As filed with the Securities and Exchange File No. 33-41694
Commission on April 24, 1998 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. 25
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 35
AETNA SERIES FUND, INC.
-----------------------
242 Trumbull Street ALT5, Hartford, Connecticut 06103-1205
----------------------------------------------------------
(860) 275-2032
Amy R. Doberman, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue RE4A, Hartford, Connecticut 06156
-------------------------------------------------------
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
X on July 1, 1998 pursuant to paragraph (a)(1) 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.................................................. Highlights
Fee Tables
3. Condensed Financial Information........................... Financial Highlights
4. General Description of Registrant......................... Highlights
Description of the Fund
Risk Factors and Other
Considerations
Concentration
General Information
5. Management of the Fund.................................... Performance
Management
Portfolio Management
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...................... Net Asset Value
How to Open an Account
How to Purchase Shares
Fees and Charges (Class A
Prospectus only)
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>
<CAPTION>
FORM N-1A
ITEM NO. CAPTION IN STATEMENT OF
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 and Shareholders
Servicing Arrangements
Letter of Intent
Right of Accumulation/Cumulative
Quantity Discount
Net Asset Value
Purchase and Redemption of Shares
20. Tax Status................................................ Tax Status
21. Underwriters.............................................. Principal Underwriter
Distribution and Shareholder
Servicing Arrangements
22. Calculation of Performance Data........................... Performance Information
23. Financial Statements...................................... Financial Statements
</TABLE>
<PAGE>
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 and
Class C Shares
July 1, 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 three classes of
shares, Class A, Class C and Class I 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 July 1, 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. 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 purchasing or considering purchase of Class A
or Class C 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.
SHARES OF THE FUND OR ANY SERIES THEREOF ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY OF THE U.S. GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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 Baa3 by
Moody's Investors Service, Inc. (Moody's).
<PAGE>
Aetna 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.
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.
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 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 seeks to outperform the total return performance
of publicly traded common stocks included in the S&P 500 Composite Stock Price
Index (S&P 500), a stock market index comprised of 500 common stocks selected by
S&P, while maintaining a market level of risk.
Aetna Index Plus Mid Cap Fund seeks to outperform the total return performance
of publicly traded common stocks included in the S&P MidCap 400 Index (S&P 400),
a stock market index comprised 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 included in the S&P SmallCap 600 Index (S&P
600), a stock market index comprised 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 comprised of approximately 6,000 securities.
Aetna Ascent Fund seeks to provide capital appreciation.
Aetna Crossroads Fund seeks to provide total return (i.e., income and capital
appreciation, both realized and unrealized).
Aetna Legacy Fund seeks to provide total return consistent with preservation of
capital.
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Highlights..................................................................4
Fee Tables..................................................................6
Financial Highlights.......................................................12
Description of the Fund....................................................18
Risk Factors and Other Considerations......................................25
Concentration..............................................................29
Performance................................................................29
Net Asset Value............................................................31
How to Open an Account.....................................................31
How to Purchase Shares.....................................................31
Fees and Charges...........................................................36
How to Redeem Shares.......................................................37
Shareholder Services and Other Features....................................38
Cross Investing............................................................40
Management.................................................................40
Portfolio Management.......................................................43
Distributions..............................................................44
Taxes......................................................................45
General Information........................................................46
</TABLE>
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.
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."
[bullet] Aetna Money Market Fund (Money Market)
[bullet] Aetna Government Fund
[bullet] Aetna Bond Fund (Bond Fund)
[bullet] Aetna High Yield Fund (High Yield)
[bullet] Aetna Balanced Fund (Balanced)
[bullet] Aetna Growth and Income Fund (Growth and Income)
[bullet] Aetna Real Estate Securities Fund (Real Estate)
[bullet] Aetna Value Opportunity Fund (Value Opportunity)
[bullet] Aetna Growth Fund (Growth)
[bullet] Aetna Mid Cap Fund (Mid Cap)
[bullet] Aetna Small Company Fund (Small Company)
[bullet] Aetna International Fund (International)
[bullet] Aetna Index Plus Large Cap Fund (Index Plus Large Cap)
[bullet] Aetna Index Plus Mid Cap Fund (Index Plus Mid Cap)
[bullet] Aetna Index Plus Small Cap Fund (Index Plus Small Cap)
[bullet] Aetna Index Plus Bond Fund (Index Plus Bond)
[bullet] Aetna Ascent Fund (Ascent Fund)
[bullet] Aetna Crossroads Fund (Crossroads Fund)
[bullet] Aetna Legacy Fund (Legacy Fund)
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 the Various Classes of Shares? The shares of each
Series are divided into three classes. Class I shares are shares that are
offered to certain retirement plans; certain registered investment advisers
having an agreement with the Funds to invest a minimum of $1 million within one
year of initial purchase; employees and retired employees of Aetna, Inc. and its
affiliates (including members of employees' and retired persons' immediate
families, board members and trustees, and their immediate families); insurance
companies (including separate accounts); registered investment companies;
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; certain bank and independent trust
companies investing on behalf of their clients for which they charge trust and
investment management fees; members of the Board of Directors of the Fund
("Board"); NASD-registered representatives of Aeltus Capital or any affiliated
broker-dealers (including members of their immediate families); and of such
other groups as may be approved by the Fund's Board from time to time.
Class A and Class C shares are shares that are offered to accounts not eligible
to buy Class I shares.
Each class of shares differs as to sales charges and certain fund expenses.
Different fees and expenses will affect performance.
Class I shares are no-load, which means you do not pay any sales charges,
distribution or service fees.
Class C shares of each Series (except Money Market) are subject to a
distribution (12b-1) fee which is calculated at an annual rate of 0.75%, except
for Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap and Index
Plus Bond, which are subject to a distribution (12b-1) fee in the amount of
0.50%. Class C shares (except Money Market) are also subject to a service fee
based on the average daily net assets attributable to Class C shares in the
amount of 0.25%. Class C shares of each Series are subject to the imposition of
a contingent deferred sales charge (CDSC) on redemptions made within eighteen
months of purchase. See "Fees and Charges."
4
<PAGE>
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
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.
Additional classes and Series may be offered in the future.
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, or 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. 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."
<TABLE>
<CAPTION>
Class A
Shareholder Transaction Expenses
- -------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge
Sales Charge on (CDSC) on Redemptions
Purchases (as a (as a percentage of Sales Charge
percentage of gross redemption on Dividend
purchase price) proceeds)(1) Reinvestment Exchange Fee
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market None None None None
Aetna Government Fund 4.75% None None None
Bond Fund 4.75% None None None
High Yield 4.75% None None None
Balanced 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
Ascent Fund 5.75% None None None
Crossroads Fund 5.75% None None None
Legacy Fund 5.75% 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>
<TABLE>
<CAPTION>
Class C
Shareholder Transaction Expenses
- -------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge
Sales Charge on (CDSC) on Redemptions
Purchases (as a (as a percentage of Sales Charge
percentage of gross redemption on Dividend
purchase price) proceeds)(1) Reinvestment Exchange Fee
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market
Aetna Government Fund
Bond Fund
High Yield
Balanced
Growth and Income
Real Estate
Value Opportunity
Growth
Mid Cap
Small Company
International
Index Plus Large Cap
Index Plus Mid Cap
Index Plus Small Cap
Index Plus Bond
Ascent Fund
Crossroads Fund
Legacy Fund
</TABLE>
(1) Direct purchases into Money Market will not be subject to a CDSC. See "How
to Purchase Shares."
7
<PAGE>
<TABLE>
<CAPTION>
Class A
Annual Operating Expenses(1)
(as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating
Management Fee Administrative Other Expenses Expenses (after fee
(after fee Fee (after fee (after expense waiver/expense
waiver) waiver)(1) 12b-1 Fee(1) reimbursement) reimbursement)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market 0.24% 0.10% 0.00% 0.16% 0.50%
Aetna Government Fund 0.00% 0.00% 0.25% 0.70% 0.95%
Bond Fund 0.26% 0.10% 0.25% 0.39% 1.00%
High Yield(2) 0.45% 0.10% 0.25% 0.40% 1.20%
Balanced 0.80% 0.10% 0.25% 0.19% 1.34%
Growth and Income 0.63% 0.10% 0.25% 0.12% 1.10%
Real Estate(2) 0.80% 0.10% 0.25% 0.40% 1.55%
Value Opportunity(2) 0.60% 0.10% 0.25% 0.40% 1.35%
Growth 0.70% 0.10% 0.25% 0.22% 1.27%
Mid Cap(2) 0.65% 0.10% 0.25% 0.40% 1.40%
Small Company 0.67% 0.10% 0.25% 0.48% 1.50%
International 0.63% 0.10% 0.25% 0.62% 1.60%
Index Plus Large Cap 0.00% 0.00% 0.25% 0.70% 0.95%
Index Plus Mid Cap(2) 0.25% 0.10% 0.25% 0.40% 1.00%
Index Plus Small Cap(2) 0.25% 0.10% 0.25% 0.40% 1.00%
Index Plus Bond(2) 0.10% 0.10% 0.25% 0.40% 0.85%
Ascent Fund 0.55% 0.10% 0.25% 0.55% 1.45%
Crossroads Fund 0.49% 0.10% 0.25% 0.61% 1.45%
Legacy Fund 0.40% 0.10% 0.25% 0.70% 1.45%
</TABLE>
(1) From time to time, Aeltus may agree to waive all or a portion of its
Management Fee and/or its Administrative Fee for a particular Series and to
reimburse some or all of a particular Series' Other Expenses. Such fee
waiver/expense reimbursement arrangements will increase total return and may be
modified or terminated at any time.
The expenses shown above are based on the year ended October 31, 1997 and have
been restated to reflect changes in certain contractual arrangements.
Previously, Class A shares (formerly Adviser Class shares) were assessed an
Administrative Fee of 0.25%, a 12b-1 Fee of 0.50% (0.00% for Money Market), and
a Shareholder Services Fee of 0.25% included in Other Expenses (0.10% for Money
Market). As of January 1, 1998, the Shareholder Service Fee was eliminated.
Additionally, the expenses shown above reflect the most current fee
waiver/expense reimbursement arrangements as of the date of this Prospectus. Fee
waiver/expense reimbursement arrangements are currently in effect for all Series
except Balanced, Growth and Income, Real Estate and Growth. These arrangements
limit the Total Operating Expenses to the amounts shown above. Without these
arrangements, Annual Operating Expenses would have been as follows:
<TABLE>
<CAPTION>
Management Administrative Total Operating
Fee Fee 12b-1 Fee Other Expenses Expenses
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market 0.40% 0.10% 0.00% 0.16% 0.66%
Aetna Government Fund 0.50% 0.10% 0.25% 0.95% 1.80%
Bond Fund 0.50% 0.10% 0.25% 0.39% 1.24%
High Yield 0.65% 0.10% 0.25% 0.40% 1.40%
Value Opportunity 0.70% 0.10% 0.25% 0.40% 1.45%
Mid Cap 0.75% 0.10% 0.25% 0.40% 1.50%
Small Company 0.85% 0.10% 0.25% 0.48% 1.68%
International 0.85% 0.10% 0.25% 0.62% 1.82%
Index Plus Large Cap 0.45% 0.10% 0.25% 1.25% 2.05%
Index Plus Mid Cap 0.45% 0.10% 0.25% 0.40% 1.20%
Index Plus Small Cap 0.45% 0.10% 0.25% 0.40% 1.20%
Index Plus Bond 0.35% 0.10% 0.25% 0.40% 1.10%
Ascent Fund 0.80% 0.10% 0.25% 0.56% 1.71%
Crossroads Fund 0.80% 0.10% 0.25% 0.61% 1.76%
8
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Legacy Fund 0.80% 0.10% 0.25% 0.70% 1.85%
</TABLE>
(2) High Yield, Real Estate, Value Opportunity, Mid Cap, Index Plus Mid Cap,
Index Plus Small Cap and Index Plus Bond commenced operations on February 2,
1998. Amounts reflected in "Other Expenses" and "Total Fund Operating Expenses"
are estimated amounts for the current fiscal year based on expenses for
comparable funds. Actual expenses may be greater or less than estimated.
Class A Example
Using the annual operating expenses percentages above, you would pay the
following expenses on a $1,000 investment, assuming a 5% annual return and
redemption at the end of each of the periods shown:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market $ 5 $ 16 $ 28 $ 63
Aetna Government Fund 57 76 98 159
Bond Fund 57 78 100 164
High Yield 59 84 110 186
Balanced 70 98 127 209
Growth and Income 68 90 115 184
Real Estate 72 104 137 231
Value Opportunity 70 98 127 211
Growth 70 95 123 202
Mid Cap 71 99 130 216
Small Company 72 102 135 226
International 73 105 140 237
Index Plus Large Cap 39 59 81 143
Index Plus Mid Cap 40 61 84 149
Index Plus Small Cap 40 61 84 149
Index Plus Bond 38 56 76 132
Ascent Fund 71 101 132 221
Crossroads Fund 71 101 132 221
Legacy Fund 71 101 132 221
</TABLE>
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 combination of front-end sales charges and 12b-1 fees could cause long-term
Class A shareholders (except for Money Market 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.
9
<PAGE>
<TABLE>
<CAPTION>
Class C
Annual Operating Expenses(1)
(as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating
Management Fee Administrative Other Expenses Expenses (after fee
(after fee Fee (after fee (after expense waiver/expense
waiver) waiver)(1) 12b-1 Fee(1) reimbursement) reimbursement)(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market
Aetna Government Fund
Bond Fund
High Yield(2)
Balanced
Growth and Income
Real Estate(2)
Value Opportunity(2)
Growth
Mid Cap(2)
Small Company
International
Index Plus Large Cap
Index Plus Mid Cap(2)
Index Plus Small Cap(2)
Index Plus Bond(2)
Ascent Fund
Crossroads Fund
Legacy Fund
</TABLE>
(1) From time to time, Aeltus may agree to waive all or a portion of its
Management Fee and/or its Administrative Fee for a particular Series and to
reimburse some or all of a particular Series' Other Expenses. Such fee
waiver/expense reimbursement arrangements will increase total return and may be
modified or terminated at any time.
<TABLE>
<CAPTION>
Management Administrative Total Operating
Fee Fee 12b-1 Fee Other Expenses Expenses
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market
Aetna Government Fund
Bond Fund
High Yield
Value Opportunity
Mid Cap
Small Company
International
Index Plus Large Cap
Index Plus Mid Cap
Index Plus Small Cap
Index Plus Bond
Ascent Fund
Crossroads Fund
Legacy Fund
</TABLE>
(2) High Yield, Real Estate, Value Opportunity, Mid Cap, Index Plus Mid Cap,
Index Plus Small Cap and Index Plus Bond commenced operations on February 2,
1998. Amounts reflected in "Other Expenses" and "Total Fund Operating Expenses"
are estimated amounts for the current fiscal year based on expenses for
comparable funds. Actual expenses may be greater or less than estimated.
10
<PAGE>
Class C Example
Using the annual operating expenses percentages above, you would pay the
following expenses on a $1,000 investment, assuming a 5% annual return and
redemption at the end of each of the periods shown:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market
Aetna Government Fund
Bond Fund
High Yield
Balanced
Growth and Income
Real Estate
Value Opportunity
Growth
Mid Cap
Small Company
International
Index Plus Large Cap
Index Plus Mid Cap
Index Plus Small Cap
Index Plus Bond
Ascent Fund
Crossroads Fund
Legacy Fund
</TABLE>
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.
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.
11
<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.
Additional information about the performance of each Series included in the
tables is contained in the Fund's Annual Reports dated October 31, 1997. The
Reports are incorporated herein by reference and are 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. Financial statement information is not available for
High Yield, Real Estate, Value Opportunity, Mid Cap, Index Plus Mid Cap, Index
Plus Small Cap and Index Plus Bond, which commenced operations on February 2,
1998.
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
Class A Shares
Money Market
---------------------------------------------------------
Period from
April 15, 1994
Year ended Year ended Year ended to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------
Income From Investment
Operations:
Net investment income 0.05 0.05 0.06 0.03
Net realized and change in
unrealized gain (loss) - - - -
-------- -------- ------- -------
Total from investment operations 0.05 0.05 0.06 0.03
-------- -------- ------- -------
Less Distributions:
From net investment
income (0.05) (0.05) (0.06) (0.03)
In excess of net
investment income - - - -
-------- -------- ------- -------
Total distributions (0.05) (0.05) (0.06) (0.03)
--------- -------- ------- -------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= =======
Total Return (does not reflect
applicable sales charges) 5.49% 5.44% 5.95% 2.41%
Net assets, end of period (000's) $156,530 $119,849 $78,726 $47,350
Ratio of total expenses to average
net assets 0.37% 0.30% 0.26% 0.21%(1)
Ratio of net investment income to
average net assets 5.31% 5.30% 5.79% 4.27%(1)
Ratio of net expense before
reimbursement and waiver to
average net assets 0.91% 0.93% 0.87% 0.92%(1)
Ratio of net investment income
before reimbursement and
waiver to average net assets 4.77% 4.67% 5.19% 3.67%(1)
Portfolio turnover rate - - - -
Average commission rate paid
per share on purchases of equity
securities - - - -
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
<PAGE>
12
<PAGE>
<TABLE>
<CAPTION>
Aetna Government Fund Bond Fund
- ------------------------------------------------------------ -------------------------------------------------------------
Period from Period from
April 15, 1994 April 15, 1994
Year ended Year ended Year ended to Year ended Year ended Year ended 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>
$ 9.79 $10.00 $ 9.41 $ 9.67 $10.09 $10.27 $ 9.58 $ 9.92
------- ------ ------- ------ ------ ------ ------ -------
0.51 0.48 0.60 0.24 0.54 0.62 0.56 0.28
0.21 (0.13) 0.56 (0.24) 0.13 (0.20) 0.66 (0.35)
------- ------- ------- ------- ------ ------- ------ -------
0.72 0.35 1.16 0.00 0.67 0.42 1.22 (0.07)
------- ------- ------- ------- ------ ------- ------ -------
(0.52) (0.56) (0.57) (0.26) (0.54) (0.60) (0.53) (0.27)
- - - - - - - -
------- ------ ------- ------ ------ ------ ------ -------
(0.52) (0.56) (0.57) (0.26) (0.54) (0.60) (0.53) (0.27)
-------- -------- -------- -------- ------- -------- ------- -------
$ 9.99 $ 9.79 $ 10.00 $ 9.41 $10.22 $10.09 $10.27 $ 9.58
======= ====== ======= ====== ====== ====== ====== =======
7.67% 3.75% 12.60% (0.06)% 6.89% 4.27% 13.28% (0.68)%
$ 531 $ 526 $ 405 $ 151 $1,006 $ 877 $7,340 $25,405
1.45% 1.45% 1.51% 1.28%(1) 1.50% 1.50% 1.50% 1.49%(1)
5.16% 4.96% 6.02% 4.68%(1) 5.32% 5.47% 5.91% 5.36%(1)
2.45% 2.32% 2.11% 2.11%(1) 1.89% 1.91% 1.82% 1.81%(1)
4.16% 4.09% 5.42% 3.85%(1) 4.93% 5.06% 5.60% 5.04%(1)
147.78% 50.48% 117.31% 43.63% 48.56% 42.33% 56.99% 51.80%
- - - - - - - -
</TABLE>
13
<PAGE>
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
Class A Shares
Balanced
---------------------------------------------------------
Period from
April 15, 1994
Year ended Year ended Year ended to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 13.49 $ 12.34 $ 10.62 $ 10.54
------- ------- ------- -------
Income From Investment
Operations:
Net investment income 0.23 0.20 0.23 0.19
Net realized and change in
unrealized gain (loss) 2.03 1.79 1.91 -
------- ------- ------- -------
Total from investment operations 2.26 1.99 2.14 0.19
------- ------- ------- -------
Less Distributions:
From net investment
income (0.20) (0.27) (0.42) (0.11)
In excess of net
investment income - - - -
From net realized
gains on investments (1.50) (0.57) - -
------- ------- ------- -------
Total distributions (1.70) (0.84) (0.42) (0.11)
------- ------- ------- -------
Net asset value per share, end of
period $ 14.05 $ 13.49 $ 12.34 $ 10.62
======= ======= ======= =======
Total Return (does not reflect
applicable sales charges) 18.64% 16.83% 18.32% 1.84%
Net assets, end of period (000's) $ 6,289 $ 3,783 $ 1,362 $26,396
Ratio of total expenses to average
net assets 1.99% 2.07% 2.04% 1.87%(1)
Ratio of net investment income to
average net assets 1.68% 1.60% 2.61% 1.90%(1)
Ratio of net expense before
reimbursement and waiver to
average net assets 1.99% 2.07% 2.07% 2.06%(1)
Ratio of net investment income
before reimbursement and
waiver to average net assets 1.68% 1.60% 2.58% 1.67%(1)
Portfolio turnover rate 116.69% 117.88% 129.05% 86.10%
Average commission rate paid per
share on purchases of equity
securities $0.0493 $0.0557 - -
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
14
<PAGE>
<TABLE>
<CAPTION>
Growth and Income Growth
- ------------------------------------------------------------- ---------------------------------------------------------------
Period from Period from
April 15, 1994 April 15, 1994
Year ended Year ended Year ended to Year ended Year ended Year ended 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>
$ 15.69 $ 13.43 $ 11.08 $10.75 $ 14.17 $ 13.63 $ 10.74 $ 10.26
------- ------- ------- ------ ------- ------- ------- -------
0.03 0.08 0.12 0.11 (0.11) (0.08) (0.06) (0.02)
4.99 3.08 2.31 0.30 3.84 2.38 3.00 0.50
------- ------- ------- ------ ------- ------- ------- -------
5.02 3.16 2.43 0.41 3.73 2.30 2.94 0.48
------- ------- ------- ------ ------- ------- ------- -------
(0.10) (0.14) (0.08) (0.08) - - (0.05) -
- - - - - - - -
(2.60) (0.76) - - (1.14) (1.76) - -
------- ------- ------- ------ ------- ------- ------- -------
(2.70) (0.90) (0.08) (0.08) (1.14) (1.76) (0.05) (0.00)
------- ------- ------- ------ ------- ------- ------- -------
$ 18.01 $ 15.69 $ 13.43 $11.08 $ 16.76 $ 14.17 $ 13.63 $ 10.74
======= ======= ======= ====== ======= ======= ======= =======
36.49% 24.70% 21.90% 3.71% 28.05% 18.97% 27.92% 4.58%
$15,955 $ 6,638 $ 2,217 $5,740 $ 8,647 $ 4,615 $ 1,727 $ 417
1.75% 1.83% 1.84% 2.32%(1) 1.92% 2.03% 2.03% 1.72%(1)
0.18% 0.55% 1.14% 1.74%(1) (0.67)% (0.59)% (0.47)% (0.25)%(1)
1.75% 1.83% 1.84% 2.42%(1) 1.92% 2.03% 2.14% 2.17%(1)
0.18% 0.55% 1.14% 1.65%(1) (0.67)% (0.59)% (0.58)% (0.71)%(1)
157.92% 106.09% 127.43% 54.13% 141.07% 144.19% 171.75% 120.32%
$0.0474 $0.0505 - - $0.0605 $0.0598 - -
</TABLE>
15
<PAGE>
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
Class A Shares
Index Plus Large Cap Small Company
-------------------- --------------------------------------------------------------
Period from Period from
Feb. 3, 1997 April 15, 1994
to Year ended Year ended Year ended 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,
beginning of period $ 10.57 $ 14.42 $ 13.39 $ 10.35 $ 10.24
------- ------- ------- ------- -------
Income From Investment
Operations:
Net investment income 0.02 (0.16) (0.18) (0.11) (0.04)
Net realized and change in
unrealized gain (loss) 1.77 4.36 2.62 3.15 0.15
------- ------- ------- ------- -------
Total from investment operations 1.79 4.20 2.44 3.04 0.11
------- ------- ------- ------- -------
Less Distributions:
From net investment
income - - - - -
In excess of net
investment income - - - - -
From net realized
gains on investments - (3.42) (1.41) - -
------- ------- ------- ------- -------
Total distributions 0.00 (3.42) (1.41) 0.00 0.00
------- ------- ------- ------- -------
Net asset value, end of
period $ 12.36 $ 15.20 $ 14.42 $ 13.39 $ 10.35
======= ======= ======= ======= =======
Total Return (does not reflect
applicable sales charges) 16.93% 36.73% 19.02% 29.44% 0.98%
Net assets, end of period (000's) $ 1,833 $ 7,077 $ 3,884 $ 1,285 $ 205
Ratio of total expenses to average
net assets 1.45%(1) 2.33% 2.20% 2.23% 1.78%(1)
Ratio of net investment income to
average net assets 0.16%(1) (1.17)% (1.26)% (0.89)% (0.72)%(1)
Ratio of net expense before
reimbursement and waiver to
average net assets 2.98%(1) 2.33% 2.20% 2.30% 2.14%(1)
Ratio of net investment income
before reimbursement and
waiver to average net assets (1.36)%(1) (1.17)% (1.26)% (0.97)% (1.07)%(1)
Portfolio turnover rate 82.31% 150.43% 163.21% 156.43% 116.28%
Average commission rate paid per
share on purchases of equity
securities $0.0382 $0.0575 $0.0575 - -
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
16
<PAGE>
<TABLE>
<CAPTION>
Crossroads
International Ascent Fund Fund Legacy Fund
- ------------------------------------------------------------ -------------- ---------------- ----------------
Period from Period from Period from Period from
April 15, 1994 Jan. 20, 1997 Jan. 20, 1997 Jan. 20, 1997
Year ended Year ended Year ended to to to to
Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995 Oct. 31, 1994 Oct. 31, 1997 Oct. 31, 1997 Oct. 31, 1997
- ------------- ------------- ------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.77 $ 10.59 $ 11.51 $ 11.24 $ 12.50 $ 11.67 $ 11.01
------- ------- ------- ------- ------- ------- -------
(0.07) (0.05) 0.03 0.01 0.15 0.30 0.29
2.88 1.57 (0.20) 0.26 1.77 1.25 0.79
------- ------- -------- ------- ------- ------- -------
2.81 1.52 (0.17) 0.27 1.92 1.55 1.08
------- ------- -------- ------- ------- ------- -------
(0.12) (0.08) (0.27) - - - -
- - - - - - -
(0.89) (0.26) (0.48) - - - -
------- ------- -------- ------- ------- ------- -------
(1.01) (0.34) (0.75) 0.00 0.00 0.00 0.00
-------- -------- -------- ------- ------- ------- -------
$ 13.57 $ 11.77 $ 10.59 $ 11.51 $ 14.42 $ 13.22 $ 12.09
======= ======= ======= ======= ======= ======= =======
25.07% 14.67% (0.81)% 2.40% 15.36% 13.28% 9.81%
$19,063 $22,893 $26,464 $26,647 $ 886 $ 547 $ 481
2.47% 2.94% 2.12% 2.27%(1) 2.08%(1) 2.11%(1) 2.21%(1)
(0.57)% (0.42)% 0.27% 0.17%(1) 1.11%(1) 1.64%(1) 2.39%(1)
2.47% 2.94% 2.25% 2.41%(1) 2.35%(1) 2.41%(1) 2.50%(1)
(0.57)% (0.42)% 0.14% 0.02%(1) 0.83%(1) 1.34%(1) 2.10%(1)
194.41% 135.92% 32.91% 81.67% 162.80% 161.75% 158.71%
$0.0115 $0.0178 - - $0.0342 $0.0309 $0.0311
</TABLE>
17
<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 three classes of shares. Class A, Class C and Class I shares
differ as to sales charges and expenses. Class A and Class C 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. 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 only in dollar-denominated securities,
including U.S. Treasury bills, notes and bonds; obligations of agencies and
instrumentalities of the U.S. Government; obligations of domestic banks and
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.
