As filed with the Securities and Exchange Commission
on December 10, 1996
Registration Nos. 33-41694
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. 16
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 24
(Check appropriate box or boxes.)
AETNA SERIES FUND, INC.
_________________________________________________
(Exact Name of Registrant as Specified in Charter)
151 Farmington Avenue RC4A
Hartford, Connecticut 06156
________________________________________ _____
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (860) 273-7834
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RC4A
Hartford, Connecticut 06156
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective (check appropriate
space)
_X__ immediately upon filing pursuant to paragraph (b) of Rule 485
__ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
___ on (date) pursuant to paragraph (a)(1) of Rule 485
___ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
___ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
__ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Aetna Series Fund, Inc. 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 its
fiscal year ended October 31, 1995 on December 29, 1995.
EXPLANATORY NOTE
This Registration Statement contains two Prospectuses (one for each class of
Shares) and a Statement of Additional Information for a new series of
Registrant, the Aetna Index Plus Fund.
The Prospectus and the Statement of Additional Information with respect to
the other series of Registrant are incorporated into Part A and Part B of this
Post-Effective Amendment No. 16, respectively, by reference to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A (File No.
33-41694), as filed electronically on February 29, 1996, and by reference to
a Supplement dated August 12, 1996, as contained in Post-Effective Amendment
No. 13 to the Registration Statement on Form N-1A (File No. 33-41694), as
filed electronically on June 13, 1996.
AETNA SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404 (c))
AETNA INDEX PLUS FUND PROSPECTUS
<TABLE>
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PART A
N-1A
- --------
Item No. Location
- -------- -------------------------------
1. Cover Page........................... Cover Page
2. Synopsis............................. Fee Tables; Highlights
3. Condensed Financial Information...... Not Applicable
4. General Description of Registrant.... Description of Index Plus;
Investment Techniques;
Risk Factors and Other
Considerations; Investment
Restrictions; General
Information
5. Management of the Fund............... Management of the Series;
Portfolio Management
5A. Management's Discussion of Fund
Performance...... Not Applicable
6. Capital Stock and Other Securities... General Information;
Shareholder Services;
Index Plus Distribu-
tions; Taxes
7. Purchase of Securities Being Offered. Shareholder Services;
Management of the Series;
Net Asset Value; Fees and
Charges (Adviser Class
Prospectus Only)
8. Redemption or Repurchase............. Shareholder Services;
Fees and Charges (Adviser
Class Prospectus Only)
9. Pending Legal Proceedings............ None - Not Applicable
PART B
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... Additional Investment
Restrictions and Policies
of Index Plus; Description
of Various Securities and
Investment Techniques
14. Management of the Fund............... Directors and Officers
of the Fund
15. Control Persons and Principal Holders Control Persons and
of Securities...................... Principal Holders of
Index Plus
16. Investment Advisory and Other The Investment Advisory
Services........................... Agreement; Subadvisory
Agreement; The Adminis-
trative Services Agreement;
Independent Auditors;
Custodian; Distribution
Arrangements; License
Agreement
17. Brokerage Allocation and Other Brokerage Allocation
Practices..........................
18. Capital Stock and Other Securities... Description of Shares
19. Purchase, Redemption and Pricing of Net Asset Value; Sale
Securities Being Offered........... and Redemption of Shares;
Distribution Arrangements
20. Tax Status........................... Tax Status
21. Underwriters......................... Principal Underwriter;
Distribution Arrangements
22. Calculation of Performance Data..... Performance Information
23. Financial Statements................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
PART A
SELECT CLASS
[Aetna logo] December 10, 1996
AETNA INDEX PLUS FUND PROSPECTUS
Aetna Series Fund, Inc. (the "Fund") is an open-end management investment
company authorized to issue multiple series of shares, each representing a
diversified portfolio of investments (a "Series" or collectively, the
"Series") with different investment objectives, policies and restrictions.
THIS PROSPECTUS CONTAINS INFORMATION PERTAINING ONLY TO AETNA INDEX PLUS FUND
("Index Plus"). Currently, the Fund is authorized to offer two classes of
shares, the Select Class and the Adviser Class. The Select Class of shares of
the Fund is no-load.
This Prospectus sets forth concisely the information about Index Plus and the
Fund that you should know before investing. Additional information
about Index Plus and the Fund including a Statement of Additional
Information ("Statement") dated December 10, 1996, has been filed with the
Securities and Exchange Commission ("Commission") and is incorporated by
reference into this Prospectus. The Statement, which contains information
pertaining to Index Plus and the Fund, is available upon request and without
charge by calling 1-800-367-7732 or by writing to Aetna Series Fund, Inc., at
151 Farmington Avenue, Hartford, Connecticut 06156-8962. Additional
information filed with the Commission can be obtained by contacting the
Commission at its Web Site (http://www.sec.gov).
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 OBJECTIVE
Index Plus will attempt to outperform the total return performance of publicly
traded common stocks represented by the S&P 500 Composite Stock Price Index
("S&P 500"), a stock market index composed of 500 common stocks selected by
the Standard & Poor's Corporation.
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 IT FOR FUTURE REFERENCE.
TABLE OF CONTENTS
PAGE
HIGHLIGHTS
FEE TABLES
DESCRIPTION OF INDEX PLUS
INVESTMENT TECHNIQUES
RISK FACTORS AND OTHER CONSIDERATIONS
INVESTMENT RESTRICTIONS
SHAREHOLDER SERVICES
OTHER FEATURES
CROSS-SERIES INVESTING
MANAGEMENT OF THE SERIES
PORTFOLIO MANAGEMENT
INDEX PLUS DISTRIBUTIONS
NET ASSET VALUE
TAXES
GENERAL INFORMATION
PERFORMANCE DATA
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
APPENDIX B
DESCRIPTION OF CORPORATE BOND RATINGS
HIGHLIGHTS
WHAT IS A MUTUAL FUND AND WHAT ARE ITS ADVANTAGES? A mutual fund pools
the money of a number of investors and invests in a portfolio of securities
on their behalf. Mutual funds allow you to spread risk through
diversification and to benefit from professional management. You have
immediate access to your money simply by writing a letter.
WHAT IS OFFERED? Aetna Index Plus Fund, a diversified portfolio of the Fund
under the Investment Company Act of 1940 (1940 Act) is offered through
this Prospectus. See "Description of Index Plus."
WHAT ARE THE RISKS? The different types of securities purchased and
investment techniques used by Index Plus involve varying amounts of risk.
For example, equity securities are subject to a decline in the stock market or
in the value of the issuer and preferred stocks have price risk and some
interest rate and credit risk. The value of debt securities may be
affected by changes in general interest rates and in the
creditworthiness of the issuer. In addition, foreign securities have
currency risk. For more information, see "Risk Factors and Other
Considerations."
WHAT IS THE DIFFERENCE BETWEEN ADVISER AND SELECT CLASS SHARES? The Fund
has two classes of shares, the Select Class shares and the Adviser Class
shares. Select Class shares are only offered to certain corporate
retirement plans, salaried employees and persons retired from salaried
positions (including members of employees' and retired persons' immediate
families) of Aetna Life Insurance and Annuity Company and its affiliates,
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 Adviser Class
shares and their immediate family members, as long as they maintain a
shareholder account; Directors of the Fund; and members of such
other groups as may be approved by the Fund's Board of Directors from time to
time. Adviser 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 4 years from the date of initial
purchase. Additionally, Adviser Class shares are subject to an annual
distribution fee of 0.50% and an annual service fee of 0.25% of the value of
the average daily net assets of Index Plus.
HOW CAN I PURCHASE SHARES? You may purchase shares by completing an
application and sending it as described under "Shareholder Services." Your
initial purchase must be for a minimum of $1,000 or $500 if you are purchasing
shares of Index Plus for an Individual Retirement Account ("IRA").
Participants in employer-sponsored retirement plans should refer to their
enrollment materials. We also offer a systematic investment program that
enables investors to purchase shares on a regular basis. Please refer to
"Shareholder Services" and "Other Features" for complete details.
WHEN CAN I REDEEM SHARES? Shares may be redeemed on each day that the New
York Stock Exchange Inc. ("NYSE") is open for business. Select Class shares
are redeemable at net asset value. See "Shareholder Services" for further
information.
WHO IS MANAGING THE SERIES? Aetna Life Insurance and Annuity Company ("ALIAC")
serves as the investment adviser for each Series and Aeltus Investment
Management, Inc. ("Aeltus") serves as the subadviser. ALIAC and Aeltus
(collectively, the "Adviser") are both indirect wholly-owned subsidiaries
of Aetna Retirement Services, Inc., which is in turn an indirect
wholly-owned subsidiary of Aetna Inc.
Please refer to "Management of the Series" for further information.
WHAT IF I HAVE FURTHER QUESTIONS? Shareholders in the Series enjoy
personalized service. Please call 1-800-367-7732 for details or refer to
"Shareholder Services" for additional information.
FEE TABLES
The following is provided to assist you in understanding the various charges
and expenses that you would bear directly or indirectly as a shareholder.
For a complete description of these charges and expenses, see "Management
of the Series."
SELECT CLASS SHAREHOLDER TRANSACTION EXPENSES
Select Class shares are not subject to Shareholder Transaction Expenses which
include sales charges on purchases, deferred sales charges on redemptions,
sales charges on dividend reinvestments and exchange fees.
SELECT CLASS
ANNUAL INDEX PLUS OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
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Other Total Index
Expenses Plus Operating
(after Expenses
Management/ Administrative reim- (after expense
Advisory Fee Fee bursement) reimbursement)
(after
fee waiver)
------------- --------------- -------- --------------
Index Plus .30% .25% .15% .70%
</TABLE>
From time to time, ALIAC may agree to waive all or a portion of its
Management/Advisory Fee and/or its Administrative Fee for Index Plus and to
reimburse some or all of Index Plus' Other Expenses. Such fee waiver/expense
reimbursement arrangements will increase Index Plus' total return and may be
modified or terminated at any time.
Other Expenses are based on estimated amounts for the current fiscal year.
The percentages shown above reflect a fee waiver/expense reimbursement
arrangement. This arrangement limits the Total Index Plus Operating
Expenses to the percentage shown above. Without this arrangement,
Management/Advisory Fees and Total Index Plus Operating Expenses would be
0.45% and 0.85%, respectively.
SELECT CLASS
EXAMPLE
Using the above percentages, you would pay the following expenses on a
$1,000 investment, assuming a 5% annual return and redemption at the end
of each of the periods shown.
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1 Year 3 Years
------ -------
Index Plus $7 $22
</TABLE>
The above expenses reflect the fee waiver/expense reimbursement arrangement
in effect.
This example should not be considered an indication of past or future
expenses. Actual expenses may be greater or less than those shown.
ADVISER CLASS
SHAREHOLDER TRANSACTION EXPENSES
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Deferred Sales Sales Charge
Sales Charge Charge on on Dividend Exchange
on Purchases Redemptions(1) Reinvestment Fee
------------ --------------- ------------ --------
Index Plus None 1.0% 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
ANNUAL INDEX PLUS OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
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Other Total Index
Expenses Plus Operating
(after Expenses
Management/ Administrative 12b-1 reim- (after expense
Advisory Fee Fee Fee bursement) reimbursement)
(after
fee waiver)
------------- --------------- ------ --------- ---------------
Index Plus .30% .25% .50% .40% 1.45%
</TABLE>
Adviser Class shares of Index Plus are also subject to an annual distribution
fee of 0.50% and an annual service fee of 0.25% of the value of average daily
net assets of the Adviser Class of Index Plus. See "Fees and Charges" in the
Adviser Class prospectus. From time to time, ALIAC may agree to waive
all or a portion of its Management/Advisory Fee and/or its Administrative
Fee for Index Plus and to reimburse some or all of Index Plus' Other Expenses.
Such fee waiver/expense reimbursement arrangements will increase Index Plus'
total return and may be modified or terminated at any time.
Other Expenses are based on estimated amounts for the current fiscal year.
The percentages shown above reflect a fee waiver/expense reimbursement
arrangement. This arrangement limits the Total Index Plus Operating
Expenses to the percentage shown above. Without this arrangement,
Management/Advisory Fees and Total Index Plus Operating Expenses would be
0.45% and 1.60%, respectively.
ADVISER CLASS
EXAMPLE
Using the above percentages, you would pay the following expenses on a
$1,000 investment, assuming a 5% annual return and either redemption at the
end of each of the periods shown or no redemption:
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1 Year 3 Years
------- --------
Index Plus
Redemption at end of each time period $25 $51
No Redemption 15 46
</TABLE>
The above expenses reflect the fee waiver/expense reimbursement arrangement
in effect.
This example should not be considered an indication of past or future
expenses. Actual expenses may be greater or less than those shown. This
example reflects, among other things, the application of the maximum Deferred
Sales Charge imposed on Adviser Class shares.
As noted above, the Fund has two classes, Select Class and Adviser Class.
Because the expenses and sales charges vary between the classes, the
performance of each class will vary. Registered representatives may receive
different levels of compensation when selling shares of the Fund's classes.
Additional information regarding the Fund's classes may be obtained by calling
your representative or 1-800-367-7732.
DESCRIPTION OF INDEX PLUS
The Fund is a management investment company incorporated in the State of
Maryland made up of multiple portfolios or series, each of which is
diversified under the 1940 Act. Index Plus, a diversified portfolio,
has an investment objective which is a fundamental policy and may not be
changed without the vote of a majority of the holders of Index Plus'
outstanding shares. There can be no assurance that Index Plus will meet
its investment objective. Index Plus is subject to investment restrictions
described in this Prospectus and in the Statement, some of which are
fundamental policies. The investment objective and fundamental investment
policies of Index Plus may be changed only by a vote of a majority of the
outstanding shares (both Adviser and Select Class) of Index Plus (as defined
in the 1940 Act).
A glossary describing various investment terms relating to securities that may
be held by Index Plus is contained in Appendix A.
INVESTMENT OBJECTIVE. Index Plus will attempt to outperform the total return
performance of publicly traded common stocks represented by the S&P 500.
INVESTMENT POLICY. Index Plus will attempt to be fully invested in common
stocks. Under normal circumstances, Index Plus will invest at least 90% of
its assets in common stocks represented in the S&P 500. Inclusion of a stock
in the S&P 500 in no way implies an opinion by Standard & Poor's Corporation
as to the stock's attractiveness as an investment. Index Plus is neither
sponsored by nor affiliated with Standard & Poor's Corporation. AN INVESTMENT
IN INDEX PLUS INVOLVES RISKS SIMILAR TO THOSE OF INVESTING IN COMMON STOCKS
GENERALLY. As Index Plus invests primarily in common stocks, Index Plus is
subject to market risk - i.e. the possibility that common stock prices will
decline over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when
prices generally decline.
Under normal circumstances, Index Plus will generally include approximately
400 stocks included in the S&P 500. Index Plus intends, under normal
circumstances, to exclude common stocks which are not part of the S&P 500 and
to exclude Aetna Inc. common stock.
It is a reasonable expectation that there will be a close correlation between
the performance of Index Plus and that of the S&P 500 in both rising and
falling markets. Index Plus expects to achieve a correlation between the
performance of its portfolio and that of the S&P 500 of at least 0.95,
without taking into account expenses. A correlation of 1.00 would indicate
perfect correlation, which would be achieved when the net asset value of
Index Plus, including the value of its dividends and capital gains
distributions, increases or decreases in exact proportion to changes in the
S&P 500.
The weightings of stocks in the S&P 500 are based on each stock's relative
total market capitalization, that is, its market price per share multiplied by
the number of common shares outstanding. ALIAC will attempt to outperform the
investment results of the S&P 500 by creating a portfolio that has similar
market risk characteristics to the S&P 500, but will use a disciplined
analysis to identify those stocks having the greatest likelihood of either
outperforming or underperforming the market.
INVESTMENT TECHNIQUES
Index Plus may use the following investment techniques (see Appendix A for
the definition of certain terms used below):
BORROWING. Index Plus may borrow money from banks, but only for temporary or
emergency purposes in an amount up to 5% of the value of Index Plus' total
assets (including the amount borrowed), valued at the lesser of cost or
market, less liabilities (not including the amount borrowed), at the time the
borrowing is made.
Index Plus does not intend to borrow for leveraging purposes. It has the
authority to do so, but only if, after the borrowing, the value of Index Plus'
net assets, including proceeds from the borrowings, is equal to at least 300%
of all outstanding borrowings. Leveraging can increase the volatility of
Index Plus since it exaggerates the effects of changes in the value of the
securities purchased with the borrowed funds.
SECURITIES LENDING. Index Plus 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 Index Plus' total assets. Index Plus will not lend portfolio
securities to affiliates. Though fully collateralized, lending portfolio
securities involves certain risks, including the possibility that Index Plus
may incur costs in liquidating the collateral or a loss if the collateral
declines in value. In the event of a disparity between the value of the loaned
security and the collateral, there is the additional risk that the borrower
may fail to return the securities or provide additional collateral.
REPURCHASE AGREEMENTS. Under a repurchase agreement, Index Plus may acquire a
debt instrument for a relatively short period subject to an obligation by the
seller to repurchase and by Index Plus to resell the instrument at a fixed
price and time.
Index Plus 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, Index Plus 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 Index Plus to liquidate the collateral may be delayed or limited.
The Board of Directors has established credit standards for repurchase
transactions entered into by Index Plus.
ASSET-BACKED SECURITIES. Index Plus may purchase securities collateralized
by a specified pool of assets, including, but not limited to, credit card
receivables, automobile loans, home equity loans, mobile home loans, or
recreational vehicle loans. These securities are subject to prepayment risk.
In periods of declining interest rates, reinvestment of prepayment proceeds
would be made at lower and less attractive interest rates.
ZERO COUPON AND PAY-IN-KIND BONDS. Index Plus may invest in zero coupon
securities and pay-in-kind bonds. Zero coupon securities are debt securities
that pay no cash income but are sold at substantial discounts to their value
at maturity. Some zero coupon securities call for the commencement of regular
interest payments at a deferred date. Pay-in-kind bonds pay all or a portion
of their interest in the form of additional debt or equity securities. Zero
coupon securities and pay-in-kind bonds are subject to greater price
fluctuations in response to changes in interest rates than are ordinary
interest-paying instruments with similar maturities; the value of zero coupon
securities and pay-in-kind bonds appreciate more during periods of declining
interest rates and depreciate more during periods of rising interest rates.
BANK OBLIGATIONS. Index Plus may invest in obligations (including banker's
acceptances, commercial paper, bank notes, time deposits and certificates of
deposit) issued by domestic or foreign banks, provided the issuing bank has a
minimum of $5 billion in assets and a primary capital ratio of at least 4.25%.
OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. A derivative is a
financial instrument, the value of which is "derived" from the performance of
an underlying asset (such as a security or index of securities). In addition
to futures and options, derivatives include, but are not limited to, forward
contracts, swaps, structured notes, and collateralized mortgage obligations
("CMOs").
Index Plus 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, Index Plus
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 Index
Plus. These would include inverse floaters, interest-only and
principal-only securities.
Index Plus may write (sell) covered call options and purchase put options and
may purchase call and write (sell) put options including options on
securities, indices and futures. There is no limit on the amount of Index
Plus' total assets that may be subject to call options; however, writing a put
option requires the segregation of liquid assets to cover the contract. Index
Plus will not write a put option if it will require more than 50% of Index
Plus' net assets to be segregated to cover the put obligation nor will it
write a put option if after it is written more than 3% of Index Plus' assets
would consist of put options.
As with all derivatives, the use of call options involves certain risks which
are described in detail under "Risk Factors and Other Considerations" and in
the Statement. In that there is no limit on the amount of Index Plus' total
assets that may be subject to call options, these risks may be heightened
should Index Plus choose to engage extensively in such transactions.
Investments in futures contracts and related options with respect to foreign
currencies, fixed income securities and foreign stock indices may also be made
by Index Plus. Although these investments are primarily made to hedge against
price fluctuations, in some cases, Index Plus may buy a futures contract for
the purpose of increasing its exposure in a particular asset class or market
segment, which strategy may be considered speculative. This strategy is
typically used to better manage portfolio transaction costs. With respect to
futures contracts or related options that may be entered into for speculative
purposes, the aggregate initial margin for futures contracts and premiums
for options will not exceed 5% of Index Plus' net assets, after taking into
account realized profits and unrealized losses on such futures contracts.
Index Plus may invest in forward contracts on foreign currency ("forward
exchange contracts"). These contracts may involve "cross-hedging," a
technique in which Index Plus hedges with currencies which differ from the
currency in which the underlying asset is denominated.
Index Plus may also invest in interest rate swap transactions. Interest rate
swaps are subject to credit risks (if the other party fails to meet its
obligations) and also interest rate risks, because Index Plus could be
obligated to pay more under its swap agreements than it receives under them as
a result of interest rate changes.
U.S. GOVERNMENT DERIVATIVES. Index Plus may purchase separately traded
principal and interest components of certain U.S. Government securities
("STRIPS"). In addition, Index Plus may acquire custodial receipts that
represent ownership in a U.S. Government security's future interest or
principal payments. These securities are known by such exotic names as TIGRS
and CATS and may be issued at a discount to face value. They are generally
more volatile than normal fixed income securities because interest payments
are accrued rather than paid out in regular installments.
SUPRANATIONAL AGENCIES. Index Plus may invest up to 10% of its net assets in
securities of supranational agencies such as: the International Bank for
Reconstruction and Development (commonly referred to as the "World Bank"),
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization
engaged in cooperative economic activities; the European Coal and Steel
Community, which is an economic union of various European nations' steel and
coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.
Securities of supranational agencies are not considered government securities
and are not supported directly or indirectly by the U.S. Government.
ILLIQUID AND RESTRICTED SECURITIES. Index Plus may invest, under normal
circumstances, up to 10% of its total assets in illiquid securities.
Illiquid securities are securities that are not readily marketable or cannot
be disposed of promptly within seven days and in the ordinary course of
business without taking a materially reduced price. In addition, Index Plus
may invest in securities that are subject to legal or contractual restrictions
on resale, including securities purchased under Rule 144A and Section 4(2) of
the Securities Act of 1933.
Because of the absence of a trading market for illiquid and certain restricted
securities, it may take longer to liquidate these securities than it would
unrestricted, liquid securities. Index Plus may realize less than the amount
originally paid by Index Plus for the security. The Board of Directors has
established a policy to monitor the liquidity of such securities.
CASH OR CASH EQUIVALENTS. The Adviser reserves the right to depart from
Index Plus' investment objective temporarily by investing up to 100% of
its assets in cash or cash equivalents for defense against potential market
declines and to accommodate cash flows from the purchase and sale of
Index Plus' shares.
OTHER INVESTMENTS. Index Plus may use other investment techniques, including
"when-issued" and "delayed-delivery securities" and variable rate instruments.
These techniques are described in Appendix A and the Statement.
RISK FACTORS AND OTHER CONSIDERATIONS
GENERAL CONSIDERATIONS. The different types of securities purchased and
investment techniques used by the Adviser involve varying amounts of risk. For
example, equity securities are subject to a decline in the stock market or in
the value of the issuer, and preferred stocks have price risk and some
interest rate and credit risk. The value of fixed income or debt securities
may be affected by changes in general interest rates and in the
creditworthiness of the issuer. Debt securities with longer maturities
(for example, over ten years) are generally more affected by changes in
interest rates and provide less price stability than securities with short
term maturities (for example, one to ten years). Also, on each debt security,
the risk of principal and interest default is greater with higher-yielding,
lower-grade securities. High risk, high-yield securities may provide a
higher return but with added risk. In addition, foreign securities have
currency risk. Some of the risks involved in the securities acquired by
Index Plus are discussed in this section. Additional discussion is contained
above under "Investment Techniques" and in the Statement.
PORTFOLIO TURNOVER. Portfolio turnover refers to the frequency of portfolio
transactions and the percentage of portfolio assets being bought and sold in
the aggregate during the year. Although the Adviser does not purchase
securities with the intention of profiting from short-term trading, the
Adviser may buy and sell securities when the Adviser believes such action is
appropriate. It is anticipated that the average annual turnover rate of Index
Plus may exceed 125%. Turnover rates in excess of 125% may result in higher
transaction costs (which are borne directly by Index Plus and a possible
increase in short-term capital gains (or losses). See "Tax Status" in the
Statement.
FOREIGN SECURITIES. Investments in securities of foreign issuers or
securities denominated in foreign currencies involve risks not present in
domestic markets. Such risks include: currency fluctuations and related
currency conversion costs; less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic developments;
different accounting procedures and auditing standards; the possible
imposition of withholding taxes on interest income payable on securities; the
possible seizure or nationalization of foreign assets; the possible
establishment of exchange controls or other foreign laws or restrictions which
might adversely affect the payment and transferability of principal, interest
and dividends on securities; higher transaction costs; possible settlement
delays; and less publicly available information about foreign issuers.
DEPOSITARY RECEIPTS. Index Plus can invest in both sponsored and unsponsored
depositary receipts. Unsponsored depositary receipts, which are typically
traded in the over-the-counter market, may be less liquid than sponsored
depositary receipts and therefore may involve more risk. In addition, there
may be less information available about issuers of unsponsored depositary
receipts.
Index Plus will generally acquire American Depositary Receipts ("ADRs") which
are dollar denominated, although their market price is subject to fluctuations
of the foreign currency in which the underlying securities are denominated.
All depositary receipts will be considered foreign securities for purposes of
Index Plus' investment limitation concerning investment in foreign securities.
See Appendix A and the Statement for more information.
HIGH RISK, HIGH-YIELD SECURITIES. Index Plus may invest in high risk,
high-yield securities, often called "junk bonds". These securities tend to
offer higher yields than investment-grade bonds because of the additional
risks associated with them. These risks include: a lack of liquidity; an
unpredictable secondary market; a greater likelihood of default; increased
sensitivity to difficult economic and corporate developments; call provisions
which may adversely affect investment returns; and loss of the entire
principal and interest. Although junk bonds are high risk investments, they
may be purchased if they are thought to offer good value. This may happen
if, for example, the rating agencies have, in the Adviser's opinion,
misclassified the bonds or overlooked the potential for the issuer's enhanced
creditworthiness.
DERIVATIVES. Index Plus may use derivative instruments as described above
under "Investment Techniques - Options, Futures and Other Derivative
Instruments." Derivatives can be volatile investments and involve certain
risks. Index Plus 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 Index Plus. Leverage may exaggerate losses of
principal. The amount of gains or losses on investments in futures contracts
depends on ALIAC's ability to predict correctly the direction of stock prices,
interest rates and other economic factors.
The use of forward exchange contracts may reduce the gain that would otherwise
result from a change in the relationship between the U.S. dollar and a foreign
currency. In an attempt to limit its risk in forward exchange contracts, Index
Plus limits its exposure to the amount of its assets denominated in the
foreign currency being cross-hedged. Cross-hedging entails a risk of loss on
both the value of the security that is the basis of the hedge and the currency
contract that was used in the hedge. These risks are described in greater
detail in the Statement.
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.
Liquid assets in an amount at least equal to Index Plus' commitments to
purchase securities on a when-issued or delayed-delivery basis will be
segregated at Index Plus' custodian. For more information about these
securities, see Appendix A and the Statement.
SMALL CAPITALIZATION COMPANIES. Index Plus may invest in small capitalization
companies. These companies may be in an early developmental stage or older
companies entering a new stage of growth due to management changes, new
technology, products or markets. The securities of small capitalization
companies may also be undervalued due to poor economic conditions, market
decline or actual or anticipated unfavorable developments affecting the issuer
of the security or its industry.
