As filed with the Securities and Exchange File No. 33-41694
Commission on July 29, 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. 32
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42
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 August 1, 1999 pursuant to paragraph (b) of Rule 485
--------
<PAGE>
Part A
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. 32 by
reference to the Fund's filing under Rule 497(j) under the Securities Act of
1933, as filed on March 1, 1999.
<PAGE>
AETNA SERIES FUND, INC.
CLASSES A, B, C
AND I
Supplement dated August 1, 1999
THE INFORMATION IN THIS SUPPLEMENT FOR AETNA SERIES FUND, INC. AMENDS THE
INFORMATION CONTAINED IN THE CLASS A, CLASS B AND CLASS C PROSPECTUS AND THE
CLASS I PROSPECTUS, EACH DATED MARCH 1, 1999. THIS SUPPLEMENT SHOULD BE READ
WITH EACH PROSPECTUS.
The date of the Class A, Class B, and Class C Prospectus and the Class I
Prospectus is changed to August 1, 1999.
The following replaces the first paragraph and first three bullets of the
section entitled "Aetna Small Company Fund (Small Company) - Principal
Investment Strategies" on page 8 of the Class A, Class B and Class C Prospectus
and on page 8 of the Class I Prospectus:
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Small Company
invests at least 65% of its total assets in common stocks of
small-capitalization companies, defined as:
[bullet] The 2,000 smallest of the 3,000 largest U.S. companies (as measured by
market capitalization).
[bullet] All companies not included above that are included in the Standard &
Poor's SmallCap 600 Index or the Russell 2000 Index.
[bullet] Companies with market capitalizations lower than any companies included
in the first two categories.
For purposes of the 65% policy, the largest company in this group in which Small
Company intends to invest currently has a market capitalization of approximately
$1.5 billion.
Effective April 1, 1999, the following replaces the section entitled "Growth &
Income Funds - Balanced - Carl Baker" on page 35 of the Class A, Class B and
Class C Prospectus and on page 32 of the Class I Prospectus:
Steven C. Huber, Managing Director, Aeltus, has been managing fixed-income
securities for the Fund since April 1999. Mr. Huber joined the Aetna
organization in 1987 as a quantitative analyst and has been managing
fixed-income portfolios since 1989.
Effective August 31, 1999, the following replaces the section entitled "Income
Funds - Aetna Government Fund - Hugh T.M. Whelan" on page 35 of the Class A,
Class B and Class C Prospectus and on page 33 of the Class I Prospectus:
The Fund is managed by a team of Aeltus fixed-income specialists.
Effective April 1, 1999, the following replaces the section entitled "Income
Funds - Money Market - Jeanne Wong-Boehm" on page 36 of the Class A, Class B and
Class C Prospectus and on page 33 of the Class I Prospectus:
Len Carlson, Managing Director, Aeltus, has been managing Money Market since
April 1999. Mr. Carlson joined the Aetna organization in 1985 as an investment
analyst, and has been managing fixed-income portfolios for several institutional
accounts since 1987.
Effective August 31, 1999, the following replaces the section entitled "Index
Plus Funds - Index Plus Bond - Christie Bull" on page 36 of the Class A, Class B
and Class C Prospectus and on page 33 of the Class I Prospectus:
The Fund is managed by a team of Aeltus fixed-income specialists.
1
<PAGE>
Effective April 1, 1999, the following replaces the section entitled "Generation
Funds - Ascent, Crossroads, Legacy - Carl Baker" on page 36 of the Class A,
Class B and Class C Prospectus and on page 33 of the Class I Prospectus:
Steven C. Huber, Managing Director, Aeltus, has been managing fixed-income
securities since April 1999. Mr. Huber joined the Aetna organization in 1987 as
a quantitative analyst and has been managing fixed-income portfolios since 1989.
Effective April 1, 1999, the following replaces the section entitled "Generation
Funds - Ascent, Crossroads, Legacy - Jeanne Wong-Boehm" on page 36 of the Class
A, Class B and Class C Prospectus and on page 33 of the Class I Prospectus:
Len Carlson, Managing Director, Aeltus, has been managing money market
investments since April 1999. Mr. Carlson joined the Aetna organization in 1985
as an investment analyst, and has been managing fixed-income portfolios for
several institutional accounts since 1987.
The following replaces the chart in the section entitled "Investing in the Funds
- - CDSC on Class A Shares" on page 38 of the Class A, Class B and Class C
Prospectus:
<TABLE>
<CAPTION>
WHEN YOU INVEST THIS AMOUNT IN CLASS A SHARES
(EXCLUDING THE INDEX PLUS FUNDS) THIS % IS DEDUCTED FROM YOUR PROCEEDS
<S> <C> <C>
$1 million but under $3 million Year 1 - 1.00%
Year 2 - 0.50%
$3 million but under $20 million Year 1 - 0.50%
Year 2 - 0.50%
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
WHEN YOU INVEST THIS AMOUNT IN CLASS A SHARES
OF THE INDEX PLUS FUNDS THIS % IS DEDUCTED FROM YOUR PROCEEDS
$1 million but under $3 million Year 1 - 0.50%
Year 2 - 0.50%
$3 million but under $20 million Year 1 - 0.25%
Year 2 - 0.25%
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
</TABLE>
The following replaces the section entitled "Letter of Intent" on page 44 of the
Class A, Class B and Class C Prospectus:
Letter of Intent If 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 on the Letter of Intent.
2
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
3
<PAGE>
The following financial information replaces the section entitled "Financial
Highlights" on pages 48 through 58 in the Class A, Class B, & Class C Prospectus
and on pages 42 through 52 in the Class I Prospectus.
FINANCIAL HIGHLIGHTS
These highlights are intended to help you understand the Funds' performance for
the past 5 years (or since commencement of operations, if shorter). Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate an investor would have earned (or lost)
on an investment in each Fund (assuming reinvestment of all dividends and
distributions). The information in these tables has been audited by KPMG LLP,
independent auditors, whose reports, along with the Funds' Financial Statements,
are included in the Funds' Annual Reports, which are available upon request. In
addition, selected data presented below for the periods ended April 30, 1999
have been taken from the records of the Series, which are unaudited.
<TABLE>
<CAPTION>
GROWTH
-------------------------------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------------------------------
PERIOD FROM
SIX MONTH JANUARY 4, 1994
PERIOD ENDED (COMMENCEMENT OF
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 16.62 $ 17.02 $ 14.36 $ 13.75 $ 10.78 $ 10.00
--------- --------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. (0.01) 0.01 0.01 0.03 0.04 0.09
Net realized and change in unrealized
gain or loss on investments........ 4.61 2.09 3.88 2.39 3.02 0.69
--------- --------- --------- --------- --------- --------
Total from investment
operations................... 4.60 2.10 3.89 2.42 3.06 0.78
--------- --------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
From net investment income............ -- -- (0.03) (0.05) (0.08) --
From net realized gains on
investments........................ (0.20) (2.50) (1.20) (1.76) (0.01) --
--------- --------- --------- --------- --------- --------
Total distributions.............. (0.20) (2.50) (1.23) (1.81) (0.09) --
--------- --------- --------- --------- --------- --------
Net asset value, end of period........ $ 21.02 $ 16.62 $ 17.02 $ 14.36 $ 13.75 $ 10.78
========= ========= ========= ========= ========= ========
Total return.......................... 27.85% 14.78% 28.95% 19.82% 28.79% 7.70%
Net assets, end of period (000's)..... $188,278 $128,667 $ 82,186 $ 45,473 $ 36,936 $ 27,188
Ratio of net expenses to average net
assets............................. 0.95%(1) 1.00% 1.17% 1.28% 1.20% 0.92%(1)
Ratio of net investment income
to average net assets.............. (0.09)%(1) 0.07% 0.08% 0.20% 0.36% 1.10%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 0.95%(1) 1.00% 1.17% 1.28% 1.30% 1.42%(1)
Portfolio turnover rate............... 81.13% 170.46% 141.07% 144.19% 171.75% 120.32%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
4
<PAGE>
<TABLE>
<CAPTION>
GROWTH
----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------- --------------- ------------------------------
PERIOD FROM PERIOD FROM
APRIL 15, 1994 MARCH 1, 1999 PERIOD FROM
SIX MONTH (DATE OF INITIAL (DATE OF INITIAL SIX MONTH JUNE 30, 1998
PERIOD ENDED PUBLIC PUBLIC OFFERING) PERIOD ENDED (DATE OF INITIAL
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OFFERING) TO TO APRIL 30, APRIL 30, PUBLIC OFFERING)
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 1999 1999 TO OCTOBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED) (UNAUDITED) 1998
----------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 16.37 $ 16.76 $ 14.17 $ 13.63 $ 10.74 $ 10.26 $ 19.84 $ 16.56 $ 17.86
------ ------- ------- ------- ------- ------- ------ ------ ------
(0.03) (0.04) (0.11) (0.08) (0.06) (0.02) (0.04) (0.11) (0.05)
4.53 2.05 3.84 2.38 3.00 0.50 1.19 4.60 (1.25)
------ ------ ----- ------- ------- ------ ------ ------ ------
4.50 2.01 3.73 2.30 2.94 0.48 1.15 4.49 (1.30)
------ ------ ----- ------- ------- ------ ------ ------ ------
-- -- -- -- (0.05) -- -- -- --
(0.20) (2.40) (1.14) (1.76) -- -- -- (0.20) --
------ ------- ------- ------- ------- ------- ------ ------ ------
(0.20) (2.40) (1.14) (1.76) (0.05) -- -- (0.20) --
------ ------- ------- ------- ------- ------- ------ ------ ------
$ 20.67 $ 16.37 $ 16.76 $ 14.17 $ 13.63 $ 10.74 $ 20.99 $ 20.85 $ 16.56
====== ======= ======= ======= ======= ====== ====== ====== =======
27.64% 14.34% 28.05% 18.97% 27.92% 4.58% 5.80% 27.26% (7.28)%
$27,669 $12,877 $ 8,647 $ 4,615 $ 1,727 $ 417 $ 595 $ 785 $ 356
1.20%(1) 1.32% 1.92% 2.03% 2.03% 1.72%(1) 1.92%(1) 1.94%(1) 1.99%(1)
(0.34)%(1) (0.25)% (0.67)% (0.59)% (0.47)% (0.25)%(1) (1.06)%(1) (1.09)%(1) (0.92)%(1)
2.17%(1) 1.92%(1) 1.99%(1)
1.20%(1) 1.32% 1.92% 2.03% 2.14% 1.94%(1)
81.13% 170.46% 141.07% 144.19% 171.75% 120.32% 81.13% 81.13% 170.46%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
5
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL
-------------------------------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------------------------------
SIX MONTH
PERIOD ENDED TEN MONTH YEAR
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED ENDED
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER
(UNAUDITED) 1998 1997 1996 1995 1994 31, 1993
----------- -------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 11.87 $ 13.65 $ 11.79 $ 10.62 $ 11.56 $ 11.17 $ 8.88
-------- -------- -------- ------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. -- 0.02 0.02 0.03 0.11 0.06 0.05
Net realized and change in unrealized
gain or loss on investments........ 2.00 1.06 2.89 1.59 (0.09) 0.33 2.65
-------- -------- -------- ------- -------- -------- --------
Total from investment
operations................... 2.00 1.08 2.91 1.62 0.02 0.39 2.70
-------- -------- -------- ------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income............ (0.59) (0.40) (0.16) (0.19) (0.40) -- (0.39)
From net realized gains on
investments ....................... (0.60) (2.46) (0.89) (0.26) (0.56) -- (0.02)
-------- -------- -------- ------- -------- -------- --------
Total distributions.............. (1.19) (2.86) (1.05) (0.45) (0.96) -- (0.41)
-------- -------- -------- ------- -------- -------- --------
Net asset value, end of period........ $ 12.68 $ 11.87 $ 13.65 $ 11.79 $ 10.62 $ 11.56 $ 11.17
======== ======== ======== ======= ======== ======== ========
Total return.......................... 17.87% 10.22% 26.02% 15.61% (0.04)% 3.49% 30.37%
Net assets, end of period (000's)..... $43,204 $34,556 $56,369 $45,786 $25,102 $31,479 $39,847
Ratio of net expenses to average net
assets............................. 1.35%(1) 1.48% 1.72% 2.17% 1.37% 1.66%(1) 1.48%
Ratio of net investment income to
average net assets................. 0.05%(1) 0.15% 0.18% 0.40% 1.02% 0.71%(1) 0.50%
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.50%(1) 1.67% 1.72% 2.17% 1.50% 1.80%(1) 1.77%
Portfolio turnover rate............... 97.14% 152.73% 194.41% 135.92% 32.91% 81.67% 110.38%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
6
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
- --------------------------------------------------------------------------------------------------------- -----------------------
PERIOD FROM
APRIL 15, 1994 PERIOD FROM MARCH 1,
SIX MONTH (DATE OF INITIAL 1999 (DATE OF INITIAL
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PUBLIC OFFERING) TO PUBLIC OFFERING) TO
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, APRIL 30, 1999
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED)
----------- --------- ---------- ---------- ----------- ---------------- -----------
<S><C> <C> <C> <C> <C> <C> <C>
$ 11.83 $ 13.57 $ 11.77 $ 10.59 $ 11.51 $ 11.24 $ 11.70
------- ------- ------- ------- -------- -------- -------
(0.01) (0.02) (0.07) (0.05) 0.03 0.01 (0.02)
1.99 1.05 2.88 1.57 (0.20) 0.26 0.98
------- ------- ------- ------- -------- -------- -------
1.98 1.03 2.81 1.52 (0.17) 0.27 0.96
------- ------- ------- ------- -------- -------- -------
(0.55) (0.31) (0.12) (0.08) (0.27) -- --
(0.60) (2.46) (0.89) (0.26) (0.48) -- --
------- ------- ------- ------- -------- -------- -------
(1.15) (2.77) (1.01) (0.34) (0.75) -- --
------- ------- ------- ------- -------- -------- -------
$ 12.66 $ 11.83 $ 13.57 $ 11.77 $ 10.59 $ 11.51 $ 12.66
======= ======= ======= ======= ======== ======== =======
17.72% 9.76% 25.07% 14.67% (0.81)% 2.40% 8.21%
$16,619 $15,078 $19,063 $22,893 $26,464 $26,647 $ 153
1.61%(1) 1.82% 2.47% 2.94% 2.12% 2.27%(1) 2.35%(1)
(0.21)%(1) (0.19)% (0.57)% (0.42)% 0.27% 0.17%(1) (0.95)%(1)
1.76%(1) 2.01% 2.47% 2.94% 2.25% 2.41%(1) 2.50%(1)
97.14% 152.73% 194.41% 135.92% 32.91% 81.67% 97.14%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
7
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL MID CAP
--------------------------------------------- ---------------------------------------------
CLASS C CLASS I
--------------------------------------------- ---------------------------------------------
PERIOD FROM
PERIOD FROM JUNE 30, SIX MONTH FEBRUARY 4, 1998
SIX MONTH PERIOD 1998 (DATE OF INITIAL PERIOD ENDED (COMMENCEMENT OF
ENDED APRIL 30, 1999 PUBLIC OFFERING) TO APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) OCTOBER 31, 1998
---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 11.85 $ 13.29 $ 9.29 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. (0.06) (0.03) (0.01) (0.02)
Net realized and change in unrealized
gain or loss on investments........ 2.01 (1.41) 2.44 (0.69)
------- ------- ------- -------
Total from investment
operations................... 1.95 (1.44) 2.43 (0.71)
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.55) -- -- --
From net realized gains on
investments ....................... (0.60) -- -- --
------- ------- ------- -------
Total distributions.............. (1.15) -- -- --
------- ------- ------- -------
Net asset value, end of period........ $ 12.65 $ 11.85 $ 11.72 $ 9.29
======= ======= ======= =======
Total return.......................... 17.44% (10.84)% 26.16% (7.10)%
Net assets, end of period (000's)..... $ 799 $ 156 $ 5,673 $ 4,503
Ratio of net expenses to average net
assets............................. 2.35%(1) 2.36%(1) 1.15%(1) 1.15%(1)
Ratio of net investment income to
average net assets................. (0.95)%(1) (0.73)%(1) (0.13)%(1) (0.21)%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 2.50%(1) 2.55%(1) 2.61%(1) 3.59%(1)
Portfolio turnover rate............... 97.14% 152.73% 80.35% 113.99%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
8
<PAGE>
<TABLE>
<CAPTION>
MID CAP
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ------------------------------------------------ ------------------------- --------------------------------------------------
PERIOD FROM
PERIOD FROM MARCH 1, 1999 PERIOD FROM
SIX MONTH FEBRUARY 4, 1998 (DATE OF INITIAL SIX MONTH JUNE 30, 1998
PERIOD ENDED (COMMENCEMENT PUBLIC OFFERING) TO PERIOD ENDED (DATE OF INITIAL
APRIL 30, 1999 OF OPERATIONS) TO APRIL 30, 1999 APRIL 30, 1999 PUBLIC OFFERING) TO
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) (UNAUDITED) OCTOBER 31, 1998
----------- ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 9.28 $ 10.00 $ 10.70 $ 9.26 $ 11.12
------- ------- ------- ------- -------
(0.02) (0.04) (0.02) (0.06) (0.04)
2.42 (0.68) 1.02 2.42 (1.82)
------- ------- ------- ------- -------
2.40 (0.72) 1.00 2.36 (1.86)
------- ------- ------- ------- -------
-- -- -- -- --
-- -- -- -- --
------- ------- ------- ------- -------
-- -- -- -- --
------- ------- ------- ------- -------
$ 11.68 $ 9.28 $ 11.70 $ 11.62 $ 9.26
======= ======= ======= ======= =======
25.86% (7.20)% 9.35% 25.49% (16.73)%
$ 257 $ 115 $ 109 $ 121 $ 83
1.40%(1) 1.40%(1) 2.15%(1) 2.15%(1) 2.15%(1)
(0.38)%(1) (0.46)%(1) (1.13)%(1) (1.13)%(1) (1.21)%(1)
2.86%(1) 3.84%(1) 3.60%(1) 3.60%(1) 4.59%(1)
80.35% 113.99% 80.35% 80.35% 113.99%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
9
<PAGE>
<TABLE>
<CAPTION>
SMALL COMPANY
---------------------------------------------------------------------------------------------
CLASS I
---------------------------------------------------------------------------------------------
PERIOD FROM
JANUARY 4, 1994
SIX MONTH (COMMENCEMENT
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS)
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 10.43 $ 15.55 $ 14.67 $ 13.52 $ 10.39 $ 10.00
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.03 0.09 (0.06) (0.08) -- 0.02
Net realized and change in unrealized
gain or loss on investments........ 1.37 (0.90) 4.45 2.64 3.15 0.37
------- ------- ------- ------- ------- -------
Total from investment
operations....................... 1.40 (0.81) 4.39 2.56 3.15 0.39
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.04) -- -- -- (0.02) --
From net realized gains on
investments ....................... (0.06) (4.31) (3.51) (1.41) -- --
------- ------- ------- ------- -------- -------
Total distributions.............. (0.10) (4.31) (3.51) (1.41) (0.02) --
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 11.73 $ 10.43 $ 15.55 $ 14.67 $ 13.52 $ 10.39
======= ======= ======= ======= ======= =======
Total return.......................... 13.48% (7.47)% 37.80% 19.78% 30.39% 3.90%
Net assets, end of period (000's)..... $44,894 $29,543 $22,661 $32,125 $33,511 $25,879
Ratio of net expenses to average net
assets............................. 1.23%(1) 1.32% 1.58% 1.44% 1.41% 1.15%(1)
Ratio of net investment income to
average net assets................. 0.54%(1) 0.46% (0.42)% (0.53)% (0.01)% 0.21%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.27%(1) 1.43% 1.58% 1.44% 1.49% 1.58%(1)
Portfolio turnover rate............... 110.25% 211.87% 150.43% 163.21% 156.43% 116.28%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
10
<PAGE>
<TABLE>
SMALL COMPANY
- -------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------- -----------------
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 15, 1994 MARCH 1, 1999
SIX MONTH (DATE OF INITIAL (DATE OF INITIAL
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PUBLIC OFFERING) PUBLIC OFFERING)
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, TO OCTOBER 31, TO APRIL 30, 1999
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED)
-------------- ----------- ----------- ----------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.15 $ 15.20 $ 14.42 $ 13.39 $ 10.35 $ 10.24 $ 10.69
------- ------- -------- -------- ------- ------- -------
0.02 0.01 (0.16) (0.18) (0.11) (0.04) (0.01)
1.33 (0.84) 4.36 2.62 3.15 0.15 1.02
------- ------- -------- -------- ------- ------- -------
1.35 (0.83) 4.20 2.44 3.04 0.11 1.01
------- ------- -------- -------- ------- ------- -------
(0.02) -- -- -- -- -- --
(0.06) (4.22) (3.42) (1.41) -- -- --
------- ------- -------- -------- ------- ------- -------
(0.08) (4.22) (3.42) (1.41) -- -- --
------- ------- -------- -------- ------- ------- -------
$ 11.42 $ 10.15 $ 15.20 $ 14.42 $ 13.39 $ 10.35 $ 11.70
======= ======= ======== ======== ======= ======= =======
13.31% (7.77)% 36.73% 19.02% 29.44% 0.98% 9.45%
$13,051 $ 9,089 $ 7,077 $ 3,884 $ 1,285 $ 205 $ 114
1.48%(1) 1.63% 2.33% 2.20% 2.23% 1.78%(1) 2.23%(1)
0.29%(1) 0.15% (1.17)% (1.26)% (0.89)% (0.72)%(1) (0.46)%(1)
1.52%(1) 1.74% 2.33% 2.20% 2.30% 2.14%(1) 2.27%(1)
110.25% 211.87% 150.43% 163.21% 156.43% 116.28% 110.25%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
11
<PAGE>
<TABLE>
SMALL COMPANY VALUE OPPORTUNITY
--------------------------------------------- ---------------------------------------------
CLASS C CLASS I
--------------------------------------------- ---------------------------------------------
<CAPTION>
PERIOD FROM
JUNE 30, 1998 PERIOD FROM
SIX MONTH (DATE OF INITIAL SIX MONTH FEBRUARY 2, 1998
PERIOD ENDED PUBLIC OFFERING) TO PERIOD ENDED (COMMENCEMENT
APRIL 30, 1999 OCTOBER 31, APRIL 30, 1999 OF OPERATIONS) TO
(UNAUDITED) 1998 (UNAUDITED) OCTOBER 31, 1998
-------------- ------------------- -------------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.39 $ 12.11 $ 9.99 $ 10.00
------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (0.03) (0.02) -- 0.03
Net realized and change in unrealized
gain or loss on investments........ 1.37 (1.70) 2.66 (0.04)
------- ------- ------- -------
Total from investment
operations................... 1.34 (1.72) 2.66 (0.01)
------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.01) -- (0.03) --
From net realized gains on
investments ....................... (0.06) -- -- --
------- ------- ------- -------
Total distributions.............. (0.07) -- (0.03) --
------- ------- ------- -------
Net asset value, end of period........ $ 11.66 $ 10.39 $ 12.62 $ 9.99
======= ======= ======= =======
Total return.......................... 12.94% (14.21)% 26.65% (0.10)%
Net assets, end of period (000's)..... $ 1,319 $ 1,118 $ 5,554 $ 4,625
Ratio of net expenses to average net
assets............................. 2.23%(1) 2.30%(1) 1.10%(1) 1.10%(1)
Ratio of net investment income to
average net assets................. (0.46)%(1) (0.52)%(1) (0.03)%(1) 0.37%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 2.27%(1) 2.41%(1) 2.42%(1) 3.41%(1)
Portfolio turnover rate............... 110.25% 211.87% 63.91% 132.45%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
12
<PAGE>
<TABLE>
VALUE OPPORTUNITY
- ------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ---------------------------------------------- -------------------------- ---------------------------------------------
<CAPTION>
PERIOD FROM
PERIOD FROM MARCH 1, 1999 PERIOD FROM
SIX MONTH FEBRUARY 2, 1998 DATE OF INITIAL PUBLIC SIX MONTH JUNE 30, 1998
PERIOD ENDED (COMMENCEMENT OF OFFERING) TO PERIOD ENDED (DATE OF INITIAL
APRIL 30, 1999 OPERATIONS) TO APRIL 30, 1999 APRIL 30, 1999 PUBLIC OFFERING) TO
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) (UNAUDITED) OCTOBER 31, 1998
-------------- ---------------- ---------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 9.97 $ 10.00 $ 11.28 $ 9.95 $ 11.04
------- ------- ------- ------- -------
(0.02) 0.01 (0.02) (0.06) (0.02)
2.67 (0.04) 1.33 2.65 (1.07)
------- ------- ------ ------- -------
2.65 (0.03) 1.31 2.59 (1.09)
------- ------- ------ ------- -------
(0.02) -- -- -- --
-- -- -- -- --
------- ------- ------- ------- -------
(0.02) -- -- -- --
------- ------- ------- ------- -------
$ 12.60 $ 9.97 $ 12.59 $ 12.54 $ 9.95
======= ======= ======= ======= =======
26.55% (0.30)% 11.61% 26.03% (9.88)%
$ 793 $ 464 $ 117 $ 198 $ 95
1.35%(1) 1.35%(1) 2.10%(1) 2.10%(1) 2.10%(1)
(0.28)%(1) 0.12%(1) (1.03)%(1) (1.03)%(1) (0.63)%(1)
2.67%(1) 3.66%(1) 3.42%(1) 3.41%(1) 4.41%(1)
63.91% 132.45% 63.91% 63.91% 132.45%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
13
<PAGE>
<TABLE>
BALANCED
--------------------------------------------------------------------------------------------
CLASS I
--------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTH
PERIOD ENDED TEN MONTH
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER
(UNAUDITED) 1998 1997 1996 1995 1994 31, 1993
------------ ----------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 12.84 $ 14.09 $ 13.52 $ 12.36 $ 10.65 $ 10.82 $ 10.18
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.16 0.33 0.33 0.31 0.35 0.23 0.34
Net realized and change in unrealized
gain or loss on investments........ 1.50 1.02 2.04 1.77 1.69 (0.28) 0.64
------- ------- ------- ------- ------- ------- -------
Total from investment
operations................... 1.66 1.35 2.37 2.08 2.04 (0.05) 0.98
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.22) (0.32) (0.30) (0.35) (0.33) (0.12) (0.31)
From net realized gains on
investments ....................... (0.61) (2.28) (1.50) (0.57) -- -- (0.03)
------- ------- ------- ------- ------- ------- -------
Total distributions.............. (0.83) (2.60) (1.80) (0.92) (0.33) (0.12) (0.34)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 13.67 $ 12.84 $ 14.09 $ 13.52 $ 12.36 $ 10.65 $ 10.82
======= ======= ======= ======= ======= ======= =======
Total return.......................... 13.20% 10.81% 19.57% 17.63% 19.45% (0.42)% 9.84%
Net assets, end of period (000's)..... $122,748 $111,887 $105,813 $88,625 $83,941 $76,267 $63,982
Ratio of net expenses to average net
assets............................. 1.12%(1) 1.12% 1.24% 1.31% 1.27% 1.09%(1) 0.93%
Ratio of net investment income to
average net assets................. 2.37%(1) 2.54% 2.43% 2.42% 3.14% 2.65%(1) 3.21%
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.12%(1) 1.12% 1.24% 1.31% 1.30% 1.32%(1) 1.34%
Portfolio turnover rate............... 38.21% 84.55% 116.69% 117.88% 129.05% 86.10% 19.95%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
14
<PAGE>
<TABLE>
BALANCED
- --------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------- ------------------
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 15, 1994 MARCH 1, 1999
SIX MONTH (DATE OF INITIAL (DATE OF INITIAL
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PUBLIC OFFERING) PUBLIC OFFERING)
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, TO OCTOBER 31, TO APRIL 30, 1999
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED)
-------------- ----------- ----------- ----------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12.83 $ 14.05 $ 13.49 $ 12.34 $ 10.62 $ 10.54 $ 13.00
------- ------- ------- ------- ------- ------- -------
0.14 0.29 0.23 0.20 0.23 0.19 0.01
1.49 1.01 2.03 1.79 1.91 -- 0.64
------- ------- ------- ------- ------- ------- -------
1.63 1.30 2.26 1.99 2.14 0.19 0.65
------- ------- ------- ------- ------- ------- -------
(0.20) (0.24) (0.20) (0.27) (0.42) (0.11) --
(0.61) (2.28) (1.50) (0.57) -- -- --
------- ------- ------- ------- ------- ------- -------
(0.81) (2.52) (1.70) (0.84) (0.42) (0.11) --
------- ------- ------- ------- ------- ------- -------
$ 13.65 $ 12.83 $ 14.05 $ 13.49 $ 12.34 $ 10.62 $ 13.65
======= ======= ======= ======= ======= ======= =======
13.00% 10.44% 18.64% 16.83% 18.32% 1.84% 5.00%
$11,951 $ 7,544 $ 6,289 $ 3,783 $ 1,362 $26,396 $ 109
1.37%(1) 1.44% 1.99% 2.07% 2.04% 1.87%(1) 2.15%(1)
2.12%(1) 2.22% 1.68% 1.60% 2.61% 1.90%(1) 1.34%(1)
1.37%(1) 1.44% 1.99% 2.07% 2.07% 2.06%(1) 2.15%(1)
38.21% 84.55% 116.69% 117.88% 129.05% 86.10% 38.21%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
15
<PAGE>
<TABLE>
BALANCED GROWTH AND INCOME
------------------------------------------ -----------------------------------------
CLASS C CLASS I
------------------------------------------ -----------------------------------------
<CAPTION>
PERIOD FROM
SIX MONTH JUNE 30, 1998 SIX MONTH
PERIOD ENDED (DATE OF INITIAL PERIOD ENDED
APRIL 30, 1999 PUBLIC OFFERING) TO APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) OCTOBER 31, 1998
-------------- ------------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 12.80 $ 13.27 $ 15.26 $ 18.08
------- ------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.09 0.07 0.05 0.12
Net realized and change in unrealized
gain or loss on investments........ 1.48 (0.54) 2.82 0.51
------- -------- -------- --------
Total from investment
operations................... 1.57 (0.47) 2.87 0.63
------- ------- -------- --------
LESS DISTRIBUTIONS:
From net investment income............ (0.18) -- (0.10) (0.13)
From net realized gains on
investments ....................... (0.61) -- (1.73) (3.32)
------- ------- -------- --------
Total distributions.............. (0.79) -- (1.83) (3.45)
------- ------- -------- --------
Net asset value, end of period........ $ 13.58 $ 12.80 $ 16.30 $ 15.26
======= ======= ======== ========
Total return.......................... 12.53% (3.54)% 19.44% 3.80%
Net assets, end of period (000's)..... $ 888 $ 216 $621,024 $614,493
Ratio of net expenses to average net
assets............................. 2.11%(1) 2.11%(1) 0.87%(1) 0.88%
Ratio of net investment income to
average net assets................. 1.37%(1) 1.55%(1) 0.67%(1) 0.71%
Ratio of expenses before
reimbursement and waiver to
average net assets................. 2.11%(1) 2.11%(1) 0.87%(1) 0.88%
Portfolio turnover rate............... 38.21% 84.55% 60.58% 160.48%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
16
<PAGE>
<TABLE>
GROWTH AND INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TEN MONTH
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- ---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 15.74 $ 13.46 $ 11.11 $ 11.03 $ 10.51
-------- -------- -------- -------- --------
0.15 0.19 0.21 0.12 0.19
5.00 3.09 2.27 0.04 0.50
-------- -------- -------- -------- --------
5.15 3.28 2.48 0.16 0.69
-------- -------- -------- -------- --------
(0.21) (0.24) (0.13) (0.08) (0.16)
(2.60) (0.76) -- -- (0.01)
-------- -------- -------- -------- --------
(2.81) (1.00) (0.13) (0.08) (0.17)
-------- -------- -------- -------- --------
$ 18.08 $ 15.74 $ 13.46 $ 11.11 $ 11.03
======== ======== ======== ======== ========
37.44% 25.69% 22.58% 1.40% 6.58%
$595,969 $377,784 $356,803 $301,360 $ 60,127
1.00% 1.08% 1.10% 0.92%(1) 1.13%
0.93% 1.35% 1.73% 1.51%(1) 1.77%
1.00% 1.08% 1.10% 1.03%(1) 1.27%
157.92% 106.09% 127.43% 54.13% 23.60%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
17
<PAGE>
<TABLE>
GROWTH AND INCOME
--------------------------------------------------------------------------------------------
CLASS I
--------------------------------------------------------------------------------------------
<CAPTION>
PERIOD FROM
SIX MONTH APRIL 15, 1994
PERIOD ENDED (DATE OF INITIAL
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PUBLIC OFFERING
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 15.22 $ 18.01 $ 15.69 $ 13.43 $ 11.08 $ 10.75
-------- -------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.03 0.06 0.03 0.08 0.12 0.11
Net realized and change in unrealized
gain or loss on investments........ 2.81 0.51 4.99 3.08 2.31 0.30
-------- -------- -------- ------- ------- -------
Total from investment
operations................... 2.84 0.57 5.02 3.16 2.43 0.41
-------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.08) (0.04) (0.10) (0.14) (0.08) (0.08)
From net realized gains on
investments ....................... (1.73) (3.32) (2.60) (0.76) -- --
-------- -------- -------- ------- ------- -------
Total distributions.............. (1.81) (3.36) (2.70) (0.90) (0.08) (0.08)
-------- -------- -------- ------- ------- -------
Net asset value, end of period........ $ 16.25 $ 15.22 $ 18.01 $ 15.69 $ 13.43 $ 11.08
======== ======== ======== ======= ======= =======
Total return.......................... 19.30% 3.42% 36.49% 24.70% 21.90% 3.71%
Net assets, end of period (000's)..... $36,246 $23,603 $15,955 $ 6,638 $ 2,217 $ 5,740
Ratio of net expenses to average net
assets............................. 1.12%(1) 1.20% 1.75% 1.83% 1.84% 2.32%(1)
Ratio of net investment income to
average net assets................. 0.43%(1) 0.39% 0.18% 0.55% 1.14% 1.74%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.12%(1) 1.20% 1.75% 1.83% 1.84% 2.42%(1)
Portfolio turnover rate............... 60.58% 160.48% 157.92% 106.09% 127.43% 54.13%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
18
<PAGE>
<TABLE>
GROWTH AND INCOME REAL ESTATE
- --------------------------------------------------------------------------- --------------------------------------------
CLASS B CLASS C CLASS I
- ------------------------- --------------------------------------------- -------------------------------------------
<CAPTION>
PERIOD FROM
MARCH 1, 1999 PERIOD FROM PERIOD FROM
(DATE OF INITIAL PUBLIC SIX MONTH JUNE 30, 1998 SIX MONTH FEBRUARY 2, 1998
OFFERING) TO PERIOD ENDED (DATE OF INITIAL PERIOD ENDED (COMMENCEMENT OF
APRIL 30, 1999 APRIL 30, 1999 PUBLIC OFFERING) TO APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) (UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) OCTOBER 31, 1998
----------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 15.41 $ 15.22 $ 16.92 $ 8.32 $ 10.00
------- ------- ------- ------- -------
(0.01) (0.03) (0.01) 0.22 0.25
0.88 2.81 (1.69) 0.28 (1.93)
------- ------- ------- ------- -------
0.87 2.78 (1.70) 0.50 (1.68)
------- ------- ------- ------- -------
-- (0.07) -- (0.29) --
-- (1.73) -- -- --
------- ------- ------- -------- -------
-- (1.80) -- (0.29) --
------- ------- ------- ------- -------
$ 16.28 $ 16.20 $ 15.22 $ 8.53 $ 8.32
======= ======= ======= ======= =======
5.65% 18.82% (10.05)% 6.25% (16.80)%
$ 255 $ 1,315 $ 569 $ 3,984 $ 3,970
1.87%(1) 1.87%(1) 1.86%(1) 1.30%(1) 2.00%(1)
(0.32)%(1) (0.32)%(1) (0.27)%(1) 5.44%(1) 2.70%(1)
1.87%(1) 1.87%(1) 1.86%(1) 3.31%(1) 2.89%(1)
60.58% 60.58% 160.48% 5.57% 63.79%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
19
<PAGE>
<TABLE>
REAL ESTATE
---------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
--------------------------------- ------------------- -----------------------------------
<CAPTION>
PERIOD FROM
FEBRUARY 2, PERIOD FROM PERIOD FROM
1998 MARCH 1, 1999 JUNE 30, 1998
SIX MONTH (COMMENCEMENT (DATE OF INITIAL SIX MONTH (DATE OF INITIAL
PERIOD ENDED OF OPERATIONS) PUBLIC OFFERING) PERIOD ENDED PUBLIC OFFERING)
APRIL 30, 1999 TO OCTOBER 31, TO APRIL 30, 1999 APRIL 30, 1999 TO OCTOBER 31,
(UNAUDITED) 1998 (UNAUDITED) (UNAUDITED) 1998
-------------- ----------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 8.30 $ 10.00 $ 7.87 $ 8.29 $ 9.45
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.21 0.25 0.06 0.18 0.05
Net realized and change in unrealized
gain or loss on investments........ 0.29 (1.95) 0.59 0.28 (1.21)
------- ------- ------- ------- -------
Total from investment
operations................... 0.50 (1.70) 0.65 0.46 (1.16)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.28) -- -- (0.25) --
From net realized gains on
investments ....................... -- -- -- -- --
------- ------- ------- ------- -------
Total distributions.............. (0.28) -- -- (0.25) --
------- ------- ------- ------- -------
Net asset value, end of period........ $ 8.52 $ 8.30 $ 8.52 $ 8.50 $ 8.29
======= ======= ======= ======= =======
Total return.......................... 6.22% (17.00)% 8.26% 5.79% (12.28)%
Net assets, end of period (000's)..... $ 386 $ 266 $ 144 $ 122 $ 96
Ratio of net expenses to average net
assets............................. 1.55%(1) 2.19%(1) 2.30%(1) 2.30%(1) 3.00%(1)
Ratio of net investment income to
average net assets................. 5.19%(1) 2.51%(1) 4.44%(1) 4.44%(1) 1.70%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 3.56%(1) 3.08%(1) 4.31%(1) 4.31%(1) 3.89%(1)
