SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant[x]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Aetna Variable Fund
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(Name of Registrant as Specified In Its Charter)
Registrant
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form of Schedule and the date of its filing.
1) Amount Previously Paid:
$125.00
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2) Form, Schedule or Registration Statement N0.:
File Nos. 2-51739 and 811-2414
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3) Filing Party:
by Freedman, Levy, Kroll & Simonds
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4) Date Filed:
March 15, 1996
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<PAGE>
May 8, 1996
Dear Fellow Shareholders and Contractholders,
You are cordially invited by the Trustees of the Aetna Variable Fund (the
"Fund") to attend a Special Meeting of Shareholders on June 17, 1996 at 9:00
a.m. to consider several recommendations which are important to you and your
Fund.
Each of the matters to be voted at this meeting is reviewed in detail in
the enclosed Notice and Proxy Statement, including (i) election of Trustees,
(ii) an amendment to the Declaration of Trust, (iii) a new advisory agreement
with a change in investment advisory fee paid by the Fund and (iv) a new
sub-advisory arrangement. These latter two recommendations are of particular
importance to you.
Over the past several years, the Aetna organization has conducted a
thorough, strategic review of its investment operations with the objective of
significantly modernizing and enhancing its capabilities. This review
included an analysis of resources, pricing strategies and organizational
structure in comparison to competitive practice and customer/market
requirements. Significant enhancements have been made to date as a result of
this study and this Special Meeting is to authorize further significant steps
in this regard.
The investment advisory fee currently paid by your Fund to Aetna Life
Insurance and Annuity Company ("Aetna") has remained unchanged since 1974
and, according to data prepared by Lipper Analytical Services, Inc., is the
lowest paid by any of the 44 growth and income funds sold through variable
insurance contracts it analyzed. During this time period, the expense
required to attract and retain resources to achieve competitive investment
performance has increased substantially. Your Fund's portfolio managers must
monitor an ever-increasing, complex and sophisticated set of securities and
other financial instruments across a broad range of asset classes in both
domestic and international markets.
To respond to these dynamic market conditions, over the past two years,
Aetna has made significant investments in and enhancements to its investment
advisory capacity. A number of highly qualified and experienced investment
professionals with a breadth of different technical expertise have been hired
to manage your Fund under a new market-competitive compensation program. New
quantitative research and analytic tools have been designed and implemented
along with significant upgrades in data bases, information management and
reporting systems to improve the depth of analysis capabilities, reduce risk
and create quicker response time in volatile markets.
After a comprehensive review of the (i) resources required to effectively
manage your Fund, (ii) the enhanced services provided by Aetna to the Fund,
and (iii) an in-depth analysis of competitive advisory fees, the Trustees are
recommending an increase in the management fee paid by the Fund. The Trustees
believe the new advisory contract is fair to you, your Fund and Aetna and
will assure for the future that essential financial resources are available
to provide products responsive to market demands and competitive, high
quality advisory services in increasingly complex financial markets.
To further enhance the depth and quality of its investment advisory
capabilities and better position itself competitively, the Aetna organization
has decided to establish a single stand-alone investment management
subsidiary to focus its advisory activities. As part of this strategic
initiative, Aetna will combine its investment management operations ($22
billion of assets under management) with another Aetna affiliate, Aeltus
Investment Management, Inc. ("Aeltus") which currently manages approximately
$11 billion of total assets primarily for pension account clients. The
combined entity will be called Aeltus, and it is proposed that Aeltus be
appointed as sub-advisor to your Fund. This business structure is used by a
number of investment providers in today's marketplace.
<PAGE>
Aeltus will bring to the combined entity more depth of personnel,
additional effective styles of investment management and enhanced research
and quantitative modeling capability. Further, through the combined larger
entity, your Fund will benefit from such things as an enhanced ability to
execute securities transactions.
The Trustees have carefully considered this combination of Aetna and
Aeltus investment management operations and unanimously recommend that you
approve the sub-advisory agreement with Aeltus. The Trustees believe that the
establishment of a focused, stand-alone investment management entity is in
the best long-term interest of your Fund.
Your participation in this process is very important. If your contract is
held in Aetna's Separate Account D, Aetna has no authority to vote shares
attributable to your contract. Therefore, if Aetna does not receive any
instructions from you, Aetna will abstain from voting these shares. If you
cannot attend the meeting, you can vote by filing out the enclosed
authorization card in the postage prepaid envelop provided. Please complete,
sign, and return the enclosed card so that your shares will be represented.
If you later decide to attend the meeting, you may revoke your proxy at that
time and vote your shares in person.
If you have any questions related to the Special Meeting and/or this proxy
statement, please call us at 1-800-632-2386.
Sincerely,
/s/ Shaun P. Mathews
Shaun P. Mathews
President
May 8, 1996
<PAGE>
NOTICE OF SPECIAL MEETING
of the Shareholders of
AETNA VARIABLE FUND
A Special Meeting of the Shareholders of Aetna Variable Fund (the "Fund")
will be held on June 17, 1996, at 9:00 a.m., Eastern time, at 151 Farmington
Avenue, Hartford, Connecticut 06156-8962 for the following purposes:
1. to elect nine Trustees to serve until their successors are elected and
qualified;
2. to approve or disapprove a Subadvisory Agreement among the Fund, Aetna
Life Insurance and Annuity Company ("Aetna"), and its affiliate, Aeltus
Investment Management, Inc.;
3. to approve or disapprove a new Investment Advisory Agreement between
the Fund and Aetna, the Fund's current investment adviser;
4. to approve or disapprove an amendment to the Fund's Declaration of
Trust to modify the Fund's liability and indemnification provisions;
and
5. to transact such other business as may properly come before the meeting
and any adjournments thereof.
Shareholders of record at the close of business on April 30, 1996 are
entitled to notice of and to vote at the meeting.
/s/ Susan E. Bryant
Susan E. Bryant
Secretary
May 8, 1996
<PAGE>
PROXY STATEMENT
May 8, 1996
This Proxy Statement is given to you to provide information you should
review before voting on the matters listed on the Notice of Special Meeting
on the previous page. Your vote is being solicited by the Board of Trustees
(the "Trustees") of Aetna Variable Fund (the "Fund") for a special meeting of
shareholders to be held on June 17, 1996, and, if the meeting is adjourned,
at any adjournment of that meeting, for the purposes listed on the Notice.
This Statement describes the matters that will be voted on at the meeting.
The solicitation of votes is made by the mailing of this Statement and the
accompanying Proxy or authorization card on or about May 8, 1996. Aetna Life
Insurance and Annuity Company ("Aetna") and its affiliates may contact
contract holders and their representatives directly commencing in March 1996
to discuss the proposals described in this Statement. The expenses in
connection with preparing this Statement and its enclosures and of all
solicitations will be paid by Aetna, the Fund's investment adviser.
A copy of the Fund's Annual Report for the fiscal year ended December 31,
1995, was mailed to shareholders on or about February 29, 1996. The Annual
Report is available upon request, without charge, to anyone entitled to vote.
If you did not receive an Annual Report, you may request one by writing to
Wayne Baltzer, c/o Aetna, RT2A, 151 Farmington Avenue, Hartford, Connecticut,
06156-8962, or by calling 1-800-632-2386.
Shareholders of record on April 30, 1996, the record date, are entitled to
be present and to vote at the meeting or any adjourned meeting. As of the
record date, Aetna, its subsidiary, Aetna Insurance Company of America
("Aetna Insurance"), and Aetna's affiliate, Aetna Life Insurance Company
("Aetna Life") (collectively, "Aetna and its affiliates") were the record
shareholders of 193,806,431.715 shares (99.57% of the outstanding shares) of
the Fund. These shares were owned by Aetna and its affiliates as depositors
for their respective variable annuity contracts or variable life insurance
policies (the "Contracts") issued to you or to a group of which you are a
part. Under the terms of the Contracts you have the right to instruct Aetna
how to vote the shares related to your interest through your Contract. The
remaining 834,184.594 shares (0.43%) of the Fund are held directly by
shareholders who are not affiliated with Aetna. This Statement is used to
solicit instructions for voting shares as well as for soliciting proxies from
individual shareholders in the Fund. All persons entitled to direct the
voting of shares, whether or not they are shareholders will be described as
voting for purposes of this Statement.
The shares held by Aetna and its affiliates are held on behalf of the
following Separate Accounts which hold assets for the Contracts:
Aetna Variable Annuity Account B 20,047,374.943 shares (10.30%)
Aetna Variable Annuity Account C 137,117,957.543 shares (70.45%)
Aetna Variable Annuity Account D 31,308,592.205 shares (16.08%)
Aetna Variable Life Account B 2,474,986.110 shares (1.27%)
Aetna Insurance Variable Annuity Account I 14,663.120 shares (0.01%)
Aetna Life Account 83 2,842,857.794 shares (1.46%)
Aetna and its affiliates will vote the shares of the Fund held in their
names as directed. The group Contract holder of some group Contracts has the
right to direct the vote for all shares under the Contract, for, against or
abstaining, in the same proportions as shares for which instructions have
been given under the same Contract. If Aetna does not receive voting
instructions for all of the shares held under Contracts, Aetna and Aetna
Insurance will vote all the shares in all the listed Accounts, except Account
D, for, against or abstaining, in the same proportions as the shares for
which they have received instructions. Aetna and Aetna Life will only vote
shares of the Fund held through Aetna's Variable Annuity Account D or Aetna
Life Account 83 for which they receive instructions and they will not vote
shares for which no instructions are received.
<PAGE>
All shares voted at the meeting will be counted as present at the meeting
whether they vote for, against or abstain on the Proposals. More than 50% of
the total outstanding shares of the Fund must be present at the meeting to
have a quorum to conduct business. Proposal 2 (Approval of a Subadvisory
Agreement) and Proposal 3 (Approval of a new Investment Advisory Agreement)
require the vote of a "majority of the outstanding voting securities" of the
Fund to be approved. The remaining proposals can be approved by the vote of a
simple majority of shares present at the meeting. A "majority of the
outstanding voting securities" of the Fund means 67% of the shares of the
Fund present at the meeting, assuming a majority of the shares are present;
or, more than 50% of all the outstanding voting securities of the Fund, if
less. A vote to abstain is effectively a negative vote since the proposals
require an affirmative vote to be approved.
In the event that a quorum of shareholders is not represented at the
meeting, the meeting may be adjourned until a quorum exists, or, even if a
quorum is represented, the meeting may be adjourned until sufficient votes to
approve any of the proposals are received. The persons named as proxies may
propose and vote for one or more adjournments of the meeting. Adjourned
meetings must be held within a reasonable time after the date originally set
for the meeting (but not more than 6 months after the date of this
Statement). Solicitation of votes may continue to be made without any
obligation to provide any additional notice of the adjournment. The persons
named as proxies will vote shares in favor of an adjournment at their
discretion whether instructions for those shares are to vote for, against or
to abstain from voting on any of the proposals to be considered at the
meeting.