Aetna Government Fund
Investment Objective 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.
Investment Policy Aetna 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).
18
<PAGE>
Additionally, Aetna Government Fund may invest in options and futures (including
options on futures), as more fully described below. Aetna Government Fund may
also enter into repurchase agreements, invest up to 25% of its total assets in
foreign securities, invest in STRIPs, zero coupon bonds and other fixed income
securities, engage in currency hedging, and purchase securities on a
when-issued, delayed-delivery or forward-commitment basis.
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 options and futures (including options on
futures), as more fully described below. Bond Fund may also enter into
repurchase agreements, invest up to 5% of its total assets in equity securities,
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. Bond Fund will not invest more than 15% of the total
value of its assets in high-yield bonds. Bond Fund may also 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 will not target any given maturity, thus giving it flexibility to
invest in short- and long-term securities as market conditions change.
As of October 31, 1997, the weighted average distribution of bonds based on S&P
and Moody's bond ratings was 46.3% in AAA/Aaa, 11.2% in AA/Aa, 20.7% in A, 8.3%
in BBB/Baa, 7.7% in BB/Ba, 2.0% in B, 1.5% in CCC and 2.3% in unrated bonds.
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 Baa3 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), as more fully described below. 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
Investment Objective Balanced 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 may involve less investment risk
than an investment in a portfolio consisting entirely of common stocks. Balanced
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 generally will maintain at least 25% of
its total assets in fixed income securities.
19
<PAGE>
Additionally, Balanced may invest in options and futures (including options on
futures), as more fully described below. Balanced 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. Balanced will not invest more than 15% of the total
value of its assets in high-yield bonds.
Aeltus employs current market statistics and economic indicators to forecast
returns for each sector of the securities market for Balanced. 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.
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 that 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 invest in options and futures (including
options on futures), as more fully described below. Growth and Income 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. 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, which include those companies
that, at the time of purchase, derive a significant proportion (at least 50%) of
their revenues or profits from real estate operations or related services. Real
Estate may also invest in convertible securities and preferred stocks.
Additionally, Real Estate may invest in options and futures (including options
on futures), as more fully described below. 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.
For more information about the risks associated with investing in real estate
securities, see "Risk Factors and Other Considerations - Real Estate
Securities."
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), as more fully described below. 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
20
<PAGE>
forward-commitment basis. Value Opportunity will not invest more than 15% of the
total value of its assets in high-yield bonds.
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 invest in options and futures (including options on
futures), as more fully described below. Growth 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. 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 having market capitalizations at the time of
purchase of between $800 million and $10 billion 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), as more fully described below. 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 invest in options and futures (including options
on futures), as more fully described below. Small Company 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. Small Company will not invest more than 15% of the total value of its
assets in high-yield bonds.
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. International will invest in a broad spectrum of
companies and industries. Further, from time to time International may hold up
to 10% of its total assets in
21
<PAGE>
long-term debt securities with an S&P or Moody's rating of AA/Aa or above, or,
if unrated, are considered by Aeltus to be of comparable quality.
Additionally, International may invest in options and futures (including options
on futures), as more fully described below. International may also enter into
repurchase agreements, engage in currency hedging, and purchase 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 included in 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 certain 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.
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.
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.
Index Plus Large Cap may also invest in convertible and non-convertible
preferred stocks. Additionally, Index Plus Large Cap may invest in options and
futures (including options on futures), as more fully described below. Index
Plus Large 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 Large Cap will not
invest more than 10% of the total value of its assets in high-yield bonds.
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.
Index Plus Mid Cap
Investment Objective Index Plus Mid Cap seeks to outperform the total return
performance of publicly traded common stocks included in 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. The S&P 400
is an unmanaged index comprising common stocks of approximately 400
mid-capitalization companies. 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.
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
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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), as more fully described below. 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 10% of
the total value of its assets in high-yield bonds.
It is a reasonable expectation that there will be a close correlation between
the performance of Index Plus Mid Cap and that of the S&P 400 in both rising and
falling markets. Index Plus Mid Cap expects to achieve a correlation between the
performance of its portfolio and that of the S&P 400 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 Mid Cap, including the value of its dividends and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
400.
Index Plus Small Cap
Investment Objective Index Plus Small Cap seeks to outperform the total return
performance of publicly traded common stocks included in the S&P 600, a stock
market index comprised 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. The S&P
600 is an unmanaged index comprising common stocks of approximately 600
small-capitalization companies. 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.
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), as more fully described below. 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.
It is a reasonable expectation that there will be a close correlation between
the performance of Index Plus Small Cap and that of the S&P 600 in both rising
and falling markets. Index Plus Small Cap expects to achieve a correlation
between the performance of its portfolio and that of the S&P 600 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 Small Cap, including the value of its dividends and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
600.
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 comprised 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. The LBAB is comprised of securities from the Lehman Brothers
Government/Corporate Bond Index, Lehman Brothers Mortgage-Backed Securities
Index, and the Lehman
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Brothers Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as a percentage of the original investment.
Each of the Lehman Brothers Indices are rebalanced monthly by market
capitalization. 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), as more fully described below. 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.
It is a reasonable expectation that there will be a close correlation between
the performance of Index Plus Bond and that of the LBAB in both rising and
falling markets. Index Plus Bond expects to achieve a correlation between the
performance of its portfolio and that of the LBAB 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 Bond, including the value of its dividends and capital gains distributions,
increases or decreases in exact proportion to changes in the LBAB.
Ascent Fund, Crossroads Fund and Legacy Fund
Investment Objectives Ascent Fund seeks to provide capital appreciation.
Crossroads Fund seeks to provide total return (i.e., income and capital
appreciation, both realized and unrealized). Legacy Fund seeks to provide total
return consistent with preservation of capital.
Investment Policies Ascent Fund, Crossroads Fund and Legacy Fund (collectively
referred to as the "Generation Funds") have different asset allocation
strategies, which correspond with different investment objectives and levels of
investment risk. The strategies establish separate allocation benchmarks and
ranges for each asset class. The benchmark allocations describe a typical asset
allocation strategy under neutral market conditions. The allocation ranges
describe the permissible range of asset allocations allowed. The ranges are
designed to allow Aeltus to achieve optimal allocation of assets, based on
different investment objectives and levels of investment risk. Aeltus may adjust
the asset class mix of Ascent Fund, Crossroads Fund and/or Legacy Fund within
the ranges described below.
Ascent Fund is managed for investors seeking capital appreciation who generally
have an investment horizon exceeding 15 years and who have a high level of risk
tolerance.
Crossroads Fund is managed for investors seeking a balance between income and
capital appreciation who generally have an investment horizon exceeding 10 years
and who have a moderate level of risk tolerance. Crossroads Fund will invest no
more than 60% of its assets in any combination of the following asset classes:
small-capitalization stocks, high-yield bonds, international stocks and
international fixed income securities.
Legacy Fund is managed for investors primarily seeking total return consistent
with capital preservation, who generally have an investment horizon exceeding 5
years and who have a low level of risk tolerance. Legacy Fund will invest no
more than 35% of its assets in any combination of the following asset classes:
small-capitalization stocks, high-yield bonds, international stocks and
international fixed income securities.
The allocation benchmarks, asset class ranges and comparative indexes are shown
below:
<TABLE>
<CAPTION>
Asset Class Ascent Crossroads Legacy Comparative
Fund Fund Fund Index
Equities
<S> <C> <C> <C> <C>
Large Capitalization Stocks S&P 500 Index
Range................... 0-60% 0-45% 0-30%
Benchmark............... 20% 15% 10%
Small-Capitalization Stocks Russell 2000 Small Cap
Range................... 0-40% 0-30% 0-20% Stock Index
Benchmark............... 20% 15% 10%
International Stocks Morgan Stanley Capital
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<CAPTION>
Range................... 0-40% 0-30% 0-20% International Europe,
Benchmark............... 20% 15% 10% Australia and Far East Index
Real Estate Stocks National Association of
Range................... 0-40% 0-30% 0-20% Real Estate Investment
Benchmark............... 20% 15% 10% Trusts Equity REIT Index
Fixed Income
U.S. Dollar Bonds Salomon Brothers
Range................... 0-30% 0-70% 0-100% Broad Investment
Benchmark............... 10% 25% 40% Grade Index
International Bonds Salomon Brothers
Range................... 0-20% 0-20% 0-20% Non-U.S. World
Benchmark............... 10% 10% 10% Government Bond Index
Money Market Instruments 91 Day T-Bill
Range................... 0-30% 0-30% 0-30%
Benchmark............... 0% 5% 10%
</TABLE>
Aeltus will allocate the assets of each of the Generation Funds within the
specified ranges. The benchmark asset mix represents (1) how each of the
Generation Funds may allocate its assets under neutral market conditions and (2)
a basis for measuring the performance of each of the Generation Funds. Aeltus
monitors a "hypothetical benchmark portfolio" consisting of a benchmark
allocation in each comparative index. Aeltus may compare the performance of each
of the Generation Funds to its corresponding hypothetical benchmark portfolio.
The asset allocation of each of the Generation Funds may be above or below the
benchmark allocation based on Aeltus' ongoing evaluation of the expected returns
and risks of each asset class relative to other classes. If Aeltus believes that
the expected return for a particular asset class is higher than normal relative
to the other classes, investment in the class generally will be weighted more
heavily than it would be in the applicable benchmark allocation. If the expected
return for a particular asset class is less than normal in relation to the other
classes, generally it will be underweighted relative to the applicable benchmark
allocation.
Aeltus regularly reviews the investment allocations of each of the Generation
Funds and will vary the amount invested in each class within the ranges set
forth above, depending upon its assessment of business, economic, market and
other conditions. For example, Aeltus may adjust the allocation mix in response
to changes in circumstances with respect to particular issuers or industries, in
response to interest rate movements or other economic conditions. In determining
the asset mix of a particular Generation Fund, Aeltus will consider many
specific factors, including, among other things: the dividend discount model,
expected returns, bond yields, price-to-earnings ratios, dividend yields and
inflation. There can be no assurance that any given allocation is the optimal
allocation, although Aeltus allocates assets in a manner it believes will aid in
achieving each Series' investment objective.
The asset allocation limits described above apply at the time of purchase of a
particular security. Additionally, the Generation Funds may invest in options
and futures (including options on futures), as more fully described below. The
Generation Funds may also enter into repurchase agreements, engage in currency
hedging, and purchase securities on a when-issued, delayed-delivery or
forward-commitment basis. None of the Generation Funds will invest more than 15%
of the total value of their assets in high-yield bonds.
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.
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<PAGE>
Special Considerations Investors should be aware that the investment results of
Balanced, Ascent Fund, Crossroads Fund and Legacy 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. A Series' 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.
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. Turnover rates for each of the Series in excess of 100% 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 "Financial
Highlights" for the actual turnover rates for the respective Series and see
"Distributions," "Taxes" and the Statement for additional information.
The average annual turnover rate of each of the Real Estate, Value Opportunity,
Mid Cap, Index Plus Mid Cap, Index Plus Small Cap, and Index Plus Bond Fund is
not expected to exceed 175%. The average annual turnover rate of the High Yield
Fund is not expected to exceed 250%.
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.
All the Series may use the following:
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 do not intend to borrow,
except that they may invest in leveraged derivatives which have certain risks as
outlined below. 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.
Zero Coupon Securities Each Series may invest in zero coupon securities. Zero
coupon securities are subject to greater price fluctuations in response to
changes in interest rates than are ordinary interest-paying securities with
similar maturities. The value of zero coupon securities appreciate more during
periods of declining interest rates and depreciate more during periods of rising
interest 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 under 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:
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 exchange
rate or index. Derivatives that may be used by a Series include forward
contracts, swaps, structured notes, collateralized mortgage obligations (CMOs)
(see "Mortgage-Backed Securities" below), futures, options (see "Futures
Contracts" and "Options" below), and U.S. Government derivatives. In addition,
derivatives may be used to enhance a Series' yield. See the Statement for
additional information on the use of and risks associated with derivatives.
Some of these strategies, such as selling futures contracts, buying puts and
writing (selling) calls, hedge against price fluctuations. Other strategies,
such as writing puts and buying futures contracts, calls and interest rate
swaps, tend to increase market exposure. In some cases, a Series may buy a
futures contract for the purpose of increasing its exposure in a particular
market segment, which may be considered speculative, rather than for hedging.
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. 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 may
invest up to 30% of its assets in lower risk derivatives for hedging or to gain
additional exposure to certain markets for investment purposes while maintaining
liquidity to meet shareholder redemptions and minimizing trading costs.
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 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.
The aggregate futures market prices of financial instruments required to be
delivered or purchased under open futures contracts may not exceed 100% of
Ascent Fund's total assets, 60% of Crossroads Fund's total assets and 30% of all
other Series' total assets.
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<PAGE>
Options Each Series may purchase and write (sell) call options and put options,
including options on securities, indices and futures. Call options on securities
may be written only if covered. 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. See the Statement for additional information.
Pay-in-Kind Bonds Each Series may invest in pay-in-kind bonds. Pay-in-kind bonds
are subject to greater price fluctuations in response to changes in interest
rates than are ordinary interest-paying securities with similar maturities. The
value of pay-in-kind bonds appreciate more during periods of declining interest
rates and depreciate more during periods of rising interest rates.
All Series except Money Market, Aetna 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.
All Series except Money Market, Bond Fund, Aetna Government Fund, High Yield and
Index Plus Bond may also use the following:
Real Estate Securities Real estate securities include interests in real estate
investment trusts (REITs), real estate development, real estate operating
companies, and companies engaged in other real estate related businesses. Equity
REITs are trusts that sell shares to investors and use the proceeds to invest in
real estate or interests in real estate. A REIT may focus on a particular
project, such as apartment complexes, or geographic region, such as the
Northeastern United States, or both.
Real Estate may invest more than 25% of its total assets in any sector of the
real estate industry. Due to Real Estate's policy of concentration in the real
estate industry, adverse developments in that industry will have a greater
impact on Real Estate, and consequently shareholders, than a fund with broader
diversification. Special considerations to an investment in Real Estate include
those risks associated with the direct ownership of real estate: declines in the
value of real estate, risks related to general and local economic conditions,
over-building and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates. The value of securities of
companies which service the real estate industry may also be affected by such
risks.
Aetna Government Fund, Bond Fund, High Yield, Balanced, Real Estate, Index Plus
Bond, Ascent Fund, Crossroads Fund and Legacy Fund 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. Mortgage-backed securities are subject to prepayment risk
similar to that associated with asset-backed securities.
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All Series except Money Market, Bond Fund, Aetna Government Fund, High Yield and
Index Plus Bond may also use the following:
Small-Capitalization Equity Securities 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,
Index Plus Bond, Ascent Fund, Crossroads Fund and Legacy Fund 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 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. Index
Plus Large Cap, Ascent Fund, Crossroads Fund and Legacy Fund may invest up to
10% of their net assets in such securities.
CONCENTRATION
The Series (other than Real Estate) generally will not concentrate investments
in any one industry. A Series may, however, 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. The 25% limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and, in the case of Money Market, to repurchase agreements for
U.S. Government securities, and certificates of deposit, banker's acceptances,
or securities issued by banks.
A Series will not invest more than 5% of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting securities of
any one issuer. These restrictions apply only to 75% of a Series' total assets
(except that the first of these restrictions applies to 100% of Money Markets'
total assets). These restrictions do not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. See the
Statement for additional restrictions.
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. Performance
information will include the yield and effective yield of Money Market, and the
yield of Bond Fund, Aetna Government Fund, High Yield and Index Plus Bond. Total
return and yield information will be calculated pursuant to rules established by
the Commission. In lieu of or in addition to total return and/or yield
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 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
29
<PAGE>
as a percentage. Quotations of yield for Bond Fund, Aetna 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. Current yield for
Money Market will be computed by determining the net change, exclusive of
capital changes and income other than investment income, at the beginning of a
seven-day period in the value of a hypothetical investment of one share,
subtracting any deductions from shareholder accounts, and dividing the
difference by the value of the hypothetical investment at the beginning of the
base period.
Total return and yield figures utilized by the Fund are based on historical
performance and are not intended to indicate future performance. Total return,
yield 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.
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
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, unlike the Fund, are not subject to certain
investment limitations, diversification requirements and other restrictions
imposed by the 1940 Act and the Internal Revenue Code of 1986, as amended, (IRC)
which, if applicable, could have adversely affected the Private Accounts'
performance.
The Private Account Performance data, shown below, was calculated in accordance
with recommended standards of the Association for Investment Management and
Research (AIMR). AIMR is a non-profit membership and education organization
that, among other things, has formulated a set of performance presentation
standards for investment advisers.