Portfolio turnover rate............... 5.57% 63.79% 5.57% 5.57% 63.79%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
20
<PAGE>
<TABLE>
BOND
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS I
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTH
PERIOD ENDED TEN MONTH
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.38 $ 10.22 $ 10.09 $ 10.27 $ 9.58 $ 10.37 $ 9.99
--------- -------- -------- -------- -------- -------- --------
0.29 0.60 0.62 0.65 0.65 0.52 0.55
(0.10) 0.17 0.13 (0.15) 0.65 (0.86) 0.45
--------- -------- -------- -------- -------- -------- --------
0.19 0.77 0.75 0.50 1.30 (0.34) 1.00
-------- -------- -------- -------- -------- -------- --------
(0.29) (0.61) (0.62) (0.68) (0.61) (0.45) (0.55)
-- -- -- -- -- -- (0.07)
-------- -------- -------- -------- -------- -------- --------
(0.29) (0.61) (0.62) (0.68) (0.61) (0.45) (0.62)
-------- -------- -------- -------- -------- -------- --------
$ 10.28 $ 10.38 $ 10.22 $ 10.09 $ 10.27 $ 9.58 $ 10.37
======== ======== ======== ======== ======== ======== ========
1.84% 7.72% 7.72% 5.09% 14.06% (3.31)% 10.20%
$39,487 $41,804 $34,080 $28,864 $32,778 $27,584 $46,788
0.75%(1) 0.75% 0.75% 0.75% 0.79% 0.76%(1) 0.47%
5.56%(1) 5.79% 6.07% 6.16% 6.56% 6.29%(1) 5.34%
0.93%(1) 0.97% 1.14% 1.16% 1.06% 1.06%(1) 1.01%
24.97% 77.01% 48.56% 42.33% 56.99% 51.80% 50.01%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
21
<PAGE>
<TABLE>
BOND
---------------------------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------------------------
<CAPTION>
PERIOD FROM
APRIL 15, 1994
SIX MONTH (DATE OF INITIAL
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PUBLIC OFFERING
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 10.37 $ 10.22 $ 10.09 $ 10.27 $ 9.58 $ 9.92
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.28 0.57 0.54 0.62 0.56 0.28
Net realized and change in unrealized
gain or loss on investments........ (0.09) 0.15 0.13 (0.20) 0.66 (0.35)
------- ------- ------- ------- ------- -------
Total from investment
operations................... 0.19 0.72 0.67 0.42 1.22 (0.07)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.28) (0.57) (0.54) (0.60) (0.53) (0.27)
------- ------- ------- ------- ------- -------
Total distributions.............. (0.28) (0.57) (0.54) (0.60) (0.53) (0.27)
------- ------- ------- ------- ------- -------
Net asset value, end of period........ $ 10.28 $ 10.37 $ 10.22 $ 10.09 $ 10.27 $ 9.58
======= ======= ======= ======= ======= =======
Total return.......................... 1.82% 7.27% 6.89% 4.27% 13.28% (0.68)%
Net assets, end of period (000's)..... $ 5,926 $ 1,890 $ 1,006 $ 877 $ 7,340 $25,405
Ratio of net expenses to average net
assets............................. 1.00%(1) 1.05% 1.50% 1.50% 1.50% 1.49%(1)
Ratio of net investment income to
average net assets................. 5.31%(1) 5.49% 5.32% 5.47% 5.91% 5.36%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.18%(1) 1.27% 1.89% 1.91% 1.82% 1.81%(1)
Portfolio turnover rate............... 24.97% 77.01% 48.56% 42.33% 56.99% 51.80%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
22
<PAGE>
<TABLE>
BOND AETNA GOVERNMENT FUND
- --------------------------------------------------------------------------- ------------------------------------------
CLASS B CLASS C CLASS I
- ------------------------ --------------------------------------------- -----------------------------------------
<CAPTION>
PERIOD FROM
MARCH 1, 1999 PERIOD FROM
(DATE OF INITIAL SIX MONTH JUNE 30, 1998 SIX MONTH
PUBLIC OFFERING) TO PERIOD ENDED (DATE OF INITIAL PERIOD ENDED YEAR ENDED
APRIL 30, 1999 APRIL 30, 1999 PUBLIC OFFERING) TO APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) (UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) 1998
------------------- -------------- ------------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$ 10.29 $ 10.37 $ 10.31 $ 10.29 $ 9.99
------- ------- ------- -------- -------
0.08 0.24 0.17 0.25 0.53
(0.01) (0.09) 0.05 (0.18) 0.30
------- ------- ------- -------- -------
0.07 0.15 0.22 0.07 0.83
------- ------- ------- -------- -------
(0.08) (0.25) (0.16) (0.24) (0.53)
------- ------- ------- -------- -------
(0.08) (0.25) (0.16) (0.24) (0.53)
------- ------- ------- -------- -------
$ 10.28 $ 10.27 $ 10.37 $ 10.12 $ 10.29
======= ======= ======= ======== =======
0.65% 1.42% 2.10% 0.70% 8.54%
$ 106 $ 610 $ 108 $11,492 $13,980
1.75%(1) 1.75%(1) 1.75%(1) 0.70%(1) 0.70%
4.56%(1) 4.56%(1) 4.79%(1) 4.85%(1) 5.21%
1.93%(1) 1.93%(1) 1.97%(1) 1.41%(1) 1.51%
24.97% 24.97% 77.01% 13.91% 181.08%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
23
<PAGE>
<TABLE>
AETNA GOVERNMENT FUND
-------------------------------------------------------------------------------------
CLASS I
-------------------------------------------------------------------------------------
<CAPTION>
TEN MONTH
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 9.80 $ 10.01 $ 9.41 $ 10.00
-------- ------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.58 0.56 0.64 0.40
Net realized and change in unrealized
gain or loss on investments........ 0.21 (0.13) 0.59 (0.63)
-------- ------- ------- --------
Total from investment
operations................... 0.79 0.43 1.23 (0.23)
-------- ------- ------- --------
LESS DISTRIBUTIONS:
From net investment income............ (0.60) (0.64) (0.63) (0.36)
-------- ------- ------- --------
Total distributions.............. (0.60) (0.64) (0.63) (0.36)
-------- ------- ------- --------
Net asset value, end of period........ $ 9.99 $ 9.80 $ 10.01 $ 9.41
========= ======= ======= ========
Total return.......................... 8.39% 4.43% 13.58% (2.37)%
Net assets, end of period (000's)..... $ 10,217 $10,662 $19,154 $ 26,110
Ratio of net expenses to average net
assets............................. 0.70% 0.70% 0.70% 0.41%(1)
Ratio of net investment income to
average net assets................. 5.91% 5.67% 6.79% 5.29%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.70% 1.57% 1.30% 1.16%(1)
Portfolio turnover rate............... 147.78% 50.48% 117.31% 43.63%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
24
<PAGE>
<TABLE>
AETNA GOVERNMENT FUND
------------------------------------------------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD FROM
APRIL 15, 1994
SIX MONTH (DATE OF INITIAL
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PUBLIC OFFERING) TO
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994
-------------- ----------- ----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.29 $ 9.99 $ 9.79 $ 10.00 $ 9.41 $ 9.67
-------- ------- ------ -------- ------- -------
0.23 0.49 0.51 0.48 0.60 0.24
(0.18) 0.31 0.21 (0.13) 0.56 (0.24)
-------- ------- ------ -------- ------- -------
0.05 0.80 0.72 0.35 1.16 --
-------- ------- ------ -------- ------- -------
(0.23) (0.50) (0.52) (0.56) (0.57) (0.26)
-------- ------- ------ -------- ------- -------
(0.23) (0.50) (0.52) (0.56) (0.57) (0.26)
-------- ------- ------ -------- ------- -------
$ 10.11 $ 10.29 $ 9.99 $ 9.79 $ 10.00 $ 9.41
======== ======= ====== ======== ======= =======
0.48% 8.19% 7.67% 3.75% 12.60% (0.06)%
$ 2,185 $ 875 $ 531 $ 526 $ 405 $ 151
0.95%(1) 1.03% 1.45% 1.45% 1.51% 1.28%(1)
4.60%(1) 4.88% 5.16% 4.96% 6.02% 4.68%(1)
1.66%(1) 1.84% 2.45% 2.32% 2.11% 2.11%(1)
13.91% 181.08% 147.78% 50.48% 117.31% 43.63%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
25
<PAGE>
<TABLE>
AETNA GOVERNMENT FUND HIGH YIELD
------------------------------------------------------- ------------------------------------
CLASS B CLASS C CLASS I
------------------ ------------------------------------ ------------------------------------
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 1, 1999 JUNE 30, 1998 PERIOD FROM
(DATE OF INITIAL SIX MONTH (DATE OF INITIAL SIX MONTH FEBRUARY 2, 1998
PUBLIC OFFERING) PERIOD ENDED PUBLIC OFFERING) PERIOD ENDED (COMMENCEMENT OF
TO APRIL 30, 1999 APRIL 30, 1999 TO OCTOBER 31, APRIL 30, 1999 OPERATIONS) TO
(UNAUDITED) (UNAUDITED) 1998 (UNAUDITED) OCTOBER 31, 1998
------------------ -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 10.12 $ 10.29 $ 10.11 $ 8.81 $ 10.00
------- -------- ------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.07 0.20 0.15 0.45 0.60
Net realized and change in unrealized
gain or loss on investments........ (0.01) (0.18) 0.17 0.53 (1.21)
------- -------- ------- -------- -------
Total from investment
operations................... 0.06 0.02 0.32 0.98 (0.61)
------- -------- ------- -------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.06) (0.20) (0.14) (0.39) (0.58)
------- -------- ------- -------- -------
Total distributions.............. (0.06) (0.20) (0.14) (0.39) (0.58)
------- -------- ------- -------- -------
Net asset value, end of period........ $ 10.12 $ 10.11 $ 10.29 $ 9.40 $ 8.81
======= ======== ======= ======== =======
Total return.......................... 0.63% 0.15% 3.18% 11.25% (6.50)%
Net assets, end of period (000's)..... $ 101 $ 182 $ 117 $ 9,059 $ 8,452
Ratio of net expenses to average net
assets............................. 1.70%(1) 1.70%(1) 1.70%(1) 0.95%( 1) 0.95%(1)
Ratio of net investment income to
average net assets................. 3.85%(1) 3.85%(1) 4.21%(1) 9.64%( 1) 8.17%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 2.41%(1) 2.41%(1) 2.51%(1) 1.89%( 1) 2.27%(1)
Portfolio turnover rate............... 13.91% 13.91% 181.08% 77.68% 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
26
<PAGE>
<TABLE>
HIGH YIELD
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ---------------------------------------------------- ------------------------- -----------------------------------------------
<CAPTION>
PERIOD FROM
PERIOD FROM MARCH 1, 1999 PERIOD FROM
SIX MONTH FEBRUARY 2, 1998 (DATE OF INITIAL SIX MONTH JUNE 30, 1998
PERIOD ENDED (COMMENCEMENT PUBLIC OFFERING) TO PERIOD ENDED (DATE OF INITIAL
APRIL 30, 1999 OF OPERATIONS) TO APRIL 30, 1999 APRIL 30, 1999 PUBLIC OFFERING) TO
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) (UNAUDITED) OCTOBER 31, 1998
-------------- ----------------- ------------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
$ 8.81 $ 10.00 $ 9.27 $ 8.80 $ 10.07
--------- -------- ------- ------ -------
0.43 0.58 0.14 0.40 0.24
0.54 (1.21) 0.09 0.54 (1.27)
--------- -------- ------- ------ -------
0.97 (0.63) 0.23 0.94 (1.03)
--------- -------- ------- ------ -------
(0.38) (0.56) (0.11) (0.35) (0.24)
--------- -------- ------- ------ -------
(0.38) (0.56) (0.11) (0.35) (0.24)
--------- -------- ------- ------ -------
$ 9.40 $ 8.81 $ 9.39 $ 9.39 $ 8.80
========= ======== ======= ====== =======
11.12% (6.67)% 2.51% 10.77% (10.28)%
$ 327 $ 225 $ 138 $ 264 $ 178
1.20%(1) 1.20%(1) 1.95%(1) 1.95%(1) 1.94%(1)
9.39%(1) 7.92%(1) 8.64%(1) 8.64%(1) 7.18%(1)
2.14%(1) 2.52%(1) 2.89%(1) 2.89%(1) 3.26%(1)
77.68% 258.33% 77.68% 77.68% 258.33%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
27
<PAGE>
<TABLE>
MONEY MARKET
---------------------------------------------------------------------------------------------
CLASS I
---------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTH TEN MONTH
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.02 0.05 0.05 0.05 0.06 0.03 0.03
--------- --------- --------- --------- --------- --------- ---------
Total from investment
operations................... 0.02 0.05 0.05 0.05 0.06 0.03 0.03
--------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
From net investment income............ (0.02) (0.05) (0.05) (0.05) (0.06) (0.03) (0.03)
--------- --------- --------- --------- --------- --------- ---------
Total distributions.............. (0.02) (0.05) (0.05) (0.05) (0.06) (0.03) (0.03)
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= ========= ========= =========
Total return.......................... 2.40% 5.36% 5.49% 5.44% 5.95% 3.33% 3.29%
Net assets, end of period (000's)..... $ 288,503 $ 276,024 $ 273,710 $323,281 $275,524 $161,756 $107,844
Ratio of net expenses to average net
assets............................. 0.50%(1) 0.48% 0.37% 0.30% 0.27% 0.21%(1) 0.00%
Ratio of net investment income to
average net assets................. 4.75%(1) 5.24% 5.31% 5.30% 5.78% 4.05%(1) 3.33%
Ratio of expenses before
reimbursement and waiver to
average net assets................. 0.64%(1) 0.72% 0.81% 0.83% 0.88% 0.85%(1) 0.95%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
28
<PAGE>
<TABLE>
MONEY MARKET
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------------------- -------------- ----------------------------
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
APRIL 15, 1994 MARCH 1, 1999 JUNE 30, 1998
(DATE OF (DATE OF (DATE OF
SIX MONTH INITIAL PUBLIC INITIAL PUBLIC SIX MONTH INITIAL PUBLIC
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OFFERING) TO OFFERING) TO PERIOD ENDED OFFERING) TO
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, APRIL 30, 1999 APRIL 30, 1999 OCTOBER 31,
(UNAUDITED) 1998 1997 1996 1995 1994 (UNAUDITED) (UNAUDITED) 1998
- ------------- ----------- ----------- ----------- ----------- -------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- -------- --------- -------- -------- -------- ------- ------- -------
0.02 0.05 0.05 0.05 0.06 0.03 0.01 0.02 0.02
--------- -------- --------- -------- -------- -------- ------- ------- -------
0.02 0.05 0.05 0.05 0.06 0.03 0.01 0.02 0.02
--------- -------- --------- -------- -------- -------- ------- ------- -------
(0.02) (0.05) (0.05) (0.05) (0.06) (0.03) (0.01) (0.02) (0.02)
--------- -------- --------- -------- -------- -------- ------- ------- -------
(0.02) (0.05) (0.05) (0.05) (0.06) (0.03) (0.01) (0.02) (0.02)
--------- -------- --------- -------- -------- -------- ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ======== ========= ======== ======== ======== ======= ======= =======
2.40% 5.36% 5.49% 5.44% 5.95% 2.41% 0.63% 2.40% 1.75%
$ 178,671 $161,456 $ 156,530 $119,849 $ 78,726 $ 47,350 $ 188 $ 4,321 $ 916
0.50%(1) 0.48% 0.37% 0.30% 0.26% 0.21%(1) 1.48%(1) 0.50%(1) 0.48%(1)
4.75%(1) 5.24% 5.31% 5.30% 5.79% 4.27%(1) 3.77%(1) 4.75%(1) 5.24%(1)
0.64%(1) 0.72% 0.91% 0.93% 0.87% 0.92%(1) 1.62%(1) 0.64%(1) 0.72%(1)
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
29
<PAGE>
<TABLE>
INDEX PLUS BOND
---------------------------------------------------------------------------------------------
CLASS I CLASS A CLASS B
----------------------------------- ----------------------------------- ------------------
<CAPTION>
PERIOD FROM
PERIOD FROM PERIOD FROM MARCH 1, 1999
SIX MONTH FEBRUARY 4, 1998 SIX MONTH FEBRUARY 4, 1998 (DATE OF INITIAL
PERIOD ENDED (COMMENCEMENT PERIOD ENDED (COMMENCEMENT PUBLIC OFFERING)
APRIL 30, 1999 OF OPERATIONS) TO APRIL 30, 1999 OF OPERATIONS) TO TO APRIL 30, 1999
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) OCTOBER 31, 1998 (UNAUDITED)
-------------- ----------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 10.14 $ 10.00 $ 10.14 $ 10.00 $ 9.93
-------- -------- -------- --------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.27 0.40 0.26 0.38 0.07
Net realized and change in unrealized
gain or loss on investments........ (0.20) 0.14 (0.20) 0.14 0.02
-------- -------- --------- --------- -------
Total from investment
operations................... 0.07 0.54 0.06 0.52 0.09
-------- -------- -------- --------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.26) (0.40) (0.25) (0.38) (0.07)
From net realized gains on
investments ....................... -- -- -- -- --
-------- -------- -------- --------- -------
Total distributions.............. (0.26) (0.40) (0.25) (0.38) (0.07)
-------- -------- -------- --------- -------
Net asset value, end of period........ $ 9.95 $ 10.14 $ 9.95 $ 10.14 $ 9.95
======== ======== ======== ========= =======
Total return.......................... 0.97% 5.48% 0.85% 5.29% 0.91%
Net assets, end of period (000's)..... $ 14,206 $ 14,958 $ 640 $ 280 $ 162
Ratio of net expenses to average net
assets............................. 0.60%(1) 0.60%(1) 0.85%(1) 0.85%(1) 1.60%(1)
Ratio of net investment income to
average net assets................. 5.34%(1) 5.39%(1) 5.09%(1) 5.14%(1) 4.34%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.15%(1) 1.42%(1) 1.40%(1) 1.67%(1) 2.14%(1)
Portfolio turnover rate............... 9.02% 20.86% 9.02% 20.86% 9.02%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
30
<PAGE>
<TABLE>
INDEX PLUS BOND INDEX PLUS LARGE CAP
- --------------------------------------------------- -------------------------------------------------------------------------------
CLASS C CLASS I
- --------------------------------------------------- -------------------------------------------------------------------------------
<CAPTION>
PERIOD FROM PERIOD FROM
SIX MONTH JUNE 30, 1998 SIX MONTH DECEMBER 10, 1996
PERIOD ENDED (DATE OF INITIAL PERIOD ENDED (COMMENCEMENT
APRIL 30, 1999 PUBLIC OFFERING) TO APRIL 30, 1999 YEAR ENDED OF OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) OCTOBER 31, 1998 OCTOBER 31, 1997
-------------- ------------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 10.13 $ 10.01 $ 13.78 $ 12.43 $ 10.00
-------- ------- --------- -------- --------
0.23 0.16 0.05 0.13 0.12
(0.19) 0.11 3.21 2.57 2.33
-------- ------- --------- -------- --------
0.04 0.27 3.26 2.70 2.45
-------- ------- --------- -------- --------
(0.23) (0.15) (0.07) (0.13) (0.02)
-- -- (0.20) (1.22) --
-------- ------- --------- -------- --------
(0.23) (0.15) (0.27) (1.35) (0.02)
-------- ------- --------- -------- --------
$ 9.94 $ 10.13 $ 16.77 $ 13.78 $ 12.43
======== ======= ========= ======== ========
0.60% 2.75% 23.81% 23.46% 24.49%
$ 209 $ 118 $ 104,078 $ 31,671 $ 10,876
1.35%(1) 1.35%(1) 0.70%(1) 0.70% 0.70%(1)
4.59%(1) 4.64%(1) 0.60%(1) 0.96% 1.15%(1)
1.90%(1) 2.17%(1) 0.76%(1) 1.17% 1.95%(1)
9.02% 20.86% 41.79% 124.16% 82.31%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
31
<PAGE>
<TABLE>
INDEX PLUS LARGE CAP
---------------------------------------------------------------------------------------------
CLASS A CLASS B
-------------------------------------------------------------------- -----------------------
<CAPTION>
PERIOD FROM
PERIOD FROM MARCH 1, 1999
SIX MONTH FEBRUARY 3, 1997 (DATE OF INITIAL
PERIOD ENDED (DATE OF INITIAL PUBLIC OFFERING) TO
APRIL 30, 1999 YEAR ENDED PUBLIC OFFERING) TO APRIL 30, 1999
(UNAUDITED) OCTOBER 31, 1998 OCTOBER 31, 1997 (UNAUDITED)
-------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 13.70 $ 12.36 $ 10.57 $ 15.68
--------- -------- --------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.03 0.09 0.02 (0.01)
Net realized and change in unrealized
gain or loss on investments........ 3.20 2.56 1.77 1.08
--------- -------- --------- --------
Total from investment
operations................... 3.23 2.65 1.79 1.07
--------- -------- --------- --------
LESS DISTRIBUTIONS:
From net investment income............ (0.05) (0.09) -- --
From net realized gains on
investments ....................... (0.20) (1.22) -- --
--------- -------- --------- --------
Total distributions.............. (0.25) (1.31) -- --
--------- -------- --------- --------
Net asset value, end of period........ $ 16.68 $ 13.70 $ 12.36 $ 16.75
========= ======== ========= ========
Total return.......................... 23.73% 23.09% 16.93% 6.82%
Net assets, end of period (000's)..... $ 33,250 $ 6,422 $ 1,833 $ 4,980
Ratio of net expenses to average net
assets............................. 0.95%(1) 0.99% 1.45%(1) 1.67%(1)
Ratio of net investment income to
average net assets................. 0.35%(1) 0.67% 0.16%(1) (0.37)%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................. 1.01%(1) 1.46% 2.98%(1) 1.73%(1)
Portfolio turnover rate............... 41.79% 124.16% 82.31% 41.79%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
32
<PAGE>
<TABLE>
INDEX PLUS LARGE CAP INDEX PLUS MID CAP
- -------------------------------------------- -------------------------------------------------------------------------------------
CLASS C CLASS I CLASS A
- -------------------------------------------- --------------------------------------- -------------------------------------------
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
SIX MONTH JUNE 30, 1998 SIX MONTH FEBRUARY 3,1998 SIX MONTH FEBRUARY 3, 1998
PERIOD ENDED (DATE OF INITIAL PERIOD ENDED (COMMENCEMENT PERIOD ENDED (COMMENCEMENT
APRIL 30, 1999 PUBLIC OFFERING) TO APRIL 30, 1999 OF OPERATIONS) TO APRIL 30, 1999 OF OPERATIONS) TO
(UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) OCTOBER 31, 1998 (UNAUDITED) OCTOBER 31, 1998
-------------- ------------------- -------------- ----------------- -------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
$ 13.74 $ 14.17 $ 10.36 $ 10.00 $ 10.34 $ 10.00
--------- -------- -------- --------- --------- --------
(0.01) 0.01 0.03 0.04 0.02 0.02
3.21 (0.44) 1.94 0.32 1.94 0.32
--------- -------- -------- --------- --------- --------
3.20 (0.43) 1.97 0.36 1.96 0.34
--------- -------- -------- --------- --------- --------
(0.05) -- (0.05) -- (0.04) --
(0.20) -- -- -- -- --
--------- -------- -------- --------- --------- ---------
(0.25) -- (0.05) -- (0.04) --
--------- -------- -------- --------- --------- ---------
$ 16.69 $ 13.74 $ 12.28 $ 10.36 $ 12.26 $ 10.34
========= ======== ======== ========= ========= ========
23.44% (3.04)% 19.07% 3.60% 18.93% 3.40%
$ 16,745 $ 910 $ 8,201 $ 6,996 $ 1,842 $ 269
1.44%(1) 1.43%(1) 0.75%(1) 0.75%(1) 1.00%(1) 1.00%(1)
(0.14)%(1) 0.23%(1) 0.55%(1) 0.57%(1) 0.30%(1) 0.32%(1)
1.50%(1) 1.90%(1) 1.84%(1) 2.51%(1) 2.09%(1) 2.76%(1)
41.79% 124.16% 53.27% 129.87% 53.27% 129.87%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
33
<PAGE>
<TABLE>
INDEX PLUS MID CAP INDEX PLUS SMALL CAP
------------------------------------------------------- ------------------------------------
CLASS B CLASS C CLASS I
------------------- ---------------------------------- ------------------------------------
<CAPTION>
PERIOD FROM
MARCH 1, 1999 PERIOD FROM
(DATE OF INITIAL SIX MONTH JUNE 30, 1998 SIX MONTH PERIOD FROM
PUBLIC OFFERING PERIOD ENDED (DATE OF INITIAL PERIOD ENDED FEBRUARY 3, 1998
TO APRIL 30, APRIL 30, PUBLIC OFFERING) APRIL 30, (COMMENCEMENT
1999 1999 TO OCTOBER 31, 1999 OF OPERATIONS) TO
(UNAUDITED) (UNAUDITED) 1998 (UNAUDITED) OCTOBER 31,1998
----------------- ------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 11.23 $ 10.33 $ 10.92 $ 8.87 $ 10.00
-------- ------- -------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. (0.01) (0.01) (0.01) 0.01 0.02
Net realized and change in unrealized
gain or loss on investments....... 1.04 1.93 (0.58) 0.75 (1.15)
-------- ------- -------- ------- --------
Total from investment operations. 1.03 1.92 (0.59) 0.76 (1.13)
-------- ------- -------- ------- --------
LESS DISTRIBUTIONS:
From net investment income............ -- (0.03) -- (0.02) --
-------- ------- -------- ------- --------
Total distributions............. -- (0.03) -- (0.02) --
-------- ------- -------- ------- --------
Net asset value, end of period........ $ 12.26 $ 12.22 $ 10.33 $ 9.61 $ 8.87
======== ======= ======== ======= ========
Total return ......................... 9.17% 18.70% (5.40)% 8.62% (11.30)%
Net assets, end of period (000's)..... $ 158 $ 200 $ 100 $ 5,936 $ 5,862
Ratio of net expenses to average net
assets............................ 1.74%(1) 1.48%(1) 1.50%(1) 0.75%(1) 0.75%(1)
Ratio of net investment income to
average net assets................ (0.44)%(1) (0.18)%(1) (0.18)%(1) 0.24%(1) 0.25%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................ 2.83%(1) 2.57%(1) 3.26%(1) 2.04%(1) 2.63%(1)
Portfolio turnover rate............... 53.27% 53.27% 129.87% 45.77% 100.41%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
34
<PAGE>
<TABLE>
INDEX PLUS SMALL CAP
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ---------------------------------------------------- ----------------------------- ---------------------------------------------
<CAPTION>
PERIOD FROM
MARCH 1, 1999 PERIOD FROM
SIX MONTH PERIOD FROM (DATE OF INITIAL SIX MONTH JUNE 30, 1998
PERIOD ENDED FEBRUARY 3, 1998 PUBLIC OFFERING) PERIOD ENDED (DATE OF INITIAL
APRIL 30, (COMMENCEMENT TO APRIL 30, APRIL 30, PUBLIC OFFERING)
1999 OF OPERATIONS) TO 1999 1999 TO OCTOBER 31,
(UNAUDITED) OCTOBER 31,1998 (UNAUDITED) (UNAUDITED) 1998
------------ ----------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 8.86 $ 10.00 $ 8.91 $ 8.84 $ 10.62
-------- -------- -------- -------- --------
-- -- (0.01) (0.02) (0.02)
0.74 (1.14) 0.69 0.75 (1.76)
-------- -------- -------- -------- --------
0.74 (1.14) 0.68 0.73 (1.78)
-------- -------- -------- -------- --------
(0.01) -- -- -- --
-------- -------- -------- -------- --------
(0.01) -- -- -- --
-------- -------- -------- -------- --------
$ 9.59 $ 8.86 $ 9.59 $ 9.57 $ 8.84
======== ======== ======== ======== ========
8.40% (11.40)% 7.63% 8.26% (16.76)%
$ 1,436 $ 349 $ 124 $ 381 $ 155
1.00%(1) 1.00%(1) 1.74%(1) 1.50%(1) 1.50%(1)
(0.01)%(1) 0.00% (0.76)%(1) (0.51)%(1) (0.50)%(1)
2.29%(1) 2.88%(1) 3.03%(1) 2.79%(1) 3.38%(1)
45.77% 100.41% 45.77% 45.77% 100.41%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
35
<PAGE>
<TABLE>
ASCENT
---------------------------------------------------------------------------------------------
CLASS I
---------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTH PERIOD FROM
PERIOD JANUARY 4, 1995
ENDED APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OF OPERATIONS) TO
(UNAUDITED) 1998 1997 1996 OCTOBER 31, 1995
--------------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 11.14 $ 14.48 $ 12.57 $ 11.67 $ 10.00
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.11 0.24 0.21 0.21 0.25
Net realized and change in unrealized
gain or loss on investments....... 1.30 (0.41) 2.92 2.04 1.42
-------- -------- -------- ------- -------
Total from investment
operations................... 1.41 (0.17) 3.13 2.25 1.67
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
From net investment income............ (0.18) (0.41) (0.25) (0.38) --
From net realized gains on
investments ....................... (0.31) (2.76) (0.97) (0.97) --
-------- -------- -------- ------- -------
Total distributions............. (0.49) (3.17) (1.22) (1.35) --
-------- -------- -------- ------- -------
Net asset value, end of period........ $ 12.06 $ 11.14 $ 14.48 $ 12.57 $ 11.67
======== ======== ======== ======= =======
Total return ......................... 12.91% (1.90)% 26.59% 20.94% 16.70%
Net assets, end of period (000's)..... $ 42,565 $ 38,012 $ 27,359 $25,752 $20,433
Ratio of net expenses to average net
assets............................ 1.20%(1) 1.24% 1.52% 1.73% 1.38%(1)
Ratio of net investment income to
average net assets................ 1.99%(1) 2.00% 1.53% 1.69% 2.80%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................ 1.30%(1) 1.43% 1.61% -- --
Portfolio turnover rate............... 53.08% 105.08% 162.80% 104.84% 164.09%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
36
<PAGE>
<TABLE>
ASCENT
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ---------------------------------------------------------------- -------------------- ---------------------------------------
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
SIX MONTH JANUARY 20, 1997 MARCH 1, 1999 SIX MONTH JUNE 30, 1998
PERIOD ENDED (DATE OF INITIAL (DATE OF INITIAL PERIOD ENDED (DATE OF INITIAL
APRIL 30, YEAR ENDED PUBLIC OFFERING) TO PUBLIC OFFERING) APRIL 30, PUBLIC OFFERING)
1999 OCTOBER 31, OCTOBER 31, TO APRIL 30, 1999 1999 TO OCTOBER 31,
(UNAUDITED) 1998 1997 (UNAUDITED) (UNAUDITED) 1998
------------ ----------- ---------------- ----------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.09 $ 14.42 $ 12.50 $ 11.21 $ 11.11 $ 12.49
-------- -------- -------- -------- -------- --------
0.10 0.20 0.15 0.02 0.06 0.04
1.28 (0.40) 1.77 0.81 1.28 (1.42)
-------- -------- -------- -------- -------- --------
1.38 (0.20) 1.92 0.83 1.34 (1.38)
-------- -------- -------- -------- -------- --------
(0.17) (0.37) -- -- (0.13) --
(0.31) (2.76) -- -- (0.31) --
-------- -------- -------- -------- -------- --------
(0.48) (3.13) -- -- (0.44) --
-------- -------- -------- -------- -------- --------
$ 11.99 $ 11.09 $ 14.42 $ 12.04 $ 12.01 $ 11.11
======== ======== ======== ======== ======== ========
12.69% (2.17)% 15.36% 7.40% 12.28% (11.05)%
$ 8,883 $ 2,266 $ 886 $ 112 $ 2,267 $ 133
1.45%(1) 1.53% 2.08%(1) 2.20%(1) 2.18%(1) 2.23%(1)
1.74%(1) 1.71% 1.11%(1) 0.99%(1) 1.00%(1) 1.01%(1)
1.55%(1) 1.72% 2.35%(1) 2.30%(1) 2.28%(1) 2.42%(1)
53.08% 105.08% 162.80% 53.08% 53.08% 105.08%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
37
<PAGE>
<TABLE>
CROSSROADS
---------------------------------------------------------------------------------------------
CLASS I
---------------------------------------------------------------------------------------------
<CAPTION>
PERIOD FROM
SIX MONTH JANUARY 4, 1995
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT
APRIL 30, 1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OF OPERATIONS) TO
(UNAUDITED) 1998 1997 1996 OCTOBER 31, 1995
-------------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 11.08 $ 13.29 $ 12.16 $ 11.53 $ 10.00
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.15 0.31 0.27 0.25 0.29
Net realized and change in unrealized
gain or loss on investments....... 0.98 (0.37) 2.16 1.64 1.24
--------- --------- --------- --------- --------
Total from investment
operations................... 1.13 (0.06) 2.43 1.89 1.53
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
From net investment income............ (0.21) (0.45) (0.30) (0.44) --
From net realized gains on
investments ....................... (0.24) (1.70) (1.00) (0.82) --
--------- --------- --------- --------- --------
Total distributions............. (0.45) (2.15) (1.30) (1.26) --
--------- --------- --------- --------- --------
Net asset value, end of period........ $ 11.76 $ 11.08 $ 13.29 $ 12.16 $ 11.53
========= ========= ========= ========= ========
Total return ......................... 10.31% (0.87)% 21.65% 17.66% 15.30%
Net assets, end of period (000's)..... $ 40,740 $ 37,620 $ 26,028 $ 22,947 $ 20,370
Ratio of net expenses to average net
assets............................ 1.20%(1) 1.24% 1.57% 1.74% 1.40%(1)
Ratio of net investment income to
average net assets................ 2.59%(1) 2.61% 2.13% 2.18% 3.26%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................ 1.31%(1) 1.40% 1.66% -- --
Portfolio turnover rate............... 49.94% 115.65% 161.75% 107.40% 166.93%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
38
<PAGE>
<TABLE>
CROSSROADS
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- ----------------------------------------------------------- --------------------- ---------------------------------------
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
SIX MONTH JANUARY 20, 1997 MARCH 1, 1999 SIX MONTH JUNE 30, 1998
PERIOD ENDED (DATE OF INITIAL (DATE OF INITIAL PERIOD ENDED (DATE OF INITIAL
APRIL 30, YEAR ENDED PUBLIC OFFERING) PUBLIC OFFERING) APRIL 30, PUBLIC OFFERING)
1999 OCTOBER 31, TO OCTOBER 31, TO APRIL 30, 1999 1999 TO OCTOBER 31,
(UNAUDITED) 1998 1997 (UNAUDITED) (UNAUDITED) 1998
---------------- ----------- ---------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
$ 11.01 $ 13.22 $ 11.67 $ 11.09 $ 11.04 $ 12.18
-------- -------- -------- -------- --------- --------
0.13 0.27 0.30 0.03 0.09 0.06
0.98 (0.37) 1.25 0.61 0.97 (1.20)
-------- -------- -------- -------- --------- --------
1.11 (0.10) 1.55 0.64 1.06 (1.14)
-------- -------- -------- -------- --------- --------
(0.20) (0.41) -- -- (0.16) --
(0.24) (1.70) -- -- (0.24) --
-------- -------- -------- -------- -------- -------
(0.44) (2.11) -- -- (0.40) --
-------- -------- -------- -------- -------- -------
$ 11.68 $ 11.01 $ 13.22 $ 11.73 $ 11.70 $ 11.04
======== ======== ======== ======== ========= ========
10.19% (1.17)% 13.28% 5.77% 9.76% (9.36)%
$ 7,310 $ 2,105 $ 547 $ 106 $ 128 $ 158
1.45%(1) 1.52% 2.11%(1) 2.20%(1) 2.20%(1) 2.24%(1)
2.34%(1) 2.33% 1.64%(1) 1.59%(1) 1.59%(1) 1.61%(1)
1.56%(1) 1.68% 2.41%(1) 2.31%(1) 2.31%(1) 2.40%(1)
49.94% 115.65% 161.75% 49.94% 49.94% 115.65%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
39
<PAGE>
<TABLE>
LEGACY
---------------------------------------------------------------------------------------------
CLASS I
---------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTH PERIOD FROM
PERIOD ENDED JANUARY 4, 1995
APRIL 30, YEAR ENDED YEAR ENDED YEAR ENDED (COMMENCEMENT
1999 OCTOBER 31, OCTOBER 31, OCTOBER 31, OF OPERATIONS) TO
(UNAUDITED) 1998 1997 1996 OCTOBER 31, 1995
------------ ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.. $ 10.21 $ 12.15 $ 11.64 $ 11.41 $ 10.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income................. 0.16 0.35 0.32 0.29 0.33
Net realized and change in unrealized
gain or loss on investments....... 0.61 (0.07) 1.41 1.20 1.08
-------- -------- -------- -------- --------
Total from investment
operations................... 0.77 0.28 1.73 1.49 1.41
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
From net investment income............ (0.22) (0.60) (0.33) (0.50) --
From net realized gains on
investments ....................... (0.22) (1.62) (0.89) (0.76) --
-------- -------- -------- -------- --------
Total distributions............. (0.44) (2.22) (1.22) (1.26) --
-------- -------- -------- -------- --------
Net asset value, end of period........ $ 10.54 $ 10.21 $ 12.15 $ 11.64 $ 11.41
======== ======== ======== ======== ========
Total return ......................... 7.69% 2.51% 15.94% 14.11% 14.10%
Net assets, end of period (000's)..... $ 25,126 $ 22,352 $ 18,313 $ 22,326 $ 19,651
Ratio of net expenses to average net
assets............................ 1.20%(1) 1.24% 1.63% 1.73% 1.42%(1)
Ratio of net investment income to
average net assets................ 3.19%(1) 3.26% 2.77% 2.62% 3.75%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets................ 1.51%(1) 1.67% 1.75% -- --
Portfolio turnover rate............... 41.96% 115.12% 158.71% 91.62% 179.88%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
40
<PAGE>
<TABLE>
LEGACY
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- -------------------------------------------------------------- ------------------- ----------------------------------------
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
SIX MONTH JANUARY 20, 1997 MARCH 1, 1999 SIX MONTH JUNE 30, 1998
PERIOD ENDED (DATE OF INITIAL (DATE OF INITIAL PERIOD ENDED (DATE OF INITIAL
APRIL 30, YEAR ENDED PUBLIC OFFERING) PUBLIC OFFERING) TO APRIL 30, PUBLIC OFFERING) TO
1999 OCTOBER 31, TO OCTOBER 31, APRIL 30, 1999 1999 OCTOBER 31,
(UNAUDITED) 1998 1997 (UNAUDITED) (UNAUDITED) 1998
------------ ----------- ------------------- ------------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
$ 10.15 $ 12.09 $ 11.01 $ 10.08 $ 10.18 $ 10.72
-------- -------- -------- -------- -------- --------
0.15 0.31 0.29 0.04 0.11 0.08
0.61 (0.06) 0.79 0.40 0.61 (0.62)
-------- -------- -------- --------- -------- --------
0.76 0.25 1.08 0.44 0.72 (0.54)
-------- -------- -------- --------- -------- --------
(0.22) (0.57) -- -- (0.19) --
(0.22) (1.62) -- -- (0.22) --
-------- -------- -------- --------- -------- --------
(0.44) (2.19) -- -- (0.41) --
-------- -------- -------- --------- -------- --------
$ 10.47 $ 10.15 $ 12.09 $ 10.52 $ 10.49 $ 10.18
======== ======== ======== ========= ======== ========
7.55% 2.29% 9.81% 4.37% 7.18% (5.04)%
$ 5,596 $ 1,812 $ 481 $ 104 $ 290 $ 171
1.45%(1) 1.53% 2.21%(1) 2.20%(1) 2.20%(1) 2.24%(1)
2.94%(1) 2.97% 2.39%(1) 2.19%(1) 2.19%(1) 2.26%(1)
1.76%(1) 1.96% 2.50%(1) 2.51%(1) 2.51%(1) 2.67%(1)
41.96% 115.12% 158.71% 41.96% 41.96% 115.12%
</TABLE>
(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.
