As filed with the Securities and Exchange File No. 2-53038
Commission on April 27, 1998 File No. 811-2565
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 43
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 34
AETNA VARIABLE ENCORE FUND
--------------------------
d/b/a Aetna Money Market VP
---------------------------
151 Farmington Avenue RE4A, Hartford, Connecticut 06156
-------------------------------------------------------
(860) 273-1409
Amy R. Doberman, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue RE4A, Hartford, Connecticut 06156
-------------------------------------------------------
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
X on May 1, 1998, pursuant to paragraph (b) of Rule 485
--------
<PAGE>
Aetna Variable Encore Fund
Cross-Reference Sheet
<TABLE>
<CAPTION>
Form N-1A
Item No. Part A Caption in Prospectus
- -------- ------ ---------------------
<S> <C> <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
General Information
5. Management of the Fund............................... Management of the Fund
5A. Management's Discussion of Fund Performance.......... Not Applicable
6. Capital Stock and Other Securities................... General Information
Tax Matters
7. Purchase of Securities Being Offered................. General Information
Purchase and Redemption of Shares
Net Asset Value
8. Redemption or Repurchase............................. Purchase and Redemption of Shares
Net Asset Value
9. Legal Proceedings.................................... Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form N-1A Caption in Statement of
Item No. Part B Additional Information
- -------- ------ ----------------------
<S> <C> <C>
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 Policies of the Fund
Description of Various Securities and
Investment Techniques
14. Management of the Fund............................... Trustees and Officers of the Fund
15. Control Persons and Principal
Holders of Securities................................ Control Persons and Principal
Shareholders of the Fund
16. Investment Advisory and Other
Services............................................. Investment Advisory Agreements Administrative
Services Agreements Custodian
Independent Auditors
17. Brokerage Allocation................................. Brokerage Allocation and Trading
Polices
18. Capital Stock and Other Securities................... Description of Shares
19. Purchase, Redemption and Pricing of Securities Being
Offered.............................................. Purchase and Redemption of Shares
Net Asset Value
20. Tax Status........................................... Tax Matters
21. Underwriters......................................... Principal Underwriter
22. Calculation of Performance Data...................... Performance Information
23. Financial Statements................................. Financial Statements
</TABLE>
<PAGE>
Part C
------
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.
<PAGE>
===============================================================================
Aetna Variable Encore Fund d/b/a
AETNA MONEY MARKET VP
151 Farmington Avenue
Hartford, Connecticut 06156-8972
1-800-525-4225
Prospectus dated: May 1, 1998
Aetna Money Market VP (Fund) is a diversified, open-end management investment
company whose shares are currently sold to variable annuity or variable life
insurance separate accounts to fund variable annuity contracts (VA Contracts)
and variable life insurance policies (VLI Policies) issued by Aetna Life
Insurance and Annuity Company (Aetna) and its affiliates.
The 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 the Fund is neither insured nor guaranteed by the
U.S. Government. The Fund does not seek to maintain a stable net asset value per
share.
This Prospectus sets forth concisely information about the Fund that you should
know before investing. Additional information about the Fund is contained in a
Statement of Additional Information (Statement) dated May 1, 1998, which has
been filed with the Securities and Exchange Commission (Commission) and is
incorporated by reference. You can obtain a Statement, without charge, by
writing to the Fund at the address listed above or by calling the Fund at
1-800-525-4225. Additional information filed with the Commission can be obtained
by contacting the Commission at its Web Site (http://www.sec.gov).
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the 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
Foreign Securities ....................................................... 4
Repurchase Agreements .................................................... 5
Borrowing ................................................................ 5
Zero Coupon Securities ................................................... 5
Bank Obligations ......................................................... 5
Asset-Backed Securities .................................................. 5
MANAGEMENT OF THE FUND .................................................... 5
Trustees ................................................................. 5
Investment Adviser ....................................................... 5
Portfolio Transactions and Commissions ................................... 5
Portfolio Management ..................................................... 5
Administrator ............................................................ 5
GENERAL INFORMATION ....................................................... 6
Declaration of Trust ..................................................... 6
Capital Stock ............................................................ 6
Shareholder Meetings ..................................................... 6
Voting Rights ............................................................ 6
Mixed Funding ............................................................ 6
Principal Underwriter .................................................... 6
Custodian ................................................................ 6
TAX MATTERS ............................................................... 6
The Fund ................................................................. 6
Fund Distributions ....................................................... 7
PURCHASE AND REDEMPTION OF SHARES ......................................... 7
NET ASSET VALUE ........................................................... 7
YEAR 2000 ................................................................. 7
GLOSSARY .................................................................. 8
2 Aetna Money Market VP
<PAGE>
FINANCIAL HIGHLIGHTS
The selected data presented below for, and as of the end of, each of the years
in the ten-year period ended December 31, 1997 are derived from the financial
statements of the Fund, which statements have been audited by KPMG Peat Marwick
LLP, independent auditors. The financial statements and the independent
auditors' report thereon are included in the Fund's annual report dated December
31, 1997 which is incorporated by reference into the Statement.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1997 1996+ 1995+ 1994+
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ 13.194 $ 13.298 $ 12.544 $ 12.535
-------- -------- -------- --------
Income from Investment
Operations
Net investment income ................. 0.668 0.697 0.755 0.526
Net realized and unrealized gain
(loss) on investments ................ 0.027 ( 0.001) 0.009 ( 0.022)
-------- -------- -------- --------
Total from Investment
Operations .......................... 0.695 0.696 0.764 0.504
-------- -------- -------- --------
Less Distributions
From net investment income ............ ( 0.525) ( 0.800) ( 0.010) ( 0.495)
-------- -------- -------- --------
From realized gains on
investments .......................... -- -- -- --
-------- -------- -------- --------
Total Distributions ( 0.525) ( 0.800) ( 0.010) ( 0.495)
-------- -------- -------- --------
Net asset value, end of year ........... $ 13.364 $ 13.194 $ 13.298 $ 12.544
======== ======== ======== ========
Total Return* .......................... 5.47% 5.37% 6.05% 4.09%
Net assets, end of year (000's) ........ $688,756 $613,505 $514,037 $483,039
Ratio of total expenses to average
net assets ............................ 0.35% 0.34% 0.30% 0.32%
Ratio of net investment income to
average net assets .................... 5.34% 5.24% 5.82% 4.16%
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------
1993+ 1992+ 1991+ 1990+ 1989+ 1988+
------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ..... $ 12.557 $ 12.628 $ 12.685 $ 12.574 $ 12.639 $ 12.602
-------- -------- -------- -------- -------- --------
Income from Investment
Operations
Net investment income ................. 0.397 0.502 0.795 1.057 1.179 0.947
Net realized and unrealized gain
(loss) on investments ................ 0.001 ( 0.042) 0.033 0.004 0.006 ( 0.003)
-------- -------- -------- -------- -------- --------
Total from Investment
Operations .......................... 0.398 0.460 0.828 1.061 1.185 0.944
-------- -------- -------- -------- -------- --------
Less Distributions
From net investment income ............ ( 0.420) ( 0.531) ( 0.885) ( 0.950) ( 1.248) ( 0.907)
-------- -------- -------- -------- -------- --------
From realized gains on
investments .......................... -- -- -- -- ( 0.002) --
-------- -------- -------- -------- -------- --------
Total Distributions ( 0.420) ( 0.531) ( 0.885) ( 0.950) ( 1.250) ( 0.907)
-------- -------- -------- -------- -------- --------
Net asset value, end of year ........... $ 12.535 $ 12.557 $ 12.628 $ 12.685 $ 12.574 $ 12.639
======== ======== ======== ======== ======== ========
Total Return* .......................... 3.19% 3.67% 6.53% 8.44% 9.39% 7.50%
Net assets, end of year (000's) ........ $380,249 $461,991 $502,510 $553,240 $416,802 $391,234
Ratio of total expenses to average
net assets ............................ 0.31% 0.37% 0.36% 0.33% 0.36% 0.47%
Ratio of net investment income to
average net assets .................... 3.14% 3.96% 6.09% 8.13% 9.00% 7.28%
</TABLE>
+ Per share data calculated using weighted average number of shares outstanding
throughout the year.
* The performance data reflects deduction of an investment advisory fee at an
annual rate of 0.25% of the Fund's average daily net assets and deductions for
Fund administrative services and other expenses at cost prior to May 1, 1996,
and at an annual rate of 0.10% of average daily net assets thereafter.
Performance data above is for the Fund and not for the separate accounts
investing in the Fund. Therefore, the performance does not reflect insurance
charges for mortality and expense risks, contract maintenance charges,
deferred sales charges or other charges relating to the separate account using
the Fund for VA Contracts or VLI policies. 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, 1997. The Annual Report may be obtained,
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 Money Market VP 3
<PAGE>
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide high current return,
consistent with preservation of capital and liquidity, through investment in
high-quality money market instruments. The 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 The 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. The 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 banker's 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 securities
and obligations purchased by the Fund will be U.S. dollar denominated. The Fund
may engage in transactions on a 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 appraisal of money market conditions by Aeltus
Investment Management, Inc. (Aeltus), the Fund's investment adviser; however,
the average maturity of the portfolio will not exceed 90 days. All earned income
and realized capital gains will be reinvested.
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 rating agencies (or one, if only one agency has rated the
security). High-quality securities may also include unrated securities if Aeltus
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 Aeltus determines the security to
be of comparable quality. With respect to these securities, the Fund may not
invest more than 1% of the market value of its total assets or $1 million,
whichever is greater, in the securities or obligations of any one issuer. The
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 Aeltus to present minimal credit
risks.
Industry Concentration The Fund will not concentrate its investments in any one
industry, and therefore the Fund will not invest 25% or more of its total assets
in securities issued by companies principally engaged in any 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 invest more than 5% of its total assets in the securities of any
one issuer or purchase more than 10% of the outstanding voting securities of any
one issuer. The 5% and 10% restrictions do not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. The 10%
restriction applies only to 75% of the Fund's total assets. The Fund does not
invest in the securities of companies determined by Aeltus to be primarily
involved in the production or distribution of tobacco products.
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 on resale, including securities purchased under Rule
144A and Section 4(2) of the Securities Act of 1933. The Board of Trustees of
the Fund (Trustees) has established a policy concerning investments in
restricted and illiquid securities.
Foreign Securities The Fund may invest up to 25% of its total assets in U.S.
dollar denominated securities or obligations of foreign issuers. The purchase of
foreign securities may involve certain additional risks. Such risks include:
currency fluctuations; less liquidity; price or income volatility; less
government supervision and regulation of stock exchanges where the securities
may be traded, 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
4 Aetna Money Market VP
<PAGE>
might adversely affect the payment and transferability of principal and interest
on securities; higher transaction costs; possible settlement delays and less
publicly available information about foreign issuers.
Repurchase Agreements The Fund may enter into repurchase agreements with
domestic banks and broker dealers. Under a repurchase agreement, the 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. Such agreements, although fully collateralized, involve the risk
that the seller of the securities may fail to repurchase them. In that event,
the Fund may incur costs in liquidating the securities (or other collateral for
the agreement) 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 Trustees have established credit standards for issuers of repurchase
agreements entered into by the Fund.
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. It has the authority to do so, but only if, after the
borrowing, the value of the Fund's net assets, including proceeds from the
borrowings, is equal to at least 300% of all outstanding 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.
Zero Coupon Securities The Fund may invest in zero coupon securities. Zero
coupon securities are debt securities that pay no cash income but are sold at
substantial discounts to their value at maturity. Some zero coupon securities
call for the commencement of regular interest payments at a deferred date. Zero
coupon securities are subject to greater price fluctuations in response to
changes in interest rates than are ordinary interest-paying instruments with
similar maturities; the value of zero coupon securities appreciates more during
periods of declining interest rates and depreciates more during periods of
rising interest rates.
Bank Obligations The Fund may invest in obligations (including banker's
acceptances, commercial paper, bank notes, time deposits and certificates of
deposit) issued by domestic or foreign banks, provided the issuing bank has a
minimum of $5 billion in assets and a primary capital ratio of at least 4.25%.
Asset-Backed Securities The Fund may purchase securities collateralized by a
specified pool of assets including, but not limited to, credit care receivables,
automobile, home equity, mobile home and recreational vehicle loans. These
securities are subject to prepayment risk. In periods of declining interest
rates, reinvestment would thus be made at lower and less attractive rates.
The Fund is subject to additional investment restrictions described in the
Statement.
MANAGEMENT OF THE FUND
Trustees The Fund is managed under the supervision of the Trustees. The Trustees
set broad policies for the Fund. Information about the Trustees is found in the
Statement.
