As filed with the Securities and Exchange File No. 33-41694
Commission on June 29, 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. 26
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
AETNA SERIES FUND, INC.
-----------------------
242 Trumbull Street ALT5, Hartford, Connecticut 06103-1205
----------------------------------------------------------
(860) 275-2032
Amy R. Doberman, Counsel
Aeltus Investment Management, Inc.
242 Trumbull Street ALT5, Hartford, Connecticut 06103-1205
----------------------------------------------------------
(Name and Address of Agent for Service)
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:
X on June 30, 1998 pursuant to paragraph (b)
--------
<PAGE>
Aetna Series Fund, Inc.
Cross-Reference Sheet
<TABLE>
<CAPTION>
CAPTION IN CLASS A AND
FORM N-1A PART A CLASS C PROSPECTUS
ITEM NO.
<S> <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
Shareholder Services and Other
Features
Cross Investing
8. Redemption or Repurchase ................................ Fees and Charges
How to Redeem Shares
Shareholder Services and Other
Features
9. Pending Legal Proceedings ............................... Not applicable
</TABLE>
<PAGE>
Aetna Series Fund, Inc.
Cross-Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A
ITEM NO. PART A CAPTION IN CLASS I
PROSPECTUS
<S> <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
Shareholder Services and Other
Features
Cross Investing
8. Redemption or Repurchase ................................ How to Redeem Shares
Shareholder Services and Other
Features
9. Pending Legal Proceedings ............................... Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-1A CAPTION IN STATEMENT OF
ITEM NO. PART B ADDITIONAL INFORMATION
<S> <C>
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 Shareholder
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>
PART A
The Class I Prospectus is incorporated into Part A of this Post-Effective
Amendment No. 26 by reference to the Fund's filings under Rules 497(c) and
497(e) under the Securities Act of 1933, as filed electronically on February
3, 1998 (Accession No. 0000950146-98-000143) and on June 4, 1998 (Accession No.
0000950146-98-000972), respectively.
<PAGE>
Class A and Class C Shares
Aetna
[Aetna logo] June 30, 1998 Mutual Funds
Prospectus
- --------------------------------------------------------------------------------
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 June 30, 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
- --------------------------------------------------------------------------------
Capital Appreciation Funds
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 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 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 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.
Growth & Income Funds
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).
<PAGE>
Income Funds
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 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 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).
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.
Index Plus Funds
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 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.
Generation Funds
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 Aetna Mutual Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Highlights ...................................... 4
Fee Tables ...................................... 6
Financial Highlights ............................ 12
Description of the Fund ......................... 18
Risk Factors and Other Considerations ........... 24
Concentration ................................... 27
Performance ..................................... 27
Net Asset Value ................................. 28
How to Open an Account .......................... 28
How to Purchase Shares .......................... 29
Fees and Charges ................................ 33
How to Redeem Shares ............................ 34
Shareholder Services and Other Features ......... 35
Cross Investing ................................. 36
Management ...................................... 36
Portfolio Management ............................ 38
Distributions ................................... 40
Taxes ........................................... 40
General Information ............................. 41
</TABLE>
Aetna Mutual Funds Prospectus 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."
Capital Appreciation Funds
[filled box] Aetna Growth Fund (Growth)
[filled box] Aetna International Fund (International)
[filled box] Aetna Mid Cap Fund (Mid Cap)
[filled box] Aetna Small Company Fund (Small Company)
[filled box] Aetna Value Opportunity Fund (Value Opportunity)
Growth & Income Funds
[filled box] Aetna Balanced Fund (Balanced)
[filled box] Aetna Growth and Income Fund (Growth and Income)
[filled box] Aetna Real Estate Securities Fund (Real Estate)
Income Funds
[filled box] Aetna Bond Fund (Bond Fund)
[filled box] Aetna Government Fund
[filled box] Aetna High Yield Fund (High Yield)
[filled box] Aetna Money Market Fund (Money Market)
Index Plus Funds
[filled box] Aetna Index Plus Bond Fund (Index Plus Bond)
[filled box] Aetna Index Plus Large Cap Fund (Index Plus Large Cap)
[filled box] Aetna Index Plus Mid Cap Fund (Index Plus Mid Cap)
[filled box] Aetna Index Plus Small Cap Fund (Index Plus Small Cap)
Generation Funds
[filled box] Aetna Ascent Fund (Ascent Fund)
[filled box] Aetna Crossroads Fund (Crossroads Fund)
[filled box] 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 A and Class C shares are
shares that are offered to accounts not eligible to buy Class I shares. 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-dealer (including members of their
immediate families); and of such other groups as may be approved by the Fund's
Board from time to time.
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."
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.
4 Aetna Mutual Funds Prospectus
<PAGE>
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, you would like to initiate a transaction, or you would like to receive
an additional prospectus, application or information about the Fund.
Aetna Mutual Funds Prospectus 5
<PAGE>
- --------------------------------------------------------------------------------
Fee Tables
- --------------------------------------------------------------------------------
The following is provided to assist you in understanding the various charges
and expenses that you would bear directly or indirectly as a shareholder. For a
complete description of these charges and expenses, see "Fees and Charges."
- --------------------------------------------------------------------------------
Class A
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Maximum Deferred Sales Charge
Sales Charge on (CDSC) on
Purchases (as a Redemptions (as a Sales Charge
percentage of percentage of gross on Dividend
purchase price) redemption proceeds)(1) Reinvestment Exchange Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth 5.75% None None None
International 5.75% None None None
Mid Cap 5.75% None None None
Small Company 5.75% None None None
Value Opportunity 5.75% None None None
Balanced 5.75% None None None
Growth and Income 5.75% None None None
Real Estate 5.75% None None None
Bond Fund 4.75% None None None
Aetna Government Fund 4.75% None None None
High Yield 4.75% None None None
Money Market None None None None
Index Plus Bond 3.00% 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
Ascent Fund 5.75% None None None
Crossroads Fund 5.75% None None None
Legacy Fund 5.75% None None None
</TABLE>
(1)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."
Class C
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
Maximum Deferred Sales Charge
Sales Charge on (CDSC) on
Purchases (as a Redemptions (as a Sales Charge
percentage of percentage of gross on Dividend
purchase price) redemption proceeds)(1) Reinvestment Exchange Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth None 1.00% None None
International None 1.00% None None
Mid Cap None 1.00% None None
Small Company None 1.00% None None
Value Opportunity None 1.00% None None
Balanced None 1.00% None None
Growth and Income None 1.00% None None
Real Estate None 1.00% None None
Bond Fund None 1.00% None None
Aetna Government Fund None 1.00% None None
High Yield None 1.00% None None
Money Market None None None None
Index Plus Bond None 0.75% None None
Index Plus Large Cap None 0.75% None None
Index Plus Mid Cap None 0.75% None None
Index Plus Small Cap None 0.75% None None
Ascent Fund None 1.00% None None
Crossroads Fund None 1.00% None None
Legacy Fund None 1.00% None None
</TABLE>
(1)Direct purchases into Money Market will not be subject to a CDSC. See "How to
Purchase Shares."
- --------------------------------------------------------------------------------
6 Aetna Mutual Funds Prospectus
<PAGE>
Class A
Annual Operating Expenses(1)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Total Operating
Management Administrative Other Expenses Expenses (after fee
Fee (after fee Fee (after fee (after expense waiver/expense
waiver)(1) waiver)(1) 12b-1 Fee reimbursement)(1) reimbursement)(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth 0.70% 0.10% 0.25% 0.22% 1.27%
International 0.63% 0.10% 0.25% 0.62% 1.60%
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%
Value Opportunity(2) 0.60% 0.10% 0.25% 0.40% 1.35%
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%
Bond Fund 0.26% 0.10% 0.25% 0.39% 1.00%
Aetna Government Fund -- -- 0.25% 0.70% 0.95%
High Yield(2) 0.45% 0.10% 0.25% 0.40% 1.20%
Money Market 0.24% 0.10% -- 0.16% 0.50%
Index Plus Bond(2) 0.10% 0.10% 0.25% 0.40% 0.85%
Index Plus Large Cap -- -- 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%
Ascent Fund 0.54% 0.10% 0.25% 0.56% 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 Growth, Balanced and Growth and Income. These arrangements limit
the Total Operating Expenses to the amounts shown above. Without these
arrangements, Annual Operating Expenses would have been as follows:
Class A
Annual Operating Expenses
(before fee waiver/expense reimbursement)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Management Fee Administrative Fee 12b-1 Fee Other Expenses Total Operating Expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International 0.85% 0.10% 0.25% 0.62% 1.82%
Mid Cap 0.75% 0.10% 0.25% 0.40% 1.50%
Small Company 0.85% 0.10% 0.25% 0.48% 1.68%
Value Opportunity 0.70% 0.10% 0.25% 0.40% 1.45%
Real Estate 0.80% 0.10% 0.25% 2.89% 4.04%
Bond Fund 0.50% 0.10% 0.25% 0.39% 1.24%
Aetna Government Fund 0.50% 0.10% 0.25% 0.95% 1.80%
High Yield 0.65% 0.10% 0.25% 0.40% 1.40%
Money Market 0.40% 0.10% -- 0.16% 0.66%
Index Plus Bond 0.35% 0.10% 0.25% 0.40% 1.10%
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%
Ascent Fund 0.80% 0.10% 0.25% 0.56% 1.71%
Crossroads Fund 0.80% 0.10% 0.25% 0.61% 1.76%
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 in February, 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.
- --------------------------------------------------------------------------------
Aetna Mutual Funds Prospectus 7
<PAGE>
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>
Growth $70 $ 95 $123 $202
International 73 105 140 237
Mid Cap 71 99 130 216
Small Company 72 102 135 226
Value Opportunity 70 98 127 211
Balanced 70 98 127 209
Growth and Income 68 90 115 184
Real Estate 72 104 137 231
Bond Fund 57 78 100 164
Aetna Government Fund 57 76 98 159
High Yield 59 84 110 186
Money Market 5 16 28 63
Index Plus Bond 38 56 76 132
Index Plus Large Cap 39 59 81 143
Index Plus Mid Cap 40 61 84 149
Index Plus Small Cap 40 61 84 149
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 1-800-367-7732.
8 Aetna Mutual Funds Prospectus
<PAGE>
Class C
Annual Operating Expenses(1)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Total Operating
Management Administrative Other Expenses Expenses (after fee
Fee (after fee Fee (after fee (after expense waiver/expense
waiver)(1) waiver)(1) 12b-1 Fee reimbursement)(1) reimbursement)(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth 0.70% 0.10% 0.75% 0.47% 2.02%
International 0.63% 0.10% 0.75% 0.87% 2.35%
Mid Cap(2) 0.65% 0.10% 0.75% 0.65% 2.15%
Small Company 0.67% 0.10% 0.75% 0.73% 2.25%
Value Opportunity(2) 0.60% 0.10% 0.75% 0.65% 2.10%
Balanced 0.80% 0.10% 0.75% 0.44% 2.09%
Growth and Income 0.63% 0.10% 0.75% 0.37% 1.85%
Real Estate(2) 0.80% 0.10% 0.75% 0.65% 2.30%
Bond Fund 0.26% 0.10% 0.75% 0.64% 1.75%
Aetna Government Fund -- -- 0.75% 0.95% 1.70%
High Yield(2) 0.45% 0.10% 0.75% 0.65% 1.95%
Money Market 0.24% 0.10% -- 0.16% 0.50%
Index Plus Bond(2) 0.10% 0.10% 0.50% 0.65% 1.35%
Index Plus Large Cap -- -- 0.50% 0.95% 1.45%
Index Plus Mid Cap(2) 0.25% 0.10% 0.50% 0.65% 1.50%
Index Plus Small Cap(2) 0.25% 0.10% 0.50% 0.65% 1.50%
Ascent Fund 0.54% 0.10% 0.75% 0.81% 2.20%
Crossroads Fund 0.49% 0.10% 0.75% 0.86% 2.20%
Legacy Fund 0.40% 0.10% 0.75% 0.95% 2.20%
</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 expenses incurred by Class A (formerly
Adviser Class) shareholders for the year ended October 31, 1997 adjusted for
differences in Class C expenses, and changes in certain contractual
arrangements. Class C shareholders (except for Money Market shareholders) are
charged a higher Distribution Fee (12b-1 Fee) and are charged a Shareholder
Services Fee (included in Other Expenses) of 0.25%. Additionally, the expenses
shown above reflect the most current fee waiver/expenses reimbursement
arrangements currently in effect for all Series except Growth, Balanced and
Growth and Income. These arrangements limit the Total Operating Expenses to the
amounts shown above. Without these arrangements, Annual Operating Expenses
would have been as follows:
Class C
Annual Operating Expenses
(before fee waiver/expense reimbursement)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Management Fee Administrative Fee 12b-1 Fee Other Expenses Total Operating Expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
International 0.85% 0.10% 0.75% 0.87% 2.57%
Mid Cap 0.75% 0.10% 0.75% 0.65% 2.25%
Small Company 0.85% 0.10% 0.75% 0.73% 2.43%
Value Opportunity 0.70% 0.10% 0.75% 0.65% 2.20%
Real Estate 0.80% 0.10% 0.75% 3.14% 4.79%
Bond Fund 0.50% 0.10% 0.75% 0.64% 1.99%
Aetna Government Fund 0.50% 0.10% 0.75% 1.20% 2.55%
High Yield 0.65% 0.10% 0.75% 0.65% 2.15%
Money Market 0.40% 0.10% -- 0.16% 0.66%
Index Plus Bond 0.35% 0.10% 0.50% 0.65% 1.60%
Index Plus Large Cap 0.45% 0.10% 0.50% 1.50% 2.55%
Index Plus Mid Cap 0.45% 0.10% 0.50% 0.65% 1.70%
Index Plus Small Cap 0.45% 0.10% 0.50% 0.65% 1.70%
Ascent Fund 0.80% 0.10% 0.75% 0.81% 2.46%
Crossroads Fund 0.80% 0.10% 0.75% 0.86% 2.51%
Legacy Fund 0.80% 0.10% 0.75% 0.95% 2.60%
</TABLE>
(2)High Yield, Real Estate, Value Opportunity, Mid Cap, Index Plus Mid Cap,
Index Plus Small Cap and Index Plus Bond commenced operations in February, 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.
- --------------------------------------------------------------------------------
Aetna Mutual Funds Prospectus 9
<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>
Growth $31 $63 $109 $235
International 34 73 126 269
Mid Cap 32 67 115 248
Small Company 33 70 120 258
Value Opportunity 31 66 113 243
Balanced 31 65 112 242
Growth and Income 29 58 100 217
Real Estate 33 72 123 264
Bond Fund 28 55 95 206
Aetna Government Fund 27 54 92 201
High Yield 30 61 105 227
Money Market 5 16 28 63
Index Plus Bond 21 43 74 162
Index Plus Large Cap 22 46 79 174
Index Plus Mid Cap 23 47 82 179
Index Plus Small Cap 23 47 82 179
Ascent Fund 32 69 118 253
Crossroads Fund 32 69 118 253
Legacy Fund 32 69 118 253
</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 1-800-367-7732.