The number of shares that you may vote are shown on the authorization card
accompanying this Statement. If you own shares through a Contract, the number
of shares which you are entitled to vote is calculated according to the
formula described in the materials relating to your Contract. Votes may be
revoked by written notice to Aetna prior to the meeting or by attending the
meeting in person and indicating that you want to vote your shares.
The duly appointed proxies or authorized persons may, at their discretion,
vote upon any other matters that are raised at the meeting or any
adjournments. Additional matters would only include matters that were not
expected at the date of this Statement.
MATTERS TO BE ACTED UPON
PROPOSAL 1
ELECTION OF TRUSTEES
The persons listed in the table below are nominated to serve as Trustees
of the Fund until their successors are elected and qualified. The Nominees
consent to being named in this proposal. The Nominees currently serve as
Trustees and will continue to serve if reelected by the shareholders. Once
elected, the Trustees continue to serve indefinitely.
<TABLE>
<CAPTION>
Principal Occupation,
Name, Age and Employment or Public
Position Directorships During First Became
with the Fund Last Five Years a Trustee
- -------------------- ----------------------------------------------------- ------------
<S> <C> <C>
Morton Ehrlich* Chairman and Chief Executive Officer, Integrated 1988
61 years of age Management Corp. and Universal Research Technologies
Trustee (since January 1992); President, LIFECO Travel
Services Corp. (from October 1988 to December 1991).
Maria T. Fighetti* Attorney, New York City Department of Mental Health 1994
52 years of age (since 1973).
Trustee
2
<PAGE>
Principal Occupation,
Name, Age and Employment or Public
Position Directorships During First Became
with the Fund Last Five Years a Trustee
- -------------------- ----------------------------------------------------- ------------
David L. Grove* Private Investor, Economic/Financial Consultant 1984
77 years of age (since December 1988).
Trustee
Timothy A. Holt Director, Senior Vice President and Chief Financial 1996
43 years of age Officer, Aetna (since February 1996); Vice President,
Trustee Portfolio Management/Investment Group, Aetna Life and
Casualty Company (from August 1992 to February 1996);
Vice President-Finance and Treasurer, Aetna Life and
Casualty Company (from August 1989 through July
1991).
Daniel P. Kearney Chairman (since February 1996), Director (since March 1994
56 years of age 1991) and President (since March 1994), Aetna;
Trustee Executive Vice President (since December 1993), and
Group Executive, Investment Division (from February
1991 to December 1993), Aetna Life and Casualty
Company.
Sidney Koch* Senior Adviser, Hambro America, Inc. (since January 1994
60 years of age 1993); Senior Adviser, Daiwa Securities America, Inc.
Trustee (from 1991 to January 1993); Executive Vice
President, Daiwa Securities America, Inc. (from 1986
to January 1991).
Shaun P. Mathews Vice President and Director, Aetna (since March 1991
40 years of age 1991); Assistant Vice President, Aetna Life and
Trustee and Casualty Company (from July 1989 to March 1991).
President
Corine T. Norgaard** Dean, School of Management, State University at New 1984
58 years of age York (Binghamton) (since August 1993); Professor,
Trustee accounting, University of Connecticut (from September
1969 to June 1993); Director, The Advest Group, Inc.
(holding company for brokerage firm) (since August
1983).
Richard G. Scheide* Private banking consultant (since July 1992); 1992
66 years of age Consultant, Fleet Bank (from July 1991 to July 1992);
Trustee Executive Vice President and Manager, Trust and
Private Banking, Bank of New England, N.A. and Bank
of New England Company (from June 1976 to July 1991).
</TABLE>
* These Trustees (the "Independent Trustees") are not interested persons as
defined by the Investment Company
3
<PAGE>
Act of 1940 ("1940 Act") and the related rules of the Securities and
Exchange Commission ("Commission").
** Dr. Norgaard is a director of a holding company that has as a subsidiary a
broker-dealer that sells Contracts for Aetna. The Fund is offered as an
investment option under the Contracts. Her position as a director of the
holding company may cause her to be an "interested person" for purposes of
the 1940 Act.
The business address of each Nominee is 151 Farmington Avenue, Hartford,
Connecticut 06156. The Fund held four meetings during 1995 all of which were
in person. Mr. Kearney was unable to attend any of the board meetings in
1995. All other Trustees attended all meetings.
Each Nominee is currently a director or trustee of each of the following
management investment companies managed by Aetna: Aetna Series Fund, Inc.,
Aetna Income Shares; Aetna Variable Encore Fund; Aetna Investment Advisers
Fund, Inc.; Aetna Generation Portfolios, Inc.; and Aetna GET Fund
(collectively with the Fund, the "Fund Complex").
As of April 30, 1996, Trustees and officers of the Fund beneficially owned
less than 1% of the Fund's outstanding shares.
Remuneration of Officers and Trustees
None of the Fund's officers nor any Trustees who are employees of Aetna
are entitled to any compensation from the Fund. During 1995, the following
Trustees earned the following for their services as Trustees to the Fund and
the Fund Complex:
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From Fund
Compensation Complex
From Fund Paid to Trustees
---------- ----------------
<S> <C> <C>
Morton Ehrlich $ 17,464 $ 46,000
Maria T. Fighetti $ 17,464 $ 46,000
David L. Grove* $ 17,464 $ 46,500
Sidney Koch $ 17,464 $ 47,000
Corine T. Norgaard $ 19,486 $ 51,000
Richard G. Scheide $ 17,464 $ 46,500
---------- ----------------
Total $106,806 $283,000
========== ================
</TABLE>
* Mr. Grove elected to defer all compensation.
Committees
The Trustees have standing Audit, Contract Review and Pricing Committees.
The Contract Review and Audit Committees include all the Trustees who are not
employees of Aetna. Dr. Norgaard is the Chairperson of the Audit Committee
and Mr. Koch is the Chairperson of the Contract Review Committee. The Audit
Committee reviews the relationship between the Fund and its independent
public accountants. The Contract Review Committee reviews the Fund's
investment advisory, subadvisory and administrative services contracts at
least annually in connection with considering the continuation of those
contracts. That Committee also meets any time there is a proposal to amend
any of those agreements. The Fund's Pricing Committee consists of Mr. Mathews
(Chairperson), Mr. Koch, Dr. Norgaard, and Mr. Scheide. The Pricing Committee
is responsible for acting upon and approving the Fund's net asset value at
times of market disruption or in any situation where the range of possible
valuations of individual securities could cause the net asset value of the
Fund's shares to vary materially. In 1995, the Audit Committee met two times,
the Contract Review Committee met two times, and the Pricing Committee met
once. All members
4
<PAGE>
of these committees attended all the committee meetings. The Board of
Trustees does not have a standing nominating committee for the Fund nor a
standing compensation committee.
PROPOSAL 2
APPROVAL OF A SUBADVISORY AGREEMENT
The Independent Trustees have unanimously approved, and recommend that the
shareholders of the Fund approve, a subadvisory agreement (the "Subadvisory
Agreement") among the Fund, Aetna, and Aetna's affiliate, Aeltus Investment
Management, Inc. ("Aeltus"). A copy of the Subadvisory Agreement is included
with this Statement as Exhibit A.
Why is Aetna proposing a Subadvisory arrangement?
As part of a strategic review of its investment operations, the Aetna
organization performed an in-depth analysis of various organizational
structures. It has concluded that it should combine its investment advisory
businesses into a single stand-alone investment management subsidiary. From
an operating perspective, this is intended primarily as a corporate
restructuring. To accomplish this goal, Aetna would combine its investment
management operations with those of Aetna's affiliate, Aeltus. The combined
entity would be a separate corporate entity managing over $33 billion in
assets and would operate under the name Aeltus. This type of business
structure is used by a number of investment providers in today's marketplace
and is consistent with maintaining a focused, well-qualified and fully
integrated investment capability. Complementing the significant investments
and enhancements Aetna has made to its advisory capabilities over the last
two years, Aeltus would add more depth of personnel, different styles of
investment management and additional research and quantitative modeling
capability. Your Fund would benefit from this larger investment advisory
entity in such ways as more efficient execution of securities transactions.
What is being proposed?
To accomplish the combination, the investment personnel and staff of Aetna
would be transferred to Aeltus. Aetna and the Fund would enter into a
subadvisory agreement with Aeltus to provide the investment management
services to your Fund. Although Aeltus is already a part of the Aetna
organization, the 1940 Act requires that the shareholders of the Fund approve
the Subadvisory Agreement. Under the proposed Subadvisory Agreement, Aeltus
would be responsible for deciding which securities to buy, which to sell and
which to keep for the Fund. It would also be placing trades for those
securities with third party broker-dealers and, to the extent directed by
Aetna, would be handling the back office administrative functions related to
those activities. It is expected that those activities would include
determining the value of the Fund's net assets on a daily basis and
preparing, and providing to Aetna, such other reports, data and information
as Aetna or the Trustees request from time to time. In connection with the
management of the Fund's portfolio, Aeltus would be responsible for assuring
that the assets acquired for the Fund are in compliance with the Fund's
objectives and policies.
Aetna would bear the ultimate responsibility for overseeing the investment
advice provided to the Fund. It would monitor Aeltus' activities to ensure
that Aeltus is following regulatory and Board policies, restrictions and
guidelines in managing the Fund's assets. Aetna would be responsible for
reporting to the Trustees on a regular basis and assuring that Aeltus
maintains an adequate compliance program. The many years of experience Aetna
has in managing assets for mutual funds and for its own portfolio will enable
it to monitor Aeltus' activities to the advantage of the Fund's shareholders.
Who is Aeltus?
Aeltus is a Connecticut corporation organized in 1972 under the name Aetna
Capital Management, Inc. It currently has its principal offices at 242
Trumbull St., Hartford, Connecticut. Aeltus is a part of the Aetna
organization, and is a wholly-owned subsidiary of Aetna Retirement Holdings,
Inc. which is also the parent of Aetna
5
<PAGE>
and which is a wholly-owned subsidiary of Aetna Retirement Services, Inc.
Aetna Retirement Services Inc. is a wholly-owned subsidiary of Aetna Life and
Casualty Company, a financial services company with stock listed for trading
on the New York Stock Exchange. John Y. Kim currently serves as the
President, Chief Executive Officer and Chief Investment Officer of Aeltus.
Aeltus is registered with the Commission as an investment adviser.
What are the material terms of the proposed Subadvisory Agreement between
Aetna and Aeltus?
