As filed with the Securities and Exchange File No. 33-41694
Commission on September 27, 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. 44
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 54
AETNA SERIES FUND, INC.
10 State House Square SH11, Hartford, Connecticut 06103-3602
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(860) 275-3252
Michael Gioffre, Assistant General Counsel
Aeltus Investment Management, Inc.
10 State House Square SH11, Hartford, Connecticut 06103-3602
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(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
X On September 28, 2000 pursuant to paragraph (b) of Rule 485.
--
<PAGE>
Parts A and B
The Aetna Series Fund, Inc. Class I Prospectus and the Brokerage Cash Reserves
Prospectus are incorporated into Part A of this Post-Effective Amendment No. 44
by reference to the Fund's filing under Rule 497(j) under the Securities Act of
1933, as filed on June 30, 2000.
The Supplement to the Aetna Series Fund, Inc. Brokerage Cash Reserves Prospectus
is incorporated into Part A of this Post-Effective Amendment No. 44 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. Brokerage Cash Reserves Statement of Additional
Information is incorporated into Part B of this Post-Effective Amendment No. 44
by reference to the Fund's filing under Rule 497(j) under the Securities Act of
1933, as filed on June 30, 2000.
<PAGE>
AETNA SERIES FUND, INC.
PROSPECTUS
CLASS A, CLASS B AND CLASS C SHARES
September 28, 2000
CAPITAL APPRECIATION FUNDS
Aetna Growth Fund (Growth)
Aetna International Fund (International)
Aetna Small Company Fund (Small Company)
Aetna Value Opportunity Fund (Value Opportunity)
Aetna Technology Fund (Technology)
GROWTH & INCOME FUNDS
Aetna Balanced Fund (Balanced)
Aetna Growth and Income Fund (Growth and Income)
INCOME FUNDS
Aetna Bond Fund (Bond Fund)
Aetna Government Fund
Aetna Money Market Fund (Money Market)
INDEX PLUS FUNDS
Aetna Index Plus Large Cap Fund (Index Plus Large Cap)
Aetna Index Plus Mid Cap Fund (Index Plus Mid Cap)
Aetna Index Plus Small Cap Fund (Index Plus Small Cap)
GENERATION FUNDS
Aetna Ascent Fund (Ascent)
Aetna Crossroads Fund (Crossroads)
Aetna Legacy Fund (Legacy)
The 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.
This Prospectus is for investors purchasing or considering purchase of Class A,
Class B or Class C shares of one or more of the Funds.
<PAGE>
TABLE OF CONTENTS
THE FUNDS' INVESTMENTS 3
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
INVESTMENT PERFORMANCE 3
FUND EXPENSES 33
OTHER CONSIDERATIONS 40
MANAGEMENT OF THE FUNDS 41
INVESTING IN THE FUNDS 43
OPENING AN ACCOUNT AND SELECTING A SHARE CLASS 43
HOW TO BUY SHARES 46
HOW TO SELL SHARES 49
TIMING OF REQUESTS 50
OTHER INFORMATION ABOUT SHAREHOLDER ACCOUNTS AND SERVICES 50
DIVIDENDS AND DISTRIBUTIONS 52
TAX INFORMATION 52
PERFORMANCE OF SIMILARLY MANAGED FUNDS 53
FINANCIAL HIGHLIGHTS 54
ADDITIONAL INFORMATION 83
2
<PAGE>
THE FUNDS' INVESTMENTS
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS, INVESTMENT
PERFORMANCE
Below is a description of each Fund's INVESTMENT OBJECTIVE, the PRINCIPAL
INVESTMENT STRATEGIES employed on behalf of each Fund and the PRINCIPAL RISKS
associated with investing in each Fund.
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A performance BAR CHART is provided for each Fund that has been in existence for
at least one full calendar year. If a Fund has been in existence for at least
two full calendar years, the bar chart shows changes in the Fund's performance
from year to year. The fluctuation in returns illustrates each Fund's
performance volatility. Sales charges are not reflected in the bar chart
performance. If sales charges were reflected, returns would be lower.
The chart is accompanied by the Fund's best and worst quarterly returns
throughout the years noted in the bar chart.
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A TABLE for each Fund that has been in existence for at least one full calendar
year shows its average annual total return. These returns do reflect all
applicable sales charges. The table also compares the Fund's performance to the
performance of one or more broad-based securities market indices. Each index is
a widely recognized, unmanaged index of securities. A Fund's past performance is
not necessarily an indication of how it will perform in the future.
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Additional information about the Funds' investment strategies and risks is
included on page 40.
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Aeltus Investment Management, Inc. (Aeltus) serves as investment adviser of the
Funds.
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Elijah Asset Management, LLC (EAM) serves as subadviser of Technology.
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SHARES OF THE FUNDS WILL RISE AND FALL IN VALUE AND YOU COULD LOSE MONEY BY
INVESTING IN THEM. THERE IS NO GUARANTY THE FUNDS WILL ACHIEVE THEIR RESPECTIVE
INVESTMENT OBJECTIVES. SHARES OF THE FUNDS ARE NOT BANK DEPOSITS AND ARE NOT
GUARANTEED, ENDORSED OR INSURED BY ANY FINANCIAL INSTITUTION, THE FDIC OR ANY
OTHER GOVERNMENT AGENCY.
3
<PAGE>
CAPITAL APPRECIATION FUNDS
AETNA GROWTH FUND (GROWTH)
INVESTMENT OBJECTIVE Seeks GROWTH OF CAPITAL through investment in a
diversified portfolio consisting primarily of common stocks and securities
convertible into common stocks believed to offer growth potential.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Growth invests
at least 65% of its total assets in common stocks and securities convertible
into common stock.
In managing Growth, Aeltus:
o Emphasizes stocks of larger companies, although Growth may invest in companies
of any size.
o Uses internally developed quantitative computer models to evaluate the
financial characteristics (for example, earnings growth consistency, earnings
momentum, and price/earnings ratio) of approximately 1,000 companies. Aeltus
analyzes these characteristics in an attempt to identify companies it believes
have strong growth characteristics or demonstrate a positive trend in earnings
estimates, but whose perceived value is not reflected in the stock price.
o Focuses on companies that it believes have strong, sustainable and improving
earnings growth, and established market positions in a particular industry.
PRINCIPAL RISKS The principal risks of investing in Growth are those generally
attributable to stock investing. They include sudden and unpredictable drops
in the value of the market as a whole and periods of lackluster or negative
performance.
Growth-oriented stocks typically sell at relatively high valuations as compared
to other types of stocks. If a growth stock does not exhibit the consistent
level of growth expected, its price may drop sharply. Historically,
growth-oriented stocks have been more volatile than value-oriented stocks.
4
<PAGE>
AETNA GROWTH FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
33.38% 21.26% 21.88% 37.51% 34.71%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1998, up 23.36%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 10.06%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* 26.97% 28.04% 23.88% 01/04/94
Class B* 28.74% 28.83% 24.52% 01/04/94
Class C* 32.73% 28.97% 24.57% 01/04/94
Russell 1000 Growth Index** 33.16% 32.39% 26.90% 01/03/94
S&P 500 Index*** 21.04% 28.55% 23.54% 01/03/94
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
Growth changed its benchmark from the Standard & Poor's (S&P) 500 Index to the
Russell 1000 Growth Index because the Russell 1000 Growth Index emphasizes large
cap growth stocks, which are more indicative of the securities in which the Fund
invests.
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* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Russell 1000 Growth Index measures the performance of the 1,000
largest companies in the Russell 3000 Index with higher price-to-book ratios and
higher forecasted growth values.
*** The S&P 500 Index is a value-weighted, unmanaged index of 500 widely held
stocks and is considered to be representative of the stock market in general.
5
<PAGE>
AETNA INTERNATIONAL FUND (INTERNATIONAL)
INVESTMENT OBJECTIVE Seeks LONG-TERM CAPITAL GROWTH primarily through
investment in a diversified portfolio of common stocks principally traded in
countries outside of North America. International will not target any given
level of current income.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, International
invests at least 65% of its total assets in securities principally traded in
three or more countries outside of North America. These securities may include
common stocks as well as securities convertible into common stock.
In managing International, Aeltus:
o Diversifies the Fund's portfolio by investing in a mix of stocks that it
believes have the potential for long-term growth, as well as stocks that
appear to be trading below their perceived value.
o Allocates assets among several geographic regions and individual countries,
investing primarily in those areas that it believes have the greatest
potential for growth as well as stable exchange rates.
o Invests primarily in established foreign securities markets, although it may
invest in emerging markets as well.
o Uses internally developed quantitative computer models to evaluate the
financial characteristics of over 2,000 companies. Aeltus analyzes cash flows,
earnings and dividends of each company, in an attempt to select companies with
long-term sustainable growth characteristics.
o Employs currency hedging strategies to protect the portfolio from adverse
effects on the U.S. dollar.
PRINCIPAL RISKS The principal risks of investing in International 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 performance.
Other risks of foreign investing include:
o Stocks of foreign companies tend to be less liquid and more volatile than
their U.S. counterparts.
o Accounting standards and market regulations tend to be less standardized in
certain foreign countries, and economic and political climates tend to be
less stable.
o Stocks of foreign companies may be denominated in foreign currency. Exchange
rate fluctuations may reduce or eliminate gains or create losses. Hedging
strategies intended to reduce this risk may not perform as expected.
o Investments in emerging markets are subject to the same risks applicable to
foreign investments generally, although those risks may be increased due to
conditions in such countries.
6
<PAGE>
AETNA INTERNATIONAL FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
6.27% 22.27% 14.94% 17.87% 51.68%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1999, up 31.72%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 15.74%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* 42.96% 20.27% 14.05% 01/03/92
Class B* 45.64% 21.08% 14.54% 01/03/92
Class C* 49.72% 21.28% 14.54% 01/03/92
MSCI EAFE Index** 27.30% 13.15% 11.26% 01/02/92
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Morgan Stanley Capital International-Europe, Australia and Far
East Index is a market value-weighted average of the performance of more than
900 securities listed on the stock market exchanges of countries in Europe,
Australia and the Far East.
7
<PAGE>
AETNA SMALL COMPANY FUND (SMALL COMPANY)
INVESTMENT OBJECTIVE Seeks GROWTH OF CAPITAL primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalizations.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Small Company
invests at least 65% of its total assets in common stocks and securities
convertible into common stock of small-capitalization companies, defined as:
o The 2,000 smallest of the 3,000 largest U.S. companies (as measured by market
capitalization).
o All companies not included above that are included in the Standard & Poor's
SmallCap 600 Index or the Russell 2000 Index.
o Companies with market capitalizations lower than any companies included in
the first two categories.
For purposes of the 65% policy, the largest company in which Small Company
intends to invest currently has a market capitalization of approximately $1.5
billion.
In managing Small Company, Aeltus:
o Invests in stocks that it believes have the potential for long-term growth, as
well as those that appear to be trading below their perceived value.
o Uses internally developed quantitative computer models to evaluate financial
characteristics (for example, changes in earnings, earnings estimates and
price momentum) of over 2,000 companies. Aeltus analyzes these characteristics
in an attempt to identify companies whose perceived value is not reflected in
the stock price.
o Considers the potential of each company to create or take advantage of unique
product opportunities, its potential to achieve long-term sustainable growth
and the quality of its management.
PRINCIPAL RISKS The principal risks of investing in Small Company 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 performance.
Other risks include:
o Stocks of smaller companies carry higher risks than stocks of larger
companies. This is because smaller companies may lack the management
experience, financial resources, product diversification, and competitive
strengths of larger companies.
o In many instances, the frequency and volume of trading in small cap stocks are
substantially less than stocks of larger companies. As a result, the stocks of
smaller companies may be subject to wider price fluctuations and/or may be
less liquid.
o When selling a large quantity of a particular stock, the Fund may have to sell
at a discount from quoted prices or may have to make a series of small sales
over an extended period of time due to the more limited trading volume of
smaller company stocks.
o Stocks of smaller companies can be particularly sensitive to expected changes
in interest rates, borrowing costs and earnings.
8
<PAGE>
AETNA SMALL COMPANY FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
47.11% 12.79% 32.26% 1.12% 30.59%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1999, up 24.48%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 18.27%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* 23.08% 22.26% 18.36% 01/04/94
Class B* 24.65% 22.95% 18.95% 01/04/94
Class C* 28.58% 23.11% 19.01% 01/04/94
Russell 2000 Index** 21.26% 16.69% 13.37% 01/03/94
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Russell 2000 Index consists of the smallest 2,000 companies in
the Russell 3000 Index and represents approximately 10% of the Russell 3000
total market capitalization.
9
<PAGE>
AETNA VALUE OPPORTUNITY FUND
(VALUE OPPORTUNITY)
INVESTMENT OBJECTIVE Seeks GROWTH OF CAPITAL primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stock.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Value
Opportunity invests at least 65% of its total assets in common stocks and
securities convertible into common stock. In managing Value Opportunity, Aeltus
tends to invest in larger companies it believes are trading below their
perceived value, although it may invest in companies of any size. Aeltus
believes that Value Opportunity's investment objective can best be achieved by
investing in companies whose stock price has been excessively discounted due to
perceived problems or for other reasons. In searching for investments, Aeltus
evaluates financial and other characteristics of companies, attempting to find
those companies that appear to possess a catalyst for positive change, such as
strong management, solid assets, or market position, rather than those companies
whose stocks are simply inexpensive. Aeltus looks to sell a security when
company business fundamentals deteriorate or when price objectives are reached.