Securities of small capitalization companies tend to offer greater potential
for growth than securities of larger, more established issuers but there are
additional risks associated with them. These risks include: limited
marketability; more abrupt or erratic market movements than securities of
larger capitalization companies; and less publicly available information about
the issuer. In addition, these companies may be dependent on relatively few
products or services, have limited financial resources and lack of management
depth, and may have less of a track record or historical pattern of
performance.
INVESTMENT RESTRICTIONS
In addition to the restrictions discussed under "Investment Techniques," Index
Plus will not invest more than 25% of its total assets in securities issued by
companies principally engaged in any one industry. For purposes of this
restriction, finance companies will be classified as separate industries
according to the end users of their services, such as automobile finance,
computer finance and consumer finance. The 25% limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Additionally, Index Plus 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. These latter
restrictions apply only to 75% of Index Plus' total assets. See the Statement
for additional investment restrictions.
SHAREHOLDER SERVICES
The Fund offers several services to its Series shareholders. These may be
selected on the application or you may call 1-800-367-7732 to select these
services at a later date.
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 materials. The specific provisions of your plan will govern
the investment options and services available to you.
SHAREHOLDER INQUIRIES. If you have any questions about Index Plus or the
shareholder services described below, please call 1-800-367-7732.
How to
Purchase
Shares
HOW TO PURCHASE SHARES. Select Class shares may be purchased directly from
the Fund, through a registered representative of a broker-dealer affiliated
with the Fund, through a registered representative of an unaffiliated
broker-dealer, or through an employer-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
application with the amount to be invested as directed below under "Purchase
by Mail." You may open an account with a minimum investment of $1,000 (or $500
for IRAs). Once you have opened an account in Index Plus, additional
investments may be made by mail ($100 minimum), wire transfer ($500 minimum)
or exchange from the same class of another Series in the Aetna Series Fund,
Inc. All checks must be drawn on a bank located within the United States and
payable in U.S. dollars. Minimum investments may be waived if an investment
is made through exchange of the entire amount invested in another Series.
Minimums may also be waived for certain circumstances such as for persons
investing through certain benefit plans, insurance settlement options or by
systematic investments. (Please refer to "Other Features--Systematic
Investment.")
CREDITING OF SHARES. Shares for new accounts will be purchased at the net
asset value next determined as of 4:15 p.m. eastern time on any day that the
New York Stock Exchange is open for business ("Business Day") so long as
the completed and signed application accompanied by a check in payment for
the share purchase is received by Firstar Trust Company (the transfer agent)
at its Milwaukee offices prior to 4:00 p.m. Additional investments and
exchanges will also be processed at the net asset value next determined as
of 4:15 p.m. if the check or wire for the purchase price or the exchange
request is received by 4:00 p.m. Orders received after 4:00 p.m. will be
processed at the net asset value determined on the following Business Day.
For investors purchasing shares in connection with retirement plans offered
by certain institutions (Institutions) under Section 401 of the Internal
Revenue Code, shares will be purchased at the next price calculated on a
day the NYSE is open provided that the Institution receives the
investor's request before the time specified by such Institution.
Investors participating in such a plan should refer to their enrollment
materials for a discussion of any specific instructions on the timing
or restrictions on the purchase of shares. Please refer to "Net Asset
Value" for information on how shares in Index Plus are valued.
You can make
a purchase
by mail
PURCHASE BY MAIL. To purchase shares by mail, please complete and sign the
application, make a check payable to the Aetna Series Fund, Inc. and mail to
the transfer agent, as follows:
Aetna Series Fund, Inc.
c/o Mutual Fund Services, 3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701
Correspondence mailed by overnight courier should be sent to the transfer agent
as follows:
Aetna Series Fund, Inc.
c/o Mutual Fund Services, 3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202
You can make additional investments to your accounts by using the investment
stubs from your confirmation statements or by sending payments to the
Fund at the address listed above. Your letter should indicate your name,
account numbers, the Select Class shares of Index Plus and the amount to
be invested. When opening an account, your check should be made payable to
Aetna Series Fund, Inc. or Firstar Trust Company. Cash, credit cards and
third party checks cannot be used to open an account. Firstar will accept
checks for subsequent purchases which are made payable to the account
owner(s) and endorsed to the Fund.
You can
purchase by
wire, electronic
funds transfer
or exchange
PURCHASE BY WIRE. You may also purchase additional Select Class shares of
Index Plus through a wire transfer. For federal funds wire instructions,
please call 1-800-367-7732. Federal funds wire purchase orders will be
accepted only when Index Plus and custodian bank are open for business.
PURCHASE BY ELECTRONIC FUNDS TRANSFER. Once an account has been established in
Index Plus, you may purchase additional Select Class shares by using
Electronic Funds Transfer ("EFT") facilities under the Systematic Investment
feature. See "Other Features." EFT will allow you to transfer money between
a bank account and Index Plus. You must elect EFT capability in
writing on the application or subsequently by requesting the appropriate
information.
PURCHASE BY EXCHANGE. You may open an account or purchase additional Select
Class shares by making an exchange among Select Class shares of any of the
Series of the Fund, provided shares of such Series may be legally sold in
your state of residence. An exchange may be made by submitting a written
request to make the exchange and specifying the name and account number of
your current Series account, the name of the Series you wish to exchange into,
the amount to be exchanged, and the signatures of all shareholders. Send your
request to the address listed above under "Purchase by Mail."
You may also exchange your Select Class shares by calling 1-800-367-7732.
Please provide the Series' 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:
[filled box] Each exchange may result in a gain or loss and is treated as a
sale and as a purchase of shares for tax purposes.
[filled box] An exchange which represents an initial investment in a Series
must meet the minimum investment requirements described under
"Shareholder Services - How to Open an Account."
[filled box] The shares received in an exchange must be identically
registered. A letter with signature guarantees must accompany
any exchange request to transfer shares into a Series account
that is not registered identically to the transferring Series
account.
[filled box] Following an investment in a Series, there is a required
eight-day holding period or maximum allowed by law, if shorter,
before those shares can be exchanged.
There is currently no limit on the number of exchanges. However, each Series
reserves the right to temporarily or permanently terminate the exchange
privilege for any person who makes more than five exchanges out of a Series
per calendar year. In addition, each Series reserves the right to refuse
exchange purchases by any person or group if, in the Adviser's judgment,
that Series would be unable to invest effectively in accordance with
its investment objective as a result of such exchange. Each Series 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 Series have
established reasonable procedures to confirm that instructions received are
genuine. If these procedures are not followed, the Series may be liable for
any losses due to unauthorized or fraudulent instructions. For your
protection, all telephone exchange transactions will be recorded, and you
will be asked for certain identifying information.
Your distribution
option can be
changed at any time by calling
1-800-367-7732
DISTRIBUTION OPTIONS. When completing an application, you must select one of
the following options for dividends and capital gains distributions:
[filled box] Full Reinvestment - Both dividends and capital gains
distributions from Index Plus will be reinvested in additional Select Class
shares of Index Plus. This option will be selected automatically unless one of
the other options is specified. (Please refer to "Series Distributions.")
[filled box] Or . . . Capital Gains Reinvestment - Capital gains
distributions from Index Plus will be reinvested in additional Select Class
shares of Index Plus and all net income from dividends will be distributed in
cash.
[filled box] Or . . . All Cash - Dividends and capital gains distributions
will be paid in cash.
If you select a cash distribution option, you can elect to have distributions
automatically invested in Select Class shares of another Series of the Fund.
If you make no selection, income dividends and capital gains distributions
with respect to Index Plus will be reinvested in additional Select Class
shares of Index Plus. Distributions paid in shares will be credited to your
account at the next determined net asset value per share.
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.
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 determined as of 4:15 p.m.
eastern time on any Business Day so long as the redemption request and all
required documentation is received by Firstar Trust Company (the transfer
agent) at its Milwaukee offices prior to 4:00 p.m. Redemption requests
received after 4:00 p.m. will be processed at the net asset value determined
on the following Business Day.
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, Index Plus 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 of Index Plus in any 90 day period. To the extent possible, the
Fund will distribute readily marketable securities, in conformity with
applicable rules of the Commission. In the event such redemption is requested
by institutional investors, the Fund will weigh the effects on individual
nonredeeming 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 for additional information on redemptions
in kind.
For help with
redemptions, call
1-800-367-7732
REDEEM BY MAIL. Shares of Index Plus may be redeemed by sending written
instructions to the transfer agent. The instructions should identify Index
Plus, the number of shares or dollar amount to be redeemed, your name and
Index Plus' account number. The instructions must be signed by all person(s)
required to sign for the Index Plus account, exactly as the account is
registered, and accompanied by a signature guarantee(s). (See "Signature
Guarantee" below.) Certain nonindividual shareholders may also be required to
furnish copies of a corporate resolution, trust document or other supporting
documents.
Once a redemption request is received in good order, Index Plus will normally
send the proceeds of such redemption within one or two business days.
However, if making immediate payment could adversely affect Index Plus,
Index Plus may defer distribution for up to seven days or the maximum period
allowed by law, if shorter. Also, Index Plus will hold payment of redemption
proceeds until a purchase check or systematic investment clears, which may
take up to 12 calendar days. Index Plus may suspend redemptions or
postpone payments when the New York Stock Exchange 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
designated bank account if federal funds wire instructions are provided with
your redemption request accompanied by a signature guarantee as described
below. A $10.00 fee will be charged for this service. A minimum redemption of
$1,000 is required for wire transfers.
SIGNATURE GUARANTEE. A signature guarantee is verification by certain
authorized institutions of the authenticity of the signature on a document.
Index Plus 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 designated 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.
Index Plus reserves the right to amend or discontinue this policy at any time
and establish other criteria for verifying the authenticity of any redemption
request.
You can obtain a signature guarantee from any one of the following
institutions: 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
Exchanges. 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 the Index Plus account. If this minimum balance is
not maintained due to redemptions, Index Plus 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 on the day
the account is closed. Index Plus 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. Index Plus can be used for investment by a
variety of tax-deferred plans. These plans let you save for retirement and
allow you to defer taxes on your investment income. Some of these plans are:
[filled box] IRAs, available to individuals who work and their spouses.
[filled box] 401(k) programs, available to corporations of all sizes to
benefit their employees.
Information you
will receive
SHAREHOLDER INFORMATION. The transfer agent will maintain your account
information. A confirmation statement will be sent to you 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 be
sent an annual and semiannual report of Index Plus. The transfer agent may
charge you a fee for special requests such as an historical transcript of
your account and copies of canceled checks.
Consolidated Statements reflecting current account values and year-to-date
transactions will be sent to you 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. With the prior permission of the other shareholders involved, you
have the option of requesting 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 one Consolidated Statement.
OTHER FEATURES
A convenient
way to make
regular
investments
SYSTEMATIC INVESTMENT. The Systematic Investment feature, using the EFT
capability (see "Shareholder Services--Purchase by Electronic Funds
Transfer"), allows you to make automatic monthly investments in Index Plus. On
the application, you may select the amount of money to be moved and the Series
to be invested in. There is no minimum initial cash investment required to
open your account if you elect to use the EFT feature. The minimum monthly
Systematic Investment is $50 per Series 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 terminated upon total
redemption of your account. Also, Index Plus will hold payment of redemption
proceeds until a Systematic Investment has cleared, which may take up to 12
calendar days.
For more
information, call
1-800-367-7732
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 Index Plus. The Automatic Cash Withdrawal Plan permits you to
have payments of $100 or more automatically transferred from Index Plus to
your designated bank account on a monthly basis. In order to enroll in this
plan, you must have a minimum balance of $10,000 in Index Plus 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.
TDD SERVICE. Firstar Trust Company, the transfer agent, offers
Telecommunication Device for the Deaf (TDD) services for hearing impaired
shareholders. The dedicated number for this service is 1-800-684-3416 and
appears on shareholder account statements.
CHANGES TO SERVICE. Index Plus reserves the right to amend the shareholder
services described above or to change the terms or conditions of such
services at any time.
CROSS-SERIES INVESTING
[filled box] Dividend Investing - You may elect to have dividend and/or
capital gains distributions automatically invested in one other
Select Class Series.
[filled box] Systematic Exchange - You may establish an automatic exchange of
Select Class shares from one Series to another. The
exchange will occur on or about the 15th day of each month and
must be for a minimum of $50 per month. Since this transaction
is treated as an exchange, the policies related to the exchange
privilege apply. Please read the "Shareholder Services--Purchase
by Exchange" section carefully. There may be tax consequences
associated with these exchanges. Please consult your tax
adviser.
Cross-Series Investing may only be made in a Series that has been previously
established with the Series' minimum investment. To request either or both of
these features, please call 1-800-367-7732 to obtain the appropriate
application.
MANAGEMENT OF THE SERIES
DIRECTORS. The business affairs of the Series are managed under the
supervision of the Board of Directors ("Directors"). The Directors set broad
policies for the Fund and each of the Series. Information about the Directors
is found in the Statement.
The Series'
Investment
Adviser
INVESTMENT ADVISER. ALIAC has entered into an investment advisory agreement
with the Fund on behalf of each Series which provides that ALIAC is
responsible for managing the investments of each Series and for providing
all necessary facilities and personnel costs to conduct such activities.
ALIAC is a Connecticut insurance corporation with its principal offices at
151 Farmington Avenue, Hartford, Connecticut 06156. ALIAC is registered
with the Commission as an investment adviser and is responsible for managing
over $22 billion in assets including those held by the Series.
ALIAC receives a monthly fee from Index Plus at an annual rate based on
average daily net assets of Index Plus as follows:
Advisory
Fees
Fee Assets
- ---------------------------- ------ ------------------------
Index Plus 0.45% On first $250 MM
0.45% On next $250 MM
0.425% On next $250 MM
0.40% On next $250 MM
0.40% On next $1 B
0.375% Over $2 B
Sub-Adviser to Aetna Series
Fund, Inc.
SUBADVISER. ALIAC, the Fund on behalf of each Series and Aeltus have
entered into a subadvisory agreement appointing Aeltus as the subadviser
for each Series (the "Subadvisory Agreement"). Aeltus is a
Connecticut corporation with its principal offices located at 242
Trumbull Street, Hartford, Connecticut 06103-1205. Aeltus is registered
as an investment adviser with the Commission. Under the Subadvisory
Agreement, Aeltus is responsible for managing the assets of each Series in
accordance with each Series' investment objective and policies, subject to
the supervision of ALIAC, the Fund and the Fund's Directors. Aeltus
determines what securities and other instruments are purchased and sold
by the Series and handles certain related accounting and administrative
functions, including determining the Series' net asset value on a daily
basis and preparing and providing such reports, data and information
as ALIAC or the Directors request from time to time.
ALIAC has overall responsibility for monitoring the investment program
maintained by the subadviser for compliance with applicable laws and
regulations, and each Series' investment objective and policies.
For its services, ALIAC has agreed to pay the Subadviser a monthly fee at an
annual rate based on the average daily net assets of Index Plus as follows.
This fee is not charged back to, or paid by, Index Plus; it is paid by ALIAC
out of its own resources, including fees and charges it receives from or in
connection with Index Plus.
Index Plus
Fee Assets
----------- ------
0.35% On first $250 MM
0.345% On next $250 MM
0.3275% On next $250 MM
0.31% On next $250 MM
0.30% On next $1 B
0.2775% Over $2 B
All of the investment personnel of ALIAC, including those listed in the
Prospectus under Portfolio Management, assumed positions with Aeltus as of
August 1, 1996 comparable to those they held with ALIAC. These individuals
provide investment services to Index Plus through Aeltus.
ADMINISTRATOR. ALIAC acts as administrator for each Series and has
responsibility for all administrative and internal accounting and reporting
services, oversight of relationships with third party service providers such
as the transfer agent and custodian, shareholder communications and reporting
for each Series. As administrator, ALIAC will oversee the calculation of net
asset values and other financial reports prepared by the subadviser for the
Series.
For these services, each Series pays ALIAC a monthly fee at an annual rate
based on average daily net assets of the Series 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 Fund.
ALIAC contracts with various broker-dealers, including one or more of its
affiliates, for distribution of Select Class shares.
TRANSFER AGENT. Firstar Trust Company located at 615 E. Michigan
Street, Milwaukee, WI 53202 acts as the Series' transfer and
dividend-paying agent. Firstar is responsible for the issuance, transfer and
redemption of shares and the opening and maintenance of shareholder accounts.
FUND EXPENSES. Each Series bears the costs of its operations. Expenses
directly attributable to a Series are charged to that Series. Some expenses
are allocated proportionately among all the Series in proportion to the
net assets of each Series and some expenses are allocated equally to each
Series. Fund expenses for each class of shares are included in the Fee
Tables.
PORTFOLIO MANAGEMENT
Geoffrey A. Brod, a Vice President of Aeltus, is primarily responsible for the
day-to-day management of Index Plus. Mr. Brod has over 30 years of experience
in quantitative applications and has over 9 years of experience in equity
investments. Mr. Brod has been with the Aetna organization since 1966.
INDEX PLUS DISTRIBUTIONS
How to
receive
dividends
[filled box] Index Plus declares and pays dividends annually.
[filled box] All capital gains distributions, if any, are paid on an annual
basis.
Income dividends are derived from investment income, including dividends,
interest, realized short-term capital gains, and certain foreign currency
gains received by Index Plus. Capital gains distributions are derived from
Index Plus' realized long-term capital gains. The per share dividends 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
distribution fees and service fees applicable to the Adviser Class.
Both income dividends and capital gains distributions are paid by Index Plus
on a per-share basis. As a result, at the time distributions are accrued,
the net asset value per share of Index Plus will be reduced by the amount of
such accrual.
NET ASSET VALUE
Pricing
Index Plus
The net asset value per share ("NAV") of Index Plus is determined as of
the earlier of 15 minutes after the close of the NYSE or 4:15 p.m. eastern
time on each day that the NYSE is open for trading. The NAV is computed
by dividing the total value of Index Plus' securities, plus any cash
or other assets (including dividends accrued but not collected) less all
liabilities (including accrued expenses), by the number of shares outstanding.
Portfolio securities are valued primarily on the basis of market quotations
furnished by independent pricing services. All other assets, including
restricted securities and other securities for which market quotations are not
readily available, are valued at their fair value in such manner as may be
determined, from time to time, in good faith by, or under the authority of,
the Directors.
TAXES
Form 1099-DIV
will be mailed
to you in January
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 Statement 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 individual tax situation with your tax adviser.
SHAREHOLDER DISTRIBUTIONS. The Fund intends to qualify for treatment under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Therefore, Index Plus will distribute all of its net income and gains to
shareholders. Such distributions will be taxable to the shareholders and not
to Index Plus. 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. Depending on Index Plus'
investments, part or all of ordinary income dividends could be treated as:
(1) "U.S. Government Interest Dividends" which are exempt from state and
local taxes in some jurisdictions or (2) "Qualifying Dividends" which for
eligible corporate shareholders qualify for the corporate dividends-received
deduction. Certain dividends paid by Index Plus will be Qualifying Dividends
for which eligible corporate shareholders may claim a partial deduction.
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 advance since the amount of Index Plus' assets to be invested
in various countries is not known.
Index Plus' distributions are taxable in the year they are received,
regardless of whether you take them in cash or reinvest them in additional
shares. However, distributions declared in December to shareholders of record
on a date in December and paid in January of the following year are taxable
as if paid on December 31 of the year of declaration. Index Plus will send a
statement to shareholders by January 31 indicating the tax status of
distributions made during the previous year, and any foreign taxes
"passed-through" to shareholders.
BUYING A DIVIDEND. If you buy shares of Index Plus just before the
ex-dividend date, you may be taxed on the entire amount of the dividend
received.
SHARE REDEMPTIONS. Any gain or loss realized when you redeem (sell) or
exchange shares of Index Plus will be treated as a taxable long-term or
short-term capital gain or loss. Please see the Statement for information
regarding any limitation on deductibility of such losses.
TAX WITHHOLDING. When you fill out your application, you will be asked to
certify 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, or fail to
properly certify your taxpayer identification number, the IRS can require
Index Plus to withhold a certain percentage of your taxable dividends, capital
gains distributions and redemption proceeds.
GENERAL INFORMATION
ARTICLES OF INCORPORATION. The Fund was incorporated under the laws of
Maryland 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 Fund currently offers 12 Series, one of which is described
in this Prospectus.
SHARE CLASSES. The 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 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 Board of Directors does not anticipate that there will be any
conflicts among the interests of the holders of the different classes of
shares of Index Plus. The Directors continue to consider whether any such
conflicts exist and, if so, will take appropriate action.
The Fund has obtained a ruling from the IRS with respect to certain Series of
the Fund (not including Index Plus) to the effect that differing distributions
among the classes of its shares will not result in a Series' dividends or
other distributions being regarded as "preferential dividends" under the Code.
Index Plus will rely on a recent revenue ruling issued by the IRS to the same
effect. For additional information, see the Statement.
CAPITAL STOCK. The Articles currently authorize the issuance of 4.8 billion
shares of capital stock of the Fund. All shares are nonassessable,
transferable and redeemable. There are no preemptive rights.
As of the effective date of this Prospectus, the following shares of Index
Plus were owned by ALIAC and its affiliates:
ALIAC
----------------------
Select Adviser
--------- ----------
Index Plus 10,000 0
ALIAC and its affiliates may make additional investments into Index Plus.
SHAREHOLDER MEETINGS. The Fund 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 Index Plus' outstanding shares, the Fund will hold a shareholder
meeting for the purpose of voting on the removal of one or more Directors and
will assist with communication concerning that shareholder meeting.
VOTING RIGHTS. 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 Fund. Voting rights are not
cumulative. Generally, shares of the Fund will be voted on a Fund-wide basis
on all matters except matters affecting only the interests of one Series or
one class of shares.
PAYMENTS TO DEALERS. From time to time, ALIAC or its affiliates may make
payments (up to 0.25%, computed on an annualized basis, of average monthly
account 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
From time to time advertisements and other sales materials for Index Plus may
include information concerning the historical performance of Index Plus. Any
such information will include the average annual total return of Index Plus
calculated on a compounded basis for specified periods of time. Total return
information will be calculated pursuant to rules established by the
Commission. In lieu of or in addition to total return calculations, such
information may include performance rankings and similar information from
independent organizations such as Lipper Analytical Services, Inc.,
Morningstar, Business Week, Forbes or other industry publications.
Index Plus calculates average annual total return by determining the
redemption value at the end of specified periods (assuming reinvestment of all
dividends and distributions) of a $1,000 investment in Index Plus at the
beginning of the period, deducting the initial $1,000 investment, annualizing
the increase or decrease over the specified period and expressing the result
as a percentage.
Total return figures utilized by Index Plus are based on historical
performance and are not intended to indicate future performance. Total return
and net asset value per share can be expected to fluctuate over time, and
accordingly, upon redemption, shares may be worth more or less than their
original cost.
PRIVATE ACCOUNT PERFORMANCE
Index Plus is newly organized and does not yet have its own performance
record. However, Index Plus has an investment objective, policies and
strategies which are substantially similar to those employed by Aeltus with
respect to certain Private Accounts.
Thus, the performance information derived from these Private Accounts is
deemed relevant to the investor. The performance of Index Plus may vary from
the Private Account composite information because Index Plus will be actively
managed and its investments will vary from time to time and will not be
identical to the past portfolio investments of the Private Accounts. Moreover,
the Private Accounts are not registered under the 1940 Act and therefore are
not subject to certain investment restrictions that are imposed by the 1940
Act, which, if imposed, could have adversely affected the Private Accounts'
performance.
The chart below shows hypothetical performance information derived from
historical composite performance of the Private Accounts included in the Index
Plus Composite. The hypothetical performance figures for Index Plus represent
the actual performance results of the composite of Private Accounts,
managed in a comparable manner, adjusted to reflect the deduction of
the fees and expenses (after fee waiver/expense reimbursement) anticipated
to be paid by Index Plus. Please refer to "Fee Tables" for further
information concerning Select Class fees and expenses and the fee waiver/
expense reimbursement arrangements. Absent the fee waiver/expense
reimbursement by ALIAC, the performance figures shown below would be reduced.
The actual Private Account composite performance figures are time-weighted
rates of return which include all income and accrued income and realized
and unrealized gains or losses, but do not reflect the deduction of
investment advisory fees actually charged to the Private Accounts.
Investors should not consider the performance data of these Private Accounts
as an indication of the future performance of Index Plus.
The following tables show hypothetical performance information derived from
private account historical composite performance reduced by anticipated Index
Plus fees and expenses, as well as comparisons with the S&P 500, an
unmanaged index generally considered to be representative of the stock
market.
HYPOTHETICAL HISTORICAL INDEX PLUS PERFORMANCE
1 YEAR SINCE INCEPTION
------- ---------------
Index Plus Composite* 22.05% 15.48%
S&P 500 Stock Index 20.39% 15.22%
* The Composite reflects the Aeltus "Quantitative Equity" Composite.
Results shown are through the period ended September 30, 1996. The inception
date is October 1, 1991 for the Index Plus Composite.
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary describes some of the securities used by Index Plus. Further
information is available in the Statement:
BANKER'S ACCEPTANCE. A time draft drawn on and accepted by a bank,
customarily used by corporations as a means of financing payment for traded
goods. When a draft is accepted by a bank, the bank guarantees to pay the face
value of the debt at maturity.
CALL OPTION. The right to buy a security, currency or stock index at a stated
price, or strike price, within a fixed period. A call option will be
exercised if the market price rises above the strike price; if not, the option
expires worthless.
CERTIFICATES OF DEPOSIT. For large deposits not withdrawable on demand, banks
issue certificates of deposit ("CDS") as evidence of ownership. CDS are
usually negotiable and traded among investors such as mutual funds and banks.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). Mortgage-backed bonds that
separate mortgage pools into various classes or branches in a predetermined,
specified order such as short-, medium-, and long-term portions.
COMMERCIAL PAPER. Unsecured short-term debt instruments issued by banks,
corporations or other borrowers with a maturity ranging from two to 270 days.
CONVERTIBLE SECURITIES. Corporate securities (usually bonds or preferred
stock) that can be exchanged for a set number of shares of another security,
usually common stock.
COVERED CALL OPTIONS. A call option backed by the securities underlying the
option. The owner of a security will normally sell covered call options to
collect premium income or to reduce price fluctuations of the security. A
covered call option limits the capital appreciation of the underlying
security.
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
Eurodollar securities including Eurodollar CDS and bonds; these securities are
not registered with the Commission. Certain Eurodollar deposits are not FDIC
insured and may be subject to future political and economic developments and
governmental restrictions.
DEPOSITARY RECEIPTS. Negotiable certificates evidencing ownership of shares
of a non-U.S. corporation, government, or foreign subsidiary of a U.S.
corporation. A U.S. bank typically issues depositary receipts, which are
backed by ordinary shares that remain on deposit with a custodian bank in the
issuer's home market. A depositary receipt can either be "sponsored" by the
issuing company or established without the involvement of the company, which
is referred to as "unsponsored."
FORWARD CONTRACTS. A purchase or sale of a specific quantity of a government
security, foreign currency, or other financial instrument at the current
price, with delivery and settlement at a specified future date.
FUTURES CONTRACTS. An agreement to buy or sell a specific amount of a
financial instrument at a particular price on a stipulated future date. A
futures contract obligates the buyer to purchase and the seller to sell,
unlike an option where one party can choose whether or not to exercise the
option.
HIGH RISK, HIGH-YIELD SECURITIES. Debt instruments that are rated BB
or below by Standard & Poor's Corporation or Ba or below by Moody's
Investors Service Inc., or securities of comparable ratings by other
agencies or, if unrated, considered by the investment adviser to be
of comparable quality. These securities are often called "junk bonds"
because of the greater possibility of default.
PREFERRED STOCK. Stock which has a preference over common stock, whether as
to payment of dividends or to assets on liquidation. It ordinarily pays a
fixed dividend.
