As filed with the Securities and Exchange File No. 33-41694
Commission on April 18, 2000 File No. 811-6352
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 39
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 49
AETNA SERIES FUND, INC.
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10 State House Square SH11, Hartford, Connecticut 06103-3602
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(860) 275-2032
Amy R. Doberman, Counsel
Aetna Series Fund, Inc.
10 State House Square SH11, Hartford, Connecticut 06103-3602
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(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
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Parts A and B
The Class A, B and C Prospectus and the Class I Prospectus of Aetna Series Fund,
Inc. are incorporated into Part A of this Post-Effective Amendment No. 39 by
reference to the Fund's filing under Rule 497(j) under the Securities Act of
1933, as filed on March 1, 2000.
The Brokerage Cash Reserves Prospectus of Aetna Series Fund Inc. is incorporated
by reference into Part A of this Post-Effective Amendment No. 39 by reference to
the Fund's filing under Rule 497(j) under the Securities Act of 1933, as filed
on March 1, 2000.
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CLASS A, CLASS B, CLASS C AND CLASS I SHARES
AETNA SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED June __, 2000
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 March 1, 2000, 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)
Aetna Technology Fund (Technology)
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, are incorporated herein by reference
in this Statement. A free copy of the Company's 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:
1-800-238-6254.
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TABLE OF CONTENTS
GENERAL INFORMATION............................................................3
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES................................4
INVESTMENT TECHNIQUES AND RISK FACTORS.........................................6
DIRECTORS AND OFFICERS........................................................19
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS....................................22
THE INVESTMENT ADVISORY AGREEMENTS............................................23
THE SUBADVISORY AGREEMENT.....................................................27
THE ADMINISTRATIVE SERVICES AGREEMENT.........................................27
CUSTODIAN.....................................................................29
TRANSFER AGENT................................................................29
INDEPENDENT AUDITORS..........................................................29
PRINCIPAL UNDERWRITER.........................................................29
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS...........................30
PURCHASE AND REDEMPTION OF SHARES.............................................34
BROKERAGE ALLOCATION AND TRADING POLICIES.....................................36
SHAREHOLDER ACCOUNTS AND SERVICES.............................................38
NET ASSET VALUE...............................................................40
TAX STATUS....................................................................40
PERFORMANCE INFORMATION.......................................................41
FINANCIAL STATEMENTS..........................................................49
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GENERAL INFORMATION
Incorporation The Company was incorporated under the laws of Maryland on June
17, 1991.
Series and Classes The Company currently offers multiple series, not all of
which are offered through this Statement of Additional Information and the
corresponding Prospectuses. 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. 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.
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 (excludes Technology);
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) (excludes Technology); registered investment companies (excludes
Technology); 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, Inc. (ACI) or any affiliated broker-dealer
(including members of their immediate families); and of such other groups as may
be approved by the Board from time to time.
Capital Stock Fund shares are fully paid and nonassessable when issued. Fund
shares have no preemptive or conversion rights, except that each Fund's 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 Company'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. 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.
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As a matter of operating policy, Money Market 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 Money Market 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 Money Market 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.
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 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% 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 and Technology, 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);
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(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 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) except for Technology, 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 the Generation Funds, invest more than 25%
(35% for High Yield) 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). 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, or Elijah
Asset Management, LLC (EAM), sub adviser to Technology, 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
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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. With respect to fundamental policy number (2),
industry classifications are determined in accordance with the classifications
established by Standard & Poor's Corporation, except that the industry
classifications for Growth are determined in accordance with the classifications
established by the Frank Russell Corporation and the industry classifications
for International have been selected by Aeltus. Aeltus believes that the
industry characteristics it has selected are reasonable and not so broad that
the primary economic characteristics of the companies in a single class are
materially different. Industry classifications may be changed from time to time
to reflect changes in the market place.
Money Market will invest at least 95% of its total assets in high-quality
securities. High-quality securities are those receiving the highest short-term
credit rating by any two nationally recognized statistical rating organizations
(or one, if only one rating organization has rated the security) and meet
certain other 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 Money Market's assets will be invested in securities rated
within the two highest short term 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, Money Market generally 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
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 that 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 purposes, or to gain additional exposure to certain
markets for investment purposes while maintaining liquidity to meet shareholder
redemptions and minimizing trading costs. Mortgage-related and asset-backed
securities other than those described in the preceding paragraph, STRIPS
(Separate Trading of Registered Interest and Principal of Securities) and
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
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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 temporary
regulations limiting price fluctuations for stock index futures contracts are
also now in effect. The daily limit establishes the maximum amount that the
price of a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has been
reached in a particular type of contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions. Futures contract
prices have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some persons engaging in futures transactions
to substantial losses.
Sales of futures contracts which are intended to hedge against a change in the
value of securities held by a 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.
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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 (or EAM, in the case of Technology).
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 on indices
primarily as a temporary substitute for taking positions in certain securities
or in the securities that comprise a relevant 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).
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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 EAM, in the case of Technology)
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
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
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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 a 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 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
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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 EAM, in the case
of Technology) 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, 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.
Swap Transactions Each Fund may enter into interest rate swaps, currency swaps
and other types of swap agreements, including swaps on securities and indices.
Swap transactions are described in the Prospectuses. 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
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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.
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
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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. 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 or other party 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.
STRIPS(Separate Trading of Registered Interest and Principal of Securities)
Each Fund may invest in STRIPS. 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 STRIPS 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.
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
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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' (or
EAM's, in the case of Technology) 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
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. Technology may only invest in investment grade debt
securities, which are debt securities with an S&P or Moody's rating of BBB/Baa
or above or, if unrated, are considered by EAM 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,
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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 and Floating Rate Instruments
Each Fund may invest in variable rate demand and floating rate instruments.
Variable rate demand 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
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
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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, Technology, 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 values. 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 and a Fund's net asset values. 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.
16
<PAGE>
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.
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. 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. A pay-in-kind bond pays interest during the initial few years in
additional bonds rather than in cash. Later the bond may pay cash interest.
Pay-in-kind bonds are typically callable at about the time they begin paying
cash interest. The market prices of zero coupon and deferred interest securities
generally are more volatile than the market prices of securities with similar
maturities that pay interest periodically and are likely to respond to changes
in interest rates to a greater degree than do non-zero coupon securities having
similar maturities and credit quality.
The risks associated with lower-rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, a Fund may realize no return on its investment, because
these securities do not pay cash interest.
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 Aetna Government Fund 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.
Risks of real estate securities include those risks that are more closely
associated with investing in real estate directly than with investing in the
stock market generally. Those risks include: 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 (such as zoning laws) that impair the property rights of real
estate owners; and adverse developments in the real estate industry.
17
<PAGE>
Equity Securities of Smaller Companies
All Funds other than Bond Fund, Aetna Government Fund, Money Market 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.
Supranational Agencies
Each 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
Each Fund may borrow up to 5% of the value of its total assets from a bank for
temporary or emergency purposes. 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. The Funds do not intend to borrow for leveraging purposes,
except that they may invest in leveraged derivatives which have certain risks as
outlined above.
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).
Short Sales
Technology may seek to hedge investments or realize additional gains through
short sales. Short sales are transactions in which an unowned security is sold,
in anticipation of a decline in the market value of that security. To complete
such a transaction, the security must be borrowed to make delivery to the buyer.
The borrower (or short seller) then is obligated to replace the security
borrowed by purchasing it at the market price at or prior to the time of
replacement. The price at such time may be more or less than the price at which
the security was sold. Until the security is replaced, the borrower is required
to repay the lender any dividends or interest that accrue during the period of
the loan. The borrower may also be required to pay a premium, which would
increase the cost of the security sold. The net proceeds of the short sale will
be retained by the broker (or by the custodian in a special custody account), to
the extent necessary to meet margin requirements, until the short position is
closed out. There are also transaction costs incurred in effecting short sales.
A loss may be incurred as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
borrowed security is replaced. A gain will be realized if the security declines
in price between those dates. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of the premium, dividends, interest
or expenses required to be paid in connection with a short sale. An increase in
18
<PAGE>
the value of a security sold short over the price at which it was sold short
will result in a loss, and there can be no assurance that the position may be
closed out at any particular time or at an acceptable price.
Maturity Policies
The average dollar-weighted maturity of securities in Money Market's portfolio
will not exceed ninety days. In addition, all investments in Money Market's
portfolio will have a maturity at the time of purchase, as defined under the
federal securities laws, of 397 calendar days or less.
Portfolio Turnover
The portfolio turnover rate for Mid Cap was significantly higher in 1999 than in
1998 because of increased volatility in the market for mid cap stocks. The
portfolio turnover rate for Balanced was significantly higher in 1999 than in
1998 because of a change in portfolio managers for the small cap component,
which led to a reallocation of Fund assets. The portfolio turnover rate for
Index Plus Bond was significantly higher in 1999 than in 1998 because of a
change in portfolio managers and a shift toward a more active investment
management process. The portfolio turnover rate for Bond Fund was significantly
higher in 1999 than in 1998 because of a shift toward a more active investment
management process. The portfolio turnover rate for Ascent was significantly
higher in 1999 than in 1998 because of increased volatility in the market for
small and mid-cap stocks, increased volatility in the quantitative rankings used
in managing the Fund, and a shift toward a more active investment management
process with respect to fixed-income investments.
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 (Principal Executive Officer) Officer, Chief Financial Officer, Aeltus
Hartford, Connecticut Investment Management, Inc., October 1997 to
Age 45 present; Director, Managing Director, Chief
Operating Officer, Chief Financial Officer, Aeltus
Captial, Inc., November 1997 to present; Director
and Senior Vice President, Aetna Life Insurance and
Annuity Company, March 1997 to February 1998;
Director, Managing Director, Chief Operating
Officer, Chief Financial Officer and Treasurer,
Aeltus, April 1994 to March 1997.
- --------------------------------- ------------------------------ ---------------------------------------------------
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 59
- --------------------------------- ------------------------------ --------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------- ------------------------------ --------------------------------------------------
<S> <C> <C>
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 (Principal present; Director, Mutual Fund Accounting, Aetna
Age 46 Financial and Accounting Life Insurance and Annuity Company, August 1994
Officer) to November 1995.
- --------------------------------- ------------------------------ ---------------------------------------------------
Amy R. Doberman Secretary General Counsel, Aeltus Investment Management,
10 State House Square Inc., February 1999 to present; Vice President,
Hartford, Connecticut General Counsel and Secretary, Aeltus Capital,
Age 38 Inc., April 1998 to present; Counsel, Aetna
Retirement Services, Inc., December 1996 to
present; Attorney, Securities and Exchange
Commission, March 1990 to November 1996.
- --------------------------------- ------------------------------ ---------------------------------------------------
</TABLE>
20
<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
Closter, New Jersey and Alcohol Services, 1973 to present.
Age 56
- --------------------------------- ------------------------------ ---------------------------------------------------
David L. Grove Director Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to present.
Armonk, New York
Age 82
- --------------------------------- ------------------------------ ---------------------------------------------------
John Y. Kim* Director Director, President, Chief Executive Officer,
10 State House Square Chief Investment Officer, Aeltus Investment
Hartford, Connecticut Management, Inc., December 1995 to present;
Age 39 Director and President, Aeltus Capital, Inc.,
March 1996 to present; 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 65
- --------------------------------- ------------------------------ ---------------------------------------------------
Frank Litwin Vice President Managing Director, Aeltus Investment Management,
10 State House Square Inc., August 1997 to present; Managing Director,
Hartford, Connecticut Aeltus Capital, Inc., May 1998 to present; Vice
Age 50 President, Fidelity Investments Institutional
Services Company, April 1992 to August 1997.
- --------------------------------- ------------------------------ ---------------------------------------------------
Shaun P. Mathews* Director 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 63 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 71
- --------------------------------- ------------------------------ ---------------------------------------------------
</TABLE>
During the year ended October 31, 1999, 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. For the year ended October 31,
1999, 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.
21
<PAGE>
<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 $10,103 $73,500
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
Sidney Koch 10,103 73,500
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
Maria T. Fighetti* 10,361 75,375
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
Richard G. Scheide 10,790 78,500
Director, Chairperson
Audit Committee
- ---------------------------------------- ------------------------------------- -------------------------------------
David L. Grove* 10,790 78,500
Director, Chairperson
Contract Committee
- ---------------------------------------- ------------------------------------- -------------------------------------
Albert E. DePrince, Jr. 10,361 75,375
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
*During the year ended October 31, 1999, Ms. Fighetti and Dr. Grove deferred
$24,000 and $78,500, respectively, of their compensation from the Fund Complex.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of March 31, 2000, 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 52.72%
Aetna Government Fund 64.93% 57.86%
Aetna High Yield Fund 97.19% 11.44%
Aetna Index Plus Bond Fund 99.70% 6.32% 23.32%
Aetna Index Plus Large Cap Fund 46.58%
Aetna Index Plus Mid Cap Fund 95.12% 2.43%
Aetna Index Plus Small Cap Fund 98.05% 3.76%
Aetna International Fund 20.92%
Aetna Mid Cap Fund 96.79% 18.35% 82.15% 68.74%
Aetna Money Market Fund 47.19%
Aetna Real Estate Securities Fund 96.71% 8.75% 70.02% 48.64%
Aetna Small Company Fund 27.27%
Aetna Value Opportunity Fund 95.24% 2.55% 53.08% 28.12%
Aetna Ascent Fund 83.30% 88.10%
Aetna Crossroads Fund 89.99% 98.21%
Aetna Legacy 76.58% 83.96%
Aetna Growth Fund 16.18%
Aetna Growth and Income Fund 15.45%
Aetna Balanced Fund 26.45%
</TABLE>
22
<PAGE>
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 March 31, 2000, officers and Directors owned less than 1% of the
outstanding shares of any of the Funds.
Aetna is an indirect parent company of Aeltus. Aetna is also an indirect
wholly owned subsidiary of Aetna Retirement Services, Inc., which is in turn an
indirect wholly owned subsidiary of Aetna Inc. Aetna's principal office is
located at 151 Farmington Avenue, Hartford, Connecticut 06156. Aetna is
registered with the Commission as an investment adviser.
THE INVESTMENT ADVISORY AGREEMENTS
The 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 and officers 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:
<TABLE>
<CAPTION>
ADVISORY FEE ASSETS
CAPITAL APPRECIATION FUNDS
<S> <C> <C>
Growth 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
International 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.700% Over $2 billion
Mid Cap 0.750% On first $250 million
0.700% On next $250 million
0.675% On next $250 million
0.650% On next $1.25 billion
0.600% Over $2 billion
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
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
Technology 1.050% On first $500 million
1.025% On next $500 million
1.000% Over $1 billion
GROWTH & INCOME FUNDS
Balanced 0.800% On first $500 million
0.750% On next $500 million
0.700% On next $1 billion
0.650% Over $2 billion
Growth and Income 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
Real Estate 0.800% On first $250 million
0.750% On next $250 million
0.725% On next $250 million
0.700% On next $1.25 billion
0.650% Over $2 billion
INCOME FUNDS
Bond Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
Aetna Government Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
High Yield 0.650% On first $250 million
0.600% On next $250 million
0.575% On next $250 million
0.550% On next $1.25 billion
0.500% Over $2 billion
Money Market 0.400% On first $500 million
0.350% On next $500 million
0.340% On next $1 billion
0.330% On next $1 billion
0.300% Over $3 billion
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
INDEX PLUS FUNDS
<S> <C> <C>
Index Plus Bond 0.350% On first $500 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 $500 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Mid Cap 0.450% On first $500 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Small Cap 0.450% On first $500 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
GENERATION FUNDS
Ascent Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
Crossroads Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
Legacy Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
</TABLE>
For the years ended October 31, 1999, October 31, 1998 and October 31, 1997,
investment advisory fees were paid to Aetna (investment adviser to the Funds
prior to February 2, 1998) and Aeltus (for the period after February 2, 1998) as
follows:
Year Ended October 31, 1999
- ---------------------------
<TABLE>
<CAPTION>
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
- ------------ ------------- ------ ---------
<S> <C> <C> <C>
Growth 1,484,231 0 1,484,231
International 507,245 107,259 399,986
Mid Cap 43,756 43,756 0
Small Company 488,647 12,768 475,879
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Value Opportunity 43,946 43,946 0
Balanced 1,031,227 0 1,031,227
Growth and Income 4,374,490 0 4,374,490
Real Estate 35,653 35,653 0
Bond Fund 226,218 80,473 145,745
Aetna Government Fund 69,754 69,754 0
High Yield 61,273 61,273 0
Money Market 1,844,102 658,067 1,186,035
Index Plus Bond 53,157 53,157 0
Index Plus Large Cap 667,633 73,563 594,070
Index Plus Mid Cap 42,217 42,217 0
Index Plus Small Cap 35,558 35,558 0
Ascent 409,705 29,401 380,304
Crossroads 387,278 37,728 349,550
Legacy 242,377 77,162 165,215
Year Ended October 31, 1998
- ---------------------------
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
- ------------ ------------- ------ ---------
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
Year Ended October 31, 1997
- ---------------------------
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
- ------------ ------------- ------ ---------
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
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ascent 202,834 21,845 180,989
Crossroads 186,369 19,968 166,401
Legacy 151,110 22,749 128,361
</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.
Bradley, Foster & Sargent, Inc. ("Bradley") served as subadviser of Value
Opportunity from October 1, 1998 through December 31, 1999. For the years ended
October 31, 1999 and October 31, 1998, Aeltus paid Bradley subadvisory fees of
$9,190 and $629, respectively. The subadvisory agreement was terminated as of
December 31, 1999.
THE SUBADVISORY AGREEMENT
Aeltus and the Company, on behalf of Technology, have entered into an agreement
(Subadvisory Agreement) with EAM effective March 1, 2000 appointing EAM as
subadviser of Technology. Aeltus owns 25% of the outstanding voting securities
of EAM.
The Subadvisory Agreement gives EAM broad latitude to select securities for
Technology consistent with the investment objective and policies of the Fund,
subject to Aeltus' oversight. The Agreement contemplates that EAM will be
responsible for all aspects of managing Technology, including trade execution.
However, the Agreement contemplates that Aeltus will be primarily responsible
for cash management.
For the services under the Subadvisory Agreement, EAM 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 Technology.
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, 1999, October 31, 1998 and October 31, 1997,
administrative services fees were paid to Aeltus and Aetna (for the period
January 1, 1997 to April 30, 1998) as follows:
Year Ended October 31, 1999
- ---------------------------
<TABLE>
<CAPTION>
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
- ------------ ------------- ------ ------------------
<S> <C> <C> <C>
Growth 212,043 0 212,043
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
International 59,676 0 59,676
Mid Cap 5,834 5,834 0
Small Company 57,488 0 57,488
Value Opportunity 6,278 6,278 0
Balanced 128,903 0 128,903
Growth and Income 660,028 0 660,028
Real Estate 4,457 4,457 0
Bond Fund 45,244 0 45,244
Aetna Government Fund 13,951 13,951 0
High Yield 9,427 9,427 0
Money Market 461,026 0 461,026
Index Plus Bond 15,188 15,188 0
Index Plus Large Cap 148,363 0 148,363
Index Plus Mid Cap 9,381 9,381 0
Index Plus Small Cap 7,902 7,902 0
Ascent 51,213 0 51,213
Crossroads 48,410 0 48,410
Legacy 30,297 0 30,297
Year Ended October 31, 1998
- ---------------------------
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
- ------------ ------------- ------ ------------------
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
Year Ended October 31, 1997
- ---------------------------
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
- ------------ ------------- ------ ------------------
Growth 178,807 0 178,807
International 188,108 0 188,108
Small Company 70,100 0 70,100
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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>
*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
arrangements (which are designed to comply with Rule 17f-5 under the 1940 Act)
with certain foreign banks and clearing agencies.
TRANSFER AGENT
PFPC 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 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 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.
29
<PAGE>
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 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.
For the years ended October 31, 1999, 1998 and 1997, 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 after May 1, 1998) as follows:
Year Ended October 31, 1999
- ---------------------------
Company Name Total Underwriting Fees
- ------------ -----------------------
Growth $93,265
International 53,471
Mid Cap 2,833
Small Company 47,171
Value Opportunity 4,741
Balanced 46,064
Growth and Income 123,267
Real Estate 3,676
Bond Fund 22,641
Aetna Government Fund 8,320
High Yield 4,225
Money Market 1,192
30
<PAGE>
Index Plus Bond 5,246
Index Plus Large Cap 267,873
Index Plus Mid Cap 8,318
Index Plus Small Cap 7,896
Ascent 36,042
Crossroads 20,360
Legacy 16,944
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
*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.
31
<PAGE>
Fees in the amount of $658,067, $26,009 and $141,236, for the years ended
October 31, 1999, 1998, and 1997, 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 year ended October 31, 1999, approximately $447,933, $611,129,
$1,201,749, $3,465,558 and $624,802 of the Company's 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, Technology, 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
The following table applies to Bond Fund, Aetna Government Fund and High Yield:
When you invest this amount Amount of sales charge typically reallowed to dealers as a
percentage of offering price
Under $50,000 4.00%
$50,000 or more but under $100,000 3.75
$100,000 or more but under $250,000 2.75
$250,000 or more but under $500,000 1.75
$500,000 or more but under $1,000,000 1.25
</TABLE>
32
<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
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
----------
o on sales of $1 million to $3 million 1.00%
o on sales over $3 million to $20 million 0.50%
o 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
----------
o on sales of $1 million to $3 million 0.50%
o on sales over $3 million to $20 million 0.25%
o on sales over $20 million 0.25%
</TABLE>
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 up
to 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.
In addition, ACI or its affiliates may, from time to time, make payments to
clearing firms that offer networking services which make the Funds available to
their customers. Such payments will not exceed 0.10% of a Fund's average daily
net assets.
The value of a shareholder's investment will be unaffected by these payments.
33
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Class I shares of the Company are purchased and redeemed at the applicable net
asset value (NAV) 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 applicable NAV next determined after a purchase
order is received. Class B and Class C shares are redeemed at the applicable NAV
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 applicable NAV next determined after
a purchase order is received less any applicable front-end sales charge and
redeemed at the applicable NAV next determined adjusted for any applicable CDSC
after a redemption request 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 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 $50,000 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:
o Originally paid a front-end sales charge on the shares;
o Reinvest the money within 60 days of the redemption date; and
o Reinvest the money in the same class of shares.
34
<PAGE>
2. Redemptions from other mutual funds if you:
o Originally paid a front-end sales charge on the shares;
o Reinvest the money within 30 days of the redemption date; and
o 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. Employees of Aetna Inc. and its affiliates (including members of employees'
immediate families, board members and trustees, and their immediate
families) and NASD registered representatives of Aeltus Capital, Inc. or
any affiliated broker-dealers (including members of their immediate
families) purchasing shares for their own accounts, provided that the
Fund's principal underwriter agrees to waive the front-end sales load
associated with Class A shares.
4. 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 through an unregistered separate
account sponsored by Aetna or any affiliate thereof or (2) in a registered
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.
5. 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.
6. 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.
7. 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 who are charged an asset based
fee for services.
8. 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.
9. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer.
10. 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:
o redemptions of shares purchased through reinvestment of dividends or
capital gains distributions;
o 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
o redemptions of Money Market Class A and Class C shares unless:
o 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
o the original purchase of the shares exchanged was subject to a
CDSC.
CDSC Waivers
The CDSC will be waived for:
o Exchanges to other Funds of the same class;
o Redemptions following the death or disability of the shareholder or
beneficial owner;
o Redemptions related to distributions from retirement plans or accounts
under Internal Revenue Section 403(b) after you attain age 70 1/2.
o Tax-free returns of excess contributions from employee benefit plans;
o Distributions from employee benefit plans, including those due to plan
termination or plan transfer; and
o Redemptions made in connection with the Automatic Cash Withdrawal Plan (see
Shareholder Services and Other Features), provided that such redemptions:
35
<PAGE>
o are limited annually to no more than 12% of the original account
value;
o are made in equal monthly amounts, not to exceed 1% per month; and
o 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 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. 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 (or EAM, in the case of
Technology) has responsibility for making investment decisions, for effecting
the execution of trades and for negotiating any brokerage commissions thereon.
It is Aeltus' and EAM's 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 (or EAM, in the case of Technology) 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 or in the designation of a portion of the
commissions charged on those transactions to be paid to other broker-dealers,
subject to Aeltus' and EAM's duty to obtain best execution.
Aeltus (or EAM, in the case of Technology) receives a variety of brokerage and
research services from brokerage
36
<PAGE>
firms in return for the execution by such brokerage firms of trades on behalf of
the Funds. 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, 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
and EAM consider 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. It
is the policy of Aeltus and EAM, in selecting a broker to effect a particular
transaction, 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.
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 or EAM to benefit the Funds.
Consistent with federal law, Aeltus or EAM 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. The judgment
of Aeltus and EAM, as to whether and how it will obtain the specific brokerage
and research services, will be based upon an 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' or EAM's 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, EAM or any other
affiliated person of the Company.
Aeltus may buy or sell the same security at or about the same time for a Fund
and another advisory client of Aeltus, including clients in which affiliates of
Aeltus have an interest. EAM may also buy or sell the same security at or about
the same time for a Fund and another advisory client of EAM, including clients
in which affiliates of EAM have an interest. Either Aeltus or EAM, as the case
may be, normally will aggregate the respective purchases or sales, and then
allocate as nearly as practicable on a pro rata basis in proportion to the
amount to be purchased or sold. 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, 1999 Oct. 31, 1998 Oct. 31, 1997
- --------- ------------- ------------- -------------
<S> <C> <C> <C>
Growth $462,377 $347,005 $170,182
International 497,419 428,858 907,087
Mid Cap* 15,699 16,093 N/A
Small Company 342,043 189,609 167,794
Value Opportunity** 16,153 15,334 N/A
Balanced 106,837 74,562 131,989
Growth and Income 1,575,747 2,363,653 1,908,594
Real Estate** 5,975 21,212 N/A
Bond Fund 275 0 0
Aetna Government Fund 3,615 0 0
High Yield** 0 0 0
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Money Market 0 0 0
Index Plus Bond* 0 0 0
Index Plus Large Cap*** 278,464 44,831 15,942
Index Plus Mid Cap**** 11,440 19,919 N/A
Index Plus Small Cap**** 7,225 27,474 N/A
Ascent 145,421 125,071 113,789
Crossroads 106,481 100,787 79,184
Legacy 47,787 44,163 47,247
</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.
For the year ended October 31, 1999, commissions in the amounts listed below
were paid with respect to portfolio transactions directed to certain brokers
because of research services:
Company Name Commissions Paid on Total Transactions
- ------------ --------------------------------------
Growth $68,688
International 27,324
Mid Cap 1,140
Small Company 24,708
Value Opportunity 3,051
Balanced 8,287
Growth and Income 318,858
Real Estate 408
Index Plus Large Cap 131,819
Index Plus Mid Cap 0
Index Plus Small Cap 0
Ascent 21,389
Crossroads 15,008
Legacy 5,815
The Board has adopted a policy allowing trades to be made between affiliated
registered investment companies or series thereof provided such trades meet the
terms of Rule 17a-7 under the 1940 Act.
The Company, Aeltus, EAM, and ACI each have adopted a Code of Ethics (in
accordance with Rule 17j-1 under the 1940 Act). The Codes of Ethics allow
personnel subject to the Codes to invest in securities, including securities
that may be purchased or held by a Fund. However, it prohibits a person from
taking advantage of Fund trades or from acting on inside information.
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
38
<PAGE>
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 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 1-800-367-7732. 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 1-800-367-7732.
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 $50,000. 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
39
<PAGE>
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
The NAV per share of each class is computed by dividing each class' pro-rata
share of a Fund's net assets less any liabilities specifically attributable to
that class by the total number of shares outstanding for that class. The Fund's
net assets include, among other things, the market value of any securities held
by the Fund, any dividends or interest accrued but not collected, other assets
adjusted by certain liabilities incurred for the benefit of the Fund, such as
payables for securities purchased and certain accrued expenses.
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 (except as otherwise noted below) 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.
Readily marketable securities listed on a foreign securities exchange whose
operations are similar to those of the United States over-the-counter market are
valued at the mean of the current bid and asked prices as reported by
independent pricing sources. Fixed-income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service take into account many factors, including institutional size trading in
similar groups of securities and any developments related to specific
securities. Securities for which prices are not obtained from a pricing service
are valued based upon the assessment of market-makers in those securities. Debt
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.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of the New York Stock Exchange (NYSE).
The values of foreign securities used in computing the NAV of the shares of a
Fund are determined as of the earlier of such market close or the closing time
of the NYSE. Occasionally, events affecting the value of such securities may
occur between the times at which they are determined and the close of the NYSE,
or when the foreign market on which such securities trade is closed but the NYSE
is open, which will not be reflected in the computation of NAV. If during such
periods, events occur which materially affect the value of such securities, the
securities may be 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 Internal Revenue Code of 1986, as amended. 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.
40
<PAGE>
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.
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.
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 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.
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:
41
<PAGE>
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
The yield and effective yield for Money Market for the seven days ended October
31, 1999 were 5.21% and 5.34%, 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 purposes of determining net investment income during the period (variable
"a" in the formula), interest earned on debt obligations held by the fund is
calculated each day during the period according to the formulas below, and then
added together for each day in the period:
o Certain mortgage-backed, asset-backed and CMO securities: Generally, interest
is computed by taking daily interest income (coupon rate times face value
divided by 360 or 365, as the case may be) adjusted by that day's pro-rata
share of the most recent paydown gain or loss from the security;
o Other debt obligations: Generally, interest is calculated by computing the
yield to maturity of each debt obligation held based on the market value of
the obligation (including current interest accrued) at the close of each day,
dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including current accrued interest).
For purposes of this calculation, it is assumed that each month contains 30
days.
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, 1999:
<TABLE>
<CAPTION>
Yield (at POP)
-------------------------------------------------------------
Name of Fund Class A Class B Class C Class I
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Bond Fund 5.29% 4.79% 4.77% 5.81%
Aetna Government Fund 5.17% 4.65% 4.67% 5.64%
High Yield 8.95% 8.60% 8.65% 9.64%
Index Plus Bond 5.93% 5.32% 5.61% 6.37%
</TABLE>
42
<PAGE>
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, 1999:
Yield (at NAV)
Name of Fund Class A
--------------------- --------------
Bond Fund 5.55%
Aetna Government Fund 5.43%
High Yield 9.40%
Index Plus Bond 6.11%
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 from net investment income.
To calculate dividend yield, the most recent dividend of a class declared is
multiplied by 12 (to annualize the yield) and divided by the current NAV. 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.
43
<PAGE>
The dividend yields for the 30-day dividend period ended October 31, 1999 were
as follows:
<TABLE>
<CAPTION>
FUND CLASS A (NAV) CLASS A (POP) CLASS B CLASS C
---- ------------- ------------- ------- -------
<S> <C> <C> <C> <C>
Bond Fund 5.05% 4.81% 4.33% 4.33%
Aetna Government Fund 4.98% 4.74% 4.22% 4.26%
High Yield 9.37% 8.93% 8.67% 8.60%
Index Plus Bond 5.35% 5.19% 4.68% 4.85%
</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 March 1999, the Funds introduced Class B shares. For
periods prior to the Class B inception date, Class B performance is calculated
using the performance of Class I (formerly Select Class) shares, and deducting
the internal fees and expenses applicable to the Class B shares. CDSC of 5.00%
applies for all Class B shares redeemed in the first year, declining to 1.00% on
Class B shares redeemed in the sixth year. No CDSC is charged thereafter. The
Class B returns without CDSC are net of fund expenses only, and do not deduct a
CDSC. 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 Class C shares (except Money Market) redeemed prior to the end of the first
eighteen months of ownership. The 1-year Class C 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 Class A or Class C shares of Money Market.
