<PAGE>
As filed with the Securities and Exchange File No. 33-85620
Commission on June 28, 1995 File No. 811-6352
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 1
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16
--
AETNA SERIES FUND, INC.
-----------------------
(Exact Name of Registrant as Specified in Charter)
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
---------------------------------------------------------
(Address of Principal Executive Offices)
(203) 273-7834
--------------
(Registrant's Telephone Number, including Area Code)
- --------------------------------------------------------------------------------
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4C, Hartford, Connecticut 06156
---------------------------------------------------------
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate space):
immediately upon filing pursuant to paragraph (b) of Rule 485
- ---
X on June 28, 1995 pursuant to paragraph (b) of Rule 485
- ---
60 days after filing pursuant to paragraph (a)(i) of Rule 485
- ---
on ______________ pursuant to paragraph (a)(i) of Rule 485
- ---
75 days after filing pursuant to paragraph (a)(ii) of Rule 485
- ---
on ______________ pursuant to paragraph (a)(ii) of Rule 485
- ---
The Registrant has registered an indefinite number of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2 of the Investment Company Act of
1940. The Registrant filed its Rule 24f-2 Notice for the fiscal year ended
October 31, 1994 on December 28, 1994.
<PAGE>
AETNA SERIES FUND, INC.
Cross-Reference Sheet
Pursuant to Rule 481(a)
<TABLE>
<CAPTION>
Form N-1A
Item No. Caption in Prospectus
- -------- ---------------------
<C> <S>
1. Cover Page Cover Page
2. Synopsis Highlights; Fees and Expenses
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Description of the Generation Funds; How
Investment Objectives are Pursued;
Investment Techniques; Risk Factors and
Other Considerations; Investment
Restrictions, Supplement
5. Management of the Fund Management of the Generation Funds,
Supplement
6. Capital Stock and Other Securities General Information; Fund Distributions; Taxes;
Shareholder Services
7. Purchase of Securities Being Offered Management of the Generation Funds; Net Asset
Value; Shareholder Services Fees and
Charges (Adviser Class Prospectus only)
8. Redemption or Repurchase Shareholder Services Fees and Charges (Adviser
Class Prospectus only)
9. Legal Proceedings Not applicable
<CAPTION>
Caption in Statement of Additional
Information
-----------
<C> <S>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies General Information and History; Additional
Investment Restrictions and Policies of the
Generation Funds; Description of Various
Securities and Investment Techniques
14. Management of the Registrant Directors and Officers of the Company
15. Control Persons and Principal Holders Control Persons and Principal Holders of the
of Securities Funds
16. Investment Advisory and Other Services The Investment Advisory Contract; The
Administrative Services Agreement; Sub-
Advisory Agreements
17. Brokerage Allocation Brokerage Allocation
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Sale and Redemption of Shares; Net Asset
Securities Being Offered Value; Distribution Arrangements
</TABLE>
<PAGE>
<TABLE>
<S> <C>
20. Tax Status Tax Status
21. Underwriters Principal Underwriter
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
(Supplement)
AETNA GENERATION FUNDS
Supplement dated June 28, 1995
to Prospectus dated December 27, 1994
The information in this supplement updates and amends the information contained
in the Prospectus dated December 27, 1994 and should be read with that
Prospectus. Capitalized terms are defined in the Prospectus.
The following is financial information relating to the Funds for the period
ended April 30, 1995.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------
(for one outstanding share throughout each period)
The selected data presented below as of the end of, the four month period ended
April 30, 1995 are derived from the financial statements of Aetna Series Fund,
Inc. The financial statements of the Funds for the four month period ended
April 30, 1995 are unaudited and are contained in the SAI.
<TABLE>
<CAPTION>
AETNA AETNA AETNA
ASCENT CROSSROADS LEGACY
<S> <C> <C> <C>
Net Asset Value at Beginning of Period......... $ 10.00 $ 10.00 $ 10.00
Net Investment Income.......................... $ .11 $ .12 $ .14
Net Realized and Unrealized Gain (Loss) on
Investments.................................... $ .39 $ .35 $ .32
Net Asset Value at End of Period............... $ 10.50 $ 10.47 $ 10.46
Total Return................................... 5.00% 4.70% 4.60%
Net Assets at End of Period (in thousands)..... $26,449 $26,391 $26,354
Ratio of Total Investment Expenses to Average
Net Assets *................................... 1.39% 1.39% 1.39%
Ratio of Net Investment Income to Average
Net Assets *................................... 3.37% 3.80% 4.30%
Portfolio Turnover............................. 45.70% 43.83% 38.77%
</TABLE>
* Annualized for periods less than one year.
* Per share data calculated using average number of shares outstanding
throughout the period.
- --------------------------------------------------------------------------------
The section entitled "What is the Select Class of Shares" on page 3 has been
amended to include the immediate family members of current shareholders in the
list of persons eligible to purchase shares of the Select Class.
As illustrated in the Adviser Class Shareholder Transaction Expense Table on
page 6, the Deferred Sales Charges on Redemptions has been changed to 1.0% for
each of the funds listed thereunder.
<PAGE>
The section entitled "Borrowing Money" on page 13 is hereby deleted and replaced
with the following:
BORROWING. A Fund may borrow up to 5% of the value of its total assets for
temporary or emergency purposes. The Generation Funds do not intend to
borrow for leveraging purposes; but they have the authority to do so. A
Fund may borrow for leveraging purposes only if after the borrowing the
value of the Fund's net assets including amounts from the borrowings, is
equal to at least 300% of all outstanding borrowings. Leveraging can
increase the volatility of a Fund since it exaggerates the effects of
changes in the value of the securities purchased with the borrowed funds.
SECURITIES LENDING. A Fund may lend its portfolio securities; however, the
value of the loaned securities (together with all other assets that are
loaned, including those subject to repurchase agreements) may not exceed
one-third of the Fund's total assets. A Fund will not lend portfolio
securities to affiliates. Though fully collateralized, lending portfolio
securities involves certain risks, including the possibility that the
borrower may become insolvent or default on the loan. In the event of a
disparity between the value of the loaned security and the collateral,
there is the additional risk that the borrower may fail to return the
securities or provide additional collateral.
The first two paragraphs of the section entitled "Options, Futures Contracts and
Other Derivative Instruments" beginning on page 14 is hereby deleted and
replaced with the following:
A derivative is a financial instrument, the value of which is "derived"
from the performance of an underlying asset (such as a security or index of
securities). In addition to futures and options, derivatives include, but
are not limited to, forward contracts, swaps, structured notes, and CMOs.
A Fund may engage in various strategies using derivatives, including
managing its exposure to changing interest rates, securities prices and
currency exchange rates (collectively known as hedging strategies), or
increasing its investment return. For purposes other than hedging, a Fund
will invest no more than 5% of its total assets in derivatives which at the
time of purchase are considered by management to involve high risk to the
Fund. These would include inverse floaters, interest-only and principal-
only securities.
Additionally, the following paragraphs are included to more adequately describe
the risks associated with investments in derivatives:
U.S. GOVERNMENT DERIVATIVES. A Fund may purchase separately traded
principal and interest components of certain U.S. Government securities
("Strips"). In addition, a Fund may acquire custodial receipts that
represent ownership in a U.S. Government security's future interest or
principal payments. These securities are known by such exotic names as
TIGRS and CATS and may be issued at a
<PAGE>
discount to face value. They are generally more volatile than normal fixed
income securities because interest payments are accrued rather than paid
out in regular installments.
DERIVATIVES. The Generation Funds may use derivative instruments.
Derivatives can be volatile investments and involve certain risks. A Fund
may be unable to limit its losses by closing a position due to lack of a
liquid market or similar factors. Losses may also occur if there is not a
perfect correlation between the value of futures or forward contracts and
the related securities. The use of futures may involve a high degree of
leverage because of low margin requirements. As a result, small price
movements in futures contracts may result in immediate and potentially
unlimited gains or losses to a Fund. Leverage may exaggerate losses of
principal. The amount of gains or losses on investments in futures
contracts depends on the Investment Adviser's ability to predict correctly
the direction of stock prices, interest rates and other economic factors.
The first paragraph on the top of page 16 is hereby deleted.
The following is hereby inserted as the first sentence of the definition of
"Portfolio Turnover" on page 17 of the prospectus:
PORTFOLIO TURNOVER. Portfolio turnover refers to the frequency of
portfolio transactions and the percentage of portfolio assets being bought
and sold in the aggregate during the year.
The first paragraph of the section entitled "Hedging Strategies" on page 18 is
hereby deleted and replaced with the following. Additionally, the section
header "Hedging Strategies" is replaced with "Derivatives."
The Funds may use derivative instruments as described above under
"Investment Techniques - Options, Futures and Other Derivative
Instruments."
The following information should be added to the section entitled "Purchase by
Exchange" on page 23:
The exchange privilege enables you to exchange Fund shares for shares in
another Fund of the Company provided shares of such Fund may be legally
sold in your state of residence.
The following information should be added to the discussion of share redemptions
beginning on page 23:
The Fund has the right to satisfy redemption requests by delivering
securities from its investment portfolio rather than cash when it decides
that distributing cash would not be in the best interests of shareholders.
However, a Fund is obligated to redeem its shares solely in cash up to an
amount equal to the lesser of $250,000 or 1% of its net assets for any one
shareholder in any 90 day period. To the extent possible, the Fund will
distribute readily marketable securities, in conformity with applicable
rules of the SEC. In the event such redemption is requested by
institutional investors, the Fund will
<PAGE>
weigh the effects on individual non-redeeming shareholders in applying this
policy. Securities distributed to shareholders may be difficult to sell and
may result in additional costs to the shareholders. See the Statement of
Additional Information for further discussion on redemptions in kind.
The section entitled "Portfolio Management" on page 28 has been updated to
include the individual members of the portfolio management team responsible for
the day-to-day investment management of the Funds. The existing section is
deleted and replaced with the following:
KEVIN M. MEANS is the lead portfolio manager for the Generation Funds and
is responsible for determining the allocation of each Fund's investments
among the seven asset classes described under "Investment Strategies." Mr.
Means has over eight years investment management experience. Before joining
ALIAC in 1994 he was with INVESCO Capital Management, Inc. In addition to
serving as lead portfolio manager, Mr. Means is also responsible for the
selection of securities for the Generation Funds in the Large
Capitalization Stocks class.
The following individuals are responsible for the selection of securities
for the Generation Funds in each of the asset classes other than the Large
Cap Stock class:
VINCE FIORAMONTI, International Stocks and International Bonds, has over
seven years experience in the investment management business. He has been
with ALIAC since 1994 and was with The Travelers Investment Management
Company from 1988 to 1994.
YANIV TEPPER, Real Estate Stocks, has been with ALIAC since 1994 and has
been a real estate consultant for Aetna since 1992.
DONALD TOWNSWICK, Small Capitalization Stocks, has three years experience
in the investment management business, with ALIAC since 1994 and with
INVESCO Capital Management, Inc. from 1992 to 1994. He was a management
consultant for Deloitte Touche from 1990 to 1992.
JEANNE WONG-BOEHM, U.S. Dollar Bonds and Money Market Instruments, has over
12 years experience in the investment management business with ALIAC.
Form No. ________ June 1995
<PAGE>
SELECT CLASS AETNA
[LOGO OF
AETNA GENERATION FUNDS
APPEARS
HERE] DECEMBER 28, 1994 PROSPECTUS
- --------------------------------------------------------------------------------
AETNA ASCENT
AETNA CROSSROADS
AETNA LEGACY
THE COMPANY Aetna Series Fund, Inc. ("Company") is an open-end management in-
vestment company authorized to issue multiple series of shares, each represent-
ing a diversified portfolio of investments ("Fund(s)") with different invest-
ment objectives, policies and restrictions. This Prospectus describes three of
the Funds: Aetna Ascent, Aetna Crossroads and Aetna Legacy (collectively, the
"Generation Funds"). Each Generation Fund is an asset allocation fund that al-
locates its investments among equities and fixed income securities and is de-
signed for investors with different investment horizons and risk tolerances.
Each Generation Fund is currently authorized to offer two classes of shares,
the Adviser Class and the Select Class. The Select Class of each Fund is no-
load.
THE PROSPECTUS This Prospectus contains information you should know before in-
vesting. You can find more information in the December 28, 1994 Statement of
Additional Information ("SAI"). For a free copy of the SAI, call 1-800-367-7732
or write to Aetna Series Fund, Inc., 151 Farmington Avenue, Hartford, Connecti-
cut 06156-8962. The SAI has been filed with the Securities and Exchange Commis-
sion ("Commission") and is incorporated into this Prospectus by reference.
THIS PROSPECTUS IS FOR INVESTORS ELIGIBLE TO PURCHASE SELECT CLASS SHARES. A
SEPARATE PROSPECTUS IS AVAILABLE FOR INVESTORS ELIGIBLE TO PURCHASE ADVISER
CLASS SHARES. SALES CHARGES, EXPENSES AND PERFORMANCE WILL VARY WITH RESPECT TO
EACH CLASS.
INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
AETNA ASCENT seeks to provide capital appreciation.
AETNA CROSSROADS seeks to provide total return (i.e., income and capital appre-
ciation, both realized and unrealized).
AETNA LEGACY seeks to provide total return consistent with preservation of cap-
ital.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS
PROSPECTUS CAREFULLY BEFORE INVESTING AND RETAIN FOR FUTURE REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights.................................................................. 3
Fees and Expenses........................................................... 5
Description of the Generation Funds......................................... 8
How Investment Objectives are Pursued....................................... 8
Investment Techniques....................................................... 13
Risk Factors and Other Considerations....................................... 16
Investment Restrictions..................................................... 20
Shareholder Services........................................................ 20
Other Features.............................................................. 25
Cross-Fund Investing........................................................ 26
Management of the Generation Funds.......................................... 27
Portfolio Management........................................................ 28
Fund Distributions.......................................................... 28
Net Asset Value............................................................. 29
Taxes....................................................................... 29
General Information......................................................... 31
Performance Data............................................................ 32
Glossary of Investment Terms................................................ 32
Description of Corporate Bond Ratings....................................... 35
</TABLE>
2 Aetna Generation Funds Prospectus
<PAGE>
HIGHLIGHTS
WHAT IS A MUTUAL FUND AND WHAT ARE ITS ADVANTAGES? A mutual fund is an invest-
ment company that buys and sells securities on behalf of individuals sharing
common financial goals. Mutual funds allow you to pool your money with others,
to spread risk through diversification and to benefit from professional manage-
ment. You have immediate access to your money simply by writing a letter.
WHAT FUNDS ARE OFFERED? The Company offers the three Generation Funds, which
are designed to achieve your retirement savings objectives through asset allo-
cation and to maximize long-term investment returns at an acceptable level of
risk. AETNA ASCENT is designed for investors who have an investment horizon ex-
ceeding 15 years and who have a high level of risk tolerance. AETNA CROSSROADS
is designed for investors who have an investment horizon exceeding 10 years or
who have a moderate level of risk tolerance. AETNA LEGACY is designed for in-
vestors who have an investment horizon exceeding five years and who have a low
level of risk tolerance.
RISK FACTORS The different types of securities purchased and investment tech-
niques used by the Generation Funds involve varying amounts of risk. For exam-
ple, EQUITY SECURITIES are subject to a decline in the stock market or in the
value of the company and PREFERRED STOCKS have price risk and some interest
rate and credit risk. The value of DEBT SECURITIES may be affected by changes
in general interest rates and in the creditworthiness of the issuer. In addi-
tion, INTERNATIONAL SECURITIES have currency risk. For more information, see
"Risk Factors and Other Considerations."
WHAT IS THE SELECT CLASS OF SHARES? Each Generation Fund has two classes of
shares: Select Class and Adviser Class. Select Class shares are offered only to
certain corporate retirement plans, salaried employees and persons retired from
salaried positions (including members of employees' and retired persons' imme-
diate families) with Aetna Life Insurance and Annuity Company and its affili-
ates; insurance companies (including separate accounts); registered investment
companies; investment advisers and broker-dealers acting for their own account;
current shareholders at the time of first offering of Select Class shares as
long as they maintain a shareholder account; and members of such other groups
as may be approved by the Company's Board of Directors from time to time. Ad-
viser Class shares are offered to those persons not eligible to buy Select
Class shares. Select Class shares are no-load, which means you do not pay any
sales charges, distribution or service fees.
Adviser Class shares are subject to a contingent deferred sales charge at a
maximum rate of 1%, declining to 0% after four years
Aetna Generation Funds Prospectus 3
<PAGE>
from the date of initial purchase. Additionally, Adviser Class shares of each
Fund are subject to an annual distribution fee of 0.50% and a service fee of
0.25% of the value of average daily net assets of the Adviser Class.
HOW CAN I PURCHASE SHARES? You may purchase Select Class shares by completing
an Aetna Series Fund Select Class Application (the "Application"). Your ini-
tial purchase must be for a minimum of $1,000 for each Generation Fund with a
minimum of $500 for Individual Retirement Accounts ("IRA"). Participants in
employer-sponsored retirement plans should refer to their enrollment material.
We also offer a systematic investment program that enables investors to pur-
chase shares on a regular basis. See "Shareholder Services" for complete de-
tails.
WHEN CAN I REDEEM SHARES? Shares may be redeemed on each day the New York
Stock Exchange, Inc. ("NYSE") is open for business. Select Class shares are
redeemable at net asset value. See "Shareholder Services" for more informa-
tion.
WHO IS THE MANAGER? Aetna Life Insurance and Annuity Company ("ALIAC") is the
Investment Adviser to each Generation Fund. It is a wholly owned subsidiary of
Aetna Life and Casualty Company ("Aetna") which, with affiliated companies,
comprises one of the world's leading providers of insurance and financial
services. As of September 30, 1994, the Investment Adviser managed over $18
billion of assets worldwide for both individual and institutional investors.
See "Management of the Generation Funds" for further information.
CUSTOMER SERVICE Shareholders in the Generation Funds enjoy a high level of
personalized service. Please call your representative at 1-800-367-7732 for
details or see "Shareholder Services" for detailed information.
4 Aetna Generation Funds Prospectus
<PAGE>
FEES AND EXPENSES
The following is provided to assist you in understanding the various expenses
you would bear directly or indirectly as an investor in the Generation Funds. A
complete description of expenses starts on page 27.
- --------------------------------------------------------------------------------
SELECT CLASS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Deferred Sales Charge
Sales Charge Sales Charge on Dividend Exchange
on Purchases on Redemptions Reinvestment Fee
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT None None None None
AETNA CROSSROADS None None None None
AETNA LEGACY None None None None
</TABLE>
- --------------------------------------------------------------------------------
SELECT CLASS
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Management/ Total Fund
Advisory Administrative Other Operating
Fee Fee Expenses Expenses
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT 0.80% 0.25% 0.20% 1.25%
AETNA CROSSROADS 0.80% 0.25% 0.20% 1.25%
AETNA LEGACY 0.80% 0.25% 0.20% 1.25%
</TABLE>
The Generation Funds were recently formed; consequently, amounts reflected in
"Other Expenses" and "Total Fund Operating Expenses" are estimated amounts for
the current fiscal year based on expenses for comparable funds. Actual expenses
may be greater or less than estimated. These expenses as a percentage of assets
are higher than those paid by most investment companies.
Aetna Generation Funds Prospectus 5
<PAGE>
- -------------------------------------------------------------------------------
SELECT CLASS
EXAMPLE
Using the above expenses, you would pay the following expenses on a $1,000 in-
vestment, assuming a 5% annual return and redemption at the end of each of the
periods shown:
<TABLE>
<CAPTION>
1 Year 3 Years
- -----------------------------------------------------------------------------
<S> <C> <C>
AETNA ASCENT $13 $40
AETNA CROSSROADS 13 40
AETNA LEGACY 13 40
</TABLE>
This example should not be considered a representation of past or future ex-
penses. Actual expenses may be greater or less than those shown.
- -------------------------------------------------------------------------------
ADVISER CLASS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Deferred Sales Charge
Exchange Sales Charge Sales Charge on Dividend
Fee on Purchases on Redemptions/1/ Reinvestment
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT None None None None
AETNA CROSSROADS None None None None
AETNA LEGACY None None None None
</TABLE>
/1/ The contingent deferred sales charge set forth in the above table is the
maximum redemption charge imposed on Adviser Class shares. Investors may pay
charges less than 1.0%, depending on the length of time the shares are held.
Adviser Class shares are also subject to an annual distribution fee ("12b-1
fee") of 0.50% and an annual service fee of 0.25% of the value of average
daily net assets of the Adviser Class. See "Fees and Charges."
6 Aetna Generation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
ADVISER CLASS
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Total Fund
Management/ 12b-1 Other Operating
Advisory Fee Fee Expenses Expenses
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT .80% .50% .70% 2.00%
AETNA CROSSROADS .80% .50% .70% 2.00%
AETNA LEGACY .80% .50% .70% 2.00%
</TABLE>
- --------------------------------------------------------------------------------
The Generation Funds were recently formed; consequently, amounts reflected in
"Other Expenses" and "Total Fund Operating Expenses" are estimated amounts for
the current fiscal year based on expenses for comparable funds. Actual expenses
may be greater or less than estimated. These expenses as a percentage of assets
are higher than those paid by most investment companies.
- --------------------------------------------------------------------------------
ADVISER CLASS
EXAMPLE
Using the above expenses, you would pay the following expenses on a $1,000 in-
vestment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 Year 3 Years
- --------------------------------------------------------------------------------
<S> <C> <C>
AETNA ASCENT
Redemption at end of each time period $30 $68
No Redemption 20 63
AETNA CROSSROADS
Redemption at end of each time period 30 68
No Redemption 20 63
AETNA LEGACY
Redemption at end of each time period 30 68
No Redemption 20 63
</TABLE>
This example should not be considered a representation of past or future ex-
penses. Actual expenses may be greater or less than those shown.
Because expenses and sales charges vary between the classes, the performance
of each class will vary. Registered representatives may receive different lev-
els of compensation when selling shares of different classes of the Generation
Fund. Additional information regarding each Generation Fund's classes of shares
may be obtained by calling your representative or 1-800-367-7732.
Aetna Generation Funds Prospectus 7
<PAGE>
DESCRIPTION OF THE GENERATION FUNDS
INVESTMENT OBJECTIVES
AETNA ASCENT seeks to provide capital appreciation.
AETNA CROSSROADS seeks to provide total return (i.e., income and capital ap-
preciation, both realized and unrealized).
AETNA LEGACY seeks to provide total return consistent with preservation of
capital.
Each Generation Fund's investment objective is fundamental and may not be
changed without the vote of a majority of the holders of that Generation
Fund's outstanding shares. There can be no assurance that the Generation Funds
will meet their investment objectives. Each Generation Fund is subject to in-
vestment restrictions described in this Prospectus and in the SAI, some of
which are fundamental policies. No fundamental investment policy may be
changed without shareholder approval.
A glossary describing various securities used by the Generation Funds starts
on page 32.
HOW INVESTMENT OBJECTIVES ARE PURSUED
INVESTMENT STRATEGIES
EACH GENERATION FUND HAS A DIFFERENT ASSET ALLOCATION STRATEGY, WHICH CORRE-
SPONDS WITH DIFFERENT INVESTMENT OBJECTIVES AND LEVELS OF INVESTMENT RISK. The
strategy establishes separate allocation benchmarks and ranges for each asset
class. The benchmark allocations describe a typical asset allocation strategy
under neutral market conditions. The allocation ranges describe the permissi-
ble range of asset allocations allowed. The ranges are designed to allow the
Investment Adviser to achieve optimal allocation of assets, based on different
investment objectives and levels of investment risk. The Investment Adviser
may adjust the asset class mix of a particular Generation Fund within the
ranges described below.
AETNA ASCENT is managed for investors seeking capital appreciation who gener-
ally have an investment horizon exceeding 15 years, and who have a high level
of risk tolerance.
AETNA CROSSROADS is managed for investors seeking a balance between income and
capital appreciation who generally have an investment horizon exceeding 10
years and who have a moderate level of risk tolerance. Aetna Crossroads will
invest no more than 60% of its assets in any combination of the following as-
set classes, which are defined be-
8 Aetna Generation Funds Prospectus
<PAGE>
low: securities in the Small Capitalization Stock Class with capitalization of
less than $.5 billion, securities in the U.S. Dollar Bond Class that are below
investment grade (which are characterized as high-risk, High-Yield Securities
or "junk bonds"), securities in the International Stock Class, and securities
in the International Bond Class.
AETNA LEGACY is managed for investors primarily seeking total return consistent
with capital preservation, who generally have an investment horizon exceeding
five years and who have a low level of risk tolerance. Aetna Legacy will invest
no more than 35% of its assets in any combination of the following asset clas-
ses, which are defined below: securities in the Small Capitalization Stock
Class with capitalization of less than $.5 billion, securities in the U.S. Dol-
lar Bond Class that are characterized as high risk, High-Yield Securities, se-
curities in the International Stock Class and securities in the International
Bond Class.
The allocation benchmarks and asset class ranges and comparative indexes are
shown below:
<TABLE>
<CAPTION>
AETNA AETNA AETNA COMPARATIVE
ASSET CLASS ASCENT CROSSROADS LEGACY INDEX
----------- ---------- ---------- ------ -----------
<C> <S> <C> <C> <C>
EQUITIES
Large Capitalization Stocks
Range.................... 0-60% 0-45% 0-30% Standard &
Poor's 500
Stock Index
Benchmark................ 20% 15% 10%
Small Capitalization Stocks
Range.................... 0-40% 0-30% 0-20% Russell 2000
Small Cap
Stock Index
Benchmark................ 20% 15% 10%
International Stocks
Range.................... 0-40% 0-30% 0-20% Morgan Stanley
Capital
International
Europe,
Australia and
Far East Index
Benchmark................ 20% 15% 10%
Real Estate Stocks
Range.................... 0-40% 0-30% 0-20% National
Association
Real Estate
REIT Index
Benchmark................ 20% 15% 10%
FIXED INCOME
U.S. Dollar Bonds
Range.................... 0-30% 0-70% 0-100% Salomon
Brothers
Broad
Investment
Grade Index
Benchmark................ 10% 25% 40%
International Bonds
Range.................... 0-20% 0-20% 0-20% Salomon
Brothers
Non-U.S. World
Government
Bond Index
Benchmark................ 10% 10% 10%
Money Market Instruments
Range.................... 0-30% 0-30% 0-30% 91 Day T-Bill
Benchmark................ 0% 5% 10%
</TABLE>
Aetna Generation Funds Prospectus 9
<PAGE>
The Investment Adviser will allocate the assets of each Generation Fund
within the specified ranges. The benchmark asset mix represents (1) how a Gen-
eration Fund may allocate its assets under neutral market conditions and (2) a
basis for measuring the performance of each Generation Fund. The Investment
Adviser monitors a "hypothetical benchmark portfolio" consisting of a bench-
mark allocation in each comparative index. The Investment Adviser may compare
the performance of each Generation Fund to its corresponding hypothetical
benchmark portfolio.
The asset allocation of each Generation Fund may be above or below the bench-
mark allocation, based on the Investment Adviser's ongoing evaluation of the
expected returns and risks of each asset class relative to other classes. If
the Investment Adviser believes that the expected return for a particular as-
set class is higher than normal relative to the other classes, investment in
the class generally will be weighted more heavily than it would be in the Gen-
eration Fund's benchmark allocation. If the expected return for a particular
asset class is less than normal in relation to the other classes, generally it
will be underweighted relative to the Generation Fund's benchmark allocation.
The Investment Adviser regularly reviews the investment allocations of each
Generation Fund and will vary the amount invested in each class within the
ranges set forth above, depending upon its assessment of business, economic,
market and other conditions. For example, the Investment Adviser may adjust
the allocation mix in response to changes in circumstances with respect to
particular issuers or industries, in response to interest rate movements or
other economic conditions. In determining the asset mix of a particular Gener-
ation Fund, the Investment Adviser will consider many specific factors, in-
cluding, among other things: the dividend discount model, expected returns,
bond yields, price-to-earnings ratios, dividends yields and inflation. There
can be no assurance that any given allocation is the optimal allocation, al-
though the Investment Adviser allocates assets in a manner it believes will
aid in achieving a Generation Fund's investment objective.
The asset allocation limits described above apply at the time of purchase of
a particular security. Each Generation Fund may also invest in other securi-
ties not included in the asset classes listed above. These securities are de-
scribed below.
The securities in which the Generation Funds invest involve risks, which are
described below in "Investment Techniques."
EQUITY SECURITIES
EACH GENERATION FUND MAY INVEST ITS ASSETS IN EQUITY SECURITIES THAT THE IN-
VESTMENT ADVISER BELIEVES HAVE THE POTENTIAL FOR CAPITAL
10 Aetna Generation Funds Prospectus
<PAGE>
APPRECIATION. THESE MAY INCLUDE THE EQUITY SECURITIES OF LARGER, WIDELY-TRADED
COMPANIES, SMALLER, LESS WELL-KNOWN SECURITIES, FOREIGN SECURITIES AND REAL ES-
TATE-RELATED SECURITIES.
Securities in this asset class include convertible debentures and preferred
securities and warrants.
LARGE CAPITALIZATION STOCK CLASS. Equity securities in this class generally
have equity market capitalizations at the time of purchase of more than $1 bil-
lion, are U.S. domiciled and generally are widely traded on U.S. exchanges.
SMALL CAPITALIZATION STOCK CLASS. Equity securities in this class are issued by
smaller, less well-known U.S. companies with equity market capitalization gen-
erally less than $1.0 billion. These securities may involve greater risks, be-
cause their issuers may be untested in adverse market conditions, may have lim-
ited product lines or financial resources or may trade less frequently than
larger-capitalized companies. As a result, the prices of these securities may
fluctuate more than prices of larger, more widely-traded companies.
INTERNATIONAL STOCK CLASS. Equity securities in this class may be issued by
companies domiciled or engaged in business principally in countries outside of
the U.S. The Investment Adviser believes that investment in foreign securities
offers significant potential for long-term capital appreciation and affords
substantial opportunities for investment diversification. Each Generation Fund
may invest in ordinary foreign shares, American Depository Receipts ("ADRs"),
futures contracts on foreign stock indices and other derivative securities
within the limits set forth below. Investments in securities of foreign compa-
nies and in securities denominated in foreign currencies involve certain risks,
which are described below.
REAL ESTATE STOCK CLASS. Equity securities in this class include equity real
estate investment trusts ("REITs"), real estate development and real estate op-
erating companies, and shares of companies engaged in other real estate related
businesses. Each Generation Fund will invest the real estate portion of its
portfolio primarily in equity REITs, which are trusts that sell shares to in-
vestors and use the proceeds to invest in real estate or interests in real es-
tate. A REIT may focus on a particular project, such as apartment complexes, or
geographic region, such as the Northeastern United States, or both.
FIXED INCOME SECURITIES
EACH GENERATION FUND MAY INVEST IN FIXED INCOME SECURITIES, INCLUDING OBLIGA-
TIONS OF THE U.S. AND FOREIGN GOVERNMENTS AS WELL AS OBLIGATIONS OF CORPORA-
TIONS.
Aetna Generation Funds Prospectus 11
<PAGE>
The value of fixed income securities fluctuates in response to changes in in-
terest rates. Generally, when interest rates fall, the value of fixed income
securities increases. Conversely, when interest rates rise, the value of fixed
income securities decreases. The amount of increase or decrease in value is
affected by other factors, including the maturity of the security. Fixed in-
come securities are subject to various risks, including the creditworthiness
of the issuer and other economic factors.
U.S. DOLLAR BONDS CLASS consists of any fixed income security denominated in
U.S. dollars. Examples of securities in this class include U.S. Government se-
curities, debt securities issued by U.S. corporations, supranational agencies,
tax-exempt municipal bonds and mortgage-backed securities.
U.S. Government Securities consists of direct obligations of the U.S. Govern-
ment, such as treasury bills, notes and bonds that are backed by the full
faith and credit of the United States, or obligations of the U.S. Government,
such as notes and bonds that are guaranteed by agencies and instrumentalities
of the U.S. Government. Securities of these agencies and instrumentalities are
backed by either the full faith and credit of the U.S., the right of the is-
suer to borrow from the U.S. Treasury, or the credit of the agency or instru-
mentality. Securities in this group also include repurchase agreements collat-
eralized by U.S. Government agency securities, STRIPs and zero coupon bonds.
Corporate Bonds include investment grade debt securities and high risk, High-
Yield Securities. INVESTMENT GRADE DEBT SECURITIES include corporate bonds,
mortgage-backed and other asset-backed and debt securities (described below)
rated in the four highest categories by Standard & Poor's Corporation or
Moody's Investor Services, Inc., and other debt instruments with similar rat-
ings by other nationally recognized statistical rating organizations or, if
unrated, considered by the Investment Adviser to be of similar quality. High
risk, HIGH-YIELD SECURITIES, or "junk bonds," carry more credit risk and are
rated BB or below by S&P or Ba or below by Moody's or, if unrated, considered
by the Investment Adviser to be of comparable quality. Each Generation Fund
will not invest more than 15% of its assets in high-risk, High-Yield Securi-
ties and will not invest in any debt security rated lower than B.
Mortgage-backed securities These securities represent part ownership of a
pool of mortgage loans where principal is scheduled to be paid back by the
borrower over the length of the loan or returned in a lump sum at maturity.
They consist of pass-through securities issued by the U.S. Government and cor-
porations. Payments of interest and principal on U.S. mortgage-backed securi-
ties may be guaranteed by an agency or instrumentality of the U.S. These agen-
cies and instrumentali-
12 Aetna Generation Funds Prospectus
<PAGE>
ties include, but are not limited to, the Government National Mortgage Associa-
tion ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae")
and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Private mort-
gage pass-through securities are backed by pools of conventional fixed-rate or
adjustable-rate mortgage loans but are not guaranteed as to payment of interest
and/or principal by the issuer. In addition, the Generation Funds may invest in
collateralized mortgage obligations ("CMOs") and securities issued by real es-
tate mortgage investment conduits ("REMICs"). Mortgage-backed securities are
subject to prepayment risk resulting from early prepayment by individual home-
owners.
INTERNATIONAL BOND CLASS. Securities in this class include debt securities de-
nominated in currencies other than the U.S. dollar. Generally, these securities
are issued by foreign corporations and foreign governments and are traded on
foreign markets. Investment in international debt securities that are denomi-
nated in foreign currencies involve certain risks, which are described below.
See "Risk Factors and Other Considerations."
MONEY MARKET CLASS
EACH GENERATION FUND MAY INVEST IN HIGH QUALITY MONEY MARKET OBLIGATIONS THAT
PRESENT MINIMAL CREDIT RISK.
Money Market securities include U.S. Government obligations, certificates of
deposit, banker's acceptances, bank deposits, other financial institution obli-
gations, commercial paper and other short-term commercial obligations. These
securities may include instruments that have variable interest rates which, in
the opinion of the Investment Adviser, will maintain a value at or close to the
face value of the security. Each Generation Fund may keep a portion of its as-
sets in cash.
INVESTMENT TECHNIQUES
The Generation Funds may use the following investment techniques:
BORROWING MONEY A Generation Fund may borrow up to 5% of its net assets from a
bank for temporary or emergency purposes. The Generation Funds do not intend to
borrow or use leverage for other purposes.
REPURCHASE AGREEMENTS Under a repurchase agreement, a Generation Fund may ac-
quire a debt instrument for a relatively short period subject to an obligation
by the seller to repurchase and by the Generation Fund to resell the instrument
at a fixed price and time.
The Generation Funds may enter into repurchase agreements with domestic banks
and broker-dealers. Such agreements, although fully collateralized, involve the
risk that the seller of the securities may fail
Aetna Generation Funds Prospectus 13
<PAGE>
to repurchase them. In that event, a Generation Fund may incur costs in liqui-
dating the collateral or a loss if the collateral declines in value. If the
default on the part of the seller is due to insolvency and the seller initi-
ates bankruptcy proceedings, the ability of a Generation Fund to liquidate the
collateral may be delayed or limited.
The Board of Directors has established credit standards for repurchase trans-
actions entered into by the Generation Funds.
ASSET-BACKED SECURITIES The Generation Funds may purchase securities collater-
alized by a specified pool of assets, including, but not limited to, credit
card receivables, automobile loans, home equity loans, computer leases, boat
loans, mobile home loans, or recreational vehicle loans. These securities may
be subject to prepayment risk. In periods of declining interest rates, rein-
vestment would thus be made at lower and less attractive rates.
ZERO COUPON AND "PAY-IN-KIND" BONDS The Generation Funds may invest in zero
coupon securities and pay-in-kind bonds. Zero coupon securities are debt secu-
rities that pay no cash income but are sold at substantial discounts to their
value at maturity. Some zero coupon securities call for the commencement of
regular interest payments at a deferred date. Pay-in-kind bonds pay all or a
portion of their interest in the form of debt or equity securities. Zero cou-
pon securities and pay-in-kind bonds are subject to greater price fluctuations
in response to changes in interest rates than are ordinary interest-paying se-
curities with similar maturities; the value of zero coupon securities and pay-
in-kind bonds appreciate more during periods of declining interest rates and
depreciate more during periods of rising interest rates.
BANK OBLIGATIONS The Generation Funds may invest in obligations issued by do-
mestic banks or foreign banks (including banker's acceptances, time deposits
and certificates of deposit) provided the issuing bank has a minimum of $5
billion in assets and a primary capital ratio of at least 4.25%.
OPTIONS, FUTURES CONTRACTS AND OTHER DERIVATIVE INSTRUMENTS In order to manage
its exposure to changing interest rates, securities prices and currency ex-
change rates, or to increase its investment return, a Generation Fund may en-
gage in hedging and other strategies using derivatives (collectively referred
to as "hedging strategies").
A derivative is a financial instrument whose value is "derived" from the per-
formance of an underlying asset (such as a security or index of securities).
Derivatives include, but are not limited to, forward contracts, swaps, struc-
tured notes, collateralized mortgage obligations (CMOs), futures and options.
For purposes other than hedging, a Generation Fund will invest no more than 5%
of its total assets in deriva-
14 Aetna Generation Funds Prospectus
<PAGE>
tives which at the time of purchase are considered by management to involve
high risk to the Fund, such as inverse floaters, interest-only (IO) and princi-
pal-only (PO) securities.
A Generation Fund may buy and sell options (including index options and op-
tions on foreign securities), and may invest in futures contracts and related
options with respect to foreign currencies, fixed income securities, and for-
eign stock indices.
Some of these strategies, such as selling futures contracts, buying puts and
writing calls, hedge against price fluctuations. Other strategies, such as buy-
ing futures contracts, writing puts, buying calls and interest rate swaps, tend
to increase market exposure. In some cases, a Generation Fund may buy a futures
contract for the purpose of increasing its exposure in a particular market seg-
ment, which may be considered speculative, rather than hedging. The aggregate
futures market prices of financial instruments required to be delivered or pur-
chased under open futures contracts may not exceed 30% of Aetna Legacy's total
assets, 60% of Aetna Crossroads total assets and 100% Aetna Ascent's total as-
sets. With respect to futures contracts or related options that are entered
into for purposes that may be considered speculative, the aggregate initial
margin for futures contracts and premiums for options will not exceed 5% of a
Generation Fund's net assets, after taking into account realized profits and
unrealized losses on such futures contracts.
When a Generation Fund writes a call option, it gives the purchaser the right,
but not the obligation, to buy a particular security at a set price within a
set time. The Generation Fund receives income from the premium paid by the pur-
chaser. The calls are "covered," which means that the Generation Fund owns the
securities that are subject to the call (although it may substitute other qual-
ifying securities). There is no limit on the amount of a Generation Fund's to-
tal assets that may be subject to calls.
When a Generation Fund writes a put option, it gives the purchaser the right,
but not the obligation, to require the Generation Fund to buy a particular se-
curity at a set price within a set time. Writing puts requires the segregation
of liquid assets to cover the put. A Generation Fund will not write a put if it
will require more than 50% of the Generation Fund's net assets to be segregated
to cover the put obligation.
A Generation Fund may invest in foreign currency exchange contracts (or "for-
ward contracts," which may involve "cross-hedging," a technique in which a Gen-
eration Fund hedges changes in currencies other than the currency in which the
security is denominated) and interest rate swap transactions.
Aetna Generation Funds Prospectus 15
<PAGE>
All of these are referred to as "hedging instruments." Investment in these
hedging instruments involves certain risks, which are described below under
"Risk Factors and Other Considerations" and in the SAI.
SUPRANATIONAL AGENCIES Each Generation Fund may each invest up to 10% of its
net assets in securities of supranational agencies such as: the International
Bank for Reconstruction and Development (commonly referred to as the World
Bank), which was chartered to finance development projects in developing mem-
ber countries; the European Community, which is a twelve-nation organization
engaged in cooperative economic activities; the European Coal and Steel Commu-
nity, which is an economic union of various European nations' steel and coal
industries; and the Asian Development Bank, which is an international develop-
ment bank established to lend funds, promote investment and provide technical
assistance to member nations in the Asian and Pacific regions. Securities of
supranational agencies are not considered government securities and are not
supported directly or indirectly by the U.S. Government.
ILLIQUID AND RESTRICTED SECURITIES A Generation Fund may invest up to 15% of
its total assets in illiquid securities. Illiquid securities are securities
that are not readily marketable or cannot be disposed of promptly within seven
days in the ordinary course of business without taking a materially reduced
price. In addition, a Generation Fund may invest in securities that are sub-
ject to legal or contractual restrictions as to resale, including securities
purchased under Rule 144A and Section 4(2) of the Securities Act of 1933. The
Board of Directors has established a policy to determine the liquidity of such
securities.
OTHER INVESTMENTS In addition, each Generation Fund may use other investment
techniques, including "when-issued" and delayed-delivery securities and
variable rate instruments. These techniques are described in the Glossary and
the SAI.
RISK FACTORS AND OTHER CONSIDERATIONS
GENERAL CONSIDERATIONS The different types of securities purchased and invest-
ment techniques used by a Generation Fund involve varying amounts of risk. For
example, EQUITY SECURITIES are subject to a decline in the stock market or in
the value of the company and PREFERRED STOCKS have price risk and some inter-
est rate and credit risk. The value of DEBT SECURITIES may be affected by
changes in general interest rates and in the creditworthiness of the issuer.
Debt securities with longer maturities (for example, over ten years) are gen-
erally more affected by changes in interest rates and provide less price sta-
bility than securities
16 Aetna Generation Funds Prospectus
<PAGE>
with short term maturities (for example, one to ten years). Also, on each debt
security, the risk of principal and interest default is greater with higher-
yielding, lower-grade securities. High-risk High-Yield Securities may provide a
higher return but with added risk. In addition, FOREIGN SECURITIES may have
currency risk.
PORTFOLIO TURNOVER The Generation Funds do not intend to make a general prac-
tice of short-term trading. It is anticipated that the average annual portfolio
turnover rate will not exceed 100%. A high turnover rate will result in in-
creased brokerage commissions and may increase taxable capital gains. See "Tax
Status" for further information.
CASH OR CASH EQUIVALENTS The Generation Funds reserve the right to depart from
their investment objectives temporarily by investing up to 100% of their assets
in cash or securities in the Money Market Class for defense against potential
market declines.
INTERNATIONAL SECURITIES The purchase of international securities may involve
certain risks. These risks may include: currency fluctuations and related cur-
rency conversion costs; less liquidity; price or income volatility; less gov-
ernment supervision and regulation of foreign stock exchanges, brokers and
listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic developments;
different accounting procedures and auditing standards; the possible imposition
of withholding taxes on interest income payable on securities; the possible
seizure or nationalization of foreign assets; the possible establishment of ex-
change controls or other foreign laws or restrictions that might adversely af-
fect the payment and transferability of principal, interest and dividends on
securities; higher transaction costs; possible settlement delays; and less pub-
licly available information about foreign issuers.
DEPOSITORY RECEIPTS The Generation Funds can invest in both sponsored and
unsponsored depository receipts. Unsponsored depository receipts, which are
typically traded in the over-the-counter market, may be less liquid than spon-
sored depository receipts and therefore may involve more risk. In addition,
there may be less information available about issuers of unsponsored depository
receipts.
The Generation Funds will generally acquire American Depository Receipts
(ADRs) which are dollar denominated, although their market price is subject to
fluctuations of the foreign currency in which the underlying securities are de-
nominated. All depository receipts will be considered foreign securities for
purposes of a Generation Fund's investment limitation concerning investment in
foreign securities. See the Glossary and the SAI for more information.
Aetna Generation Funds Prospectus 17
<PAGE>
REAL ESTATE SECURITIES A Generation Fund's investments in real estate securi-
ties may be subject to certain of the same risks associated with the direct
ownership of real estate. These risks may include: declines in the value of
real estate; risks related to general and local economic conditions, over-
building and competition; increases in property taxes and operating expenses;
and variations in rental income. In addition, equity REITs may be dependent
upon management skill, may not be diversified, and may be subject to the risks
of obtaining adequate financing for projects on favorable terms. Equity REITs
also are subject to the possibility of failing to qualify for tax-free pass-
through of income under the Internal Revenue Code and failing to maintain ex-
emption from the Investment Company Act of 1940, as amended ("1940 Act").
HIGH-YIELD SECURITIES A Generation Fund may invest in high-risk High-Yield Se-
curities, often called junk bonds. These securities are rated BB/Ba or below
but at least B (securities with capacity to meet interest and principal pay-
ments but greater vulnerability to default), or, if unrated, considered by the
Investment Adviser to be of comparable quality. These securities tend to offer
higher yields than investment-grade bonds because of the additional risks as-
sociated with them. These risks include: a lack of liquidity; an unpredictable
secondary market; a greater likelihood of default; increased sensitivity to
difficult economic and corporate developments; call provisions which may ad-
versely affect investment returns; and loss of the entire principal and inter-
est. Although junk bonds are high-risk investments, the Investment Adviser may
purchase these securities if they are thought to offer good value. This may
happen if, for example, the rating agencies have, in the Investment Adviser's
opinion, misclassified the bonds or overlooked the potential for the issuer's
enhanced creditworthiness.
HEDGING STRATEGIES
THE USE OF THE HEDGING STRATEGIES DESCRIBED ABOVE INVOLVE SPECIAL RISKS. If
the Investment Adviser uses a hedging instrument at the wrong time or judges
market conditions incorrectly, hedging strategies may reduce a Generation
Fund's return.
Options and futures contracts can be volatile investments and involve certain
risks, including, but not limited to: no assurance that futures contracts
transactions can be effected at favorable prices; possible reduction in a Gen-
eration Fund's total return and yield; possible reduction in the value of the
futures instrument; the inability of a Generation Fund to limit losses by
closing its position due to lack of a liquid secondary market or due to daily
limits of price fluctuation; imperfect correlation between the value of the
contracts and the related
18 Aetna Generation Funds Prospectus
<PAGE>
securities; and potential losses in excess of the amount invested in the
futures contracts themselves.
The use of futures involves a high degree of leverage because of the low mar-
gin requirements. As a result, small price movements in futures contracts may
result in immediate and potentially significant gains or losses to a Generation
Fund. The amount of gains or losses on investments in futures contracts depends
on the portfolio manager's ability to predict correctly the direction of stock
prices, interest rates and other economic factors.
In writing puts, there is the risk that a Generation Fund may be required to
buy the underlying security at a disadvantageous price. In addition, it must
segregate assets to cover its obligations with respect to the sale of a put.
In writing calls, a Generation Fund may forego profits on an increase in the
price of an underlying security if the purchaser exercises the call option. In
addition, a Generation Fund could experience capital losses that might cause
previously-distributed income to be recharacterized for tax purposes as a re-
turn of capital to shareholders.
The use of forward currency contracts may reduce the gain that otherwise would
result from a change in the relationship between the U.S. dollar and a foreign
currency. To limit its exposure in foreign currency exchange contracts, the
Generation Funds limit their exposure to the amount of their respective assets
denominated in the foreign currency. Interest rate swaps are subject to credit
risks (if the other party fails to meet its obligations) and also to interest
rate risks, because the Generation Funds could be obligated to pay more under
its swap agreements than they receive under them, as a result of interest rate
changes.
Cross-hedging entails a risk of loss on both the value of the security that is
the basis of the hedge and the currency contract that was used in the hedge.
These risks are described in greater detail in the SAI.
VARIABLE RATE INSTRUMENTS, WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS "When-
issued," "delayed-delivery" and variable rate instruments may be subject to li-
quidity risks, credit risks and risks of loss of principal due to market fluc-
tuations. A Generation Fund will establish a segregated account in which it
will maintain liquid assets in an amount at least equal to the Fund's commit-
ments to purchase securities on a when-issued or delayed-delivery basis. For
more information about these securities, see the Glossary and the SAI.
SPECIAL CONSIDERATIONS Investors should be aware that the investment results of
the Generation Funds depend in part upon the Investment Adviser's ability to
anticipate correctly the relative performance of stocks, bonds and money market
instruments.
Aetna Generation Funds Prospectus 19
<PAGE>
While the Investment Adviser has substantial experience in managing all asset
classes, there can be no assurance that it will always allocate assets to the
best performing sectors. A Generation Fund's performance would suffer if a ma-
jor proportion of a Generation Fund's assets were allocated to stocks in a de-
clining market or, similarly, if a major proportion of a Generation Fund's as-
sets were allocated to bonds at a time of adverse interest rate movement.
INVESTMENT RESTRICTIONS
A Generation Fund will not concentrate its investments in any one industry,
except that a Generation Fund may invest up to 25% of its total assets in se-
curities issued by companies principally engaged in any one industry. For pur-
poses of this restriction, finance companies will be classified as separate
industries according to the end users of their services, such as automobile
finance, computer finance and consumer finance. This limitation will not apply
to securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. A Generation Fund will not invest more than 5% of its total
assets in the securities of any one issuer (excluding securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) or pur-
chase more than 10% of the outstanding voting securities of any one issuer.
This restriction applies only to 75% of a Generation Fund's total assets. A
Generation Fund may not purchase a call or a put if the value of all the Gen-
eration Fund's call and put options would exceed 5% of the value of its total
assets.
SHAREHOLDER SERVICES
THE COMPANY OFFERS SEVERAL SERVICES TO ITS GENERATION FUND SHAREHOLDERS. THESE
MAY BE CHOSEN FROM THE APPLICATION.
THESE SERVICES MAY NOT BE AVAILABLE THROUGH EMPLOYER-SPONSORED RETIREMENT
PLANS. FOR INFORMATION ON SERVICES THAT ARE AVAILABLE UNDER EMPLOYER-SPONSORED
RETIREMENT PLANS, SUCH AS 401(K) PLANS, PLEASE REFER TO YOUR ENROLLMENT MATE-
RIAL. THE SPECIFIC PROVISIONS OF YOUR PLAN WILL GOVERN THE INVESTMENT OPTIONS
AND SERVICES AVAILABLE TO YOU.
SHAREHOLDER INQUIRIES If you have any questions about the Generation Funds or
the shareholder services described below, please call your representative or
1-800-367-7732.
HOW TO PURCHASE SHARES Select Class shares may be purchased directly from the
Company, through a registered representative of a broker-dealer affiliated
with the Company, through a registered representative of an unaffiliated bro-
ker-dealer, or through an employer-
20 Aetna Generation Funds Prospectus
<PAGE>
sponsored retirement plan (if you are purchasing through such a plan, please
refer to your enrollment materials).
HOW TO OPEN AN ACCOUNT To open an account, please complete and submit an Appli-
cation with the amount to be invested. You may open an account with a minimum
investment of $1,000 or $500 for IRAs. Minimum investments may be waived if an
investment is made through exchange of the entire amount invested in the same
class of another portfolio of the Company (including any of the Generation
Funds). Minimums may also be waived for certain circumstances such as for per-
sons investing through certain benefit plans, insurance settlement options or
by systematic investments. (See "Other Features--Systematic Investment.")
CREDITING OF SHARES If a completed and signed Application accompanied by a
check in payment for the shares is received by Firstar Trust Company, the
transfer agent, at its Milwaukee offices, prior to 4:00 p.m. Eastern time on
any day that the New York Stock Exchange is open for business ("Business Day"),
the Select Class shares will be purchased at the net asset value determined as
of 4:15 p.m. on that date. Orders received after 4:00 p.m. will be processed at
the net asset value determined on the following Business Day. See "Net Asset
Value" for information on how the Generation Funds are valued. Once you have
opened an account in a Generation Fund, additional investments may be made by
mail ($100 minimum), wire transfer ($500 minimum) or exchange from the same
class of shares of another Generation Fund (or any other Fund of the Company).
All checks must be drawn on a bank located within the United States and be pay-
able in U.S. dollars.
PURCHASE BY MAIL To purchase shares by mail, please complete and sign the Ap-
plication, make a check payable to the Aetna Series Fund, Inc. and return both
to your agent or representative. You can make additional investments to your
accounts by using the investment stubs from your confirmation statements or by
letter. Your letter should indicate your name, account number(s), the Select
Class shares of the Generation Fund(s) in which you wish to invest, and the
amount to be invested. Letters should be mailed to the transfer agent as fol-
lows:
Aetna Series Funds, Inc.--Generation Funds
c/o Mutual Fund Services, 3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701.
PURCHASE BY WIRE If you have an account in a Generation Fund, you may purchase
additional Select Class shares of that Generation Fund
Aetna Generation Funds Prospectus 21
<PAGE>
by wire. For federal funds wire instructions, please call 1-800-367-7732. Fed-
eral funds wire purchase orders will be accepted only when the Generation Fund
and custodian bank are open for business.
PURCHASE BY ELECTRONIC FUNDS TRANSFER Once an account has been established in
any of the Generation Funds, you may wish to make additional purchases of Se-
lect Class shares by using Electronic Funds Transfer ("EFT") facilities under
the Systematic Investment feature. This will allow you to transfer money be-
tween a bank account and a specific Generation Fund. The appropriate election
must be made on the Application to authorize this option.
PURCHASE BY EXCHANGE You may open an account or purchase additional Select
Class shares by making an exchange between Select Class shares of another Gen-
eration Fund or of any of the other Funds of the Company without charge. See
"Other Features" for automatic exchange privileges. An exchange may be made by
submitting a letter requesting the exchange and specifying (1) the name and
account number of your current Generation Fund account; (2) the name of the
Fund you wish to exchange into; (3) the amount to be exchanged; and (4) the
signatures of all shareholders. Send your request to the transfer agent as
follows:
Aetna Series Fund, Inc.--Generation Funds
c/o Mutual Fund Services
3rd Floor P.O. Box 701
Milwaukee, WI 53201-0701
You may exchange your Select Class shares by calling 1-800-367-7732. Please
provide the Fund names, account number, your Social Security number or tax-
payer identification number, account address and the amount to be exchanged.
Requests received prior to 4:00 p.m. Eastern time will be processed that Busi-
ness Day. You should carefully consider the following before making an ex-
change:
. Each exchange may result in a gain or loss and is treated as a sale and as a
purchase of shares for tax purposes.
. An exchange which represents an initial investment in a Fund must meet the
minimum investment requirements.
. The shares received in an exchange must be identically registered. A letter
with signature guarantees must accompany any exchange request to transfer
shares into an account that is not registered identically to the
transferring account.
. Following an investment in a Fund, there is a required eight-day holding
period before those shares can be exchanged.
22 Aetna Generation Funds Prospectus
<PAGE>
There is currently no limit on the number of exchanges. However, each Fund re-
serves the right to temporarily or permanently terminate the exchange privilege
for any person who makes more than five exchanges out of a Fund per calendar
year. In addition, each Fund reserves the right to refuse exchange purchases by
any person or group if, in the Investment Adviser's judgment, that Fund would
be unable to invest effectively in accordance with its investment objective as
a result of such exchange. Each Fund also reserves the right to revise the ex-
change privilege at any time.
You automatically receive telephone exchange privileges when you establish
your account. If you do not want telephone exchange privileges, write to the
transfer agent at the above address or call 1-800-367-7732. The Funds will em-
ploy reasonable procedures to confirm that instructions received are genuine.
