As filed with the Securities and Exchange File No. 33-41694
Commission on November 3, 1997 File No. 811-6352
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
- --------------------------------------------------------------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 23
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33
AETNA SERIES FUND, INC.
151 Farmington Avenue RE4A, Hartford, Connecticut 06156
(860) 273-1409
Amy R. Doberman, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue RE4A, Hartford, Connecticut 06156
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
X 75 days after filing pursuant to paragraph (a)(2) of Rule 485
--------
<PAGE>
Aetna Series Fund, Inc.
Cross-Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A
ITEM NO. PART A CAPTION IN PROSPECTUS
<S> <C> <C>
1. Cover Page................................................ Cover Page
2. Synopsis.................................................. Fee Tables
Highlights
3. Condensed Financial Information........................... Financial Highlights
4. General Description of Registrant......................... Highlights
Description of the Fund
Risk Factors and Other Considerations
Investment Restrictions
General Information
5. Management of the Fund.................................... Management
Portfolio Management
Performance
5A. Management's Discussion of Fund Performance............... Not Applicable
6. Capital Stock and Other Securities........................ Shareholder Services and Other Features
Distributions
Taxes
General Information
7. Purchase of Securities Being Offered...................... How to Purchase Shares
Fees and Charges (Class A
Prospectus only)
Net Asset Value
Shareholder Services and Other Features
Cross Investing
8. Redemption or Repurchase.................................. Fees and Charges (Class A
Prospectus only)
How to Redeem Shares
Shareholder Services and Other Features
9. Pending Legal Proceedings................................. Not applicable
<PAGE>
FORM N-1A CAPTION IN STATEMENT OF
ITEM NO. PART B ADDITIONAL INFORMATION
10. Cover Page................................................ Cover Page
11. Table of Contents......................................... Table of Contents
12. General Information and History........................... General Information and History
13. Investment Objectives and Policies........................ Additional Investment Restrictions and Policies
Investment Techniques
14. Management of the Fund.................................... Directors and Officers
15. Control Persons and Principal Holders of Securities....... Control Persons and Principal Shareholders
16. Investment Advisory and Other Services.................... The Investment Advisory Agreements
The Administrative Services Agreement
The License Agreement
Custodian
Independent Auditors
Distribution Arrangements
17. Brokerage Allocation and Other Practices.................. Brokerage Allocation and Trading Policies
18. Capital Stock and Other Securities........................ Description of Shares
19. Purchase, Redemption and Pricing of Securities Being
Offered................................................... Distribution Arrangements
Letter of Intent
Front-End Sales Load Waivers
The Rule 12b-1 Plan
Net Asset Value
Purchase and Redemption of Shares
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 (OTHER INFORMATION)
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
<PAGE>
Aetna
Mutual Funds
Prospectus
Class A Shares
__________________, 1998
Aetna Series Fund, Inc. (Fund) is an open-end management investment company
authorized to issue multiple series of shares, each representing a diversified
portfolio of investments (Series) with different investment objectives, policies
and restrictions. Currently, each Series is authorized to offer two classes of
shares, Class A shares (formerly Adviser Class shares) and Class I shares
(formerly Select Class shares).
This Prospectus sets forth concisely the information about the Fund and its
Series that you should know before investing. Please read this Prospectus
carefully before investing and retain for future reference. Additional
information about the Fund and its Series, including a Statement of Additional
Information (Statement) dated ___________, 1998, has been filed with the
Securities and Exchange Commission (Commission). The Statement is incorporated
by reference into this Prospectus and 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 Class A shares. A separate
Prospectus is available for investors eligible to purchase Class I shares. Sales
charges and expenses vary, and thus performance will vary, with respect to each
class.
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.
Investment Objectives
Aetna Money Market Fund seeks to provide high current return, consistent with
preservation of capital and liquidity, through investment in high-quality money
market instruments.
Although the Money Market Fund will strive to maintain a $1.00 net asset value
per share, there is no assurance that it will be able to do so. Investments in
this Series are neither insured nor guaranteed by the U.S. Government.
Aetna Government Fund seeks to provide income consistent with the preservation
of capital through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Aetna Bond Fund seeks to provide as high a level of total return (i.e., income
and capital appreciation) as is consistent with reasonable risk, primarily
through investment in a diversified portfolio of investment-grade corporate
bonds, and securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Aetna High Yield Fund seeks high current income and growth of capital primarily
through investment in a diversified portfolio of fixed income securities rated
lower than BBB by Standard and Poor's Corporation (S&P) or lower than Baa by
Moody's Investors Services, Inc. (Moody's).
Aetna Balanced Fund (formerly The Aetna Fund) seeks to maximize total return
with reasonable safety of principal by investing in a diversified portfolio of
stocks, bonds and money market instruments.
Aetna Growth and Income Fund seeks long-term growth of capital and income
through investment in a diversified portfolio consisting primarily of common
stocks and securities convertible into common stocks believed to offer
above-average growth potential.
<PAGE>
Aetna Real Estate Securities Fund seeks maximum total return primarily through
investment in a diversified portfolio of equity securities of real estate
companies, the majority of which are real estate investment trusts (REITs).
Aetna Value Opportunity Fund seeks growth of capital primarily through
investment in a diversified portfolio of common stocks and securities
convertible into common stock. Aetna Value Opportunity Fund will use a
value-oriented approach to stock selection.
Aetna Growth Fund seeks growth of capital through investment in a diversified
portfolio consisting primarily of common stocks and securities convertible into
common stocks believed to offer growth potential.
Aetna Mid Cap Fund seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stocks of companies having medium market capitalizations.
Aetna Small Company Fund seeks growth of capital primarily through investment in
a diversified portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalizations.
Aetna International Fund (formerly Aetna International Growth Fund) seeks
long-term capital growth primarily through investment in a diversified portfolio
of common stocks principally traded in countries outside of North America.
International will not target any given level of current income.
Aetna Index Plus Large Cap Fund (formerly Aetna Index Plus Fund) seeks 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 S&P.
Aetna Index Plus Mid Cap Fund seeks to outperform the total return performance
of publicly traded common stocks represented by the S&P Mid-Cap 400 Index (S&P
400), a stock market index composed of 400 common stocks selected by S&P, while
maintaining a market level of risk.
Aetna Index Plus Small Cap Fund seeks to outperform the total return performance
of publicly traded common stocks represented by the S&P Small Cap 600 Index (S&P
600), a stock market index composed of 600 common stocks selected by S&P, while
maintaining a market level of risk.
Aetna Index Plus Bond Fund seeks maximum total return, consistent with
preservation of capital, primarily through investment in a diversified portfolio
of fixed income securities, which will be chosen to substantially replicate the
characteristics of the Lehman Brothers Aggregate Bond Index (LBAB), an unmanaged
index composed of approximately 6,000 securities.
2
<PAGE>
TABLE OF CONTENTS
Highlights
Fee Tables
Financial Highlights
Description of the Fund
Risk Factors and Other Considerations
Investment Restrictions
Net Asset Value
How to Open an Account
How to Purchase Shares
Fees and Charges
How to Redeem Shares
Shareholder Services and Other Features
Cross Investing
Management
Portfolio Management
Distributions
Taxes
General Information
Performance
3
<PAGE>
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 or, in the case of the
Aetna Money Market Fund, by writing a check.
What Series are Offered?
This Prospectus offers the following Series, each with its own objective and
policies and all of which are diversified portfolios under the Investment
Company Act of 1940 (1940 Act). See "Description of the Fund."
<TABLE>
<S> <C>
(bullet) Aetna Money Market Fund (Money Market) (bullet) Aetna Mid Cap Fund (Mid Cap)
(bullet) Aetna Government Fund (Government Fund) (bullet) Aetna Small Company Fund (Small Company)
(bullet) Aetna Bond Fund (Bond Fund) (bullet) Aetna International Fund (International,
(bullet) Aetna High Yield Fund (High Yield) formerly Aetna International Growth)
(bullet) Aetna Balanced Fund (Balanced Fund, (bullet) Aetna Index Plus Large Cap Fund (Index Plus Large
formerly The Aetna Fund) Cap, formerly Aetna Index Plus Fund)
(bullet) Aetna Growth and Income Fund (Growth (bullet) Aetna Index Plus Mid Cap Fund (Index Plus Mid
and Income) Cap)
(bullet) Aetna Real Estate Securities Fund (bullet) Aetna Index Plus Small Cap Fund (Index Plus Small Cap)
(Real Estate) (bullet) Aetna Index Plus Bond Fund (Index Plus Bond)
(bullet) Aetna Value Opportunity Fund (Value
Opportunity)
(bullet) Aetna Growth Fund (Growth)
</TABLE>
What are the Risks?
The different types of securities purchased and investment techniques used by
each Series involve varying amounts of risk. For more information, see "Risk
Factors and Other Considerations."
What is the Difference Between Class A and Class I Shares?
The shares of each Series are divided into two classes: 1) Class I shares are
shares that are offered to certain corporate retirement plans and certain wrap
fee programs; salaried and retired employees of Aetna Life Insurance and Annuity
Company and its affiliates (including members of employees' and retired persons'
immediate families, board members and trustees and members of their immediate
families); certain insurance companies (including separate accounts); registered
investment companies; investment advisers and broker-dealers acting for their
own account; all shareholders holding Select Class shares at the time such
shares were redesignated as Class I shares, and their immediate family members,
as long as they maintain a shareholder account; bank and independent trust
companies investing on behalf of their client for which they charge trust and
investment management fees; certain Individual Retirement Account rollovers;
members of the Board of Directors of the Fund (Board); and members of such other
groups as may be approved by the Fund's Board from time to time; and 2) Class A
shares are shares that are offered to accounts not eligible to buy Class I
shares.
Class A and Class I shares differ as to sales charges and certain fund expenses.
Different fees and expenses will affect performance. Class A shares (except for
Money Market) are subject to a front-end sales charge except for certain
purchases in excess of $1 million, which are subject to a contingent deferred
sales charge (CDSC). See "Fees and Charges." Class A shares (except for Money
Market) also are subject to a distribution (12b-1) fee, which is calculated at
an annual rate of 0.25% of average daily net assets. Class I shares are no-load,
which means you do not pay any sales charges, distribution or service fees.
Additional classes and Series may be offered in the future.
4
<PAGE>
How Can I Purchase Shares?
You may purchase shares by contacting your investment professional or completing
an application and sending it as described under "How to Purchase Shares." Your
initial purchase must be for a minimum of $1,000 for each Series with a minimum
of $500 for an Individual Retirement Account (IRA). Participants in
employer-sponsored retirement plans should refer to their plan materials. We
also offer a systematic investment program that enables you to purchase shares
on a regular basis. See "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 (NYSE) is
open for business. Class A shares are redeemable at net asset value less any
applicable contingent deferred sales charge. See "How to Redeem Shares" for
further information.
Who is Managing the Assets?
Aeltus Investment Management, Inc. (Aeltus) serves as the investment adviser for
each of the Series. Aeltus is an indirect wholly-owned subsidiary of Aetna
Retirement Services, Inc., which is, in turn, an indirect wholly-owned
subsidiary of Aetna Inc. See "Management" for further information.
What if I have Additional Questions?
Shareholders enjoy a high level of customer service. Please call 1-800-367-7732
if you have questions about your account or would like to initiate a
transaction. Please call 1-800-238-6263 if you would like to receive an
additional prospectus, application or information about the Fund.
5
<PAGE>
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 "Fees and Charges."
Class A
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Sales Charge on Charge (CDSC) on
Purchases (as a Redemptions (as a Sales Charge
percentage of percentage of on Dividend
purchase price) redemption Reinvestment Exchange Fee
proceeds)(1)
<S> <C> <C> <C> <C>
Money Market None None None None
Government Fund 4.75% None None None
Bond Fund 4.75% None None None
High Yield 4.75% None None None
Balanced Fund 5.75% None None None
Growth and Income 5.75% None None None
Real Estate 5.75% None None None
Value Opportunity 5.75% None None None
Growth 5.75% None None None
Mid Cap 5.75% None None None
Small Company 5.75% None None None
International 5.75% None None None
Index Plus Large Cap 3.00% None None None
Index Plus Mid Cap 3.00% None None None
Index Plus Small Cap 3.00% None None None
Index Plus Bond 3.00% None None None
</TABLE>
(1) Previously, all Adviser Class shares (now redesignated as Class A shares)
were subject to a CDSC. Currently, a CDSC of up to 1.00% is assessed only on
certain redemptions of Class A shares that were purchased without a front-end
sales charge. Direct purchases into Money Market will not be subject to a CDSC.
See "How to Purchase Shares".
6
<PAGE>
Class A
Annual Operating Expenses
(as a percentage of average daily net assets)
[To be filed by amendment]
7
<PAGE>
Class A 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:
[To be filed by amendment]
This example should not be considered an indication of prior or future expenses.
Actual expenses for the current year may be greater or less than those shown.
The Fund offers two classes of shares for each of its Series, Class A and Class
I. Because the expenses and sales charges vary between the classes, the
performance of each class will vary. The combination of front-end sales charges
and 12b-1 fees could cause long-term Class A shareholders to pay more than the
economic equivalent of the maximum front-end sales charge permitted under the
rules of the National Association of Securities Dealers, Inc. (NASD). Registered
representatives may receive different levels of compensation depending on the
class sold. Additional information regarding the classes may be obtained by
calling your investment professional or 1-800-238-6263.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The selected data presented below for, and as of the end of, each of the periods
listed are obtained from the financial statements of Aetna Series Fund, Inc.,
which have been audited by KPMG Peat Marwick LLP, independent auditors.
(for one outstanding share throughout each period)
Class A Shares (formerly Adviser Class Shares)
<TABLE>
<CAPTION>
Money Market
-------------------------------------------------------
Period from
April 15,
Year ended Year ended Year ended 1994 to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- ---------
Income From Investment
Operations:
Net investment income 0.05 0.06 0.03
Net realized and unrealized gain
(loss) - - -
--------- --------- --------- ---------
Total from investment operations 0.05 0.06 0.03
Less Distributions:
Dividends from net investment
income (0.05) (0.06) (0.03)
Dividends in excess of net
investment income - - -
--------- --------- --------- ---------
Net asset value per share, end of
period $ $ 1.00 $ 1.00 $ 1.00
========= ========= ========= =========
Total Return % 5.44% 5.95% 2.41%
Net assets, end of period (000's) $ $ 119,849 $ 78,726 $ 47,350
Ratio of total expenses to average
net assets* % 0.30% 0.26% 0.21%
Ratio of net investment income to
average net assets* % 5.30% 5.79% 4.27%
Ratio of net expense before
reimbursement and waiver to
average net assets* % 0.93% 0.87% 0.92%
Ratio of net investment income
before reimbursement and
waiver to average net assets* % 4.67% 5.19% 3.67%
Portfolio turnover rate - - -
Average commission rate paid
per share - - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
9
<PAGE>
(for one outstanding share throughout each period)
Class A Shares (formerly Adviser Class Shares)
<TABLE>
<CAPTION>
Government Fund Bond Fund
- ------------------------------------------------------------ -----------------------------------------------------------
Period from Period from
April 15, April 15,
Year ended Year ended Year ended 1994 to Year ended Year ended Year ended 1994 to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ $ 10.00 $ 9.41 $ 9.67 $ $ 10.27 $ 9.58 $ 9.92
--------- --------- --------- --------- --------- --------- --------- ---------
0.48 0.60 0.24 0.62 0.56 0.28
(0.13) 0.56 (0.24) (0.20) 0.66 (0.35)
--------- ---------- --------- ---------- --------- ---------- --------- ---------
0.35 1.16 0.00 0.42 1.22 (0.07)
(0.56) (0.57) (0.26) (0.60) (0.53) (0.27)
- - - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
$ $ 9.79 $ 10.00 $ 9.41 $ $ 10.09 $ 10.27 $ 9.58
========= ========= ========= ========= ========= ========= ========= =========
% 3.75% 12.60% (0.06)% % 4.27% 13.28% (0.68)%
$ $ 526 $ 405 $ 151 $ $ 877 $ 7,340 $ 25,405
% 1.45% 1.51% 1.28% % 1.50% 1.50% 1.49%
% 4.96% 6.02% 4.68% % 5.47% 5.91% 5.36%
% 2.32% 2.11% 2.11% % 1.91% 1.82% 1.81%
% 4.09% 5.42% 3.85% % 5.06% 5.60% 5.04%
50.48% 117.31% 43.63% 42.33% 56.99% 51.80%
- - - - - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
10
<PAGE>
(for one outstanding share throughout each period)
Class A Shares (formerly Adviser Class Shares)
<TABLE>
<CAPTION>
Aetna Balanced Fund (formerly Aetna Fund)
-------------------------------------------------------------
Period from
April 15,
Year ended Year ended Year ended 1994 to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ $ 12.34 $ 10.62 $ 10.54
------ --------- --------- ---------
Income From Investment
Operations:
Net investment income 0.20 0.23 0.19
Net realized and unrealized gain
(loss) 1.79 1.91 -
------ --------- --------- ---------
Total from investment operations 1.99 2.14 0.19
Less Distributions:
Dividends from net investment
income (0.27) (0.42) (0.11)
Dividends in excess of net
investment income - - -
Distributions from net realized
gains on investments (0.57) - -
------ ---------- --------- ---------
Net asset value per share, end of
period $ $ 13.49 $ 12.34 $ 10.62
====== ========= ========= =========
Total Return % 16.83% 18.32% 1.84%
Net assets, end of period (000's) $ $ 3,783 $ 1,362 $ 26,396
Ratio of total expenses to average
net assets* % 2.07% 2.04% 1.87%
Ratio of net investment income to
average net assets* % 1.60% 2.61% 1.90%
Ratio of net expense before
reimbursement and waiver to
average net assets* % 2.07% 2.07% 2.06%
Ratio of net investment income
before reimbursement and
waiver to average net assets* % 1.60% 2.58% 1.67%
Portfolio turnover rate % 117.88% 129.05% 86.10%
Average commission rate paid
per share $ $ 0.0557 - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
11
<PAGE>
(for one outstanding share throughout each period)
Class A Shares (formerly Adviser Class Shares)
<TABLE>
<CAPTION>
Growth and Income Growth
- ----------------------------------------------------------- ------------------------------------------------------------
Period from Period from
April 15, April 15,
Year ended Year ended Year ended 1994 to Year ended Year ended Year ended 1994 to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ $ 13.43 $ 11.08 $ 10.75 $ $ 13.63 $ 10.74 $ 10.26
------ --------- --------- --------- ------ --------- --------- ---------
0.08 0.12 0.11 (0.08) (0.06) (0.02)
3.08 2.31 0.30 2.38 3.00 0.50
------ --------- --------- --------- ------ --------- --------- ---------
3.16 2.43 0.41 2.30 2.94 0.48
(0.14) (0.08) (0.08) - (0.05) -
- - - - - -
(0.76) - - (1.76) - -
------ ---------- --------- --------- ------ ---------- --------- ---------
$ $ 15.69 $ 13.43 $ 11.08 $ $ 14.17 $ 13.63 $ 10.74
====== ========= ========= ========= ====== ========= ========= =========
% 24.70% 21.90% 3.71% % 18.97% 27.92% 4.58%
$ $ 6,638 $ 2,217 $ 5,740 $ $ 4,615 $ 1,727 $ 417
% 1.83% 1.84% 2.32% % 2.03% 2.03% 1.72%
% 0.55% 1.14% 1.74% % (0.59)% (0.47)% (0.25)%
% 1.83% 1.84% 2.42% % 2.03% 2.14% 2.17%
% 0.55% 1.14% 1.65% % (0.59)% (0.58)% (0.71)%
% 106.09% 127.43% 54.13% % 144.19% 171.75% 120.32%
$ $ 0.0505 - - $ $ 0.0598 - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
12
<PAGE>
(for one outstanding share throughout each period)
Class A Shares (formerly Adviser Class Shares)
<TABLE>
<CAPTION>
Index Plus
Large Cap Small Company
-------------- -------------------------------------------------------------
Period from
Period from April 15,
Feb. 3, 1997 to Year ended Year ended Year ended 1994 to
Oct. 31, 1997 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
--------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ $ $ 13.39 $ 10.35 $ 10.24
------ ------ --------- --------- ---------
Income From Investment
Operations:
Net investment income (0.18) (0.11) (0.04)
Net realized and unrealized gain
(loss) 2.62 3.15 0.15
------ ------ --------- --------- ---------
Total from investment operations 2.44 3.04 0.11
Less Distributions:
Dividends from net investment
income - - -
Dividends in excess of net
investment income - - -
Distributions from net realized
gains on investments (1.41) - -
------ ------ --------- --------- ---------
Net asset value per share, end of
period $ $ $ 14.42 $ 13.39 $ 10.35
====== ====== ========= ========= =========
Total Return % % 19.02% 29.44% 0.98%
Net assets, end of period (000's) $ $ $ 3,884 $ 1,285 $ 205
Ratio of total expenses to average
net assets* % % 2.20% 2.23% 1.78%
Ratio of net investment income to
average net assets* % % (1.26)% (0.89)% (0.72)%
Ratio of net expense before
reimbursement and waiver to
average net assets* % % 2.20% 2.30% 2.14%
Ratio of net investment income
before reimbursement and
waiver to average net assets* % % (1.26)% (0.97)% (1.07)%
Portfolio turnover rate % % 163.21% 156.43% 116.28%
Average commission rate paid
per share $ $ $ 0.0575 - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
13
<PAGE>
(for one outstanding share throughout each period)
Class A Shares (formerly Adviser Class Shares)
<TABLE>
<CAPTION>
International (formerly International Growth)
- --------------------------------------------------------------
Period from
April 15,
Year ended Year ended Year ended 1994 to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
- ------------- ------------- ------------- --------------
<S> <C> <C> <C>
$ $ 10.59 $ 11.51 $ 11.24
------ --------- --------- ---------
(0.05) 0.03 0.01
1.57 (0.20) 0.26
------ --------- --------- ---------
1.52 (0.17) 0.27
(0.08) (0.27) -
- - -
(0.26) (0.48) -
--------- --------- --------- ---------
$ $ 11.77 $ 10.59 $ 11.51
====== ========= ========= =========
% 14.67% (0.81)% 2.40%
$ $ 22,893 $ 26,464 $ 26,647
% 2.94% 2.12% 0.27%
% 0.42% 0.27% 0.17%
% 2.94% 2.25% 2.41%
% (0.42)% 0.14% 0.02%
% 135.92% 32.91% 81.67%
$ $ 0.0178 - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
14
<PAGE>
DESCRIPTION OF THE FUND
The Fund is a management investment company incorporated in the State of
Maryland comprised of multiple Series, each of which is diversified under the
1940 Act. Each Series has an investment objective which is a fundamental policy.
There can be no assurance that a Series will meet its investment objective. Each
Series is subject to investment restrictions described in this Prospectus and in
the Statement, some of which are fundamental policies. The fundamental
investment policies of a Series may be changed only by a vote of a majority of
the outstanding shares (as defined in the 1940 Act) of that Series.
The Fund offers two classes of shares for each Series. Class A and Class I
shares differ as to sales charges, expenses and services. Different fees and
expenses will affect performance. Class A shares are described herein.
Shares of each class represent proportionate interests in the assets of the
Series and have the same voting and other rights and preferences as any other
class of the Series for matters that affect the Series as a whole. For matters
that only affect one class, however, only shareholders of that class may vote.
Each class will vote separately on matters (1) affecting only that class, (2)
expressly required to be voted on separately by state law or (3) required to be
voted on separately by the 1940 Act.
Money Market
Investment Objective
Money Market seeks to provide high current return, consistent with preservation
of capital and liquidity, through investment in high-quality money market
instruments.
Investment Policy
Money Market invests in U.S. Treasury bills, notes and bonds; obligations of
agencies and instrumentalities of the U.S. Government; obligations of domestic
banks and U.S. dollar denominated obligations of foreign banks (provided that
the issuing bank has reported assets in excess of $5 billion and meets strict
capital and profitability criteria), finance company commercial paper, corporate
commercial paper (including variable-rate instruments), discounted notes of
domestic banks, domestic banker's acceptances eligible for discounting at the
Federal Reserve, Yankee certificates of deposit, Yankee commercial paper,
Eurodollar securities, corporate bonds and notes and other debt instruments.
Money Market may purchase securities on a when-issued or delayed-delivery basis.
All investments will have a maturity at the time of purchase, as defined under
the federal securities laws, of 397 days or less. Any foreign securities or
obligations will be U.S. dollar denominated. Money Market will invest at least
95% of its total assets in high-quality securities. High-quality securities are
those receiving the highest credit rating by any two rating agencies (or one, if
only one rating agency has rated the security). High-quality securities may also
include unrated securities if Aeltus determines the security to be of comparable
quality.
The remainder of Money Market's assets will be invested in securities rated
within the two highest rating categories by any two rating agencies (or one, if
only one rating agency has rated the security) and unrated securities if Aeltus
determines the security to be of comparable quality. With respect to these
securities, Money Market will not invest more than 1% of the market value of its
total assets or $1 million, whichever is greater, in the securities or
obligations of any one issuer.
Money Market will use nationally recognized rating agencies including, but not
limited to, S&P and Moody's when determining security credit ratings. All
investments will be determined to present minimal credit risks.
Money Market's dollar weighted average maturity will not exceed 90 days.
Although Aeltus will use its best efforts to maintain a constant net asset value
of $1.00 per share, there is no assurance that it will be able to do so.
Investments in Money Market are neither insured nor guaranteed by the U.S.
Government.
15
<PAGE>
Government Fund
Investment Objective
Government Fund seeks to provide income consistent with the preservation of
capital through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Investment Policy
Government Fund invests at least 65% of its assets in direct obligations of the
U.S. Government, such as treasury bills, notes and bonds which are backed by the
full faith and credit of the United States, or in indirect obligations of the
U.S. Government, such as notes and bonds which are guaranteed by agencies and
instrumentalities of the U.S. Government. Securities of such agencies and
instrumentalities are backed by either the full faith and credit of the U.S.
Treasury, the right of the issuer to borrow from the U.S. Treasury, or the
credit of the agency or instrumentality. Such agencies and instrumentalities
include, but are not limited to, the Government National Mortgage Association
(GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home
Loan Mortgage Corporation (FHLMC).
Government Fund may also invest in STRIPs, zero coupon bonds and options and
futures contracts and in other Treasury instruments.
Bond Fund
Investment Objective
Bond Fund seeks to provide as high a level of total return (i.e., income and
capital appreciation) as is consistent with reasonable risk, primarily through
investment in a diversified portfolio of investment-grade corporate bonds, and
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Investment Policy
Bond Fund will normally invest at least 65% of its total assets in high-grade
corporate bonds, mortgage-related and other asset-backed and debt securities,
and securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. High-grade corporate bonds are securities rated A or above by
S&P or by Moody's, and securities rated comparably by other nationally
recognized statistical rating organizations, or considered by Aeltus to be of
comparable quality.
Additionally, Bond Fund may invest in commercial paper and other short-term
investments, including variable-rate instruments, all having a maturity of less
than one year, and in debt securities with equity features, convertibles, and
other debt securities.
Bond Fund may invest up to 15% of its total assets in high-yield bonds
(securities rated BB/Ba or below, or, if unrated, considered by Aeltus to be of
comparable quality). See "Risk Factors and Other Considerations" for further
information.
Bond Fund will not target any given maturity, thus giving it flexibility to
invest in short- and long-term securities as market conditions change. Bond Fund
may also invest in equity securities (not to exceed 5% of total assets) and
securities issued by any foreign corporation or instrumentality or political
subdivision of foreign governments (not to exceed 25% of total assets). Bond
Fund may also purchase securities on a when-issued, delayed-delivery or
forward-commitment basis.
As of October 31, 1996, the weighted average distribution of bonds based on S&P
and Moody's bond ratings was 48.0% in AAA/Aaa, 19.9% in AA/Aa, 11.2% in A, 3.2%
in BBB/Baa, 3.2% in BB/Ba, and 14.5% in unrated bonds.
16
<PAGE>
High Yield
Investment Objective
High Yield seeks high current income and growth of capital primarily through
investment in a diversified portfolio of fixed income securities rated lower
than BBB by S&P or lower than Baa by Moody's.
Investment Policy
High Yield will normally invest at least 65% of its total assets in high-yield
bonds. High Yield may also invest in other fixed income securities, equity
interests, private securities, convertible securities and zero-coupon
securities.
Additionally, High Yield may invest in options and futures (including options on
futures). High Yield may also enter into repurchase agreements, invest up to 25%
of its total assets in foreign securities, engage in currency hedging and
purchase securities on a when-issued, delayed-delivery or forward-commitment
basis.
For more information about the risks associated with investing in high-yield
bonds, see "Risk Factors and Other Considerations - High-Yield Bonds."
Balanced Fund
Investment Objective
Balanced Fund seeks to maximize total return with reasonable safety of principal
by investing in a diversified portfolio of stocks, bonds and money market
instruments.
Investment Policy
An investment in Balanced Fund may involve less investment risk than an
investment in a portfolio consisting entirely of common stocks. Balanced Fund
will allocate its assets among common and preferred stocks, bonds, including
mortgage-related and other asset-backed securities, U.S. Government securities,
U.S. Government derivatives, and money market instruments, including
variable-rate instruments, in proportions that reflect the anticipated returns
and risks of each asset class. Balanced Fund generally will maintain at least
25% of its total assets in fixed income securities. Balanced Fund will not
invest more than 15% of the total value of its assets in high-yield bonds. It
may purchase commercial paper and other short-term instruments and invest up to
25% of its total assets in foreign securities. It may write and buy listed
covered call options and buy and sell put and call options and stock index
futures contracts and related options. Balanced Fund may also purchase
securities on a when-issued, delayed-delivery or forward-commitment basis.
Aeltus employs current market statistics and economic indicators to forecast
returns for each sector of the securities market for Balanced Fund. These
calculations provide a disciplined framework for assessing the relative
attractiveness of stocks, bonds, and cash equivalents. Aeltus uses proprietary
computer programs to help calculate the optimal asset exposure over specified
time periods for Balanced Fund.
Special Considerations
Investors should be aware that the investment results of Balanced Fund partly
depend upon Aeltus' ability to anticipate correctly the relative performance of
stocks, bonds and money market instruments.
While Aeltus has substantial experience in managing all asset classes, there can
be no assurance that Aeltus will always allocate assets to the best performing
sectors. Balanced Fund's performance would suffer if a major portion of its
assets were allocated to stocks in a declining market or, similarly, if a major
portion of its assets were allocated to bonds at a time of adverse interest rate
movement.
17
<PAGE>
Growth and Income
Investment Objective
Growth and Income seeks long-term growth of capital and income through
investment in a diversified portfolio consisting primarily of common stocks and
securities convertible into common stocks believed to offer above-average growth
potential.
Investment Policy
Growth and Income invests at least 65% of its assets in common stocks which
Aeltus believes have significant potential for capital or income growth. It may
also invest in convertible and non-convertible preferred stocks, debt
securities, rights and warrants.
Additionally, Growth and Income may write and buy listed covered call options
and buy and sell put and call options and stock index futures and options.
Growth and Income may also purchase commercial paper and other short-term
instruments, invest up to 25% of its total assets in foreign securities, engage
in currency hedging and purchase securities on a when-issued, delayed-delivery
or forward commitment basis. Growth and Income will not invest more than 15% of
the total value of its assets in high-yield bonds.
Real Estate
Investment Objective
Real Estate seeks maximum total return primarily through investment in a
diversified portfolio of equity securities of real estate companies, the
majority of which are real estate investment trusts (REITs).
Investment Policy
Real Estate will normally invest at least 65% of its total assets in income
producing equity securities of publicly traded companies principally engaged in
the real estate industry. Real Estate may also invest in convertible securities
and preferred stocks.
Additionally, Real Estate may invest in options and futures (including options
on futures). Real Estate may also enter into repurchase agreements, invest up to
25% of its total assets in foreign securities, invest in fixed income
securities, engage in currency hedging and purchase securities on a when-issued,
delayed-delivery or forward-commitment basis. Real Estate will not invest more
than 15% of the total value of its assets in high-yield bonds.
Value Opportunity
Investment Objective
Value Opportunity seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stock. Value Opportunity will use a value-oriented approach to stock selection.
Investment Policy
Value Opportunity will normally invest at least 65% of its total assets in
common stocks. It may also invest in convertible and non-convertible preferred
stocks.
Additionally, Value Opportunity may invest in options and futures (including
options on futures). Value Opportunity may also enter into repurchase
agreements, invest up to 25% of its total assets in foreign securities, invest
in fixed income securities, engage in currency hedging and purchase securities
on a when-issued, delayed-delivery or forward-commitment basis. Value
Opportunity will not invest more than 15% of the total value of its assets in
high-yield bonds.
18
<PAGE>
Growth
Investment Objective
Growth seeks growth of capital through investment in a diversified portfolio
consisting primarily of common stocks and securities convertible into common
stocks believed to offer growth potential.
Investment Policy
Growth will normally invest at least 65% of its total assets in common stocks
which have potential for capital growth. It may also invest in convertible and
non-convertible preferred stocks.
Additionally, Growth may write and buy listed covered call options and buy and
sell put and call options, and stock index futures and options. Growth may also
purchase commercial paper and other short-term instruments, invest up to 25% of
its total assets in foreign securities, engage in currency hedging and purchase
securities on a when-issued, delayed-delivery or forward commitment basis.
Growth will not invest more than 15% of the total value of its assets in
high-yield bonds.
Mid Cap
Investment Objective
Mid Cap seeks growth of capital primarily through investment in a diversified
portfolio of common stocks and securities convertible into common stocks of
companies having medium market capitalizations.
Investment Policy
Under normal circumstances, Mid Cap will invest at least 65% of its assets in
common stocks and will generally exclude common stocks that are not of a similar
size (as measured by market capitalization) as stocks in the S&P 400.
Additionally, Mid Cap may invest in options and futures (including options on
futures). Mid Cap may also enter into repurchase agreements, invest up to 25% of
its total assets in foreign securities, invest in fixed income securities,
engage in currency hedging and purchase securities on a when-issued,
delayed-delivery or forward-commitment basis. Mid Cap will not invest more than
15% of the total value of its assets in high-yield bonds.
Small Company
Investment Objective
Small Company seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalizations.
Investment Policy
Small Company will normally invest at least 65% of its total assets in the
common stock of companies with equity market capitalizations at the time of
purchase of $1 billion or less. Small Company may also invest in convertible and
non-convertible preferred stocks.
Additionally, Small Company may write and buy listed covered call options and
buy and sell put and call options and stock index futures and options. Small
Company may also purchase commercial paper and other short-term instruments,
invest up to 25% of its total assets in foreign securities, engage in currency
hedging and purchase securities on a when-issued, delayed-delivery or forward
commitment basis. Small Company will not invest more than 15% of the total value
of its assets in high-yield bonds.
19
<PAGE>
International
Investment Objective
International seeks long-term capital growth primarily through investment in a
diversified portfolio of common stocks principally traded in countries outside
of North America. International will not target any given level of current
income.
Investment Policy
International will invest at least 65% of its total assets among securities
principally traded in three or more countries outside of North America.
International will invest primarily in equity securities including securities
convertible into stocks. Further, from time to time International may hold up to
10% of its total assets in long-term debt securities with an equivalent S&P or
Moody's rating of AA/Aa or above.
International may enter into forward foreign exchange contracts or purchase
financial futures or options (including options on futures) as a means to
moderate the impact of foreign currency fluctuations. It may also purchase money
market instruments and securities on a when-issued, delayed-delivery or
forward-commitment basis.
Index Plus Large Cap
Investment Objective
Index Plus Large Cap seeks to outperform the total return performance of
publicly traded common stocks represented by the S&P 500.
Investment Policy
Index Plus Large Cap will attempt to be fully invested in common stocks. Under
normal circumstances, Index Plus Large Cap 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 S&P as to the stock's attractiveness as
an investment. Index Plus Large Cap is neither sponsored by nor affiliated with
S&P. AN INVESTMENT IN INDEX PLUS LARGE CAP INVOLVES RISKS SIMILAR TO THOSE OF
INVESTING IN COMMON STOCKS GENERALLY. As Index Plus Large Cap invests primarily
in common stocks, Index Plus Large Cap 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 Large Cap will generally include
approximately 400 stocks included in the S&P 500. Index Plus Large Cap 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 Large Cap and that of the S&P 500 in both rising
and falling markets. Index Plus Large Cap 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 (NAV) of
Index Plus Large Cap, 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. Aeltus 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.
20
<PAGE>
Index Plus Mid Cap
Investment Objective
Index Plus Mid Cap seeks to outperform the total return performance of publicly
traded common stocks represented by the S&P 400, while maintaining a market
level of risk.
Investment Policy
Under normal circumstances, Index Plus Mid Cap will invest at least 90% of its
assets in common stocks represented in the S&P 400. Inclusion of a stock in the
S&P 400 in no way implies an opinion by S&P as to the stock's attractiveness as
an investment. Index Plus Mid Cap is neither sponsored by nor affiliated with
S&P. AN INVESTMENT IN INDEX PLUS MID CAP INVOLVES RISKS SIMILAR TO THOSE OF
INVESTING IN COMMON STOCKS GENERALLY.
Under normal circumstances, Index Plus Mid Cap will generally exclude common
stocks which are not part of the S&P 400.
The weightings of stocks in the S&P 400 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. Aeltus will attempt to outperform the
investment results of the S&P 400 by creating a portfolio that has similar
market risk characteristics to the S&P 400, but will use a disciplined analysis
to identify those stocks having the greatest likelihood of either outperforming
or underperforming the market.
Index Plus Mid Cap may also invest in convertible and non-convertible preferred
stocks. Additionally, Index Plus Mid Cap may invest in options and futures
(including options on futures). Index Plus Mid Cap may also enter into
repurchase agreements, invest up to 25% of its total assets in foreign
securities, invest in fixed income securities, engage in currency hedging and
purchase securities on a when-issued, delayed-delivery or forward-commitment
basis. Index Plus Mid Cap will not invest more than 15% of the total value of
its assets in high-yield bonds.
Index Plus Small Cap
Investment Objective
Index Plus Small Cap seeks to outperform the total return performance of
publicly traded common stocks represented by the S&P 600, a stock market index
composed of 600 common stocks selected by S&P, while maintaining a market level
of risk.
Investment Policy
Under normal circumstances, Index Plus Small Cap will invest at least 90% of its
assets in common stocks represented in the S&P 600. Inclusion of a stock in the
S&P 600 in no way implies an opinion by S&P as to the stock's attractiveness as
an investment. Index Plus Small Cap is neither sponsored by nor affiliated with
S&P. AN INVESTMENT IN INDEX PLUS SMALL CAP INVOLVES RISKS SIMILAR TO THOSE OF
INVESTING IN COMMON STOCKS GENERALLY.
Under normal circumstances, Index Plus Small Cap will generally exclude common
stocks which are not part of the S&P 600.
The weightings of stocks in the S&P 600 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. Aeltus will attempt to outperform the
investment results of the S&P 600 by creating a portfolio that has similar
market risk characteristics to the S&P 600, but will use a disciplined analysis
to identify those stocks having the greatest likelihood of either outperforming
or underperforming the market.
Index Plus Small Cap may also invest in convertible and non-convertible
preferred stocks. Additionally, Index Plus Small Cap may invest in options and
futures (including options on futures). Index Plus Small Cap may also enter into
repurchase agreements, invest up to 25% of its total assets in foreign
securities, invest in fixed income securities, engage in currency hedging and
purchase securities on a when-issued, delayed-delivery or forward-commitment
basis. Index Plus Small Cap will not invest more than 15% of the total value of
its assets in high-yield bonds.
21
<PAGE>
Index Plus Bond
Investment Objective
Index Plus Bond seeks maximum total return, consistent with preservation of
capital, primarily through investment in a diversified portfolio of fixed income
securities, which will be chosen to substantially replicate the characteristics
of the LBAB, an unmanaged index composed of approximately 6,000 securities.
Investment Policy
Index Plus Bond will be actively managed in an attempt to achieve a total return
which, before the recognition of fund expenses, exceeds the LBAB. Under normal
circumstances, Index Plus Bond will invest at least 90% of its assets in fixed
income investments and will exclude Aetna Inc. securities. Inclusion of a
security in the LBAB in no way implies an opinion by Lehman Brothers as to the
security's attractiveness as an investment. Index Plus Bond is neither sponsored
by nor affiliated with Lehman Brothers. AN INVESTMENT IN INDEX PLUS BOND
INVOLVES RISKS SIMILAR TO THOSE OF INVESTING IN FIXED INCOME SECURITIES
GENERALLY.
Index Plus Bond may also invest in convertible and non-convertible preferred
stocks. Additionally, Index Plus Bond may invest in options and futures
(including options on futures). Index Plus Bond may also enter into repurchase
agreements, invest up to 25% of its total assets in foreign securities, engage
in currency hedging and purchase securities on a when-issued, delayed-delivery
or forward-commitment basis. Index Plus Bond will not invest more than 15% of
the total value of its assets in high-yield bonds.
With respect to all Series, see "Risk Factors and Other Considerations" below
for additional information.
RISK FACTORS AND OTHER CONSIDERATIONS
General Considerations
The different types of securities purchased and investment techniques used by
Aeltus involve varying amounts of risk. For example, equity securities are
subject to a decline in the stock market or in the value of the issuing company
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 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, for each debt security, there
is a risk of principal and interest default which will be greater with
higher-yielding, lower-grade securities. High-yield bonds may provide a higher
return but with added risk. In addition, foreign securities have currency risk.
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 Aeltus (except with respect to Money Market) does not purchase
securities with the intention of profiting from short-term trading, Aeltus may
buy and sell securities when Aeltus believes such action is appropriate. It is
anticipated that the average annual turnover rate of each Series may exceed
125%. Turnover rates in excess of 125% may result in higher transaction costs
(which are borne directly by the respective Series) and a possible increase in
short-term capital gains (or losses). See "Distributions," "Taxes" and the
Statement for additional information.
Cash or Cash Equivalents
Aeltus reserves the right to temporarily depart from a Series' investment
objective by investing up to 100% of its assets in cash or cash equivalents to
defend against potential market decline. Such cash equivalents include
commercial paper and other short-term instruments as deemed appropriate by
Aeltus. In addition, all Series (except Money Market) reserve the right to
deposit some or all of their uninvested cash balances into one or more joint
accounts as authorized by the Commission.
22
<PAGE>
All the Series may use the following:
Derivatives
In order to manage exposure to changing interest rates, securities prices and
currency exchange rates, or to increase investment return, a Series may engage
in hedging and other strategies using derivatives. A derivative is a financial
instrument the value of which depends on (or derives from) the value of an
underlying asset, such as a security, interest rate, currency rate or index.
Derivatives that may be used by a Series include, but are not limited to,
forward contracts, swaps, structured notes, collateralized mortgage obligations
(CMOs) (see "Mortgage-Backed Securities" below), futures and options (see
"Futures Contracts" and "Options" below). The risks involved in using
derivatives include the risk that the derivative may experience greater price
swings than other securities and may be less liquid than other securities.
Leveraged derivatives may involve borrowing. A Series may use derivatives as a
hedge against foreign currency, equity market or interest rate risk, or to gain
additional exposure to certain markets for investment purposes, within the
limitations set forth below. In addition, derivatives may be used to enhance a
Series' yield. For purposes other than hedging, a Series will invest no more
than 5% of its assets in derivatives which at the time of purchase are
considered by management to involve high risk to the Series, such as inverse
floaters, interest-only and principal-only debt instruments. Each Series (except
Money Market) may invest up to 30% of its assets in lower risk derivatives for
hedging, to gain additional exposure to certain markets for investment purposes,
and to maintain liquidity to meet shareholder redemptions or to minimize trading
costs.
Borrowing
Each Series may borrow up to 5% of the value of its total assets from a bank for
temporary or emergency purposes. The Series does not intend to borrow for other
purposes, except that it may invest in leveraged derivatives which have certain
risks as outlined above. The Series may borrow for leveraging purposes only if
after the borrowing, the value of the Series' net assets including proceeds from
the borrowings, is equal to at least 300% of all outstanding borrowings.
