As filed with the Securities and Exchange File No. 33-41694
Commission on August 4, 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. 42
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 52
AETNA SERIES FUND, INC.
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10 State House Square SH11, Hartford, Connecticut 06103-3602
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(860) 275-2168
Daniel E. Burton, Counsel
Aetna Financial Services
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:
X 75 days after filing pursuant to paragraph (a)(2)
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<PAGE>
Parts A and B
The Aetna Series Fund Inc. Class A, B and C Prospectus, Class I Prospectus,
Class I Prospectus Supplement and Brokerage Cash Reserves Prospectus are
incorporated into Part A of this Post-Effective Amendment No. 42 by reference
to the Fund's filing under Rule 497(j) under the Securities Act of 1933, as
filed on June 30, 2000.
The Aetna Series Fund Inc. Class A, B and C Prospectus Supplement is
incorporated into Part A of this Post-Effective Amendment No. 42 by reference
to the Fund's filing under Rule 497(e) under the Securities Act of 1933, as
filed on March 31, 2000.
The Supplement to the Aetna Series Fund Inc. Class A, B and C Prospectuses,
Class I Prospectuses, and Brokerage Cash Reserves Prospectus is incorporated
into Part A of this Post-Effective Amendment No. 42 by reference to the Fund's
filing under Rule 497(e) under the Securities Act of 1933, as filed on August 2,
2000.
The Aetna Series Fund Inc. Class A, B, C and I Statement of Additional
Information (SAI) and Brokerage Cash Reserves SAI are incorporated into Part
B of this Post-Effective Amendment No. 42 by reference to the Fund's filing
under Rule 497(j) under the Securities Act of 1933, as filed on June 30, 2000.
The Aetna Series Fund, Inc. Class A, B, C and I Statement of Additional
Information Supplement is incorporated into Part B of this Post-Effective
Amendment No. 42 by reference to the Fund's filing under Rule 497(e) under the
Securities Act of 1933, as filed on July 12, 2000.
<PAGE>
AETNA SERIES FUND, INC.
AETNA INDEX PLUS PROTECTION FUND
PROSPECTUS
October __, 2000
Aetna Series Fund, Inc. is an open-end investment company authorized to issue
multiple series of shares. This prospectus offers shares of Aetna Index Plus
Protection Fund (Fund). The Offering Phase will run from October 2, 2000 through
November 30, 2000. All monies to purchase shares during the Offering Phase must
be received no later than November 29, 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.
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TABLE OF CONTENTS
PAGE
THE FUND'S INVESTMENTS.........................................................2
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS............2
GUARANTEE PERIOD INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES
AND RISKS...................................................................2
INDEX PLUS LARGE CAP PERIOD INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND RISKS........................................................4
OTHER PRINCIPAL RISKS OF INVESTING IN THE FUND..............................5
FUND EXPENSES..................................................................5
OTHER CONSIDERATIONS...........................................................6
THE GUARANTEE..................................................................7
MANAGEMENT OF THE FUND.........................................................9
INVESTING IN THE FUND.........................................................10
OPENING AN ACCOUNT AND SELECTING A SHARE CLASS.............................10
HOW TO BUY SHARES..........................................................13
HOW TO SELL SHARES.........................................................13
TIMING OF PURCHASE AND REDEMPTION REQUESTS.................................15
OTHER INFORMATION ABOUT SHAREHOLDER ACCOUNTS AND SERVICES..................15
DIVIDENDS AND DISTRIBUTIONS................................................17
TAX INFORMATION............................................................17
ADDITIONAL INFORMATION........................................................18
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THE FUND'S INVESTMENTS
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
GENERAL INFORMATION Aetna Index Plus Protection Fund (Fund) has an Offering
Phase, a Guarantee Period and an Index Plus Large Cap Period. Shares of the
Fund will be offered during the Offering Phase but will not be offered during
the Guarantee Period, except in connection with reinvestment of dividends. The
Fund will be offered on a continuous basis to existing shareholders during the
Index Plus Large Cap Period. The OFFERING PHASE will run from October 2, 2000
through November 30, 2000. All applications to purchase shares must be received
by the transfer agent no later than November 29, 2000 (November 1, 2000 in the
case of IRA rollovers). During the Offering Phase, Fund assets will be invested
exclusively in short-term instruments. Once the Offering Phase terminates, the
Guarantee Period begins.
The GUARANTEE PERIOD will run from December 1, 2000 through November 30, 2005
(Guarantee Maturity Date). During the Guarantee Period, all assets will be
invested in accordance with the investment objective and strategies described
under the heading "Guarantee Period Investment Objective, Principal Investment
Strategies and Risks." The Fund guarantees that the value of each shareholder's
account on the Guarantee Maturity Date will be no less than the value of that
shareholder's account 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 Guarantee 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 financial guarantee pursuant to a
financial guarantee 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.
During the INDEX PLUS LARGE CAP PERIOD, which will commence immediately
following the Guarantee Period, all assets will be managed in accordance with
the investment objective and strategies described under the heading "Index Plus
Large Cap Period Investment Objective, Principal Investment Strategies and
Risks."
The Fund's investment objectives may be changed by the Company's Board of
Directors without shareholder approval.
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
1-800-238-6254.
GUARANTEE PERIOD INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
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.
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PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, during the
Guarantee Period the Fund's assets are allocated between an:
o EQUITY COMPONENT, consisting primarily of common stocks and a
o FIXED COMPONENT, consisting primarily of short-to
intermediate-duration U.S. Government securities.
EQUITY COMPONENT The Equity Component will be managed in an Enhanced Index
Strategy. This means that 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., although the weightings of the stocks may vary somewhat
from their respective weightings in the S&P 500, as described below. 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 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
Guarantee 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 as compared to the aggregate
guaranteed amount;
o the prevailing level of interest rates;
o equity market volatility;
and
o the length of time remaining until the Guarantee Maturity Date.
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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 an investment in the Fund during the
Guarantee Period 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 (which may include STRIPS) generally is more volatile than
the market value of a portfolio of fixed income securities with similar
maturities that pay interest periodically. With corporate bonds, there is a risk
that the issuer will default on the payment of principal or interest.
If interest rates are low (particularly at the inception of the Guarantee
Period), Fund assets may be largely invested in the Fixed Component in order to
increase the likelihood of preserving the value of the Fund as of the inception
of the Guarantee Period. In addition, if during the Guarantee Period the equity
markets experienced a major decline, the Fund's assets may become largely or
entirely invested in the Fixed Component. In fact, if the value of the Equity
Component were to decline by 30% in a single day, a complete and irreversible
reallocation to the Fixed Component may 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.
For a description of additional principal risks, see "Other Principal Risks of
Investing in the Fund" below.
INDEX PLUS LARGE CAP PERIOD INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT
STRATEGIES AND RISKS
INVESTMENT OBJECTIVE During the Index Plus Large Cap Period, the Fund seeks to
OUTPERFORM THE TOTAL RETURN PERFORMANCE of the S&P 500, while maintaining a
market level of risk.
PRINCIPAL INVESTMENT STRATEGIES During the Index Plus Large Cap Period, the
Fund's principal investment strategies are the same as those of the Enhanced
Index Strategy, as described above under Equity Component.
PRINCIPAL RISKS The principal risks of an investment in the Fund during the
Index Plus Large Cap Period are those generally attributable to stock investing.
These risks include sudden and unpredictable drops in the value of the market as
a whole and periods of lackluster or negative
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performance. The success of the Fund's strategy depends significantly on Aeltus'
skill in determining which securities to overweight, underweight or avoid
altogether.
For a description of additional principal risks, see "Other Principal Risks of
Investing in the Fund" below.
OTHER PRINCIPAL RISKS OF INVESTING IN THE FUND
If Fund assets do not reach $75 million by the end of the Offering Phase, or in
the event of severe market volatility or adverse market conditions during the
Offering Phase, the Company's Board of Directors (Board) reserves the right to
liquidate the Fund. In that event, the Fund will not commence the Guarantee
Period, but instead will continue to be invested in short-term instruments. Fund
shareholders will then 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 net asset value (NAV) of their shares.
If you may need access to your money at any point prior to the Guarantee
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 Guarantee 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, as described below.
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 GUARANTEE MATURITY
DATE OR IF YOU CONTINUE TO HOLD FUND SHARES AFTER THE GUARANTEE MATURITY DATE.
THERE IS NO GUARANTY THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVES. 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.
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
Charge (Load) on Purchases (Load) (as a % of gross
(as a % of purchase price) redemption proceeds)
Class A 4.75% None
Class B None 5.00%
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ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Distribution Total Fee Waiver/
Management And/Or Service Other Operating Expense Net
Fee (12b-1) Fees Expenses Expenses Reimbursement Expenses
<S> <C> <C> <C> <C> <C> <C>
Class A 0.65% 0.25% % % % 1.50%
Class B 0.65% 1.00% % % % 2.25%
</TABLE>
(1)Because the Fund is new, Other Expenses, shown above, are estimated.
Aeltus is contractually obligated, through the Guarantee 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 $ $ $
Class B $ $ $
* Aeltus is contractually obligated to waive fees and/or reimburse expenses
through the Guarantee 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.
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).
USE OF FUTURES CONTRACTS DURING THE GUARANTEE PERIOD During the Guarantee
Period, 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. During the Guarantee Period, the Fund may
only invest in futures contracts on the S&P 500 Index and U.S. Treasury
securities.
USE OF FUTURES CONTRACTS AND OPTIONS DURING THE INDEX PLUS LARGE CAP PERIOD
During the Index Plus Large Cap Period, the Fund may enter into futures
contracts and use options. The Fund primarily uses futures contracts and options
to hedge against price fluctuations or increase exposure to a particular asset
class. To a limited extent, the Fund also may use these instruments for
speculation (investing for potential income or capital gain). Options are
agreements that give
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the holder the right, but not the obligation, to purchase or sell a certain
amount of securities or futures contracts during a specified period or on a
specified date.
RISKS OF INVESTING IN FUTURES CONTRACTS AND OPTIONS The main risk of investing
in futures contracts and options is that these instruments can amplify a gain or
loss, potentially earning or losing substantially more money than the actual
cost of the instrument. In addition, while a hedging strategy can guard against
potential risks for the Fund as a whole, it adds to the Fund's expenses and may
reduce or eliminate potential gains. There is also a risk that a futures
contract or option intended as a hedge may not perform as expected.
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 200%. A high portfolio turnover rate increases the Fund's transaction
costs and may increase your tax liability.
TRANSITION PERIOD After the Guarantee Maturity Date, the Fund will, in the
ordinary course of its investment activities, sell any fixed-income securities
remaining in its portfolio and purchase stocks included in the S&P 500 and S&P
500 futures contracts as soon as reasonably practicable, in order to conform its
holdings to the Fund's Index Plus Large Cap Period investment objective.
THE GUARANTEE
The Fund guarantees that on the Guarantee Maturity Date, each shareholder will
be entitled to redeem each of his or her shares for an amount no less than the
Guarantee per Share. The Guarantee per Share will equal the NAV per share on the
last day of the Offering Phase, 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 be entitled to redeem his or her shares held on
the Guarantee Maturity Date for an amount no less than his or her account value
at the inception of the Guarantee Period (Guaranteed Amount). The Fund's
Guarantee is backed by an unconditional and irrevocable financial guarantee from
MBIA pursuant to a financial guarantee insurance policy issued by MBIA to, and
for the benefit of, the Fund. If, on the Guarantee Maturity Date, the actual NAV
per share is less than the Guarantee per Share, MBIA will pay to the Fund an
amount sufficient to ensure that each shareholder is entitled to redeem his or
her shares for an amount equal to his or her Guaranteed Amount. 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
Guarantee Maturity Date, makes no redemptions, and reinvests all dividends and
distributions will be entitled to redeem his or her shares held on the Guarantee
Maturity Date for an amount no less than the amount initially allocated to the
Fund, less the amount of the Class A front-end sales load paid, if any, plus any
accrued interest earned during the Offering Phase.
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.
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Assume further that at the end of the day preceding the inception of the
Guarantee Period (November 30, 2000), the NAV for Class A shares has increased
to $10.02 per share due to appreciation of the Fund during the Offering Phase.
Your Guaranteed Amount is based on the NAV determined on the evening of November
30, 2000. To calculate your full guarantee, multiply the shares you own on
November 30, 2000 by the NAV per share for your class of shares on November 30,
2000. Using our example:
Shares you own on November 30, 2000 1,905.000
NAV per share of Class A shares on November 30, 2000 X $10.02
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YOUR GUARANTEED AMOUNT $19,088.10
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YOUR GUARANTEED AMOUNT WILL NOT CHANGE DURING THE GUARANTEE PERIOD AS LONG AS
YOU REINVEST ALL YOUR DIVIDENDS AND DISTRIBUTIONS AND MAKE NO WITHDRAWALS PRIOR
TO THE GUARANTEE 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 Guarantee 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
Guarantee 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 hold a greater number of shares at a
reduced Guarantee per Share following payment of a dividend or distribution. 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 hold the same
number of shares at the reduced Guarantee per Share following payment of a
dividend or distribution. 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, 2001 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, 2001.
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.
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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 per share on the day the dividend was
declared. In our case, $285.75 divided by $11.25 or 25.400 shares.
3. Adjust your account for your additional shares. Add 1,905 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 will be informed of the new Guarantee per Share, but they
can obtain this information at any time by calling 1-800-367-7732.
The Fund's Guarantee is backed by a financial 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 financial guarantee insurance
policy.
The terms of the Financial Guarantee Agreement prescribe the manner in which the
Fund must be managed during the Guarantee Period. Accordingly, the Financial
Guarantee Agreement could limit Aeltus' ability to alter the management of the
Fund during the Guarantee Period in response to changing market conditions.
See "Tax Information - Taxes in Relation to the Financial Guarantee" for
additional details regarding the financial 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 objectives 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.
Aeltus is an indirect wholly owned subsidiary of Aetna Inc. Aetna Inc. has
entered into an agreement to sell certain of its businesses, including Aeltus,
to ING Groep N.V. ("ING"), an integrated financial services provider.
Consummation of the transaction is subject to a number of contingencies,
including regulatory and shareholder approvals and other closing conditions.
Under the Investment Company Act of 1940, the transaction would result in a
change in control of Aeltus and, therefore, constitute an assignment of the
Fund's investment advisory agreement, which would result in a termination of
that agreement. Consequently, it is anticipated that Aeltus will seek approval
of a new agreement from the Board of Directors of the Company, and the Fund's
shareholders prior to consummation of the transaction. The transaction is
targeted to close by the end of 2000.
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 Phase 0.25%
Guarantee Period 0.65%
Index Plus Large Cap Period 0.45%
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PORTFOLIO MANAGEMENT DURING THE GUARANTEE PERIOD
ASSET ALLOCATION Neil Kochen, Managing Director, Aeltus, is responsible for
overseeing the overall Fund strategy and the allocation of Fund assets between
the Equity and Fixed Components. Mr. Kochen joined the Aetna organization in
1985 and has served as head of fixed income quantitative research, head of
investment strategy and policy, and as a senior portfolio manager.
EQUITY COMPONENT Geoffrey A. Brod, Portfolio Manager, Aeltus, manages the
Equity Component. He has over 30 years of experience in quantitative
applications and has 12 years of experience in equity investments. Mr. Brod has
been with the Aetna organization since 1966.
FIXED COMPONENT The Fixed Component is managed by a team of Aeltus fixed-income
specialists.