PRIMARY CAPITAL RATIO. The ratio used to evaluate the creditworthiness of
foreign banks which is based on the ratio of total assets to the common and
preferred stock, loan loss reserves, minority interests and mandatory
convertibles.
PUT OPTION. The right to sell a security, currency or stock index at a stated
price, or strike price, within a fixed period. A put option will be exercised
if the market price falls below the strike price; if not, the option expires
worthless.
SWAP. An exchange of one security for another. A swap may be executed to
change the maturities of a bond portfolio or the quality of the issues in a
stock or bond portfolio.
U.S. GOVERNMENT SECURITIES. Securities issued by the U.S. Government and its
agencies.
Direct Obligations of the U.S. Government are:
TREASURY BILLS - issued with short maturities (one year or less) and
priced at a discount to face value. The income for investors is the
difference between the purchase price and the face value.
TREASURY NOTES - intermediate-term securities with maturities of between
one to ten years. Income to investors is paid in semiannual interest
payments.
TREASURY BONDS - long-term securities with maturities from ten years to
up to thirty years. Income is paid to investors on a semiannual basis.
In addition, U.S. Government Agencies issue debt securities to finance
activities for the U.S. Government. These agencies include among others the
Federal Home Loan Bank, Federal National Mortgage Association ("FNMA" or
"Fannie Mae"), Government National Mortgage Association ("GNMA" or "Ginnie
Mae"), Export-Import Bank and the Tennessee Valley Authority.
Not all agencies are backed by the full faith and credit of the United States;
for example the FNMA may borrow money from the U.S. Treasury only under
certain circumstances. There is no guarantee that the government will support
these types of securities and they therefore involve more risk than direct
government obligations.
VARIABLE RATE INSTRUMENTS. An instrument the terms of which provide for the
adjustment of its interest rate on set dates and which can reasonably be
expected to have a market value close to par value.
WARRANTS. A security, normally offered with bonds or preferred stock, that
entitles the holder to buy shares of stock at a prescribed price within a
named or stated period, or to perpetuity. The time period is usually longer
than that of a call option.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. When-issued is a transaction
that is made as of a current date, but conditioned on the actual issuance of a
security that is authorized but not yet issued. A delayed-delivery
transaction is one where both parties agree that the security will be
delivered and the transaction completed at a future date.
YANKEE BONDS. A dollar denominated bond issued in the United States by
foreign corporations and banks. Similarly, Yankee CDS are issued in the U.S.
by branches and agencies of foreign banks.
APPENDIX B
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt-edge." 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 -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what 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 larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates the issuer ranks in the lower end of its rating category.
STANDARD & POOR'S CORPORATION
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A -- 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 bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, the bonds face major uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B -- 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 logo] Aetna Series Fund, Inc.
151 Farmington Avenue
Hartford, CT 06156-8962
1-800-367-7732
Investment Adviser
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, CT 06156-8962
Subadviser
Aeltus Investment Management, Inc.
242 Trumbull Street
Hartford, CT 06103-1205
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
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 Index Plus in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.
ADVISER CLASS
[Aetna logo] December 10, 1996
AETNA INDEX PLUS FUND PROSPECTUS
Aetna Series Fund, Inc. (the "Fund") is an open-end management investment
company authorized to issue multiple series of shares, each representing a
diversified portfolio of investments (a "Series" or collectively, the
"Series") with different investment objectives, policies and restrictions.
THIS PROSPECTUS CONTAINS INFORMATION PERTAINING ONLY TO AETNA INDEX PLUS FUND
("Index Plus"). Currently, the Fund is authorized to offer two classes of
shares, the Select Class and the Adviser Class.
This Prospectus sets forth concisely the information about Index Plus and the
Fund that you should know before investing. Additional information
about Index Plus and the Fund including a Statement of Additional
Information ("Statement") dated December 10, 1996, has been filed with the
Securities and Exchange Commission ("Commission") and is incorporated by
reference into this Prospectus. The Statement, which contains information
pertaining to Index Plus and the Fund, is available upon request and without
charge by calling 1-800-367-7732 or by writing to Aetna Series Fund, Inc., at
151 Farmington Avenue, Hartford, Connecticut 06156-8962. Additional
information filed with the Commission can be obtained by contacting the
Commission at its Web Site (http://www.sec.gov).
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 OBJECTIVE
Index Plus will attempt to outperform the total return performance of publicly
traded common stocks represented by the S&P 500 Composite Stock Price Index
("S&P 500"), a stock market index composed of 500 common stocks selected by
the Standard & Poor's Corporation.
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 IT FOR FUTURE REFERENCE.
TABLE OF CONTENTS
PAGE
HIGHLIGHTS
FEE TABLES
DESCRIPTION OF INDEX PLUS
INVESTMENT TECHNIQUES
RISK FACTORS AND OTHER CONSIDERATIONS
INVESTMENT RESTRICTIONS
SHAREHOLDER SERVICES
OTHER FEATURES
CROSS-SERIES INVESTING
FEES AND CHARGES
MANAGEMENT OF THE SERIES
PORTFOLIO MANAGEMENT
INDEX PLUS DISTRIBUTIONS
NET ASSET VALUE
TAXES
GENERAL INFORMATION
PERFORMANCE DATA
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
APPENDIX B
DESCRIPTION OF CORPORATE BOND RATINGS
HIGHLIGHTS
WHAT IS A MUTUAL FUND AND WHAT ARE ITS ADVANTAGES? A mutual fund
pools the money of a number of investors and invests in a portfolio of
securities on their behalf. Mutual funds allow you to spread risk
through diversification and to benefit from professional management.
You have immediate access to your money simply by writing a
letter.
WHAT IS OFFERED? Aetna Index Plus Fund, a diversified portfolio of the
Fund under the Investment Company Act of 1940 (1940 Act), is offered
through this Prospectus. See "Description of Index Plus."
WHAT ARE THE RISKS? The different types of securities purchased and
investment techniques used by Index Plus involve varying amounts of
risk. For example, equity securities are subject to a decline in the
stock market or in the value of the issuer and preferred stocks have
price risk and some interest rate and credit risk. The value of
debt securities may be affected by changes in general interest rates
and in the creditworthiness of the issuer. In addition, foreign
securities have currency risk. For more information, see "Risk
Factors and Other Considerations."
WHAT IS THE DIFFERENCE BETWEEN SELECT AND ADVISER CLASS SHARES?
The Fund has two classes of shares: Adviser Class shares, which are
offered primarily to the general public, 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% (see "Contingent Deferred Sales Charge" for
details), 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 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 of Index Plus. See "Fees and Charges" for more information.
HOW CAN I PURCHASE SHARES? You may purchase Adviser Class shares by
completing an application and sending it as described under "Shareholder
Services." Your initial purchase must be for a minimum of $1,000 or $500 if
you are purchasing shares of Index Plus for an Individual Retirement Account
("IRA"). We also offer a systematic investment program that enables investors
to purchase shares on a regular basis. Please refer to "Shareholder Services"
and "Other Features" for complete details.
WHEN CAN I REDEEM SHARES? Shares may be redeemed on each day that the New
York Stock Exchange Inc. ("NYSE") is open for business. Adviser Class shares
are redeemable at net asset value. See "Shareholder Services" for further
information.
WHO IS MANAGING THE SERIES? Aetna Life Insurance and Annuity Company
("ALIAC") serves as the investment adviser for each Series and Aeltus
Investment Management, Inc. ("Aeltus") serves as the subadviser. ALIAC and
Aeltus (collectively, the "Adviser") are both indirect wholly-owned
subsidiaries of Aetna Retirement Services, Inc., which is in turn an
indirect wholly-owned subsidiary of Aetna Inc.
Please refer to "Management of the Series" for further information.
WHAT IF I HAVE FURTHER QUESTIONS? Shareholders in the Series enjoy
personalized service. Please call your representative for details or refer to
"Shareholder Services" for additional information.
FEE TABLES
The following is provided to assist you in understanding the various charges
and expenses that you would bear directly or indirectly as a shareholder.
For a complete description of these charges and expenses, see "Management
of the Series."
ADVISER CLASS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Deferred Sales Sales Charge
Sales Charge Charge on on Dividend Exchange
on Purchases Redemptions(1) Reinvestment Fee
------------ --------------- ------------ --------
Index Plus None 1.0% 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
ANNUAL INDEX PLUS OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Other Total Index
Expenses Plus Operating
(after Expenses
Management/ Administrative 12b-1 reim- (after expense
Advisory Fee Fee Fee bursement) reimbursement)
(after fee
waiver)
------------ -------------- ------ --------- ---------------
Index Plus .30% .25% .50% .40% 1.45%
</TABLE>
Adviser Class shares of Index Plus are also subject to an annual distribution
fee of 0.50% and an annual service fee of 0.25% of the value of average
daily net assets of the Adviser Class of Index Plus. See "Fees and Charges."
From time to time, ALIAC may agree to waive all or a portion of its
Management/Advisory Fee and/or its Administrative Fee for Index Plus and to
reimburse some or all of Index Plus' Other Expenses. Such fee waiver/expense
reimbursement arrangements will increase Index Plus' total return and may be
modified or terminated at any time.
Other Expenses are based on estimated amounts for the current fiscal year.
The percentages shown above reflect a fee waiver/expense reimbursement
arrangement. This arrangement limits the Total Index Plus Operating
Expenses to the percentage shown above. Without this arrangement,
Management/Advisory Fees and Total Index Plus Operating Expenses would be
0.45% and 1.60%, respectively.
ADVISER CLASS
EXAMPLE
Using the above percentages, you would pay the following expenses on a
$1,000 investment, assuming a 5% annual return and either redemption at the
end of each of the periods shown or no redemption:
<TABLE>
<CAPTION>
<S> <C> <C>
1 Year 3 Years
------- --------
Index Plus
Redemption at end of each time period $25 $ 51
No Redemption 15 46
</TABLE>
The above expenses reflect the fee waiver/expense reimbursement arrangement
in effect.
This example should not be considered an indication of past or future
expenses. Actual expenses may be greater or less than those shown. This
example reflects, among other things, the application of the maximum Deferred
Sales Charge imposed on Adviser Class shares.
SELECT CLASS SHAREHOLDER TRANSACTION EXPENSES
Select Class shares are not subject to Shareholder Transaction Expenses which
include sales charges on purchases, deferred sales charges on redemptions,
sales charges on dividend reinvestments and exchange fees.
SELECT CLASS
ANNUAL INDEX PLUS OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Other Total Index
Expenses Plus Operating
(after Expenses
Management/ Administrative reim- (after expense
Advisory Fee Fee bursement) reimbursement)
(after fee
waiver)
------------- --------------- --------- ---------------
Index Plus .30% .25% .15% .70%
</TABLE>
From time to time, ALIAC may agree to waive all or a portion of its
Management/Advisory Fee and/or its Administrative Fee for Index Plus and to
reimburse some or all of Index Plus' Other Expenses. Such fee waiver/expense
reimbursement arrangements will increase Index Plus' total return and may be
modified or terminated at any time.
Other Expenses are based on estimated amounts for the current fiscal year.
The percentages shown above reflect a fee waiver/expense reimbursement
arrangement. This arrangement limits the Total Index Plus Operating
Expenses to the percentage shown above. Without this arrangement,
Management/Advisory Fees and Total Index Plus Operating Expenses would be
0.45% and 0.85%, respectively.
SELECT CLASS
EXAMPLE
Using the above percentages, you would pay the following expenses on a
$1,000 investment, assuming a 5% annual return and redemption at the end
of each of the periods shown.
<TABLE>
<CAPTION>
<S> <C> <C>
1 Year 3 Years
------ -------
Index Plus $7 $22
</TABLE>
The above expenses reflect the fee waiver/expense reimbursement arrangement
in effect.
This example should not be considered an indication of past or future
expenses. Actual expenses may be greater or less than those shown.
As noted above, the Fund has two classes, Select Class and Adviser Class.
Because the expenses and sales charges vary between the classes, the
performance of each class will vary. Registered representatives may receive
different levels of compensation when selling shares of the Fund's classes.
Additional information regarding the Fund's classes may be obtained by calling
your representative or 1-800-367-7732.
DESCRIPTION OF INDEX PLUS
The Fund is a management investment company incorporated in the State of
Maryland made up of multiple portfolios or series, each of which is
diversified under the 1940 Act. Index Plus, a diversified portfolio, has
an investment objective which is a fundamental policy and may not be
changed without the vote of a majority of the holders of Index Plus'
outstanding shares. There can be no assurance that Index Plus will meet
its investment objective. Index Plus is subject to investment restrictions
described in this Prospectus and in the Statement, some of which are
fundamental policies. The investment objective and fundamental investment
policies of Index Plus may be changed only by a vote of a majority of the
outstanding shares (both Select and Adviser Class) of Index Plus (as
defined in the 1940 Act).
A glossary describing various investment terms relating to securities that may
be held by Index Plus is contained in Appendix A.
INVESTMENT OBJECTIVE. Index Plus will attempt to outperform the total return
performance of publicly traded common stocks represented by the S&P 500.
INVESTMENT POLICY. Index Plus will attempt to be fully invested in common
stocks. Under normal circumstances, Index Plus will invest at least 90% of
its assets in common stocks represented in the S&P 500. Inclusion of a stock
in the S&P 500 in no way implies an opinion by Standard & Poor's Corporation
as to the stock's attractiveness as an investment. Index Plus is neither
sponsored by nor affiliated with Standard & Poor's Corporation. AN INVESTMENT
IN INDEX PLUS INVOLVES RISKS SIMILAR TO THOSE OF INVESTING IN COMMON STOCKS
GENERALLY. As Index Plus invests primarily in common stocks, Index Plus is
subject to market risk - i.e. the possibility that common stock prices will
decline over short or even extended periods. The U.S. stock market tends to be
cyclical, with periods when stock prices generally rise and periods when
prices generally decline.
Under normal circumstances, Index Plus will generally include approximately
400 stocks included in the S&P 500. Index Plus intends, under normal
circumstances, to exclude common stocks which are not part of the S&P 500 and
to exclude Aetna Inc. common stock.
It is a reasonable expectation that there will be a close correlation between
the performance of Index Plus and that of the S&P 500 in both rising and
falling markets. Index Plus expects to achieve a correlation between the
performance of its portfolio and that of the S&P 500 of at least 0.95,
without taking into account expenses. A correlation of 1.00 would indicate
perfect correlation, which would be achieved when the net asset value of
Index Plus, including the value of its dividends and capital gains
distributions, increases or decreases in exact proportion to changes in the
S&P 500.
The weightings of stocks in the S&P 500 are based on each stock's relative
total market capitalization, that is, its market price per share multiplied by
the number of common shares outstanding. ALIAC will attempt to outperform the
investment results of the S&P 500 by creating a portfolio that has similar
market risk characteristics to the S&P 500, but will use a disciplined
analysis to identify those stocks having the greatest likelihood of either
outperforming or underperforming the market.
INVESTMENT TECHNIQUES
Index Plus may use the following investment techniques (see Appendix A for
the definition of certain terms used below):
BORROWING. Index Plus may borrow money from banks, but only for temporary or
emergency purposes in an amount up to 5% of the value of Index Plus' total
assets (including the amount borrowed), valued at the lesser of cost or
market, less liabilities (not including the amount borrowed), at the time the
borrowing is made.
Index Plus does not intend to borrow for leveraging purposes. It has the
authority to do so, but only if, after the borrowing, the value of Index Plus'
net assets, including proceeds from the borrowings, is equal to at least 300%
of all outstanding borrowings. Leveraging can increase the volatility of
Index Plus since it exaggerates the effects of changes in the value of the
securities purchased with the borrowed funds.
SECURITIES LENDING. Index Plus 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 Index Plus' total assets. Index Plus will not lend portfolio
securities to affiliates. Though fully collateralized, lending portfolio
securities involves certain risks, including the possibility that Index Plus
may incur costs in liquidating the collateral or a loss if the collateral
declines in value. In the event of a disparity between the value of the loaned
security and the collateral, there is the additional risk that the borrower
may fail to return the securities or provide additional collateral.
REPURCHASE AGREEMENTS. Under a repurchase agreement, Index Plus may acquire a
debt instrument for a relatively short period subject to an obligation by the
seller to repurchase and by Index Plus to resell the instrument at a fixed
price and time.
Index Plus 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, Index Plus 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 Index Plus to liquidate the collateral may be delayed or limited.
The Board of Directors has established credit standards for repurchase
transactions entered into by Index Plus.
ASSET-BACKED SECURITIES. Index Plus may purchase securities collateralized
by a specified pool of assets, including, but not limited to, credit card
receivables, automobile loans, home equity loans, mobile home loans, or
recreational vehicle loans. These securities are subject to prepayment risk.
In periods of declining interest rates, reinvestment of prepayment proceeds
would be made at lower and less attractive interest rates.
ZERO COUPON AND PAY-IN-KIND BONDS. Index Plus may invest in zero coupon
securities and pay-in-kind bonds. Zero coupon securities are debt securities
that pay no cash income but are sold at substantial discounts to their value
at maturity. Some zero coupon securities call for the commencement of regular
interest payments at a deferred date. Pay-in-kind bonds pay all or a portion
of their interest in the form of additional debt or equity securities. Zero
coupon securities and pay-in-kind bonds are subject to greater price
fluctuations in response to changes in interest rates than are ordinary
interest-paying instruments with similar maturities; the value of zero coupon
securities and pay-in-kind bonds appreciate more during periods of declining
interest rates and depreciate more during periods of rising interest rates.
BANK OBLIGATIONS. Index Plus may invest in obligations (including banker's
acceptances, commercial paper, bank notes, time deposits and certificates of
deposit) issued by domestic or foreign banks, provided the issuing bank has a
minimum of $5 billion in assets and a primary capital ratio of at least 4.25%.
OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. A derivative is a
financial instrument, the value of which is "derived" from the performance of
an underlying asset (such as a security or index of securities). In addition
to futures and options, derivatives include, but are not limited to, forward
contracts, swaps, structured notes, and collateralized mortgage obligations
("CMOs").
Index Plus 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, Index Plus
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 Index
Plus. These would include inverse floaters, interest-only and
principal-only securities.
Index Plus may write (sell) covered call options and purchase put options and
may purchase call and write (sell) put options including options on
securities, indices and futures. There is no limit on the amount of Index
Plus' total assets that may be subject to call options; however, writing a put
option requires the segregation of liquid assets to cover the contract. Index
Plus will not write a put option if it will require more than 50% of Index
Plus' net assets to be segregated to cover the put obligation nor will it
write a put option if after it is written more than 3% of Index Plus' assets
would consist of put options.
As with all derivatives, the use of call options involves certain risks which
are described in detail under "Risk Factors and Other Considerations" and in
the Statement. In that there is no limit on the amount of Index Plus' total
assets that may be subject to call options, these risks may be heightened
should Index Plus choose to engage extensively in such transactions.
Investments in futures contracts and related options with respect to foreign
currencies, fixed income securities and foreign stock indices may also be made
by Index Plus. Although these investments are primarily made to hedge against
price fluctuations, in some cases, Index Plus may buy a futures contract for
the purpose of increasing its exposure in a particular asset class or market
segment, which strategy may be considered speculative. This strategy is
typically used to better manage portfolio transaction costs. With respect to
futures contracts or related options that may be entered into for speculative
purposes, the aggregate initial margin for futures contracts and premiums
for options will not exceed 5% of Index Plus' net assets, after taking into
account realized profits and unrealized losses on such futures contracts.
Index Plus may invest in forward contracts on foreign currency ("forward
exchange contracts"). These contracts may involve "cross-hedging," a
technique in which Index Plus hedges with currencies which differ from the
currency in which the underlying asset is denominated.
Index Plus may also invest in interest rate swap transactions. Interest rate
swaps are subject to credit risks (if the other party fails to meet its
obligations) and also interest rate risks, because Index Plus could be
obligated to pay more under its swap agreements than it receives under them as
a result of interest rate changes.
U.S. GOVERNMENT DERIVATIVES. Index Plus may purchase separately traded
principal and interest components of certain U.S. Government securities
("STRIPS"). In addition, Index Plus may acquire custodial receipts that
represent ownership in a U.S. Government security's future interest or
principal payments. These securities are known by such exotic names as TIGRS
and CATS and may be issued at a discount to face value. They are generally
more volatile than normal fixed income securities because interest payments
are accrued rather than paid out in regular installments.
SUPRANATIONAL AGENCIES. Index Plus may invest up to 10% of its net assets in
securities of supranational agencies such as: the International Bank for
Reconstruction and Development (commonly referred to as the "World Bank"),
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization
engaged in cooperative economic activities; the European Coal and Steel
Community, which is an economic union of various European nations' steel and
coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.
Securities of supranational agencies are not considered government securities
and are not supported directly or indirectly by the U.S. Government.
ILLIQUID AND RESTRICTED SECURITIES. Index Plus may invest, under normal
circumstances, up to 10% of its total assets in illiquid securities.
Illiquid securities are securities that are not readily marketable or cannot
be disposed of promptly within seven days and in the ordinary course of
business without taking a materially reduced price. In addition, Index Plus
may invest in securities that are subject to legal or contractual restrictions
on resale, including securities purchased under Rule 144A and Section 4(2) of
the Securities Act of 1933.
Because of the absence of a trading market for illiquid and certain restricted
securities, it may take longer to liquidate these securities than it would
unrestricted, liquid securities. Index Plus may realize less than the amount
originally paid by Index Plus for the security. The Board of Directors has
established a policy to monitor the liquidity of such securities.
CASH OR CASH EQUIVALENTS. The Adviser reserves the right to depart from
Index Plus' investment objective temporarily by investing up to 100% of
its assets in cash or cash equivalents for defense against potential market
declines and to accommodate cash flows from the purchase and sale of
Index Plus' shares.
OTHER INVESTMENTS. Index Plus may use other investment techniques, including
"when-issued" and "delayed-delivery securities" and variable rate instruments.
These techniques are described in Appendix A and the Statement.
RISK FACTORS AND OTHER CONSIDERATIONS
GENERAL CONSIDERATIONS. The different types of securities purchased and
investment techniques used by the Adviser involve varying amounts of risk.
For example, equity securities are subject to a decline in the stock market
or in the value of the issuer, and preferred stocks have price risk
and some interest rate and credit risk. The value of fixed income or debt
securities may be affected by changes in general interest rates and in the
creditworthiness of the issuer. Debt securities with longer maturities
(for example, over ten years) are generally more affected by changes in
interest rates and provide less price stability than securities with
short term maturities (for example, one to ten years). Also, on each debt
security, the risk of principal and interest default is greater with
higher-yielding, lower-grade securities. High risk, high-yield securities
may provide a higher return but with added risk. In addition, foreign
securities have currency risk. Some of the risks involved in the
securities acquired by Index Plus are discussed in this section.
Additional discussion is contained above under "Investment Techniques"
and in the Statement.
PORTFOLIO TURNOVER. Portfolio turnover refers to the frequency of portfolio
transactions and the percentage of portfolio assets being bought and sold in
the aggregate during the year. Although the Adviser does not purchase
securities with the intention of profiting from short-term trading, the
Adviser may buy and sell securities when the Adviser believes such action is
appropriate. It is anticipated that the average annual turnover rate of
the Series may exceed 125%. Turnover rates in excess of 125% may result in
higher transaction costs (which are borne directly by Index Plus and a
possible increase in short-term capital gains (or losses). See
"Tax Status" in the Statement.
FOREIGN SECURITIES. Investments in securities of foreign issuers or
securities denominated in foreign currencies involve risks not present in
domestic markets. Such risks include: currency fluctuations and related
currency conversion costs; less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic developments;
different accounting procedures and auditing standards; the possible
imposition of withholding taxes on interest income payable on securities; the
possible seizure or nationalization of foreign assets; the possible
establishment of exchange controls or other foreign laws or restrictions which
might adversely affect the payment and transferability of principal, interest
and dividends on securities; higher transaction costs; possible settlement
delays; and less publicly available information about foreign issuers.
DEPOSITARY RECEIPTS. Index Plus can invest in both sponsored and unsponsored
depositary receipts. Unsponsored depositary receipts, which are typically
traded in the over-the-counter market, may be less liquid than sponsored
depositary receipts and therefore may involve more risk. In addition, there
may be less information available about issuers of unsponsored depositary
receipts.
Index Plus will generally acquire American Depositary Receipts ("ADRs") which
are dollar denominated, although their market price is subject to fluctuations
of the foreign currency in which the underlying securities are denominated.
All depositary receipts will be considered foreign securities for purposes of
Index Plus' investment limitation concerning investment in foreign securities.
See Appendix A and the Statement for more information.
HIGH RISK, HIGH-YIELD SECURITIES. Index Plus may invest in high risk,
high-yield securities, often called "junk bonds". These securities tend to
offer higher yields than investment-grade bonds because of the additional
risks associated with them. These risks include: a lack of liquidity; an
unpredictable secondary market; a greater likelihood of default; increased
sensitivity to difficult economic and corporate developments; call provisions
which may adversely affect investment returns; and loss of the entire
principal and interest. Although junk bonds are high risk investments, they
may be purchased if they are thought to offer good value. This may happen
if, for example, the rating agencies have, in the Adviser's opinion,
misclassified the bonds or overlooked the potential for the issuer's enhanced
creditworthiness.
DERIVATIVES. Index Plus may use derivative instruments as described above
under "Investment Techniques - Options, Futures and Other Derivative
Instruments." Derivatives can be volatile investments and involve certain
risks. Index Plus 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 Index Plus. Leverage may exaggerate losses of
principal. The amount of gains or losses on investments in futures contracts
depends on ALIAC's ability to predict correctly the direction of stock prices,
interest rates and other economic factors.
The use of forward exchange contracts may reduce the gain that would otherwise
result from a change in the relationship between the U.S. dollar and a foreign
currency. In an attempt to limit its risk in forward exchange contracts, Index
Plus limits its exposure to the amount of its assets denominated in the
foreign currency being cross-hedged. Cross-hedging entails a risk of loss on
both the value of the security that is the basis of the hedge and the currency
contract that was used in the hedge. These risks are described in greater
detail in the Statement.
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.
Liquid assets in an amount at least equal to Index Plus' commitments to
purchase securities on a when-issued or delayed-delivery basis will be
segregated at Index Plus' custodian. For more information about these
securities, see Appendix A and the Statement.
SMALL CAPITALIZATION COMPANIES. Index Plus may invest in small capitalization
companies. These companies may be in an early developmental stage or older
companies entering a new stage of growth due to management changes, new
technology, products or markets. The securities of small capitalization
companies may also be undervalued due to poor economic conditions, market
decline or actual or anticipated unfavorable developments affecting the issuer
of the security or its industry.
Securities of small capitalization companies tend to offer greater potential
for growth than securities of larger, more established issuers but there are
additional risks associated with them. These risks include: limited
marketability; more abrupt or erratic market movements than securities of
larger capitalization companies; and less publicly available information about
the issuer. In addition, these companies may be dependent on relatively few
products or services, have limited financial resources and lack of management
depth, and may have less of a track record or historical pattern of
performance.
INVESTMENT RESTRICTIONS
In addition to the restrictions discussed under "Investment Techniques," Index
Plus will not invest more than 25% of its total assets in securities issued by
companies principally engaged in any one industry. For purposes of this
restriction, finance companies will be classified as separate industries
according to the end users of their services, such as automobile finance,
computer finance and consumer finance. The 25% limitation does not apply to
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Additionally, Index Plus 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. These latter
restrictions apply only to 75% of Index Plus' total assets. See the Statement
for additional investment restrictions.
SHAREHOLDER SERVICES
The Fund offers several services to its Series shareholders. These may be
selected on the application or you may call 1-800-367-7732 to select these
services at a later date.