PRINCIPAL RISKS The principal risks of investing in Value Opportunity are
those generally attributable to stock investing. They include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance.
Stocks that appear to be undervalued may never appreciate to the extent
expected. Further, because the prices of value-oriented stocks tend to correlate
more closely with economic cycles than growth-oriented stocks, they generally
are more sensitive to changing economic conditions, such as changes in interest
rates, corporate earnings and industrial production.
AETNA VALUE OPPORTUNITY FUND INVESTMENT PERFORMANCE
YEAR ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1999
19.29%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1999, up 16.31%
[ARROW DOWN] WORST QUARTER:
third quarter 1999, down 6.45%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION INCEPTION DATE
Class A 12.43% 15.67% 02/02/98
Class B* 13.39% 16.60% 02/02/98
Class C* 17.41% 18.41% 02/02/98
S&P 500 Index** 21.04% 25.25% 02/02/98
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
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* The Fund introduced Class B and Class C shares on March 1, 1999 and June 30,
1998, respectively. For periods prior to the Class B and Class C inception
dates, the performance is calculated using the performance of Class I shares,
and deducting the internal fees and expenses of the Class B shares and Class C
shares, respectively. All Class B share returns, and Class C share 1-year
returns, reflect the deduction of the applicable contingent deferred sales
charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Standard & Poor's 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks and is considered to be representative of the stock
market in general.
10
<PAGE>
AETNA TECHNOLOGY FUND
(TECHNOLOGY)
INVESTMENT OBJECTIVE Seeks LONG-TERM CAPITAL APPRECIATION.
PRINCIPAL INVESTMENT STRATEGIES Technology primarily invests in common stocks
and securities convertible into common stock of companies in the information
technology industry sector.
Companies in the information technology industries include companies that EAM
considers to be principally engaged in the development, production, or
distribution of products or services related to the processing, storage,
transmission, or presentation of information or data. The following examples
illustrate the wide range of products and services provided by these industries:
o Computer hardware and software of any kind, including, for example,
semiconductors, minicomputers, and peripheral equipment.
o Telecommunications products and services.
o Multimedia products and services, including, for example, goods and services
used in the broadcast and media industries.
o Data processing products and services.
o Financial services companies that collect or disseminate market, economic, and
financial information.
o Internet companies and other companies engaged in, or providing products or
services for, e-commerce.
EAM considers a company to be principally engaged in the information technology
industries if at the time of investment at least 50% of the company's assets,
gross income, or net profits are committed to, or derived from, those
industries. EAM will also consider a company to be principally engaged in the
information technology industries if it has the potential for capital
appreciation primarily as a result of particular products, technology, patents,
or other market advantages in those industries.
In selecting stocks for Technology, EAM looks at a company's valuation relative
to its potential long-term growth rate. EAM may look to see whether a company
offers a new or improved product, service, or business operation; whether it
has experienced a positive change in its financial or business condition;
whether the market for its goods or services has expanded or experienced a
positive change; and whether there is a potential catalyst for positive change
in the company's business or stock price. Technology may sell a security if EAM
determines that the company has become overvalued due to price appreciation or
has experienced a change in its business fundamentals, if the company's growth
rate slows substantially, or if EAM believes that another investment offers a
better opportunity.
PRINCIPAL RISKS The principal risks of investing in Technology 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 performance. Stocks of smaller companies tend to be less
liquid and more volatile than stocks of larger companies. Further, stocks of
smaller companies also can be particularly sensitive to expected changes in
interest rates, borrowing costs and earnings.
Because Technology's investments are concentrated in the information technology
industries, Technology may be subject to more abrupt swings in value than a fund
which invests in a broader range of industries.
Investments in information technology companies may be highly volatile. Changes
in their prices may reflect changes in investor evaluation of a particular
product or group of products, of the prospects of a company to develop and
market a particular technology successfully, or of information technology
investments generally.
Technology may experience difficulty in establishing or closing out positions in
these securities at prevailing market prices. Also, there may be less publicly
available information about small companies or less market interest in their
securities as compared to larger companies, and it may take longer for the
prices of the securities to reflect the full value of their issuers' earnings
potential or assets.
11
<PAGE>
GROWTH & INCOME FUNDS
AETNA BALANCED FUND (BALANCED)
INVESTMENT OBJECTIVE Seeks to MAXIMIZE TOTAL RETURN with reasonable safety of
principal by investing in a diversified portfolio of stocks, bonds and money
market instruments.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Balanced
allocates its assets between the following asset classes:
o Equities, such as common and preferred stocks.
o Debt, such as bonds, mortgage-related and other asset-backed securities, U.S.
Government securities and money market instruments.
Aeltus typically maintains approximately 60% of Balanced's total assets in
equities and approximately 40% of its total assets in debt (including money
market instruments), although those percentages may vary from time to time
depending on Aeltus' view of the relative attractiveness of each asset class. In
making asset allocation decisions, Aeltus uses current market statistics and
economic indicators to attempt to forecast returns for the equity and debt
sectors of the securities market. Within each asset class, Aeltus uses
quantitative computer models to evaluate financial criteria in an attempt to
identify those issuers whose perceived value is not reflected in their equity or
debt securities. Aeltus generally does not attempt to respond to short-term
swings in the market by quickly changing the characteristics of the Fund's
portfolio.
In managing the EQUITY COMPONENT of Balanced, Aeltus typically emphasizes
investment in stocks of larger companies, although it may invest in stocks of
smaller companies to a significant extent.
In managing the DEBT COMPONENT of Balanced, Aeltus looks to select investments
with the opportunity to enhance the portfolio's yield and total return, focusing
on performance over the long term. The Fund may invest up to 15% of its total
assets in high-yield, high-risk bonds (high-yield bonds). High-yield bonds are
fixed income securities rated below BBB- by Standard & Poor's Corporation (S&P)
or Baa3 by Moody's Investors Services, Inc. (Moody's) or, if unrated, considered
by Aeltus to be of comparable quality.
PRINCIPAL RISKS The principal risks of investing in Balanced are those
generally attributable to stock and bond investing. The success of the Fund's
strategy depends on Aeltus' skill in allocating Fund assets between equities and
debt and in choosing investments within those categories. Because the Fund's
assets are allocated between equities and fixed income securities, Balanced may
underperform stock funds when stocks are in favor and underperform bond funds
when bonds are in favor.
Risks attributable to STOCK investing include sudden and unpredictable drops in
the value of the market as a whole and periods of lackluster or negative
performance. Stocks of smaller companies tend to be less liquid and more
volatile than stocks of larger companies. Further, stocks of smaller companies
also can be particularly sensitive to expected changes in interest rates,
borrowing costs and earnings.
The Fund's FIXED-INCOME investments are subject to the risk that interest rates
will rise, which generally causes bond prices to fall. Also, economic and market
conditions may cause issuers to default or go bankrupt. In either case, the
price of Fund shares may fall. High-yield bonds are even more sensitive to
economic and market conditions than other bonds.
The prices of mortgage-related securities, in addition to being sensitive to
changes in interest rates, also are sensitive to changes in the prepayment
patterns on the underlying instruments. If the principal on the underlying
mortgage notes is repaid faster than anticipated, which typically occurs in
times of low or declining interest rates, the price of the mortgage-related
security may fall.
12
<PAGE>
AETNA BALANCED FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
25.00% 14.49% 20.09% 16.26% 12.05%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1998, up 12.73%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 6.71%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* 5.61% 16.11% 11.42% 01/03/92
Class B* 6.24% 16.80% 11.85% 01/03/92
Class C* 10.18% 17.00% 11.84% 01/03/92
S&P 500 Index** 21.04% 28.55% 19.68% 01/02/92
LBAB*** -0.82% 7.73% 6.54% 01/02/92
60% S&P 500 Index/40% LBAB 12.00% 20.08% 14.45% 01/02/92
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Standard & Poor's 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks and is considered to be representative of the stock
market in general.
*** The Lehman Brothers Aggregate Bond Index (LBAB) is an unmanaged index and is
composed of securities from Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index and the Asset-Backed Securities Index.
13
<PAGE>
AETNA GROWTH AND INCOME FUND
(GROWTH AND INCOME)
INVESTMENT OBJECTIVE Seeks long-term growth of capital and income through
investment in a diversified portfolio consisting primarily of common stocks and
securities convertible into common stock believed to offer above-average growth
potential.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Growth and
Income invests at least 65% of its total assets in common stocks that Aeltus
believes have significant potential for capital appreciation or income growth,
or both.
In managing Growth and Income, Aeltus:
o Emphasizes stocks of larger companies.
o May also invest the Fund's assets in stocks of small and medium-sized
companies, depending upon market conditions.
o Combines internally developed quantitative computer models with a qualitative
overlay to determine the relative attractiveness of each asset class and to
evaluate company financial characteristics (for example, price to earnings
ratios, growth rates and earnings estimates) to select securities within each
class. In analyzing these characteristics, Aeltus attempts to identify
positive earnings momentum and positive valuation characteristics in selecting
securities whose perceived value is not reflected in their price.
PRINCIPAL RISKS The principal risks of investing in Growth and Income 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 performance.
Although Aeltus emphasizes large cap stocks, to the extent the Fund is
diversified across asset classes, it may not perform as well as less diversified
funds when large cap stocks are in favor. Additionally, stocks of medium-sized
and smaller companies tend to be more volatile and less liquid than stocks of
larger companies.
14
<PAGE>
AETNA GROWTH AND INCOME FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
30.75% 26.79% 30.57% 14.58% 17.62%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1998, up 19.30%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 14.28%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* 10.86% 22.42% 15.11% 01/03/92
Class B* 11.84% 23.10% 15.49% 01/03/92
Class C* 15.77% 23.29% 15.50% 01/03/92
S&P 500 Index** 21.04% 28.55% 19.68% 01/02/92
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Standard & Poor's 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks and is considered to be representative of the stock
market in general.
15
<PAGE>
INCOME FUNDS
AETNA BOND FUND (BOND FUND)
INVESTMENT OBJECTIVE Seeks to provide AS HIGH A LEVEL OF TOTAL RETURN AS IS
CONSISTENT WITH REASONABLE RISK, primarily through investment in a diversified
portfolio of investment-grade corporate bonds, and debt securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Bond Fund
invests at least 65% of its total assets in:
o High-grade corporate bonds,
o Mortgage-related and other asset-backed securities, and
o Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
High-grade securities are rated at least A by S&P or Moody's, or if unrated,
considered by Aeltus to be of comparable quality. The Fund may also invest up to
15% of its total assets in high-yield bonds, and up to 25% of its total assets
in foreign debt securities.
In managing Bond Fund, Aeltus:
o Looks to construct an intermediate-term (generally consisting of securities
with an average maturity of between 5-10 years), high quality portfolio by
selecting investments with the opportunity to enhance the portfolio's overall
total return and yield, while managing volatility.
o Uses quantitative computer models to identify issuers whose perceived value is
not reflected in their security prices.
PRINCIPAL RISKS The principal risks of investing in Bond Fund are those
generally attributable to debt investing, including increases in interest rates
and loss of principal. Generally, when interest rates rise, bond prices fall.
Bonds with longer maturities tend to be more sensitive to changes in interest
rates.
For all bonds there is a risk that the issuer will default. High-yield bonds
generally are more susceptible to the risk of default than higher rated bonds.
The prices of mortgage-related securities, in addition to being sensitive to
changes in interest rates, also are sensitive to changes in the prepayment
patterns on the underlying instruments. If the principal on the underlying
mortgage notes is repaid faster than anticipated, which typically occurs in
times of low or declining interest rates, the price of the mortgage-related
security may fall.
Foreign securities present additional risks. Some foreign securities tend to be
less liquid and more volatile than their U.S. counterparts. In addition,
accounting standards and market regulations tend to be less standardized in
certain foreign countries. These risks are usually higher for securities of
companies in emerging markets. Finally, securities of foreign companies may be
denominated in foreign currency. Exchange rate fluctuations may reduce or
eliminate gains or create losses.
16
<PAGE>
AETNA BOND FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
16.26% 2.46% 7.19% 8.09% -1.00%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
second quarter 1995, up 5.57%
[ARROW DOWN] WORST QUARTER:
first quarter 1996, down 1.76%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* -5.70% 5.41% 4.80% 01/03/92
Class B* -6.43% 5.65% 5.05% 01/03/92
Class C* -2.72% 5.96% 5.04% 01/03/92
LBAB** -0.82% 7.73% 6.54% 01/02/92
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Lehman Brothers Aggregate Bond Index (LBAB) is an unmanaged index
and is composed of securities from Lehman Brothers Government/Corporate Bond
Index, Mortgage-Backed Securities Index and the Asset-Backed Securities Index.