Leveraging can increase the volatility of a Series since it exaggerates the
effects of changes in the value of the securities purchased with the borrowed
funds.
Repurchase Agreements
Each Series may enter into repurchase agreements with domestic banks and
broker-dealers. Under a repurchase agreement, the Series may acquire a debt
instrument for a relatively short period subject to an obligation by the seller
to repurchase and by the Series to resell the instrument at a fixed price and
time. Such agreements, although fully collateralized, involve the risk that the
seller of the securities may fail to repurchase them. In that event, a Series
may incur costs in liquidating the collateral or a loss if the collateral
declines in value. If the default on the part of the seller is due to insolvency
and the seller initiates bankruptcy proceedings, the ability of a Series to
liquidate the collateral may be delayed or limited.
The Directors have established credit standards for issuers of repurchase
agreements entered into by the Series.
Asset-Backed Securities
Each Series may purchase securities collateralized by a specified pool of assets
including, but not limited to, credit card receivables, automobile, home equity,
mobile home and recreational vehicle loans. These securities are subject to
prepayment risk. In periods of declining interest rates, reinvestment would thus
be made at lower and less attractive rates.
Bank Obligations
Each Series may invest in obligations issued by domestic or foreign banks
(including banker's acceptances, commercial paper, bank notes, time deposits and
certificates of deposit) provided the issuing bank has a minimum of $5 billion
in assets and a primary capital ratio of at least 4.25%.
23
<PAGE>
Illiquid and Restricted Securities
Each Series may invest up to 15% of its total assets in illiquid securities (10%
in the case of Index Plus Large Cap and Money Market). Illiquid securities are
securities that are not readily marketable or cannot be liquidated within seven
days in the ordinary course of business without taking a materially reduced
price. In addition, a Series may invest in securities that are subject to legal
or contractual restrictions as to resale, including securities purchased under
Rule 144A and Section 4(2) of the Securities Act of 1933. The Directors have
established a policy to monitor the liquidity of securities acquired by the
Series.
Foreign Securities
The purchase of foreign securities may involve certain additional risks. 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.
All Series except Money Market may also use the following:
Futures Contracts
Futures contracts are agreements that obligate the buyer to buy and the seller
to sell a specific quantity of securities at a specific price on a specific
date. Investments in futures contracts or options on futures may be made subject
to the limits discussed in the Statement. See "Risk Factors and Other
Considerations - Derivatives" above.
Certain risks are involved in futures contracts including but not limited to:
transactions to close out futures contracts may not be able to be effected at
favorable prices; possible reduction in a Series' total return and yield;
possible reduction in value of the futures instrument; the inability of a Series
to limit losses by closing its position due to lack of a liquid secondary market
or due to daily limits of price fluctuation; imperfect correlation between the
value of the futures contracts and the related securities; and potential losses
in excess of the amount invested in the futures contracts themselves.
The use of futures involves a high degree of leverage because of the low margin
requirements. As a result, small price movements in futures contracts may result
in immediate and potentially unlimited losses or gains to a Series. The amount
of gains or losses on investments in futures contracts depends on the portfolio
manager's ability to predict correctly the direction of stock prices, interest
rates and other economic factors.
Options
Options are agreements that for a fee or premium, give the holder the right,
but not the obligation, to pay or settle for cash a certain amount of securities
during a specified period or on a specified date. Options are used to minimize
principal fluctuation or to generate additional premium income but they do
involve risks. Writing call options, for example, involves the risk of not being
able to effect closing transactions at favorable prices or to participate in the
appreciation of the underlying securities. Purchasing put options involves the
risk of losing the entire purchase price of the option.
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<PAGE>
All Series except Money Market, Government Fund, and International may also use
the following:
High-Yield Bonds
These fixed income securities are rated BB/Ba or below, or, if unrated, are
considered by Aeltus to be of comparable quality. 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 high-yield 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 Aeltus' opinion, misclassified the bonds or overlooked
the potential for the issuer's enhanced creditworthiness.
Government Fund, Bond Fund, High Yield, Balanced Fund, Real Estate and Index
Plus Bond may also use the following:
Mortgage-Backed Securities
Investments in mortgage-backed and other pass-through securities may be made.
Payments of interest and principal on these securities may be guaranteed by an
agency or instrumentality of the U.S. Government such as GNMA, FHLMC and FNMA.
These securities represent part ownership of a pool of mortgage loans where
principal is scheduled to be paid back by the borrower over the length of the
loan rather than returned in a lump sum at maturity. The Series may also invest
in private mortgage pass-through securities backed by pools of conventional
fixed-rate or adjustable-rate mortgage loans. In addition, a Series may invest
in CMOs and securities issued by real estate mortgage investment conduits
(REMICs). Mortgage-backed securities are subject to the same prepayment risk as
asset-backed securities.
Balanced Fund, Growth and Income, Real Estate, Value Opportunity, Growth, Small
Company, Index Plus Large Cap, Index Plus Mid Cap and Index Plus Small Cap may
also use the following:
Small Capitalization Companies
These securities are issued by smaller, less well-known U.S. companies with
equity market capitalization generally less than $1 billion. These companies
may be in an early developmental stage or may be 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 unanticipated unfavorable
developments affecting the companies.
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
company and its securities. 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.
High Yield, Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap and
Index Plus Bond may also use the following:
Supranational Agencies
Securities of supranational agencies are not considered government securities
and are not supported directly or indirectly by the U.S. Government. Examples of
supranational agencies include but are not limited to: the International Bank
for Reconstruction
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<PAGE>
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.
INVESTMENT RESTRICTIONS
A Series (other than Real Estate) will not concentrate its investments in any
one industry except that a Series may invest up to 25% of its total assets in
securities issued by companies principally engaged in any one industry. For
purposes of this restriction, finance companies will be classified as separate
industries according to the end users of their services, such as automobile
finance, computer finance and consumer finance. This limitation will not apply
to securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities and, in the case of Money Market to securities invested in, or
repurchase agreements for, U.S. Government securities, and certificates of
deposit, banker's acceptances, or securities of banks and bank holding
companies. Also, a Series will not invest more than 5% of its total assets in
the securities of any one issuer (excluding securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) or purchase more than
10% of the outstanding voting securities of any one issuer. This restriction
applies only to 75% of a Series' total assets. The Series (other than Index Plus
Large Cap, Index Plus Mid Cap, Index Plus Small Cap and Index Plus Bond) do not
invest in the securities of companies determined by Aeltus to be primarily
involved in the production or distribution of tobacco products. See the
Statement for additional restrictions.
NET ASSET VALUE
The Net Asset Value (NAV) per share of each Series is determined as of the
earlier of 15 minutes after the close of the NYSE or 4:15 p.m. eastern time
every day that the NYSE is open for business (Business Day). Except for Money
Market, the NAV is computed by dividing the total value of a Series' assets
(including dividends and interest accrued but not collected) less all
liabilities (including accrued expenses), by the number of shares outstanding. A
Series' securities are valued primarily on the basis of market quotations. 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, under the authority of the
Directors. Money Market's portfolio securities are valued at their amortized
cost. Money Market's use of amortized cost is part of its effort to maintain a
constant NAV of $1.00 per share.
HOW TO OPEN AN ACCOUNT
To open an account, please contact your investment professional or 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 a Series, additional
investments may be made by mail ($100 minimum), wire transfer ($500 minimum) or
exchange from the same class of another Series in the Fund. All checks must be
drawn on a bank located within the United States and payable in U.S. dollars. We
reserve the right to refuse any order to buy shares. 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 in certain circumstances such as
for persons investing through certain benefit plans, insurance settlement
options or by systematic investments. See "Shareholder Services and Other
Features - Systematic Investment."
HOW TO PURCHASE SHARES
Class A shares may be purchased through your investment professional, directly
from the Fund, or through an employer-sponsored retirement plan, as described
below. If you are purchasing shares through an employer-sponsored retirement
plan, please refer to your plan materials.
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 Firstar Trust Company
(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
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<PAGE>
You can make additional investments to your accounts by using the investment
stubs from your confirmation statements or by sending payments to the address
listed above. Your letter should indicate your name, account number(s), the
Series you wish to invest in, and the amount to be invested in each Series. When
opening an account, your check should be made payable to the Fund. Cash, credit
cards and third party checks cannot be used to open an account. The Transfer
Agent will accept checks for subsequent purchases which are made payable to the
account owner(s) and endorsed to the Fund.
Purchase by Wire
Once you are a shareholder of a Series, you may purchase additional shares
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
the Transfer Agent and custodian bank are open for business.
Purchase by Electronic Funds Transfer
Once you are a shareholder in any Series of the Fund, you may purchase
additional shares by using Electronic Funds Transfer (EFT) facilities under the
Systematic Investment feature. See "Shareholder Services and Other Features."
EFT will allow you to transfer money between a bank account and a specific
Series. 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 shares by making an exchange from
the same class of shares of any other Series of the Fund, provided shares of
such Series may be legally sold in your state of residence. If you exchange
shares subject to a CDSC, the exchange transaction will not be subject to a
CDSC. However, when you redeem the shares acquired through the exchange, the
redemption may be subject to the CDSC, depending upon when you originally
purchased the shares (see "Fees and Charges - Contingent Deferred Sales
Charge"). For purposes of computing the CDSC, the length of time you have owned
the shares will be measured from the date of original purchase and will not be
affected by any exchange.
An exchange may be made by submitting a written request to make the exchange and
specifying your name and account number(s), the name of the Series into which
you wish to exchange, the amount to be exchanged, and the signatures of all
shareholders. Send your request to the address listed above under "Purchase by
Mail." Note that this exchange privilege also applies to three Series of the
Fund that are offered through a different prospectus - Aetna Ascent, Aetna
Crossroads and Aetna Legacy, which are collectively known as the Generation
Funds.
You may also exchange your Class A shares by calling 1-800-367-7732. Please have
available the Series' names, account number(s), your Social Security number or
taxpayer identification number, 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:
[bullet] Each exchange may result in a gain or loss and is treated as a sale and
as a purchase of shares for tax purposes.
[bullet] An exchange which represents an initial investment in a Series must
meet the minimum investment requirements described under "How to Open
an Account."
[bullet] 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.
[bullet] 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 suspend or 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 Aeltus' judgment, the Series
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<PAGE>
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.
Purchases and exchanges should be made for investment purposes only. The Fund
and each Series reserves the right to reject any specific purchase or exchange
request. In the event the Fund rejects an exchange request, neither the
redemption nor the purchase side of the exchange will be processed until the
Fund receives further redemption instructions.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or entity acting on behalf of one or more individuals,
if (i) the individual or entity makes three or more exchange requests out of any
Series per calendar year and (ii) any one of such exchange requests represents
shares equal in value to 1/2 of 1% or more of the Series' net assets at the time
of the request. Accounts under common ownership or control, including accounts
administered by market timers, will be aggregated for purposes of this
definition.
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 Fund has established
reasonable procedures to confirm that instructions received are genuine. If
these procedures are not followed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. For your protection, all telephone
exchange transactions may be recorded, and you will be asked for certain
identifying information.
Class A Shares
An investor who purchases Class A shares (except Money Market) pays a front-end
sales charge at the time of purchase. The front-end sales charge will vary
depending on the size of your purchase. Class A shares (except Money Market)
also bear a Rule 12b-1 fee (see "Fees and Charges - Rule 12b-1 Distribution
Fee"). Class A shares are not subject to any charges when they are redeemed,
except for certain purchases made at NAV that are subject to a CDSC (see "Fees
and Charges - Contingent Deferred Sales Charge"). Certain purchases of Class A
shares qualify for reduced front-end sales charges.
The public offering price of Class A shares is the NAV plus a front-end sales
charge that varies depending on the Series to which you allocate assets and the
size of your purchase.
I. EQUITY FUNDS
As to the Balanced Fund, Growth and Income, Real Estate, Value Opportunity,
Growth, Mid Cap, Small Company and International, a portion of the front-end
sales charge is paid to your investment professional as shown in the following
table. A Series, in its discretion, may pay up to the entire amount of the
front-end sales charge to your investment professional.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Sales charge as Amount of sales
a percentage of: charge reallowed to
------------------------------------------------- dealers as
Amount of transaction at Net Offering a percentage of
offering price ($) amount invested price offering price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under 50,000 6.10% 5.75% 5.00%
- ------------------------------------------------------------------------------------------------------------
50,000 but under 100,000 4.71 4.50 3.75
- ------------------------------------------------------------------------------------------------------------
100,000 but under 250,000 3.63 3.50 2.75
- ------------------------------------------------------------------------------------------------------------
250,000 but under 500,000 2.56 2.50 2.00
- ------------------------------------------------------------------------------------------------------------
500,000 but under 1,000,000 2.04 2.00 1.75
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
II. BOND FUNDS
As to the Government Fund, Bond Fund and High Yield, a portion of the front-end
sales charge is paid to your investment professional as shown in the following
table. A Series, in its discretion, may pay up to the entire amount of the
front-end sales charge to your investment professional.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Sales charge as Amount of sales
a percentage of: charge reallowed to
------------------------------------------------- dealers as
Amount of transaction at Net Offering a percentage of
offering price ($) amount invested price offering price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under 50,000 4.99% 4.75% 4.00%
- ------------------------------------------------------------------------------------------------------------
50,000 but under 100,000 4.71 4.50 3.75
- ------------------------------------------------------------------------------------------------------------
100,000 but under 250,000 3.63 3.50 2.75
- ------------------------------------------------------------------------------------------------------------
250,000 but under 500,000 2.56 2.50 1.75
- ------------------------------------------------------------------------------------------------------------
500,000 but under 1,000,000 2.04 2.00 1.25
- ------------------------------------------------------------------------------------------------------------
</TABLE>
III. INDEX PLUS FUNDS
As to the Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap and
Index Plus Bond, a portion of the front-end sales charge is paid to your
investment professional as shown in the following table. A Series, in its
discretion, may pay up to the entire amount of the front-end sales charge to
your investment professional.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Sales charge as Amount of sales
a percentage of: charge reallowed to
------------------------------------------------- dealers as
Amount of transaction at Net Offering a percentage of
offering price ($) amount invested price offering price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under 50,000 3.09% 3.00% 2.50%
- ------------------------------------------------------------------------------------------------------------
50,000 but under 100,000 2.56 2.50 2.00
- ------------------------------------------------------------------------------------------------------------
100,000 but under 250,000 2.04 2.00 1.50
- ------------------------------------------------------------------------------------------------------------
250,000 but under 500,000 1.52 1.50 1.00
- ------------------------------------------------------------------------------------------------------------
500,000 but under 1,000,000 1.01 1.00 0.50
- ------------------------------------------------------------------------------------------------------------
</TABLE>
There is no front-end sales charge on purchases of Class A shares of $1 million
or more. In addition, there is no front-end sales charge on shares purchased by
or through certain participant-directed employee benefit plans. See "Fees and
Charges - Contingent Deferred Sales Charge" and the Statement for additional
information.
Letter of Intent
You may buy Class A shares at a reduced front-end sales charge by completing the
Letter of Intent section of the shareholder application. A Letter of Intent is a
commitment by you to invest a specified dollar amount during a 13-month period.
The amount you agree to invest determines the front-end sales charge you pay on
Class A shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE APPLICATION, YOU ACKNOWLEDGE
AND AGREE TO EACH OF THE FOLLOWING:
(bullet) Up to 5% of your total intended purchase in Class A shares registered
in your name may be reserved until you fulfill your Letter of Intent;
(bullet) A security interest may be created in the reserved shares and you
appoint Aetna Investment Services, Inc. (AISI) (see "Management -
Principal Underwriter") as attorney-in-fact as to such shares;
(bullet) AISI may sell any or all of the reserved shares to cover any additional
sales charge if you do not fulfill the terms of the Letter of Intent;
and
29
<PAGE>
(bullet) Although you may exchange your shares, you may not sell reserved shares
until the terms of the Letter of Intent have been met or you pay the
higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.
Any redemptions you make during the 13-month period, except in the case of
certain retirement plans, will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the Letter have been completed.
If the Letter of Intent is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending on the amount actually
purchased (less redemptions) during the period. The upward adjustment does not
apply to certain retirement plans.
If you would like more information about the Letter of Intent privilege, please
see the Statement or call 1-800-367-7732.
Cumulative Quantity Discounts
To determine if you may pay a reduced front-end sales charge, the amount of your
current purchase is added to the cost or current value, whichever is higher, of
your other Fund shares, as well as Fund shares owned by your spouse and children
under the age of 21. If you are the sole owner of a company, you may also add
any company accounts, including retirement plan accounts. Companies with one or
more retirement plans may add together the total plan assets invested in the
Fund to determine the front-end sales charge that applies.
Front-end Sales Charge Waivers
The Fund's front-end sales charges will not apply if you are buying Class A
shares with money from the following sources:
1. Redemptions from any Aeltus-advised Fund if you:
(bullet) Originally paid a front-end sales charge on the shares,
(bullet) Reinvest the money within 60 days of the redemption date, and
(bullet) Reinvest the money in the same class of shares.
2. Redemptions from other mutual funds if you:
(bullet) Originally paid a front-end sales charge on the shares,
(bullet) Reinvest the money within 30 days of the redemption date, and
(bullet) Reinvest the money in the same class of shares.
The Fund's front-end sales charges will also not apply to Class A purchases by:
3. Trust companies and bank trust departments agreeing to invest in the Fund
over a 13-month period at least $1 million of assets held in a fiduciary,
agency, advisory, custodial or similar capacity and over which the trust
companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion.
4. Group annuity separate accounts offered to retirement plans.
5. Retirement plans that (i) are sponsored by an employer with at least 25
employees, (ii) have plan assets of $1 million or more or (iii) agree to
invest at least $500,000 in the Fund over a 13-month period.
6. An Eligible Governmental Authority. Please consult your legal and
investment advisers to determine if an investment in the Fund is permissible
and suitable for you.
7. Broker-dealers, registered investment advisers or certified financial
planners, who have entered into an agreement for clients participating in
advisory fee programs, and who have entered into a selling agreement with
AISI.
8. Current employees of broker-dealers, registered investment advisers or
certified financial planners (who have entered into a selling agreement with
AISI) and their family members, as allowed by the internal policies of their
employer.
9. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer.
10. Accounts maintained by a charitable organization which meets the
requirements of Internal Revenue Code (IRC) section 501(c)(3).
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<PAGE>
11. Accounts maintained by a registered investment adviser (RIA) on a
discretionary basis and for which the RIA receives an asset-based fee.
12. Shareholders of the Adviser Class at the time such shares were redesignated
as Class A shares.
Purchasing of Shares
Shares of the Fund are purchased at the NAV next determined after receipt of an
order in acceptable form, plus the applicable front-end sales charge. For new
accounts, if a completed and signed application accompanied by a check in
payment for the shares is received by the Transfer Agent at its Milwaukee
offices prior to the close of regular trading on the NYSE (usually 4:00 p.m.
eastern time), the order will be processed at the NAV determined on that
Business Day, plus any applicable front-end sales charge. Orders for additional
investments (accompanied by a check or wire for purchase) and orders for
exchanges that are received before the close of regular trading on the NYSE will
be processed at the NAV determined that Business Day, plus the applicable
front-end sales charge. Purchase orders received after the close of regular
trading on the NYSE will be processed at the NAV determined on the following
Business Day, plus the applicable front-end sales charge.
The Fund may appoint certain institutions (Institutions) as parties that may
accept purchase and redemption orders on behalf of the Fund. For investors
purchasing or redeeming shares in connection with programs offered by these
Institutions, shares will be purchased at the NAV determined on the Business Day
on which the Institution receives the investor's request before the time
specified by such Institution (but in no event later than the close of the
NYSE), subject to the applicable front-end sales charge or CDSC. Institutions
may be authorized to designate other intermediaries to accept purchase and
redemption orders on the Fund's behalf, subject to the Fund's approval. Thus,
the Fund will be deemed to have received a purchase or redemption order when the
Institution or, if applicable, the Institution's authorized designee, accepts
the order.
Investors participating in such a plan should refer to the Institution's
materials for a discussion of any specific instructions on the timing or
restrictions on the purchase of shares.
FEES AND CHARGES
Front-end Sales Charge
Class A shares (except Money Market) are subject to a front-end sales charge on
all purchases. (See "How to Purchase Shares - Class A Shares.")
Rule 12b-1 Distribution Fee
The Directors and the Class A shareholders have approved a Distribution Plan in
accordance with Rule 12b-1 under the 1940 Act. Under this plan, AISI is paid a
distribution fee at an annual rate of 0.25% of the average daily net assets of
the Class A shares of each Series except Money Market.
The distribution fee may be used to cover expenses incurred in promoting the
sale of Class A shares, including (i) the costs of printing and distributing to
prospective investors each Series' Prospectus, Statement and sales literature;
(ii) payments to investment professionals and other persons who provide support
services in connection with the distribution of shares; (iii) overhead and other
distribution related expenses; and (iv) accruals for interest on the amount of
the foregoing expenses that exceed distribution fees and the CDSC.
Contingent Deferred Sales Charge
Class A shares purchased with an aggregate investment in the Fund of less than
$1,000,000 are not subject to a CDSC. Class A shares purchased with an aggregate
investment in the Fund of $1,000,000 or more (including purchases made in
connection with an agreement to invest $1 million or more under a Letter of
Intent), or purchases by certain participant-directed qualified retirement plans
may be subject to a CDSC imposed on redemptions within two years of purchase.
During the first and second years after purchase, a CDSC of 1.00% or 0.50%,
respectively, will be imposed on redemptions of such shares. The CDSC will apply
only to shares for which a finder's fee is paid to selling broker-dealers, banks
or other investment professionals having a distribution agreement with the Fund.
The finders fee payable with respect to such Class A purchases shall be as
follows:
Cumulative Purchase Amount($) Commission
----------------------------- ----------
1,000,000 but under 3,000,000 1.00%
3,000,000 but under 20,000,000 0.50%
20,000,000 or greater 0.25%
The CDSC is assessed on an amount equal to the lesser of the current market
value or the original cost of the shares being redeemed. Thus, there is no sales
charge on:
(bullet) increases in the NAV of shares above the initial purchase price;
(bullet) redemptions of Class A shares purchased through reinvestment of
dividends or capital gains distributions;
(bullet) shares purchased more than two years prior to the redemption;
(bullet) Money Market Fund redemptions unless:
(bullet) those shares were purchased through an exchange from another
Series within two years prior to the redemption and
(bullet) the original purchase of the shares exchanged was subject to
a CDSC.
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares held longest during the
CDSC period. The CDSC does not apply to any increase in a share's value above
its initial purchase price.
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<PAGE>
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any CDSC. For requests to sell a stated
number of shares, we will deduct the amount of the CDSC, if any, from the sale
proceeds.
CDSC Waivers
We waive the CDSC for:
(bullet) Exchanges;
(bullet) Redemptions following the death of the shareholder or beneficial owner;
(bullet) Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy;
(bullet) Tax-free returns of excess contributions from employee benefit plans;
(bullet) Distributions from employee benefit plans, including those due to plan
termination or plan transfer.
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<PAGE>
HOW TO REDEEM SHARES
To redeem all or a portion of the shares in your account, a redemption request
should be submitted through your investment professional or as described below.
Shares will be redeemed at the NAV determined on that Business Day, minus any
applicable CDSC, so long as the redemption request and all required
documentation is received by the Transfer Agent at its Milwaukee offices prior
to the close of regular trading on the NYSE, normally 4:00 p.m. eastern time.
Redemption requests received after such time will be processed at the NAV
determined on the following Business Day, minus any applicable CDSC.
A Series has the right to satisfy redemption requests by delivering securities
from its investment portfolio rather than cash when it decides that distributing
cash would not be in the best interests of shareholders. However, a Series 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 a Series
in any 90-day period. To the extent possible, the Series will distribute readily
marketable securities, in conformity with applicable rules of the Commission. In
the event such redemption is requested by institutional investors, the Series
will weigh the effects on nonredeeming shareholders in applying this policy.
Securities distributed to shareholders may be difficult to sell and may result
in additional costs to the shareholders.
The right to redeem shares may be suspended or payment therefor postponed for
any period during which (a) trading on the NYSE is restricted as determined by
the Commission or the NYSE 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.
Redeem by Mail
Shares of any Series may be redeemed by sending written instructions to the
Transfer Agent. The instructions should identify the Series, the number of
shares or dollar amount to be redeemed, your name and account number. The
instructions must be signed by all person(s) required to sign for the Series
account, exactly as the shares are registered, and accompanied by a signature
guarantee(s). (See "Signature Guarantee" below.) Certain nonindividual
shareholders may also be required to furnish copies of supporting documents such
as corporate resolutions or trust instruments.
Once a redemption request is received in good order, the Series will normally
send the proceeds of such redemption within one or two business days. However,
if making immediate payment could adversely affect a Series, the Series may
defer distribution for up to seven days or the maximum period allowed by law, if
shorter. Also, a Series will hold payment of redemption proceeds until a
purchase check or systematic investment clears, which may take up to 12 calendar
days.
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 $12.00 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 of the authenticity of the signature given
by certain authorized institutions. The Fund may waive the signature guarantee
requirement for redemption requests for amounts of $25,000 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.
The Fund 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,
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American, Boston, Midwest, or Pacific Stock Exchanges. Please note that
signature guarantees are not provided by notary publics.
SHAREHOLDER SERVICES AND OTHER FEATURES
The Fund offers several services to its shareholders. If you have questions
about services offered or about your account or would like to initiate a
transaction, please call 1-800-367-7732.
Certain features may not be available through employer-sponsored retirement
plans. Please refer to your plan materials for specific information about
services available under your plan.
Minimum Account Balance
To keep your account open, you must maintain a minimum balance of $500 in each
Series account. If this minimum balance is not maintained, the Fund reserves the
right to redeem all of your remaining shares in that Series and mail the
proceeds to you at the address of record. Shares will be redeemed at NAV on the
day the account is closed. The Fund will give you 60 days' notice that such
redemption will occur unless you make an additional investment to increase the
account balance to the $500 minimum. The Fund will not redeem shares pursuant to
this policy if the account balance falls below the minimum balance due solely to
fluctuations in the market value of a Series' shares.
Tax-Deferred Retirement Plans
The Fund 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: IRAs, available to individuals who
work and their spouses and 401(k) programs, available to corporations of all
sizes to benefit their employees
Shareholder Information
The Transfer Agent will maintain your account information. Account statements
will be sent at least quarterly. A Form 1099 will also be sent each year by
January 31. Annual and semiannual reports will also be sent to shareholders. 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 values, share balances 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 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.
Systematic Investment
The Systematic Investment feature, using the EFT capability (see "How to
Purchase Shares-Purchase by Electronic Funds Transfer"), allows you to make
automatic monthly investments in any Series. On the application, you may select
the amount of money to be moved and the Series in which it will be invested. In
order to elect EFT you must first have established an account, subject to the
minimum amount specified above (see "How to Open an Account"). Thereafter, the
minimum monthly Systematic Investment is currently $50 per Series, and we
reserve the right to increase that amount. EFT transactions will be effective 15
days following the receipt by the Transfer Agent of your application. The
Systematic Investment feature and EFT capability will be terminated upon total
redemption of your shares. Payment of redemption proceeds will be held until a
Systematic Investment has cleared, which may take up to 12 calendar days. See
"How to Redeem Shares."
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Automatic Cash Withdrawal Plan
The Automatic Cash Withdrawal Plan provides a convenient way for you to receive
a systematic distribution while maintaining an investment in the Fund. The
Automatic Cash Withdrawal Plan permits you to have payments of $100 or more
automatically transferred from a Series to your designated bank account on a
monthly basis. To enroll in this plan, you must have a minimum balance of
$10,000 in a Series 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.
Checkwriting Service
Checkwriting is available with Money Market. There is currently no charge for
this service. However, the Transfer Agent may impose a nominal fee for checks.
Checks must be for a minimum of $250 and the checkwriting service may not be
used for a complete redemption of your shares. If the amount of the check is
greater than the value of your shares, the check will be returned unpaid. In
addition, checks written against shares purchased by check or Systematic
Investment during the preceding 12 calendar days will be returned unpaid due to
uncollected funds. You may select the checkwriting service by indicating your
election on the application or by calling 1-800-367-7732. All notices with
respect to checks must be given to the Transfer Agent. The checkwriting service
is not available for IRAs or other retirement accounts.
TDD Service
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
The Fund reserves the right to amend the shareholder services described above or
to change the terms or conditions of such services at any time.
Other Payments to Investment Representatives
From time to time, AISI or its affiliates may make payments to other dealers
and/or their agents who may or may not be affiliates of Aetna, who sell shares
or who provide shareholder services. These payments are made from the resources
of the paying entity so the price paid for shares and the value of the
investment will be unaffected.
Investment representatives may receive additional compensation from AISI or an
affiliated company in connection with selling shares of the Fund. Compensation
may include financial assistance for conferences, shareholder services,
automation, sales or training programs or promotional activities. Registered
representatives and their families may be paid for travel expenses, including
lodging, in connection with business meetings or seminars. In some cases, this
compensation may only be available to investment representatives who have sold
or are expected to sell significant amounts of shares. Investment
representatives may not use sales of the Fund's shares to qualify for this
compensation if prohibited by the laws of any state or self-regulatory
organization, such as the NASD.
CROSS INVESTING
Dividend Investing - You may elect to have dividend and/or capital gains
distributions automatically invested in the same class of one other Series,
including those Series offered through the Generation Funds Prospectus.
Systematic Exchange - You may establish an automatic exchange of 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
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exchange, the policies related to the exchange privilege apply. Please read the
"How to Purchase Shares - Purchase by Exchange" section carefully. There may be
tax consequences associated with these exchanges. Please consult your tax
adviser.
Cross Investing may only be made in a Series that has been previously
established with the minimum investment. To request information or to initiate a
transaction under either or both of these features, please call 1-800-367-7732.
There are no conversion features applicable to either class of shares.
MANAGEMENT
Directors
Each Series is managed under the supervision of the Fund's Board of Directors.
The Directors set broad policies for the Fund and each of its Series.
Information about the Directors is found in the Statement.
Investment Adviser
Aeltus has entered into an investment advisory agreement with the Fund on behalf
of each Series which provides that Aeltus is responsible for managing the assets
of each Series in accordance with its investment objective and policies. Aeltus
is a Connecticut corporation with its principal offices located at 242 Trumbull
Street, Hartford, Connecticut 06103-1205. Aeltus is registered as an investment
adviser with the Commission.
Advisory Fees
Listed below are the Advisory Fees that Aeltus receives from each Series at an
annual rate based on average daily net assets of each Series:
Advisory Fee Assets
Money Market 0.400% On first $500 million
0.350% On next $500 million
0.340% On next $1 billion
0.330% On next $1 billion
0.300% Over $3 billion
Government Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
Bond Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
High Yield 0.650% On first $250 million
0.600% On next $250 million
0.575% On next $250 million
0.550% On next $1.25 billion
0.500% Over $2 billion
Balanced Fund 0.800% On first $500 million
0.750% On next $500 million
0.700% On next $1 billion
0.650% Over $2 billion
Growth and Income 0.700% On first $250 million
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0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Real Estate 0.800% On first $250 million
0.750% On next $250 million
0.725% On next $250 million
0.700% On next $1.25 billion
0.650% Over $2 billion
Value Opportunity 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Growth 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Mid Cap 0.750% On first $250 million
0.700% On next $250 million
0.675% On next $250 million
0.650% On next $1.25 billion
0.600% Over $2 billion
Small Company 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.725% Over $2 billion
International 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.700% Over $2 billion
Index Plus Large Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $250 million
0.400% On next $1 billion
0.375% Over $2 billion
Index Plus Mid Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Small Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Bond 0.350% On first $250 million
0.350% On next $250 million
0.325% On next $250 million
0.300% On next $1.25 billion
0.275% Over $2 billion
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Administrator
The Fund, on behalf of each Series, has appointed Aeltus as administrator for
each Series. Aeltus has responsibility for certain administrative and internal
accounting and reporting services, maintenance of relationships with third party
service providers such as the Transfer Agent and custodians, shareholder
communications, calculation of the NAV and other financial reports prepared for
the Series (collectively referred to as Administrative Services). For these
services, each Series pays Aeltus a fee at an annual rate of ___% of its average
daily net assets. As administrator, Aeltus may contract with other entities to
perform certain Administrative Services.
Principal Underwriter
AISI is the principal underwriter for the Fund. AISI is a Connecticut
corporation, and is a wholly-owned subsidiary of Aetna Retirement Holdings, Inc.
and an indirect wholly-owned subsidiary of Aetna Inc. AISI contracts with
various broker-dealers, including one or more of its affiliates, for
distribution of shares.
Transfer Agent
Firstar Trust Company, located at 615 E. Michigan Street, Milwaukee, WI 53202,
acts as the Fund's transfer and dividend-paying agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts.
Series Expenses
Each Series bears the costs of its operations. Expenses directly attributable to
a Series are charged to that Series. Some expenses are allocated among all
Series of the Fund in proportion to the net assets of each Series and some
expenses are allocated equally to each Series. Series expenses for each class of
shares are included in the Fee Tables.
PORTFOLIO MANAGEMENT
The following individuals are primarily responsible for the day-to-day
management of the Series, as indicated below. All of the following individuals
may also decide as a group what strategy may benefit all of the Series.
Money Market and Bond Fund
Jeanne Wong-Boehm, Managing Director, Aeltus, has been managing Money Market and
Bond Fund since January 1992. Ms. Wong-Boehm joined Aetna Life Insurance and
Annuity Company (Aetna) in 1983 as a fixed income portfolio analyst and in 1989
she was assigned primary responsibility for the money market operations.
Government Fund
Hugh T.M. Whelan, Vice President, Aeltus has been managing the Government Fund
since January 1997. Mr. Whelan joined Aeltus in 1989 and manages fixed-income
portfolios employing different strategies.
High Yield
Gail Bruhn, Vice President, Aeltus. Ms. Bruhn has been managing High Yield since
its inception in January, 1998. She currently manages high yield securities for
several private investment funds managed by Aeltus. Ms. Bruhn joined Aeltus in
1995 as High Yield's Portfolio Manager after spending 10 years with CIGNA
Investments.
Balanced Fund
John Y. Kim, President and Chief Investment Officer, Aeltus. Mr. Kim has been
managing Balanced Fund since May 1994. He joined Aetna in 1983 and in 1989
advanced to Senior Investment Officer. In 1989, Mr. Kim was named Fixed Income
Portfolio Manager. He subsequently served as a Vice President of Investor
Relations and later became Vice President and a Senior Portfolio Manager. In
1993, Mr. Kim joined Mitchell Hutchins Institutional Investors as Managing
Director and Head of Institutional Fixed Income. In 1994 he returned to Aetna as
its Chief Investment Officer.
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Growth and Income
Kevin Means, Managing Director, Aeltus, has been managing Growth and Income
since July 1994. Mr. Means joined Aetna in July 1994 after serving as Chief
Investment Officer at INVESCO Management and Research, Boston since 1993. He
also served from 1987 to 1993 as the Director of Quantitative Research and
Equity Portfolio Manager at INVESCO Capital Management, Atlanta. Mr. Means heads
a team of portfolio managers who specialize in various asset classes used in the
management of Growth and Income.
Real Estate
Yaniv Tepper, Vice President, Aeltus. Mr. Tepper has been managing Real Estate
since its inception in January, 1998. He has been managing real estate
securities for several investment funds managed by Aeltus since 1994. Mr. Tepper
joined the Aetna organization in 1994 as an Associate in the Real Estate
Investments Group. Prior thereto, Mr. Tepper consulted in the area of real
estate finance.
Growth
Peter Canoni, Managing Director, Aeltus, and Kenneth H. Bragdon, Vice President,
Aeltus, are the co-managers for Growth. Mr. Canoni managed the fund since its
inception, with Mr. Bragdon's assistance. Mr. Bragdon became co-manager in
mid-1997. Mr. Canoni has worked as a fund manager for Aeltus since 1980. Mr.
Bragdon has been with Aetna since 1978 and has 27 years of experience in the
investment business.
Value Opportunity
Peter Canoni, Managing Director, Aeltus, has been managing Value Opportunity
since its inception in January, 1998. Mr. Canoni has worked as a fund manager
for Aeltus since 1980.
Mid Cap
Donald Townswick, Vice President, Aeltus. Mr. Townswick has been managing Mid
Cap since its inception in January, 1998. He currently manages small and mid-cap
stocks for several investment funds managed by Aeltus. Mr. Townswick joined the
Aetna organization in July, 1994 after serving as a Vice President at INVESCO
Management and Research for two years.
Small Company
Thomas DiBella, Vice President, Aeltus, has been managing Small Company since
its inception in January, 1994. Mr. DiBella joined Aeltus in 1991 and is
currently responsible for the management of small capitalization portfolios.
International
Vince Fioramonti, Vice President, Aeltus, has been managing International since
December 1995. Mr. Fioramonti manages international stocks and non-U.S. dollar
government bonds for several Aetna investment funds. Mr. Fioramonti joined Aetna
in 1994 after serving as Vice President for The Travelers Investment Management
Company. He began his investment career with Travelers in 1988.
Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap
Geoffrey A. Brod, Vice President, Aeltus. Mr. Brod has been managing Index Plus
Large Cap since its inception in December, 1996. He has been managing Index Plus
Mid Cap and Index Plus Small Cap since each Series' inception in January, 1998.
He 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 Bond
Christie Bull, Vice President, Aeltus. Ms. Bull has been managing Index Plus
Bond since its inception in January, 1998. She has been managing fixed income
securities for several private accounts managed by Aeltus. Ms. Bull is also the
Director of Fixed Income Research for Aeltus. Ms. Bull has been with the Aetna
organization since 1979.
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DISTRIBUTIONS
Fund Distributions
Money Market declares dividends daily and pays monthly.
Government Fund and Bond Fund declare and pay dividends monthly.
Balanced Fund and Growth and Income declare and pay dividends semiannually.
High Yield, Growth, Real Estate, Value Opportunity, Mid Cap, Small Company,
International, Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap,
and Index Plus Bond declare and pay dividends annually.
All capital gains distributions, if any, are paid on an annual basis. Income
dividends are derived from investment income, including dividends, interest,
realized short-term capital gains, and certain foreign currency gains received
by a Series. Capital gains distributions are derived from each Series' realized
long-term capital gains. The per share dividends and distributions of Class I
shares will be higher than the per share dividends and distributions of the
Class A as a result of the distribution fees applicable to Class A.
Money Market shares begin to accrue dividends the next Business Day after they
are purchased; a redemption will include dividends declared through the
redemption date.
Both income dividends and capital gains distributions are paid by each Series on
a per share basis. As a result, at the time of such payment, the NAV per share
of a Series (except Money Market) will be reduced by the amount of such payment.
Distribution Options
When completing an application, you must select one of the following options for
dividends and capital gains distributions:
Full Reinvestment - Both dividends and capital gains distributions from a Series
will be reinvested in additional shares of the same class of that Series. This
option will be selected automatically unless one of the other options is
specified.
Or . . . Capital Gains Reinvestment - Capital gains distributions from a Series
will be reinvested in additional shares of the same class of that Series and all
net income from dividends will be distributed in cash.
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 shares of another Series of the Fund,
including those Series offered through the Generation Funds Prospectus (Aetna
Ascent, Aetna Crossroads and Aetna Legacy). To request information or to
initiate a transaction, please call 1-800-367-7732.
If you make no selection, income dividends and capital gains distributions with
respect to a particular Series will be reinvested in additional shares of that
Series. Distributions paid in shares will be credited to your account at the
next determined NAV per share.
Changes to the above options will be effective for distributions occurring ten
days after the date written notification is received by the Transfer Agent.
TAXES
Introduction
The tax information described below is only a summary of federal income tax
consequences and is based on tax laws and regulations in effect as of the date
of this Prospectus. Please refer to the Statement for a more detailed discussion
of federal
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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
Each Series intends to qualify for treatment under Subchapter M of the IRC, as
amended. By distributing substantially all of its income and meeting certain
other requirements relating to the source of its income and diversification of
its assets, the Series will not be liable for federal income or excise taxes.
Therefore, each Series will distribute substantially all of its net income and
gains to shareholders. Such distributions will be taxable income or capital
gains to the shareholders and not the Series. Distributions of net long-term
capital gains are taxable to the shareholders as long-term capital gains
regardless of the length of time a shareholder has owned the shares.
Distributions of net investment income and net short-term capital gains are
taxable as ordinary income. Depending on a Series' 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. Dividends paid by Government Fund
may be U.S. Government Interest Dividends. Substantially all dividends paid by
Growth and Income, and, to a lesser degree, Balanced Fund, Real Estate, Value
Opportunity, Growth, Mid Cap and Small Company will be Qualifying Dividends for
which eligible corporate shareholders may claim a partial deduction.
For individuals, the Taxpayer Relief Act of 1997 (the Relief Act) has created
new mid-term capital gain rates that apply to the sale of capital assets held
more than one year but not more than 18 months. Although the Relief Act has not
expressly addressed this issue, it is expected that regulations issued pursuant
thereto will provide that regulated investment companies such as the Fund must
notify shareholders who are individuals as to whether they must treat capital
gain dividends that they receive as mid-term or long-term capital gains. For
individuals, long-term capital gains, which are realized on the sale or exchange
of capital assets held for more than 18 months, will be subject to a maximum
federal income tax rate of 20%, while ordinary income will be subject to a
maximum rate of 39.6%. Mid-term capital gains, which are realized on the sale or
exchange of capital assets held more than one year but not more than 18 months,
will be subject to a maximum federal income tax rate of 28%.
A shareholder will recognize a capital gain or loss upon the sale of exchange of
shares in a Series if, as is normally the case, the shares are capital assets in
the shareholder's hands. For corporate shareholders, the capital gain or loss
will be long-term if the shares have been held for more than one year. For
shareholders that are individuals, the gain or loss will be long-term if the
shareholder has held the shares for more than 18 months and mid-term if the
shareholder has held the shares for more than one year but not more than 18
months.
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 a Series' assets to be invested in
various countries is not known.
If more than 50% of International's total assets at the close of its fiscal year
consist of securities of foreign corporations, that Series will be eligible to,
and may, file an election with the Internal Revenue Service (IRS) pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Series as income received by them. Shareholders may
then either deduct such pro rata portion in computing their taxable income or
use them as foreign tax credits against their United States income taxes. If
International makes such an election, it will report annually to each
shareholder the amount of foreign taxes to be included in income and then either
deducted or credited. Alternatively, if the amount of foreign taxes paid by
International is not large enough to warrant its making such an election, the
Series may claim the amount of foreign taxes paid as a deduction against its own
gross income. In that case shareholders would not be required to include any
amount of foreign taxes paid by the International in their income and would not
be permitted either to deduct any portion of foreign taxes from their own income
or to claim any amount tax credit for taxes paid by the Series.
A Series' 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. Each Series 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.
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Buying a Dividend
If you buy shares of a Series (other than Money Market) 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 a Series
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 31% backup withholding by the IRS. If you are subject to backup
withholding or fail to properly certify your taxpayer identification number, the
IRS can require the Fund to withhold 31% 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 19 Series, 16
of which are described in this Prospectus.
Capital Stock
The Articles currently authorize the issuance of 6.8 billion shares of capital
stock of the Fund. All shares are nonassessable, transferable and redeemable.
There are no preemptive rights. As of September 30, 1997, Aetna and its
affiliates owned 19.60% of all outstanding shares of the Fund. Aetna and its
affiliates may make additional investments in the Series.
Share Classes
The Fund has obtained a ruling from the IRS with respect to certain Series
described in this Prospectus 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. For
additional information, see the Statement.
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 a Series' 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.
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PERFORMANCE
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of each Series. Any
such information will include the average annual total return of the Series
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.
Each Series (except Money Market)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 the Fund are based on historical performance
and are not intended to indicate future performance. Total return and NAV per
share can be expected to fluctuate over time, and accordingly, upon redemption,
shares may be worth more or less than their original cost.
Performance of Similarly Managed Funds
Real Estate and Mid Cap are recently organized and do not yet have long term
performance records. However, Real Estate and Mid Cap have the same investment
objective and follow substantially the same investment strategies as segments of
separate series of mutual funds (segments) whose shares are currently sold to
the public and managed by Aeltus.