If the Funds do not follow those procedures, they may be liable for any losses
due to unauthorized or fraudulent instructions. For your protection, all tele-
phone exchange transactions will be recorded, and you will be asked to provide
certain identifying information.
DISTRIBUTION OPTIONS When completing an Application, you must select one of the
following options:
. FULL REINVESTMENT--Both dividends and capital gains distributions from a Gen-
eration Fund will be reinvested in additional Select Class shares of that
Generation Fund. This option will be selected automatically unless one of the
other options is specified. (See "Fund Distributions.")
. OR . . . CAPITAL GAINS REINVESTMENT--Capital gains distributions from a Gen-
eration Fund will be reinvested in additional Select Class shares of that
Fund and all net income dividends will be distributed in cash.
. OR . . . ALL CASH--Dividends and capital gains distributions will be paid in
cash.
If a cash distribution option is selected you can elect to have distributions
automatically invested in Select Class shares of another Generation Fund or of
any other Fund of the Company.
HOW TO REDEEM SHARES To redeem all or a portion of the Select Class shares in
your account, a redemption request should be submitted as described below.
Shares will be redeemed at the net asset value next determined after receipt of
the redemption request by the transfer agent. Redemptions received by 4:00 p.m.
Eastern time will be processed at the net asset value determined as of 4:15
p.m. on that date if all required documentation is received by the transfer
agent by 4:00
Aetna Generation Funds Prospectus 23
<PAGE>
p.m. Redemption requests received after 4:00 p.m. will be processed at the net
asset value determined on the following Business Day.
REDEEM BY MAIL Shares of any Generation Fund may be redeemed by sending a let-
ter of instruction to the transfer agent identifying the Generation Fund, the
number of shares or dollar amount to be redeemed, your name and the Generation
Fund account number. The letter of instruction must be signed by all person(s)
required to sign for the Generation Fund account, exactly as it is registered,
and accompanied by a signature guarantee(s). Certain nonindividual sharehold-
ers may also be required to furnish copies of a corporate resolution, trust
document or other supporting documents.
Once shares are redeemed, the relevant Generation Fund will normally send the
proceeds of such redemption within one or two business days. However, if mak-
ing immediate payment could adversely affect a Generation Fund, the Generation
Fund may defer distribution for up to seven days. Also, a Generation Fund will
hold payment of redemption proceeds until a purchase check or systematic in-
vestment clears, which may take up to 12 calendar days. The Generation Fund(s)
may suspend redemptions or postpone payments when the NYSE is closed or when
trading is restricted for any reason other than its customary weekend or holi-
day closings, or under any emergency circumstances as determined by the Com-
mission.
REDEEM BY WIRE Redemption proceeds will be transferred by wire to your desig-
nated bank account if federal funds wire instructions are provided with your
signature guaranteed letter of redemption. A $7.50 fee will be charged for
this service. A minimum redemption of $1,000 is required for wire transfers.
For help with redemptions, call your agent or representative or 1-800-367-
7732.
SIGNATURE GUARANTEE The Generation Funds will waive the signature guarantee
requirement for redemption requests for amounts of $10,000 or less. However,
if you wish to have your redemption proceeds transferred by wire to your des-
ignated bank account, paid to someone other than the shareholder of record, or
sent somewhere other than the shareholder address of record, you must provide
a signature guarantee with your written redemption instructions regardless of
the amount of redemption.
The Generation Funds reserve the right to amend or discontinue this waiver of
signature guarantee policy at any time and establish other criteria for veri-
fying redemption request authenticity.
Any one of the following institutions may provide a signature guarantee: a
national or state bank (or savings bank in New York or Massachusetts only); a
trust company; a federal savings and loan association;
24 Aetna Generation Funds Prospectus
<PAGE>
or a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange. Please note that signature guarantees are not provided by notary
publics.
MINIMUM ACCOUNT BALANCE To keep your account open, you must maintain a minimum
balance of $500 in each Generation Fund account. If this minimum balance is not
maintained due to redemptions, the Generation Fund reserves the right to redeem
all of your remaining shares in that account and mail the proceeds to you at
the address of record. Shares will be redeemed at net asset value determined on
the day the account is closed. The Generation Fund will give you 60 days notice
that such redemption will occur unless you make an additional investment to in-
crease the account balance to the $500 minimum.
TAX-DEFERRED RETIREMENT PLANS The Generation Funds can be used for investment
by a variety of tax-deferred plans. These plans let you save for retirement and
can defer taxes on your investment income. Some of these plans are:
. IRAs, available to individuals who work and their spouses.
. 401(k) Programs, available to corporations of all sizes to benefit their em-
ployees.
SHAREHOLDER INFORMATION The transfer agent will maintain shareholder accounts.
A confirmation statement is sent to you and your agent or representative after
every transaction that affects your share balance or account registration. A
Form 1099 will also be sent each year by January 31. You will also receive an
annual and semiannual report of the Generation Funds. The transfer agent may
charge you a fee for special reports such as an historical transcript of your
account.
Consolidated Statements, reflecting current account values and year-to-date
transactions, will be sent each quarter. All accounts identified by the same
social security number and address will be consolidated. For example, you could
receive a Consolidated Statement showing your individual and IRA accounts. An-
nual and semiannual reports will also be consolidated on this basis. With the
prior permission of the other shareholders involved, you have the option of re-
questing that accounts controlled by those other shareholders be shown on one
Consolidated Statement. For example, information on your individual account,
your IRA, your spouse's individual account and your spouse's IRA may be shown
on the Consolidated Statement.
OTHER FEATURES
SYSTEMATIC INVESTMENT The Systematic Investment feature, using the EFT capabil-
ity, allows you to make automatic monthly investments in
Aetna Generation Funds Prospectus 25
<PAGE>
any of the Generation Funds. You may select, on the Application, the amount of
money to be moved and the Generation Fund in which to be invested. There is no
minimum initial cash investment required to open your account. However, the
minimum monthly Systematic Investment is $50 per Generation Fund account. Your
Application must be received at least 15 business days prior to the first EFT
transaction. The Systematic Investment feature and EFT capability will be ter-
minated upon total redemption of your account. Also, a Generation Fund will
hold payment of redemption proceeds until a Systematic Investment has cleared,
which may take up to 12 calendar days.
AUTOMATIC CASH WITHDRAWAL PLAN The Automatic Cash Withdrawal Plan provides a
convenient way for you to receive a systematic distribution while maintaining
an investment in the Generation Funds. The Automatic Cash Withdrawal Plan per-
mits you to have payments of $100 or more automatically transferred from your
account(s) in the Generation Fund(s) to your designated bank account on a
monthly basis. In order to start this plan, you must have a minimum balance of
$10,000 in any Generation Fund account utilizing this feature. Your automatic
cash withdrawals will be processed on a regular basis beginning on or about
the first day of the month. There may be tax consequences associated with
these transactions. Please consult your tax adviser.
CHANGES TO SERVICE The Generation Funds reserve the right to amend the share-
holder services or to change the terms or conditions.
CROSS-FUND INVESTING
DIVIDEND INVESTING--You may elect to have dividend and/or capital gains dis-
tributions automatically invested in another Select Class Fund account.
SYSTEMATIC EXCHANGE--You may establish an automatic exchange of Select Class
shares from one Fund account to another (including any of the Generation
Funds). The exchange will occur on or about the 15th day of each month and
must be for a minimum of $50 per month. As this transaction is treated as an
exchange, the policies related to the exchange privilege apply. Please read
the "Purchase by Exchange" section carefully. There may be tax consequences
associated with these exchanges. Please consult your tax adviser.
Cross-Fund Investing may only be made into a Fund account that has previously
been established with the Fund's minimum investment. To request either or both
of these features, please call your agent or representative, or call 1-800-
367-7732.
26 Aetna Generation Funds Prospectus
<PAGE>
MANAGEMENT OF THE GENERATION FUNDS
DIRECTORS The business affairs of each Generation Fund is managed under the di-
rection of the Board of Directors ("Directors"). The Directors set broad poli-
cies for the Company and each Generation Fund. Information about the Directors
is found in the SAI.
INVESTMENT ADVISER ALIAC, the Investment Adviser for each Generation Fund, is a
Connecticut insurance corporation located at 151 Farmington Avenue, Hartford,
Connecticut 06156. The Investment Adviser is registered with the Commission as
an investment adviser and in addition to managing the Generation Funds, pro-
vides investment advisory services to other mutual funds (Aetna Money Market
Fund, Aetna Government Fund, Aetna Tax-Free Fund, The Aetna Fund, Aetna Growth
and Income Fund, Aetna Growth Fund, Aetna Small Company Growth Fund, Aetna In-
ternational Growth Fund, Aetna Asian Growth Fund, Aetna Variable Fund, Aetna
Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund, Inc.
and Aetna GET Fund, which together amount to $7 billion in assets) together
with several fixed income portfolios. The Investment Adviser is a wholly-owned
subsidiary of Aetna Life and Casualty Company which, with affiliated companies,
comprises one of the world's leading providers of insurance and financial serv-
ices.
Under an investment advisory agreement with the Company, the Investment Ad-
viser is, subject to the supervision of the Directors, responsible for managing
the assets of each Generation Fund in accordance with its investment objective
and policies. The Investment Adviser determines what securities and other in-
struments are purchased and sold by each Generation Fund and is responsible for
obtaining and evaluating financial data relevant to any Generation Fund portfo-
lio.
The Investment Adviser also furnishes all necessary facilities and pays the
salaries and other related costs of personnel engaged in providing investment
advice to the Company. It also pays salary and other fees and expenses for Di-
rectors and officers of the Company who are employees or affiliated persons of
the Investment Adviser. The Investment Adviser receives a monthly fee at an an-
nual rate based upon the average net assets of each Generation Fund as follows:
0.80% on the first $500 million; 0.775% on the next $500 million; 0.75% on the
next $500 million; 0.725% on the next $500 million; and 0.70% on assets over $2
billion.
ADMINISTRATOR ALIAC acts as administrator for each Generation Fund and performs
certain administrative and internal accounting services, including maintaining
general ledger accounts, regulatory compliance, preparation of financial infor-
mation for semiannual and annual reports, preparing registration statements,
calculating net asset values, share-
Aetna Generation Funds Prospectus 27
<PAGE>
holder communications and supervision of the custodian and transfer agent.
For these services, ALIAC receives a monthly fee at an annual rate based upon
the average net assets as follows: 0.25% on the first $250 million; 0.24% on
the next $250 million; 0.23% on the next $250 million; 0.22% on the next $250
million; 0.20% on the next $1 billion and 0.18% on assets over $2 billion.
PRINCIPAL UNDERWRITER ALIAC is the principal underwriter for the Company.
ALIAC may contract with various broker-dealers, including one or more affili-
ates, for distribution of Select Class shares. ALIAC may also sell shares of
the Generation Funds directly.
TRANSFER AGENT Firstar Trust Company acts as each Generation Fund's transfer
and dividend-paying agent. Firstar is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder ac-
counts.
FUND EXPENSES Each Fund bears the costs of its operations. Expenses directly
attributable to a Fund are charged to that Fund. Some expenses are allocated
proportionately among all the Funds in relation to the net assets of each Fund
and some expenses are allocated equally to each Fund.
PORTFOLIO MANAGEMENT
The following individual serves as the lead portfolio manager for each of the
Generation Funds and is primarily responsible for determining the allocation
of the Generation Fund's investments among the seven asset classes described
above:
KEVIN M. MEANS Portfolio Manager of the Generation Funds since inception in
1994; Vice President, ALIAC Equities since 1994; Portfolio Manager of INVESCO
Multi-Asset Allocation Fund and INVESCO EBI Multiflex Fund from inception in
1993 to 1994; Chief Investment Officer of INVESCO Management & Research, Inc.,
1993-1994; Portfolio Manager with INVESCO Capital Management Inc., 1987-1993.
Mr. Means is assisted by a team of portfolio managers specializing in the
various asset classes in which the Generation Funds may invest. These analysts
are responsible for managing security selection for their assigned classes'
share of each Generation Fund's portfolio within the overall asset allocation
parameters.
FUND DISTRIBUTIONS
The Generation Funds declare and pay dividends annually. All capital gains
distributions, if any, are paid on an annual basis.
28 Aetna Generation Funds Prospectus
<PAGE>
Income dividends are derived from investment income, including dividends, in-
terest, realized short-term capital gains, and certain foreign currency gains
received by a Generation Fund. Capital gains distributions are derived from
each Generation Fund's realized long-term capital gains. The per share divi-
dends and distributions of Select Class shares will be higher than the per
share dividends and distributions of the Adviser Class as a result of the dis-
tribution and service fees applicable to the Adviser Class. See "Fees and
Charges."
REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Unless you
elect otherwise, as permitted in the Application, income dividends and capital
gains distributions with respect to a particular Generation Fund will be rein-
vested in additional Select Class shares of that Generation Fund and will be
credited to your account at the next determined net asset value per share. Both
income dividends and capital gains distributions are paid by a Generation Fund
on a per-share basis. As a result, at the time of such payment, the net asset
value per share of a Generation Fund will be reduced by the amount of such pay-
ment.
If you wish to change the manner in which you receive income dividends and
capital gains distributions, your notification of such change must be received
by the transfer agent at least ten days before the next scheduled distribution.
NET ASSET VALUE
The net asset value per share ("NAV") of each Generation Fund is determined as
of 4:15 p.m. Eastern time on each day that the NYSE is open for trading. Each
Generation Fund's NAV is computed by dividing the total value of a Generation
Fund's securities, plus any cash or other assets (including dividends and in-
terest accrued but not collected) less all liabilities (including accrued ex-
penses), by the number of shares outstanding. Portfolio securities are valued
primarily on the basis of market quotations. All other assets, including re-
stricted securities and other securities for which market quotations are not
readily available, are valued at their fair value in such manner as may be de-
termined, from time to time, in good faith by, or under the authority of, the
Directors.
TAXES
INTRODUCTION The tax information described below is only a summary of federal
income tax consequences and is based on tax laws and regulations in effect as
of the date of this Prospectus. Please refer to the SAI for a more detailed
discussion of federal income tax considerations. In addition to federal taxes,
you may be subject to state and local taxes and you should discuss your indi-
vidual tax situation with your tax adviser.
Aetna Generation Funds Prospectus 29
<PAGE>
Each Generation Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including requirements with respect to diversi-
fication of assets, distribution of income and sources of income. It is the
policy of each Generation Fund to distribute to shareholders all of its in-
vestment income (net of expenses) and any capital gains (net of capital loss-
es) in accordance with the timing requirements imposed by the Code so that
each Generation Fund will satisfy the distribution requirement of Subchapter M
and not be subject to federal income taxes or the 4% excise tax.
SHAREHOLDER DISTRIBUTIONS Distributions of net long-term capital gains are
taxable to you as long-term capital gains regardless of the length of time you
have owned your shares. Distributions of net investment income and net short-
term capital gains are taxable to you as ordinary income. Investment income
from foreign securities may be subject to foreign taxes withheld at the
source. It is impossible to determine the effective rate of foreign tax in ad-
vance since the amount of a Generation Fund's assets to be invested in various
countries is not known. A Generation Fund's distributions are taxable in the
year they are received, whether you take them in cash or reinvest them in ad-
ditional shares. However, distributions declared in October, November or De-
cember of any calendar year and paid in January of the following calendar year
will be taxable as if paid on December 31 of the year of declaration. Each
Fund will send a statement to shareholders by January 31 indicating the tax
status of distributions made (or deemed made) during the previous year and any
foreign taxes "passed-through" to shareholders.
BUYING A DIVIDEND If you buy shares of a Generation Fund just before the ex-
dividend date, you will be taxed on the entire amount of the dividend re-
ceived.
SHARE REDEMPTIONS Any gain or loss realized when you redeem (sell) or exchange
shares of a Generation Fund will be treated as a taxable long-term or short-
term capital gain or loss. Please see the SAI for information regarding any
limitation on deductibility of such losses.
TAX WITHHOLDING When you fill out your Application, you will be asked to cer-
tify that your Social Security or taxpayer identification number is correct
and that you are not subject to backup withholding by the Internal Revenue
Service ("IRS"). If you are subject to backup withholding, the IRS can require
a Generation Fund to withhold 31% of your taxable dividends, capital gains
distributions and redemptions.
30 Aetna Generation Funds Prospectus
<PAGE>
GENERAL INFORMATION
ARTICLES OF INCORPORATION The Company was incorporated under the laws of Mary-
land on June 17, 1991. The Articles of Incorporation ("Articles") provide for
the issuance of multiple series of shares, each representing a portfolio of in-
vestments with different investment objectives, policies and restrictions. The
Company authorized the organization of the Generation Funds by amendment to its
Articles on September 27, 1994.
SHARE CLASSES Each Fund offers shares of common stock currently classified into
two classes, Select Class shares and Adviser Class shares. Each class of shares
has the same rights, privileges and preferences, except with respect to: (a)
the effect of the respective sales charge, if any, for each class; (b) the dis-
tribution and/or service fees borne by each class; (c) the expenses allocable
exclusively to each class; (d) voting rights on matters exclusively affecting a
single class; and (e) the exchange privilege of each class. The Directors do
not anticipate that there will be any conflicts among the interests of the
holders of the different classes of shares of the Funds. The Directors continue
to consider whether any such conflicts exist and, if so, take appropriate
action.
The Generation Funds intend to seek a ruling from the IRS to the effect that
differing distributions among the classes of its shares will not result in the
Generation Funds' dividends or other distributions being regarded as "preferen-
tial dividends" under the Internal Revenue Code. While similar rulings have
been issued by the IRS, including a ruling with respect to the ten existing
Fund portfolios of the Company, complete assurance cannot, of course, be given
that the Generation Funds will receive such a ruling. For additional informa-
tion, including a discussion of the consequences were the IRS to decline to
grant the requested ruling, see the SAI.
CAPITAL STOCK The Articles authorize the issuance of four billion, eight hun-
dred million shares of capital stock of the Company. All shares are nonassess-
able, transferable and redeemable. There are no preemptive rights.
SHAREHOLDER MEETINGS The Company is not required and does not intend to hold
annual shareholder meetings. The Articles provide for meetings of shareholders
to elect Directors at such times as may be determined by the Directors or as
required by the 1940 Act. If requested by the holders of at least 10% of a Gen-
eration Fund's outstanding shares, the Company will hold a shareholder meeting
for the purpose of voting on the removal of one or more Directors and will as-
sist with communication concerning that shareholder meeting.
Aetna Generation Funds Prospectus 31
<PAGE>
VOTING RIGHTS Shareholders of each class are entitled to one vote for each
full share held and fractional votes for fractional shares of each class held
on matters submitted to the shareholders of the Company. Voting rights are not
cumulative. Generally, shares of the Company will be voted on a Company-wide
basis on all matters except matters affecting the interest of only one Fund or
one class of shares.
PAYMENTS TO DEALERS From time to time, ALIAC or its affiliates may make pay-
ments (up to 0.25%, computed on an annualized basis, of average monthly ac-
count values) to other dealers and/or their agents who sell Select Class
shares or who provide shareholder services to you. These payments are made
from the resources of the paying entity so the price you pay for Select Class
shares and the value of your investment will be unaffected.
PERFORMANCE DATA
The Generation Funds may compare their performance to other mutual funds with
similar investment objectives and to the industry as a whole, as quoted by
ranking services and publications of general interest. These may include the
Standard & Poor's 500 Stock Index ("S&P 500"), the Russell 2000 Index,
Shearson Lehman Aggregate Bond Index, Dow Jones Industrial Average ("DJIA"),
Lipper Analytical Services, Inc., the National Association of Real Estate In-
vestment Trusts ("NAREIT") Equity REIT Index, IBC/Donoghue's Taxable MFA, the
Morgan Stanley Capital International Europe, Australia, Far East ("EAFE") In-
dex, the Morgan Stanley Capital International Far East Free ("FEF ex. Japan")
Index, Salomon Brothers Broad Investment Grade Index and the Salomon Brothers
Non-U.S. Bond Index.
GLOSSARY OF INVESTMENT TERMS
This glossary describes some of the securities used by the Generation Funds.
Further information is available in the SAI:
BANKER'S ACCEPTANCE A banker's acceptance is a time draft drawn on a bank and
is customarily used by corporations as a means of financing payment for traded
goods. When a draft is accepted by a bank, the bank guarantees to pay the face
value of the debt at maturity.
CERTIFICATES OF DEPOSIT For large deposits not withdrawable on demand, banks
issue certificates of deposit ("CDs") as evidence of ownership. CDs are usu-
ally negotiable and traded among investors such as mutual funds and banks.
COMMERCIAL PAPER Commercial paper is short-term debt instruments issued by
companies or banks with a maturity ranging from five to 270 days.
32 Aetna Generation Funds Prospectus
<PAGE>
DEPOSITORY RECEIPTS Depository receipts are negotiable certificates evidencing
ownership of shares of a non-U.S. corporation, government, or foreign subsidi-
ary of a U.S. Corporation. A U.S. bank typically issues depository receipts,
which are backed by ordinary shares that remain on deposit with a custodian
bank in the issuer's home market.
A depository receipt can either be "sponsored" by the issuing company or es-
tablished without the involvement of the company, which is referred to as
"unsponsored."
EURODOLLARS Eurodollars are U.S. dollars held in banks outside the United
States, mainly in Europe but also in other countries, and are commonly used for
the settlement of international transactions. There are many types of Eurodol-
lar securities including Eurodollar CDs and bonds; these securities are not
registered with the Commission. Certain Eurodollar deposits are not FDIC in-
sured and may be subject to future political and economic developments and gov-
ernmental restrictions.
HIGH-YIELD SECURITIES Bonds of low quality security backing rated BB or below
by Standard & Poor's Corp. or Ba or below by Moody's Investors Service, Inc.,
or other agencies or, if unrated, considered by the Investment Adviser to be of
comparable quality. These bonds are often called "junk" bonds because of the
greater possibility of default.
PAY-IN-KIND BONDS Pay-in-kind bonds are securities that pay interest through
the issuance of additional bonds.
U.S. GOVERNMENT DERIVATIVES A Fund may purchase separately traded principal and
interest components of certain U.S. Government securities ("STRIPS"). In addi-
tion, a Fund may acquire custodial receipts that represent ownership in a U.S.
Government security's future interest or principal payments. These securities
are known by such exotic names as TIGRS and CATS and may be issued at a dis-
count to face value. They are generally more volatile than normal fixed income
securities because interest payments are accrued rather than paid out in regu-
lar installments.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS When-issued and delayed-delivery
transactions are trading practices in which payment and delivery for securities
takes place at a future date. The market value of a security could change dur-
ing the interim period, which could affect yield.
VARIABLE RATE INSTRUMENTS A variable or floating rate instrument is one whose
terms provide for the adjustment of its interest rate on set dates and which
can reasonably be expected to have a market value close to par value.
Aetna Generation Funds Prospectus 33
<PAGE>
YANKEE BONDS A bond issued in the United States by foreign countries, corpora-
tions and banks. Similarly, Yankee CDs are issued in the U.S. by branches of
foreign banks.
ZERO COUPON BONDS Bonds issued at a deep discount to face value. These bonds
pay no interest but are redeemed at full face value. The price of zero coupon
bonds are more volatile than bonds which pay interest but are rated on the
same principles as all fixed-income investments.
The Generation Funds also use some of the following securities to manage risk
and volatility:
CALL OPTION The right to buy a security, currency or stock index at a stated
price, or strike price, within a fixed period. A call option will be exercised
if the spot price rises above the strike price; if not, the option expires
worthless.
PUT OPTION The right to sell a security, currency or stock index at a stated
price, or strike price, within a fixed period. A put option will be exercised
if the spot price falls below the strike price; if not, the option expires
worthless.
COVERED CALL OPTIONS A call option backed by the securities underlying the op-
tion. The owner of a security will normally sell covered call options to col-
lect premium income or to reduce price fluctuations of the security. A covered
call option limits the capital appreciation of the underlying security.
COVERED PUT OPTION A written put option covered by segregated liquid assets
equal to the value of the exercise price of the put. Writing a put has similar
economic effect as writing a call. The writer receives a premium, but also as-
sumes the obligation during the option period to buy the underlying investment
from the buyer at the exercise price, even though the value of the investment
may fall below the exercise price.
CONVERTIBLE STOCK Corporate securities, which may be either bonds or preferred
shares, that can be exchanged for shares of common stock at a fixed price.
FUTURES Contracts to buy securities, currencies or stock indexes in the future
at a price agreed to in advance. A futures contract obliges the buyer to pur-
chase the security and the seller to sell it, unlike an option where the buyer
can choose whether or not to exercise the option.
PREFERRED STOCK Shares which pay a fixed dividend, in contrast to common stock
whose dividends depend on the profits of the company.
34 Aetna Generation Funds Prospectus
<PAGE>
WARRANTS A security, normally offered with bonds or preferred stock, that enti-
tles investors to buy shares at a prescribed price within a named period. The
time period is usually longer than that of a call option.
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
"Aaa" RATING Bonds rated Aaa are judged to be of the best quality and carry the
smallest degree of investment risk. Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" RATING Bonds rated Aa are judged to be of high-quality by all standards.
Together with the Aaa group, they are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat greater than in Aaa securities.
"A" RATING Bonds rated A possess many favorable investment attributes and are
considered upper-medium-grade obligations. Factors relating to security of
principal and interest are considered adequate but elements may be present
which suggest possible impairment sometime in the future.
"Baa" RATING Bonds rated Baa are considered medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Inter-est payments and
principal security appear adequate for the present but certain protective ele-
ments may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics.
"Ba" RATING Bonds rated Ba are judged to have speculative elements; their fu-
ture cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
other good and bad times over the future. Uncertainty of position characterizes
this class of bond.
"B" RATING Bonds rated B generally lack characteristics of the desirable in-
vestment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Aetna Generation Funds Prospectus 35
<PAGE>
The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its rating category.
STANDARD & POOR'S CORPORATION
"AAA" RATING Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
"AA" RATING Bonds rated AA have a very strong capacity to pay interest and re-
pay principal and differ from the highest rated issues only in small degree.
"A" RATING Bonds rated A have a strong capacity to pay interest and repay prin-
cipal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated cat-
egories.
"BBB" RATING Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protec-
tion, adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for debt in
this category than in higher-rated categories.
"BB" RATING Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, the bonds face major uncertainties or expo-
sure to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
"B" RATING Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The ratings from "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
36 Aetna Generation Funds Prospectus
<PAGE>
[LOGO OF AETNA SERIES FUND, INC.
AETNA 151 Farmington Avenue
APPEARS Hartford, CT 06156-8962
HERE]
1-800-367-7732
INVESTMENT ADVISER
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, CT 06156
CUSTODIANS
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Brown Brothers Harriman & Company
40 Water Street
Boston, MA 02109
TRANSFER AGENT
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
CityPlace II
Hartford, CT 06103-4103
This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the securities of a Fund in any
jurisdiction in which such sale, offer to sell, or solicitation
may not be lawfully made.
Aetna Generation Funds Prospectus 37
<PAGE>
ADVISER CLASS
AETNA
[LOGO OF AETNA APPEARS HERE] GENERATION FUNDS
DECEMBER 28, 1994 PROSPECTUS
- --------------------------------------------------------------------------------
AETNA ASCENT
AETNA CROSSROADS
AETNA LEGACY
THE COMPANY Aetna Series Fund, Inc. (the "Company") is an open-end management
investment company authorized to issue multiple series of shares, each repre-
senting a diversified portfolio of investments ("Fund(s)") with different in-
vestment objectives, policies and restrictions. This Prospectus describes three
of the Funds: Aetna Ascent, Aetna Crossroads and Aetna Legacy ("Generation
Funds"). Each Generation Fund is an asset allocation fund that allocates its
investments among equities and fixed income securities and is designed for in-
vestors with different investment horizons and risk tolerances. Each Generation
Fund is currently authorized to offer two classes of shares, the Adviser Class
and the Select Class.
THE PROSPECTUS This Prospectus contains information you should know before in-
vesting. You can find more information in the December 28, 1994 Statement of
Additional Information ("SAI"). For a free copy of the SAI, call 1-800-367-7732
or write to Aetna Series Fund, Inc., 151 Farmington Avenue, Hartford, Connecti-
cut 06156-8962. The SAI has been filed with the Securities and Exchange Commis-
sion ("Commission") and is incorporated into this Prospectus by reference.
THIS PROSPECTUS IS FOR INVESTORS ELIGIBLE TO PURCHASE ADVISER CLASS SHARES. A
SEPARATE PROSPECTUS IS AVAILABLE FOR INVESTORS ELIGIBLE TO PURCHASE SELECT
CLASS SHARES. SALES CHARGES, EXPENSES AND PERFORMANCE WILL VARY WITH RESPECT TO
EACH CLASS.
INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
AETNA ASCENT seeks to provide capital appreciation.
AETNA CROSSROADS seeks to provide total return (i.e., income and capital appre-
ciation, both realized and unrealized).
AETNA LEGACY seeks to provide total return consistent with preservation of cap-
ital.
<PAGE>
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS
PROSPECTUS CAREFULLY BEFORE INVESTING AND RETAIN FOR FUTURE REFERENCE.
2 Aetna Generation Funds Prospectus
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights..................................................................
Fees and Expenses...........................................................
Description of the Generation Funds.........................................
How Investment Objectives are Pursued.......................................
Investment Techniques.......................................................
Risk Factors and Other Considerations.......................................
Investment Restrictions.....................................................
Shareholder Services........................................................
Other Features..............................................................
Cross-Fund Investing........................................................
Fees and Charges............................................................
Management of the Generation Funds..........................................
Portfolio Management........................................................
Fund Distributions..........................................................
Net Asset Value.............................................................
Taxes.......................................................................
General Information.........................................................
Performance Data............................................................
Glossary of Investment Terms................................................
Description of Corporate Bond Ratings.......................................
</TABLE>
Aetna Generation Funds Prospectus 3
<PAGE>
HIGHLIGHTS
WHAT IS A MUTUAL FUND AND WHAT ARE ITS ADVANTAGES? A mutual fund is an invest-
ment company that buys and sells securities on behalf of individuals sharing
common financial goals. Mutual funds allow you to pool your money with others,
to spread risk through diversification and to benefit from professional man-
agement. You have immediate access to your money simply by writing a letter.
WHAT FUNDS ARE OFFERED? The Company offers the three Generation Funds, which
are designed to achieve your retirement savings objectives through asset allo-
cation and to maximize long-term investment returns at an acceptable level of
risk. AETNA ASCENT is designed for investors who have an investment horizon
exceeding 15 years and who have a high level of risk tolerance. AETNA CROSS-
ROADS is designed for investors who have an investment horizon exceeding ten
years and who have a moderate level of risk tolerance. AETNA LEGACY is de-
signed for investors who have an investment horizon exceeding five years and
who have a low level of risk tolerance.
RISK FACTORS The different types of securities purchased and investment tech-
niques used by the Generation Funds involve varying amounts of risk. For exam-
ple, EQUITY SECURITIES are subject to a decline in the stock market or in the
value of the company and PREFERRED STOCKS have price risk and some interest
rate and credit risk. The value of DEBT SECURITIES may be affected by changes
in general interest rates and in the creditworthiness of the issuer. In addi-
tion, INTERNATIONAL SECURITIES have currency risk. For more information, see
"Risk Factors and Other Considerations."
WHAT IS THE ADVISER CLASS OF SHARES? Each Generation Fund has two classes of
shares: Adviser Class shares, which are offered primarily to the general pub-
lic, and Select Class shares, which are offered principally to institutions.
Adviser Class shares are subject to a contingent deferred sales charge
("CDSC"). The maximum CDSC is 1.0% of redemption proceeds, declining by 0.25%
each year after the date of purchase to zero, so that no charge is imposed on
shares purchased over four years prior to redemption. Adviser Class shares of
each Generation Fund are also subject to an annual service fee of 0.25% and an
annual distribution fee of 0.50% of the value of average daily net assets. See
"Fees and Charges" for more information.
HOW CAN I PURCHASE SHARES? You may purchase Adviser Class shares by completing
an Aetna Series Fund Adviser Class Application ("Application"). Your initial
purchase must be for a minimum of $1,000
4 Aetna Generation Funds Prospectus
<PAGE>
for each Generation Fund with a minimum of $500 for Individual Retirement Ac-
counts ("IRA"). We also offer a systematic investment program that enables in-
vestors to purchase shares on a regular basis. See "Shareholder Services" for
complete details.
WHEN CAN I REDEEM SHARES? Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Adviser Class shares are redeem-
able at net asset value less any applicable CDSC. See "Shareholder Services"
for more information.
WHO IS THE MANAGER? Aetna Life Insurance and Annuity Company ("ALIAC") is the
Investment Adviser to each Generation Fund. It is a wholly owned subsidiary of
Aetna Life and Casualty Company ("Aetna") which, with affiliated companies,
comprises one of the world's leading providers of insurance and financial serv-
ices. As of September 30, 1994, the Investment Adviser managed over $18 billion
of assets worldwide for both individual and institutional investors. See "Man-
agement of the Generation Funds" for further information.
CUSTOMER SERVICE Shareholders in the Generation Funds enjoy a high level of
personalized service. Please call your representative at1-800-367-7732 for de-
tails or see "Shareholder Services" for detailed information.
Aetna Generation Funds Prospectus 5
<PAGE>
FEES AND EXPENSES
The following is provided to assist you in understanding the various expenses
you would bear directly or indirectly as an investor in the Generation Funds. A
complete description of expenses starts on page .
- --------------------------------------------------------------------------------
ADVISER CLASS
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
Deferred Sales Charge
Exchange Sales Charge Sales Charge on Dividend
Fee on Purchases on Redemptions/1/ Reinvestment
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT None None 1.0% None
AETNA CROSSROADS None None 1.0% None
AETNA LEGACY None None 1.0% None
</TABLE>
/1/ The contingent deferred sales charge set forth in the above table is the
maximum redemption charge imposed on Adviser Class shares. Investors may pay
charges less than 1.0%, depending on the length of time the shares are held.
Adviser Class shares are also subject to an annual distribution fee ("12b-1
fee") of 0.50% and an annual service fee of 0.25% of the value of average
daily net assets of the Adviser Class. See "Fees and Charges."
- --------------------------------------------------------------------------------
ADVISER CLASS
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Management/ Total Fund
Advisory 12b-1 Other Operating
Fee Fee Expenses Expenses
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT .80% .50% .70% 2.00%
AETNA CROSSROADS .80% .50% .70% 2.00%
AETNA LEGACY .80% .50% .70% 2.00%
</TABLE>
The Generation Funds were recently formed; consequently, amounts reflected in
"Other Expenses" and "Total Fund Operating Expenses" are estimated amounts for
the current fiscal year based on expenses for comparable funds. These expenses
as a percentage of assets are higher than those paid by most investment compa-
nies.
6 Aetna Generation Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
ADVISER CLASS
EXAMPLE
Using the above expenses, you would pay the following expenses on a $1,000 in-
vestment, assuming a 5% annual return:
<TABLE>
<CAPTION>
1 Year 3 Years
- ------------------------------------------------------
<S> <C> <C>
AETNA ASCENT
Redemption at end of each time period $30 $68
No Redemption 20 63
AETNA CROSSROADS
Redemption at end of each time period 30 68
No Redemption 20 63
AETNA LEGACY
Redemption at end of each time period 30 68
No Redemption 20 63
</TABLE>
This example should not be considered a representation of past or future ex-
penses. Actual expenses may be greater or less than those shown.
- --------------------------------------------------------------------------------
SELECT CLASS
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
Deferred Sales Charge
Sales Charge Sales Charge on Dividend Exchange
on Purchases on Redemptions Reinvestment Fee
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT None None None None
AETNA CROSSROADS None None None None
AETNA LEGACY None None None None
</TABLE>
Aetna Generation Funds Prospectus 7
<PAGE>
- --------------------------------------------------------------------------------
SELECT CLASS
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
Management/ Total Fund
Advisory Administrative Other Operating
Fee Fee Expense Expenses
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AETNA ASCENT 0.80% 0.25% 0.20% 1.25%
AETNA CROSSROADS 0.80% 0.25% 0.20% 1.25%
AETNA LEGACY 0.80% 0.25% 0.20% 1.25%
</TABLE>
The Generation Funds were recently formed; consequently, amounts reflected in
"Other Expenses" and "Total Fund Operating Expenses" are estimated amounts for
the current fiscal year based on expenses for comparable funds.
- --------------------------------------------------------------------------------
SELECT CLASS
EXAMPLE
Using the above expenses, you would pay the following expenses on a $1,000 in-
vestment, assuming a 5% annual return and redemption at the end of each of the
periods shown:
<TABLE>
<CAPTION>
1 Year 3 Years
- --------------------------------
<S> <C> <C>
AETNA ASCENT $13 $40
AETNA CROSSROADS 13 40
AETNA LEGACY 13 40
</TABLE>
This example should not be considered a representation of past or future ex-
penses. Actual expenses may be greater or less than those shown.
Because the expenses and sales charges vary between the classes, the perfor-
mance of each class will vary. Registered representatives may receive different
levels of compensation when selling shares of different classes of the Genera-
tion Funds. Additional information regarding each Generation Fund's classes of
shares may be obtained by calling your representative or 1-800-367-7732.
8 Aetna Generation Funds Prospectus
<PAGE>
DESCRIPTION OF THE GENERATION FUNDS
INVESTMENT OBJECTIVES
AETNA ASCENT seeks to provide capital appreciation.
AETNA CROSSROADS seeks to provide total return (i.e., income and capital appre-
ciation, both realized and unrealized).
AETNA LEGACY seeks to provide total return consistent with preservation of cap-
ital.
Each Generation Fund's investment objective is fundamental and may not be
changed without the vote of a majority of the holders of that Generation Fund's
outstanding shares. There can be no assurance that the Generation Funds will
meet their investment objectives. Each Generation Fund is subject to investment
restrictions described in this Prospectus and in the SAI, some of which are
fundamental policies. No fundamental investment policy may be changed without
shareholder approval.
A glossary describing various securities used by the Generation Funds starts
on page .
HOW INVESTMENT OBJECTIVES ARE PURSUED
INVESTMENT STRATEGIES
EACH GENERATION FUND HAS A DIFFERENT ASSET ALLOCATION STRATEGY, WHICH CORRE-
SPONDS WITH DIFFERENT INVESTMENT OBJECTIVES AND LEVELS OF INVESTMENT RISK. The
strategy establishes separate allocation benchmarks and ranges for each asset
class. The benchmark allocations describe a typical asset allocation strategy
under neutral market conditions. The allocation ranges describe the permissible
range of asset allocations allowed. The ranges are designed to allow the In-
vestment Adviser to achieve an optimal allocation of assets, based on different
investment objectives and levels of investment risk. The Investment Adviser may
adjust the asset class mix of a particular Generation Fund within the ranges
described below.
AETNA ASCENT is managed for investors seeking capital appreciation who gener-
ally have an investment horizon exceeding 15 years and who have a high level of
risk tolerance.
AETNA CROSSROADS is managed for investors seeking a balance between income and
capital appreciation who generally have an investment horizon exceeding ten
years, and who have a moderate level of risk tolerance. Aetna Crossroads will
invest no more than 60% of its assets in any combination of the following asset
classes, which are defined be-
Aetna Generation Funds Prospectus 9
<PAGE>
low: securities in the Small Capitalization Stock Class with capitalization of
less than $.5 billion, securities in the U.S. Dollar Bond Class that are below
investment grade (which are characterized as high-risk, High-Yield Securities
or "junk bonds") securities in the International Stock Class and securities in
the International Bond Class.
AETNA LEGACY is managed for investors primarily seeking total return consis-
tent with capital preservation who generally have an investment horizon ex-
ceeding five years and who have a low level of risk tolerance. Aetna Legacy
will invest no more than 35% of its assets in any combination of the following
asset classes, which are defined below: securities in the Small Capitalization
Stock Class with capitalization of less than $.5 billion, securities in the
U.S. Dollar Bond Class that are characterized as high risk, High-Yield Securi-
ties, securities in the International Stock Class and securities in the Inter-
national Bond Class.
The allocation targets and asset class ranges and comparative indexes are
shown below:
<TABLE>
<CAPTION>
AETNA AETNA AETNA COMPARATIVE
ASSET CLASS ASCENT CROSSROADS LEGACY INDEX
----------- ---------- ---------- ------ -----------
<C> <S> <C> <C> <C>
EQUITIES
Large Capitalization Stocks
Range.................... 0-60% 0-45% 0-30% Standard &
Poor's 500
Stock Index
Benchmark................ 20% 15% 10%
Small Capitalization Stocks
Range.................... 0-40% 0-30% 0-20% Russell 2000
Small Cap
Stock Index
Benchmark................ 20% 15% 10%
International Stocks
Range.................... 0-40% 0-30% 0-20% Morgan Stanley
Capital
International
Europe,
Australia and
Far East Index
Benchmark................ 20% 15% 10%
Real Estate Stocks
Range.................... 0-40% 0-30% 0-20% National
Association of
Real Estate
Investment
Trusts Equity
REIT Index
Benchmark................ 20% 15% 10%
FIXED INCOME
U.S. Dollar Bonds
Range.................... 0-30% 0-70% 0-100% Salomon
Brothers
Broad
Investment
Grade Index
Benchmark................ 10% 25% 40%
International Bonds
Range.................... 0-20% 0-20% 0-20% Salomon
Brothers
Non-U.S. World
Government
Bond Index
Benchmark................ 10% 10% 10%
Money Market Instruments
Range.................... 0-30% 0-30% 0-30% 91 Day T-Bill
Benchmark................ 0% 5% 10%
</TABLE>
10 Aetna Generation Funds Prospectus
<PAGE>
The Investment Adviser will allocate the assets of each Generation Fund within
the specified ranges. The benchmark asset mix represents (1) how a Generation
Fund may allocate its assets under neutral market conditions and (2) a basis
for measuring the performance of each Generation Fund. The Investment Adviser
monitors a "hypothetical benchmark portfolio" consisting of a benchmark alloca-
tion in each comparative index. The Investment Adviser may compare the perfor-
mance of each Generation Fund to its corresponding hypothetical benchmark port-
folio.
The asset allocation of each Generation Fund may be above or below the bench-
mark allocation, based on the Investment Adviser's ongoing evaluation of the
expected returns and risks of each asset class relative to others. If the In-
vestment Adviser believes that the expected return for a particular asset class
is higher than normal relative to the other classes, investment in the class
generally will be weighted more heavily than it would be in the Generation
Fund's benchmark allocation. If the expected return for a particular asset
class is less than normal in relation to the other classes, generally it will
be underweighted relative to the Generation Fund's benchmark allocation.
The Investment Adviser regularly reviews the investment allocations of each
Generation Fund and will vary the amount invested in each class within the
ranges set forth above, depending upon its assessment of business, economic,
market and other conditions. For example, the Investment Adviser may adjust the
allocation mix in response to changes in circumstances with respect to particu-
lar issuers or industries, in response to interest rate movements or other eco-
nomic conditions. In determining the asset mix of a particular Generation Fund,
the Investment Adviser will consider many specific factors, including, among
other things: the dividend discount model, expected returns, bond yields,
price-to-earnings ratios, dividend yields and inflation. There can be no assur-
ance that any given allocation is the optimal allocation, although the Invest-
ment Adviser allocates assets in a manner it believes will aid in achieving a
Generation Fund's investment objective.
The asset allocation limits described above apply at the time of purchase of a
particular security. Each Generation Fund may also invest in other securities
not included in the asset classes listed above. These securities are described
below.
The securities in which the Generation Funds invest involve risks, which are
described below in "Investment Techniques."
EQUITY SECURITIES
EACH GENERATION FUND MAY INVEST ITS ASSETS IN EQUITY SECURITIES THAT THE IN-
VESTMENT ADVISER BELIEVES HAVE THE POTENTIAL FOR CAPITAL
Aetna Generation Funds Prospectus 11
<PAGE>
APPRECIATION. THESE MAY INCLUDE THE EQUITY SECURITIES OF LARGER, WIDELY-TRADED
COMPANIES, SMALLER, LESS WELL-KNOWN SECURITIES, FOREIGN SECURITIES AND REAL
ESTATE-RELATED SECURITIES.
Securities in this asset class include convertible debentures and preferred
securities and warrants.
LARGE CAPITALIZATION STOCK CLASS. Equity securities in this class generally
have equity market capitalizations at the time of purchase of more than $1
billion, are U.S. domiciled and generally are widely traded on U.S. exchanges.
SMALL CAPITALIZATION STOCK CLASS. Equity securities in this class are issued
by smaller, less well-known U.S. companies with equity market capitalization
generally less than $1.0 billion. These securities may involve greater risks,
because their issuers may be untested in adverse market conditions, may have
limited product lines or financial resources or may trade less frequently than
larger-capitalized companies. As a result, the prices of these securities may
fluctuate more than prices of larger, more widely-traded companies.
INTERNATIONAL STOCK CLASS. Equity securities in this class may be issued by
companies domiciled or engaged in business principally in countries outside of
the U.S. The Investment Adviser believes that investment in foreign securities
offers significant potential for long-term capital appreciation and affords
substantial opportunities for investment diversification. Each Generation Fund
may invest in ordinary foreign shares, American Depositary Receipts ("ADRs"),
futures contracts on foreign stock indices and other derivative securities
within the limits set forth below. Investments in securities of foreign compa-
nies and in securities denominated in foreign currencies involve certain
risks, which are described below.
REAL ESTATE STOCK CLASS. Equity securities in this class include equity real
estate investment trusts ("REITs"), real estate development and real estate
operating companies, and shares of companies engaged in other real estate re-
lated businesses. Each Generation Fund will invest the real estate portion of
its portfolio primarily in equity REITs, which are trusts that sell shares to
investors and use the proceeds to invest in real estate or interests in real
estate. A REIT may focus on a particular project, such as apartment complexes,
or geographic region, such as the Northeastern United States, or both.
FIXED INCOME SECURITIES
EACH GENERATION FUND MAY INVEST IN FIXED INCOME SECURITIES, INCLUDING OBLIGA-
TIONS OF THE U.S. AND FOREIGN GOVERNMENTS AS WELL AS OBLIGATIONS OF CORPORA-
TIONS.
12 Aetna Generation Funds Prospectus
<PAGE>
The value of fixed income securities fluctuates in response to changes in in-
terest rates. Generally, when interest rates fall, the value of fixed income
securities increases. Conversely, when interest rates rise, the value of fixed
income securities decreases. The amount of increase or decrease in value is af-
fected by other factors, including the maturity of the security. Fixed income
securities are subject to various risks, including the creditworthiness of the
issuer and other economic factors.
U.S. DOLLAR BONDS CLASS consists of any fixed income security denominated in
U.S. dollars. Examples of securities in this class include U.S. Government se-
curities, debt securities issued by U.S. corporations, supranational agencies,
tax-exempt municipal bonds and mortgage-backed securities.
U.S. Government Securities consists of direct obligations of the U.S. Govern-
ment, such as treasury bills, notes and bonds that are backed by the full faith
and credit of the United States, or obligations of the U.S. Government, such as
notes and bonds that are guaranteed by agencies and instrumentalities of the
U.S. Government. Securities of these agencies and instrumentalities are backed
by either the full faith and credit of the U.S., the right of the issuer to
borrow from the U.S. Treasury, or the credit of the agency or instrumentality.
Securities in this group also include repurchase agreements collateralized by
U.S. Government agency securities, STRIPs and zero coupon bonds.
Corporate Bonds include investment grade debt securities and high risk, High-
Yield Securities. INVESTMENT GRADE DEBT SECURITIES include corporate bonds,
mortgage-backed and other asset-backed and debt securities (described below)
rated in the four highest categories by Standard & Poor's Corporation or
Moody's Investor Services, Inc., and other debt instruments with similar rat-
ings by other nationally recognized statistical rating organizations or, if
unrated, considered by the Investment Adviser to be of similar quality. High
risk, HIGH-YIELD SECURITIES, or "junk bonds," carry more credit risk and are
rated BB or below by S&P or Ba or below by Moody's or, if unrated, considered
by the Investment Adviser to be of comparable quality. Each Generation Fund
will not invest more than 15% of its assets in high-risk, High-Yield Securities
and will not invest in any debt security rated lower than B.
Mortgage-backed securities These securities represent part ownership of a pool
of mortgage loans where principal is scheduled to be paid back by the borrower
over the length of the loan or returned in a lump sum at maturity. They consist
of pass-through securities issued by the U.S. Government and corporations. Pay-
ments of interest and principal on U.S. mortgage-backed securities may be guar-
anteed by an agency or instrumentality of the U.S. These agencies and
instrumentali-
Aetna Generation Funds Prospectus 13
<PAGE>
ties include, but are not limited to, the Government National Mortgage Associ-
ation ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae")
and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Private mort-
gage pass-through securities are backed by pools of conventional fixed-rate or
adjustable-rate mortgage loans but are not guaranteed as to payment of inter-
est and/or principal by the issuer. In addition, the Generation Funds may in-
vest in collateralized mortgage obligations ("CMOs") and securities issued by
real estate mortgage investment conduits ("REMICs"). Mortgage-backed securi-
ties are subject to prepayment risk resulting from early prepayment by indi-
vidual homeowners.
INTERNATIONAL BOND CLASS. Securities in this class include debt securities de-
nominated in currencies other than the U.S. dollar. Generally, these securi-
ties are issued by foreign corporations and foreign governments and are traded
on foreign markets. Investment in international debt securities that are de-
nominated in foreign currencies involve certain risks, which are described be-
low. See "Risk Factors and Other Considerations."
MONEY MARKET CLASS
EACH GENERATION FUND MAY INVEST IN HIGH QUALITY MONEY MARKET OBLIGATIONS THAT
PRESENT MINIMAL CREDIT RISK.
Money Market securities include U.S. Government obligations, certificates of
deposit, banker's acceptances, bank deposits, other financial institution ob-
ligations, commercial paper and other short-term commercial obligations. These
securities may include instruments that have variable interest rates which, in
the opinion of the Investment Adviser, will maintain a value at or close to
the face value of the security. Each Generation Fund may keep a portion of its
assets in cash.
INVESTMENT TECHNIQUES
The Generation Funds may use the following investment techniques:
BORROWING MONEY A Generation Fund may borrow up to 5% of its net assets from a
bank for temporary or emergency purposes. The Generation Funds do not intend
to borrow or use leverage for other purposes.
REPURCHASE AGREEMENTS Under a repurchase agreement, a Generation Fund may ac-
quire a debt instrument for a relatively short period subject to an obligation
by the seller to repurchase and by the Generation Fund to resell the instru-
ment at a fixed price and time.
14 Aetna Generation Funds Prospectus
<PAGE>
The Generation Funds may enter into repurchase agreements with domestic banks
and broker-dealers. Such agreements, although fully collateralized, involve the
risk that the seller of the securities may fail to repurchase them. In that
event, a Generation Fund may incur costs in liquidating the collateral or a
loss if the collateral declines in value. If the default on the part of the
seller is due to insolvency and the seller initiates bankruptcy proceedings,
the ability of a Generation Fund to liquidate the collateral may be delayed or
limited.
The Board of Directors has established credit standards for issuers of repur-
chase transactions entered into by the Generation Funds.
ASSET-BACKED SECURITIES The Generation Funds may purchase securities collater-
alized by a specified pool of assets, including, but not limited to, credit
card receivables, automobile loans, home equity loans, computer leases, boat
loans, mobile home loans, or recreational vehicle loans. These securities may
be subject to prepayment and/or credit risk. In periods of declining interest
rates, reinvestment would thus be made at lower and less attractive rates.
ZERO-COUPON AND "PAY-IN-KIND" BONDS The Generation Funds may invest in zero
coupon securities and pay-in-kind bonds. Zero coupon securities are debt secu-
rities that pay no cash income but are sold at substantial discounts to their
value at maturity. Some zero coupon securities call for the commencement of
regular interest payments at a deferred date. Pay-in-kind bonds pay all or a
portion of their interest in the form of debt or equity securities. Zero coupon
securities and pay-in-kind bonds are subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying securi-
ties with similar maturities; the value of zero coupon securities and pay-in-
kind bonds appreciate more during periods of declining interest rates and de-
preciate more during periods of rising interest rates.
BANK OBLIGATIONS The Generation Funds may invest in obligations issued by do-
mestic banks or foreign banks (including banker's acceptances, time deposits
and certificates of deposit) provided the issuing bank has a minimum of $5 bil-
lion in assets and a primary capital ratio of at least 4.25%.
OPTIONS, FUTURES CONTRACTS AND OTHER DERIVATIVE INSTRUMENTS In order to manage
its exposure to changing interest rates, securities prices and currency ex-
change rates, or to increase its investment return, a Generation Fund may en-
gage in hedging and other strategies using derivatives (collectively referred
to as "hedging strategies").
A derivative is a financial instrument whose value is "derived" from the per-
formance of an underlying asset (such as a security or index of securities).
Derivatives include, but are not limited to, forward
Aetna Generation Funds Prospectus 15
<PAGE>
contracts, swaps, structured notes, collateralized mortgage obligations
(CMOs), futures and options. For purposes other than hedging, a Generation
Fund will invest no more than 5% of its total assets in derivatives which at
the time of purchase are considered by management to involve high risk to the
Fund, such as inverse floaters, interest-only (IO) and principal-only (PO) se-
curities.
A Generation Fund may buy and sell options (including index options and op-
tions on foreign securities), and may invest in futures contracts and related
options with respect to foreign currencies, fixed income securities, and for-
eign stock indices.
Some of these strategies, such as selling futures contracts, buying puts and
writing calls, hedge against price fluctuations. Other strategies, such as
buying futures contracts, writing puts, buying calls and interest rate swaps,
tend to increase market exposure. In some cases, a Generation Fund may buy a
futures contract for the purpose of increasing its exposure in a particular
market segment, which may be considered speculative, rather than hedging. The
aggregate futures market prices of financial instruments required to be deliv-
ered or purchased under open futures contracts may not exceed 30% of Aetna
Legacy's total assets, 60% of Aetna Crossroads total assets and 100% Aetna
Ascent's total assets. With respect to futures contracts or related options
that are entered into for purposes that may be considered speculative, the ag-
gregate initial margin for futures contracts and premiums for options will not
exceed 5% of a Generation Fund's net assets, after taking into account real-
ized profits and unrealized losses on such futures contracts.
When a Generation Fund writes a call option, it gives the purchaser the
right, but not the obligation, to buy a particular security at a set price
within a set time. The Generation Fund receives income from the premium paid
by the purchaser. The calls are "covered," which means that the Generation
Fund owns the securities that are subject to the call (although it may substi-
tute other qualifying securities). There is no limit on the amount of a Gener-
ation Fund's total assets that may be subject to calls.
When a Generation Fund writes a put option, it gives the purchaser the right,
but not the obligation, to require the Generation Fund to buy a particular se-
curity at a set price within a set time. Writing puts requires the segregation
of liquid assets to cover the put. A Generation Fund will not write a put if
it will require more than 50% of the Generation Fund's net assets to be segre-
gated to cover the put obligation.
A Generation Fund may invest in foreign currency exchange contracts (or "for-
ward contracts," which may involve "cross-hedging," a technique in which a
Generation Fund hedges changes in currencies
16 Aetna Generation Funds Prospectus
<PAGE>
other than the currency in which the security is denominated) and interest rate
swap transactions.
All of these are referred to as "hedging instruments." Investment in these
hedging instruments involves certain risks, which are described below under
"Risk Factors and Other Considerations" and in the SAI.
SUPRANATIONAL AGENCIES Each Generation Fund may each invest up to 10% of its
net assets in securities of supranational agencies such as: the International
Bank for Reconstruction and Development (commonly referred to as the World
Bank), which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization en-
gaged in cooperative economic activities; the European Coal and Steel Communi-
ty, which is an economic union of various European nations' steel and coal in-
dustries; and the Asian Development Bank, which is an international development
bank established to lend funds, promote investment and provide technical assis-
tance to member nations in the Asian and Pacific regions. Securities of supra-
national agencies are not considered government securities and are not sup-
ported directly or indirectly by the U.S. Government.