PORTFOLIO MANAGEMENT DURING THE INDEX PLUS LARGE CAP PERIOD
Mr. Brod will manage the Fund during the Index Plus Large Cap Period.
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. No front-end sales charge
applies on purchases when the aggregate investment in the Company is at
least $1 million.
o No CDSC applies, except in certain instances when the aggregate
investment in the Company was at least $1 million.
o Service (12b-1) fee of 0.25% applies.
10
<PAGE>
SALES CHARGES: CLASS A SHARES The table below shows the front-end sales charges
you will pay if you purchase Class A shares of the Company in any amount up to
$1 million.
<TABLE>
<CAPTION>
This % is deducted Which equals this %
When you invest this amount for sales charges of your investment
--------------------------- ----------------- ------------------
<S> <C> <C>
Under $50,000 4.75% 4.99%
$50,000 or more but under $100,000 4.50% 4.71%
$100,000 or more but under $250,000 3.50% 3.63%
$250,000 or more but under $500,000 2.50% 2.56%
$500,000 or more but under $1,000,000 2.00% 2.04%
</TABLE>
CLASS A SHARES SALES CHARGE WAIVERS The Fund waives the Class A front-end sales
charge for purchases made by certain types of shareholders. See the SAI or call
1-800-238-6254 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 with an aggregate investment in the Company
in excess of $1 million. The CDSC on Class A shares will apply only to shares
for which a finder's fee is paid to investment professionals pursuant to a
distribution agreement with Aeltus Capital, Inc., 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:
<TABLE>
<CAPTION>
When you invest this amount this % is deducted from your proceeds
--------------------------- -------------------------------------
<S> <C>
$1 million or more but under $3 million Year 1 - 1.00%
Year 2 - 0.50%
$3 million or more but under $20 million Year 1 - 0.50%
Year 2 - 0.50%
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
</TABLE>
Class B Shares
--------------
o No front-end sales charge applies.
o CDSC applies (if you sell your shares prior to the Guarantee Maturity
Date).
o Distribution (12b-1) fee of 0.75% applies.
o Service (12b-1) fee of 0.25% applies.
o Automatic conversion to Class A at the end of the Guarantee Period.
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 per share will be lower than the Guarantee per Share on the Guarantee
Maturity Date, that investor may be better served by investing in Class B
11
<PAGE>
shares.
SALES CHARGES: CLASS B SHARES The Fund imposes a CDSC on redemptions made prior
to the Guarantee Maturity Date. The table below shows the applicable CDSC based
on the time invested.
Redemption During CDSC
----------------- ----
Offering Phase or 1st year
of Guarantee Period 5%
2nd year of Guarantee Period 4%
3rd year of Guarantee Period 3%
4th year of Guarantee Period 3%
5th year of Guarantee Period 2%
OTHER POLICIES RELATING TO CHARGES AND FEES
Application of a CDSC To determine whether a CDSC is payable on any redemption,
the Fund will FIRST redeem shares not subject to any charge, and THEN shares
held longest during the CDSC period. The CDSC is assessed on an amount equal to
the lesser of the current market value or the original cost of the shares being
redeemed.
Unless otherwise specified, when you request to sell a stated dollar amount,
the Fund will redeem additional shares to cover any CDSC. For requests to sell a
stated number of shares, the Fund will deduct the amount of the CDSC, if any,
from the sale proceeds.
When the CDSC Does Not Apply The CDSC does not apply in certain situations,
including certain retirement distributions and certain redemptions made because
of disability or death. See the SAI or call 1-800-238-6254 for additional
details.
Distribution (12b-1) Fees With respect to its 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 its Class B 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 (12b-1) Fees The Company, with respect to both its Class A and Class B
shares, has adopted a Shareholder Services Plan that allows the payment of
servicing fees. The service fees are used primarily to pay selling dealers and
their agents for servicing and maintaining shareholder accounts.
12
<PAGE>
HOW TO BUY SHARES
MINIMUM INVESTMENT
All accounts, including retirement accounts, require a minimum initial
investment of $5,000.
INSTRUCTIONS FOR BUYING FUND SHARES
Please contact your investment professional or consult your plan materials
regarding the purchase of Fund shares. ALL APPLICATIONS TO PURCHASE SHARES
DURING THE OFFERING PHASE MUST BE RECEIVED BY THE TRANSFER AGENT NO LATER THAN
NOVEMBER 29, 2000 (NOVEMBER 1, 2000, IN THE CASE OF IRA ROLLOVERS). MONIES
RECEIVED AFTER NOVEMBER 29, 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 NOVEMBER 29, 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.
13
<PAGE>
Redemption requests may be made in writing or, in amounts up to $50,000, by
telephone. The Company requires a medallion signature guarantee if the amount of
the redemption request is over $50,000. A medallion signature guarantee may be
obtained from a domestic bank or trust company, broker, dealer, clearing agency,
savings association, or other financial institutions which participates in a
medallion program recognized by the Securities Transfer Association. Signature
guarantees from financial institutions which are not participating in such a
medallion program will not be accepted. 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 medallion signature guarantee.
FUND SHARES MAY BE REDEEMED BY SHAREHOLDERS PRIOR TO THE GUARANTEE MATURITY
DATE. HOWEVER, REDEMPTIONS MADE FOR ANY REASON PRIOR TO THE GUARANTEE 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 medallion 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 medallion signature
guarantee. A $12 fee will be charged for this
service.
-------------------------------------------------------------------------------
REDEMPTIONS BY Call 1-800-367-7732. Please be prepared to provide
TELEPHONE your account number, account name and the amount of
the redemption, which generally must be no less than
$500 and no more than $50,000.
-------------------------------------------------------------------------------
14
<PAGE>
TIMING OF PURCHASE AND REDEMPTION REQUESTS
Orders that are received by the Fund's transfer agent, or as otherwise provided
below, 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 per share
calculated that business day (adjusted for the front-end sales charge or CDSC,
if applicable). Orders received after the close of regular trading on the New
York Stock Exchange will be processed at the NAV per share 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 NOVEMBER 29, 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, each
of your shares will be purchased or redeemed at the NAV per share 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 Guarantee 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.
15
<PAGE>
There are no limits on the number of exchanges you can make. However, the
Company may suspend or terminate your exchange privilege if you make more than
five exchanges out of the Fund in any calendar year, and the Company may refuse
to accept any exchange request. The Company reserves the right to reject any
specific purchase or exchange request.
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.
ADDITIONAL SERVICES The Fund offers additional shareholder services. The Fund
reserves the right to terminate or amend these services at any time. For all of
the services, certain terms and conditions apply. See the SAI or call
1-800-367-7732 for additional information on any of these services.
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).
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
16
<PAGE>
will be deducted directly from your account(s). The custodial fee will
be waived for IRAs and 403(b)(7) accounts registered under the same
taxpayer identification number having an aggregate balance over $30,000
at the time such fee is scheduled to be deducted. ALL PURCHASE ORDERS IN
CONNECTION WITH IRA ROLLOVERS MUST BE RECEIVED BY THE TRANSFER AGENT NO
LATER THAN NOVEMBER 1, 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
per share) 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, based on the NAV at the close of business on the
date the distribution is declared. 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 AS DESCRIBED
ABOVE.
TAX INFORMATION
o In general, dividends and short-term capital gains distributions you
receive from the Fund are taxable as ordinary income. This is true
whether you reinvest your distributions or take them in cash.
o Distributions of other capital gains you receive generally are taxable
as long-term capital gains.
o Ordinary income and long-term 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 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.
17
<PAGE>
TAXES IN RELATION TO THE FINANCIAL GUARANTEE Should it be necessary for MBIA
to make a payment to the Fund, this payment will likely be considered a capital
gain to the Fund. Any such capital gain would be offset by the Fund's capital
losses, if any, which may be long-term or short-term. The Fund does not intend,
and does not expect it will be necessary, to make a distribution to shareholders
upon receiving a payment from MBIA under the financial guarantee insurance
policy described herein. The Fund's receipt of a payment from MBIA is not
expected to have tax ramifications to shareholders.
ADDITIONAL INFORMATION
The SAI, which is incorporated by reference into this Prospectus, contains
additional information about the Fund.
You may request free of charge the current SAI, or other information about the
Fund, by calling 1-800-238-6254 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.
18
<PAGE>
AETNA SERIES FUND, INC.
AETNA INDEX PLUS PROTECTION FUND
STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER __, 2000
This Statement of Additional Information (Statement) is not a Prospectus and
should be read in conjunction with the current Prospectus for the Aetna Index
Plus Protection Fund, a series of Aetna Series Fund, Inc. (Company). Capitalized
terms not defined herein are used as defined in the Prospectus. The Company is
authorized to issue multiple series of shares, each representing a diversified
portfolio of investments with different investment objectives, policies and
restrictions. This Statement applies only to the Aetna Index Plus Protection
Fund (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: 1-800-238-6254.
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
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES...............................2
INVESTMENT TECHNIQUES AND RISK FACTORS........................................3
OTHER CONSIDERATIONS.........................................................17
THE ASSET ALLOCATION PROCESS.................................................17
DIRECTORS AND OFFICERS OF THE FUND...........................................18
INVESTMENT ADVISORY AGREEMENT................................................20
THE FINANCIAL GUARANTY AGREEMENT.............................................21
ADMINISTRATIVE SERVICES AGREEMENT............................................21
CUSTODIAN....................................................................22
THE FUND'S FINANCIAL GUARANTOR...............................................22
TRANSFER AGENT...............................................................22
INDEPENDENT AUDITORS.........................................................22
PRINCIPAL UNDERWRITER........................................................22
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS..........................23
PURCHASE AND REDEMPTION OF SHARES............................................24
BROKERAGE ALLOCATION AND TRADING POLICIES....................................27
SHAREHOLDER ACCOUNTS AND SERVICES............................................28
NET ASSET VALUE..............................................................29
TAX STATUS...................................................................30
PERFORMANCE INFORMATION......................................................31
<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, except that Class B shares
automatically convert to Class A shares at the end of the Guarantee Period.
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 Company's charter may be amended if the amendment is declared advisable by
the Directors and approved by the shareholders of the Company by the affirmative
vote of a majority of all the votes entitled to be cast on the matter.
Shareholder Meetings The Company is not required, and does not intend, to
hold annual shareholder meetings. The Company's By-laws 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.
1940 Act Classification The Fund is a diversified open-end management
investment company, as 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.
1
<PAGE>
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES
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 and, during the Index Plus Large Cap Period, options related thereto;
(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: (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 (REITs), which deal in real estate or interests therein; or (ii) during
the Index Plus Large Cap Period, 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).
(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; enter into repurchase transactions; and,
during the Index Plus Large Cap Period, lend portfolio securities provided that
the value of such loaned securities does not exceed one-third of the Fund's
total assets.
(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; and 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
2
<PAGE>
investment policy or restriction if that restriction is complied with at the
time of purchase, 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 (7) above,
industry classifications are determined in accordance with the classifications
established by Standard & Poor's, a division of The McGraw-Hill Companies
("S&P").
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 options, futures contracts and related options,
in the manner otherwise permitted by the investment restrictions, policies and
investment programs of the Fund.
(4) 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);
(5) Purchase interests in oil, gas or other mineral exploration programs;
however, this limitation will not prohibit the acquisition of securities of
companies engaged in the production or transmission of oil, gas, or other
minerals;
(6) Invest more than 10% of the total value of its assets in high-yield
bonds (securities rated below BBB- by S&P or Baa3 by Moody's Investors Service,
Inc. (Moody's), or, if unrated, considered by Aeltus to be of comparable
quality).
INVESTMENT TECHNIQUES AND RISK FACTORS
Use of Futures and Other Derivative Instruments During the Guarantee Period
During the Guarantee Period, 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 during the Guarantee Period.
Futures Contracts The Fund may enter into futures contracts subject to the
restrictions described below under "Additional Restrictions on the Use of
Futures and Options Contracts." During the Guarantee Period, the Fund will only
enter into futures contracts on the S&P 500 Index and U.S. Treasury securities.
The Fund may purchase and sell futures contracts under the following conditions:
(a) the then-current aggregate futures market prices of financial instruments
required to be delivered and purchased under open futures contracts shall not
exceed 30% of the Fund's total assets at market value at the time of entering
into a contract, (b) no more than 5% of the assets, at market value at the time
of entering into a contract, shall be committed to margin deposits in relation
to futures contracts, and (c) the notional value of all U.S. Treasury futures
shall not exceed 50% of the market value of all corporate bonds, U.S. Treasury
Notes and U.S. Agency Notes.
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Additional Information Regarding the Use of Futures 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. The futures exchanges and trading in the U.S. are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission (CFTC).
Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments, those contracts are
usually closed out before the delivery date. Stock index futures contracts do
not contemplate actual future delivery and will be settled in cash at expiration
or closed out prior to expiration. Closing out an open futures contract sale or
purchase is effected by entering into an offsetting futures contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
underlying instrument and the same delivery date.
There can be no assurance, however, that the Fund will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time. If the Fund is not able to enter into an offsetting transaction, it will
continue to be required to maintain the margin deposits on the contract.
The prices of futures contracts are volatile and are influenced by, among other
things, actual and anticipated changes in interest rates and equity prices,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events. Small price movements in futures
contracts may result in immediate and 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 the 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.
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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 ensuring that the leveraging effect of such futures contract
is minimized, in accordance with regulatory requirements.
STRIPS, CATS, TIGRs and TRs The Fund may invest in 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). These securities are created by separating
the interest and principal components of an outstanding U.S. Treasury or agency
bond and selling them as individual securities. These securities generally
trade like zero coupon securities, which do not pay interest periodically but
accrue interest until maturity. These securities tend to be subject to the same
risks as zero coupon securities. The market prices of these 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. (For additional information, see
"Additional Investment Techniques and Risk Factors During the Guarantee
Period - Zero Coupon Securities" below.)
Use of Options, Futures and Other Derivative Instruments During the Index Plus
Large Cap Period
During the Index Plus Large Cap Period, the Fund may use certain derivative
instruments, described below and in the Prospectus, as a means of achieving its
investment objective. For purposes other than hedging, the 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.
Derivatives that may be used by the Fund include forward contracts, swaps,
structured notes, futures and options. The 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. 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
the Fund may use during the Index Plus Large Cap Period.
Futures Contracts The 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 standardized as to maturity date and underlying financial
instrument. (For additional information regarding the Fund's use of futures
contracts during the Index Plus Large Cap Period, see "Additional Information
Regarding the Use of Futures" above.)
The Fund can buy and write (sell) options on futures contracts. The 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 the Fund's
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total assets 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 The Fund may purchase and write (sell) call options and
put options on securities, indices and futures as discussed in the Prospectus,
subject to the restrictions described in this section and under "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. The 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.
The Fund is prohibited from having written call options outstanding at any one
time on more than 30% of its total assets. The 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. The Fund may not buy put options if more than 3% of its
assets immediately following such purchase would consist of put options. The
Fund may purchase call and sell put options on equity securities only to close
out positions previously opened. The Fund will not 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 Fund will not write call
options on when-issued securities. The Fund purchases call options on indices
primarily as a temporary substitute for taking positions in certain securities
or in the securities that comprise a relevant index. The 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).
The 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 the 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, the Fund might occasionally not be able to close the option because of
insufficient activity in the options market.
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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 the 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.