41
<PAGE>
CLASS A, CLASS B, CLASS C AND CLASS I SHARES
AETNA SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 1, 1999
This Statement of Additional Information (Statement) is not a Prospectus and
should be read in conjunction with the current Prospectus for Class A, Class B
and Class C shares of Aetna Series Fund, Inc. (Company) and the current
Prospectus for Class I shares of the Company, each dated August 1, 1999, for the
following funds (Funds). Capitalized terms not defined herein are used as
defined in the Prospectuses.
CAPITAL APPRECIATION FUNDS
Aetna Growth Fund (Growth)
Aetna International Fund (International)
Aetna Mid Cap Fund (Mid Cap)
Aetna Small Company Fund (Small Company)
Aetna Value Opportunity Fund (Value Opportunity)
GROWTH & INCOME FUNDS
Aetna Balanced Fund (Balanced)
Aetna Growth and Income Fund (Growth and Income)
Aetna Real Estate Securities Fund (Real Estate)
INCOME FUNDS
Aetna Bond Fund (Bond Fund)
Aetna Government Fund
Aetna High Yield Fund (High Yield)
Aetna Money Market Fund (Money Market)
INDEX PLUS FUNDS
Aetna Index Plus Bond Fund (Index Plus Bond)
Aetna Index Plus Large Cap Fund (Index Plus Large Cap)
Aetna Index Plus Mid Cap Fund (Index Plus Mid Cap)
Aetna Index Plus Small Cap Fund (Index Plus Small Cap)
GENERATION FUNDS
Aetna Ascent Fund (Ascent)
Aetna Crossroads Fund (Crossroads)
Aetna Legacy Fund (Legacy)
The Funds' Financial Statements and the independent auditors' reports thereon,
included in the Company's Annual Reports and the Financial Statements
(unaudited) appearing in the Company's Semi-Annual Reports, are incorporated
herein by reference in this Statement. A free copy of the Company's Annual and
Semi-Annual Reports and each Prospectus is available upon request by writing to:
Aetna Series Fund, Inc., 10 State House Square, Hartford, Connecticut
06103-3602, or by calling: (800) 367-7732.
1
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION...........................................................3
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES...............................3
INVESTMENT TECHNIQUES AND RISK FACTORS........................................6
YEAR 2000....................................................................17
DIRECTORS AND OFFICERS.......................................................19
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS...................................21
THE INVESTMENT ADVISORY AGREEMENTS...........................................22
THE SUBADVISORY AGREEMENT....................................................25
THE ADMINISTRATIVE SERVICES AGREEMENT........................................26
CUSTODIAN....................................................................27
TRANSFER AGENT...............................................................28
INDEPENDENT AUDITORS.........................................................28
PRINCIPAL UNDERWRITER........................................................28
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS..........................28
PURCHASE AND REDEMPTION OF SHARES............................................31
BROKERAGE ALLOCATION AND TRADING POLICIES....................................34
SHAREHOLDER ACCOUNTS AND SERVICES............................................36
NET ASSET VALUE..............................................................37
TAX STATUS...................................................................38
PERFORMANCE INFORMATION......................................................39
FINANCIAL STATEMENTS.........................................................44
2
<PAGE>
GENERAL INFORMATION
Incorporation The Company was incorporated under the laws of Maryland on June
17, 1991.
Series and Classes The Company currently offers 21 separate series, 19 of which
are offered through this Statement of Additional Information and the
corresponding Prospectuses. Those 19 series are listed on the first page of the
Statement. 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 each Fund currently are classified into
four classes: Class A, Class B, Class C and Class I. Class I shares are shares
that are offered to certain retirement plans; certain registered investment
advisers having an agreement with the Funds to invest a minimum of $1 million
within one year of initial purchase; employees and retired employees of Aetna
Inc. and its affiliates (including members of employees' and retired persons'
immediate families, board members and trustees, and their immediate families);
insurance companies (including separate accounts); registered investment
companies; shareholders holding Select Class shares at the time such shares were
redesignated as Class I shares, and their immediate family members, as long as
they maintain a shareholder account; certain bank and independent trust
companies investing on behalf of their clients for which they charge trust and
investment management fees; members of the Board; NASD-registered
representatives of Aeltus Capital or any affiliated broker-dealer (including
members of their immediate families); and of such other groups as may be
approved by the Company's Board from time to time. Class A, Class B and Class C
shares are shares that are offered to accounts not eligible to buy Class I
shares. Each class of shares has the same rights, privileges and preferences,
except with respect to: (a) the effect of sales charges, if any, for each class;
(b) the distribution fees borne by each class; (c) the expenses allocable
exclusively to each class; (d) voting rights on matters exclusively affecting a
single class; and (e) the exchange privilege of each class.
Capital Stock Fund shares are fully paid and nonassessable when issued. Fund
shares have no preemptive or conversion rights, except that Class B shares
automatically convert to Class A shares after 8 years. Each share of a Fund has
the same rights to share in dividends declared by a Fund. Upon liquidation of
any Fund, shareholders in that Fund 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 the interests of one Fund or one class of
shares. Voting rights are not cumulative, so that the holders of more than 50%
of the shares voting in the election of Directors can, if they choose to do so,
elect all the Directors, in which event the holders of the remaining shares will
be unable to elect any person as a Director.
The Articles may be amended by an affirmative vote of a majority of the shares
at any meeting of shareholders or by written instrument signed by a majority of
the Directors and consented to by a majority of the shareholders.
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 Directors 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.
1940 Act Classification The Company is an open-end management investment
company, as that term is defined under the 1940 Act. Each Fund is a diversified
company, as that term is defined under the 1940 Act. The 1940 Act generally
requires that with respect to 75% of its total assets, a diversified company may
not invest more than 5% of its total assets in the securities of any one issuer.
Money Market is subject to this restriction with respect to 100% of its total
assets.
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES
The investment objectives and certain investment policies of each Fund are
matters of fundamental policy for purposes of the 1940 Act and therefore cannot
be changed without the approval of a majority of the outstanding voting
securities of that Fund. This means the lesser of (a) 67% of the shares of a
Fund present at a shareholders' meeting if the holders
3
<PAGE>
of more than 50% of the shares of that Fund 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, a Fund will not:
(1) hold more than 5% of the value of its total assets in the securities of
any one issuer or hold more than 10% of the outstanding voting
securities of any one issuer. This restriction applies only to 75%
(100% in the case of Money Market) of the value of a Fund's total
assets. Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities are excluded from this restriction;
(2) except for Real Estate, concentrate its investments in any one
industry, although a 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 user of their services,
such as automobile finance, computer finance and consumer finance. In
addition, for purposes of this restriction, for Ascent, Crossroads and
Legacy (collectively referred to as the "Generation Funds"), real
estate stocks will be classified as separate industries according to
property type, such as apartment, retail, office and industrial. This
limitation will not apply to any Fund's investment in securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Additionally for Money Market, investments in the following shall not
be subject to the 25% limitation: securities invested in, or repurchase
agreements for, U.S. Government securities, certificates of deposit,
bankers' acceptances, and securities of banks;
(3) make loans, except that, to the extent appropriate under its investment
program, a Fund may (i) purchase bonds, debentures or other debt
instruments, including short-term obligations; (ii) enter into
repurchase transactions; and (iii) lend portfolio securities provided
that the value of such loaned securities does not exceed one-third of
the Fund's total assets;
(4) issue any senior security (as defined in the 1940 Act), except that (i)
a Fund may enter into commitments to purchase securities in accordance
with that Fund's investment program, including reverse repurchase
agreements, delayed delivery and when-issued securities, which may be
considered the issuance of senior securities; (ii) a Fund may engage in
transactions that may result in the issuance of a senior security to
the extent permitted under applicable regulations, interpretations of
the 1940 Act or an exemptive order; (iii) a Fund (other than Money
Market) may engage in short sales of securities to the extent permitted
in its investment program and other restrictions; (iv) the purchase or
sale of futures contracts and related options shall not be considered
to involve the issuance of senior securities; and (v) subject to
certain fundamental restrictions set forth below, a Fund may borrow
money as authorized by the 1940 Act;
(5) except for Real Estate, purchase real estate, interests in real estate
or real estate limited partnership interests except that: (i) to the
extent appropriate under its investment program, a Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which deal in real
estate or interests therein; or (ii) a Fund may acquire real estate as
a result of ownership of securities or other interests (this could
occur for example if a Fund holds a security that is collateralized by
an interest in real estate and the security defaults);
(6) invest in commodity contracts, except that a Fund may, to the extent
appropriate under its investment program, purchase securities of
companies engaged in such activities; may (other than Money Market)
enter into transactions in financial and index futures contracts and
related options; and may enter into forward currency contracts;
(7) borrow money, except that (i) a Fund (other than Money Market) may
enter into certain futures contracts and options related thereto; (ii)
a Fund may enter into commitments to purchase securities in accordance
with that Fund's investment program, including delayed delivery and
when-issued securities and reverse repurchase agreements; (iii) for
temporary emergency purposes, a Fund may borrow money in amounts not
exceeding 5% of the value of its total assets at the time the loan is
made; and (iv) for purposes of leveraging, a Fund (other than Money
Market) may borrow money from banks (including its custodian bank) only
if, immediately after
4
<PAGE>
such borrowing, the value of that 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 that Fund's assets fails to meet the 300% asset coverage requirement
relative only to leveraging, that Fund will, within three days (not
including Sundays and holidays), reduce its borrowings to the extent
necessary to meet the 300% test;
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by a Fund, that
Fund may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (1933 Act).
The Board has adopted the following other investment restrictions which may be
changed by the Board and without shareholder vote. A Fund will not:
(1) make short sales of securities, other than short sales "against the
box," or purchase securities on margin except for short-term credits
necessary for clearance of portfolio transactions, provided that this
restriction will not be applied to limit the use of options, futures
contracts and related options, in the manner otherwise permitted by the
investment restrictions, policies and investment programs of each Fund,
as described in this Statement and in the Prospectuses;
(2) except for International and Generation Funds, invest more than 25% of
its total assets in securities or obligations of foreign issuers,
including marketable securities of, or guaranteed by, foreign
governments (or any instrumentality or subdivision thereof). A Fund
will invest in securities or obligations of foreign banks only if such
banks have a minimum of $5 billion in assets and a primary capital
ratio of at least 4.25%. Money Market may only purchase foreign
securities or obligations that are U.S.-dollar denominated;
(3) invest in companies for the purpose of exercising control or
management;
(4) purchase interests in oil, gas or other mineral exploration programs;
however, this limitation will not prohibit the acquisition of
securities of companies engaged in the production or transmission of
oil, gas, or other minerals;
(5) invest more than 15% (10% for Money Market, Index Plus Bond, Index Plus
Large Cap, Index Plus Mid Cap and Index Plus Small Cap) of its net
assets in illiquid securities. Illiquid securities are securities that
are not readily marketable or cannot be disposed of promptly within
seven days and in the usual course of business without taking a
materially reduced price. Such securities include, but are not limited
to, time deposits and repurchase agreements with maturities longer than
seven days. Securities that may be resold under Rule 144A under, or
securities offered pursuant to Section 4(2) of the 1933 Act, shall not
be deemed illiquid solely by reason of being unregistered. Aeltus
Investment Management, Inc. (Aeltus), the investment adviser, shall
determine whether a particular security is deemed to be liquid based on
the trading markets for the specific security and other factors;
(6) except for High Yield, invest more than 15% (10% for Index Plus Large
Cap, Index Plus Mid Cap and Index Plus Small Cap) of the total value of
its assets in high-yield bonds (securities rated below BBB- by Standard
& Poor's Corporation (S&P) or Baa3 by Moody's Investors Service, Inc.
(Moody's), or, if unrated, considered by Aeltus to be of comparable
quality).
Where a 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.
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INVESTMENT TECHNIQUES AND RISK FACTORS
Options, Futures and Other Derivative Instruments
Each Fund may use certain derivative instruments as a means of achieving its
investment objective. For purposes other than hedging, a Fund will invest no
more than 5% of its assets in derivatives, which at the time of purchase are
considered by management to involve high risk to the Fund, such as inverse
floaters and interest-only and principal-only debt instruments.
Each Fund (except Money Market) may use the derivative instruments described
below and in the Prospectuses. Derivatives that may be used by a Fund (other
than Money Market) include forward contracts, swaps, structured notes, futures
and options. Each 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. Forward exchange contracts are not subject to this
30% limitation.
The following provides additional information about those derivative instruments
each Fund (except Money Market) may use.
Futures Contracts Each Fund may enter into futures contracts and options
thereon subject to the restrictions described below under "Additional
Restrictions on the Use of Futures and Option Contracts." A Fund may enter into
futures contracts or options thereon that are traded on national futures
exchanges and are standardized as to maturity date and underlying financial
instrument. 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 at a designated date, time, and place.
Brokerage fees are incurred when a futures contract is bought or sold and at
expiration, and margin deposits must be maintained.
Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments, those contracts are
usually closed out before the delivery date. Stock index futures contracts do
not contemplate actual future delivery and will be settled in cash at expiration
or closed out prior to expiration. Closing out an open futures contract sale or
purchase is effected by entering into an offsetting futures contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
underlying instrument and the same delivery date. There can be no assurance,
however, that a Fund will be able to enter into an offsetting transaction with
respect to a particular contract at a particular time. If a 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 a
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 securities being
hedged can be only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
futures and for securities, including technical influences in futures trading,
and differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available for trading.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or stock market or interest rate trends.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
interest rate futures contract prices during a single trading day, and, as
noted, temporary regulations limiting price fluctuations for stock index futures
contracts are also now in effect. The daily limit establishes the maximum amount
that the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular type of contract, no trades may be made
on that day at a price beyond that limit. The daily limit
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governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
persons engaging in futures transactions to substantial losses.
Sales of futures contracts which are intended to hedge against a change in the
value of securities held by a 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 a Fund with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in a 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 a Fund. These daily payments to and from
a 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, each Fund will mark-to-market the current value of its open
futures contracts. Each Fund expects to earn interest income on its initial
margin deposits.
When a 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.
A Fund can buy and write (sell) options on futures contracts. A Fund may
purchase and sell futures contracts and related options under the following
conditions: (a) the then-current aggregate futures market prices of financial
instruments required to be delivered and purchased under open futures contracts
shall not exceed 30% of a Fund's total assets (100% in the case of Ascent and
60% in the case of Crossroads) at market value at the time of entering into a
contract and (b) no more than 5% of the assets, at market value at the time of
entering into a contract, shall be committed to margin deposits in relation to
futures contracts. See "Call and Put Options" below for additional restrictions.
Call and Put Options Each Fund may purchase and write (sell) call options and
put options on securities, indices and futures as discussed in the Prospectuses,
subject to the restrictions described in this section and under "Additional
Restrictions on the Use of Futures and Option Contracts." A call option gives
the holder (buyer) the right to buy and to obligate the writer (seller) to sell
a security or financial instrument at a stated price (strike price) at any time
until a designated future date when the option expires (expiration date). A put
option gives the holder (buyer) the right to sell and to obligate the writer
(seller) to purchase a security or financial instrument at a stated price at any
time until the expiration date. A Fund may write or purchase put or call options
listed on national securities exchanges in standard contracts or may write or
purchase put or call options with or directly from investment dealers meeting
the creditworthiness criteria of Aeltus.
Each Fund, except the Generation Funds, is prohibited from having written call
options outstanding at any one time on more than 30% of its total assets. A Fund
will not write a put if it will require more than 50% of the Fund's net assets
to be designated to cover all put obligations. No Fund may buy put options if
more than 3% of its assets immediately following such purchase would consist of
put options. The Funds may purchase call and sell put options on equity
securities only to close out positions previously opened; the Generation Funds
are not subject to this restriction. No Fund will write a call option on a
security unless the call is "covered" (i.e., it already owns the underlying
security). Securities it "already owns" include any stock which it has the right
to acquire without any additional payment, at its discretion for as long as the
call remains outstanding. This restriction does not apply to the writing of
calls on securities indices or futures contracts. The Funds will not write call
options on when-issued securities. The Funds purchase call options primarily as
a temporary substitute for taking positions in certain securities or in the
securities that comprise a relevant index, particularly if Aeltus considers
these instruments to be undervalued relative to the prices of particular
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securities or of the securities underlying that index. A Fund may also purchase
call options on an index to protect against increases in the price of securities
underlying that index that the Fund intends to purchase pending its ability to
invest in such securities in an orderly manner.
So long as the obligation of the writer of a call option continues, the writer
may be assigned an exercise notice by the broker-dealer through which such
option was settled, requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, by the exercise of the call option, or by
entering into an offsetting transaction.
When writing a call option, in return for the premium, the writer gives up the
opportunity to profit from the price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. If a call option expires unexercised, the writer will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security during the option
period. If the call option is exercised, the writer would realize a gain or loss
from the transaction depending on what it received from the call and what it
paid for the underlying security.
An option on an index (or a particular security) is a contract that gives the
purchaser of the option, in return for the premium paid, the right to receive
from the writer of the option cash equal to the difference between the closing
price of the index (or security) and the exercise price of the option, expressed
in dollars, times a specified multiple (the multiplier).
A Fund may write calls on securities indices and futures contracts provided that
it enters into an appropriate offsetting position or that it designates liquid
assets in an amount sufficient to cover the underlying obligation in accordance
with regulatory requirements. The risk involved in writing call options on
futures contracts or market indices is that a Fund would not benefit from any
increase in value above the exercise price. Usually, this risk can be eliminated
by entering into an offsetting transaction. However, the cost to do an
offsetting transaction and terminate the Fund's obligation might be more or less
than the premium received when it originally wrote the option. Further, a Fund
might occasionally not be able to close the option because of insufficient
activity in the options market.
In the case of a put option, as long as the obligation of the put writer
continues, it may be assigned an exercise notice by the broker-dealer through
which such option was sold, requiring the writer to take delivery of the
underlying security against payment of the exercise price. A writer has no
control over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the expiration date.
This obligation terminates earlier if the writer effects a closing purchase
transaction by purchasing a put of the same series as that previously sold.
If a put option is sold by a Fund, the Fund will designate liquid securities
with a value equal to the exercise price, or else will hold an offsetting
position in accordance with regulatory requirements. In writing puts, there is
the risk that a writer may be required to buy the underlying security at a
disadvantageous price. The premium the writer receives from writing a put option
represents a profit, as long as the price of the underlying instrument remains
above the exercise price. If the put is exercised, however, the writer is
obligated during the option period to buy the underlying instrument from the
buyer of the put at the exercise price, even though the value of the investment
may have fallen below the exercise price. If the put lapses unexercised, the
writer realizes a gain in the amount of the premium. If the put is exercised,
the writer may incur a loss, equal to the difference between the exercise price
and the current market value of the underlying instrument.
A Fund may purchase put options when Aeltus (or Bradley, in the case of Value
Opportunity) believes that a temporary defensive position is desirable in light
of market conditions, but does not desire to sell a portfolio security. The
purchase of put options may be used to protect a Fund's holdings in an
underlying security against a substantial decline in market value. Such
protection is, of course, only provided during the life of the put option when a
Fund, as the holder of the put option, is able to sell the underlying security
at the put exercise price regardless of any decline in the underlying security's
market price. By using put options in this manner, a Fund will reduce any profit
it might otherwise have realized in its underlying security by the premium paid
for the put option and by transaction costs.
The premium received from writing a call or put option, or paid for purchasing a
call or put option will reflect, among other things, the current market price of
the underlying security, the relationship of the exercise price to such market
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price, the historical price volatility of the underlying security, the length of
the option period, and the general interest rate environment. The premium
received by a Fund for writing call options will be recorded as a liability in
the statement of assets and liabilities of that Fund. This liability will be
adjusted daily to the option's current market value. The liability will be
extinguished upon expiration of the option, by the exercise of the option, or by
entering into an offsetting transaction. Similarly, the premium paid by a Fund
when purchasing a put option will be recorded as an asset in the statement of
assets and liabilities of that Fund. This asset will be adjusted daily to the
option's current market value. The asset will be extinguished upon expiration of
the option, by selling an identical option in a closing transaction, or by
exercising the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security from being
called or put, or to permit the exchange or tender of the underlying security.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option, or purchase another put option, on the underlying security with
either a different exercise price or expiration date or both. If a Fund desires
to sell a particular security from its portfolio on which it has written a call
option, or purchased a put option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect a closing transaction at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. A Fund will pay brokerage
commissions in connection with the sale or purchase of options to close out
previously established option positions. These brokerage commissions are
normally higher as a percentage of underlying asset values than those applicable
to purchases and sales of portfolio securities.
Foreign Futures Contracts and Foreign Options The Funds may engage in
transactions in foreign futures contracts and foreign options. Participation in
foreign futures contracts and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the CFTC, the National Futures Association (NFA) nor any
domestic exchange regulates activities of any foreign boards of trade including
the execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign board of trade or any applicable foreign
laws. Generally, the foreign transaction will be governed by applicable foreign
law. This is true even if the exchange is formally linked to a domestic market
so that a position taken on the market may be liquidated by a transaction on
another market. Moreover, such laws or regulations will vary depending on the
foreign country in which the foreign futures contracts or foreign options
transaction occurs. Investors that trade foreign futures contracts or foreign
options contracts may not be afforded certain of the protective measures
provided by domestic exchanges, including the right to use reparations
proceedings before the CFTC and arbitration proceedings provided by the NFA. In
particular, funds received from customers for foreign futures contracts or
foreign options transactions may not be provided the same protections as funds
received for transactions on U.S. futures exchange. The price of any foreign
futures contracts or foreign options contract and, therefore, the potential
profit and loss thereon, may be affected by any variance in the foreign exchange
rate between the time an order is placed and the time it is liquidated, offset
or exercised.
Options on Foreign Currencies Each Fund may write and purchase calls on foreign
currencies. A Fund may purchase and write puts and calls on foreign currencies
that are traded on a securities or commodities exchange or quoted by major
recognized dealers in such options for the purpose of protecting against
declines in the dollar value of foreign securities and against increases in the
dollar cost of foreign securities to be acquired. If a rise is anticipated in
the dollar value of a foreign currency in which securities to be acquired are
denominated, the increased cost of such securities may be partially offset by
purchasing calls or writing puts on that foreign currency. If a decline in the
dollar value of a foreign currency is anticipated, the decline in value of
portfolio securities denominated in that currency may be partially offset by
writing calls or purchasing puts on that foreign currency. In such
circumstances, the Fund collateralizes the position by designating cash and/or
liquid securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily. In the event of rate
fluctuations adverse to a Fund's position, it would lose the premium it paid and
transactions costs. A call written on a foreign currency by a Fund is covered if
the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration specially designated)
upon conversion or exchange of other foreign currency held in its portfolio.
Additional Restrictions on the Use of Futures and Option Contracts CFTC
regulations require that to prevent a Fund from being a commodity pool the Funds
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
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have a total value not in excess of an amount determined by reference to
certain cash and securities positions maintained, and accrued profits on such
positions. As evidence of its hedging intent, each 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 that Fund in the cash market. With respect
to futures contracts or related options that are entered into for purposes that
may be considered speculative, the aggregate initial margin for future
contracts and premiums for options will not exceed 5% of a Fund's net assets,
after taking into account realized profits and unrealized losses on such
futures contracts.
Forward Exchange Contracts Each Fund may enter into forward contracts for
foreign currency (forward exchange contracts), which obligate the seller to
deliver and the purchaser to take a specific amount of a specified foreign
currency at a future date at a price set at the time of the contract. These
contracts are generally traded in the interbank market conducted directly
between currency traders and their customers. A Fund may enter into a forward
exchange contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency which it has purchased or sold but which has
not yet settled (a transaction hedge); or to lock in the value of an existing
portfolio security (a position hedge); or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
a foreign currency. Forward exchange contracts include standardized foreign
currency futures contracts which are traded on exchanges and are subject to
procedures and regulations applicable to futures. Each Fund may also enter into
a forward exchange contract to sell a foreign currency that differs from the
currency in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign currency of
the forward exchange contract and the foreign currency of the underlying
investment than between the U.S. dollar and the foreign currency of the
underlying investment. This technique is referred to as "cross hedging." The
success of cross hedging is dependent on many factors, including the ability of
Aeltus (or Bradley, in the case of Value Opportunity) to correctly identify and
monitor the correlation between foreign currencies and the U.S. dollar. To the
extent that the correlation is not identical, a Fund may experience losses or
gains on both the underlying security and the cross currency hedge.
Each Fund may use forward exchange contracts to protect against uncertainty in
the level of future exchange rates. The use of forward exchange contracts does
not eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance. In
addition, although forward exchange contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit any
potential gain that might result should the value of the currencies increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transactions costs.
At or before the maturity of a forward exchange contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward contract
under either circumstance to the extent the exchange rate(s) between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract.
The cost to a Fund of engaging in forward exchange contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. Because such
contracts are not traded on an exchange,
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Aeltus must evaluate the credit and performance risk of each particular
counterparty under a forward contract.
Although the Funds value their assets daily in terms of U.S. dollars, they do
not intend to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. The Funds may convert foreign currency from time to time. Foreign
exchange dealers do not charge a fee for conversion, but they do seek to realize
a profit based on the difference between the prices at which they buy and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Funds at one rate, while offering a lesser rate of exchange should the Funds
desire to resell that currency to the dealer.
Interest Rate Swap Transactions Swap agreements entail both interest rate risk
and credit risk. There is a risk that, based on movements of interest rates in
the future, the payments made by a Fund under a swap agreement will have been
greater than those received by it. Credit risk arises from the possibility that
the counterparty will default. If the counterparty to an interest rate swap
defaults, a Fund's loss will consist of the net amount of contractual interest
payments that a Fund has not yet received. Aeltus will monitor the
creditworthiness of counterparties to a Fund's interest rate swap transactions
on an ongoing basis. A Fund will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting agreement
provides that all swaps done between a Fund and that counterparty under that
master agreement shall be regarded as parts of an integral agreement. If on any
date amounts are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency shall be
paid. In addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting in a loss to
one party, the measure of that party's damages is calculated by reference to the
average cost of a replacement swap with respect to each swap (i.e., the
mark-to-market value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the counterparty's gain
or loss on termination. The termination of all swaps and the netting of gains
and losses on termination is generally referred to as "aggregation."
Mortgage-Related Debt Securities
Money Market, Aetna Government Fund, Bond Fund, Growth and Income, High Yield,
Balanced, Real Estate, Index Plus Bond and the Generation Funds may invest in
mortgage-related debt securities, collateralized mortgage obligations (CMOs) and
real estate mortgage investment conduits (REMICs). Federal mortgage-related
securities include obligations issued or guaranteed by the Government National
Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA)
and the Federal Home Loan Mortgage Corporation (FHLMC). GNMA is a wholly owned
corporate instrumentality of the U.S., the securities and guarantees of which
are backed by the full faith and credit of the U.S. FNMA, a federally chartered
and privately owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the U.S. with Presidentially appointed board members. The
obligations of FNMA and FHLMC are not explicitly guaranteed by the full faith
and credit of the federal government.
Pass-through mortgage-related securities are characterized by monthly payments
to the holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the security holders,
like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, often twenty or thirty years, the borrowers can, and typically do, repay
such loans sooner. Thus, the security holders frequently receive repayments of
principal, in addition to the principal that is part of the regular monthly
payment. A borrower is more likely to repay a mortgage bearing a relatively high
rate of interest. This means that in times of declining interest rates, some
higher yielding securities held by a Fund might be converted to cash, and the
Fund could be expected to reinvest such cash at the then prevailing lower rates.
The increased likelihood of prepayment when interest rates decline also limits
market price appreciation of mortgage-related securities. If a Fund buys
mortgage-related securities at a premium, mortgage foreclosures or mortgage
prepayments may result in losses of up to the amount of the premium paid since
only timely payment of principal and interest is guaranteed.
CMOs and REMICs are securities which are collateralized by mortgage pass-through
securities. Cash flows from underlying mortgages are allocated to various
classes or tranches in a predetermined, specified order. Each sequential tranche
has a "stated maturity"--the latest date by which the tranche can be completely
repaid, assuming no repayments--and has an "average life"--the average time to
receipt of a principal payment weighted by the size of the principal payment.
The average life is typically used as a proxy for maturity because the debt is
amortized, rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.
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CMOs and REMICs are typically structured as "pass-through" securities. In these
arrangements, the underlying mortgages are held by the issuer, which then issues
debt collateralized by the underlying mortgage assets. The security holder thus
owns an obligation of the issuer and payment of interest and principal on such
obligations is made from payments generated by the underlying mortgage assets.
The underlying mortgages may or may not be guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. Government such as GNMA
or otherwise backed by FNMA or FHLMC. Alternatively, such securities may be
backed by mortgage insurance, letters of credit or other credit enhancing
features. Both CMOs and REMICs are issued by private entities. They are not
directly guaranteed by any government agency and are secured by the collateral
held by the issuer. CMOs and REMICs are subject to the type of prepayment risk
described above due to the possibility that prepayments on the underlying assets
will alter the cash flow.
Asset-Backed Securities
Each Fund may invest in asset-backed securities. Asset-backed securities are
collateralized by short-term loans such as automobile loans, home equity loans,
or credit card receivables. The payments from the collateral are generally
passed through to the security holder. As noted above with respect to CMOs and
REMICs, the average life for these securities is the conventional proxy for
maturity. Asset-backed securities may pay all interest and principal to the
holder, or they may pay a fixed rate of interest, with any excess over that
required to pay interest going either into a reserve account or to a subordinate
class of securities, which may be retained by the originator. The originator may
guarantee interest and principal payments. These guarantees often do not extend
to the whole amount of principal, but rather to an amount equal to a multiple of
the historical loss experience of similar portfolios.
Two varieties of asset-backed securities are CARs and CARDs. CARs are
securities, representing either ownership interests in fixed pools of automobile
receivables, or debt instruments supported by the cash flows from such a pool.
CARDs are participations in fixed pools of credit accounts. These securities
have varying terms and degrees of liquidity.
The collateral behind certain asset-backed securities (such as CARs and CARDs)
tends to have prepayment rates that do not vary with interest rates; the
short-term nature of the loans may also tend to reduce the impact of any change
in prepayment level. Other asset-backed securities, such as home equity
asset-backed securities, have prepayment rates that are sensitive to interest
rates. Faster prepayments will shorten the average life and slower prepayments
will lengthen it. Asset-backed securities may be pass-through, representing
actual equity ownership of the underlying assets, or pay-through, representing
debt instruments supported by cash flows from the underlying assets.
The coupon rate of interest on mortgage-related and asset-backed securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor. Actual yield may vary from the coupon rate, however, if such
securities are purchased at a premium or discount, traded in the secondary
market at a premium or discount, or to the extent that the underlying assets are
prepaid as noted above.
Zero Coupon and Pay-in-Kind Securities
Each Fund may invest in zero coupon securities and all Funds (except Money
Market) may invest in pay-in-kind securities. In addition, each Fund may invest
in STRIPS (Separate Trading of Registered Interest and Principal of Securities).
Zero coupon or deferred interest securities are debt obligations that do not
entitle the holder to any periodic payment of interest prior to maturity or a
specified date when the securities begin paying current interest (the "cash
payment date") and therefore are issued and traded at a discount from their face
amounts or par value. The discount varies, depending on the time remaining until
maturity or cash payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The discount, in the
absence of financial difficulties of the issuer, decreases as the final maturity
or cash payment date of the security approaches. STRIPS are created by the
Federal Reserve Bank by separating the interest and principal components of an
outstanding U.S. Treasury or agency bond and selling them as individual
securities. The market prices of zero coupon, STRIPS and deferred interest
securities generally are more volatile than the market prices of securities with
similar maturities that pay interest periodically and are likely to respond to
changes in interest rates to a greater degree than do non-zero coupon securities
having similar maturities and credit quality.
12
<PAGE>
The risks associated with lower-rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, a Fund may realize no return on its investment, because
these securities do not pay cash interest.
Additional Risk Factors in Using Derivatives
In addition to any risk factors which may be described elsewhere in this
section, or in the Prospectuses, the following sets forth certain information
regarding the potential risks associated with a Fund's transactions in
derivatives.
Risk of Imperfect Correlation A Fund's ability to hedge effectively all or a
portion of its portfolio through transactions in futures, options on futures or
options on securities and indexes depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the assets being hedged. If the values
of the assets being hedged do not move in the same amount or direction as the
underlying security or index, the hedging strategy for a Fund might not be
successful and the Fund could sustain losses on its hedging transactions which
would not be offset by gains on its portfolio. It is also possible that there
may be a negative correlation between the security or index underlying a futures
or option contract and the portfolio securities being hedged, which could result
in losses both on the hedging transaction and the portfolio securities. In such
instances, the 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 or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by the Fund, which could
require the Fund to purchase or sell the instrument underlying the position,
make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures or option positions also could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
or the relevant portion thereof.
The trading of futures and options contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Risk of Predicting Interest Rate Movements Investments in futures contracts on
fixed income securities and related indices involve the risk that if Aeltus'
judgment concerning the general direction of interest rates is incorrect, a
Fund's overall performance may be poorer than if it had not entered into any
such contract. For example, if a 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 and option
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. The Company does not believe that these trading and
position limits will have an adverse impact on the hedging strategies regarding
the Funds.