10 Aetna Mutual Funds Prospectus
<PAGE>
[This page intentionally left blank]
Aetna Mutual Funds Prospectus 11
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
(for one outstanding share throughout each period)
The selected data presented below for, and as of the end of, each of the
periods presented are derived from the financial statements of Aetna Series
Fund, Inc., which financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. 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 Annual Reports and the Independent Auditors' Reports
thereon 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 in February,
1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Class A Shares (formerly Adviser Class Shares)
Growth
------------------------------------------------------------------------
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 $ 14.17 $ 13.63 $ 10.74 $ 10.26
------- ------- ------- ---------
Income From Investment
Operations:
Net investment income (0.11) (0.08) (0.06) (0.02)
Net realized and change in unrealized
gain (loss) 3.84 2.38 3.00 0.50
-------- -------- ------- ---------
Total from investment operations 3.73 2.30 2.94 0.48
-------- -------- ------- ---------
Less Distributions:
From net investment income -- -- (0.05) --
In excess of net investment income -- -- -- --
From net realized gains on investments (1.14) (1.76) -- --
-------- -------- ------- ---------
Total distributions (1.14) (1.76) (0.05) --
-------- -------- ------- ---------
Net asset value, end of period $ 16.76 $ 14.17 $ 13.63 $ 10.74
======== ======== ======= =========
Total Return (does not reflect applicable
sales charges) 28.05% 18.97% 27.92% 4.58%
Net assets, end of period (000's) $ 8,647 $ 4,615 $ 1,727 $ 417
Ratio of total expenses to average net
assets 1.92% 2.03% 2.03% 1.72%(1)
Ratio of net investment income to
average net assets (0.67)% (0.59)% (0.47)% (0.25)%(1)
Ratio of net expense before
reimbursement and waiver to average
net assets 1.92% 2.03% 2.14% 2.17%(1)
Ratio of net investment income before
reimbursement and waiver to average
net assets (0.67)% (0.59)% (0.58)% (0.71)%(1)
Portfolio turnover rate 141.07% 144.19% 171.75% 120.32%
Average commission rate paid per share
on purchases of equity securities $0.0605 $0.0598 -- --
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
12 Aetna Mutual Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International
- ----------------------------------------------------------------
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>
$ 11.77 $ 10.59 $ 11.51 $ 11.24
------- ------- ------- -------
(0.07) (0.05) 0.03 0.01
2.88 1.57 (0.20) 0.26
--------- -------- ------- -------
2.81 1.52 (0.17) 0.27
--------- -------- ------- -------
(0.12) (0.08) (0.27) --
-- -- -- --
(0.89) (0.26) (0.48) --
--------- -------- ------- -------
(1.01) (0.34) (0.75) --
--------- -------- ------- -------
$ 13.57 $ 11.77 $ 10.59 $ 11.51
========= ======== ======= =======
25.07% 14.67% (0.81)% 2.40%
$19,063 $22,893 $26,464 $26,647
2.47% 2.94% 2.12% 2.27%(1)
(0.57)% (0.42)% 0.27% 0.17%(1)
2.47% 2.94% 2.25% 2.41%(1)
(0.57)% (0.42)% 0.14% 0.02%(1)
194.41% 135.92% 32.91% 81.67%
$0.0115 $0.0178 -- --
<CAPTION>
Small Company
- -----------------------------------------------------------------
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>
$ 14.42 $ 13.39 $ 10.35 $ 10.24
------- ------- -------- ----------
(0.16) ( 0.18) (0.11) (0.04)
4.36 2.62 3.15 0.15
-------- -------- -------- ----------
4.20 2.44 3.04 0.11
-------- -------- -------- ----------
-- -- -- --
-- -- -- --
(3.42) ( 1.41) -- --
-------- -------- -------- ----------
(3.42) ( 1.41) -- --
-------- -------- -------- ----------
$ 15.20 $ 14.42 $ 13.39 $ 10.35
======== ======== ======== ==========
36.73% 19.02% 29.44% 0.98%
$ 7,077 $ 3,884 $ 1,285 $ 205
2.33% 2.20% 2.23% 1.78%(1)
(1.17)% (1.26)% (0.89)% (0.72)%(1)
2.33% 2.20% 2.30% 2.14%(1)
(1.17)% (1.26)% (0.97)% (1.07)%(1)
150.43% 163.21% 156.43% 116.28%
$0.0575 $0.0575 -- --
</TABLE>
Aetna Mutual Funds Prospectus 13
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Class A Shares (formerly Adviser Class 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, 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 Aetna Mutual Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Growth and Income 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>
$ 15.69 $ 13.43 $ 11.08 $10.75 $10.09 $10.27 $ 9.58 $ 9.92
------- ------- ------- -------- ------- ------- ------- --------
0.03 0.08 0.12 0.11 0.54 0.62 0.56 0.28
4.99 3.08 2.31 0.30 0.13 (0.20) 0.66 (0.35)
------- ------- ------- -------- ------- -------- ------- --------
5.02 3.16 2.43 0.41 0.67 0.42 1.22 (0.07)
------- ------- ------- -------- ------- -------- ------- --------
(0.10) (0.14) (0.08) (0.08) (0.54) (0.60) (0.53) (0.27)
-- -- -- -- -- -- -- --
(2.60) (0.76) -- -- -- -- -- --
--------- --------- -------- -------- -------- -------- ------- --------
(2.70) (0.90) (0.08) (0.08) (0.54) (0.60) (0.53) (0.27)
--------- --------- -------- -------- -------- -------- ------- --------
$18.01 $ 15.69 $ 13.43 $11.08 $10.22 $10.09 $10.27 $ 9.58
========= ========= ======== ======== ======== ======== ======= ========
36.49% 24.70% 21.90% 3.71% 6.89% 4.27% 13.28% (0.68)%
$15,955 $ 6,638 $ 2,217 $5,740 $1,006 $ 877 $7,340 $25,405
1.75% 1.83% 1.84% 2.32%(1) 1.50% 1.50% 1.50% 1.49%(1)
0.18% 0.55% 1.14% 1.74%(1) 5.32% 5.47% 5.91% 5.36%(1)
1.75% 1.83% 1.84% 2.42%(1) 1.89% 1.91% 1.82% 1.81%(1)
0.18% 0.55% 1.14% 1.65%(1) 4.93% 5.06% 5.60% 5.04%(1)
157.92% 106.09% 127.43% 54.13% 48.56% 42.33% 56.99% 51.80%
$0.0474 $0.0505 -- -- -- -- -- --
</TABLE>
Aetna Mutual Funds Prospectus 15
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Class A Shares (formerly Adviser Class Shares)
Aetna Government Fund
---------------------------------------------------------------------
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 $ 9.79 $10.00 $ 9.41 $ 9.67
------- ------- ------- --------
Income From Investment
Operations:
Net investment income 0.51 0.48 0.60 0.24
Net realized and change in unrealized
gain (loss) 0.21 (0.13) 0.56 (0.24)
------- -------- ------- --------
Total from investment operations 0.72 0.35 1.16 0.00
------- -------- ------- --------
Less Distributions:
From net investment income (0.52) (0.56) (0.57) (0.26)
In excess of net investment income -- -- -- --
From net realized gains on investments -- -- -- --
-------- -------- -------- --------
Total distributions (0.52) (0.56) (0.57) (0.26)
-------- -------- -------- --------
Net asset value, end of period $ 9.99 $ 9.79 $ 10.00 $ 9.41
======== ======== ======== ========
Total Return (does not reflect applicable
sales charges) 7.67% 3.75% 12.60% (0.06)%
Net assets, end of period (000's) $ 531 $ 526 $ 405 $ 151
Ratio of total expenses to average net
assets 1.45% 1.45% 1.51% 1.28%(1)
Ratio of net investment income to
average net assets 5.16% 4.96% 6.02% 4.68%(1)
Ratio of net expense before
reimbursement and waiver to average
net assets 2.45% 2.32% 2.11% 2.11%(1)
Ratio of net investment income before
reimbursement and waiver to average
net assets 4.16% 4.09% 5.42% 3.85%(1)
Portfolio turnover rate 147.78% 50.48% 117.31% 43.63%
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.
16 Aetna Mutual Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
$ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- --------
0.05 0.05 0.06 0.03
-- -- -- --
-------- -------- ------- ---------
0.05 0.05 0.06 0.03
-------- -------- ------- ---------
(0.05) (0.05) (0.06) (0.03)
-- -- -- --
-- -- -- --
-------- -------- ------- ---------
(0.05) (0.05) (0.06) (0.03)
-------- -------- ------- ---------
$ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= =========
5.49% 5.44% 5.95% 2.41%
$156,530 $119,849 $78,726 $47,350
0.37% 0.30% 0.26% 0.21%(1)
5.31% 5.30% 5.79% 4.27%(1)
0.91% 0.93% 0.87% 0.92%(1)
4.77% 4.67% 5.19% 3.67%(1)
-- -- -- --
-- -- -- --
<CAPTION>
Index Plus Crossroads
Large Cap Ascent Fund Fund Legacy Fund
- ----------------- --------------- --------------- ----------------
Period from Period from Period from Period from
Feb. 3, 1997 Jan. 20, 1997 Jan. 20, 1997 Jan. 20, 1997
to to to to
Oct. 31, 1997 Oct. 31, 1997 Oct. 31, 1997 Oct. 31, 1997
- ----------------- --------------- --------------- ----------------
<S> <C> <C> <C>
$ 10.57 $ 12.50 $ 11.67 $ 11.01
-------- --------- --------- ---------
0.02 0.15 0.30 0.29
1.77 1.77 1.25 0.79
-------- --------- --------- ---------
1.79 1.92 1.55 1.08
-------- --------- --------- ---------
-- -- -- --
-- -- -- --
-- -- -- --
-------- --------- --------- ---------
-- -- -- --
-------- --------- --------- ---------
$ 12.36 $ 14.42 $ 13.22 $ 12.09
======== ========= ========= =========
16.93% 15.36% 13.28% 9.81%
$ 1,833 $ 886 $ 547 $ 481
1.45%(1) 2.08%(1) 2.11%(1) 2.21%(1)
0.16%(1) 1.11%(1) 1.64%(1) 2.39%(1)
2.98%(1) 2.35%(1) 2.41%(1) 2.50%(1)
(1.36)%(1) 0.83%(1) 1.34%(1) 2.10%(1)
82.31% 162.80% 161.75% 158.71%
$0.0382 $0.0342 $0.0309 $0.0311
</TABLE>
Aetna Mutual Funds Prospectus 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.
CAPITAL APPRECIATION FUNDS
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.
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 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.
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.
18 Aetna Mutual Funds Prospectus
<PAGE>
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
forward-commitment basis. Value Opportunity will not invest more than 15% of
the total value of its assets in high-yield bonds.
GROWTH & INCOME FUNDS
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.
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."
Aetna Mutual Funds Prospectus 19
<PAGE>
INCOME FUNDS
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.
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).
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.
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."
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,
20 Aetna Mutual Funds Prospectus
<PAGE>
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.
INDEX PLUS FUNDS
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 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.
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.
Aetna Mutual Funds Prospectus 21
<PAGE>
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 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 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 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
22 Aetna Mutual Funds Prospectus
<PAGE>
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.
GENERATION FUNDS
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>
Ascent Crossroads Legacy Comparative
Asset Class Fund Fund Fund Index
<S> <C> <C> <C> <C>
Equities
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
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.
Aetna Mutual Funds Prospectus 23
<PAGE>
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.
Special Considerations Investors should be aware that the investment results of
Balanced and Generation Funds 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, 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 Value Opportunity Fund is
not expected to exceed 200%. The average annual turnover rate of the High Yield
Fund is not expected to exceed 350%.
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.
24 Aetna Mutual Funds Prospectus
<PAGE>
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%.
Illiquid and Restricted Securities Each Series may invest up to 15% of its
total assets in illiquid securities (10% in the case of Index Plus Large Cap
and Money Market). Illiquid securities are securities that are not readily
marketable or cannot be liquidated within seven days in the ordinary course of
business without taking a materially reduced price. In addition, a Series may
invest in securities that are subject to legal or contractual restrictions as
to resale, including securities purchased under Rule 144A and Section 4(2) of
the Securities Act of 1933. The Directors have established a policy to monitor
the liquidity of securities acquired by the Series.
Foreign Securities The purchase of foreign securities may involve certain
additional risks. Such risks include: currency fluctuations and related
currency conversion costs; less liquidity; price or income volatility; less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies; possible difficulty in obtaining and enforcing judgments
against foreign entities; adverse foreign political and economic developments;
different accounting procedures and auditing standards; the possible imposition
of withholding taxes on interest income payable on securities; the possible
seizure or nationalization of foreign assets; the possible establishment of
exchange controls or other foreign laws or restrictions which might adversely
affect the payment and transferability of principal, interest and dividends on
securities; higher transaction costs; possible settlement delays; and less
publicly available information about foreign issuers.
All Series except Money Market may also use the following:
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.
Aetna Mutual Funds Prospectus 25
<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 the Income Funds 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, and the Generation Funds 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.
All Series except the Income Funds 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, the Index Plus Funds, and the Generation Funds 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
26 Aetna Mutual Funds Prospectus
<PAGE>
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
- --------------------------------------------------------------------------------
A 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 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
Aetna Mutual Funds Prospectus 27
<PAGE>
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 March 31, 1998, 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 (Unaudited)
<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) 43.69% N/A 45.46% 12/10/96*
Index Plus Large Cap, Class A (without
payment of front-end sales load) 48.14% N/A 49.96% 12/10/96*
Index Plus Large Cap Composite 50.40% 23.13% 21.13% 10/1/91
S&P 500 Stock Index 48.02% 22.39% 20.42% 10/1/91
INDEX PLUS BOND PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
Index Plus Bond Composite 11.57% 6.93% 8.81% 4/1/87
LBAB Index 11.99% 6.94% 8.94% 4/1/87
HIGH YIELD PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
High Yield Account 23.84% N/A 14.86% 6/1/95
Merrill Lynch High Yield Index 14.75% N/A 12.05% 6/1/95
VALUE OPPORTUNITY PRIVATE ACCOUNT COMPOSITE
1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Value Opportunity Composite 38.46% 22.00% 24.20% 10/1/90
S&P 500 Stock Index 48.02% 22.39% 21.80% 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 (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.
- --------------------------------------------------------------------------------
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."
28 Aetna Mutual Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 First Data Investor Services Group, Inc.
P.O. Box 9681
Providence, RI 02940
Correspondence mailed by overnight courier should be sent to the Transfer Agent
as follows:
Aetna Series Fund, Inc.
c/o First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581
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: Boston Safe Deposit & Trust Company
ABA #01001234
Credit to: Boston Safe Deposit & Trust Company
Account #176656
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. A sales charge will apply upon an exchange of Class A shares from Money
Market for Class A shares of another Fund. See "How to Purchase
Shares--Purchasing Class A Shares" for more information. 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:
[filled box] Each exchange may result in a gain or loss and is treated as a sale
and as a purchase of shares for tax purposes.
