As filed with the Securities and Exchange File No. 33-41694
Commission on October 6, 1999 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. 34
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 44
Aetna Series Fund, Inc.
10 State House Square SH11, Hartford, Connecticut 06103-3602
(860) 275-2032
Amy R. Doberman, Counsel
Aeltus Investment Management, Inc.
10 State House Square SH11, Hartford, Connecticut 06103-3602
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X On October 7, 1999 pursuant to paragraph (b) of Rule 485
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<PAGE>
Parts A and B
The Class A, B and C Prospectus and the Class I Prospectus of Aetna Series Fund,
Inc. are incorporated into Part A of this Post-Effective Amendment No. 34 by
reference to the Fund's filing under Rule 497(j) under the Securities Act of
1933, as filed on March 1, 1999.
The Class A, B, C and I Prospectus Supplement and Brokerage Cash Reserves
Prospectus of Aetna Series Fund, Inc. are incorporated into Part A of this
Post-Effective Amendment No. 34 by reference to the Fund's filing under Rule
497(j) under the Securities Act of 1933, as filed on August 2, 1999.
The Class A, B, C and I Statement of Additional Information (SAI) and Brokerage
Cash Reserves SAI of Aetna Series Fund, Inc. are incorporated into Part B of
this Post-Effective Amendment No. 34 by reference to the Fund's filing under
Rule 497(j) under the Securities Act of 1933, as filed on August 2, 1999.
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Aetna Series Fund, Inc.
Aetna Principal
Protection Fund II
Prospectus
October 7, 1999
Aetna Series Fund, Inc. is an open-end investment company authorized to issue
multiple series of shares. This prospectus offers shares of Aetna Principal
Protection Fund II (Fund). The Offering Period will run from October 7, 1999
through December 20, 1999. All monies must be received no later than December
17, 1999.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Anyone
who represents to the contrary has committed a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
THE FUND'S INVESTMENTS.....................................................2
Investment Objective, Principal Investment Strategies and Risks.........2
FUND EXPENSES..............................................................5
OTHER CONSIDERATIONS.......................................................6
THE GUARANTEE..............................................................6
MANAGEMENT OF THE FUND.....................................................9
INVESTING IN THE FUND......................................................9
Opening an Account and Selecting a Share Class..........................9
How to Buy Shares......................................................11
How to Sell Shares.....................................................12
Timing of Purchase and Redemption Requests.............................13
Other Information about Shareholder Accounts and Services..............14
Dividends and Distributions............................................16
Tax Information........................................................16
ADDITIONAL INFORMATION....................................................17
<PAGE>
THE FUND'S INVESTMENTS
Investment Objective, Principal Investment Strategies and Risks
Aetna Principal Protection Fund II (Fund) has both an Offering Period and a
Guarantee Period. The Offering Period is the only time investors can invest in
the Fund. The Offering Period will run from October 7, 1999 through December 20,
1999. All applications must be received by the transfer agent no later than
December 17, 1999 (November 8, 1999 in the case of IRA rollovers). All monies
must be received no later than December 17, 1999. During the Offering Period,
Fund assets will be invested exclusively in short-term instruments. Once the
Offering Period terminates, the Guarantee Period begins. The Guarantee Period
will run from December 21, 1999 through December 20, 2004 (Maturity Date).
During the Guarantee Period, all assets will be invested in accordance with the
investment objective and strategies described below. On the Maturity Date, the
Fund will distribute to each shareholder the net asset value (NAV) of his or her
shares. The Fund guarantees that the amount distributed to each shareholder will
be no less than the value of that shareholder's investment as of the inception
of the Guarantee Period (Guarantee) provided that all distributions received
from the Fund have been reinvested and no shares have been redeemed. If a
shareholder takes any distributions or dividends in cash instead of reinvesting
them, or if any shares are redeemed before the Maturity Date, the shareholder's
guaranteed amount will be reduced as more fully described below. The Fund's
Guarantee is backed by an unconditional, irrevocable guarantee pursuant to an
insurance policy issued to the Fund by MBIA Insurance Corporation (MBIA), an
AAA/Aaa rated monoline financial guarantor.
The Fund is a series of Aetna Series Fund, Inc. (Company). Investors who wish to
purchase another series of the Company (Series) may request a separate
prospectus by calling 1-800-367-7732.
Investment Objective During the Guarantee Period, the Fund seeks to achieve
maximum total return by participating in favorable equity market performance
while preserving the principal amount of the Fund as of the inception of the
Guarantee Period.
Principal Investment Strategies Under normal market conditions, during the
Guarantee Period the Fund's assets are allocated between the following asset
classes:
. Equity Component, consisting primarily of common stocks and
. Fixed Component, consisting primarily of short- to intermediate-duration
U.S. Government securities.
Equity Component Aeltus Investment Management, Inc. (Aeltus), the investment
adviser to the Fund, invests at least 80% of the Equity Component's net assets
in stocks included in the Standard and Poor's 500 Index (S&P 500), other than
Aetna Inc. The Equity Component may also include S&P 500 futures contracts. The
S&P 500 is a stock market index comprised of common stocks of 500 of the largest
publicly traded companies in the U.S. selected by Standard and Poor's
Corporation (S&P).
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Aeltus manages the Equity Component by overweighting those stocks in the S&P 500
that it believes will outperform the S&P 500 and underweighting (or avoiding
altogether) those stocks that Aeltus believes will underperform the S&P 500.
Stocks that Aeltus believes are likely to match the performance of the S&P 500
are invested in proportion to their representation in the index. To determine
which stocks to weight more or less heavily, Aeltus uses internally developed
quantitative computer models to evaluate various criteria, such as the financial
strength of each company and its potential for strong, sustained earnings
growth. At any one time, the Fund generally holds between 400 and 450 stocks
included in the S&P 500. Although the Equity Component will not hold all of the
stocks in the S&P 500, Aeltus expects that there will be a close correlation
between the performance of the Equity Component and that of the S&P 500 in both
rising and falling markets.
Fixed Component Aeltus looks to select investments for the Fixed Component with
financial characteristics that will, at any point in time, closely resemble
those of a portfolio of zero coupon bonds which mature within one month of the
Maturity Date. The Fixed Component will consist primarily of securities issued
or guaranteed by the U.S. Government and its agencies or instrumentalities,
including STRIPS (Separate Trading of Registered Interest and Principal of
Securities). STRIPS are created by the Federal Reserve Bank by separating the
interest and principal components of an outstanding U.S. Treasury or agency bond
and selling them as individual securities. The Fixed Component may also include
corporate bonds rated AA- or higher by S&P and/or Aa3 or higher by Moody's
Investors Services, Inc., futures on U.S. Treasury securities and money market
instruments.
Asset Allocation Aeltus uses a proprietary computer model to determine, on an
ongoing basis, the percentage of assets allocated to the Equity Component and to
the Fixed Component in an attempt to meet the investment objective. The model
evaluates a number of factors, including, but not limited to:
. the market value of the Fund's assets;
. the prevailing level of interest rates;
. equity market volatility; and
. the length of time remaining until the Maturity Date.
The model will determine the initial allocation between the Equity Component and
the Fixed Component on the first day of the Guarantee Period and will evaluate
the allocations on a daily basis thereafter. Generally, as the market value of
the Equity Component rises, more assets are allocated to the Equity Component,
and as the market value of the Equity Component declines, more assets are
allocated to the Fixed Component.
Principal Risks The principal risks of investing in the Fund are those generally
attributable to stock and bond investing. The success of the Fund's strategy
depends on Aeltus' skill in allocating assets between the Equity Component and
the Fixed Component and in selecting investments within each component. Because
the Fund invests in both stocks and bonds, the Fund may underperform stock funds
when stocks are in favor and underperform bond funds when bonds are in favor.
The risks associated with investing in stocks include sudden and unpredictable
drops in the value of the market as a whole and periods of lackluster or
negative performance. The performance of the Equity Component also depends
significantly on Aeltus' skill in determining which securities to overweight,
underweight or avoid altogether.
<PAGE>
The principal risk associated with investing in bonds is that interest rates may
rise, which generally causes bond prices to fall. The market value of a zero
coupon bond portfolio generally is more volatile than the market value of a
portfolio of fixed income securities with similar maturities that pay interest
periodically. With corporate bonds, there is a risk that the issuer will default
on the payment of principal or interest.
If interest rates are low (particularly at the inception of the Guarantee
Period), Fund assets may be largely invested in the Fixed Component in order to
increase the likelihood of preserving the value of the Fund as of the inception
of the Guarantee Period. In addition, if during the Guarantee Period the equity
markets experienced a major decline, the Fund's assets may become largely or
entirely invested in the Fixed Component. In fact, if the value of the Equity
Component were to decline by 30% in a single day, a complete and irreversible
reallocation to the Fixed Component would occur. In this circumstance, the Fund
would not participate in any subsequent recovery in the equity markets. Use of
the Fixed Component reduces the Fund's ability to participate as fully in upward
equity market movements, and therefore represents some loss of opportunity, or
opportunity cost, compared to a portfolio that is more heavily invested in
equities.
If Fund assets do not reach $75 million by the end of the Offering Period, or in
the event of severe market volatility or adverse market conditions during the
Offering Period, the Company's Board of Directors (Board) reserves the right not
to operate the Fund in accordance with its investment objective. In that event,
the Fund will continue to be invested in money market instruments and all Fund
shareholders will be entitled to receive the greater of: (a) their initial
investment (including the amount of their Class A front-end sales load, if
applicable) or (b) the then current NAV of their shares.
If you may need access to your money at any point prior to the Maturity Date or
if you prefer to receive your dividends and distributions in cash, you should
consider the appropriateness of investing in the Fund. Redemptions made for any
reason prior to the Maturity Date will be made at NAV and are not eligible for
the Guarantee. Any distributions that you receive in the form of cash will
reduce your Guarantee proportionally.
Shares of the Fund will rise and fall in value and you could lose money by
investing in the Fund if you redeem your shares prior to the Maturity Date.
There is no guaranty that the Fund will achieve its investment objective. An
investment in the Fund is not a bank deposit and is not insured or guaranteed by
the FDIC or any other government agency.
Because the Fund is new, it does not have performance information an investor
may find useful in evaluating the risks of investing in the Fund.
<PAGE>
FUND EXPENSES
The following tables describe the Fund's expenses. Shareholder Fees are paid
directly by shareholders. Annual Fund Operating Expenses are expressed as a
percentage of the Fund's average daily net assets, and are thus paid indirectly
by all Fund shareholders.
Shareholder Fees
(fees paid directly from your investment)
Maximum Sales Maximum Deferred Sales
Charge (Load) on Purchases Charge (Load) (as a % of
(as a % of purchase price) gross redemption proceeds)
Class A 4.75% None
Class B None 5.00%
Annual Fund Operating Expenses1
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Distribution Total Fee Waiver/
Management (12b-1) and Other Operating Expense Net
Fee Service Fees Expenses Expenses Reimbursement Expenses
Class A 0.65% 0.25% 0.61% 1.51% 0.01% 1.50%
Class B 0.65% 1.00% 0.61% 2.26% 0.01% 2.25%
1Because the Fund is new, Other Expenses, shown above, are estimated. Aeltus
is contractually obligated, through the Maturity Date, to waive all or a
portion of its management fee and/or administrative services fee and/or
reimburse a portion of the Fund's other expenses in order to ensure that the
Fund's total operating expenses do not exceed the percentage of the Fund's
average daily net assets reflected in the table under Net Expenses. An
administrative services fee of 0.10% and a guarantee fee of 0.33% are
included in Other Expenses.
Example
The following example is designed to help you compare the costs of investing in
the Fund with the costs of investing in other mutual funds. Using the annual
fund operating expenses percentages above, you would pay the following expenses
on a $10,000 investment, assuming a 5% annual return and redemption at the end
of each of the periods shown:
1 Year* 3 Years* 5 Years*
Class A $ 620 $ 927 $ 1,255
Class B $ 728 $1,003 $ 1,405
* Aeltus is contractually obligated to waive fees and/or reimburse expenses
through the Maturity Date. Therefore, all figures reflect this
waiver/reimbursement.
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.
<PAGE>
OTHER CONSIDERATIONS
In addition to the principal investment strategies and risks described above,
the Fund may also invest in other securities, engage in other practices, and be
subject to additional risks, as discussed below and in the Statement of
Additional Information (SAI).
Futures Contracts The Fund may invest in futures contracts, which provide for
the future sale by one party and purchase by another party of a specified amount
of a financial instrument or a specific stock market index for a specified price
on a designated date. The Fund uses futures to increase exposure or hedge
existing exposure to a particular asset class. The Fund may only invest in
futures contracts on the S&P 500 and U.S. Treasury securities.
The main risk with futures contracts is that they can amplify a gain or loss,
potentially earning or losing substantially more money than the actual cost of
the futures contract.
Year 2000 The date-related computer issue known as the "Year 2000 problem" could
have an adverse impact on the quality of services provided to the Fund and its
shareholders. However, Aeltus understands that the Fund's key service providers,
including the transfer agent, MBIA, the custodian, and the broker-dealers
through which the Fund's trades are executed, are taking steps to address the
issue. The costs of these efforts will not affect the Fund. The Year 2000
problem also may adversely affect the issuers in which the Fund invests. For
example, issuers may incur substantial costs to address the problem. They may
also suffer losses caused by corporate and governmental data processing errors.
Aeltus will continue to monitor developments relating to this issue.
Portfolio Turnover Portfolio turnover refers to the frequency of portfolio
transactions and the percentage of portfolio assets being bought and sold during
the year. It is expected that the Fund may have a portfolio turnover rate in
excess of 125%. A high portfolio turnover rate increases the Fund's transaction
costs and may increase your tax liability.
THE GUARANTEE
The Fund guarantees that on the Maturity Date, each shareholder will receive no
less than the Guarantee per Share amount for each share held (Guaranteed
Amount). The Guarantee per Share will equal the NAV on the last day of the
Offering Period, and thereafter will be adjusted to reflect any dividends and
distributions made by the Fund. A shareholder who automatically reinvests all
such distributions and does not redeem any shares during the Guarantee Period
will receive, on the Maturity Date, no less than his or her account value at the
inception of the Guarantee Period. The Fund's Guarantee is backed by an
unconditional and irrevocable guarantee from MBIA pursuant to an insurance
policy issued by MBIA to the Fund. If, on the Maturity Date, the actual NAV is
less than the Guarantee per Share, MBIA will pay to the Fund for disbursement to
Fund shareholders an amount equal to this difference for every share
outstanding. See the SAI or call 1-800-367-7732 for additional details regarding
the Guarantee.
<PAGE>
In summary, a shareholder who maintains his or her Fund investment through the
Maturity Date, makes no redemptions, and reinvests all distributions will be
entitled to receive no less than:
. the amount initially allocated to the Fund, less
. the amount of the Class A front-end sales load paid, if any, plus
. any accrued interest earned during the Offering Period.
Example. Assume you invested $20,000 in Class A shares when the NAV was $10.00
per share. After deducting your sales load of 4.75%, $19,050 will be invested in
Class A shares and you will have 1,905 shares in your account.
Assume further that at the end of the day preceding the inception of the
Guarantee Period (December 20, 1999), the NAV for Class A shares has increased
to $10.02. Your Guaranteed Amount is based on the NAV determined on the evening
of December 20, 1999. To calculate your full guarantee, multiply the shares you
own on December 20, 1999 by the NAV for your class of shares on December 20,
1999. Using our example:
Shares you own on December 20, 1999 1,905.000
NAV of Class A shares on December 20, 1999 X $10.02
Your Guaranteed Amount $19,088.10
Your Guaranteed Amount will not change during the life of the product as long as
you reinvest all your dividends and distributions and make no withdrawals prior
to the Maturity Date.
Redemptions of shares during the Guarantee Period will decrease the Guaranteed
Amount to which a shareholder is entitled. If a shareholder redeems shares in
the Fund, he or she will then hold fewer shares at the then current Guarantee
per Share, thereby reducing the Guaranteed Amount for the shareholder.
Redemptions made from the Fund prior to the Maturity Date will be made at NAV,
which may be higher or lower than the NAV at the inception of the Guarantee
Period. For certain shareholders, redemptions made prior to the Maturity Date
may also be subject to a contingent deferred sales charge (CDSC).
The Guarantee per Share will decline as dividends and distributions are made to
shareholders. If a shareholder automatically reinvests dividends and
distributions in the Fund, he or she will then hold a greater number of shares
at the reduced Guarantee per Share. The result would be to preserve the
Guaranteed Amount he or she was entitled to before the dividend or distribution
was made. If a shareholder instead elects to receive any dividends or
distributions in cash, he or she will then hold the same number of shares at the
reduced Guarantee per Share. This will reduce the Guaranteed Amount that such
shareholder was entitled to before the dividend or distribution was made.
Example. Assume you reinvest your dividends and distributions. The number of
shares you own in the Fund will increase at each declaration date. Although the
number of shares in your account increases, and the Guarantee per Share
decreases, your Guaranteed Amount does not change.
<PAGE>
Using our example, assume it is now February 11, 2000 and the Fund declares a
dividend of $0.15 per share. Also, assume that the Class A NAV is $11.25 per
share at the end of the day on February 11, 2000.
To recalculate your Guarantee per Share:
1. Determine the value of your dividend. Your total dividend will equal the
per share dividend multiplied by the number of shares you own the day
before the dividend is declared. In our example, we will multiply 1,905
shares by $0.15 per share to arrive at $285.75.
2. Determine the number of shares that will get added to your account when
your dividend is reinvested. Your additional shares equal the value of your
dividend divided by the ending NAV on the day the dividend was declared. In
our case, $285.75 divided by $11.25 or 25.400 shares.
3. Adjust your account for your additional shares. Add 1,905.000 and 25.400 to
arrive at your new share balance of 1,930.400.
4. Determine your new Guarantee per Share. Take your original Guaranteed
Amount and divide by your new share balance. Using our example, divide
$19,088.10 by 1,930.400 shares to arrive at the new Guarantee per Share of
$9.8882.
5. Your Guaranteed Amount still equals $19,088.10.
This calculation is repeated every time the Fund declares a dividend. Although
shareholders can perform this calculation themselves, the Fund will recalculate
the Guarantee per Share for each of the class of shares whenever the Fund
declares a dividend.
Shareholders can obtain this information at any time by calling 1-800-367-7732.
The Fund's Guarantee is backed by a guarantee from MBIA. The Fund will pay to
MBIA a fee equal to 0.33% of the average daily net assets of the Fund during the
Guarantee Period for providing the Guarantee.
The terms of the Guarantee Agreement prescribe the manner in which the Fund must
be managed. Accordingly, the Guarantee Agreement could limit Aeltus' ability to
alter the management of the Fund in response to changing market conditions.
See Tax Information - Taxes in Relation to the Guarantee for additional details
regarding the Guarantee.
<PAGE>
MANAGEMENT OF THE FUND
Aeltus, 10 State House Square, Hartford, Connecticut 06103-3602, serves as
investment adviser to the Fund. Aeltus is responsible for managing the assets of
the Fund in accordance with its investment objective and policies, subject to
oversight by the Board. Aeltus has acted as adviser or subadviser to mutual
funds since 1994 and has managed institutional accounts since 1972.
Advisory Fees For its services, Aeltus is entitled to receive an advisory fee as
set forth below. The advisory fee is expressed as an annual rate based on the
average daily net assets of the Fund.
Offering Period 0.25%
Guarantee Period 0.65%
Portfolio Management
Asset Allocation Neil Kochen, Managing Director, Aeltus, is responsible for
overseeing the overall Fund strategy and the allocation of Fund assets between
the Equity and Fixed Components. Mr. Kochen joined the Aetna organization in
1985 and has served as head of fixed income quantitative research, head of
investment strategy and policy, and as a senior portfolio manager.
Equity Component Geoffrey A. Brod, Portfolio Manager, Aeltus, manages the Equity
Component. He has over 30 years of experience in quantitative applications and
has 12 years of experience in equity investments. Mr. Brod has been with the
Aetna organization since 1966.
Fixed Component The Fixed Component is managed by a team of Aeltus fixed-income
specialists.
INVESTING IN THE FUND
Opening an Account and Selecting a Share Class
How to Open an Account You may open an account either through your investment
professional or through the sponsor of your employer-sponsored retirement plan.
If you are opening an account through your investment professional, he or she
will guide you through the process of investing in the Fund. If you are
investing through a retirement plan, please refer to your plan materials.
Selecting a Class
Class A Shares
. Front-end sales charge applies (at the time of purchase), which will
vary depending on the size of your purchase.
. No CDSC applies, except in certain instances when the front-end sales
charge has been waived because the aggregate investment in the Company
was at least $1 million or the purchase was through certain
participant-directed employee benefit plans.
. Distribution (12b-1) fee of 0.25% applies.
<PAGE>
Sales Charges: Class A Shares The table below shows the front-end sales charges
you will pay if you purchase Class A shares of the Company in any amount up to
$1 million.
This % is deducted for Which equals this % of
When you invest this amount sales charges your investment
Under $50,000 4.75% 4.99%
$50,000 or more but under $100,000 4.50% 4.71%
$100,000 or more but under $250,000 3.50% 3.63%
$250,000 or more but under $500,000 2.50% 2.56%
$500,000 or more but under $1,000,000 2.00% 2.04%
Class A Shares Sales Charge Waivers The Fund waives the Class A front-end sales
charge for purchases made by certain types of shareholders. See the SAI or call
1-800-367-7732 for additional details.
CDSC on Class A Shares A CDSC is not imposed on Class A shares purchased with an
aggregate investment in the Company of less than $1 million. A CDSC may be
imposed on Class A shares purchased (i) with an aggregate investment in the
Company in excess of $1 million or (ii) by certain participant-directed employee
benefit plans. The CDSC on Class A shares will apply only to shares for which a
finder's fee is paid to investment professionals pursuant to a distribution
agreement with Aeltus Capital, Inc. (ACI), the Company's principal underwriter.
The CDSC imposed (based on the lesser of the current market value or the
original cost of the shares being redeemed) is as follows:
When you invest this amount This % is deducted from your proceeds
- ------------------------------------------------------- ---------------------------------------
$1 million or more but under $3 million Year 1 - 1.00%
Year 2 - 0.50%
- ------------------------------------------------------- ---------------------------------------
$3 million or more but under $20 million Year 1 - 0.50%
Year 2 - 0.50%
- ------------------------------------------------------- ---------------------------------------
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
- ------------------------------------------------------- ---------------------------------------
Class B Shares
. No front-end sales charge applies.
. CDSC applies (if you sell your shares prior to the Maturity Date).
. Distribution (12b-1) fee of 0.75% applies.
. Service fee of 0.25% applies.
<PAGE>
Investors looking to invest $250,000 or more into the Fund should be aware that
they will generally be better served by investing in Class A Shares of the Fund,
due to Class A's lower level of annual fund operating expenses. However, if an
investor looking to invest $250,000 or more into the Fund is concerned that the
NAV will be lower than the Guarantee per Share on the Maturity Date, that
investor may be better served by investing in Class B Shares.
Sales Charges: Class B Shares The Fund imposes a CDSC on redemptions made prior
to the Maturity Date. The table below shows the applicable CDSC based on the
time invested.
Redemption During CDSC
Offering Period or 1st year
of Guarantee Period 5%
2nd year of Guarantee Period 4%
3rd year of Guarantee Period 3%
4th year of Guarantee Period 3%
5th year of Guarantee Period 2%
Other Policies Relating to Charges and Fees
Application of a CDSC To determine whether a CDSC is payable on any redemption,
the Fund will first redeem shares not subject to any charge, and then shares
held longest during the CDSC period. The CDSC is assessed on an amount equal to
the lesser of the current market value or the original cost of the shares being
redeemed.
Unless otherwise specified, when you request to sell a stated dollar amount, the
Fund will redeem additional shares to cover any CDSC. For requests to sell a
stated number of shares, the Fund will deduct the amount of the CDSC, if any,
from the sale proceeds.
When the CDSC Does Not Apply The CDSC does not apply in certain situations,
including certain retirement distributions and certain redemptions made because
of disability or death. See the SAI or call 1-800-367-7732 for additional
details.
Distribution (12b-1) Fees With respect to both its Class A and Class B shares,
the Company has adopted a Distribution Plan in accordance with Rule 12b-1 under
the Investment Company Act of 1940 that allows the Fund to pay fees for the sale
and distribution of each class of shares. The 12b-1 fees are paid out of the
Fund's assets on an ongoing basis, and as a result, over time, these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges. Some or all of the distribution (12b-1) fees may be used
to compensate your investment professional.
Service Fee The Company, with respect to its Class B shares, has adopted a
Shareholder Services Plan that allows the payment of servicing fees. The service
fee is used primarily to pay selling dealers and their agents for servicing and
maintaining shareholder accounts.
How to Buy Shares
Minimum Investment
All accounts, including retirement accounts, require a minimum initial
investment of $10,000.
Instructions for Buying Fund Shares
Please contact your investment professional or consult your plan materials
regarding the purchase of Fund shares. All applications must be received by the
transfer agent no later than December 17, 1999 (November 8, 1999, in the case of
IRA rollovers). Monies received after December 17, 1999 will not be invested in
the Fund, except under special circumstances as determined by the Board. If you
are purchasing Fund shares through your investment professional, he or she will
guide you through the process of opening an account, as follows.
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To Open An Account
- ----------------------- -------------------------------------------------------------------
By Mail Complete and sign your application, make your check
payable to Aetna Series Fund, Inc. and mail to:
Aetna Series Fund, Inc.
c/o First Data Investor Services Group, Inc.
P.O. Box 9681
Providence, RI 02940
Your check must be drawn on a bank located within the
United States, payable in U.S. dollars, and received by
the transfer agent no later than December 17, 1999.
Cash, credit cards and third party checks cannot be used
to open an account.
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By Overnight Courier Follow the instructions above for "By
Mail" but send your completed application and check to:
Aetna Series Fund, Inc.
c/o First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581
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By Wire Not Available.
- ----------------------- -------------------------------------------------------------------
By Electronic Not Available.
Funds Transfer
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How to Sell Shares
To redeem all or a portion of the shares in your account, you should submit a
redemption request through your investment professional, plan sponsor or as
described below. Your investment professional may charge you a fee for selling
your shares.
Redemption requests in amounts up to $25,000 may be made in writing or by
telephone. The Company requires a signature guarantee if the amount of the
redemption request is over $25,000. You may obtain a signature guarantee at most
banks and securities dealers. Please note that a notary public cannot provide a
signature guarantee.
<PAGE>
Once your redemption request is received in good order, the Company normally
will send the proceeds of the redemption within one or two business days.
However, if making immediate payment could adversely affect the Fund, it may
defer distribution for up to seven days or a longer period if permitted. If you
redeem shares of the Fund shortly after purchasing them, the Fund will hold
payment of redemption proceeds until a purchase check clears, which may take up
to 12 calendar days. A redemption request made within 15 calendar days after
submission of a change of address is permitted only if the request is in writing
and is accompanied by a signature guarantee.
Fund shares may be redeemed by shareholders prior to the Maturity Date. However,
redemptions made for any reason prior to the Maturity Date will be made at NAV
and are not eligible for the Guarantee. Moreover, redemptions may be subject to
a CDSC.
- ------------------------------- ----------------------------------------------------------------------------
Redemptions by Mail You may redeem shares you own by sending written
instructions to:
Aetna Series Fund, Inc.
c/o First Data Investor Services Group, Inc.
P.O. Box 9681
Providence, RI 02940
Your instructions should identify:
. The number of shares or dollar amount to
be redeemed.
. Your name and account number.
Your instructions must be signed by all
person(s) required to sign for the account,
exactly as the shares are registered, and, if
necessary, accompanied by a signature
guarantee(s).
- ------------------------------- ----------------------------------------------------------------------------
Redemptions by Wire A minimum redemption of $1,000 is
required for wire transfers. Redemption proceeds
will be transferred by wire to your previously
designated bank account or to another
destination if the federal funds wire
instructions provided with your redemption
request are accompanied by a signature
guarantee. A $12 fee will be charged for this
service.
- ------------------------------- ----------------------------------------------------------------------------
Redemptions by Telephone Call 1-800-367-7732. Please be prepared to provide your account number,
account name and the amount of the redemption,
which generally must be no less than $500 and no
more than $25,000.
- ------------------------------- ----------------------------------------------------------------------------
Timing of Purchase and Redemption Requests
Orders that are received before the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. eastern time) will be processed at the NAV
calculated that business day (adjusted for the front-end sales charge or CDSC,
if applicable). Orders received after the close of regular trading on the New
York Stock Exchange will be processed at the NAV calculated on the following
business day (adjusted for the front-end sales charge or CDSC, if applicable).
Applications and/or funds received by the transfer agent after the close of
regular trading on the New York Stock Exchange on December 17, 1999 will not be
processed, except under special circumstances determined by the Board.
<PAGE>
Certain institutions and financial intermediaries (Institutions) may be
designated by the Fund to accept purchase and redemption orders. If you purchase
or redeem shares through these Institutions, and the Institution receives your
order before the close of regular trading on the New York Stock Exchange, your
shares will be purchased or redeemed at the NAV determined that business day,
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. In those instances, the
Fund will be deemed to have received a purchase or redemption order when the
Institution's authorized designee, accepts the order.
Institutions may charge fees or assess other charges for the services they
provide to their customers. These fees or charges are retained by the
Institution and are not remitted to the Fund.
Shareholders purchasing through an Institution should refer to the Institution's
materials for a discussion of any specific instructions on the timing of or
restrictions relating to the purchase or redemption of shares.
Other Information about Shareholder Accounts and Services
Business Hours The Fund is open on the same days as the New York Stock Exchange
(generally, Monday through Friday). Fund representatives are available from 8:00
a.m. to 8:00 p.m. eastern time on those days.
Net Asset Value The NAV of the Fund is determined as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. eastern time).
In calculating the NAV, securities are valued primarily by independent pricing
services using market quotations. Short-term debt securities maturing in less
than 60 days are valued using amortized cost. Securities for which market
quotations are not readily available are valued at their fair value, subject to
procedures adopted by the Board.
Exchange Privileges There is no fee to exchange shares from the Fund to another
Series of the Company. When you exchange shares, your new shares will be in the
equivalent class of your current shares. When you exchange Class B shares of the
Fund prior to the Maturity Date for Class B shares in another Series of the
Company, you will be subject to the CDSC schedule of that series, but the CDSC
will be calculated from the date of your original purchase.
There are no limits on the number of exchanges you can make. However, the Fund
may suspend or terminate your exchange privilege if you make more than five
exchanges out of the Fund in any calendar year, and the Fund may refuse to
accept any exchange request, especially if as a result of the exchange, in
Aeltus' judgment, it would be too difficult to invest effectively in accordance
with the Fund's investment objective.
The Fund is not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Fund reserves the right to
reject any specific purchase or exchange request, including a request made by a
market timer.
<PAGE>
Telephone Redemption Privileges You automatically receive a telephone redemption
privilege when you establish your account. If you do not want this privilege,
you may call 1-800-367-7732 to have it removed. All telephone transactions may
be recorded, and you will be asked for certain identifying information.
Telephone redemption requests will be accepted if the request is for a minimum
of $500 or a maximum of $25,000. Telephone redemption requests will not be
accepted if you:
. Have submitted a change of address within the preceding 15 calendar days.
. Are selling shares in a retirement plan account held in trust.
The Fund reserves the right to amend telephone redemption privileges at any time
upon notice to shareholders and may refuse a telephone redemption if it believes
it is advisable to do so.
Minimum Account Balance You must maintain a minimum balance of $10,000 in the
Fund. If you do not, the Fund may redeem all of your remaining shares and mail
the proceeds to you at the address of record. The Fund will not redeem shares
for failing to maintain an adequate account balance if the account balance falls
below the minimum balance only because the value of Fund shares has decreased.
Additional Services The Fund offers additional shareholder services. The Fund
reserves the right to terminate or amend these services at any time. For all of
the services, certain terms and conditions apply. See the SAI or call
1-800-367-7732 for additional information on any of these services.
. Letter of Intent If, in addition to purchasing Class A shares of the
Fund, you agree to purchase a specific amount of Class A shares of one
or more Series of the Company (other than Aetna Money Market Fund) over
a period of up to 13 months, the front-end sales charge will be
calculated at the rate that would have been charged had you purchased
the entire amount all at once. You may qualify for a reduced front-end
sales charge by notifying us of your intent by completing and returning
to us the relevant portion of your application. After the Letter of
Intent is filed, each additional investment in a Series will be entitled
to the front-end sales charge applicable to the level of investment
indicated in the Letter of Intent.
. Right of Accumulation/Cumulative Quantity Discounts To determine if you
may pay a reduced front-end sales charge on Class A purchases, you may
add the amount of your current purchase to the cost or current value,
whichever is higher, of other Class A shares of other Series (other than
Aetna Money Market Fund) owned by you, your family and your company (if
you are the sole owner).
. TDD Service Telecommunication Device for the Deaf (TDD) services are
offered for hearing impaired shareholders. The dedicated number for this
service is 1-800-684-4889.
. Tax-Deferred Retirement Plans The Fund may be used for investment by a
variety of tax-deferred retirement plans, such as individual retirement
accounts (IRAs, including Roth IRAs) and 401(k) and 403(b)(7) programs
sponsored by employers. Purchases made in connection with IRAs and
403(b)(7) accounts may be subject to an annual custodial fee of $10 for
each account registered under the same taxpayer identification number.
This fee will be deducted directly from your account(s). The custodial
fee will be waived for IRAs and 403(b)(7) accounts registered under the
same taxpayer identification number having an aggregate balance over
$30,000 at the time such fee is scheduled to be deducted. All purchase
orders in connection with IRA rollovers must be received by the transfer
agent no later than November 8, 1999.
<PAGE>
Dividends and Distributions
Dividends are declared and paid annually. Capital gains distributions, if any,
are paid on an annual basis around the end of the year, December 31. To comply
with federal tax regulations, the Fund may also pay an additional capital gains
distribution, usually in June. Both income dividends and capital gains
distributions are paid by the Fund on a per share basis. As a result, at the
time of a payment, the share price (or NAV) and the Guarantee per Share of the
Fund will be reduced by the amount of the payment.
Distribution Options When completing your application, you must select one of
the following options for dividends and capital gains distributions:
. Full Reinvestment Both dividends and capital gains distributions from
the Fund will be reinvested in additional shares of the same class of
shares of the Fund. This option will be selected automatically unless
the other option is specified.
. 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,
provided you have a minimum of $1,000 in that Series at the time of the
exchange.
An election to take distributions in cash will reduce the Guarantee
proportionally.
Distributions will be paid in additional shares based on the NAV at the close of
business on the date the distribution is declared, unless the shareholder elects
to receive such distributions in cash.
Tax Information
. In general, dividends and short-term capital gains distributions you
receive from the Fund are taxable as ordinary income.
. Distributions of other capital gains you receive generally are taxable
as capital gains.
. Ordinary income and capital gains are taxed at different rates.
. The rates that you will pay on capital gains distributions will depend
on how long the Fund holds its portfolio securities. This is true no
matter how long you have owned your shares in the Fund or whether you
reinvest your distributions or take them in cash.
. The sale of shares in your account may produce a gain or loss, and
typically is a taxable event. For tax purposes, an exchange is the
same as a sale.
Every year, the Fund will send you information detailing the amount of ordinary
income and capital gains distributed to you for the previous year. You should
consult your tax professional for assistance in evaluating the tax implications
of investing in the Fund.
<PAGE>
Taxes in Relation to the Guarantee Any withholding of taxes on distributions by
the Fund will result in a reduction of the benefit under the Guarantee. If an
amount is paid to shareholders pursuant to the Guarantee, these amounts probably
will be taxable to shareholders. However, it is possible that such amounts could
be regarded as a tax-free return of capital.
The Fund does not undertake to suggest to shareholders the manner in which any
payments that may be made under the Guarantee are to be treated for tax
purposes. Shareholders are specifically advised to consult their tax advisers
about the tax treatment of any payments that may be made under the Guarantee.
The Guarantee is a relatively new feature that has not previously been offered
by many other mutual funds. As a result, certain tax consequences arising from
the Guarantee are not entirely clear.
ADDITIONAL INFORMATION
The SAI, which is incorporated by reference into this Prospectus, contains
additional information about the Fund.
You may request free of charge the current SAI, or other information about the
Fund, by calling 1-800-367-7732 or writing to:
Aetna Series Fund, Inc.
10 State House Square
Hartford, Connecticut 06103-3602
The SEC also makes available to the public reports and information about the
Fund. Certain reports and information, including the SAI, are available on the
SEC's web site (http://www.sec.gov) or at the SEC's Public Reference Room in
Washington, D.C. You may call 1-800-SEC-0330 to get information on the
operations of the Public Reference Room or you may write to Public Reference
Section, Washington, D.C. 20549-6009 to get information from the Public
Reference Section. The Public Reference Section will charge a duplicating fee
for copying and sending any information you request.
Investment Company Act File No. 811-6352.
<PAGE>
AETNA SERIES FUND, INC.
AETNA PRINCIPAL PROTECTION FUND II
Statement of Additional Information dated October 7, 1999
This Statement of Additional Information (Statement) is not a Prospectus and
should be read in conjunction with the current Prospectus for the Aetna
Principal Protection Fund II, a series of the Aetna Series Fund, Inc. (Company).
Capitalized terms not defined herein are used as defined in the Prospectus. The
Company is authorized to issue multiple series of shares, each representing a
diversified portfolio of investments with different investment objectives,
policies and restrictions. This Statement applies only to the Aetna Principal
Protection Fund II (Fund).