Investment Adviser Aeltus has entered into an investment advisory agreement with
the Fund which provides that Aeltus is responsible for managing the Fund's
assets in accordance with its investment objective and policies. Aeltus is a
Connecticut corporation with its principal offices located at 242 Trumbull
Street, Hartford, Connecticut 06103-1205. Aeltus is an indirect, wholly-owned
subsidiary of Aetna Retirement Services, Inc., which is in turn an indirect
wholly-owned subsidiary of Aetna Inc. Aeltus is registered as an investment
adviser with the Commission. Aeltus is entitled to receive a monthly fee from
the Fund at an annual rate of 0.25% of the average daily net assets of the Fund.
Portfolio Transactions and Commissions Subject to the supervision of the
Trustees, Aeltus has responsibility for making investment decisions, for
effecting the execution of trades and for negotiating any brokerage commissions
thereon. It is Aeltus' policy to obtain the best quality of execution available,
giving attention to net price (including commissions where applicable),
execution capability (including the adequacy of a firm's capital position),
research and other services related to execution; the relative priority given to
these factors will depend on all of the circumstances regarding a specific
trade. Aeltus may also consider the sale of shares of registered investment
companies advised by Aeltus as a factor in the selection of brokerage firms to
execute the Fund's portfolio transactions, subject to its duty to obtain best
execution. See the Statement for more information.
Portfolio Management Jeanne Wong-Boehm, Managing Director, Aeltus, has been the
portfolio manager for the Fund for over eleven years. Ms. Wong-Boehm joined the
Aetna organization in 1983 as a fixed income portfolio analyst. In 1989 she was
also assigned primary responsibility for the money market operations.
Administrator The Fund has appointed Aeltus as administrator. Aeltus has
responsibility for certain administrative and internal accounting and reporting
services, maintenance of relationships with third party service providers,
calculation of the net asset value (NAV) and other financial reports prepared
for the Fund (collectively referred to as "Administrative Services").
Aetna Money Market VP 5
<PAGE>
For providing the Administrative Services, Aeltus receives a fee at the
following annual rate based on average daily net assets of the Fund:
Administrative Fee Fund Assets
-------------------- ------------------------------
0.075% On the first $5 billion
0.050% On all assets over $5 billion
As administrator, Aeltus may contract with other entities to perform certain
Administrative Services.
GENERAL INFORMATION
Declaration of Trust The 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., a
corporation that was formed in 1974. 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 Statement 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, 1998, there were 55,569,536 shares of the Fund outstanding, all
of which were owned by Aetna and its affiliates and held in separate accounts to
fund obligations under VA Contracts and VLI 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
1940 Act. 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. Persons who select
the Fund for investment through their VA Contract or VLI 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. Voting rights are discussed
in the prospectus for the applicable VA Contract or VLI Policy.
Mixed Funding Because the Fund is sold to fund variable annuity contracts and
variable life insurance policies issued by Aetna, certain conflicts of interest
could arise. If a conflict of interest were to occur, one of the separate
accounts invested in the Fund might withdraw its investment in the Fund, which
might force the Fund to sell its portfolio of securities at disadvantageous
prices, causing its per share value to decrease. The Trustees have agreed to
monitor events in order to identify any material irreconcilable conflicts which
might arise and to determine what action, if any, should be taken to address
such conflict.
Principal Underwriter Aetna is the principal underwriter for the Fund. Aetna is
a Connecticut corporation, and is a wholly-owned subsidiary of Aetna Retirement
Holdings, Inc. and an indirect wholly-owned subsidiary of Aetna Inc.
Custodian Mellon Bank, N.A. is the Fund's custodian.
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 Statement. Holders of VA Contracts or VLI
Policies should consult the prospectuses of their respective contracts or
policies for information concerning federal income tax consequences to them.
The Fund The Fund intends to continue to qualify as a regulated investment
company by satisfying the requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") 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 all of its investment income
(net of expenses) and any capital gains (net of capital losses) to the separate
accounts which hold the shares of the Fund 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 Statement.
6 Aetna Money Market VP
<PAGE>
Fund Distributions Distributions by the Fund are taxable, if at all, to the
insurance company separate accounts, and not to VA Contract or VLI Policy
holders.
PURCHASE AND REDEMPTION OF SHARES
Purchase and redemptions of shares may be made only by insurance companies for
their separate accounts at the direction of Participants. Please refer to the
documents pertaining to your contract or policy for information on how to direct
investments in or redemptions from the Fund and any fees that may apply. Orders
for the purchase or redemption of shares of the Fund that are received before
the close of regular trading on the New York Stock Exchange (NYSE) (normally 4
p.m. eastern time) are effected at the NAV per share determined that day, as
described below (see "Net Asset Value"). The insurance company shall be the
designee of the Fund for receipt of purchase and redemption orders. Therefore,
receipt of an order by the insurance company constitutes receipt by the Fund,
provided that the Fund receives notice of the order by 9:30 a.m. the next day on
which the NYSE is open for trading.
The Fund may suspend redemptions or postpone payments when the NYSE is closed or
when trading is restricted for any reason or under emergency circumstances as
determined by the Commission.
NET ASSET VALUE
The NAV of the Fund is determined as of the earlier of 15 minutes after the
close of the NYSE or 4:15 p.m. eastern time, on each day that the NYSE is open
for trading. The NAV is computed by dividing the total value of the Fund's
securities, plus any cash or other assets (including dividends and interest
accrued but not collected) less all liabilities (including accrued expenses), by
the number of shares outstanding.
Portfolio securities are valued primarily by independent pricing services, based
on market quotations. Short-term debt instruments maturing in less than 60 days
are valued at amortized cost. Securities for which market quotations are not
readily available are valued at their fair value in such manner as may be
determined under the authority of the Trustees.
YEAR 2000
Aetna Inc. (referred to collectively with its subsidiaries and affiliates as
"Aetna Inc.") has developed and is currently executing a plan to make its
computer systems and applications accommodate date-sensitive information
relating to the Year 2000. The plan covers four stages including (i) inventory,
(ii) assessment, (iii) remediation and (iv) testing and certification. Aetna
Inc. is currently in the assessment or remediation stages of its plan for the
systems and applications related to the Fund, including those relating to
Aeltus. Testing and certification of these systems is targeted for completion by
mid-1999. The costs of these efforts will not affect the Fund.
Aeltus and the Fund also have relationships with broker dealers, transfer
agents, custodians and other securities industry participants and service
providers that are not affiliated with Aetna Inc. Aetna Inc. is currently
examining its relationships with third parties as part of its Year 2000 plan.
While Aeltus believes that United States securities industry participants
generally are preparing their computer systems and applications to accommodate
Year 2000 date-sensitive information, preparation by third parties is outside
Aetna Inc.'s, Aeltus' and the Fund's control. There can be no assurance that
failure of third parties to complete adequate preparations in a timely manner,
and any resulting systems interruptions or other consequences, would not have an
adverse effect, directly or indirectly, on the Fund, including, without
limitation, its operation or the valuation of its assets.
Aetna Money Market VP 7
<PAGE>
GLOSSARY
This glossary describes some of the securities in which the Fund may invest in
pursuing its investment objective.
U.S. Government Direct Obligations
Securities issued by the U.S. Government and its agencies. Direct Obligations
of the U.S. Government are:
Treasury Bills -- issued with short maturities (one year or less). They are
issued in bearer form and are priced at a discount to face value. The income for
investors is the difference between the purchase price and the face value.
Treasury Notes -- intermediate-term securities with maturities of between one to
ten years. Income to investors is paid in semi-annual interest payments.
Treasury Bonds -- long-term debt instruments with maturities from ten years to
up to thirty years. Income is paid to investors on a semi-annual basis.
U.S. Government Agencies Securities
U.S. Government Agencies have been established as instrumentalities of the
United States Government to issue debt securities to finance activities for the
U.S. Government. These agencies include among others Banks for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association (FNMA), Government National Mortgage
Association, Export-Import Bank and the Tennessee Valley Authority. Issues of
these agencies, while not direct obligations of the United States Government are
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.
Not all agencies are backed by the full faith and credit of the United States;
for example the FNMA may borrow money from the U.S. Treasury only under certain
circumstances. There is no guarantee that the government will support these
types of securities and they therefore involve more risk than direct government
obligations.
Banker's Acceptance
A banker's acceptance is a time draft drawn on and accepted by a bank. It is
generally used by corporations to finance payment for traded 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
banker's acceptance in the secondary market at the going rate of discount for a
specific maturity. The maturity of such instruments is generally six months or
less.
Certificates of Deposit
Certificates of deposit (CDs) are issued by banks and earn a specified rate of
return over a definite period of time. CDs are usually negotiable and traded
among investors such as mutual funds and banks. Eurodollar CDs are U.S.
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. Certain Eurodollar
deposits are not FDIC insured and may be subject to future political and
economic developments and governmental restrictions. Yankee CDs are United
States dollar-denominated deposits issued in the United States by foreign banks.
Commercial Paper
Commercial paper is an unsecured short-term debt instrument issued by a company
or bank with a maturity ranging from two to 270 days.
8 Aetna Money Market VP
<PAGE>
- ------------------------------------------
INVESTMENT ADVISER
Aeltus Investment Management, Inc.
242 Trumbull Street
Hartford, Connecticut 06103-1205
CUSTODIAN
Mellon Bank N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
TRANSFER, DIVIDEND DISBURSING
AND REDEMPTION AGENT
Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
CityPlace II
Hartford, Connecticut 06103-4103
- ------------------------------------------
[AETNA Logo]
Aetna Life Insurance and Annuity Company
Aetna Money Market VP 9
<PAGE>
================================================================================
Statement of Additional Information dated: May 1, 1998
Aetna Variable Encore Fund d/b/a
AETNA MONEY MARKET VP
151 Farmington Avenue
Hartford, Connecticut 06156
This Statement of Additional Information (Statement) is not a prospectus and
should be read in conjunction with the current prospectus for Aetna Money Market
VP dated May 1, 1998.
A free prospectus is available from the local Aetna office, by writing to Aetna
Money Market VP at the address listed above or by calling 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 Shareholders of the Fund ................... 8
Investment Advisory Agreement ............................................ 8
Administrative Services Agreement ........................................ 8
Trading Policies ......................................................... 8
Description of Shares .................................................... 9
Tax Matters .............................................................. 10
Purchase and Redemption of Shares ........................................ 13
Principal Underwriter .................................................... 13
Net Asset Value .......................................................... 13
Performance Information .................................................. 14
Custodian ................................................................ 14
Independent Auditors ..................................................... 14
Financial Statements ..................................................... 15
================================================================================
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Money Market VP (Fund) is an open-end diversified management investment
company which sells its shares of beneficial interest to variable annuity or
variable life insurance separate accounts to fund variable annuity contracts (VA
Contracts) or variable life insurance policies (VLI Policies) issued by Aetna
Life Insurance and Annuity Company (Aetna) and its affiliates. Capitalized terms
not defined herein are used as defined in the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The investment objective of the Fund is to provide high current return,
consistent with preservation of capital and liquidity, through investment in
high-quality money market instruments.
The 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 as defined by the Investment Company Act of 1940 (1940 Act). 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 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) with respect to 75% of the value of the Fund's total assets, 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.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities are excluded from these restrictions;
(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 Fund
may borrow money in amounts not exceeding 5% of the value of its total
assets at the time the loan is made;
2 Aetna Money Market VP
<PAGE>
(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 (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 that 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. Aeltus
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 or by Order of the Securities and Exchange
Commission (Commission);
(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 policies restrict it to a specified
percentage of its total assets in any type of instrument, that percentage is
measured at the time of purchase. There will be no violation of any investment
policy or restriction if that restriction is complied with at the time of
purchase 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 meet the
conditions of Rule 2a-7 under the 1940 Act. High-quality securities may also
include unrated securities if Aeltus 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 Aeltus determines the security to be of
comparable quality. With respect to this group of securities, the Fund may not,
however, invest more than 1% of the market value of its total assets or $1
million, whichever is greater, in the securities or obligations of a single
issuer.
Aetna Money Market VP 3
<PAGE>
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
The 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. A repurchase agreement allows the Fund to
determine 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 the 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 Fund 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
The 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. 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 a
segregated account consisting of liquid securities. 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 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).