[filled box] An exchange which represents an initial investment in a Series must
meet the minimum investment requirements described under "How to
Open an Account."
Aetna Mutual Funds Prospectus 29
<PAGE>
[filled box] The shares received in an exchange must be identically registered.
A letter with signature guarantees must accompany any exchange
request to transfer shares into a Series account that is not
registered identically to the transferring Series account.
[filled box] Following an investment in a Series, there is a required eight-day
holding period or maximum allowed by law, if shorter, before those
shares can be exchanged.
There is currently no limit on the number of exchanges. However, each Series
reserves the right to suspend or terminate the exchange privilege for any
person who makes more than five exchanges out of a Series per calendar year. In
addition, each Series reserves the right to refuse exchange purchases by any
person or group if, in Aeltus' judgment, the Series would be unable to invest
effectively in accordance with its investment objective as a result of such
exchange. Each Series also reserves the right to revise the exchange privilege
at any time.
Purchases and exchanges should be made for investment purposes only. The Fund
and each Series reserves the right to reject any specific purchase or exchange
request. In the event the Fund rejects an exchange request, neither the
redemption nor the purchase side of the exchange will be processed until the
Fund receives further redemption instructions.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund defines a "market
timer" as an individual, or entity acting on behalf of one or more individuals,
if (i) the individual or entity makes three or more exchange requests out of
any Series per calendar year and (ii) any one of such exchange requests
represents shares equal in value to 1/2 of 1% or more of the Series' net assets
at the time of the request. Accounts under common ownership or control,
including accounts administered by market timers, will be aggregated for
purposes of this definition.
You automatically receive telephone exchange privileges when you establish your
account. If you do not want telephone exchange privileges, write to the
Transfer Agent at the above address or call 1-800-367-7732. The Fund has
established reasonable procedures to confirm that instructions received are
genuine. If these procedures are not followed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. For your protection, all
telephone exchange transactions may be recorded, and you will be asked for
certain identifying information.
Purchasing 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. CAPITAL APPRECIATION, GROWTH & INCOME, and GENERATION FUNDS
As to the Capital Appreciation, Growth & Income, and Generation Funds 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>
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>
30 Aetna Mutual Funds Prospectus
<PAGE>
II. INCOME FUNDS
As to the Income Funds, 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 ($) amount invested price offering price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under 50,000 4.99% 4.75% 4.00%
- --------------------------------------------------------------------------------------
50,000 but under 100,000 4.71 4.50 3.75
- --------------------------------------------------------------------------------------
100,000 but under 250,000 3.63 3.50 2.75
- --------------------------------------------------------------------------------------
250,000 but under 500,000 2.56 2.50 1.75
- --------------------------------------------------------------------------------------
500,000 but under 1,000,000 2.04 2.00 1.25
- --------------------------------------------------------------------------------------
</TABLE>
III. INDEX PLUS FUNDS
As to the Index Plus Funds, a portion of the front-end sales charge is paid to
your investment professional as shown in the following table. Your investment
professional may receive up to the entire amount of the front-end sales charge.
<TABLE>
<CAPTION>
Sales charge as Amount of sales
a percentage of: charge reallowed to
---------------------------- dealers as a
Amount of transaction at Net Offering percentage of
offering price ($) amount invested price offering price
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
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
Aetna Mutual Funds Prospectus 31
<PAGE>
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:
[filled box] 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;
[filled box] A security interest may be created in the reserved shares and you
appoint ACI as attorney-in-fact as to such shares;
[filled box] 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
[filled box] 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 Class A shares of the Fund (excluding Money Market) and Class A shares
(excluding Money Market) 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 invested in Class A shares of the Fund
(excluding Money Market). Companies with one or more retirement plans may add
together the total plan assets invested in Class A shares of the Fund
(excluding Money Market) 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:
[filled box] Originally paid a front-end sales charge on the shares;
[filled box] Reinvest the money within 60 days of the redemption date; and
[filled box] Reinvest the money in the same class of shares.
2. Redemptions from other mutual funds if you:
[filled box] Originally paid a front-end sales charge on the shares;
[filled box] Reinvest the money within 30 days of the redemption date; and
[filled box] 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.
32 Aetna Mutual Funds Prospectus
<PAGE>
- --------------------------------------------------------------------------------
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 Money Market, 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 investor's 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 $1 million or more under a
Letter of Intent), or purchases by certain participant-directed qualified
retirement plans may be subject to a CDSC imposed on redemptions within two
years of purchase. The CDSC will apply only to shares for which a finder's fee
is paid to selling broker-dealers, banks or other investment professionals
having a distribution agreement with the Fund. The finders fee payable and the
CDSC imposed with respect to such Class A purchases shall be as follows:
<TABLE>
<CAPTION>
Cumulative Purchase Amount($) 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:
[filled box] increases in the NAV of shares above the initial purchase price;
[filled box] redemptions of shares purchased through reinvestment of dividends
or capital gains distributions;
[filled box] 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; and
[filled box] redemptions of Money Market shares unless:
[filled box] 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
[filled box] 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:
[filled box] Exchanges;
[filled box] Redemptions following the death of the shareholder or beneficial
owner;
[filled box] Distribution from a retirement plan or a custodial account under
IRC Section 403(b) after you attain age 59 1/2;
Aetna Mutual Funds Prospectus 33
<PAGE>
[filled box] Distributions from individual retirement plan accounts due to death
or disability or upon periodic distributions based on life
expectancy;
[filled box] Tax-free returns of excess contributions from employee benefit
plans;
[filled box] Distributions from employee benefit plans, including those due to
plan termination or plan transfer; and
[filled box] Redemptions made in connection with the Automatic Cash Withdrawal
Plan (see Shareholder Services and Other Features), provided that
such redemptions:
[filled box] are limited annually to no more than 12% of the
original account value;
[filled box] are made in equal monthly amounts, not to exceed 1%
per month; and
[filled box] the minimum account value at the time the Automatic
Cash Withdrawal Plan was initiated was no less than
$10,000.
- --------------------------------------------------------------------------------
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.
The right to redeem shares may be suspended or payment therefore 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:
[filled box] If the request is for a minimum of $500 or a maximum of $25,000.
[filled box] 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
34 Aetna Mutual Funds Prospectus
<PAGE>
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
- --------------------------------------------------------------------------------
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, minus any applicable
CDSC. 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.
Retirement Plans The Fund can be used for investment by a variety of retirement
plans. These plans let you save for retirement and may allow you to defer or
avoid 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. A CDSC may be applied to withdrawals made under this
plan. 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 $3.00 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
Aetna Mutual Funds Prospectus 35
<PAGE>
of your shares, the check will be returned unpaid. In addition, checks written
against shares purchased by check or Systematic Investment during the preceding
12 calendar days will be returned unpaid due to uncollected funds. You may
select the checkwriting service by indicating your election on the application
or by calling 1-800-367-7732. All notices with respect to checks must be given
to the Transfer Agent. The checkwriting service is not available for IRAs or
other retirement accounts.
TDD Service The Transfer Agent offers Telecommunication Device for the Deaf
(TDD) services for hearing impaired shareholders. The dedicated number for this
service is 1-800-684-4889 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, including representatives of firms affiliated with
ACI, 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
- --------------------------------------------------------------------------------
[filled box] Dividend Investing--You may elect to have dividend and/or capital
gains distributions automatically invested in the same class of one
other Series.
[filled box] 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
CAPITAL APPRECIATION FUNDS
<S> <C> <C>
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
- ---------------------------------------------------------
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
- ---------------------------------------------------------
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
- ---------------------------------------------------------
</TABLE>
36 Aetna Mutual Funds Prospectus
<PAGE>
<TABLE>
<CAPTION>
Advisory Fee Assets
<S> <C> <C>
Small Company 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.725% Over $2 billion
- -----------------------------------------------------------------
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 & INCOME FUNDS
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
- -----------------------------------------------------------------
INCOME FUNDS
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
- -----------------------------------------------------------------
Aetna Government Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
- -----------------------------------------------------------------
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
- -----------------------------------------------------------------
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
- -----------------------------------------------------------------
INDEX PLUS FUNDS
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
- -----------------------------------------------------------------
</TABLE>
Aetna Mutual Funds Prospectus 37
<PAGE>
<TABLE>
<CAPTION>
Advisory Fee Assets
<S> <C> <C>
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
- ----------------------------------------------------------------
GENERATION FUNDS
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
- ----------------------------------------------------------------
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
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 4400
Computer Drive, Westborough, MA 01581, 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.
- --------------------------------------------------------------------------------
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.
CAPITAL APPRECIATION FUNDS
Growth Kenneth H. Bragdon, Vice President, Aeltus, has been managing Growth
since May, 1998. Previously, Mr. Bragdon co-managed the fund with Peter Canoni,
Managing Director, Aeltus. Mr. Bragdon has been with the Aetna organization
since 1978 and has 27 years of experience in the investment business.
38 Aetna Mutual Funds Prospectus
<PAGE>
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.
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.
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.
GROWTH & INCOME FUNDS
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.
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.
INCOME FUNDS
Bond Fund and Money Market 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.
INDEX PLUS FUNDS
Index Plus Bond Christie Bull, Vice President, Aeltus, 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.
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.
GENERATION FUNDS
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.
Aetna Mutual Funds Prospectus 39
<PAGE>
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
[filled box] Money Market declares dividends daily and pays monthly.
[filled box] Aetna Government Fund, Bond Fund, High Yield and Index Plus Bond
declare and pay dividends monthly.
[filled box] Balanced and Growth and Income declare and pay dividends
semiannually.
[filled box] All other Series declare and pay dividends annually.
All capital gains distributions, if any, are paid on an annual basis. Income
dividends are derived from investment income, including dividends, interest,
realized short-term capital gains, and certain foreign currency gains received
by a Series. Capital gains distributions are derived from each Series' realized
long-term capital gains. The per share dividends and distributions of Class I
shares 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:
[filled box] 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.
[filled box] 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.
[filled box] Or . . . All Cash--Dividends and capital gains distributions will
be paid in cash. If you select a cash distribution option, you can
elect to have distributions automatically invested in 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%.
40 Aetna Mutual Funds Prospectus
<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 9.7 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
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
Aetna Mutual Funds Prospectus 41
<PAGE>
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.
42 Aetna Mutual Funds Prospectus
<PAGE>
[Aetna logo] Aetna Series Fund, Inc.
242 Trumbull Street
Hartford, CT 06103-1205
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.
4400 Computer Drive
Westborough, MA 01581
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>
[This page intentionally left blank]
<PAGE>
AETNA SERIES FUND, INC.
Class A, Class C and Class I Shares
242 Trumbull Street
Hartford, Connecticut 06103
Statement of Additional Information dated: June 30, 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 June 30, 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 OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<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 ......... 20
Brokerage Allocation and Trading Policies ................... 22
Letter of Intent ............................................ 23
Right of Accumulation/Cumulative Quantity Discount .......... 24
Description of Shares ....................................... 24
Net Asset Value ............................................. 25
Purchase and Redemption of Shares ........................... 25
Tax Status .................................................. 26
Performance Information ..................................... 30
Financial Statements ........................................ 32
</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>
<S> <C>
Capital Appreciation Funds [bullet] Aetna High Yield Fund
[bullet] Aetna Growth Fund [bullet] Aetna Money Market Fund
[bullet] Aetna International Fund Index Plus Funds
[bullet] Aetna Mid Cap Fund [bullet] Aetna Index Plus Bond Fund
[bullet] Aetna Small Company Fund [bullet] Aetna Index Plus Large Cap Fund
[bullet] Aetna Value Opportunity Fund [bullet] Aetna Index Plus Mid Cap Fund
Growth & Income Funds [bullet] Aetna Index Plus Small Cap Fund
[bullet] Aetna Balanced Fund Generation Funds
[bullet] Aetna Growth and Income Fund [bullet] Aetna Ascent Fund
[bullet] Aetna Real Estate Securities Fund [bullet] Aetna Crossroads Fund
Income Funds [bullet] Aetna Legacy Fund
[bullet] Aetna Bond Fund
[bullet] Aetna Government Fund
</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 the Generation Funds, 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) end 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;
(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
2
<PAGE>
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 and the Generation Funds 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 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 ("S&P") or Moody's Investors Service, Inc. ("Moody's"),
or, if unrated, considered by Aeltus to be of comparable quality);
(8) except for the Index Plus Funds 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.
3
<PAGE>
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.
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.
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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 the
Generation Funds, 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 the
Generation Funds 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.
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
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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 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
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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 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.
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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 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
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one swap, the counterparty may terminate the swaps with that party. Under such
agreements, if there is a default resulting in a loss to one party, the measure
of that party's damages is calculated by reference to the average cost of a
replacement swap with respect to each swap (i.e., the mark-to-market value at
the time of the termination of each swap). The gains and losses on all swaps
are then netted, and the result is the counterparty's gain or loss on
termination. The termination of all swaps and the netting of gains and losses
on termination is generally referred to as "aggregation."
Additional Risk Factors in Using Derivatives--In addition to any risk factors
which may be described elsewhere in this section, or in the prospectus, the
following sets forth certain information regarding the potential risks
associated with a Series' transactions in derivatives.
Risk of Imperfect Correlation--A Series' ability to hedge effectively all or a
portion of its portfolio through transactions in futures, options on futures or
options on securities and indexes depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the assets being hedged. If the values
of the assets being hedged do not move in the same amount or direction as the
underlying security or index, the hedging strategy for a Series might not be
successful and the Series could sustain losses on its hedging transactions
which would not be offset by gains on its portfolio. It is also possible that
there may be a negative correlation between the security or index underlying a
futures or option contract and the portfolio securities being hedged, which
could result in losses both on the hedging transaction and the portfolio
securities. In such instances, the Series' overall return could be less than if
the hedging transactions had not been undertaken. Stock index futures or
options based on a narrower index of securities may present greater risk than
options or futures based on a broad market index, as a narrower index is more
susceptible to rapid and extreme fluctuations resulting from changes in the
value of a small number of securities. The Series would, however, effect
transactions in such futures or options only for hedging purposes (or to close
out open positions).
The trading of futures and options on indices involves the additional risk of
imperfect correlation between movements in the futures or option price and the
value of the underlying index. The anticipated spread between the prices may be
distorted due to differences in the nature of the markets, such as differences
in margin requirements, the liquidity of such markets and the participation of
speculators in the futures and options market. The purchase of an option on a
futures contract also involves the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends
to diminish as the maturity date of the futures contract or termination date of
the option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction
costs, although it may be necessary under certain circumstances to exercise the
option and enter into the underlying futures contract in order to realize a
profit. Under certain extreme market conditions, it is possible that a Series
will not be able to establish hedging positions, or that any hedging strategy
adopted will be insufficient to completely protect the Series.
The Series will purchase or sell futures contracts or options for hedging
purposes only if, in Aeltus' judgment, there is expected to be a sufficient
degree of correlation between movements in the value of such instruments and
changes in the value of the relevant portion of the assets being hedged for the
hedge to be effective. There can be no assurance that Aeltus' judgment will be
accurate.