A free copy of the Fund's Prospectus is available upon request by writing to the
Fund at: 10 State House Square, Hartford, Connecticut 06103-3602, or by calling:
(800) 367-7732.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION...................................................1
INVESTMENT OBJECTIVE AND RESTRICTIONS.................................2
INVESTMENT TECHNIQUES AND RISK FACTORS................................3
OTHER CONSIDERATIONS..................................................8
THE ASSET ALLOCATION PROCESS..........................................8
DIRECTORS AND OFFICERS OF THE FUND....................................9
INVESTMENT ADVISORY AGREEMENT........................................12
THE GUARANTY AGREEMENT...............................................12
ADMINISTRATIVE SERVICES AGREEMENT....................................13
CUSTODIAN............................................................13
THE GUARANTOR........................................................13
TRANSFER AGENT.......................................................13
INDEPENDENT AUDITORS.................................................14
PRINCIPAL UNDERWRITER................................................14
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS..................14
PURCHASE AND REDEMPTION OF SHARES....................................16
BROKERAGE ALLOCATION AND TRADING POLICIES............................18
SHAREHOLDER ACCOUNTS AND SERVICES....................................20
NET ASSET VALUE......................................................20
TAX STATUS...........................................................21
PERFORMANCE INFORMATION..............................................22
<PAGE>
GENERAL INFORMATION
Organization The Company was incorporated under the laws of Maryland on June 17,
1991.
Series and Classes Although the Company currently offers multiple series, this
Statement applies only to the Aetna Principal Protection Fund II (Fund). The
Board of Directors (Board) has the authority 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. Shares of the Fund are classified into two classes: Class
A and Class B. Each class of shares has the same rights, privileges and
preferences, except with respect to: (a) the effect of sales charges for each
class; (b) the distribution fees borne by each class; (c) the expenses allocable
exclusively to each class; and (d) voting rights on matters exclusively
affecting a single class.
Capital Stock Fund shares are fully paid and nonassessable when issued. Fund
shares have no preemptive or conversion rights. Each share of the Fund has the
same rights to share in dividends declared by the Fund. Upon liquidation of the
Fund, shareholders are entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders.
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 interests of 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 Board and consented to by a majority of the shareholders.
Shareholder Meetings The Company is not required, and does not intend, to hold
annual shareholder meetings. The Articles provide for meetings of shareholders
to elect Directors at such times as may be determined by the Board or as
required by the Investment Company Act of 1940, as amended (1940 Act). If
requested by the holders of at least 10% of the Company's outstanding shares,
the Company will hold a shareholder meeting for the purpose of voting on the
removal of one or more Directors and will assist with communication concerning
that shareholder meeting.
<PAGE>
INVESTMENT OBJECTIVE AND RESTRICTIONS
The investment objective and certain investment policies of the Fund are matters
of fundamental policy for purposes of the 1940 Act and therefore cannot be
changed without approval by the holders of the lesser of: (a) 67% of the shares
of the Fund present at a shareholders' meeting if the holders of more than 50%
of the shares then outstanding are present in person or by proxy; or (b) more
than 50% of the outstanding voting securities of the Fund.
As a matter of fundamental policy, the Fund will not:
(1) Borrow money, except that (a) the Fund may enter into certain futures
contracts; (b) the Fund may enter into commitments to purchase securities in
accordance with the Fund's investment program, including delayed delivery and
when-issued securities and reverse repurchase agreements; (c) the Fund may
borrow money for temporary or emergency purposes in amounts not exceeding 15% of
the value of its total assets at the time when the loan is made; and (d) for
purposes of leveraging, the Fund may borrow money from banks (including its
custodian bank) only if, immediately after such borrowing, the value of the
Fund's assets, including the amount borrowed, less its liabilities, is equal to
at least 300% of the amount borrowed, plus all outstanding borrowings. If at any
time the value of the Fund's assets fails to meet the 300% coverage requirement
relative only to leveraging, the Fund shall, within three days (not including
Sundays and holidays), reduce its borrowings to the extent necessary to meet the
300% test.
(2) Act as an underwriter of securities except to the extent that, in
connection with the disposition of securities by the Fund for its portfolio, the
Fund may be deemed to be an underwriter under the provisions of the 1933 Act.
(3) Purchase real estate, interests in real estate or real estate limited
partnership interests except that, to the extent appropriate under its
investment program, the Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate investment
trusts (REITs), which deal in real estate or interests therein.
(4) Make loans, except that, to the extent appropriate under its investment
program, the Fund may purchase bonds, debentures or other debt securities,
including short-term obligations and enter into repurchase transactions.
(5) Invest in commodity contracts, except that the Fund may, to the extent
appropriate under its investment program, purchase securities of companies
engaged in such activities; may enter into futures contracts and related
options, may engage in transactions on a when-issued or forward commitment
basis.
(6) With respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer excluding securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, or
purchase more than 10% of the outstanding voting securities of any issuer.
(7) Concentrate its investments in any one industry except that the Fund
may invest up to 25% of its total assets in securities issued by companies
principally engaged in any one industry. For purposes of this restriction,
finance companies will be classified as separate industries according to the end
users of their services, such as automobile finance, computer finance and
consumer finance. This limitation will not apply to securities issued or
guaranteed as to principal and/or interest by the U.S. Government, its agencies
or instrumentalities.
<PAGE>
Where the Fund's investment objective or policy restricts it to holding or
investing a specified percentage of its 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.
The Fund also has adopted certain other investment policies and restrictions
reflecting the current investment practices of the Fund, which may be changed by
the Board and without shareholder vote. Under such policies and restrictions,
the Fund will not:
(1) Mortgage, pledge or hypothecate its assets except in connection with
loans of securities as described in (4) above, borrowings as described in (1)
above, and permitted transactions involving options, futures contracts and
options on such contracts.
(2) Invest in companies for the purpose of exercising control or
management.
(3) 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 futures contracts in the manner otherwise
permitted by the investment restrictions, policies and investment programs of
the Fund.
INVESTMENT TECHNIQUES AND RISK FACTORS
Futures and Other Derivative Instruments
The Fund may use certain derivative instruments, described below and in the
Prospectus, as a means of achieving its investment objective. The Fund 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.
The following provides additional information about those derivative instruments
the Fund may use.
Futures Contracts The Fund may enter into futures contracts subject to the
restrictions described below under "Additional Restrictions on the Use of
Futures Contracts." The Fund will only enter into futures contracts on the S&P
500 Index and U.S. Treasury securities. The futures exchanges and trading in the
U.S. are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission (CFTC).
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a financial instrument or a specific
stock market index for a specified price on 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, 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.
<PAGE>
There can be no assurance, however, that the Fund will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time. If the Fund 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 by, among other
things, actual and anticipated changes in interest rates and equity prices,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events. Small price movements in futures
contracts may result in immediate and potentially unlimited loss or gain to the
Fund relative to the size of the margin commitment. A purchase or sale of a
futures contract may result in losses in excess of the amount initially invested
in the futures contract.
When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the instruments or
securities being hedged can be only approximate. The degree of imperfection of
correlation depends upon circumstances such as: variations in 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 U.S. futures exchanges limit the amount of fluctuation permitted in
interest rate futures contract prices during a single trading day, and temporary
regulations limiting price fluctuations for stock index futures contracts are
also now in effect. The daily 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 future contracts which are intended to hedge against a change in the
value of securities held by a Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
"Margin" is the amount of funds that must be deposited by the Fund with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in the Fund's futures contracts. A margin deposit
is intended to assure the Fund's performance of the futures contract. The margin
required for a particular futures contract is set by the exchange on which the
contract is traded and may be significantly modified from time to time by the
exchange during the term of the contract.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy the
margin requirement, 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 the Fund. These daily payments to and
from the Fund are called variation margin. At times of extreme price volatility,
intra-day variation margin payments may be required. In computing daily net
asset values, the Fund will mark-to-market the current value of its open futures
contracts. The Fund expects to earn interest income on its initial margin
deposits.
When the Fund buys or sells a futures contract, unless it already owns an
offsetting position, it will designate 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.
<PAGE>
The Fund may purchase and sell futures contracts 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 the Fund's total assets at market value at the time of entering
into a contract, (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, and (c) the notional value of all U.S. Treasury futures
shall not exceed 50% of the market value of all corporate bonds.
Additional Restrictions on the Use of Futures Contracts CFTC regulations require
that to prevent the Fund from being a commodity pool, the Fund 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, the Fund
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 it in the cash market.
Zero Coupon Securities
The Fund may invest in U.S. Treasury, agency or corporate zero coupon securities
maturing on or within 90 days preceding the Maturity Date. U.S. Treasury or
agency zero coupon securities shall be limited to non-callable, non-interest
bearing obligations and shall include STRIPS (Separate Trading of Registered
Interest and Principal of Securities); CATS (Certificates of Accrual on Treasury
Securities); TIGRs (Treasury Investment Growth Receipts) and TRs (Generic
Treasury Receipts). 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. The
market prices of zero coupon 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.
<PAGE>
Zero coupon securities issued by corporations are also subject to the risk that
in the event of a default, the Fund may realize no return on its investment.
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 the Fund's transactions in
derivatives.
Risk of Imperfect Correlation The Fund's ability to hedge effectively all or a
portion of its portfolio through transactions in futures on securities and
indices depends on the degree to which movements in the value of the securities
or index underlying such hedging instrument correlates with movements in the
value of the assets being hedged. If the value of the assets being hedged does
not move in the same amount or direction as the underlying security or index,
the hedging strategy for the Fund might not be successful and it 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 contract and the portfolio securities
being hedged, which could result in losses both on the hedging transaction and
the portfolio securities. In such instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken.
Potential Lack of a Liquid Secondary Market Prior to exercise or expiration, a
futures position may be terminated only by entering into a closing sale
transaction, which requires a secondary market on the exchange on which the
position was originally established. While the Fund will establish a futures
position only if there appears to be a liquid secondary market therefor, there
can be no assurance that such a market will exist for any particular futures
contract at any specific time. In such event, it may not be possible to close
out a position held by the Fund which could require it 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
positions also could have an adverse impact on the Fund's ability effectively to
hedge its portfolio, or the relevant portion thereof.
The trading of futures 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 involve the risk that if Aeltus' judgment concerning the
general direction of interest rates is incorrect, the overall performance of the
Fund may be poorer than if it had not entered into any such contract. For
example, if the Fund has been hedged against the possibility of an increase in
interest rates which would adversely affect the price of bonds held in its
portfolio and interest rates decrease instead, the Fund will lose part or all of
the benefit of the increased value of its bonds which have been hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell bonds from
its portfolio to meet daily variation margin requirements, possibly at a time
when it may be disadvantageous to do so. Such sale of bonds may be, but will not
necessarily be, at increased prices which reflect the rising market.
Trading and Position Limits Each contract market on which futures contracts are
traded has established a number of limitations governing the maximum number of
positions which may be held by a trader, whether acting alone or in concert with
others. The Company does not believe that these trading and position limits will
have an adverse impact on the hedging strategies regarding the Fund.
<PAGE>
Counterparty Risk With some derivatives there is also the risk that the
counterparty may fail to honor its contract terms, causing a loss for the Fund.
Foreign Securities
The Fund may invest in depositary receipts of foreign companies included in the
S&P 500. 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 are typically
American Depositary Receipts (ADRs), which are designed for U.S. investors and
held either in physical form or in book entry form. 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.
Real Estate Securities
The Fund may invest in real estate securities through interests in REITs,
provided the REIT is included in the S&P 500. REITs are trusts that sell
securities 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, or both. Investing in stocks of real
estate-related companies presents certain risks that are more closely associated
with investing in real estate directly than with investing in the stock market
generally, including: periodic declines in the value of real estate, generally,
or in the rents and other income generated by real estate; periodic
over-building, which creates gluts in the market, as well as changes in laws
(e.g. zoning laws) that impair the rights of real estate owners; and adverse
developments in the real estate industry.
Bank Obligations
The Fund may invest in obligations issued by domestic banks (including banker's
acceptances, commercial paper, bank notes, time deposits and certificates of
deposit).
Illiquid Securities
The Fund may invest 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. Securities that may be resold under Rule 144A under the Securities Act of
1933, as amended (1933 Act) or securities offered pursuant to Section 4(2) of
the 1933 Act shall not be deemed illiquid solely by reason of being
unregistered. Aeltus shall determine whether a particular security is deemed to
be illiquid based on the trading markets for the specific security and other
factors. Illiquid securities will not exceed 15% of net assets of the Fund.
Corporate Bonds
The Fixed Component may consist of non-callable corporate bonds, provided that
no less than 40% of the Fund's assets are allocated to the Equity Component.
Each such bond must mature within three (3) years of the Maturity Date. In
addition, each such bond must be rated AA- or higher by S&P or Aa3 or higher by
Moody's, provided that if both S&P and Moody's have issued a rating on the
security, such rating shall be no less than AA-/Aa3. If a corporate bond is
downgraded below this level, Aeltus shall divest the security within 15 business
days following the public announcement of such downgrade. No more than 2% of the
Fund's assets shall be invested in corporate debt securities of any issuer or
its affiliates at the time of investment therein.
<PAGE>
OTHER CONSIDERATIONS
Year 2000 Readiness Disclosure
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as "Aetna Inc."), is dependent
on computer systems and applications to conduct its business. Aetna Inc. has
developed and is currently executing a comprehensive risk-based plan designed to
make its mission-critical information technology (IT) systems and embedded
systems Year 2000 ready. The plan for IT systems covers five stages including
(i) assessment, (ii) remediation, (iii) testing, (iv) implementation and (v)
Year 2000 approval. The remediation and testing of mission-critical IT systems
has been completed. Final Year 2000 approval testing for all remaining systems
is on target to complete 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 or other securities industry participants or other service
providers that are not affiliated with Aetna Inc. Aetna Inc., including Aeltus,
has initiated communication with its critical external relationships, including
MBIA, to determine the extent to which Aetna Inc. may be vulnerable to such
parties' failure to resolve their own Year 2000 issues. Aetna Inc. and Aeltus
have assessed and are prioritizing responses in an attempt to mitigate risks
with respect to the failure of these parties to be Year 2000 ready. 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.
In addition, the Year 2000 problem may adversely affect issuers in which the
Fund invests. For example, issuers may incur substantial costs to address the
problem. Aeltus and the Fund will continue to monitor developments relating to
this issue.
Acceptance of Deposits During Guarantee Period
The Fund reserves the right to accept additional deposits after December 17,
1999 and to discontinue this practice at its discretion at any time.
THE ASSET ALLOCATION PROCESS
In pursuing the Fund's investment objective, Aeltus looks to allocate assets
among the Equity Component and the Fixed Component. The allocation of assets
depends on a variety of factors, including, but not limited to, the then
prevailing level of interest rates, equity market volatility, the market value
of Fund assets, and the Maturity Date. If interest rates are low (particularly
at the inception of the Guarantee Period), Fund assets may be largely invested
in the Fixed Component in order to increase the likelihood of meeting the
investment objective. In addition, if during the Guarantee Period the equity
markets experienced a major decline, the Fund's assets may become largely or
entirely invested in the Fixed Component in order to increase the likelihood of
meeting the investment objective.
The initial allocation of Fund assets between the Equity Component and the Fixed
Component will be determined principally by the prevailing level of interest
rates and the volatility of the stock market at the beginning of the Guarantee
Period. If at the inception of the Guarantee Period interest rates are low, more
assets may have to be allocated to the Fixed Component. Aeltus will monitor the
allocation of the Fund's assets on a daily basis.
<PAGE>
The asset allocation process will also be affected by Aeltus' ability to manage
the Fixed Component. If the Fixed Component provides a return better than that
assumed by Aeltus' proprietary model, fewer assets would have to be allocated to
the Fixed Component. On the other hand, if the performance of the Fixed
Component is poorer than expected, more assets would have to be allocated to the
Fixed Component, and the ability of the Fund to participate in any subsequent
upward movement in the equity market would be limited.
The process of asset reallocation results in additional transaction costs such
as brokerage commissions. To moderate such costs, Aeltus has built into its
proprietary model a factor that will require reallocations only when Equity
Component and Fixed Component values have deviated by more than certain minimal
amounts since the last reallocation.
DIRECTORS AND OFFICERS OF THE FUND
The investments and administration of the Fund are under the supervision of the
Board. 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
(*). Directors and officers hold the same positions with other investment
companies in the same Fund Complex: Aetna GET Fund, Aetna Variable Fund, Aetna
Income Shares, Aetna Variable Encore Fund, Aetna Balanced VP, Inc., Aetna
Generation Portfolios, Inc., and Aetna Variable Portfolios, Inc.
- --------------------------------- ------------------------------ ---------------------------------------------------
Principal Occupation During Past Five Years (and
Positions held with Affiliated Persons or
Name, Position(s) Held Principal Underwriters of the Fund)
Address and Age With each Fund
- --------------------------------- ------------------------------ ---------------------------------------------------
- --------------------------------- ------------------------------ ---------------------------------------------------
J. Scott Fox* Director and President Director, Managing Director, Chief Operating
10 State House Square Officer, Chief Financial Officer, Aeltus
Hartford, Connecticut Investment Management, Inc., October 1997 to
Age 44 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.
Wayne F. Baltzer Vice President Vice President, Aeltus Capital, Inc., May 1998
10 State House Square to present; Vice President, Aetna Investment
Hartford, Connecticut Services, Inc., July 1993 to May 1998.
Age 56
Albert E. DePrince, Jr. Director Professor, Middle Tennessee State University,
3029 St. Johns Drive 1991 to present.
Murfreesboro, Tennessee
Age 58
Stephanie A. DeSisto Vice President, Vice President, Mutual Fund Accounting, Aeltus
10 State House Square Treasurer and Chief Investment Management, Inc., November 1995 to
Hartford, Connecticut Financial Officer present; Director, Mutual Fund Accounting, Aetna
Age 46 Life Insurance and Annuity Company, August 1994
to November 1995.
<PAGE>
Amy R. Doberman Secretary General Counsel, Aeltus Investment Management,
10 State House Square Inc., February 1999 to present; Counsel, Aetna
Hartford, Connecticut Life Insurance and Annuity Company, December 1996
Age 37 to 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
Closter, New Jersey and Alcohol Services, 1973 to present.
Age 56
David L. Grove Director Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to present.
Armonk, New York
Age 81
John Y. Kim* Director Director, President, Chief Executive Officer,
10 State House Square Chief Investment Officer, Aeltus Investment
Hartford, Connecticut Management, Inc., December 1995 to present;
Age 39 Director, Aetna Life Insurance and Annuity
Company, February 1995 to March 1998;
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 64
Frank Litwin Vice President Managing Director, Aeltus Investment Management,
10 State House Square Inc., August 1997 to present; Managing Director,
Hartford, Connecticut Aeltus Capital, Inc., May 1998 to present; Vice
Age 50 President, Fidelity Investments Institutional
Services Company, April 1992 to August 1997.
Shaun P. Mathews* Director Director, Vice President/Senior Vice President,
151 Farmington Avenue Aetna Life Insurance and Annuity Company, March
Hartford, Connecticut 1991 to present; Director, Aetna Investment
Age 44 Services, Inc., July 1993 to present; Senior
Vice President, Aetna InvestmentServices, Inc.,
July 1993 to February, 1999.
<PAGE>
Corine T. Norgaard Director Dean of the Barney School of Business, University
556 Wormwood Hill of Hartford (West Hartford, CT), August 1996 to
Mansfield Center, Connecticut present; Professor, Accounting and Dean of the
Age 62 School of Management, SUNY Binghamton
(Binghamton, NY), August 1993 to August 1996
Richard G. Scheide Director Trust and Private Banking Consultant, David Ross
11 Lily Street Palmer Consultants, July 1991 to present.
Nantucket, Massachusetts
Age 70
During the fiscal year ended October 31, 1998, members of the Board 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, 1998, the
unaffiliated members of the Board received compensation in the amounts included
in the following table. None of these Directors was entitled to receive pension
or retirement benefits.
Aggregate
Name of Person Compensation from Total Compensation from the
Position Company Company and Fund Complex
- ------------------------------ ------------------- ---------------------------------
Corine Norgaard $6,600 $66,000
Director
- ------------------------------ ------------------- ---------------------------------
Sidney Koch $6,650 $66,500
Director
- ------------------------------ ------------------- ---------------------------------
Maria T. Fighetti* $6,550 $65,500
Director
- ------------------------------ ------------------- ---------------------------------
Richard G. Scheide
Director, Chairperson Audit $7,075 $70,750
Committee
- ------------------------------ ------------------- ---------------------------------
David L. Grove*
Director, Chairperson $6,925 $69,250
Contract Committee
- ------------------------------ ------------------- ---------------------------------
Albert E. DePrince, Jr. $3,077 $30,778
Director
- ------------------------------ ------------------- ---------------------------------
*During the fiscal year ended October 31, 1998, Ms. Fighetti and Dr. Grove
elected to defer compensation in the amount of $15,000 and $69,250,
respectively.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
The Fund entered into an investment advisory agreement (Advisory Agreement)
appointing Aeltus as the investment adviser of the Fund. Under the Advisory
Agreement, and subject to the supervision of the Board, Aeltus has
responsibility for supervising all aspects of the operations of the Fund
including the selection, purchase and sale of securities. Under the Advisory
Agreement, Aeltus is given the right to delegate any or all of its obligations
to a subadviser. Aeltus is an indirect wholly-owned subsidiary of Aetna Life
Insurance and Annuity Company and an indirect wholly-owned subsidiary of Aetna
Inc.
The Advisory Agreement provides that Aeltus is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
officers or members of the Board, and that the Fund is responsible for payment
of all other of its costs.
For the services under the Advisory Agreement, Aeltus will receive an annual
fee, payable monthly, as described in the Prospectus.
The service mark of the Fund and the name "Aetna" have been adopted by the Fund
with the permission of Aetna Services, Inc. (ASI). Their continued use is
subject to the right of ASI to withdraw this permission in the event Aeltus or
another subsidiary or affiliate of Aetna Inc. should not be the investment
adviser of the Fund.
THE GUARANTY AGREEMENT
The Fund guarantees that on the Maturity Date (December 20, 2004), each
shareholder will receive no less than the Guarantee per Share for each share
held. The Guarantee per Share will equal the Net Asset Value (NAV) per share on
the last day of the Offering Period, and thereafter will be adjusted to reflect
any dividends and distributions made by the Fund. A shareholder who
automatically reinvests all dividends and distributions and does not redeem any
shares during the Guarantee Period will receive, in the aggregate, no less than
his or her account value at the inception of the Guarantee Period. The Fund's
Guarantee is backed by an unconditional and irrevocable guarantee from MBIA
Insurance Corporation (MBIA) pursuant to an insurance policy issued by MBIA to
the Fund.
MBIA, Aeltus and the Company have entered into a Financial Guaranty Agreement
specifying the rights and obligations of Aeltus and MBIA with respect to the
Fund. The Financial Guaranty Agreement is unconditional and irrevocable and will
remain in place through the Maturity Date. The Financial Guaranty Agreement
provides that, if Aeltus fails to comply with specific investment parameters as
more fully described below, MBIA may direct Aeltus to cure the breach within a
prescribed period of time. If Aeltus fails to do so, MBIA may direct trades on
behalf of the Fund in order to bring the Fund back into compliance with these
investment parameters, and consistent with the Fund's investment objective and
strategies.
Aeltus, in managing the Fund, allocates assets to the Equity and Fixed
Components. The types of securities which may be held in the Equity Component or
the Fixed Component are set forth in the Prospectus and in this Statement
(Eligible Security). In the event that Aeltus acquires a security that is not an
Eligible Security, MBIA has the right under the Financial Guaranty Agreement to
direct Aeltus to sell that security and replace it with an Eligible Security
within three business days. In the event Aeltus does not sell the security, MBIA
reserves the right to direct the Custodian to sell that security and replace it
with an Eligible Security.
<PAGE>
The specific formula for the Fund's allocation of assets between the Fixed and
Equity Components is set forth in the Financial Guaranty Agreement. In the event
that MBIA determines that the allocation of assets is inconsistent with the
Financial Guaranty Agreement, MBIA can direct the custodian to sell securities
and replace them with such eligible securities as are necessary to bring the
Fund's allocation of assets in compliance with the terms of the Financial
Guarantee Agreement.
Finally, if Aeltus breaches any other terms of the Financial Guaranty Agreement,
Aeltus has 15 business days to cure the breach. If there is written notification
from MBIA of a breach and the breach remains uncured after 15 business days,
MBIA will have the right to direct the custodian to buy and sell Eligible
Securities.
After any default has been cured (whether by Aeltus or by changes in market
prices or as a result of actions taken by MBIA), MBIA has no further right to
direct the custodian with respect to that default.
ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to an Administrative Services Agreement, Aeltus acts as administrator
and provides certain administrative and shareholder services necessary for the
Fund's operations and is responsible for the supervision of other service
providers. The services provided by Aeltus include: (a) internal accounting
services; (b) monitoring regulatory compliance, such as reports and filings with
the Commission and state securities commissions; (c) preparing financial
information for proxy statements; (d) preparing semi-annual and annual reports
to shareholders; (e) calculating the NAV; (f) preparation of certain shareholder
communications; (g) supervising the custodian and transfer agent; and (h)
reporting to the Board. For its services, Aeltus is entitled to receive from the
Fund a fee at an annual rate of 0.10% of its average daily net assets.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258,
serves as custodian for the assets of the Fund. The custodian does not
participate in determining the investment policies of the Fund nor in deciding
which securities are purchased or sold by the Fund. The Fund may, however,
invest in obligations of the custodian and may purchase or sell securities from
or to the custodian.
In addition to serving as the custodian of the Fund's assets, the custodian will
monitor both the allocation of assets and the securities held within the Equity
Component and the Fixed Component and report on the same to both Aeltus and
MBIA. The custodian is authorized to accept orders from MBIA made pursuant to
the Financial Guaranty Agreement.
THE GUARANTOR
MBIA, 113 King Street, Armonk, New York 10504 serves as the Guarantor to the
Fund pursuant to a written agreement with Aeltus and the Company. The Financial
Guaranty Agreement is unconditional and irrevocable and will remain in place
through the Maturity Date. Pursuant to the terms of the Financial Guaranty
Agreement, MBIA will issue to the Fund an insurance policy to support the Fund's
Guarantee. MBIA is one of the world's premier financial guarantee companies and
a leading provider of investment management products and services. MBIA and its
subsidiaries provide financial guarantees to municipalities and other bond
issuers. MBIA also guarantees structured asset-backed and mortgage-backed
transactions, selected corporate bonds and obligations of high-quality financial
institutions.
TRANSFER AGENT
First Data Investor Services Group, Inc. 4400 Computer Drive, Westborough,
Massachusetts 01581 serves as the transfer agent and dividend-paying agent to
the Fund.
INDEPENDENT AUDITORS
KPMG LLP, CityPlace II, Hartford, Connecticut 06103 serves as independent
auditors to the Fund. KPMG LLP provides audit services, assistance and
consultation in connection with the Commission filings.
<PAGE>
PRINCIPAL UNDERWRITER
Aeltus Capital, Inc. (ACI) has agreed to use its best efforts to distribute the
shares as the principal underwriter of the Fund pursuant to an Underwriting
Agreement between it and the Fund. The Agreement was approved on September 22,
1999 to continue through December 31, 1999. The Underwriting Agreement may be
continued from year to year thereafter if approved annually by the Directors 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 the Fund, appearing in person at a
meeting called for the purpose of approving such Agreement, or by a vote of
holders of a majority of the Fund's shares. This Agreement terminates
automatically upon assignment, and may be terminated at any time on sixty (60)
days' written notice by the Directors or by vote of holders of a majority of the
Fund's shares without the payment of any penalty.
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS
Fund shares are distributed by ACI. With respect to Class A shares of the Fund,
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 Company pursuant to Rule 12b-1 under the 1940 Act ("Distribution
Plan"). With respect to Class B shares of the Fund, ACI is paid an annual
distribution fee at the rate of 0.75% of the value of average daily net assets
attributable to those shares under a Distribution Plan. The distribution fee for
a specific class may be used to cover expenses incurred in promoting the sale of
that class of shares, including (a) the costs of printing and distributing to
prospective investors Prospectuses, statements of additional information and
sales literature; (b) payments to investment professionals and other persons who
provide support services in connection with the distribution of shares; (c)
overhead and other distribution related expenses; and (d) accruals for interest
on the amount of the foregoing expenses that exceed distribution fees and
contingent deferred sales charges. The distribution fee for Class B shares may
also be used to pay the financing costs of accruing certain unreimbursed
expenses. ACI may reallow all or a portion of these fees to broker-dealers
entering into selling agreements with it, including its affiliates.
Class B shares are also subject to a Shareholder Services Plan adopted pursuant
to Rule 12b-1. Under the Shareholder Services Plan, ACI is paid a servicing fee
at an annual rate of 0.25% of the average daily net assets of the Class B shares
of the Fund. The Service Fee will be used by ACI primarily to pay selling
dealers and their agents for servicing and maintaining shareholder accounts.
ACI is required to report in writing to the Board at least quarterly on the
amounts and purpose of any payment made under the Distribution or Shareholder
Services 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 whether each Plan should be continued.
The terms and provisions of the Plans relating to required reports, term, and
approval are consistent with the requirements of Rule 12b-1.
<PAGE>
The Distribution Plans and Shareholder Services Plan continue from year to year,
provided such continuance is approved annually by vote of the Board, including a
majority of Independent Directors. The Distribution Plans 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 Plans must be approved
by the Board in the manner described above. The Distribution Plans may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors upon not more than thirty (30) days' written notice to any
other party to the Distribution Plans. All persons who are under common control
with the Fund could be deemed to have a financial interest in the Plans. No
other interested person of the Fund has a financial interest in the Plans.
Other Payments to Securities Dealers
Typically, the portion of the front-end sales charge on Class A shares shown in
the following tables is paid to your securities dealer. Your securities dealer
may, however, receive up to the entire amount of the front-end sales charge.
When you invest this amount Amount of sales charge typically reallowed to
dealers as a percentage of offering price
Under $50,000 4.00%
$50,000 or more, but under $100,000 3.75
$100,000 or more, but under $250,000 3.00
$250,000 or more, but under $500,000 2.00
$500,000 or more, but under $1,000,000 1.50
Securities dealers that sell Class A shares in amounts of $1 million or more or
that sell load-waived Class A shares to certain retirement plans will be
entitled to receive the following commissions:
Commission
. on sales of $1 million to $3 million; 1.00%
. on sales over $3 million to $20 million; and 0.50%
. on sales over $20 million. 0.25%
For sales of Class B shares, your securities dealer is paid an up-front
commission equal to 4% of the amount sold. Beginning in the thirteenth month
after the sale is made, ACI uses the 0.25% servicing fee to compensate
securities dealers for providing personal services to accounts that hold Class B
shares, on a monthly basis.
These breakpoints are reset every 12 months for purposes of additional
purchases. 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.
ACI or its affiliates may make payments in addition to those described above to
certain broker-dealers that enter into agreements providing ACI with
preferential access to representatives of the broker-dealer. These payments may
be in an amount not exceeding 0.13% of the total fund assets held in omnibus
accounts or in customer accounts that designate such firm(s) as the selling
broker-dealer.
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Class A shares of the Company are purchased at the NAV of the Fund next
determined after a purchase order is received less any applicable front-end
sales charge. Class B shares of the Company are purchased at the NAV of the Fund
next determined after a purchase order is received. All purchase orders must be
received by the transfer agent by no later than December 17, 1999 (November 8,
1999 in the case of IRA rollovers).
Class A shares are redeemed at the NAV of the Fund next determined adjusted for
any applicable CDSC after a redemption request is received. Class B shares are
redeemed at the NAV of the Fund next determined less any applicable contingent
deferred sales charge (CDSC) after a redemption request is received. Any
redemptions made from the Fund prior to the Maturity Date will be made at NAV,
which may be higher or lower than the NAV at the inception of the Guarantee
Period. Moreover, amounts redeemed prior to the Maturity Date are not eligible
for the Guarantee.
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. 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 the Fund of securities owned by
it is not reasonably practicable, or (ii) it is not reasonably practicable for
the Fund to determine fairly the value of its net assets; or (c) the Commission
by order so permits for the protection of shareholders of the Fund.
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. Information about any additional requirements for
shares held in the name of a corporation, partnership, trustee, guardian or in
any other representative capacity can be obtained from the transfer agent.
The Fund has the right to satisfy redemption requests by delivering securities
from its investment portfolio rather than cash when it decides that distributing
cash would not be in the best interests of shareholders. However, the Fund is
obligated to redeem its shares solely in cash up to an amount equal to the
lesser of $250,000 or 1% of its net assets for any one shareholder in any 90-day
period. To the extent possible, the Fund will distribute readily marketable
securities, in conformity with applicable rules of the Commission. In the event
such redemption is requested by institutional investors, the Fund 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.
Purchases should be made for investment purposes only. The Fund reserves the
right to reject any specific purchase request.
Front-end Sales Charge Waivers
The front-end sales charge will not apply if you are:
1. an employee or retired employee of Aetna Inc. (including members of the
board and members of employees', retired employees' and directors'
immediate families); or
2. a member of the Board (including members of Directors' immediate families).
<PAGE>
The Fund's front-end sales charge 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 (1)
directly in any Aeltus-advised fund or (2) in a separate account sponsored
by Aetna Life Insurance and Annuity Company (ALIAC) or any affiliate
thereof, but only if no deferred sales charge is paid in connection with
such distribution and the investor receives the distribution in connection
with a separation from service, retirement, death or disability.
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, provided the account(s) are not part of an omnibus
account arrangement.
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 of other Series at the time such shares
were redesignated as Class A shares.
Contingent Deferred Sales Charge
Certain Class A shares and all Class B shares are subject to a CDSC, as
described in the Prospectus. There is no CDSC imposed on shares purchased more
than two years prior to the redemption (in the case of Class A shares) or shares
redeemed prior to the Maturity Date (in the case of Class B shares).
CDSC Waivers
The CDSC will be waived for:
. Redemptions following the death or disability of the shareholder or
beneficial owner;
. Redemptions related to distributions from retirement plans or accounts
under Internal Revenue Section 403(b) after you attain age 70 1/2;
. Tax-free returns of excess contributions from employee benefit plans;
and
. Distributions from employee benefit plans, including those due to plan
termination or plan transfer.
<PAGE>
Letter of Intent
You may qualify for a reduced sales charge when you buy Class A shares, as
described in the Prospectus. At any time, you may file with the Company a signed
shareholder application with the Letter of Intent section completed. After the
Letter of Intent is filed, each additional investment in the Fund (or in certain
other series of the Company) will be entitled to the sales charge applicable to
the level of investment indicated on the Letter of Intent. Sales charge
reductions are based on purchases in the Fund (and in certain other series of
the Company) and will be effective only after notification to ACI that the
investment qualifies for a discount. Your holdings in the Fund (and in certain
other Series of the Company) acquired within 90 days of the day the Letter of
Intent is filed will be counted towards completion of the Letter of Intent and
will be entitled to a retroactive downward adjustment in the sales charge. Such
adjustment will be made by the purchase of additional shares in certain other
Series of the Company in an equivalent amount.
Five percent (5%) of the amount of the total intended purchase will be held by
the transfer agent in escrow until you fulfill the Letter of Intent. If, at the
end of the 13-month period, you have not met the terms of the Letter of Intent
an amount of shares equal to the difference owed will be deducted from your
account. Such an adjustment will be made at NAV and will not be eligible for the
Guarantee. 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 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 during the period. The upward adjustment will be paid with shares
redeemed from your account.
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 of the Series 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 certain other Class
A shares you own, as well as certain Class A shares of your spouse and children
under the age of 21. If you are the sole owner of the Fund, you may also add any
other accounts, including retirement plan accounts invested in certain Class A
shares of the Company. Companies with one or more retirement plans may add
together the total plan assets invested in certain Class A shares of the Series
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 Company with sufficient information to verify that the purchase
qualifies for the privilege or discount. The shareholder must furnish this
information to the Company when making direct cash investments.
Additional Rights The Fund retains certain rights, including the rights to:
refuse orders to purchase shares; vary its requirements for initial or
additional investments, reinvestments, retirement and employee benefit plans,
sponsored arrangements and similar programs; and change or discontinue its sales
charge waivers and orders acceptance practices.
<PAGE>
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the supervision of the Board, 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
registered investment companies advised by Aeltus as a factor in the selection
of brokerage firms to execute the Fund's 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 Fund and other investment companies,
services related to the execution of trades on behalf of the Fund and advice as
to the valuation of securities, the providing of equipment used to communicate
research information and specialized consultations with Fund personnel with
respect to computerized systems and data furnished to the Fund 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 the Fund's securities and may pay higher commission rates than the
lowest available when it is reasonable to do so in light of the value of the
brokerage and research services received generally or in connection with a
particular transaction. 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 that 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 Fund.
The Fund has no present intention of effecting any brokerage transactions in
portfolio securities with Aeltus or any other affiliated person.
The Fund, another series of the Company, 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 the funds
and/or accounts, 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.
<PAGE>
The Board has 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.
The Board has also adopted a Code of Ethics governing personal trading by
persons who manage, or who have access to trading activity by, the Fund. The
Code of Ethics allows trades to be made in securities that may be held by the
Fund. However, it prohibits a person from taking advantage of the Fund trades or
from acting on inside information. Aeltus also has adopted a Code of Ethics,
which the Board reviews annually.
SHAREHOLDER ACCOUNTS AND SERVICES
Shareholder Information
The Fund's transfer agent will maintain your account information. Account
statements will be sent at least quarterly. A Form 1099 generally 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 historical transcripts of your account and copies of canceled checks.
Consolidated statements reflecting current values, share balances and
year-to-date transactions generally 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.
Signature Guarantee
A signature guarantee is verification of the authenticity of the signature given
by certain authorized institutions. The Company 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 Company 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 notaries
public.
<PAGE>
NET ASSET VALUE
Securities of the Fund 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 last sale price or, if there has been no sale that
day, at the mean of the last bid and asked price if current market quotations
are not readily available. Debt securities maturing in more than sixty days at
the date of valuation are valued at the mean of the last bid and asked price of
such securities obtained from a broker-dealer or a service providing quotations
based upon the assessment of market-makers in those securities. Debt securities
maturing in sixty days or less at the date of valuation 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. Futures contracts are valued daily at a settlement price based on
rules of the exchange where the futures contract is primarily traded. 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 Board.
TAX STATUS
The following is only a limited discussion of certain additional tax
considerations generally affecting the Fund. No attempt is made to present a
detailed explanation of the tax treatment of the Fund and no explanation is
provided with respect to the tax treatment of any shareholder. The discussions
here and in the Prospectus are not intended as substitutes for careful tax
planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. If for any taxable year the Fund does not qualify as a
regulated investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to the shareholders as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions generally will
be eligible for the dividends-received deduction in the case of corporate
shareholders.