44
<PAGE>
Total Return Quotations as of October 31, 1999:
- -----------------------------------------------
CLASS I
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Money Market 4.88% 5.41% 4.82% 1/3/92
Aetna Government Fund 0.58% 7.01% 5.56% 1/4/94
Bond Fund 1.56% 7.15% 6.30% 1/3/92
Balanced 14.79% 16.40% 12.37% 1/3/92
Growth and Income 23.00% 22.01% 15.79% 1/3/92
Growth 37.09% 25.65% 23.21% 1/4/94
Index Plus Large Cap 29.05% N/A 26.71% 12/10/96
Small Company 20.54% 19.14% 16.99% 1/4/94
International 28.10% 15.55% 12.30% 1/3/92
Ascent Fund 13.66% N/A 15.36% 1/4/95
Crossroads Fund 10.31% N/A 13.02% 1/4/95
Legacy Fund 7.99% N/A 11.23% 1/4/95
High Yield 7.64% N/A 0.37% 2/2/98
Index Plus Bond 0.61% N/A 3.48% 2/4/98
Index Plus Mid Cap 23.14% N/A 15.03% 2/3/98
Index Plus Small Cap 12.46% N/A -0.14% 2/3/98
Mid Cap 23.79% N/A 8.38% 2/4/98
Real Estate -2.59% N/A -11.36% 2/2/98
Value Opportunity 32.88% N/A 17.65% 2/2/98
CLASS A (assuming payment of the front-end sales load)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Aetna Government Fund -4.43% 5.37% 4.07% 1/4/94
Bond Fund -3.39% 5.52% 4.99% 1/3/92
Balanced 7.89% 14.34% 10.79% 1/3/92
Growth and Income 15.61% 19.93% 14.23% 1/3/92
Growth 28.91% 23.49% 21.27% 1/4/94
Index Plus Large Cap 24.91% N/A 24.86% 12/10/96
Small Company 13.25% 17.08% 15.12% 1/4/94
International 20.41% 13.50% 10.72% 1/3/92
Ascent Fund 6.83% N/A 13.36% 1/4/95
Crossroads Fund 3.77% N/A 11.05% 1/4/95
Legacy Fund 1.46% N/A 9.29% 1/4/95
High Yield 2.29% N/A -2.63% 2/2/98
Index Plus Bond -2.64% N/A 1.44% 2/4/98
Index Plus Mid Cap 19.12% N/A 12.73% 2/3/98
Index Plus Small Cap 8.77% N/A -2.10% 2/3/98
Mid Cap 16.29% N/A 4.48% 2/4/98
Real Estate -8.35% N/A -14.53% 2/2/98
Value Opportunity 24.95% N/A 13.44% 2/2/98
CLASS A (without payment of the front-end sales load)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Money Market 4.88% 5.41% 4.82% 1/3/92
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Aetna Government Fund 0.34% 6.40% 4.95% 1/4/94
Bond Fund 1.43% 6.56% 5.64% 1/3/92
Balanced 14.48% 15.70% 11.63% 1/3/92
Growth and Income 22.67% 21.36% 15.09% 1/3/92
Growth 36.78% 24.96% 22.51% 1/4/94
Index Plus Large Cap 28.78% N/A 26.18% 12/10/96
Small Company 20.16% 18.48% 16.30% 1/4/94
International 27.76% 14.85% 11.56% 1/3/92
Ascent Fund 13.35% N/A 14.76% 1/4/95
Crossroads Fund 10.10% N/A 12.42% 1/4/95
Legacy Fund 7.65% N/A 10.64% 1/4/95
High Yield 7.39% N/A 0.13% 2/2/98
Index Plus Bond 0.37% N/A 3.23% 2/4/98
Index Plus Mid Cap 22.81% N/A 14.72% 2/3/98
Index Plus Small Cap 12.13% N/A -0.38% 2/3/98
Mid Cap 23.38% N/A 8.11% 2/4/98
Real Estate -2.76% N/A -11.57% 2/2/98
Value Opportunity 32.57% N/A 17.36% 2/2/98
CLASS B (assuming payment of the CDSC)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Money Market -1.16% 4.04% 3.79% 1/3/92
Aetna Government Fund -5.33% 5.62% 4.36% 1/4/94
Bond Fund -4.15% 5.79% 5.26% 1/3/92
Balanced 8.68% 15.03% 11.26% 1/3/92
Growth and Income 16.62% 20.59% 14.63% 1/3/92
Growth 30.82% 24.24% 21.93% 1/4/94
Index Plus Large Cap 22.87% N/A 24.79% 12/10/96
Small Company 14.36% 17.74% 15.73% 1/4/94
International 21.88% 14.22% 11.21% 1/3/92
Ascent Fund 7.45% N/A 13.96% 1/4/95
Crossroads Fund 4.28% N/A 11.63% 1/4/95
Legacy Fund 1.86% N/A 9.83% 1/4/95
High Yield 1.56% N/A -2.86% 2/2/98
Index Plus Bond -5.15% N/A 0.16% 2/4/98
Index Plus Mid Cap 16.85% N/A 11.72% 2/3/98
Index Plus Small Cap 6.30% N/A -3.50% 2/3/98
Mid Cap 17.41% N/A 5.03% 2/4/98
Real Estate -8.24% N/A -14.21% 2/2/98
Value Opportunity 26.59% N/A 14.39% 2/2/98
CLASS B (without payment of the CDSC)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Money Market 3.84% 4.38% 3.79% 1/3/92
Aetna Government Fund -0.48% 5.94% 4.50% 1/4/94
Bond Fund 0.74% 6.10% 5.26% 1/3/92
Balanced 13.68% 15.26% 11.26% 1/3/92
Growth and Income 21.62% 20.78% 14.63% 1/3/92
Growth 35.82% 24.41% 21.99% 1/4/94
Index Plus Large Cap 27.87% N/A 25.47% 12/10/96
Small Company 19.36% 17.95% 15.82% 1/4/94
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
International 26.88% 14.45% 11.21% 1/3/92
Ascent Fund 12.45% N/A 14.21% 1/4/95
Crossroads Fund 9.28% N/A 11.90% 1/4/95
Legacy Fund 6.86% N/A 10.12% 1/4/95
High Yield 6.56% N/A -0.68% 2/2/98
Index Plus Bond -0.32% N/A 2.44% 2/4/98
Index Plus Mid Cap 21.85% N/A 13.82% 2/3/98
Index Plus Small Cap 11.30% N/A -1.20% 2/3/98
Mid Cap 22.41% N/A 7.24% 2/4/98
Real Estate -3.41% N/A -12.18% 2/2/98
Value Opportunity 31.59% N/A 16.46% 2/2/98
CLASS C (assuming payment of the CDSC)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Aetna Government Fund -1.41% 5.94% 4.51% 1/4/94
Bond Fund -0.30% 6.09% 5.25% 1/3/92
Balanced 12.64% 15.25% 11.25% 1/3/92
Growth and Income 20.68% 20.79% 14.64% 1/3/92
Growth 34.80% 24.40% 21.99% 1/4/94
Index Plus Large Cap 27.42% N/A 25.77% 12/10/96
Small Company 18.33% 17.94% 15.81% 1/4/94
International 26.01% 14.47% 11.22% 1/3/92
Ascent Fund 11.47% N/A 14.21% 1/4/95
Crossroads Fund 8.30% N/A 11.90% 1/4/95
Legacy Fund 5.88% N/A 10.12% 1/4/95
High Yield 5.66% N/A -0.63% 2/2/98
Index Plus Bond -0.84% N/A 2.66% 2/4/98
Index Plus Mid Cap 21.44% N/A 14.13% 2/3/98
Index Plus Small Cap 10.91% N/A -0.92% 2/3/98
Mid Cap 21.57% N/A 7.32% 2/4/98
Real Estate -4.48% N/A -12.25% 2/2/98
Value Opportunity 30.56% N/A 16.44% 2/2/98
CLASS C (without payment of the CDSC)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Money Market 4.88% 5.41% 4.82% 1/3/92
Aetna Government Fund -0.46% 5.94% 4.51% 1/4/94
Bond Fund 0.66% 6.09% 5.25% 1/3/92
Balanced 13.64% 15.25% 11.25% 1/3/92
Growth and Income 21.68% 20.79% 14.64% 1/3/92
Growth 35.80% 24.40% 21.99% 1/4/94
Index Plus Large Cap 28.17% N/A 25.77% 12/10/96
Small Company 19.33% 17.94% 15.81% 1/4/94
International 27.01% 14.47% 11.22% 1/3/92
Ascent Fund 12.47% N/A 14.21% 1/4/95
Crossroads Fund 9.30% N/A 11.90% 1/4/95
Legacy Fund 6.88% N/A 10.12% 1/4/95
High Yield 6.65% N/A -0.63% 2/2/98
Index Plus Bond -0.13% N/A 2.66% 2/4/98
Index Plus Mid Cap 22.19% N/A 14.13% 2/3/98
Index Plus Small Cap 11.66% N/A -0.92% 2/3/98
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Mid Cap 22.57% N/A 7.32% 2/4/98
Real Estate -3.54% N/A -12.25% 2/2/98
Value Opportunity 31.56% N/A 16.44% 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.
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, in reports or promotional literature, the Funds may discuss,
or provide quotes or commentary of their current portfolio managers,
strategists, and other investment personnel, with respect to: the economy;
securities markets; portfolio securities and their issuers; investment
philosophies; strategies; techniques and criteria used in the selection of
securities to be purchased or sold for the Funds; the Funds' portfolio holdings,
including the description or graphical representation of portfolio risk and
other fundamental data; the investment research and analysis process; the
formulation of investment recommendations; and the assessment and evaluation of
credit, interest rate, market and economic risks, and similar or related
matters. The Funds may also quote or reprint all or a portion of evaluations or
descriptions of fund performance and operations appearing in various independent
publications.
From time to time, the Funds may also advertise their performance showing the
cumulative value of an initial or periodic investment in the Funds in various
amounts over specified periods, with capital gain and dividend distributions
invested in additional shares or taken in cash, and with no adjustment for any
income taxes (if applicable) payable by shareholders.
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.
The Funds may also include in their advertising examples to illustrate basic
investment concepts, including but not limited to systematic investment, the
effects of compounding, and various tax related concepts, including tax deferred
growth and tax equivalent yield.
48
<PAGE>
FINANCIAL STATEMENTS
The Financial Statements and the independent auditors' reports, thereon,
appearing in the Company's Annual Reports for the year ended October 31, 1999
are incorporated by reference in this Statement. The Company's Annual Reports
are available upon request and without charge by calling 1-800-238-6254.
Statement of Additional Information
49
<PAGE>
BROKERAGE CASH RESERVES
STATEMENT OF ADDITIONAL INFORMATION DATED: JUNE __, 2000
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 March 1,
2000. Capitalized terms not defined herein are used as defined in the
Prospectus.
The Fund's Financial Statements and the independent auditors' report thereon,
included in the Company's Annual Report, are incorporated herein by reference in
this Statement. A free copy of the Company's Annual Report and the Prospectus is
available upon request by writing to: Aetna Series Fund, Inc., 10 State House
Square, Hartford, Connecticut 06103-3602, or by calling 1-800-238-6263.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION............................................................1
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES................................2
INVESTMENT TECHNIQUES AND RISK FACTORS.........................................4
DIRECTORS AND OFFICERS.........................................................8
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS....................................11
THE INVESTMENT ADVISORY AGREEMENT.............................................11
THE ADMINISTRATIVE SERVICES AGREEMENT.........................................12
CUSTODIAN.....................................................................12
TRANSFER AGENT................................................................12
INDEPENDENT AUDITORS..........................................................12
PRINCIPAL UNDERWRITER.........................................................12
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
FINANCIAL STATEMENTS..........................................................19
<PAGE>
GENERAL INFORMATION
INCORPORATION The Company was incorporated under the laws of Maryland on June
17, 1991.
SERIES The Company currently offers multiple series. Brokerage Cash Reserves is
the only series 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 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.
1
<PAGE>
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES
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 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)
2
<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 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.
Where the Fund's investment objective or policy restricts it to holding or
investing a specified
3
<PAGE>
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. With respect to fundamental policy number (2), all industry
classifications are determined in accordance with the classifications
established by the Standard & Poor's Corporation.
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,
4
<PAGE>
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.
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 AND FLOATING RATE INSTRUMENTS
The Fund may invest in variable rate demand and floating rate instruments.
Variable rate demand 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
5
<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.
6
<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).
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.
7
<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 Officer,
10 State House Square (Principal Executive Chief Financial Officer, Aeltus Investment
Hartford, Connecticut Officer) Management, Inc., October 1997 to present; Director,
Age 45 Managing Director, Chief Operating Officer, Chief
Financial Officer, Aeltus Capital, Inc., November
1997 to present; Director and Senior Vice President,
Aetna Life Insurance and Annuity Company, March 1997
to February 1998; Director, Managing Director, Chief
Operating Officer, Chief Financial Officer and
Treasurer, Aeltus, April 1994 to March 1997.
- ---------------------------------- ----------------------------- -----------------------------------------------------
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 59
- ---------------------------------- ----------------------------- -----------------------------------------------------
Stephanie A. DeSisto Vice President, Vice President, Mutual Fund Accounting, Aeltus
10 State House Square Treasurer and Chief Investment Management, Inc., November 1995 to
Hartford, Connecticut Financial Officer present; Director, Mutual Fund Accounting, Aetna
Age 46 (Principal Financial and Life Insurance and Annuity Company, August 1994 to
Accounting Officer) November 1995; Assistant Vice President, Investors
Bank & Trust, January 1993 to August 1994.
- ---------------------------------- ----------------------------- -----------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
Amy R. Doberman Secretary General Counsel, Aeltus Investment Management,
10 State House Square Inc., February 1999 to present; Vice President,
Hartford, Connecticut General Counsel and Secretary, Aeltus Captial,
Age 38 Inc., April 1988 to present; Counsel, Retirement
Services, Inc., December 1996 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 and
Closter, New Jersey Alcohol Services, 1973 to present.
Age 56
- ---------------------------------- ----------------------------- -----------------------------------------------------
David L. Grove Director Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to present.
Armonk, New York
Age 82
- ---------------------------------- ----------------------------- -----------------------------------------------------
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 and
Age 39 President, Aeltus Capital, Inc., March 1996 to
present; 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 65
- ---------------------------------- ----------------------------- -----------------------------------------------------
Frank Litwin Vice President Managing Director, Aeltus Investment Management,
10 State House Square Inc., August 1997 to present; Managing Director,
Hartford, Connecticut Aeltus Capital, Inc., May 1998 to present; Vice
Age 50 President, Fidelity Investments Institutional
Services Company, April 1992 to August 1997.
- ---------------------------------- ----------------------------- -----------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------- ----------------------------- -----------------------------------------------------
<S> <C> <C>
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.
- ---------------------------------- ----------------------------- -----------------------------------------------------
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 63 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 71
- ---------------------------------- ----------------------------- -----------------------------------------------------
</TABLE>
During the year ended October 31, 1999, 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. For the year ended October 31,
1999, 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 $10,103 $73,500
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
Sidney Koch 10,103 73,500
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
Maria T. Fighetti* 10,361 75,375
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
Richard G. Scheide 10,790 78,500
Director, Chairperson
Audit Committee
- ---------------------------------------- ------------------------------------- -------------------------------------
David L. Grove* 10,790 78,500
Director, Chairperson
Contract Committee
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Albert E. DePrince, Jr. 10,361 75,375
Director
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
*During the year ended October 31, 1999, Ms. Fighetti and Dr. Grove deferred
$24,000 and $78,500, respectively, of their compensation from the Fund Complex.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
To the knowledge of the Fund, the following persons owned of record 5% or more
of the outstanding shares of the Fund as of March 31, 2000:
% of outstanding shares
Pershing Division of Donaldson, Lufkin
& Jenrette Securities Corporation 100.00%
1 Pershing Plaza
Jersey City, NJ 07399-0002
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 the Fund:
Rate Average Daily Net Assets
0.20% On first $1 billion
0.19% On next $2 billion
0.18% Over $3 billion
For the period from September 7, 1999 (commencement of operations) to October
31, 1999, investment advisory fees were paid to Aeltus as follows:
11
<PAGE>
Total Investment Advisory fees Waiver Net Advisory Fees Paid
------------------------------ ------ ----------------------
$80,456 $80,456 $0
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. For the period from September 7,
1999 (commencement of operations) to October 31, 1999, administrative services
fees were paid to Aeltus as follows:
Total Administrative Administrator Net Administrative
Services Fees Waiver Services Fees Paid
------------- ------ ------------------
$40,228 $26,410 $13,818
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.
TRANSFER AGENT
PFPC 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-
12
<PAGE>
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.
13
<PAGE>
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.
For the period from September 7, 1999 (commencement of operations) to October
31, 1999, total Shareholder Services and Distribution fees of $261,483 were paid
to ACI.
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.
For the year ended October 31, 1999, approximately $447,933, $611,129,
$1,201,749, $3,465,558 and $624,802 of the Company's 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.
14
<PAGE>
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:
o 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 PFPC 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.
o redeem shares you own by sending written instructions to:
Aetna Series Fund, Inc.
c/o PFPC 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
15
<PAGE>
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 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.
16
<PAGE>
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.
For the period from September 7, 1999 (commencement of operations) to October
31, 1999, no brokerage commissions were paid.
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 Company, Aeltus and ACI each have adopted a Code of Ethics (in accordance
with Rule 17j-1 under the 1940 Act). The Codes of Ethics allow personnel subject
to the Codes to invest in securities, including securities that may be held by a
fund; however, the Codes prohibit a person from taking advantage of fund trades
or from acting on inside information.
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 tax planning.
17
<PAGE>
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.
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 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
18
<PAGE>
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 the Fund for the seven days ended October 31,
1999 were 4.71% and 4.82%, respectively.
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).
The Fund's total return for the period from September 7, 1999 (commencement of
operations) to October 31, 1999, is 0.70%.
Performance information for the 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.
FINANCIAL STATEMENTS
The Financial Statements and the independent auditors' report thereon are
incorporated by reference in this Statement. The Company's Annual Report is
available upon request and without charge by calling 1-800-238-6263.
Statement of Additional Information
19
<PAGE>
AETNA SERIES FUND, INC.
AETNA PRINCIPAL
PROTECTION FUND IV
PROSPECTUS
June __, 2000
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 IV (Fund). The Offering Period will run from July 6, 2000
through September 6, 2000. All monies must be received no later than September
5, 2000.
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.
SUBJECT TO COMPLETION OR AMENDMENT
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
TABLE OF CONTENTS
PAGE
THE FUND'S INVESTMENTS.....................................................2
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS.........2
FUND EXPENSES..............................................................5
OTHER CONSIDERATIONS.......................................................6
THE GUARANTEE..............................................................6
MANAGEMENT OF THE FUND.....................................................8
INVESTING IN THE FUND......................................................9
OPENING AN ACCOUNT AND SELECTING A SHARE CLASS..........................9
HOW TO BUY SHARES......................................................12
HOW TO SELL SHARES.....................................................12
TIMING OF PURCHASE AND REDEMPTION REQUESTS.............................13
OTHER INFORMATION ABOUT SHAREHOLDER ACCOUNTS AND
SERVICES...............................................................14
DIVIDENDS AND DISTRIBUTIONS............................................16
TAX INFORMATION........................................................16
ADDITIONAL INFORMATION....................................................17
<PAGE>
THE FUND'S INVESTMENTS
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Aetna Principal Protection Fund IV (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 July 6, 2000 through September 6,
2000. All applications must be received by the transfer agent no later than
September 5, 2000 (August 7, 2000 in the case of IRA rollovers). All monies must
be received no later than September 5, 2000. During the Offering Period, Fund
assets will be invested exclusively in short-term instruments. Once the Offering
Period terminates, the Guarantee Period begins. The GUARANTEE PERIOD will run
from September 7, 2000 through September 6, 2005 (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 dividends and distributions
received from the Fund have been reinvested and no shares have been redeemed. If
a shareholder takes any distributions or dividends in cash instead of
reinvesting them, or if any shares are redeemed before the Maturity Date, the
shareholder's guaranteed amount will be reduced as more fully described below.
The Fund's Guarantee is backed by an unconditional, irrevocable guarantee
pursuant to an insurance policy issued to Aetna Series Fund, Inc. (Company) for
the benefit of the Fund by MBIA Insurance Corporation (MBIA), an AAA/Aaa rated
monoline financial guarantor.
The Fund is a series of the Company. Investors who wish to purchase another
series of the Company (Series) may request a separate prospectus by calling
1-888-423-5887.
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:
o EQUITY COMPONENT, consisting primarily of common stocks and
o 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 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
2
<PAGE>
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 Equity Component generally holds between 400 and
450 stocks included in the S&P 500. Although the Equity Component will not hold
all of the stocks in the S&P 500, Aeltus expects that there will be a close
correlation between the performance of the Equity Component and that of the S&P
500 in both rising and falling markets.
FIXED COMPONENT Aeltus looks to select investments for the Fixed Component with
financial characteristics that will, at any point in time, closely resemble
those of a portfolio of zero coupon bonds which mature within one month of the
Maturity Date. The Fixed Component will consist primarily of securities issued
or guaranteed by the U.S. Government and its agencies or instrumentalities,
including STRIPS (Separate Trading of Registered Interest and Principal of
Securities). STRIPS are created by the Federal Reserve Bank by separating the
interest and principal components of an outstanding U.S. Treasury or agency bond
and selling them as individual securities. The Fixed Component may also include
corporate bonds rated AA- or higher by S&P and/or Aa3 or higher by Moody's
Investors Services, Inc., futures on U.S. Treasury securities and money market
instruments.
ASSET ALLOCATION Aeltus uses a proprietary computer model to determine, on an
ongoing basis, the percentage of assets allocated to the Equity Component and to
the Fixed Component in an attempt to meet the investment objective. The model
evaluates a number of factors, including, but not limited to:
o the market value of the Fund's assets;
o the prevailing level of interest rates;
o equity market volatility; and
o the length of time remaining until the Maturity Date.
The model will determine the initial allocation between the Equity Component and
the Fixed Component on the first day of the Guarantee Period and will evaluate
the allocations on a daily basis thereafter. Generally, as the market value of
the Equity Component rises, more assets are allocated to the Equity Component,
and as the market value of the Equity Component declines, more assets are
allocated to the Fixed Component.
PRINCIPAL RISKS The principal risks of investing in the Fund are those generally
attributable to stock and bond investing. The success of the Fund's strategy
depends on Aeltus' ability to allocate 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
3
<PAGE>
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 short-term 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, may be subject to a
contingent deferred sales charge (CDSC) 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.
4
<PAGE>
FUND EXPENSES
The following tables describe the Fund's expenses. Shareholder Fees are paid
directly by shareholders. Annual Fund Operating Expenses are expressed as a
percentage of the Fund's average daily net assets, and are thus paid indirectly
by all Fund shareholders.
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Maximum Deferred Sales
Charge (Load) on Purchases Charge (Load) (as a % of
(as a % of purchase price) gross redemption proceeds)
Class A 4.75% None
Class B None 5.00%
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from Fund assets)
Distribution Total Fee Waiver/
Management (12b-1) and Other Operating Expense Net
Fee Service Fees Expenses Expenses Reimbursement Expenses
Class A 0.65% 0.25% 0.61% 1.51% 0.01% 1.50%
Class B 0.65% 1.00% 0.61% 2.26% 0.01% 2.25%
(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 VARY FROM THOSE SHOWN.
5
<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.
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 dividends and distributions and does not redeem any shares during the
Guarantee Period will receive, on the Maturity Date, no less than his or her
account value at the inception of the Guarantee Period. The Fund's Guarantee is
backed by an unconditional and irrevocable guarantee from MBIA pursuant to an
insurance policy issued by MBIA to the Fund. If, on the Maturity Date, the
actual NAV is less than the Guarantee per Share, MBIA will pay to the Fund for
disbursement to Fund shareholders an amount equal to this difference for every
share outstanding. See the SAI or call 1-800-367-7732 for additional details
regarding the Guarantee.
In summary, a shareholder who maintains his or her Fund investment through the
Maturity Date, makes no redemptions, and reinvests all dividends and
distributions will be entitled to receive no less than:
o the amount initially allocated to the Fund, less
o the amount of the Class A front-end sales load paid, if any, plus
o 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 (September 6, 2000), the NAV for Class A shares has increased
to $10.02. Your Guaranteed
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<PAGE>
Amount is based on the NAV determined on the evening of September 6, 2000. To
calculate your full guarantee, multiply the shares you own on September 6, 2000
by the NAV for your class of shares on September 6, 2000. Using our example:
Shares you own on September 6, 2000 1,905.000
NAV of Class A shares on September 6, 2000 X $10.02
---------
YOUR GUARANTEED AMOUNT 19,088.10
---------
YOUR GUARANTEED AMOUNT WILL NOT CHANGE DURING THE LIFE OF THE PRODUCT AS LONG AS
YOU REINVEST ALL YOUR DIVIDENDS AND DISTRIBUTIONS AND MAKE NO WITHDRAWALS PRIOR
TO THE MATURITY DATE.
REDEMPTIONS OF SHARES DURING THE GUARANTEE PERIOD WILL DECREASE THE GUARANTEED
AMOUNT TO WHICH A SHAREHOLDER IS ENTITLED. If a shareholder redeems shares in
the Fund, he or she will then hold fewer shares at the then current Guarantee
per Share, thereby reducing the Guaranteed Amount for the shareholder.
Redemptions made from the Fund prior to the Maturity Date will be made at NAV,
which may be higher or lower than the NAV at the inception of the Guarantee
Period. For certain shareholders, redemptions made prior to the Maturity Date
may also be subject to a 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 11, 2000 and the Fund declares a
dividend of $0.15 per share. Also, assume that the Class A NAV is $11.25 per
share at the end of the day on December 11, 2000.
To recalculate your Guarantee per Share:
1. Determine the value of your dividend. Your total dividend will equal the
per share dividend multiplied by the number of shares you own the day
before the dividend is declared. In our example, we will multiply 1,905
shares by $0.15 per share to arrive at $285.75.
2. Determine the number of shares that will get added to your account when
your dividend is reinvested. Your additional shares equal the value of your
dividend divided by the ending NAV on the day the dividend was declared. In
our case, $285.75 divided by $11.25 or 25.400 shares.
7
<PAGE>
3. Adjust your account for your additional shares. Add 1,905 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.
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.
8
<PAGE>
FIXED COMPONENT The Fixed Component is managed by a team of Aeltus fixed-income
specialists.
INVESTING IN THE FUND
OPENING AN ACCOUNT AND SELECTING A SHARE CLASS
HOW TO OPEN AN ACCOUNT You may open an account either through your investment
professional or through the sponsor of your employer-sponsored retirement plan.
If you are opening an account through your investment professional, he or she
will guide you through the process of investing in the Fund. If you are
investing through a retirement plan, please refer to your plan materials.
SELECTING A CLASS
Class A Shares
- --------------
o Front-end sales charge applies (at the time of purchase), which will vary
depending on the size of your purchase.
o 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.
o 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.
This % is deducted Which equals this %
When you invest this amount for sales charges of your investment
--------------------------- ------------- ---------------
Under $50,000 4.75% 4.99%
$50,000 or more but under $100,000 4.50% 4.71%
$100,000 or more but under $250,000 3.50% 3.63%
$250,000 or more but under $500,000 2.50% 2.56%
$500,000 or more but under $1,000,000 2.00% 2.04%
CLASS A SHARES SALES CHARGE WAIVERS The Fund waives the Class A front-end sales
charge for purchases made by certain types of shareholders. See the SAI or call
1-888-423-5887 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
9
<PAGE>
distribution agreement with Aeltus Capital, Inc., 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:
this % is deducted
When you invest this amount from your proceeds
--------------------------- -------------------
$1 million or more but under $3 million Year 1 - 1.00%
Year 2 - 0.50%
$3 million or more but under $20 million Year 1 - 0.50%
Year 2 - 0.50%
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
Class B Shares
- --------------
o No front-end sales charge applies.
o CDSC applies (if you sell your shares prior to the Maturity Date).
o Distribution (12b-1) fee of 0.75% applies.
o 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 prior
to the Maturity Date. The table below shows the applicable CDSC based on the
time invested.
Redemption During CDSC
----------------- ----
Offering Period or 1st year
of Guarantee Period 5%
2nd year of Guarantee Period 4%
3rd year of Guarantee Period 3%
4th year of Guarantee Period 3%
5th year of Guarantee Period 2%
OTHER POLICIES RELATING TO CHARGES AND FEES
Application of a CDSC To determine whether a CDSC is payable on any redemption,
the Fund will FIRST redeem shares not subject to any charge, and THEN shares
held longest during the CDSC period. The CDSC is assessed on an amount equal to
the lesser of the current market value or the original cost of the shares being
redeemed.
Unless otherwise specified, when you request to sell a stated dollar amount,
the Fund will redeem additional shares to cover any CDSC. For requests to sell a
stated number of shares, the Fund will deduct the amount of the CDSC, if any,
from the sale proceeds.
10
<PAGE>
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 1-888-423-5887 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.
11
<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 SEPTEMBER 5, 2000 (AUGUST 7, 2000, IN THE CASE OF
IRA ROLLOVERS). MONIES RECEIVED AFTER SEPTEMBER 5, 2000 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
- ------------- -----------------------------------------------------------------
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 PFPC Inc.
P.O. Box 9681
Providence, RI 02940
Your check must be drawn on a bank located within the
United States, payable in U.S. dollars, and received by
the transfer agent NO LATER THAN SEPTEMBER 5, 2000.
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
Courier your completed application and check to:
Aetna Series Fund, Inc.
c/o PFPC Inc.
4400 Computer Drive
Westborough, MA 01581
- ------------- -----------------------------------------------------------------
By Wire Not Available.
- ------------- -----------------------------------------------------------------
By Electronic Not Available.
Funds Transfer
- ------------- ------------------------------------------------------------------
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.
12
<PAGE>
Redemption requests may be made in writing or, in amounts up to $50,000, by
telephone. The Company requires a signature guarantee if the amount of the
redemption request is over $50,000. 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.
FUND SHARES MAY BE REDEEMED BY SHAREHOLDERS PRIOR TO THE MATURITY DATE. HOWEVER,
REDEMPTIONS MADE FOR ANY REASON PRIOR TO THE MATURITY DATE WILL BE MADE AT NAV
AND ARE NOT ELIGIBLE FOR THE GUARANTEE. MOREOVER, REDEMPTIONS MAY BE SUBJECT TO
A CDSC.
- -------------------- ----------------------------------------------------------
REDEMPTIONS BY MAIL You may redeem shares you own by sending written
instructions to:
Aetna Series Fund, Inc.
c/o PFPC Inc.
P.O. Box 9681
Providence, RI 02940
Your instructions should identify:
o The number of shares or dollar amount to be
redeemed.
o Your name and account number.
Your instructions must be signed by all person(s)
required to sign for the account, exactly as the shares
are registered, and, if necessary, accompanied by a
signature guarantee(s).
- --------------------- ---------------------------------------------------------
REDEMPTIONS BY WIRE A minimum redemption of $1,000 is required for wire
transfers. Redemption proceeds will be transferred by
wire to your previously designated bank account or to
another destination if the federal funds wire
instructions provided with your redemption request are
accompanied by a signature guarantee. A $12 fee will be
charged for this service.
- --------------------- ---------------------------------------------------------
REDEMPTIONS BY Call 1-800-367-7732. Please be prepared to provide your
TELEPHONE account number, account name and the amount of the
redemption, which generally must be no less than $500
and no more than $50,000.
- --------------------- ----------------------------------------------------------
TIMING OF PURCHASE AND REDEMPTION REQUESTS
Orders that are received before the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. eastern time) will be processed at the NAV
calculated that business day (adjusted for the front-end sales charge or CDSC,
if applicable). Orders received after the close
13
<PAGE>
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 SEPTEMBER 5, 2000 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.
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 60 days
or less at the date of valuation 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.
14
<PAGE>
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 $50,000. Telephone redemption requests will not be
accepted if you:
o Have submitted a change of address within the preceding 15 calendar days.
o 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
1-888-423-5887 for additional information on any of these services.
o 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.
o 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).
15
<PAGE>
o TDD Service Telecommunication Device for the Deaf (TDD) services are
offered for hearing impaired shareholders. The dedicated number for this
service is 1-800-688-4889.
o 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 AUGUST 7, 2000.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid annually. Capital gains distributions, if any,
are paid on an annual basis in December. 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:
o 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.
o 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
o In general, dividends and short-term capital gains distributions you
receive from the Fund are taxable as ordinary income.
o Distributions of other capital gains you receive generally are taxable
as capital gains.
o Ordinary income and capital gains are taxed at different rates.
o 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
16
<PAGE>
shares in the Fund or whether you reinvest your distributions or take
them in cash.
o 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 The tax treatment of any amounts paid to the
Fund or shareholders pursuant to the Guarantee is unclear. The Guarantee is a
relatively new feature that has not previously been offered by many other mutual
funds. Accordingly, shareholders are urged to consult their tax advisers about
the tax treatment of any payments that may be made under the Guarantee.
