As filed with the Securities and Exchange File No. 2-53038
Commission on March 1, 1996 File No. 811-6352
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 39
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 30
AETNA VARIABLE ENCORE FUND
(Exact Name of Registrant as Specified in Charter)
151 Farmington Avenue RE4C, Hartford, Connecticut 06156
(Address of Principal Executive Offices)
(860) 273-7834
(Registrant's Telephone Number, including Area Code)
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue RE4C, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
Approximate date of proposed public offering - as soon after effectiveness as is
practicable.
It is proposed that this filing will become effective (check appropriate space):
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on _______________ pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
__X__ on May 1, 1996 pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
_____ on _______________ pursuant to paragraph (a)(2) of Rule 485
Aetna Variable Encore Fund has registered an indefinite number of its securities
under the Securities Act of 1933 pursuant to Rule 24f-2 of the Investment
Company Act of 1940. Aetna Variable Encore Fund filed its Rule 24f-2 Notice for
its fiscal year ended December 31, 1995 on February 29, 1996.
<PAGE>
AETNA VARIABLE ENCORE FUND
Cross-Reference Sheet
<TABLE>
<CAPTION>
Form N-1A
Item No. Caption in Prospectus
<S> <C>
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objective
Investment Policies and Restrictions
5. Management of the Fund Management of the Fund
5A. Management's Discussion of Fund Financial Highlights - Incorporated by Reference
Performance to the Annual Report
6. Capital Stock and Other Securities General Information
Tax Matters
7. Purchase of Securities Being Offered Management of the Fund
Net Asset Value
8. Redemption or Repurchase Sale and Redemption of Shares
9. Pending Legal Proceedings Not applicable
Caption in Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies General Information and History
Investment Objective and Policies of the Fund
Description of Various Securities and Investment
Techniques
14. Management of the Funds Trustees and Officers of the Fund
15. Control Persons and Principal Control Persons and Principal Holders of the Fund
Holders of Securities
16. Investment Advisory and Other The Investment Advisory Contract;
Services The Administrative Services Agreement;
Custodian; Independent Auditors
17. Brokerage Allocation and Other Brokerage Allocation
Practices
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing Sale and Redemption of Shares
of Securities Being Offered Net Asset Value
20. Tax Status Tax Matters
21. Underwriters Not Applicable
22. Calculation of Performance Data Not Applicable
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
AETNA VARIABLE ENCORE FUND
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Prospectus dated: May 1, 1996
The Fund Aetna Variable Encore Fund ("Encore Fund" or "Fund") is a diversified,
open-end management investment company whose shares are currently sold to
variable annuity or variable life separate accounts to fund variable annuity
contracts and variable life insurance policies issued by Aetna Life Insurance
and Annuity Company ("ALIAC" or "Company") and its affiliates and
subsidiaries.
Investment Objective Encore Fund seeks to provide high current return,
consistent with preservation of capital and liquidity, through investment in
high-quality money market instruments. An investment in Aetna Variable Encore
Fund is neither insured nor guaranteed by the U.S. Government.
The Prospectus This Prospectus contains information about Encore Fund that you
should know before investing. Additional information about the Fund is contained
in a Statement of Additional Information (SAI) dated May 1, 1996, which has been
filed with the Securities and Exchange Commission (SEC) and is incorporated by
reference. You can request an SAI, without charge, by writing to the Fund at the
address listed above or by calling the Fund at 1-800-525-4225.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of Encore Fund 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 and retain for future reference.
<PAGE>
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS 3
INVESTMENT OBJECTIVE 4
INVESTMENT POLICIES AND RESTRICTIONS 4
Investment Policies 4
Industry Concentration 4
Illiquid and Restricted Securities 4
International Securities 5
Repurchase Agreements 5
Securities Lending 5
Securities Borrowing 5
MANAGEMENT OF THE FUND 5
Trustees 5
Investment Adviser 5
Portfolio Management 5
Expenses and Fund Administration 5
GENERAL INFORMATION 6
Declaration of Trust 6
Capital Stock 6
Shareholder Meetings 6
Voting Rights 6
TAX MATTERS 6
The Fund 6
Fund Distributions 6
Share Redemptions 6
SALE AND REDEMPTION OF SHARES 7
NET ASSET VALUE 7
GLOSSARY 8
2 Aetna Variable Encore Fund
<PAGE>
FINANCIAL HIGHLIGHTS
The selected data presented below under the caption "Financial Highlights"
for, and as of the end of, each of the years in the ten-year period ended
December 31, 1995 are derived from the financial statements of Encore Fund,
which statements have been audited by , independent auditors. The financial
statements as of December 31, 1995, and for each of the years in the two-year
period then ended, and the independent auditors' report thereon, are included
in the SAI.
Selected data for each trust share outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ $12.535 $12.557 $12.628 $12.685
Income from Investment
Operations
Net investment income .526 .397 .502 .795
Net realized and unrealized gain
(loss) on investments (.022) .001 (.042) .033
-------- -------- -------- -------- ---------
Total from Investment
Operations .504 .398 .460 .828
Less Distributions
Dividends from net investment
income (.495) (.420) (.531) (.885)
Dividends from realized gains on
investments -- -- -- -- --
-------- -------- -------- -------- ---------
Net asset value, end of year $ $12.544 $12.535 $12.557 $12.628
======== ======== ======== ======== =========
Total Return* % 4.09% 3.19% 3.67% 6.53%
Net assets, end of year (000's) $ $483,039 $380,249 $461,991 $502,510
Ratio of total investment expenses
to average net assets % .32% .31% .37% .36%
Ratio of net investment income to
average net assets % 4.16% 3.14% 3.96% 6.09%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C>
-------- -------- -------- -------- ---------
Net asset value, beginning of year $ 12.574 $ 12.639 $ 12.602 $ 13.557 $ 13.943
Income from Investment
Operations
Net investment income 1.057 1.179 .947 .882 .895
Net realized and unrealized gain
(loss) on investments .004 .006 (.003) (.011) .004
-------- -------- -------- -------- ---------
Total from Investment
Operations 1.061 1.185 .944 .871 .899
Less Distributions
Dividends from net investment
income (.950) (1.248) (.907) (1.826) (1.258)
Dividends from realized gains on
investments -- (.002) -- -- (.027)
-------- -------- -------- -------- ---------
Net asset value, end of year $ 12.685 $ 12.574 $ 12.639 $ 12.602 $ 13.557
======== ======== ======== ======== =========
Total Return* 8.44% 9.39% 7.50% 6.81% 6.88%
Net assets, end of year (000's) $553,240 $416,802 $391,234 $340,894 $312,650
Ratio of total investment expenses
to average net assets .33% .36% .47% .31% .35%
Ratio of net investment income to
average net assets 8.13% 9.00% 7.28% 6.70% 6.67%
</TABLE>
Per share data calculated using weighted average number of shares outstanding
throughout the year.
* The total return percentage does not reflect the mortality and expense
charges, or other expenses, applicable to the separate accounts that invest
in the Fund. Inclusion of these expenses would reduce the total return
figures.
Additional information about the performance of the Fund is contained in the
Fund's Annual Report dated December 31, 1995. The Annual Report is incorporated
herein by reference and is available, without charge, by writing to the Fund
at the address listed on the cover of this Prospectus or by calling
1-800-525-4225.
Aetna Variable Encore Fund 3
<PAGE>
INVESTMENT OBJECTIVE
Encore Fund's investment objective is to provide high current return,
consistent with preservation of capital and liquidity, primarily through
investment in high-quality money market instruments. Encore Fund's investment
objective is fundamental and may not be changed without the vote of a
majority of its outstanding voting securities as defined by the Investment
Company Act of 1940 ("1940 Act"). There can be no assurance that the Fund
will meet its investment objective.