Foreign Investments
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 the Fund's assets to be invested in
various countries is not known.
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.
<PAGE>
The Fund intends to make sufficient distributions or deemed distributions of its
ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Taxes in Relation to the Guarantee
Any withholding of taxes on distributions by the Fund will result in a reduction
of the benefit under the Guarantee. If an amount is paid to shareholders
pursuant to the Guarantee, these amounts probably will be taxable to
shareholders. However, it is possible that such amounts could be regarded as a
tax-free return of capital.
The Fund does not undertake to suggest to shareholders the manner in which any
payments that may be made under the Guarantee are to be treated for tax
purposes. Shareholders are specifically advised to consult their tax advisers
about the tax treatment of any payments that may be made under the Guarantee.
PERFORMANCE INFORMATION
Performance information for each class of shares, including the total return of
the Fund, may appear in reports or promotional literature to current or
prospective shareholders.
Average Annual Total Return
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over a period of one and five years (or, if less, up to
the life of the Fund), calculated pursuant to the formula:
P(1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = an average annual total return
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1 or 5 year period at the end of the 1 or 5 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 B 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 Company may include performance for Class B that does not
take into account the imposition of the applicable CDSC.
Performance information for the Fund may be compared, in reports and promotional
literature, to: (a) the Standard & Poor's 500 Index, the Lehman Brothers
Aggregate Bond Index, or other indices (including, where appropriate, a blending
of indices) that measure performance of a pertinent group of securities widely
regarded by investors as representative of the securities markets in general;
(b) other groups of investment companies tracked by Morningstar or Lipper
Analytical Services, widely used independent research firms that rank 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; and (c) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund.
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 the
Fund.
Statement of Additional Information
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a.1) Articles of Amendment and Restatement (September 2, 1997)(1)
(a.2) Articles of Amendment (October 29, 1997)(2)
(a.3) Articles Supplementary (October 29, 1997)(2)
(a.4) Articles of Amendment (January 26, 1998)(3)
(a.5) Articles Supplementary (June 25, 1998)(4)
(a.6) Articles Supplementary (December 22, 1998)(5)
(a.7) Articles Supplementary (July 12, 1999)(6)
(a.8) Certificate of Correction (September 22, 1999)
(a.9) Articles Supplementary (September 27, 1999)
(b) By-laws (as amended September 13, 1994)(7)
(c) Instruments Defining Rights of Holders (set forth in the Articles of Amendment and Restatement)(1)
(d.1) 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(5)
(d.2) Investment Advisory Agreement between Aeltus Investment Management, Inc. and Aetna Series Fund, Inc.,
on behalf of Aetna Principal Protection Fund I(6)
(d.3) Investment Advisory Agreement between Aeltus Investment Management, Inc. and Aetna Series Fund, Inc.,
on behalf of Aetna Principal Protection Fund II
(d.4) Investment Advisory Agreement between Aeltus Investment Management, Inc. and Aetna Series Fund, Inc.,
on behalf of Brokerage Cash Reserves(6)
(d.5) Subadvisory Agreement between Aeltus Investment Management, Inc., Aetna Series Fund, Inc., on behalf of
Aetna Value Opportunity Fund, and Bradley, Foster & Sargent, Inc.(8)
(e.1) Underwriting Agreement between Aeltus Capital, Inc. and Aetna Series Fund, Inc.
(e.2) Master Selling Dealer Agreement(3)
(f) Directors' Deferred Compensation Plan (1)
(g.1) Custodian Agreement - Mellon Bank, N.A. (September 1, 1992)(5)
(g.2) Amendment to Custodian Agreement - Mellon Bank, N.A. (May 11, 1994)(2)
<PAGE>
(g.3) Amendment to Custodian Agreement - Mellon Bank, N.A. (September 14, 1994)(7)
(g.4) Amendment to Custodian Agreement - Mellon Bank, N.A. (October 11, 1996)(9)
(g.5) Amendment to Custodian Agreement - Mellon Bank, N.A. (January 29, 1998)(3)
(g.6) Amendment to Custodian Agreement - Mellon Bank, N.A. (July 26, 1999)(6)
(g.7) Amendment to Custodian Agreement - Mellon Bank, N.A. (July 26, 1999)(6)
(g.8) Amendment to Custodian Agreement - Mellon Bank, N.A. (October 4, 1999)
(g.9) Custodian Agreement - Brown Brothers Harriman & Company (Aetna International Fund)
(December 12, 1991)(10)
(h.1) 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(5)
(h.2) Amendment to Administrative Services Agreement between Aeltus Investment Management, Inc. and Aetna
Series Fund, Inc. on behalf of Aetna Principal Protection Fund I(6)
(h.3) Amendment to Administrative Services Agreement between Aeltus Investment Management, Inc. and Aetna
Series Fund, Inc. on behalf of Aetna Principal Protection Fund II
(h.4) Amendment to Administrative Services Agreement between Aeltus Investment Management, Inc. and Aetna
Series Fund, Inc. on behalf of Brokerage Cash Reserves(6)
(h.5) License Agreement(7)
(h.6) Transfer Agent Agreement(4)
(h.7) Amendment No. 1 to the Transfer Agency and Services Agreement(11)
(h.8) Amendment No. 2 to the Transfer Agency and Services Agreement(11)
(h.9) Amendment No. 3 to the Transfer Agency and Services Agreement(5)
(h.10) Amendment No. 4 to the Transfer Agency and Services Agreement
(h.11) Form of Amendment No. 5 to the Transfer Agency and Services Agreement
(h.12) Financial Guaranty Agreement between Aetna Series Fund, Inc., on behalf of Aetna Principal
Protection Fund I, and MBIA Insurance Corporation
(h.13) Form of Custodian Service Agreement
(h.14) Form of Custodian Monitoring Agreement
(i) Opinion and Consent of Counsel
<PAGE>
(j) Consent of Independent Auditors
(k) Not applicable
(l) Initial Capital Agreement(11)
(m.1) Distribution Plan (Class A)
(m.2) Distribution Plan (Class C)(5)
(m.3) Distribution Plan (Class B)
(m.4) Distribution Plan (Brokerage Cash Reserves)(6)
(m.5) Shareholder Service Plan (Class C)(5)
(m.6) Shareholder Services Plan (Class B)
(m.7) Shareholder Service Plan (Brokerage Cash Reserves)(6)
(n) Multiple Class Plan
(0.1) Power of Attorney (November 6, 1998)(11)
(o.2) Authorization for Signatures(12)
1. Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on January 16, 1998.
2. Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed with the
Securities and Exchange Commission on November 3, 1997.
3. Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed with the
Securities and Exchange Commission on April 24, 1998.
4. Incorporated herein by reference to Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on June 29, 1998.
5. Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on February 25, 1999.
6. Incorporated herein by reference to Post-Effective Amendment No. 32 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on July 29, 1999.
7. Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form N-1A, (File No. 33-85620), as filed with the
Securities and Exchange Commission on June 28, 1995.
8. Incorporated herein by reference to Post-Effective Amendment No. 28 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on September 30, 1998.
9. Incorporated herein by reference to Post-Effective Amendment No. 16 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on December 10, 1996.
10. Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on September 20, 1996.
11. Incorporated herein by reference to Post-Effective Amendment No. 29 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on December 17, 1998.
12. Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registration Statement on Form N-1A (File No. 333-05173), as filed with the
Securities and Exchange Commission on September 26, 1997.
<PAGE>
Item 24. Persons Controlled by or Under Common Control
Registrant is a Maryland corporation for which separate financial
statements are filed. As of August 31, 1999, Aetna Life Insurance and
Annuity Company (Aetna), and its affiliates, had the following interest
in the series of the Registrant, through direct ownership or through one
of Aetna's separate accounts:
% Aetna
----------------------------------------------------------------------------
Class I Class A Class B Class C
Aetna Balanced Fund 21.32%
Aetna Bond Fund 56.45% 50.58%
Aetna Government Fund 79.20% 64.32%
Aetna Growth Fund 14.62%
Aetna Growth and Income Fund 14.51%
Aetna High Yield Fund 98.95% 16.97% 62.20%
Aetna Index Plus Bond Fund 99.75% 6.88% 30.25% 33.05%
Aetna Index Plus Large Cap Fund 40.27%
Aetna Index Plus Mid Cap Fund 98.24% 4.32% 21.12%
Aetna Index Plus Small Cap Fund 97.57% 4.38% 39.70%
Aetna International Fund 23.44% 39.79%
Aetna Mid Cap Fund 97.90% 16.55% 95.67% 72.08%
Aetna Money Market Fund 46.52%
Aetna Real Estate Securities Fund 94.78% 10.48% 71.51% 46.74%
Aetna Small Company Fund 53.33% 59.80%
Aetna Value Opportunity Fund 96.59% 12.81% 78.65% 43.64%
Aetna Ascent Fund 84.69% 94.64%
Aetna Crossroads Fund 90.51% 100.00%
Aetna Legacy Fund 82.03% 84.94%
Aetna is an indirect wholly owned subsidiary of Aetna Inc.
A list of all persons directly or indirectly under common control with
the Registrant and a list which indicates the principal business of each
such company referenced in the diagram are incorporated herein by
reference to Item 26 of the Registration Statement on Form N-4 (File No.
333-87131), as filed with the Securities and Exchange Commission on
September 15, 1999.
Item 25. Indemnification
Article 12, Section (d) of the Registrant's Articles of Amendment and
Restatement, incorporated herein by reference to Exhibit (a.1) to
Registrant's Registration Statement on Form N-1A (File No. 33-41694), as
filed 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 ICI Mutual Insurance Company, which expires
October 1, 2002.
<PAGE>
Section XI.B of the Administrative Services Agreement, incorporated
herein by reference to Exhibit (h.1) to Registrant's Registration
Statement on Form N-1A (File No. 33-41694), as filed on February 25,
1999, provides for indemnification of the Administrator.
Section 8 of the Underwriting Agreement, filed herein as Exhibit (e.1),
provides for indemnification of the Underwriter, its several officers and
directors, and any person who controls the Underwriter within the meaning
of Section 15 of the Securities Act of 1933.
Reference is also made to Section 2-418 of the Corporations and
Associations Article of the Annotated Code of Maryland which provides
generally that (1) a corporation may (but is not required to) indemnify
its directors for judgments, fines and expenses in proceedings in which
the director is named a party solely by reason of being a director,
provided the director has not acted in bad faith, dishonestly or
unlawfully, and provided further that the director has not received any
"improper personal benefit"; and (2) that a corporation must (unless
otherwise provided in the corporation's charter or articles of
incorporation) indemnify a director who is successful on the merits in
defending a suit against him by reason of being a director for
"reasonable expenses." The statutory provisions are not exclusive; i.e.,
a corporation may provide greater indemnification rights than those
provided by statute.
Item 26. 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 (1940 Act)). It also acts as investment adviser to
certain private accounts.
<PAGE>
The following table summarizes the business connections of the directors and
principal officers of the Investment Adviser.
- ------------------------------ ----------------------------------- ------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1996/Addresses*
- ------------------------------ ----------------------------------- ------------------------------------------------------
John Y. Kim Director, President, Chief Director (February 1995 - March 1998) -- Aetna Life
Executive Officer, Chief Insurance and Annuity Company; Senior Vice President
Investment Officer (since September 1994) -- Aetna Life Insurance and
Annuity Company.
J. Scott Fox Director, Managing Director, Vice President (since April 1997) -- Aetna
Chief Operating Officer, Chief Retirement Services, Inc.; Director and Senior Vice
Financial Officer 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.
Thomas J. McInerney Director President (since August 1997) -- Aetna Retirement
Services, Inc.; Director and President (since
September 1997) -- Aetna Life Insurance and Annuity
Company; 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.
Catherine H. Smith Director Chief Financial Officer (since February 1998) --
Aetna Retirement Services, Inc.; Director, Senior
Vice President and Chief Financial Officer (since
February 1998) -- Aetna Life Insurance and Annuity
Company; Vice President, Strategy, Finance and
Administration, Financial Relations (September 1996
- February 1998) -- Aetna Inc.
<PAGE>
Stephanie A. DeSisto Vice President
Amy R. Doberman Vice President, General Counsel Counsel (since December 1996) -- Aetna Life
and Secretary Insurance and Annuity Company; Attorney (March 1990
- November 1996) -- U.S. Securities and Exchange
Commission.
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.
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 (since August 1996) -- Aeltus
Investments Trust Company.
L. Charles Meythaler Managing Director, Institutional Director (since July 1997) -- Aeltus Trust Company;
Marketing Managing Director (since June 1997) -- Aeltus Trust
and Sales Company; President (June 1993 - April 1997) -- New
England Investment Association.
James Sweeney Managing Director, Fixed Income
Investments
* Except with respect to Mr. McInerney and Ms. Smith, the principal
business address of each person named is 10 State House Square,
Hartford, Connecticut 06103-3602. The address of Mr. McInerney and Ms.
Smith is 151 Farmington Avenue, Hartford, Connecticut 06156.
For information regarding Bradley, Foster & Sargent, Inc. (Bradley), the
subadviser for Aetna Value Opportunity Fund, reference is made to the section
entitled "Subadviser" in the Class A, B and C Prospectus, the Class I Prospectus
and the Statement of Additional Information each dated March 1, 1999. For
information as to the business, profession, vocation or employment of a
substantial nature of each of the officers of Bradley, reference is made to
Bradley's current Form ADV (File No. 801-46616) filed under the Investment
Advisers Act of 1940, incorporated herein by reference.
<PAGE>
Item 27. Principal Underwriters
(a) None
(b) The following are the directors and principal officers of Aeltus
Capital, Inc., the principal underwriter of the Registrant:
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
John Y. Kim Director and President Director
J. Scott Fox Director, Managing Director, Chief Operating Director and President
Officer, Chief Financial Officer
Brian K. Kawakami Director, Vice President, Chief Compliance None
Officer
Frank Litwin Director, Managing Director Vice President
Daniel F. Wilcox Vice President, Finance and Treasurer None
*The principal business address of all directors and officers listed is 10
State House Square, Hartford, Connecticut 06103-3602.
(c) Not applicable.
Item 28. 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 10 State House
Square, Hartford, Connecticut 06103-3602.
Shareholder records are maintained by the transfer agent, First Data
Investor Services Group, Inc., 4400 Computer Drive, Westboro,
Massachusetts 01581.
Item 29. Management Services
Not applicable.
<PAGE>
Item 30. Undertakings
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 that the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
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 requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Aetna Series Fund, Inc. certifies that it meets all of the
requirements for effectiveness of this Registration Statement under Rule 485(b)
under the Securities Act and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Hartford and State of Connecticut on the 6th day of October, 1999.
AETNA SERIES FUND, INC.
Registrant
By J. Scott Fox*
-----------------
J. Scott Fox
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date(s) indicated.
Signature Title Date
J. Scott Fox* President and Director )
- ------------------------------------------- )
J. Scott Fox (Principal Executive Officer) )
)
Albert E. DePrince, Jr.* Director )
- ------------------------------------------- )
Albert E. DePrince, Jr. )
)
)
Maria T. Fighetti* Director ) October
- ------------------------------------------- ) 6, 1999
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 )
)
Corine T. Norgaard* Director )
- ------------------------------------------- )
Corine T. Norgaard )
)
Richard G. Scheide* Director )
- ------------------------------------------- )
Richard G. Scheide )
)
Stephanie A. DeSisto* Treasurer and Chief Financial Officer )
- ------------------------------------------- (Principal Financial and Accounting )
Stephanie A. DeSisto Officer) )
By: /s/ Amy R. Doberman
---------------------------------------------------
*Amy R. Doberman
Attorney-in-Fact
*Executed pursuant to Power of Attorney dated November 6, 1998 and filed
with the Securities and Exchange Commission on December 17, 1998.
<PAGE>
Aetna Series Fund, Inc.
EXHIBIT INDEX
Exhibit No. Exhibit Page
99-B1(a.8) Certificate of Correction (September 22, 1999) 57
99-B1(a.9) Articles Supplementary (September 27, 1999) 64
99-B5(d.3) Investment Advisory Agreement between Aeltus Investment Management, Inc.
and Aetna Series Fund, Inc., on behalf of Aetna Principal Protection
Fund II 68
99-B6(e.1) Underwriting Agreement 76
99-B8(g.8) Amendment to Custodian Agreement - Mellon Bank, N.A. (October 4, 1999) 82
99-B9(h.3) Amendment to Administrative Services Agreement between Aeltus Investment
Management, Inc. and Aetna Series Fund, Inc. on behalf of Aetna
Principal Protection Fund II 83
99-B9(h.10) Amendment No. 4 to the Transfer Agency and Services Agreement 84
99-B9(h.11) Form of Amendment No. 5 to the Transfer Agency and Services Agreement 89
99-B9(h.12) Financial Guaranty Agreement between Aetna Series Fund, Inc. and
MBIA Insurance Corporation 90
99-B9(h.13) Form of Custodian Service Agreement 132
99-B9(h.14) Form of Custodian Monitoring Agreement 152
99-B10(i) Opinion and Consent of Counsel 159
99-B11(j) Consent of Independent Auditors 160
99-B15(m.1) Distribution Plan (Class A) 161
99-B15(m.3) Distribution Plan (Class B) 164
99-B15(m.6) Shareholder Services Plan (Class B) 168
99-B18(n) Multiple Class Plan 171
</TABLE>
AETNA SERIES FUND, INC.
CERTIFICATE OF CORRECTION
AETNA SERIES FUND, INC., a Maryland corporation registered as
an open-end investment company under the Investment Company Act of 1940 and
having its principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation") hereby certifies to the State Department
of Assessments and Taxation of Maryland (the "Department") that:
FIRST: On July 14, 1999, the Corporation filed with the
Department, Articles Supplementary (the "Articles Supplementary") which
provided, among other things, that the Board of Directors had designated
and classified 1,200,000,000 shares of the authorized but unissued
capital stock of the Corporation into two new series as follows:
<TABLE>
<S> <C> <C>
Number of Number of
Name of Series Class of Series Shares Allocated
Aetna Principal Protection Fund I Class A 100,000,000
Class B 100,000,000
Brokerage Cash Reserves 1,000,000,000
SECOND: The Corporation is the only party to the Articles
Supplementary.
THIRD: The Articles Supplementary contain a typographical
error, error of transcription or other error and the Corporation desires
to correct such error by filing this Certificate of Correction.
FOURTH: The error consists of the omission of one article of
the Articles Supplementary which should have been designated as Article
Fifth of the Articles Supplementary, and the incorrect designation of
existing Articles Fifth, Sixth and Seventh of the Articles Supplementary
which read as follows:
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.
<PAGE>
SIXTH: Immediately prior to the effectiveness of these
Articles Supplementary, the Corporation had the authority to issue twelve
billion, six hundred million (12,600,000,000) shares of capital stock
with a par value of $0.001 per share and with an aggregate par value of
twelve million, six hundred thousand dollars ($12,600,000.00), of which
the Board of Directors had designated and classified eleven billion, six
hundred million (11,600,000,000) shares as follows:
Name of Series Name of Number of
Class of Series Shares Allocated
AETNA MONEY MARKET FUND Class I 1,000,000,000
Class A 1,000,000,000
Class B 1,000,000,000
Class C 1,000,000,000
AETNA BOND FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA BALANCED FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA GROWTH AND Class I 100,000,000
INCOME FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INTERNATIONAL FUND Class I 200,000,000
Class A 200,000,000
Class B 200,000,000
Class C 200,000,000
AETNA GOVERNMENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA SMALL COMPANY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA GROWTH FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
<PAGE>
AETNA ASCENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA CROSSROADS FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA LEGACY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
LARGE CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS BOND FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
MID CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA MID CAP FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
SMALL CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA HIGH YIELD FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA REAL ESTATE SECURITIES FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA VALUE Class I 100,000,000
OPPORTUNITY FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
SEVENTH: Immediately following the effectiveness of these
Articles Supplementary, the Corporation will have authority to issue
thirteen billion, eight hundred million (13,800,000,000) shares of
capital stock with a par value of $0.001 per share and with an aggregate
par value of thirteen million, eight hundred thousand dollars
($13,800,000.00) of which the Board of Directors has designated and
classified twelve billion, eight hundred million (12,800,000,000) 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.
<PAGE>
FIFTH: As corrected, Articles Fifth, Sixth, Seventh and new
Article Eighth of the Articles Supplementary now read as follows:
FIFTH: In addition to the preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, conversion
rights and terms and conditions of redemption described therein, all
shares of the Aetna Principal Protection Fund I Series ("APPF I Series")
will be subject to mandatory redemption by the Corporation on the
Maturity Date of the Series which shall be October 6, 2004. On the
Maturity Date, the APPF I Series shall have the obligation, subject to
the conditions and limitations set forth in this Article FIFTH, to pay to
each shareholder of the APPF I Series, in redemption of such
shareholder's shares of the APPF I Series, the greater of (i) the net
asset value per share of such shareholder's shares of the APPF I Series
as of the Maturity Date or (ii) the Guarantee Per Share, the calculation
of which is described in the Corporation's Registration Statement (as
referred to below), multiplied by the number of shares of the APPF I
Series held by such shareholder on the Maturity Date. Shares redeemed
prior to the Maturity Date will receive the per share net asset value as
of the date of redemption but shall not be entitled to the Guarantee Per
Share. The obligation of the APPF I Series described in the second
preceding sentence shall be payable solely from the assets of the APPF I
Series, which include an insurance policy purchased and to be maintained
by the Corporation on behalf of the APPF I Series and issued by MBIA
Insurance Corporation ("MBIA"). The aforesaid insurance policy provides,
among other things, that if on the Maturity Date the APPF I Series has
insufficient assets (excluding the insurance policy and the proceeds
therefrom) available to pay shareholders amounts upon redemption of their
shares in accordance with the aforesaid obligation, MBIA will make
payments to the APPF I Series under the insurance policy in an amount
sufficient to permit the APPF I Series to fulfill the aforesaid
obligation. Nothing herein shall entitle any shareholder of APPF I Series
or MBIA to any assets of the Corporation other than those of the APPF I
Series, or impose any liability on the Corporation or its directors by
reason of any breach or default by MBIA under the aforesaid insurance
policy. All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Registration Statement on Form N-1A
(File No. 33-41694) as filed with the United States Securities and
Exchange Commission with respect to the APPF I Series.
SIXTH: 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.
SEVENTH: Immediately prior to the effectiveness of these
Articles Supplementary, the Corporation had the authority to issue
thirteen billion, eight hundred million (13,800,000,000) shares of
capital stock with a par value of $0.001 per share and with an aggregate
par value of thirteen million, eight hundred thousand dollars
($13,800,000.00), of which the Board of Directors had designated and
classified twelve billion, eight hundred million (12,800,000,000) shares
as follows:
<PAGE>
Name of Series Name of Number of
Class of Series Shares Allocated
AETNA MONEY MARKET FUND Class I 1,000,000,000
Class A 1,000,000,000
Class B 1,000,000,000
Class C 1,000,000,000
AETNA BOND FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA BALANCED FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA GROWTH AND Class I 100,000,000
INCOME FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INTERNATIONAL FUND Class I 200,000,000
Class A 200,000,000
Class B 200,000,000
Class C 200,000,000
AETNA GOVERNMENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA SMALL COMPANY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA GROWTH FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA ASCENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA CROSSROADS FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
<PAGE>
AETNA LEGACY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
LARGE CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS BOND FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
MID CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA MID CAP FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
SMALL CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA HIGH YIELD FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA REAL ESTATE SECURITIES FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA VALUE Class I 100,000,000
OPPORTUNITY FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
<PAGE>
EIGHTH: Immediately following the effectiveness of these
Articles Supplementary, the Corporation will have authority to issue
thirteen billion, eight hundred million (13,800,000,000) shares of
capital stock with a par value of $0.001 per share and with an aggregate
par value of thirteen million, eight hundred thousand dollars
($13,800,000.00) of which the Board of Directors has designated and
classified twelve billion, eight hundre million (12,800,000,000) 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.
SIXTH: This Certificate of Correction does not alter the
wording of any resolution which was adopted by the Board of Directors or the
stockholders of the Corporation or make any other change or amendment which
would not have complied in all respects with the requirements of the Maryland
General Corporation Law at the time the Articles Supplementary were filed.
SEVENTH: The undersigned President of the Corporation
acknowledges this Certificate of Correction to be the corporate act of the
Corporation and, as to all matters or facts required to be verified under oath,
the undersigned President acknowledges that, to the best of his knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Correction to be executed in its name and on its behalf by its
President and attested to by its Secretary on this 22nd day of September, 1999.
AETNA SERIES FUND, INC.
By /s/ J. Scott Fox
------------------------
J. Scott Fox
President
ATTEST:
/s/ Amy R. Doberman
- -----------------------------
Amy R. Doberman
Secretary
</TABLE>
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AETNA SERIES FUND, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at its September 22,
1999 meeting, adopted a resolution increasing the total number of shares of
stock which the Corporation shall have authority to issue to fourteen billion
(14,000,000,000) shares of capital stock with a par value of $0.001 per share
and with an aggregate par value of fourteen million dollars ($14,000,000.00);
SECOND: The Board of Directors, at its meeting held on September 22,
1999, by resolutions, did designate and classify two hundred million
(200,000,000) shares of capital stock of the Corporation into a new series as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Name of Series Name of Number of
Class of Series Shares Allocated
Aetna Principal Protection Fund II Class A 100,000,000
Class B 100,000,000
THIRD: The shares of the Aetna Principal Protection Fund II ("Series")
and of each Class of such Series, including, but not limited to the shares 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, conversion rights, 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 B shares of a 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 the Series and of each Class of such Series, shall
be subject to all provisions of the Articles of Amendment and Restatement of the
Corporation. In addition to the preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, conversion rights and
terms and conditions of redemption of the Series described therein, all shares
of the Series will be subject to mandatory redemption by the Corporation on the
Maturity Date of the Series which shall be December 20, 2004. On the Maturity
Date, the Series shall have the obligation, subject to the conditions and
limitations set forth in this Article FOURTH, to pay to each shareholder of the
Series, in redemption of such shareholder's shares of the Series, the greater of
(i) the net asset value per share of such shareholder's shares of the Series as
of the Maturity Date or (ii) the Guarantee Per Share, the calculation of which
is described in the Corporation's Registration Statement (as referred to below),
multiplied by the number of shares of the Series held by such shareholder on the
Maturity Date. Shares redeemed prior to the Maturity Date will receive the per
share net asset value as of the date of redemption but shall not be entitled to
the Guarantee Per Share. The obligation of the Series described in the second
preceding sentence shall be payable solely from the assets of the Series, which
include an insurance policy purchased and to be maintained by the Corporation on
behalf of the Series and issued by MBIA Insurance Corporation ("MBIA"). The
aforesaid insurance policy provides, among other things, that if on the Maturity
Date the Series has insufficient assets (excluding the insurance policy and the
proceeds therefrom) available to pay shareholders amounts upon redemption of
their shares in accordance with the aforesaid obligation, MBIA will make
payments to the Series under the insurance policy in an amount sufficient to
permit the Series to fulfill the aforesaid obligation. Nothing herein shall
entitle any shareholder of Series or MBIA to any assets of the Corporation other
than those of the Series, or impose any liability on the Corporation or its
directors by reason of any breach or default by MBIA under the aforesaid
insurance policy. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Registration Statement on Form N-1A (File
No. 33-41694) as filed with the United States Securities and Exchange Commission
with respect to the Series.
<PAGE>
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 thirteen billion,
eight hundred million (13,800,000,000) shares of capital stock with a par value
of $0.001 per share and with an aggregate par value of thirteen million, eight
hundred thousand dollars ($13,800,000.00), of which the Board of Directors had
designated and classified twelve billion, eight hundred million (12,800,000,000)
shares as follows:
Name of Series Name of Number of
Class of Series Shares Allocated
AETNA MONEY MARKET FUND Class I 1,000,000,000
Class A 1,000,000,000
Class B 1,000,000,000
Class C 1,000,000,000
AETNA BOND FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA BALANCED FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA GROWTH AND Class I 100,000,000
INCOME FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INTERNATIONAL FUND Class I 200,000,000
Class A 200,000,000
Class B 200,000,000
Class C 200,000,000
<PAGE>
AETNA GOVERNMENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA SMALL COMPANY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA GROWTH FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA ASCENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA CROSSROADS FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA LEGACY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
LARGE CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS BOND FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA INDEX PLUS Class I 100,000,000
MID CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA MID CAP FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
<PAGE>
AETNA INDEX PLUS Class I 100,000,000
SMALL CAP FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA HIGH YIELD FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA REAL ESTATE SECURITIES FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA VALUE Class I 100,000,000
OPPORTUNITY FUND Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA PRINCIPAL PROTECTION FUND I Class A 100,000,000
Class B 100,000,000
BROKERAGE CASH RESERVES 1,000,000,000
SEVENTH: Immediately following the effectiveness of these Articles
Supplementary, the Corporation will have authority to issue fourteen billion
(14,000,000,000) shares of capital stock with a par value of $0.001 per share
and with an aggregate par value of fourteen million dollars ($14,000,000.00) of
which the Board of Directors has designated and classified thirteen billion
(13,000,000,000) 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: September 27, 1999
------------------
CORPORATE SEAL
</TABLE>
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AELTUS INVESTMENT MANAGEMENT, INC. a
Connecticut corporation (the "Adviser") and AETNA SERIES FUND, INC., a Maryland
corporation (the "Fund"), on behalf of its series, Aetna Principal Protection
Fund II (the "Series"), as of the date set forth above the parties' signatures.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Fund has established the Series; and
WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act"), and is in the
business of acting as an investment adviser; and
WHEREAS, the Fund, on behalf of the Series, and the Adviser desire to enter into
an agreement to provide for investment advisory and management services for the
Series on the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Directors (the "Board"), the Fund, on behalf of
the Series, hereby appoints the Adviser to serve as the investment adviser to
the Series, to provide the investment advisory services set forth below in
Section II. The Adviser agrees that, except as required to carry out its duties
under this Agreement or otherwise expressly authorized, it is acting as an
independent contractor and not as an agent of the Series and has no authority to
act for or represent the Series in any way.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall do the following:
1. supervise all aspects of the operations of the Series;
2. select the securities to be purchased, sold or exchanged by
the Series or otherwise represented in the Series' investment
portfolio, place trades for all such securities and regularly
report thereon to the Board;
3. formulate and implement continuing programs for the purchase
and sale of securities and regularly report thereon to the
Board;
4. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy
generally, the Series, securities held by or under
consideration for the Series, or the issuers of those
securities;
5. provide economic research and securities analyses as the
Adviser considers necessary or advisable in connection with
the Adviser's performance of its duties hereunder;
6. obtain the services of, contract with, and provide
instructions to custodians and/or subcustodians of the Series'
securities, transfer agents, dividend paying agents, pricing
services and other service providers as are necessary to carry
out the terms of this Agreement; and
7. take any other actions which appear to the Adviser and the
Board necessary to carry into effect the purposes of this
Agreement.
<PAGE>
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Adviser
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is
duly organized and is in good standing under the laws
of the State of Connecticut and is fully authorized
to enter into this Agreement and carry out its duties
and obligations hereunder.
2. Registration. The Adviser is registered as an
investment adviser with the Commission under the
Advisers Act. The Adviser shall maintain such
registration in effect at all times during the term
of this Agreement.
3. Best Efforts. The Adviser at all times shall provide
its best judgment and effort to the Series in
carrying out its obligations hereunder.
B. Representations and Warranties of the Series and the Fund
The Fund, on behalf of the Series, hereby represents and warrants to
the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been
duly incorporated under the laws of the State of
Maryland and it is authorized to enter into this
Agreement and carry out its obligations hereunder.
2. Registration. The Fund is registered as an investment
company with the Commission under the 1940 Act and
shares of the Series are registered or qualified for
offer and sale to the public under the Securities Act
of 1933 and all applicable state securities laws.
Such registrations or qualifications will be kept in
effect during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
Subject to the approval of the Board and the shareholders of the
Series, the Adviser may enter into a Subadvisory Agreement to engage a
subadviser to the Adviser with respect to the Series.
V. BROKER-DEALER RELATIONSHIPS
A. Series Trades
The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Series with brokers or dealers selected by
the Adviser, which may include brokers or dealers affiliated with the
Adviser. The Adviser shall use its best efforts to seek to execute
portfolio transactions at prices that are advantageous to the Series
and at commission rates that are reasonable in relation to the benefits
received.
<PAGE>
B. Selection of Broker-Dealers
In selecting broker-dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage or research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Adviser and/or the
other accounts over which the Adviser or its affiliates exercise
investment discretion. The Adviser may also select brokers or dealers
to effect transactions for the Series that provide payment for expenses
of the Series. The Adviser is authorized to pay a broker or dealer who
provides such brokerage or research services or expenses, and that has
provided assistance in the distribution of shares of the Series to the
extent permitted by law, a commission for executing a portfolio
transaction for the Series that is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage or research services provided by such broker or dealer and is
paid in compliance with Section 28(e). This determination may be viewed
in terms of either that particular transaction or the overall
responsibilities that the Adviser and its affiliates have with respect
to accounts over which they exercise investment discretion. The Board
shall periodically review the commissions paid by the Series to
determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits received.
VI. CONTROL BY THE BOARD
Any investment program undertaken by the Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Adviser on behalf of the Series
pursuant thereto, shall at all times be subject to any directives of the Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:
1. all applicable provisions of the 1940 Act;
2. the provisions of the current Registration Statement of the Fund;
3. the provisions of the Fund's Articles of Incorporation, as amended;
4. the provisions of the Bylaws of the Fund, as amended; and
5. any other applicable provisions of state and federal law.
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund, on behalf of the Series, shall pay to the
Adviser an annual fee, payable monthly, equal to 0.25% of the average daily net
assets of the Series during the offering period and equal to 0.65% of the
average daily net assets of the Series during the guarantee period. Except as
hereinafter set forth, compensation under this Agreement shall be calculated and
accrued daily at the rate of 1/365 of 0.25% of the daily net assets of the
Series during the offering period and at the rate of 1/365 of 0.65% of the daily
net assets of the Series during the guarantee period. If this Agreement becomes
effective subsequent to the first day of a month or terminates before the last
day of a month, compensation for that part of the month this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the fees
set forth above. Subject to the provisions of Section X hereof, payment of the
Adviser's compensation for the preceding month shall be made as promptly as
possible.
<PAGE>
IX. EXPENSES
The expenses in connection with the management of the Series shall be allocated
between the Series and the Adviser as follows:
A. Expenses of the Adviser
The Adviser shall pay:
1. the salaries, employment benefits and other related
costs and expenses of those of its personnel engaged
in providing investment advice to the Series,
including without limitation, office space, office
equipment, telephone and postage costs; and
2. all fees and expenses of all directors, officers and
employees, if any, of the Fund who are employees of
the Adviser, including any salaries and employment
benefits payable to those persons.
B. Expenses of the Series
The Series shall pay:
1. investment advisory fees pursuant to this Agreement;
2. brokers' commissions, issue and transfer taxes or
other transaction fees payable in connection with any
transactions in the securities in the Series'
investment portfolio or other investment transactions
incurred in managing the Series' assets, including
portions of commissions that may be paid to reflect
brokerage research services provided to the Adviser;
3. fees and expenses of the Series' independent
accountants and legal counsel and the independent
Directors' legal counsel;
4. fees and expenses of any administrator, transfer
agent, custodian, dividend, accounting, pricing or
disbursing agent of the Series;
5. interest and taxes;
6. fees and expenses of any membership in the Investment
Company Institute or any similar organization in
which the Board deems it advisable for the Fund to
maintain membership;
7. insurance premiums on property or personnel
(including officers and directors) of the Fund;
<PAGE>
8. all fees and expenses of the Company's directors, who
are not "interested persons" (as defined in the 1940
Act) of the Fund or the Adviser;
9. expenses of preparing, printing and distributing
proxies, proxy statements, prospectuses and reports
to shareholders of the Series, except for those
expenses paid by third parties in connection with the
distribution of Series shares and all costs and
expenses of shareholders' meetings;
10. all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in
shares of the Series or in cash;
11. costs and expenses (other than those detailed in
paragraph 9 above) of promoting the sale of shares in
the Series, including preparing prospectuses and
reports to shareholders of the Series, provided,
nothing in this Agreement shall prevent the charging
of such costs to third parties involved in the
distribution and sale of Series shares;
12. fees payable by the Series to the Commission or to
any state securities regulator or other regulatory
authority for the registration of shares of the
Series in any state or territory of the United States
or of the District of Columbia;
13. all costs attributable to investor services,
administering shareholder accounts and handling
shareholder relations, (including, without
limitation, telephone and personnel expenses), which
costs may also be charged to third parties by the
Adviser; and
14. any other ordinary, routine expenses incurred in the
management of the Series' assets, and any
nonrecurring or extraordinary expenses, including
organizational expenses, litigation affecting the
Series and any indemnification by the Fund of its
officers, directors or agents.
Notwithstanding the above, the Adviser may waive a portion or all of the fees it
is entitled to receive.
In addition, the Adviser may reimburse the Fund, on behalf of a Series, for
expenses allocated to a Series.
The Adviser has agreed to waive fees and/or reimburse expenses so that the total
annual operating expenses (excluding distribution and shareholder service fees)
do not exceed 1.25% of the average daily net assets.
<PAGE>
X. ADDITIONAL SERVICES
Upon the request of the Board, the Adviser may perform certain accounting,
shareholder servicing or other administrative services on behalf of the Series
that are not required by this Agreement. Such services will be performed on
behalf of the Series and the Adviser may receive from the Series such
reimbursement for costs or reasonable compensation for such services as may be
agreed upon between the Adviser and the Board on a finding by the Board that the
provision of such services by the Adviser is in the best interests of the Series
and its shareholders. Payment or assumption by the Adviser of any Series expense
that the Adviser is not otherwise required to pay or assume under this Agreement
shall not relieve the Adviser of any of its obligations to the Series nor
obligate the Adviser to pay or assume any similar Series expense on any
subsequent occasions.