ILLIQUID AND RESTRICTED SECURITIES A Generation Fund may invest up to 15% of
its total assets in illiquid securities. Illiquid securities are securities
that are not readily marketable or cannot be disposed of promptly within seven
days in the ordinary course of business without taking a materially reduced
price. In addition, a Generation Fund may invest in securities that are subject
to legal or contractual restrictions as to resale, including securities pur-
chased under Rule 144A and Section 4(2) of the Securities Act of 1933. The
Board of Directors has established a policy to determine the liquidity of such
securities.
OTHER INVESTMENTS In addition, each Generation Fund may use other investment
techniques, including "when-issued" and delayed-delivery securities and
variable rate instruments. These techniques are described in the Glossary and
the SAI. See "Risk Factors and Other Considerations."
RISK FACTORS AND OTHER CONSIDERATIONS
GENERAL CONSIDERATIONS The different types of securities purchased and invest-
ment techniques used by a Generation Fund involve varying amounts of risk. For
example, equity securities are subject to a decline in the stock market or in
the value of the company and preferred stocks have price risk and some interest
rate and credit risk. The value of debt securities may be affected by changes
in general interest rates and in the creditworthiness of the issuer. Debt secu-
rities with longer
Aetna Generation Funds Prospectus 17
<PAGE>
maturities (for example, over ten years) are generally more affected by
changes in interest rates and provide less price stability than securities
with short term maturities (for example, one to ten years). Also, on each debt
security, the risk of principal and interest default is greater with higher-
yielding, lower-grade securities. High-risk, High-Yield Securities may provide
a higher return but with added risk. In addition, foreign securities may have
currency risk.
PORTFOLIO TURNOVER Portfolio turnover refers to the frequency of portfolio
transactions. The Generation Funds do not intend to make a general practice of
short-term trading. It is anticipated that the average annual portfolio turn-
over rate will not exceed 100%. A high turnover rate may result in increased
brokerage commissions and may increase taxable capital gains. See "Tax Status"
for further information.
CASH OR CASH EQUIVALENTS The Generation Funds reserve the right to depart from
their investment objectives temporarily by investing up to 100% of their as-
sets in cash or securities in the Money Market Class for defense against po-
tential market declines.
INTERNATIONAL SECURITIES The purchase of international securities may involve
certain risks. These risks may include: currency fluctuations and related cur-
rency conversion costs; less liquidity; price or income volatility; less gov-
ernment supervision and regulation of foreign stock exchanges, brokers and
listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic developments;
different accounting procedures and auditing standards; the possible imposi-
tion of withholding taxes on interest income payable on securities; the possi-
ble seizure or nationalization of foreign assets; the possible establishment
of exchange controls or other foreign laws or restrictions that might ad-
versely affect the payment and transferability of principal, interest and div-
idends on securities; higher transaction costs; possible settlement delays;
and less publicly available information about foreign issuers.
DEPOSITORY RECEIPTS The Generation Funds can invest in both sponsored and
unsponsored depository receipts. Unsponsored depository receipts, which are
typically traded in the over-the-counter market, may be less liquid than spon-
sored depository receipts and therefore may involve more risk. In addition,
there may be less information available about issuers of unsponsored deposi-
tory receipts.
The Generation Funds will generally acquire American Depository Receipts
(ADRs) which are dollar denominated, although their market price is subject to
fluctuations of the foreign currency in which the underlying securities are
denominated. All depository receipts will be
18 Aetna Generation Funds Prospectus
<PAGE>
considered foreign securities for purposes of a Generation Fund's investment
limitation concerning investment in foreign securities. See the Glossary and
the SAI for more information.
REAL ESTATE SECURITIES A Generation Fund's investments in real estate securi-
ties may be subject to certain of the same risks associated with the direct
ownership of real estate. These risks may include: declines in the value of
real estate; risks related to general and local economic conditions, overbuild-
ing and competition; increases in property taxes and operating expenses; and
variations in rental income. In addition, equity REITS may be dependent upon
management skill, may not be diversified, and may be subject to the risks of
obtaining adequate financing for projects on favorable terms. Equity REITS also
are subject to the possibility of failing to qualify for tax-free pass-through
of income under the Internal Revenue Code and failing to maintain exemption
from the Investment Company Act of 1940, as amended ("1940 Act").
HIGH-YIELD SECURITIES A Generation Fund may invest in high-risk High-Yield Se-
curities, often called junk bonds. These securities are rated BB/Ba or below
but at least B (securities with capacity to meet interest and principal pay-
ments but greater vulnerability to default), or, if unrated, considered by the
Investment Adviser to be of comparable quality. These securities tend to offer
higher yields than investment-grade bonds because of the additional risks asso-
ciated with them. These risks include: a lack of liquidity; an unpredictable
secondary market; a greater likelihood of default; increased sensitivity to
difficult economic and corporate developments; call provisions which may ad-
versely affect investment returns; and loss of the entire principal and inter-
est. Although junk bonds are high-risk investments, the Investment Adviser may
purchase these securities if they are thought to offer good value. This may
happen if, for example, the rating agencies have, in the Investment Adviser's
opinion, misclassified the bonds or overlooked the potential for the issuer's
enhanced creditworthiness.
HEDGING STRATEGIES
The use of the hedging strategies described above involve special risks. If the
Investment Adviser uses a hedging instrument at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce a Generation Fund's re-
turn.
Options and futures contracts can be volatile investments and involve certain
risks, including, but not limited to: no assurance that futures contracts
transactions can be effected at favorable prices; possible reduction in a Gen-
eration Fund's total return and yield; possible reduction in the value of the
futures instrument; the inability of a Gen-
Aetna Generation Funds Prospectus 19
<PAGE>
eration Fund to limit losses by closing its position due to lack of a liquid
secondary market or due to daily limits of price fluctuation; imperfect corre-
lation between the value of the contracts and the related securities; and po-
tential losses in excess of the amount invested in the futures contracts them-
selves.
The use of futures involves a high degree of leverage because of the low mar-
gin requirements. As a result, small price movements in futures contracts may
result in immediate and potentially unlimited gains or losses to a Generation
Fund. The amount of gains or losses on investments in futures contracts de-
pends on the portfolio manager's ability to predict correctly the direction of
stock prices, interest rates and other economic factors.
In writing puts, there is the risk that a Generation Fund may be required to
buy the underlying security at a significantly disadvantageous price. In addi-
tion, it must segregate assets to cover its obligations with respect to the
sale of a put.
In writing calls, a Generation Fund may forego profits on an increase in the
price of an underlying security if the purchaser exercises the call option. In
addition, a Generation Fund could experience capital losses that might cause
previously-distributed income to be recharacterized for tax purposes as a re-
turn of capital to shareholders.
The use of forward currency contracts may reduce the gain that otherwise
would result from a change in the relationship between the U.S. dollar and a
foreign currency. To limit its exposure in foreign currency exchange con-
tracts, the Generation Funds limit their exposure to the amount of their re-
spective assets denominated in the foreign currency.
Interest rate swaps are subject to credit risks (if the other party fails to
meet its obligations) and also to interest rate risks, because the Generation
Funds could be obligated to pay more under its swap agreements than they re-
ceive under them, as a result of interest rate changes.
Cross-hedging entails a risk of loss on both the value of the security that
is the basis of the hedge and the currency contract that was used in the
hedge. These risks are described in greater detail in the SAI.
VARIABLE RATE INSTRUMENTS, WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
"When-issued," "delayed-delivery" and variable rate instruments may be subject
to liquidity risks and risks of loss of principal due to market fluctuations.
A Generation Fund will establish a segregated account in which it will main-
tain liquid assets in an amount at least equal to the Fund's commitments to
purchase securities on a when-issued or delayed-delivery basis. For more in-
formation about these securities, see the Glossary and the SAI.
20 Aetna Generation Funds Prospectus
<PAGE>
SPECIAL CONSIDERATIONS Investors should be aware that the investment results of
the Generation Funds depend in part upon the Investment Adviser's ability to
anticipate correctly the relative performance of stocks, bonds and money market
instruments.
While the Investment Adviser has substantial experience in managing all asset
classes, there can be no assurance that it will always allocate assets to the
best performing sectors. A Generation Fund's performance would suffer if a ma-
jor proportion of a Generation Fund's assets were allocated to stocks in a de-
clining market or, similarly, if a major proportion of a Generation Fund's as-
sets were allocated to bonds at a time of adverse interest rate movement.
INVESTMENT RESTRICTIONS
A Generation Fund will not concentrate its investments in any one industry, ex-
cept that a Generation Fund may invest up to 25% of its total assets in securi-
ties issued by companies principally engaged in any one industry. For purposes
of this restriction, finance companies will be classified as separate indus-
tries according to the end users of their services, such as automobile finance,
computer finance and consumer finance. This limitation will not apply to secu-
rities issued or guaranteed by the U.S. Government, its agencies and instrumen-
talities. A Generation Fund will not invest more than 5% of its total assets in
the securities of any one issuer (excluding securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) or purchase more than
10% of the outstanding voting securities of any one issuer. This restriction
applies only to 75% of a Generation Fund's total assets. A Generation Fund may
not purchase a call or a put if the value of all the Generation Fund's call and
put options would exceed 5% of the value of its total assets. See the SAI for
more restrictions.
SHAREHOLDER SERVICES
THE COMPANY OFFERS SEVERAL SERVICES TO ITS GENERATION FUND SHAREHOLDERS. THESE
MAY BE CHOSEN FROM THE APPLICATION.
THESE SERVICES MAY NOT BE AVAILABLE THROUGH EMPLOYER-SPONSORED RETIREMENT
PLANS. FOR INFORMATION ON SERVICES THAT ARE AVAILABLE UNDER EMPLOYER-SPONSORED
RETIREMENT PLANS, SUCH AS 401(K) PLANS, PLEASE REFER TO YOUR ENROLLMENT MATERI-
AL. THE SPECIFIC PROVISIONS OF YOUR PLAN WILL GOVERN THE INVESTMENT OPTIONS AND
SERVICES AVAILABLE TO YOU.
SHAREHOLDER INQUIRIES If you have any questions about the Generation Funds or
the shareholder services described below, please call your representative or 1-
800-367-7732.
Aetna Generation Funds Prospectus 21
<PAGE>
HOW TO PURCHASE SHARES Adviser Class shares may be purchased directly from the
Company, through a registered representative of a broker-dealer affiliated
with the Company, through a registered representative of an unaffiliated bro-
ker-dealer, or through an employer-sponsored retirement plan (if you are pur-
chasing through such a plan, please refer to your enrollment materials).
HOW TO OPEN AN ACCOUNT To open an account, please complete and submit an Ap-
plication with the amount to be invested. You may open an account with a mini-
mum investment of $1,000 or $500 for IRAs. Minimum investments may be waived
if an investment is made through exchange of the entire amount invested in the
same class of another portfolio of the Company (including any of the Genera-
tion Funds). Minimums may also be waived for certain circumstances such as for
persons investing through certain benefit plans, insurance settlement options
or by systematic investments. (See "Other Features--Systematic Investment.")
CREDITING OF SHARES If a completed and signed Application accompanied by a
check in payment for the shares is received by Firstar Trust Company, the
transfer agent, at its Milwaukee offices, prior to 4:00 p.m. Eastern time on
any day that the New York Stock Exchange is open for business ("Business
Day"), the Adviser Class shares will be purchased at the net asset value de-
termined as of 4:15 p.m. on that date. Orders received after 4:00 p.m. will be
processed at the net asset value determined on the following Business Day. See
"Net Asset Value" for information on how the Generation Funds are valued.
No initial sales charge is imposed at the time of purchase. A Contingent De-
ferred Sales Charge ("CDSC") is imposed, however, on certain redemptions of
Adviser Class shares. See "Fees and Charges" for a more complete description
of the CDSC.
Once you have opened an account in a Generation Fund, additional investments
may be made by mail ($100 minimum), wire transfer ($500 minimum) or exchange
from the same class of shares of another Generation Fund (or any other Fund of
the Company). All checks must be drawn on a bank located within the United
States and be payable in U.S. dollars.
PURCHASE BY MAIL To purchase shares by mail, please complete and sign the Ap-
plication, make a check payable to the Aetna Series Fund, Inc. and return both
to your agent or representative. You can make additional investments to your
accounts by using the investment stubs from your confirmation statements or by
letter. Your letter should indicate your name, account number(s), the Adviser
Class shares of the Generation Fund(s) in which you wish to invest, and the
amount to be invested. Letters should be mailed to the transfer agent as fol-
lows:
22 Aetna Generation Funds Prospectus
<PAGE>
Aetna Series Funds, Inc.--Generation Funds
c/o Mutual Fund Services, 3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701.
PURCHASE BY WIRE If you have an account in a Generation Fund, you may purchase
additional Adviser Class shares of that Generation Fund by wire. For federal
funds wire instructions, please call 1-800-367-7732. Federal funds wire pur-
chase orders will be accepted only when the Generation Fund and custodian bank
are open for business.
PURCHASE BY ELECTRONIC FUNDS TRANSFER Once an account has been established in
any of the Generation Funds, you may wish to make additional purchases of Ad-
viser Class shares by using Electronic Funds Transfer ("EFT") facilities under
the Systematic Investment feature. This will allow you to transfer money be-
tween a bank account and a specific Generation Fund. The appropriate election
must be made on the Application to authorize this option.
PURCHASE BY EXCHANGE You may open an account or purchase additional Adviser
Class shares by making an exchange between Adviser Class shares of another Gen-
eration Fund or of any of the other Funds of the Company without charge. See
"Other Features" for automatic exchange privileges. An exchange may be made by
submitting a letter requesting the exchange and specifying (1) the name and ac-
count number of your current Generation Fund account; (2) the name of the Fund
you wish to exchange into;(3) the amount to be exchanged; and (4) the signa-
tures of all shareholders. Send your request to the transfer agent as follows:
Aetna Series Fund, Inc.--Generation Funds
c/o Mutual Fund Services
3rd Floor P.O. Box 701
Milwaukee, WI 53201-0701
You may exchange your Adviser Class shares by calling 1-800-367-7732. Please
provide the Fund names, account number, your Social Security number or taxpayer
identification number, account address and the amount to be exchanged. Requests
received prior to 4:00 p.m. Eastern time will be processed that Business Day.
You should carefully consider the following before making an exchange:
. Each exchange may result in a gain or loss and is treated as a sale and as a
purchase of shares for tax purposes.
. An exchange which represents an initial investment in a Fund must meet the
minimum investment requirements.
Aetna Generation Funds Prospectus 23
<PAGE>
. The shares received in an exchange must be identically registered. A letter
with signature guarantees must accompany any exchange request to transfer
shares into an account that is not registered identically to the
transferring account.
. Following an investment in a Fund, there is a required eight-day holding
period before those shares can be exchanged.
There is currently no limit on the number of exchanges. However, each Fund
reserves the right to temporarily or permanently terminate the exchange privi-
lege for any person who makes more than five exchanges out of a Fund per cal-
endar year. In addition, each Fund reserves the right to refuse exchange pur-
chases by any person or group if, in the Investment Adviser's judgment, that
Fund would be unable to invest effectively in accordance with its investment
objective as a result of such exchange. Each Fund also reserves the right to
revise the exchange privilege at any time.
You automatically receive telephone exchange privileges when you establish
your account. If you do not want telephone exchange privileges, write to the
transfer agent at the above address or call 1-800-367-7732. The Funds will em-
ploy reasonable procedures to confirm that instructions received are genuine.
If the Funds do not follow those procedures, they may be liable for any losses
due to unauthorized or fraudulent instructions. For your protection, all tele-
phone exchange transactions will be recorded, and you will be asked to provide
certain identifying information.
DISTRIBUTION OPTIONS When completing an Application, you must select one of
the following options:
. FULL REINVESTMENT--Both dividends and capital gains distributions from a
Generation Fund will be reinvested in additional Adviser Class shares of
that Generation Fund. This option will be selected automatically unless one
of the other options is specified. (See "Fund Distributions.")
. OR . . . CAPITAL GAINS REINVESTMENT--Capital gains distributions from a Gen-
eration Fund will be reinvested in additional Adviser Class shares of that
Fund and all net income dividends will be distributed in cash.
. OR . . . ALL CASH--Dividends and capital gains distributions will be paid in
cash.
If a cash distribution option is selected you can elect to have distributions
automatically invested in Adviser Class shares of another Generation Fund or
of any other Fund of the Company.
24 Aetna Generation Funds Prospectus
<PAGE>
HOW TO REDEEM SHARES To redeem all or a portion of the Adviser Class shares in
your account, a redemption request should be submitted as described below.
Shares will be redeemed at the net asset value next determined after receipt of
the redemption request by the transfer agent. Redemptions received by 4:00 p.m.
Eastern time will be processed at the net asset value determined as of 4:15
p.m. on that date if all required documentation is received by the transfer
agent by 4:00 p.m. Redemption requests received after 4:00 p.m. will be proc-
essed at the net asset value determined on the following Business Day. Redemp-
tions may be subject to a contingent deferred sales charge. See "Fees and
Charges" for more information.
REDEEM BY MAIL Shares of any Generation Fund may be redeemed by sending a let-
ter of instruction to the transfer agent identifying the Generation Fund, the
number of shares or dollar amount to be redeemed, your name and the Generation
Fund account number. The letter of instruction must be signed by all person(s)
required to sign for the Generation Fund account, exactly as it is registered,
and accompanied by a signature guarantee(s). Certain nonindividual shareholders
may also be required to furnish copies of a corporate resolution, trust docu-
ment or other supporting documents.
Once shares are redeemed, the relevant Generation Fund will normally send the
proceeds of such redemption within one or two business days. However, if making
immediate payment could adversely affect a Generation Fund, the Generation Fund
may defer distribution for up to seven days. Also, a Generation Fund will hold
payment of redemption proceeds until a purchase check or systematic investment
clears, which may take up to 12 calendar days. The Generation Fund(s) may sus-
pend redemptions or postpone payments when the NYSE is closed or when trading
is restricted for any reason other than its customary weekend or holiday
closings, or under any emergency circumstances as determined by the Commission.
REDEEM BY WIRE Redemption proceeds will be transferred by wire to your desig-
nated bank account if federal funds wire instructions are provided with your
signature guaranteed letter of redemption. A $7.50 fee will be charged for this
service. A minimum redemption of $1,000 is required for wire transfers.
For help with redemptions, call your agent or representative or 1-800-367-
7732.
SIGNATURE GUARANTEE The Generation Funds will waive the signature guarantee re-
quirement for redemption requests for amounts of $10,000 or less. However, if
you wish to have your redemption proceeds transferred by wire to your desig-
nated bank account, paid to someone other than the shareholder of record, or
sent somewhere other than the share-
Aetna Generation Funds Prospectus 25
<PAGE>
holder address of record, you must provide a signature guarantee with your
written redemption instructions regardless of the amount of redemption.
The Generation Funds reserve the right to amend or discontinue this waiver of
signature guarantee policy at any time and establish other criteria for veri-
fying redemption request authenticity.
Any one of the following institutions may provide a signature guarantee: a
national or state bank (or savings bank in New York or Massachusetts only); a
trust company; a federal savings and loan association; or a member firm of the
New York, American, Boston, Midwest, or Pacific Stock Exchange. Please note
that signature guarantees are not provided by notary publics.
MINIMUM ACCOUNT BALANCE To keep your account open, you must maintain a minimum
balance of $500 in each Generation Fund account. If this minimum balance is
not maintained due to redemptions, the Generation Fund reserves the right to
redeem all of your remaining shares in that account and mail the proceeds to
you at the address of record. Shares will be redeemed at net asset value de-
termined on the day the account is closed. The Generation Fund will give you
60 days notice that such redemption will occur unless you make an additional
investment to increase the account balance to the $500 minimum.
TAX-DEFERRED RETIREMENT PLANS The Generation Funds can be used for investment
by a variety of tax-deferred plans. These plans let you save for retirement
and can defer taxes on your investment income. Some of these plans are:
. IRAs, available to individuals who work and their spouses.
. 401(k) Programs, available to corporations of all sizes to benefit their em-
ployees.
SHAREHOLDER INFORMATION The transfer agent will maintain shareholder accounts.
A confirmation statement is sent to you and your agent or representative after
every transaction that affects your share balance or account registration. A
Form 1099 will also be sent each year by January 31. You will also receive an
annual and semiannual report of the Generation Funds. The transfer agent may
charge you a fee for special reports such as an historical transcript of your
account.
Consolidated Statements, reflecting current account values and year-to-date
transactions, will be sent each quarter. All accounts identified by the same
social security number and address will be consolidated. For example, you
could receive a Consolidated Statement showing your individual and IRA ac-
counts. Annual and semiannual reports will also be consolidated on this basis.
With the prior permission of the other shareholders involved, you have the op-
tion of requesting that
26 Aetna Generation Funds Prospectus
<PAGE>
accounts controlled by those other shareholders be shown on one Consolidated
Statement. For example, information on your individual account, your IRA, your
spouse's individual account and your spouse's IRA may be shown on the Consoli-
dated Statement.
OTHER FEATURES
SYSTEMATIC INVESTMENT The Systematic Investment feature, using the EFT capabil-
ity, allows you to make automatic monthly investments in any of the Generation
Funds. You may select, on the Application, the amount of money to be moved and
the Generation Fund in which to be invested. There is no minimum initial cash
investment required to open your account. However, the minimum monthly System-
atic Investment is $50 per Generation Fund account. Your Application must be
received at least 15 business days prior to the first EFT transaction. The Sys-
tematic Investment feature and EFT capability will be terminated upon total re-
demption of your account. Also, a Generation Fund will hold payment of redemp-
tion proceeds until a Systematic Investment has cleared, which may take up to
12 calendar days.
AUTOMATIC CASH WITHDRAWAL PLAN The Automatic Cash Withdrawal Plan provides a
convenient way for you to receive a systematic distribution while maintaining
an investment in the Generation Funds. The Automatic Cash Withdrawal Plan per-
mits you to have payments of $100 or more automatically transferred from your
account(s) in the Generation Fund(s) to your designated bank account on a
monthly basis. In order to start this plan, you must have a minimum balance of
$10,000 in any Generation Fund account utilizing this feature. Your automatic
cash withdrawals will be processed on a regular basis beginning on or about the
first day of the month. Any applicable CDSC will be waived on amounts withdrawn
under the Automatic Cash Withdrawal Plan. There may be tax consequences associ-
ated with these transactions. Please consult your tax adviser.
CHANGES TO SERVICE The Generation Funds reserve the right to amend the share-
holder services or to change the terms or conditions.
CROSS-FUND INVESTING
DIVIDEND INVESTING--You may elect to have dividend and/or capital gains distri-
butions automatically invested in another Adviser Class Fund account.
SYSTEMATIC EXCHANGE--You may establish an automatic exchange of Adviser Class
shares from one Fund account to another (including any of the Generation
Funds). The exchange will occur on or about the 15th day of each month and must
be for a minimum of $50 per month.
Aetna Generation Funds Prospectus 27
<PAGE>
As this transaction is treated as an exchange, the policies related to the ex-
change privilege apply. Please read the "Purchase by Exchange" section careful-
ly. There may be tax consequences associated with these exchanges. Please con-
sult your tax adviser.
Cross-Fund Investing may only be made into a Fund account that has previously
been established with the Fund's minimum investment. To request either or both
of these features, please call your agent or representative, or call 1-800-367-
7732.
FEES AND CHARGES
SHAREHOLDER SERVICES FEE Under a Shareholder Services Plan approved by the
Board of Directors ("Directors") with respect to Adviser Class shares of each
Generation Fund, the Investment Adviser is paid a service fee at an annual rate
of 0.25% of the average daily net assets of the Adviser Class shares of each
Generation Fund. This fee is used as compensation for expenses incurred in ser-
vicing shareholder accounts.
12B-1 DISTRIBUTION FEE ALIAC is paid a 12b-1 distribution fee at an annual rate
of 0.50% of the daily net assets of the Adviser Class shares of each Generation
Fund. This fee is authorized under a Distribution Plan under Rule 12b-1 of the
1940 Act that has been approved by the Directors.
The 12b-1 distribution fee may be used to cover expenses incurred in promoting
the sale of Adviser Class shares, including (i) costs of printing and distrib-
uting each Generation Fund's prospectus, SAI and sales literature to prospec-
tive investors; (ii) payments to registered representatives and other persons
who provide support services in connection with the distribution of shares;
(iii) overhead and other ALIAC distribution-related expenses; and (iv) accruals
for interest on the amount of the foregoing expenses that exceed 12b-1 distri-
bution fees and the CDSC received by ALIAC. The payments to registered repre-
sentatives for selling shares of the Adviser Class include a commission paid at
the time of sale and a continuing fee for servicing shareholder accounts for as
long as a shareholder remains a holder of the Adviser Class. Registered repre-
sentatives may receive different levels of compensation when selling shares of
the Adviser Class and Select Class.
CONTINGENT DEFERRED SALES CHARGE You may buy Adviser Class shares without an
initial sales charge. However, ALIAC will impose a CDSC on certain Generation
Fund share redemptions. ALIAC will not impose a CDSC if your redemption does
not exceed (a) the appreciation in value of Adviser Class shares over purchases
made in the preceding four years; or (b) the value of Adviser Class shares pur-
chased through reinvestment of dividends or capital gains distributions; or (c)
the
28 Aetna Generation Funds Prospectus
<PAGE>
value of Adviser Class shares purchased more than four years before redemption.
In the event a CDSC is imposed, ALIAC will base the calculation on the oldest
purchase payments and on the lower value of either the current value of your
account, or the value of purchase payments made during the CDSC period. ALIAC
will calculate the CDSC by multiplying the redemption proceeds by the percent-
age shown below based on the time invested:
<TABLE>
<CAPTION>
REDEMPTION DURING CDSC
- ----------------- ----
<S> <C>
1st year since purchase................................................... 1.00%
2nd year since purchase................................................... .75%
3rd year since purchase................................................... .50%
4th year since purchase................................................... .25%
5th year and thereafter................................................... None
</TABLE>
In calculating the CDSC, ALIAC will assume that you are redeeming shares not
subject to the CDSC first. In determining the number of years since purchase,
ALIAC will aggregate all purchases and consider them made on the first day of
the month.
For example, assume that you have made purchase payments for Adviser Class
shares of a Generation Fund of $2,000 annually for two years (total $4,000) and
that the Generation Fund's value, including appreciation and reinvested distri-
butions, has grown to $5,200 in the third year. You could then redeem $1,200
from the Generation Fund without incurring a CDSC. If you redeemed $2,000, the
first $800 would be subject to the CDSC ($2,000 minus $1,200) and would be as-
sumed to have come from your oldest purchase payment. Thus, a 0.50% CDSC would
be imposed (for redemptions of shares in the third year since purchase), for a
total charge of $4.00.
Because the CDSC is assessed on a Fund-by-Fund basis, shareholders who contem-
plate a redemption and have invested in more than one Generation Fund should
consider redeeming from the Generation Fund that would produce the lowest CDSC.
WAIVERS OF CDSC The CDSC will be waived on (a) exchanges; (b) redemptions of
shares following the death or disability of the shareholder; (c) redemptions of
shares in connection with distributions and withdrawals from retirement plans
or IRAs; (d) redemptions of shares purchased by active or retired employees of
ALIAC or affiliated companies; (e) redemptions by shareholders with a current
account balance of $1 million or more in the account from which they wish to
redeem; (f) redemption of shares pursuant to the Automatic Cash Withdrawal Plan
(see "Other Features"); and (g) involuntary redemptions.
Aetna Generation Funds Prospectus 29
<PAGE>
MANAGEMENT OF THE GENERATION FUNDS
DIRECTORS The business affairs of each Generation Fund is managed under the
direction of the Board of Directors ("Directors"). The Directors set broad
policies for the Company and each Generation Fund. Information about the Di-
rectors is found in the SAI.
INVESTMENT ADVISER ALIAC, the Investment Adviser for each Generation Fund, is
a Connecticut insurance corporation located at 151 Farmington Avenue, Hart-
ford, Connecticut 06156. The Investment Adviser is registered with the Securi-
ties and Exchange Commission as an investment adviser and in addition to man-
aging the Generation Funds, provides investment advisory services to other mu-
tual funds (Aetna Money Market Fund, Aetna Government Fund, Aetna Tax-Free
Fund, The Aetna Fund, Aetna Growth and Income Fund, Aetna Growth Fund, Aetna
Small Company Growth Fund, Aetna International Growth Fund, Aetna Asian Growth
Fund, Aetna Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund,
Aetna Investment Advisers Fund, Inc. and Aetna GET Fund, which together amount
to $7 billion in assets) together with several fixed income portfolios. The
Investment Adviser is a wholly-owned subsidiary of Aetna Life and Casualty
Company which, with affiliated companies, comprises one of the world's leading
providers of insurance and financial services.
Under an investment advisory agreement with the Company, the Investment Ad-
viser is, subject to the supervision of the Directors, responsible for manag-
ing the assets of each Generation Fund in accordance with its investment ob-
jective and policies. The Investment Adviser determines what securities and
other instruments are purchased and sold by each Generation Fund and is re-
sponsible for obtaining and evaluating financial data relevant to any Genera-
tion Fund portfolio.
The Investment Adviser also furnishes all necessary facilities and pays the
salaries and other related costs of personnel engaged in providing investment
advice to the Company. It also pays salary and other fees and expenses for Di-
rectors and officers of the Company who are employees or affiliated persons of
the Investment Adviser. The Investment Adviser receives a monthly fee at an
annual rate based upon the average daily net assets of each Generation Fund as
follows: 0.80% on the first $500 million; 0.775% on the next $500 million;
0.75% on the next $500 million; 0.725% on the next $500 million; and 0.70% on
assets over $2 billion.
ADMINISTRATOR ALIAC acts as administrator for each Generation Fund and per-
forms certain administrative and internal accounting services, including main-
taining general ledger accounts, regulatory compliance, preparation of finan-
cial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, share-
30 Aetna Generation Funds Prospectus
<PAGE>
holder communications and supervision of the custodian and transfer agent.
For these services, ALIAC receives a monthly fee at an annual rate based upon
the average net assets as follows: 0.25% on the first $250 million; 0.24% on
the next $250 million; 0.23% on the next $250 million; 0.22% on the next $250
million; 0.20% on the next $1 billion and 0.18% on assets over $2 billion.
PRINCIPAL UNDERWRITER ALIAC is the principal underwriter for the Company. ALIAC
may contract with various broker-dealers, including one or more affiliates, for
distribution of Adviser Class shares. ALIAC may also sell shares of the Genera-
tion Funds directly. ALIAC is paid an annual service fee and an annual 12b-1
distribution fee with respect to Adviser Class shares of the Generation Funds.
The fees are authorized under a Shareholder Services Plan and a Distribution
Plan ("Plans") adopted by the Board of Directors with respect to the Adviser
Class shares of each Generation Fund. See "Fees and Charges" for more informa-
tion.
Although it is anticipated that some promotional activities will be conducted
on a Company-wide basis, payments made by a Generation Fund under the Distribu-
tion Plan generally will be used to finance the distribution of Adviser Class
shares of that Generation Fund. Expenses incurred in connection with Company-
wide activities may be allocated pro-rata among all Funds of the Company on the
basis of their relative net assets.
Payments under the Plans are not tied exclusively to the distribution and
shareholder service expenses actually incurred by ALIAC, and the payments may
exceed expenses actually incurred. The Directors evaluate the appropriateness
of the Plans and the payment terms on a continuing basis and in doing so will
consider all relevant factors, including expenses borne by ALIAC and the
amounts received under the Plans and the proceeds of the CDSC.
On a quarterly basis, the Directors review a report on expenditures under the
Plans and the purposes for which those expenditures were made. The Directors
conduct an additional, more extensive review annually in determining whether
the Plans will be continued. By their terms, continuation of the Plans from
year to year are contingent on annual approval by a majority of the Directors
and by a majority of the Directors who are not "interested persons" (as defined
in the 1940 Act), and who have no direct or indirect financial interest in the
operation of the Plans or related agreements (the "Plan Directors"). The Dis-
tribution Plan may be terminated by the Plan Directors or a majority of the
outstanding shares of the Generation Funds. The Shareholder Services Plan may
be terminated by the Directors.
Aetna Generation Funds Prospectus 31
<PAGE>
TRANSFER AGENT Firstar Trust Company acts as each Generation Fund's transfer
and dividend-paying agent. Firstar is responsible for the issuance, transfer
and redemption of shares and the opening and maintenance of shareholder ac-
counts.
FUND EXPENSES Each Fund bears the costs of its operations. Expenses directly
attributable to a Fund are charged to that Fund. Some expenses are allocated
proportionately among all the Funds in relation to the net assets of each Fund
and some expenses are allocated equally to each Fund.
PORTFOLIO MANAGEMENT
The following individual serves as the lead portfolio manager for each of the
Generation Funds and is primarily responsible for determining the allocation
of the Generation Fund's investments among the seven asset classes described
above:
KEVIN M. MEANS Portfolio Manager of the Generation Funds since inception in
1994; Vice President, ALIAC Equities since 1994; Portfolio Manager of INVESCO
Multi-Asset Allocation Fund and INVESCO EBI Multiflex Fund from inception in
1993 to 1994; Chief Investment Officer of INVESCO Management & Research, Inc.,
1993-1994; Portfolio Manager with INVESCO Capital Management Inc., 1987-1993.
Mr. Means is assisted by a team of portfolio managers specializing in the
various asset classes in which the Generation Funds may invest. These analysts
are responsible for managing security selection for their assigned classes'
share of each Generation Fund's portfolio within the overall asset allocation
parameters.
FUND DISTRIBUTIONS
The Generation Funds declare and pay dividends annually. All capital gains
distributions, if any, are paid on an annual basis.
Income dividends are derived from investment income, including dividends, in-
terest, realized short-term capital gains, and certain foreign currency gains
received by a Generation Fund. Capital gains distributions are derived from
each Generation Fund's realized long-term capital gains. The per share divi-
dends and distributions on Adviser Class shares will be less than the per
share dividends and distributions of the Select Class as a result of the dis-
tribution and service fees applicable to the Adviser Class. See "Fees and
Charges."
REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS Unless you
elect otherwise, as permitted in the Application, income dividends and capital
gains distributions with respect to a particular Generation Fund will be rein-
vested in additional Adviser Class shares of that
32 Aetna Generation Funds Prospectus
<PAGE>
Generation Fund and will be credited to your account at the next determined net
asset value per share. Both income dividends and capital gains distributions
are paid by a Generation Fund on a per-share basis. As a result, at the time of
such payment, the net asset value per share of a Generation Fund will be re-
duced by the amount of such payment.
If you wish to change the manner in which you receive income dividends and
capital gains distributions, your notification of such change must be received
by the transfer agent at least ten days before the next scheduled distribution.
NET ASSET VALUE
The net asset value per share ("NAV") of each Generation Fund is determined as
of 4:15 p.m. Eastern time on each day that the NYSE is open for trading. Each
Generation Fund's NAV is computed by dividing the total value of a Generation
Fund's securities, plus any cash or other assets (including dividends and in-
terest accrued but not collected) less all liabilities (including accrued ex-
penses), by the number of shares outstanding. Portfolio securities are valued
primarily on the basis of market quotations. All other assets, including re-
stricted securities and other securities for which market quotations are not
readily available, are valued at their fair value in such manner as may be de-
termined, from time to time, in good faith by, or under the authority of, the
Directors.
TAXES
INTRODUCTION The tax information described below is only a summary of federal
income tax consequences and is based on tax laws and regulations in effect as
of the date of this Prospectus. Please refer to the SAI for a more detailed
discussion of federal income tax considerations. In addition to federal taxes,
you may be subject to state and local taxes and you should discuss your indi-
vidual tax situation with your tax advisor.
Each Generation Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including requirements with respect to diversi-
fication of assets, distribution of income and sources of income. It is the
policy of each Generation Fund to distribute to shareholders all of its invest-
ment income (net of expenses) and any capital gains (net of capital losses) in
accordance with the timing requirements imposed by the Code so that each Gener-
ation Fund will satisfy the distribution requirement of Subchapter M and not be
subject to federal income taxes or the 4% excise tax.
Aetna Generation Funds Prospectus 33
<PAGE>
SHAREHOLDER DISTRIBUTIONS Distributions of net long-term capital gains are
taxable to you as long-term capital gains regardless of the length of time you
have owned your shares. Distributions of net investment income and net short-
term capital gains are taxable to you as ordinary income. Investment income
from foreign securities may be subject to foreign taxes withheld at the
source. It is impossible to determine the effective rate of foreign tax in ad-
vance since the amount of a Generation Fund's assets to be invested in various
countries is not known. A Generation Fund's distributions are taxable in the
year they are received, whether you take them in cash or reinvest them in ad-
ditional shares. However, distributions declared in October, November or De-
cember of any calendar year and paid in January of the next calendar year will
be taxable as if paid on December 31 of the year of declaration. Each Genera-
tion Fund will send a statement to shareholders by January 31 indicating the
tax status of distributions made (or deemed made) during the previous year and
any foreign taxes are "passed through" to shareholders.
BUYING A DIVIDEND If you buy shares of a Generation Fund just before the ex-
dividend date, you will be taxed on the entire amount of the dividend re-
ceived.
SHARE REDEMPTIONS Any gain or loss realized when you redeem (sell) or exchange
shares of a Generation Fund will be treated as a taxable long-term or short-
term capital gain or loss. Please see the SAI for information regarding any
limitation on deductibility of such losses.
TAX WITHHOLDING When you fill out your Application, you will be asked to cer-
tify that your Social Security or taxpayer identification number is correct
and that you are not subject to backup withholding by the Internal Revenue
Service ("IRS"). If you are subject to backup withholding, the IRS can require
a Generation Fund to withhold 31% of your taxable dividends, capital gains
distributions and redemptions.
GENERAL INFORMATION
ARTICLES OF INCORPORATION The Company was incorporated under the laws of Mary-
land on June 17, 1991. The Articles of Incorporation ("Articles") provide for
the issuance of multiple series of shares, each representing a portfolio of
investments with different investment objectives, policies and restrictions.
The Company authorized the organization of the Generation Funds by amendment
to its Articles on September 27, 1994.
SHARE CLASSES Each Generation Fund offers shares of common stock currently
classified into two classes, Select Class shares and Adviser Class shares.
Each class of shares has the same rights, privileges and
34 Aetna Generation Funds Prospectus
<PAGE>
preferences, except with respect to: (a) the effect of the respective sales
charge, if any, for each class; (b) the distribution and/or service fees borne
by each class; (c) the expenses allocable exclusively to each class; (d) voting
rights on matters exclusively affecting a single class; and (e) the exchange
privilege of each class. The Directors do not anticipate that there will be any
conflicts among the interests of the holders of the different classes of shares
of the Generation Funds. The Directors continue to consider whether any such
conflicts exist and, if so, take appropriate action.
The Generation Funds intend to seek a ruling from the IRS to the effect that
differing distributions among the classes of its shares will not result in the
Generation Funds' dividends or other distributions being regarded as "preferen-
tial dividends" under the Internal Revenue Code. While similar rulings have
been issued by the IRS, including a ruling with respect to the ten existing
Fund portfolios of the Company, complete assurance cannot, of course, be given
that the Generation Funds will receive such a ruling. For additional informa-
tion, including a discussion of the consequences were the IRS to decline to
grant the requested ruling, see the SAI.
CAPITAL STOCK The Articles currently authorize the issuance of four billion,
eight hundred million shares of capital stock of the Company. All shares are
nonassessable, transferable and redeemable. There are no preemptive rights.
SHAREHOLDER MEETINGS The Company is not required and does not intend to hold
annual shareholder meetings. The Articles provide for meetings of shareholders
to elect Directors at such times as may be determined by the Directors or as
required by the 1940 Act. If requested by the holders of at least 10% of a Gen-
eration Fund's outstanding shares, the Company will hold a shareholder meeting
for the purpose of voting on the removal of one or more Directors and will as-
sist with communication concerning that shareholder meeting.
VOTING RIGHTS Shareholders of each class are entitled to one vote for each full
share held and fractional votes for fractional shares of each class held on
matters submitted to the shareholders of the Company. Voting rights are not cu-
mulative. Generally, shares of the Company will be voted on a Company-wide ba-
sis on all matters except matters affecting the interest of only one Fund or
one class of shares.
PAYMENTS TO DEALERS For sales of the Generation Funds' shares, ALIAC may pay
registered representatives sales commissions of up to 4% of the amount invested
for initial and subsequent sales. Registered representatives receive payments
of up to 0.50% for distribution-related services and for services to sharehold-
ers (see "Fees and
Aetna Generation Funds Prospectus 35
<PAGE>
Charges"). From time to time, ALIAC may also award merchandise or trips with
an estimated value of up to $1,000 to registered representatives that sell a
certain amount of Generation Fund shares or establish a certain number of new
accounts. Incentive commissions and prizes are paid by ALIAC so the price you
pay for Adviser Class shares and the value of your investment will be unaf-
fected.
PERFORMANCE DATA
The Generation Funds may compare their performance to other mutual funds with
similar investment objectives and to the industry as a whole, as quoted by
ranking services and publications of general interest. These may include the
Standard & Poor's 500 Stock Index ("S&P 500"), the Russell 2000 Index,
Shearson Lehman Aggregate Bond Index, Dow Jones Industrial Average ("DJIA"),
Lipper Analytical Services, Inc., the National Association of Real Estate In-
vestment Trusts ("NAREIT") Equity REIT Index, IBC/Donoghue's Taxable MFA, the
Morgan Stanley Capital International Europe, Australia, Far East ("EAFE") In-
dex, the Morgan Stanley Capital International Far East Free ("FEF ex. Japan")
Index, Salomon Brothers Broad Investment Grade Index and the Salomon Brothers
Non-U.S. Bond Index.
36 Aetna Generation Funds Prospectus
<PAGE>
GLOSSARY OF INVESTMENT TERMS
This glossary describes some of the securities used by the Generation Funds.
Further information is available in the SAI:
BANKER'S ACCEPTANCE A banker's acceptance is a time draft drawn on a bank and
is customarily used by corporations as a means of financing payment for traded
goods. When a draft is accepted by a bank, the bank guarantees to pay the face
value of the debt at maturity.
CERTIFICATES OF DEPOSIT For large deposits not withdrawable on demand, banks
issue certificates of deposit ("CDs") as evidence of ownership. CDs are usually
negotiable and traded among investors such as mutual funds and banks.
COMMERCIAL PAPER Commercial paper is short-term debt instruments issued by com-
panies or banks with a maturity ranging from five to 270 days.
DEPOSITORY RECEIPTS Depository receipts are negotiable certificates evidencing
ownership of shares of a non-U.S. corporation, government, or foreign subsidi-
ary of a U.S. Corporation. A U.S. bank typically issues depository receipts,
which are backed by ordinary shares that remain on deposit with a custodian
bank in the issuer's home market.
A depository receipt can either be "sponsored" by the issuing company or es-
tablished without the involvement of the company, which is referred to as
"unsponsored."
EURODOLLARS Eurodollars are U.S. dollars held in banks outside the United
States, mainly in Europe but also in other countries, and are commonly used for
the settlement of international transactions. There are many types of Eurodol-
lar securities including Eurodollar CDs and bonds; these securities are not
registered with the Commission. Certain Eurodollar deposits are not FDIC in-
sured and may be subject to future political and economic developments and gov-
ernmental restrictions.
HIGH-YIELD SECURITIES Bonds of low quality security backing rated BB or below
by Standard & Poor's Corp. or Ba or below by Moody's Investors Service, Inc.,
or other agencies or, if unrated, considered by the Investment Adviser to be of
comparable quality. These bonds are often called "junk" bonds because of the
greater possibility of default.
PAY-IN-KIND BONDS Pay-in-kind bonds are securities that pay interest through
the issuance of additional bonds.
U.S. GOVERNMENT DERIVATIVES A Fund may purchase separately traded principal and
interest components of certain U.S. Government securities ("STRIPS"). In addi-
tion, a Fund may acquire custodial receipts that represent ownership in a U.S.
Government security's future inter-
Aetna Generation Funds Prospectus 37
<PAGE>
est or principal payments. These securities are known by such exotic names as
TIGRS and CATS and may be issued at a discount to face value. They are gener-
ally more volatile than normal fixed income securities because interest pay-
ments are accrued rather than paid out in regular installments.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS When-issued and delayed-delivery
transactions are trading practices in which payment and delivery for securi-
ties takes place at a future date. The market value of a security could change
during the interim period, which could affect yield.
VARIABLE RATE INSTRUMENTS A variable or floating rate instrument is one whose
terms provide for the adjustment of its interest rate on set dates and which
can reasonably be expected to have a market value close to par value.
YANKEE BONDS A bond issued in the United States by foreign countries, corpora-
tions and banks. Similarly, Yankee CDs are issued in the U.S. by branches of
foreign banks.
ZERO COUPON BONDS Bonds issued at a deep discount to face value. These bonds
pay no interest but are redeemed at full face value. The price of zero coupon
bonds are more volatile than bonds which pay interest but are rated on the
same principles as all fixed-income investments.
The Generation Funds also use some of the following securities to manage risk
and volatility:
CALL OPTION The right to buy a security, currency or stock index at a stated
price, or strike price, within a fixed period. A call option will be exercised
if the spot price rises above the strike price; if not, the option expires
worthless.
PUT OPTION The right to sell a security, currency or stock index at a stated
price, or strike price, within a fixed period. A put option will be exercised
if the spot price falls below the strike price; if not, the option expires
worthless.
COVERED CALL OPTIONS A call option backed by the securities underlying the op-
tion. The owner of a security will normally sell covered call options to col-
lect premium income or to reduce price fluctuations of the security. A covered
call option limits the capital appreciation of the underlying security.
COVERED PUT OPTION A written put option covered by segregated liquid assets
equal to the value of the exercise price of the put. Writing a put has similar
economic effect as writing a call. The writer receives a
38 Aetna Generation Funds Prospectus
<PAGE>
premium, but also assumes the obligation during the option period to buy the
underlying investment from the buyer at the exercise price, even though the
value of the investment may fall below the exercise price.
CONVERTIBLE STOCK Corporate securities, which may be either bonds or preferred
shares, that can be exchanged for shares of common stock at a fixed price.
FUTURES Contracts to buy securities, currencies or stock indexes in the future
at a price agreed to in advance. A futures contract obliges the buyer to pur-
chase the security and the seller to sell it, unlike an option where the buyer
can choose whether or not to exercise the option.
PREFERRED STOCK Shares which pay a fixed dividend, in contrast to common stock
whose dividends depend on the profits of the company.
WARRANTS A security, normally offered with bonds or preferred stock, that enti-
tles investors to buy shares at a prescribed price within a named period. The
time period is usually longer than that of a call option.
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
"Aaa" RATING Bonds rated Aaa are judged to be of the best quality and carry the
smallest degree of investment risk. Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"Aa" RATING Bonds rated Aa are judged to be of high-quality by all standards.
Together with the Aaa group, they are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat greater than in Aaa securities.
"A" RATING Bonds rated A possess many favorable investment attributes and are
considered upper-medium-grade obligations. Factors relating to security of
principal and interest are considered adequate but elements may be present
which suggest possible impairment sometime in the future.
"Baa" RATING Bonds rated Baa are considered medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Inter-
Aetna Generation Funds Prospectus 39
<PAGE>
est payments and principal security appear adequate for the present but cer-
tain protective elements may be lacking or may be characteristically unrelia-
ble over any great length of time. Such bonds lack outstanding investment
characteristics and have speculative characteristics.
"Ba" RATING Bonds rated Ba are judged to have speculative elements; their fu-
ture cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position char-
acterizes this class of bond.
"B" RATING Bonds rated B generally lack characteristics of the desirable in-
vestment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modi-
fier 3 indicates that the issue ranks in the lower end of its rating category.
STANDARD & POOR'S CORPORATION
"AAA" RATING Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
"AA" RATING Bonds rated AA have a very strong capacity to pay interest and re-
pay principal and differ from the highest rated issues only in small degree.
"A" RATING Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB" RATING Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate pro-
tection, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay principal for debt in
this category than in higher-rated categories.
"BB" RATING Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, the bonds face major uncertainties or expo-
sure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
40 Aetna Generation Funds Prospectus
<PAGE>
"B" RATING Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The ratings from "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Aetna Generation Funds Prospectus 41
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION DATED: DECEMBER 28, 1994
AS AMENDED JUNE 28, 1995
AETNA SERIES FUND, INC.
AETNA GENERATION FUNDS
ADVISER CLASS AND SELECT CLASS
151 FARMINGTON AVENUE
HARTFORD, CONNECTICUT 06156-8962
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Aetna Generation Funds, which are
series portfolios of Aetna Series Fund, Inc., dated December 28, 1994, as
amended on June 28, 1995. A free prospectus is available upon request by writing
to Aetna Series Fund, Inc. at the address listed above or calling 1-800-367-
7732.
READ THE PROSPECTUS BEFORE YOU INVEST.
TABLE OF CONTENTS
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<S> <C>
General Information and History 2
Additional Investment Restrictions and Policies of the Generation Funds 2
Description of Various Securities and Investment Techniques 4
Directors and Officers of the Company 19
The Investment Advisory Contract 21
The Administrative Services Agreement 22
Custodian 22
Independent Auditors 22
Principal Underwriter 22
Distribution Arrangements 22
Brokerage Allocation and Trading Policies 23
Description of Shares 24
Sale and Redemption of Shares 25
Net Asset Value 26
Tax Status 26
Performance Information 33
Financial Statements F-1
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GENERAL INFORMATION AND HISTORY
Aetna Series Fund, Inc. (the "Company") is a diversified, open-end management
investment company which offers thirteen series of shares, each representing a
portfolio of investments (the "Funds") with different investment objectives,
policies and restrictions. This Statement of Additional Information relates to
the following three Funds only: (1) Aetna Ascent, (2) Aetna Crossroads, and (3)
Aetna Legacy (individually a "Fund" and collectively, the "Generation Funds").
Each Generation Fund is currently authorized to offer two classes of shares, the
Adviser Class and the Select Class.
The investment objective and general investment policies of each Fund are
described in the Prospectus.
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES OF THE
GENERATION FUNDS
The investment policies and restrictions of the Generation Funds, set forth
below, are matters of fundamental policy for purposes of the Investment Company
Act of 1940 (the "1940 Act") and therefore cannot be changed, with regard to a
particular Fund, without the approval of a majority of the outstanding voting
securities of that Fund. This means the lesser of: (i) 67% of the shares of a
Fund present at a shareholders' meeting if the holders of more than 50% of the
shares of that Fund then outstanding are present in person or by proxy; or (ii)
more than 50% of the outstanding voting securities of a Fund.
As a matter of fundamental policy, none of the Generation Funds will:
(1) hold more than 5% of the value of its total assets in the securities of any
one issuer or hold more than 10% of the outstanding voting securities of
any one issuer. This restriction applies only to 75% of the value of a
Fund's total assets. Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities are excluded from this
restriction;
(2) concentrate its investments in any one industry, except that a Fund may
invest up to 25% of its total assets in securities issued by companies
principally engaged in any one industry. For purposes of this restriction,
finance companies will be classified as separate industries according to
the end user of their services, such as automobile finance, computer
finance and consumer finance. In addition, for purposes of this
restriction, real estate stocks will be classified as separate industries
according to property type, such as apartment, retail, office and
industrial. This limitation will not, however, apply to securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities;
(3) make loans, except that, to the extent appropriate under its investment
program, a Fund may (a) purchase bonds, debentures or other debt
securities, including short-term obligations; (b) enter into repurchase
transactions; and (c) lend portfolio securities provided that the value of
such loaned securities does not exceed one-third of the Fund's total
assets;
(4) issue any senior security (as defined in the 1940 Act), except that (a) a
Fund may enter into commitments to purchase securities in accordance with
that Fund's investment program, including reverse repurchase agreements,
delayed delivery and when-issued securities, which may be considered the
issuance of senior securities; (b) a Fund may engage in transactions that
may result in the issuance of a senior security to the extent permitted
under applicable regulations, interpretations of the 1940 Act or an
exemptive order; (c) a Fund may engage in short sales of securities to the
extent permitted in its investment program and other restrictions; (d) the
purchase or sale of futures contracts and related options shall not be
considered to involve the issuance of senior securities; and (e) subject to
fundamental restrictions, a Fund may borrow money as authorized by the
1940 Act;
(5) purchase real estate, interests in real estate or real estate limited
partnership interests except that: (a) to the extent appropriate under its
investment program, a Fund may invest in securities secured by
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real estate or interests therein or issued by companies, including real
estate investment trusts, which deal in real estate or interests therein;
or (b) a Fund may acquire real estate as a result of ownership of
securities or other interests (this could occur for example if a Fund holds
a security that is collateralized by an interest in real estate and the
security defaults);
(6) invest in commodity contracts, except that a Fund may, to the extent
appropriate under its investment program, purchase securities of companies
engaged in such activities; may enter into transactions in financial and
index futures contracts and related options; may engage in transactions on
a when-issued or forward commitment basis; and may enter into forward
currency contracts;
(7) borrow money, except that (a) a Fund may enter into certain futures
contracts and options related thereto; (b) a Fund may enter into
commitments to purchase securities in accordance with that Fund's
investment program, including delayed delivery and when-issued securities
and reverse repurchase agreements; (c) for temporary emergency purposes, a
Fund may borrow money in amounts not exceeding 5% of the value of its total
assets at the time the loan is made; and (d) for purposes of leveraging, a
Fund may borrow money from banks (including its custodian bank) only if,
immediately after such borrowing, the value of that Fund's assets,
including the amount borrowed, less its liabilities, is equal to at least
300% of the amount borrowed, plus all outstanding borrowings. If, at any
time, the value of that Fund's assets fails to meet the 300% asset coverage
requirement relative only to leveraging, that Fund will, within three days
(not including Sundays and holidays), reduce its borrowings to the extent
necessary to meet the 300% test; or
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by a Fund, that
Fund may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (the "1933 Act").
The Company has also adopted certain other investment restrictions reflecting
the current investment practices of the Generation Funds which may be changed by
the Company's directors and without shareholder vote. Some of these restrictions
are described in the prospectus. In addition, none of the Generation Funds will:
(1) make short sales of securities, other than short sales "against the box,"
or purchase securities on margin except for short-term credits necessary
for clearance of portfolio transactions, provided that this restriction
will not be applied to limit the use of options, futures contracts and
related options, in the manner otherwise permitted by the investment
restrictions, policies and investment programs of each Fund, as described
here and in the prospectus;
(2) invest in companies for the purpose of exercising control or management;
(3) purchase the securities of any other investment company, except as
permitted under the 1940 Act; or
(4) purchase interests in oil, gas or other mineral exploration programs;
however, this limitation will not prohibit the acquisition of securities of
companies engaged in the production or transmission of oil, gas, or other
minerals.
In order to permit the sale of its shares in certain states, the Generation
Funds have undertaken to adhere to the following investment policies, each of
which may be changed without shareholder approval:
(1) No Fund will invest more than 5% of the value of a Fund's net assets in
warrants, valued at the lower of cost or market. Included within that
amount, but not more than 2% of the value of a Fund's net assets, may be
warrants which are not listed on the New York, American or any recognized
foreign stock exchange. Warrants acquired by a Fund in units or attached to
securities may be deemed to be without value;
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(2) No Fund will invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in the
usual course of business without taking a materially reduced price. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be
resold under Rule 144A or securities offered pursuant to Section 4(2) of
the Securities Act of 1933, as amended, shall not be deemed illiquid solely
by reason of being unregistered. The Investment Adviser shall determine
whether a particular security is deemed to be liquid based on the trading
markets for the specific security and other factors; and
(3) A Fund may not purchase securities of companies which together with their
predecessors have a record of less than three years' continuous operations,
if, as a result, more than 5% of such Fund's net assets would then be
invested in such securities.