The Subadvisory Agreement gives Aeltus broad latitude in selecting
securities for the Fund subject to Aetna's oversight. The Agreement also
allows Aeltus to place trades through brokers of its choosing and to take
into consideration the quality of the brokers' services and execution, as
well as services such as research and providing equipment or paying Fund
expenses, in setting the amount of commissions paid to a broker. The use of
research and expense reimbursements in determining and paying commissions is
referred to as "soft dollar" practices. Aeltus will only use soft dollars for
services and expenses to the extent Aetna is authorized to do so under the
Investment Advisory Agreement, but only as authorized by applicable law and
the rules and regulations of the Commission.
The Subadvisory Agreement requires Aeltus to reduce its fee if Aetna is
required to reduce its fee under the Investment Advisory Agreement. Aetna has
agreed to reduce its fee or reimburse the Fund if the expenses borne by the
Fund would exceed the expense limitations of any jurisdiction in which the
Fund's shares are qualified for sale. Aetna would not be obligated to
reimburse the Fund for any expenses which exceed the amount of its advisory
fee for that year. The Subadvisory Agreement obligates Aeltus to reduce its
fee by 60% of the amount of Aetna's fee reduction.
The Subadvisory Agreement provides that, if approved, it will be effective
August 1, 1996 or, if the meeting is adjourned, on the first day of the next
month following the date on which shareholders approve the Subadvisory
Agreement. It will continue in effect until December 31, 1997 and thereafter
from year to year if approved by the Trustees, including a majority of the
Independent Trustees. The Subadvisory Agreement will terminate automatically
if the Investment Advisory Agreement terminates or if there is a change in
control of Aeltus. It can be terminated by Aeltus, Aetna or the Fund on 60
days' notice. If the Subadvisory Agreement terminates, the Fund's investment
adviser would automatically assume all management functions for the Fund. The
Subadviser can be held liable to the Adviser and the Fund for negligence, bad
faith, willful malfeasance or reckless disregard of its obligations or duties
under the Subadvisory Agreement.
What will the Subadvisory Agreement cost the Fund?
The Subadvisory Agreement provides that Aetna will pay Aeltus a fee at an
annual rate up to 0.30% of the average daily net assets of the Fund. Aetna
believes this compensation is fair and reasonable for the services being
provided by Aeltus. This fee is not charged back to, or paid by, the Fund; it
is paid by Aetna out of its own resources, including fees and charges it
receives from or in connection with the Fund.
What is the Board of Trustees' recommendation?
The Board of Trustees unanimously recommends voting FOR approval of the
Subadvisory Agreement.
What factors did the Board of Trustees consider in reaching its
recommendation?
The Trustees considered the proposed Subadvisory Agreement at meetings
held on December 12, 1995, and February 28, 1996. Moreover, the Contract
Review Committee of the Board of Trustees, consisting solely of the Trustees
who are not employees of Aetna, considered the Subadvisory Agreement at
meetings held on December 11, 1995, February 6, 1996, and February 27, 1996.
At all such meetings, the Trustees were advised throughout by Messrs. Goodwin
Procter & Hoar, their own independent counsel.
6
<PAGE>
The Trustees' recommendation was based on their conclusion that approval
of the Subadvisory Agreement would mean that the shareholders of the Fund
would receive the benefits of the talents of both Aetna and Aeltus working
for the Fund.
What happens if the Subadvisory Agreement is not approved?
If the Subadvisory Agreement is not approved, Aetna would continue as
investment adviser to the Fund and would retain access to all of its current
investment advisory capabilities.
PROPOSAL 3
APPROVAL OF A NEW
INVESTMENT ADVISORY AGREEMENT
The Independent Trustees have unanimously approved a new Investment
Advisory Agreement (the "Advisory Agreement") between the Fund and Aetna as
its investment adviser and recommend that you vote FOR this Proposal.
What is being proposed?
As part of its comprehensive, strategic review of its investment
management operations and products, during the past several years, Aetna has
been reviewing its various agreements and arrangements for providing services
to, and managing, the funds it advises. Based on this review, Aetna proposed
and the Trustees approved a new Administrative Services Agreement for the
Fund which, as discussed below, became effective May 1, 1996, and it has
proposed a restructuring of its investment advisory operations as described
in Proposal 2. Aetna is also proposing to enter into a new Investment
Advisory Agreement with the Fund providing an increase in the annual fee from
0.25% to 0.50% of average daily net assets as more fully discussed below. The
Trustees of the Fund are unanimously recommending approval of the new
Investment Advisory Agreement for the reasons identified below.
What are the primary differences between the existing Investment Advisory
Agreement and the proposed Investment Advisory Agreement?
The proposed Advisory Agreement has been updated in several respects. The
language has been simplified where possible; the liability provisions make it
clear that Aetna is liable to the Fund for Aetna's negligence; it provides a
new fee schedule for Aetna; and it expands Aetna's ability to use brokerage
commissions to pay Fund expenses to the extent allowed by current law. A copy
of the proposed Advisory Agreement is included with this Statement as Exhibit
B and the existing agreement is included as Exhibit C.
Under both the existing and proposed investment advisory agreements, Aetna
is obligated to manage and oversee the Fund's day to day operations and to
manage its investment portfolio, whether directly or as discussed in Proposal
2 under a Subadvisory Agreement with Aeltus.
What are the other significant provisions of the Advisory Agreement?
The Advisory Agreement gives Aetna broad latitude in selecting securities
for the Fund subject to the Trustees' oversight. Under the Advisory
Agreement, Aetna may delegate to a subadviser its functions in managing the
Fund's investment portfolio, subject to Aetna's oversight. See Proposal 2.
The Advisory Agreement allows Aetna to place trades through brokers of its
choosing and to take into consideration the quality of the brokers' services
and execution, as well as services such as research, providing equipment to
the Fund, or paying Fund expenses, in setting the amount of commissions paid
to a broker. Aetna will only use these commissions for services and expenses
to the extent authorized by applicable law and the rules and regulations of
the Commission.
Under the Advisory Agreement, Aetna has agreed to reduce its fee or
reimburse the Fund if the expenses borne by the Fund would exceed the expense
limitations of any jurisdiction in which the Fund's shares are qualified for
7
<PAGE>
sale. Aetna would not be obligated to reimburse the Fund for any expenses
which exceed the amount of its advisory fee for that year. The Advisory
Agreement also provides that Aetna would be responsible for all of its own
costs including costs of Aetna personnel required to carry out its investment
advisory duties.
The Advisory Agreement provides that if approved it will be effective
August 1, 1996, or, if the meeting is adjourned, on the first day of the next
month following the date on which the shareholders approve the Advisory
Agreement. It will continue in effect until December 31, 1997 and thereafter
from year to year if approved by the Trustees, including a majority of the
Independent Trustees. The Advisory Agreement will terminate automatically if
there is a change in control of Aetna. It can be terminated by the Trustees,
the shareholders or Aetna on 60 days' notice.
All of these provisions are the same as in the existing investment
advisory agreement which has been in effect since April 1994 when it was last
submitted to shareholders. The 1994 changes involved clarifying Aetna's
responsibilities and its ability to appoint a subadviser, described Aetna's
arrangements with broker-dealers and clarified the allocation of expenses to
each party. Subsequent to the 1994 changes, the existing agreement has been
considered and continued by the Trustees annually.
Who is Aetna?
Aetna is a Connecticut corporation, licensed as an insurance company in
all 50 states. Through its predecessors, Aetna has been offering variable
products and annuities to the public since the 1950's. It currently manages
approximately $22 billion in assets. Aetna is a wholly-owned subsidiary of
Aetna Retirement Holdings, Inc., which is in turn, a wholly-owned subsidiary
of Aetna Retirement Services, Inc., and an indirect wholly-owned subsidiary
of Aetna Life and Casualty Company. Aetna is registered with the Commission
as an investment adviser and a broker-dealer. Aetna serves as the underwriter
for the Fund's shares. The principal offices of Aetna and its parents are
located at 151 Farmington Avenue, Hartford, Connecticut, 06156-8962.
Why has Aetna requested a change in its fees?
The advisory fee currently paid to Aetna under the existing investment
advisory agreement is determined at an annual rate of 0.25% of average daily
net assets. This fee was set in 1974 and has never been changed. During 1995,
Aetna received $12,573,737 for its services in managing the Fund which had
assets as of December 31, 1995 of over $5.6 billion. The fee was set at a
time when the Fund was being sold primarily through group variable Contracts
and, after 1982, exclusively through variable Contracts. Until recently,
Aetna, like most other providers of variable products, used its own mutual
funds as the investment options under the Contracts. As a result, Aetna took
all its costs and charges for the entire product into consideration in
determining its profits on its Contracts and did not evaluate the
profitability of the Fund as a separate product. Recently, variable products
have exploded in popularity and growth and many noninsurance companies have
developed funds to be sold through Contracts issued by unaffiliated insurance
companies. To remain competitive, during the past five years, Aetna expanded
the funds it offered under its Contracts from almost exclusively its own
funds, to its own plus a large number of funds offered by unaffiliated third
parties.
These developments caused Aetna to evaluate separately the profitability
and viability of each Contract it offers and each fund it advises. According
to data prepared by Lipper Analytical Services, Inc. ("Lipper") as of
December 31, 1994, the annual fee currently being paid to Aetna by the Fund
was the lowest fee paid by any of the 44 growth and income funds sold through
variable Contracts analyzed by Lipper. Data provided by Lipper also showed
that for the same period, the Fund's total expenses (annual advisory fee plus
other Fund expenses) was also the lowest of those 44 growth and income funds.
The fees charged to advise the Fund were also very low when compared to
the fees Aetna charges for managing its mutual funds offered directly to the
public. The Aetna Growth and Income Fund, a fund managed almost
8
<PAGE>
identically to the Fund, with net assets of approximately $359,019,749 as of
October 31, 1995, paid Aetna a fee at an annual rate of 0.69% of average
daily net assets for the year ended October 31, 1995. That fee is based on
the following schedule of annual rates of average daily net assets:
0.70% on the first $250 million
0.65% on the next $250 million
0.625% on next $250 million
0.60% on next $1.25 billion
0.55% over $2 billion
These fees are significantly greater than the annual rate of 0.25% Aetna
currently receives for managing the Fund.
As discussed above, Aetna has been charging the same fee for managing the
Fund since 1974 when the Fund first started operations. Since that time, but
more noticeably in the last few years, the financial markets have become
increasingly complex and the need for high quality personnel, research and
equipment has increased proportionately. With the recent growth in the mutual
fund industry, such resources have become more expensive and harder to
retain.