XI. NONEXCLUSIVITY
The services of the Adviser to the Series are not to be deemed to be exclusive,
and the Adviser shall be free to render investment advisory or other services to
others (including other investment companies) and to engage in other activities,
so long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers and directors of the Adviser may serve as
officers or directors of the Fund, and that officers or directors of the Fund
may serve as officers or directors of the Adviser to the extent permitted by
law; and that the officers and directors of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or trustees of any
other firm or trust, including other investment companies.
XII. TERM
This Agreement shall become effective on October 7, 1999 and shall remain in
force and effect through December 31, 2000 unless earlier terminated under the
provisions of Article XV.
XIII. RENEWAL
Following the expiration of its initial term, the Agreement shall continue in
force and effect from year to year, provided that such continuance is
specifically approved at least annually:
1. a. by the Board, or
b. by the vote of a majority of the Series' outstanding
voting securities (as defined in Section 2(a)(42) of the
1940 Act), and
2. by the affirmative vote of a majority of the directors who are
not parties to this Agreement or interested persons of a party
to this Agreement (other than as a director of the Fund), by
votes cast in person at a meeting specifically called for such
purpose.
<PAGE>
XIV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board or by vote of a majority of the Series'
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act),
or by the Adviser, on sixty (60) days' written notice to the other party. The
notice provided for herein may be waived by the party required to be notified.
This Agreement shall automatically terminate in the event of its "assignment."
XV. LIABILITY
The Adviser shall be liable to the Fund and shall indemnify the Fund for any
losses incurred by the Fund, whether in the purchase, holding or sale of any
security or otherwise, to the extent that such losses resulted from an act or
omission on the part of the Adviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Adviser of its duties under this Agreement, in
connection with the services rendered by the Adviser hereunder.
XVI. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:
if to the Fund, on behalf of the Series:
10 State House Square
Hartford, Connecticut 06103
Fax number 860/275-2158
if to the Adviser:
10 State House Square
Hartford, Connecticut 06103
Fax number 860/275-4440
XVII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules or orders of the
Securities and Exchange Commission issued pursuant to the 1940 Act, or contained
in no-action and interpretive positions taken by the Commission staff. In
addition, where the effect of a requirement of the 1940 Act reflected in the
provisions of this Agreement is revised by rule or order of the Commission, such
provisions shall be deemed to incorporate the effect of such rule or order.
XVIII. SERVICE MARK
The service mark of the Fund and the Series and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Services, Inc. (formerly known
as Aetna Life and Casualty Company) and their continued use is subject to the
right of Aetna Services, Inc. to withdraw this permission in the event the
Adviser or another affiliated corporation of Aetna Services, Inc. should not be
the investment adviser of the Series.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 27th day of September, 1999.
Aeltus Investment Management, Inc.
By: /s/ John Y. Kim
Attest: /s/ Amy R. Doberman Name: John Y. Kim
Name: Amy R. Doberman Title: President
Title: Secretary
Aetna Series Fund, Inc.
on behalf of its series,
Aetna Principal Protection Fund II
By: /s J. Scott Fox
Attest: /s/ Michael Gioffre Name: J. Scott Fox
Name: Michael Gioffre Title: President
Title: Assistant Secretary
AETNA SERIES FUND, INC.
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 1st day of April, 1999, by and between
Aeltus Capital, Inc. ("ACI" or "Underwriter"), a Connecticut corporation, and
Aetna Series Fund, Inc. ("Fund"), a Maryland corporation.
WHEREAS, the Fund is an open-end management investment company
registered with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund has registered its shares for offer and sale to the
public under the Securities Act of 1933, as amended ("1933 Act"), and in
accordance with the provisions of all applicable state securities laws (Blue Sky
Laws); and
WHEREAS, the Fund is offering and selling to the public distinct series
of shares of common stock, each corresponding to a distinct series ("Series");
and
WHEREAS, the Fund wishes to retain ACI as exclusive principal
underwriter in connection with the offering and sale of the shares of each
Series as now exists and as hereafter may be established ("Shares") including
any new classes of shares that may be offered and sold and to furnish certain
other services to the Fund as specified in this Agreement; and
WHEREAS, ACI is willing to act as exclusive principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Appointment of Underwriter. The Fund hereby appoints ACI and ACI
hereby accepts appointment as exclusive principal underwriter in connection with
the offering and sale of the Shares of each Series as are now registered for
sale with the SEC and under Blue Sky Laws and such other Series and classes of
shares of Series as may hereafter be so registered. The Fund authorizes the
Underwriter, as exclusive agent for the Fund, upon the commencement of
operations of any Series and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Fund: (a) to promote the Series;
(b) to solicit orders for the purchase of the Shares of the Series subject to
such terms and conditions as the Fund may specify; and (c) to hold itself
available to receive orders for the purchase of the Shares of the Series and to
accept such orders on behalf of the Fund as of the time of receipt of such
orders and promptly transmit such orders as are accepted to the Fund and its
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement as it may be amended from time to
time. The Underwriter shall offer the Shares of each Series on an agency or
"best efforts" basis under which the Fund shall only issue such Shares as are
actually sold. In connection with such sales and offers of sale, the Underwriter
shall give only such information as is permitted by applicable law, and the Fund
shall not be responsible in any way for any other information, statements or
representations given or made by the Underwriter or its representatives or
agents. The Fund also shall permit the Underwriter to use any list of
shareholders of the Fund or any Series or any other list of investors which it
obtains in connection with its provision of services under this Agreement. The
Fund reserves the right at any time to withdraw all offerings of the Shares of
any or all Series by written notice to the Underwriter at its principal office.
2. Fund Obligations. The Fund shall keep the Underwriter fully informed
of its affairs and shall make available to Underwriter copies of all
information, financial statements, and other papers which Underwriter may
reasonably request for use in connection with the distribution of shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of a Series as the Underwriter may
request, and the Fund shall cooperate fully in the efforts of the Underwriter to
sell and arrange for the sale of the Shares and in the Underwriter's performance
under this Agreement.
3. Sales to Dealers. The Underwriter, at its discretion, may enter into
agreements to sell shares to such registered and qualified retail dealers, as it
may select.
<PAGE>
4. Public Offering Price. The public offering price of the Shares of
each Series shall be the net asset value per share (as determined by the Fund)
of the outstanding Shares of the Series, plus any applicable sales charge as
described in the Registration Statement of the Fund. The Fund shall furnish (or
arrange for another person to furnish) the Underwriter with a quotation of
public offering price on each business day.
5. Compensation. As compensation for providing services under this
contract, the Underwriter shall retain the front-end or contingent deferred
sales charge, if any, on purchases and redemptions of Shares as set forth in the
Registration Statement. The Underwriter is authorized to collect the gross
proceeds derived from the sale of the Shares, remit the net asset value thereof
to the Fund upon receipt of the proceeds and retain the sales charge, if any.
The Underwriter may reallow any or all of such sales charges to such dealers as
it may from time to time determine. If applicable, the Underwriter also shall
receive from each Series or class thereof a distribution and/or service fee at
the rate and under the terms and conditions of the Distribution Plan and
Shareholder Services Plan ("Plans") adopted by the Fund with respect to such
Series or class thereof, as such Plans are in effect from time to time, and
subject to any further limitations on such fee as the Board of Directors
("Board") may impose. The Underwriter may transfer the right to payments
hereunder (but not its obligations) in order to raise funds to cover
distribution expenses, and any such transfer will be effective upon written
notice from the Underwriter to the Fund. In connection with the foregoing, the
Fund may pay all or part of the distribution fee or contingent deferred sales
charges directly to the transferee as directed by the Underwriter. In the event
this Agreement is terminated in accordance with paragraph 17 below, the
Underwriter still will be entitled to receive the distribution fees, service
fees and contingent deferred sales charges payable on any shares sold by the
Underwriter through the date of termination, provided that the Distribution
Plans, Shareholder Services Plans and Multiple Class Plan, respectively, adopted
by the Fund continue to be in effect.
6. Underwriter's Expenses. The Underwriter, at no additional expense to
the Fund, shall print and distribute to prospective investors Prospectuses, and
shall print and distribute, upon request, to prospective investors Statements of
Additional Information, and may print and distribute such other sales
literature, reports, forms and advertisements in connection with the sale of the
Shares as comply with the applicable provisions of federal and state law.
<PAGE>
7. Fund Expenses. The Fund agrees at its own expense to register the
Shares with the SEC, state and other regulatory bodies, and to prepare and file
from time to time such Prospectuses, Statements of Additional Information,
amendments, reports and other documents as may be necessary to maintain the
Registration Statement. Each Series shall bear all expenses related to preparing
and typesetting such Prospectuses, Statements of Additional Information, and
other materials and such other expenses, including printing and mailing
expenses, related to such Series' communications with existing shareholders of
that Series.
8. Indemnification by Fund. The Fund agrees to indemnify, defend and
hold the Underwriter, its officers and directors, and any person who controls
the Underwriter within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Underwriter, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Underwriter
against any liability to the Fund or to the shareholders of a Series to which
the Underwriter would otherwise be subject by reason of willful misfeasance, bad
faith, or negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, or
arising out of any information supplied by the Underwriter for inclusion in such
Registration Statement.
9. Indemnification by Underwriter. The Underwriter agrees to indemnify,
defend and hold the Fund, its officers and directors, and any person who
controls the Fund within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers or directors, or any such controlling person may incur, under
the 1933 Act or under common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Underwriter to the Fund for use in the Registration Statement
or arising out of or based upon any alleged omission to state a material fact in
connection with such information required to be stated in the Registration
Statement or necessary to make such information not misleading.
10. Share Certificates. The Fund shall not issue certificates
representing Shares.
11. Repurchase of Shares. Repurchase of Shares by the Underwriter shall
be at the net asset value next determined after a repurchase order has been
received, less any applicable sales charge. The Underwriter will receive no
commission or other remuneration for repurchasing Shares other than applicable
sales loads. At the end of each business day, the Underwriter shall notify by
telex or in writing, the Fund and its transfer agent, of the orders for
repurchase of Shares received by the Underwriter since the last such report, the
amount to be paid for such Shares, and the identity of the shareholders offering
Shares for repurchase. Upon such notice, the Fund shall pay the Underwriter such
amounts as are required by the Underwriter for the repurchase of such Shares in
cash or in the form of a credit against monies due the Fund from the Underwriter
as proceeds from the sale of Shares. The Fund reserves the right to suspend such
repurchase right upon written notice to the Underwriter. The Underwriter further
agrees to act as agent for the Fund to receive and transmit promptly to the
Fund's transfer agent shareholder requests for redemption of Shares.
<PAGE>
12. Status of Underwriter and Other Persons. The Underwriter is an
independent contractor and shall be agent for the Fund only in respect to the
sale and redemption of the Shares. Any person, even though also an officer,
director, employee or agent of the Underwriter, who may be or become an officer,
director, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting in any business of the Fund, to be rendering such
services to or acting solely for the Fund and not as an officer, director,
employee or agent or one under the control or direction of the Underwriter even
though paid by the Underwriter.
13. Non-Exclusive Services. The services of the Underwriter to the Fund
under this Agreement are not to be deemed exclusive, and the Underwriter shall
be free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
14. Reports of Underwriter. The Underwriter shall prepare reports for
the Board on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board.
15. Definitions. The terms "assignment," "interested person," and
"majority of the outstanding voting securities" shall have the meanings given to
them by Section 2(a) of the 1940 Act, subject to such exemptions as may be
granted by the SEC by any rule or order. Additionally, the term "Registration
Statement" shall mean the registration statement most recently filed by the Fund
with the SEC and effective under the 1940 Act and 1933 Act, as such Registration
Statement is amended by any amendments thereto at the time in effect, and the
terms "Prospectus" and "Statement of Additional Information" shall mean,
respectively, the form of prospectus and statement of additional information
with respect to a Series filed by the Fund as part of the Registration
Statement.
16. Effectiveness of Agreement. This Agreement shall become effective
on April 1, 1999, provided that, with respect to a Series, this Agreement shall
not take effect unless such action has first been approved by vote of a majority
of the Board and by vote of a majority of those directors of the Fund who are
not interested persons of the Fund and have no direct or indirect financial
interest in the operation of the Plan (if there be a Plan) or in any agreements
related thereto (all such directors collectively being referred to herein as the
"Independent Directors"), cast in person at a meeting called for the purpose of
voting on such action.
<PAGE>
17. Termination of Agreement. This Agreement shall become effective on
April 1, 1999 and shall remain in force and effect, through December 31, 1999,
unless earlier terminated. Thereafter, if not terminated, this Agreement shall
continue automatically for successive periods of twelve months each, provided
that such continuance is specifically approved at least annually (a) by a vote
of a majority of the Independent Directors, cast in person at a meeting called
for the purpose of voting on such approval, and (b) by the Board or with respect
to any given Series by vote of a majority of the outstanding voting securities
of such Series. Notwithstanding the foregoing, with respect to any Series, this
Agreement may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Directors or by vote
of a majority of the outstanding voting securities of such Series on 60 days'
written notice to the Underwriter or by the Underwriter at any time, without the
payment of any penalty, on 60 days' written notice to the Fund or such Series.
Termination of this Agreement with respect to any given Series or class thereof
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series or class thereof. This
Agreement will automatically terminate in the event of its assignment.
18. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
19. Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of Connecticut and the 1940 Act. To the extent that
the applicable laws of the State of Connecticut conflict with the applicable
provisions of the 1940 Act, however, the latter shall control.
20. Notice. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
21. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: AELTUS CAPITAL, INC.
By: /s/ Katherine Cheng By: /s/ John Y. Kim
-------------------------------- -------------
Assistant Secretary Name: John Y. Kim
-------------
Title: President
Attest: AETNA SERIES FUND, INC.
By: /s/ Michael Gioffre By: /s/ J. Scott Fox
-------------------------------- -------------
Assistant Secretary Name: J. Scott Fox
-------------
Title: President
<PAGE>
Appendix A
Aetna Money Market Fund
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna High Yield Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Principal Protection Fund I
Aetna Principal Protection Fund II
Brokerage ash Reserves
AMENDMENT TO CUSTODIAN AGREEMENT
between
AETNA SERIES FUND, INC.
and
MELLON BANK, N.A.
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company") and Mellon Bank, N.A.
("Mellon") entered into a Custodian Agreement (the "Agreement") on September 1,
19 2 with respect to the assets of certain series of the Company and some or all
additional series that the Company may establish from time to time; and
WHEREAS, the Company has authorized the creation of a new series, Aetna
Principal Protection Fund II (the "Series"), and has amended its registration
statement on Form N-1A to register shares of beneficial interest of the Series
with the Securities and Exchange Commission; and
WHEREAS, the Company desires to appoint Mellon as custodian of the
assets for the Series;
NOW THEREFORE, it is agreed as follows:
1. The Company, on behalf of the Series, hereby appoints Mellon, and
Mellon hereby accepts appointment, as the custodian of the assets of the Series,
in accordance with all the terms and conditions set forth in the Agreement.
2. The Company is entering into this agreement incorporating the
Agreement on behalf of the Series individually and not jointly with any other
series. In the Agreement, the term "Fund" shall refer to the Company solely on
behalf of each series individually to which a particular Futures Contract
transaction or other obligation under the Agreement relates. The
responsibilities and benefits set forth in the Agreement shall refer to each
series severally and not jointly. No individual series shall have any
responsibility for any obligation arising out of a Futures Contract transaction
entered into by any other series. Without otherwise limiting the generality of
the foregoing,
(a) any breach of the Agreement regarding the Company with respect to
any one series shall not create a right or obligation with respect
to any other series;
(b) under no circumstances shall Mellon have the right to set off
claims relating to a series by applying property of any other
series;
(c) no series shall have the right of set off against the assets held
by any other series;
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular series to which such
relationship was created; and
(e) all property held by Mellon on behalf of a particular series shall
relate solely to the particular series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Aetna Series Fund, Inc. on behalf of
Aetna Principal Protection Fund II
Mellon Bank, N.A.
/s/ Christi R. Caperton /s/ Allen Shaer, Jr.
By: --------------------------- By: ----------------------------------
Christi R. Caperton Allen Shaer, Jr.
Name: --------------------------- Name: ----------------------------------
Vice President Assistant Treasurer
Title: --------------------------- Title: ----------------------------------
October 4, 1999 September 23, 1999
Date: --------------------------- Date: ----------------------------------
AMENDMENT TO THE ADMINISTRATIVE SERVICES AGREEMENT
between
AETNA SERIES FUND, INC.
and
AELTUS INVESTMENT MANAGEMENT, INC.
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company") and Aeltus Investment
Management, Inc. ("Aeltus") entered into an Administrative Services Agreement
(the "Agreement") on December 18, 1998 with respect to certain series of the
Company; and
WHEREAS, the Company has authorized the creation of a new series,
Aetna Principal Protection Fund II ("Series"), and has amended its registration
statement on Form N-1A to register shares of beneficial interest of the Series
with the Securities and Exchange Commission; and
WHEREAS, the Company desires to appoint Aeltus as Administrator of the
assets for such Series;
NOW THEREFORE, it is agreed as follows:
The Company, on behalf of the Series, hereby appoints Aeltus, and
Aeltus hereby accepts appointment, as the Administrator for the Series, in
accordance with all the terms and conditions set forth in the Agreement, and for
an annual fee of 0.10% of the average daily net assets of the Series payable
monthly (in arrears).
Notwithstanding the above, the Administrator may waive a portion or all of the
fees it is entitled to receive. The Administrator has agreed to waive fees so
that the total annual operating expenses (excluding distribution and shareholder
service fees) do not exceed 1.25% of the Series' average daily net assets.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Aetna Series Fund, Inc. on behalf of
Aetna Principal Protection Fund II
Aeltus Investment Management, Inc.
By: /s/ John Y. Kim By: /s/ J. Scott Fox
------------------------- -------------------------
Name: John Y. Kim Name: J. Scott Fox
----------------------- -------------------------
Title: President Title: President
----------------------- -------------------------
Date: September 27, 1999 Date: September 27, 1999
------------------------ -------------------------
Attest: Attest:
/s/ Amy R. Doberman /s/ Michael Gioffre
By: -------------------------- By: ------------------------------
Amy R. Doberman Michael Gioffre
Name: ------------------------- Name: ----------------------------
Secretary Assistant Secretary
Title: ------------------------- Title: ---------------------------
September 27, 1999 September 27, 1999
Date: -------------------------- Date: ----------------------------
AMENDMENT NUMBER 4 TO THE
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AMENDMENT, dated as of the 1st day of March, 1999 is made to the
Transfer Agency and Services Agreement dated July 3, 1998 as amended (the
"Agreement") between AETNA SERIES FUND, INC. (the "Fund") and FIRST DATA
INVESTOR SERVICES GROUP, INC. (the "Investor Services Group").
WITNESSETH
WHEREAS, the Fund and Investor Services group desire to amend the
Agreement, as previously amended, to reflect certain changes thereto.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree that as of the date first referenced above, the
Agreement shall be amended as follows:
1. Schedule A - Duties of Investor Services Group is hereby amended by adding
the following new Section 9:
"9. Cash Management Services.
(a) Investor Services Group shall establish demand deposit accounts
(DDA's) with a cash management provider to facilitate the receipt of purchase
payments and the processing of other Shareholder-related transactions. Investor
Services Group shall retain any excess balance credits earned with respect to
the amounts in such DDA's ("Balance Credits") after such Balance Credits are
first used to offset any banking service fees charged in connection with banking
services provided on behalf of the Fund. Balance Credits will be calculated and
applied toward the Fund's banking service charges regardless of the withdrawal
of DDA balances described in Section (b) below.
(b) DDA balances which cannot be forwarded on the day of receipt may
be withdrawn on a daily basis and invested in U.S. Treasury and Federal Agency
obligations, money market mutual funds, repurchase agreements, money market
preferred securities (rated A or better), commercial paper (rated Al or P1),
corporate notes/bonds (rated A or better) and/or Eurodollar time deposits
(issued by banks rated A or better). Investor Services Group bears the risk of
loss on any such investment and shall retain any earnings generated thereby.
Other similarly rated investment vehicles may be used, provided however,
Investor Services Group shall first notify the Fund of any such change."
3. Schedule B - FEE SCHEDULE is hereby deleted in its entirety and replaced
with the revised Schedule B attached hereto.
4. Schedule C - OUT-OF-POCKET EXPENSES is hereby deleted in its entirety and
replaced with the revised Schedule B attached hereto.
The Agreement, as previously amended and as amended by this Amendment,
("Modified Agreement") constitutes the entire agreement between the parties with
respect to the subject matter hereof. The Modified Agreement supersedes all
prior and contemporaneous agreements between the parties in connection with the
subject matter hereof. No officer, employee, servant or other agent of either
party is authorized to make any representation, warranty, or other promises not
expressly contained herein with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
AETNA SERIES FUND, INC.
By: /s/ Frank Litwin
--------------------------
Title: Managing Director
-------------------------
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By: /s/ Jylanne M. Dunne
--------------------------
Title: Senior Vice President
-------------------------
SCHEDULE B
FEE SCHEDULE
1. Standard Fees:
(a) Per Account Fees:$25,000 annual minimum per Portfolio (includes up to
4 classes of shares per Portfolio*-excludes (Brokerage
Cash Reserves)
$20 per open account per annum (money market)
$16 per open account per annum (equity, bond)
$2.50 per closed account per annum
*The annual minimum per Portfolio fee shall increase on a
Portfolio by Portfolio basis in the event the Fund
establishes more than four classes of shares in a Portfolio.
Such increase shall be mutually agreed upon by the parties.
The Per Account Fees set forth in this Section 1(a) shall remain
in effect for the duration of the Initial Term.
(b) Brokerage Cash Reserves: $2,600 annual flat fee
(c) Cost Basis Accounting: $0.15 per month per eligible account
(d) VRU: $0.23 per minute
$0.10 per call
Program development costs not to
exceed $20,000.
2. Programming Costs
(a) Dedicated Team:
Programmer $100,000 per annum
BSA $ 85,000 per annum
Tester $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team):
Programmer $150.00 per hour
3. Print/Mail Fees.
Program development costs not to exceed $ 5000.00
<PAGE>
Monthly Processing Charge per complex: $1650.00 per month
Daily/periodic confirms/statements:
Print: $.065 per image
(includes plain paper)
Fold/Insert 1/seal/meter: $.02 each
Each additional insert: $.015 each
Checks:
Print/fold/insert/seal/meter: $.25 each
Presort Charge: $0.277 postage rate
$0.035 per piece
Inventory Storage: $20.00 for each inventory
location as of the
15th of the month
Special Pulls: $2.50 per account pull at
Aetna's request.
Forms Development/Programming Fee: $135/hr
Postage, printed stock and envelopes will be billed in addition to the
above mentioned at actual cost
4. Miscellaneous.
. Ad hoc reports/SQL computer time (Prior Fund Approval Required -
Fee shall be based on system enhancement/non-dedicated team
charge set forth above)
. Banking Services
<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):
. Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass through
to the Fund
. Telephone and telecommunication costs, including all lease, maintenance and
line costs
. Shipping, Certified and Overnight mail and insurance
. Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors
. Third party audit reviews
. NSCC/FundServe Transaction charges
. NSCC same day confirm charges
Non-Standard (Prior Fund Approval Required):
. Proxy solicitations, mailings and tabulations, upon prior Fund approval
. Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines, upon prior
Fund approval
. Courier services
. Overtime
. Temporary staff
. Travel and entertainment
. Magnetic media tapes and freight
. 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>
Exhibit I
LIST OF PORTFOLIOS
Revised as of August 1, 1999
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
Aetna Principal Protection Fund I
Brokerage Cash Reserves
Aetna Series Fund, Inc. First Data Investor Services Group, Inc.
By: /s/ Frank Litwin By: /s/ Jylanne M. Dunne
------------------------------- --------------------------
Title: Managing Director Title: Senior Vice President
----------------------------- -------------------------
AMENDMENT No. 5
TO THE TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AMENDMENT, dated as of October 7, 1999, is made to the Transfer
Agency and Services Agreement dated July 3, 1998 (the "Transfer Agent
Agreement") between AETNA SERIES FUND, INC. (the "Fund") and FIRST DATA INVESTOR
SERVICES GROUP, INC. ("Investor Services Group").
WITNESSETH
WHEREAS, the Fund has established a new series, Aetna Principal
Protection Fund II ("Series"); and
WHEREAS, the Fund and Investor Services Group desire to amend the
Agreement and Amendment No. 2 to include the Series;
NOW THEREFORE, it is agreed that Exhibit 1 to the Transfer Agent
Agreement and Amendment No. 2 to the Transfer Agent Agreement shall be amended
to include the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their duly authorized officers, as of the day and year first
above written.
AETNA SERIES FUND, INC.
By:
-----------------------------
Title:
---------------------------
FIRST DATA INVESTOR SERVICES
GROUP, INC.
By:
------------------------------
Title:
----------------------------
FINANCIAL GUARANTY AGREEMENT
dated as of August 6, 1999
among
MBIA INSURANCE CORPORATION,
as Insurer,
AELTUS INVESTMENT MANAGEMENT, INC.,
as Adviser,
and
AETNA SERIES FUND, INC.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS 1
Section 1.1 General Definitions 1
Section 1.2 Generic Terms 15
Section 1.3 Valuation 15
ARTICLE II THE POLICIES 15
Section 2.1 Policies 15
Section 2.2 Procedure for Issuance of Policies 15
Section 2.3 Conditions Precedent to Effectiveness 16
Section 2.4 Premiums 19
Section 2.5 Reimbursement Obligations 19
Section 2.6 Indemnification 20
ARTICLE III MANAGEMENT OF PPFs 21
Section 3.1 Eligible Investments 21
Section 3.2 Investment Limitations 21
Section 3.3 Index Equity Selection Guidelines 22
Section 3.4 Index Equity Diversification and Capitalization
Requirements 23
Section 3.5 Asset Allocation and Rebalancing 23
ARTICLE IV EVENTS OF DEFAULT 25
Section 4.1 Default 25
Section 4.2 Remedies 25
ARTICLE V REPRESENTATIONS AND WARRANTIES 28
Section 5.1 Representations and Warranties Relating to Aeltus 28
Section 5.2 Representations and Warranties Relating to the Fund 29
ARTICLE VI COVENANTS 30
Section 6.1 Covenants of Investment Adviser 30
Section 6.2 Covenants of the Fund 31
ARTICLE VII FURTHER AGREEMENTS 33
Section 7.1 Obligations Absolute 33
Section 7.2 Reinsurance and Assignments 34
Section 7.3 Fund Liability 34
Section 7.4 Liability of the Insurer 34
Section 7.5 Fees and Expenses 34
ARTICLE VIII MISCELLANEOUS 34
Section 8.1 Amendments and Waivers 34
Section 8.2 Notices 34
Section 8.3 No Waiver, Remedies and Severability 35
Section 8.4 Payments 35
Section 8.5 Governing Law 36
Section 8.6 Counterparts 36
Section 8.7 Paragraph Headings, Etc 36
Section 8.8 Termination 36
<PAGE>
Annex A The Equity Portfolio ("Index Plus Large Cap")
Annex B Sector List
Annex C Sample Calculation of Hypothetical Total Net Assets
Exhibit A Form of Policy-- Insurance Policy
Exhibit B Administrative Services Agreement
Exhibit C Articles of Amendment and Restatement
Exhibit D Form of Articles Supplementary
Exhibit E Form of Custodian Monitoring Agreement
Exhibit F Form of Custodian Service Agreement
Exhibit G Form of Registration Statement
Exhibit H Form of Investment Advisory Agreement
Exhibit I-1 Form of Preliminary Application
Exhibit I-2 Form of Final Application
Exhibit J Opinion of Amy R. Doberman, Esq, as counsel to Aeltus,
dated the Effective Date
Exhibit K Opinion of Counsel to MBIA Insurance Corporation
Exhibit L Opinion of Amy R. Doberman, Esq, as the Fund,
dated the Effective Date
Exhibit M Opinion of Amy R. Doberman, Esq, as counsel to Aeltus,
dated the Inception Date
Exhibit N-1 Opinion of Counsel to Mellon Bank, N.A.,
dated the Inception Date
Exhibit N-2 Opinion of Reed Smith Shaw & McClay LLP, dated the Inception Date
Exhibit O Opinion of Amy R. Doberman, Esq, as counsel to the Fund,
dated the Inception Date
Exhibit P Form of Monthly Report
Exhibit Q Form of Daily Report
</TABLE>
<PAGE>
FINANCIAL GUARANTY AGREEMENT
FINANCIAL GUARANTY AGREEMENT, dated as of August 6, 1999 (the
"Agreement"), among MBIA INSURANCE CORPORATION, a New York monoline stock
insurance company (the "Insurer"), AELTUS INVESTMENT MANAGEMENT, INC., a
Connecticut corporation ("Aeltus"), and AETNA SERIES FUND, INC., a Maryland
corporation (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is an open-end diversified, management
investment company registered under the Investment Company Act (as defined
herein), that intends to create one or more additional series, each to be called
an Aetna Principal Protection Fund (each a "PPF") and each to be advised by
Aeltus, which will include a promise by the Fund on behalf of each PPF (each a
"Repayment Obligation") to repay to the shareholders thereof (each a "PPF
Shareholder") at maturity the Aggregate Guarantee Amount (as defined herein)
with respect to each PPF; and
WHEREAS, the Insurer is authorized to transact a financial
guaranty insurance business in the State of Connecticut and the Fund has
requested the Insurer, and the Insurer has agreed, to issue a financial guaranty
in connection with each PPF, substantially in the form of Exhibit A hereto (each
a "Policy"), in the aggregate amount of $250,000,000, to assure the timely
payment by the Fund of the Repayment Obligation with respect to such PPF; and
WHEREAS, the parties hereto, among other things, desire to
specify the conditions precedent to the issuance by the Insurer of each Policy,
the payment of the premium and other amounts in respect thereof, the
reimbursement obligations of Aeltus, the investment adviser to the Fund, to the
Insurer, and to provide for certain other matters related thereto;
NOW, THEREFORE, in consideration of the promises and of the
agreements herein contained, the parties hereto agree as follows:
ARTICLE
DEFINITIONS
Section . General Definitions. The terms defined in this
Article I shall have the meanings provided herein for all purposes of this
Agreement, unless the context clearly requires otherwise, in both singular and
plural form, as appropriate.
"Acts" shall mean the Investment Company Act and the
Securities Act.
"Adjusted Total Net Assets" shall have the meaning set forth
in Section 3.5(a). "Administrative Services Agreement" shall mean the
Administrative Services Agreement, dated December 18, 1998, as amended
as of July 27, 1999, between the Fund and Aeltus, substantially in the
form of Exhibit B hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"Aggregate Guarantee Amount" shall mean, with respect to any
PPF, on any date of determination, the aggregate Guarantee Amounts with
respect to such PPF and all PPF Shareholders in such PPF on such date
of determination.
"Articles of Amendment and Restatement"shall mean the Articles
of Amendment and Restatement creating the Fund duly filed with the
State Department of Assessments and Taxation of Maryland and delivered
to the Insurer pursuant to Section 2.3(a), substantially in the form of
Exhibit C hereto.
<PAGE>
"Articles Supplementary" shall mean, with respect to any PPF,
the Articles Supplementary creating such PPF duly filed with the State
Department of Assessments and Taxation of Maryland and delivered to the
Insurer pursuant to Section 2.3(b), substantially in the form of
Exhibit D hereto.
"Asset Allocation Test" shall have the meaning set forth in
Section 3.5(a).
"Asset Allocation Threshold" shall mean, with respect to any
PPF, on any Valuation Date, an amount equal to 98% of the sum of (i)
the Present Value of the Aggregate Guarantee Amount with respect to
such PPF plus (ii) the Present Value of Covered Expenses with respect
to such PPF on such Valuation Date; provided, however, that if the
Total Net Assets with respect to such PPF on such Valuation Date is
less than or equal to the sum of (i) the Present Value of the Aggregate
Guarantee Amount with respect to such PPF plus (ii) the Present Value
of Covered Expenses with respect to such PPF, the Asset Allocation
Threshold shall be an amount equal to 100% of the sum of (i) the
Present Value of the Aggregate Guarantee Amount with respect to such
PPF plus (ii) the Present Value of Covered Expenses with respect to
such PPF on such Valuation Date.
"Asset Reallocation" shall mean, with respect to any PPF, (i)
the sale of Index Equities or Index Futures held by such PPF and the
reinvestment of all or a portion of the proceeds therefrom in U.S.
Treasury Zeroes, U.S. Agency Zeroes, Corporate Bonds or U.S. Treasury
Futures or (ii) the sale of U.S. Treasury Zeroes, U.S. Agency Zeroes,
Corporate Bonds or U.S. Treasury Futures held by such PPF and the
reinvestment of all or a portion of the proceeds therefrom in Index
Equities or Index Futures.
"Business Day" shall mean any day that the New York Stock
Exchange is open.
"Cash Associated with Futures" shall mean, with respect to any
Index Future, on any Valuation Date, an amount of cash or Cash
Equivalents equal to the Market Value thereof on such Valuation Date.
"Cash Equivalents" shall mean the Eligible PPF Investments
described in Section 3.1(b)(i).
"Cash Margin" shall mean, with respect to the U.S. Treasury
Futures held by a PPF, on any Valuation Date, the Market Value of the
Cash Equivalents held by the Custodian in a segregated account of such
PPF in order to satisfy the margin requirements with respect to such
U.S. Treasury Futures on such Valuation Date.
"Cheapest-to-Deliver Bond" shall mean, with respect to any
U.S. Treasury Future, on any Valuation Date, the U.S. Treasury Note
eligible for delivery under such U.S. Treasury Future whose price on
such Valuation Date is closest to the product of the settlement price
of such U.S. Treasury Future and the price of such U.S. Treasury Note
as of the delivery date of such U.S. Treasury Future that would cause
such U.S. Treasury Note to yield 8% (or, in the case of any U.S.
Treasury Future with a delivery month after February 2000, 6%), as
published by Bloomberg, L.P.
"Class A Percentage" shall mean, with respect to any PPF, on
any Valuation Date, the excess, if any, of one over the Class B
Percentage with respect to such PPF.
"Class A Shares" shall mean, with respect to any PPF, the
shares of capital stock of the Fund designated as the Class A shares of
such PPF in the Articles Supplementary with respect to such PPF.
<PAGE>
"Class B Percentage" shall mean, with respect to any PPF, on
any Valuation Date, the percentage equivalent of a fraction, the
numerator of which is the product of the NAV of the Class B Shares of
such PPF multiplied by the number of Class B Shares of such PPF
outstanding, and the denominator of which is the sum of (i) the product
of the NAV of the Class A Shares of such PPF multiplied by the number
of Class A Shares of such PPF outstanding plus (ii) the product of the
NAV of the Class B Shares of such PPF multiplied by the number of the
Class B Shares of such PPF outstanding.
"Class B Shares" shall mean, with respect to any PPF, the
shares of capital stock of the Fund designated as the Class B shares of
such PPF in the Articles Supplementary with respect to such PPF.
"Class of Shares" shall mean, with respect to any PPF, the
Class A Shares or Class B Shares of such PPF.
"Commission" shall mean the Securities and Exchange Commission.
"Contractual Obligation" shall mean, as to any Person, any
provision of any security issued by such Person or any agreement,
instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.
"Corporate Bond" shall have the meaning set forth in Section
3.1(b)(iii).
"Covered Expenses" shall mean, for any Class of Shares of any
PPF, the annual fund operating expenses enumerated in the Final
Prospectus for such PPF.
"Covered Expense Ratio" shall mean, with respect to any PPF,
on any Valuation Date, the higher of (a) the expense ratio utilized by
Aeltus in its proprietary asset allocation computer model and (b) the
Lower Covered Expense Ratio with respect to such PPF; provided,
however, that if the percentage of the Total Net Assets of such PPF on
such date allocable to Index Equities and Index Futures according to
the Asset Allocation Test would be less than 30% using the Lower
Covered Expense Ratio in calculating the Present Value of Covered
Expenses with respect to such PPF on such Valuation Date, the Covered
Expense Ratio will equal the Higher Covered Expense Ratio with respect
to such PPF; and provided, further that the Covered Expense Ratio with
respect to any PPF having an Aggregate Guarantee Amount on the
Inception Date with respect to such PPF of less than $25,000,000 will
equal the Higher Covered Expense Ratio with respect to such PPF on any
Valuation Date.
"Custodian" shall mean Mellon Bank, N.A. or any successor or
assigns under the Custodian Agreement.
"Custodian Agreement" shall mean the custodial agreement by
and between the Fund and the Custodian with respect to the custody of
the assets of certain series of the Fund, including the PPFs, as the
same may be amended, supplemented or modified from time to time.
"Custodian Monitoring Agreement" shall mean, with respect to
each PPF, the custodian monitoring agreement among the Fund, the
Insurer and Russell/Mellon Analytical Services, LLC, substantially in
the form of Exhibit E hereto, as the same may be amended, supplemented
or otherwise modified from time to time, and any other agreement
substantially in the form of Exhibit E hereto with a successor
Custodian or any affiliate thereof.
"Custodian Service Agreement" shall mean, with respect to each
PPF, the custodian service agreement among the Fund, the Insurer and
the Custodian, substantially in the form of Exhibit F hereto, as the
same may be amended, supplemented or otherwise modified from time to
time, and any other agreement substantially in the form of Exhibit F
hereto with a successor Custodian.
<PAGE>
"Default" shall mean any of the events specified in Section
4.1, whether or not any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
"Default Period" shall have the meaning set forth in Section
4.2(a).
"Discount Rate" shall mean, with respect to any PPF, on any
Valuation Date, the quotient of (a) the sum of (i) the product of the
aggregate Market Value of the Fixed Income Portfolio with respect to
such PPF multiplied by the Fixed Income Portfolio Yield with respect to
such PPF on such Valuation Date plus (ii) the U.S. Treasury Futures
Spread for such PPF, divided by (b) the aggregate Market Value of the
Fixed Income Portfolio with respect to such PPF; provided, however,
that if such PPF does not have a Fixed Income Portfolio on such
Valuation Date, the Discount Rate with respect to such PPF shall equal
the Imputed Discount Rate with respect to such PPF on such Valuation
Date.