All Private Account Performance data was calculated on a total return basis and
includes all dividends and interest, accrued income and realized and unrealized
gains and losses. All returns reflect the deduction of investment advisory fees
and brokerage commissions paid by Aeltus' Private Accounts, but do not reflect
the deduction of custodial fees. Cash and equivalents are included in
performance returns.
Set forth below is the historical performance of each of the comparable Private
Accounts. Investors should not consider the performance 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, which are significantly lower than those paid by
the Series. Had higher expenses been charged to the Private Accounts,
performance would have been lower. The results shown reflect the reinvestment of
dividends and distributions.
The following table shows average annualized total returns for the periods
ending December 31, 1997, for the comparable private accounts and their
respective benchmark indices. The Index Plus Large Cap information includes the
performance of Index Plus Large Cap Series as well.
Private Account Composite Performance
<TABLE>
<CAPTION>
INDEX PLUS LARGE CAP PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
<S> <C> <C> <C> <C>
Index Plus Large Cap, Class A (assuming
payment of maximum front-end sales load) 29.01% N/A 25.72% 12/10/96*
Index Plus Large Cap, Class A (without payment
of front-end sales load) 33.00% N/A 29.39% 12/10/96
Index Plus Large Cap Composite 34.58% 20.90% 19.45% 10/1/91
S&P 500 Stock Index 33.36% 20.27% 18.81% 10/1/91
INDEX PLUS BOND PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Index Plus Bond Composite 9.11% 7.44% 9.05% 4/1/87
LBAB Index 9.65% 7.48% 9.18% 4/1/87
HIGH YIELD PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
High Yield Account 18.38% N/A 14.98% 6/1/95
30
<PAGE>
<CAPTION>
Merrill Lynch High Yield Index 12.83% N/A 12.09% 6/1/95
VALUE OPPORTUNITY PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Value Opportunity Composite 26.26% 21.02% 23.13% 10/1/90
S&P 500 Stock Index 33.36% 20.27% 20.44% 10/1/90
</TABLE>
* Class A shares were formerly designated as Adviser Class, the offering of
which 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 shares and deducting from such performance the front-end sales load
associated with Class A, and the internal fees and expenses of the Adviser
Class.
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 regular trading on the New York Stock
Exchange (NYSE) or 4:15 p.m. eastern time on each day that NYSE is open for
trading (Business Day). Except for Money Market, the NAV is computed by dividing
the total value of a Series' securities, plus any cash or other assets
(including dividends and interest accrued but not collected) less all
liabilities (including accrued expenses), and dividing the total by the number
of shares outstanding. Securities are valued primarily by independent pricing
services, based on market quotations. Short-term debt instruments maturing in
less than 60 days are valued at amortized cost. Securities for which market
quotations are not readily available are valued at their fair value in such
manner as may be determined, from time to time, in good faith, by or 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 (including Roth 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 and Class C 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
First Data Investor Services Group, Inc. (Transfer Agent) as follows:
Aetna Series Fund, Inc.
c/o
P.O.
Westborough, MA
Correspondence mailed by overnight courier should be sent to the Transfer Agent
as follows:
Aetna Series Fund, Inc.
c/o
Westborough, MA
31
<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. Federal funds wire purchase orders
will be accepted only when the Transfer Agent and custodian bank are open for
business. Please instruct your bank to use the following instructions when
wiring funds:
Wire to: ABA #
Credit to: Account #
Further Credit to: Name of Series
Shareholder Account Number
Shareholder Registration
Please call 1-800-367-7732 prior to sending the wire in order to obtain a
confirmation number and to ensure prompt and accurate handling of funds. Neither
the Fund nor the Transfer Agent is responsible for the consequences of delays
resulting from the banking or Federal Reserve wire system or from incomplete
instructions.
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. 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 on 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."
You may also exchange your 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 the close of regular trading on the NYSE, normally 4:00 p.m.
eastern time, will be processed at the NAV determined on that Business Day.
Exchange requests received after such time will be processed at the NAV
determined on the following 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 would be unable to invest
32
<PAGE>
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 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.
Class A 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 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.
I. EQUITY FUNDS
As to the Balanced, Growth and Income, Real Estate, Value Opportunity, Growth,
Mid Cap, Small Company, International, Ascent Fund, Crossroads Fund, and Legacy
Fund a portion of the front-end sales charge is paid to your investment
professional as shown in the following table. Your investment professional may
receive up to the entire amount of the front-end sales charge.
<TABLE>
<CAPTION>
==========================================================================================================
Sales charge as Amount of sales
a percentage of: charge reallowed to
______________________________________ dealers as a
Amount of transaction at Net Offering percentage of
offering price ($) amount invested price offering price
==========================================================================================================
<S> <C> <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>
II. BOND FUNDS
33
<PAGE>
As to the Aetna 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. Your investment professional may receive up to the entire
amount of the front-end sales charge.
<TABLE>
<CAPTION>
==========================================================================================================
Sales charge as Amount of sales
a percentage of: charge reallowed to
______________________________________ dealers as a
Amount of transaction at Net Offering percentage of
offering price ($) amount invested price offering price
==========================================================================================================
<S> <C> <C> <C> <C>
Under 50,000 4.99% 4.75% 4.00%
- ----------------------------------------------------------------------------------------------------------
50,000 but under 100,000 4.71 4.50 3.75
- ----------------------------------------------------------------------------------------------------------
100,000 but under 250,000 3.63 3.50 2.75
- ----------------------------------------------------------------------------------------------------------
250,000 but under 500,000 2.56 2.50 1.75
- ----------------------------------------------------------------------------------------------------------
500,000 but under 1,000,000 2.04 2.00 1.25
==========================================================================================================
</TABLE>
III. INDEX PLUS FUNDS
As to the Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap and
Index Plus Bond, a portion of the front-end sales charge is paid to your
investment professional as shown in the following table. Your investment
professional may receive up to the entire amount of the front-end sales charge.
<TABLE>
<CAPTION>
==========================================================================================================
Sales charge as Amount of sales
a percentage of: charge reallowed to
______________________________________ dealers as a
Amount of transaction at Net Offering percentage of
offering price ($) amount invested price offering price
==========================================================================================================
<S> <C> <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.
Purchasing Class C Shares An investor who purchases Class C shares does not pay
a front-end sales charge at the time of purchase. Class C shares (except Money
Market) will bear a Rule 12b-1 fee (see "Fees and Charges - Rule 12b-1
Distribution Fee") and are subject to a CDSC when they are redeemed within
eighteen months of purchase (see "Fees and Charges Contingent Deferred Sales
Charge").
Class C shares of the Fund are purchased 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 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.
Purchasing through Institutions 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 or
redeemed at the NAV determined that Business Day if the Institution receives the
investor's order before 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.
34
<PAGE>
Institutions may charge fees or assess other charges for the services they
provide to their customers. Any such fee or charge is retained by the
Institution and is not remitted to the Fund.
Investors purchasing through an Institution should refer to the Institution's
materials for a discussion of any fees, charges, or specific instructions on the
timing or restrictions on the purchase of shares.
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 in
any Series of the Fund (except Money Market) during a 13-month period. The
amount you agree to invest determines the front-end sales charge you pay on
Class A shares.
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 Aeltus Capital, Inc. (ACI), the Fund's principal
underwriter, that the investment qualifies for a discount. Your holdings in the
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.
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 ACI as attorney-in-fact as to such shares;
[bullet] ACI 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
[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 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.
If you would like more information about the Letter of Intent privilege, please
see the Statement or call 1-800-367-7732.
Right of Accumulation/Cumulative Quantity Discounts To determine if you may pay
a reduced front-end sales charge on Class A purchases, the amount of your
current purchase is added to the cost or current value, whichever is higher, of
other shares you own in funds managed by Aeltus (excluding money market funds)
and 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), as well as fund shares which are
managed by Aeltus (excluding money market funds) and 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 in funds
managed by Aeltus. Companies with one or more retirement plans may add together
the total plan assets invested in funds managed by Aeltus 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:
35
<PAGE>
[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. Investors who purchase Fund shares with redemption proceeds received in
connection with a distribution from a retirement plan investing either
directly in any Series of the Fund or indirectly through an unregistered
separate account sponsored by Aetna Life Insurance and Annuity Company
(Aetna) or any affiliate thereof.
4. Certain trust companies and bank trust departments agreeing to invest in the
Fund over a 13-month period at least $1 million of assets over which the
trust companies and bank trust departments have full or shared investment
discretion.
5. Certain retirement plans that are sponsored by an employer with at least 25
employees and either (a) have plan assets of $1 million or more or (b) agree
to invest at least $500,000 in the Fund over a 13-month period.
6. Broker-dealers, registered investment advisers and financial planners that
have entered into a selling agreement with ACI (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to
sales of fund shares) on behalf of clients participating in advisory fee
programs.
7. Current employees of broker-dealers and financial institutions that have
entered into a selling agreement with ACI (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to
sales of fund shares) and their immediate family members, as allowed by the
internal policies of their employer.
8. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer.
9. Shareholders of the Adviser Class at the time such shares were redesignated
as Class A shares.
FEES AND CHARGES
Front-end Sales Charge Class A shares (except Money Market) are subject to a
front-end sales charge on most purchases. (See "How to Purchase Shares - Class A
Shares.")
Rule 12b-1 Distribution Fee Class A and Class C shares are subject to a
Distribution Plan adopted in accordance with Rule 12b-1 under the 1940 Act.
Class A Under the Class A Distribution Plan ACI 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.
Class C Class C shares of each Series, except Aetna Money Market Fund, are
subject to a distribution fee. Under the Class C Distribution Plan ACI is paid a
distribution fee at an annual rate of 0.75% of the average daily net assets of
the Class C shares of each Series except for the Index Plus Funds, which are
subject to a distribution fee at an annual rate of 0.50%.
The distribution fee for a specific class may be used to cover expenses incurred
in promoting the sale of that class of shares, including (i) the costs of
printing and distributing to prospective investors Prospectuses, Statements 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. ACI is authorized to advance to selling dealers through whom Class
C shares (except Money Market) are sold a sales commission under schedules
established by ACI.
Service Fee Class C shares are subject to a Shareholder Services Plan. Under
this plan, ACI is paid a servicing fee at an annual rate of 0.25% of the average
daily net assets of the Class C shares of each Series except Money Market. The
Service Fee may be used by ACI primarily to pay selling dealers and their agents
for servicing and maintaining shareholder accounts.
Contingent Deferred Sales Charge Class A and Class C shares (except for Money
Market) are subject to a CDSC, as described below.
Class A 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 $1 million or more under a Letter of
Intent), or purchases by certain participant-directed qualified retirement plans
may be subject to a CDSC imposed on redemptions within two years of purchase.
The CDSC will apply only to shares for which a finder's fee is paid to selling
broker-dealers, banks or other investment
36
<PAGE>
professionals having a distribution agreement with the Fund. The finders fee
payable and the CDSC imposed with respect to such Class A purchases shall be as
follows:
<TABLE>
<CAPTION>
Cumulative Purchase Amount($) Commission CDSC
----------------------------- ---------- ----
<S> <C> <C>
1,000,000 but under 3,000,000 1.00% Year 1 - 1.00%
Year 2 - 0.50%
3,000,000 but under 20,000,000 0.50% Year 1 - 0.50%
Year 2 - 0.50%
20,000,000 or greater 0.25% Year 1 - 0.25%
Year 2 - 0.25%
</TABLE>
Class C Class C shares of each Series except Money Market are subject to a CDSC
on redemptions made within eighteen months of purchase. The CDSC imposed on
redemptions is 1.00%, except for the Index Plus Funds which impose a CDSC of
0.75%.
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 shares purchased through reinvestment of dividends or
capital gains distributions;
[bullet] shares purchased more than two years (in the case of Class A shares) or
eighteen months (in the case of Class C shares) prior to the
redemption;
[bullet] Money Market Fund redemptions unless:
[bullet] those shares were purchased through an exchange from another
Series within two years (in the case of Class A shares) or
eighteen months (in the case of Class C shares) 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.
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] Distribution from a retirement plan or a custodial account under IRC
section 403(b) after you attain age 59-1/2;
[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.
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 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, less 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.
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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), unless the redemption request is for an amount of
$25,000 or less. (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.
Redeem by Phone This option is available only if you have completed the
pertinent portion of the application and have not submitted a change of address
by telephone within the preceding 15 calendar days.
To redeem shares by phone, please call 1-800-367-7732 and have ready your
account number, account name, and the amount of the redemption. Telephone
requests will be accepted:
[bullet] If the request is for a minimum of $500 or a maximum $25,000
[bullet] Unless you are selling shares in a Trust Company retirement plan
account.
Redemption proceeds will only be sent to a shareholder's address of record or to
a bank account of a commercial bank located within the United States as shown on
the Transfer Agent's records, provided the bank account is in the same name as
that of the shareholder.
The Fund reserves the right to amend telephone redemption procedures at any time
upon notice to shareholders and may refuse a telephone redemption if it believes
it advisable to do so.
In order to arrange for telephone redemptions after an account has been opened
or to change the bank account designated to receive redemption proceeds, a
written request must be sent to Aetna Series Fund, Inc. at the address listed
under "How to Purchase Shares - Purchase by Mail," above. The request must be
signed by all persons required to sign for the Series account, exactly as the
account is registered. Certain nonindividual shareholders may also be required
to furnish copies of supporting documentation, such as corporate resolutions or
trust agreements.
Signature Guarantee A signature guarantee is verification of the authenticity of
the signature given by certain authorized institutions. The Fund requires a
signature guarantee for redemption requests in amounts in excess of $25,000. In
addition, 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.
SHAREHOLDER SERVICES AND OTHER FEATURES
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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. Purchases made in
connection with IRAs (including Roth IRAs) may be subject to an annual custodial
fee of $12.50 per fund account, up to an annual cap of $25, which fee will be
directly deducted from a shareholder's account.
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 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 transaction charge for this service. However, the Transfer Agent
will impose a $5.00 fee for each checkbook reorder. 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.
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<PAGE>
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, ACI 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. These
payments may be made from the resources of ACI or Aeltus so that the price paid
for shares and the value of the investment will be unaffected.
Investment representatives may receive additional compensation from ACI 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
[bullet] Dividend Investing - You may elect to have dividend and/or capital
gains distributions automatically invested in the same class of one
other Series.
[bullet] 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.
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 is entitled to
receive from each Series at an annual rate based on average daily net assets of
each Series:
<TABLE>
<CAPTION>
Advisory Fee Assets
<S> <C> <C>
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
- -----------------------------------------------------------------------------------------------
Aetna Government Fund 0.500% On first $250 million
0.475% On next $250 million
40
<PAGE>
<CAPTION>
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 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
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
- -----------------------------------------------------------------------------------------------
Advisory Fee Assets
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
<PAGE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------
Ascent Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
- -----------------------------------------------------------------------------------------------
Crossroads Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
- -----------------------------------------------------------------------------------------------
Advisory Fee Assets
Legacy Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
- -----------------------------------------------------------------------------------------------
</TABLE>
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
42
<PAGE>
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 0.10% of its average daily net assets. As administrator,
Aeltus may contract with other entities to perform certain Administrative
Services.
Principal Underwriter ACI is the principal underwriter for the Fund. ACI is a
Connecticut corporation, and is a wholly-owned subsidiary of Aeltus and an
indirect wholly-owned subsidiary of Aetna Inc. ACI contracts with various
broker-dealers, including one or more of its affiliates, for distribution of
shares.
Transfer Agent First Data Investor Services Group, Inc., located at____________
__________________, Westborough, MA _____, 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 are included
in the Fee Tables.
Portfolio Transactions and Commissions 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 may also consider the sale of shares of the Fund and of the other
investment companies advised by Aeltus as a factor in the selection of brokerage
firms to execute the Series' portfolio transactions, subject to its duty to
obtain best execution. See the Statement for more information.
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 in 1983 as a fixed income portfolio analyst and in 1989 she was
assigned primary responsibility for the money market operations.
Aetna Government Fund Hugh T.M. Whelan, Vice President, Aeltus, has been
managing the Aetna 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, has been managing High Yield
since its inception in February 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 12 years
with CIGNA Investments.
Balanced John Y. Kim, President and Chief Investment Officer, Aeltus, has been
managing Balanced 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.
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, has been managing Real Estate
since its inception in February 1998. He has been managing real estate
securities for several investment funds managed by Aeltus since 1994. Mr.
43
<PAGE>
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 Kenneth H. Bragdon, Vice President, Aeltus, has been managing Growth
since May, 1998. Previously, Mr. Bragdon and Mr. Canoni co-managed the fund. Mr.
Bragdon has been with the Aetna organization 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 February 1998. Mr. Canoni has worked as
a fund manager for Aeltus since 1980.
Mid Cap Donald Townswick, Vice President, Aeltus, has been managing Mid Cap
since its inception in February 1998. He currently manages small- and mid-cap
stocks for several investment funds managed by Aeltus. Mr. Townswick joined
Aetna in July 1994 after serving as a Vice President at INVESCO Management and
Research for 2 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 of 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, 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 February 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 February 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.
Ascent Fund, Crossroads Fund, Legacy Fund Kevin M. Means, Managing Director,
Aeltus, is the lead portfolio manager for the Generation Funds and has been
responsible for determining the allocation of each Series' investments since
their inception in January 1995. Mr. Means is responsible for the selection of
large capitalization stocks for the Generation Funds. Mr. Means is supported by
a team of investment professionals, each of whom focuses on a particular asset
class:
Vince Fioramonti, Vice President, Aeltus, has been managing international stocks
and non-U.S. dollar government bonds stocks for several investment funds managed
by Aeltus.
Yaniv Tepper, Vice President, Aeltus, has been managing real estate securities
for several investment funds managed by Aeltus since 1994.
Donald Townswick, Vice President, Aeltus, has been managing small- and mid-cap
stocks for several investment funds managed by Aeltus.
Jeanne Wong-Boehm, Managing Director, Aeltus, has been managing U.S. Dollar
Bonds and Money Market Investment stocks for several investment funds managed by
Aeltus.
DISTRIBUTIONS
Fund Distributions
[bullet] Money Market declares dividends daily and pays monthly.
[bullet] Aetna Government Fund, Bond Fund, High Yield and Index Plus Bond
declare and pay dividends monthly.
[bullet] Balanced and Growth and Income declare and pay dividends semiannually.
[bullet] All other Series declare and pay dividends annually.
44
<PAGE>
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 may be higher than the per share dividends and distributions of Class A
and Class C as a result of the distribution fees applicable to Class A and
Class C.
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:
[bullet] 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.
[bullet] 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.
[bullet] 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. 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 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 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 attempt to distribute 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.
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%.
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<PAGE>
A shareholder will recognize a capital gain or loss upon the sale or 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 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.
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, all 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 December 31, 1997, Aetna
and its affiliates owned 23.05% 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 the
Fund's outstanding shares, the Fund will hold a shareholder meeting for the
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<PAGE>
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.
Year 2000 Aetna Inc. (on behalf of all of its subsidiaries and affiliates) has
developed and is currently executing a plan to make its computer systems and
applications accommodate date-sensitive information relating to the Year 2000.
The plan covers four stages including (i) inventory, (ii) assessment, (iii)
remediation and (iv) testing and certification. Aetna, Inc. is currently in the
assessment or remediation stages of its plan for the systems and applications
related to the Fund, including those relating to Aeltus. Testing and
certification of these systems is targeted for completion by mid-1999. The costs
of these efforts will not affect the Fund.
Aeltus and the Fund also have relationships with broker dealers, transfer
agents, custodians and other securities industry participants and service
providers that are not affiliated with Aetna, Inc. Aetna, Inc. is currently
examining its relationships with third parties as part of its Year 2000 plan.
While Aeltus believes that United States securities industry participants
generally are preparing their computer systems and applications to accommodate
Year 2000 date-sensitive information, preparation by third parties is outside
Aetna Inc.'s, Aeltus' and the Fund's control. There can be no assurance that
failure of third parties to complete adequate preparations in a timely manner,
and any resulting systems interruptions or other consequences, would not have an
adverse effect, directly or indirectly, on the Fund, including, without
limitation, its operation or the valuation of its assets.
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Aetna Series Fund, Inc.
242 Trumbull Street
Hartford, CT 06103
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
First Data Investor Services Group, Inc.,
Westborough, MA
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.
<PAGE>
AETNA SERIES FUND, INC.
Class A, Class C and Class I Shares
242 Trumbull Street
Hartford, Connecticut 06103
Statement of Additional Information dated: July 1, 1998
This Statement of Additional Information (Statement) is not a prospectus and
should be read in conjunction with the current prospectus for Aetna Series Fund,
Inc. dated July 1, 1998. A free prospectus is available upon request by writing
to Aetna Series Fund, Inc. or by calling 1-800-367-7732.
Read the prospectus before you invest.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
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.........................................17
The Administrative Services Agreement......................................19
The License Agreement......................................................20
Custodian..................................................................20
Independent Auditors.......................................................20
Principal Underwriter .....................................................20
Distribution and Shareholder Servicing Arrangements........................21
Brokerage Allocation and Trading Policies..................................22
Letter of Intent...........................................................24
Right of Accumulation/Cumulative Quantity Discount.........................24
Description of Shares......................................................25
Net Asset Value............................................................25
Purchase and Redemption of Shares..........................................26
Tax Status.................................................................26
Performance Information....................................................31
Financial Statements.......................................................33
</TABLE>
<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 three classes of shares, Class A,
Class C and Class I. The following Series are described in this Statement:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[bullet] Aetna Money Market Fund (Money Market) [bullet] Aetna Small Company Fund (Small Company)
[bullet] Aetna Government Fund [bullet] Aetna International Fund (International)
[bullet] Aetna Bond Fund (Bond Fund) [bullet] Aetna Index Plus Large Cap Fund (Index Plus
[bullet] Aetna High Yield Fund (High Yield) Large Cap)
[bullet] Aetna Balanced Fund (Balanced) [bullet] Aetna Index Plus Mid Cap Fund (Index Plus
[bullet] Aetna Growth and Income Fund (Growth and Mid 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 Fund)
Opportunity) [bullet] Aetna Crossroads Fund (Crossroads Fund)
[bullet] Aetna Growth Fund (Growth) [bullet] Aetna Legacy Fund (Legacy Fund)
[bullet] Aetna Mid Cap Fund (Mid Cap)
</TABLE>
The investment objective and general investment policies of each Series are
described in the prospectus. Capitalized terms not defined herein are used as
defined in the Funds' prospectuses.
