstbank of Illinois Co.............. 1,000 30,875
JSB Financial, Inc.................... 1,000 31,625
KeyCorp............................... 600 21,750
Nations Bank, Inc..................... 300 20,888
PNC Bancorp........................... 200 13,125
Provident Bancorp..................... 1,000 47,000
Queens County Bancorp, Inc............ 1,100 43,519
Reliance Bancorp, Inc................. 2,800 40,950
River Forest Bancorp, Inc............. 1,600 40,800
Sumitomo Bank of California........... 200 4,900
Union Bank............................ 700 37,975
United Carolina Bancshares, Inc....... 1,200 40,500
-----------
817,095
-----------
Building Materials and Construction (2.2%)
American Buildings Co.+............... 900 20,250
Beazer Homes USA, Inc.+............... 2,000 41,250
Centex Corp........................... 200 6,950
Champion Enterprises, Inc.+........... 2,300 71,012
Continental Homes Holding Corp........ 200 4,925
Elcor Corp............................ 300 6,525
Granite Construction, Inc............. 2,500 78,749
International Aluminum Corp........... 300 8,625
Lennar Corp........................... 1,100 $ 27,638
Pulte Corp............................ 300 10,088
Redman Industries, Inc.+.............. 1,200 40,500
Texas Industries, Inc................. 500 26,500
Tredegar Industries, Inc.............. 1,300 42,250
Webb (Del E.) Corp.................... 500 10,063
WHX Corp.+............................ 1,100 11,963
-----------
407,288
-----------
Chemicals (0.6%)
Dexter Corp........................... 700 16,538
Dow Chemical Co....................... 200 14,075
Eastman Chemical Co................... 100 6,263
Great Lakes Chemical Corp............. 100 7,200
Lyondell Petrochemical Co............. 1,100 25,163
Sterling Chemicals, Inc.+............. 2,200 17,875
Wellman, Inc.......................... 1,000 22,750
-----------
109,864
-----------
Commercial Services (0.5%)
GATX Corp............................. 1,200 58,349
Measurex Corp......................... 1,200 33,900
-----------
92,249
-----------
Computer Software (1.7%)
Acxiom Corp.+......................... 400 10,950
Barra, Inc.+.......................... 1,500 25,500
Boole & Babbage, Inc.+................ 300 7,350
Cadence Design Systems, Inc.+......... 3,000 125,999
Cisco Systems, Inc.+.................. 300 22,388
Computer Associates International, 250 14,219
Inc.................................
Computer Sciences Corp.+.............. 300 21,075
Hogan Systems, Inc.+.................. 4,400 59,949
Hyperion Software Corp.+.............. 400 8,500
Kronos, Inc.+......................... 100 4,750
Microsoft Corp.+...................... 100 8,775
Shiva Corp.+.......................... 100 7,275
Softdesk, Inc.+....................... 100 1,975
Structural Dynamics Research Corp.+... 200 5,875
-----------
324,580
-----------
Computers and Office Equipment (1.8%)
Bay Networks Inc.+.................... 1,000 41,125
Comdisco, Inc......................... 1,250 28,281
Compaq Computer Corp.+................ 200 9,600
Computervision Corp.+................. 1,600 24,600
Dell Computer Corp.+.................. 1,200 41,550
HBO & Co.............................. 100 7,663
In Focus Systems, Inc.+............... 1,800 65,024
Komag, Inc.+.......................... 400 18,450
Moore Corp., Ltd...................... 600 11,175
Read-Rite Corp.+...................... 1,000 23,250
Sun Microsystems, Inc.+............... 200 9,125
United Stationers, Inc................ 2,200 61,049
-----------
340,892
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- --------------------------------------------------------------------
Number of Market
Shares Value
--------- ------------
United States (continued)
Consumer Products (0.2%)
Eastman Kodak Co...................... 300 $ 20,100
Liz Claiborne, Inc.................... 400 11,100
-----------
31,200
-----------
Diversified (1.2%)
Brady (WH) Co......................... 900 24,300
Dover Corp............................ 500 18,438
Harsco Corp........................... 900 52,313
Johnson Controls, Inc................. 200 13,750
Katy Industries....................... 6,300 58,275
Opal, Inc.+........................... 300 3,825
Textron, Inc.......................... 200 13,500
Varlen Corp........................... 1,500 32,250
VF Corp............................... 100 5,275
-----------
221,926
-----------
Electrical and Electronics (2.3%)
Applied Materials, Inc.+.............. 200 7,875
CTS Corporation....................... 1,000 37,750
Cypress Semiconductor Corp.+.......... 2,900 36,975
Dallas Semiconductor Corp............. 1,000 20,750
Esterline Technologies+............... 2,000 47,250
Hewlett Packard Co.................... 300 25,125
Intel Corp............................ 100 5,675
Logicon, Inc.......................... 1,600 44,000
Maxim Integrated Products, Inc.+...... 600 23,100
Micron Technology, Inc................ 300 11,888
National Service Industries, Inc...... 600 19,425
Novellus Systems, Inc.+............... 100 5,400
Quickturn Design System, Inc.+........ 1,100 11,000
Ramtron International Corp.+.......... 200 1,300
Seagate Technology, Inc.+............. 1,300 61,749
Siliconix, Inc.+...................... 300 11,100
Tencor Instruments+................... 500 12,188
Texas Instruments, Inc................ 600 31,050
Unitrode Corp.+....................... 600 16,950
-----------
430,550
-----------
Electrical Equipment (1.7%)
ADflex Solutions, Inc.+............... 1,400 37,450
Avnet, Inc............................ 700 31,325
Fore Systems, Inc.+................... 400 23,800
International Rectifier Corp.+........ 2,000 50,000
Kemet Corp.+.......................... 900 21,488
Kent Electronics Corp.+............... 1,000 58,374
Mentor Graphics Corp.+................ 2,300 41,975
Park Electrochemical Corp............. 1,200 39,600
Raychem Corp.......................... 400 22,750
-----------
326,762
-----------
Financial Services (2.8%)
Alex Brown & Sons, Inc................ 900 37,800
Astoria Financial Corp................ 1,600 72,999
Bear Stearns Co., Inc................. 2,300 45,713
BHC Financial, Inc.................... 2,800 50,400
Crestar Financial Corp................ 1,000 59,124
Dean Witter Discover and Co........... 100 $ 4,700
Deposit Guaranty Corp................. 700 31,150
Greenpoint Financial Corp............. 700 18,725
Household International, Inc.......... 100 5,913
Leader Financial Corp................. 800 29,900
Merrill Lynch & Co., Inc.............. 300 15,300
RCSB Financial, Inc................... 200 4,750
TR Financial Corp..................... 700 17,850
Transamerica Corp..................... 300 21,863
Travelers, Inc........................ 400 25,150
Union Planters Corp................... 2,100 66,937
White River Corp.+.................... 300 11,550
-----------
519,824
-----------
Foods and Beverages (1.6%)
Campbell Soup Co...................... 200 12,000
Coors (Adolph) Co..................... 700 15,488
Darden Restaurants, Inc............... 700 8,313
Hershey Foods Corp.................... 100 6,500
Hometown Buffet, Inc.+................ 300 3,319
Hormel Foods Corp..................... 1,400 34,475
IBP, Inc.............................. 1,000 50,500
International Multifoods Corp......... 2,000 40,250
Kroger Co. (The)+..................... 200 7,500
Mondavi (Robert) Corp.+............... 700 19,338
PepsiCo, Inc.......................... 500 27,938
Quaker Oats Co........................ 200 6,900
Safeway, Inc.+........................ 700 36,050
Sara Lee Corp......................... 200 6,375
Supervalu, Inc........................ 500 15,750
Universal Foods Corp.................. 300 12,038
-----------
302,734
-----------
Health Services (1.3%)
Invacare Corp......................... 1,200 30,300
Lincare Holdings, Inc.+............... 1,500 37,500
Nellcor, Inc.+........................ 600 34,800
RightCHOICE Managed Care, Inc.+....... 2,600 33,800
Tenet Healthcare Corp.+............... 600 12,450
Universal Health Services, Inc.+...... 1,200 53,250
Wellpoint Health Networks, Inc.+...... 1,100 35,338
-----------
237,438
-----------
Home Furnishings and Appliances (0.2%)
Leggett & Platt, Inc.................. 1,200 29,100
Oneida, Ltd........................... 300 5,288
-----------
34,388
-----------
Hotels and Restaurants (0.3%)
Marriott International, Inc........... 300 11,475
McDonald's Corp....................... 700 31,588
Prime Hospitality Corp.+.............. 1,300 13,000
-----------
56,063
-----------
Household Products (0.1%)
Premark International, Inc............ 300 15,188
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Variable Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ---------------------------------------------------------------------
Number of Market
Shares Value
--------- -----------
United States (continued)
Insurance (2.9%)
Allstate Corp......................... 500 $ 20,563
American Bankers Insurance Group...... 1,500 58,499
American National Insurance Co........ 700 46,550
CMAC Investment Corp.................. 400 17,600
Commerce Group, Inc................... 300 6,188
Fremont General Corp.................. 600 22,050
Fund American Enterprises, Inc........ 400 29,800
Home Beneficial Corp. Class B......... 400 9,600
Kansas City Life Insurance Co......... 300 15,750
Loews Corp............................ 600 47,025
Maxicare Health Plans, Inc.+.......... 3,500 94,062
Old Republic International Corp....... 1,200 42,600
Orion Capital Corp.................... 400 17,350
Reinsurance Group of America.......... 1,500 54,938
State Auto Financial Corp............. 900 23,400
Transatlantic Holdings, Inc........... 700 51,363
Transport Holdings, Inc.+............. 3 122
-----------
557,460
-----------
Machinery and Equipment (1.2%)
Acme-Cleveland Corp................... 1,500 28,125
Barnes Group, Inc..................... 800 28,800
Blount, Inc. Class A.................. 1,350 35,438
Brunswick Corp........................ 200 4,800
Fluor Corp............................ 100 6,600
FSI International, Inc.+.............. 800 16,200
Kysor Industrial Corp................. 1,800 43,650
L.S. Starrett Co. Class A............. 900 23,288
Lam Research Corp.+................... 300 13,725
Parker-Hannifin Corp.................. 400 13,700
Regal Beloit.......................... 700 15,225
-----------
229,551
-----------
Media and Entertainment (1.0%)
Callaway Golf Co...................... 2,500 56,563
Gtech Holdings Corp.+................. 2,100 54,600
King World Production, Inc.+.......... 500 19,438
Media General, Inc.................... 1,000 30,375
Mirage Resorts, Inc.+................. 900 31,050
-----------
192,026
-----------
Medical Supplies (1.2%)
Coherent, Inc.+....................... 800 32,400
Cordis Corp.+......................... 500 50,250
GC Companies, Inc.+................... 800 26,800
Guidant Corp.......................... 1,800 76,049
Haemonetics Corp.+.................... 1,000 17,750
North American Biologicals, Inc.+..... 1,900 20,425
-----------
223,674
-----------
Metals and Mining (1.3%)
AK Steel Holding Corp................. 400 13,700
Alcan Aluminum Ltd.................... 300 9,338
Alumax, Inc.+......................... 200 6,125
Aluminum Co. of America............... 100 5,288
Carpenter Technology Corp............. 700 28,788
Cleveland-Cliffs, Inc................. 600 $ 24,600
Cyprus Amax Minerals Co............... 300 7,838
J & L Specialty Steel, Inc............ 1,800 33,750
Mueller Industries, Inc.+............. 400 11,700
Phelps Dodge Corp..................... 300 18,675
Reliance Steel & Aluminum Co......... 2,100 43,575
Schnitzer Steel Industries, Inc....... 1,500 45,750
-----------
249,127
-----------
Oil and Gas (2.6%)
Atlantic Richfield Co................. 100 11,075
Camco International, Inc.............. 200 5,600
Chesapeake Energy Corp.+.............. 450 14,963
Columbia Gas System, Inc.+............ 100 4,388
Diamond Shamrock, Inc................. 1,800 46,575
Exxon Corp............................ 700 56,088
Fina,Inc. Class A..................... 900 45,450
Getty Petroleum Corp.................. 300 4,050
Halliburton Co........................ 400 20,250
Lufkin Industries, Inc................ 900 20,363
Mobil Corp............................ 400 44,800
NGC Corp.............................. 4,700 41,713
Oneok, Inc............................ 800 18,300
Royal Dutch Petroleum Co.............. 400 56,450
RPC, Inc.+............................ 800 7,300
Smith International, Inc.+............ 1,200 28,200
Sonat Offshore Drilling Co............ 1,100 49,225
Sun Company, Inc...................... 100 2,738
Texaco, Inc........................... 200 15,700
-----------
493,228
-----------
Paper and Containers (1.5%)
Asia Pulp & Paper Co. Ltd.+........... 5,000 40,625
Champion International Corp........... 200 8,400
Chesapeake Corp....................... 3,700 109,612
Georgia-Pacific Corp.................. 100 6,863
Greif Brothers Corp................... 200 5,375
Mead Corp............................. 300 15,675
Rayoner, Inc.......................... 1,100 36,713
Temple-Inland, Inc.................... 300 13,238
Willamette Industries, Inc............ 1,000 56,250
-----------
292,751
-----------
Pharmaceuticals (1.7%)
Alliance Pharmaceutical+.............. 300 4,088
American Home Products Corp........... 300 29,100
Becton, Dickinson & Co................ 300 22,500
Bristol-Myers Squibb Co............... 500 42,938
COR Therapeutics, Inc.+............... 1,200 10,050
Immulogic Pharmaceutical Corp.+....... 400 7,700
Immunex Corp.+........................ 100 1,650
Johnson & Johnson..................... 200 17,125
Merck & Co., Inc...................... 300 19,725
Pfizer, Inc........................... 400 25,200
R.P. Scherer Corp.+................... 1,000 49,125
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -------------------------------------------------------------------
Number of Market
Shares Value
--------- -----------
United States (continued)
Pharmaceuticals (continued)
Rhone-Poulenc Rorer, Inc.............. 800 $ 42,600
Schering Plough....................... 500 27,375
Vical, Inc.+.......................... 100 1,213
Watson Pharmaceuticals, Inc.+......... 300 14,700
-----------
315,089
-----------
Printing and Publishing (0.9%)
Banta Corp............................ 1,100 48,400
Central Newspapers, Inc. Class A..... 1,000 31,375
New York Times Co..................... 300 8,888
Plenum Publishing Corp................ 300 11,700
Pulitzer Publishing Co................ 1,100 52,525
Scholastic Corp.+..................... 200 15,550
Tribune Co............................ 100 6,113
-----------
174,551
-----------
Real Estate Investment Trusts (26.4%)
Associated Estates Realty Corp........ 11,500 247,249
Beacon Properties Corp................ 11,200 257,599
CALI Realty Corp...................... 7,900 172,812
CBL & Associates Properties, Inc...... 8,500 184,874
Chelsea GCA Realty, Inc............... 8,900 266,999
Colonial Properties Trust............. 10,200 260,099
Cousins Properties, Inc............... 6,000 121,499
Crescent Real Estate Equities, Inc.... 7,900 269,587
Developers Diversified Realty Corp.... 2,700 80,999
Duke Realty Investments, Inc.......... 8,600 269,824
Equity Residential Properties Trust... 8,300 254,187
Essex Property Trust, Inc............. 13,500 259,874
Evans Withycombe Residential, Inc..... 9,100 195,649
Excel Realty Trust, Inc............... 12,200 250,099
First Industrial Realty Trust, Inc.... 900 20,250
HGI Realty, Inc....................... 7,800 178,424
Highwood Properties, Inc.............. 9,700 274,024
Kimco Realty Corp..................... 9,150 249,337
Kranzco Realty Trust.................. 1,100 16,225
Oasis Residential, Inc................ 2,700 61,424
Prime Residential, Inc................ 14,400 266,399
Public Storage, Inc................... 13,500 256,499
Regency Realty Corp................... 11,200 193,199
Security Capital Industrial Trust..... 1,400 24,500
Smith (Charles E.) Residential Realty 2,800 66,149
Co..................................