The Fund may purchase put options when Aeltus believes that a temporary
defensive position is desirable in light of market conditions, but does not
desire to sell a portfolio security. The purchase of put options may be used to
protect the 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 the 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, the 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 the Fund for writing call options will be recorded as a liability in
the statement of assets and liabilities of the 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 the Fund
when purchasing a put option will be recorded as an asset in the statement of
assets and liabilities of the 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 the 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 the 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 the Fund will be able to effect a closing
transaction at a favorable price. If the 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. The
Fund will pay brokerage commissions in connection with the sale or purchase of
options to close out previously established option positions. These brokerage
commissions are normally higher as a percentage of underlying asset values than
those applicable to purchases and sales of portfolio securities.
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Foreign Futures Contracts and Foreign Options The Fund 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 The Fund may write and purchase calls on foreign
currencies. The 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 the Fund's position, it would lose the premium it paid
and transactions costs. A call written on a foreign currency by the 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.
Forward Exchange Contracts The 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. The Fund may enter into a forward
exchange contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency which it has purchased or sold but which has
not yet settled (a transaction hedge); or to lock in the value of an existing
portfolio security (a position hedge); or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar
and a foreign currency. Forward exchange contracts include standardized foreign
currency futures contracts which are traded on exchanges and are subject to
procedures and regulations applicable to futures. The 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 to correctly identify and monitor the correlation between foreign
currencies and the U.S. dollar. To the extent that the correlation is not
identical, the Fund may experience losses or gains on both the underlying
security and the cross currency hedge.
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The 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
the 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 the 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, the 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 the 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 Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. The Fund 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
Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
Swap Transactions The Fund may enter into interest rate swaps, currency swaps
and other types of swap agreements, including swaps on securities and indices. A
swap is an agreement between two parties pursuant to which each party agrees to
make one or more payments to the other on regularly scheduled dates over a
stated term, based on different interest rates, currency exchange rates,
security prices, the prices or rates of other types of financial instruments or
assets or the levels of specified indices.
Swap agreements can take many different forms and are known by a variety of
names. The Fund is not limited to any particular form or variety of swap
agreement if Aeltus determines it is consistent with the Fund's investment
objective and policies.
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The most significant factor in the performance of swaps is the change in the
underlying price, rate or index level that determines the amount of payments to
be made under the arrangement. If Aeltus incorrectly forecasts such change, the
Fund's performance would be less than if the Fund had not entered into the swap.
In addition, if the counterparty's creditworthiness declines, the value of the
swap agreement also would be likely to decline, potentially resulting in losses.
If the counterparty to a swap defaults, the Fund's loss will consist of the net
amount of contractual payments that the Fund has not yet received. Aeltus will
monitor the creditworthiness of counterparties to the Fund's swap transactions
on an ongoing basis.
The Fund will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under that master
agreement shall be regarded as parts of an integral agreement. If on any date
amounts are payable in the same currency in respect of one or more swap
transactions, the net amount payable on that date in that currency shall be
paid. In addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting in a loss to
one party, the measure of that party's damages is calculated by reference to the
average cost of a replacement swap with respect to each swap (i.e., the
mark-to-market value at the time of the termination of each swap). The gains and
losses on all swaps are then netted, and the result is the counterparty's gain
or loss on termination. The termination of all swaps and the netting of gains
and losses on termination is generally referred to as "aggregation."
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 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 asset-backed securities is lower than the
interest rates paid on the loans included in the underlying pool, by the amount
of the fees paid to the 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.
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STRIPS The Fund may invest in 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. STRIPS generally trade
like zero coupon securities, which do not pay interest periodically but accrue
interest until maturity. STRIPS tend to be subject to the same risks as zero
coupon 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. (For additional information, see "Additional Investment Techniques and
Risk Factors During the Index Plus Large Cap Period - Zero Coupon Securities"
below.)
Additional Restrictions on the Use of Futures and Options Contracts
CFTC regulations require that to prevent the Fund from being a commodity pool,
the Fund enter into all short futures for the purpose of hedging the value of
securities held, and that all long futures positions either constitute bona fide
hedging transactions, as defined in such regulations, or have a total value not
in excess of an amount determined by reference to certain cash and securities
positions maintained, and accrued profits on such positions. As evidence of its
hedging intent, the Fund expects that at least 75% of futures contract purchases
will be "completed"; that is, upon the sale of these long contracts, equivalent
amounts of related securities will have been or are then being purchased by it
in the cash market. With respect to futures contracts or related options that
are entered into during the Index Plus Large Cap Period for purposes that may be
considered speculative, the aggregate initial margin for future contracts and
premiums for options will not exceed 5% of the Fund's net assets, after taking
into account realized profits and unrealized losses on such futures contracts.
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, options on futures or
options 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 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 the Fund will establish
a futures or option position only if there appears to be a liquid secondary
market therefore, there can be no assurance that such a market will exist for
any particular futures or option contract at any specific time. In such event,
it may not be possible to close out a position held by the Fund which could
require it to purchase or sell the instrument underlying the position, make or
receive a cash settlement, or meet ongoing variation margin requirements. The
inability to close out futures 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
11
<PAGE>
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 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 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 Fund.
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.
Additional Investment Techniques and Risk Factors During the Guarantee Period
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. 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.
Zero Coupon Securities The Fund may invest in U.S. Treasury or agency zero
coupon securities maturing on or within 90 days preceding the Guarantee 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.
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-
12
<PAGE>
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.
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 Guarantee 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.
Additional Investment Techniques and Risk Factors During the Index Plus Large
Cap Period
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. 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 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
the 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 The Fund 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 Fund 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.
13
<PAGE>
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 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 The Fund may invest in high-yield bonds, subject to the
limits described above and in the Prospectus. 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 the 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 the 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:
14
<PAGE>
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 the 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 Fund may have to replace the securities with a lower yielding
security, resulting in a decreased return for investors. In addition, there is a
higher risk of non-payment of interest and/or principal by issuers of these
securities than in the case of investment-grade bonds.
Liquidity and Valuation Risks Some issuers of high-yield bonds may be traded
among a limited number of broker-dealers rather than in a broad secondary
market. Many of these securities may not be as liquid as investment grade bonds.
The ability to value or sell these securities will be adversely affected to the
extent that such securities are thinly traded or illiquid. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
or increase the value and liquidity of these securities more than other
securities, especially in a thinly-traded market.
Limitations of Credit Ratings The credit ratings assigned to high-yield bonds
may not accurately reflect the true risks of an investment. Credit ratings
typically evaluate the safety of principal and interest payments rather than the
market value risk of such securities. In addition, credit agencies may fail to
adjust credit ratings to reflect rapid changes in economic or company conditions
that affect a security's market value. Although the ratings of recognized rating
services such as Moody's and S&P are considered, Aeltus primarily relies on its
own credit analysis which includes a study of existing debt, capital structure,
ability to service debts and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history and the current trend of earnings.
Thus the achievement of the 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 The Fund may invest in zero coupon
securities and 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
15
<PAGE>
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.
Convertibles The 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 The 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.
Equity Securities of Smaller Companies The Fund 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 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 may borrow for leveraging
purposes only if after the borrowing, the value of the Fund's net assets
including proceeds from the borrowings, is equal to at least 300% of all
outstanding borrowings. Leveraging can increase the volatility of the Fund since
it exaggerates the effects of changes in the value of the securities purchased
with the borrowed funds. The Fund does not intend to borrow for leveraging
purposes, except that it may invest in leveraged derivatives which have certain
risks as outlined above.
Additional Investment Techniques and Risk Factors During Both the Guarantee
Period and the Index Plus Large Cap Period
16
<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
during the Guarantee Period and will not exceed 10% of net assets of the Fund
during the Index Plus Large Cap Period.
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).
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 during the Guarantee Period, 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 Guarantee 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.
17
<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 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, Chief
10 State House Square (Principal Executive Financial Officer, Aeltus Investment Management, Inc., October
Hartford, Connecticut Officer) 1997 to present; Director, Managing Director, Chief Operating
Age 45 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 present; Vice
10 State House Square President, Aetna Investment Services, Inc., July 1993 to May
Hartford, Connecticut 1998.
Age 56
--------------------------------- -------------------------- ------------------------------------------------------------------
Albert E. DePrince, Jr. Director Professor, Middle Tennessee State University, 1991 to present.
3029 St. Johns Drive
Murfreesboro, Tennessee
Age 59
--------------------------------- -------------------------- ------------------------------------------------------------------
Stephanie A. DeSisto Vice President, Vice President, Mutual Fund Accounting, Aeltus Investment
10 State House Square Treasurer and Chief Management, Inc., November 1995 to present; Director, Mutual
Hartford, Connecticut Financial Officer Fund Accounting, Aetna Life Insurance and Annuity Company,
Age 46 (Principal Financial and August 1994 to November 1995.
Accounting Officer)
--------------------------------- -------------------------- ------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
--------------------------------- -------------------------- ------------------------------------------------------------------
<S> <C> <C>
Maria T. Fighetti Director Manager/Attorney, Health Services, New York City Department of
325 Piermont Road Mental Health, Mental Retardation and Alcohol Services, 1973 to
Closter, New Jersey present.
Age 56
--------------------------------- -------------------------- ------------------------------------------------------------------
David L. Grove Director Private Investor; Economic/Financial Consultant, December 1985
5 The Knoll to present.
Armonk, New York
Age 82
--------------------------------- -------------------------- ------------------------------------------------------------------
John Y. Kim* Director Director, President, Chief Executive Officer, Chief Investment
10 State House Square Officer, Aeltus Investment Management, Inc., December 1995 to
Hartford, Connecticut present; Director and President, Aeltus Capital, Inc., March
Age 39 1996 to present; President and Chief Investment Officer, Aetna
Life Insurance and Annuity Company, May 2000 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 May 2000.
--------------------------------- -------------------------- ------------------------------------------------------------------
Sidney Koch Director Financial Adviser, self-employed, January 1993 to present.
455 East 86th Street
New York, New York
Age 65
--------------------------------- -------------------------- ------------------------------------------------------------------
Frank Litwin Vice President Managing Director, Aeltus Investment Management, Inc., August
10 State House Square 1997 to present; Managing Director, Aeltus Capital, Inc., May
Hartford, Connecticut 1998 to present; Vice President, Fidelity Investments
Age 50 Institutional Services Company, April 1992 to August 1997.
--------------------------------- -------------------------- ------------------------------------------------------------------
Shaun P. Mathews* Director Vice President/Senior Vice President, Aetna Life Insurance and
151 Farmington Avenue Annuity Company, March 1991 to present; Director, Aetna Life
Hartford, Connecticut Age 45 Insurance and Annuity Company, March 1991 to May 2000. 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 of Hartford
556 Wormwood Hill (West Hartford, CT), August 1996 to present; Professor,
Mansfield Center, Connecticut Accounting and Dean of the School of Management, SUNY Binghamton
Age 63 (Binghamton, NY), August 1993 to August 1996
--------------------------------- -------------------------- ------------------------------------------------------------------
Richard G. Scheide Director Trust and Private Banking Consultant, David Ross Palmer
11 Lily Street Consultants, July 1991 to present.
Nantucket, Massachusetts
Age 71
--------------------------------- -------------------------- ------------------------------------------------------------------
</TABLE>
19
<PAGE>
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.
<TABLE>
<CAPTION>
--------------------------------- ------------------- ---------------------------------
AGGREGATE
NAME OF PERSON COMPENSATION FROM TOTAL COMPENSATION FROM THE
POSITION COMPANY COMPANY AND FUND COMPLEX
--------------------------------- ------------------- ---------------------------------
<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
--------------------------------- ------------------- ---------------------------------
Albert E. DePrince, Jr.** 10,361 75,375
Director, Chairperson
Contract Committee
--------------------------------- ------------------- ---------------------------------
</TABLE>
* 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.
** Dr. DePrince replaced Dr. Grove as Chairperson of the Contract Committee as
of April 2000.
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.
20
<PAGE>
THE FINANCIAL GUARANTY AGREEMENT
The Fund guarantees that on the Guarantee Maturity Date, each shareholder will
be entitled to redeem each of his or her shares for an amount no less than the
Guarantee per Share. The Guarantee per Share will equal the net asset value
(NAV) per share on the last day of the Offering Phase, 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 be entitled to redeem his
or her shares held on the Guarantee Maturity Date for an amount 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 financial guarantee from
MBIA Insurance Corporation (MBIA) pursuant to a financial guarantee insurance
policy issued by MBIA to the Company for the benefit of the Fund (the "Insurance
Policy").
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 Insurance Policy is unconditional and irrevocable and will remain in
place through the Guarantee Maturity Date. The Financial Guaranty Agreement,
which contains certain investment parameters, provides that, if Aeltus fails to
comply with specific investment parameters during the Guarantee Period 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 during the Guarantee Period, 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, during the Guarantee
Period, 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.
Finally, if Aeltus breaches any other terms of the Financial Guaranty Agreement,
Aeltus has 15 business days to cure the breach. If there is written notification
from MBIA of a breach and the breach remains uncured after 15 business days,
MBIA will have the right to direct the custodian to buy and sell Eligible
Securities.
After any default has been cured (whether by Aeltus or by changes in market
prices or as a result of actions taken by MBIA), MBIA has no further right to
direct the custodian with respect to that default.
ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to an Administrative Services Agreement, Aeltus acts as administrator
and provides certain administrative and shareholder services necessary for the
Fund's operations and is responsible for the supervision of other service
providers. The services provided by Aeltus include: (a) internal accounting
services; (b) monitoring regulatory compliance, such as reports and filings with
the Commission and state securities commissions; (c) preparing financial
information for proxy statements; (d) preparing semi-annual and annual reports
to shareholders; (e) calculating the NAV and Guarantee per Share; (f)
preparation of certain shareholder communications; (g) supervising the custodian
21
<PAGE>
and transfer agent; and (h) reporting to the Board. For its services, Aeltus is
entitled to receive from the Fund a fee at an annual rate of 0.10% of its
average daily net assets.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258,
serves as custodian for the assets of the Fund. The custodian does not
participate in determining the investment policies of the Fund nor in deciding
which securities are purchased or sold by the Fund. The Fund may, however,
invest in obligations of the custodian and may purchase or sell securities from
or to the custodian.
In addition to serving as the custodian of the Fund's assets, the custodian 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 FUND'S FINANCIAL GUARANTOR
MBIA, 113 King Street, Armonk, New York 10504 serves as the financial guarantor
to the Fund pursuant to a written agreement with Aeltus and the Company.
Pursuant to the terms of the Financial Guaranty Agreement, MBIA will issue to
the Company for the benefit of the Fund the Insurance Policy to support the
Fund's Guarantee. The Insurance Policy is unconditional and irrevocable and will
remain in place through the Guarantee Maturity Date. MBIA is one of the world's
premier financial guarantee companies and a leading provider of investment
management products and services. MBIA and its subsidiaries provide financial
guarantees to municipalities and other bond issuers. MBIA also guarantees
structured asset-backed and mortgage-backed transactions, selected corporate
bonds and obligations of high-quality financial institutions.
TRANSFER AGENT
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.
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. Shares of the Fund will be offered during the
Offering Phase but will not be offered during the Guarantee Period, except in
connection with reinvestment of dividends. The Fund will be offered on a
continuous basis to existing shareholders during the Index Plus Large Cap
Period. The Underwriting Agreement was approved on June 15, 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.
22
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS
Fund shares are distributed by ACI. 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
adopted by the Company pursuant to Rule 12b-1 under the 1940 Act ("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 A and Class B shares each are subject to a Shareholder Services Plan
adopted pursuant to Rule 12b-1. Under each 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 A or Class B shares of the Fund, respectively. 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 Plan or
Shareholder Services Plans 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 Plan 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 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 Plans. No
other interested person of the Fund has a financial interest in the Plans.