4 Aetna Money Market VP
<PAGE>
TRUSTEES AND OFFICERS OF THE FUND
The investments and administration of the Fund are under the direction of the
Board of Trustees (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 (*). All Trustees and officers hold similar positions with
certain other investment companies in the same Fund Complex. The Fund Complex
presently consists of: Aetna Series Fund, Inc., Aetna Variable Fund, Aetna
Income Shares, Aetna Money Market VP, Aetna Balanced VP, Inc., Aetna GET Fund
(Series B and Series C), Aetna Generation Portfolios, Inc., Aetna Variable
Portfolios, Inc. and Portfolio Partners, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Occupation During Past Five Years
Position(s) Held (and Positions held with Affiliated Persons or
Name, Address and Age with the Fund Principal Underwriters of the Fund)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox* Trustee and Director, Managing Director, Chief Operating
242 Trumbull Street President Officer, Chief Financial Officer, Aeltus Investment
Hartford, Connecticut Management, Inc. (Aeltus), October 1997 to present;
Age 42 Vice President, Aetna Retirement Services, Inc.,
April 1997 to present; Director and Senior Vice
President, Aetna Retirement Holdings, Inc., April 1997
to February 1998; Director and President, Aetna Life
Assignment Company, September 1997 to present;
Director and Senior Vice President, Aetna Life
Insurance and Annuity Company, March 1997 to February
1998; Director, Managing Director, Chief Operating
Officer, Chief Financial Officer and Treasurer,
Aeltus, April 1994 to March 1997; Managing Director
and Treasurer, Equitable Capital Management Corp.,
March 1987 to September 1993; Director, Aeltus
Capital, Inc., March 1996 to July 1997; Managing
Director, Chief Financial Officer, Aeltus Capital,
Inc., March 1996 to April 1997; Director, Chief
Operating Officer, Chief Financial Officer and
Treasurer, Aeltus Trust Company, Inc., May 1996 to
April 1997; Director and President, Aetna Investment
Management (Bermuda) Holding, Ltd., May 1996 to
October 1997.
- ------------------------------------------------------------------------------------------------------
Wayne F. Baltzer Vice President Assistant Vice President, Aetna Life Insurance
242 Trumbull Street and Annuity Company, May 1991 to present; Vice
Hartford, Connecticut President, Aetna Investment Services, Inc., July 1993
Age 54 to present.
- ------------------------------------------------------------------------------------------------------
Amy R. Doberman Secretary Counsel, Aetna Life Insurance and Annuity Company,
151 Farmington Avenue December 1996 to present; Attorney, Securities and
Hartford, Connecticut Exchange Commission, March 1990 to November
Age 36 1996.
- ------------------------------------------------------------------------------------------------------
Maria T. Fighetti Trustee Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation and
Closter, New Jersey Alcohol Services, 1973 to present.
Age 54
- ------------------------------------------------------------------------------------------------------
</TABLE>
Aetna Money Market VP 5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Occupation During Past Five Years
Position(s) Held (and Positions held with Affiliated Persons or
Name, Address and Age with the Fund Principal Underwriters of the Fund)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
David L. Grove Trustee, Private Investor; Economic/Financial Consultant,
5 The Knoll Chairperson December 1985 to present.
Armonk, New York Contract
Age 79 Committee
- ------------------------------------------------------------------------------------------------------
John Y. Kim* Trustee Director, President, Chief Executive Officer,
242 Trumbull Street Chief Investment Officer, Aeltus Investment
Hartford, Connecticut Management, Inc., December 1995 to present;
Age 37 Director, Aetna Life Insurance and Annuity Company,
February 1995 to present; Senior Vice President, Aetna
Life Insurance and Annuity Company, September 1994
to present.
- ------------------------------------------------------------------------------------------------------
Sidney Koch Trustee Financial Adviser, self-employed, January 1993 to
455 East 86th Street present.
New York, New York
Age 62
- ------------------------------------------------------------------------------------------------------
Frank Litwin Vice President Managing Director, Aeltus Investment Management,
242 Trumbull Street Inc., August 1997 to present; Vice President, Fidelity
Hartford, Connecticut Investments Institutional Services Company, April
Age 48 1992 to August 1997.
- ------------------------------------------------------------------------------------------------------
Shaun P. Mathews* Trustee Vice President/Senior Vice President, Aetna Life
151 Farmington Avenue Insurance and Annuity Company, March 1991 to
Hartford, Connecticut present; Vice President, Aetna Life Insurance
Age 42 Company, 1991 to present; Director and Senior Vice
President, Aetna Investment Services, Inc., July 1993
to present; Director and Senior Vice President, Aetna
Insurance Company of America, September 1992 to
present.
- ------------------------------------------------------------------------------------------------------
Corine T. Norgaard Trustee Dean of the Barney School of Business, University of
556 Wormwood Hill Hartford (West Hartford, CT), August 1996 to present;
Mansfield Center, Professor, Accounting and Dean of the School of
Connecticut Management, Binghamton University (Binghamton,
Age 60 NY), August 1993 to August 1996; Professor,
Accounting, University of Connecticut (Storrs, CT),
September 1969 to June 1993; Director, The Advest
Group (holding company for brokerage firm) through
September 1996.
- ------------------------------------------------------------------------------------------------------
Richard G. Scheide Trustee, Trust and Private Banking Consultant, David Ross
11 Lily Street Chairperson Palmer Consultants, July 1991 to present.
Nantucket, Massachusetts Audit Committee
Age 68
- ------------------------------------------------------------------------------------------------------
</TABLE>
6 Aetna Money Market VP
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Occupation During Past Five Years
Position(s) Held (and Positions held with Affiliated Persons or
Name, Address and Age with the Fund Principal Underwriters of the Fund)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stephanie A. Taylor Vice President, Vice President Mutual Fund Accounting, Aeltus
242 Trumbull Street Treasurer and Investment Management, Inc., November 1995
Hartford, Connecticut Chief Financial to present; Director Mutual Fund Accounting, Aetna Life
Age 44 Officer Insurance and Annuity Company, August 1994 to
November 1995; Assistant Vice President, Investors
Bank & Trust, January 1993 to August 1994.
- ------------------------------------------------------------------------------------------------------
</TABLE>
Members of the Board of Trustees who are also directors, officers or employees
of Aetna Inc. and its affiliates are not entitled to any compensation from the
Fund. As of December 31, 1997, the unaffiliated members of the Board of Trustees
received compensation in the amounts included in the following table. None of
these Trustees were entitled to receive pension or retirement benefits.
Compensation
from Registrant
Aggregate and Fund
Name of Person, Compensation Complex Paid
Position from Registrant to Trustees
- --------------------- ----------------- ----------------
Corine Norgaard $2,632 $55,500
Trustee
Sidney Koch 2,656 56,000
Trustee
Maria T. Fighetti 2,632 55,500
Trustee
Richard G. Scheide 2,893 61,000
Trustee, Chairperson
Audit Committee
David L. Grove* 2,727 57,500
Trustee, Chairperson
Contract Committee
* Mr. Grove elected to defer all such compensation under an existing deferred
compensation plan.
The Fund has obtained an Order from the Securities and Exchange Commission which
allows the Trustees who are not affiliated with Aetna Inc. or any of its
subsidiaries to defer all or a portion of their compensation in accordance with
the terms of a new Deferred Compensation Plan (Plan). Under the Plan,
compensation deferred by an unaffiliated Trustee is periodically adjusted as
though an equivalent amount had been invested and reinvested in shares of one or
more Series of Aetna Series Fund, Inc. designated by the Trustee. The amount
paid to the unaffiliated Trustee under the Plan will be based upon the
performance of such investments. Deferral of compensation in accordance with the
Plan will have a negligible effect on the assets, liabilities, and net income
per share, and will not obligate the Fund to retain the services of any Trustee
or to pay any particular level of compensation to the Trustee.
Aetna Money Market VP 7
<PAGE>
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF THE FUND
As of March 31, 1998, all of the shares of the Fund were owned by Aetna and its
affiliates and allocated to variable annuity and variable life insurance
separate accounts to fund obligations under VA Contracts and VLI Policies.
Contract holders in these separate accounts are provided the right to direct the
voting of Fund shares at shareholder meetings. Aetna and its affiliates vote the
shares 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.
INVESTMENT ADVISORY AGREEMENT
Effective May 1, 1998, the Fund entered into an investment advisory agreement
(Advisory Agreement) appointing Aeltus as its Investment Adviser. The Advisory
Agreement replaces an investment advisory agreement with Aetna and will be
effective through December 31, 1998. The Advisory Agreement will remain in
effect thereafter if approved at least annually by a majority of the Trustees,
including a majority of the Trustees who are not "interested persons" of the
Fund, as defined by the 1940 Act (Independent Directors), at a meeting called
for that purpose, and held in person. The Advisory Agreement may be terminated
without penalty upon sixty (60) days' written notice by the Trustees or by a
majority vote of the outstanding voting securities of the Fund, or by Aeltus.
The Advisory Agreement terminates automatically in the event of assignment.
Under the Advisory Agreement and subject to the supervision of the Trustees of
the Fund, Aeltus has responsibility for supervising all aspects of the
operations of the Fund including the selection, purchase and sale of securities.
Under the Advisory Agreement, Aeltus is given the right to delegate any or all
of its obligations to a subadviser.
The Advisory Agreement provides that Aeltus is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
officers or Trustees of the Fund.
For the services under the Advisory Agreement, Aeltus will receive an annual
fee, payable monthly, as described in the Prospectus.
Prior to the date of this Statement, Aetna served as the Fund's investment
adviser. For the years ended December 31, 1995, 1996 and 1997, Aetna received
advisory fees of $1,242,199, $1,386,027 and $1,622,840, respectively.
ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to an Administrative Services Agreement, Aeltus acts as administrator
and provides certain administrative and shareholder services necessary for Fund
operations and is responsible for the supervision of other service providers.
The services provided by Aeltus include: (1) internal accounting services; (2)
monitoring regulatory compliance, such as reports and filings with the
Commission and state securities commissions; (3) preparing financial information
for proxy statements; (4) preparing semiannual and annual reports to
shareholders; (5) calculating net asset values; (6) the preparation of certain
shareholder communications; (7) supervision of the custodians and transfer
agent; and (8) reporting to the Trustees.
For its services, the Fund pays Aeltus an annual fee, payable monthly, as
described in the prospectus.
The Administrative Services Agreement will remain in effect until December 31,
1998. It will remain in effect from year-to-year thereafter if approved annually
by a majority of the Trustees. It may be terminated by either party on sixty
(60) days' written notice.
Prior to the date of this Statement, Aetna acted as Administrator. For the years
ended December 31, 1995, 1996, and 1997, Aetna received administrative fees from
the Fund of $277,840, $447,624 and $649,136, respectively.
TRADING POLICIES
Subject to the direction of the Fund's Board of Trustees, Aeltus 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 through principal transactions, which will
result in the
8 Aetna Money Market VP
<PAGE>
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. Aeltus may also consider the sale of
shares of registered investment companies advised by Aeltus as a factor in the
selection of brokerage firms to execute the Fund's portfolio transactions,
subject to Aeltus' duty to obtain best execution.
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.
Aeltus acts as investment adviser to other investment companies registered under
the 1940 Act. Aeltus has adopted policies designed to prevent disadvantaging the
Fund in placing orders for the purchase and sale of securities.
The Trustees have adopted a Code of Ethics governing personal trading by persons
who manage or who have access to trading activity by a fund. The Code of Ethics
allows trades to be made in securities that may be held by a fund; however, it
prohibits a person from taking advantage of fund trades or from acting on inside
information. Aeltus also has adopted a Code of Ethics which the Trustees review
annually.
The Fund did not pay any brokerage commissions in 1995, 1996 or 1997.
DESCRIPTION OF SHARES
Aetna Money Market VP was established as a Maryland corporation in 1974 and
converted to a Massachusetts business trust on May 1, 1984. It operates under 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
The 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 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.
Aetna Money Market VP 9
<PAGE>
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. The shareholders of the Fund are the insurance companies for their
separate accounts using the Fund to fund VA Contracts and VLI Policies. The
insurance company depositors of the separate accounts pass rights for shares
held for VA Contracts or VLI Policies through to Contract holders or
Participants as described in the prospectus for the applicable VA Contract or
VLI Policy. A meeting of the shareholders 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
VA Contracts or VLI Policies should consult the prospectuses of their respective
contracts or policies for information concerning the federal income tax
consequences of owning such VA Contracts or VLI 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 (Code). As a
regulated investment company, the Fund generally is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (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 (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.
10 Aetna Money Market VP
<PAGE>
In addition to satisfying the Distribution Requirement, a regulated investment
company must 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 (Income Requirement). For purposes of these calculations, gross
income includes tax-exempt income.
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 than 80%
by any three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions may be considered the same issuer.
As a safe harbor, a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account's total assets are cash and
cash items, U.S. government securities and securities of other regulated
investment companies.
For purposes of these alternative diversification tests, a segregated asset
account investing in shares of a regulated investment company will be entitled
to "look-through" the regulated investment company to its pro rata portion of
the regulated investment company's assets, provided the regulated investment
company satisfies certain conditions relating to the ownership of the shares.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of
Aetna Money Market VP 11
<PAGE>
a regulated investment company having a taxable year ending November 30 or
December 31, for its taxable year (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 from Section 988 transactions incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the current
calendar year (and, instead, include such gains and losses in determining
ordinary taxable income for the succeeding calendar year).