Walden Residential Properties, Inc.... 13,400 279,724
-----------
4,977,504
-----------
Retail (1.6%)
Claire's Stores, Inc.................. 1,900 33,488
Egghead, Inc.+........................ 400 2,575
General Host Corp.+................... 5,000 20,000
Hannaford Brothers, Co................ 1,500 36,938
Longs Drug Stores, Inc................ 300 14,363
Mercantile Stores Co., Inc............ 400 18,500
Ross Stores, Inc...................... 700 13,388
Ruddick Corp.......................... 4,400 50,600
Sears, Roebuck & Co................... 300 11,700
Waban, Inc.+.......................... 2,200 $ 41,250
Weis Markets, Inc..................... 1,100 31,075
Zale Corp.+........................... 1,600 25,800
-----------
299,677
-----------
Specialty Consumer Durables (0.4%)
Bio-Rad Labs, Inc. Class A+........... 500 21,250
Polaris Industries, Inc............... 1,650 48,469
-----------
69,719
-----------
Telecommunications (1.0%)
Ameritech Corp........................ 700 41,300
Cascade Communications Corp.+......... 400 34,100
Case Corp............................. 1,000 45,750
Holophane Corp.+...................... 750 16,313
Lincoln Telecommunications Co......... 2,100 44,363
Mobile Telecommunications
Technologies Corp.+................. 100 2,138
-----------
183,964
-----------
Transportation (0.9%)
Alaska Air Group, Inc.+............... 100 1,625
American President Cos., Ltd.......... 1,800 41,400
AMR Corp.+............................ 300 22,275
Canadian National Railway Co.+........ 2,000 30,000
Expeditors International of
Washington, Inc..................... 300 7,838
Florida East Coast Industries, Inc.... 400 27,300
Hornbeck Offshore Services, Inc.+..... 200 3,925
Navistar International Corp.+......... 200 2,100
PHH Corp.............................. 900 42,075
-----------
178,538
-----------
Utilities - Electric (5.3%)
Boston Edison Co...................... 1,700 50,150
California Energy Co., Inc.+.......... 1,300 25,350
Central Louisiana Electric............ 1,200 32,250
Consolidated Edison Co. of 700 22,400
New York, Inc.......................
DQE, Inc.............................. 1,400 43,050
Entergy Corp.......................... 300 8,775
General Public Utilities Corp......... 1,100 37,400
Hawaiian Electric Industries, Inc..... 1,000 38,750
Illinova Corp......................... 1,800 54,000
IPALCO Enterprises, Inc............... 1,400 53,375
New England Electric System........... 1,700 67,362
New York State Electric & Gas Corp.... 2,300 59,512
Nipsco Industries, Inc................ 900 34,425
Northeast Utilities................... 2,100 51,188
Northern States Power Co.............. 700 34,388
Oklahoma Gas & Electric Co............ 200 8,600
Orange & Rockland Utilities, Inc...... 1,200 42,900
Pacific Gas and Electric Co........... 100 2,838
Pinnacle West Capital Corp............ 2,400 68,999
Portland General Corp................. 900 26,213
Public Service Co. of Colorado+....... 1,900 67,212
SCEcorp............................... 1,200 21,300
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
--------- ----------
United States (continued)
Utilities - Electric (continued)
Sierra Pacific Resources.............. 2,200 $ 51,425
Southwestern Public Service Co........ 1,800 58,949
Unicom Corp........................... 600 19,650
United Illuminating Co................ 200 7,475
Western Resources, Inc................ 500 16,688
-----------
1,004,624
-----------
Utilities - Oil and Gas (1.4%)
Brooklyn Union Gas Co. (The).......... 2,000 58,499
Energen Corp.......................... 2,300 55,488
New Jersey Resources Corp............. 1,100 33,138
Northwest Natural Gas Co.............. 300 9,900
Valero Energy Corp.................... 1,700 41,650
Washington Gas Light Co............... 1,700 34,850
Wicor, Inc............................ 1,000 32,250
Williams Cos., Inc.................... 200 8,775
-----------
274,550
-----------
Utilities - Telephone (0.7%)
Bell Atlantic Corp.................... 200 13,375
BellSouth Corp........................ 400 17,400
SBC Communications, Inc............... 500 28,750
Southern New England
Telecommunications Corp............. 1,000 39,750
Sprint Corp........................... 700 27,913
-----------
127,188
-----------
Utilities - Water (0.1%)
SJW Corp.............................. 500 18,875
-----------
Total United States 14,291,238
-----------
Australia (0.2%)
Banks (0.2%)
National Australia Bank Ltd........... 3,700 33,304
-----------
Total Australia 33,304
-----------
Austria (0.6%)
Electrical and Electronics (0.2%)
Austria Mikro Systeme International... 240 38,965
-----------
Foods and Beverages (0.1%)
Oester Brau-Beteiligungs.............. 200 9,116
-----------
Insurance (0.1%)
EA-Generali AG........................ 50 14,994
-----------
Oil and Gas (0.1%)
OEMV AG............................... 300 26,066
-----------
Paper and Containers (0.1%)
Leykam-Muerztaler Papier+............. 150 4,751
MayrMelnhof Karton AG................. 300 15,044
-----------
19,795
-----------
Total Austria 108,936
-----------
Belgium (0.6%)
Banks (0.1%)
Banque Bruxelles Lambert SA........... 50 8,580
-----------
Chemicals (0.3%)
Solvay SA Class A..................... 100 $ 54,027
-----------
Financial Services (0.1%)
Algem Maatsch Voor Nijverhei.......... 50 14,951
Societe Generale De Belgique.......... 150 12,411
-----------
27,362
-----------
Utilities - Electric (0.1%)
Reunies Electrobel & Tractebel........ 50 20,642
-----------
Total Belgium 110,611
-----------
Canada (0.8%)
Banks (0.1%)
Royal Bank of Canada.................. 700 15,974
-----------
Financial Services (0.1%)
Bank of Montreal...................... 807 18,349
-----------
Foods and Beverages (0.1%)
Molson Companies Ltd.................. 1,300 21,446
-----------
Metals and Mining (0.1%)
Dofasco, Inc.......................... 1,204 15,230
Falconbridge Ltd...................... 400 8,505
-----------
23,735
-----------
Oil and Gas (0.2%)
Alberta Energy Co. Ltd................ 300 4,812
Conwest Exploration Co................ 800 15,984
Imperial Oil Ltd...................... 1 26
Petro-Canada.......................... 1,400 16,167
-----------
36,989
-----------
Paper and Containers (0.1%)
Abitibi-Price Inc..................... 900 12,950
MacMillan Bloedel Ltd................. 500 6,186
Stone-Consolidated Corp.+............. 300 3,849
-----------
22,985
-----------
Retail (0.0%)
Hudson's Bay Co....................... 200 2,878
-----------
Utilities - Electric (0.1%)
Transalta Corp........................ 1,400 15,012
-----------
Total Canada 157,368
-----------
Denmark (0.7%)
Banks (0.2%)
Den Danske Bank....................... 300 20,733
Jyske Bank AS......................... 200 13,713
-----------
34,446
-----------
Building Materials and Construction (0.1%)
Lindab AB Class B..................... 800 16,456
-----------
Electrical and Electronics (0.0%)
Bang & Olufsen Holding Co............. 500 15,428
-----------
Foods and Beverages (0.1%)
Superfos AS........................... 200 17,503
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -------------------------------------------------------------------
Number of Market
Shares Value
--------- -----------
Denmark (continued)
Pharmaceuticals (0.2%)
Novo-Nordisk AS....................... 300 $ 41,140
-----------
Telecommunications (0.1%)
GN Store Nord AS...................... 200 16,059
-----------
Total Denmark 141,032
-----------
Finland (0.3%)
Financial Services (0.1%)
Unitas Bank Ltd. Class A+............. 4,500 11,400
-----------
Foods and Beverages (0.1%)
Huhtamaki Group Class I............... 700 16,927
-----------
Paper and Containers (0.1%)
Repola Oy............................. 1,000 18,884
-----------
Total Finland 47,211
-----------
Hong Kong (0.6%)
Banks (0.3%)
HSBC Holdings Plc..................... 3,027 45,803
-----------
Real Estate Investment Trusts (0.3%)
Amoy Properties Ltd................... 15,000 14,938
Hong Kong Land Holdings Ltd........... 25,000 46,250
-----------
61,188
-----------
Total Hong Kong 106,991
-----------
Italy (0.6%)
Banks (0.2%)
Banca Popolare Di Bergamo............. 3,000 41,508
-----------
Printing and Publishing (0.2%)
Mondadori (Arnoldo) Editore SpA....... 4,000 34,694
-----------
Utilities - Telephone (0.2%)
Telecom Italia SpA.................... 20,000 31,139
-----------
Total Italy 107,341
-----------
Japan (5.9%)
Autos and Auto Equipment (0.2%)
Mitsubishi Motors Corp................ 4,000 32,611
-----------
Building Materials and Construction (0.5%)
Fujita Corp........................... 10,000 45,175
Nippon Densetsu Kogyo................. 4,000 40,328
-----------
85,503
-----------
Chemicals (0.4%)
Fuji Photo Film....................... 1,000 28,889
Shin-Etsu Chemical Co................. 2,000 41,491
-----------
70,380
-----------
Computers and Office Equipment (0.7%)
CANON, Inc............................ 2,000 36,256
Fujitsu, Ltd.......................... 4,000 44,593
Kurabo Industries..................... 12,000 45,950
-----------
126,799
-----------
Electrical and Electronics (0.9%)
Hitachi Koki.......................... 5,000 45,369
Matsushita Electric Industrial Co. 3,000 $ 48,859
Ltd.................................
Nintendo Co. Ltd...................... 1,000 76,098
-----------
170,326
-----------
Electrical Equipment (0.5%)
Hitachi Ltd. (Hit. Seisakusho)........ 5,000 50,410
Nichicon.............................. 3,000 44,205
-----------
94,615
-----------
Financial Services (0.4%)
Sanyo Shinpan Finance Co.............. 1,000 82,399
-----------
Foods and Beverages (0.1%)
Katokichi............................. 1,000 20,842
-----------
Machinery and Equipment (0.4%)
Tsubakimoto Chain..................... 8,000 48,161
Tsukishima Kikai...................... 1,000 21,327
-----------
69,488
-----------
Printing and Publishing (0.2%)
Toppan Printing Co. Ltd............... 3,000 39,552
-----------
Real Estate Investment Trusts (0.3%)
Sekisui House......................... 4,000 51,185
-----------
Retail (0.5%)
Familymart............................ 1,000 45,175
JUSCO Co.............................. 2,000 52,155
-----------
97,330
-----------
Transportation (0.4%)
East Japan Railway Co................. 10 48,665
Nippon Express Co. Ltd................ 3,000 28,908
-----------
77,573
-----------
Utilities - Electric (0.1%)
Hokkaido Electric Power Co............ 40 931
Tohoku Electric Power................. 1,000 24,138
-----------
25,069
-----------
Utilities - Telephone (0.3%)
DDI Corp.............................. 2 15,511
Nippon Telegraph & Telephone Corp..... 6 47,596
-----------
63,107
-----------
Total Japan 1,106,779
-----------
Malaysia (0.3%)
Diversified (0.1%)
Oriental Holdings Bhd................. 3,000 15,242
-----------
Financial Services (0.0%)
Lion Land Bhd......................... 10,000 9,925
-----------
Oil and Gas (0.1%)
Petronas Gas Bhd...................... 4,000 13,627
-----------
Transportation (0.1%)
Malaysian International Shipping Bhd.. 4,000 10,477
-----------
Total Malaysia 49,271
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ---------------------------------------------------------------------
Number of Market
Shares Value
--------- -----------
Netherlands (0.7%)
Building Materials and Construction (0.1%)
Kon. Volker Stevin N.V................ 300 $ 18,152
-----------
Commercial Services (0.0%)
Royal PTT Nederland N.V............... 203 7,383
-----------
Electrical and Electronics (0.2%)
Philips Electronics N.V............... 900 32,562
-----------
Electrical Equipment (0.1%)
Draka Holding N.V..................... 500 12,944
-----------
Financial Services (0.2%)
ABN-Amro Holding N.V.................. 500 22,800
Internationale Nederlanden Groep N.V.. 300 20,061
-----------
42,861
-----------
Insurance (0.0%)
Aegon N.V............................. 202 8,946
-----------
Retail (0.1%)
Koninklijke Ahold N.V................. 303 12,380
-----------
Total Netherlands 135,228
-----------
Norway (1.1%)
Chemicals (0.3%)
Norsk Hydro AS........................ 1,400 58,941
-----------
Diversified (0.3%)
Orkla AS Class A...................... 1,000 49,857
-----------
Financial Services (0.1%)
Fokus Banken AS+...................... 5,000 27,065
-----------
Insurance (0.1%)
UNI Storebrand AS..................... 4,400 24,374
-----------
Transportation (0.3%)
Bergesen d.y. AS Class B.............. 1,300 25,514
Kvaerner AS........................... 600 21,272
-----------
46,786
-----------
Total Norway 207,023
-----------
Singapore (0.7%)
Banks (0.2%)
Oversea-Chinese Banking............... 3,000 37,540
-----------
Computers and Office Equipment (0.1%)
Acma Ltd.............................. 7,200 23,924
-----------
Financial Services (0.1%)
United Overseas Bank Ltd.............. 1,000 9,615
-----------
Foods and Beverages (0.1%)
Cerebos Pacific Ltd................... 4,000 27,713
-----------
Retail (0.1%)
Robinson & Co. Ltd.................... 5,000 20,855
-----------
Transportation (0.1%)
Singapore Airlines Ltd................ 2,000 18,664
-----------
Total Singapore 138,311
-----------
South Korea (0.3%)
Utilities - Electric (0.3%)
Korea Electric Power Corp. ADR........ 2,000 $ 53,500
-----------
Total South Korea 53,500
-----------
Sweden (0.8%)
Autos and Auto Equipment (0.2%)
Autoliv AB............................ 300 17,563
Volvo AB Class B...................... 1,200 24,625
-----------
42,188
-----------
Electrical and Electronics (0.2%)
Telefonaktiebolaget Ericsson.......... 1,550 30,404
-----------
Electrical Equipment (0.0%)
Allgon AB Class B..................... 700 9,717
-----------
Financial Services (0.1%)
Svenska Handelsbanken................. 1,000 20,823
-----------
Home Furnishings and Appliances (0.1%)
Electrolux AB Class B................. 400 16,447
-----------
Metals and Mining (0.1%)
SSAB Svenskt Sta AB................... 1,600 16,417
-----------
Paper and Containers (0.1%)
Stora Kopparbergs..................... 1,200 14,123
-----------
Total Sweden 150,119
-----------
Switzerland (0.6%)
Diversified (0.0%)
Alusuisse-Lonza Holding AG............ 10 7,943
-----------
Financial Services (0.1%)
Schweizerischer Bankverein............ 35 14,326
-----------
Foods and Beverages (0.1%)
Nestle SA Registered.................. 15 16,633
-----------
Insurance (0.2%)
Winterthur Schweizerische 15 10,715
Versicherungs.......................
Zurich Versicherungs-Gesellschaft..... 60 17,989
-----------
28,704
-----------
Machinery and Equipment (0.1%)
Georg Fischer AG...................... 10 13,036
Landis & Gyr.......................... 10 8,169
-----------
21,205
-----------
Paper and Containers (0.0%)
Bobst SA.............................. 5 7,821
-----------
Retail (0.0%)
Merkur Holding AG..................... 35 7,695
-----------
Utilities - Electric (0.1%)
Electrowatt AG........................ 30 11,002
-----------
Total Switzerland 115,329
-----------
United Kingdom (1.9%)
Apparel (0.1%)
Coats Viyella Plc..................... 10,200 27,714
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------------
Number of Market
Shares Value
--------- -----------
United Kingdom (continued)
Commercial Services (0.1%)
Inchcape Plc.......................... 7,000 $ 27,062
-----------
Consumer Products (0.1%)
Reckitt & Coleman Plc................. 1,400 15,498
-----------
Diversified (0.2%)
Harrisons & Crosfield Plc............. 11,300 28,071
Lonrho Plc............................ 5,500 15,029
-----------
43,100
-----------
Financial Services (0.3%)
Abbey National Plc.................... 3,300 32,586
Barclays Plc.......................... 2,700 30,979
-----------
63,565
-----------
Insurance (0.2%)
Guardian Royal Exchange Plc........... 3,400 14,570
Royal Insurance Holdings Plc.......... 2,634 15,622
-----------
30,192
-----------
Media and Entertainment (0.1%)
Granada Group Plc..................... 1,400 14,020
-----------
Oil and Gas (0.1%)
Burmah Castrol Plc.................... 1,100 15,951
-----------
Retail (0.4%)
Asda Group Plc........................ 20,000 34,312
Burton Group Plc...................... 20,700 43,227
-----------
77,539
-----------
Transportation (0.2%)
British Airways Plc................... 1,500 10,853
Peninsular & Orient Steam 4,400 32,518
Navigation Co.......................