Counterparty Risk With some derivatives, whether used for hedging or
speculation, there is also the risk that the counterparty may fail to honor its
contract terms, causing a loss for the Fund.
Funds' Investment in Equity and Debt Securities
Each Fund may invest in equity and debt securities (except that Aetna Government
Fund and Money Market may not invest in equity securities). Equity securities
are subject to a decline in the stock market or in the value of the issuing
13
<PAGE>
company and preferred stocks have price risk and some interest rate and credit
risk. The value of fixed income or debt securities may be affected by changes in
general interest rates and in the creditworthiness of the issuer. Debt
securities with longer maturities (for example, over ten years) are more
affected by changes in interest rates and provide less price stability than
securities with short-term maturities (for example, one to ten years). Also, for
each debt security, there is a risk of principal and interest default which will
be greater with higher-yielding, lower-grade securities. International may hold
up to 10% of its total assets in long-term debt securities with an S&P or
Moody's rating of AA/Aa or above, or, if unrated, are considered by Aeltus to be
of comparable quality. Balanced generally maintains at least 25% of its total
assets in debt securities.
Repurchase Agreements
Each Fund may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards approved by
the Board. Under a repurchase agreement, a Fund may acquire a debt instrument
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase and the Fund to resell the instrument at
a fixed price and time, thereby determining the yield during the Fund's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. Such underlying debt instruments serving as
collateral will meet the quality standards of a Fund. The market value of the
underlying debt instruments will, at all times, be equal to the dollar amount
invested. Repurchase agreements, although fully collateralized, involve the risk
that the seller of the securities may fail to repurchase them from a Fund. In
that event, the Fund may incur (a) disposition costs in connection with
liquidating the collateral, or (b) a loss if the collateral declines in value.
Also, if the default on the part of the seller is due to insolvency and the
seller initiates bankruptcy proceedings, a Fund's ability to liquidate the
collateral may be delayed or limited. Repurchase agreements maturing in more
than seven days will not exceed 10% of the total assets of a Fund.
Variable Rate Demand Instruments
Each Fund, except International, may invest in variable rate demand instruments.
Variable rate demand instruments (including floating rate instruments) held by a
Fund may have maturities of more than one year, provided: (i) the Fund is
entitled to the payment of principal at any time, or during specified intervals
not exceeding one year, upon giving the prescribed notice (which may not exceed
30 days), and (ii) the rate of interest on such instruments is adjusted at
periodic intervals not to exceed one year. In determining whether a variable
rate demand instrument has a remaining maturity of one year or less, each
instrument will be deemed to have a maturity equal to the longer of the period
remaining until its next interest rate adjustment or the period remaining until
the principal amount can be recovered through demand. A Fund will be able (at
any time or during specified periods not exceeding one year, depending upon the
note involved) to demand payment of the principal of a note. If an issuer of a
variable rate demand note defaulted on its payment obligation, a Fund might be
unable to dispose of the note and a loss would be incurred to the extent of the
default. A Fund may invest in variable rate demand notes only when the
investment is deemed to involve minimal credit risk. The continuing
creditworthiness of issuers of variable rate demand notes held by a Fund will
also be monitored to determine whether such notes should continue to be held.
Variable and floating rate instruments with demand periods in excess of seven
days and which cannot be disposed of promptly within seven business days and in
the usual course of business without taking a reduced price will be treated as
illiquid securities.
Foreign Securities
All Funds may invest in foreign securities. 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. Because the Funds (other than Money Market) may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability, or diplomatic developments that could
adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. company, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
14
<PAGE>
uniform as those of U.S. issuers. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable U.S. issuers. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the U.S. The Company might have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in U.S.
courts. In addition, transactions in foreign securities may involve greater time
from the trade date until settlement than domestic securities transactions and
involve the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
All these risks usually are higher in emerging markets, such as most countries
in Africa, Asia, Latin America and the Middle East, than in more established
markets, such as Western Europe.
Depositary receipts are typically dollar denominated, although their market
price is subject to fluctuations of the foreign currency in which the underlying
securities are denominated. Depositary receipts include: (a) American Depositary
Receipts (ADRs), which are typically designed for U.S. investors and held either
in physical form or in book entry form; (b) European Depositary Receipts (EDRs),
which are similar to ADRs but may be listed and traded on a European exchange as
well as in the U.S. (typically, these securities are traded on the Luxembourg
exchange in Europe); and (c) Global Depositary Receipts (GDRs), which are
similar to EDRs although they may be held through foreign clearing agents such
as Euroclear and other foreign depositories. Depositary receipts denominated in
U.S. dollars will not be considered foreign securities for purposes of the
investment limitation concerning investment in foreign securities.
High-Yield Bonds
All Funds, except International, Aetna Government Fund and Money Market, may
invest in high-yield bonds, subject to the limits described above and in the
Prospectuses. High-yield bonds are fixed income securities that offer a current
yield above that generally available on debt securities rated in the four
highest categories by Moody's and S&P or other rating agencies, or, if unrated,
are considered to be of comparable quality by Aeltus. These securities include:
(a) fixed rate corporate debt obligations (including bonds, debentures and
notes) rated below Baa3 by Moody's or BBB- by S&P;
(b) preferred stocks that have yields comparable to those of high-yielding
debt securities; and
(c) any securities convertible into any of the foregoing.
Debt obligations rated below Baa3/BBB- generally involve more risk of loss of
principal and income than higher-rated securities. Their yields and market
values tend to fluctuate more. Fluctuations in value do not affect the cash
income from the securities but are reflected in a Fund's net asset value. The
greater risks and fluctuations in yield and value occur, in part, because
investors generally perceive issuers of lower-rated and unrated securities to be
less creditworthy. Lower ratings, however, may not necessarily indicate higher
risks. In pursuing a Fund's objectives, Aeltus seeks to identify situations in
which Aeltus believes that future developments will enhance the creditworthiness
and the ratings of the issuer.
Some of the risks associated with high-yield bonds include:
Sensitivity to Interest Rate and Economic Changes High-yield bonds are more
sensitive to adverse economic changes or individual corporate developments but
generally less sensitive to interest rate changes than are investment grade
bonds. As a result, when interest rates rise, causing bond prices to fall, the
value of these securities may not fall as much as investment grade corporate
bonds. Conversely, when interest rates fall, these securities may underperform
investment grade corporate bonds.
Also, the financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability of
issuers of these securities to service their principal and interest payments, to
meet projected business goals and to obtain additional financing, than on more
creditworthy issuers. In addition, periods of economic uncertainty and changes
can be expected to result in increased volatility of market prices of these
securities
15
<PAGE>
and a Fund's net asset value. Furthermore, in the case of high-yield bonds
structured as zero coupon or pay-in-kind securities, their market prices
are affected to a greater extent by interest rate changes and thereby tend to be
more speculative and volatile than securities which pay interest periodically
and in cash.
Payment Expectations High-yield bonds present risks based on payment
expectations. For example, these securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Funds may have to replace the securities with a lower yielding
security, resulting in a decreased return for investors. In addition, there is a
higher risk of non-payment of interest and/or principal by issuers of these
securities than in the case of investment-grade bonds.
Liquidity and Valuation Risks Some issuers of high-yield bonds may be traded
among a limited number of broker-dealers rather than in a broad secondary
market. Many of these securities may not be as liquid as investment grade bonds.
The ability to value or sell these securities will be adversely affected to the
extent that such securities are thinly traded or illiquid. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
or increase the value and liquidity of these securities more than other
securities, especially in a thinly-traded market.
Limitations of Credit Ratings The credit ratings assigned to high-yield bonds
may not accurately reflect the true risks of an investment. Credit ratings
typically evaluate the safety of principal and interest payments rather than the
market value risk of such securities. In addition, credit agencies may fail to
adjust credit ratings to reflect rapid changes in economic or company conditions
that affect a security's market value. Although the ratings of recognized rating
services such as Moody's and S&P are considered, Aeltus primarily relies on its
own credit analysis which includes a study of existing debt, capital structure,
ability to service debts and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history and the current trend of earnings.
Thus the achievement of a Fund's investment objective may be more dependent on
Aeltus' own credit analysis than might be the case for a fund which does not
invest in these securities.
Convertibles
All Funds except Aetna Government Fund may invest in convertible securities. A
convertible bond or convertible preferred stock gives the holder the option of
converting these securities into common stock. Some convertible securities
contain a call feature whereby the issuer may redeem the security at a
stipulated price, thereby limiting the possible appreciation.
Real Estate Securities
All Funds except Bond Fund, Aetna Government Fund, High Yield and Money Market
may invest in real estate securities, including interests in real estate
investment trusts (REITs), real estate development, real estate operating
companies, and companies engaged in other real estate related businesses. 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, such as the
Northeastern U.S., or both.
Equity Securities of Smaller Companies
All Funds other than Bond Fund, Aetna Government Fund, Money Market, High Yield
and Index Plus Bond may invest in equity securities issued by U.S. companies
with smaller market capitalizations. These companies may be in an early
developmental stage or may be older companies entering a new stage of growth due
to management changes, new technology, products or markets. The securities of
small-capitalization companies may also be undervalued due to poor economic
conditions, market decline or actual or unanticipated unfavorable developments
affecting the companies. Securities of small-capitalization companies tend to
offer greater potential for growth than securities of larger, more established
issuers but there are additional risks associated with them. These risks
include: limited marketability; more abrupt or erratic market movements than
securities of larger capitalization companies; and less publicly available
information about the company and its securities. In addition, these companies
may be dependent on relatively few products or services, have limited financial
resources and lack of management depth, and may have less of a track record or
historical pattern of performance.
16
<PAGE>
Supranational Agencies
Each Fund, except Mid Cap, Real Estate, International, Small Company and Growth,
may invest up to 10% of its net assets in securities of supranational agencies.
These securities are not considered government securities and are not supported
directly or indirectly by the U.S. Government. Examples of supranational
agencies include, but are not limited to, the International Bank for
Reconstruction and Development (commonly referred to as the World Bank), which
was chartered to finance development projects in developing member countries;
the European Community, which is a twelve-nation organization engaged in
cooperative economic activities; the European Coal and Steel Community, which is
an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions.
Borrowing
Each Fund may borrow up to 5% of the value of its total assets from a bank for
temporary or emergency purposes. The Funds do not intend to borrow, except that
they may invest in leveraged derivatives which have certain risks as outlined
above. The Funds may borrow for leveraging purposes only if after the borrowing,
the value of the Funds' net assets including proceeds from the borrowings, is
equal to at least 300% of all outstanding borrowings. Leveraging can increase
the volatility of a Fund since it exaggerates the effects of changes in the
value of the securities purchased with the borrowed funds.
Bank Obligations
Each Fund may invest in obligations issued by domestic or foreign banks
(including banker's acceptances, commercial paper, bank notes, time deposits and
certificates of deposit) provided the issuing bank has a minimum of $5 billion
in assets and a primary capital ratio of at least 4.25%.
Portfolio Turnover
The portfolio turnover rate for Small Company was significantly higher in 1998
than in 1997 because of increased volatility in the market for
small-capitalization stocks. The portfolio turnover rate for Bond Fund was
significantly higher in 1998 than in 1997 because of a change in portfolio
managers which led to a reallocation of Fund assets. The portfolio turnover rate
for Index Plus Large Cap was significantly higher in 1998 than in 1997 because
of increased volatility in the quantitative rankings used in managing the Fund.
YEAR 2000
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 domestic mission-critical IT
systems has been completed. Remediation and/or testing activities remain to be
completed on approximately 1% of the systems portfolio. Final Year 2000 approval
testing for all systems is on target to complete mid-1999. The costs of these
efforts will not affect the Funds.
Aeltus and the Funds 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 Funds,
including, without limitation, its operation or the valuation of its assets.
17
<PAGE>
In addition, the Year 2000 problem may adversely affect issuers in which the
Funds invest. For example, issuers may incur substantial costs to address the
problem. Aeltus and the Funds will continue to monitor developments relating to
this issue.
18
<PAGE>
DIRECTORS AND OFFICERS
The investments and administration of the Company are under the supervision of
the Board. The Directors and executive officers of the Company 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 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.
<TABLE>
<CAPTION>
- --------------------------------- ------------------------------ ---------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
NAME, POSITION(S) HELD (AND POSITIONS HELD WITH AFFILIATED PERSONS OR
ADDRESS AND AGE WITH THE COMPANY PRINCIPAL UNDERWRITERS OF THE COMPANY)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 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 to
10 State House Square 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 45 Life Insurance and Annuity Company, August 1994
to November 1995.
- --------------------------------------------------------------------------------------------------------------------
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 55
- --------------------------------------------------------------------------------------------------------------------
David L. Grove Director Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to present.
Armonk, New York
Age 81
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 38 Director, Aetna Life Insurance and Annuity
Company, February 1995 to present; Senior Vice
President, Aetna Life Insurance and Annuity
Company, September 1994 to present.
- --------------------------------------------------------------------------------------------------------------------
Sidney Koch Director Financial Adviser, self-employed, January 1993 to
455 East 86th Street present.
New York, New York
Age 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 49 President, Fidelity Investments Institutional
Services Company, April 1992 to August 1997.
- --------------------------------------------------------------------------------------------------------------------
Shaun P. Mathews* Director Vice President/Senior Vice President, Aetna Life
151 Farmington Avenue Insurance and Annuity Company, March 1991 to
Hartford, Connecticut present; Director, Aetna Investment Services,
Age 44 Inc., July 1993 to February 1999; Senior Vice
President, Aetna Investment Services, Inc., July
1993 to February 1999.
- --------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
During the period 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 Company. 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
TOTAL COMPENSATION FROM THE
NAME OF PERSON AGGREGATE COMPENSATION FROM THE COMPANY AND FUND COMPLEX
POSITION COMPANY PAID TO DIRECTORS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corine Norgaard $6,600 $66,000
Director
- --------------------------------------------------------------------------------------------------------------------
Sidney Koch 6,650 66,500
Director
- --------------------------------------------------------------------------------------------------------------------
Maria T. Fighetti* 6,550 65,500
Director
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard G. Scheide 7,075 70,750
Director, Chairperson
Audit Committee
- --------------------------------------------------------------------------------------------------------------------
David L. Grove* 6,925 69,250
Director, Chairperson
Contract Committee
- --------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr.
Director 3,077 30,778
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
*During the fiscal year ended October 31, 1998, Ms. Fighetti and Dr. Grove
deferred $15,000 and $69,250, respectively, of their compensation from the
Fund Complex pursuant to this arrangement.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of June 30, 1999, Aetna Life Insurance and Annuity Company (Aetna), a
Connecticut corporation, and its affiliates, had the following interest in the
Funds, through direct ownership or through one of Aetna's separate accounts:
<TABLE>
<CAPTION>
% Aetna and its affiliates
-----------------------------------------------------------------------------
Class I Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Aetna Bond Fund 55.79% 71.19%
Aetna Government Fund 81.23% 86.84% 45.72%
Aetna High Yield Fund 98.39% 25.73% 69.11%
Aetna Index Plus Bond Fund 99.75% 14.07% 36.84% 33.70%
Aetna Index Plus Large Cap Fund 40.05%
Aetna Index Plus Mid Cap Fund 98.29% 4.95% 36.38%
Aetna Index Plus Small Cap Fund 98.03% 6.24% 47.35%
Aetna International Fund 21.03% 53.54%
Aetna Mid Cap Fund 97.94% 21.11% 95.67% 73.78%
Aetna Money Market Fund 50.27% 41.76%
Aetna Real Estate Securities Fund 95.71% 11.99% 71.72% 48.01%
Aetna Small Company Fund 54.59% 72.66%
Aetna Value Opportunity Fund 96.72% 13.98% 89.39% 48.77%
Aetna Ascent Fund 85.31% 94.81%
Aetna Crossroads Fund 90.82% 100.00%
Aetna Legacy Fund 82.97% 92.52%
Aetna Growth Fund 15.77%
Aetna Growth and Income Fund 13.90%
Aetna Balanced Fund 18.62%
</TABLE>
Shares of the Funds held beneficially by Aetna and its affiliates are voted in
the same proportion as shares held by non-Aetna shareholders of that Fund.
As of January 31, 1999, officers and Directors owned less than 1% of the
outstanding shares of any of the Funds.
Aetna (like Aeltus) is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc., which is in turn an indirect wholly-owned subsidiary of Aetna
Inc. Aetna's principal office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156. Aetna is registered with the Commission as an investment
adviser.
21
<PAGE>
THE INVESTMENT ADVISORY AGREEMENTS
The Company, on behalf of each Fund, has entered into investment advisory
agreements (Advisory Agreements) appointing Aeltus as the Investment Adviser of
each Fund. Under the Advisory Agreements and subject to the supervision of the
Board, Aeltus has responsibility for supervising all aspects of the operations
of each Fund including the selection, purchase and sale of securities. Under the
Advisory Agreements, 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 Inc., a publicly-owned holding company whose principal operating
subsidiaries engage in the health benefits, insurance and financial services
businesses in the U.S. and internationally.
The Advisory Agreements provide that Aeltus is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
Directors of the Company and that each Fund is responsible for payment of all
other of its costs.
Advisory Fees for each Fund are allocated to a particular class on the basis of
the net assets of that class in relation to the net assets of the Fund. Listed
below are the Advisory Fees that Aeltus is entitled to receive from each Fund at
an annual rate based on average daily net assets of each Fund:
ADVISORY FEE ASSETS
CAPITAL APPRECIATION FUNDS
Growth 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
International 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.700% Over $2 billion
Mid Cap 0.750% On first $250 million
0.700% On next $250 million
0.675% On next $250 million
0.650% On next $1.25 billion
0.600% Over $2 billion
Small Company 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.725% Over $2 billion
Value Opportunity 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
GROWTH & INCOME FUNDS
Balanced 0.800% On first $500 million
0.750% On next $500 million
0.700% On next $1 billion
0.650% Over $2 billion
22
<PAGE>
Growth and Income 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Real Estate 0.800% On first $250 million
0.750% On next $250 million
0.725% On next $250 million
0.700% On next $1.25 billion
0.650% Over $2 billion
INCOME FUNDS
Bond Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
Aetna Government Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
High Yield 0.650% On first $250 million
0.600% On next $250 million
0.575% On next $250 million
0.550% On next $1.25 billion
0.500% Over $2 billion
Money Market 0.400% On first $500 million
0.350% On next $500 million
0.340% On next $1 billion
0.330% On next $1 billion
0.300% Over $3 billion
INDEX PLUS FUNDS
Index Plus Bond 0.350% On first $250 million
0.350% On next $250 million
0.325% On next $250 million
0.300% On next $1.25 billion
0.275% Over $2 billion
Index Plus Large Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $250 million
0.400% On next $1 billion
0.375% Over $2 billion
Index Plus Mid Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
23
<PAGE>
Index Plus Small Cap 0.450% On first $250 million
0.450% On next $250 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
GENERATION FUNDS
Ascent Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
Crossroads Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
Legacy Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
For the fiscal years ended October 31, 1998, October 31, 1997 and October 31,
1996, investment advisory fees were paid to Aetna (investment adviser to the
Funds prior to February 2, 1998) and Aeltus (for the period February 2, 1998
through October 31, 1998) as follows:
Year Ended October 31, 1998
- ---------------------------
<TABLE>
<CAPTION>
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
- ------------ ------------- ------ ---------
<S> <C> <C> <C>
Growth 809,670 0 809,670
International 493,627 110,044 383,583
Mid Cap* 29,053 29,053 0
Small Company 298,442 40,629 257,813
Value Opportunity** 28,337 28,337 0
Balanced 955,035 0 955,035
Growth and Income 4,429,415 0 4,429,415
Real Estate** 28,481 28,481 0
Bond Fund 196,033 87,410 108,623
Aetna Government Fund 62,424 62,424 0
High Yield** 47,995 47,995 0
Money Market 1,701,171 1,041,156 660,015
Index Plus Bond* 39,396 39,396 0
Index Plus Large Cap 102,550 102,550 0
Index Plus Mid Cap*** 25,868 25,868 0
Index Plus Small Cap*** 24,996 24,996 0
Ascent 295,978 69,924 226,054
Crossroads 295,895 61,513 234,382
Legacy 174,700 94,604 80,096
</TABLE>
24
<PAGE>
Year Ended October 31, 1997
- ---------------------------
<TABLE>
<CAPTION>
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
- ------------ ------------- ------ ---------
<S> <C> <C> <C>
Growth 500,660 0 500,660
International 639,565 0 639,565
Small Company 238,340 0 238,340
Balanced 812,391 0 812,391
Growth and Income 3,385,694 0 3,385,694
Bond Fund 163,110 128,800 34,310
Aetna Government Fund 53,048 53,048 0
Money Market 1,782,769 1,782,769 0
Index Plus Large Cap**** 49,212 49,212 0
Ascent 202,834 21,845 180,989
Crossroads 186,369 19,968 166,401
Legacy 151,110 22,749 128,361
</TABLE>
Year Ended October 31, 1996
- ---------------------------
<TABLE>
<CAPTION>
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
- ------------ ------------- ------ ---------
<S> <C> <C> <C>
Growth 296,559 0 296,559
International 389,220 0 389,220
Small Company 330,302 0 330,302
Balanced 687,346 0 687,346
Growth and Income 2,616,904 0 2,616,904
Bond Fund 174,209 141,557 32,652
Aetna Government Fund 67,466 67,466 0
Money Market 1,560,183 1,560,183 0
Ascent 185,916 0 185,916
Crossroads 177,185 0 177,185
Legacy 169,807 0 169,807
</TABLE>
*Mid Cap and Index Plus Bond commenced operations on February 4, 1998.
Investment Advisory Fees shown are for the period from February 4, 1998 to
October 31, 1998.
**Value Opportunity, Real Estate and High Yield commenced operations on
February 2, 1998. Investment Advisory Fees shown are for the period from
February 2, 1998 to October 31, 1998.
***Index Plus Mid Cap and Index Plus Small Cap commenced operations on
February 3, 1998. Investment Advisory Fees shown are for the period from
February 3, 1998 to October 31, 1998.
****Index Plus Large Cap commenced operations on December 10, 1996. Investment
Advisory Fees shown are for the period from December 10, 1996 to October
31, 1997.
THE SUBADVISORY AGREEMENT
Aeltus and the Company, on behalf of Value Opportunity, have entered into an
agreement (Subadvisory Agreement) with Bradley, Foster & Sargent, Inc. (Bradley)
effective October 1, 1998 appointing Bradley as subadviser of Value Opportunity.
Bradley is managed by its six principals, Robert H. Bradley, Peter B. Canoni,
Timothy H. Foster, Jeffrey G. Marsted, J. Edward Roney, Jr., and Joseph D.
Sargent.
The Subadvisory Agreement gives Bradley broad latitude to select equity
securities for Value Opportunity consistent with the investment objective and
policies of the Fund, subject to Aeltus' oversight. The Agreement contemplates
that Bradley will be responsible only for making equity investment decisions.
Aeltus remains responsible for all other aspects of managing and administering
Value Opportunity, including trade execution and cash management.
25
<PAGE>
For the services under the Subadvisory Agreement, Bradley will receive an annual
fee payable monthly as described in the Prospectuses. Subadvisory Fees are
allocated to a particular class on the basis of the net assets of that class in
relation to the net assets of Value Opportunity.
For the month ended October 31, 1998, Aeltus paid Bradley subadvisory fees of
$629.
Aeltus has also retained Bradley to provide certain shareholder communication
services and marketing assistance with respect to Value Opportunity, through
December 31, 1999. The fee for these services is $13,000 per month and is paid
out of Aeltus' revenues, not the assets of the Fund.
THE ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Administrative Services Agreement, Aeltus acts as administrator
and provides certain administrative and shareholder services necessary for Fund
operations and is responsible for the supervision of other service providers.
The services provided by Aeltus include: (a) internal accounting services; (b)
monitoring regulatory compliance, such as reports and filings with the
Commission and state securities regulatory authorities; (c) preparing financial
information for proxy statements; (d) preparing semiannual and annual reports to
shareholders; (e) calculating net asset values; (f) preparation of certain
shareholder communications; (g) supervision of the custodians and transfer
agent; and (h) reporting to the Board.
For its services, Aeltus is entitled to receive from each Fund a fee at an
annual rate of 0.10% of its average daily net assets.
For the years ended October 31, 1998, October 31, 1997 and October 31, 1996,
administrative services fees were paid to Aetna (administrator to the Funds
prior to February 2, 1998) and Aeltus (for the period February 2, 1998 through
October 31, 1998) as follows:
Year Ended October 31, 1998
- ---------------------------
<TABLE>
<CAPTION>
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
- ------------ ------------- ------ ------------------
<S> <C> <C> <C>
Growth 149,789 0 149,789
International 82,614 0 82,614
Mid Cap* 3,874 3,874 0
Small Company 45,674 0 45,674
Value Opportunity** 4,048 4,048 0
Balanced 162,126 0 162,126
Growth and Income 903,105 0 903,105
Real Estate** 3,560 3,560 0
Bond Fund 52,793 0 52,793
Aetna Government Fund 16,722 16,722 0
High Yield** 7,384 7,384 0
Money Market 586,393 0 586,393
Index Plus Bond* 11,256 11,256 0
Index Plus Large Cap**** 27,653 4,832 22,821
Index Plus Mid Cap*** 5,748 5,748 0
Index Plus Small Cap*** 5,555 5,555 0
Ascent 47,924 0 47,924
Crossroads 47,989 0 47,989
Legacy 28,950 0 28,950
</TABLE>
26
<PAGE>
Year Ended October 31, 1997
- ---------------------------
<TABLE>
<CAPTION>
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
- ------------ ------------- ------ ------------------
<S> <C> <C> <C>
Growth 178,807 0 178,807
International 188,108 0 188,108
Small Company 70,100 0 70,100
Balanced 253,872 0 253,872
Growth and Income 1,228,819 0 1,228,819
Bond Fund 81,555 0 81,555
Aetna Government Fund 26,524 26,524 0
Money Market 1,094,798 175,308 919,490
Index Plus Large Cap**** 27,340 27,340 0
Ascent 63,386 0 63,386
Crossroads 58,240 0 58,240
Legacy 47,222 0 47,222
</TABLE>
Year Ended October 31, 1996
- ---------------------------
<TABLE>
<CAPTION>
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
- ------------ ------------- ------ ------------------
<S> <C> <C> <C>
Growth 105,914 0 105,914
International 114,478 0 114,478
Small Company 97,148 0 97,148
Balanced 214,796 0 214,796
Growth and Income 945,088 0 945,088
Bond Fund 87,105 0 87,105
Aetna Government Fund 33,733 33,733 0
Money Market 961,110 498,621 462,489
Ascent 58,099 0 58,099
Crossroads 55,370 0 55,370
Legacy 53,065 0 53,065
</TABLE>
*Mid Cap and Index Plus Bond commenced operations on February 4, 1998.
Administrative Services Fees shown are for the period from February 4, 1998
to October 31, 1998.
**Value Opportunity, Real Estate and High Yield commenced operations on
February 2, 1998. Administrative Services Fees shown are for the period
from February 2, 1998 to October 31, 1998.
***Index Plus Mid Cap and Index Plus Small Cap commenced operations on
February 3, 1998. Administrative Services Fees shown are for the period
from February 3, 1998 to October 31, 1998.
****Index Plus Large Cap commenced operations on December 10, 1996.
Administrative Services Fees shown are for the period from December 10,
1996 to October 31, 1997.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258,
serves as custodian for the assets of all Funds except International. Brown
Brothers Harriman & Company, 40 Water Street, Boston, Massachusetts, 02109,
serves as custodian for the assets of International. Neither custodian
participates in determining the investment policies of a Fund nor in deciding
which securities are purchased or sold by a Fund. A Fund may, however, invest in
obligations of the custodian and may purchase or sell securities from or to the
custodian.
For portfolio securities which are purchased and held outside the U.S., Mellon
Bank, N.A. and Brown Brothers Harriman & Company have entered into sub-custodian
agreements (which are designed to comply with Rule 17f-5 under the 1940 Act)
with certain foreign banks or clearing agencies.
27
<PAGE>
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 Funds.
INDEPENDENT AUDITORS
KPMG LLP, CityPlace II, Hartford, Connecticut 06103 serves as independent
auditors to the Company. KPMG LLP provides audit services, assistance and
consultation in connection with the Commission filings.
PRINCIPAL UNDERWRITER
Shares of each Fund are offered on a continuous basis. Effective May 1, 1998,
the Company's Board approved a change in the Company's principal underwriter
from Aetna Investment Services, Inc. (AISI), 151 Farmington Avenue, Hartford,
Connecticut 06156, to Aeltus Capital, Inc. (ACI), 10 State House Square,
Hartford, Connecticut 06103-3602. ACI is a Connecticut corporation, and is a
wholly-owned subsidiary of Aeltus and an indirect wholly-owned subsidiary of
Aetna Inc. ACI has agreed to use its best efforts to distribute the shares as
the principal underwriter of the Funds pursuant to an Underwriting Agreement
between it and the Company.
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS
Fund shares are distributed by ACI. With respect to Class A shares of the Funds
(other than Money Market), ACI is paid an annual distribution fee at the rate of
0.25% of the value of average daily net assets attributable to those shares
under a Distribution Plan adopted by the Company pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan"). With respect to Class B shares of the Funds,
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.
With respect to Class C shares of the Funds (other than Money Market), ACI is
paid an annual distribution fee at the rate of 0.75% (0.50% for the Index Plus
Funds) of the value of average daily net assets attributable to those shares
under a Distribution Plan. 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 cost 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 and Class C shares each are also subject to a Shareholder Services Plan
adopted pursuant to Rule 12b-1. Under the Class B 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 each Fund. Under the Class C 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 C shares of each Fund except Money Market.
The Service Fee may be used by ACI primarily to pay selling dealers and their
agents for servicing and maintaining shareholder accounts.
ACI is required to report in writing to the Board at least quarterly on the
amounts and purpose of any payment made under each 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.
Prior to February 2, 1998, with respect to Adviser Class (redesignated Class A)
shares, AISI received a Rule 12b-1 fee at the rate of 0.50% and a Shareholder
Service fee at the rate of 0.25% (0.10% for Money Market) of the value of
average daily net assets.
28
<PAGE>
For the years ended October 31, 1998, 1997 and 1996, Shareholder Services and
Distribution fees were paid to Aetna (principal underwriter of the Company prior
to August 1, 1997), AISI (for the period August 1, 1997 through April 30, 1998)
and ACI (for the period May 1, 1998 through October 31, 1998) as follows:
Year Ended October 31, 1998
- ---------------------------
Company Name Total Underwriting Fees
- ------------ -----------------------
Growth $34,543
International 60,303
Mid Cap* 507
Small Company 29,313
Value Opportunity** 861
Balanced 24,151
Growth and Income 65,703
Real Estate** 656
Bond Fund 4,918
Aetna Government Fund 2,207
High Yield** 630
Money Market 26,009
Index Plus Bond* 616
Index Plus Large Cap 12,230
Index Plus Mid Cap*** 608
Index Plus Small Cap*** 682
Ascent 5,795
Crossroads 5,009
Legacy 4,820
Year Ended October 31, 1997
- ---------------------------
Company Name Total Underwriting Fees
- ------------ -----------------------
Growth $49,657
International 166,514
Small Company 37,758
Balanced 37,922
Growth and Income 82,810
Bond Fund 5,949
Aetna Government Fund 3,948
Money Market 141,236
Index Plus Large Cap**** 4,683
Ascent***** 1,691
Crossroads***** 764
Legacy***** 823
Year Ended October 31, 1996
- ---------------------------
Company Name Total Underwriting Fees
- ------------ -----------------------
Growth $23,653
International 167,007
Small Company 20,104
Balanced 19,775
Growth and Income 32,657
29
<PAGE>
Bond Fund 15,911
Aetna Government Fund 4,074
Money Market 101,840
*Mid Cap and Index Plus Bond commenced operations on February 4, 1998.
**Value Opportunity, Real Estate and High Yield commenced operations on
February 2, 1998.
***Index Plus Mid Cap and Index Plus Small Cap commenced operations on
February 3, 1998.
****Index Plus Large Cap commenced operations on December 10, 1996.
*****Ascent, Crossroads and Legacy Class A Shares commenced operations on
January 20, 1997.
Fees in the amount of $26,009, $141,236 and $101,840, for the years ended
December 31, 1998, 1997, and 1996, respectively, were waived for Money Market.
The Distribution Plans and Shareholder Services Plans 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 Funds could be deemed to have a financial interest in the Plans. No
other interested person of the Funds has a financial interest in the Plans.
For the fiscal year ended October 31, 1998, approximately $134,458, $25,319,
$517, $107,380, $113,451 and $165,681 of total distribution expenses were
expended in connection with advertising, printing and mailing of prospectuses to
other than current shareholders, compensation to underwriters, compensation to
broker-dealers and compensation to sales personnel, respectively.
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.
The following table applies to Growth, International, Mid Cap, Small Company,
Value Opportunity, Balanced, Growth and Income, Real Estate, and the Generation
Funds:
<TABLE>
<CAPTION>
When you invest this amount Amount of sales charge typically reallowed to dealers as a
percentage of offering price
<S> <C>
Under $50,000 5.00%
$50,000 or more but under $100,000 3.75
$100,000 or more but under $250,000 2.75
$250,000 or more but under $500,000 2.00
$500,000 or more but under $1,000,000 1.75
</TABLE>
The following table applies to Bond Fund, Aetna Government Fund and High Yield:
<TABLE>
<CAPTION>
When you invest this amount Amount of sales charge typically reallowed to dealers as a
percentage of offering price
<S> <C>
Under $50,000 4.00%
$50,000 or more but under $100,000 3.75
$100,000 or more but under $250,000 2.75
$250,000 or more but under $500,000 1.75
$500,000 or more but under $1,000,000 1.25
</TABLE>
30
<PAGE>
The following table applies to Index Plus Bond, Index Plus Large Cap, Index Plus
Mid Cap and Index Plus Small Cap (collectively referred to as the Index Plus
Funds):
<TABLE>
<CAPTION>
When you invest this amount Amount of sales charge typically reallowed to dealers as a
percentage of offering price
<S> <C>
Under $50,000 2.50%
$50,000 or more but under $100,000 2.00
$100,000 or more but under $250,000 1.50
$250,000 or more but under $500,000 1.00
$500,000 or more but under $1,000,000 0.50
</TABLE>
Securities dealers that sell Class A shares (other than shares of the Index Plus
Funds) 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
----------
[bullet] on sales of $1 million to $3 million 1.00%
[bullet] on sales over $3 million to $20 million 0.50%
[bullet] on sales over $20 million 0.25%
Securities dealers that sell Class A shares of the Index Plus Funds 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
----------
[bullet] on sales of $1 million to $3 million 0.50%
[bullet] on sales over $3 million to $20 million 0.25%
[bullet] on sales over $20 million 0.25%
For sales of Class B shares, your securities dealer is paid an up-front
commission equal to four percent (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.
For sales of Class C shares (other than Money Market), your securities dealer is
paid an up-front commission based on the amount sold. The up-front commission is
equal to one percent (1%) of the sales price, except that in the case of the
Index Plus Funds, the up-front commission is equal to 0.75%. This up-front
commission is an advance of the 0.25% servicing fee plus the 0.75% (0.50% in the
case of the Index Plus Funds) distribution fee for the first year. Beginning in
the thirteenth month after the sale is made, ACI uses the servicing fee and the
distribution fee to compensate securities dealers, on a monthly basis.
ACI or its affiliates may make payments in addition to those described above to
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.
PURCHASE AND REDEMPTION OF SHARES
Class I shares of the Company are purchased and redeemed at the net asset value
(NAV) of each Fund next determined after a purchase or redemption order is
received, as described in the Prospectus. Class B and Class C shares of the
Company are purchased at the NAV of each Fund next determined after a purchase
order is received. Class B and Class C shares are redeemed at the net asset
value of each Fund next determined less any applicable contingent deferred sales
charge (CDSC) after a redemption request is received, as described in the
Prospectus. Class A shares of the Company are purchased at the NAV of each Fund
next determined after a purchase order is received less any applicable front-end
sales charge and redeemed at the net asset value of each Fund next determined
adjusted for any applicable CDSC after a redemption request is received, as
described in the Prospectus.
31
<PAGE>
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 a Fund of securities owned by
it is not reasonably practicable, or (ii) it is not reasonably practicable for a
Fund to determine fairly the value of its net assets; or (c) the Commission by
order so permits for the protection of shareholders of a 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.
A 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, a 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 of a Fund 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 and exchanges should be made for investment purposes only. The Funds
reserve the right to reject any specific purchase or exchange request. In the
event a Fund rejects an exchange request, neither the redemption nor the
purchase side of the exchange will be processed until the Fund receives further
redemption instructions.
The Funds are not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Funds define a "market
timer" as an individual, or entity acting on behalf of one or more individuals,
if (i) the individual or entity makes three or more exchange requests out of any
Fund per calendar year and (ii) any one of such exchange requests represents
shares equal in value to 1/2 of 1% or more of the Fund's net assets at the time
of the request. Accounts under common ownership or control, including accounts
administered by market timers, will be aggregated for purposes of this
definition.