A Generation Fund may make additional commitments more restrictive than the
investment limitations described in the preceding paragraphs in order to sell
its shares in a particular state. Should a Fund determine that any such
commitment, either those currently in effect or any future commitment, is no
longer in its best interest, it will revoke the commitment and terminate sales
of its shares in the state involved.
Where a Generation Fund's investment objective or policy restricts it to a
specified percentage of its total assets in any type of instrument, that
percentage is measured at the time of purchase. There will be no violation of
any investment policy or restriction if that restriction is complied with at the
time the relevant action is taken, notwithstanding a later change in the market
value of an investment, in net or total assets, in the securities rating of the
investment or any other change.
DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES
OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS
The Generation Funds may use derivative instruments as described in the
prospectus under "Investment Techniques." The following provides additional
information about these instruments.
FUTURES CONTRACTS--Each Fund may enter into futures contracts as described
in the prospectus. A Fund may enter into futures contracts which are
traded on national futures exchanges and are standardized as to maturity date
and underlying financial instrument. The futures exchanges and trading in the
United States are regulated under the Commodity Exchange Act by the Commodities
Futures Trading Commission (the "CFTC").
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific commodity or financial
instrument(s) for a specified price at a designated date and time. Brokerage
fees are incurred when a futures contract is bought or sold and at expiration,
and margin deposits must be maintained.
Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments or commodities, those
contracts are usually closed out before the delivery date. Stock index futures
contracts do not contemplate actual future delivery and will be settled in cash
at expiration or closed out prior to expiration. Closing out an open futures
contract sale or purchase is effected by entering into an offsetting futures
contract purchase or sale, respectively, for the same aggregate amount of the
identical type of underlying instrument and the same delivery date. There can be
no assurance, however, that a Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If a
Fund is not able to enter into an offsetting transaction, it will continue to be
required to maintain the margin deposits on the contract.
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The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates and equities
prices, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the securities being
hedged can be only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
futures and for securities, including technical influences in futures trading,
and differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available for trading.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or stock market or interest rate trends.
Most United States futures exchanges limit the amount of fluctuation permitted
in interest rate futures contract prices during a single trading day, and, as
noted, temporary regulations limiting price fluctuations for stock index
futures contracts are also now in effect. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades
may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not
limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
persons engaging in futures transactions to substantial losses.
Sales of futures contracts which are intended to hedge against a change in the
value of securities held by a Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
"Margin" is the amount of funds that must be deposited by a Fund with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in a Fund's futures contracts. A margin deposit
is intended to assure the Fund's performance of the futures contract. The margin
required for a particular futures contract is set by the exchange on which the
contract is traded and may be significantly modified from time to time by the
exchange during the term of the contract.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
promptly pay the excess to a Fund. These daily payments to and from a Fund are
called variation margin. At times of extreme price volatility such as occurred
during the week of October 19, 1987, intra-day variation margin payments may be
required. In computing daily net asset values, each Fund will mark to market the
current value of its open futures contracts. Each Fund expects to earn interest
income on its initial margin deposits. Furthermore, in the case of a futures
contract purchase, each Fund has deposited in a segregated account money market
instruments sufficient to meet all futures contract initial margin requirements.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, small price movements in futures
contracts may result in immediate and potentially unlimited loss or gain to a
Fund relative to the size of the margin commitment. For example, if at the time
of purchase 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit before any deduction for the transaction costs,
if the contract were then closed out. A 15% decrease in the value of the futures
contract would result in a loss equal to 150% of the original margin deposit, if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount initially invested in the futures
contract. However, a Fund would presumably have sustained comparable losses if,
instead of the futures contract, it had invested in the underlying financial
instrument and sold it after the decline.
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A Fund can enter into options on futures contracts. See "Call and Put Options"
below. The risk involved in writing options on futures contracts or market
indices is that there could be an increase in the market value of such contracts
or indices. If that occurred, the option would be exercised and the Fund
involved would not benefit from any increase in value above the exercise price.
Usually, this risk can be eliminated by entering into an offsetting transaction.
However, the cost to do an offsetting transaction and terminate the Fund's
obligation might be more or less than the premium received when it originally
wrote the option. Further, the Fund might occasionally not be able to close the
option because of insufficient activity in the options market.
CALL AND PUT OPTIONS--Each Generation Fund may write (sell) covered call options
and purchase put options and may purchase call and sell put options including
options on securities, indices and futures as discussed in the prospectus and in
this Section. A call option gives the holder (buyer) the right to buy and to
obligate the writer (seller) to sell a security or financial instrument at a
stated price (strike price) at any time until a designated future date when the
option expires (expiration date). A put option gives the holder (buyer) the
right to sell and to obligate the writer (seller) to purchase a security or
financial instrument at a stated price at any time until the expiration date. A
Fund may write or purchase put or call options listed on national securities
exchanges in standard contracts or may write or purchase put or call options
with or directly from investment dealers meeting the creditworthiness criteria
of the Investment Adviser.
So long as the obligation of the writer of a call option continues, the writer
may be assigned an exercise notice by the broker-dealer through which such
option was settled, requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, by the exercise of the call option, or by
entering into an offsetting transaction. To secure the writer's obligation to
deliver the underlying security, a writer of a call option is required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the clearing corporations and of the exchanges. A Fund will only write
a call option on a security which it already owns and will not write call
options on when-issued securities.
When writing a call option, in return for the premium, the writer gives up the
opportunity to profit from the price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. If a call option expires unexercised, the writer will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security during the option
period. If the call option is exercised, the writer would realize a gain or loss
from the transaction depending on what it received from the call and what it
paid for the underlying security.
In the case of a put option, as long as the obligation of the put writer
continues, it may be assigned an exercise notice by the broker-dealer through
which such option was sold, requiring the writer to take delivery of the
underlying security against payment of the exercise price. A writer has no
control over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the expiration date.
This obligation terminates earlier if the writer effects a closing purchase
transaction by purchasing a put of the same series as that previously sold.
To secure its obligation to pay for the underlying security, the writer of a put
generally must deposit in escrow liquid assets with a value equal to or greater
than the exercise price of the put option. The writer therefore foregoes the
opportunity of investing the segregated assets or writing calls against those
assets. A Fund may write put options on debt securities or futures, only if such
puts are covered by segregated liquid assets.
In writing puts, there is the risk that a writer may be required to buy the
underlying security at a disadvantageous price. Writing a put covered by
segregated liquid assets equal to the exercise of the put has the same economic
effect as writing a covered call option. The premium the writer receives from
writing a put option represents a profit, as long as the price of the underlying
instrument remains above the exercise price; however, if the put is exercised,
the writer is obligated during the option period to buy the underlying
instrument from the buyer of the put at the exercise price, even though the
value of the investment may have fallen below the exercise price. If the put
lapses unexercised, the writer realizes a gain in the amount of the premium, the
writer may incur a loss, equal to the difference between the exercise price and
the current market value of the underlying instrument.
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A Fund may purchase put options when the Investment Adviser believes that a
temporary defensive position is desirable in light of market conditions, but
does not desire to sell a fund security. The purchase of put options for these
purposes may be used to protect a Fund's holdings in an underlying security
against a substantial decline in market value. Such protection is, of course,
only provided during the life of the put option when a Fund, as the holder of
the put option, is able to sell the underlying security at the put exercise
price regardless of any decline in the underlying security's market price. By
using put options in this manner, a Fund will reduce any profit it might
otherwise have realized in its underlying security by the premium paid for the
put option and by transaction costs. The security covering the call or put
option will be maintained in a segregated account of a Fund's custodian.
The premium received from writing a call or put option, or paid for purchasing a
call or put option will reflect, among other things, the current market price of
the underlying security, the relationship of the exercise price to such market
price, the historical price volatility of the underlying security, the length of
the option period, and the general interest rate environment. The premium
received by a Fund for writing call options will be recorded as a liability in
the statement of assets and liabilities of that Fund. This liability will be
adjusted daily to the option's current market value. The liability will be
extinguished upon expiration of the option, by the exercise of the option, or by
entering into an offsetting transaction. Similarly, the premium paid by a Fund
when purchasing a put option will be recorded as an asset in the statement of
assets and liabilities of that Fund. This asset will be adjusted daily to the
option's current market value. The asset will be extinguished upon expiration of
the option, by selling an identical option in a closing transaction, or by
exercising the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security from being
called or put, or to permit the exchange or tender of the underlying security.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option, or purchase another put option, on the underlying security with
either a different exercise price or expiration date or both. If a Fund desires
to sell a particular security from its portfolio on which it has written a call
option, or purchased a put option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect a closing transaction at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. A Fund will pay brokerage
commissions in connection with the sale or purchase of options to close out
previously established option positions. Such brokerage commissions are normally
higher as a percentage of underlying asset values than those applicable to
purchases and sales of fund securities.
The exercise price of an option may be below, equal to, or above the current
market value of the underlying security at the time the option is written. From
time to time, a Fund may purchase an underlying security for delivery in
accordance with an exercise notice of a call option assignment, rather than
delivering such security from its portfolio. In such cases additional brokerage
commissions will be incurred.
A Fund will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from the
writing of the option; however, any loss so incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different option. Also, because increases
in the market price of a call option will generally reflect increases in the
market price of the underlying security, any loss resulting from the repurchase
of a call option is likely to be offset in whole or in part by appreciation of
the underlying security owned by a Fund. Any profits from writing covered call
options are considered short-term gain for federal income tax purposes and, when
distributed by a Fund, are taxable as ordinary income.
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FOREIGN FUTURES CONTRACTS AND FOREIGN OPTIONS - The Generation Funds may engage
in transactions in foreign futures contracts and foreign options. Participation
in foreign futures contracts and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the CFTC, the National Futures Association (the "NFA") nor any
domestic exchange regulates activities of any foreign boards of trade including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
laws. Generally, the foreign transaction will be governed by applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the market may be liquidated by a transaction on
another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures contracts or foreign options
transaction occurs. Investors which trade foreign futures contracts or foreign
options contracts may not be afforded certain of the protective measures
provided by domestic exchanges, including the right to use reparations
proceedings before the CFTC and arbitration proceedings provided by the NFA. In
particular, funds received from customers for foreign futures contracts or
foreign options transactions may not be provided the same protections as funds
received for transactions on United States futures exchanges. The price of any
foreign futures contracts or foreign options contract and, therefore, the
potential profit and loss thereon, may be affected by any variance in the
foreign exchange rate between the time an order is placed and the time it is
liquidated, offset or exercised.
OPTIONS ON FOREIGN CURRENCIES - Each Generation Fund may write and purchase
calls on foreign currencies. A Fund may purchase and write puts and calls on
foreign currencies that are traded on a securities or commodities exchange or
quoted by major recognized dealers in such options for the purpose of protecting
against declines in the dollar value of foreign securities and against increases
in the dollar cost of foreign securities to be acquired. If a rise is
anticipated in the dollar value of a foreign currency in which securities to be
acquired are denominated, the increased cost of such securities may be partially
offset by purchasing calls or writing puts on that foreign currency. If a
decline in the dollar value of a foreign currency is anticipated, the decline in
value of portfolio securities denominated in that currency may be partially
offset by writing calls or purchasing puts on that foreign currency. In
the event of rate fluctuations adverse to a Fund's position, it would lose the
premium it paid and transactions costs. A call written on a foreign currency by
a Fund is covered if the Fund owns the underlying foreign currency covered by
the call or has an absolute and immediate right to acquire that foreign currency
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
foreign currency held in its portfolio. A call may be written by a Fund on a
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foreign currency to provide a hedge against a decline due to an expected adverse
change in the exchange rate in the U.S. dollar value of a security which the
Fund owns or has the right to acquire and which is denominated in the currency
underlying the option. This is a "cross-hedging" strategy. In such circum-
stances, the Fund collateralizes the position by maintaining in a segregated
account with the Fund's custodian cash or U.S. Government securities in an
amount not less than the value of the underlying foreign currency in U.S.
dollars marked-to-market daily.
FORWARD EXCHANGE CONTRACTS - Each Generation Fund may enter into forward
contracts for foreign currency ("forward exchange contracts"), which obligate
the seller to deliver and the purchaser to take a specific amount of a specified
foreign currency at a future date at a price set at the time of the contract.
These contracts are generally traded in the interbank market conducted directly
between currency traders and their customers. A Fund may enter into a forward
exchange contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency which it has purchased or sold but which has
not yet settled (a "transaction hedge"); or to lock in the value of an existing
portfolio security (a "position hedge"); or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
a foreign currency. There is a risk that use of forward exhange contracts may
reduce the gain that would otherwise result from a change in the relationship
between the U.S. dollar and a foreign currency. Forward exchange contracts
include standardized foreign currency futures contracts which are traded on
exchanges and are subject to procedures and regulations applicable to futures.
Each Fund may also enter into a forward exchange contract to sell a foreign
currency which differs from the currency in which the underlying security is
denominated. This is done in the expectation that there is a greater
correlation between the foreign currency of the forward exchange contract and
the foreign currency of the underlying investment than between the U.S. dollar
and the foreign currency of the underlying investment. This technique is
referred to as "cross hedging." The success of cross hedging is dependent on
many factors, including the ability of the Investment Adviser to correctly
identify and monitor the correlation between foreign currencies and the U.S.
dollar. To the extent that the correlation is not identical, a Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
Each Generation Fund may use forward exchange contracts to protect against
uncertainty in the level of future exchange rates. The use of forward exchange
contracts does not eliminate fluctuations in the prices of the underlying
securities the Fund owns or intends to acquire, but it does fix a rate of
exchange in advance. In addition, although forward exchange contracts limit the
risk of loss due to a decline in the value of the hedged currencies, at the same
time they limit any potential gain that might result should the value of the
currencies increase.
There is no limitation as to the percentage of a Generation Fund's assets that
may be committed to forward exchange contracts. The Funds will not enter into a
"cross hedge," unless it is denominated in a currency or currencies that the
Investment Adviser believes will have price movements that tend to correlate
closely with the currency in which the investment being hedged is
denominated.
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The Generation Funds' custodian will place cash or U.S. Government securities or
other liquid high-quality debt securities in a separate account of each Fund
having a value equal to the aggregate amount of that Fund's commitments under
forward contracts entered into with respect to position hedges and cross hedges.
If the value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account on a daily basis so
that the value of the account will equal the amount of the Fund's commitments
with respect to such contracts. As an alternative to maintaining all or part of
the separate account, a Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price, or a Fund may purchase a
put option permitting the Fund to sell the amount of foreign currency subject to
a forward purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may result in poorer
overall performance for a Fund than if it had not entered into such contracts.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security if its
market value exceeds the amount of foreign currency the Fund is obligated to
deliver. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transactions costs.
At or before the maturity of a forward exchange contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward contract
under either circumstance to the extent the exchange rate(s) between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract.
The cost to a Fund of engaging in forward exchange contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, a Fund must evaluate the credit
and performance risk of each particular counterparty under a forward
contract.
Although the Generation Funds value their assets daily in terms of U.S. dollars,
they do not intend to convert their holdings of foreign currencies into U.S.
dollars on a daily basis. The Funds may convert foreign currency from time to
time. Foreign exchange dealers do not charge a fee for conversion, but they
do seek to realize a profit based on the difference between the prices at
which they buy and sell various currencies. Thus, a dealer may offer to sell
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a foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS - CFTC regulations
require that all short futures positions be entered into for the purpose of
hedging the value of securities held, and that all long futures positions either
constitute bona fide hedging transactions, as defined in such regulations, or
have a total value not in excess of an amount determined by reference to certain
cash and securities positions maintained, and accrued profits on such positions.
With respect to futures contracts or related options that are entered into for
purposes that may be considered speculative, the aggregate initial margin for
future contracts and premiums for options will not exceed 5% of a Fund's net
assets, after taking into account realized profits and unrealized losses on such
futures contracts.
A Generation Fund's ability to engage in the hedging transactions described
herein may be limited by the current federal income tax requirement that a Fund
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months.
INTEREST RATE SWAP TRANSACTIONS - Swap agreements entail both interest rate risk
and credit risk. There is a risk that, based on movements of interest rates in
the future, the payments made by a Generation Fund under a swap agreement will
have been greater than those received by it. Credit risk arises from the
possibility that the counterparty will default. If the counterparty to an
interest rate swap defaults, a Generation Fund's loss will consist of the net
amount of contractual interest payments that a Generation Fund has not yet
received. The Investment Adviser will monitor the creditworthiness of
counterparties to a Generation Fund's interest rate swap transactions on an
ongoing basis. A Generation Fund will enter into swap transactions with
appropriate counterparties pursuant to master netting agreements. A master
netting agreement provides that all swaps done between a Generation Fund and
that counterparty under that master agreement shall be regarded as parts of an
integral agreement. If on any date amounts are payable in the same currency in
respect of one or more swap transactions, the net amount payable on that date in
that currency shall be paid. In addition, the master netting agreement may
provide that if one party defaults generally or on one swap, the counterparty
may terminate the swaps with that party. Under such agreements, if there is a
default resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with respect
to each swap (i.e., the mark-to-market value at the time of the termination of
each swap). The gains and losses on all swaps are then netted, and the result
is the counterparty's gain or loss on termination. The termination of all swaps
and the netting of gains and losses on termination is generally referred to as
"aggregation."
ADDITIONAL RISK FACTORS IN USING DERIVATIVES - In addition to any risk factors
which may be described elsewhere in this section, or in the prospectus under
"Investment Techniques" and "Risk Factors and Other Considerations," the
following sets forth certain information regarding the potential risks
associated with a Fund's transactions in derivatives.
Risk of Imperfect Correlation - A Generation Fund's ability to hedge effectively
all or a portion of its portfolio through transactions in futures, options on
futures or options on securities and indexes depends on the degree to which
movements in the value of the securities or index underlying such hedging
instrument correlate with movements in the value of the assets being hedged. If
the values of the assets being hedged do not move in the same amount or
direction as the underlying security or index, the hedging strategy for a Fund
might not be successful and the Fund could sustain losses on its hedging
transactions which would not be offset by gains on its portfolio. It is also
possible that there may be a negative correlation between the security or index
underlying a futures or option contract and the portfolio securities being
hedged, which could result in losses both on the hedging transaction and the
portfolio securities. In such instances, the Fund's overall return could be less
than if the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. The Fund would, however, effect
transactions in such futures or options only for hedging purposes (or to close
out open positions).
The trading of futures and options on indices involves the additional risk of
imperfect correlation between movements in the futures or option price and the
value of the underlying index. The anticipated spread between the prices may be
distorted due to differences in the nature of the markets, such as differences
in margin requirements, the liquidity of such markets and the participation of
speculators in the futures and options market. The purchase of an option on a
futures contract also involves the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Generation Fund
will not be able to establish hedging positions, or that any hedging strategy
adopted will be insufficient to completely protect the Fund.
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The Generation Funds will purchase or sell futures contracts or options for
hedging purposes only if, in the Investment Adviser's judgment, there is
expected to be a sufficient degree of correlation between movements in the value
of such instruments and changes in the value of the relevant portion of the
assets being hedged for the hedge to be effective. There can be no assurance
that the Investment Adviser's judgment will be accurate.
Potential Lack of a Liquid Secondary Market - The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation margin requirements.
This could require a Generation Fund to post additional cash or cash equivalents
as the value of the position fluctuates. Rather than meeting additional
variation margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between
the cash and futures markets. Second, the liquidity of the futures or options
market may be lacking. Prior to exercise or expiration, a futures or option
position may be terminated only by entering into a closing purchase or sale
transaction, which requires a secondary market on the exchange on which the
position was originally established. While a Generation Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by the Fund, which could
require the Fund to purchase or sell the instrument underlying the position,
make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures or option positions also could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option on a
futures contract may be adversely affected by "daily price fluctuation limits"
established by the exchanges, which limit the amount of fluctuation in the price
of a contract during a single trading day and prohibit trading beyond such
limits once they have been reached. The trading of futures and options
contracts also is subject to the risk of trading halts, suspensions, exchange or
clearing house equipment failures, government intervention, insolvency of the
brokerage firm or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
Risk of Predicting Interest Rate Movements - Investments in futures contracts on
fixed income securities and related indices involve the risk that if the
Investment Adviser's judgment concerning the general direction of interest rates
is incorrect, a Fund's overall performance may be poorer than if it had not
entered into any such contract. For example, if a Generation Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
Trading and Position Limits - Each contract market on which futures and option
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. The Company does not believe that these trading and
position limits will have an adverse impact on the hedging strategies regarding
the Generation Funds' portfolios.
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REPURCHASE AGREEMENTS
Each Generation Fund may enter into repurchase agreements with domestic banks
and broker-dealers meeting certain size and creditworthiness standards
established by the Company's Board of Directors. Under a repurchase agreement,
a Generation Fund may acquire a debt instrument for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase and the Fund to resell the instrument at a fixed price and time,
thereby determining the yield during the Fund's holding period. This results in
a fixed rate of return insulated from market fluctuations during such period.
Such underlying debt instruments serving as collateral will meet the quality
standards of a Fund. The market value of the underlying debt instruments will,
at all times, be equal to the dollar amount invested. Repurchase agreements,
although fully collateralized, involve the risk that the seller of the
securities may fail to repurchase them from a Fund. In that event, a Fund may
incur (a) disposition costs in connection with liquidating the collateral, or
(b) a loss if the collateral declines in value. Also, if the default on the part
of the seller is due to insolvency and the seller initiates bankruptcy
proceedings, a Fund's ability to liquidate the collateral may be delayed or
limited. Under the 1940 Act, repurchase agreements are considered loans by a
Fund. Repurchase agreements maturing in more than seven days will not exceed 10
percent of the total assets of a Fund. The Generation Funds do not intend to use
reverse repurchase agreements.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments (including floating rate instruments) held by a
Generation Fund may have maturities of more than one year, provided: (i) the
Fund is entitled to the payment of principal at any time, or during specified
intervals not exceeding one year, upon giving the prescribed notice (which may
not exceed 30 days), and (ii) the rate of interest on such instruments is
adjusted at periodic intervals not to exceed one year. In determining whether a
variable rate demand instrument has a remaining maturity of one year or less,
each instrument will be deemed to have a maturity equal to the longer of the
period remaining until its next interest rate adjustment or the period remaining
until the principal amount can be recovered through demand. A Fund will be able
(at any time or during specified periods not exceeding one year, depending upon
the note involved) to demand payment of the principal of a note. If an issuer of
a variable rate demand note defaulted on its payment obligation, a Fund might be
unable to dispose of the note and a loss would be incurred to the extent of the
default. A Fund may invest in variable rate demand notes only when the
investment is deemed to involve minimal credit risk. The continuing
creditworthiness of issuers of variable rate demand notes held by a Fund will
also be monitored to determine whether such notes should continue to
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be held. Variable and floating rate instruments with demand periods in excess of
seven days and which cannot be disposed of promptly within seven business days
and in the usual course of business without taking a reduced price will be
treated as illiquid securities that are subject to the limitations on illiquid
securities set forth in this SAI.
SECURITIES LENDING
The Generation Funds can lend portfolio securities subject to the following
conditions: (a) the borrower will provide at least 100% collateral throughout
the life of the loan; (b) loans will be made subject to the rules of the New
York Stock Exchange; (c) the loan collateral will be either cash or direct
obligations of the U.S. government or agencies thereof; (d) cash collateral will
be invested only in highly liquid short-term investments; (e) during the
existence of a loan, a Fund will continue to receive any distributions paid on
the borrowed securities or amounts equivalent thereto; and (f) no more than one-
third of the net assets of a Fund will be on loan at any one time. A loan may be
terminated at any time by the borrower or lender upon proper notice.
In the Investment Adviser's opinion, lending portfolio securities to qualified
broker-dealers affords a Fund a means of increasing the yield on its portfolio.
A Fund will be entitled either to receive a fee from the borrower or to retain
some or all of the income derived from its investment of cash collateral. A Fund
will continue to receive the interest or dividends paid on any securities
loaned, or amounts equivalent thereto. Although voting rights will pass to the
borrower of the securities, whenever a material event affecting the borrowed
securities is to be voted on, the Investment Adviser or subadviser will regain
or direct the vote with respect to loaned securities.
The primary risk a Fund assumes in loaning securities is that the borrower may
become insolvent on a day on which the loaned security is rapidly increasing in
price. In such event, if the borrower fails to return the loaned securities, the
existing collateral might be insufficient to purchase back the full amount of
the security loaned, and the borrower would be unable to furnish additional
collateral. The borrower would be liable for any shortage, but a Fund would be
an unsecured creditor as to such shortage and might not be able to recover all
or any of it.
FOREIGN SECURITIES
Investments in foreign securities, including futures and options contracts,
offer potential benefits not available solely through investment in securities
of domestic issuers. Foreign securities offer the opportunity to invest in
foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in exchange rates, adverse foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Since the Generation Funds may invest
in securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability, or diplomatic developments that could
adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. company, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. issuers. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable U.S. issuers. Transactional costs in non-
U.S. securities markets are generally higher than in U.S. securities markets.
There is generally less government supervision and regulation of exchanges,
brokers, and issuers than there is in the U.S. The Company might have greater
difficulty taking appropriate legal action with respect to foreign investments
in non-U.S. courts than with respect to domestic issuers in U.S. courts. In
addition, transactions in foreign
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securities may involve greater time from the trade date until settlement than
domestic securities transactions and involve the risk of possible losses through
the holding of securities by custodians and securities depositories in foreign
countries.
Currently, direct investment in equity securities in China and Taiwan is
restricted, and investments may be made only through a limited number of
approved vehicles. At present this includes investment in listed and unlisted
investment companies, subject to limitations under the 1940 Act. Investment in
these closed-end funds may involve the payment of additional premiums to acquire
shares in the open-market and the yield of these securities will be reduced by
the operating expenses of such companies. In addition, an investor should
recognize that he will bear not only his proportionate share of the expenses of
the Generation Fund, but also indirectly bear similar expenses of the underlying
closed-end fund. Also, as a result of a Fund's policy of investing in closed-end
mutual funds, investors in the Fund may receive taxable capital gains
distributions to a greater extent than if he or she had invested directly in the
underlying closed-end fund.
Dividend and interest income from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located and may not be
recoverable by a Fund or its investors.
Depositary receipts are typically dollar denominated, although their market
price is subject to fluctuations of the foreign currency in which the underlying
securities are denominated. Depositary receipts include: (a) American
Depositary Receipts (ADRs), which are typically designed for U.S. investors and
held either in physical form or in book entry form; (b) European Depositary
Receipts (EDRs), which are similar to ADRs but may be listed and traded on a
European exchange as well as in the U.S. Typically, these securities are traded
on the Luxembourg exchange in Europe; and (c) Global Depositary Receipts (GDRs),
which are similar to EDRs although they may be held through foreign clearing
agents such as Euroclear and other foreign depositories. All depositary
receipts will be considered foreign securities for purposes of a Fund's
investment limitation concerning investment in foreign securities.
MORTGAGE-RELATED DEBT SECURITIES
Federal mortgage-related securities include obligations issued or guaranteed by
the Government National Mortgage Association (GNMA), the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). GNMA is a wholly owned corporate instrumentality of the United States,
the securities and guarantees of which are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately owned
corporation, and FHLMC, a federal corporation, are instrumentalities of the
United States with Presidentially-appointed board members. The obligations of
FNMA and FHLMC are not explicitly guaranteed by the full faith and credit of the
federal government.
Pass-through mortgage-related securities are characterized by monthly payments
to the holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the security holders,
like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, often twenty or thirty years, the borrowers can, and typically do, repay
such loans sooner. Thus, the security holders frequently receive repayments of
principal, in addition to the principal which is part of the regular monthly
payment. A borrower is more likely to repay a mortgage which bears a relatively
high rate of interest. This means that in times of declining interest rates,
some higher yielding securities held by a Fund might be converted to cash, and
the Fund could be expected to reinvest such cash at the then prevailing lower
rates. The increased likelihood of prepayment when interest rates decline also
limits market price appreciation of mortgage-related securities. If a Fund buys
mortgage-related securities at a premium, mortgage foreclosures or mortgage
prepayments may result in losses of up to the amount of the premium paid since
only timely payment of principal and interest is guaranteed.
As noted in the Prospectuses, the Generation Funds may also invest in
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs). CMOs and REMICs are securities which are collateralized by
mortgage pass-through securities. Cash flows from underlying mortgages are
allocated to various classes or tranches in a predetermined, specified order.
Each sequential tranche has a "stated maturity" -- the latest date by which the
tranche can be completely repaid, assuming no repayments -- and
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has an "average life" -- the average time to receipt of a principal payment
weighted by the size of the principal payment. The average life is typically
used as a proxy for maturity because the debt is amortized, rather than being
paid off entirely at maturity, as would be the case in a straight debt
instrument.
CMOs and REMICs are typically structured as "pass-through" securities. In these
arrangements, the underlying mortgages are held by the issuer, which then issues
debt collateralized by the underlying mortgage assets. The security holder thus
owns an obligation of the issuer and payment of interest and principal on such
obligations is made from payments generated by the underlying mortgage assets.
The underlying mortgages may be guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. Government such as GNMA or
otherwise backed by FNMA or FHLMC. Alternatively, such securities may be backed
by mortgage insurance, letters of credit or other credit enhancing features.
Both CMOs and REMICs are issued by private entities. They are not directly
guaranteed by any government agency and are secured by the collateral held by
the issuer.
ASSET-BACKED SECURITIES
Asset-backed securities are collateralized by short-term loans such as
automobile loans, computer leases, or credit card receivables. The payments from
the collateral are passed through to the security holder. As noted above with
respect to CMOs and REMICs, the average life for these securities is the
conventional proxy for maturity. Asset-backed securities may pay all interest
and principal to the holder, or they may pay a fixed rate of interest, with any
excess over that required to pay interest going either into a reserve account or
to a subordinate class of securities, which may be retained by the originator.
The originator may guarantee interest and principal payments. These guarantees
often do not extend to the whole amount of principal, but rather to an amount
equal to a multiple of the historical loss experience of similar portfolios.
Other asset-backed securities are similar to CMOs and REMICs in structure and
operations. Two varieties of asset-backed securities are CARs and CARDs. CARs
are securities, representing either ownership interests in fixed pools of
automobile receivables, or debt instruments supported by the cash flows from
such a pool. CARDs are participations in fixed pools of credit accounts. These
securities have varying terms and degrees of liquidity.
CMOs, REMICs and other asset-backed securities are subject to the type of
prepayment risk discussed above due to the possibility that prepayments on the
underlying assets will alter the cash flow. The collateral behind asset-backed
securities tends to have prepayment rates that do not vary with interest rates;
the short-term nature of the loans may also tend to reduce the impact of any
change in prepayment level. Faster prepayments will shorten the average life and
slower prepayments will lengthen it. Asset-backed securities may be pass-
through, representing actual equity ownership of the underlying assets, or pay-
through, representing debt instruments supported by cash flows from the
underlying assets.
The coupon rate of interest on mortgage-related and asset-backed securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor. Actual yield may vary from the coupon rate, however, if such
securities are purchased at a premium or discount, traded in the secondary
market at a premium or discount, or to the extent that the underlying assets are
prepaid as noted above.
HIGH RISK, HIGH-YIELD SECURITIES
The Generation Funds may invest in high risk high-yield securities ("junk
bonds"), which are fixed income securities that offer a current yield above that
generally available on debt securities rated in the four highest categories by
Moody's Investors Service, Inc. and Standard & Poor's Corporation or other
rating agencies, or, if unrated, are considered to be of comparable quality by
the Investment Adviser. These securities include:
(a) fixed rate corporate debt obligations (including bonds, debentures and
notes) rated Ba or lower by Moody's or BB or lower by S&P;
(b) preferred stocks that have yields comparable to those of high-yielding
debt securities; and
(c) any securities convertible into any of the foregoing.
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Debt obligations rated BB/Ba or lower are regarded as speculative and generally
involve more risk of loss of principal and income than higher-rated securities.
Also their yields and market values tend to fluctuate more. Fluctuations in
value do not affect the cash income from the securities but are reflected in a
Generation Fund's net asset value. The greater risks and fluctuations in yield
and value occur, in part, because investors generally perceive issuers of lower-
rated and unrated securities to be less creditworthy. Lower ratings, however,
may not necessarily indicate higher risks. In pursuing a Generation Fund's
objectives, the Investment Adviser seeks to identify situations in which the
rating agencies have not fully perceived the value of the security or in which
the Investment Adviser believes that future developments will enhance the
creditworthiness and the ratings of the issuer.
High risk high-yield securities (junk bonds) will constitute no more than 15% of
the assets of any Generation Fund. The Funds will not invest in any debt
security rated lower than B.
The yields earned on high risk high-yield securities (junk bonds) generally are
related to the quality ratings assigned by recognized ratings agencies. The
securities in which the Funds invest tend to offer higher yields than those of
other securities with the same maturities because of the additional risks
associated with them. These risks include:
(1) Sensitivity to Interest Rate and Economic Changes. High risk high-yield
--------------------------------------------------
securities (junk bonds) are more sensitive to adverse economic changes or
individual corporate developments but less sensitive to interest rate
changes than are investment grade bonds. As a result, when interest rates
rise, causing bond prices to fall, the value of these securities may not
fall as much as investment grade corporate bonds. Conversely, when interest
rates fall, these securities may underperform investment grade corporate
bonds because the prices of high risk high-yield securities (junk bonds)
tend not to rise as much as the prices of these other bonds.
Also, the financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability
of issuers of these securities to service their principal and interest
payments, to meet projected business goals and to obtain additional
financing, than on more creditworthy issuers. Holders of these securities
could also be at greater risk because these securities are generally
unsecured and subordinated to senior debt holders and secured creditors. If
the issuer of a high-risk High-Yield Security (junk bond) owned by a
Generation Fund defaults, the Fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of these
securities and a Fund's net asset value. Furthermore, in the case of high
risk high-yield securities (junk bonds) structured as zero coupon or
pay-in-kind securities, their market prices are affected to a greater
extent by interest rate changes and thereby tend to be more speculative and
volatile than securities which pay interest periodically and in cash.
(2) Payment Expectations. High risk high-yield securities (junk bonds) present
---------------------
risks based on payment expectations. For example, these securities may
contain redemption or call provisions. If an issuer exercises these
provisions in a declining interest rate market, the Generation Fund may
have to replace the securities with a lower yielding security, resulting in
a decreased return for investors. Also, the value of these securities may
decrease in a rising interest rate market. In addition, there is a higher
risk of non-payment of interest and/or principal by issuers of these
securities than in the case of investment grade bonds.
(3) Liquidity and Valuation Risks. High risk high-yield securities (junk bonds)
------------------------------
are often traded among a small number of broker-dealers rather than in a
broad secondary market. Purchasers of these securities tend to be
institutions rather than individuals, a factor that further limits the
secondary market. Many of these securities may not be as liquid as
investment grade bonds. The ability to value or sell these securities will
be adversely affected to the extent that such securities are thinly traded
or illiquid. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease or increase the value and
liquidity of these securities more than other securities, especially in a
thinly-traded market.
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(4) Limitations of Credit Ratings. The credit ratings assigned to high risk
------------------------------
high-yield securities (junk bonds) may not accurately reflect the true
risks of an investment. Credit ratings typically evaluate the safety of
principal and interest payments rather than the market value risk of such
securities. In addition, credit agencies may fail to adjust credit ratings
to reflect rapid changes in economic or company conditions that affect a
security's market value. Although the ratings of recognized rating services
such as Moody's and S&P are considered, the Investment Adviser primarily
relies on its own credit analysis which includes a study of existing debt,
capital structure, ability to service debts and to pay dividends, the
issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. Thus the achievement of a Generation Fund's
investment objective may be more dependent on the Investment Adviser's own
credit analysis than might be the case for a fund which does not invest in
these securities.
(5) Congressional Proposals. New laws and proposed new laws may have a negative
------------------------
impact on the market for high risk high-yield securities (junk bonds). As
examples, recent legislation requires federally-insured savings and loan
associations to divest themselves of their investments in these securities,
and other proposals are designed to limit the use of, or tax and other
advantages of, these securities. Any such proposals, if enacted, could have
a negative effect on a Fund's net asset value.
ZERO COUPON AND PAY-IN-KIND SECURITIES
The Generation Funds may invest in zero coupon securities and pay-in-kind
securities. In addition, the Funds may invest in STRIPS (Separate Trading of
Registered Interest and Principal of Securities). Zero coupon or deferred
interest securities are debt obligations that do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest (the "cash payment date") and therefore
are issued and traded at a discount from their face amounts or par value. The
discount varies, depending on the time remaining until maturity or cash payment
date, prevailing interest rates, liquidity of the security and the perceived
credit quality of the issuer. The discount, in the absence of financial
difficulties of the issuer, decreases as the final maturity or cash payment date
of the security approaches. STRIPS are created by the Federal reserve bank by
separating the interest and principal components of an outstanding U.S. treasury
bond and selling them as individual securities. The market prices of zero
coupon, STRIPS and deferred interest securities generally are more volatile than
the market prices of securities with similar maturities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do non-zero coupon securities having similar maturities and credit
quality.
The risks associated with lower-rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, a Fund may realize no return on its investment, because
these securities do not pay cash interest.
CONVERTIBLES
A convertible bond or convertible preferred stock gives the holder the option of
converting these securities into common stock. Some convertible securities
contain a call feature whereby the issuer may redeem the security at a
stipulated price, thereby limiting the possible appreciation.
WARRANTS
Warrants allow the holder to subscribe for new shares in the issuing company
within a specified time period, according to a predetermined formula governing
the number of shares per warrant and the price to be paid for those shares.
Warrants may be issued separately or in association with a new issue of bonds,
preferred stock, common stock or other securities.
Covered warrants allow the holder to purchase existing shares in the issuing
company, or in a company associated with the issuer, or in a company in which
the issuer has or may have a share stake which covers all or part of the
warrants' subscription rights.
18
<PAGE>
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES
During any period that a Generation Fund has outstanding a commitment to
purchase securities on a when-issued or delayed-delivery basis, that Fund will
maintain a segregated account consisting of cash, U.S. Government securities or
other high-quality debt obligations with its custodian bank. To the extent that
the market value of securities held in this segregated account falls below the
amount that the Fund will be required to pay on settlement, additional assets
may be required to be added to the segregated account. Such segregated accounts
could affect the Fund's liquidity and ability to manage its portfolio. When a
Fund engages in when-issued or delayed-delivery transactions, it is effectively
relying on the seller of such securities to consummate the trade; failure of the
seller to do so may result in the Fund's incurring a loss or missing an
opportunity to invest funds held in the segregated account more advantageously.
A Fund will not pay for securities purchased on a when-issued or delayed-
delivery basis, or start earning interest on such securities, until the
securities are actually received. However, any security so purchased will be
recorded as an asset of the purchasing Fund at the time the commitment is made.
Because the market value of securities purchased on a when-issued or delayed-
delivery basis may increase or decrease prior to settlement as a result of
changes in interest rates or other factors, such securities will be subject to
changes in market value prior to settlement and a loss may be incurred if the
value of the security to be purchased declines prior to settlement.
PORTFOLIO TURNOVER
The Generation Funds do not intend to make a general practice of short-term
trading, although they may occasionally realize short-term gains or losses.
Purchases and sales will be made whenever such action is deemed prudent and
consistent with a Fund's investment objective. It is anticipated that the
average annual portfolio turnover rates will not exceed 100% although in any
particular year market conditions could result in a greater degree of portfolio
activity. A high turnover rate involves greater expenses and may involve greater
risk to a Fund.
DIRECTORS AND OFFICERS OF THE COMPANY
The investments and administration of the Generation Funds are under the
direction of the Board of Directors. The Directors and executive officers of the
Generation Funds and their principal occupations for the past five years are
listed below. Those Directors who are "interested persons," as defined in the
1940 Act, are indicated by an asterisk (*) and hold similar positions with other
investment companies in the same fund complex managed by the Investment
Adviser.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
POSITION(S) HELD PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE WITH REGISTRANT PAST FIVE YEARS
- --------------------------------------------------------------------------------
<S> <C> <C>
Shaun P. Mathews * Director and Senior Vice President and
151 Farmington Avenue President Director of ALIAC, March
Hartford, Connecticut 1991 to Present; Assistant
Age 39 Vice President, Pension
Operations, ALIAC, June
1989 to March 1991.
- --------------------------------------------------------------------------------
James C. Hamilton * Vice President Vice President, Treasurer
151 Farmington Avenue and Treasurer and Director of ALIAC,
Hartford, Connecticut October 1988 to Present.
Age 53
- --------------------------------------------------------------------------------
John Y. Kim* Director and Senior Vice President and
151 Farmington Avenue Vice President Director, ALIAC Investments
Hartford, Connecticut and Chief Investment
Age 34 Officer, Aetna Life and
Casualty Company, May 1994
to Present; Managing
Director, Mitchell Hutchins
Institutional Investors,
New York, NY, September
1993 to April 1994; Vice
President of Investor
Relations and Senior
Portfolio Manager, Aetna
Life and Casualty Company,
October 1991 to August
1993; Fixed Income
Portfolio Manager, ALIAC,
November 1989 to October
1991.
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
Susan E. Bryant Secretary Counsel, Aetna Life and
151 Farmington Avenue Casualty Company, March
Hartford, Connecticut 1993 to Present; General
Age 47 Counsel and Corporate
Secretary, First Investors
Corporation, April 1991 to
March 1993; Administrator,
Oklahoma Department of
Securities, March 1986 to
April 1991; President,
North American Securities
Administrators Association,
1989 to 1990.
- --------------------------------------------------------------------------------
Dominick J. Agostino* Director Director, Senior Vice
151 Farmington Avenue President and Chief
Hartford, Connecticut Financial Officer of ALIAC,
Age 48 September 1994 to Present;
President and Chief
Operating Officer,
Citicorp, North America,
Inc., New York, NY,
December 1992 to September
1994; Managing Director,
Citibank, National
Association, New York, NY,
August 1990 to September
1994.
- --------------------------------------------------------------------------------
Morton Ehrlich Director Chairman and Chief
1000 Venetian Way Executive Officer,
Miami, Florida Integrated Management Corp.
Age 60 (an entrepreneurial
company) and Universal
Research Technologies, 1992
to Present; Director and
Chairman, Audit Committee,
National Bureau of Economic
Research; 1985 to 1992;
President, LIFECO, Travel
Services Corp., October
1988 to December 1991.
- --------------------------------------------------------------------------------
Maria T. Fighetti Director Manager/Attorney, Health
325 Piermont Road Services, New York City
Closter, New Jersey Department of Mental
Age 51 Health, Mental Retardation
and Alcohol Services, 1973
to Present.
- --------------------------------------------------------------------------------
David L. Grove Director Private Investor;
5 The Knoll Economic/Financial
Armonk, New York Consultant, December 1988
Age 77 to Present.
- --------------------------------------------------------------------------------
Daniel P. Kearney* Director Executive Vice President of
151 Farmington Avenue Aetna Life and Casualty
Hartford, Connecticut Company, 1993 to Present;
Age 56 Group Executive, Aetna Life
and Casualty Company, 1991
to 1993; Financial
Consultant, Daniel P.
Kearney, Inc., 1990 to 1991.
- --------------------------------------------------------------------------------
Sidney Koch Director Financial Adviser,
455 East 86th Street self-employed, January 1993
New York, New York to Present; Financial
Age 60 Adviser, Daiwa Securities
America, Inc., January 1988
to January 1993.
- --------------------------------------------------------------------------------
Corine T. Norgaard Director, Chair Professor, Accounting and
School of Management Audit Committee and Dean of the School of
Binghamton University Contract Committee Management, Binghamton
Binghamton, New York University, Binghamton, NY,
Age 57 July 1993 to Present;
Professor, Accounting,
University of Connecticut,
Storrs, Connecticut,
September 1969 to June
1993; Director, The Advest
Group, Inc. (holding
company for brokerage firm).
- --------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
Richard G. Scheide Director Trust and Private Banking
11 Lily Street Consultant, July 1992 to
Nantucket, Massachusetts Present; Consultant, Fleet
Age 66 Bank, N.A., July 1991 to
July 1992, Executive Vice
President and Manager, Bank
of New England, N.A., June
1976 to July 1991.
- --------------------------------------------------------------------------------
</TABLE>
Members of the Board of Directors who are also directors, officers or employees
of Aetna Life and Casualty Company are not entitled to any fee. Members of the
Board of Directors who are not affiliated as employees of Aetna or its
subsidiaries receive an annual retainer of $5,000 for service on the Board, and
a fee of $200 per Fund for each meeting of such Board (equal to an aggregate
annual fee of $10,400). They may also receive an annual fee of $2,000 or $2,500
for service on the Audit and Contract Committees, respectively. It is estimated
that the independent Directors of the Generation Funds will be paid an aggregate
not in excess of $65,000 from the Company for fiscal year 1995. None of the
independent Directors is entitled to retirement or other benefits. Affiliated
officers and Directors receive no compensation directly from the Company;
however, a portion of their salaries may be allocated to the Company as part of
the Investment Adviser's administrative expense.
THE INVESTMENT ADVISORY CONTRACT
On September 13, 1994 the Company's Board of Directors (Directors) approved an
investment advisory agreement (Management Agreement) between the Company and
Aetna Life Insurance and Annuity Company (ALIAC) with respect to each of the
Generation Funds. Under the Management Agreement, the Investment Adviser has
responsibility for managing the investment and reinvestment of the assets of the
Generation Funds, subject to the supervision of the Directors as described in
the prospectus.
For its services the Investment Adviser receives the following annual investment
advisory fees expressed as a percentage of the average daily net assets of each
Generation Fund:
0.80% on the first $500 million; 0.775% on the next $500 million; 0.75% on the
next $500 million; 0.725% on the next $500 million; and 0.70% on assets over
$2 billion.
The Investment Adviser has agreed to reimburse the Funds for any expenses
(including management fees, but excluding taxes, interest, brokerage commissions
and certain extraordinary expenses) which may be incurred in any one year in
excess of the allowable expense limitations of the state in which shares of the
Fund are registered for sale having the most stringent expense reimbursement
provisions. As of the date of this SAI, the most stringent limitation rate
applicable to a Generation Fund is 2-1/2% of the first $30 million of a Fund's
average net assets, 2% of the next $70 million of such Fund's average net
assets, and 1-1/2% of the remaining average net assets of such Fund for any
fiscal year.
Unless terminated earlier, upon approval of the Generation Fund's shareholders
the Management Agreement will remain in effect for one year. Thereafter, it will
remain in effect from year-to-year if approved annually by a majority vote of
the Directors, including a majority of the Directors who are not "interested
persons," cast in person at a meeting called for that purpose. The Management
Agreement may be terminated as to a particular Fund without penalty at any time
on sixty days' written notice by (i) the Directors, (ii) a majority vote of the
outstanding voting securities of that Fund, or (iii) the Investment Adviser. The
Management Agreement terminates automatically in the event of its assignment.
The service mark of the Generation Funds and the name "Aetna" have been adopted
by the Company with the permission of Aetna Life and Casualty Company and their
continued use is subject to the right of Aetna Life and Casualty Company to
withdraw this permission in the event the Investment Adviser or another
subsidiary or affiliated corporation of Aetna Life and Casualty Company should
not be the investment adviser of the Generation Funds.
21
<PAGE>
THE ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to an Administrative Services Agreement between ALIAC and the Company,
ALIAC acts as administrator and provides certain administrative and shareholder
services necessary for Company operations and is responsible for the supervision
of other service providers. The services provided by ALIAC are described in the
prospectus.
Each Generation Fund pays ALIAC a monthly fee for its services at an annual rate
based on average daily net assets as follows: 0.25% on the first $250 million,
0.24% on the next $250 million, 0.23% on the next $250 million, 0.22% on the
next $250 million, 0.20% on the next $1 billion and 0.18% on assets over $2.0
billion.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, PA, 15258 serves as
custodian for the assets of the Generation Funds. The custodian does not
participate in determining the investment policies of a Fund or in deciding
which securities are purchased or sold by a Fund. A Generation Fund may,
however, invest in obligations of the custodian and may purchase or sell
securities from or to the custodian.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103 serves as
independent auditors to the Generation Funds. KPMG Peat Marwick LLP provides
audit services, assistance and consultation in connection with Securities and
Exchange Commission (SEC) filings.
PRINCIPAL UNDERWRITER
ALIAC is the principal underwriter of the Generation Funds pursuant to a
contract (Underwriting Agree-ment) between it and the Company. The Underwriting
Agreement may be continued annually if approved annually by the Directors or by
a vote of holders of a majority of each Fund's shares, and by a vote of a
majority of the Directors who are not "interested persons," as that term is
defined in the 1940 Act, of ALIAC, and who are not interested persons of the
Company, appearing in person at a meeting called for the purpose of approving
such agreement. The Underwriting Agreement terminates automatically upon
assignment, and may be terminated at any time on sixty (60) days' written notice
by the Directors or ALIAC or by a vote of the holders of a majority of a Fund's
shares without the payment of any penalty.
ALIAC is registered as a broker-dealer with the SEC and is a member of the
National Association of Securities Dealers, Inc.
DISTRIBUTION ARRANGEMENTS
Shares of the Generation Funds are distributed on a best efforts basis by ALIAC
which may contract with various other broker-dealers for distribution of such
shares. To compensate ALIAC for the services it provides Adviser Class
shareholders of the Generation Funds, ALIAC is paid an annual service fee at the
rate of 0.25% of the value of the average daily net assets of the class pursuant
to a Shareholder Services Plan. ALIAC is also paid an annual distribution fee
with respect to Adviser Class shares of the Generation Funds at the rate of
0.50% of the value of average daily net assets attributable to those shares
under a Distribution Plan adopted by the Company pursuant to Rule 12b-1 of the
1940 Act to cover expenses primarily intended to result in the sale of Adviser
Class shares.
22
<PAGE>
The Shareholder Services Plan and the Distribution Plan (the "Plans") continue
from year to year, provided such continuance is approved annually by vote of the
Board of Directors, including a majority of Directors who are not interested
persons of the Company and who have no direct or indirect financial interest in
the operation of the Plans (the "Independent Directors"). The Distribution Plan
may not be amended to increase the amount to be spent for the services provided
by ALIAC without shareholder approval. All amendments to the Plans must be
approved by the Directors in the manner described above. The Plans may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors on not more than 30 days written notice to any other party
to the Plan. Pursuant to the Plans, ALIAC will provide the Board of Directors
periodic reports of amounts expended under the Plans and the purpose for which
such expenditures were made.
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the direction of the Directors, the Investment Adviser and any
subadvisers (the "Advisers") have responsibility for making a Generation Fund's
investment decisions, for effecting the execution of trades for a Fund's
portfolio and for negotiating any brokerage commissions thereon. It is the
Advisers' policy to obtain the best quality of execution available, giving
attention to net price (including commissions where applicable), execution
capability (including the adequacy of a firm's capital position), research and
other services related to execution; the relative priority given to these
factors will depend on all of the circumstances regarding a specific trade.
The Advisers receive a variety of brokerage and research services from brokerage
firms in return for the execution by such brokerage firms of trades on behalf of
the Funds. These brokerage and research services include, but are not limited
to, quantitative and qualitative research information and purchase and sale
recommendations regarding securities and industries, analyses and reports
covering a broad range of economic factors and trends, statistical data relating
to the strategy and performance of the Funds and other investment companies,
services related to the execution of trades in a Fund's securities and advice as
to the valuation of securities. The Advisers consider the quantity and quality
of such brokerage and research services provided by a brokerage firm along with
the nature and difficulty of the specific transaction in negotiating commissions
for trades in a Fund's securities and may pay higher commission rates than the
lowest available when it is reasonable to do so in light of the value of the
brokerage and research services received generally or in connection with a
particular transaction.
The research services provided by a particular broker may be useful only to one
or more of the advisory accounts of ALIAC and its affiliates. Investment
research received for the commission of those other accounts may be useful to
one or more of the Funds and such other accounts.
Consistent with securities laws and regulations, the Advisers may obtain such
brokerage and research services regardless of whether they are paid for (1) by
means of commissions, or (2) by means of separate, non-commission payments. The
Adviser's judgment as to whether and how it will obtain the specific brokerage
and research services will be based upon its analysis of the quality of such
services and the cost (depending upon the various methods of payment which may
be offered by brokerage firms) and will reflect the Adviser's opinion as to
which services and which means of payment are in the long-term best interests of
the Generation Funds. The Generation Funds will not effect any brokerage
transactions in portfolio securities with ALIAC or any affiliate of the
Generation Funds or the Investment Adviser except in accordance with applicable
SEC rules. Such transactions will comply with Rule 17e-1 of the 1940 Act.
Certain executive officers of the Investment Adviser also have supervisory
responsibility with respect to the securities portfolio of the Investment
Adviser's own general account. Further, ALIAC also acts as investment adviser to
other investment companies registered under the 1940 Act. ALIAC has adopted
policies designed to prevent disadvantaging the Funds in placing orders for the
purchase and sale of securities for a Fund.
To the extent ALIAC desires to buy or sell the same publicly traded security at
or about the same time for more than one client, the purchases or sales will
normally be allocated as nearly as practicable on a pro rata
23
<PAGE>
basis in proportion to the amounts to be purchased or sold by each, taking into
consideration the respective investment objectives of the clients, the relative
size of portfolio holdings of the same or comparable securities, availability of
cash for investment, and the size of their respective investment commitments.
Orders for different clients received at approximately the same time may be
bunched for purposes of placing trades, as authorized by regulatory directives.
Prices are averaged for those transactions.
The Board of Directors has adopted a policy allowing trades to be made between
registered investment companies provided they meet the terms of Rule 17a-7 under
the 1940 Act. Pursuant to this policy, a Portfolio may buy a security from or
sell another security to another registered investment company advised by
ALIAC.
The Board of Directors has also adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by, a
portfolio. The Code allows trades to be made in securities that may be held by a
Portfolio, however, it prohibits a person from taking advantage of Portfolio
trades or from acting on inside information.
DESCRIPTION OF SHARES
The Company's Articles of Incorporation ("Articles") permit the Directors to
cause the Company to issue full and fractional shares of one or more series,
each of which represents a proportionate interest in one Fund equal to each
other share in that Fund. The Directors have the power to divide or combine the
shares of a particular series into a greater or lesser number of shares without
thereby changing the proportional beneficial interest in a Fund. The Directors
also have the power to subdivide each series into classes of shares having
different attributes so long as each share of each class represents a
proportionate interest in one Fund equal to each other share in that Fund. The
Company currently issues shares in thirteen Series with each Series issuing
common stock classified into two classes, Adviser Class shares and Select Class
shares. Each class of shares has the same rights, privileges and preferences,
except with respect to: (a) the effect of the respective sales charges, if any,
for each class; (b) the distribution and/or service fees borne by each class;
(c) the expenses allocable exclusively to each class; (d) voting rights on
matters exclusively affecting a single class; and (e) the exchange privilege of
each class.
The Generation Funds have sought a ruling from the Internal Revenue Service
(IRS) to the effect that differing distributions among the classes of its shares
will not result in each Fund's dividends and other distributions being regarded
as "preferential dividends" under the Internal Revenue Code of 1986, as amended.
Generally, a preferential dividend is a dividend which a Fund cannot treat as
having been distributed for purposes of determining (i) whether the Fund
qualifies as a regulated investment company ("RIC") for federal income tax
purposes and (ii) the Fund's tax calculations. In order to qualify as a RIC,
each Fund must satisfy certain requirements, including an income distribution
requirement. If a Fund so qualifies, it generally will not be subject to federal
tax on income timely distributed to shareholders. While similar rulings have
been issued previously by the IRS, including a ruling for the Company's ten
existing portfolios, complete assurance cannot be given that the Generation
Funds will receive such a ruling. Although an adverse determination by the IRS
is not currently expected, the Generation Funds may be required to reassess
their multiple class share structure (and reserve the right to do so) if the IRS
does not rule favorably since such a decision could impact the Funds' ability to
qualify as RICs. In addition, if the IRS does not rule favorably, each Fund
might make additional distributions (which could carry interest and interest-
related charges to the Fund) if doing so would assist the Funds in complying
with their general practice of distributing sufficient income to reduce or
eliminate U.S. federal taxes.