INVESTMENT POLICIES AND RESTRICTIONS
Investment Policies Encore Fund will invest primarily in (a) money market
instruments that have a maturity at the time of purchase, as defined under
federal securities laws, of 397 days or less (762 days or less for U.S.
Government securities) and (b) debt securities with a longer maturity, if the
Fund has the absolute right to sell such securities back to the issuer for at
least the face amount of the debt obligation within 397 days after the date
of purchase. Encore Fund invests in U.S. Treasury bills, notes and bonds;
obligations of agencies and instrumentalities of the U.S. Government;
obligations of domestic banks and U.S. dollar denominated obligations of
foreign banks, finance company commercial paper, corporate commercial paper
(including variable-rate instruments); documented discount notes of banks,
domestic bankers' acceptances eligible for discount at the Federal Reserve,
Yankee certificates of deposit, Yankee commercial paper, Eurodollar
securities, repurchase agreements, corporate bonds and notes and other debt
instruments, and may purchase securities on a when-issued or delayed-delivery
basis. The Fund will not invest more than 25% of its total assets in
securities or obligations of foreign issuers. All foreign securities and
obligations purchased by the Fund will be U.S. dollar denominated. The Fund
may engage in transactions on a when-issued or forward commitment basis and
may enter into forward currency contracts; however, the Fund does not intend
to invest more than 5% of its total assets in such securities. The average
maturity of the portfolio will depend on the investment adviser's appraisal
of money market conditions; however, it will not exceed 90 days. All earned
income and realized capital gains will be reinvested.
In addition, Encore Fund will invest at least 95% of its total assets in
high-quality securities. High-quality securities are those receiving the
highest credit rating by any two rating agencies (or one, if only one agency
has rated the security). High-quality securities may also include unrated
securities if the investment adviser determines the security to be of
comparable quality. The remainder of the Fund's assets will be invested in
securities rated within the two highest rating categories by any two rating
agencies (or one, if only one rating agency has rated the security) and
unrated securities if the investment adviser determines the security to be of
comparable quality. With respect to these securities, the Fund may not invest
more than the greater of 1% of the market value of its total assets or $1
million in the securities or obligations of any one issuer. Encore Fund will
use nationally recognized rating agencies such as Standard & Poor's
Corporation and Moody's Investors Service, Inc. when determining security
credit ratings. All investments will be determined by the Investment Adviser
to present minimal credit risks.
Industry Concentration Encore Fund will not concentrate its investments in
any one industry, except that the Fund may invest up to 25% of its total
assets in securities issued by companies principally engaged in one industry.
This limitation will not, however, apply to securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities; securities
invested in, or repurchase agreements for, U.S. Government securities; and
certificates of deposit, bankers' acceptances, or securities of banks and
bank holding companies. 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.
Also, the Fund will not 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 Fund's total assets and does not include securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities.
Illiquid and Restricted Securities The Fund may invest up to 10% 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, the Fund may invest in securities that are subject to legal or
contractual restrictions as to 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 these securities, the Fund may take longer to
liquidate the position and may realize less than the amount originally paid
by the Fund. The Investment Adviser, in accordance with the powers adopted by
the Board of Trustees, shall determine whether a particular security is
deemed to be liquid based on the trading markets for the specific security
and other factors.
4 Aetna Variable Encore Fund
<PAGE>
International Securities The Fund may invest up to 25% of its total assets in
U.S. dollar denominated securities or obligations of foreign issuers.
Investments in securities of foreign issuers involve risks not present in
domestic markets. Such risks may 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.
Repurchase Agreements Under a repurchase agreement, Encore Fund may acquire a
debt instrument for a relatively short period subject to an obligation by the
seller to repurchase and by the Fund to resell the instrument at a fixed
price and time. Assets may be invested in 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, Encore Fund 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 the Fund to liquidate the collateral
may be delayed or limited.
The Fund's Board of Trustees has established credit standards for issuers of
repurchase agreements entered into by the Fund.
Securities Lending The Fund may lend 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 Fund's total assets. The Fund 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. A loan may be terminated at any time by the borrower
or lender upon proper notice.
Borrowing The Fund may borrow up to 5% of the value of its total assets for
temporary or emergency purposes. The Fund does not intend to borrow for
leveraging purposes; but it has the authority to do so; provided, 300% of the
amount borrowed does not exceed the Fund's assets including the borrowings.
Leveraging can increase the volatility of the Fund since it exaggerates the
effects of changes in the value of the securities purchased with the borrowed
funds.
Encore Fund is subject to further investment restrictions described in the
SAI.
MANAGEMENT OF THE FUND
Trustees The operations of Encore Fund are managed under the direction of the
Board of Trustees (Trustees). The Trustees set broad policies for the Fund.
Information about the Trustees is found in the SAI.
Investment Adviser ALIAC, the investment adviser for the Fund, is a
Connecticut insurance corporation located at 151 Farmington Avenue, Hartford,
Connecticut 06156. It is a wholly owned subsidiary of Aetna Retirement
Services, Inc., which is in turn a wholly owned subsidiary of Aetna Life and
Casualty Company (Aetna). ALIAC is registered with the SEC as an investment
adviser and manages over $22 billion in assets including those held by Encore
Fund.
Under an investment advisory agreement with Encore Fund effective January 1,
1996, ALIAC is responsible for managing the assets of the Fund in accordance
with the investment objective and policies described above. ALIAC determines
what securities and other instruments are purchased and sold by the Fund and
is responsible for obtaining and evaluating financial data relevant to the
Fund's portfolio. ALIAC receives a management fee from Encore Fund based on
average daily net assets of the Fund at an annual rate of 0.25%.
Portfolio Management Jeanne Wong-Boehm, Managing Director, ALIAC, has been
the Portfolio Manager for Aetna Variable Encore Fund for over 6 years. Ms.
Wong-Boehm has over 10 years of investment management experience and earned
her BBA and MBA degrees from Pace University and an MFS degree from Yale
University.
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. For the services provided under the Administrative Services Agreement,
ALIAC will receive an annual fee, payable monthly at a rate of 0.10% of the
average daily net assets of the Fund.
Aetna Variable Encore Fund 5
<PAGE>
GENERAL INFORMATION
Declaration of Trust Encore Fund was organized as a "Massachusetts business
trust" under the laws of Massachusetts on January 25, 1984. It began
operations on May 1, 1984 upon succeeding to the assets of Aetna Variable
Encore Fund, Inc. Massachusetts law provides that shareholders of the Fund
can, under certain circumstances, be held personally liable for the
obligations of the Fund. The Fund has been structured, and will be operated
in such a way, so as to ensure as much as possible, that shareholders will
not be liable for obligations of the Fund. The Declaration of Trust
(Declaration) contains an express disclaimer of shareholder liability for
acts or obligations of the Fund under Massachusetts law, and requires that
notification of this disclaimer be given in each agreement, obligation or
instrument entered into by the Fund or the Trustees. A more complete
discussion of potential liability of shareholders of the Fund under
Massachusetts law is contained in the SAI under "Description of Shares --
Shareholder and Trustee Liability."
Capital Stock The Declaration permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest in the Fund. All
shares are nonassessable, other than as disclosed above. There are no
preemptive rights.
As of March 31, 1996, there were shares of the Fund outstanding,
all of which were owned by ALIAC and held in its separate accounts to fund
ALIAC's obligations under its variable annuity contracts and variable life
insurance policies.
Shareholder Meetings The Fund is not required to hold annual shareholder
meetings. The Declaration provides for meetings of shareholders to elect
Trustees at such time as may be determined by the Trustees or as required by
the Investment Company Act of 1940. If requested by the holders of at least
10% of the Fund's outstanding shares, the Fund will hold a shareholder
meeting for the purpose of voting on the removal of one or more Trustees and
will assist with communications concerning that shareholder meeting.