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 Fund, Crossroads Fund and Ascent Fund, 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;
(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;
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<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 Fund, Crossroads Fund and Legacy Fund
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 Fund, Crossroads Fund and Ascent Fund invest
more than 15% (10% for Index Plus Large Cap, Index Plus Mid Cap and Index
Plus Small Cap) 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);
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<PAGE>
(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.
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 (other than Money Market) 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 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.
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<PAGE>
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
promptly pay the excess to a Series. These daily payments to and from a Series
are called variation margin. At times of extreme price volatility 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.
When a Series buys or sells a futures contract, unless it already owns an
offsetting position, it will maintain in a segregated account, cash and/or
liquid securities having an aggregate value at least equal to the full
"notional" value of the futures contract, thereby insuring that the leveraging
effect of such futures contract is minimized, in accordance with regulatory
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 buy and write (sell) options on futures contracts. See "Call and
Put Options" below. The risk involved in writing call options on futures
contracts or market indices is that a Series 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, a Series might
occasionally not be able to close the option because of insufficient activity in
the options market.
Call and Put Options--Each Series may purchase and write (sell) call options and
put options on securities, indices and futures as discussed in the prospectus,
subject to the restrictions described in this section and 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 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 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 (60% in the case of
Crossroads Fund and 100% in the case of Ascent Fund) at market value at the time
of entering into a contract and (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. Each Series, except Legacy Fund,
Crossroads Fund and Ascent Fund, is subject to the following restriction: no
Series may have written call options outstanding at any one time on more than
30% of its total assets. No Series may buy put options if more than 3% of its
assets immediately following such purchase would consist of put options. Each
Series, except Legacy Fund, Crossroads Fund and Ascent Fund is also subject to
the following restriction: the Series may purchase call and sell put options on
equity securities only to close out positions previously opened. No Series will
write a call option on a security unless the call is "covered," i.e. it already
owns the underlying security. 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 call remains outstanding. This restriction does
not apply to the writing of calls on securities indices or futures contracts
(see below). The Series will not write call options on when-issued securities.
The Series purchase call options primarily as a temporary substitute for taking
positions in certain securities or in the securities that comprise a relevant
index, particularly if Aeltus considers these instruments to be undervalued
relative to the prices of particular securities or of the securities underlying
that index. The Series may also purchase call options on an index to protect
against increases in the price of securities underlying that index that the
Series intends to purchase pending its ability to invest in such securities in
an orderly manner.
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.
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<PAGE>
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.
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").
A Series may write calls on securities indices and futures contracts provided
that it enters into an appropriate offsetting position or that liquid assets in
an amount sufficient to cover the underlying obligation are segregated, in
accordance with regulatory requirements. A call option is considered offset, and
thus held in accordance with regulatory requirements, if a Series holds a call
on the same security and in the same principal amount as the call sold when the
exercise price of the call held (a) is equal to or less than the exercise price
of the call sold or (b) is greater than the exercise price of the call sold if
the difference is maintained by the Series in liquid securities in a segregated
account. A Series may also write a call on an index if the Series holds in its
portfolio equity securities that perform with a high degree of correlation to
the performance of the index.
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.
If a put option is sold by a Series, the Series will maintain liquid securities
with a value equal to the exercise price in a segregated account, or else will
hold a put on the same security and in the same principal amount as the put sold
where the exercise price of the put held is less than the exercise price of the
put sold if the Series maintains in a segregated account, liquid securities with
an aggregate value equal to the difference. The writer of a put therefore
foregoes the opportunity of investing the segregated assets or writing calls
against those assets. A Series may write put options on debt securities or
futures, only if such puts are covered by segregated liquid assets. A Series
will not write a put if it will require more than 50% of the Series' net assets
to be segregated to cover the put obligation.
In writing puts, there is the risk that a writer may be required to buy the
underlying security at a disadvantageous price. 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 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 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
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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 may purchase an underlying security for delivery in
accordance with an exercise notice of a call option assignment, rather than
delivering such security from its portfolio. In such cases additional brokerage
commissions will be incurred.
A 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 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 may write and purchase calls on
foreign currencies. A Series 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 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 cash and/or liquid 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 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 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
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foreign currency futures contracts which are traded on exchanges and are subject
to procedures and regulations applicable to futures. Each Series 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.
Each Series 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. A 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 cash and/or liquid securities 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 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 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.
Additional Restrictions on the Use of Futures and Option Contracts--CFTC
regulations require that to prevent a Series 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
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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. As evidence of its 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. 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.
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
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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 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.
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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 (other than Money
Market) may invest in securities denominated or quoted in currencies other than
the U.S. dollar, changes in foreign currency exchange rates will affect the
value of securities in the portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. In addition,
with respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability, or diplomatic
developments that could adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. company, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. issuers. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable U.S. issuers. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the 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
11
<PAGE>
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.
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, Aetna 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.
12
<PAGE>
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.
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
13
<PAGE>
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.
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, the Series will maintain
a segregated account consisting of cash and/or liquid securities equal to the
purchase price of such securities. To the extent that the market value of
securities held in this segregated account falls below the amount that the
purchasing Series will be required to pay on settlement, additional assets may
be required to be added to the segregated account. Such segregated accounts
could affect the purchasing 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 cash and/or liquid
securities designated for segregation.
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 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, 1996 and October 31, 1997 the portfolio
turnover rates were as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Aetna Government Fund 50.48% 147.78%
Bond Fund 42.33% 48.56%
Balanced 117.88% 116.69%
Growth and Income 106.09% 157.92%
Growth 144.19% 141.07%
Small Company 163.21% 150.43%
International 135.92% 194.41%
Index Plus Large Cap* N/A 82.31%
Ascent Fund 104.84% 162.80%
Crossroads Fund 107.40% 161.75%
Legacy Fund 91.62% 158.71%
</TABLE>
* Index Plus Large Cap commenced operations on December 10, 1996.
In 1997 the portfolio turnover rate for International was higher than expected
because of the merger of Aetna Asian Growth into International which began in
September 1996. In 1997 the portfolio turnover rates for Growth and Income,
Ascent Fund, Crossroads Fund and Legacy Fund were higher because each of the
funds reallocated a significant percentage of fund assets to smaller
capitalization stocks. In 1997 the portfolio turnover rate for Aetna Government
Fund was higher because of a change in portfolio managers which led to a
reallocation of fund assets beginning in December, 1996.
14
<PAGE>
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>
Principal Occupation During Past Five Years (and Positions
Position(s) Held with held with Affiliated Persons or Principal
Name, Address and Age the Fund Underwriters of the Fund)
--------------------- -------- -------------------------
<S> <C> <C>
J. Scott Fox* Director and President Director, Managing Director, Chief Operating Officer, Chief
242 Trumbull Street Financial Officer, Aeltus Investment Management, Inc.
Hartford, Connecticut (Aeltus), October 1997 to present; Vice President, Aetna
Age 43 Retirement Services, Inc., April 1997 to 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, Aeltus Capital,
Inc., March 1996 to July 1997; Managing Director, Chief
Financial Officer, Aeltus Capital, Inc., March 1996 to April
1997; Director, Aeltus Trust Company, Inc., May 1996 to July
1997; Managing Director, Chief Operating Officer, Chief
Financial Officer and Treasurer, Aeltus Trust Company, Inc.,
May 1996 to April 1997; Director and President, Aetna
Investment Management (Bermuda) Holding, Ltd., May 1996 to
October 1997.
Wayne F. Baltzer Vice President Assistant Vice President, Aetna Life Insurance Ltd., and
242 Trumbull Street Annuity Company, May 1991 to present; Vice President, Aetna
Hartford, Connecticut Investment Services, Inc., July 1993 to present.
Age 54
Amy R. Doberman Secretary Counsel, Aetna Life Insurance and Annuity Company, December
151 Farmington Avenue 1996 to present; Attorney, Securities and Exchange
Hartford, Connecticut Commission, March 1990 to November 1996.
Age 36
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City Department
325 Piermont Road of Mental Health, Mental Retardation and Alcohol Services,
Closter, New Jersey 1973 to present.
Age 54
David L. Grove Director, Chairperson Private Investor; Economic/Financial Consultant, December 1985
5 The Knoll Contract Committee to present.
Armonk, New York
Age 80
15
<PAGE>
<CAPTION>
Principal Occupation During Past Five Years (and Positions
Position(s) Held with held with Affiliated Persons or Principal
Name, Address and Age the Fund Underwriters of the Fund)
--------------------- -------- -------------------------
John Y. Kim* Director Director, President, Chief Executive Officer, Chief
242 Trumbull Street Investment Officer, Aeltus Investment Management, Inc.,
Hartford, Connecticut December 1995 to present; Director, Aetna Life Insurance and
Age 37 Annuity Company, February 1995 to present; Senior Vice
President, Aetna Life Insurance and Annuity Company,
September 1994 to present.
Sidney Koch Director Financial Adviser, self-employed, January 1993 to present.
455 East 86th Street
New York, New York
Age 63
Frank Litwin Vice President Managing Director, Aeltus Investment Management, Inc., August
242 Trumbull Street 1997 to present; Vice President, Fidelity Investments
Hartford, Connecticut Institutional Services Company, April 1992 to August 1997.
Age 48
Shaun P. Mathews* Director Vice President/Senior Vice President, Aetna Life Insurance
151 Farmington Avenue and Annuity Company, March 1991 to present; Vice President,
Hartford, Connecticut Aetna Life Insurance Company, 1991 to present; Director and
Age 43 Senior Vice President, Aetna Investment Services, Inc., July
1993 to present; Director and Senior Vice President, Aetna
Insurance Company of America, September 1992 to present.
Corine T. Norgaard Director Dean of the Barney School of Business, University of
556 Wormwood Hill Hartford (West Hartford, CT), August 1996 to present;
Mansfield Center, Connecticut Professor, Accounting and Dean of the School of Management,
Age 61 Binghamton University (Binghamton, NY), August 1993 to
August 1996; 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
11 Lily Street Audit Committee Consultants, July 1991 to present.
Nantucket, Massachusetts
Age 69
Stephanie A. Taylor Treasurer and Chief Director Mutual Fund Accounting, Aeltus Investment
242 Trumbull Street Financial Officer Management, Inc., November 1995 to present; Director Mutual
Hartford, Connecticut Fund Accounting, Aetna Life Insurance and Annuity Company,
Age 44 August 1994 to November 1995; Assistant Vice President,
Investors Bank & Trust, January 1993 to August 1994.
</TABLE>
During the period ended October 31, 1997, 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. As of October 31, 1997, 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.
16
<PAGE>
<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 $5,550 $55,500
Director
Sidney Koch $3,850 $38,500
Director
Maria T. Fighetti $5,550 $55,500
Director
Richard G. Scheide $6,100 $61,000
Director, Chairperson
Audit Committee
David L. Grove $5,750* $57,500*
Director, Chairperson
Contract 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
(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 October 31, 1997, Aetna had a controlling interest in the following series
of the Fund:
<TABLE>
<CAPTION>
Class I Aetna
------- -----
<S> <C>
Bond Fund 41.58%
Aetna Government Fund 85.11%
Index Plus Large Cap 69.41%
Money Market 34.78%
Small Company 61.06%
Ascent Fund 88.88%
Crossroads Fund 94.06%
Legacy Fund 81.51%
Class A
-------
International 72.30%
</TABLE>
As of October 31, 1997, officers and Directors owned less than 1% of the
outstanding shares of any of the Series.
Aetna is an indirect wholly-owned subsidiary of Aetna Retirement Services, Inc.,
which is in turn an indirect wholly-owned subsidiary of Aetna Inc. Aetna's
principal office is located at 151 Farmington Avenue, Hartford, Connecticut
06156. Aetna is registered with the Commission as an investment adviser.
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 10, 1997, and replace
17
<PAGE>
investment advisory agreements with Aetna. 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 upon sixty (60) days' written notice by the Directors or by a
majority vote of the outstanding voting securities of that Series, or by Aeltus.
The Advisory Agreements terminate automatically in the event of assignment.
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, as
described in the Prospectus.
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
------------- ------------- ---------
For Year Ended October 31, 1995
<S> <C> <C> <C>
Money Market $1,083,771 $1,083,771 $ 0
Aetna Government Fund 109,261 109,261 0
Bond Fund 227,665 143,622 84,043
Balanced 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 Fund* 157,225 0 157,225
Crossroads Fund* 156,356 0 156,356
Legacy Fund* 155,255 0 155,255
For Year Ended October 31, 1996
Money Market $1,560,183 $1,560,183 $ 0
Aetna Government Fund 67,466 67,466 0
Bond Fund 174,209 141,557 32,652
Balanced 687,346 0 687,346
Growth and Income 2,616,904 0 2,616,904
Growth 296,559 0 296,559
Small Company 330,302 0 330,302
International 389,220 0 389,220
Ascent Fund 185,916 0 185,916
Crossroads Fund 177,185 0 177,185
Legacy Fund 169,807 0 169,807
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Total Investment Aetna Net Investment Advisory
Advisory Fees Reimbursement Fees Paid
------------- ------------- ---------
For Year Ended October 31, 1997
<S> <C> <C> <C>
Money Market $1,782,769 $1,782,769 $ 0
Aetna Government Fund 53,048 53,048 0
Bond Fund 163,110 128,800 34,310
Balanced 812,391 0 812,391
Growth and Income 3,385,694 0 3,385,694
Growth 500,660 0 500,660
Index Plus Large Cap** 49,212 49,212 0
Small Company 238,340 0 238,340
International 639,565 0 639,565
Ascent Fund 202,834 21,845 180,989
Crossroads Fund 186,369 19,968 166,401
Legacy Fund 151,110 22,749 128,361
</TABLE>
*Ascent Fund, Crossroads Fund and Legacy Fund 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 include: (1) internal
accounting services; (2) monitoring regulatory compliance, such as reports and
filings with the Commission and state securities commissions; (3) preparing
financial information for proxy statements; (4) preparing semiannual and annual
reports to shareholders; (5) calculating net asset values; (6) the preparation
of certain shareholder communications; (7) supervision of the custodians and
transfer agent; and (8) reporting to the Directors.
For its services, each Series pays Aeltus a fee at an annual rate of 0.10% 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
------------ ------------- -----------------
For Year Ended October 31, 1995
<S> <C> <C> <C>
Money Market $677,357 $514,954 $162,403
Aetna Government Fund 54,630 21,312 33,318
Bond Fund 113,832 0 113,832
Balanced 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 Fund* 49,133 0 49,133
Crossroads Fund* 48,861 0 48,861
Legacy Fund* 48,517 0 48,517
For Year Ended October 31, 1996
Money Market $ 961,110 $498,621 $ 462,489
Aetna Government Fund 33,733 33,733 0
Bond Fund 87,105 0 87,105
Balanced 214,796 0 214,796
Growth and Income 945,088 0 945,088
Growth 105,914 0 105,914
Small Company 97,148 0 97,148
International 114,478 0 114,478
Ascent Fund 58,099 0 58,099
Crossroads Fund 55,370 0 55,370
19
<PAGE>
<CAPTION>
Legacy Fund 53,065 0 53,065
For Year Ended October 31, 1997
Money Market $1,094,798 $175,308 $ 919,490
Aetna Government Fund 26,524 26,524 0
Bond Fund 81,555 0 81,555
Balanced 253,872 0 253,872
Growth and Income 1,228,819 0 1,228,819
Growth 178,807 0 178,807
Index Plus Large Cap** 27,340 27,340 0
Small Company 70,100 0 70,100
International 188,108 0 188,108
Ascent Fund 63,386 0 63,386
Crossroads Fund 58,240 0 58,240
Legacy Fund 47,222 0 47,222
</TABLE>
*Ascent Fund, Crossroads Fund and Legacy Fund 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 Agreement remains in
effect from year to year if approved annually by a majority of the Directors,
including a majority of the Independent Directors. The 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 and held outside the United
States, Mellon Bank, N.A. and Brown Brothers Harriman & Company have entered
into sub-custodian agreements (which are designed to comply with Rule 17f-5
under the 1940 Act) with several foreign banks or clearing agencies.
INDEPENDENT AUDITORS
[TO BE INCLUDED BY AMENDMENT]
PRINCIPAL UNDERWRITER
Shares of each Series are offered on a continuous basis. Effective May 1, 1998,
the Fund's Board of Directors approved a change in the Fund's principal
underwriter from Aetna Investment Services, Inc. (AISI) to Aeltus Capital, Inc
(ACI). ACI is a Connecticut corporation, and is a wholly-owned subsidiary of
Aeltus and an indirect wholly-owned subsidiary of Aetna Inc. ACI 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. ACI is
registered as a broker-dealer with the Commission and is a member of the
National Association of Securities Dealers, Inc. (NASD). 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 ACI or by a vote of the holders of a
majority of a Series' shares without the payment of any penalty.
20
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS
Fund shares are distributed on a best efforts basis by ACI as Underwriter which
contracts with various broker-dealers, including one or more affiliates. With
respect to Class A shares of the Series (other than Money Market), ACI is paid
an annual distribution fee at the rate of 0.25% of the value of average daily
net assets attributable to those shares under a 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. With respect to Class C shares
of the Series (other than Money Market), ACI is paid an annual distribution fee
at the rate of 0.75% Class C shares of each Series (other than Money Market)
except for Index Plus Large Cap, Index Plus Mid Cap, Index Plus Small Cap and
Index Plus Bond, which are subject to a distribution fee in the amount of 0.50%
of the value of average daily net assets attributable to those shares under a
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 C shares.
ACI may reallow all or a portion of these fees to broker-dealers entering into
selling agreements with it, including its affiliates.
Class C are also subject to a Shareholder Services Plan. Under this plan, ACI
is paid a servicing fee at an annual rate of 0.25% of the average daily net
assets of the Class C shares of each Series except Money Market. The Service Fee
may be used by ACI primarily to pay selling dealers and their agents for
servicing and maintaining shareholder accounts.
In addition to the payments that are available under the Rule 12b-1 Plans, the
Rule 12b-1 Plans also provide that to the extent the Fund, Aeltus or ACI or
other parties on behalf of the Fund, Aeltus or ACI make payments that are deemed
to be for the financing of any activity primarily intended to result in the sale
of Class A or Class C shares within the context of Rule 12b-1 under the 1940
Act, then such payments shall be deemed to have been made pursuant to the
applicable plan. The terms and provisions of the Plans relating to required
reports, term, and approval are consistent with Rule 12b-1.
ACI is required to report in writing to the Board at least quarterly on the
amounts and purpose of any payment made under each 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 each Rule 12b-1 Plan should be continued.
Prior to February 2, 1998, 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 years ended October 31, 1995, 1996 and 1997, Shareholder
Services and Distribution fees were paid to Aetna (principal underwriter of the
Fund prior to August 1, 1997) and AISI (for the period August 1, 1997 through
October 31, 1997) as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Aetna Government Fund $ 2,110 $ 4,074 $ 3,948
Bond Fund 118,895 15,911 5,949
Balanced 57,241 19,775 37,922
Growth and Income 19,108 32,657 82,810
Growth 7,194 23,653 49,657
Index Plus Large Cap* N/A N/A 4,683
Small Company 5,012 20,104 37,758
International 202,548 167,007 166,514
Ascent Fund** N/A N/A 1,691
Crossroads Fund** N/A N/A 764
Legacy Fund** N/A N/A 823
</TABLE>
*Index Plus Large Cap commenced operations December 10, 1996.
**Ascent Fund, Crossroads Fund and Legacy Fund Class A shares commenced
operations on January 20, 1997.
Fees in the amount of $64,022, $101,840 and $141,236, for the years ended
December 31, 1995, 1996, and 1997, respectively, were waived for Money Market.
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 ACI 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, ACI 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, 1997,
approximately $74,668, $258,714, and $13,061 of total distribution expenses were
expended in connection with printing and mailing of prospectuses, total
commissions paid to sales personnel and advertising, respectively.
21
<PAGE>
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.
ACI 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 ACI, or one of its affiliates, and the Securities Dealer.
Securities Dealers may at times receive the entire sales charge.
These breakpoints are reset every 12 months for purposes of additional
purchases.
ACI 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 ACI's resources, from ACI's retention of underwriting concessions and, in
the case of funds that have Rule 12b-1 plans, from payments to ACI under such
plans. In addition, certain Securities Dealers may receive brokerage commissions
generated by fund portfolio transactions in accordance with the NASD's rules.
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 may also consider the sale
of shares of the Fund and of other investment companies advised by Aeltus as a
factor in the selection of brokerage firms to execute the Series' portfolio
transactions, subject to Aeltus' duty to obtain best execution.
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
brokerage 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.
22
<PAGE>
The Series have not effected and have 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.
Brokerage commissions were paid as follows:
<TABLE>
<CAPTION>
For Year Ended For Year Ended For Year Ended
Oct. 31, 1995 Oct. 31, 1996 Oct. 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Bond Fund $ 2,400 $ 0 $ 0
Balanced 321,699 207,536 131,989
Growth and Income 1,765,123 1,120,636 1,908,594
Growth 142,354 135,750 170,182
Index Plus Large Cap* N/A N/A 15,942
Small Company 172,008 223,630 167,794
International 117,138 479,630 907,087
Ascent Fund** 289,353 81,898 113,789
Crossroads Fund** 225,220 61,817 79,184
Legacy Fund** 156,342 38,705 47,247
</TABLE>
*Index Plus Large Cap commenced operations on December 10, 1996.
**Ascent Fund, Crossroads Fund and Legacy Fund commenced operations on January
4, 1995.
The increase in commissions paid by International from 1995 to 1996 and from
1996 to 1997 is a result of the merger of the Asian Growth Fund into
International which began in September 1996. The increases in commissions paid
by Growth and Income and by International from 1996 to 1997 are primarily the
result of increased portfolio turnover rates of 157.9% and 194.4%, respectively
and, in the case of Growth and Income increased asset flows.