Potential Lack of a Liquid Secondary Market--The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures market are subject to initial deposit and variation margin
requirements. This could require a Series to post additional cash or cash
equivalents as the value of the position fluctuates. Rather than meeting
additional variation margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures or
options market may be lacking. Prior to exercise or expiration, a futures or
option position may be terminated only by entering into a closing purchase or
sale transaction, which requires a secondary market on the exchange on which
the position was originally established. While a Series will establish a
futures or option position only if there appears to be a liquid secondary
market therefore, 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
9
<PAGE>
in interest rates which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Series will lose part or all
of the benefit of the increased value of its bonds which have been hedged
because it will have offsetting losses in its futures positions. In addition,
in such situations, if the Series has insufficient cash, it may have to sell
bonds from its portfolio to meet daily variation margin requirements, possibly
at a time when it may be disadvantageous to do so. Such sale of bonds may be,
but will not necessarily be, at increased prices which reflect the rising
market.
Trading and Position Limits--Each contract market on which futures and option
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. The Fund does not believe that these trading and
position limits will have an adverse impact on the hedging strategies regarding
the Series.
Repurchase Agreements
Each Series may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards established
by the Fund's Board of Directors. Under a repurchase agreement, a Series may
acquire a debt instrument for a relatively short period (usually not more than
one week) subject to an obligation of the seller to repurchase and the Series
to resell the instrument at a fixed price and time, thereby determining the
yield during the Series' holding period. This results in a fixed rate of return
insulated from market fluctuations during such period. Such underlying debt
instruments serving as collateral will meet the quality standards of a Series.
The market value of the underlying debt instruments will, at all times, be
equal to the dollar amount invested. Repurchase agreements, although fully
collateralized, involve the risk that the seller of the securities may fail to
repurchase them from a Series. In that event, a Series may incur (a)
disposition costs in connection with liquidating the collateral, or (b) a loss
if the collateral declines in value. Also, if the default on the part of the
seller is due to insolvency and the seller initiates bankruptcy proceedings, a
Series' ability to liquidate the collateral may be delayed or limited. Under
the 1940 Act, repurchase agreements are considered loans by a Series.
Repurchase agreements maturing in more than seven days will not exceed 10
percent of the total assets of a Series.
Variable Rate Demand Instruments
Variable rate demand instruments (including floating rate instruments) held by
a Series may have maturities of more than one year, provided: (i) the Series is
entitled to the payment of principal at any time, or during specified intervals
not exceeding one year, upon giving the prescribed notice (which may not exceed
30 days), and (ii) the rate of interest on such instruments is adjusted at
periodic intervals not to exceed one year. In determining whether a variable
rate demand instrument has a remaining maturity of one year or less, each
instrument will be deemed to have a maturity equal to the longer of the period
remaining until its next interest rate adjustment or the period remaining until
the principal amount can be recovered through demand. A Series will be able (at
any time or during specified periods not exceeding one year, depending upon the
note involved) to demand payment of the principal of a note. If an issuer of a
variable rate demand note defaulted on its payment obligation, a Series might
be unable to dispose of the note and a loss would be incurred to the extent of
the default. A Series may invest in variable rate demand notes only when the
investment is deemed to involve minimal credit risk. The continuing
creditworthiness of issuers of variable rate demand notes held by a Series will
also be monitored to determine whether such notes should continue to be held.
Variable and floating rate instruments with demand periods in excess of seven
days and which cannot be disposed of promptly within seven business days and in
the usual course of business without taking a reduced price will be treated as
illiquid securities that are subject to the limitations on illiquid securities
set forth in this Statement.
Foreign Securities
Investments in foreign securities, including futures and options contracts,
offer potential benefits not available solely through investment in securities
of domestic issuers. Foreign securities offer the opportunity to invest in
foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in exchange rates, adverse foreign political and
economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. Since the Series (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
10
<PAGE>
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, which are similar to EDRs although they may be held
through foreign clearing agents such as Euroclear and other foreign
depositories. Depositary receipts denominated in U.S. dollars will not be
considered foreign securities for purposes of the investment limitation
concerning investment in foreign securities.
Mortgage-Related Debt Securities
Federal mortgage-related securities include obligations issued or guaranteed by
the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). GNMA is a wholly owned corporate instrumentality of the United
States, the securities and guarantees of which are backed by the full faith and
credit of the United States. FNMA, a federally chartered and privately owned
corporation, and FHLMC, a federal corporation, are instrumentalities of the
United States with Presidentially-appointed board members. The obligations of
FNMA and FHLMC are not explicitly guaranteed by the full faith and credit of
the federal government.
Pass-through mortgage-related securities are characterized by monthly payments
to the holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the security holders,
like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, often twenty or thirty years, the borrowers can, and typically do, repay
such loans sooner. Thus, the security holders frequently receive repayments of
principal, in addition to the principal which is part of the regular monthly
payment. A borrower is more likely to repay a mortgage which bears a relatively
high rate of interest. This means that in times of declining interest rates,
some higher yielding securities held by a Series might be converted to cash,
and the Series could be expected to reinvest such cash at the then prevailing
lower rates. The increased likelihood of prepayment when interest rates decline
also limits market price appreciation of mortgage-related securities. If a
Series buys mortgage-related securities at a premium, mortgage foreclosures or
mortgage prepayments may result in losses of up to the amount of the premium
paid since only timely payment of principal and interest is guaranteed.
As noted in the prospectus, the Series may also invest in collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs and REMICs are securities which are collateralized by mortgage
pass-through securities. Cash flows from underlying mortgages are allocated to
various classes or tranches in a predetermined, specified order. Each
sequential tranche has a "stated maturity"--the latest date by which the
tranche can be completely repaid, assuming no repayments--and has an "average
life"--the average time to receipt of a principal payment weighted by the size
of the principal payment. The average life is typically used as a proxy for
maturity because the debt is amortized, rather than being paid off entirely at
maturity, as would be the case in a straight debt instrument.
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.
11
<PAGE>
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
and S&P or other rating agencies, or, if unrated, are considered to be of
comparable quality by Aeltus. These securities include:
(a) fixed rate corporate debt obligations (including bonds, debentures and
notes) rated Ba or lower by Moody's or BB or lower by S&P;
(b) preferred stocks that have yields comparable to those of high-yielding debt
securities; and
(c) any securities convertible into any of the foregoing.
Debt obligations rated BB/Ba or lower are regarded as speculative and generally
involve more risk of loss of principal and income than higher-rated securities.
Also their yields and market values tend to fluctuate more. Fluctuations in
value do not affect the cash income from the securities but are reflected in a
Series' net asset value. The greater risks and fluctuations in yield and value
occur, in part, because investors generally perceive issuers of lower-rated and
unrated securities to be less creditworthy. Lower ratings, however, may not
necessarily indicate higher risks. In pursuing a Series' objectives, Aeltus
seeks to identify situations in which Aeltus believes that future developments
will enhance the creditworthiness and the ratings of the issuer.
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.
12
<PAGE>
Furthermore, in the case of high-yield bonds structured as zero coupon or
pay-in-kind securities, their market prices are affected to a greater extent by
interest rate changes and thereby tend to be more speculative and volatile than
securities which pay interest periodically and in cash.
(2) Payment Expectations. High-yield bonds present risks based on payment
expectations. For example, these securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining
interest rate market, the Series may have to replace the securities with a
lower yielding security, resulting in a decreased return for investors. In
addition, there is a higher risk of non-payment of interest and/or
principal by issuers of these securities than in the case of
investment-grade bonds.
(3) Liquidity and Valuation Risks. Some issuers of high-yield bonds may be
traded among a limited number of broker-dealers rather than in a broad
secondary market. Many of these securities may not be as liquid as
investment grade bonds. The ability to value or sell these securities will
be adversely affected to the extent that such securities are thinly traded
or illiquid. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease or increase the value and
liquidity of these securities more than other securities, especially in a
thinly-traded market.
(4) Limitations of Credit Ratings. The credit ratings assigned to high-yield
bonds may not accurately reflect the true risks of an investment. Credit
ratings typically evaluate the safety of principal and interest payments
rather than the market value risk of such securities. In addition, credit
agencies may fail to adjust credit ratings to reflect rapid changes in
economic or company conditions that affect a security's market value.
Although the ratings of recognized rating services such as Moody's and S&P
are considered, Aeltus primarily relies on its own credit analysis which
includes a study of existing debt, capital structure, ability to service
debts and to pay dividends, the issuer's sensitivity to economic
conditions, its operating history and the current trend of earnings. Thus
the achievement of a Series' investment objective may be more dependent on
Aeltus' own credit analysis than might be the case for a fund which does
not invest in these securities.
(5) Legislation. Legislation may have a negative impact on the market for
high-yield bonds, such as legislation requiring federally-insured savings
and loan associations to divest themselves of their investments in these
securities.
Zero Coupon and Pay-in-Kind Securities
All of the Series may invest in zero coupon securities and all Series except
Money Market may invest in pay-in-kind securities. In addition, the Series may
invest in STRIPS (Separate Trading of Registered Interest and Principal of
Securities). Zero coupon or deferred interest securities are debt obligations
that do not entitle the holder to any periodic payment of interest prior to
maturity or a specified date when the securities begin paying current interest
(the "cash payment date") and therefore are issued and traded at a discount
from their face amounts or par value. The discount varies, depending on the
time remaining until maturity or cash payment date, prevailing interest rates,
liquidity of the security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer, decreases as
the final maturity or cash payment date of the security approaches. STRIPS are
created by the Federal Reserve Bank by separating the interest and principal
components of an outstanding U.S. treasury bond and selling them as individual
securities. The market prices of zero coupon, STRIPS and deferred interest
securities generally are more volatile than the market prices of securities
with similar maturities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do non-zero
coupon securities having similar maturities and credit quality.
The risks associated with lower-rated debt securities apply to these
securities. Zero coupon and pay-in-kind securities are also subject to the risk
that in the event of a default, a Series may realize no return on its
investment, because these securities do not pay cash interest.
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
13
<PAGE>
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, 1997 and October 31, 1996 the portfolio
turnover rates were as follows:
<TABLE>
<CAPTION>
Fund Name 1997 1996
<S> <C> <C>
Aetna Government Fund 147.78% 50.48%
Bond Fund 48.56% 42.33%
Balanced 116.69% 117.88%
Growth and Income 157.92% 106.09%
Growth 141.07% 144.19%
Small Company 150.43% 163.21%
International 194.41% 135.92%
Index Plus Large Cap* 82.31% N/A
Ascent Fund 162.80% 104.84%
Crossroads Fund 161.75% 107.40%
Legacy Fund 158.71% 91.62%
</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 and
the Generation Funds 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. The Fund Complex presently consists of
Aetna Series Fund, Inc., Aetna Variable Fund, Aetna Income Shares, Aetna
Variable Encore Fund, Aetna Balanced VP, Inc., Aetna GET Fund (Series B and
Series C), Aetna Generation Portfolios, Inc., Aetna Variable Portfolios, Inc.
and Portfolio Partners, Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Position(s) Principal Occupation During Past Five Years (and
Held with Positions 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,
242 Trumbull Street Chief Financial Officer, Aeltus Investment
Hartford, Connecticut Management, Inc., October 1997 to present; Vice
Age 43 President, Aetna Retirement Services, Inc., April 1997
to present; Director and Senior Vice President, Aetna
Life Insurance and Annuity Company, March 1997 to
February 1998; 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.
- --------------------------------------------------------------------------------------------------------------
Wayne F. Baltzer Vice President Assistant Vice President, Aetna Life Insurance and
242 Trumbull Street Annuity Company, May 1991 to present; Vice
Hartford, Connecticut President, Aetna Investment Services, Inc., July 1993
Age 54 to present.
- --------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr. Director Professor, Middle Tennessee State University, 1991 to
3029 St. Johns Drive present.
Murfreesboro, Tennessee
Age 57
- --------------------------------------------------------------------------------------------------------------
Amy R. Doberman Secretary Vice President, Law, Aeltus Investment Management,
242 Trumbull Street Inc., April 1998 to present; Counsel, Aetna Life
Hartford, Connecticut Insurance and Annuity Company, December 1996 to
Age 36 present; Attorney, Securities and Exchange
Commission, March 1990 to November 1996.
- --------------------------------------------------------------------------------------------------------------
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation and
Closter, New Jersey Alcohol Services, 1973 to present.
Age 54
- --------------------------------------------------------------------------------------------------------------
David L. Grove Director, Chairperson Private Investor; Economic/Financial Consultant,
5 The Knoll Contract Committee December 1985 to present.
Armonk, New York
Age 80
- --------------------------------------------------------------------------------------------------------------
John Y. Kim* Director Director, President, Chief Executive Officer, Chief
242 Trumbull Street Investment Officer, Aeltus Investment Management,
Hartford, Connecticut Inc., December 1995 to present; Director, Aetna Life
Age 37 Insurance and 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
455 East 86th Street present.
New York, New York
Age 63
- --------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Position(s) Principal Occupation During Past Five Years (and
Held with Positions held with Affiliated Persons or Principal
Name, Address and Age the Fund Underwriters of the Fund)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frank Litwin Vice President Managing Director, Aeltus Investment Management,
242 Trumbull Street Inc., August 1997 to present; Vice President, Fidelity
Hartford, Connecticut Investments Institutional Services Company, April
Age 48 1992 to August 1997.
- --------------------------------------------------------------------------------------------------------------
Shaun P. Mathews* Director Vice President/Senior Vice President, Aetna Life
151 Farmington Avenue Insurance and Annuity Company, March 1991 to
Hartford, Connecticut present; Vice President, Aetna Life Insurance
Age 43 Company, 1991 to present; Director and 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, Professor, Accounting and Dean of the School of
Connecticut Management, Binghamton University (Binghamton,
Age 61 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
11 Lily Street Audit Committee Palmer Consultants, July 1991 to present.
Nantucket, Massachusetts
Age 69
- --------------------------------------------------------------------------------------------------------------
Stephanie A. Taylor Vice President, Vice President Mutual Fund Accounting, Aeltus
242 Trumbull Street Treasurer and Chief Investment Management, Inc., November 1995 to
Hartford, Connecticut Financial Officer present; Director Mutual Fund Accounting, Aetna Life
Age 44 Insurance and Annuity Company, 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Aggregate Compensation Total Compensation from the Fund
Name of Person, Position from the Fund and Fund Complex Paid to Directors
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Corine Norgaard $5,550 $55,500
Director
- ------------------------------------------------------------------------------------------
Sidney Koch $5,600 $56,000
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.
16
<PAGE>
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 Life Insurance and Annuity Company ("Aetna") had
a controlling interest in the following series of the Fund:
<TABLE>
<S> <C>
Class I Aetna
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 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 annual investment advisory fees expressed as a
percentage of the average daily net assets of each Series, as described in the
Prospectus.
17
<PAGE>
Prior to February 2, 1998, Aetna acted as investment adviser. Aetna received
investment advisory fees as follows:
<TABLE>
<CAPTION>
Total Investment Aetna Net Investment
Fund Name Advisory Fees Reimbursement Advisory 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
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
For Year Ended October 31, 1995
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
</TABLE>
*Index Plus Large Cap commenced operations on December 10, 1996.