"Distribution Per Share" shall mean, with respect to any PPF
and any Class of Shares of such PPF, an amount equal to the quotient of
the amount of any distribution or payment by the Fund in respect of, or
allocated to, such Class of Shares that is not a Covered Expense or a
transaction related brokerage expense, and shall include, without
limitation, any distribution of income, dividends, capital gains or
principal to the PPF Shareholders of such Class of Shares and any
payment of income taxes or excise taxes allocated to such Class of
Shares divided by the number of shares of such Class of Shares
outstanding on the date of such distribution or payment.
"Effective Date" shall mean the date on which the conditions
set forth in Section 2.3 are satisfied.
"Eligible PPF Investments" shall have the meaning set forth
in Section 3.1(b).
"Equity Portfolio" shall mean, with respect to any PPF, all
investments of such PPF which are Eligible PPF Investments defined in
Sections 3.1(b)(v) or (vi).
"Event of Default" shall have the meaning set forth in
Section 4.1.
"FactSet" shall mean FactSet Data Systems, Inc. or any
successor thereto.
"Fee Payment Date" shall have the meaning set forth in
Section 2.4.
"Final Application" shall have the meaning set forth in
Section 2.2.
"Final Prospectus" shall mean for any PPF the prospectus
pursuant to which the shares of such PPF were offered for sale,
including the Statement of Additional Information with respect to such
PPF, delivered to the Insurer pursuant to Section 2.3(b) and filed with
the Commission pursuant to Rule 497 under the Securities Act,
substantially in the form of Exhibit G.
"Fixed Income Portfolio" shall mean, with respect to any PPF,
all investments of such PPF which are Eligible PPF Investments defined
in Sections 3.1(b)(ii), (iii) or (iv).
"Fixed Income Portfolio Yield" shall mean, with respect to any
PPF, on any Valuation Date, the sum of (a) the weighted average spread
over the Imputed Discount Rate with respect to such PPF, of the Fixed
Income Portfolio with respect to such PPF (excluding any U.S. Treasury
Futures), as calculated by the Investment Adviser of such PPF using the
Lehman Brothers Analytics Model or a Substitute Valuation Source, as of
the close of business on the Business Day immediately preceding such
Valuation Date, based on the Market Value for each investment in such
Fixed Income Portfolio on such Valuation Date, plus (b) the Imputed
Discount Rate with respect to such PPF on such Valuation Date.
<PAGE>
"Fund Sector Weight" shall mean, with respect to any PPF, for
any Sector, on any Valuation Date, the percentage equivalent of a
fraction, the numerator of which is the aggregate Market Value of all
Index Equities belonging to such Sector held by such PPF on such
Valuation Date and the denominator of which is the aggregate Market
Value of all Index Equities held by such PPF on such Valuation Date.
"Fund Weight" shall mean, with respect to any PPF and an Index
Equity, on any Valuation Date, the percentage equivalent of a fraction,
the numerator of which is the Market Value of such Index Equity held by
such PPF on such Valuation Date and the denominator of which is the
aggregate Market Value of all Index Equities held by such PPF on such
Valuation Date.
"Government Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guarantee Amount" shall mean, with respect to any PPF
Shareholder of any Class of Shares, on any date of determination, an
amount equal to the product of (i) the Guarantee per Share for such
Class of Shares held by such PPF Shareholder on such date and (ii) the
total number of such shares held by such PPF Shareholder on such date.
"Guarantee per Share" shall mean, with respect to any Class of
Shares of any PPF on any Valuation Date, (i) on the Inception Date with
respect to such PPF, the NAV for such Class of Shares at the close of
business on the last day of the Offering Period for such PPF; and (ii)
thereafter on any Valuation Date, the Guarantee per Share for such
Class of Shares on the immediately preceding Valuation Date divided by
the sum of one plus the quotient of (i) the amount of any Distribution
Per Share with respect to such Class of Shares and such PPF, effective
since the immediately preceding Valuation Date, divided by (ii) the NAV
for such Class of Shares at the close of business on the day on which
such Distribution Per Share was effective.
"Guarantee Period" shall mean, with respect to any PPF, the
period commencing on and including the Inception Date to and including
the Maturity Date with respect to such PPF.
"High Ranked Equities" shall mean, on any date of
determination, the Index Equities listed by the Investment Adviser of
each PPF as "High Ranked Stocks" in the report most recently delivered
by such Investment Adviser to the Insurer pursuant to Section 3.4.
"Higher Covered Expense Ratio" shall mean, with respect to any
PPF, on any Valuation Date, the sum of (a) 1.50% times the Class A
Percentage with respect to such PPF plus (b) 2.25% times the Class B
Percentage with respect to such PPF.
"Hypothetical Total Net Assets" shall mean, with respect to
any PPF, an amount equal to the Total Net Assets on the Business Day on
which a Permanent Deficit Event shall have occurred with respect to
such PPF, recalculated as follows: (a) the aggregate Market Value of
the Equity Portfolio with respect to such PPF on the Valuation Date for
such Business Day shall (i) first, be reduced to an amount such that
the Adjusted Total Net Assets with respect to such PPF would have
equaled the sum of the Present Value of the Aggregate Guarantee Amount
with respect to such PPF plus the Present Value of Covered Expenses
with respect to such PPF (calculated using the Higher Covered Expense
Ratio with respect to such PPF) on the Business Day immediately
preceding such Valuation Date and (ii) second, be reduced by the
percentage decline in the Market Value of the Equity Portfolio with
respect to such PPF on such Valuation Date and (b) the aggregate Market
Value of the Fixed Income Portfolio with respect to such PPF on such
Valuation Date shall (i) first, be increased in an amount equal to the
reduction in the aggregate Market Value of the Equity Portfolio with
respect to such PPF determined in clause (a)(i) above and (ii) second,
be increased or reduced by the percentage increase or reduction in the
aggregate Market Value of the Fixed Income Portfolio with respect to
such PPF on such Valuation Date. A sample calculation is set forth in
Annex C.
<PAGE>
"Imputed Discount Rate" shall mean, with respect to any PPF on
any Valuation Date, a rate per annum equal to the interest rate derived
by calculating the internal rate of return for the Proxy U.S. Treasury
Zero with respect to such PPF, calculated based on the actual number of
days to maturity compounded on a semi-annual basis based on the Market
Value for such Proxy U.S. Treasury Zero as of such Valuation Date
compared with the dollar value for such Proxy U.S. Treasury Zero at
maturity.
"Inception Date" shall mean, with respect to a PPF, the
Business Day immediately following the last day of the Offering Period
with respect to such PPF.
"Indemnitee" shall have the meaning set forth in Section 2.6.
"Indemnified Liabilities" shall have the meaning set forth in
Section 2.6.
"Index Equity" shall mean, on any Valuation Date, the equity
securities of any company included in the S&P 500 Index on such
Valuation Date, as published by FactSet or a Substitute Valuation
Source.
"Index Equity Capitalization" shall mean, for any Index
Equity, on any Valuation Date, the product of the number of shares
outstanding of such Index Equity, as published by FactSet or a
Substitute Valuation Source, multiplied by the price per share of such
Index Equity, as published in Reuters America or any Substitute
Valuation Source.
"Index Future" shall mean a futures contract on the S&P 500
Index, as traded on the Chicago Mercantile Exchange.
"Index Weight" shall mean, for any Index Equity, on any
Valuation Date, the percentage equivalent of a fraction, the numerator
of which is the Index Equity Capitalization of such Index Equity on
such Valuation Date and the denominator of which is the Total Index
Capitalization on such Valuation Date.
"Investment Adviser" shall mean, with respect to each PPF,
Aeltus or any successor thereto appointed by the Board of Directors of
the Fund as adviser to such PPF.
"Investment Advisers Act" shall mean the Investment Advisers
Act of 1940, as amended.
"Investment Advisory Agreement" shall mean, with respect to
each PPF, the Investment Advisory Agreement, between the Fund on behalf
of such PPF, and Aeltus or any successor Investment Adviser,
substantially in the form of Exhibit H hereto, as the same may be
amended, supplemented or otherwise modified from time to time.
"Investment Company Act" shall mean the Investment Company
Act of 1940, as amended.
"Lehman Brothers Analytics Model" shall mean the Lehman
Brothers PC Product published by Lehman Brothers Inc. or an affiliate
thereof or successor thereto.
<PAGE>
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or
other), other charge or security interest, or any preference, priority
or other agreement or preferential arrangement of any kind or nature
whatsoever.
"Low Ranked Equities" shall mean, on any date of
determination, the Index Equities listed by the Investment Adviser of
each PPF as "Low Ranked Stocks" in the report most recently delivered
by such Investment Adviser to the Insurer pursuant to Section 3.4.
"Lower Covered Expense Ratio" shall mean, with respect to any
PPF, on any Valuation Date, 1.50% minus the lesser of (i) 0.5% and (ii)
the greater of (A) zero and (B) the percentage equivalent of an amount
equal to the excess of 1.015 over the product of (x) 0.96109 times (y)
one plus the Discount Rate with respect to such PPF on the last day of
the Offering Period with respect to such PPF.
"Market Value" shall mean on any date of determination:
(i) with respect to any Index Equity held by a PPF,
the product of (A) the price per share of such Index Equity at
the close of trading on such date, as published in Reuters
America or in a Substitute Valuation Source, times the number
of shares of such Index Equity held by such PPF;
(ii) with respect to any Corporate Bond held by a
PPF, the market value thereof at the close of trading on such
date obtained from the Merrill Lynch Pricing Product or a
Substitute Valuation Source plus the aggregate amount of
accrued and unpaid interest thereon as of such date;
(iii) with respect to Cash Equivalents held by a PPF
having a maturity date 60 days or less from such date, the
value of such security determined in accordance with the
"amortized cost" method of valuation which method values an
instrument at its cost and assumes a constant amortization of
premium or increase of discount;
(iv) with respect to Cash Equivalents held by a PPF
having a maturity date more than 60 days from such date, the
market value thereof at the close of trading on such date
obtained from the Thompson Financial Securities Management
Service or a Substitute Valuation Source plus the aggregate
amount of accrued and unpaid interest thereon as of such date;
(v) with respect to any Index Future held by a PPF,
the product of (A) 500 (or such other index dollar multiplier
designated by the Chicago Mercantile Exchange as being in
effect on such date) times (B) the price of such Index Future
at the close of trading on such date, as published in Reuters
America or a Substitute Valuation Source, times (C) the number
of such Index Futures held by such PPF;
(vi) with respect to the U.S. Treasury Futures held
by a PPF, the aggregate Cash Margin with respect to such U.S.
Treasury Futures; and
(vii) with respect to any U.S. Treasury Zero or U.S.
Agency Zero held by a PPF, the market value thereof at the
close of trading on such date obtained from the Merrill Lynch
Pricing Product or a Substitute Valuation Source;
<PAGE>
provided, however, that if on any date of determination the price or
value of any investment held by a PPF is not determinable as set forth
above, the Market Value thereof shall be determined on such date in
such manner as is determined in good faith by, or under the authority
of, the Board of Directors of the Fund.
"Maturity Date" shall have the meaning set forth in Section
2.1.
"Merrill Lynch Pricing Product" shall mean the Merrill Lynch
Securities Pricing Product published by Merrill Lynch, Pierce, Fenner &
Smith Incorporated or an affiliate thereof or successor thereto.
"Modified Duration" shall mean, with respect to any Corporate
Bond, U.S. Treasury Zero or U.S. Treasury Future on any Valuation Date,
the quotient of (a) the weighted average term to maturity of the cash
flows generated by such security (or, in the case of a U.S. Treasury
Future, by the Cheapest-to-Deliver Bond with respect to such U.S.
Treasury Future on such Valuation Date) divided by (b) the sum of (i)
one plus (ii) the quotient of (x) the yield to maturity of such
security (or, in the case of a U.S. Treasury Future, of the
Cheapest-to-Deliver Bond with respect to such U.S. Treasury Future)
divided by (y) the number of interest payments on such security per
year (or, in the case of a U.S. Treasury Future, on the
Cheapest-to-Deliver Bond with respect to such U.S. Treasury Future).
For the purposes of this calculation, the number of interest payments
on any U.S. Treasury Zero is assumed to be two per year.
"Moody's" shall mean Moody's Investors Service, Inc. and its
successors and assigns.
"NAV" shall mean, with respect to any Class of Shares of a
PPF, (a) on the commencement date of such PPF, the net asset value per
share of such Class of Shares established by the Fund for such date and
(b) on any date of determination thereafter the quotient of (i) the
excess of (x) the market value of the assets allocated to that Class of
Shares determined as of the close of regular trading on the NYSE by the
Fund in the manner described in the Final Prospectus with respect to
such PPF over (y) the market value of any liabilities allocated to
and/or associated with such Class of Shares determined as of the close
of regular trading on the NYSE by the Fund in the manner described in
the Final Prospectus with respect to such PPF divided by (ii) the
number of outstanding shares of that Class of Shares at such time. The
assets, income, gain, loss and liabilities (other than those
liabilities relating specifically to a Class of Shares) of each PPF
shall be allocated to each Class of Shares of such PPF on each date of
determination on a pro rata basis based on the NAV of such Class of
Shares on the preceding date of determination.
"Notional Value" shall mean, with respect to any U.S.
Treasury Future, the trading unit of such U.S. Treasury Future
designated by the Chicago Board of Trade.
"NYSE" shall mean the New York Stock Exchange.
"Offering Period" shall mean, with respect to any PPF, the
period during which the shares of such PPF are offered for sale to
investors described in the Final Prospectus with respect to such PPF.
"Permanent Deficit Event" shall have the meaning set forth in
Section 2.5.
"Permanent Deficit Reimbursement Ratio" shall mean, with
respect to any PPF as to which a Permanent Deficit Event shall have
occurred, on any Valuation Date, (A) if the Covered Expense Ratio for
such PPF on the Business Day immediately preceding the Business Day on
which such Permanent Deficit Event shall have occurred was greater than
or equal to 1.50%, 100%; (B) if the Covered Expense Ratio for such PPF
on the Business Day immediately preceding the Business Day on which
such Permanent Deficit Event shall have occurred was less than 1.50%
and greater than or equal to 1.17%, the quotient of (i) 0.75% divided
by (ii) 2.25% minus the Covered Expense Ratio for such PPF on such
Business Day; or (C) if the Covered Expense Ratio for such PPF on the
Business Day immediately preceding the Business Day on which such
Permanent Deficit Event shall have occurred was less than 1.17%, the
quotient of (i) 1.92% minus the Covered Expense Ratio for such PPF on
such Business Day divided by (ii) 2.25% minus the Covered Expense Ratio
for such PPF on such Business Day.
<PAGE>
"Permanent Fee Deficit Amount" shall mean, with respect to any
PPF as to which a Permanent Deficit Event shall have occurred, on any
Valuation Date, the product of (A) the quotient of (i) the Permanent
Total Deficit Amount with respect to such PPF on the Business Day on
which such Permanent Deficit Event shall have occurred minus the
Permanent Principal Deficit Amount with respect to such PPF divided by
(ii) the Permanent Total Deficit Amount with respect to such PPF on the
Business Day on which such Permanent Deficit Event shall have occurred
times (B) the Permanent Total Deficit Amount with respect to such PPF
on such Valuation Date.
"Permanent Principal Deficit Amount" shall mean, with respect
to any PPF as to which a Permanent Deficit Event shall have occurred,
the excess, if any, of (a) the sum of the Present Value of the
Aggregate Guarantee Amount with respect to such PPF plus the Present
Value of Covered Expenses with respect to such PPF (calculated using
the Higher Covered Expense Ratio with respect to such PPF) on the
Business Day on which such Permanent Deficit Event shall have occurred
over (b) the Hypothetical Total Net Assets with respect to such PPF.
"Permanent Total Deficit Amount" shall mean, with respect to
any PPF, on any Valuation Date, the excess, if any, of (a) the sum of
the Present Value of the Aggregate Guarantee Amount with respect to
such PPF plus the Present Value of Covered Expenses with respect to
such PPF (calculated using the Higher Covered Expense Ratio with
respect to such PPF) over (b) the Total Net Assets with respect to such
PPF on such Valuation Date.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
limited liability company, joint venture, Government Authority or other
entity of whatever nature.
"Policy" shall have the meaning set forth in the recitals.
"Policy Fee" shall have the meaning set forth in Section 2.4.
"Portfolio Duration" shall mean, with respect to the Corporate
Bonds and the U.S. Treasury Futures held by any PPF on any Valuation
Date, an amount equal to the average of the Modified Duration of each
such Corporate Bond and U.S. Treasury Future, weighted on the basis of
the Market Values thereof, calculated using the Lehman Brothers
Analytics Model or a Substitute Valuation Source, as of the close of
business on such Valuation Date.
"Preliminary Application" shall have the meaning set forth in
Section 2.2.
"Present Value of the Aggregate Guarantee Amount" shall mean,
with respect to any PPF, on any Valuation Date, the quotient of (a) the
Aggregate Guarantee Amount with respect to such PPF divided by (b) the
sum, compounded over two times the time remaining to the Maturity Date
of such PPF, of one plus one half of the Discount Rate with respect to
such PPF on such Valuation Date.
"Present Value of Covered Expenses" shall mean, with respect
to any PPF, on any Valuation Date, the product of (a) the Present Value
of the Aggregate Guarantee Amount with respect to such PPF on such
Valuation Date times (b) the excess of (i) the sum of one plus the
Covered Expense Ratio with respect to such PPF on such date, compounded
over the time remaining to the Maturity Date of such PPF, over (ii)
one.
<PAGE>
"Proxy U.S. Treasury Zero" shall mean, with respect to any PPF
on any Valuation Date, the U.S. Treasury Zero maturing on the date
closest to the Maturity Date with respect to such PPF, but in no event
later than such Maturity Date.
"Rebalancing" shall mean any divestiture of investments and
reinvestment of proceeds thereof required pursuant to Section 3.5(a) or
(b).
"Registration Statement" shall have the meaning set forth in
Section 2.3(b).
"Reimbursement Amount" shall mean, with respect to any PPF, on
any Valuation Date, the excess, if any, of (a) the aggregate amount of
reimbursement payments received as of such date by the Insurer from the
Investment Adviser of such PPF with respect to such PPF pursuant to
Section 2.5, plus interest on each such payment from the date such
payment was received by the Insurer to, but excluding, such Valuation
Date at the Discount Rate prevailing with respect to such PPF on the
date such payment was received by the Insurer, over (b) the sum of the
aggregate amount of any refunds made by the Insurer to the Investment
Adviser of such PPF with respect to such PPF pursuant to Section 2.5,
plus interest on each such refund from the date of such refund to, but
excluding, such Valuation Date at the Discount Rate prevailing with
respect to such PPF on the date of such refund.
"Repayment Obligation" shall have the meaning set forth in
the recitals.
"Requirements of Law" shall mean, as to any Person, the
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule, or
regulation or determination of an arbitrator or a court or other
Government Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
"Reuters America" shall mean Reuters America published by
Reuters America Inc. or any successor thereto
"Sector" shall mean one of the Sectors set forth in Annex B
hereto, as amended from time to time in accordance with Section 6.1
(k).
"Sector Index Weight" shall mean, on any Valuation Date, for
each Sector, the percentage equivalent of a fraction, the numerator of
which is the sum of the Index Equity Capitalizations for all Index
Equities belonging to such Sector on such Valuation Date and the
denominator of which is the Total Index Capitalization on such
Valuation Date.
"Securities Act"shall mean the Securities Act of 1933, as
amended.
"Selection Guidelines" shall mean the investment guidelines
described in Annex A.
"S&P" shall mean Standard and Poor's Ratings Service, a
division of McGraw Hill Companies, Inc.
"S&P 500 Index" shall mean the index of 500 equity securities
known as the Standard and Poor's 500 Composite Index as compiled by S&P
and published by FactSet or a Substitute Valuation Source.
<PAGE>
"Substitute Valuation Source" shall mean any widely
recognized, reputable source. of valuation approved by the Board of
Directors of the Fund or a committee thereof and used by an Investment
Adviser of a PPF to value investments held by such PPF.
"Targeted Fed Funds Rate" shall mean, on any Valuation Date,
the rate on overnight federal funds set by the Federal Open Market
Committee of the Federal Reserve System in effect on such Valuation
Date, as published by Bloomberg, L.P.
"Theoretical Zero Modified Duration" shall mean, with respect
to any PPF on any Valuation Date, the Modified Duration of the U.S.
Treasury Zero maturing on the Maturity Date with respect to such PPF
or, if no such U.S. Treasury Zero exists, the Modified Duration of a
hypothetical U.S. Treasury Zero, maturing on such Maturity Date and
having a yield to maturity equal to the interpolated yield to maturity
on the two U.S. Treasury Zeroes which mature immediately before and
immediately after such Maturity Date on such Valuation Date.
"Thompson Financial Securities Management Service" shall mean
the Thompson Financial Securities Management Service published by
Muller Data Corporation or any successor thereto.
"Total Net Assets" shall mean, with respect to any PPF, on any
Valuation Date, an amount equal to the excess of (a) the sum of:
() the aggregate Market Value of all Index Equities
held by such PPF on such Valuation Date;
() the aggregate Market Value of all Cash Equivalents
held by such PPF (less Cash Associated with Futures and Cash
Margin with respect to such PPF) on such Valuation Date;
() the aggregate Market Value of all U.S. Treasury
Zeros and U.S. Agency Zeroes held by such PPF on such
Valuation Date;
() the aggregate Market Value of all Corporate Bonds
held by such PPF on such Valuation Date;
() the Market Value of all U.S. Treasury Futures held
by such PPF;
() the aggregate Market Value of all Index Futures held
by such PPF on such Valuation Date;
() to the extent not included in the Market Value of
the Equity Portfolio, Fixed Income Portfolio or the Cash
Equivalents of such PPF, an amount equal to the aggregate
amount of interest and dividend receivables and receivables
for securities sold payable to such PPF;
() an amount equal to the aggregate amount payable to
such PPF on such Valuation Date on account of a decrease in
the margin requirements with respect to the U.S. Treasury
Futures held by such PPF; and
() an amount equal to the aggregate amount payable to
such PPF by the Investment Adviser with respect to such PPF
pursuant to the Investment Advisory Agreement with respect
to such PPF on account of expenses incurred by such PPF that
are subject to reimbursement by such Investment Adviser;
over (b) an amount equal to the aggregate amount of the liabilities
allocated to such PPF, including all amounts payable by such PPF in
respect of securities purchased.
"Total Index Capitalization" shall mean, on any Valuation
Date, the sum of the Index Equity Capitalizations on such Valuation
Date for all Index Equities (other than Aetna Inc.).
<PAGE>
"Transaction Documents" shall mean, with respect to a PPF,
this Agreement, the Final Prospectus with respect to such PPF, the
Articles of Amendment and Restatement, the Articles Supplementary with
respect to such PPF, the Investment Advisory Agreement with respect to
such PPF, the Administrative Services Agreement, the Custodian
Monitoring Agreement with respect to such PPF and the Custodian Service
Agreement with respect to such PPF, as each may be amended,
supplemented or otherwise modified from time to time.
"U.S. Agency Zeroes" shall mean non-callable non-interest
bearing obligations of any one of the following agencies of the Federal
Government of the United States of America: Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Federal Home Loan
Bank, Resolution Funding Corporation, Financing Corporation and
Tennessee Valley Authority; provided, however, that any such
obligations that are rated less than AAA by S&P or less than Aaa by
Moody's shall not be U.S. Agency Zeroes.
"U.S. Treasury Future" shall mean a futures contract on a U.S.
Treasury Note, having a maturity of no less than 2 and no more than 10
years, as traded on the Chicago Board of Trade.
"U.S. Treasury Futures Spread" shall mean, for any PPF, on any
Valuation Date, the sum of the product for each U.S. Treasury Future
held by such PPF of (a) the Notional Value of such U.S. Treasury Future
times (b) the excess of (i) the yield on the Cheapest-to-Deliver Bond
with respect to such U.S. Treasury Future over (ii) the Targeted Fed
Funds Rate on such Valuation Date.
"U.S. Treasury Zeroes" shall mean non-callable non-interest
bearing obligations of the United States Treasury backed by the full
faith and credit of the United States of America, including, without
limitation: Certificates of Accrual on Treasury Securities (CATS);
Treasury Investment Growth Receipts (TIGRs); Generic Treasury Receipts
(TRs); and Separate Trading of Registered Interest and Principal of
Securities (STRIPS).
"Valuation Date" shall mean, for any Business Day, as of the
close of trading on the immediately preceding Business Day.
Section . Generic Terms. All words used herein shall
be construed to be of such gender or number as the circumstances
require. The words "herein," "hereby," "hereof," "hereto,"
"hereinbefore" and "hereinafter," and words of similar import, refer to
this Agreement in its entirety and not to any particular paragraph,
clause or other subdivision, unless otherwise specified, and Section,
subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
Section . Valuation. All calculations and valuations
to be made herein shall be made on a basis that assumes that all
acquisitions and dispositions of securities are accounted for on the
trade date plus one (T+1); provided, however that (i) any acquisition
or disposition of a security which settles on the trade date will be
accounted for on that day, (ii) any acquisition or disposition of a
security on a trade date which relates to an Asset Reallocation with
respect to a PPF will be accounted for on that trade date and (iii) all
acquisitions and dispositions of securities on a trade date on which
the S&P 500 Index declines 5% or more will be accounted for on that
trade date.
<PAGE>
ARTICLE
THE POLICIES
Section . Policies. The Insurer agrees, subject to
the conditions hereinafter set forth, to issue up to six Policies to
the Fund during the period commencing on the Effective Date and ending
on December 31, 2000 in an aggregate amount up to $250,000,000. Each
Policy shall (i) be issued on an Inception Date with respect to a PPF,
(ii) guarantee the Aggregate Guarantee Amount with respect to such PPF
on the date which is five years from the issuance date of such Policy
(the "Maturity Date"), (iii) be in an amount equal to the Aggregate
Guarantee Amount on the Inception Date with respect to such PPF, (iv)
be in an amount not less than $10,000,000 and (v) terminate by its
terms on the earlier of (A) the second Business Day immediately
succeeding the Maturity Date with respect to such PPF, (B) any date on
which the Aggregate Guarantee Amount with respect to such PPF equals
zero or (C) the payment by the Insurer of all amounts owing under such
Policy.
Section . Procedure for Issuance of Policies. The
Fund may from time to time request that the Insurer issue a Policy by
delivering to the Insurer at its address for notices specified herein a
preliminary application therefor substantially in the form of Exhibit
I-1 (each a "Preliminary Application"), completed to the satisfaction
of the Insurer, and such other information or written documentation
relating to the PPF as the Insurer may reasonably request. Upon (i)
receipt of any Preliminary Application, (ii) receipt prior to 10 a.m.
(New York City time) on the Inception Date of a final application
substantially in the form of Exhibit I-2 (each a "Final Application")
and (iii) satisfaction of the conditions precedent therefor set forth
in Section 2.3(b), the Insurer shall promptly issue and deliver to the
Fund at its address for notices specified herein the Policy requested
thereby duly authorized and executed by the Insurer (but in no event
shall the Insurer send any Policy to the Fund later than five Business
Days after its receipt of the Preliminary Application therefor or be
required to send any Policy to the Fund earlier than two Business Days
after its receipt of the Preliminary Application therefor).
Section. Conditions Precedent to Effectiveness. () The
effectiveness of this Agreement is subject to the satisfaction of the
following conditions:
() This Agreement, the Administrative Services
Agreement and the Custodian Agreement shall be in full force and
effect and shall be in form and substance satisfactory to the Insurer
and an executed counterpart of each such agreement shall have been
delivered to the Insurer;
() The Insurer and the Fund shall have received a
certificate of the Secretary or Assistant Secretary of Aeltus, dated
as of the Effective Date, as to the incumbency and signature of the
officers or other employees of Aeltus authorized to sign this
Agreement and, the Administrative Services Agreement on behalf of
Aeltus, together with evidence of the incumbency of such Secretary or
Assistant Secretary, certified by the Secretary or Assistant Secretary
of Aeltus;
() The Insurer and Aeltus shall have received a
certificate of the Secretary or Assistant Secretary of the Fund, dated
as of the Effective Date, as to the incumbency and signature of the
officers or other employees of the Fund authorized to sign this
Agreement, the Administrative Services Agreement and the Custodian
Agreement on behalf of the Fund, together with evidence of the
incumbency of such Secretary or Assistant Secretary, certified by the
Secretary or Assistant Secretary of the Fund;
() Aeltus and the Fund shall have received a
certificate of the Secretary or Assistant Secretary of the Insurer,
dated as of the Effective Date, as to the incumbency and signature of
the officers or other employees of the Insurer authorized to sign this
Agreement and the Custodian Agreement on behalf of the Insurer,
together with evidence of the incumbency of such Secretary or
Assistant Secretary, certified by the Secretary or Assistant Secretary
of the Insurer;
() The Insurer shall have received certificates of the
Secretary or Assistant Secretary of Aeltus, dated as of the Effective
Date, certifying that attached thereto are true, complete and correct
copies of the resolutions duly adopted by the Board of Directors of
Aeltus authorizing the execution of this Agreement and all other
Transaction Documents entered into on or prior to the Effective Date
to which Aeltus is a party;
<PAGE>
() The Insurer shall have received certificates of the
Secretary or Assistant Secretary of the Fund, dated as of the
Effective Date, certifying that attached thereto are true, complete
and correct copies of resolutions duly adopted by the Board of
Directors of the Fund authorizing the execution of this Agreement and
all Transaction Documents entered into on or prior to the Effective
Date to which it is a party and of the Articles of Amendment and
Restatement;
() Each party to this Agreement shall have received the
following executed legal opinions, in form and substance satisfactory
to each of the parties hereto, dated the Effective Date:
() the opinion of Amy R. Doberman, Esq., counsel to
Aeltus, substantially to the effect set forth in
Exhibit J;
() the opinion of an Associate General Counsel and Vice
President of the Insurer, substantially to the effect
set forth in Exhibit K; and
() the opinion of Amy R. Doberman, Esq., Counsel to the
Fund, substantially to the effect set forth in Exhibit
L;
() The Insurer shall have received a copy of the
Articles of Amendment and Restatement, certified by the State
Department of Assessments and Taxation of Maryland; and
() All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Transaction
Documents shall be satisfactory in form and substance to the Insurer,
and the Insurer shall have received such other documents and legal
opinions in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
() The obligation of the Insurer to issue each Policy
is subject to the satisfaction of the following conditions on the
Inception Date with respect to the related PPF:
() The Insurer shall have received a certificate of the
Secretary or Assistant Secretary of Aeltus dated as of such Inception
Date certifying that (A) a registration statement on Form N-1A with
respect to each Class of Shares with respect to such PPF (1) has been
prepared by the Fund in conformity with the requirements of the Acts
and the rules and regulations of the Commission thereunder, (2) has
been filed with the Commission under the Acts, (3) has become
effective under the Acts, (B) if any post-effective amendment to such
registration statement has been filed prior to the Inception Date, the
most recent such amendment has been declared effective by the
Commission, (C) true and complete copies of such registration
statement as amended to the Inception Date are attached thereto (the
"Registration Statement"), excluding any exhibits thereto, (D) the
Commission has not issued any order preventing or suspending the use
of any preliminary prospectus relating to any Class of Shares with
respect to such PPF and the Fund has not received any notice from the
Commission pursuant to Section 8(e) of the Investment Company Act with
respect to the Registration Statement, (E) the Registration Statement
and the Final Prospectus contain, all statements which are required by
the Acts and the rules and regulations thereunder; (F) the
Registration Statement and the Final Prospectus do not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and (G) the shares of such PPF conform in all
material respects to the description thereof contained in the
Registration Statement and the Final Prospectus.
<PAGE>
() The Investment Advisory Agreement, the Custodian
Monitoring Agreement and the Custodian Services Agreement with respect
to such PPF shall be in full force and effect and an executed
counterpart of each such agreement shall have been delivered to the
Insurer;
() A copy of the Articles Supplementary with respect to
such PPF, certified by the State Department of Assessments and
Taxation of Maryland, shall have been delivered to the Insurer;
() A copy of the Final Prospectus with respect to such
PPF shall have been delivered to the Insurer;
() Each party to this Agreement shall have received the
following executed legal opinions, in form and substance satisfactory
to each of the parties hereto, dated the Inception Date:
() the opinion of Amy R. Doberman, Esq., counsel to
Aeltus, substantially to the effect set forth in
Exhibit M;
() the opinion of an Assistant General Counsel of Mellon
Bank, N.A., substantially to the effect set forth in
Exhibit N-1, and the opinion of Reed Smith Shaw &
McClay LLP, counsel to Russell/Mellon Analytical
Services, LLC, substantially to the effect set forth in
Exhibit N-2; and
() the opinion of Amy R. Doberman, Esq., Counsel to the
Fund, substantially to the effect set forth in Exhibit
O.
() The Insurer shall have received a certificate of the
Secretary or Assistant Secretary of the Fund certifying that attached
thereto are true, complete and correct copies of the resolutions duly
adopted by the Board of Directors of the Fund authorizing the creation
of such PPF and the execution by the Fund of the Investment Advisory
Agreement, the Custodian Monitoring Agreement and the Custodian
Service Agreement with respect to such PPF and of the Articles
Supplementary with respect to such PPF in the form filed with the
State Department of Assessments and Taxation of Maryland;
() The Insurer shall have received a certificate of the
Secretary or Assistant Secretary of Aeltus certifying that attached
thereto are true, complete and correct copies of the resolutions duly
adopted by the Board of Directors of Aeltus authorizing the execution
by Aeltus of the Investment Advisory Agreement with respect to such
PPF;
() The Insurer and the Fund shall have received a
certificate of the Secretary or Assistant Secretary of Aeltus as to
the incumbency and signature of the officers or other employees of
Aeltus authorized to sign the Investment Advisory Agreement with
respect to such PPF on behalf of Aeltus, together with evidence of the
<PAGE>
incumbency of such Secretary or Assistant Secretary, certified by the
Secretary or Assistant Secretary of Aeltus;
() The Insurer and Aeltus shall have received a
certificate of the Secretary or Assistant Secretary of the Fund as to
the incumbency and signature of the officers or other employees of the
Fund authorized to sign the Investment Advisory Agreement, the
Custodian Monitoring Agreement and the Custodian Service Agreement
with respect to such PPF on behalf of the Fund, together with evidence
of the incumbency of such Secretary or Assistant Secretary, certified
by the Secretary or Assistant Secretary of the Fund;
() Each of the representations and warranties made by
Aeltus and the Fund in or pursuant to the Transaction Documents shall
be true and correct in all material respects on and as of such date;
() No Default or Event of Default shall have occurred
and be continuing on such date;
() No statute, rule, regulation or order shall have
been enacted, entered or deemed applicable by any Government Authority
which would make the transactions contemplated by any of the
Transaction Documents illegal or otherwise prevent the consummation
thereof; and
() All proceedings, and all documents, instruments and
other legal matters in connection with the creation of such PPF shall
be satisfactory in form and substance to the Insurer.
Section . Premiums. In consideration of the issuance
by the Insurer of each Policy with respect to a PPF, the Fund, on
behalf of such PPF, shall pay to the Insurer a fee in an amount equal
to 0.33% per annum of the average daily Total Net Assets of such PPF
during each calendar month in the Guarantee Period with respect to such
PPF (the "Policy Fee") payable monthly in arrears on the first Business
Day of the following calendar month (each a "Fee Payment Date"). Policy
Fees payable on each Fee Payment Date will be calculated based on a
365- or 366-day year for the actual number of days elapsed and any
calendar month ending during a weekend will include the days during
such weekend falling in the next calendar month (which days will not be
included in the next calendar month).
Section . Reimbursement Obligations. () If, after any
Rebalancing on any Business Day pursuant to Section 3.5 with respect to
any PPF, (x) all of the assets of such PPF are, or are required to be,
invested solely in U.S. Treasury Zeroes, U.S. Agency Zeroes and Cash
Equivalents, and (y) the Covered Expense Ratio used to calculate the
Present Value of Covered Expenses with respect to such PPF was less
than the Higher Covered Expense Ratio with respect to such PPF on the
Valuation Date for such Business Day, a "Permanent Deficit Event" shall
be deemed to have occurred with respect to such PPF and the Investment
Adviser of such PPF shall calculate the Permanent Deficit Reimbursement
Ratio with respect to such PPF on such Business Day.
() After the occurrence of a Permanent Deficit Event
with respect to any PPF, the Investment Adviser of such PPF hereby
agrees to pay to the Insurer from time to time an amount equal to each
payment of any amount made for any reason by such PPF to such
Investment Adviser, within two Business Days of the date of such
Investment Adviser's receipt of such payment, until the first Valuation
Date on which the Reimbursement Amount with respect to such PPF equals
or exceeds the product of the Permanent Deficit Reimbursement Ratio
with respect to such PPF and the Permanent Fee Deficit Amount with
respect to such PPF on such Valuation Date. Thereafter, the Insurer
hereby agrees to pay to the Investment Adviser of such PPF, on a
quarterly basis, on the last Business Day of each calendar quarter and
on the Maturity Date of such PPF, the excess, if any, of (a) the
Reimbursement Amount with respect to such PPF over (b) the product of
the Permanent Deficit Reimbursement Ratio with respect to such PPF
times the Permanent Fee Deficit Amount with respect to such PPF as of
the last Valuation Date of such calendar quarter or such Maturity Date,
as the case may be.
<PAGE>
Section . Indemnification. () In addition to any and
all rights of reimbursement or any other rights pursuant hereto or
under law or equity, Aeltus agrees (i) to pay, or reimburse, the
Insurer for all of its reasonable out-of-pocket costs and expenses
(including, without limitation as provided in Section 7.5, the
reasonable fees and disbursements of its counsel) incurred in
connection with the negotiation, preparation, execution and delivery of
this Agreement, the other Transaction Documents and any amendment,
supplement or modification thereof, or waiver or consent thereunder,
(ii) to pay, or reimburse, the Insurer for all of its reasonable
out-of-pocket costs and expenses (including, without limitation, the
reasonable fees and disbursements of its counsel) incurred in
connection with the enforcement or preservation of any rights under the
Transaction Documents, (iii) to pay, indemnify, and hold the Insurer
harmless from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, that may be payable or
determined to be payable in connection with the execution and delivery
of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or
any waiver or consent under or in respect of the Transaction Documents
and (iv) to pay, indemnify and hold the Insurer and its officers,
directors and employees (each an "Indemnitee") harmless from and
against any and all out-of-pocket liabilities (including penalties),
obligations, losses, damages, actions, suits, demands, claims,
judgments, costs, expenses or disbursements of any kind or nature
whatsoever that arise out of, or in any way relate to or result from or
out of (A) the transactions contemplated by the Transaction Documents
or (B) any investigation or defense of, or participation in, any legal
proceeding relating to the execution, delivery, enforcement,
performance or administration of the Transaction Documents (whether or
not such Indemnitee is a party thereto) (all the foregoing in clauses
(i) through (iv) above, collectively, the "Indemnified Liabilities");
provided that Aeltus shall have no obligation hereunder to any
Indemnitee with respect to Indemnified Liabilities arising from the
gross negligence, bad faith or willful misconduct of any Indemnitee.