Set forth below is the historical performance of each of the comparable
segments. Investors should not consider the performance data of the segments as
an indication of the future performance of the Series. The performance figures
shown below reflect the deduction of the historical fees and expenses paid by
the segments, and not those paid by the Series.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Series to calculate
their own performance.
The following table shows average annualized total returns for the time periods
shown for the comparable series or segments and their respective benchmark
indices.
MID CAP
1 YEAR SINCE INCEPTION
Mid Cap Account 35.00% 24.61%
S&P 400 Stock Index 22.87% 21.66%
REAL ESTATE
1 YEAR SINCE INCEPTION
Real Estate Account 36.67% 26.44%
National Association of Real
Estate Investment Trusts
(NAREIT) Equity Index 33.88% 24.59%
Results shown are through the period ended June 30, 1997 and are unaudited. The
inception dates for the Real Estate and Mid Cap segments are July 1, 1995 and
January 1, 1996, respectively. The results shown above reflect the deduction of
management and administrative fees equivalent to 1.05%, which is the highest
level of fees assessed by a public fund that includes both segments.
43
<PAGE>
Private Account Performance
Index Plus Large Cap, Index Plus Bond, High Yield and Value Opportunity are
recently organized and do not yet have long-term performance records. However,
Index Plus Large Cap, Index Plus Bond, High Yield and Value Opportunity have
investment objectives, 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 Large Cap, Index Plus Bond, High
Yield and Value Opportunity may vary from the Private Account composite
information because their investments will vary over 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.
Set forth below is the historical performance of each of the comparable Private
Accounts. Investors should not consider the performance data of the Private
Accounts as an indication of the future performance of the Series. The
performance figures shown below reflect the deduction of the historical fees and
expenses paid by the Private Accounts, and not those paid by the Series.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Series to calculate
their own performance.
The following table shows average annualized total returns for the time periods
shown for the comparable private accounts and their respective benchmark
indices.
PRIVATE ACCOUNT COMPOSITE PERFORMANCE*
INDEX PLUS LARGE CAP PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS SINCE
Index Plus Large INCEPTION
Cap Composite** 37.25% 21.02% 19.56%
S&P 500 Stock Index 34.71% 19.78% 18.51%
INDEX PLUS BOND PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS 10 YEARS
Index Plus Bond
Composite*** 8.21% 7.15% 8.72%
LBAB Index 8.15% 7.12% 8.66%
HIGH YIELD PRIVATE ACCOUNT COMPOSITE
1 YEAR SINCE INCEPTION
High Yield Account 14.02% 13.18%
Merrill Lynch High Yield Index 14.31% 11.82%
VALUE OPPORTUNITY PRIVATE ACCOUNT COMPOSITE SINCE
1 YEAR 5 YEARS INCEPTION
Value Opportunity Composite 33.58% 22.45% 23.74%
S&P 500 Stock Index 34.70% 19.78% 20.30%
* Results shown are through the period ended June 30, 1997 and are unaudited.
The inception dates are October 1, 1990 for the Value Opportunity Composite,
April 1, 1987 for the Index Plus Bond Composite and January 1, 1996 for the High
Yield Composite.
** The Composite reflects the Aeltus Quantitative Equity Composite. The
inception date is October 1, 1991 for the Index Plus Composite.
*** The Composite reflects the Aeltus Market Plus Composite.
44
<PAGE>
Aetna Series Fund, Inc.
151 Farmington Avenue
Hartford, CT 06156-8962
1-800-238-6263
Investment Adviser
Aeltus Investment Management, Inc.
242 Trumbull Street
Hartford, CT 06103-1205
Custodians
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Brown Brothers Harriman & Company
40 Water Street
Boston, MA 02109
Transfer Agent
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
Independent Auditors
KPMG Peat Marwick LLP
CityPlace II
Hartford, CT 06103-4103
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of a Fund in any jurisdiction in which such sale,
offer to sell, or solicitation may not be lawfully made.
45
<PAGE>
Aetna
Mutual Funds
Prospectus
Class I Shares
__________________, 1998
Aetna Series Fund, Inc. (Fund) is an open-end management investment company
authorized to issue multiple series of shares, each representing a diversified
portfolio of investments (Series) with different investment objectives, policies
and restrictions. Currently, each Series is authorized to offer two classes of
shares, Class I shares (formerly Select Class shares) and Class A shares
(formerly Adviser Class shares). Class I shares are no-load, which means you do
not pay any sales charges, distribution or service fees.
This Prospectus sets forth concisely the information about the Fund and its
Series that you should know before investing. Please read this Prospectus
carefully before investing and retain for future reference. Additional
information about the Fund and its Series, including a Statement of Additional
Information (Statement) dated ___________, 1998, has been filed with the
Securities and Exchange Commission (Commission). The Statement is incorporated
by reference into this Prospectus and 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 Class I shares. A separate
Prospectus is available for investors eligible to purchase Class A shares. Sales
charges and expenses vary, and thus performance will vary, with respect to each
class.
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.
Investment Objectives
Aetna Money Market Fund seeks to provide high current return, consistent with
preservation of capital and liquidity, through investment in high-quality money
market instruments.
Although the Money Market Fund will strive to maintain a $1.00 net asset value
per share, there is no assurance that it will be able to do so. Investments in
this Series are neither insured nor guaranteed by the U.S. Government.
Aetna Government Fund seeks to provide income consistent with the preservation
of capital through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Aetna Bond Fund seeks to provide as high a level of total return (i.e., income
and capital appreciation) as is consistent with reasonable risk, primarily
through investment in a diversified portfolio of investment-grade corporate
bonds, and securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
Aetna High Yield Fund seeks high current income and growth of capital primarily
through investment in a diversified portfolio of fixed income securities rated
lower than BBB by Standard and Poor's Corporation (S&P) or lower than Baa by
Moody's Investors Services, Inc. (Moody's).
Aetna Balanced Fund (formerly The Aetna Fund) seeks to maximize total return
with reasonable safety of principal by investing in a diversified portfolio of
stocks, bonds and money market instruments.
Aetna Growth and Income Fund seeks long-term growth of capital and income
through investment in a diversified portfolio consisting primarily of common
stocks and securities convertible into common stocks believed to offer
above-average growth potential.
1
<PAGE>
Aetna Real Estate Securities Fund seeks maximum total return primarily through
investment in a diversified portfolio of equity securities of real estate
companies, the majority of which are real estate investment trusts (REITs).
Aetna Value Opportunity Fund seeks growth of capital primarily through
investment in a diversified portfolio of common stocks and securities
convertible into common stock. Aetna Value Opportunity Fund will use a
value-oriented approach to stock selection.
Aetna Growth Fund seeks growth of capital through investment in a diversified
portfolio consisting primarily of common stocks and securities convertible into
common stocks believed to offer growth potential.
Aetna Mid Cap Fund seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stocks of companies having medium market capitalizations.
Aetna Small Company Fund seeks growth of capital primarily through investment in
a diversified portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalizations.
Aetna International Fund (formerly Aetna International Growth Fund) seeks
long-term capital growth primarily through investment in a diversified portfolio
of common stocks principally traded in countries outside of North America.
International will not target any given level of current income.
Aetna Index Plus Large Cap Fund (formerly Aetna Index Plus Fund) seeks 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 S&P.
Aetna Index Plus Mid Cap Fund seeks to outperform the total return performance
of publicly traded common stocks represented by the S&P Mid-Cap 400 Index (S&P
400), a stock market index composed of 400 common stocks selected by S&P, while
maintaining a market level of risk.
Aetna Index Plus Small Cap Fund seeks to outperform the total return performance
of publicly traded common stocks represented by the S&P Small Cap 600 Index (S&P
600), a stock market index composed of 600 common stocks selected by S&P, while
maintaining a market level of risk.
Aetna Index Plus Bond Fund seeks maximum total return, consistent with
preservation of capital, primarily through investment in a diversified portfolio
of fixed income securities, which will be chosen to substantially replicate the
characteristics of the Lehman Brothers Aggregate Bond Index (LBAB), an unmanaged
index composed of approximately 6,000 securities.
2
<PAGE>
TABLE OF CONTENTS
Highlights
Fee Tables
Financial Highlights
Description of the Fund
Risk Factors and Other Considerations
Investment Restrictions
Net Asset Value
How to Open an Account
How to Purchase Shares
How to Redeem Shares
Shareholder Services and Other Features
Cross Investing
Management
Portfolio Management
Distributions
Taxes
General Information
Performance
3
<PAGE>
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 or, in the case of the
Aetna Money Market Fund, by writing a check.
What Series are Offered?
This Prospectus offers the following Series, each with its own objective and
policies and all of which are diversified portfolios under the Investment
Company Act of 1940 (1940 Act). See "Description of the Fund."
<TABLE>
<S> <C>
(bullet) Aetna Money Market Fund (Money Market) (bullet) Aetna Mid Cap Fund (Mid Cap)
(bullet) Aetna Government Fund (Government Fund) (bullet) Aetna Small Company Fund (Small Company)
(bullet) Aetna Bond Fund (Bond Fund) (bullet) Aetna International Fund (International, formerly
(bullet) Aetna High Yield Fund (High Yield) Aetna International Growth)
(bullet) Aetna Balanced Fund (Balanced Fund, formerly (bullet) Aetna Index Plus Large Cap Fund (Index Plus Large
The Aetna Fund) Cap, formerly Aetna Index Plus Fund)
(bullet) Aetna Growth and Income Fund (Growth and (bullet) Aetna Index Plus Mid Cap Fund (Index Plus Mid
Income) Cap)
(bullet) Aetna Real Estate Securities Fund (bullet) Aetna Index Plus Small Cap Fund (Index Plus Small Cap)
(Real Estate) (bullet) Aetna Index Plus Bond Fund (Index Plus Bond)
(bullet) Aetna Value Opportunity Fund (Value
Opportunity)
(bullet) Aetna Growth Fund (Growth)
</TABLE>
What are the Risks?
The different types of securities purchased and investment techniques used by
each Series involve varying amounts of risk. For more information, see "Risk
Factors and Other Considerations."
What is the Difference Between Class I and Class A Shares?
The shares of each Series are divided into two classes: 1) Class I shares are
shares that are offered to certain corporate retirement plans and certain wrap
fee programs; salaried and retired employees of Aetna Life Insurance and Annuity
Company and its affiliates (including members of employees' and retired persons'
immediate families, board members and trustees and members of their immediate
families); certain insurance companies (including separate accounts); registered
investment companies; investment advisers and broker-dealers acting for their
own account; all shareholders holding Select Class shares at the time such
shares were redesignated as Class I shares, and their immediate family members,
as long as they maintain a shareholder account; bank and independent trust
companies investing on behalf of their client for which they charge trust and
investment management fees; certain Individual Retirement Account rollovers;
members of the Board of Directors of the Fund (Board); and members of such other
groups as may be approved by the Fund's Board from time to time; and 2) Class A
shares are shares that are offered to accounts not eligible to buy Class I
shares.
How Can I Purchase Shares?
You may purchase shares by contacting your investment professional or completing
an application and sending it as described under "How to Purchase Shares." Your
initial purchase must be for a minimum of $1,000 for each Series with a minimum
of $500 for Individual Retirement Accounts (IRA). Participants in
employer-sponsored retirement plans should refer to their plan materials.
4
<PAGE>
We also offer a systematic investment program that enables you to purchase
shares on a regular basis. See "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 (NYSE) is
open for business. Class I shares are redeemable at net asset value. See "How to
Redeem Shares" for further information.
Who is Managing the Assets?
Aeltus Investment Management, Inc. (Aeltus) serves as the investment adviser for
each of the Series. Aeltus is an indirect wholly-owned subsidiary of Aetna
Retirement Services, Inc., which is, in turn, an indirect wholly-owned
subsidiary of Aetna Inc. See "Management" for further information.
What if I have Additional Questions?
Shareholders enjoy a high level of customer service. Please call 1-800-367-7732
if you have questions about your account or would like to initiate a
transaction. Please call 1-800-238-6263 if you would like to receive an
additional prospectus, application or information about the Fund.
5
<PAGE>
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."
Class I Shareholder Transaction Expenses
Class I 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.
Class I
Annual Operating Expenses
(as a percentage of average daily net assets)
[To be filed by amendment]
6
<PAGE>
Class I
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:
[To be filed by amendment]
This example should not be considered an indication of prior or future expenses.
Actual expenses for the current year may be greater or less than those shown.
The Fund offers two classes of shares for each of its Series, Class I and Class
A. 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 depending on the class sold. Additional
information regarding the classes may be obtained by calling your investment
professional or 1-800-238-6263.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The selected data presented below for, and as of the end of, each of the periods
listed are obtained from the financial statements of Aetna Series Fund, Inc.,
which have been audited by KPMG Peat Marwick LLP, independent auditors.
(for one outstanding share throughout each period)
Class I Shares (formerly Select Class Shares)
<TABLE>
<CAPTION>
Money Market
----------------------------------------------------------------------------------------------
Ten month
Year ended Year ended Year ended period ended Year ended Year ended
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- ---------
Income From Investment
Operations:
Net investment income 0.05 0.06 0.03 0.03 0.04
Net realized and unrealized gain
(loss) - - - - -
--------- --------- --------- --------- --------- ---------
Total from investment operations 0.05 0.06 0.03 0.03 0.04
Less Distributions:
Dividends from net investment
income (0.05) (0.06) (0.03) (0.03) (0.04)
Dividends in excess of net
investment income - - - - -
--------- --------- --------- --------- --------- ---------
Net asset value per share, end of
period $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= =========
Total Return % 5.44% 5.95% 3.33% 3.29% 3.98%
Net assets, end of period (000's) $ $ 323,281 $ 275,524 $ 161,756 $ 107,844 $ 36,522
Ratio of total expenses to average
net assets* % 0.30% 0.27% 0.21% 0.00% 0.00%
Ratio of net investment income to
average net assets* % 5.30% 5.78% 4.05% 3.33% 3.93%
Ratio of net expense before
reimbursement and waiver to
average net assets* % 0.83% 0.88% 0.85% 0.95% 1.04%
Ratio of net investment income
before reimbursement and
waiver to average net assets* % 4.78% 5.17% 3.38% 2.38% 2.87%
Portfolio turnover rate - - - - -
Average commission rate paid
per share - - - - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
8
<PAGE>
(for one outstanding share throughout each period)
Class I Shares (formerly Select Class Shares)
<TABLE>
<CAPTION>
Government Fund Bond Fund
- ---------------------------------------------------- ----------------------------------------------------------------------------
Ten month Ten month
Year ended Year ended Year ended period ended Year ended Year ended Year ended period ended Year ended Year ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Dec. 31, Dec. 31,
1997 1996 1995 1994 1997 1996 1995 1994 1993 1992
- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ 10.01 $ 9.41 $ 10.00 $ $ 10.27 $ 9.58 $ 10.37 $ 9.99 $ 10.00
------ --------- --------- --------- ------ --------- --------- --------- --------- ---------
0.56 0.64 0.40 0.65 0.65 0.52 0.55 0.53
(0.13) 0.59 (0.63) (0.15) 0.65 (0.86) 0.45 0.16
------ ---------- --------- ---------- ------ ---------- --------- ---------- --------- ---------
0.43 1.23 (0.23) 0.50 1.30 (0.34) 1.00 0.69
(0.64) (0.63) (0.36) (0.68) (0.61) (0.45) (0.55) (0.53)
- - - - - - (0.07) (0.17)
------ --------- --------- --------- ------ --------- --------- --------- ---------- ----------
$ $ 9.80 $ 10.01 $ 9.41 $ $ 10.09 $ 10.27 $ 9.58 $ 10.37 $ 9.99
====== ========= ========= ========= ====== ========= ========= ========= ========= =========
% 4.43% 13.58% (2.37)% % 5.09% 14.06% (3.31)% 10.20% 7.23%
$ $ 10,662 $ 19,154 $ 26,110 $ $ 28,864 $ 32,778 $ 27,584 $ 46,788 $ 37,209
% 0.70% 0.70% 0.41% % 0.75% 0.79% 0.76% 0.47% 0.05%
% 5.67% 6.79% 5.29% % 6.16% 6.56% 6.29% 5.34% 5.44%
% 1.57% 1.30% 1.16% % 1.16% 1.06% 1.06% 1.01% 1.10%
% 4.80% 6.19% 4.54% % 5.75% 6.25% 5.98% 4.80% 4.39%
% 50.48% 117.31% 43.63% % 42.33% 56.99% 51.80% 50.01% 57.05%
- - - - - - - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
9
<PAGE>
(for one outstanding share throughout each period)
Class I Shares (formerly Select Class Shares)
<TABLE>
<CAPTION>
Aetna Balanced Fund (formerly Aetna Fund)
-------------------------------------------------------------------------------------------
Ten month
Year ended Year ended Year ended period ended Year ended Year ended
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ $ 12.36 $ 10.65 $ 10.82 $ 10.18 $ 10.00
------ --------- --------- --------- --------- ---------
Income From Investment
Operations:
Net investment income 0.31 0.35 0.23 0.34 0.43
Net realized and unrealized gain
(loss) 1.77 1.69 (0.28) 0.64 0.24
------ --------- --------- ---------- --------- ---------
Total from investment operations 2.08 2.04 (0.05) 0.98 0.67
Less Distributions:
Dividends from net investment
income (0.35) (0.33) (0.12) (0.30) (0.39)
Dividends in excess of net
investment income - - - (0.01) (0.10)
Distributions from net realized
gains on investments (0.57) - - (0.03) -
------ ---------- --------- --------- ---------- ---------
Net asset value per share, end of
period $ $ 13.52 $ 12.36 $ 10.65 $ 10.82 $ 10.18
====== ========= ========= ========= ========= =========
Total Return % 17.63% 19.45% (0.42)% 9.84% 6.64%
Net assets, end of period (000's) $ $ 88,625 $ 83,941 $ 76,267 $ 63,982 $ 37,726
Ratio of total expenses to average
net assets* % 1.31% 1.27% 1.09% 0.93% 0.07%
Ratio of net investment income to
average net assets* % 2.42% 3.14% 2.65% 3.21% 4.31%
Ratio of net expense before
reimbursement and waiver to
average net assets* % 1.31% 1.30% 1.32% 1.34% 1.47%
Ratio of net investment income
before reimbursement and
waiver to average net assets* % 2.42% 3.11% 2.42% 2.79% 2.91%
Portfolio turnover rate % 117.88% 129.05% 86.10% 19.95% 13.35%
Average commission rate paid
per share $ $ 0.0557 - - - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
10
<PAGE>
(for one outstanding share throughout each period)
Class I Shares (formerly Select Class Shares)
<TABLE>
<CAPTION>
Growth and Income Growth
- ----------------------------------------------------------------------------- ---------------------------------------------------
Ten month Ten month
Year ended Year ended Year ended period ended Year ended Year ended Year ended Year ended Year ended period ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Dec. 31, Dec. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
1997 1996 1995 1994 1993 1992 1997 1996 1995 1994
- ---------- ---------- ----------- ------------ ---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ $ 13.46 $ 11.11 $ 11.03 $ 10.51 $ 10.00 $ $ 13.75 $ 10.78 $ 10.00
------ --------- --------- --------- --------- --------- ------ --------- --------- ---------
0.19 0.21 0.12 0.19 0.26 0.03 0.04 0.09
3.09 2.27 0.04 0.50 0.51 2.39 3.02 0.69
------ --------- --------- --------- --------- --------- ------ --------- --------- ---------
3.28 2.48 0.16 0.69 0.77 2.42 3.06 0.78
(0.24) (0.13) (0.08) (0.16) (0.26) (0.05) (0.08) -
- - - - - - - -
(0.76) - - (0.01) - (1.76) (0.01) -
------ ---------- --------- --------- ---------- --------- ------ ---------- ---------- ---------
$ $ 15.74 $ 13.46 $ 11.11 $ 11.03 $ 10.51 $ $ 14.36 $ 13.75 $ 10.78
====== ========= ========= ========= ========= ========= ====== ========= ========= =========
% 25.69% 22.58% 1.40% 6.58% 7.81% % 19.82% 28.79% 7.70%
$ $ 377,784 $ 356,803 $ 301,360 $ 60,127 $ 31,473 $ $ 45,473 $ 36,936 $ 27,188
% 1.08% 1.10% 0.92% 1.13% 0.33% % 1.28% 1.20% 0.92%
% 1.35% 1.73% 1.51% 1.77% 2.83% % 0.20% 0.36% 1.10%
% 1.08% 1.10% 1.03% 1.27% 1.72% % 1.28% 1.30% 1.42%
% 1.35% 1.73% 1.39% 1.55% 1.44% % 0.20% 0.26% 0.60%
% 106.09% 127.43% 54.13% 23.60% 14.44% % 144.19% 171.75% 120.32%
$ $ 0.0505 - - - - $ $ 0.0598 - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
11
<PAGE>
(for one outstanding share throughout each period)
Class I Shares (formerly Select Class Shares)
<TABLE>
<CAPTION>
Index Plus
Large Cap Small Company
-------------- ----------------------------------------------------------------
Period from
Dec. 10, Ten month
1996 to Year ended Year ended Year ended period ended
Oct. 31, 1997 Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period $ $ $ 13.52 $ 10.39 $ 10.00
------ ------ --------- --------- ---------
Income From Investment
Operations:
Net investment income (0.08) - 0.02
Net realized and unrealized gain
(loss) 2.64 3.15 0.37
------ ------ --------- --------- ---------
Total from investment operations 2.56 3.15 0.39
Less Distributions:
Dividends from net investment
income - (0.02) -
Dividends in excess of net
investment income - - -
Distributions from net realized
gains on investments (1.41) - -
------ ------ ---------- --------- ---------
Net asset value per share, end of
period $ $ $ 14.67 $ 13.52 $ 10.39
====== ====== ========= ========= =========
Total Return % % 19.78% 30.39% 3.90%
Net assets, end of period (000's) $ $ $ 32,125 $ 33,511 $ 25,879
Ratio of total expenses to average
net assets* % % 1.44% 1.41% 1.15%
Ratio of net investment income to
average net assets* % % (0.53)% (0.01)% 0.21%
Ratio of net expense before
reimbursement and waiver to
average net assets* % % 1.44% 1.49% 1.58%
Ratio of net investment income
before reimbursement and
waiver to average net assets* % % (0.53)% (0.08)% (0.22)%
Portfolio turnover rate % % 163.21% 156.43% 116.28%
Average commission rate paid
per share $ $ $ 0.0575 - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
12
<PAGE>
(for one outstanding share throughout each period)
Class I Shares (formerly Select Class Shares)
<TABLE>
<CAPTION>
International (formerly International Growth)
- ---------------------------------------------------------------------------------------------
Ten month
Year ended Year ended Year ended period ended Year ended Year ended
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ $ 10.62 $ 11.56 $ 11.17 $ 8.88 $ 10.00
------ --------- --------- --------- --------- ---------
0.03 0.11 0.06 0.05 0.06
1.59 (0.09) 0.33 2.65 (1.15)
------ --------- ---------- --------- --------- ----------
1.62 0.02 0.39 2.70 (1.09)
(0.19) (0.40) - (0.05) (0.03)
- - - (0.34) -
(0.26) (0.56) - (0.02) -
------ ---------- ---------- --------- ---------- ---------
$ $ 11.79 $ 10.62 $ 11.56 $ 11.17 $ 8.88
====== ========= ========= ========= ========= =========
% 15.61% (0.04)% 3.49% 30.37% (10.84)%
$ $ 45,786 $ 25,102 $ 31,479 $ 39,847 $ 26,640
% 2.17% 1.37% 1.66% 1.48% 0.50%
% 0.40% 1.02% 0.71% 0.50% 1.36%
% 2.17% 1.50% 1.80% 1.77% 2.98%
% 0.40% 0.88% 0.57% 0.20% (1.12)%
% 135.92% 32.91% 81.67% 110.38% 81.74%
$ $ 0.0178 - - - -
</TABLE>
* Annualized for periods of less than one year.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
Additional information about the performance of the Series included in this
table is contained in the Fund's Annual Report dated October 31, 1996. The
Report is incorporated herein by reference and is available, without charge, by
writing to the Fund at the address listed on the cover of this Prospectus or by
calling 1-800-238-6263.
13
<PAGE>
DESCRIPTION OF THE FUND
The Fund is a management investment company incorporated in the State of
Maryland comprised of multiple Series, each of which is diversified under the
1940 Act. Each Series has an investment objective which is a fundamental policy.
There can be no assurance that a Series will meet its investment objective. Each
Series is subject to investment restrictions described in this Prospectus and in
the Statement, some of which are fundamental policies. The fundamental
investment policies of a Series may be changed only by a vote of a majority of
the outstanding shares (as defined in the 1940 Act) of that Series.
The Fund offers two classes of shares for each Series. Class A and Class I
shares differ as to sales charges and expenses. Different fees and expenses will
affect performance. Class I shares are described herein.
Shares of each class represent proportionate interests in the assets of the
Series and have the same voting and other rights and preferences as any other
class of the Series for matters that affect the Series as a whole. For matters
that only affect one class, however, only shareholders of that class may vote.
Each class will vote separately on matters (1) affecting only that class, (2)
expressly required to be voted on separately by state law or (3) required to be
voted on separately by the 1940 Act.
Money Market
Investment Objective
Money Market seeks to provide high current return, consistent with preservation
of capital and liquidity, through investment in high-quality money market
instruments.
Investment Policy
Money Market invests in U.S. Treasury bills, notes and bonds; obligations of
agencies and instrumentalities of the U.S. Government; obligations of domestic
banks and U.S. dollar denominated obligations of foreign banks (provided that
the issuing bank has reported assets in excess of $5 billion and meets strict
capital and profitability criteria), finance company commercial paper, corporate
commercial paper (including variable-rate instruments), discounted notes of
domestic banks, domestic banker's acceptances eligible for discounting at the
Federal Reserve, Yankee certificates of deposit, Yankee commercial paper,
Eurodollar securities, corporate bonds and notes and other debt instruments.
Money Market may purchase securities on a when-issued or delayed-delivery basis.
All investments will have a maturity at the time of purchase, as defined under
the federal securities laws, of 397 days or less. Any foreign securities or
obligations will be U.S. dollar denominated. Money Market will invest at least
95% of its total assets in high-quality securities. High-quality securities are
those receiving the highest credit rating by any two rating agencies (or one, if
only one rating agency has rated the security). High-quality securities may also
include unrated securities if Aeltus determines the security to be of comparable
quality.
The remainder of Money Market's assets will be invested in securities rated
within the two highest rating categories by any two rating agencies (or one, if
only one rating agency has rated the security) and unrated securities if Aeltus
determines the security to be of comparable quality. With respect to these
securities, Money Market will not invest more than 1% of the market value of its
total assets or $1 million, whichever is greater, in the securities or
obligations of any one issuer.
Money Market will use nationally recognized rating agencies including, but not
limited to, S&P and Moody's when determining security credit ratings. All
investments will be determined to present minimal credit risks.
Money Market's dollar weighted average maturity will not exceed 90 days.
Although Aeltus will use its best efforts to maintain a constant net asset value
of $1.00 per share, there is no assurance that it will be able to do so.
Investments in Money Market are neither insured nor guaranteed by the U.S.
Government.
14
<PAGE>
Government Fund
Investment Objective
Government Fund seeks to provide income consistent with the preservation of
capital through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Investment Policy
Government Fund invests at least 65% of its assets in direct obligations of the
U.S. Government, such as treasury bills, notes and bonds which are backed by the
full faith and credit of the United States, or in indirect obligations of the
U.S. Government, such as notes and bonds which are guaranteed by agencies and
instrumentalities of the U.S. Government. Securities of such agencies and
instrumentalities are backed by either the full faith and credit of the U.S.
Treasury, the right of the issuer to borrow from the U.S. Treasury, or the
credit of the agency or instrumentality. Such agencies and instrumentalities
include, but are not limited to, the Government National Mortgage Association
(GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home
Loan Mortgage Corporation (FHLMC).
Government Fund may also invest in STRIPs, zero coupon bonds and options and
futures contracts and in other Treasury instruments.
Bond Fund
Investment Objective
Bond Fund seeks to provide as high a level of total return (i.e., income and
capital appreciation) as is consistent with reasonable risk, primarily through
investment in a diversified portfolio of investment-grade corporate bonds, and
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Investment Policy
Bond Fund will normally invest at least 65% of its total assets in high-grade
corporate bonds, mortgage-related and other asset-backed and debt securities,
and securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. High-grade corporate bonds are securities rated A or above by
S&P or by Moody's, and securities rated comparably by other nationally
recognized statistical rating organizations, or considered by Aeltus to be of
comparable quality.
Additionally, Bond Fund may invest in commercial paper and other short-term
investments, including variable-rate instruments, all having a maturity of less
than one year, and in debt securities with equity features, convertibles, and
other debt securities.
Bond Fund may invest up to 15% of its total assets in high-yield bonds
(securities rated BB/Ba or below, or, if unrated, considered by Aeltus to be of
comparable quality). See "Risk Factors and Other Considerations" for further
information.
Bond Fund will not target any given maturity, thus giving it flexibility to
invest in short- and long-term securities as market conditions change. Bond Fund
may also invest in equity securities (not to exceed 5% of total assets) and
securities issued by any foreign corporation or instrumentality or political
subdivision of foreign governments (not to exceed 25% of total assets). Bond
Fund may also purchase securities on a when-issued, delayed-delivery or
forward-commitment basis.
As of October 31, 1996, the weighted average distribution of bonds based on S&P
and Moody's bond ratings was 48.0% in AAA/Aaa, 19.9% in AA/Aa, 11.2% in A, 3.2%
in BBB/Baa, 3.2% in BB/Ba, and 14.5% in unrated bonds.
15
<PAGE>
High Yield
Investment Objective
High Yield seeks high current income and growth of capital primarily through
investment in a diversified portfolio of fixed income securities rated lower
than BBB by S&P or lower than Baa by Moody's.
Investment Policy
High Yield will normally invest at least 65% of its total assets in high-yield
bonds. High Yield may also invest in other fixed income securities, equity
interests, private securities, convertible securities and zero-coupon
securities.
Additionally, High Yield may invest in options and futures (including options on
futures). High Yield may also enter into repurchase agreements, invest up to 25%
of its total assets in foreign securities, engage in currency hedging and
purchase securities on a when-issued, delayed-delivery or forward-commitment
basis.
For more information about the risks associated with investing in high-yield
bonds, see "Risk Factors and Other Considerations - High-Yield Bonds."
Balanced Fund
Investment Objective
Balanced Fund seeks to maximize total return with reasonable safety of principal
by investing in a diversified portfolio of stocks, bonds and money market
instruments.
Investment Policy
An investment in Balanced Fund may involve less investment risk than an
investment in a portfolio consisting entirely of common stocks. Balanced Fund
will allocate its assets among common and preferred stocks, bonds, including
mortgage-related and other asset-backed securities, U.S. Government securities,
U.S. Government derivatives, and money market instruments, including
variable-rate instruments, in proportions that reflect the anticipated returns
and risks of each asset class. Balanced Fund generally will maintain at least
25% of its total assets in fixed income securities. Balanced Fund will not
invest more than 15% of the total value of its assets in high-yield bonds. It
may purchase commercial paper and other short-term instruments and invest up to
25% of its total assets in foreign securities. It may write and buy listed
covered call options and buy and sell put and call options and stock index
futures contracts and related options. Balanced Fund may also purchase
securities on a when-issued, delayed-delivery or forward-commitment basis.
Aeltus employs current market statistics and economic indicators to forecast
returns for each sector of the securities market for Balanced Fund. These
calculations provide a disciplined framework for assessing the relative
attractiveness of stocks, bonds, and cash equivalents. Aeltus uses proprietary
computer programs to help calculate the optimal asset exposure over specified
time periods for Balanced Fund.
Special Considerations
Investors should be aware that the investment results of Balanced Fund partly
depend upon Aeltus' ability to anticipate correctly the relative performance of
stocks, bonds and money market instruments.
While Aeltus has substantial experience in managing all asset classes, there can
be no assurance that Aeltus will always allocate assets to the best performing
sectors. Balanced Fund's performance would suffer if a major portion of its
assets were allocated to stocks in a declining market or, similarly, if a major
portion of its assets were allocated to bonds at a time of adverse interest rate
movement.
16
<PAGE>
Growth and Income
Investment Objective
Growth and Income seeks long-term growth of capital and income through
investment in a diversified portfolio consisting primarily of common stocks and
securities convertible into common stocks believed to offer above-average growth
potential.
Investment Policy
Growth and Income invests at least 65% of its assets in common stocks which
Aeltus believes have significant potential for capital or income growth. It may
also invest in convertible and non-convertible preferred stocks, debt
securities, rights and warrants.
Additionally, Growth and Income may write and buy listed covered call options
and buy and sell put and call options and stock index futures and options.
Growth and Income may also purchase commercial paper and other short-term
instruments, invest up to 25% of its total assets in foreign securities, engage
in currency hedging and purchase securities on a when-issued, delayed-delivery
or forward commitment basis. Growth and Income will not invest more than 15% of
the total value of its assets in high-yield bonds.
Real Estate
Investment Objective
Real Estate seeks maximum total return primarily through investment in a
diversified portfolio of equity securities of real estate companies, the
majority of which are real estate investment trusts (REITs).
Investment Policy
Real Estate will normally invest at least 65% of its total assets in income
producing equity securities of publicly traded companies principally engaged in
the real estate industry. Real Estate may also invest in convertible securities
and preferred stocks.
Additionally, Real Estate may invest in options and futures (including options
on futures). Real Estate may also enter into repurchase agreements, invest up to
25% of its total assets in foreign securities, invest in fixed income
securities, engage in currency hedging and purchase securities on a when-issued,
delayed-delivery or forward-commitment basis. Real Estate will not invest more
than 15% of the total value of its assets in high-yield bonds.
Value Opportunity
Investment Objective
Value Opportunity seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stock. Value Opportunity will use a value-oriented approach to stock selection.
Investment Policy
Value Opportunity will normally invest at least 65% of its total assets in
common stocks. It may also invest in convertible and non-convertible preferred
stocks.
Additionally, Value Opportunity may invest in options and futures (including
options on futures). Value Opportunity may also enter into repurchase
agreements, invest up to 25% of its total assets in foreign securities, invest
in fixed income securities, engage in currency hedging and purchase securities
on a when-issued, delayed-delivery or forward-commitment basis. Value
Opportunity will not invest more than 15% of the total value of its assets in
high-yield bonds.
17
<PAGE>
Growth
Investment Objective
Growth seeks growth of capital through investment in a diversified portfolio
consisting primarily of common stocks and securities convertible into common
stocks believed to offer growth potential.
Investment Policy
Growth will normally invest at least 65% of its total assets in common stocks
which have potential for capital growth. It may also invest in convertible and
non-convertible preferred stocks.
Additionally, Growth may write and buy listed covered call options and buy and
sell put and call options, and stock index futures and options. Growth may also
purchase commercial paper and other short-term instruments, invest up to 25% of
its total assets in foreign securities, engage in currency hedging and purchase
securities on a when-issued, delayed-delivery or forward commitment basis.
Growth will not invest more than 15% of the total value of its assets in
high-yield bonds.
Mid Cap
Investment Objective
Mid Cap seeks growth of capital primarily through investment in a diversified
portfolio of common stocks and securities convertible into common stocks of
companies having medium market capitalizations.
Investment Policy
Under normal circumstances, Mid Cap will invest at least 65% of its assets in
common stocks and will generally exclude common stocks that are not of a similar
size (as measured by market capitalization) as stocks in the S&P 400.
Additionally, Mid Cap may invest in options and futures (including options on
futures). Mid Cap may also enter into repurchase agreements, invest up to 25% of
its total assets in foreign securities, invest in fixed income securities,
engage in currency hedging and purchase securities on a when-issued,
delayed-delivery or forward-commitment basis. Mid Cap will not invest more than
15% of the total value of its assets in high-yield bonds.
Small Company
Investment Objective
Small Company seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalizations.
Investment Policy
Small Company will normally invest at least 65% of its total assets in the
common stock of companies with equity market capitalizations at the time of
purchase of $1 billion or less. Small Company may also invest in convertible and
non-convertible preferred stocks.
Additionally, Small Company may write and buy listed covered call options and
buy and sell put and call options and stock index futures and options. Small
Company may also purchase commercial paper and other short-term instruments,
invest up to 25% of its total assets in foreign securities, engage in currency
hedging and purchase securities on a when-issued, delayed-delivery or forward
commitment basis. Small Company will not invest more than 15% of the total value
of its assets in high-yield bonds.
18
<PAGE>
International
Investment Objective
International seeks long-term capital growth primarily through investment in a
diversified portfolio of common stocks principally traded in countries outside
of North America. International will not target any given level of current
income.
Investment Policy
International will invest at least 65% of its total assets among securities
principally traded in three or more countries outside of North America.
International will invest primarily in equity securities including securities
convertible into stocks. Further, from time to time International may hold up to
10% of its total assets in long-term debt securities with an equivalent S&P or
Moody's rating of AA/Aa or above.
International may enter into forward foreign exchange contracts or purchase
financial futures or options (including options on futures) as a means to
moderate the impact of foreign currency fluctuations. It may also purchase money
market instruments and securities on a when-issued, delayed-delivery or
forward-commitment basis.
Index Plus Large Cap
Investment Objective
Index Plus Large Cap seeks to outperform the total return performance of
publicly traded common stocks represented by the S&P 500.
Investment Policy
Index Plus Large Cap will attempt to be fully invested in common stocks. Under
normal circumstances, Index Plus Large Cap 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 S&P as to the stock's attractiveness as
an investment. Index Plus Large Cap is neither sponsored by nor affiliated with
S&P. AN INVESTMENT IN INDEX PLUS LARGE CAP INVOLVES RISKS SIMILAR TO THOSE OF
INVESTING IN COMMON STOCKS GENERALLY. As Index Plus Large Cap invests primarily
in common stocks, Index Plus Large Cap 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 Large Cap will generally include
approximately 400 stocks included in the S&P 500. Index Plus Large Cap 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 Large Cap and that of the S&P 500 in both rising
and falling markets. Index Plus Large Cap 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 (NAV) of
Index Plus Large Cap, 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. Aeltus 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.
19
<PAGE>
Index Plus Mid Cap
Investment Objective
Index Plus Mid Cap seeks to outperform the total return performance of publicly
traded common stocks represented by the S&P 400, while maintaining a market
level of risk.
Investment Policy
Under normal circumstances, Index Plus Mid Cap will invest at least 90% of its
assets in common stocks represented in the S&P 400. Inclusion of a stock in the
S&P 400 in no way implies an opinion by S&P as to the stock's attractiveness as
an investment. Index Plus Mid Cap is neither sponsored by nor affiliated with
S&P. AN INVESTMENT IN INDEX PLUS MID CAP FUND INVOLVES RISKS SIMILAR TO THOSE OF
INVESTING IN COMMON STOCKS GENERALLY.
Under normal circumstances, Index Plus Mid Cap will generally exclude common
stocks which are not part of the S&P 400.
The weightings of stocks in the S&P 400 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. Aeltus will attempt to outperform the
investment results of the S&P 400 by creating a portfolio that has similar
market risk characteristics to the S&P 400, but will use a disciplined analysis
to identify those stocks having the greatest likelihood of either outperforming
or underperforming the market.
Index Plus Mid Cap may also invest in convertible and non-convertible preferred
stocks. Additionally, Index Plus Mid Cap may invest in options and futures
(including options on futures). Index Plus Mid Cap may also enter into
repurchase agreements, invest up to 25% of its total assets in foreign
securities, invest in fixed income securities, engage in currency hedging and
purchase securities on a when-issued, delayed-delivery or forward-commitment
basis. Index Plus Mid Cap will not invest more than 15% of the total value of
its assets in high-yield bonds.
Index Plus Small Cap
Investment Objective
Index Plus Small Cap seeks to outperform the total return performance of
publicly traded common stocks represented by the S&P 600, a stock market index
composed of 600 common stocks selected by S&P, while maintaining a market level
of risk.
Investment Policy
Under normal circumstances, Index Plus Small Cap will invest at least 90% of its
assets in common stocks represented in the S&P 600. Inclusion of a stock in the
S&P 600 in no way implies an opinion by S&P as to the stock's attractiveness as
an investment. Index Plus Small Cap is neither sponsored by nor affiliated with
S&P. AN INVESTMENT IN INDEX PLUS SMALL CAP INVOLVES RISKS SIMILAR TO THOSE OF
INVESTING IN COMMON STOCKS GENERALLY.
Under normal circumstances, Index Plus Small Cap will generally exclude common
stocks which are not part of the S&P 600.
The weightings of stocks in the S&P 600 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. Aeltus will attempt to outperform the
investment results of the S&P 600 by creating a portfolio that has similar
market risk characteristics to the S&P 600, but will use a disciplined analysis
to identify those stocks having the greatest likelihood of either outperforming
or underperforming the market.
Index Plus Small Cap may also invest in convertible and non-convertible
preferred stocks. Additionally, Index Plus Small Cap may invest in options and
futures (including options on futures). Index Plus Small Cap may also enter into
repurchase agreements, invest up to 25% of its total assets in foreign
securities, invest in fixed income securities, engage in currency hedging and
purchase securities on a when-issued, delayed-delivery or forward-commitment
basis. Index Plus Small Cap will not invest more than 15% of the total value of
its assets in high-yield bonds.
20
<PAGE>
Index Plus Bond
Investment Objective
Index Plus Bond seeks maximum total return, consistent with preservation of
capital, primarily through investment in a diversified portfolio of fixed income
securities, which will be chosen to substantially replicate the characteristics
of the LBAB, an unmanaged index composed of approximately 6,000 securities.
Investment Policy
Index Plus Bond will be actively managed in an attempt to achieve a total return
which, before the recognition of fund expenses, exceeds the LBAB. Under normal
circumstances, Index Plus Bond will invest at least 90% of its assets in fixed
income investments and will exclude Aetna Inc. securities. Inclusion of a
security in the LBAB in no way implies an opinion by Lehman Brothers as to the
security's attractiveness as an investment. Index Plus Bond is neither sponsored
by nor affiliated with Lehman Brothers. AN INVESTMENT IN INDEX PLUS BOND
INVOLVES RISKS SIMILAR TO THOSE OF INVESTING IN FIXED INCOME SECURITIES
GENERALLY.
Index Plus Bond may also invest in convertible and non-convertible preferred
stocks. Additionally, Index Plus Bond may invest in options and futures
(including options on futures). Index Plus Bond may also enter into repurchase
agreements, invest up to 25% of its total assets in foreign securities, engage
in currency hedging and purchase securities on a when-issued, delayed-delivery
or forward-commitment basis. Index Plus Bond will not invest more than 15% of
the total value of its assets in high-yield bonds.
With respect to all Series, see "Risk Factors and Other Considerations" below
for additional information.
RISK FACTORS AND OTHER CONSIDERATIONS
General Considerations
The different types of securities purchased and investment techniques used by
Aeltus involve varying amounts of risk. For example, equity securities are
subject to a decline in the stock market or in the value of the issuing company
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 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, for each debt security, there
is a risk of principal and interest default which will be greater with
higher-yielding, lower-grade securities. High-yield bonds may provide a higher
return but with added risk. In addition, foreign securities have currency risk.
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 Aeltus (except with respect to Money Market) does not purchase
securities with the intention of profiting from short-term trading, Aeltus may
buy and sell securities when Aeltus believes such action is appropriate. It is
anticipated that the average annual turnover rate of each Series may exceed
125%. Turnover rates in excess of 125% may result in higher transaction costs
(which are borne directly by the respective Series) and a possible increase in
short-term capital gains (or losses). See "Distributions," "Taxes" and the
Statement for additional information.
Cash or Cash Equivalents
Aeltus reserves the right to temporarily depart from a Series' investment
objective by investing up to 100% of its assets in cash or cash equivalents to
defend against potential market decline. Such cash equivalents include
commercial paper and other short-term instruments as deemed appropriate by
Aeltus. In addition, all Series (except Money Market) reserve the right to
deposit some or all of their uninvested cash balances into one or more joint
accounts as authorized by the Commission.