**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.
18
<PAGE>
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 February 2, 1998, Aetna acted as Administrator. Aetna received
administrative service fees as follows:
<TABLE>
<CAPTION>
Total Investment Net Investment
Administrative Services Aetna Administrative Services
Fund Name Fees Reimbursement Fees Paid
<S> <C> <C> <C>
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
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
Legacy Fund 53,065 0 53,065
For Year Ended October 31, 1995
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
</TABLE>
* Index Plus Large Cap commenced operations on December 10, 1996.
** 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.
19
<PAGE>
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
KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103 serves as
independent auditors to the Fund. KPMG Peat Marwick LLP provides audit
services, assistance and consultation in connection with the Commission
filings.
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.
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% (0.50% for the Index Plus Funds) 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.
20
<PAGE>
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% (0.10% for Money Market) of
the value of average daily net assets. For the years ended October 31, 1997,
1996 and 1995, 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>
Fund Name 1997 1996 1995
<S> <C> <C> <C>
Aetna Government Fund $ 3,948 $ 4,074 $ 2,110
Bond Fund 5,949 15,911 118,895
Balanced 37,922 19,775 57,241
Growth and Income 82,810 32,657 19,108
Growth 49,657 23,653 7,194
Index Plus Large Cap* 4,683 N/A N/A
Small Company 37,758 20,104 5,012
International 166,514 167,007 202,548
Ascent Fund** 1,691 N/A N/A
Crossroads Fund** 764 N/A N/A
Legacy Fund** 823 N/A N/A
</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 $141,236, $101,840 and $64,022, for the years ended
December 31, 1997, 1996, and 1995, 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.
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:
[bullet] on sales of $1 million to $3 million;
[bullet] on sales over $3 million to $20 million; and
[bullet] 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.
21
<PAGE>
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.
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.
22
<PAGE>
Brokerage commissions were paid as follows:
<TABLE>
<CAPTION>
For Year Ended For Year Ended For Year Ended
Fund Name Oct. 31, 1997 Oct. 31, 1996 Oct. 31, 1995
<S> <C> <C> <C>
Bond Fund $ 0 $ 0 $ 2,400
Balanced 131,989 207,536 321,699
Growth and Income 1,908,594 1,120,636 1,765,123
Growth 170,182 135,750 142,354
Index Plus Large Cap* 15,942 N/A N/A
Small Company 167,794 223,630 172,008
International 907,087 479,630 117,138
Ascent Fund** 113,789 81,898 289,353
Crossroads Fund** 79,184 61,817 225,220
Legacy Fund** 47,247 38,705 156,342
</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.
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
23
<PAGE>
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 Class A shares (excluding Money Market) of the Fund 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 Class A shares (excluding Money Market), as well as those
Class A shares (excluding Money Market) 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 invested in Class A shares
(excluding Money Market) of the Fund. Companies with one or more retirement
plans may add together the total plan assets invested in Class A shares
(excluding Money Market) of 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.
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, the Index Plus Funds) 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,
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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, the Index
Plus Funds 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.
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.
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TAX STATUS
The following is only a summary of certain additional tax considerations
generally affecting each Series and its shareholders which are not described in
the prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Series or its shareholders, and the discussions here and in
the prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
Each Series has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Series generally
is not subject to federal income tax on the portion of its net investment
income (i.e., taxable interest, dividends and other taxable ordinary income,
net of expenses) and capital gain net income (i.e., the excess of capital gains
over capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of net short-term capital gain over net
long-term capital loss) and at least 90% of its tax-exempt income (net of
expenses allocable thereto) for the taxable year ("Distribution Requirement"),
and satisfies certain other requirements of the Code that are described below.
Distributions made during the taxable year or, under specified circumstances,
within twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and can therefore satisfy
the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (Income Requirement). For purposes of these calculations, gross
income includes tax-exempt income.
In general, gain or loss recognized by a Series on the disposition of an asset
will be a capital gain or loss. However, gain recognized on the disposition of
a debt obligation (including municipal obligations) purchased at a market
discount (generally, at a price less than its principal amount) will be treated
as ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Series held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar
financial instrument, or of foreign currency itself, except for regulated
futures contracts or non-equity options subject to Code Section 1256 (unless
elected otherwise), will generally be treated as ordinary income or loss.
For individuals, the Taxpayer Relief Act of 1997 (the "Relief Act") has created
new "mid-term capital gain" rates that apply to the sale of capital assets held
more than one year but not more than 18 months. Although the Relief Act has not
expressly addressed this issue, it is expected that regulations issued pursuant
thereto will provide that regulated investment companies such as the Fund must
notify shareholders who are individuals as to whether they must treat capital
gain dividends that they receive as mid-term or long-term capital gains. For
individuals, long-term capital gains, which are realized on the sale or
exchange of capital assets held for more than 18 months, will be subject to a
maximum federal income tax rate of 20%, while ordinary income will be subject
to a maximum rate of 39.6%. Mid-term capital gains, which are realized on the
sale or exchange of capital assets held more than one year, but not more than
18 months, will be subject to a maximum federal income tax rate of 28%.
A shareholder will recognize a capital gain or loss upon the sale of exchange
of shares in a Series if, as is normally the case, the shares are capital
assets in the shareholder's hands. For corporate shareholders, the capital gain
or loss will be long-term if the shares have been held for more than one year.
For shareholders that are individuals, the gain or loss will be long-term if
the shareholder has held 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
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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 IRS pursuant to which
shareholders will be required to include their pro rata portions of foreign
taxes paid by the Series as income received by them. Shareholders may then
either deduct such pro rata portion in computing their taxable income or use
them as foreign tax credits against their United States income taxes. If
International makes such an election, it will report annually to each
shareholder the amount of foreign taxes to be included in income and then
either deducted or credited. Alternatively, if the amount of foreign taxes paid
by International is not large enough to warrant its making such an election,
the Series may claim the amount of foreign taxes paid as a deduction against
its own gross income. In that case shareholders would not be required to
include any amount of foreign taxes paid by the International in their income
and would not be permitted either to deduct any portion of foreign taxes from
their own income or to claim any amount tax credit for taxes paid by the
Series.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Series must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a Series'
taxable year, at least 50% of the value of the Series' assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Series
has not invested more than 5% of the value of the Series' total assets in
securities of such issuer and as to which the Series does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or of two or more issuers which the Series controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses. Generally, an option (call or put) with respect to a security is
treated as issued by the issuer of the security not the issuer of the option.
However, with regard to forward currency contracts, there does not appear to be
any formal or informal authority which identifies the issuer of such
instrument. For purposes of asset diversification testing, certain obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government
such as the Federal Agricultural Mortgage Corporation, the Farm Credit System
Financial Assistance Corporation, a Federal Home Loan Bank, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Government National Mortgage Corporation, and the Student Loan Marketing
Association are treated as U.S. Government securities.
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)
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in determining the amount of ordinary taxable income for the current calendar
year (and, instead, include such gains and losses in determining ordinary
taxable income for the succeeding calendar year).
Each Series intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Series may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
Each Series anticipates distributing substantially all of its investment
company taxable income for each taxable year. Depending on a Series'
investments, distributions may be treated as a net capital gain dividend, an
ordinary income dividend, a U.S. Government interest dividend, a qualifying
dividend, or an exempt interest dividend. Dividends paid on Class A and Class I
shares are calculated at the same time and in the same manner. In general,
dividends on Class A shares are expected to be lower than those on Class I
shares due to the higher distribution expenses borne by the Class A shares.
Dividends may also differ between classes as a result of differences in other
class specific expenses.
Each Series may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Series currently intends to distribute any
such amounts. If net capital gain is distributed and designated as a capital
gain dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Series prior to the date on which the
shareholder acquired his shares. The Code provides, however, that under certain
conditions only 50% of the capital gain recognized upon the Series' disposition
of domestic "small business" stock will be subject to tax.
Conversely, if a Series elects to retain its net capital gain, the Series will
be taxed thereon (except to the extent of any available capital loss
carryovers) at the 35% corporate tax rate. If the Series elects to retain its
net capital gain, it is expected that the Series also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result
that each shareholder will be required to report his pro rata share of such
gain on his tax return as long-term capital gain, will receive a refundable tax
credit for his pro rata share of tax paid by the Series on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.
Ordinary income dividends paid by a Series with respect to a taxable year may
qualify for the dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by a Series from domestic corporations for the taxable year
and if the shareholder meets eligibility requirements in the Code. Generally,
substantially all of the dividends paid by Growth and Income, and to a lesser
degree, by Balanced, 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,
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or exemption from, taxes on such income. It is impossible to determine the
effective rate of foreign tax in advance since the amount of a Series' assets
to be invested in various countries is not known. International anticipates
investing substantially in foreign securities. If more than 50% of the value of
a Series' total assets at the close of its taxable year consist of the stock or
securities of foreign corporations, the Series may elect to "pass through" to
Series shareholders the amount of foreign taxes paid by the Series. If the
Series so elects, each shareholder would be required to include in gross
income, even though not actually received, his pro rata share of the foreign
taxes paid by the Series, but would be treated as having paid his pro rata
share of such foreign taxes and would therefore be allowed to either deduct
such amount in computing taxable income or use such amount (subject to various
Code limitations) as a foreign tax credit against federal income tax (but not
both). For purposes of the foreign tax credit limitation rules of the Code,
each shareholder would treat as foreign source income his pro rata share of
such foreign taxes plus the portion of dividends received representing income
derived from foreign sources. No deduction for foreign taxes could be claimed
by an individual shareholder who does not itemize deductions. Each shareholder
should consult his own tax adviser regarding the potential application of
foreign tax credits.
Distributions by a Series that do not constitute ordinary income dividends,
exempt-interest dividends or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis
in his shares; any excess will be treated as gain from the sale of his shares,
as discussed below.
Distributions by a Series will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Series (or of another Series). Shareholders receiving
a distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date. In addition, if the net asset
value at the time a shareholder purchases shares reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Series, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Series into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by a Series) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
Each Series will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify that it
is not subject to backup withholding or that it is a corporation or other
"exempt recipient."
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
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exempt from U.S. federal income tax on gains realized on the sale of shares of
the Series, capital gain dividends and exempt-interest dividends and amounts
retained by the Series that are designated as undistributed capital gains.
If the income from a Series is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Series will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, a Series may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Series with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Series, including the
applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect
on the date of this Statement. Future legislative or administrative changes or
court decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting their investment.
PERFORMANCE INFORMATION
Performance information for each class of shares including the yield and
effective yield of Money Market, the yield of Bond Fund, 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:
a-b
YIELD = 2[(---)+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 in February, 1998.
30
<PAGE>
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.
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 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:
<TABLE>
<CAPTION>
Class I
Fund Name 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
Class A (assuming payment of the front-end sales load)
Fund Name 1 Year 5 Year Since Inception Inception Date*
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>
31
<PAGE>
<TABLE>
<CAPTION>
Class A (without payment of the front-end sales load)
Fund Name 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.
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, are
incorporated herein by reference in this Statement of Additional Information.
The Funds' Annual Reports are available upon request and without charge by
calling 1-800-367-7732.
32
<PAGE>
Aetna Series Fund, Inc.
Statement of Additional Information
ASF(S)- Aetna Series Fund, Inc. Statement of Additional Information
SALSERIES-98
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- ------------------------------------------
(a) Financial Statements:
(1)(i) Included in Part A:
Financial Highlights (with respect to Class A (formerly
Adviser Class) shares)
(1)(ii) Incorporated by reference into Part A of this Post-Effective
Amendment No. 26 by reference to the Fund's filing under
497(c) of the Securities Act of 1933, as filed electronically
on February 3, 1998 (Accession No. 0000980146-98-000143).
Financial Highlights (with respect to Class I shares)
(2) 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 January 5, 1998
(File No. 811-6352) (Accession Nos. 0000950146-98-000009 and
0000950146-98-000010):
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 as of October 31, 1997
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' Reports
(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)(3)
(1)(e) Articles Supplementary (June 25, 1998)
<PAGE>
(2) By-laws (as amended September 13, 1994)(4)
(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 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(3)
(6)(a) Underwriting Agreement between Aeltus Capital, Inc. and Aetna
Series Fund, Inc.(3)
(6)(b) Master Selling Dealer Agreement(3)
(7) Directors' Deferred Compensation Plan(1)
(8)(a)(i) Custodian Agreement - Mellon Bank, N.A. (September 1,
1992)(4)
(8)(a)(ii) Amendment to Custodian Agreement - Mellon Bank, N.A. (May 11,
1994)(2)
(8)(a)(iii) Amendment to Custodian Agreement - Mellon Bank, N.A.
(September 14, 1994)(4)
(8)(a)(iv) Amendment to Custodian Agreement - Mellon Bank, N.A. (October
11, 1996)(5)
(8)(a)(v) Amendment to Custodian Agreement - Mellon Bank, N.A. (January
29, 1998)(3)
(8)(a)(vi) Custodian Agreement - Brown Brothers Harriman & Company
(Aetna International Fund) (December 12, 1991)(6)
(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(3)
(9)(b) License Agreement(4)
(9)(c) Transfer Agent Agreement
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Not applicable
(13) Not applicable
<PAGE>
(14) Not applicable
(15)(a) Distribution Plan (Class A)(3)
(15)(b) Distribution Plan (Class C)(3)
(15)(c) Shareholder Service Plan (Class C)(3)
(16) Schedule for Computation of Performance Data(1)
(17) See Exhibit 27 below
(18) Multi-Class Plan(3)
(19)(a) Power of Attorney(1)
(19)(b) Power of Attorney
(19)(c) Authorization for Signatures(7)
(27) Financial Data Schedules
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. 25 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed
electronically with the Securities and Exchange Commission on April 24, 1998
(Accession No. 0000950146-98-000685).
4. 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).
5. 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).
6. 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).
7. Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registration Statement on Form N-1A (File No. 333-05173), as filed
electronically with the Securities and Exchange Commission on September 26,
1997 (Accession No. 0000950146-97-001480).
<PAGE>
Item 25. Persons Controlled by or Under Common Control
- ------------------------------------------------------
Registrant is a Maryland corporation for which separate financial
statements are filed. As of May 29, 1998, Aetna Life Insurance and
Annuity Company ("Aetna") had a controlling interest in the
following series of the Registrant:
<TABLE>
<CAPTION>
Class I % Aetna
------- -------
<S> <C> <C>
Aetna Bond Fund 46.59
Aetna Government Fund 85.94
Aetna High Yield Fund 99.81
Aetna Index Plus Bond Fund 99.75
Aetna Index Plus Large Cap Fund 64.53
Aetna Index Plus Mid Cap Fund 99.73
Aetna Index Plus Small Cap Fund 99.60
Aetna International Fund 22.77
Aetna Mid Cap Fund 99.25
Aetna Money Market Fund 41.00
Aetna Real Estate Securities Fund 98.62
Aetna Small Company Fund 63.29
Aetna Value Opportunity Fund 98.54
Aetna Ascent Fund 88.14
Aetna Crossroads Fund 94.46
Aetna Legacy Fund 92.97
Class A
-------
Aetna High Yield 76.69
Aetna Index Plus Bond Fund 88.67
Aetna Index Plus Mid Cap Fund 61.72
Aetna Index Plus Small Cap Fund 56.75
Aetna International Fund 70.41
Aetna Mid Cap Fund 94.33
Aetna Real Estate Securities Fund 69.31
Aetna Value Opportunity Fund 38.76
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 the Registration Statement on Form N-4 (File No.333-56297), as
filed electronically with the Securities and Exchange Commission
on June 8, 1998 (Accession No. 0000950146-98-000983).