Upon liquidation of any Fund, shareholders of the series of shares representing
an interest in that Fund are entitled to share pro rata in the net assets of the
Fund available for distribution to shareholders. Fund shares are fully paid and
nonassessable when issued.
24
<PAGE>
Nothing in the Articles protects a Director against any liability to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his or her office.
VOTING RIGHTS
Shareholders of each class are entitled to one vote for each full share held
(and fractional votes for fractional shares of each class held) and will vote on
the election of Directors and on other matters submitted to the vote of
shareholders. Generally, shares of the Company will be voted on a Company-wide
basis on all matters except matters affecting only the interests of one Fund or
one class of shares. Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in the election of Directors can, if they
choose to do so, elect all the Directors, in which event the holders of the
remaining shares will be unable to elect any person as a Director.
The Articles may be amended by an affirmative vote of a majority of the shares
at any meeting of shareholders or by written instrument signed by a majority of
the Directors and consented to by a majority of the shareholders. The Directors
may also amend the Articles without the vote or consent of shareholders, if they
deem it necessary to conform the Articles to the requirements of applicable
federal laws or regulations or the requirements of the regulated investment
company provisions of the Internal Revenue Code of 1986, as amended, but the
Directors shall not be liable for failing to do so.
Shares have no preemptive or conversion rights.
SALE AND REDEMPTION OF SHARES
Adviser and Select Class shares of the Generation Funds are sold and redeemed at
the net asset value next determined after receipt of a purchase or redemption
order in acceptable form by Firstar Trust Company, the transfer agent for each
Fund. If an order is received by the Company, shares will be priced at the net
asset value next-determined following receipt of the order by the Company.
Occasionally orders may be submitted through a broker. It is the broker's
responsibility to promptly remit orders to the transfer agent and shares will be
purchased as described above. No sales charge or redemption charge is imposed on
Select Class shares. No initial sales charge is imposed at the time of purchase
on Adviser Class shares; however, a contingent deferred sales charge is imposed
on certain redemptions of Adviser Class shares. The value of shares redeemed may
be more or less than the shareholder's cost, depending upon the market value of
the portfolio securities at the time of redemption. Payment for shares redeemed
will be made within seven days after the redemption request is received in
proper form by the transfer agent. Any written request to redeem shares must
bear the signatures of all the registered holders of those shares. The
signatures must be guaranteed by a national or state bank, trust company or a
member of a national securities exchange. The transfer agent will, on request,
explain any additional requirements for shares held in the name of a
corporation, partnership, trustee, guardian or in any other representative
capacity.
The right to redeem a Fund's shares may be suspended or payment therefor
postponed for any period during which (a) trading on the New York Stock Exchange
(Exchange) is restricted as determined by the SEC or such Exchange is closed for
other than weekends and holidays; (b) an emergency exists, as determined by the
SEC, as a result of which (i) disposal by a Fund of securities owned by it is
not reasonably practicable, or (ii) it is not reasonably practicable for a Fund
to determine fairly the value of its net assets; or (c) the SEC by order so
permits for the protection of shareholders of a Fund.
An open account is automatically set up and maintained for each shareholder to
facilitate the voluntary accumulation of each Fund's shares. The open account
system makes unnecessary the issuance and delivery of stock certificates,
thereby relieving shareholders of the responsibility of safekeeping. Through the
open account system, each shareholder is informed of his or her holdings after
any transaction affecting the number of shares he or she owns. Share
certificates will not be issued.
25
<PAGE>
There is a $1,000 minimum initial investment for each Generation Fund with a
minimum of $500 for Individual Retirement Accounts. All minimum dollar amount
requirements may be waived for employees and retirees of, and persons associated
with, Aetna who participate in the Systematic Investment feature and payroll
deduction programs.
Checks sent to shareholders who have requested dividends and/or capital gains
distributions to be paid in cash and which are subsequently returned by the
United States Postal Service as not deliverable or which remain uncashed for six
months or more will be reinvested in the Fund and credited to the shareholder's
account at the then current net asset value. Further, subsequent dividends and
distributions will be automatically reinvested in the Fund and credited to the
shareholder's account.
A Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Fund's
shares by making payment, in whole or in part, in securities chosen by that Fund
and valued in the same way as they would be valued for purposes of computing
that Fund's net asset value. If payment is made in securities, a shareholder may
incur transactions costs in converting these securities into cash. The Funds
have elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Fund is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Fund.
NET ASSET VALUE
Securities of the Generation Funds are generally valued by independent pricing
services. The values for equity securities traded on registered securities
exchanges are based on the last sale price or, if there has been no sale that
day, at the mean of the last bid and asked price on the exchange where the
security is principally traded. Securities traded over the counter (including
long-term debt securities) are valued at the mean of the last bid and asked
price if current market quotations are not readily available. Short-term debt
securities which have a maturity date of more than sixty days will be valued at
the mean of the last bid and asked price obtained from principal market makers.
Long-term debt securities are valued at the mean of the last bid and asked price
of such securities obtained from a broker who is a market-maker in the
securities or a service providing quotations based upon the assessment of
market-makers in those securities.
Options are valued at the mean of the last bid and asked price on the exchange
where the option is primarily traded. Stock index futures contracts and interest
rate futures contracts are valued daily at a settlement price based on rules of
the exchange where the futures contract is primarily traded.
TAX STATUS
The following is only a summary of certain additional tax considerations
generally affecting each Generation Fund and its shareholders which are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
- -----------------------------------------------
Each Generation Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, a Fund is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified
26
<PAGE>
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement"); and (2) derive less than 30% of its gross
income (exclusive of certain gains on designated hedging transactions that are
offset by realized or unrealized losses on offsetting positions) from the sale
or other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). For purposes of these calculations, gross income
includes tax-exempt income. However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, a Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded for this purpose. Interest
(including original issue discount) received by a Fund at maturity or upon the
disposition of a security held for less than three months will not be treated as
gross income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is attributable
to realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
In general, gain or loss recognized by a Generation Fund on the disposition of
an asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased by
a Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the debt
obligation. In addition, under the rules of Code Section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto (but only to the extent attributable
to changes in foreign currency exchange rates), and gain or loss recognized on
the disposition of a foreign currency forward contract, futures contract, option
or similar financial instrument, or of foreign currency itself, except for
regulated futures contracts or non-equity options subject to Code Section 1256
(unless the Fund elects otherwise), will generally be treated as ordinary income
or loss.
In general, for purposes of determining whether capital gain or loss recognized
by a Generation Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (1) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (2) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other things, must not be deep-in-
the-money) with respect thereto) or (3) the asset is stock and the Fund grants
an in-the-money qualified covered call option with respect thereto. However,
for purposes of the Short-Short Gain Test, the holding period of the asset
disposed of may be reduced only in the case of clause (1) above. In addition, a
Fund may be required to defer the recognition of a loss on the disposition of an
asset held as part of a straddle to the extent of any unrecognized gain on the
offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by
a Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss. For purposes of the
Short-Short Gain Test, the holding period of an option written by a Fund will
commence on the date it is written and end on the date it lapses or the date a
closing transaction is entered into. Accordingly, a Fund may be limited in its
ability to write options which expire within three months and to enter into
closing transactions at a gain within three months of the writing of options.
27
<PAGE>
Transactions that may be engaged in by a Fund (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes and
futures contracts) will be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are treated as if they are sold for their
fair market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under such contracts have not terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as of such
date. Any gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is taken into account for the taxable year
together with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. Any capital
gain or loss for the taxable year with respect to Section 1256 contracts
(including any capital gain or loss arising as a consequence of the year-end
deemed sale of such contracts) is generally treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. A Fund, however, may elect
not to have this special tax treatment apply to Section 1256 contracts that are
part of a "mixed straddle" with other investments of the Fund that are not
Section 1256 contracts. The IRS has held in several private rulings (and
Treasury Regulations now provide) that gains arising from Section 1256 contracts
will be treated for purposes of the Short-Short Gain Test as being derived from
securities held for not less than three months if the gains arise as a result of
a constructive sale under Code Section 1256.
A Generation Fund may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If a Fund invests in a PFIC, it may elect to treat
the PFIC as a qualifying electing fund (a "QEF") in which event the Fund will
each year have ordinary income equal to its pro rata share of the PFIC's
ordinary earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether the
Fund receives distributions of any such ordinary earnings or capital gain from
the PFIC. If a Fund does not (because it is unable to, chooses not to or
otherwise) elect to treat the PFIC as a QEF, then in general (1) any gain
recognized by the Fund upon sale or other disposition of its interest in the
PFIC or any excess distribution received by the Fund from the PFIC will be
allocated ratably over the Fund's holding period of its interest in the PFIC,
(2) the portion of such gain or excess distribution so allocated to the year in
which the gain is recognized or the excess distribution is received shall be
included in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
Fund level), (3) the Fund shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (i) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year plus (ii) interest on the amount determined under
clause (i) for the period from the due date for filing a return for such prior
year until the date for filing a return for the year in which the gain is
recognized or the excess distribution is received at the rates and methods
applicable to underpayments of tax for such period, and (4) the distribution by
the Fund to shareholders of the portions of such gain or excess distribution so
allocated to prior years (net of the tax payable by the Fund thereon) will again
be taxable to the shareholders as an ordinary income dividend.
Under recently proposed Treasury Regulations a Fund can elect to recognize as
gain the excess, as of the last day of its taxable year, of the fair market
value of each share of PFIC stock over the Fund's adjusted tax basis in that
share ("mark to market gain"). Such mark to market gain will be included by the
Fund as ordinary income, such gain will not be subject to the Short-Short Gain
Test, and the Fund's holding period with respect to such PFIC stock commences on
the first day of the next taxable year. If a Fund makes such election in the
first taxable year it holds PFIC stock, the Fund will include ordinary income
from any mark to market gain, if any, and will not incur the tax described in
the previous paragraph.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net long-
term capital loss or any net foreign currency loss incurred after October 31 as
if it had been incurred in the succeeding year.
28
<PAGE>
In addition to satisfying the requirements described above, each Generation Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses. Generally, an option (call or put) with respect to a security is
treated as issued by the issuer of the security not the issuer of the option.
However, with regard to forward currency contracts, there does not appear to be
any formal or informal authority which identifies the issuer of such instrument.
For purposes of asset diversification testing, obligations issued or guaranteed
by agencies or instrumentalities of the U.S. Government such as the Federal
Agricultural Mortgage Corporation, the Farm Credit System Financial Assistance
Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government National
Mortgage Corporation, and the Student Loan Marketing Association are treated as
U.S. Government securities.
If for any taxable year a Generation Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
- --------------------------------------------
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of a regulated investment company having a taxable year ending November 30 or
December 31, for its taxable year (a "taxable year election")). Tax-exempt
interest on municipal obligations is not subject to the excise tax. The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses incurred after October 31 of any year (or after the end of its
taxable year if it has made a taxable year election) in determining the amount
of ordinary taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for the succeeding
calendar year).
Each Generation Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax.
However, investors should note that a Fund may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.
Fund Distributions
- ------------------
Each Generation Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Depending on a Fund's
investments, distributions by a Fund may be treated as a net capital gain
dividend, an ordinary income dividend, or an exempt interest dividend. Dividends
paid on Select Class and Adviser Class shares are calculated at the same time
and in the same manner. In general, divi-
29
<PAGE>
dends on Adviser Class shares are expected to be lower than those on Select
Class shares due to the higher distribution expenses borne by the Adviser Class
shares. Dividends may also differ between classes as a result of differences in
other class specific expenses.
Each Generation Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. Each Fund currently intends to distribute
any such amounts. If net capital gain is distributed and designated as a
capital gain dividend, it will be taxable to shareholders as long-term capital
gain, regardless of the length of time the shareholder has held his shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his shares. The Code provides, however, that under certain
conditions only 50% of the capital gain recognized upon the Fund's disposition
of domestic "small business" stock will be subject to tax.
Conversely, if a Generation Fund elects to retain its net capital gain, the Fund
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
of record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by a Generation Fund with respect to a taxable
year will qualify for the 70% dividends-received deduction generally available
to corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by a Fund from domestic corporations for the taxable year. A
dividend received by a Fund will not be treated as a qualifying dividend (1) if
it has been received with respect to any share of stock that the Fund has held
for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, or has made and not closed a short sale of substantially identical
stock or securities, is the grantor of a deep-in-the-money or otherwise
nonqualified option to buy substantially identical stock or securities, or has
otherwise diminished its risk of loss by holding other positions with respect to
substantially similar or related property, such (or substantially identical)
stock; (2) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (3) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced (1) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund or
(2) by application of Code Section 246(b) which in general limits the dividends-
received deduction to 70% of the shareholder's taxable income (determined
without regard to the dividends-received deduction and certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act of
1986, a tax is imposed for taxable years beginning after 1986 and before 1996 at
the rate of 0.12% on the excess of a corporate taxpayer's AMTI (determined
without regard to the deduction for that tax and the AMT net operating loss
deduction) over $2 million. The corporate dividends-received deduction is not
itself an item of tax preference that must be added back to taxable income or is
otherwise disallowed in determining a corporation's AMTI for these purposes.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from a Fund into account (without a dividends-
received deduction) in determining its adjusted current earnings, which are used
in computing an additional corporate preference
30
<PAGE>
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Investment income that may be received by a Generation Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle a Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of a Fund's assets to be invested in various countries is not known.
If more than 50% of the value of a Generation Fund's total assets at the close
of its taxable year consist of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to Fund shareholders the amount of foreign
taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from a
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
Distributions by a Generation Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his shares; any excess will be treated as gain from the sale of his
shares, as discussed below.
Distributions by a Generation Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Generation Fund (or of another Fund). Shareholders
receiving a distribution in the form of additional shares will be treated as
receiving a distribution in an amount equal to the fair market value of the
shares received, determined as of the reinvestment date. In addition, if the
net asset value at the time a shareholder purchases shares of a Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions of
such amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Generation Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the IRS for failure to report the
receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
Sale or Redemption of Shares
- ----------------------------
A shareholder will recognize gain or loss on the sale or redemption of shares of
a Generation Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares
(even if the gain is attributable to a dividend that would otherwise be received
tax-free by the shareholder). All or a portion of any loss so recognized may be
disallowed if the shareholder
31
<PAGE>
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Generation Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be disallowed to
the extent of the amount of exempt-interest dividends received on such shares
and (to the extent not disallowed) will be treated as a long-term capital loss
to the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section 246(c)(3) and
(4) (discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
Long-term capital gains of noncorporate taxpayers are currently taxed at a
maximum rate 11.6% lower than the maximum rate applicable to ordinary income.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
- --------------------
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from a
Generation Fund is "effectively connected" with a U.S. trade or business carried
on by such shareholder.
If the income from a Generation Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
paid to a foreign shareholder will be subject to U.S. withholding tax at the
rate of 30% (or lower treaty rate) upon the gross amount of the dividend.
Furthermore, such a foreign shareholder may be subject to U.S. withholding tax
at the rate of 30% (or lower treaty rate) on the gross income resulting from the
Fund's election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income or a
credit against this U.S. withholding tax for the foreign shareholder's pro rata
share of such foreign taxes which it is treated as having paid. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund, capital gain dividends and exempt-
interest dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from a Generation Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Generation Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Generation Fund,
including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
- ------------------------------------------------------
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
32
<PAGE>
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Generation
Fund.
PERFORMANCE INFORMATION
Performance information for each class of shares of the Generation Funds
including yield and total return may appear in reports or promotional literature
to current or prospective shareholders.
30-DAY YIELD
Quotations of yield will be based on all investment income per share earned
during a particular 30-day period, less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the value of a share on the last day of the period, according to the following
formula:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
Where:
a=dividends and interest earned during the period
b=the expenses accrued for the period (net of reimbursements)
c=the average daily number of shares outstanding during the period
d=the maximum offering price per share on the last day of the period
AVERAGE ANNUAL TOTAL RETURN
Quotations of average annual total return for any Generation Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Fund over a period of one, five and ten years (or,
if less, up to the life of the Fund), calculated pursuant to the formula:
P(1 + T)/n/ = ERV
Where:
P=a hypothetical initial payment of $1,000
T=an average annual total return
n=the number of years
ERV=the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year period at the end of the 1, 5, or 10 year
period (or fractional portion thereof)
Performance information for a Generation Fund may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index (S&P 500),
Shearson Lehman Aggregate Bond Index, Dow Jones Industrial Average (DJIA), or
other indices that measure performance of a pertinent group of securities widely
regarded by investors as representative of the securities markets in general;
(ii) other groups of investment companies tracked by Lipper Analytical Services,
a widely used independent research firm which ranks mutual funds and other
investment companies by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons who rank such
investment companies on overall performance of other criteria; (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in a Fund; (iv) the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index and (v) the Morgan Stanley Capital
International Far East Free (FEF ex. Japan) Index.
The Generation Funds may also from time to time include in such advertising a
total return figure that is not calculated according to the formula set forth
above in order to compare more accurately the performance of a Fund with other
measures of investment return. For example: Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
33
<PAGE>
From time to time sales materials and advertisements may include discussions
which compare the cost of borrowing a specific amount of money at a given loan
rate over a set period of time to the cost of a monthly investment program, over
the same time period, which earns the same rate of return. The comparison may
involve historical rates of return on a given index, or may involve performance
of any of the Generation Funds. In addition, the value of a college education
may be expressed in sales and advertising materials as a comparison of salaries
between college graduates and non-college graduates.
34
<PAGE>
AETNA GENERATION FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
AETNA AETNA AETNA
ASCENT CROSSROADS LEGACY
------------------- -------------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments, at market value (Note 1).............................. $27,870,398 $27,296,597 $26,787,536
Cash............................................................... 9,856 4,174 2,538
Cash denominated in foreign currencies............................. 581,055 79,416 252,875
Receivable for:
Dividends and interest.......................................... 105,445 152,743 223,110
Investments sold................................................ 1,466,017 1,161,240 882,705
Fund shares sold................................................ 54 95 210
Recoverable taxes............................................... 1,312 644 542
Variation margin................................................ - 858 17
Forward foreign currency exchange contracts (Note 5)............ 4,296,119 2,966,442 2,167,820
------------------- -------------------- -----------------
Total assets.................................................... 34,330,256 31,662,209 30,317,353
------------------- -------------------- -----------------
LIABILITIES:
Payable for:
Investments purchased........................................... 3,383,683 2,141,787 1,657,022
Variation margin................................................ 3,416 - -
Forward foreign currency exchange contracts (Note 5)............ 4,458,690 3,086,613 2,263,815
Other liabilities............................................... 35,399 42,561 42,594
------------------- -------------------- -----------------
Total liabilities............................................... 7,881,188 5,270,961 3,963,431
------------------- -------------------- -----------------
NET ASSETS......................................................... $26,449,068 $26,391,248 $26,353,922
=================== ==================== =================
NET ASSETS REPRESENTED BY:
Paid-in capital.................................................... $25,200,054 $25,200,095 $25,200,210
Unrealized gain.................................................... 1,023,831 887,981 706,462
Undistributed net investment income................................ 276,840 312,450 354,943
Accumulated net realized gain (loss)............................... (51,657) (9,278) 92,307
------------------- -------------------- -----------------
NET ASSETS......................................................... $26,449,068 $26,391,248 $26,353,922
=================== ==================== =================
CAPITAL SHARES, $.001 PAR VALUE
Select Class: Outstanding.......................................... 2,520,005 2,520,009 2,520,020
Net Assets.......................................... $26,449,068 $26,391,248 $26,353,922
Net Assets Value per share.......................... $10.50 $10.47 $10.46
Cost of Investments................................................ $26,682,259 $26,294,463 $25,996,824
</TABLE>
See Notes to Financial Statements.
F-1
<PAGE>
AETNA GENERATION FUNDS
STATEMENTS OF OPERATIONS
For the period of January 4, 1995-April 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
AETNA AETNA AETNA
ASCENT CROSSROADS LEGACY
----------------- ------------------ -----------------
<S> <C> <C> <C>
INVESTMENT INCOME: (NOTE 1)
Dividends............................................................ $177,675 $137,921 $90,790
Interest............................................................. 217,921 292,220 381,086
----------------- ------------------ -----------------
395,596 430,141 471,876
Foreign taxes withheld............................................... (4,388) (3,238) (2,319)
----------------- ------------------ -----------------
Total investment income........................................... 391,208 426,903 469,557
----------------- ------------------ -----------------
EXPENSES: (NOTE 2)
Investment advisory fee.............................................. 65,247 65,309 65,433
Administrative service fee........................................... 20,390 20,409 20,448
Printing and postage expenses........................................ 1,651 1,651 1,651
Custody fees......................................................... 2,442 2,442 2,442
Transfer agent fees.................................................. 7,648 7,648 7,648
Audit fees........................................................... 4,274 4,274 4,274
Directors' fees...................................................... 3,275 3,275 3,275
State and federal fees............................................... 7,307 7,307 7,307
Miscellaneous........................................................ 2,134 2,138 2,136
----------------- ------------------ -----------------
Total expenses.................................................... 114,368 114,453 114,614
----------------- ------------------ -----------------
Net investment income................................................ 276,840 312,450 354,943
----------------- ------------------ -----------------
REALIZED AND UNREALIZED GAIN (LOSS):
(NOTE 1)
Realized gain (loss) on:
Sales of investments, excluding short-term investments.............. 228,110 192,510 204,709
Futures and forward currency contracts.............................. (249,938) (192,946) (111,965)
Foreign currencies.................................................. (29,829) (8,842) (437)
----------------- ------------------ -----------------
Net realized gain (loss)............................................. (51,657) (9,278) 92,307
----------------- ------------------ -----------------
Net change in unrealized gain (loss) on:
Investments......................................................... 1,188,139 1,002,134 790,712
Futures and forward currency contracts.............................. (161,913) (99,685) (78,607)
Foreign currency related transactions............................... (2,395) (14,468) (5,643)
----------------- ------------------ -----------------
Net change in unrealized gain........................................ 1,023,831 887,981 706,462
----------------- ------------------ -----------------
Net realized and change in unrealized gain........................... 972,174 878,703 798,769
----------------- ------------------ -----------------
Net increase in net assets resulting from operations................. $1,249,014 $1,191,153 $1,153,712
================= ================== =================
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
AETNA GENERATION FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the period of January 4, 1995-April 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
AETNA AETNA AETNA
ASCENT CROSSROADS LEGACY
------------------ ------------------- ----------------
<S> <C> <C> <C>
Operations:
Net investment income................................................ $276,840 $312,450 $354,943
Net realized gain (loss)............................................. (51,657) (9,278) 92,307
Net change in unrealized gain........................................ 1,023,831 887,981 706,462
------------------ ------------------- ----------------
Net increase in net assets resulting from operations................ 1,249,014 1,191,153 1,153,712
------------------ ------------------- ----------------
Fund share transactions: (Note 6)
Select Class:
Proceeds from shares sold.......................................... 25,200,054 25,200,095 25,200,210
------------------ ------------------- ----------------
Net increase in net assets from fund share transactions.............. 25,200,054 25,200,095 25,200,210
------------------ ------------------- ----------------
Change in net assets................................................. 26,449,068 26,391,248 26,353,922
Net assets:
Beginning of period.................................................. 0 0 0
------------------ ------------------- ----------------
End of period........................................................ $26,449,068 $26,391,248 $26,353,922
================== =================== ================
End of period net assets includes undistributed
net investment income................................................ $276,840 $312,450 $354,943
================== =================== ================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
AETNA GENERATION FUNDS
FINANCIAL HIGHLIGHTS
For the period of January 4, 1995-April 30, 1995 (Unaudited)
Selected data for a fund share outstanding throughout the period:
<TABLE>
<CAPTION>
AETNA AETNA AETNA
ASCENT CROSSROADS LEGACY
--------------- ---------------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period............................ $10.00 $10.00 $10.00
--------------- ---------------- -------------
Net investment income........................................... .11 .12 .14
Net realized and change in unrealized gain...................... .39 .35 .32
--------------- ---------------- -------------
Net asset value, end of period.................................. $10.50 $10.47 $10.46
=============== ================ =============
Total return.................................................... 5.00% 4.70% 4.60%
Net assets, end of period (000's)............................... $26,449 $26,391 $26,354
Ratio of total expenses to
average net assets*............................................ 1.39% 1.39% 1.39%
Ratio of net investment income to
average net assets*............................................ 3.37% 3.80% 4.30%
Portfolio turnover rate......................................... 45.70% 43.83% 38.77%
</TABLE>
* Annualized
Per share data calculated using average number of shares outstanding throughout
the period.
See Notes to Financial Statements.
F-4
<PAGE>
AETNA GENERATION FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
(Unaudited)
1. Summary of Significant Accounting Policies
Aetna Series Fund, Inc. ("Company") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment
company incorporated under the laws of Maryland on June 17, 1991. The
Articles of Incorporation permit the Company to offer separate funds
("Funds") each of which has its own investment objectives, policies and
restrictions.
On January 4, 1995, Aetna Ascent, Aetna Crossroads, and Aetna Legacy became
available for sale. Shares of each Fund are available to all investors
including employers and employees who utilize the Funds as investment
options under retirement plans. The funds are authorized to offer two
classes of shares, the Select Class and the Adviser Class. At this time, it
is expected that these Funds will only offer the Select Class. The Select
Class is offered principally to institutions and is not subject to sales
charges or service fees.
Aetna Life Insurance and Annuity Company ("ALIAC") serves as the Investment
Adviser and principal underwriter to each Fund.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Valuation of Investments
Investments are stated at market values based upon closing sales
prices as reported on national securities exchanges or, for over-the-
counter securities, at the mean of the bid and asked prices. Short-
term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value.
Short-term investments maturing in less than sixty days are valued at
amortized cost which when combined with accrued interest approximates
market. Securities for which market quotations are not considered to
be readily available are valued in good faith using methods approved
by the Board of Directors.
The accounting records of the Funds are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in
a foreign currency are translated into U.S. dollars at the prevailing
rates of exchange at the end of the period. Purchases and sales of
securities, income receipts, and expense payments are translated into
U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
B. Futures and Forward Foreign Currency Exchange Contracts
A futures contract is an agreement between two parties to buy and sell
a specific amount of a commodity, security or financial instrument
including an index of stocks at a set price on a future date. The
Funds use futures contracts as a hedge against declines in the value
of
F-5
<PAGE>
AETNA GENERATION FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
(Unaudited)
1. Summary of Significant Accounting Policies (continued)
B. Futures and Forward Foreign Currency Exchange Contracts (continued)
portfolio securities. The Funds may also purchase futures cantracts to
gain market exposure as it may be more cost effective than purchasing
individual securities.
Upon entering into a futures contract, the Funds are required to
deposit with a broker, an amount (initial margin) equal to a
percentage of the purchase price indicated by the futures contract.
Subsequent deposits (variation margin) are received or paid each day
by the Funds equal to the daily fluctuations in the market value of
the contract. These amounts are recorded by the Funds as unrealized
gains or losses. When a contract is closed, the Funds record a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Generally, futures contracts are closed prior to expiration.
For federal tax purposes, any futures contracts which remain open at
the end of the fiscal year are marked-to-market and the resultant net
gain or loss is included in federal taxable income.
A forward foreign currency exchange contract is an agreement to pay or
receive specific amounts of a currency at a future date in exchange
for another currency at an agreed upon exchange rate. The Funds may
use forward foreign currency exchange contracts to hedge certain
foreign currency assets. Contracts are recorded at market value and
marked to market daily.
The risks associated with futures and foreign currency exchange
contracts may arise from an imperfect correlation between the change
in market value of the securities held by the Funds and the price of
the contracts. Risks may also arise from an illiquid secondary market,
or from the inability of counterparties to meet the terms of the
contracts.
Realized and unrealized gains or losses on futures and foriegn
currency exchange contracts are reflected in the accompanying
financial statements. For federal tax purposes, any futures contracts
and forward foreign currency exchange contracts which remain open at
the end of the fiscal year are marked-to-market and the resultant net
gain or loss is included in federal taxable income.
C. Iliquid and Restricted Securities
Illiquid securities are securities that are not readily marketable.
Disposing of illiquid investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible
for the Funds to sell them promptly at an acceptable price. Restricted
securities are subject to legal or contractual restrictions on resale
and may not be publicly sold without registration under the Federal
Securities Act of 1933. Each Fund may invest up to 15% of its total
assets in illiquid securities. Illiquid and restricted securities are
valued using market quotations when readily available. In the absence
of market quotations, the securities are valued based upon their fair
value determined under procedures approved by the Board of Directors.
The Funds will not pay the costs of disposition of restricted
securities other than ordinary brokerage fees, if any.
F-6
<PAGE>
AETNA GENERATION FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
(Unaudited)
1. Summary of Significant Accounting Policies (continued)
D. Federal Income Taxes
As a qualified regulated investment company, each Fund is relieved of
federal income and excise taxes by distributing its net taxable
investment income and capital gains, if any, in compliance with the
applicable provisions of the Internal Revenue Code.
E. Other
Investment transactions are accounted for on the day following trade
date, except same day settlements which are accounted for on the trade
date. Interest income is recorded on an accrual basis. Discounts and
premiums on securities purchased are amortized over the life of the
respective security. Dividend income is recorded on the ex-dividend
date. Realized gains and losses from investment transactions are
determined on an identified cost basis.
2. Investment Advisory, Management, Shareholder Service and Distribution Fees
Each Fund pays the Investment Adviser a monthly fee at an annual rate of
0.80% based on its average daily net assets. As each Fund's net assets
exceed predetermined thresholds, lower advisory fees are applied.
The Company has entered into an administrative services agreement under
which ALIAC acts as administrator and provides certain administrative and
shareholder services and is responsible for the supervision of other
service providers. Each Fund pays ALIAC a monthly fee at an annual rate of
0.25% based on average daily net assets. As each Fund's net assets exceed
predetermined thresholds, lower advisory fees apply.
3. Purchases and Sales of Investment Securities
Purchases and sales of investment securities, excluding short-term
investments, for the period from January 4, 1995 through April 30, 1995
were:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------- -------------------
<S> <C> <C>
Ascent $31,911,189 $9,261,516
Crossroads 28,116,901 8,158,825
Legacy 24,243,173 6,542,709
</TABLE>
F-7
<PAGE>
AETNA GENERATION FUNDS
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995
(UNAUDITED)
4. Open Futures and Forward Foreign Currency Exchange Contracts
At April 30, 1995, Aetna Ascent, Aetna Crossroads, and Aetna Legacy had the
following open forward foreign currency exchange contracts that obligate
the Fund to deliver currencies at specified future dates. The unrealized
loss of $162,571,$120,171, and $95,995, respectively, on these contracts is
included in the accompanying financial statements. The terms of the open
contracts are as follows:
<TABLE>
<CAPTION>
AETNA ASCENT:
Exchange Currency to be U.S. $ Value as of Currency to be U.S. $ Value as of
Date Delivered April 30, 1995 Received April 30, 1995
---- --------- -------------- -------- --------------
<S> <C> <C> <C> <C>
5/17/95 3,410,000 $350,621 326,097 $326,097
Austrian Shilling U.S. Dollar
---------------------------------------------------------------------------------------------
5/16/95 8,740,000 306,672 281,481 281,481
Belgian Franc U.S. Dollar
---------------------------------------------------------------------------------------------
5/16/95 1,280,000 300,681 275,458 275,458
Finnish Markka U.S. Dollar
---------------------------------------------------------------------------------------------
6/21/95 725,000 1,166,611 1,150,175 1,150,175
British Pound U.S. Dollar
---------------------------------------------------------------------------------------------
5/10/95 80,665 80,665 50,000 80,704
U.S. Dollar British Pound
---------------------------------------------------------------------------------------------
9/13/95 93,700,000 1,120,598 1,079,843 1,079,843
Japanese Yen U.S. Dollar
---------------------------------------------------------------------------------------------
9/13/95 319,274 319,274 25,700,000 311,648
U.S. Dollar Japanese Yen
---------------------------------------------------------------------------------------------
6/16/95 378,000 243,981 236,820 236,820
Dutch Guilder U.S. Dollar
---------------------------------------------------------------------------------------------
6/24/95 616,000 99,004 95,135 95,135
Norwegian Krone U.S. Dollar
---------------------------------------------------------------------------------------------
8/17/95 1,150,000 184,828 173,167 173,167
Norwegian Krone U.S. Dollar
---------------------------------------------------------------------------------------------
4/28/95 398,000 285,755 285,591 285,591
Singapore Dollar U.S. Dollar
---------------------- ----------------------
$4,458,690 $4,296,119
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AETNA CROSSROADS:
Exchange Currency to be U.S. $ Value as of Currency to be U.S. $ Value as of
Date Delivered April 30, 1995 Received April 30, 1995
---- --------- -------------- -------- --------------
<S> <C> <C> <C> <C>
5/17/95 2,470,000 $254,764 237,003 $237,003
Austrian Shilling U.S. Dollar
----------------------------------------------------------------------------------------------
5/16/95 4,220,000 148,688 137,909 137,909
Belgian Franc U.S. Dollar
----------------------------------------------------------------------------------------------
5/16/95 920,000 216,563 199,113 199,113
Finnish Markka U.S. Dollar
----------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
AETNA GENERATION FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
(Unaudited)
4. Open Futures and Forward Foreign Currency Exchange Contracts (continued)
AETNA CROSSROADS (CONTINUED):
<TABLE>
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6/21/95 480,000 771,619 760,032 760,032
British Pound U.S. Dollar
-----------------------------------------------------------------------------------------------
9/13/95 60,800,000 737,285 697,479 697,479
Japanese Yen U.S. Dollar
-----------------------------------------------------------------------------------------------
9/13/95 308,187 308,187 24,900,000 301,947
U.S. Dollar Japanese Yen
-----------------------------------------------------------------------------------------------
6/16/95 362,000 234,167 228,839 228,839
Dutch Guilder U.S. Dollar
-----------------------------------------------------------------------------------------------
5/24/95 462,000 74,344 71,508 71,508
Norwegian Krone U.S. Dollar
-----------------------------------------------------------------------------------------------
8/17/95 900,000 144,988 136,716 136,716
Norwegian Krone U.S. Dollar
-----------------------------------------------------------------------------------------------
4/28/95 273,000 196,008 195,896 195,896
Singapore Dollar U.S. Dollar
----------------- -----------------
$3,086,613 $2,966,442
========== ==========
</TABLE>
AETNA LEGACY:
<TABLE>
<CAPTION>
Exchange Currency to be U.S. $ Value as of Currency to be U.S. $ Value as of
Date Delivered April 30, 1995 Received April 30 1995
---- --------- -------------- -------- -------------
<S> <C> <C> <C> <C>
5/17/95 1,390,000 $143,369 133,374 $133,374
Austrian Shilling U.S. Dollar
-----------------------------------------------------------------------------------------------
5/16/95 6,340,000 223,385 207,190 207,190
Belgian Franc U.S. Dollar
-----------------------------------------------------------------------------------------------
5/16/95 710,000 167,130 153,663 153,663
Finnish Markka U.S. Dollar
-----------------------------------------------------------------------------------------------
6/21/95 350,000 562,639 554,190 554,190
British Pound U.S. Dollar
-----------------------------------------------------------------------------------------------
9/13/95 35,000,000 424,424 393,890 393,890
Japanese Yen U.S. Dollar
-----------------------------------------------------------------------------------------------
9/13/95 308,187 308,187 24,900,000 301,947
U.S. Dollar Japanese Yen
-----------------------------------------------------------------------------------------------
6/16/95 240,000 155,249 151,716 151,716
Dutch Guilder U.S. Dollar
-----------------------------------------------------------------------------------------------
5/24/95 356,000 57,287 55,102 55,102
Norwegian Krone U.S. Dollar
-----------------------------------------------------------------------------------------------
8/17/95 595,000 95,853 90,384 90,384
Norwegian Krone U.S. Dollar
-----------------------------------------------------------------------------------------------
4/28/95 126,292 126,292 176,000 126,364
U.S. Dollar Singapore Dollar
----------------- ----------------
$2,263,815 $2,167,820
========== ==========
</TABLE>
F-9
<PAGE>
AETNA GENERATION FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
(Unaudited)
5. Initial Capitalization
Each of the Funds was seeded with $25,200,000 on January 4, 1995.
6. Authorized Capital Shares and Capital Share Transactions
Each Fund is authorized to issue 100 million shares. For the period
January 4, 1995 through April 30, 1995, the funds sold the following
shares:
<TABLE>
<CAPTION>
AETNA ASCENT AETNA CROSSROADS AETNA LEGACY
------------ ---------------- ------------
<S> <C> <C> <C>
Shares sold 2,520,005 2,520,009 2,520,020
</TABLE>
F-10
<PAGE>
AETNA SERIES FUND, INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights
(2) Included in Part B:
Statement of Assets and Liabilities as of April 30, 1995
Statement of Operations for the month period ended April 30,
1995
Statement of Changes in Net Assets for the four-month period
ended April 30, 1995
Notes to Financial Statements
(b) Exhibits:
--------
(1) Articles of Incorporation, including Articles Supplementary
(2) By-laws (as amended September 13, 1994)
(3) Not applicable
(4) Not applicable
(5) Form of Investment Advisory Agreement between the Registrant
and Aetna Life Insurance and Annuity Company ("ALIAC")
(6)(a) Underwriting Agreement between the Registrant and ALIAC
(6)(b) Dealer Agreement between ALIAC and Aetna Investment
Services, Inc.
(7) Not applicable
(8) Custodian Agreement between the Registrant and Mellon Bank,
N.A., including amendment
(9)(a) Administrative Services Agreement
(9)(b) License Agreement
(10) Opinion and Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Distribution Plan
(15)(b) Form of Shareholder Services Plan
(16) Schedule for Computation of Performance Quotation
(18) Power of Attorney
(27) Financial Data Schedule
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
- -----------------------------------------------------------------------
Registrant is a Maryland corporation for which separate financial
statements are filed. As of April 28, 1995 Aetna Life Insurance
Company owned 1.75% of the Select Class and 33.01% of the Adviser
Class, Aetna Life Insurance and Annuity Company owned 6.14% of the
Select Class and 7.96% of the Adviser Class and The Aetna Casualty and
Surety Company owned 0.08% of the Select Class of the Registrant's
outstanding shares of beneficial interest. All these companies are
owned by Aetna Life and Casualty Company, a Connecticut company.
A diagram of all persons directly or indirectly under common control
with the Registrant is incorporated herein by reference to the
Registration Statement on Form N-4, File No. 33-88720, as filed with
the Securities and Exchange Commission on January 20, 1995.
Item 26. Number of Holders of Securities
- -----------------------------------------
(1) (2)
Title of Class Number of Record Holders
-------------- ------------------------
As of May 31, 1995
Select Class Adviser Class
------------ -------------
Ascent 3 0
Crossroads 3 0
Legacy 3 0
Item 27. Indemnification
- -------------------------
Article 9, Section (d) of the Registrant's Articles of Incorporation,
provides for indemnification of directors and officers. In addition,
the Registrant's directors and officers are covered under a directors
and officers errors and omissions liability insurance policy issued by
Lloyds of London which expires in October 1995.
Finally, reference is made to Section 2-418 of the Corporations and
Associations Article of the Annotated Code of Maryland which provides
generally that (1) a corporation may (but is not required to)
indemnify its directors for judgments, fines and expenses in
proceedings in which the director is named a party solely by reason of
being a director, provided the director has not acted in bad faith,
dishonestly or unlawfully, and provided further that the director has
not received any "improper personal benefit"; and (2) that a
corporation must (unless otherwise provided in the corporation's
charter or articles of incorporation) indemnify a director who is
successful on the merits in defending a suit against him by reason of
being a director for "reasonable expenses." The statutory provisions
are not
<PAGE>
exclusive; i.e., a corporation may provide greater indemnification
rights than those provided by statute.
Item 28. Business and Other Connections of Investment Adviser
- --------------------------------------------------------------
<TABLE>
<CAPTION>
Positions and Offices Other Principal Position(s) Held During
Name with Investment Adviser Prior Two Years */**
- ---- ----------------------- --------------------
<C> <C> <S>
Daniel P. Kearney Director, President and Executive Vice President (since
Chairman of Investment December 1993), and Group Executive,
Committee Financial Division (February 1991-
December 1993), Aetna Life and
Casualty Company; Director, Aetna
Insurance Company of America (since
February 1993); Director and
Chairman, Aetna Realty Investors, Inc.
(since January 3, 1992); Director of
MBIA, Inc. (since 1992); Director,
Margaretten Financial Corporation,
Edison, New Jersey (1992-1994).
Dominick J. Agostino Director, Senior Vice President and Chief Operating Officer,
President and Chief Citicorp, North America, Inc., New
Financial Officer (Principal York, NY (December 1992 -September
Accounting and Financial 1994); Managing Director, Citibank,
Officer) National Association, New York, NY
(August 1990 - September 1994).
Christopher J. Burns Director and Senior Vice Director, Aetna Investment Services,
President, Life; Member of Inc. (since September 1993); Director
Separate Account and Senior Vice President, Aetna
Investment Committee Insurance Company of America (1993 -
1994); Senior Vice President, North
American Operations, Aetna
International, Inc. (since 1993);
Director, Aetna International, Inc.
(since 1992); Director and member of
Investment Committee, Aetna Life
Insurance Company of Canada (since
1992); Director, Seguros Monterrey
Aetna, S.A. (since 1992); Director,
Fianzas Monterrey Aetna S.A. (since
1992); Series "B" Director, Valores
Monterrey Aetna, S.A. de C.V. (since
1992).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Other Principal Position(s) Held During
Name with Investment Adviser Prior Two Years */**
- ---- ----------------------- --------------------
<C> <C> <S>
Laura R. Estes Director and Senior Vice Director and Senior Vice President,
President, ALIAC Pension; Aetna Insurance Company of America
Member of Executive (1993 - 1994); Director, Aetna
Committee; Chairman of Investment Services, Inc. (since 1993).
Separate Account
Investment Committee
John Y. Kim Director and Senior Vice Chief Investment Officer, Aetna Life
President, ALIAC and Casualty Company (since May
Investments 1994); Managing Director, Mitchell
Hutchins Institutional Investors, New
York, NY (September 1993-April
1994).
Shaun P. Mathews Director and Senior Vice Director and Chief Operations Officer,
President, Strategic Aetna Investment Services, Inc.(since
Markets and Products February 1993); Director and Senior
Vice President, Aetna Insurance
Company of America (1993 - 1994);
Vice President of Aetna Life Insurance
Company (since 1991).
Scott A. Striegel Director and Senior Vice Vice President, Aetna Life Insurance
President Company (since 1992); Senior Vice
President (since 1992) and Director
(since June 1991), Aetna Insurance
Company of America.
James C. Hamilton Director, Vice President Chief Financial Officer, Aetna
and Treasurer Investment Services, Inc. (since 1993);
Director, Vice President and Treasurer,
Aetna Insurance Company of America
(since February 1993); Vice President
and Actuary of Aetna Life Insurance
Company (since 1988).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Other Principal Position(s) Held During
Name with Investment Adviser Prior Two Years */**
- ---- ----------------------- --------------------
<C> <C> <S>
Gary G. Benanav Director Executive Vice President, Property-
Casualty Division (since December
1993) and Group Executive (April
1992-December 1993), Aetna Life and
Casualty Company, Aetna Life
Insurance Company and Aetna Casualty
and Surety Company; Chairman and
Chief Executive Officer (since
September 1992) and Director (since
October 1991), Aetna Life Insurance
Company of America; Director and
President (1992-1994), Aetna
Insurance Company of America;
President (since August 1994) and
Director (1992-1994), Aetna Casualty
and Surety Company of America, Aetna
Casualty Company of Connecticut,
Aetna Commercial Insurance Company,
Aetna Excess and Surplus Lines
Company, Aetna Insurance Company,
Aetna Personal Security Insurance
Company, Farmington Casualty
Company, The Automobile Insurance
Company of Hartford, Connecticut;
Director, Aetna Series Fund, Inc. (since
April 1993); Director, Gearhart
Industries (since May 31, 1985);
Director of Barnes Group, Inc.
(currently).
Robert E. Broatch Vice President and Senior Vice President, Finance (since
Corporate Controller December 1993), and Corporate
Controller (since December 1988),
Aetna Life and Casualty Company;
Chairman, Connecticut Policy and
Economic Council, Inc. (since May
1993).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Positions and Offices Other Principal Position(s) Held During
Name with Investment Adviser Prior Two Years */**
- ---- ----------------------- --------------------
<C> <C> <S>
Zoe Baird Senior Vice President and Senior Vice President and General
General Counsel Counsel (since April 1992), Aetna Life
and Casualty Company; Director, Zurn
Industries, Inc., Erie Pennsylvania
(since April 1993); Director Southern
New England Telecommunications
Corp. and Southern New England
Telephone Company, New Haven, CT
(since November 1990).
Fred J. Franklin Vice President and Chief Chief Operating Officer and General
Compliance Officer Counsel of Barclay Investments, Inc.;
Providence, RI (January 1991 -
November 1993).
Susan E. Schechter Counsel and Corporate Counsel, Aetna Life and Casualty
Secretary Company (since November 1993);
Corporate Secretary and Counsel,
Aetna Life Assignment Company (since
June 1994); Associate Attorney,
Steptoe & Johnson, Washington, D.C.
(September 1986 - October 1993).
</TABLE>
* The principal business address of each person named is 151 Farmington
Avenue, Hartford, Connecticut 06156.
** Certain officers and directors of the investment adviser currently hold (or
have held during the past two years) other positions with affiliates of the
Registrant which are not deemed to be principal positions.
Item 29. Principal Underwriters
- --------------------------------
(a) In addition to serving as the principal underwriter for the
Registrant, Aetna Life Insurance and Annuity Company (ALIAC) also acts
as the principal underwriter for Aetna Variable Fund, Aetna Income
Shares, and Aetna GET Fund. ALIAC is also the depositor of Variable
Life Account B and Variable Annuity Accounts B and C (separate accounts
of ALIAC organized as unit investment trusts), and Variable Annuity
Account I (a separate account of Aetna Insurance Company of America
registered as a unit investment trust). Additionally, ALIAC is the
investment adviser for Aetna Variable Fund, Aetna Income Shares, Aetna
<PAGE>
Variable Encore Fund, Aetna Investment Advisers Fund, Inc., Aetna GET
Fund, Aetna Series Fund, Inc. and Aetna Generation Portfolios, Inc.
(b)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ------------------ -------------------------- ---------------
<S> <C> <C>
Daniel P. Kearney Director and President Director
Dominick J. Agostino Senior Vice President and
Chief Financial Officer
Christopher J. Burns Director and Senior Vice President, Life
Laura R. Estes Director and Senior Vice President,
ALIAC Pensions
John Y. Kim Director and Senior Vice President, Director and Vice President
ALIAC Investments
Shaun P. Mathews Director and Senior Vice President, Director and President
Strategic Markets and Products
Scott A. Striegel Director and Senior Vice President, ARPS
and Annuity
James C. Hamilton Director, Vice President and Treasurer Vice President and
Treasurer
Gary G. Benanav Director
Robert E. Broatch Senior Vice President and Controller
Zoe Baird Senior Vice President and General
Counsel
Fred J. Franklin Vice President and Chief Compliance
Officer
Susan E. Schechter Corporate Secretary and Counsel
</TABLE>
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records
- ------------------------------------------
The Registrant and its investment adviser, ALIAC, maintain physical
possession of each account, book or other documents, except
shareholder records, as required by Section 31(a) of the 1940 Act and
the Rules promulgated thereunder at 151 Farmington Avenue, Hartford,
Connecticut 06156.
Shareholder records are maintained by the transfer agent, Firstar
Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53261.
Item 31. Management Services
- -----------------------------
Not applicable.
Item 32. Undertakings
- ----------------------
The Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Fund's latest annual report
to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 1 to Registration Statement No. 33-85620 to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Hartford and
the State of Connecticut, on the 28th day of June, 1995.
AETNA SERIES FUND, INC.
-----------------------
(Registrant)
By: Shaun P. Mathews*
---------------------------------
Shaun P. Mathews
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C> <C>
)
Shaun P. Mathews* President and Director )
- ---------------------------- (Principal Executive Officer) )
Shaun P. Mathews )
)
)
James C. Hamilton* Vice President and Treasurer )
- ---------------------------- (Principal Financial and Accounting Officer) ) June 28, 1995
James C. Hamilton )
)
)
Morton Ehrlich* Director )
- ---------------------------- )
Morton Ehrlich )
)
)
Maria T. Fighetti* Director )
- ---------------------------- )
Maria T. Fighetti )
)
)
David L. Grove* Director )
- ---------------------------- )
David L. Grove )
)
)
Daniel P. Kearney* Director )
- ---------------------------- )
Daniel P. Kearney )
)
)
John Y. Kim* Director )
- ---------------------------- )
John Y. Kim )
)
</TABLE>
<PAGE>
Sidney Koch* Director
- ----------------------------
Sidney Koch
Corine T. Norgaard* Director
- ----------------------------
Corine T. Norgaard
Richard G. Scheide* Director
- ----------------------------
Richard G. Scheide
By: /s/ Susan E. Bryant
-------------------
*Susan E. Bryant
Attorney-in-Fact
<PAGE>
AETNA SERIES FUND, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<C> <S> <C>
99-B(1)(a) Articles of Incorporation, including Articles
Supplementary
99-B(2) Bylaws (as amended September 13, 1994)
99-B(3) Not applicable
99-B(4) Not applicable
99-B(5) Form of Investment Advisory Agreement between
Registrant and Aetna Life Insurance and Annuity
Company ("ALIAC")
99-B(6)(a) Underwriting Agreement between the Company and
ALIAC
99-B(6)(b) Dealer Agreement between ALIAC and Aetna
Investment Services, Inc. (February 8, 1994)
99-B(7) Not applicable
99-B(8) Custodian Agreement between Aetna Series
Fund, Inc. and Mellon Bank, N.A., including
amendments
99-B(9)(a) Administrative Services Agreement
99-B(9)(b) License Agreement
99-B(10) Opinion and Consent of Counsel
99-B(11) Not applicable
99-B(12) Not applicable
99-B(13) Not applicable
99-B(14) Not applicable
99-B(15)(a) Distribution Plan
99-B(15)(b) Form of Shareholder Services Plan
99-B(16) Schedule for Computation of Performance
Quotation
99-B(18) Power of Attorney
27.1 Financial Data Schedule-Ascent
27.2 Financial Data Schedule-Crossroads
27.3 Financial Data Schedule-Legacy
</TABLE>
<PAGE>
EXHIBIT 99B(1)
ARTICLES OF INCORPORATION
OF
AETNA SERIES FUND, INC.
The undersigned, George N. Gingold, whose post office address is 151
Farmington Avenue, Hartford, CT 06156, being at least eighteen years of age,
does under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, hereby forms a corporation.
FIRST: The name of the Corporation is AETNA SERIES FUND, INC.
SECOND: The purpose for which the Corporation is formed is to act as an
open-end investment company of the management type registered as such with the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940 and to exercise and generally to enjoy all of the powers, rights and
privileges granted to, or conferred upon, corporations by the General Laws of
the State of Maryland now or hereafter in force.
THIRD: The post office address of the principal office and the office of
the resident agent of the Corporation in the State of Maryland is c/o James E.
Baker, 100 Light Street, 6th Floor, Baltimore, Maryland 21202. The resident
agent of the Corporation in the State of Maryland is CSC-Lawyers Incorporating
Service Company, which is a corporation organized and existing under the laws of
the State of Maryland.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is 2,000,000,000 shares of Capital Stock of the par value of
$0.001 per share, and of the aggregate par value of $2,000,000 (hereinafter
referred to as "Shares").
FIFTH: (a) The number of Directors of the Corporation shall be six, or such
other number as may be from time to time fixed in the manner provided by the By-
Laws of the Corporation, but shall never be less than three (3).
(b) The names of the Directors who shall act until the first Annual Meeting
or until their successors are duly chosen and qualify are:
Morton Ehrlich
David L. Grove
Edmund F. Kelly
Shaun P. Mathews
James L. Mulvihill
Corine T. Norgaard
State Dept. of Assessment & Taxation
Received June 17, 1991 10:33 a.m.
<PAGE>
SIXTH: The Board of Directors is empowered to authorize the issuance from
time to time of Shares of the Corporation, whether now or hereafter authorized;
provided, however, that the consideration per Share to be received by the
Corporation upon the issuance or sale of any Shares shall be the net asset value
per Share determined in accordance with the requirements of the Investment
Company Act of 1940 and the applicable rules and regulations of the Securities
and Exchange Commission (or any succeeding governmental authority) and in
conformity with generally accepted accounting practices and principles.
SEVENTH: The Shares may be issued in one or more series, and each series may
consist of one or more classes, all as the Board of Directors may determine.
Each series of Shares and each class of a series shall be issued upon such terms
and conditions, and shall confer upon its owners such rights as the Board of
Directors may determine, consistent with the requirements of the laws of the
State of Maryland and the Investment Company Act of 1940 and the applicable
rules and regulations of the Securities and Exchange Commission (or any
succeeding governmental authority), these Articles of Incorporation and the By-
Laws of this Corporation. In addition, the Board of Directors is hereby
expressly granted authority to change the designation of any series or class,
and to increase or decrease the number of Shares of any series or class, but the
number of Shares of any series or class shall not be decreased by the Board of
Directors below the number of Shares thereof then outstanding.
EIGHTH: (a) To the extent the Corporation has funds or property legally
available therefor, each Shareholder of the Corporation shall have the right at
such times as may be permitted by the Corporation, but no less frequently than
once each week, to require the Corporation to redeem all or any part of its
Shares at a redemption price equal to the net asset value per Share next
determined after the Shares are tendered for redemption; said determination of
the net asset value per Share to be made in accordance with the requirements of
the Investment Company Act of 1940 and the applicable rules and regulations of
the Securities and Exchange Commission (or any succeeding governmental
authority) and in conformity with generally accepted accounting practices and
principles.
Notwithstanding the foregoing, the Corporation may postpone payment or
deposit of the redemption price and may suspend the right of the Shareholders to
require the Corporation to redeem Shares pursuant to the applicable rules and
regulations, or any order, of the Securities and Exchange Commission.
(b) The Corporation shall have the right, exercisable at the
discretion of the Board of Directors, to redeem Shares of any Shareholder for
their then current net asset value per Share if at such time the Shareholder
owns Shares having an aggregate net asset value of less than the amount set
forth in the current Registration Statement of the Corporation filed with the
Securities and Exchange Commission.
(c) Each Share is subject to redemption by the Corporation at the
redemption price computed in the manner set forth in subparagraph (a) of Article
SEVENTH of this Articles of Incorporation at any time if the Board of Directors,
in its sole discretion, determines that failure to so redeem may result in the
Corporation being classified as a personal holding company as defined in the
Internal Revenue Code.
-2-
<PAGE>
(d) Transfer of Shares will be recorded on the stock transfer records
of the Corporation at the request of the holders thereof at any time during
normal business hours of the Corporation unless the Board of Directors of the
Corporation determines, in its sole discretion, that allowing such transfer may
result in the Corporation being classified as a personal holding company as
defined in the Internal Revenue Code.
NINTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
Directors and Shareholders:
(a) No Shareholder shall have any pre-emptive or preferential right of
subscription to any Shares of any class or series whether now or hereafter
authorized. The Board of Directors may issue Shares without offering the same
either in whole or in part to the Shareholders.
(b) The Corporation may enter into exclusive or non-exclusive
contract(s) for the sale of its Shares and may also enter into contracts,
including but not limited to investment advisory, management, custodial,
transfer agency and administrative services. The terms and conditions, methods
of authorization, renewal, amendment and termination of the aforesaid contracts
shall be as determined at the discretion of the Board of Directors; subject,
however, to the provisions of the Articles of Incorporation of the Corporation,
the By-Laws of the Corporation, applicable state law, and the Investment Company
Act of 1940 and the rules and regulations of the Securities and Exchange
Commission.