21
<PAGE>
All the Series may use the following:
Derivatives
In order to manage exposure to changing interest rates, securities prices and
currency exchange rates, or to increase investment return, a Series may engage
in hedging and other strategies using derivatives. A derivative is a financial
instrument the value of which depends on (or derives from) the value of an
underlying asset, such as a security, interest rate, currency rate or index.
Derivatives that may be used by a Series include, but are not limited to,
forward contracts, swaps, structured notes, collateralized mortgage obligations
(CMOs) (see "Mortgage-Backed Securities" below), futures and options (see
"Futures Contracts" and "Options" below). The risks involved in using
derivatives include the risk that the derivative may experience greater price
swings than other securities and may be less liquid than other securities.
Leveraged derivatives may involve borrowing. A Series may use derivatives as a
hedge against foreign currency, equity market or interest rate risk, or to gain
additional exposure to certain markets for investment purposes, within the
limitations set forth below. In addition, derivatives may be used to enhance a
Series' yield. For purposes other than hedging, a Series will invest no more
than 5% of its assets in derivatives which at the time of purchase are
considered by management to involve high risk to the Series, such as inverse
floaters, interest-only and principal-only debt instruments. Each Series (except
Money Market) may invest up to 30% of its assets in lower risk derivatives for
hedging, to gain additional exposure to certain markets for investment purposes,
and to maintain liquidity to meet shareholder redemptions or to minimize trading
costs.
Borrowing
Each Series may borrow up to 5% of the value of its total assets from a bank for
temporary or emergency purposes. The Series does not intend to borrow for other
purposes, except that it may invest in leveraged derivatives which have certain
risks as outlined above. The Series may borrow for leveraging purposes only if
after the borrowing, the value of the Series' net assets including proceeds from
the borrowings, is equal to at least 300% of all outstanding borrowings.
Leveraging can increase the volatility of a Series since it exaggerates the
effects of changes in the value of the securities purchased with the borrowed
funds.
Repurchase Agreements
Each Series may enter into repurchase agreements with domestic banks and
broker-dealers. Under a repurchase agreement, the Series may acquire a debt
instrument for a relatively short period subject to an obligation by the seller
to repurchase and by the Series to resell the instrument at a fixed price and
time. Such agreements, although fully collateralized, involve the risk that the
seller of the securities may fail to repurchase them. In that event, a Series
may incur costs in liquidating the collateral or a loss if the collateral
declines in value. If the default on the part of the seller is due to insolvency
and the seller initiates bankruptcy proceedings, the ability of a Series to
liquidate the collateral may be delayed or limited.
The Directors have established credit standards for issuers of repurchase
agreements entered into by the Series.
Asset-Backed Securities
Each Series may purchase securities collateralized by a specified pool of assets
including, but not limited to, credit card receivables, automobile, home equity,
mobile home and recreational vehicle loans. These securities are subject to
prepayment risk. In periods of declining interest rates, reinvestment would thus
be made at lower and less attractive rates.
Bank Obligations
Each Series may invest in obligations issued by domestic or foreign banks
(including banker's acceptances, commercial paper, bank notes, time deposits and
certificates of deposit) provided the issuing bank has a minimum of $5 billion
in assets and a primary capital ratio of at least 4.25%.
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Illiquid and Restricted Securities
Each Series may invest up to 15% of its total assets in illiquid securities (10%
in the case of Index Plus Large Cap and Money Market). Illiquid securities are
securities that are not readily marketable or cannot be liquidated within seven
days in the ordinary course of business without taking a materially reduced
price. In addition, a Series may invest in securities that are subject to legal
or contractual restrictions as to resale, including securities purchased under
Rule 144A and Section 4(2) of the Securities Act of 1933. The Directors have
established a policy to monitor the liquidity of securities acquired by the
Series.
Foreign Securities
The purchase of foreign securities may involve certain additional risks. 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.
All Series except Money Market may also use the following:
Futures Contracts
Futures contracts are agreements that obligate the buyer to buy and the seller
to sell a specific quantity of securities at a specific price on a specific
date. Investments in futures contracts or options on futures may be made subject
to the limits discussed in the Statement. See "Risk Factors and Other
Considerations - Derivatives" above.
Certain risks are involved in futures contracts including but not limited to:
transactions to close out futures contracts may not be able to be effected at
favorable prices; possible reduction in a Series' total return and yield;
possible reduction in value of the futures instrument; the inability of a Series
to limit losses by closing its position due to lack of a liquid secondary market
or due to daily limits of price fluctuation; imperfect correlation between the
value of the futures contracts and the related securities; and potential losses
in excess of the amount invested in the futures contracts themselves.
The use of futures involves a high degree of leverage because of the low margin
requirements. As a result, small price movements in futures contracts may result
in immediate and potentially unlimited losses or gains to a Series. The amount
of gains or losses on investments in futures contracts depends on the portfolio
manager's ability to predict correctly the direction of stock prices, interest
rates and other economic factors.
Options
Options are agreements that for a fee or premium, give the holder the right, but
not the obligation, to pay or settle for cash a certain amount of securities
during a specified period or on a specified date. Options are used to minimize
principal fluctuation or to generate additional premium income but they do
involve risks. Writing call options, for example, involves the risk of not being
able to effect closing transactions at favorable prices or to participate in the
appreciation of the underlying securities. Purchasing put options involves the
risk of losing the entire purchase price of the option.
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All Series except Money Market, Government Fund, and International may also use
the following:
High-Yield Bonds
These fixed income securities are rated BB/Ba or below, or, if unrated, are
considered by Aeltus to be of comparable quality. 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 high-yield 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 Aeltus' opinion, misclassified the bonds or overlooked
the potential for the issuer's enhanced creditworthiness.
Government Fund, Bond Fund, High Yield, Balanced Fund, Real Estate and Index
Plus Bond may also use the following:
Mortgage-Backed Securities
Investments in mortgage-backed and other pass-through securities may be made.
Payments of interest and principal on these securities may be guaranteed by an
agency or instrumentality of the U.S. Government such as GNMA, FHLMC and FNMA.
These securities represent part ownership of a pool of mortgage loans where
principal is scheduled to be paid back by the borrower over the length of the
loan rather than returned in a lump sum at maturity. The Series may also invest
in private mortgage pass-through securities backed by pools of conventional
fixed-rate or adjustable-rate mortgage loans. In addition, a Series may invest
in CMOs and securities issued by real estate mortgage investment conduits
(REMICs). Mortgage-backed securities are subject to the same prepayment risk as
asset-backed securities.
Balanced Fund, Growth and Income, Real Estate, Value Opportunity, Growth, Small
Company, Index Plus Large Cap, Index Plus Mid Cap and Index Plus Small Cap may
also use the following:
Small Capitalization Companies
These securities are issued by smaller, less well-known U.S. companies with
equity market capitalization generally less than $1 billion. These companies may
be in an early developmental stage or may be 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 unanticipated unfavorable
developments affecting the companies.
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
company and its securities. 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.
High Yield, Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap and
Index Plus Bond may also use the following:
Supranational Agencies
Securities of supranational agencies are not considered government securities
and are not supported directly or indirectly by the U.S. Government. Examples of
supranational agencies include but are not limited to: the International Bank
for Reconstruction and
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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.
INVESTMENT RESTRICTIONS
A Series (other than Real Estate) will not concentrate its investments in any
one industry except that a Series may invest up to 25% of its total assets in
securities issued by companies principally engaged in any one industry. For
purposes of this restriction, finance companies will be classified as separate
industries according to the end users of their services, such as automobile
finance, computer finance and consumer finance. This limitation will not apply
to securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities and, in the case of Money Market to securities invested in, or
repurchase agreements for, U.S. Government securities, and certificates of
deposit, banker's acceptances, or securities of banks and bank holding
companies. Also, a Series will not invest more than 5% of its total assets in
the securities of any one issuer (excluding securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) or purchase more than
10% of the outstanding voting securities of any one issuer. This restriction
applies only to 75% of a Series' total assets. The Series (other than Index Plus
Large Cap, Index Plus Mid Cap, Index Plus Small Cap and Index Plus Bond) do not
invest in the securities of companies determined by Aeltus to be primarily
involved in the production or distribution of tobacco products. See the
Statement for additional restrictions.
NET ASSET VALUE
The Net Asset Value (NAV) per share of each Series is determined as of the
earlier of 15 minutes after the close of the NYSE or 4:15 p.m. eastern time
every day that the NYSE is open for business (Business Day). Except for Money
Market, the NAV is computed by dividing the total value of a Series' assets
(including dividends and interest accrued but not collected) less all
liabilities (including accrued expenses), by the number of shares outstanding. A
Series' securities are valued primarily on the basis of market quotations. 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, under the authority of the
Directors. Money Market's portfolio securities are valued at their amortized
cost. Money Market's use of amortized cost is part of its effort to maintain a
constant NAV of $1.00 per share.
HOW TO OPEN AN ACCOUNT
To open an account, please contact your investment professional or 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 a Series, additional
investments may be made by mail ($100 minimum), wire transfer ($500 minimum) or
exchange from the same class of another Series in the Fund. All checks must be
drawn on a bank located within the United States and payable in U.S. dollars. We
reserve the right to refuse any order to buy shares. 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 in certain circumstances such as
for persons investing through certain benefit plans, insurance settlement
options or by systematic investments. See "Shareholder Services and Other
Features - Systematic Investment."
HOW TO PURCHASE SHARES
Class I shares are no-load, which means you do not pay any sales charges,
distribution or service fees. The public offering price of Class I shares is the
Series' net asset value (See "Crediting of Shares"). Class I shares may be
purchased through your investment professional, directly from the Fund, or
through an employer-sponsored retirement plan, as described below. If you are
purchasing shares through an employer-sponsored retirement plan, please refer to
your plan materials.
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 Firstar Trust Company
(Transfer Agent) as follows:
Aetna Series Fund, Inc.
c/o Mutual Fund Services, 3rd Floor
P.O. Box 701
Milwaukee, WI 53201-0701
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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 address
listed above. Your letter should indicate your name, account number(s), the
Series you wish to invest in, and the amount to be invested in each Series. When
opening an account, your check should be made payable to the Fund. Cash, credit
cards and third party checks cannot be used to open an account. The Transfer
Agent will accept checks for subsequent purchases which are made payable to the
account owner(s) and endorsed to the Fund.
Purchase by Wire
Once you are a shareholder of a Series, you may purchase additional shares
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
the Transfer Agent and custodian bank are open for business.
Purchase by Electronic Funds Transfer
Once you are a shareholder in any Series of the Fund, you may purchase
additional shares by using Electronic Funds Transfer (EFT) facilities under the
Systematic Investment feature. See "Shareholder Services and Other Features."
EFT will allow you to transfer money between a bank account and a specific
Series. 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 shares by making an exchange from
the same class of shares of any other 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 your name and account number(s), the name of the Series into which
you wish to exchange, the amount to be exchanged, and the signatures of all
shareholders. Send your request to the address listed above under "Purchase by
Mail." Note that this exchange privilege also applies to three Series of the
Fund that are offered through a different prospectus - Aetna Ascent, Aetna
Crossroads and Aetna Legacy, which are collectively known as the Generation
Funds.
You may also exchange your Class I shares by calling 1-800-367-7732. Please have
available the Series' names, account number(s), your Social Security number or
taxpayer identification number, 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:
(bullet) Each exchange may result in a gain or loss and is treated as a sale
and as a purchase of shares for tax purposes.
(bullet) An exchange which represents an initial investment in a Series must
meet the minimum investment requirements described under "How to Open
an Account."
(bullet) 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.
(bullet) 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.
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There is currently no limit on the number of exchanges. However, each Series
reserves the right to suspend or 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 Aeltus' judgment, the 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.
Purchases and exchanges should be made for investment purposes only. The Fund
and each Series reserves the right to reject any specific purchase or exchange
request. In the event the Fund rejects an exchange request, neither the
redemption nor the purchase side of the exchange will be processed until the
Fund receives further redemption instructions.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or entity acting on behalf of one or more individuals,
if (i) the individual or entity makes three or more exchange requests out of any
Series per calendar year and (ii) any one of such exchange requests represents
shares equal in value to 1/2 of 1% or more of the Series' net assets at the time
of the request. Accounts under common ownership or control, including accounts
administered by market timers, will be aggregated for purposes of this
definition.
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 Fund has established
reasonable procedures to confirm that instructions received are genuine. If
these procedures are not followed, the Fund may be liable for any losses due to
unauthorized or fraudulent instructions. For your protection, all telephone
exchange transactions may be recorded, and you will be asked for certain
identifying information.
Purchasing of Shares
Shares of the Fund are purchased and redeemed at the NAV next determined after
receipt of an order in acceptable form. For new accounts, if a completed and
signed application accompanied by a check in payment for the shares is received
by the Transfer Agent at its Milwaukee offices prior to the close of regular
trading on the NYSE (usually 4:00 p.m. eastern time), the order will be
processed at the NAV determined on that Business Day. Orders for additional
investments (accompanied by a check or wire for purchase) and orders for
exchanges that are received before the close of regular trading on the NYSE will
be processed at the NAV determined that Business Day. Purchase orders received
after the close of regular trading on the NYSE will be processed at the NAV
determined on the following Business Day.
The Fund may appoint certain institutions (Institutions) as parties that may
accept purchase and redemption orders on behalf of the Fund. For investors
purchasing or redeeming shares in connection with programs offered by these
Institutions, shares will be purchased at the NAV determined on the Business Day
on which the Institution receives the investor's request before the time
specified by such Institution (but in no event later than the close of the
NYSE). Institutions may be authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf, subject to the
Fund's approval. Thus, the Fund will be deemed to have received a purchase or
redemption order when the Institution or, if applicable, the Institution's
authorized designee, accepts the order.
Investors participating in such a plan should refer to the Institution's
materials for a discussion of any specific instructions on the timing or
restrictions on the purchase of shares.
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HOW TO REDEEM SHARES
To redeem all or a portion of the shares in your account, a redemption request
should be submitted through your investment professional or as described below.
Shares will be redeemed at the NAV determined on that Business Day so long as
the redemption request and all required documentation is received by the
Transfer Agent at its Milwaukee offices prior to the close of regular trading on
the NYSE, normally 4:00 p.m. eastern time. Redemption requests received after
such time will be processed at the NAV determined on the following Business Day.
A Series has the right to satisfy redemption requests by delivering securities
from its investment portfolio rather than cash when it decides that distributing
cash would not be in the best interests of shareholders. However, a Series 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 a Series
in any 90-day period. To the extent possible, the Series will distribute readily
marketable securities, in conformity with applicable rules of the Commission. In
the event such redemption is requested by institutional investors, the Series
will weigh the effects on nonredeeming shareholders in applying this policy.
Securities distributed to shareholders may be difficult to sell and may result
in additional costs to the shareholders.
The right to redeem shares may be suspended or payment therefor postponed for
any period during which (a) trading on the NYSE is restricted as determined by
the Commission or the NYSE 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.
Redeem by Mail
Shares of any Series may be redeemed by sending written instructions to the
Transfer Agent. The instructions should identify the Series, the number of
shares or dollar amount to be redeemed, your name and account number. The
instructions must be signed by all person(s) required to sign for the Series
account, exactly as the shares are registered, and accompanied by a signature
guarantee(s). (See "Signature Guarantee" below.) Certain nonindividual
shareholders may also be required to furnish copies of supporting documents such
as corporate resolutions or trust instruments.
Once a redemption request is received in good order, the Series will normally
send the proceeds of such redemption within one or two business days. However,
if making immediate payment could adversely affect a Series, the Series may
defer distribution for up to seven days or the maximum period allowed by law, if
shorter. Also, a Series will hold payment of redemption proceeds until a
purchase check or systematic investment clears, which may take up to 12 calendar
days.
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 $12.00 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 of the authenticity of the signature given
by certain authorized institutions. The Fund may waive the signature guarantee
requirement for redemption requests for amounts of $25,000 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.
The Fund 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.
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SHAREHOLDER SERVICES AND OTHER FEATURES
The Fund offers several services to its shareholders. If you have questions
about services offered or about your account or would like to initiate a
transaction, please call 1-800-367-7732.
Certain features may not be available through employer-sponsored retirement
plans. Please refer to your plan materials for specific information about
services available under your plan.
Minimum Account Balance
To keep your account open, you must maintain a minimum balance of $500 in each
Series account. If this minimum balance is not maintained, the Fund reserves the
right to redeem all of your remaining shares in that Series and mail the
proceeds to you at the address of record. Shares will be redeemed at NAV on the
day the account is closed. The Fund will give you 60 days' notice that such
redemption will occur unless you make an additional investment to increase the
account balance to the $500 minimum. The Fund will not redeem shares pursuant to
this policy if the account balance falls below the minimum balance due solely to
fluctuations in the market value of a Series' shares.
Tax-Deferred Retirement Plans
The Fund 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: IRAs, available to individuals who
work and their spouses and 401(k) programs, available to corporations of all
sizes to benefit their employees
Shareholder Information
The Transfer Agent will maintain your account information. Account statements
will be sent at least quarterly. A Form 1099 will also be sent each year by
January 31. Annual and semiannual reports will also be sent to shareholders. 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 values, share balances 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 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.
Systematic Investment
The Systematic Investment feature, using the EFT capability (see "How to
Purchase Shares-Purchase by Electronic Funds Transfer"), allows you to make
automatic monthly investments in any Series. On the application, you may select
the amount of money to be moved and the Series in which it will be invested. In
order to elect EFT you must first have established an account, subject to the
minimum amount specified above (See "How to Open an Account"). Thereafter, the
minimum monthly Systematic Investment is currently $50 per Series, and we
reserve the right to increase that amount. EFT transactions will be effective 15
days following the receipt by the Transfer Agent of your application. The
Systematic Investment feature and EFT capability will be terminated upon total
redemption of your shares. Payment of redemption proceeds will be held until a
Systematic Investment has cleared, which may take up to 12 calendar days. See
"How to Redeem Shares."
Automatic Cash Withdrawal Plan
The Automatic Cash Withdrawal Plan provides a convenient way for you to receive
a systematic distribution while maintaining an investment in the Fund. The
Automatic Cash Withdrawal Plan permits you to have payments of $100 or more
automatically
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transferred from a Series to your designated bank account on a monthly basis. To
enroll in this plan, you must have a minimum balance of $10,000 in a Series
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.
Checkwriting Service
Checkwriting is available with Money Market. There is currently no charge for
this service. However, the Transfer Agent may impose a nominal fee for checks.
Checks must be for a minimum of $250 and the checkwriting service may not be
used for a complete redemption of your shares. If the amount of the check is
greater than the value of your shares, the check will be returned unpaid. In
addition, checks written against shares purchased by check or Systematic
Investment during the preceding 12 calendar days will be returned unpaid due to
uncollected funds. You may select the checkwriting service by indicating your
election on the application or by calling 1-800-367-7732. All notices with
respect to checks must be given to the Transfer Agent. The checkwriting service
is not available for IRAs or other retirement accounts.
TDD Service
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
The Fund reserves the right to amend the shareholder services described above or
to change the terms or conditions of such services at any time.
Other Payments to Investment Representatives
From time to time, Aetna Investment Services, Inc. (AISI) or its affiliates may
make payments to other dealers and/or their agents who may or may not be
affiliates of Aetna, who sell shares or who provide shareholder services. These
payments are made from the resources of the paying entity so the price paid for
shares and the value of the investment will be unaffected.
Investment representatives may receive additional compensation from AISI or an
affiliated company in connection with selling shares of the Fund. Compensation
may include financial assistance for conferences, shareholder services,
automation, sales or training programs or promotional activities. Registered
representatives and their families may be paid for travel expenses, including
lodging, in connection with business meetings or seminars. In some cases, this
compensation may only be available to investment representatives who have sold
or are expected to sell significant amounts of shares. Investment
representatives may not use sales of the Fund's shares to qualify for this
compensation if prohibited by the laws of any state or self-regulatory
organization, such as the NASD.
CROSS INVESTING
Dividend Investing - You may elect to have dividend and/or capital gains
distributions automatically invested in the same class of one other Series,
including those Series offered through the Generation Funds Prospectus.
Systematic Exchange - You may establish an automatic exchange of 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 "How to Purchase Shares - Purchase by Exchange" section
carefully. There may be tax consequences associated with these exchanges. Please
consult your tax adviser.
Cross Investing may only be made in a Series that has been previously
established with the minimum investment. To request information or to initiate a
transaction under either or both of these features, please call 1-800-367-7732.
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There are no conversion features applicable to either class of shares.
MANAGEMENT
Directors
Each Series is managed under the supervision of the Fund's Board of Directors.
The Directors set broad policies for the Fund and each of its Series.
Information about the Directors is found in the Statement.
Investment Adviser
Aeltus has entered into an investment advisory agreement with the Fund on behalf
of each Series which provides that Aeltus is responsible for managing the assets
of each Series in accordance with its investment objective and policies. Aeltus
is a Connecticut corporation with its principal offices located at 242 Trumbull
Street, Hartford, Connecticut 06103-1205. Aeltus is registered as an investment
adviser with the Commission.
Advisory Fees
Listed below are the Advisory Fees that Aeltus receives from each Series at an
annual rate based on average daily net assets of each Series:
Advisory Fee Assets
Money Market 0.400% On first $500 million
0.350% On next $500 million
0.340% On next $1 billion
0.330% On next $1 billion
0.300% Over $3 billion
Government Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
Bond Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
High Yield 0.650% On first $250 million
0.600% On next $250 million
0.575% On next $250 million
0.550% On next $1.25 billion
0.500% Over $2 billion
Balanced Fund 0.800% On first $500 million
0.750% On next $500 million
0.700% On next $1 billion
0.650% Over $2 billion
Growth and Income 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Real Estate 0.800% On first $250 million
0.750% On next $250 million
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0.725% On next $250 million
0.700% On next $1.25 billion
0.650% Over $2 billion
Value Opportunity 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Growth 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Mid Cap 0.750% On first $250 million
0.700% On next $250 million
0.675% On next $250 million
0.650% On next $1.25 billion
0.600% Over $2 billion
Small Company 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.725% Over $2 billion
International 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.700% Over $2 billion
Index Plus Large Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $250 million
0.400% On next $1 billion
0.375% Over $2 billion
Index Plus Mid Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Small Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Bond 0.350% On first $250 million
0.350% On next $250 million
0.325% On next $250 million
0.300% On next $1.25 billion
0.275% Over $2 billion
Administrator
The Fund, on behalf of each Series, has appointed Aeltus as administrator for
each Series. Aeltus has responsibility for certain administrative and internal
accounting and reporting services, maintenance of relationships with third party
service providers such as the Transfer Agent and custodians, shareholder
communications, calculation of the NAV and other financial reports prepared for
the Series (collectively referred to as Administrative Services). For these
services, each Series pays Aeltus a fee at an annual rate of
32
<PAGE>
___% of its average daily net assets. As administrator, Aeltus may contract with
other entities to perform certain Administrative Services.
Principal Underwriter
AISI is the principal underwriter for the Fund. AISI is a Connecticut
corporation, and is a wholly-owned subsidiary of Aetna Retirement Holdings, Inc.
and an indirect wholly-owned subsidiary of Aetna Inc. AISI contracts with
various broker-dealers, including one or more of its affiliates, for
distribution of shares.
Transfer Agent
Firstar Trust Company, located at 615 E. Michigan Street, Milwaukee, WI 53202,
acts as the Fund's transfer and dividend-paying agent. The Transfer Agent is
responsible for the issuance, transfer and redemption of shares and the opening
and maintenance of shareholder accounts.
Series' Expenses
Each Series bears the costs of its operations. Expenses directly attributable to
a Series are charged to that Series. Some expenses are allocated among all
Series of the Fund in proportion to the net assets of each Series and some
expenses are allocated equally to each Series. Series expenses for each class of
shares are included in the Fee Tables.
PORTFOLIO MANAGEMENT
The following individuals are primarily responsible for the day-to-day
management of the Series, as indicated below. All of the following individuals
may also decide as a group what strategy may benefit all of the Series.
Money Market and Bond Fund
Jeanne Wong-Boehm, Managing Director, Aeltus, has been managing Money Market and
Bond Fund since January 1992. Ms. Wong-Boehm joined Aetna Life Insurance and
Annuity Company (Aetna) in 1983 as a fixed income portfolio analyst and in 1989
she was assigned primary responsibility for the money market operations.
Government Fund
Hugh T.M. Whelan, Vice President, Aeltus has been managing the Government Fund
since January 1997. Mr. Whelan joined Aeltus in 1989 and manages fixed-income
portfolios employing different strategies.
High Yield
Gail Bruhn, Vice President, Aeltus. Ms. Bruhn has been managing High Yield since
its inception in January, 1998. She currently manages high yield securities for
several private investment funds managed by Aeltus. Ms. Bruhn joined Aeltus in
1995 as High Yield's Portfolio Manager after spending 10 years with CIGNA
Investments.
Balanced Fund
John Y. Kim, President and Chief Investment Officer, Aeltus. Mr. Kim has been
managing Balanced Fund since May 1994. He joined Aetna in 1983 and in 1989
advanced to Senior Investment Officer. In 1989, Mr. Kim was named Fixed Income
Portfolio Manager. He subsequently served as a Vice President of Investor
Relations and later became Vice President and a Senior Portfolio Manager. In
1993, Mr. Kim joined Mitchell Hutchins Institutional Investors as Managing
Director and Head of Institutional Fixed Income. In 1994 he returned to Aetna as
its Chief Investment Officer.
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<PAGE>
Growth and Income
Kevin Means, Managing Director, Aeltus, has been managing Growth and Income
since July 1994. Mr. Means joined Aetna in July 1994 after serving as Chief
Investment Officer at INVESCO Management and Research, Boston since 1993. He
also served from 1987 to 1993 as the Director of Quantitative Research and
Equity Portfolio Manager at INVESCO Capital Management, Atlanta. Mr. Means heads
a team of portfolio managers who specialize in various asset classes used in the
management of Growth and Income.
Real Estate
Yaniv Tepper, Vice President, Aeltus. Mr. Tepper has been managing Real Estate
since its inception in January, 1998. He has been managing real estate
securities for several investment funds managed by Aeltus since 1994. Mr. Tepper
joined the Aetna organization in 1994 as an Associate in the Real Estate
Investments Group. Prior thereto, Mr. Tepper consulted in the area of real
estate finance.
Growth
Peter Canoni, Managing Director, Aeltus, and Kenneth H. Bragdon, Vice President,
Aeltus, are the co-managers for Growth. Mr. Canoni managed the fund since its
inception, with Mr. Bragdon's assistance. Mr. Bragdon became co-manager in
mid-1997. Mr. Canoni has worked as a fund manager for Aeltus since 1980. Mr.
Bragdon has been with Aetna since 1978 and has 27 years of experience in the
investment business.
Value Opportunity
Peter Canoni, Managing Director, Aeltus, has been managing Value Opportunity
since its inception in January, 1998. Mr. Canoni has worked as a fund manager
for Aeltus since 1980.
Mid Cap
Donald Townswick, Vice President, Aeltus. Mr. Townswick has been managing Mid
Cap since its inception in January, 1998. He currently manages small and mid-cap
stocks for several investment funds managed by Aeltus. Mr. Townswick joined the
Aetna organization in July, 1994 after serving as a Vice President at INVESCO
Management and Research for two years.
Small Company
Thomas DiBella, Vice President, Aeltus, has been managing Small Company since
its inception in January, 1994. Mr. DiBella joined Aeltus in 1991 and is
currently responsible for the management of small capitalization portfolios.
International
Vince Fioramonti, Vice President, Aeltus, has been managing International since
December 1995. Mr. Fioramonti manages international stocks and non-U.S. dollar
government bonds for several Aetna investment funds. Mr. Fioramonti joined Aetna
in 1994 after serving as Vice President for The Travelers Investment Management
Company. He began his investment career with Travelers in 1988.
Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap
Geoffrey A. Brod, Vice President, Aeltus. Mr. Brod has been managing Index Plus
Large Cap since its inception in December, 1996. He has been managing Index
Plus Mid Cap and Index Plus Small Cap since each Series' inception in January,
1998. He 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 Bond
Christie Bull, Vice President, Aeltus. Ms. Bull has been managing Index Plus
Bond since its inception in January, 1998. She has been managing fixed income
securities for several private accounts managed by Aeltus. Ms. Bull is also the
Director of Fixed Income Research for Aeltus. Ms. Bull has been with the Aetna
organization since 1979.
34
<PAGE>
DISTRIBUTIONS
Fund Distributions
Money Market declares dividends daily and pays monthly.
Government Fund and Bond Fund declare and pay dividends monthly.
Balanced Fund and Growth and Income declare and pay dividends semiannually.
High Yield, Growth, Real Estate, Value Opportunity, Mid Cap, Small Company,
International, Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap,
and Index Plus Bond declare and pay dividends annually.
All capital gains distributions, if any, are paid on an annual basis. Income
dividends are derived from investment income, including dividends, interest,
realized short-term capital gains, and certain foreign currency gains received
by a Series. Capital gains distributions are derived from each Series' realized
long-term capital gains. The per share dividends and distributions of Class I
shares will be higher than the per share dividends and distributions of the
Class A as a result of the distribution fees applicable to Class A.
Money Market shares begin to accrue dividends the next Business Day after they
are purchased; a redemption will include dividends declared through the
redemption date.
Both income dividends and capital gains distributions are paid by each Series on
a per share basis. As a result, at the time of such payment, the NAV per share
of a Series (except Money Market) will be reduced by the amount of such payment.
Distribution Options
When completing an application, you must select one of the following options for
dividends and capital gains distributions:
Full Reinvestment - Both dividends and capital gains distributions from a Series
will be reinvested in additional shares of the same class of that Series. This
option will be selected automatically unless one of the other options is
specified.
Or . . . Capital Gains Reinvestment - Capital gains distributions from a Series
will be reinvested in additional shares of the same class of that Series and all
net income from dividends will be distributed in cash.
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 shares of another Series of the Fund,
including those Series offered through the Generation Funds Prospectus (Aetna
Ascent, Aetna Crossroads and Aetna Legacy). To request information or to
initiate a transaction, please call 1-800-367-7732.
If you make no selection, income dividends and capital gains distributions with
respect to a particular Series will be reinvested in additional shares of that
Series. Distributions paid in shares will be credited to your account at the
next determined NAV per share.
Changes to the above options will be effective for distributions occurring ten
days after the date written notification is received by the Transfer Agent.
TAXES
Introduction
The tax information described below is only a summary of federal income tax
consequences and is based on tax laws and regulations in effect as of the date
of this Prospectus. Please refer to the Statement for a more detailed discussion
of federal income
35
<PAGE>
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
Each Series intends to qualify for treatment under Subchapter M of the IRC, as
amended. By distributing substantially all of its income and meeting certain
other requirements relating to the source of its income and diversification of
its assets, the Series will not be liable for federal income or excise taxes.
Therefore, each Series will distribute substantially all of its net income and
gains to shareholders. Such distributions will be taxable income or capital
gains to the shareholders and not the Series. Distributions of net long-term
capital gains are taxable to the shareholders as long-term capital gains
regardless of the length of time a shareholder has owned the shares.
Distributions of net investment income and net short-term capital gains are
taxable as ordinary income. Depending on a Series' 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. Dividends paid by Government Fund
may be U.S. Government Interest Dividends. Substantially all dividends paid by
Growth and Income, and, to a lesser degree, Balanced Fund, Real Estate, Value
Opportunity, Growth, Mid Cap and Small Company will be Qualifying Dividends for
which eligible corporate shareholders may claim a partial deduction.
For individuals, the Taxpayer Relief Act of 1997 (the Relief Act) has created
new "mid-term capital gain" rates that apply to the sale of capital assets held
more than one year but not more than 18 months. Although the Relief Act has not
expressly addressed this issue, it is expected that regulations issued pursuant
thereto will provide that regulated investment companies such as the Fund must
notify shareholders who are individuals as to whether they must treat capital
gain dividends that they receive as mid-term or long-term capital gains. For
individuals, long-term capital gains, which are realized on the sale or exchange
of capital assets held for more than 18 months, will be subject to a maximum
federal income tax rate of 20%, while ordinary income will be subject to a
maximum rate of 39.6%. Mid-term capital gains, which are realized on the sale or
exchange of capital assets held more than one year but not more than 18 months,
will be subject to a maximum federal income tax rate of 28%.
A shareholder will recognize a capital gain or loss upon the sale of exchange of
shares in a Series if, as is normally the case, the shares are capital assets in
the shareholder's hands. For corporate shareholders, the capital gain or loss
will be long-term if the shares have been held for more than one year. For
shareholders that are individuals, the gain or loss will be long-term if the
shareholder has held the shares for more than 18 months and mid-term if the
shareholder has held the shares for more than one year but not more than 18
months.
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 a Series' assets to be invested in
various countries is not known.
If more than 50% of International's total assets at the close of its fiscal year
consist of securities of foreign corporations, that Series will be eligible to,
and may, file an election with the Internal Revenue Service (IRS) pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Series as income received by them. Shareholders may
then either deduct such pro rata portion in computing their taxable income or
use them as foreign tax credits against their United States income taxes. If
International makes such an election, it will report annually to each
shareholder the amount of foreign taxes to be included in income and then either
deducted or credited. Alternatively, if the amount of foreign taxes paid by
International is not large enough to warrant its making such an election, the
Series may claim the amount of foreign taxes paid as a deduction against its own
gross income. In that case shareholders would not be required to include any
amount of foreign taxes paid by the International in their income and would not
be permitted either to deduct any portion of foreign taxes from their own income
or to claim any amount tax credit for taxes paid by the Series.
A Series' 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. Each Series 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.
36
<PAGE>
Buying a Dividend
If you buy shares of a Series (other than Money Market) 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 a Series
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 31% backup withholding by the IRS. If you are subject to backup
withholding or fail to properly certify your taxpayer identification number, the
IRS can require the Fund to withhold 31% 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 19 Series, 16
of which are described in this Prospectus.
Capital Stock
The Articles currently authorize the issuance of 6.8 billion shares of capital
stock of the Fund. All shares are nonassessable, transferable and redeemable.
There are no preemptive rights. As of September 30, 1997, Aetna and its
affiliates owned 19.60% of all outstanding shares of the Fund. Aetna and its
affiliates may make additional investments in the Series.
Share Classes
The Fund has obtained a ruling from the IRS with respect to certain Series
described in this Prospectus 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. For
additional information, see the Statement.
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 a Series' 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.
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<PAGE>
PERFORMANCE
From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of each Series. Any
such information will include the average annual total return of the Series
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.
Each Series (except Money Market)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 the Fund are based on historical performance
and are not intended to indicate future performance. Total return and NAV per
share can be expected to fluctuate over time, and accordingly, upon redemption,
shares may be worth more or less than their original cost.
Performance of Similarly Managed Funds
Real Estate and Mid Cap are recently organized and do not yet have long term
performance records. However, Real Estate and Mid Cap have the same investment
objective and follow substantially the same investment strategies as segments of
separate series of mutual funds (segments) whose shares are currently sold to
the public and managed by Aeltus.
Set forth below is the historical performance of each of the comparable
segments. Investors should not consider the performance data of the segments as
an indication of the future performance of the Series. The performance figures
shown below reflect the deduction of the historical fees and expenses paid by
the segments, and not those paid by the Series.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Series to calculate
their own performance.
The following table shows average annualized total returns for the time periods
shown for the comparable series or segments and their respective benchmark
indices.
MID CAP
1 YEAR SINCE INCEPTION
Mid Cap Account 35.00% 24.61%
S&P 400 Stock Index 22.87% 21.66%
REAL ESTATE
1 YEAR SINCE INCEPTION
Real Estate Account 36.67% 26.44%
National Association of Real
Estate Investment Trusts
(NAREIT) Equity Index 33.88% 24.59%
Results shown are through the period ended June 30, 1997 and are unaudited. The
inception dates for the Real Estate and Mid Cap segments are July 1, 1995 and
January 1, 1996, respectively. The results shown above reflect the deduction of
management and administrative fees equivalent to 1.05%, which is the highest
level of fees assessed by a public fund that includes both segments.
38
<PAGE>
Private Account Performance
Index Plus Large Cap, Index Plus Bond, High Yield and Value Opportunity are
recently organized and do not yet have long-term performance records. However,
Index Plus Large Cap, Index Plus Bond, High Yield and Value Opportunity have
investment objectives, 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 Large Cap, Index Plus Bond, High
Yield and Value Opportunity may vary from the Private Account composite
information because their investments will vary over 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.
Set forth below is the historical performance of each of the comparable Private
Accounts. Investors should not consider the performance data of the Private
Accounts as an indication of the future performance of the Series. The
performance figures shown below reflect the deduction of the historical fees and
expenses paid by the Private Accounts, and not those paid by the Series.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Series to calculate
their own performance.
The following table shows average annualized total returns for the time periods
shown for the comparable private accounts and their respective benchmark
indices.
PRIVATE ACCOUNT COMPOSITE PERFORMANCE*
INDEX PLUS LARGE CAP PRIVATE ACCOUNT COMPOSITE
SINCE
Index Plus Large 1 YEAR 5 YEARS INCEPTION
Cap Composite** 37.25% 21.02% 19.56%
S&P 500 Stock Index 34.71% 19.78% 18.51%
INDEX PLUS BOND PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS 10 YEARS
Index Plus Bond
Composite*** 8.21% 7.15% 8.72%
LBAB Index 8.15% 7.12% 8.66%
HIGH YIELD PRIVATE ACCOUNT COMPOSITE
1 YEAR SINCE INCEPTION
High Yield Account 14.02% 13.18%
Merrill Lynch High Yield Index 14.31% 11.82%
VALUE OPPORTUNITY PRIVATE ACCOUNT COMPOSITE SINCE
1 YEAR 5 YEARS INCEPTION
Value Opportunity Composite 33.58% 22.45% 23.74%
S&P 500 Stock Index 34.70% 19.78% 20.30%
* Results shown are through the period ended June 30, 1997 and are unaudited.
The inception dates are October 1, 1990 for the Value Opportunity Composite,
April 1, 1987 for the Index Plus Bond Composite and January 1, 1996 for the High
Yield Composite.
** The Composite reflects the Aeltus Quantitative Equity Composite. The
inception date is October 1, 1991 for the Index Plus Composite.
*** The Composite reflects the Aeltus Market Plus Composite.
39
<PAGE>
Aetna Series Fund, Inc.
151 Farmington Avenue
Hartford, CT 06156-8962
1-800-238-6263
Investment Adviser
Aeltus Investment Management, Inc.
242 Trumbull Street
Hartford, CT 06103-1205
Custodians
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Brown Brothers Harriman & Company
40 Water Street
Boston, MA 02109
Transfer Agent
Firstar Trust Company
P.O. Box 701
Milwaukee, WI 53201-0701
Independent Auditors
KPMG Peat Marwick LLP
CityPlace II
Hartford, CT 06103-4103
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of a Fund in any jurisdiction in which such sale,
offer to sell, or solicitation may not be lawfully made.
40
<PAGE>
AETNA SERIES FUND, INC.
Class A Shares and Class I Shares
151 Farmington Avenue
Hartford, Connecticut 06156-8962
Statement of Additional Information dated: __________________, 1998
This Statement of Additional Information (Statement) is not a prospectus and
should be read in conjunction with the current prospectuses for Aetna Series
Fund, Inc. and Aetna Generation Fund, dated __________________, 1998. A free
prospectus is available upon request by writing to Aetna Series Fund, Inc. at
the address listed above or by calling 1-800-367-7732.
Read the prospectus before you invest.
TABLE OF CONTENTS
General Information and History....................................... 2
Additional Investment Restrictions and Policies....................... 2
Investment Techniques................................................. 4
Directors and Officers ............................................... 15
Control Persons and Principal Shareholders............................ 17
The Investment Advisory Agreements.................................... 18
The Administrative Services Agreement................................. 20
The License Agreement................................................. 21
Custodian............................................................. 21
Independent Auditors.................................................. 21
Principal Underwriter ................................................ 21
Distribution Arrangements............................................. 21
Brokerage Allocation and Trading Policies............................. 23
Letter of Intent...................................................... 24
Front-end Sales Load Waivers.......................................... 25
The Rule 12b-1 Plan................................................... 25
Description of Shares................................................. 26
Net Asset Value....................................................... 27
Purchase and Redemption of Shares..................................... 27
Tax Status............................................................ 28
Performance Information............................................... 32
Financial Statements.................................................. 36
<PAGE>
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.
Each Series is currently authorized to offer two classes of shares, Class A and
Class I. The following Series are described in this Statement:
<TABLE>
<S> <C>
(bullet) Aetna Money Market Fund (Money Market) (bullet) Aetna Small Company Fund (Small Company)
(bullet) Aetna Government Fund (Government Fund) (bullet) Aetna International Fund (International, formerly
(bullet) Aetna Bond Fund (Bond Fund) International Growth)
(bullet) Aetna High Yield Fund (High Yield) (bullet) Aetna Index Plus Large Cap Fund (Index Plus
(bullet) Aetna Balanced Fund (Balanced Fund, Aetna Large Cap, formerly Index Plus)
formerly The Aetna Fund) (bullet) Aetna Index Plus Mid Cap Fund (Index Plus Mid
(bullet) Aetna Growth and Income Fund (Growth and Cap)
Income) (bullet) Aetna Index Plus Small Cap Fund (Index Plus
(bullet) Aetna Real Estate Securities Fund Small Cap)
(Real Estate) (bullet) Aetna Index Plus Bond Fund (Index Plus Bond)
(bullet) Aetna Value Opportunity Fund (Value (bullet) Aetna Ascent Fund (Ascent)
Opportunity) (bullet) Aetna Crossroads Fund (Crossroads)
(bullet) Aetna Growth Fund (Growth) (bullet) Aetna Legacy Fund (Legacy)
(bullet) Aetna Mid Cap Fund (Mid Cap)
</TABLE>
The investment objective and general investment policies of each Series are
described in the prospectus.
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES
The investment objectives and certain investment policies of each Series, are
matters of fundamental policy for purposes of the Investment Company Act of 1940
(1940 Act) and therefore cannot be changed without the approval of a majority of
the outstanding voting securities of that Series. This means the lesser of: (i)
67% of the shares of a Series present at a shareholders' meeting if the holders
of more than 50% of the shares of that Series then outstanding are present in
person or by proxy; or (ii) more than 50% of the outstanding voting securities
of the Series.