Any payments required to be made by Aeltus under this Section 2.6 shall
be due and payable by Aeltus on the 30th day after demand therefor.
() The indemnity provisions of this Section 2.6, as
well as the reimbursement provisions set forth in Section 2.5, shall
survive the termination of this Agreement.
ARTICLE
MANAGEMENT OF PPFs
Section . Eligible Investments. () The Investment Adviser of
each PPF shall segregate the assets of such PPF from all other series
of the Fund and ensure that the investment of the assets of each
independently satisfies the requirements of this Article III.
() The Investment Adviser of each PPF shall, subject to the
restrictions of Sections 3.2, 3.3, 3.4 and 3.5, invest the assets of
such PPF only in the following types of investments ("Eligible PPF
Investments"):
() cash and the following short-term securities
with remaining maturities of 180 days or less: (1) direct obligations
of, and obligations fully guaranteed as to full and timely payment by
the full faith and credit of, the United States of America, excluding
U.S. Treasury Zeroes and U.S. Agency Zeroes; (2) demand deposits, time
deposits or certificates of deposit of any depository institution or
trust company incorporated under the laws of the United States of
America or any state thereof; provided that at the time of investment
therein the commercial paper or other short-term unsecured debt
obligations thereof shall be rated at least A-1 by S&P or P-1 by
Moody's; (3) bankers acceptances issued by any depository institution
or trust company referred to in clause (2) above; and (4) commercial
paper having at the time of the investment therein a rating of at
least A-1 by S&P or P-1 by Moody's;
() U.S. Treasury Zeroes or U.S. Agency Zeroes
maturing on, or within the 90 days preceding, the Maturity Date with
respect to such PPF;
() Non-callable debt obligations of a corporation
maturing within the three years preceding or the three years following
the Maturity Date with respect to such PPF and having a rating of at
least AA- by S&P or Aa3 by Moody's; provided that if both Moody's and
S&P have issued a rating thereon, such rating shall be no less than
Aa3/AA- ("Corporate Bonds");
<PAGE>
() U. S. Treasury Futures;
() Index Equities; and
(vi) Index Futures.
Section . Investment Limitations. The Investment
Adviser of each PPF shall invest the assets of such PPF subject to the
following limitations:
() all Cash Associated with Futures shall be
invested in Cash Equivalents;
() such PPF shall hold Cash Equivalents (excluding
Cash Margin) having an aggregate Market Value at all times at least
equal to Cash Associated with Futures with respect to such PPF;
() the aggregate Market Value of all Cash Equivalents
held by such PPF (less Cash Associated with Futures and Cash Margin
with respect to such PPF) on any Valuation Date shall not exceed 4% of
the Total Net Assets with respect to such PPF on such Valuation Date;
() no Cash Equivalent or U.S. Treasury Zero or U.S.
Agency Zero held by such PPF shall mature after the Maturity Date with
respect to such PPF;
() at the time of any investment in Corporate Bonds
by such PPF, no more than 2% of the Total Net Assets of such PPF shall
be invested in Corporate Bonds issued by a particular issuer or group
of affiliated issuers;
() the aggregate net Notional Value of all U.S.
Treasury Futures held by such PPF on any Valuation Date shall not
exceed an amount equal to 50% of the aggregate Market Value of all
Corporate Bonds held by such PPF on such Valuation Date;
() U.S. Treasury Futures shall be acquired by a PPF
only in order to shorten or lengthen the Portfolio Duration with
respect to the Corporate Bonds and U.S. Treasury Futures held by such
PPF; () on any Valuation Date, the Portfolio Duration with respect to
the Corporate Bonds and U.S. Treasury Futures held by such PPF shall
not be greater than the Theoretical Zero Modified Duration with
respect to such PPF nor less than the Theoretical Zero Modified
Duration with respect to such PPF minus 0.25;
() the aggregate Market Value of all Index Futures
held by such PPF on any Valuation Date shall not exceed 25% of the
aggregate Market Value of all Index Equities held by such PPF on such
Valuation Date;
() any Corporate Bond held by such PPF that is
rated less than AA- by S&P or less than Aa3 by Moody's shall be sold
by such PPF within 15 Business Days following the public announcement
of such rating;
() the aggregate Market Value of the Corporate
Bonds held by such PPF shall not exceed 45% of the aggregate Market
Value of the Fixed Income Portfolio (excluding U.S. Treasury Futures)
with respect to such PPF; and
() no investment shall be made in securities issued
by Aetna Inc.
<PAGE>
Section . Index Equity Selection Guidelines. The
Investment Adviser of each PPF shall make each investment in Index
Equities in such PPF in accordance with the Selection Guidelines. Each
Investment Adviser shall not make any material change in the Selection
Guidelines, including without limitation, the investment selection
methodology described therein, without the prior written consent of the
Insurer.
Section . Index Equity Diversification and
Capitalization Requirements. The Investment Adviser of each PPF shall
invest the assets of such PPF, to the extent such PPF holds any Index
Equities, such that the following requirements are satisfied as of each
Valuation Date:
() each PPF shall be invested in at least 400 of the
500 Index Equities; provided that no investment in an Index Equity will
be included for the purposes of satisfying the requirements set forth
in this paragraph (a) unless the Fund Weight with respect to such PPF
and such Index Equity equals or exceeds 40% of the Index Weight for
such Index Equity;
() the aggregate of the Index Weights with respect to
each of the Index Equities which are held by such PPF and which
satisfy the requirements of paragraph (a) above shall not be less than
85%;
() the Fund Weight with respect to such PPF and each
Index Equity held by such PPF shall not exceed 200% of the Index
Weight for such Index Equity; and
() the Fund Sector Weight with respect to such PPF
for each Sector shall not: (i) exceed 135% of the Sector Index Weight
for such Sector or (ii) be less than 65% of the Sector Index Weight
for such Sector.
Each Investment Adviser of a PPF shall demonstrate
its compliance with the requirements and limitations set forth in this
Section 3.4 by providing to the Insurer, within 10 calendar days of the
end of each month, a report for such PPF as of such month end,
substantially in the form attached hereto as Exhibit P hereto.
Section . Asset Allocation and Rebalancing. () If,
with respect to any PPF, prior to the open of trading on the NYSE on
any Business Day, the excess of (1) the sum of:
() 70% of the aggregate Market Value of all Index
Equities held by such PPF on the Valuation Date for such Business Day,
() the aggregate Market Value of all Cash Equivalents
held by such PPF (less Cash Associated with Futures and Cash Margin
with respect to such PPF) on the Valuation Date for such Business Day,
() the aggregate Market Value of all U.S. Treasury
Zeroes and U.S. Agency Zeroes held by such PPF on the Valuation Date
for such Business Day,
() the aggregate Market Value of all Corporate Bonds
held by such PPF on the Valuation Date for such Business Day,
() the aggregate Market Value of all U.S. Treasury
Futures held by such PPF on the Valuation Date for such Business Day,
() 70% of the aggregate Market Value of all Index
Futures held by such PPF on the Valuation Date for such Business Day,
() to the extent not included in the Market Value of
the Equity Portfolio, Fixed Income Portfolio or the Cash Equivalents
of such PPF, an amount equal to the aggregate amount of interest and
dividend receivables and receivables for securities sold payable to
such PPF on the Valuation Date for such Business Day,
() an amount equal to the aggregate amount payable to
such PPF on such Valuation Date on account of a decrease in the margin
requirements with respect to the U.S. Treasury Futures held by such
PPF, and
<PAGE>
() an amount equal to the aggregate amount payable to
such PPF by the Investment Adviser with respect to such PPF pursuant
to the Investment Advisory Agreement with respect to such PPF on
account of expenses incurred by such PPF that are subject to
reimbursement by such Investment Adviser, over (2) an amount equal to
the aggregate amount of the liabilities allocated to such PPF,
including all amounts payable by such PPF in respect of securities
purchased (the "Adjusted Total Net Assets") is less than the Asset
Allocation Threshold with respect to such PPF on such Business Day
(the foregoing determination an "Asset Allocation Test"), the
Investment Adviser of such PPF shall sell a portion of the Index
Equities and/or Index Futures held by such PPF and reinvest the
proceeds of such sale in U.S. Treasury Zeroes, U.S. Agency Zeroes,
Corporate Bonds and/or Cash Equivalents such that, after giving effect
to such sale and reinvestment of proceeds, the Adjusted Total Net
Assets with respect to such PPF would equal or exceed the sum of the
Present Value of the Aggregate Guarantee Amount with respect to such
PPF plus the Present Value of Covered Expenses with respect to such
PPF. An Asset Allocation Test shall be performed with respect to each
PPF by the Investment Adviser of such PPF prior to the open of trading
on the NYSE on each Business Day.
() If, with respect to any PPF, prior to the open of
trading on the NYSE on any Business Day, the Adjusted Total Net Assets
of such PPF is equal to or greater than the Asset Allocation Threshold
with respect to such PPF and, on such Business Day, the Investment
Adviser of such PPF effects an Asset Reallocation with respect to such
PPF, the Investment Adviser of such PPF shall reallocate the
investments held by such PPF such that, after giving effect to such
change in investments, the Adjusted Total Net Assets with respect to
such PPF would equal or exceed the sum of the Present Value of the
Aggregate Guarantee Amount with respect to such PPF plus the Present
Value of Covered Expenses with respect to such PPF.
() If, on any Business Day, the Investment Adviser of
any PPF shall fail to effect a Rebalancing required by this Section
3.5, such Investment Adviser shall provide the Insurer and the
Custodian with written notice of such failure prior to the next
succeeding Business Day.
() If, on any Business Day, with respect to any PPF,
the aggregate Market Value of all Index Equities permitted to be held
by such PPF in accordance with the Asset Allocation Test is less than
40% of the Total Net Assets of such PPF, the Investment Adviser of such
PPF shall sell all Corporate Bonds held by such PPF on such Business
Day and reinvest the proceeds thereof in U.S. Treasury Zeroes or U.S.
Agency Zeroes or Cash Equivalents.
() Each Investment Adviser of a PPF shall report the
results of each Asset Allocation Test with respect to such PPF for each
Business Day in a report substantially in the form attached hereto as
Exhibit Q hereto, and shall deliver each such report to the Insurer
prior to the opening of business on the next succeeding Business Day.
<PAGE>
ARTICLE
EVENTS OF DEFAULT
Section . Default. If any of the following events
(each, an "Event of Default") shall occur and be continuing:
() Any Investment Adviser of a PPF shall default in
its observance or performance of any agreement or obligation contained
in Section 3.1, 3.2, 3.3, 3.4 or 3.5(d) and such default shall continue
unremedied for a period of three Business Days; provided, however that
such Investment Adviser shall not be in default of its obligations
contained in Section 3.2(c) on any Business Day on which the market for
Treasury obligations of the U.S. Government is closed;
() Any Investment Adviser of a PPF shall default in
its observance or performance of any agreement or obligation contained
in Section 3.5(a), (b), (c) or 3.5(e) and such default shall continue
unremedied for a period of one Business Day;
() Any Investment Adviser of a PPF or the Fund shall
default in the observance or performance of any agreement or obligation
contained in this Agreement (other than any obligation or agreement
referred to in paragraphs (a) or (b) above) and such default remains
unremedied for a period of 15 Business Days after the date on which
written notice thereof shall have been given by the Insurer to such
Investment Adviser or the Fund; or
() Any representation or warranty made or deemed made
by any Investment Adviser of a PPF or the Fund in this Agreement or
which is contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this
Agreement shall prove to have been incorrect in any material respect on
or as of the date made or deemed made and such breach remains
unremedied for a period of 15 Business Days after the date on which
written notice thereof shall have been given by the Insurer to such
Investment Adviser or the Fund;
then and only then the Insurer shall have the right to direct the
investment of funds in the particular PPF or PPFs pursuant to Section 3
of the Custodian Service Agreement in the manner and to the extent
provided in Section 4.2.
Section . Remedies. () After the occurrence and
during the continuance of an Event of Default with respect to a PPF or
an Event of Default not relating to a particular PPF, the Insurer shall
have the right to deliver to the Investment Adviser of such PPF (in the
case of an Event of Default with respect to a PPF) or the Investment
Adviser of each PPF (in the case of an Event of Default not relating to
a particular PPF) and the Custodian an Event of Default Notice (as
defined in the Custodian Service Agreement). During the period (the
"Default Period") from and including the date on which the Custodian
receives an Event of Default Notice from the Insurer to and excluding
the Business Day following the date on which the Insurer gives the
Custodian a Cure Notice (as defined in the Custodian Service
Agreement), the Insurer shall have the right to direct the investment
of the PPF as to which such Event of Default shall have occurred or all
PPFs, as the case may be, by delivering to the Custodian, pursuant to
Section 3 of the Custodian Service Agreement, written investment
instructions from the Investment Adviser of such PPF as described in
the next sentence of this Section 4.2(a) or, under the circumstances
described in Section 4.2(b), its own instructions in accordance with
Section 4.2(b). In the event that during the Default Period the Insurer
receives written investment instructions from the Investment Adviser of
the PPF as to which such Event of Default shall have occurred, the
Insurer shall promptly forward such instructions to the Custodian
unless the Insurer determines that the execution of such instructions
would result in the occurrence of another Default or, after the
occurrence and during the continuance of an Event of Default specified
in Section 4.1 (a) or (b), that the execution of such instructions
would not result in the cure of the breach causing such Event of
Default.
<PAGE>
() In the event that during a Default Period and
after the occurrence and during the continuance of an Event of Default
with respect to a PPF specified in Section 4.1 (a) or (b) herein, the
Insurer shall not have received written investment instructions from
the Investment Adviser of such PPF with respect to such PPF in the
format set forth in the Custodian Service Agreement, the execution of
which would result in the cure of the breach causing such Event of
Default, without resulting in the occurrence of another Default, by
10:00 a.m., New York City time, on the later of the first day of such
Default Period and the Business Day after the occurrence of such Event
of Default, the Insurer shall have the right to provide the Custodian
with its own investment instructions pursuant to Section 3 of the
Custodian Service Agreement, subject to the following conditions:
() after giving effect to any changes to the
investments of such PPF at the direction of the Insurer, the
investments of such PPF shall be consistent with Article III;
() any changes made to the investments of such PPF
at the direction of the Insurer shall be limited to those that are
reasonably necessary to cure the breach causing such Event of Default;
() if such Event of Default is specified in Section
4.1(a), the specific investments causing such Event of Default shall
be sold;
() if such Event of Default is specified in Section
4.1(a) and Index Equities are required to be sold in order to cure the
breach causing such Event of Default, the proceeds of such sale shall
be reinvested, to the extent practicable, in a pro rata portion of the
Index Equities then held by the PPF as to which such Event of Default
shall have occurred, unless doing so would result in another Event of
Default pursuant to Section 4.1(b) or not result in the cure of the
existing Event of Default, in which case the proceeds thereof shall be
reinvested in U.S. Treasury Zeroes or U.S. Agency Zeroes;
() if such Event of Default is specified in Section
4.1(a) and Corporate Bonds, U.S. Treasury Futures, U.S. Treasury
Zeroes, U.S. Agency Zeroes or Cash Equivalents are required to be sold
in order to cure the breach causing such Event of Default, the
proceeds of such sale shall be reinvested, to the extent practicable,
in U.S. Treasury Zeroes or U.S. Agency Zeroes; and
() if such Event of Default is specified in Section
4.1(b), the minimum amount of Index Equities or Index Futures as is
reasonably necessary in the manner described in Section 4.2(b)(vii),
after giving effect to the reinvestment of the proceeds thereof in
U.S. Treasury Zeroes, U.S. Agency Zeroes or Cash Equivalents, to cause
the Adjusted Total Net Assets with respect to the PPF as to which such
Event of Default shall have occurred to equal the sum of the Present
Value of the Aggregate Guarantee Amount with respect to such PPF plus
the Present Value of Covered Expenses with respect to such PPF, shall
be sold;
() if such Event of Default is specified in Section
4.1(b), Index Futures and Index Equities will be sold, to the extent
practicable, in the following order of priority and manner, to the
extent reasonably necessary to satisfy Section 4.2(b)(vi):
(A) a pro rata portion of all Index Futures held by such PPF
shall be sold;
(B) all Index Futures held by such PPF shall be sold;
(C) a pro rata portion of all Index Equities shall be
sold; and
(D) all Index Equities shall be sold.
() In the event that, after the occurrence and
during the continuance of an Event of Default specified in Section
4.1(c) or (d), the Insurer shall not have received written
instructions from the Investment Adviser of each PPF or the written
instructions received from any Investment Adviser would result in the
occurrence of a Default, then the Insurer shall have no right to
direct the investment of such PPF pursuant to Section 3 of the
Custodian Service Agreement or otherwise, provided no Event of Default
specified in Section 4.1(a) or (b) shall have occurred and be
continuing. If an Event of Default specified in Section 4.1(c) or (d)
shall occur and be continuing, it shall be deemed to have occurred
with respect to all PPFs.
<PAGE>
() After the occurrence and during the continuance of
an Event of Default, the Investment Adviser of the PPF as to which such
Event of Default shall have occurred (in case of an Event of Default
with respect to a PPF) or the Investment Adviser of each PPF (in the
case of an Event of Default not relating to a particular PPF) shall
deliver trade instructions only through the Insurer in accordance with
this Section 4.2 with respect to such PPF.
() Upon the cure of an Event of Default, the Insurer
shall give prompt written notice of such cure to each Investment
Adviser and, unless another Event of Default shall have occurred and be
continuing, shall promptly give a Cure Notice to the Custodian pursuant
to the Custodian Service Agreement. Other than after the occurrence and
during the continuance of an Event of Default, the Insurer shall have
no right to direct the investment of funds in the PPFs.
ARTICLE
REPRESENTATIONS AND WARRANTIES
Section . Representations and Warranties Relating to Aeltus.
To induce the Insurer to enter into this Agreement and to issue the
Policies, Aeltus hereby represents and warrants to the Insurer that:
() Aeltus (i) is a Connecticut corporation duly organized,
validly existing and in good standing under the laws of the State of
Connecticut, (ii) has the corporate power and authority, and the legal
right, to own its assets and to transact the business in which it is
engaged, (iii) is duly qualified to do business and is in good
standing under the laws of each jurisdiction where its ownership or
lease of property or the conduct of its business requires such
qualification except where the failure to so qualify would not have a
material adverse effect on Aeltus' ability to perform its obligations
under the Transaction Documents and (iv) is in compliance with all
Requirements of Law except where non-compliance would not have a
material adverse effect on Aeltus' ability to perform its obligations
under the Transaction Documents or the validity or enforceability of
the Transaction Documents.
() Aeltus has the corporate power and authority, and the
legal right, to execute, deliver and perform the Transaction Documents
to which it is a party and has taken all necessary action required by
applicable Requirements of Law to authorize the execution, delivery
and performance of the Transaction Documents to which it is a party.
Except as has been obtained, no consent or authorization of, filing
with, or other act by or in respect of, any Government Authority or
any other Person is required in connection with the execution,
delivery, performance, validity or enforceability by or against Aeltus
of the Transaction Documents to which it is a party. This Agreement
has been, and each other Transaction Document to which Aeltus is a
party will be, duly executed and delivered on behalf of Aeltus. This
Agreement constitutes, and each other Transaction Document to which
Aeltus is a party, when executed and delivered, will constitute, a
legal, valid and binding obligation of Aeltus enforceable against
Aeltus in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
() The execution, delivery and performance of the
Transaction Documents to which Aeltus is a party will not violate any
Requirement of Law or Contractual Obligation of Aeltus and will not
result in, or require, the creation or imposition of any Lien on any
of its property, assets or revenues pursuant to any such Requirement
of Law or Contractual Obligation except where such violation would not
have a material adverse effect on Aeltus' ability to perform its
obligations under the Transaction Documents or the validity or
enforceability of the Transaction Documents.
<PAGE>
() No litigation, proceeding or investigation of or before
any arbitrator or Governmental Authority is pending or threatened by
or against Aeltus or against any of its properties or revenues (i)
asserting the invalidity or unenforceability of any of the Transaction
Documents, (ii) seeking to prevent the consummation of any of the
transactions contemplated by the Transaction Documents or (iii)
seeking any determination or ruling that might materially and
adversely affect (A) Aeltus' ability to perform its obligations under
the Transaction Documents, (B) the validity or enforceability of the
Transaction Documents or (C) the Insurer.
() Aeltus is duly registered and in good standing with the
Commission as an investment adviser under the Investment Advisers Act,
and there does not exist any proceeding or any facts or circumstances
the existence of which could lead to any proceeding which could
adversely affect the registration or good standing of Aeltus with the
Commission; Aeltus is not prohibited by any provision of the
Investment Advisers Act or the Investment Company Act, or the
respective rules and regulations thereunder, from acting as an
investment adviser of the Fund as contemplated hereunder.
Section . Representations and Warranties Relating to the
Fund. Aeltus and the Fund hereby, jointly and severally, represent and
warrant to the Insurer that:
() The Fund (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Maryland; (ii) has the corporate power and authority, and the legal
right, to own its assets and to transact the business in which it is
engaged; (iii) is duly qualified to do business and is in good standing
under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification
except where the failure to so qualify would not have a material
adverse effect on the Fund's ability to perform its obligations under
the Transaction Documents; and (iv) is in compliance with all
Requirements of Law except where non-compliance would not have a
material adverse effect on the Fund's ability to perform its
obligations under the Transaction Documents or the validity or
enforceability of the Transaction Documents.
() The Fund has the corporate power and authority,
and the legal right, to execute, deliver and perform this Agreement and
has taken all necessary action required by applicable Requirements of
Law to authorize the execution, delivery and performance of this
Agreement. No consent or authorization of, filing with, or other act by
or in respect of, any Government Authority or any other Person is
required in connection with the execution, delivery, performance,
validity or enforceability by or against the Fund of the Transaction
Documents to which it is a party, other than a filing made under the
Securities Act of 1933 and the Investment Company Act of 1940. This
Agreement has been duly executed and delivered on behalf of the Fund
and constitutes a legal, valid and binding obligation of the Fund
enforceable against the Fund in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
() The execution, delivery and performance of the
Transaction Documents to which it is a party will not violate any
Requirement of Law or Contractual Obligation of the Fund and will not
result in, or require, the creation or imposition of any Lien on any of
its property, assets or revenues pursuant to any such Requirement of
Law or Contractual Obligation except where such violation would not
have a material adverse effect on the Fund's ability to perform its
obligations under the Transaction Documents to which it is a party or
the validity or enforceability of the Transaction Documents to which it
is a party.
<PAGE>
() No litigation, proceeding or investigation of or
before any arbitrator or Governmental Authority is pending or
threatened by or against the Fund or against any of its properties or
revenues (i) asserting the invalidity or unenforceability of this
Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by the Transaction Documents to which it is a
party or (iii) seeking any determination or ruling that might
materially and adversely affect (A) the Fund's ability to perform its
obligations under this Agreement, (B) the validity or enforceability of
this Agreement or (C) the Insurer.
() The Fund is duly registered with the Commission as
an open-end, diversified management investment company under the
Investment Company Act and the Fund has been operated in compliance in
all material respects with the Investment Company Act and the rules and
regulations thereunder.
ARTICLE
COVENANTS
Section . Covenants of Investment Adviser. The Investment
Adviser of each PPF hereby covenants and agrees that during the term
of this Agreement:
() it shall comply in all material respects with the terms
and conditions of the Transaction Documents to which it is a party and
shall provide the Insurer with written notice immediately upon
becoming aware of any material breach by it of the provisions of any
such agreements;
() it shall not amend, supplement or otherwise modify, or
agree to any waiver with respect to any provision of the
Administrative Services Agreement or the Investment Advisory Agreement
with respect to such PPF if such amendment, supplement or modification
would be reasonably likely to have a material impact on the Insurer,
any PPF Shareholder or any PPF, without the prior written consent of
the Insurer;
() it shall not elect to terminate the Investment Advisory
Agreement with respect to such PPF, without the prior written consent
of the Insurer;
() it shall not enter into a Subadvisory Agreement pursuant
to Article IV of the Investment Advisory Agreement to which it is a
party, without the prior written consent of the Insurer;
() other than in connection with the reinvestment of
dividends, it shall not allow the offering or sale of the shares of
such PPF after the Offering Period with respect to such PPF;
() it shall promptly notify the Insurer of any information
or event, to the knowledge of such Investment Adviser, that would be
reasonably likely to result, through passage of time or otherwise, in
the occurrence of an Event of Default;
() it shall notify the Insurer in the monthly report
delivered to the Insurer pursuant to Section 3.4 of the use of any
Substitute Valuation Source during the preceding month;
() it shall provide to the Insurer copies of the Final
Prospectus (including the Statement of Additional Information) with
respect to such PPF and such additional information with respect to
any PPF as the Insurer may from time to time reasonably request, and,
after the occurrence of an Event of Default with respect to such PPF,
at the expense of the Investment Adviser of such PPF, during normal
business hours with reasonable prior notice allow the Insurer to
inspect, audit and make copies of and abstracts from the Fund's
records regarding such PPF and to visit the offices of the Investment
Adviser of such PPF for the purpose of examining such records,
internal controls and procedures maintained by such Investment
Adviser;
<PAGE>
() prior to filing with the Commission any amendment
to the Registration Statement with respect to such PPF or supplement to
the Final Prospectus with respect to such PPF, it shall furnish a copy
thereof to the Insurer and shall obtain the consent of the Insurer to
any such filing that would be reasonably likely to have a material
impact on the Insurer, any PPF Shareholder or any PPF, which consent
shall not be unreasonably withheld;
() it shall notify the Insurer promptly (i) of any
request or proposed request by the Commission for an amendment to the
Registration Statement with respect to such PPF or a supplement to the
Final Prospectus with respect to such PPF, (ii) of the issuance by the
Commission of any stop-order suspending the effectiveness of the
Registration Statement with respect to such PPF or the initiation or
threat of any such stop-order proceeding or (iii) of receipt by the
Fund of a notice from or order of the Commission pursuant to Section
8(e) of the Investment Company Act with respect to any Registration
Statement with respect to such PPF;
() it shall not amend or otherwise modify the Sectors
as set forth on Annex B or the Sector to which any Index Equity belongs
unless such change is the result of a material merger or a significant
acquisition or disposition by the issuer of such Index Equity, without
the prior written consent of the Insurer;
() it shall comply in all material respects with the terms
and provisions of the Acts and the Investment Adviser Act with respect
to such PPF; and
() it shall not terminate such PPF during the Guarantee
Period prior to the Maturity Date.
Section . Covenants of the Fund. The Fund hereby covenants
and agrees that during the term of this Agreement:
() it shall comply in all material respects with the terms
and conditions of the Transaction Documents to which it is a party and
shall provide the Insurer with written notice immediately upon
becoming aware of any material breach by it of the provisions of any
such agreements;
() it shall not amend, supplement or otherwise modify, or
agree to any waiver with respect to any provision of the Custodian
Monitoring Agreement or the Custodian Service Agreement, without the
prior written consent of the Insurer;
<PAGE>
() it shall not amend, supplement or otherwise modify, or
agree to any waiver with respect to any provision of the
Administrative Services Agreement if such amendment, supplement or
modification would be reasonably likely to have a material impact on
the Insurer, any PPF Shareholder or any PPF, without the prior written
consent of the Insurer;
() it shall not amend, supplement or otherwise modify, or
agree to any waiver with respect to any provision of the Investment
Advisory Agreement with respect to any PPF if such amendment,
supplement or modification would be reasonably likely to have a
material impact on the Insurer, any PPF Shareholder or any PPF,
without the prior written consent of the Insurer;
() it shall not amend, supplement or otherwise modify any
provision of its Articles of Amendment and Restatement or the Articles
Supplementary with respect to any PPF if such amendment, supplement or
modification would be reasonably likely to have a material impact on
the Insurer, any PPF Shareholder or any PPF, without the prior written
consent of the Insurer;
() it shall not change the manner in which the general
liabilities of the Fund are allocated to any PPF or the assets of any
PPF are allocated to any Class of Shares of such PPF if such change
would be reasonably likely to have a material impact on the Insurer,
any PPF Shareholder or any PPF, without the prior written consent of
the Insurer;
() promptly after any amendment or waiver of any provision
of the Administrative Services Agreement or the Investment Advisory
Agreement with respect to any PPF or the filing of any amendment to
its Articles of Amendment and Restatement or the Articles
Supplementary with respect to any PPF, it shall provide the Insurer
with a copy of any such amendment or waiver;
() in the event that it elects to terminate the Investment
Advisory Agreement with Aeltus or any other Investment Adviser with
respect to any PPF, it shall cause the successor investment advisor
with respect to such PPF to enter into an Investment Advisory
Agreement with respect to such PPF and this Agreement prior to the
effective date of such termination;
() in the event that either it or the Custodian shall
terminate the Custodian Agreement or the Custodian Monitoring
Agreement and the Custodian Services Agreement, it shall enter into a
custodian agreement and a Custodian Monitoring Agreement and a
Custodian Service Agreement with a successor Custodian or an affiliate
thereof prior to the effective date of such termination;
() within 90 days of the end of each PPF's fiscal year, it
shall provide to the Insurer the financial statements for each PPF
with respect to such fiscal year, audited by independent public
accountants;
() it shall maintain insurance policies covering its
liabilities to its officers, directors, employees and agents under
subparagraph (d) of Article XII of its Articles of Amendment and
Restatement of the types and in the amounts as is customary for funds
similar to the Fund;
() it shall comply in all material respects with the terms
and provisions of the Acts with respect to each PPF; and
() other than in connection with the redemption of shares by
a PPF Shareholder or the reinvestment of dividends, it shall not
change the number of shares of any PPF outstanding.
ARTICLE
FURTHER AGREEMENTS
Section . Obligations Absolute. The obligations of Aeltus,
each Investment Adviser and the Fund pursuant to this Agreement are
absolute and unconditional and will be paid or performed strictly in
accordance with the respective terms thereof, irrespective of:
() any lack of validity or enforceability of, or any
amendment or other modification of, or waiver with respect to, the
Transaction Documents;
() any amendment or waiver of, or consent to departure from,
the Policies or any Transaction Document;
<PAGE>
() the existence of any claim, set-off, defense or
other rights either may have at any time against the other, any
beneficiary or any transferee of the Policies (or any persons or
entities for whom any such beneficiary or any such transferee may be
acting), the Insurer or any other person or entity whether in
connection with the Policies, this Agreement or any unrelated
transactions;
() any statement or any other document presented
under the Policies (including any Notice for Payment (as defined in the
Policies)) proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect whatsoever;
() the inaccuracy or alleged inaccuracy of any Notice
for Payment upon which any drawing under a Policy is based;
() payment by the Insurer under a Policy against
presentation of a draft of certificate which does not comply with the
terms of such Policy, provided that such payment shall not have
constituted gross negligence or willful misconduct or bad faith of the
Insurer;
() any default or alleged default of the Insurer
under a Policy other than a default with respect to payment
thereunder; or
() any other circumstance or happening whatsoever,
provided that the same shall not have constituted gross negligence,
willful misconduct or bad faith of the Insurer and to the extent that
such do not result in a default with respect to payments under the
Policies.
Section . Reinsurance and Assignments. The Insurer
shall have the right to give participation in its rights under this
Agreement and to enter into contracts of reinsurance with respect to
the Policies, provided that the Insurer agrees that any such
disposition will not alter or affect in any way whatsoever the
Insurer's direct obligations hereunder and under the Policies. Neither
Aeltus nor the Fund may assign its obligations under this Agreement
without the prior written consent of the Insurer.
Section . Fund Liability. Any other provision to the
contrary notwithstanding, any liability of the Fund under this
Agreement with respect to a PPF, or in connection with the transactions
contemplated herein with respect to a PPF, shall be discharged only out
of the assets of that PPF, and no other portfolio of the Fund shall be
liable with respect thereto.
Section . Liability of the Insurer. Aeltus, each
Investment Adviser and the Fund agree that neither the Insurer, nor any
of its officers, directors or employees shall be liable or responsible
for (except to the extent of its own or their gross negligence, willful
misconduct or bad faith) (a) the use which may be made of any Policy by
any Person or for any acts or omissions of another Person in connection
therewith or (b) the validity, sufficiency, accuracy or genuineness of
any documents delivered to the Insurer, or of any endorsement(s)
thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged. In
furtherance and not in limitation of the foregoing, the Insurer may
accept documents that appear on their face to be in order, without
responsibility for further investigation (except to the extent that the
Insurer acted with gross negligence, willful misconduct or bad faith).
Section . Fees and Expenses. Aeltus agrees to pay all
reasonable costs and expenses in connection with the preparation,
execution and delivery of the Transaction Documents and all other
documents delivered with respect thereto, including, without
limitation, the fees of Moody's and S&P incurred by the Insurer in
connection with this Agreement and the transactions contemplated hereby
and by the other Transaction Documents and the fees of Simpson Thacher
& Bartlett, counsel to the Insurer. All such fees, costs and expenses
shall be payable on or prior to the date which is 30 days from the date
on which an invoice for any such fees, costs and expenses shall have
been presented to Aeltus.
<PAGE>
ARTICLE
MISCELLANEOUS
Section . Amendments and Waivers. No amendment or
waiver of any provision of this Agreement nor consent to any departure
therefrom, shall in any event be effective unless in writing and signed
by all of the parties hereto; provided that any waiver so granted shall
extend only to the specific event or occurrence so waived and not to
any other similar event or occurrence which occurs subsequent to the
date of such waiver.
Section . Notices. Except to the extent otherwise
expressly provided herein, all notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (and
if, sent by mail, certified or registered, return receipt requested) or
confirmed facsimile transmission and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when
delivered by hand, or three Business Days after being deposited in the
mail, postage prepaid, or, in the case of facsimile transmission, when
sent, addressed as follows:
If to Aeltus:
Aeltus Investment Management, Inc.
10 State House Square, SH11
Hartford, Connecticut 06103-3602
Attention: Vice President & General Counsel
Telephone: (860) 275-2032
Facsimile: (860) 275-2158
If to the Fund:
10 State House Square, SH14
Hartford, Connecticut 06103-3602
Attn: President
Telephone: (860) 275-3055
Facsimile: (860) 275-3394
If to the Insurer:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Mr. Kevin Loescher
Telephone: 914/765-3933
Facsimile: 914/765-3161
Section . No Waiver, Remedies and Severability. No
failure on the part of the Insurer to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right.
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law. The parties further agree that the holding by
any court of competent jurisdiction that any remedy pursued by the
Insurer hereunder is unavailable or unenforceable shall not affect in
any way the ability of the Insurer to pursue any other remedy available
to it. In the event any provision of this Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, the
parties hereto agree that such holding shall not invalidate or render
unenforceable any other provision hereof.
<PAGE>
Section . Payments. All payments to the Insurer
hereunder shall be made in lawful currency of the United States in
immediately available funds and shall be made prior to 2:00 p.m. (New
York City time) on the date such payment is due by wire transfer to
The Chase Manhattan Bank, ABA #021-000021, MBIA Insurance Corporation
Account Number 910-2-721-728 or to such other office or account as the
Insurer may direct. All payments to Aeltus hereunder shall be made in
lawful currency of the United States and in immediately available
funds on the date such payment is due by wire transfer to The Chase
Manhattan Bank, ABA #021-000021, Aeltus Investment Management Inc.
Account Number 910-2-709-186, or to such other office or account as
Aeltus may direct.
Whenever any payment under this Agreement shall be
stated to be due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension
of time shall in such cases be included in computing interest or fees,
if any, in connection with such payment.
Section . Governing Law. This Agreement shall be
construed, and the obligations, rights and remedies of the parties
hereunder shall be determined, in accordance with the laws of the
State of New York.
Section . Counterparts. This Agreement may be
executed in counterparts of the parties hereto, and each such
counterpart shall be considered an original and all such counterparts
shall constitute one and the same instrument.
Section . Paragraph Headings, Etc. The headings of
paragraphs contained in this Agreement are provided for convenience
only. They form no part of this Agreement and shall not affect its
construction or interpretation.
Section . Termination. This Agreement shall terminate
on the earlier of: (a) the first date as of which the final
outstanding Policy has terminated in accordance with the provisions
thereof and the Insurer has recovered all amounts owing to it
hereunder or (b) the date on which the Aggregate Guarantee Amount with
respect to each PPF equals zero. Any termination of this Agreement
will be effective only upon the delivery to the Insurer of all
Policies, whereupon the Policies will be cancelled and the Insurer's
liabilities thereunder will cease.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement, all as of the day and year first above mentioned.
MBIA INSURANCE CORPORATION,
as Insurer
By: /s/ Ann D. McKenna
Name: Ann D. McKenna
Title: Assistant Secretary
AELTUS INVESTMENT MANAGEMENT, INC.
By: /s/ Neil Kochen
Name: Neil Kochen
Title: Managing Director
AETNA SERIES FUND, INC.