Voting Rights Shareholders are entitled to one vote for each full share held
and fractional votes for fractional shares held on matters submitted to the
shareholders of the Fund. Voting rights are not cumulative. Participants who
select the Fund for investment through their variable annuity contract or
variable life policy are not the shareholders of the Fund, but may have the
right to direct the voting of Fund shares at shareholder meetings if required
by law.
TAX MATTERS
The following discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject
to change by legislative or administrative action. The following discussion
is for general information only; a more detailed discussion of federal income
tax considerations is contained in the SAI. The term "shareholders", as used
below, refers to insurance company separate accounts who hold shares in
connection with variable annuity or variable life insurance contracts.
Holders of variable annuity contracts or variable life insurance policies
should consult the prospectuses of their respective contracts or policies for
information concerning federal income tax consequences.
The Fund The Fund intends 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") concerning: (1) the diversification of
assets; (2) the distribution of income; and (3) the source of income. It is
the policy of the Fund to distribute to shareholders all of its investment
income (net of expenses) and any capital gains (net of capital losses) in
accordance with the timing requirements imposed by the Code. In addition, the
Fund intends to comply with the variable asset diversification requirements
under Section 817(h) of the Code, which are described more fully in the SAI.
Fund Distributions Distributions by the Fund are taxable, if at all, to the
insurance company separate accounts, and not to variable annuity or variable
life insurance contract holders.
In general, shareholders include distributions in their taxable income in the
year in which they are received (whether paid in cash or reinvested).
However, distributions declared in December and paid in January are taxable
as if paid on December 31 of the year of declaration. A statement will be
sent to shareholders indicating the tax status of all distributions made
during the previous year.
Share Redemptions Any gain or loss realized upon a taxable disposition of a
shareholder's shares will be treated as a taxable long-term or short-term
capital gain or loss (depending on whether the shareholder has held the
shares more than 12 months). Any loss realized upon a taxable disposition of
a Fund's shares may be subject to limitations that are described more fully
in the SAI.
6 Aetna Variable Encore Fund
<PAGE>
SALE AND REDEMPTION OF SHARES
Shares of the Fund are sold and redeemed at their net asset value next
determined after receipt of a purchase or redemption order in acceptable
form. No sales charge or redemption charge is made.
NET ASSET VALUE
The net asset value per share (NAV) of the Fund is determined as of 4:15 p.m.
Eastern time, on each day that the New York Stock Exchange is open for
trading. The NAV is computed by dividing the total value of the Fund's
securities, plus any cash or other assets less all liabilities (including
accrued expenses), by the number of shares outstanding.
As a general rule, portfolio securities are valued at their fair value in
such a manner as may be determined, from time to time, in good faith by, or
under the authority of, the Trustees. Generally, portfolio securities having
sixty days or less to maturity will be valued at amortized cost. The Trustees
may authorize the use of independent pricing services, where appropriate.
Aetna Variable Encore Fund 7
<PAGE>
GLOSSARY
This glossary describes some of the securities in which Encore Fund may
invest in pursuing its investment objective.
U.S. Government Direct Obligations -- issued by the Treasury Department and
include bills, notes, and bonds.
(bullet) Treasury bills are issued with maturities of any period up to one
year. They are issued in bearer form and are sold on a discount basis
to pay the face amount at maturity. The income for the investor is the
difference between the purchase price and the maturity value (or the
sale price if sold prior to maturity).
(bullet) Treasury notes are interest-bearing obligations with original
maturities of one to ten years.
(bullet) Treasury bonds are longer term, interest-bearing obligations with
original maturities from ten to thirty years.
U.S. Government Agencies Securities -- Federal agencies have been established
as instrumentalities of the United States Government to supervise and finance
certain types of activities. These agencies include the Banks for
Cooperatives, Federal Land Banks, Federal Intermediate Credit Banks, Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Export-Import Bank, and Tennessee Valley Authority.
Issues of these agencies, while not direct obligations of the United States
Government, are either backed by the full faith and credit of the United
States or are guaranteed by the Treasury or supported by the issuing
agencies' right to borrow from the Treasury.
Bankers' Acceptances -- A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is generally used by
corporations to finance the shipment and storage of goods. When the draft is
accepted by a bank, the bank unconditionally guarantees to pay the face value
of the instrument on its maturity date. An investor can purchase a bankers'
acceptance in the secondary market at the going rate of discount for a
specific maturity. Maturities of the instrument are generally six months or
less.
Certificates of Deposit -- A certificate of deposit is a receipt issued by a
bank or savings and loan association in exchange for the deposit of funds. It
earns a specified rate of return over a definite period of time. Normally a
certificate can be traded in a secondary market prior to maturity. Eurodollar
certificates of deposit are dollar-denominated deposits in banks outside the
United States. The bank may be a foreign bank or a foreign branch of a United
States bank. Yankee certificates of deposit are United States
dollar-denominated deposits issued and payable by United States branches of
foreign banks.
Commercial Paper -- Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and finance companies.
Maturities on these issues vary from a few days to nine months. Yankee
commercial paper is issued by foreign institutions in the United States
markets and payable in United States dollars.
Repurchase Agreement -- A repurchase agreement is an agreement between a
seller and buyer, usually of U.S. Government securities to sell and
subsequently repurchase securities at a fixed price on a future date. Under a
reverse repurchase agreement, the Fund would in effect sell portfolio
securities to another entity, with an agreement to repurchase at a specified
future date. The repurchase price under any type of repurchase agreement
reflects an agreed-upon interest rate for the period of purchase, which tends
to reflect current interest rates in the market rather than original issue
rate on the security.
8 Aetna Variable Encore Fund
<PAGE>
Statement of Additional Information dated: May 1, 1996
AETNA VARIABLE
ENCORE FUND
151 Farmington Avenue
Hartford, Connecticut 06156
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus for Aetna Variable Encore
Fund dated May 1, 1996.
A free prospectus is available upon request from the local Aetna Life
Insurance and Annuity Company office or by writing:
Aetna Variable Encore Fund
151 Farmington Avenue
Hartford, Connecticut 06156
1-800-525-4225
Read the prospectus before you invest.
TABLE OF CONTENTS
General Information and History 2
Investment Objective and Policies of the Fund 2
Description of Various Securities and Investment Techniques 4
Trustees and Officers of the Fund 5
Control Persons and Principal Holders of The Fund 7
The Investment Advisory Contract 7
Administrative Services Agreement 9
Brokerage Allocation 9
Description of Shares 10
Tax Matters 11
Sale and Redemption of Shares 14
Net Asset Value 14
Custodian 15
Independent Auditors 15
Commercial Paper Ratings 16
Financial Statements S-1
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Variable Encore Fund ("Encore Fund" or "Fund") is an open-end
diversified management investment company which sells its shares of
beneficial interest to (i) Aetna Life Insurance and Annuity Company
("Company") for allocation to certain of its separate accounts, each of which
has been established for the purpose of funding either variable annuity
contracts or variable life insurance contracts issued by the Company, and
(ii) affiliates and subsidiaries of the Company for allocation to their
separate accounts in connection with the purchase of annuity contracts.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The investment objective of Encore Fund is to provide high current return,
consistent with preservation of capital and liquidity, through investment in
high-quality money market instruments.
Encore Fund will operate under the following restrictions, which together
with its investment objective, are matters of fundamental policy and cannot
be changed without the approval of a majority of the outstanding voting
securities of the Fund. This means the lesser of: (i) 67% of the shares of
the Fund present or represented at a shareholders' meeting if the holders of
more than 50% of the shares then outstanding are present or represented; or
(ii) more than 50% of the outstanding voting securities of the Fund.