-----------
43,371
-----------
Utilities - Water (0.1%)
Welsh Water Plc....................... 917 11,030
-----------
Total United Kingdom 369,042
-----------
TOTAL COMMON STOCKS
(COST $16,210,933) ................ $17,428,634
-----------
PREFERRED STOCKS (0.6%)
United States (0.3%)
Banks (0.1%)
BankAmerica Corp...................... 400 25,900
-----------
Chemicals (0.1%)
Union Carbide Corp.................... 300 11,250
-----------
Electrical Equipment (0.1%)
FPL Group, Inc........................ 300 13,913
-----------
Total United States 51,063
-----------
Austria (0.1%)
Banks (0.1%)
Creditanstalt-Bankverein.............. 300 15,431
-----------
Total Austria 15,431
-----------
Finland (0.2%)
Electrical Equipment (0.2%)
Nokia AB Class A...................... 1,000 $ 39,381
-----------
Total Finland 39,381
-----------
United Kingdom (0.0%)
Utilities - Water (0.0%)
Welsh Water Plc....................... 990 1,675
-----------
Total United Kingdom 1,675
-----------
TOTAL PREFERRED STOCKS
(COST $126,419) .................... $ 107,550
-----------
WARRANTS (0.2%)
Morgan Stanley American Express Hong
Kong+............................... 8,000 34,000
-----------
TOTAL WARRANTS (COST $39,390) ........ $ 34,000
-----------
Principal Market
Amount Value
--------- -----------
LONG TERM BONDS AND NOTES (0.2%)
Mitsubishi Bank, 3.00%, 11/30/02...... $ 40,000 $ 46,276
-----------
TOTAL LONG TERM BONDS AND NOTES (COST
$40,000) ........................... $ 46,276
-----------
SHORT-TERM INVESTMENTS (6.0%)
Cooper Industries, Inc., Comm. Paper,
6.00%, 01/02/96 .................... 495,000 495,000
Fleetwood Credit Corp., Comm. Paper,
5.85%, 01/04/96 (b) ................ 150,000 149,951
U.S. Treasury Note++, 9.25%, 01/15/96. 485,000 485,888
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $1,130,537) .................. $1,130,839
-----------
TOTAL INVESTMENTS
(cost $17,547,279)(a) .............. $18,747,299
Other assets less liabilities ........ 102,587
-----------
Total Net Assets ..................... $18,849,886
===========
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Ascent Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------
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 is identical.
Unrealized gains and losses, based on identified tax cost at December 31, 1995
are as follows:
Unrealized gains .................... $1,638,946
Unrealized losses ................... (438,926)
-----------
Net unrealized gain.................. $1,200,020
===========
++Security pledged to cover initial margin deposits on open futures contracts at
December 31, 1995. Information corncerning open futures contracts is shown
below:
No. of Long Initial Expiration Unrealized
Contracts Value Date Gain/(Loss)
------------ ---------- ---------- -----------
All Ordinaries
Share Price
Index Futures .. 3 $ 125,621 March 96 $ (521)
TSE 35 Index 1 91,500 March 96 (821)
Futures
German DAX
Index Futures 2 317,831 March 96 (559)
CAC 40 Stock
Index Futures .. 2 149,232 March 96 3,149
Topix Index 1 149,645 March 96 5,429
Future .........
Hang Seng
Index Futures .. 3 194,518 March 96 2,134
Futures ........
-----------
$ 8,811
===========
(b) 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 determined by the Board of Trustees.
See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995
- -----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
COMMON STOCKS (75.1%)
United States (63.2%)
Aerospace and Defense (0.1%)
McDonnell Douglas Corp................ 200 $ 18,400
-----------
Apparel and Cosmetics (0.3%)
Blair Corp............................ 100 3,163
Chic By H I S, Inc.+.................. 2,500 13,750
Nike, Inc............................. 200 13,925
Oshkosh B'Gosh, Inc................... 200 3,500
TJX Companies, Inc. (The)............. 900 16,988
-----------
51,326
-----------
Autos and Auto Equipment (0.5%)
Borg Warner Automotive, Inc........... 900 28,800
Kaydon Corp........................... 700 21,263
Smith (A.O.) Corp..................... 900 18,675
Snap On, Inc.......................... 200 9,050
Varity Corp.+......................... 300 11,138
-----------
88,926
-----------
Banks (3.1%)
Bank of New York Co., Inc............. 600 29,250
BayBanks, Inc......................... 400 39,300
Chemical Banking Corp................. 300 17,625
CITICORP.............................. 400 26,900
Citizens Bancorp...................... 1,400 45,150
City National Corp.................... 2,400 33,600
Cullen/Frost Bankers, Inc............. 900 45,000
First American Corp. (Tenn.).......... 700 33,163
First Chicago Corp.................... 543 21,449
First Citizens Bancshares, Inc. Class 100 5,513
A...................................
First Interstate Bancorp.............. 200 27,300
First of America Bank Corp............ 1,000 44,375
Firstbank of Illinois Co.............. 400 12,350
KeyCorp............................... 600 21,750
Nations Bank, Inc..................... 400 27,850
PNC Bancorp........................... 200 13,125
Provident Bancorp..................... 800 37,600
Queens County Bancorp, Inc............ 300 11,869
River Forest Bancorp, Inc............. 1,000 25,500
Sumitomo Bank of California........... 100 2,450
Union Bank............................ 600 32,550
United Carolina Bancshares, Inc....... 900 30,375
-----------
584,044
-----------
Building Materials and Construction (2.0%)
American Buildings Co.+............... 900 20,250
Beazer Homes USA, Inc.+............... 1,600 33,000
Centex Corp........................... 200 6,950
Champion Enterprises, Inc.+........... 2,200 67,924
Continental Homes Holding Corp........ 200 4,925
Elcor Corp............................ 300 6,525
Granite Construction, Inc............. 2,100 66,149
International Aluminum Corp........... 200 5,750
Lennar Corp........................... 500 12,563
Puerto Rican Cement Co., Inc.......... 700 23,188
Pulte Corp............................ 400 $ 13,450
Redman Industries, Inc.+.............. 1,100 37,125
Texas Industries, Inc................. 400 21,200
Tredegar Industries, Inc.............. 900 29,250
Webb (Del E.) Corp.................... 500 10,063
WHX Corp.+............................ 1,300 14,138
-----------
372,450
-----------
Chemicals (0.6%)
Dow Chemical Co....................... 200 14,075
Eastman Chemical Co................... 100 6,263
Geon Co. (The)........................ 500 12,188
Lyondell Petrochemical Co............. 1,600 36,600
Sterling Chemicals, Inc.+............. 2,100 17,063
Wellman, Inc.......................... 1,000 22,750
-----------
108,939
-----------
Commercial Services (0.4%)
GATX Corp............................. 600 29,175
Manpower, Inc......................... 900 25,313
Measurex Corp......................... 1,000 28,250
-----------
82,738
-----------
Computer Software (1.6%)
Acxiom Corp.+......................... 300 8,213
Barra, Inc.+.......................... 1,500 25,500
Boole & Babbage, Inc.+................ 150 3,675
Cadence Design Systems, Inc.+......... 2,700 113,399
Cisco Systems, Inc.+.................. 300 22,388
Computer Associates International,
Inc................................. 250 14,219
Computer Sciences Corp.+.............. 300 21,075
Hogan Systems, Inc.+.................. 4,200 57,224
Hyperion Software Corp.+.............. 200 4,250
Kronos, Inc.+......................... 100 4,750
Microsoft Corp.+...................... 100 8,775
Softdesk, Inc.+....................... 100 1,975
Structural Dynamics Research Corp.+... 500 14,688
System Software Associates, Inc....... 150 3,263
-----------
303,394
-----------
Computers and Office Equipment (1.7%)
Bay Networks, Inc.+................... 800 32,900
Comdisco, Inc......................... 1,700 38,463
Compaq Computer Corp.+................ 200 9,600
Computervision Corp.+................. 2,200 33,825
Dell Computer Corp.+.................. 800 27,700
In Focus Systems, Inc.+............... 1,500 54,187
Komag, Inc.+.......................... 200 9,225
Moore Corp., Ltd...................... 1,000 18,625
Read-Rite Corp.+...................... 1,700 39,525
Sun Microsystems, Inc.+............... 200 9,125
United Stationers, Inc................ 1,800 49,950
-----------
323,125
-----------
Consumer Products (0.2%)
Eastman Kodak Co...................... 400 26,800
See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Consumer Products (continued)
Liz Claiborne, Inc.................... 400 $ 11,100
-----------
37,900
-----------
Diversified (1.2%)
Brady (WH) Co......................... 900 24,300
Dover Corp............................ 500 18,438
Harsco Corp........................... 600 34,875
Katy Industries....................... 5,400 49,950
Opal, Inc.+........................... 200 2,550
SPS Technologies, Inc.+............... 600 32,025
Textron, Inc.......................... 300 20,250
Varlen Corp........................... 1,400 30,100
VF Corp............................... 100 5,275
-----------
217,763
-----------
Electrical and Electronics (1.9%)
Applied Materials, Inc.+.............. 200 7,875
Cohu, Inc............................. 100 2,550
CTS Corporation....................... 1,000 37,750
Cypress Semiconductor Corp.+.......... 2,300 29,325
Dallas Semiconductor Corp............. 500 10,375
Hewlett Packard Co.................... 300 25,125
Intel Corp............................ 100 5,675
Logicon, Inc.......................... 1,600 44,000
Maxim Integrated Products, Inc.+...... 600 23,100
Micron Technology, Inc................ 300 11,888
National Service Industries, Inc...... 600 19,425
Novellus Systems, Inc.+............... 400 21,600
Quickturn Design System, Inc.+........ 800 8,000
Seagate Technology, Inc.+............. 1,100 52,249
Siliconix, Inc.+...................... 300 11,100
Tencor Instruments+................... 400 9,750
Texas Instruments, Inc................ 400 20,700
Unitrode Corp.+....................... 600 16,950
-----------
357,437
-----------
Electrical Equipment (1.7%)
ADflex Solutions, Inc.+............... 1,300 34,775
Avnet, Inc............................ 700 31,325
International Rectifier Corp.+........ 1,600 40,000
Kemet Corp.+.......................... 700 16,713
Kent Electronics Corp.+............... 800 46,700
Mentor Graphics Corp.+................ 1,800 32,850
Park Electrochemical Corp............. 1,200 39,600
Raychem Corp.......................... 400 22,750
Sundstrand Corp....................... 600 42,225
Thomas & Betts Corp................... 200 14,750
-----------
321,688
-----------
Financial Services (2.0%)
Alex Brown & Sons, Inc................ 800 33,600
Astoria Financial Corp................ 1,500 68,437
Bear Stearns Co., Inc................. 1,900 37,763
BHC Financial, Inc.................... 2,700 48,600
Crestar Financial Corp................ 300 17,738
Dean Witter Discover and Co........... 100 4,700
Greenpoint Financial Corp............. 300 $ 8,025
Household International, Inc.......... 100 5,913
Leader Financial Corp................. 600 22,425
Merrill Lynch & Co., Inc.............. 300 15,300
RCSB Financial, Inc................... 200 4,750
TR Financial Corp..................... 600 15,300
Transamerica Corp..................... 100 7,288
Travelers, Inc........................ 400 25,150
Union Planters Corp................... 1,700 54,187
White River Corp.+.................... 300 11,550
-----------
380,726
-----------
Foods and Beverages (1.6%)
Campbell Soup Co...................... 400 24,000
Coors (Adolph) Co..................... 900 19,913
Darden Restaurants, Inc............... 1,000 11,875
Hometown Buffet, Inc.+................ 200 2,213
Hormel Foods Corp..................... 800 19,700
IBP, Inc.............................. 900 45,450
International Multifoods Corp......... 1,600 32,200
Kroger Co. (The)+..................... 300 11,250
Mondavi (Robert) Corp.+............... 500 13,813
PepsiCo, Inc.......................... 800 44,700
Quaker Oats Co........................ 200 6,900
Safeway, Inc.+........................ 700 36,050
Sara Lee Corp......................... 200 6,375
Smith's Food & Drug Centers, Inc...... 400 10,100
Supervalu, Inc........................ 500 15,750
Universal Foods Corp.................. 200 8,025
-----------
308,314
-----------
Health Services (1.2%)
Invacare Corp......................... 1,200 30,300
Lincare Holdings, Inc.+............... 1,300 32,500
Nellcor, Inc.+........................ 600 34,800
Quorum Health Group, Inc.+............ 200 4,400
RightCHOICE Managed Care, Inc.+....... 2,400 31,200
Tenet Healthcare Corp.+............... 700 14,525
Universal Health Services, Inc.+...... 1,000 44,375
Wellpoint Health Networks, Inc.+...... 900 28,913
-----------
221,013
-----------
Home Furnishings and Appliances (0.2%)
Leggett & Platt, Inc.................. 1,400 33,950
Oneida, Ltd........................... 200 3,525
-----------
37,475
-----------
Hotels and Restaurants (0.1%)
Marriott International, Inc........... 300 11,475
Prime Hospitality Corp.+.............. 1,200 12,000
-----------
23,475
-----------
Household Products (0.1%)
Premark International, Inc............ 300 15,188
-----------
Insurance (2.6%)
Allstate Corp......................... 478 19,658
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ------------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Insurance (continued)
American Bankers Insurance Group...... 1,400 $ 54,599
Capital American Financial Corp....... 100 2,263
CMAC Investment Corp.................. 400 17,600
Commerce Group, Inc................... 300 6,188
Fremont General Corp.................. 400 14,700
Fund American Enterprises, Inc........ 400 29,800
Home Beneficial Corp. Class B......... 400 9,600
Horace Mann Educators Corp............ 1,000 31,250
Kansas City Life Insurance Co......... 300 15,750
Loews Corp............................ 400 31,350
Maxicare Health Plans, Inc.+.......... 3,100 83,312
Old Republic International Corp....... 1,000 35,500
Orion Capital Corp.................... 400 17,350
Presidential Life Corp................ 400 3,950
Reinsurance Group of America.......... 1,400 51,274
State Auto Financial Corp............. 900 23,400
Transatlantic Holdings, Inc........... 700 51,362
Transport Holdings, Inc.+............. 2 82
-----------
498,988
-----------
Machinery and Equipment (1.3%)
Acme-Cleveland Corp................... 1,400 26,250
Barnes Group, Inc..................... 700 25,200
Blount, Inc. Class A.................. 1,350 35,438
Brunswick Corp........................ 300 7,200
Central Sprinkler Corp.+.............. 1,700 60,349
FSI International, Inc.+.............. 700 14,175
L.S. Starrett Co. ClassA.............. 700 18,113
Lam Research Corp.+................... 400 18,300
Parker-Hannifin Corp.................. 500 17,125
Regal Beloit.......................... 700 15,225
-----------
237,375
-----------
Media and Entertainment (1.1%)
AMC Entertainment+.................... 1,300 30,388
Callaway Golf Co...................... 2,100 47,513
Gtech Holdings Corp.+................. 1,600 41,600
King World Production, Inc.+.......... 700 27,213
Media General, Inc.................... 1,000 30,375
Mirage Resorts, Inc.+................. 600 20,700
-----------
197,789
-----------
Medical Supplies (0.8%)
Coherent, Inc.+....................... 500 20,250
Cordis Corp.+......................... 300 30,150
GC Companies, Inc.+................... 700 23,450
Guidant Corp.......................... 1,000 42,250
Medtronic, Inc........................ 200 11,175
North American Biologicals, Inc.+..... 1,500 16,125
-----------
143,400
-----------
Metals and Mining (1.5%)
AK Steel Holding Corp................. 300 10,275
Alcan Aluminum Ltd.................... 300 9,338
Alumax Inc.+.......................... 200 6,125
Aluminum Co. of America............... 100 5,288
Carpenter Technology Corp............. 900 $ 37,013
Cleveland-Cliffs, Inc................. 600 24,600
Cyprus Amax Minerals Co............... 300 7,838
J & L Specialty Steel, Inc............ 1,700 31,875
Magma Copper Co.+..................... 1,500 41,813
Mueller Industries, Inc.+............. 400 11,700
Phelps Dodge Corp..................... 300 18,675
Reliance Steel & Aluminum Co.......... 2,000 41,500
Schnitzer Steel Industries, Inc....... 1,400 42,700
-----------
288,740
-----------
Oil and Gas (2.1%)
Camco International, Inc.............. 200 5,600
Chesapeake Energy Corp.+.............. 300 9,975
Diamond Shamrock, Inc................. 500 12,938
Exxon Corp............................ 700 56,087
Fina, Inc. Class A.................... 600 30,300
Halliburton Co........................ 400 20,250
Lufkin Industries, Inc................ 600 13,575
Mobil Corp............................ 400 44,800
NGC Corp.............................. 3,300 29,288
Oneok, Inc............................ 700 16,013
Royal Dutch Petroleum Co.............. 400 56,449
RPC, Inc.+............................ 700 6,388
Smith International, Inc.+............ 1,100 25,850
Sonat Offshore Drilling Co............ 900 40,275
Sun Company, Inc...................... 100 2,738
Texaco, Inc........................... 200 15,700
-----------
386,226
-----------
Paper and Containers (1.5%)
Asia Pulp & Paper Co. Ltd.+........... 3,000 24,375
Champion International Corp........... 200 8,400
Chesapeake Corp....................... 3,700 109,612
Georgia-Pacific Corp.................. 100 6,863
Greif Brothers Corp................... 200 5,375
Mead Corp............................. 400 20,900
Rayoner, Inc.......................... 1,000 33,375
Temple-Inland, Inc.................... 200 8,825
Willamette Industries, Inc............ 1,000 56,249
-----------
273,974
-----------
Pharmaceuticals (1.6%)
Alliance Pharmaceutical+.............. 300 4,088
American Home Products Corp........... 300 29,100
Becton, Dickinson & Co................ 300 22,500
Bristol-Myers Squibb Co............... 400 34,350
COR Therapeutics, Inc.+............... 1,000 8,375
Immulogic Pharmaceutical Corp.+....... 300 5,775
Immunex Corp.+........................ 100 1,650
Johnson & Johnson..................... 300 25,688
Merck & Co., Inc...................... 400 26,300
Pfizer, Inc........................... 200 12,600
R.P. Scherer Corp.+................... 1,000 49,125
Rhone-Poulenc Rorer, Inc.............. 800 42,600
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Pharmaceuticals (continued)
Schering Plough....................... 500 $ 27,375
Vical, Inc.+.......................... 100 1,213
Watson Pharmaceuticals, Inc.+......... 300 14,700
-----------
305,439
-----------
Printing and Publishing (0.7%)
Banta Corp............................ 800 35,200
Central Newspapers, Inc. Class A..... 900 28,238
Plenum Publishing Corp................ 200 7,800
Pulitzer Publishing Co................ 1,100 52,524
Scholastic Corp.+..................... 100 7,775
Tribune Co............................ 100 6,113
-----------
137,650
-----------
Real Estate Investment Trusts (20.4%)
Apartment Investment & Management..... 400 7,800
Associated Estates Realty Corp........ 4,200 90,299
Beacon Properties Corp................ 9,000 206,999
CALI Realty Corp...................... 3,600 78,749
CBL & Associates Properties, Inc...... 8,500 184,874
Chelsea GCA Realty, Inc............... 6,800 203,999
Colonial Properties Trust............. 8,500 216,749
Cousins Properties, Inc............... 5,400 109,349
Crescent Real Estate Equities, Inc.... 6,300 214,987
Developers Diversified Realty Corp.... 2,600 77,999
Duke Realty Investments, Inc.......... 7,000 219,624
Equity Residential Properties Trust... 6,500 199,062
Essex Property Trust, Inc............. 10,300 198,274
Evans Withycombe Residential, Inc..... 8,600 184,899
Excel Realty Trust, Inc............... 9,900 202,949
HGI Realty, Inc....................... 7,400 169,274
Highwood Properties, Inc.............. 7,300 206,224
Kimco Realty Corp..................... 7,350 200,287
Kranzco Realty Trust.................. 1,000 14,750
Oasis Residential, Inc................ 8,600 195,649
Public Storage, Inc................... 11,000 208,999
Regency Realty Corp................... 8,700 150,074
Security Capital Industrial Trust..... 1,100 19,250
Smith (Charles E.) Residential Realty 2,300 54,337
Co..................................