(c) Subject to and in compliance with the provisions of the General
Laws of the State of Maryland respecting interested director transactions, the
Corporation may enter into a written underwriting contract, management contract
or contracts for research, advisory or administrative services with Aetna
Capital Management Inc., Aetna Life Insurance and Annuity Company or their
parents, affiliates or subsidiaries thereof, or their respective successors, or
otherwise to do business with such corporation, notwithstanding the fact that
one or more of the Directors of the Corporation and some or all of its Officers
are, have been, or may become Directors, Officers, Employees or Stockholders of
Aetna Capital Management, Inc., Aetna Life Insurance and Annuity Company or
their parents, affiliates or subsidiaries or successors, and in the absence of
actual fraud the Corporation may deal freely with Aetna Capital Management,
Inc., Aetna Life Insurance and Annuity Company or their parents, affiliates,
subsidiaries or successors, and neither such underwriting contract, management
contract or contract for research, advisory or administrative services nor any
other contract or transaction between the Corporation and Aetna Capital
Management, Inc., Aetna Life Insurance and Annuity Company or their parents,
affiliates, subsidiaries or successors shall be invalidated or in any way
affected thereby, nor shall any Director or Officer of the Corporation be liable
to the Corporation or to any Shareholder or creditor of the Corporation or to
any other person for any loss incurred under or by reason of any such contract
or transaction. Anything in the foregoing notwithstanding, no Officer or
Director or underwriter or investment adviser of the Corporation shall be
protected against any liability to the Corporation or to its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
-3-
<PAGE>
(d) The Corporation shall indemnify its Officers, Directors, employees
and agents and any person who serves at the request of the Corporation as a
Director, Officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise as follows:
(i) Every person who is or has been a Director, Officer, employee
or agent of the Corporation and persons who serve at the
Corporation's request as Director, Officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise shall be indemnified by the Corporation to
the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in
connection with any debt, claim, action, demand, suit,
proceeding, judgment, decree, liability or obligation of any
kind in which he becomes involved as a party or otherwise by
virtue of his being or having been a Director, Officer,
employee or agent of the Corporation or of another
corporation, partnership, joint venture, trust or other
enterprise at the request of the Corporation and against
amounts paid or incurred by him in the settlement thereof.
(ii) 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.
(iii) No indemnification shall be provided hereunder to a Director,
Officer, employee or agent against any liability to the
Corporation or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
(iv) The rights of indemnification herein provided may be insured
against by policies maintained by the Corporation, shall be
severable, shall not affect any other rights to which any
Director, Officer, employee or agent may now or hereafter be
entitled, shall continue as to a person who has ceased to be
such Director, Officer, employee, or agent and shall inure to
the benefit of the heirs, executors and administrators of such
a person.
-4-
<PAGE>
(v) 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 (vi) of this paragraph (f), 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 Directors who are not interested
persons of the Corporation, 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.
(vi) The Corporation 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 an Officer,
Director or controlling person of the Corporation 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 Corporation is insured against losses
arising by reason of any lawful advances or (iii) a majority
of a quorum of disinterested non-party Directors or
independent legal counsel in a written opinion makes a factual
determination that there is a reason to believe the indemnitee
will be entitled to indemnification.
(e) The Board of Directors shall, subject to the General Laws of the State
of Maryland, have the power to determine, from time to time, whether and to what
extent and at what times and places and under what conditions and regulations
any accounts and books of the Corporation, or any of them, shall be open to the
inspection of Shareholders.
(f) Notwithstanding any provision of law requiring a greater proportion
than a majority of the votes of all classes of Shares entitled to be cast to
take or authorize any action, the Corporation may take or authorize any such
action upon the concurrence of a majority of the aggregate number of the votes
entitled to be cast thereon.
(g) The Corporation reserves the right from time to time to make any
amendment of its Articles of Incorporation now or hereafter authorized by law,
including any amendment which alters the rights, as expressly set forth in its
Articles of Incorporation, of any outstanding Shares, except that no action
affecting the validity or assessibility of such Shares shall be taken without
the unanimous approval of the outstanding Shares affected thereby.
-5-
<PAGE>
(h) In addition to the powers and authority conferred upon them by the
Articles of Incorporation of the Corporation or By-Laws, the Board of Directors
may exercise all such powers and authority and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of applicable state law and the Articles of Incorporation and By-Laws
of the Corporation.
(i) The Board of Directors is expressly authorized to determine in
accordance with generally accepted accounting principles and practices what
constitutes net profits, earnings, surplus or net assets in excess of capital,
and to determine what accounting periods shall be used by the Corporation for
any purpose, whether annual or any other period, including daily; to set apart
of any funds of the Corporation such reserves for such purposes as it shall
determine and to abolish the same; to declare and pay dividends and
distributions in cash, securities or other property from surplus or any funds
legally available therefor, at such intervals (which may be as frequent as
daily) or on such other periodic basis, as it shall determine; to declare such
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
other any other distributions on any basis, including dates occurring less
frequently than the effectiveness of declarations thereof; and to provide for
the payment of declared dividends on a date earlier or later than the specified
payment date in the case of Shareholders redeeming their entire ownership of
Shares.
NINTH: The Corporation acknowledges that it is adopting its corporate name
through permission of Aetna Life and Casualty Company, a Connecticut
corporation, and agrees that Aetna Life and Casualty Company reserves to itself
and any successor to its business the right to withdraw from the Corporation the
use of the name "Aetna" and reserves to itself and any successor to its business
the right to grant the non-exclusive right to use the name "Aetna" or any
similar name to any other investment company or business enterprise.
TENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned has signed these Articles of Incorporation
on the 13th day of June, 1991 and by his signature he hereby acknowledges the
same to be his act and that, to the best of his knowledge, the matters and facts
set forth herein are true in all material respects under the penalties of
perjury.
/s/George N. Gingold
--------------------
George N. Gingold
-6-
<PAGE>
STATE OF CONNECTICUT )
) ss:
COUNTY OF HARTFORD )
I hereby certify that on June 13, 1991, before me, the subscriber, a Notary
Public of the State of Connecticut, in and for the County of Hartford,
personally appeared George N. Gingold, who acknowledged the foregoing Articles
of Incorporation to be his act.
WITNESS my hand and notarial seal or stamp the day and year last above
written.
/s/Carole W. Bassett
--------------------
Notary Public
Carole W. Bassett, Notary Public
Within and for the State of
Connecticut
My Commission Expires April 1, 1995
-7-
<PAGE>
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AETNA SERIES FUND, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at its September 13,
1994 meeting, adopted a resolution to increase the total number of shares which
the Corporation shall have authority to issue to four billion, eight hundred
million (4,800,000,000) shares of common stock at the par value of $0.001 per
share and of the aggregate par value of four million, eight hundred thousand
dollars ($4,800,000);
SECOND: The Board of Directors by resolution adopted at the September 13,
1994 meeting designated and classified six hundred million shares of the
Corporation into three new series as follow:
<TABLE>
<CAPTION>
NAME OF CLASS NUMBER OF SHARES
NAME OF SERIES OF SERIES ALLOCATED
- -------------- --------- ---------
<S> <C> <C>
Aetna Ascent Fund Class A 100,000,000
Class B 100,000,000
Aetna Crossroads Fund Class A 100,000,000
Class B 100,000,000
Aetna Legacy Fund Class A 100,000,000
Class B 100,000,000
</TABLE>
THIRD: The shares of the Corporation authorized and classified pursuant to
Articles First and Second of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The number of shares of capital
stock of the various series and classes that the Corporation has authority to
issue has been established by the Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law.
FOURTH: Immediately prior to the effectiveness of these Articles
Supplementary, the Corporation had the authority to issue four billion
(4,000,000,000) shares of Common Stock of the par value of $0.001 per share and
of the aggregate par value of four million dollars
<PAGE>
($4,000,000), of which the Board of Directors had designated and classified
three billion eight hundred million shares as follows:
<TABLE>
<CAPTION>
Number of
Name of Series Name of Class of Shares Allocated
- -------------- ---------------- ----------------
Series
------
<S> <C> <C>
AETNA MONEY MARKET FUND Class A 1,000,000,000
Class B 1,000,000,000
AETNA BOND FUND Class A 100,000,000
Class B 100,000,000
THE AETNA FUND Class A 100,000,000
Class B 100,000,000
AETNA GROWTH AND INCOME FUND Class A 100,000,000
Class B 100,000,000
AETNA INTERNATIONAL GROWTH FUND Class A 100,000,000
Class B 100,000,000
AETNA TAX-FREE FUND Class A 100,000,000
Class B 100,000,000
AETNA GOVERNMENT FUND Class A 100,000,000
Class B 100,000,000
AETNA SMALL COMPANY GROWTH FUND Class A 100,000,000
Class B 100,000,000
AETNA GROWTH FUND Class A 100,000,000
Class B 100,000,000
AETNA ASIAN GROWTH FUND Class A 100,000,000
Class B 100,000,000
</TABLE>
As amended hereby, the Corporation's Articles of Incorporation authorize the
issuance of four billion, eight hundred million (4,800,000,000) shares of Common
Stock of the par value of $0.001 per share and having an aggregate par value of
four million, eight hundred thousand dollars ($4,800,000) of which the Board of
Directors has designated four billion, four hundred million (4,400,000,000) of
such shares into series (collectively, "the Series" and each individually a
"Series") and classified the shares of each Series as set forth above and in
Article Second hereof;
2
<PAGE>
FIFTH: The preferences, rights, voting powers, restrictions, limitations
as to dividends, qualifications and terms and conditions of redemption of the
various series of shares shall be as set forth in the Corporation's Articles of
Incorporation and those set forth as follows:
(a) Assets Belonging to the Series. All consideration received by the
------------------------------
Corporation for the issue or sale of shares of the Series, together with
all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the Series for
all purposes, subject only to the rights of creditors, and shall be so
recorded upon the books and accounts of the Corporation. Such
consideration, assets, income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of
such assets and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items
allocated to the Series as provided in the following sentence, are herein
referred to as "assets belonging to" the Series. In the event there are
any assets, income, earnings, profits, and proceeds thereof, funds, or
payments which are not readily identifiable as belonging to any particular
Series (collectively, "General Items"), such General Items shall be
allocated by or under the supervision of the Board of Directors to and
among any one or more of the Series of the Corporation and designated from
time to time in such manner and on such basis as the Board of Directors, in
its sole discretion, deems fair and equitable, and any General Items so
allocated to a particular Series shall belong to that Series. Each such
allocation by the Board of Directors shall be conclusive and binding for
all purposes.
(b) Liabilities Belonging to the Series. The assets belonging to the
-----------------------------------
Series shall be charged with (i) the liabilities of the Corporation in
respect of the Series, (ii) all expenses, costs, charges and reserves
attributable to the Series, and (iii) any general liabilities, expenses,
costs, charges or reserves of the Corporation which are not readily
identifiable as belonging to any particular Series and which shall be
allocated and charged by or under the supervision of the Board of Directors
to and among any one or more of the Series of the Corporation from time to
time in such manner and on such basis as the Board of Directors, in its
sole discretion, deems fair and equitable. The liabilities, expenses,
costs, charges and reserves allocated and so charged to the Series are
herein referred to as "liabilities belonging to" the Series. Each
allocation of liabilities, expenses, costs, charges and reserves by the
Board of Directors shall be conclusive and binding for all purposes.
(c) Income Belonging to the Series. The Board of Directors shall have
------------------------------
full discretion, to the extent not inconsistent with the Maryland
Corporation Code and the Investment Company Act of 1940, as amended (the
"1940 Act") to determine which items shall be treated as income and which
items as capital, and each such determination and allocation shall be
conclusive and binding. "Income belonging to" the Series includes
3
<PAGE>
all income, earnings and profits derived from assets belonging to the
Series, less any expenses, costs, charges or reserves belonging to the
Series, for the relevant time period.
(d) Dividends. Dividends and distributions on shares of the Series may
---------
be declared and paid with such frequency, in such form and in such amount
as the Board of Directors may from time to time determine. Dividends may
be declared daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Board of
Directors may determine, after providing for actual and accrued liabilities
belonging to the Series.
All dividends on shares of the Series shall be paid only out of the
income belonging to the Series, and capital gains distributions on shares
of the Series shall be paid only out of the capital gains belonging to the
Series. All dividends and distributions on shares of the Series shall be
distributed pro rata to the holders of such shares in proportion to the
number of shares of the Series held by such holders at the date and time of
record established for the payment of such dividends or distributions,
except that in connection with any dividend or distribution program or
procedure, the Board of Directors may determine that no dividend or
distribution shall be payable on shares as to which the shareholder's
purchase order and/or payment have not been received by the time or times
established by the Board of Directors under such program or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends, including dividends designated
in whole or in part as capital gains distributions, amounts sufficient, in
the opinion of the Board of Directors, to enable the Corporation to qualify
as a regulated investment company under the Internal Revenue Code of 1986,
as amended, or any successor or comparable statute thereto, and regulations
promulgated thereunder, and to avoid liability of the Corporation or Series
for Federal income tax in respect of that year. However, nothing in the
foregoing shall limit the authority of the Board of Directors to make
distributions greater than or less than the amount necessary to qualify as
a regulated investment company and to avoid liability of the Corporation or
Series for such tax.
Dividends and distributions may be paid in cash, property or shares, or
a combination thereof, as determined by the Board of Directors or pursuant
to any program that the Board of Directors may have in effect at the time.
Any such dividend or distribution paid in shares will be paid at the
current net asset value thereof as defined in subsection (h) below.
(e) Liquidation. In the event of liquidation of the Corporation or of
-----------
a particular Series of the Corporation, the shareholders of the Series that
has been designated and is being liquidated shall be entitled to receive,
as a Series, when and as declared by the Board of Directors, the excess of
the assets belonging to that Series over the liabilities belonging to it.
The holders of shares of such Series shall not be entitled thereby to
4
<PAGE>
any distribution upon liquidation of any other Series. The assets so
distributable to the shareholders of the Series being liquidated shall be
distributed among such shareholders in proportion to the number of shares
of such Series held by them and recorded on the books of the Corporation.
The liquidation of any particular Series in which there are shares then
outstanding may be authorized by vote of a majority of the Board of
Directors then in office, subject to the approval of a majority of the
outstanding shares of such Series, as defined in the 1940 Act.
(f) Voting. On each matter submitted to a vote of the shareholders,
------
each holder of a share shall be entitled to one vote for each share
outstanding in his or her name on the books of the Corporation, and all
shares of the Series shall vote as a single Series ("Single Series
Voting"); provided, however, that (i) as to any matter with respect to
which a separate vote of a particular Series is required by the 1940 Act or
by the Maryland Corporation Code, such requirement as to a separate vote by
that Series shall apply in lieu of Single Series Voting; (ii) in the event
that the separate vote requirements referred to in clause (i) above apply
with respect to one or more Series, then subject to clause (iii) below, the
shares of all other Series shall vote as a single Series; and (iii) as to
any matter which does not affect the interest of a particular Series, only
the holders of shares of the one or more affected Series shall be entitled
to vote.
(g) Redemption by Shareholder. Each holder of shares of the Series
-------------------------
shall have the right at such times as may be permitted by the Corporation
to require the Corporation to redeem all or any part of his or her shares
of a particular Series at a redemption price per share equal to the net
asset value per share of that Series next determined (in accordance with
subsection (h)) after the shares are properly tendered for redemption.
Payment of the proceeds of redemption shall be in cash unless the Board of
Directors determines, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable.
In the event of such determination, the Corporation may make payment wholly
or partly in securities or other assets belonging to the Series at the
value of such securities or assets used in such determination of net asset
value. Notwithstanding the foregoing, the Corporation may postpone payment
of the redemption price and may suspend the right to the holders of shares
of a Series to require the Corporation to redeem shares of that Series
during any period or at any time when and to the extent permissible under
the 1940 Act.
(h) Net Asset Value Per Share. The net asset value per share of each
-------------------------
Series shall be the quotient obtained by dividing the value of the net
assets of that Series (being the value of the assets belonging to that
Series less the liabilities belonging to that Series) by the total number
of outstanding shares of the Series.
(i) Equality. All shares of the Series shall represent an equal
--------
proportionate interest in the assets belonging to the Series (subject to
the liabilities belonging to the Series) and each share of the Series shall
be equal to each other share of that Series. The Board of Directors may
from time to time divide or combine the shares of a Series into a greater
5
<PAGE>
or lesser number of shares of that Series without thereby changing the
proportionate beneficial interest in the assets belonging to the Series or
in any way affecting the rights of holders of shares of any other Series.
(j) Conversion or Exchange Rights. Subject to compliance with the
-----------------------------
requirements of the 1940 Act, the Board of Directors shall have the
authority to provide that holders of shares of the Series shall have the
right to convert or exchange said shares into shares of one or more other
Series in accordance with such requirements and procedures as may be
established by the Board of Directors.
(k) Redemption by the Corporation. The Board of Directors may cause
-----------------------------
the Corporation to redeem at current net asset value the shares of the
Series from a shareholder whose shares have an aggregate current net asset
value less than an amount established by the Board of Directors. No such
redemption shall be effected unless the Corporation has given the
shareholder reasonable notice of its intention to redeem the shares and an
opportunity to purchase a sufficient number of additional shares to bring
the aggregate current net asset value of his or her shares to the minimum
amount established. Upon redemption of shares pursuant to this section,
the Corporation shall cause prompt payment of the full redemption price to
be made to the holder of shares so redeemed.
SIXTH: The various classes of shares of each Series shall be subject to
all provisions of the Articles of Incorporation relating to shares of the
Corporation generally, and those set forth as follows:
(a) The assets of each class of a Series shall be invested in the same
investment portfolio of the Corporation.
(b) The dividends and distributions of investment income and capital gains
with respect to each class of shares shall be in such amount as may be
declared from time to time by the Board of Directors, and the dividends and
distributions of each class of shares may vary from the dividends and
distributions of the other classes of shares to reflect differing
allocations of the expenses of the Corporation among the holders of each
class and any resultant differences between the net asset value per share
of each class, to such extent and for such purposes as the Board of
Directors may deem appropriate. The allocation of investment income or
capital gains and expenses and liabilities of the Corporation among the
classes shall be determined by the Board of Directors in a manner it deems
appropriate.
(c) The proceeds of the redemption of Class B shares of each Series
(including fractional shares) may be reduced by the amount of any
contingent deferred sales charge payable on such redemption pursuant to the
terms of the issuance of such shares.
6
<PAGE>
(d) The holders of each class of shares of each Series shall have (i)
exclusive voting rights with respect to provisions of any service plan or
service and distribution plan adopted by the Corporation pursuant to Rule
12b-1 under the 1940 Act (a "Plan") applicable to the respective class of
the respective Series and (ii) no voting rights with respect to the
provisions of any Plan applicable to any other class or Series of shares or
with regard to any other matter submitted to a vote of shareholders which
does not affect holders of that respective class of the respective Series
of shares.
IN WITNESS WHEREOF, Aetna Series Fund, Inc. has caused these Articles
Supplementary to be signed in its name on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: September 16, 1994
AETNA SERIES FUND, INC.
[CORPORATE SEAL]
By: /s/ Shaun P. Mathews
--------------------------
Shaun P. Mathews
President
Attest:
/s/ Susan E. Bryant
- -----------------------------------
Susan E. Bryant
Secretary
7
<PAGE>
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AETNA SERIES FUND, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at its October 22, 1993
meeting, by resolution designated and classified two hundred million shares into
a new series as follows:
<TABLE>
<CAPTION>
Name of Number of Shares
Name of Series Class of Series Allocated
- -------------- --------------- ----------------
<S> <C> <C>
Aetna Asian
Growth Fund A 100,000,000
B 100,000,000
</TABLE>
SECOND: The shares of the Corporation authorized and classified pursuant to
Article First of these Articles Supplementary have been so authorized and
classified by the Board of Directors under the authority contained in the
Charter of the Corporation. The number of Shares of capital stock of the Series
and the classes that the Corporation has authority to issue has been established
by the Board of Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
<PAGE>
THIRD: The preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption of the
Series of shares shall be as set forth in the Corporation's Articles of
Incorporation and those set forth as follows:
(a) Assets Belonging to the Series. All consideration received by the
------------------------------
Corporation for the issue or sale of shares of the Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to the Series for all purposes, subject only to
the rights of creditors, and shall be so recorded upon the books and accounts
of the Corporation. Such consideration, assets, income, earnings, profits,
and proceeds thereof, including any proceeds derived from the sale, exchange
or liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, together
with any General Items allocated to the Series as provided in the following
sentence, are herein referred to as "assets belonging to" the Series. In the
event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging
to any particular series (collectively "General Items"), such General Items
shall be allocated by or under the supervision of the Board of Directors to
and among any one or more of the Series of the Corporation and designated
from time to time in such manner and on such basis as the Board of Directors,
in its sole discretion, deems fair and equitable, and any General Items so
allocated to a particular series shall belong to that series.
-2-
<PAGE>
Each such allocation by the Board of Directors shall be conclusive and
binding for all purposes.
(b) Liabilities Belonging to the Series. The assets belonging to the Series
-----------------------------------
shall be charged with the liabilities of the Corporation in respect of the
Series and all expenses, costs, charges and reserves attributable to the
Series and any general liabilities, expenses, costs, charges or reserves of
the Corporation which are not readily identifiable as belonging to any
particular series shall be allocated and charged by or under the supervision
of the Board of Directors to and among any one or more of the series
established and designated from time to time in such manner and on such basis
as the Board of Directors, in its sole discretion, deems fair and equitable.
The liabilities, expenses, costs, charges and reserves allocated and so
charged to the Series are herein referred to as "liabilities belonging to"
the Series. Each allocation of liabilities, expenses, costs, charges and
reserves by the Board of Directors shall be conclusive and binding for all
purposes.
(c) Income Belonging to the Series. The Board of Directors shall have full
------------------------------
discretion, to the extent not inconsistent with the Maryland Corporations
Code and the Investment Company Act of 1940 to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding. "Income belonging to" the
Series, includes all income, earnings and profits derived from assets
belonging to the Series, less any expenses, costs, charges or reserves
belonging to the Series, for the relevant time period.
-3-
<PAGE>
(d) Dividends. Dividends and distributions on Shares of the Series may be
---------
declared and paid with such frequency, in such form and in such amount as the
Board of Directors may from time to time determine. Dividends may be
declared daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Board of Directors may
determine, after providing for actual and accrued liabilities belonging to
the Series.
All dividends on Shares of the Series shall be paid only out of the income
belonging to the Series and capital gains distributions on Shares of the
Series shall be paid only out of the capital gains belonging to the Series.
All dividends and distributions on Shares of the Series shall be distributed
pro rata to the holders of the Series in proportion to the number of Shares
of the Series held by such holders at the date and time of record established
for the payment of such dividends or distributions, except that in connection
with any dividend or distribution program or procedure the Board of Directors
may determine that no dividend or distribution shall be payable on Shares as
to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Board of Directors under
such program or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends, including dividends designated in
whole or in part as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation or Series to
qualify as a regulated investment company under the Internal
-4-
<PAGE>
Revenue Code of 1986 as amended, or any successor or comparable statute
thereto, and regulations promulgated thereunder, and to avoid liability of
the Corporation or Series for Federal income tax in respect of that year.
However, nothing in the foregoing shall limit the authority of the Board of
Directors to make distributions greater than or less than the amount
necessary to qualify as a regulated investment company and to avoid liability
of the Corporation or Series for such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to
any program that the Board of Directors may have in effect at the time. Any
such dividend or distribution paid in Shares will be paid at the current net
asset value thereof as defined in subsection (h).
(e) Liquidation. In the event of liquidation of the Corporation or of the
-----------
Series, the Shareholders of the Series, shall be entitled to receive, as a
series, when and as declared by the Board of Directors, the excess of the
assets belonging to the Series over the liabilities belonging to it. The
holders of Shares of such series shall not be entitled thereby to any
distribution upon liquidation of any other series. The assets so
distributable to the Shareholders of the Series shall be distributed among
such Shareholders in proportion to the number of Shares of the Series held by
them and recorded on the books of the Corporation. The liquidation of the
Series in which there are Shares then outstanding may be authorized by vote
of a majority of the Board of Directors then in office, subject to the
approval of a majority of the outstanding Shares of the Series, as defined in
the 1940 Act.
-5-
<PAGE>
(f) Voting. On each matter submitted to a vote of the Shareholders, each
------
holder of a Share shall be entitled to one vote for each Share outstanding in
his name on the books of the Corporation, and all shares of the Series shall
vote as a single series ("Single Series Voting"); provided, however, that (i)
as to any matter with respect to which a separate vote of the Series is
required by the 1940 Act or by the Maryland Corporations Code, such
requirement as to a separate vote by that Series shall apply in lieu of
Single Series Voting as described above; (ii) in the event that the separate
vote requirements referred to in (i) above apply with respect to one or more
series, then subject to (iii) below, the Shares of all other series shall
vote as a single series; and (iii) as to any matter which does not affect the
interest of a particular series, only the holders of Shares of the one or
more affected series shall be entitled to vote.
(g) Redemption by Shareholder. Each holder of Shares of the Series shall
-------------------------
have the right at such times as may be permitted by the Corporation to
require the Corporation to redeem all or any part of his Shares of the Series
at a redemption price per share equal to the net asset value per Share of the
Series next determined (in accordance with subsection (h)) after the Shares
are properly tendered for redemption. Payment of the proceeds of redemption
shall be in cash unless the Board of Directors determines, which
determination shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable. In the event of such determination,
the Corporation may make payment wholly or partly in securities or other
assets belonging to the Series at the value of such securities or assets used
in such determination of net asset value. Notwithstanding the foregoing, the
Corporation may
-6-
<PAGE>
postpone payment of the redemption price and may suspend the right of the
holders of Shares of the Series to require the Corporation to redeem shares
of the Series during any period or at any time when and to the extent
permissible under the 1940 Act.
(h) Net Asset Value Per Share. The net asset value per Share of the Series
-------------------------
shall be the quotient obtained by dividing the value of the net assets of the
Series (being the value of the assets belonging to the Series less the
liabilities belonging to the Series) by the total number of outstanding
Shares of the Series.
(i) Equality. All Shares of the Series shall represent an equal
--------
proportionate interest in the assets belonging to the Series (subject to the
liabilities belonging to the Series), and each Share of the Series shall be
equal to each other Share of the Series. The Board of Directors may from
time to time divide or combine the Shares of the Series into a greater or
lesser number of Shares of the Series without thereby changing the
proportionate beneficial interest in the assets belonging to the Series or in
any way affecting the rights of Shares of any other Series.
(j) Conversion or Exchange Rights. Subject to compliance with the
-----------------------------
requirements of the 1940 Act, the Board of Directors shall have the authority
to provide that holders of shares of the Series shall have the right to
convert or exchange said Shares into Shares of one or more other series of
Shares in accordance with such requirements and procedures as may be
established by the Board of Directors.
-7-
<PAGE>
(k) Redemption by the Corporation. The Board of Directors may cause the
-----------------------------
Corporation to redeem at current net asset value the shares of the Series
from a shareholder whose shares have an aggregate current net asset value
less than an amount established by the Board of Directors. No such
redemption shall be effected unless the Corporation has given the shareholder
reasonable notice of its intention to redeem the shares and an opportunity to
purchase a sufficient number of additional shares to bring the aggregate
current net asset value of his shares to the minimum amount established.
Upon redemption of shares pursuant to this section, the Corporation shall
cause prompt payment of the full redemption price to be made to the holder of
shares so redeemed.
FOURTH: The various classes of shares of the Series shall be subject to all
provisions of the Articles of Incorporation relating to shares of the
Corporation generally, and those set forth as follows:
(a) The assets of each Class of the Series shall be invested in the same
investment portfolio of the Corporation.
(b) The dividends and distributions of investment income and capital gains
with respect to each class of shares shall be in such amount as may be
declared from time to time by the Board of Directors, and the dividends and
distributions of each class of shares may vary from the dividends and
distributions of the other classes of shares to reflect differing allocations
of the expenses of the Corporation among the holders of each class and any
resultant differences
-8-
<PAGE>
between the net asset value per share of each class, to such extent and for
such purposes as the Board of Directors may deem appropriate. The allocation
of investment income or capital gains and expenses and liabilities of the
Corporation among the classes shall be determined by the Board of Directors
in a manner it deems appropriate.
(c) The proceeds of the redemption of Class B shares of the Series (including
fractional shares) may be reduced by the amount of any contingent deferred
sales charge payable on such redemption pursuant to the terms of the issuance
of such shares.
(d) The holders of each class of shares of the Series shall have (i)
exclusive voting rights with respect to provisions of any service plan or
service and distribution plan adopted by the Corporation pursuant to Rule
12b-1 under the Investment Company Act of 1940 (a "Plan") applicable to the
respective class of the Series and (ii) no voting rights with respect to the
provisions of any Plan applicable to any other class or series of shares or
with regard to any other matter submitted to a vote of shareholders which
does not affect holders of that class of the Series of shares.
-9-
<PAGE>
IN WITNESS WHEREOF, Aetna Series Fund, Inc. has caused these Articles
Supplementary to be signed in its name on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
Date: October 22, 1993
AETNA SERIES FUND, INC.
(CORPORATE SEAL)
By: /s/ Shaun P. Mathews
--------------------
Shaun P. Mathews, President
Attest:
/s/ George N. Gingold
- ---------------------------
George N. Gingold, Secretary
-10-
<PAGE>
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AETNA SERIES FUND, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The board of Directors of the Corporation, at its December 11, 1991
meeting, by resolution designed and classified on billion four hundred million
shares into series as follows:
<TABLE>
<CAPTION>
Number of Shares
Name of Series Allocated
- -------------- ----------------
<S> <C>
Aetna Bond Fund 100,000,000
The Aetna Fund 100,000,000
Aetna Growth and Income Fund 100,000,000
Aetna International Growth Fund 100,000,000
Aetna Money Market Fund 1,000,000,000
</TABLE>
SECOND: The Board of Directors of the Corporation, at its September 15, 1993
meeting, by resolution classified as (i) Class A shares of Aetna Bond Fund the
one hundred million (100,000,000) shares previously designated as "Aetna Bond
Fund" shares, (ii) Class A shares of The Aetna Fund the one hundred million
(100,000,000) shares previously designated as "The
<PAGE>
Aetna Fund" shares, (iii) Class A shares of Aetna Growth and Income Fund the one
hundred million (100,000,000) shares previously designated as "Aetna Growth and
Income Fund" shares, (iv) Class A shares of Aetna International Growth Fund the
one hundred million (100,000,000) shares previously designated as "Aetna
International Growth Fund" shares, and (v) Class A shares of Aetna Money Market
Fund the one billion (1,000,000,000) shares previously designated as "Aetna
Money Market Fund" shares. The Board of Directors also adopted a resolution to
increase the total number of shares which the Corporation shall have authority
to issue to four billion (4,000,000,000) shares of common stock at the par value
of $0.001 per share and of the aggregate par value of four million dollars
($4,000,000) and designated three billion six hundred million (3,600,000,000)
(including the 1,400,000,000 shares previously designated as Class A shares of
each series) of such shares into series and classified the shares of each series
as follows:
<TABLE>
<CAPTION>
Number of
Name of Series Name of Class of Series Shares Allocated
- -------------- ----------------------- ----------------
<S> <C> <C>
AETNA BOND FUND CLASS A 100,000,000
CLASS B 100,000,000
THE AETNA FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA GROWTH AND INCOME FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA INTERNATIONAL GROWTH FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA TAX-FREE FUND CLASS A 100,000,000
CLASS B 100,000,000
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
AETNA CAPITAL APPRECIATION FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA GOVERNMENT FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA SMALL CAP GROWTH FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA MONEY MARKET FUND CLASS A 1,000,000,000
CLASS B 1,000,000,000
</TABLE>
THIRD: The shares of the Corporation authorized and classified pursuant to
Article First and Article Second of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The number of Shares of capital
stock of the various classes that the Corporation has authority to issue has
been established by the Board of Directors in accordance with Section 2-105 (c)
of the Maryland General Corporation Law.
FOURTH: Immediately prior to the effectiveness of Articles Supplementary of
the Corporation as hereunder set forth, the Corporation had the authority to
issue two billion (2,000,000,000) shares of Common Stock of the par value of
$0.001 per share and of the aggregate par value of two million dollars
($2,000,000), of which the Board of Directors had designated and classified one
billion four hundred million shares into series as follows:
-3-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name of Series Allocated
- -------------- ----------------
<S> <C>
Aetna Bond Fund 100,000,000
The Aetna Fund 100,000,000
Aetna Growth and Income Fund 100,000,000
Aetna International Growth Fund 100,000,000
Aetna Money Market Fund 1,000,000,000
</TABLE>
As amended hereby, the Corporation's Articles of Incorporation authorize the
issuance of four billion (4,000,000,000) shares of Common Stock of the par value
of $0.001 per share and having an aggregate par value of four million dollars
($4,000,000) of which the Board of Directors has designated three billion six
hundred million (3,600,000,000) of such shares into Series and classified the
shares of each Series as follows:
<TABLE>
<CAPTION>
Number of
Name of Series Name of Class of Series Shares Allocated
- -------------- ----------------------- ----------------
<S> <C> <C>
AETNA BOND FUND CLASS A 100,000,000
CLASS B 100,000,000
THE AETNA FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA GROWTH AND INCOME FUND CLASS A 100,000,000
CLASS B 100,000,000
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
AETNA INTERNATIONAL GROWTH FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA TAX-FREE FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA GOVERNMENT FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA SMALL CAP GROWTH FUND CLASS A 100,000,000
CLASS B 100,000,000
AETNA MONEY MARKET FUND CLASS A 1,000,000,000
CLASS B 1,000,000,000
AETNA CAPITAL APPRECIATION FUND CLASS A 100,000,000
CLASS B 100,000,000
</TABLE>
FIFTH: The preferences, rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of redemption of the
various series of shares shall be as set forth in the Corporation's Articles of
Incorporation and those set forth as follow:
(a) Assets Belonging to the Series. All consideration received by the
------------------------------
Corporation for the issue or sale of shares of the Series, together with all
assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to the Series for all purposes, subject only to
the rights of
-5-
<PAGE>
creditors, and shall be so recorded upon the books and accounts of the
Corporation. Such consideration, assets, income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds, in whatever from the same may be, together
with any General Items allocated to the Series as provided in the following
sentence, are herein referred to as "assets belonging to" the Series. In the
event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging
to any particular series (collectively "General Items"), such General Items
shall be allocated by or under the supervision of the Board of Directors to
and among any one or more of the series of the Corporation and designated
from time to time in such manner and on such basis as the Board of Directors,
in its sole discretion, deems fair and equitable, and any General Items so
allocated to a particular series shall belong to that series. Each such
allocation by the Board of Directors shall be conclusive and binding for all
purposes.
(b) Liabilities Belonging to the Series. The assets belonging to the Series
-----------------------------------
shall be charged with the liabilities of the Corporation in respect of the
Series and all expenses, costs, charges and reserves attributable to the
Series and any general liabilities, expenses, costs, charges or reserves of
the Corporation which are not readily identifiable as belonging to any
particular series shall be allocated and charged by or under the supervision
of the Board of Directors to and among any one or more of the series
established and designated from time to time in such manner and on such basis
as the Board of Directors, in its sole discretion, deems fair and equitable.
The liabilities, expenses, costs, charges and reserves allocated and so
charged
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to the Series are herein referred to as "liabilities belonging to" the
Series. Each allocation of liabilities, expenses, costs, charges and reserves
by the Board of Directors shall be conclusive and binding for all purposes.
(c) Income Belonging to the Series. The Board of Directors shall have full
------------------------------
discretion, to the extent not inconsistent with the Maryland Corporations
Code and the Investment Company Act of 1940 to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding. "Income belonging to" the
Series, includes all income, earnings and profits derived from assets
belonging to the Series, less any expenses, costs, charges or reserves
belonging to the Series, for the relevant time period.
(d) Dividends. Dividends and distributions on Shares of the Series may be
---------
declared and paid with such frequency, in such form and in such amount as the
Board of Directors may from time to time determine. Dividends may be
declared daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Board of Directors may
determine, after providing for actual and accrued liabilities belong to the
Series.
All dividends on Shares of the Series shall be paid only out of the income
belonging to the Series and capital gains distributions on Shares of the
Series shall be paid only out of the capital gains belong to the Series. All
dividends and distributions on Shares of the Series
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shall be distributed pro rata to the holders of the Series in proportion to
the number of Shares of the Series held by such holders at the date and time
of record established for the payment of such dividends or distributions,
except that in connection with any dividend or distribution program or
procedure the Board of Directors may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's
purchase order and/or payment have not been received by the time or times
established by the Board of Directors under such program or procedure.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends, including dividends designated in
whole or in part as capital gains distributions, amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation or Series to
qualify as a regulated investment company under the Internal Revenue Code of
1986 as amended, or any successor or comparable statute thereto, and
regulations promulgated thereunder, and to avoid liability of the Corporation
or Series for Federal income tax in respect of that year. However, nothing
in the foregoing shall limit the authority of the Board of Directors to make
distributions greater than or less than the amount necessary to qualify as a
required investment company and to avoid liability of the Corporation or
Series for such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to
any program that the Board of Directors may have in effect at the time. Any
such dividend or distribution paid in Shares will be paid at the current net
asset value thereof as defined in subsection (h).
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(e) Liquidation. In the event of liquidation of the Corporation or of a
-----------
particular Series of the Corporation, the Shareholders of the series that has
been designated and is being liquidated, shall be entitled to receive, as a
series, when and as declared by the Board of Directors, the excess of the
assets belonging to that series over the liabilities belonging to it. The
holders of Shares of such series shall not be entitled thereby to any
distribution upon liquidation of any other series. The assets so
distributable to the Shareholders of the Series shall be distributed among
such Shareholders in proportion to the number of Shares of the Series held by
them and recorded on the books of the Corporation. The liquidation of any
particular series in which there are Shares then outstanding may be
authorized by vote of a majority of the Board of Directors then in office,
subject to the approval of a majority of the outstanding Shares of such
series, as defined in the 1940 Act.
(f) Voting. On each matter submitted to a vote of the Shareholders, each
------
holder of a Share shall be entitled to one vote for each Share outstanding in
his name on the books of the Corporation, and all shares of the Series shall
vote as a single series ("Single Series Voting"); provided, however, that (i)
as to any matter with respect to which a separate vote of the Series is
required by the 1940 Act or by the Maryland Corporations Code, such
requirement as to a separate vote by that Series shall apply in lieu of
Single Series Voting as described above; (ii) in the event that the separate
vote requirements referred to in (1) above apply with respect to one or more
series, then subject to (iii) below, the Shares of all other series shall
vote as a single series; and (iii) as to any matter which does not affect the
interest of a
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particular series, only the holders of Shares of the one or more affected
series shall be entitled to vote.
(g) Redemption by Shareholder. Each holder of Shares of the Series shall
-------------------------
have the right at such times as may be permitted by the Corporation to
require the Corporation to redeem all or any part of his Shares of that
Series at a redemption price per share equal to the net asset value per Share
of that series next determined (in accordance with subsection (h)) after the
Shares are properly tendered for redemption. Payment of the proceeds of
redemption shall be in cash unless the Board of Directors determines, which
determination shall be conclusive, that conditions exist which make payment
wholly in cash unwise or undesirable. In the event of such determination,
the Corporation may make payment wholly or partly in securities or other
assets belonging to the Series at the value of such securities or assets used
in such determination of net asset value. Notwithstanding the foregoing, the
Corporation may postpone payment of the redemption price and may suspend the
right of the holders of Shares of the Series to require the Corporation to
redeem shares of that series during any period or at any time when and to the
extent permissible under the 1940 Act.
(h) Net Asset Value Per Share. The net asset value per Share of the Series
-------------------------
shall be the quotient obtained by dividing the value of the net assets of the
Series (being the value of the assets belonging to that Series less the
liabilities belonging to the Series) by the total number of outstanding
Shares of the Series.
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(i) Equality. All Shares of the Series shall represent an equal
--------
proportionate interest in the assets belonging to the Series (subject to the
liabilities belonging to the Series), and each Share of the Series shall be
equal to each other Share of that series. The Board of Directors may from
time to time divide or combine the Shares of the Series into a greater or
lesser number of Shares of that series without thereby changing the
proportionate beneficial interest in the assets belonging to the Series or in
any way affecting the rights of Shares of any other Series.
(j) Conversion or Exchange Rights. Subject to the compliance with the
-----------------------------
requirements of the 1940 Act, the Board of Directors shall have the authority
to provide that holders of shares of the Series shall have the right to
convert or exchange said Shares into Shares of one or more other series of
Shares in accordance with such requirements and procedures as may be
established by the Board of Directors.
(k) Redemption by the Corporation. The Board of Directors may cause the
-----------------------------
Corporation to redeem at current net asset value the shares of the Series
from a shareholder whose shares have an aggregate current net asset value
less than an amount established by the Board of Directors. No such
redemption shall be effected unless the Corporation has given the shareholder
reasonable notice of its intention to redeem the shares and an opportunity to
purchase a sufficient number of additional shares to bring the aggregate
current net asset value of his shares to the minimum amount established.
Upon redemption of shares pursuant to this section, the Corporation shall
cause prompt payment of the full redemption price to be made to the holder of
shares so redeemed.
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<PAGE>
SIXTH: The various classes of shares of each Series shall be subject to all
provisions of the Articles of Incorporation relating to shares of the
Corporation generally, and those set forth as follows:
(a) The assets of each Class of a series shall be invested in the same
investment portfolio of the Corporation.
(b) The dividends and distributions of investment income and capital gains
with respect to each class of shares shall be in such amount as may be
declared from time to time by the Board of Directors, and the dividends and
distributions of each class of shares may vary from the dividends and
distributions of the other classes of shares to reflect differing allocations
of the expenses of the Corporation among the holders of each class and any
resultant differences between the net asset value per share of each class, to
such extent and for such purposes as the Board of Directors may deem
appropriate. The allocation of investment income or capital gains and
expenses and liabilities of the Corporation among the classes shall be
determined by the Board of Directors in a manner it deems appropriate.
(c) The proceeds of the redemption of Class B shares of each series
(including fractional shares) may be reduced by the amount of any contingent
deferred sales charge payable on such redemption pursuant to the terms of the
issuance of such shares.
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<PAGE>
(d) The holders of each class of shares of each series shall have (i)
exclusive voting rights with respect to provisions of any service plan or
service and distribution plan adopted by the Corporation pursuant to Rule
12b-1 under the Investment Company Act of 1940 (a "Plan") applicable to the
respective class of the respective series and (ii) no voting rights with
respect to the provisions of any Plan applicable to any other class or series
of shares or with regard to any other matter submitted to a vote of
shareholders which does not affect holders of that respective class of the
respective Series of shares.
(e) (1) Each Class B share of each series, other than a share purchased
through the automatic reinvestment of a dividend or a distribution with
respect to Class B shares, shall be converted automatically, and without any
action or choice on the part of the holder thereof, into Class A shares of
that series on the date that is the first business day of the month following
the eighth anniversary of the issuance of the Class B shares occurs (the
"Conversion Date"). With respect to Class B shares issued in an exchange or
series of exchanges for shares of capital stock of another investment company
or class or series thereof registered under the Investment Company Act of
1940 pursuant to an exchange privilege granted by the Corporation, the date
of issuance of the Class B shares for purposes of the immediately preceding
sentence shall be the date of issuance of the original Class B shares.
(2) Each Class B share of a series purchased through the automatic
reinvestment of a dividend or a distribution with respect to Class B shares
shall be segregated in a separate sub-account. Each time any Class B shares
in a Shareholder's Fund account (other than
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<PAGE>
those in the sub-account) convert to Class A shares, an equal pro rata
portion of the Class A shares then in the sub-account shall also convert
automatically to Class A shares without any action or choice on the part of
the holder thereof. The portion shall be determined by the ratio that the
shareholder's Class B shares of a series converting to Class A shares bears
to the shareholder's total Class B shares of that series not acquired through
dividends and distributions.
(3) The conversion of Class B shares to Class A shares is subject to the
continuing availability of an opinion of counsel or a ruling of the Internal
Revenue Service that payment of different dividends on each class of shares
does not result in the Corporation's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended,
and that the conversion of shares does not constitute a taxable event under
federal income tax law.
(4) The number of Class B shares of a series into which a share of Class B
shares is converted pursuant to paragraphs (e) (1) and (e) (2) hereof shall
equal the number (including for this purpose fractions of a share) obtained
by dividing the net asset value per share of the Class B shares of the series
(for purposes of sales and redemptions thereof on the Conversion Date) by the
net asset value per share of the Class A shares of the series (for purposes
of sales and redemptions thereof on the Conversion Date).
(5) On the Conversion Date, the Class B shares of a series converted into
Class A shares will cease to accrue dividends and will no longer be deemed
outstanding and the rights
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<PAGE>
of the holders thereof (except the right to receive (i) the number of Class A
shares into which the Class B shares have been converted and (ii) declared
but unpaid dividends to the Conversion Date) will cease.
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<PAGE>
IN WITNESS WHEREOF, Aetna Series Fund, Inc. has caused these Articles
Supplementary to be signed in its name on its behalf by its authorized
officers who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval
of these Articles Supplementary are true in all material respects and that
this statement is made under the penalties of perjury.
Date: September 21, 1993
AETNA SERIES FUND, INC.
[CORPORATE SEAL]
By: /s/ Shaun P. Mathews
--------------------
President
Attest:
/s/ George N. Gingold
---------------------
Secretary
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<PAGE>
EXHIBIT 99-B(2)
AETNA SERIES FUND, INC.
BY-LAWS
ARTICLE I
MEETING OF SHAREHOLDERS
Section 1. ANNUAL MEETINGS. An annual meeting of shareholders shall be held
only in those years in which the election of Directors is required to be acted
on under the Investment Company Act of 1940. At each annual meeting, any other
proper business within the power of shareholders may be transacted. An annual
meeting shall be held on a date and at a time designated by the Board of
Directors.
Section 2. SPECIAL MEETINGS. Special meetings of Shareholders may be called
by the President or by the Board of Directors; and shall be called by the
President, Secretary or any Director at the request in writing of the holders of
not less than 10% of the outstanding voting shares of the capital stock of the
Corporation (hereinafter, the outstanding voting shares of the capital stock of
the Corporation are referred to as "Shares"). Any such request shall state the
purposes of the proposed meeting.
Section 3. PLACE OF MEETINGS. All meetings of the Shareholders shall be
held at the office of the Corporation in Hartford, Connecticut, or at such other
place within or without the State of Maryland as may be fixed by the party or
parties making the call as stated in the notice thereof.
Section 4. NOTICE. Not less than ten or more than ninety days before the
date of every Annual or Special Meeting of Shareholders the Secretary or an
Assistant Secretary shall give to each Shareholder of record notice of such
meeting by mail, [telegraph, cable or radio]. Such notice shall be deemed to
have been given when deposited in the mail or with a telegraph or cable office
or radio station for transmission to the Shareholder at his address appearing on
the books of the Corporation. It shall not be necessary to set forth the
business proposed to be transacted in the notice of any Annual Meeting except
that any proposal to amend the Articles of Incorporation of the Corporation
shall be set forth in such notice. Notice of a Special Meeting shall state the
purpose or purposes for which it is called.
Section 5. QUORUM. At all meetings of the Shareholders (including meetings
of Shareholders of a particular series), the presence in person or by proxy of
Shareholders entitled to cast a majority in number of votes shall be necessary
to constitute a quorum for the transaction of business. In the absence of a
quorum at any meeting, a majority of those Shareholders present in person or by
proxy may adjourn the meeting from time to time to be held at the same place
without further notice than by announcement to be given at the meeting until a
quorum, as above defined, shall be present, whereupon any business may be
transacted
<PAGE>
which might have been transacted at the meeting originally called had the same
been held at the time so called.
Section 6. VOTING. At all meetings of Shareholders, each Shareholder shall
be entitled to one vote or fraction thereof for each Share standing in his name
on the books of the Corporation on the date for the determination of
Shareholders entitled to vote at such meeting. On any matter submitted to a
vote of Shareholders, all Shares of the Corporation then issued and outstanding
and entitled to vote shall be voted in the aggregate and not by class except
that (1) when otherwise expressly required by the Maryland General Corporation
Law or the Investment Company Act of 1940, as amended, Shares shall be voted by
individual class; and (2) only Shares of the respective portfolios are entitled
to vote on matters concerning only that portfolio.
Section 7. PROXIES. Any Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy, but no proxy which is dated
more than eleven months before the meeting named therein shall be accepted.
Every proxy shall be in writing subscribed by the Shareholder or his duly
authorized attorney and dated, but need not be sealed, witnessed or
acknowledged. All proxies shall be filed with and verified by the Secretary, or
an Assistant Secretary of the Corporation or if the meeting shall so decide, by
the Secretary of the Meeting.
Section 8. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at any meeting of Shareholders may be taken without a
meeting, if a consent in writing, setting forth such action is signed by all the
Shareholders entitled to vote on the subject matter thereof, and such consent is
filed with the records of the Corporation.
ARTICLE II
BOARD OF DIRECTORS
Section 1. POWERS. The Board of Directors shall have control and management
of the affairs, business and properties of the Corporation. They shall have and
exercise in the name of the Corporation and on behalf of the Corporation all the
rights and privileges legally exercisable by the Corporation except as otherwise
provided by law, the Articles of Incorporation, or these By-Laws.
Section 2. NUMBER, QUALIFICATIONS, MANNER OF ELECTION AND TERM OF OFFICE.
The number of directors of the Corporation shall be fixed from time to time by a
majority of the entire Board of Directors but shall be no less than three nor
more than twenty. Directors need not be Shareholders. The Board of Directors
may from time to time by a majority of the entire Board increase or decrease the
number of directors to such number as they deem expedient not to be less than
three nor more than twenty, however, and fill the vacancies so created. The
term of office of a Director shall not be affected by any decrease in the number
of Directors made by the Board pursuant to the foregoing authorization. Until
the
2
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first Annual Meeting of Shareholders or until successors are duly elected and
qualify, the Board of Directors shall consist of the persons named as such in
the Articles of Incorporation. The Members of the Board of Directors shall be
elected by the Shareholders at the Annual Meeting of Shareholders. Each Director
shall hold office until the Annual Meeting next held after his election and
until the election and qualification of his successor.
Section 3. PLACE OF MEETING. The Board of Directors may hold its meetings
at such place or places within or without the State of Maryland as the Board may
from time to time determine.
Section 4. ANNUAL MEETINGS. The Board of Directors shall meet for the
election of Officers and any other business as promptly as may conveniently be
done after the adjournment of the Annual Meeting of Shareholders.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such intervals and on such dates as the Board may from time to
time designate.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at such times and at such places as may be designated at the call of
such meeting. Special meetings shall be called by the Secretary or Assistant
Secretary at the request of the President or any Director.
Section 7. NOTICE. The Secretary or Assistant Secretary shall give, at
least two days before the meeting, notice of each meeting of the Board of
Directors, whether Annual, Regular or Special, to each member of the Board by
mail, telegram or telephone to his last known address. It should not be
necessary to state the purpose or business to be transacted in the notice of any
Annual or Regular meeting. The notice of a Special Meeting shall state the
purpose or purposes for which it is called. Personal attendance at any meeting
by a Director other than to protest the validity of said meeting shall
constitute a waiver of the foregoing requirement of notice.
Section 8. CONDUCT OF MEETINGS AND BUSINESS. The Board of Directors may
adopt such rules and regulations for the conduct of their meetings and the
management of the affairs of the Corporation as they may deem proper and not
inconsistent with applicable law, the Articles of Incorporation of the
Corporation or these By-Laws.
Section 9. QUORUM. A majority of the total membership of the Board of
Directors shall constitute a quorum at any meeting of the Board of Directors.
The action of a majority of Directors present at any meeting at which a quorum
is present shall be the action of the Board of Directors unless the concurrence
of a greater proportion is required for such action by statute, the Articles of
of Incorporation of the Corporation, or these By-Laws. In the absence of a
quorum at any meeting a majority of the Directors present may adjourn the
meeting from day to day or for such longer periods as they may designate without
notice other than by announcement at the meeting.
3
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Section 10. RESIGNATIONS. Any Director of the Corporation may resign at any
time by mailing or delivering, or transmitting by radio, telegraph or cable,
written notice to the President or to the Secretary of the Corporation. The
resignation of any Director shall take effect at the time specified therein,
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 11. REMOVAL. At any meeting of Shareholders duly called for the
purpose, any Director may by the vote of a majority of all of the Shares
entitled to vote be removed from office. At the same meeting, the vacancy in
the Board of Directors may be filled by the election of a Director to serve for
the remainder of the term and until the election and qualification of his
successor.
Section 12. VACANCIES. Except as otherwise provided by the Investment
Company Act of 1940 or other applicable law, any vacancy occurring in the Board
of Directors for any cause other than by reason of an increase in the number of
Directors may be filled by a majority of the remaining members of the Board of
Directors although such majority is less than a quorum and any vacancy occurring
by reason of an increase in the number of Directors may be filled by action of a
majority of the entire Board of Directors; provided, however, that upon the
death, resignation or removal during any consecutive period of twelve months of
more than one-half of the Directors holding office at the beginning of such
period, a Shareholders' Meeting shall be called forthwith for the purpose of
electing an entire new Board, including the vacancies filled pursuant to this
Section of the By-Laws. A Director elected by the Board to fill a vacancy shall
be elected to hold office until the next Annual Meeting of Shareholders or until
his successor is duly elected and qualifies. Notwithstanding the foregoing, the
Shareholders may, at any time during the term of such director elect to fill a
vacancy, elect some other person to fill said vacancy and thereupon the election
by the Board shall be superseded and such election by the Shareholders shall be
deemed a filling of the vacancy and not a removal and may be made at any meeting
called for such purpose.
Section 13. COMPENSATION OF DIRECTORS. The Directors may receive a stated
salary for their services as Directors, and by Resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed for attendance
at each Meeting. Nothing herein contained shall be construed to preclude any
Director from serving the Corporation in any other capacity, as an Officer,
Agent or otherwise, and receiving compensation therefor.
Section 14. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
to be taken at any Annual, Regular or Special Meeting of the Board of Directors
may be taken at a telephonic meeting or without a meeting if a written consent
to such action is signed by all members of the Board and such written consent is
filed with the minutes of proceedings of the Board.
Section 15. POWER TO DECLARE DIVIDENDS. The Board of Directors is expressly
authorized to determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings, surplus or net
assets in excess of capital, and to determine what accounting periods shall be
used by the Corporation for any purpose,
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whether annual or any other period, including daily; to set apart out of any
funds of the Corporation such reserves for such purposes as it shall determine
and to abolish the same; to declare and pay dividends and distributions on any
series by means of a formula or other method of determination, at meetings held
less frequently than the frequency of the effectiveness of such declarations; to
establish payment dates for dividends or any other distributions on any basis,
including dates occurring less frequently than the effectiveness of declarations
thereof; and to provide for the payment of declared dividends on a date earlier
or later than the specified payment date in the case of Shareholders redeeming
their entire ownership of shares.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT AND TERM OF OFFICE OF EXECUTIVE COMMITTEE. The Board
of Directors, by resolution passed by a vote of at least a majority of the
entire Board, may appoint an Executive Committee, which shall consist of two (2)
or more Directors.
Section 2. VACANCIES IN EXECUTIVE COMMITTEE. Vacancies occurring in the
Executive Committee from any cause shall be filled by the Board of Directors at
any Meeting thereof by a vote of the majority of the entire Board.
Section 3. EXECUTIVE COMMITTEE TO REPORT TO BOARD. All action by the
Executive Committee shall be reported to the Board of Directors at its Meeting
next succeeding such action.