As a matter of fundamental policy, a Series 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 a
Series' total assets. Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities are excluded from this
restriction;
(2) except for Real Estate, concentrate its investments in any one industry,
except that a Series may invest up to 25% of its total assets in securities
issued by companies principally engaged in any one industry. For purposes
of this restriction, finance companies will be classified as separate
industries according to the end user of their services, such as automobile
finance, computer finance and consumer finance. In addition, for purposes
of this restriction, for Legacy, Crossroads and Ascent, real estate stocks
will be classified as separate industries according to property type, such
as apartment, retail, office and industrial. This limitation will not,
however, apply to securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities. Additionally for Money Market,
investments in the following shall not be subject to the 25% limitation:
securities invested in, or repurchase agreements for, U.S. Government
securities, certificates of deposit, bankers' acceptances, or securities of
banks and bank holding companies;
(3) make loans, except that, to the extent appropriate under its investment
program, a Series may (a) purchase bonds, debentures or other debt
instruments, including short-term obligations; (b) enter into repurchase
transactions; and (c) lend portfolio securities provided that the value of
such loaned securities does not exceed one-third of the Series' total
assets;
(4) issue any senior security (as defined in the 1940 Act), except that (a) a
Series may enter into commitments to purchase securities in accordance with
that Series' investment program, including reverse repurchase agreements,
delayed delivery and when-issued securities, which may be considered the
issuance of senior securities; (b) a Series may engage in transactions that
may result in the issuance of a senior security to the extent permitted
under applicable regulations, interpretations of the 1940 Act or an
exemptive order; (c) a Series (other than Money Market) may engage in short
sales of securities to the extent permitted in its investment program and
other restrictions; (d) the purchase or sale of futures contracts and
related options shall not be considered to involve the issuance of senior
securities; and (e) subject to fundamental restrictions, a Series may
borrow money as authorized by the 1940 Act;
2
<PAGE>
(5) except for Real Estate, purchase real estate, interests in real estate or
real estate limited partnership interests except that: (a) to the extent
appropriate under its investment program, a Series may invest in securities
secured by real estate or interests therein or issued by companies,
including real estate investment trusts, which deal in real estate or
interests therein; or (b) a Series may acquire real estate as a result of
ownership of securities or other interests (this could occur for example if
a Series holds a security that is collateralized by an interest in real
estate and the security defaults);
(6) invest in commodity contracts, except that a Series may, to the extent
appropriate under its investment program, purchase securities of companies
engaged in such activities; may (other than Money Market) enter into
transactions in financial and index futures contracts and related options;
may engage in transactions on a when-issued or forward commitment basis;
and may enter into forward currency contracts;
(7) borrow money, except that (a) a Series (other than Money Market) may enter
into certain futures contracts and options related thereto; (b) a Series
may enter into commitments to purchase securities in accordance with that
Series' investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary emergency
purposes, a Series may borrow money in amounts not exceeding 5% of the
value of its total assets at the time the loan is made; and (d) for
purposes of leveraging, a Series (other than Money Market) may borrow money
from banks (including its custodian bank) only if, immediately after such
borrowing, the value of that Series' assets, including the amount borrowed,
less its liabilities, is equal to at least 300% of the amount borrowed,
plus all outstanding borrowings. If, at any time, the value of that Series'
assets fails to meet the 300% asset coverage requirement relative only to
leveraging, that Series will, within three days (not including Sundays and
holidays), reduce its borrowings to the extent necessary to meet the 300%
test;
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by a Series, that
Series may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (the "1933 Act").
The Fund's Board of Directors (Directors) has adopted certain other investment
restrictions which may be changed by the Directors and without shareholder vote.
Some of these restrictions are described in the prospectus. In addition, under
such restrictions, the Series 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 programs of each Series,
as described in this Statement and in the prospectus;
(2) except for International, Ascent, Crossroads, and Legacy, 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). A Series 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%. Money Market may only purchase foreign securities or obligations
that are U.S. dollar denominated;
(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;
(6) invest more than 15% (10% for Index Plus Large Cap and Money Market) 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. Aeltus
Investment Management, Inc. (Aeltus), 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;
(7) except for High Yield, Legacy, Crossroads and Ascent invest more than 15%
of the total value of its assets in high yield bonds (securities rated
BB/Ba or lower by Standard & Poor's Corporation or Moody's Investors
Service, Inc., or, if unrated, considered by Aeltus to be of comparable
quality);
(8) except for Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap
and Index Plus Bond invest in securities issued by any entity listed in the
Wall Street Journal's Quarterly "Corporate Performance Report" under the
heading "Consumer, Noncyclical-Tobacco," or are otherwise determined by
Aeltus to be primarily involved in the production or distribution of
tobacco products.
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Where a Series' 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.
INVESTMENT TECHNIQUES
Options, Futures and Other Derivative Instruments
Each Series may use derivative instruments as described below and in the
prospectus under "Description of the Fund" and "Risk Factors and Other
Considerations." The following provides additional information about these
instruments.
Futures Contracts--Each Series (other than Money Market) 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." A Series
may enter into futures contracts or options thereon, which are traded on
national futures exchanges and are standardized as to maturity date and
underlying financial instrument. The futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodities Futures
Trading Commission (the "CFTC").
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific commodity, financial
instrument(s) or a specific stock market index for a specified price at a
designated date, time, and place. Brokerage fees are incurred when a futures
contract is bought or sold and at expiration, and margin deposits must be
maintained.
Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments or commodities, those
contracts are usually closed out before the delivery date. Stock index futures
contracts do not contemplate actual future delivery and will be settled in cash
at expiration or closed out prior to expiration. Closing out an open futures
contract sale or purchase is effected by entering into an offsetting futures
contract purchase or sale, respectively, for the same aggregate amount of the
identical type of underlying instrument and the same delivery date. There can be
no assurance, however, that a Series will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If a
Series is not able to enter into an offsetting transaction, it will continue to
be required to maintain the margin deposits on the contract.
The prices of futures contracts are volatile and are influenced, among other
things, by actual and anticipated changes in interest rates and equities prices,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events.
When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the securities being
hedged can be only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
futures and for securities, including technical influences in futures trading,
and differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available for trading.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or stock market or interest rate trends.
Most United States futures exchanges limit the amount of fluctuation permitted
in interest rate futures contract prices during a single trading day, and, as
noted, temporary regulations limiting price fluctuations for stock index futures
contracts are also now in effect. The daily limit establishes the maximum amount
that the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of contract, no trades may be made
on that day at a price beyond that limit. The daily limit governs only price
movement during a particular trading day and therefore does not limit potential
losses, because the limit may prevent the liquidation of unfavorable positions.
Futures contract prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some persons engaging in futures
transactions to substantial losses.
Sales of futures contracts which are intended to hedge against a change in the
value of securities held by a Series may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
"Margin" is the amount of funds that must be deposited by a Series with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in a Series' futures contracts. A margin deposit
is intended to assure the Series' 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
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deposit exceeds the required margin, the broker will promptly pay the excess to
a Series. These daily payments to and from a Series are called variation margin.
At times of extreme price volatility such as occurred during the week of October
19, 1987, intra-day variation margin payments may be required. In computing
daily net asset values, each Series will mark to market the current value of its
open futures contracts. Each Series expects to earn interest income on its
initial margin deposits. Furthermore, in the case of a futures contract
purchase, each Series has deposited in a segregated account money market
instruments sufficient to meet all futures contract initial margin requirements.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, small price movements in futures
contracts may result in immediate and potentially unlimited loss or gain to a
Series 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.
A Series can enter into options on futures contracts. See "Call and Put Options"
below. The risk involved in writing options on futures contracts or market
indices is that there could be an increase in the market value of such contracts
or indices. If that occurred, the option would be exercised and the Series
involved would not benefit from any increase in value above the exercise price.
Usually, this risk can be eliminated by entering into an offsetting transaction.
However, the cost to do an offsetting transaction and terminate the Series'
obligation might be more or less than the premium received when it originally
wrote the option. Further, the Series might occasionally not be able to close
the option because of insufficient activity in the options market.
Call and Put Options--Each Series (except Money Market) 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 to obligate the writer (seller) to sell
a security or financial instrument at a stated price (strike price) at any time
until a designated future date when the option expires (expiration date). A put
option gives the holder (buyer) the right to sell and to obligate the writer
(seller) to purchase a security or financial instrument at a stated price at any
time until the expiration date. A Series (except Money Market) 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 Aeltus.
A Series (other than Legacy, Crossroads, Ascent and Money Market) may purchase
and sell futures contracts and related options under the following conditions:
(a) the then-current aggregate futures market prices of financial instruments
required to be delivered and purchased under open futures contracts shall not
exceed 30% of a Series' total assets, at market value (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall be
committed to margin deposits in relation to futures contracts. No Series other
than Legacy, Crossroads and Ascent may have call options outstanding at any one
time on more than 30% of its total assets nor will it buy put options if more
than 3% of its assets immediately following such purchase would consist of put
options. Each Series except Legacy, Crossroads, Ascent and Money Market may
purchase call and sell put options only to close out positions it previously
opened. Each will only write a call option on a security it already owns and
will not write call options on when-issued securities. Securities it "already
owns" include any stock which it has the right to acquire without any additional
payment, at its discretion for as long as the put or call remains outstanding.
As evidence of this hedging intent, each Series expects that at least 75% of
futures contract purchases will be "completed"; that is, upon the sale of these
long contracts, equivalent amounts of related securities will have been or are
then being purchased by that Series in the cash market. Money Market may not
enter into futures contracts and related options. Legacy, Crossroads and Ascent
are limited as described in their prospectus.
So long as the obligation of the writer of a call option continues, the writer
may be assigned an exercise notice by the broker-dealer through which such
option was settled, requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, by the exercise of the call option, or by
entering into an offsetting transaction. To secure the writer's obligation to
deliver the underlying security, a writer of a call option is required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the clearing corporations and of the exchanges. A Series (except Money
Market) 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 Large Cap, Index Plus Mid Cap, and Index Plus Small Cap, and Index
Plus Bond (collectively, the "Index Plus Funds"), may purchase and write call
options on stock indices, including the S&P 500, as well as on any individual
stock, as described below. The Index
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Plus Funds 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 Aeltus 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"). The Index Plus Funds
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 the Index Plus Fund(s) 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 segregate liquid assets with a value equal to or greater than the
exercise price of the put option. The writer therefore foregoes the opportunity
of investing the segregated assets or writing calls against those assets. A
Series (except Money Market) 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.
A Series (except Money Market) may purchase put options when Aeltus 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
may be used to protect a Series' holdings in an underlying security against a
substantial decline in market value. Such protection is, of course, only
provided during the life of the put option when a Series, as the holder of the
put option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. By using
put options in this manner, a Series will reduce any profit it might otherwise
have realized in its underlying security by the premium paid for the put option
and by transaction costs. The security covering the call or put option will be
maintained in a segregated account of a Series' custodian.
The premium received from writing a call or put option, or paid for purchasing a
call or put option will reflect, among other things, the current market price of
the underlying security, the relationship of the exercise price to such market
price, the historical price volatility of the underlying security, the length of
the option period, and the general interest rate environment. The premium
received by a Series for writing call options will be recorded as a liability in
the statement of assets and liabilities of that Series. This liability will be
adjusted daily to the option's current market value. The liability will be
extinguished upon expiration of the option, by the exercise of the option, or by
entering into an offsetting transaction. Similarly, the premium paid by a Series
when purchasing a put option will be recorded as an asset in the statement of
assets and liabilities of that Series. This asset will be adjusted daily to the
option's current market value. The asset will be extinguished upon expiration of
the option, by selling an identical option in a closing transaction, or by
exercising the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security from being
called or put, or to permit the exchange or tender of the underlying security.
Furthermore, effecting a closing transaction will permit a Series to write
another call option, or purchase another put option, on the underlying security
with either a different exercise price or expiration date or both. If a Series
desires to sell a particular security from its portfolio on which it has written
a call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security. There is,
of course, no assurance that a Series will be able to effect a closing
transaction at a favorable price. If a Series cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk on the security. A
Series 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, a Series (except Money Market) may purchase an underlying security
for delivery in accordance with an
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exercise notice of a call option assignment, rather than delivering such
security from its portfolio. In such cases additional brokerage commissions will
be incurred.
A Series 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 call option; however, any loss so incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different option. Also, because increases
in the market price of a call option will generally reflect increases in the
market price of the underlying security, any loss resulting from the repurchase
of a call option is likely to be offset in whole or in part by appreciation of
the underlying security owned by a Series. Any profits from writing covered call
options are considered short-term gain for federal income tax purposes and, when
distributed by a Series, are taxable as ordinary income.
Foreign Futures Contracts and Foreign Options--The Series (except Money Market)
may engage in transactions in foreign futures contracts and foreign options.
Participation in foreign futures contracts and foreign options transactions
involves the execution and clearing of trades on or subject to the rules of a
foreign board of trade. Neither the CFTC, the National Futures Association (the
"NFA") nor any domestic exchange regulates activities of any foreign boards of
trade including the execution, delivery and clearing of transactions, or has the
power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign laws. Generally, the foreign transaction will be governed by
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures contracts or
foreign options transaction occurs. Investors which trade foreign futures
contracts or foreign options contracts may not be afforded certain of the
protective measures provided by domestic exchanges, including the right to use
reparations proceedings before the CFTC and arbitration proceedings provided by
the NFA. In particular, funds received from customers for foreign futures
contracts or foreign options transactions may not be provided the same
protections as funds received for transactions on United States futures
exchanges. The price of any foreign futures contracts or foreign options
contract and, therefore, the potential profit and loss thereon, may be affected
by any variance in the foreign exchange rate between the time an order is placed
and the time it is liquidated, offset or exercised.
Options on Foreign Currencies--Each Series (except Money Market) may write and
purchase calls on foreign currencies. A Series (except Money Market) may
purchase and write puts and calls on foreign currencies that are traded on a
securities or commodities exchange or quoted by major recognized dealers in such
options for the purpose of protecting against declines in the dollar value of
foreign securities and against increases in the dollar cost of foreign
securities to be acquired. If a rise is anticipated in the dollar value of a
foreign currency in which securities to be acquired are denominated, the
increased cost of such securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If a decline in the dollar value of a
foreign currency is anticipated, the decline in value of portfolio securities
denominated in that currency may be partially offset by writing calls or
purchasing puts on that foreign currency. In the event of rate fluctuations
adverse to a Series' position, it would lose the premium it paid and
transactions costs. A call written on a foreign currency by a Series is covered
if the Series owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call may be written by a Series (except Money Market)
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
the Series 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, the Series collateralizes the position by maintaining in a
segregated account with the Series' custodian cash or U.S. Government securities
in an amount not less than the value of the underlying foreign currency in U.S.
dollars marked-to-market daily.
Forward Exchange Contracts--Each Series (except Money Market) may enter into
forward contracts for foreign currency (forward exchange contracts), which
obligate the seller to deliver and the purchaser to take a specific amount of a
specified foreign currency at a future date at a price set at the time of the
contract. These contracts are generally traded in the interbank market conducted
directly between currency traders and their customers. A Series (except Money
Market) 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. Each Series (except Money Market) 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 Aeltus to correctly identify and monitor the correlation between foreign
currencies and the U.S. dollar. To the extent that the correlation is not
identical, a Series may experience losses or gains on both the underlying
security and the cross currency hedge.
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Each Series (except Money Market) may use forward exchange contracts to protect
against uncertainty in the level of future exchange rates. The use of forward
exchange contracts does not eliminate fluctuations in the prices of the
underlying securities the Series owns or intends to acquire, but it does fix a
rate of exchange in advance. In addition, although forward exchange contracts
limit the risk of loss due to a decline in the value of the hedged currencies,
at the same time they limit any potential gain that might result should the
value of the currencies increase.
There is no limitation as to the percentage of a Series' assets that may be
committed to forward exchange contracts. The Series will not enter into a "cross
hedge," unless it is denominated in a currency or currencies that Aeltus
believes will have price movements that tend to correlate closely with the
currency in which the investment being hedged is denominated.
The Fund's custodian will segregate securities of a Series or other liquid
high-quality securities in a separate account of each Series having a value
equal to the aggregate amount of that Series' commitments under forward
contracts entered into with respect to position hedges and cross hedges. If the
value of the securities segregated declines, additional cash or securities will
be placed in the account on a daily basis so that the value of the account will
equal the amount of the Series' commitments with respect to such contracts. As
an alternative to maintaining all or part of the separate account, a Series
(except Money Market) may purchase a call option permitting the Series to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price, or a Series (except Money
Market) may purchase a put option permitting the Series to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price. Unanticipated changes in currency prices
may result in poorer overall performance for a Series than if it had not entered
into such contracts.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Series to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Series is obligated to deliver and
if a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Series is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Series to sustain losses
on these contracts and transactions costs.
At or before the maturity of a forward exchange contract requiring a Series to
sell a currency, the Series may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Series will obtain, on the same maturity date,
the same amount of the currency that it is obligated to deliver. Similarly, a
Series may close out a forward contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount
of the same currency on the maturity date of the first contract. The Series
would realize a gain or loss as a result of entering into such an offsetting
forward contract under either circumstance to the extent the exchange rate(s)
between the currencies involved moved between the execution dates of the first
contract and the offsetting contract.
The cost to a Series of engaging in forward exchange contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. Because
such contracts are not traded on an exchange, a Series must evaluate the credit
and performance risk of each particular counterparty under a forward contract.
Although the Series value their assets daily in terms of U.S. dollars, they do
not intend to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. The Series may convert foreign currency from time to time.
Foreign exchange dealers do not charge a fee for conversion, but they do seek to
realize a profit based on the difference between the prices at which they buy
and sell various currencies. Thus, a dealer may offer to sell a foreign currency
to the Series at one rate, while offering a lesser rate of exchange should the
Series 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 the Series enter into all
short futures for the purpose of hedging the value of securities held, and that
all long futures positions either constitute bona fide hedging transactions, as
defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained, and
accrued profits on such positions. With respect to futures contracts or related
options that are entered into for purposes that may be considered speculative,
the aggregate initial margin for future contracts and premiums for options will
not exceed 5% of a Series' net assets, after taking into account realized
profits and unrealized losses on such futures contracts.
8
<PAGE>
Interest Rate Swap Transactions--Swap agreements entail both interest rate risk
and credit risk. There is a risk that, based on movements of interest rates in
the future, the payments made by a Series under a swap agreement will have been
greater than those received by it. Credit risk arises from the possibility that
the counterparty will default. If the counterparty to an interest rate swap
defaults, a Series' loss will consist of the net amount of contractual interest
payments that a Series has not yet received. Aeltus will monitor the
creditworthiness of counterparties to a Series' interest rate swap transactions
on an ongoing basis. A Series will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting agreement
provides that all swaps done between a Series 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, the
following sets forth certain information regarding the potential risks
associated with a Series' transactions in derivatives.
Risk of Imperfect Correlation--A Series' ability to hedge effectively all or a
portion of its portfolio through transactions in futures, options on futures or
options on securities and indexes depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the assets being hedged. If the values
of the assets being hedged do not move in the same amount or direction as the
underlying security or index, the hedging strategy for a Series might not be
successful and the Series could sustain losses on its hedging transactions which
would not be offset by gains on its portfolio. It is also possible that there
may be a negative correlation between the security or index underlying a futures
or option contract and the portfolio securities being hedged, which could result
in losses both on the hedging transaction and the portfolio securities. In such
instances, the Series' overall return could be less than if the hedging
transactions had not been undertaken. Stock index futures or options based on a
narrower index of securities may present greater risk than options or futures
based on a broad market index, as a narrower index is more susceptible to rapid
and extreme fluctuations resulting from changes in the value of a small number
of securities. The Series would, however, effect transactions in such futures or
options only for hedging purposes (or to close out open positions).
The trading of futures and options on indices involves the additional risk of
imperfect correlation between movements in the futures or option price and the
value of the underlying index. The anticipated spread between the prices may be
distorted due to differences in the nature of the markets, such as differences
in margin requirements, the liquidity of such markets and the participation of
speculators in the futures and options market. The purchase of an option on a
futures contract also involves the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the futures contract or termination date of the
option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction costs,
although it may be necessary under certain circumstances to exercise the option
and enter into the underlying futures contract in order to realize a profit.
Under certain extreme market conditions, it is possible that a Series will not
be able to establish hedging positions, or that any hedging strategy adopted
will be insufficient to completely protect the Series.
The Series will purchase or sell futures contracts or options for hedging
purposes only if, in Aeltus' judgment, there is expected to be a sufficient
degree of correlation between movements in the value of such instruments and
changes in the value of the relevant portion of the assets being hedged for the
hedge to be effective. There can be no assurance that Aeltus' judgment will be
accurate.
Potential Lack of a Liquid Secondary Market--The ordinary spreads between prices
in the cash and futures markets, due to differences in the natures of those
markets, are subject to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin requirements. This
could require a Series to post additional cash or cash equivalents as the value
of the position fluctuates. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures or options market may be
lacking. Prior to exercise or expiration, a futures or option position may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the exchange on which the position was originally
established. While a Series will establish a futures or option position only if
there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular futures or option
contract at any specific time. In such event, it may not be possible to close
out a position held by the Series, which could require the Series to purchase or
sell the instrument underlying the position, make or receive a cash settlement,
or meet ongoing variation margin requirements. The inability to close out
futures or option positions also could have an adverse impact on the Series'
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
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<PAGE>
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 Aeltus'
judgment concerning the general direction of interest rates is incorrect, a
Series' overall performance may be poorer than if it had not entered into any
such contract. For example, if a Series has been hedged against the possibility
of an increase in interest rates which would adversely affect the price of bonds
held in its portfolio and interest rates decrease instead, the Series will lose
part or all of the benefit of the increased value of its bonds which have been
hedged because it will have offsetting losses in its futures positions. In
addition, in such situations, if the Series 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
the Series.
Repurchase Agreements
Each Series 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. Under a repurchase agreement, a Series may
acquire a debt instrument for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase and the Series to
resell the instrument at a fixed price and time, thereby determining the yield
during the Series' holding period. This results in a fixed rate of return
insulated from market fluctuations during such period. Such underlying debt
instruments serving as collateral will meet the quality standards of a Series.
The market value of the underlying debt instruments will, at all times, be equal
to the dollar amount invested. Repurchase agreements, although fully
collateralized, involve the risk that the seller of the securities may fail to
repurchase them from a Series. In that event, a Series may incur (a) disposition
costs in connection with liquidating the collateral, or (b) a loss if the
collateral declines in value. Also, if the default on the part of the seller is
due to insolvency and the seller initiates bankruptcy proceedings, a Series'
ability to liquidate the collateral may be delayed or limited. Under the 1940
Act, repurchase agreements are considered loans by a Series. Repurchase
agreements maturing in more than seven days will not exceed 10 percent of the
total assets of a Series.
Variable Rate Demand Instruments
Variable rate demand instruments (including floating rate instruments) held by a
Series may have maturities of more than one year, provided: (i) the Series is
entitled to the payment of principal at any time, or during specified intervals
not exceeding one year, upon giving the prescribed notice (which may not exceed
30 days), and (ii) the rate of interest on such instruments is adjusted at
periodic intervals not to exceed one year. In determining whether a variable
rate demand instrument has a remaining maturity of one year or less, each
instrument will be deemed to have a maturity equal to the longer of the period
remaining until its next interest rate adjustment or the period remaining until
the principal amount can be recovered through demand. A Series will be able (at
any time or during specified periods not exceeding one year, depending upon the
note involved) to demand payment of the principal of a note. If an issuer of a
variable rate demand note defaulted on its payment obligation, a Series might be
unable to dispose of the note and a loss would be incurred to the extent of the
default. A Series may invest in variable rate demand notes only when the
investment is deemed to involve minimal credit risk. The continuing
creditworthiness of issuers of variable rate demand notes held by a Series 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 the limitations on illiquid securities
set forth in this Statement.
Foreign Securities
Investments in foreign securities, including futures and options contracts,
offer potential benefits not available solely through investment in securities
of domestic issuers. Foreign securities offer the opportunity to invest in
foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in exchange rates, adverse foreign political and
economic developments, and the possible imposition of exchange controls or other
foreign governmental laws or restrictions. Since the Series 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
10
<PAGE>
depreciation of investments so far as U.S. investors are concerned. In addition,
with respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability, or diplomatic
developments that could adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. company, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. issuers. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable U.S. issuers. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the United States. 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
the Series, but also indirectly bear similar expenses of the underlying
closed-end fund. Also, as a result of a Series' policy of investing in
closed-end mutual funds, investors in the Series may receive taxable capital
gains distributions to a greater extent than if he or she had invested directly
in the underlying closed-end fund.
Dividend and interest income from foreign securities may generally be subject to
withholding taxes by the country in which the issuer is located and may not be
recoverable by a Series 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 the investment limitation concerning investment in foreign
securities.
Mortgage-Related Debt Securities
Federal mortgage-related securities include obligations issued or guaranteed by
the Government National Mortgage Association (GNMA), the Federal National
Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation
(FHLMC). GNMA is a wholly owned corporate instrumentality of the United States,
the securities and guarantees of which are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately owned
corporation, and FHLMC, a federal corporation, are instrumentalities of the
United States with Presidentially-appointed board members. The obligations of
FNMA and FHLMC are not explicitly guaranteed by the full faith and credit of the
federal government.
Pass-through mortgage-related securities are characterized by monthly payments
to the holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the security holders,
like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, often twenty or thirty years, the borrowers can, and typically do, repay
such loans sooner. Thus, the security holders frequently receive repayments of
principal, in addition to the principal which is part of the regular monthly
payment. A borrower is more likely to repay a mortgage which bears a relatively
high rate of interest. This means that in times of declining interest rates,
some higher yielding securities held by a Series might be converted to cash, and
the Series could be expected to reinvest such cash at the then prevailing lower
rates. The increased likelihood of prepayment when interest rates decline also
limits market price appreciation of mortgage-related securities. If a Series
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, the Series may also invest in collateralized
mortgage obligations (CMOs) and real estate mortgage investment conduits
(REMICs). CMOs and REMICs are securities which are collateralized by mortgage
pass-through securities. Cash flows from underlying mortgages are allocated to
various classes or tranches in a predetermined, specified order. Each sequential
tranche has a "stated maturity"--the latest date by which the tranche can be
completely repaid, assuming no repayments--and 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.
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<PAGE>
CMOs and REMICs are typically structured as "pass-through" securities. In these
arrangements, the underlying mortgages are held by the issuer, which then issues
debt collateralized by the underlying mortgage assets. The security holder thus
owns an obligation of the issuer and payment of interest and principal on such
obligations is made from payments generated by the underlying mortgage assets.
The underlying mortgages may be guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. Government such as GNMA or
otherwise backed by FNMA or FHLMC. Alternatively, such securities may be backed
by mortgage insurance, letters of credit or other credit enhancing features.
Both CMOs and REMICs are issued by private entities. They are not directly
guaranteed by any government agency and are secured by the collateral held by
the issuer.
Asset-Backed Securities
Asset-backed securities are collateralized by short-term loans such as
automobile loans, home equity loans, or credit card receivables. The payments
from the collateral are generally passed through to the security holder. As
noted above with respect to CMOs and REMICs, the average life for these
securities is the conventional proxy for maturity. Asset-backed securities may
pay all interest and principal to the holder, or they may pay a fixed rate of
interest, with any excess over that required to pay interest going either into a
reserve account or to a subordinate class of securities, which may be retained
by the originator. The originator may guarantee interest and principal payments.
These guarantees often do not extend to the whole amount of principal, but
rather to an amount equal to a multiple of the historical loss experience of
similar portfolios.
Other asset-backed securities are similar to CMOs and REMICs in structure and
operations. Two varieties of asset-backed securities are CARs and CARDs. CARs
are securities, representing either ownership interests in fixed pools of
automobile receivables, or debt instruments supported by the cash flows from
such a pool. CARDs are participations in fixed pools of credit accounts. These
securities have varying terms and degrees of liquidity.
CMOs, REMICs and other asset-backed securities are subject to the type of
prepayment risk discussed above due to the possibility that prepayments on the
underlying assets will alter the cash flow. The collateral behind asset-backed
securities tends to have prepayment rates that do not vary with interest rates;
the short-term nature of the loans may also tend to reduce the impact of any
change in prepayment level. Faster prepayments will shorten the average life and
slower prepayments will lengthen it. Asset-backed securities may be
pass-through, representing actual equity ownership of the underlying assets, or
pay-through, representing debt instruments supported by cash flows from the
underlying assets.
The coupon rate of interest on mortgage-related and asset-backed securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor. Actual yield may vary from the coupon rate, however, if such
securities are purchased at a premium or discount, traded in the secondary
market at a premium or discount, or to the extent that the underlying assets are
prepaid as noted above.
High-Yield Bonds
The Series, except Money Market, Government Fund and International may invest in
high-yield bonds, subject to the limits described above, which bonds are fixed
income securities that offer a current yield above that generally available on
debt securities rated in the four highest categories by Moody's Investors
Service, Inc. (Moody's) and Standard & Poor's Corporation (S&P) or other rating
agencies, or, if unrated, are considered to be of comparable quality by Aeltus.
These securities include:
(a) fixed rate corporate debt obligations (including bonds, debentures and
notes) rated Ba or lower by Moody's or BB or lower by S&P;
(b) preferred stocks that have yields comparable to those of high-yielding
debt securities; and
(c) any securities convertible into any of the foregoing.
Debt obligations rated BB/Ba or lower are regarded as speculative and generally
involve more risk of loss of principal and income than higher-rated securities.
Also their yields and market values tend to fluctuate more. Fluctuations in
value do not affect the cash income from the securities but are reflected in a
Series' net asset value. The greater risks and fluctuations in yield and value
occur, in part, because investors generally perceive issuers of lower-rated and
unrated securities to be less creditworthy. Lower ratings, however, may not
necessarily indicate higher risks. In pursuing a Series' objectives, Aeltus
seeks to identify situations in which Aeltus believes that future developments
will enhance the creditworthiness and the ratings of the issuer.
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<PAGE>
The yields earned on high-yield bonds generally are related to the quality
ratings assigned by recognized ratings agencies. The securities in which the
Series invest tend to offer higher yields than those of other securities with
the same maturities because of the additional risks associated with them. These
risks include:
(1) Sensitivity to Interest Rate and Economic Changes. High-yield bonds are
more sensitive to adverse economic changes or individual corporate
developments but generally 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-yield bonds tend not to rise as much as the prices of
these other bonds.
Also, the financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability
of issuers of these securities to service their principal and interest
payments, to meet projected business goals and to obtain additional
financing, than on more creditworthy issuers. Holders of these securities
could also be at greater risk because these securities are generally
unsecured and subordinated to senior debt holders and secured creditors. If
the issuer of a high-yield bond owned by a Series defaults, the Series may
incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and changes can be expected to result in increased
volatility of market prices of these securities and a Series' net asset
value. Furthermore, in the case of high-yield 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-yield bonds present risks based on payment
expectations. For example, these securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest
rate market, the Series may have to replace the securities with a lower
yielding security, resulting in a decreased return for investors. 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 issuers of high-yield 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-yield
bonds may not accurately reflect the true risks of an investment. Credit
ratings typically evaluate the safety of principal and interest payments
rather than the market value risk of such securities. In addition, credit
agencies may fail to adjust credit ratings to reflect rapid changes in
economic or company conditions that affect a security's market value.
Although the ratings of recognized rating services such as Moody's and S&P
are considered, Aeltus primarily relies on its own credit analysis which
includes a study of existing debt, capital structure, ability to service
debts and to pay dividends, the issuer's sensitivity to economic
conditions, its operating history and the current trend of earnings. Thus
the achievement of a Series' investment objective may be more dependent on
Aeltus' 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-yield 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
All of the Series may invest in zero coupon securities and all Series except
Money Market may invest in pay-in-kind securities. In addition, the Series may
invest in STRIPS (Separate Trading of Registered Interest and Principal of
Securities). Zero coupon or deferred interest securities are debt obligations
that do not entitle the holder to any periodic payment of interest prior to
maturity or a specified date when the securities begin paying current interest
(the "cash payment date") and therefore are issued and traded at a discount from
their face amounts or par value. The discount varies, depending on the time
remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, decreases as
the final maturity or cash payment date of the security approaches. STRIPS are
created by the Federal reserve bank by separating the interest and principal
components of an outstanding U.S. treasury bond and selling them as individual
securities. The market prices of zero coupon, STRIPS and deferred interest
securities generally are more volatile than the market prices of securities with
similar maturities that pay interest periodically and are likely to respond to
changes in interest rates to a greater degree than do non-zero coupon securities
having similar maturities and credit quality.
The risks associated with lower-rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, a Series may realize no return on its investment, because
these securities do not pay cash interest.
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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.
When-Issued or Delayed-Delivery Securities
During any period that a Series has outstanding a commitment to purchase
securities on a when-issued or delayed-delivery basis, that Series will
segregate cash or liquid securities with its custodian bank. To the extent that
the market value of securities held in this segregated account falls below the
amount that the Series will be required to pay on settlement, additional assets
may be required to be segregated. Such segregated assets could affect the
Series' liquidity and ability to manage its portfolio. When a Series engages in
when-issued or delayed-delivery transactions, it is effectively relying on the
seller of such securities to consummate the trade; failure of the seller to do
so may result in the Series' incurring a loss or missing an opportunity to
invest segregated assets more advantageously. A Series will not pay for
securities purchased on a when-issued or delayed-delivery basis, or start
earning interest on such securities, until the securities are actually received.
However, any security so purchased will be recorded as an asset of the
purchasing Series 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
For the periods ended October 31, 1995 and October 31, 1996 the portfolio
turnover rates were as follows:
1995 1996
Government Fund 117.31% 50.48%
Bond Fund 56.99% 42.33%
Balanced Fund 129.05% 117.88%
Growth and Income 127.43% 106.09%
Growth 171.75% 144.19%
Small Company 156.43% 163.21%
International 32.91% 135.92%
Ascent 164.09% 104.84%
Crossroads 166.93% 107.40%
Legacy 179.88% 91.62%
In 1995 the portfolio turnover rate for Government Fund was higher than expected
due to very large withdrawals by the Series' largest investor.
In 1995 the portfolio turnover rates were higher than expected for Ascent,
Crossroads and Legacy due to very large withdrawals by the Series' largest
investor. This was a one-time event. Had these activities not occurred, the
portfolio turnover rates would have been 102.69% for Ascent, 115.99% for
Crossroads, and 136.31% for Legacy.
In 1996 the portfolio turnover rate for International was higher than expected
because of the merger of Aetna Asian Growth into International in September
1996.
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DIRECTORS AND OFFICERS
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
(*). Certain Directors and officers hold similar positions with investment
companies in the same Fund Complex managed by Aetna Life Insurance and Annuity
Company (Aetna) as the investment adviser. The 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., Aetna Variable
Portfolios, Inc. and Portfolio Partners, Inc.
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation During Past Five Years (and Positions held
Name, Address and Age with the Fund with Affiliated Persons or Principal Underwriters of the Fund)
--------------------- ------------- --------------------------------------------------------------
<S> <C> <C>
Shaun P. Mathews* Director and President Vice President/Senior Vice President, Aetna Life Insurance and Annuity
151 Farmington Avenue Company, March 1991 to present; Vice President, Aetna Life Insurance
Hartford, Connecticut Company, 1991 to present; Director and President, Aetna Investment
Age 42 Services, Inc., July 1993 to present; Director and Senior Vice
President, Aetna Insurance Company of America, September 1992 to present.
Wayne F. Baltzer Vice President Assistant Vice President, Aetna Life Insurance and Annuity Company, May
151 Farmington Avenue 1991 to present; Vice President, Aetna Investment Services, Inc., July
Hartford, Connecticut 1993 to present.
Age 54
Martin T. Conroy Vice President Assistant Treasurer, Aetna Retirement Holdings, Inc., September 1997 to
151 Farmington Avenue present; Assistant Treasurer, Aetna Life Insurance and Annuity Company,
Hartford, Connecticut October 1991 to present.
Age 57
J. Scott Fox Vice President and Director, Managing Director, Chief Financial Officer, Chief Operating
151 Farmington Avenue Treasurer Officer, Aeltus Investment Management, Inc. (Aeltus), October 1997 to
Hartford, Connecticut present; Vice President, Aetna Retirement Services, Inc., March 1997 to
Age 42 present; Director and Senior Vice President, Aetna Retirement Holdings,
Inc., April 1997 to present; Director and President, Aetna Life
Assignment Company, September 1997 to present; Director and Senior Vice
President, Aetna Life Insurance and Annuity Company, March 1997 to
present; Director, Managing Director, Chief Operating Officer, Chief
Financial Officer and Treasurer, Aeltus, April 1994 to March 1997;
Managing Director and Treasurer, Equitable Capital Management Corp.,
March 1987 to September 1993; Director and Chief Financial Officer,
Aeltus Capital, Inc. and Aeltus Trust Company, Inc.; Director, President
and Chief Executive Officer, Aetna Investment Management, (Bermuda)
Holding, Ltd.
Amy R. Doberman Secretary Counsel, Aetna Life Insurance and Annuity Company, December 1996 to
151 Farmington Avenue present; Attorney, Securities and Exchange Commission, March 1990 to
Hartford, Connecticut November 1996.
Age 35
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City Department of Mental
325 Piermont Road Health, Mental Retardation and Alcohol Services, 1973 to present.
Closter, New Jersey
Age 54
David L. Grove Director, Chairperson Private Investor; Economic/Financial Consultant, December 1985 to
5 The Knoll Contract Committee present.
Armonk, New York
Age 79
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation During Past Five Years (and Positions held
Name, Address and Age with the Fund with Affiliated Persons or Principal Underwriters of the Fund)
--------------------- ------------- --------------------------------------------------------------
<S> <C> <C>
Timothy A. Holt* Director Director, Senior Vice President and Chief Financial Officer, Aetna Life
151 Farmington Avenue Insurance and Annuity Company, February 1996 to present; Senior Vice
Hartford, Connecticut President, Aetna Retirement Holdings, Inc., September 1997 to present;
Age 44 Director, Aetna Investment Services, Inc., September 1997 to present;
Vice President, Portfolio Management/Investment Group, Aetna Inc.
(formerly Aetna Life and Casualty Company), June 1991 to February 1996;
Director, Aetna Retirement Holdings, Inc., March 1996 to present; Vice
President, Aetna Retirement Holdings, Inc., September 1996 to September
1997.
Sidney Koch Director Financial Adviser, self-employed, January 1993 to present; Senior
455 East 86th Street Adviser, Daiwa Securities America, Inc., January 1992 to January 1993.
New York, New York
Age 62
Corine T. Norgaard Director Dean of the Barney School of Business, University of Hartford, (West
556 Wormwood Hill Hartford, CT), August 1996 to present; Professor, Accounting and Dean
Mansfield Center, of the School of Management, Binghamton University, (Binghamton, NY),
Connecticut August 1993 to August 1996; Professor, Accounting, University of
Age 60 Connecticut, (Storrs, CT), September 1969 to June 1993; Director, The
Advest Group (holding company for brokerage firm) through September 1996.
Richard G. Scheide Director, Chairperson Trust and Private Banking Consultant, David Ross Palmer Consultants, July
11 Lily Street Audit Committee 1991 to present.
Nantucket, Massachusetts
Age 68
</TABLE>
*Interested persons as defined in the 1940 Act.
During the period ended October 31, 1996, 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 the Fund. Members of the Board of
Directors who are not affiliated as employees of Aetna Inc. or its subsidiaries
received an annual retainer of $30,000 for service on the Board, and a fee of
$5,000 for each meeting of such Board (equal to an aggregate annual fee of
$25,000). They also received a fee of $3,000 per Audit Committee meeting, and
$5,000 per Contract Committee meeting.
16
<PAGE>
As of October 31, 1996, 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>
Aggregate Compensation Total Compensation from the Fund and Fund
Name of Person, Position from the Fund Complex Paid to Directors
<S> <C> <C>
Corine Norgaard $7,125 $71,250
Director and Member,
Audit and Contract Committees
Sidney Koch $6,825 $68,250
Director and Member,
Audit and Contract Committees
Maria T. Fighetti $5,925 $59,250
Director and Member,
Audit and Contract Committees
Richard G. Scheide $6,425 $64,250
Director, Chairperson
Audit Committee, Member
Contract Committee
David L. Grove $6,425* $64,250*
Director, Chairperson
Contract Committee, Member
Audit Committee
</TABLE>
*Mr. Grove elected to defer all such compensation under an existing deferred
compensation plan.
The Fund has obtained an order from the Securities and Exchange Commission which
allows the members of the Board of Directors who are not affiliated with Aetna
Inc. or any of its subsidiaries to defer all or a portion of their compensation
in accordance with the terms of a new Deferred Compensation Plan (the "Plan").
Under the Plan, compensation deferred by an unaffiliated Director is
periodically adjusted as though an equivalent amount had been invested and
reinvested in shares of one or more series of Aetna Series Fund, Inc. designated
by the Director. The amount paid to the unaffiliated Director under the Plan
will be based upon the performance of such investments. Deferral of compensation
in accordance with the Plan will have a negligible effect on the assets,
liabilities and net income per share of any Series and will not obligate the
Fund to retain the services of any Director or to pay any particular level of
compensation to any Director.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of September 30, 1997, Aetna and Aetna Life Insurance Company (ALIC) had a
controlling interest in the following series of the Fund:
Class I ALIAC ALIC
Bond Fund 38.00%
Government Fund 84.79%
Index Plus Large Cap 75.59%
International 37.80%
Money Market 28.50%
Small Company 40.60% 37.59%
Ascent 77.16%
Crossroads 82.12%
Legacy 66.89% 28.73%
Class A
International 79.56%
As of September 30, 1997, officers and Directors owned less than 1% of the
outstanding shares of any of the Series.
17
<PAGE>
THE INVESTMENT ADVISORY AGREEMENTS
The Fund, on behalf of each Series, has entered into investment advisory
agreements (Advisory Agreements) appointing Aeltus as the Investment Adviser of
each Series. These Advisory Agreements were approved by the Directors on
December __, 1997. Each Advisory Agreement will be effective through December
31, 1998. The Advisory Agreements 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. Each Advisory Agreement may be terminated without penalty at any time by
the Directors or by a majority vote of the outstanding voting securities of that
Series. They may be terminated upon sixty (60) days' written notice by Aeltus.
The Advisory Agreements terminate automatically in the event of assignment. The
Advisory Agreements replace investment advisory agreements with Aetna. Under the
Advisory Agreements and subject to the supervision of the Directors of the Fund,
Aeltus has responsibility for supervising all aspects of the operations of each
Series including the selection, purchase and sale of securities on behalf of
each Series. Under the Advisory Agreements, Aeltus is given the right to
delegate any or all of its obligations to a subadviser.
The Advisory Agreements provide that Aeltus 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 each Series is responsible for payment of
all other of its costs.
For its services Aeltus receives the following annual investment advisory fees
expressed as a percentage of the average daily net assets of each Series:
<TABLE>
<CAPTION>
Money Market Government Fund; Bond Fund
Fee Assets Fee Assets
<S> <C> <C> <C>
0.40% On first $500 million 0.50% On first $250 million
0.35% On next $500 million 0.475% On next $250 million
0.34% On next $1 billion 0.450% On next $250 million
0.33% On next $1 billion 0.425% On next $1.25 billion
0.30% Over $3 billion 0.40% Over $2 billion
Balanced Fund Growth and Income; Growth
Fee Assets Fee Assets
0.80% On first $500 million 0.70% On first $250 million
0.75% On next $500 million 0.65% On next $250 million
0.70% On next $1 billion 0.625% On next $250 million
0.65% Over $2 billion 0.60% On next $1.25 billion
0.55% Over $2 billion
Small Company International
Fee Assets Fee Assets
0.85% On first $250 million 0.85% On first $250 million
0.80% On next $250 million 0.80% On next $250 million
0.775% On next $250 million 0.775% On next $250 million
0.75% On next $1.25 billion 0.75% On next $1.25 billion
0.725% Over $2 billion 0.70% Over $2 billion
Ascent; Crossroads; Legacy Index Plus Large Cap
Fee Assets Fee Assets
0.80% On first $500 million 0.45% On first $250 million
0.775% On next $500 million 0.45% On next $250 million
0.75% On next $500 million 0.425% On next $250 million
0.725% On next $500 million 0.40% On next $250 million
0.70% Over $2 billion 0.40% On next $1 billion
0.375% Over $2 billion
High Yield Real Estate
Fee Assets Fee Assets
0.65% On first $250 million 0.80% On first $250 million
0.60% On next $250 million 0.75% On next $250 million
0.575% On next $250 million 0.725% On next $250 million
0.55% On next $1.25 billion 0.70% On next $1.25 billion
0.50% Over $2 billion 0.65% Over $2 billion
18
<PAGE>
Value Opportunity Mid Cap
Fee Assets Fee Assets
0.70% On first $250 million 0.75% On first $250 million
0.65% On next $250 million 0.70% On next $250 million
0.625% On next $250 million 0.675% On next $250 million
0.60% On next $1.25 billion 0.65% On next $1.25 billion
0.55% Over $2 billion 0.60% Over $2 billion
Index Plus Mid Cap Index Plus Small Cap
Fee Assets Fee Assets
0.45% On first $250 million 0.45% On first $250 million
0.45% On next $250 million 0.45% On next $250 million
0.425% On next $250 million 0.425% On next $250 million
0.40% On next $1.25 billion 0.40% On next $1.25 billion
0.375% Over $2 billion 0.375% Over $2 billion
Index Plus Bond
Fee Assets
0.35% On first $250 million
0.35% On next $250 million
0.325% On next $250 million
0.30% On next $1.25 billion
0.275% Over $2 billion
</TABLE>
Prior to the date of this Statement Aetna acted as investment adviser. Aetna
received investment advisory fees as follows:
<TABLE>
<CAPTION>
Total Investment Aetna Net Investment Advisory
Advisory Fees Reimbursement Fees Paid
<S> <C> <C> <C>
For Period Ended October 31, 1994*
Money Market $ 544,857 $ 544,857 $ 0
Government Fund 91,999 91,999 0
Bond Fund 210,162 128,686 81,476
Balanced Fund 569,014 156,406 412,608
Growth and Income 625,998 101,043 524,955
Growth 121,917 87,583 34,334
Small Company 144,601 73,512 71,089
International 357,374 55,230 302,144
For Year Ended October 31, 1995
Money Market $ 1,083,771 $ 1,083,771 $ 0
Government Fund 109,261 109,261 0
Bond Fund 227,665 143,622 84,043
Balanced Fund 706,625 26,507 680,118
Growth and Income 2,288,249 0 2,288,249
Growth 231,452 34,500 196,952
Small Company 257,552 22,162 235,390
International 472,412 74,627 397,785
Ascent** 157,225 0 157,225
Crossroads** 156,356 0 156,356
Legacy** 155,255 0 155,255
For Year Ended October 31, 1996
Money Market $ 1,560,183 $ 1,560,183 $ 0
Government Fund 67,466 67,466 0
Bond Fund 174,209 141,557 32,652
Balanced Fund 687,346 0 687,346
Growth and Income 2,616,904 0 2,616,904
Growth 296,559 0 296,559
Index Plus Large Cap*** 0 0 0
Small Company 330,302 0 330,302
19
<PAGE>
International 389,220 0 389,220
Ascent 185,916 0 185,916
Crossroads 177,185 0 177,185
Legacy 169,807 0 169,807
</TABLE>
*In 1994, the Fund changed its fiscal year to end on October 31.