Front-end Sales Charge Waivers
Front-end sales charges will not apply if you are buying Class A shares with
proceeds from the following sources:
1. Redemptions from any Aeltus-advised Fund if you:
[bullet] Originally paid a front-end sales charge on the shares;
[bullet] Reinvest the money within 60 days of the redemption date; and
[bullet] Reinvest the money in the same class of shares.
2. Redemptions from other mutual funds if you:
[bullet] Originally paid a front-end sales charge on the shares;
[bullet] Reinvest the money within 30 days of the redemption date; and
[bullet] Reinvest the money in the same class of shares.
The Fund's front-end sales charges will also not apply to Class A purchases by:
3. 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 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.
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<PAGE>
4. Certain trust companies and bank trust departments agreeing to invest in
the Fund over a 13-month period at least $1 million of assets over which
the trust companies and bank trust departments have full or shared
investment discretion.
5. Certain retirement plans that are sponsored by an employer with at least 25
employees and either (a) have plan assets of $1 million or more or (b)
agree to invest at least $500,000 in the Fund over a 13-month period.
6. Broker-dealers, registered investment advisers and financial planners that
have entered into a selling agreement with ACI (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to
sales of fund shares) on behalf of clients participating in advisory fee
programs.
7. Current employees of broker-dealers and financial institutions that have
entered into a selling agreement with ACI (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to
sales of fund shares) and their immediate family members, as allowed by the
internal policies of their employer.
8. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer.
9. Shareholders of the Adviser Class at the time such shares were redesignated
as Class A shares.
Contingent Deferred Sales Charge
Certain Class A shares, all Class B shares and all Class C shares (except for
Money Market) are subject to a CDSC, as described in the Prospectus. There is no
CDSC imposed on:
[bullet] redemptions of shares purchased through reinvestment of dividends or
capital gains distributions;
[bullet] shares purchased more than two years (in the case of Class A shares),
six years (in the case of Class B shares) or eighteen months (in the
case of Class C shares) prior to the redemption; and
[bullet] redemptions of Money Market Class A and Class C shares unless:
[bullet] those shares were purchased through an exchange from another
Fund within two years (in the case of Class A shares) or
eighteen months (in the case of Class C shares) prior to the
redemption; and
[bullet] the original purchase of the shares exchanged was subject to
a CDSC.
CDSC Waivers
The CDSC will be waived for:
[bullet] Exchanges to other Funds of the same class;
[bullet] Redemptions following the death or disability of the shareholder or
beneficial owner;
[bullet] Redemptions related to distributions from retirement plans or accounts
under Internal Revenue Section 403(b) after you attain age 70 1/2.
[bullet] Tax-free returns of excess contributions from employee benefit plans;
[bullet] Distributions from employee benefit plans, including those due to plan
termination or plan transfer; and
[bullet] Redemptions made in connection with the Automatic Cash Withdrawal Plan
(see Shareholder Services and Other Features), provided that such
redemptions:
[bullet] are limited annually to no more than 12% of the original
account value;
[bullet] are made in equal monthly amounts, not to exceed 1% per month;
and
[bullet] the minimum account value at the time the Automatic Cash
Withdrawal Plan was initiated was no less than $10,000.
Letter of Intent
You may qualify for a reduced sales charge when you buy Class A shares (other
than Money Market), as described in the Prospectus. At any time, 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 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 more than one Fund and will be effective only after notification
to ACI that the investment qualifies for a discount. Your
33
<PAGE>
holdings in certain Funds (other than Money Market shares) 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 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 (excluding Money Market) of the Funds already
owned. To determine if you may pay a reduced front-end sales charge, the amount
of your current purchase is added to the cost or current value, whichever is
higher, of your other Class A shares (excluding Money Market), as well as those
Class A shares (excluding Money Market) of your spouse and children under the
age of 21. If you are the sole owner of a company, you may also add any company
accounts, including retirement plan accounts invested in Class A shares
(excluding Money Market) of the Funds. Companies with one or more retirement
plans may add together the total plan assets invested in Class A shares
(excluding Money Market) of the Funds 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.
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 the
Funds and of other investment companies advised by Aeltus as a factor in the
selection of brokerage firms to execute the Funds' 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 Funds and other investment companies,
services related to the execution of trades on behalf of a Fund and advice as to
the valuation of securities, the providing of equipment used to communicate
research information and specialized consultations with Company personnel with
respect to computerized systems and data furnished to the Funds as a component
of other research services. Aeltus considers the quantity and quality of such
brokerage and research services provided by a brokerage firm along with the
nature and difficulty of the specific transaction in negotiating commissions for
trades in a 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
34
<PAGE>
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 Funds effect 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 Funds.
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 Funds.
The Funds have not effected, and have no present intention of effecting, any
brokerage transactions in portfolio securities with Aeltus or any other
affiliated person of the Company.
A Fund and another advisory client of Aeltus or Aeltus itself, may desire to buy
or sell the same security at or about the same time. In such a case, the
purchases or sales will normally be aggregated, and then allocated as nearly as
practicable on a pro rata basis in proportion to the amounts to be purchased or
sold by each. In determining the amounts to be purchased and sold, the main
factors to be considered are the respective investment objectives of a Fund and
the other 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.
Brokerage commissions were paid as follows:
<TABLE>
<CAPTION>
For Year Ended For Year Ended For Year Ended
Fund Name Oct. 31, 1998 Oct. 31, 1997 Oct. 31, 1996
- --------- ------------- ------------- -------------
<S> <C> <C> <C>
Growth $347,005 $170,182 $135,750
International 428,858 907,087 479,630
Mid Cap* 16,093 N/A N/A
Small Company 189,609 167,794 223,630
Value Opportunity** 15,334 N/A N/A
Balanced 74,562 131,989 207,536
Growth and Income 2,363,653 1,908,594 1,120,636
Real Estate** 21,212 N/A N/A
Bond Fund 0 0 0
Aetna Government Fund 0 0 0
High Yield** 0 0 0
Money Market 0 0 0
Index Plus Bond* 0 0 0
Index Plus Large Cap*** 44,831 15,942 N/A
Index Plus Mid Cap**** 19,919 N/A N/A
Index Plus Small Cap**** 27,474 N/A N/A
Ascent 125,071 113,789 81,898
Crossroads 100,787 79,184 61,817
Legacy 44,163 47,247 38,705
</TABLE>
*Mid Cap and Index Plus Bond commenced operations on February 4, 1998.
**Value Opportunity, Real Estate and High Yield commenced operations on
February 2, 1998.
***Index Plus Large Cap commenced operations December 10, 1996.
****Index Plus Mid Cap and Index Plus Small Cap commenced operations on
February 3, 1998.
35
<PAGE>
For the fiscal year ended October 31, 1998, commissions in the amounts listed
below were paid with respect to portfolio transactions directed to certain
brokers because of research services:
<TABLE>
<CAPTION>
Company Name Commissions Paid on Total Transactions
- ------------ --------------------------------------
<S> <C>
Growth $36,804
International 5,919
Mid Cap* 2,580
Small Company 3,573
Value Opportunity** 1,200
Balanced 13,840
Growth and Income 473,468
Real Estate** 1,602
Index Plus Large Cap 14,799
Index Plus Mid Cap*** 0
Index Plus Small Cap*** 0
Ascent 13,954
Crossroads 10,049
Legacy 4,040
</TABLE>
*Mid Cap and Index Plus Bond commenced operations on February 4, 1998.
**Value Opportunity, Real Estate and High Yield commenced operations on
February 2, 1998.
***Index Plus Mid Cap and Index Plus Small Cap commenced operations on
February 3, 1998.
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, a Fund. The Code
of Ethics allows trades to be made in securities that may be held by a Fund.
However, it prohibits a person from taking advantage of 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
Systematic Investment
The Systematic Investment feature, using the EFT capability, allows you to make
automatic monthly investments in any Fund. On the application, you may select
the amount of money to be moved and the Fund in which it will be invested. In
order to elect EFT, you must first have established an account, subject to the
minimum amount specified in the Prospectuses. Thereafter, the minimum monthly
Systematic Investment is currently $50 per Fund, and we reserve the right to
increase that amount. EFT transactions will be effective 15 days following the
receipt by the Transfer Agent of your application. The Systematic Investment
feature and EFT capability will be terminated upon total redemption of your
shares. Payment of redemption proceeds will be held until a Systematic
Investment has cleared, which may take up to 12 calendar days.
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
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<PAGE>
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.
Automatic Cash Withdrawal Plan
A CDSC may be applied to withdrawals made under this plan. The Automatic Cash
Withdrawal Plan permits you to have payments of $100 or more automatically
transferred from a Fund to your designated bank account on a monthly basis. To
enroll in this plan, you must have a minimum balance of $10,000 in a Fund. Your
automatic cash withdrawals will be processed on a regular basis beginning on or
about the first day of the month. There may be tax consequences associated with
these transactions. Please consult your tax adviser.
Checkwriting Service
Checkwriting is available with Class A, Class C and Class I shares of Money
Market. If the amount of the check is greater than the value of your shares, the
check will be returned unpaid. In addition, checks written against shares
purchased by check or Systematic Investment during the preceding 12 calendar
days will be returned unpaid due to uncollected funds. You may select the
checkwriting service by indicating your election on the application or by
calling (800) 367-7732. All notices with respect to checks must be given to the
transfer agent.
Cross Investing
Dividend Investing You may elect to have dividend and/or capital gains
distributions automatically invested in the same class of one other Fund.
Systematic Exchange You may establish an automatic exchange of shares from
one Fund to another. The exchange will occur on or about the 15th day of
each month and must be for a minimum of $50 per month. Because this
transaction is treated as an exchange, the policies related to the exchange
privilege apply. There may be tax consequences associated with these
exchanges. Please consult your tax adviser.
Cross investing may only be made in a Fund that has been previously established
with the minimum investment. To request information or to initiate a transaction
under either or both of these features, please call (800) 367-7732.
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.
NET ASSET VALUE
Securities of the Funds 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
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<PAGE>
securities maturing in sixty days or less at the date of valuation, and all
securities in Money Market, will be valued using the "amortized cost" method of
valuation. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization of premium or increase of discount. Options
are valued at the mean of the last bid and asked price on the exchange where
the option is primarily traded. Futures contracts are valued daily at a
settlement price based on rules of the exchange where the futures contract is
primarily traded. 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 each Fund. No attempt is made to present a
detailed explanation of the tax treatment of each Fund and no explanation is
provided with respect to the tax treatment of any Fund shareholder. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. If for any taxable year a 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 a Fund's assets to be invested in
various countries is not known.
If more than 50% of International's total assets at the close of its fiscal year
consist of securities of foreign corporations, that Fund will be eligible to,
and may, file an election with the Internal Revenue Service (IRS) pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Fund as income received by them. Shareholders may then
either deduct such pro rata portion in computing their taxable income or use
them as foreign tax credits against their U.S. income taxes. If International
makes such an election, it will report annually to each shareholder the amount
of foreign taxes to be included in income and then either deducted or credited.
Alternatively, if the amount of foreign taxes paid by International is not large
enough to warrant its making such an election, the Fund may claim the amount of
foreign taxes paid as a deduction against its own gross income. In that case
shareholders would not be required to include any amount of foreign taxes paid
by the International in their income and would not be permitted either to deduct
any portion of foreign taxes from their own income or to claim any amount tax
credit for taxes paid by the Fund.
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.
38
<PAGE>
Each 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 a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
PERFORMANCE INFORMATION
Performance information for each class of shares including the yield and
effective yield of Money Market, the yield or dividend yield of Bond Fund, Aetna
Government Fund, High Yield and Index Plus Bond and the total return of all
Funds, may appear in reports or promotional literature to current or prospective
shareholders.
Money Market Yield
Current yield for Money Market will be based on a recently ended seven-day
period, computed by determining the net change, exclusive of capital changes and
income other than investment income, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from that shareholder
account, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return. This base period
return is then multiplied by 365/7 with the resulting yield figure carried to at
least the nearest hundredth of one percent. Calculation of "effective yield"
begins with the same "base period return" used in the calculation of yield,
which is then annualized to reflect weekly compounding pursuant to the following
formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
The yield and effective yield for Money Market for the seven days ended October
31, 1998 were 4.96% and 5.09%, respectively.
30-Day Yield for Certain Non-Money Market Funds
Quotations of yield at the public offering price (POP) for Bond Fund, Aetna
Government Fund, High Yield and Index Plus Bond will be based on all investment
income per share earned during a particular 30-day period, less expenses accrued
during the period (net investment income), and will be computed by dividing net
investment income by the value of a share on the last day of the period,
according to the following formula:
YIELD = 2[(a-b + 1)(6) - 1]
--
cd
Where:
a = dividends and interest earned during the period
b = the expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum POP per share on the last day of the period
For the purpose of determining net investment income earned during the period
(variable "a" in the formula), interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual and accrued
interest).
For purposes of this calculation, it is assumed that each month contains 30
days.
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted from time to time to reflect
changes in the market value of such debt obligations.
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<PAGE>
Undeclared earned income will be subtracted from the NAV per share (variable "d"
in the formula). Undeclared earned income is the net investment income which, at
the end of the base period, has not been declared as a dividend, but is
reasonably expected to be and is declared as a dividend shortly thereafter.
For the 30-day period ended October 31, 1998:
Yield (at POP)
----------------------------------------------
Name of Fund Class A Class I Class C
- ------------ ------- ------- -------
Bond Fund 4.93% 5.43% 4.42%
Aetna Government Fund 4.31% 4.79% 3.79%
High Yield 9.97% 10.74% 9.73%
Index Plus Bond 4.98% 5.39% 4.63%
The Company may also from time to time include quotations of yield for Class A
that are not calculated according to the formula set forth above. Specifically,
the Company may include yield for Class A at the NAV per share on the last day
of the period, and not the maximum POP per share on the last day of the period.
In which case, variable "d" in the formula will be:
d = the NAV per share on the last day of the period.
For the 30-day period ended October 31, 1998:
Yield (at NAV)
Name of Fund Class A
------------ --------------
Bond Fund 5.18%
Aetna Government Fund 4.52%
High Yield 10.48%
Index Plus Bond 5.14%
Dividend Yield
Bond Fund, Aetna Government Fund, High Yield and Index Plus Bond may quote a
"dividend yield" for each class of its shares. Dividend yield is based on the
dividends paid on shares of a class during the actual dividend period from net
investment income during a stated period.
To calculate dividend yield, the dividends of a class declared during a stated
30-day period are added together and the sum is multiplied by 12 (to annualize
the yield) and divided by the NAV on the last day of the dividend period. The
formula is shown below:
Dividend Yield = (Dividends paid x 12) / Net Asset Value
The Class A dividend yield may also be quoted with the public offering price
(POP) for Class A shares. The POP includes the maximum front-end sales charge.
The dividend yield for Class B shares and Class C shares is calculated without
considering the effect of contingent deferred sales charges.
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<PAGE>
The dividend yields for the 30-day dividend period ended December 31, 1998 were
as follows (Class B shares were not offered during the period listed):
<TABLE>
<CAPTION>
FUND CLASS A (NAV) CLASS A (POP) CLASS C
---- ------------- ------------- -------
<S> <C> <C> <C>
Aetna Government Fund 4.53% 4.32% 4.01%
Bond Fund 6.21% 5.91% 5.59%
High Yield 9.02% 8.59% 8.42%
Index Plus Bond 5.46% 5.30% 4.94%
</TABLE>
Average Annual Total Return
Quotations of average annual total return for any Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in a Fund over a period of one, five and ten 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, 5, or 10 year period at the end of the 1, 5, or 10 year
period (or fractional portion thereof).
The Company may also from time to time include in such advertising a total
return figure for Class A, Class B and/or Class C that is not calculated
according to the formula set forth above.
Specifically, the Company 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 or Class C that does not take into account the
imposition of the applicable CDSC.
All the following figures are based on actual investment performance.
In February 1998, the Funds redesignated Adviser Class shares as Class A shares.
For periods prior to the Class A inception date, Class A performance is
calculated by using the performance of Class I (formerly Select Class) shares
and deducting the Class A front-end sales load and internal fees and expenses of
the Adviser Class. In June 1998, the Funds introduced Class C shares. For
periods prior to the Class C inception date, Class C performance is calculated
using the performance of Class I (formerly Select Class) shares, and deducting
the internal fees and expenses applicable to the Class C shares. CDSC applies
for all shares redeemed prior to the end of the first eighteen months of
ownership. The 1-year returns without CDSC are net of fund expenses only, and do
not deduct a CDSC. Neither a front-end sales load nor a CDSC applies to Money
Market.
Total Return Quotations as of October 31, 1998:
- -----------------------------------------------
CLASS I
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Money Market 5.36% 5.23% 4.82% 1/3/92
Aetna Government Fund 8.54% N/A 6.63% 1/4/94
Bond Fund 7.72% 6.07% 7.02% 1/3/92
Balanced 10.81% 13.42% 12.03% 1/3/92
Growth and Income 3.80% 17.67% 14.78% 1/3/92
Growth 14.78% N/A 20.53% 1/4/94
Index Plus Large Cap 23.46% N/A 25.53% 12/10/96
Small Company -7.47% N/A 16.28% 1/4/94
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
International 10.22% 11.65% 10.15% 1/3/92
Ascent Fund -1.90% N/A 15.84% 1/4/95
Crossroads Fund -0.87% N/A 13.76% 1/4/95
Legacy Fund 2.51% N/A 12.11% 1/4/95
High Yield N/A N/A -6.50% 2/2/98
Index Plus Bond N/A N/A 5.48% 2/4/98
Index Plus Mid Cap N/A N/A 3.60% 2/3/98
Index Plus Small Cap N/A N/A -11.30% 2/3/98
Mid Cap N/A N/A -7.10% 2/4/98
Real Estate N/A N/A -16.80% 2/2/98
Value Opportunity N/A N/A -0.10% 2/2/98
</TABLE>
CLASS A (assuming payment of the front-end sales load)
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Aetna Government Fund 3.05% N/A 4.87% 1/4/94
Bond Fund 2.18% 4.33% 5.52% 1/3/92
Balanced 4.09% 11.30% 10.27% 1/3/92
Growth and Income -2.52% 15.57% 13.06% 1/3/92
Growth 7.76% N/A 18.29% 1/4/94
Index Plus Large Cap 19.39% N/A 22.88% 12/10/96
Small Company -13.07% N/A 14.12% 1/4/94
International 3.45% 9.55% 8.43% 1/3/92
Ascent Fund -7.79% N/A 13.39% 1/4/95
Crossroads Fund -6.85% N/A 11.32% 1/4/95
Legacy Fund -3.59% N/A 9.74% 1/4/95
High Yield N/A N/A -11.10% 2/2/98
Index Plus Bond N/A N/A 2.13% 2/4/98
Index Plus Mid Cap N/A N/A 0.30% 2/3/98
Index Plus Small Cap N/A N/A -14.06% 2/3/98
Mid Cap N/A N/A -12.54% 2/4/98
Real Estate N/A N/A -21.77% 2/2/98
Value Opportunity N/A N/A -6.03% 2/2/98
</TABLE>
CLASS A (without payment of the front-end sales load)
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Money Market 5.36% 5.23% 4.82% 1/3/92
Aetna Government Fund 8.19% N/A 5.93% 1/4/94
Bond Fund 7.27% 5.35% 6.28% 1/3/92
Balanced 10.44% 12.63% 11.23% 1/3/92
Growth and Income 3.42% 16.95% 14.04% 1/3/92
Growth 14.34% N/A 19.75% 1/4/94
Index Plus Large Cap 23.09% N/A 24.87% 12/10/96
Small Company -7.77% N/A 15.53% 1/4/94
International 9.76% 10.86% 9.37% 1/3/92
Ascent Fund -2.17% N/A 15.16% 1/4/95
Crossroads Fund -1.17% N/A 13.06% 1/4/95
Legacy Fund 2.29% N/A 11.45% 1/4/95
High Yield N/A N/A -6.67% 2/2/98
Index Plus Bond N/A N/A 5.29% 2/4/98
Index Plus Mid Cap N/A N/A 3.40% 2/3/98
Index Plus Small Cap N/A N/A -11.40% 2/3/98
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Mid Cap N/A N/A -7.20% 2/4/98
Real Estate N/A N/A -17.00% 2/2/98
Value Opportunity N/A N/A -0.30% 2/2/98
</TABLE>
CLASS C (assuming payment of the CDSC)
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Aetna Government Fund 6.46% N/A 5.57% 1/4/94
Bond Fund 5.54% 4.99% 5.94% 1/3/92
Balanced 8.74% 12.30% 10.92% 1/3/92
Growth and Income 1.85% 16.51% 13.65% 1/3/92
Growth 12.61% N/A 19.32% 1/4/94
Index Plus Large Cap 21.74% N/A 24.56% 12/10/96
Small Company -9.35% N/A 15.11% 1/4/94
International 8.31% 10.57% 9.08% 1/3/92
Ascent Fund -3.78% N/A 14.70% 1/4/95
Crossroads Fund -2.87% N/A 12.62% 1/4/95
Legacy Fund 0.53% N/A 11.01% 1/4/95
High Yield N/A N/A -8.19% 2/2/98
Index Plus Bond N/A N/A 4.04% 2/4/98
Index Plus Mid Cap N/A N/A 2.24% 2/3/98
Index Plus Small Cap N/A N/A -12.53% 2/3/98
Mid Cap N/A N/A -8.69% 2/4/98
Real Estate N/A N/A -18.26% 2/2/98
Value Opportunity N/A N/A -1.89% 2/2/98
</TABLE>
CLASS C (without payment of the CDSC)
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Money Market 5.36% 5.23% 4.82% 1/3/92
Aetna Government Fund 7.46% N/A 5.57% 1/4/94
Bond Fund 6.54% 4.99% 5.94% 1/3/92
Balanced 9.74% 12.30% 10.92% 1/3/92
Growth and Income 2.85% 16.51% 13.65% 1/3/92
Growth 13.61% N/A 19.32% 1/4/94
Index Plus Large Cap 22.49% N/A 24.56% 12/10/96
Small Company -8.43% N/A 15.11% 1/4/94
International 9.31% 10.57% 9.08% 1/3/92
Ascent Fund -2.81% N/A 14.70% 1/4/95
Crossroads Fund -1.89% N/A 12.62% 1/4/95
Legacy Fund 1.53% N/A 11.01% 1/4/95
High Yield N/A N/A -7.26% 2/2/98
Index Plus Bond N/A N/A 4.79% 2/4/98
Index Plus Mid Cap N/A N/A 2.99% 2/3/98
Index Plus Small Cap N/A N/A -11.87% 2/3/98
Mid Cap N/A N/A -7.77% 2/4/98
Real Estate N/A N/A -17.44% 2/2/98
Value Opportunity N/A N/A -0.90% 2/2/98
</TABLE>
- ---------------
*The inception dates above represent the commencement of investment operations,
which may not coincide with the effective date of the post-effective amendment
to the registration statement through which the Funds were added.
43
<PAGE>
Performance information for a Fund may be compared, in reports and promotional
literature, to: (a) the Standard & Poor's 500 Stock Index, the Russell 2000
Index, the Russell 3000 Index, Lehman Brothers Aggregate Bond Index, Lehman
Brothers Intermediate Government Bond Index, Merrill Lynch High Yield Index,
Salmon Brothers Broad Investment Grade Bond Index, Dow Jones Industrial Average,
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 a 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 any
of the Funds.
FINANCIAL STATEMENTS
The Financial Statements and the independent auditors' reports, thereon,
appearing in the Fund's Annual Reports for the fiscal year ended October 31,
1998, and the Financial Statements (unaudited) appearing in the Fund's
Semi-Annual Reports for the periods ended April 30, 1999, are incorporated by
reference in this Statement. The Companies' Annual and Semi-Annual Reports are
available upon request and without charge by calling (800) 367-7732.
SAI.SERIES-99 Statement of Additional Information
44
<PAGE>
AETNA SERIES FUND, INC.
AETNA PRINCIPAL PROTECTION FUND I
PROSPECTUS
August 1, 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 I (Fund). The Offering Period will run from August 6, 1999
through October 6, 1999. All monies must be received no later than October 5,
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
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENTS 1
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS 1
FUND EXPENSES 3
OTHER CONSIDERATIONS 4
THE GUARANTEE 4
MANAGEMENT OF THE FUND 6
INVESTING IN THE FUND 7
Opening an Account and Selecting a Share Class 7
How to Buy Shares 9
How to Sell Shares 9
Timing of Purchase and Redemption Requests 10
Other Information About Shareholder Accounts and Services 11
Dividends and Distributions 12
Tax Information 12
ADDITIONAL INFORMATION 13
- --------------------------------------------------------------------------------
<PAGE>
THE FUND'S INVESTMENTS
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES
AND RISKS
Aetna Principal Protection Fund I (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 August 6, 1999 through October 6,
1999. All applications must be received by the transfer agent no later than
October 5, 1999 (September 7, 1999 in the case of IRA rollovers). All monies
must be received no later than October 5, 1999. During the Offering Period, Fund
assets will be invested exclusively in money market securities. Once the
Offering Period terminates, the Guarantee Period begins. The GUARANTEE PERIOD
will run from October 7, 1999 through October 6, 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 from 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:
[bullet] EQUITY COMPONENT, consisting primarily of common stocks and
[bullet] 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).
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 in the Equity Component
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. and money market instruments.
1
<PAGE>
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:
[bullet] the market value of the Fund's assets;
[bullet] the prevailing level of interest rates;
[bullet] equity market volatility; and
[bullet] 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 October 7, 1999 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.
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.
2
<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%
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from Fund assets)
<CAPTION>
Distribution Total Fee Waiver/
Management (12b-1) and Other Operating Expense Net
Fee Service Fees Expenses Expenses Reimbursement Expenses
<S> <C> <C> <C> <C> <C> <C>
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%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Because 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.
3
<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 agreement among
MBIA, Aeltus, and the Company on behalf of 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.
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:
[bullet] the amount initially allocated to the Fund, less
[bullet] the amount of the Class A front-end sales load paid, if any, plus
[bullet] 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 (October 6, 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
October 6, 1999. To calculate your full guarantee, multiply the shares you own
on October 6, 1999 by the NAV for your class of shares on October 6, 1999. Using
our example:
Shares you own on October 6, 1999 1,905.000
NAV of Class A shares on October 6, 1999 X $10.02
YOUR GUARANTEED AMOUNT $19,088.10
4
<PAGE>
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 Guarantee 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.
Using our example, assume it is now December 12, 1999 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 December 12, 1999.
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 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.
5
<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.
6
<PAGE>
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
[bullet] Front-end sales charge applies (at the time of purchase), which will
vary depending on the size of your purchase.
[bullet] 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.
[bullet] Distribution (12b-1) fee of 0.25% applies.
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
THIS % IS DEDUCTED WHICH EQUALS THIS %
FOR SALES CHARGES OF YOUR INVESTMENT
WHEN YOU INVEST THIS AMOUNT
<S> <C> <C> <C>
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%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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:
7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
WHEN YOU INVEST THIS AMOUNT THIS % IS DEDUCTED FROM YOUR PROCEEDS
<S> <C> <C>
$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%
- ------------------------------------------------------------------------------------------------------
</TABLE>
CLASS B SHARES
[bullet] No front-end sales charge applies.
[bullet] CDSC applies (if you sell your shares within 5 years of purchase).
[bullet] Distribution (12b-1) fee of 0.75% applies.
[bullet] Service fee of 0.25% applies.
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
within the first 5 years of purchase. The table below shows the applicable CDSC
based on the time invested.
REDEMPTION DURING CDSC
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 3%
5th year since purchase 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.
8
<PAGE>
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 OCTOBER 5,
1999 (SEPTEMBER 7, 1999 IN THE CASE OF IRA ROLLOVERS). MONIES RECEIVED AFTER
OCTOBER 5, 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.
TO OPEN AN ACCOUNT
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
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 NO LATER THAN OCTOBER 5, 1999. Cash, credit cards and third
party checks cannot be used to open an account.
- ---------------------------------------------------------------------------------------------------------------------
BY OVERNIGHT Follow the instructions above for "By Mail" but send your completed application
COURIER and check to:
Aetna Series Fund, Inc.
c/o First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581
- ---------------------------------------------------------------------------------------------------------------------
BY WIRE Not Available.
- ---------------------------------------------------------------------------------------------------------------------
BY ELECTRONIC Not Available.
FUNDS TRANSFER
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
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.
9
<PAGE>
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.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
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:
[bullet] The number of shares or dollar amount to be redeemed.
[bullet] 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 are accompanied by a signature guarantee. A $12 fee will be charged for
this service.
- ---------------------------------------------------------------------------------------------------------------------
REDEMPTIONS BY Call 1-800-367-7732. Please be prepared to provide your account number, account
TELEPHONE name and the amount of the redemption, which generally must be no less than $500
and no more than $25,000.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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 OCTOBER 5, 1999 WILL NOT BE
PROCESSED, EXCEPT UNDER SPECIAL CIRCUMSTANCES DETERMINED BY THE BOARD.
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.
10
<PAGE>
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.
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:
[bullet] Have submitted a change of address within the preceding 15 calendar
days.
[bullet] 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.
[bullet] 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.
[bullet] 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).
11
<PAGE>
[bullet] 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.
[bullet] 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 September 7, 1999.
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:
[bullet] 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.
[bullet] 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
[bullet] In general, dividends and short-term capital gains distributions you
receive from the Fund are taxable as ordinary income.
[bullet] Distributions of other capital gains you receive generally are taxable
as capital gains.
[bullet] Ordinary income and capital gains are taxed at different rates.
[bullet] 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.
[bullet] 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.
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.
12
<PAGE>
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.
13
<PAGE>
AETNA SERIES FUND, INC.
AETNA PRINCIPAL PROTECTION FUND I
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 1, 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 I, 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 I (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..................................................................20
PERFORMANCE INFORMATION.....................................................21
<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 I (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.
1
<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.
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.
2
<PAGE>
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.
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
3
<PAGE>
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.
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%
4
<PAGE>
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. With respect to futures contracts that are entered into for
purposes that may be considered speculative, the aggregate initial margin for
futures contracts will not exceed 5% of the Fund's net assets, after taking into
account realized profits and unrealized losses on such futures contracts.
Interest Rate Swap Transactions Swap agreements entail both interest rate risk
and credit risk. There is a risk that, based on movements of interest rates in
the future, the payments made by the Fund under a swap agreement will have been
greater than those received by it. Credit risk arises from the possibility that
the counterparty will default. If the counterparty to an interest rate swap
defaults, the Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. Aeltus Investment Management, Inc.
(Aeltus), the Fund's investment adviser, will monitor the creditworthiness of
counterparties to the Fund's interest rate swap transactions on an ongoing
basis. The Fund will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting agreement
provides that all swaps done between the Fund and that counterparty under that
master agreement shall be regarded as parts of an integral agreement. If on any
date amounts are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency shall be
paid. In addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting in a loss to
one party, the measure of that party's damages is calculated by reference to the
average cost of a replacement swap with respect to each swap (i.e., the
mark-to-market value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the counterparty's gain
or loss on termination. The termination of all swaps and the netting of gains
and losses on termination is generally referred to as "aggregation".
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.
5
<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.
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.
6
<PAGE>
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.
7
<PAGE>
OTHER CONSIDERATIONS
Year 2000
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 domestic mission-critical IT
systems has been completed. Remediation and/or testing activities remain to be
completed on approximately 1% of the systems portfolio. Final Year 2000 approval
testing for all 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. 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 October 5, 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.
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
8
<PAGE>
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST FIVE YEARS (AND
NAME, POSITION(S) HELD POSITIONS HELD WITH AFFILIATED PERSONS OR
ADDRESS AND AGE WITH EACH FUND PRINCIPAL UNDERWRITERS OF THE FUND)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 to
10 State House Square 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 45 Life Insurance and Annuity Company, August 1994
to November 1995.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 55
- --------------------------------------------------------------------------------------------------------------------
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 38 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 49 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 Investment Services, Inc., July
1993 to February, 1999.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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
Director $6,600 $66,000
- ------------------------------------------------------------------------------
Sidney Koch
Director $6,650 $66,500
- ------------------------------------------------------------------------------
Maria T. Fighetti*
Director $6,550 $65,500
- ------------------------------------------------------------------------------
Richard G. Scheide
Director, Chairperson
Audit Committee $7,075 $70,750
- ------------------------------------------------------------------------------
David L. Grove*
Director, Chairperson
Contract Committee $6,925 $69,250
- ------------------------------------------------------------------------------
Albert E. DePrince, Jr.
Director $3,077 $30,778
- ------------------------------------------------------------------------------
*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.
11
<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., a publicly-owned holding company whose principal operating subsidiaries
engage in the health benefits, insurance and financial services businesses in
the U.S. and internationally.
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 (October 6, 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).
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.
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
Guaranty Agreement.
12
<PAGE>
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. For performing those services, the custodian
will receive from the Fund a fee at an annual rate of $30,000.
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. 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.
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<PAGE>
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.
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 June 23, 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.
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
14
<PAGE>
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.
<TABLE>
<CAPTION>
When you invest this amount Amount of sales charge typically reallowed to dealers as a percentage
of offering price
<S> <C>
Under $50,000 4.00%
$50,000 or more, but under $100,000 3.75
$100,000 or more, but under $250,000 2.75
$250,000 or more, but under $500,000 1.75
$500,000 or more, but under $1,000,000 1.25
</TABLE>
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
----------
[bullet] on sales of $1 million to $3 million; 1.00%
[bullet] on sales over $3 million to $20 million; and 0.50%
[bullet] 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-dealers.
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<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 October 5, 1999 (September 7,
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).
16
<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 (in the case of Class A shares) or five years (in the case of
Class B shares) prior to the redemption.
CDSC Waivers
The CDSC will be waived for:
[bullet] Redemptions following the death or disability of the shareholder
or beneficial owner;
[bullet] Redemptions related to distributions from retirement plans or
accounts under Internal Revenue Section 403(b) after you attain
age 70 1/2;
[bullet] Tax-free returns of excess contributions from employee benefit
plans; and
[bullet] Distributions from employee benefit plans, including those due
to plan termination or plan transfer.
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
17
<PAGE>
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.
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.
18
<PAGE>
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.
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.
19
<PAGE>
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.
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.
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<PAGE>
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.
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.
21
<PAGE>
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>
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Prospectus
August 1, 1999
- --------------------------------------------------------------------------------
BROKERAGE CASH RESERVES
- --------------------------------------------------------------------------------
P107 (8/99)
- --------------------------------------------------------------------------------
<PAGE>
BROKERAGE CASH RESERVES
PROSPECTUS
August 1, 1999
Brokerage Cash Reserves (Fund) is a series of Aetna Series Fund, Inc. (Company),
an open-end investment company.
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>
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
THE FUND'S INVESTMENTS 1
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS 1
FUND EXPENSES 2
OTHER CONSIDERATIONS 3
MANAGEMENT OF THE FUND 3
INVESTMENTS IN AND REDEMPTIONS FROM THE FUND 4
DIVIDENDS AND DISTRIBUTIONS 5
TAX INFORMATION 5
ADDITIONAL INFORMATION 6
<PAGE>
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THE FUND'S INVESTMENTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Investment Objective Seeks to provide HIGH CURRENT RETURN, CONSISTENT WITH
PRESERVATION OF CAPITAL AND LIQUIDITY, through investment in high-quality money
market instruments.
Principal Investment Strategies The Fund invests in a diversified portfolio of
high-quality fixed income securities denominated in U.S. dollars, with short
remaining maturities. These securities include U.S. Government securities (such
as U.S. Treasury bills and securities issued or sponsored by U.S. government
agencies), corporate debt securities, commercial paper, asset-backed securities
and certain obligations of U.S. and foreign banks, each of which must be highly
rated by independent rating agencies or, if unrated, considered by the Fund's
investment adviser, Aeltus Investment Management, Inc. (Aeltus), to be of
comparable quality. The Fund maintains a dollar-weighted average portfolio
maturity of 90 days or less.
Principal Risks ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE
FUND. AN INVESTMENT IN THE FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY ANY FINANCIAL INSTITUTION, THE FDIC OR ANY OTHER GOVERNMENT
AGENCY. Also, a weak economy, strong equity markets and changes by the Federal
Reserve in its monetary policies all could affect short-term interest rates and
therefore the value and yield of the Fund's shares.
1
<PAGE>
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FUND EXPENSES
- --------------------------------------------------------------------------------
The following table describes Fund expenses. Shareholder Fees are paid directly
by shareholders. Annual Fund Operating Expenses are deducted from Fund assets
every year, and are thus paid indirectly by all Fund shareholders.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum Sales Charge (Load) on Purchases None
Maximum Deferred Sales Charge (Load) None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1)
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fee 0.20%
Distribution and Service (12b-1) Fees 0.65%
Other Expenses 0.28%
Total Operating Expenses 1.13%
Fee Waiver and/or Expense Reimbursement 0.18%
Net Expenses 0.95%
- --------------------------------------------------------------------------------
(1) Because the Fund is new, the amounts shown for Management Fee and
Distribution and Service (12b-1) Fees are based on payments that will be
made. Other Expenses are estimated amounts for the current fiscal year. The
estimates are based on other funds that have similar investment objectives.