Section 4. PROCEDURE OF EXECUTIVE COMMITTEE. The Executive Committee shall
fix its own rules of procedure not inconsistent with these By-Laws or with any
directions of the Board of Directors. It shall meet at such times and places
and upon such notice as shall be provided by such rules or by resolution of the
Board of Directors. The presence of a majority shall constitute a quorum for
the transaction of business, and in every case an affirmative vote of a majority
of all of the members of the Committee present shall be necessary for the taking
of any action.
Section 5. POWERS OF EXECUTIVE COMMITTEE. During the intervals between the
Meetings of the Board of Directors, the Executive Committee, except as limited
by the By-Laws of the Corporation or by specific directions of the Board of
Directors, shall possess and may exercise all the powers of the Board of
Directors in the management and direction of the business and conduct of the
affairs of the Corporation in such manner as the Executive Committee shall deem
for the best interests of the Corporation, and shall have power to authorize the
Seal of the Corporation to be affixed to all instruments and documents requiring
same. Notwithstanding the foregoing, the Executive Committee shall not have the
power to elect Directors, increase or decrease the number of Directors, elect or
remove any Officer,
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declare dividends, issue shares or recommend to Shareholders any action
requiring Shareholder approval.
Section 6. OTHER COMMITTEES. From time to time the Board of Directors may
appoint any other Committee or Committees for any purpose or purposes to the
extent lawful, which shall have such powers as shall be specified in the
resolution of appointment.
Section 7. COMPENSATION. The members of any duly appointed Committee shall
receive such compensation and/or fees as from time to time may be fixed by the
Board of Directors.
Section 8. INFORMAL ACTION BY EXECUTIVE COMMITTEE OR OTHER COMMITTEES. Any
action required or permitted to be taken at any meeting of the Executive
Committee or any other duly appointed Committee may be taken without a meeting
if written consent to such action is signed by all Members of such Committee and
such written consent is filed with the minutes of the proceedings of such
Committee.
ARTICLE IV
OFFICERS
Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall be the
President, one or more Vice Presidents, a Treasurer and a Secretary. The Board
of Directors shall elect or appoint such other Officers or agents as the
business of the Corporation may require including one or more Assistant Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. The same person may hold any two offices except those of President
and Vice President.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers shall
be elected annually by the Board of Directors at its Annual Meeting following
the Annual Meeting of Shareholders, if an Annual Meeting of Shareholders is
held. Each Officer shall hold office until the Annual Meeting in the next year
and until the election and qualification of his successor. Any vacancy in any
of the offices may be filled for the unexpired portion of the term by the Board
of Directors at any Regular or Special Meeting of the Board. The Board of
Directors may elect or appoint additional Officers or agents at any Regular or
Special Meeting of the Board.
Section 3. REMOVAL. Any Officer elected by the Board of Directors may be
removed with or without cause at any time upon a vote of the majority of the
entire Board of Directors. Any other employee of the Corporation may be removed
or dismissed at any time by the President.
Section 4. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors. Any such resignation shall take
effect at the date of receipt
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of each notice or at any later time specified therein, and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5. VACANCIES. A vacancy in any Office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-Laws for
regular election or appointment to such Office.
Section 6. PRESIDENT. The President shall be the chief executive officer of
the Corporation. He shall, unless other provisions are made therefor by the
Board or Executive Committee, employ and define the duties of all employees of
the Corporation, shall have the power to discharge any such employees, shall
exercise general supervision over the affairs of the Corporation and shall
perform such other duties as may be assigned to him from time to time by the
Board of Directors. In the absence of the President, an Officer or Director
appointed by the President shall preside at all meetings of Shareholders.
Section 7. VICE PRESIDENT. The Vice President (or if more than one, the
senior Vice President) in the absence of the President shall perform all duties
and may exercise any of the powers of the President subject to the control of
the Board. Each Vice President shall perform such other duties as may be
assigned to him from time to time by the Board of Directors, the Executive
Committee, or the President.
Section 8. SECRETARY. The Secretary shall keep or cause to be kept in books
provided for the purpose the Minutes of the Meetings of the Shareholders, and of
the Board of Directors; shall see that all Notices are duly given in accordance
with the provisions of these By-Laws and as required by Law; shall be custodian
of the records and of the Seal of the Corporation and see that the Seal is
affixed to all documents the execution of which on behalf of the Corporation
under its seal is duly authorized; shall keep directly or through a transfer
agent a register of the post office address of each Shareholder, and make all
proper changes in such register, retaining and filing his authority for such
entries; shall see that the books, reports, statements, certificates and all
other documents and records required by law are properly kept and filed; and in
general shall perform all duties incident to the Office of Secretary and such
other duties as may, from time to time, be assigned to him by the Board of
Directors, the Executive Committee, or the President.
Section 9. TREASURER. The Treasurer shall have supervision of the custody
of the funds and securities of the Corporation, subject to the Articles of
Incorporation of the Corporation and applicable law. He shall submit to the
Annual Meeting of Shareholders a statement of the financial condition of the
Corporation and whenever required by the Board of Directors shall make and
render a statement of the accounts of the Corporation and such other statements
as may be required. He shall cause to be kept in books of the Corporation a
full and accurate account of all moneys received and paid out for the account of
the Corporation. He shall perform such other duties as may be from time to time
assigned to him by the Board of Directors, the Executive Committee, or the
President.
7
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Section 10. ASSISTANT VICE PRESIDENT. The Assistant Vice President or Vice
Presidents of the Corporation shall have such authority and perform such duties
as may be assigned to them by the Board of Directors, the Executive Committee,
or the President of the Corporation.
Section 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretary or Secretaries and the Assistant Treasurer or Treasurers shall perform
the duties of the Secretary and of the Treasurer respectively, in the absence of
those Officers and shall have such further powers and perform such other duties
as may be assigned to them respectively by the Board of Directors or by the
Executive Committee or by the President.
Section 12. SALARIES. The salaries of the Officers shall be fixed from time
to time by the Board of Directors. No Officer shall be prevented from receiving
such salary by reason of the fact that he is also a Director of the Corporation.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 1. REGISTER OF SHARES. A register of shares shall be kept at the
principal office of the Corporation or of any transfer agent duly appointed by
the Board of Directors which shall contain the names and addresses of all the
shareholders, the number of shares held by them and a record of all transfers
thereof. Fractional shares may be issued. Share certificates will not be
issued.
Section 2. TRANSFER OF SHARES. Shares shall be transferable on the books of
the Corporation by request of the holder thereof in person or by duly authorized
attorney.
Section 3. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. The Board of
Directors may fix in advance a date as the record date for the purpose of
determining Shareholders entitled to notice of or to vote at any Meeting of
Shareholders or Shareholders to receive payment of any dividend. Such date
shall in any case not be more than 60 days and in case of a Meeting of
Shareholders not less than 10 days prior to the date on which the particular
action requiring such determination of Shareholders is to be taken. In lieu of
fixing a record date the Board of Directors may provide that the share transfer
books of the Corporation shall be closed for a stated period not to exceed in
any case 20 days. If the share transfer books are closed for the purpose of
determining Shareholders entitled to notice of or to vote at a Meeting of
Shareholders such books shall be closed for at least 10 days immediately
preceding such meeting.
Section 4. TRANSFER AGENT; REGULATIONS. The Board of Directors shall have
power and authority to make all such rules and regulations as they may deem
expedient concerning the issuance and transfer of shares and may appoint a
Transfer Agent for that purpose.
8
<PAGE>
ARTICLE VI
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. AGREEMENTS, ETC. The Board of Directors or the Executive
Committee may authorize any Officer or Officers, or Agent or Agents of the
Corporation to enter into any Agreement or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances; and, unless so authorized by the Board of
Directors or by the Executive Committee or by these By-Laws, no Officer, Agent
or Employee shall have any power or authority to bind the Corporation by any
Agreement or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
Section 2. CHECKS, DRAFTS, ETC. All checks, drafts, or orders for the
payment of money, notes and other evidences of indebtedness shall be signed by
such Officer or Officers, Employee or Employees, or Agent or Agents as shall be
from time to time designated by the Board of Directors or the Executive
Committee, or as may be specified in or pursuant to the agreement between the
Corporation and the Bank or Trust Company appointed as custodian, pursuant to
the provisions of the Articles of Incorporation of the Corporation.
Section 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES. All
endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Corporation or its nominee or directions
for the transfer of securities belonging to the Corporation shall be made by
such Officer or Officers, Employee or Employees, or Agent or Agents as may be
authorized by the Board of Directors or the Executive Committee.
Section 4. EVIDENCE OF AUTHORITY. Anyone dealing with the Corporation shall
be fully justified in relying on a copy of a resolution of the Board of
Directors or of any Committee thereof empowered to act in the premises which is
certified as true by the Secretary or an Assistant Secretary under the Seal of
the Corporation.
Section 5. DESIGNATION OF A CUSTODIAN. The Corporation shall place and at
all times maintain in the custody of a Custodian all funds, securities and
similar investments owned by the Corporation, with the exception of securities
loaned under a properly authorized Securities Loan Agreement. The Custodian
shall be a bank having not less than $2,000,000 aggregate capital, surplus and
undivided profits and shall be appointed from time to time by the Board of
Directors, which shall fix its remuneration.
Section 6. ACTION UPON TERMINATION OF A CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Board of Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a Special Meeting of the Shareholders to determine whether
the Corporation shall function without a custodian or shall
9
<PAGE>
be liquidated. If so directed by vote of the holders of a majority of the
outstanding Shares, the Custodian shall deliver and pay over all property of the
Corporation held by it as specified in such vote.
Section 7. WHEN TO DETERMINE NET ASSET VALUE. The net asset value per Share
of the outstanding Shares shall be determined at such times as the Board of
Directors shall prescribe, provided that such net asset value shall be
determined at least weekly.
ARTICLE VII
BOOKS AND RECORDS
Section 1. LOCATION. The books and records of the Corporation, including
the Stock ledger or ledgers, may be kept in or outside the State of Maryland at
such office or agency of the Corporation as may be from time to time determined
by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS
Section 1. SEAL. The Seal of the Corporation shall be a disk inscribed with
the words AETNA SERIES FUND, INC.
Section 2. WAIVER OF NOTICE. Whenever under the provisions of these By-Laws
or of any law, the Shareholders or Directors or Members of the Executive
Committee or other Committee are authorized to hold any meeting after notice or
after the lapse of any prescribed period of time, such meeting may be held
without notice or without such lapse of time by the written waiver of notice
signed by every person entitled to notice, or if every person entitled to notice
shall be present at such meeting.
10
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ARTICLE IX
AMENDMENTS
Section 1. The Board of Directors shall have the power, at any Regular or
Special Meeting, if notice thereof be included in the notice of such Special
Meeting, to alter, amend or repeal any By-Laws of the Corporation and to make
new By-Laws.
Section 2. The Shareholders shall have the power, at any Annual Meeting or
at any Special Meeting if notice thereof be included in the notice of such
Special Meeting, to alter, amend or repeal any By-Laws of the Corporation or to
make new By-Laws.
11
<PAGE>
EXHIBIT 99-B(5)
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AETNA SERIES FUND, INC., a Maryland
corporation (the "Company"), on behalf of its series, Aetna ________ 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 Company 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 Company has established the Aetna _________ series (the
"Fund");
WHEREAS, the Company, on behalf of 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
Company's Board of Directors (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:
<PAGE>
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;
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 Company
and 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 Company 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.
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<PAGE>
B. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE COMPANY
The Company, on behalf of the Fund, hereby represents and
warrants to the Adviser as follows:
1. Due Incorporation and Organization. The Company has been duly
----------------------------------
incorporated under the laws of the State of Maryland and it is
authorized to enter into this Agreement and carry out its terms.
2. Registration. The Company 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 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
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<PAGE>
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
-4-
<PAGE>
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.
VI. CONTROL BY THE BOARD OF DIRECTORS
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 Company, as the
same may be amended from time to time, under the 1933 Act and the 1940 Act;
C. the provisions of the Company's Articles of Incorporation, as amended;
D. the provisions of the By-Laws of the Company, 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 Company, on behalf of the Fund, shall pay to the
Adviser an annual fee, payable monthly, based upon the following average daily
net assets of the Fund:
Rate Net Assets
---- ----------
0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
-5-
<PAGE>
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
Company acknowledges on behalf of the Fund 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 directors of the Company who are
employees of the Adviser or an affiliated entity and any salaries and
employment benefits of officers of the Company who are affiliated
persons of the Adviser for acting as officers of the Company.
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;
-6-
<PAGE>
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 Company's directors who are
not "interested persons" (as defined in the 1940 Act) of the Company
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 Company 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 Company of its officers, directors 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 directors) of the Company 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
-7-
<PAGE>
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 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 of Directors, 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 Company (including applicable office
space, facilities and equipment) whose normal duties consist of maintaining the
financial accounts and books and records of the Company and 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 Company or 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 directors of the Company, and that officers or
directors of the Company 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
-8-
<PAGE>
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 Company's directors 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 directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Company), 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 Company's directors 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 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 Company or to any shareholder of
the Company 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.
-9-
<PAGE>
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, 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 Company 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 Company, its officers,
directors, 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
Company for this purpose shall be 151 Farmington Avenue, Hartford, Connecticut
06156.
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 Company and the Fund and the name "Aetna" have
been adopted by the Company with the permission of Aetna Life and Casualty
Company and their continued use is subject to the right of Aetna Life and
Casualty Company to withdraw this permission in the event the Adviser or another
subsidiary or affiliated corporation of Aetna Life and Casualty Corporation
should not be the investment adviser of the Fund.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the 1st day of January,
1995.
Attest: AETNA SERIES FUND, INC. on behalf of
its Aetna ___________ series
/s/ Susan E. Bryant
- ----------------------------
Susan E. Bryant By: /s/ Shaun P. Mathews
-------------------------------
Name: Shaun P. Mathews
------------------------------
Title: President
----------------------------
Attest: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
/s/ Paige L. Falasco
- ----------------------------
Paige L. Falasco By: /s/ Lucille M. Nickerson
-------------------------------
Name: Lucille M. Nickerson
------------------------------
Title: Corporate Secretary
----------------------------
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<PAGE>
Investment Advisory Agreement
Schedule of Parties
-------------------
Investment Advisory Agreements have been entered into with the following
parties in substantially the same form and type as the exhibit included
herewith.
Party Date
----- ----
Aetna Ascent 1/1/95
Aetna Crossroads 1/1/95
Aetna Legacy 1/1/95
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<PAGE>
EXHIBIT 99B(6)(A)
AETNA SERIES FUND, INC.
UNDERWRITING AGREEMENT
This AGREEMENT, made this 1st day of January 1994, by and between Aetna
Life Insurance and Annuity Company, a Connecticut corporation ("ALIAC" or
"Underwriter"), and Aetna Series Fund, Inc., a Maryland corporation ("Company").
WHEREAS, the Company is an open-end management investment company
registered withe the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS the Company
has registered the shares of its common stock for offer and sale to the public
under the Securities Act of 1933, as amended ("1933 Act"), and in accordance
with the provisions of all applicable state securities laws (Blue Sky Laws); and
WHEREAS, the Company is offering and selling to the public distinct series
of shares of common stock, each corresponding to a distinct portfolio
("Series"); and
WHEREAS, the Company wishes to retain the Underwriter as exclusive
principal underwriter in connection with the offering and sale of the shares of
each Series as now exists and as hereafter may be established ("Shares")
including any new classes of shares that may be offered and sold and to furnish
certain other services to the Company as specified in this Agreement; and
WHEREAS, the Underwriter is willing to act as exclusive Underwriter and to
furnish such services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties thereto agree as follows:
1. Appointment of Underwriter. The Company hereby appoints ALIAC and
--------------------------
ALIAC hereby accepts appointment as exclusive underwriter in connection with the
offering and sale of the shares of each Series as are now registered for sale
with the SEC and under Blue Sky Laws and such other Series and classes of shares
of Series as may hereafter be so registered. The Company authorizes the
Underwriter, as exclusive agent for the Company, upon the commencement of
operations of any Series and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Company: (a) to promote the
Series; (b) to solicit orders for the purchase of the Shares of the Series
subject to such terms and conditions as the Company may specify; and (c) to hold
itself available to receive orders for the purchase of the Shares of the Series
and to accept such orders on behalf of the Company as of the time of receipt of
such orders and promptly transmit such orders as are accepted to the Company and
its transfer agent. Purchase orders shall be deemed effective at the time and
in the manner set forth in the Registration Statement as it may be amended from
time to time. The Underwriter shall offer the Shares of each Series on an
agency or "best efforts" basis under which the Company shall only issue such
Shares as are actually sold. In connection with such sales and offers of sale,
the Underwriter shall give only such information as is permitted by applicable
law, and the Company shall not be responsible in any way for any other
information, statements or representations given or made by the Underwriter or
its representatives or agents. The Company also shall permit the Underwriter to
use any list of shareholders of the Company or any Series or any other list of
investors which it obtains in connection with its provision of services under
this Agreement. The Company reserves the right at any time to withdraw all
offerings of the Shares of any or all Series by written notice to the
Underwriter at its principal office.
<PAGE>
2. Company Obligations. The Company shall keep the Underwriter fully
-------------------
informed of its affairs and shall make available to Underwriter copies of all
information, financial statements, and other papers which Underwriter may
reasonably request for use in connection with the distribution of shares,
including, without limitation, certified copies of any financial statements
prepared for the Company by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of a Series as the
Underwriter may request, and the Company shall cooperate fully in the efforts of
the Underwriter to sell and arrange for the sale of the Shares and in the
performance of the Underwriter under this Agreement.
3. Sales to Dealers. The Underwriter, at its discretion, may enter into
----------------
agreements to sell shares to such registered and qualified retail dealers, as it
may select.
4. Public Offering Price. The public offering price of the Shares of
---------------------
each Series shall be the net asset value per share (as determined by the
Company) of the outstanding Shares of the Series, plus any applicable sales
charge as described in the Registration Statement of the Company. The Company
shall furnish (or arrange for another person to furnish) the Underwriter with a
quotation of public offering price on each business day.
5. Compensation. As compensation for providing services under this
------------
contract the Underwriter shall retain the sales charge, if any, on purchases and
redemptions of Shares as set forth in the Registration Statement. The
Underwriter is authorized to collect the gross proceeds derived from the sale of
the Shares, remit the net asset value thereof to the Company upon receipt of the
proceeds and retain the sales charge, if any. The Underwriter may reallow any
or all of such sales charges to such dealers as it may from time to time
determine. Whether a sales charge shall be retained by the Underwriter shall be
determined in accordance with the Registration Statement. If applicable, the
Underwriter also shall receive from each Series or class thereof a distribution
and/or service fee at the rate and under the terms and conditions of the Service
and Distribution Plan ("Plan") adopted by the Company with respect to such
Series or class thereof, as such Plan is in effect from time to time, and
subject to any further limitations on such fee as the Board of Directors may
impose.
6. Underwriter's Expenses. The Underwriter, at no additional expense to
----------------------
the Company, shall print and distribute to prospective investors Prospectuses,
and shall print and distribute, upon request, to prospective investors
Statements of Additional Information, and may print and distribute such other
sales literature, reports, forms and advertisements in connection with the sale
of the Shares as comply with the applicable provisions of federal and state law.
7. Company Expenses. The Company agrees at its own expense to register
----------------
the Shares with the SEC, state and other regulatory bodies, and to prepare and
file from time to time such Prospectuses, Statements of Additional Information,
amendments, reports and other documents as may be necessary to maintain the
Registration Statement. Each Series shall bear all expenses related to
preparing and typesetting such Prospectuses, Statements of Additional
Information, and other materials and such other expenses, including printing and
mailing expenses, related to such Series' communications with existing
shareholders of that Series.
8. Indemnification by Company. The Company agrees to indemnify, defend
--------------------------
and hold the Underwriter, its several officers and directors, and any person who
controls the Underwriter within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or
-2-
<PAGE>
liabilities and any counsel fees incurred in connection therewith) which the
Underwriter, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Underwriter
against any liability to the Company or to the shareholders of a Series to which
the Underwriter would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement.
9. Indemnification by Underwriter. The Underwriter agrees to indemnify,
------------------------------
defend and hold the Company, its several officers and directors, and any person
who controls the Company within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Company, its officers or directors, or any such controlling person may incur,
under the 1933 Act or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in information
furnished in writing by the Underwriter to the Company for use in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact in connection with such information required to be stated
in the Registration Statement or necessary to make such information not
misleading. As used in this paragraph, the term "employee" shall not include a
corporate entity under contract to provide services to the Company or any
Series, or any employee of such a corporate entity, unless such person is
otherwise an employee of the Company.
10. Share Certificates. The Company shall not issue certificates
------------------
representing Shares.
11. Repurchase of Shares. The Underwriter may at its sole discretion
--------------------
repurchase Shares offered for sale by the shareholders. Repurchase of Shares by
the Underwriter shall be at the net asset value next determined after a
repurchase order has been received. The Underwriter will receive no commission
or other remuneration for repurchasing Shares. At the end of each business day,
the Underwriter shall notify by telex or in writing, the Company and its
transfer agent, of the orders for repurchase of Shares received by the
Underwriter since the last such report, the amount to be paid for such Shares,
and the identity of the shareholders offering Shares for repurchase. Upon such
notice, the Company shall pay the Underwriter such amounts as are required by
the Underwriter for the repurchase of such Shares in cash or in the form of a
credit against moneys due the Company from the Underwriter as proceeds from the
sale of Shares. The Company reserves the right to suspend such repurchase right
upon written notice to the Underwriter. The Underwriter further agrees to act
as agent for the Company to receive and transmit promptly to the Company's
transfer agent shareholder requests for redemption of Shares.
12. Status of Underwriter and Other Persons. The Underwriter is an
---------------------------------------
independent contractor and shall be agent for the Company only in respect to the
sale and redemption of the Shares. Any person, even though also an officer,
director, employee or agent of the Underwriter, who may be or become an officer,
director, employee or agent of the Company, shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, director, employee or agent or one under the control or direction of
the Underwriter even though paid by the Underwriter.
-3-
<PAGE>
13. Non-Exclusive Services. The services of the Underwriter to the
----------------------
Company under this Agreement are not to be deemed exclusive, and the Underwriter
shall be free to render similar services or other services to others so long as
its services hereunder are not impaired thereby.
14. Reports of Underwriter. The Underwriter shall prepare reports for
----------------------
the Board of Directors on a quarterly basis showing such information concerning
expenditures related to this Agreement as from time to time shall be reasonably
requested by the Board.
15. Definitions. The terms "assignment," "interested person," and
-----------
"majority of the outstanding voting securities" shall have the meanings given to
them by Section 2(a) of the 1940 Act, subject to such exemptions as may be
granted by the Commission by any rule, regulation or order. Additionally, the
term "Registration Statement" shall mean the registration statement most
recently filed by the Company with the Commission and effective under the 1940
Act and 1933 Act, as such Registration Statement is amended by any amendments
thereto at the time in effect, and the terms "Prospectus" and "Statement of
Additional Information" shall mean, respectively, the form of prospectus and
statement of additional information with respect to a Series filed by the
Company as part of the Registration Statement.
16. Effectiveness of Agreement. This Agreement shall become effective
--------------------------
upon the date hereabove written, provided that, with respect to a Series, this
Agreement shall not take effect unless such action has first been approved by
vote of a majority of the Board of Directors and by vote of a majority of those
directors of the Company who are not interested persons of the Company and have
no direct or indirect financial interest in the operation of the Plan (if there
be a Plan) or in any agreements related thereto (all such directors collectively
being referred to herein as the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on such action.
17. Termination of Agreement. Unless sooner terminated as provided
------------------------
herein, this Agreement shall continue in effect for one year from the above
written date. Thereafter, if not terminated, this Agreement shall continue
automatically for successive periods of twelve months each, provided that such
continuance is specifically approved at least annually (a) by a vote of a
majority of the Independent Directors, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Board of Directors or
with respect to any given series by vote of a majority of the outstanding voting
securities of such Series. Notwithstanding the foregoing, with respect to any
Series, this Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board of Directors, by vote of a majority of the
Independent Directors or by vote of a majority of the outstanding voting
securities of such Series on 60 days' written notice to the Underwriter or by
the Underwriter at any time, without the payment of any penalty, on 60 days'
written notice to the Company or such Series. Termination of this Agreement
with respect to any given Series or class thereof shall in no way affect the
continued validity of this Agreement or the performance thereunder with respect
to any other Series or class thereof. This Agreement will automatically
terminate in the event of its assignment.
18. Amendments. No provision of this Agreement may be changed, waived,
----------
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
19. Applicable Law. This Agreement shall be construed in accordance
--------------
with the laws of the State of Connecticut and the 1940 Act. To the extent that
the applicable laws of the State of Connecticut conflict with the applicable
provisions of the 1940 Act, however, the latter shall control.
-4-
<PAGE>
20. Notice. Any notice required or permitted to be given by either
------
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
21. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be executed
by their officers thereunto duly authorized.
Attest: AETNA SERIES FUND, INC.
By: /s/ Susan E. Bryant By: /s/ Shaun P. Mathews
-------------------- -------------------------------
Name: Shaun P. Mathews
-----------------------------
Title: President
-----------------------------
Attest: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
By: /s/ Lucille M. Nickerson By: /s/ James C. Hamilton
-------------------------- -------------------------------
Name: James C. Hamilton
-----------------------------
Title: Vice President and Treasurer
-----------------------------
-5-
<PAGE>
EXHIBIT 99B(6)(B)
AETNA INVESTMENT SERVICES, INC.
151 Farmington Avenue
Hartford, Connecticut 06156
DEALER AGREEMENT for
AETNA SERIES FUND, INC.
To: AETNA LIFE INSURANCE AND ANNUITY COMPANY
151 Farmington Avenue
Hartford, Connecticut 06156
Gentlemen:
We desire to enter into an agreement with you whereby we will act as
principal for the sale, distribution and resale of the shares of each of the
open-end investment companies of which you are, or may become, Distributor or
Sub-Distributor (hereinafter collectively referred to as the "Funds" and
individually as a "Fund") and whose shares are offered to the public at an
offering price which may or may not include a sales charge (hereinafter referred
to as "Shares"). Upon acceptance of this Agreement by you, we understand that
we may offer and sell Shares, subject, however, to all of the following terms
and conditions and to your right, without notice, to suspend or terminate the
sale of Shares of any one or more of the Funds:
1. Shares will be offered and sold at the current offering price in effect
at the time the order for Shares is confirmed and accepted by you at the offices
of Firstar Trust Company, the Fund's transfer agent, in Milwaukee, Wisconsin
(the "Transfer Agent"). All purchase orders resale orders and applications
submitted by us are subject to acceptance or rejection in your sole discretion
and, if accepted, each purchase or resale order will be deemed to have been
consummated at the office of the Transfer Agent.
2. We represent and warrant to you: (a) that we are a member of the
National Association of Securities Dealers, Inc. ("NASD"), that such membership
has not been suspended, and that we agree to maintain membership in the NASD, or
(b) in the alternative, that we are a foreign dealer for membership in the NASD,
and are fully licensed and legally empowered to act as a securities broker-
dealer under the laws of each jurisdiction in which we conduct such business.
In either case, we agree to abide by the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act"), the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as
<PAGE>
amended, and all the rules and regulations of the Securities and Exchange
Commission and the NASD that are binding upon underwriters and dealers in the
distribution of the securities of open-end investment companies, including
without limitation, the NASD Rules of Fair Practice. We further agree to comply
with all other state and Federal laws and the rules and regulations of
authorized regulatory agencies applicable to the sale of Shares. We agree that
we will not sell or offer Shares in any state or other jurisdiction where they
have not been qualified for sale or if you have not advised us in advance that
such sale is exempt from such qualification requirements. We are responsible
under this Agreement for inquiring of you as to the jurisdictions in which such
Shares have been quoted for sale.
3. We will offer and sell Shares of any Fund only in accordance with the
terms and conditions of its then current Prospectus and Statement of Additional
Information (collectively referred to as the "Prospectus") and we will make no
representations about such Shares not included in the Prospectus or in any
authorized supplemental material supplied or authorized by you. We will not use
any offering materials for the Funds without your written consent. We will use
our best efforts in the development and promotion of sales of Shares and agree
to be responsible for the proper instruction and training of all sales personnel
employed by us, in order that the Shares will be offered and sold in accordance
with the terms and conditions of this Agreement and all applicable laws, rules
and regulations. We agree to hold harmless and indemnify you, the Funds, and
your and their respective officers, directors, trustees and employees in the
event that we, or any of our current or former representatives, should violate
any law, rule or regulation, or any provisions of this Agreement, which
violation may result in any loss or liability to you, your affiliates or any
Fund. If you determine to refund any amounts paid by any investor by reason of
any such violation on our part, we shall promptly return to you on demand any
commissions previously paid or discounts allowed by you to us with respect to
the transaction for which the refund is made. Furthermore, we agree to
indemnify you, your affiliates and the Funds against any and all claims,
demands, controversies, actions, losses, damages, liabilities, expenses,
arbitrations, complaints or investigations, including without limitation,
reasonable attorneys fees and court costs that are the result of or arise
directly or indirectly, in whole or in part, from you, your affiliates or the
Funds acting upon instructions for the purchase, exchange or resale of
uncertificated book shares received through your manual or automated phone
system or the Fund/SERV program of National Securities Clearing Corporation;
provided such loss, liability or damages are not the result of the gross
negligence, recklessness or intentional misconduct of you, your affiliates or
the Funds. All expenses that we incur in connection with our activities under
this Agreement shall be borne by us. Termination or cancellation of this
Agreement shall not relieve us from the requirements of this paragraph as to
transactions or occurrences arising prior to such termination.
4. Any applicable sales charge and dealer commission, if any, relative to
any sales of Shares made by us will only be at a rate or rates set forth in the
then current Prospectus of such Funds.
-2-
<PAGE>
5. The rate(s) of any commission, if any, for sales of such Shares are
subject to change by you from time to time, and any decreases in such
commissions shall be made upon 30 days' written notice, and any orders placed
after the effective date of such change, will be subject to the rate(s) in
effect at the time of receipt of the payment by you. Such notice requirement
shall not apply to any changes in the asset-based sales charges or service fees
paid for such Shares.
6. Payments for the purchase of Shares made by us by telephone or wire
order (including purchase orders received through your manual or automated phone
system, or via the Fund/SERV program of National Securities Clearing
Corporation), and all necessary account information required by you to establish
an account or to settle a resale order, including, without limitation, the tax
identification number of the purchaser, certified either by the purchaser or by
us, shall be provided to you and received by you within five business days after
your acceptance of our order or such shorter time as may be required by law. If
such payment or other settlement information are not timely received by you, we
understand that you reserve the right, without notice, to cancel the purchase or
resale order, or, at your option in the case of a purchase order, to sell the
Shares ordered by us back to the Fund, and in either case we shall promptly
reimburse you for any loss to you or the Fund, including without limitation loss
of your profit, suffered by you resulting from our failure to make the aforesaid
timely payment or settlement. If sales of any Fund's Shares are contingent upon
the Fund's receipt of Federal Funds in payment therefor, we will forward
promptly to you any purchase orders and/or payments received by us for such
Shares from our customers. With respect to purchase orders of uncertificated
book shares placed via Fund/SERV, we shall retain in our files all applications
and other documents required by you to establish an account or to settle a
resale order. We will provide you with the original of such documents at your
request.
7. We agree to purchase Shares only from you or from our customers. If we
purchase Shares from you, we agree that all such purchases shall be made only to
cover orders received by us from our customers, or for our own bona fide
investment. If we purchase Shares from our customers, we agree to pay such
customers not less than the applicable redemption or repurchase price then
quoted by the Fund.
8. You may consider any order we place for Fund shares to be the total
holding of Shares by the investor, and you may assume that, if applicable, the
investor is not entitled to any reduction in sales price beyond that accorded to
the amount of that purchase order as determined by the schedule set forth in the
then current Prospectus, unless we advise you otherwise when we place the order.
9. We may place resale orders with you for Shares owned by our customers,
but only in accordance with the terms of the applicable Fund Prospectus. We
understand and agree that by placing a resale order with you by wire or
telephone (including resale orders for uncertificated book shares placed via
your manual or automated phone system or via the Fund/SERV program of National
Securities Clearing Corporation) we represent to you that a request for the
redemption of the Shares covered by the resale order has been
-3-
<PAGE>
delivered to us by the registered owner(s) of such Shares, and that such request
has been executed in the manner and with the signature(s) of such registered
owner(s) guaranteed as required by the then-current Prospectus of the applicable
Fund. Such resale order shall be subject to the following additional conditions:
(a) We shall furnish you with the exact registration, account number of
the Shares to be redeemed at the time we place a resale order by wire or
telephone. Other than for resale orders of uncertificated book shares
placed via Fund/SERV, we shall tender to you, within 5 business days of
our placing such resale order: (i) a stock power or letter, duly signed
by the registered owner(s) of the Shares that are the subject of the
order, duly guaranteed, (ii) any Share certificates required for such
redemption, and (iii) any additional documents that may be required by
the applicable Fund or its Transfer Agent, in accordance with the terms
of the then current Prospectus of the applicable Fund and the policies of
the Transfer Agent. With respect to resale orders of uncertificated book
shares placed via Fund/SERV, we shall retain in our files all documents
required by you to effect such transaction. We will provide you with the
original of such documents at your request.
(b) The resale price will be the next net asset value per share of the
Shares computed after receipt by the Transfer Agent prior to 4:00 p.m.
Eastern time on any day that the New York Stock Exchange ("NYSE") is open
for business of an order placed by us to resell such Shares [, except
that orders placed by us after 4:00 p.m. Eastern time on a business day
will be based on the Fund's net asset value per share determined that
day, but only if such orders were received by us from our customer prior
to 4:00 p.m. that day and if we placed our resale order with you prior to
your normal close of business that day].
(c) In connection with a resale order we have placed, if we fail to make
delivery of all required certificates and documents in a timely manner as
stated above (other than for resale orders placed via Fund/SERV), or if
the registered owner of the Shares subject to the resale order redeems
such Shares prior to our settlement of the order, you have the right to
cancel our resale order. If any cancellation of a resale order or if any
error in the timing of the acceptance of a resale order placed by us
shall result in a loss to you or the applicable Fund, we shall promptly
reimburse you for such loss.
10. If any Shares sold by us under the terms of this Agreement are
redeemed by any of the Funds (including without limitation redemptions resulting
from an exchange for Shares of another Fund) or are repurchased by you as agent
for the Fund or are tendered to a Fund for redemption within seven business days
after your confirmation to us of our original purchase order for such Shares, we
shall promptly repay you the full amount of the commission, if any, (including
any supplemental commission, if any) allowed to us on the original sale,
provided you notify us of such repurchase or redemption. Termination,
-4-
<PAGE>
amendment or cancellation of this Agreement shall not relieve us from the
requirement of this paragraph.
11. We will comply with, and conform our selling practices to, any and all
written compliance standards and policies and procedures that you may from time
to time provide to us.
12. Your obligations to us under this Agreement are subject to the
provisions of any distributorship agreements entered into between you and the
Funds and any plans adopted by the Funds under Rule 12b-1 under the 1940 Act.
If we are paid a service fee by you, your affiliates, or by any of the Funds, we
agree to provide, at the request of you or such Funds, verification that such
payments were used for personal services and/or the maintenance of personal
accounts, related to the Shares held by our customers. We understand and agree
that you are in no way responsible for the manner of our performance of, or for
any of our acts or omissions in connection with, the services we provide under
this Agreement. Nothing in this Agreement shall be construed to constitute us
or any of our agents, employees or representatives as the agent or employee of
you or any of the Funds.
13. We may terminate this Agreement by written notice to you, which
termination shall become effective ten days after the date of our mailing such
notice to you. We agree that you have and reserve the right, in your sole
discretion without notice to us, to suspend sales of Shares of any of the Funds,
or to withdraw entirely the offering of Shares of any of the Funds, at any time,
or, in your sole discretion, to modify, amend or cancel this Agreement upon
written notice to us of such modification, amendment or cancellation, which
shall be effective on the date stated in such notice. Without limiting the
foregoing, you may terminate this Agreement if we violate any of the provisions
of this Agreement, said termination to become effective on the date you mail
such notice to us. Without limiting the foregoing, and any provision hereof to
the contrary notwithstanding, our expulsion from the NASD will automatically
terminate this Agreement without notice; our suspension from the NASD, the
initiation of customer protection proceedings by the Securities Investor
Protection Corporation (or its successor), the appointment of a trustee for all
or substantially all of our business assets, or our violation of applicable
state, Federal or foreign laws or rules and regulations of authorized regulatory
agencies will terminate this Agreement effective upon the date you mail notice
to us of such termination. Your failure to terminate this Agreement for a
particular cause shall not constitute a waiver of your right to terminate this
Agreement at a later date for the same or any other cause. All notice hereunder
shall be to the respective parties at the address of the other party provided
under this Agreement.
14. This Agreement shall become effective as of the date when it is
executed and dated by you below and shall be in substitution of any prior
agreement between you and us covering any of the Funds. This Agreement and all
the rights and obligations of the parties hereunder shall be governed by and
construed under the laws of the State of Connecticut applicable to agreements to
be performed in Connecticut, without given effect
-5-
<PAGE>
to choice of law rules. This Agreement is not assignable or transferable, except
that you may without notice or consent from us, assign or transfer this
Agreement to any successor firm or corporation which becomes the Distributor or
Sub-Distributor of the Funds or assign any of your duties under this Agreement
to any entity under common control with you.
15. By signing this Agreement, we represent and warrant to you that this
Agreement has been duly authorized by us by all necessary action, corporate or
otherwise, and is signed on our behalf by our duly authorized officer or
principal.
Aetna Investment Services, Inc.
-------------------------------
(Name of Dealer)
151 Farmington Avenue, Hartford, CT
-------------------------------------
(Address of Dealer)
By: /s/ Barrett N. Sidel
---------------------------------
(Authorized Signature of Dealer)
Barrett N. Sidel, Corporate Secretary
-------------------------------------
(Name) (Title)
Accepted:
AETNA LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Shaun P. Mathews
--------------------
Date: 2/8/94
-------------------
-6-
<PAGE>
Exhibit 99(B)(8)
BALLARD SPAHR ANDREWS & INGERSOLL
1735 MARKET STREET, 51ST FLOOR
PHILADELPHIA, PENNSYLVANIA
19103-7599
TELEPHONE: 215-665-8500
FAX: 215-864-8999
MEMORANDUM
October 27, 1992
To: Martin T. Conroy (ALIAC)
Donna M. Owens (Mellon Bank)
From : Laura Anne Corsell (Ballard Spahn)
Re: Aetna Life Insurance and Annuity Company
Aetna Series Fund, Inc.
Aetna Variable Encore Fund
Aetna Investment Advisers Fund, Inc.
Aetna Income Shares
Aetna Guaranteed Equity Trust
Aetna Variable Fund
--------------------------------------
The purpose of this memorandum is to clarify certain technical items which
appear in the text of the recently executed custodian agreements ("Agreements")
between Mellon Bank, N.A. and Aetna Life Insurance and Annuity Company ("ALIAC")
and the various mutual funds for which ALIAC serves as investment adviser
("ALIAC Funds"), respectively. In addition, enclosed is a corrected first page
for each of those Agreements relating to the ALIAC Funds to reflect the correct
name of the adviser.
1. The words "cash", "monies" and "moneys" are used interchangeable in the
Agreements and refer to all uninvested funds (in the form of either currency or
checks) but do not include funds represented by cash equivalents such as
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repurchase agreements, certificates of deposit, treasury bills or notes and the
like.
2. The term "Shares" as used in those Agreements relating to the ALIAC Funds
refers to "units of beneficial interest" in the case of those mutual funds that
are organized as Massachusetts business trusts and "shares of common stock" in
the case of those mutual funds organized as Maryland corporations.
Similarly, the term "Board of Directors" as used in such agreements
encompasses the Board of Trustees in those cases where the relevant mutual fund
is organized as a Massachusetts business trust.
<PAGE>
3. The transactions referred to in paragraphs 10, 13 and 14 may be authorized
either by Written Instructions or Oral Instructions. In accordance with
paragraph 8(b), all Oral Instructions. In accordance with paragraph 8(b), all
Oral Instructions must be confirmed by Written Instructions.
4. With respect to the Agreements relating to Aetna Income Shares, Aetna
Variable Fund, Aetna Guaranteed Equity Trust and Aetna Variable Encore Fund, the
term "Trust Agreement" as used in paragraph 26, refers to the Declaration of
Trust of each such mutual fund and does not refer in any way to the trust
arrangement evidenced by Exhibit A to each such agreement.
As noted above, the foregoing items are intended to clarify the text of the
agreements as executed and do not change the substance of the various
Agreements. Please file a copy of this memorandum with each of the Agreements,
as executed.
2
<PAGE>
-------------------------
Custodian Agreement
between
Mellon Bank, N.A.
and
Aetna Series Fund, Inc.
-------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
Paragraph Page
<S> <C>
1. Appointment...................................... 1
2. Delivery of Documents............................ 2
3. Definitions...................................... 3
4. Delivery and Registration of the Property........ 5
5. Receipt and Disbursement of Money................ 6
6. Receipt of Securities............................ 7
7. Use of Book-Entry System......................... 8
8. Instructions Consistent with Charter, Etc........ 10
9. Transactions Not Requiring Instructions.......... 11
10. Transactions Requiring Instructions.............. 13
11. Segregated Accounts; Securities Lending.......... 15
12. Dividends and Distributions...................... 18
13. Purchases of Securities.......................... 18
14. Sales of Securities.............................. 19
15. Records.......................................... 20
16. Reports.......................................... 20
17. Cooperation with Accountants..................... 21
18. Confidentiality.................................. 21
19. Right to Receive Advice.......................... 22
20. Compensation..................................... 23
21. Indemnification.................................. 23
22. Responsibility of the Bank....................... 24
23. Collections...................................... 26
24. Duration and Termination......................... 28
25. Notices.......................................... 30
26. Further Actions.................................. 31
27. Amendments....................................... 31
28. Counterparts..................................... 31
</TABLE>
i
<PAGE>
CUSTODIAN AGREEMENT
-------------------
THIS AGREEMENT is made by and between AETNA SERIES FUND, INC., a Maryland
corporation (the "Fund"), and MELLON BANK, N.A., a national banking association
(the "Bank").
W I T N E S S E T H :
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") which currently issues five series of shares, each of which
represents a separate investment portfolio and which may create additional
series in the future; and
WHEREAS, the Fund, for which Aetna Life and Annuity Company ("Adviser")
serves as investment adviser, desires to retain the Bank to serve as the Fund's
custodian for each such existing investment portfolio except the Aetna
International Growth Fund, as well as for some or all of any additional series
created by the Fund in the future and the Bank is willing to serve as custodian
for each such series on the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints the Bank to act as custodian of the
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portfolio securities, cash and other property belonging to the Fund for the
period and on the terms set forth in this Agreement. The Bank accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 20 of this Agreement. The Bank agrees
to comply with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder. It is understood that each of the Funds' series
represents a separate investment portfolio of the Fund and, accordingly, that
the Bank shall identify to each such series Property belonging to such series
and in such reports, confirmations and notices to the Fund
<PAGE>
called for under this Agreement shall identify the series to which such report,
confirmation or notice pertains.
2. Delivery of Documents. The Fund has furnished the Bank with copies
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properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing the
appointment of the Bank as custodian of the portfolio securities, cash and other
property belonging to the Fund and approving this Agreement;
(b) Appendix A identifying and containing the signatures of the Fund's
officers and/or officers of the Fund's Adviser authorized to issue Oral
Instructions and to sign Written Instructions, as hereinafter defined, on behalf
of the Fund;
(c) The Fund's Articles of Incorporation as filed with the Department of
Assessments and Taxation of the State of Maryland and all amendments thereto
(such Articles of Incorporation, as presently in effect and as they shall from
time to time be amended, are herein called the "Charter");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(e) The Investment Advisory Agreement currently in effect (the "Advisory
Agreement") between the Fund and its Adviser; and
(f) The Fund's most recent prospectus and statement of additional
information relating to shares of the Fund's Common Stock ("Shares") (such
prospectus and statement of additional information as presently in effect and
all amendments and supplements thereto are herein called the "Prospectus");
The Fund will furnish the Bank from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
3. Definitions.
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(a) "Authorized Person". As used in this Agreement, the term "Authorized
-------------------
Person" means any of the officers of the Fund or the Adviser (whether or not any
such person is an officer
2
<PAGE>
or employee of the Fund); (i) who is duly authorized by the Board of Directors
of the Fund or under the terms of the Advisory Agreement, the Charter or the By-
Laws, as each may from time to time be amended, to act on behalf of the Fund;
and (ii) whose name is listed on the Certificate annexed hereto as Appendix A or
any amendment thereto as may be received by the Bank from time to time.
(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
-------------------
System" means the Federal Reserve Treasury book-entry system for United States
and federal agency securities, its successor or successors and its nominee or
nominees and any book-entry system maintained by a clearing agency registered
with the Securities and Exchange Commission (the "SEC") under Section 17A of the
Securities Exchange Act of 1934 (the "1934 Act").
(c) "Oral Instructions". As used in this Agreement, the term "Oral
-------------------
Instructions" means oral instructions actually received by the Bank from an
Authorized Person or from a person reasonably believed by the Bank to be an
Authorized Person. The Fund agrees to deliver to the Bank, at the time and in
the manner specified in Paragraph 8(b) of this Agreement, Written instructions
confirming Oral Instructions.
(d) "Property". The term "Property", as used in this Agreement, means:
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(i) any and all securities and other property which the Fund may
from time to time deposit, or cause to be deposited, with the Bank or which
the Bank may from time to time hold for the Fund;
(ii) all income in respect of any of such securities or other
property;
(iii) all proceeds of the sale of any such securities or other
property; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by the Bank from time to time from or on behalf of the Fund.
(e) "Written Instructions". As used in this Agreement, the term "Written
----------------------
Instructions" means written instructions delivered by hand (including Federal
Express or other express courier), certified or registered mail, return receipt
requested, tested telegram, cable, telex or
3
<PAGE>
facsimile sending device, received by the Bank and signed by an Authorized
Person and shall also include computer transmission with coded access as agreed
upon by the Bank and the Fund.
4. Delivery and Registration of the Property. The Fund will deliver or cause
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to be delivered to the Bank all securities and all moneys owned by it, including
cash received for the issuance of Shares, at any time during the period of this
Agreement. The Bank will not be responsible for such securities and such moneys
until actually received by it. All securities delivered to the Bank (other than
in bearer form) shall be registered in the name of the Fund or in the name of a
nominee of the Fund or in the name of any nominee of the Bank (with or without
indication of fiduciary status), or in the name of any sub-custodian or any
nominee of any such sub-custodian appointed pursuant to Paragraph 6 hereof or
shall be properly endorsed and in form for transfer satisfactory to the Bank.
5. Receipt and Disbursement of Money.
---------------------------------
(a) Not less frequently than once on the afternoon of each business day,
all cash held in the custody account, other than cash required to settle
securities transactions on such business day, shall be transferred to the
trustee under a Trust Agreement of even date herewith between the Bank and the
Fund and attached hereto as Exhibit A.
The Bank shall make payments of cash to, or from the account of, the Fund
from such cash only (i) for the purchase of securities for the Fund's portfolio
as provided in Paragraph 13 hereof; (ii) upon receipt of Written Instructions,
for the payment of interest, dividends, taxes, fees or expenses of the Fund;
(iii) upon receipt of Written instructions, for payments in connection with the
conversion, exchange or surrender of securities owned or subscribed to by the
Fund and held by or to be delivered to the Bank; (iv) to a sub-custodian
pursuant to Paragraph 6 hereof; (v) for the redemption of Shares; (vi) for
payment of the amount of dividends received in respect of securities sold short
against the box; or (vii) upon receipt of Written Instructions, for other proper
Fund purposes. No payment pursuant to (i) above shall be made unless the Bank
has received a copy of the broker's or dealer's confirmation or the payee's
invoice, as appropriate.
4
<PAGE>
(b) The Bank is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
account of the Fund.
6. Receipt of Securities.
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(a) Except as provided by Paragraph 7 hereof, the Bank shall hold and
physically segregate in a separate account, identifiable at all times from those
of any other persons, firms, or corporations, all securities and non-cash
property received by it for the account of the Fund. All such securities and
non-cash property are to be held or disposed of by the Bank for the Fund
pursuant to the terms of this Agreement. In the absence of Written Instructions
accompanied by a certified resolutions of the Fund's Board of Directors
authorizing the transaction, the Bank shall have no power or authority to
withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any such
securities and investments except in accordance with the express terms provided
for in this Agreement. In no case may any director, officer, employee or agent
of the Fund withdraw any securities.
In connection with its duties under this Paragraph 6, the Bank may, at its
own expense, enter into sub-custodian agreements with other banks or trust
companies for the receipt of certain securities and cash to be held by the Bank
for the account of the Fund pursuant to this Agreement, provided that each such
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bank or trust company has an aggregate capital, surplus and undivided profits,
as shown by its last published report, of not less than ten million dollars
($10,000,000) and that such bank or trust company agrees with the Bank to comply
with all relevant provisions of the 1940 Act and applicable rules and
regulations thereunder. The Bank shall remain responsible for the performance
of all of its duties under this Agreement and shall hold the Fund harmless from
the acts and omissions, under the standards of care applicable to the Bank under
Paragraph 22 hereof, of any bank or trust company that it might choose pursuant
to this Paragraph 6 or of the Book-Entry System.
(b) Where securities are transferred to an account of the Fund established
pursuant to paragraph 7 hereof, the Bank shall also by book-entry or otherwise
identify as belonging to the Fund the quantity of securities in a fungible bulk
of securities registered in the name of the Bank
5
<PAGE>
(or its nominee) or shown in the Bank's account on the books of the Book-Entry
System. The Bank shall furnish the Fund with reports relating to Property held
for the Fund under this Agreement in accordance with Paragraph 16 hereof.
7. Use of Book-Entry System. The Fund shall deliver to the Bank certified
------------------------
resolutions of the Board of Directors of the Fund approving, authorizing and
instructing the Bank on a continuous and on-going basis until instructed to the
contrary by Oral or Written Instructions actually received by the Bank (a) to
deposit in the Book-Entry System all securities belonging to the Fund eligible
for deposit therein and (b) to use the Book-Entry System to the extent possible
in connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. Without
limiting the generality of such use, it is agreed that the following provisions
shall apply thereto;
(a) Securities and any cash of the Fund deposited in the Book-Entry System
will at all times be segregated from any assets and cash controlled by the Bank
in other than a fiduciary or custodian capacity but may be commingled with other
assets held in such capacities.
(b) All books and records maintained by the Bank which relate to the
Fund's participation in the Book-Entry System will at all times during the
Bank's regular business hours be open to the inspection of the Fund's duly
authorized employees or agents, and the Fund will be furnished with all
information in respect of the services rendered to it as it may require.
(c) The Bank will provide the Fund with copies of any report obtained by
the Bank on the system of internal accounting control of the Book-Entry System
promptly after receipt of such a report by the Bank. The Bank will also provide
the Fund with such reports on its own system of internal control as the Fund may
reasonably request from time to time.
8. Instructions Consistent with Charter, Etc.
------------------------------------------
(a) Unless otherwise provided in this Agreement, the Bank shall act only
upon Oral and Written Instructions. Although the Bank may know of the
provisions of the Charter and By-Laws of the Fund, the Bank may assume that any
Oral or Written Instructions received
6
<PAGE>
hereunder are not in any way inconsistent with any provisions of such Charter or
By-Laws or any vote, resolution or proceeding or the Fund's shareholders, or of
its board of directors, or of any committee thereof.
(b) The Bank shall be entitled to rely upon any Oral Instructions and any
Written Instructions actually received by the Bank pursuant to this Agreement.
The Fund agrees to forward to the Bank Written Instructions confirming Oral
Instructions in such manner that the Written Instructions are received by the
Bank by the close of business of the same day that such Oral Instructions are
given to the Bank. The Fund agrees that the fact that such confirming Written
Instructions are not received by the Bank shall in no way affect the validity of
the transactions or enforceability of the transactions authorized by the Fund by
giving Oral Instructions. The Fund agrees that the Bank shall incur no
liability to the Fund in acting upon Oral Instructions given to the Bank
hereunder concerning such transactions, provided such instructions reasonably
appear to the Bank to have been received from an Authorized Person.
9. Transactions Not Requiring Instructions. In the absence of contrary
---------------------------------------
Written Instructions, the Bank is authorized to take the following actions:
(a) Collections of Income and Other Payments. The Bank shall:
----------------------------------------
(i) collect and receive for the account of the Fund, all income and
other payments and distributions, including (without limitation) stock
dividends, rights, bond coupons, option premiums and similar items, included
or to be included in the Property, and promptly advise the Fund of such
receipt and shall credit such income, as collected, to the Fund's custodian
account;
(ii) endorse and deposit for collection, in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same day as
received;
(iii) receive and hold for the account of the Fund all securities
received as a distribution on the Fund's portfolio securities as a result of
a stock dividend, share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of rights
7
<PAGE>
or similar securities issued with respect to any portfolio securities
belonging to the Fund held by the Bank hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or retired, or otherwise
become payable on the date such securities become payable; and
(v) take any action which may be necessary and proper in connection
with the collection and receipt of such income and other payments and the
endorsement for collection of checks, drafts, and other negotiable
instruments as described in paragraph 23 of this Agreement.
(b) Miscellaneous Transactions. The Bank is authorized to deliver or
--------------------------
cause to be delivered Property against payment of other consideration or written
receipt therefor in the following cases:
(i) for examination by a broker selling for the account of the Fund
in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities for
definitive securities; and
(iii) for transfer of securities into the name of the Fund or the Bank
or nominee of either, or for exchange of securities for a different number of
bonds, certificates, or other evidence, representing the same aggregate face
amount or number of units bearing the same interest rate, maturity date and
call provisions, if any; provided that, in any such case, the new securities
are to be delivered to the Bank.
10. Transactions Requiring Instructions. Upon receipt of Oral or Written
-----------------------------------
Instructions and not otherwise, the Bank, directly or through the use of the
Book-Entry System, shall:
(a) execute and deliver to such persons as may be designated in such Oral
or Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
8
<PAGE>
(b) deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
(c) deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said Oral or Written Instructions to be
for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalizztion of the Fund;
(e) release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
the Bank of the monies to be received by the Bank in accordance with such Oral
or Written Instructions, except that in cases where additional collateral is
required to secure a borrowing already made, in which case and subject to
receipt by the Bank of "Oral or Written Instructions", further securities may be
released for that purpose; an repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
(f) release and deliver securities owned by the Fund in connection with
any repurchase agreement entered into on behalf of the Fund, but only on receipt
of payment therefor; and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the securities; and
(g) otherwise transfer, exchange or deliver securities in accordance with
Oral or Written Instructions.
9
<PAGE>
11. Segregated Accounts; Securities Lending.
---------------------------------------
(a) The Bank shall upon receipt of Written or Oral Instructions establish
and maintain a segregated account or accounts on its records for and on behalf
of the Fund, into which account or accounts may be transferred cash and/or
securities, including securities in the Book-Entry System (i) for the purposes
of compliance by the Fund with the procedures required by a securities or option
exchange, provided such procedures comply with the 1940 Act and Investment
Company Act Release No. 10666 (April 18, 1979) or any subsequent release or
releases of the SEC relating to the maintenance of segregated accounts by
registered investment companies, and (ii) for other proper corporate purposes,
but only, in the case of clause (ii), upon receipt of Written Instructions.
(b) The Bank hereby acknowledges that the Fund may require it to enter
into one or more third-party custodial agreements regarding Fund's purchases and
sales of futures contracts and options thereon, and that any such third-party
agreement with a futures commission merchant may contain any provisions which
the Fund and the futures commission merchant reasonably deem necessary and which
do not subject the Bank to higher standards of care (except as may be required
by law) than does this Agreement.