Walden Residential Properties, Inc.... 10,900 227,537
-----------
3,842,993
-----------
Retail (1.3%)
Claire's Stores, Inc.................. 1,700 29,963
Egghead, Inc.+........................ 400 2,575
Hannaford Brothers, Co................ 1,400 34,475
Longs Drug Stores, Inc................ 400 19,150
Mercantile Stores Co., Inc............ 100 4,625
Micro Warehouse, Inc.+................ 100 4,325
Ross Stores, Inc...................... 600 11,475
Ruddick Corp.......................... 3,500 40,250
Sears, Roebuck & Co................... 300 11,700
Waban, Inc.+.......................... 1,900 35,625
Weis Markets, Inc..................... 1,000 28,250
Zale Corp.+........................... 1,500 24,188
-----------
246,601
-----------
Specialty Consumer Durables (0.4%)
Bio-Rad Labs, Inc. Class A+........... 400 $ 17,000
Polaris Industries, Inc............... 1,850 54,343
-----------
71,343
-----------
Telecommunications (0.8%)
Ameritech Corp........................ 700 41,300
Cascade Communications Corp.+......... 300 25,575
Case Corp............................. 800 36,600
Holophane Corp.+...................... 300 6,525
Lincoln Telecommunications Co......... 2,000 42,250
Mobile Telecommunications
Technologies Corp.+................. 100 2,138
-----------
154,388
-----------
Transportation (0.6%)
Alaska Air Group, Inc.+............... 100 1,625
American President Cos., Ltd.......... 1,500 34,500
AMR Corp.+............................ 100 7,425
Canadian National Railway Co.+........ 1,000 15,000
Expeditors International of
Washington, Inc..................... 300 7,838
Florida East Coast Industries, Inc.... 400 27,300
Hornbeck Offshore Services, Inc.+..... 200 3,925
Navistar International Corp.+......... 200 2,100
PHH Corp.............................. 300 14,025
-----------
113,738
-----------
Utilities - Electric (4.0%)
Boston Edison Co...................... 1,400 41,300
California Energy Co., Inc.+.......... 1,500 29,250
Central Louisiana Electric............ 200 5,375
Consolidated Edison Co. of 1,000 32,000
New York, Inc.......................
DQE, Inc.............................. 1,100 33,825
Entergy Corp.......................... 300 8,775
General Public Utilities Corp......... 1,000 34,000
Hawaiian Electric Industries, Inc..... 900 34,875
Illinova Corp......................... 1,100 33,000
IPALCO Enterprises, Inc............... 700 26,688
New England Electric System........... 1,400 55,474
New York State Electric & Gas Corp.... 1,800 46,575
Nipsco Industries, Inc................ 600 22,950
Northeast Utilities................... 500 12,188
Northern States Power Co.............. 600 29,475
Oklahoma Gas & Electric Co............ 200 8,600
Orange & Rockland Utilities, Inc...... 1,100 39,325
Pinnacle West Capital Corp............ 2,300 66,124
Portland General Corp................. 700 20,388
Public Service Co. of Colorado+....... 1,500 53,062
SCEcorp............................... 1,200 21,300
Sierra Pacific Resources.............. 2,100 49,088
Southwestern Public Service Co........ 200 6,550
Unicom Corp........................... 600 19,650
United Illuminating Co................ 200 7,475
Western Resources, Inc................ 400 13,350
-----------
750,662
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Utilities - Oil and Gas (1.3%)
Atlanta Gas Light Co.................. 200 $ 3,950
Brooklyn Union Gas Co. (The).......... 1,500 43,875
Energen Corp.......................... 2,100 50,663
New Jersey Resources Corp............. 900 27,113
Northwest Natural Gas Co.............. 300 9,900
Valero Energy Corp.................... 1,500 36,750
Washington Gas Light Co............... 1,700 34,850
Wicor, Inc............................ 800 25,800
Williams Cos., Inc.................... 200 8,775
-----------
241,676
-----------
Utilities - Telephone (0.7%)
Bell Atlantic Corp.................... 200 13,375
BellSouth Corp........................ 500 21,750
SBC Communications, Inc............... 600 34,500
Southern New England
Telecommunications Corp............. 900 35,775
Sprint Corp........................... 700 27,913
-----------
133,313
-----------
Utilities - Water
SJW Corp.............................. 300 11,325
-----------
Total United States 11,889,941
-----------
Australia (0.1%)
Banks (0.1%)
National Australia Bank Ltd........... 3,000 27,004
-----------
Total Australia 27,004
-----------
Austria (0.5%)
Electrical and Electronics (0.1%)
Austria Mikro Systeme International... 60 9,741
-----------
Foods and Beverages (0.0%)
Oester Brau-Beteiligungs.............. 150 6,837
-----------
Insurance (0.1%)
EA-Generali AG........................ 50 14,994
-----------
Machinery and Equipment (0.1%)
Jenbacher Werke AG.................... 150 22,640
-----------
Oil and Gas (0.1%)
OEMV AG............................... 150 13,033
-----------
Paper and Containers (0.1%)
Leykam-Muerztaler Papier+............. 200 6,335
MayrMelnhof Karton AG................. 300 15,044
-----------
21,379
-----------
Total Austria 88,624
-----------
Belgium (0.5%)
Banks (0.1%)
Banque Bruxelles Lambert SA........... 50 8,580
-----------
Chemicals (0.3%)
Solvay SA Class A..................... 100 54,026
-----------
Financial Services (0.0%)
Societe Generale De Belgique.......... 100 8,274
-----------
Utilities - Electric (0.1%)
Reunies Electrobel & Tractebel........ 50 $ 20,642
-----------
Total Belgium 91,522
-----------
Canada (0.6%)
Banks (0.1%)
Royal Bank of Canada.................. 600 13,692
-----------
Financial Services (0.1%)
Bank of Montreal...................... 1,009 22,936
-----------
Foods and Beverages (0.0%)
Molson Companies Ltd.................. 600 9,898
-----------
Metals and Mining (0.1%)
Alcan Aluminum Ltd.................... 300 9,321
Dofasco, Inc.......................... 500 6,324
-----------
15,645
-----------
Oil and Gas (0.1%)
Alberta Energy Co. Ltd................ 300 4,812
Petro-Canada.......................... 1,300 15,012
TransCanada Pipelines Ltd............. 0 1
-----------
19,825
-----------
Paper and Containers (0.1%)
Abitibi-Price, Inc.................... 300 4,317
MacMillan Bloedel Ltd................. 1,100 13,610
Stone-Consolidated Corp.+............. 300 3,849
-----------
21,776
-----------
Retail (0.0%)
Hudson's Bay Co....................... 200 2,878
-----------
Utilities - Electric (0.1%)
Transalta Corp........................ 1,200 12,868
-----------
Total Canada 119,518
-----------
Denmark (0.7%)
Banks (0.2%)
Den Danske Bank....................... 300 20,733
Jyske Bank AS......................... 200 13,713
-----------
34,446
-----------
Building Materials and Construction (0.1%)
Lindab AB Class B..................... 800 16,456
-----------
Electrical and Electronics (0.1%)
Bang & Olufsen Holding Co............. 400 12,342
-----------
Foods and Beverages (0.1%)
Superfos AS........................... 200 17,503
-----------
Pharmaceuticals (0.1%)
Novo-Nordisk AS....................... 200 27,427
-----------
Telecommunications (0.1%)
GN Store Nord AS...................... 200 16,059
-----------
Total Denmark 124,233
-----------
Finland (0.2%)
Financial Services (0.1%)
Unitas Bank Ltd. Class A+............. 5,000 12,666
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
Finland (continued)
Foods and Beverages (0.1%)
Huhtamaki Group Class I............... 600 $ 14,509
-----------
Paper and Containers (0.0%)
Repola Oy............................. 600 11,331
-----------
Total Finland 38,506
-----------
Hong Kong (0.3%)
Banks (0.1%)
HSBC Holdings Plc..................... 1,757 26,586
-----------
Real Estate Investment Trusts (0.2%)
Hong Kong Land Holdings Ltd........... 16,000 29,600
-----------
Total Hong Kong 56,186
-----------
Italy (0.3%)
Banks (0.1%)
Banca Popolare Di Bergamo............. 1,000 13,836
-----------
Printing and Publishing (0.1%)
Mondadori (Arnoldo) Editore SpA....... 2,000 17,347
-----------
Utilities - Telephone (0.1%)
Telecom Italia SpA.................... 16,000 24,911
-----------
Total Italy 56,094
-----------
Japan (4.0%)
Autos and Auto Equipment (0.1%)
Mitsubishi Motors Corp................ 3,000 24,458
-----------
Building Materials and Construction (0.3%)
Fujita Corp........................... 6,000 27,105
Nippon Densetsu Kogyo................. 3,000 30,246
-----------
57,351
-----------
Chemicals (0.3%)
Fuji Photo Film....................... 1,000 28,889
Shin-Etsu Chemical Co................. 1,000 20,745
-----------
49,634
-----------
Computers and Office Equipment (0.3%)
CANON, Inc............................ 1,000 18,128
Fujitsu, Ltd.......................... 3,000 33,445
-----------
51,573
-----------
Electrical and Electronics (0.8%)
Hitachi Koki.......................... 4,000 36,295
Matsushita Electric Industrial Co. 2,000 32,572
Ltd.................................