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 materials. The specific provisions of your plan will govern
the investment options and services available to you.
SHAREHOLDER INQUIRIES. If you have any questions about Index Plus or the
shareholder services described below, please call 1-800-367-7732.
How to
Purchase
Shares
HOW TO PURCHASE SHARES. Adviser Class shares may be purchased directly from
the Fund, through a registered representative of a broker-dealer affiliated
with the Fund, through a registered representative of an unaffiliated
broker-dealer, or through an employer-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
application with the amount to be invested as directed below under "Purchase
by Mail." You may open an account with a minimum investment of $1,000 (or $500
for IRAs). Once you have opened an account in Index Plus, additional
investments may be made by mail ($100 minimum), wire transfer ($500 minimum)
or exchange from the same class of another Series in the Aetna Series Fund,
Inc. All checks must be drawn on a bank located within the United States and
payable in U.S. dollars. Minimum investments may be waived if an investment
is made through exchange of the entire amount invested in another Series.
Minimums may also be waived for certain circumstances such as for persons
investing through certain benefit plans, insurance settlement options or by
systematic investments. (Please refer to "Other Features--Systematic
Investment.")
CREDITING OF SHARES. Shares for new accounts will be purchased at the net
asset value next determined as of 4:15 p.m. eastern time on any day that the
New York Stock Exchange is open for business ("Business Day") so long as
the completed and signed application accompanied by a check in payment for
the share purchase is received by Firstar Trust Company (the transfer agent)
at its Milwaukee offices prior to 4:00 p.m. Additional investments and
exchanges will also be processed at the net asset value next determined as
of 4:15 p.m. if the check or wire for the purchase price or the exchange
request is received by 4:00 p.m. Orders received after 4:00 p.m. will be
processed at the net asset value determined on the following Business Day.
For investors purchasing shares in connection with retirement plans
offered by certain institutions (Institutions) under Section 401 of the
Internal Revenue Code, shares will be purchased at the next price
calculated on a day the NYSE is open provided that the Institution
receives the investor's request before the time specified by such
Institution. Investors participating in such a plan should refer to their
enrollment materials for a discussion of any specific instructions
on the timing or restrictions on the purchase of shares. Please
refer to "Net Asset Value" for information on how shares in Index Plus are
valued.
No initial sales charge is imposed at the time of purchase. A CDSC is
imposed, however, on certain redemptions of Adviser Class shares. See "Fees
and Charges--Contingent Deferred Sales Charge" which describes the CDSC in
greater detail.
You can make
a purchase
by mail
PURCHASE BY MAIL. To purchase shares by mail, please complete and sign the
application, make a check payable to the Aetna Series Fund, Inc. and return
both to your agent and representative.
You can make additional investments to your accounts by using the investment
stubs from your confirmation statements or by sending payments to the
Fund at the address listed below. Your letter should indicate your name,
account numbers, the Adviser Class shares of Index Plus and the
amount to be invested.
Letters should be mailed to the transfer agent as follows:
Aetna Series Fund, Inc.
c/o Mutual Fund Services, 3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701
Correspondence mailed by overnight courier should be sent to the transfer
agent at the following address:
Aetna Series Fund, Inc.
c/o Mutual Fund Services, 3rd Floor
615 E. Michigan Street
Milwaukee, WI 53202
When opening an account, your check should be made payable to Aetna Series
Fund, Inc. or Firstar Trust Company. Cash, credit cards and third party checks
cannot be used to open an account. Firstar will accept checks for subsequent
purchases which are made payable to the account owner(s) and endorsed to the
Fund.
You can
purchase by
wire, electronic
funds transfer
or exchange
PURCHASE BY WIRE. You may also purchase additional Adviser Class shares of
Index Plus through a wire transfer. For federal funds wire instructions,
please call 1-800-367-7732. Federal funds wire purchase orders will be
accepted only when Index Plus and custodian bank are open for business.
PURCHASE BY ELECTRONIC FUNDS TRANSFER. Once an account has been established in
Index Plus, you may purchase additional Adviser Class shares by using
Electronic Funds Transfer ("EFT") facilities under the Systematic Investment
feature. See "Other Features." EFT will allow you to transfer money between
a bank account and Index Plus. You must elect EFT capability in
writing on the application or subsequently by requesting the appropriate
information.
PURCHASE BY EXCHANGE. You may open an account or purchase additional Adviser
Class shares by making an exchange among Adviser Class shares of any of the
Series of the Fund, provided shares of such Series may be legally sold in
your state of residence. An exchange may be made by submitting a written
request to make the exchange and specifying the name and account number of
your current Series account, the name of the Series you wish to exchange into,
the amount to be exchanged, and the signatures of all shareholders. Send your
request to the address listed above under "Purchase by Mail."
You may also exchange your Adviser Class shares by calling 1-800-367-7732.
Please provide the Series' 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:
[filled box] Each exchange may result in a gain or loss and is treated as a
sale and as a purchase of shares for tax purposes.
[filled box] An exchange which represents an initial investment in a Series
must meet the minimum investment requirements described under
"Shareholder Services - How to Open an Account."
[filled box] The shares received in an exchange must be identically
registered. A letter with signature guarantees must accompany
any exchange request to transfer shares into a Series account
that is not registered identically to the transferring Series
account.
[filled box] Following an investment in a Series, there is a required eight-
day holding period or maximum allowed by law, if shorter,
before those shares can be exchanged.
There is currently no limit on the number of exchanges. However, each Series
reserves the right to temporarily or permanently terminate the exchange
privilege for any person who makes more than five exchanges out of a Series
per calendar year. In addition, each Series reserves the right to refuse
exchange purchases by any person or group if, in the Adviser's judgment,
that Series would be unable to invest effectively in accordance with
its investment objective as a result of such exchange. Each Series 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 Series have
established reasonable procedures to confirm that instructions received are
genuine. If these procedures are not followed, the Series may be liable for
any losses due to unauthorized or fraudulent instructions. For your
protection, all telephone exchange transactions will be recorded, and you
will be asked for certain identifying information.
Your distribution
option can be
changed at any time by calling
1-800-367-7732
DISTRIBUTION OPTIONS. When completing an application, you must select one of
the following options for dividends and capital gains distributions:
[filled box] Full Reinvestment - Both dividends and capital gains
distributions from Index Plus will be reinvested in additional Adviser Class
shares of Index Plus. This option will be selected automatically unless one of
the other options is specified. (Please refer to "Series Distributions.")
[filled box] Or . . . Capital Gains Reinvestment - Capital gains
distributions from Index Plus will be reinvested in additional Adviser Class
shares of Index Plus and all net income from dividends will be distributed in
cash.
[filled box] Or . . . All Cash - Dividends and capital gains distributions
will be paid in cash.
If you select a cash distribution option, you can elect to have distributions
automatically invested in Adviser Class shares of another Series of the Fund.
If you make no selection, income dividends and capital gains distributions
with respect to Index Plus will be reinvested in additional Adviser Class
shares of Index Plus. Distributions paid in shares will be credited to your
account at the next determined net asset value per share.
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.
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 determined as of 4:15 p.m.
eastern time on any Business Day so long as the redemption request and all
required documentation is received by Firstar Trust Company (the transfer
agent) at its Milwaukee offices prior to 4:00 p.m. Redemption requests
received after 4:00 p.m. will be processed at the net asset value determined
on the following Business Day. Redemptions may be subject to a CDSC. See
"Fees and Charges" for more information.
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, Index Plus 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 of Index Plus in any 90 day period. To the extent possible, the
Fund will distribute readily marketable securities, in conformity with
applicable rules of the Commission. In the event such redemption is requested
by institutional investors, the Fund will weigh the effects on individual
nonredeeming 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 for additional information on redemptions
in kind.
For help with redemptions, call
your agent or representative or
1-800-367-7732
REDEEM BY MAIL. Shares of Index Plus may be redeemed by sending written
instructions to the transfer agent. The instructions should identify Index
Plus, the number of shares or dollar amount to be redeemed, your name and
Index Plus' account number. The instructions must be signed by all person(s)
required to sign for Index Plus account, exactly as the account is registered,
and accompanied by a signature guarantee(s). (See "Signature Guarantee"
below.) Certain nonindividual shareholders may also be required to furnish
copies of a corporate resolution, trust document or other supporting
documents.
Once a redemption request is received in good order, Index Plus will normally
send the proceeds of such redemption within one or two business days.
However, if making immediate payment could adversely affect Index Plus,
Index Plus may defer distribution for up to seven days or the maximum period
allowed by law, if shorter. Also, Index Plus will hold payment of redemption
proceeds until a purchase check or systematic investment clears, which may
take up to 12 calendar days. Index Plus may suspend redemptions or
postpone payments when the New York Stock Exchange 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
designated bank account if federal funds wire instructions are provided with
your redemption request accompanied by a signature guarantee as described
below. A $10.00 fee will be charged for this service. A minimum redemption of
$1,000 is required for wire transfers.
SIGNATURE GUARANTEE. A signature guarantee is verification by certain
authorized institutions of the authenticity of the signature on a document.
Index Plus 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 designated 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.
Index Plus reserves the right to amend or discontinue this policy at any time
and establish other criteria for verifying the authenticity of any redemption
request.
You can obtain a signature guarantee from any one of the following
institutions: 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
Exchanges. 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 the Index Plus account. If this minimum balance is
not maintained due to redemptions, Index Plus 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 on the day
the account is closed. Index Plus 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. Index Plus can be used for investment by a
variety of tax-deferred plans. These plans let you save for retirement and
allow you to defer taxes on your investment income. Some of these plans are:
[filled box] IRAs, available to individuals who work and their spouses.
[filled box] 401(k) programs, available to corporations of all sizes to
benefit their employees.
Information you
will receive
SHAREHOLDER INFORMATION. The transfer agent will maintain your
account information. A confirmation statement will be 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 be sent an annual and semiannual
report of Index Plus. The transfer agent may charge you a fee for special
requests such as an historical transcript of your account and copies
of canceled checks.
Consolidated Statements reflecting current account values and year-to-date
transactions will be sent to you 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. With the prior permission of the other shareholders involved, you
have the option of requesting 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 one Consolidated Statement.
OTHER FEATURES
A convenient
way to make
regular
investments
SYSTEMATIC INVESTMENT. The Systematic Investment feature, using the EFT
capability (see "Shareholder Services--Purchase by Electronic Funds
Transfer"), allows you to make automatic monthly investments in Index Plus, On
the application, you may select the amount of money to be moved and the Series
to be invested in. There is no minimum initial cash investment required to
open your account if you elect to use the EFT feature. The minimum monthly
Systematic Investment is $50 per Series 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 terminated upon total
redemption of your account. Also, Index Plus will hold payment of redemption
proceeds until a Systematic Investment has cleared, which may take up to 12
calendar days.
For more
information, call
1-800-367-7732
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 Index Plus. The Automatic Cash Withdrawal Plan permits you to
have payments of $100 or more automatically transferred from Index Plus to
your designated bank account on a monthly basis. In order to enroll in this
plan, you must have a minimum balance of $10,000 in Index Plus 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.
TDD SERVICE. Firstar Trust Company, the transfer agent, offers
Telecommunication Device for the Deaf (TDD) services for hearing impaired
shareholders. The dedicated number for this service is 1-800-684-3416 and
appears on shareholder account statements.
CHANGES TO SERVICE. Index Plus reserves the right to amend the shareholder
services described above or to change the terms or conditions of such
services at any time.
CROSS-SERIES INVESTING
[filled box] Dividend Investing - You may elect to have dividend and/or
capital gains distributions automatically invested in one other
Adviser Class Series account.
[filled box] Systematic Exchange - You may establish an automatic exchange of
Adviser Class shares from one Series account to another. The
exchange will occur on or about the 15th day of each month and
must be for a minimum of $50 per month. Since this transaction
is treated as an exchange, the policies related to the exchange
privilege apply. Please read the "Shareholder Services--Purchase
by Exchange" section carefully. There may be tax consequences
associated with these exchanges. Please consult your tax
adviser.
Cross-Series Investing may only be made in a Series account that has been
previously established with the Series' 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, ALIAC is paid a service fee at an annual rate of 0.25% of
the average daily net assets of the Adviser Class shares of Index Plus. This
fee is used as compensation for expenses incurred in servicing shareholder
accounts.
12B-1 DISTRIBUTION FEE. The Board of Directors and the Adviser Class
shareholders have approved a Distribution Plan under Rule 12b-1 of the 1940
Act. Under this plan, ALIAC is paid a 12b-1 distribution fee at an annual
rate of 0.50% of the average daily net assets of the Adviser Class shares of
Index Plus.
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
distributing Index Plus' prospectus, Statement and sales literature to
prospective 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 distribution fees and the CDSC received by ALIAC.
HOW WE CALCULATE THE DEFERRED SALES CHARGE
CONTINGENT DEFERRED SALES CHARGE. You may buy Adviser Class shares without an
initial sales charge. However, ALIAC will impose a contingent deferred sales
charge (CDSC) on certain share redemptions.
There is no CDSC on redemptions of Adviser Class shares purchased through
reinvestment of dividends or capital gains distributions or shares purchased
more than four years prior to the redemption. Redemptions of Adviser Class
shares within four years of purchase are subject to a CDSC. The charge is
assessed on an amount equal to the lesser of the current market value or the
original cost of the shares being redeemed. The result is there is no sales
charge on increases in the net asset value of shares above the initial
purchase price.
The CDSC is calculated by multiplying the lesser of the current market value
or the original cost of the shares being redeemed, by the percentage shown
below based on the time invested:
<TABLE>
<CAPTION>
<S> <C>
Redemption During CDSC
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>
When you request a redemption of Adviser Class shares, to determine whether
the CDSC is applicable, the Fund will assume that you are redeeming shares not
subject to the CDSC first. In determining the number of years the shares have
been held, Index Plus will aggregate all purchases of Adviser Class shares
made during a month 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 $2,000 annually for 2 years (total $4,000) and that the value of
your investment, including appreciation and reinvested distributions, has
grown to $5,200 in the third year. Since there is no CDSC on appreciation or
reinvested dividends, you could redeem $1,200 without incurring a charge. For
a redemption of $2,000, the first $1,200 would not be subject to a CDSC, but
the remaining $800 would be subject to the CDSC and would be assumed 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 Series-by-Series basis, shareholders who
contemplate a redemption and have invested in multiple Series should consider
redeeming from the Series that would produce the lowest CDSC.
WAIVERS OF CDSC. The CDSC will be waived on (a) exchanges under appropriate
circumstances such as between Series; (b) redemptions of shares following
the death or disability of the shareholder; (c) redemptions of shares in
connection with distributions and certain eligible withdrawals from
retirement plans or IRAs; (d) redemptions of shares purchased by
active or retired employees of the Underwriter 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) involuntary redemptions; and (g) redemptions of shares by banks, trust
companies or other financial institutions where the shares are being held
in a fiduciary capacity by such entity.
MANAGEMENT OF THE SERIES
DIRECTORS. The business affairs of the Series are managed under the
supervision of the Board of Directors ("Directors"). The Directors set
broad policies for the Fund and each of the Series. Information about the
Directors is found in the Statement.
The Series'
Investment
Adviser
INVESTMENT ADVISER. ALIAC has entered into an investment advisory agreement
with the Fund on behalf of each Series which provides that ALIAC is
responsible for managing the investments of each Series and for providing
all necessary facilities and personnel costs to conduct such activities. ALIAC
is a Connecticut insurance corporation with its principal offices at 151
Farmington Avenue, Hartford, Connecticut 06156. ALIAC is registered with the
Commission as an investment adviser and is responsible for managing over $22
billion in assets including those held by the Series.
ALIAC receives a monthly fee from Index Plus at an annual rate based on
average daily net assets of Index Plus as follows:
Advisory Fees
Fee Assets
- ---------------------------- ------ ------------------------
Index Plus 0.45% On first $250 MM
0.45% On next $250 MM
0.425% On next $250 MM
0.40% On next $250 MM
0.40% On next $1 B
0.375% Over $2 B
Sub-Adviser to Aetna Series
Fund, Inc.
SUBADVISER. ALIAC, the Fund on behalf of each Series and Aeltus
have entered into a subadvisory agreement appointing Aeltus as the
subadviser for each Series (the "Subadvisory Agreement"). Aeltus is
a Connecticut corporation with its principal offices located at 242
Trumbull Street, Hartford, Connecticut 06103-1205. Aeltus is registered
as an investment adviser with the Commission. Under the Subadvisory
Agreement, Aeltus is responsible for managing the assets of each Series in
accordance with each Series' investment objective and policies, subject to
the supervision of ALIAC, the Fund and the Fund's Directors. Aeltus
determines what securities and other instruments are purchased and sold by
the Series and handles certain related accounting and administrative
functions, including determining the Series' net asset value on a daily
basis and preparing and providing such reports, data and information
as ALIAC or the Directors request from time to time.
ALIAC has overall responsibility for monitoring the investment program
maintained by the subadviser for compliance with applicable laws and
regulations, and each Series' investment objective and policies.
For its services, ALIAC has agreed to pay the Subadviser a monthly fee at
an annual rate based on the average daily net assets of Index Plus as
follows. This fee is not charged back to, or paid by, Index Plus; it is
paid by ALIAC out of its own resources, including fees and charges it
receives from or in connection with Index Plus.
Index Plus
Fee Assets
----------- ------
0.35% On first $250 MM
0.345% On next $250 MM
0.3275% On next $250 MM
0.31% On next $250 MM
0.30% On next $1 B
0.2775% Over $2 B
All of the investment personnel of ALIAC, including those listed in the
Prospectus under Portfolio Management, assumed positions with Aeltus as of
August 1, 1996 comparable to those they held with ALIAC. These individuals
provide investment services to Index Plus through Aeltus.
ADMINISTRATOR. ALIAC acts as administrator for each Series and has
responsibility for all administrative and internal accounting and reporting
services, oversight of relationships with third party service providers such
as the transfer agent and custodian, shareholder communications and reporting
for each Series. As administrator, ALIAC will oversee the calculation of net
asset values and other financial reports prepared by the subadviser for the
Series.
For these services, each Series pays ALIAC a monthly fee at an annual rate
based on average daily net assets of the Series 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 Fund.
ALIAC contracts with various broker-dealers, including one or more of its
affiliates, for distribution of Adviser Class shares. ALIAC may also sell
shares of Index Plus directly. ALIAC is paid an annual service fee and an
annual 12b-1 distribution fee with respect to Adviser Class shares of Index
Plus. 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 Index Plus. See "Fees and Charges" for more
information.
Although it is anticipated that some promotional activities will be conducted
on a Fund-wide basis, payments made by Index Plus under the Distribution Plan
generally will be used to finance the distribution of shares of Index Plus.
Expenses incurred in connection with Fund-wide activities may be allocated
pro-rata among all Series of the Fund 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 Fund's Board of Directors evaluates
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 Fund's Board of Directors reviews 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 is contingent on annual approval
by a majority of the Fund's 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 Distribution Plan may be terminated by
the Plan Directors or a majority of the outstanding shares of Index Plus. The
Shareholder Services Plan may be terminated by the Directors.
TRANSFER AGENT. Firstar Trust Company located at 615 E. Michigan Street,
Milwaukee, WI 53202 acts as the Series' transfer and dividend-paying agent.
Firstar is responsible for the issuance, transfer and redemption of shares
and the opening and maintenance of shareholder accounts.
FUND EXPENSES. Each Series bears the costs of its operations. Expenses
directly attributable to a Series are charged to that Series. Some expenses
are allocated proportionately among all the Series in proportion to the
net assets of each Series and some expenses are allocated equally to each
Series. Fund expenses for each class of shares are included in the Fee
Tables.
PORTFOLIO MANAGEMENT
Geoffrey A. Brod, a Vice President of Aeltus, is primarily responsible for the
day-to-day management of Index Plus. Mr. Brod has over 30 years of experience
in quantitative applications and has over 9 years of experience in equity
investments. Mr. Brod has been with the Aetna organization since 1966.
INDEX PLUS DISTRIBUTIONS
How to
receive
dividends
[filled box] Index Plus declares and pays dividends annually.
[filled box] All capital gains distributions, if any, are paid on an annual
basis.
Income dividends are derived from investment income, including dividends,
interest, realized short-term capital gains, and certain foreign currency
gains received by Index Plus. Capital gains distributions are derived from
Index Plus' realized long-term capital gains. The per share dividends and
distributions of Adviser Class shares will be less than the per share
dividends and distributions of the Select Class as a result of the
distribution fees and service fees applicable to the Adviser Class.
Both income dividends and capital gains distributions are paid by Index Plus
on a per-share basis. As a result, at the time distributions are accrued,
the net asset value per share of Index Plus will be reduced by the amount of
such accrual.
NET ASSET VALUE
Pricing
Index Plus
The net asset value per share ("NAV") of Index Plus is determined as of the
earlier of 15 minutes after the close of the NYSE or 4:15 p.m. eastern time
on each day that the NYSE is open for trading. The NAV is computed by
dividing the total value of Index Plus' securities, plus any cash
or other assets (including dividends accrued but not collected) less all
liabilities (including accrued expenses), by the number of shares outstanding.
Portfolio securities are valued primarily on the basis of market quotations
furnished by independent pricing services. All other assets, including
restricted securities and other securities for which market quotations are not
readily available, are valued at their fair value in such manner as may be
determined, from time to time, in good faith by, or under the authority of,
the Directors.
TAXES
Form 1099-DIV
will be mailed
to you in January
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 Statement 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 individual tax situation with your tax adviser.
SHAREHOLDER DISTRIBUTIONS. The Fund intends to qualify for treatment under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code").
Therefore, Index Plus will distribute all of its net income and gains to
shareholders. Such distributions will be taxable to the shareholders and not
to Index Plus. 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. Depending on Index Plus'
investments, part or all of ordinary income dividends could be treated as:
(1) "U.S. Government Interest Dividends" which are exempt from state and
local taxes in some jurisdictions or (2) "Qualifying Dividends" which for
eligible corporate shareholders qualify for the corporate dividends-received
deduction. Certain dividends paid by Index Plus will be Qualifying Dividends
for which eligible corporate shareholders may claim a partial deduction.
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 advance since the amount of Index Plus' assets to be invested
in various countries is not known.
Index Plus' distributions are taxable in the year they are received,
regardless of whether you take them in cash or reinvest them in additional
shares. However, distributions declared in December to shareholders of record
on a date in December and paid in January of the following year are taxable
as if paid on December 31 of the year of declaration. Index Plus will send a
statement to shareholders by January 31 indicating the tax status of
distributions made during the previous year, and any foreign taxes
"passed-through" to shareholders.
BUYING A DIVIDEND. If you buy shares of Index Plus just before the
ex-dividend date, you may be taxed on the entire amount of the dividend
received.
SHARE REDEMPTIONS. Any gain or loss realized when you redeem (sell) or
exchange shares of Index Plus will be treated as a taxable long-term or
short-term capital gain or loss. Please see the Statement for information
regarding any limitation on deductibility of such losses.
TAX WITHHOLDING. When you fill out your application, you will be asked to
certify 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, or fail to
properly certify your taxpayer identification number, the IRS can require the
Series to withhold a certain percentage of your taxable dividends, capital
gains distributions and redemption proceeds.
GENERAL INFORMATION
ARTICLES OF INCORPORATION. The Fund was incorporated under the laws of
Maryland 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 Fund currently offers 12 Series, one of which is described
in this Prospectus.
SHARE CLASSES. The 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 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 Board of Directors does not anticipate that there will be any
conflicts among the interests of the holders of the different classes of
shares of Index Plus. The Directors continue to consider whether any such
conflicts exist and, if so, will take appropriate action.
The Fund will seek a ruling from the IRS with respect to Index Plus to the
effect that differing distributions among the classes of its shares will not
result in Index Plus' dividends or other distributions being regarded as
"preferential dividends" under the Code. For additional information, see the
Statement.
CAPITAL STOCK. The Articles currently authorize the issuance of 4.8 billion
shares of capital stock of the Fund. All shares are nonassessable,
transferable and redeemable. There are no preemptive rights.
As of the effective date of this Prospectus, the following shares of Index
Plus were owned by ALIAC and its affiliates:
ALIAC
----------------------
Select Adviser
--------- ----------
Index Plus 10,000 0
ALIAC and its affiliates may make additional investments into Index Plus.
SHAREHOLDER MEETINGS. The Fund 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 Index Plus' outstanding shares, the Fund will hold a shareholder
meeting for the purpose of voting on the removal of one or more Directors and
will assist with communication concerning that shareholder meeting.
VOTING RIGHTS. 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 Fund. Voting rights are not
cumulative. Generally, shares of the Fund will be voted on a Fund-wide basis
on all matters except matters affecting only the interests of one Series or
one class of shares.
PAYMENTS TO DEALERS. For sales of Index Plus' shares, ALIAC may pay registered
representatives a sales commission 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 shareholders
(see "Fees and Charges"). From time to time, ALIAC may also award merchandise
or trips with an estimated value up to $1,000 to registered representatives
that sell a certain amount of fund shares or establish a certain number of new
accounts or to the maximum extent allowed under applicable regulations, if
less. 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 unaffected.
PERFORMANCE DATA
From time to time advertisements and other sales materials for Index Plus may
include information concerning the historical performance of Index Plus. Any
such information will include the average annual total return of Index Plus
calculated on a compounded basis for specified periods of time. Total return
information will be calculated pursuant to rules established by the
Commission. In lieu of or in addition to total return calculations, such
information may include performance rankings and similar information from
independent organizations such as Lipper Analytical Services, Inc.,
Morningstar, Business Week, Forbes or other industry publications.
Index Plus calculates average annual total return by determining the
redemption value at the end of specified periods (assuming reinvestment of all
dividends and distributions) of a $1,000 investment in the Series at the
beginning of the period, deducting the initial $1,000 investment, annualizing
the increase or decrease over the specified period and expressing the result
as a percentage.
Total return figures utilized by Index Plus are based on historical
performance and are not intended to indicate future performance. Total return
and net asset value per share can be expected to fluctuate over time, and
accordingly, upon redemption, shares may be worth more or less than their
original cost.
PRIVATE ACCOUNT PERFORMANCE
Index Plus is newly organized and does not yet have its own performance
record. However, Index Plus has an investment objective, policies and
strategies which are substantially similar to those employed by Aeltus with
respect to certain Private Accounts.
Thus, the performance information derived from these Private Accounts is
deemed relevant to the investor. The performance of Index Plus may vary from
the Private Account composite information because Index Plus will be actively
managed and its investments will vary from time to time and will not be
identical to the past portfolio investments of the Private Accounts. Moreover,
the Private Accounts are not registered under the 1940 Act and therefore are
not subject to certain investment restrictions that are imposed by the 1940
Act, which, if imposed, could have adversely affected the Private Accounts'
performance.
The chart below shows hypothetical performance information derived from
historical composite performance of the Private Accounts included in the Index
Plus Composite. The hypothetical performance figures for Index Plus represent
the actual performance results of the composite of Private Accounts
managed in a comparable manner, adjusted to reflect the deduction of the
fees and expenses (after fee waiver/expense reimbursement) anticipated to
be paid by Index Plus. Please refer to "Fee Tables" for further
information concerning Adviser Class fees and expenses and the fee waiver/
expense reimbursement arrangements. Absent the fee waiver/expense reimbursement
by ALIAC, the performance figures shown below would be reduced.
The actual Private Account composite performance figures are time-weighted
rates of return which include all income and accrued income and
realized and unrealized gains or losses, but do not reflect the deduction
of investment advisory fees actually charged to the Private Accounts.
Investors should not consider the performance data of these Private Accounts
as an indication of the future performance of Index Plus.