</TABLE>
<PAGE>
Item 26. Number of Holders of Securities
- ----------------------------------------
(1) Title of Class (2) Number of Record Holders
as of May 29, 1998
Class I Class A
Aetna Balanced Fund 1974 1050
Aetna Bond Fund 883 186
Aetna Government Fund 91 73
Aetna Growth Fund 686 2068
Aetna Growth and Income Fund 2156 3450
Aetna Index Plus Large Cap Fund 174 544
Aetna International Fund 1070 1084
Aetna Money Market Fund 5748 8765
Aetna Small Company Fund 570 1735
Aetna Ascent Fund 83 399
Aetna Crossroads Fund 29 220
Aetna Legacy Fund 24 124
Aetna High Yield Fund 6 6
Aetna Index Plus Bond Fund 5 7
Aetna Index Plus Mid Cap Fund 11 21
Aetna Index Plus Small Cap Fund 20 27
Aetna Mid Cap Fund 6 6
Aetna Real Estate Securities Fund 13 11
Aetna Value Opportunity Fund 14 33
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, incorporated
herein by reference to Exhibit 9(a) to Registrant's Registration
Statement on Form N-1A (File No. 33-41694), as filed electronically on
April 24, 1998, provides for indemnification of the Administrator.
Section 8 of the Underwriting Agreement, incorporated herein by reference
to Exhibit 6(a) to Registrant's Registration Statement on Form N-1A (File
No. 33-41694), as filed electronically on April 24, 1998, provides for
indemnification of
<PAGE>
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.
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>
John Y. Kim Director, President, Chief Director (since February 1995) -- Aetna Life
Executive Officer, Chief Insurance and Annuity Company; Senior Vice President
Investment Officer (since September 1994) -- Aetna Life Insurance and
Annuity 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>
J. Scott Fox Director, Managing Director, Director and President (since September 1997) --
Chief Operating Officer, Chief Aetna Life Assignment Company; Vice President (since
Financial Officer April 1997) -- 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>
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.
Catherine H. Smith Director Director, Senior Vice President (since March 1998) --
Aetna Retirement Holdings, Inc.; Director (since
March 1998) -- Aetna Insurance Company of America;
Director, Senior Vice President and Chief Financial
Officer (since February 1998) -- Aetna Life Insurance
and Annuity Company; Chief Financial Officer (since
February 1998) -- Aetna Retirement Services, Inc.;
Vice President, Strategy, Finance and Administration,
Financial Relations (September 1996 - February 1998)
-- Aetna Inc.; Chief of Staff, Health/Group Life,
Strategy and Communication (April 1993 - September
1996) -- Aetna U.S. Healthcare.
Peter B. Canoni Managing Director, Equity Managing Director (since January 1996) -- Aeltus
Investments Trust Company; Registered Representative (since March
1994) -- Aeltus Capital, 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>
Lennart A. Carlson Managing Director, Fixed Income Managing Director (since January 1996) -- Aeltus
Investments Trust Company; Registered Representative (since
February 1993) -- Aeltus Capital, Inc.
Steven C. Huber Managing Director, Fixed Income Portfolio Manager (August 1991 - August 1996) --
Investments Aetna Life Insurance and Annuity Company; Managing
Director (since August 1996) -- Aeltus Trust Company.
Brian K. Kawakami Vice President, Chief Compliance Chief Compliance Officer & Director (since January
Officer 1996) -- Aeltus Trust Company; Chief Compliance
Officer (since August 1993) -- Aeltus Capital, Inc.
Neil Kochen Managing Director, Product Managing Director (since April 1996) -- Aeltus Trust
Development 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 -
Marketing and Sales August, 1997) -- Fidelity Investments Institutional
Services Company.
Kevin M. Means Managing Director, Equity Managing Director (July 1994 - August 1996) -- Aetna
Investments Life Insurance and Annuity Company; Managing Director
(since August 1996) -- Aeltus Trust Company.
L. Charles Meythaler Managing Director, Institutional Director (since July 1997) -- Aeltus Trust Company;
Marketing and Sales Managing Director ( since June 1997) -- Aeltus Trust
Company; President (June 1993 - April 1997) --
New England Investment Association.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
---- with Investment Adviser Since Oct. 31, 1995/Addresses*/**
----------------------- ---------------------------------
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeanne Wong-Boehm Managing Director, Fixed Income Portfolio Manager (March 1982 - August 1996) -- Aetna
Investments Life Insurance and Annuity Company; Portfolio Manager
(March 1982 - August 1996) -- Aetna Inc.; Managing
Director (since August 1996) -- Aeltus Trust Company;
Registered Representative (since August 1996) --
Aeltus Capital, Inc.
</TABLE>
* Except with respect to Mr. McInerney and Ms. Smith, the principal business
address of each person named is 242 Trumbull Street, Hartford, Connecticut
06103-1205. The address of Mr. McInerney and Ms. Smith 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 and Compliance None
Officer
Peter Canoni Managing Director None
Daniel F. Wilcox Vice President - Finance and Treasurer None
</TABLE>
<PAGE>
* 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 3, 1998, shareholder records will be maintained by the
Registrant's new 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 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
<PAGE>
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 certifies that it meets the requirements of Rule 485(b) under the
Securities Act of 1933 for effectiveness of this Post-Effective Amendment to the
Registration Statement on Form N-1A (File No. 33-41694) and 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 29th
day of June, 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 June 29, 1998 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
J. Scott Fox* President and Director )
- ------------------------------------------ (Principal Executive Officer) )
J. Scott Fox )
)
Albert E. DePrince, Jr.* Director )
- ------------------------------------------ )
Albert E. DePrince, Jr. )
)
Maria T. Fighetti* Director ) June
- ------------------------------------------ ) 29, 1998
Maria T. Fighetti )
)
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 )
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Corine T. Norgaard* Director )
- ------------------------------------------ )
Corine T. Norgaard )
)
Richard G. Scheide* Director )
- ------------------------------------------ )
Richard G. Scheide )
)
Stephanie A. Taylor* Treasurer and Chief Financial Officer )
- ------------------------------------------ (Principal Financial and Accounting )
Stephanie A. Taylor Officer) )
By: /s/ Amy R. Doberman
--------------------------------------------
*Amy R. Doberman
Attorney-in-Fact
</TABLE>
(Executed pursuant to Powers of Attorney dated December 10, 1997 and June 24,
1998 and filed with the Securities and Exchange Commission on January 16, 1998
(Accession No. 0000950146-98-000093)) and with this Post-Effective Amendment No.
26 as exhibit 24(b)(19)(b), respectively.
<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(1)(e) Articles Supplementary (June 25, 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. (May 11, 1994) *
99-b(8)(a)(iii) Amendment to Custodian Agreement - Mellon Bank, N.A. (September 14, 1994) *
99-b(8)(a)(iv) Amendment to Custodian Agreement - Mellon Bank, N.A. (October 11, 1996) *
99-b(8)(a)(v) Amendment to Custodian Agreement - Mellon Bank, N.A. (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 *
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) *
</TABLE>
*Incorporated by reference
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C>
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) Power of Attorney ---------------
99-b(19)(c) Authorization for Signatures *
27 Financial Data Schedules
---------------
</TABLE>
*Incorporated by reference
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AETNA SERIES FUND, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at its June 24, 1998
meeting, adopted a resolution increasing the total number of shares of stock
which the Corporation shall have authority to issue to nine billion, seven
hundred million (9,700,000,000) shares of capital stock with a par value of
$0.001 per share and with an aggregate par value of nine million, seven hundred
thousand dollars ($9,700,000.00);
SECOND: The Board of Directors, at its meeting held on June 24, 1998, by
resolutions, did designate and classify two billion, nine hundred million
(2,900,000,000) shares of capital stock as a new "Class C" of each series
("Series") as follows:
<TABLE>
<CAPTION>
Name of Series Name of Number of
-------------- ------- ---------
Class of Series Shares Allocated
--------------- ----------------
<S> <C> <C>
AETNA MONEY MARKET FUND Class C 1,000,000,000
AETNA BOND FUND Class C 100,000,000
AETNA BALANCED FUND Class C 100,000,000
AETNA GROWTH AND Class C 100,000,000
INCOME FUND
AETNA INTERNATIONAL FUND Class C 200,000,000
AETNA GOVERNMENT FUND Class C 100,000,000
AETNA SMALL COMPANY FUND Class C 100,000,000
AETNA GROWTH FUND Class C 100,000,000
AETNA ASCENT FUND Class C 100,000,000
AETNA CROSSROADS FUND Class C 100,000,000
AETNA LEGACY FUND Class C 100,000,000
AETNA INDEX PLUS Class C 100,000,000
LARGE CAP FUND
AETNA INDEX PLUS BOND FUND Class C 100,000,000
AETNA INDEX PLUS Class C 100,000,000
MID CAP FUND
<PAGE>
<CAPTION>
Name of Series Name of Number of
-------------- ------- ---------
Class of Series Shares Allocated
--------------- ----------------
<S> <C> <C>
AETNA MID CAP FUND Class C 100,000,000
AETNA INDEX PLUS Class C 100,000,000
SMALL CAP FUND
AETNA HIGH YIELD FUND Class C 100,000,000
AETNA REAL ESTATE SECURITIES FUND Class C 100,000,000
AETNA VALUE Class C 100,000,000
OPPORTUNITY FUND
</TABLE>
THIRD: The shares of each Series, and of each Class of such Series,
including, but not limited to the shares of Class C of each Series designated
and classified in paragraph Second of these Articles Supplementary, shall have
the preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as set forth in
paragraphs SEVENTH and EIGHTH of, and elsewhere in, the Articles of Amendment
and Restatement of the Corporation. In addition, the proceeds of the redemption
of Class C shares of each Series (including fractional shares) may be reduced by
the amount of any contingent deferred sales charge payable on such redemption
pursuant to the terms of the issuance of such shares.
FOURTH: The shares of each Series and of each Class of each Series shall
be subject to all provisions of the Articles of Amendment and Restatement of the
Corporation.
FIFTH: The shares of the Corporation authorized and classified pursuant
to paragraphs FIRST and SECOND of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the charter of the Corporation. The total number of shares of
capital stock that the Corporation has authority to issue has been increased by
the Board of Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
SIXTH: Immediately prior to the effectiveness of these Articles
Supplementary, the Corporation had the authority to issue six billion, eight
hundred million (6,800,000,000) shares of capital stock with a par value of
$0.001 per share and with an aggregate par value of six million, eight hundred
thousand dollars ($6,800,000.00), of which the Board of Directors had designated
and classified five billion, eight hundred million (5,800,000,000) shares as
follows:
<TABLE>
<CAPTION>
Name of Series Name of Number of
-------------- ------- ---------
Class of Series Shares Allocated
--------------- ----------------
<S> <C> <C>
AETNA MONEY MARKET FUND Class I 1,000,000,000
Class A 1,000,000,000
AETNA BOND FUND Class I 100,000,000
Class A 100,000,000
2
<PAGE>
<CAPTION>
Name of Series Name of Number of
-------------- ------- ---------
Class of Series Shares Allocated
--------------- ----------------
<S> <C> <C>
AETNA BALANCED FUND Class I 100,000,000
Class A 100,000,000
AETNA GROWTH AND Class I 100,000,000
INCOME FUND Class A 100,000,000
AETNA INTERNATIONAL FUND Class I 200,000,000
Class A 200,000,000
AETNA GOVERNMENT FUND Class I 100,000,000
Class A 100,000,000
AETNA SMALL COMPANY FUND Class I 100,000,000
Class A 100,000,000
AETNA GROWTH FUND Class I 100,000,000
Class A 100,000,000
AETNA ASCENT FUND Class I 100,000,000
Class A 100,000,000
AETNA CROSSROADS FUND Class I 100,000,000
Class A 100,000,000
AETNA LEGACY FUND Class I 100,000,000
Class A 100,000,000
AETNA INDEX PLUS Class I 100,000,000
LARGE CAP FUND Class A 100,000,000
AETNA INDEX PLUS BOND FUND Class I 100,000,000
Class A 100,000,000
AETNA INDEX PLUS Class I 100,000,000
MID CAP FUND Class A 100,000,000
AETNA MID CAP FUND Class I 100,000,000
Class A 100,000,000
AETNA INDEX PLUS Class I 100,000,000
SMALL CAP FUND Class A 100,000,000
AETNA HIGH YIELD FUND Class I 100,000,000
Class A 100,000,000
3
<PAGE>
<CAPTION>
Name of Series Name of Number of
-------------- ------- ---------
Class of Series Shares Allocated
--------------- ----------------
<S> <C> <C>
AETNA REAL ESTATE SECURITIES FUND Class I 100,000,000
Class A 100,000,000
AETNA VALUE Class I 100,000,000
OPPORTUNITY FUND Class A 100,000,000
</TABLE>
SEVENTH: Immediately following the effectiveness of these Articles
Supplementary, the Corporation will have authority to issue nine billion, seven
hundred million (9,700,000,000) shares of capital stock with a par value of
$0.001 per share and with an aggregate par value of nine million, seven hundred
thousand dollars ($9,700,000.00) of which the Board of Directors has designated
and classified eight billion, seven hundred million (8,700,000,000) shares as
set forth in paragraphs SECOND and SIXTH of these Articles Supplementary and of
which one billion (1,000,000,000) shares remain unclassified.
IN WITNESS WHEREOF, Aetna Series Fund, Inc. has caused these Articles
Supplementary to be signed in its name on its behalf by its authorized officers
who acknowledge that these Articles Supplementary are the act of the
Corporation, that to the best of their knowledge, information and belief, all
matters and facts set forth herein relating to the authorization and approval of
these Articles Supplementary are true in all material respects and that this
statement is made under the penalties of perjury.
ATTEST: AETNA SERIES FUND, INC.
/s/ Amy R. Doberman /s/ J. Scott Fox
- ------------------------------------------ ----------------------------------
Amy R. Doberman J. Scott Fox
Secretary President
Date: 6/24/98
--------------
CORPORATE SEAL
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 3rd day of July, 1998 (the "Effective Date") is
between AETNA SERIES FUND, INC. (the "Fund"), a Maryland corporation having its
principal place of business at 242 Trumbull Street, Hartford, CT 06103 and FIRST
DATA INVESTOR SERVICES GROUP, INC. ("Investor Services Group"), a Massachusetts
corporation with principal offices at 4400 Computer Drive, Westboro,
Massachusetts 01581.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets.