Other Payments to Securities Dealers
Typically, the portion of the front-end sales charge on Class A shares shown in
the following tables is paid to your securities dealer. Your securities dealer
may, however, receive up to the entire amount of the front-end sales charge.
When you invest this amount Amount of sales charge typically
reallowed to dealers as a percentage
of offering price
Under $50,000 4.00%
$50,000 or more, but under $100,000 3.75
$100,000 or more, but under $250,000 3.00
$250,000 or more, but under $500,000 2.00
$500,000 or more, but under $1,000,000 1.50
23
<PAGE>
Securities dealers that sell Class A shares in amounts of $1 million or more may
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
securities dealers that enter into agreements providing ACI with preferential
access to registered representatives of the securities 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.
ACI or its affiliates may, from time to time, also make payments to clearing
firms that offer networking services which make the Fund available to their
customers. Such payments to clearing firms will not exceed 0.10% of the total
Fund assets held in omnibus accounts or in customer accounts that designate such
firm(s) as the selling broker-dealer.
ACI has agreed to reimburse Financial Network Investment Corporation, an
affiliate of ACI, for trading costs incurred in connection with trades through
the Pershing brokerage clearing system.
ACI may make payments to affiliated and unaffiliated securities dealers that
engage in wholesaling efforts on behalf of the Company and the Fund. These
payments will not exceed 0.33% of the value of Fund shares sold as a result of
such wholesaling efforts. ACI may also pay such firms a quarterly fee based on a
percentage of assets retained as of the end of a calendar quarter, not to exceed
0.125% of the value of such 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 orders to purchase
shares during the Offering Phase must be received by the transfer agent by no
later than November 29, 2000 (November 1, 2000 in the case of IRA rollovers).
Class A shares are redeemed at the NAV of the Fund next determined adjusted for
any applicable contingent deferred sales charge (CDSC) after a redemption
request is received. Class B shares are redeemed at the NAV of the Fund next
determined less any applicable CDSC after a redemption request is received. ANY
REDEMPTIONS MADE FROM THE FUND PRIOR TO THE GUARANTEE MATURITY DATE WILL BE MADE
AT NAV, WHICH MAY BE HIGHER OR LOWER THAN THE NAV AT THE INCEPTION OF THE
GUARANTEE PERIOD. MOREOVER, SUCH REDEMPTIONS MAY BE SUBJECT TO A CDSC. AMOUNTS
REDEEMED PRIOR TO THE GUARANTEE MATURITY DATE ARE NOT ELIGIBLE FOR THE
GUARANTEE.
24
<PAGE>
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 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. A medallion
signature guarantee must be obtained from a domestic bank or trust company,
broker, dealer, clearing agency, savings association, or other financial
institution which is participating in a medallion program recognized by the
Securities Transfer Association. 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 by:
1. Employees of Aetna Inc. and its affiliates (including retired employees and
members of employees' and retired employees' immediate families and board
members and their immediate families), NASD registered representatives of
ACI or any affiliated broker-dealers (including members of their immediate
families) purchasing shares for their own accounts, and members of the
Board (including members of their immediate families).
2. 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 Life Insurance and Annuity Company 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.
3. Certain trust companies and bank trust departments investing on behalf of
their clients.
4. Certain retirement plans that are sponsored by an employer and have plan
assets of $500,000 or more.
25
<PAGE>
5. 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.
6. 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.
7. Registered investment companies.
8. Insurance companies (including separate accounts).
9. Shareholders of the Adviser Class of other Series at the time such shares
were redesignated as Class A shares.
10. Certain executive deferred compensation plans.
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.
26
<PAGE>
If the Letter of Intent is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending on the amount actually
purchased during the period. The upward adjustment will be paid with shares
redeemed from your account.
Right of Accumulation/Cumulative Quantity Discount
A purchaser of Class A shares may qualify for a cumulative quantity discount by
combining a current purchase (or combined purchases as described above) with
certain other Class A shares of the Series already owned. To determine if you
may pay a reduced front-end sales charge, the amount of your current purchase is
added to the cost or current value, whichever is higher, of certain other Class
A shares you own, as well as certain Class A shares of your spouse and children
under the age of 21. If you are the sole owner of the Fund, you may also add any
other accounts, including retirement plan accounts invested in certain Class A
shares of the Company. Companies with one or more retirement plans may add
together the total plan assets invested in certain Class A shares of the Series
to determine the front-end sales charge that applies.
To qualify for the cumulative quantity discount on a purchase through an
investment dealer, when each purchase is made the investor or dealer must
provide the Company with sufficient information to verify that the purchase
qualifies for the privilege or discount. The shareholder must furnish this
information to the Company when making direct cash investments.
Additional Rights
The Fund retains certain rights, including the rights to: refuse orders to
purchase shares; vary its requirements for initial or additional investments,
reinvestments, retirement and employee benefit plans, sponsored arrangements and
similar programs; and change or discontinue its sales charge waivers and orders
acceptance practices.
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the supervision of the Board, Aeltus has responsibility for making
investment decisions, for effecting the execution of trades and for negotiating
any brokerage commissions thereon. It is Aeltus' policy to obtain the best
quality of execution available, giving attention to net price (including
commissions where applicable), execution capability (including the adequacy of a
firm's capital position), research and other services related to execution. The
relative priority given to these factors will depend on all of the circumstances
regarding a specific trade. Aeltus may also consider the sale of shares of
registered investment companies advised by Aeltus as a factor in the selection
of brokerage firms to execute the Fund's portfolio transactions 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
27
<PAGE>
transaction at the best obtainable price with payment of commissions which are
reasonable in relation to the value of the services provided by the broker,
taking into consideration research and brokerage services provided. When the
trader believes that more than one broker can provide best execution, preference
may be given to brokers that provide additional services to Aeltus.
Research services furnished by brokers through whom the Fund effects securities
transactions may be used by Aeltus in servicing all of its accounts; not all
such services will be used by Aeltus to benefit the Fund.
Consistent with federal law, Aeltus may obtain such brokerage and research
services regardless of whether they are paid for (1) by means of commissions, or
(2) by means of separate, non-commission payments. Aeltus' judgment as to
whether and how it will obtain the specific brokerage and research services will
be based upon its analysis of the quality of such services and the cost
(depending upon the various methods of payment which may be offered by brokerage
firms) and will reflect Aeltus' opinion as to which services and which means of
payment are in the long-term best interests of the Fund.
The Fund has no present intention of effecting any brokerage transactions in
portfolio securities with Aeltus or any other affiliated person.
Aeltus may buy or sell the same security at or about the same time for the Fund
and another advisory client of Aeltus, including clients in which affiliates of
Aeltus have an interest. 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 the event that
allocation is done other than on a pro rata basis, the main factors to be
considered in determining the amounts to be allocated 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. For
underwritten offerings (initial or secondary), in addition to considering the
factors mentioned in the previous sentence, Aeltus may employ a rotational
method for allocating securities purchased in these offerings. 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 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 purchased
or held by the Fund. However, it prohibits a person from taking advantage of
Fund trades or from acting on inside information.
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.
28
<PAGE>
Signature Guarantee
A signature guarantee is verification of the authenticity of the signature given
by certain authorized institutions. The Company requires a medallion 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 medallion signature guarantee with your written redemption instructions
regardless of the amount of redemption.
A medallion signature guarantee may be obtained from a domestic bank or trust
company, broker, dealer, clearing agency, savings association, or other
financial institution which is participating in a medallion program recognized
by the Securities Transfer Association. The three recognized medallion programs
are Securities Transfer Agents Medallion Program (STAMP), Stock Exchanges
Medallion Program (SEMP) and New York Stock Exchange, Inc. Medallion Signature
Program (NYSE MSP). Signature guarantees from financial institutions which are
not participating in one of these programs will not be accepted. Please note
that signature guarantee are not provided by notaries public. 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.
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 Fund are generally valued by independent pricing services
which have been approved by the Board. The values for equity securities traded
on registered securities exchanges (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 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 the
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
29
<PAGE>
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.
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 Financial Guarantee
Should it be necessary for MBIA to make a payment to the Fund, this payment will
likely be considered a capital gain to the Fund. Any such capital gain would be
offset by the Fund's capital losses, if any, which may be long-term or
short-term. The Fund does not intend, and does not expect it will be necessary,
to make a distribution to shareholders upon receiving a payment from MBIA under
the financial guarantee insurance policy described herein. The Fund's receipt of
a payment from MBIA is not expected to have tax ramifications to shareholders.
30
<PAGE>
PERFORMANCE INFORMATION
Performance information for each class of shares, including the total return of
the Fund, may appear in reports or promotional literature to current or
prospective shareholders.
Average Annual Total Return
Quotations of average annual total return for the Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over a period of one and five years (or, if less, up to
the life of the Fund), calculated pursuant to the formula:
P(1 + T)(n) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = an average annual total return
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1 or 5 year period at the end of the 1 or 5
year period (or fractional portion thereof).
The Fund may also from time to time include in such advertising a total return
figure for Class A and/or Class B that is not calculated according to the
formula set forth above. Specifically, the Fund may include performance for
Class A that does not take into account payment of the applicable front-end
sales load, or the Company may include performance for Class B that does not
take into account the imposition of the applicable CDSC.
Performance information for the Fund may be compared, in reports and promotional
literature, to: (a) the Standard & Poor's 500 Index, the Lehman Brothers
Aggregate Bond Index, or other indices (including, where appropriate, a blending
of indices) that measure performance of a pertinent group of securities widely
regarded by investors as representative of the securities markets in general;
(b) other groups of investment companies tracked by Morningstar or Lipper
Analytical Services, widely used independent research firms that rank mutual
funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria; and (c) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund.
From time to time sales materials and advertisements may include comparisons of
the cost of borrowing a specific amount of money at a given loan rate over a set
period of time to the cost of a monthly investment program, over the same time
period, which earns the same rate of return. The comparison may involve
historical rates of return on a given index, or may involve performance of the
Fund.
Statement of Additional Information
31
<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) Articles Supplementary (April 21, 2000)(9)
(a.12) Articles Supplementary*
(b) By-laws (as amended September 13, 1994)(10)
(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) Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Principal Protection Fund IV
(PPF IV)(11)
(d.6) Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Technology Fund(8)
(d.7) Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Index Plus Protection Fund
(IPPF)*
<PAGE>
(d.8) Subadvisory Agreement among Aeltus, the Registrant, on
behalf of Aetna Technology Fund and Elijah Asset Management,
LLC(8)
(e.1) Underwriting Agreement between Aeltus Capital, Inc. and the
Registrant(11)
(e.2) Master Selling Dealer Agreement(3)
(f) Directors' Deferred Compensation Plan (1)
(g.1) Custodian Agreement - Mellon Bank, N.A. (September 1,
1992)(10)
(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)(10)
(g.4) Amendment to Custodian Agreement - Mellon Bank, N.A.
(October 11, 1996)(12)
(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) Amendment to Custodian Agreement - Mellon Bank, N.A.(9)
(g.11) Amendment to Custodian Agreement - Mellon Bank, N.A.*
(g.12) Custodian Agreement - Brown Brothers Harriman & Company
(Aetna International Fund) (December 12, 1991)(13)
(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)
<PAGE>
(h.6) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of PPF IV(9)
(h.7) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of IPPF*
(h.8) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of Brokerage Cash
Reserves(6)
(h.9) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of Aetna Technology
Fund(8)
(h.10) License Agreement(10)
(h.11) Transfer Agent Agreement(4)
(h.12) Amendment No. 1 to the Transfer Agency and Services
Agreement(14)
(h.13) Amendment No. 2 to the Transfer Agency and Services
Agreement(14)
(h.14) Amendment No. 3 to the Transfer Agency and Services
Agreement(5)
(h.15) Amendment No. 4 to the Transfer Agency and Services
Agreement(7)
(h.16) Amendment No. 5 to the Transfer Agency and Services
Agreement(15)
(h.17) Amendment No. 6 to the Transfer Agency and Services
Agreement(8)
(h.18) Amendment No. 7 to the Transfer Agency and Services
Agreement(9)
(h.19) Amendment No. 8 to the Transfer Agency and Services
Agreement*
(h.20) Financial Guaranty Agreement among the Registrant, Aeltus
and MBIA(7)
(h.21) First Amendment to Financial Guaranty Agreement(11)
(h.22) Second Amendment to Financial Guaranty Agreement*
(h.23) Custodian Service Agreement among the Registrant, on behalf
of PPF I, MBIA, and Mellon Bank, N.A.(16)
(h.24) Custodian Monitoring Agreement among the Registrant, on
behalf of PPF I, MBIA, and Russell/Mellon Analytical
Services, LL (Russell/Mellon)(16)
(h.25) Custodian Service Agreement among the Registrant, on behalf
of PPF II, MBIA, and Mellon Bank, N.A.(16)
(h.26) Custodian Monitoring Agreement among the Registrant, on
behalf of PPF II, MBIA, and Russell/Mellon Analytical
Services, LLC (Russell/Mellon)(16)
(h.27) Custodian Service Agreement among the Registrant, on behalf
of PPF III, MBIA, and Mellon Bank, N.A.(9)
(h.28) Custodian Monitoring Agreement among the Registrant, on
behalf of PPF III, MBIA, and Russell/Mellon Analytical
Services, LLC (Russell/Mellon)(9)
(h.29) Form of Custodian Service Agreement among the Registrant,
on behalf of PPF IV, MBIA, and Mellon Bank, N.A.*
(h.30) Form of Custodian Monitoring Agreement among the Registrant,
on behalf of PPF IV, MBIA, and Russell/Mellon Analytical
Services, LLC (Russell/Mellon)*
(h.31) Form of Custodian Service Agreement among the Registrant,
on behalf of IPPF, MBIA, and Mellon Bank, N.A.*
(h.32) Form of Custodian Monitoring Agreement among the Registrant,
on behalf of IPPF, 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(14)
(m.1) Distribution Plan (Class A)(11)
(m.2) Distribution Plan (Class B)(11)
<PAGE>
(m.3) Distribution Plan (Class C)(8)
(m.4) Distribution Plan (Brokerage Cash Reserves)(6)
(m.5) Form of Shareholder Services Plan (Class A)
(m.6) Shareholder Services Plan (Class B)(11)
(m.7) Shareholder Services Plan (Class C) (8)
(m.8) Shareholder Services Plan (Brokerage Cash Reserves)(6)
(n) Not applicable
(o) Multiple Class Plan(11)
(p.1) Aeltus Code of Ethics(17)
(p.2) Aetna Mutual Funds Code of Ethics(17)
(p.3) Elijah Asset Management, LLC Code of Ethics(17)
(q.1) Power of Attorney (November 6, 1998)(14)
(q.2) Authorization for Signatures(18)
*to be filed by amendment
1. Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
Securities and Exchange Commission (SEC) 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
SEC 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
SEC 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
SEC 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
SEC 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
SEC 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
SEC 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
SEC on February 23, 2000.
9. Incorporated herein by reference to Post-Effective Amendment No. 40 to
Registration Statement on Form N-1A, (File No. 33-41694), as filed with the
SEC on June 28, 2000.
10. 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
SEC on June 28, 1995.
11. Incorporated herein by reference to Post-Effective Amendment No. 41 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
SEC on July 18, 2000.
12. 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
SEC on December 10, 1996.
13. 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
SEC on September 20, 1996.
14. 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
SEC on December 17, 1998.
<PAGE>
15. 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
SEC on December 10, 1999.
16. 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
SEC on December 16, 1999.
17. Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registration Statement on Form N-1A (File No. 333-05173), as filed with
the SEC on August 1, 2000.