The following tables show hypothetical performance information derived from
private account historical composite performance reduced by anticipated Index
Plus fees and expenses, as well as comparisons with the S&P 500, an
unmanaged index generally considered to be representative of the stock
market.
HYPOTHETICAL HISTORICAL INDEX PLUS PERFORMANCE
1 YEAR SINCE INCEPTION
------- ---------------
Index Plus Composite* 19.94% 13.48%
S&P 500 Stock Index 20.39% 15.22%
* The Composite reflects the Aeltus "Quantitative Equity" Composite.
Results shown are through the period ended September 30, 1996. The inception
date is October 1, 1991 for the Index Plus Composite.
APPENDIX A
GLOSSARY OF INVESTMENT TERMS
This glossary describes some of the securities used by Index Plus. Further
information is available in the Statement:
BANKER'S ACCEPTANCE. A time draft drawn on and accepted by a bank,
customarily used by corporations as a means of financing payment for traded
goods. When a draft is accepted by a bank, the bank guarantees to pay the face
value of the debt at maturity.
CALL OPTION. The right to buy a security, currency or stock index at a stated
price, or strike price, within a fixed period. A call option will be
exercised if the market price rises above the strike price; if not, the option
expires worthless.
CERTIFICATES OF DEPOSIT. For large deposits not withdrawable on demand, banks
issue certificates of deposit ("CDs") as evidence of ownership. CDs are
usually negotiable and traded among investors such as mutual funds and banks.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). Mortgage-backed bonds that
separate mortgage pools into various classes or branches in a predetermined,
specified order such as short-, medium-, and long-term portions.
COMMERCIAL PAPER. Unsecured short-term debt instruments issued by banks,
corporations or other borrowers with a maturity ranging from two to 270 days.
CONVERTIBLE SECURITIES. Corporate securities (usually bonds or preferred
stock) that can be exchanged for a set number of shares of another security,
usually common stock.
COVERED CALL OPTIONS. A call option backed by the securities underlying the
option. The owner of a security will normally sell covered call options to
collect premium income or to reduce price fluctuations of the security. A
covered call option limits the capital appreciation of the underlying
security.
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
Eurodollar securities including Eurodollar CDS and bonds; these securities are
not registered with the Commission. Certain Eurodollar deposits are not FDIC
insured and may be subject to future political and economic developments and
governmental restrictions.
DEPOSITARY RECEIPTS. Negotiable certificates evidencing ownership of shares
of a non-U.S. corporation, government, or foreign subsidiary of a U.S.
corporation. A U.S. bank typically issues depositary receipts, which are
backed by ordinary shares that remain on deposit with a custodian bank in the
issuer's home market. A depositary receipt can either be "sponsored" by the
issuing company or established without the involvement of the company, which
is referred to as "unsponsored."
FORWARD CONTRACTS. A purchase or sale of a specific quantity of a government
security, foreign currency, or other financial instrument at the current
price, with delivery and settlement at a specified future date.
FUTURES CONTRACTS. An agreement to buy or sell a specific amount of a
financial instrument at a particular price on a stipulated future date. A
futures contract obligates the buyer to purchase and the seller to sell,
unlike an option where one party can choose whether or not to exercise the
option.
HIGH RISK, HIGH-YIELD SECURITIES. Debt instruments that are rated BB or
below by Standard & Poor's Corporation or Ba or below by Moody's
Investors Service Inc., or securities of comparable ratings by other
agencies or, if unrated, considered by the investment adviser to be of
comparable quality. These securities are often called "junk bonds" because of
the greater possibility of default.
PREFERRED STOCK. Stock which has a preference over common stock, whether as
to payment of dividends or to assets on liquidation. It ordinarily pays a
fixed dividend.
PRIMARY CAPITAL RATIO. The ratio used to evaluate the creditworthiness of
foreign banks which is based on the ratio of total assets to the common and
preferred stock, loan loss reserves, minority interests and mandatory
convertibles.
PUT OPTION. The right to sell a security, currency or stock index at a stated
price, or strike price, within a fixed period. A put option will be exercised
if the market price falls below the strike price; if not, the option expires
worthless.
SWAP. An exchange of one security for another. A swap may be executed to
change the maturities of a bond portfolio or the quality of the issues in a
stock or bond portfolio.
U.S. GOVERNMENT SECURITIES. Securities issued by the U.S. Government and its
agencies.
Direct Obligations of the U.S. Government are:
TREASURY BILLS - issued with short maturities (one year or less) and
priced at a discount to face value. The income for investors is the
difference between the purchase price and the face value.
TREASURY NOTES - intermediate-term securities with maturities of between
one to ten years. Income to investors is paid in semiannual interest
payments.
TREASURY BONDS - long-term securities with maturities from ten years to
up to thirty years. Income is paid to investors on a semiannual basis.
In addition, U.S. Government Agencies issue debt securities to finance
activities for the U.S. Government. These agencies include among others the
Federal Home Loan Bank, Federal National Mortgage Association ("FNMA" or
"Fannie Mae"), Government National Mortgage Association ("GNMA" or "Ginnie
Mae"), Export-Import Bank and the Tennessee Valley Authority.
Not all agencies are backed by the full faith and credit of the United States;
for example the FNMA may borrow money from the U.S. Treasury only under
certain circumstances. There is no guarantee that the government will support
these types of securities and they therefore involve more risk than direct
government obligations.
VARIABLE RATE INSTRUMENTS. An instrument the terms of which provide for the
adjustment of its interest rate on set dates and which can reasonably be
expected to have a market value close to par value.
WARRANTS. A security, normally offered with bonds or preferred stock, that
entitles the holder to buy shares of stock at a prescribed price within a
named or stated period, or to perpetuity. The time period is usually longer
than that of a call option.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. When-issued is a transaction
that is made as of a current date, but conditioned on the actual issuance of a
security that is authorized but not yet issued. A delayed-delivery
transaction is one where both parties agree that the security will be
delivered and the transaction completed at a future date.
YANKEE BONDS. A dollar denominated bond issued in the United States by
foreign corporations and banks. Similarly, Yankee CDS are issued in the U.S.
by branches and agencies of foreign banks.
APPENDIX B
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt-edge." 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 -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what 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 larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates the issuer ranks in the lower end of its rating category.
STANDARD & POOR'S CORPORATION
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A -- 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 bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB -- Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, the bonds face major uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B -- 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 logo] Aetna Series Fund, Inc.
151 Farmington Avenue
Hartford, CT 06156-8962
1-800-367-7732
Investment Adviser
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, CT 06156-8962
Subadviser
Aeltus Investment Management, Inc.
242 Trumbull Street
Hartford, CT 06103-1205
Custodian
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
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 Index Plus in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.
AETNA SERIES FUND, INC.
151 Farmington Avenue
Hartford, Connecticut 06156-8962
Statement of Additional Information dated: December 10,1996
For the Aetna Index Plus Fund
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the current prospectus for the Aetna Index Plus Fund
of Aetna Series Fund, Inc. dated December 10, 1996. A free prospectus is
available upon request by writing or calling:
Aetna Series Fund, Inc.
151 Farmington Avenue
Hartford, Connecticut 06156-8962
1-800-367-7732
Read the prospectus before you invest
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION AND HISTORY
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES OF INDEX PLUS
DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES
Options, Futures and Other Derivative Instruments
Repurchase Agreements
Variable Rate Demand Instruments
Securities Lending
Foreign Securities
Mortgage-Related Debt Securities
Asset-Backed Securities
High Risk, High-Yield Securities
Zero Coupon and Pay-in-Kind Securities
Convertibles
Warrants
When-Issued or Delayed-Delivery Securities
Portfolio Turnover
DIRECTORS AND OFFICERS OF THE FUND
CONTROL PERSONS AND PRINCIPAL HOLDERS OF INDEX PLUS
THE INVESTMENT ADVISORY AGREEMENT
SUBADVISORY AGREEMENT
THE ADMINISTRATIVE SERVICES AGREEMENT
LICENSE AGREEMENT
CUSTODIAN
INDEPENDENT AUDITORS
PRINCIPAL UNDERWRITER
DISTRIBUTION ARRANGEMENTS
BROKERAGE ALLOCATION
DESCRIPTION OF SHARES
Voting Rights
SALE AND REDEMPTION OF SHARES
NET ASSET VALUE
TAX STATUS
Qualification as a Regulated Investment Company
Excise Tax on Regulated Investment Companies
Index Plus Distributions
Sale or Redemption of Shares
Foreign Shareholders
Effect of Future Legislation; Local Tax Considerations
PERFORMANCE INFORMATION
Average Annual Total Return
GENERAL INFORMATION AND HISTORY
Aetna Series Fund, Inc. (Fund) is an open-end management investment company
which consists of Series, each representing a diversified portfolio of
investments with different investment objectives, policies and restrictions
(Series). Each Series is currently authorized to offer two classes of shares.
THIS STATEMENT OF ADDITIONAL INFORMATION CONTAINS INFORMATION PERTAINING ONLY
TO AETNA INDEX PLUS FUND ("Index Plus").
The investment objective and general investment policies of Index Plus are
described in the Prospectus.
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES OF INDEX PLUS
The investment objective and certain investment restrictions of Index Plus 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 Index
Plus, without the approval of a majority of the outstanding voting securities
of Index Plus. This means the lesser of: (i) 67% of the shares of Index Plus
present at a shareholders' meeting if the holders of more than 50% of the
shares of Index Plus then outstanding are present in person or by proxy; or
(ii) more than 50% of the outstanding voting securities of Index Plus.
As a matter of fundamental policy, Index Plus will not:
(1) hold more than 5% of the value of its total assets in the securities
of any one issuer or hold more than 10% of the outstanding voting securities
of any one issuer. This restriction applies only to 75% of the value of Index
Plus' 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 Index
Plus 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. 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, Index Plus 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 Index Plus' total assets;
(4) issue any senior security (as defined in the 1940 Act), except that
(a) Index Plus may enter into commitments to purchase securities in accordance
with Index Plus' investment program, including reverse repurchase agreements,
delayed delivery and when-issued securities, which may be considered the
issuance of senior securities, (b) Index Plus 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) Index Plus 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,
Index Plus 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, to the extent appropriate under its
investment program, Index Plus may invest in securities secured by real estate
or interests therein or issued by companies, including real estate investment
trusts, which deal in real estate or interests therein;
(6) invest in commodity contracts, except that Index Plus 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) Index Plus may enter into certain
futures contracts and options related thereto; (b) Index Plus may enter into
commitments to purchase securities in accordance with Index Plus' investment
program, including delayed delivery and when-issued securities and reverse
repurchase agreements; (c) for temporary or emergency purposes, Index Plus 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, Index Plus may
borrow money from banks (including its custodian bank) only if, immediately
after such borrowing, the value of Index Plus' 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 Index
Plus' assets fails to meet the 300% asset coverage requirement relative only
to leveraging, Index Plus 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 Index Plus, Index
Plus may be deemed to be an underwriter under the provisions of the Securities
Act of 1933 (the "1933 Act").
The Fund also has adopted certain other investment restrictions reflecting
the current investment practices of Index Plus which may be changed by the
Fund's directors and without shareholder vote. Under such restrictions, Index
Plus will not:
(1) make short sales of securities, other than short sales "against the
box," or purchase securities on margin except for short-term credits necessary
for clearance of portfolio transactions, provided that this restriction will
not be applied to limit the use of options, futures contracts and related
options, in the manner otherwise permitted by the investment restrictions,
policies and investment program of Index Plus;
(2) invest more than 25% of its total assets in securities or
obligations of foreign issuers, including marketable securities of, or
guaranteed by, foreign governments (or any instrumentality or subdivision
thereof). Index Plus will invest in securities or obligations of foreign banks
only if such banks have a minimum of $5 billion in assets and a primary
capital ratio of at least 4.25%.
(3) invest in companies for the purpose of exercising control or
management;
(4) purchase the securities of any other investment company, except as
permitted under the 1940 Act;
(5) purchase interests in oil, gas or other mineral exploration
programs; however, this limitation will not prohibit the acquisition of
securities of companies engaged in the production or transmission of oil, gas,
or other minerals; or
(6) invest more than 25% of the total value of its assets in high risk
high-yield securities or "junk bonds" (securities rated BB/Ba or lower by
Standard & Poor's Corporation or Moody's Investors Service, Inc., or, if
unrated, considered by the investment adviser to be of comparable quality).
In order to permit the sale of its shares in certain states, Index Plus has
undertaken to adhere to the following investment policies, each of which may
be changed without shareholder approval:
(1) Index Plus will not invest more than 5% of the value of Index Plus'
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 Index Plus' net assets, may
be warrants which are not listed on the New York, American or any recognized
foreign stock exchange. Warrants acquired by Index Plus in units or attached
to securities may be deemed to be without value;
(2) Index Plus will not 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) Index Plus 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 Index Plus' net assets would then
be invested in such securities.
Index Plus 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 Index Plus 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 Index Plus' 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
Index Plus may use derivative instruments as described in the prospectus under
"Investment Techniques." The following provides additional information about
these instruments.
FUTURES CONTRACTS - Index Plus may enter into futures contracts as described
in the prospectus but subject to restrictions described below under
"Restrictions on the Use of Futures and Option Contracts." Index Plus 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 Commodity 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 financial instrument(s) or a
specific stock market index for a specified price at a designated date and
time. Brokerage fees are incurred when a futures contract is bought or sold
and at expiration, and margin deposits must be maintained.
Although certain futures contracts require actual future delivery of and
payment for the underlying instruments, 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 Index Plus will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If Index Plus is
not able to enter into an offsetting transaction, it will continue to be
required to maintain the margin deposits on the contract and continue to bear
the risk of market improvement.
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 rates futures contract prices during a single trading day, and
temporary regulations limiting price fluctuations for stock index futures
contracts are also now in effect. The daily limits 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 Index Plus 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 Index Plus with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in Index Plus' futures contracts. A margin
deposit is intended to assure Index Plus' 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 Index Plus. These
daily payments to and from Index Plus 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, Index Plus will mark-to-market the current value of its open
futures contracts. Index Plus expects to earn interest income on its initial
margin deposits. Furthermore, in the case of a futures contract purchase,
Index Plus 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 Index Plus 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, Index Plus 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.
Index Plus can enter into options on futures contacts. See "Covered Call and
Put Options" below. The risk involved in writing options on futures contracts
or market indices is that there could be an increase in the market value of
such contracts or indices. If that occurred, the option would be exercised and
Index Plus 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
Index Plus' obligation might be more or less than the premium received when it
originally wrote the option. Further, Index Plus might occasionally not be
able to close the option because of insufficient activity in the options
market.
COVERED CALL AND PUT OPTIONS - Index Plus 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 subject to the restrictions described below
under "Restrictions on the Use of Futures and Option Contracts." A call option
gives the holder (buyer) the right to buy and obligates 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
obligates the writer (seller) to purchase a security or financial
instrument at a stated price at any time until the expiration date. Index
Plus 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 ALIAC or Aeltus (collectively, the "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. Index Plus 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.
Index Plus may purchase and write call options on stock indices, including the
S&P 500, as well as on any individual stock, as described below. Index Plus
will use these techniques primarily as a temporary substitute for taking
positions in certain securities or in the securities that comprise the index,
particularly if ALIAC considers these instruments to be undervalued relative
to the prices of particular securities or of the securities that comprise the
index.
An option on an index (or a particular security) is a contract that gives the
purchaser of the option, in return for the premium paid, the right to receive
from the writer of the option cash equal to the difference between the closing
price of the index (or security) and the exercise price of the option,
expressed in dollars, times a specified multiple (the "multiplier"). Index
Plus may, in particular, purchase call options on an index (or a particular
security) to protect against increases in the price of securities underlying
that index (or individual securities) that Index Plus intends to purchase
pending its ability to invest in such securities in an orderly manner.
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. Index Plus 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. If the put is exercised, the writer may incur a loss, equal to the
difference between the exercise price and the current market value of the
underlying instrument.
Index Plus may purchase put options when the Adviser believes that a
temporary defensive position is desirable in light of market conditions,
but does not desire to sell a portfolio security. The purchase of put
options for these purposes may be used to protect Index Plus' 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
Index Plus, 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, Index Plus
will reduce any profit it might otherwise have realized in its underlying
security by the premium paid for the put option and by transaction costs.
The security covering the call or put option will be segregated at
Index Plus' 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 Index Plus for writing call options will be recorded
as a liability in the statement of assets and liabilities of Index Plus. 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 Index Plus when purchasing a put option will be recorded as an
asset in the statement of assets and liabilities of Index Plus. 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 Index Plus 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
Index Plus 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 Index Plus will be able to
effect a closing transaction at a favorable price. If Index Plus 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. Index Plus will pay brokerage commissions in connection with the
sale or purchase of options to close out previously established option
positions. Such brokerage commissions are normally higher as a percentage of
underlying asset values than those applicable to purchases and sales of
portfolio securities.
The exercise price of an option may be below, equal to, or above the current
market value of the underlying security at the time the option is written.
From time to time, Index Plus 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.
Index Plus 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 Index Plus. Any profits from
writing covered call options are considered short-term gain for federal income
tax purposes and, when distributed by Index Plus, are taxable as ordinary
income.
FOREIGN FUTURES CONTRACTS AND FOREIGN OPTIONS - Index Plus may engage in
transactions in foreign futures contracts and foreign options. Participation
in foreign futures contracts and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the CFTC, the National Futures Association ("NFA") nor any
domestic exchange regulates activities of any foreign boards of trade
including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign laws. Generally, the foreign transaction will be governed
by applicable foreign law. This is true even if the exchange is formally
linked to a domestic market so that a position taken on the market may be
liquidated by a transaction on another market. Moreover, such laws or
regulations will vary depending on the foreign country in which the foreign
futures contract 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 an 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 - Index Plus may write and purchase calls on
foreign currencies. Index Plus 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 purposes 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 required 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 Index Plus'
position, it would lose the premium it paid and transaction costs. A call
written on a foreign currency by Index Plus is covered if Index Plus 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 Index Plus on a
foreign currency to provide a hedge against a decline due to an expected
adverse change in the exchange rate in the U.S. dollar value of a security
which Index Plus owns or has the right to acquire and which is denominated in
the currency underlying the option. This is a "cross-hedging" strategy. In
such circumstances, Index Plus collateralizes the position by maintaining in a
segregated account with Index Plus' 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 - Index Plus 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. Index Plus may enter into a
forward exchange contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold but
which has not yet settled (a "transaction hedge"); or to lock in the value of
an existing portfolio security (a "position hedge"); or to protect against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and a foreign currency. There is a risk that use of forward
exchange contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign currency.
Forward exchange contracts include standardized foreign currency futures
contracts which are traded on exchanges and are subject to procedures and
regulations applicable to futures. Index Plus 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 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, Index Plus may experience losses or gains on
both the underlying security and the cross currency hedge.
Index Plus 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
Index Plus 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 Index Plus' assets that may be
committed to forward exchange contracts. Index Plus will not enter into a
"cross-hedge," unless it is denominated in a currency or currencies that the
Adviser believes will have price movements that tend to correlate closely
with the currency in which the investment being hedged is denominated.
Index Plus' custodian will place cash or U.S. Government securities or other
liquid high-quality debt securities in a separate account of Index Plus having
a value equal to the aggregate amount of Index Plus' 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 Index Plus'
commitments with respect to such contracts. As an alternative to maintaining
all or part of the separate account, Index Plus may purchase a call option
permitting Index Plus 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 Index Plus may purchase a put option permitting Index Plus 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 Index Plus
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 Index Plus 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 Index Plus
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
Index Plus 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 Index Plus to sustain losses on these contracts and transactions
costs.
At or before the maturity of a forward exchange contract requiring Index Plus
to sell a currency, Index Plus 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 Index Plus will obtain, on the same maturity
date, the same amount of the currency that it is obligated to deliver.
Similarly, Index Plus 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. Index Plus 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 Index Plus 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, ALIAC must evaluate the
credit and performance risk of each particular counterparty under a forward
contract.
Although Index Plus values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on
a daily basis. Index Plus may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Foreign
exchange dealers do not charge a fee for conversion, but they do seek to
realize a profit based on the difference between the prices at which they buy
and sell various currencies. Thus, a dealer may offer to sell a foreign
currency to Index Plus at one rate, while offering a lesser rate of exchange
should Index Plus desire to resell that currency to the dealer.
RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS - CFTC regulations
require that to prevent it from being a commodity pool Index Plus enter into
all short futures positions 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 Index Plus' net assets, after taking into account
realized profits and unrealized losses on such futures contracts.
Index Plus' ability to engage in the hedging transactions described herein may
be limited by the current federal income tax requirement that Index Plus
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 Index Plus 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, Index Plus' loss will consist of the net amount
of contractual interest payments that Index Plus has not yet received. The
Adviser will monitor the creditworthiness of counterparties to Index Plus'
interest rate swap transactions on an ongoing basis. Index Plus will enter
into swap transactions with appropriate counterparties pursuant to
master netting agreements. A master netting agreement provides that all
swaps done between Index Plus 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 Index Plus' transactions in derivatives.
Risk of Imperfect Correlation - Index Plus' 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 Index
Plus might not be successful and Index Plus 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, Index Plus' 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. Index Plus 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 Index Plus will not be able to establish
hedging positions, or that any hedging strategy adopted will be insufficient
to completely protect Index Plus.
Index Plus will purchase or sell futures contracts or options for hedging
purposes, only if, in the Adviser's judgment, there is expected to be a
sufficient degree of correlation between movements in the value of such
instruments and changes in the value of the assets being hedged for the hedge
to be effective. There can be no assurance that the Adviser's judgment
will be accurate.
Potential Lack of a Liquid Secondary Market - The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures markets are subject to initial deposit and variation margin
requirements. This could require Index Plus 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 Index
Plus 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 Index
Plus, which could require Index Plus 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 Index Plus' 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 Adviser's judgment concerning the general direction of interest
rates is incorrect, Index Plus' overall performance may be poorer than if
it had not entered into any such contract. For example, if Index Plus 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, Index Plus 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 Index Plus 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 Fund does not believe that these trading
and position limits will have an adverse impact on the hedging strategies
regarding Index Plus.
REPURCHASE AGREEMENTS
Index Plus may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards established
by the Fund's Board of Directors. A repurchase agreement allows Index Plus to
determine the yield during Index Plus' 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 Index Plus. 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 Index Plus. In that event,
Index Plus 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, Index Plus' ability to liquidate the
collateral may be delayed or limited. Under the 1940 Act, repurchase
agreements are considered loans by Index Plus. Repurchase agreements maturing
in more than seven days will not exceed 15 percent of the total assets of
Index Plus.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments (including floating rate instruments) held by
Index Plus may have maturities of more than one year, provided: (i) Index Plus
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. Index
Plus 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, Index Plus might be unable to dispose of the note and a loss would
be incurred to the extent of the default. Index Plus 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 Index Plus will also be monitored to determine whether such notes
should continue to be held. Variable and floating rate instruments with demand
periods in excess of seven days and which cannot be disposed of promptly
within seven business days and in the usual course of business without taking
a reduced price will be treated as illiquid securities that are subject to
Index Plus' policies and restrictions on illiquid securities.
SECURITIES LENDING
Index Plus can lend securities in its portfolio subject to the following
conditions: (a) the borrower will provide collateral equal to an amount of at
least 100% of the then current market value of the loaned securities
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,
direct obligations of the U.S. government or agencies thereof or irrevocable
letters of credit; (d) cash collateral will be invested only in highly liquid
short-term investments; (e) during the existence of a loan, Index Plus 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 Index Plus 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 Adviser's opinion, lending portfolio securities to qualified
broker-dealers affords Index Plus a means of increasing the yield on its
portfolio. Index Plus 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. Index Plus 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 Adviser will regain or direct the vote with respect to loaned
securities.
The primary risk Index Plus 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 Index Plus 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 Index Plus may invest
in securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of
investments so far as U.S. investors are concerned. In addition, with respect
to certain countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability, or diplomatic
developments that could adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or
as uniform as those of U.S. issuers. Foreign securities markets, while
growing in volume, have, for the most part, substantially less volume than
U.S. markets. Securities of many foreign issuers are less liquid and their
prices more volatile than securities of comparable U.S. issuers.
Transactional costs in non-U.S. securities markets are generally higher than
in U.S. securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the U.S. The
Fund might have greater difficulty taking appropriate legal action with
respect to foreign investments in non-U.S. courts than with respect to
domestic issuers in U.S. courts. In addition, transactions in foreign
securities may involve greater time from the trade date until settlement than
domestic securities transactions and involve the risk of possible losses
through the holding of securities by custodians and securities depositories in
foreign countries.
Currently, direct investment in equity securities in China and Taiwan is
restricted, and investments may be made only through a limited number of
approved vehicles. At present this includes investment in listed and unlisted
investment companies, subject to limitations under the 1940 Act. Investment in
these closed-end funds may involve the payment of additional premiums to
acquire shares in the open-market and the yield of these securities will be
reduced by the operating expenses of such companies. In addition, an investor
should recognize that he will bear not only his proportionate share of the
expenses of Index Plus, but also indirectly bear similar expenses of the
underlying closed-end fund. Also, as a result of Index Plus' policy of
investing in closed-end mutual funds, investors in Index Plus 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 Index Plus 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 United States. Typically,
these securities are traded on the Luxembourg exchange in Europe; and (c)
Global Depositary Receipts (GDRS), which are similar to EDRS although they may
be held through foreign clearing agents such as Euroclear and other foreign
depositories. Depositary receipts denominated in U.S. dollars will not
be considered foreign securities for purposes of Index Plus' 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 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 Index Plus might be
converted to cash, and Index Plus 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 Index Plus buys mortgage-related securities at
a premium, mortgage foreclosures or mortgage prepayments may result in losses
of up to the amount of the premium paid since only timely payment of principal
and interest is guaranteed.
As noted in the Prospectus, Index Plus may also invest in collateralized
mortgage obligations (CMOs). CMOs 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 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 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. CMOs are issued by private entities. They are
not directly guaranteed by any government agency and are secured by the
collateral held by the issuer.
ASSET-BACKED SECURITIES
Asset-backed securities are collateralized by short-term loans such as
automobile loans, home equity loans, or credit card receivables. The payments
from the collateral are passed through to the security holder. As noted above
with respect to CMOs, the average life for these securities is the
conventional proxy for maturity. Asset-backed securities may pay all interest
and principal to the holder, or they may pay a fixed rate of interest, with
any excess over that required to pay interest going either into a reserve
account or to a subordinate class of securities, which may be retained by the
originator. The originator may guarantee interest and principal payments.
These guarantees often do not extend to the whole amount of principal, but
rather to an amount equal to a multiple of the historical loss experience of
similar portfolios.
Two varieties of asset-backed securities are CARs and CARDs. CARs are
securities, representing either ownership interests in fixed pools of
automobile receivables, or debt instruments supported by the cash flows from
such a pool. CARDs are participations in fixed pools of credit accounts.
These securities have varying terms and degrees of liquidity.
Asset-backed securities may be subject to the type of prepayment risk
discussed above due to the possibility that prepayments on the underlying
assets will alter the cash flow. Faster prepayments will shorten the average
life and slower prepayments will lengthen it.
The coupon rate of interest on mortgage-related and asset-backed securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor. Actual yield may vary from the coupon rate, however, if such
securities are purchased at a premium or discount, trade 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
Index Plus may invest in high risk, high-yield securities ("junk bonds"),
which are fixed income securities that offer a current yield above that
generally available on higher quality debt securities. These securities are
regarded as speculative and generally involve more risk of loss of principal
and income than higher-rated securities. Also their yields and market values
tend to fluctuate more. Fluctuations in value do not affect the cash income
from the securities but are reflected in Index Plus' 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 Index Plus' objectives, the Adviser seeks to
identify situations in which the rating agencies have not fully perceived the
value of the security or in which the Adviser believes that future
developments will enhance the creditworthiness and the ratings of the
issuer.