In seeking to accomplish its investment objective, the Fund will not:
(1) issue any senior security (as defined in the Investment Company Act of
1940 (the "1940 Act")), except that (a) the Fund may enter into
commitments to purchase securities in accordance with the Fund's
investment program, including reverse repurchase agreements, delayed
delivery and when-issued securities, which may be considered the
issuance of senior securities, (b) the Fund 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, and (c) subject to fundamental restrictions, the
Fund may borrow money as authorized by the 1940 Act;
(2) 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 the Fund's total assets. Securities issued or guaranteed by
the U.S. Government, its agencies and instrumentalities are excluded
from this restriction;
(3) concentrate its investments in any one industry except that the Fund 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 limitation will
not, however, apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities; securities invested in,
or repurchase agreements for, U.S. Government securities; and
certificates of deposit, bankers' acceptances, or securities of banks
and bank holding companies;
(4) make loans, except that, to the extent appropriate under its investment
program, the Fund 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 Fund's total
assets;
(5) invest in commodity contracts, except that the Fund may, to the extent
appropriate under its investment program, purchase securities of
companies engaged in such activities, may engage in transactions on a
when-issued or forward commitment basis, and may enter into forward
currency contracts;
(6) borrow money, except that (a) the Fund may enter into commitments to
purchase securities in accordance with the Fund's investment program,
including delayed-delivery and when-issued securities and reverse
repurchase agreements; and (b) for temporary, emergency purposes, the
2 Aetna Variable Encore Fund
<PAGE>
Fund may borrow money in amounts not exceeding 5% of the value of its
total assets at the time the loan is made;
(7) purchase real estate, interests in real estate or real estate limited
partnership interests except that, to the extent appropriate under its
investment program, the Fund may invest in securities 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
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by the Fund, the
Fund may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (the "1933 Act").
(Note that as a money market fund, the Fund's investment program does
not currently allow investment in futures contracts.)
The Fund has also adopted certain other investment restrictions which may be
changed by the Fund's Trustees and without shareholder vote. Under such
restrictions, the Fund 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 program of the Fund;
(2) invest more than 10% 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
1933 Act, 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;
(3) purchase the securities of any other investment company, except as
permitted under the 1940 Act;
(4) invest in companies for the purpose of exercising control or management;
or
(5) invest more than 25% of its total assets in securities or obligations of
foreign issuers, including marketable securities of, or guaranteed by,
foreign governments (or any instrumentality or subdivision thereof). The
Fund will invest in securities or obligations of foreign banks only if
such banks have a minimum of $5 billion in assets and a primary capital
ratio of at least 4.25%. The Fund may only purchase foreign securities
or obligations that are U.S. dollar denominated.
Where the Fund's investment objective or policy restricts 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 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.
The Fund will invest at least 95% of its total assets in high-quality
securities. High-quality securities are those receiving the highest credit
rating by any two nationally recognized statistical rating organizations (or
one, if only one rating organization has rated the security) and the
conditions of Rule 2a-7 under the 1940 Act are met. High-quality securities
may also include unrated securities if the investment adviser determines the
security to be of comparable quality.
The remainder of the Fund's assets will be invested in securities rated
within the two highest rating categories by any two nationally recognized
statistical rating organizations (or one, if only one rating organization has
rated the security) and unrated securities if the investment adviser
determines the security
Aetna Variable Encore Fund 3
<PAGE>
to be of comparable quality. With respect to this group of securities, the
Fund may not, however, invest more than the greater of 1% of the market value
of its total assets or $1 million in the securities or obligations of a
single issuer.
DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES
The following information supplements and should be read in conjunction with
the section of the prospectus entitled "Investment Policies and
Restrictions."
Repurchase Agreements
Encore Fund may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards
established by the Fund's Board of Trustees. Under a repurchase agreement,
the Fund may acquire a debt instrument for a relatively short period (usually
not more than one week) subject to an obligation of the seller to repurchase
and the Fund to resell the instrument at a fixed price and time, thereby
determining the yield during the Fund'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 the Fund. The market value of the underlying debt instruments
will, at all times, be equal to the dollar amount invested, even though the
maturity of the underlying instruments may exceed the 397-day maturity
limitation (762 days for U.S. Government securities) of Encore Fund.
Repurchase agreements, although fully collateralized, involve the risk that
the seller of the securities may fail to repurchase them from the Fund. In
that event, the Fund 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, the Fund's ability to
liquidate the collateral may be delayed or limited. Under the 1940 Act,
repurchase agreements are considered loans by the Fund. Repurchase agreements
maturing in more than seven days will not exceed 10 percent of the total
assets of the Fund.
The Company will not make loans, enter into repurchase agreements or lend
portfolio securities unless it receives collateral that is at least equal to
the value of the loan, including accrued interest.
Reverse Repurchase Agreements
Encore Fund may enter into "reverse repurchase agreements" in which the Fund,
as seller of the securities, agrees to repurchase them at an agreed upon time
and price. When engaging in reverse repurchase agreements with banks or
broker-dealers, the Fund will receive cash and will deposit collateral in the
form of cash or cash equivalents in a segregated account maintained by Mellon
Bank, N.A. Such collateral will be maintained at all times in an amount equal
to at least 100% of the amount due to the bank or broker- dealer with which
the Fund entered into the reverse repurchase agreement.
When-Issued or Delayed-Delivery Securities
During any period that the Fund has outstanding a commitment to purchase
securities on a when-issued or delayed-delivery basis, the Fund will maintain
with its custodian bank a segregated account consisting of cash, U.S.
Government securities or other high-quality debt obligations. To the extent
that the market value of securities held in this segregated account falls
below the amount that the Fund 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 Fund's liquidity and ability to manage
its portfolio. When the Fund 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 Fund's
incurring a loss or missing an opportunity to invest funds held in the
segregated account more advantageously.
The Fund 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 Fund 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
4 Aetna Variable Encore Fund
<PAGE>
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.
Maturity Policies
The average dollar-weighted maturity of securities in the Fund's portfolio
will not exceed ninety days. In addition, no security in the Fund's portfolio
will have a maturity of greater than thirteen months (397 calendar days), or,
in the case of United States Government securities, no greater than
twenty-five months (762 calendar days).
TRUSTEES AND OFFICERS OF THE FUND
The investments and administration of the Fund are under the direction of the
Board of Trustees. The Trustees and executive officers of the Fund and their
principal occupations for the past five years are listed below. Those
trustees who are "interested persons," as defined in the 1940 Act, are
indicated by an asterisk (*), and hold similar positions with other
investment companies in the same fund complex managed by the Investment
Adviser.
<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* Trustee and Chief Executive, Aetna Investment Services, Inc., October
151 Farmington Avenue President 1995 to Present; President, Aetna Investment Services,
Hartford, Connecticut Inc., March 1994 to Present; Director and Chief Operations
Age 40 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 and Director of ALIAC, March 1991
to Present; Vice President of Aetna Life Insurance Company,
1991 to Present.
- ---------------------------------------------------------------------------------------------------------------
James C. Hamilton Vice President Chief Financial Officer, Aetna Investment Services, Inc.,
151 Farmington Avenue and Treasurer July 1993 to Present; Director, Vice President and
Hartford, Connecticut Treasurer, Aetna Insurance Company of America, February
Age 54 1993 to Present; Director, Aetna Private Capital, Inc.,
November 1990 to Present; Vice President and Treasurer
of ALIAC, October 1988 to Present; Vice President and
Actuary, Aetna Life Insurance Company, 1988 to Present.