Any withholding of taxes on distributions by the Fund will result in a reduction
of the benefit under the Guarantee.
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 1-888-423-5887 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
Edgar Database 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 1-202-942-8090 to get
information on the operations of the public reference room. You may obtain
copies of reports and other information about the Fund, after paying a
duplicating fee, by sending an E-mail request to: [email protected], or by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
Investment Company Act File No. 811-6352.
17
<PAGE>
AETNA SERIES FUND, INC.
AETNA PRINCIPAL PROTECTION FUND IV
STATEMENT OF ADDITIONAL INFORMATION DATED JUNE __, 2000
This Statement of Additional Information (Statement) is not a Prospectus and
should be read in conjunction with the current Prospectus for Aetna Principal
Protection Fund IV, 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 Aetna Principal
Protection Fund IV (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:
1-888-423-5887.
SUBJECT TO COMPLETION OR AMENDMENT
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION............................................................1
INVESTMENT OBJECTIVE AND RESTRICTIONS..........................................2
INVESTMENT TECHNIQUES AND RISK FACTORS.........................................3
OTHER CONSIDERATIONS...........................................................7
THE ASSET ALLOCATION PROCESS...................................................7
DIRECTORS AND OFFICERS OF THE FUND.............................................8
INVESTMENT ADVISORY AGREEMENT.................................................11
THE GUARANTY AGREEMENT........................................................11
ADMINISTRATIVE SERVICES AGREEMENT.............................................12
CUSTODIAN.....................................................................12
THE GUARANTOR.................................................................12
TRANSFER AGENT................................................................12
INDEPENDENT AUDITORS..........................................................12
PRINCIPAL UNDERWRITER.........................................................13
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS...........................13
PURCHASE AND REDEMPTION OF SHARES.............................................14
BROKERAGE ALLOCATION AND TRADING POLICIES.....................................17
SHAREHOLDER ACCOUNTS AND SERVICES.............................................18
NET ASSET VALUE...............................................................19
TAX STATUS....................................................................19
PERFORMANCE INFORMATION.......................................................20
<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 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.
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<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.
With respect to fundamental policy number (7) above, industry classifications
are determined in accordance with the classifications established by the
Standard & Poor's Corporation.
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.
3
<PAGE>
The prices of futures contracts are volatile and are influenced by, among other
things, actual and anticipated changes in interest rates and equity prices,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events. Small price movements in futures
contracts may result in immediate and potentially unlimited loss or gain to the
Fund relative to the size of the margin commitment. A purchase or sale of a
futures contract may result in losses in excess of the amount initially invested
in the futures contract.
When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the instruments or
securities being hedged can be only approximate. The degree of imperfection of
correlation depends upon circumstances such as: variations in market demand for
futures and for securities, including technical influences in futures trading,
and differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available for trading.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or stock market or interest rate trends.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
interest rate futures contract prices during a single trading day, and temporary
regulations limiting price fluctuations for stock index futures contracts are
also now in effect. The daily limit establishes the maximum amount that the
price of a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has been
reached in a particular type of contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions. Futures contract
prices have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some persons engaging in futures transactions
to substantial losses.
Sales of future contracts which are intended to hedge against a change in the
value of securities held by a Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
"Margin" is the amount of funds that must be deposited by the Fund with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in the Fund's futures contracts. A margin deposit
is intended to assure the Fund's performance of the futures contract. The margin
required for a particular futures contract is set by the exchange on which the
contract is traded and may be significantly modified from time to time by the
exchange during the term of the contract.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy the
margin requirement, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will promptly pay the excess to the Fund. These daily payments to and
from the Fund are called variation margin. At times of extreme price volatility,
intra-day variation margin payments may be required. In computing daily net
asset values, the Fund will mark-to-market the current value of its open futures
contracts. The Fund expects to earn interest income on its initial margin
deposits.
When the Fund buys or sells a futures contract, unless it already owns an
offsetting position, it will designate cash and/or liquid securities having an
aggregate value at least equal to the full "notional" value of the futures
contract, thereby insuring that the leveraging effect of such futures contract
is minimized, in accordance with regulatory requirements.
The Fund may purchase and sell futures contracts under the following conditions:
(a) the then-current aggregate futures market prices of financial instruments
required to be delivered and purchased under open futures contracts shall not
exceed 30% of the Fund's total assets at market value at the time of entering
into a contract, (b) no more than 5% of the assets, at market value at the time
of entering into a contract, shall be committed to margin deposits in
4
<PAGE>
relation to futures contracts, and (c) the notional value of all U.S. Treasury
futures shall not exceed 50% of the market value of all corporate bonds.
Additional Restrictions on the Use of Futures Contracts CFTC regulations
require that to prevent the Fund from being a commodity pool, the Fund enter
into all short futures for the purpose of hedging the value of securities held,
and that all long futures positions either constitute bona fide hedging
transactions, as defined in such regulations, or have a total value not in
excess of an amount determined by reference to certain cash and securities
positions maintained, and accrued profits on such positions. As evidence of its
hedging intent, the Fund expects that at least 75% of futures contract purchases
will be "completed"; that is, upon the sale of these long contracts, equivalent
amounts of related securities will have been or are then being purchased by it
in the cash market.
Zero Coupon Securities
The Fund may invest in U.S. Treasury, agency or corporate zero coupon securities
maturing on or within 90 days preceding the Maturity Date. U.S. Treasury or
agency zero coupon securities shall be limited to non-callable, non-interest
bearing obligations and shall include STRIPS (Separate Trading of Registered
Interest and Principal of Securities); CATS (Certificates of Accrual on Treasury
Securities); TIGRs (Treasury Investment Growth Receipts) and TRs (Generic
Treasury Receipts). Zero coupon or deferred interest securities are debt
obligations that do not entitle the holder to any periodic payment of interest
prior to maturity or a specified date when the securities begin paying current
interest (the "cash payment date") and therefore are issued and traded at a
discount from their face amounts or par value. The discount varies, depending on
the time remaining until maturity or cash payment date, prevailing interest
rates, liquidity of the security and the perceived credit quality of the issuer.
The discount, in the absence of financial difficulties of the issuer, decreases
as the final maturity or cash payment date of the security approaches. The
market prices of zero coupon securities generally are more volatile than the
market prices of securities with similar maturities that pay interest
periodically and are likely to respond to changes in interest rates to a greater
degree than do non-zero coupon securities having similar maturities and credit
quality.
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
5
<PAGE>
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 the judgment of Aeltus
Investment Management, Inc. (Aeltus) 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.
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).
6
<PAGE>
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. Any
corporate bond purchased must mature on a date no more than three years before
or after 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.
OTHER CONSIDERATIONS
Acceptance of Deposits During Guarantee Period
The Fund reserves the right to accept additional deposits during the Guarantee
Period 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 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. The Fund will likely incur increased transactional
costs during periods of high volatility. 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.
7
<PAGE>
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 (Principal Executive Officer, Chief Financial Officer, Aeltus
Hartford, Connecticut Officer) Investment Management, Inc., October 1997 to
Age 45 present; Director, Managing Director, Chief
Operating Officer, Chief Financial Officer, Aeltus
Capital, Inc., November 1997 to present; Director
and Senior Vice President, Aetna Life Insurance and
Annuity Company, March 1997 to February 1998;
Director, Managing Director, Chief Operating
Officer, Chief Financial Officer and Treasurer,
Aeltus Investment Management, Inc., 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 59
- --------------------------------- ------------------------------ ---------------------------------------------------
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 (Principal present; Director, Mutual Fund Accounting, Aetna
Age 46 Financial and Accounting Life Insurance and Annuity Company, August 1994
Officer) to November 1995.
- --------------------------------- ------------------------------ ---------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------- ------------------------------ ---------------------------------------------------
<S> <C> <C>
Amy R. Doberman Secretary General Counsel, Aeltus Investment Management,
10 State House Square Inc., February 1999 to present; Vice President,
Hartford, Connecticut General Counsel and Secretary, Aeltus Capital,
Age 38 Inc., April 1998 to present; Counsel, Aetna
Retirement Services, Inc., December 1996 to
present; Attorney, Securities and Exchange
Commission, March 1990 to November 1996.
- --------------------------------- ------------------------------ ---------------------------------------------------
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation
Closter, New Jersey and Alcohol Services, 1973 to present.
Age 56
- --------------------------------- ------------------------------ ---------------------------------------------------
David L. Grove Director Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to present.
Armonk, New York
Age 82
- --------------------------------- ------------------------------ ---------------------------------------------------
John Y. Kim* Director Director, President, Chief Executive Officer,
10 State House Square Chief Investment Officer, Aeltus Investment
Hartford, Connecticut Management, Inc., December 1995 to present;
Age 39 Director, Aetna Life Insurance and Annuity
Company, February 1995 to March 1998; Senior Vice
President, Aetna Life Insurance and Annuity
Company, September 1994 to present.
- --------------------------------- ------------------------------ ---------------------------------------------------
Sidney Koch Director Financial Adviser, self-employed, January 1993 to
455 East 86th Street present.
New York, New York
Age 65
- --------------------------------- ------------------------------ ---------------------------------------------------
Frank Litwin Vice President Managing Director, Aeltus Investment Management,
10 State House Square Inc., August 1997 to present; Managing Director,
Hartford, Connecticut Aeltus Capital, Inc., May 1998 to present; Vice
Age 50 President, Fidelity Investments Institutional
Services Company, April 1992 to August 1997.
- --------------------------------- ------------------------------ ---------------------------------------------------
Shaun P. Mathews* Director Director, Vice President/Senior Vice President,
151 Farmington Avenue Aetna Life Insurance and Annuity Company, March
Hartford, Connecticut 1991 to present; Director, Aetna Investment
Age 45 Services, Inc., July 1993 to present; Senior Vice
President, Aetna Investment Services, Inc., July
1993 to February, 1999.
- --------------------------------- ------------------------------ ---------------------------------------------------
</TABLE>
9
<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 63 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 71
- --------------------------------- ------------------------------ ---------------------------------------------------
</TABLE>
During the fiscal year ended October 31, 1999, 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, 1999, 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 $10,103 $73,500
Director
- ------------------------------ ------------------- -----------------------------
Sidney Koch 10,103 73,500
Director
- ------------------------------ ------------------- -----------------------------
Maria T. Fighetti* 10,361 75,375
Director
- ------------------------------ ------------------- -----------------------------
Richard G. Scheide 10,790 78,500
Director, Chairperson Audit
Committee
- ------------------------------ ------------------- -----------------------------
David L. Grove* 10,790 78,500
Director, Chairperson
Contract Committee
- ------------------------------ ------------------- -----------------------------
Albert E. DePrince, Jr. 10,361 75,375
Director
- ------------------------------ ------------------- -----------------------------
*During the fiscal year ended October 31, 1999, Ms. Fighetti and Dr. Grove
elected to defer compensation in the amount of $24,000 and $78,500,
respectively.
10
<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 Inc.
The Advisory Agreement provides that Aeltus is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
officers or members of the Board, and that the Fund is responsible for payment
of all other of its costs.
For the services under the Advisory Agreement, Aeltus will receive an annual
fee, payable monthly, as described in the Prospectus.
The service mark of the Fund and the name "Aetna" have been adopted by the Fund
with the permission of Aetna Services, Inc. (ASI). Their continued use is
subject to the right of ASI to withdraw this permission in the event Aeltus or
another subsidiary or affiliate of Aetna Inc. should not be the investment
adviser of the Fund.
THE GUARANTY AGREEMENT
The Fund guarantees that on the Maturity Date 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) on the last day of the Offering Period, and
thereafter will be adjusted to reflect any dividends and distributions made by
the Fund. A shareholder who automatically reinvests all dividends and
distributions and does not redeem any shares during the Guarantee Period will
receive, in the aggregate, no less than his or her account value at the
inception of the Guarantee Period. The Fund's Guarantee is backed by an
unconditional and irrevocable guarantee from MBIA Insurance Corporation (MBIA)
pursuant to an insurance policy issued by MBIA to the Company for the benefit of
the Fund.
MBIA, Aeltus and the Company have entered into a Financial Guaranty Agreement
specifying the rights and obligations of Aeltus and MBIA with respect to the
Fund. The Financial Guaranty Agreement is unconditional and irrevocable and will
remain in place through the Maturity Date. The Financial Guaranty Agreement
provides that, if Aeltus fails to comply with specific investment parameters as
more fully described below, MBIA may direct Aeltus to cure the breach within a
prescribed period of time. If Aeltus fails to do so, MBIA may direct trades on
behalf of the Fund in order to bring the Fund back into compliance with these
investment parameters, and consistent with the Fund's investment objective and
strategies.
Aeltus, in managing the Fund, allocates assets to the Equity and Fixed
Components. The types of securities which may be held in the Equity Component or
the Fixed Component are set forth in the Prospectus and in this Statement
(Eligible Security). In the event that Aeltus acquires a security that is not an
Eligible Security, MBIA has the right under the Financial Guaranty Agreement to
direct Aeltus to sell that security and replace it with an Eligible Security
within three business days. In the event Aeltus does not sell the security, MBIA
reserves the right to direct the Custodian to sell that security and replace it
with an Eligible Security.
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.
11
<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) calculating the NAV and Guarantee per
Share; (e) preparation of certain shareholder communications; (f) supervising
the custodian and transfer agent; and (g) 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 or
its affiliate, Russell/Mellon Analytical Services, LLC, will monitor both the
allocation of assets and the securities held within the Equity Component and the
Fixed Component and report on the same to both Aeltus and MBIA. The custodian is
authorized to accept orders from MBIA made pursuant to the Financial Guaranty
Agreement.
THE GUARANTOR
MBIA, 113 King Street, Armonk, New York 10504 serves as the Guarantor to the
Fund pursuant to a written agreement with Aeltus and the Company. The Financial
Guaranty Agreement is unconditional and irrevocable and will remain in place
through the Maturity Date. Pursuant to the terms of the Financial Guaranty
Agreement, MBIA will issue to the Company for the benefit of the Fund an
insurance policy to support the Fund's Guarantee. MBIA is one of the world's
premier financial guarantee companies and a leading provider of investment
management products and services. MBIA and its subsidiaries provide financial
guarantees to municipalities and other bond issuers. MBIA also guarantees
structured asset-backed and mortgage-backed transactions, selected corporate
bonds and obligations of high-quality financial institutions.
TRANSFER AGENT
PFPC Inc., 4400 Computer Drive, Westborough, Massachusetts 01581 serves as the
transfer agent and dividend-paying agent to the Fund.
INDEPENDENT AUDITORS
KPMG LLP, CityPlace II, Hartford, Connecticut 06103 serves as independent
auditors to the Fund. KPMG LLP provides audit services, assistance and
consultation in connection with the Commission filings.
12
<PAGE>
PRINCIPAL UNDERWRITER
Aeltus Capital, Inc. (ACI) has agreed to use its best efforts to distribute the
shares as the principal underwriter of the Fund pursuant to an Underwriting
Agreement between it and the Fund. The Agreement was approved on April 12, 2000
to continue through December 31, 2000. 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 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 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.
13
<PAGE>
When you invest this amount Amount of sales charge typically
reallowed to dealers as a percentage
of offering price
Under $50,000 4.00%
$50,000 or more, but under $100,000 3.75
$100,000 or more, but under $250,000 3.00
$250,000 or more, but under $500,000 2.00
$500,000 or more, but under $1,000,000 1.50
Securities dealers that sell Class A shares in amounts of $1 million or more or
that sell load-waived Class A shares to certain retirement plans will be
entitled to receive the following commissions:
Commission
----------
o on sales of $1 million to $3 million; 1.00%
o on sales over $3 million to $20 million; and 0.50%
o on sales over $20 million. 0.25%
For sales of Class B shares, your securities dealer is paid an up-front
commission equal to 4% of the amount sold. Beginning in the thirteenth month
after the sale is made, ACI uses the 0.25% servicing fee to compensate
securities dealers for providing personal services to accounts that hold Class B
shares, on a monthly basis.
These breakpoints are reset every 12 months for purposes of additional
purchases. ACI may make these payments in the form of contingent advance
payments, which may be recovered from the securities dealer or set off against
other payments due to the dealer if shares are sold within 12 months of the
calendar month of purchase. Other conditions may apply.
ACI or its affiliates may make payments in addition to those described above to
certain broker-dealers that enter into agreements providing ACI with
preferential access to representatives of the broker-dealer. These payments may
be in an amount not exceeding 0.13% of the total fund assets held in omnibus
accounts or in customer accounts that designate such firm(s) as the selling
broker-dealer. From time to time, ACI or its affiliates may make payments to
other dealers and/or their agents, who may not be affiliates of Aetna, who sell
shares or who provide shareholder services. In addition, ACI or its affiliates
may, from time to time, make payments to clearing firms that offer networking
services which make the Fund available to their customers. Such payments will
not exceed 0.10% of the Fund's average daily net assets. The value of a
shareholder's investment will be unaffected by these payments.
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 September 5, 2000 (August 7,
2000 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.
14
<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
New York Stock Exchange (NYSE) is restricted as determined by the Securities and
Exchange Commission (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 $50,000 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 to Class A purchases 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).
3. NASD registered representative of Aeltus Capital, Inc. or any affiliated
broker-dealers (including members of their immediate families) purchasing
shares for their own accounts, provided that the Fund's principal
underwriter agrees to waive the front-end sales load associated with Class
A shares.
The Fund's front-end sales charge will also not apply to Class A purchases by:
4. 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.
5. 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.
6. 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.
15
<PAGE>
7. 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.
8. 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.
9. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer.
10. 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 Class A shares
purchased more than two years prior to the redemption.
CDSC Waivers
The CDSC will be waived for:
o Redemptions following the death or disability of the shareholder or
beneficial owner;
o Redemptions related to distributions from retirement plans or accounts
under Internal Revenue Code (Code) Section 403(b) after you attain age
70 1/2;
o Tax-free returns of excess contributions from employee benefit plans;
and
o 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
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.
16
<PAGE>
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 or in the
designation of a portion of the commissions charged on those transactions to be
paid to other broker-dealers, subject to Aeltus' duty to obtain best execution.
Aeltus receives a variety of brokerage and research services from brokerage
firms in return for the execution by such brokerage firms of trades on behalf of
the Fund. These brokerage and research services include, but are not limited to,
quantitative and qualitative research information and purchase and sale
recommendations regarding securities and industries, analyses and reports
covering a broad range of economic factors and trends, statistical data relating
to the strategy and performance of the Fund and other investment companies,
services related to the execution of trades on behalf of the Fund and advice as
to the valuation of securities, the providing of equipment used to communicate
research information and specialized consultations with Fund personnel with
respect to computerized systems and data furnished to the Fund as a component of
other research services. Aeltus considers the quantity and quality of such
brokerage and research services provided by a brokerage firm along with the
nature and difficulty of the specific transaction in negotiating commissions for
trades in the Fund's securities and may pay higher commission rates than the
lowest available when it is reasonable to do so in light of the value of the
brokerage and research services received generally or in connection with a
particular transaction. Aeltus' policy in selecting a broker to effect a
particular transaction is to seek to obtain "best execution," which means prompt
and efficient execution of the transaction at the best obtainable price with
payment of commissions which are reasonable in relation to the value of the
services provided by the broker, taking into consideration research and
brokerage services provided. When the trader believes that more than one broker
can provide best execution, preference may be given to brokers that provide
additional services to Aeltus.
Research services furnished by brokers through whom the Fund effects securities
transactions may be used by Aeltus in servicing all of its accounts; not all
such services will be used by Aeltus to benefit the Fund.
17
<PAGE>
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's trades
or from acting on inside information. Aeltus and ACI also have adopted a Code of
Ethics, which their respective Boards review annually.
SHAREHOLDER ACCOUNTS AND SERVICES
Shareholder Information
The Fund's transfer agent will maintain your account information. Account
statements will be sent at least quarterly. A Form 1099 generally will also be
sent each year by January 31. Annual and semiannual reports will also be sent to
shareholders. The transfer agent may charge you a fee for special requests such
as historical transcripts of your account and copies of canceled checks.
Consolidated statements reflecting current values, share balances and
year-to-date transactions generally will be sent to you each quarter. All
accounts identified by the same social security number and address will be
consolidated. For example, you could receive a consolidated statement showing
your individual and IRA accounts. With the prior permission of the other
shareholders involved, you have the option of requesting that accounts
controlled by other shareholders be shown on one consolidated statement. For
example, information on your individual account, your IRA, your spouse's
individual account and your spouse's IRA may be shown on one consolidated
statement.
Signature Guarantee
A signature guarantee is verification of the authenticity of the signature given
by certain authorized institutions. The Company requires a signature guarantee
for redemption requests in amounts in excess of $50,000. 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.
18
<PAGE>
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
The NAV per share of each class is computed by dividing each class' pro-rata
share of a Fund's net assets less any liabilities specifically attributable to
that class by the total number of shares outstanding for that class. The Fund's
net assets include, among other things, the market value of any securities held
by the Fund, any dividends or interest accrued but not collected, other assets
adjusted by certain liabilities incurred for the benefit of the Fund, such as
payables for securities purchased and certain accrued expenses.
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 (except as otherwise noted below) 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.
Readily marketable securities listed on a foreign securities exchange whose
operations are similar to those of the United States over-the-counter market are
valued at the mean of the current bid and asked prices as reported by
independent pricing sources. Fixed-income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service take into account many factors, including institutional size trading in
similar groups of securities and any developments related to specific
securities. Securities for which prices are not obtained from a pricing service
are valued based upon the assessment of market-makers in those securities. Debt
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.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of the New York Stock Exchange (NYSE).
The values of foreign securities used in computing the NAV of the shares of a
Fund are determined as of the earlier of such market close or the closing time
of the NYSE. Occasionally, events affecting the value of such securities may
occur between the times at which they are determined and the close of the NYSE,
or when the foreign market on which such securities trade is closed but the NYSE
is open, which will not be reflected in the computation of NAV. If during such
periods, events occur which materially affect the value of such securities, the
securities may be valued at their fair value in such manner as may be
determined, from time to time, in good faith, by or under the authority of, the
Board.
TAX STATUS
The following is only a limited discussion of certain additional tax
considerations generally affecting the Fund. No attempt is made to present a
detailed explanation of the tax treatment of the Fund and no explanation is
provided with respect to the tax treatment of any shareholder. The discussions
here and in the Prospectus are not intended as substitutes for careful tax
planning.
19
<PAGE>
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
The tax treatment of any amounts paid to the Fund or shareholders pursuant to
the Guarantee is unclear. The Guarantee is a relatively new feature that has not
previously been offered by many other mutual funds. Accordingly, shareholders
are urged to consult their tax advisers about the tax treatment of any payments
that may be made under the Guarantee.
Any withholding of taxes on distributions by the Fund will result in a reduction
of the benefit under the Guarantee.
PERFORMANCE INFORMATION
Performance information for each class of shares, including the total return of
the Fund, may appear in reports or promotional literature to current or
prospective shareholders.
Average Annual Total Return
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over a period of one and five years (or, if less, up to
the life of the Fund), calculated pursuant to the formula:
P(1 + T)n = ERV
20
<PAGE>
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
21
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 23. Exhibits
- -----------------
(a.1) Articles of Amendment and Restatement (September 2,
1997)(1)
(a.2) Articles of Amendment (October 29, 1997)(2)
(a.3) Articles Supplementary (October 29, 1997)(2)
(a.4) Articles of Amendment (January 26, 1998)(3)
(a.5) Articles Supplementary (June 25, 1998)(4)
(a.6) Articles Supplementary (December 22, 1998)(5)
(a.7) Articles Supplementary (July 12, 1999)(6)
(a.8) Certificate of Correction (September 22, 1999)(7)
(a.9) Articles Supplementary (September 27, 1999)(7)
(a.10) Articles Supplementary (February 9, 2000)(8)
(a.11) Form of Articles Supplementary
(b) By-laws (as amended September 13, 1994)(9)
(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. (Aeltus) and Aetna Series
Fund, Inc. (Registrant), 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, Aetna Value Opportunity Fund
and Brokerage Cash Reserves(8)
(d.2) Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Principal Protection Fund I
(PPF I)(6)
(d.3) Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Principal Protection Fund
II (PPF II)(7)
(d.4) Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Principal Protection Fund
III (PPF III)(8)
(d.5) Form of Investment Advisory Agreement between Aeltus and
the Registrant, on behalf of Aetna Principal Protection
Fund IV (PPF IV)
(d.6) Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Technology Fund(8)
(d.7) Subadvisory Agreement among Aeltus, the Registrant,
on behalf of Aetna Technology Fund and Elijah Asset
Management, LLC(8)
<PAGE>
(e.1) Underwriting Agreement between Aeltus Capital, Inc. and
the Registrant
(e.2) Master Selling Dealer Agreement(3)
(f) Directors' Deferred Compensation Plan (1)
(g.1) Custodian Agreement - Mellon Bank, N.A. (September 1,
1992)(9)
(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)(9)
(g.4) Amendment to Custodian Agreement - Mellon Bank, N.A.
(October 11, 1996)(10)
(g.5) Amendment to Custodian Agreement - Mellon Bank, N.A.
(January 29, 1998)(3)
(g.6) Amendment to Custodian Agreement - Mellon Bank, N.A. (July
26, 1999)(6)
(g.7) Amendment to Custodian Agreement - Mellon Bank, N.A. (July
26, 1999)(6)
(g.8) Amendment to Custodian Agreement - Mellon Bank, N.A.
(October 4, 1999)(7)
(g.9) Amendment to Custodian Agreement - Mellon Bank, N.A.
(February 23, 2000) (8)
(g.10) Form of Amendment to Custodian Agreement - Mellon Bank,
N.A.
(g.11) Custodian Agreement - Brown Brothers Harriman & Company
(Aetna International Fund) (December 12, 1991)(11)
(h.1) Administrative Services Agreement between Aeltus and the
Registrant, 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 and the Registrant, on behalf of Aetna Bond 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, Aetna Value Opportunity Fund and
Brokerage Cash Reserves(8)
(h.3) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of PPF I(6)
(h.4) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of PPF II(7)
(h.5) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of PPF III(8)
(h.6) Form of Amendment to Administrative Services Agreement
between Aeltus and the Registrant, on behalf of PPF IV
<PAGE>
(h.7) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of Brokerage Cash
Reserves(6)
(h.8) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of Aetna
Technology Fund(8)
(h.9) License Agreement(9)
(h.10) Transfer Agent Agreement(4)
(h.11) Amendment No. 1 to the Transfer Agency and Services
Agreement(12)
(h.12) Amendment No. 2 to the Transfer Agency and Services
Agreement(12)
(h.13) Amendment No. 3 to the Transfer Agency and Services
Agreement(5)
(h.14) Amendment No. 4 to the Transfer Agency and Services
Agreement(7)
(h.15) Amendment No. 5 to the Transfer Agency and Services
Agreement(13)
(h.16) Amendment No. 6 to the Transfer Agency and Services
Agreement(8)
(h.17) Form of Amendment No. 7 to the Transfer Agency and
Services Agreement
(h.18) Financial Guaranty Agreement among the Registrant,
Aeltus and MBIA(7)
(h.19) Custodian Service Agreement among the Registrant, on
behalf of PPF I, MBIA, and Mellon Bank, N.A.(14)
(h.20) Custodian Monitoring Agreement among the Registrant,
on behalf of PPF I, MBIA, and Russell/Mellon
Analytical Services, LL (Russell/Mellon)(14)
(h.21) Custodian Service Agreement among the Registrant, on
behalf of PPF II, MBIA, and Mellon Bank, N.A.(14)
(h.22) Custodian Monitoring Agreement among the Registrant, on
behalf of PPF II, MBIA, and Russell/Mellon Analytical
Services, LLC (Russell/Mellon)(14)
(h.23) Form of Custodian Service Agreement among the Registrant,
on behalf of PPF III, MBIA, and Mellon Bank, N.A.
(h.24) Form of Custodian Monitoring Agreement among the
Registrant, on behalf of PPF III, MBIA, and Russell/
Mellon Analytical Services, LLC (Russell/Mellon)
(h.25) Form of Custodian Service Agreement among the Registrant,
on behalf of PPF IV, MBIA, and Mellon Bank, N.A.
(h.26) Form of Custodian Monitoring Agreement among the
Registrant, on behalf of PPF IV, MBIA, and Russell/Mellon
Analytical Services, LLC (Russell/Mellon)
(i) Opinion and Consent of Counsel
(j) Consent of Independent Auditors
(k) Not applicable
(l) Initial Capital Agreement(12)
(m.1) Form of Distribution Plan (Class A)
(m.2) Distribution Plan (Class C)(8)
(m.3) Distribution Plan (Class B)
(m.4) Distribution Plan (Brokerage Cash Reserves)(6)
(m.5) Shareholder Service Plan (Class C) (8)
(m.6) Shareholder Service Plan (Class B)
(m.7) Shareholder Service Plan (Brokerage Cash Reserves)(6)
(n) Not applicable
(o) Form of Multiple Class Plan
(p.1) Aeltus Code of Ethics
(p.2) Aetna Mutual Funds Code of Ethics
<PAGE>
(p.3) Elijah Asset Management, LLC Code of Ethics
(q.1) Power of Attorney (November 6, 1998)(12)
(q.2) Authorization for Signatures(15)
1. Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on January 16, 1998.
2. Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed with the
Securities and Exchange Commission on November 3, 1997.
3. Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed with the
Securities and Exchange Commission on April 24, 1998.
4. Incorporated herein by reference to Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on June 29, 1998.
5. Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on February 25, 1999.
6. Incorporated herein by reference to Post-Effective Amendment No. 32 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on July 29, 1999.
7. Incorporated herein by reference to Post-Effective Amendment No. 34 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on October 6, 1999.
8. Incorporated herein by reference to Post-Effective Amendment No. 38 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed with
the Securities and Exchange Commission on February 23, 2000.
9. 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.
10. 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.
11. 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.
12. 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.
13. Incorporated herein by reference to Post-Effective Amendment No. 36 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on December 10, 1999.
<PAGE>
14. Incorporated herein by reference to Post-Effective Amendment No. 37 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission on December 16, 1999.
15. 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 March 31, 2000, 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 26.45%
Aetna Bond Fund 52.72%
Aetna Government Fund 64.93% 57.86%
Aetna Growth Fund 16.18%
Aetna Growth and Income Fund 15.45%
Aetna High Yield Fund 97.19% 11.44%
Aetna Index Plus Bond Fund 99.70% 6.32% 23.32%
Aetna Index Plus Large Cap Fund 46.58%
Aetna Index Plus Mid Cap Fund 95.12% 2.43%
Aetna Index Plus Small Cap Fund 98.05% 3.76%
Aetna International Fund 20.92%
Aetna Mid Cap Fund 96.79% 18.35% 82.15% 68.74%
Aetna Money Market Fund 47.19%
Aetna Real Estate Securities Fund 96.71% 8.75% 70.02% 48.64%
Aetna Small Company Fund 27.27%
Aetna Value Opportunity Fund 95.24% 2.55% 53.08% 28.12%
Aetna Ascent Fund 83.30% 88.10%
Aetna Crossroads Fund 89.99% 98.21%
Aetna Legacy Fund 76.58% 83.96%
</TABLE>
Aetna is an indirect wholly owned subsidiary of Aetna Inc.
A list of 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. 38 to the Registration Statement
on Form N-1A (File No. 33-41694), as filed with the Securities and
Exchange Commission on February 23, 2000.
As of March 31, 2000, Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corporation, 1 Pershing Plaza, Jersey City, NJ 07399-0002,
owned of record 100% of Brokerage Cash Reserves.
<PAGE>
Item 25. Indemnification
- ------------------------
Article 12, Section (d) of the Registrant's Articles of Amendment and
Restatement, incorporated herein by reference to Exhibit (a.1) to
Registrant's Registration Statement on Form N-1A (File No. 33-41694), as
filed on November 3, 1997, provides for indemnification of directors and
officers. In addition, the Registrant's officers and directors are
covered under a directors and officers/errors and omissions liability
insurance policy issued by ICI Mutual Insurance Company which expires
October 1, 2002.