The yields earned on high risk, high-yield securities (junk bonds) generally
are higher than those of higher quality securities with the same maturities
because of the additional risks associated with them. These risks include:
(1) SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. High risk,
high-yield securities (junk bonds) are more sensitive to adverse economic
changes or individual corporate developments but less sensitive to interest
rate changes than are investment grade bonds. As a result, when interest rates
rise, causing bond prices to fall, the value of these securities may not fall
as much as investment grade corporate bonds. Conversely, when interest rates
fall, these securities may underperform investment grade corporate bonds
because the prices of high risk, high-yield securities (junk bonds) tend not
to rise as much as the prices of those other bonds.
Also, the financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability of
issuers of these securities to service their principal and interest payments,
to meet projected business goals and to obtain additional financing, than on
more creditworthy issuers. Holders of these securities could also be at
greater risk because these securities are generally unsecured and subordinated
to senior debt holders and secured creditors. If the issuer of a high risk,
high-yield security (junk bonds) owned by Index Plus defaults, Index Plus 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 Index Plus' net asset value.
Furthermore, in the case of high risk, high-yield securities (junk bonds)
structured as zero coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes and thereby tend to be
more speculative and volatile than securities which pay interest periodically
and in cash.
(2) PAYMENT EXPECTATIONS. High risk, high-yield securities (junk bonds),
like other debt instruments, present risks based on payment expectations. For
example, these securities may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, Index
Plus 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. Some high risk, high-yield securities
(junk bonds) may be traded among a limited number of broker-dealers rather
than in a broad secondary market. Many of these securities may not be as
liquid as investment grade bonds. The ability to value or sell these
securities will be adversely affected to the extent that such securities
are thinly traded or illiquid. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease or increase
the value and liquidity of these securities more than other securities,
especially in a thinly-traded market.
(4) LIMITATIONS OF CREDIT RATINGS. The credit ratings assigned to high
risk, high-yield securities (junk bonds) may not accurately reflect the true
risks of an investment. Credit ratings typically evaluate the safety of
principal and interest payments rather than the market value risk of such
securities. In addition, credit agencies may fail to adjust credit ratings to
reflect rapid changes in economic or company conditions that affect a
security's market value. Although the ratings of recognized rating services
such as Moody's Investors Service, Inc. and Standard & Poor's Corporation are
considered, the 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 Index Plus' investment objective may be more dependent on the Adviser's
own credit analysis than might be the case for a fund which does not
invest in these securities.
(5) LEGISLATION. Legislation may have a negative impact on the market for
high risk, high-yield securities (junk bonds), such as legislation requiring
federally-insured savings and loan associations to divest themselves of their
investments in these securities.
ZERO COUPON AND PAY-IN-KIND SECURITIES
Index Plus may invest in zero coupon securities and pay-in-kind securities.
In addition, Index Plus 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, Index Plus may realize no return on its
investment, because these securities do not pay cash interest.
CONVERTIBLES
A convertible bond or convertible preferred stock gives the holder the option
of converting these securities into common stock. Some convertible securities
contain a call feature whereby the issuer may redeem the security at a
stipulated price, thereby limiting the possible appreciation.
WARRANTS
Warrants allow the holder to subscribe for new shares in the issuing company
within a specified time period, according to a predetermined formula governing
the number of shares per warrant and the price to be paid for those shares.
Warrants may be issued separately or in association with a new issue of bonds,
preferred stock, common stock or other securities.
Covered warrants allow the holder to purchase existing shares in the issuing
company, or in a company associated with the issuer, or in a company in which
the issuer has or may have a share stake which covers all or part of the
warrants' subscription rights.
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES
During any period that Index Plus has outstanding a commitment to purchase
securities on a when-issued or delayed-delivery basis, Index Plus will
segregate securities 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 segregated assets falls below the amount that
Index Plus will be required to pay on settlement, additional assets may be
required to be segregated. Such segregated assets could affect Index Plus'
liquidity and ability to manage its portfolio. When Index Plus 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 Index Plus' incurring a loss or missing an
opportunity to invest segregated assets more advantageously. Index Plus 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 Index Plus 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
Index Plus' policies on portfolio turnover are discussed in the prospectus.
DIRECTORS AND OFFICERS OF THE FUND
The investments and administration of the Fund are under the supervision of
the Directors. The Directors and executive officers of the Fund 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 Adviser.
<TABLE>
<CAPTION>
<S> <C> <C>
Position(s) Principal Occupation During Past Five Years
Held with (and Positions held with Affiliated Persons
Name, Address and Age Registrant or Principal Underwriters of the Registrant)
- ------------------------ ---------------- ---------------------------------------------------
Shaun P. Mathews* Director and Vice President/Senior Vice President, ALIAC,
151 Farmington Avenue President March 1991 to present and Vice President, Aetna
Hartford, Connecticut Life Insurance Company, 1991 to present;
Age 41 Director and President, Aetna Investment
Services, Inc.; and Director and Senior Vice
President, Aetna Insurance Company of America,
March 1991 to present.
Wayne F. Baltzer Vice President Assistant Vice President, ALIAC, May 1991
151 Farmington Avenue to present; Vice President, Aetna
Hartford, Connecticut Investment Services, Inc., July 1993 to
Age 53 present.
Martin T. Conroy Vice President Assistant Treasurer, ALIAC, October 1991 to
151 Farmington Avenue present.
Hartford, Connecticut
Age 57
J. Scott Fox Vice President Director, Managing Director, Chief Operating
242 Trumbull Street and Treasurer Officer, Chief Financial Officer and Treasurer,
Hartford, Connecticut Aeltus Investment Management, Inc. (Aeltus),
Age 42 April 1994 to present; Managing Director and
Treasurer, Equitable Capital Management Corp.,
March 1987 to September 1993; Director and
Chief Financial Officer, Aeltus Capital, Inc. and
Aeltus Trust Company, Inc. Director, President
and Chief Executive Officer, Aetna Investment
Management,(Bermuda) Holding, Ltd.
Susan E. Bryant Secretary Counsel, Aetna Inc. (formerly Aetna Life
151 Farmington Avenue and Casualty Company), March 1993 to
Hartford, Connecticut present; General Counsel and Corporate
Age 49 Secretary, First Investors Corporation,
April 1991 to March 1993. Secretary, Aetna
Investment Services, Inc. and Vice President
and Senior Counsel, Aetna Financial Services,
Inc.
Morton Ehrlich Director Chairman and Chief Executive Officer,
1000 Venetian Way Integrated Management Corp. (an entrepre-
Miami, Florida neurial company) and Universal Research
Age 62 Technologies, 1992 to present;
Director and Chairman, Audit Committee,
National Bureau of Economic Research, 1985
to 1992.
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental
Closter, New Jersey Retardation and Alcohol Services, 1973 to
Age 53 present.
David L. Grove Director Private Investor; Economic/Financial Con-
5 The Knoll sultant, December 1985 to present.
Armonk, New York
Age 78
Timothy A. Holt* Director Director, Senior Vice President and Chief
151 Farmington Avenue Financial Officer, ALIAC, February 1996 to
Hartford, Connecticut present; Vice President, Portfolio Management/
Age 43 Investment Group, Aetna Inc. (formerly Aetna
Life and Casualty Company), June 1991 to
February 1996. Director and Vice President,
Aetna Retirement Holdings Services, Inc.
Daniel P. Kearney* Director Director, President and Chief Executive Officer,
151 Farmington Avenue ALIAC, December 1993 to present; Executive Vice
Hartford, Connecticut President, Aetna Inc. (formerly Aetna Life and
Age 57 Casualty Company), December 1993 to present;
Group Executive, Aetna Inc. (formerly Aetna
Life and Casualty Company), 1991 to 1993;
Director, Aetna Investment Services, Inc.,
November 1994 to present; Director, Aetna
Insurance Company of America, May 1994 to
present.
Sidney Koch Director Financial Adviser, self-employed, January 1993
455 East 86th Street to present; Senior Adviser, Daiwa Securities
New York, New York America, Inc., January 1992 to January 1993;
Age 61 Executive Vice President, Member of Executive
Committee, Daiwa Securities America, Inc.,
January 1986 to January 1992.
Corine T. Norgaard Director, Chair Dean of the Barney School of Business,
556 Wormwood Hill Audit Committee University of Hartford, (West Hartford, CT),
Mansfield Center, and Contract August 1996 to present; Professor, Accounting
Connecticut Committee and Dean of the School of Management,
Age 59 Binghamton University (Binghamton, NY),
August 1993 to August 1996; Professor,
Accounting, University of Connecticut, (Storrs,
Connecticut), September 1969 to June 1993;
Director, The Advest Group (holding company for
brokerage firm) through September 1996.
Richard G. Scheide Director Trust and Private Banking Consultant,
11 Lily Street David Ross Palmer Consultants, July 1991 to
Nantucket, Massachusetts present.
Age 67
<FN>
* Interested persons as defined in the 1940 Act.
</FN>
</TABLE>
During the year ended October 31, 1995, members of the Board of Directors who
are also directors, officers or employees of Aetna Inc. and its affiliates
were not entitled to any compensation from Index Plus. Members of the Board of
Directors who are not affiliated as employees of Aetna or its subsidiaries
received an annual retainer of $5,000 for service on the Board, and a fee of
$200 per Series for each meeting of such Board (equal to an aggregate annual
fee of $10,400). They also received a fee of $1,000 per Audit Committee
meeting, and $2,500 per Contract Committee meeting.
As of October 31, 1995, the unaffiliated members of the Board of Directors
received compensation in the amounts included in the following table. None of
these Directors were entitled to receive pension or retirement benefits.
<TABLE>
<CAPTION>
<S> <C> <C>
Total Compensation from
Aggregate Compensation Registrant and Fund
Name of Person, Position from Registrant Complex* Paid to Directors
- ------------------------ ----------------------- ---------------------------
Corine Norgaard $ 18,550 $ 49,500
Director and Chairman,
Audit and Contract
Committees
Sidney Koch $ 16,800 $ 45,500
Director and Member,
Audit and Contract
Committees
Maria T. Fighetti $ 15,800 $ 44,500
Director and Member,
Audit and Contract
Committees
Morton Ehrlich $ 15,800 $ 44,500
Director and Member,
Audit and Contract
Committees
Richard G. Scheide $ 16,725 $ 45,000
Director and Member,
Audit and Contract
Committees
David L. Grove $ 16,725** $ 45,000**
Director and Member,
Audit and Contract
Committees
<FN>
* Fund Complex presently consists of: Aetna Series Fund, Inc., Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna
Investment Advisers Fund, Inc., Aetna Get Fund (Series B and Series C), Aetna
Generation Portfolios, Inc. and Aetna Variable Portfolios, Inc.
** Mr. Grove elected to defer all such compensation.
</FN>
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF INDEX PLUS
As of the close of business on December 3, 1996, ALIAC owned 10,000 shares of
the Select Class of Index Plus and was the sole shareholder of that class.
As of that same date, the Adviser Class of Index Plus had no shareholders.
THE INVESTMENT ADVISORY AGREEMENT
The Fund, on behalf of Index Plus has entered into an investment advisory
agreement ("Advisory Agreement") appointing ALIAC as the investment adviser of
Index Plus. The Advisory Agreement was adopted by the Board of Directors in
September, 1996 and approved by the shareholders on December 4, 1996. The
Advisory Agreement is effective through December 31, 1997. The Advisory
Agreement will remain in effect thereafter if approved at least annually by
a majority of the Directors, including a majority of the Directors who are
not "interested persons" of the Fund as defined by the 1940 Act (Independent
Directors), at a meeting, called for that purpose,and held in person. The
Advisory Agreement may be terminated without penalty at any time by the
Directors or by a majority vote of the outstanding voting securities of
Index Plus. It may be terminated on sixty days' written notice by ALIAC.
The Advisory Agreement terminates automatically in the event of
assignment. Under the Advisory Agreement and subject to the supervision
of the Directors of the Fund, ALIAC has responsibility for supervising all
aspects of the operations of Index Plus including the selection, purchase
and sale of securities on behalf of Index Plus, the calculation of net
asset values and the preparation of financial and other reports as
requested by the Directors. Under the Advisory Agreement, ALIAC is given
the right to delegate any or all of its obligations to a subadviser.
The Advisory Agreement provides that ALIAC is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
officers or Directors of the Fund and Index Plus is responsible for payment of
all other of its costs.
For its services, ALIAC receives the following annual investment advisory fees
expressed as a percentage of the average daily net assets of Index
Plus:
Index Plus
Fee Assets
----------- -------
Index Plus 0.45% On first $250 MM
0.45% On next $250 MM
0.425% On next $250 MM
0.40% On next $250 MM
0.40% On next $1 B
0.375% Over $2 B
ALIAC has agreed to reimburse Index Plus 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
Index Plus are registered for sale having the most stringent expense
reimbursement provisions. As of the date of this Statement, the most stringent
limitation rate applicable to Index Plus is 2 1/2% of the first $30 million
of Index Plus' average net assets, 2% of the next $70 million of Index Plus'
average net assets, and 1 1/2% of the remaining average net assets of the
Series for any fiscal year. See "Fee Tables" in the Prospectus.
Unless terminated earlier, the Advisory Agreement remains 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 Advisory Agreement may be
terminated without penalty at any time on sixty days' written notice by (i)
the Directors, (ii) a majority vote of the outstanding voting securities of
Index Plus, or (iii) ALIAC.
SUBADVISORY AGREEMENT
ALIAC and the Fund, on behalf of Index Plus, have entered into a subadvisory
agreement ("Subadvisory Agreement") with Aeltus Investment Management, Inc.
("Aeltus") effective September 25, 1996. This Subadvisory Agreement was
adopted by the Board of Directors in September, 1996 and approved by the
shareholders on December 4, 1996. This Subadvisory Agreement will be
effective through December 31, 1997. The Subadvisory Agreement will
remain in effect thereafter if approved at least annually by a majority
of the Directors, including a majority of the Independent Directors of
the Fund, at a meeting called for that purpose, and
held in person. The Subadvisory Agreement may be terminated without
penalty at any time by the Directors or by a majority of the outstanding
voting securities of Index Plus or it may be terminated on sixty days'
written notice by ALIAC, the Fund or the Subadviser. The Subadvisory
Agreement terminates automatically in the event of its assignment.
Under the Subadvisory Agreement, Aeltus is responsible for managing the assets
of Index Plus in accordance with its investment objective and policies,
subject to the supervision of ALIAC, the Fund and the Directors, and for
preparing and providing accounting and financial information as requested by
ALIAC and the Directors. The Subadviser pays the salaries, employment
benefits and other related costs of its personnel.
For its services, ALIAC has agreed to pay the Subadviser a monthly fee at an
annual rate based on the average daily net assets of Index Plus as follows.
This fee is not charged to the Fund but is paid by ALIAC out of its investment
advisory fees.
Index Plus
Fee Assets
----------- ------
0.35% On first $250 MM
0.345% On next $250 MM
0.3275% On next $250 MM
0.31% On next $250 MM
0.30% On next $1 B
0.2775% Over $2 B
ALIAC, as the investment adviser, retains overall responsibility for
monitoring the investment program maintained by Aeltus for compliance with
applicable laws and regulations and Index Plus' investment objective and
policies.
THE ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to an Administrative Services Agreement described below, ALIAC acts
as administrator and provides certain administrative and shareholder services
necessary for Fund operations and is responsible for the supervision of
other service providers. The services provided by ALIAC include: (1) internal
accounting services; (2) regulatory compliance, such as reports and filings
with the Commission and state securities commissions; (3) preparing financial
information for proxy statements; (4) preparing semiannual and annual reports
to shareholders; (5) preparing federal, state and local income tax returns;
(6) overseeing the determination and publication of net asset values; (7)
certain shareholder communications; (8) supervision of the custodians and
transfer agent; and (9) reporting to the Directors.
For its services, each Series pays ALIAC a monthly fee at an annual rate based
on average daily net assets as described in the Prospectus.
Unless terminated earlier, the Administrative Services Agreement remains in
effect from year-to-year if approved annually by a majority of the
Directors, including a majority of the Independent Directors. The
Administrative Services Agreement may be terminated by either party on sixty
days' written notice.
LICENSE AGREEMENT
The Fund uses the service mark of Index Plus and the name "Aetna" with the
permission of Aetna Inc. granted under a License Agreement. The continued use
is subject to the right of Aetna Inc. to withdraw this permission in the event
ALIAC or another subsidiary or affiliated corporation of Aetna Inc. should not
be the investment adviser of Index Plus.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258
serves as custodian for the assets of the Series. The custodian does not
participate in determining the investment policies of the Series or in
deciding which securities are purchased or sold by the Series. The Series 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, CT 06103 serves as
independent auditors to the Fund. KPMG Peat Marwick LLP provides audit
services, assistance and consultation in connection with Commission
filings.
PRINCIPAL UNDERWRITER
Shares of each Series are offered on a continuous basis. ALIAC has agreed to
use its best efforts to distribute the shares as the principal underwriter of
the Series pursuant to an Underwriting Agreement between it and the Fund. The
Agreement was reapproved in December, 1995 to continue through December, 1996.
ALIAC is registered as a broker-dealer with the Commission and is a member of
the National Association of Securities Dealers, Inc. The Underwriting
Agreement may be continued from year to year if approved annually by the
Directors or by a vote of holders of a majority of each Series' shares,
and by a vote of a majority of the Independent Directors appearing in
person at a meeting called for the purpose of approving such agreement. This
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
vote of holders of a majority of each Series' shares without the
payment of any penalty.
DISTRIBUTION ARRANGEMENTS
Shares of the Fund are distributed on a best efforts basis by ALIAC as
Underwriter which contracts with various broker-dealers, including one or
more affiliates. On December 13, 1995, ALIAC entered into an agreement
(Dealer Agreement) with Aetna Investment Services Inc., an affiliate
of ALIAC, to distribute shares of the Fund. To compensate ALIAC for
the services it provides Adviser Class shareholders, ALIAC is paid an annual
service fee with respect to Adviser Class shares at the rate of 0.25% 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 at the rate of 0.50% of average daily net assets attributable to those
shares under a Distribution Plan adopted by the Fund pursuant to Rule 12b-1
of the 1940 Act to cover expenses primarily intended to result in the sale of
Adviser Class shares. It may reallow all or a portion of these fees to
broker-dealers entering into selling agreements with it including its
affiliates.
The Shareholder Services Plan and the Distribution Plan (Plans) continue from
year-to-year, provided such continuance is approved annually by vote of the
Directors, including a majority of 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 upon not more than 30
days' written notice to any other party to the Plan. Pursuant to the
Plans, ALIAC will provide the Directors periodic reports of amounts expended
under the Plans and the purpose for which such expenditures were made.
BROKERAGE ALLOCATION
Subject to the supervision of the Directors, the Adviser has responsibility
for making investment decisions, for effecting the execution of trades
and for negotiating any brokerage commissions thereon. It is the Adviser's
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 Adviser receives 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 Fund. 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 Series and
other investment companies, services related to the execution of trades in a
Series' securities and advice as to the valuation of securities, the providing
of equipment used to communicate research information, and specialized
consultations with Series personnel with respect to computerized systems and
data furnished to the Series as a component of other research services. The
Adviser considers the quantity and quality of such brokerage and research
services provided by a brokerage firm along with the nature and difficulty of
the specific transaction in negotiating commissions for trades in a Series'
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 Adviser's policy in selecting a broker to effect a particular transaction
is to seek to obtain "best execution," which means prompt and efficient
execution of the transaction at the best obtainable price with payment of
commissions which are reasonable in relation to the value of the services
provided by the broker, taking into consideration research and other services
provided. When the trader believes that more than one broker can provide best
execution, preference may be given to brokers who provide additional services
to the Adviser. 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 Series and such other
accounts.
Consistent with federal law, the Adviser 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 Series. The Series will not effect any brokerage transactions in
portfolio securities with the Adviser or any affiliate of the Series or the
Adviser except in accordance with applicable Commission rules. All
transactions will comply with Rule 17e-1 of the 1940 Act.
Certain executive officers of ALIAC also have supervisory responsibility with
respect to the securities portfolio of ALIAC's own general account. Further,
ALIAC also acts as investment adviser to other investment companies registered
under the 1940 Act. The Directors and the Adviser have adopted policies
designed to prevent disadvantaging the Series in placing orders for the
purchase and sale of securities.
A Series and another advisory client of the Adviser, or the Adviser itself,
may desire to buy or sell the same publicly traded security at or about the
same time. In such a case, the purchases or sales will normally be
allocated as nearly as practicable on a pro rata basis in proportion to the
amounts to be purchased or sold by each. In some cases the smaller orders
will be filled first. In determining the amounts to be purchased and
sold, the main factors to be considered are the respective investment
objectives of a Series and the other portfolios,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 Directors have 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 Series may buy a security from or sell
another security to another registered investment company advised by the
Adviser.
The Directors have also adopted a Code of Ethics governing personal trading by
persons who manage, or who have access to trading activity by, a Series. The
Code of Ethics allows trades to be made in securities that may be held by a
Series, however, it prohibits a person from taking advantage of Series trades
or from acting on inside information.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation, as amended (Articles), permit the
Directors to direct the issuance of full and fractional shares of one or more
Series, each of which represents a proportionate interest in that Series equal
to each other share in that Series. 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
the Series. 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 the Series equal to each
other share in that Series. The Fund is currently authorized to issue shares
in twelve 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. Each share of a Series has the same rights to share in
dividends declared by a Series.
The Fund has obtained a ruling from the Internal Revenue Service (IRS) with
respect to certain Series of the Fund (not including Index Plus) to the effect
that differing distributions among the classes of its shares will not result
in a Series' dividends or 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 Series cannot treat
as having been distributed for purposes of determining (i) whether the Series
qualifies as a regulated investment company (RIC) for federal income tax
purposes and (ii) the Series' tax calculations. In order to qualify as a RIC,
a Series must satisfy certain requirements, including an income distribution
requirement. If a Series so qualifies, it generally will not be subject to
federal tax on income timely distributed to shareholders. Index Plus will
rely on a recent revenue ruling issued by the IRS to the same effect.
Upon liquidation of any Series, shareholders of shares representing an
interest in that Series are entitled to share pro rata in the net assets of
the Series available for distribution to shareholders. Series shares
are fully paid and nonassessable when issued.
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. Shares have no preemptive or
conversion rights and are nonassessable.
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, all shareholders have voting rights on all matters
except matters affecting only the interests of one Series 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.
SALE AND REDEMPTION OF SHARES
Adviser and Select Class shares are sold and redeemed at the net asset value
of each Series next determined after receipt of a purchase or redemption
order in acceptable form by Firstar Trust Company, the transfer agent for the
Series as described under "Shareholder Services" in the Prospectus.
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 in the Prospectus. 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 (or the maximum period allowed by
law, if shorter) 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 as described under "Shareholder
Services" in the Prospectus. Information about any additional requirements for
shares held in the name of a corporation, partnership, trustee, guardian or in
any other representative capacity can be obtained from the transfer agent.
The right to redeem a Series' 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 Securities and Exchange
Commission (Commission) or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists, as determined by the Commission, as a
result of which (i) disposal by a Series of securities owned by it is not
reasonably practicable, or (ii) it is not reasonably practicable for a Series
to determine fairly the value of its net assets; or (c) the Commission by
order so permits for the protection of shareholders of a Series.
An open account is automatically set up and maintained for each shareholder to
facilitate the voluntary accumulation of each Series' 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.
There is a $1,000 minimum initial investment for a Series 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 Inc. or for persons electing the Systematic
Investment feature.
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 Series 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 Series and
credited to the shareholder's account.
A Series reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of shares by
making payment, in whole or in part, in securities chosen by that Series
and valued in the same way as they would be valued for purposes of
computing that Series' net asset value. If payment is made in securities, a
shareholder may incur transactions costs in converting these securities into
cash. The Series has elected, however, to be governed by Rule 18f-1 under the
1940 Act so that a Series 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 Series.
NET ASSET VALUE
Securities of the Series are generally valued by independent pricing services.
Equity securities of each Series which are traded on a registered securities
exchange are valued at the last sale price or, if there has been no sale that
day, at the mean of the last bid and asked price on the exchange where the
security is principally traded. Securities traded over the counter are valued
at the mean of the last bid and asked price if current market quotations are
not readily available. Short-term debt securities which have a maturity date
of more than sixty days will be valued at the mean of the last bid and asked
price obtained from principal market makers. Short-term debt securities
maturing in sixty days or less at the date of purchase will be valued using
the "amortized cost" method of valuation. This involves valuing an instrument
at its cost and thereafter assuming a constant amortization of premium or
increase of discount. 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 Index Plus and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the
tax treatment of Index Plus 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
Index Plus has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (Code). As a
regulated investment company, Index Plus generally is not subject to federal
income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of its investment company taxable income (i.e., net investment
income and the excess of net short-term capital gain over net long-term
capital loss) and at least 90% of its tax-exempt income (net of expenses
allocable thereto) for the taxable year (Distribution Requirement), and
satisfies certain other requirements of the Code that are described below.
Distributions made during the taxable year or, under specified circumstances,
within twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and can therefore
satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the
sale or other disposition of stock or securities or foreign currencies (to the
extent such currency gains are directly related to the regulated investment
company's principal business of investing in stock or securities) and other
income (including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (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 (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, Index Plus 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 Index Plus
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 Index
Plus 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 Index Plus 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
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 Index Plus 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 elected otherwise),
will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by Index Plus 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 as part of a "straddle" (which term
generally excludes a situation where the asset is stock and Index Plus 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
Index Plus 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, Index Plus 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 Index Plus on the lapse of, or any gain or loss
recognized by Index Plus from a closing transaction with respect to, an option
written by Index Plus 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 Index Plus 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,
Index Plus may be limited in its ability to write options which expire within
three months and to enter into closing transactions at a gain within three
months of the writing of options.
Transactions that may be engaged in by Index Plus (such as regulated futures
contracts, certain foreign currency contracts, and options on stock 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. Index Plus, 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 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.
Index Plus may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies (PFICs) for
federal income tax purposes. If Index Plus invests in a PFIC, it may elect to
treat the PFIC as a qualifying electing fund (QEF) in which event Index Plus
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
Index Plus receives distributions of any such ordinary earning or capital gain
from the PFIC. If Index Plus 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 upon sale or other disposition of its interest in the PFIC or
any excess distribution received from the PFIC will be allocated ratably over
Index Plus' 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
Index Plus' gross income for such year as ordinary income (and the
distribution of such portion to shareholders will be taxable as an ordinary
income dividend, but such portion will not be subject to tax at the Index
Plus level), (3) Index Plus 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 to shareholders of the portions of such gain or
excess distribution so allocated to prior years (net of the tax
payable by Index Plus thereon) will again be taxable to the shareholders as an
ordinary income dividend.
Under proposed Treasury regulations Index Plus may be eligible to 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 Index Plus' adjusted tax
basis in that share ("mark to market gain"). Such mark to market gain will be
included by Index Plus as ordinary income, such gain will not be subject to
the Short-Short Gain Test, and Index Plus' holding period with respect to such
PFIC stock commences on the first day of the next taxable year. If Index Plus
makes such election in the first taxable year it holds PFIC stock, Index Plus
will include ordinary income from any mark to market gain, if any, and will
not incur the tax described in the previous paragraph.