**Ascent, Crossroads and Legacy commenced operations on January 4, 1995.
Investment Advisory Fees shown are for the period from January 4, 1995 to
October 31, 1995.
***Index Plus Large Cap commenced operations on December 10, 1996.
THE ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Administrative Services Agreement described below, Aeltus acts
as administrator and provides certain administrative and shareholder services
necessary for Fund operations and is responsible for the supervision of other
service providers. The services provided by Aeltus may include: (1) internal
accounting services; (2) monitoring regulatory compliance, such as reports and
filings with the Commission and state securities commissions; (3) preparing
financial information for proxy statements; (4) preparing semiannual and annual
reports to shareholders; (5) preparing federal, state and local income tax
returns; (6) calculating net asset values; (7) the preparation of certain
shareholder communications; (8) supervision of the custodians and transfer
agent; and (9) reporting to the Directors.
For its services, each Series pays Aeltus a fee at an annual rate of __% of its
average daily net assets.
Prior to the date of this Statement Aetna acted as Administrator. Aetna received
administrative service fees as follows:
<TABLE>
<CAPTION>
Total Administrative Aetna Net Administrative
Service Fees Reimbursement Service Fees Paid
<S> <C> <C> <C>
For Period Ended October 31, 1994*
Money Market $ 340,536 $ 340,536 $ 0
Government Fund 46,000 46,000 0
Bond Fund 105,128 0 105,128
Balanced Fund 177,792 0 177,792
Growth and Income 223,571 0 223,571
Growth 43,542 0 43,542
Small Company 42,530 0 42,530
International 105,110 0 105,110
For Year Ended October 31, 1995
Money Market $ 677,357 $ 514,954 $ 162,403
Government Fund 54,630 21,312 33,318
Bond Fund 113,832 0 113,832
Balanced Fund 220,820 0 220,820
Growth and Income 830,718 0 830,718
Growth 82,661 0 82,661
Small Company 75,751 0 75,751
International 138,945 0 138,945
Ascent** 49,133 0 49,133
Crossroads** 48,861 0 48,861
Legacy** 48,517 0 48,517
For Year Ended October 31, 1996
Money Market $ 961,110 $ 498,621 $ 462,489
Government Fund 33,733 33,733 0
Bond Fund 87,105 0 87,105
Balanced Fund 214,796 0 214,796
Growth and Income 945,088 0 945,088
Growth 105,914 0 105,914
Index Plus Large Cap*** 0 0 0
Small Company 97,148 0 97,148
International 114,478 0 114,478
20
<PAGE>
Ascent 58,099 0 58,099
Crossroads 55,370 0 55,370
Legacy 53,065 0 53,065
</TABLE>
*In 1994, the Fund changed its fiscal year to end on October 31.
**Ascent, Crossroads and Legacy commenced operations on January 4, 1995.
Administrative Service Fees shown are for the period from January 4, 1995 to
October 31, 1995.
***Index Plus Large Cap commenced operations on December 10, 1996.
Unless terminated earlier, the Administrative Services Agreements remain in
effect from year to year if approved annually by a majority of the Directors,
including a majority of the Independent Directors. The Agreements may be
terminated by either party upon sixty (60) days' written notice.
THE LICENSE AGREEMENT
The Fund uses the service mark of the Fund and each Series, and the name "Aetna"
with the permission of Aetna Services, Inc. granted under a License Agreement.
The continued use is subject to the right of Aetna Services, Inc. to withdraw
this permission in the event Aeltus or another subsidiary or affiliated
corporation of Aetna Services, Inc. should not be the investment adviser of the
Series.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258
serves as custodian for the assets of all Series except International. Brown
Brothers Harriman & Company, 40 Water Street, Boston, Massachusetts 02109 serves
as custodian for the assets of International. Neither custodian participates in
determining the investment policies of a Series or in deciding which securities
are purchased or sold by a Series. A Series may, however, invest in obligations
of the custodian and may purchase or sell securities from or to the custodian.
Regarding portfolio securities which are purchased outside the United States,
Brown Brothers Harriman & Company has entered into sub-custodian agreements with
several foreign banks or clearing agencies which are designed to comply with
Rule 17f-5 under the 1940 Act with respect to portfolio securities held in
custody by foreign banks.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103 serves as
independent auditors to the Fund. KPMG Peat Marwick LLP provides audit services,
assistance and consultation in connection with Securities and Exchange
Commission (Commission) filings.
PRINCIPAL UNDERWRITER
Shares of each Series are offered on a continuous basis. Effective August 1,
1997, the Fund's Board of Directors approved a change in the Fund's principal
underwriter from Aetna to Aetna Investment Services, Inc. (AISI). AISI is a
Connecticut corporation, and is a wholly-owned subsidiary of Aetna Retirement
Holdings, Inc. and an indirect wholly-owned subsidiary of Aetna Inc. AISI 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. AISI 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 Directors who are not "interested persons," as that
term is defined in the 1940 Act, of Aeltus, and who are not interested persons
of the Fund (Independent Directors), appearing in person at a meeting called for
the purpose of approving such agreement. The Underwriting Agreement terminates
automatically upon assignment, and may be terminated at any time upon sixty (60)
days' written notice by the Directors or AISI or by a vote of the holders of a
majority of a Series' shares without the payment of any penalty.
DISTRIBUTION ARRANGEMENTS
Fund shares are distributed on a best efforts basis by AISI as Underwriter which
contracts with various broker-dealers, including one or more affiliates. To
compensate AISI for the services it provides AISI is paid an annual distribution
fee with respect to Class A shares of the Series (other than Money Market) at
the rate of 0.25% of the value of average daily net assets attributable to those
shares under a
21
<PAGE>
Distribution Plan adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act
to cover expenses primarily intended to result in the sale of Class A shares. It
may reallow all or a portion of these fees to broker-dealers entering into
selling agreements with it including its affiliates.
Prior to the date of this Statement, AISI received a Rule 12b-1 fee at the rate
of 0.50% and a Shareholder Service fee at the rate of 0.25% of the value of
average daily net assets. For the 10 month period ended October 31, 1994, and
the years ended October 31, 1995 and October 31, 1996, Shareholder Services and
Distribution fees were paid to Aetna (principal underwriter of the Fund prior to
August 1, 1997) as follows (fees in the amount of $17,959, $64,022 and $101,840,
respectively, were waived for Money Market):
1994* 1995 1996
Government Fund $ 229 $ 2,110 $ 4,074
Bond Fund 102,308 118,895 15,911
Balanced Fund 103,950 57,241 19,775
Growth and Income 102,402 19,108 32,657
Growth 545 7,194 23,653
Index Plus Large Cap** N/A N/A N/A
Small Company 321 5,012 20,104
International 104,655 202,548 167,007
*In 1994, the Fund changed its fiscal year to end on October 31.
**Index Plus Large Cap commenced operations December 10, 1996.
The Distribution Plan continues from year to year, provided such continuance is
approved annually by vote of the Directors, including a majority of Independent
Directors. The Distribution Plan may not be amended to increase the amount to be
spent for the services provided by AISI without shareholder approval. All
amendments to the Distribution Plan must be approved by the Directors in the
manner described above. The Distribution Plan 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 Distribution Plan.
Pursuant to the Distribution Plan, AISI will provide the Directors periodic
reports of amounts expended under the Distribution Plan and the purpose for
which such expenditures were made. For the fiscal year ended October 31, 1996,
approximately $57,773, $140,634, and $87,896 of total distribution expenses were
expended in connection with printing and mailing of prospectuses, total
commissions paid to sales personnel and advertising, respectively.
Other Payments to Securities Dealers
Securities Dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more or are responsible for purchases of Class A shares
by certain retirement plans pursuant to a sales charge waiver, as discussed in
the prospectus will be entitled to receive the following commissions:
1.00% on sales of $1 million to $3 million;
0.50% on sales over $3 million to $20 million;
0.25% on sales over $20 million.
AISI may make these payments in the form of contingent advance payments, which
may be recovered from the Securities Dealer or set off against other payments
due to the dealer if shares are sold within 12 months of the calendar month of
purchase. Other conditions may apply. All terms and conditions may be imposed by
an agreement between AISI, or one of its affiliates, and the Securities Dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
AISI and/or its affiliates provide financial support to various Securities
Dealers that sell shares of Aeltus advised Funds. This support is based
primarily on the amount of sales of fund shares. The amount of support may be
affected by: total sales; net sales; levels of redemptions; the proportion of a
Securities Dealer's sales and marketing efforts in Aeltus advised Funds; a
Securities Dealer's support of, and participation in, marketing programs; a
Securities Dealer's compensation programs for its registered representatives;
and the extent of a Securities Dealer's marketing programs relating to Aeltus
advised Funds. Financial support to Securities Dealers may be made by payments
from AISI's resources, from AISI's retention of underwriting concessions and, in
the case of funds that have Rule 12b-1 plans, from payments to AISI under such
plans. In addition, certain Securities Dealers may receive brokerage commissions
generated by fund portfolio transactions in accordance with the NASD's rules.
22
<PAGE>
Additional Information on Buying Shares
The Fund continuously offers its shares through Securities Dealers who have
entered in to an agreement to sell Fund shares. Securities Dealers may at times
receive the entire sales charge. A Securities Dealer who receives 90% or more of
the sales charge may be deemed an underwriter under the Securities Act of 1933,
as amended.
Securities laws of states where the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required by state law to register as Securities Dealers. Financial
institutions or their affiliated brokers may receive an agency transaction fee.
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the supervision of the Directors, Aeltus has responsibility for
making investment decisions, for effecting the execution of trades and for
negotiating any brokerage commissions thereon. It is Aeltus' policy to obtain
the best quality of execution available, giving attention to net price
(including commissions where applicable), execution capability (including the
adequacy of a firm's capital position), research and other services related to
execution; the relative priority given to these factors will depend on all of
the circumstances regarding a specific trade.
Aeltus 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. Aeltus 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. Aeltus' 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 Aeltus.
Research services furnished by brokers through whom the Fund effects securities
transactions may be used by Aeltus in servicing all of its accounts; not all
such services will be used by Aeltus to benefit the Fund.
Consistent with Federal law, Aeltus 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. Aeltus' 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 Aeltus' opinion as to which services and which means of
payment are in the long-term best interests of the Series. The Series has not
effected and has no present intention of effecting any brokerage transactions in
portfolio securities with Aeltus or any other affiliated person of the Fund. If
Aeltus effects brokerage transactions through any affiliated person of the Fund
or with any affiliated person of such person in the future, all such
transactions will comply with Rule 17e-1 under the 1940 Act.
Aeltus acts as investment subadviser to other investment companies registered
under the 1940 Act. The Directors and Aeltus 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 Aeltus or Aeltus itself, may desire to
buy or sell the same security at or about the same time. In such a case, the
purchases or sales will normally be aggregated, and then 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. Prices are averaged for aggregated trades.
23
<PAGE>
Brokerage commissions were paid as follows:
<TABLE>
<CAPTION>
For 10 Month Period For Year Ended For Year Ended
Ended Oct. 31, 1994* Oct. 31, 1995 Oct. 31, 1996
<S> <C> <C> <C>
Bond Fund $ 5,112 $ 2,400 $ 0
Balanced Fund 129,278 321,699 207,536
Growth and Income 278,919 1,765,123 1,120,636
Growth 96,666 142,354 135,750
Index Plus Large Cap** N/A N/A N/A
Small Company 122,178 172,008 223,630
International 142,000 117,138 479,630
Ascent*** N/A N/A N/A
Crossroads*** N/A N/A N/A
Legacy*** N/A N/A N/A
</TABLE>
*In 1994, the Fund changed its fiscal year to end on October 31.
**Index Plus Large Cap commenced operations on December 10, 1996.
***Ascent, Crossroads and Legacy commenced operations on January 4, 1995.
Commissions paid by Balanced Fund and Growth and Income were higher in 1995 as a
result of a high rate of portfolio turnover attributable to a new management
team and to a transition in equity portfolio holdings from 100% large
capitalization equities to a mix of large, mid and small capitalization
equities. The increase in commissions paid by International from 1995 to 1996 is
a result of the merger of the Asian Growth Fund into International in September
1996.
For the fiscal year ended October 31, 1996, portfolio transactions in the
amounts listed below were directed to certain brokers because of research
services, of which commissions in the amounts listed were paid with respect to
such transactions:
Commissions Paid on
Fund Name Total Transactions Total Transactions
Balanced Fund $ 32,888,417 $ 35,043
Growth & Income 290,889,262 368,053
Growth Fund 15,482,530 19,650
Index Plus Large Cap* N/A N/A
Small Company 6,930,419 15,900
Ascent 14,829,987 21,474
Crossroads 10,040,854 11,756
Legacy 7,187,290 7,608
*Index Plus Large Cap commenced operations December 10, 1996.
No portfolio transactions placed on behalf of Bond Fund, Government Fund and
International were directed to brokers in exchange for research services.
No brokerage business was placed with any brokers affiliated with Aeltus or
Aetna during the last three fiscal years.
The Directors have adopted a policy allowing trades to be made between
affiliated registered investment companies or series thereof 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 a security to another registered investment
company or series thereof advised by Aeltus.
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.
LETTER OF INTENT
You may qualify for a reduced sales charge when you buy Class A shares, as
described in the prospectus. At any time within 90 days after the first
investment that you want to qualify for a reduced sales charge, you may file
with the Fund a signed shareholder application with the Letter of Intent section
completed. After the Letter of Intent is filed, each additional investment will
be entitled to the sales charge applicable to the level of investment indicated
on the Letter of Intent. Sales charge reductions based on purchases in more than
one Fund will be effective only after notification to AISI that the investment
qualifies for a discount. Your holdings in the
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Fund acquired more than 90 days before the Letter of Intent is filed, will be
counted towards completion of the Letter of Intent but will not be entitled to a
retroactive downward adjustment in the sales charge. Any redemptions you make
during the 13 month period, except in the case of certain retirement plans, will
be subtracted from the amount of the purchases for purposes of determining
whether the terms of the Letter of Intent have been completed. If the Letter of
Intent is not completed within the 13 month period, there will be an upward
adjustment of the sales charge, depending on the amount actually purchased (less
redemptions) during the period. The upward adjustment does not apply to certain
retirement plans. If you execute a Letter of Intent before a change in the sales
charge structure of the Fund, you may complete the Letter of Intent at the lower
of the new sales charge structure or the sales charge structure in effect at the
time the Letter of Intent was filed.
As mentioned in the prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in Class A shares of the Fund registered in
your name until you fulfill the Letter of Intent. This policy of reserving
shares does not apply to certain retirement plans. If total purchases, less
redemptions, equal the amount specified under the Letter of Intent, the reserved
shares will be deposited to an account in your name or delivered to you or as
you direct. If total purchases, less redemptions, exceed the amount specified
under the Letter of Intent and are in an amount that would qualify for a further
quantity discount, a retroactive price adjustment will be made by AISI and the
Securities Dealer through whom purchases were made pursuant to the Letter of
Intent (to reflect such further quantity discount) on purchases made within 90
days before and on those made after filing the Letter. The resulting difference
will be applied to the purchase of additional shares in an amount equivalent to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the Letter
of Intent, you will remit to Distributors an amount equal to the difference in
the dollar amount of sales charge actually paid and the amount of sales charge
that would have applied to the aggregate purchases if the total of the purchases
had been made at a single time. Upon remittance, the reserved shares held for
your account will be deposited to an account in your name or delivered to you or
as you direct. If within 20 days after written request the difference in sales
charge is not paid, the redemption of an appropriate number of reserved shares
to realize the difference will be made. In the event of a total redemption of
the account before fulfillment of the Letter of Intent, the additional sales
charge due will be deducted from the proceeds of the redemption, and the balance
will be forwarded to you.
If a Letter of Intent is executed on behalf of certain retirement plans, the
level and any reduction in sales charge for these plans will be based on actual
plan participation and the projected investments in the Fund under the Letter of
Intent. These plans are not subject to the requirement to reserve 5% of the
total intended purchase, or to any penalty as a result of the early termination
of a plan, nor are these plans entitled to receive retroactive adjustments in
price for investments made before executing the Letter of Intent.
FRONT-END SALES LOAD WAIVERS
A purchaser of Class A shares may qualify for a cumulative quantity discount by
combining a current purchase (or combined purchases as described above) with
certain other shares of any class of Aeltus advised funds already owned. To
determine if you may pay a reduced front-end sales charge, the amount of your
current purchase is added to the cost or current value, whichever is higher, of
your other Fund shares, as well as those of your spouse and children under the
age of 21. If you are the sole owner of a company, you may also add any company
accounts, including retirement plan accounts. Companies with one or more
retirement plans may add together the total plan assets invested in the Fund to
determine the front-end sales charge that applies.
To qualify for the cumulative quantity discount on a purchase through an
investment dealer, when each purchase is made the investor or dealer must
provide the Fund with sufficient information to verify that the purchase
qualifies for the privilege or discount. The shareholder must furnish this
information to the Fund when making direct cash investments.
THE RULE 12b-1 PLAN
The Directors and the Class A shareholders have adopted a distribution plan or
"Rule 12b-1 plan" pursuant to Rule 12b-1 under the 1940 Act, with respect to
each Series (except Money Market). In implementing the Rule 12b-1 Plan, the
Board has determined that the annual fees payable under the Rule 12b-1 Plan,
will be equal to 0.25% of the average daily net assets represented by Class A
shares of such Series (0% for Money Market), payable monthly, for expenses
incurred in the promotion and distribution of Class A shares.
The payments made to AISI will be used by AISI to defray other marketing
expenses that have been incurred in accordance with the Plan, such as
advertising. These fees may be paid to the current Securities Dealer of record
on the account.
The fee is a Class A expense. This means that all Class A shareholders (except
those allocating assets to the Money Market Series), regardless of when they
purchased their shares, will bear Rule 12b-1 expenses at the same rate. The
approval of the Board would be required to change the calculation of the
payments to be made under the Rule 12b-1 Plan.
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The Rule 12b-1 Plan does not permit unreimbursed expenses incurred in a
particular year to be carried over to or reimbursed in later years.
In addition to the payments that are available under the Rule 12b-1 Plan, the
Rule 12b-1 Plan also provides that to the extent the Fund, Aeltus or AISI or
other parties on behalf of the Fund, Aeltus or AISI make payments that are
deemed to be for the financing of any activity primarily intended to result in
the sale of shares Class A within the context of Rule 12b-1 under the 1940 Act,
then such payments shall be deemed to have been made pursuant to the plan. The
terms and provisions of the plan relating to required reports, term, and
approval are consistent with Rule 12b-1.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Rule 12b-1 Plan as a result of applicable federal
law prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The Rule 12b-1 Plan has been approved in accordance with the provisions of Rule
12b-1. The plan is renewable annually by a vote of the Board, including a
majority vote of the Board members who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Rule 12b-1 Plan, cast in person at a meeting called for that purpose. It is also
required that the selection and nomination of such Board members be done by the
non-interested members of the Board. The Rule 12b-1 Plan and any related
agreement may be terminated at any time, without penalty, by vote of a majority
of the non-interested Board members on not more than 60 days' written notice, on
not more than 60 days' written notice, by any act that constitutes an assignment
of the management agreement with Aeltus or by vote of a majority of the
outstanding shares of the class. AISI or any dealer or other firm may also
terminate their respective distribution or service agreement at any time upon
written notice.
The Rule 12b-1 Plan and any related agreements may not be amended to increase
materially the amount to be spent for distribution expenses without approval by
a majority of the outstanding shares of Class A, and all material amendments to
the Rule 12b-1 Plan or any related agreements shall be approved by a vote of the
non-interested members of the Board, cast in person at a meeting called for the
purpose of voting on any such amendment.
AISI is required to report in writing to the Board at least quarterly on the
amounts and purpose of any payment made under the Rule 12b-1 Plan and any
related agreements, as well as to furnish the Board with such other information
as may reasonably be requested in order to enable the Board to make an informed
determination of whether the Rule 12b-1 Plan should be continued.
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 nineteen Series with each
Series issuing common stock classified into two classes, Class A and Class I.
Each class of shares has the same rights, privileges and preferences, except
with respect to: (a) the effect of sales charges, if any, for each class; (b)
the distribution 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 the Series of the Fund (not including High Yield, Real Estate, Value
Opportunity, Mid Cap, Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small
Cap and Index Plus Bond) to the effect that differing distributions among the
classes of its shares will not result in dividends or other distributions being
regarded as "preferential dividends" under the Internal Revenue Code of 1986, as
amended (Code). 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 for federal income tax
purposes and (ii) the Series' tax calculations. In order to qualify as a
regulated investment company, each 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. High Yield, Real Estate, Value Opportunity, Mid Cap, Index Plus
Large Cap, Index Plus Mid Cap, Index Plus Small Cap and Index Plus Bond will
rely on a recent revenue ruling issued by the IRS to the same effect.
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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 Code, as amended, but the Directors shall not be
liable for failing to do so.
NET ASSET VALUE
Securities of the Series are generally valued by independent pricing services
which have been approved by the Board. The values for equity securities traded
on registered securities exchanges are based on the last sale price or, if there
has been no sale that day, at the mean of the last bid and asked price on the
exchange where the security is principally traded. Securities traded over the
counter 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 and 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. Short-term debt
securities maturing in sixty days or less at the date of purchase, and all
securities in Money Market, 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.
Options are valued at the mean of the last bid and asked price on the exchange
where the option is primarily traded. Futures contracts are valued daily at a
settlement price based on rules of the exchange where the futures contract is
primarily traded.
PURCHASE AND REDEMPTION OF SHARES
Class I shares of the Fund are purchased and redeemed at the net asset value of
each Series next determined after a purchase or redemption order is received in
acceptable form by Firstar Trust Company, the transfer agent for the Fund, as
described 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. 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. See the prospectus for a
discussion on restrictions the Fund may impose on redemption requests. 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 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.
An open account is automatically set up and maintained for each shareholder to
facilitate the voluntary accumulation of shares. The open account system makes
unnecessary the issuance and delivery of stock certificates, thereby relieving
shareholders of the responsibility of
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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.
There is a $1,000 minimum initial investment for each 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 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 and credited to the shareholder's account at
the then current net asset value. Further, subsequent dividends and
distributions will be automatically reinvested and credited to the shareholder's
account.
TAX STATUS
The following is only a summary of certain additional tax considerations
generally affecting each Series and its shareholders which are not described in
the prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Series or its shareholders, and the discussions here and in
the prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Series has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Series 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 derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (Income Requirement). For purposes of these calculations, gross
income includes tax-exempt income.
In general, gain or loss recognized by a Series 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 the Series 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.
For individuals, the Taxpayer Relief Act of 1997 (the "Relief Act") has created
new "mid-term capital gain" rates that apply to the sale of capital assets held
more than one year but not more than 18 months. Although the Relief Act has not
expressly addressed this issue, it is expected that regulations issued pursuant
thereto will provide that regulated investment companies such as the Fund must
notify shareholders who are individuals as to whether they must treat capital
gain dividends that they receive as mid-term or long-term capital gains. For
individuals, long-term capital gains, which are realized on the sale or exchange
of capital assets held for more than 18 months, will be subject to a maximum
federal income tax rate of 20%, while ordinary income will be subject to a
maximum rate of 39.6%. Mid-term capital gains, which are realized on the sale or
exchange of capital assets held more than one year but not more than 18 months,
will be subject to a maximum federal income tax rate of 28%.
A shareholder will recognize a capital gain or loss upon the sale of exchange of
shares in a Series if, as is normally the case, the shares are capital assets in
the shareholder's hands. For corporate shareholders, the capital gain or loss
will be long-term if the shares have been held for more than one year. For
shareholders that are individuals, the gain or loss will be long-term if the
shareholder has held
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the shares for more than 18 months and mid-term if the shareholder has held the
shares for more than one year but not more than 18 months.
In general, for purposes of determining whether capital gain or loss recognized
by a Series on the disposition of an asset is long-term, medium-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 the Series grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (3) the asset is stock and the
Series grants an in-the-money qualified covered call option with respect
thereto. In addition, a Series may be required to defer the recognition of a
loss on the disposition of an asset held as part of a straddle to the extent of
any unrecognized gain on the offsetting position.
Any gain recognized by a Series on the lapse of, or any gain or loss recognized
by a Series from a closing transaction with respect to, an option written by the
Series will be treated as a short-term capital gain or loss.
Transactions that may be engaged in by a Series (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes and
futures contracts) will be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are treated as if they are sold for their
fair market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under such contracts have not terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as of such
date. Any gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is taken into account for the taxable year
together with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. Any capital gain
or loss for the taxable year with respect to Section 1256 contracts (including
any capital gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is generally treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. A Series, 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.
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 a Series' assets to be invested in
various countries is not known.
If more than 50% of International's total assets at the close of its fiscal year
consist of securities of foreign corporations, that Series will be eligible to,
and may, file an election with the Internal Revenue Service (IRS) pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Series as income received by them. Shareholders may
then either deduct such pro rata portion in computing their taxable income or
use them as foreign tax credits against their United States income taxes. If
International makes such an election, it will report annually to each
shareholder the amount of foreign taxes to be included in income and then either
deducted or credited. Alternatively, if the amount of foreign taxes paid by
International is not large enough to warrant its making such an election, the
Series may claim the amount of foreign taxes paid as a deduction against its own
gross income. In that case shareholders would not be required to include any
amount of foreign taxes paid by the International in their income and would not
be permitted either to deduct any portion of foreign taxes from their own income
or to claim any amount tax credit for taxes paid by the Series.
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, each Series must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Series'
taxable year, at least 50% of the value of the Series' assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Series
has not invested more than 5% of the value of the Series' total assets in
securities of such issuer and as to which the Series does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or of two or more issuers which the Series controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses. Generally, an option (call or put) with respect to a security is
treated as issued by the issuer of the security not the issuer of the option.
However, with regard to forward currency contracts, there does not appear to be
any formal or informal authority which identifies the issuer of such instrument.
For purposes of asset diversification testing, 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.
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If for any taxable year a Series does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Series' 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 the undistributed income of 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).
Each Series intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Series may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
Each Series anticipates distributing substantially all of its investment company
taxable income for each taxable year. Depending on a Series' 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 Class A and Class I shares are
calculated at the same time and in the same manner. In general, dividends on
Class A shares are expected to be lower than those on Class I shares due to the
higher distribution expenses borne by the Class A shares. Dividends may also
differ between classes as a result of differences in other class specific
expenses.
Each Series may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Series currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Series prior to the date on which the
shareholder acquired his shares. The Code provides, however, that under certain
conditions only 50% of the capital gain recognized upon the Series' disposition
of domestic "small business" stock will be subject to tax.
Conversely, if a Series elects to retain its net capital gain, the Series will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If the Series elects to retain its net capital
gain, it is expected that the Series also will elect to have shareholders of
record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Series on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by a Series 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 a
Series from domestic corporations for the taxable year and if the shareholder
meets eligibility requirements in the Code. Generally, substantially all of the
dividends paid by Growth and Income, and to a lesser degree, by Balanced Fund,
Real Estate, Value Opportunity, Growth, Mid Cap, and Small Company, will qualify
for the dividends-received deduction. A dividend received by a Series will not
be treated as a qualifying dividend (1) if it has been received with respect to
any share of stock that the Series has held for less than 46 days (91 days in
the case of certain preferred stock), excluding for this purpose under the rules
of Code Section 246(c)(3) and (4): (i) any day more than 45 days (or 90 days in
the case of certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Series has an option to sell,
is under a contractual obligation to sell, has made and not closed a short sale
of substantially identical stock or securities, is the grantor of a
deep-in-the-money or otherwise
30
<PAGE>
nonqualified option to buy substantially identical stock or securities, 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 the Series 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; or (4) if it was received
from a foreign corporation. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (1) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Series or (2) by application of Code Section 246(b) which in
general limits the dividends-received deduction.
The alternative minimum tax (AMT) is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income (AMTI) over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act of
1986, a tax is imposed for taxable years beginning after 1986 and before 1996 at
the rate of 0.12% on the excess of a corporate taxpayer's AMTI (determined
without regard to the deduction for that tax and the AMT net operating loss
deduction) over $2 million. The corporate dividends-received deduction is not
itself an item of tax preference that must be added back to taxable income or is
otherwise disallowed in determining a corporation's AMTI for these purposes.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from a 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 a Series from sources within foreign
countries may be subject to foreign taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries which entitle a
Series to a reduced rate of, or exemption from, taxes on such income. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of a Series' assets to be invested in various countries is not known.
International anticipates investing substantially in foreign securities. If more
than 50% of the value of a Series' total assets at the close of its taxable year
consist of the stock or securities of foreign corporations, the Series may elect
to "pass through" to Series shareholders the amount of foreign taxes paid by the
Series. If the Series so elects, each shareholder would be required to include
in gross income, even though not actually received, his pro rata share of the
foreign taxes paid by the Series, 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 a Series that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
Distributions by a Series will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Series (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 the Series, distributions of such amounts will be taxable
to the shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Series into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Series) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Series 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."
31
<PAGE>
Sale or Redemption of Shares
Money Market seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that Money Market will do this. A shareholder
will recognize gain or loss on the sale or redemption of shares of a Series 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 the Series 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 Code rules 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 a Series is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Series is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
a foreign shareholder will be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) upon the gross amount of the dividend. Furthermore, such
a foreign shareholder may be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) on the gross income resulting from the Series' election
to treat any foreign taxes paid by it as paid by its shareholders, but may not
be allowed a deduction against this gross income or a credit against this U.S.
withholding tax for the foreign shareholder's pro rata share of such foreign
taxes which it is treated as having paid. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of the Series, capital gain dividends and exempt-interest dividends
and amounts retained by the Series that are designated as undistributed capital
gains.
If the income from a Series is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Series will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Series may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Series with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Series, 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 including the yield and
effective yield of Money Market, the yield of Bond Fund, Government Fund, High
Yield and Index Plus Bond and the total return of all Series, may appear in
reports or promotional literature to current or prospective shareholders.
32
<PAGE>
Money Market Fund Yields
Current yield for Money Market will be computed by determining the net change,
exclusive of capital changes, at the beginning of a seven-day period in the
value of a hypothetical investment of one share, subtracting any deductions from
shareholder accounts, and dividing the difference by the value of the
hypothetical investment at the beginning of the base period to obtain the base
period return. This base period return is then multiplied by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one percent.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
The yield and effective yield for Money Market for the seven days ended
October 31, 1997 were ___% and ___%, respectively.
30-Day Yield for Non-Money Market Funds
Quotations of yield for Bond Fund, Government Fund, High Yield and Index Plus
Bond will be based on all investment income per share earned during a particular
30-day period, less expenses accrued during the period (net investment income),
and will be computed by dividing net investment income by the value of a share
on the last day of the period, according to the following formula:
YIELD = 2[(a - b + 1)6 - 1]
cd
Where:
a = dividends and interest earned during the period
b = the expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum offering price per share on the last day of the period
The yield for Bond Fund for the 30-day period ended October 31, 1997 was ____%
for Class A, and ____% for Class I. The yield for Government Fund for the 30-day
period ended October 31, 1997 was ____% for Class A, and ____% for Class I. High
Yield and Index Plus Bond commenced operations on __________________, 1998.
Average Annual Total Return for Non-Money Market Funds
Quotations of average annual total return for any Series will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in a Series over a period of one, five and ten years (or, if less, up
to the life of the Series), calculated pursuant to the formula:
P(1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = an average annual total return
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year period at the end of the 1, 5, or 10 year
period (or fractional portion thereof)
The Fund may also from time to time include in such advertising a total return
figure for Class A that is not calculated according to the formula set forth
above. Specifically, the Fund may include performance for Class A (formerly
Adviser Class) that does not take into account payment of the applicable
front-end sales load.
All the following figures are based on actual investment performance.
Performance figures for Class A shares are presented both with and without the
deduction of the front-end sales load assuming shares were redeemed at the end
of the period.
33
<PAGE>
The offering of the Adviser Class (now redesignated as Class A) shares for all
Series listed below, except Index Plus Large Cap, commenced on April 15, 1994.
The offering of the Adviser Class (now redesignated as Class A) shares for Index
Plus Large Cap commenced on February 3, 1997. For periods prior to the Adviser
Class inception dates, Class A performance is calculated by using the
performance of Class I (formerly Select Class) shares and deducting from such
performance the fees and expenses of Class A.
Total Return Quotations as of October 31, 1997:
Class I
1 Year 5 Year Since Inception Inception Date
Government Fund % % % 1/4/94
Bond Fund 1/3/92
Balanced Fund 1/3/92
Growth and Income 1/3/92
Growth 1/4/94
Index Plus Large Cap 12/10/96
Small Company 1/4/94
International 1/3/92
Ascent 1/4/95
Crossroads 1/4/95
Legacy 1/4/95
Class A (assuming payment of the front-end sales load)
1 Year 5 Year Since Inception Inception Date*
Government Fund % % % 1/4/94
Bond Fund 1/3/92
Balanced Fund 1/3/92
Growth and Income 1/3/92
Growth 1/4/94
Index Plus Large Cap 12/10/96
Small Company 1/4/94
International 1/3/92
Class A (without payment of the front-end sales load)
1 Year 5 Year Since Inception Inception Date*
Government Fund % % % 1/4/94
Bond Fund 1/3/92
Balanced Fund 1/3/92
Growth and Income 1/3/92
Growth 1/4/94
Index Plus Large Cap 12/10/96
Small Company 1/4/94
International 1/3/92
* The inception dates above represent inception dates for purposes of
performance calculations only. The actual inception dates for the offering of
Adviser Class/Class A shares are disclosed above.
Performance information for a Series may be compared, in reports and promotional
literature, to: (i) the Standard & Poor's 500 Stock Index (S&P 500), Shearson
Lehman Aggregate Bond Index, Dow Jones Industrial Average (DJIA), or other
indices that measure performance of a pertinent group of securities widely
regarded by investors as representative of the securities markets in general;
(ii) other groups of investment companies tracked by Lipper Analytical Services,
a widely used independent research firm which ranks mutual funds and other
investment companies by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons who rank such
investment companies on overall performance of other criteria; (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in a Series; (iv) the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index and (v) the Morgan Stanley Capital
International Far East Free (FEF ex. Japan) Index.
34
<PAGE>
From time to time sales materials and advertisements may include comparisons of
the cost of borrowing a specific amount of money at a given loan rate over a set
period of time to the cost of a monthly investment program, over the same time
period, which earns the same rate of return. The comparison may involve
historical rates of return on a given index, or may involve performance of any
of the Series. 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.
35
<PAGE>
FINANCIAL STATEMENTS
The Financial Statements and the independent auditors' report, thereon,
appearing in the Fund's Annual Report for the fiscal year ended October 31, 1996
are incorporated by reference in this Statement of Additional Information. The
Annual Report 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, CT 06156.
36
<PAGE>
Aetna Series Fund, Inc.
Statement of Additional Information
ASF(S)- Aetna Series Fund, Inc.
Statement of Additional Information
SAI.SERIES-98
37
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights
(2) Included in Part B:
*Audited Financial Statements for Aetna Money Market Fund,
Aetna Government Fund, Aetna Bond Fund, The Aetna Fund**, Aetna
Growth and Income Fund, Aetna Growth Fund, Aetna Small Company
Fund, Aetna International Growth Fund*** as of October 31, 1996,
which include the following:
Portfolios of Investments
Statements of Assets and Liabilities as of October 31, 1996
Statements of Operations for the year ended October 31, 1996
Statements of Changes in Net Assets for the years ended
October 31, 1996 and 1995
Notes to Financial Statements
Independent Auditors' Report
*Incorporated by reference to the Fund's Annual Report
dated October 31, 1996, as filed electronically with the
Securities and Exchange Commission on January 7, 1997
(File No. 811-6352) (Accession No. 0000950146-97-000020).
**Renamed Aetna Balanced Fund.
***Renamed Aetna International Fund.
(b) Exhibits:
(1)(a) Articles of Amendment and Restatement
(August 7, 1997)
(1)(b) Articles of Amendment (October 28, 1997)
(1)(c) Articles Supplementary (October 28, 1997)
(2) By-laws (as amended September 13, 1994)(1)
(3) Not applicable
(4) Instruments Defining Rights of Holders (set
forth in the Articles of Amendment and
Restatement which are being filed with this
Post-Effective Amendment No. 23 as Exhibit
24(b)(1)(a))
(5) Form of Investment Advisory Agreement between
Aeltus Investment Management, Inc. and Aetna
Series Fund, Inc., on behalf of Aetna Balanced
Fund (formerly The Aetna Fund), Aetna Bond Fund,
Aetna Growth Fund, Aetna Growth and Income Fund,
Aetna Government Fund, Aetna Index Plus Large Cap
Fund (formerly Aetna Index Plus Fund), Aetna
International Fund (formerly Aetna International
Growth Fund), Aetna Money Market Fund, Aetna
Small Company Fund, Aetna Ascent, Aetna
Crossroads, Aetna Legacy, Aetna High Yield Fund,
Aetna Index Plus Bond Fund, Aetna Index Plus Mid
Cap Fund, Aetna Index Plus Small Cap Fund, Aetna
Mid Cap Fund, Aetna Real Estate Securities Fund,
and Aetna Value Opportunity Fund*
<PAGE>
(6)(a) Underwriting Agreement between the Registrant and
Aetna Investment Services, Inc.(3)
(6)(b) Dealer Agreement for Registrant between Aetna
Life Insurance and Annuity Company and Aetna
Investment Services, Inc. (February 8, 1994)(1)
(7) Not applicable
(8)(a)(i) Custodian Agreement - Mellon Bank, N.A.
(September 1, 1992)(1)
(8)(a)(ii) Amendment to Custodian Agreement - Mellon Bank,
N.A. (for Aetna Growth Fund, Aetna
Small Company Fund, Aetna Bond Fund, and Aetna
Tax Free Fund) (May 11, 1994)
(8)(a)(iii) Amendment to Custodian Agreement - Mellon Bank,
N.A. (for Aetna Ascent, Aetna Crossroads, and
Aetna Legacy) (September 14, 1994)(1)
(8)(a)(iv) Amendment to Custodian Agreement - Mellon Bank,
N.A. (Aetna Index Plus Fund) (October 11, 1996)
(4)
(8)(a)(v) Form of Amendment to Custodian Agreement - Mellon
Bank, N.A. (for Aetna High Yield Fund, Aetna
Index Plus Bond Fund, Aetna Index Plus Mid Cap
Fund, Aetna Index Plus Small Cap Fund, Aetna Mid
Cap Fund, Aetna Real Estate Securities Fund, and
Aetna Value Opportunity Fund)
(8)(a)(vi) Custodian Agreement - Brown Brothers Harriman &
Company (Aetna International Growth Fund)
(December 12, 1991)(5)
(9)(a) Form of Administrative Services Agreement between
Aeltus Investment Management, Inc. and Aetna
Series Fund, Inc., on behalf of Aetna Balanced
Fund (formerly The Aetna Fund), Aetna Bond Fund,
Aetna Growth Fund, Aetna Growth and Income Fund,
Aetna Government Fund, Aetna Index Plus Large Cap
Fund (formerly Aetna Index Plus Fund), Aetna
International Fund (formerly Aetna International
Growth Fund), Aetna Money Market Fund, Aetna
Small Company Fund, Aetna Ascent, Aetna
Crossroads, Aetna Legacy, Aetna High Yield
Fund, Aetna Index Plus Bond Fund, Aetna Index
Plus Mid Cap Fund, Aetna Index Plus Small Cap
Fund, Aetna Mid Cap Fund, Aetna Real Estate
Securities Fund, and Aetna Value Opportunity
Fund*
(9)(b) License Agreement (September 12, 1991)(1)
(9)(c)(i) Transfer Agent Agreement (December 10, 1991)
(9)(c)(ii) Amendment to Transfer Agent Agreement (January
1994)
(9)(c)(iii) Amendment to Transfer Agent Agreement (July 20,
1994)
(9)(c)(iv) Form of Amendment to Transfer Agent Agreement
(for Aetna High Yield Fund, Aetna Index Plus Bond
Fund, Aetna Index Plus Mid Cap Fund, Aetna Index
Plus Small Cap Fund, Aetna Mid Cap Fund, Aetna
Real Estate Securities Fund, and Aetna Value
Opportunity Fund)
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Form of Distribution Plan
(16) Schedule for Computation of Performance Data(6)
<PAGE>
(17) See Exhibit 27 below
(18) Multi-Class Plan
(19)(a) Powers of Attorney(7)
(19)(b) Authorization for Signatures(8)
(27) Financial Data Schedules
*To be filed
1. Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, File No. 33-85620, as filed
electronically with the Securities and Exchange Commission on June 28, 1995
(Accession No. 0000950109-95-002519).
2. Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on July 9, 1997
(Accession No. 0000950146-97-001049).
3. Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on December 10,
1996 (Accession No. 0000928389-96-000187).
4. Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on September 20,
1996 (Accession No. 0000928389-96-000162).
5. Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on May 30, 1997
(Accession No. 0000950146-97-00873).
6. Incorporated herein by reference to Post-Effective Amendment No. 15 to
Registration Statement on Form N-1A (File No. 33-27247), as filed
electronically with the Securities and Exchange Commission on April 11,
1997 (Accession No. 0000950146-97-000577).
7. Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registration Statement on Form N-1A (File No. 333-05173), as filed
electronically with the Securities and Exchange Commission on September 26,
1997 (Accession No. 0000950146-97-001480).
<PAGE>
Item 25. Persons Controlled by or Under Common Control
Registrant is a Maryland corporation for which separate financial
statements are filed. As of September 30, 1997, Aetna Life
Insurance and Annuity Company ("Aetna") and Aetna Life Insurance
Company ("ALIC") had a controlling interest in the following
series of the Registrant:
Class I % Aetna % ALIC
Aetna Bond Fund 38.00%
Aetna Government Fund 84.79%
Aetna Index Plus Fund 75.59%
(renamed Aetna Index Plus
Large Cap Fund)
Aetna International Growth Fund 37.90%
(renamed Aetna International Fund)
Aetna Money Market Fund 28.50%
Aetna Small Company Fund 40.60% 37.59%
Aetna Ascent 77.16%
Aetna Crossroads 82.12%
Aetna Legacy 66.89% 28.73%
Class A
Aetna International Growth Fund 79.56%
(renamed Aetna International Fund)
Aetna is an indirect wholly-owned subsidiary of Aetna Inc.