- ---------------------------------------------------------------------------------------------------------------
Aetna Variable Encore Fund 5
<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)**
- ---------------------------------------------------------------------------------------------------------------
John Y. Kim* Trustee and President, Chief Executive Officer, and Chief Investment
151 Farmington Avenue Vice President Officer, Aeltus Investment Management, Inc., December
Hartford, Connecticut 1995 to Present; Senior Vice President and Director, ALIAC
Age 35 and Chief Investment Officer, Aetna Life and Casualty
Company, May 1994 to Present; Managing Director, Mitchell
Hutchins Institutional Investors, New York, NY, September
1993 to April 1994; Vice President of Investor Relations
and Senior Portfolio Manager, Aetna Life and Casualty
Company, October 1991 to August 1993.
- ----------------------------------------------------------------------------------------------------------------
Susan E. Bryant Secretary Counsel, Aetna Life and Casualty Company, March 1993 to
151 Farmington Avenue Present; General Counsel and Corporate Secretary, First
Hartford, Connecticut Investors Corporation, April 1991 to March 1993;
Age 48 Administrator, Oklahoma Department of Securities, March
1986 to April 1991.
- ----------------------------------------------------------------------------------------------------------------
Morton Ehrlich Trustee Chairman and Chief Executive Officer, Integrated
1000 Venetian Way Management Corp. (an entrepreneurial company) and
Miami, Florida Universal Research Technologies, 1992 to Present; Director
Age 61 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 Trustee Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation and Alcohol
Closter, New Jersey Services, 1973 to Present.
Age 52
- ----------------------------------------------------------------------------------------------------------------
David L. Grove Trustee Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to Present.
Armonk, New York
Age 77
- -----------------------------------------------------------------------------------------------------------------
Daniel P. Kearney* Trustee Executive Vice President of Aetna Life and Casualty Company,
151 Farmington Avenue 1993 to Present; Group Executive, Aetna Life and Casualty
Hartford, Connecticut Company, 1991 to 1993.
Age 56
- -----------------------------------------------------------------------------------------------------------------
Sidney Koch Trustee Financial Adviser, self-employed, January 1993 to Present;
455 East 86th Street Senior Adviser, Daiwa Securities America, Inc., January
New York, New York 1992 to January 1993; Executive Vice President, Member
Age 60 of Executive Committee, Daiwa Securities America, Inc.,
January 1986 to January 1992.
- ------------------------------------------------------------------------------------------------------------------
6 Aetna Variable Encore Fund
<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)**
- ------------------------------------------------------------------------------------------------------------------
Corine T. Norgaard Trustee, Chair Professor, Accounting and Dean of the School of Management,
School of Management Audit Committee Binghamton University (Binghamton, NY), August 1993 to
Binghamton University and Contract Present; Professor, Accounting, University of Connecticut
Binghamton, New York Committee (Storrs, Connecticut), September 1969 to June 1993;
Age 58 Director, The Advest Group (holding company for brokerage
firm).
- ------------------------------------------------------------------------------------------------------------------
Richard G. Scheide Trustee Trust and Private Banking Consultant, David Ross Palmer
11 Lily Street Consultants, July 1991 to Present; Executive Vice President
Nantucket, Massachusetts and Manager, Bank of New England, N.A., June 1976 to July
Age 66 1991.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Members of the Board of Trustees who are also directors, officers or
employees of Aetna Life and Casualty Company are not entitled to any fee.
Members of the Board of Trustees who are not affiliated as employees of Aetna
or its subsidiaries receive an annual retainer of $2,000 for service on the
Board, and a fee of $400 per Fund for each meeting of such Board (equal to an
aggregate annual fee of $8,000). They may also receive an annual fee of $400
or $500 for service on the Audit and Contract Committees, respectively.
As of December 31, 1995 the unaffiliated members of the Board of Trustees
were compensated as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation Total Compensation from Registrant and Fund
Position from Registrant Complex* Paid to Directors
------------------------ ---------------------- --------------------------------------
<S> <C> <C>
Corine Norgaard $ $
Director and Chairman,
Audit and Contract
Committees
------------------------ ---------------------- --------------------------------------
Sidney Koch $ $
Director and Member,
Audit and Contract
Committees
------------------------ ---------------------- --------------------------------------
Maria T. Fighetti $ $
Director and Member,
Audit and Contract
Committees
------------------------ ---------------------- --------------------------------------
Morton Ehrlich $ $
Director and Member,
Audit and Contract
Committees
------------------------ ---------------------- --------------------------------------
Richard G. Scheide $ $
Director and Member,
Audit and Contract
Committees
- ------------------------- ---------------------- ---------------------------------------
Aetna Variable Encore Fund 7
<PAGE>
- ------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation Total Compensation from Registrant and Fund
Position from Registrant Complex* Paid to Directors
------------------------ ---------------------- --------------------------------------
David L. Grove $ $
Director and Member,
Audit and Contract
Committees
------------------------ ---------------------- --------------------------------------
</TABLE>
* Fund Complex presently consists of: Aetna Series Fund, Inc., Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna
Investment Advisers Fund, Inc., Aetna GET Fund (Series B) and Aetna
Generation Portfolios, Inc.
** Mr. Grove elected to defer all such compensation.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF THE FUND
As of March 31, 1996, all of the shares of the Encore Fund were owned by the
Company and its affiliates and allocated to variable annuity and variable life
insurance separate accounts to fund obligations under variable annuity contracts
and variable life insurance contracts. Contract holders in these separate
accounts are provided the right to direct the voting of Fund shares at
shareholder meetings. The Company and its affiliates vote the shares that they
own in these separate accounts in accordance with contract holders' directions.
Undirected shares of the Fund will be voted for each Account in the same
proportion as directed shares. The Company is a wholly owned subsidiary of Aetna
Retirement Services, Inc., which is in turn a wholly owned subsidiary of Aetna
Life and Casualty Company located at 151 Farmington Avenue, Hartford,
Connecticut 06156.
THE INVESTMENT ADVISORY CONTRACT
The Fund has entered into an Investment Advisory Agreement (the "Management
Agreement") with the Company, dated as of , 1996. A prior investment advisory
agreement, with substantially identical terms, was previously in effect.
Under the Management Agreement and subject to the direction of the Board of
Trustees of the Fund, the Company has responsibility for supervising all
aspects of the operations of the Fund. For its services under the Management
Agreement, the Company receives an annual investment advisory fee of 0.25% of
the average daily net assets of the Fund. See "Management of the Fund" in the
Prospectus.
The Management Agreement provides that the Company shall pay (a) the
salaries, employment benefits and other related costs of those of its
personnel engaged in providing investment advice to the Fund, including,
without limitation, office space, office equipment, telephone and postage
costs and (b) any fees and expenses of all Trustees of the Fund who are
employees of the Company or an affiliated entity and any salaries and
employment benefits of officers of the Fund who are affiliated persons of the
Company for acting as officers of the Fund. The Management Agreement also
provides that the Fund 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 Fund's independent auditors and outside legal
counsel; (iv) expenses of printing and distributing proxies, proxy
statements, prospectuses and reports to shareholders of the Fund, except as
such expenses may be borne by the distributor; (v) interest and taxes; (vi)
fees and expenses of those of the Fund's Trustees who are not "interested
persons" (as defined by the 1940 Act) of the Fund or the Company; (vii)
shareholder's meeting expenses; (viii) Administrator, transfer agent,
custodian and dividend disbursing agent fees and expenses; (ix) fees of
dividend, accounting and pricing agents appointed by the Fund; (x) fees
payable to the Securities and Exchange Commission ("SEC") or in connection
with the registration of shares of the Fund 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
and other
8 Aetna Variable Encore Fund
<PAGE>
association memberships approved by the Board of Trustees; (xii) such
nonrecurring or extraordinary expenses as may arise; (xiii) all other
ordinary business expenses incurred in the operations of the Fund, 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 or redemption; and (xvi) insurance
premiums on property and personnel (including officers and Trustees) of the
Fund which inure to its benefit.