18. 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
SEC on September 26, 1997.
<PAGE>
Item 24. Persons Controlled by or Under Common Control
------------------------------------------------------
Registrant is a Maryland corporation for which separate financial
statements are filed. As of June 30, 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 26.99%
Aetna Bond Fund 52.00%
Aetna Government Fund 67.87% 63.07%
Aetna Growth Fund 15.59%
Aetna Growth and Income Fund 15.83%
Aetna High Yield Fund 98.86% 12.86%
Aetna Index Plus Bond Fund 99.89% 18.17% 24.15%
Aetna Index Plus Large Cap Fund 42.27%
Aetna Index Plus Mid Cap Fund 93.57% 1.92%
Aetna Index Plus Small Cap Fund 97.87% 3.35%
Aetna International Fund 6.49%
Aetna Mid Cap Fund 97.79% 21.75% 83.13% 74.96%
Aetna Money Market Fund 45.23%
Aetna Real Estate Securities Fund 97.28% 10.19% 92.69% 69.30%
Aetna Small Company Fund 26.75%
Aetna Technology Fund 6.71% 2.16% 3.02%
Aetna Value Opportunity Fund 93.94% 2.34% 27.41%
Aetna Ascent Fund 80.82% 80.66%
Aetna Crossroads Fund 77.39% 95.89%
Aetna Legacy Fund 70.14% 91.81%
</TABLE>
Aetna is an indirect wholly owned subsidiary of Aetna Inc.
Attached is a listing of all persons directly or indirectly controlled
by or under common control with the Registrant. The listing indicates (1)
the state or other sovereign power under the laws of which the entity is
organized, (2) the percentage of voting securities owned or other basis
of control by the person, if any, immediately controlling it (percentages
are rounded to the nearest whole percentage and are based on ownership of
voting rights), and (3) its principal business.
As of June 30, 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.
JUNE 30, 2000
<TABLE>
<CAPTION>
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Inc. CT (1) Publicly Held Holding Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Services, Inc. CT (1) (*) Aetna Inc. 100% Holding Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare Inc. PA (1) (*) Aetna Inc. 100% Holding Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Risk Indemnity Company Limited Bermuda (1) (*) Aetna Inc. 100% Insurance
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Insurance Company CT (1) (*) Aetna Services, Inc. 100% Life and Health Insurance
and Related Services
------------------------------------------------------------------------------------------------------------------------------------
Aetna Retirement Services, Inc. CT (1) (*) Aetna Services, Inc. 100% Holding Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna International, Inc. CT (1) (*) Aetna Services, Inc. 100% Holding Company for
International Subsidiaries
------------------------------------------------------------------------------------------------------------------------------------
Aetna Health and Life CT (1) (*) Aetna Services, Inc. 100% Life and Health Insurance
Insurance Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Capital Trust I DE (4) (*) Aetna Services, Inc. 100% Business Trust
------------------------------------------------------------------------------------------------------------------------------------
Aetna Capital Trust II DE (4) (*) Aetna Services, Inc. 100% Business Trust
------------------------------------------------------------------------------------------------------------------------------------
Aetna Capital Trust III DE (4) (*) Aetna Services, Inc. 100% Business Trust
------------------------------------------------------------------------------------------------------------------------------------
Aetna Capital Trust IV DE (4) (*) Aetna Services, Inc. 100% Business Trust
------------------------------------------------------------------------------------------------------------------------------------
AUSHC Holdings, Inc. CT (1) (*) Aetna Services, Inc. 100% Holding Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(1) Corporation (*) Fully Consolidated
(2) Partnership (**) One Line Consolidation
(3) Joint Venture (***) Not Consolidated
(4) Trust
(5) Limited Liability Company
(6) Federal Savings Association
+ Percentages are rounded to the nearest whole percent and are based on
ownership of voting rights.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Foundation, Inc. CT (1) (***) Aetna Services, Inc. 100%(a) Supports Charitable Scientific,
Literary and Educational
Activities
------------------------------------------------------------------------------------------------------------------------------------
Imperial Fire & Marine U.K. (1) (***) Aetna Services, Inc. 10% Reinsurance
Re-Insurance Company Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna Business Resources, CT (1) (*) Aetna Services, Inc. 100% Provides Business Services to
Inc. External Clients
------------------------------------------------------------------------------------------------------------------------------------
AE Fifteen, Incorporated CT (1) (*) Aetna Services, Inc. 100% Shell Corp. for Interest in
Cogeneration
------------------------------------------------------------------------------------------------------------------------------------
PHPSNE Parent DE (1) (*) AUSHC Holdings, Inc. 55% Holding Company
Corporation
------------------------------------------------------------------------------------------------------------------------------------
Luettgens Limited CT (1) (*) Aetna Services, Inc. 100% Retail Specialty Store
------------------------------------------------------------------------------------------------------------------------------------
AE Housing Corp. CT (1) (*) Aetna Services, Inc. 100% Real Estate
------------------------------------------------------------------------------------------------------------------------------------
Aetna Capital L.L.C. DE (5) (*) Aetna Services, Inc. 95%(b) Finance - Limited Liability
Company
------------------------------------------------------------------------------------------------------------------------------------
A.S.I. Wings, L.L.C. DE (5)(*) Aetna Services, Inc. 100% General Business Corporation
------------------------------------------------------------------------------------------------------------------------------------
Aetna Realty Investments I, CT (1) (*) Aetna Services, Inc. 100% Real Estate Investment
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Health Plans of CT (1) (*) PHPSNE Parent 100% Health Care
Southern New England, Corporation
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Properties I Limited CT (2) (***) Aetna Realty 84%(c) Real Estate Investment
Partnership Investments I, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(a) Nonstock Corporation
(b) Aetna Capital Holdings, Inc. owns 5% of this Limited Liability Company.
(c) Aetna Realty Investments I, Inc. is a 1% general partner and an 83%
limited partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AHP Holdings, Inc. CT (1) (*) Aetna Life Insurance 100% Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
CMBS Holdings, Inc. TX (1) (*) Aetna Life Insurance 100% Real Estate Investment and
Company Management
------------------------------------------------------------------------------------------------------------------------------------
CMBS Holdings, Inc. - II CT (1) (*) Aetna Life Insurance 100% Real Estate
Company
------------------------------------------------------------------------------------------------------------------------------------
CMBS Holdings, L.L.C. CT (5) (*) Aetna Life Insurance 99%(d) Real Estate
Company
------------------------------------------------------------------------------------------------------------------------------------
ALEC Coinvestment Fund DE (5) (**) Aetna Life Insurance 100% Private Equity Investment
1, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Bay Area Mall, Inc. DE (1) (*) Aetna Life Insurance 100% Real Estate
Company
------------------------------------------------------------------------------------------------------------------------------------
AE Fourteen, Inc. CT (1) (*) Aetna Life Insurance 100% Cogeneration
Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Insurance Company CT (1) (*) AHP Holdings, Inc. 100% Insurance
of Connecticut Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Assignment CT (1) (*) Aetna Life Insurance 100% Assignment Company for
Company Company Structured Settlements
------------------------------------------------------------------------------------------------------------------------------------
Aetna Real Estate Properties, CT (1) (*) Aetna Life Insurance 100% Acquire, Develop and Lease Real
Inc. Company Estate
------------------------------------------------------------------------------------------------------------------------------------
Aetna/Area Corporation CT (1) (*) Aetna Life Insurance 100% Real Estate Investment and
Company Management
------------------------------------------------------------------------------------------------------------------------------------
Aetna Institutional CT (2) (**) Aetna Life Insurance 13%(e) Real Estate Investment
Investors I Limited Company
Partnership
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(d) CMBS Holdings, Inc. II owns 1% of this Limited Liability Company.
(c) Aetna Real Estate Properties, Inc. is a 1% general partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Shadow Ridge At Oak Park CA (2) (**) Aetna Life Insurance 80% Real Estate
Condominium Associates Company
------------------------------------------------------------------------------------------------------------------------------------
Capitol District Energy CT (2) (**) AE Fourteen, Inc. 50% Cogeneration of Electrical Power
Center Cogeneration
Associates
------------------------------------------------------------------------------------------------------------------------------------
Aetna Affordable Housing, CT (1) (*) Aetna Life Insurance 100% Real Estate Investment
Inc. Company
------------------------------------------------------------------------------------------------------------------------------------
BPC Equity, Inc. DE (1) (*) Aetna Life Insurance 100% General Business Corporation
Company
------------------------------------------------------------------------------------------------------------------------------------
BPC Equity, L.L.C. DE (5) (**) Aetna Life Insurance 99%(f) General Business Corporation
Company
------------------------------------------------------------------------------------------------------------------------------------
Lincoln 455 Market Street CA (2) (**) Aetna Life Insurance 90%(g) Real Estate
Company
------------------------------------------------------------------------------------------------------------------------------------
Circulation L.L.C. CT (5) (**) Aetna Life Insurance 100% General Business Corporation
Company
------------------------------------------------------------------------------------------------------------------------------------
Koll Center Newport A CA (2) (**) Aetna Life Insurance 50%(h) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Koll Center Newport CA (2) (**) Aetna Life Insurance 50%(i) Real Estate Investment
Number 8 Company
------------------------------------------------------------------------------------------------------------------------------------
Koll Center Newport CA (2) (**) Aetna Life Insurance 50%(j) Real Estate Investment
Number 9 Company
------------------------------------------------------------------------------------------------------------------------------------
Koll Center Newport CA (2) (**) Aetna Life Insurance 50%(k) Real Estate Investment
Number 10 Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(f) BPC Equity, Inc. owns 1% of this Limited Liability Company.
(g) 89% general partner and 1% limited partner.
(h) Aetna Life Insurance Company is a 49% general partner and a 1% limited
partner.
(i) Aetna Life Insurance Company is a 49% general partner and a 1% limited
partner.
(j) Aetna Life Insurance Company is a 49% general partner and a 1% limited
partner.
(k) Aetna Life Insurance Company is a 49% general partner and a 1% limited
partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Koll Center Newport Number 11 CA (2) (**) Aetna Life Insurance 50%(l) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Koll Center Newport Number 14 CA (3) (**) Aetna Life Insurance 60% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Pinnacle McDowell Investors, L.L.C. DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
1111 Pasquinelli Dr. L.L.C. DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
1400 Busch Parkway, L.L.C. DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
Hayward Industrial Park CA (2) (**) Aetna Life Insurance 99% Real Estate Investment
Associates Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Hamilton IL (2) (**) Aetna Life Insurance 62% Real Estate
Partnership Company
------------------------------------------------------------------------------------------------------------------------------------
Mall Owners LLC DE (5) (**) Aetna Life Insurance 50% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Baltimore East Hotel MD (5) (***) Aetna Life Insurance 100% Real Estate Investment
Investors LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Carlyle Club Apartments DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Citation Club Investors, DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Birtcher Aetna-Laguna CA (2) (**) Aetna Life Insurance 68% Real Estate Investment
Hills Company
------------------------------------------------------------------------------------------------------------------------------------
Harbor Business Park CA (2) (**) Aetna Life Insurance 99% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(1) Aetna Life Insurance Company is a 49% general partner and a 1% limited
partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Ensenada De Las Colinas I Associates TX (2) (**) Aetna Life Insurance 99%(m) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Trevose Hospitality, Inc. CT (1) (**) Aetna Life Insurance 100% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Oaks at Valley Ranch I TX (2) (**) Aetna Life Insurance 99%(n) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Oaks at Valley Ranch II TX (2) (**) Aetna Life Insurance 99%(o) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
KBC-Eastside Limited AZ (2) (**) Aetna Life Insurance 80% Real Estate Investment
Partnership Company
------------------------------------------------------------------------------------------------------------------------------------
Sturbridge Square DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Apartments Investors LLC Company
------------------------------------------------------------------------------------------------------------------------------------
900 North Stuart Street DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Trumbull One, Inc. CT (1) (*) Aetna Life Insurance 100% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Trumbull Three, Inc. CT (1) (*) Aetna Life Insurance 100% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Trumbull Four, Inc. CT (1) (*) Aetna Life Insurance 100% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Southfield Partners MD (2) (**) Aetna Life Insurance 99%(p) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Lincoln Rancho CA (2) (**) Aetna Life Insurance 60% Real Estate Investment
Cucamonga Associates Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(m) Aetna Life Insurance Company is a 99% general partner and Trumbull One,
Inc. is a 1% general partner.
(n) Aetna Life Insurance Company is a 99% general partner and Trumbull One,
Inc. is a 1% general partner.
(o) Aetna Life Insurance Company is a 99% general partner and Trumbull One,
Inc. is a 1% general partner.
(p) Aetna Life Insurance Company is a 99% general partner and Trumbull Four,
Inc. is a 1% general partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Metroplace Office DE (5) (***) Aetna Life Insurance 100% Real Estate Investment
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Stuart Park Associates, VA (5) (***) 900 North Stuart Street 50% Real Estate Holding Company
L.L.C. Investors L.L.C.
------------------------------------------------------------------------------------------------------------------------------------
1010 Executive Court, DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Becknell Properties IL (2) (**) Aetna Life Insurance 75% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
3365 Enterprise Avenue DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Cherry Hill Investors L.L.C. CT (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
Evergreen Industrial Park DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
1135 Arbor Drive Investors L.L.C. DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
Centrum Associates CA (2) (**) Aetna Life Insurance 65% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Southwest Financial AZ (2) (**) Aetna Life Insurance 60% Real Estate Investment
Associates Company
------------------------------------------------------------------------------------------------------------------------------------
B&H Ventures IV Limited CT (2) (**) Aetna Life Insurance 75% Real Estate Investment
Partnership Company
------------------------------------------------------------------------------------------------------------------------------------
Champions Richland TX (2) (*) Aetna Life Insurance 99%(q) Real Estate Investment
Northcourte Partnership Company
------------------------------------------------------------------------------------------------------------------------------------
Chris-Town Village AZ (2) (**) Aetna Life Insurance 50% Real Estate Investment
Associates Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(q) Aetna Life Insurance Company is a 99% general partner and Trumbull One,
Inc. is a 1% general partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Maxxim Coinvestment DE (5)(*) Aetna Life Insurance 100% Private Equity Investment
Fund IV, LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Assembly Square Mall DE (5) (**) Aetna Life Insurance 99%(r) Real Estate Investment
LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Arshaw Partners II TX (2) (**) Aetna Life Insurance 50% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
Spectrum Fashion Center AZ (2) (**) Aetna Life Insurance 50% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Canyon Springs Investment TX (2) (**) Aetna Life Insurance 100%(s) Real Estate Holding Company
Partners L.P. Company
------------------------------------------------------------------------------------------------------------------------------------
Cambridgeside Galleria MA (2) (**) Aetna Life Insurance 50% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Circon Coinvestment Fund DE (5) (*) Aetna Life Insurance 100% Private Equity Investment
IV, LL Company
------------------------------------------------------------------------------------------------------------------------------------
EBF Group L.L.C. DE (5) (*) Aetna Life Insurance 22% Private Equity Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
8550 Freeport Parkway South LP TX (2) (***) Aetna Life Insurance 99%(t) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Summit-Plano Investors LP TX (2) (***) Aetna Life Insurance 99%(u) Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Stamford Town Center DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
ADBI Partnership FL (2) (**) Aetna Life Insurance 30% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(r) Aetna Life Insurance Company is a 99% member and Bay Area Mall, Inc., is a
1% member.
(s) Aetna Life Insurance Company is a 99% general partner and Trumbull One,
Inc. is a 1% general partner.
(t) Aetna Life Insurance Company is a 99% general partner and Trumbull One,
Inc. is a 1% general partner.