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 as Exhibit
(e.1) to Registrant's Statement on Form N-1A (File No. 33-41694), as
filed on October 6, 1999, 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 the investment adviser and
administrator for the Registrant, Aeltus acts as the investment adviser
and administrator for Aetna Variable Fund, Aetna Income Shares, Aetna
Variable Encore Fund, Aetna Balanced VP, Inc., Aetna GET Fund, Aetna
Generation Portfolios, Inc., and Aetna Variable Portfolios, Inc. (all
management investment companies registered under the Investment Company
Act of 1940 (1940 Act)). It also acts as investment adviser to certain
private accounts.
<PAGE>
The following table summarizes the business connections of
the directors and principal officers of the Investment Adviser.
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------------- ------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
- ---- with Investment Adviser Since Oct. 31, 1997/Addresses*
----------------------- ------------------------------
- ------------------------------ ----------------------------------- ------------------------------------------------------
<S> <C> <C>
John Y. Kim Director, President, Chief Director (February 1995 - March 1998) -- Aetna Life
Executive Officer, Chief Insurance and Annuity Company; Director, President,
Investment Officer Chief Executive Officer, Chief Investment Officer
(since May 1996) -- Aeltus Trust Company; Senior
Vice President (since September 1994) -- Aetna Life
Insurance and Annuity Company.
J. Scott Fox Director, Managing Director, Managing Director, Chief Operating Officer and Chief
Chief Operating Officer, Chief Financial Officer (since September 1997) - Aeltus
Financial Officer Trust Company; Vice President (since April 1997) -
Aetna Retirement Services, Inc.; Director and Senior
Vice President (March 1997 - February 1998) -- Aetna
Life Insurance and Annuity Company.
Thomas J. McInerney Director President (since August 1997) -- Aetna Retirement
Services, Inc.; Director and President (since
September 1997) -- Aetna Life Insurance and Annuity
Company; Executive Vice President (since August
1997) -- Aetna Inc.
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.
Stephanie A. DeSisto Vice President Vice President (since April 2000) -- Aeltus Trust
Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------ ----------------------------------- ------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
- ---- with Investment Adviser Since Oct. 31, 1997/Addresses*
----------------------- ------------------------------
- ------------------------------ ----------------------------------- ------------------------------------------------------
<S> <C> <C>
Amy R. Doberman Vice President, General Counsel Counsel (since December 1996) -- Aetna Retirement
and Secretary Services, Inc.; Vice President, General Counsel and
Secretary (since May 1998) -- Aeltus Trust Company.
Brian K. Kawakami Vice President, Chief Compliance Chief Compliance Officer & Director (since January
Officer 1996) -- Aeltus Trust Company; Chief Compliance
Officer (since August 1993) -- Aeltus Capital, Inc.
Neil Kochen Managing Director, Equity Managing Director (since April 1996) -- Aeltus Trust
Investments Company; Managing Director (since August 1996) --
Aeltus Capital, Inc.
Frank Litwin Managing Director, Retail Managing Director (since September 1997) -- Aeltus Trust
Marketing and Sales Company.
L. Charles Meythaler Managing Director, Institutional Director (since July 1997) -- Aeltus Trust Company;
Marketing and Sales Managing Director (since June 1997) -- Aeltus Trust
Company.
James Sweeney Managing Director, Fixed Income Managing Director (since June 1999) -- Aeltus Trust
Investments Company.
</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 Elijah Asset Management, LLC (EAM), the subadviser for
Aetna Technology Fund, reference is made to the section entitled "Subadviser" in
the Class A, Class B and Class C Prospectus, the Class I Prospectus and the
Statement of Additional Information each dated March 1, 2000. For information as
to the business, profession, vacation or employment of a substantial nature of
each of the directors and principal officers of EAM, reference is made to EAM's
current Form ADV (File No. 801-56227) filed under the Investment Advisers Act of
1940, incorporated herein by reference.
Item 27. Principal Underwriters
- -------------------------------
(a) None
<PAGE>
(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
Amy R. Doberman Vice President, General Counsel and Secretary
Secretary
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 (and its subadviser,
EAM, in the case of Aetna Technology Fund), maintain physical possession
of each account, book or other document, at 10 State House Square,
Hartford, Connecticut 06103-3602 or 100 Pine Street, Suite 420, San
Francisco, California 94111.
Shareholder records are maintained by the transfer agent, PFPC Inc.,
4400 Computer Drive, Westboro, Massachusetts 01581.
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. 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 18th day of April, 2000.
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>
J. Scott Fox* President and Director )
- ------------------------------------------- (Principal Executive Officer)
J. Scott Fox )
)
Albert E. DePrince, Jr.* Director )
- -------------------------------------------
Albert E. DePrince, Jr. )
)
Maria T. Fighetti* Director ) April
- ------------------------------------------- 18, 2000
Maria T. Fighetti )
)
David L. Grove* Director )
- -------------------------------------------
David L. Grove )
)
John Y. Kim* Director )
- -------------------------------------------
John Y. Kim )
)
Sidney Koch* Director )
- -------------------------------------------
Sidney Koch )
)
Shaun P. Mathews* Director )
- -------------------------------------------
Shaun P. Mathews )
<PAGE>
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>
Aetna Series Fund, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C>
99-(a.11) Form of Articles Supplementary
-----------------
99-(d.5) Form of Investment Advisory Agreement between
Aeltus and the Registrant, on behalf of Aetna
Principal Protection Fund IV (PPF IV)
-----------------
99-(e.1) Underwriting Agreement between Aeltus Capital, Inc.
and the Registrant
-----------------
99-(g.10) Form of Amendment to Custodian Agreement - Mellon Bank,
N.A.
-----------------
99-(h.6) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of PPF IV
-----------------
99-(h.17) Form of Amendment No. 7 to the Transfer Agency and
Services Agreement
-----------------
99-(h.23) Form of Custodian Service Agreement among the
Registrant, on behalf of PPF III, MBIA, and
Mellon Bank, N.A.
-----------------
99-(h.24) Form of Custodian Monitoring Agreement among the
Registrant, on behalf of PPF III, MBIA, and Russell/Mellon
Analytical Services, LLC (Russell/Mellon)
-----------------
99-(h.25) Form of Custodian Serice Agreement among the
Registrant, on behalf of PPF IV, MBIA, and Mellon
Bank, N.A.
-----------------
99-(h.26) Form of Custodian Monitoring Agreement among the
Registrant, on behalf of PPF IV, MBIA, and Russell/Mellon
Analytical Services, LLC (Russell/Mellon)
-----------------
99-(i) Opinion and Consent of Counsel
-----------------
99-(j) Consent of Independent Auditors
-----------------
99-(m.1) Form of Distribution Plan (Class A)
-----------------
99-(m.3) Distribution Plan (Class B)
-----------------
99-(m.6) Shareholder Service Plan (Class B)
-----------------
99-(o) Form of Multiple Class Plan
-----------------
<PAGE>
99-(p.1) Aeltus Code of Ethics
-----------------
99-(p.2) Aetna Mutual Funds Code of Ethics
-----------------
99-(p.3) Elijah Asset Management, LLC Code of Ethics
-----------------
</TABLE>
Exhibit a.11
Form of Articles Supplementary
<PAGE>
FORM OF
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 April 12, 2000
meeting, adopted a resolution increasing the total number of shares of stock
which the Corporation shall have authority to issue to fourteen billion, eight
hundred million (14,800,000,000) shares of capital stock with a par value of
$0.001 per share and with an aggregate par value of fourteen million, eight
hundred thousand dollars ($14,800,000.00);
SECOND: The Board of Directors, at its meeting held on April 12, 2000, by
resolutions, did designate and classify two hundred million (200,000,000) shares
of capital stock of the Corporation into the following new series ("Series"):
<TABLE>
<CAPTION>
Name of Series Name of Class of Series Number of Shares Allocated
-------------- ----------------------- --------------------------
<S> <C> <C>
Aetna Principal Protection Fund IV Class A 100,000,000
Class B 100,000,000
</TABLE>
THIRD: The shares of Aetna Principal Protection Fund IV ("Series") and of
each Class of such Series, including, but not limited to the shares of such
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 the Series
(including fractional shares) may be reduced by the amount of any contingent
deferred sales charge payable on such redemption pursuant to the terms of the
issuance of such shares.
FOURTH: The shares of the Series and of each Class of such Series shall
be subject to all provisions of the Articles of Amendment and Restatement of the
Corporation. In addition to the preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, conversion rights and
terms and conditions of redemption described therein, all shares of the Series
will be subject to mandatory redemption by the Corporation on the Maturity Date
of the Series which shall be September 6, 2005. On the Maturity Date, the Series
shall have the obligation, subject to the conditions and limitations set forth
in this Article FOURTH, to pay to each shareholder of the Series, in redemption
of such shareholder's shares of the Series, the greater of (i) the net asset
value per share of such shareholder's shares of the Series as of the Maturity
Date or (ii) the Guarantee Per Share, the calculation of which is described in
the Corporation's Registration Statement (as referred to below), multiplied by
the number of shares of the Series held by such shareholder on the Maturity
Date. Shares redeemed prior to the Maturity Date will receive the per share net
asset value as of the date of redemption but shall not be entitled to the
Guarantee Per Share. The obligation of the Series described in the second
preceding sentence shall be payable solely from the assets of the Series, which
include an insurance policy purchased and to be maintained by the Corporation on
behalf of the Series and issued by MBIA
<PAGE>
Insurance Corporation ("MBIA"). The aforesaid insurance policy provides, among
other things, that if on the Maturity Date the Series has insufficient assets
(excluding the insurance policy and the proceeds therefrom) available to pay
shareholders amounts upon redemption of their shares in accordance with the
aforesaid obligation, MBIA will make payments to the Series under the insurance
policy in an amount sufficient to permit the Series to fulfill the aforesaid
obligation. Nothing herein shall entitle any shareholder of the Series or MBIA
to any assets of the Corporation other than those of the Series, or impose any
liability on the Corporation or its directors by reason of any breach or default
by MBIA under the aforesaid insurance policy. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Registration Statement on Form N-1A (File No. 33-41694) as filed with the United
States Securities and Exchange Commission with respect to the Series.
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 fourteen billion, six
hundred million (14,600,000,000) shares of capital stock with a par value of
$0.001 per share and with an aggregate par value of fourteen million, six
hundred thousand dollars ($14,600,000), of which the Board of Directors had
designated and classified thirteen billion, six hundred millon (13,600,000,000)
shares as follows:
<TABLE>
<CAPTION>
Name of Series Name of Class of Series Number of Shares Allocated
-------------- ----------------------- --------------------------
<S> <C> <C>
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 INCOME FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
<PAGE>
AETNA INTERNATIONAL FUND Class I 200,000,000
Class A 200,000,000
Class B 200,000,000
Class C 200,000,000
AETNA GOVERNMENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA SMALL COMPANY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA GROWTH FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA ASCENT FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA CROSSROADS FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
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 LARGE 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 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 MID CAP FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
<PAGE>
AETNA 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 SMALL CAP FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA HIGH YIELD FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA REAL ESTATE SECURITIES FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA VALUE OPPORTUNITY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA TECHNOLOGY FUND Class I 100,000,000
Class A 100,000,000
Class B 100,000,000
Class C 100,000,000
AETNA PRINCIPAL PROTECTION FUND I Class A 100,000,000
Class B 100,000,000
AETNA PRINCIPAL PROTECTION FUND II Class A 100,000,000
Class B 100,000,000
AETNA PRINCIPAL PROTECTION FUND III Class A 100,000,000
Class B 100,000,000
BROKERAGE CASH RESERVES 1,000,000,000
</TABLE>
SEVENTH: Immediately following the effectiveness of these Articles
Supplementary, the Corporation will have authority to issue fourteen billion,
eight hundred million (14,800,000,000) shares of capital stock with a par value
of $0.001 per share and with an aggregate par value of fourteen million, eight
hundred thousand dollars ($14,800,000) of which the Board of Directors has
designated and classified thirteen billion, eight hundred million
(13,800,000,000) shares as set forth in paragraphs SECOND and SIXTH of these
Articles Supplementary and of which one billion (1,000,000,000) shares remain
unclassified.
<PAGE>
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.
- ------------------------------------ ------------------------------------
Amy R. Doberman J. Scott Fox
Secretary President
Date:
-----------------------
CORPORATE SEAL
Exhibit d.5
Form of
Investment Advisory Agreement
<PAGE>
FORM OF
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 IV (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 is authorized to pay a broker or
dealer who provides such brokerage or research services a commission
for executing a portfolio transaction for the Series that is in excess
of the amount of commission another broker or dealer would have charged
for effecting that transaction if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the value
of the brokerage or research services provided by such broker or dealer
and is paid in compliance with Section 28(e). This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities that the Adviser and its affiliates have with respect
to accounts over which they exercise investment discretion. The Adviser
may consider the sale of
-3-
<PAGE>
shares of the Series and of other investment companies advised by the
Adviser as a factor in the selection of brokers or dealers to effect
transactions for the Series, subject to the Adviser's duty to seek best
execution. The Adviser may also select brokers or dealers to effect
transactions for the Series that provide payment for expenses of the
Series. 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.
-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 July 1, 2000 and shall remain in force
and effect through December 31, 2001 unless earlier terminated under the
provisions of Article XIV.
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.
-7-
<PAGE>
XIV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board or by vote of a majority of the Series'
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act),
or by the Adviser, on sixty (60) days' written notice to the other party. The
notice provided for herein may be waived by the party required to be notified.
This Agreement shall automatically terminate in the event of its "assignment."
XV. LIABILITY
The Adviser shall be liable to the Fund and shall indemnify the Fund for any
losses incurred by the Fund, whether in the purchase, holding or sale of any
security or otherwise, to the extent that such losses resulted from an act or
omission on the part of the Adviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Adviser of its duties under this Agreement, in
connection with the services rendered by the Adviser hereunder.
XVI. NOTICES
Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:
if to the Fund, on behalf of the Series:
10 State House Square
Hartford, Connecticut 06103
Fax number 860/275-2158
if to the Adviser:
10 State House Square
Hartford, Connecticut 06103
Fax number 860/275-4440
XVII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules or orders of the
Securities and Exchange Commission
-8-
<PAGE>
issued pursuant to the 1940 Act, or contained in no-action and interpretive
positions taken by the Commission staff. In addition, where the effect of a
requirement of the 1940 Act reflected in the provisions of this Agreement is
revised by rule or order of the Commission, such provisions shall be deemed to
incorporate the effect of such rule or order.
XVIII. SERVICE MARK
The service mark of the Fund and the Series and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Services, Inc. (formerly known
as Aetna Life and Casualty Company) and their continued use is subject to the
right of Aetna Services, Inc. to withdraw this permission in the event the
Adviser or another affiliated corporation of Aetna Services, Inc. should not be
the investment adviser of the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the ___ day of _________ , 2000.
Aeltus Investment Management, Inc.
By:______________________________
Attest:_______________________ Name:____________________________
Name:_________________________ Title:___________________________
Title:________________________
Aetna Series Fund, Inc.
on behalf of its series,
Aetna Principal Protection Fund IV
By:______________________________
Attest:_______________________ Name:____________________________
Name:_________________________ Title:___________________________
Title:________________________
-9-
Exhibit e.1
AETNA SERIES FUND, INC.
UNDERWRITING AGREEMENT
<PAGE>
AETNA SERIES FUND, INC.
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 1st day of April, 1999, by and between AELTUS
CAPITAL, INC. ("ACI" or "Underwriter"), a Connecticut corporation, and AETNA
SERIES FUND, INC. ("Fund"), a Maryland corporation.
WHEREAS, the Fund is an open-end management investment company
registered with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Fund has registered its shares for offer and sale to the
public under the Securities Act of 1933, as amended ("1933 Act"), and in
accordance with the provisions of all applicable state securities laws (Blue Sky
Laws); and
WHEREAS, the Fund is offering and selling to the public distinct series
of shares of common stock, each corresponding to a distinct series ("Series");
and
WHEREAS, the Fund wishes to retain ACI as exclusive principal
underwriter in connection with the offering and sale of the shares of each
Series as now exists and as hereafter may be established ("Shares") including
any new classes of shares that may be offered and sold and to furnish certain
other services to the Fund as specified in this Agreement; and
WHEREAS, ACI is willing to act as exclusive principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF UNDERWRITER. The Fund hereby appoints ACI and ACI
hereby accepts appointment as exclusive principal underwriter in connection with
the offering and sale of the Shares of each Series as are now registered for
sale with the SEC and under Blue Sky Laws and such other Series and classes of
shares of Series as may hereafter be so registered. The Fund authorizes the
Underwriter, as exclusive agent for the Fund, upon the commencement of
operations of any Series and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Fund: (a) to promote the Series;
(b) to solicit orders for the purchase of the Shares of the Series subject to
such terms and conditions as the Fund may specify; and (c) to hold itself
available to receive orders for the purchase of the Shares of the Series and to
accept such orders on behalf of the Fund as of the time of receipt of such
orders and promptly transmit such orders as are accepted to the Fund and its
transfer agent. Purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement as it may be amended from time to
time. The Underwriter shall offer the Shares of each Series on an agency or
"best efforts" basis under which the Fund shall only issue such Shares as are
actually sold. In connection with such sales and offers of sale, the Underwriter
shall give only such information as is permitted by applicable law, and the Fund
shall not be responsible in any way for any other information, statements or
representations given or made by the Underwriter or its representatives
<PAGE>
or agents. The Fund also shall permit the Underwriter to use any list of
shareholders of the Fund or any Series or any other list of investors which it
obtains in connection with its provision of services under this Agreement. The
Fund reserves the right at any time to withdraw all offerings of the Shares of
any or all Series by written notice to the Underwriter at its principal office.
2. FUND OBLIGATIONS. The Fund shall keep the Underwriter fully informed
of its affairs and shall make available to Underwriter copies of all
information, financial statements, and other papers which Underwriter may
reasonably request for use in connection with the distribution of shares,
including, without limitation, certified copies of any financial statements
prepared for the Fund by its independent public accountant and such reasonable
number of copies of the most current prospectus, statement of additional
information, and annual and interim reports of a Series as the Underwriter may
request, and the Fund shall cooperate fully in the efforts of the Underwriter to
sell and arrange for the sale of the Shares and in the Underwriter's performance
under this Agreement.
3. SALES TO DEALERS. The Underwriter, at its discretion, may enter into
agreements to sell shares to such registered and qualified retail dealers, as it
may select.
4. PUBLIC OFFERING PRICE. The public offering price of the Shares of
each Series shall be the net asset value per share (as determined by the Fund)
of the outstanding Shares of the Series, plus any applicable sales charge as
described in the Registration Statement of the Fund. The Fund shall furnish (or
arrange for another person to furnish) the Underwriter with a quotation of
public offering price on each business day.
5. COMPENSATION. As compensation for providing services under this
contract, the Underwriter shall retain the front-end or contingent deferred
sales charge, if any, on purchases and redemptions of Shares as set forth in the
Registration Statement. The Underwriter is authorized to collect the gross
proceeds derived from the sale of the Shares, remit the net asset value thereof
to the Fund upon receipt of the proceeds and retain the sales charge, if any.
The Underwriter may reallow any or all of such sales charges to such dealers as
it may from time to time determine. If applicable, the Underwriter also shall
receive from each Series or class thereof a distribution and/or service fee at
the rate and under the terms and conditions of the Distribution Plan and
Shareholder Services Plan ("Plans") adopted by the Fund with respect to such
Series or class thereof, as such Plans are in effect from time to time, and
subject to any further limitations on such fee as the Board of Directors
("Board") may impose. The Underwriter may transfer the right to payments
hereunder (but not its obligations) in order to raise funds to cover
distribution expenses, and any such transfer will be effective upon written
notice from the Underwriter to the Fund. In connection with the foregoing, the
Fund may pay all or part of the distribution fee or contingent deferred sales
charges directly to the transferee as directed by the Underwriter. In the event
this Agreement is terminated in accordance with paragraph 17 below, the
Underwriter still will be entitled to receive the distribution fees, service
fees and contingent deferred sales charges payable on any shares sold by the
Underwriter through the date of termination, provided that the Distribution
Plans, Shareholder Services Plans and Multiple Class Plan, respectively, adopted
by the Fund continue to be in effect.
-2-
<PAGE>
6. UNDERWRITER'S EXPENSES. The Underwriter, at no additional expense to
the Fund, shall print and distribute to prospective investors Prospectuses, and
shall print and distribute, upon request, to prospective investors Statements of
Additional Information, and may print and distribute such other sales
literature, reports, forms and advertisements in connection with the sale of the
Shares as comply with the applicable provisions of federal and state law.
7. FUND EXPENSES. The Fund agrees at its own expense to register the
Shares with the SEC, state and other regulatory bodies, and to prepare and file
from time to time such Prospectuses, Statements of Additional Information,
amendments, reports and other documents as may be necessary to maintain the
Registration Statement. Each Series shall bear all expenses related to preparing
and typesetting such Prospectuses, Statements of Additional Information, and
other materials and such other expenses, including printing and mailing
expenses, related to such Series' communications with existing shareholders of
that Series.
8. INDEMNIFICATION BY FUND. The Fund agrees to indemnify, defend and
hold the Underwriter, its officers and directors, and any person who controls
the Underwriter within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Underwriter, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Underwriter
against any liability to the Fund or to the shareholders of a Series to which
the Underwriter would otherwise be subject by reason of willful misfeasance, bad
faith, or negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement, or
arising out of any information supplied by the Underwriter for inclusion in such
Registration Statement.
9. INDEMNIFICATION BY UNDERWRITER. The Underwriter agrees to indemnify,
defend and hold the Fund, its officers and directors, and any person who
controls the Fund within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Fund, its officers or directors, or any such controlling person may incur, under
the 1933 Act or under common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Underwriter to the Fund for use in the Registration Statement
or arising out of or based upon any alleged omission to state a material fact in
connection with such information required to be stated in the Registration
Statement or necessary to make such information not misleading.
10. SHARE CERTIFICATES. The Fund shall not issue certificates
representing Shares.
11. REPURCHASE OF SHARES. Repurchase of Shares by the Underwriter shall
be at the net asset value next determined after a repurchase order has been
received, less any applicable sales charge. The Underwriter will receive no
commission or other remuneration for repurchasing
-3-
<PAGE>
Shares other than applicable sales loads. At the end of each business day, the
Underwriter shall notify by telex or in writing, the Fund and its transfer
agent, of the orders for repurchase of Shares received by the Underwriter since
the last such report, the amount to be paid for such Shares, and the identity of
the shareholders offering Shares for repurchase. Upon such notice, the Fund
shall pay the Underwriter such amounts as are required by the Underwriter for
the repurchase of such Shares in cash or in the form of a credit against monies
due the Fund from the Underwriter as proceeds from the sale of Shares. The Fund
reserves the right to suspend such repurchase right upon written notice to the
Underwriter. The Underwriter further agrees to act as agent for the Fund to
receive and transmit promptly to the Fund's transfer agent shareholder requests
for redemption of Shares.
12. STATUS OF UNDERWRITER AND OTHER PERSONS. The Underwriter is an
independent contractor and shall be agent for the Fund only in respect to the
sale and redemption of the Shares. Any person, even though also an officer,
director, employee or agent of the Underwriter, who may be or become an officer,
director, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting in any business of the Fund, to be rendering such
services to or acting solely for the Fund and not as an officer, director,
employee or agent or one under the control or direction of the Underwriter even
though paid by the Underwriter.
13. NON-EXCLUSIVE SERVICES. The services of the Underwriter to the Fund
under this Agreement are not to be deemed exclusive, and the Underwriter shall
be free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
14. REPORTS OF UNDERWRITER. The Underwriter shall prepare reports for
the Board on a quarterly basis showing such information concerning expenditures
related to this Agreement as from time to time shall be reasonably requested by
the Board.
15. DEFINITIONS. The terms "assignment," "interested person," and
"majority of the outstanding voting securities" shall have the meanings given to
them by Section 2(a) of the 1940 Act, subject to such exemptions as may be
granted by the SEC by any rule or order. Additionally, the term "Registration
Statement" shall mean the registration statement most recently filed by the Fund
with the SEC and effective under the 1940 Act and 1933 Act, as such Registration
Statement is amended by any amendments thereto at the time in effect, and the
terms "Prospectus" and "Statement of Additional Information" shall mean,
respectively, the form of prospectus and statement of additional information
with respect to a Series filed by the Fund as part of the Registration
Statement.
16. EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective
on April 1, 1999, provided that, with respect to a Series, this Agreement shall
not take effect unless such action has first been approved by vote of a majority
of the Board and by vote of a majority of those directors of the Fund who are
not interested persons of the Fund and have no direct or indirect financial
interest in the operation of the Plan (if there be a Plan) or in any agreements
related thereto (all such directors collectively being referred to herein as the
"Independent Directors"), cast in person at a meeting called for the purpose of
voting on such action.
17. TERMINATION OF AGREEMENT. This Agreement shall become effective on
{April 1, 1999] and shall remain in force and effect, through {December 31,
1999}, unless earlier terminated.
-4-
<PAGE>
Thereafter, if not terminated, this Agreement shall continue automatically for
successive periods of twelve months each, provided that such continuance is
specifically approved at least annually (a) by a vote of a majority of the
Independent Directors, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board or with respect to any given
Series by vote of a majority of the outstanding voting securities of such
Series. Notwithstanding the foregoing, with respect to any Series, this
Agreement may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Directors or by vote
of a majority of the outstanding voting securities of such Series on 60 days'
written notice to the Underwriter or by the Underwriter at any time, without the
payment of any penalty, on 60 days' written notice to the Fund or such Series.
Termination of this Agreement with respect to any given Series or class thereof
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series or class thereof. This
Agreement will automatically terminate in the event of its assignment.
18. AMENDMENTS. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
19. APPLICABLE LAW. This Agreement shall be construed in accordance
with the laws of the State of Connecticut and the 1940 Act. To the extent that
the applicable laws of the State of Connecticut conflict with the applicable
provisions of the 1940 Act, however, the latter shall control.
20. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient upon receipt in writing at the
other party's principal offices.
21. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
Attest: AELTUS CAPITAL, INC.
By: /s/ Katherine Cheng By: /s/ John Y. Kim
-------------------------------- -----------------------------------
Assistant Secretary Name: John Y. Kim
---------------------------------
Title: President
--------------------------------
Attest: AETNA SERIES FUND, INC.
By: /s/ Michael Gioffre By: /s/ J. Scott Fox
-------------------------------- --------------------------------
Assistant Secretary Name: J. Scott Fox
------------------------------
Title: President
-----------------------------
-5-
<PAGE>
APPENDIX A
Aetna Money Market Fund
Aetna Bond Fund
Aetna Balanced Fund
Aetna Growth and Income Fund
Aetna International Fund
Aetna Government Fund
Aetna High Yield Fund
Aetna Growth Fund
Aetna Small Company Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Mid Cap Fund
Aetna Value Opportunity Fund
Aetna Real Estate Securities Fund
Aetna Index Plus Bond Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Principal Protection Fund I
Aetna Principal Protection Fund II
Aetna Principal Protection Fund III
Aetna Principal Protection Fund IV
Brokerage Cash Reserves
Aetna Technology Fund
-6-
Exhibit g.10
Form of
Amendment to Custodian Agreement
<PAGE>
FORM OF
AMENDMENT TO CUSTODIAN AGREEMENT
BETWEEN
AETNA SERIES FUND, INC.
AND
MELLON BANK, N.A.
WITNESSETH:
WHEREAS, Aetna Series Fund, Inc. (the "Company") and Mellon Bank, N.A.
("Mellon") entered into a Custodian Agreement (the "Agreement") on September 1,
1992 with respect to the assets of certain series of the Company and some or all
additional series that the Company may establish from time to time; and
WHEREAS, the Company has authorized the creation of a new series, Aetna
Principal Protection Fund IV (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;
<PAGE>
(c) no series shall have the right of set off against the assets held
by any other series;
(d) the business and contractual relationships created by the
Agreement as amended hereby, and the consequences of such
relationships relate solely to the particular series to which such
relationship was created; and
(e) all property held by Mellon on behalf of a particular series shall
relate solely to the particular series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their officers designated below on the date mentioned below.
Aetna Series Fund, Inc. on behalf of
Aetna Principal Protection Fund IV
Mellon Bank, N.A.
By: By:
---------------------------------- --------------------------------
Name: Name:
-------------------------------- ------------------------------
Title: Title:
-------------------------------- -----------------------------
Date: Date:
-------------------------------- ------------------------------
2
Exhibit h.6
Form of
Amendment to The Administrative Services Agreement
<PAGE>
FORM OF
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 IV ("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 IV
Aeltus Investment Management, Inc.
By: By:
---------------------------------- ----------------------------------
Name: Name:
-------------------------------- --------------------------------
Title: Title:
------------------------------- -------------------------------
Date: Date:
-------------------------------- --------------------------------
<PAGE>
Attest: Attest:
By: By:
---------------------------------- ----------------------------------
Name: Name:
-------------------------------- --------------------------------
Title: Title:
------------------------------- -------------------------------
Date: Date:
-------------------------------- --------------------------------
Exhibit h.17
Form of
Amendment No. 7
To The Transfer Agency and Services Agreement
<PAGE>
FORM OF
AMENDMENT No. 7
TO THE TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AMENDMENT, dated as of __________ , 2000, is made to the Transfer
Agency and Services Agreement dated July 3, 1998 (the "Transfer Agent
Agreement") between AETNA SERIES FUND, INC. (the "Fund") and PFPC INC. (formerly
First Data Investor Services Group, Inc.).
WITNESSETH
WHEREAS, the Fund has established a new series, Aetna Principal
Protection Fund IV ("Series"); and
WHEREAS, the Fund and PFPC Inc. desire to amend the Transfer Agent
Agreement to include the Series;
NOW THEREFORE, it is agreed that Exhibit 1 to the Transfer Agent
Agreement shall be amended to include the Series.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers, as of the day and year first above
written.
AETNA SERIES FUND, INC.
By:
-------------------------------------
Title:
----------------------------------
PFPC INC.
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
Exhibit 1
LIST OF PORTFOLIOS
Revised as of __________ , 2000
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 Principal Protection Fund II
Aetna Principal Protection Fund III
Aetna Principal Protection Fund IV
Aetna Technology Fund
Exhibit h.23
Form of
Custodian Service Agreement
<PAGE>
FORM OF
CUSTODIAN SERVICE AGREEMENT
THIS AGREEMENT made as of the ___ day of _______________, 2000 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 III ("Series"), with an obligation by the Fund,
on behalf of the Series, to repay the amount initially invested by each
shareholder in the Series on a date certain ("Repayment Obligation"); and
WHEREAS, the Fund, on behalf of the Series, has entered into a
Financial Guaranty Agreement with MBIA (the "Financial Guaranty Agreement")
whereby MBIA will issue a policy to support the Repayment Obligation ("Policy");
and
WHEREAS, in connection therewith, the Fund intends to open custody
accounts with Mellon under the terms of the Custodian Agreement (the "Custodian
Agreement") between the Fund and Mellon dated as of September 1, 1992, as
amended, on behalf of the Series, to hold the Series' portfolio investments; and
WHEREAS, under the terms of the Financial Guaranty Agreement, in
consideration of MBIA's issuing the Policy, the Fund, on behalf of the Series,
has agreed to a particular investment strategy and to provide an arrangement
whereby trades executed for the Series will be monitored for conformity with
certain guidelines; and
WHEREAS, the Fund and MBIA wish for Russell/Mellon Analytical Services,
LLC ("Russell/Mellon") to provide investment monitoring services in respect of
the
<PAGE>
Series, and Russell/Mellon is willing to perform such services upon the terms
and conditions of an Agreement of even date herewith.
WHEREAS, the Fund and MBIA wish for Mellon to provide trade execution
services in respect of the Series, and Mellon is willing to perform such
services upon the terms and conditions.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the parties hereto agree to the following:
1. Construction.
Unless the context of this Agreement otherwise clearly
requires, references to the plural include the singular, the singular the plural
and the part the whole and "or" has the inclusive meaning sometimes represented
by the phrase "and/or." The words "hereof," "herein," "hereunder" and similar
terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. The section and other headings contained
in this Agreement are for reference purposes only and shall not control or
affect the construction of this Agreement or the interpretation thereof in any
respect. Section, subsection, schedule, exhibit and attachment references are to
this Agreement unless otherwise specified.