The estimates for Other Expenses assume the assets in the Fund increase to a
certain level. The Fund's actual expenses may not equal the estimate and may
be more or less than the amounts shown. An administrative services fee of
0.10% is included in Other Expenses.
Aeltus is contractually obligated to waive all or a portion of its
investment advisory fee and/or its administrative services fee and/or to
reimburse a portion of the Fund's other expenses in order to ensure that the
Fund's total operating expenses do not exceed 0.95% of the Fund's average
daily net assets.
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*
$97 $303
* Aeltus is contractually obligated to waive fees and/or reimburse expenses as
stated above. The figures in the example 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.
2
<PAGE>
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OTHER CONSIDERATIONS
- --------------------------------------------------------------------------------
In addition to the principal investments and strategies described on the
previous pages, 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).
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, 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.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
Aeltus Investment Management, Inc., 10 State House Square, Hartford, Connecticut
06103-3602, serves as the Fund's investment adviser. Aeltus is responsible for
managing the assets of the Fund in accordance with its investment objective and
policies, subject to oversight by the Company's Board of Directors. Aeltus has
acted as adviser or subadviser to mutual funds since 1994 and has managed
institutional accounts since 1972.
Advisory Fees Listed below are the advisory fees that Aeltus is entitled to
receive from the Fund at an annual rate based on the average daily net assets of
the Fund:
Rate Average Daily Net Assets
0.20% On first $1 billion
0.19% On next $2 billion
0.18% Over $3 billion
3
<PAGE>
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INVESTMENTS IN AND REDEMPTIONS FROM THE FUND
- --------------------------------------------------------------------------------
The Fund is utilized as a sweep account for various brokerage firms.
Purchase of Shares By Sweep Your brokerage account will be coded to sweep cash
balances into shares of the Fund. There is a $500 minimum initial investment.
Free credit balances arising in your brokerage account from check deposits,
dividend payments, interest payments and other credits will be invested in the
Fund on the business day after posting. Free credit balances arising from the
sale of securities will be invested into the Fund on the business day following
settlement. Your broker will, however, hold back and not invest in the Fund
sufficient monies to pay for security purchases that have not yet settled.
Redemptions
BY CHECKWRITING - Your brokerage firm will provide a checkbook from which you
may write checks made payable to any payee in any amount of $100 or more. The
maximum amount that a check may be written for will depend upon the value of
your Fund shares, other available cash in your brokerage account, and the
available margin loan value of securities in your brokerage account if your
brokerage account is established as a margin account. In order to establish
checkwriting you must complete a signature card which you can obtain from your
Account Executive, Registered Representative or Financial Advisor. There is no
separate charge imposed by the Fund for the checkwriting service. The
checkwriting service enables you to receive the daily dividends declared on the
Fund shares through the day that your check is presented for payment.
BY SWEEP - A sufficient number of shares will be redeemed automatically on
settlement date to pay for all securities transactions. A sufficient number of
shares will also be redeemed to satisfy any withdrawals or debits posted to the
brokerage account.
Orders that are received by the Fund's transfer agent before 2:00 p.m. (eastern
time) will be processed at the Net Asset Value (NAV) calculated that business
day. Orders received after 2:00 p.m. (eastern time) will be processed at the NAV
calculated on the following business day.
Net Asset Value Shares are sold and redeemed on a continuous basis without
sales or redemption charges at their net asset value which is expected to be
constant at $1.00 per share, although this price is not guaranteed. The NAV of
each Fund is determined as of 2:00 p.m. (eastern time) on each day that the New
York Stock Exchange is open for trading (business day). In calculating the NAV,
the securities held by the Fund are valued using amortized cost.
Once your redemption request is received in proper form by the Fund's transfer
agent, the Fund normally will send the proceeds of such redemption within one or
two business days. However, if making immediate payment could adversely affect a
Fund, the Fund may defer distribution for up to seven days or a longer period if
permitted.
Additional Information For more information on the purchase and redemption of
Fund shares, see the SAI.
4
<PAGE>
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Dividends A distribution from net income of the Fund is declared each business
day at 2:00 p.m. (eastern time) and is paid immediately thereafter pro rata to
shareholders of record via automatic investment in additional full and
fractional shares in each shareholder's account at the close of business. As
such additional shares are entitled to dividends on following days, a
compounding growth of income occurs. 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.
Fund shares begin to accrue dividends the business day they are purchased. A
redemption of Fund shares will include dividends declared through the business
day prior to the redemption date.
Both income dividends and capital gains distributions, if any, are paid by the
Fund on a per share basis.
- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------
[bullet] In general, dividends and short-term capital gains distributions you
receive from the Fund are taxable as ordinary income. This is true
even though your distributions are being reinvested.
[bullet] Distributions of other capital gains generally are taxable as capital
gains.
[bullet] Ordinary income and capital gains are taxed at different rates.
[bullet] The rates that you will pay on capital gains distributions will depend
on how long the Fund holds its portfolio securities.
Every year, you will be sent 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.
Backup Withholding By law, 31% of your distributions and proceeds must be
withheld if you have not provided complete, correct taxpayer information to the
Fund or your broker-dealer.
5
<PAGE>
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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 about 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.
6
<PAGE>
BROKERAGE CASH RESERVES
STATEMENT OF ADDITIONAL INFORMATION DATED: AUGUST 1, 1999
Brokerage Cash Reserves (Fund) is a series of Aetna Series Fund, Inc.
(Company). This Statement of Additional Information (Statement) is not a
Prospectus and should be read in conjunction with the Fund's current Prospectus
dated August 1, 1999.
Capitalized terms not defined herein are used as defined in the Prospectus.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................3
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES..............................4
INVESTMENT TECHNIQUES AND RISK FACTORS.......................................6
DIRECTORS AND OFFICERS......................................................10
THE INVESTMENT ADVISORY AGREEMENT...........................................13
THE ADMINISTRATIVE SERVICES AGREEMENT.......................................13
CUSTODIAN...................................................................13
TRANSFER AGENT..............................................................14
INDEPENDENT AUDITORS........................................................14
PRINCIPAL UNDERWRITER.......................................................14
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS.........................14
PURCHASE AND REDEMPTION OF SHARES...........................................15
BROKERAGE ALLOCATION AND TRADING POLICIES...................................16
SHAREHOLDER ACCOUNTS AND SERVICES...........................................17
NET ASSET VALUE.............................................................17
TAX STATUS..................................................................17
PERFORMANCE INFORMATION.....................................................18
<PAGE>
GENERAL INFORMATION
INCORPORATION The Company was incorporated under the laws of Maryland on June
17, 1991.
SERIES The Company currently offers 21 separate series. Only Brokerage Cash
Reserves is offered through this Statement of Additional Information and the
corresponding Prospectus.
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 a Fund. Upon liquidation of the
Fund, shareholders in the Fund are entitled to share pro rata in the net assets
of the Fund available for distribution to shareholders.
VOTING RIGHTS Shareholders 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 of the Company have voting rights on
all matters except matters affecting only the interests of one series. 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 Fund's Articles of Incorporation may be amended by an affirmative vote of a
majority of the shares at any meeting of shareholders or by written instrument
signed by a majority of the Directors and consented to by a majority of the
shareholders.
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 Directors 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.
1940 ACT CLASSIFICATION The Company is an open-end management investment
company, as that term is defined under the 1940 Act. The Fund is a diversified
company, as that term is defined under the 1940 Act. The 1940 Act generally
requires that with respect to 75% of its total assets, a diversified company may
not invest more than 5% of its total assets in the securities of any one issuer.
As a matter of operating policy, the Fund may invest no more than 5% of its
total assets in the securities of any one issuer (as determined pursuant to Rule
2a-7 under the 1940 Act), except that the Fund may invest up to 25% of its total
assets in the first tier securities (as defined in Rule 2a-7) of a single issuer
for a period of up to three business days. Fundamental policy number (1), as set
forth below, would give the Fund the ability to invest, with respect to 25% of
its assets, more than 5% of its assets in any one issuer only in the event Rule
2a-7 is amended in the future.
<PAGE>
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES
The investment objectives and certain investment policies of the Fund are
matters of fundamental policy for purposes of the 1940 Act and therefore cannot
be changed without the approval of a majority of the outstanding voting
securities of the Fund. This means 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 of the Fund 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) with respect to 75% of the value of the Fund's total assets, hold more
than 5% of the value of its total assets in the securities of any one
issuer or hold more than 10% of the outstanding voting securities of
any one issuer. Securities issued or guaranteed by the U.S. Government,
its agencies and instrumentalities are excluded from this restriction;
(2) concentrate its investments in any one industry, although 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 user of their services, such as
automobile finance, computer finance and consumer finance. This
limitation will not apply to the Fund's investment in securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities; securities invested in, or repurchase agreements
for, U.S. Government securities; and certificates of deposit, bankers'
acceptances, and securities of banks;
(3) make loans, except that, to the extent appropriate under its investment
program, the Fund may (i) purchase bonds, debentures or other debt
instruments, including short-term obligations; (ii) enter into
repurchase transactions; and (iii) lend portfolio securities provided
that the value of such loaned securities does not exceed one-third of
the Fund's total assets;
(4) issue any senior security (as defined in the 1940 Act), except that (i)
the Fund may enter into commitments to purchase securities in
accordance with the Fund's investment program, including reverse
repurchase agreements, delayed delivery and when-issued securities,
which may be considered the issuance of senior securities; (ii) the
Fund may engage in transactions that may result in the issuance of a
senior security to the extent permitted under applicable regulations,
interpretations of the 1940 Act or an exemptive order; and (iii)
subject to certain fundamental restrictions set forth below, the Fund
may borrow money as authorized by the 1940 Act;
(5) purchase real estate, interests in real estate or real estate limited
partnership interests except that: (i) 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, which deal in real estate or interests
therein; or (ii)
4
<PAGE>
the Fund may acquire real estate as a result of ownership of securities
or other interests (this could occur for example if the Fund holds a
security that is collateralized by an interest in real estate and the
security defaults);
(6) 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;
(7) borrow money, except that (i) 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; and (ii) for temporary emergency purposes, the
Fund may borrow money in amounts not exceeding 5% of the value of its
total assets at the time the loan is made;
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by the Fund,
the Fund may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (1933 Act).
The Board has adopted the following other investment restrictions which may be
changed by the Board and without shareholder vote. The Fund will not:
(1) make short sales of securities, other than short sales "against the
box," or purchase securities on margin except for short-term credits
necessary for clearance of portfolio transactions;
(2) invest more than 25% of its total assets in securities or obligations
of foreign issuers, including marketable securities of, or guaranteed
by, foreign governments (or any instrumentality or subdivision
thereof). The Fund will invest in securities or obligations of foreign
banks only if such banks have a minimum of $5 billion in assets and a
primary capital ratio of at least 4.25%. The Fund may only purchase
foreign securities or obligations that are U.S.-dollar denominated;
(3) invest in companies for the purpose of exercising control or
management;
(4) purchase interests in oil, gas or other mineral exploration programs;
however, this limitation will not prohibit the acquisition of
securities of companies engaged in the production or transmission of
oil, gas, or other minerals;
(5) invest more than 10% of its net assets in illiquid securities. Illiquid
securities are securities that are not readily marketable or cannot be
disposed of promptly within seven days and in the usual course of
business without taking a materially reduced price. Such securities
include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may
be resold under Rule 144A under, or securities offered pursuant to
Section 4(2) of the 1933 Act, shall not be deemed illiquid solely by
reason of being unregistered. Aeltus Investment Management, Inc.
(Aeltus), the investment adviser, shall determine whether a particular
security is deemed to be liquid based on the trading markets for the
specific security and other factors;
5
<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 will invest at least 95% of its total assets in high-quality
securities. High-quality securities are those receiving the highest credit
rating by any two nationally recognized statistical rating organizations (or
one, if only one rating organization has rated the security) and meet the
conditions of Rule 2a-7 under the 1940 Act. High-quality securities may also
include unrated securities if Aeltus determines the security to be of comparable
quality.
The remainder of the Fund's assets will be invested in securities rated within
the two highest rating categories by any two nationally recognized statistical
rating organizations (or one, if only one rating organization has rated the
security) and unrated securities if Aeltus determines the security to be of
comparable quality. With respect to this group of securities, the Fund may not,
however, invest more than 1% of the market value of its total assets or $1
million, whichever is greater, in the securities or obligations of a single
issuer.
INVESTMENT TECHNIQUES AND RISK FACTORS
ASSET-BACKED SECURITIES
The Fund may invest in asset-backed securities. Asset-backed securities are
collateralized by short-term loans such as automobile loans, home equity loans,
equipment leases or credit card receivables. The payments from the collateral
are generally passed through to the security holder. The average life for these
securities is the conventional proxy for maturity. Asset-backed securities may
pay all interest and principal to the holder, or they may pay a fixed rate of
interest, with any excess over that required to pay interest going either into a
reserve account or to a subordinate class of securities, which may be retained
by the originator. The originator or other party may guarantee interest and
principal payments. These securities may be subject to prepayment risk. In
periods of declining interest rates, reinvestment would thus be made at lower
and less attractive rates.
ZERO COUPON SECURITIES
The Fund may invest in zero coupon securities. Zero coupon 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
6
<PAGE>
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.
Zero coupon securities are also subject to the risk that in the event of a
default, the Fund may realize no return on its investment, because these
securities do not pay cash interest.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards approved by
the Board. Under a repurchase agreement, the Fund may acquire a debt instrument
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase and the Fund to resell the instrument at
a fixed price and time, thereby determining the yield during the Fund's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. Such underlying debt instruments serving as
collateral will meet the quality standards of the Fund. The market value of the
underlying debt instruments will, at all times, be equal to the dollar amount
invested even though the maturity of the underlying instruments may exceed the
397-day maturity limitation of the Fund. Repurchase agreements, although fully
collateralized, involve the risk that the seller of the securities may fail to
repurchase them from the Fund. In that event, the Fund may incur (a) disposition
costs in connection with liquidating the collateral, or (b) a loss if the
collateral declines in value. Also, if the default on the part of the seller is
due to insolvency and the seller initiates bankruptcy proceedings, the Fund's
ability to liquidate the collateral may be delayed or limited. Repurchase
agreements maturing in more than seven days will not exceed 10% of the total
assets of the Fund.
VARIABLE RATE DEMAND INSTRUMENTS
The Fund may invest in variable rate demand instruments. Variable rate demand
instruments (including floating rate instruments) held by the Fund may have
maturities of more than one year, provided: (i) the Fund is entitled to the
payment of principal at any time, or during specified intervals not exceeding
one year, upon giving the prescribed notice (which may not exceed 30 days), and
(ii) the rate of interest on such instruments is adjusted at periodic intervals
not to exceed one year. In determining whether a variable rate demand instrument
has a remaining maturity of one year or less, each instrument will be deemed to
have a maturity equal to the longer of the period remaining until its next
interest rate adjustment or the period remaining until the principal amount can
be recovered through demand. The Fund will be able (at any time or during
specified periods not exceeding one year, depending upon the note involved) to
demand payment of the principal of a note. If an issuer of a variable rate
demand note defaulted on its payment obligation, the Fund might be unable to
dispose of the note and a loss would be incurred to the extent of the default.
The Fund will invest in variable rate demand notes only when the investment is
deemed to involve minimal credit risk. The continuing creditworthiness of
issuers of variable rate demand notes held by the Fund will also be monitored to
determine whether such
7
<PAGE>
notes should continue to be held. Variable and floating rate instruments with
demand periods in excess of seven days and which cannot be disposed of promptly
within seven business days and in the usual course of business without taking a
reduced price will be treated as illiquid securities.
FOREIGN SECURITIES
The Fund may invest in foreign securities denominated in U.S. dollars.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include adverse foreign political and economic developments and the
possible imposition of exchange controls or other foreign governmental laws or
restrictions. With respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability,
or diplomatic developments that could adversely affect investments in those
countries.
There may be less publicly available information about a foreign issuer than
about a U.S. company, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. issuers. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable U.S. issuers. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the U.S. In addition, the
Company might have greater difficulty taking appropriate legal action with
respect to foreign investments in non-U.S. courts than with respect to domestic
issuers in U.S. courts.
All these risks usually are higher in emerging markets, such as most countries
in Africa, Asia, Latin America and the Middle East, than in more established
markets, such as Western Europe.
SUPRANATIONAL AGENCIES
The Fund may invest up to 10% of its net assets in securities of supranational
agencies. These securities are not considered government securities and are not
supported directly or indirectly by the U.S. Government. Examples of
supranational agencies include, but are not limited to, the International Bank
for Reconstruction and Development (commonly referred to as the World Bank),
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization engaged
in cooperative economic activities; the European Coal and Steel Community, which
is an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions.
BORROWING
The Fund may borrow up to 5% of the value of its total assets from a bank for
temporary or emergency purposes. The Fund does not intend to borrow.
8
<PAGE>
BANK OBLIGATIONS
The Fund may invest in obligations issued by domestic or foreign banks
(including banker's acceptances, commercial paper, bank notes, time deposits and
certificates of deposit). The Fund will invest in securities or obligations of
foreign banks only if such banks have a minimum of $5 billion in assets and a
primary capital ratio of at least 4.25%.
MATURITY POLICIES
The average dollar-weighted maturity of securities in the Fund's portfolio will
not exceed ninety days. In addition, all investments in the Fund's portfolio
will have a maturity at the time of purchase, as defined under the federal
securities laws, of 397 calendar days or less.
YEAR 2000
As a healthcare and financial services enterprise, Aetna Inc. (referred to
collectively with its affiliates and subsidiaries as "Aetna"), is dependent on
computer systems and applications to conduct its business. Aetna 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 domestic mission-critical IT systems has been
completed. Remediation and/or testing activities remain to be completed on
approximately 1% of the systems portfolio. Final Year 2000 approval testing for
all 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. Aetna, including Aeltus, has
initiated communication with its critical external relationships to determine
the extent to which Aetna may be vulnerable to such parties' failure to resolve
their own Year 2000 issues. Aetna 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.
9
<PAGE>
DIRECTORS AND OFFICERS
The investments and administration of the Company are under the supervision of
the Board. The Directors and executive officers of the Company 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 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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST FIVE YEARS (AND
NAME, POSITION(S) HELD POSITIONS HELD WITH AFFILIATED PERSONS OR PRINCIPAL
ADDRESS AND AGE WITH EACH FUND UNDERWRITERS OF THE FUND)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox* Director and President Director, Managing Director, Chief Operating
10 State House Square Officer, Chief Financial Officer, Aeltus Investment
Hartford, Connecticut Management, Inc., October 1997 to present; Director
Age 44 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 to
10 State House Square present; Vice President, Aetna Investment Services,
Hartford, Connecticut Inc., July 1993 to May 1998.
Age 56
- ----------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr. Director Professor, Middle Tennessee State University, 1991
3029 St. Johns Drive 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 45 Life Insurance and Annuity Company, August 1994 to
November 1995; Assistant Vice President, Investors
Bank & Trust, January 1993 to August 1994.
- ----------------------------------------------------------------------------------------------------------------------
Amy R. Doberman Secretary General Counsel, Aeltus Investment Management,
10 State House Square Inc., February 1999 to present; Counsel, Aetna Life
Hartford, Connecticut Insurance and Annuity Company, December 1996 to
Age 37 present; Attorney, Securities and Exchange
Commission, March 1990 to November 1996.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation and
Closter, New Jersey Alcohol Services, 1973 to present.
Age 55
- ----------------------------------------------------------------------------------------------------------------------
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, Chief
10 State House Square Investment Officer, Aeltus Investment Management,
Hartford, Connecticut Inc., December 1995 to present; Director, Aetna
Age 38 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 49 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 Age 44 1991 to present; Director, Aetna Investment
Services, Inc.,
July 1993 to present; Senior Vice President, Aetna
Investment Services, Inc., July 1993 to February,
1999.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
During the period 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 Company. 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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME OF PERSON AGGREGATE COMPENSATION FROM THE TOTAL COMPENSATION FROM THE COMPANY
POSITION COMPANY AND FUND COMPLEX PAID TO DIRECTORS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 7,075 70,750
Director, Chairperson
Audit Committee
- ----------------------------------------------------------------------------------------------------------------------
David L. Grove* 6,925 69,250
Director, Chairperson
Contract Committee
- ----------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr.
Director 3,077 30,778
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*During the fiscal year ended October 31, 1998, Ms. Fighetti and Dr. Grove
deferred $15,000 and $69,250, respectively, of their compensation.
12
<PAGE>
THE INVESTMENT ADVISORY AGREEMENT
The Company, on behalf of the Fund, has 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. Aeltus is
an indirect wholly-owned subsidiary of Aetna Inc., a publicly-owned holding
company whose principal operating subsidiaries engage in the health benefits,
insurance and financial services businesses in the U.S. and internationally.
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 Directors of the Company and that the Fund is responsible for
payment of all other of its costs.
Listed below are the Advisory Fees that Aeltus is entitled to receive from the
Fund at an annual rate based on average daily net assets of each Fund:
Rate Average Daily Net Assets
0.20% On first $1 billion
0.19% On next $2 billion
0.18% Over $3 billion
THE ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Administrative Services Agreement, Aeltus acts as administrator
and provides certain administrative and shareholder services necessary for Fund
operations and is responsible for the supervision of other service providers.
The services provided by Aeltus include: (a) internal accounting services; (b)
monitoring regulatory compliance, such as reports and filings with the
Commission and state securities regulatory authorities; (c) preparing financial
information for proxy statements; (d) preparing semiannual and annual reports to
shareholders; (e) calculating net asset values; (f) preparation of certain
shareholder communications; (g) supervision of the custodians 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 Fund's assets. The custodian does not participate in
determining the investment policies of the Fund or 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.
13
<PAGE>
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 Company. KPMG LLP provides audit services, assistance and
consultation in connection with the Commission filings.
PRINCIPAL UNDERWRITER
Shares of the Fund are offered on a continuous basis. Aeltus Capital, Inc.
(ACI), 10 State House Square, Hartford, Connecticut 06103-3602, serves as the
Company's principal underwriter. ACI is a Connecticut corporation, and is a
wholly-owned subsidiary of Aeltus and an indirect wholly-owned subsidiary of
Aetna Inc. ACI has agreed to use its best efforts to distribute the shares as
the principal underwriter of the Fund pursuant to an Underwriting Agreement
between it and the Company.
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS
Fund shares are distributed by ACI. ACI is paid an annual distribution fee at
the rate of 0.50% of the value of average daily net assets attributable to the
Fund's shares under a Distribution Plan adopted by the Company pursuant to Rule
12b-1 under the 1940 Act ("Distribution Plan"). The Fund's distribution fee may
be used to cover expenses incurred in promoting the sale of Fund 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. ACI may reallow all or a
portion of these fees to broker-dealers entering into selling agreements with
it, including its affiliates.
The Fund is 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 0.15% of the average daily net assets of the Fund's shares. The
Service Fee will be used by ACI primarily to pay selling dealers and their
agents for servicing of and recordkeeping for 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.
14
<PAGE>
The Distribution Plan 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 Plan may not be amended to
increase the amount to be spent for the services provided by ACI without
shareholder approval. All amendments to the Distribution Plan must be approved
by the Board in the manner described above. The Distribution Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Directors upon not more than thirty (30) days' written notice to any
other party to the Distribution Plan. All persons who are under common control
with the Fund could be deemed to have a financial interest in the Plan. No other
interested person of the Fund has a financial interest in the Plan.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are purchased and redeemed at the Fund's net asset value next
determined after a purchase or redemption order is received, as described in the
Prospectus.
Except as provided below, 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.
Purchases should be made for investment purposes only. The Fund reserves the
right to reject any specific purchase.
ACCOUNTS NOT MAINTAINED THROUGH FINANCIAL INTERMEDIARIES
If you are a Fund shareholder who is directly registered with the Fund, you may:
[bullet] purchase additional shares of the Fund by sending a letter indicating
your name, account number(s), the name of the Fund and the amount you
want to invest in the Fund. 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 9663
Providence, RI 02940
Your check must be drawn on a bank located within the United States and
payable in U.S. dollars. The Fund will accept checks which are made
payable to you and endorsed to Aetna Series Fund, Inc.
15
<PAGE>
[bullet] 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 Fund, 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
Fund account, exactly as the shares are registered. You also may redeem
shares you own by calling the Transfer Agent at 1-800-367-7732. Please
be prepared to provide your account number, account name and the
amount of the redemption.
Once your redemption request is received in good order as described
below, the Fund normally will send the proceeds of such redemption
within one or two business days. However, if making immediate payment
could adversely affect the Fund, the Fund 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 or systematic investment
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.
A signature guarantee is verification of the authenticity of the
signature given by certain authorized institutions. In addition, if you
wish to have your redemption proceeds 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.
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 of the New York, American,
Boston, Midwest, or Pacific Stock Exchanges. Please note that signature
guarantees are not provided by notaries public.
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the direction of the Board, Aeltus has responsibility for making the
Fund's investment decisions, for effecting the execution of trades for the
Fund's portfolio, and for negotiating the price for any securities, including
any markups, markdowns, or commissions thereon. It is Aeltus' policy to obtain
the best execution available, giving attention to net price, 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
16
<PAGE>
regarding a specific trade. Purchases and sales of portfolio securities will
usually be made through principal transactions, which will result in the payment
of no brokerage commissions. In such transactions, portfolio securities will
normally be purchased directly from or sold to the issuer or an underwriter or
market-maker for these securities.
Aeltus acts as investment adviser to other investment companies registered under
the 1940 Act. Aeltus has adopted policies designed to prevent disadvantaging the
Fund in placing orders for the purchase and sale of securities. The Fund and
another advisory client of Aeltus or Aeltus itself, may desire to buy or sell
the same security at or about the same time. In such a case, the purchases or
sales will normally be aggregated, and then allocated as nearly as practicable
on a pro rata basis in proportion to the amounts to be purchased or sold by
each. In determining the amounts to be purchased and sold, the main factors to
be considered are the respective investment objectives of the Fund and the other
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.
The Fund has not effected, and has no present intention of effecting, any
brokerage transactions in portfolio securities with Aeltus or any other
affiliated person of the Company.
The Board has adopted a Code of Ethics governing personal trading by persons who
manage or who have access to trading activity by a fund. The Code of Ethics
allows trades to be made in securities that may be held by a fund; however, it
prohibits a person from taking advantage of 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
Confirmations and account statements will be sent to you by either the Fund's
transfer agent or your broker-dealer. 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.
NET ASSET VALUE
Securities of the Fund 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.
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 Fund shareholder. The
discussions here and in the Prospectus are not intended as substitutes for
careful
17
<PAGE>
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 a 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 a 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. 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.
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.
PERFORMANCE INFORMATION
Performance information, including the yield, effective yield and total return
of the Fund, may appear in reports or promotional literature to current or
prospective shareholders.
YIELDS
Current yield will be based on a recently ended seven-day period, computed by
determining the net change, exclusive of capital changes and income other than
investment income, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from that shareholder account, and dividing the
difference by the value of the account at the beginning of the base period to
obtain
18
<PAGE>
the base period return. This base period return is then multiplied by
365/7 with the resulting yield figure carried to at least the nearest hundredth
of one percent. Calculation of "effective yield" begins with the same "base
period return" used in the calculation of yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
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, five and ten 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, 5, or 10 year period at the end of the 1, 5, or 10 year
period (or fractional portion thereof).
Performance information for a Fund may be compared, in reports and promotional
literature, to the IBC Money Funds Report Average/All Taxable Index or other
indices; (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.
ASF(S)- Aetna Series Fund, Inc. Statement of Additional Information
SAI.SERIES-98
19
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 23. Exhibits
- -----------------
<TABLE>
<S> <C> <C>
(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)
(b) By-laws (as amended September 13, 1994)(6)
(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
(d.3) Investment Advisory Agreement between Aeltus Investment Management, Inc. and Aetna Series
Fund, Inc., on behalf of Brokerage Cash Reserves
(d.4) Subadvisory Agreement between Aeltus Investment Management, Inc., Aetna Series Fund, Inc.,
on behalf of Aetna Value Opportunity Fund, and Bradley, Foster & Sargent, Inc.(7)
(e.1) Underwriting Agreement between Aeltus Capital, Inc. and Aetna Series Fund, Inc.(3)
(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)
(g.3) Amendment to Custodian Agreement - Mellon Bank, N.A. (September 14, 1994)(6)
(g.4) Amendment to Custodian Agreement - Mellon Bank, N.A. (October 11, 1996)(8)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(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)
(g.7) Amendment to Custodian Agreement - Mellon Bank, N.A. (July 26, 1999)
(g.8) Custodian Agreement - Brown Brothers Harriman & Company (Aetna International Fund)
(December 12, 1991)(9)
(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
(h.3) Amendment to Administrative Services Agreement between Aeltus Investment Management, Inc.
and Aetna Series Fund, Inc. on behalf of Brokerage Cash Reserves
(h.4) License Agreement(6)
(h.5) Transfer Agent Agreement(4)
(h.6) Amendment No. 1 to the Transfer Agency and Services Agreement(10)
(h.7) Amendment No. 2 to the Transfer Agency and Services Agreement(10)
(h.8) Amendment No. 3 to the Transfer Agency and Services Agreement(5)
(h.9) Form of Amendment No. 4 to the Transfer Agency and Services Agreement
(h.10) Form of Financial Guaranty Agreement between Aetna Series Fund, Inc., on behalf of Aetna Principal
Protection Fund I, and MBIA
(h.11) Form of Service Agreement between Aetna Series Fund, Inc., Mellon Bank and MBIA
(i) Opinion and Consent of Counsel
(j) Consent of Independent Auditors
(k) Not applicable
(l) Initial Capital Agreement(10)
(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)
(m.5) Shareholder Service Plan (Class C)(5)
(m.6) Shareholder Service Plan (Class B)
(m.7) Shareholder Service Plan (Brokerage Cash Reserves)
(n) Not applicable
(o) Multiple Class Plan
(p.1) Power of Attorney (November 6, 1998)(10)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(p.2) Authorization for Signatures(11)
</TABLE>
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. 1 to
Registration Statement on Form N-1A, (File No. 33-85620), as filed with the
Securities and Exchange Commission on June 28, 1995.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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 June 30, 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:
<TABLE>
<CAPTION>
% Aetna
----------------------------------------------------------------------------
Class I Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Aetna Balanced Fund 18.62%
Aetna Bond Fund 55.79% 71.19%
Aetna Government Fund 81.23% 86.84% 45.72%
Aetna Growth Fund 15.77%
Aetna Growth and Income Fund 13.90%
Aetna High Yield Fund 98.39% 25.73% 69.11%
Aetna Index Plus Bond Fund 99.75% 14.07% 36.84% 33.70%
Aetna Index Plus Large Cap Fund 40.05%
Aetna Index Plus Mid Cap Fund 98.29% 4.95% 36.38%
Aetna Index Plus Small Cap Fund 98.03% 6.24% 47.35%
Aetna International Fund 21.03% 53.54%
Aetna Mid Cap Fund 97.94% 21.11% 95.67% 73.78%
Aetna Money Market Fund 50.27% 41.76%
Aetna Real Estate Securities Fund 95.71% 11.99% 71.72% 48.01%
Aetna Small Company Fund 54.59% 72.66%
Aetna Value Opportunity Fund 96.72% 13.98% 89.39% 48.77%
Aetna Ascent Fund 85.31% 94.81%
Aetna Crossroads Fund 90.82% 100.00%
Aetna Legacy Fund 82.97% 92.52%
</TABLE>
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 24 of Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A (File No. 33-41694), as filed with
the Securities and Exchange Commission on May 17, 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
<PAGE>
officers and directors are covered under a directors and officers/errors
and omissions liability insurance policy issued by Gulf Insurance
Company which expires October 1, 1999.
Section XI.B of the Administrative Services Agreement, incorporated
herein by reference to Exhibit (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, incorporated herein by reference
to Exhibit (e.1) to Registrant's Registration Statement on Form N-1A
(File No. 33-41694), as filed electronically on April 24, 1998, provides
for indemnification of the 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>
<TABLE>
<CAPTION>
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*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1996/Addresses*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
* 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 and
<PAGE>
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.
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:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------- -------------------------- ---------------
<S> <C> <C>
John Y. Kim Director and President Director
J. Scott Fox Director, Managing Director, Chief Operating Director and President
Officer, 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
</TABLE>
*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.
<PAGE>
Item 29. Management Services
- --------------------------------
Not applicable.
Item 30. Undertakings
- -------------------------
Not applicable.
<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 29th day of July, 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C> <C>
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 ) July
- ------------------------------------------- )
Maria T. Fighetti ) 29, 1999
)
)
David L. Grove* Director )
- ------------------------------------------- )
David L. Grove )
)
)
John Y. Kim* Director )
- ------------------------------------------- )
John Y. Kim )
)
)
Sidney Koch* Director )
- ------------------------------------------- )
Sidney Koch )
)
)
Shaun P. Mathews* Director )
- ------------------------------------------- )
Shaun P. Mathews )
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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) )
</TABLE>
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>
<TABLE>
<CAPTION>
Aetna Series Fund, Inc.
EXHIBIT INDEX
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C> <C>
99-(a.7) Articles Supplementary (July 12, 1999) ------------------
99-(d.2) Investment Advisory Agreement between Aeltus Investment Management, Inc.
and Aetna Series Fund, Inc., on behalf of Aetna Principal Protection
Fund I ------------------
99-(d.3) Investment Advisory Agreement between Aeltus Investment Management, Inc.
and Aetna Series Fund, Inc., on behalf of Brokerage Cash Reserves ------------------
99-(g.6) Amendment to Custodian Agreement - Mellon Bank, N.A.
(July 26, 1999) ------------------
99-(g.7) Amendment to Custodian Agreement - Mellon Bank, N.A. (July 26, 1999) ------------------
99-(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 ------------------
99-(h.3) Amendment to Administrative Services Agreement between Aeltus Investment
Management, Inc. and Aetna Series Fund, Inc. on behalf of Brokerage Cash
Reserves ------------------
99-(h.9) Form of Amendment No. 4 to the Transfer Agency and Services Agreement ------------------
99-(h.10) Form of Financial Guaranty Agreement between Aetna Series Fund, Inc., on
behalf of Aetna Principal Protection Fund I, and MBIA ------------------
99-(h.11) Form of Service Agreement between Aetna Series Fund, Inc., Mellon Bank
and MBIA ------------------
99-(i) Opinion and Consent of Counsel ------------------
99-(j) Consent of Independent Auditors ------------------
<PAGE>
99-(m.1) Distribution Plan (Class A) ------------------
99-(m.3) Distribution Plan (Class B) ------------------
99-(m.4) Distribution Plan (Brokerage Cash Reserves) ------------------
99-(m.6) Shareholder Service Plan (Class B) ------------------
99-(m.7) Shareholder Service Plan (Brokerage Cash Reserves) ------------------
99-(o) Multiple Class Plan ------------------
</TABLE>
Exhibit a.7
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
<PAGE>
AETNA SERIES FUND, INC.
ARTICLES SUPPLEMENTARY
AETNA SERIES FUND, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940 and having its
principal office in the State of Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation, at its June 23, 1999
meeting, adopted a resolution increasing the total number of shares of stock
which the Corporation shall have authority to issue to 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);
SECOND: The Board of Directors, at its meeting held on June 23, 1999, by
resolutions, did designate and classify one billion, two hundred million
(1,200,000,000) shares of capital stock of the Corporation into 2 new series
("Series") as follows:
Name of Series Name of Number of
-------------- ------- ---------
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
THIRD: The shares of each Series and, if applicable, 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 each Series and, if applicable, each Class of such
Series, shall be subject to all provisions of the Articles of Amendment and
Restatement of the Corporation.
FIFTH: The shares of the Corporation authorized and classified pursuant
to paragraphs FIRST and SECOND of these Articles Supplementary have been so
authorized and classified by the Board of Directors under the authority
contained in the charter of the Corporation. The total number of shares of
capital stock that the Corporation has authority to issue has been increased by
the Board of Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
SIXTH: Immediately prior to the effectiveness of these Articles
Supplementary, the Corporation had the authority to issue 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:
<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
2
<PAGE>
Name of Series Name of Number of
-------------- ------- ---------
Class of Series Shares Allocated
--------------- ----------------
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
3
<PAGE>
Name of Series Name of Number of
-------------- ------- ---------
Class of Series Shares Allocated
--------------- ----------------
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.