By: /s/ J. Scott Fox
Name: J. Scott Fox
Title: President
<PAGE>
Annex A
<PAGE>
Annex B
Sector List
<PAGE>
Annex C
Sample Calculation of Hypothetical Total Net Assets
<PAGE>
EXHIBIT A
FORM OF POLICY
INSURANCE POLICY
MBIA Insurance Corporation
Armonk, New York 10504
Policy No. ____-____-___
MBIA Insurance Corporation (the "Insurer"), in consideration
of the payment of the premium and subject to the terms of this Policy,
hereby unconditionally and irrevocably guarantees to the Aetna Series
Fund, Inc. (the "Fund"), on behalf of the shareholders (the "PPF
Shareholders") of the capital stock of the Fund designated the Aetna
Principal Protection Fund _ (the "PPF"), the payment by the Fund of the
Deficit (as defined below) on _____________, ______ (the "Maturity
Date") in an amount up to $__________ (the "Initial Aggregate Guarantee
Amount"), for which a Demand for Payment in the form attached hereto as
Attachment 1 and made a part of this Policy (the "Demand for Payment")
has been presented to State Street Bank and Trust Company, N.A. (the
"Fiscal Agent") in accordance with the terms of this Policy. As used
herein, the term "Deficit" refers to the sum of the product with
respect to each Class of Shares (as defined below) of (a) the number of
shares of such Class of Shares on the Maturity Date times (b) amount,
if any, by which the Guarantee Per Share (as defined below) with
respect to such Class of Shares on the Maturity Date exceeds (ii) the
NAV (as defined below) for such Class of Shares on the Maturity Date.
Payments under this Policy shall be made only at the time set forth in
this Policy, and no accelerated payments shall be made.
1. One (1) Business Day (as defined below) after receipt by
the Fiscal Agent of a Demand for Payment, duly executed by the Fund,
the Insurer will make a deposit of funds immediately available in an
account with State Street Bank and Trust Company, N.A., in New York,
New York, or its successor, sufficient for the payment to the Fund of
the Deficit.
2. Demand for Payment hereunder may be made by telecopy, telex
or telegram of the executed Demand for Payment in care of the Fiscal
Agent. If a Demand for Payment made hereunder does not, in any
instance, conform to the terms and conditions of this Policy, the
Insurer shall give notice to the Fund, as promptly as reasonably
practicable, that such Demand for Payment was not effected in
accordance with the terms and conditions of this Policy and briefly
state the reason(s) therefor. Upon being notified that such Demand for
Payment was not effected in accordance with this Policy, the Fund may
attempt to correct any such nonconforming Demand for Payment if, and to
the extent that, the Fund is entitled and able to do so.
3. The amount payable by the Insurer under this Policy shall
be limited to the Initial Aggregate Guarantee Amount.
4. Any service of process on the Insurer or notice to the
Insurer may be made to the Insurer at its offices located at 113 King
Street, Armonk, New York 10504, Attention: Insured Portfolio Management
-- Structured Finance, and such service of process shall be valid and
binding.
<PAGE>
5. The term of this Policy shall expire upon the earliest to
occur of (a) the second Business Day immediately succeeding the
Maturity Date, (b) the payment by the Insurer of the Deficit and (c)
the date on which the Aggregate Guarantee Amount (as defined herein)
equals zero (the "Expiration Date").
6. This Policy shall be governed by and interpreted under the
laws of the State of New York. Any suit hereunder in connection with
any payment may be brought only by the Fund within three years after ()
a Demand for Payment, with respect to such payment, is made pursuant to
the terms of this Policy and the Insurer has failed to make such
payment or () payment would otherwise have been due hereunder but for
the failure on the part of the Fund to deliver to the Insurer a Demand
for Payment pursuant to the terms of this Policy.
7. This Policy, including Attachments 1 and 2 hereto, sets
forth in full the terms of the obligations of the Insurer. Reference in
this Policy to other documents or instruments is for identification
purposes, and such reference shall not modify or affect the terms
hereof or cause such documents or instruments to be deemed incorporated
herein.
8. This Policy is noncancelable.
. This Policy is neither transferable nor assignable.
. This Policy shall be returned to the Insurer by the Fund
on the Expiration Date together with a notice substantially in the
form of Attachment 2 hereto.
. The terms defined in this paragraph shall have the
meanings provided herein for all purposes of this Policy:
"Aeltus" means Aeltus Investment Management, Inc. a
Connecticut corporation.
"Aggregate Guarantee Amount" means, on any date of
determination, the aggregate Guarantee Amounts with respect to all PPF
Shareholders on such date.
"Business Day means any day other than a day on which banks
located in the City of New York, New York are authorized by law to
close or on which the New York Stock Exchange is closed for business.
"Class A Shares" means the shares of capital stock of the
Fund designated as the Class A shares of the PPF in the Articles
Supplementary creating the PPF.
"Class B Shares" means the shares of capital stock of the
Fund designated as the Class B shares of such PPF in the Articles
Supplementary creating the PPF.
"Class of Shares" means the Class A Shares or Class B
Shares.
"Covered Expenses" means, for any Class of Shares, the
annual fund operating expenses enumerated in the Final Prospectus
relating to such PPF as of the last day of the Offering Period.
"Distribution Per Share" means, with respect to any Class of
Shares, an amount equal to the quotient of the amount of any
distribution or payment by the Fund in respect of, or allocated to,
such Class of Shares that is not a Covered Expense or a transaction
related brokerage expense, and shall include, without limitation, any
distribution of income, dividends, capital gains or principal to the
PPF Shareholders of such Class of Shares and any payment of income
taxes or excise taxes allocated to such Class of Shares divided by the
number of shares of such Class of Shares outstanding on the date of
such distribution or payment.
<PAGE>
"Final Prospectus" means the prospectus pursuant to which the
shares of the PPF were offered for sale, including the Statement of
Additional Information with respect to the PPF filed with the
Securities and Exchange Commission pursuant to Rule 497 under the
Securities Act on or prior to the last day of the Offering Period.
"Guarantee Amount" means, with respect to any PPF Shareholder
of any Class of Shares, on any date of determination, an amount equal
to the product of (i) the Guarantee per Share for such Class of Shares
held by such PPF Shareholder on such date and (ii) the total number of
such shares held by such PPF Shareholder.
"Guarantee per Share" means, with respect to any Class of
Shares (i) the NAV for such Class of Shares at the close of business on
the last day of the Offering Period and (ii) thereafter on any Business
Day, the Guarantee per Share for such Class of Shares on the
immediately preceding Business Day divided by the sum of one plus the
quotient of (A) the amount of any Distribution Per Share with respect
to such Class of Shares effective since the immediately preceding
Business Day divided by (B) the NAV for such Class of Shares at the
close of business on the day such Distribution Per Share was effective.
"NAV" means, with respect to any Class of Shares of a PPF, (a)
on the commencement date of such PPF, the net asset value per share of
such Class of Shares established by the Fund for such date and (b) on
any date of determination thereafter the quotient of (i) the excess of
(x) the market value of the assets allocated to that Class of Shares
determined as of the close of regular trading on the NYSE by the Fund
in the manner described in the Final Prospectus with respect to such
PPF over (y) the market value of any liabilities allocated to and/or
associated with such Class of Shares determined as of the close of
regular trading on the NYSE by the Fund in the manner described in the
Final Prospectus with respect to such PPF divided by (ii) the number of
outstanding shares of that Class of Shares at such time. The assets,
income, gain, loss and liabilities (other than those liabilities
relating specifically to a Class of Shares) of each PPF shall be
allocated to each Class of Shares of such PPF on each date of
determination on a pro rata basis based on the NAV of such Class of
Shares on the preceding date of determination.
"Offering Period" means the period during which the shares of
the PPF were offered for sale to investors described in the Final
Prospectus.
THIS POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE FUND
SPECIFIED IN ARTICLE SEVENTY-SIX OF THE NEW YORK STATE INSURANCE LAW.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be
executed in facsimile on its behalf by its duly authorized officers
this ____ day of _______, 1999.
MBIA INSURANCE CORPORATION
By
President
Attachment 1
Insurance Policy No. ____-____-___
<PAGE>
DEMAND FOR PAYMENT
State Street Bank and Trust Company, N.A.
as Fiscal Agent for MBIA Insurance
Corporation
15th Floor
61 Broadway
New York, New York 10006
Attention: [Municipal Registrar and
Paying Agency]
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: President
Reference is made to the Insurance Policy No. ____-____-___ (the
"Policy") issued by MBIA Insurance Corporation (the "Insurer"). The terms which
are capitalized herein and not otherwise defined have the meanings specified in
the Policy unless the context otherwise requires.
Aetna Series Fund, Inc. (the "Fund) hereby certifies that: [Choose one
of the following]
() The Fund, on behalf of the shareholders (the "PPF
Shareholders") of the capital stock of the Fund designated the Aetna
Principal Protection Fund _ (the "PPF"), is the beneficiary under the
Policy.
() The Fund, on behalf of the PPF Shareholders, demands
payment of $___________________, the amount by which (i) the Aggregate
Guarantee Amount exceeds (ii) the Total Net Assets as of the Maturity
Date, and directs that payment under the Policy be made to the
following account by bank wire transfer of federal or other immediately
available funds one (1) Business Day after receipt by the Fiscal Agent
of this Demand for Payment in accordance with the terms of the Policy:
____________.
Aetna Series Fund, Inc.
By:__________________________________
Name:
Title:
Any Person Who Knowingly And With Intent To Defraud Any Insurance Company Or
Other Person Files An Application for Insurance Or Statement Of Claim Containing
Any Materially False Information, Or Conceals For The Purpose Of Misleading
Information Concerning Any Fact Material Thereto, Commits A Fraudulent Insurance
Act, Which Is A Crime, And Shall Also Be Subject To A Civil Penalty Not To
Exceed Five Thousand Dollars And The Stated Value Of The Claim For Each Such
Violation.
<PAGE>
EXPIRATION DATE
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: President
Reference is made to the Insurance Policy No. ____-____-___ (the
"Policy") issued by MBIA Insurance Corporation (the "Insurer"). The terms which
are capitalized herein and not otherwise defined have the meanings specified in
the Policy unless the context otherwise requires.
[The undersigned hereby certifies and confirms that on the Maturity
Date the Aggregate Guarantee Amount was equal to or less than the Total Net
Assets as of the Maturity Date.] [The Insurer has paid $________, the Deficit,
under the Policy.] [The undersigned hereby certifies and confirms that the
Aggregate Guarantee Amount equals zero.]
The original of the Policy is enclosed herewith.
AETNA SERIES FUND, INC.
By:________________________
Name:
Title:
FORM OF
CUSTODIAN SERVICE AGREEMENT
THIS AGREEMENT made as of the ___ day of _______________, 1999 by and
among AETNA SERIES FUND, INC. ("Fund"), MBIA INSURANCE CORPORATION ("MBIA") AND
MELLON BANK, N.A. ("Mellon").
WHEREAS, the Fund intends to establish a separate series of the Fund,
Aetna Principal Protection Fund I ("Series"), with an obligation by the Fund, on
behalf of the Series, to repay the amount initially invested by each shareholder
in the Series on a date certain ("Repayment Obligation"); and
WHEREAS, the Fund, on behalf of the Series, has entered into a
Financial Guaranty Agreement with MBIA (the "Financial Guaranty Agreement")
whereby MBIA will issue a policy to support the Repayment Obligation ("Policy");
and
WHEREAS, in connection therewith, the Fund intends to open custody
accounts with Mellon under the terms of the Custodian Agreement (the "Custodian
Agreement") between the Fund and Mellon dated as of September 1, 1992, as
amended, on behalf of the Series, to hold the Series' portfolio investments; and
WHEREAS, under the terms of the Financial Guaranty Agreement, in
consideration of MBIA's issuing the Policy, the Fund, on behalf of the Series,
has agreed to a particular investment strategy and to provide an arrangement
whereby trades executed for the Series will be monitored for conformity with
certain guidelines; and
<PAGE>
WHEREAS, the Fund and MBIA wish for Russell/Mellon Analytical
Services, LLC ("Russell/Mellon") to provide investment monitoring services in
respect of the Series, and Russell/Mellon is willing to perform such services
upon the terms and conditions of an Agreement of even date herewith.
WHEREAS, the Fund and MBIA wish for Mellon to provide trade execution
services in respect of the Series, and Mellon is willing to perform such
services upon the terms and conditions.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the parties hereto agree to the following:
1. Construction.
Unless the context of this Agreement otherwise clearly
requires, references to the plural include the singular, the singular the plural
and the part the whole and "or" has the inclusive meaning sometimes represented
by the phrase "and/or." The words "hereof," "herein," "hereunder" and similar
terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. The section and other headings contained
in this Agreement are for reference purposes only and shall not control or
affect the construction of this Agreement or the interpretation thereof in any
respect. Section, subsection, schedule, exhibit and attachment references are to
this Agreement unless otherwise specified.
<PAGE>
2. Custody Services.
The Fund, on behalf of the Series, will open with Mellon one
or more custody account(s) designated "Series" (such designated custody
account(s) hereinafter referred to as "Series Account"). The Series Account will
contain the appropriate designation in its title and will be operated subject to
the terms of the Custodian Agreement between Mellon and the Fund.
3. Notification of Event of Default/Trade Execution/Cure
Notice/Obligation to Reject Trades.
If MBIA notifies Mellon, by giving a written notice to Mellon,
with a copy to the Fund, substantially in the format of Exhibit 1 hereto, that
an Event of Default under the Financial Guaranty Agreement has occurred and
remains uncured ("Event of Default Notice"), Mellon will promptly confirm
receipt of such notice, via phone contact and facsimile to the Fund.
After or concurrently with Mellon's receipt of an Event of
Default Notice and until the end of the related DK Period (as defined below),
MBIA shall be entitled to deliver to Mellon (with a copy to the Fund) trade
instructions in the format of Attachment 1 to Exhibit 1 (for manual trade
instructions) or in the format of Attachment 2 to Exhibit 1 (for electronic
instructions) with respect to the Series Account. MBIA shall deliver to Mellon,
with a copy to the Fund, a written notice of the cure of such default,
substantially in the format of Exhibit 2 hereto, promptly upon the occurrence of
such cure (the "Cure Notice").
<PAGE>
From 12:01 a.m. eastern time on the Business Day (defined as a
day upon which the New York Stock Exchange is open for trading and is not a
Saturday or Sunday, and is neither a legal holiday nor a day on which banking
institutions are generally authorized or obligated by law or regulation to
close) immediately following the day upon which Mellon receives an Event of
Default Notice from MBIA until 12:01 a.m. eastern time on the Business Day
immediately following the day upon which Mellon receives a Cure Notice from MBIA
(a "DK Period"), Mellon shall reject and not act upon any trade instructions
issued directly by the Fund (or its investment adviser) for the Series Account.
With respect to the Series Account, Mellon shall, upon the termination of a DK
Period, revert to its normal method of accepting trade instructions from the
Fund (or its investment adviser) as governed by the Custodian Agreement. Nothing
herein shall be construed as authorizing Mellon to reject for settlement
securities transactions for which trade instructions were issued prior to 12:01
a.m. eastern time on the Business Day immediately following the day on which
Mellon receives an Event of Default Notice.
From the time Mellon receives an Event of Default Notice
through the end of the related DK period, Mellon is irrevocably authorized and
instructed (i) to act upon any and all trade instructions delivered by MBIA and
(ii) to execute the transactions set forth in such instructions through a broker
or dealer selected by Mellon for the Series Account. Mellon will promptly notify
the Fund, with a copy to MBIA, of trades executed as a result of instructions
received by MBIA. Such notification will be made via transmission of a trade
execution file to the extent possible (substantially in the format of Exhibit
5), by close of business on the date such trades are executed.
4. Delivery of Documents.
The Fund and MBIA will promptly furnish to Mellon such copies,
properly certified or authenticated, of documents and other related information
that Mellon may reasonably request or require to properly discharge its duties
herein.
<PAGE>
5. Fees and Expenses.
(a) As compensation for the services rendered to the Fund and
MBIA pursuant to this Agreement, the Fund, on behalf of the Series, shall pay
Mellon monthly fees determined as set forth in Schedule A hereto. Such fees are
to be billed monthly and shall be due and payable upon receipt of the invoice.
The Fund and Mellon may agree, from time to time, to a change to the fees set
forth in Schedule A. Upon any termination of the provision of services under
this Agreement before the end of any month, the fee for the part of the month
before such termination shall be prorated according to the proportion which such
part bears to the full monthly period and shall be payable upon the date of such
termination.
(b) The Fund may request additional services, additional
processing, or special reports, with such specifications and requirements
documentation as may be reasonably required by the Fund or by Mellon. If Mellon
elects to provide such services or arrange for their provision, it shall be
entitled to additional fees and expenses at its customary rates and charges.
(c) All fees, out-of-pocket expenses, or additional charges of
Mellon shall be billed on a monthly basis and shall be due and payable by the
Fund, on behalf of the Series, upon receipt of the invoice.
(d) Mellon will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month. Charges remaining unpaid thirty (30) days after receipt of such statement
(with the exception of specific amounts which may be contested in good faith by
the Fund) shall bear interest in finance charges equivalent to Mellon's Prime
Rate as announced from time to time plus two (2) percent per annum and all costs
and expenses of effecting collection of any such sums, including reasonable
Attorney' fees, shall be paid by the Fund, on behalf of the Series, to Mellon.
<PAGE>
(e) In the event that the Fund, on behalf of the Series, is
more than sixty (60) days delinquent in its payments of monthly billings in
connection with this Agreement (with the exception of specific amounts which may
be contested in good faith by the Fund), this Agreement may be terminated upon
sixty (60) days' written notice to the Fund and MBIA by Mellon. The Fund must
notify Mellon in writing of any contested amounts, with a copy to MBIA, within
thirty (30) days of receipt of a billing for such amounts. Disputed amounts are
not due and payable while they are being investigated. MBIA reserves the right
to pay the delinquent amounts thereby eliminating Mellon's right to terminate
the Agreement under this subsection.
6. Limitation of Liability and Indemnification
(a) In undertaking the performance of its obligations
hereunder, Mellon shall not be liable for any loss, damage or expense suffered
by the Fund, the Series or MBIA in connection with the matters to which this
Agreement relates or the services provided hereunder except for general damages
solely caused by or resulting from willful misfeasance, bad faith or negligence
on the part of Mellon, its officers, employees or agents, in the performance of
its or their duties under this Agreement. "General damages" means only those
damages as directly and necessarily result from such act or omission without
reference to any special conditions or circumstances of the Fund, the Series or
MBIA. In no event shall Mellon be liable for any indirect, special or
consequential losses or damages of any kind whatsoever (including but not
limited to lost profits), even if Mellon has been advised of the likelihood of
such losses or damages and regardless of the form of action through which any
such losses or damages may be claimed.
(b) Mellon shall not be responsible for, and the Fund shall
indemnify and hold Mellon, its officers, employees and agents (collectively
"Mellon and its agents") harmless from and against any and all losses, damages,
costs, reasonable attorneys' fees and expenses, incurred by Mellon or its
agents, in the performance of its/their duties hereunder, including but not
limited to those arising out of or attributable to:
(i) any and all actions of Mellon and its agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Mellon and/or its agents
of information, records, or documents which are received by
Mellon and/or its agents and furnished to it or them by or
on behalf of the Fund, the Series or MBIA in accordance with
this Agreement, and which have been prepared or maintained
by the Fund, the Series or MBIA or any third party on behalf
of either the Fund, the Series or MBIA;
(iii) The Fund's or MBIA's refusal or failure to comply
with the terms of this Agreement or any agreement between
the Series, the Fund and MBIA relating to the matters
herein, or the Fund's, the Series', or MBIA's lack of good
faith, or its actions, or lack thereof, involving negligence
or willful misfeasance;
(iv) any delays, inaccuracies, errors in or omissions
from information or data provided to Mellon or its agents by
MBIA or the Series or the Fund or provided to Mellon or its
agents by data or corporate action services or vendors;
<PAGE>
(v) the offer or sale of shares by the Fund, the Series
or MBIA in violation of any requirement under the Federal
securities laws or regulations or the securities laws or
regulations of any state, or in violation of any stop order
or other determinations or ruling by any Federal agency or
any state agency with respect to the offer or sale of such
shares in such state (1) resulting from activities, actions,
or omissions by the Fund, the Series or MBIA, or (2)
existing or arising out of activities, actions or omissions
by or on behalf of the Fund, the Series or MBIA prior to the
effective date of this Agreement;
(vi) all actions, omissions, or errors caused by third
parties to whom Mellon, its agents, the Fund on behalf of
the Series, or MBIA has assigned any rights and/or delegated
any duties under this Agreement at the request of or as
required by the Fund or MBIA; and
(vii) Mellon and its agents acting upon electronic or
written trade instructions given by MBIA pursuant to Section
3; provided that, in no event shall Mellon or its agents be
indemnified for its or their negligence, bad faith or willful
misfeasance in carrying out its or their duties hereunder.
(c) MBIA shall indemnify and hold Mellon, and its agents
harmless from and against any and all losses, damages, costs, reasonable
attorneys' fees and expenses, incurred by Mellon and its agents insofar as such
losses, damages or costs arise out of, or are based upon, wrongful exercise by
MBIA of its rights under the Financial Guaranty Agreement to give instructions
to Mellon pursuant to Section 3 hereof; provided that, in no event shall Mellon
or its agents be indemnified for its or their negligence, bad faith or willful
misfeasance in carrying out its duties hereunder.
<PAGE>
(d) In performing its services hereunder, Mellon and its
agents shall be entitled to rely only on written instructions (oral instructions
are not permitted), notices or other communications, including electronic
transmissions, bearing or purporting to bear the manual or facsimile signature
of any person from the Series, the Fund or MBIA (an "Authorized Person") named,
and in the capacity identified, in lists (naming those persons who may authorize
the transactions in Sections 2 and 3) which are attached hereto as Exhibit 3
(for the Fund) and Exhibit 4 (for MBIA). Any changes to such lists will be
furnished to Mellon from time to time in writing and given in the manner set
forth in Section 13 hereof and will be signed by an officer of either the Fund
or MBIA, as appropriate, who shall provide Mellon with evidence of his or her
authority to make such changes. Each of the Fund, in Exhibit 3, and MBIA, in
Exhibit 4, will provide Mellon with authenticated specimen signatures of each
Authorized Person, and each of the Fund, on behalf of the Series, and MBIA shall
indemnify Mellon and its agents for any loss or expense caused by reliance upon
such authenticated specimen signatures which Mellon and its agents acting in
good faith believe to be genuine, valid and authorized, and shall be indemnified
by each of the Fund and MBIA as appropriate for any loss or expense caused by
such reliance. In addition, in performing its services hereunder, Mellon and its
agents also shall be entitled to consult with and rely on the advice and
opinions of legal counsel retained by Mellon or the Fund or MBIA, as necessary
or appropriate, including Mellon's in-house counsel, and Mellon shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel.
(e) In the event that Mellon or its agents shall receive
instructions, claims or demand from the Fund, the Series, or MBIA which, in
Mellon's opinion, conflict with any of the provisions of this Agreement, Mellon
shall notify the Fund, the Series, or MBIA, as the case may be, of such conflict
and shall be entitled to refrain from taking any action and its sole obligation
shall be to keep safely all assets in the Series Account until it shall receive
instructions, claims or demands from such party which, in Mellon's opinion,
conform to the provisions of this Agreement.
(f) The duties and responsibilities of Mellon hereunder shall
be determined solely by the express provisions of this Agreement, except that
the settlement and safekeeping of assets in the Series Account shall be governed
by the terms of the Custodian Agreement between Mellon and the Fund. Should
there by any conflict between the terms of the Custodian Agreement and the terms
of this Agreement regarding the services set forth in Section 3 of this
Agreement, the terms of this Agreement shall govern.
(g) Mellon shall have no responsibility to make
recommendations with respect to the purchase, retention or sale of assets
relating to the Series Account or to maintain any insurance on assets in the
Series Account for the benefit of MBIA or the Series.
(h) Mellon shall have no responsibility for any act or
omission, or for the solvency or insolvency, or notice to Mellon or any of its
affiliates or agents of the solvency or insolvency, of any broker (other than a
Mellon affiliate selected by Mellon pursuant to Section 3 hereof to execute the
trade instructions provided by MBIA).
<PAGE>
(i) Any liability of the Fund under this Agreement with
respect to the Series, or in connection with the transactions contemplated
herein with respect to the Series, shall be discharged only out of the assets of
the Series, and no other series of the Fund shall be liable with respect
thereto.
7. Term.
This Agreement shall become effective immediately and shall
terminate on the earlier of the termination date under the Custodian Agreement
or October 6, 2004, unless earlier terminated by any party hereto on 90 days'
written notice to the other parties. Upon termination of this Agreement, the
Fund, on behalf of the Series, shall pay to Mellon such compensation and any
out-of-pocket or other reimbursable expenses which may become due or payable
under the terms hereof as of the date of termination or after the date that the
provision of services ceases, whichever is later.
8. Representations.
(a) The Fund, on behalf of the Series, represents and warrants
that the Fund has directed the Series' investment adviser to comply with the
Guidelines and purchase for such accounts only assets conforming to the
Guidelines.
(b) Each of the parties hereto represents and warrants that:
(i) it has the legal right, power and authority to execute, deliver and perform
this Agreement and to carry out all of the transactions contemplated hereby;
(ii) it has obtained all necessary authorizations, (iii) the execution, delivery
and performance of this Agreement and the carrying out of any of the
transactions contemplated hereby will not be in conflict with, result in a
breach of or constitute a default under any agreement or other instrument to
which it is a party or which is otherwise known to it; (iv) it does not require
the consent or approval of any governmental agency or instrumentality, except
any such consents and approvals which it has obtained; and (v) the execution and
delivery of this Agreement by it will not violate any law, regulation, charter,
by-law, order of any court or governmental agency or judgment applicable to it.
9. Notices.
Any notice required or permitted hereunder shall be in writing
and shall be deemed effective on the date of personal delivery (by private
messenger, courier service or otherwise) or upon confirmed receipt of telex or
facsimile or other electronic system acceptable to Mellon, whichever occurs
first, or upon receipt if by mail to the parties at the following address (or
such other address as a party may specify by notice to the others): If to the
Fund or the Series:
Aetna Series Fund, Inc./Series
10 State House Square
Hartford, CT 06103-3602
Attention: Counsel
Phone: (860) 275-2032
Fax: (860) 275-2158
with copies to:
Attention: Stephanie A. DeSisto
Phone: (860) 275-3413
Fax: (860) 275-2084
Attention: Michael J. Sheridan
Phone: (860) 275-3896
Fax: (860) 616-4565
<PAGE>
If to MBIA:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Mr. Kevin Loescher
Phone: (914) 765-3933
Fax: (914) 765-3161
If to Mellon:
One Mellon Bank Center
15th Floor
Pittsburgh, PA 15258
Attention: William M. Kincaid
Phone: 412-236-1315
Fax: 412-234-8725
10. Waiver.
The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
11. Amendments.
This Agreement may be modified or amended from time to time by
mutual written agreement of the parties hereto. No provision of this Agreement
may be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the parties.
12. Severability.
If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all others persons and circumstances.
<PAGE>
13. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to laws as to
conflicts of laws, and shall be binding on all the parties hereto and their
respective successors and assigns. The Fund, MBIA and Mellon hereby irrevocably
submit to the exclusive jurisdiction of the state and federal courts in the
State and County of New York for the purposes of any suit, action or other
proceedings arising out of this Agreement. The Fund, MBIA and Mellon hereby
irrevocably waive any objection on the ground of venue, forum non conveniens, or
any similar grounds, and irrevocably consent to service of process by mail or in
any manner permitted by New York law, and irrevocably waive their respective
rights to any jury trial. The headings of the sections hereof are included for
convenience of reference only and do not form a part of this Agreement.
14. Benefit of the Parties.
This Agreement is for the exclusive benefit of the parties
hereto and shall not be relied upon by or create any beneficial interest in any
person not a party hereto including any shareholders of the Fund.
15. Counterparts.
This Agreement may be executed by the parties in a number of
counterparts each of which shall be an original and together shall constitute
one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
AETNA SERIES FUND, INC.
By: ____________________________
Name: __________________________
Title: _________________________
MBIA INSURANCE CORPORATION
By: ____________________________
Name: __________________________
Title: _________________________
MELLON BANK, N.A.
By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>
SCHEDULE A
Fees and Expenses
For the services rendered under this Agreement, the Fund shall pay to Mellon:
Assumptions:
. Fund will consist of the following fund types:
. Combined Account Structure - Per Fund
- Equity Component = 450 Securities in the S&P 500
- Fixed Income Component = 15 Securities Per Account
. Fund of Funds Structure
- Equity Account = 450 Securities in the S&P 500
- Multiple Fixed Income Accounts - 15 Securities Per Account
. Equity transactions per fund will not exceed 2,000 per year per account.
Should transactions exceed 2,000 per account, Mellon may re-negotiate the
fees for this service.
. Fixed income transactions per fund will not exceed 20 per year per account.
Should transactions exceed 20 per account, Mellon may re-negotiate the fees
for this service.
Account Fee Structure Per Annum:
Combined Account Structure $30,000
Fund of Funds Structure
- Equity Component and First Three Fixed Income Components $30,000
- Fixed Income Component (after first three funds) $2,000
Other:
Fees will be computed, billed and payable on a monthly basis in advanced.
The Fund shall pay any broker/dealer fees and expenses and any fees of Mellon
associated with the execution of any trade instruction.
Out-of-pocket expenses will be billed and payable monthly.
These fees will be effective for three years commencing with the date of the
Agreement. Mellon reserves the right to re-negotiate its compensation if the
nature of the account(s) change significantly. If non-standard or special
services are requested, Mellon may negotiate additional compensation
accordingly.
<PAGE>
Exhibit 1
Event of Default Notice
[Date]
[Addressee - Mellon]
Re: Event of Default
Pursuant to Section 3 of the Service Agreement (the "Agreement") dated
______________ among Aetna Series Fund, Inc. ("Fund"), Mellon Bank, N.A.
("Mellon") and MBIA Insurance Corporation ("MBIA"), please be advised that an
Event of Default, as defined in Section 4.1 (__) relating to a default under
[Section 3.___ of]1 the Financial Guaranty Agreement dated _________ among the
Fund and MBIA, has occurred and [remains uncured. Please reject and do not act
upon any trade instructions for the settlement of securities issued directly by
the Series Fund (or its investment adviser) for the Aetna Principal Protection
Fund I Account # _______.] or [was cured on the date hereof, as indicated in a
Cure Notice dated the date hereof]2 Please have the following trades listed on
the attached trade instructions executed in respect of Aetna Principal
Protection Fund I.
MBIA Insurance Corporation
- ----------------------------------
By:
Title:
copy: Aetna Series Fund, Inc.
10 State House Square
Hartford, CT 06103-3602
Attn: Counsel
Fax: (860) 275-2158
- --------
1 Strike language in brackets and initial if Section 4.1(c) or (d) Event of
Default has occurred.
2 Strike inappropriate language in brackets and initial.
<PAGE>
Exhibit 1 - Attachment 1
Manual Trade Instructions
From: MBIA Insurance Corporation
<TABLE>
<S> <C> <C> <C> <C>
Portfolio Account Buy or Sell Security Name Ticket/CUSIP Quantity
1. _________________ ____________________ ____________________ ____________________ ____________________
2. _________________ ____________________ ____________________ ____________________ ____________________
3. _________________ ____________________ ____________________ ____________________ ____________________
4. _________________ ____________________ ____________________ ____________________ ____________________
5. _________________ ____________________ ____________________ ____________________ ____________________
6. _________________ ____________________ ____________________ ____________________ ____________________
7. _________________ ____________________ ____________________ ____________________ ____________________
8. _________________ ____________________ ____________________ ____________________ ____________________
Note: CUSIP Number is only required for U.S. Treasury Strip securities.
copy: Aetna Series Fund, Inc.
10 State House Square
Hartford, CT 06103-3602
Attn: Counsel
Fax: 860-275-2158
<PAGE>
Exhibit 2
Cure Notice
[Date]
Aetna Series Fund, Inc.
10 State House Square
Hartford, CT 06103-3602
Attn: Counsel
FAX: (860) 275-2158
Re: Event of Default
Pursuant to Section 3 of the Service Agreement (the "Agreement") dated
___________ among Aetna Series Fund, Inc. ("Fund"), Mellon Bank, N.A. ("Mellon")
and MBIA Insurance Corporation ("MBIA"), please be advised that an Event of
Default identified in our written notice to Mellon dated
_______________________, as defined in Section 4.1 (_) relating to a default
under [Section 3.__ of]3 the Financial Guaranty Agreement dated ______________
among the Fund and MBIA has been cured. Please revert to your normal method of
accepting trade instructions from the Aetna Principal Protection Fund I (or its
investment adviser) for Aetna Principal Protection Fund I (as defined in the
Agreement).
MBIA Insurance Corporation
- --------------------------
By:
Title:
copy: Mellon Bank, N.A.
- --------
3 Strike language in brackets and initial if Section 4.1(c) or (d) Event of
Default has occurred.
<PAGE>
Exhibit 3
Authorized Persons - Aetna Series Fund, Inc.
The following Aetna Series Fund, Inc. personnel are authorized to instruct
Mellon as it relates to Aetna Principal Protection Fund I:
- --------------------------------------------------- ------------------------------------- ------------------------------
John Kim, Director* Phone: 860-275-4759 Fax: 860-275-3608
- --------------------------------------------------- ------------------------------------- ------------------------------
Michael J. Sheridan, Vice President Phone: 860-275-3896 Fax: 860-275-4796
Securities Operations &
Assistant Treasurer**
- --------------------------------------------------- ------------------------------------- ------------------------------
Anne G. Ozimek, Manager Phone: 860-275-2107 Fax: 860-275-2791
Treasury Operations**
- --------------------------------------------------- ------------------------------------- ------------------------------
Margaret Karasinski, Manager Phone: 860-275-2225 Fax: 860-275-2446
Equity Security Operations**
- --------------------------------------------------- ------------------------------------- ------------------------------
Stephanie A. DeSisto, Vice President, Treasurer Phone: 860-275-3413 Fax: 860-275-2084
and Chief Financial Officer (Principal Financial
and Accounting Officer)*
- --------------------------------------------------- ------------------------------------- ------------------------------
J. Scott Fox, President Phone: 860-275-3055 Fax: 860-275-3394
(Principal Executive Officer)*
- --------------------------------------------------- ------------------------------------- ------------------------------
Allan R. Shaer, Jr., Assistant Treasurer* Phone: 860-275-4166 Fax: 860-275-4184
* Reflects position with the Fund.
** Reflects position with the Fund's investment adviser, Aeltus Investment
Management, Inc.
<PAGE>
Exhibit 4
Authorized Persons and Signature Samples - MBIA Insurance Corporation
The following MBIA Insurance Corporation personnel are authorized to instruct
Mellon as it relates to Aetna Principal Protection Fund I:
- ---------------------------------------- --------------------------------------- -------------------------------------
Telephone: Facsimile:
- ---------------------------------------- --------------------------------------- -------------------------------------
Telephone: Facsimile:
- ---------------------------------------- --------------------------------------- -------------------------------------
Telephone: Facsimile:
- ---------------------------------------- --------------------------------------- -------------------------------------
Telephone: Facsimile:
<PAGE>
Exhibit 5
Trade Execution Notification File
Aetna Principal Protection Fund I must have a header (Record Type 1), the trade
execution detail for purchases and sales (Record Type 2), hash totals (Record
Type 3) one each for purchase and sales.
Flat file format for Trade Parse
Header (Record Type 1)
Field Position Length Comments
- ------------------------------- ----------------------- --------------------- ----------------------------------------
Record Type 1 1 "1"
Filler 2 1 space
Account 3 30 Aeltus Portfolio
Trade Date 33 8 mm/dd/yy
Filler 41 1 space
Settlement Date 42 8 mm/dd/yy
Filler 50 1 space
Broker Number 51 6 Assigned by Aeltus Operations
Detail (Record Type 2)
Field Position Length Comments
- ------------------------------- ----------------------- --------------------- ----------------------------------------
Record Type 1 1 "2"
Filler 2 1 space
CUSIP 3 9
Filler 12 1 space
Ticker 13 6
Filler 19 1 space
Buy/Sell 20 1 "B" or "S"
Filler 21 1 space
Shares 22 7 no commas, no decimals
Filler 29 1 space
Price 30 11 six decimals, no commas
Filler 41 1 space
Commission 42 7 four decimals
Filler 49 1 space
Security Name 50 30
<PAGE>
Exhibit 5 (cont'd.)
Totals (Record Type 3)
Field Position Length Comments
- ------------------------------- -------------------------- ----------------------- -----------------------------------
Record Type 1 1 "3"
filler 2 1 space
Buy/Sell 3 1 "B" or "S"
filler 4 1 space
# of trades 5 4 no comma
filler 9 1 space
# of shares 13 8 no commas, no decimals
filler 21 1 space
Gross cost/proceeds 22 13 no commas, two decimals
filler 35 1 space
Commission 36 13 no commas, three decimals
filler 49 1 space
SEC Fee 50 9 no commas, two decimals
filler 59 1 space
Net cost/proceeds 60 13 no commas, two decimals
</TABLE>
FORM OF
CUSTODIAN MONITORING AGREEMENT
THIS AGREEMENT made as of the __ day __________1999 by and among
AETNA SERIES FUND, INC. (the "Fund"), MBIA INSURANCE CORPORATION ("MBIA") and
RUSSELL/MELLON ANALYTICAL SERVICES, LLC ("Russell/Mellon").
WHEREAS, the Fund intends to establish a separate series of the
Fund, Aetna Principal Protection Fund I (the "Series"), with an obligation by
the Fund, on behalf of the Series, to repay the amount initially invested by
each shareholder in the Series on a date certain ("Repayment Obligation"); and
WHEREAS, the Fund, on behalf of the Series, has entered into a
Financial Guaranty Agreement with MBIA (the "Financial Guaranty Agreement")
whereby MBIA will issue a policy to support the Repayment Obligation (the
"Policy"); and
WHEREAS, in connection therewith, the Fund intends to open custody
accounts with Mellon Bank, N.A. (in its capacity as custodian, "Mellon") under
the terms of the Custodian Agreement (the "Custodian Agreement") between the
Fund and Mellon dated as of September 1, 1992, as amended, on behalf of the
Series, to hold the Series' portfolio investments; and
WHEREAS, under the terms of the Financial Guaranty Agreement, in
consideration of MBIA's issuing the Policy, the Fund, on behalf of the Series,
has agreed to a particular investment strategy and to provide an arrangement
whereby trades executed on behalf of the Series will be monitored for conformity
with certain guidelines; and
WHEREAS, the Fund and MBIA wish for Russell/Mellon to provide
investment monitoring services in respect of the Series, and Russell/Mellon is
willing to perform such services upon the following terms and conditions.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the parties hereto agree to the following:
1. Construction.
Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular the plural and the
part the whole and "or" has the inclusive meaning sometimes represented by the
phrase "and/or". The words "hereof," "herein," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, schedule, exhibit and attachment references are to this
Agreement unless otherwise specified.