(c) The Fund may, from time to time, furnish the Bank with copies of
securities loan agreements (singly "Securities Loan Agreement' and collectively
"Securities Loan Agreements"), pursuant to which the Fund may lend securities of
any series of the Fund to the respective brokerage firms named therein (singly
the "Brokerage Firm" and collectively the "Brokerage Firms").
In each such case, and until the Fund shall have given the Bank Written
Instructions that such Securities Loan Agreement has terminated, the Fund
authorizes the Bank, as its agent in connection with the lending of securities
from time to time upon receipt by the Bank of Oral and Written Instructions:
(a) to deliver to the Brokerage Firm named in the Securities Loan Agreement
specific securities held for the Fund's account, it being understood that in
each case the Bank will give prompt notice thereof to the Fund; (b) to receive
from the Brokerage Firm a
10
<PAGE>
certified or bank cashier's check, in immediately available funds, or
obligations of the U. S. Government in an amount equal to the then market value
of the securities, as specified in such Instructions.
The Fund will evaluate on a daily basis its rights and obligations under each
Securities Loan Agreement, such as marking to market, and will demand that
additional collateral be delivered to the Bank by the Brokerage Firm under
proper advice to the Bank, or shall give Oral or Written Instructions to the
Bank to release excess collateral to the Brokerage Firm to comply with any law
or regulation, all such risks being assumed by the Fund.
12. Dividends and Distributions.
----------------------------
The Fund shall furnish the Bank with appropriate evidence of action by the
Fund's Board of Directors declaring and authorizing the payment of any dividends
and distributions. Upon receipt by the Bank of Written Instructions with
respect to dividends and distributions declared by the Fund's Board of Directors
and payable to shareholders of the Fund who have elected in the proper manner to
receive their distributions or dividends in cash, and in conformance with
procedures mutually agreed upon by the Bank, the Fund, and the Fund's transfer
agent, the Bank shall pay to the Fund's transfer agent, as agent for the Fund's
shareholders, an amount equal to the amount indicated in said Written
Instructions as payable by the Fund to such shareholders for distributions in
cash by the transfer agent to such shareholders.
13. Purchases of Securities. Promptly after each decision to purchase
-----------------------
securities by the Advisor, the Fund, through the Advisor, shall deliver to the
Bank Written or Oral Instructions specifying with respect to each such purchase:
(a) the name of the issuer and the title of the securities, (b) the number of
shares or the principal amount purchased and accrued interest, if any, (c) the
date of purchase and settlement, (d) the purchase price per unit, (e) the total
amount payable upon such purchase and (f) the name of the person from whom or
the broker through whom the purchase was made. Oral Instructions shall be
confirmed by Written Instructions. The Bank shall upon receipt of securities
purchased by or for the Fund pay out of the moneys held for the account of the
Fund the total amount payable to the person from whom or the broker through
11
<PAGE>
whom the purchase was made, provided that the same conforms to the total amount
payable as set forth in such Oral Instructions in accordance with current
industry practices.
14. Sales of Securities. Promptly after each decision to sell securities by
-------------------
the Advisor or exercise of an option written by the Fund, the Fund, through the
Advisor, shall deliver to the Bank Oral or Written Instructions, specifying with
respect to each such sale: (a) the name of the issuer and the title of the
security, (b) the number of shares or principal amount sold, and accrued
interest, if any, (c) the date of sale and settlement, (d) the sale price per
unit, (e) the total amount payable to the Fund upon such sale, and (f) the name
of the broker through whom or the person to whom the sale was made. The Bank
shall deliver the securities upon receipt of the total amount payable to the
Fund upon such sale, provided that the same conforms to the total amount payable
as set forth in such Oral Instructions in accordance with current industry
practice. Subject to the foregoing, the Bank may accept payment in such form as
shall be satisfactory to it, and may deliver securities and arrange for payment
in accordance with the customs prevailing among dealers in securities.
15. Records. The books and records pertaining to the Fund which are in the
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possession of the Bank shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and regulations. The Fund, f the Fund's authorized
representatives, shall have access to such books and records at all times during
the Bank's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by the Bank to the Fund
or the Fund's authorized representative at the Fund's expense.
16. Reports.
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(a) The Bank shall furnish the Fund the following reports:
(1) such periodic and special reports as the Fund may reasonably
request;
(2) a daily report detailing all transactions (cash and securities)
that have been posted to the fund's account; such report, which shall be in
such form as may be agreed upon
12
<PAGE>
by the Bank and the Fund from time to time, shall be received not later than
the morning of the business day next following the day to which the report
relates;
(3) statements, at such intervals as the Fund may reasonably request
but not less frequently than monthly, summarizing all transactions and
entries for the account of the Fund, listing the portfolio securities
belonging to the Fund with the adjusted average cost of each issue and the
market value at the end of such month, and stating the cash account of the
Fund including disbursements;
(4) the reports to be furnished to the Fund pursuant to Rule 17f04
under the 1940 Act; and
(5) such other information as may be agreed upon from time to time
between the Fund and the Bank.
(b) The Bank shall transmit promptly to the Fund any proxy statement,
proxy materials, notice of a call or conversion or similar communications
received by it as Custodian of the Property.
17. Cooperation with Accountants. The Bank shall cooperate with the Fund's
----------------------------
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such accountants for the expression of their
opinion, as such may be required from time to time by the Fund.
18. Confidentiality. The Bank agrees on behalf of itself and its employees
---------------
to treat confidentially all records and other information relative to the Fund
and its prior, present, or potential shareholders, except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where the Bank may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Fund.
19. Right to Receive Advise.
-----------------------
13
<PAGE>
(a) Advise of Fund. If the Bank shall be in doubt as to any action to be
--------------
taken or omitted by it, it may request, and shall receive, from the Fund
directions or advice, including Oral or Written Instructions where appropriate.
(b) Advise of Counsel. If the Bank shall be in doubt as to any question
-----------------
of law involved in any action to be taken or omitted by the Bank, it may request
advice at its own cost from counsel of its own choosing (who may be counsel for
the Advisor, the Fund or the Bank, at the option of the Bank).
(c) Conflicting Advice. In case of conflict between directions, advice or
------------------
Oral or Written Instructions received by the Bank pursuant to subparagraph (a)
of this Paragraph and advice received by the Bank pursuant to subparagraph (b)
of this Paragraph, the Bank shall be entitled to rely on and follow the advice
received pursuant to the latter provision alone.
(d) Protection of the Bank. The Bank shall be protected in any action or
----------------------
inaction which it takes in reliance on any directions, advice or Oral or Written
Instructions received pursuant to subparagraphs (a) or (b) of this Paragraph
which the Bank, after receipt of any such directions, advice or Oral or Written
Instructions, in good faith believes to be consistent with such directions,
advice or Oral or Written Instructions, as the case may be. However, nothing in
this Paragraph shall be construed as imposing upon the Bank any obligation (i)
to seek such directions, advice or Oral or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral or Written Instructions when
received, unless, under the terms of another provision of this Agreement, the
same is a condition to the Bank's properly taking or omitting to take such
action. Nothing in this subsection shall excuse the Bank when an action or
omission on the part of the Bank constitutes willful misfeasance, bad faith,
negligence or reckless disregard by the Bank of any duties or obligations under
this Agreement.
20. Compensation. As compensation for the services rendered by the Bank
------------
during the term of this Agreement, the Fund will pay to the Bank fees in
accordance with the fee schedule agreed upon from time to time in writing by the
Bank and the Fund.
14
<PAGE>
21. Indemnification. The Fund, as sole owner of the Property, agrees to
---------------
indemnify and hold harmless the Bank and its nominees from all taxes, charges,
expenses, assessments, claims and liabilities and expenses, including attorneys'
fees and disbursements, arising directly or indirectly from any action or thing
which the Bank takes or does or omits to take or do upon receipt of Oral or
Written Instructions or under this Agreement, provided, that neither the Bank
nor any of its nominees shall be indemnified against any liability to the Fund
or to its shareholders (or any expenses incident to such liability) arising out
of the Bank's or such nominee's own willful misfeasance, bad faith, negligence
or reckless disregard of its duties or responsibilities under this Agreement.
22. Responsibility of the Bank.
--------------------------
(a) In the performance of its duties hereunder, the Bank shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts to assure the accuracy and completeness of all services performed
under this Agreement. Except as provided in (b) below, the Bank shall be
responsible for all direct losses occasioned by the Bank's negligent failure to
perform its duties under this Agreement, including but not limited to losses
related to inaccuracies in the daily reports (upon which the Fund and its agents
rely in calculating the Fund's net asset value and in determining whether the
Fund is in compliance with the 1940 Act and the requirements of Subchapter M of
the Internal Revenue Code of 1986 (as amended) to be provided under Paragraph 16
hereof or otherwise. However, the Bank shall not be liable for any incidental,
consequential or punitive damages.
(b) The Bank shall assume entire responsibility for loss occasioned by
robbery, fire, theft or mysterious disappearance irrespective of whether such
losses occur while such Property is in possession of the Bank or the possession
of one of the Bank's agents, nominees, depositories, correspondents or sub-
custodians appointed pursuant to Paragraph 6 hereof or any Book-Entry System.
In the event of any such loss the Bank's liability shall be limited to the
replacement value thereof as of the date of the discovery of such loss and the
Bank, at the Fund's option, shall make prompt replacement of Property with like
kind and quality or shall make
15
<PAGE>
prompt restitution to the Fund for such loss. In addition, in the event of any
loss of the Property due to any other cause, unless the Bank can prove that it
and its agents, nominees, depositories and correspondents were not negligent and
did not act with willful misconduct, the Bank will be liable for such loss.
Notwithstanding the foregoing, the Bank shall not be liable for losses occurring
by reason of acts of civil or military authority, national emergencies, floods,
acts of God, insurrections, wars, riots or similar catastrophes.
(c) The Bank shall not have any duty or obligation to inquire (i) into the
validity or invalidity or authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which the Bank reasonably believes
to be genuine; (ii) the validity or invalidity of the issuance of any securities
included or to be included in the Property, the legality or illegality of the
purchase of such securities, or the propriety or impropriety of the amount paid
therefor; (iii) the legality or illegality of the sale (or exchange) of any
Property or the propriety or impropriety of the amount for which such Property
is sold (or exchanged); or (iv) whether any Property at any time delivered to or
held by the Bank may properly be held by or for the Fund.
23. Collections. All collections of monies or other property in respect, or
-----------
which are to become part, of the Property (but not the safekeeping thereof upon
receipt by the Bank) shall be at the sole risk of the Fund, provided that the
Bank agrees to the following procedures:
(i) upon maturity of any security held by the Fund, proceeds will be
credited and available for investment by the Fund on the maturity
date;
(ii) with respect to sales of securities held by the Fund and provided
the Bank receives timely and accurate notification of any such
sale, sale proceeds will be credited and available for investment
by the Fund on the settlement date for transactions settled in
Federal funds, and on settlement date plus one for transactions
settled in Clearinghouse funds;
(iii) with respect to income and principal from securities held by the
Fund, where the precise amount to be received is known prior to
payable date, such moneys
16
<PAGE>
will be credited to the Fund on the payable date and will be made
available to the Fund for investment on such date in cases where
such moneys are to be received in Federal funds or, in cases
where such moneys are to be received in Clearinghouse funds, on
the day following the payable date;
(iv) with respect to any income and principal payment on securities
held by the Fund the amount of which is unknown either by the
Bank or the Adviser, such payments will be credited to the Fund
upon receipt by the Bank, it being understood that the Bank will
make every effort to collect such payments as quickly as
possible.
With respect to items referred to in (i), (ii) and (iii) above, in any case
where the Bank does not receive any payment due to the Fund within a reasonable
time after the Bank has made proper demands for the same, it shall so notify the
Fund in writing, including copies of all demand letters, any written responses
thereto, and memoranda of all oral responses thereto and to telephonic demands,
and shall thereafter have the right to reverse the credit previously posted to
the Fund with respect to such item. The Bank shall not be obliged to take legal
action for collection of any unpaid item unless and until reasonably indemnified
to its satisfaction.
24. Duration and Termination. This Agreement shall continue until
------------------------
termination by the Fund on 60 days written notice or by the Bank on 120 days'
written notice. In the event of such notice of termination, the Fund's Board of
Directors shall, by resolution duly adopted, promptly appoint a Successor
Custodian to serve upon the terms set forth in this Agreement. Upon termination
hereof the Fund shall pay to the Bank such compensation as may be due as of the
date of such termination and shall likewise reimburse the Bank for its
reasonable costs, expenses and disbursements incurred prior to such termination.
The Bank shall have no lien, right of set-off, or claim of any kind whatsoever
against any Property of the Fund (including records relating to the Fund
maintained by the Bank) in the possession of the Bank.
17
<PAGE>
If a Successor Custodian is appointed by the Directors, the Bank shall, upon
termination, deliver to such Successor Custodian the records of the Bank with
respect to the Fund, and duly endorsed an in form for transfer, all securities
then held hereunder and all funds or other properties of the Fund deposited with
or held by the Bank under this Agreement.
In the event that no such Successor Custodian is appointed within 90 days
after the date of such notice of termination by the Bank, Fund will promptly
submit to its shareholders the question whether they wish to terminate the Fund
or to function without a bank custodian, and the Bank shall deliver the funds
and property of the Fund to the Fund only pursuant to a certified copy of a
resolution of the Fund's Board of Directors, signed by a majority of the Board
of Directors of the Fund in the exercise of such power conferred upon the Fund
by its shareholders, such delivery to be made in accordance with such
Resolution.
In the event that the Bank is not notified of the appointment of a Successor
Custodian on or before the date of the termination of this Agreement, the Bank
shall have the right to deliver to a bank or trust company of its own selection
(a) with significant experience in serving as a custodian for registered
investment companies; and (b) having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$10,000,000, al securities, records, and other properties then held by the Bank
to be held by such bank or trust company provided that such bank or trust
company agrees to serve as custodian for such securities, records and other
properties substantially in accordance with the term hereof and in accordance
with its customary fee schedule for such services.
In the event that securities, funds, and other properties remain in the
possession of the Bank after the date of termination hereof owing to failure of
the Board of Directors to appoint a Successor Custodian, the Bank shall be
entitled to fair compensation for its services during such period and the
provisions of this Agreement relating to the duties and obligations of the Bank
shall remain in full force and effect. If any Property remains in the custody
of the Bank pursuant to the preceding sentence for more than six months, the
Bank shall be entitled to receive a premium of one and one-half percent over the
fees to which it would otherwise be entitled for its
18
<PAGE>
services for each succeeding month during which the Bank remains in possession
of such property.
25. Notices. All notices and other communications (collectively referred to
-------
as "Notice" or "Notices" in this Paragraph) under this Agreement (other than
Written or Oral Instructions as defined in this Agreement and as referred to in
Paragraph 8 (b)) must be in writing and will be deemed to have been duly given
or delivered when delivered by hand (including by Federal Express or similar
express courier) or three days after being mailed by prepaid registered or
certified mail, return receipt requested: (a) if to the Bank at the Bank's
address, 1735 Market Street, Philadelphia, Pennsylvania 19101-7899, marked for
the attention of Donna Owens, Trust Officer (or her Farmington Avenue, Hartford,
CT 06156-8962, marked for the attention of the Fund's Treasurer; or (c) to such
other address as shall have been last designated by Notice in accordance with
this Paragraph 25. All postage, cable, telegram, telex and facsimile sending
device charges arising from the sending of a Notice hereunder shall be paid by
the sender.
26. Further Actions. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
27. Amendments. This Agreement or any part hereof may be changed or waived
----------
only by an instrument in writing signed by the party against which enforcement
of such change or waiver is sought.
28. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
29. Miscellaneous. This Agreement embodies the entire agreement and
-------------
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided that the
parties hereto may embody in one or more separate documents their agreement, if
any, with respect to delegated and/or Oral Instructions. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This
19
<PAGE>
Agreement shall be deemed to be a contract made in Pennsylvania and governed by
Pennsylvania law. If any provision of this Agreement shall be held or made
invalid by a court decision, statue, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding and
shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on this _1st_day of _September_,
1992.
[SEAL] MELLON BANK, N. A.
Attest: /s/ Sandy McKenna By: /s/ Donna Owens
------------------ ---------------
[SEAL] AETNA SERIES FUND, INC.
Attest: /s/ George N. Gingold By: /s/ James C. Hamilton
---------------------- ---------------------
20
<PAGE>
EXHIBIT A
TRUST AGREEMENT
THIS TRUST AGREEMENT is made between AETNA SERIES FUND, INC., a Maryland
corporation (the "Fund") as Settlor, and MELLON BANK, N. A., a national banking
association (the "Bank") as Trustee.
I. Background: The background of this Agreement is as follows:
----------
A. The Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as
amended, and currently issues five classes of shares, each of
which represents a separate investment portfolio;
B. The Fund has retained the Bank to serve as the Fund's custodian
under a Custodian Agreement of even date herewith ("Custodian
Agreement") for four of its series: the Aetna Fund, the Aetna
Growth and Income Fund, the Aetna Bond Fund and the Aetna Money
Market Fund and for such additional series as may from time to
time be offered by the Fund on the terms set forth herein (each, a
"Series"), and the Bank is willing to serve as such; and
C. The Fund intends to transfer to the Bank to hold as trustee under
this Agreement all the income and principal cash balances which
are transferred to it in accordance with paragraph 5(a) of the
Custodian Agreement (the Bank in such capacity is hereinafter
referred to as the "Trustee"), and hereby directs the Trustee to
hold such cash balances in accordance with the following terms.
II. Dispositive Terms: The Trustee shall invest and manage the income
-----------------
and principal cash balances of each Series in accordance with the provisions of
Article III hereof. Distributions to or from the trust shall be as directed
from time to time by the Fund.
III. Management Provisions: The Trustee shall invest as it deems
---------------------
appropriate in any one or more money market demand accounts of the Bank or of
any other bank, provided the accounts are fully insured by the FDIC and any
excess above the insurance limit is collateralized by securities in accordance
with Regulation 9.10(b) of the Comptroller of the Currency, 12 CFR 9.10 (b).
IV. Accounting: The Trustee will send the Fund statements at least
----------
monthly showing the transactions in the trust. The Fund must report any errors
to the Trustee, including the non-receipt of a statement, within 90 days after
the Fund normally receives a statement. Otherwise, the Fund, at the Trustee's
discretion, may be deemed to have accepted the transactions as stated.
V. Provisions Regarding the Trustee:
--------------------------------
<PAGE>
A. The "Authorized Person" to act for the Fund and the methods of
properly acting for the Fund under this Agreement shall be the
same as specified in the Custodian Agreement, as that may be
amended from time to time;
B. The fact that the Bank is Trustee and in such capacity deposits
trust assets in banking accounts of the Bank shall no be deemed a
conflict of interest. The Bank may receive its usual charges or
profits for that service; and
C. The Trustee may resign upon 120 days' notice to the Fund; Settlor
may terminate this Agreement at any time. Immediately upon
termination the Trustee shall pay all trust assets held hereunder
to the Successor Custodian or the Fund in accordance with
Paragraph 24 of the Custodian Agreement.
VI. Situs and Governing Law: The situs of this Trust shall be in
-----------------------
Pennsylvania, and all questions as to the construction, validity, effect or
administration of this trust shall be governed by Pennsylvania law.
VII. Rights Reserved: The Fund reserves the right to revoke this trust by
---------------
writing delivered to the Trustee and to amend this trust with the Trustee's
approval.
Signed September 1,1992
-----------
ATTEST: AETNA SERIES FUND, INC.
/s/ George N. Gingold By: /s/ James C. Hamilton
- --------------------- ---------------------
The foregoing trust was delivered, and is hereby accepted in Pennsylvania on
_Sept. 1_, 1992.
ATTEST: MELLON BANK, N.A.
/s/ Sandy McKenna By: /s/ Donna Owen
- ------------------- --------------
2
<PAGE>
Institutional Trust Services Group Mellon Bank
- --------------------------------------------------------------------------------
MELLON BANK DOMESTIC FEE SCHEDULE
Account Fee:
$500 per account, per year.
Asset Fee:
Domestic Assets - 1/6 Basis Point (0.0000166) on all assets
Euroclear Assets - 1.4 Basis Points (0.00014) on all assets
Transaction Fees:
$7 per book entry transaction (purchase - sale - maturity)
$15 per physical transaction (purchase - sale - maturity)
$25 per Euroclear transaction (purchase - sale - maturity)
$50 per option and future transaction (open - close)
The foregoing fee schedule shall remain in effect for not less than three
years from the effective date of the Custodian Agreement between the fund
and Mellon Bank, N. A.
/s/ Donna Owens
---------------
Mellon Bank, N.A.
/s/ James C. Hamilton
---------------------
Aetna Series Fund, Inc.
<PAGE>
FORM OF
AMENDMENT TO CUSTODIAN AGREEMENT
between
AETNA SERIES FUND, INC.
and
MELLON BANK, N.A.
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company"), and Mellon Bank, N.A.
("Mellon"), entered into a Custodian Agreement (the "Agreement") on September 1,
1992 with respect to the assets of certain series of the Company and some or all
additional series that the Company may establish from time to time ("Series");
and
WHEREAS, the Company has authorized the creation of a new series, Aetna
_____________ (the "Series"), and has amended its registration statement on Form
N-1A to register shares of beneficial interest of the Series with the Securities
and Exchange Commission; and
WHEREAS, the Company desires to appoint Mellon as custodian of the assets
for the Series;
NOW THEREFORE, it is agreed as follows:
1. The Company, on behalf of the Series, hereby appoints Mellon, and
Mellon hereby accepts appointment, as the custodian of the assets of the Series,
in accordance with all the terms and conditions set forth in the Agreement.
2. The Company is entering into this Agreement incorporating the Agreement
on behalf of each Series individually and not jointly with any other Series. In
the Agreement, the term "Fund" shall refer to the Company solely on behalf of
each Series individually to which a particular Futures Contract transaction or
other obligation under the Agreement relates. The responsibilities and benefits
set forth in the Agreement shall refer to each Series severally and not jointly.
No individual Series shall have any responsibility for any obligation arising
out of a Futures Contract transaction entered into by any other Series. Without
otherwise limiting the generality of the foregoing,
(a) any breach of the Agreement regarding the Company with respect to any
one Series shall not create a right or obligation with respect to any
other Series;
(b) under no circumstances shall Mellon have the right to set off claims
relating to a Series by applying property of any other Series;
<PAGE>
(c) no Series shall have the right of set off against the assets held by
any other Series;
(d) the business and contractual relationships created by the Agreement as
amended hereby, and the consequences of such relationships relate
solely to the particular Series to which such relationship was created;
and
(e) all property held by Mellon on behalf of a particular Series shall
relate solely to the particular Series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Mellon Bank, N.A. Aetna Series Fund, Inc. on behalf of
Aetna _____________
By: /s/ Donna M. Owens By: /s/ Shaun P. Mathews
------------------ --------------------
Name: Donna M. Owens Name: Shaun P. Mathews
-------------- ----------------
Title: Assistant Vice President Title: President
------------------------ ---------
Date: December 1, 1994 Date: September 14, 1994
---------------- ------------------------
<PAGE>
Amendment to Custodian Agreement
Schedule of Parties
-------------------
Amendments to the Custodian Agreements have been entered into with the following
parties in substantially the same form and type as the exhibit included
herewith.
<TABLE>
<CAPTION>
Party Date
----- ----
<S> <C>
Aetna Ascent 12/1/94
Aetna Crossroads 12/1/94
Aetna Legacy 12/1/94
</TABLE>
<PAGE>
EXHIBIT 99B(9)(A)
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made by and between AETNA SERIES FUND, INC., a
Maryland corporation (the "Company"), on behalf of its series, Aetna _________
("Fund"), and AETNA LIFE INSURANCE AND ANNUITY COMPANY, a Connecticut insurance
corporation (the "Administrator"), with respect to the following recital of
facts:
R E C I T A L
-------------
WHEREAS, the Company 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 Administrator 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 and an administrator
of investment companies;
WHEREAS, the Company has established the Fund; and
WHEREAS, the Company, on behalf of the Fund, and the Administrator
desire to enter into an agreement to provide for administrative services for the
Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable considerations, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADMINISTRATOR
The Administrator is hereby appointed to serve as the Administrator to
the Fund, to provide the administrative services described herein and assume the
obligations set forth in Section II, subject to the terms of this Agreement and
the control of the Company's Board of Directors (the "Board"). The
Administrator shall, for all purposes herein, be deemed an independent
contractor and shall have, unless otherwise expressly provided or authorized, no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
II. DUTIES OF THE ADMINISTRATOR
In carrying out the terms of this Agreement, the Administrator shall:
A. provide office space, equipment and facilities (which may be
the Administrator's of its affiliates') for maintaining the Company's
organization, for
<PAGE>
meetings of the Company's Board of Directors and shareholders, and for
performing administrative services hereunder;
B. supervise and manage all aspects of the Fund's operations (other
than investment advisory activities), and supervise relations with,
and monitor the performance of, custodians, depositories, transfer and
pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be
necessary and desirable by the Board;
C. determine and arrange for the publication of the net asset
value of the Fund;
D. provide non-investment related statistical and research data and
such other reports, evaluations and information as the Fund may
request from time to time;
E. provide internal clerical, accounting and legal services, and
stationery and office supplies;
F. prepare, to the extent requested by the Company, the Fund's
prospectus, statement of additional information, proxy statements and
annual and semi-annual reports to shareholders;
G. arrange for the printing and mailing (at the Fund's expense) of
proxy statements and other reports or other materials provided to the
Fund's shareholders;
H. prepare for execution and file all the Fund's federal and state
tax returns and required tax filings other than those required to be
made by the Fund's custodian and transfer agent;
I. prepare periodic reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky authorities with
the advice of the Fund's counsel;
J. maintain the Company's existence, and during such times as the
shares of the Fund are publicly offered, maintain the registration and
qualification of the Fund's shares under federal and state law;
K. keep and maintain the financial accounts and records of the
Fund;
L. develop and implement, if appropriate, management and shareholder
services designed to enhance the value or convenience of the Fund as
an investment vehicle;
M. provide the Board on a regular basis with reports and
analyses of the Fund's operations and the operations of comparable
investment companies;
-2-
<PAGE>
N. respond to inquiries from shareholders or participants of employee
benefit plans (for which the Administrator or any affiliate provides
recordkeeping) relating to the Fund, concerning, among other things,
exchanges among Funds, or refer any such inquiries to the Company's
officers or the Fund's transfer agent;
O. provide participant recordkeeping services for participants
in employee benefit plans for which the Administrator or any affiliate
provides recordkeeping services; and
P. provide such information as may be reasonably requested by a
shareholder representative of or a participant in an employee benefit
plan to comply with applicable federal or state laws.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator hereby represents and warrants to the Company
as follows:
1. Due Incorporation and Organization. The Administrator
-----------------------------------
is duly organized and is in good standing under the laws of the
State of Connecticut and is fully authorized to enter into this
Agreement and carry out its duties and obligations hereunder.
2. Best Efforts. The Administrator at all times shall
-------------
provide its best judgment and effort to the Fund in carrying out
its obligations hereunder.
B. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE COMPANY
The Company, on behalf of the Fund, hereby represents and warrants
to the Administrator as follows:
1. Due Incorporation and Organization. The Company has
-----------------------------------
been duly incorporated under the laws of the State of Maryland and
it is authorized to enter into this Agreement and carry out its
terms.
2. Registration. The Company is registered as an
-------------
investment company with the SEC under the 1940 Act and shares of
the Fund are registered or qualified for offer and sale to the
public under the Securities Act of 1933, as amended (the "1933
Act"), and all applicable state securities laws. Such
registrations or qualifications will be kept in effect during the
term of this Agreement.
-3-
<PAGE>
IV. CONTROL BY THE BOARD OF DIRECTORS
Any activities undertaken by the Administrator pursuant to this
Agreement on behalf of the Fund shall at all times be subject to any directives
of the Board.
V. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the
Administrator shall at all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Company under
the 1933 Act and the 1940 Act;
C. the provisions of the Company's Articles of Incorporation, as
amended;
D. the provisions of the By-Laws of the Company, as amended; and
E. any other applicable provisions of state and federal law.
VI. DELEGATION OF RESPONSIBILITIES
All services to be provided by the Administrator under this Agreement
may be furnished by any directors, officers or employees of the Administrator or
by any affiliates of the Administrator under the Administrator's supervision.
VII. COMPENSATION
For the services to be rendered, the facilities furnished and the
expenses assumed by the Administrator, the Company, on behalf of the Fund, shall
pay to the Administrator an amount equal to the Administrator's allocable cost
in providing such services and facilities, taking into account the
Administrator's cost of salaries, benefits and overhead.
VIII. NON-EXCLUSIVITY
The services of the Administrator to the Fund are not to be deemed to
be exclusive, and the Administrator shall be free to render administrative or
other services to others (including other investment companies) and to engage in
other activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and directors of the
Administrator may serve as officers or directors of the Company, and that
officers or directors of the Company may serve as officers or directors of the
Administrator to the extent permitted by law; and that the officers and
directors of the Administrator are not prohibited from engaging in any other
business activity or from
-4-
<PAGE>
rendering services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
companies.
IX. TERM
This Agreement shall become effective at the close of business on the
date hereof and shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by the
Company's directors who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, or by the vote of the
holders of a "majority" (as so defined) of the outstanding voting securities of
the Fund and by such vote of the directors.
X. TERMINATION
This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Company's directors or by vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act), or by the Administrator, on sixty (60) days' written notice to the other
party.
XI. LIABILITY OF ADMINISTRATOR AND INDEMNIFICATION
A. LIABILITY
In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Administrator or its officers, directors
or employees, or reckless disregard by the Administrator of its duties
under this Agreement, the Administrator shall not be liable to the
Company or to any shareholder of the Company 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 Administrator or any officer, director or employee of the
Administrator, to the extent permitted by applicable law, the Company
hereby agrees to indemnify and hold the Administrator harmless from
and against all claims, actions, suits and proceedings at law or in
equity, whether brought or asserted by a private party or a
governmental agency, instrumentality or entity of any kind, relating
to the sale, purchase, pledge of, advertisement of, or solicitation of
sales or purchases of any security (whether of the Fund or otherwise)
by the Company, its officers, directors, employees or agents in
alleged violation of applicable federal, state or foreign laws, rules
or regulations.
-5-
<PAGE>
XII. MATERIALS FOR DISTRIBUTION TO SHAREHOLDERS
During the term of this Agreement, the Company shall furnish to the
Administrator at its principal office copies of all prospectuses, proxy
statements, reports to shareholders, sales literature and other material
referring to the Administrator that were prepared for distribution to
shareholders of the Company and to participants in employee benefit plans owning
interests in the Fund (prior to the public distribution of such materials). The
Company shall not use any such materials that refer to the Administrator if the
Administrator reasonably objects in writing within five business days (or such
other time as the parties may agree) after receipt thereof, unless prior to such
use the material is modified in a manner that is satisfactory to the
Administrator. Subsequent to the termination of this Agreement, the Company
will continue to furnish to the Administrator copies of such materials. The
Company shall also furnish or otherwise make available to the Administrator
other information relating to the business affairs of the Company as the
Administrator reasonably requests from time to time.
XIII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Administrator and that
of the Company for this purpose shall be 151 Farmington Avenue, Hartford,
Connecticut 06156.
XIV. QUESTIONS OF INTERPRETATIONS
This Agreement shall be governed by the laws of the State of
Connecticut. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1940 Act shall be resolved by reference to such term or provision of the
1940 Act and to interpretations thereof, if any, by the United States Courts or,
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the SEC issued pursuant to said 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.
XV. SERVICE MARK
The service mark of the Company and the Fund and the name "Aetna" have
been adopted by the Company with the permission of Aetna Life and Casualty
Company and their
-6-
<PAGE>
continued use is subject to the right of Aetna Life and Casualty Company to
withdraw this permission in the event the Administrator or another subsidiary or
affiliated corporation of Aetna Life and Casualty Corporation should not be the
Administrator of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the __1st__day of
__January__, 1995.
AETNA SERIES FUND, INC. on
behalf of its series, Aetna ________
Attest:
By: /s/ Shaun P. Mathews
--------------------
/s/ Susan E. Bryant Name: Shaun P. Mathews
- -------------------------- Title: President
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Attest:
By: /s/ James C. Hamilton
---------------------
Name: James C. Hamilton
Title: Vice President and Treasurer
/s/ Steven J. Lauwers
- --------------------------
-7-
<PAGE>
Administrative Services Agreement
Schedule of Parties
-------------------
Administrative Services Agreements have been entered into with the following
parties in substantially the same form and type as the exhibit included
herewith.
<TABLE>
<CAPTION>
Party Date
- ----- ------
<S> <C>
Aetna Ascent 1/1/95
Aetna Crossroads 1/1/95
Aetna Legacy 1/1/95
</TABLE>
-8-
<PAGE>
EXHIBIT 99-B(9)(b)
LICENSE AGREEMENT
-----------------
This Agreement, made at Hartford, Connecticut, this 12th day of September,
1991 by and between Aetna Life and Casualty Company, a Connecticut corporation
with a principal place of business at 151 Farmington Avenue, Hartford,
Connecticut (hereinafter called "Licensor") and Aetna Series Fund, Inc. a
Maryland corporation, (hereinafter called "Licensee").
WITNESSETH:
WHEREAS, Licensor either directly or by its affiliated companies has
adopted and is using and is the owner of the service mark and registration
thereof listed on Schedule A attached hereto and made a party hereof
(hereinafter referred to collectively as the "Licensed Service Mark"), which
service mark has become valuable and important in identifying the high quality
of services rendered under the said mark by the Licensor, and
WHEREAS, Licensee is a related company of Licensor by virtue of the
management of the assets of Licensee by Aetna Capital Management International,
Ltd. and Aetna Life Insurance and Annuity Company, both wholly-owned
subsidiaries of Licensor; and
WHEREAS, the parties deem it in the interest of each, and it is the
intention and desire of the parties, that Licensee be permitted to use the
Licensed Service Mark as identifying the services of Licensee specified
hereinafter and that it be permitted to use the name of "AEtna" as a part of its
name; and
WHEREAS, both parties recognize the desire to maintain and preserve the
validity and integrity of the Licensed Service Mark forming the subject matter
of this Agreement,
NOW, THEREFORE, for good and valuable consideration, the receipt whereof is
hereby acknowledged, and in consideration and of their mutual promises and
undertakings, the parties hereto agree as follows:
1. Licensor grants to Licensee and Licensee accepts a nonexclusive
license to use the Licensed Service Mark throughout the United States and Canada
in connection with and for identifying the investment facilities provided by
Licensee.
2. The license granted in paragraph 1 hereof includes the grant of
permission to Licensee to use the name "Aetna" as a part of its name.
3. No right is granted to Licensee to use any other service mark of
Licensor not now or hereafter listed in Schedule A hereof.
4. Licensor shall have the right to control the nature and quality of the
services performed by Licensee under the Licensed Service Mark and Licensee
agrees to maintain the same high quality of services as are maintained by
Licensor and that it will conform to the performance standards established by
Licensor. Licensee shall submit to Licensor such evidence as Licensor may
reasonably require to insure Licensee's compliance with its obligations set
forth herein.
5. It is expressly stipulated that the use of the Licensed Service Mark by
Licensee shall inure to the benefit of Licensor and any registration of said
name covering
<PAGE>
the services performed by Licensee under this license shall be registered in the
name of Licensor, it being understood that the present license will not in any
way affect the ownership by Licensor of the Licensed Service Mark which shall
continue to be the exclusive property of Licensor. Licensee shall not at any
time do or cause to be done any act contesting or in any way impairing or
tending to impair Licensor's entire right, title and interest in the Licensed
Service Mark and the registration thereof.
6. Licensor shall have the right to control the form and manner in which
the Licensed Service Mark is used by Licensee upon or in connection with
advertisements, brochures or other printed material used in the sale or
advertising of Licensee's shares and Licensee agrees, upon request of Licensor,
to furnish Licensor with specimens of all such advertisements, brochures or
other printed material used by Licensee and that it will discontinue the use of
any such advertisements, brochures or other printed material which is not or
ceases to be approved by Licensor.
7. The consideration for the grant of this license shall be fixed at the
rate of One Dollar per year, Licensee to make payments annually.
8. Licensee shall not be deemed by virtue of this Agreement to be the
agent or legal representative of Licensor and shall not by virtue of this
Agreement have the right or authority to pledge the credit of or incur, any
obligation, expressed or implied, on behalf of Licensor.
9. The right to institute and prosecute suits for infringement of the
Licensed Service Mark is reserved exclusively to Licensor, and Licensor shall
have the right to join Licensee in any such suit as a formal party. Licensee
agrees to assist Licensor to the best of its ability and at Licensor's expense
in any such suit brought by Licensor. It is understood, however, that Licensor
is not obligated to institute and prosecute any such suits in any case in which
it, in its sole judgment, may consider it inadvisable to do so.
10. Unless sooner terminated as hereinafter provided, this Agreement shall
continue in full force and effect for a period of one (1) year from its
effective date and shall be automatically renewed thereafter from year to year.
Licensor shall have the unrestricted right to cancel this Agreement at any time
upon written notice to Licensee.
11. This Agreement shall automatically terminate in the event that:
a) Licensee does not comply with any provisions of this Agreement and
the breach is not remedied within twenty (20) days of written request
thereof from Licensor.
b) Licensor ceases to manage, directly or indirectly, the assets of
Licensee.
c) Licensee is dissolved, or a petition of bankruptcy is filed against
it, or if Licensee is placed in the hands of a receiver or otherwise
enter into any scheme or composition with creditors, or makes an
unauthorized assignment for the benefit of creditors.
12. Neither this Agreement nor any rights hereunder may be
assigned or otherwise transferred by Licensee nor shall they inure to the
benefit of any trustee in bankruptcy, receiver or successor of Licensee, whether
by operation of law or otherwise without the written consent of Licensor, and
any assignment or transfer without such consent shall be null and void.
-2-
<PAGE>
13. Upon termination of this Agreement, Licensee shall immediately
discontinue all use of the Licensed Service Mark and shall not thereafter use
any Mark which is similar or likely to cause confusion therewith.
14. This Agreement supersedes all other agreements between Licensor and
Licensee with respect to the use of the Licensed Service Mark.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
AETNA LIFE AND CASUALTY COMPANY
By: /s/ Lucille M. Nickerson
------------------------
Title Corporate Secretary
----------------------
ATTEST:
/s/ Paige L. Falasco
- -----------------------------
Paige Falasco
Assistant Corporate Secretary
AETNA SERIES FUND, INC.
By: /s/ George N. Gingold
------------------------
Title Secretary
-----------------------
ATTEST:
/s/ Laura Santirocco
- -----------------------------
Laura Santirocco
Assistant Secretary
-3-
<PAGE>
SCHEDULE A
The following service mark and registrations are hereby licensed by
Licensor to Licensee in accordance with the terms of the Agreement dated
September 12, 1991 by and between Aetna Life and Casualty Company (Licensor) and
Aetna Series Fund, Inc. (Licensee).
1. Service Mark:
Aetna logo - block design, without legend.
2. Registration:
Reg. No. 822,577, Class 102, issued January 17, 1967 in the United
States Patent Office.
-4-
<PAGE>
APPLICATION FOR LICENSE TO USE AETNA NAME
1. Name of entity to be Licensed (Licensee)
Aetna Series Fund, Inc.
-----------------------
2. Name of person submitting application: George N. Gingold
---------------------
Phone Number (203) 273-4686
----------------------------------------------
3. Address of Licensee's principal place of business:
151 Farmington Avenue
-----------------------------------------------------
Hartford, Connecticut 06156
-----------------------------------------------------
4. State of Incorporation of filing Maryland
--------------------
5. Type of entity - e.g., Corporation, Partnership Corporation
---------------
6. Any other name under which Licensee operates
None
-------------------------------------------
7. Nature of Licensee's business Diversified open-end management
-------------------------------
investment company (mutual fund)
--------------------------------------------------------------
8. Does Licensee want to use the orange block logo? Yes
--------
9. Does Licensee want to use the logo with the words "Aetna Life &
Casualty" beneath it? If so, explain briefly why.
No
---------------------------------------------
10. Trace ownership of Licensee back to Aetna Life and Casualty
Company - Show exact percentages of holdings of each AEtna
affiliate in the ownership chain.
At the date of this application, Licensee has not issued any shares of
----------------------------------------------------------------------
stock. It is anticipated that subsidiaries of Aetna Life and Casualty
---------------------------------------------------------------------
Company will provide initial capital to Licensee.
-------------------------------------------------
11. If Licensee will be doing any business out of the United States,
what has the Tax Section of the Law Department recommended as an
annual fee?
Not Applicable
--------------------------
-5-
<PAGE>
Exhibit 99-B(10)
151 Farmington Avenue Susan E. Bryant
Hartford, CT 06156 Counsel
Law & Regulatory Affairs, RE4C
(203)273-7834
Fax: (203) 273-8340
June 26, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Filing Desk
Re: Aetna Series Fund, Inc.
Generation Fund
Registration No. 811-6352 under the 1940 Act
and Nos. 33-85620 and 33-41694
Gentlemen:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company
(ALIAC), the investment adviser to Aetna Series Fund, Inc., a Maryland
corporation (the "Company"). It is my understanding that the Company has
registered an indefinite number of shares of beneficial interest under the
Securities Act of 1933, as amended ("Securities Act") pursuant to Rule 24f-2
under the Investment Company Act of 1940 (the "Investment Company Act").
Insofar as it relates or pertains to the Company, I have reviewed the Prospectus
and the Company's Registration Statement on Form N-1A, as amended to the date
hereof, filed with the Securities and Exchange Commission under the Securities
Act and the Investment Company Act, pursuant to which the Shares will be sold
(the "Registration Statement"). I have also examined originals or copies,
certified or otherwise identified to my satisfaction, of such documents, trust
records and other instruments I have deemed necessary or appropriate for the
purpose of this opinion. For purposes of such examination, I have assumed the
genuineness of all signatures on original documents and the conformity to the
original documents of all copies.
I am admitted to practice law in Connecticut, New York and Oklahoma, and do not
purport to be an expert on the laws of any other state.
Based upon the foregoing, and assuming the securities are issued in accordance
with the provisions of the prospectus, I am of the opinion that the securities,
when issued, will have been validly issued, and will constitute legal and
binding obligations of the Company.
<PAGE>
Page 2
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to my being named under the caption "Legal Matters" therein.
Very truly yours,
/s/ Susan E. Bryant
Susan E. Bryant
Aetna Series Fund, Inc.
Counsel
<PAGE>
EXHIBIT 99-B(15)(A)
DISTRIBUTION PLAN
Aetna Series Fund, Inc.
Class B
This Distribution Plan (the "Plan") is adopted in accordance with Rule
12b-1 (the "Rule") promulgated under the Investment Company Act of 1940, as
amended (the "1940 Act"), by Aetna Series Fund, Inc., a Maryland corporation
(the "Company"), on behalf of the Class B shares, a class of shares of each of
its series as set forth in Appendix A ("Fund"), as amended from time to time,
subject to the following terms and conditions:
Section 1. Annual Fees
Distribution Fee. Each Fund will pay to the underwriter of its
----------------
shares, Aetna Life Insurance and Annuity Company, a Connecticut corporation (the
"Underwriter"), a distribution fee under the Plan at the annual rate of 0.50% of
the average daily net assets of each Fund attributable to its Class B shares
(the "Distribution Fee").
Adjustment to Fees. The Distribution Fee may be reduced with respect
------------------
to the Class B shares of any Fund if agreed upon by the Board of Directors of
the Company (the "Board") and the Underwriter and if approved in the manner
specified in Section 3 of this Plan.
Payment of Fees. The Distribution Fee will be calculated daily and
---------------
paid monthly by each Fund with respect to its Class B shares at the annual rate
indicated above.
Section 2. Expenses covered by the Plan.
The Distribution Fee may be used by the Underwriter for: (a) costs of
printing and distributing the Fund's prospectus, statement of additional
information and reports to prospective investors in the Fund; (b) costs involved
in preparing, printing and distributing sales literature pertaining to the Fund;
(c) an allocation of overhead and other branch office distribution-related
expenses of the Underwriter; (d) payments made to persons who provide support
services in connection with the distribution of the Fund's shares, including but
not limited to, office space and equipment, telephone facilities, answering
routine inquiries regarding the Fund, processing shareholder transactions and
providing any other shareholder services not otherwise provided by the Company's
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee and the contingent deferred sales
charge received by the Underwriter; and (f) any other expense primarily intended
to result in the sale of a Fund's shares, including, without limitation,
payments to selling dealers and their agents at the time of the sale of shares,
if applicable.
The amount of the Distribution Fees payable under Section 1 hereof is
not related directly to expenses incurred by the Underwriter and this Section 2
does not obligate a
<PAGE>
Fund to reimburse the Underwriter for such expenses. The Distribution Fees will
be paid by each Fund to the Underwriter unless and until (a) the Plan is
terminated pursuant to Section 5 hereof, or (b) the Plan is not renewed with
respect to a Fund or Class B thereof pursuant to Section 4 hereof. Any
distribution expenses incurred by the Underwriter on behalf of a Fund in excess
of the Distribution Fees specified in Section 1 hereof which the Underwriter has
accrued through the termination date are the sole responsibility and liability
of the Underwriter and are not an obligation of a Fund.
Section 3. Approval of Directors.
Neither the Plan nor any related agreements will take effect until
approved by a majority of both (a) the full Board of Directors of the Company
and (b) those Directors who are not interested persons of the Company and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related to it (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting on the Plan and the related agreements.
Section 4. Continuance of the Plan.
The Plan will continue in effect for one year from the date of its
execution hereof and thereafter for successive twelve-month periods; provided,
however, that such continuance is specifically approved at least annually by the
Board and by a majority of the Qualified Directors.
Section 5. Termination.
The Plan may be terminated at any time with respect to Class B of a
Fund (a) by the vote of a majority of the outstanding voting securities of Class
B of a Fund or (b) by a vote of a majority of the Qualified Directors. The Plan
may remain in effect with respect to a Fund or Class B thereof even if the Plan
has been terminated in accordance with this Section 5 with respect to any other
Fund or Class B thereof.
Section 6. Amendments.
The Plan may not be amended with respect to Class B of a Fund so as to
increase materially the amounts of the Distribution Fees described in Section 1
above unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of Class B of that Fund. No
material amendment to the Plan may be made unless approved in the manner
described in Section 3 above.
Section 7. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the
Company's Directors who are not interested persons of the Company will be
committed to the discretion of the Directors then in office who are not
interested persons of the Company.
-2-
<PAGE>
Section 8. Written Reports.
In each year during which the Plan remains in effect, any person
authorized to direct the disposition of monies paid or payable by a Fund
pursuant to the Plan or any related agreement will prepare and furnish to the
Board, and the Board will review, at least quarterly, written reports setting
out the amounts expended under the Plan, the purposes for which those
expenditures were made, and otherwise complying with the requirements of the
Rule.
Section 9. Preservation of Materials.
The Company will preserve copies of the Plan, any agreement relating
to the Plan and any report made pursuant to Section 8 above, for a period of not
less than six years (the first two years in an easily accessible place) from the
date of the Plan, agreement or report.
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning
ascribed to those terms under the 1940 Act.
IN WITNESS WHEREOF, the Company has executed the Plan as of
April 15, 1994.
AETNA SERIES FUND, INC.
CLASS B
By: /s/ Shaun P. Mathews
--------------------------
Shaun P. Mathews, President
-3-
<PAGE>
APPENDIX A
----------
Aetna Money Market Fund
Aetna Bond Fund
The Aetna Fund
Aetna Growth and Income Fund
Aetna International Growth Fund
Aetna Tax-Free Fund
Aetna Government Fund
Aetna Small Company Growth Fund
Aetna Growth Fund
Aetna Asian Growth Fund
Aetna Ascent
Aetna Crossroads
Aetna Legacy
-4-
<PAGE>
EXHIBIT 99-B(15)(b)
FORM OF
SHAREHOLDER SERVICES PLAN
Aetna Series Fund, Inc.
Aetna_____________, Class B
This Shareholder Services Plan (the "Plan") is adopted by Aetna Series Fund,
Inc., a Maryland corporation (the "Company"), on behalf of Class B of Aetna
_________ (the "Fund"), a class of shares of the Fund, subject to the following
terms and conditions:
Section 1. Annual Fees
Service Fee. The Fund will pay to the underwriter of its shares, Aetna Life
-----------
Insurance and Annuity Company, a Connecticut corporation (the "Underwriter"), a
service fee under the Plan at the annual rate of 0.25% of the average daily net
assets of the Fund attributable to Class B of the Fund (the "Service Fee").
Adjustment to Fees. The Service Fee may be reduced if approved by the
------------------
Underwriter and the Board of Directors of the Company (the "Board") in the
manner specified in Section 3 of this Plan.
Payment of Fees. The Service Fee will be calculated daily and paid monthly
---------------
by the Fund at the annual rate indicated above.
Section 2. Expenses Covered by the Plan.
The Service Fee may be used by the Underwriter primarily to pay selling
dealers and their agents for servicing shareholder accounts, including a
continuing fee which shall begin to accrue immediately after the sale of such
shares.
The amount of the Service Fee is not related directly to expenses incurred by
the Underwriter, and this Section 2 does not obligate the Fund to reimburse the
Underwriter for such expenses. The Service Fee will be paid by the Fund to the
Underwriter unless and until (a) the Plan is terminated in accordance with
Section 5 hereof; or (b) the Plan is now renewed with respect to the Fund or
Class B pursuant to Section 4 hereof. Any service expenses in excess of the
Service Fee which the Underwriter has incurred on behalf of a Fund and accrued
through the termination date are the sole responsibility and liability of the
Underwriter and are not an obligation of the Fund.
Section 3. Approval of Directors.
Neither the Plan nor any related agreements will take effect until approved
by a majority of both (a) the full Board of Directors of the Company and (b)
those Directors who are not interested persons of the Company and who have no
direct or indirect
<PAGE>
financial interest in the operation of the Plan or in any agreements related to
it (the "Qualified Directors"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
Section 4. Continuance of the Plan.
The Plan will continue in effect for one year from the date of its execution
hereof and thereafter for successive twelve-month periods; provided, however,
that such continuance is specifically approved at least annually by the Board
and by a majority of the Qualified Directors.
Section 5. Termination.
The Plan may be terminated at any time with respect to Class B of the Fund,
without the payment of any penalty, (a) by the vote of a majority of the
outstanding voting securities of Class B of the Fund or (b) by a vote of a
majority of the Qualified Directors.
Section 6. Amendments.
The Plan may not be amended with respect to Class B of the Fund so as to
increase materially the amounts of the Service Fee described in Section 1 above
unless the amendment is approved by a vote of the holders of at least a majority
of the outstanding voting securities of Class B of the Fund. No material
amendment to the Plan may be made unless approved in the manner described in
Section 3 above.
Section 7. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the Company's
Directors who are not interested persons of the Company will be committed to the
discretion of the Directors then in office who are not interested persons of the
Company.
Section 8. Written Reports.
In each year during which the Plan remains in effect, any person authorized
to direct the disposition of monies paid or payable by the Fund pursuant to the
Plan, or any related agreement, will prepare and furnish to the Board, and the
Board shall review, at least quarterly, written reports setting out the amounts
expended under the Plan and the purposes for which those expenditures were made.
Section 9. Preservation of Materials.
The Company will preserve copies of the Plan, any agreement relating to the
Plan and any report made pursuant to Section 8 above, for a period of not less
than six years (the first two years in an easily accessible place) from the date
of the Plan, agreement or report.
2
<PAGE>
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Company has executed the Plan as of September 14,
1994.
AETNA SERIES FUND, INC.
AETNA ___________, CLASS B
By: /s/ Shaun P. Mathews
--------------------
Shaun P. Mathews
President
3
<PAGE>
Shareholder Services Plan
Schedule of Parties
-------------------
Shareholder Services Agreements have been entered into with the following
parties in substantially the same form and type as the exhibit included
herewith.
<TABLE>
<CAPTION>
Party Date
----- ----
<S> <C>
Aetna Ascent 9/14/94
Aetna Crossroads 9/14/94
Aetna Legacy 9/14/94
</TABLE>
4
<PAGE>
EXHIBIT 99.B(16)
COMPUTATION OF PERFORMANCE DATA
TOTAL RETURN QUOTATIONS
In calculating the total return quotations, a hypothetical account was
established using a $1,000 initial payment.
Assumptions:
- - The 4-month figure assumes the redemption on October 31, 1995 of values
attributable to a $1,000 payment made on December 28, 1994 (effective date of
Funds).
Formula
P(1 + T)/n/ = ERV
P = a hypothetical initial payment of $1,000,
T = average annual total return,
n = number of years,
ERV = ending redeemable value at the end of the 1, 5, or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the 1, 5, or 10 year
periods.
Aetna Ascent
4 months $1,000(1+5.00%) = $1,124
Aetna Crossroads
4 months $1,000(1+4.70%) = $1,116
Aetna Legacy
4 months $1,000(1+4.60%) = $1,114
<PAGE>
Exhibit 99B(18)
POWER OF ATTORNEY
We, the undersigned directors and officers of Aetna Series Fund, Inc., hereby
severally constitute and appoint Susan E. Bryant, Julie E. Rockmore and Steven
J. Lauwers, and each of them individually, our true and lawful attorneys, with
full power to them and each of them to sign for us, and in our names and in the
capacities indicated below, any and all amendments, including but not limited to
Pre-Effective and Post-Effective Amendments, to Registration Statement No.
33-85620 filed with the Securities and Exchange Commission under the Securities
Act of 1933, hereby ratifying and confirming our signatures as they may be
signed by our said attorneys to any and all amendments to said Registration
Statement.
WITNESS our hands and common seal on this 27th day of April, 1995.
Signature Title
--------- -----
/s/ Shaun P. Mathews President and Director
- ---------------------------------------- (Principal Executive Officer)
Shaun P. Mathews
/s/ James C. Hamilton Vice President and Treasurer
- ---------------------------------------- (Principal Financial and Accounting
James C. Hamilton Officer)
/s/ Dominick J. Agostino Director
- ----------------------------------------
Dominick J. Agostino
/s/ Morton Ehrlich Director
- ----------------------------------------
Morton Ehrlich
/s/ Maria T. Fighetti Director
- ----------------------------------------
Maria T. Fighetti
/s/ David L. Grove Director
- ----------------------------------------
David L. Grove
/s/ Daniel P. Kearney Director
- ----------------------------------------
Daniel P. Kearney
/s/ John Y. Kim Director
- ----------------------------------------
John Y. Kim
/s/ Sidney Koch Director
- ----------------------------------------
Sidney Koch
/s/ Corine T. Norgaard Director
- ----------------------------------------
Corine T. Norgaard
/s/ Richard G. Scheide Director
- ----------------------------------------
Richard G. Scheide
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> ASCENT
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-04-1995
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 26,682,259
<INVESTMENTS-AT-VALUE> 27,870,398
<RECEIVABLES> 5,868,947
<ASSETS-OTHER> 590,911
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,330,256
<PAYABLE-FOR-SECURITIES> 3,883,683
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,497,505
<TOTAL-LIABILITIES> 7,881,188
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,200,054
<SHARES-COMMON-STOCK> 2,520,005
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 276,840
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (51,657)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,023,831
<NET-ASSETS> 26,449,068
<DIVIDEND-INCOME> 173,287
<INTEREST-INCOME> 217,921
<OTHER-INCOME> 0
<EXPENSES-NET> 114,368
<NET-INVESTMENT-INCOME> 276,840
<REALIZED-GAINS-CURRENT> (51,657)
<APPREC-INCREASE-CURRENT> 1,023,831
<NET-CHANGE-FROM-OPS> 1,249,014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,200,054
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,449,068
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 65,247
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 114,368
<AVERAGE-NET-ASSETS> 25,662,633
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .11
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