Treasury regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, Index Plus 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 Index
Plus' taxable year, at least 50% of the value of Index Plus' 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 Index Plus has not invested more than 5% of the value of Index Plus'
total assets in securities of such issuer and as to which Index Plus does not
hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which Index Plus controls and which are engaged in the same or similar trades
or businesses. Generally, an option (call or put) with respect to a security
is treated as issued by the issuer of the security not the issuer of the
option. However, with regard to forward currency contracts, there does not
appear to be any formal or informal authority which identifies the issuer of
such instrument. For purposes of asset diversification testing, certain
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 Index Plus 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 Index Plus' 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 (taxable year election)).
Tax-exempt interest on municipal obligations is not subject to the excise
tax.) The balance of such income must be distributed during the next calendar
year. For the foregoing purposes, a regulated investment company is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses from Section 988 transactions incurred after October
31 of any year (or after the end of its taxable year if it has made a taxable
year election) in determining the amount of ordinary taxable income for the
current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
Index Plus 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 Index Plus may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
INDEX PLUS DISTRIBUTIONS
Index Plus anticipates distributing substantially all of its investment
company taxable income for each taxable year. Depending on Index Plus'
investments, distributions may be treated as a net capital gain dividend, an
ordinary income dividend, a U. S. Government interest dividend, a qualifying
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, dividends 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.
Index Plus may either retain or distribute to shareholders its net capital
gain for each taxable year. Index Plus 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 Index Plus 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 Index Plus'
disposition of domestic "small business" stock will be subject to tax.
Conversely, if Index Plus elects to retain its net capital gain, Index Plus
will be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If Index Plus elects to retain its
net capital gain, it is expected that Index Plus 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 Index Plus 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 Index Plus with respect to a taxable year
may qualify for the dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and
the personal holding company tax) to the extent of the amount of qualifying
dividends received by Index Plus from domestic corporations for the taxable
year and if the shareholder meets eligibility requirements in the Code.
Certain dividends paid by Index Plus will qualify for the dividends-received
deduction. A dividend received by Index Plus will not be treated as a
qualifying dividend (1) if it has been received with respect to any share of
stock that Index Plus 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 Index Plus has an option to sell,
is under a contractual obligation to sell, has made and not closed a short
sale of, is the grantor of a deep-in-the-money or otherwise nonqualified
option to buy, or has otherwise diminished its risk of loss by holding other
positions with respect to such (or substantially identical) stock; (2) to the
extent that Index Plus 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 Index Plus or (2) by
application of Code Section 246(b) which in general limits the
dividends-received deduction.
Alternative minimum tax (AMT) is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal
rate of 28% for noncorporate taxpayers and 20% for corporate taxpayers
on the excess of the taxpayer's alternative minimum taxable income (AMTI)
over an exemption amount. In addition, under the Superfund Amendments
and the 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 Series
into account (without a dividends-received deduction) in determining
its adjusted current earnings, which are used in computing an additional
corporate preference item (i.e., 75% of the excess of a corporate
taxpayer's adjusted current earnings over its AMTI (determined without
regard to this item and the AMT net operating loss deduction)) includable
in AMTI.
Investment income that may be received by Index Plus 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 Index Plus 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 Index Plus' assets to be invested in various
countries is not known. If more than 50% of the value of Index Plus' total
assets at the close of its taxable year consist of the stock or securities of
foreign corporations, Index Plus may elect to "pass through" to Index Plus
shareholders the amount of foreign taxes paid by Index Plus. If Index Plus 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
Index Plus, 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
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 Index Plus 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 Index Plus will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of Index Plus (or of another Series). 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 reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of Index Plus,
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 Index Plus 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 Index Plus) 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.
Index Plus 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
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 Index Plus 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 purchases other shares of
Index Plus 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 will be considered capital gain or loss and will be
long-term capital gain or loss if the shares were held for longer than
one year. However, any capital loss arising from the sale or redemption of
shares held, or deemed under the Code to be 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.
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 Index
Plus is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from Index Plus 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
Index Plus' 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 Index Plus, capital gain dividends and
exempt-interest dividends and amounts retained by Index Plus that are
designated as undistributed capital gains.
If the income from Index Plus 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
Index Plus 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, Index Plus may be required
to withhold U.S. federal income tax 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 its 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 Index Plus,
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. Future legislative or administrative changes
or court decisions may significantly change the conclusions expressed
herein, and any such changes or decisions may have a retroactive effect
with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation
described above. Shareholders are urged to consult their tax advisers as to
the consequences of these and other state and local tax rules affecting
their investment.
PERFORMANCE INFORMATION
Performance information for each class of shares of Index Plus including the
total return of Index Plus, may appear in reports or promotional literature to
current or prospective shareholders.
AVERAGE ANNUAL TOTAL RETURN
Quotations of average annual total return for Index Plus will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in Index Plus over a period of one, five and ten years (or, if
less, up to the life of Index Plus), calculated pursuant to the formula:
(n)
P(1 + T) = 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 Index Plus may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index (S&P
500), Dow Jones Industrial Average (DJIA), Russell 2000 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; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in Index Plus.
Index Plus 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 Index Plus 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.
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 Index Plus. 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.
FINANCIAL STATEMENTS
The financial statements, notes and reports of the Independent Auditors for
the fiscal year ended October 31, 1995, for all Series of the Fund except
Aetna Index Plus Fund appear in the Fund's Annual Report for the fiscal year
ended October 31, 1995, which is incorporated by reference into this
Statement of Additional Information. The Statement of Assets and
Liabilities, notes to the Statement of Assets and Liabilities and report
of the Independent Auditors as of December 4, 1996, for Aetna Index Plus Fund
are included herein. The unaudited financial statements and notes thereto for
the six-month period ended April 30, 1996, for all Series of the Fund except
Aetna Index Plus Fund appear in the Fund's Semi-Annual Report for the
six-month period ended April 30, 1996, which is incorporated by reference
into this Statement of Additional Information.
Independent Auditors' Report
The Board of Directors and Shareholder
Aetna Series Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Index
Plus Fund, a portfolio of Aetna Series Fund, Inc. ("the Fund"), as of December
4, 1996. This financial statement is the responsibility of the Fund's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. Our
procedures included confirmation of cash held as of December 4, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Index
Plus Fund of Aetna Series Fund, Inc. as of December 4, 1996 in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Hartford, Connecticut
December 4, 1996
AETNA SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 4, 1996
<TABLE>
<CAPTION>
<S> <C>
Index Plus Fund
----------------
Assets:
Cash in bank $ 100,000
----------------
Net assets applicable to outstanding shares $ 100,000
----------------
Net assets represented by:
Common stock-authorized 4,800,000,000 shares $.001
par value; issued and outstanding 10,000 shares. $ 10
Additional paid in capital 99,990
----------------
Total-representing net assets applicable to outstanding shares $ 100,000
----------------
Net asset value per share of outstanding shares $ 10.00
----------------
</TABLE>
See accompanying notes to statement of assets and liabilities
AETNA SERIES FUND, INC.
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 4, 1996
(1) ORGANIZATION
Aetna Series Fund, Inc. (the "Company") is an open-end management Investment
company incorporated under the laws of Maryland on June 17, 1991. The
Articles of Incorporation provide for the issuance of multiple series of
shares, each representing a diversified portfolio of investments
(collectively, the "Portfolios") with different investment objectives,
policies and restrictions.
The Company is currently offering eleven Portfolios. This statement of assets
and liabilities and accompanying notes relate to only one portfolio, Index
Plus Fund (the "Fund").
Index Plus Fund seeks to outperform the total return performance of common
stocks represented by the Standard & Poor's 500 Composite Stock Price Index, a
broad-based stock market Index.
(2) FEDERAL TAXES
The Fund intends to comply with the requirements of the Internal Revenue Code,
as amended, applicable to regulated investment companies and to distribute
taxable income to the shareholder of the Fund in amounts that will avoid or
minimize federal income or excise taxes for the Fund.
(3) FEES AND EXPENSES
On September 25, 1996, the Company's Board of Directors (the "Directors")
voted to approve an Investment Advisory Agreement (the "Management Agreement")
between the Company and ALIAC. Under the terms of the Management Agreement,
ALIAC has responsibility for supervising all aspects of the operations of the
Fund subject to the supervision of the Directors. ALIAC has agreed to ensure
that assets of the Fund are invested in accordance with the investment
objectives and policies. For its services, ALIAC receives a fee, payable
monthly, based on a percentage (currently 0.45%) of the Fund's average daily
net assets.
On September 25, 1996, the Directors approved a subadvisory agreement (the
"Subadvisory Agreement") among the Company, ALIAC, and an affiliate of ALIAC,
Aeltus Investment Management, Inc. ("Aeltus"). Under the terms of the
Subadvisory Agreement Aeltus will supervise the investment and reinvestment of
cash and securities and provide certain related administrative services to the
Fund in exchange for fees, payable by ALIAC, of up to 0.35% of the Fund's
average daily net assets.
Also on September 25, 1996, the Directors approved an administrative services
agreement (the "Agreement") between the Company and ALIAC. Under the terms of
the Agreement, ALIAC provides all administrative services necessary for the
Company's operations and is responsible for the supervision of the Company's
other service providers. For these services, ALIAC receives an annual fee,
paid monthly, based on a percentage of the Fund's 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 $billion
0.18% thereafter.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Incorporated herein by reference to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A, File No. 33-41694, as filed
electronically with the Securities and Exchange Commission on February
29, 1996 (with respect to all Series except Aetna Index Plus Fund)
and by reference to the Fund's Semi-Annual Report dated April 30,
1996, File No. 33-41694, as filed electronically with the Securities
and Exchange Commission on July 3, 1996, (with respect to all Series
except Aetna Index Plus Fund). The Statement of Assets and
Liabilities, notes to the Statement of Assets and Liabilities
and report of the Independent Auditors as of December 4, 1996 for
Aetna Index Plus Fund are included in Part B hereof.
(b) Exhibits:
(1)(a) Articles of Incorporation (June 17, 1991), including
Articles Supplementary (September 21, 1993, October 22,
1993, September 16, 1994)(1)
(1)(b) Articles of Amendment/Supplementary (September 16,
1996, October 10, 1996, October 10, 1996)*
(2) By-laws (as amended September 13, 1994)(1)
(3) Not applicable
(4) Instruments Defining Rights of Holders (set forth in the
Articles of Incorporation)(1)
(5)(a) Investment Advisory Agreement between the Registrant and
ALIAC
(5)(c) Subadvisory Agreement between the Registrant, ALIAC and
Aeltus
(6)(a) Underwriting Agreement between the Registrant and
ALIAC(1)
(6)(b) Dealer Agreement for Registrant between ALIAC and Aetna
Investment Services, Inc. (February 8, 1994)(1)
(7) Not applicable
(8)(a)(1) Custodian Agreement - Mellon Bank, N.A.(1)
(8)(a)(2) Amendments to Custodian Agreement - Mellon Bank, N.A.(1)
(8)(a)(4) Custodian Agreement - Brown Brothers Harriman & Company
(International Growth Portfolio)(2)
(8)(a)(5) Amendment to Custodian Agreement - Mellon Bank, N.A.
(Aetna Index Plus Fund)
(9)(a) Administrative Services Agreement between the
Registrant and ALIAC
(9)(b) License Agreement(1)
(10)(a) Opinion of Counsel(2)
(11) Consent of Independent Auditors
(12)(a) Financial Statements, notes and reports of the
Independent Auditors for the fiscal year ended October
31, 1995, for all Series of the Fund except Aetna Index
Plus Fund, are incorporated herein by reference to
Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A, File No. 33-41694, as filed
electronically with the Securities and Exchange
Commission on February 29, 1996.
(b) Unaudited Financial Statements and notes thereto for the
six-month period ended April 30, 1996, for all Series of
the Fund except Index Plus Fund, are incorporated herein
by reference to the Fund's Semi-Annual Report dated
April 30, 1996, File No. 33-41694, as filed
electronically with the Securities and Exchange
Commission on July 3, 1996.
(13) Not applicable
(14) Not applicable
(15)(a) Distribution Plan(1)
(15)(b) Form of Shareholder Services Plan(1)
(16)(a) Schedule for Computation of Performance Data(3)
(16)(b) Schedule for Computation of Performance Data (Aetna Index
Plus Fund)
(17) Not Applicable
(18) Not Applicable
(19) Powers of Attorney(4)
*To be filed by amendment.
1. Incorporated herein by reference to the Registration Statement on Form
N-1A, File No. 33-85620, as filed electronically with the Securities and
Exchange Commission on June 28, 1995.
2. Incorporated herein by reference to the Post-Effective Amendment No. 14 to
Registration Statement on Form N-4 (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on September 20,
1996.
3. Incorporated herein by reference to the Post-Effective Amendment No. 12 to
Registration Statement on Form N-4 (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on February 29,
1996.
4. Incorporated herein by reference to the Pre-Effective Amendment No. 1 to
Registration Statement on Form N-1A (File No. 333-05173), as filed
electronically with the Securities and Exchange Commission on September 9,
1996.
Item 25. Persons Controlled by or Under Common Control
Registrant is a Maryland corporation for which separate financial statements are
filed.
A diagram of all persons directly or indirectly under common control with the
Registrant and a list indicating the principal business of each such company
referenced in the diagram are incorporated herein by reference to Item 26 of
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File
No. 333-01107), as filed electronically with the Securities and Exchange
Commission on August 2, 1996.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
(1) Title of Class (2) Number of Record Holders
<S> <C> <C>
Select Class Adviser Class
Money Market 6,230 6,060
Government 91 77
Bond 1,042 136
Aetna Fund 2,155 615
Growth and Income 1,782 1,321
Growth 548 1,290
Small Company Growth 422 1,044
International Growth 1,083 661
Ascent 4 0
Crossroads 4 0
Legacy 4 0
</TABLE>
Item 27. Indemnification
Article 9, Section (d) of the Registrant's Articles of Incorporation,
incorporated herein by reference to Exhibit 24(b)(1) to Registration Statement
on Form N-1A (File No. 33-85620), as filed electronically on June 28, 1995,
provides for indemnification of directors and officers. In addition, the
Registrant's officers and directors are covered under a directors and officers
errors and omissions liability insurance policy issued by Gulf Insurance Company
which expires October, 1997.
Reference is also 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 exclusive; i.e., a corporation may provide greater
indemnification rights than those provided by statute.
Item 28. Business and Other Connections of Investment Adviser
The Investment Adviser, Aetna Life Insurance and Annuity Company, is an
insurance company that issues variable and fixed annuities, variable and
universal life insurance policies and acts as depositor for separate accounts
holding assets for variable contracts and policies. The following table
summarizes the business connections of the directors and principal officers of
the Investment Adviser.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1994/Addresses*/**
- ------------------------------- ------------------------------------ ------------------------------------------------
Daniel P. Kearney Director, President and, Executive President (since December 1995) -- Aetna
Officer Retirement Services, Inc.; President (since
December 1993) -- Aetna Life Insurance and
Annuity Company; Executive Vice President
(since December 1993) within the Aetna
organization; Director, (since 1992) MBIA,
Inc.
Christopher J. Burns Director and Senior Vice Director: Aetna Financial Services, Inc. (since
President January 1996) and Aetna Investment Services,
Inc. (since July 1992); and President, Chief
Operations Officer (since November 1996) --
Aetna Investment Services, Inc.
Laura R. Estes Director and Senior Vice Senior Vice President, (March 1991 - Present)
President -- Aetna Life Insurance and Annuity Company.
Timothy A. Holt Director, Senior Vice President Senior Vice President and Chief Financial
and Chief Financial Officer Officer, (since February 1996) -- Aetna Life
Insurance and Annuity Company; Vice
President (August 1991 - February 1996)
within the Aetna organization.
Gail P. Johnson Director and Vice President Vice President (December 1992 - Present) --
Aetna Life Insurance and Annuity Company.
John Y. Kim Director and Senior Vice President (since December 1995) -- Aeltus
President Investment Management, Inc.; Chief
Investment Officer (since May 1994) within
the Aetna organization.
Shaun P. Mathews Director and Vice President Vice President (since February 1996), Senior
Vice President (March 1991 - Present) --
Aetna Life Insurance and Annuity Company;
Director: Aetna Investment Services, Inc.
(since July 1993) and Aetna Insurance
Company of America (since February 1993).
Glen Salow Director and Vice President Vice President (1992 - 1995) -- Aetna Life
Insurance and Annuity Company.
Creed R. Terry Director and Vice President Vice President (since February 1996), Market
Strategist (August 1995 - February 1996) --
Aetna Life Insurance and Annuity Company;
President, (1991 - 1995) Chemical Technology
Corporation (a subsidiary of Chemical Bank).
Kirk P. Wickman Vice President, General Counsel Vice President and Counsel within the Aetna
and Secretary Organization September 1992 - Present
Deborah Koltenuk Vice President and Treasurer, Vice President, Investment Planning and
Corporate Controller Financial Reporting April 1996 to July 1996 --
Aetna Life Insurance Company; Vice
President, Investment Planning and Financial
Reporting October 1994 to April 1996 within
the Aetna organization; Assistant Vice
President, Finance and Administration June
1994 to October 1994 within the Aetna
organization.
Frederick D. Kelsven Vice President and Chief Director of Compliance (January 1985 to
Compliance Officer September 1996) -- Nationwide Life Insurance
Company
<FN>
* 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.
</FN>
</TABLE>
For information regarding Aeltus Investment Management, Inc. ("Aeltus"),
the subadviser for each Series of the Fund, reference is hereby made to
"Management of the Series" in the Prospectus. For information as to the
business, profession, vocation or employment of a substantial nature of each
of the officers and directors of Aeltus, reference is made to the current
Form ADV of Aeltus filed under the Investment Advisers Act of 1940,
incorporated herein by reference and the file number of which is 801-9046.
Item 29. Principal Underwriters
a) In addition to serving as the principal underwriter and
investment adviser for the Registrant, Aetna Life Insurance and
Annuity Company (ALIAC) also acts as the principal underwriter
and investment adviser for Aetna Variable Fund, Aetna Generation
Portfolios, Inc., Aetna Variable Encore Fund, Aetna Income
Shares, Aetna Investment Advisers Fund, Inc., Aetna Variable
Portfolios, Inc. and Aetna GET Fund. Additionally, ALIAC is also
the principal underwriter and depositor for Variable Life Account
B and Variable Annuity Accounts B, C and G (separate accounts of
ALIAC registered as unit investment trusts). ALIAC is also the
principal underwriter for Variable Annuity Account I (a separate
account of Aetna Insurance Company of America registered as a
unit investment trust).
(b) The following are the directors and principal officers of the
Underwriter:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------------- ----------------------------------------- ----------------------------------
Daniel P. Kearney Director and President Director
Timothy A. Holt Director, Senior Vice President and Chief Director
Financial Officer
Christopher J. Burns Director and Senior Vice President
Laura R. Estes Director and Senior Vice President
Gail P. Johnson Director and Vice President
John Y. Kim Director and Senior Vice President
Shaun P. Mathews Director and Vice President Director and President
Glen Salow Director and Vice President
Creed R. Terry Director and Vice President
Kirk P. Wickman Vice President, General Counsel and
Secretary
Deborah Koltenuk Vice President and Treasurer,
Corporate Controller
Frederick D. Kelsven Vice President and Chief Compliance
Officer
</TABLE>
* The principal business address of all directors and officers
listed is 151 Farmington Avenue, Hartford, Connecticut 06156.
(c) Not applicable.
Item 30. Location of Accounts and Records
As required by Section 31(a) of the 1940 Act and the Rules promulgated
thereunder, the Registrant and its investment adviser, ALIAC, maintain physical
possession of each account, book or other documents, at its principal offices 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 that if requested by the holders of at least 10% of a
Fund's outstanding shares, the Registrant will hold a shareholder meeting for
the purpose of voting on the removal of one or more Directors and will assist
with communication concerning that shareholder meeting as if Section 16(c) of
the Investment Company Act of 1940 applied.
The Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders, upon
request and without charge.
The Registrant undertakes to file a Post-Effective Amendment to this
Registration Statement, using financial statements of Aetna Index Plus Fund
which need not be certified, within four to six months from the effective
date of this Post-Effective Amendment No. 16 to Registration Statement on
Form N-1A, as filed electronically on December 10, 1996.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant, Aetna Series Fund, Inc. certifies that it meets the requirements
of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 16 to its Registration Statement on Form N-1A (File No. 33-41694) and
has duly caused this Post-Effective Amendment No. 16 to the Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Hartford, and State of Connecticut, on the 6th day of
December, 1996.
AETNA SERIES FUND, INC.
Registrant
By: Shaun P. Mathews*
---------------------------------
Shaun P. Mathews
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 16 to the Registration Statement has been signed
below by the following persons on December 6, 1996 in the capacities indicated.
Signature Title
Shaun P. Mathews* President and Director
- ------------------------------------------
Shaun P. Mathews (Principal Executive Officer)
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
Timothy A. Holt* Director
- ------------------------------------------
Timothy A. Holt
Sidney Koch* Director
- ------------------------------------------
Sidney Koch
Corine T. Norgaard* Director
- ------------------------------------------
Corine T. Norgaard
Richard G. Scheide* Director
- ------------------------------------------
Richard G. Scheide
J. Scott Fox* Vice President and Treasurer
- ------------------------------------------
J. Scott Fox (Principal Financial and
Accounting Officer)
By: /S/SUSAN E. BRYANT
------------------------------------------
*Susan E. Bryant
Attorney-in-Fact
Aetna Series Fund, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit No. Exhibit Page
99-b(1)(a) Articles of Incorporation (June 17, 1991), including
Articles Supplementary (September 21, 1993, October
22, 1993, September 16, 1994)*
99-b(1)(b) Articles of Amendment/Supplementary (September 16,
1996, October 10, 1996, October 10, 1996)**
99-b(2) By-laws (as amended September 13, 1994)*
99-b(4) Instruments Defining Rights of Holders (set forth in
the Articles of Incorporation)*
99-b(5)(a) Investment Advisory Agreement between the Registrant
and ALIAC ----------------
99-b(5)(c) Subadvisory Agreement between the Registrant, ALIAC and Aeltus
----------------
99-b(6)(a) Underwriting Agreement between the Registrant and
ALIAC*
99-b(6)(b) Dealer Agreement for registrant between ALIAC and
Aetna Investment Services, Inc. (February 8, 1994)*
99-b(8)(a)(1) Custodian Agreement - Mellon Bank, N.A.*
99-b(8)(a)(2) Amendments to Custodian Agreement - Mellon Bank, N.A.*
99-b(8)(a)(4) Custodian Agreement - Brown Brothers Harriman &
Company (International Growth Portfolio)*
99-b(8)(a)(5) Amendment to Custodian Agreement - Mellon Bank, N.A.
(Aetna Index Plus Fund) ----------------
99-b(9)(a) Administrative Services Agreement between the
Registrant and ALIAC ----------------
99-b(9)(b) License Agreement*
99-b(10)(a) Opinion of Counsel *
99-b(11) Consent of Independent Auditors
99-b(15)(a) Distribution Plan *
99-b(15)(b) Form of Shareholder Services Plan *
99-b(16)(a) Schedule for Computation of Performance Data *
99-b(16)(b) Schedule for Computation of Performance Data (Index Plus
Fund)
----------------
99-b(19) Powers of Attorney *
</TABLE>
* Incorporated by reference
**To be filed by amendment
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AETNA LIFE INSURANCE AND ANNUITY COMPANY,
a Connecticut corporation (the "Adviser") and AETNA SERIES FUNDS, INC., a
Maryland corporation (the "Fund"), on behalf of its series, AETNA INDEX PLUS
FUND (the "Series"), as of the date set forth below the parties' signatures.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund has established the Series; and
WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is in the business of acting as an investment adviser; and
WHEREAS, the Fund, on behalf of the Series, and the Adviser desire to enter into
an agreement to provide for investment advisory and management services for the
Series on the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Directors (the "Board"), the Fund, on behalf of
the Series, hereby appoints the Adviser to serve as the investment adviser to
the Series, to provide the investment advisory services set forth below in
Section II. The Adviser agrees that, except as required to carry out its duties
under this Agreement or otherwise expressly authorized, it is acting as an
independent contractor and not as an agent of the Series and has no authority to
act for or represent the Series in any way.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall do the following:
1. supervise all aspects of the operations of the Series;
2. select the securities to be purchased, sold or exchanged by the Series
or otherwise represented in the Series' investment portfolio, place
trades for all such securities and regularly report thereon to the
Board;
3. formulate and implement continuing programs for the purchase and sale
of securities and regularly report thereon to the Board;
4. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally, the
Series, securities held by or under consideration for the Series, or
the issuers of those securities;
5. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;
6. obtain the services of, contract with, and provide instructions to
custodians and/or subcustodians of the Series' securities, transfer
agents, dividend paying agents, pricing services and other service
providers as are necessary to carry out the terms of this Agreement;
7. prepare financial and performance reports, calculate and report daily
net asset values, and prepare any other financial data or reports, as
the Adviser from time to time, deems necessary or as are requested by
the Board; and
8. take any other actions which appear to the Adviser and the Board
necessary to carry into effect the purposes of this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Adviser
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is duly
organized and is in good standing under the laws of the
State of Connecticut and is fully authorized to enter into
this Agreement and carry out its duties and obligations
hereunder.
2. Registration. The Adviser is registered as an investment
adviser with the Securities and Exchange Commission ("the
Commission") under the Advisers Act, and is registered or
licensed as an investment adviser under the laws of all
jurisdictions in which its activities require it to be so
registered or licensed. The Adviser shall maintain such
registration or license in effect at all times during the
term of this Agreement.
3. Best Efforts. The Adviser at all times shall provide its
best judgment and effort to the Series in carrying out its
obligations hereunder.
B. Representations and Warranties of the Series and the Fund,
The Fund, on behalf of the Series, hereby represents and warrants to
the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been duly
incorporated under the laws of the State of Maryland and it
is authorized to enter into this Agreement and carry out its
obligations hereunder.
2. Registration. The Fund is registered as an investment
company with the Commission under the 1940 Act and shares of
the Series 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.
IV. DELEGATION OF RESPONSIBILITIES
A. Appointment of Subadviser
Subject to the approval of the Board and the shareholders of the
Series, the Adviser may enter into a Subadvisory Agreement to engage a
subadviser (the "Subadviser") to the Adviser with respect to the
Series.
B. Duties of Subadviser
Under a Subadvisory Agreement, the Subadviser may be delegated some or
all of the following duties of the Adviser:
1. determine which securities from which issuers shall be
purchased, sold or exchanged by the Series or otherwise
represented in the Series' investment portfolio, place
trades for all such securities and regularly report thereon
to the Board;
2. formulate and implement continuing programs for the purchase
and sale of the securities of such issuers and regularly
report thereon to the Board;
3. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the
economy generally, the Series, securities held by or under
consideration for the Series, or the issuers of those
securities;
4. provide economic research and securities analyses as the
Adviser considers necessary or advisable in connection with
the Adviser's performance of its duties hereunder;
5. give instructions to the custodian and/or sub-custodian of
the Series appointed by the Board, as to deliveries of
securities, transfers of currencies and payments of cash for
the Series as required to carry out the investment
activities of the Series, in relation to the matters
contemplated by this Agreement; and
6. provide such financial support, administrative services and
other duties as the Adviser deems necessary and appropriate.
C. Duties of the Adviser
In the event the Adviser delegates certain responsibilities hereunder
to a Subadviser, the Adviser shall, among other things:
1. monitor the investment program maintained by the Subadviser
for the Series and the Subadviser's compliance program to
ensure that the Series' assets are invested in compliance
with the Subadvisory Agreement and the Series' investment
objectives and policies as adopted by the Board and
described in the most current effective amendment of the
registration statement for the Series, as filed with the
Commission under the Securities Act of 1933, as amended, and
the 1940 Act ("Registration Statement");
2. review all data and financial reports prepared by the
Subadviser to assure that they are in compliance with
applicable requirements and meet the provisions of
applicable laws and regulations;
3. establish and maintain regular communications with the
Subadviser to share information it obtains with the
Subadviser concerning the effect of developments and data on
the investment program maintained by the Subadviser; and
4. oversee all matters relating to the offer and sale of the
Series' shares, the Fund's corporate governance, reports to
the Board, contracts with all third parties on behalf of the
Series for services to the Series, reports to regulatory
authorities and compliance with all applicable rules and
regulations affecting the Series' operations.