For the fiscal year ended October 31, 1997, commissions in the amounts listed
below were paid with respect to portfolio transactions directed to certain
brokers because of research services:
<TABLE>
<CAPTION>
Commissions Paid on
Fund Name Total Transactions
- --------- ------------------
<S> <C>
Balanced $ 38,855
Growth & Income 345,458
Growth Fund 38,646
Index Plus Large Cap* 5,244
Small Company 8,790
Ascent Fund 12,850
Crossroads Fund 6,534
Legacy Fund 3,479
</TABLE>
*Index Plus Large Cap commenced operations December 10, 1996.
No portfolio transactions placed on behalf of Bond Fund, Aetna Government Fund
and International were directed to brokers in exchange for research services.
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.
23
<PAGE>
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. Aeltus also has adopted a Code of Ethics,
which the Directors review annually.
LETTER OF INTENT
You may qualify for a reduced sales charge when you buy Class A shares (other
than Money Market), 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 Series will be effective only after notification to
ACI that the investment qualifies for a discount. Your holdings in the Fund
(other than Money Market shares) 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. 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 ACI 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 ACI 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 (other than Money
Market) 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.
RIGHT OF ACCUMULATION/CUMULATIVE QUANTITY DISCOUNT
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 (except money market
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.
24
<PAGE>
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 three classes, Class A, Class C 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.
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.
25
<PAGE>
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 the transfer agent for the Fund, as described in the
prospectus. Class C shares of the Fund are purchased at the net asset value of
each Series next determined after a purchase order is received in acceptable
form by the transfer agent and redeemed at the net asset value of each Series
next determined less any applicable contingent deferred sales charge (CDSC)
after a redemption request is received in acceptable form by the transfer agent
or for the Fund, as described in the prospectus. Class A shares of the Fund are
purchased at the net asset value of each Series next determined after a purchase
order is received less any applicable front-end sales charge and redeemed at the
net asset value of each Series next determined adjusted for any applicable CDSC
after a redemption request is received in acceptable form by the transfer agent
for the Fund, as described in the prospectus.
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 in amounts in excess of $25,000
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.
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
26
<PAGE>
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.
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
27
<PAGE>
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.
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
28
<PAGE>
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, 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 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.
29
<PAGE>
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."
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.
30
<PAGE>
PERFORMANCE INFORMATION
Performance information for each class of shares including the yield and
effective yield of Money Market, the yield of Bond Fund, Aetna 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.
Money Market Fund Yields
Current yield for Money Market will be computed by determining the net change,
exclusive of capital changes and income other than investment income, at the
beginning of a seven-day period in the value of a hypothetical investment of one
share, subtracting any deductions from shareholder accounts, and dividing the
difference by the value of the hypothetical investment at the beginning of the
base period to obtain the base period return. This base period return is then
multiplied by (365/7) with the resulting yield figure carried to at least the
nearest hundredth of one percent. Calculation of "effective yield" begins with
the same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
The yield and effective yield for Money Market for the seven days ended October
31, 1997 were 5.32% and 5.47%, respectively.
30-Day Yield for Non-Money Market Funds
Quotations of yield for Bond Fund, Aetna 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 5.36%
for Class A, and 6.13% for Class I. The yield for Aetna Government Fund for the
30-day period ended October 31, 1997 was 4.96% for Class A, and 5.71% for Class
I. High Yield and Index Plus Bond commenced operations on February 2, 1998.
Average Annual Total Return
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 and/or Class C that is not calculated according to the
formula set forth above. Specifically, the Fund may include performance for
Class A that does not take into account payment of the applicable front-end
sales load, or the Fund may include performance for Class C that does not take
into account the imposition of the applicable CDSC.
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<PAGE>
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, if any, assuming shares were redeemed at
the end of the period.
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 front-end sales load associated with Class A, and the internal
fees and expenses of the Adviser Class.
Total Return Quotations as of October 31, 1997:
Class I
<TABLE>
<CAPTION>
1 Year 5 Year Since Inception Inception Date
------ ------ --------------- --------------
<S> <C> <C> <C> <C>
Money Market 5.49% 4.83% 4.73% 1/3/92
Aetna Government Fund 8.39% N/A 6.13% 1/4/94
Bond Fund 7.72% 6.76% 6.90% 1/3/92
Balanced 19.57% 13.74% 12.23% 1/3/92
Growth and Income 37.44% 19.04% 16.77% 1/3/92
Growth 28.95% N/A 22.06% 1/4/94
Index Plus Large Cap N/A N/A 24.49% 12/10/96
Small Company 37.80% N/A 23.42% 1/4/94
International 26.02% 14.45% 10.14% 1/3/92
Ascent Fund 26.59% N/A 22.81% 1/4/95
Crossroads Fund 21.65% N/A 19.41% 1/4/95
Legacy Fund 15.94% N/A 15.69% 1/4/95
</TABLE>
Class A (assuming payment of the front-end sales load)
<TABLE>
<CAPTION>
1 Year 5 Year Since Inception Inception Date*
------ ------ --------------- ---------------
<S> <C> <C> <C> <C>
Aetna Government Fund 2.56% N/A 4.01% 1/4/94
Bond Fund 1.81% 4.94% 5.22% 1/3/92
Balanced 11.82% 11.53% 10.23% 1/3/92
Growth and Income 28.64% 16.83% 14.78% 1/3/92
Growth 20.69% N/A 19.33% 1/4/94
Index Plus Large Cap N/A N/A 19.93% 12/10/96
Small Company 28.87% N/A 20.64% 1/4/94
International 17.88% 12.23% 8.19% 1/3/92
Ascent Fund 18.62% N/A 19.44% 1/4/95
Crossroads Fund 13.86% N/A 16.08% 1/4/95
Legacy Fund 8.55% N/A 12.48% 1/4/95
</TABLE>
Class A (without payment of the front-end sales load)
<TABLE>
<CAPTION>
1 Year 5 Year Since Inception Inception Date*
------ ------ --------------- ---------------
<S> <C> <C> <C> <C>
Money Market 5.49% 4.83% 4.73% 1/3/92
Aetna Government Fund 7.67% N/A 5.34% 1/4/94
Bond Fund 6.89% 5.96% 6.10% 1/3/92
Balanced 18.64% 12.86% 11.36% 1/3/92
Growth and Income 36.49% 18.22% 15.96% 1/3/92
Growth 28.05% N/A 21.20% 1/4/94
Index Plus Large Cap N/A N/A 23.64% 12/10/96
Small Company 36.73% N/A 22.52% 1/4/94
International 25.07% 13.57% 9.29% 1/3/92
Ascent Fund 25.86% N/A 21.97% 1/4/95
Crossroads Fund 20.81% N/A 18.54% 1/4/95
Legacy Fund 15.17% N/A 14.86% 1/4/95
</TABLE>
* The inception dates above represent the commencement of investment operations,
which may not coincide with the effective date of the post-effective amendment
to the registration statement through which the Series was added.
32
<PAGE>
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), Lehman
Brothers Aggregate Bond Index, Lehman Brothers Intermediate Government Bond
Index, Merrill Lynch High Yield 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 or 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.
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.
FINANCIAL STATEMENTS
The Financial Statements and the independent auditors' reports, thereon, shall
be filed by amendment The Annual Reports are available upon request and without
charge by calling 1-800-367-7732.
33
<PAGE>
Aetna Series Fund, Inc.
Statement of Additional Information
ASF(S)- Aetna Series Fund, Inc. Statement of Additional Information
SAI.SERIES-98
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- -------------------------------------------
(a) Financial Statements:*
(1) To be included in Part A:
Financial Highlights
(2) To be incorporated by reference in Part B to the Fund's
Annual Report dated October 31, 1997, as filed electronically
with the Securities and Exchange Commission on , 1998 (File No.
811-6352) (Accession Nos. and ):
Audited Financial Statements for Aetna Money Market Fund,
Aetna Government Fund, Aetna Bond Fund, The Aetna Fund(1),
Aetna Growth and Income Fund, Aetna Growth Fund, Aetna Small
Company Fund, Aetna International Growth Fund(2), Aetna Index
Plus Fund(3), Aetna Ascent Fund, Aetna Crossroads Fund and
Aetna Legacy Fund as of October 31, 1997 which include the
following:
Portfolios of Investments
Statements of Assets and Liabilities as of October 31,
1997 Statements of Operations for the year ended October
31, 1997
Statements of Changes in Net Assets for the years ended
October 31, 1997 and 1996
Notes to Financial Statements
Independent Auditors' Report
(1)Renamed Aetna Balanced Fund effective February 2, 1998.
(2)Renamed Aetna International Fund effective February 2,
1998.
(3)Renamed Aetna Index Plus Large Cap Fund effective
February 2, 1998.
(b) Exhibits:
(1)(a) Articles of Amendment and Restatement (September
2, 1997)(1)
(1)(b) Articles of Amendment (October 29, 1997)(2)
(1)(c) Articles Supplementary (October 29, 1997)(2)
(1)(d) Articles of Amendment (January 26, 1998)
(2) By-laws (as amended September 13, 1994)(3)
(3) Not applicable
(4) Instruments Defining Rights of Holders (set
forth in the Articles of Amendment and
Restatement)(1)
(5) Investment Advisory Agreement between Aeltus
Investment Management, Inc. and Aetna Series
Fund, Inc. on behalf of Aetna Balanced Fund,
Aetna Bond Fund, Aetna Growth Fund, Aetna Growth
and Income Fund, Aetna Government Fund, Aetna
Index Plus Large Cap Fund, Aetna International
Fund, Aetna Money Market Fund, Aetna Small
Company Fund, Aetna Ascent Fund, Aetna Crossroads
Fund, Aetna Legacy Fund, Aetna High Yield Fund,
Aetna Index Plus
<PAGE>
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
(6)(a) Underwriting Agreement between Aeltus Capital,
Inc. and Aetna Series Fund, Inc.
(6)(b) Master Selling Dealer Agreement
(7) Directors' Deferred Compensation Plan(1)
(8)(a)(i) Custodian Agreement - Mellon Bank, N.A.
(September 1, 1992)(3)
(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)(2)
(8)(a)(iii) Amendment to Custodian Agreement - Mellon Bank,
N.A. (for Aetna Ascent Fund, Aetna Crossroads
Fund, and Aetna Legacy Fund) (September 14,
1994)(3)
(8)(a)(iv) Amendment to Custodian Agreement - Mellon Bank,
N.A. (Aetna Index Plus Fund) (October 11,
1996)(4)
(8)(a)(v) 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) (January 29, 1998)
(8)(a)(vi) Custodian Agreement - Brown Brothers Harriman &
Company (Aetna International Fund) (December 12,
1991)(5)
(9)(a) Administrative Services Agreement between Aeltus
Investment Management, Inc. and Aetna Series
Fund, Inc. on behalf of Aetna Balanced Fund,
Aetna Bond Fund, Aetna Growth Fund, Aetna Growth
and Income Fund, Aetna Government Fund, Aetna
Index Plus Large Cap Fund, Aetna International
Fund, Aetna Money Market Fund, Aetna Small
Company Fund, Aetna Ascent Fund, Aetna Crossroads
Fund, Aetna Legacy Fund, 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(3)
(9)(c) Transfer Agent Agreement - to be filed
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors*
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15)(a) Distribution Plan (Class A)
(15)(b) Distribution Plan (Class C)
(15)(c) Shareholder Service Plan (Class C)
(16) Schedule for Computation of Performance Data(1)
(17) See Exhibit 27 below
(18) Multi-Class Plan
<PAGE>
(19)(a) Power of Attorney(1)
(19)(b) Authorization for Signatures(6)
(27) Financial Data Schedules*
*To be filed by amendment.
1. Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on January 16,
1998 (Accession No. 0000950146-98-000093).
2. Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on November 3,
1997 (Accession No. 0000950146-97-001608).
3. 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).
4. 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).
5. 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).
6. 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 March 31, 1998, Aetna Life Insurance
and Annuity Company ("Aetna") had a controlling interest in the
following series of the Registrant:
Class I % Aetna
------- -------
Aetna Bond Fund 44.51
Aetna Government Fund 86.65
Aetna Index Plus Bond Fund 91.85
Aetna Index Plus Mid Cap Fund 99.98
Aetna Index Plus Small Cap Fund 99.91
Aetna Mid Cap 99.52
Aetna Real Estate Securities Fund 98.98
Aetna Value Opportunity Fund 98.99
Aetna Index Plus Large Cap Fund 62.09
Aetna Money Market Fund 38.00
Aetna Small Company Fund 61.73
Aetna Ascent Fund 89.69
Aetna Crossroads Fund 94.46
Aetna Legacy Fund 93.00
Aetna High Yield 99.89
Class A
Aetna International Fund 71.13
Aetna High Yield Fund 99.01
Aetna Index Plus Bond Fund 99.98
Aetna Index Plus Mid Cap Fund 84.37
Aetna Index Plus Small Cap Fund 81.56
Aetna Mid Cap 99.01
Aetna Real Estate Securities Fund 94.30
Aetna Value Opportunity Fund 76.99
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. 9 to the Registration Statement on
Form N-4 (File No. 333-01107), as filed electronically with the
Securities and Exchange Commission on April 7, 1998 (Accession No.
0000950146-98-000564).
Item 26. Number of Holders of Securities
- ----------------------------------------
(1) Title of Class (2) Number of Record Holders
as of March 31, 1998
Class I Class A
Aetna Balanced Fund 2003 1041
Aetna Bond Fund 896 184
Aetna Government Fund 89 73
Aetna Growth Fund 670 2030
Aetna Growth and Income Fund 2144 3369
Aetna Index Plus Large Cap Fund 149 453
Aetna International Fund 1059 1062
Aetna Money Market Fund 5809 8674
Aetna Small Company Fund 532 1694
Aetna Ascent Fund 72 385
Aetna Crossroads Fund 26 206
Aetna Legacy Fund 20 117
<PAGE>
(1) Title of Class (2) Number of Record Holders
as of March 31, 1998
Class I Class A
Aetna High Yield Fund 4 2
Aetna Index Plus Bond Fund 3 2
Aetna Index Plus Mid Cap Fund 4 3
Aetna Index Plus Small Cap Fund 7 6
Aetna Mid Cap Fund 3 2
Aetna Real Estate Securities Fund 7 5
Aetna Value Opportunity Fund 5 11
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) to Registrant's Registration Statement on Form N-1A (File
No. 33-41694), as filed electronically on November 3, 1997,
provides for indemnification of directors and officers. In
addition, the Registrant's officers and directors are covered
under a directors and officers/errors and omissions liability
insurance policy issued by Gulf Insurance Company which expires
October 1, 1999.
Section XI.B of the Administrative Services Agreement, filed
herein as Exhibit 9(a), provides for indemnification of the
Administrator.
Section 8 of the Underwriting Agreement, filed herein as Exhibit
6(a), provides for indemnification of the Underwriter, its several
officers and directors, and any person who controls the
Underwriter within the meaning of Section 15 of the Securities Act
of 1933.
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.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
- --------------------------------------------------------------
The investment adviser, Aeltus Investment Management, Inc.
("Aeltus"), is registered as an investment adviser with the
Securities and Exchange Commission. In addition to serving as
investment adviser and administrator for Aetna Series Fund, Inc.,
Aeltus acts as investment adviser and administrator for Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund,
Aetna Balanced VP, Inc., Aetna GET Fund, Aetna Generation
Portfolios, Inc., 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.
The following table summarizes the business connections of the
directors and principal officers of the Investment Adviser.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ---------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox Director, Managing Director, Director and President (since September 1997) -- Aetna
Chief Operating Officer, Chief Life Assignment Company; Vice President (since April 1997) --
Financial Officer Aetna Retirement Services, Inc.; Director and Senior Vice
President (April 1997 - February 1998) -- Aetna Retirement
Holdings, Inc.; Director and Senior Vice President (March
1997 - February 1998) -- Aetna Life Insurance and Annuity
Company; Managing Director, Chief Operating Officer, Chief
Financial Officer, Treasurer (April 1994 - March 1997) --
Aeltus Investment Management, Inc.; Director (March 1996 -
July 1997) -- Aeltus Capital, Inc.; Managing Director, Chief
Financial Officer (March 1996 - April 1997) -- Aeltus
Capital, Inc.; Director (May 1996 - July 1997) -- Aeltus
Trust Company, Inc.; Managing Director, Chief Operating
Officer, Chief Financial Officer and Treasurer (May 1996 -
April 1997) -- Aeltus Trust Company, Inc.; Director and
President (May 1996 - October 1997) -- Aetna Investment
Management (Bermuda) Holding, Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ---------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Timothy A. Holt Director Senior Vice President (September 1997 - February 1998) --
Aetna Retirement Holdings, Inc.; Director (since September
1997) -- Aetna Investment Services, Inc.; Senior Vice
President and Chief Financial Officer (February 1996 -
February 1998) -- Aetna Life Insurance and Annuity Company;
Director (March 1996 - February 1998) -- Aetna Retirement
Holdings, Inc.; Vice President (September 1996 - September
1997) -- Aetna Retirement Holdings, Inc.; Vice President,
Portfolio Management/Investment Group (June 1991 - February
1996) -- Aetna Inc. (formerly known as Aetna Life and
Casualty Company).
John Y. Kim Director, President, Chief Director (since February 1995) -- Aetna Life Insurance and
Executive Officer, Chief Annuity Company; Senior Vice President (since September 1994)
Investment Officer -- Aetna Life Insurance and Annuity Company.
Thomas J. McInerney Director President (since August 1997) -- Aetna Retirement Services,
Inc.; Director and President (since September 1997) -- Aetna
Life Insurance and Annuity Company; Director and President
(since September 1997) -- Aetna Retirement Holdings, Inc.;
Director and President (since September 1997) -- Aetna
Insurance Company of America; Executive Vice President
(since August 1997) -- Aetna Inc.; Vice President, Strategy
(March 1997 - August 1997) -- Aetna Inc.; Vice President,
Marketing and Sales (December 1996 - March 1997) -- Aetna
U.S. Healthcare; Vice President, National Accounts (April
1996 - December 1996) -- Aetna U.S. Healthcare; Vice
President, Strategy, Finance, & Administration (July 1995 -
April 1996) -- Aetna Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ---------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter B. Canoni Managing Director, Equity Managing Director (since January 1996) -- Aeltus Trust
Investments Company; Registered Representative (since March 1994) -- Aeltus
Capital, Inc.
Lennart A. Carlson Managing Director, Fixed Managing Director (since January 1996) -- Aeltus Trust Company;
Income Investments Registered Representative (since February 1993) -- Aeltus Capital,
Inc.
Steven C. Huber Managing Director, Fixed Portfolio Manager (August 1991 - August 1996) --
Income Investments Aetna Life Insurance and Annuity Company; Managing Director
(since August 1996) -- Aeltus Trust Company.
Brian K. Kawakami Vice President, Chief Chief Compliance Officer & Director (since January 1996) --
Compliance Officer Aeltus Trust Company; Chief Compliance Officer (since August 1993)
-- Aeltus Capital, Inc.
Neil Kochen Managing Director, Managing Director (since April 1996) -- Aeltus Investment
Product Development Management, Inc.; Managing Director (since April 1996) --
Aeltus Trust Company; Managing Director (since August 1996)
-- Aeltus Capital, Inc.; Managing Director (July 1994 -
August 1996) -- Aetna Life Insurance and Annuity Company.
Frank Litwin Managing Director, Retail Vice President, Strategic Marketing (April, 1992 - August, 1997)
Marketing and Sales -- Fidelity Investments Institutional Services Company.
Kevin M. Means Managing Director, Equity Managing Director (July 1994 - August 1996) -- Aetna Life
Investments Insurance and Annuity Company; Managing Director (since August
1996) -- Aeltus Trust Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ---------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
L. Charles Meythaler Managing Director, Institutional Managing Director (since April 1997) -- Aeltus Investment
Marketing and Sales Management, Inc.; Director (since July 1997) -- Aeltus Trust
Company; Managing Director ( since June 1997) -- Aeltus Trust
Company; President (June 1993 - April 1997) -- New England
Investment Association.
Jeanne Wong-Boehm Managing Director, Fixed Income Portfolio Manager (March 1982 - August 1996) -- Aetna Life
Investments 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) None
(b) The following are the directors and principal officers of Aeltus
Capital, Inc., the principal underwriter of the Registrant:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------- -------------------------- ---------------
<S> <C> <C>
John Y. Kim Director and President Director
J. Scott Fox Director, Managing Director, Chief Operating Director and President
Officer and Chief Financial Officer
Brian K. Kawakami Director, Vice President None
and Compliance Officer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------- -------------------------- ---------------
<S> <C> <C>
Peter Canoni Managing Director None
Daniel F. Wilcox Vice President - Finance and Treasurer None
</TABLE>
* The principal business address of all directors and officers listed is
242 Trumbull Street, Hartford, Connecticut 06103-1205.
(c) Not applicable.
Item 30. Location of Accounts and Records
- -----------------------------------------
As required by Section 31(a) of the 1940 Act and the rules
thereunder, the Registrant and its investment adviser, Aeltus,
maintain physical possession of each account, book or other
document, at 151 Farmington Avenue, Hartford, Connecticut 06156 or
242 Trumbull Street, Hartford, Connecticut 06103-1205.
Effective July 1, 1998, shareholder records will be maintained by
the transfer agent, First Data Investor Services Group, Inc., 4400
Computer Drive, Westboro, Massachusetts 01581.
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
<PAGE>
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
1933 Act and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Post-Effective Amendment to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Hartford and
State of Connecticut on the 24th day of April, 1998.
AETNA SERIES FUND, INC.
-----------------------
Registrant
By J. Scott Fox*
-------------
J. Scott Fox
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons on April 24th, 1998 in the capacities indicated.