During the past two years, Aetna has: (i) hired a number of
highly-qualified and experienced investment professionals, attracting them in
part by replacing its existing compensation structure with a competitive
compensation program designed to attract and retain such personnel; (ii)
instituted the use of quantitative research and analytical tools and
techniques to augment its traditional securities selection processes for the
purpose of improving performance of the portfolios it manages, including that
of the Fund; and (iii) upgraded its information and reporting systems to
increase the volume of data gathered, the speed at which such data are
collected, and its ability to analyze and report on such data.
Aetna believes that these trends in the financial markets will continue;
therefore, the proposed advisory fees are critical to retaining the resources
it has added and are necessary for Aetna to continue providing high quality
management to the Fund in an increasingly competitive and dynamic environment
whether through Aetna directly or through Aeltus as discussed in Proposal 2.
Aetna believes enhancements are integral to its goal of improving performance
and reducing volatility for the investment portfolios that it manages,
including that of the Fund, and for the Fund to remain competitive in its
markets.
Aetna believes that the proposed advisory fee at an annual rate of 0.50%
of average daily net assets is competitive with fees charged by comparable
advisers for managing similar funds. If the new Advisory Agreement had been
in effect for 1995, the Fund would have paid an advisory fee of $25,055,386.
Although this represents a 100% increase over the amount it paid during 1995,
based on the data provided by Lipper, the proposed fee would still have been
lower than the average annual fee of 0.58% of average daily net assets
charged by the 44 growth and income funds analyzed by Lipper.
What other fees or charges are paid by the Fund?
Aetna has been receiving reimbursement by the Fund for its administrative
costs incurred in managing the Fund under an Administrative Services
Agreement with the Fund effective through April 1996. The Administrative
Services Agreement provides for the reimbursement of a share of Aetna's
overhead related to managing the Fund. In addition, Aetna has been paying,
and the Fund has been reimbursing Aetna for, the Fund's ordinary recurring
expenses such as legal fees, Trustees' fees, custodial fees and insurance
premiums. Under these arrangements, in 1995, the Fund paid a total of
$2,202,944 (an annual rate of 0.044% of average daily net assets) to Aetna
for reimbursements of its costs in performing administrative services and for
the Fund's other ordinary recurring expenses.
9
<PAGE>
As mentioned above, the Trustees approved a change to the Administrative
Services Agreement that fix these charges so they no longer vary. This
arrangement was adopted so that the Fund would be able to fix the amount of
its costs and expenses. The new Administrative Services Agreement with the
Fund provides for a fixed fee at an annual rate of 0.06% of average daily net
assets. The 0.06% fee is intended to approximate actual costs incurred during
the past three years which averaged 0.047%, and also to take into
consideration the fact that Aetna assumes all risks that its costs and the
Fund's expenses may increase.
The following table and example summarize the effect of the proposed
advisory fee on Fund expenses.
COMPARATIVE FEE TABLE
<TABLE>
<CAPTION>
Average
Annual Fees
Charged by
Annual Fund Operating Expenses (as a Fees as of Proposed Fee Other Funds
percentage of average daily net assets) 5/1/96** for 8/1/96 12/31/94*
--------------------------------------------- ---------- ------------ -----------
<S> <C> <C> <C>
Management Fee 0.25% 0.50% 0.58%
Administrative Costs and other Expenses 0.06% 0.06% 0.19%
Total Fund Operating Expenses 0.31% 0.56% 0.77%
</TABLE>
* Per Lipper Analytical Services, Inc. and before waivers or expense
reimbursements. As shown in the above table, the total fees and expenses
proposed by Aetna of 0.56% of average daily net assets would be
significantly less than the average of 0.77% charged by the 44 funds
analyzed by Lipper.
** The administrative fee was changed by the Board of Trustees effective May
1, 1996.
Example:
The following chart shows the expenses that you would pay on a $1,000
investment under the existing and proposed fees and expenses described above,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Fees and Expenses as of 5/1/96 $3 $10 $17 $39
Proposed Fees and Expenses $6 $18 $31 $70
</TABLE>
The purpose of the above table and example is to assist shareholders in
understanding the effects of the proposed fee on the fees and expenses
charged to the Fund. The Fund is only available through a variable annuity
contract or variable life policy. The above table and example do not reflect
separate account and other Contract or policy charges and expenses, including
sales loads. The example above should not be considered a representation of
past or future expenses or returns of the Fund. Actual expenses and returns
may vary from year to year and may be higher or lower than those shown above.
What is the proposed change to the liability and indemnification provisions?
The existing advisory agreement provides that Aetna is liable to the Fund,
and the Fund is entitled to be indemnified by Aetna if the Fund suffers a
loss or incurs a liability as a result of Aetna's bad faith, gross negligence
or willful or reckless misconduct. The Trustees recommend that this provision
be revised so that the standard is changed from "gross negligence" to simply
"negligence." This change would mean that Aetna would be held accountable for
all its acts of negligence that hurt the Fund, not just its acts of "gross"
negligence. The overall effect of the liability and indemnification provision
of the Advisory Agreement would be to provide the Fund with greater
protection.
10
<PAGE>
What is the change in the use of brokerage commissions for the Fund?
The existing agreement allows the investment adviser to take into
consideration research and related services provided by a broker to the
adviser in paying commissions to a broker for the Fund's portfolio
transactions. The Trustees recommend that the investment adviser also should
be allowed to take into consideration Fund expenses actually paid by the
broker on behalf of the Fund where it is allowed by current law. The
investment adviser of the Fund is required to place trades for the Fund's
securities with brokers who provide "best execution." This does not always
mean the lowest commission if the broker provides research or other related
services to the adviser. Recent developments have indicated that the
Commission will also allow an adviser to place trades with a broker, and to
take into consideration in the commissions, actual expenses paid by the
broker for the Fund. This can only be done in compliance with certain
reporting rules and only with respect to expenses that directly benefit the
Fund paying the commissions. The proposed Advisory Agreement would allow such
transactions subject to applicable laws.
What is the Board of Trustees' recommendation?
The Board of Trustees unanimously recommends voting FOR approval of the
Advisory Agreement.
What factors did the Board of Trustees consider in reaching its
recommendation?
The Trustees considered the proposed Advisory Agreement at meetings held
on December 12, 1995, and February 28, 1996. The Contract Review Committee of
the Board of Trustees, consisting solely of Trustees who are not employees of
Aetna, considered the Advisory Agreement at meetings held on December 11,
1995, February 6, 1996 and February 27, 1996. At all such meetings, these
Trustees were advised throughout by Messrs. Goodwin Procter & Hoar, their own
independent counsel.
The Trustees' approval of the new Advisory Agreement with an increased fee
was based on the following factors, all of which they considered material and
which are listed in the order of their importance, with the most important
factor listed first:
1. The new fee will provide Aetna with the essential financial resources
it needs to compete effectively in the increasingly complex and
competitive financial markets.
2. The Trustees believe that Aetna should receive a fair, competitive fee
in order to provide it with adequate resources to produce and provide
competitive, high quality services on behalf of the Fund; yet, its
existing fee has been in effect since 1974 and is the lowest fee among
the Fund's 44 member competitive peer group analyzed by Lipper.
3. The new fee would compensate Aetna for costly enhancements it is
currently maintaining and which have been made over the past two years
with regard to investment, administrative, operational and shareholder
services. These enhancements include: (i) the hiring of a number of
highly qualified and experienced investment professionals, (ii)
replacing its former compensation system with a more competitive system
designed to attract and retain such highly qualified personnel, (iii)
instituting the use of quantitative research and analytical tools and
techniques, and (iv) upgrading its information and reporting systems.
4. The new fee would reflect the benefits to be derived from the
combination of Aetna's and Aeltus' investment management capabilities.
In the course of its deliberations, the Trustees asked for and received
extensive data concerning, among other things, (i) the nature, quality and
scope of services that Aeltus, after combining with Aetna, would provide,
(ii) Aetna's profitability, (iii) Aetna's financial condition, (iv) the
expense ratios of the Fund both before and after the proposed
11
<PAGE>
fee increase and as compared with the Fund's competitive peer groups, and (v)
the level of Aetna's current fee in general and as compared to its
competitive peer group.
What would happen if the Advisory Agreement is not approved?
If the Advisory Agreement is not approved by the Fund's shareholders, the
existing agreement will continue in effect. Although Aetna expects that it
would proceed with the Subadvisory Agreement with Aeltus, (if it is approved)
it would have fewer resources available, to manage your Fund effectively in
the future.
PROPOSAL 4
APPROVAL OF AN AMENDMENT
TO THE DECLARATION OF TRUST
The Trustees have approved, and recommend that the shareholders of the
Fund approve, deleting and restating Articles 5.2 and 5.3 of the Fund's
Declaration of Trust.
What is the purpose of the proposed changes?
The provisions being amended relate to the liability of Trustees to the
Fund and the indemnification by the Fund of Trustees and officers for
liabilities incurred while acting as Trustees or officers of the Fund. The
primary purpose of the proposed amendment is to allow the Fund to advance
costs to a Trustee if that Trustee is named in an action for which the Fund
would ultimately be obligated to indemnify the Trustee without the Trustee
being required to post collateral. The advancement of costs would be made
only if: (i) the Trustee provides security for the costs advanced; or (ii)
the Fund is insured against losses arising from unlawful advances; or (iii) a
majority of a quorum of the Independent Trustees who are not parties
determines, or a written opinion of independent legal counsel provides, that
based upon a review of the readily available facts, there is reason to
believe the Trustee ultimately will be entitled to indemnification. This
provision would allow a Fund to provide a Trustee with the resources the
Trustee would need to afford an adequate defense if the Trustee is named in
litigation related to the Trustee's activities in connection with the Fund
without posting collateral. The amounts advanced would have to be repaid if
there is a finding that the Trustee was not entitled to indemnification.
The proposed changes also clarify that under most circumstances Trustees
will not be liable for the wrongdoing of officers, agents, employees and
other service providers to the Fund. The text of the proposed amended
Articles 5.2 and 5.3 are attached as Exhibit D. The existing language is
attached as Exhibit E.
Why is the Board of Trustees recommending approval of the amendment?
The Trustees believe that advancing the costs of Trustees who may be
subject to litigation without the need to post collateral is critical to the
Fund's ability to attract and retain the best qualified individuals to serve
the Fund as Trustees and officers. The proposed amendment complies with the
1940 Act's limitations on indemnification, in that indemnification is not
available in cases of willful misfeasance, gross negligence, bad faith or
reckless disregard of the duties of office. The proposed amendment is also
consistent with interpretive positions taken by the staff of the Commission.
The Trustees and officers of the Fund are not subject to any pending
litigation against any of them arising out of any alleged breach of duty to
the Fund or its shareholders and are not aware of any such threatened claims
or of circumstances that might give rise to a claim. The Trustees acknowledge
that current and future Trustees could benefit from the proposed amendment
and, therefore, the Trustees have a conflict of interest in this matter.