A list of all persons directly or indirectly under common control
with the Registrant is incorporated herein by reference to Item 26
of Post-Effective Amendment No. 12 to the Registration Statement
on Form N-4 (File No. 33-91846), as filed electronically with the
Securities and Exchange Commission on October 30, 1997 (Accession
No. 0000950146-97-001589).
Item 26. Number of Holders of Securities
(1) Title of Class (2) Number of Record Holders as
of September 30, 1997
Class I Class A
The Aetna Fund (renamed 2,061 927
Aetna Balanced Fund)
Aetna Bond Fund 940 147
Aetna Government Fund 88 72
Aetna Growth Fund 630 1,839
Aetna Growth and Income Fund 2,043 2,601
Aetna Index Plus Fund (renamed 87 221
Aetna Index Plus Large Cap Fund)
Aetna International Growth Fund 1,058 977
(renamed Aetna International Fund)
Aetna Money Market Fund 6,022 8,284
<PAGE>
(1) Title of Class (2) Number of Record Holders as of
September 30, 1997
Class I Class A
Aetna Small Company Fund 463 1,387
Aetna Ascent 40 185
Aetna Crossroads 13 93
Aetna Legacy 8 32
Aetna High Yield Fund 0 0
Aetna Index Plus Bond Fund 0 0
Aetna Index Plus Mid Cap Fund 0 0
Aetna Index Plus Small Cap Fund 0 0
Aetna Mid Cap Fund 0 0
Aetna Real Estate Securities Fund 0 0
Aetna Value Opportunities Fund 0 0
Item 27. Indemnification
Article 12, Section (d) of the Registrant's Articles of Amendment
and Restatement, incorporated herein by reference to Exhibit
24(b)(1) of this Post-Effective Amendment, 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 September 30, 1999.
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, Aeltus Investment Management, Inc.
("Aeltus"), is registered as an investment adviser with the
Securities and Exchange Commission ("Commission"). In addition to
serving as the investment adviser for Aetna Series Fund, Inc.,
Aeltus acts as subadviser for Aetna Variable Fund, Aetna Income
Shares, Aetna Variable Encore Fund, Aetna Investment Advisers Fund,
Inc., Aetna Generation Portfolios, Inc., Aetna GET Fund, and Aetna
Variable Portfolios, Inc. (all management investment companies
registered under the Investment Company Act of 1940 (the "1940
Act")). It also acts as investment adviser to certain private
accounts.
<PAGE>
The following table summarizes the business connections of the
directors and principal officers of the Investment Adviser.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1994/Addresses*/**
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox Director, Managing Director, Director and President (since September
Chief Operating Officer, 1997) -- Aetna Life Assignment Company;
Chief Financial Officer Director and Senior Vice President (since
April 1997) -- Aetna Retirement Holdings,
Inc.; Director and Senior Vice President
(since March 1997) -- Aetna Life Insurance
and Annuity Company; Managing Director,
Chief Operating Officer, Chief Financial
Officer, Treasurer (April 1994 - March
1997) -- Aeltus Investment Management,
Inc.
Timothy A. Holt Director Senior Vice President (since September 1997)
-- Aetna Retirement Holdings, Inc.; Director
(since September 1997) -- Aetna Investment
Services, Inc.; Senior Vice President and
Chief Financial Officer (since February
1996) -- Aetna Life Insurance and Annuity
Company; Director (since March 1996) --
Aetna Retirement Holdings, Inc.; Vice
President (September 1996 - September 1997)
-- Aetna Retirement Holdings, Inc.; Vice
President, Portfolio Management/Investment
Group (June 1991 - February 1996) -- Aetna
Inc. (formerly known as Aetna Life and
Casualty Company).
John Y. Kim Director , President, Chief Chief Investment Officer (since May 1994) --
Executive Officer, Chief Aetna Life Insurance and Annuity Company.
Investment Officer
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1994/Addresses*/**
- ---------------------------------------------------------------------------------------------------------------
Thomas J. McInerney Director President (since August 1997) -- Aetna
Retirement Services, Inc.; Director and
President (since September 1997) -- Aetna
Life Insurance and Annuity Company; Director
and President (since September 1997) --
Aetna Retirement Holdings, Inc.; Director
and President (since September 1997) --
Aetna Insurance Company of America;
Executive Vice President (since August 1997)
-- Aetna Inc.; Vice President, Strategy
(March 1997 - August 1997) -- Aetna Inc.;
Vice President, Marketing and Sales
(December 1996 - March 1997) -- Aetna U.S.
Healthcare; Vice President, National
Accounts (April 1996 - December 1996) --
Aetna U.S. Healthcare; Vice President,
Strategy, Finance, & Administration (July
1995 - April 1996) -- Aetna Inc.; Vice
President, Guaranteed Products (November
1992 - July 1995) -- Aetna Inc.
Peter B. Canoni Managing Director, Equity Managing Director (since January 1996) --
Investments Aeltus Trust Company; Registered
Representative (since March 1994) -- Aeltus
Capital, Inc.
Lennart A. Carlson Managing Director, Fixed Income Managing Director (since January 1996) --
Investments Aeltus Trust Company; Registered
Representative (since February 1993) --
Aeltus Capital, Inc.
Steven C. Huber Managing Director, Fixed Income Portfolio Manager (August 1991 - August
Investments 1996) -- Aetna Life Insurance and Annuity
Company; Managing Director (since August
1996) -- Aeltus Trust Company.
Brian K. Kawakami Vice President, Chief Compliance Chief Compliance Officer & Director (since
Officer January 1996) -- Aeltus Trust Company; Chief
Compliance Officer (since August 1993) --
Aeltus Capital, Inc.
<PAGE>
- ---------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1994/Addresses*/**
- ---------------------------------------------------------------------------------------------------------------
Frank Litwin Managing Director, Retail Vice President, Strategic Marketing (April,
Marketing and Sales 1992 - August, 1997) -- Fidelity Investments
Institutional Services Company.
Kevin M. Means Managing Director, Equity Managing Director (July 1994 - August 1996)
Investments -- Aetna Life Insurance and Annuity Company;
Managing Director (since August 1996) --
Aeltus Trust Company.
Jeanne Wong-Boehm Managing Director, Fixed Income Portfolio Manager (March 1982 - August 1996)
Investments -- Aetna Life Insurance and Annuity Company;
Portfolio Manager (March 1982 - August
1996) -- Aetna Inc.; Managing Director
(since August 1996) -- Aeltus Trust
Company; Registered Representative (since
August 1996) -- Aeltus Capital, Inc.
</TABLE>
* Except with respect to Messrs. Holt and McInerney, the principal
business address of each person named is 242 Trumbull Street, Hartford,
Connecticut 06103-1205. The address of Messrs. Holt and McInerney is
151 Farmington Avenue, Hartford, Connecticut 06156.
** Certain officers and directors of the investment adviser currently hold
(or have held during the past two years) other positions with
affiliates of the Registrant that are not deemed to be principal
positions.
Item 29. Principal Underwriters
(a) The principal underwriter, Aetna Investment Services, Inc., is a
Connecticut corporation, and is a wholly-owned subsidiary of
Aetna Retirement Holdings, Inc. and an indirect wholly-owned
subsidiary of Aetna Inc.
(b) The following are the directors and principal officers of the
Underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ------------------ -------------------------- ---------------------
<S> <C> <C>
Christopher J. Burns Director, President and Chief Executive and None
Operating Officer
Mary C. Fox Director None
Timothy A. Holt Director Director
<PAGE>
Shaun P. Mathews Director and Senior Vice President Director and President
Marsha A. Rohrs Director and Senior Vice President None
Martin T. Conroy Vice President & Treasurer, Chief Financial Vice President
Officer
Frederick D. Kelsven Vice President & Chief Compliance Officer None
Thomas M. Bounty Corporate Secretary and Counsel (Chief Legal None
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
thereunder, the Registrant and its investment adviser, Aeltus,
maintain physical possession of each account, book or other
documents, at 151 Farmington Avenue, Hartford, Connecticut 06156 or
242 Trumbull Street, Hartford, Connecticut 06103-1205.
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.
Insofar as indemnification for liability arising under the
Securities Act of 1933 (1933 Act) may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In
the event that a claim for
<PAGE>
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of
such issue.
The Registrant undertakes to file a Post-Effective Amendment to
this Registration Statement, using financial statements which
need not be certified for Aetna High Yield Fund, Aetna Index
Plus Bond Fund, Aetna Index Plus Mid Cap Fund, Aetna Index Plus
Small Cap Fund, Aetna Mid Cap Fund, Aetna Real Estate Securities
Fund and Aetna Value Opportunity Fund, within four to six months
from the effective date of this Post-Effective Amendment No. 23.
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Post-Effective Amendment 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 3rd day
of November, 1997.
AETNA SERIES FUND, INC.
Registrant
By Shaun P. Mathews*
------------------
Shaun P. Mathews
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons on November 3, 1997 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Shaun P. Mathews* President and Director )
- ------------------------------------------ (Principal Executive Officer) )
Shaun P. Mathews )
)
Maria T. Fighetti* Director ) November
- ------------------------------------------ ) 3, 1997
Maria T. Fighetti )
)
David L. Grove* Director )
- ------------------------------------------ )
David L. Grove )
)
Timothy A. Holt* Director )
- ------------------------------------------
Timothy A. Holt )
)
Sidney Koch* Director )
- ------------------------------------------
Sidney Koch )
<PAGE>
Corine T. Norgaard* Director )
- ------------------------------------------ )
Corine T. Norgaard )
)
Richard G. Scheide* Director )
- ------------------------------------------ )
Richard G. Scheide )
)
J. Scott Fox* Vice President and Treasurer )
- ------------------------------------------ (Principal Financial and )
J. Scott Fox Accounting Officer)
</TABLE>
By: /s/ Amy R. Doberman
-----------------------------------
*Amy R. Doberman
Attorney-in-Fact
<PAGE>
Aetna Series Fund, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-b(1)(a) Articles of Amendment and Restatement (August 7, 1997)
--------------
99-b(1)(b) Articles of Amendment (October 28, 1997)
--------------
99-b(1)(c) Articles Supplementary (October 28, 1997)
--------------
99-b(2) By-laws (as amended September 13, 1994) *
99-b(4) Instruments Defining Rights of Holders (set forth in the Articles of *
Amendment and Restatement which are being filed with this Post-Effective
Amendment No. 23)
99-b(5) Form of Investment Advisory Agreement between Aeltus Investment Management, **
Inc. and Aetna Series Fund, Inc., on behalf of Aetna Balanced Fund (formerly
The Aetna Fund), Aetna Bond Fund, Aetna Growth Fund, Aetna Growth and Income
Fund, Aetna Government Fund, Aetna Index Plus Large Cap Fund (formerly Aetna
Index Plus Fund), Aetna International Fund (formerly Aetna International
Growth Fund), Aetna Money Market Fund, Aetna Small Company Fund, Aetna
Ascent, Aetna Crossroads, Aetna Legacy, Aetna High Yield Fund, Aetna Index
Plus Bond Fund, Aetna Index Plus Mid Cap Fund, Aetna Index Plus Small
Cap Fund, Aetna Mid Cap Fund, Aetna Real Estate Securities Fund, and
Aetna Value Opportunity Fund
99-b(6)(a) Underwriting Agreement between the Registrant and Aetna Investment *
Services, Inc.
99-b(6)(b) Dealer Agreement for registrant between Aetna and Aetna Investment *
Services, Inc. (February 8, 1994)
99-b(8)(a)(i) Custodian Agreement - Mellon Bank, N.A. (September 1, 1992) *
</TABLE>
*Incorporated by reference
**To be filed
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-b(8)(a)(ii) Amendment to Custodian Agreement - Mellon Bank, N.A. (for Aetna Growth
Fund, Aetna Small Company Fund, Aetna Bond Fund, and Aetna Tax Free Fund)
(May 11, 1994)
--------------
99-b(8)(a)(iii) Amendment to Custodian Agreement - Mellon Bank, N.A. (for Aetna Ascent, *
Aetna Crossroads, and Aetna Legacy) (September 14, 1994)
99-b(8)(a)(iv) Amendment to Custodian Agreement - Mellon Bank, N.A. (Aetna Index Plus *
Fund) (October 11, 1996)
99-b(8)(a)(v) Form of Amendment to Custodian Agreement - Mellon Bank, N.A. (for Aetna
High Yield Fund, Aetna Index Plus Bond Fund, Aetna Index Plus Mid Cap
Fund, Aetna Index Plus Small Cap Fund, Aetna Mid Cap Fund, Aetna Real
Estate Securities Fund, and Aetna Value Opportunity Fund)
--------------
99-b(8)(a)(vi) Custodian Agreement - Brown Brothers Harriman & Company (Aetna
International Growth Fund) (December 12, 1991) *
99-b(9)(a) Form of Administrative Services Agreement between Aeltus Investment **
Management, Inc. and Aetna Series Fund, Inc., on behalf of Aetna Balanced
Fund (formerly The Aetna Fund), Aetna Bond Fund, Aetna Growth Fund, Aetna
Growth and Income Fund, Aetna Government Fund, Aetna Index Plus Large Cap
Fund (formerly Aetna Index Plus Fund), Aetna International Fund (formerly
Aetna International Growth Fund), Aetna Money Market Fund, Aetna Small
Company Fund, Aetna Ascent, Aetna Crossroads, Aetna Legacy, Aetna High Yield
Fund, Aetna Index Plus Bond Fund, Aetna Index Plus Mid Cap Fund, Aetna Index
Plus Small Cap Fund, Aetna Mid Cap Fund, Aetna Real Estate Securities Fund,
and Aetna Value Opportunity Fund
99-b(9)(b) License Agreement (September 12, 1991) *
99-b(9)(c)(i) Transfer Agent Agreement (December 10, 1991)
--------------
99-b(9)(c)(ii) Amendment to Transfer Agent Agreement (January 1994)
--------------
99-b(9)(c)(iii) Amendment to Transfer Agent Agreement (July 20, 1994)
--------------
</TABLE>
*Incorporated by reference
**To be filed
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
<S> <C> <C>
99-b(9)(c)(iv) Form of Amendment to Transfer Agent Agreement (for Aetna High Yield Fund,
Aetna Index Plus Bond Fund, Aetna Index Plus Mid Cap Fund, Aetna Index
Plus Small Cap Fund, Aetna Mid Cap Fund, Aetna Real Estate Securities
Fund, and Aetna Value Opportunity Fund)
--------------
99-b(10) Opinion and Consent of Counsel
--------------
99-b(11) Consent of Independent Auditors
--------------
99-b(15) Form of Distribution Plan
--------------
99-b(16) Schedule for Computation of Performance Data *
99-b(18) Multi-Class Plan
--------------
99-b(19)(a) Powers of Attorney *
99-b(19)(b) Authorization for Signatures *
27 Financial Data Schedules
--------------
</TABLE>
*Incorporated by reference
**To be filed
AETNA SERIES FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
AETNA SERIES FUND, INC., a Maryland corporation registered as an
open-end investment company under the Investment Company Act of 1940 and having
its principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to and does hereby amend and restate its
Charter as currently in effect in its entirety. The provisions set forth in
these Articles of Amendment and Restatement are all of the provisions of the
Charter of the Corporation as currently in effect.
SECOND: The Charter of the Corporation is hereby amended and restated
by striking in their entirety all provisions of the Charter, and by substituting
in lieu thereof the following:
First: The name of the Corporation is
"AETNA SERIES FUND, INC."
Second: The purpose for which the Corporation is formed is to
act as an open-end investment company of the management type registered as such
with the Securities and Exchange Commission pursuant to the Investment Company
Act of 1940 and to exercise and generally to enjoy all of the powers, rights and
privileges granted to, or conferred upon, corporations by the General Laws of
the State of Maryland now or hereafter in force.
Third: The post office address of the principal office and the
Office of the resident agent of the Corporation in the State of Maryland is 11
East Chase Street, Suite 9-E, Baltimore, Maryland 21202. The resident agent of
the Corporation in the State of Maryland is The Corporation Trust Incorporated,
located at 32 South Street, Baltimore, Maryland 21202, which is a corporation
organized and existing under the laws of the State of Maryland.
Fourth: The total number of shares of stock which the
Corporation shall have authority to issue is 4,800,000,000 shares of Capital
Stock of the par value of $0.001 per share, and of the aggregate par value of
$4,800,000 (hereinafter referred to as "Shares").
Fifth: (a) The number of directors of the Corporation shall be
nine (9), or such other number as may be from time to time fixed in the manner
provided by the Bylaws of the Corporation, but shall never be less than three
(3).
(b) The names of the Directors of the Corporation who
shall act until the next Annual Meeting after the date hereof or until their
successors are duly chosen and qualify are:
<PAGE>
Shaun P. Mathews
Daniel P. Kearney
Timothy A. Holt
Morton Ehrlich
Maria Teresa Fighetti
Dr. David L. Grove
Sidney Koch
Dr. Corine T. Norgaard
Richard G. Scheide
Sixth. Of the 4,800,000,000 of authorized capital stock of the
Corporation, 4,400,000,000 shares have been, and are hereby designated and
classified as follows:
================================================================================
Name of Class Number of
Name of Series of Series Shares Allocated
- --------------------------------------------------------------------------------
AETNA MONEY MARKET FUND Class A 1,000,000,000
- --------------------------------------------------------------------------------
Class B 1,000,000,000
- --------------------------------------------------------------------------------
AETNA BOND FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
THE AETNA FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA GROWTH AND INCOME FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA INTERNATIONAL GROWTH FUND Class A 200,000,000
- --------------------------------------------------------------------------------
Class B 200,000,000
- --------------------------------------------------------------------------------
AETNA GOVERNMENT FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA SMALL COMPANY FUND Class A 100,000,000
<PAGE>
================================================================================
Name of Class Number of
Name of Series of Series Shares Allocated
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA GROWTH FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA ASCENT FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA CROSSROADS FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA LEGACY FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
AETNA INDEX PLUS FUND Class A 100,000,000
- --------------------------------------------------------------------------------
Class B 100,000,000
- --------------------------------------------------------------------------------
================================================================================
Seventh: The preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the various series of Shares designated and classified in Article
Sixth hereof shall be as set forth in the Charter of the Corporation and shall
include those set forth as follows:
(a) Assets Belonging to the Series. All consideration
received by the Corporation for the issue or sale of shares of the Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to the Series for all purposes, subject
only to the rights of creditors, and shall be so recorded upon the books and
accounts of the Corporation. Such consideration, assets,
<PAGE>
income, earnings, profits and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the same may
be, together with any General Items allocated to the Series as provided in the
following sentence, are herein referred to as "assets belonging to" the Series.
In the event there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series (collectively, "General Items"), such General Items shall
be allocated by or under the supervision of the Board of Directors to and among
any one or more of the Series of the Corporation and designated from time to
time in such manner and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable, and any General Items so allocated to a
particular Series shall belong to that Series. Each such allocation by the Board
of Directors shall be conclusive and binding for all purposes.
(b) Liabilities Belonging to the Series. The assets
belonging to the Series shall be charged with (i) the liabilities of the
Corporation in respect of the Series, (ii) all expenses, costs, charges and
reserves attributable to the Series, and (iii) any general liabilities,
expenses, costs, charges or reserves of the Corporation which are not readily
identifiable as belonging to any particular Series and which shall be allocated
and charged by or under the supervision of the Board of Directors to and among
any one or more of the Series of the Corporation from time to time in such
manner and on such basis as the Board of Directors, in its sole discretion,
deems fair and equitable. The liabilities, expenses, costs, charges and reserves
allocated and so charged to the Series are herein referred to as "liabilities
belonging to" the Series. Each allocation of liabilities, expenses, costs,
charges and reserves by the Board of Directors shall be conclusive and binding
for all purposes.
(c) Income Belonging to the Series. The Board of
Directors shall have full discretion, to the extent not inconsistent with the
Maryland Corporation Code and the Investment Company Act of 1940, as amended
(the " 1940 Act") to determine which items shall be treated as income and which
items as capital, and each such determination and allocation shall be conclusive
and binding. "Income belonging to" the Series includes all income, earnings and
profits derived from assets belonging to the Series, less any expenses, costs,
charges or reserves belonging to the Series, for the relevant time period.
(d) Dividends. Dividends and distributions on shares of
the Series may be declared and paid with such frequency, in such form and in
such amount as the Board of Directors may from time to time determine. Dividends
may be declared daily or otherwise pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Board of Directors
may determine, after providing for actual and accrued liabilities belonging to
the Series.
All dividends on shares of the Series shall be paid
only out of the income belonging to the Series, and capital gains distributions
on shares of the Series shall be paid only out of the capital gains belonging to
the Series. All dividends and distributions on shares of the Series shall be
distributed pro rata to the holders of such shares in proportion to the number
of shares of
<PAGE>
the Series held by such holders at the date and time of record established for
the payment of such dividends or distributions, except that in connection with
any dividend or distribution program or procedure, the Board of Directors may
determine that no dividend or distribution shall be payable on shares as to
which the shareholder's purchase order and/or payment have not been received by
the time or times established by the Board of Directors under such program or
procedure.
The Board of Directors shall have the power, in its
sole discretion, to distribute in any fiscal year as dividends, including
dividends designated in whole or in part as capital gains distributions, amounts
sufficient, in the opinion of the Board of Directors, to enable the Corporation
to qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended, or any successor or comparable statute thereto, and
regulations promulgated thereunder, and to avoid liability of the Corporation or
Series for Federal income tax in respect of that year. However, nothing in the
foregoing shall limit the authority of the Board of Directors to make
distributions greater than or less than the amount necessary to qualify as a
regulated investment company and to avoid liability of the Corporation or Series
for such tax.
Dividends and distributions may be paid in cash,
property or shares, or a combination thereof, as determined by the Board of
Directors or pursuant to any program that the Board of Directors may have in
effect at the time. Any such dividend or distribution paid in shares will be
paid at the current net asset value thereof as defined in subsection (h) below.
(e) Liquidation. In the event of liquidation of the
Corporation or of a particular Series of the Corporation, the shareholders of
the Series that has been designated and is being liquidated shall be entitled to
receive, as a Series, when and as declared by the Board of Directors, the excess
of the assets belonging to that Series over the liabilities belonging to it. The
holders of shares of such Series shall not be entitled thereby to any
distribution upon liquidation of any other Series. The assets so distributable
to the shareholders of the Series being liquidated shall be distributed among
such shareholders in proportion to the number of shares of such Series held by
them and recorded on the books of the Corporation. The liquidation of any
particular Series in which there are shares then outstanding may be authorized
by vote of a majority of the Board of Directors then in office, subject to the
approval of the outstanding shares of such Series, as defined in the 1940 Act.
(f) Voting. On each matter submitted to a vote of the
shareholders, each holder of a share shall be entitled to one vote for each
share outstanding in his or her name on the books of the Corporation, and all
shares of the Series shall vote as a single Series ("Single Series Voting");
provided, however, that (i) as to any matter with respect to which a separate
vote of a particular Series is required by the 1940 Act or by the Maryland
Corporation Code, such requirement as to a separate vote by that Series shall
apply in lieu of Single Series Voting; (ii) in the event that the separate vote
requirements referred to in clause (i) above apply with respect to one or more
Series, then subject to clause (iii) below, the shares of all other Series shall
vote as a single Series; and (iii) as to any matter which does not affect the
interest of a particular Series, only the
<PAGE>
holders of shares of the one or more affected Series shall be entitled to vote.
(g) Redemption by Shareholder. Each holder of shares of
the Series shall have the right at such times as may be permitted by the
Corporation to require the Corporation to redeem all or any part of his or her
shares of a particular Series at a redemption price per share equal to the net
asset value per share of that Series next determined (in accordance with
subsection (h)) after the shares are properly tendered for redemption. Payment
of the proceeds of redemption shall be in cash unless the Board of Directors
determines, which determination shall be conclusive, that conditions exist which
make payment wholly in cash unwise or undesirable. In the event of such
determination, the Corporation may make payment wholly or partly in securities
or other assets belonging to the Series at the value of such securities or
assets used in such determination of net asset value. Notwithstanding the
foregoing, the Corporation may postpone payment of the redemption price and may
suspend the right to the holders of shares of a Series to require the
Corporation to redeem shares of that Series during any period or at any time
when and to the extent permissible under the 1940 Act.
(h) Net Asset Value Per Share. The net asset value per
share of each Series shall be the quotient obtained by dividing the value of the
net assets of that Series (being the value of the assets belonging to that
Series less the liabilities belonging to that Series) by the total number of
outstanding shares of the Series.
(i) Equality. All shares of the Series shall represent
an equal proportionate interest in the assets belonging to the Series (subject
to the liabilities belonging to the Series) and each share of the Series shall
be equal to each other share of that Series. The Board of Directors may from
time to time divide or combine the shares of a Series into a greater or lesser
number of shares of that Series without thereby changing the proportionate
beneficial interest in the assets belonging to the Series or in any way
affecting the rights of holders of shares of any other Series.
(j) Conversion or Exchange Rights. Subject to
compliance with the requirements of the 1940 Act, the Board of Directors shall
have the authority to provide that holders of shares of the Series shall have
the right to convert or exchange said shares into shares of one or more other
Series in accordance with such requirements and procedures as may be established
by the Board of Directors.
(k) Redemption by the Corporation. The Board of
Directors may cause the Corporation to redeem at current net asset value the
shares of the Series from a shareholder whose shares have an aggregate current
net asset value less than an amount established by the Board of Directors. No
such redemption shall be effected unless the Corporation has given the
shareholder reasonable notice of its intention to redeem the shares and an
opportunity to purchase a sufficient number of additional shares to bring the
aggregate current net asset value of his or her shares to the minimum amount
established. Upon redemption of shares pursuant to this section, the
<PAGE>
Corporation shall cause prompt payment of the full redemption price to be made
to the holder of shares so redeemed.
Eighth: The various classes of Shares of each Series
designated and classified shall be subject to all provisions of the Charter of
the Corporation relating to Shares of the Corporation generally, and those set
forth as follows:
(a) The assets of each class of a Series shall be
invested in the same investment portfolio of the Corporation.
(b) The dividends and distributions of investment
income and capital gains with respect to each class of shares shall be in such
amount as may be declared from time to time by the Board of Directors, and the
dividends and distributions of each class of shares may vary from the dividends
and distributions of the other classes of shares to reflect differing
allocations of the expenses of the Corporation among the holders of each class
and any resultant differences between the net asset value per share of each
class, to such extent and for such purposes as the Board of Directors may deem
appropriate. The allocation of investment income or capital gains and expenses
and liabilities of the Corporation among the classes shall be determined by the
Board of Directors in a manner it deems appropriate.
(c) The proceeds of the redemption of Class B shares of
each Series (including fractional shares) may be reduced by the amount of any
contingent deferred sales charge payable on such redemption pursuant to the
terms of the issuance of such shares.
(d) The holders of each class of shares of each Series
shall have (i) exclusive voting rights with respect to provisions of any service
plan or service and distribution plan adopted by the Corporation pursuant to
Rule 12b-1 under the 1940 Act (a "Plan") applicable to the respective class of
the respective Series and (ii) no voting rights with respect to the provisions
of any Plan applicable to any other class or Series of shares or with regard to
any other matter submitted to a vote of shareholders which does not affect
holders of that respective class of the respective Series of shares.
Ninth: The Board of Directors is empowered to authorize the
issuance from time to time of Shares of the Corporation, whether now or
hereafter authorized; provided, however, that the consideration per Share to be
received by the Corporation upon the issuance or sale of any Shares shall be the
net asset value per Share determined in accordance with the requirements of the
Investment Company Act of 1940 and the applicable rules and regulations of the
Securities and Exchange Commission (or any succeeding governmental authority)
and in conformity with generally accepted accounting practices and principles.
Tenth: The Shares may be issued in one or more series, and
each series may consist of one or more classes, all as the Board of Directors
may determine. Each series of Shares and each
<PAGE>
class of a series shall be issued upon such terms and conditions, and shall
confer upon its owners such rights as the Board of Directors may determine,
consistent with the requirements of the laws of the State of Maryland and the
Investment Company Act of 1940 and the applicable rules and regulations of the
Securities and Exchange Commission (or any succeeding governmental authority),
the Charter and the By-Laws of this Corporation. In addition, the Board of
Directors is hereby expressly granted authority to change the designation of any
series or class, and to increase or decrease the number of Shares of any series
or class, but the number of Shares of any series or class shall not be decreased
by the Board of Directors below the number of Shares thereof then outstanding.
Eleventh: (a) To the extent the Corporation has funds or
property legally available therefor, each Shareholder of the Corporation shall
have the right at such times as may be permitted by the Corporation, but no less
frequently than once each week, to require the Corporation to redeem all or any
part of its Shares at a redemption price equal to the net asset value per Share
next determined after the Shares are tendered for redemption; said determination
of the net asset value per Share to be made in accordance with the requirements
of the Investment Company Act of 1940 and the applicable rules and regulations
of the Securities and Exchange Commission (or any succeeding governmental
authority) and in conformity with generally accepted accounting practices and
principles.
Notwithstanding the foregoing, the Corporation may
postpone payment or deposit of the redemption price and may suspend the right of
the Shareholders to require the Corporation to redeem Shares pursuant to the
applicable rules and regulations, or any order, of the Securities and Exchange
Commission.
(b) The Corporation shall have the right, exercisable
at the discretion of the Board of Directors, to redeem Shares of any Shareholder
for their then current net asset value per Share if at such time the Shareholder
owns Shares having an aggregate net asset value of less than the amount set
forth in the current Registration Statement of the Corporation filed with the
Securities and Exchange Commission.
(c) Each Share is subject to redemption by the
Corporation at the redemption price computed in the manner set forth in
subparagraph (a) of Article Eleventh of the Charter at any time if the Board of
Directors, in its sole discretion, determines that failure to so redeem may
result in the Corporation being classified as a personal holding company as
defined in the Internal Revenue Code.
(d) Transfer of Shares will be recorded on the stock
transfer records of the Corporation at the request of the holders thereof at any
time during normal business hours of the Corporation unless the Board of
Directors of the Corporation determines, in its sole discretion, that allowing
such transfer may result in the Corporation being classified as a personal
holding company as defined in the Internal Revenue Code.
<PAGE>
Twelfth: The following provisions are hereby adopted for the
purpose of defining, limiting and regulating the powers of the Corporation and
of the Directors and Shareholders:
(a) No Shareholder shall have any pre-emptive or
preferential right of subscription to any Shares of any class or series whether
now or hereafter authorized. The Board of Directors may issue Shares without
offering the same either in whole or in part to the Shareholders.
(b) The Corporation may enter into exclusive or
non-exclusive contracts for the sale of its Shares and may also enter into
contracts, including but not limited to investment advisory, management,
custodial, transfer agency and administrative services. The terms and
conditions, methods of authorization, renewal, amendment and termination of the
aforesaid contracts shall be as determined at the discretion of the Board of
Directors; subject, however, to the provisions of the Charter of the
Corporation, the By-Laws of the Corporation, applicable state law, and the
Investment Company Act of 1940 and the rules and regulations of the Securities
and Exchange Commission.
(c) Subject to and in compliance with the provisions of
the General Laws of the State of Maryland respecting interested director
transactions, the Corporation may enter into a written underwriting contract,
management contract or contracts for research, advisory or administrative
services with Aetna Capital Management Inc., Aetna Life Insurance and Annuity
Company or their parents, affiliates or subsidiaries thereof, or their
respective successors, or otherwise to do business with such corporation,
notwithstanding the fact that one or more of the Directors of the Corporation
and some or all of its Officers are, have been, or may become Directors,
Officers, Employees or Stockholders of Aetna Capital Management, Inc., Aetna
Life Insurance and Annuity Company or their parents, affiliates or subsidiaries
or successors, and in the absence of actual fraud the Corporation may deal
freely with Aetna Capital Management, Inc., Aetna Life Insurance and Annuity
Company or their parents, affiliates, subsidiaries or successors, and neither
such underwriting contract, management contract or contract for research,
advisory or administrative services nor any other contract or transaction
between the Corporation and Aetna Capital Management, Inc., Aetna Life Insurance
and Annuity Company or their parents, affiliates, subsidiaries or successors
shall be invalidated or in any way affected thereby, nor shall any Director or
Officer of the Corporation be liable to the Corporation or to any Shareholder or
creditor of the Corporation or to any other person for any loss incurred under
or by reason of any such contract or transaction. Anything in the foregoing
notwithstanding, no Officer or Director or underwriter or investment adviser of
the Corporation shall be protected against any liability to the Corporation or
to its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of this office.
(d) The Corporation shall indemnify its Officers,
Directors, employees and agents and any person who serves at the request of the
Corporation as a Director, Officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise as
<PAGE>
follows:
i) Every person who is or has been a
Director, Officer, employee or agent of the Corporation and persons who serve at
the Corporation's request as Director, Officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise shall be
indemnified by the Corporation to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any debt, claim, action, demand, suit, proceeding, judgment,
decree, liability or obligation of any kind in which he becomes involved as a
party or otherwise by virtue of his being or having been a Director, Officer,
employee or agent of the Corporation or of another corporation, partnership,
joint venture, trust or other enterprise at the request of the Corporation and
against amounts paid or incurred by him in the settlement thereof.
ii) The words "claim," "action," "suit" or
"proceedings" shall apply to all claims, actions, suits or proceedings (civil,
criminal, administrative, legislative, investigative or other, including
appeals), actual or threatened, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
iii) No indemnification shall be provided
hereunder to a Director, Officer, employee or agent against any liability to the
Corporation or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
iv) The rights of indemnification herein
provided may be insured against by policies maintained by the Corporation, shall
be severable, shall not affect any other rights to which any Director, Officer,
employee or agent may now or hereafter be entitled, shall continue as to a
person who has ceased to be such Director, Officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
v) In the absence of a final decision on the
merits by a court or other body before which such proceeding was brought, an
indemnification payment will not be made, except as provided in paragraph (vi)
of this paragraph (d), unless in the absence of such a decision, a reasonable
determination based upon a factual review has been made (1) by a majority vote
of a quorum of non-party Directors who are not interested persons of the
Corporation, or (2) by independent legal counsel in a written opinion that the
indemnitee was not liable for an act of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties.
vi) The Corporation further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an Officer, Director or controlling
person of the Corporation will not be made absent the fulfillment of at least
one of the following conditions: (i) the indemnitee provides security for his
undertaking, (ii) the Corporation is insured against losses arising by reason of
any lawful advances or (iii) a majority of a quorum of disinterested non-party
Directors or independent legal counsel in a written opinion makes a factual
<PAGE>
determination that there is a reason to believe the indemnitee will be entitled
to indemnification.
(e) The Board of Directors shall, subject to the
General Laws of the State of Maryland, have the power to determine, from time to
time, whether and to what extent and at what times and places and under what
conditions and regulations any accounts and books of the Corporation, or any of
them, shall be open to the inspection of Shareholders.
(f) Notwithstanding any provision of law requiring a
greater proportion than a majority of the votes of all classes of Shares
entitled to be cast to take or authorize any action, the Corporation may take or
authorize any such action upon the concurrence of a majority of the aggregate
number of the votes entitled to be cast thereon.
(g) The Corporation reserves the right from time to
time to make any amendment of its Charter now or hereafter authorized by law,
including any amendment which alters the rights, as expressly set forth in its
Charter, of any outstanding Shares, except that no action affecting the validity
or assessibility of such Shares shall be taken without the unanimous approval of
the outstanding Shares affected thereby.
(h) In addition to the Powers and authority conferred
upon them by the Charter of the Corporation or By-Laws, the Board of Directors
may exercise all such powers and authority and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of applicable state law and the Charter and By-Laws of the
Corporation.
(i) The Board of Directors is expressly authorized to
determine in accordance with generally accepted accounting principles and
practices what constitutes net profits, earnings, surplus or net assets in
excess of capital, and to determine what accounting periods shall be used by the
Corporation for any purpose, whether annual or any other period, including
daily; to set apart of any funds of the Corporation such reserves for such
purposes as it shall determine and to abolish the same; to declare and pay
dividends and distributions in cash, securities or other property from surplus
or any funds legally available therefor, at such intervals (which may be as
frequent as daily) or on such other periodic basis, as it shall determine; to
declare such dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
other any other distributions on any basis, including dates occurring less
frequently than the effectiveness of declarations thereof; and to provide for
the payment of declared dividends on a date earlier or later than the specified
payment date in the case of Shareholders redeeming their entire ownership of
Shares.
Thirteenth: The Corporation acknowledges that it is adopting
its corporate name through permission of Aetna Life and Casualty Company, a
Connecticut corporation, and agrees that Aetna Life and Casualty Company
reserves to itself and any successor to its business the right to withdraw from
the Corporation the use of the name "Aetna" and reserves to itself and any
successor to its business the right to grant the non-exclusive right to use the
name "Aetna" or any similar name to any other investment company or business
enterprise.
<PAGE>
Fourteenth: The duration of the Corporation shall be
perpetual.
THIRD: These Articles of Amendment and Restatement were authorized and
approved by the Board of Directors of the Corporation by the affirmative vote of
a majority of the entire Board of Directors taken at a duly called meeting of
the Board of Directors in accordance with the Charter and By-Laws of the
Corporation and applicable law, without action of the stockholders. The only
amendment to the Charter contained herein are changes to the name or other
designation of any class or series of capital stock of the Corporation, which
changes are expressly permitted by Section 2-605 of the Maryland General
Corporation Law ("MGCL") to be made without action by the stockholders. Such
changes do not change the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of any class or series of capital stock of the
Corporation.
FOURTH: The Corporation is registered as an open-end company under the
Investment Company Act of 1940.
FIFTH: These Articles of Amendment and Restatement do not increase the
authorized capital stock of the Corporation.
SIXTH: The current address of the principal office of the Corporation
and the name and address of the Corporation's current resident agent are set
forth in Section Third of Article SECOND of these Articles of Amendment and
Restatement. The number of directors of the Corporation and the names of those
currently in office are set forth in Section Fifth of Article SECOND of these
Articles of Amendment and Restatement.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be executed in its name and on its behalf by its
undersigned President and witnessed or attested to by its undersigned Secretary
as of this 7th day of August, 1997 and its undersigned President acknowledges
that these Articles of Amendment and Restatement are the act and deed of the
Corporation, and under penalties of perjury, that the matters and facts set
forth herein are true in all material respects to the best of his knowledge,
information and belief.
WITNESS/ATTEST: AETNA SERIES FUND, INC.
/s/Amy R. Doberman By: /s/Shaun P. Mathews
----------------------- -----------------------------------
Name: Amy R. Doberman Name: Shaun P. Mathews
Secretary President
AETNA SERIES FUND, INC.
ARTICLES OF AMENDMENT
AETNA SERIES FUND, INC., a Maryland corporation, registered as an open-end
investment company under the Investment Company Act of 1940, and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland ("Department") that:
FIRST: ARTICLE SIXTH of the Corporation's Articles of Amendment and Restatement
received and approved for record by the Department on September 2, 1997 (the
"Articles of Amendment and Restatement"), is hereby amended to redesignate
"Class A" of each series of shares of stock of the Corporation referred to
therein as "Class I" of such series and to redesignate "Class B" of each series
of shares of stock of the Corporation referred to therein as "Class A" of such
series.
SECOND: Section (c) of ARTICLE EIGHTH of the Articles of Amendment and
Restatement is hereby amended to change the phrase "Class B shares" to "Class A
shares."
THIRD: The amendments to the Articles of Amendment and Restatement set forth
herein were approved by a majority of the entire Board of Directors of the
Corporation and are limited to changes expressly permitted by Section
2-605(a)(4) of the Maryland General Corporation Law.
IN WITNESS WHEREOF, Aetna Series Fund, Inc. has caused these Articles of
Amendment to be signed in its name on its behalf by its authorized officers who
acknowledge that these Articles of Amendment are the act of the Corporation,
that to the best of their knowledge, information and belief, all matters and
facts set forth herein relating to the authorization and approval of these
Articles of Amendment are true in all material respects and that this statement
is made under the penalties of perjury.
AETNA SERIES FUND, INC.
ATTEST:
By: /s/ Amy R. Doberman By: /s/ Shaun P. Mathews
------------------------- --------------------------------
Amy R. Doberman Shaun P. Mathews
Secretary President
DATE: October 28, 1997
-------------------------
Hartford, Connecticut
CORPORATE SEAL
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AETNA SERIES FUND, INC., a Maryland corporation registered as an
open-end investment company under the Investment Company Act of 1940 and having
its principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at its September 24,
1997 meeting, adopted a resolution increasing the total number of shares of
stock which the Corporation shall have authority to issue to six billion, eight
hundred million (6,800,000,000) shares of common stock of the par value of
$0.001 per share and of the aggregate par value of six million, eight hundred
thousand dollars ($6,800,000);
SECOND: The Board of Directors, at its meeting held on September 24,
1997, by resolutions, did designate and classify one billion, four hundred
million (1,400,000,000) shares of common stock of the Corporation into seven new
series ("Series") as follows:
Name of Class Number of Shares
Name of Series of Series Allocated
Aetna Index Plus Bond Fund Class I 100,000,000
Class A 100,000,000
Aetna Index Plus Mid
Cap Fund Class I 100,000,000
Class A 100,000,000
Aetna Mid Cap Fund Class I 100,000,000
Class A 100,000,000
Aetna Index Plus Small
Cap Fund Class I 100,000,000
Class A 100,000,000
Aetna High Yield Fund Class I 100,000,000
Class A 100,000,000
Aetna Real Estate Securities
Fund Class I 100,000,000
Class A 100,000,000
Aetna Value Opportunity
Fund Class I 100,000,000
Class A 100,000,000
<PAGE>
THIRD: Each of the Series shall have preferences, rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of shares as set forth in paragraphs SEVENTH and EIGHTH
of, and elsewhere in, the Articles of Amendment and Restatement of the
Corporation.
FOURTH: The various classes of Shares of each Series designated and
classified shall be subject to all provisions of the Articles of Amendment and
Restatement of the Corporation.
FIFTH: The shares of the Corporation authorized and classified pursuant
to paragraphs FIRST and SECOND of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the Charter of the Corporation. The total number of shares of
capital stock that the Corporation has authority to issue has been increased by
the Board of Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
SIXTH: Immediately prior to the effectiveness of these Articles
Supplementary, the Corporation had the authority to issue four billion, eight
hundred million (4,800,000,000) shares of common stock of the par value of
$0.001 per share and of the aggregate par value of four million, eight hundred
thousand dollars ($4,800,000), of which the Board of Directors had designated
and classified four billion, four hundred million (4,400,000,000) shares as
follows:
Name of Class Number of
Name of Series of Series Shares Allocated
AETNA MONEY MARKET FUND Class I 1,000,000,000
Class A 1,000,000,000
AETNA BOND FUND Class I 100,000,000
Class A 100,000,000
THE AETNA FUND Class I 100,000,000
Class A 100,000,000
AETNA GROWTH AND INCOME FUND Class I 100,000,000
Class A 100,000,000
AETNA INTERNATIONAL FUND Class I 200,000,000
Class A 200,000,000
AETNA GOVERNMENT FUND Class I 100,000,000
Class A 100,000,000
AETNA SMALL COMPANY FUND Class I 100,000,000
Class A 100,000,000
AETNA GROWTH FUND Class I 100,000,000
Class A 100,000,000
2
<PAGE>
Name of Class Number of
Name of Series of Series Shares Allocated
AETNA ASCENT FUND Class I 100,000,000
Class A 100,000,000
AETNA CROSSROADS FUND Class I 100,000,000
Class A 100,000,000
AETNA LEGACY FUND Class I 100,000,000
Class A 100,000,000
AETNA INDEX PLUS FUND Class I 100,000,000
Class A 100,000,000
SEVENTH: Immediately following the effectiveness of these Articles
Supplementary, the Corporation will have authority to issue six billion, eight
hundred million (6,800,000,000) shares of common stock of the par value of
$0.001 per share and of the aggregate par value of six million, eight hundred
thousand dollars ($6,800,000) of which the Board of Directors has designated and
classified five billion, eight hundred million (5,800,000,000) shares as set
forth in paragraphs SECOND and SIXTH of these Articles Supplementary.