Nintendo Co. Ltd...................... 1,000 76,098
-----------
144,965
-----------
Electrical Equipment (0.4%)
Hitachi Ltd. (Hit. Seisakusho)........ 4,000 40,328
Nichicon.............................. 2,000 29,470
-----------
69,798
-----------
Financial Services (0.2%)
Promise Co., Ltd...................... 1,000 48,180
-----------
Foods and Beverages (0.2%)
Katokichi............................. 2,000 41,685
-----------
Machinery and Equipment (0.2%)
Tsubakimoto Chain..................... 4,000 $ 24,080
Tsukishima Kikai...................... 1,000 21,327
-----------
45,407
-----------
Printing and Publishing (0.1%)
Toppan Printing Co. Ltd............... 2,000 26,368
-----------
Real Estate Investment Trusts (0.2%)
Sekisui House......................... 3,000 38,389
-----------
Retail (0.3%)
JUSCO Co.............................. 2,000 52,154
-----------
Transportation (0.3%)
East Japan Railway Co................. 6 29,199
Nippon Express Co. Ltd................ 2,000 19,272
-----------
48,471
-----------
Utilities - Electric (0.1%)
Tohoku Electric Power................. 1,000 24,138
-----------
Utilities - Telephone (0.2%)
DDI Corp.............................. 2 15,511
Nippon Telegraph & Telephone Corp..... 3 24,284
-----------
39,795
-----------
Total Japan 762,366
-----------
Malaysia (0.2%)
Diversified (0.1%)
Oriental Holdings Bhd................. 3,000 15,242
-----------
Financial Services (0.0%)
Lion Land Bhd......................... 8,000 7,940
-----------
Oil and Gas (0.1%)
Petronas Gas Bhd...................... 3,000 10,221
-----------
Total Malaysia 33,403
-----------
Netherlands (0.6%)
Building Materials and Construction (0.1%)
Kon. Volker Stevin N.V................ 250 15,127
-----------
Commercial Services (0.0%)
Royal PTT Nederland N.V............... 203 7,383
-----------
Electrical and Electronics (0.1%)
Philips Electronics N.V............... 600 21,708
-----------
Electrical Equipment (0.1%)
Draka Holding N.V..................... 500 12,944
-----------
Financial Services (0.2%)
ABN-Amro Holding N.V.................. 400 18,240
Internationale Nederlanden Groep N.V.. 200 13,374
-----------
31,614
-----------
Insurance (0.1%)
Aegon N.V............................. 202 8,946
-----------
Retail (0.0%)
Koninklijke Ahold N.V................. 202 8,253
-----------
Total Netherlands 105,975
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
Norway (0.7%)
Chemicals (0.2%)
Norsk Hydro AS........................ 900 $ 37,891
-----------
Diversified (0.1%)
Orkla AS Class A...................... 500 24,928
-----------
Insurance (0.1%)
UNI Storebrand AS..................... 2,900 16,065
-----------
Transportation (0.3%)
Bergesen d.y. AS Class B.............. 900 17,664
Kvaerner AS........................... 800 28,363
-----------
46,027
-----------
Total Norway 124,911
-----------
Singapore (0.7%)
Banks (0.2%)
Oversea-Chinese Banking............... 3,000 37,540
-----------
Computers and Office Equipment (0.1%)
Acma Ltd.............................. 2,400 7,975
-----------
Foods and Beverages (0.1%)
Cerebos Pacific Ltd................... 3,000 20,785
-----------
Household Products (0.1%)
Wing Tai Holdings..................... 12,000 24,518
-----------
Retail (0.1%)
Robinson & Co. Ltd.................... 4,000 16,684
-----------
Transportation (0.1%)
Singapore Airlines Ltd................ 2,000 18,664
-----------
Total Singapore 126,166
-----------
South Korea (0.1%)
Utilities - Electric (0.1%)
Korea Electric Power Corp. ADR........ 1,000 26,750
-----------
Total South Korea 26,750
-----------
Sweden (0.5%)
Autos and Auto Equipment (0.1%)
Autoliv AB............................ 200 11,709
Volvo AB Class B...................... 800 16,417
-----------
28,126
-----------
Electrical and Electronics (0.0%)
Telefonaktiebolaget Ericsson.......... 550 10,789
-----------
Electrical Equipment (0.0%)
Allgon AB Class B..................... 500 6,941
-----------
Financial Services (0.1%)
Svenska Handelsbanken................. 800 16,658
-----------
Home Furnishings and Appliances (0.1%)
Electrolux AB Class B................. 300 12,335
-----------
Metals and Mining (0.1%)
SSAB Svenskt Sta AB................... 1,400 14,365
-----------
Paper and Containers (0.1%)
Stora Kopparbergs..................... 1,000 11,769
-----------
Total Sweden 100,983
-----------
Switzerland (0.5%)
Diversified (0.0%)
Alusuisse-Lonza Holding AG............ 10 $ 7,943
-----------
Financial Services (0.1%)
Schweizerischer Bankverein............ 30 12,279
-----------
Foods and Beverages (0.1%)
Nestle SA Registered.................. 10 11,089
-----------
Insurance (0.1%)
Winterthur Schweizerische 10 7,143
Versicherungs.......................
Zurich Versicherungs-Gesellschaft..... 50 14,991
-----------
22,134
-----------
Machinery and Equipment (0.1%)
Georg Fischer AG...................... 5 6,518
Landis & Gyr.......................... 10 8,169
-----------
14,687
-----------
Paper and Containers (0.0%)
Bobst SA.............................. 5 7,821
-----------
Retail (0.0%)
Merkur Holding AG..................... 30 6,596
-----------
Utilities - Electric (0.1%)
Electrowatt AG........................ 30 11,002
===========
Total Switzerland 93,551
-----------
United Kingdom (1.4%)
Apparel (0.1%)
Coats Viyella Plc..................... 8,900 24,182
-----------
Commercial Services (0.1%)
Inchcape Plc.......................... 6,200 23,969
-----------
Consumer Products (0.1%)
Reckitt & Coleman Plc................. 1,100 12,177
-----------
Diversified (0.2%)
Harrisons & Crosfield Plc............. 9,600 23,848
Lonrho Plc............................ 4,000 10,930
-----------
34,778
-----------
Financial Services (0.2%)
Abbey National Plc.................... 1,300 12,837
Barclays Plc.......................... 2,300 26,390
-----------
39,227
-----------
Insurance (0.1%)
Guardian Royal Exchange Plc........... 2,500 10,713
Royal Insurance Holdings Plc.......... 1,928 11,432
-----------
22,145
-----------
Media and Entertainment (0.1%)
Granada Group Plc..................... 1,100 11,016
-----------
Oil and Gas (0.1%)
Burmah Castrol Plc.................... 800 11,601
-----------
Retail (0.2%)
Asda Group Plc........................ 10,000 17,156
Burton Group Plc...................... 9,300 19,421
-----------
36,577
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- -----------------------------------------------------------------
Number Market
of Shares Value
---------- -----------
United Kingdom (continued)
Transportation (0.2%)
British Airways Plc................... 1,100 $ 7,959
Peninsular & Orient Steam
Navigation Co....................... 3,900 28,822
-----------
36,781
-----------
Utilities - Water (0.0%)
Welsh Water Plc....................... 667 8,022
-----------
Total United Kingdom 260,475
-----------
TOTAL COMMON STOCKS
(COST $13,122,904) .............. $14,126,208
-----------
PREFERRED STOCKS (0.5%)
United States (0.3%)
Banks (0.1%)
BankAmerica Corp...................... 400 25,900
-----------
Chemicals (0.1%)
Union Carbide Corp.................... 300 11,250
-----------
Electrical Equipment (0.1%)
FPL Group, Inc........................ 300 13,913
-----------
Total United States 51,063
-----------
Austria (0.0%)
Banks (0.0%)
Creditanstalt-Bankverein.............. 150 7,716
-----------
Total Austria 7,716
-----------
Finland (0.2%)
Electrical Equipment (0.2%)
Nokia AB Class A...................... 800 31,505
-----------
Total Finland 31,505
-----------
United Kingdom (0.0%)
Utilities - Water (0.0%)
Welsh Water Plc....................... 720 1,218
-----------
Total United Kingdom 1,218
-----------
TOTAL PREFERRED STOCKS
(COST $104,797) .................... $ 91,502
-----------
WARRANTS (0.1%)
Morgan Stanley American Express Hong
Kong+............................... 6,000 25,500
-----------
TOTAL WARRANTS (COST $29,543) ........ $ 25,500
-----------
LONG TERM BONDS AND NOTES (4.1%)
U.S. Government Obligations (3.9%)
U.S. Treasury Note, 6.50%, 05/15/05... $700,000 $ 745,608
-----------
Total U.S. Government Obligations
(cost $732,500) .................... 745,608
-----------
Corporate Bonds - Convertible (0.2%)
Mitsubishi Bank, 3.00%, 11/30/02...... 30,000 34,707
-----------
Total Corporate Bonds - Convertible
(cost $30,000) ..................... 34,707
-----------
TOTAL LONG TERM BONDS AND NOTES (COST
$762,500) .......................... $ 780,315
-----------
SHORT-TERM INVESTMENTS (19.7%)
Ciesco, L.P., Comm. Paper, 5.90%, 870,000 869,857
01/03/96............................
Detroit Edison Co., Corp. Note,
6.15%, 01/02/96..................... 750,000 750,000
Finova Capital Corp., Comm. Paper,
6.10%, 01/03/96..................... 350,000 349,941
Tenneco Inc., Comm. Paper, 6.45%,
01/08/96............................ 750,000 749,194
U.S. Treasury Note++, Time Deposit,
9.25%, 01/15/96..................... 325,000 325,595
Weyerhauser Mortgage Co., Comm.
Paper, 5.80%, 01/08/96.............. 657,000 656,365
-----------
TOTAL SHORT-TERM INVESTMENTS (COST
$3,700,750) ........................ $ 3,700,952
TOTAL INVESTMENTS
(cost 17,720,494)(a) ............... $18,724,477
-----------
Other assets less liabilities ........ 88,950
-----------
Total Net Assets ..................... $18,813,427
===========
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 amounted to
$17,720,525. Unrealized gains and losses, based on identified tax cost at
December 31, 1995 are as follows:
Unrealized gains .................... $1,393,071
Unrealized losses ................... (389,119)
-----------
Net unrealized gain.................. $1,003,952
===========
See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Crossroads Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ---------------------------------------------------------
Notes to Portfolio of Investments (continued)
++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 Initial Expiration Unrealized
Long Value Date Gain/(Loss)
Contracts
------------ ---------- ---------- -----------
All Ordinaries
Share Price
Index Futures .. 4 $ 167,477 March 96 $ (744)
TSE 35 Index
Future 1 91,500 March 96 (821)
Canada Government
Bonds Futures .. 1 80,105 March 96 1,430
German DAX Index
Futures ........ 2 317,831 March 96 (559)
Long-Term German
Bonds Futures .. 2 342,779 March 96 2,620
Dutch Government
Bonds Futures .. 1 164,058 March 96 764
CAC 40 Stock
Index Futures .. 2 149,232 March 96 3,149
French Nationals
Index Futures .. 1 118,754 March 96 982
Long Gilt Bonds
Futures ........ 1 84,193 March 96 801
FTSE 100 Index
Futures ........ 1 141,886 March 96 (175)
Topix Index
Future ......... 1 149,645 March 96 5,429
Hang Seng Index
Futures ........ 2 129,855 March 96 1,254
10 Year Swiss
Bond Futures ... 1 96,767 March 96 634
-----------
$ 14,764
===========
See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995
- ---------------------------------------------------------------
Number of Market
Shares Value
---------- ----------
COMMON STOCKS (60.8%)
United States (53.1%)
Aerospace and Defense (0.1%)
McDonnell-Douglas Corp............... 200 $ 18,400
-----------
Apparel and Cosmetics (0.2%)
Blair Corp........................... 100 3,163
Chic By H I S, Inc.+................. 2,100 11,550
Nike, Inc............................ 200 13,925
Oshkosh B'Gosh, Inc.................. 200 3,500
-----------
32,138
-----------
Autos and Auto Equipment (0.4%)
Borg Warner Automotive, Inc.......... 700 22,400
Kaydon Corp.......................... 600 18,225
Smith (A.O.) Corp.................... 800 16,600
Snap On, Inc......................... 200 9,050
Varity Corp.+........................ 100 3,713
-----------
69,988
-----------
Banks (2.6%)
Bank of New York Co., Inc............ 300 14,625
BayBanks, Inc........................ 400 39,300
Chemical Banking Corp................ 300 17,625
CITICORP............................. 300 20,175
Citizens Bancorp..................... 1,100 35,475
City National Corp................... 1,500 21,000
Cullen/Frost Bankers, Inc............ 800 40,000
F & M Bancorp........................ 100 2,975
First American Corp. (Tenn.)......... 600 28,425
First Chicago Corp................... 543 21,449
First Citizens Bancshares, Inc. 300 16,538
Class A............................
First Interstate Bancorp............. 200 27,300
First of America Bank Corp........... 300 13,313
First Tennessee National Corp........ 300 18,150
Firstbank of Illinois Co............. 400 12,350
KeyCorp.............................. 500 18,125
Nations Bank, Inc.................... 400 27,850
PNC Bancorp.......................... 100 6,563
Provident Bancorp.................... 400 18,800
Queens County Bancorp, Inc........... 300 11,869
River Forest Bancorp, Inc............ 800 20,400
Sumitomo Bank of California.......... 100 2,450
Union Bank........................... 300 16,275
United Carolina Bancshares, Inc...... 700 23,625
-----------
474,657
-----------
Building Materials and Construction (1.6%)
American Buildings Co.+.............. 1,100 24,750
Beazer Homes USA, Inc.+.............. 1,100 22,688
Centex Corp.......................... 100 3,475
Champion Enterprises, Inc.+.......... 1,800 55,574
Continental Homes Holding Corp....... 200 4,925
Elcor Corp........................... 200 4,350
Granite Construction, Inc............ 1,600 50,399
International Aluminum Corp.......... 200 5,750
Puerto Rican Cement Co., Inc......... 600 $ 19,875
Pulte Corp........................... 200 6,725
Redman Industries, Inc.+............. 900 30,375
Texas Industries, Inc................ 400 21,200
Tredegar Industries, Inc............. 800 26,000
Webb (Del E.) Corp................... 300 6,038
WHX Corp.+........................... 700 7,613
-----------
289,737
-----------
Chemicals (0.5%)
Dow Chemical Co...................... 200 14,075
Eastman Chemical Co.................. 100 6,263
Geon Co. (The)....................... 400 9,750
Lyondell Petrochemical Co............ 1,300 29,738
Sterling Chemicals, Inc.+............ 1,700 13,813
Wellman, Inc......................... 800 18,200
-----------
91,839
-----------
Commercial Services (0.3%)
GATX Corp............................ 500 24,313
Manpower, Inc........................ 600 16,875
Measurex Corp........................ 800 22,600
-----------
63,788
-----------
Computer Software (1.5%)
Acxiom Corp.+........................ 200 5,475
Barra, Inc.+......................... 1,500 25,500
Boole & Babbage, Inc.+............... 150 3,675
Cadence Design Systems, Inc.+........ 2,200 92,399
Cisco Systems, Inc.+................. 300 22,388
Computer Associates International,
Inc................................ 250 14,219
Computer Sciences Corp.+............. 300 21,075
Hogan Systems, Inc.+................. 3,400 46,324
Hyperion Software Corp.+............. 200 4,250
Kronos, Inc.+........................ 100 4,750
Microsoft Corp.+..................... 100 8,775
Softdesk, Inc.+...................... 100 1,975
SPSS, Inc.+.......................... 900 17,550
System Software Associates, Inc...... 150 3,263
-----------
271,618
-----------
Computers and Office Equipment (1.3%)
Bay Networks, Inc.+.................. 600 24,675
Comdisco, Inc........................ 1,250 28,281
Compaq Computer Corp.+............... 200 9,600
Computervision Corp.+................ 1,100 16,913
Dell Computer Corp.+................. 800 27,700
In Focus Systems, Inc.+.............. 1,100 39,738
Komag, Inc.+......................... 200 9,225
Moore Corp., Ltd..................... 1,300 24,213
Read-Rite Corp.+..................... 700 16,275
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Computers and Office Equipment (continued)
Sun Microsystems, Inc.+.............. 200 $ 9,125
United Stationers, Inc............... 1,400 38,850
-----------
244,595
-----------
Consumer Products (0.2%)
Eastman Kodak Co..................... 300 20,100
Liz Claiborne, Inc................... 400 11,100
-----------
31,200
-----------
Diversified (1.0%)
Dover Corp........................... 500 18,438
Harsco Corp.......................... 500 29,063
Johnson Controls, Inc................ 200 13,750
Katy Industries...................... 4,200 38,850
Opal, Inc.+.......................... 200 2,550
SPS Technologies, Inc.+.............. 500 26,688
Textron, Inc......................... 200 13,500
Varlen Corp.......................... 1,200 25,800
VF Corp.............................. 100 5,275
-----------
173,914
-----------
Electrical and Electronics (1.8%)
Applied Materials, Inc.+............. 200 7,875
Cohu, Inc............................ 100 2,550
CTS Corporation...................... 800 30,200
Cypress Semiconductor Corp.+......... 1,800 22,950
Dallas Semiconductor Corp............ 400 8,300
Esterline Technologies+.............. 1,600 37,800
Hewlett Packard Co................... 300 25,125
Intel Corp........................... 100 5,675
Logicon, Inc......................... 1,400 38,500
Maxim Integrated Products, Inc.+..... 400 15,400
Micron Technology, Inc............... 300 11,888
National Service Industries, Inc..... 500 16,188
Novellus Systems, Inc.+.............. 100 5,400
Quickturn Design System, Inc.+....... 700 7,000
Seagate Technology, Inc.+............ 900 42,750
Siliconix, Inc.+..................... 300 11,100
Tencor Instruments+.................. 200 4,875
Texas Instruments, Inc............... 400 20,700
Unitrode Corp.+...................... 500 14,125
-----------
328,401
-----------
Electrical Equipment (1.4%)
ADflex Solutions, Inc.+.............. 1,100 29,425