What is the Board of Trustees' recommendation?
The Board of Trustees unanimously recommends voting FOR the proposed
amendment.
12
<PAGE>
If the proposal is approved, the amendment will take effect August 1, 1996
or, if the meeting is adjourned, on the first day of the next month following
the date on which shareholders approve the amendment. If the shareholders of
the Fund do not approve the proposed amendment, the current provisions of the
Declaration of Trust concerning indemnification will continue in effect.
What factors did the Board of Trustees consider in making its recommendation?
The Trustees believe that approval of the proposed amendment allowing
advancement of costs without posting collateral for liabilities of Trustees
and officers and clarifying the scope of indemnification is in the best
interests of the Fund because it will assist the Fund in attracting and
retaining the best qualified people to serve as Trustees and officers of the
Fund.
ADDITIONAL INFORMATION
Officers of the Fund
The principal executive officers of the Fund and his or her age and
principal occupations are set forth below. Officers of the Fund who also
serve as employees of Aetna are also listed below. The term of office of each
executive officer of the Fund is until the next annual meeting of the Fund or
until his or her successor shall have been duly elected and qualified.
<TABLE>
<CAPTION>
Position with the Fund
Name and Age and other Principal Occupations
- ------------------- --------------------------------------------------------
<S> <C>
Shaun P. Mathews President and Trustee of the Fund; see description under
40 years of age "Election of Trustees."
Susan E. Bryant Secretary of the Fund; Counsel to Aetna, March 1993 to
48 years of age Present; General Counsel and Corporate Secretary, First
Investors Corporation, April 1991 to March 1993;
Administrator, Oklahoma Department of Securities, March
1986 to April 1991.
James C. Hamilton Vice President and Treasurer of the Fund; Chief
55 years of age Financial Officer, Aetna Investment Services, Inc.; Vice
President and Actuary, Aetna Life.
Julie E. Rockmore Assistant Secretary of the Fund; Counsel to Aetna.
39 years of age
</TABLE>
Directors and Principal Executive Officer of Aetna
The name, business address and principal occupation of Aetna's principal
executive officer and directors are as follows:
<TABLE>
<CAPTION>
Name and
Business Address Principal Occupations
- ------------------------------ --------------------------------------
<S> <C>
Daniel P. Kearney Chairman, Director and President
151 Farmington Avenue (principal executive officer); see
Hartford, Connecticut 06156 description under "Election of
Directors."
Christopher J. Burns Director and Senior Vice President.
151 Farmington Avenue
Hartford, Connecticut 06156
13
<PAGE>
Name and
Business Address Principal Occupations
- ------------------------------ --------------------------------------
Laura R. Estes Director and Senior Vice President.
151 Farmington Avenue
Hartford, Connecticut 06156
Timothy A. Holt Director and Senior Vice President;
151 Farmington Avenue see description under "Election of
Hartford, Connecticut 06156 Directors."
Gail P. Johnson Director and Vice President.
151 Farmington Avenue
Hartford, Connecticut 06156
John Y. Kim Director and Senior Vice President.
151 Farmington Avenue
Hartford, Connecticut 06156
Shaun P. Mathews Director and Vice President; see
151 Farmington Avenue description under "Election of
Hartford, Connecticut 06156 Directors."
Glen Salow Director and Vice President.
151 Farmington Avenue
Hartford, Connecticut 06156
Creed R. Terry Director and Vice President.
151 Farmington Avenue
Hartford, Connecticut 06156
</TABLE>
OTHER BUSINESS
The management of the Fund knows of no other business to be presented at
the meeting other than the matters set forth in this Statement. If any other
business properly comes before the meeting, the persons designated as proxies
will exercise their best judgment in deciding how to vote on such matters.
SHAREHOLDER PROPOSALS
The Declaration of Trust and the By-Laws of the Fund provide that the Fund
need not hold shareholder meetings, except as required by the 1940 Act (or
Massachusetts law). Therefore, it is probable that no annual meeting of
shareholders will be held in 1996 or in subsequent years until so required.
For those years in which annual shareholder meetings are held, proposals
which shareholders of the Fund intend to present for inclusion in the proxy
materials with respect to the annual meeting of shareholders must be received
by the Fund within a reasonable period of time before the solicitation is
made.
Please complete the enclosed authorization card and return it promptly in
the enclosed self-addressed postage- paid envelope. You may revoke your proxy
at any time prior to the meeting by written notice to the Fund or by
submitting an authorization card bearing a later date.
/s/ Susan E. Bryant
Susan E. Bryant
Secretary
14
<PAGE>
EXHIBIT A
SUBADVISORY AGREEMENT
THIS AGREEMENT is made by and among Aetna Life Insurance and Annuity
Company, a Connecticut insurance corporation (the "Adviser"), Aetna Variable
Fund, a Massachusetts Business Trust (the "Fund") and Aeltus Investment
Management, Inc., a Connecticut corporation (the "Subadviser") as of the date
set forth below.
W I T N E S S E T H
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, as amended (the
"1940 Act"); and
WHEREAS, both the Adviser and the Subadviser are registered with the
Commission as investment advisers under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") and both are in the business of acting as
investment advisers; and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
with the Fund (the "Investment Advisory Agreement") which appoints the
Adviser as the investment adviser for the Fund; and
WHEREAS, Article IV of the Investment Advisory Agreement authorizes the
Adviser to delegate all or a portion of its obligations under the Investment
Advisory Agreement to a subadviser;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement, the Adviser and the
Fund hereby appoint the Subadviser to manage the assets of the Fund as set
forth below in Section II, under the supervision of the Adviser and subject
to the approval and direction of the Fund's Board of Trustees (the "Board").
The Subadviser hereby accepts such appointment and agrees that it shall, for
all purposes herein, undertake such obligations as an independent contractor
and not as an agent of the Adviser. The Subadviser agrees, that except as
required to carry out its duties under this Agreement or otherwise expressly
authorized, it has no authority to act for or represent the Fund in any way.
II. DUTIES OF THE SUBADVISER AND THE ADVISER
A. Duties of the Subadviser
The Subadviser shall regularly provide investment advice with respect to
the assets held by the Fund and shall continuously supervise the investment
and reinvestment of cash, securities and instruments or other property
comprising the assets of the Fund. In carrying out these duties, the
Subadviser shall:
1. 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 Adviser
and, at the request of the Adviser, to the Board;
2. formulate and implement continuing programs for the purchase and sale
of securities and regularly report thereon to the Adviser and, at the
request of the Adviser or the Fund, to the Board;
A-1
<PAGE>
3. 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;
4. provide economic research and securities analyses as requested by the
Adviser from time to time, or as the Adviser considers necessary or
advisable in connection with the Subadviser's performance of its duties
hereunder; and
5. give instructions to the custodian and/or sub-custodian of the Fund
appointed by the Board, as to the deliveries of securities, transfers
of currencies and payments of cash for the Fund, in relation to the
matters contemplated by this Agreement; and
6. provide such financial support, administrative and other services, such
as preparation of financial data, determination of the Fund's net asset
value, preparation of financial and performance reports, as the Adviser
from time to time, deems necessary and appropriate and which the
Subadviser is willing and able to provide.
B. Duties of the Adviser
The Adviser shall retain responsibility for oversight of all activities of
the Subadviser and for monitoring its activities on behalf of the Fund. In
carrying out its obligations under this Agreement and the Investment Advisory
Agreement, the Adviser shall:
1. monitor the investment program maintained by the Subadviser for the
Fund and the Subadviser's compliance program to ensure that the Fund's
assets are invested in compliance with the Subadvisory Agreement and
the Fund's investment objectives and policies as adopted by the Board
and described in the most current effective amendment of the
registration statement for the Fund, as filed with the Commission under
the Securities Act of 1933, as amended (the "1933 Act"), and the 1940
Act ("Registration Statement");
2. review all data and financial reports prepared by the Subadviser to
assure that they are in compliance with applicable requirements and
meet the provisions of applicable laws and regulations;
3. file all periodic reports required to be filed by the Fund with the
applicable regulatory authorities;
4. review and deliver to the Board all financial, performance and other
reports prepared by the Subadviser under the provisions of this
Agreement or as requested by the Adviser;
5. establish and maintain regular communications with the Subadviser to
share information it obtains concerning the effect of developments and
data on the investment program maintained by the Subadviser;
6. maintain contact with and enter into arrangements with the custodian,
transfer agent, auditors, outside counsel, and other third parties
providing services to the Fund;
7. oversee all matters relating to (i) the offer and sale of shares of the
Fund, including promotions, marketing materials, preparation of
prospectuses, filings with the Commission and state securities
regulators, and negotiations with broker-dealers; (ii) shareholder
services, including, confirmations, correspondence and reporting to
shareholders; (iii) all corporate matters on behalf of the Fund,
including monitoring the corporate records of the Fund, maintaining
contact with the Board, preparing for, organizing and attending
meetings of the Board and the Fund's shareholders; (iv) preparation of
proxies when required; and (v) any other matters not expressly
delegated to the Subadviser by this Agreement.
A-2
<PAGE>
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Subadviser
The Subadviser hereby represents and warrants to the Adviser as follows:
1. Due Incorporation and Organization. The Subadviser 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 Subadviser is registered as an investment adviser
with the Commission under the Advisers Act, and is registered or
licensed as an investment adviser under all of the laws of all
jurisdictions in which its activities require it to be so registered or
licensed. The Subadviser shall maintain such registration or license in
effect at all times during the term of this Agreement.
3. Regulatory Orders. The Subadviser is not subject to any stop orders,
injunctions or other orders of any regulatory authority affecting its
ability to carry out the terms of this Agreement. The Subadviser will
notify the Adviser and the Fund immediately if any such order is issued
or if any proceeding is commenced that could result in such an order.
4. Compliance. The Subadviser has in place compliance systems and
procedures designed to meet the requirements of the Advisers Act and
the 1940 Act and it shall at all times assure that its activities in
connection with managing the Fund follow these procedures.
5. Authority. The Subadviser is authorized to enter into this Agreement
and carry out the terms hereunder.
6. Best Efforts. The Subadviser 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 Adviser
The Adviser hereby represents and warrants to the Subadviser 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, and is registered or licensed as
an investment adviser under all of the laws of all jurisdictions in
which its activities require it to be so registered or licensed. The
Adviser shall maintain such registration or license in effect at all
times during the term of this Agreement.
3. Regulatory Orders. The Adviser is not subject to any stop orders,
injunctions or other orders of any regulatory authority affecting its
ability to carry out the terms of this Agreement. The Adviser will
notify the Subadviser and the Fund immediately if any such order is
issued or if any proceeding is commenced that could result in such an
order.