V. BROKER-DEALER RELATIONSHIPS
A. Series Trades
The Adviser, at its own expense, shall place all orders for the
purchase and sale of portfolio securities for the Series 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 Series 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) to the Series and/or the
other accounts over which the Adviser or its affiliates exercise
investment discretion. The Adviser may also select brokers or dealers
to effect transactions for the Series who provide payment for expenses
of the Series. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services or expenses, a commission
for executing a portfolio transaction for the Series that is in excess
of the amount of commission another broker or dealer would have charged
for effecting that transaction if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value
of the brokerage and research services provided by such broker or
dealer and is paid in compliance with Section 28(e) or other rules and
regulations of the Commission. This determination may be viewed in
terms of either that particular transaction or the overall
responsibilities that the Adviser and its affiliates have with respect
to accounts over which they exercise investment discretion. The Board
shall periodically review the commissions paid by the Series to
determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits received.
VI. CONTROL BY THE BOARD
Any investment program undertaken by the Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Adviser on behalf of the Series
pursuant thereto, shall at all times be subject to any directives of the Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:
1. all applicable provisions of the 1940 Act;
2. the provisions of the registration statement of the Fund, as the same
may be amended from time to time, under the 1933 Act and the 1940 Act;
3. the provisions of the Fund's Articles of Incorporation, as amended;
4. the provisions of the Bylaws of the Fund, as amended; and
5. any other applicable provisions of state and federal law.
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund, on behalf of the Series, shall pay to the
Adviser an annual fee, payable monthly, based upon the following average daily
net assets of the Series:
Rate Assets
---- ------
0.45% On first $250 MM
0.45% On next $250 MM
0.425% On next $250 MM
0.40% On next $250 MM
0.40% On next $1 B
0.375% Over $2 B
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 Series. If this Agreement becomes
effective subsequent to the first day of a month or terminates before the last
day of a month, compensation for that part of the month this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the fees
set forth above. Subject to the provisions of Section X hereof, payment of the
Adviser's compensation for the preceding month shall be made as promptly as
possible. For so long as a Subadvisory Agreement is in effect, the Series
acknowledges on behalf of the Series that the Adviser will pay to the
Subadviser, as compensation for acting as Subadviser to the Series, the fees
specified in the Subadvisory Agreement.
IX. EXPENSES
The expenses in connection with the management of the Series shall be allocated
between the Series and the Adviser as follows:
A. Expenses of the Adviser
The Adviser shall pay:
1. the salaries, employment benefits and other related costs
and expenses of those of its personnel engaged in providing
investment advice to the Series, including without
limitation, office space, office equipment, telephone and
postage costs;
2. all fees and expenses of all directors, officers and
employees, if any, of the Fund who are employees of the
Adviser or an affiliated entity, including any salaries and
employment benefits payable to those persons;
B. Expenses of the Series
The Series shall pay:
1. investment advisory fees pursuant to this Agreement;
2. brokers' commissions, issue and transfer taxes or other
transaction fees payable in connection with any transactions
in the securities in the Series' investment portfolio or
other investment transactions incurred in managing the
Series' assets, including portions of commissions that may
be paid to reflect brokerage research services provided to
the Adviser;
3. fees and expenses of the Series' independent accountants and
legal counsel and the independent Directors' legal counsel;
4. fees and expenses of any administrator, transfer agent,
custodian, dividend, accounting, pricing or disbursing agent
of the Series;
5. interest and taxes;
6. fees and expenses of any membership in the Investment
Company Institute or any similar organization in which the
Board deems it advisable for the Fund to maintain
membership;
7. insurance premiums on property or personnel (including
officers and directors) of the Fund which benefit the
Series;
8. all fees and expenses of the Company's directors, who are
not "interested persons" (as defined in the 1940 Act) of the
Fund or the Adviser;
9. expenses of preparing, printing and distributing proxies,
proxy statements, prospectuses and reports to shareholders
of the Series, except for those expenses paid by third
parties in connection with the distribution of Series shares
and all costs and expenses of shareholders' meetings;
10. all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares of
the Series or in cash;
11. costs and expenses of promoting the sale of shares in the
Series, including preparing prospectuses and reports to
shareholders of the Series, provided, nothing in this
Agreement shall prevent the charging of such costs to third
parties involved in the distribution and sale of Series
shares;
12. fees payable by the Series to the Commission or to any state
securities regulator or other regulatory authority for the
registration of shares of the Series in any state or
territory of the United States or of the District of
Columbia;
13. all costs attributable to investor services, administering
shareholder accounts and handling shareholder relations,
(including, without limitation, telephone and personnel
expenses), which costs may also be charged to third parties
by the Adviser; and
14. any other ordinary, routine expenses incurred in the
management of the Series' assets, and any nonrecurring or
extraordinary expenses, including organizational expenses,
litigation affecting the Series and any indemnification by
the Fund of its officers, directors or agents.
X. EXPENSE LIMITATION
If, for any fiscal year, the total of all ordinary business expenses payable by
the Series, including all investment advisory fees but excluding brokerage
commissions, distribution fees, taxes, interest and extraordinary expenses and
certain other excludable expenses, would exceed the most restrictive expense
limits imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Series are offered for sale (unless a waiver is obtained),
the Adviser shall reduce its advisory fee to the extent necessary to meet such
expense limit, but the Adviser will not be required to reimburse the Series for
any ordinary business expenses which exceed the amount of its advisory fee for
such fiscal year. The amount of any such reduction is to be borne by the Adviser
and shall be deducted from the monthly advisory fee otherwise payable to the
Adviser during such fiscal year. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement.
XI. ADDITIONAL SERVICES
Upon the request of the Board, the Adviser may perform certain accounting,
shareholder servicing or other administrative services on behalf of the Series
that are not required by this Agreement. Such services will be performed on
behalf of the Series and the Adviser may receive from the Series 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 Series
and its shareholders. Payment or assumption by the Adviser of any Series 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 Series nor
obligate the Adviser to pay or assume any similar Series expense on any
subsequent occasions. Such services may include, but are not limited to, (a) the
services of a principal financial officer of the Fund (including applicable
office space, facilities and equipment) whose normal duties consist of
maintaining the financial accounts and books and records of the Fund and the
Series 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
Series; and (c) such other administrative services as may be furnished from time
to time by the Adviser to the Fund on the Series at the request of the Board.
XII. NONEXCLUSIVITY
The services of the Adviser to the Series 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 Fund, and that officers or directors of the Fund
may serve as officers or directors of the Adviser to the extent permitted by
law; and that the officers and directors of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or trustees of any
other firm or trust, including other investment companies.
XIII. TERM
This Agreement shall become effective at the close of business on September 24,
1996, and shall remain in force and effect through December 31, 1997, unless
earlier terminated under the provisions of Article XV.
XIV. RENEWAL
Following the expiration of its initial term, the Agreement shall continue in
force and effect from year to year, provided that such continuance is
specifically approved at least annually:
1. a. by the Board, or
b. by the vote of a majority of the Series' outstanding
voting securities (as defined in Section 2(a)(42) of
the 1940 Act), and
2. by the affirmative vote of a majority of the directors who are
not parties to this Agreement or interested persons of a party
to this Agreement (other than as a director of the Fund), by
votes cast in person at a meeting specifically called for such
purpose.
XV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board or by vote of a majority of the Series'
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
The Adviser shall be liable to the Fund and shall indemnify the Fund for any
losses incurred by the Fund, whether in the purchase, holding or sale of any
security or otherwise, to the extent that such losses resulted from an act or
omission on the part of the Adviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Adviser of its duties under this Agreement, in
connection with the services rendered by the Adviser hereunder.
XVII. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:
if to the Fund, the Series or the Adviser:
151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340
XVIII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Commission issued pursuant to the 1940 Act. In addition, where the effect
of a requirement of the 1940 Act reflected in the provisions of this Agreement
is revised by rule, regulation or order of the Commission, such provisions shall
be deemed to incorporate the effect of such rule, regulation or order.
XIX. SERVICE MARK
The service mark of the Fund and the Series and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Life and Casualty Company and
their continued use is subject to the right of Aetna Life and Casualty Company
to withdraw this permission in the event the Adviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty Company should not be the
investment adviser of the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers as of the 25th day of September, 1996.
Aetna Life Insurance and Annuity Company
Attest:
By: /s/Susan E. Schechter
-----------------------------------
Name: Susan E. Schechter
/s/DeAnn S. Anastasio Title: Corporate Secretary
- -----------------------
Aetna Series Fund, Inc.
on behalf of its series,
Aetna Index Plus Fund
Attest:
By: /s/Shaun P. Mathews
-------------------------------------
/s/Susan E. Bryant Name: Shaun P. Mathews
- ----------------------- Title: President
Secretary
SUBADVISORY AGREEMENT
THIS AGREEMENT is made by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY, a
Connecticut corporation (the "Adviser"), AETNA SERIES FUND, INC., a Maryland
Corporation, (the "Fund"), on behalf of its series, AETNA INDEX PLUS FUND (the
"Series") and AELTUS INVESTMENT MANAGEMENT, INC., a Connecticut corporation (the
"Subadviser") as of the date set forth below.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company
consisting of multiple investment portfolios, under the Investment Company Act
of 1940, as amended (the "1940 Act"); and
WHEREAS, pursuant to authority granted by the Fund's Articles of Incorporation,
the Fund has established the Series as a separate investment portfolio; and
WHEREAS, both the Adviser and the Subadviser are registered with the Commission
as investment advisers under the Investment Advisers Act of 1940, as amended
(the "Advisers Act") and both are in the business of acting as investment
advisers; and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement with the
Fund, on behalf of the Series, (the "Investment Advisory Agreement") which
appoints the Adviser as the investment adviser for the Series; and
WHEREAS, Article IV of the Investment Advisory Agreement authorizes the Adviser
to delegate all or a portion of its obligations under the Investment Advisory
Agreement to a subadviser;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement, the Adviser and the Fund,
on behalf of the Series, hereby appoint the Subadviser to manage the assets of
the Series as set forth below in Section II, under the supervision of the
Adviser and subject to the approval and direction of the Fund's Board of
Directors (the "Board"). The Subadviser hereby accepts such appointment and
agrees that it shall, for all purposes herein, undertake such obligations as an
independent contractor and not as an agent of the Adviser. The Subadviser
agrees, that except as required to carry out its duties under this Agreement or
otherwise expressly authorized, it has no authority to act for or represent the
Series in any way.
II. DUTIES OF THE SUBADVISER AND THE ADVISER
A. Duties of the Subadviser
The Subadviser shall regularly provide investment advice with respect
to the assets held by the Series and shall continuously supervise the
investment and reinvestment of cash, securities and instruments or
other property comprising the assets of the Series. In carrying out
these duties, the Subadviser shall:
1. select the securities to be purchased, sold or exchanged by
the Series or otherwise represented in the Series'
investment portfolio, place trades for all such securities
and regularly report thereon to the Adviser and, at the
request of the Adviser, to the Board;
2. formulate and implement continuing programs for the purchase
and sale of securities and regularly report thereon to the
Adviser and, at the request of the Adviser or the Series, to
the Board;
3. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the
economy generally, the Series, securities held by or under
consideration for the Series, or the issuers of those
securities;
4. provide economic research and securities analyses as
requested by the Adviser from time to time, or as the
Adviser considers necessary or advisable in connection with
the Subadviser's performance of its duties hereunder; and
5. give instructions to the custodian and/or sub-custodian of
the Series appointed by the Board, concerning deliveries of
securities, transfers of currencies and payments of cash for
the Series, as required to carry out the investment
activities of the Series as contemplated by this Agreement;
and
6. provide such financial support, administrative and other
services, such as preparation of financial data,
determination of the Series' net asset value, preparation of
financial and performance reports, as the Adviser from time
to time, deems necessary and appropriate and which the
Subadviser is willing and able to provide.
B. Duties of the Adviser
The Adviser shall retain responsibility for oversight of all activities
of the Subadviser and for monitoring its activities on behalf of the
Series. In carrying out its obligations under this Agreement and the
Investment Advisory Agreement, the Adviser shall:
1. monitor the investment program maintained by the Subadviser
for the Series and the Subadviser's compliance program to
ensure that the Series' assets are invested in compliance
with the Subadvisory Agreement and the Series' investment
objectives and policies as adopted by the Board and
described in the most current effective amendment of the
registration statement for the Series, as filed with the
Commission under the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act ("Registration Statement");
2. review all data and financial reports prepared by the
Subadviser to assure that they are in compliance with
applicable requirements and meet the provisions of
applicable laws and regulations;
3. file all periodic reports required to be filed by the Series
with the applicable regulatory authorities;
4. review and deliver to the Board all financial, performance
and other reports prepared by the Subadviser under the
provisions of this Agreement or as requested by the Adviser;
5. establish and maintain regular communications with the
Subadviser to share information it obtains concerning the
effect of developments and data on the investment program
maintained by the Subadviser;
6. maintain contact with and enter into arrangements with the
custodian, transfer agent, auditors, outside counsel, and
other third parties providing services to the Series;
7. oversee all matters relating to (i) the offer and sale of
shares of the Series, including promotions, marketing
materials, preparation of prospectuses, filings with the
Commission and state securities regulators, and negotiations
with broker-dealers; (ii) shareholder services, including,
confirmations, correspondence and reporting to shareholders;
(iii) all corporate matters on behalf of the Series,
including monitoring the corporate records of the Series,
maintaining contact with the Board, preparing for,
organizing and attending meetings of the Board and the
Series' shareholders; (iv) preparation of proxies when
required; and (v) any other matters not expressly delegated
to the Subadviser by this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Subadviser
The Subadviser hereby represents and warrants to the Adviser as
follows:
1. Due Incorporation and Organization. The Subadviser is duly
organized and is in good standing under the laws of the
State of Connecticut and is fully authorized to enter into
this Agreement and carry out its duties and obligations
hereunder.
2. Registration. The Subadviser is registered as an investment
adviser with the Commission under the Advisers Act, and is
registered or licensed as an investment adviser under all of
the laws of all jurisdictions in which its activities
require it to be so registered or licensed. The Subadviser
shall maintain such registration or license in effect at all
times during the term of this Agreement.
3. Regulatory Orders. The Subadviser is not subject to any stop
orders, injunctions or other orders of any regulatory
authority affecting its ability to carry out the terms of
this Agreement. The Subadviser will notify the Adviser and
the Series immediately if any such order is issued or if any
proceeding is commenced that could result in such an order.
4. Compliance. The Subadviser has in place compliance systems
and procedures designed to meet the requirements of the
Advisers Act and the 1940 Act and it shall at all times
assure that its activities in connection with managing the
Series follow these procedures.
5. Authority. The Subadviser is authorized to enter into this
Agreement and carry out the terms hereunder.
6. Best Efforts. The Subadviser at all times shall provide its
best judgment and effort to the Series in carrying out its
obligations hereunder.
B. Representations and Warranties of the Adviser
The Adviser hereby represents and warrants to the Subadviser as
follows:
1. Due Incorporation and Organization. The Adviser is duly
organized and is in good standing under the laws of the
State of Connecticut and is fully authorized to enter into
this Agreement and carry out its duties and obligations
hereunder.
2. Registration. The Adviser is registered as an investment
adviser with the Commission under the Advisers Act, and is
registered or licensed as an investment adviser under all of
the laws of all jurisdictions in which its activities
require it to be so registered or licensed. The Adviser
shall maintain such registration or license in effect at all
times during the term of this Agreement.
3. Regulatory Orders. The Adviser is not subject to any stop
orders, injunctions or other orders of any regulatory
authority affecting its ability to carry out the terms of
this Agreement. The Adviser will notify the Subadviser and
the Series immediately if any such order is issued or if any
proceeding is commenced that could result in such an order.
4. Authority. The Adviser is authorized to enter into this
Agreement and carry out the terms hereunder.
5. Best Efforts. The Adviser at all times shall provide its
best judgment and effort to the Series in carrying out its
obligations hereunder.
C. Representations and Warranties of the Series and the Fund
The Fund, on behalf of the Series, hereby represents and warrants to
the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been duly
incorporated as a Corporation under the laws of the State of
Maryland and it is authorized to enter into this Agreement
and carry out its obligations hereunder.
2. Registration. The Fund is registered as an investment
company with the Commission under the 1940 Act and shares of
the Series are registered or qualified for offer and sale to
the public under the 1933 Act and all applicable state
securities laws. Such registrations or qualifications, will
be kept in effect during the term of this Agreement.
IV. BROKER-DEALER RELATIONSHIPS
A. Portfolio Trades
The Subadviser shall place all orders for the purchase and sale of
portfolio securities for the Series with brokers or dealers selected by
the Subadviser, which may include brokers or dealers affiliated with
the Subadviser. The Subadviser shall use its best efforts to seek to
execute portfolio transactions at prices that are advantageous to the
Series giving consideration to the services and research provided 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) to the Series and/or the
other accounts over which the Subadviser or its affiliates exercise
investment discretion. The Subadviser may also select brokers or
dealers to effect transactions for the Series who provide payment for
expenses of the Series. The Subadviser is authorized to pay a broker or
dealer who provides such brokerage and research services or expenses, a
commission for executing a portfolio transaction for the Series that is
in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction if the Subadviser
determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage, research and other services
provided by such broker or dealer and is paid in compliance with
Section 28(e) or other rules and regulations of the Commission. This
determination may be viewed in terms of either that particular
transaction or the overall responsibilities that the Subadviser and its
affiliates have with respect to accounts over which they exercise
investment discretion. The Board shall periodically review the
commissions paid by the Series to determine if the commissions paid
over representative periods of time were reasonable in relation to the
benefits received.
V. CONTROL BY THE BOARD OF TRUSTEES
Any investment program undertaken by the Subadviser pursuant to this Agreement,
as well as any other activities undertaken by the Subadviser at the direction of
the Adviser on behalf of the Series, shall at all times be subject to any
directives of the Board.
VI. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Subadviser shall at
all times conform to:
1. all applicable provisions of the 1940 Act, the Advisers Act
and any rules and regulations adopted thereunder;
2. all policies and procedures of the Series as adopted by the
Board and as described in the Registration Statement;
3. the provisions of the Articles of Incorporation of the Fund,
as amended from time to time;
4. the provisions of the Bylaws of the Fund, as amended from
time to time; and
5. any other applicable provisions of state or federal law.
VII. COMPENSATION
A. Payment Schedule
The Adviser shall pay the Subadviser, as compensation for services
rendered hereunder, from its own assets, an annual fee, payable
monthly, based on the average daily net assets in the Series as
follows:
Rate Assets
---- ------
0.35% On first $250 MM
0.345% On next $250 MM
0.3275% On next $250 MM
0.31% On next $250 MM
0.30% On next $1 B
0.2775% Over $2 B
Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily at the rate of 1/365 of the
annual Subadvisory fee applied to the daily net assets of the Series.
If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees set
forth above.
B. Reduction
Payment of the Subadviser's compensation for the preceding month shall
be made as promptly as possible, except as provided below. The
Subadviser acknowledges that, pursuant to the Investment Advisory
Agreement, the Adviser has agreed to reduce its fee or reimburse the
Series if the expenses borne by the Series exceed the expense
limitations applicable to the Series imposed by the securities laws or
regulations of any jurisdiction in which the Series shares are
qualified for sale. Accordingly, the Subadviser agrees that, if, for
any fiscal year, the total of all ordinary business expenses of the
Series, including all investment advisory fees but excluding brokerage
commissions, distribution fees, taxes, interest, extraordinary expenses
and certain other excludable expenses, would exceed the most
restrictive expense limits imposed by any statute or regulatory
authority of any jurisdiction in which shares of the Series are offered
for sale (unless a waiver is obtained), the Subadviser shall reduce its
advisory fee to the extent necessary to meet such expense limit, but
will not be required to reimburse the Series for any ordinary business
expenses which exceed the amount of its advisory fee for the fiscal
year. The Subadviser shall contribute to the amount of such reduction
by reimbursing the Adviser in proportion to the amounts which the
Adviser and Subadviser would have been entitled to receive for such
year. For the purposes of this paragraph, the term "fiscal year" shall
exclude the portion of the current fiscal year which elapsed prior to
the effective date of this Agreement, but shall include the portion of
the then current fiscal year has elapsed at the date of termination of
this Agreement.
VIII. ALLOCATION OF EXPENSES
The Subadviser shall pay the salaries, employment benefits and other related
costs of those of its personnel engaged in providing investment advice to the
Series hereunder, including, but not limited to, office space, office equipment,
telephone and postage costs. In the event the Subadviser incurs any expense that
is the obligation of the Adviser as set out in this Agreement, the Adviser shall
reimburse the Subadviser for such expense on presentation of a statement
indicating the expenses incurred and the amount paid by the Subadviser.
IX. NONEXCLUSIVITY
The services of the Subadviser with respect to the Series are not to be deemed
to be exclusive, and the Subadviser shall be free to render investment advisory
and administrative or other services to others (including other investment
companies) and to engage in other activities. It is understood and agreed that
officers or directors of the Subadviser may serve as officers or directors of
the Adviser or officers or directors of the Fund; that officers or directors of
the Adviser or officers or directors of the Fund may serve as officers or
directors of the Subadviser to the extent permitted by law; and that the
officers and directors of the Subadviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors or trustees of any other firm or trust,
including other investment advisory companies.
X. TERM
This Agreement shall become effective at the close of business on September 24,
1996, and shall remain in force and effect through December 31, 1997, unless
earlier terminated under the provisions of Article XI. Following the expiration
of its initial term, the Agreement shall continue in force and effect for one
year periods, provided such continuance is specifically approved at least
annually:
1. (a) by the Board or (b) by the vote of a majority of the
Series' outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
2. by the affirmative vote of a majority of the directors who
are not parties to this Agreement or interested persons of a
party to this Agreement (other than as a director of the
Fund), by votes cast in person at a meeting specifically
called for such purpose.
XI. TERMINATION
This Agreement may be terminated:
1. at any time, without the payment of any penalty, by vote of
the Board or by vote of a majority of the outstanding voting
securities of the Series; or
2. by the Adviser, the Fund, on behalf of the Series, or the
Subadviser on sixty (60) days' written notice to the other
party, unless written notice is waived by the party required
to be notified; or
3. automatically in the event there is an "assignment" of this
Agreement, as defined in Section 2 (a) (4) of the 1940 Act.
XII. LIABILITY
The Subadviser shall be liable to the Series and the Adviser and shall indemnify
the Series and the Adviser for any losses incurred by the Series, or the Adviser
whether in the purchase, holding or sale of any security or otherwise, to the
extent that such losses resulted from an act or omission on the part of the
Subadviser or its officers, directors or employees, that is found to involve
willful misfeasance, bad faith or negligence, or reckless disregard by the
Subadviser of its duties under this Agreement, in connection with the services
rendered by the Subadviser hereunder.
XIII. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such address shall be:
If to the Fund, on Behalf of the Series or the Adviser:
151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340
Attn: Secretary
If to the Subadviser:
242 Trumbull Street
Hartford, Connecticut 06103-1205
Fax number: 860/275-4440
Attention: President
XIV. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Commission issued pursuant to the 1940 Act. In addition, where the effect
of a requirement of the 1940 Act reflected in any provision of the Agreement is
revised by rule, regulation or order of the Commission, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
XV. SERVICE MARK
The service mark of the Fund and the Series and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Life and Casualty Company and
their continued use is subject to the right of Aetna Life and Casualty Company
to withdraw this permission in the event the Subadviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty Company should not be the
investment adviser of the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers as of the 25th day of September, 1996.
Aetna Life Insurance and Annuity Company
Attest:
By: /s/Susan E. Schechter
--------------------------------
Name: Susan E. Schechter
/s/DeAnn S. Anastasio Title: Corporate Secretary
- ---------------------------------
Assistant Secretary
Aeltus Investment Management, Inc.
Attest:
By:/s/John Y. Kim
---------------------------------
/s/Brian Kawakami Name:John Y. Kim
- --------------------------------- Title:President
Vice President
Aetna Series Fund, Inc.
on behalf of its series,
Aetna Index Plus Fund
Attest:
By:/s/Shaun P. Mathews
---------------------------------
/s/Susan E. Bryant Name:Shaun P. Mathews
- --------------------------------- Title:President
Secretary
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
Index Plus Fund (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;
(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
its series, Aetna Index Plus Fund
By: /s/ Donna Owens By: /s/ J. Scott Fox
- ------------------------------ ------------------------------------
Name: Donna Owens Name: J. Scott Fox
Title: Assistant Vice President Title: Vice President & Treasurer
Date: October 11, 1996 Date: October 2, 1996
- ------------------------------- ------------------------------------
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 Index Plus
Fund ("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 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;
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.
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 annual fee, payable monthly, based upon the
following average daily net assets of the Fund:
Rate Net Assets
---- ----------
0.25% On first $250 MM
0.24% On next $250 MM
0.23% On next $250 MM
0.22% On next $250 MM
0.20% On next $1 B
0.18% Over $2 B
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual administration
fee applied to the daily net assets of the Fund. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above.
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 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 through December 31, 1997. Thereafter it shall
continue 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.
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 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 as of the 25th day of
September, 1996.
AETNA SERIES FUND, INC.
on behalf of its series,
The Index Plus Fund
Attest:
By: /s/Shaun P. Mathews
-----------------------------------
/s/Susan E. Bryant Name: Shaun P. Mathews
- ---------------------------- Title: President
Secretary
AETNA LIFE INSURANCE AND ANNUITY COMPANY
Attest:
By: /s/Susan E. Schechter
-----------------------------------
Name: Susan E. Schechter
/s/DeAnn S. Anastasio Title: Corporate Secretary
- -----------------------------
Consent of Independent Auditors
The Board of Directors and Shareholder
Aetna Series Fund, Inc.:
We consent to the use of our report dated December 15, 1995 incorporated
herein by reference and our report dated December 4, 1996 included herein and
to the reference to our Firm under the heading "Independent Auditors" in the
Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
December 4, 1996
AETNA SERIES FUND, INC.
COMPUTATION OF PERFORMANCE DATA
TOTAL RETURN QUOTATIONS
SELECT CLASS SHARES
Assumptions:
- - The 1-year figure assumes the redemption on September 30, 1996 of values
attributable to a $1,000 payment made on October 1, 1995.
- - The Since Inception figures assume the redemption on September 30, 1996 of
values attributable to a $1,000 payment made on October 1, 1991 (inception
date of the private account).
Index Plus Composite
1 Year $1,000 (1+22.05%)(1) = $1,221
Since Inception $1,000 (1+15.48%)(5) = $5,774
ADVISER CLASS SHARES
Assumptions:
- - The 1-year figure assumes the redemption on September 30, 1996 of values
attributable to a $1,000 payment made on October 1, 1995.
- - The Since Inception figures assume the redemption on September 30, 1996 of
values attributable to a $1,000 payment made on October 1, 1991 (inception
date of the private account).
- - The performance reflects the deduction of the maximum contingent deferred
sales charge of 1%, declining by 0.25% each year after the date of purchase to
zero, assuming shares were redeemed at the end of the period.
Index Plus Composite
1 Year $1,000 (1+19.94%)(1) = $1,199
Since Inception $1,000 (1+13.48%)(5) = $5,674