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
Aetna as ordinary income and treated as dividends for federal income tax
purposes.
The Fund may either retain or distribute to Aetna 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 Aetna as long-term capital gain, regardless of
the length of time Aetna has held its shares or whether such gain was recognized
by the Fund prior to the date on which Aetna acquired shares. All distributions
paid to Aetna, whether characterized as ordinary income or capital gain, are not
taxable to VA Contract or VLI Policy 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.
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 Aetna 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.
12 Aetna Money Market VP
<PAGE>
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
Aetna 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, or deemed under Code rules to be held, for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. Although gain or loss realized on shares
redeemed through the direction of VA Contract or VLI Policy holders is taxable
to Aetna or its affiliates, such VA Contract or VLI Policy 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.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are purchased and redeemed at the net asset value next
determined after receipt of a purchase or redemption order in acceptable form as
described in the prospectus under "Purchase and Redemption of Shares" and "Net
Asset Value."
The value of shares redeemed may be more or less than the shareholder's costs,
depending upon the market value of the portfolio securities at the time of
redemption. Payment for shares redeemed will be made by the Fund within seven
days or the maximum period allowed by law, if shorter, after the redemption
request is received by Aetna.
PRINCIPAL UNDERWRITER
Shares of the Fund are offered on a continuous basis. Aetna has agreed to use
its best efforts to distribute the shares as the principal underwriter of the
Fund pursuant to a contract (Underwriting Agreement) between it and the Fund.
This Underwriting Agreement terminates automatically upon assignment, and may be
terminated at any time, by either party, without the payment of any penalty, on
sixty (60) days' written notice to the other party.
NET ASSET VALUE
Short-term debt securities which have a maturity date of more than sixty days
will be valued at the mean of the last bid and asked price obtained from
principal market makers. Generally, short-term debt securities maturing in sixty
days or less at the date of purchase will be valued using the "amortized cost"
method
Aetna Money Market VP 13
<PAGE>
of valuation. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization of premium or increase of discount.
PERFORMANCE INFORMATION
Performance information for the Fund, including yield, effective yield, and
total return, may appear in reports or promotional literature to current or
prospective shareholders.
Current yield for the Fund will be computed by determining the net change,
exclusive of capital changes and income other than investment income, at the
beginning of a seven-day period in the value of a hypothetical investment of one
share, subtracting any deductions from shareholder accounts, and dividing the
difference by the value of the hypothetical investment at the beginning of the
base period to obtain the base period return. This base period return is then
multiplied by (365/7) with the resulting yield figure carried to at least the
nearest hundredth of one percent. Calculation of "effective yield" begins with
the same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] -1
The yield and effective yield for the Fund for the seven days ended March 31,
1998 were 5.21% and 5.34%, respectively.
Total return of the Fund for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $10,000
investment in the Fund made at the beginning of each period, then calculating
the average annual compounded rate of return which would produce the same
investment return on the $10,000 investment over the same period. Total return
for a period of one year or less is equal to the actual investment return on a
$10,000 investment in the Fund during that period. Total return calculations
assume that all Fund distributions are reinvested at net asset value on their
respective reinvestment dates.
The performance of the Fund may, from time to time, be compared to that of other
mutual funds tracked by mutual fund rating services, to broad groups of
comparable mutual funds, or to unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
The performance of the Fund is commonly measured as total return. An average
annual compounded rate of return ("T") may be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment of $10,000 ("P") over a period of time ("n") according to the
formula:
P(1 + T)n = ERV
The total returns of the Fund calculated based on the formula above for the one,
five and ten year periods ended December 31, 1997 are 5.47%, 4.82% and 5.95%,
respectively.
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
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103 serves as
independent auditors to the Fund. KPMG Peat Marwick LLP provides audit services,
assistance and consultation in connection with Commission filings.
14 Aetna Money Market VP
<PAGE>
FINANCIAL STATEMENTS
The Financial Statements, and Independent Auditors Report thereon, are
incorporated herein by reference to the Annual Report dated December 31, 1997.
The Annual Report is available upon request and without charge by calling
1-800-525-4225 or by writing to Aetna Money Market VP at 151 Farmington Avenue,
Hartford, CT 06156.
Aetna Money Market VP 15
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights
(2) Incorporated by reference in Part B to the Fund's Annual
Report dated December 31, 1997, as filed electronically with
the Securities and Exchange Commission on March 5, 1998
(File No. 811-2565) (Accession No. 0000950146-98-000359):
Audited Financial Statements for Aetna Variable Encore
Fund, which include the following:
Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31,
1997
Statement of Operations for the year ended December 31,
1997
Statements of Changes in Net Assets for the years ended
December 31, 1997 and 1996
Notes to Financial Statements
Financial Highlights for each of the years in the five
year period ended December 31, 1997
Independent Auditors' Report
(b) Exhibits:
(1)(a) Charter (Declaration of Trust)(1)
(1)(b) Amendment to Declaration of Trust of Aetna Variable
Encore Fund
(2) Amended and Restated Bylaws (adopted by Board of
Directors September 14, 1994)(1)
(3) Not Applicable
(4) Instruments Defining Rights of Holders(2)
(5) Investment Advisory Agreement between Aeltus Investment
Management, Inc. ("Aeltus") and Aetna Variable Encore
Fund
(6) Underwriting Agreement between Aetna Life Insurance and
Annuity Company and Aetna Variable Encore Fund(3)
(7) Directors' Deferred Compensation Plan
(8) Custodian Agreement between Aetna Variable Encore Fund
and Mellon Bank, N.A.(1)
(9) Administrative Services Agreement between Aeltus and
Aetna Variable Encore Fund
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Not Applicable
(13) Not Applicable
<PAGE>
(14) Not Applicable
(15) Not Applicable
(16) Schedule for Computation of Performance Data(3)
(17) See Exhibit 27 below
(18) Not Applicable
(19)(a) Powers of Attorney(4)
(19)(b) Authorization for Signatures(5)
(27) Financial Data Schedule
1. Incorporated by reference to Post-Effective Amendment No. 39 to
Registration Statement on Form N-1A (File No. 2-53038), as filed
electronically with the Securities and Exchange Commission on April 25,
1996 (Accession No. 0000950146-96-000585).
2. Incorporated by reference to Post-Effective Amendment No. 41 to
Registration Statement on Form N-1A (File No. 2-53038), as filed
electronically with the Securities and Exchange Commission on June 7, 1996
(Accession No. 0000950146-96-000944).
3. Incorporated by reference to Post-Effective Amendment No. 42 to
Registration Statement on Form N-1A (File No. 2-53038), as filed
electronically with the Securities and Exchange Commission on April 11,
1997 (Accession No. 0000950146-97-000579).
4. Incorporated by reference to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A (File No. 2-51739), as filed
electronically with the Securities and Exchange Commission on April 27,
1998 (Accession No. 0000950146-98-000689).
5. Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on form N-1A (File No. 333-05173), as filed
electronically with the Securities and Exchange Commission on September 26,
1997 (Accession No. 0000950146-97-001480).
<PAGE>
Item 25. Persons Controlled by or Under Common Control
Registrant is a Massachusetts business trust for which separate
financial statements are filed. As of March 31, 1998, Aetna Life
Insurance and Annuity Company ("Aetna") owned 100% of Registrant's
outstanding voting securities.
Aetna is an indirect wholly-owned subsidiary of Aetna Inc.
A list of all persons directly or indirectly under common control with
the Registrant and a list which indicates the principal business of
each such company referenced in the diagram are incorporated herein by
reference to Item 26 of Post-Effective Amendment No. 9 to the
Registration Statement on Form N-4 (File No. 333-01107), as filed
electronically with the Securities and Exchange Commission on April
7, 1998 (Accession No. 0000950146-98-000564).
Item 26. Number of Holders of Securities
(1) Title of Class (2) Number of Record Holders
Shares of Beneficial Interest 2 as of March 31 1998
$1.00 par value
Item 27. Indemnification
Article 5.3 of the Registrant's Amendment to Declaration of Trust,
incorporated herein by reference to Exhibit 24(b)(1)(b) of this
Post-Effective Amendment, provides indemnification for Registrant's
trustees and officers. In addition, the Registrant's trustees and
officers are covered under a directors and officers errors and
omissions liability insurance policy, issued by Gulf Insurance Company
which expires on October 1, 1999.
Section XI.B of the Administrative Services Agreement (filed herewith
as Exhibit 24(b)(9)(a)) provides for indemnification of the
Administrator.
Item 28. Business and Other Connections of Investment Adviser
The investment adviser, Aeltus Investment Management, Inc. ("Aeltus"),
is registered as an investment adviser with the Securities and
Exchange Commission. In addition to serving as the investment adviser
and administrator for the Registrant, Aeltus acts as investment
adviser and administrator for Aetna Variable Fund, Aetna Income
Shares, Aetna Balanced VP, Inc. (formerly Aetna Investment Advisers
Fund, Inc.), Aetna Generation Portfolios, Inc., Aetna GET Fund, Aetna
Variable Portfolios, Inc., and Aetna Series Fund, Inc. (all management
investment companies registered under the
<PAGE>
Investment Company Act of 1940 (the "1940 Act")). It also acts as
investment adviser to certain private accounts.
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, 1995/Addresses*/**
----------------------- ----------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox Director, Managing Director, Director and President (since September 1997) --
Chief Operating Officer, Chief Aetna Life Assignment Company; Vice President (since
Financial Officer April 1997) -- Aetna Retirement Services, Inc.;
Director and Senior Vice President (April 1997 -
February 1998) -- Aetna Retirement Holdings, Inc.;
Director and Senior Vice President (March 1997 -
February 1998) -- Aetna Life Insurance and Annuity
Company; Managing Director, Chief Operating Officer,
Chief Financial Officer, Treasurer (April 1994 -
March 1997) -- Aeltus Investment Management, Inc.;
Director (March 1996 - July 1997) -- Aeltus Capital,
Inc.; Managing Director, Chief Financial Officer
(March 1996 - April 1997) -- Aeltus Capital, Inc.;
Director (May 1996 - July 1997) -- Aeltus Trust
Company, Inc.; Managing Director, Chief Operating
Officer, Chief Financial Officer and Treasurer
(May 1996 - April 1997) -- Aeltus Trust Company,
Inc.; Director and President (May 1996 - October
1997) -- Aetna Investment Management (Bermuda)
Holding, Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ----------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Timothy A. Holt Director Senior Vice President (September 1997 - February
1998) -- Aetna Retirement Holdings, Inc.; Director
(since September 1997) -- Aetna Investment Services,
Inc.; Senior Vice President and Chief Financial
Officer (February 1996 - February 1998) -- Aetna Life
Insurance and Annuity Company; Director (March 1996 -
February 1998) -- Aetna Retirement Holdings, Inc.;
Vice President (September 1996 - September 1997) --
Aetna Retirement Holdings, Inc.; Vice President,
Portfolio Management/Investment Group (June 1991 -
February 1996) -- Aetna Inc. (formerly known as Aetna
Life and Casualty Company).
John Y. Kim Director, President, Chief Director (since February 1995) -- Aetna Life
Executive Officer, Chief Insurance and Annuity Company; Senior Vice President
Investment Officer (since September 1994) -- Aetna Life Insurance and
Annuity Company.
Thomas J. McInerney Director President (since August 1997) -- Aetna Retirement
Services, Inc.; Director and President (since
September 1997) -- Aetna Life Insurance and Annuity
Company; Director and President (since September
1997) -- Aetna Retirement Holdings, Inc.; Director
and President (since September 1997) -- Aetna
Insurance Company of America; Executive Vice
President (since August 1997) -- Aetna Inc.; Vice
President, Strategy (March 1997 - August 1997) --
Aetna Inc.; Vice President, Marketing and Sales
(December 1996 - March 1997) -- Aetna U.S.
Healthcare; Vice President, National Accounts (April
1996 - December 1996) -- Aetna U.S. Healthcare; Vice
President, Strategy, Finance, & Administration (July
1995 - April 1996) -- Aetna Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ----------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter B. Canoni Managing Director, Equity Managing Director (since January 1996) -- Aeltus
Investments Trust Company; Registered Representative (since March
1994) -- Aeltus Capital, Inc.
Lennart A. Carlson Managing Director, Fixed Income Managing Director (since January 1996) -- Aeltus
Investments Trust Company; Registered Representative (since
February 1993) -- Aeltus Capital, Inc.
Steven C. Huber Managing Director, Fixed Income Portfolio Manager (August 1991 - August 1996) --
Investments Aetna Life Insurance and Annuity Company; Managing
Director (since August 1996) -- Aeltus Trust Company.