4. Authority. The Adviser is authorized to enter into this Agreement and
carry out the terms hereunder.
5. Best Efforts. The Adviser at all times shall provide its best judgment
and effort to the Fund in carrying out its obligations hereunder.
A-3
<PAGE>
C. 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 formed as a
business trust under the laws of the Commonwealth of Massachusetts and
it is authorized to enter into this Agreement and carry out its
obligations hereunder.
2. Registration. The Fund is registered as an investment company with the
Commission under the 1940 Act and shares of the Fund are registered for
offer and sale to the public under the 1933 Act, and all applicable
state securities laws. Such registrations will be kept in effect during
the term of this Agreement.
IV. BROKER-DEALER RELATIONSHIPS
A. Portfolio Trades
The Subadviser shall place all orders for the purchase and sale of
portfolio securities for the Fund with brokers or dealers selected by the
Subadviser, which may include brokers or dealers affiliated with the
Subadviser. The Subadviser shall use its best efforts to seek to execute
portfolio transactions at prices that are advantageous to the Fund giving
consideration to the services and research provided and at commission rates
that are reasonable in relation to the benefits received ("best execution").
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 and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Fund and/or the other accounts over which the
Subadviser or its affiliates exercise investment discretion. The Subadviser
may also select brokers or dealers to effect transactions for the Fund who
provide payment for expenses of the Fund. The Subadviser is authorized to pay
a broker or dealer who provides such brokerage and research services or
expenses, 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 Subadviser determines in
good faith that such amount of commission is reasonable in relation to the
value of the brokerage, research and other services provided by such broker
or dealer and is paid in compliance with Section 28(e) or other rules and
regulations of the Commission. This determination may be viewed in terms of
either that particular transaction or the overall responsibilities that the
Subadviser 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.
V. CONTROL BY THE BOARD OF TRUSTEES
Any investment program undertaken by the Subadviser pursuant to this
Agreement, as well as any other activities undertaken by the Subadviser at
the direction of the Adviser with respect to the Fund, shall at all times be
subject to any directives of the Board.
VI. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Subadviser shall
at all times conform to:
A. all applicable provisions of the 1940 Act, the Advisers Act and any
rules and regulations adopted thereunder;
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B. all policies and procedures of the Fund as adopted by the Board and as
described in the Registration Statement;
C. the provisions of the Declaration of Trust of the Fund, as amended from
time to time;
D. the provisions of the bylaws of the Fund, as amended from time to time;
and
E. any other applicable provisions of state or federal law.
VII. COMPENSATION
A. Payment Schedule
The Adviser shall pay the Subadviser, as compensation for services
rendered hereunder, from its own assets, an annual fee of up to .30% of the
average daily net assets in the Fund, payable monthly. Except as hereinafter
set forth, compensation under this Agreement shall be calculated and accrued
daily at the rate of 1/365 of the annual Subadvisory fee of up to .30%
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 set forth above.
B. Reduction
Payment of the Subadviser's compensation for the preceding month shall be
made as promptly as possible, except as provided below. The Subadviser
acknowledges that, pursuant to the Investment Advisory Agreement, the Adviser
has agreed to reduce its fee or reimburse the Fund if the expenses borne by
the Fund exceed the expense limitations applicable to the Fund imposed by the
securities laws or regulations of any jurisdiction in which the Fund shares
are qualified for sale. Accordingly, the Subadviser agrees that, if, for any
fiscal year, the total of all ordinary business expenses of the Fund,
including all investment advisory fees but excluding brokerage commissions,
distribution fees, taxes, interest, extraordinary expenses and certain other
excludable expenses, would exceed the most restrictive expense limits imposed
by any statute or regulatory authority of any jurisdiction in which shares of
the Fund are offered for sale (unless a waiver is obtained), the Subadviser
shall reduce its advisory fee to the extent necessary to meet such expense
limit, but will not be required to reimburse the Fund for any ordinary
business expenses which exceed the amount of its advisory fee for the fiscal
year. The Subadviser shall contribute to the amount of such reduction by
reimbursing the Adviser in proportion to the amounts which the Adviser and
Subadviser would have been entitled to receive for such year. For the
purposes of this paragraph, the term "fiscal year" shall exclude the portion
of the current fiscal year which elapsed prior to the effective date of this
Agreement, but shall include the portion of the then current fiscal year has
elapsed at the date of termination of this Agreement.
VIII. ALLOCATION OF EXPENSES
The Subadviser shall pay the salaries, employment benefits and other
related costs of those of its personnel engaged in providing investment
advice to the Fund hereunder, including, but not limited to, office space,
office equipment, telephone and postage costs. In the event the Subadviser
incurs any expense that is the obligation of the Adviser as set out in this
Agreement, the Adviser shall reimburse the Subadviser for such expense on
presentation of a statement indicating the expenses incurred and the amount
paid by the Subadviser.
IX. NONEXCLUSIVITY
The services of the Subadviser with respect to the Fund are not to be
deemed to be exclusive, and the Subadviser shall be free to render investment
advisory and administrative or other services to others (including other
investment companies) and to engage in other activities. It is understood and
agreed that officers or directors of the Subadviser
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may serve as officers or directors of the Adviser or officers or trustees of
the Fund; that officers or directors of the Adviser or officers or trustees
of the Fund may serve as officers or directors of the Subadviser to the
extent permitted by law; and that the officers and directors of the
Subadviser 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 advisory companies.
X. TERM
This Agreement shall become effective at the close of business on
, 1996, and shall remain in force and effect through December 31,
1997, unless earlier terminated under the provisions of Article XI. Following
the expiration of its initial term, the Agreement shall continue in force and
effect for one year periods, provided such continuance is specifically
approved at least annually:
A. (1) by the Fund's trustees or (2) 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
B. 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.
XI. TERMINATION
This Agreement may be terminated:
A. at any time, without the payment of any penalty, by vote of the Fund's
trustees or by vote of a majority of the outstanding voting securities
of the Fund; or
B. by the Adviser, the Fund or the Subadviser on sixty (60) days' written
notice to the other party, unless written notice is waived by the party
required to be notified; or
C. automatically in the event there is an "assignment" of this Agreement,
as defined in Section 2 (a) (4) of the 1940 Act.
XII. LIABILITY
A. Liability of the Subadviser
The Subadviser shall be liable to the Fund and the Adviser and shall
indemnify the Fund and the Adviser for any losses incurred by the Fund, or
the Adviser 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 Subadviser or its officers, directors or employees, that is
found to involve willful misfeasance, bad faith or negligence, or reckless
disregard by the Subadviser of its duties under this Agreement, in connection
with the services rendered by the Subadviser hereunder.
B. Liability of the Fund, the Shareholders and the Trustees
A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the trustees or shareholders individually but are
binding only upon the assets and property of the Fund. No provision of this
Agreement shall be construed to protect any trustee or officer of the Fund or
director or officer of the Adviser, from liability in violation of Section
17(h) and (i) of the 1940 Act.
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XIII. 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 address shall
be:
if to the Fund or the Adviser:
151 Farmington Avenue,
RE4C Hartford, Connecticut 06156
Fax number: 860/273-8340
Attn: Secretary
if to the Subadviser:
242 Trumbull Avenue
Hartford, Connecticut 06103-1205
Fax number: 860/275-4440
Attention: President
XIV. 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,
regulations or orders of the Commission issued pursuant to the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in any
provision of the Agreement is revised by rule, regulation or order of the
Commission, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
XV. SERVICE MARK
The service mark of the Fund or Adviser, and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Life and Casualty Company
and their continued use is subject to the right of Aetna Life and Casualty to
withdraw this permission in the event the Subadviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty should not be the
investment adviser of the Fund.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day of
, 19 .
Attest: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
By: _____________________________
Name: _______________________
Title: ______________________
Attest: AELTUS INVESTMENT MANAGEMENT,
INC.
By: _____________________________
Name: _______________________
Title: ______________________
Attest:
AETNA VARIABLE FUND
By: _____________________________
Name: _______________________
Title: ______________________
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<PAGE>
EXHIBIT B
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AETNA LIFE INSURANCE AND ANNUITY
COMPANY, a Connecticut corporation (the "Adviser") and AETNA VARIABLE FUND, a
Massachusetts business trust (the "Fund") as of the date set forth below.
W I T N E S S E T H
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, as amended (the
"1940 Act"); and
WHEREAS, the Adviser is registered with the Commission as an investment
adviser under the Investment Advisers Act of 1940, as amended (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:
A. supervise all aspects of the operations of the Fund;
B. 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;
C. formulate and implement continuing programs for the purchase and sale
of securities and regularly report thereon to the Board;
D. 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;
E. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;
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F. 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;
G. prepare financial and performance reports, calculate and report daily
net asset values, and prepare any other financial data or reports, as
the Adviser from time to time, deems necessary or as are requested by
the Board; and
H. 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, and is registered or licensed as
an investment adviser under the laws of all jurisdictions in which its
activities require it to be so registered or licensed. The Adviser
shall maintain such registration or license 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 formed as a
business trust under the laws of the Commonwealth of Massachusetts and
it is authorized to enter into this Agreement and carry out its
obligations hereunder.
2. Registration. The Fund is registered as an investment company with the
Commission under the 1940 Act and shares of the Fund are registered for
offer and sale to the public under the Securities Act of 1933, as
amended (the "1933 Act") and all applicable state securities laws. Such
registrations will be kept in effect during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
A. Appointment of Subadviser
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 (the
"Subadviser") to the Adviser with respect to the Fund.
B. Duties of Subadviser
Under a Subadvisory Agreement, the Subadviser may be delegated some or all
of the following duties of the Adviser:
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1. 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;
2. formulate and implement continuing programs for the purchase and sale
of the securities of such issuers and regularly report thereon to the
Board;
3. 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;
4. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;
5. give instructions to the custodian and/or sub-custodian of the Fund
appointed by the Board, as to deliveries of securities, transfers of
currencies and payments of cash for the Fund as required to carry out
the investment activities of the Fund, in relation to the matters
contemplated by this Agreement; and
6. provide such financial support, administrative services and other
duties as the Adviser deems necessary and appropriate.
C. Duties of the Adviser
In the event the Adviser delegates certain responsibilities hereunder to a
Subadviser, the Adviser shall, among other things:
1. monitor the investment program maintained by the Subadviser for the
Fund and the Subadviser's compliance program to ensure that the Fund's
assets are invested in compliance with the Subadvisory Agreement and
the Fund's investment objectives and policies as adopted by the Board
and described in the most current effective amendment of the
registration statement for the Fund, as filed with the Commission under
the Securities Act of 1933, as amended, and the 1940 Act ("Registration
Statement");
2. review all data and financial reports prepared by the Subadviser to
assure that they are in compliance with applicable requirements and
meet the provisions of applicable laws and regulations;
3. establish and maintain regular communications with the Subadviser to
share information it obtains with the Subadviser concerning the effect
of developments and data on the investment program maintained by the
Subadviser; and
4. oversee all matters relating to the offer and sale of the Fund's
shares, the Fund's corporate governance, reports to the Board,
contracts with all third parties on behalf of the Fund for services to
the Fund, reports to regulatory authorities and compliance with all
applicable rules and regulations affecting the Fund's operations.