2. Custody Services.
The Fund, on behalf of the Series, will open with Mellon one
or more custody account(s) designated "Series" (such designated custody
account(s) hereinafter referred to as "Series Account"). The Series Account will
contain the appropriate designation in its title and will be operated subject to
the terms of the Custodian Agreement between Mellon and the Fund.
2
<PAGE>
3. Notification of Event of Default/Trade Execution/Cure
Notice/Obligation to Reject Trades.
If MBIA notifies Mellon, by giving a written notice to Mellon,
with a copy to the Fund, substantially in the format of Exhibit 1 hereto, that
an Event of Default under the Financial Guaranty Agreement has occurred and
remains uncured ("Event of Default Notice"), Mellon will promptly confirm
receipt of such notice, via phone contact and facsimile to the Fund.
After or concurrently with Mellon's receipt of an Event of
Default Notice and until the end of the related DK Period (as defined below),
MBIA shall be entitled to deliver to Mellon (with a copy to the Fund) trade
instructions in the format of Attachment 1 to Exhibit 1 (for manual trade
instructions) or in the format of Attachment 2 to Exhibit 1 (for electronic
instructions) with respect to the Series Account. MBIA shall deliver to Mellon,
with a copy to the Fund, a written notice of the cure of such default,
substantially in the format of Exhibit 2 hereto, promptly upon the occurrence of
such cure (the "Cure Notice").
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
3
<PAGE>
any trade instructions issued directly by the Fund (or its investment adviser)
for the Series Account. With respect to the Series Account, Mellon shall, upon
the termination of a DK Period, revert to its normal method of accepting trade
instructions from the Fund (or its investment adviser) as governed by the
Custodian Agreement. Nothing herein shall be construed as authorizing Mellon to
reject for settlement securities transactions for which trade instructions were
issued prior to 12:01 a.m. eastern time on the Business Day immediately
following the day on which Mellon receives an Event of Default Notice.
From the time Mellon receives an Event of Default Notice
through the end of the related DK period, Mellon is irrevocably authorized and
instructed (i) to act upon any and all trade instructions delivered by MBIA and
(ii) to execute the transactions set forth in such instructions through a broker
or dealer selected by Mellon for the Series Account. Mellon will promptly notify
the Fund, with a copy to MBIA, of trades executed as a result of instructions
received by MBIA. Such notification will be made via transmission of a trade
execution file to the extent possible (substantially in the format of Exhibit
5), by close of business on the date such trades are executed.
4. Delivery of Documents.
The Fund and MBIA will promptly furnish to Mellon such copies,
properly certified or authenticated, of documents and other related information
that Mellon may reasonably request or require to properly discharge its duties
herein.
5. Fees and Expenses.
(a) As compensation for the services rendered to the Fund and
MBIA pursuant to this Agreement, the Fund, on behalf of the Series, shall pay
Mellon monthly fees determined as set forth in Schedule A hereto. Such fees are
to be billed monthly and
4
<PAGE>
shall be due and payable upon receipt of the invoice. The Fund and Mellon may
agree, from time to time, to a change to the fees set forth in Schedule A. Upon
any termination of the provision of services under this Agreement before the end
of any month, the fee for the part of the month before such termination shall be
prorated according to the proportion which such part bears to the full monthly
period and shall be payable upon the date of such termination.
(b) The Fund may request additional services, additional
processing, or special reports, with such specifications and requirements
documentation as may be reasonably required by the Fund or by Mellon. If Mellon
elects to provide such services or arrange for their provision, it shall be
entitled to additional fees and expenses at its customary rates and charges.
(c) All fees, out-of-pocket expenses, or additional charges of
Mellon shall be billed on a monthly basis and shall be due and payable by the
Fund, on behalf of the Series, upon receipt of the invoice.
(d) Mellon will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month. Charges remaining unpaid thirty (30) days after receipt of such statement
(with the exception of specific amounts which may be contested in good faith by
the Fund) shall bear interest in finance charges equivalent to Mellon's Prime
Rate as announced from time to time plus two (2) percent per annum and all costs
and expenses of effecting collection of any such sums, including reasonable
Attorney' fees, shall be paid by the Fund, on behalf of the Series, to Mellon.
(e) In the event that the Fund, on behalf of the Series, is
more than
5
<PAGE>
sixty (60) days delinquent in its payments of monthly billings in connection
with this Agreement (with the exception of specific amounts which may be
contested in good faith by the Fund), this Agreement may be terminated upon
sixty (60) days' written notice to the Fund and MBIA by Mellon. The Fund must
notify Mellon in writing of any contested amounts, with a copy to MBIA, within
thirty (30) days of receipt of a billing for such amounts. Disputed amounts are
not due and payable while they are being investigated. MBIA reserves the right
to pay the delinquent amounts thereby eliminating Mellon's right to terminate
the Agreement under this subsection.
6. Limitation of Liability and Indemnification
(a) In undertaking the performance of its obligations
hereunder, Mellon shall not be liable for any loss, damage or expense suffered
by the Fund, the Series or MBIA in connection with the matters to which this
Agreement relates or the services provided hereunder except for general damages
solely caused by or resulting from willful misfeasance, bad faith or negligence
on the part of Mellon, its officers, employees or agents, in the performance of
its or their duties under this Agreement. "General damages" means only those
damages as directly and necessarily result from such act or omission without
reference to any special conditions or circumstances of the Fund, the Series or
MBIA. In no event shall Mellon be liable for any indirect, special or
consequential losses or damages of any kind whatsoever (including but not
limited to lost profits), even if Mellon has been advised of the likelihood of
such losses or damages and regardless of the form of action through which any
such losses or damages may be claimed.
6
<PAGE>
(b) Mellon shall not be responsible for, and the Fund shall
indemnify and hold Mellon, its officers, employees and agents (collectively
"Mellon and its agents") harmless from and against any and all losses, damages,
costs, reasonable attorneys' fees and expenses, incurred by Mellon or its
agents, in the performance of its/their duties hereunder, including but not
limited to those arising out of or attributable to:
(i) any and all actions of Mellon and its agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Mellon and/or its
agents of information, records, or documents which are
received by Mellon and/or its agents and furnished to it or
them by or on behalf of the Fund, the Series or MBIA in
accordance with this Agreement, and which have been prepared
or maintained by the Fund, the Series or MBIA or any third
party on behalf of either the Fund, the Series or MBIA;
(iii) The Fund's or MBIA's refusal or failure to
comply with the terms of this Agreement or any agreement
between the Series, the Fund and MBIA relating to the matters
herein, or the Fund's, the Series', or MBIA's lack of good
faith, or its actions, or lack thereof, involving negligence
or willful misfeasance;
(iv) any delays, inaccuracies, errors in or omissions
from information or data provided to Mellon or its agents by
MBIA or the Series or the Fund or provided to Mellon or its
agents by data or corporate action services or vendors;
(v) the offer or sale of shares by the Fund, the
Series or MBIA
7
<PAGE>
in violation of any requirement under the Federal securities
laws or regulations or the securities laws or regulations of
any state, or in violation of any stop order or other
determinations or ruling by any Federal agency or any state
agency with respect to the offer or sale of such shares in
such state (1) resulting from activities, actions, or
omissions by the Fund, the Series or MBIA, or (2) existing or
arising out of activities, actions or omissions by or on
behalf of the Fund, the Series or MBIA prior to the effective
date of this Agreement;
(vi) all actions, omissions, or errors caused by
third parties to whom Mellon, its agents, the Fund on behalf
of the Series, or MBIA has assigned any rights and/or
delegated any duties under this Agreement at the request of or
as required by the Fund or MBIA; and
(vii) Mellon and its agents acting upon electronic or
written trade instructions given by MBIA pursuant to Section
3; provided that, in no event shall Mellon or its agents be
indemnified for its or their negligence, bad faith or willful
misfeasance in carrying out its or their duties hereunder.
(c) MBIA shall indemnify and hold Mellon, and its agents
harmless from and against any and all losses, damages, costs, reasonable
attorneys' fees and expenses, incurred by Mellon and its agents insofar as such
losses, damages or costs arise out of, or are based upon, wrongful exercise by
MBIA of its rights under the Financial Guaranty Agreement to give instructions
to Mellon pursuant to Section 3 hereof;
8
<PAGE>
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 Series, the Fund or MBIA (an "Authorized Person") named,
and in the capacity identified, in lists (naming those persons who may authorize
the transactions in Sections 2 and 3) which are attached hereto as Exhibit 3
(for the Fund) and Exhibit 4 (for MBIA). Any changes to such lists will be
furnished to Mellon from time to time in writing and given in the manner set
forth in Section 13 hereof and will be signed by an officer of either the Fund
or MBIA, as appropriate, who shall provide Mellon with evidence of his or her
authority to make such changes. Each of the Fund, in Exhibit 3, and MBIA, in
Exhibit 4, will provide Mellon with authenticated specimen signatures of each
Authorized Person, and each of the Fund, on behalf of the Series, and MBIA shall
indemnify Mellon and its agents for any loss or expense caused by reliance upon
such authenticated specimen signatures which Mellon and its agents acting in
good faith believe to be genuine, valid and authorized, and shall be indemnified
by each of the Fund and MBIA as appropriate for any loss or expense caused by
such reliance. In addition, in performing its services hereunder, Mellon and its
agents also shall be entitled to consult with and rely on the advice and
opinions of legal counsel retained by Mellon or the Fund or MBIA, as necessary
or appropriate, including Mellon's in-house counsel, and Mellon shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel.
9
<PAGE>
(e) In the event that Mellon or its agents shall receive
instructions, claims or demand from the Fund, the Series, or MBIA which, in
Mellon's opinion, conflict with any of the provisions of this Agreement, Mellon
shall notify the Fund, the Series, or MBIA, as the case may be, of such conflict
and shall be entitled to refrain from taking any action and its sole obligation
shall be to keep safely all assets in the Series Account until it shall receive
instructions, claims or demands from such party which, in Mellon's opinion,
conform to the provisions of this Agreement.
(f) The duties and responsibilities of Mellon hereunder shall
be determined solely by the express provisions of this Agreement, except that
the settlement and safekeeping of assets in the Series Account shall be governed
by the terms of the Custodian Agreement between Mellon and the Fund. Should
there by any conflict between the terms of the Custodian Agreement and the terms
of this Agreement regarding the services set forth in Section 3 of this
Agreement, the terms of this Agreement shall govern.
(g) Mellon shall have no responsibility to make
recommendations with respect to the purchase, retention or sale of assets
relating to the Series Account or to maintain any insurance on assets in the
Series Account for the benefit of MBIA or the Series.
(h) Mellon shall have no responsibility for any act or
omission, or for the solvency or insolvency, or notice to Mellon or any of its
affiliates or agents of the solvency or insolvency, of any broker (other than a
Mellon affiliate selected by Mellon pursuant to Section 3 hereof to execute the
trade instructions provided by MBIA).
10
<PAGE>
(i) Any liability of the Fund under this Agreement with
respect to the Series, or in connection with the transactions contemplated
herein with respect to the Series, shall be discharged only out of the assets of
the Series, and no other series of the Fund shall be liable with respect
thereto.
7. Term.
This Agreement shall become effective immediately and shall
terminate on the earlier of the termination date under the Custodian Agreement
or _________ , unless earlier terminated by any party hereto on 90 days' written
notice to the other parties. Upon termination of this Agreement, the Fund, on
behalf of the Series, shall pay to Mellon such compensation and any
out-of-pocket or other reimbursable expenses which may become due or payable
under the terms hereof as of the date of termination or after the date that the
provision of services ceases, whichever is later.
8. Representations.
(a) The Fund, on behalf of the Series, represents and warrants
that the Fund has directed the Series' investment adviser to comply with the
Guidelines and purchase for such accounts only assets conforming to the
Guidelines.
(b) Each of the parties hereto represents and warrants that:
(i) it has the legal right, power and authority to execute, deliver and perform
this Agreement and to carry out all of the transactions contemplated hereby;
(ii) it has obtained all necessary authorizations, (iii) the execution, delivery
and performance of this Agreement and the carrying out of any of the
transactions contemplated hereby will not be in conflict with, result in a
breach of or constitute a default under any agreement or other instrument to
11
<PAGE>
which it is a party or which is otherwise known to it; (iv) it does not require
the consent or approval of any governmental agency or instrumentality, except
any such consents and approvals which it has obtained; and (v) the execution and
delivery of this Agreement by it will not violate any law, regulation, charter,
by-law, order of any court or governmental agency or judgment applicable to it.
9. Notices.
Any notice required or permitted hereunder shall be in writing
and shall be deemed effective on the date of personal delivery (by private
messenger, courier service or otherwise) or upon confirmed receipt of telex or
facsimile or other electronic system acceptable to Mellon, whichever occurs
first, or upon receipt if by mail to the parties at the following address (or
such other address as a party may specify by notice to the others):
- --------------------------------------------------------------------------------
IF TO THE FUND OR THE SERIES:
- --------------------------------------------------------------------------------
Aetna Series Fund, Inc. WITH COPIES TO:
10 State House Square, SH11 Attention: Stephanie A. DeSisto
Hartford, CT 06103-3602 Phone: (860) 275-3413
Fax: (860) 275-2084
Attention: Counsel
Phone: (860) 275-2032 Attention: Michael J. Sheridan
Fax: (860) 275-2158 Phone: (860) 275-3896
Fax: (860) 616-4565
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF TO MBIA: IF TO MELLON:
- --------------------------------------------------------------------------------
MBIA Insurance Corporation One Mellon Bank Center
113 King Street 15th Floor
Armonk, New York 10504 Pittsburgh, PA 15258
Attention: Mr. Kevin Loescher Attention: William M. Kincaid
Phone: (914) 765-3933 Phone: (412) 236-1315
Fax: (914) 765-3161 Fax: (412) 234-8725
- --------------------------------------------------------------------------------
12
<PAGE>
10. Waiver.
The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
11. Amendments.
This Agreement may be modified or amended from time to time by
mutual written agreement of the parties hereto. No provision of this Agreement
may be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the parties.
12. Severability.
If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all others persons and circumstances.
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,
13
<PAGE>
or any similar grounds, and irrevocably consent to service of process by mail or
in any manner permitted by New York law, and irrevocably waive their respective
rights to any jury trial. The headings of the sections hereof are included for
convenience of reference only and do not form a part of this Agreement.
14. Benefit of the Parties.
This Agreement is for the exclusive benefit of the parties
hereto and shall not be relied upon by or create any beneficial interest in any
person not a party hereto including any shareholders of the Fund.
15. Counterparts.
This Agreement may be executed by the parties in a number of
counterparts each of which shall be an original and together shall constitute
one and the same agreement.
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. MBIA INSURANCE CORPORATION
By: By:
---------------------------------- ----------------------------------
Name: Name:
-------------------------------- --------------------------------
Title: Title:
------------------------------- -------------------------------
MELLON BANK, N.A.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
14
<PAGE>
SCHEDULE A
FEES AND EXPENSES
-----------------
<PAGE>
EXHIBIT 1
EVENT OF DEFAULT NOTICE
- ------------------------------
(1) Strike language in brackets and initial if Section 4.1(c) or (d) Event of
Default has occurred.
(2) Strike inappropriate language in brackets and initial.
<PAGE>
EXHIBIT 1 - ATTACHMENT 1
MANUAL TRADE INSTRUCTIONS
<PAGE>
EXHIBIT 2
CURE NOTICE
- ------------------------
(3) Strike language in brackets and initial if Section 4.1(c) or (d) Event of
Default has occurred.
<PAGE>
EXHIBIT 3
AUTHORIZED PERSONS - AETNA SERIES FUND, INC.
<PAGE>
EXHIBIT 4
AUTHORIZED PERSONS AND SIGNATURE SAMPLES - MBIA INSURANCE CORPORATION
<PAGE>
EXHIBIT 5
TRADE EXECUTION NOTIFICATION FILE
Aetna Principal Protection Fund IV must have a header (Record Type 1), the trade
execution detail for purchases and sales (Record Type 2), hash totals (Record
Type 3)
Exhibit h.24
Form of
Custodian Monitoring Agreement
<PAGE>
FORM OF
CUSTODIAN MONITORING AGREEMENT
THIS AGREEMENT made as of the __ day __________2000 by and among AETNA
SERIES FUND, INC. (the "Fund"), MBIA INSURANCE CORPORATION ("MBIA") and
RUSSELL/MELLON ANALYTICAL SERVICES, LLC ("Russell/Mellon").
WHEREAS, the Fund intends to establish a separate series of the
Fund, Aetna Principal Protection Fund III (the "Series"), with an obligation by
the Fund, on behalf of the Series, to repay the amount initially invested by
each shareholder in the Series on a date certain ("Repayment Obligation"); and
WHEREAS, the Fund, on behalf of the Series, has entered into a
Financial Guaranty Agreement with MBIA (the "Financial Guaranty Agreement")
whereby MBIA will issue a policy to support the Repayment Obligation (the
"Policy"); and
WHEREAS, in connection therewith, the Fund intends to open custody
accounts with Mellon Bank, N.A. (in its capacity as custodian, "Mellon") under
the terms of the Custodian Agreement (the "Custodian Agreement") between the
Fund and Mellon dated as of September 1, 1992, as amended, on behalf of the
Series, to hold the Series' portfolio investments; and
WHEREAS, under the terms of the Financial Guaranty Agreement, in
consideration of MBIA's issuing the Policy, the Fund, on behalf of the Series,
has agreed to a particular investment strategy and to provide an arrangement
whereby trades executed on behalf of the Series will be monitored for conformity
with certain guidelines; and
WHEREAS, the Fund and MBIA wish for Russell/Mellon to provide
investment monitoring services in respect of the Series, and Russell/Mellon is
willing to perform such services upon the following terms and conditions.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the parties hereto agree to the following:
1. Construction.
Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular the plural and the
part the whole and "or" has the inclusive meaning sometimes represented by the
phrase "and/or." The words "hereof," "herein," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, schedule, exhibit and attachment references are to this
Agreement unless otherwise specified.
2. Monitoring Services.
The Fund will open with Mellon one or more custody accounts, each
designated "Series" (each such designated custody account hereinafter referred
to as a "Series Account"). Each Series Account will contain the appropriate
designation in its title and will be operated subject to the terms of the
Custodian Agreement. Russell/Mellon will monitor the assets delivered to each
Series Account for conformity with the guidelines set forth in Schedule A
attached hereto entitled Conforming Assets Guidelines (the "Guidelines"). For
purposes of this
<PAGE>
Agreement, Russell/Mellon will only be responsible for performing conforming
assets tests on assets that are traded through the Series Accounts and shall not
be responsible for monitoring the continuing compliance with the Guidelines of
assets held in the Series Accounts. In order to carry out the conforming assets
tests, Russell/Mellon will rely on the trade information that Mellon receives
from the Fund on behalf of the Series and from broker confirmations tendered by
brokers to Mellon through The Depository Trust Company's Institutional Delivery
Confirmation System ("DTC ID"). Such trade information must be complete,
properly formatted and provided to Mellon in a timely manner. Russell/Mellon
shall perform the conforming asset tests with respect to each asset added to the
Series Account promptly after receipt of the related trade information and in
any event within one business day of such receipt by Mellon. If by applying the
conforming assets tests to the Series Accounts an instance of noncompliance with
the Guidelines is noted, Russell/Mellon will notify MBIA and the Fund promptly
of such noncompliance in writing via facsimile transmission. Once Russell/Mellon
has notified the Fund and MBIA as to the existence of noncompliance,
Russell/Mellon shall have no further obligation or duty to the Fund, the Series
or MBIA to monitor the trade, or to report its cure.
3. Delivery of Documents.
The Fund and MBIA will promptly furnish to Russell/Mellon such
copies, properly certified or authenticated, of documents and other related
information that Russell/Mellon may reasonably request or require to properly
discharge its duties herein.
4. Fees and Expenses.
(a) As compensation for the services rendered hereunder, the Fund,
on behalf of the Series, shall pay to Mellon, as billing and collection agent
for Russell/Mellon, the monthly fees determined as set forth in Schedule A to
the Custodian Service Agreement of even date herewith among the Fund, MBIA and
Mellon. Such fees are to be billed monthly and shall be due and payable upon
receipt of the Mellon invoice. Upon any termination of the provision of services
under this Agreement before the end of any month, the fee for the part of the
month before such termination shall be prorated according to the proportion
which such part bears to the full monthly period and shall be payable upon the
date of such termination.
(b) The Fund, on behalf of the Series, may request additional
services, additional processing, or special reports, with such specifications
and requirements documentation as may be reasonably required by the Fund or by
Russell/Mellon. If Russell/Mellon elects to provide such services, it shall be
entitled to additional fees and expenses at its customary rates and charges.
(c) All fees, out-of-pocket expenses, or additional charges of
Russell/Mellon shall be billed on a monthly basis by Mellon, as billing and
collection agent for Russell/Mellon, and shall be due and payable by the Fund,
on behalf of the Series, upon receipt of the invoice.
5. Limitation of Liability and Indemnification.
(a) In undertaking the performance of its obligations hereunder,
Russell/Mellon shall not be liable for any loss, damage or expense suffered by
the Fund, the Series or MBIA in connection with the matters to which this
Agreement relates or the services provided hereunder except for general damages
solely caused by or resulting from willful misfeasance, bad faith or negligence
on the part of Russell/Mellon, its members, directors, officers, employees or
agents, in the performance of its or their duties under this Agreement. "General
damages" means only those damages as directly and necessarily result from such
act or omission without reference to any special conditions or circumstances of
the Fund, the Series or MBIA. In no event shall Russell/Mellon be liable for any
indirect, special or consequential losses or damages of any kind
2
<PAGE>
whatsoever (including but not limited to lost profits), even if Russell/Mellon
has been advised of the likelihood of such losses or damages and regardless of
the form of action through which any such losses or damages may be claimed.
(b) Russell/Mellon shall not be responsible for, and the Fund
shall indemnify and hold Russell/Mellon, its members, directors, officers,
employees and agents (collectively "Russell/Mellon Indemnified Parties")
harmless from and against any and all losses, damages, costs, reasonable
attorneys' fees and expenses, incurred by Russell/Mellon Indemnified Parties, in
the performance of its/their duties hereunder, including but not limited to
those arising out of or attributable to:
(i) any and all actions of Russell/Mellon Indemnified
Parties required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Russell/Mellon Indemnified
Parties of information, records, or documents which are received
by Russell/Mellon Indemnified Parties and furnished to it or them
by or on behalf of the Fund, the Series or MBIA in accordance with
this Agreement, and which have been prepared or maintained by the
Fund, the Series or MBIA or any third party on behalf of either
the Fund, the Series or MBIA;
(iii) The Fund's or MBIA's refusal or failure to comply with
the terms of this Agreement or any agreement between the Series,
the Fund and MBIA relating to the matters herein, or the Fund's,
the Series' or MBIA's lack of good faith, or its actions, or lack
thereof, involving negligence or willful misfeasance;
(iv) any delays, inaccuracies, errors in or omissions from
information or data provided to Russell/Mellon Indemnified Parties
by MBIA, the Series or the Fund or provided to Russell/Mellon
Indemnified Parties by data or corporate action services or
vendors;
(v) the offer or sale of shares by the Fund, the Series or
MBIA in violation of any requirement under the Federal securities
laws or regulations or the securities laws or regulations of any
state, or in violation of any stop order or other determination or
ruling by any Federal agency or any state agency with respect to
the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Fund, the Series or MBIA,
or (2) existing or arising out of activities, actions or omissions
by or on behalf of the Fund, the Series or MBIA prior to the
effective date of this Agreement; or
(vi) all actions, omissions, or errors caused by third
parties to whom Russell/Mellon, any Russell/Mellon Indemnified
Parties, the Fund, the Series or MBIA has assigned any rights
and/or delegated any duties under this Agreement at the request of
or as required by the Fund, the Series or MBIA;
provided that, in no event shall any Russell/Mellon Indemnified Party be
indemnified for its negligence, bad faith or willful misfeasance in carrying out
its duties hereunder.
(c) Any liability of the Fund under this Agreement with respect to
the Series, or in connection with the transactions contemplated herein with
respect to the Series, shall be discharged only out of the assets of the Series,
and no other series of the Fund shall be liable with respect thereto.
3
<PAGE>
6. Term.
This Agreement shall become effective immediately and shall
terminate on the earlier of the termination date under the Custodian Agreement
or ___________, unless earlier terminated by any party hereto on 90 days' prior
written notice to the other parties.
7. Representations.
(a) The Fund, on behalf of the Series, represents and warrants
that the Fund has directed the Series' investment adviser to comply with the
Guidelines and purchase for such accounts only assets conforming to the
Guidelines.
(b) Each of the parties hereto represents and warrants that: (i)
it has the legal right, power and authority to execute, deliver and perform this
Agreement and to carry out all of the transactions contemplated hereby; (ii) it
has obtained all necessary authorizations; (iii) the execution, delivery and
performance of this Agreement and the carrying out of any of the transactions
contemplated hereby will not be in conflict with, result in a breach of or
constitute a default under any agreement or other instrument to which it is a
party or which is otherwise known to it; (iv) it does not require the consent or
approval of any governmental agency or instrumentality, except any such consents
and approvals which it has obtained; and (v) the execution and delivery of this
Agreement by it will not violate any law, regulation, charter, by-law, order of
any court or governmental agency or judgment applicable to it.
8. Notices.
Any notice required or permitted hereunder shall be in writing and
shall be deemed effective on the date of personal delivery (by private
messenger, courier service or otherwise) or upon confirmed receipt of telex or
facsimile or other electronic system acceptable to Russell/Mellon, whichever
occurs first, or upon receipt if by mail to the parties at the following address
(or such other address as a party may specify by notice to the others):
If to the Fund or the Series:
Aetna Series Fund, Inc./Series
10 State House Square, SH11
Hartford, CT 06103-3602
Attention: Counsel
Phone: (860) 275-2032
Fax: (860) 275-2158
with copies to:
Attention: Stephanie A. DeSisto
Phone: (860) 275-3413
Fax: (860) 275-2084
Attention: Michael J. Sheridan
Phone: (860) 275-3896
Fax: (860) 616-4565
4
<PAGE>
If to MBIA:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Mr. Kevin Loescher
Phone: (914) 765-3933
Fax: (914) 765-3161
If to Russell/Mellon:
Russell/Mellon Analytical Services
135 Santilli Highway
Everett, Massachusetts 02149
Attention: Chief Executive Officer
Phone: (617) 382-9935
Fax: (617) 382-9153
9. Waiver.
The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
10. Amendments.
This Agreement may be modified or amended from time to time by
mutual written agreement of the parties hereto. No provision of this Agreement
may be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the parties.
11. Severability.
If any provision of this Agreement is invalid or unenforceable,
the balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
12. Governing Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to laws as to conflicts
of laws, and shall be binding on all the parties hereto and their respective
successors and assigns. The headings of the sections hereof are included for
convenience of reference only and do not form a part of this Agreement.
13. Benefit of the Parties.
This Agreement is for the exclusive benefit of the parties hereto
and shall not be relied upon by or create any beneficial interest in any person
not a party hereto including any shareholders of the Fund.
5
<PAGE>
14. Counterparts.
This Agreement may be executed by the parties in a number of
counterparts each of which shall be an original and together shall constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
AETNA SERIES FUND, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
MBIA INSURANCE CORPORATION
By:___________________________________
Name:_________________________________
Title:________________________________
RUSSELL/MELLON ANALYTICAL
SERVICES, LLC
By:___________________________________
Name:_________________________________
Title:________________________________
6
<PAGE>
SCHEDULE A
CONFORMING ASSETS GUIDELINES
----------------------------
Equity Asset Test
- -----------------
o Equity securities of any company included in the S&P 500 Index, other than
Aetna Inc., as published by FactSet Data Systems, Inc. or by S&P
o Forward contracts on the S&P 500 Index, as traded on the Chicago Mercantile
Exchange
Fixed Income Assets Test
- ------------------------
o U.S. Treasury or Agency Zeroes maturing on, or within 90 days preceding,
the Maturity Date
o Non-callable corporate debt securities, other than Aetna Inc., 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
o if both Moody's and S&P have issued a rating thereon, such rating shall be
no less than Aa3/AA-
o U. S. Treasury Futures
Cash and Cash Equivalents Test
- ------------------------------
o Cash and
o the following short-term securities with remaining maturities of 180 days
or less:
o (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
o (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
o (3) bankers acceptances issued by any depository institution or trust
company referred to in clause (2) above and
o (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
Exhibit h.25
FORM OF
CUSTODIAN SERVICE AGREEMENT
<PAGE>
FORM OF
CUSTODIAN SERVICE AGREEMENT
THIS AGREEMENT made as of the ___ day of _______________, 2000 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 IV ("Series"), with an obligation by the Fund,
on behalf of the Series, to repay the amount initially invested by each
shareholder in the Series on a date certain ("Repayment Obligation"); and
WHEREAS, the Fund, on behalf of the Series, has entered into a
Financial Guaranty Agreement with MBIA (the "Financial Guaranty Agreement")
whereby MBIA will issue a policy to support the Repayment Obligation ("Policy");
and
WHEREAS, in connection therewith, the Fund intends to open custody
accounts with Mellon under the terms of the Custodian Agreement (the "Custodian
Agreement") between the Fund and Mellon dated as of September 1, 1992, as
amended, on behalf of the Series, to hold the Series' portfolio investments; and
WHEREAS, under the terms of the Financial Guaranty Agreement, in
consideration of MBIA's issuing the Policy, the Fund, on behalf of the Series,
has agreed to a particular investment strategy and to provide an arrangement
whereby trades executed for the Series will be monitored for conformity with
certain guidelines; and
WHEREAS, the Fund and MBIA wish for Russell/Mellon Analytical Services,
LLC ("Russell/Mellon") to provide investment monitoring services in respect of
the Series, and Russell/Mellon is willing to perform such services upon the
terms and conditions of an Agreement of even date herewith.
1
<PAGE>
WHEREAS, the Fund and MBIA wish for Mellon to provide trade execution
services in respect of the Series, and Mellon is willing to perform such
services upon the terms and conditions.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the parties hereto agree to the following:
1. Construction.
-------------
Unless the context of this Agreement otherwise clearly
requires, references to the plural include the singular, the singular the plural
and the part the whole and "or" has the inclusive meaning sometimes represented
by the phrase "and/or." The words "hereof," "herein," "hereunder" and similar
terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement. The section and other headings contained
in this Agreement are for reference purposes only and shall not control or
affect the construction of this Agreement or the interpretation thereof in any
respect. Section, subsection, schedule, exhibit and attachment references are to
this Agreement unless otherwise specified.
2. Custody Services.
-----------------
The Fund, on behalf of the Series, will open with Mellon one
or more custody account(s) designated "Series" (such designated custody
account(s) hereinafter referred to as "Series Account"). The Series Account will
contain the appropriate designation in its title and will be operated subject to
the terms of the Custodian Agreement between Mellon and the Fund.
3. Notification of Event of Default/Trade Execution/Cure Notice/
-------------------------------------------------------------
Obligation to Reject Trades.
- ----------------------------
If MBIA notifies Mellon, by giving a written notice to Mellon,
with a copy to the Fund, substantially in the format of Exhibit 1 hereto, that
an Event of Default under the Financial Guaranty Agreement has occurred and
remains uncured ("Event of Default Notice"), Mellon will promptly confirm
receipt of such notice, via phone contact and facsimile to the Fund.
2
<PAGE>
After or concurrently with Mellon's receipt of an Event of
Default Notice and until the end of the related DK Period (as defined below),
MBIA shall be entitled to deliver to Mellon (with a copy to the Fund) trade
instructions in the format of Attachment 1 to Exhibit 1 (for manual trade
instructions) or in the format of Attachment 2 to Exhibit 1 (for electronic
instructions) with respect to the Series Account. MBIA shall deliver to Mellon,
with a copy to the Fund, a written notice of the cure of such default,
substantially in the format of Exhibit 2 hereto, promptly upon the occurrence of
such cure (the "Cure Notice").