Signature Title Date
- --------- ----- ----
J. Scott Fox* President and Director )
- ------------------------ )
J. Scott Fox (Principal Executive Officer) )
)
Maria T. Fighetti* Director ) April
- ------------------------ )
Maria T. Fighetti ) 24, 1998
)
David L. Grove* Director )
- ------------------------ )
David L. Grove )
)
John Y. Kim* Director )
- ------------------------ )
John Y. Kim )
)
Sidney Koch* Director )
- ------------------------ )
Sidney Koch )
)
Shaun P. Mathews* Director )
- ------------------------ )
Shaun P. Mathews )
<PAGE>
Corine T. Norgaard* Director )
- ------------------------
Corine T. Norgaard )
)
Richard G. Scheide* Director )
- ------------------------
Richard G. Scheide )
)
Stephanie A. Taylor* Treasurer and Chief Financial )
- ------------------------ Officer
Stephanie A. Taylor (Principal Financial and )
Accounting Officer) )
By: /s/ Amy R. Doberman
--------------------------
*Amy R. Doberman
Attorney-in-Fact
<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 (September 2, 1997) *
99-b(1)(b) Articles of Amendment (October 29, 1997) *
99-b(1)(c) Articles Supplementary (October 29, 1997) *
99-b(1)(d) Articles of Amendment (January 26, 1998)
--------
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)
99-b(5) 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 Fund, Aetna Crossroads Fund, Aetna Legacy
Fund, 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 Aeltus Capital, Inc. and Aetna Series
Fund, Inc.
--------
99-b(6)(b) Master Selling Dealer Agreement
--------
99-b(7) Directors' Deferred Compensation Plan *
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-b(8)(a)(i) Custodian Agreement - Mellon Bank, N.A. (September 1, 1992) *
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 *
Fund, Aetna Crossroads Fund, and Aetna Legacy Fund) (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) 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) (January 29, 1998)
--------
99-b(8)(a)(vi) Custodian Agreement - Brown Brothers Harriman & Company (Aetna *
International Fund) (December 12, 1991)
99-b(9)(a) Administrative Services Agreement between Aeltus Investment Management,
Inc. and Aetna Series Fund, Inc. on behalf of Aetna Balanced Fund, Aetna
Bond Fund, Aetna Growth Fund, Aetna Growth and Income Fund, Aetna
Government Fund, Aetna Index Plus Large Cap Fund, Aetna International
Fund, Aetna Money Market Fund, Aetna Small Company Fund, Aetna Ascent
Fund, Aetna Crossroads Fund, Aetna Legacy Fund, 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 *
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99-b(9)(c) Transfer Agent Agreement **
99-b(10) Opinion and Consent of Counsel
--------
99-b(11) Consent of Independent Auditors **
99-b(15)(a) Distribution Plan (Class A)
--------
99-b(15)(b) Distribution Plan (Class C)
--------
99-b(15)(c) Shareholder Services Plan (Class C)
--------
99-b(16) Schedule for Computation of Performance Data *
99-b(18) Multi-Class Plan
--------
99-b(19)(a) Power 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
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 (the "Department") that:
The Board of Directors of the Corporation, by actions taken on
September 24, 1997 and December 10, 1997, and pursuant to Section 2-602
of the Maryland General Corporation Law ("MGCL"), redesignated three
series of stock of the Corporation as follows:
1. Aetna International Growth Fund is redesignated
Aetna International Fund;
2. Aetna Index Plus Fund is redesignated
Aetna Index Plus Large Cap Fund; and
3. The Aetna Fund is redesignated
Aetna Balanced Fund,
such redesignations are to apply to all issued and outstanding and
authorized but unissued shares of the series.
This amendment has been approved by a majority of the entire Board of
Directors of the Corporation and is limited to a change expressly permitted by
Section 2-605 of the MGCL to be made without action by the stockholders of the
Corporation.
Furthermore, this amendment shall become effective on Monday, February
2, 1998 at 7:59 a.m., which date does not exceed thirty (30) days after these
Articles of Amendment have been accepted for record by the Department, in
accordance with and pursuant to Section 2-610.1 of the MGCL.
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.
Date: January 23, 1998
AETNA SERIES FUND, INC.
(CORPORATE SEAL)
By: /s/ J. Scott Fox
----------------
J. Scott Fox
Attest: President
/s/ Amy R. Doberman
- -------------------
Amy R. Doberman
Secretary
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AELTUS INVESTMENT MANAGEMENT, INC. a
Connecticut corporation (the "Adviser") and AETNA SERIES FUND, INC., a Maryland
corporation (the "Fund"), on behalf of its series, Aetna Balanced Fund (the
"Series"), as of the date set forth above the parties' signatures.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Fund has established the Series; and
WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act"), and is in the
business of acting as an investment adviser; and
WHEREAS, the Fund, on behalf of the Series, and the Adviser desire to enter into
an agreement to provide for investment advisory and management services for the
Series on the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Directors (the "Board"), the Fund, on behalf of
the Series, hereby appoints the Adviser to serve as the investment adviser to
the Series, to provide the investment advisory services set forth below in
Section II. The Adviser agrees that, except as required to carry out its duties
under this Agreement or otherwise expressly authorized, it is acting as an
independent contractor and not as an agent of the Series and has no authority to
act for or represent the Series in any way.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall do the following:
1. supervise all aspects of the operations of the Series;
<PAGE>
2. select the securities to be purchased, sold or exchanged by the
Series or otherwise represented in the Series' investment portfolio,
place trades for all such securities and regularly report thereon to
the Board;
3. formulate and implement continuing programs for the purchase and
sale of securities and regularly report thereon to the Board;
4. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally, the
Series, securities held by or under consideration for the Series, or
the issuers of those securities;
5. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;
6. obtain the services of, contract with, and provide instructions to
custodians and/or subcustodians of the Series' securities, transfer
agents, dividend paying agents, pricing services and other service
providers as are necessary to carry out the terms of this Agreement;
and
7. take any other actions which appear to the Adviser and the Board
necessary to carry into effect the purposes of this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Adviser
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is duly organized
and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Registration. The Adviser is registered as an investment adviser
with the Commission under the Advisers Act. The Adviser shall
maintain such registration in effect at all times during the term
of this Agreement.
3. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Series in carrying out its obligations
hereunder.
-2-
<PAGE>
B. Representations and Warranties of the Series and the Fund
The Fund, on behalf of the Series, hereby represents and warrants to
the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been duly
incorporated under the laws of the State of Maryland and it is
authorized to enter into this Agreement and carry out its
obligations hereunder.
2. Registration. The Fund is registered as an investment company
with the Commission under the 1940 Act and shares of the Series
are registered or qualified for offer and sale to the public
under the Securities Act of 1933 and all applicable state
securities laws. Such registrations or qualifications will be
kept in effect during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
Subject to the approval of the Board and the shareholders of the
Series, the Adviser may enter into a Subadvisory Agreement to engage a
subadviser to the Adviser with respect to the Series.
V. BROKER-DEALER RELATIONSHIPS
A. Series Trades
The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Series with brokers or dealers selected by
the Adviser, which may include brokers or dealers affiliated with the
Adviser. The Adviser shall use its best efforts to seek to execute
portfolio transactions at prices that are advantageous to the Series
and at commission rates that are reasonable in relation to the benefits
received.
B. Selection of Broker-Dealers
In selecting broker-dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage or research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Adviser and/or the
other accounts over which the Adviser or its affiliates exercise
investment discretion. The Adviser may also select brokers or dealers
to effect transactions for the Series that provide payment for expenses
of the Series. The Adviser is authorized to pay a broker or dealer who
provides such brokerage or research services or expenses, and that has
provided assistance in the distribution of shares of the Series to the
extent permitted by law, a commission for executing a portfolio
transaction for the Series that is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage or research services provided by such broker or dealer and is
paid in compliance with Section 28(e). This determination may
-3-
<PAGE>
be viewed in terms of either that particular transaction or the overall
responsibilities that the Adviser and its affiliates have with respect
to accounts over which they exercise investment discretion. The Board
shall periodically review the commissions paid by the Series to
determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits received.
VI. CONTROL BY THE BOARD
Any investment program undertaken by the Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Adviser on behalf of the Series
pursuant thereto, shall at all times be subject to any directives of the Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:
1. all applicable provisions of the 1940 Act;
2. the provisions of the current Registration Statement of the Fund;
3. the provisions of the Fund's Articles of Incorporation, as amended;
4. the provisions of the Bylaws of the Fund, as amended; and
5. any other applicable provisions of state and federal law.
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund, on behalf of the Series, shall pay to the
Adviser an annual fee, payable monthly, based upon the following average daily
net assets of the Series:
<TABLE>
<CAPTION>
Rate Assets
---- ------
<S> <C> <C>
.80% first $500 million
.75% next $500 million
.70% next $1 billion
.65% over 2 billion
</TABLE>
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual advisory fee
applied to the daily net assets of the Series. If this
-4-
<PAGE>
Agreement becomes effective subsequent to the first day of a month or terminates
before the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees set forth above. Subject to the provisions of Section X
hereof, payment of the Adviser's compensation for the preceding month shall be
made as promptly as possible.
IX. EXPENSES
The expenses in connection with the management of the Series shall be allocated
between the Series and the Adviser as follows:
A. Expenses of the Adviser
The Adviser shall pay:
1. the salaries, employment benefits and other related costs and
expenses of those of its personnel engaged in providing
investment advice to the Series, including without limitation,
office space, office equipment, telephone and postage costs; and
2. all fees and expenses of all directors, officers and employees,
if any, of the Fund who are employees of the Adviser, including
any salaries and employment benefits payable to those persons.
B. Expenses of the Series
The Series shall pay:
1. investment advisory fees pursuant to this Agreement;
2. brokers' commissions, issue and transfer taxes or other
transaction fees payable in connection with any transactions in
the securities in the Series' investment portfolio or other
investment transactions incurred in managing the Series' assets,
including portions of commissions that may be paid to reflect
brokerage research services provided to the Adviser;
3. fees and expenses of the Series' independent accountants and
legal counsel and the independent Directors' legal counsel;
4. fees and expenses of any administrator, transfer agent,
custodian, dividend, accounting, pricing or disbursing agent of
the Series;
5. interest and taxes;
-5-
<PAGE>
6. fees and expenses of any membership in the Investment Company
Institute or any similar organization in which the Board deems it
advisable for the Fund to maintain membership;
7. insurance premiums on property or personnel (including officers
and directors) of the Fund;
8. all fees and expenses of the Company's directors, who are not
"interested persons" (as defined in the 1940 Act) of the Fund or
the Adviser;
9. expenses of preparing, printing and distributing proxies, proxy
statements, prospectuses and reports to shareholders of the
Series, except for those expenses paid by third parties in
connection with the distribution of Series shares and all costs
and expenses of shareholders' meetings;
10. all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares of the
Series or in cash;
11. costs and expenses (other than those detailed in paragraph 9
above) of promoting the sale of shares in the Series, including
preparing prospectuses and reports to shareholders of the Series,
provided, nothing in this Agreement shall prevent the charging of
such costs to third parties involved in the distribution and sale
of Series shares;
12. fees payable by the Series to the Commission or to any state
securities regulator or other regulatory authority for the
registration of shares of the Series in any state or territory of
the United States or of the District of Columbia;
13. all costs attributable to investor services, administering
shareholder accounts and handling shareholder relations,
(including, without limitation, telephone and personnel
expenses), which costs may also be charged to third parties by
the Adviser; and
14. any other ordinary, routine expenses incurred in the management
of the Series' assets, and any nonrecurring or extraordinary
expenses, including organizational expenses, litigation affecting
the Series and any indemnification by the Fund of its officers,
directors or agents.
X. ADDITIONAL SERVICES
Upon the request of the Board, the Adviser may perform certain accounting,
shareholder servicing or other administrative services on behalf of the Series
that are not required by this Agreement. Such services will be performed on
behalf of the Series and the Adviser may receive from the Series such
reimbursement for costs or reasonable compensation for such services as may be
agreed upon between
-6-
<PAGE>
the Adviser and the Board on a finding by the Board that the provision of such
services by the Adviser is in the best interests of the Series and its
shareholders. Payment or assumption by the Adviser of any Series expense that
the Adviser is not otherwise required to pay or assume under this Agreement
shall not relieve the Adviser of any of its obligations to the Series nor
obligate the Adviser to pay or assume any similar Series expense on any
subsequent occasions. Such services may include, but are not limited to, (a) the
services of a principal financial officer of the Fund (including applicable
office space, facilities and equipment) whose normal duties consist of
maintaining the financial accounts and books and records of the Fund and the
Series and the services (including applicable office space, facilities and
equipment) of any of the personnel operating under the direction of such
principal financial officer; (b) the services of staff to respond to shareholder
inquiries concerning the status of their accounts, providing assistance to
shareholders in exchanges among the investment companies managed or advised by
the Adviser, changing account designations or changing addresses, assisting in
the purchase or redemption of shares; or otherwise providing services to
shareholders of the Series; and (c) such other administrative services as may be
furnished from time to time by the Adviser to the Fund or the Series at the
request of the Board.
XII. NONEXCLUSIVITY
The services of the Adviser to the Series are not to be deemed to be exclusive,
and the Adviser shall be free to render investment advisory or other services to
others (including other investment companies) and to engage in other activities,
so long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers and directors of the Adviser may serve as
officers or directors of the Fund, and that officers or directors of the Fund
may serve as officers or directors of the Adviser to the extent permitted by
law; and that the officers and directors of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or trustees of any
other firm or trust, including other investment companies.
XIII. TERM
This Agreement shall become effective on February 2, 1998, and shall remain in
force and effect through December 31, 1998, unless earlier terminated under the
provisions of Article XV.
XIV. RENEWAL
Following the expiration of its initial term, the Agreement shall continue in
force and effect from year to year, provided that such continuance is
specifically approved at least annually:
1. a. by the Board, or
b. by the vote of a majority of the Series' outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act), and
-7-
<PAGE>
2. by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
XV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board or by vote of a majority of the Series'
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act),
or by the Adviser, on sixty (60) days' written notice to the other party. The
notice provided for herein may be waived by the party required to be notified.
This Agreement shall automatically terminate in the event of its "assignment."
XVI. LIABILITY
The Adviser shall be liable to the Fund and shall indemnify the Fund for any
losses incurred by the Fund, whether in the purchase, holding or sale of any
security or otherwise, to the extent that such losses resulted from an act or
omission on the part of the Adviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Adviser of its duties under this Agreement, in
connection with the services rendered by the Adviser hereunder.
XVII. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:
if to the Fund, on behalf of the Series:
151 Farmington Avenue
Hartford, Connecticut 06156
Fax number 860/273-8340
if to the Adviser:
242 Trumbull Street
Hartford, Connecticut 06103-1205
Fax number 860/275-4440
-8-
<PAGE>
XVIII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules or orders of the
Commission issued pursuant to the 1940 Act, or contained in no-action and
interpretive positions taken by the Commission staff. In addition, where the
effect of a requirement of the 1940 Act reflected in the provisions of this
Agreement is revised by rule or order of the Commission, such provisions shall
be deemed to incorporate the effect of such rule or order.
XIX. SERVICE MARK
The service mark of the Fund and the Series and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Services, Inc. (formerly known
as Aetna Life and Casualty Company) and their continued use is subject to the
right of Aetna Services, Inc. to withdraw this permission in the event the
Adviser or another affiliated corporation of Aetna Services, Inc. should not be
the investment adviser of the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 30th day of January, 1998.
Aeltus Investment Management, Inc.
By: /s/ John Y. Kim
----------------
Attest: /s/ S. Harinstein Name: John Y. Kim
------------------ --------------
Name: Susan Harinstein Title: President
-------------------- --------------
Title: Assistant Secretary
-------------------
Aetna Series Fund, Inc.
on behalf of its series,
Aetna Balanced Fund
By: /s/ J. Scott Fox
----------------
Attest: /s/ DeAnn S. Anastasio Name: J. Scott Fox
----------------------- --------------
Name: DeAnn S. Anastasio Title: President
----------------------- -------------
Title: Assistant Secretary
-----------------------
-9-
<PAGE>
Investment Advisory Agreement
Schedule Pursuant to Rule 483(d)(2) under the Securities Act of 1933
Investment Advisory 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)(5) - Investment Advisory Agreement, included herewith.
<TABLE>
<CAPTION>
Difference
Date Portfolio Compensation
---- --------- ------------
<S> <C> <C>
1/30/98 Aetna Bond Fund .50% on first $250 million
.475% on next $250 million
.45% on next $250 million
.425% on next $1.25 billion
.40% over $2 billion
1/30/98 Aetna Growth Fund .70% on first $250 million
.65% on next $250 million
.625% on next $250 million
.60% on next $1.25 billion
.55% over $2 billion
1/30/98 Aetna Growth and Income Fund .70% on first $250 million
.65% on next $250 million
.625% on next $250 million
.60% on next $1.25 billion
.55% over $2 billion
1/30/98 Aetna Government Fund .50% on first $250 million
.475% on next $250 million
.45% on next $250 million
.425% on next $1.25 billion
.40% over $2 billion
1/30/98 Aetna Index Plus Large Cap Fund .45% on first $250 million
.45% on next $250 million
.425% on next $250 million
.40% on next $250 million
.40% on next $1 billion
.375% over $2 billion
-10-
<PAGE>
<CAPTION>
1/30/98 Aetna International Fund .85% on first $250 million
.80% on next $250 million
.775% on next $250 million
.75% on next $1.25 billion
.70% over $2 billion
1/30/98 Aetna Money Market Fund .40% on first $500 million
.35% on next $500 million
.34% on next $1 billion
.33% on next $1 billion
.30% over $3 billion
1/30/98 Aetna Small Company Fund .85% on first $250 million
.80% on next $250 million
.775% on next $250 million
.75% on next $1.25 billion
.725% over $2 billion
1/30/98 Aetna Ascent Fund .80% on first $500 million
.775% on next $500 million
.75% on next $500 million
.725% on next $500 million
.70% over $2 billion
1/30/98 Aetna Crossroads Fund .80% on first $500 million
.775% on next $500 million
.75% on next $500 million
.725% on next $500 million
.70% over $2 billion
1/30/98 Aetna Legacy Fund .80% on first $500 million
.775% on next $500 million
.75% on next $500 million
.725% on next $500 million
.70% over $2 billion
1/30/98 Aetna High Yield Fund .65% on first $250 million
.60% on next $250 million
.575% on next $250 million
.55% on next $250 million
.55% on next $1 billion
.50% over $2 billion
-11-
<PAGE>
<CAPTION>
1/30/98 Aetna Index Plus Bond Fund .35% on first $250 million
.35% on next $250 million
.325% on next $250 million
.30% on next $250 million
.30% on next $1 billion
.275% over $2 billion
1/30/98 Aetna Index Plus Mid Cap Fund .45% on first $250 million
.45% on next $250 million
.425% on next $250 million
.40% on next $250 million
.40% on next $1 billion
.375% over $2 billion
1/30/98 Aetna Index Plus Small Cap Fund .45% on first $250 million
.45% on next $250 million
.425% on next $250 million
.40% on next $250 million
.40% on next $1 billion
.375% over $2 billion
1/30/98 Aetna Mid Cap Fund .75% on first $250 million
.70% on next $250 million
.675% on next $250 million
.65% on next $250 million
.65% on next $1 billion
.60% over $2 billion
1/30/98 Aetna Real Estate Securities Fund .80% on first $250 million
.75% on next $250 million
.725% on next $250 million
.70% on next $250 million
.70% on next $1 billion
.65% over $2 billion
1/30/98 Aetna Value Opportunity Fund .70% on first $250 million
.65% on next $250 million
.625% on next $250 million
.60% on next $250 million
.60% on next $1 billion
.55% over $2 billion;
</TABLE>
-12-
AETNA SERIES FUND, INC.
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 6th day of April, 1998, by and between Aeltus
Capital, Inc. ("ACI" or "Underwriter"), a Connecticut corporation, and Aetna
Series Fund, Inc. ("Fund"), a Maryland corporation.
WHEREAS, the Fund is an open-end management investment company
registered with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund has registered its shares for offer and sale to the
public under the Securities Act of 1933, as amended ("1933 Act"), and in
accordance with the provisions of all applicable state securities laws (Blue Sky
Laws); and
WHEREAS, the Fund is offering and selling to the public distinct series
of shares of common stock, each corresponding to a distinct series ("Series");
and
WHEREAS, the Fund wishes to retain ACI as exclusive principal
underwriter in connection with the offering and sale of the shares of each
Series as now exists and as hereafter may be established ("Shares") including
any new classes of shares that may be offered and sold and to furnish certain
other services to the Fund as specified in this Agreement; and
WHEREAS, ACI is willing to act as exclusive principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Appointment of Underwriter. The Fund hereby appoints ACI and ACI
hereby accepts appointment as exclusive principal underwriter in connection with
the offering and sale of the Shares of each Series as are now registered for
sale with the SEC and under Blue Sky Laws and such other Series and classes of
shares of Series as may hereafter be so registered. The Fund authorizes the
Underwriter, as exclusive agent for the Fund, upon the commencement of
operations of any Series and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Fund: (a) to promote the Series;
(b) to solicit orders for the purchase of the Shares of the Series subject to
such terms and conditions as the Fund may specify; and (c) to hold itself
available to receive orders for the purchase of the Shares of the Series and to
accept such orders on behalf of the Fund as of the time of receipt of such
orders and promptly transmit such orders as are accepted to the Fund and its
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement as it may be amended from time to
time. The Underwriter shall offer the Shares of each Series on an agency or
"best efforts" basis under which the Fund shall only issue such Shares as are
actually sold. In connection with such sales and offers of sale, the Underwriter
shall give only such information as is permitted by applicable law, and the Fund
shall not be responsible in any way for any other information, statements or
representations given or made by the Underwriter or its representatives or
agents. The Fund also shall permit the Underwriter to use any list of
shareholders of the Fund
<PAGE>
or any Series or any other list of investors which it obtains in connection with
its provision of services under this Agreement. The Fund reserves the right at
any time to withdraw all offerings of the Shares of any or all Series by written
notice to the Underwriter at its principal office.
2. Fund Obligations. The Fund shall keep the Underwriter fully informed
of its affairs and shall make available to Underwriter copies of all
information, financial statements, and other papers which Underwriter may
reasonably request for use in connection with the distribution of shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of a Series as the Underwriter may
request, and the Fund shall cooperate fully in the efforts of the Underwriter to
sell and arrange for the sale of the Shares and in the Underwriter's performance
under this Agreement.
3. Sales to Dealers. The Underwriter, at its discretion, may enter into
agreements to sell shares to such registered and qualified retail dealers, as it
may select.
4. Public Offering Price. The public offering price of the Shares of
each Series shall be the net asset value per share (as determined by the Fund)
of the outstanding Shares of the Series, plus any applicable sales charge as
described in the Registration Statement of the Fund. The Fund shall furnish (or
arrange for another person to furnish) the Underwriter with a quotation of
public offering price on each business day.