17
<PAGE>
AETNA GOVERNMENT FUND
INVESTMENT OBJECTIVE Seeks to provide INCOME CONSISTENT WITH THE PRESERVATION
OF CAPITAL through investment in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, Aetna
Government Fund invests at least 65% of its total assets in U.S. Government
securities. U.S. Government securities include securities issued by the U.S.
Treasury, individual government agencies and certain organizations created
through federal legislation. Securities issued by the U.S. Treasury are backed
by the full faith and credit of the federal government, the strongest form of
credit backing in the U.S. Securities issued by individual agencies and
organizations may be backed by the full faith and credit of the federal
government as to principal or interest but are not direct obligations of the
U.S. Treasury. Government securities also include certain mortgage-related
securities that are sponsored by a U.S. Government agency or organization and
are not direct obligations of the U.S. Government.
In managing Aetna Government Fund, Aeltus:
o Looks to construct an intermediate-term, high-quality portfolio by selecting
investments with the potential to enhance the portfolio's overall yield and
total return.
o Uses quantitative computer models to identify attractive investments within
the U.S. Government securities markets. As a result, Aetna Government Fund
may, at times, emphasize one type of U.S. Government security rather than
another.
PRINCIPAL RISKS The principal risks of investing in Aetna Government Fund are
those generally attributable to bond investing, including increases in interest
rates. Generally, when interest rates rise, bond prices fall. Bonds with longer
maturities tend to be more sensitive to changes in interest rates.
In addition to being sensitive to changes in interest rates, the prices of
mortgage-related securities also are sensitive to changes in the prepayment
patterns on the underlying instruments. If the principal on the underlying
mortgage notes is repaid faster than anticipated, which typically occurs in
times of low or declining interest rates, the price of the mortgage-related
security may fall.
18
<PAGE>
AETNA GOVERNMENT FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
15.12% 1.44% 8.59% 7.47% -0.62%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
second quarter 1995, up 4.97%
[ARROW DOWN] WORST QUARTER:
first quarter 1996, down 1.99%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* -5.34% 5.22% 3.89% 01/04/94
Class B* -6.11% 5.46% 4.17% 01/04/94
Class C* -2.27% 5.79% 4.31% 01/04/94
Lehman Brothers Intermediate
Government Index** 0.49% 6.93% 5.43% 01/03/94
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Lehman Brothers Intermediate Government Bond Index, an unmanaged
index, includes those bonds found in the Lehman Brothers Government Bond Index
that have a maturity of one to 9.99 years.
19
<PAGE>
AETNA MONEY MARKET FUND (MONEY MARKET)
INVESTMENT OBJECTIVE Seeks to provide HIGH CURRENT RETURN, CONSISTENT WITH
PRESERVATION OF CAPITAL AND LIQUIDITY, through investment in high-quality money
market instruments.
PRINCIPAL INVESTMENT STRATEGIES Money Market invests in a diversified
portfolio of high-quality fixed income securities denominated in U.S. dollars,
with short remaining maturities. These securities include U.S. Government
securities (such as U.S. Treasury bills and securities issued or sponsored by
U.S. Government agencies), corporate debt securities, commercial paper,
asset-backed securities and certain obligations of U.S. and foreign banks, each
of which must be highly rated by independent rating agencies or, if unrated,
considered by Aeltus to be of comparable quality. Money Market maintains a
dollar-weighted average portfolio maturity of 90 days or less.
PRINCIPAL RISKS Although Money Market seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in
Money Market. An investment in Money Market is not insured or guaranteed by the
FDIC or any other government agency. A weak economy, strong equity markets and
changes by the Federal Reserve in its monetary policies all could affect
short-term interest rates and therefore the value and yield of Money Market's
shares. Risks also include adverse changes in the actual or perceived
creditworthiness of issuers and adverse changes in the economic or political
environment.
20
<PAGE>
AETNA MONEY MARKET FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999
5.99% 5.41% 5.45% 5.32% 4.98%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
second quarter 1995, up 1.53%
[ARROW DOWN] WORST QUARTER:
first quarter 1999, up 1.13%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class A* 4.98% 5.42% 4.84% 01/03/92
Class B* -1.06% 4.04% 3.80% 01/03/92
Class C* 4.98% 5.42% 4.84% 01/03/92
IBC Index** 4.54% 4.92% 4.28% 01/02/92
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
Shares. The Fund introduced Class B and Class C shares on March 1, 1999 and
June 30, 1998, respectively. For periods prior to the Class A inception date,
Class A performance is calculated using the performance of Class I shares, and
deducting the internal fees and expenses of the Adviser Class shares. For
periods prior to the Class B inception date, Class B performance is calculated
using the performance of Class I shares, and deducting the internal fees and
expenses of the Class B shares. All Class B share returns reflect the deduction
of the applicable contingent deferred sales charge (CDSC) as described under
"Opening an Account and Selecting a Share Class." For periods prior to the Class
C inception date, Class C performance is calculated using the performance of
Class I shares.
** IBC's Money Funds Report Average/All Taxable Index is an average of the
returns of over 250 money market mutual funds surveyed each month by IBC.
To obtain current yield information, please contact 1-800-367-7732.
21
<PAGE>
INDEX PLUS FUNDS
AETNA INDEX PLUS LARGE CAP FUND
(INDEX PLUS LARGE CAP)
INVESTMENT OBJECTIVE Seeks to OUTPERFORM THE TOTAL RETURN PERFORMANCE of the
STANDARD & POOR'S 500 COMPOSITE INDEX (S&P 500), while maintaining a market
level of risk.
PRINCIPAL INVESTMENT STRATEGIES Index Plus Large Cap invests at least 80% of
its net assets in stocks included in the S&P 500 (other than Aetna Inc. common
stock). The S&P 500 is a stock market index comprised of common stocks of 500 of
the largest companies in the U.S. selected by Standard & Poor's Corporation.
In managing Index Plus Large Cap, Aeltus attempts to achieve the Fund's
objective by overweighting those stocks in the S&P 500 that Aeltus believes will
outperform the index, and underweighting (or avoiding altogether) those stocks
that Aeltus believes will underperform the index. In determining stock
weightings, 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, Aeltus
generally includes in Index Plus Large Cap approximately 400 of the stocks
included in the S&P 500. Although the Fund will not hold all the stocks in the
S&P 500, Aeltus expects that there will be a close correlation between the
performance of Index Plus Large Cap and that of the S&P 500 in both rising and
falling markets, as the Fund is designed to have risk characteristics (e.g.,
price-to-earnings ratio, divided yield, volatility) which approximate those of
the S&P 500.
PRINCIPAL RISKS The principal risks of investing in Index Plus Large Cap 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 performance. The success of the Fund's strategy depends
significantly on Aeltus' skill in determining which securities to overweight,
underweight or avoid altogether.
22
<PAGE>
AETNA INDEX PLUS LARGE CAP FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1998 1999
32.12% 24.28%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1998, up 22.40%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 9.05%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION INCEPTION DATE
Class A* 20.56% 27.30% 12/10/96
Class B* 18.36% 27.21% 12/10/96
Class C* 22.95% 28.14% 12/10/96
S&P 500 Index** 21.04% 25.88% 12/02/96
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Standard & Poor's 500 Index is a value-weighted, unmanaged index
of 500 widely held stocks and is considered to be representative of the stock
market in general.
23
<PAGE>
AETNA INDEX PLUS MID CAP FUND (INDEX PLUS MID CAP)
INVESTMENT OBJECTIVE Seeks to OUTPERFORM THE TOTAL RETURN PERFORMANCE of the
STANDARD & POOR'S MIDCAP 400 INDEX (S&P 400), while maintaining a market level
of risk.
PRINCIPAL INVESTMENT STRATEGIES Index Plus Mid Cap invests at least 80% of its
net assets in stocks included in the S&P 400. The S&P 400 is a stock market
index comprised of common stocks of 400 mid-capitalization companies in the U.S.
selected by Standard & Poor's Corporation.
In managing Index Plus Mid Cap, Aeltus attempts to achieve the Fund's objective
by overweighting those stocks in the S&P 400 that Aeltus believes will
outperform the index, and underweighting (or avoiding altogether) those stocks
that Aeltus believes will underperform the index. In determining stock
weightings, Aeltus uses internally developed quantitative computer models to
evaluate various criteria, such as the financial strength of each issuer and its
potential for strong, sustained earnings growth. Although the Fund will not hold
all of the stocks in the S&P 400, Aeltus expects that there will be a close
correlation between the performance of Index Plus Mid Cap and that of the S&P
400 in both rising and falling markets, as the Fund is designed to have risk
characteristics (e.g., price-to-earnings ratio, dividend yield, volatility)
which approximate those of the S&P 400.
PRINCIPAL RISKS The principal risks of investing in Index Plus Mid Cap 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 performance. In addition, stocks of medium sized
companies tend to be more volatile and less liquid than stocks of larger
companies.
The success of the Fund's strategy depends significantly on Aeltus' skill in
determining which securities to overweight, underweight or avoid altogether.
24
<PAGE>
AETNA INDEX PLUS MID CAP FUND INVESTMENT PERFORMANCE
YEAR ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1999
15.38%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1999, up 18.76%
[ARROW DOWN] WORST QUARTER:
third quarter 1999, down 7.58%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION INCEPTION DATE
Class A 11.92% 18.43% 02/03/98
Class B* 9.50% 17.57% 02/03/98
Class C* 14.04% 19.69% 02/03/98
S&P MidCap 400 Index** 14.72% 18.90% 02/02/98
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* The Fund introduced Class B and Class C shares on March 1, 1999 and June 30,
1998, respectively. For periods prior to the Class B and Class C inception
dates, the performance is calculated using the performance of Class I shares,
and deducting the internal fees and expenses of the Class B shares and Class C
shares, respectively. All Class B share returns, and Class C share 1-year
returns, reflect the deduction of the applicable contingent deferred sales
charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Standard & Poor's MidCap 400 Index is an unmanaged index used to
measure stock market performance composed of companies with a weighted average
market value of $3.6 billion.
25
<PAGE>
AETNA INDEX PLUS SMALL CAP FUND
(INDEX PLUS SMALL CAP)
INVESTMENT OBJECTIVE Seeks to OUTPERFORM THE TOTAL RETURN PERFORMANCE of the
STANDARD & POOR'S SMALLCAP 600 (S&P 600), while maintaining a market level of
risk.
PRINCIPAL INVESTMENT STRATEGIES Index Plus Small Cap invests at least 80% of
its net assets in stocks included in the S&P 600. The S&P 600 is a stock market
index comprised of common stocks of 600 small-capitalization companies in the
U.S. selected by Standard & Poor's Corporation.
In managing Index Plus Small Cap, Aeltus attempts to achieve the Fund's
objective by overweighting those stocks in the S&P 600 that Aeltus believes will
outperform the index, and underweighting (or avoiding altogether) those stocks
that Aeltus believes will underperform the index. In determining stock
weightings, Aeltus uses internally developed quantitative computer models to
evaluate various criteria, such as the financial strength of each issuer and its
potential for strong, sustained earnings growth. Although the Fund will not hold
all of the stocks in the S&P 600, Aeltus expects that there will be a close
correlation between the performance of Index Plus Small Cap and that of the S&P
600 in both rising and falling markets, as the Fund is designed to have risk
characteristics (e.g., price-to-earnings ratio, dividend yield, volatility)
which approximate those of the S&P 600.
PRINCIPAL RISKS The principal risks of investing in Index Plus Small Cap 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 performance.
Other risks include:
o Stocks of smaller companies carry higher risks than stocks of larger companies
because smaller companies may lack the management experience, financial
resources, product diversification and competitive strengths of larger
companies.
o In many instances, the frequency and volume of trading in small cap
stocks are substantially less than stocks of larger companies. As a result,
the stocks of smaller companies may be subject to wider price fluctuations.
o When selling a large quantity of a particular stock, the Fund may have to sell
at a discount from quoted prices or may have to make a series of small sales
over an extended period of time due to the more limited trading volume of
smaller company stocks.
o Stocks of smaller companies tend to be more volatile than stocks of larger
companies and can be particularly sensitive to expected changes in interest
rates, borrowing costs and earnings.
Finally, the success of the Fund's strategy depends significantly on Aeltus'
skill in determining which securities to overweight, underweight or avoid
altogether.
26
<PAGE>
AETNA INDEX PLUS SMALL CAP FUND INVESTMENT PERFORMANCE
YEAR ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1999
9.94%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
second quarter 1999, up 13.01%
[ARROW DOWN] WORST QUARTER:
first quarter 1999, down 8.13%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION INCEPTION DATE
Class A 6.64% 3.29% 02/03/98
Class B* 4.04% 2.04% 02/03/98
Class C* 8.70% 4.41% 02/03/98
S&P SmallCap 600 Index** 12.40% 6.66% 02/02/98
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
----------
* The Fund introduced Class B and Class C shares on March 1, 1999 and June 30,
1998, respectively. For periods prior to the Class B and Class C inception
dates, the performance is calculated using the performance of Class I shares,
and deducting the internal fees and expenses of the Class B shares and Class C
shares, respectively. All Class B share returns, and Class C share 1-year
returns, reflect the deduction of the applicable contingent deferred sales
charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Standard & Poor's SmallCap 600 consists of 600 domestic stocks
chosen for market size, liquidity and industry group representation. It is a
market-weighted index, with each stock affecting the index in proportion to its
market value.