V. BROKER-DEALER RELATIONSHIPS
A. Portfolio Trades
The Adviser, at its own expense, 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.
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<PAGE>
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 and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Fund 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 who
provide payment for expenses of the Fund. The Adviser is authorized to pay a
broker or dealer who provides such brokerage and research services or
expenses, 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 and research services provided by such broker or dealer and
is paid in compliance with Section 28(e) or other rules and regulations of
the Commission. 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.
VI. CONTROL BY THE BOARD OF TRUSTEES
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:
A. all applicable provisions of the 1940 Act, the Advisers Act and any
rules and regulations adopted thereafter;
B. all policies and procedures of the Fund as adopted by the Board and as
described in the Registration Statement;
C. the provisions of the Fund's Declaration of Trust, as amended;
D. the provisions of the Bylaws of the Fund, as amended; and
E. 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 .50% 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 .50% 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. For so long as a Subadvisory Agreement is in effect, the Fund
acknowledges that the Adviser will pay to the Subadviser, as compensation for
acting as Subadviser to the Fund, the fees specified in the Subadvisory
Agreement.
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IX. EXPENSES
The expenses in connection with the management of the Fund shall be
allocated between the Fund and the Adviser as follows:
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;
2. all fees and expenses of all Trustees, officers and employees, if any,
of the Fund who are employees of the Adviser or an affiliated entity,
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 which benefit the Fund;
8. all fees and expenses of the Fund'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 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 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;
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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 or 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. EXPENSE LIMITATION
If, for any fiscal year, the total of all ordinary business expenses
payable by the Fund, including all investment advisory fees but excluding
brokerage commissions, distribution fees, taxes, interest and extraordinary
expenses and certain other excludable expenses, would exceed the most
restrictive expense limits imposed by any statute or regulatory authority of
any jurisdiction in which shares of the Fund are offered for sale (unless a
waiver is obtained), the Adviser shall reduce its advisory fee to the extent
necessary to meet such expense limit, but the Adviser will not be required to
reimburse the Fund for any ordinary business expenses which exceed the amount
of its advisory fee for such fiscal year. The amount of any such reduction is
to be borne by the Adviser and shall be deducted from the monthly advisory
fee otherwise payable to the Adviser during such fiscal year. For the
purposes of this paragraph, the term "fiscal year" shall exclude the portion
of the current fiscal year which shall have elapsed prior to the date hereof
and shall include the portion of the then current fiscal year which shall
have elapsed at the date of termination of this Agreement.
XI. 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 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.
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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 trustees 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 at the close of business on the date
hereof and shall remain in force and effect, subject to Paragraphs XIV and XV
hereof and approval by the Fund's shareholders, for a period of two years
from the date hereof.
XIV. RENEWAL
Following the expiration of its initial two-year term, the Agreement shall
continue in force and effect from year to year, provided that such
continuance is specifically approved at least annually:
A. 1. by the Fund's trustees, or
2. 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
B. 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 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 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", as that term is defined in Section 2(a)(4) of the 1940 Act.
XVI. LIABILITY
A. Liability of the Adviser
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, Trustees 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.
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B. Liability of the Fund, the Shareholders and the Trustees
A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the trustees of the Fund as
trustees and not individually and that the obligations of this instrument are
not binding upon any of the trustees or shareholders individually but are
binding only upon the assets and property of the Fund. No provision of this
Agreement shall be construed to protect any trustee or officer of the Fund or
director or officer of the Adviser, from liability in violation of Section
17(h) and (i) of the 1940 Act.
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 or the Adviser:
151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340
Attention: Secretary
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,
regulations or orders of the Commission issued pursuant to the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in the
provisions of this Agreement is revised by rule, regulation or order of the
Commission, such provisions shall be deemed to incorporate the effect of such
rule, regulation 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 Life and Casualty Company and their
continued use is subject to the right of Aetna Life and Casualty Company to
withdraw this permission in the event the Adviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty Company should not be the
investment adviser of the Fund.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day of
, 199 .
Attest: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
By: _____________________________
Name: _______________________
Title: ______________________
Attest: AETNA VARIABLE FUND
By: _____________________________
Name: _______________________
Title: ______________________
B-9
<PAGE>
EXHIBIT C
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AETNA VARIABLE FUND, a Massachusetts
business trust (the "Fund") and AETNA LIFE INSURANCE AND ANNUITY COMPANY, a
Connecticut insurance corporation (the "Adviser"), as of the Date set forth
below.
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, as amended (the
"1940 Act") and the rules and regulations promulgated thereunder;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages
in the business of acting as an investment adviser;
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, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
The Adviser is hereby appointed to serve as the investment adviser to the
Fund, to provide investment advisory services set forth below in Section II,
subject to the terms of this Agreement and the policies and control of the
Fund's Board of Trustees (the "Board"). The Adviser 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 ADVISER
In carrying out the terms of this Agreement, the Adviser shall provide the
following services:
A. supervise all aspects of the operations of the Fund;
B. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Fund's portfolio and whether concerning the individual issuers of the
securities included in the Fund's portfolio or the activities in which
the issuers engage, or with respect to securities that the Adviser
considers desirable for inclusion in the Fund's portfolio;
C. determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Board;
D. formulate and implement continuing programs for the purchases and sales
of the securities of such issuers and regularly report thereon to the
Board;
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E. give instructions to the custodian and/or sub-custodian of the Fund
appointed by the Board as to deliveries of securities, transfers of
currencies and payments of cash for the account of the Fund, in
relation to the matters contemplated by this Agreement; and
F. take, on behalf of the Fund, all actions which appear to the Fund
necessary to carry into effect the purchase and sale of securities for
the Fund and the supervisory functions listed above, including the
placing of orders for the purchase and sale of securities for the Fund.
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 Securities and Exchange Commission (the "SEC") under the Advisers
Act, and is registered or licensed as an investment adviser under the
laws of all jurisdictions in which its activities require it to be so
registered or licensed. The Adviser shall maintain such registration or
license 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 Organization. The Fund has been duly organized as a "business
trust" under the laws of the Commonwealth of Massachusetts and 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 for offer
and sale to the public under the Securities Act of 1933, as amended
(the "1933 Act") and all applicable state securities laws. Such
registrations will be kept in effect during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
A. APPOINTMENT OF SUBADVISER
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 (the
"Subadviser") to the Adviser with respect to the Fund.
B. DUTIES OF SUBADVISER
Under a Subadvisory Agreement, the Subadviser shall:
1. provide the Adviser with such economic research and securities analysis
as the Adviser may from time to time consider necessary or advisable in
connection with the Adviser's performance of its duties hereunder;
2. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Fund, and
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<PAGE>
whether concerning the individual issuers whose securities are included
in the Fund or the activities in which such issuers engage, or with
respect to securities that the Subadviser considers desirable for
inclusion in the Fund's investment portfolio;
3. determine which issuers and securities shall be purchased, sold or
exchanged by the Fund or otherwise represented in the Fund's investment
portfolio and regularly report thereon to the Adviser and, at the
request of the Adviser, to the Board; and
4. formulate and implement continuing programs for the purchase and sale
of the securities of such issuers and regularly report thereon to the
Adviser and, at the request of the Adviser, to the Board.
C. DUTIES OF THE ADVISER
In the event the Adviser delegates certain responsibilities hereunder to a
Subadviser, the Adviser shall, among other things:
1. monitor the investment program maintained by the Subadviser for the
Fund to ensure that the Fund's assets are invested in compliance with
the Subadvisory Agreement and the Fund's Registration Statement;
2. consult with and assist the Subadviser in maintaining appropriate
policies, procedures and records so that the Subadviser operates its
business and any investment program hereunder in compliance with
applicable laws;
3. establish and maintain periodic communications with the Subadviser to
share information it obtains with the Subadviser concerning the effect
of developments and data on the investment program maintained by the
Subadviser; and
4. oversee matters relating to Fund promotion, marketing materials and the
Subadviser's reports to the Board.
V. BROKER-DEALER RELATIONSHIPS
A. PORTFOLIO TRADES
The Adviser, at its own expense, 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 and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934, as amended) to the Fund and/or the other accounts over
which the Adviser or its affiliates exercise investment discretion. The
Adviser is authorized to pay a broker or dealer who provides such brokerage
and research services 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 and research services provided by such
broker or dealer. 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.
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<PAGE>
VI. CONTROL BY THE BOARD OF TRUSTEES
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:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Fund, as the same
may be amended from time to time, under the 1933 Act and the 1940 Act;
C. the provisions of the Fund's Declaration of Trust, 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.
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 0.25% 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 the annual advisory 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. Subject to the provisions of
Paragraph X hereof, payment of the Adviser's compensation for the preceding
month shall be made as promptly as possible. For so long as a Subadvisory
Agreement is in effect, the Fund acknowledges that the Adviser will pay to
the Subadviser, as compensation for acting as Subadviser to the Fund, the
fees specified in the Subadvisory Agreement.
IX. EXPENSES
The expenses in connection with the management of the Fund shall be
allocable between the Fund and the Adviser as follows:
A. EXPENSES OF THE ADVISER
The Adviser shall pay:
1. The salaries, employment benefits and other related costs of those of
its personnel engaged in providing investment advice to the Fund,
including, without limitation, office space, office equipment,
telephone and postage costs; and
2. Any fees and expenses of all Trustees of the Fund who are employees of
the Adviser or an affiliated entity and any salaries and employment
benefits of officers of the Fund who are affiliated persons of the
Adviser for acting as officers of the Fund.