IN WITNESS WHEREOF, Aetna Series Fund, Inc. has caused these Articles
Supplementary to be signed in its name on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
ATTEST: AETNA SERIES FUND, INC.
/s/ Amy R. Doberman By: /s/ Shaun P. Mathews
- ------------------------ ------------------------
Amy R. Doberman Shaun P. Mathews
Secretary President
Date: October 28, 1997
---------------------------
Hartford, Connecticut
CORPORATE SEAL
3
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
Growth Fund, 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 such 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;
<PAGE>
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular Series to which such
relationship was created; and
(e) all property held by Mellon on behalf of a particular Series shall
relate solely to the particular Series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Mellon Bank, N.A. Aetna Series Fund, Inc. on behalf of
Aetna Growth Fund
By: /s/ Donna Owens By: /s/ Shaun P. Mathews
-------------------- --------------------
Name: Donna Owens Name: Shaun P. Mathews
-------------------- --------------------
Title: Assistant Vice Pres. Title: President
-------------------- --------------------
Date: May 11, 1994 Date: December 7, 1993
-------------------- --------------------
<PAGE>
Amendment to Custodian Agreement
Schedule Pursuant to Rule 483(d)(2) under the Securities Act of 1933
Amendments to Custodian Agreements have been entered into by Aetna Series Fund,
Inc. on behalf of the following series in substantially the same form and type
as exhibit 24(b)(8)(a)(ii) - Amendment to Custodian Agreement - Mellon Bank,
N.A., included herewith.
Date Portfolio Difference
5/11/94 Aetna Small Company Fund none
5/11/94 Aetna Bond Fund none
5/11/94 Aetna Tax Free Fund none
FORM OF
AMENDMENT TO CUSTODIAN AGREEMENT
between
AETNA SERIES FUND, INC.
and
MELLON BANK, N.A.
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company"), and Mellon Bank, N.A.
("Mellon"), entered into a Custodian Agreement (the "Agreement") on September 1,
1992 with respect to the assets of certain series of the Company and some or all
additional series that the Company may establish from time to time ("Series");
and
WHEREAS, the Company has authorized the creation of a new series, _____
______________ (the "Series"), and has amended its registration statement on
Form N-1A to register shares of beneficial interest of the Series with the
Securities and Exchange Commission; and
WHEREAS, the Company desires to appoint Mellon as custodian of the
assets for the Series;
NOW THEREFORE, it is agreed as follows:
1. The Company, on behalf of the Series, hereby appoints Mellon, and
Mellon hereby accepts appointment, as the custodian of the assets of the Series,
in accordance with all the terms and conditions set forth in the Agreement.
2. The Company is entering into this Agreement incorporating the
Agreement on behalf of each Series individually and not jointly with any other
Series. In the Agreement, the term "Fund" shall refer to the Company solely on
behalf of each Series individually to which a particular Futures Contract
transaction or other obligation under the Agreement relates. The
responsibilities and benefits set forth in the Agreement shall refer to each
Series severally and not jointly. No individual Series shall have any
responsibility for any obligation arising out of a Futures Contract transaction
entered into by any other Series. Without otherwise limiting the generality of
the foregoing,
(a) any breach of the Agreement regarding the Company with respect to
any one Series shall not create a right or obligation with respect
to any other Series;
(b) under no circumstances shall Mellon have the right to set off
claims relating to a Series by applying property of any other
Series;
<PAGE>
(c) no Series shall have the right of set off against the assets held
by any other Series;
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular Series to which such
relationship was created; and
(e) all property held by Mellon on behalf of a particular Series shall
relate solely to the particular Series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Mellon Bank, N.A. Aetna Series Fund, Inc. on behalf of
its series, _________________________
By: ____________________________________ By: _________________________________
Name: __________________________________ Name: _______________________________
Title: _________________________________ Title: ______________________________
Date: __________________________________ Date: _______________________________
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into on this 10th day of December, 1991, by
and between Aetna Series Fund, Inc., a Maryland corporation (hereinafter
referred to as the "Series Fund") whose shares of beneficial interest are
divided into separate series (hereafter referred to singly as "Fund" or
collectively as "Funds") and First Wisconsin Trust Company, a corporation
organized under the laws of the state of Wisconsin (hereinafter referred to as
the "Agent").
W I T N E S S E T H:
WHEREAS, the Series Fund is registered as an open-end management investment
company under the Investment Company Act of 1940; and
WHEREAS, the Agent is a trust company regulated under Wisconsin law, registered
as a transfer agent under Section 17A of the Securities Exchange Act of 1934
and, among other things, is in the business of administering transfer and
dividend disbursing agent functions for the benefit to its customers;
NOW, THEREFORE, the Series Fund and the Agent do mutually promise and agree as
follows:
1. Terms of Appointment; Duties of the Agent
Subject to the terms and conditions set forth in this Agreement, the
Series Fund hereby employs and appoints the Agent to act as transfer agent and
dividend disbursing agent for each of the Funds.
The Agent shall perform all of the customary services of a transfer
agent and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), and shall, among other
things, do the following:
A. Receive orders for the purchase of shares, with prompt
delivery, where appropriate, of payment and supporting
documentation to the custodian for each Fund;
B. Process purchase orders and issue the appropriate number of
uncertificated shares to be held in the appropriate
shareholder account;
C. Process redemption requests received in good order and, where
relevant, deliver appropriate documentation to each Fund's
custodian;
D. Pay monies (upon receipt from each Fund's custodian, where
relevant) in accordance with the instructions of redeeming
shareholders;
1
<PAGE>
E. Process transfers of shares of a Fund in accordance with
authorized instructions from record or beneficial owners;
F. Process exchanges between the Funds;
G. Prepare and transmit payments for Funds' dividends and
distributions declared by the Series Fund;
H. Make changes to shareholder records, including, but not
limited to, address changes in plans (i.e., systematic
withdrawal, automatic investment, dividend reinvestment,
etc.);
I. Record the issuance of shares of each Fund and maintain,
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act
of 1934, a daily record of the total number of shares of each
of the Funds which are authorized, issued and outstanding;
J. Prepare shareholder meeting lists and, if applicable, mail,
receive and tabulate proxies;
K. Mail shareholder reports and prospectuses to current
shareholders;
L. Prepare and file U.S. Treasury Department forms 1099 and other
appropriate information returns required with respect to
dividends and distributions for all shareholders;
M. Provide shareholder account information upon request and
prepare and mail confirmations and statements of account to
shareholders for all purchases, redemptions and other
confirmable transactions of the Funds as agreed upon with the
Series Fund; and
N. Provide a Blue Sky System which will enable the Series fund to
monitor the total number of shares of each Fund sold in each
state. In addition, the Series Fund shall identify to the
Agent in writing those transactions and assets to be treated
as exempt from each Fund's Blue Sky reporting responsibility
for each state. The responsibility of the Agent for the Fund's
Blue Sky state registration status is solely limited to the
initial compliance by the Funds and the reporting of such
transactions to the Funds.
O. Review with the Series Fund its internal standards of
performance from time to time.
2
<PAGE>
2. Compensation
The Series Fund agrees to pay the Agent, in accordance with the fee
schedule set forth in Exhibit 1 hereto for performance of the duties listed in
this Agreement, and to reimburse the Agent for reasonable related out-of-pocket
expenses including, but not limited to the following: printing, postage, forms,
stationery, record retention, mailing, insertion, programming, labels,
shareholder lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
by mutual written agreement of the Series Fund and the Agent.
The Series Fund agrees to pay all fees and reimbursable expenses within
ten (10) business days following the receipt of monthly bills therefor.
3. Representations of Agent
The Agent represents and warrants to the Series Fund that:
A. It is a trust company duly organized, existing and in good
standing under the laws of Wisconsin;
B. It is duly qualified to carry on its business in the state of
Wisconsin;
C. It is empowered under applicable laws and by its charter and
bylaws to enter into and perform this Agreement;
D. All requisite corporate proceedings have been taken to
authorize it to enter and perform this Agreement; and
E. It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
4. Representations of the Series Fund
The Series Fund represents and warrants to the Agent that:
A. The Series Fund is registered as an open-end diversified
management investment company under the Investment Company Act
of 1940;
B. The Series Fund is a corporation duly organized, existing, and
in good standing under the laws of Maryland;
C. The Series Fund is empowered under applicable laws and by its
Certificate of Incorporation and bylaws to enter into and
perform this Agreement;
3
<PAGE>
D. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
E. The Series Fund will substantially comply with all applicable
requirements of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and any laws,
rules and regulations of governmental authorities having
jurisdiction; and
F. A registration statement has been filed with the Securities
and Exchange Commission under the Securities Act of 1933 and
will become effective prior to the shares of the Funds being
offered for sale and appropriate state securities law filings
have been made and will continue to be made, with respect to
all shares of the Funds being offered for sale.
5. Covenants of Funds and Agents
The Series Fund shall furnish the Agent a certified copy of the
resolution of the Board of Directors of the Series Fund authorizing the
appointment of the Agent and the execution of this Agreement. The Series Fund
shall provide to the Agent a copy of its Certificate of Incorporation, bylaws
and all amendments.
The Agent shall keep records relating to the services to be performed
hereunder, in the form and manner as it may reasonably deem advisable or as the
Series Fund may reasonably request, and in any event as may be required under
applicable federal securities law. To the extent required by Section 31 of the
Investment Company Act of 1940, as amended, and the rules thereunder, the Agent
agrees that all such records prepared or maintained by the Agent relating to the
services to be performed by the Agent hereunder are the property of the Series
Fund and will be preserved, maintained and made available in accordance with
such section and rules and will be surrendered to the Series Fund on and in
accordance with its request.
6. Indemnification; Remedies Upon Breach
The Agent agrees to use reasonable care and act in good faith in
performing its duties hereunder.
Notwithstanding the foregoing, the Agent shall not be liable or
responsible for delays or errors occurring by reason of circumstances beyond its
control, including acts of civil or military authority, national or state
emergencies, fire, mechanical or equipment failure, flood or catastrophe, acts
of God, insurrection or war. In the event of a mechanical breakdown beyond its
control, the Agent shall take all reasonable steps to minimize service
interruptions for any period that such interruption continues beyond the Agent's
control. The Agent will make every reasonable effort to restore any lost or
damaged data, and the correcting of any errors resulting from such a breakdown
will be at the Agent's expense. The Agent agrees that it shall, at all times,
have reasonable contingency plans with appropriate parties, making reasonable
provision for emergency use of electrical data processing equipment to the
extent appropriate equipment is
4
<PAGE>
available. Representatives of the Series Fund shall be entitled to inspect the
Agent's premises and operating capabilities at any time during regular business
hours of the Agent, upon reasonable notice to the Agent.
The Series Fund will indemnify and hold the Agent harmless against any
and all losses, claims, damages, liabilities for expenses (including reasonable
counsel fees and expenses) resulting from any claim, demand, action or suit not
resulting from the Agent's bad faith or negligence, and arising out of or in
connection with the Agent's duties hereunder.
Further, the Series Fund will indemnify and hold the Agent harmless
against any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from any claim, demand, action
or suit as a result of the negligence of the Series Fund or its principal
underwriter (unless contributed to by the Agent's own negligence or bad faith);
or as a result of the Agent acting upon telephone instructions relating to the
exchange or redemption of shares received by the Agent and reasonable believed
by the Agent to have originated from the record or beneficial owner of the
subject shares; or as a result of Agent acting upon any instructions executed or
orally communicated by a duly authorized officer or employee of the Series Fund
according to such lists of authorized officers and employees furnished to the
Agent and as amended from time to time in writing by a resolution of the Board
of Directors of the Series Fund; or as a result of acting in reliance upon any
genuine instrument signed, countersigned or executed by any person or persons
authorized to sign, countersign or execute the same.
In order for this section to apply, it is understood that if in any
case the Series Fund may be asked to indemnify or hold harmless the Agent, the
Series Fund shall be advised of all pertinent facts concerning the situation in
question, and it is further understood that the Agent will use reasonable care
to notify the Series Fund promptly concerning any situation which presents or
appears likely to present a claim for indemnification against the Series Fund.
The Series Fund shall have the option to defend the Agent against any claim
which may be the subject of this indemnification and, in the event that the
Series Fund so elects, the Agent will so notify the Series Fund, and thereupon
the Series Fund shall take over complete defense of the claim and the Agent
shall sustain no further legal or other expenses in such situation for which the
Agent shall seek indemnification under this section. The Agent will in no case
confess any claim or make any compromise in any case in which the Series Fund
will be asked to indemnify the Agent, except with the Series Fund's prior
written consent.
In the event that it is determined that the Agent has breached its
responsibilities under this contract, the Series Fund's sole and exclusive
remedies shall be:
A. Termination of the Agreement;
B. To collect damages directly and actually incurred in a sum up
to but not in excess of fifty percent (50%) of any fees
received by the Agent during the period of twelve (12) months
immediately preceding the Agent's performance or failure to
perform which constituted a material breach of this Agreement;
5
<PAGE>
C. To submit a claim for damages directly incurred by the Series
Fund as a consequence of the Agent's failure to perform which
constituted a material breach of this Agreement, and which
act, nonact or event was covered under the Agent's blanket
bond policy or policies, in which event the Agent agrees to
indemnify and hold the Series Fund harmless solely to the
extent of the Agent's best efforts to include the Series
Fund's claim as a loss payee under the filing of a proof of
loss under such policy; and
D. To reprocess and correct administrative errors at the Agent's
own expense.
Regardless of the foregoing, the Agent shall not be liable to the
Series Fund or to any third party for any indirect or consequential damages.
7. Confidentiality
The Agent agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Series Fund and
its shareholders and shall not disclose such information to any other party,
except after prior notification to and approval in writing by the Series Fund,
which approval shall not be unreasonably withheld and may not be withheld where
the Agent may be exposed to civil or criminal contempt proceedings for failure
to comply after being requested to divulge such information by duly constituted
authorities.
8. Covenant Not to Compete
The Agent Agrees not to compete with or in any way interfere with Aetna
Life and Casualty Company and its affiliates' existing 401(k) customers, and
further agrees to treat such customer files confidentially as that term is
described in Paragraph 7.
9. Additional Series
The Series Fund is authorized to issue separate classes of shares of
beneficial interest representing interests in separate investment portfolios.
The parties intend that each such portfolio established by the Series Fund, now
or in the future, be covered by the terms and conditions of this agreement. The
Funds covered under this agreement at the time of its execution are: Aetna Money
Market Fund, Aetna Bond Fund, Aetna Fund, Aetna Growth and Income Fund, Aetna
International Growth Fund.
10. Wisconsin Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the state of Wisconsin,
except as such laws may be superseded or pre-empted by Federal law.
6
<PAGE>
11. Amendment, Assignment, Termination and Notice
A. This Agreement may be amended by the mutual written consent of
the parties.
B. This Agreement may be terminated upon ninety (90) days'
written notice given by one party to the other.
C. This Agreement and any right or obligation hereunder may not
be assigned by either party without the signed, written
consent of the other party.
D. Any notice required to be given by the parties to each other
under the terms of this Agreement shall be in writing,
addressed and delivered, or mailed to the principal place of
business of the other party.
E. In the event that the Series Fund gives to the Agent written
intention to terminate this Agreement and appoint a successor
transfer agent, the Agent agrees to cooperate in the transfer
of its duties and responsibilities to the successor, including
any and all relevant books, records and other data established
or maintained by the Agent under this Agreement.
F. Should the Series Fund exercise its right to terminate this
Agreement, all out-of-pocket expenses associated with the
movement of records and material will be paid by the Series
Fund.
Aetna Series Fund, Inc. First Wisconsin Trust Company
By: /s/ Shaun P. Mathews By: /s/ Joe D. Redwine
----------------------- ----------------------
Attest: /s/ George N. Gringold Attest: /s/ Andrea Lydolph
----------------------- ----------------------
Secretary Assistant Secretary
7
<PAGE>
FIRST WISCONSIN TRUST COMPANY
TRANSFER AGENT SERVICES FEE SCHEDULE
FOR
AETNA MONEY MARKET FUND
$19.00 per shareholder account on the first 20,000 accounts
$18.50 per shareholder account on the next 30,000 accounts
$18.00 per shareholder account on the balance
$1.00 per transaction in excess of 4 transactions per account per year
$24,000 annual minimum fee
Fees billed on a monthly basis
Plus out-of-packet expenses including, but not limited to:
- Telephone
- Postage
- Programming
- Retention of Records
- Stationary/Envelopes
- Mailing
- Insurance
- Proxy Activities
- All other out-of-pocket expenses
Plus, with respect to Automatic Investment Plan:
$125.00 per monthly or bi-monthly cycle for all funds in group
$ 0.50 per Fund account set-up and/or change
$ 0.35 per item on first 10,000 items
$ 0.25 per item on the next 15,000 items
$ 0.20 per item on the balance
$ 3.25 per correction, reversal or return item
8
<PAGE>
FIRST WISCONSIN TRUST COMPANY
TRANSFER AGENT SERVICES FEE SCHEDULE
FOR
AETNA BOND FUND
THE AETNA FUND
AETNA GROWTH & INCOME FUND
AETNA INTERNATIONAL GROWTH FUND
$13.00 per shareholder account on the first 20,000 accounts
$12.50 per shareholder account on the next 30,000 accounts
$12.00 per shareholder account on the balance
$12,000 annual minimum fee PER FUND
The aforementioned fees apply to each Fund individually and are billed on a
monthly basis
Plus out-of-packet expenses including, but not limited to:
- Telephone
- Postage
- Programming
- Retention of Records
- Stationary/Envelopes
- Mailing
- Insurance
- Proxy Activities
- All other out-of-pocket expenses
Plus, with respect to Automatic Investment Plan:
$125.00 per monthly or bi-monthly cycle for all funds in group
$ 0.50 per Fund account set-up and/or change
$ 0.35 per item on first 10,000 items
$ 0.25 per item on the next 15,000 items
$ 0.20 per item on the balance
$ 3.25 per correction, reversal or return item
9
<PAGE>
FIRST WISCONSIN TRUST COMPANY
MUTUAL FUND SERVICES
MUTUAL FUND CUSTODIAL
QUALIFIED PLAN FEE SCHEDULE
(BILLED TO INVESTORS)
<TABLE>
<CAPTION>
Defined
Contribution 403(b)(7) 401(k)
IRA Accounts Plan Accounts Plan Accounts Plan Accounts
-------------------- --------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Acceptance Fee per Plan $ 8.00 $ 8.00 $ 8.00
Annual Maintenance Fee per Account $10.00 10.00 10.00 10.00
Transfer to Successor Trustee 15.00 15.00 15.00 15.00
Transfer from Prior Trustee 12.00 12.00 12.00 12.00
Distribution to a Participant 15.00 15.00 15.00 15.00
Refund of Excess Contribution 15.00 15.00 15.00 15.00
Systematic Withdrawal Plan
Distributions
(annual Charge) 15.00 15.00 15.00 15.00
Any Outgoing Wire $7.50
Telephone Exchange $5.00
</TABLE>
10
AMENDMENT TO TRANSFER AGENT AGREEMENT
between
AETNA SERIES FUND, INC.
and
FIRSTAR TRUST COMPANY
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company"), and Firstar Trust
Company, formerly First Wisconsin Trust Company ("Agent"), entered into a
Transfer Agent Agreement (the "Agreement") on December 10, 1991 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
Bond Fund, 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 the Agent as transfer agent of
the assets for such Series;
NOW THEREFORE, it is agreed as follows:
1. The Company, on behalf of the Series, hereby appoints Agent, and
Agent hereby accepts appointment, as the Transfer Agent and dividend disbursing
agent for 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 the Series individually and not jointly with any other
Series. In the Agreement, the term "Series Fund" shall refer to the Company
solely on behalf of each Series individually to which a particular 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 any
Series 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 the Agent have the right to set off
claims relating to a Series by applying property of any other
Series;
<PAGE>
(c) no Series shall have the right of set off against the assets held
by any other Series;
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular Series to which such
relationship was created; and
(e) all property held by Agent 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.
Firstar Trust Company Aetna Series Fund, Inc. on behalf of
Aetna Bond Fund individually
By: /s/ Joe D. Redwine By: /s/ Shaun P. Mathews
----------------------------- -------------------------
Name: Joe D. Redwine Name: Shaun P. Mathews
----------------------------- -------------------------
Title: Vice President Title: President
----------------------------- -------------------------
Date: January 1994 Date: December 7, 1993
----------------------------- -------------------------
<PAGE>
Amendment to Transfer Agent Agreement
Schedule Pursuant to Rule 483(d)(2) under the Securities Act of 1933
Amendments to the Transfer Agent Agreement have been entered into by Aetna
Series Fund, Inc. on behalf of the following funds in substantially the same
form and type as exhibit 24(b)(9)(c)(ii) - Amendment to Transfer Agent Agreement
(January 1994), included herewith.
Date Portfolio Difference
---- --------- ----------
1/94 Aetna Small Company Growth Fund None
1/94 Aetna Growth Fund None
AMENDMENT TO TRANSFER AGENT AGREEMENT
between
AETNA SERIES FUND, INC.
and
FIRSTAR TRUST COMPANY
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company"), and Firstar Trust
Company, formerly First Wisconsin Trust Company ("Agent"), entered into a
Transfer Agent Agreement (the "Agreement") on December 10, 1991 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 desires the right to audit periodically records
maintained on its behalf by the Agent;
NOW THEREFORE, for the consideration set forth in the Agreement and the
mutual agreements herein, it is agreed as follows:
1. The Agent performs all customary services of a transfer agent
and dividend disbursing agent including the maintenance of
shareholder records pursuant to the Agreement.
2. The Company, its designee or a representative of any regulatory
authority having jurisdiction over the Company, will be entitled
at reasonable times, during normal business hours and upon
reasonable notice to the Agent to inspect and review all records
of the Agent maintained on behalf of the Company relating to or
necessary for Agent to carry out its obligations under the
Agreement, including, but not limited to, all shareholder
records and all records relating to any transactions processed
by Agent pursuant to the Agreement. Agent may, in its
discretion, accompany such inspector during any such inspection.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below who have been duly authorized to do
so on behalf of the respective entities on the dates indicated below their
signatures. This Amendment will be effective as of the date below the Agent's
signature hereto.
Firstar Trust Company Aetna Series Fund, Inc.
By: /s/ Joe D. Redwine By: /s/ Shaun P. Mathews
------------------------ ---------------------------
Name: Joe D. Redwine Name: Shaun P. Mathews
------------------------ ---------------------------
Title: Vice President Title: President
------------------------ ---------------------------
Date: July 20, 1994 Date: July 12, 1994
------------------------ ---------------------------
FORM OF
AMENDMENT TO TRANSFER AGENT AGREEMENT
between
AETNA SERIES FUND, INC.
and
FIRSTAR TRUST COMPANY
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company"), and Firstar Trust
Company, formerly First Wisconsin Trust Company ("Agent"), entered into a
Transfer Agent Agreement (the "Agreement") on December 10, 1991 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,
______________________, 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 the Agent as transfer agent of
the assets for such Series;
NOW THEREFORE, it is agreed as follows:
1. The Company, on behalf of the Series, hereby appoints Agent, and
Agent hereby accepts appointment, as the Transfer Agent and dividend disbursing
agent for 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 the Series individually and not jointly with any other
Series. In the Agreement, the term "Series Fund" shall refer to the Company
solely on behalf of each Series individually to which a particular 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 any
Series 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 the Agent have the right to set off
claims relating to a Series by applying property of any other
Series;
<PAGE>
(c) no Series shall have the right of set off against the assets held
by any other Series;
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular Series to which such
relationship was created; and
(e) all property held by Agent 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.
Firstar Trust Company Aetna Series Fund, Inc. on behalf of
-------------------------------------
By: By:
------------------------ ---------------------------------
Name: Name:
--------------------- -------------------------------
Title: Title:
--------------------- ------------------------------
Date: Date:
---------------------- -------------------------------
[Aetna Logo}
[Aetna Letterhead]
151 Farmington Avenue
Hartford, CT 06156-3124
November 3, 1997 Amy R. Doberman
Counsel
Law Division, RE4A
Investments & Financial Services
(860) 273-1409
Fax: (860) 273-9407
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aetna Series Fund, Inc.
Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A
(File No. 33-41694 and 811-6352)
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Life Insurance and Annuity Company
(ALIAC), the investment adviser to Aetna Series Fund, Inc., a Maryland
corporation (the "Company"). It is my understanding that the Company has
registered an indefinite number of shares of beneficial interest under the
Securities Act of 1933 (the "1933 Act") pursuant to Rule 24f-2 under the
Investment Company Act of 1940 (the "1940 Act").
Insofar as it relates or pertains to the Company, I have reviewed the prospectus
and the Company's Registration Statement on Form N-1A, as amended to the date
hereof, filed with the Securities and Exchange Commission under the 1933 Act and
the 1940 Act, pursuant to which the Shares will be sold (the "Registration
Statement"). I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents and other instruments I have
deemed necessary or appropriate for the purpose of this opinion. For purposes of
such examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Maryland and the District of Columbia. My
opinion herein as to Maryland law is based upon a limited inquiry thereof that I
have deemed appropriate under the circumstances.
Based upon the foregoing, and assuming the securities are issued and sold in
accordance with the provisions of the Company's Articles of Incorporation and
the Registration Statement, I am of the opinion that the securities will when
sold be legally issued, fully paid and nonassessable.
<PAGE>
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Amy R. Doberman
Amy R. Doberman
Counsel
Consent of Independent Auditors
The Board of Directors
Aetna Series Fund, Inc.:
We consent to the use of our report dated December 6, 1996 incorporated herein
by reference in registration statement (No. 33-41694) on Form N-1A and to the
references to our firm under the captions "FINANCIAL HIGHLIGHTS" in the
Prospectuses and "INDEPENDENT AUDITORS" in the Statement of Additional
Information.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
November 3, 1997
FORM OF DISTRIBUTION PLAN
Aetna Series Fund, Inc.
Class A
This Distribution Plan (the "Plan") is adopted in accordance with Rule 12b-1
(the "Rule") under the Investment Company Act of 1940 (the "1940 Act"), by AETNA
SERIES FUND, INC. (the "Fund"), a Maryland corporation, on behalf of the Class A
shares of each of its Series (except Aetna Money Market Fund) as set forth in
Appendix A, as amended from time to time, subject to the following terms and
conditions:
Section 1. Annual Fees
Distribution Fee. Each Series will pay to the underwriter of its shares, Aetna
Investment Services, Inc. (the "Underwriter"), a Connecticut corporation, a
distribution fee under the Plan at the annual rate of 0.25% of the average daily
net assets of each Series attributable to its Class A shares (the "Distribution
Fee").
Adjustment to Fees. The Distribution Fee may be reduced with respect to the
Class A shares of any Series if agreed upon by the Board of Directors of the
Fund (the "Board") and the Underwriter and if approved in the manner specified
in Section 3 of this Plan.
Payment of Fees. The Distribution Fee will be calculated daily and paid monthly
by each Series with respect to its Class A shares at the annual rate indicated
above.
Section 2. Expenses covered by the Plan.
The Distribution Fee may be used by the Underwriter for: (a) costs of printing
and distributing the Series' prospectus, statement of additional information and
reports to prospective investors in the Series; (b) costs involved in preparing,
printing and distributing sales literature pertaining to the Series; (c) an
allocation of overhead and other branch office distribution-related expenses of
the Underwriter; (d) payments made to persons who provide support services in
connection with the distribution of the Series' shares, including but not
limited to, office space and equipment, telephone facilities, answering routine
inquiries regarding the Series, processing shareholder transactions and
providing any other shareholder services not otherwise provided by the Fund's
transfer agent; (e) accruals for interest on the amount of the foregoing
expenses that exceed the Distribution Fee and the contingent deferred sales
charge received by the Underwriter; and (f) any other expense primarily intended
to result in the sale of a Series' shares, including, without limitation,
payments to selling dealers and their agents, if applicable.
The amount of the Distribution Fees payable under Section 1 hereof is not
related directly to expenses incurred by the Underwriter and this Section 2 does
not obligate a Series to reimburse the Underwriter for such expenses. The
Distribution Fees will be paid by each Series to the Underwriter unless and
until (a) the Plan is terminated pursuant to Section 5
<PAGE>
hereof, or (b) the Plan is not renewed with respect to a Series or Class A
thereof pursuant to Section 4 hereof. Any distribution expenses incurred by the
Underwriter on behalf of a Series in excess of the Distribution Fees specified
in Section 1 hereof which the Underwriter has accrued through the termination
date are the sole responsibility and liability of the Underwriter and are not an
obligation of a Series.
Section 3. Approval of Directors.
Neither the Plan nor any related agreements will take effect until approved by a
majority of both (a) the Board of the Fund and (b) those Directors who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to it (the
"Qualified Directors"), cast in person at a meeting called for the purpose of
voting on the Plan and the related agreements.
Section 4. Continuance of the Plan.
The Plan shall become effective at the close of business on the date indicated
below, and shall remain in force and effect through December 31, 1998, unless
earlier terminated. Following the expiration of its initial term, the Plan shall
continue in force and effect for a one year period, provided such continuance is
specifically approved at least annually:
1. (a) by a majority of the members of the Board, or (b) by vote of a
majority of the Series' outstanding voting securities, and
2. by the vote of a majority of the Qualified Directors by votes cast in
person at a meeting specifically called for such purpose.
Section 5. Termination.
The Plan may be terminated at any time with respect to Class A of a Series (a)
by the vote of a majority of the outstanding voting securities of Class A of a
Series, or (b) by a vote of a majority of the Qualified Directors. The Plan may
remain in effect with respect to a Series or Class A thereof even if the Plan
has been terminated in accordance with this Section 5 with respect to any other
Series or Class A thereof.
Section 6. Amendments.
The Plan may not be amended with respect to Class A of a Series so as to
increase materially the amounts of the Distribution Fees described in Section 1
above unless the amendment is approved by a vote of the holders of at least a
majority of the outstanding voting securities of Class A of that Series. No
material amendment to the Plan may be made unless approved in the manner
described in Section 3 above.
-2-
<PAGE>
Section 7. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Fund.
Section 8. Written Reports.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by a Series pursuant to the
Plan or any related agreement will prepare and furnish to the Board, and the
Board will review, at least quarterly, written reports setting out the amounts
expended under the Plan, the purposes for which those expenditures were made,
and otherwise complying with the requirements of the Rule.
Section 9. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section 8 above, for a period of not less than
six years (the first two years in an easily accessible place) from the date of
the Plan, agreement or report.
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the 1940 Act.
IN WITNESS WHEREOF, the Fund, on behalf of the Class A Shares of each of its
Series, has executed this Plan as of this ___ day of ________, 1998.
AETNA SERIES FUND, INC.
on behalf of its CLASS A shares
By: ________________________________
-3-
<PAGE>
Appendix A
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna High Yield Fund
AETNA SERIES FUND, INC.
RULE 18f-3
MULTI-CLASS PLAN
Introduction:
Pursuant to Rule 18f-3 under the Investment Company Act of 1940 (the
"1940 Act"), the following sets forth the separate class arrangements and
expense allocations as well as the exchange privileges of each class of shares
issued by each series ("Series") comprising the Aetna Series Fund, Inc. (the
"Fund"). Except as described below, each class has the same rights and
obligations as each other class as required by Rule 18f-3.
Terms of the Plan:
The Fund currently consists of the following nineteen (19) Series:
Aetna Money Market Fund
Aetna Government Fund
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna International Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna High Yield Fund
Aetna International Fund, Aetna Small Company Fund, Aetna Growth Fund,
Aetna Growth and Income Fund, Aetna Balanced Fund, Aetna Ascent Fund, Aetna
Crossroads Fund, Aetna Legacy Fund, Aetna Real Estate Securities Fund, Aetna Mid
Cap Fund and Aetna Value Opportunity Fund are collectively referred to herein as
the "Equity Funds." Aetna
<PAGE>
Government Fund, Aetna Bond Fund and Aetna High Yield Fund are collectively
referred to herein as the "Fixed Income Funds." Aetna Index Plus Large Cap Fund,
Aetna Index Plus Bond Fund, Aetna Index Plus Mid Cap Fund and Aetna Index Plus
Small Cap Fund are collectively referred to herein as the "Enhanced Index
Funds."
1. Class Designations:
The shares are divided into two classes: 1) Class I shares are shares
that are offered to certain corporate retirement plans and certain wrap fee
programs; salaried and retired employees of Aetna Life Insurance and Annuity
Company and its affiliates (including members of employees' and retired persons'
immediate families, board members and trustees, and their immediate families);
certain insurance companies (including separate accounts); registered investment
companies; investment advisers and broker-dealers acting for their own account;
all shareholders holding Select Class shares prior to the effective date of this
Plan, and their immediate family members, as long as they maintain a shareholder
account; bank and independent trust companies investing on behalf of their
client for which they charge trust and investment management fees; certain
Individual Retirement Account rollovers; members of the Board of Directors of
the Fund ("Board"); and members of such other groups as may be approved by the
Fund's Board from time to time; and 2) Class A shares are shares that are
offered to accounts not eligible to buy Class I shares.
2. Differences in Distribution Arrangements:
Class I shares are distributed with no sales charges, distribution fees
or service fees.
Class A shares of each Series, except Aetna Money Market Fund, are
subject to the imposition of a sales charge at the time of purchase. The Equity
Funds, Fixed Income Funds and Enhanced Index Funds have maximum sales charges of
5.75%, 4.75% and 3.00%, respectively. Sales charges for all series decline to 0%
based on discounts for volume purchases (aggregate investment in the Fund's
Series), as set forth in the table below.
<TABLE>
<CAPTION>
Sales Charge
-----------------------------------------------------------------------
Aggregate Investment Equity Funds Fixed Income Funds Enhanced Index Funds
- -------------------- ------------ ------------------ --------------------
<S> <C> <C> <C>
Under $50,000 5.75% 4.75% 3.00%
$50,000 but under $100,000 4.50% 4.50% 2.50%
$100,000 but under $250,000 3.50% 3.50% 2.00%
$250,000 but under $500,000 2.50% 2.50% 1.50%
$500,000 but under $1,000,000 2.00% 2.00% 1.00%
$1,000,000 or more None None None
</TABLE>
Class A shares are subject to a distribution fee based on the average
daily net assets attributable to Class A shares. This fee is imposed pursuant to
a Distribution Plan adopted under Rule 12b-1 under the 1940 Act, in the amount
of 0.25%, except for Aetna Money Market Fund, which has no 12b-1 fee. Class A
shares are not subject to a service fee.
2
<PAGE>
Class A shares purchased with an aggregate investment in the Fund's
Series of less than $1,000,000 are not subject to a contingent deferred sales
charge ("CDSC"). Class A shares purchased with an aggregate investment in the
Fund's Series of $1,000,000 or more may be subject to a CDSC imposed on
redemptions within two years of purchase. The CDSC will apply only to shares for
which a finder's fee is paid to selling broker-dealers, banks or other
investment professionals having a distribution agreement with the Fund. 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. Thus, there is no sales
charge on increases in the net asset value of shares above the initial purchase
price. There is no CDSC on redemptions of Class A shares purchased through
reinvestment of dividends or capital gains distributions or shares purchased
more than two years prior to the redemption. In addition, there is no CDSC on
Aetna Money Market Fund redemptions unless (i) those shares were purchased
through an exchange from another Series within two years prior to the redemption
and (ii) the original purchase of the shares exchanged was subject to a CDSC.
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 aggregate investment in the Fund's Series and the time
invested:
Aggregate Investment Redemption During CDSC
-------------------- ----------------- ----
$1,000,000 but less than $3,000,000 1st year since purchase 1.00%
2nd year since purchase .50%
In determining the number of years the shares have been held, the Fund
will aggregate all purchases of Class A shares made during a month and consider
them made on the first day of the month.
3. Expense Allocation:
In addition to the allocation of the distribution fee described above,
the following expenses shall be allocated, to the extent practicable, on a
class-by-class basis:
(1) expense of administrative personnel and services required to support
the shareholders of each class;
(2) transfer agency fees payable by each class;
(3) costs of printing the prospectuses relating to those classes;
(4) Securities and Exchange Commission and any "Blue Sky" registration
fees;
(5) litigation or other legal expenses; and
(6) directors' fees incurred as a result of issues related to its class.
3
<PAGE>
Income, realized and unrealized capital gains and losses, and expenses
other than those allocated as described in paragraph 3 above of each Series are
allocated to a particular class on the basis of the net asset value of that
class in relation to the net asset value of the Series.
4. Exchange Privileges:
Each class of shares may be exchanged for shares of the same class in
another Series of the Fund to the extent the exchanging shareholder is eligible
to purchase the shares of the Series into which the exchange is being made.
Currently, shares of each class may be exchanged at the net asset value for
shares of any other Series of the same class, subject to minimum investment
requirements of the Series.
5. Conversion Features:
No class of shares of a particular Series is convertible into another class
of shares of that Series.
6. Voting Rights:
Each class shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement. Furthermore, each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
4
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 011
<NAME> Money Market Fund -- Class A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 442,406,200
<INVESTMENTS-AT-VALUE> 442,406,200
<RECEIVABLES> 11,822,785
<ASSETS-OTHER> 54,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 454,283,266
<PAYABLE-FOR-SECURITIES> 7,831,633
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,321,475
<TOTAL-LIABILITIES> 11,153,108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 443,130,158
<SHARES-COMMON-STOCK> 323,280,879
<SHARES-COMMON-PRIOR> 275,524,492
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 443,130,158
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,850,822
<OTHER-INCOME> 0
<EXPENSES-NET> (1,168,149)
<NET-INVESTMENT-INCOME> 20,682,673
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,682,673
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,289,546)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 365,382,830
<NUMBER-OF-SHARES-REDEEMED> (329,569,238)
<SHARES-REINVESTED> 11,942,795
<NET-CHANGE-IN-ASSETS> 88,880,027
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,560,183
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,328,793
<AVERAGE-NET-ASSETS> 390,054,196
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 012
<NAME> Money Market Fund -- Class B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 442,406,200
<INVESTMENTS-AT-VALUE> 442,406,200
<RECEIVABLES> 11,822,785
<ASSETS-OTHER> 54,281
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 454,283,266
<PAYABLE-FOR-SECURITIES> 7,831,633
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,321,475
<TOTAL-LIABILITIES> 11,153,108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 443,130,158
<SHARES-COMMON-STOCK> 119,849,279
<SHARES-COMMON-PRIOR> 78,725,639
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 443,130,158
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,850,822
<OTHER-INCOME> 0
<EXPENSES-NET> (1,168,149)
<NET-INVESTMENT-INCOME> 20,682,673
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 20,682,673
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,393,127)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 313,079,417
<NUMBER-OF-SHARES-REDEEMED> (277,136,873)
<SHARES-REINVESTED> 5,181,096
<NET-CHANGE-IN-ASSETS> 88,880,027
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,560,183
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,328,793
<AVERAGE-NET-ASSETS> 390,054,196
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 021
<NAME> Government Fund -- Class A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 11,127,267
<INVESTMENTS-AT-VALUE> 11,052,592
<RECEIVABLES> 189,256
<ASSETS-OTHER> 419
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,242,267
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,030
<TOTAL-LIABILITIES> 54,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,602,182
<SHARES-COMMON-STOCK> 1,088,403
<SHARES-COMMON-PRIOR> 1,914,147
<ACCUMULATED-NII-CURRENT> 37,340
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (376,610)
<ACCUM-APPREC-OR-DEPREC> (74,675)
<NET-ASSETS> 11,188,237
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 859,634
<OTHER-INCOME> 0
<EXPENSES-NET> (98,514)
<NET-INVESTMENT-INCOME> 761,120
<REALIZED-GAINS-CURRENT> 440,214
<APPREC-INCREASE-CURRENT> (671,559)
<NET-CHANGE-FROM-OPS> 529,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (826,219)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 713,747
<NUMBER-OF-SHARES-REDEEMED> (1,613,555)
<SHARES-REINVESTED> 74,064
<NET-CHANGE-IN-ASSETS> (8,370,070)
<ACCUMULATED-NII-PRIOR> 133,130
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (816,824)
<GROSS-ADVISORY-FEES> 67,466
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 216,127
<AVERAGE-NET-ASSETS> 13,492,663
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (0.64)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 022
<NAME> Government Fund -- Class B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 11,127,267
<INVESTMENTS-AT-VALUE> 11,052,592
<RECEIVABLES> 189,256
<ASSETS-OTHER> 419
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,242,267
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,030
<TOTAL-LIABILITIES> 54,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,602,182
<SHARES-COMMON-STOCK> 53,755
<SHARES-COMMON-PRIOR> 40,455
<ACCUMULATED-NII-CURRENT> 37,340
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (376,610)
<ACCUM-APPREC-OR-DEPREC> (74,675)
<NET-ASSETS> 11,188,237
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 859,634
<OTHER-INCOME> 0
<EXPENSES-NET> (98,514)
<NET-INVESTMENT-INCOME> 761,120
<REALIZED-GAINS-CURRENT> 440,214
<APPREC-INCREASE-CURRENT> (671,559)
<NET-CHANGE-FROM-OPS> 529,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (30,691)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39,879
<NUMBER-OF-SHARES-REDEEMED> (29,591)
<SHARES-REINVESTED> 3,012
<NET-CHANGE-IN-ASSETS> (8,370,070)
<ACCUMULATED-NII-PRIOR> 133,130
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (816,824)
<GROSS-ADVISORY-FEES> 67,466
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 216,127
<AVERAGE-NET-ASSETS> 13,492,663
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.79
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 031
<NAME> Bond Fund -- Class A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 28,872,143
<INVESTMENTS-AT-VALUE> 29,491,389
<RECEIVABLES> 388,825
<ASSETS-OTHER> 38,730
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,918,944
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,902
<TOTAL-LIABILITIES> 177,902
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,957,393
<SHARES-COMMON-STOCK> 2,860,637
<SHARES-COMMON-PRIOR> 3,192,325
<ACCUMULATED-NII-CURRENT> 93,870
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (929,467)
<ACCUM-APPREC-OR-DEPREC> 619,246
<NET-ASSETS> 29,741,042
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,408,938
<OTHER-INCOME> 0
<EXPENSES-NET> (277,495)
<NET-INVESTMENT-INCOME> 2,131,443
<REALIZED-GAINS-CURRENT> 350,612
<APPREC-INCREASE-CURRENT> (865,587)
<NET-CHANGE-FROM-OPS> 1,616,468
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,228,451)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,648,950
<NUMBER-OF-SHARES-REDEEMED> (2,175,384)
<SHARES-REINVESTED> 194,746
<NET-CHANGE-IN-ASSETS> (10,377,620)
<ACCUMULATED-NII-PRIOR> 203,781
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (1,280,079)
<GROSS-ADVISORY-FEES> 174,209
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 419,052
<AVERAGE-NET-ASSETS> 34,841,428
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> (0.68)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 032
<NAME> Bond Fund -- Class B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 28,872,143
<INVESTMENTS-AT-VALUE> 29,491,389
<RECEIVABLES> 388,825
<ASSETS-OTHER> 38,730
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,918,944
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,902
<TOTAL-LIABILITIES> 177,902
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,957,393
<SHARES-COMMON-STOCK> 87,000
<SHARES-COMMON-PRIOR> 714,938
<ACCUMULATED-NII-CURRENT> 93,870
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (929,467)
<ACCUM-APPREC-OR-DEPREC> 619,246
<NET-ASSETS> 29,741,042
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,408,938
<OTHER-INCOME> 0
<EXPENSES-NET> (277,495)
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 061
<NAME> Aetna Fund -- Class A
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 062
<NAME> Aetna Fund -- Class B
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 041
<NAME> Growth and Income Fund -- Class A
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 042
<NAME> Growth and Income Fund -- Class B
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 081
<NAME> Growth Fund -- Class A
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 082
<NAME> Growth Fund -- Class B
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 091
<NAME> Small Company Fund -- Class A
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 092
<NAME> Small Company Fund -- Class B
<S> <C>
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<PERIOD-START> NOV-01-1995
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<NAME> Aetna Series Fund, Inc.
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