WHEREAS, the Fund currently offers Shares in those Portfolios
identified in the attached Exhibit 1, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint
Investor Services Group as its transfer agent, dividend disbursing agent and
agent in connection with certain other activities and Investor Services Group
desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 Definitions.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to Investor Services Group from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
<PAGE>
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(g) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(h) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person;
(i) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets;
(j) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(k) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(l) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(m) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 Appointment of Investor Services Group.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
Investor Services Group as its sole and exclusive transfer agent and dividend
disbursing agent for Shares of each respective Portfolio of the Fund and as
shareholder servicing agent for the Fund and Investor Services Group hereby
accepts such appointments and agrees to perform the duties hereinafter set
forth.
Article 3 Duties of Investor Services Group.
3.1 Investor Services Group shall be responsible for:
<PAGE>
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule A and incorporated herein, and in accordance with the terms of
the Prospectus of the Fund on behalf of the applicable Portfolio,
applicable law and the procedures established from time to time between
Investor Services Group and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) under the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. Investor Services Group
shall provide the Fund on a regular basis with the total number of
Shares of each Portfolio which are authorized and issued and
outstanding and shall have no obligation, when recording the issuance
of Shares, to monitor the issuance of such Shares or to take cognizance
of any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Fund.
(c) In addition to providing the foregoing services, the Fund
hereby engages Investor Services Group as its exclusive service
provider with respect to the Print/Mail Services as set forth in
Schedule B for the fees also identified in Schedule B. Investor
Services Group agrees to perform the services and its obligations
subject to the terms and conditions of this Agreement.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the propriety of the amount to be paid with
respect to redemptions; (iii) the legality of the declaration of any
dividend by the Board of Directors, or the legality of the issuance of
any Shares in payment of any dividend; or (iv) the legality of any
recapitalization or readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to Investor Services Group
in writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of Investor Services Group for the
Fund's blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
3.3 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
<PAGE>
3.4 Investor Services Group agrees use reasonable efforts to provide
the services described herein in accordance with the Performance Standards
annexed hereto as Exhibit 1 of Schedule A and incorporated herein (the
"Performance Standards"). Such Performance Standards may be amended from time to
time upon written agreement by the parties.
Article 4 Recordkeeping and Other Information.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule A
in accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Fund on and in accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, Investor Services Group will endeavor to notify
the Fund of such request and secure Written Instructions as to the handling of
such request. Investor Services Group reserves the right, however, to exhibit
the Shareholder records to any person whenever it is advised by its counsel that
it may be held liable for the failure to comply with such request.
Article 5 Fund Instructions.
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions reasonably believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund.
5.2 At any time, Investor Services Group may request Written
Instructions from the Fund and may seek advice from legal counsel for the Fund,
or its own legal counsel, with respect to any matter arising in connection with
this Agreement, and it shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for Investor Services
Group. Written Instructions requested by Investor Services Group will be
provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that upon the request of Investor Services
Group all Oral Instructions shall be followed within one business
<PAGE>
day by confirming Written Instructions, and that the Fund's failure to so
confirm shall not impair in any respect Investor Services Group's right to rely
on Oral Instructions.
Article 6 Compensation.
6.1 The Fund, on behalf of each of the Portfolios, will compensate
Investor Services Group for the performance of its obligations hereunder in
accordance with the fees set forth in the written Fee Schedule annexed hereto as
Schedule B and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by Investor Services Group in the
performance of its duties hereunder. Out-of-pocket expenses shall only include
the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule C and incorporated herein. Schedule C may be modified by
written agreement between the parties.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses to Investor Services Group by Federal Funds Wire
within thirty (30) business days following the receipt of the respective
invoice. In addition, with respect to all fees under this Agreement, Investor
Services Group may charge a service fee equal to the lesser of (i) one and one
half percent (1 1/2%) per month or (ii) the highest interest rate legally
permitted on any past due invoiced amounts, provided however, the foregoing
service fee shall not apply if the Fund in good faith legitimately disputes any
invoice amount in which case the Fund shall do the following within thirty (30)
days of the postmark date: (a) pay Investor Services Group the undisputed amount
of the invoice; and (b) provide Investor Services Group a detailed written
description of the disputed amount and the basis for the Fund's dispute with
such amount. In addition, the Fund shall cooperate with Investor Services Group
in resolving disputed invoice amounts and then promptly paying such amounts
determined to be due.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule B, a revised Fee Schedule executed and dated by
the parties hereto.
6.5 The Fund acknowledges that the fees that Investor Services Group
charges the Fund under this Agreement reflect the allocation of risk between the
parties, including the disclaimer of warranties, the limitations on liability
and exclusion of remedies contained herein. Modifying the allocation of risk
from what is stated here would affect the fees that Investor Services Group
charges, and in consideration of those fees, the Fund agrees to the stated
allocation of risk.
Article 7 Documents.
In connection with the appointment of Investor Services Group, the Fund
shall, on or before the date this Agreement goes into effect, but in any case
within a reasonable period of time for Investor Services Group to prepare to
perform its duties hereunder, deliver or caused to
<PAGE>
be delivered to Investor Services Group the documents set forth in the written
schedule of Fund Documents annexed hereto as Schedule D.
Article 8 Transfer Agent System.
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts, expertise, patents, copyrights,
trade secrets, and other related legal rights utilized by Investor Services
Group in connection with the services provided by Investor Services Group to the
Fund herein (the "Investor Services Group System").
8.2 Investor Services Group hereby grants to the Fund a limited license
to the Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund, is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited to maintenance,
exchanges, purchases and redemptions, such direct access capability shall be
limited to direct entry to the Investor Services Group System by means of
on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
Article 9 Representations and Warranties.
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organized, existing and in good
standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
<PAGE>
(f) Investor Services Group warrants that all equipment and
software used or delivered in connection herewith or with the services
rendered hereunder include or shall include, at no additional cost to
the Fund, design and performance capabilities so that prior to, during,
and after the calendar year 2000, they will not malfunction, produce
invalid or incorrect results, or cease to function because of the year
2000 date change. Such design and performance capabilities shall
include without limitation the ability to recognize, manage, manipulate
and interface with data involving dates, including single century and
multi-century formulas and date values, without resulting in the
generation of incorrect values involving such dates or causing an
abnormal ending. In connection with the foregoing, Investor Services
Group agrees to provide the Fund with periodic quarterly updates with
respect to Investor Services Group's compliance with this provision and
permit the Fund to test interfaces between Investor Services Group and
the Fund and upon reasonable notice perform periodic onsite audits to
monitor Investor Services Group's Year 2000 compliance efforts.
(g) Investor Services Group warrants ("Rights Warranty") it
has the right to utilize the Investor Services Group System to provide
services to the Fund in accordance with the Agreement.
9.2 The Fund represents and warrants to Investor Services Group that:
(a) it is duly organized, existing and in good standing under
the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize
it to enter into this Agreement;
(d) a registration statement under the Securities Act of 1933,
as amended, and the 1940 Act on behalf of each of the Portfolios is
currently effective and will remain effective, and all appropriate
state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale;
and
(e) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable.
Article 10 Indemnification.
10.1 Investor Services Group shall not be responsible for and the Fund
on behalf of each Portfolio shall indemnify and hold Investor Services Group
harmless from and against any
<PAGE>
and all claims, costs, expenses (including reasonable attorneys' fees), losses,
damages, charges, payments and liabilities of any sort or kind which may be
asserted against Investor Services Group or for which Investor Services Group
may be held to be liable (a "Claim") arising out of or attributable to any of
the following:
(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act or bad faith by Investor Services
Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Fund, or
any authorized third party acting on behalf of the Fund, including but
not limited to the prior transfer agent for the Fund, in the
performance of Investor Services Group's duties and obligations
hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio made by an Authorized Person;
(d) the offer or sale of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state unless Investor Services
Group is provided with notice of any such violation and disregards the
Fund's instructions to stop selling shares; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 The Fund shall not be responsible for and Investor Services Group
shall indemnify and hold the Fund harmless from and against any and all Claims
which result from the negligence, bad faith or willful misconduct of Investor
Services Group in the performance of its duties hereunder.
10.3 In any case in which the either party (the "Indemnifying Party")
may be asked to indemnify or hold the other (the "Indemnified Party") harmless,
the Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnifying Party although the
failure to do so shall not prevent recovery by the Indemnified Party and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
<PAGE>
satisfactory to the Indemnified Party, and thereupon the Indemnifying Party
shall take over complete defense of the Claim and the Indemnified Party shall
sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Article 10 shall survive the termination of this
Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the party becomes aware of the event for
which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
the sole and exclusive remedy for claims or other actions or proceedings to
which a party's indemnification obligations pursuant to this Article 10 may
apply.
10.6 Provided the Fund gives Investor Services Group timely written
notice, reasonable assistance, including assistance from the Fund's employees,
agents, and affiliates (collectively, "Client's Agents"), and sole authority to
defend or settle the action, then Investor Services Group shall do the following
("Infringement Indemnification"): (a) defend or settle, at its expense, any
action brought against the Fund to the extent the action is based on a claim
that the Investor Services Group System infringes a duly issued United States'
patent or copyright or violates a third party's proprietary trade secrets or
other similar intellectual property rights ("Infringement"); and (b) pay damages
and costs finally awarded against the Fund directly attributable to such claim.
Investor Services Group shall have no Infringement Indemnification obligation if
the alleged Infringement is based upon the Fund's use of or access to the
Investor Services Group System which is not approved by Investor Services Group
or if such claim arises from Investor Services Group's compliance with the
Fund's designs or instructions, or from the Fund's modifications of the Investor
Services Group System. The Infringement Indemnification states Investor Services
Group's entire liability for Infringement and shall be the Fund's sole and
exclusive remedy for the Rights Warranty.
Article 11 Standard of Care.
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
<PAGE>
11.2 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 Consequential Damages.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE TO THE OTHER PARTY UNDER ANY
THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY
FOR LOST PROFITS, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE
PARTIES REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER EITHER
PARTY OR ANY ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Article 13 Term and Termination.
13.1 Except as otherwise provided herein, this Agreement shall be
effective on the date first written above and shall continue for a period of
five (5) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each,
unless the Fund or Investor Services Group provides written notice to the other
of its intent not to renew. Such notice must be received not less than
one-hundred twenty (120) days prior to the expiration of the Initial Term or the
then current Renewal Term.
13.3 If, during the Initial Term or any Renewal Term, a majority of the
non-interested members of the Board of Directors of the Fund, after consulting
with the investment manager of the Fund concludes, in the exercise of their
fiduciary duties and pursuant to reasonable business judgment, that the services
rendered by Investor Services Group have been unsatisfactory or that the amounts
paid by the Fund are not competitive in comparison to the fees paid by other
comparable mutual funds to their transfer agents for substantially similar
services as evidenced by information on transfer agent fees published by the
Investment Company Institute, then the Fund shall give written notice of such
conclusion to Investor Services Group and Investor Services Group shall have
sixty (60) days to correct the unsatisfactory performance or to renegotiate the
amounts to be paid hereunder. With respect to the negotiation of amounts to be
paid, the Fund agrees to negotiate with Investor Services Group in good faith.
If at the end of the sixty (60) day period, the Board of Directors believes in
good faith that the unsatisfactory services have not been corrected or after
good faith negotiation the parties cannot agree to a fee adjustment and the
Board of Directors believes in good faith that the charges hereunder remain
noncompetitive, then the Fund may terminate this Agreement on one-hundred twenty
(120) days notice.
<PAGE>
13.4 Investor Services Group may terminate this Agreement without cause
at any time on one-hundred twenty (120) days notice to the Fund.
13.5 The Fund may terminate this Agreement at any time without cause
during the first two years of this Agreement by providing Investor Services
Group with one-hundred twenty (120) days written notice of the Fund's intent to
so terminate. Upon such termination, the Fund agrees to pay to Investor Services
Group an early termination fee of $300,000.00 (the "Early Termination Fee"). In
the event that the Fund terminates this Agreement pursuant to this Section 13.5,
the payment of the Early Termination Fee shall be the sole remedy of Investor
Services Group for such termination by the Fund. Notwithstanding the foregoing,
the Early Termination Fee shall not apply in the event this Agreement is
terminated by the Fund in accordance with the provisions of Section 13.3.
13.6 Any written notice of termination shall specify the date of
termination. Upon termination, Investor Services Group will deliver to such
successor as specified by the Fund, a certified list of Shareholders (with
names, addresses and taxpayer identification of Social Security numbers and such
other federal tax information as Investor Services Group may be required to
maintain), an historical record of the account of each Shareholder and the
status thereof, and all other relevant books, records, correspondence, and other
data established or maintained by Investor Services Group under this Agreement
in the form reasonably acceptable to the Fund, and will cooperate in the
transfer of such duties and responsibilities, including provisions for
assistance from Investor Services Group's personnel in the establishment of
books, records and other data by such successor or successors.
13.7 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
Article 14 Additional Portfolios.
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Exhibit 1, with respect to which the Fund
desires to have Investor Services Group render services as transfer agent under
the terms hereof, the Fund shall so notify Investor Services Group in writing,
and if Investor Services Group agrees in writing to provide such services,
Exhibit 1 shall be amended to include such additional Portfolios.
Article 15 Confidentiality.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and Investor Services Group shall exercise at least the same degree of care, but
not less than reasonable care, to safeguard the confidentiality of the
Confidential Information of the other as it would exercise to protect its own
confidential information of a similar nature. The Fund and Investor Services
Group shall not duplicate, sell or disclose to others the Confidential
Information of the other, in whole or in part, without the prior
<PAGE>
written permission of the other party. The Fund and Investor Services Group may,
however, disclose Confidential Information to their respective appropriate
regulatory authorities, parent corporation, their respective affiliates, their
subsidiaries and affiliated companies, employees, legal counsel, auditors and
independent contractors provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. Notwithstanding the previous sentence, in no event
shall either the Fund or Investor Services Group disclose the Confidential
Information to any competitor of the other without specific, prior written
consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, investment and marketing
strategies, finance, operations, customer relationships, customer
profiles, sales estimates, business plans, and internal performance
results relating to the past, present or future business activities of
the Fund or Investor Services Group, their respective subsidiaries and
affiliated companies and the customers, clients and suppliers of any of
them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or
Investor Services Group a competitive advantage over its competitors;
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable; and
(d) names, addresses and other related information with
respect to the Fund's Shareholders.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
<PAGE>
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(e) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the
Confidential Information disclosed under this Agreement.
Article 16 Force Majeure.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; or (iv) except with respect to the subcontractors
engaged by Investor Services Group as described in Article 17, the
nonperformance by a third party or any similar cause beyond the reasonable
control of such party, including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the non-performing
party shall be excused from any further performance and observance of the
obligations so affected only for as long as such circumstances prevail and such
party continues to use commercially reasonable efforts to recommence performance
or observance as soon as practicable.