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: July 12, 1999
-------------
CORPORATE SEAL
4
Exhibit d.2
INVESTMENT ADVISORY AGREEMENT
<PAGE>
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 I (the "Series"), as of the date set forth above the parties' signatures.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Fund has established the Series; and
WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act"), and is in the
business of acting as an investment adviser; and
WHEREAS, the Fund, on behalf of the Series, and the Adviser desire to enter into
an agreement to provide for investment advisory and management services for the
Series on the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Directors (the "Board"), the Fund, on behalf of
the Series, hereby appoints the Adviser to serve as the investment adviser to
the Series, to provide the investment advisory services set forth below in
Section II. The Adviser agrees that, except as required to carry out its duties
under this Agreement or otherwise expressly authorized, it is acting as an
independent contractor and not as an agent of the Series and has no authority to
act for or represent the Series in any way.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall do the following:
1. supervise all aspects of the operations of the Series;
<PAGE>
2. select the securities to be purchased, sold or exchanged by
the Series or otherwise represented in the Series' investment
portfolio, place trades for all such securities and regularly
report thereon to the Board;
3. formulate and implement continuing programs for the purchase
and sale of securities and regularly report thereon to the
Board;
4. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy
generally, the Series, securities held by or under
consideration for the Series, or the issuers of those
securities;
5. provide economic research and securities analyses as the
Adviser considers necessary or advisable in connection with
the Adviser's performance of its duties hereunder;
6. obtain the services of, contract with, and provide
instructions to custodians and/or subcustodians of the Series'
securities, transfer agents, dividend paying agents, pricing
services and other service providers as are necessary to carry
out the terms of this Agreement; and
7. take any other actions which appear to the Adviser and the
Board necessary to carry into effect the purposes of this
Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Adviser
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is
duly organized and is in good standing under the laws
of the State of Connecticut and is fully authorized
to enter into this Agreement and carry out its duties
and obligations hereunder.
2. Registration. The Adviser is registered as an
investment adviser with the Commission under the
Advisers Act. The Adviser shall maintain such
registration in effect at all times during the term
of this Agreement.
3. Best Efforts. The Adviser at all times shall provide
its best judgment and effort to the Series in
carrying out its obligations hereunder.
2
<PAGE>
B. Representations and Warranties of the Series and the Fund
The Fund, on behalf of the Series, hereby represents and warrants to
the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been
duly incorporated under the laws of the State of
Maryland and it is authorized to enter into this
Agreement and carry out its obligations hereunder.
2. Registration. The Fund is registered as an investment
company with the Commission under the 1940 Act and
shares of the Series are registered or qualified for
offer and sale to the public under the Securities Act
of 1933 and all applicable state securities laws.
Such registrations or qualifications will be kept in
effect during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
Subject to the approval of the Board and the shareholders of the
Series, the Adviser may enter into a Subadvisory Agreement to engage a
subadviser to the Adviser with respect to the Series.
V. BROKER-DEALER RELATIONSHIPS
A. Series Trades
The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Series with brokers or dealers selected by
the Adviser, which may include brokers or dealers affiliated with the
Adviser. The Adviser shall use its best efforts to seek to execute
portfolio transactions at prices that are advantageous to the Series
and at commission rates that are reasonable in relation to the benefits
received.
B. Selection of Broker-Dealers
In selecting broker-dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage or research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Adviser and/or the
other accounts over which the Adviser or its affiliates exercise
investment discretion. The Adviser may also select brokers or dealers
to effect transactions for the Series that provide payment for expenses
of the Series. The Adviser is authorized to pay a broker or dealer who
provides such brokerage or research services or expenses, and that has
provided assistance in the distribution of shares of the Series to the
extent permitted by law, a commission for executing a portfolio
transaction for the Series that is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage or research services provided by such broker or dealer and is
paid in compliance with Section 28(e). This determination may be
3
<PAGE>
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.
4
<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;
5
<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.
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
6
<PAGE>
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 August 1, 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.
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
7
<PAGE>
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.
8
<PAGE>
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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 28th day of July, 1999.
Aeltus Investment Management, Inc.
By:/s/ John Y. Kim
Attest:/s/ Amy R. Doberman Name: John Kim
Name: Amy R. Doberman Title: President
Title: Secretary
Aetna Series Fund, Inc.
on behalf of its series,
Aetna Principal Protection Fund I
By:/s/ J. Scott Fox
Attest:/s/ Michael Gioffre Name: J. Scott Fox
Name: Michael Gioffre Title: President
Title: Assistant Secretary
9
Exhibit d.3
INVESTMENT ADVISORY AGREEMENT
<PAGE>
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, Brokerage Cash Reserves (the
"Series"), as of the date set forth above the parties' signatures.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Fund has established the Series; and
WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act"), and is in the
business of acting as an investment adviser; and
WHEREAS, the Fund, on behalf of the Series, and the Adviser desire to enter into
an agreement to provide for investment advisory and management services for the
Series on the terms and conditions hereinafter set forth;
NOW THEREFORE, the parties agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Directors (the "Board"), the Fund, on behalf of
the Series, hereby appoints the Adviser to serve as the investment adviser to
the Series, to provide the investment advisory services set forth below in
Section II. The Adviser agrees that, except as required to carry out its duties
under this Agreement or otherwise expressly authorized, it is acting as an
independent contractor and not as an agent of the Series and has no authority to
act for or represent the Series in any way.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall do the following:
1. supervise all aspects of the operations of the Series;
<PAGE>
2. select the securities to be purchased, sold or exchanged by
the Series or otherwise represented in the Series' investment
portfolio, place trades for all such securities and regularly
report thereon to the Board;
3. formulate and implement continuing programs for the purchase
and sale of securities and regularly report thereon to the
Board;
4. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy
generally, the Series, securities held by or under
consideration for the Series, or the issuers of those
securities;
5. provide economic research and securities analyses as the
Adviser considers necessary or advisable in connection with
the Adviser's performance of its duties hereunder;
6. obtain the services of, contract with, and provide
instructions to custodians and/or subcustodians of the Series'
securities, transfer agents, dividend paying agents, pricing
services and other service providers as are necessary to carry
out the terms of this Agreement; and
7. take any other actions which appear to the Adviser and the
Board necessary to carry into effect the purposes of this
Agreement.
III. REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties of the Adviser
Adviser hereby represents and warrants to the Fund as follows:
1. Due Incorporation and Organization. The Adviser is
duly organized and is in good standing under the laws
of the State of Connecticut and is fully authorized
to enter into this Agreement and carry out its duties
and obligations hereunder.
2. Registration. The Adviser is registered as an
investment adviser with the Commission under the
Advisers Act. The Adviser shall maintain such
registration in effect at all times during the term
of this Agreement.
3. Best Efforts. The Adviser at all times shall provide
its best judgment and effort to the Series in
carrying out its obligations hereunder.
2
<PAGE>
B. Representations and Warranties of the Series and the Fund
The Fund, on behalf of the Series, hereby represents and warrants to
the Adviser as follows:
1. Due Incorporation and Organization. The Fund has been
duly incorporated under the laws of the State of
Maryland and it is authorized to enter into this
Agreement and carry out its obligations hereunder.
2. Registration. The Fund is registered as an investment
company with the Commission under the 1940 Act and
shares of the Series are registered or qualified for
offer and sale to the public under the Securities Act
of 1933 and all applicable state securities laws.
Such registrations or qualifications will be kept in
effect during the term of this Agreement.
IV. DELEGATION OF RESPONSIBILITIES
Subject to the approval of the Board and the shareholders of the
Series, the Adviser may enter into a Subadvisory Agreement to engage a
subadviser to the Adviser with respect to the Series.
V. BROKER-DEALER RELATIONSHIPS
A. Series Trades
The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Series with brokers or dealers selected by
the Adviser, which may include brokers or dealers affiliated with the
Adviser. The Adviser shall use its best efforts to seek to execute
portfolio transactions at prices that are advantageous to the Series
and at commission rates that are reasonable in relation to the benefits
received.
B. Selection of Broker-Dealers
In selecting broker-dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage or research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of 1934) to the Adviser and/or the
other accounts over which the Adviser or its affiliates exercise
investment discretion. The Adviser may also select brokers or dealers
to effect transactions for the Series that provide payment for expenses
of the Series. The Adviser is authorized to pay a broker or dealer who
provides such brokerage or research services or expenses, and that has
provided assistance in the distribution of shares of the Series to the
extent permitted by law, a commission for executing a portfolio
transaction for the Series that is in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage or research services provided by such broker or dealer and is
paid in compliance with Section 28(e). This determination may be
3
<PAGE>
viewed in terms of either that particular transaction or the overall
responsibilities that the Adviser and its affiliates have with respect
to accounts over which they exercise investment discretion. The Board
shall periodically review the commissions paid by the Series to
determine if the commissions paid over representative periods of time
were reasonable in relation to the benefits received.
VI. CONTROL BY THE BOARD
Any investment program undertaken by the Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Adviser on behalf of the Series
pursuant thereto, shall at all times be subject to any directives of the Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:
1. all applicable provisions of the 1940 Act;
2. the provisions of the current Registration Statement of the
Fund;
3. the provisions of the Fund's Articles of Incorporation, as
amended;
4. the provisions of the Bylaws of the Fund, as amended; and
5. any other applicable provisions of state and federal law.
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund, on behalf of the Series, shall pay to the
Adviser an annual fee, payable monthly, based upon the following average daily
net assets of the Series:
RATE ASSETS
0.20% On first $1 billion
0.19% On next $2 billion
0.18% Over $3 billion
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual advisory fee
applied to the daily net assets of the Series. If this
4
<PAGE>
Agreement becomes effective subsequent to the first day of a month or terminates
before the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees set forth above. Subject to the provisions of Section X
hereof, payment of the Adviser's compensation for the preceding month shall be
made as promptly as possible.
IX. EXPENSES
The expenses in connection with the management of the Series shall be allocated
between the Series and the Adviser as follows:
A. Expenses of the Adviser
The Adviser shall pay:
1. the salaries, employment benefits and other related
costs and expenses of those of its personnel engaged
in providing investment advice to the Series,
including without limitation, office space, office
equipment, telephone and postage costs; and
2. all fees and expenses of all directors, officers and
employees, if any, of the Fund who are employees of
the Adviser, including any salaries and employment
benefits payable to those persons.
B. Expenses of the Series
The Series shall pay:
1. investment advisory fees pursuant to this Agreement;
2. brokers' commissions, issue and transfer taxes or
other transaction fees payable in connection with any
transactions in the securities in the Series'
investment portfolio or other investment transactions
incurred in managing the Series' assets, including
portions of commissions that may be paid to reflect
brokerage research services provided to the Adviser;
3. fees and expenses of the Series' independent
accountants and legal counsel and the independent
Directors' legal counsel;
4. fees and expenses of any administrator, transfer
agent, custodian, dividend, accounting, pricing or
disbursing agent of the Series;
5. interest and taxes;
5
<PAGE>
6. fees and expenses of any membership in the Investment
Company Institute or any similar organization in
which the Board deems it advisable for the Fund to
maintain membership;
7. insurance premiums on property or personnel
(including officers and directors) of the Fund;
8. all fees and expenses of the Company's directors, who
are not "interested persons" (as defined in the 1940
Act) of the Fund or the Adviser;
9. expenses of preparing, printing and distributing
proxies, proxy statements, prospectuses and reports
to shareholders of the Series, except for those
expenses paid by third parties in connection with the
distribution of Series shares and all costs and
expenses of shareholders' meetings;
10. all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in
shares of the Series or in cash;
11. costs and expenses (other than those detailed in
paragraph 9 above) of promoting the sale of shares in
the Series, including preparing prospectuses and
reports to shareholders of the Series, provided,
nothing in this Agreement shall prevent the charging
of such costs to third parties involved in the
distribution and sale of Series shares;
12. fees payable by the Series to the Commission or to
any state securities regulator or other regulatory
authority for the registration of shares of the
Series in any state or territory of the United States
or of the District of Columbia;
13. all costs attributable to investor services,
administering shareholder accounts and handling
shareholder relations, (including, without
limitation, telephone and personnel expenses), which
costs may also be charged to third parties by the
Adviser; and
14. any other ordinary, routine expenses incurred in the
management of the Series' assets, and any
nonrecurring or extraordinary expenses, including
organizational expenses, litigation affecting the
Series and any indemnification by the Fund of its
officers, directors or agents.
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 reimburse expenses through December 31,
2000 so that the total annual operating expenses do not exceed 0.95% of the
average daily net assets.
6
<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 August 1, 1999, and shall remain in
force and effect through December 31, 2000, unless earlier terminated under the
provisions of Article XV.
7
<PAGE>
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.
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
8
<PAGE>
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 name "Aetna" have been adopted by the Fund
with the permission of Aetna Services, Inc. (formerly known as Aetna Life and
Casualty Company) and its 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 Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 28th day of July 1999 .
Aeltus Investment Management, Inc.
By:/s/ John Y. Kim
Attest:/s/ Amy R. Doberman Name: John Kim
Name: Amy R. Doberman Title: President
Title: Secretary
9
<PAGE>
Aetna Series Fund, Inc.
on behalf of its series,
Brokerage Cash Reserves
By:/s/ J. Scott Fox
Attest:/s/ Daniel E. Burton Name: J. Scott Fox
Name: Daniel E. Burton Title: President
Title: Assistant Secretary
Exhibit g.6
AMENDMENT TO CUSTODIAN AGREEMENT
<PAGE>
AMENDMENT TO CUSTODIAN AGREEMENT
BETWEEN
AETNA SERIES FUND, INC.
AND
MELLON BANK, N.A.
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company") and Mellon Bank, N.A.
("Mellon") entered into a Custodian Agreement (the "Agreement") on September 1,
1992 with respect to the assets of certain series of the Company and some or all
additional series that the Company may establish from time to time; and
WHEREAS, the Company has authorized the creation of a new series, Aetna
Principal Protection Fund I (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;
<PAGE>
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular series to which such
relationship was created; and
(e) all property held by Mellon on behalf of a particular series shall
relate solely to the particular series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Aetna Series Fund, Inc. on behalf of
Aetna Principal Protection Fund I
Mellon Bank, N.A.
By:/s/ Christi R. Caperton By:/s/ Allan Shaer, Jr.
Name: Christi R. Caperton Name: Allan Shaer, Jr.
Title: Vice President Title: Assistant Treasurer
Mellon Bank N.A.
Date: July 26, 1999 Date: July 9, 1999
2
Exhibit g.7
AMENDMENT TO CUSTODIAN AGREEMENT
<PAGE>
AMENDMENT TO CUSTODIAN AGREEMENT
BETWEEN
AETNA SERIES FUND, INC.
AND
MELLON BANK, N.A.
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company") and Mellon Bank, N.A.
("Mellon") entered into a Custodian Agreement (the "Agreement") on September 1,
1992 with respect to the assets of certain series of the Company and some or
all additional series that the Company may establish from time to time; and
WHEREAS, the Company has authorized the creation of a new series,
Brokerage Cash Reserves (the "Series"), and has amended its registration
statement on Form N-1A to register shares of beneficial interest of the Series
with the Securities and Exchange Commission; and
WHEREAS, the Company desires to appoint Mellon as custodian of the
assets for the Series;
NOW THEREFORE, it is agreed as follows:
1. The Company, on behalf of the Series, hereby appoints Mellon, and
Mellon hereby accepts appointment, as the custodian of the assets of the Series,
in accordance with all the terms and conditions set forth in the Agreement.
2. The Company is entering into this Agreement incorporating the
Agreement on behalf of each Series individually and not jointly with any other
Series. In the Agreement, the term "Fund" shall refer to the Company solely on
behalf of each Series individually to which a particular Futures Contract
transaction or other obligation under the Agreement relates. The
responsibilities and benefits set forth in the Agreement shall refer to each
Series severally and not jointly. No individual Series shall have any
responsibility for any obligation arising out of a Futures Contract transaction
entered into by any other Series. Without otherwise limiting the generality of
the foregoing,
(a) any breach of the Agreement regarding the Company with respect to
any one Series shall not create a right or obligation with respect
to any other Series;
(b) under no circumstances shall Mellon have the right to set off
claims relating to a Series by applying property of any other
Series;
(c) no Series shall have the right of set off against the assets held
by any other Series;
<PAGE>
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular Series to which such
relationship was created; and
(e) all property held by Mellon on behalf of a particular Series shall
relate solely to the particular Series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Aetna Series Fund, Inc. on behalf of
Brokerage Cash Reserves
Mellon Bank, N.A.
By:/s/ Christi R. Caperton By:/s/ Allan Shaer, Jr.
Name: Christi R. Caperton Name: Allan Shaer, Jr.
Title: Vice President Title: Assistant Treasurer
Mellon Bank N.A.
Date: July 26, 1999 Date: July 9, 1999
2
Exhibit h.2
AMENDMENT TO THE ADMINISTRATIVE SERVICES AGREEMENT
<PAGE>
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 I ("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 I
Aeltus Investment Management, Inc.
By:/s/ John Y. Kim By:/s/ J. Scott Fox
Name: John Kim Name: J. Scott Fox
Title: President Title: President
Date: July 27, 1999 Date: July 15, 1999
Attest: Attest:
By:/s/ Amy R. Doberman By: /s/ Michael Gioffre
Name: Amy R. Doberman Name: Michael Gioffre
Title: Secretary Title: Assistant Secretary
Date: July 27, 1999 Date: July 15, 1999
Exhibit h.3
AMENDMENT TO THE ADMINISTRATIVE SERVICES AGREEMENT
<PAGE>
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,
Brokerage Cash Reserves ("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
through December 31, 2000 so that the total annual operating expenses (excluding
distribution and shareholder service fees) do not exceed 0.35% 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
Brokerage Cash Reserves
Aeltus Investment Management, Inc.
By:/s/ John Y. Kim By:/s/ J. Scott Fox
Name: John Kim Name: J. Scott Fox
Title: President Title: President
Date: July 27, 1999 Date: July 16, 1999
Attest: Attest:
By:/s/ Amy R. Doberman By: /s/ Daniel E. Burton
Name: Amy R. Doberman Name: Daniel E. Burton
Title: Secretary Title: Assistant Secretary
Date: July 28, 1999 Date: July 28, 1999
Exhibit h.9
FORM OF AMENDMENT NO. 4 TO THE
TRANSFER AGENCY AND SERVICES AGREEMENT
<PAGE>
FORM OF
AMENDMENT NO. 4 TO THE
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AMENDMENT, dated as of the lst 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 A1 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."
2. Schedule B - FEE SCHEDULE is hereby deleted in its entirety and replaced
with the revised Schedule B attached hereto.
3. Schedule C - OUT-OF-POCKET EXPENSES is hereby deleted in its entirety and
replaced with the revised Schedule B attached hereto.
<PAGE>
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: ____________________________
Title: ____________________________
FIRST DATA INVESTOR SERVICES GROUP, INC.
By: ____________________________
Title: ____________________________
<PAGE>
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 $1650.00 per month
complex:
Daily/periodic confirms/statements:
Print: $.065 per image (includes plain paper)
Fold/Insert 1/seal/meter: $.02 each
Each additional insert: $0.15 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
[bullet] Ad hoc reports/SQL computer time (Prior Fund Approval Required -
Fee shall be based on system enhancement/non-dedicated team
charge set forth above)
[bullet] 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):
[bullet] Postage (bulk, pre-sort, ZIP+4, barcoding, first class)
direct pass through to the Fund
[bullet] Telephone and telecommunication costs, including all lease,
maintenance and line costs
[bullet] Shipping, Certified and Overnight mail and insurance
[bullet] Record retention, retrieval and destruction costs, including,
but not limited to exit fees charged by third party record
keeping vendors
[bullet] Third party audit reviews
[bullet] NSCC/FundServe Transaction charges
[bullet] NSCC same day confirm charges
Non-Standard (Prior Fund Approval Required):
[bullet] Proxy solicitations, mailings and tabulations, upon prior Fund
approval
[bullet] Terminals, communication lines, printers and other equipment
and any expenses incurred in connection with such terminals
and lines, upon prior Fund approval
[bullet] Courier services
[bullet] Overtime
[bullet] Temporary staff
[bullet] Travel and entertainment
[bullet] Magnetic media tapes and freight
[bullet] Such other miscellaneous expenses reasonably incurred by
Investor Services Group in response to specific requests by
the Fund in performing its duties and responsibilities under
this Agreement.
The Fund will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Fund and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
<PAGE>
Exhibit 1
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: ________________________ By: _________________________________
Title: ________________________ Title: _________________________________
EXHIBIT h.10
FORM OF
FINANCIAL GUARANTY AGREEMENT
<PAGE>
1
FORM OF
FINANCIAL GUARANTY AGREEMENT
FINANCIAL GUARANTY AGREEMENT, dated as of , 1999
(the "Agreement"), among MBIA Insurance Corporation, a New York monoline stock
insurance company (the "Insurer"), AELTUS INVESTMENT MANAGEMENT, INC., a
Connecticut company ("Aeltus"), and AETNA SERIES FUND, INC., an open-end
management investment company (the "Fund").
W I T N E S S E T H:
--------------------
WHEREAS, the Fund is a series fund and intends to create one
or more additional series, each called Aetna Principal Protection Fund (each a
"PPF") and each advised by Aeltus, which will include a promise by the Fund on
behalf of each PPF (each a "Repayment Obligation") to repay to each shareholder
thereof (a "PPF Shareholder") at maturity his or her Guarantee Amount (as
defined herein); 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 Obligations with respect to such PPFs; and
WHEREAS, the parties hereto, among other things, desire to
specify the conditions precedent to the issuance by the Insurer of the Policies,
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 I
DEFINITIONS
Section 1.1 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.
"Adjusted Total Asset Value" shall have the meaning set forth
in Section 3.5.
"Aggregate Guarantee Amount" shall mean, with respect to any
PPF, on any date of determination, the aggregate Guarantee Amounts with
respect to all PPF Shareholders in such PPF on such date of
determination.
"Application" shall have the meaning set forth in Section 2.2.
"Asset Allocation Test" shall have the meaning set forth in
Section 3.5.
<PAGE>
2
"Asset Allocation Threshold" shall mean, with respect to any
PPF, on any Valuation Date, an amount equal to 99% of the sum of (i)
the Present Value of the Aggregate Guarantee Amount and (ii) the
Present Value of Covered Expenses.
"Business Day" shall mean a day that is a Trading Day and is
not a Saturday or Sunday, and is not a legal holiday or a day on which
banking institutions generally are authorized or obligated by law or
regulation to close in New York, New York or in Hartford, Connecticut.
"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 any U.S. Treasury
Future, on any Valuation Date, the mark to Market Value of the Cash
Equivalents held as margin for such security on such Valuation Date.
"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 and (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.
"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 mean, on any Valuation Date, the
debentures of any corporation as described 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 asset allocation model and (b) the Lower Covered Expense
Ratio, provided, however, that if the percentage of the Total Asset
Value of such PPF on such date allocable to equities according to the
Asset Allocation Test is less than 30% using the Lower Covered Expense
Ratio, the Covered Expense Ratio will equal the Higher Covered Expense
Ratio.
"Custodian" shall mean Mellon Bank, N.A. or any successor or
assigns under the Custodian Agreement.
"Custodian Agreement" shall mean the Custodial Services
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.
<PAGE>
3
"Custodian Service Agreement" shall mean the Service
Agreement, dated , 1999, among the Fund, the Insurer and the
Custodian, substantially in the form of Exhibit B 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 B hereto
with a successor Custodian.
"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 aggregate Market
Value of the Fixed Income Portfolio multiplied by the Fixed Income
Portfolio Yield with respect to such PPF plus (ii) the U.S. Treasury
Futures Spread for such PPF, divided by (b) the aggregate Market Value
of the Fixed Income Portfolio; provided, however if such PPF does not
hold any securities in its Fixed Income Portfolio on such Valuation
Date, the Discount Rate shall equal the interest rate derived by
calculating the internal rate of return for a proxy 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. The internal rate
of return for such proxy U.S. Treasury Zero shall be calculated based
on the actual days to maturity, compounded on an annual basis, and
shall be based on the Market Value for such U.S. Treasury Zero as of
such Valuation Date compared with the par value for such U.S. Treasury
Zero at maturity.
"Distribution" shall mean any payment by a PPF 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 its shareholders and any payment of
income taxes or excise taxes.
"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
holdings which are Eligible PPF Investments defined in Sections
3.1(b)(v) and (vi).
"Event of Default" shall have the meaning set forth in Section
4.1.
"Fee Payment Date" shall have the meaning set forth in Section
2.4.
"Fixed Income Portfolio" shall mean, with respect to any PPF,
all holdings which are Eligible PPF Investments defined in Sections
3.1(b)(ii), (iii) and (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 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, of such PPF's Fixed Income Portfolio (excluding U.S. Treasury
Futures) and Cash Margin,
<PAGE>
4
as calculated using Lehman Brothers analytics or another widely
recognized, reputable source, as of the close of business on the
Business Day prior to such Valuation Date based on the Market Value for
each Fixed Income Portfolio security on such Business Day plus (b) the
yield to maturity of 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, calculated based on the actual days to
maturity compounded on a semi-annual basis based on the Market Value
for such U.S. Treasury zero as of such Valuation Date compared with the
par value for such U.S. Treasury zero at maturity.
"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, on any date of determination, an amount equal to the
product of (i) the Guarantee per Share for the class of shares of such
PPF 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,
the NAV for such class at the close of business on the last day of the
Offering Period for such PPF; and (ii) thereafter, the Guarantee per
Share for such class of shares of any PPF on the immediately preceding
Valuation Date divided by one plus the quotient of (i) the amount of
any Distribution made by such PPF calculated on a per share basis for
such class of shares effective since the immediately preceding
Valuation Date divided by (ii) the NAV per share for such class of
shares prior to any such Distribution minus the amount of such
Distribution calculated on a per share basis for such class of shares.
"Guarantee Period" shall mean, with respect to any PPF, the
period commencing on and including the Inception Date to and including
the Maturity Date.
"High Ranked Equities" shall mean, on any date of
determination, the Index Equities listed by Aeltus as "High Ranked
Stocks" in the report most recently delivered by Aeltus 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 excess, if
any, of (i) one over (ii) the Class B Percentage with respect to such
PPF plus (b) 2.25% times the Class B Percentage with respect to such
PPF.
<PAGE>
5
"Hypothetical Total Asset Value" shall mean, with respect to
any PPF, an amount equal to the Total Asset Value on the date on which
a Permanent Deficit Event shall have occurred with respect to such PPF,
recalculated as follows: (a) the value of the Equity Portfolio of such
PPF on the Valuation Date immediately preceding such Permanent Deficit
Event shall (i) first, be reduced to an amount such that the Adjusted
Total Asset Value would have equaled the sum of the Present Value of
the Aggregate Guarantee Amount plus the Present Value of Covered
Expenses calculated using the Higher Covered Expense Ratio for such PPF
on such Valuation Date and (ii) second, be reduced to reflect the
change in the value of the Equity Portfolio from such Valuation Date to
the date on which the Permanent Deficit Event shall have occurred and
(b) the value of the Fixed Income Portfolio of such PPF on such
Valuation Date shall (i) first, be increased in an amount equal to the
dollar decrease in the amount of the Equity Portfolio determined in
clause (a)(i) above and (ii) second, be increased or reduced to reflect
the change in the value of the Fixed Income Portfolio from such
Valuation Date to the date on which the Permanent Deficit Event shall
have occurred. A sample calculation is set forth in Annex C.
"Inception Date" shall mean, with respect to a PPF, the
Business Day immediately following the last day of the Offering Period.
"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 Data Systems, Inc. ("FactSet").
"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 multiplied by
the price per share of such Index Equity, as published by Bridge Data
Company ("Bridge").
"Index Future" shall mean a forward 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.
"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 Aeltus as "Low Ranked
Stocks" in the report most recently delivered by Aeltus 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, for such PPF, the lesser of
(i) 0.5% and (ii) the percentage equivalent of an
<PAGE>
6
amount equal to the excess, if any, 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 for such PPF.
"Market Value" shall mean, with respect to any PPF, securities
which are generally valued by independent pricing services which have
been approved by the Fund's Board of Directors. The values for each
Index Equity 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. Index Equities traded over the counter are valued
at the mean of the last bid and asked price or, if there has been no
sale that day, at the mean of the last bid and asked price. Short-term
debt securities that have a maturity date of more than sixty days and
long-term debt securities are valued at the mean of the last bid and
asked price of such securities obtained from a broker-dealer that is a
market-maker in the securities or a service providing quotations based
upon the assessment of market-makers in those securities. Short-term
debt securities maturing in sixty days or less as of the date of
purchase will be valued using the "amortized cost" method of valuation.
This involves valuing an instrument at its cost and thereafter assuming
a constant amortization of premium or increase of discount. 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 Fund's Board of
Directors. The NAV of each PPF is determined as of the close of regular
trading on The New York Stock Exchange (normally 4:00 p.m. eastern
time).
"Maturity Date" shall have the meaning set forth in Section
2.1.
"Modified Duration" shall mean, with respect to any fixed
income security, the quotient of (a) the weighted average term to
maturity of such security's cash flows divided by (b) the sum of (i)
one plus (ii) one half of the security's current bond equivalent yield
to maturity.
"Moody's" shall mean Moody's Investors Service, Inc. and its
successors and assigns.
"NAV" shall mean the net asset value of the PPF, which is
equal to the Market Value of all assets held in the PPF less any
accrued and unpaid expenses of such PPF.
"Notional Value" shall mean the pre-determined dollar
principal amount on which the contract is based.
"NYSE" shall mean The New York Stock Exchange.
"Offering Period" shall have the meaning set forth in each
PPF's prospectus. Generally, this will be the period preceding the
Inception Date during which a PPF permits sales of shares to investors.
"Permanent Deficit Event" shall have the meaning set forth in
Section 2.5(a).
"Permanent Deficit Reimbursement Ratio" shall be calculated
and fixed on the date on which a Permanent Deficit Event shall have
occurred with respect to any PPF and shall mean, with respect to such
PPF, (A) if the Covered Expense Ratio for such PPF on the Business Day
preceding the date of such Permanent Deficit Event was greater than or
equal to 1.50%, 100%; (B)
<PAGE>
7
if the Covered Expense Ratio for such PPF on the Business Day preceding
the date of such Permanent Deficit Event was less than 1.50% and
greater than or equal to 1.17%, the quotient of (i) 0.75% divided by
(ii) the sum of (a) 0.75% plus (b) 1.50% minus the Covered Expense
Ratio on the Business Day preceding the date of such Permanent Deficit
Event; or (C) if the Covered Expense Ratio for such PPF on the Business
Day preceding the date of such Permanent Deficit Event was less than
1.17%, the quotient of (i) the sum of (a) 0.75% plus (b)1.17% minus the
Covered Expense Ratio on the Business Day preceding the date of such
Permanent Deficit Event divided by (ii) the sum of (a) 1.08% plus (b)
1.17% minus the Covered Expense Ratio on the Business Day preceding the
date of such Permanent Deficit Event.
"Permanent Fee Deficit Amount" shall mean, with respect to any
PPF, on any Valuation Date, the product of (A) the quotient of (i) the
Permanent Total Deficit Amount with respect to such PPF on the date on
which a 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 date on
which a 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, the excess, if any, of (a) the sum of the Present Value of
the Aggregate Guarantee Amount plus the Present Value of Covered
Expenses calculated using the Higher Covered Expense Ratio as the
Covered Expense Ratio with respect to such PPF on the date on which a
Permanent Deficit Event shall have occurred with respect to such PPF
over (b) the Hypothetical Total Asset Value 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 plus the Present
Value of Covered Expenses calculated using the Higher Covered Expense
Ratio as the Covered Expense Ratio with respect to such PPF over (b)
the Total Asset Value with respect to such PPF on such Valuation Date.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
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 any group of
securities, the Market Value weighted average Modified Duration of such
securities as calculated using Lehman Brothers analytics or another
widely recognized, reputable source as of the close of business on the
Business Day preceding the relevant Valuation Date, based on the Market
Value for each such security on such Business Day.
"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)(i)
the sum of one plus one half the Discount Rate with respect to such PPF
on
<PAGE>
8
such Valuation Date (ii) compounded over twice the time remaining to
the Maturity Date of such PPF.
"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 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.
"Rebalancing" shall have the meaning set forth in Section 3.5.
"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
Aeltus with respect to such PPF pursuant to Section 2.5(a), 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 Aeltus pursuant to Section 2.5(a)
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.
"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
(g).
"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.
"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 of 500 Stocks and
as compiled by S&P and published by FactSet Data Systems, Inc. or
another widely recognized, reputable source.
"Theoretical Zero Modified Duration" shall mean, with respect
to any PPF on any Valuation Date, the Modified Duration of the U.S.
Treasury zero coupon bond whose maturity date exactly matches the
Maturity Date of such PPF or, if no such U.S. Treasury zero coupon
<PAGE>
9
bond exists, the Modified Duration of a proxy U.S. Treasury zero coupon
bond whose maturity date exactly matches the Maturity Date of such PPF
and whose current yield to maturity is based on the interpolated yield
to maturity of the two U.S. Treasury zero coupon bonds which mature
immediately preceding and immediately following the Maturity Date of
such PPF.
"Total Asset Value" shall mean, with respect to any PPF, on
any Valuation Date, an amount equal to the excess of (a) the sum of:
(i) the aggregate Market Value of all Index Equities
held by such PPF on such Valuation Date;
(ii) 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;
(iii) the aggregate Market Value of all U.S. Treasury
and Agency Zeroes held by such PPF on such Valuation Date;
(iv) the aggregate Market Value of all Corporate Bonds
held by such PPF on such Valuation Date;
(v) the aggregate Market Value of all Cash Margin held
by such PPF; and
(vi) the aggregate Market Value of all Index Futures
held by such PPF on such Valuation Date,
over (b) an amount equal to the aggregate amount of accrued and unpaid
expenses and other liabilities of such PPF.
"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.).
"Trading Day" shall mean each day on which the NYSE is open
for regular trading for at least two hours.
"Transaction Documents" shall mean, with respect to a PPF,
this Agreement, the PPF's prospectus and statement of additional
information, the investment advisory agreement between Aeltus and the
Fund, on behalf of the PPF and the Custodian Service Agreement, as each
may be amended, supplemented or otherwise modified from time to time.
"U.S. Treasury Futures" shall mean futures contracts on U.S.
Treasury securities.
"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 such U.S. Treasury Future's
cheapest-to-deliver bond as published by Bloomberg, L.P. over (ii) the
Federal Reserve's targeted Fed Funds rate on such date as published by
Bloomberg, L.P. (this rate may be found on Bloomberg by typing in FDTR
[less than symbol]Index[greater than symbol] [less than
symbol]Go[greater than symbol]).
<PAGE>
10
"U.S. Treasury or Agency Zeroes" shall mean non-callable
non-interest bearing obligations of (A) the United States of America
and (B) the following U.S. Government Agencies: Fannie Mae, Freddie
Mac, Federal Home Loan Bank, Resolution Funding Corporation, Financing
Corporation and Tennessee Valley Authority; these obligations may
include, 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 Trading Day, as of the
close of trading on the immediately preceding Trading Day.
Section 1.2 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 1.3 Valuation Calculations. All calculations to be
made herein shall be made on a basis that assumes that all acquisitions and
dispositions of assets are settled as of the related trade date, not the
settlement date.
ARTICLE II
THE POLICIES
Section 2.1 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 $25,000,000 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 or (B) any date on which the Aggregate
Guarantee Amount with respect to such PPF equals zero.
Section 2.2 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 an application therefor
substantially in the form of Exhibit C (each an "Application"), completed to the
satisfaction of the Insurer, and such other information with respect to the
related PPF as the Insurer may reasonably request. Upon receipt of any
Application and 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
Application therefor or be required to send any Policy to the Fund earlier than
two Business Days after its receipt of the Application therefor).
Section 2.3 Conditions Precedent to Effectiveness. (a) The
effectiveness of this Agreement is subject to the satisfaction of the following
conditions:
<PAGE>
11
(i) The Transaction Documents and the Custodian Agreement
shall be in full force and effect and the Transaction Documents shall
be in form and substance satisfactory to the Insurer and each
Transaction Document shall have been delivered to the Insurer;
(ii) 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 this Agreement and the other Transaction
Document to which it is a party 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;
(iii) 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 this Agreement and the Transaction Documents to
which it is a party 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;
(iv) Aeltus and the Fund shall have received a certificate of
the Secretary or Assistant Secretary of the Insurer as to the
incumbency and signature of the officers or other employees of the
Insurer authorized to sign this 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;
(v) The Insurer shall have received certificates 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
of this Agreement and all Transaction Documents to which Aeltus is a
party;
(vi) The Insurer shall have received certificates of the
Secretary or Assistant Secretary of the Fund 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 to which it is a party;
(vii) Each party to this Agreement shall have received the
following executed legal opinions, in form and substance satisfactory
to each of the parties hereto:
(A) the opinion of Amy R. Doberman, Esq., counsel to
Aeltus, substantially to the effect set forth in
Exhibit D.
(B) the opinion of ____________________,
__________________ of the Custodian, substantially
to the effect set forth in Exhibit E.
(C) the opinion of _____________________, Associate
General Counsel and Vice President of the Insurer,
substantially to the effect set forth in Exhibit
F.
(D) the opinion of Amy R. Doberman, Esq., Counsel to
the Fund, substantially to the effect set forth in
Exhibit G.
<PAGE>
12
(viii) 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.