From 12:01 a.m. eastern time on the Business Day (defined as a
day upon which the New York Stock Exchange is open for trading and is not a
Saturday or Sunday, and is neither a legal holiday nor a day on which banking
institutions are generally authorized or obligated by law or regulation to
close) immediately following the day upon which Mellon receives an Event of
Default Notice from MBIA until 12:01 a.m. eastern time on the Business Day
immediately following the day upon which Mellon receives a Cure Notice from MBIA
(a "DK Period"), Mellon shall reject and not act upon any trade instructions
issued directly by the Fund (or its investment adviser) for the Series Account.
With respect to the Series Account, Mellon shall, upon the termination of a DK
Period, revert to its normal method of accepting trade instructions from the
Fund (or its investment adviser) as governed by the Custodian Agreement. Nothing
herein shall be construed as authorizing Mellon to reject for settlement
securities transactions for which trade instructions were issued prior to 12:01
a.m. eastern time on the Business Day immediately following the day on which
Mellon receives an Event of Default Notice.
From the time Mellon receives an Event of Default Notice
through the end of the related DK period, Mellon is irrevocably authorized and
instructed (i) to act upon any and all trade instructions delivered by MBIA and
(ii) to execute the transactions set forth in such instructions through a broker
or dealer selected by Mellon for the Series Account. Mellon will promptly notify
the Fund, with a copy to MBIA, of trades executed as a result of instructions
received by MBIA.
3
<PAGE>
Such notification will be made via transmission of a trade execution file to the
extent possible (substantially in the format of Exhibit 5), by close of business
on the date such trades are executed.
4. Delivery of Documents.
----------------------
The Fund and MBIA will promptly furnish to Mellon such copies,
properly certified or authenticated, of documents and other related information
that Mellon may reasonably request or require to properly discharge its duties
herein.
5. Fees and Expenses.
------------------
(a) As compensation for the services rendered to the Fund and
MBIA pursuant to this Agreement, the Fund, on behalf of the Series, shall pay
Mellon monthly fees determined as set forth in Schedule A hereto. Such fees are
to be billed monthly and shall be due and payable upon receipt of the invoice.
The Fund and Mellon may agree, from time to time, to a change to the fees set
forth in Schedule A. Upon any termination of the provision of services under
this Agreement before the end of any month, the fee for the part of the month
before such termination shall be prorated according to the proportion which such
part bears to the full monthly period and shall be payable upon the date of such
termination.
(b) The Fund may request additional services, additional
processing, or special reports, with such specifications and requirements
documentation as may be reasonably required by the Fund or by Mellon. If Mellon
elects to provide such services or arrange for their provision, it shall be
entitled to additional fees and expenses at its customary rates and charges.
(c) All fees, out-of-pocket expenses, or additional charges of
Mellon shall be billed on a monthly basis and shall be due and payable by the
Fund, on behalf of the Series, upon receipt of the invoice.
(d) Mellon will render, after the close of each month in which
services have been furnished, a statement reflecting all of the charges for such
month. Charges remaining unpaid thirty (30) days after receipt of such statement
(with the exception of specific amounts which may be
4
<PAGE>
contested in good faith by the Fund) shall bear interest in finance charges
equivalent to Mellon's Prime Rate as announced from time to time plus two (2)
percent per annum and all costs and expenses of effecting collection of any such
sums, including reasonable Attorney' fees, shall be paid by the Fund, on behalf
of the Series, to Mellon.
(e) In the event that the Fund, on behalf of the Series, is
more than sixty (60) days delinquent in its payments of monthly billings in
connection with this Agreement (with the exception of specific amounts which may
be contested in good faith by the Fund), this Agreement may be terminated upon
sixty (60) days' written notice to the Fund and MBIA by Mellon. The Fund must
notify Mellon in writing of any contested amounts, with a copy to MBIA, within
thirty (30) days of receipt of a billing for such amounts. Disputed amounts are
not due and payable while they are being investigated. MBIA reserves the right
to pay the delinquent amounts thereby eliminating Mellon's right to terminate
the Agreement under this subsection.
6. Limitation of Liability and Indemnification
-------------------------------------------
(a) In undertaking the performance of its obligations
hereunder, Mellon shall not be liable for any loss, damage or expense suffered
by the Fund, the Series or MBIA in connection with the matters to which this
Agreement relates or the services provided hereunder except for general damages
solely caused by or resulting from willful misfeasance, bad faith or negligence
on the part of Mellon, its officers, employees or agents, in the performance of
its or their duties under this Agreement. "General damages" means only those
damages as directly and necessarily result from such act or omission without
reference to any special conditions or circumstances of the Fund, the Series or
MBIA. In no event shall Mellon be liable for any indirect, special or
consequential losses or damages of any kind whatsoever (including but not
limited to lost profits), even if Mellon has been advised of the likelihood of
such losses or damages and regardless of the form of action through which any
such losses or damages may be claimed.
5
<PAGE>
(b) Mellon shall not be responsible for, and the Fund shall
indemnify and hold Mellon, its officers, employees and agents (collectively
"Mellon and its agents") harmless from and against any and all losses, damages,
costs, reasonable attorneys' fees and expenses, incurred by Mellon or its
agents, in the performance of its/their duties hereunder, including but not
limited to those arising out of or attributable to:
(i) any and all actions of Mellon and its agents
required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Mellon and/or its
agents of information, records, or documents which are
received by Mellon and/or its agents and furnished to it or
them by or on behalf of the Fund, the Series or MBIA in
accordance with this Agreement, and which have been prepared
or maintained by the Fund, the Series or MBIA or any third
party on behalf of either the Fund, the Series or MBIA;
(iii) The Fund's or MBIA's refusal or failure to
comply with the terms of this Agreement or any agreement
between the Series, the Fund and MBIA relating to the matters
herein, or the Fund's, the Series', or MBIA's lack of good
faith, or its actions, or lack thereof, involving negligence
or willful misfeasance;
(iv) any delays, inaccuracies, errors in or omissions
from information or data provided to Mellon or its agents by
MBIA or the Series or the Fund or provided to Mellon or its
agents by data or corporate action services or vendors;
(v) the offer or sale of shares by the Fund, the
Series or MBIA in violation of any requirement under the
Federal securities laws or regulations or the securities laws
or regulations of any state, or in violation of any stop order
or other determinations or ruling by any Federal agency or any
state agency with respect to the offer or sale of such shares
in such state (1) resulting from activities, actions, or
omissions by the Fund, the Series or MBIA, or (2) existing or
arising out of activities,
6
<PAGE>
actions or omissions by or on behalf of the Fund, the Series
or MBIA prior to the effective date of this Agreement;
(vi) all actions, omissions, or errors caused by
third parties to whom Mellon, its agents, the Fund on behalf
of the Series, or MBIA has assigned any rights and/or
delegated any duties under this Agreement at the request of or
as required by the Fund or MBIA; and
(vii) Mellon and its agents acting upon electronic or
written trade instructions given by MBIA pursuant to Section
3; provided that, in no event shall Mellon or its agents be
indemnified for its or their negligence, bad faith or willful
misfeasance in carrying out its or their duties hereunder.
(c) MBIA shall indemnify and hold Mellon, and its agents
harmless from and against any and all losses, damages, costs, reasonable
attorneys' fees and expenses, incurred by Mellon and its agents insofar as such
losses, damages or costs arise out of, or are based upon, wrongful exercise by
MBIA of its rights under the Financial Guaranty Agreement to give instructions
to Mellon pursuant to Section 3 hereof; provided that, in no event shall Mellon
or its agents be indemnified for its or their negligence, bad faith or willful
misfeasance in carrying out its duties hereunder.
(d) In performing its services hereunder, Mellon and its
agents shall be entitled to rely only on written instructions (oral instructions
are not permitted), notices or other communications, including electronic
transmissions, bearing or purporting to bear the manual or facsimile signature
of any person from the Series, the Fund or MBIA (an "Authorized Person") named,
and in the capacity identified, in lists (naming those persons who may authorize
the transactions in Sections 2 and 3) which are attached hereto as Exhibit 3
(for the Fund) and Exhibit 4 (for MBIA). Any changes to such lists will be
furnished to Mellon from time to time in writing and given in the manner set
forth in Section 13 hereof and will be signed by an officer of either the Fund
7
<PAGE>
or MBIA, as appropriate, who shall provide Mellon with evidence of his or her
authority to make such changes. Each of the Fund, in Exhibit 3, and MBIA, in
Exhibit 4, will provide Mellon with authenticated specimen signatures of each
Authorized Person, and each of the Fund, on behalf of the Series, and MBIA shall
indemnify Mellon and its agents for any loss or expense caused by reliance upon
such authenticated specimen signatures which Mellon and its agents acting in
good faith believe to be genuine, valid and authorized, and shall be indemnified
by each of the Fund and MBIA as appropriate for any loss or expense caused by
such reliance. In addition, in performing its services hereunder, Mellon and its
agents also shall be entitled to consult with and rely on the advice and
opinions of legal counsel retained by Mellon or the Fund or MBIA, as necessary
or appropriate, including Mellon's in-house counsel, and Mellon shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel.
(e) In the event that Mellon or its agents shall receive
instructions, claims or demand from the Fund, the Series, or MBIA which, in
Mellon's opinion, conflict with any of the provisions of this Agreement, Mellon
shall notify the Fund, the Series, or MBIA, as the case may be, of such conflict
and shall be entitled to refrain from taking any action and its sole obligation
shall be to keep safely all assets in the Series Account until it shall receive
instructions, claims or demands from such party which, in Mellon's opinion,
conform to the provisions of this Agreement.
(f) The duties and responsibilities of Mellon hereunder shall
be determined solely by the express provisions of this Agreement, except that
the settlement and safekeeping of assets in the Series Account shall be governed
by the terms of the Custodian Agreement between Mellon and the Fund. Should
there by any conflict between the terms of the Custodian Agreement and the terms
of this Agreement regarding the services set forth in Section 3 of this
Agreement, the terms of this Agreement shall govern.
8
<PAGE>
(g) Mellon shall have no responsibility to make
recommendations with respect to the purchase, retention or sale of assets
relating to the Series Account or to maintain any insurance on assets in the
Series Account for the benefit of MBIA or the Series.
(h) Mellon shall have no responsibility for any act or
omission, or for the solvency or insolvency, or notice to Mellon or any of its
affiliates or agents of the solvency or insolvency, of any broker (other than a
Mellon affiliate selected by Mellon pursuant to Section 3 hereof to execute the
trade instructions provided by MBIA).
(i) Any liability of the Fund under this Agreement with
respect to the Series, or in connection with the transactions contemplated
herein with respect to the Series, shall be discharged only out of the assets of
the Series, and no other series of the Fund shall be liable with respect
thereto.
7. Term.
-----
This Agreement shall become effective immediately and shall
terminate on the earlier of the termination date under the Custodian Agreement
or May 31, 2005, unless earlier terminated by any party hereto on 90 days'
written notice to the other parties. Upon termination of this Agreement, the
Fund, on behalf of the Series, shall pay to Mellon such compensation and any
out-of-pocket or other reimbursable expenses which may become due or payable
under the terms hereof as of the date of termination or after the date that the
provision of services ceases, whichever is later.
8. Representations.
----------------
(a) The Fund, on behalf of the Series, represents and warrants
that the Fund has directed the Series' investment adviser to comply with the
Guidelines and purchase for such accounts only assets conforming to the
Guidelines.
(b) Each of the parties hereto represents and warrants that:
(i) it has the legal right, power and authority to execute, deliver and perform
this Agreement and to carry out all of the transactions contemplated hereby;
(ii) it has obtained all necessary authorizations, (iii) the execution,
9
<PAGE>
delivery and performance of this Agreement and the carrying out of any of the
transactions contemplated hereby will not be in conflict with, result in a
breach of or constitute a default under any agreement or other instrument to
which it is a party or which is otherwise known to it; (iv) it does not require
the consent or approval of any governmental agency or instrumentality, except
any such consents and approvals which it has obtained; and (v) the execution and
delivery of this Agreement by it will not violate any law, regulation, charter,
by-law, order of any court or governmental agency or judgment applicable to it.
9. Notices.
--------
Any notice required or permitted hereunder shall be in writing
and shall be deemed effective on the date of personal delivery (by private
messenger, courier service or otherwise) or upon confirmed receipt of telex or
facsimile or other electronic system acceptable to Mellon, whichever occurs
first, or upon receipt if by mail to the parties at the following address (or
such other address as a party may specify by notice to the others):
If to the Fund or the Series:
Aetna Series Fund, Inc.
10 State House Square, SH11
Hartford, CT 06103-3602
Attention: Counsel
Phone: (860) 275-2032
Fax: (860) 275-2158
with copies to:
Attention: Stephanie A. DeSisto
Phone: (860) 275-3413
Fax: (860) 275-2084
Attention: Michael J. Sheridan
Phone: (860) 275-3896
Fax: (860) 616-4565
10
<PAGE>
If to MBIA:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Mr. Kevin Loescher
Phone: (914) 765-3933
Fax: (914) 765-3161
If to Mellon:
One Mellon Bank Center
15th Floor
Pittsburgh, PA 15258
Attention: William M. Kincaid
Phone: 412-236-1315
Fax: 412-234-8725
10. Waiver.
-------
The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver nor
shall it deprive such party of the right thereafter to insist upon strict
adherence to that term or any term of this Agreement. Any waiver must be in
writing signed by the waiving party.
11. Amendments.
-----------
This Agreement may be modified or amended from time to time by
mutual written agreement of the parties hereto. No provision of this Agreement
may be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the parties.
12. Severability.
-------------
If any provision of this Agreement is invalid or
unenforceable, the balance of the Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance it shall nevertheless
remain applicable to all others persons and circumstances.
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
11
<PAGE>
irrevocably submit to the exclusive jurisdiction of the state and federal courts
in the State and County of New York for the purposes of any suit, action or
other proceedings arising out of this Agreement. The Fund, MBIA and Mellon
hereby irrevocably waive any objection on the ground of venue, forum non
conveniens, or any similar grounds, and irrevocably consent to service of
process by mail or in any manner permitted by New York law, and irrevocably
waive their respective rights to any jury trial. The headings of the sections
hereof are included for convenience of reference only and do not form a part of
this Agreement.
14. Benefit of the Parties.
-----------------------
This Agreement is for the exclusive benefit of the parties
hereto and shall not be relied upon by or create any beneficial interest in any
person not a party hereto including any shareholders of the Fund.
15. Counterparts.
-------------
This Agreement may be executed by the parties in a number of
counterparts each of which shall be an original and together shall constitute
one and the same agreement.
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:______________________________________
12
<PAGE>
SCHEDULE A
FEES AND EXPENSES
-----------------
13
<PAGE>
EXHIBIT 1
EVENT OF DEFAULT NOTICE
14
<PAGE>
EXHIBIT 1 - ATTACHMENT 1
MANUAL TRADE INSTRUCTIONS
15
<PAGE>
EXHIBIT 2
CURE NOTICE
16
<PAGE>
EXHIBIT 3
AUTHORIZED PERSONS - AETNA SERIES FUND, INC.
17
<PAGE>
EXHIBIT 4
AUTHORIZED PERSONS AND SIGNATURE SAMPLES - MBIA INSURANCE CORPORATION
18
<PAGE>
EXHIBIT 5
TRADE EXECUTION NOTIFICATION FILE
Exhibit h.26
FORM OF
CUSTODIAN MONITORING AGREEMENT
<PAGE>
FORM OF
CUSTODIAN MONITORING AGREEMENT
------------------------------
THIS AGREEMENT made as of the __ day __________2000 by and among AETNA
SERIES FUND, INC. (the "Fund"), MBIA INSURANCE CORPORATION ("MBIA") and
RUSSELL/MELLON ANALYTICAL SERVICES, LLC ("Russell/Mellon").
WHEREAS, the Fund intends to establish a separate series of the
Fund, Aetna Principal Protection Fund IV (the "Series"), with an obligation by
the Fund, on behalf of the Series, to repay the amount initially invested by
each shareholder in the Series on a date certain ("Repayment Obligation"); and
WHEREAS, the Fund, on behalf of the Series, has entered into a
Financial Guaranty Agreement with MBIA (the "Financial Guaranty Agreement")
whereby MBIA will issue a policy to support the Repayment Obligation (the
"Policy"); and
WHEREAS, in connection therewith, the Fund intends to open custody
accounts with Mellon Bank, N.A. (in its capacity as custodian, "Mellon") under
the terms of the Custodian Agreement (the "Custodian Agreement") between the
Fund and Mellon dated as of September 1, 1992, as amended, on behalf of the
Series, to hold the Series' portfolio investments; and
WHEREAS, under the terms of the Financial Guaranty Agreement, in
consideration of MBIA's issuing the Policy, the Fund, on behalf of the Series,
has agreed to a particular investment strategy and to provide an arrangement
whereby trades executed on behalf of the Series will be monitored for conformity
with certain guidelines; and
WHEREAS, the Fund and MBIA wish for Russell/Mellon to provide
investment monitoring services in respect of the Series, and Russell/Mellon is
willing to perform such services upon the following terms and conditions.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the parties hereto agree to the following:
1. Construction.
------------
Unless the context of this Agreement otherwise clearly requires,
references to the plural include the singular, the singular the plural and the
part the whole and "or" has the inclusive meaning sometimes represented by the
phrase "and/or". The words "hereof," "herein," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, schedule, exhibit and attachment references are to this
Agreement unless otherwise specified.
2. Monitoring Services.
-------------------
The Fund will open with Mellon one or more custody accounts, each
designated "Series" (each such designated custody account hereinafter referred
to as a "Series Account"). Each Series Account will contain the appropriate
designation in its title and will be operated subject to the terms of the
Custodian Agreement. Russell/Mellon will monitor the assets delivered to each
Series Account for conformity with the guidelines set forth in Schedule A
attached hereto entitled Conforming Assets Guidelines (the "Guidelines"). For
purposes of this
<PAGE>
Agreement, Russell/Mellon will only be responsible for performing conforming
assets tests on assets that are traded through the Series Accounts and shall not
be responsible for monitoring the continuing compliance with the Guidelines of
assets held in the Series Accounts. In order to carry out the conforming assets
tests, Russell/Mellon will rely on the trade information that Mellon receives
from the Fund on behalf of the Series and from broker confirmations tendered by
brokers to Mellon through The Depository Trust Company's Institutional Delivery
Confirmation System ("DTC ID"). Such trade information must be complete,
properly formatted and provided to Mellon in a timely manner. Russell/Mellon
shall perform the conforming asset tests with respect to each asset added to the
Series Account promptly after receipt of the related trade information and in
any event within one business day of such receipt by Mellon. If by applying the
conforming assets tests to the Series Accounts an instance of noncompliance with
the Guidelines is noted, Russell/Mellon will notify MBIA and the Fund promptly
of such noncompliance in writing via facsimile transmission. Once Russell/Mellon
has notified the Fund and MBIA as to the existence of noncompliance,
Russell/Mellon shall have no further obligation or duty to the Fund, the Series
or MBIA to monitor the trade, or to report its cure.
3. Delivery of Documents.
---------------------
The Fund and MBIA will promptly furnish to Russell/Mellon such
copies, properly certified or authenticated, of documents and other related
information that Russell/Mellon may reasonably request or require to properly
discharge its duties herein.
4. Fees and Expenses.
-----------------
(a) As compensation for the services rendered hereunder, the Fund,
on behalf of the Series, shall pay to Mellon, as billing and collection agent
for Russell/Mellon, the monthly fees determined as set forth in Schedule A to
the Custodian Service Agreement of even date herewith among the Fund, MBIA and
Mellon. Such fees are to be billed monthly and shall be due and payable upon
receipt of the Mellon invoice. Upon any termination of the provision of services
under this Agreement before the end of any month, the fee for the part of the
month before such termination shall be prorated according to the proportion
which such part bears to the full monthly period and shall be payable upon the
date of such termination.
(b) The Fund, on behalf of the Series, may request additional
services, additional processing, or special reports, with such specifications
and requirements documentation as may be reasonably required by the Fund or by
Russell/Mellon. If Russell/Mellon elects to provide such services, it shall be
entitled to additional fees and expenses at its customary rates and charges.
(c) All fees, out-of-pocket expenses, or additional charges of
Russell/Mellon shall be billed on a monthly basis by Mellon, as billing and
collection agent for Russell/Mellon, and shall be due and payable by the Fund,
on behalf of the Series, upon receipt of the invoice.
5. Limitation of Liability and Indemnification.
-------------------------------------------
(a) In undertaking the performance of its obligations hereunder,
Russell/Mellon shall not be liable for any loss, damage or expense suffered by
the Fund, the Series or MBIA in connection with the matters to which this
Agreement relates or the services provided hereunder except for general damages
solely caused by or resulting from willful misfeasance, bad faith or negligence
on the part of Russell/Mellon, its members, directors, officers, employees or
agents, in the performance of its or their duties under this Agreement. "General
damages" means only those damages as directly and necessarily result from such
act or omission without reference to any special conditions or circumstances of
the Fund, the Series or MBIA. In no event shall Russell/Mellon be liable for any
indirect, special or consequential losses or damages of any kind
2
<PAGE>
whatsoever (including but not limited to lost profits), even if Russell/Mellon
has been advised of the likelihood of such losses or damages and regardless of
the form of action through which any such losses or damages may be claimed.
(b) Russell/Mellon shall not be responsible for, and the Fund
shall indemnify and hold Russell/Mellon, its members, directors, officers,
employees and agents (collectively "Russell/Mellon Indemnified Parties")
harmless from and against any and all losses, damages, costs, reasonable
attorneys' fees and expenses, incurred by Russell/Mellon Indemnified Parties, in
the performance of its/their duties hereunder, including but not limited to
those arising out of or attributable to:
(i) any and all actions of Russell/Mellon Indemnified
Parties required to be taken pursuant to this Agreement;
(ii) the reliance on or use by Russell/Mellon Indemnified
Parties of information, records, or documents which are received
by Russell/Mellon Indemnified Parties and furnished to it or them
by or on behalf of the Fund, the Series or MBIA in accordance with
this Agreement, and which have been prepared or maintained by the
Fund, the Series or MBIA or any third party on behalf of either
the Fund, the Series or MBIA;
(iii) The Fund's or MBIA's refusal or failure to comply with
the terms of this Agreement or any agreement between the Series,
the Fund and MBIA relating to the matters herein, or the Fund's,
the Series' or MBIA's lack of good faith, or its actions, or lack
thereof, involving negligence or willful misfeasance;
(iv) any delays, inaccuracies, errors in or omissions from
information or data provided to Russell/Mellon Indemnified Parties
by MBIA, the Series or the Fund or provided to Russell/Mellon
Indemnified Parties by data or corporate action services or
vendors;
(v) the offer or sale of shares by the Fund, the Series or
MBIA in violation of any requirement under the Federal securities
laws or regulations or the securities laws or regulations of any
state, or in violation of any stop order or other determination or
ruling by any Federal agency or any state agency with respect to
the offer or sale of such shares in such state (1) resulting from
activities, actions, or omissions by the Fund, the Series or MBIA,
or (2) existing or arising out of activities, actions or omissions
by or on behalf of the Fund, the Series or MBIA prior to the
effective date of this Agreement; or
(vi) all actions, omissions, or errors caused by third parties to
whom Russell/Mellon, any Russell/Mellon Indemnified Parties, the
Fund, the Series or MBIA has assigned any rights and/or delegated
any duties under this Agreement at the request of or as required
by the Fund, the Series or MBIA;
provided that, in no event shall any Russell/Mellon Indemnified Party be
indemnified for its negligence, bad faith or willful misfeasance in carrying out
its duties hereunder.
(c) Any liability of the Fund under this Agreement with respect to
the Series, or in connection with the transactions contemplated herein with
respect to the Series, shall be discharged only out of the assets of the Series,
and no other series of the Fund shall be liable with respect thereto.
3
<PAGE>
6. Term.
----
This Agreement shall become effective immediately and shall
terminate on the earlier of the termination date under the Custodian Agreement
or May 31, 2005, unless earlier terminated by any party hereto on 90 days' prior
written notice to the other parties.
7. Representations.
---------------
(a) The Fund, on behalf of the Series, represents and warrants
that the Fund has directed the Series' investment adviser to comply with the
Guidelines and purchase for such accounts only assets conforming to the
Guidelines.
(b) Each of the parties hereto represents and warrants that: (i)
it has the legal right, power and authority to execute, deliver and perform this
Agreement and to carry out all of the transactions contemplated hereby; (ii) it
has obtained all necessary authorizations; (iii) the execution, delivery and
performance of this Agreement and the carrying out of any of the transactions
contemplated hereby will not be in conflict with, result in a breach of or
constitute a default under any agreement or other instrument to which it is a
party or which is otherwise known to it; (iv) it does not require the consent or
approval of any governmental agency or instrumentality, except any such consents
and approvals which it has obtained; and (v) the execution and delivery of this
Agreement by it will not violate any law, regulation, charter, by-law, order of
any court or governmental agency or judgment applicable to it.
8. Notices.
-------
Any notice required or permitted hereunder shall be in writing and
shall be deemed effective on the date of personal delivery (by private
messenger, courier service or otherwise) or upon confirmed receipt of telex or
facsimile or other electronic system acceptable to Russell/Mellon, whichever
occurs first, or upon receipt if by mail to the parties at the following address
(or such other address as a party may specify by notice to the others):
If to the Fund or the Series:
Aetna Series Fund, Inc./Series
10 State House Square, SH11
Hartford, CT 06103-3602
Attention: Counsel
Phone: (860) 275-2032
Fax: (860) 275-2158
with copies to:
Attention: Stephanie A. DeSisto
Phone: (860) 275-3413
Fax: (860) 275-2084
Attention: Michael J. Sheridan
Phone: (860) 275-3896
Fax: (860) 616-4565
4
<PAGE>
If to MBIA:
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Mr. Kevin Loescher
Phone: (914) 765-3933
Fax: (914) 765-3161
If to Russell/Mellon:
Russell/Mellon Analytical Services
135 Santilli Highway
Everett, Massachusetts 02149
Attention: Chief Executive Officer
Phone: (617) 382-9935
Fax: (617) 382-9153
9. Waiver.
------
The failure of a party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
10. Amendments.
----------
This Agreement may be modified or amended from time to time by
mutual written agreement of the parties hereto. No provision of this Agreement
may be changed, discharged, or terminated orally, but only by an instrument in
writing signed by the parties.
11. Severability.
------------
If any provision of this Agreement is invalid or unenforceable,
the balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
12. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to laws as to conflicts
of laws, and shall be binding on all the parties hereto and their respective
successors and assigns. The headings of the sections hereof are included for
convenience of reference only and do not form a part of this Agreement.
13. Benefit of the Parties.
----------------------
This Agreement is for the exclusive benefit of the parties hereto
and shall not be relied upon by or create any beneficial interest in any person
not a party hereto including any shareholders of the Fund.
5
<PAGE>
14. Counterparts.
------------
This Agreement may be executed by the parties in a number of
counterparts each of which shall be an original and together shall constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
AETNA SERIES FUND, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
MBIA INSURANCE CORPORATION
By:________________________________________
Name:______________________________________
Title:_____________________________________
RUSSELL/MELLON ANALYTICAL
SERVICES, LLC
By:________________________________________
Name:______________________________________
Title:_____________________________________
6
<PAGE>
SCHEDULE A
CONFORMING ASSETS GUIDELINES
- ----------------------------
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.
(860) 275-2032
April 18, 2000 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. 39 TO
REGISTRATION STATEMENT ON FORM N-1A
(FILE NO. 33-41694 AND 811-6352)
Dear Sir or Madam:
The undersigned serves as counsel to Aetna Series Fund, Inc., a Maryland
corporation (the "Company"). It is my understanding that the Company has
registered an indefinite number of shares of beneficial interest under the
Securities Act of 1933 (the "1933 Act") pursuant to Rule 24f-2 under the
Investment Company Act of 1940 (the "1940 Act").
Insofar as it relates or pertains to the Company, I have reviewed the prospectus
and the Company's Registration Statement on Form N-1A, as amended to the date
hereof, filed with the Securities and Exchange Commission under the 1933 Act and
the 1940 Act, pursuant to which the Shares will be sold (the "Registration
Statement"). I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents and other instruments I have
deemed necessary or appropriate for the purpose of this opinion. For purposes of
such examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.
I am admitted to practice law in Connecticut, Maryland and the District of
Columbia. My opinion herein as to Maryland law is based upon a limited inquiry
thereof that I have deemed appropriate under the circumstances.
Based upon the foregoing, and assuming the securities are issued and sold in
accordance with the provisions of the Company's Articles of Incorporation and
the Registration Statement, I am of the opinion that the securities will when
sold be legally issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Amy R. Doberman
Amy R. Doberman
Counsel
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 17, 1999 incorporated by
reference herein on Form N-1A and to the references to our firm under the
heading "Independent Auditors" in the statements of additional information.
KPMG LLP
Hartford, Connecticut
April 18, 2000
Exhibit m.1
Form of Distribution Plan (Class A)
<PAGE>
FORM OF
DISTRIBUTION PLAN
AETNA SERIES FUND, INC.
CLASS A
This Distribution Plan (the "Plan") is adopted in accordance with Rule 12b-1
(the "Rule") under the Investment Company Act of 1940, 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 _____ day of _______________, 1999.
AETNA SERIES FUND, INC.
ON BEHALF OF ITS CLASS A SHARES
By: _________________________
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
Aetna Principal Protection Fund II
Aetna Principal Protection Fund III
Aetna Principal Protection Fund IV
Aetna Technology Fund
Exhibit m.3
Distribution Plan (Class B)
<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
<PAGE>
expenditures described in this Section. Payment of the Distribution Fee
described in Section 1 above shall be subject to any limitation set forth in any
applicable regulation of the National Association of Securities Dealers, Inc.
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
-2-
<PAGE>
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.
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
Aetna Principal Protection Fund II
Aetna Principal Protection Fund III
Aetna Principal Protection Fund IV
Aetna Technology Fund
Exhibit m.6
Shareholder Service Plan (Class B)
<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
<PAGE>
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 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.
2
<PAGE>
The Fund will preserve copies of the Plan, any agreement relating to the Plan
and any report made pursuant to Section 7, for a period of not less than six (6)
years (the first two (2) years in an easily accessible place) from the date of
the Plan, agreement or report.
SECTION 9. MEANINGS OF CERTAIN TERMS.
As used in the Plan, the terms "interested person" and "majority of the
outstanding voting securities" will be deemed to have the same meaning ascribed
to those terms under the 1940 Act.
IN WITNESS WHEREOF, the Fund, on behalf of the Class B Shares of each of its
Series, has executed this Plan as of this 15th day of July, 1999.
AETNA SERIES FUND, INC.
ON BEHALF OF THE CLASS B SHARES
OF EACH OF ITS SERIES
By: /s/ J. Scott Fox
-------------------------------
J. Scott Fox, President
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 1
Aetna Value Opportunity Fund
Aetna Growth Fund
Aetna Mid Cap Fund
Aetna Small Company Fund
Aetna International Fund
Aetna Index Plus Large Cap Fund
Aetna Index Plus Small Cap Fund
Aetna Index Plus Mid Cap Fund
Aetna Index Plus Bond Fund
Aetna Ascent Fund
Aetna Crossroads Fund
Aetna Legacy Fund
Aetna Principal Protection Fund I
Aetna Principal Protection Fund II
Aetna Principal Protection Fund III
Aetna Principal Protection Fund IV
Aetna Technology Fund
4
Exhibit o
Form of Multiple Class Plan
<PAGE>
FORM OF
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 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 Growth Fund
Aetna Government Fund Aetna Small Company Fund
Aetna Bond Fund Aetna International Fund
Aetna High Yield Fund Aetna Index Plus Large Cap Fund
Aetna Balanced Fund Aetna Index Plus Small Cap Fund
Aetna Ascent Fund Aetna Index Plus Mid Cap Fund
Aetna Crossroads Fund Aetna Index Plus Bond Fund
Aetna Legacy Fund Aetna Principal Protection Fund I
Aetna Value Opportunity Fund Aetna Principal Protection Fund II
Aetna Real Estate Securities Fund Aetna Principal Protection Fund III
Aetna Mid Cap Fund Aetna Principal Protection Fund IV
Aetna Growth and Income Fund Aetna Technology Fund
Aetna International Fund, Aetna Small Company Fund, Aetna Growth Fund,
Aetna Growth and Income Fund, Aetna Balanced Fund, Aetna Ascent Fund, Aetna
Crossroads Fund, Aetna Legacy Fund, Aetna Real Estate Securities Fund, Aetna Mid
Cap Fund, Aetna Value Opportunity Fund and Aetna Technology Fund are
collectively referred to herein as the "Equity Funds". Aetna Government Fund,
Aetna Bond Fund and Aetna High Yield Fund are collectively referred to herein as
the "Fixed Income Funds". Aetna Index Plus Large Cap Fund, Aetna Index Plus Bond
Fund, Aetna Index Plus Mid Cap Fund and Aetna Index Plus Small Cap Fund are
collectively referred to herein as the "Enhanced Index Funds". Aetna Principal
Protection Fund I, Aetna Principal Protection Fund II, Aetna Principal
Protection Fund III and Aetna Principal Protection Fund IV are collectively
referred to herein as the "Principal Protection Funds."