(u) Aetna Life Insurance Company is a 99% limited partner and Trumbull Four,
Inc. is a 1% general partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pratt Street Hotel LLC MD (2) (*) Aetna Life Insurance 99%(v) Real Estate Investment
Company
--------------------------------- ------------------------------- ------------------------ -----------------------------------------
737 North Michigan Avenue Investors DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Meridian Business Campus Investors DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
I L.L.C Company
------------------------------------------------------------------------------------------------------------------------------------
1501 Fourth Ave. Limited WA (2) (**) Aetna Life Insurance 91%(w) Real Estate Investment
Partnership Company
------------------------------------------------------------------------------------------------------------------------------------
Thace Associates MI (2) (**) Aetna Life Insurance 25% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Rich-Taubman Associates MA (2) (***) Stamford Town Center 50% Real Estate Holding Company
Investors L.L.C.
------------------------------------------------------------------------------------------------------------------------------------
Eastmeadow Distribution Center GA (2) (**) Aetna Life Insurance 99%(x) Real Estate Investment
Limited Partnership Company
------------------------------------------------------------------------------------------------------------------------------------
Eastmeadow Distribution Center GA (2) (**) Aetna Life Insurance 99%(y) Real Estate Investment
Phase II Limited Partnership Company
------------------------------------------------------------------------------------------------------------------------------------
777 Oak Lane, L.L.C. DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
Azalea Mall, L.L.C. DE (5) (**) Aetna Life Insurance 100% Private Equity Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
Southeast Second Avenue, Inc. DE (1) (*) Aetna Life Insurance 100% Real Estate Investment
Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(v) Aetna Life Insurance Company is a 99% member and Trumbull One, Inc. is a
1% member.
(w) Aetna Life Insurance Company is a 90% general partner and a 1% limited
partner.
(x) Aetna Life Insurance Company is a 98% general partner and a 1% limited
partner.
(y) Aetna Life Insurance Company is a 98% general partner and a 1% limited
partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1401 West 22nd Street DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Towns of Chapel Hill DE (2) (***) Aetna Life Insurance 99%(z) Real Estate Holding Company
Apartments, L.P. Company
------------------------------------------------------------------------------------------------------------------------------------
Freeport Office Center, L.P. DE (2) (***) Aetna Life Insurance 99%(aa) Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
The Vinings at Delray DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Beach Apartments Company
Investors L.L.C.
------------------------------------------------------------------------------------------------------------------------------------
Central Trust Center OH (2) (**) Aetna Life Insurance 15% Real Estate Investment
Associates Company
------------------------------------------------------------------------------------------------------------------------------------
South Center I & II DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
South Center III & IV DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Quail Ridge Drive DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
3360 Enterprise Avenue DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Westlake Greens DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Apartments Investors, LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Corporate Center II DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Dakota McDowell DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(z) Aetna Life Insurance Company is a 99% limited partner and Trumbull One,
Inc. is a 1% general partner.
(aa) Aetna Life Insurance Company is a 99% limited partner and Trumbull One,
Inc. is a 1% general partner.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Meridian Business Campus DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors II L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Meridian Business Campus DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors III L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Mountain View Crossing DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Parcel 6 Meridian Parkway DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
The Vintage at Hyland DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Hills Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Airport Square Holdings I, DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Airport Square Holdings DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
III, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Airport Square Holdings DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
VI and VII L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
9709 Third Avenue DE (5) (*) Aetna Life Insurance 100% Real Estate Holding Company
Investors LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Sawgrass Office Campus DE (5) (*) Aetna Life Insurance 100% Real Estate Holding Company
Investors LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Airport Square Holdings DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
VIII, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Airport Square Holdings DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
IX, L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Meridian at Carlyle DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Apartments Investors Company
L.L.C.
------------------------------------------------------------------------------------------------------------------------------------
2155 Louisiana Avenue DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Village Green of Rochester DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Apartments Investors Company
L.L.C.
------------------------------------------------------------------------------------------------------------------------------------
Novi Town Center DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Village Park of Mayfield DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
8909 Purdue Road DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Battleground Plaza DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Investors LLC Company
------------------------------------------------------------------------------------------------------------------------------------
1251 Port Road Investors DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
LLC. Company
------------------------------------------------------------------------------------------------------------------------------------
RESA-CA Investors LLC DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Company
------------------------------------------------------------------------------------------------------------------------------------
Concourse Office Plaza DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
Village Green of Ann DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Arbor Investors L.L.C. Company
------------------------------------------------------------------------------------------------------------------------------------
1245 Fordham Drive DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
Apartments Investors LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Oakview Eagan Investors DE (5) (***) Aetna Life Insurance 100% Real Estate Holding Company
LLC Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Retirement CT (1) (*) Aetna Retirement 100% Holding Company
Holdings, Inc. Services, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Insurance and CT (1) (*) Aetna Retirement 100% Life Insurance, Pensions And
Annuity Company Holdings, Inc. Annuities
------------------------------------------------------------------------------------------------------------------------------------
Aetna Services Holding CT (1) (*) Aetna Retirement 100% Holding Company for Service Contract
Company, Inc. Holdings, Inc. Companies
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Retail Holding CT (1) (*) Aetna Retirement 100% Holding Company for Retail
Company, Inc. Holdings, Inc. Distribution Companies
------------------------------------------------------------------------------------------------------------------------------------
Bentana Technologies, Inc. CT (1) (*) Aetna Retirement 50%(bb) Information Technology Company
Holdings, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Trust Company, Federal (6) (*) Aetna Retirement 100% Federal Savings Bank
FSB Holdings, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Systematized Benefits CT (1) (*) Aetna Services 100% Third Party Administrator
Administrators, Inc. Holding Company, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Financial Services, CT (1) (*) Aetna Retail Holding, 100% Broker-Dealer and Investment
Inc. Company, Inc. Advisor
------------------------------------------------------------------------------------------------------------------------------------
FNI International, Inc. CA (1) (*) Aetna Retail Holding 100% Holding Company
Company, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Insurance Agency CT (1) (*) Aetna Retail Holding 100% Holding Company
Holding Company, Inc. Company, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Adviser CT (1) (*) Aetna Life Insurance 100% Holding Company for Investment
Holding Company, Inc. and Annuity Company Adviser Companies
------------------------------------------------------------------------------------------------------------------------------------
Aetna Insurance Company FL (1) (*) Aetna Life Insurance 100% Write/Reinsure Life and Annuity
of America and Annuity Company Business
------------------------------------------------------------------------------------------------------------------------------------
Aetna New Series Fund, MD (1) (**) Aetna Life Insurance 100% Regulated Investment Company
Inc. and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Income Shares MA (4) (**) Aetna Life Insurance 97% Regulated Investment Company
and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Encore MA (4) (**) Aetna Life Insurance 97% Regulated Investment Company
Fund and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aeltus Investment CT (1) (*) Aetna Investment 100% Investment Advisor
Management, Inc. Adviser Holding
Company, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(bb) U.S. Healthcare Financial Services, Inc. owns 50% of Bentana Technologies,
Inc.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Variable Portfolios, MD (1) (**) Aetna Life Insurance 99% Regulated Investment Company
Inc. and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Variable Fund MA (4) (**) Aetna Life Insurance 98% Regulated Investment Company
and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Balanced VP, Inc. MD (1) (**) Aetna Life Insurance 99% Regulated Investment Company
and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Series Fund, Inc. MD (1) (**) Aetna Life Insurance 25%(cc) Regulated Investment Company
and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna GET Fund MA (4) (**) Aetna Life Insurance 100% Regulated Investment Company
and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Generation MD (1) (**) Aetna Life Insurance 99% Regulated Investment Company
Portfolios, Inc. and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Partners, Inc. MD (1) (**) Aetna Life Insurance 97%(dd) Regulated Investment Company
and Annuity Company (Mutual Fund)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Services, CT (1) (*) Aetna Life Insurance 100% Distribute Securities Products -
Inc. and Annuity Company ALIAC and Outside Funds
------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Management Bermuda (1) (*) Aeltus Investment 100% Holding Company
(Bermuda) Holdings Limited Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aeltus Trust Company CT (1) (*) Aeltus Investment 100% Fiduciary Powers re Banking
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aeltus Capital, Inc. CT (1) (*) Aeltus Investment 100% Broker-Dealer Related Functions
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Elijah Asset Management, Limited DE (5) (**) Aeltus Investment 25% Investment Adviser
Liability Company Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(cc) Aetna Life Insurance Company owns 1% of Aetna Series Fund, Inc.
(dd) Aetna Insurance Company of America owns 3% of Portfolio Partners, Inc.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
China Dynamic Investment Hong Kong (1) (**) Aetna Investment 50% Establish and Manage Collective
Management (Hong Kong) Management (Bermuda) Investment Scheme
Limited Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
Financial Network Investment CA (1) (*) FNI International, Inc. 100% Broker/Dealer
Corporation
------------------------------------------------------------------------------------------------------------------------------------
FN Insurance Agency of MA (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Massachusetts, Inc. Business
------------------------------------------------------------------------------------------------------------------------------------
FN Insurance Services, Inc. CA (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Business
------------------------------------------------------------------------------------------------------------------------------------
FN Insurance Services of AL (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Alabama, Inc. Business
------------------------------------------------------------------------------------------------------------------------------------
FN Insurance Services of NV (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Nevada, Inc. Business
------------------------------------------------------------------------------------------------------------------------------------
Financial Network HI (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Investment Corporation of Business
Kauai, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Financial Network Investment HI (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Corporation of Business
Hawaii
------------------------------------------------------------------------------------------------------------------------------------
Financial Network HI (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Investment Corporation of Business
Hilo, Inc.
------------------------------------------------------------------------------------------------------------------------------------
FN Insurance Agency, KS (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Kansas, Inc. Business
------------------------------------------------------------------------------------------------------------------------------------
Financial Network HI (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Investment Corporation, Business
Honolulu, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Financial Network PR (1) (*) FNI International, Inc. 100% Solicitation of Insurance
Investment Corporation, Business
Puerto Rico, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FN Insurance Agency, NJ (1) (*) FNI International, Inc. 100% Solicitation of Insurance Business
New Jersey, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Insurance Agency of Ohio (1) (*) Aetna Insurance Agency 90%(ee) Insurance Agency for the
Ohio, Inc. Holding Company, Inc. Marketing of Registered and
Nonregistered Insurance Products
------------------------------------------------------------------------------------------------------------------------------------
Aetna Insurance Agency, CT (1) (*) Aetna Insurance Agency 100% Insurance Agency for the
Inc. Holding Company, Inc. Marketing of Registered and
Nonregistered Insurance Products
------------------------------------------------------------------------------------------------------------------------------------
Aetna Insurance Agency of MA (1) (*) Aetna Insurance Agency 100% Insurance Agency for the
Massachusetts, Inc. Holding Company, Inc. Marketing of Registered and
Nonregistered Insurance Products
------------------------------------------------------------------------------------------------------------------------------------
Aetna Insurance Agency of AL (1) (*) Aetna Insurance Agency 100% Insurance Agency for the
Alabama, Inc. Holding Company, Inc. Marketing of Registered and
Nonregistered Insurance Products
------------------------------------------------------------------------------------------------------------------------------------
Aetna International Hong Kong (1) (*) Aetna International, 100% Holding Company for Insurance
Holdings (Hong Kong) I Inc. and Financial Services
Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Insurance Bermuda (1) (**) Aetna International, 61%(ff) Life Disability and Employee
Company (Bermuda) Inc. Benefits Ins. in H.K.
Limited
------------------------------------------------------------------------------------------------------------------------------------
Strategic Investors Bermuda (1) (**) Aetna International, 49% Holding Company
Asia Ltd. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna International Fund CT (1) (*) Aetna International, 100% Investment Management Services
Management Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Information PRC (1) (*) Aetna International, 100% Information Services Company
Technology (Guanghzou) Inc.
Limited
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(ee) Non-voting interest
(ff) Strategic Investors Asia Ltd. Owns 39% of Aetna Life Insurance Company
(Bermuda) Ltd.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AII 1, L.L.C. CT (1) (**) Aetna International, 100% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
AII 2, L.L.C. CT (1) (**) Aetna International, 100% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
AII 3, L.L.C. CT (1) (**) Aetna International, 100% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
AII 4, L.L.C. CT (1) (**) Aetna International, 100% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Holdings (Cayman) Cayman (1) (**) Aetna International, 100% Insurance Company
Ltd. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Argentina S.A. Argentina (1) (*) Aetna International, 100% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
ALICA Holdings, Inc. CT (1) (*) Aetna International, 80% Dedicated Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Insurance CT (1) (*) Aetna International, 100% Life Insurance
Company of America Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna International Hong Kong (1) (*) Aetna International, 100% Holding Company
Holdings (Hong Kong) II Inc.
Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna Internacional y Mexico (1) (*) Aetna International, 64%(gg) Holding Company
Compania, S. de R.L. de Inc.
C.V.
------------------------------------------------------------------------------------------------------------------------------------
Aetna S.A. Chile (1) (*) Aetna International, 100% Holding Co
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Arcelia Limited Hong Kong (1) (*) Aetna International, 100% Investment & Holding Co. for
Inc. Aetna's Asia Pacific Operations
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life & Casualty Bermuda (1) (*) Aetna International, 100% Insurance, Guaranteed and
Bermuda Limited Inc. Indemnity Business
------------------------------------------------------------------------------------------------------------------------------------
Inversiones Mercantil Venezuela (1) (*) Aetna International, 50% Insurance Company
Aetna, C.A. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Heart Investment Taiwan (1) (*) Aetna Life Insurance 80% Holding Company
Holdings Limited Company of America
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life and Casualty Netherlands Aetna International, 100% Finance Investment Company
International Finance N.V. Antilles (1) (*) Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(gg) AE Five, Inc. owns 36% of Aetna Internacional y Compania, S. de R.L.
de C.V.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sul America Aetna Brazil(1) (**) Aetna International, 49% Insurance
Seguros de Previdencia Inc.
S.A.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Capital Holdings, CT (1) (*) Aetna International, 100% Holding Company
Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Securities Taiwan (1) (*) Aetna International, 80% Securities Investment Advisor
Investment Management Inc.
(Taiwan) Ltd.
------------------------------------------------------------------------------------------------------------------------------------
AE Five Incorporated CT (1) (*) Aetna International, 100% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Powszechne Towarzystwo Poland (1) (*) Aetna International, 40% Pension Fund Corporation
Emerytalne PBK Inc.
------------------------------------------------------------------------------------------------------------------------------------
Pacific-Aetna Life PRC (3) (**) Aetna International, 50%(hh) Life Insurance
Insurance Co., Ltd. Inc.
------------------------------------------------------------------------------------------------------------------------------------
The Aetna Heiwa Life Japan (1) (**) Aetna International, 99% Life Insurance Company
Insurance Company Inc.
Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna MPF Limited Hong Kong (1) (*) Aetna International, 50%(ii) Investment Management &
Inc. Advisory Services for Individual
Clients and Investment Funds
------------------------------------------------------------------------------------------------------------------------------------
Aetna Health Investments Canada (1) (*) Aetna International, 100% Health Investment Company
Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Taiwan (1) (*) Aetna International, 77% Provide Non-Security Business
Management (Taiwan) Inc. and Investment Advice
Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna Health (N.Z.) New Zealand (1) (*) Aetna International, 100% Holding Company
Limited Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(hh) Aetna Life Insurance Company owns 1% of Pacific - Aetna Life Insurance
Co. Ltd.