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<PAGE>
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 chargeable in connection with securities or other investment
transactions, 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 public accountants and
outside legal counsel;
4. Expenses of printing and distributing proxies, proxy statements,
prospectuses and reports to shareholders of the Fund, except as such
expenses may be borne by any distributor of the Fund;
5. Interest and taxes;
6. The fees and expenses of those of the Fund's Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Fund or the
Adviser;
7. Shareholders' meeting expenses;
8. Administrator, transfer agent, custodian and dividend disbursing agent
fees and expenses;
9. Fees of dividend, accounting or pricing agents appointed by the Fund;
10. Fees payable by the Fund to the SEC or in connection with the
registration of shares of the Fund under the laws of any state or
territory of the United States or of the District of Columbia;
11. Fees and assessments of the Investment Company Institute or any
successor organization or other association memberships approved by
the Board;
12. Such nonrecurring or extraordinary expenses as may arise, including
organizational expenses, litigation affecting the Fund and any
indemnification by the Fund of its officers, Trustees or agents with
respect thereto;
13. All other ordinary business expenses incurred in the operations of the
Fund unless specifically provided otherwise in this paragraph IX;
14. All costs attributable to investor services, administering shareholder
accounts and handling shareholder relations (including, without
limitation, telephone and personnel expenses);
15. All expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares of the Fund or in cash;
and
16. Insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit.
X. EXPENSE LIMITATION
If, for any fiscal year, the total of all ordinary business expenses of
the Fund, including all investment advisory fees but excluding brokerage
commissions, distribution fees, taxes, interest and extraordinary expenses
and certain other excludable expenses, would exceed the most restrictive
expense limits imposed by any statute or regulatory authority of any
jurisdiction in which shares of the Fund are offered for sale (unless a
waiver is obtained), the Adviser
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<PAGE>
shall reduce its advisory fee in order to reduce such excess expenses, but
will not be required to reimburse the Fund for any ordinary business expenses
which exceed the amount of its advisory fee for such fiscal year. The amount
of any such reduction is to be borne by the Adviser and shall be deducted
from the monthly management fee otherwise payable to the Adviser during such
fiscal year. For the purposes of this paragraph, the term "fiscal year" shall
exclude the portion of the current fiscal year which shall have elapsed prior
to the date hereof and shall include the portion of the then current fiscal
year which shall have elapsed at the date of termination of this Agreement.
XI. 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 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. NON-EXCLUSIVITY
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 at the close of business on the date
hereof and shall remain in force and effect, subject to Paragraphs XIV and XV
hereof and approval by the Fund's shareholders, for a period of two years
from the date hereof.
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XIV. RENEWAL
Following the expiration of its initial two-year term, the Agreement shall
continue in force and effect from year to year, provided that such
continuance is specifically approved at least annually:
A. (1) by the Fund's Trustees or (2) 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
B. 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 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 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", as that term is defined in Section 2(a)(4) of the 1940 Act.
XVI. LIABILITY OF ADVISER AND INDEMNIFICATION
A. LIABILITY
In the absence of willful misfeasance, bad faith or gross negligence on
the part of the Adviser or its officers, directors or employees, or reckless
disregard by the Adviser of its duties under this Agreement, the Adviser
shall not be liable to the Fund or to any shareholder of the Fund for any act
or omission in the course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase, holding or sale of
any security.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of the
Adviser or any officer, director or employee of the Adviser, to the extent
permitted by applicable law, the Fund hereby agrees to indemnify and hold the
Adviser 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 (whether of the Fund or otherwise) by the Fund, its
officers, Trustees, employees or agents in alleged violation of applicable
federal, state or foreign laws, rules or regulations.
XVII. 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 Adviser and
that of the Fund for this purpose shall be 151 Farmington Avenue, Hartford,
Connecticut 06156.
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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,
regulations or orders of the SEC issued pursuant to the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in the
provisions of this Agreement is revised by rule, regulation or order of the
SEC, such provisions shall be deemed to incorporate the effect of such rule,
regulation 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 Life and Casualty Company, and their
continued use is subject to the right of Aetna Life and Casualty Company to
withdraw this permission in the event the Adviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty Corporation 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 13th day of April,
1994.
Attest: AETNA VARIABLE FUND
/s/ Susan E. Bryant By: /s/ Shaun P. Mathews
-----------------------------
Name: Shaun P. Mathews
-----------------------
Title: President
----------------------
Attest:
AETNA LIFE INSURANCE AND
/s/ Lucille M. Nickerson ANNUITY COMPANY
By: /s/ James C. Hamilton
-----------------------------
Name: James C. Hamilton
-----------------------
Title: Vice President and
Treasurer
----------------------
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EXHIBIT D
Article 5.2, Nonliability of Trustees, and Others, of the Fund's
Declaration of Trust, shall be amended and restated to read 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.
Article 5.3, Indemnification, of the Fund's Declaration of Trust, shall be
amended and restated to read as follows:
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.
(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.
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(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 his undertaking, (ii) the Trust is
insured against losses arising by reason of any lawful advances or
(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.
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EXHIBIT E
Article 5.2, Non-Liability of Trustees, and Others, currently reads as
follows:
5.2 Non-Liability of Trustees, and Others:
No Trustee, 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
(a) Every person who is or was a Trustee, officer or employee of this
Trust or a director, officer or employee of any corporation which he
served at the request of this Trust (and his firm, executors and
administrators) shall have a right to be indemnified by this Trust
against all liability and reasonable expenses incurred by him in
connection with or resulting from any claim, action, suit or
proceeding in which he may become involved as a party or otherwise by
reason of his being or having been a Trustee, officer or employee of
this Trust as a director, officer or employee of such corporation,
provided (1) said claim, action, suit or proceeding shall be
prosecuted to a final determination and he shall be vindicated on the
merits, or (2) in the absence of such final determination vindicating
him on the merits, the Board shall determine that he acted in good
faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Trust, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct
was unlawful; said determination to be made (i) by the Board, by a
majority vote of a quorum consisting of disinterested Trustees; or
(ii) if such quorum is not obtainable or if a quorum of disinterested
Trustees so directs, by independent legal counsel in a written
opinion, or (iii) by the Shareholders.
(b) For purpose of the preceding subsection: (1) "liability and reasonable
expenses" shall include, but not be limited to, reasonable counsel
fees and disbursements, amounts of any judgment, fine or penalty, and
reasonable amounts paid in settlement; (2) "claim, action, suit or
proceeding" shall include every such claim, action, suit or
proceeding, whether civil or criminal, derivative or otherwise,
administrative, judicial or investigative, any appeal relating
thereto, and shall include any reasonable apprehension or threat of
such a claim, action, suit or proceeding; (3) a settlement, plea of
nolo contendere, consent judgment, adverse civil judgment, or
conviction shall not of itself create a presumption that the conduct
of the person seeking indemnification did not meet the standard of
conduct set forth in subsection (2) hereof.
(c) Notwithstanding the foregoing, the following additional limitations
shall apply with respect to any action by or in the right of the
Trust: (1) no indemnification shall be made in respect of any claim,
issue or matter as to which the person seeking indemnification shall
have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Trust unless the court which made such
a finding, or any other court of equity in the county where the Trust
has its principal office determines that despite the adjudication of
liability, such person is fairly and reasonably entitled to indemnity
for some or all of such expenses; and (2) indemnification shall extend
only to reasonable expenses, including reasonable counsel's fees and
disbursements, and shall not include judgments, fines and amounts paid
in settlement.
E-1
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(d) The right of indemnification shall extend to any person otherwise
entitled to it under this Article whether or not that person continues
to be a Trustee, officer or employee of this Trust or a director,
officer or employee of such corporation at the time such liability or
expense shall be incurred. The right of indemnification shall extend
to the legal representative and heirs of any person otherwise entitled
to indemnification. If a person meets the requirements of this Article
with respect to some matters in a claim, action, suit or proceeding,
but not with respect to others, he shall be entitled to
indemnification as to the former. Expenses incurred in defending an
action, suit or proceeding may be paid by the Trust in advance of the
final disposition of such action, suit or proceeding as authorized by
the Board in the specific case: (1) upon receipt of an undertaking for
which security has been provided by or on behalf of the Trustee,
director, officer, employee or agent to repay such amount unless it
shall ultimately be determined that he is entitled to be indemnified
by the Trust as authorized in this Article, or (2) if the Trust is at
the time of such advance insured against losses arising by reason of
the advance.
(e) This Article shall not exclude any other rights of indemnification or
other rights to which any Trustee, officer, or employee may be
entitled to by contract, vote of the Shareholders or as a matter of
law. If any clause, provision or application of this Section 5.3 shall
be determined to be invalid, the other clauses, provisions or
applications of this section shall not be affected, but shall remain
in full force and effect.
(f) The Trust shall have the power to purchase and maintain insurance on
behalf of any person who is or was a Trustee, officer, employee or
agent of the Trust, or is or was serving at the request of the Trust
as a director, officer, employee or agent of a corporation, against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Trust would have the power to indemnify him against such liability
under the provisions of this Article.
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<PAGE>
AETNA VARIABLE FUND
THIS AUTHORIZATION CARD IS SOLICITED ON BEHALF OF THE
BOARD OF TRUSTEES OF THE FUND
This authorization card, when properly executed and returned, will be voted in
the manner directed herein by the undersigned. If no direction is made, this
authorization card will be voted FOR the election of the nominees named in this
authorization card and FOR approval of the other proposals.
Dated: _________________________, 1996
Please sign exactly as name appears on this card.
When account is joint tenants, all should sign. When
signing as administrator, trustee or guardian, please
give title. If a corporation or partnership, sign in
entity's name and by authorized persons.
_____________________________________________________
Signature(s)
001
<PAGE>
Please refer to the Proxy Statement for a discussion of these matters. This
authorization care is solicited in connection with the special meeting of
shareholders of the Fund to be held at 9:00 a.m., Eastern Standard Time, on June
17, 1996, and at any adjournment thereof. THIS AUTHORIZATION CARD, WHEN PROPERLY
EXECUTED, DIRECTS SHAUN P. MATHEWS AND SUSAN E. BRYANT TO VOTE THE SHARES LISTED
ON THE FRONT OF THIS CARD AS DIRECTED AND REVOKES ALL PRIOR AUTHORIZATION CARDS.
Please vote by filling in the appropriate box below, as shown, using blue or
black ink or dark pencil. Do not use red ink. [ ] [box is filled in solidly]
<TABLE>
<S> <C> <C> <C>
THE TRUSTEES RECOMMEND A VOTE FOR EACH OF THE FOLLOWING: FOR all WITHHOLD
1. Election of trustees nominees listed AUTHORITY
(except as to vote for all
Morton Ehrlich Maria T. Fighetti David L. Grove Timothy A. Holt Daniel P. Kearney marked on the nominees
Sidney Koch Shaun P. Mathews Corine T. Norgaard Richard G. Scheide line below) listed
(INSTRUCTION: To withhold authority to vote for any individual nominee, write the [ ] [ ]
nominee's name on the line below)
_______________________________________________________________________________ FOR AGAINST ABSTAIN
2. Approve the Subadvisory Agreement [ ] [ ] [ ]
3. Approve the New Investment Advisory Agreement [ ] [ ] [ ]
4. Approve an amendment to the Declaration of Trust [ ] [ ] [ ]
</TABLE>
In their discretion, the proxies are authorized to vote upon such other
business, including any adjournment of the meeting, as may properly come before
the meeting.
001