Brian K. Kawakami Vice President, Chief Compliance Chief Compliance Officer & Director (since January
Officer 1996) -- Aeltus Trust Company; Chief Compliance
Officer (since August 1993) -- Aeltus Capital, Inc.
Neil Kochen Managing Director, Product Managing Director (since April 1996) -- Aeltus
Development Investment Management, Inc.; Managing Director (since
April 1996) -- Aeltus Trust Company; Managing
Director (since August 1996) -- Aeltus Capital, Inc.;
Managing Director (July 1994- August 1996) -- Aetna
Life Insurance and Annuity Company.
Frank Litwin Managing Director, Retail Vice President, Strategic Marketing (April, 1992 -
Marketing and Sales August, 1997) -- Fidelity Investments Institutional
Services Company.
Kevin M. Means Managing Director, Equity Managing Director (July 1994 - August 1996) -- Aetna
Investments Life Insurance and Annuity Company; Managing Director
(since August 1996) -- Aeltus Trust Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ----------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
L. Charles Meythaler Managing Director, Institutional Managing Director (since April 1997) -- Aeltus
Marketing and Sales Investment Management, Inc.; Director (since July
1997) -- Aeltus Trust Company; Managing Director
(since June 1997) -- Aeltus Trust Company;
President (June 1993 - April 1997) -- New England
Investment Association.
Jeanne Wong-Boehm Managing Director, Fixed Income Portfolio Manager (March 1982 - August 1996) -- Aetna
Investments Life Insurance and Annuity Company; Portfolio Manager
(March 1982 - August 1996) -- Aetna Inc.; Managing
Director (since August 1996) -- Aeltus Trust Company;
Registered Representative (since August 1996) --
Aeltus Capital, Inc.
</TABLE>
* Except with respect to Messrs. Holt and McInerney, the principal
business address of each person named is 242 Trumbull Street,
Hartford, Connecticut 06103-1205. The address of Messrs. Holt and
McInerney 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 that are not deemed to be principal
positions.
Item 29. Principal Underwriters
(a) In addition to serving as the principal underwriter for the
Registrant, Aetna also acts as the principal underwriter for Aetna
Variable Fund, Aetna Income Shares, Aetna Balanced VP, Inc. (formerly
Aetna Investment Advisers Fund, Inc.), Aetna GET Fund, Aetna Variable
Portfolios, Inc. and Aetna Generation Portfolios, Inc. and as
investment adviser, principal underwriter and administrator for
Portfolio Partners, Inc. (all management investment companies
registered under the 1940 Act). Additionally, Aetna acts as the
principal underwriter and depositor for Aetna Variable Annuity Account
B of Aetna, Variable Annuity Account C of Aetna, Variable Annuity
Account G of Aetna, and Aetna Variable Life Account B of Aetna
(separate accounts of Aetna registered as unit investment trusts under
the 1940 Act). Aetna is also the principal underwriter for Variable
Annuity Account I of Aetna Insurance Company of America ("AICA") (a
separate account of AICA registered as a unit investment trust under
the 1940 Act).
(b) The following are the directors and principal officers of the
Underwriter:
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------- -------------------------- ---------------
<S> <C> <C>
Thomas J. McInerney Director and President None
Robert D. Friedhoff Senior Vice President None
John Y. Kim Senior Vice President Trustee
Shaun P. Mathews Director and Senior Vice President Trustee
Catherine H. Smith Director, Senior Vice President and None
Chief Financial Officer
Kirk P. Wickman Vice President, General Counsel and None
Corporate Secretary
Deborah Koltenuk Vice President and Treasurer, None
Corporate Controller
Frederick D. Kelsven Vice President and Chief Compliance None
Officer
</TABLE>
* Except with respect to Mr. Kim, the principal business address of all
directors and officers listed is 151 Farmington Avenue, Hartford,
Connecticut 06156. Mr. Kim's address is 242 Trumbull Street, Hartford,
Connecticut 06103-1205.
(c) Not applicable.
Item 30. Location of Accounts and Records
As required by Section 31(a) of the 1940 Act and the rules thereunder,
the Registrant and its investment adviser, Aeltus, maintain physical
possession of each account, book or other document, at 151 Farmington
Avenue, Hartford, Connecticut 06156 or 242 Trumbull Street, Hartford,
Connecticut 06103-1205.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant undertakes that if requested by the holders of at least
10% of the Registrant's outstanding shares, the Registrant will hold a
shareholder meeting for the purpose of voting on the removal of one or
more Trustees and will assist with communication concerning that
shareholder meeting as if Section 16(c) of the 1940 Act applied.
<PAGE>
The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of its latest annual report to
shareholders, upon request and without charge.
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "1933 Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the 1933 Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
----------
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
Aetna Variable Encore Fund certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment to
the Registration Statement on Form N-1A (File No. 2-53038) and has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Hartford, and State of Connecticut, on
the 27th day of April, 1998.
AETNA VARIABLE ENCORE FUND
--------------------------
(Registrant)
By J. Scott Fox*
-----------------------------
J. Scott Fox
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons on April 27, 1998 in the capacities indicated.
Signature Title Date
- --------- ----- ----
J. Scott Fox* President and Trustee )
- ----------------------------- )
J. Scott Fox (Principal Executive Officer) )
)
Maria T. Fighetti* Trustee )
- ----------------------------- )
Maria T. Fighetti )
) April
David L. Grove* Trustee ) 27, 1998
- ----------------------------- )
David L. Grove )
)
John Y. Kim* Trustee )
- ----------------------------- )
John Y. Kim )
)
Sidney Koch* Trustee )
- ----------------------------- )
Sidney Koch )
)
Shaun P. Mathews* Trustee )
- ----------------------------- )
Shaun P. Mathews )
<PAGE>
)
Corine T. Norgaard* Trustee )
- ----------------------------- )
Corine T. Norgaard )
)
Richard G. Scheide* Trustee )
- ----------------------------- )
Richard G. Scheide )
)
Stephanie A. Taylor* Treasurer and Chief Financial Officer )
- ----------------------------- )
Stephanie A. Taylor (Principal Financial and Accounting Officer) )
By: /s/ Amy R. Doberman
------------------------------
*Amy R. Doberman
Attorney-in-Fact
(Executed pursuant to Power of Attorney dated December 10, 1997 and filed with
the Securities and Exchange Commission on April 27, 1998 (Accession No.
0000950146-98-000689)).
<PAGE>
Aetna Variable Encore Fund
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-(b)(1)(a) Charter (Declaration of Trust) *
99-(b)(1)(b) Amendment to Declaration of Trust of Aetna Variable
Encore Fund -------------------
99-(b)(2) Amended and Restated Bylaws *
99-(b)(4) Instruments Defining Rights of Holders *
99-(b)(5) Investment Advisory Agreement between Aeltus
Investment Management, Inc. ("Aeltus") and Aetna
Variable Encore Fund -------------------
99-(b)(6) Underwriting Agreement between Aetna Life Insurance *
and Annuity Company and Aetna Variable Encore Fund
99-(b)(7) Directors' Deferred Compensation Plan -------------------
99-(b)(8) Custodian Agreement between Aetna Variable Encore *
Fund and Mellon Bank, N.A.
99-(b)(9) Administrative Services Agreement between Aeltus and
Aetna Variable Encore Fund -------------------
99-(b)(10) Opinion and Consent of Counsel -------------------
99-(b)(11) Consent of Independent Auditors -------------------
99-(b)(16) Schedule for Computation of Performance Data *
99-(b)(19)(a) Power of Attorney *
99-(b)(19)(b) Authorization for Signatures *
99-(b)(27) Financial Data Schedule -------------------
</TABLE>
* Incorporated herein by reference
AMENDMENT TO
DECLARATION OF TRUST
OF
AETNA VARIABLE ENCORE FUND
Amending and Restating Articles 5.2 and 5.3 of the Declaration of Trust
The undersigned, being a duly elected and qualified Trustee of Aetna Variable
Encore Fund (the "Trust"), a Massachusetts business Trust, acting pursuant to
Section 11.3 of the Declaration of Trust (the "Declaration of Trust") dated
January 25, 1984, hereby states that the shareholders of the Trust, upon
approval and recommendation of the Board of Trustees, on July 19, 1996, approved
the amendment and restatement of Articles 5.2 and 5.3 of the Declaration of
Trust as follows:
5.2. Nonliability of Trustees, and Others.
The exercise by the Trustees of their powers and discretion hereunder shall
be binding upon everyone interested. A Trustee shall be liable to the Trust and
the Shareholders for such Trustee's own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact and law. Subject to the foregoing, the Trustees
shall not be responsible or liable in any event for any neglect or wrongdoing of
any officer, agent, employee, consultant, adviser, administrator, distributor or
principal underwriter, custodian or transfer, dividend disbursing, shareholder
servicing or accounting agent of the Trust, nor shall any Trustee be responsible
for the act or omission of any other Trustee. Furthermore, no officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent for any action or failure to
act (including the failure to compel in any way any former or acting Trustee to
redress any breach of trust), except upon a showing of bad faith, willful
misfeasance, gross negligence or reckless disregard of duties.
5.3 Indemnification.
The Trust shall indemnify its Trustees and officers, and any person who
serves at the request of the Trust as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise as
follows:
(a) Every person who is or has been a Trustee or officer of the Trust
and persons who serve at the Trust's request as director or
officer of another corporation, partnership, joint venture, trust
or other enterprise shall be indemnified by the Trust to the
fullest extent permitted by law against liability and against all
expenses reasonably incurred or paid in connection with any debt,
claim, action, demand, suit, proceeding, judgment, decree,
liability or obligation of any kind in which he or she becomes
involved as a party or otherwise by virtue of being or having
been a Trustee or officer of the Trust or of another corporation,
partnership, joint venture, trust or other enterprise at the
request of the Trust and against amounts paid or incurred in the
settlement thereof.
<PAGE>
(b) The words "claim," "action," "suit" or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal,
administrative, legislative, investigative or other, including
appeals), actual or threatened, and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
(c) No indemnification shall be provided hereunder to a Trustee,
officer, employee or agent against any liability to the Trust or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of office.
(d) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable,
shall not affect any other rights to which any Trustee, officer,
employee or agent may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee,
officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(e) In the absence of a final decision on the merits by a court or
other body before which such proceeding was brought, an
indemnification payment will not be made, except as provided in
paragraph (f) of this Article, unless in the absence of such a
decision, a reasonable determination based upon a factual review
has been made (1) by a majority vote of a quorum of non-party
Trustees who are not interested persons of the Trust, or (2) by
independent legal counsel in a written opinion that the
indemnitee was not liable for an act of willful misfeasance, bad
faith, gross negligence, or reckless disregard of duties.
(f) The Trust further undertakes that advancement of expenses
incurred in the defense of a proceeding (upon undertaking for
repayment unless it is ultimately determined that indemnification
is appropriate) against a Trustee or officer of the Trust will
not be made absent the fulfillment of at least one of the
following conditions: (i) the indemnitee provides security for
this undertaking, (ii) the Trust is insured against losses
arising by reason of any lawful advances of (iii) a majority of a
quorum of disinterested non-party Trustees or independent legal
counsel in a written opinion shall have determined, based on a
review of readily available facts (as opposed to a full
trial-type inquiry) that there is reason to believe the
indemnitee ultimately will be entitled to indemnification.
(g) No amendment of this Declaration or repeal of any of its
provisions shall limit or eliminate the rights of indemnification
provided hereunder with respect to acts or omission occurring
prior to such amendment or repeal.
The foregoing shall be effective as of July 19, 1996.
/s/ Shaun P. Mathews
- --------------------------------------------
Shaun P. Mathews, Trustee and President
2
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AELTUS INVESTMENT MANAGEMENT, INC., a
Connecticut corporation (the "Adviser") and AETNA VARIABLE ENCORE FUND, a
Massachusetts business trust (the "Fund"), with respect to the following recital
of facts:
R E C I T A L
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act"), and is in the
business of acting as an investment adviser; and
WHEREAS, the Fund and the Adviser desire to enter into an agreement to provide
for investment advisory and management services for the Fund on the terms and
conditions hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Trustees (the "Board"), the Fund hereby appoints
the Adviser to serve as the investment adviser to the Fund, to provide the
investment advisory services set forth below in Section II. The Adviser agrees
that, except as required to carry out its duties under this Agreement or
otherwise expressly authorized, it is acting as an independent contractor and
not as an agent of the Fund and has no authority to act for or represent the
Fund in any way.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall do the following:
1. supervise all aspects of the operations of the Fund;
2. select the securities to be purchased, sold or exchanged by the Fund
or otherwise represented in the Fund's investment portfolio, place
trades for all such securities and regularly report thereon to the
Board;
<PAGE>
3. formulate and implement continuing programs for the purchase and sale
of securities and regularly report thereon to the Board;
4. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally, the
Fund, securities held by or under consideration for the Fund, or the
issuers of those securities;
5. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;
6. obtain the services of, contract with, and provide instructions to
custodians and/or subcustodians of the Fund's securities, transfer
agents, dividend paying agents, pricing services and other service
providers as are necessary to carry out the terms of this Agreement;
and
7. take any other actions which appear to the Adviser and the Board
necessary to carry into effect the purposes of this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Adviser
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is duly organized
and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Registration. The Adviser is registered as an investment adviser
with the Commission under the Advisers Act. The Adviser shall
maintain such registration in effect at all times during the term
of this Agreement.
3. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Fund in carrying out its obligations
hereunder.
B. Representations and Warranties of the Fund
The Fund hereby represents and warrants to the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been duly
incorporated under the laws of the Commonwealth of Massachusetts
and it is authorized to enter into this Agreement and carry out
its obligations hereunder.
2
<PAGE>
2. Registration. The Fund is registered as an investment company
with the Commission under the 1940 Act and shares of the Fund are
registered or qualified for offer and sale to the public under
the Securities Act of 1933 and all applicable state securities
laws. Such registrations or qualifications will be kept in effect
during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
Subject to the approval of the Board and the shareholders of the Fund, the
Adviser may enter into a Subadvisory Agreement to engage a subadviser to the
Adviser with respect to the Fund.
V. BROKER-DEALER RELATIONSHIPS
A. Portfolio Trades
The Adviser shall place all orders for the purchase and sale of portfolio
securities for the Fund with brokers or dealers selected by the Adviser,
which may include brokers or dealers affiliated with the Adviser. The
Adviser shall use its best efforts to seek to execute portfolio
transactions at prices that are advantageous to the Fund and at commission
rates that are reasonable in relation to the benefits received.
B. Selection of Broker-Dealers
In selecting broker-dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage or research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Adviser and/or the other accounts over which
the Adviser or its affiliates exercise investment discretion. The Adviser
may also select brokers or dealers to effect transactions for the Fund that
provide payment for expenses of the Fund. The Adviser is authorized to pay
a broker or dealer who provides such brokerage or research services or
expenses, and that has provided assistance in the distribution of shares of
the Fund to the extent permitted by law, a commission for executing a
portfolio transaction for the Fund that is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage or
research services provided by such broker or dealer and is paid in
compliance with Section 28(e). This determination may be viewed in terms of
either that particular transaction or the overall responsibilities that the
Adviser and its affiliates have with respect to accounts over which they
exercise investment discretion. The Board shall periodically review the
commissions paid by the Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
received.
3
<PAGE>
VI. CONTROL BY THE BOARD
Any investment program undertaken by the Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Adviser on behalf of the Fund
pursuant thereto, shall at all times be subject to any directives of the Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:
1. all applicable provisions of the 1940 Act;
2. the provisions of the current Registration Statement of the Fund;
3. the provisions of the Fund's Articles of Incorporation, as amended;
4. the provisions of the Bylaws of the Fund, as amended; and
5. any other applicable provisions of state and federal law.
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund shall pay to the Adviser an annual fee, payable
monthly, equal to .25% of the average daily net assets of the Fund. Except as
hereinafter set forth, compensation under this Agreement shall be calculated and
accrued daily at the rate of 1/365 of .25% of the daily net assets of the Fund.
If this Agreement becomes effective subsequent to the first day of a month or
terminates before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees set forth above. Subject to the provisions of
Section X hereof, payment of the Adviser's compensation for the preceding month
shall be made as promptly as possible.
IX. EXPENSES
The expenses in connection with the management of the Fund shall be allocated
between the Fund and the Adviser as follows:
4
<PAGE>
A. Expenses of the Adviser
The Adviser shall pay:
1. the salaries, employment benefits and other related costs and
expenses 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
2. all fees and expenses of all trustees, officers and employees, if
any, of the Fund who are employees of the Adviser, including any
salaries and employment benefits payable to those persons.
B. Expenses of the Fund
The Fund shall pay:
1. investment advisory fees pursuant to this Agreement;
2. brokers' commissions, issue and transfer taxes or other
transaction fees payable in connection with any transactions in
the securities in the Fund's investment portfolio or other
investment transactions incurred in managing the Fund's assets,
including portions of commissions that may be paid to reflect
brokerage research services provided to the Adviser;
3. fees and expenses of the Fund's independent accountants and legal
counsel and the independent Trustees' legal counsel;
4. fees and expenses of any administrator, transfer agent,
custodian, dividend, accounting, pricing or disbursing agent of
the Fund;
5. interest and taxes;
6. fees and expenses of any membership in the Investment Company
Institute or any similar organization in which the Board deems it
advisable for the Fund to maintain membership;
7. insurance premiums on property or personnel (including officers
and trustees) of the Fund;
8. all fees and expenses of the Company's trustees, who are not
"interested persons" (as defined in the 1940 Act) of the Fund or
the Adviser;
9. expenses of preparing, printing and distributing proxies, proxy
statements, prospectuses and reports to shareholders of the Fund,
except for those expenses
5
<PAGE>
paid by third parties in connection with the distribution of Fund
shares and all costs and expenses of shareholders' meetings;
10. all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares of the
Fund or in cash;
11. costs and expenses (other than those detailed in paragraph 9
above) of promoting the sale of shares in the Fund, including
preparing prospectuses and reports to shareholders of the Fund,
provided, nothing in this Agreement shall prevent the charging of
such costs to third parties involved in the distribution and sale
of Fund shares;
12. fees payable by the Fund to the Commission or to any state
securities regulator or other regulatory authority for the
registration of shares of the Fund in any state or territory of
the United States or of the District of Columbia;
13. all costs attributable to investor services, administering
shareholder accounts and handling shareholder relations,
(including, without limitation, telephone and personnel
expenses), which costs may also be charged to third parties by
the Adviser; and
14. any other ordinary, routine expenses incurred in the management
of the Fund's assets, and any nonrecurring or extraordinary
expenses, including organizational expenses, litigation affecting
the Fund and any indemnification by the Fund of its officers,
trustees or agents.
X. ADDITIONAL SERVICES
Upon the request of the Board, the Adviser may perform certain accounting,
shareholder servicing or other administrative services on behalf of the Fund
that are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Adviser may receive from the Fund such reimbursement
for costs or reasonable compensation for such services as may be agreed upon
between the Adviser and the Board on a finding by the Board that the provision
of such services by the Adviser is in the best interests of the Fund and its
shareholders. Payment or assumption by the Adviser of any Fund expense that the
Adviser is not otherwise required to pay or assume under this Agreement shall
not relieve the Adviser of any of its obligations to the Fund nor obligate the
Adviser to pay or assume any similar Fund expense on any subsequent occasions.
Such services may include, but are not limited to, (a) the services of a
principal financial officer of the Fund (including applicable office space,
facilities and equipment) whose normal duties consist of maintaining the
financial accounts and books and records of the Fund and the services (including
applicable office space, facilities and equipment) of any of the personnel
operating under the direction of such principal financial officer; (b) the
services of staff to respond to shareholder inquiries concerning the status of
their accounts, providing assistance to shareholders in exchanges among the
investment companies managed or
6
<PAGE>
advised by the Adviser, changing account designations or changing addresses,
assisting in the purchase or redemption of shares; or otherwise providing
services to shareholders of the Fund; and (c) such other administrative services
as may be furnished from time to time by the Adviser to the Fund at the request
of the Board.
XII. NONEXCLUSIVITY
The services of the Adviser to the Fund are not to be deemed to be exclusive,
and the Adviser shall be free to render investment advisory or other services to
others (including other investment companies) and to engage in other activities,
so long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers and directors of the Adviser may serve as
officers or trustees of the Fund, and that officers or trustees of the Fund may
serve as officers or directors of the Adviser to the extent permitted by law;
and that the officers and directors of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or trustees of any
other firm or trust, including other investment companies.
XIII. TERM
This Agreement shall become effective on May 1, 1998, and shall remain in force
and effect through December 31, 1998, unless earlier terminated under the
provisions of Article XV.
XIV. RENEWAL
Following the expiration of its initial term, the Agreement shall continue in
force and effect from year to year, provided that such continuance is
specifically approved at least annually:
1. a. by the Board, or
b. by the vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act), and
2. by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a trustee of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
XV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board or by vote of a majority of the Fund's outstanding
voting securities (as defined in
7
<PAGE>
Section 2(a)(42) of the 1940 Act), or by the Adviser, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by the party required to be notified. This Agreement shall automatically
terminate in the event of its "assignment."
XVI. LIABILITY
The Adviser shall be liable to the Fund and shall indemnify the Fund for any
losses incurred by the Fund, whether in the purchase, holding or sale of any
security or otherwise, to the extent that such losses resulted from an act or
omission on the part of the Adviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Adviser of its duties under this Agreement, in
connection with the services rendered by the Adviser hereunder.
XVII. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:
if to the Fund:
151 Farmington Avenue
Hartford, Connecticut 06156
Fax number 860/273-8340
if to the Adviser:
242 Trumbull Street
Hartford, Connecticut 06103-1205
Fax number 860/275-4440
XVIII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules or orders of the
Commission issued pursuant to the 1940 Act, or contained in no-action and
interpretive positions taken by the Commission staff. In addition, where the
effect of a requirement of the 1940 Act reflected in the
8
<PAGE>
provisions of this Agreement is revised by rule or order of the Commission, such
provisions shall be deemed to incorporate the effect of such rule or order.
XIX. SERVICE MARK
The service mark of the Fund and the name "Aetna" have been adopted by the Fund
with the permission of Aetna Services, Inc. (formerly known as Aetna Life and
Casualty Company) and their continued use is subject to the right of Aetna
Services, Inc. to withdraw this permission in the event the Adviser or another
affiliated corporation of Aetna Services, Inc. should not be the investment
adviser of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 25th day of March, 1998.
Aeltus Investment Management, Inc.
Attest : /s/Susan Harinstein By: /s/John Y. Kim
------------------------- --------------------------------
Name: Susan Harinstein Name: John Y. Kim
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Title: Assistant Secretary Title: President
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Aetna Variable Encore Fund
Attest: /s/DeAnn S. Anastasio By: /s/J. Scott Fox
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Name: DeAnn S. Anastasio Name: J. Scott Fox
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Title: Assistant Secretary Title: President
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9
AETNA VARIABLE ENCORE FUND
DIRECTORS' DEFERRED COMPENSATION PLAN
I. INTRODUCTION
1.01 This Deferred Compensation Plan (the "Plan") has been established by
resolution of the Boards of Trustees/Directors (the "Board") of Aetna
Variable Encore Fund (the "Fund") using the format that has been
established for use by all open-end management investment companies,
whether now existing or to be created, that are advised by Aetna Life
Insurance and Annuity Company ("ALIAC") or its successor. The purpose
of the Plan is to provide retirement benefits for those directors or
trustees, as the case may be, of the Fund who are not employees of the
Fund, its distributor or administrator, or ALIAC, or any affiliate of
ALIAC.
1.02 The Plan shall be administered by the Board or by such person or
persons as the Board may designate to carry out administrative
functions hereunder (the "Plan Administrator"). The Plan Administrator
shall have complete discretion to interpret and administer the Plan in
accordance with its terms, and its determinations shall be binding on
all persons except for the provisions of ARTICLE VIII, whereunder
action by the full Board shall be required.
II. DEFINITIONS
2.01 Beneficiary or Beneficiaries: The person, persons, or legal entities
designated by the Participant in the Participant's Deferral Agreement
who are entitled to receive payments under this Plan that become
payable to such person, persons, or legal entities in the event of the
Participant's death. If more than one designated beneficiary survives
the Participant, payments shall be made equally, unless otherwise
provided in the beneficiary designation. Nothing herein shall prevent
the Participant from designating primary and secondary beneficiaries.
Secondary beneficiaries are considered designated beneficiaries and
are entitled to payments under the Plan only in the event that there
are no primary beneficiaries surviving the Participant.
2.02 Compensation. The annual retainer fees earned by a Participant for
service as a director of the Fund; the annual retainer fee earned by a
Participant for membership to a Committee of the Board; and any fees
earned by a Participant for attendance at meetings of the Board and
any of its Committees, all or a portion of which may be deferred.
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2.03 Deferral Agreement: The agreement between the Fund and the Participant
to defer Compensation under the Plan.
2.04 Deferred Compensation: The amount, as mutually agreed to by the
Participant and the Fund, by which any Compensation not yet earned
shall be reduced in return for the benefits provided under this Plan.
2.05 Lump Sum: A single payment of the entire balance credited to the
Participant's bookkeeping account under ARTICLE IV.