5. Compensation. As compensation for providing services under this
contract, the Underwriter shall retain the sales charge, if any, on purchases
and redemptions of Shares as set forth in the Registration Statement. The
Underwriter is authorized to collect the gross proceeds derived from the sale of
the Shares, remit the net asset value thereof to the Fund upon receipt of the
proceeds and retain the sales charge, if any. The Underwriter may reallow any or
all of such sales charges to such dealers as it may from time to time determine.
Whether a sales charge shall be retained by the Underwriter shall be determined
in accordance with the Registration Statement. If applicable, the Underwriter
also shall receive from each Series or class thereof a distribution and/or
service fee at the rate and under the terms and conditions of the Distribution
Plan and Shareholder Services Plan ("Plans") adopted by the Fund with respect to
such Series or class thereof, as such Plans are in effect from time to time, and
subject to any further limitations on such fee as the Board of Directors
("Board") may impose.
6. Underwriter's Expenses. The Underwriter, at no additional expense to
the Fund, shall print and distribute to prospective investors Prospectuses, and
shall print and distribute, upon request, to prospective investors Statements of
Additional Information, and may print and distribute such other sales
literature, reports, forms and advertisements in connection with the sale of the
Shares as comply with the applicable provisions of federal and state law.
7. Fund Expenses. The Fund agrees at its own expense to register the
Shares with the SEC, state and other regulatory bodies, and to prepare and file
from time to time such Prospectuses, Statements of Additional Information,
amendments, reports and other documents as may be necessary to maintain the
Registration Statement. Each Series shall bear all expenses related to preparing
and typesetting such Prospectuses, Statements of Additional Information, and
-2-
<PAGE>
other materials and such other expenses, including printing and mailing
expenses, related to such Series' communications with existing shareholders of
that Series.
8. Indemnification by Fund. The Fund agrees to indemnify, defend and
hold the Underwriter, its officers and directors, and any person who controls
the Underwriter within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Underwriter, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Underwriter
against any liability to the Fund or to the shareholders of a Series to which
the Underwriter would otherwise be subject by reason of willful misfeasance, bad
faith, or negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, or
arising out of any information supplied by the Underwriter for inclusion in such
Registration Statement.
9. Indemnification by Underwriter. The Underwriter agrees to indemnify,
defend and hold the Fund, its officers and directors, and any person who
controls the Fund within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers or directors, or any such controlling person may incur, under
the 1933 Act or under common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Underwriter to the Fund for use in the Registration Statement
or arising out of or based upon any alleged omission to state a material fact in
connection with such information required to be stated in the Registration
Statement or necessary to make such information not misleading.
10. Share Certificates. The Fund shall not issue certificates
representing Shares.
11. Repurchase of Shares. Repurchase of Shares by the Underwriter shall
be at the net asset value next determined after a repurchase order has been
received, less any applicable sales charge. The Underwriter will receive no
commission or other remuneration for repurchasing Shares other than applicable
sales loads. At the end of each business day, the Underwriter shall notify by
telex or in writing, the Fund and its transfer agent, of the orders for
repurchase of Shares received by the Underwriter since the last such report, the
amount to be paid for such Shares, and the identity of the shareholders offering
Shares for repurchase. Upon such notice, the Fund shall pay the Underwriter such
amounts as are required by the Underwriter for the repurchase of such Shares in
cash or in the form of a credit against monies due the Fund from the Underwriter
as proceeds from the sale of Shares. The Fund reserves the right to suspend such
repurchase right upon written notice to the Underwriter. The Underwriter further
agrees to act as agent for the Fund to receive and transmit promptly to the
Fund's transfer agent shareholder requests for redemption of Shares.
-3-
<PAGE>
12. Status of Underwriter and Other Persons. The Underwriter is an
independent contractor and shall be agent for the Fund only in respect to the
sale and redemption of the Shares. Any person, even though also an officer,
director, employee or agent of the Underwriter, who may be or become an officer,
director, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting in any business of the Fund, to be rendering such
services to or acting solely for the Fund and not as an officer, director,
employee or agent or one under the control or direction of the Underwriter even
though paid by the Underwriter.
13. Non-Exclusive Services. The services of the Underwriter to the Fund
under this Agreement are not to be deemed exclusive, and the Underwriter shall
be free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
14. Reports of Underwriter. The Underwriter shall prepare reports for
the Board on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board.
15. Definitions. The terms "assignment," "interested person," and
"majority of the outstanding voting securities" shall have the meanings given to
them by Section 2(a) of the 1940 Act, subject to such exemptions as may be
granted by the Commission by any rule or order. Additionally, the term
"Registration Statement" shall mean the registration statement most recently
filed by the Fund with the Commission and effective under the 1940 Act and 1933
Act, as such Registration Statement is amended by any amendments thereto at the
time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement of
additional information with respect to a Series filed by the Fund as part of the
Registration Statement.
16. Effectiveness of Agreement. This Agreement shall become effective
on May 1, 1998, provided that, with respect to a Series, this Agreement shall
not take effect unless such action has first been approved by vote of a majority
of the Board and by vote of a majority of those directors of the Fund who are
not interested persons of the Fund and have no direct or indirect financial
interest in the operation of the Plan (if there be a Plan) or in any agreements
related thereto (all such directors collectively being referred to herein as the
"Independent Directors"), cast in person at a meeting called for the purpose of
voting on such action.
17. Termination of Agreement. This Agreement shall become effective on
May 1, 1998 and shall remain in force and effect, through December 31, 1998,
unless earlier terminated. Thereafter, if not terminated, this Agreement shall
continue automatically for successive periods of twelve months each, provided
that such continuance is specifically approved at least annually (a) by a vote
of a majority of the Independent Directors, cast in person at a meeting called
for the purpose of voting on such approval, and (b) by the Board or with respect
to any given Series by vote of a majority of the outstanding voting securities
of such Series. Notwithstanding the foregoing, with respect to any Series, this
Agreement may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Directors or by vote
of a majority of the outstanding voting securities of such Series on 60 days'
written notice to the Underwriter or by the Underwriter at any time, without the
payment of any penalty, on 60 days' written notice to the Fund or such Series.
Termination of this Agreement with respect to any given Series or class thereof
shall in no way affect the continued validity of this Agreement
-4-
<PAGE>
or the performance thereunder with respect to any other Series or class thereof.
This Agreement will automatically terminate in the event of its assignment.
18. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
19. Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of Connecticut and the 1940 Act. To the extent that
the applicable laws of the State of Connecticut conflict with the applicable
provisions of the 1940 Act, however, the latter shall control.
20. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
21. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: AELTUS CAPITAL, INC.
By: /s/ Arnold B. West By: /s/ John Y. Kim
------------------ -----------------
Secretary Name: John Y. Kim
Title: President
Attest: AETNA SERIES FUND, INC.
By: /s/ DeAnn S. Anastasio By: /s/ J. Scott Fox
----------------------- ------------------
DeAnn S. Anastasio Name: J. Scott Fox
Assistant Secretary Title: President
-5-
MASTER SELLING DEALER AGREEMENT
In accordance with this Agreement, Aeltus Capital, Inc. authorizes you
(_____________________________) to distribute shares of the series of Aetna
Series Fund, Inc. ("Fund") listed on Schedule A attached to this Agreement (the
"Portfolios"). We may periodically change the list of Portfolios by giving you
written notice of the change. We are the Portfolios' principal underwriter and,
as agent for the Portfolios, we offer to sell Portfolio shares to you on the
following terms:
1. Certain Defined Terms: As used in this Agreement, the term
"Prospectus" means the applicable prospectus and related statement of additional
information, whether in paper format or electronic format, included in the
Fund's then currently effective registration statement (or post-effective
amendment thereto), and any information that we or the Fund may issue to you as
a supplement to such prospectus or statement of additional information (a
"sticker"), all as filed with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act of 1933.
2. Purchases of Portfolio Shares for Sale to Customers: (a) In offering
and selling Portfolio shares to your customers, you agree to act as dealer for
your own account; you are not authorized to act as agent for us or for any
Portfolio, except as specified in paragraph 5(b) below.
(b) You agree to offer and sell Portfolio shares to your customers only
at the applicable public offering price in accordance with the Prospectus. If
your customer qualifies for a reduced sales charge pursuant to a special
purchase plan (for example, a quantity discount, right of accumulation or letter
of intent) as described in the Prospectus, you agree to offer and sell Portfolio
shares to your customer at the applicable reduced sales charge. You agree to
deliver or cause to be delivered to each customer, at or prior to the time of
any purchase of shares, a copy of the then current prospectus (including any
stickers thereto), unless you already have delivered a prospectus to the
customer, and to each customer who so requests, a copy of the then current
statement of additional information (including any stickers thereto).
(c) You agree to purchase Portfolio shares from us only to cover
purchase orders that you have already received from your customers, or for your
own investment. You also agree not to purchase any Portfolio shares from your
customers at a price lower than the applicable redemption price, determined in
the manner described in the Prospectus. You will not withhold placing customers'
orders so as to profit yourself as a result of such withholding (for example, by
a change in a Portfolio's net asset value from that used in determining the
offering price to your customers).
(d) We will accept your purchase orders only at the public offering
price applicable to each order, as determined in accordance with the Prospectus.
We will not accept from you a conditional order for Portfolio shares. All
purchase orders are subject to acceptance or rejection by us in our sole
discretion. We may, without notice, suspend
<PAGE>
sales or withdraw the offering of Portfolio shares, or make a limited offering
of Portfolio shares.
(e) The purchase or redemption price per share will be the next net
asset value ("NAV") per share of the relevant Portfolio computed after your
receipt of a customer order, adjusted for the applicable sales charge, if any.
Orders you receive before the close of regular trading on the New York Stock
Exchange (usually 4:00 p.m.) will be priced at that day's NAV. You agree to
transmit orders to us as promptly as possible after the close of trading, but in
no event later than 9:30 a.m. the next business day.
(f) The placing of orders with us will be governed by instructions that
we will periodically issue to you. We must receive your payment on or before the
settlement date established in accordance with Rule 15c6-1 under the Securities
Exchange Act of 1934 (the "1934 Act"). If we do not receive your payment on or
before such settlement date, we may, without notice, cancel the sale, or, at our
option, sell the shares that you ordered back to the issuing Portfolio, and we
may hold you responsible for any loss suffered by us or the issuing Portfolio as
a result of your failure to make payment as required.
(g) You agree to comply with all applicable state and federal laws and
with the rules and regulations of authorized regulatory agencies thereunder. You
agree to offer and sell Portfolio shares only in states where you may legally
offer and sell such Portfolio's shares. You will not offer shares of any
Portfolio for sale unless you have been notified that such shares are registered
for sale under the applicable state and federal laws and the rules and
regulations thereunder.
(h) Certificates evidencing Portfolio shares are not available; any
transaction in Portfolio shares will be effected and evidenced by book-entry on
the records maintained by First Data Investor Services Group, Inc. ("First
Data"). A confirmation statement evidencing transactions in Portfolio shares
will be transmitted to you.
3. Your Compensation: (a) Your concession, if any, on your sales of
Portfolio shares will be as provided in the Prospectus or in the applicable
schedule of concessions issued by us and in effect at the time of our sale to
you. Upon written notice to you, we or any Portfolio may change or discontinue
any schedule of concessions, or issue a new schedule.
(b) If the Fund has adopted a plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (a "Plan"), we may make distribution payments to
you under the Plan. If a Portfolio does not have a currently effective Plan, we
or Aeltus Investment Management, Inc. may make distribution payments or service
payments to you from our own funds. Any payments will be made in the amount and
manner set forth in the Prospectus or in the applicable schedule issued by us
and then in effect. Upon written notice to you, we or any Portfolio may change
or discontinue any schedule of distribution payments or service payments, or
issue a new schedule. A schedule of distribution
2
<PAGE>
payments will be in effect with respect to a Plan only so long as the Fund's
Plan remains in effect.
(c) After the effective date of any change in or discontinuance of any
schedule of concessions, distribution payments, or service payments, or the
termination of a Plan, any concessions, distribution payments, or service
payments will be allowable or payable to you only in accordance with such
change, discontinuance, or termination. You agree that you will have no claim
against us or any Portfolio by virtue of any such change, discontinuance, or
termination. In the event of any overpayment by us of any concession,
distribution payment, or service payment, you will remit such overpayment.
(d) If any Portfolio shares sold to you by us under the terms of this
Agreement are redeemed by the issuing Portfolio or tendered for redemption by
the customer within seven (7) business days after the date of the confirmation
of your original purchase order for such shares, you agree (i) to refund
promptly to us the full amount of any concession, distribution payment, or
service payment allowed or paid to you on such shares, and (ii) if not yet
allowed or paid to you, to forfeit the right to receive any concession,
distribution payment, or service payment allowable or payable to you on such
shares. We will notify you of any such redemption within ten (10) days after the
date of the redemption.
4. Certain Types of Accounts: (a) You may instruct First Data to
register purchased shares in your name and account as nominee for your
customers. If you hold Portfolio shares as nominee for your customers, all
Prospectuses, proxy statements, periodic reports, and other printed material
will be sent to you, and all confirmations and other communications to
shareholders will be transmitted to you. You will be responsible for forwarding
such printed material, confirmations, and communications, or the information
contained therein, to all customers for whose account you hold any Portfolio
shares as nominee. However, we will be responsible for the costs associated with
your forwarding such printed material, confirmations, and communications. You
will be responsible for complying with all reporting and tax withholding
requirements with respect to the customers for whose account you hold any
Portfolio shares as nominee.
(b) With respect to accounts other than those accounts referred to in
paragraph 4(a) above, you agree to provide us with all information (including
certification of taxpayer identification numbers and back-up withholding
instructions) necessary or appropriate for us to comply with legal and
regulatory reporting requirements.
(c) Accounts opened or maintained pursuant to any system of the
National Securities Clearing Corporation ("NSCC") will be governed by applicable
NSCC rules and procedures and any agreement or other arrangement with us
relating to such system.
(d) If you hold Portfolio shares in an omnibus account for two or more
customers, you will be responsible for determining, in accordance with the
Prospectus, whether, and the extent to which, a contingent deferred sales charge
("CDSC") is applicable when the
3
<PAGE>
purchaser of Portfolio shares sells such shares, and you agree to transmit
immediately to us any CDSC to which such purchase was subject. You hereby
represent that if you hold Portfolio shares subject to a CDSC, you have the
capability to track and account for such charge, and we reserve the right, at
our discretion, to verify that capability by inspecting your tracking and
accounting system or otherwise.
5. Status as Registered Broker/Dealer: (a) Each party to this Agreement
represents to the other party that (i) it is registered as a broker/dealer under
the 1934 Act, (ii) it is qualified to act as a broker/dealer in the states where
it transacts business, and (iii) it is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). Each party agrees to maintain
its broker/dealer registration and qualifications and its NASD membership in
good standing throughout the term of this Agreement. Each party agrees to abide
by all of the NASD's rules and regulations, including the NASD's Conduct Rules
- -- in particular, Section 2830 of such Rules, which section is deemed a part of
and is incorporated by reference in this Agreement. This Agreement will
terminate automatically without notice in the event that either party's NASD
membership is terminated.
(b) Nothing in this Agreement shall cause you to be our partner,
employee, or agent, or give you any authority to act for us or for any
Portfolio, except that you are deemed a Portfolio's agent for the limited
purpose of receiving orders for the purchase and sale of Portfolio shares.
Neither we nor any Portfolio shall be liable for any of your acts or obligations
as a dealer under this Agreement.
6. Information Relating to the Portfolios: (a) No person is authorized
to make any representations concerning shares of a Portfolio other than those
contained in the Fund's Prospectus. In buying Portfolio shares from us under
this Agreement, you will rely only on the representations contained in the
Prospectus. Upon your request, we will furnish you with a reasonable number of
copies of the Fund's current prospectus or statement of additional information
or both (including any stickers thereto).
(b) Any printed or electronic information that we furnish you (other
than the Prospectus and periodic reports) is our sole responsibility and not the
responsibility of the respective Portfolios. You agree that the Portfolios will
have no liability or responsibility to you with respect to any such printed or
electronic information. We or the respective Portfolio will bear the expense of
qualifying its shares under the state securities laws.
(c) You may not use any sales literature or advertising material
(including material disseminated through radio, television, or other electronic
media) concerning Portfolio shares, other than the printed or electronic
information referred to in paragraph 6(b) above, in connection with the offer or
sale of Portfolio shares without obtaining our prior written approval. Upon our
notifying you as such, you agree to discard immediately any outdated
prospectuses and advertising material. You may not distribute or make available
to investors any information that we furnish you marked "FOR INVESTMENT
4
<PAGE>
PROFESSIONAL USE ONLY" or that otherwise indicates that it is confidential or
not intended to be distributed to investors.
7. Indemnification: (a) We will indemnify and hold you harmless from
any claim, demand, loss, expense, or cause of action resulting from the
misconduct or negligence, as measured by industry standards, of us, our agents
and employees, in carrying out our obligations under this Agreement. Such
indemnification will survive the termination of this Agreement.
(b) You will indemnify and hold us harmless from any claim, demand,
loss, expense, or cause of action resulting from the misconduct or negligence,
as measured by industry standards, of you, your agents and employees, in
carrying out your obligations under this Agreement. Such indemnification will
survive the termination of this Agreement.
8. Customer Lists: We hereby agree that we shall not use any list of
your customers which may be obtained in connection with this Agreement for the
purpose of solicitation of any product or service without your express written
consent. However, nothing in this paragraph or otherwise shall be deemed to
prohibit or restrict us or our affiliates in any way from solicitations of any
product or service directed at, without limitation, the general public, any
segment thereof, or any specific individual, provided such solicitation is not
based upon such list.
9. Duration of Agreement: This Agreement, with respect to any Plan,
will continue in effect for one year from its effective date, and thereafter
will continue automatically for successive annual periods; provided, however,
that such continuance is subject to termination at any time without penalty if
the Plan is terminated in accordance with Rule 12b-1 under the Investment
Company Act of 1940 ("1940 Act"). This Agreement, other than with respect to a
Plan, will continue in effect from year to year after its effective date, unless
terminated as provided herein.
10. Amendment and Termination of Agreement: (a) We may amend any
provision of this Agreement by giving you written notice of the amendment.
Either party to this Agreement may terminate the Agreement without cause by
giving the other party at least thirty (30) days' written notice of its
intention to terminate. This Agreement will terminate automatically in the event
of its assignment (as defined in the 1940 Act), except that the Agreement may be
transferred to an affiliated broker/dealer of the undersigned upon our providing
you with written notice thereof.
(b) In the event that (i) an application for a protective decree under
the provisions of the Securities Investor Protection Act of 1970 is filed
against you; (ii) you file a petition in bankruptcy or a petition seeking
similar relief under any bankruptcy, insolvency, or similar law, or a proceeding
is commenced against you seeking such relief; or (iii) you are found by the SEC,
the NASD, or any other federal or state regulatory agency or authority to have
violated any applicable federal or state law, rule or regulation
5
<PAGE>
arising out of your activities as a broker/dealer or in connection with this
Agreement, this Agreement will terminate effective immediately upon our giving
notice of termination to you. You agree to notify us promptly and to immediately
suspend sales of Portfolio shares in the event of any such filing or violation,
or in the event that you cease to be a member in good standing of the NASD.
(c) Your or our failure to terminate this Agreement for a particular
cause will not constitute a waiver of the right to terminate this Agreement at a
later date for the same or another cause. The termination of this Agreement with
respect to any one Portfolio will not cause its termination with respect to any
other Portfolio.
11. Arbitration: In the event of a dispute, such dispute will be
settled by arbitration before arbitrators sitting in New York, New York in
accordance with the NASD's Code of Arbitration Procedure in effect at the time
of the dispute. The arbitrators will act by majority decision and their award
may allocate attorneys' fees and arbitration costs between us. Their award will
be final and binding between us, and such award may be entered as a judgment in
any court of competent jurisdiction.
12. Notices: All notices required or permitted to be given under this
Agreement shall be given in writing and delivered by personal delivery, by
postage prepaid mail, or by facsimile machine or a similar means of same day
delivery (with a confirming copy by mail). All notices to us shall be given or
sent to us at our offices located at ___________________________. All notices to
you shall be given or sent to you at the address specified by you below. Each of
us may change the address to which notices shall be sent by giving notice to the
other party in accordance with this paragraph 12.
13. Miscellaneous: This Agreement, as it may be amended from time to
time, shall become effective as of the date when it is accepted and dated below
by us. This Agreement is to be construed in accordance with the laws of the
State of Connecticut. This Agreement supersedes and cancels any prior agreement
between us, whether oral or written, relating to the sale of shares of the
Portfolios or any other subject covered by this Agreement. The captions in this
Agreement are included for convenience of reference only and in no way define or
limit any of the provisions of this Agreement or otherwise affect their
construction or effect.
Very truly yours,
Aeltus Capital, Inc.
6
<PAGE>
Please return two signed copies of this Agreement to Aeltus Capital, Inc. Upon
acceptance, one countersigned copy will be returned to you for your files.
Name of Firm
Address:
By
Authorized Officer
Name and Title (please print or type)
CRD#
ACCEPTED AND AGREED:
AELTUS CAPITAL, INC.
By
Dated:
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; and
WHEREAS, the Company has authorized the creation of new series, 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, and Aetna High Yield Fund (the "Series"), and has amended its
registration statement on Form N-1A to register shares of beneficial interest of
the Series with the Securities and Exchange Commission; and
WHEREAS, the Company desires to appoint Mellon as custodian of the
assets for the Series;
NOW THEREFORE, it is agreed as follows:
1. The Company, on behalf of the Series, hereby appoints Mellon, and
Mellon hereby accepts appointment, as the custodian of the assets of the Series,
in accordance with all the terms and conditions set forth in the Agreement.
2. The Company is entering into this Agreement incorporating the
Agreement on behalf of each Series individually and not jointly with any other
Series. In the Agreement, the term "Fund" shall refer to the Company solely on
behalf of each Series individually to which a particular Futures Contract
transaction or other obligation under the Agreement relates. The
responsibilities and benefits set forth in the Agreement shall refer to each
Series severally and not jointly. No individual Series shall have any
responsibility for any obligation arising out of a Futures Contract transaction
entered into by any other Series. Without otherwise limiting the generality of
the foregoing,
(a) any breach of the Agreement regarding the Company with respect to
any one Series shall not create a right or obligation with respect
to any other Series;
(b) under no circumstances shall Mellon have the right to set off
claims relating to a Series by applying property of any other
Series;
<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.