1. Class Designations:
------------------
The shares of the Series, except the Principal Protection Funds, are
divided into four classes: Class I, Class A, Class B and Class C. The Principal
Protection Funds are divided into two classes: Class A and Class B.
<PAGE>
Class I shares are shares that are offered to:
o certain retirement plans;
o certain registered investment advisers having an agreement
with the Fund to invest a minimum of $1 million within one
year of initial purchase (excludes Aetna Technology Fund);
o employees and retired employees of Aetna Inc. and its
affiliates (including members of employees' and retired
persons' immediate families, board members and trustees, and
their immediate families);
o insurance companies (including separate accounts) (excludes
Aetna Technology Fund);
o registered investment companies (excludes Aetna Technology
Fund);
o shareholders holding Select Class shares at the time such
shares were redesignated as Class I shares, and their
immediate family members, as long as they maintain a
shareholder account;
o certain bank and independent trust companies investing on
behalf of their clients for which they charge trust and
investment management fees (excludes Aetna Technology Fund);
o members of the Board of Directors of the Fund ("Board");
o NASD registered representatives of Aeltus Capital, Inc. or
any affiliated broker-dealers (including members of their
immediate families); and
o members of such other groups as may be approved by the Fund's
Board from time to time.
Class A, Class B and Class C shares are shares that are offered to
accounts not eligible to buy Class I shares. Notwithstanding the foregoing,
Class A shares may be offered to (i) employees of Aetna Inc. and its affiliates
(including members of employees' immediate families, board members and trustees,
and their immediate families) and (ii) NASD registered representatives of Aeltus
Capital, Inc. or any affiliated broker-dealers (including members of their
immediate families) purchasing shares for their own accounts, provided that the
Fund's principal underwriter agrees to waive the front-end sales load associated
with Class A shares.
2. Differences in Distribution Arrangements:
----------------------------------------
a. Class I Shares.
--------------
Class I shares are distributed with no sales charges, distribution fees
or service fees.
b. Class A Shares.
--------------
Class A shares of each Series, except Aetna Money Market Fund ("Money
Market"), are subject to the imposition of a front-end sales load at the time of
purchase. The Equity Funds, Fixed Income Funds, Enhanced Index Funds and
Principal Protection Funds have maximum front-end sales loads of 5.75%, 4.75%,
3.00% and 3.75%, respectively. Front-end sales loads for all series decline to
0% based on discounts for volume purchases (aggregate investment in any
registered investment company for which Aeltus Investment Management, Inc. acts
as investment adviser), as set forth in the table below.
<TABLE>
<CAPTION>
Sales Charge
-------------------------------------------------------------
Aggregate Investment Equity Funds Fixed Income Enhanced Index Principal
- -------------------- ------------ ------------- --------------- ---------
Funds 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>
2
<PAGE>
Class A shares of each Series, except Money Market, are subject to a
distribution fee based on the average daily net assets attributable to Class A
shares. This fee is imposed pursuant to a Distribution Plan adopted under Rule
12b-1 under the 1940 Act, in the amount of 0.25%.
Class A shares are not subject to a service fee.
Class A shares purchased with an aggregate investment in the Fund's
Series of less than $1,000,000 are not subject to a contingent deferred sales
charge (CDSC). Class A shares purchased with an aggregate investment in the
Fund's Series of $1,000,000 or more (including purchases made in connection with
an agreement to invest $1 million or more under a Letter of Intent), may be
subject to a CDSC imposed on redemptions within two (2) years of purchase. The
CDSC will apply only to shares for which a finder's fee is paid to selling
broker-dealers, banks or other investment professionals, pursuant to a
distribution agreement with the Fund's principal underwriter. The charge is
assessed on an amount equal to the lesser of the current market value or the
original cost of the shares being redeemed. Thus, there is no sales charge on
increases in the net asset value of shares above the initial purchase price.
There is no CDSC on redemptions of Class A shares:
(1) exchanged to other Series of the same class of shares (except that
exchanges may not be made into Principal Protection Funds);
(2) purchased through reinvestment of dividends or capital gains
distributions;
(3) purchased more than two (2) years prior to the redemption;
(4) in the event of the owner's death or disability;
(5) related to certain distributions from retirement plans or accounts
which are permitted without penalty pursuant to the Internal Revenue
Code of 1986, as amended;
(6) related to distributions or tax-free returns of excess contributions
from employee benefit plans; or,
(7) in connection with the Fund's systematic withdrawal plan, if
applicable.
In addition, there is no CDSC on Money Market (Class A) redemptions
unless (i) those shares were purchased through an exchange from another Series
within two (2) years prior to the redemption and (ii) the original purchase of
the shares exchanged was subject to a CDSC.
A CDSC in the amount shown below will be imposed within the first year or
second year after purchase on redemptions of such shares. In determining the
number of years the shares have been held, the Fund will aggregate all purchases
of Class A shares made during a month and consider them made on the first day of
the month.
The finders fee payable with respect to such Class A purchases (except the
Enhanced Index Funds) shall be as follows:
CUMULATIVE PURCHASE AMOUNT($) COMMISSION CDSC
---------------------------- ---------- ----
1,000,000 but under 3,000,000 1.00% Year 1 - 1.00%
Year 2 - 0.50%
3,000,000 but under 20,000,000 0.50% Year 1 - 0.50%
Year 2 - 0.50%
20,000,000 or greater 0.25% Year 1 - 0.25%
Year 2 - 0.25%
3
<PAGE>
The finders fee payable with respect to such Class A purchases of the Enhanced
Index Funds shall be as follows:
CUMULATIVE PURCHASE AMOUNT($) COMMISSION CDSC
----------------------------- ---------- ----
1,000,000 but under 3,000,000 0.50% Year 1 - 0.50%
Year 2 - 0.50%
3,000,000 but under 20,000,000 0.25% Year 1 - 0.25%
Year 2 - 0.25%
20,000,000 or greater 0.25% Year 1 - 0.25%
Year 2 - 0.25%
c. Class B Shares.
--------------
Class B shares of each Series are subject to a distribution fee based on
the average daily net assets attributable to Class B shares. This fee is imposed
pursuant to a Distribution Plan adopted under Rule 12b-1 under the 1940 Act, in
the amount of 0.75%.
Class B shares of each Series are subject to a service fee based on the
average daily net assets attributable to Class B shares in the amount of 0.25%.
Class B shares of each Series are not subject to a front-end sales load.
However, a CDSC will be imposed on redemptions of Class B shares made within a
specified number of years. For all series except Principal Protection Funds the
CDSC will be calculated from the date of purchase, as shown below. For the
Principal Protection Funds, Year 1 includes the offering period and the first
year of the guarantee period.
For all Series except Principal Protection Funds:
Year 1 2 3 4 5 6 7+
------------------------------------------------------------------------
CDSC 5% 4% 3% 3% 2% 1% 0%
For Principal Protection Funds:
Year 1 2 3 4 5
------------------------------------------------------
CDSC 5% 4% 3% 3% 2%
The CDSC is assessed on an amount equal to the lesser of the current
market value or the original cost of the shares being redeemed. Thus, there is
no sales charge on increases in the net asset value of shares above the initial
purchase price. There is no CDSC on redemptions of Class B shares:
(1) exchanged to other Series of the same class of shares (except that
exchanges may not be made into Principal Protection Funds);
(2) purchased through reinvestment of dividends or capital gains
distributions;
(3) purchased more than six (6) years (five (5) in the case of Principal
Protection Funds) prior to the redemption (in determining the number
of years the shares have been held, the Fund will aggregate all
purchases of Class B shares made during a month and consider them
made on the first day of the month);
(4) in the event of the owner's death or disability;
(5) related to certain distributions from retirement plans or accounts
which are permitted without penalty pursuant to the Internal Revenue
Code of 1986, as amended;
(6) related to distributions or tax-free return of excess contributions
from employee benefit plans; or,
(7) in connection with the Fund's systematic withdrawal plan, if
applicable.
4
<PAGE>
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:
(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.
5
<PAGE>
4. Exchange Privileges:
-------------------
Each class of shares may be exchanged for shares of the same class in
another Series (except that exchanges may not be made into Principal Protection
Funds). Currently, shares of each class may be exchanged at the net asset value
for shares of any other Series of the same class, subject to minimum investment
requirements.
5. Conversion Features:
-------------------
For all Series except the Principal Protection Funds, 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.
6
Exhibit p.1
Aeltus Code of Ethics
<PAGE>
CODE OF ETHICS
AELTUS INVESTMENT MANAGEMENT, INC.
MARCH 1, 1999
<PAGE>
CODE OF ETHICS
AELTUS INVESTMENT MANAGEMENT, INC.
INTRODUCTION
- --------------------------------------------------------------------------------
Aeltus has the privilege of being retained by our clients to manage their
assets. As investment managers, we are fiduciaries to our clients. And,
as fiduciaries, we must always put our clients' best interests first,
avoiding even the appearance of conflicts of interest with our clients.
The Code of Ethics (Code) has been adopted by Aeltus' Senior Management
and applies to all directors, officers and employees (including
consultants and part-time hires) of Aeltus Investment Management, Inc.
and its subsidiaries (Aeltus). The Code covers personal securities
transactions by Aeltus directors, officers, employees, members of their
immediate families, persons who reside with them, and relatives who are
supported by them.
Administration of the Code is the responsibility of our Compliance
Officers. Enforcement of the Code is the responsibility of Senior
Management. Our Compliance Officers are responsible for reviewing and
investigating any reported or suspected violations of the Code and
reporting their findings to Senior Management. If the investigation
discloses that a violation has occurred, Senior Management will recommend
appropriate actions and sanctions, which may include termination of
employment.
Senior Management believes that compliance with the Code will help
prevent actual or perceived conflicts of interest caused by personal
securities transactions. Senior Management also believes that the Code is
reasonable and that it is not overly restrictive.
From time to time, the Code may be revised. If you have any questions
regarding the Code, please contact one of our Compliance Officers.
2
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
Whenever used in the Code, and unless the context indicates otherwise,
the following terms have the following meanings:
1. "Employee" means every officer, director or person employed
(including consultants and part-time employees) by Aeltus Investment
Management or its subsidiaries.
2. "Pre-Clearance Officer" are those Employees designated by Senior
Management to pre-clear personal securities transactions and whose
names are shown on Appendix A.
3. "Restricted List" means the list that the investment department
provides to the Compliance Department, which includes those
securities that are being purchased or sold for client accounts and
securities that are prohibited from purchase or sale by client
accounts or Employees for various reasons (e.g., large concentrated
ownership positions or possession of material, non-public
information).
NOTE: Because of the nature of the selection process regarding
securities being purchased or sold pursuant to a
computer-determined program trade ("Program Trade"), securities
involved in a Program Trade may not be included on the Restricted
List.
4. "Security" means ALL securities EXCEPT:
o shares of registered open-end investment companies (mutual
funds);
o direct obligations of the U.S. Government (but not its
agencies or instrumentalities e.g., FNMA or GNMA, etc.);
o bankers' acceptances;
o bank certificates of deposit;
o commercial paper;
o money market instruments, including repurchase agreements and
other high-quality short-term debt instruments.
These exceptions will hereinafter be referred to as "exempt securities".
5. "Account" for which pre-clearance is required means:
o an Employee's own account;
o an account in which an Employee has a beneficial interest and can influence
investment decisions;
o a personal account of a member of the Employee's household; and
o an account over which an Employee exercises investment discretion in a
capacity other than as an Employee.
3
<PAGE>
POLICY
- --------------------------------------------------------------------------------
Parallel Investing.
------------------
Subject to the provisions of the Code, Employees may own the same
securities as those acquired by Aeltus for its clients.
Priority of Client Interests.
----------------------------
Every Employee must give priority to the interests of Aeltus clients over
his or her own interest in making a personal investment.
To effect this policy:
o Employees may not knowingly execute a securities transaction in
securities listed on the Restricted List.
o Equity Department Employees may not knowingly execute a securities
transaction without complying with the "Pre-Clearance of Investments"
provision in the Procedures Section of the Code.
o Portfolio managers are prohibited from knowingly buying or selling a
security within seven (7) calendar days before and seven (7) calendar
days after a client that he or she manages trades in that security.
NOTE: Even though securities involved in a Program Trade may not be
listed on the Restricted List, portfolio managers whose clients are
buying or selling securities in a Program Trade are prohibited from
knowingly buying or selling these securities in their personal
accounts (refer to "Account For Which Pre-Clearance Is Required" in
the Procedures Section of the Code).
NOTE: Because of the nature of the selection process regarding
securities being purchased or sold pursuant to a Program Trade,
portfolio managers whose clients purchased or sold securities in a
Program Trade are not restricted to the seven (7) calendar day
prohibition mentioned above.
Conflict with Clients.
---------------------
No Employee may knowingly buy, sell or dispose in any manner, including
by gift, a personal securities investment which would cause, or appear to
cause, a conflict with the interests of an Aeltus client.
Responsibility to Disclose Possible Conflict Before Client Transaction.
----------------------------------------------------------------------
Before an Employee recommends, directs, executes or participates in any
security transaction involving an Aeltus client, such Employee will
disclose to a Pre-Clearance Officer all relevant details concerning any
possible conflict, or appearance of conflict, between his or her personal
investments and the interests of an Aeltus client. For example, the
capitalization and trading volume of a security owned by an Employee may
be relevant in determining whether there is a possible conflict of
interest if that Employee participates in a decision to buy or sell that
security for an Aeltus client.
4
<PAGE>
Moreover, an Employee is expected to use common sense and professional
judgment to determine if he or she should disclose personal information
as a possible basis for conflict of interest.
Full Disclosure of Personal Securities Investments.
--------------------------------------------------
In order to enable Aeltus to determine compliance with the Code, every
Employee, when requested by a Compliance Officer, will disclose all
information about his or her Accounts and personal securities
investments.
The following reports of Accounts will be required of all Employees:
o within seven (7) calendar days of their employment start date (or
appointment in the case of certain directors or consultants), the New
Hire Holdings Report (see Appendix B), which describes all Securities
holdings as of their employment start date by Aeltus. Any Employee
who fails to submit the report within seven (7) calendar days of
their employment start date will be prohibited from engaging in any
personal securities transactions;
o within ten (10) days of the end of each calendar quarter, the
Quarterly Securities Transactions Report (see Appendix C) which
describes all Securities transactions made during the previous
quarter;
o within ten (10) days of the end of the calendar year, the Annual
Report of Holdings (see Appendix D) which lists all Securities
holdings.
Aeltus Influence.
----------------
No Employee will use the influence of his or her position to obtain a
personal trading advantage.
Change in Ownership of Securities by Clients.
--------------------------------------------
No Employee will conduct any personal securities transaction on the basis
of knowledge of: (i) a client's plans; (ii) a change, or possible change
in Aeltus' investment policy; (iii) a buying or selling program for
Aeltus clients; or (iv) the investment results Aeltus anticipates
generating for a client. For example, an Employee will neither purchase a
security nor sell his or her position in that security when he or she
knows that Aeltus intends to purchase or sell that security for its
clients.
Pre-Clearance of Trades.
-----------------------
No Employee shall buy, sell or transfer by gift any Security unless the
Employee has obtained "Pre-Clearance" in accordance with the
pre-clearance procedures described in the Procedures section of the Code.
Material Non-Public Information.
-------------------------------
No Employee will trade or recommend trading in securities on the basis of
material non-public information. Employees are subject to the provisions
of Aeltus' Policies and Procedures Governing Insider Trading Activity.
5
<PAGE>
Founder's Stock.
---------------
No Employee will purchase, or otherwise acquire in any manner, founder's
stock of any corporation.
Initial Public Offerings.
------------------------
No Employee will purchase any security in an initial public offering.
Non-Public Securities.
---------------------
Personal investments in non-public securities are subject to the same
rules as personal investments in publicly traded securities, including
the Pre-Clearance process described in the Procedures section of the
Code.
In the event that an Employee is granted permission to make a personal
investment in a non-public security, that Employee will not participate
in the consideration of whether clients should invest in that issuer's
public or non-public securities. Such consideration will be subject to
independent review by investment personnel with no personal investment in
that issuer.
Pre-Clearance of Gifts.
----------------------
No Employee will dispose of securities by gift without having obtained
"Pre-Clearance" in accordance with the pre-clearance procedures described
in the Procedures section of the Code.
Receipt of Gifts.
----------------
No Employee may receive any gift or other thing of more than de minimus
value from any person or entity that does business with Aeltus. Employees
who receive a gift or other thing of more than de minimus value from any
person or entity that does business with Aeltus should immediately
contact a Compliance Officer to determine the proper disposition of such
gift.
Short-Term Trading.
------------------
Employees should focus their energy toward providing Aeltus and its
clients with their maximum attention and effort. Senior Management
believes that if Employees were to systematically engage in a pattern of
short-term trading (i.e., effecting frequent securities transactions) for
their Accounts, they would be doing so at the expense of Aeltus and its
clients as such Employee's attention would be diverted from their
responsibility to Aeltus and its clients to their own personal needs.
Accordingly, Employees should not effect frequent securities transactions
for their Accounts.
In addition, Senior Management believes that Employees should not profit
in the purchase and sale, or sale and purchase of the same security
within 60 calendar days. While Senior Management recognizes that
short-term trading strategies are generally well within the parameters of
existing legal requirements, a general prohibition on short-term trading
profits (i.e., the purchase and sale, or sale and purchase of the same or
6
<PAGE>
equivalent securities within 60 calendar days) can serve as an important
prophylactic device against allegations of conflicts of interest (e.g.,
front-running client transactions). Accordingly, the prohibition against
short-term trading profits is designed to minimize the possibility that
Employees will capitalize inappropriately on the market impact of trades
involving client transactions to which they possibly may be privy.
Senior Management understands that while this policy may impose a
standard more onerous than that presently common throughout the
investment management industry, it believes that this policy will help to
reduce allegations of conflicts of interest. In certain circumstances,
and as determined on a case-by-case basis, exceptions may be allowed when
no abuse is involved and the fairness of the situation strongly supports
an exemption.
Employees who breach the above policies may be subject to certain
sanctions including, but not limited to, reprimand, disgorgement ofs
profits, suspension and terminations.
NOTE: Short-term trading profits obtained in an Account from the exercise
of employee stock options and the subsequent sale of the underlying stock
are exempt from this prohibition and are, instead, viewed as a form of
employee compensation.
Service as a Director or Officer.
--------------------------------
Absent prior approval of Senior Management, Employees may not serve as
directors or officers of unaffiliated public or private companies.
Aetna Inc. Code of Conduct.
--------------------------
All Employees are subject to the Aetna Inc. Code of Conduct and must
abide by all its requirements, including its requirements pertaining to
transactions in Aetna securities.
7
<PAGE>
PROCEDURES
- --------------------------------------------------------------------------------
Absence of Conflict of Interest.
-------------------------------
Before buying or selling a security in his or her Account, an Employee
should ask the following questions:
o "Will the investment cause my economic interest to conflict, or
appear to conflict, with the interests of an Aeltus client either now
or at some later time?"
o "Would I be embarrassed if The Wall Street Journal had an article
regarding my personal investment?"
o "Would I be embarrassed to discuss the matter with my mother or
father?"
Unless the answer is a confident "NO", the investment should not be made.
Pre-Clearance of Investments.
----------------------------
Employees must obtain approval from a Pre-Clearance Officer prior to
entering an order to buy, sell or transfer by gift all Securities in an
Account, except Exempt Securities.
NOTE: Equity Department Employees must pre-clear their equity
transactions through pre-clearance officers listed under "For Equity
Department Employees" on Appendix A.
NOTE: In order to avoid any appearance of impropriety where an employee
is asked to pre-clear a personal securities transaction submitted by his
or her supervisor, persons occupying the following offices will pre-clear
as follows:
(1) Chief Executive Officer through Equity Department Pre-Clearance
Officers and countersigned by Compliance Department Pre-Clearance
Officers;
(2) Chief Operating Officer through Equity Department Pre-Clearance
Officers and countersigned by Compliance Department Pre-Clearance
Officers;
(3) Head of Equity Department through Equity Department Pre-Clearance
Officers (except himself or herself) and countersigned by Compliance
Department Pre-Clearance Officers;
(4) Head Equity Trader through Head of Equity Department;
(5) Chief Compliance Officer through Equity Department Pre-Clearance
Officers.
Account For Which Pre-Clearance Is Required.
-------------------------------------------
Employees must obtain pre-clearance of trades for all Securities
transactions made in an Account.
It is not necessary to obtain pre-clearance for investments which are
made by an independent fiduciary (i.e., a discretionary account) for an
Account, securities purchased through an automatic payroll deduction
program where the timing of purchases is controlled by someone other than
the Employee, purchases which are part of an automatic dividend
reinvestment plan, and purchases effected upon the exercise of rights
issued by an issuer pro-rata to all holders of a class of its securities,
to the extent
8
<PAGE>
such rights were acquired from such issuer. Sales of Securities obtained
as a result of the exercise of such rights, however, must be pre-cleared.
Evaluation of Request for Pre-Clearance.
---------------------------------------
A Pre-Clearance Officer will evaluate a request for pre-clearance and
consider whether the transaction would violate any provisions of the
Code. It is expected that in making such determination, a Pre-Clearance
Officer may consider the following information:
o The information regarding the transaction;
o Previously submitted requests for pre-clearance of personal trades;
o Information from the portfolio managers regarding securities
currently under consideration for purchase or sale by Aeltus'
clients;
o The Aeltus electronic trading system as to all securities owned by
Aeltus' clients;
o The Restricted List; and
o Other appropriate sources.
Response to Request for Pre-Clearance.
-------------------------------------
A Pre-Clearance Officer's response to the request for pre-clearance will
include:
o Making a telephone call to the Employee requesting pre-clearance, to
either approve or deny the request, and
o Filing a copy of the Pre-Clearance form with the Compliance
Department (a sample copy of which is included as Appendix E).
Time for Which A Transaction is Approved.
----------------------------------------
An Employee may authorize his or her broker to execute a transaction only
on the day on which approval for that transaction is given. If the
transaction is not completed on that day, the Employee must again obtain
pre-clearance for the transaction on each day that the Employee would
like to effect the transaction.
Post Execution Reporting.
------------------------
At the close of each calendar quarter, the Compliance Department will
forward a copy of the Personal Securities Transactions Quarterly Report
(see Appendix C) to every Employee. Within ten (10) calendar days of the
end of each calendar quarter, every Employee must complete and return to
the Compliance Department the Quarterly Report, which describes all
reportable securities transactions of personal investments executed
during the preceding three months.
At the close of each calendar year, the Compliance Department will
forward a copy of the Annual Securities Holdings Report (see Appendix D)
to every Employee. Within ten
9
<PAGE>
(10) calendar days of the end of each calendar year, every Employee must
complete and return to the Compliance Department the Annual Report, which
describes all reportable securities then held in the Employee's
account(s).
Confidentiality.
---------------
All information submitted to the Aeltus Compliance Department pursuant to
pre-clearance and post execution reporting procedures will be treated as
confidential information. It may, however, be made available to
governmental and securities industry self regulatory agencies with
regulatory authority over Aeltus as well as to Aeltus' auditors and legal
advisors, if appropriate.
SUPERVISORY PROCEDURES
- --------------------------------------------------------------------------------
Exceptions to Policy and Procedures.
-----------------------------------
Because all fact situations cannot be contemplated, Aeltus' Chief
Compliance Officer and Senior Management retain the authority to permit
exceptions to the above policies and procedures when to do so is
consistent with the interests of Aeltus and its clients.
Administration of the Code.
--------------------------
In order to ensure observance of these policies and procedures relating
to personal investments, Senior Management will:
o Distribute the Code to all Employees;
o Provide educational programs to familiarize Employees with relevant
policies and procedures;
o Set an example by their personal actions of compliance with the
letter and spirit of Aeltus' policies and procedures;
o Require observance of Aeltus' policies and procedures and, if such
policies and procedures are violated, determine the appropriate
sanction for the offender, which may include termination of
employment;
o Review on a regular basis and update as necessary Aeltus' policies
and procedures;
o Reconcile Pre-Clearance approvals with Quarterly Report forms;
o Take appropriate actions to ensure compliance with the policies and
procedures of the Code; and
o Maintain and review records related to personal securities
transactions.
Each Employee will be required periodically to certify that they have
read and understood the policies and procedures contained in the Code
(see Appendix F).
10
<PAGE>
APPENDIX A
PRE-CLEARANCE OFFICERS
William Bartol (860) 275 - 2266
Marlene Brigham (860) 275 - 2110
Brian Kawakami (860) 275 - 3599
Patricia Vazquez (860) 275 - 4069
FOR EQUITY DEPARTMENT EMPLOYEES
Heather Bentley (860) 275 - 2436
James Chiecko (860) 275 - 3746
Neil Kochen (860) 275 - 2423
Sara Pihl (860) 275 - 3747
Kristen Pinchera (860) 275 - 2445
Nancy Postel (860) 275 - 2434
Peter Walsh (860) 275 - 3749
11
<PAGE>
APPENDIX B
NEW HIRE HOLDINGS REPORT
------------------------
Date of Hire: ____________, 199_
FILING OF REPORT IS REQUIRED AS OF YOUR EMPLOYMENT START DATE OF HIRE. PLEASE
NOTE THAT YOU DO NOT HAVE TO REPORT HOLDINGS OF EXEMPT SECURITIES (AS DEFINED IN
THE CODE OF ETHICS).
[ ] No Holdings To Report (Check if applicable)
Print Name __________________________________________
<TABLE>
<S> <C> <C> <C>
Title of Quantity Broker
Security* Held or Bank *Disclaimer (Check if applicable, give reasons)
- --------- ------- -------
* The undersigned declares that the recording of the holding checked in this column shall not be construed
as an admission that he/she had any direct or indirect ownership in the security described.
</TABLE>
IF YOU WISH, YOU MAY ATTACH A COPY OF YOUR MOST RECENT ACCOUNT STATEMENT(S) AS
PROVIDED TO YOU BY YOUR BROKER, BANK, OR CUSTODIAN. IF YOU HAVE ANY QUESTIONS OR
CONCERNS RELATED TO THIS FORM, PLEASE FEEL FREE TO CONTACT ONE OF THE FIRM'S
COMPLIANCE OFFICERS.
Date: _________________________________
Signature: _________________________________
PLEASE FORWARD TO THE CHIEF COMPLIANCE OFFICER, SH11.
12
<PAGE>
APPENDIX C
QUARTERLY SECURITIES TRANSACTIONS REPORT
----------------------------------------
For Quarter Ending _________________
FILING OF REPORT IS REQUIRED WHETHER OR NOT TRANSACTIONS OCCURRED. PLEASE NOTE
THAT YOU DO NOT HAVE TO REPORT TRANSACTIONS IN EXEMPT SECURITIES.
[ ] No Transactions To Report (Check if applicable)
Print Name ______________________________________
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Trade **Quantity **Quantity Broker
Date Title of Security* Purchased Sold Price or Bank ***Disclaimer
- ----- ------------------ ---------- ---------- ----- -------- (Check if applicable, give reasons)
</TABLE>
* The undersigned declares that the recording of the transaction checked in
this column shall not be construed as an admission that he/she had any
direct or indirect ownership in the security described in the transaction.
** If you have acquired or disposed of a security in a transaction other than a
purchase or sale (e.g., by gift), please describe the nature of the
transaction.
*** The undersigned declares that the recording of the transaction listed in
this column shall not be construed as an admission that he/she has or had
any direct or indirect ownership in the security described in the
transaction.
IF YOU WISH, YOU MAY ATTACH A COPY OF YOUR ACCOUNT STATEMENTS AS PROVIDED TO YOU
BY YOUR BROKER, BANK, OR CUSTODIAN.
Date: _________________ Signature:_____________________________
13
<PAGE>
APPENDIX D
AELTUS INVESTMENT MANAGEMENT, INC.
ANNUAL REPORT OF PERSONAL SECURITIES HOLDINGS
FILING OF REPORT IS REQUIRED WITHIN TEN (10) DAYS OF CALENDAR YEAR-END. PLEASE
NOTE THAT YOU DO NOT HAVE TO REPORT HOLDINGS OF EXEMPT SECURITIES.
[ ] No Holdings To Report (Check if applicable)
Print Name ___________________________________
Title of Quantity Broker
Security Held or Bank *Disclaimer (Check if applicable, give reasons)
- -------- ------- ------- ----------
* The undersigned declares that the recording of the transaction listed
in this column shall not be construed as an admission that he/she has or
had any direct or indirect ownership in the security described in the
transaction.
PLEASE FORWARD TO THE CHIEF COMPLIANCE OFFICER, SH11.
IF YOU WISH, YOU MAY ATTACH A COPY OF YOUR ACCOUNT STATEMENTS AS PROVIDED TO YOU
BY YOUR BROKER, BANK, OR CUSTODIAN.
Date: _________________________________
Signature: ______________________________
14
<PAGE>
APPENDIX E
AELTUS INVESTMENT MANAGEMENT, INC.
REQUEST FOR PERSONAL SECURITIES TRANSACTION
PRE-CLEARANCE FORM
Name:__________________________________________________________________________
Department:____________________________________________________________________
Date:__________________________________________________________________________
Time:__________________________________________________________________________
Security:______________________________________________________________________
Type of Account
Individual ______ Joint ________ Spousal _______ Other: ___________________
Type of Transaction
Purchase __________ Sale___________ Gift__________ Other/Describe ____________
Have you bought/sold the same or an equivalent security within the past 60 days?
Yes _____ No ______
If yes, please discuss this transaction with the Compliance Department
PRIOR TO ENTERING INTO the transaction.
Transaction is: Approved _________ Not Approved ________
If Approved, approval valid for TRADE DATE: ___________________________
PLEASE FORWARD TO THE CHIEF COMPLIANCE OFFICER, SH11.
Pre-Clearance Officer:_________________________________________________
15
<PAGE>
APPENDIX F
AELTUS INVESTMENT MANAGEMENT, INC.
EMPLOYEE CERTIFICATION
Aeltus Code of Ethics
I certify that I have read and understood the Aeltus Code of Ethics, and
acknowledge that I am subject to the policies and procedures contained therein.
Please sign and return this certification to the attention of the Chief
Compliance Officer, SH11, as soon as possible.
Print Name: __________________________________________
Signature: __________________________________________
Date: __________________________________________
16
Exhibit p.2
Aetna Mutual Funds Code of Ethics
<PAGE>
AETNA VARIABLE FUND
AETNA VARIABLE ENCORE FUND
AETNA INCOME SHARES
AETNA GET FUND
AETNA BALANCED VP, INC.
AETNA GENERATION PORTFOLIOS, INC.
AETNA VARIABLE PORTFOLIOS, INC.
AETNA SERIES FUND, INC.
CODE OF ETHICS
EFFECTIVE
MAY 1, 1998
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
This Code of Ethics (the "Code") is adopted for each of the Funds (as defined
below) in accordance with Section 17(j) of the Investment Company Act of 1940
(the "1940 Act") and Rule 17j-1 thereunder. The Code is being adopted by each of
the Funds and applies to directors/trustees ("Directors") and officers of each
Fund.
Persons who are affiliated with the Funds and Aeltus Investment Management, Inc.
("Aeltus") are prohibited from using non-public information obtained in the
course of their business for their personal benefit. This would include
profiting at the expense of a Fund, purposefully trading ahead of a Fund and
using his or her relationship with a Fund to obtain favors that would otherwise
be unavailable to whomever receives them. This Code is designed to prevent such
improper conduct.