2.06 Notional Fund: Any open-end management investment company registered
under the Investment Company Act of 1940 with respect to which ALIAC
serves as investment adviser, shares of which are sold to the public,
and which the Plan Administrator designates as a Notional Fund under
the Plan.
2.07 Participant: Any Eligible Director of the Fund who fulfills the
eligibility and enrollment requirements of ARTICLE III.
2.08 Retirement: The time at which the Participant ceases to serve as an
Eligible Director of the Fund in conformity with the Retirement Policy
of the Board in effect at the time of such cessation of service.
2.09 Termination of Services: The time at which the Participant ceases to
serve as an Eligible Director of the Fund for any reason other than
Retirement or death.
2.10 Unforeseeable Emergency: An unanticipated emergency that is caused by
an event beyond the control of the Participant and that would result
in severe financial hardship to the individual if early withdrawal
were not permitted in accordance with ARTICLE VII hereof.
III. PARTICIPATION IN THE PLAN
3.01 Eligibility: Any director or trustee of the Fund who is not an
employee of the Fund or of the Fund's distributor or administrator, or
who is not an employee of ALIAC or any affiliate of ALIAC, and who is
not eligible to participate in the Retirement Plan for Employees of
Aetna Inc. ("Eligible Director"), is eligible to participate in the
Plan.
3.02 Enrollment in the Plan:
(a) An Eligible Director may become a Participant by executing a
Deferral Agreement whereunder that Eligible Director agrees to
defer all or a portion of Compensation not yet earned and agrees
to the provisions of the Plan.
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(b) An election by the Eligible Director to defer Compensation under
the Plan for any calendar year shall not be effective unless such
election is made on or before December 31 of the preceding year,
except that
(1) in the year in which the Plan is first implemented, the
Eligible Director may elect to participate in the Plan
within thirty days of the date on which the Plan is
implemented, with deferral of Compensation to begin on the
first day of the month subsequent to the month in which the
election is made, or
(2) an Eligible Director may elect to participate in the Plan
within thirty days of the date upon which such Director
first meets the eligibility requirements of Section 3.01,
with deferral of Compensation to begin on the first day of
the month subsequent to the month in which the election is
made.
(c) An Eligible Director who defers Compensation may not modify the
Eligible Director's Deferral Agreement to change the amount
deferred except with respect to Compensation earned in a
subsequent calendar year where the Participant notifies the Plan
Administrator in writing or except as provided in ARTICLE VII
hereof with respect to WITHDRAWALS.
(d) A Participant may elect the manner in which benefits will be
distributed under the Deferral Agreement. The distribution
election may be subsequently changed by the Participant by
notifying the Plan Administrator in writing of the Participant's
election, but such amendment will only be effective with respect
to the distribution of Compensation earned and amounts credited
on such Compensation in the Participant's bookkeeping account in
calendar years following the year in which the amendment is
requested.
IV. ACCUMULATION OF DEFERRED COMPENSATION
4.01 The Plan Administrator shall establish a bookkeeping account on behalf
of the Participant, the value of which at any given time shall
determine the benefits payable to the Participant under ARTICLES V and
VI and the Withdrawal values under ARTICLE VII. Beginning on the date
the Participant first enrolls in the Plan, the account shall be
credited with an amount equal to the Participant's Deferred
Compensation at such times as the Compensation subject to deferral
would otherwise have been paid.
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Until the account is removed from the books of the Fund, the account
shall be further adjusted for notional investment experience as
described in Section 4.02.
4.02 Amounts credited to the Participant's bookkeeping account shall be
periodically adjusted for notional investment experience. In each case
such notional investment experience shall be determined by treating
such account as though an equivalent dollar amount had been invested
and reinvested in one or more of the Notional Funds. The Notional
Funds used as a basis for determining notional investment experience
with respect to the Participant's account shall be designated by the
Participant in writing by instrument of election and may be changed
prospectively by similar written election no later than thirty days
before the end of a calendar quarter effective as of the first day of
the subsequent calendar quarter. The Plan Administrator may from time
to time limit the Notional Funds available for purposes of such
election. If at any time any Notional Fund that has previously been
designated by the Participant as a notional investment shall cease to
exist or shall be unavailable for any reason, or if the Participant
fails to designate one or more Notional Funds pursuant to this Section
4.02, the Plan Administrator may, at its discretion and upon notice to
the Participant, treat any amounts previously notionally invested or
to be notionally invested in such Notional Fund as being invested in
Aetna Money Market Fund or if such Notional Fund ceases to exist or is
unavailable for any reason, such other short-term high-quality
fixed-income Notional Fund as the Plan Administrator may from time to
time designate, in all cases only until such time as the Participant
shall have made another investment election in accordance with the
foregoing procedures. The Participant's bookkeeping account shall
continue to be adjusted for notional investment experience until
distributed in full in accordance with the distribution methods set
forth in this Plan.
4.03 It is specifically provided that neither the Plan Administrator nor
the Fund shall be obligated to make actual cash deposits in the
account, but only to make bookkeeping entries as if deposits had been
made. If for its own convenience the Fund should make deposits, it is
further provided that any sums thus deposited shall remain a general
unrestricted asset of the Fund and shall not be deemed as being held
in trust, escrow, or in any other fiduciary manner for the benefit of
the Participant. The Participant understands that the value of the
Participant's bookkeeping account will fluctuate due to the investment
experience of the Notional Funds and that at the time at which
benefits become payable under the Plan, the value of the Participant's
bookkeeping account may be less than the total amount of Compensation
deferred under the Plan. The Fund is not responsible or liable for any
amount by which the total amount of Compensation deferred
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exceeds the value of the bookkeeping account and the Fund shall have
no obligation to restore any such difference.
V. BENEFITS ON RETIREMENT
5.01 If the Participant continues in the service of the Fund until
Retirement, the Fund shall pay to such Participant the amount then and
thereafter standing credited to the bookkeeping account described in
ARTICLE IV at the time and in the manner as elected by the Participant
in the Participant's Deferral Agreement. If monthly or annual
installments are elected by the Participant, the estimated payments
must be at least $1,000 per month or $10,000 per year; if the
applicable minimum is not met, the payout duration will be adjusted to
meet the minimums. Installment payments shall be substantially equal
over the period elected. Any excess amounts remaining in the account
shall be paid out in the final installment. With respect to benefits
payable in a Lump Sum, the Lump Sum shall be an amount equal to the
current value of the Participant's bookkeeping account on the date of
the Participant's Retirement. The Lump Sum shall be paid to the
Participant no later than the fifteenth day of the month following the
date of the Participant's Retirement.
5.02 Should the Participant die at any time after Retirement, whether prior
to or after the Participant has begun to receive the retirement
payments provided for in Section 5.01, the Participant's designated
Beneficiary or Beneficiaries shall be entitled to receive the balance
of such payments as they fall due, or, in the sole discretion of the
Plan Administrator, in a Lump Sum equal to the current value of the
deceased Participant's bookkeeping account on the date of the
Participant's death. If no Beneficiary or Beneficiaries are designated
as provided in Section 2.01 of this Plan at the time the Participant
dies, then the Participant's estate shall be paid by the Plan as
promptly as possible after due proof of death a Lump Sum amount equal
to the value of the Participant's bookkeeping account on the date of
the Participant's death. If a designated Beneficiary or Beneficiaries
survive the death of the Participant, and said designated Beneficiary
or Beneficiaries do not survive the period during which payments are
to be made under this Plan, then:
(a) If there is only one designated Beneficiary, then the designated
Beneficiary's estate shall be paid by the Plan as promptly as
possible after due proof of death a Lump Sum amount equal to the
value of the Participant's bookkeeping account on the date of the
designated Beneficiary's death, or
(b) If there is more than one designated Beneficiary, then the death
of any designated Beneficiary who is not the last to die shall
cause all
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prospective payments under this Plan previously designated to the
deceased Beneficiary to be redistributed proportionately among
the surviving designated Beneficiaries.
Upon the death of the last designated Beneficiary, such designated
Beneficiary's estate shall be paid by the Plan as promptly as possible
after due proof of death a Lump Sum amount equal to the value of the
Participant's bookkeeping account on the date of the designated
Beneficiary's death.
VI. BENEFITS ON TERMINATION OF SERVICES OR DEATH PRIOR TO RETIREMENT
6.01 In the event there is a Termination of Services, the Fund shall pay to
the Participant the amount then and thereafter standing credited to
the bookkeeping account described in ARTICLE IV at the time and in the
manner as elected by the Participant in the Participant's Deferral
Agreement. If monthly or annual installments are elected by a
Participant, the estimated payments must be at least $1,000 per month
or $10,000 per year; if the applicable minimum is not met, the payout
duration will be adjusted to meet the minimums. Installment payments
shall be substantially equal over the period elected. Any excess
amounts remaining in the account shall be paid out in the final
installment. With respect to benefits payable in a Lump Sum, the Lump
Sum shall be an amount equal to the current value of the Participant's
bookkeeping account on the date of Termination of Services. The Lump
Sum shall be paid to the Participant no later than the fifteenth day
of the month following the date of Termination of Services.
6.02 In the event the Participant dies before the Participant's Retirement
or the Participant dies prior to receiving all of the payments under
Section 6.01, the Participant's designated Beneficiary or
Beneficiaries shall be entitled to receive the balance remaining of
such payments as they fall due, or, in the sole discretion of the Plan
Administrator, in a Lump Sum equal to the current value of the
deceased Participant's bookkeeping account on the date of the
Participant's death. If no Beneficiary or Beneficiaries are designated
as provided in Section 2.01 of this Plan at the time the Participant
dies, then the Participant's estate shall be paid by the Plan as
promptly as possible after due proof of death a Lump Sum amount equal
to the value of the Participant's bookkeeping account on the date of
the Participant's death. If a designated Beneficiary or Beneficiaries
survive the death of the Participant, and said designated Beneficiary
or Beneficiaries do not survive the period during which payments are
to be made under this Plan, then:
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(a) If there is only one designated Beneficiary, then the designated
Beneficiary's estate shall be paid by the Plan as promptly as
possible after due proof of death a Lump Sum amount equal to the
value of the Participant's bookkeeping account on the date of the
designated Beneficiary's death, or
(b) If there is more than one designated Beneficiary, then the death
of any designated Beneficiary who is not the last to die shall
cause all prospective payments under this Plan previously
designated to the deceased Beneficiary to be redistributed
proportionately among the surviving designated Beneficiaries.
Upon the death of the last designated Beneficiary, such
designated Beneficiary's estate shall be paid by the Plan as
promptly as possible after due proof of death a Lump Sum amount
equal to the value of the Participant's bookkeeping account on
the date of the designated Beneficiary's death.
VII. WITHDRAWALS
In the event of an Unforeseeable Emergency, the Participant may apply
to the Plan Administrator for early withdrawal from the Plan of an
amount limited to that which is necessary to meet the emergency. If
such application for withdrawal is approved by the Plan Administrator,
the withdrawal will be effective at the latter of the date specified
in the Participant's application or the date of approval by the Plan
Administrator. Whenever an application for withdrawal is honored, the
Plan Administrator shall pay the Participant from the Participant's
bookkeeping account described in ARTICLE IV only those amounts
necessary to meet the emergency. The Participant's bookkeeping account
shall be appropriately adjusted to reflect the amounts withdrawn. An
Unforeseeable Emergency shall include the following: bankruptcy or
impending bankruptcy, unexpected and nonreimbursable major expenses
resulting from illness to person or accident to person or property and
other types of unexpected and nonreimbursable expenses of a major or
emergency nature where withdrawal of funds would be necessary to
prevent serious financial hardship to the Participant. Withdrawals for
foreseeable expenditures such as the down payment on a home, vacation
expenses, purchase of an automobile, or education expenses will not be
permitted. As provided in Section 1.02, the Plan Administrator shall
make the required findings under this provision and such findings
shall be binding upon all persons.
VIII. AMENDMENT OR TERMINATION OF PLAN
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8.01 The Board may at any time terminate this Plan. Upon such termination,
the Participant will be deemed to have revoked the election to defer
Compensation as of the date of such termination. Upon termination, no
part of the Participant's Compensation will be deferred and the
Participant shall be treated as if there had been a Termination of
Services under Section 6.01 on the date of the termination for
purposes of payment of benefits under the Plan.
8.02 The Board may amend the provisions of this Plan at any time provided,
however, that no amendment shall adversely affect the rights of the
Participant or the designated Beneficiary or Beneficiaries, if any, as
to the receipt of payments under the Plan to the extent of any
Compensation deferred before the time of the amendment.
IX. PARTICIPANT STATUS
The Participant in the Plan shall have only the status of general
unsecured creditor of the Fund. The Plan constitutes a mere promise by
the Fund to make payments in the future.