27
<PAGE>
GENERATION FUNDS
AETNA ASCENT FUND (ASCENT)
AETNA CROSSROADS FUND (CROSSROADS)
AETNA LEGACY FUND (LEGACY)
INVESTMENT OBJECTIVES ASCENT seeks to provide CAPITAL APPRECIATION.
CROSSROADS seeks to provide TOTAL RETURN (i.e., income and capital appreciation,
both realized and unrealized).
LEGACY seeks to provide TOTAL RETURN CONSISTENT WITH PRESERVATION OF CAPITAL.
PRINCIPAL INVESTMENT STRATEGIES Ascent, Crossroads and Legacy are asset
allocation funds that have been designed for investors with different investment
goals:
o Ascent is managed for investors seeking capital appreciation who generally
have an INVESTMENT HORIZON EXCEEDING 15 YEARS AND WHO HAVE A HIGH LEVEL OF
RISK TOLERANCE.
o Crossroads is managed for investors seeking a balance between income and
capital appreciation who generally have an INVESTMENT HORIZON EXCEEDING 10
YEARS AND WHO HAVE A MODERATE LEVEL OF RISK TOLERANCE.
o Legacy is managed for investors primarily seeking total return consistent with
capital preservation who generally have an INVESTMENT HORIZON EXCEEDING 5
YEARS AND WHO HAVE A LOW LEVEL OF RISK TOLERANCE.
Under normal market conditions, Aeltus allocates the assets of each Generation
Fund, in varying degrees, among several classes of equities, fixed-income
securities (including up to 15% of the total value of each Fund's assets in
high-yield bonds) and money market instruments. To remain consistent with each
Generation Fund's investment objective and intended level of risk tolerance,
Aeltus has instituted both a BENCHMARK PERCENTAGE ALLOCATION and a FUND LEVEL
RANGE ALLOCATION for each asset class. The benchmark percentage for each asset
class assumes neutral market and economic conditions. The Fund level range
allows Aeltus to vary the weightings of each asset class in each Fund to take
advantage of opportunities as market and economic conditions change.
The Generation Funds' benchmarks and ranges are described on the following page.
The asset allocation limits apply at the time of purchase of a particular
security.
Each Generation Fund's asset allocation may vary from the benchmark allocation
(within the permissible range) based on Aeltus' ongoing evaluation of the
expected returns and risks of each asset class relative to other classes. Aeltus
may vary each Generation Fund's asset allocation within a given asset class to
the full extent of the permissible range. Among the criteria Aeltus evaluates to
determine allocations are economic and market conditions, including changes in
circumstances with respect to particular asset classes, geographic regions,
industries or issuers, and interest rate movements. In selecting individual
portfolio securities, Aeltus considers such factors as:
o Expected dividend yields and growth rates.
o Bond yields.
o Current relative value compared to historic averages.
PRINCIPAL RISKS THE SUCCESS OF EACH GENERATION FUND'S STRATEGY DEPENDS
SIGNIFICANTLY ON AELTUS' SKILL IN CHOOSING INVESTMENTS AND IN ALLOCATING ASSETS
AMONG THE DIFFERENT INVESTMENT CLASSES.
In addition, each asset type has risks that are somewhat unique, as described
below. The performance of each Generation Fund will be affected by these risks
to a greater or lesser extent depending on the size of the allocation. The
principal risks of investing in each Generation Fund are those generally
attributable to stock and bond investing.
For stock investments, those risks include sudden and unpredictable drops in the
value of the market as a whole and periods of lackluster or negative
performance. Stocks of smaller companies tend to be less liquid and more
volatile than stocks of larger companies, and can be particularly sensitive to
expected changes in interest rates, borrowing costs and earnings.
The risks associated with real estate securities include periodic declines in
the value of real estate generally, and declines in the rents and other income
generated by real estate caused by such factors as periodic over-building.
For bonds, generally, when interest rates rise, bond prices fall. Also, economic
and market conditions may cause issuers to default or go bankrupt. The value of
high-yield bonds are even more sensitive to economic and market conditions than
other bonds.
28
<PAGE>
The prices of mortgage-related securities, in addition to being sensitive to
changes in interest rates, also are sensitive to changes in the prepayment
patterns on the underlying instruments. If the principal on the underlying
mortgage notes is repaid faster than anticipated, which typically occurs in
times of low or declining interest rates, the price of the mortgage-related
security may fall.
Foreign securities present additional risks. Some foreign securities tend to be
less liquid and more volatile than their U.S. counterparts. In addition,
accounting standards and market regulations tend to be less standardized in
certain foreign countries. These risks are usually higher for securities of
companies in emerging markets. Finally, securities of foreign companies may be
denominated in foreign currency. Exchange rate fluctuations may reduce or
eliminate gains or create losses. Hedging strategies intended to reduce this
risk may not perform as expected.
<TABLE>
<CAPTION>
ASSET CLASS
ASCENT CROSSROADS(1) LEGACY(2) COMPARATIVE INDEX
EQUITIES
LARGE CAPITALIZATION STOCKS
<S> <C> <C> <C> <C>
Range 0-70% 0-50% 0-30% S&P 500 Index
Benchmark 35% 25% 15%
SMALL-/MID-CAPITALIZATION STOCKS
Range 0-40% 0-30% 0-20% Russell 2500 Index
Benchmark 20% 15% 10%
INTERNATIONAL STOCKS Morgan Stanley Capital
Range 0-40% 0-30% 0-20% International Europe,
Benchmark 20% 15% 10% Australia and Far East Index
REAL ESTATE STOCKS National Association of
Range 0-10% 0-10% 0-10% Real Estate Investment Trusts
Benchmark 5% 5% 5% Equity Index
FIXED INCOME
U.S. DOLLAR BONDS
Range 0-30% 0-60% 0-90% Salomon Brothers Broad
Benchmark 15% 30% 45% Investment Grade Index
INTERNATIONAL BONDS
Range 0-10% 0-10% 0-10% Salomon Brothers Non-U.S.
Benchmark 5% 5% 5% World Government Bond Index
MONEY MARKET INSTRUMENTS
Range 0-30% 0-30% 0-30% 91-Day U.S. Treasury Bill Rate
Benchmark 0% 5% 10%
----------------
(1)Crossroads will invest no more than 60% of its assets in any combination of
the following asset classes: small-/mid-capitalization stocks, high-yield bonds,
international stocks and international fixed-income securities.
(2)Legacy will invest no more than 35% of its assets in any combination of the
following asset classes: small-/mid-capitalization stocks, high-yield bonds,
international stocks and international fixed-income securities.
</TABLE>
29
<PAGE>
AETNA ASCENT FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1998 1999
4.28% 14.55%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1999, up 10.44%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 12.94%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION INCEPTION DATE
Class A* 7.97% 14.96% 01/04/95
Class B* 8.62% 15.52% 01/04/95
Class C* 12.73% 15.77% 01/04/95
Russell 3000 Index** 20.90% 26.92% 01/03/95
Ascent Composite**** 12.57% 15.41% 01/03/95
AETNA CROSSROADS FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1998 1999
3.87% 10.14%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1998, up 7.48%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, down 10.18%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION INCEPTION DATE
Class A* 3.80% 12.14% 01/04/95
Class B* 4.31% 12.69% 01/04/95
Class C* 8.33% 12.94% 01/04/95
Russell 3000 Index** 20.90% 26.92% 01/03/95
Saly BIG Index*** -0.83% 7.74% 01/03/95
Crossroads Composite**** 9.33% 13.38% 01/03/95
30
<PAGE>
AETNA LEGACY FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1998 1999
6.12% 7.16%
[GRAPHIC OMITTED]
[ARROW UP] BEST QUARTER:
fourth quarter 1998, up 5.82%
[ARROW DOWN] WORST QUARTER:
third quarter 1998, 5.79%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION INCEPTION DATE
Class A* 1.00% 9.95% 01/04/95
Class B* 1.42% 10.47% 01/04/95
Class C* 5.32% 10.72% 01/04/95
Saly BIG Index*** -0.83% 7.74% 01/03/95
Legacy Composite**** 6.14% 11.31% 01/03/95
Each performance table and bar chart provide an indication of the historical
risk of an investment in the respective Generation Fund. All figures assume
reinvestment of dividends and distributions.
The Crossroads Fund has changed its benchmark from the Salomon Brothers Broad
Investment-Grade Bond Index (Saly BIG Index) to the Russell 3000 Index due to
the increase in the Fund's benchmark percentage allocation for large
capitalization stocks.
----------
* On February 2, 1998, the Fund redesignated Adviser Class shares as Class A
shares. The Fund introduced Class B and Class C shares on March 1, 1999 and June
30, 1998, respectively. For periods prior to the Class A inception date, Class A
performance is calculated using the performance of Class I shares, and deducting
the Class A front-end sales charge and the internal fees and expenses of the
Adviser Class shares. For periods prior to the Class B and Class C inception
dates, Class B and Class C performance is calculated using the performance of
Class I shares, and deducting the internal fees and expenses of the Class B and
Class C shares, respectively. All Class B share returns, and Class C share
1-year returns, reflect the deduction of the applicable contingent deferred
sales charge (CDSC) as described under "Opening an Account and Selecting a Share
Class."
** The Russell 3000 Index measures the performance of the 3,000 largest
U.S. companies based on total market capitalization, which represents
approximately 98% of the investable U.S. equity market.
*** The Salomon Brothers Broad Investment-Grade Bond Index (Saly BIG Index) is a
market-weighted index that contains approximately 4,700 individually priced
investment-grade bonds. The index includes U.S. Treasury/agency issues, mortgage
passthrough securities, and corporate issues.
**** The Ascent Composite, Crossroads Composite and Legacy Composite are each
comprised of the seven stock and bond indices listed below in weights that
correspond to the particular benchmark weights for each Fund. However, the
Composite performance information (for each Generation Fund) prior to March 1,
2000 is based on benchmark weights that were in effect at that time. Only the
following asset class benchmarks were changed as of March 1, 2000. For Ascent,
benchmarks for large capitalization stocks, real estate stocks, U.S. Dollar
bonds and international bonds were 20%, 20%, 10% and 10%, respectively. For
Crossroads, benchmarks for large capitalization stocks, real estate stocks, U.S.
Dollar bonds and international bonds were 15%, 15%, 25% and 10%, respectively.
For Legacy, benchmarks for large capitalization stocks, real estate stocks, U.S.
Dollar bonds and international bonds were 10%, 10%, 40% and 10%, respectively.
31
<PAGE>
Asset Class Benchmark Index
--------------------------------------------------------------------------------
Large Cap Stocks The Standard & Poor's 500 Index is a value-weighted,
unmanaged index of 500 widely held stocks and is
considered to be representative of the stock market in
general.
Small-/Mid-Cap Stocks The Russell 2500 Index consists of the smallest 500
securities in the Russell 1000 Index and all 2,000
securities in the Russell 2000 Index. Each of these
indices is unmanaged.
International Stocks The Morgan Stanley Capital International-Europe,
Australia, Far East Index is a market value-weighted
average of the performance of more than 900 securities
listed on the stock exchange of countries in Europe,
Australia and the Far East.
Real Estate Stocks The National Association of Real Estate Investment
Trusts Equity Index is a market-weighted total return of
all of tax-qualified real estate investment trusts
listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System.
U.S. Dollar Bonds Salomon Brothers Broad Investment-Grade Bond Index is an
unmanaged, market-weighted index that contains
approximately 4,700 individually priced investment-grade
bonds rated BBB or better. The index includes U.S.
Treasury/Agency issues, mortgage pass-through securities
and corporate issues.
International Bonds The Salomon Brothers Non-U.S. World Government Bond
Index serves as an unmanaged benchmark to evaluate the
performance of government bonds with a maturity of one
year or greater in the following 12 countries: Japan,
United Kingdom, Germany, France, Canada, the
Netherlands, Australia, Denmark, Italy, Belgium, Spain
and Sweden.
Cash Equivalents Three-month Treasury bills are government-backed
short-term investments considered to be risk-free, and
equivalent to cash because their maturity is only three
months.