The Management Agreement provides that if, for any fiscal year, the total of
all ordinary business expenses of the Fund, including all investment advisory
fees but excluding brokerage commissions, distribution fees, taxes, interest
and extraordinary expenses and certain other excludable expenses, would
exceed the most restrictive expense limits imposed by any statute or
regulatory authority of any jurisdiction in which shares of the Fund are
offered for sales (unless a waiver is obtained), the Company shall reduce its
advisory fee in order to reduce such excess expenses, but will not be
required to reimburse the Fund for any ordinary business expenses which
exceed the amount of its advisory fee for such fiscal year.
The Management Agreement provides that it will continue in effect from year
to year provided that it is specifically approved at least annually by the
Board of Trustees of the Fund and by a majority of the non-interested
Trustees by votes cast at a meeting called for such purpose. The Management
Agreement provides that it may be terminated at any time by vote of the
Fund's Trustees or by vote of a majority of the Fund's outstanding voting
securities, or the Company, on sixty (60) days' written notice to the other
party. The Management Agreement will terminate automatically in the event of
its assignment.
Pursuant to the terms of the previous management agreement, the Company received
an annual investment advisory fee of 0.25% of the average daily net assets of
the Fund. For the years 1993, 1994 and 1995, the Fund paid the Company an
investment advisory fee of $1,026,406, $1,061,521 and $ respectively.
The service mark of the Aetna Variable Encore Fund and the name "Aetna" have
been adopted by the Fund 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 Company or
another subsidiary or affiliated corporation of Aetna Life and Casualty
Company should not be the investment adviser of the Fund.
ADMINISTRATIVE SERVICES AGREEMENT
The Fund has entered into an Administrative Services Agreement with the Company
effective May 1, 1996 under which the Company has agreed to provide all
administrative services in support of the Fund. In addition, the Company has
agreed to assume all ordinary recurring direct costs of the Fund that it would
be required to pay under the terms of the Investment Advisory Agreement. As a
result, the Company will be covering all costs of the Fund other than the
investment advisory fee and brokerage costs and other transaction costs in
connection with the purchase and sale of securities for its portfolio. For the
services provided under the Administrative Services Agreement, the Company will
receive an annual fee, payable monthly at a rate of 0.10% of the average daily
net assets of the Fund. Prior to May 1, 1996, the Company had an Administrative
Services Agreement that provided for the reimbursement of a proportionate share
of the Company's overhead in administering the Fund. Prior to May 1, 1996, the
Fund was obligated to pay its own direct costs. The total of the direct costs
and administrative costs for the years ended December 31, 1993, 1994 and 1995
were $124,261, $133,563 and $ , respectively.
The Administrative Services Agreement was approved by the Board of Trustees
on February 28, 1996 and 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 Trustees. It may be terminated by either party on sixty days' written
notice.
BROKERAGE ALLOCATION
Subject to the direction of Encore Fund's Board of Trustees, the Company has
responsibility for making the Fund's investment decisions and for effecting
the execution of trades for the Fund's portfolio. Purchases and sales of
portfolio securities will usually be made in principal transactions, which
will result
Aetna Variable Encore Fund 9
<PAGE>
in the payment of no brokerage commission. In such transactions, portfolio
securities will normally be purchased directly from or sold to the issuer or
an underwriter or market-maker for these securities.
The primary criterion used in the allocation of purchase transactions is the
availability of a security which best meets the requirements of the Fund's
portfolio strategy. This determination is based on the safety, liquidity,
yield and maturity of the security in relation to other money market
instruments then available. The primary criterion used in the allocation of
sale transactions will be that of obtaining the best price and execution of
such transactions under the circumstances then prevailing. Certain executive
officers of the Company also have supervisory responsibility with respect to
the securities portfolio of the Company's own general account. Further, the
Company also acts as investment adviser to other investment companies
registered under the 1940 Act. In placing orders for the purchase and sale of
debt securities for the Fund, the Company will normally use its own
facilities and there will not be allocations of such orders between the Fund
and the Company's general account. However, to the extent the Company has
other clients, the Fund and another advisory client of the Company may desire
to buy or sell the same publicly traded security at or about the same time.
In such a case, 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. In some cases the smaller orders will be filled
first. In determining the amounts to be purchased and sold, the main factors
to be considered are the respective investment objectives of the Fund and the
other portfolios, the relative size of portfolio holdings of the same or
comparable securities, availability of cash for investment by the Fund and
the other portfolios, and the size of their respective investment
commitments. Trades may be executed between Funds and such trades are
executed at "current market price" in compliance with SEC Rule 17a-7.
The Fund did not pay any brokerage commissions for 1993, 1994 and 1995.
For the fiscal year ended December 31, 1995, portfolio transactions in the
amount of $________ were directed to certain brokers because of research
services, of which commissions in the amount of $________ were paid with
respect to such transactions. No brokerage business was placed with any brokers
affiliated with ALIAC during the last three fiscal years.
DESCRIPTION OF SHARES
Aetna Variable Encore Fund was established under the laws of Massachusetts by
a Declaration of Trust ("Declaration") dated January 25, 1984.
The Declaration permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest of a single class, each of which
represents a proportionate interest in the Fund equal to each other share.
The Trustees have the power to divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportional beneficial
interest in the Fund.
Upon liquidation of the Fund, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to shareholders. Fund
shares are fully paid and non-assessable, except as set forth below.
Shareholder and Trustee Liability
Encore Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such business
trusts may, under certain circumstances, be held personally liable as
partners for the obligations of the Fund, which is not true in the case of a
corporation. The Declaration provides that shareholders shall not be subject
to any personal liability for the acts or obligations of the Fund and that
every written agreement, obligation, instrument or undertaking made by the
Fund shall contain a provision to the effect that shareholders are not
personally liable thereunder. With respect to tort claims, contract claims
where the provision referred to is omitted from the undertaking, and claims
for taxes and certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of any such liability the
shareholder will be entitled to reimbursement from the general assets of the
Fund. The Trustees intend to conduct the operations of the Fund, with the
advice of counsel, in such a way as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Fund.
The Declaration further provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration
protects a Trustee against any liability to which he or she
10 Aetna Variable Encore Fund
<PAGE>
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
his or her office.
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
Trustees (to the extent hereinafter provided) and on other matters submitted
to the vote of shareholders. A meeting of the shareholder at which Trustees
were elected was most recently held on April 13, 1994. Thereafter, no further
meeting of shareholders for the purpose of electing Trustees will be held
unless and until such time as less than a majority of the Trustees holding
office have been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for election of Trustees. Vacancies
occurring between such meetings shall be filled in an otherwise legal manner
if, immediately after filling any such vacancy, at least two-thirds of the
Trustees holding office have been elected by shareholders. Except as set
forth above, the Trustees shall continue to hold office and may appoint
successor Trustees. Trustees may be removed from office (1) at any time by
two-thirds vote of the Trustees; (2) by a majority vote of Trustees where any
Trustee 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 Fund's custodian,
signed by two-thirds of the Fund's shareholders. Any Trustee 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 Trustees can, if they choose to do so, elect
all the Trustees of the Fund, in which event the holders of the remaining
shares will be unable to elect any person as a Trustee.
The Declaration 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 Trustees and consented to by a majority of the shareholders.
The Trustees may also amend the Declaration without the vote or consent of
shareholders if they deem it necessary to conform the Declaration 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 Trustees shall not be liable for failing to do so.
Shares have no preemptive or conversion rights.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of the Fund or its shareholders, and the discussions here and
in the Prospectus are not intended as substitutes for careful tax planning.