Aetna Series Fund, Inc. on behalf of
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
Mellon Bank, N.A. Aetna Index Plus Bond Fund
Aetna High Yield Fund
By: /s/ Christi R. Caperton By: /s/ Stephanie A. Taylor
----------------------- -----------------------
-----------------------
Name: Christi R. Caperton Name: Stephanie A. Taylor
--------------------- -------------------
Title: Vice President Title: Treasurer
-------------------- ---------
Date: 1/29/98 Date: 1/13/98
--------------------- -------
ADMINISTRATIVE SERVICES AGREEMENT
FOR AETNA SERIES FUND, INC.
THIS AGREEMENT is made by and between AETNA SERIES FUND, INC., a
Maryland Corporation (the "Fund"), on behalf of each of its series, Aetna Money
Market Fund, 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 Index Plus Large Cap Fund, Aetna Ascent Fund, Aetna
Crossroads Fund, Aetna Legacy Fund, 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
(the "Series"), and AELTUS INVESTMENT MANAGEMENT, INC., a Connecticut
corporation (the "Administrator"), with respect to the following recital of
facts:
R E C I T A L
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940 (the "1940 Act");
and
WHEREAS, the Administrator is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act"), and engages in the
business of acting as an investment adviser and an administrator of investment
companies; and
WHEREAS, the Fund has established the Series; and
WHEREAS, the Fund, on behalf of each of its Series, and the
Administrator desire to enter into an agreement to provide for administrative
services for the Series on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable considerations, the receipt of which is
hereby acknowledged, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADMINISTRATOR
The Administrator is hereby appointed to serve as the Administrator to
the Series, to provide the administrative services described herein and assume
the obligations set forth in Section II, subject to the terms of this Agreement
and the control of the Fund's Board of Directors (the "Board"). The
Administrator shall, for all purposes herein, be deemed an independent
contractor and shall have, unless otherwise expressly provided or authorized, no
authority to act for or represent the Series in any way or otherwise be deemed
an agent of the Series.
<PAGE>
II. DUTIES OF THE ADMINISTRATOR
In carrying out the terms of this Agreement, the Administrator shall:
A. provide office space, equipment and facilities (which may be the
Administrator's or its affiliates') for maintaining the Fund's organization, for
meetings of the Fund's Board and shareholders, and for performing administrative
services hereunder;
B. supervise and manage all aspects of the Series' operations (other
than investment advisory activities), supervise relations with, and monitor the
performance of, custodians, depositories, transfer and pricing agents,
accountants, attorneys, underwriters, brokers and dealers, insurers and other
persons in any capacity deemed to be necessary and desirable by the Board;
C. provide internal clerical and legal services, and stationery and
office supplies;
D. provide accounting services, including:
1. determining and arranging for the publication of the net asset
value of each Series;
2. preparing financial information for presentation to the Fund's
Board and management;
3. preparing and monitoring the Fund's annual expense budget, and
establishing daily accruals;
4. coordinating payment of fund expenses;
5. calculating periodic dividend rates to be declared in accordance
with management guidelines;
6. calculating total return information as defined in the current
prospectus and statement of additional information;
7. coordinating audit packages for use by independent public
accountants;
8. responding to regulatory audits;
E. provide non-investment related statistical and research data and
such other reports, evaluations and information as the Series may request from
time to time;
F. monitor each Series' compliance with the current prospectus and
statement of additional information, the 1940 Act, the Internal Revenue Code and
other applicable laws and regulations;
G. prepare, to the extent requested by the Fund, registration
statements, proxy statements and annual and semi-annual reports to shareholders;
-2-
<PAGE>
H. arrange for the printing and mailing (at the Series' expense) of
proxy statements and other reports or other materials provided to the Series'
shareholders;
I. support outside auditors in preparing and filing all the Series'
federal and state tax returns and required tax filings other than those required
to be made by the Series' custodian and transfer agent;
J. prepare periodic reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky authorities with the advice
of the Series' counsel;
K. maintain the Fund's existence, and during such times as the shares
of the Series are publicly offered, maintain the registration and qualification
of the Series' shares under federal and state law;
L. keep and maintain the financial accounts and records of the Series;
M. develop and implement, if appropriate, management and shareholder
services designed to enhance the value or convenience of the Series as an
investment vehicle;
N. provide the Board on a regular basis with reports and analyses of
the Series' operations and the operations of comparable investment companies;
and
O. take any other actions which appear to the Administrator and the
Board necessary to carry into effect the purposes of this Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator hereby represents and warrants to the Fund as
follows:
1. Due Incorporation and Organization. The Administrator is duly
organized and is in good standing under the laws of the State of Connecticut and
is fully authorized to enter into this Agreement and carry out its duties and
obligations hereunder.
2. Best Efforts. The Administrator at all times shall provide its best
judgment and effort to the Series in carrying out its obligations hereunder.
B. REPRESENTATIONS AND WARRANTIES OF THE SERIES AND THE FUND
The Fund, on behalf of each of its Series, hereby represents and
warrants to the Administrator as follows:
-3-
<PAGE>
1. Due Incorporation and Organization. The Fund has been duly
incorporated under the laws of the State of Maryland and it is authorized to
enter into this Agreement and carry out its terms.
2. Registration. The Fund is registered as an investment company with
the SEC under the 1940 Act and shares of the Series are registered or qualified
for offer and sale to the public under the Securities Act of 1933 (the "1933
Act"), and all applicable state securities laws. Such registrations or
qualifications will be kept in effect during the term of this Agreement.
IV. CONTROL BY THE BOARD OF DIRECTORS
Any activities undertaken by the Administrator pursuant to this
Agreement on behalf of the Series shall at all times be subject to any
directives of the Board.
V. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Administrator
shall at all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Fund under the
1933 Act and the 1940 Act;
C. the provisions of the Fund's Articles of Incorporation, as amended;
D. the provisions of the By-Laws of the Fund, as amended; and
E. any other applicable provisions of state and federal law.
VI. DELEGATION OF RESPONSIBILITIES
All services to be provided by the Administrator under this Agreement
may be furnished by any directors, officers or employees of the Administrator or
by any affiliates of the Administrator under the Administrator's supervision.
VII. COMPENSATION
For the services to be rendered, the facilities furnished and the
expenses assumed by the Administrator, the Fund, on behalf of each of its
Series, shall pay to the Administrator an annual fee at a rate of 0.10% of the
average daily net assets of each of its Series payable monthly (in arrears).
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of 0.10% of the daily net
assets of the Series. If this Agreement becomes
-4-
<PAGE>
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculation of the
fees as set forth above.
VIII. NON-EXCLUSIVITY
The services of the Administrator to the Series are not to be deemed to
be exclusive, and the Administrator shall be free to render administrative or
other services to others (including other investment companies) and to engage in
other activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and directors of the
Administrator may serve as officers or directors of the Fund, and that officers
or directors of the Fund may serve as officers or directors of the Administrator
to the extent permitted by law; and that the officers and directors of the
Administrator are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers, directors or trustees of any other firm or trust, including other
investment companies.
IX. TERM
This Agreement shall become effective on February 2, 1998, and shall
continue through December 31, 1998. Thereafter it shall continue for successive
annual periods, provided such continuance is specifically approved at least
annually:
1. a. by the Board, or
b. by the vote of a majority of the Series' outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act), and
2. by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this Agreement
(other than as a director of the Fund), by votes cast in person at a meeting
specifically called for such purpose.
X. TERMINATION
This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Fund's directors or by vote of a majority of the
Series' outstanding voting securities, as defined in Section 2(a)(42) of the
1940 Act, or by the Administrator, on sixty (60) days' written notice to the
other party.
XI. LIABILITY OF ADMINISTRATOR AND INDEMNIFICATION
A. LIABILITY
The Administrator shall be liable to the Fund and shall indemnify the
Fund for any losses incurred by the Fund, whether in the purchase, holding or
sale of any security or otherwise, to the
-5-
<PAGE>
extent that such losses resulted from an act or omission on the part of the
Administrator or its officers, directors or employees, that is found to involve
willful misfeasance, bad faith or negligence, or reckless disregard by the
Administrator of its duties under this Agreement, in connection with the
services rendered by the Administrator hereunder.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, negligence or
reckless disregard of obligations or duties hereunder on the part of the
Administrator or any officer, director or employee of the Administrator, to the
extent permitted by applicable law, the Fund hereby agrees to indemnify and hold
the Administrator harmless from and against all claims, actions, suits and
proceedings at law or in equity, whether brought or asserted by a private party
or a governmental agency, instrumentality or entity of any kind, relating to the
sale, purchase, pledge of, advertisement of, or solicitation of sales or
purchases of any security (whether of the Series or otherwise) by the Fund, its
officers, directors, employees or agents in alleged violation of applicable
federal, state or foreign laws, rules or regulations.
XII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Administrator for this
purpose shall be 242 Trumbull Street, Hartford, Connecticut 06103-1205, and the
address of the Fund for this purpose shall be 151 Farmington Avenue, Hartford,
Connecticut 06156.
XIII. QUESTIONS OF INTERPRETATIONS
This Agreement shall be governed by the laws of the State of
Connecticut. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1940 Act shall be resolved by reference to such term or provision of the
1940 Act and to interpretations thereof, if any, by the United States courts or,
in the absence of any controlling decision of any such court, by rules or orders
of the SEC issued pursuant to the 1940 Act, or contained in no-action and
interpretive positions taken by the SEC staff. In addition, where the effect of
a requirement of the 1940 Act reflected in the provisions of this Agreement is
revised by rule or order of the SEC, such provisions shall be deemed to
incorporate the effect of such rule or order.
XIV. SERVICE MARK
The service mark of the Fund and the Series and the name "Aetna" have
been adopted by the Fund with the permission of Aetna Services, Inc. (formerly
known as Aetna Life and Casualty Company) and their continued use is subject to
the right of Aetna Services, Inc. to withdraw this permission in the event the
Administrator or another subsidiary or affiliated corporation of Aetna Services,
Inc. should not be the Administrator of the Series.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the 30th day of
January, 1998.
AETNA SERIES FUND, INC.
on behalf of each of its Series,
Aetna Money Market Fund
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 Index Plus Large Cap Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
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
AELTUS INVESTMENT Aetna Real Estate Securities Fund
MANAGEMENT, INC. Aetna Value Opportunity Fund
By: /s/ John Y. Kim By: /s/ J. Scott Fox
--------------- ----------------
Name: John Y. Kim Name: J. Scott Fox
------------- ---------------
Title: President Title: President
------------ ---------------
Attest: Attest:
/s/ S. Harinstein /s/ DeAnn S. Anastasio
----------------------- ------------------------
Name: Susan Harinstein Name: DeAnn S. Anastasio
-------------------- ---------------------
Title: Assistant Secretary Title: Assistant Secretary
------------------- --------------------
-7-
[Aetna Letterhead] Aetna Inc.
[Aetna Logo] 151 Farmington Avenue
Hartford, CT 06156-3124
Amy R. Doberman
Counsel
Law Division, RE4A
April 24, 1998 Investments & Financial Services
(860) 273-1409
Fax: (860) 273-0356
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aetna Series Fund, Inc.
Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
(File No. 33-41694 and 811-6352
Dear Sir or Madam:
The undersigned serves as counsel to Aeltus Investment Management, Inc., 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.
<PAGE>
Page 2
April 24, 1998
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.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Amy R. Doberman
Amy R. Doberman
Counsel
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, Aeltus
Capital, 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 on May 1, 1998 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 each Series' Class A shares, and
2. by the vote of a majority of the Qualified Directors 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 shares of any
Series (a) by the vote of a majority of the outstanding voting securities of
Class A of the Series, or (b) by a vote of a majority of the Qualified
Directors. The Plan may remain in effect with respect to a Series even if the
Plan has been terminated in accordance with this Section 5 with respect to any
other Series.
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 2nd day of April, 1998.
AETNA SERIES FUND, INC.
on behalf of its CLASS A shares
By: /s/ J. Scott Fox
---------------------------
J. Scott Fox, President
<PAGE>
Appendix A
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna High Yield Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
DISTRIBUTION PLAN
Aetna Series Fund, Inc.
Class C
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 C
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 other than Index Plus Large Cap, Index Plus Mid
Cap, Index Plus Small Cap, and Index Plus Bond (collectively, the "Index Plus
Funds") will pay to the underwriter of its shares, Aeltus Capital, Inc. (the
"Underwriter"), a Connecticut corporation, a distribution fee under the Plan at
the annual rate of 0.75% of the average daily net assets of each Series
attributable to its Class C shares (the "Distribution Fee"). The Index Plus
Funds will pay to the Underwriter a Distribution Fee under the Plan at the
annual rate of 0.50% of the average daily net assets of each Series attributable
to its Class C shares.
Adjustment to Fees. The Distribution Fee may be reduced with respect to the
Class C 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 set forth in Appendix A with respect to its Class C 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.
<PAGE>
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 hereof, or (b) the Plan
is not renewed with respect to a Series or Class C 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 on July 1, 1998 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 each Series' Class C shares, and
2. by the vote of a majority of the Qualified Directors 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 C shares of any
Series (a) by the vote of a majority of the outstanding voting securities of
Class C of the Series, or (b) by a vote of a majority of the Qualified
Directors. The Plan may remain in effect with respect to a Series even if the
Plan has been terminated in accordance with this Section 5 with respect to any
other Series.
Section 6. Amendments.
The Plan may not be amended with respect to Class C 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
-2-
<PAGE>
voting securities of Class C of that Series. No material amendment to the Plan
may be made unless approved in the manner described in Section 3 above.
Section 7. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the 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 C Shares of each of its
Series, has executed this Plan as of this 2nd day of April, 1998.
AETNA SERIES FUND, INC.
on behalf of its CLASS C shares
By: /s/ J. Scott Fox
---------------------------
J. Scott Fox, President
-3-
<PAGE>
Appendix A
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna High Yield Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
SHAREHOLDER SERVICES PLAN
Aetna Series Fund, Inc.
Class C
This Shareholder Services Plan (the "Plan") is adopted by AETNA SERIES FUND,
INC. (the "Fund"), a Maryland corporation, on behalf of the Class C shares of
each of its Series (except Aetna Money Market Fund) as set forth in Appendix A
("Series"), as amended from time to time, subject to the following terms and
conditions:
Section 1. Annual Fees.
Service Fee. The Series will pay to the underwriter of its shares, Aeltus
Capital, Inc. (the "Underwriter"), a Connecticut corporation, a service fee
under the Plan at the annual rate of 0.25% of the average daily net assets of
the Series attributable to Class C shares (the "Service Fee").
Adjustment to Fees. The Service Fee may be reduced if approved by the
Underwriter and the Board of Directors of the Fund (the "Board") in the manner
specified in Section 3 of this Plan.
Payment of Fees. The Service Fee will be calculated daily and paid monthly by
the Series.
Section 2. Expenses Covered by the Plan.
The Service Fee may be used by the Underwriter primarily to pay selling dealers
and their agents for servicing shareholder accounts, including a continuing fee
which shall begin to accrue immediately after the sale of such shares.
The amount of the Service Fee is not related directly to expenses incurred by
the Underwriter, and this Section 2 does not obligate the Series to reimburse
the Underwriter for such expenses. The Service Fee will be paid by the Series to
the Underwriter unless and until (a) the Plan is terminated in accordance with
Section 5 hereof; or (b) the Plan is not renewed with respect to the Series or
Class C pursuant to Section 4 hereof. Any service expenses in excess of the
Service Fee which the Underwriter has incurred on behalf of a Series and accrued
through the termination date are the sole responsibility and liability of the
Underwriter and are not an obligation of the 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
<PAGE>
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 on July 1, 1998 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 the a majority of the members of the Board, or (b) by vote of
a majority of each Series' Class C shares; and
2. by vote of a majority of the Qualified Directors 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 C of the Series,
without the payment of any penalty, (a) by the vote of a majority of the
outstanding voting securities of Class C of the Series, or (b) by a vote of a
majority of the Qualified Directors.
Section 6. Amendments.
The Plan may not be amended with respect to Class C of the Series so as to
increase materially the amounts of the Service Fee described in Section 1 above
unless the amendment is approved by a vote of the holders of at least a majority
of the outstanding voting securities of Class C of the Series. No material
amendment to the Plan may be made unless approved in the manner described in
Section 3 above.
Section 7. Written Reports.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by the Series pursuant to the
Plan, or any related agreement, will prepare and furnish to the Board, and the
Board shall review, at least quarterly, written reports setting out the amounts
expended under the Plan and the purposes for which those expenditures were made.
Section 8. 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.
2
<PAGE>
Section 9. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the Fund, on behalf of the Class C Shares of each of its
Series, has executed this Plan as of this 2nd day of April, 1998.
AETNA SERIES FUND, INC.
on behalf of the Class C Shares
of each of its Series
By: /s/ J. Scott Fox
---------------------------
J. Scott Fox, President
3
<PAGE>
APPENDIX A
Aetna Government Fund
Aetna Bond Fund
Aetna High Yield Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna Real Estate Securities Fund
Aetna Value Opportunity Fund
Aetna Growth Fund
Aetna Mid Cap Fund
Aetna Small Company Fund
Aetna International Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Index Plus Bond Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
4
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:
<TABLE>
<CAPTION>
<S> <C>
Aetna Money Market Fund Aetna Mid Cap Fund
Aetna Government Fund Aetna Growth and Income Fund
Aetna Bond Fund Aetna Growth Fund
Aetna High Yield Fund Aetna Small Company Fund
Aetna Balanced Fund Aetna International Fund
Aetna Ascent Fund Aetna Index Plus Large Cap Fund
Aetna Crossroads Fund Aetna Index Plus Small Cap Fund
Aetna Legacy Fund Aetna Index Plus Mid Cap Fund
Aetna Value Opportunity Fund Aetna Index Plus Bond Fund
Aetna Real Estate Securities Fund
</TABLE>
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 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."
<PAGE>
1. Class Designations:
The shares are divided into three classes: Class I, Class C, and Class A.
Class I shares are shares that are offered to:
o certain corporate retirement plans;
o certain registered investment advisers having an agreement with the Funds
to invest a minimum of $1 million within one year of initial purchase;
o employees and retired employees of Aetna, Inc. and its affiliates
(including members of employees' and retired persons' immediate families,
board members and trustees, and their immediate families);
o insurance companies (including separate accounts);
o registered investment companies;
o 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;
o bank and independent trust companies investing on behalf of their clients
for which they charge trust and investment management fees;
o members of the Board of Directors of the Fund ("Board");
o NASD registered representatives of Aeltus Capital or any affiliated
broker-dealers (including members of their immediate families); and
o members of such other groups as may be approved by the Fund's Board from
time to time.
Class A and Class C 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 C shares of each Series, except Aetna Money Market Fund, are
subject to a distribution fee based on the average daily net assets attributable
to Class C shares. This fee is imposed pursuant to a Distribution Plan adopted
under Rule 12b-1 under the 1940 Act, in the amount of 0.75%, except for the
Enhanced Index Funds, which are subject to a distribution fee in the amount of
0.50%.
Class C shares of each Series, except Aetna Money Market Fund, are
subject to a service fee based on the average daily net assets attributable to
Class C shares in the amount of 0.25%.
Class C shares of each Series are subject to the imposition of a
contingent deferred sales charge (CDSC) on redemptions made within eighteen
months of purchase. The Equity
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<PAGE>
Funds and Fixed Income Funds impose a CDSC of 1.00%, and the Enhanced Index
Funds impose a deferred sales charges of 0.75%. 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 increases in the
net asset value of shares above the initial purchase price. There is no CDSC on
redemptions of Class C shares purchased through reinvestment of dividends or
capital gains distributions or shares purchased more than eighteen months prior
to the redemption. In addition, there is no CDSC on Aetna Money Market Fund
(Class C) redemptions unless (i) those shares were purchased through an exchange
from another Series within eighteen months prior to the redemption and (ii) the
original purchase of the shares exchanged was subject to a CDSC.
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 any fund for
which Aeltus Investment Management, Inc. acts as investment adviser), 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 of each Series, except Aetna Money Market Fund, 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%.
Class A shares are not subject to a service fee.
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 (including purchases made in connection with
an agreement to invest $1 million or more under a Letter of Intent), may be
subject to a CDSC imposed on redemptions within two years of purchase. The CDSC
will apply only to shares for which a finder's fee is paid to selling
broker-dealers, banks or other investment professionals having a distribution
agreement with the Fund. The charge is assessed on an amount equal to the lesser
of the current market value or the original cost of the shares being redeemed.
Thus, there is no sales charge on increases
3
<PAGE>
in the net asset value of shares above the initial purchase price. There is no
CDSC on redemptions of Class A shares purchased through reinvestment of
dividends or capital gains distributions or shares purchased more than two years
prior to the redemption. In addition, there is no CDSC on Aetna Money Market
Fund (Class A) redemptions unless (i) those shares were purchased through an
exchange from another Series within two years prior to the redemption and (ii)
the original purchase of the shares exchanged was subject to a CDSC.
A CDSC in the amount shown below will be imposed within the first year
or second year after purchase on redemptions of such shares. In determining the
number of years the shares have been held, the Fund will aggregate all purchases
of Class A shares made during a month and consider them made on the first day of
the month. The finders fee payable with respect to such Class A purchases shall
be as follows:
<TABLE>
<CAPTION>
Cumulative Purchase Amount($) Commission CDSC
----------------------------- ---------- ----
<S> <C> <C>
1,000,000 but under 3,000,000 1.00% Year 1 - 1.00%
Year 2 - 0.50%
3,000,000 but under 20,000,000 0.50% Year 1 - 0.50%
Year 2 - 0.50%
20,000,000 or greater 0.25% Year 1 - 0.25%
Year 2 - 0.25%
</TABLE>
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 a
particular class.
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
<PAGE>
4. Exchange Privileges:
Each class of shares may be exchanged for shares of the same class in
another Series of the Fund. 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.
5