32
<PAGE>
FUND EXPENSES
The following tables describe Fund expenses. Shareholder fees are paid directly
by shareholders. Annual Fund Operating Expenses are deducted from Fund assets
every year, and are thus paid indirectly by all shareholders.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
SHAREHOLDER FEES (1) SHAREHOLDER FEES (1) SHAREHOLDER FEES (1)
Maximum Maximum Maximum Maximum Maximum Maximum
Sales Deferred Sales Sales Charge Deferred Sales Sales Charge Deferred Sales
Charge (Load) Charge (Load) (Load) on Charge (Load) (Load) on Charge (Load)
on Purchases (as a percentage Purchases (as (as a percentage Purchases (as (as a percentage
(as a percentage of gross a percentage of gross a percentage of gross
of purchase redemption of purchase redemption of purchase redemption
price) proceeds)(2) price) proceeds)(3) price) proceeds)(4)
<S> <C> <C> <C>
Growth 5.75% None None 5.00% None 1.00%
International 5.75% None None 5.00% None 1.00%
Small Company 5.75% None None 5.00% None 1.00%
Value Opportunity 5.75% None None 5.00% None 1.00%
Technology 5.75% None None 5.00% None 1.00%
------------------------------------------------------------------------------------------------------------------------------------
Balanced 5.75% None None 5.00% None 1.00%
Growth and Income 5.75% None None 5.00% None 1.00%
------------------------------------------------------------------------------------------------------------------------------------
Bond Fund 4.75% None None 5.00% None 1.00%
Aetna Government Fund 4.75% None None 5.00% None 1.00%
Money Market None None None 5.00% None None
------------------------------------------------------------------------------------------------------------------------------------
Index Plus Large Cap 3.00% None None 5.00% None 0.75%
Index Plus Mid Cap 3.00% None None 5.00% None 0.75%
Index Plus Small Cap 3.00% None None 5.00% None 0.75%
------------------------------------------------------------------------------------------------------------------------------------
Ascent 5.75% None None 5.00% None 1.00%
Crossroads 5.75% None None 5.00% None 1.00%
Legacy 5.75% None None 5.00% None 1.00%
</TABLE>
(1) The Funds do not impose any sales charge (load) on reinvested dividends or
exchanges.
(2) A CDSC of up to 1.00% is assessed only on certain redemptions of Class A
shares that were purchased without a front-end sales charge.
(3) The Funds charge a CDSC of 5.00% on shares redeemed in the first year,
declining to 1.00% on shares redeemed in the sixth year. No CDSC is charged
thereafter.
(4) The Funds charge a CDSC of 1.00% (0.75% for the Index Plus Funds) on shares
redeemed in the first 18 months. No CDSC is charged thereafter.
33
<PAGE>
CLASS A SHARES
ANNUAL FUND OPERATING EXPENSES
CLASS A SHARES
ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Distribution Total Fee Waiver/
Management (12b-1) Operating Expense Net
Fee Fees Other Expenses Expenses Reimbursement Expenses
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth 0.70% 0.25% 0.24% 1.19% 0.00% 1.19%
International 0.85% 0.25% 0.68% 1.78% 0.18% 1.60%
Small Company 0.85% 0.25% 0.40% 1.50% 0.00% 1.50%
Value Opportunity 0.70% 0.25% 1.82% 2.77% 1.42% 1.35%
Technology(2) 1.05% 0.25% 0.45% 1.75% 0.00% 1.75%
--------------------------------------------------------------------------------------------------------------------------
Balanced 0.80% 0.25% 0.31% 1.36% 0.00% 1.36%
Growth and Income 0.66% 0.25% 0.20% 1.11% 0.00% 1.11%
--------------------------------------------------------------------------------------------------------------------------
Bond Fund 0.50% 0.25% 0.43% 1.18% 0.18% 1.00%
Aetna Government Fund 0.50% 0.25% 0.97% 1.72% 0.77% 0.95%
Money Market 0.40% 0.00% 0.24% 0.64% 0.00% 0.64%
--------------------------------------------------------------------------------------------------------------------------
Index Plus Large Cap 0.45% 0.25% 0.30% 1.00% 0.05% 0.95%
Index Plus Mid Cap 0.45% 0.25% 1.33% 2.03% 1.03% 1.00%
Index Plus Small Cap 0.45% 0.25% 1.58% 2.28% 1.28% 1.00%
--------------------------------------------------------------------------------------------------------------------------
Ascent 0.80% 0.25% 0.46% 1.51% 0.26% 1.25%
Crossroads 0.80% 0.25% 0.48% 1.53% 0.33% 1.20%
Legacy 0.80% 0.25% 0.65% 1.70% 0.55% 1.15%
</TABLE>
(1) Aeltus is contractually obligated through December 31, 2000 to waive all or
a portion of its investment advisory fee and/or its administrative services fee
for certain Funds and/or to reimburse a portion of those Funds' 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. Fee waiver/expense reimbursement obligations apply to each Fund
except Growth, Balanced, Growth and Income, and Money Market. An administrative
services fee of 0.10% is included in Other Expenses.
The expenses shown above are based on the year ended October 31, 1999, except
that expense information for Money Market, Ascent, Crossroads and Legacy has
been restated to reflect current fee waiver/expense reimbursement obligations.
(2) Technology commenced operations on March 1, 2000. Amounts reflected in
"Other Expenses" and "Total Operating Expenses" are estimated amounts for the
current fiscal year based on expenses for comparable funds. Actual expenses may
be greater or less than estimated.
34
<PAGE>
CLASS A SHARES EXAMPLE
The following example is designed to help you compare the costs of investing in
the Funds 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* 10 Years*
Growth $ 689 $ 931 $1,192 $1,935
International 728 1,087 1,468 2,535
Small Company 719 1,022 1,346 2,263
Value Opportunity 705 1,258 1,836 3,399
Technology 743 1,094 1,469 2,519
-----------------------------------------------------------------------------
Balanced 706 981 1,277 2,116
Growth and Income 682 908 1,151 1,849
-----------------------------------------------------------------------------
Bond Fund 572 815 1,077 1,824
Aetna Government Fund 567 920 1,295 2,348
Money Market 65 205 357 798
-----------------------------------------------------------------------------
Index Plus Large Cap 394 604 831 1,483
Index Plus Mid Cap 399 821 1,268 2,508
Index Plus Small Cap 399 872 1,370 2,741
-----------------------------------------------------------------------------
Ascent 695 1,001 1,328 2,252
Crossroads 690 1,000 1,332 2,267
Legacy 685 1,029 1,396 2,425
* Aeltus is contractually obligated to waive fees and/or reimburse expenses
through December 31, 2000 for all Funds except Growth, Balanced, Growth and
Income, and Money Market. Therefore, figures for all Funds, except those noted,
reflect a waiver/reimbursement for the first year of the period.
THIS EXAMPLE SHOULD NOT BE CONSIDERED AN INDICATION OF PRIOR OR FUTURE EXPENSES.
ACTUAL EXPENSES FOR THE CURRENT YEAR MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders (except for Money Market shareholders) may pay more than
the economic equivalent of the maximum sales charge permitted by the National
Association of Securities Dealers, Inc. (NASD), because of the combination of
front-end sales charges and distribution (12b-1) fees. Registered
representatives may receive different levels of compensation depending on the
class sold. Additional information regarding the classes may be obtained by
calling your investment professional.
35
<PAGE>
CLASS B SHARES
ANNUAL FUND OPERATING EXPENSES
CLASS B SHARES
ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Distribution and Total Fee Waiver/
Management Service (12b-1) Operating Expense Net
Fee Fees Other Expenses Expenses Reimbursement Expenses
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth 0.70% 1.00% 0.24% 1.94% 0.00% 1.94%
International 0.85% 1.00% 0.68% 2.53% 0.18% 2.35%
Small Company 0.85% 1.00% 0.40% 2.25% 0.00% 2.25%
Value Opportunity 0.70% 1.00% 1.82% 3.52% 1.42% 2.10%
Technology(2) 1.05% 1.00% 0.45% 2.50% 0.00% 2.50%
--------------------------------------------------------------------------------------------------------------------------
Balanced 0.80% 1.00% 0.31% 2.11% 0.00% 2.11%
Growth and Income 0.66% 1.00% 0.20% 1.86% 0.00% 1.86%
--------------------------------------------------------------------------------------------------------------------------
Bond Fund 0.50% 1.00% 0.43% 1.93% 0.18% 1.75%
Aetna Government Fund 0.50% 1.00% 0.97% 2.47% 0.77% 1.70%
Money Market 0.40% 1.00% 0.24% 1.64% 0.00% 1.64%
--------------------------------------------------------------------------------------------------------------------------
Index Plus Large Cap 0.45% 1.00% 0.30% 1.75% 0.05% 1.70%
Index Plus Mid Cap 0.45% 1.00% 1.33% 2.78% 1.03% 1.75%
Index Plus Small Cap 0.45% 1.00% 1.58% 3.03% 1.28% 1.75%
--------------------------------------------------------------------------------------------------------------------------
Ascent 0.80% 1.00% 0.46% 2.26% 0.26% 2.00%
Crossroads 0.80% 1.00% 0.48% 2.28% 0.33% 1.95%
Legacy 0.80% 1.00% 0.65% 2.45% 0.55% 1.90%
</TABLE>
(1) Aeltus is contractually obligated through December 31, 2000 to waive all or
a portion of its investment advisory fee and/or its administrative services fee
for certain Funds and/or to reimburse a portion of those Funds' 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. Fee waiver/expense reimbursement obligations apply to each Fund
except Growth, Balanced, Growth and Income, and Money Market. An administrative
services fee of 0.10% is included in Other Expenses.
The expenses shown above are based on the period from March 1, 1999 (Class B
inception date) to October 31, 1999, and have been annualized. Expense
information for Money Market, Ascent, Crossroads and Legacy has been restated to
reflect current fee waiver/reimbursement obligations.
(2) Technology commenced operations on March 1, 2000. Amounts reflected in
"Other Expenses" and "Total Operating Expenses" are estimated amounts for the
current fiscal year based on expenses for comparable funds. Actual expenses may
be greater or less than estimated.
36
<PAGE>
CLASS B SHARES EXAMPLE
The following example is designed to help compare the costs of investing in the
Funds 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* 10 Years*+
Growth $ 697 $ 909 $1,247 $2,070
International 738 1,070 1,529 2,668
Small Company 728 1,003 1,405 2,396
Value Opportunity 713 1,248 1,905 3,529
Technology 753 1,079 1,531 2,652
--------------------------------------------------------------------------------
Balanced 714 961 1,334 2,250
Growth and Income 689 885 1,206 1,984
--------------------------------------------------------------------------------
Bond Fund 678 889 1,225 2,044
Aetna Government Fund 673 997 1,447 2,564
Money Market 667 817 1,092 1,676
--------------------------------------------------------------------------------
Index Plus Large Cap 673 846 1,144 1,860
Index Plus Mid Cap 678 1,065 1,578 2,853
Index Plus Small Cap 678 1,116 1,679 3,079
--------------------------------------------------------------------------------
Ascent 703 981 1,386 2,386
Crossroads 698 981 1,390 2,401
Legacy 693 1,011 1,456 2,559
* Aeltus is contractually obligated to waive fees and/or reimburse expenses
through December 31, 2000 for all Funds except Growth, Balanced, Growth and
Income, and Money Market. Therefore, figures for all Funds, except those noted,
reflect a waiver/reimbursement for the first year of the period.
+ Reflects the conversion of Class B shares to Class A shares, which pay lower
12b-1 fees. Conversion occurs eight years after purchase.
THIS EXAMPLE SHOULD NOT BE CONSIDERED AN INDICATION OF PRIOR OR FUTURE EXPENSES.
ACTUAL EXPENSES FOR THE CURRENT YEAR MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders may pay more than the economic equivalent of the maximum
sales charge permitted by the NASD, because of the distribution and shareholder
service (12b-1) fees. Registered representatives may receive different levels of
compensation depending on the class sold. Additional information regarding the
classes may be obtained by calling your investment professional.
37
<PAGE>
CLASS C SHARES
ANNUAL FUND OPERATING EXPENSES
Class C Shares
Annual Fund Operating Expenses(1)
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Distribution and Total Fee Waiver/
Management Service (12b-1) Operating Expense Net
Fee Fees Other Expenses Expenses Reimbursement Expenses
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth 0.70% 1.00% 0.24% 1.94% 0.00% 1.94%
International 0.85% 1.00% 0.68% 2.53% 0.18% 2.35%
Small Company 0.85% 1.00% 0.40% 2.25% 0.00% 2.25%
Value Opportunity 0.70% 1.00% 1.82% 3.52% 1.42% 2.10%
Technology(2) 1.05% 1.00% 0.45% 2.50% 0.00% 2.50%
--------------------------------------------------------------------------------------------------------------------------
Balanced 0.80% 1.00% 0.31% 2.11% 0.00% 2.11%
Growth and Income 0.66% 1.00% 0.20% 1.86% 0.00% 1.86%
--------------------------------------------------------------------------------------------------------------------------
Bond Fund 0.50% 1.00% 0.43% 1.93% 0.18% 1.75%
Aetna Government Fund 0.50% 1.00% 0.97% 2.47% 0.77% 1.70%
Money Market 0.40% 0.00% 0.24% 0.64% 0.00% 0.64%
--------------------------------------------------------------------------------------------------------------------------
Index Plus Large Cap 0.45% 0.75% 0.30% 1.50% 0.05% 1.45%
Index Plus Mid Cap 0.45% 0.75% 1.33% 2.53% 1.03% 1.50%
Index Plus Small Cap 0.45% 0.75% 1.58% 2.78% 1.28% 1.50%
--------------------------------------------------------------------------------------------------------------------------
Ascent 0.80% 1.00% 0.46% 2.26% 0.26% 2.00%
Crossroads 0.80% 1.00% 0.48% 2.28% 0.33% 1.95%
Legacy 0.80% 1.00% 0.65% 2.45% 0.55% 1.90%
</TABLE>
(1) Aeltus is contractually obligated through December 31, 2000 to waive all or
a portion of its investment advisory fee and/or its administrative services fee
for certain Funds and/or to reimburse a portion of those Funds' 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. Fee waiver/expense reimbursement obligations apply to each Fund
except Growth, Balanced, Growth and Income, and Money Market. An administrative
services fee of 0.10% is included in Other Expenses.