<PAGE>
2. Monitoring Services.
The Fund will open with Mellon one or more custody accounts, each
designated "Series" (each such designated custody account hereinafter referred
to as a "Series Account"). Each Series Account will contain the appropriate
designation in its title and will be operated subject to the terms of the
Custodian Agreement. Russell/Mellon will monitor the assets delivered to each
Series Account for conformity with the guidelines set forth in Schedule A
attached hereto entitled Conforming Assets Guidelines (the "Guidelines"). For
purposes of this Agreement, Russell/Mellon will only be responsible for
performing conforming assets tests on assets that are traded through the Series
Accounts and shall not be responsible for monitoring the continuing compliance
with the Guidelines of assets held in the Series Accounts. In order to carry out
the conforming assets tests, Russell/Mellon will rely on the trade information
that Mellon receives from the Fund on behalf of the Series and from broker
confirmations tendered by brokers to Mellon through The Depository Trust
Company's Institutional Delivery Confirmation System ("DTC ID"). Such trade
information must be complete, properly formatted and provided to Mellon in a
timely manner. Russell/Mellon shall perform the conforming asset tests with
respect to each asset added to the Series Account promptly after receipt of the
related trade information and in any event within one business day of such
receipt by Mellon. If by applying the conforming assets tests to the Series
Accounts an instance of noncompliance with the Guidelines is noted,
Russell/Mellon will notify MBIA and the Fund promptly of such noncompliance in
writing via facsimile transmission. Once Russell/Mellon has notified the Fund
and MBIA as to the existence of noncompliance, Russell/Mellon shall have no
further obligation or duty to the Fund, the Series or MBIA to monitor the trade,
or to report its cure.
3. Delivery of Documents.
The Fund and MBIA will promptly furnish to Russell/Mellon such
copies, properly certified or authenticated, of documents and other related
information that Russell/Mellon may reasonably request or require to properly
discharge its duties herein.
4. Fees and Expenses.
(a) As compensation for the services rendered hereunder, the Fund,
on behalf of the Series, shall pay to Mellon, as billing and collection agent
for Russell/Mellon, the monthly fees determined as set forth in Schedule A to
the Custodian Service Agreement of even date herewith among the Fund, MBIA and
Mellon. Such fees are to be billed monthly and shall be due and payable upon
receipt of the Mellon invoice. Upon any termination of the provision of services
under this Agreement before the end of any month, the fee for the part of the
month before such termination shall be prorated according to the proportion
which such part bears to the full monthly period and shall be payable upon the
date of such termination.
(b) The Fund, on behalf of the Series, may request additional
services, additional processing, or special reports, with such specifications
and requirements documentation as may be reasonably required by the Fund or by
Russell/Mellon. If Russell/Mellon elects to provide such services, it shall be
entitled to additional fees and expenses at its customary rates and charges.
(c) All fees, out-of-pocket expenses, or additional charges of
Russell/Mellon shall be billed on a monthly basis by Mellon, as billing and
collection agent for Russell/Mellon, and shall be due and payable by the Fund,
on behalf of the Series, upon receipt of the invoice.
5. Limitation of Liability and Indemnification.
(a) In undertaking the performance of its obligations hereunder,
Russell/Mellon shall not be liable for any loss, damage or expense suffered by
the Fund, the Series or MBIA in connection with the matters to which this
Agreement relates or the services provided hereunder except for general damages
solely caused by or resulting from willful misfeasance, bad faith or negligence
on the part of Russell/Mellon, its members, directors, officers, employees or
agents, in the performance of its or their duties under this Agreement. "General
damages" means only those damages as directly and necessarily result from such
act or omission without reference to any special conditions or circumstances of
the Fund, the Series or MBIA. In no event shall Russell/Mellon be liable for any
indirect, special or consequential losses or damages of any kind whatsoever
(including but not limited to lost profits), even if Russell/Mellon has been
advised of the likelihood of such losses or damages and regardless of the form
of action through which any such losses or damages may be claimed.
<PAGE>
(b) Russell/Mellon shall not be responsible for, and the Fund
shall indemnify and hold Russell/Mellon, its members, directors, officers,
employees and agents (collectively "Russell/Mellon Indemnified Parties")
harmless from and against any and all losses, damages, costs, reasonable
attorneys' fees and expenses, incurred by Russell/Mellon Indemnified Parties, in
the performance of its/their duties hereunder, including but not limited to
those arising out of or attributable to:
(i) any and all actions of Russell/Mellon Indemnified
Parties required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Russell/Mellon Indemnified
Parties of information, records, or documents which are received
by Russell/Mellon Indemnified Parties and furnished to it or them
by or on behalf of the Fund, the Series or MBIA in accordance with
this Agreement, and which have been prepared or maintained by the
Fund, the Series or MBIA or any third party on behalf of either
the Fund, the Series or MBIA;
(iii) The Fund's or MBIA's refusal or failure to comply with
the terms of this Agreement or any agreement between the Series,
the Fund and MBIA relating to the matters herein, or the Fund's,
the Series' or MBIA's lack of good faith, or its actions, or lack
thereof, involving negligence or willful misfeasance;
(iv) any delays, inaccuracies, errors in or omissions from
information or data provided to Russell/Mellon Indemnified Parties
by MBIA, the Series or the Fund or provided to Russell/Mellon
Indemnified Parties by data or corporate action services or
vendors;
(v) the offer or sale of shares by the Fund, the Series or
MBIA in violation of any requirement under the Federal securities
laws or regulations or the securities laws or regulations of any
state, or in violation of any stop order or other determination or
ruling by any Federal agency or any state agency with respect to
the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Fund, the Series or MBIA,
or (2) existing or arising out of activities, actions or omissions
by or on behalf of the Fund, the Series or MBIA prior to the
effective date of this Agreement; or
(vi) all actions, omissions, or errors caused by third
parties to whom Russell/Mellon, any Russell/Mellon Indemnified
Parties, the Fund, the Series or MBIA has assigned any rights
and/or delegated any duties under this Agreement at the request of
or as required by the Fund, the Series or MBIA;
provided that, in no event shall any Russell/Mellon Indemnified Party be
indemnified for its negligence, bad faith or willful misfeasance in carrying out
its duties hereunder.
(c) Any liability of the Fund under this Agreement with respect to
the Series, or in connection with the transactions contemplated herein with
respect to the Series, shall be discharged only out of the assets of the Series,
and no other series of the Fund shall be liable with respect thereto.
<PAGE>
6. Term.
This Agreement shall become effective immediately and shall
terminate on the earlier of the termination date under the Custodian Agreement
or October 6, 2004, unless earlier terminated by any party hereto on 90 days'
prior written notice to the other parties.
7. Representations.
(a) The Fund, on behalf of the Series, represents and warrants
that the Fund has directed the Series' investment adviser to comply with the
Guidelines and purchase for such accounts only assets conforming to the
Guidelines.
(b) Each of the parties hereto represents and warrants that: (i)
it has the legal right, power and authority to execute, deliver and perform this
Agreement and to carry out all of the transactions contemplated hereby; (ii) it
has obtained all necessary authorizations; (iii) the execution, delivery and
performance of this Agreement and the carrying out of any of the transactions
contemplated hereby will not be in conflict with, result in a breach of or
constitute a default under any agreement or other instrument to which it is a
party or which is otherwise known to it; (iv) it does not require the consent or
approval of any governmental agency or instrumentality, except any such consents
and approvals which it has obtained; and (v) the execution and delivery of this
Agreement by it will not violate any law, regulation, charter, by-law, order of
any court or governmental agency or judgment applicable to it.
8. Notices.
Any notice required or permitted hereunder shall be in writing and
shall be deemed effective on the date of personal delivery (by private
messenger, courier service or otherwise) or upon confirmed receipt of telex or
facsimile or other electronic system acceptable to Russell/Mellon, whichever
occurs first, or upon receipt if by mail to the parties at the following address
(or such other address as a party may specify by notice to the others):
If to the Fund or the Series:
Aetna Series Fund, Inc./Series
10 State House Square
Hartford, CT 06103-3602
Attention: Counsel
Phone: (860) 275-2032
Fax: (860) 275-2158
with copies to:
Attention: Stephanie A. DeSisto
Phone: (860) 275-3413
Fax: (860) 275-2084
Attention: Michael J. Sheridan
Phone: (860) 275-3896
Fax: (860) 616-4565
<PAGE>
If to MBIA:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Mr. Kevin Loescher
Phone: (914) 765-3933
Fax: (914) 765-3161
If to Russell/Mellon:
Russell/Mellon Analytical Services
135 Santilli Highway
Everett, Massachusetts 02149
Attention: Chief Executive Officer
Phone: (617) 382-9935
Fax: (617) 382-9153
9. Waiver.
The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
10. Amendments.
This Agreement may be modified or amended from time to time by
mutual written agreement of the parties hereto. No provision of this Agreement
may be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the parties.
11. Severability.
If any provision of this Agreement is invalid or unenforceable,
the balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
12. Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to laws as to conflicts
of laws, and shall be binding on all the parties hereto and their respective
successors and assigns. The headings of the sections hereof are included for
convenience of reference only and do not form a part of this Agreement.
13. Benefit of the Parties.
This Agreement is for the exclusive benefit of the parties hereto
and shall not be relied upon by or create any beneficial interest in any person
not a party hereto including any shareholders of the Fund.
14. Counterparts.
This Agreement may be executed by the parties in a number of
counterparts each of which shall be an original and together shall constitute
one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
AETNA SERIES FUND, INC.
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
MBIA INSURANCE CORPORATION
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
RUSSELL/MELLON ANALYTICAL SERVICES, LLC
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
<PAGE>
SCHEDULE A
Conforming Assets Guidelines
Equity Asset Test
. Equity securities of any company included in the S&P 500 Index, as
published by FactSet Data Systems, Inc. or by S&P
. Forward contracts on the S&P 500 Index, as traded on the Chicago
Mercantile Exchange
Fixed Income Assets Test
. U.S. Treasury or Agency Zeroes maturing on, or within 90 days
preceding, the Maturity Date
. Non-callable corporate debt securities maturing within 3 years
(preceding or following) of the Maturity Date and having a rating
of at least AA- by S&P or Aa3 by Moody's
. if both Moody's and S&P have issued a rating thereon, such rating
shall be no less than Aa3/AA-
. U. S. Treasury Futures
Cash and Cash Equivalents
. Cash and
. the following short-term securities with remaining maturities of
180 days or less:
. (1) direct obligations of, and obligations fully guaranteed as to
full and timely payment by the full faith and credit of, the United
States of America, excluding U.S. Treasury and Agency Zeroes
. (2) demand deposits, time deposits or certificates of deposit of
any depository institution or trust company incorporated under the
laws of the United States of America or any state thereof; provided
that at the time of investment therein the commercial paper or
other short-term unsecured debt obligations thereof shall be rated
at least A-1 by S&P or P-1 by Moody's
. (3) bankers acceptances issued by any depository institution or
trust company referred to in clause (2) above and
. (4) commercial paper having at the time of the investment therein a
rating of at least A-1 by S&P or P-1 by Moody's
Amy R. Doberman
Counsel
Aetna Series Fund, Inc.
October 6, 1999 (860) 275-2032
Fax: (860) 275-2158
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aetna Series Fund, Inc.
Post-Effective Amendment No. 34 to
Registration Statement on Form N-1A
(File No. 33-41694 and 811-6352)
Dear Sir or Madam:
The undersigned serves as counsel to Aetna 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 Connecticut, Maryland and the District of
Columbia. My opinion herein as to Maryland law is based upon a limited inquiry
thereof that I have deemed appropriate under the circumstances.
Based upon the foregoing, and assuming the securities are issued and sold in
accordance with the provisions of the Company's Articles of Incorporation and
the Registration Statement, I am of the opinion that the securities will when
sold be legally issued, fully paid and nonassessable.
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 use of our reports dated December 11, 1998 and to the
references to our firm under the captions "Financial Highlights" in the
prospectuses and "Independent Auditors" in the statements of additional
information, incorporated herein by reference.
/s/ KPMG LLP
-------------
KPMG LLP
Hartford, Connecticut
October 6, 1999
DISTRIBUTION PLAN
Aetna Series Fund, Inc.
Class A
This Distribution Plan (the "Plan") is adopted in accordance with Rule 12b-1
(the "Rule") under the Investment Company Act of 1940 (the "1940 Act"), by Aetna
Series Fund, Inc. (the "Fund"), a Maryland corporation, on behalf of the Class A
shares of each of its Series (except Aetna Money Market Fund) as set forth in
Appendix A, as amended from time to time, subject to the following terms and
conditions:
Section 1. Annual Fees
Distribution Fee. Each Series will pay to the underwriter of its shares, Aeltus
Capital, Inc. (the "Underwriter"), a Connecticut corporation, a distribution fee
under the Plan at the annual rate of 0.25% of the average daily net assets of
each Series attributable to its Class A shares (the "Distribution Fee").
Adjustment to Fees. The Distribution Fee may be reduced with respect to the
Class A shares of any Series if agreed upon by the Board of Directors of the
Fund (the "Board") and the Underwriter and if approved in the manner specified
in Section 3 of this Plan.
Payment of Fees. The Distribution Fee will be calculated daily and paid monthly
by each Series with respect to its Class A shares at the annual rate indicated
above.
Section 2. Expenses covered by the Plan.
The Fund, with respect to its Class A shares, will pay the Underwriter a
Distribution Fee under the Plan to compensate the Underwriter, and firms with
which the Underwriter enters into related agreements, for engaging in sales and
promotional activities, as well as for providing shareholder services not
otherwise provided by the Fund's transfer agent. Such activities and related
services will relate only to Class A shares of the Fund. Such expenditures may
consist of sales commissions to firms and their representatives for selling
Class A shares of the Fund, compensation for servicing Class A shareholders as
described above, payments to sales and marketing personnel, and the payment of
expenses incurred in sales and promotional activities, including advertising
expenditures related to the Fund and the costs of preparing and distributing
promotional materials. Payment of the Distribution Fee described in this Section
shall be subject to any limitation set forth in any applicable regulation of the
National Association of Securities Dealers, Inc.
The amount of the Distribution Fees payable under Section 1 hereof is not
related directly to expenses incurred by the Underwriter and this Section 2 does
not obligate a Series to reimburse the Underwriter for such expenses. The
Distribution Fees will be paid by each Series to the Underwriter unless and
until (a) the Plan is terminated pursuant to Section 5 hereof, or (b) the Plan
is not renewed with respect to a Series or Class A thereof pursuant to Section 4
hereof. Any distribution expenses incurred by the Underwriter on behalf of a
Series in excess of the Distribution Fees specified in Section 1 hereof which
the Underwriter has accrued through the termination date are the sole
responsibility and liability of the Underwriter and are not an obligation of a
Series.
Section 3. Approval of Directors.
Neither the Plan nor any related agreements will take effect until approved by a
majority of both (a) the Board of Directors of the Fund and (b) those Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
it (the "Qualified Directors"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
Section 4. Continuance of the Plan.
The Plan shall become effective on August 1, 1999 and shall remain in force and
effect through December 31, 1999, unless earlier terminated. Following the
expiration of its initial term, the Plan shall continue in force and effect for
a one year period, provided such continuance is specifically approved at least
annually:
1. (a) by a majority of the members of the Board, or (b) by vote of a
majority of each Series' Class A shares, and
2. by the vote of a majority of the Qualified Directors cast in person
at a meeting specifically called for such purpose.
<PAGE>
Section 5. Termination.
The Plan may be terminated at any time with respect to Class A shares of any
Series (a) by the vote of a majority of that Series' outstanding voting Class A
securities, or (b) by a vote of a majority of the Qualified Directors. The Plan
may remain in effect with respect to a Series even if the Plan has been
terminated in accordance with this Section 5 with respect to any other Series.
Section 6. Amendments.
The Plan may not be amended with respect to any Series so as to increase
materially the amounts of the Distribution Fees described in Section 1 above
unless the amendment is approved by a vote of the holders of at least a majority
of the outstanding voting Class A securities of that Series. No material
amendment to the Plan may be made unless approved in the manner described in
Section 3 above.
Section 7. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Fund.
Section 8. Written Reports.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by a Series pursuant to the
Plan or any related agreement will prepare and furnish to the Board, and the
Board will review, at least quarterly, written reports setting out the amounts
expended under the Plan, the purposes for which those expenditures were made,
and otherwise complying with the requirements of the Rule.
Section 9. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section 8 above, for a period of not less than
six years (the first two years in an easily accessible place) from the date of
the Plan, agreement or report.
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the 1940 Act.
IN WITNESS WHEREOF, the Fund, on behalf of the Class A Shares of each of its
Series, has executed this Plan as of this 15th day of July, 1999.
AETNA SERIES FUND, INC.
on behalf of its CLASS A shares
By: /s/ J. Scott Fox
------------------------------------
J. Scott Fox, President
<PAGE>
Appendix A
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna High Yield Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Principal Protection Fund I
DISTRIBUTION PLAN
Aetna Series Fund, Inc.
Class B
This Distribution Plan (the "Plan") is adopted in accordance with Rule 12b-1
(the "Rule") under the Investment Company Act of 1940, as amended (the "1940
Act"), by Aetna Series Fund, Inc. (the "Fund"), a Maryland corporation, on
behalf of the Class B shares of each of its Series as set forth in Appendix A,
as amended from time to time, subject to the following terms and conditions:
Section 1. Annual Fees.
Distribution Fee. Each Series will pay to the underwriter of its shares, Aeltus
Capital, Inc. ("ACI" or "Underwriter"), a Connecticut corporation, a
distribution fee under the Plan at the annual rate of 0.75% of the average daily
net assets of each Series attributable to its Class B shares (the "Distribution
Fee") sold by the Underwriter. In the event ACI is replaced as the Fund's
principal underwriter, ACI still will be entitled to receive the Distribution
Fee payable on shares sold by ACI through the date of termination, plus Class B
shares of another Series exchanged for such shares, plus any Class B shares
issued in connection with the reinvestment of dividends and capital gains paid
thereon. ACI will be paid its fees as described above unless and until the Plan
is terminated in accordance with Section 5 below, or the Plan is not renewed
pursuant to Section 4.
Adjustment to Fees. The Distribution Fee may be reduced with respect to the
Class B shares of any Series if agreed upon by the Board of Directors of the
Fund (the "Board") and the Underwriter and if approved in the manner specified
in Section 3, provided, however, that the Distribution Fee may not be reduced
unless the fee paid pursuant to the Fund's Shareholder Services Plan for Class B
shares has first been eliminated.
Payment of Fees. The Distribution Fee will be calculated daily and paid monthly
by each Series set forth in Appendix A with respect to its Class B shares at the
annual rate indicated above.
Section 2. Expenses Covered by the Plan.
The Fund, with respect to its Class B shares, will pay the Underwriter a
Distribution Fee under the Plan to compensate the Underwriter, and firms with
which the Underwriter enters into related agreements, for engaging in sales and
promotional activities. Such activities and related services will relate only to
the sale, promotion and marketing of the Class B shares of the Fund. Such
expenditures may consist of sales commissions to firms and their representatives
for selling Class B shares of the Fund, compensation, sales incentives and
payments to sales and marketing personnel, and the payment of expenses incurred
in sales and promotional activities, including advertising expenditures related
to the Fund and the costs of preparing and distributing promotional materials.
The Distribution Fee may also be used to pay the financing costs of accruing the
unreimbursed expenditures described in this Section. Payment of the Distribution
Fee described in Section 1 above shall be subject to any limitation set forth in
any applicable regulation of the National Association of Securities Dealers,
Inc.
<PAGE>
The amount of the Distribution Fee payable under Section 1 is not related
directly to expenses incurred by the Underwriter and this Section 2 does not
obligate a Series to reimburse the Underwriter for such expenses. Any
distribution expenses incurred by the Underwriter on behalf of a Series in
excess of the Distribution Fees specified in Section 1 which the Underwriter has
accrued through the termination date are the sole responsibility and liability
of the Underwriter and are not an obligation of a Series.
Section 3. Approval of Directors.
Neither the Plan nor any related agreements will take effect until approved by a
majority of both (a) the Board of Directors of the Fund and (b) those Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
it (the "Qualified Directors"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
Section 4. Continuance of the Plan.
The Plan shall become effective on August 1, 1999 and shall remain in force and
effect through December 31, 1999, unless earlier terminated. Following the
expiration of its initial term, the Plan shall continue in force and effect for
a one-year period, provided such continuance is specifically approved at least
annually:
1. by a majority of the members of the Board, or by vote of a majority
of each Series' Class B shares, and
2. by the vote of a majority of the Qualified Directors cast in person
at a meeting specifically called for such purpose.
Section 5. Termination.
The Plan may be terminated with respect to Class B shares of any Series (a) by
the vote of a majority of that Series' outstanding voting Class B securities, or
(b) by a vote of a majority of the Qualified Directors, provided however that
the Plan will be terminated only after or contemporaneous with the termination
of the Shareholder Services Plan applicable to Class B shares. The Plan may
remain in effect with respect to a Series even if the Plan has been terminated
in accordance with this Section 5 with respect to any other Series.
Section 6. Amendments.
The Plan may not be amended with respect to any Series so as to increase
materially the amounts of the Distribution Fees described in Section 1 unless
the amendment is approved by a vote of the holders of at least a majority of the
outstanding voting Class B securities of that Series. No material amendment to
the Plan may be made unless approved in the manner described in Section 3.
<PAGE>
Section 7. Selection of Certain Directors.
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Fund.
Section 8. Written Reports.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by a Series pursuant to the
Plan or any related agreement will prepare and furnish to the Board, and the
Board will review, at least quarterly, written reports setting out the amounts
expended under the Plan, the purposes for which those expenditures were made,
and otherwise complying with the requirements of the Rule.
Section 9. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section 8, for a period of not less than six (6)
years (the first two (2) years in an easily accessible place) from the date of
the Plan, agreement or report.
Section 10. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the 1940 Act.
IN WITNESS WHEREOF, the Fund, on behalf of the Class B Shares of each of its
Series, has executed this Plan as of this 15th day of July, 1999.
AETNA SERIES FUND, INC.
on behalf of its CLASS B shares
By: /s/ J. Scott Fox
----------------------------------
J. Scott Fox, President
<PAGE>
Appendix A
Aetna Money Market Fund
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna High Yield Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Principal Protection Fund I
Aetna Principal Protection Fund II
SHAREHOLDER SERVICES PLAN
Aetna Series Fund, Inc.
Class B
This Shareholder Services Plan (the "Plan") is adopted in accordance with Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), by
Aetna Series Fund, Inc. (the "Fund"), a Maryland corporation, on behalf of the
Class B shares of each of its Series as set forth in Appendix A ("Series"), as
amended from time to time, subject to the following terms and conditions:
Section 1. Annual Fees.
Service Fee. The Series will pay to the underwriter of its shares, Aeltus
Capital, Inc. (the "Underwriter"), a Connecticut corporation, a service fee
under the Plan at the annual rate of 0.25% of the average daily net assets of
the Series attributable to Class B shares (the "Service Fee").
Adjustment to Fees. The Service Fee may be reduced if approved by the
Underwriter and the Board of Directors of the Fund (the "Board") in the manner
specified in Section 3.
Payment of Fees. The Service Fee will be calculated daily and paid monthly by
the Series.
Section 2. Expenses Covered by the Plan.
The Service Fee may be used by the Underwriter primarily to pay firms and their
agents for servicing shareholder accounts, including a continuing fee which
shall begin to accrue immediately after the sale of such shares.
The amount of the Service Fee is not related directly to expenses incurred by
the Underwriter, and this Section 2 does not obligate the Series to reimburse
the Underwriter for such expenses. The Service Fee will be paid by the Series to
the Underwriter unless and until (a) the Plan is terminated in accordance with
Section 5; or (b) the Plan is not renewed with respect to the Series or Class B
pursuant to Section 4. Any service expenses in excess of the Service Fee which
the Underwriter has incurred on behalf of a Series and accrued through the
termination date are the sole responsibility and liability of the Underwriter
and are not an obligation of the Series.
Section 3. Approval of Directors.
Neither the Plan nor any related agreements will take effect until approved by a
majority of both (a) the Board of Directors of the Fund and (b) those Directors
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
it (the "Qualified Directors"), cast in person at a meeting called for the
purpose of voting on the Plan and the related agreements.
<PAGE>
Section 4. Continuance of the Plan.
The Plan shall become effective on August 1, 1999 and shall remain in force and
effect through December 31, 1999, unless earlier terminated. Following the
expiration of its initial term, the Plan shall continue in force and effect for
a one-year period, provided such continuance is specifically approved at least
annually:
1. by a majority of the members of the Board, or by vote of a majority of each
Series' Class B shares; and
2. by the vote of a majority of the Qualified Directors cast in person at a
meeting specifically called for such purpose.
Section 5. Termination.
The Plan may be terminated at any time with respect to Class B of any Series,
without the payment of any penalty, by (a) the vote of a majority of that
Series' outstanding voting Class B securities, or (b) a vote of a majority of
the Qualified Directors. The Plan may remain in effect with respect to a Series
even if the Plan has been terminated in accordance with this Section 5 with
respect to any other Series.
Section 6. Amendments.
The Plan may not be amended with respect to any Series so as to increase
materially the amounts of the Service Fee described in Section 1 unless the
amendment is approved by a vote of the holders of at least a majority of the
outstanding voting Class B securities of that Series. No material amendment to
the Plan may be made unless approved in the manner described in Section 3.
Section 7. Written Reports.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by the Series pursuant to the
Plan, or any related agreement, will prepare and furnish to the Board, and the
Board shall review, at least quarterly, written reports setting out the amounts
expended under the Plan and the purposes for which those expenditures were made.
Section 8. Preservation of Materials.
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section 7, for a period of not less than six (6)
years (the first two (2) years in an easily accessible place) from the date of
the Plan, agreement or report.
Section 9. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the 1940 Act.
IN WITNESS WHEREOF, the Fund, on behalf of the Class B Shares of each of its
Series, has executed this Plan as of this 15th day of July, 1999.
AETNA SERIES FUND, INC.
on behalf of the Class B Shares
of each of its Series
By: /s/ J. Scott Fox
----------------------------
J. Scott Fox, President
<PAGE>
APPENDIX A
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 1
Aetna Value Opportunity Fund
Aetna Growth Fund
Aetna Mid Cap Fund
Aetna Small Company Fund
Aetna International Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Index Plus Bond Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Principal Protection Fund I
Aetna Principal Protection Fund II
Aetna Series Fund, Inc.
Rule 18f-3
Multi-Class Plan
Introduction:
Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as
amended ("1940 Act"), the following plan ("Plan") sets forth the separate class
arrangements and expense allocations as well as the exchange privileges of each
class of shares issued by certain series ("Series") comprising the Aetna Series
Fund, Inc. (the "Fund"). Except as described below, each class has the same
rights and obligations as each other class as required by Rule 18f-3.
Terms of the Plan:
<TABLE>
<S> <C> <C>
The Plan applies to the following Series of the Fund:
Aetna Money Market Fund Aetna Mid Cap Fund
Aetna Government Fund Aetna Growth and Income Fund
Aetna Bond Fund Aetna Growth Fund
Aetna High Yield Fund Aetna Small Company Fund
Aetna Balanced Fund Aetna International Fund
Aetna Ascent Fund Aetna Index Plus Large Cap Fund
Aetna Crossroads Fund Aetna Index Plus Small Cap Fund
Aetna Legacy Fund Aetna Index Plus Mid Cap Fund
Aetna Value Opportunity Fund Aetna Index Plus Bond Fund
Aetna Real Estate Securities Fund Aetna Principal Protection Fund I
Aetna Principal Protection Fund II
Aetna International Fund, Aetna Small Company Fund, Aetna Growth Fund,
Aetna Growth and Income Fund, Aetna Balanced Fund, Aetna Ascent Fund, Aetna
Crossroads Fund, Aetna Legacy Fund, Aetna Real Estate Securities Fund, Aetna Mid
Cap Fund and Aetna Value Opportunity Fund are collectively referred to herein as
the "Equity Funds". Aetna Government Fund, Aetna Bond Fund and Aetna High Yield
Fund are collectively referred to herein as the "Fixed Income Funds". Aetna
Index Plus Large Cap Fund, Aetna Index Plus Bond Fund, Aetna Index Plus Mid Cap
Fund and Aetna Index Plus Small Cap Fund are collectively referred to herein as
the "Enhanced Index Funds". Aetna Principal Protection Fund I and Aetna
Principal Protection Fund II are collectively referred to herein as the
"Principal Protection Funds."
1. Class Designations:
The shares of the Series, except the Principal Protection Funds are
divided into four classes: Class I, Class A, Class B and Class C. The Principal
Protection Funds are divided into two classes: Class A and Class B.
Class I shares are shares that are offered to:
. certain retirement plans;
. certain registered investment advisers having an agreement with
the Fund 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, Inc. or any
affiliated broker-dealers (including members of their immediate
families); and
. members of such other groups as may be approved by the Fund's
Board from time to time.
<PAGE>
Class A, Class B and Class C shares are shares that are offered to
accounts not eligible to buy Class I shares.
2. Differences in Distribution Arrangements:
a. Class I Shares.
Class I shares are distributed with no sales charges, distribution fees
or service fees.
b. Class A Shares.
Class A shares of each Series, except Aetna Money Market Fund ("Money
Market"), are subject to the imposition of a front-end sales load at the time of
purchase. The Equity Funds, Fixed Income Funds, Enhanced Index Funds and
Principal Protection Funds have maximum front-end sales loads of 5.75%, 4.75%,
3.00% and 3.75%, respectively. Front-end sales loads for all series decline to
0% based on discounts for volume purchases (aggregate investment in any
registered investment company for which Aeltus Investment Management, Inc. acts
as investment adviser), as set forth in the table below.
Sales Charge
------------------------------------------------------------------
Aggregate Investment Equity Funds Fixed Income Enhanced Index Principal
Funds Funds Protection
Funds
Under $50,000 5.75% 4.75% 3.00% 3.75%
$50,000 but under $100,000 4.50% 4.50% 2.50% 3.50%
$100,000 but under $250,000 3.50% 3.50% 2.00% 3.00%
$250,000 but under $500,000 2.50% 2.50% 1.50% 2.50%
$500,000 but under $1,000,000 2.00% 2.00% 1.00% 2.00%
$1,000,000 or more None None None None
Class A shares of each Series, except Money Market, are subject to a
distribution fee based on the average daily net assets attributable to Class A
shares. This fee is imposed pursuant to a Distribution Plan adopted under Rule
12b-1 under the 1940 Act, in the amount of 0.25%.
Class A shares are not subject to a service fee.
Class A shares purchased with an aggregate investment in the Fund's
Series of less than $1,000,000 are not subject to a contingent deferred sales
charge (CDSC). Class A shares purchased with an aggregate investment in the
Fund's Series of $1,000,000 or more (including purchases made in connection with
an agreement to invest $1 million or more under a Letter of Intent), may be
subject to a CDSC imposed on redemptions within two (2) 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, pursuant to a
distribution agreement with the Fund's principal underwriter. The charge is
assessed on an amount equal to the lesser of the current market value or the
original cost of the shares being redeemed. Thus, there is no sales charge on
increases in the net asset value of shares above the initial purchase price.
<PAGE>
There is no CDSC on redemptions of Class A shares:
(1) exchanged to other Series of the same class of shares (except that
exchanges may not be made into Principal Protection Funds);
(2) purchased through reinvestment of dividends or capital gains
distributions;
(3) purchased more than two (2) years prior to the redemption;
(4) in the event of the owner's death or disability;
(5) related to certain distributions from retirement plans or accounts
which are permitted without penalty pursuant to the Internal Revenue
Code of 1986, as amended;
(6) related to distributions or tax-free returns of excess contributions
from employee benefit plans; or,
(7) in connection with the Fund's systematic withdrawal plan, if
applicable.
In addition, there is no CDSC on Money Market (Class A) redemptions
unless (i) those shares were purchased through an exchange from another Series
within two (2) years prior to the redemption and (ii) the original purchase of
the shares exchanged was subject to a CDSC.
A CDSC in the amount shown below will be imposed within the first year or
second year after purchase on redemptions of such shares. In determining the
number of years the shares have been held, the Fund will aggregate all purchases
of Class A shares made during a month and consider them made on the first day of
the month.
The finders fee payable with respect to such Class A purchases (except the
Enhanced Index Funds) shall be as follows:
Cumulative Purchase Amount($) Commission CDSC
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%
The finders fee payable with respect to such Class A purchases of the Enhanced
Index Funds shall be as follows:
Cumulative Purchase Amount($) Commission CDSC
1,000,000 but under 3,000,000 0.50% Year 1 - 0.50%
Year 2 - 0.50%
3,000,000 but under 20,000,000 0.25% Year 1 - 0.25%
Year 2 - 0.25%
20,000,000 or greater 0.25% Year 1 - 0.25%
Year 2 - 0.25%
c. Class B Shares.
Class B shares of each Series are subject to a distribution fee based on
the average daily net assets attributable to Class B shares. This fee is imposed
pursuant to a Distribution Plan adopted under Rule 12b-1 under the 1940 Act, in
the amount of 0.75%.
<PAGE>
Class B shares of each Series are subject to a service fee based on the
average daily net assets attributable to Class B shares in the amount of 0.25%.
Class B shares of each Series are not subject to a front-end sales load.
However, a CDSC will be imposed on redemptions of Class B shares made within a
specified number of years. For all series except Principal Protection Funds the
CDSC will be calculated from the date of purchase, as shown below. For the
Principal Protection Funds, Year 1 includes the offering period and the first
year of the guarantee period.
For all Series except Principal Protection Funds:
Year 1 2 3 4 5 6 7+
-----------------------------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0%
</TABLE>
For Principal Protection Funds:
Year 1 2 3 4 5
-----------------------------------------------------------------
CDSC 5% 4% 3% 3% 2%
The CDSC is assessed on an amount equal to the lesser of the current
market value or the original cost of the shares being redeemed. Thus, there is
no sales charge on increases in the net asset value of shares above the initial
purchase price. There is no CDSC on redemptions of Class B shares:
(1) exchanged to other Series of the same class of shares (except that
exchanges may not be made into Principal Protection Funds);
(2) purchased through reinvestment of dividends or capital gains
distributions;
(3) purchased more than six (6) years (five (5) in the case of Principal
Protection Funds) prior to the redemption (in determining the number
of years the shares have been held, the Fund will aggregate all
purchases of Class B shares made during a month and consider them made
on the first day of the month);
(4) in the event of the owner's death or disability;
(5) related to certain distributions from retirement plans or accounts
which are permitted without penalty pursuant to the Internal Revenue
Code of 1986, as amended;
(6) related to distributions or tax-free return of excess contributions
from employee benefit plans; or,
(7) in connection with the Fund's systematic withdrawal plan, if
applicable.
d. Class C Shares.
Class C shares of each Series, except Money Market, are subject to a
distribution fee based on the average daily net assets attributable to Class C
shares. This fee is imposed pursuant to a Distribution Plan adopted under Rule
12b-1 under the 1940 Act, in the amount of 0.75%, except for the Enhanced Index
Funds, which are subject to a distribution fee in the amount of 0.50%.
Class C shares of each Series, except Money Market, are subject to a
service fee based on the average daily net assets attributable to Class C shares
in the amount of 0.25%.
Class C shares of each Series are subject to the imposition of a CDSC on
redemptions made within eighteen (18) months of purchase. The Equity Funds and
Fixed Income Funds impose a CDSC of 1.00%, and the Enhanced Index Funds 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 increases in the net asset value of shares above the
initial purchase price. There is no CDSC on redemptions of Class C shares:
<PAGE>
(1) exchanged to other Series of the same class of shares;
(2) purchased through reinvestment of dividends or capital gains
distributions;
(3) purchased more than eighteen (18) months prior to the redemption (in
determining the number of months the shares have been held, the Fund
will aggregate all purchases of Class C shares made during a month and
consider them made on the first day of the month);
(4) in the event of the owner's death or disability;
(5) related to certain distributions from retirement plans or accounts
which are permitted without penalty pursuant to the Internal Revenue
Code of 1986, as amended;
(6) related to distributions or tax-free return of excess contributions
from employee benefit plans; or
(7) in connection with the Fund's systematic withdrawal plan.
In addition, there is no CDSC on Money Market (Class C) redemptions
unless (i) those shares were purchased through an exchange from another Series
within eighteen (18) months prior to the redemption and (ii) the original
purchase of the shares exchanged was subject to a CDSC.
3. Expense Allocation:
In addition to the Distribution and Service Fees described above, the
following expenses shall be allocated, to the extent practicable, on a
class-by-class basis:
(1) expense of administrative personnel and services required to support
the shareholders of each class;
(2) transfer agency fees payable by each class;
(3) costs of printing the prospectuses relating to those classes;
(4) Securities and Exchange Commission and any "Blue Sky" registration
fees;
(5) litigation or other legal expenses; and
(6) directors' fees incurred as a result of issues related to a particular
class.
Income, realized and unrealized capital gains and losses, and expenses,
other than those allocated as described in paragraph 3, of each Series are
allocated to a particular class on the basis of the net asset value of that
class in relation to the net asset value of the Series.
4. Exchange Privileges:
Each class of shares may be exchanged for shares of the same class in
another Series (except that exchanges may not be made into Principal Protection
Funds). Currently, shares of each class may be exchanged at the net asset value
for shares of any other Series of the same class, subject to minimum investment
requirements.
5. Conversion Features:
Class B shares must be converted to Class A shares eight (8) years from
the date of purchase. No other class of shares of a particular Series is
convertible into another class of shares of that Series.
6. Voting Rights:
Each class shall have exclusive voting rights on any matter submitted to
shareholders that relates solely to its arrangement. Furthermore, each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
Effective: October 6, 1999