Avnet, Inc........................... 600 26,850
International Rectifier Corp.+....... 1,200 30,000
Kemet Corp.+......................... 500 11,938
Kent Electronics Corp.+.............. 700 40,863
Mentor Graphics Corp.+............... 1,500 27,375
Park Electrochemical Corp............ 1,000 33,000
Raychem Corp......................... 400 22,750
Sundstrand Corp...................... 500 $ 35,188
-----------
257,389
-----------
Financial Services (1.5%)
Alex Brown & Sons, Inc............... 600 25,200
Astoria Financial Corp............... 500 22,813
Bear Stearns Co., Inc................ 1,500 29,813
BHC Financial, Inc................... 2,200 39,600
Crestar Financial Corp............... 200 11,825
Dean Witter Discover and Co.......... 100 4,700
Greenpoint Financial Corp............ 200 5,350
Household International, Inc......... 100 5,913
Leader Financial Corp................ 400 14,950
Merrill Lynch & Co., Inc............. 500 25,500
RCSB Financial, Inc.................. 200 4,750
TR Financial Corp.................... 400 10,200
Travelers, Inc....................... 400 25,150
Union Planters Corp.................. 1,300 41,438
White River Corp.+................... 300 11,550
-----------
278,752
-----------
Foods and Beverages (1.2%)
Campbell Soup Co..................... 300 18,000
Coors (Adolph) Co.................... 700 15,488
Hometown Buffet, Inc.+............... 200 2,213
Hormel Foods Corp.................... 700 17,238
IBP, Inc............................. 700 35,350
International Multifoods Corp........ 900 18,113
Kroger Co. (The)+.................... 100 3,750
Mondavi (Robert) Corp.+.............. 500 13,813
PepsiCo, Inc......................... 600 33,525
Quaker Oats Co....................... 200 6,900
Safeway, Inc.+....................... 600 30,900
Sara Lee Corp........................ 200 6,375
Supervalu, Inc....................... 600 18,900
Universal Foods Corp................. 200 8,025
-----------
228,590
-----------
Health Services (0.8%)
Invacare Corp........................ 1,000 25,250
Lincare Holdings, Inc.+.............. 1,000 25,000
Nellcor, Inc.+....................... 500 29,000
Quorum Health Group, Inc.+........... 100 2,200
RightCHOICE Managed Care, Inc.+...... 2,000 26,000
Tenet Healthcare Corp.+.............. 400 8,300
Wellpoint Health Networks, Inc.+..... 700 22,488
-----------
138,238
-----------
Home Furnishings and Appliances (0.2%)
Leggett & Platt, Inc................. 1,000 24,250
Oneida, Ltd.......................... 200 3,525
-----------
27,775
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Hotels and Restaurants (0.5%)
Marriott International, Inc.......... 300 $ 11,475
McDonald's Corp...................... 1,200 54,149
Prime Hospitality Corp.+............. 2,600 26,000
-----------
91,624
-----------
Household Products (0.1%)
Premark International, Inc........... 200 10,125
Springs Industries, Inc. Class A..... 100 4,138
-----------
14,263
-----------
Insurance (2.0%)
Allstate Corp........................ 278 11,433
American Bankers Insurance Group..... 700 27,300
Capital American Financial Corp...... 100 2,263
CMAC Investment Corp................. 300 13,200
Commerce Group, Inc.................. 300 6,188
Fremont General Corp................. 400 14,700
Home Beneficial Corp. Class B........ 300 7,200
Horace Mann Educators Corp........... 800 25,000
Kansas City Life Insurance Co........ 300 15,750
Loews Corp........................... 400 31,350
Maxicare Health Plans, Inc.+......... 2,400 64,499
Old Republic International Corp...... 400 14,200
Orion Capital Corp................... 300 13,013
Presidential Life Corp............... 600 5,925
Reinsurance Group of America......... 1,200 43,950
State Auto Financial Corp............ 700 18,200
Transatlantic Holdings, Inc.......... 600 44,025
Transport Holdings, Inc.+............ 2 82
-----------
358,278
-----------
Machinery and Equipment (1.2%)
Acme-Cleveland Corp.................. 1,200 22,500
Barnes Group, Inc.................... 600 21,600
Blount, Inc. Class A................. 1,050 27,563
Brunswick Corp....................... 100 2,400
Central Sprinkler Corp.+............. 1,300 46,149
Fluor Corp........................... 100 6,600
FSI International, Inc.+............. 600 12,150
Hughes Supply, Inc................... 900 25,425
L.S. Starrett Co. ClassA............. 500 12,938
Lam Research Corp.+.................. 400 18,300
Parker-Hannifin Corp................. 300 10,275
Regal Beloit......................... 600 13,050
-----------
218,950
-----------
Media and Entertainment (0.8%)
Callaway Golf Co..................... 1,700 38,463
Gtech Holdings Corp.+................ 1,200 31,200
King World Production, Inc.+......... 800 31,100
Media General, Inc................... 800 24,300
Mirage Resorts, Inc.+................ 500 17,250
-----------
142,313
-----------
Medical Supplies (0.5%)
Coherent, Inc.+...................... 500 $ 20,250
GC Companies, Inc.+.................. 600 20,100
Guidant Corp......................... 700 29,575
Medtronic, Inc....................... 100 5,588
North American Biologicals, Inc.+.... 1,200 12,900
-----------
88,413
-----------
Metals and Mining (1.4%)
AK Steel Holding Corp................ 300 10,275
Alcan Aluminum Ltd................... 300 9,338
Alumax Inc.+......................... 200 6,125
Aluminum Co. of America.............. 200 10,575
Carpenter Technology Corp............ 500 20,563
Chaparral Steel Co................... 700 11,725
Cleveland-Cliffs, Inc................ 500 20,500
Cyprus Amax Minerals Co.............. 300 7,838
J & L Specialty Steel, Inc........... 1,400 26,250
Magma Copper Co.+.................... 1,300 36,238
Mueller Industries, Inc.+............ 400 11,700
Phelps Dodge Corp.................... 300 18,675
Reliance Steel & Aluminum Co......... 1,700 35,275
Schnitzer Steel Industries, Inc...... 1,200 36,600
-----------
261,677
-----------
Oil and Gas (1.8%)
Atlantic Richfield Co................ 100 11,075
Camco International, Inc............. 200 5,600
Chesapeake Energy Corp.+............. 300 9,975
Columbia Gas System, Inc.+........... 100 4,388
Diamond Shamrock, Inc................ 400 10,350
Exxon Corp........................... 600 48,074
Fina Inc. Class A.................... 400 20,200
Halliburton Co....................... 400 20,250
Lufkin Industries, Inc............... 400 9,050
Mobil Corp........................... 300 33,600
NUI Corp............................. 1,500 26,250
Oneok, Inc........................... 600 13,725
Royal Dutch Petroleum Co............. 300 42,338
RPC, Inc.+........................... 600 5,475
Smith International, Inc.+........... 900 21,150
Sonat Offshore Drilling Co........... 600 26,850
Sun Company, Inc..................... 100 2,738
Texaco, Inc.......................... 200 15,700
-----------
326,788
-----------
Paper and Containers (1.1%)
Asia Pulp & Paper Co. Ltd.+.......... 2,000 16,250
Champion International Corp.......... 200 8,400
Chesapeake Corp...................... 1,800 53,324
Georgia-Pacific Corp................. 100 6,863
Mead Corp............................ 500 26,125
Rayoner, Inc......................... 900 30,038
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Paper and Containers (continued)
Temple-Inland, Inc................... 200 $ 8,825
Willamette Industries, Inc........... 800 44,999
-----------
194,824
-----------
Pharmaceuticals (1.6%)
Alliance Pharmaceutical+............. 300 4,088
American Home Products Corp.......... 300 29,100
Becton, Dickinson & Co............... 300 22,500
Bristol-Myers Squibb Co.............. 400 34,350
COR Therapeutics, Inc.+.............. 700 5,863
Immulogic Pharmaceutical Corp.+...... 300 5,775
Johnson & Johnson.................... 400 34,250
Merck & Co., Inc..................... 500 32,875
Pfizer, Inc.......................... 200 12,600
R.P. Scherer Corp.+.................. 600 29,475
Rhone-Poulenc Rorer, Inc............. 700 37,275
Schering Plough...................... 400 21,900
Vical, Inc.+......................... 100 1,213
Watson Pharmaceuticals, Inc.+........ 300 14,700
-----------
285,964
-----------
Printing and Publishing (0.6%)
Banta Corp........................... 600 26,400
Central Newspapers, Inc. Class A.... 800 25,100
Plenum Publishing Corp............... 200 7,800
Pulitzer Publishing Co............... 900 42,975
Scholastic Corp.+.................... 100 7,775
Tribune Co........................... 100 6,113
-----------
116,163
-----------
Real Estate Investment Trusts (17.6%)
Apartment Investment & Management.... 700 13,650
Beacon Properties Corp............... 7,400 170,199
CALI Realty Corp..................... 3,300 72,187
CBL & Associates Properties, Inc..... 1,500 32,625
Chelsea GCA Realty, Inc.............. 5,500 164,999
Colonial Properties Trust............ 7,100 181,049
Cousins Properties, Inc.............. 4,300 87,074
Crescent Real Estate Equities, Inc... 5,200 177,449
Developers Diversified Realty Corp... 2,100 62,999
Duke Realty Investments, Inc......... 5,800 181,974
Equity Residential Properties Trust.. 5,600 171,499
Essex Property Trust, Inc............ 8,300 159,774
Evans Withycombe Residential, Inc.... 3,800 81,699
Excel Realty Trust, Inc.............. 8,200 168,099
First Industrial Realty Trust, Inc... 800 18,000
General Growth Properties............ 6,200 128,649
HGI Realty, Inc...................... 6,900 157,837
Highwood Properties, Inc............. 5,900 166,674
Kimco Realty Corp.................... 5,700 155,324
Kranzco Realty Trust................. 900 13,275
Oasis Residential, Inc............... 7,200 163,799
Prime Residential, Inc............... 8,300 $ 153,549
Public Storage, Inc.................. 9,000 170,999
Regency Realty Corp.................. 6,700 115,574
Security Capital Industrial Trust.... 800 14,000
Smith (Charles E.) Residential
Realty Co.......................... 1,300 39,713
Walden Residential Properties, Inc... 9,700 202,487
-----------
3,216,156
-----------
Retail (1.0%)
Claire's Stores, Inc................. 1,100 19,388
Egghead, Inc.+....................... 300 1,931
Hannaford Brothers, Co............... 1,200 29,550
Longs Drug Stores, Inc............... 300 14,363
Mercantile Stores Co., Inc........... 500 23,125
Riser Foods, Inc. Class A............ 1,600 25,800
Ross Stores, Inc..................... 500 9,563
Sears, Roebuck & Co.................. 300 11,700
Waban, Inc.+......................... 1,400 26,250
Zale Corp.+.......................... 1,300 20,963
-----------
182,633
-----------
Specialty Consumer Durables (0.4%)
Bio-Rad Labs, Inc. Class A+.......... 400 17,000
Polaris Industries, Inc.............. 1,650 48,468
-----------
65,468
-----------
Telecommunications (0.7%)
Ameritech Corp....................... 600 35,400
Cascade Communications Corp.+........ 300 25,575
Case Corp............................ 700 32,025
Holophane Corp.+..................... 300 6,525
Lincoln Telecommunications Co........ 1,400 29,575
-----------
129,100
-----------
Transportation (0.4%)
Alaska Air Group, Inc.+.............. 100 1,625
American President Cos., Ltd......... 1,000 23,000
AMR Corp.+........................... 100 7,425
Canadian National Railway Co.+....... 500 7,500
Expeditors International of
Washington, Inc.................... 300 7,838
Florida East Coast Industries, Inc... 300 20,475
Hornbeck Offshore Services, Inc.+.... 100 1,963
Navistar International Corp.+........ 200 2,100
PHH Corp............................. 200 9,350
-----------
81,276
-----------
Utilities - Electric (3.1%)
Boston Edison Co..................... 700 20,650
California Energy Co., Inc.+......... 1,000 19,500
Centerior Energy Corp................ 2,300 20,413
Cilcorp, Inc......................... 700 29,663
Consolidated Edison Co. of
New York, Inc...................... 1,500 47,999
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
United States (continued)
Utilities - Electric (continued)
DQE, Inc............................. 500 $ 15,375
Entergy Corp......................... 300 8,775
General Public Utilities Corp........ 700 23,800
Hawaiian Electric Industries, Inc.... 700 27,125
Illinova Corp........................ 900 27,000
New England Electric System.......... 400 15,850
New York State Electric & Gas Corp... 1,200 31,050
Nipsco Industries, Inc............... 500 19,125
Northeast Utilities.................. 400 9,750
Northern States Power Co............. 500 24,563
Oklahoma Gas & Electric Co........... 100 4,300
Orange & Rockland Utilities, Inc..... 900 32,175
Pinnacle West Capital Corp........... 1,900 54,624
Portland General Corp................ 1,000 29,125
SCEcorp.............................. 1,000 17,750
Sierra Pacific Resources............. 1,700 39,738
Unicom Corp.......................... 600 19,650
United Illuminating Co............... 700 26,163
Western Resources, Inc............... 300 10,013
-----------
574,176
-----------
Utilities - Oil and Gas (0.9%)
Atlanta Gas Light Co................. 400 7,900
Brooklyn Union Gas Co. (The)......... 1,000 29,250
Energen Corp......................... 1,700 41,013
New Jersey Resources Corp............ 800 24,100
Northwest Natural Gas Co............. 300 9,900
Valero Energy Corp................... 1,000 24,500
Washington Gas Light Co.............. 300 6,150
Wicor, Inc........................... 600 19,350
Williams Cos., Inc................... 200 8,775
-----------
170,938
-----------
Utilities - Telephone (0.7%)
Bell Atlantic Corp................... 100 6,688
BellSouth Corp....................... 600 26,100
SBC Communications, Inc.............. 800 45,999
Southern New England
Telecommunications Corp............ 800 31,800
Sprint Corp.......................... 600 23,925
-----------
134,512
-----------
Utilities - Water (0.1%)
SJW Corp............................. 300 11,325
-----------
Total United States 9,685,860
-----------
Australia (0.1%)
Banks (0.1%)
National Australia Bank Ltd.......... 2,200 19,803
-----------
Total Australia 19,803
-----------
Austria (0.2%)
Electrical and Electronics (0.0%)
Austria Mikro Systeme International.. 60 9,741
-----------
Machinery and Equipment (0.1%)
Jenbacher Werke AG................... 100 $ 15,093
-----------
Oil and Gas (0.0%)
OEMV AG.............................. 100 8,689
-----------
Paper and Containers (0.1%)
Leykam-Muerztaler Papier+............ 150 4,751
MayrMelnhof Karton AG................ 100 5,015
-----------
9,766
-----------
Total Austria 43,289
-----------
Belgium (0.4%)
Banks (0.1%)
Banque Bruxelles Lambert SA.......... 100 17,159
-----------
Chemicals (0.1%)
Solvay SA Class A.................... 50 27,013
-----------
Financial Services (0.1%)
Algem Maatsch Voor Nijverhei......... 50 14,951
-----------
Utilities - Electric (0.1%)
Reunies Electrobel & Tractebel....... 50 20,642
-----------
Total Belgium 79,765
-----------
Canada (0.5%)
Banks (0.1%)
Royal Bank of Canada................. 600 13,692
-----------
Financial Services (0.1%)
Bank of Montreal..................... 505 11,468
-----------
Metals and Mining (0.2%)
Alcan Aluminum Ltd................... 200 6,214
Dofasco, Inc......................... 1,005 12,714
Falconbridge Ltd..................... 800 17,010
-----------
35,938
-----------
Oil and Gas (0.1%)
Conwest Exploration Co............... 700 13,986
Petro-Canada......................... 400 4,619
TransCanada Pipelines Ltd............ 1 11
-----------
18,616
-----------
Paper and Containers (0.0%)
Abitibi-Price, Inc................... 300 4,317
-----------
Retail (0.0%)
Hudson's Bay Co...................... 200 2,878
-----------
Utilities - Electric (0.0%)
Transalta Corp....................... 700 7,506
-----------
Total Canada 94,415
-----------
Denmark (0.3%)
Banks (0.1%)
Den Danske Bank...................... 300 20,733
-----------
Building Materials and Construction (0.1%)
Lindab AB Class B.................... 500 10,285
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
Denmark (continued)
Pharmaceuticals (0.1%)
Novo-Nordisk AS...................... 100 $ 13,713
-----------
Total Denmark 44,731
-----------
Finland (0.1%)
Financial Services (0.0%)
Unitas Bank Ltd. Class A+............ 2,400 6,080
-----------
Foods and Beverages (0.1%)
Huhtamaki Group Class I.............. 500 12,091
-----------
Paper and Containers (0.0%)
Repola Oy............................ 300 5,665
-----------
Total Finland 23,836
-----------
Hong Kong (0.2%)
Banks (0.1%)
HSBC Holdings Plc.................... 1,562 23,635
-----------
Real Estate Investment Trusts (0.1%)
Hong Kong Land Holdings Ltd.......... 11,000 20,350
-----------
Total Hong Kong 43,985
-----------
Italy (0.2%)
Printing and Publishing (0.1%)
Mondadori (Arnoldo) Editore SpA...... 1,000 8,673
-----------
Utilities - Telephone (0.1%)
Telecom Italia SpA................... 12,000 18,683
-----------
Total Italy 27,356
-----------
Japan (3.0%)
Autos and Auto Equipment (0.1%)
Mitsubishi Motors Corp............... 2,000 16,306
-----------
Building Materials and Construction (0.2%)
Fujita Corp.......................... 4,000 18,070
Nippon Densetsu Kogyo................ 2,000 20,164
-----------
38,234
-----------
Chemicals (0.1%)
Shin-Etsu Chemical Co................ 1,000 20,745
-----------
Computers and Office Equipment (0.2%)
CANON, Inc........................... 1,000 18,128
Fujitsu, Ltd......................... 2,000 22,297
-----------
40,425
-----------
Electrical and Electronics (0.8%)
Hitachi Koki......................... 3,000 27,221
Matsushita Electric Industrial Co.