X. NON-ASSIGNABILITY CLAUSE
It is expressly provided that neither the Participant nor the
Participant's Beneficiary or Beneficiaries, nor any other designee,
shall have any right to commute, sell, assign, transfer or otherwise
convey the right to receive any payments hereunder which payments and
rights thereto are expressly declared to be non-assignable and
non-transferable and, in the event of any attempted assignment or
transfer, the Fund shall have no further liability hereunder.
Moreover, no unpaid benefits shall be subject to attachment,
garnishment or execution, or be transferable by operation of law in
the event of bankruptcy or insolvency, except to the extent otherwise
required by law. The right of the Participant or the Participant's
Beneficiary or Beneficiaries to payments under the Plan are not
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by
creditors of the Participant or the Participant's Beneficiary or
Beneficiaries.
XI. APPLICABLE LAW
This Plan shall be construed under the law of the State of
Connecticut.
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XII. EFFECTIVE DATE
This Plan shall be effective on the date of its adoption by the Fund's
Board of Directors or on such later date as may be provided in the
vote, resolution or consent in which such adoption takes place.
Adopted by the Board, by resolution, on September 24, 1997.
9
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made by and between AETNA VARIABLE ENCORE FUND, a
Massachusetts business trust (the "Fund"), and AELTUS INVESTMENT MANAGEMENT,
INC., a Connecticut corporation (the "Administrator"), with respect to the
following recital of facts:
R E C I T A L
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Administrator is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of acting as an
investment adviser and an administrator of investment companies; and
WHEREAS, the Fund and the Administrator desire to enter into an agreement
to provide for administrative services for the Fund on the terms and conditions
hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable considerations, the receipt of which is hereby
acknowledged, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADMINISTRATOR
The Administrator is hereby appointed to serve as the Administrator to the
Fund, to provide the administrative services described herein and assume the
obligations set forth in Section II, subject to the terms of this Agreement and
the control of the Fund's Board of Trustees (the "Board"). The Administrator
shall, for all purposes herein, be deemed an independent contractor and shall
have, unless otherwise expressly provided or authorized, no authority to act for
or represent the Fund in any way or otherwise be deemed an agent of the Fund.
II. DUTIES OF THE ADMINISTRATOR
In carrying out the terms of this Agreement, the Administrator shall:
A. provide office space, equipment and facilities (which may be the
Administrator's or its affiliates') for maintaining the Fund's organization, for
meetings of the Fund's Board and shareholders, and for performing administrative
services hereunder;
B. supervise and manage all aspects of the Fund's operations (other than
investment advisory activities), supervise relations with, and monitor the
performance of, custodians, depositories,
<PAGE>
transfer and pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary and
desirable by the Board;
C. provide internal clerical and legal services, and stationery and office
supplies;
D. provide accounting services, including:
1. determining and arranging for the publication of the net asset
value of the Fund;
2. preparing financial information for presentation to the Fund's
Board and management;
3. preparing and monitoring the Fund's annual expense budget, and
establishing daily accruals;
4. coordinating payment of fund expenses;
5. calculating periodic dividend rates to be declared in accordance
with management guidelines;
6. calculating total return information as defined in the current
prospectus and statement of additional information;
7. coordinating audit packages for use by independent public
accountants;
8. responding to regulatory audits;
E. provide non-investment related statistical and research data and such
other reports, evaluations and information as the Fund may request from time to
time;
F. monitor the Fund's compliance with the current prospectus and statement
of additional information, the 1940 Act, the Internal Revenue Code and other
applicable laws and regulations;
G. prepare, to the extent requested by the Fund, registration statements,
proxy statements and annual and semi-annual reports to shareholders;
H. arrange for the printing and mailing (at the Fund's expense) of proxy
statements and other reports or other materials provided to the Fund's
shareholders;
I. support outside auditors in preparing and filing all the Fund's federal
and state tax returns and required tax filings other than those required to be
made by the Fund's custodian and transfer agent;
J. prepare periodic reports to and filings with the Securities and Exchange
Commission (the "SEC") and state Blue Sky authorities with the advice of the
Fund's counsel;
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K. maintain the Fund's existence, and during such times as the shares of
the Fund are publicly offered, maintain the registration and qualification of
the Fund's shares under federal and state law;
L. keep and maintain the financial accounts and records of the Fund;
M. provide the Board on a regular basis with reports and analyses of the
Fund's operations and the operations of comparable investment companies; and
N. take any other actions which appear to the Administrator and the Board
necessary to carry into effect the purposes of this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator hereby represents and warrants to the Fund as
follows:
1. Due Incorporation and Organization. The Administrator is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Best Efforts. The Administrator at all times shall provide its
best judgment and effort to the Fund in carrying out its
obligations hereunder.
B. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund hereby represents and warrants to the Administrator as
follows:
1. Due Incorporation and Organization. The Fund has been duly
incorporated under the laws of the Commonwealth of Massachusetts
and it is authorized to enter into this Agreement and carry out
its terms.
2. Registration. The Fund is registered as an investment company
with the SEC under the 1940 Act and shares of the Fund are
registered or qualified for offer and sale to the public under
the Securities Act of 1933 (the "1933 Act"), and all applicable
state securities laws. Such registrations or qualifications will
be kept in effect during the term of this Agreement.
IV. CONTROL BY THE BOARD OF TRUSTEES
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Any activities undertaken by the Administrator pursuant to this Agreement
on behalf of the Fund shall at all times be subject to any directives of the
Board.
V. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Administrator
shall at all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Fund under the
1933 Act and the 1940 Act;
C. the provisions of the Fund's Articles of Incorporation, as amended;
D. the provisions of the By-Laws of the Fund, as amended; and
E. any other applicable provisions of state and federal law.
VI. DELEGATION OF RESPONSIBILITIES
All services to be provided by the Administrator under this Agreement may
be furnished by any directors, officers or employees of the Administrator or by
any affiliates of the Administrator under the Administrator's supervision.
VII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Administrator, the Fund shall pay to the Administrator an annual
fee, payable monthly (in arrears), based upon the following average daily net
assets of the Fund:
Rate Net Assets
---- ----------
.075% on the 1st $5 billion
.05% over $5 billion
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual administration
fee applied to the daily net assets of the Fund. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above.
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VIII. NON-EXCLUSIVITY
The services of the Administrator to the Fund are not to be deemed to be
exclusive, and the Administrator shall be free to render administrative or other
services to others (including other investment companies) and to engage in other
activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and directors of the
Administrator may serve as officers or trustees of the Fund, and that officers
or trustees of the Fund may serve as officers or directors of the Administrator
to the extent permitted by law; and that the officers and directors of the
Administrator are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers, directors or trustees of any other firm or trust, including other
investment companies.
IX. TERM
This Agreement shall become effective on May 1, 1998, and shall continue
through December 31, 1998. Thereafter it shall continue for successive annual
periods, provided such continuance is specifically approved at least annually:
1. a. by the Board, or
b. by the vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act), and
2. by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a trustee of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
X. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Fund's trustees or by vote of a majority of the Fund's
outstanding voting securities, as defined in Section 2(a)(42) of the 1940 Act,
or by the Administrator, on sixty (60) days' written notice to the other party.
XI. LIABILITY OF ADMINISTRATOR AND INDEMNIFICATION
A. LIABILITY
The Administrator shall be liable to the Fund and shall indemnify the Fund
for any losses incurred by the Fund, whether in the purchase, holding or sale of
any security or otherwise, to the extent that such losses resulted from an act
or omission on the part of the Administrator or its officers, directors or
employees, that is found to involve willful misfeasance, bad faith or
negligence,
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or reckless disregard by the Administrator of its duties under this Agreement,
in connection with the services rendered by the Administrator hereunder.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, negligence or reckless
disregard of obligations or duties hereunder on the part of the Administrator or
any officer, director or employee of the Administrator, to the extent permitted
by applicable law, the Fund hereby agrees to indemnify and hold the
Administrator harmless from and against all claims, actions, suits and
proceedings at law or in equity, whether brought or asserted by a private party
or a governmental agency, instrumentality or entity of any kind, relating to the
sale, purchase, pledge of, advertisement of, or solicitation of sales or
purchases of any security by the Fund, its officers, trustees, employees or
agents in alleged violation of applicable federal, state or foreign laws, rules
or regulations.
XII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Administrator for this
purpose shall be 242 Trumbull Street, Hartford, Connecticut 06103-1205, and the
address of the Fund for this purpose shall be 151 Farmington Avenue, Hartford,
Connecticut 06156.
XIII. QUESTIONS OF INTERPRETATIONS
This Agreement shall be governed by the laws of the State of Connecticut.
Any question of interpretation of any term or provision of this Agreement having
a counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules or orders of the SEC
issued pursuant to the 1940 Act, or contained in no-action and interpretive
positions taken by the SEC staff. In addition, where the effect of a requirement
of the 1940 Act reflected in the provisions of this Agreement is revised by rule
or order of the SEC, such provisions shall be deemed to incorporate the effect
of such rule or order.
XIV. SERVICE MARK
The service mark of the Fund and the name "Aetna" have been adopted by the
Fund with the permission of Aetna Services, Inc. (formerly known as Aetna Life
and Casualty Company) and their continued use is subject to the right of Aetna
Services, Inc. to withdraw this permission in the event
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the Administrator or another subsidiary or affiliated corporation of Aetna
Services, Inc. should not be the Administrator of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the 25th day of March,
1998.
AELTUS INVESTMENT
MANAGEMENT, INC.
Attest : /s/Susan Harinstein By: /s/John Y. Kim
------------------------- ----------------------
Name: Susan Harinstein Name: John Y. Kim
---------------------------- --------------------
Title: Assistant Secretary Title: President
--------------------------- -------------------
AETNA VARIABLE ENCORE FUND
Attest: /s/DeAnn S. Anastasio By: /s/J. Scott Fox
-------------------------- ----------------------
Name: DeAnn S. Anastasio Name: J. Scott Fox
---------------------------- --------------------
Title: Assistant Secretary Title: President
--------------------------- -------------------
7
Aetna Inc.
151 Farmington Avenue
Hartford, CT 06156-3124
Amy R. Doberman
Counsel
Law Division, RE4A
April 27, 1998 Investments & Financial Services
(860) 273-1409
Fax: (860) 273-0356
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Aetna Variable Encore Fund
Post-Effective Amendment No. 43 to
Registration Statement on Form N-1A
(File No. 2-53038 and 811-2565)
Dear Sir or Madam:
The undersigned serves as counsel to Aeltus Investment Management, Inc., the
investment adviser, effective May 1, 1998, to Aetna Variable Encore Fund, a
Massachusetts business trust (the "Fund"). It is my understanding that the Fund
has registered an indefinite number of shares of beneficial interest under the
Securities Act of 1933 (the "1933 Act") pursuant to Rule 24f-2 under the
Investment Company Act of 1940 (the "1940 Act").
Insofar as it relates or pertains to the Fund, I have reviewed the prospectus
and the Fund's Registration Statement on Form N-1A, as amended to the date
hereof, filed with the Securities and Exchange Commission under the 1933 Act and
the 1940 Act, pursuant to which the Shares will be sold (the "Registration
Statement"). I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents and other instruments I have
deemed necessary or appropriate for the purpose of this opinion. For purposes of
such examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Maryland and the District of Columbia, and do
not purport to be an expert on the laws of any other state.
<PAGE>
Based upon the foregoing, and assuming the securities are issued and sold in
accordance with the provisions of the Fund's Declaration of Trust and the
Registration Statement, I am of the opinion that the securities will when sold
be legally issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Amy R. Doberman
Amy R. Doberman
Counsel
Consent of Independent Auditors
The Board of Trustees and Shareholders of
Aetna Variable Encore Fund:
We consent to the use of our report dated February 13, 1998 incorporated by
reference in this Post Effective Amendment No. 43 to Registration Statement
(No. 2-53038) and to the references to our firm under the headings "Financial
Highlights" in the prospectus and "Independent Auditors" in the statement of
additional information.
/s/ KPMG Peat Marwick LLP
-----------------------------------
KPMG Peat Marwick LLP
Hartford, Connecticut
April 27, 1998
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<ARTICLE> 6
<CIK> 0000002663
<NAME> Aetna Variable Encore Fund
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 687,441,929
<INVESTMENTS-AT-VALUE> 687,468,188
<RECEIVABLES> 2,791,421
<ASSETS-OTHER> 203,296
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<OTHER-ITEMS-LIABILITIES> 1,707,157
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<PAID-IN-CAPITAL-COMMON> 654,342,532
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<NET-INVESTMENT-INCOME> 34,576,768
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (58,463)
<NET-CHANGE-FROM-OPS> 34,518,305
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,537,119)
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<NUMBER-OF-SHARES-SOLD> 35,877,859
<NUMBER-OF-SHARES-REDEEMED> (32,769,382)
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</TABLE>