Article 17 Assignment and Subcontracting.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld. Investor Services Group may,
in its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services Group, provided
however, Investor Services Group shall remain responsible for the for the acts
and omissions of such subcontractors as if performed directly by Investor
Services Group.
Article 18 Arbitration.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of
<PAGE>
Evidence and the Federal Rules of Civil Procedure with respect to the discovery
process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 Notice.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
Aetna Series Funds, Inc.
242 Trumbull Street
Hartford, CT 06103
Attention: Frank Litwin
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 20 Governing Law/Venue.
The laws of the Commonwealth of Massachusetts, excluding the laws on
conflicts of laws, shall govern the interpretation, validity, and enforcement of
this agreement. All actions arising from or related to this Agreement shall be
brought in the state and federal courts sitting in the City of Boston, and
Investor Services Group and Client hereby submit themselves to the exclusive
jurisdiction of those courts.
Article 21 Counterparts.
<PAGE>
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
Article 22 Captions.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 Publicity.
Investor Services Group shall not release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the Fund; the Fund shall not use Investor Services Group's name in
any news releases, public announcements or other publicity, excluding standard
Fund advertisements or marketing materials, without the prior written approval
of the Investor Services Group, provided, however, that either party may make
such disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 24 Relationship of Parties/Non-Solicitation.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
neither party shall recruit, solicit, employ or engage, for itself or others,
the employees of the other party.
Article 25 Entire Agreement; Severability.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the
<PAGE>
original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
AETNA SERIES FUNDS, INC.
By: /s/ J. Scott Fox
------------------------
Title: President
------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: /s/ Mark Hourihan
------------------------
Title: Executive Vice President
------------------------
<PAGE>
Exhibit 1
LIST OF PORTFOLIOS
Aetna Money Market Fund
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 Mid Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Bond Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
<PAGE>
Schedule A
Duties of Investor Services Group
1. Shareholder Information. Investor Services Group shall maintain a
record of the number of Shares held by each Shareholder of record which shall
include name, address, taxpayer identification.
2. Shareholder Services. Investor Services Group shall respond as
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between Investor Services Group and the Fund.
3. Mailing Communications to Shareholders; Proxy Materials. Investor
Services Group will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In connection with meetings of Shareholders,
Investor Services Group will prepare Shareholder lists, mail and certify as to
the mailing of proxy materials, process and tabulate returned proxy cards,
report on proxies voted prior to meetings, act as inspector of election at
meetings and certify Shares voted at meetings.
4. Sales of Shares.
(a) Investor Services Group shall not be required to issue any
Shares of the Fund where it has received a Written Instruction from the Fund or
official notice from any appropriate authority that the sale of the Shares of
the Fund has been suspended or discontinued. The existence of such Written
Instructions or such official notice shall be conclusive evidence of the right
of Investor Services Group to rely on such Written Instructions or official
notice.
(b) In the event that any check or other order for the payment
of money is returned unpaid for any reason, Investor Services Group will
endeavor to: (i) give prompt notice of such return to the Fund or its designee;
(ii) place a stop transfer order against all Shares issued as a result of such
check or order; and (iii) take such actions as Investor Services Group may from
time to time deem appropriate.
5. Transfer and Repurchase.
(a) Investor Services Group shall process all requests to
transfer or redeem Shares in accordance with the transfer or repurchase
procedures set forth in the Fund's Prospectus.
(b) Investor Services Group will transfer or repurchase Shares
upon receipt of Oral or Written Instructions or otherwise pursuant to the
Prospectus and accompanied by such documents as Investor Services Group
reasonably may deem necessary.
<PAGE>
(c) Investor Services Group reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. Investor Services Group also reserves the
right to refuse to transfer or repurchase Shares until it is satisfied that the
requested transfer or repurchase is legally authorized, and it shall incur no
liability for the refusal, in good faith, to make transfers or repurchases which
Investor Services Group, in its good judgment, deems improper or unauthorized,
or until it is reasonably satisfied that there is no basis to any claims adverse
to such transfer or repurchase.
(d) When Shares are redeemed, Investor Services Group shall,
upon receipt of the instructions and documents in proper form, deliver to the
Custodian and the Fund or its designee a notification setting forth the number
of Shares to be repurchased. Such repurchased shares shall be reflected on
appropriate accounts maintained by Investor Services Group reflecting
outstanding Shares of the Fund and Shares attributed to individual accounts.
(e) Investor Services Group shall upon receipt of the monies
provided to it by the Custodian for the repurchase of Shares, pay such monies as
are received from the Custodian, all in accordance with the procedures described
in the written instruction received by Investor Services Group from the Fund.
(f) Investor Services Group shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by Investor Services
Group or its agent of notification of the suspension of the determination of the
net asset value of the Fund.
6. Dividends.
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Fund with respect to Shares
of the Fund, the Fund shall furnish or cause to be furnished to Investor
Services Group Written Instructions setting forth the date of the declaration of
such dividend or distribution, the ex-dividend date, the date of payment
thereof, the record date as of which Shareholders entitled to payment shall be
determined, the amount payable per Share to the Shareholders of record as of
that date, the total amount payable on the payment date.
(b) On or before the payment date specified in such resolution
of the Board of Directors, the Fund will provide Investor Services Group with
sufficient cash to make payment to the Shareholders of record as of such payment
date.
(c) If Investor Services Group does not receive sufficient
cash from the Fund to make total dividend and/or distribution payments to all
Shareholders of the Fund as of the record date, Investor Services Group will,
upon notifying the Fund, withhold payment to all Shareholders of record as of
the record date until sufficient cash is provided to Investor Services Group.
7. In addition to and neither in lieu nor in contravention of the
services set forth above, Investor Services Group shall: (i) perform all the
customary services of a transfer agent,
<PAGE>
registrar, dividend disbursing agent and agent of the dividend reinvestment and
cash purchase plan as described herein consistent with those requirements in
effect as at the date of this Agreement. The detailed definition, frequency,
limitations and associated costs (if any) set out in the attached fee schedule,
include but are not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, tabulating proxies, mailing
Shareholder reports to current Shareholders, withholding taxes on U.S. resident
and non-resident alien accounts where applicable, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required with respect
to dividends and distributions by federal authorities for all Shareholders.
<PAGE>
Exhibit 1 of Schedule A
Performance Standards
[bullet] Measurement of standards will commence one month after conversion
of services to Investor Services Group.
[bullet] Performance Standards shall be measured in the aggregate with
respect to all of the Portfolios.
A. Telephones:
To be measured on a quarterly basis, minimum of 750 calls received.
[bullet] The average speed of answering calls will be twenty (20) seconds or
less.
[bullet] The abandonment rate for teleservicing calls will be three (3) percent
or less (Calculation: calls abandoned over 20 seconds/calls offered).
[bullet] The Service Level will be eighty-five percent (85%) or higher.
[bullet] Primary representatives will be monitored and graded by their manager
at least five (5) times per month. Secondary representatives will be
monitored and graded at least twice (2) per month. These reviews will
be forwarded to the Fund at the end of each month.
[bullet] The VRU will be available for inquiry at least 90% of the time.
B. Processing:
The following standards will be met 95% of the time measured on a
quarterly basis, minimum of 50 items per standard measured.
[bullet] New accounts in good order will be established on Investor Services
Group System on the same day received.
[bullet] Correspondence will be completed within five (5) business days of
receipt.
[bullet] Maintenance items and transfers in good order will be completed within
five (5) business days of receipt.
[bullet] Research will be completed within four (4) business days from receipt.
C. Print/Mail:
The following standards will be met 95% of the time measured on a
quarterly basis, minimum of 50 items per standard measured.
[bullet] Daily confirmations will be mailed to shareholders on Trade Date plus
two (2) business days.
<PAGE>
[bullet] Check requests will be mailed to shareholders on Trade Date plus two
(2) business days.
[bullet] Quarterly Statements will be mailed to shareholders within five (5)
business days from quarter end.
<PAGE>
Schedule C
OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for the
following applicable out-of-pocket expenses:
Standard (No Prior Fund Approval Required):
[bullet] Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass
through to the Fund.
[bullet] Telephone and telecommunication costs, including all lease, maintenance
and line costs.
[bullet] Shipping, Certified and Overnight mail and insurance.
[bullet] Incoming and outgoing wire charges.
[bullet] Federal Reserve charges for check clearance.
[bullet] ACH related transaction charges.
[bullet] Correspondent banking charges.
[bullet] Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors.
[bullet] Third party audit reviews.
[bullet] NSCC/FundServe Transaction charges.
[bullet] NSCC same day confirm charges.
[bullet] Commission statements and checks.
Non-Standard (Prior Fund Approval Required):
[bullet] Ad hoc reports/SQL computer time.
[bullet] Proxy solicitations, mailings and tabulations, upon prior Fund
approval.
[bullet] Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines, upon
prior Fund approval.
[bullet] Courier services.
[bullet] Overtime.
[bullet] Temporary staff.
[bullet] Travel and entertainment.
[bullet] Magnetic media tapes and freight.
[bullet] Such other miscellaneous expenses reasonably incurred by Investor
Services Group in response to specific requests by the Fund in
performing its duties and responsibilities under this Agreement.
The Fund will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Fund and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
<PAGE>
Schedule D
FUND DOCUMENTS
[bullet] Certified copy of the Articles of Incorporation of the Fund, as
amended.
[bullet] Certified copy of the By-laws of the Fund, as amended.
[bullet] Copy of the resolution of the Board of Directors authorizing the
execution and delivery of this Agreement.
[bullet] All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service offered by the
Fund.
[bullet] Certified list of Shareholders of the Fund with the name, address and
taxpayer identification number of each Shareholder, and the number of
Shares of the Fund held by each, lists of any accounts against which
stop transfer orders have been placed, together with the reasons
therefore, and the number of Shares redeemed by the Fund.
[bullet] All notices issued by the Fund with respect to the Shares in accordance
with and pursuant to the Articles of Incorporation or By-laws of the
Fund or as required by law and shall perform such other specific duties
as are set forth in the Articles of Incorporation including the giving
of notice of any special or annual meetings of shareholders and any
other notices required thereby.
[Aetna Letterhead]
[Aetna Logo]
Aetna Inc.
151 Farmington Avenue
Hartford, CT 06156-3124
Amy R. Doberman
Counsel
Law Division, ALT5
June 29, 1998 Investments & Financial Services
(860) 275-2032
Fax: (860) 275-4440
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aetna Series Fund, Inc.
Post-Effective Amendment No. 26 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
June 29, 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
Consent of Independent Auditors
The Board of Directors and Shareholders
Aetna Series Fund, Inc.:
We consent to the incorporation by reference herein this Post-Effective
Amendment No. 26 to the Registration Statement (File No. 33-41694) on Form N-1A
our reports dated December 12, 1997 and to the references to our firm under the
headings, "Financial Highlights" in the Class A and Class C Shares prospectus
and "Independent Auditors" in the statement of additional information.
/s/ KPMG Peat Marwick LLP
-----------------------------------
KPMG Peat Marwick LLP
Hartford, Connecticut
June 29, 1998
POWER OF ATTORNEY
I, the undersigned director of Aetna Series Fund, Inc., Aetna Balanced VP, Inc.,
Aetna Generation Portfolios, Inc. and Aetna Variable Portfolios, Inc. hereby
constitute and appoint Amy R. Doberman, Julie E. Rockmore and Daniel E. Burton,
and each of them individually, my true and lawful attorneys, with full power to
them and each of them to sign for me, and in my name and in the capacity
indicated below, any and all amendments to the Registration Statements listed
below filed with the Securities and Exchange Commission under the Securities Act
of 1933 and the Investment Company Act of 1940:
Registration Statements filed under the Securities Act of 1933:
Aetna Series Fund, Inc. 33-41694
Aetna Series Fund, Inc. - (Aetna Generation Funds) 33-85620
Aetna Balanced VP, Inc. 33-27247
Aetna Generation Portfolios, Inc. 33-88334
Aetna Variable Portfolios, Inc. 333-05173
Registration Statements filed under the Investment Company Act of 1940:
Aetna Series Fund, Inc. 811-6352
Aetna Balanced VP, Inc. 811-5773
Aetna Generation Portfolios, Inc. 811-8934
Aetna Variable Portfolios, Inc. 811-7651
hereby ratifying and confirming on this 24th day of June, 1998, my signature as
it may be signed by my said attorneys to any and all amendments to such
Registration Statements.
Signature/Title
---------------
/s/ Albert E. DePrince, Jr.
--------------------------------------------------------------
Albert E. DePrince, Jr.
Director
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<SERIES>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 6,288,530
<DIVIDEND-INCOME> 621,939
<INTEREST-INCOME> 3,103,565
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<EXPENSES-NET> (1,296,616)
<NET-INVESTMENT-INCOME> 2,428,888
<REALIZED-GAINS-CURRENT> 18,297,657
<APPREC-INCREASE-CURRENT> (2,736,577)
<NET-CHANGE-FROM-OPS> 17,989,968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (67,543)
<DISTRIBUTIONS-OF-GAINS> (460,490)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 185,352
<NUMBER-OF-SHARES-REDEEMED> (56,646)
<SHARES-REINVESTED> 38,485
<NET-CHANGE-IN-ASSETS> 19,693,506
<ACCUMULATED-NII-PRIOR> 799,186
<ACCUMULATED-GAINS-PRIOR> 10,122,885
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 812,391
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,296,616
<AVERAGE-NET-ASSETS> 5,029,412
<PER-SHARE-NAV-BEGIN> 13.49
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<PER-SHARE-DIVIDEND> (0.20)
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.05
<EXPENSE-RATIO> 1.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
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<SERIES>
<NUMBER> 041
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
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<TOTAL-ASSETS> 623,000,199
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<OTHER-ITEMS-LIABILITIES> 1,017,530
<TOTAL-LIABILITIES> 11,076,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 396,064,625
<SHARES-COMMON-STOCK> 32,954,832
<SHARES-COMMON-PRIOR> 24,001,609
<ACCUMULATED-NII-CURRENT> 2,909,165
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 114,225,571
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 98,724,694
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<NAME> Growth & Income Fund -- Class A
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
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<NAME> International -- Class I
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
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<NAME> International -- Class A
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
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<NAME> Government Fund -- Class I
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
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<NAME> Government Fund-Class A
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<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
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<NAME> Growth Fund -- Class I
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<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
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<NAME> Growth Fund -- Class A
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<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 081
<NAME> Small Company -- Class I
<S> <C>
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<NAME> Small Company -- Class A
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<NAME> Index Plus Large Cap -- Class I
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<NAME> Aetna Series Fund, Inc.
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<NAME> Index Plus Large Cap -- Class A
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<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
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<NAME> Ascent Fund -- Class I
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
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<NAME> Ascent Fund -- Class A
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
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<NAME> Crossroads Fund -- Class I
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<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
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<NAME> Crossroads Fund -- Class A
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<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
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<NAME> Legacy Fund -- Class I
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<TABLE> <S> <C>
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<CIK> 0000877233
<NAME> Aetna Series Fund, Inc.
<SERIES>
<NUMBER> 132
<NAME> Legacy Fund -- Class A
<S> <C>
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</TABLE>