Ltd................................ 2,000 32,572
Nintendo Co. Ltd..................... 1,000 76,098
-----------
135,891
-----------
Electrical Equipment (0.3%)
Hitachi Ltd. (Hit. Seisakusho)....... 4,000 40,328
Nichicon............................. 1,000 14,735
-----------
55,063
-----------
Financial Services (0.3%)
Promise Co., Ltd..................... 1,000 48,179
-----------
Foods and Beverages (0.1%)
Katokichi............................ 1,000 20,842
-----------
Machinery and Equipment (0.3%)
Tsubakimoto Chain.................... 4,000 $ 24,080
Tsukishima Kikai..................... 1,000 21,327
-----------
45,407
-----------
Real Estate Investment Trusts (0.1%)
Sekisui House........................ 2,000 25,593
-----------
Retail (0.1%)
JUSCO Co............................. 1,000 26,077
-----------
Transportation (0.1%)
East Japan Railway Co................ 5 24,332
-----------
Utilities - Electric (0.0%)
Hokkaido Electric Power Co........... 20 465
-----------
Utilities - Telephone (0.3%)
DDI Corp............................. 2 15,511
Nippon Telegraph & Telephone Corp.... 4 32,378
-----------
47,889
-----------
Total Japan 545,448
-----------
Malaysia (0.1%)
Diversified (0.1%)
Oriental Holdings Bhd................ 2,000 10,161
-----------
Financial Services (0.0%)
Lion Land Bhd........................ 4,000 3,970
-----------
Oil and Gas (0.0%)
Petronas Gas Bhd..................... 2,000 6,814
-----------
Total Malaysia 20,945
-----------
Netherlands (0.4%)
Building Materials and Construction (0.1%)
Kon. Volker Stevin N.V............... 150 9,076
-----------
Electrical and Electronics (0.1%)
Philips Electronics N.V.............. 500 18,090
-----------
Financial Services (0.1%)
ABN-Amro Holding N.V................. 300 13,680
Internationale Nederlanden Groep N.V. 100 6,687
-----------
20,367
-----------
Insurance (0.0%)
Aegon N.V............................ 202 8,946
-----------
Retail (0.1%)
Koninklijke Ahold N.V................ 505 20,633
-----------
Total Netherlands 77,112
-----------
Norway (0.3%)
Chemicals (0.1%)
Norsk Hydro AS....................... 600 25,261
-----------
Insurance (0.1%)
UNI Storebrand AS.................... 2,300 12,741
-----------
Transportation (0.1%)
Bergesen d.y. AS Class B............. 500 9,813
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
Norway (continued)
Transportation (continued)
Kvaerner AS.......................... 100 $ 3,545
-----------
13,358
-----------
Total Norway 51,360
-----------
Singapore (0.3%)
Banks (0.1%)
Overseas-Chinese Banking............. 1,000 12,513
-----------
Computers and Office Equipment (0.0%)
Acma Ltd............................. 1,200 3,987
-----------
Foods and Beverages (0.1%)
Cerebos Pacific Ltd.................. 3,000 20,785
-----------
Retail (0.0%)
Robinson & Co. Ltd................... 1,000 4,171
-----------
Transportation (0.1%)
Singapore Airlines Ltd............... 2,000 18,664
-----------
Total Singapore 60,120
-----------
Sweden (0.4%)
Autos and Auto Equipment (0.0%)
Volvo AB Class B..................... 500 10,260
-----------
Electrical and Electronics (0.1%)
Telefonaktiebolaget Ericsson......... 550 10,789
-----------
Financial Services (0.1%)
Svenska Handelsbanken................ 600 12,494
-----------
Home Furnishings and Appliances (0.1%)
Electrolux AB Class B................ 300 12,335
-----------
Metals and Mining (0.1%)
SSAB Svenskt Sta AB.................. 1,000 10,260
-----------
Paper and Containers (0.0%)
Stora Kopparbergs.................... 800 9,415
-----------
Total Sweden 65,553
-----------
Switzerland (0.4%)
Diversified (0.1%)
Alusuisse-Lonza Holding AG........... 10 7,943
-----------
Financial Services (0.1%)
Schweizerischer Bankverein........... 20 8,186
-----------
Foods and Beverages (0.1%)
Nestle SA Registered................. 10 11,089
-----------
Insurance (0.1%)
Winterthur Schweizerische
Versicherungs...................... 10 7,143
Zurich Versicherungs-Gesellschaft.... 40 11,993
-----------
19,136
-----------
Machinery and Equipment (0.0%)
Georg Fischer AG..................... 5 6,518
-----------
Paper and Containers (0.0%)
Bobst SA............................. 5 7,821
-----------
Retail (0.0%)
Merkur Holding AG.................... 25 $ 5,497
-----------
Total Switzerland 66,190
-----------
United Kingdom (0.8%)
Apparel (0.0%)
Coats Viyella Plc.................... 2,600 7,064
-----------
Commercial Services (0.0%)
Inchcape Plc......................... 1,600 6,186
-----------
Consumer Products (0.1%)
Reckitt & Coleman Plc................ 800 8,856
-----------
Diversified (0.1%)
Harrisons & Crosfield Plc............ 3,500 8,695
Lonrho Plc........................... 3,000 8,198
-----------
16,893
-----------
Financial Services (0.2%)
Abbey National Plc................... 1,000 9,875
Barclays Plc......................... 2,000 22,947
-----------
32,822
-----------
Insurance (0.1%)
Guardian Royal Exchange Plc.......... 1,900 8,142
Royal Insurance Holdings Plc......... 1,420 8,422
-----------
16,564
-----------
Media and Entertainment (0.0%)
Granada Group Plc.................... 800 8,011
-----------
Oil and Gas (0.1%)
Burmah Castrol Plc................... 600 8,701
-----------
Retail (0.1%)
Burton Group Plc..................... 7,000 14,618
-----------
Transportation (0.1%)
British Airways Plc.................. 900 6,512
Peninsular & Orient Steam
Navigation Co...................... 1,000 7,390
-----------
13,902
-----------
Utilities - Water (0.0%)
Welsh Water Plc...................... 500 6,016
-----------
Total United Kingdom 139,633
-----------
TOTAL COMMON STOCKS
(COST $10,258,308) ............... $11,089,401
-----------
PREFERRED STOCKS (0.4%)
United States (0.2%)
Banks (0.1%)
BankAmerica Corp..................... 300 19,425
-----------
Chemicals (0.0%)
Union Carbide Corp................... 200 7,500
-----------
Electrical Equipment (0.1%)
FPL Group, Inc....................... 300 13,913
-----------
Total United States 40,838
-----------
See Notes to Portfolio of Investments.
<PAGE>
Aetna Generation Portfolios, Inc.
Aetna Legacy Portfolio
Portfolio of Investments--December 31, 1995 (continued)
- ----------------------------------------------------------------
Number of Market
Shares Value
---------- -----------
Austria (0.1%)
Banks (0.1%)
Creditanstalt-Bankverein............. 100 $ 5,144
-----------
Total Austria 5,144
-----------
Finland (0.1%)
Electrical Equipment (0.1%)
Nokia AB Class A..................... 500 19,690
-----------
Total Finland 19,690
-----------
United Kingdom (0.0%)
Utilities - Water (0.0%)
Welsh Water Plc...................... 540 914
-----------
Total United Kingdom 914
-----------
TOTAL PREFERRED STOCKS
(COST $73,591)..................... $ 66,586
-----------
WARRANTS (0.1%)
Morgan Stanley American Express Hong
Kong Call+......................... 4,000 17,000
-----------
TOTAL WARRANTS (COST $19,695) ....... $ 17,000
-----------
Principal Market
Amount Value
---------- -----------
LONG TERM BONDS AND NOTES (7.1%)
U.S. Government Obligations (7.0%)
U.S. Treasury Note, 6.50%, 05/15/05.. $1,200,000 $1,278,187
-----------
Total U.S. Government Obligations
(cost $1,255,715) ................. $1,278,187
-----------
Corporate Bonds - Convertible (0.1%)
Foreign Obligations (0.1%)
Mitsubishi Bank, 3.00%, 11/30/02..... 20,000 23,138
-----------
Total Corporate Bonds - Convertible
(cost $20,000) .................... $ 23,138
-----------
TOTAL LONG TERM BONDS AND NOTES
(COST $1,275,715) ................. $1,301,325
-----------
SHORT-TERM INVESTMENTS (30.9%)
Ciesco, L.P., Comm. Paper, 5.90%,
01/03/96........................... 459,000 458,925
Cooperative Assoc. of Tractor
Dealers, Inc., Comm. Paper, 6.05%, 750,000 749,622
01/05/96...........................
Detroit Edison Co., Corp. Note,
6.15%, 01/02/96.................... 750,000 750,000
Finova Capital Corp., Comm. Paper,
6.10%, 01/03/96.................... 750,000 749,873
Pennsylvania Power And Light Co.,
Comm. Paper, 6.25%, 01/05/96....... 400,000 399,792
Public Service Co. of Colorado,
Comm. Paper, 6.05%, 01/02/96....... 687,000 687,000
Tenneco Inc., Comm. Paper, 6.45%,
01/08/96........................... $ 750,000 $ 749,194
U.S. Treasury Note++, 9.25%, 350,000 350,641
01/15/96...........................
Weyerhauser Mortgage Co., Comm.
Paper, 5.80%, 01/08/96............. 750,000 749,275
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $5,644,104) ................. $5,644,322
-----------
TOTAL
INVESTMENTS $18,118,634
(cost $17,271,413)(a) .............
Other assets less liabilities ....... 134,800
-----------
Total Net Assets .................... $18,253,434
===========
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 is
identical. Unrealized gains and losses, based on identified tax
cost at December 31, 1995 are as follows:
Unrealized gains .................... $1,123,991
Unrealized losses ................... (276,770)
-----------
Net unrealized gain.................. $ 847,221
===========
++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)
------------ ---------- ---------- -----------
All Ordinaries
Share Price
Index Futures .. 2 $ 83,810 March 96 $ (409)
TSE 35 Index
Future ......... 1 91,507 March 96 (829)
Canadian
Government
Bonds Futures .. 1 80,105 March 96 1,430
German DAX Index
Futures ........ 1 158,915 March 96 (279)
Long-Term German
Bonds Futures .. 2 342,779 March 96 2,620
CAC 40 Stock
Index Futures .. 1 74,616 March 96 1,575
French Nationals
Index Futures .. 1 118,754 March 96 982
FTSE 100 Index
Futures ........ 1 141,886 March 96 (175)
Long Gilt Bonds
Futures ........ 2 168,387 March 96 1,602
Topix Index
Future ......... 1 149,647 March 96 5,526
Hang Seng Index
Futures ........ 1 64,923 March 96 627
10 Year Swiss
Bonds Futures .. 1 96,767 March 96 634
Dutch Government
Bonds Futures .. 1 164,058 March 96 764
-----------
$ 14,068
===========
See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Statements of Assets and Liabilities-December 31, 1995
- -----------------------------------------------------------
<TABLE>
<CAPTION>
Aetna Aetna Aetna
Ascent Crossroads Legacy
------------- -------------- ------------
<S> <C> <C> <C>
Assets:
Investments, at market value (Note 1) .......................... $ 18,747,299 $ 18,724,477 $ 18,118,634
Cash ........................................................... 35,204 2,214 49,608
Cash denominated in foreign currencies ......................... 182,445 126,982 152,404
Receivable for:
Dividends and interest ..................................... 75,915 62,914 59,000
Investments sold ........................................... 58,277 70,370 62,813
Fund shares sold ........................................... 21,220 83,740 --
Recoverable taxes .......................................... 442 283 174
Unrealized gain on forward foreign currency exchange
contracts (Note 4) ......................................... 34,201 24,653 20,210
------------ -------------- ------------
Total assets .......................................... 19,155,003 19,095,633 18,462,843
------------- -------------- ------------
Liabilities:
Payable for:
Investments purchased ........................................ 150,686 95,816 51,521
Fund shares redeemed ......................................... 75,000 108,994 84,000
Variation margin ............................................. 1,772 1,471 100
Unrealized loss on forward foreign currency exchange
contracts (Note 4)........................................ 7,406 5,477 3,544
Accrued investment advisory fees ............................... 8,167 8,129 7,925
Accrued administrative and service fees ........................ 6,132 5,202 6,132
Accrued custodian fees ......................................... 4,000 4,000 4,000
Other liabilities .............................................. 51,954 53,117 52,187
------------- -------------- ------------
Total liabilities ..................................... 305,117 282,206 209,409
------------- -------------- ------------
NET ASSETS ..................................................... $ 18,849,886 $ 18,813,427 $ 18,253,434
============= ============== ============
Net assets represented by:
Paid-in capital ................................................ $ 17,479,680 $ 17,537,475 $ 17,164,688
Unrealized gain................................................. 1,158,199 1,037,670 878,076
Undistributed (Distributions in excess of)
net investment income ...................................... (5,803) 7,137 13,801
Accumulated net realized gain................................... 217,810 231,145 196,869
============= ============== ============
Net Assets ..................................................... $ 18,849,886 $ 18,813,427 $ 18,253,434
============= ============== ============
Capital Shares, $.001 par value:
Outstanding .................................................. 1,746,134 1,751,685 1,715,991
Net asset value per share .................................... $ 10.80 $ 10.74 $ 10.64
Cost of investments ............................................ $ 17,547,279 $ 17,720,494 $ 17,271,413
Cost of foreign currencies ..................................... $ 259,302 $ 126,901 $ 152,127
</TABLE>
See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Statements of Operations-For the Period from July 5, 1995 to December 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aetna Aetna Aetna
Ascent Crossroads Legacy
------------ ------------ -----------
<S> <C> <C> <C>
Investment income: (Note 1)
Dividends .......................................................... $ 275,791 $ 227,122 $ 183,723
Interest ........................................................... 67,683 141,518 209,484
------------ ------------ -----------
343,474 368,640 393,207
Foreign taxes withheld ............................................. (2,801) (2,085) (1,386)
------------ ------------ -----------
Total investment income ...................................... 340,673 366,555 391,821
------------ ------------ -----------
Investment Expenses: (Note 2)
Investment advisory fee ............................................ 44,673 44,352 43,540
Administrative personnel and service fees .......................... 34,875 35,066 35,066
Custodian and transfer agent fees .................................. 12,177 12,177 12,177
Directors' fees .................................................... 10,000 10,000 10,000
Audit fees ......................................................... 7,667 7,667 7,667
Miscellaneous ...................................................... 31,322 31,555 31,555
------------ ------------ -----------
Total investment expenses ................................. 140,714 140,817 140,005
------------ ------------ -----------
Net investment income............................................... 199,959 225,738 251,816
------------ ------------ -----------
Realized and unrealized gain (loss): (Notes 1, 3 and 4)
Realized gain on:
Sale of investments .............................................. 152,109 129,071 113,203
Futures and forward currency contracts ........................... 201,756 205,940 164,219
Foreign currencies ............................................... 86,053 5,007 3,223
------------ ------------ -----------
Net realized gain on investments........................... 439,918 340,018 280,645
------------ ------------ -----------
Net change in unrealized gain (loss) on:
Investments ...................................................... 1,200,020 1,003,983 847,221
Futures and forward currency contracts ........................... 35,606 33,940 30,733
Foreign currency related transactions ............................ (77,427) (253) 122
------------ ------------ -----------
Net change in unrealized gain on investments............... 1,158,199 1,037,670 878,076
------------ ------------ -----------
Net realized and change in unrealized gain.......................... 1,598,117 1,377,688 1,158,721
------------ ------------ -----------
Increase in net assets resulting from operations ................... $ 1,798,076 $ 1,603,426 $ 1,410,537
============ ============ ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Aetna Generation Portfolios, Inc.