(ii) The remaining 50% interest in this entity is held by AII 1-4, L.L.C.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Investment Hong Kong (1) (*) Aetna International, 100% Investment Holding Company
Management (F.E.) Inc.
Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
Osatspa Insurance Co. Ltd. Thailand (1) (**) Aetna International, 20% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Osatspa Insurance Co. Thailand (1) (**) Aetna International, 80% Life Insurance
Ltd. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Phillippine Phillippine (1) (*) Aetna International, 100% Holding Company
Ventures, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Seguros Mercantil, Venezuela (1) (*) Inveriones Mercantil 100% Insurance Company
C.A. Aetna, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Inversiones Veninversa, Venezuela (1) (*) Seguros Mercantil, 100% Holding Company
C.A. C.A.
------------------------------------------------------------------------------------------------------------------------------------
Estacionamiento Vence, Venezuela (1) (*) Seguros Mercantil, 100% Holding Company
C.A. C.A.
------------------------------------------------------------------------------------------------------------------------------------
Administradora de Fondos Venezuela (1) (*) Seguros Mercantil, 100% Pension Company
de Retiro Mercantil C.A.
------------------------------------------------------------------------------------------------------------------------------------
First Canadian Health Canada (1) (**) Aetna Health 49% Managed Health Services
Management Corporation, Investments, Inc.
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Insurance Inc. Philippines (1) (*) Aetna Philippine 100% Life Insurance
Ventures, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Healthcare, Inc. Philippines (1) (*) Aetna Philippine 100% Insurance
Ventures, Inc.
------------------------------------------------------------------------------------------------------------------------------------
East Asia Aetna Services Hong Kong (1) (**) Aetna Life Insurance 100% Management Services to
Company Limited Company (Bermuda) Associate Companies
Limited
------------------------------------------------------------------------------------------------------------------------------------
Daya Aetna (Malaysia) Malaysia (1) (*) Aetna International 91% Holding Company
SDN. BHD. Holdings (Hong Kong)
II Limited
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Genesis Healthcare SDN, Malaysia (1) (*) Daya Aetna (Malaysia) 100% Health Insurance Company
BHD SDN, BHD
------------------------------------------------------------------------------------------------------------------------------------
Aetna Trust Limited Hong Kong (1) (*) Aetna International, 100% Financial Services Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Universal Insurance Malaysia (1) (*) Daya Aetna (Malaysia) 100% Individual Life, Home Service,
Berhad SDN. BHD. Group and General Insurance
------------------------------------------------------------------------------------------------------------------------------------
P.T. Aetna Life Indonesia Indonesia (1) (**) Aetna Life Insurance 80% Limited Liability Life Insurance
Company of America Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Heart Investments Taiwan (1) (*) Aetna Life Insurance 30% Trading Co. - Marketing of Gifts
Holdings Limited Company of America and Souveniers
------------------------------------------------------------------------------------------------------------------------------------
Aetna Heart Co., Ltd. Taiwan (1) (**) Aetna Heart Investment 100% Trading Company - Marketing of
Holdings Limited Gifts and Souvenirs
------------------------------------------------------------------------------------------------------------------------------------
Aetna South Life Agency Taiwan (1) (**) Aetna Heart Investment 100% Administrative Support
Co., Ltd. Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Insurance Taiwan (1) (*) Aetna Heart Investments 50% Life Insurance Company
Agency Co. Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
Huei Hong Securities Co., Taiwan (1) (*) Aetna Heart Investment 20% Securities Trading
Ltd. Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna Heart Publishing Taiwan (1) (*) Aetna Heart Investment 100% Trading Company
Company Ltd. Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna (Netherlands) Netherlands (1) (*) Aetna Life and Casualty 100% Finance Company
Holdings B.V. International Finance
N.V.
------------------------------------------------------------------------------------------------------------------------------------
Seguros Bancomer, S.A. Mexico (1) (**) Aetna Internacional y 49% Insurance and Reinsurance Company
de C.V. Compania S de R.L. de
C.V.
------------------------------------------------------------------------------------------------------------------------------------
Inverval de Mexico S.A. de Mexico (1) (*) Aetna Internacional y 98% Holding Company
C.V. Compania S de R.L. de
C.V.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AE Five y Compania S. de Mexico (1) (*) Aetna Internacional y 100% Limited Limitability Company
R.L. de C.V. Compania S de R.L. de Formed Under Mex. Law for The
C.V. Purpose of Issuing Cpos in Mexico.
------------------------------------------------------------------------------------------------------------------------------------
Administradora de Fondos Mexico (1) (**) Aetna Internacional y 33%(jj) Retirement Funds Management
Para el Retiro Compania S de R.L. de Company
Bancomer, S.A. de C.V. C.V.
------------------------------------------------------------------------------------------------------------------------------------
Grupo Vamsa, S.A. de Mexico (1) (**) Aetna Internacional y 49% Legal Administration and
C.V. Compania S de R.L. de Financial Services
C.V.
------------------------------------------------------------------------------------------------------------------------------------
Pensiones Bancomer S.A. Mexico (1) (**) Aetna Internacional y 49% Insurance Company
de C.V. Compania S de R.L. de
C.V.
------------------------------------------------------------------------------------------------------------------------------------
Asesores en Promociones Mexico (1) (**) Seguros Bancomer, S.A. 67%(kk) Marketing of Seguros
Segunomina S.A. de C.V. de C.V. Products/Payroll Discounts
------------------------------------------------------------------------------------------------------------------------------------
Multiasistencia, S.A. de Mexico (1) (**) Seguros Bancomer, S.A. 100% Administrative Services
C.V. de C.V. in Connection
with Insurance Claims
------------------------------------------------------------------------------------------------------------------------------------
Meximed, S.A. de C.V. Mexico (1) (**) Seguros Bancomer, S.A. 100% Services for Insureds for
de C.V. Hospitals Admissions and
Claims Processing
------------------------------------------------------------------------------------------------------------------------------------
Servicios Corporativos Mexico (1) (**) Administradora de 99% Pension Administration
Bancomer S.A. Fondos para el Retiro
Bancomer, S.A. de C.V.
------------------------------------------------------------------------------------------------------------------------------------
Futuro Familiar S.A. de Mexico (1) (**) Pensiones Bancomer, 100% Marketing of Financial Services
C.V. S.A. de C.V. & Products
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(jj) Santa Maria Internacional S.A. owns 16% of Administradora de Fondos para
el Retiro Bancomer, S.A. de C.V.
(kk) Pensiones Bancomer, S.A. de C.V. owns 33% of Aserores en Promociones
Segunomina, S.A. de C.V.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Chile Seguros Chile (1) (*) Aetna S.A. 98% Casualty Insurance Company
Generales S.A.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Administradora de Chile (1) (*) Aetna S.A. 100% Real Estate Investment
Fondos de Inversion S.A. Trust Management Co.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Chile Seguros de Chile (1) (*) Aetna S.A. 100% Life Insurance Company
Vida S.A.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Pensiones S.A. Chile (1) (*) Aetna S.A. 100% Holding Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Credito Hipotecario Chile (1) (*) Aetna S.A. 100% Mortgage Company
S.A.
------------------------------------------------------------------------------------------------------------------------------------
Cruz-Blanca Isapre, S.A. Chile (1) (*) Aetna S.A. 81% Insurance Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna International Peru S.A. Peru (1) (*) Aetna S.A. 86%(ll) Holding Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna Salud S.A. Chile (1) (*) Aetna S.A. 90% Health Indemnity - Chile
------------------------------------------------------------------------------------------------------------------------------------
Administradora de Fondos de Chile (1) (*) Aetna Pensiones S.A. 97% Pension Funds Management
Pensiones Santa Maria Company
S.A.
------------------------------------------------------------------------------------------------------------------------------------
Santa Maria Internacional Chile (1) (*) Administradora de 100% Pension Administration
S.A. Fondos de Pensiones
Santa Maria S.A.
------------------------------------------------------------------------------------------------------------------------------------
Immobilaria Padre Mariano Chile (1) (*) Aetna Credito 99%(mm) Real Estate Development
S.A. Hipotecario S.A.
------------------------------------------------------------------------------------------------------------------------------------
Inmobiliaria Inmarangatn Chile (1) (*) Inmobiliaria Padre 15% Service Company
S.A. Mariano S.A.
------------------------------------------------------------------------------------------------------------------------------------
Asesories Previdencia Chile (1) (*) Inmobiliaria Padre 99% Service Company
Mariano S.A.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(ll) Aetna Chile Seguros de Vida S.A. and Aetna Chile Seguros Generales S.A.
have combined ownership of 14%
(mm) Aetna S.A. owns 1% of this company
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna Pensiones Peru S.A. Peru (1) (**) Santa Maria 66%(nn) Investment
Internacional S.A.
------------------------------------------------------------------------------------------------------------------------------------
Administradora de Fondos Peru (1) (**) Aetna Pensiones Peru 40%(oo) Pension Funds Management
de Pensiones Integra S.A. S.A. Company
------------------------------------------------------------------------------------------------------------------------------------
Wiese Aetna Compania Peru (1) (**) Aetna International 34% Insurance and Reinsurance
de Seguros S.A. Peru S.A.
------------------------------------------------------------------------------------------------------------------------------------
Novasalud Peru S.A. Peru (1) (**) Wiese Aetna Compania 50% Insurance subsidiary
Entidad Prestadora de de Seguros S.A.
Salud
------------------------------------------------------------------------------------------------------------------------------------
Cruz Blanca Entidad Columbia (1) (*) Cruz Blanca Isapre, 50% Pension Insurance Company
Protomotra de Salud S.A. S.A.
------------------------------------------------------------------------------------------------------------------------------------
Sul America Aetna Brazil (1) (*) Sul America Aetna 100% Pension
Companhia Nacional de Seguros de Previdencia
Seguros e Previdencia S.A.
Privada
------------------------------------------------------------------------------------------------------------------------------------
Sul America Servicos Brazil (1) (*) Sul America Aetna 100% Health Administrator
Medicos S.A. Seguros de Previdencia
S.A.
------------------------------------------------------------------------------------------------------------------------------------
Clube Dos Executivos, Brazil (1) (*) Sul American Aetna 100% Life insurance sponsor
S.A. Seguros de Previdencia
S.A.
------------------------------------------------------------------------------------------------------------------------------------
Executivos S/A Brazil (1) (*) Clube Dos Executivos 99% Administrative Services
Administracao e Promocao S.A.
de Seguros
------------------------------------------------------------------------------------------------------------------------------------
Executivos Corretorae Brazil (1) (*) Clube Dos Executivos 99% Administrative Services
Administradora de Seguros S.A.
S/C LTDA
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(nn) Aetna S.A. owns 34% of this company
(oo) Aetna Pensiones Peru S.A. owns 40% of this company
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sulalet Servisos Medicos Brazil (1) (*) Sul America Aetna 100% Healthcare Services
Companhia Nacional de
Seguros e Previdencia
Privada
------------------------------------------------------------------------------------------------------------------------------------
Brasilsaude Companhia de Brazil (1) (*) Sul America Aetna 51% Insurance
Segoros Companhia Nacional de
Seguros e Previdencia
Privada.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Life Insurance (N.Z.) New Zealand (1) (*) Aetna Health (N.Z.) 100% Group Benefits/Pension
Limited Limited Management
------------------------------------------------------------------------------------------------------------------------------------
Human Affairs (N.Z.) New Zealand (1) (*) Aetna Health (N.Z.) 100% Indemnity Health Insurance
Limited Limited
------------------------------------------------------------------------------------------------------------------------------------
First Health Limited New Zealand (1) (*) Aetna Health (N.Z.) 100% Super Annuitization/Long Term
Limited Care
------------------------------------------------------------------------------------------------------------------------------------
Prime Health Limited New Zealand (1) (*) First Health Limited 50% Buying and Managing Risk for
Publicly Funded Health Services
and Providing Management
Services and Infrastructure to its
Network of Doctors
------------------------------------------------------------------------------------------------------------------------------------
Managed Care New New Zealand (1) (*) Human Affairs (NZ) 100% Long Term Care Provider
Zealand Limited Limited
------------------------------------------------------------------------------------------------------------------------------------
PLJ Holdings Limited Hong Kong (1) (*) Aetna Investment 100% Investment Management &
Management (F.E.) Securities Trading
Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
Aetna Investment Hong Kong (1) (*) Aetna Investment 100% Nominee Services Holding
Management (F.E.) Management (F.E.) Assets of AIM F.E.'s Customers
Limited Holdings Limited in Street Name
------------------------------------------------------------------------------------------------------------------------------------
Kwang HUA Securities Taiwan (1) (***) Aetna Investment 20% Securities Investment & Trust
Investment & Trust Co. Management (F.E.)
Ltd. Holdings Limited
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kwang Hua Investment & Hong Kong (1) (***) Kwang HUA Securities 100% Investment Company
Trust (H.K.) Co. Ltd Investment & Trust Co.
Ltd.
------------------------------------------------------------------------------------------------------------------------------------
Kwang HUA Securities Taiwan (1) (***) PLJ Holdings Limited 20% Investment Consulting Company
Investment Consultant Co.
Ltd.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Salud S.A. Argentina (1) (*) Aetna Argentina, S.A. 100% Managing of Health Services
------------------------------------------------------------------------------------------------------------------------------------
Assistencia Medica Social Argentina (1) (*) Aetna Argentina, S.A. 100% Healthcare Management
Argentina S.A.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Vida S.A. Argentina (1) (*) Aetna Argentina, Inc. 100% Health and Life Insurance
------------------------------------------------------------------------------------------------------------------------------------
U.S. Healthcare Financial DE (1) (*) Aetna U.S. Healthcare 100% Holding Company
Services, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Primary Holdings, Inc. DE (1) (*) Aetna U.S. Healthcare 100% Holding Company
Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Aetna Health Management, DE (1) (*) Aetna U.S. Healthcare 100% HMO Management Company
Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
NYLCare Health Plans, DE (1) (*) Aetna U.S. Healthcare 100% Holding Company
Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare PA (1) (*) Aetna U.S. Healthcare 100% Dental
Dental Plan, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare NJ (1) (*) Aetna U.S. Healthcare 100% Dental
Dental Plan, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Healthcare DE (1) (*) Aetna U.S. Healthcare 100% Dental
Dental Plan, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Health Insurance NY (1) (*) Aetna U.S. Healthcare 100% Accident and Health Insurance
Company Inc. (PA) Company
------------------------------------------------------------------------------------------------------------------------------------
Corporate Health Insurance PA (1) (*) Aetna U.S. Healthcare 100% Accident and Health Insurance
Company Inc. (PA) Company
------------------------------------------------------------------------------------------------------------------------------------
U.S. Managed Care, Inc. MD (1) (*) Aetna U.S. Healthcare 100% Utilization Review
Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna U.S. Healthcare, Inc. NJ (1) (*) Aetna U.S. Healthcare 100% HMO
Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Healthcare, Inc. NY (1) (*) Aetna U.S. Healthcare 100% HMO
Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. CT (1) (*) Aetna U.S. Healthcare 100% HMO
Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. MA (1) (*) Aetna U.S. Healthcare 100% HMO
Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. DE (1) (*) Aetna U.S. Healthcare 100% HMO
(DE) Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare of NH (1) (*) Aetna U.S. Healthcare 100% HMO
New Hampshire, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Prudential Health Care TX (1) (*) Aetna U.S. Healthcare 100% HMO
Plan, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Prudential Health Care NY (1) (*) Aetna U.S. Healthcare 100% HMO
Plan of New York, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Prudential Health Care CT (1) (*) Aetna U.S. Healthcare 100% HMO
Plan of Connecticut, Inc. Inc. (PA)
------------------------------------------------------------------------------------------------------------------------------------
Criterion Communications, Inc. DE (1)(*) Aetna U.S. Healthcare 100% HMO
Inc.(PA)
------------------------------------------------------------------------------------------------------------------------------------
Advent Investments, Inc. DE (1) (*) U.S. Healthcare 100% DE Holding Company
Financial Services,
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Independent Investments, DE (1) (*) U.S. Healthcare 100% DE Holding Company
Inc. Financial Services,
Inc.