The expenses shown above are based on the year ended October 31, 1999, except
that expense information for Money Market, Ascent, Crossroads and Legacy has
been restated to reflect current fee waiver/expense reimbursement obligations.
(2) Technology commenced operations on March 1, 2000. Amounts reflected in
"Other Expenses" and "Total Operating Expenses" are estimated amounts for the
current fiscal year based on expenses for comparable funds. Actual expenses may
be greater or less than estimated.
38
<PAGE>
CLASS C SHARES EXAMPLE
The following example is designed to help compare the costs of investing in the
Funds 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* 10 Years*
Growth $ 297 $ 609 $1,047 $2,264
International 338 770 1,329 2,852
Small Company 328 703 1,205 2,585
Value Opportunity 313 948 1,705 3,698
Technology 353 779 1,331 2,836
--------------------------------------------------------------------------------
Balanced 314 661 1,134 2,441
Growth and Income 289 585 1,006 2,180
--------------------------------------------------------------------------------
Bond Fund 278 589 1,025 2,239
Aetna Government Fund 273 696 1,246 2,748
Money Market 65 205 357 798
--------------------------------------------------------------------------------
Index Plus Large Cap 223 469 814 1,786
Index Plus Mid Cap 228 689 1,253 2,788
Index Plus Small Cap 228 741 1,356 3,016
--------------------------------------------------------------------------------
Ascent 303 681 1,186 2,575
Crossroads 298 681 1,190 2,590
Legacy 293 711 1,256 2,745
* Aeltus is contractually obligated to waive fees and/or reimburse expenses
through December 31, 2000 for all Funds except Growth, Balanced, Growth and
Income, and Money Market. Therefore, figures for all Funds, except those noted,
reflect a waiver/reimbursement for the first year of the period.
THIS EXAMPLE SHOULD NOT BE CONSIDERED AN INDICATION OF PRIOR OR FUTURE EXPENSES.
ACTUAL EXPENSES FOR THE CURRENT YEAR MAY BE GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders (except Money Market shareholders) may pay more than the
economic equivalent of the maximum sales charge permitted by the NASD, because
of the distribution and shareholder service (12b-1) fees. Registered
representatives may receive different levels of compensation depending on the
class sold. Additional information regarding the classes may be obtained by
calling your investment professional.
39
<PAGE>
OTHER CONSIDERATIONS
In addition to the principal investments and strategies described on the
previous pages, the Funds may also invest in other securities, engage in other
practices, and be subject to additional risks, as discussed below and in the
Statement of Additional Information (SAI).
FUTURES CONTRACTS AND OPTIONS Each Fund (except Money Market) may enter into
futures contracts and use options. The Funds primarily use futures contracts and
options to hedge against price fluctuations or increase exposure to a particular
asset class. To a limited extent, the Funds also may use these instruments for
speculation (investing for potential income or capital gain).
o Futures contracts are agreements that obligate the buyer to buy and the seller
to sell a certain quantity of securities at a specific price on a specific
date.
o Options are agreements that give 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.
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.
SWAPS Bond, Balanced, Ascent, Crossroads and Legacy 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 Funds are not limited to any particular form or variety of swap
agreement if Aeltus determines it is consistent with a Fund's investment
objective and policies.
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, a
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, a Fund's loss will consist of the net
amount of contractual payments that a Fund has not yet received. Aeltus will
monitor the creditworthiness of counterparties to a Fund's swap transactions on
an ongoing basis.
DEFENSIVE INVESTING In response to unfavorable market conditions, each Fund
(except Index Plus Large Cap, Index Plus Mid Cap and Index Plus Small Cap) may
make temporary investments that are not consistent with its principal investment
objective and policies.
PORTFOLIO TURNOVER Portfolio turnover refers to the frequency of portfolio
transactions and the percentage of portfolio assets being bought and sold during
the year. For the fiscal year ended October 31, 1999, International, Small
Company and Bond each had a portfolio turnover rate in excess of 150%. A high
portfolio turnover rate increases a Fund's transaction costs and may increase
your tax liability.
40
<PAGE>
MANAGEMENT OF THE FUNDS
Aeltus Investment Management, Inc., 10 State House Square, Hartford, Connecticut
06103-3602 serves as investment adviser to the Funds. Aeltus is responsible for
managing the assets of each Fund in accordance with its investment objective and
policies, subject to oversight by the Aetna Series Fund, Inc. (Company) Board of
Directors (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). Aetna has
entered into an agreement to sell certain of its businesses, including Aeltus,
to ING Groep N.V., an integrated financial services provider (Transaction).
The Transaction is targeted to close by the end of 2000. 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 (1940 Act), the Transaction would result in a change in control of
Aeltus and, therefore, constitute an assignment of the Funds' investment
advisory agreements, which would result in a termination of those agreements.
Consequently, the Board has approved a new advisory agreement for each Fund to
take effect upon consummation of the Transaction, subject to shareholder
approval. The new investment advisory agreements are the same as the current
agreements in all material respects, except for the date of execution and
termination. In the event that the Transaction is not consummated, Aeltus will
continue to provide services to each Fund under the current investment advisory
agreements.
ADVISORY FEES
o Listed below for all Funds (except Technology) are the aggregate advisory fees
paid by each Fund for its most recent fiscal year. These numbers reflect the
advisory fees after fee waiver and expense reimbursement. See the Fund
Operating Expense table for the advisory fee (Management Fee) Aeltus was
entitled to receive.
o Listed below for Technology, which has operated for less than one full fiscal
year, is the advisory fee that Aeltus is entitled to receive, expressed as an
annual rate based on the average daily net assets of Technology.
<TABLE>
<CAPTION>
Aggregate Advisory Fees Paid as a Aggregate Advisory Fees Paid as a
Percentage of Average Net Assets Percentage of Average Net Assets
Fund Name for Year Ended October 31, 1999 Fund Name for Year Ended October 31, 1999
<S> <C> <C> <C>
Growth 0.70% Aetna Government Fund 0.00%
International 0.67% Money Market 0.26%
Small Company 0.83% Index Plus Large Cap 0.40%
Value Opportunity 0.00% Index Plus Mid Cap 0.00%
Balanced 0.80% Index Plus Small Cap 0.00%
Growth and Income 0.66% Ascent 0.74%
Bond Fund 0.32% Crossroads 0.72%
Legacy 0.54%
Fund Name Rate Average Daily Net Assets
Technology 1.05% On first $500 million
1.025% On next $500 million
1.00% Over $1 billion
</TABLE>
41
<PAGE>
Elijah Asset Management, LLC, 100 Pine St., Suite 420, San Francisco, California
94111, a Delaware limited liability company, serves as subadviser to Technology.
Subject to such policies as the Board or Aeltus may determine, EAM manages
Technology's assets in accordance with Technology's investment objective,
policies, and limitations. EAM makes investment decisions for Technology as to
those assets and places orders to purchase and sell securities and other
investments for Technology.
EAM is an affiliate of Aeltus. Accordingly, the Transaction would constitute an
assignment of Technology's subadvisory agreement, which would result in a
termination of that agreement. Consequently, the Board has approved a new
subadvisory agreement for Technology to take effect upon consummation of the
Transaction, subject to shareholder approval. The new subadvisory agreement is
the same as the current subadvisory agreement in all material respects, except
for the date of execution and termination. In the event the Transaction is not
consummated, EAM will continue to provide services to Technology under the
current subadvisory agreement.
Aeltus pays EAM a subadvisory fee at an annual rate of 0.50% of Technology's
average daily net assets.
PORTFOLIO MANAGEMENT The following discusses who are primarily responsible for
the day-to-day management of the Funds.
CAPITAL APPRECIATION FUNDS
GROWTH Kenneth H. Bragdon, Portfolio Manager, Aeltus, has been managing Growth
since May 1998. Previously, Mr. Bragdon co-managed the Fund. Mr. Bragdon has
been with the Aetna organization since 1979 and has 28 years of experience in
the investment business.
INTERNATIONAL Vince Fioramonti, Portfolio Manager, Aeltus, has been managing
International since December 1995. Mr. Fioramonti manages international stocks
and non-U.S. dollar government bonds for several Aetna investment funds. Mr.
Fioramonti joined Aetna in 1994 after serving as Vice President of The Travelers
Investment Management Company. He began his investment career with Travelers in
1988.
SMALL COMPANY Thomas DiBella, Portfolio Manager, Aeltus, has been managing
Small Company since its inception in January 1994. Mr. DiBella joined Aeltus in
1991 and is currently responsible for the management of several
small-capitalization portfolios.
VALUE OPPORTUNITY Value Opportunity is managed by a team of Aeltus equity
investment specialists.
TECHNOLOGY Ronald E. Elijah managing member of EAM, has been managing
Technology since its inception. Prior to founding EAM in March, 1999, Mr. Elijah
was a portfolio manager with Robertson Stephens Investment Management.
Roderick R. Berry, a member of EAM, serves as a co-portfolio manager of
Technology. Prior to joining EAM in March, 1999, Mr. Berry was a member of the
Robertson Stephens Investment Management research team. He has served on the
management team of Technology since its inception. Prior to joining Robertson
Stephens Investment Management, Mr. Berry worked for USL Capital for six years
as both an investment officer and a financial manager.
GROWTH & INCOME FUNDS
BALANCED Balanced is managed by a team of Aeltus fixed-income and equity
investment specialists.
GROWTH AND INCOME Kenneth Bragdon, Portfolio Manager, Aeltus, has been
managing Growth and Income since December 1999. Mr. Bragdon is the lead
portfolio manager of Growth and Income and heads a team of investment
professionals, each of whom specializes in a particular asset class.
42
<PAGE>
INCOME FUNDS
BOND FUND, AETNA GOVERNMENT FUND, MONEY MARKET Bond Fund, Aetna Government
Fund and Money Market are managed by a team of Aeltus fixed-income specialists.
INDEX PLUS FUNDS
INDEX PLUS LARGE CAP Geoffrey A. Brod, Portfolio Manager, Aeltus, has been
managing Index Plus Large Cap since its inception in December 1996. He has over
30 years of experience in quantitative applications and has over 12 years of
experience in equity investments. Mr. Brod has been with the Aetna organization
since 1966.
INDEX PLUS MID CAP, INDEX PLUS SMALL CAP Geoffrey A. Brod, Portfolio Manager,
Aeltus, and Hugh T. M. Whelan, Portfolio Manager, Aeltus, serve as co-managers
of Index Plus Mid Cap and Index Plus Small Cap. Mr. Brod has managed each Fund
since its inception in February 1998. Mr. Whelan has been co-managing each Fund
since April 2000, and previously provided quantitative research in support of
these Funds. Prior thereto, Mr. Whelan was a quantitative portfolio manager in
Aeltus' fixed income group who specialized in selecting corporate securities.
GENERATION FUNDS
ASCENT, CROSSROADS, LEGACY Neil Kochen, Managing Director, Aeltus, has been
the lead portfolio manager and asset allocation strategist for each Generation
Fund since December 1999. Mr. Kochen heads a team of investment professionals,
each of whom specializes in a particular asset class. Mr. Kochen joined the
Aetna organization in 1985 and previously served as head of fixed income
quantitative research, head of investment strategy and policy, and as a senior
portfolio manager.
INVESTING IN THE FUNDS
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 a Fund. If you are investing
through a retirement plan, please refer to your plan materials.
SELECTING A CLASS
CLASS A SHARES (EXCEPT MONEY MARKET)
o Front-end sales charge applies (at the time of purchase), which will vary
depending on the Fund and the size of your purchase.
o No CDSC applies, except in certain limited instances (see below).
o Distribution (12b-1) Fee of 0.25% applies.
43
<PAGE>
SALES CHARGES: CLASS A SHARES The tables below show the front-end sales charges
you will pay if you purchase Class A shares of the Funds in any amount up to $1
million.