(b) 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:
(i) The registration statement with respect to such PPF shall
have been filed with and declared effective by the U.S. Securities and
Exchange Commission, and a copy of each prospectus and statement of
additional information shall have been delivered to the Insurer;
(ii) The Insurer shall have received a certificate of the
Secretary or Assistant Secretary of the Fund dated as of such Inception
Date certifying that attached thereto are true, complete and correct
copies of the resolutions duly adopted by the Board of Directors
authorizing the creation of such PPF;
(iii) 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;
(iv) No Default or Event of Default shall have occurred and be
continuing on such date;
(v) 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
(vi) 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 2.4 Premiums. In consideration of the issuance by the
Insurer of each Policy with respect to a PPF, the Fund shall pay to the Insurer
a fee in an amount equal to 0.33% per annum of the average daily NAV of such PPF
during the Guarantee Period (the "Policy Fee") payable monthly in arrears (each
a "Fee Payment Date"). Policy Fees payable on each Fee Payment Date shall be
calculated based on a 365- or 366-day year and the actual number of days
elapsed.
Section 2.5 Reimbursement Obligations. If, after any
Rebalancing on any Trading 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 and Agency Zeroes and Cash Equivalents, and (y) the Covered
Expense Ratio was less than the Higher Covered Expense Ratio on the Valuation
Date for such Trading Day, a "Permanent Deficit Event" shall be deemed to have
occurred. After the occurrence of a Permanent Deficit Event with respect to any
PPF, Aeltus 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 Aeltus,
within two Business Days of the date of Aeltus' 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
and the Permanent Fee Deficit Amount for such PPF on such Valuation Date.
Thereafter, the Insurer hereby agrees to pay to Aeltus, on a quarterly basis, on
the last Business Day of
<PAGE>
13
each calendar quarter and on the Maturity Date of such PPF, the excess, if any,
of the Reimbursement Amount with respect to such PPF over the product of the
Permanent Deficit Reimbursement Ratio for such PPF times the Permanent Fee
Deficit Amount for such PPF as of the last Valuation Date of such calendar
quarter or such Maturity Date, as the case may be.
Section 2.6 Indemnification. (a) 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 7.4, 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 (excluding income 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.
(b) 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 III
MANAGEMENT OF PPFs
Section 3.1 Eligible Investments. (a) Aeltus shall segregate
the assets of each 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.
(b) Aeltus shall, subject to the restrictions of Sections 3.2,
3.3, 3.4 and 3.5, invest the assets of each PPF only in the following types of
investments ("Eligible PPF Investments"):
(i) 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;
<PAGE>
14
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;
(ii) U.S. Treasury or Agency Zeroes maturing on, or within the
90 days preceding, the Maturity Date with respect to such PPF;
(iii) Non-callable corporate debt securities 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-;
(iv) U.S. Treasury Futures;
(v) Index Equities; and
(vi) Index Futures.
Section 3.2 Investment Limitations. Aeltus shall invest the
assets of each PPF subject to the following limitations:
(a) all Cash Associated with Futures shall be invested in Cash
Equivalents;
(b) each PPF shall hold Cash Equivalents having Market Value
at all times at least equal to Cash Associated with Futures with respect to such
PPF;
(c) the 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 Asset Value with respect to
such PPF on such Valuation Date;
(d) no Cash Equivalent or U.S. Treasury or Agency Zero held by
any PPF shall mature after the Maturity Date with respect to such PPF;
(e) at the time of any investment in Corporate Bonds by a PPF,
no more than 2% of the Total Asset Value of such PPF shall be invested in
Corporate Bonds issued by a particular issuer or its affiliates;
(f) the Notional Value of all U.S. Treasury Futures held by a
PPF shall not exceed 50% of the Market Value of all Corporate Bonds held by such
PPF on any Valuation Date;
(g) on any Valuation Date, the Portfolio Duration of the
Corporate Bonds and U.S. Treasury Futures held by a PPF shall not be greater
than the Theoretical Zero Modified Duration of such PPF nor less than the
Theoretical Zero Modified Duration of such PPF minus 0.25;
(h) the aggregate Market Value of all Index Futures held by a
PPF on any Valuation Date shall not exceed 20% of the sum of (i) the aggregate
Market Value of all such Index Futures and (ii) the aggregate Market Value of
all Index Equities held by such PPF on such Valuation Date;
<PAGE>
15
(i) any Corporate Bond held by a PPF rated less than AA- by
S&P or less than Aa3 by Moody's shall be sold by such PPF with 15 Business Days
following the public announcement of such rating, and
(j) no investment shall be made in securities issued by Aetna
Inc.
Section 3.3 Index Equity Selection Guidelines. Aeltus shall
make each investment in Index Equities in any PPF in accordance with the
Selection Guidelines. Aeltus 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 3.4 Index Equity Diversification and Capitalization
Requirements. Aeltus shall invest the assets of each PPF, to the extent such PPF
holds any Index Equities, such that the following requirements are satisfied as
of each Valuation Date:
(a) 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;
(b) 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%;
(c) 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
(d) 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.
Aeltus 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 each PPF as of
such month end, substantially in the form attached hereto as Exhibit H.
Section 3.5 Asset Allocation and Rebalancing. (a) If, with
respect to any PPF, prior to the open of trading on the NYSE on any Trading Day,
the excess of (1) the sum of:
(i) 70% of the aggregate Market Value of all Index Equities
held by such PPF on the Valuation Date for such Trading Day,
(ii) the aggregate Market Value of all Cash Equivalents held
in such PPF (less Cash Associated with Futures and Cash Margin with
respect to such PPF) on the Valuation Date for such Trading Day,
(iii) the aggregate Market Value of all U.S. Treasury and
Agency Zeroes held by such PPF on the Valuation Date for such Trading
Day,
<PAGE>
16
(iv) the aggregate Market Value of all Corporate Bonds held by
such PPF on the Valuation Date for such Trading Day,
(v) the aggregate Market Value of all Cash Margin held by such
PPF on the Valuation Date for such Trading Day, and
(vi) 70% of the aggregate Market Value of all Index Futures
held by such PPF on such Trading Day,
over (2) an amount equal to the aggregate amount of accrued and unpaid expenses
and other liabilities of such PPF (the "Adjusted Total Asset Value") is less
than the Asset Allocation Threshold, Aeltus shall sell a portion of the Index
Equities held by such PPF and reinvest the proceeds of such sale in U.S.
Treasury or Agency Zeroes, Corporate Bonds and/or Cash Equivalents such that,
after giving effect to such sale and reinvestment of proceeds, the Adjusted
Total Asset Value would equal or exceed the sum of the Present Value of the
Aggregate Guarantee Amount plus the Present Value of Covered Expenses with
respect to such PPF (each such divestiture and reinvestment, a "Rebalancing").
The foregoing determination (an "Asset Allocation Test") shall be performed by
Aeltus with respect to each PPF prior to the open of trading on the NYSE on each
Trading Day. If, on any Trading Day, Aeltus fails to effect a Rebalancing
required by this Section 3.5, Aeltus shall provide the Insurer and the Custodian
with written notice of such failure prior to the next succeeding Trading Day.
(b) If, on any Trading 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 Asset
Value of such PPF, Aeltus shall seek to sell all Corporate Bonds held by such
PPF on such Trading Day and reinvest the proceeds thereof in U.S. Treasury or
Agency Zeroes or Cash Equivalents.
(c) Aeltus shall report the results of each Asset Allocation
Test with respect to each PPF for each Trading Day in a report substantially in
the form attached hereto as Exhibit I, and shall deliver each such report to the
Insurer prior to the opening of business on the next succeeding Trading Day.
ARTICLE IV
EVENTS OF DEFAULT
Section 4.1 Default. If any of the following events (each, an
"Event of Default") shall occur and be continuing:
(a) Aeltus shall default in its observance or performance of
any agreement or obligation contained in Section 3.1 or 3.5(b) and such default
shall continue unremedied for a period of three Trading Days;
(b) Aeltus shall default in its observance or performance of
any agreement or obligation contained in Section 3.2, 3.3 or 3.4 and such
default shall continue unremedied for a period of three Trading Days;
provided, however that Aeltus shall not be in default of its obligations
contained in Section 3.2(c) on any Trading Day on which the market for
Treasury obligations of the U.S. Government is closed;
<PAGE>
17
(c) Aeltus shall default in its observance or performance of
any agreement or obligation contained in Section 3.5(a) or 3.5(c) and such
default shall continue unremedied for a period of one Trading Day;
(d) Aeltus 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) through (c)
above) and such default remains unremedied for a period of 15 Trading Days after
the date on which written notice thereof shall have been given by the Insurer to
Aeltus; or
(e) Any representation or warranty made or deemed made by
Aeltus 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 Trading Days after the date on which
written notice thereof shall have been given by the Insurer to Aeltus 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 4.2 Remedies. (a) 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
Aeltus 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 PPF's, as the case
may be, by delivering to the Custodian, pursuant to Section 3 of the Custodian
Service Agreement, as described below. In the event that during the Default
Period the Insurer receives written investment instructions from Aeltus, 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), (b) or (c),
that the execution of such instructions would not result in the cure of the
breach causing such Event of Default.
(b) 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), (b) or (c) herein, the Insurer shall not have
received written investment instructions from Aeltus 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 Trading 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:
(i) 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;
<PAGE>
18
(ii) 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;
(iii) if such Event of Default is specified in Section 4.1(a)
or (b), the Insurer shall direct the sale of the specific securities
necessary to cure the breach causing such Event of Default; further, if
the securities which the Insurer directs to be sold are equity
securities, then the Insurer shall reinvest the proceeds therefrom in
Index Equities by directing the purchase, to the extent practicable, of
a pro rata portion of the Index Equities 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(c), in which case
the Insurer shall reinvest the proceeds in U.S. Treasury or Agency
Zeroes; if the securities which the Insurer must cause to be sold are
fixed income securities, then the Insurer shall reinvest the proceeds
therefrom in eligible U.S. Treasury or Agency Zeroes; and
(iv) if such Event of Default is specified in Section 4.1(c),
the minimum amount of Index Equities or Index Futures as is reasonably
necessary, after giving effect to the reinvestment of the proceeds
thereof in U.S. Treasury or Agency Zeroes or Cash Equivalents, to cause
the Adjusted Total Asset Value 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 plus the Present Value of
Covered Expenses with respect to such PPF, shall be sold; further, to
the extent practicable, a pro rata portion of the Index Equities and
the Index Futures held by the PPF as to which such Event of Default
shall have occurred shall be sold.
(c) In the event that, after the occurrence and during the
continuance of an Event of Default specified in Section 4.1(d) or (e), the
Insurer shall not have received written instructions from Aeltus or the written
instructions received from Aeltus would result in the occurrence of a Default,
then the Insurer shall have no right to direct the investment of the PPF as to
which such Event of Default shall have occurred pursuant to Section 3 of the
Custodian Service Agreement or otherwise, provided no Event of Default specified
in Section 4.1(a), (b) or (c) shall have occurred and be continuing. If an Event
of Default specified in Section 4.1(d) or (e) shall occur and be continuing, it
shall be deemed to have occurred with respect to all PPFs.
(d) After the occurrence and during the continuance of an
Event of Default, Aeltus shall deliver trade instructions only through the
Insurer in accordance with this Section 4.2 with respect to the PPF as to which
the Event of Default has occurred.
(e) Upon the cure of an Event of Default, the Insurer shall
give prompt written notice of such cure to Aeltus 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 V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Aeltus. To
induce the Insurer to enter into this Agreement and to issue the Policies,
Aeltus hereby represents and warrants to the Insurer that:
<PAGE>
19
(a) 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.
(b) 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).
(c) 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.
(d) 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.
Section 5.2 Representations and Warranties of the Fund. The
Fund hereby represents and warrants to the Insurer that:
(a) 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
<PAGE>
20
adverse effect on the Fund's ability to perform its obligations under the
Transaction Documents or the validity or enforceability of the Transaction
Documents.
(b) 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).
(c) 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.
(d) 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.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of Aeltus. Aeltus hereby covenants and
agrees that during the term of this Agreement:
(a) 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;
(b) it shall not amend, supplement or otherwise modify, or
agree to any waiver with respect to any provision of the Custodian Service
Agreement without the prior written consent of the Insurer;
(c) it shall promptly notify the Insurer of any information or
event, to the knowledge of Aeltus, that would be reasonably likely to result,
through passage of time or otherwise, in the occurrence of an Event of Default;
<PAGE>
21
(d) it shall provide to the Insurer copies of the prospectus
provided to potential PPF Shareholders and such additional information with
respect to the PPFs as the Insurer may from time to time reasonably request;
(e) it shall not amend or otherwise modify the Sectors as set
forth on Annex B, without the prior written consent of the Insurer; and
(f) it shall not terminate any PPF during the Guarantee Period
prior to the Maturity Date.
Section 6.2 Covenants of the Fund.
(a) in the event that either it or the Custodian shall
terminate the Custodian Agreement or the Custodial Services Agreement, it shall
enter into a custodian agreement and a Custodian Service Agreement with a
successor Custodian prior to the effective date of such termination;
(b) 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;
(c) other than in connection with a Distribution to PPF
Shareholders, it shall not divide the shares of any PPF into a greater number of
shares of lesser value or combine them into a lesser number of shares of greater
value; and
(d) it shall not replace Aeltus as investment adviser to any
PPF unless the successor adviser is subject to terms and conditions
substantially similar to those contained in this Agreement.
ARTICLE VII
FURTHER AGREEMENTS
Section 7.1 Obligations Absolute. The obligations of Aeltus
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:
(a) any lack of validity or enforceability of, or any
amendment or other modification of, or waiver with respect to, the Transaction
Documents;
(b) any amendment or waiver of, or consent to departure from,
the Policies or any Transaction Document;
(c) 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;
(d) 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;
<PAGE>
22
(e) the inaccuracy or alleged inaccuracy of any Notice for
Payment upon which any drawing under a Policy is based;
(f) 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;
(g) any default or alleged default of the Insurer under a
Policy other than a default with respect to payment thereunder; or
(h) 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 7.2 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 7.3 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 7.4 Liability of the Insurer. Aeltus 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 7.5 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.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 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
<PAGE>
23
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.
Aeltus shall provide Moody's with written notice of any amendment or waiver of
the provisions of this Agreement.
Section 8.2 Notices. Except to the extent otherwise expressly
provided herein, all notices, requests and demands to or upon the respective
parties hereto and Moody's 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
If to Moody's:
--------------
Moody's Investors Service
99 Church Street
New York, New York
Attention:
Telephone: (212)
Facsimile: (212)
Section 8.3 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
<PAGE>
24
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.
Section 8.4 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 , or to
such other office or account as the Fund 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 8.5 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 8.6 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 8.7 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 8.8 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>
25
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: ___________________________________________
Name:
Title:
AELTUS INVESTMENT MANAGEMENT, INC.
By: ___________________________________________
Name:
Title:
AETNA SERIES FUND, INC.
By: ___________________________________________
Name:
Title:
<PAGE>
ANNEX A
THE EQUITY PORTFOLIO ("INDEX PLUS LARGE CAP")
Investment The investment philosophy of the equity
philosophy portfolio, a quantitative "Index Plus Large Cap"
strategy, is based on the following principles:
[bullet] Rigorous quantitative analysis can identify
those securities having the greatest
likelihood of underperformance.
[bullet] A portfolio that avoids the underperforming
securities in the S&P 500 will outperform
the Index.
Quantitative The process begins with output from an internally
ranking developed quantitative model that ranks every issue
in the S&P 500 using factors which Aeltus has
identified as being predictors of relative
performance. The model produces a weighted aggregate
score, and ranks the universe.
Portfolio Screening and Weighting
construction
After the quantitative evaluation, well ranked stocks
are overweighted and poorly ranked stocks are
underweighted. Bottom decile stocks and Aetna Inc.
are not owned at all. If the data needed for such
quantitative evaluation is not available for a
particular company, the company will be held in the
equity portfolio at its index weight.
Final Construction
Finally, the screened and weighted portfolio is
tested to assure appropriate representation in each
of the 12 S&P 500 industry sectors (as set forth in
Annex B). If any sector of the Portfolio is less than
65% of the S&P 500 weight, Aeltus will increase its
investment in that sector sufficiently to meet this
criterion. Similarly, if any sector is greater than
135% of the S&P weight, Aeltus will decrease its
investment in that sector sufficiently to meet this
criterion. The portfolio is generally rebalanced
monthly to reflect changes in rank and/or weighting
components.
Use of Futures Transaction efficiency is improved by using S&P 500
futures. They will represent no more than 20% of the
equity portfolio, and will not be leveraged or used
for speculative purposes.
<PAGE>
ANNEX B
SECTOR LIST
Sector Abbreviation Sector Name
------------------- -----------
CAPG CAPITAL GOODS
TECH TECHNOLOGY
CONC CONSUMER CYCLICALS
CONN CONSUMER NON-CYCLICALS
HELT HEALTH CARE
RETL RETAILERS
RAWM RAW MATERIALS
TRAN TRANSPORTATION
ENGY ENERGY
FINN FINANCIAL
TELF TELEPHONE UTILITIES
ELUT ELECTRIC UTILITIES
<PAGE>
<TABLE>
ANNEX C
SAMPLE CALCULATION OF HYPOTHETICAL TOTAL ASSET VALUE
<CAPTION>
If Actual Data Based Then Hypothetical
on Actual Expense Data if Higher
Ratio in Asset Covered Expense
Allocation Model Ratio had been used
were: would be:
---------------------- ----------------------
<S> <C> <C>
Business Day Preceding Permanent Deficit Event:
- Equity Percentage 30.0% 19.7% (a)
- Discount Rate 5.50% 5.50%
- Remaining Time to Maturity (in Years) 4.00 4.00
- Actual Expense Ratio in Asset Allocation Model 1.40% 1.40%
- Higher Covered Expense Ratio 2.25% 2.25%
- Gross Principal Guarantee $ 100,000,000 $ 100,000,000
- Present Value of Aggregate Guarantee Amount plus $ 85,093,654 $ 85,093,654
Present Value of Covered Expenses using Actual Expense
Ratio
- Present Value of Aggregate Guarantee Amount plus $ 87,982,971 $ 87,982,971
Present Value of Covered Expenses using Higher Covered
Expense Ratio
- Cash Equivalent Value $ 0 $ 0
- Equity Portfolio Value $ 28,052,853 $ 18,421,799 (b)
- Fixed Income Portfolio Value $ 65,456,657 $ 75,087,712 (c)
- Total Asset Value $ 93,509,510 $ 93,509,510 (d)
- Adjusted Total Asset Value $ 85,093,654 $ 87,982,971
Date on Which Permanent Deficit Event Occurs
- Change in Equity Portfolio Value -40.00% -40.00% (e)
- Change in Disc. Rate -0.50% -0.50%
- Change in Fixed Income Portfolio Value 2.00% 2.00% (f)
- Cash Equivalent Value $ 0 $ 0
- Equity Portfolio Value $ 16,831,712 $ 11,053,079 (g)
- Fixed Income Portfolio Value $ 66,765,790 $ 76,589,466 (h)
------------------
- Total Asset Value $ 83,597,502 $ 87,642,544 (i)
------------------
</TABLE>
(a) Amount of equity allowed in order for the Present Value of the Aggregate
Guarantee Amount plus the Present Value of Covered Expenses using the
Higher Covered Expense Ratio to exactly equal the Adjusted Total Asset
Value.
(b) The Total Asset Value times the equity percentage, or (a) times (d).
(c) The Total Asset Value minus the Equity Portfolio Value, or (d) minus (b).
(d) Equals the actual Total Asset Value as of this date.
(e) Equals the actual change in the value of the actual Equity Portfolio.
(f) Equals the actual change in the value of the actual Fixed Income Portfolio.
(g) Equals the adjusted hypothetical Equity Portfolio Value, or (b) times one
plus (e).
(h) Equals the adjusted hypothetical Fixed Income Portfolio Value, or (c) times
one plus (f).
(i) Equals the sum of the adjusted hypothetical Equity and Fixed Income
Portfolio Values, or (g) plus (h).
EXHIBIT h.11
FORM OF
SERVICE AGREEMENT
<PAGE>
FORM OF
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
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 Series' Repayment Obligations
("Policy"); and
WHEREAS, in connection therewith, the Fund intends to open custody
accounts with Mellon under the terms of the Custodian Agreement (the "Custodial
Services 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 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
WHEREAS, the Fund and MBIA wish for Mellon to provide investment
monitoring and trade execution services in respect of the Series, and Mellon is
willing to perform such services upon the following terms and conditions.
<PAGE>
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.
2. Monitoring Services.
--------------------
The Fund, on behalf of the Series, will open with Mellon a custody
account designated "Series" (such designated custody account 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 Custodial Services Agreement between Mellon and the Fund. Mellon will
monitor the assets delivered to the 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, Mellon will only
be responsible for performing conforming assets tests on assets that are settled
through the Series Account. In order to carry out the conforming assets tests,
Mellon will rely on the trade information received from 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
2
<PAGE>
complete, properly formatted and provided to Mellon in a timely manner. No
broker confirmation provided through DTC ID shall be deemed valid by Mellon
unless it includes the properly formatted account number for the Series Account,
enabling Mellon to process the DTC ID confirmation in the normal course of
business through its custody systems platform. Mellon shall perform the
conforming asset test 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. If by applying the conforming assets test to
the Series Account an instance of noncompliance with the Guidelines is noted,
Mellon will notify MBIA and the Series promptly of such noncompliance in writing
via facsimile transmission. Once Mellon has notified the Series and MBIA as to
the existence of noncompliance, Mellon shall have no further obligation or duty
to the Series and MBIA to monitor the trade, or to report its cure.
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 Series, 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 Series.
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 Series) 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. Each and every set of trade instructions
delivered by MBIA to Mellon shall be accompanied by a newly executed Event of
Default Notice.
3
<PAGE>
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").
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
(for settlement of securities) issued directly by the Series (or its investment
adviser) for the Series Account when the account number is specified in the
Event of Default Notice. 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
Custodial Services Agreement.
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
provided such trade instructions are accompanied by a newly executed Event of
Default Notice 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 Series, with a copy to MBIA, of trades
executed as a result of instructions received from 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
<PAGE>
4. Delivery of Documents.
----------------------
The Series 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.
5. Fees and Expenses.
------------------
(a) As compensation for the services rendered to the Fund and MBIA
pursuant to this Agreement, the Series shall pay Mellon monthly fees determined
as set forth in Schedule B 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 B. 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
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
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
5
<PAGE>
and expenses of effecting collection of any such sums, including reasonable
attorney's fees, shall be paid by the Series to Mellon.
(e) In the event that 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 Series), this Agreement may be terminated upon sixty (60) days' written
notice to the Fund and MBIA by Mellon with a copy to MBIA. The Series 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 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.
6
<PAGE>
(b) Mellon shall not be responsible for, and the Series 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
Fund and MBIA relating to the matters herein, or the Fund's 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 Fund or provided to Mellon or its agents by data or
corporate action services or vendors;
(v) the offer or sale of shares by 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
7
<PAGE>
such shares in such state (1) resulting from activities, actions,
or omissions by the Series or MBIA, or (2) existing or arising out
of activities, actions or omissions by or on behalf of 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.
(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 Fund or MBIA (an "Authorized Person") named, and in the
capacity identified, in lists (naming those persons who may authorize the
transactions in
8
<PAGE>
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 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, the Series 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 demands from the Fund or MBIA which, in Mellon's
opinion, conflict with any of the provisions of this Agreement, Mellon shall
notify the Fund 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 Custodial Services Agreement between
9
<PAGE>
Mellon and the Fund. Should there be any conflict between the terms of the
Custodial Services Agreement and the terms of this Agreement regarding the
services set forth in Sections 2 and 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 be entitled to perform the monitoring service set
forth in Section 2 hereof with affiliates of Mellon. If the monitoring service
set forth in Section 2 hereof cannot be performed by a Mellon affiliate for any
reason, then the monitoring services may be performed by an agent selected by
Mellon.
(i) 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).
7. Term.
-----
This Agreement shall become effective on the date first herein
above written and may be modified or amended from time to time by mutual
agreement among the parties hereto. This Agreement shall continue in effect
unless terminated by any party hereto on 90 days' prior written notice to the
other parties. Upon termination of this Agreement, 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.
10
<PAGE>
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):
11
<PAGE>
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
If to MBIA:
Attention:
Phone:
Fax:
If to Mellon:
Attention:
Phone:
Fax:
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.
12
<PAGE>
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 other persons and circumstances.
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.
13
<PAGE>
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.
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:______________________________________
14
<PAGE>
SCHEDULE A
CONFORMING ASSETS GUIDELINES
----------------------------
Equity Asset Test
- -----------------
[bullet] Equity securities of any company included in the S&P 500 Index, as
published by FactSet Data Systems, Inc.
[bullet] Forward contracts on the S&P 500 Index, as traded on the Chicago
Mercantile Exchange
Fixed Income Assets Test
- ------------------------
[bullet] U.S. Treasury or Agency Zeroes maturing on, or within 90 days
preceding, the Maturity Date
[bullet] 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
[bullet] If both Moody's and S&P have issued a rating thereon, such rating shall
be no less than Aa3/AA-
[bullet] U.S. Treasury Futures
Cash and Cash Equivalents
- -------------------------
[bullet] Cash and
[bullet] the following short-term securities with remaining maturities of 180
days or less:
[bullet] (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
[bullet] (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
[bullet] (3) bankers acceptances issued by any depository institution
or trust company referred to in clause (2) above and
[bullet] (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
<PAGE>
SCHEDULE B
FEES AND EXPENSES
-----------------
For the services rendered under this Agreement, the Fund shall pay to Mellon:
ASSUMPTIONS:
[bullet] Fund will consist of the following fund types:
[bullet] Combined Account Structure - Per Fund
- Equity Component = 450 Securities in the S&P 500
- Fixed Income Component = 15 Securities
[bullet] Fund of Funds Structure
- Equity Account = 450 Securities in the S&P 500
- Multiple Fixed Income Accounts = 15 Securities Per Account
[bullet] Equity transactions per fund type will not exceed 2,000 per year.
Should transactions exceed 2,000 transactions in a given fund, Mellon
may re-negotiate the fees for this service.
[bullet] 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 & 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 advance.
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(d) or (d) Event of
Default has occurred.
(2) Strike inappropriate language in brackets and initial.
<PAGE>
<TABLE>
EXHIBIT 1 - ATTACHMENT 1
MANUAL TRADE INSTRUCTIONS
From: Capital Markets Assurance Corporation
<CAPTION>
PORTFOLIO ACCOUNT BUY OR SELL SECURITY NAME TICKET/CUSIP QUANTITY
<S> <C> <C> <C> <C> <C>
1. _________________ ____________________ ____________________ ____________________ ____________________
2. _________________ ____________________ ____________________ ____________________ ____________________
3. _________________ ____________________ ____________________ ____________________ ____________________
4. _________________ ____________________ ____________________ ____________________ ____________________
5. _________________ ____________________ ____________________ ____________________ ____________________
6. _________________ ____________________ ____________________ ____________________ ____________________
7. _________________ ____________________ ____________________ ____________________ ____________________
8. _________________ ____________________ ____________________ ____________________ ____________________
</TABLE>
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](1) 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.
_____________________
(1) Strike language in brackets and initial if Section 4.1(d) or (e) Event of
Default has occurred.
<PAGE>
<TABLE>
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:
<S> <C> <C>
- --------------------------------------------------- ------------------------------------- ------------------------------
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
</TABLE>
* Reflects position with the Fund.
** Reflects position with the Fund's investment adviser, Aeltus Investment
Management, Inc.
<PAGE>
<TABLE>
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:
<S> <C> <C>
- ---------------------------------------- --------------------------------------- -------------------------------------
TELEPHONE: FACSIMILE:
- ---------------------------------------- --------------------------------------- -------------------------------------
TELEPHONE: FACSIMILE:
- ---------------------------------------- --------------------------------------- -------------------------------------
TELEPHONE: FACSIMILE:
- ---------------------------------------- --------------------------------------- -------------------------------------
TELEPHONE: FACSIMILE:
</TABLE>
<PAGE>
<TABLE>
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
<CAPTION>
HEADER (RECORD TYPE 1)
FIELD POSITION LENGTH COMMENTS
- ------------------------------- ----------------------- --------------------- ----------------------------------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 5 (CONT'D.)
<CAPTION>
TOTALS (RECORD TYPE 3)
FIELD POSITION LENGTH COMMENTS
- ------------------------------- -------------------------- ----------------------- -----------------------------------
<S> <C> <C> <C>
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>
7
Exhibit i
OPINION AND CONSENT OF COUNSEL
<PAGE>
10 State House Square, SH11
Hartford, CT 06103-3602
AMY R. DOBERMAN
Counsel
Aetna Series Fund, Inc.
July 29, 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. 32 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.
<PAGE>
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/Amy R. Doberman
- ---------------------
Amy R. Doberman
Counsel
Exhibit j
CONSENT OF INDEPENDENT AUDITORS
<PAGE>
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 incorporated herein
by reference and to the references to our firm under the captions "Financial
Highlights" in the prospectuses and "Independent Auditors" in the statements of
additional information.
/s/ KPMG LLP
KPMG LLP
Hartford, Connecticut
July 29, 1999
Exhibit m.1
DISTRIBUTION PLAN
<PAGE>
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, as amended (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 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.
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 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. Such activities and related services will relate only to
the sale, promotion and marketing of the 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, 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 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 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. The
Distribution Fees will be paid by each Series to the Underwriter unless and
until (a) the Plan is terminated pursuant to Section 5, or (b) the Plan is not
renewed with respect to a Series or Class A thereof pursuant to Section 4. 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.
<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 A shares, and
2. by the vote of a majority of the Qualified Directors cast in person at
a meeting specifically called for such purpose.
SECTION 5. TERMINATION.
The Plan may be terminated at any time with respect to Class A shares of any
Series (a) by the vote of a majority of 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 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.
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.
2
<PAGE>
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
3
<PAGE>
APPENDIX A
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna High Yield Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Principal Protection Fund I
4
Exhibit m.3
DISTRIBUTION PLAN
<PAGE>
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
<PAGE>
Section 1 above 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 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.
2
<PAGE>
SECTION 7. SELECTION OF CERTAIN DIRECTORS.
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Fund.
SECTION 8. WRITTEN REPORTS.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by a Series pursuant to the
Plan or any related agreement will prepare and furnish to the Board, and the
Board will review, at least quarterly, written reports setting out the amounts
expended under the Plan, the purposes for which those expenditures were made,
and otherwise complying with the requirements of the Rule.
SECTION 9. PRESERVATION OF MATERIALS.
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section 8, 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
3
<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
Exhibit m.4
DISTRIBUTION PLAN
<PAGE>
DISTRIBUTION PLAN
AETNA SERIES FUND, INC.
BROKERAGE CASH RESERVES
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 Brokerage Cash Reserves (the "Series"), subject to the following terms
and conditions:
SECTION 1. ANNUAL FEES.
Distribution Fee. The 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 0.50% of the average daily net assets
attributable to the Series' shares (the "Distribution Fee").
Adjustment to Fees. The Distribution Fee may be reduced with respect to the
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.
Payment of Fees. The Distribution Fee will be calculated daily and paid monthly
by the Series at the annual rate indicated above.
SECTION 2. EXPENSES COVERED BY THE PLAN.
The Fund, with respect to the Series, 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 Series. Such expenditures may consist
of sales commissions to firms and their representatives for selling 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 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 Fee payable under Section 1 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
Distribution Fee will be paid by the Series to the Underwriter unless and until
(a) the Plan is terminated pursuant to Section 5, or (b) the Plan is not renewed
with respect to the Series pursuant to Section 4. Any
<PAGE>
distribution expenses incurred by the Underwriter on behalf of the 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 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.
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
the Series' 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 shares of the Series (a)
by the vote of a majority of the Series' outstanding voting securities, or (b)
by a vote of a majority of the Qualified Directors. The Plan may remain in
effect with respect to the Series even if the Plan has been terminated in
accordance with this Section 5 with respect to any other series of the Fund.
SECTION 6. AMENDMENTS.
The Plan may not be amended with respect to the Series so as to increase
materially the amounts of the Distribution Fee described in Section 1 above
unless the amendment is approved by a vote of the holders of at least a majority
of the outstanding voting securities of the Series. No material amendment to the
Plan may be made unless approved in the manner described in Section 3 above.
2
<PAGE>
SECTION 7. SELECTION OF CERTAIN DIRECTORS.
While the Plan is in effect, the selection and nomination of the Fund's
Directors who are not interested persons of the Fund will be committed to the
discretion of the Directors then in office who are not interested persons of the
Fund.
SECTION 8. WRITTEN REPORTS.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by the 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 Series, has executed this Plan
as of this 15th day of July, 1999.
AETNA SERIES FUND, INC.
ON BEHALF OF BROKERAGE CASH RESERVES
By: /s/J. Scott Fox
--------------------------------
J. Scott Fox, President
3
Exhibit m.6
SHAREHOLDER SERVICES PLAN
<PAGE>
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
<PAGE>
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 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.
2
<PAGE>
Section 9. Meanings of Certain Terms.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the 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
3
<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
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
Exhibit m.7
SHAREHOLDER SERVICES PLAN
<PAGE>
SHAREHOLDER SERVICES PLAN
AETNA SERIES FUND, INC.
BROKERAGE CASH RESERVES
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
Brokerage Cash Reserves (the "Series"), 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 0.15% of the average daily net assets of
the Series (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 of and recordkeeping for 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 pursuant to
Section 4. Any service expenses in excess of the Service Fee which the
Underwriter has incurred on behalf of the 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' 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 the Series, without the
payment of any penalty, by (a) the vote of a majority of the Series' outstanding
voting securities, or (b) a vote of a majority of the Qualified Directors. The
Plan may remain in effect with respect to the Series even if the Plan has been
terminated in accordance with this Section 5 with respect to any other series of
the Fund.
SECTION 6. AMENDMENTS.
The Plan may not be amended with respect to the Series so as to increase
materially the amounts of the Service Fee described in Section 1 above unless
the amendment is approved by a vote of the holders of at least a majority of the
outstanding voting securities of the Series. No material amendment to the Plan
may be made unless approved in the manner described in Section 3 above.
SECTION 7. WRITTEN REPORTS.
In each year during which the Plan remains in effect, any person authorized to
direct the disposition of monies paid or payable by the Series pursuant to the
Plan, or any related agreement, will prepare and furnish to the Board, and the
Board shall review, at least quarterly, written reports setting out the amounts
expended under the Plan and the purposes for which those expenditures were made.
SECTION 8. PRESERVATION OF MATERIALS.
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section 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.
2
<PAGE>
SECTION 9. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the 1940 Act.
IN WITNESS WHEREOF, the Fund, on behalf of the Series, has executed this Plan as
of this 15th day of July 1999.
AETNA SERIES FUND, INC.
ON BEHALF OF BROKERAGE CASH RESERVES
By: /s/J.Scott Fox
-----------------------------
J. Scott Fox, President
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:
- ------------------
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 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".
1. Class Designations:
------------------
The shares of the Series, except Aetna Principal Protection Fund I
("Principal Protection"), are divided into four classes: Class I, Class A, Class
B and Class C. Principal Protection is divided into two classes: Class A and
Class B.
Class I shares are shares that are offered to:
[bullet] certain retirement plans;
[bullet] certain registered investment advisers having an
agreement with the Fund to invest a minimum of $1
million within one year of initial purchase;
[bullet] 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);
[bullet] insurance companies (including separate accounts);
[bullet] registered investment companies;
<PAGE>
[bullet] 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;
[bullet] certain bank and independent trust companies investing
on behalf of their clients for which they charge trust
and investment management fees;
[bullet] members of the Board of Directors of the Fund ("Board");
[bullet] NASD registered representatives of Aeltus Capital, Inc.
or any affiliated broker-dealers (including members of
their immediate families); and
[bullet] members of such other groups as may be approved by the
Fund's Board from time to time.
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 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.
<TABLE>
Sales Charge
----------------------------------------------------------------
<CAPTION>
Aggregate Investment Equity Funds Fixed Enhanced Principal
- -------------------- ------------ Income Index Funds Protection
Funds ----------- ----------
-----
<S> <C> <C> <C> <C>
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
</TABLE>
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
2
<PAGE>
equal to the lesser of the current market value or the original cost of the
shares being redeemed. Thus, there is no sales charge on increases in the net
asset value of shares above the initial purchase price. There is no CDSC on
redemptions of Class A shares:
(1) exchanged to other Series of the same class of shares (except that
exchanges may not be made into Principal Protection);
(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:
<TABLE>
<CAPTION>
CUMULATIVE PURCHASE AMOUNT($) COMMISSION CDSC
----------------------------- ---------- ----
<S> <C> <C> <C>
1,000,000 but under 3,000,000 1.00% Year 1 - 1.00%
Year 2 - 0.50%
3,000,000 but under 20,000,000 0.50% Year 1 - 0.50%
Year 2 - 0.50%
20,000,000 or greater 0.25% Year 1 - 0.25%
Year 2 - 0.25%
</TABLE>
The finders fee payable with respect to such Class A purchases of the Enhanced
Index Funds shall be as follows:
<TABLE>
<CAPTION>
CUMULATIVE PURCHASE AMOUNT($) COMMISSION CDSC
----------------------------- ---------- ----
<S> <C> <C> <C>
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%
</TABLE>
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%.
3
<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 from the date of purchase, as shown below.
For all Series except Principal Protection:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Year 1 2 3 4 5 6 7+
-----------------------------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0%
</TABLE>
For Principal Protection:
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);
(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) 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:
4
<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). 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: August 1, 1999
5