------------------------------------------------------------------------------------------------------------------------------------
United States Physicians PA (1) (*) U.S. Healthcare 100% Financial Services to Physicians
Care Systems, Inc. Financial Services,
Inc.
------------------------------------------------------------------------------------------------------------------------------------
United States Home Health PA (1) (*) U.S. Healthcare 100% Inactive - other Medical Services
Care Systems, Inc. Financial Services,
Inc.
------------------------------------------------------------------------------------------------------------------------------------
U.S. Health Aviation Corp. PA (1) (*) U.S. Healthcare 100% Ownership and Operation of
Financial Services, Airplanes
Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Healthcare Properties, PA (1) (*) U.S. Healthcare 100% Holding Company for Real
Inc. Financial Services, Estate
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Intelihealth, Inc. DE (1) (*) U.S. Healthcare 100% Software Development
Financial Services,
Inc.
------------------------------------------------------------------------------------------------------------------------------------
USHC Management DE (1) (*) U.S. Healthcare 100% Management and Financial
Services Corporation Financial Services, Services to Network Providers
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Integrated Pharmacy FL (1) (*) U.S. Healthcare 100% Pharmaceutical
Solutions, Inc. Financial Services,
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Bentana Technologies, Inc. CT (1) (*) U.S. Healthcare 50%(pp) Information Technology
Financial Services, Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare DE (1) (*) Aetna U.S. Healthcare 80%(qq) Shell corp. set up to handle
Interactive Inc. Financial Services, health's internet portal operations
Inc.
------------------------------------------------------------------------------------------------------------------------------------
U.S. Healthcare DE (1) (*) Advent Investments, 100% Holding Company
Advantage, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Wissahickon Payment DE (1) (*) Advent Investments, 100% Third Party Administrator
Administrators, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Advent Financial Services, DE (1) (*) U.S. Healthcare 100% Holding Company
Inc. Advantage, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Corporate Health PA (1) (*) Advent Financial 100% Third Party Administrator for
Administrators, Inc. Services, Inc. Self-Insured Plans
------------------------------------------------------------------------------------------------------------------------------------
Managed Care DE (1) (*) Advent Financial 100% Evaluation and Administration of
Coordinators, Inc. Services, Inc. Multiple Health Plans
------------------------------------------------------------------------------------------------------------------------------------
U.S. Phoenix Corporation PA (1) (*) Advent Financial 100% Shell
Services, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(pp) Aetna Retirement Holdings, Inc. owns 50% of Bentana Technologies, Inc.
(qq) Aetna Health Management, Inc. owns 20% of Aetna U.S. Healthcare
Interactive Inc.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Quality Algorithms, PA (1) (*) Advent Financial 100% Services to Analyze the Quality
Inc. Services, Inc. and Effectiveness of Medical Care
------------------------------------------------------------------------------------------------------------------------------------
Workers Comp Advantage, PA (1) (*) Advent Financial 100% Case Management and other
Inc. Services, Inc. Medical Management Services for
Employers on Costs Related to
Workers' Compensation Claims
------------------------------------------------------------------------------------------------------------------------------------
Primary Investments, Inc. DE (1) (*) Primary Holdings, Inc. 100% Holding Company
------------------------------------------------------------------------------------------------------------------------------------
United States Health Care PA (1) (*) Primary Investments, 100% HMO
Systems of Pennsylvania, Inc.
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare Inc. MD (1) (*) Primary Investments, 15%(rr) HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare of NC (1) (*) Primary Investments, 100% HMO
the Carolinas, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare DE (1) (*) Primary Investments, 100% Holding Company
Holdings, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. MI (1) (*) Primary Investments, 100% HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. OK (1) (*) Primary Investments, 100% HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
U.S. Healthcare, Inc. MO (1) (*) Primary Investments, 100% HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. CO (1) (*) Aetna U.S. Healthcare 100% HMO
Holdings, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare Inc. WA (1) (*) Primary Investments, 100% HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(rr) NYLCare Health Plans, Inc. owns 44% and Aetna Health Management, Inc.
owns 41% of Aetna U.S. Healthcare, Inc. (MD)
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Health Insurance CT (1) (*) Primary Investments, 100% Accident and Health Insurance
Company Inc. Company
------------------------------------------------------------------------------------------------------------------------------------
Chickering Claims MA (1) (**) Primary Investments, 47% Third Party Claims
Administrators, Inc. Inc. Administration Business
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare of GA (1) (*) Primary Investments, 63%(ss) HMO
Georgia, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Prudential Health Care GA (1) (*) Primary Investments, 100% HMO
Plan of Georgia, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. OH (1) (*) Aetna Health 100% HMO
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. MD (1) (*) Aetna Health 41%(tt) HMO
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. FL (1) (*) Aetna Health 100% HMO
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. TN (1) (*) Aetna Health 100% HMO
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare of CA (1)(*) Aetna Health 100% HMO
California Inc. Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. AZ (1) (*) Aetna Health 100% HMO
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare DE (1) (*) Aetna Health 20%(uu) Shell corp. set up to handle
Interactive Inc. Management, Inc. health's internet portal operations
------------------------------------------------------------------------------------------------------------------------------------
Aetna Health Plans of PA (1) (*) Aetna Health 100% HMO
Central and Eastern Management, Inc.
Pennsylvania, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(ss) Aetna Health Management, Inc. owns 37% of Aetna U.S. Healthcare of
Georgia, Inc.
(tt) NYLCare Health Plans, Inc. owns 44% and Primary Investments, Inc. owns
15% of Aetna U.S. Healthcare, Inc. (MD)
(uu) U.S. Healthcare Financial Services, Inc. owns 80% of Aetna U.S. Healthcare
Interactive Inc.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aetna U.S. Healthcare of IL (1) (*) Aetna Health 100% HMO
Illinois, Inc. Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. LA (1) (*) Aetna Health 100% HMO
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. TX (1) (*) Aetna Health 100% HMO
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare of GA (1) (*) Aetna Health 37%(vv) HMO
Georgia, Inc. Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
MED Southwest, Inc. TX (1) (*) Aetna Health 55% Holding Company
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare CA (1) (*) Aetna Health 100% Provide Pre-Paid Dental Services
Dental Plan of California Management, Inc.
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Dental Care of KY (1) (*) Aetna Health 100% Dental Plan Organization
Kentucky, Inc. Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Dental Care of New NJ (1) (*) Aetna Health 100% Dental Care
Jersey, Inc. Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare TX (1) (*) Aetna Health 100% HMO Offering Single Health
Dental Plan Inc. Management, Inc. Service Plan - Dental
------------------------------------------------------------------------------------------------------------------------------------
AUSHC Holdings, Inc. DE (1) (*) Aetna Health 100% Holding Company
Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Government Health CA (1) (*) Aetna Health 100% Sponsors Champus Business
Plans, Inc. Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Informed Health, Inc. DE (1) (*) Aetna Health 100% Sponsors Health Information
Management, Inc. Service
------------------------------------------------------------------------------------------------------------------------------------
Prudential Health Care CA (1) (*) Aetna Health 100% HMO
Plan of California, Inc. Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(vv) Primary Investments, Inc. owns 63% of Aetna U.S. Healthcare of Georgia,
Inc.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prudential Dental TX (1) (*) Aetna Health 100% HMO Offering Single Health
Maintenance Organization, Management Inc. Service Plan (Dental)
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Southwest Physicians Life TX (1) (*) MED Southwest, Inc. 100% Life and Health Insurer
Insurance Company
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare of TX (1) (*) MED Southwest, Inc. 100% HMO
North Texas Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna Health Plans of New NJ (1) (*) AUSHC Holdings, Inc. 100% HMO
Jersey, Inc.
------------------------------------------------------------------------------------------------------------------------------------
Lonestar Holding Co. DE (1) (*) NYLCare Health Plans, 100% Holding Company
Inc.
------------------------------------------------------------------------------------------------------------------------------------
NYLCare of Texas, Inc. TX (1) (*) NYLCare Health Plans, 100% Management Company for PPO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
NYLCare Health Plans of PA (1) (*) NYLCare Health Plans, 100% HMO
Pennsylvania, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
One Liberty Plaza DE (1) (*) NYLCare Health Plans, 100% Special Purpose Funding Entity
Holdings, Inc. Inc. for Industrial Development
Agency Transaction
------------------------------------------------------------------------------------------------------------------------------------
Benefit Panel Services, Inc. CA (1) (*) NYLCare Health Plans, 100% Manages HMOs
Inc.
------------------------------------------------------------------------------------------------------------------------------------
NYLCare Dental Plans of TX (1) (*) NYLCare Health Plans, 100% Dental HMO
the Southwest, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Sanus Preferred Providers CA (1) (*) NYLCare Health Plans, 100% PPO
West, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
NYLCare of New England, DE (1) (*) NYLCare Health Plans, 100% Management Company
Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
NYLCare Health Plans of NY (1) (*) NYLCare Health Plans, 100% HMO
New York, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
NYLCare Health Plans of NJ (1) (*) NYLCare Health Plans, 100% HMO
New Jersey Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NYLCare Health Plans of CT (1) (*) NYLCare Health Plans, 100% HMO
Connecticut, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
NYLCare Preferred MD (1) (*) NYLCare Health Plans, 100% PPO
Services, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Sanus of New York and NY (1) (*) NYLCare Health Plans, 100% PPO
New Jersey, Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
Sanus Dental Plan of N.J., NJ (1) (*) NYLCare Health Plans, 100% Dental HMO
Inc. Inc.
------------------------------------------------------------------------------------------------------------------------------------
The Ethix Corporation DE (1) (*) NYLCare Health Plans, 100% Holding Company of PPO
Inc. Network
------------------------------------------------------------------------------------------------------------------------------------
Aetna US Healthcare, Inc. ME (1) (*) NYLCare Health Plans, 100% HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
New York Life and Health DE (1) (*) NYLCare Health Plans, 100% Reinsurance
Insurance Company Inc.
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare, Inc. MD (1) (*) NYLCare Health Plans, 44%(ww) HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Lone star Health Plan, Inc. TX (1) (*) Lonestar Holding Co. 90%(xx) Holding Company
------------------------------------------------------------------------------------------------------------------------------------
NYLCare Passport PPO of TX (1) (*) NYLCare of Texas, Inc. 100% PPO
the Southwest, Inc.
------------------------------------------------------------------------------------------------------------------------------------
BPS HealthPlan Administrators CA (1) (*) Benefit Panel Services, 100% Third Party Administrator
Inc.
------------------------------------------------------------------------------------------------------------------------------------
VivaHealth, Incorporated CA (1) (*) Benefit Panel Services, 100% HMO
Inc.
------------------------------------------------------------------------------------------------------------------------------------
Ethix Northwest, Inc. WA (1) (*) The Ethix Corporation 100% PPO
------------------------------------------------------------------------------------------------------------------------------------
Ethix Northwest Public WA (1) (*) The Ethix Corporation 100% Managed Care Services to
Services, Inc. Medicaid Recipients
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
------------------------------------
(ww) Aetna Health Management, Inc. owns 41% and Primary Investments, Inc. owns
15% of Aetna U.S. Healthcare, Inc. (MD)
(xx) NYLCare Health Plans, Inc. owns 10% of this company.
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 2000
COMPANY ORGANIZATION LIST
------------------------------------------------------------------------------------------------------------------------------------
COMPANY STATE IMMEDIATE OWNER OWNERSHIP PRINCIPAL BUSINESS
PERCENTAGE+
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ethix Midlands, Inc. DE (1) (*) The Ethix Corporation 100% PPO
------------------------------------------------------------------------------------------------------------------------------------
Aetna U.S. Healthcare of WA (1) (*) Ethix Northwest, Inc. 100% HMO
Washington, Inc.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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,
<PAGE>
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 April 18, 2000, 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)). Aeltus also acts as investment adviser to
certain private accounts.
The following table summarizes the business connections of the directors
and principal officers of the Investment Adviser.
<PAGE>
<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, President and Chief Investment Officer
Executive Officer, Chief (since May 2000) - Aetna; Director (February 1995 -
Investment Officer March 1998) - Aetna; Director, President, Chief
Executive Officer, Chief Investment Officer (since May
1996) - Aeltus Trust Company; Senior Vice President
(September 1994 - May 2000) - Aetna.
J. Scott Fox Director, Managing Managing Director, Chief Operating Officer and Chief
Director, Chief Operating Financial Officer (since September 1997) - Aeltus
Officer, Chief Financial Trust Company; Vice President (April 1997 - April
Officer 1998) - Aetna Retirement Services, Inc.; Director
and Senior Vice President (March 1997 - February
1998) - Aetna.
Thomas J. McInerney Director Director (since February 1998), President (since
August 1997) - Aetna Retirement Services, Inc.;
Director and President (September 1997 - May 2000) -
Aetna; Executive Vice President (since August 1997)
- Aetna Inc.
Catherine H. Smith Director Director (since March 1999), Senior Vice President
(since April 1999), Chief Financial Officer (since
February 1998) - Aetna Retirement Services, Inc.;
Director, Senior Vice President and Chief Financial
Officer (since February 1998) - Aetna; 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>
Brian K. Kawakami Vice President, Chief Chief Compliance Officer & Director (since January
Compliance 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)
Marketing and Sales - Aeltus Trust Company; Managing Director (since
(May 1998) - Aeltus Capital, Inc.
L. Charles Meythaler Managing Director, Director (since July 1997) - Aeltus Trust Company;
Institutional Marketing Managing Director (since June 1997) - Aeltus Trust
and Sales Company.
James Sweeney Managing Director, Fixed Managing Director (since June 1999) - Aeltus Trust
Income 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 and the Class I
Prospectus, each dated March 1, 2000, and the Statement of Additional
Information dated June 30, 2000, as amended July 12, 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
J. Scott Fox Director, Managing Director, Chief Director and President
Operating Officer, Chief Financial
Officer
Brian K. Kawakami Director, Vice President, Chief None
Compliance 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
---------------------
Insofar as indemnification for liability arising under the Securities Act
of 1933 (1933 Act) may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other that the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the 1933 Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Aetna Series Fund, Inc. 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 4th day of August 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 ) August 4,
------------------------------------------- ) 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 )
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Corine T. Norgaard* Director )
-------------------------------------------
Corine T. Norgaard )
)
Richard G. Scheide* Director )
-------------------------------------------
Richard G. Scheide )
)
Stephanie A. DeSisto* Treasurer and Chief Financial Officer )
------------------------------------------- (Principal Financial and Accounting )
Stephanie A. DeSisto Officer) )
</TABLE>
By: /s/ Daniel E. Burton
---------------------------------------------------
*Daniel E. Burton
Attorney-in-Fact
*Executed pursuant to Power of Attorney dated November 6, 1998 and filed
with the Securities and Exchange Commission on December 17, 1998.
<PAGE>
<TABLE>
<CAPTION>
Aetna Series Fund, Inc.
EXHIBIT INDEX
Exhibit No. Exhibit Page
---------- ------- ----
<S> <C> <C>
99-(j) Consent of Independent Auditors
-----------------
99-(m.5) Form of Shareholder Services Plan (Class A)
-----------------
</TABLE>