<TABLE>
<CAPTION>
GROWTH BALANCED ASCENT
INTERNATIONAL GROWTH AND INCOME CROSSROADS
SMALL COMPANY LEGACY
VALUE OPPORTUNITY
TECHNOLOGY
WHEN YOU INVEST THIS AMOUNT THIS % IS WHICH EQUALS THIS
DEDUCTED % OF YOUR INVESTMENT
FOR SALES CHARGES
<S> <C> <C> <C>
under $50,000 5.75% 6.10%
$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
BOND FUND
AETNA GOVERNMENT FUND
WHEN YOU INVEST THIS AMOUNT THIS % IS WHICH EQUALS THIS
DEDUCTED % OF YOUR INVESTMENT
FOR SALES CHARGES
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
INDEX PLUS LARGE CAP
INDEX PLUS MID CAP
INDEX PLUS SMALL CAP
WHEN YOU INVEST THIS AMOUNT THIS % IS WHICH EQUALS THIS
DEDUCTED % OF YOUR INVESTMENT
FOR SALES CHARGES
under $50,000 3.00% 3.09%
$50,000 or more but under $100,000 2.50 2.56
$100,000 or more but under $250,000 2.00 2.04
$250,000 or more but under $500,000 1.50 1.52
$500,000 or more but under $1,000,000 1.00 1.01
</TABLE>
44
<PAGE>
CLASS A SHARES SALES CHARGE WAIVERS Generally, no front-end sales charge applies
if you are buying Class A shares with money you received within the past 60 days
by redeeming class A shares of another Aeltus-advised Fund on which a front-end
sales charge was paid or with money you received within the past 30 days by
redeeming shares of another mutual fund on which you paid a front-end sales
charge. The Funds also waive the Class A front-end sales charge for purchases
made by certain types of investors. (See the SAI or call 1-800-367-7732 for
additional details.)
CDSC ON CLASS A SHARES The Funds do not impose a CDSC on Class A shares
purchased with an aggregate investment in the Funds of less than $1 million. All
Funds other than Money Market may impose a CDSC on Class A shares purchased with
an aggregate investment in the Funds of at least $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 the Funds. The CDSC
imposed for all Funds' Class A shares except the Index Plus Funds is as follows:
THIS % IS DEDUCTED FROM
WHEN YOU INVEST THIS AMOUNT YOUR PROCEEDS
$1 million but under $3 million Year 1 - 1.00%
Year 2 - 0.50%
$3 million but under $20 million Year 1 - 0.50%
Year 2 - 0.50%
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
The CDSC imposed for the Index Plus Funds is as follows:
THIS % IS DEDUCTED FROM
WHEN YOU INVEST THIS AMOUNT YOUR PROCEEDS
$1 million but under $3 million Year 1 - 0.50%
Year 2 - 0.50%
$3 million but under $20 million Year 1 - 0.25%
Year 2 - 0.25%
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
CLASS B SHARES
o No front-end sales charge applies.
o CDSC applies (if you sell your shares within six years of purchase).
o Distribution (12b-1) Fee of 0.75% applies.
o Service Fee of 0.25% applies.
o Automatic conversion to Class A shares after eight years.
You can purchase Class B shares of Money Market only by (i) opening a Dollar
Cost Averaging account by which all of the amount invested will be reinvested in
another Fund within 24 months of the initial purchase or (ii) exchanging Class B
shares of another Fund. ORDERS FOR CLASS B SHARES FOR $250,000 OR MORE WILL BE
TREATED AS ORDERS FOR CLASS A SHARES.
SALES CHARGES: CLASS B SHARES All Funds impose a CDSC on redemptions, but not
exchanges, made within six years of purchase. The table below shows the
applicable CDSC based on the time invested.
REDEMPTION DURING CDSC
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 3%
5th year since purchase 2%
6th year since purchase 1%
7th year since purchase None
CLASS C SHARES (EXCEPT MONEY MARKET)
o No front-end sales charge applies.
o CDSC applies (if you sell your shares within 18 months of purchase).
o Distribution (12b-1) Fee of 0.75% (for all Funds except the Index Plus Funds)
or 0.50% (for the Index Plus Funds) applies.
o Service Fee of 0.25% applies.
SALES CHARGES: CLASS C SHARES All Funds other than Money Market impose a CDSC
on redemptions made within 18 months of purchase. The CDSC imposed on
redemptions is 1.00%, except for the Index Plus Funds which impose a CDSC of
0.75%.
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
45
<PAGE>
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 exchanges, certain retirement distributions, and certain
redemptions made because of disability or death. (See the SAI or call
1-800-367-7732 for additional details.)
DISTRIBUTION (12b-1) FEES With respect to its Class A and Class C shares, each
Fund, other than Money Market, has adopted a plan that allows the Fund to pay
fees for the sale and distribution of Fund shares (Rule 12b-1 plan). With
respect to its Class B shares, each Fund, including Money Market, has adopted a
Rule 12b-1 plan. The 12b-1 fees are paid out of Fund 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 of the
distribution (12b-1) fees are used to compensate financial professionals who
sell Fund shares.
SERVICE FEE Each Fund, with respect to its Class B shares, and each Fund
(except Money Market), with respect to its Class C shares, has adopted a
Shareholder Services Plan that allows the payment of a service fee. The service
fee is used primarily to pay selling dealers and their agents for servicing and
maintaining shareholder accounts.
HOW TO BUY SHARES
<TABLE>
<CAPTION>
MINIMUM INVESTMENTS
INITIAL INVESTMENT ADDITIONAL INVESTMENTS
<S> <C> <C>
Individual Retirement Accounts $500 o $100 except by wire or Systematic
(including Roth IRAs) Investment
o $500 by wire
o $50 by Systematic Investment
All other investments $1,000 o $100 except by wire or Systematic
Investment
o $500 by wire
o $50 by Systematic Investment
</TABLE>
INSTRUCTIONS FOR BUYING FUND SHARES
Please contact your investment professional or consult your plan materials
regarding the purchase of Fund shares. If you are purchasing Fund shares through
your investment professional, he or she will guide you through the process of
opening an account and purchasing additional shares, as follows.
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO PURCHASE ADDITIONAL SHARES
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL Complete and sign your Fill out the investment stub from your
application, make confirmation statement or send a letter
your check payable to Aetna indicating your name, account
Series Fund, Inc. and mail to: number(s), the Fund(s) in which you
wish to invest and the amount you want
Aetna Series Fund, Inc. to invest in each Fund.
c/o PFPC Inc.
P.O. Box 9681 Make your check payable to Aetna
Providence, RI 02940 Series Fund, Inc. and mail to:
Your check must be drawn on a Aetna Series Fund, Inc.
bank located within the United c/o PFPC Inc.
States and payable in U.S. dollars. P.O. Box 9663
Cash, credit cards and third party Providence, RI 02940
checks cannot be used to open
an account.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO PURCHASE ADDITIONAL SHARES
<S> <C> <C>
Your check must be drawn on a bank
located within the United States and
payable in U.S. dollars. The Funds will
accept checks which are made payable
to you and endorsed to Aetna Series
Fund, Inc.
-----------------------------------------------------------------------------------------------------------------
BY OVERNIGHT COURIER Follow the instructions above Follow the instructions above for
for "By Mail" but send your "By Mail" but send your check and
completed application and investment stub or letter to:
check to:
Aetna Series Fund, Inc.
Aetna Series Fund, Inc. c/o PFPC Inc.
c/o PFPC Inc. 4400 Computer Drive
4400 Computer Drive Westborough, MA 01581
Westborough, MA 01581
-----------------------------------------------------------------------------------------------------------------
BY WIRE Not Available. Call 1-800-367-7732 prior to sending
the wire in order to obtain a
confirmation number.
Instruct your bank to wire funds to:
Boston Safe Deposit & Trust Company
ABA # 011001234
Credit to:
Boston Safe Deposit & Trust Company
Account # 176656
Further Credit to:
Name of Fund
Shareholder Account Number
Shareholder Registration
Federal funds wire purchase orders will
be accepted only when the Fund's
transfer agent and custodian bank are
open for business.
Neither the Funds nor their agents are
responsible for the consequences of
delays resulting from the banking or
Federal Reserve wire system or from
incomplete instructions.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
TO OPEN AN ACCOUNT TO PURCHASE ADDITIONAL SHARES
<S> <C> <C>
BY ELECTRONIC Not Available. Use the Systematic Investment Option.
FUNDS TRANSFER Sign up for this service when opening
your account or by requesting the
appropriate information.
-----------------------------------------------------------------------------------------------------------------
BY EXCHANGE Submit a written request to the Submit a written request to the address
address listed above under listed above under "By Mail." Include:
"By Mail." Include: o Your name and account number.
o Your name and account number. o The name of the Fund into and out of
o The name of the Fund into and which you wish to exchange.
out of which you wish to o The amount to be exchanged and the
exchange. signatures of all shareholders.
o The amount to be exchanged
and the signatures of all You may also exchange your shares by
shareholders. calling 1-800-367-7732. Please be
prepared to provide:
You may also exchange your o The Funds' names.
shares by calling 1-800-367-7732. o Your account number(s).
Please be prepared to provide: o Your Social Security number or
o The Funds' names. taxpayer identification number.
o Your account number(s). o Your address.
o Your Social Security number or o The amount to be exchanged.
taxpayer identification number.
o Your address.
o The amount to be exchanged.
</TABLE>
48
<PAGE>
HOW TO SELL SHARES
To redeem all or a portion of the shares in your account, you should submit a
redemption request through your investment professional, plan sponsor or as
described below. Your investment professional may charge you a fee for selling
your shares.
Redemption requests 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 institution 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 notaries public cannot
provide signature guarantees.
Once your redemption request is received in good order as described below, the
Fund normally will send the proceeds of such redemption within one or two
business days. However, if making immediate payment could adversely affect a
Fund, the Fund may defer distribution for up to seven days or a longer period if
permitted. If you redeem shares of a Fund shortly after purchasing them, the
Fund will hold payment of redemption proceeds until a purchase check or
systematic investment clears, which may take up to 12 calendar days. A
redemption request made within 15 calendar days after submission of a change of
address is permitted only if the request is in writing and is accompanied by a
medallion signature guarantee.
<TABLE>
<S> <C>
REDEMPTIONS BY MAIL You may redeem shares you own in any Fund 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 Fund.
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 Fund 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 TELEPHONE Call 1-800-367-7732. Please be prepared to provide your account number,
account name and the amount of the redemption, which generally must be no
less than $500 and no more than $50,000.
</TABLE>
49
<PAGE>
TIMING OF REQUESTS
Orders that are received by the Funds' 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 Net Asset Value (NAV)
calculated that business day (adjusted for the front-end sales charge or CDSC,
if applicable). Orders received after the close of regular trading on the New
York Stock Exchange will be processed at the NAV calculated on the following
business day (adjusted for the front-end sales charge or CDSC, if applicable).
The Company may appoint certain financial intermediaries and institutions
(Institutions) as parties that may accept purchase and redemption orders on
behalf of the Company. If you purchase or redeem shares in connection with
programs offered by these Institutions, and the Institution receives your order
before the close of regular trading on the New York Stock Exchange, your shares
will be purchased or redeemed at the NAV determined that business day, subject
to the applicable front-end sales charge or CDSC.
Institutions may be authorized to designate other intermediaries to accept
purchase and redemption orders on the Company's behalf, subject to the Company's
approval. In that case, the Company will be deemed to have received a purchase
or redemption order when the Institution's authorized designee accepts the
order.
Institutions may charge you 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 Company.
Investors 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 Each 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 Monday through Friday.
NET ASSET VALUE The NAV of each 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, the securities held by Money Market are valued using
amortized cost. For all other Funds, securities are valued primarily by
independent pricing services using market quotations. Short-term debt securities
maturing in less than 60 days are valued using amortized cost. Securities for
which market quotations are not readily available are valued at their fair
value, subject to procedures adopted by the Board. With respect to any Fund that
invests in foreign securities, because those securities may be traded on markets
that are open on days when the Fund does not price its shares, the Fund's NAV
may change even though Fund shareholders may not be permitted to sell or redeem
Fund shares.
EXCHANGE PRIVILEGES There is no fee to exchange shares from one Fund to
another. However, a sales charge may apply upon an exchange of Class A shares of
Money Market for Class A shares of another Fund. When you exchange shares, your
new Fund shares will be in the equivalent class of your current shares. For
Class B and Class C shares, any CDSC that applies to your current shares will
apply to the new shares. The CDSC will be calculated from the date of your
original purchase.
There are no limits on the number of exchanges you can make. However, the Funds
may suspend or terminate your exchange privilege if you make more than five
exchanges out of a single Fund in any calendar year, and the Funds may refuse to
accept any exchange request, especially if as a result of the exchange, in
Aeltus' judgment, it would be too difficult to invest effectively in accordance
with the Fund's investment objective.
The Funds are not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Funds reserve the right to
reject any specific purchase or exchange request, including a request made by a
market timer.
CROSS INVESTING
o DIVIDEND INVESTING You may elect to have dividend and/or capital gains
distributions automatically invested in the same class of one other Fund.
o SYSTEMATIC EXCHANGE You may establish an automatic exchange of shares from
one Fund to another.
TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES
You automatically receive telephone exchange and redemption privileges when you
establish your account. If you do not want these telephone privileges, you may
call 1-800-367-7732 to have them removed. All telephone transactions may be
recorded, and you will be asked for certain identifying information.
50
<PAGE>
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 Funds reserve the right to amend telephone exchange and redemption
privileges at any time upon notice to shareholders and may refuse a telephone
exchange or redemption if the Funds believe it is advisable to do so.