Holders of variable annuity contracts or variable life insurance policies
should consult the prospectuses of their respective contracts or policies for
information concerning the federal income tax consequences of owning such
variable annuity contracts or variable life insurance policies.
Qualification as a Regulated Investment Company
The Fund 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, the Fund 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 (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) for
the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by the
Fund 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.
Aetna Variable Encore Fund 11
<PAGE>
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"). 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, the Fund 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 the Fund
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 the
Fund 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.
Finally, the Fund 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 the Fund's taxable year, at least 50% of the value of the
Fund'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 Fund has not invested more than
5% of the value of the Fund's total assets in securities of such issuer and
as to which the Fund 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 in two or more issuers which the Fund controls and which are
engaged in the same or similar 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 by or guaranteed by
agencies and instrumentalities of the U.S. Government such as the Federal
Agricultural Mortgage Corporation, the Farm Credit System Financial
Assistance Corporation, the 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 the Fund 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 Fund'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
fund's total assets may be represented by any one investment, no more than
70% by any two investments, no more
12 Aetna Variable Encore Fund
<PAGE>
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 are
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, 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")). 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 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).
The Fund 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 the Fund may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
ALIAC as ordinary income and treated as dividends for federal income tax
purposes.
The Fund may either retain or distribute to ALIAC its net capital gain, if
any, for each taxable year. The Fund 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 ALIAC as long-term capital gain, regardless
of the length of time ALIAC has held its shares or whether such gain was
recognized by the Fund prior to the date on which ALIAC acquired shares. All
distributions paid to ALIAC, whether characterized as ordinary income or
capital gain, are not taxable to variable annuity or variable life insurance
contract holders.
If the Fund elects to retain its net capital gain, the Fund will be taxed
thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. Where the Fund elects to retain its net capital
gain, it is expected that the Fund also will elect to have shareholders of
record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for his shares by an amount equal to the deemed distribution
less the tax credit.
Aetna Variable Encore Fund 13
<PAGE>
Investment income that may be received by the Fund 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 the Fund 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 the Fund's assets to be invested in various
countries is not known.
Distributions by the Fund 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 ALIAC will be 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, if the net asset value at the time a shareholder purchases shares
of the Fund reflects undistributed net investment income or recognized
capital gain net income, or unrealized appreciation in the value of the
assets of the Fund, 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 the Fund 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 Fund) 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
ALIAC will recognize gain or loss on the sale or redemption of shares of the
Fund 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 Fund 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 the Fund 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 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. For this purpose, the special holding period rules
of Code Section 246(c)(3) and (4) generally will apply in determining the
holding period of shares. Although gain or loss realized on shares redeemed
through the direction of variable annuity or variable life insurance contract
holders is taxable to ALIAC, such variable annuity or variable life insurance
contract holders will not be subject to tax.
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 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 the Fund.
SALE AND REDEMPTION OF SHARES
Shares of Encore Fund are sold and redeemed at the net asset value next
determined after receipt of a purchase or redemption order in acceptable form
by the Company. No sales charge or redemption charge is made. The value of
shares redeemed may be more or less than the shareholder's cost, depend-
14 Aetna Variable Encore Fund
<PAGE>
ing upon the market value of the portfolio securities at the time of
redemption. Payment for shares redeemed will be made to the Company by Encore
Fund within seven days or the maximum period allowed by law, if shorter,
after the redemption request is received by the Company acting as transfer
agent for the Fund. The right to redeem Fund shares may be suspended or
payment therefore postponed for any period during which (a) trading on the
New York Stock Exchange is restricted as determined by the SEC or such
Exchange is closed for other than weekends and holidays; (b) an emergency
exists, as determined by the SEC, as a result of which (i) disposal by the
Fund of securities owned by it is not reasonably practicable, or (ii) it is
not reasonably practicable for the Fund to determine fairly the value of its
net assets; or (c) the SEC by order so permits for the protection of
shareholders of the Fund.
NET ASSET VALUE
As a general rule, portfolio securities are valued at their fair value in
such a manner as may be determined from time to time, in good faith by, or
under the authority of, the Board of Trustees. Generally, portfolio
securities having sixty days or less to maturity will be valued at amortized
cost. The Trustees may authorize the use of independent pricing services,
where appropriate.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258
serves as custodian for assets of the Fund. The custodian does not
participate in determining the investment policies of the Fund or in deciding
which securities are purchased or sold by the Fund. The Fund, however, may
invest in obligations of the custodian and may purchase or sell securities
from or to the custodian.
INDEPENDENT AUDITORS
, CityPlace II, Hartford, Connecticut 06103-4103 serves as independent
auditors to the Fund. provides audit services, assistance and
consultation in connection with SEC filings.
Aetna Variable Encore Fund 15
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment capacity of rated issuers:
(bullet) Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced
by the following characteristics:
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
(bullet) Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
(bullet) Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
(bullet) Issuers rated Not Prime do not fall within any of the Prime rating
categories.
16 Aetna Variable Encore Fund
<PAGE>
COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation
Standard & Poor's Commercial Paper quality ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. The four categories are as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as
for issues designated "A-1".
A-3 Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as having only an adequate capacity for timely
payment. However, such capacity may be damaged by changing conditions or
short-term adversities.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the issue is either in default or is expected to
be in default upon maturity.
Aetna Variable Encore Fund 17
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements*:
(1) Included in Part A:
Financial Highlights
(2) Included in Part B:
Statements of Assets and Liabilities as of December
31, 1995
Statements of Operations for the year ended December
31, 1995
Statements of Changes in Net Assets for the years ended
December 31, 1995 and 1994
Notes to Financial Statements
Portfolio of Investments
Independent Auditors' Report
(b) Exhibits:
(1) Charter (Declaration of Trust)(1)
(2) Amended Bylaws (adopted by Board of Directors
September 14, 1994)(2)
(3) Not Applicable
(4) Not Applicable
(5) Investment Advisory Agreement(3)
(6) Not Applicable
(7) Not Applicable
(8) Custodian Agreements and Depository Contracts(4)
(9) Administrative Services Agreement*
(10.1) Opinion of Counsel(5)
(10.2) Consent of Counsel *
(11) Consent of Independent Auditors *
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Financial Data Schedule *
(18) Powers of Attorney(2)
* To be filed by subsequent Post-Effective Amendment.
1 Incorporated herein by reference to the Registration Statement on
Form N-1A, File No. 2-53038, as filed with the Securities and Exchange
Commission on May 1, 1984.
ENCORE.DOC
<PAGE>
2 Incorporated herein by reference to Post-Effective Amendment No. 38 to
the Registration Statement on Form N-1A, File No. 2-53038, as filed with
the Securities and Exchange Commission on April 24, 1995.
3 Incorporated herein by reference to Post-Effective Amendment No. 37 to
the Registration Statement on Form N-1A, File No. 2-51739, as filed with
the Securities and Exchange Commission on April 26, 1994.
4 Incorporated herein by reference to Post-Effective Amendment No. 22 to
the Registration Statement on Form N-1A, File No. 2-53038, as filed with
the Securities and Exchange Commission on April 18, 1985.
5 Incorporated herein by reference to Registrant's 24f-2 Notice for the
fiscal year ended December 31, 1994 as filed with the Securities and
Exchange Commission on February 28, 1995.
Item 25. Persons Controlled by or Under Common Control
Registrant is a Massachusetts business trust for which separate
financial statements are filed. On January 31, 1996, Aetna Life
Insurance and Annuity Company ("Company") owned 100% of the
Registrant's outstanding shares of beneficial interest. Aetna Life
and Casualty Company ("Aetna") indirectly owned 100% of the
Company's outstanding shares of common stock on January 31, 1996.