Administration of the Code is the responsibility of the Chief Compliance Officer
of Aeltus. Questions concerning the Code or any transactions that may be subject
to provisions of the Code may be directed to the Chief Compliance Officer.
Enforcement of Code provisions is the responsibility of the Code of Ethics
Review Committee ("Committee"). The Committee is comprised of Aeltus' Chief
Compliance Officer, the President of the Funds, and legal counsel to the Funds.
The Committee is responsible for investigating any reported or suspected
violations of the Code. If the investigation discloses that a violation has
occurred, the Committee has been given the authority by the Boards of
Trustees/Directors ("Board") of the Funds, as appropriate, to determine the
appropriate sanction and to direct the Chief Compliance Officer to administer
the sanction. The President of the Funds will report to the Board any material
violations of the Code, the investigations conducted and any resulting
sanctions.
DEFINITIONS
- --------------------------------------------------------------------------------
Whenever used in the Code, the following terms have the following
meanings:
1. "Pre-Clearance Officers" are those persons designated to pre-clear
personal securities transactions and whose names are shown on
Appendix A.
2. "Reporting Person" (Appendix B) includes every person who is an
officer or director of any Fund who meets the definition of
"interested person" set forth in Section 2(a)(19) of the 1940 Act.
"Reporting Person" does not include any person meeting the above
criteria who is subject to a code of ethics adopted by the Fund's
adviser.
3. "Disinterested Director" means those directors of the Fund who fall
outside the definition of Reporting Person.
<PAGE>
4. "Restricted List" means the list, produced by the investment
department of Aeltus for the Aeltus Compliance Department, that
identifies those securities being purchased or sold for client
(including Fund) accounts (unless pursuant to a program trading
program) and other securities that are prohibited from purchase or
sale by Fund accounts or employees for various reasons (e.g., large
concentrated ownership positions or possession of material,
non-public information).
5. "Security" means any security EXCEPT:
o shares of registered open-end investment companies (mutual funds);
o securities issued by the U.S. government (but not its agencies or
instrumentalities);
o bankers' acceptances;
o bank certificates of deposit;
o commercial paper;
o money market instruments, including repurchase agreements and
other high quality, short-term debt.
These exceptions will hereinafter be referred to as "exempt
securities."
6. "Fund" means the following registered investment companies: Aetna
Variable Fund, Aetna Variable Encore Fund, Aetna Income Shares, Aetna
GET Fund, Aetna Balanced VP, Inc., Aetna Generation Portfolios, Inc.,
Aetna Variable Portfolios, Inc., and Aetna Series Fund, Inc.
POLICY
- --------------------------------------------------------------------------------
Prohibited Conduct.
------------------
It is unlawful for any Reporting Person or Disinterested Director:
(1) to employ any device, scheme or artifice to defraud any Fund;
(2) to make to a Fund any untrue statement of a material fact or omit to
state to a Fund a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not
misleading;
(3) to engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any Fund; or
(4) to engage in any manipulative practice with respect to any Fund.
2
<PAGE>
Priority of Client Interests.
----------------------------
Each Reporting Person must give priority to the interests of the Funds
over his or her own interest in making or maintaining a personal
investment.
To effect this policy, Reporting Persons may not execute a transaction in
a security listed on the Restricted List on a day during which Aeltus has
a pending "buy" or "sell" order for that same security.
Conflict with Clients.
---------------------
No Reporting Person may buy, sell or dispose in any manner, including by
gift, a personal securities investment that would cause, or appear to
cause, a conflict with the interests of a Fund.
Responsibility to Disclose Possible Conflict Before Client Transaction.
----------------------------------------------------------------------
Before a Reporting Person recommends, directs, executes or participates
in any security transaction involving a Fund, such Reporting Person will
disclose to a Pre-Clearance Officer all relevant details concerning any
possible conflict, or appearance of conflict, between his or her personal
investments and the interests of a Fund. For example, the capitalization
and trading volume of a security owned by a Reporting Person may be
relevant in determining whether there is a possible conflict of interest
if that Reporting Person participates in a decision to buy or sell that
security for a Fund. Moreover, a Reporting Person is expected to use
common sense and professional judgment to determine whether he or she
should disclose personal information as a possible basis for conflict of
interest.
Full Disclosure of Personal Securities Investments.
--------------------------------------------------
Every Reporting Person, when requested by a Compliance Officer, will
disclose all information about his or her personal securities
investments.
Within ten (10) days of the end of the calendar year, the Annual Report
of Holdings (see Appendix C) which lists all Securities holdings will be
mailed to every Reporting Person for completion.
Change in Portfolio of a Fund.
-----------------------------
No Reporting Person may conduct any personal securities transaction on
the basis of knowledge of: (i) a Fund's intention to buy or sell a
Security; or (ii) a change or possible change in a Fund's investment
strategy.
3
<PAGE>
Pre-Clearance of Trades.
-----------------------
No Reporting Person may buy, sell or transfer by gift any security unless
the Reporting Person has obtained "Pre-Clearance" in accordance with the
pre-clearance procedures described in the Procedures section of the Code.
Material Non-Public Information.
-------------------------------
No Reporting Person will trade or recommend trading in securities on the
basis of material non-public information.
Founder's Stock.
---------------
No Reporting Person will purchase, or otherwise acquire in any manner,
founder's stock of any corporation.
Initial Public Offerings.
------------------------
No Reporting Person will purchase any security in an initial public
offering.
Non-Public Securities.
---------------------
Personal investments in non-public Securities are subject to the same
rules as personal investments in publicly traded securities, including
the Pre-Clearance process described in the Procedures section of the
Code.
In the event that a Reporting Person is granted permission to make a
personal investment in a non-public Security, that Reporting Person will
not participate in the consideration of whether the Funds should invest
in that issuer's public or non-public Securities. Such consideration will
be subject to independent review by investment personnel with no personal
investment in that issuer.
Pre-Clearance of Gifts.
----------------------
No Reporting Person will dispose of Securities received by gift without
having obtained "Pre-Clearance" in accordance with the pre-clearance
procedures described in the Procedures section of the Code.
Receipt of Gifts.
----------------
No Reporting Person may receive any gift or other thing of more than de
minimus value from any person or entity that does business with Aeltus, a
Fund, or any other affiliates of Aeltus. A Reporting Person who receives
a gift or other thing of more than de minimus value from any such person
or entity should immediately contact Aeltus' Chief Compliance Officer to
determine the proper disposition of such gift.
4
<PAGE>
Short-Term Trading.
------------------
Reporting Persons should not profit in the purchase and sale, or sale and
purchase of the same or equivalent Securities within 60 calendar days.
NOTE: Short-term trading profits obtained from the exercise of Aetna Inc.
employee stock options and the subsequent sale of the underlying Aetna
Inc. stock are exempt from this prohibition.
Sanctions.
---------
Reporting Persons who breach the above policies may be subject to
sanctions including, but not limited to, reprimand, disgorgement of
profits, suspension and termination.
Service as a Director or Officer.
--------------------------------
Absent prior approval of the Code of Ethics Review Committee, a Reporting
Person may not serve as a director or an officer of a public or private
company.
Trading Restrictions for Disinterested Directors.
------------------------------------------------
Disinterested Directors are required to pre-clear and report a
transaction in a security only if the Director knows, or in the ordinary
course of fulfilling his official duties as a Director of a Fund, should
have known, that during the 15 day period immediately preceding the date
of the transaction in a Security by the Director that Security is or was
purchased or sold by a Fund, such a purchase or sale is or was considered
by a Fund or such a purchase or sale is being considered by a Fund within
15 days after the Director proposes to engage in a transaction in such
Security.
PROCEDURES
- --------------------------------------------------------------------------------
Pre-Clearance of Investments.
----------------------------
Reporting Persons must obtain approval from a Pre-Clearance Officer prior
to entering an order to buy, sell or transfer by gift a personal
investment in all securities except Exempt Securities.
Account For Which Pre-Clearance Is Required.
-------------------------------------------
Reporting Persons must obtain pre-clearance of trades for:
1. His or her own account;
2. An account in which he or she has a beneficial interest and can
influence investment decisions; and
5
<PAGE>
3. A personal account of a member of his or her household.
It is not necessary to obtain Pre-clearance for investments that are made
by an independent fiduciary (i.e., a discretionary account) on behalf of
a Reporting Person or members of his or her household, securities
purchased through an automatic payroll deduction program where the timing
of purchases is controlled by someone other than the Reporting Person,
purchases that are part of an automatic dividend reinvestment plan, and
purchases effected upon the exercise of rights issued by an issuer
pro-rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer. Sales of Securities obtained as a
result of the exercise of such rights however, must be pre-cleared.
Evaluation of Request for Pre-Clearance.
---------------------------------------
A Pre-Clearance Officer will evaluate a request for Pre-clearance and
consider whether the transaction would violate any provisions of the
Code. In making such determination, a Pre-Clearance Officer may consider
the following information:
1. The information regarding the transaction;
2. Previously submitted requests for pre-clearance of personal
trades;
3. Information from the portfolio managers regarding securities
currently under consideration for purchase or sale by the Funds;
4. The Aeltus electronic trading system as to all securities owned by
Aeltus' clients;
5. The Restricted List; and
6. Other appropriate sources.
Response to Request for Pre-Clearance.
-------------------------------------
A Pre-Clearance Officer's response to the request for Pre-clearance will
include:
1. Making a telephone call to the Reporting Person who requested
Pre-clearance to either approve or deny the request, and
2. Filing a copy of the Pre-Clearance form with the Aeltus Compliance
Department (a sample copy of which is included as Appendix D).
6
<PAGE>
Time for which a Transaction is Approved.
-----------------------------------------
The Reporting Person may authorize his or her broker to execute a
transaction only on the day on which approval for that transaction is
given. If the transaction is not completed on that day, the Reporting
Person must once again obtain Pre-clearance for the transaction.
Post-Execution Reporting.
------------------------
At the close of each calendar quarter, the Aeltus Compliance Department
will forward a copy of the Personal Securities Transactions Quarterly
Report (see Appendix E) to every Reporting Person. Within ten calendar
days of the end of each calendar quarter, every Reporting Person must
complete and return to the Aeltus Compliance Department the Quarterly
Report, which describes all reportable Securities transactions of
personal investments executed during the preceding three months.
Confidentiality.
---------------
All information submitted to the Aeltus Compliance Department pursuant to
Pre-clearance and Post-execution reporting procedures will be treated as
confidential information. It may, however, be made available to
governmental and securities industry self-regulatory agencies with
regulatory authority over Aeltus as well as to Aeltus' and the Funds'
auditors and legal advisors, if appropriate.
Exceptions to Policy and Procedures.
-----------------------------------
Because all fact situations cannot be contemplated, Aeltus' Chief
Compliance Officer retains the authority to permit an exception to the
above policies and procedures requested by persons subject to this Code
when to do so is consistent with the interests of the Funds and is
approved in writing.
Distribution.
------------
This Code will be distributed to all Reporting Persons.
7
<PAGE>
APPENDIX A
PRE-CLEARANCE OFFICERS
Marlene Brigham (860) 275 - 2110
William Bartol (860) 275 - 2266
Brian Kawakami (860) 275 - 3599
8
<PAGE>
APPENDIX B
REPORTING PERSONS
Shaun P. Mathews
Amy R. Doberman
Daniel E. Burton
Michael J. Gioffre
9
<PAGE>
APPENDIX C
AELTUS INVESTMENT MANAGEMENT, INC.
ANNUAL REPORT OF PERSONAL SECURITIES HOLDINGS
FILING OF REPORT IS REQUIRED WITHIN TEN (10) DAYS OF CALENDAR YEAR-END. PLEASE
NOTE THAT YOU DO NOT HAVE TO REPORT HOLDINGS OF EXEMPT SECURITIES.
[ ] No Holdings To Report (Check if applicable)
Print Name ____________________________________________
<TABLE>
<S> <C> <C> <C>
Title of Quantity Broker
Security Held or Bank * Disclaimer (Check if applicable, give reasons)
- -------- ---------- ------- ----------
</TABLE>
* The undersigned declares that the recording of the transaction listed
in this column shall not be construed as an admission that he/she has or
had any direct or indirect ownership in the security described in the
transaction.
PLEASE FORWARD TO THE CHIEF COMPLIANCE OFFICER, ALT5.
IF YOU WISH, YOU MAY ATTACH A COPY OF YOUR ACCOUNT STATEMENTS AS PROVIDED TO YOU
BY YOUR BROKER, BANK, OR CUSTODIAN.
Date: ________________
Signature: ________________________
10
<PAGE>
APPENDIX D
AELTUS INVESTMENT MANAGEMENT, INC.
REQUEST FOR PERSONAL SECURITIES TRANSACTION
PRE-CLEARANCE FORM
Name: ___________________________________________________________
Department: _____________________________________________________
Date: ___________________________________________________________
Time: ___________________________________________________________
Security: ______________________________________________________
Type of Account
Individual _____ Joint _____ Spousal _____ Other: ___________________
Type of Transaction
Purchase _______________ Sale ___________ Gift ___________ Other/Describe
Have you bought/sold the same or an equivalent security within the past 60 days?
Yes __ No __
If yes, please discuss this transaction with the Compliance Department PRIOR TO
ENTERING INTO the transaction.
Transaction is Approved ______________ Disapproved ______________
If Approved, approval valid for TRADE DATE: _________________________________
Pre-Clearance Officer: _________________________________________________________
11
<PAGE>
APPENDIX E
QUARTERLY SECURITIES TRANSACTIONS REPORT
For Quarter Ending ____________, 199_
FILING OF REPORT IS REQUIRED WHETHER OR NOT TRANSACTIONS OCCURRED. PLEASE NOTE
THAT YOU DO NOT HAVE TO REPORT TRANSACTIONS IN EXEMPT SECURITIES.
[ ] No Transactions To Report (Check if applicable)
Print Name __________________________________________
<TABLE>
<CAPTION>
Trade ** Quantity ** Quantity Broker
Date Title of Security* Purchased Sold Price or Bank *** Disclaimer
- ------ ------------------ --------- -------- ----- ------- ----------
<S> <C>
(Check if applicable, give reasons)
* The undersigned declares that the recording of the transaction checked in this column shall not be construed as an admission
that he/she had any direct or indirect ownership in the security described in the transaction.
** If you have acquired or disposed of a security in a transaction other than a purchase or sale (e.g., by gift), please
describe the nature of the transaction.
*** The undersigned declares that the recording of the transaction listed in this column shall not be construed as an admission
that he/she has or had any direct or indirect ownership in the security described in the transaction.
IF YOU WISH, YOU MAY ATTACH A COPY OF YOUR ACCOUNT STATEMENTS AS PROVIDED TO YOU BY YOUR BROKER, BANK, OR CUSTODIAN.
Date:______________________________ Signature:____________________________
</TABLE>
12
Exhibit p.3
Elijah Asset Management, LLC Code of Ethics
<PAGE>
March 1, 1999
ELIJAH ASSET MANAGEMENT, LLC
---------------------------
CODE OF ETHICS
---------------------------
Elijah Asset Management, LLC (the "Firm") is committed to the highest standards
of ethical and professional conduct.
I. SCOPE AND SUMMARY
(a) Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), requires every investment company, as well as every investment adviser to
and principal underwriter for an investment company, to have a written Code of
Ethics which specifically deals with trading practices by Access Persons (as
defined below). Rule 17j-1 also requires that reasonable diligence be used and
procedures instituted to prevent violations of this Code of Ethics.
(b) Section 204A of the Investment Advisers Act of 1940 further requires all
investment advisers to establish, maintain and enforce written policies and
procedures to prevent the misuse of material nonpublic information.
(c) Common law fiduciary principles require that an investment adviser, i.e.,
the Firm, avoid placing itself in a position of conflict of interest with its
clients.
(d) The "Blue Ribbon" Advisory Group on Personal Investing in its report to
the Investment Company Institute also articulated the following three general
fiduciary principles which the Firm believes should govern the personal
investment activities of investment company advisory and distributor personnel:
(i) the duty at all times is to place the interests of investment
company shareholders first;
(ii) the requirement that all personal securities transactions be
conducted consistent with a Code of Ethics and in such a manner
as to avoid any actual or potential conflict of interest or any
abuse of an individual's position of trust and responsibility;
and
(iii) the fundamental standard that investment company advisory and
distributor personnel should not take inappropriate advantage of
their positions.
(e) This Code of Ethics is designed to satisfy the above-referenced legal
requirements and ethical principles as applicable to the Firm in its role as
adviser to the Robertson Stephens Information Age Fund and the Robertson
Stephens Value & Growth Fund (a "Fund" or the "Robertson Stephens Funds") and
its other clients. It is important that all members, officers, directors and
employees of the Firm to whom this Code of Ethics applies observe these ethical
standards.
(f) This Code of Ethics is not intended to cover all possible areas of
potential liability under the 1940 Act or under the federal securities laws in
general. For example, other provisions of Section 17 of the 1940 Act prohibit
various transactions between a registered investment company and affiliated
persons, including the knowing sale or purchase of property to or from a
registered investment company on a principal basis, and joint transactions
(e.g., concerted market activity or commingling of funds) between an investment
company and an affiliated person.
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(g) It is expected that Access Persons, defined below, will be sensitive to
all areas of potential conflict, even if this Code of Ethics does not
specifically address an area of fiduciary responsibility.
(h) Exceptions to specific provisions of this Code of Ethics may be granted by
the Firm's Compliance Officer, if warranted by circumstances and if the
exception is requested in a timely manner.
(i) SUMMARY. Under the Code of Ethics, all Access Persons are required to:
(i) Pre-clear all trades in individual securities. [Note: certain
securities are excepted: mutual funds and money market instruments
are "exceptedsecurities."]
(ii) Reverse "same way" trades that involve securities subsequently
purchased or sold by a Fund within the applicable blackout period.
(iii) Observe a minimum 90 day holding period for all securities (except
"excepted securities"). This policy only applies to profitable
trades.
(iv) Avoid IPOs.
(v) Receive special clearance for private placements.
(vi) Avoid directorships of companies in which Fund assets may be
invested.
(vii) Promptly disclose all security transactions and file quarterly
transaction reports and annual ownership reports.
(viii) Avoid securities transactions in which they possess material
non-public information with regard to the particular security.
II. DEFINITIONS
(a) "ACCESS PERSON" means: (i) any director or officer of the Firm or any
employee who, in the ordinary course of his or her business, makes, participates
in or obtains information regarding the purchases and sales of securities for
Firm clients or whose ordinary business functions and duties relate to the
making of recommendations to Firm clients regarding the purchase and sale of
securities. Members of the immediate family of an Access Person are covered by
this Code of Ethics to the same extent as the Access Person.
(b) A security is "BEING CONSIDERED FOR PURCHASE OR SALE" when a
recommendation to purchase or sell a security has been made and communicated,
and, with respect to a person making a recommendation, when such person
seriously considers making such a recommendation.
(c) "BENEFICIAL OWNERSHIP" shall mean any person who, directly or indirectly
through any contract, arrangement, understanding, relationship or otherwise, has
or shares a direct or indirect pecuniary interest in securities, subject to the
following:
(i) The term "pecuniary interest" in any securities shall mean the
opportunity, directly or indirectly, to profit or share in any
profit derived from a transaction in the securities.
(ii) The term "indirect pecuniary interest" in any securities shall
include, but not be limited to:
(A) securities held by members of a person's immediate
family sharing the same
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household provided, however, that the presumption of
such beneficial ownership may be rebutted;
(B) a general partner's proportionate interest in the
portfolio securities held by a general or limited
partnership;
(C) a performance-related fee, other than an asset-based
fee, received by any broker, dealer, bank, insurance
company, investment company, investment adviser,
investment manager, trustee or person or entity
performing a similar function;
(D) A person's right to dividends that is separated or
separable from the underlying securities. Otherwise, a
right to dividends alone shall not represent a pecuniary
interest in the securities;
(E) A person's interest in securities held by a trust; and
(F) A person's right to acquire equity securities through
the exercise or conversion of any derivative security,
whether or not presently exercisable.
(iii) A shareholder shall not be deemed to have a pecuniary interest in
the portfolio securities held by a corporation or similar entity
in which the person owns securities if the shareholder is not a
controlling shareholder of the entity and does not have or share
investment control over the entity's portfolio.
The following interests are deemed not to confer beneficial ownership:
(i) Interests in portfolio securities held by any holding company
registered under the Public Utility Holding Company Act of 1935;
(ii) Interests in portfolio securities held by any investment company
registered under the Investment Company Act of 1940; and
(iii) Interests in securities comprising part of a broad-based,
publicly traded market basket or index of stocks, approved for
trading by the appropriate federal governmental authority.
(d) "CONTROL" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the result of
an official position, as further defined in Section 2(a)(9) of the 1940 Act.
(e) "PURCHASE OR SALE OF A SECURITY" includes, among other things, the writing
of an option to purchase or sell a security.
(f) "SECURITY" means any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest of participation in any
profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract, voting-
trust certificate, certificate of deposit for a security, fractional undivided
interest in oil, gas, or other mineral rights, any put, call, straddle, option,
or privilege on any security (including a certificate of deposit) or on any
group or index of securities (including any interest therein or based on the
value thereof), or exchange relating to foreign currency, or, in general, any
interest or instrument commonly known as a security, or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to or purchase, any of the
foregoing, except that it shall not include excepted securities (as defined
below).
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(G) "EXCEPTED SECURITIES" include shares of registered open-end investment
companies, securities issued by the government of the United States (including
government agencies), short term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the 1940 Act, bankers'
acceptances, bank certificates of deposit, commercial paper and other money
market instruments. Stock Index Options are also considered "excepted
securities" for all purposes except the quarterly and annual reporting
obligations.
(H) "MATERIAL NON-PUBLIC INFORMATION" is information relating to dividend
increases or decreases, earnings estimates, changes in previously released
earnings estimates, significant expansion or curtailment of operations, a
significant increase or decline of orders, significant merger or acquisition
proposals or agreements, significant new products or discoveries, extraordinary
borrowing, major litigation, liquidity problems, extraordinary management
developments, purchase or sale of substantial assets or any other information a
reasonable investor might consider to be of importance in making an investment
decision to buy, sell or hold. Information should be deemed non-public if it has
not been widely disseminated by wire service, in one or more newspapers of
general circulation, or by communication from the company involved to its
shareholders or in a press release.
(i) AN IMMEDIATE FAMILY MEMBER means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law, and shall include
adoptive relationships.
III. PROHIBITED TRADING PRACTICES
(a) GENERAL ANTI-FRAUD PROHIBITION. If a security:
(i) is being considered for purchase or sale by a Firm client;
(ii) is in the process of being purchased or sold by a Firm client; or
(iii) is or has been held by a Firm client within the most recent 15
day period;
no Access Person shall knowingly purchase, sell or otherwise directly or
indirectly acquire or dispose of any direct or indirect beneficial ownership
interest in that security if such action by such Access Person would defraud a
Firm client, operate as a fraud or deceit upon a Firm client, or constitute a
manipulative practice with respect to a Firm client.
(b) PRE-CLEARANCE. No Access Person shall purchase or sell any individual
security (i.e., any security other than an "excepted security") without
pre-clearance (see Section 5 for procedure). After pre-clearance has been
granted, the trade must be completed by the end of the following business day,
or the approval is void and the form must be resubmitted. Obtaining
pre-clearance for a trade does not guarantee that the trade will not be later
reversed should a client effect a subsequent trade in the same security.
(c) BLACKOUT PERIOD. A security (other than an "excepted security") will not
be considered eligible for purchase or sale by an Access Person during an
appropriate blackout period before and immediately following activity by a Firm
client in the same direction in the same security or a related security of the
same issuer (e.g., common stock is a related security to an option on common
stock). In general, the blackout period will be the five (5) business days
preceding the first client purchase or sale of that security and will include
the entire business day on which the last client purchase or sale activity
occurs. Blackout periods only apply to "same way" trades -- i.e., purchases when
a client subsequently commences a buy program or sales before a client initiates
a sell program. If a "same way" trade is made during the blackout period
applicable to a security, the Access Person will be required to liquidate (or
buy back) the position with any gain disgorged to the client (any loss will be
absorbed by the Access Person). An Access Person will be allowed to trade in a
security owned or sold by a client generally on
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the next business day following the completion of all client purchases or sales
currently under contemplation by a portfolio manager, subject to pre-clearance
and further subject to the commencement of subsequent blackout periods if client
activity in the security is resumed. Because client activity cannot be
accurately predicted, an Access Person is always exposed to some level of risk
that the trade will have to be reversed if the trade involves securities that
are of interest to a client.
(d) TRADES IN SHARES OF THE ROBERTSON STEPHENS FUNDS. Please note that
purchases and sales of shares of the Robertson Stephens Fund do not need pre-
clearance, but the possibility of appearance of conflict of interest in such
transactions is high. Accordingly, all purchases and sales of shares of the
Robertson Stephens Funds:
(i) should be made well in advance of the closing price calculation
each day, and
(ii) should not be made when in possession of material nonpublic
information.
(e) NO IPOS. No Access Person shall acquire any securities offered in an
initial public offering.
(F) PRIVATE PLACEMENTS. No Access Person shall acquire any securities in a
private placement without both pre-clearance and special approval by the
Compliance Officer.
(G) PERSONAL ACCOUNTS. Access Persons must submit required quarterly reports
of securities transactions (or furnish brokerage statements) and must sign off,
at least annually, on receipt of and compliance with the Code of Ethics.
(h) OTHER RESTRICTIONS. (i) No Access Person shall engage in short term
trading or make other investments in contravention of the general policies that
may be established from time to time, and (ii) no Access Person shall serve as a
director of a publicly traded company or a private company in which a Firm
client may invest.
IV. EXEMPTED TRANSACTIONS/SECURITIES
The prohibitions of Section III of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access Person
has no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for purchase or
sale by any Firm client.
(c) Purchases or sales which are non-volitional on the part of either the
Access Person or a Firm Client (e.g., receipt of gifts).
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
(f) Purchases and sales which have received the prior approval of the
Compliance Officer.
(g) Purchases and sales of securities which are not included in the definition
of "Security" in Section II.g or are "excepted securities" as defined in Section
II.h. -- i.e., mutual fund shares (but not shares of Robertson Stephens Funds),
stock index options, government securities and money market instruments.
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V. REPORTING
(A) PRE-CLEARANCE AND IMMEDIATE REPORTING. All Firm employees are currently
required to report all individual securities transactions (and purchases/sales
of shares of the Robertson Stephens Funds). Access Persons must also have a
duplicate confirmation of the transaction sent to the Firm's Compliance Officer
promptly following the transaction. After pre-clearance has been granted, the
trade must be completed by the end of the following business day, or the
approval is void and the form must be resubmitted. Trades for which
pre-clearance is required include all securities except, open-end mutual funds,
stock index options, government securities and money market securities.
Obtaining pre-clearance for a trade does not guarantee that the trade will not
be later reversed should a Firm client effect a subsequent trade in the same
security. The only securities for which such pre-clearance and immediate
reporting are not required are "excepted securities."
(B) QUARTERLY REPORTS. In addition to contemporaneous reporting, all Access
Persons are required to review, and if necessary, correct or make additions to
quarterly reports generated within 10 days of the end of each calendar quarter,
listing all securities transactions except transactions in "excepted
securities." See subsection (c) below.
(c) Every quarterly report shall be made not later than ten (10) days after
the end of each calendar quarter and shall contain the following information:
(i) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer, or bank with or through whom the
transaction was effected.
(d) Copies of statements or confirmations containing the information specified
in paragraph (c) above may be submitted in lieu of listing the transactions.
Persons submitting statements will be deemed to have satisfied this reporting
requirement, and need only sign off quarterly on having complied.
(e) For periods in which no reportable transactions were effected, the
quarterly report shall contain a representation that no transactions subject to
the reporting requirements were effected during the relevant time period.
(f) Annually, in conjunction with the quarterly report for the quarter ending
December 31, each Access Person shall be required to review, and if necessary,
correct or make additions to, an annual report, which lists all securities
positions in which such Access Person has a direct or indirect beneficial
interest.
(g) Any quarterly or annual report may contain a statement that the report
shall not be construed as an admission by the person making such report that he
has any direct or indirect beneficial ownership in the securities to which the
report relates.
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VI. IMPLEMENTATION
(a) The Compliance Officer has been designated by the Firm to implement this
Code of Ethics. In his absence, Ron Elijah, CEO, Rod Berry, President, and Mike
Dunn, COO, have been designated alternates.
(b) The Compliance Officer shall circulate a copy of this Code of Ethics to
each Access Person at least once per year.
(c) The Compliance Officer or a compliance officer delegate is charged with
responsibility for insuring that the pre-clearance and reporting requirements of
this Code of Ethics are adhered to by all Access Persons. The Compliance Officer
or compliance officer delegate shall be responsible for ensuring that the review
requirements of this Code of Ethics (see Section VII) are performed in a prompt
manner.
VII. REVIEW
(a) The Compliance Officer shall review all reports of personal securities
transactions and compare such reports with pre-clearance forms and with
completed and contemplated portfolio transactions of each client to determine
whether noncompliance with the Code of Ethics and/or other applicable trading
procedures may have occurred. The Firm's President shall review the Compliance
Officer's report. The Compliance Officer may delegate this function to one or
more persons.
(b) No person shall review his or her own reports. Before making any
determination that a noncompliant transaction may have been made by any person,
the Compliance Officer shall give such person an opportunity to supply
additional explanatory material. If a securities transaction of the Compliance
Officer is under consideration, an alternate shall act in all respects in the
manner prescribed for the designated Compliance Officer.
(c) If the Compliance Officer determines that noncompliance with the Code of
Ethics has or may have occurred, he or she shall, following consultation with
counsel, submit his or her written determination, together with the transaction
report, if any, and any additional explanatory material provided by the
individual, to Ronald Elijah, who shall make an independent determination of
whether a violation has occurred. If Ronald Elijah is believed to be
noncompliant, the Compliance Officer shall consult with the Firm's Management
Committee.
(d) The Compliance Officer shall be responsible for maintaining a current list
of all Access Persons and for identifying all reporting Access Persons on such
list, and shall take steps to ensure that all reporting Access Persons have
submitted reports in a timely manner. The Compliance Officer may delegate the
compilation of this information to appropriate PERSONS. FAILURE TO SUBMIT TIMELY
REPORTS WILL BE COMMUNICATED TO RONALD ELIJAH.
VIII. SANCTIONS
(a) If a violation of this Code occurs or a preliminary determination is made
that a violation may have occurred, a report of the alleged violation shall be
made to RONALD ELIJAH AND THE MANAGEMENT COMMITTEE.
(b) The Compliance Officer may impose such sanctions as it deems appropriate,
including, a letter of censure, suspension, or termination of employment, and/or
a disgorging of any profits made.
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I FULLY UNDERSTAND AND HEREBY SUBSCRIBE TO THIS CODE OF ETHICS.
__________________________________________________
NAME
__________________________________________________
SIGNATURE
__________________________________________________
DATE
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ELIJAH ASSET MANAGEMENT, LLC
PREAUTHORIZATION FOR PERSONAL TRADES
To: [Compliance Officer]
Phone: (415)
Fax: (415)
From: ________________________________________ Date: ____________
________________________________________________________________________________
I wish to effect the following trade for my personal account, an account in
which I have a beneficial interest, or an account belonging to one of my
immediate relatives living in the same household.
NAME/TICKER ________________________________________ # OF SHARES ______
BROKERAGE FIRM & ACCOUNT # _____________________________________________________
THE PURCHASE / SALE (CIRCLE ONE) IS BASED ON PERSONAL RESEARCH YES [ ] NO [ ]
(You may be required to provide documentation should there be
a potential conflict).
I AM AWARE OF AN INTENDED OR POSSIBLE CLIENT
TRADE IN THIS SECURITY YES [ ] NO [ ]
I agree that if I do not effect the above trade on the day indicated below, the
approval is null and void and the request must be resubmitted. I realize that if
I am an employee with investment decision making authority, and any Firm client
transactions occur within 7 days of my transaction that involve a client over
which I have authority and the above security, the trade will be broken at my
expense. I realize that if I do not have such authority, and any client
transactions occur on the same day as my transaction, the trade will be broken
at my expense.
___________________________________ ___________________________________
SIGNED AUTHORIZED
___________________________________ ___________________________________
PRINT NAME PRINT NAME
___________________________________
DATE
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