Statements of Changes in Net Assets--For the Period from July 5, 1995 to
December 31, 1995
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aetna Aetna Aetna
Ascent Crossroads Legacy
------------- ------------ ------------
<S> <C> <C> <C>
From Operations:
Net investment income........................................... $ 199,959 $ 225,738 $ 251,816
Net realized gain on investments ............................... 439,918 340,018 280,645
Net change in unrealized gain on investments ................... 1,158,199 1,037,670 878,076
------------- -------------- ------------
Increase in net assets resulting from operations ............. 1,798,076 1,603,426 1,410,537
------------- -------------- ------------
Distributions to Shareholders: (Note 1)
From net investment income ..................................... (427,870) (327,474) (321,791)
------------- -------------- -------------
Decrease in net assets from distributions to shareholders .... (427,870) (327,474) (321,791)
------------- -------------- ------------
From Fund Share Transactions:
Proceeds from shares sold ...................................... 24,150,259 23,185,016 21,576,530
Net asset value of shares issued upon reinvestment of
distributions ............................................. 427,870 327,474 321,791
Cost of shares redeemed ........................................ (7,098,449) (5,975,015) (4,733,633)
------------- -------------- ------------
Increase in net assets from fund share transactions ............ 17,479,680 17,537,475 17,164,688
------------- -------------- ------------
Change in net assets ........................................... 18,849,886 18,813,427 18,253,434
Net assets:
Beginning of period ............................................ -- -- --
------------- -------------- ------------
End of period .................................................. $ 18,849,886 $ 18,813,427 $ 18,253,434
============= ============== ============
End of period net assets includes undistributed (distributions
in excess of) net investment income .......................... $ (5,803) $ 7,137 $ 13,801
============= ============== ============
Share Transactions
Shares sold .................................................... 2,378,369 2,288,051 2,138,745
Shares issued upon reinvestment ................................ 39,636 30,491 30,251
Shares redeemed ................................................ (671,871) (566,857) (453,005)
============= ============== ============
Net increase.................................................... 1,746,134 1,751,685 1,715,991
============= ============== ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
Aetna Generation Portfolios, Inc. ("Company") was incorporated in 1994 as a
Maryland Corporation. The Company is an open-end management investment
company and is authorized to issue multiple series of shares, each
representing a diversified portfolio of investments ("Portfolio") with
different investment objectives, policies and restrictions. Currently, the
Company offers Select Class shares of the Aetna Ascent Variable Portfolio
(Aetna Ascent); Aetna Crossroads Variable Portfolio (Aetna Crossroads); and
Aetna Legacy Variable Portfolio (Aetna Legacy. The financial statements
reflect results of the Portfolios for the period from July 5, 1995
(commencement of investment operations) to December 31, 1995. The
Portfolios are asset allocation funds that seek to maximize long-term
investment returns at varying levels of risk.
Shares of each Portfolio are owned by insurance companies as depositors of
separate accounts which are used to fund variable annuity contracts and
variable life insurance policies. It is currently expected that all shares
will be held by separate accounts of Aetna Life Insurance and Annuity
Company ("ALIAC") and its subsidiary, Aetna Insurance Company of America on
behalf of their respective separate accounts.
ALIAC is a wholly owned subsidiary of Aetna Life and Casualty Company and
serves as the Investment Adviser and principal underwriter to each
Portfolio.
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial
statements. The policies are in conformity with generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts reported
therein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the
Portfolios.
A. Valuation of Investments
Investments are stated at market values based upon closing sales prices
as reported on national securities exchanges or, for over-the-counter
securities, at the mean of the bid and asked prices. Short-term
investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value.
Short-term investments maturing in less than sixty days are valued at
amortized cost which when combined with accrued interest approximates
market. Securities for which market quotations are not considered to be
readily available are valued in good faith using methods approved by
the Board of Directors.
The accounting records of the Portfolios are maintained in U.S.
dollars. Investment securities and other assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at
the prevailing rates of exchange at the end of 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 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 use futures contracts as a hedge against declines in the
value of portfolio securities. The Portfolios 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 Portfolios are required to deposit with a broker, an
amount (initial margin) equal to a percentage of the purchase price
indicated by the futures contract. Subsequent deposits (variation
margin) are received or paid each day by the Portfolios equal to the
daily fluctuation in the market value of the contract. These amounts
are recorded by the Portfolios as unrealized gains or losses. When a
contract is closed, the Portfolios record a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
Generally, futures contracts are closed prior to expiration.
<PAGE>
Notes to Financial Statements
December 31, 1995 (continued)
1. Summary of Significant Accounting Policies (continued)
B. Futures and Forward Foreign Currency Exchange Contracts (continued)
A forward foreign currency exchange contract is an agreement to pay or
receive specific amounts of a currency at a future date in exchange for
another currency at an agreed upon exchange rate. The Portfolios may
use forward foreign currency exchange contracts to hedge certain
foreign currency assets. Contracts are recorded at market value and
marked-to-market daily.
The risks associated with futures and foreign currency exchange
contracts may arise from an imperfect correlation between the change in
market value of the securities held by the Portfolios and the price of
the contracts. Risks may also arise from an illiquid secondary market,
or from the inability of counterparties to meet the terms of the
contracts.
Realized and unrealized gains or losses on futures and foreign currency
exchange contracts are reflected in the accompanying financial
statements. For federal income tax purposes, any futures contracts and
forward foreign currency exchange contracts which remain open at year
end are marked-to-market and the resultant net gain or loss is included
in federal taxable income.
C. Illiquid and Restricted Securities
Illiquid securities are securities that are not readily marketable.
Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible
for the Portfolios to sell them promptly at an acceptable price.
Restricted securities are subject to legal or contractual restrictions
on resale and may not be publicly sold without registration under the
Federal Securities Act of 1933. Each Portfolio may invest up to 15% of
its total assets in illiquid securities. Illiquid and restricted
securities are valued using market quotations when readily available.
In the absence of market quotations, the securities are valued based
upon their fair value determined under procedures approved by the Board
of Directors. The Portfolios will not pay the costs of disposition of
restricted securities other than ordinary brokerage fees, if any.
D. Federal Income Taxes
As a qualified regulated investment company, each Portfolio is relieved
of federal income and excise taxes by distributing its net taxable
investment income and capital gains, if any, in compliance with the
applicable provisions of the Internal Revenue Code.
E. Distributions
The Company distributes all net investment income and net capital
gains, if any, to shareholders semi-annually. Distributions from net
investment income are based on taxable net income. Distributions are
recorded on the ex-dividend date. Income and capital gain distributions
are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences
are primarily due to differing treatments for foreign currency related
transactions and deferred losses on wash sales.
F. Other
Investment transactions are accounted for on the day following trade
date, except same day settlements which are accounted for on 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
is recorded on the ex-dividend date. Realized gains and losses from
investment transactions are determined on an identified cost basis.
<PAGE>
Notes to Financial Statements
December 31, 1995 (continued)
2. Investment Advisory and Administrative Service Fees
Each Portfolio pays the Investment Adviser a monthly fee at an annual rate
of 0.50% of the average daily net assets.
The Company has entered into an administrative services agreement under
which ALIAC acts as administrator and provides certain administrative and
shareholder services and is responsible for the supervision of other
service providers. Each Portfolio pays ALIAC an amount equal to its
allocable cost in providing such services and facilities. Fees paid under
the administrative services agreement for the period from July 5, 1995 to
December 31, 1995 were:
Aetna Ascent $34,875
Aetna Crossroads 35,066
Aetna Legacy 35,066
3. Purchases and Sales of Investment Securities
Cost of purchases and proceeds from sales of investment securities,
excluding short-term investments, for the period from July 5 through
December 31, 1995 were:
Cost of Purchases Proceeds from Sales
Aetna Ascent $22,771,641 $6,507,008
Aetna Crossroads 20,959,718 7,067,768
Aetna Legacy 19,088,406 7,572,090
4. Forward Foreign Currency Exchange Contracts
At December 31, 1995, Aetna Ascent, Aetna Crossroads, and Aetna Legacy had
the following open forward foreign currency exchange contracts that
obligate the Portfolios to deliver currencies at specified future dates.
The unrealized gains of $26,795, $19,176, and $16,666, respectively, on
these contracts is included in the accompanying financial statements. The
terms of the open contracts are as follows:
Aetna Ascent:
<TABLE>
<CAPTION>
Exchange Currency to be U.S. $Value as of Currency to be U.S. $Value as of Unrealized
Date Delivered December 31, 1995 Received December 31, 1995 Gain (Loss)
--------- -------------- ----------------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
2/22/96 2,674,000 $90,862 92,494 $92,494 $1,632
Belgian Franc U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
2/9/96 123,000 107,369 108,946 108,946 1,577
Swiss Franc U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
2/9/96 7,690 7,690 9,000 7,856 166
U.S. Dollar Swiss Franc
-------------------------------------------------------------------------------------------------------------------------
1/3/96 81,000 14,619 14,519 14,519 (100)
Danish Krone U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/18/96 380,000 68,731 68,117 68,117 (614)
Danish Krone U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
1/3/96 50,000 77,771 77,012 77,012 (759)
British Pound U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements
December 31, 1995 (continued)
4. Forward Foreign Currency Exchange Contracts (continued)
Aetna Ascent (continued):
<TABLE>
<S> <C> <C> <C> <C> <C>
3/1/96 20,007 20,007 13,000 20,152 145
U.S. Dollar British Pound
-------------------------------------------------------------------------------------------------------------------------
6/14/96 259,000 400,609 395,396 395,396 (5,213)
British Pound U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
6/14/96 61,400 61,400 40,000 61,870 470
U.S. Dollar British Pound
-------------------------------------------------------------------------------------------------------------------------
1/2/96 77,329 77,329 123,850,000 78,198 869
U.S. Dollar Italian Lira
-------------------------------------------------------------------------------------------------------------------------
3/13/96 45,387,000 440,033 455,687 455,687 15,654
Japanese Yen U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
6/19/96 35,400,000 343,252 356,873 356,873 13,621
Japanese Yen U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/18/96 196,000 123,006 122,286 122,286 (720)
Dutch Guilder U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/15/96 110,000 78,342 78,409 78,409 67
Singapore Dollar U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
$26,795
====================
</TABLE>
Aetna Crossroads:
<TABLE>
<CAPTION>
Exchange Currency to be U.S. $Value as of Currency to be U.S. $Value as of Unrealized
Date Delivered December 31, 1995 Received December 31, 1995 Gain (Loss)
--------- -------------- ----------------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
2/22/96 1,958,000 $66,533 67,727 $67,727 $1,194
Belgian Franc U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
2/9/96 101,000 88,165 89,460 89,460 1,295
Swiss Franc U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
2/9/96 8,545 8,545 10,000 8,729 184
U.S. Dollar Swiss Franc
-------------------------------------------------------------------------------------------------------------------------
1/3/96 82,000 14,799 14,698 14,698 (101)
Danish Krone U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/18/96 330,000 59,687 59,155 59,155 (532)
Danish Krone U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
1/3/96 35,000 54,440 53,908 53,908 (532)
British Pound U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
3/1/96 13,851 13,851 9,000 13,952 101
U.S. Dollar British Pound
-------------------------------------------------------------------------------------------------------------------------
6/14/96 188,000 290,789 287,006 287,006 (3,783)
British Pound U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements
December 31, 1995 (continued)
4. Forward Foreign Currency Exchange Contracts (continued)
Aetna Crossroads (continued):
<TABLE>
<S> <C> <C> <C> <C> <C>
6/14/96 42,980 42,980 28,000 43,309 329
U.S. Dollar British Pound
-------------------------------------------------------------------------------------------------------------------------
1/2/96 50,814 50,814 81,400,000 51,395 581
U.S. Dollar Italian Lira
-------------------------------------------------------------------------------------------------------------------------
3/12/96 22,080,000 214,068 221,576 221,576 7,508
Japanese Yen U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
3/13/96 23,000,000 222,988 231,040 231,040 8,052
Japanese Yen U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
6/19/96 13,900,000 134,780 140,128 140,128 5,348
Japanese Yen U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/18/96 144,000 90,372 89,843 89,843 (529)
Dutch Guilder U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/15/96 100,000 71,220 71,281 71,281 61
Singapore Dollar U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
$19,176
====================
</TABLE>
Aetna Legacy
<TABLE>
<CAPTION>
Exchange Currency to be U.S. $Value as of Currency to be U.S. $Value as of Unrealized
Date Delivered December 31, 1995 Received December 31, 1995 Gain (Loss)
--------- -------------- ----------------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
2/22/96 1,284,000 $43,630 44,414 $44,414 $784
Belgian Franc U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
2/9/96 77,000 67,215 68,202 68,202 987
Swiss Franc U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
2/9/96 7,690 7,690 9,000 7,856 166
U.S Dollar Swiss Franc
-------------------------------------------------------------------------------------------------------------------------
1/3/96 82,000 14,799 14,697 14,697 (102)
Danish Krone U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/18/96 180,000 32,557 32,266 32,266 (291)
Danish Krone U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
1/3/96 28,000 43,552 43,127 43,127 (425)
British Pound U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
3/1/96 15,390 15,390 10,000 15,502 112
U.S. Dollar British Pound
-------------------------------------------------------------------------------------------------------------------------
6/14/96 115,000 177,876 175,562 175,562 (2,314)
British Pound U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
6/14/96 33,770 33,770 22,000 34,029 259
U.S. Dollar British Pound
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements
December 31, 1995 (continued)
4. Forward Foreign Currency Exchange Contracts (continued)
Aetna Legacy (continued):
<TABLE>
<S> <C> <C> <C> <C> <C>
1/2/96 24,329 24,329 39,000,000 24,624 295
U.S. Dollar Italian Lira
-------------------------------------------------------------------------------------------------------------------------
3/13/96 39,380,000 381,794 395,375 395,375 13,581
Japanese Yen U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
6/19/96 10,400,000 100,842 104,844 104,844 4,002
Japanese Yen U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/18/96 112,000 70,289 69,877 69,877 (412)
Dutch Guilder U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
4/15/96 40,000 28,488 28,512 28,512 24
Singapore Dollar U.S. Dollar
-------------------------------------------------------------------------------------------------------------------------
$16,666
====================
</TABLE>
5. Federal Tax Status of Dividends Declared During the Fiscal Year (Unaudited)
All of the income dividends paid by each Portfolio were ordinary income for
federal income tax purposes. The percentage of income dividends that were
qualifying dividends for the corporate dividends received deduction were:
Aetna Ascent 39.7%
Aetna Crossroads 39.2%
Aetna Legacy 34.0%
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors Aetna Generation Portfolios, Inc.
We have audited the accompanying statements of assets and liabilities of Aetna
Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio and Aetna Legacy
Variable Portfolio, portfolios of Aetna Generation Portfolios, Inc. (the
Portfolios), including the portfolios of investments, as of December 31, 1995,
and the related statements of operations, changes in net assets and financial
highlights for the period from July 5, 1995 (commencement of investment
operations) to December 31, 1995. These financial statements and financial
highlights are the responsibility of the Portfolios' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. 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
Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio and Aetna Legacy
Variable Portfolio as of December 31, 1995, and the results of their operations,
changes in their net assets and financial highlights for the period from July 5,
1995 (commencement of investment operations) to December 31, 1995 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 16, 1996