A diagram of all persons directly or indirectly under common
control with the Registrant is incorporated herein by reference to
Item 26 of Post-Effective Amendment No. 5 to the Registration
Statement on Form N-4, File No. 33-75982, as filed electronically
with the Securities and Exchange Commission on February 20, 1996.
Item 26. Number of Holders of Securities
(1) Title of Class (2) Number of Record Holders
-------------- ------------------------
Shares of Beneficial Interest (to be updated by amendment)
$1.00 par value (Each record holder is a separate
account of the Company.)
Item 27. Indemnification
Article V of the Registrant's Declaration of Trust, incorporated
herein by reference to Exhibit 24(b)(1) to the Registrant's
Registration Statement on Form N-1A filed May 1, 1984 (File No.
2-53038), provides indemnification for Registrant's trustees and
officers.
In addition, the Registrant's trustees and officers are covered
under director and officer liability policies issued by National
Union Fire Insurance Company, which generally indemnify the
Registrant's trustees and officers for judgments and expenses in
ENCORE.DOC
<PAGE>
proceedings brought against them solely by reason of their
positions as trustees and officers (in the absence of gross
neglect or misfeasance). The policy expires on October 1, 1996.
Item 28. Business and Other Connections of Investment Adviser
The Investment Adviser is an insurance company that issues
variable and fixed annuities, variable and universal life
insurance policies and acts as depositor for separate accounts
holding assets for variable contracts and policies. The following
table summarizes the business connections of the directors and
principal officers of the Investment Adviser.
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------------- ----------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1993/Addresses*/**
- ------------------------------ ----------------------------------- ----------------------------------------------
<S> <C> <C>
Daniel P. Kearney Director, President and Chairman, Executive Vice President (since December
Executive Committee (Principal 1993), and Group Executive, Financial
Executive Officer) Division (February 1993 - December 1993),
Aetna Life and Casualty Company; Director,
Aetna Insurance Company of America (since
February 1993).
Christopher J. Burns Director (1991); Senior Vice Director, Aetna Financial Services, Inc.
President (since January 1996); Director (since July
1993) of Aetna Investment Services, Inc.;
Director (1992 - April 1995) and Senior Vice
President, North American Operations
(1993 - April 1995) of Aetna International, Inc.
Laura R. Estes Director and Senior Vice President Director, Aetna Financial Services, Inc.
(since January 1996); Director and Senior
Vice President, Aetna Insurance Company of
America (since February 1993); Director,
Aetna Investment Services, Inc. (since July
1993).
ENCORE.DOC
<PAGE>
Timothy A. Holt Director, Senior Vice President Senior Vice President, Business Strategy &
and Chief Financial Officer (1996) Finance, Aetna Retirement Services (since
February 1996); Vice President, Aetna
Portfolio Management/Investment Group
(August 1992 - February 1996).
Gail P. Johnson Director and Vice President Vice President, Service and Retain
Customers, Aetna Retirement Services (since
February 1996); Vice President, Defined
Benefit Services (September 1994 - February
1996); Vice President, Plan Services,
Pensions and Financial Services (December
1992 - September 1994).
John Y. Kim Director and Senior Vice President President, Aeltus Investment Management,
Inc. (since December 1995); Chief Investment
Officer, Aetna Life and Casualty Company
(since May 1994); Managing Director,
Mitchell Hutchins Institutional Investors,
New York, NY (September 1993 - April 1994).
Shaun P. Mathews Director and Vice President Senior Vice President, Strategic Markets and
Products (February 1993 - January 1996), of
Aetna Life Insurance and Annuity Company;
Director and Senior Vice President, Aetna
Insurance Company of America (since February
1993); Vice President of Aetna Life
Insurance Company (since 1991).
Glen Salow Director and Vice President Vice President, Information Technology,
Investments and Financial Services (February
1995 - February 1996); Vice President,
Investment Systems, AIT (1992 - 1995).
ENCORE.DOC
<PAGE>
Creed R. Terry Director and Vice President Vice President, Select and Manage Markets,
Aetna Retirement Services (since February
1996); ALIAC Market Strategist (August 1995
- February 1996); President, Chemical
Technology Corporation (a subsidiary of
Chemical Bank) (1991 - 1995).
Zoe Baird Senior Vice President and General Senior Vice President and General Counsel of
Counsel Aetna Life and Casualty Company (since April
1992).
Susan E. Schechter Counsel and Corporate Secretary Counsel, Aetna Life and Casualty Company
(since November 1993).
Eugene M. Trovato Vice President and Treasurer, Vice President and Controller, (February
Corporate Controller 1995 - Present), Assistant Vice President,
Planning, Reporting, and Analysis (October
1992 - February 1995), Aetna Life Insurance
and Annuity Company.
Diane B. Horn Vice President and Chief Senior Compliance Officer (August 1993 -
Compliance Officer February 1996), Aetna Life Insurance and
Annuity Company and Aetna Life Insurance
Company.
</TABLE>
* The principal business address of each person named is 151 Farmington
Avenue, Hartford, Connecticut 06156.
** Certain officers and directors of the investment adviser currently hold
(or have held during the past two years) other positions with
affiliates of the Registrant which are not deemed to be principal
positions.
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
As required by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder, the Registrant and its investment adviser,
ALIAC, maintain physical possession of each account, book or other
documents, except shareholder records, at its principal offices at
151 Farmington Avenue, Hartford, Connecticut 06156.
ENCORE.DOC
<PAGE>
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Fund's latest annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
Aetna Variable Encore Fund (Registrant) has duly caused this Post-Effective
Amendment No. 39 to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Hartford, and State of
Connecticut, on the 1st day of March, 1996.
AETNA VARIABLE ENCORE FUND
(Registrant)
By Shaun P. Mathews *
-------------------------------------
Shaun P. Mathews
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons on March 1, 1996 in the capacities indicated.
Signature Title
Shaun P. Mathews* President and Trustee
- ------------------------------------
Shaun P. Mathews (Principal Executive Officer)
Morton Ehrlich* Trustee
- ------------------------------------
Morton Ehrlich
Maria T. Fighetti* Trustee
- ------------------------------------
Maria T. Fighetti
David L. Grove* Trustee
- ------------------------------------
David L. Grove
Daniel P. Kearney* Trustee
- ------------------------------------
Daniel P. Kearney
John Y. Kim* Trustee and Vice President
- ------------------------------------
John Y. Kim
Sidney Koch* Trustee
- ------------------------------------
Sidney Koch
Corine T. Norgaard* Trustee
- ------------------------------------
Corine T. Norgaard
<PAGE>
Richard G. Scheide* Trustee
- ------------------------------------
Richard G. Scheide
James C. Hamilton* Vice President and Treasurer
- ------------------------------------
James C. Hamilton (Principal Financial and
Accounting Officer)
By: /s/ Susan E. Bryant
--------------------------------
* Susan E. Bryant
Attorney-in-Fact
<PAGE>
AETNA VARIABLE ENCORE FUND
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-(b)(1) Declaration of Trust *
99-(b)(2) Amended Bylaws *
99-(b)(4) Copies of Securities Issued and Registered by Registrant *
99-(b)(5) Investment Advisory Agreement *
99-(b)(6) Distribution Agreement *
99-(b)(8) Custodian Agreements and Depository Contracts *
99-(b)(9) Administrative Services Agreement **
99-(b)(10.1) Opinion of Counsel *
99-(b)(10.2) Consent of Counsel **
99-(b)(11) Consent of Independent Auditors **
99-(b)(18) Powers of Attorney *
27 Financial Data Schedule **
</TABLE>
* Incorporated herein by reference.
** To be filed by subsequent Post-Effective Amendment.