MINIMUM ACCOUNT BALANCE You must maintain a minimum balance of $500 in each
Fund account. If you do not, the Fund may give you 60 days' notice to increase
the account balance to the $500 minimum. If you fail to increase your account
balance to the minimum, the Fund may redeem all of your remaining shares and
mail the proceeds to you at the address of record. The Fund will not redeem
shares for failing to maintain an adequate account balance if the account
balance falls below the minimum balance only because the value of Fund shares
has decreased.
ADDITIONAL SERVICES The Funds offer the following additional investor
services. Each 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 details.
o SYSTEMATIC INVESTMENT You can make automatic monthly investments in any
Fund.
o LETTER OF INTENT If you agree to purchase a specific amount of Class A
shares of one or more Funds (other than Money Market) 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 Fund will be entitled to the front-end sales charge applicable to the
level of investment indicated on 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 the Funds (other than Money Market) owned
by you, your family and your company (if you are the sole owner).
o AUTOMATIC CASH WITHDRAWAL PLAN The Automatic Cash Withdrawal Plan provides a
convenient way for you to receive a systematic distribution while maintaining
an investment in a Fund.
o CHECKWRITING SERVICE Checkwriting is available with Class A and Class C
shares of Money Market. There currently is no transaction charge for this
service, and the initial checkbook you receive is free. However, you will be
charged a $3.00 fee for each checkbook reorder. Checks must be for a minimum
of $250 and the checkwriting service may not be used for a complete redemption
of your shares. This service is not available for IRA or other retirement
accounts. You will be charged a $25 fee for stop payment requests and for
Money Market checks that are returned due to insufficient funds.
o TDD SERVICE Telecommunication Device for the Deaf (TDD) services are offered
for hearing impaired investors. The dedicated number for this service is
1-800-688-4889.
o TAX-DEFERRED RETIREMENT PLANS Each Fund may be used for investment by a
variety of tax-deferred retirement plans, such as individual retirement
accounts (IRAs, including Roth IRAs) and certain programs sponsored by
employers (such as 401(k) and 403(b)(7) plans). There is no minimum investment
or minimum account balance applicable to investments in 403(b)(7) accounts
except that a rollover from a 403(b)(7) account must be for at least $500.
Purchases made in connection with IRAs and 403(b)(7) accounts may be subject
to an annual custodial fee of $10.00 for each account registered under the
same taxpayer identification number. This fee will be deducted directly from
your account(s). The custodial fee will be waived for IRAs and 403(b)(7)
accounts registered under the same taxpayer identification number having an
aggregate balance over $30,000 at the time such fee is scheduled to be
deducted.
PAYMENTS TO SECURITIES DEALERS AND SELECTION OF EXECUTING BROKERS From time to
time, Aeltus Capital, Inc., the Company's principal underwriter, or its
affiliates may make payments to other dealers and/or their registered
representatives who may or may not be affiliates of Aetna, who sell shares or
who provide shareholder services. The value of a shareholder's investment will
be unaffected by these payments.
Aeltus may consider the sale of shares of the Funds and of other investment
companies advised by Aeltus as a factor in the selection of brokerage firms to
execute each Fund's portfolio transactions, subject to Aeltus' (or EAM's, in the
case of Technology) duty to obtain best execution.
51
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
DIVIDENDS Dividends are declared and paid as follows:
o declared daily and paid monthly Money Market
o declared and paid monthly Aetna Government
Fund
Bond Fund
o declared and paid semiannually Balanced
Growth and
Income
o declared and paid annually All other Funds
Capital gains distributions, if any, are paid on an annual basis in December. To
comply with federal tax regulations, each Fund may also pay an additional
capital gains distribution, usually in June.
Money Market shares begin to accrue dividends the business day after they are
purchased. A redemption of Money Market shares will include dividends declared
through the redemption date.
Both income dividends and capital gains distributions are paid by each Fund on a
per share basis. As a result, at the time of this payment, the share price of a
Fund (except Money Market) will be reduced by the amount of the payment.
DISTRIBUTION OPTIONS When completing your application, you must select one of
the following three options for dividends and capital gains distributions:
o FULL REINVESTMENT Both dividends and capital gains distributions from a Fund
will be reinvested in additional shares of the same class of shares of that
Fund. This option will be selected automatically unless one of the other
options is specified.
o CAPITAL GAINS REINVESTMENT Capital gains distributions from a Fund will be
reinvested in additional shares of the same class of shares of that Fund and
all net income from dividends will be distributed in cash.
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 Fund.
Distributions paid in shares will be credited to your account at the next
determined NAV per share.
TAX INFORMATION
o In general, dividends and short-term capital gains distributions you receive
from any Fund are taxable as ordinary income.
o Distributions of other capital gains generally are taxable as capital gains.
o Ordinary income and capital gains are taxed at different rates.
o The rates that you will pay on capital gains distributions will depend on how
long the Fund holds its portfolio securities. This is true no matter how long
you have owned your shares in the Fund or whether you reinvest your
distributions or take them as 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 Funds 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 Funds.
BACKUP WITHHOLDING By law, the Funds must withhold 31% of your distributions
and proceeds if you have not provided complete, correct taxpayer information.
52
<PAGE>
PERFORMANCE OF SIMILARLY MANAGED FUNDS
SIMILAR FUND PERFORMANCE
Technology is recently organized and does not yet have a long-term performance
record. However, Technology has an investment objective, policies and strategies
substantially similar to a series of an investment company registered under the
1940 Act that is subadvised by EAM (Similar Fund). Therefore, the performance of
the Similar Fund is provided below. The performance of Technology will vary over
time and its investments will not be identical to the past portfolio investments
of the Similar Fund.
The Similar Fund has been managed since its inception by Mr. Elijah and Mr.
Berry, the portfolio managers for Technology.
The results shown below for the Similar Fund reflect the reinvestment of
dividends and distributions, and were calculated in the same manner which will
be used by Technology to calculate its own performance. All Similar Fund
performance data:
o Was calculated on a total return basis and includes all dividends and
interest, accrued income and realized and unrealized gains and losses.
o Reflects the deduction of the historical fees and expenses paid by the
Similar Fund, and not those paid by Technology.
o Includes cash and cash equivalents.
The following table shows average annual total returns for the periods ended
December 31, 1999 for the Similar Fund and its benchmark index. The Goldman
Sachs Technology Index returns shown below are based on price appreciation and
do not assume reinvestment of dividends and distributions. Investors should not
consider the historical performance of the Similar Fund to be an indication of
the future performance of Technology.
1 YEAR SINCE INCEPTION
The Information Age Fund
(Similar Fund) 126.22% 42.46% (11/15/95)
Goldman Sachs
Technology Index 88.58% 48.28% (11/15/95)
53
<PAGE>
FINANCIAL HIGHLIGHTS
These highlights are intended to help you understand the Funds' performance for
the past 5 1/2 years (or since commencement of operations, if shorter). Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate an investor would have earned (or lost)
on an investment in each Fund (assuming reinvestment of all dividends and
distributions). The information through October 31, 1999 in these tables has
been audited by KPMG LLP, independent auditors, whose reports, along with the
Funds' Financial Statements for the year ended October 31, 1999, are included in
the Company's Annual Reports, which are available upon request. The unaudited
information, along with the Funds' Financial Statements for the period ended
April 30, 2000 are included in the Company's Semi-Annual Reports, which are
available upon request.
<TABLE>
GROWTH
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.15 $ 16.37 $ 16.76 $ 14.17 $ 13.63 $ 10.74
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.01) (0.06)+ (0.04)+ (0.11)+ (0.08)+ (0.06)+
Net realized and change in unrealized
gain or loss on investments 4.44 6.04 2.05 3.84 2.38 3.00
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.43 5.98 2.01 3.73 2.30 2.94
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income - - - - - (0.05)
From net realized gains on investments (3.04) (0.20) (2.40) (1.14) (1.76) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.04) (0.20) (2.40) (1.14) (1.76) (0.05)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.54 $ 22.15 $ 16.37 $ 16.76 $ 14.17 $ 13.63
====================================================================================================================================
Total Return 21.71% 36.78% 14.34% 28.05% 18.97% 27.92%
Net assets, end of period (000's) $95,957 $ 57,329 $ 12,877 $ 8,647 $ 4,615 $ 1,727
Ratio of net expenses to
average net assets 1.14%(1) 1.19% 1.32% 1.92% 2.03% 2.03%
Ratio of net investment income to
average net assets (0.24)%(1) (0.29)% (0.25)% (0.67)% (0.59)% (0.47)%
Ratio of expenses before
reimbursement and waiver to
average net assets - - - - - 2.14%
Portfolio turnover rate 96.46% 142.28% 170.46% 141.07% 144.19% 171.75%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
54
<PAGE>
<TABLE>
GROWTH
-----------------------------------------------------------------------------------------------
Class B Class C
----------------------------------- ----------------------------------------------------------
<CAPTION>
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
----------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 22.40 $ 19.84 $ 22.25 $ 16.56 $ 17.86
----------------------------------- ----------------------------------------------------------
(0.01) (0.15)+ (0.01) (0.22)+ (0.05)+
4.42 2.71 4.39 6.11 (1.25)
----------------------------------- ----------------------------------------------------------
4.41 2.56 4.38 5.89 (1.30)
- - - - -
(2.96) - (2.94) (0.20) -
----------------------------------- ----------------------------------------------------------
(2.96) - (2.94) (0.20) -
----------------------------------- ----------------------------------------------------------
$ 23.85 $ 22.40 $ 23.69 $ 22.25 $ 16.56
=================================== ==========================================================
21.26% 12.90% 21.30% 35.80% (7.28)%
$ 4,642 $ 1,920 $ 2,927 $ 1,446 $ 356
1.89%(1) 1.94%(1) 1.89%(1) 1.94% 1.99%(1)
(0.99)%(1) (1.04)%(1) (0.99)%(1) 1.04)% (0.92)%(1)
- - - - -
96.46% 142.28% 96.46% 142.28% 170.46%
</TABLE>
55
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
INTERNATIONAL
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.74 $ 11.83 $ 13.57 $ 11.77 $ 10.59 $ 11.51
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.03) (0.02)+ (0.02)+ (0.07)+ (0.05)+ 0.03+
Net realized and change in unrealized
gain or loss on investments 4.13 3.08 1.05 2.88 1.57 (0.20)
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.10 3.06 1.03 2.81 1.52 (0.17)
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income - (0.55) (0.31) (0.12) (0.08) (0.27)
From net realized gains on investments (1.57) (0.60) (2.46) (0.89) (0.26) (0.48)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.57) (1.15) (2.77) (1.01) (0.34) (0.75)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.27 $ 13.74 $ 11.83 $ 13.57 $ 11.77 $ 10.59
====================================================================================================================================
Total Return 31.12% 27.76% 9.76% 25.07% 14.67% (0.81)%
Net assets, end of period (000's) $73,187 $35,098 $ 15,078 $19,063 $22,893 $26,464
Ratio of net expenses to
average net assets 1.50%(1) 1.60%(2) 1.82% 2.47% 2.94% 2.12%
Ratio of net investment income to
average net assets (0.52)%(1) (0.16)% (0.19)% (0.57)% (0.42)% 0.27%
Ratio of expenses before
reimbursement and waiver to
average net assets 1.54%(1) 1.78% 2.01% - - 2.25%
Portfolio turnover rate 92.06% 175.71% 152.73% 194.41% 135.92% 32.91%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
56
<PAGE>
<TABLE>
INTERNATIONAL
-----------------------------------------------------------------------------------------------
Class B Class C
----------------------------------- ----------------------------------------------------------
<CAPTION>
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
----------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 13.69 $ 11.70 $ 13.68 $ 11.85 $ 13.29
----------------------------------- ----------------------------------------------------------
(0.02) (0.08)+ (0.02) (0.12)+ (0.03)+
4.07 2.07 4.04 3.10 (1.41)
----------------------------------- ----------------------------------------------------------
4.05 1.99 4.02 2.98 (1.44)
----------------------------------- ----------------------------------------------------------
- - - (0.55) -
(1.51) - (1.51) (0.60) -
----------------------------------- ----------------------------------------------------------
(1.51) - (1.51) (1.15) -
----------------------------------- ----------------------------------------------------------
$ 16.23 $ 13.69 $ 16.19 $ 13.68 $ 11.85
=================================== ==========================================================
30.79% 17.01% 30.57% 27.01% (10.84)%
$ 1,056 $ 225 $ 7,160 $ 1,359 $ 156
2.25%(1) 2.35%(1)(2) 2.25%(1) 2.35%(2) 2.36%(1)
(1.27)%(1) (0.91)%(1) (1.27)%(1) (0.91) (0.73)%(1)
2.29%(1) 2.53%(1) 2.29%(1) 2.53% 2.55%(1)
92.06% 175.71% 92.06% 175.71% 152.73%
</TABLE>
57
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
SMALL COMPANY
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.11 $ 10.15 $ 15.20 $ 14.42 $ 13.39 $ 10.35
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income - 0.02+ 0.01+ (0.16)+ (0.18)+ (0.11)+
Net realized and change in unrealized
gain or loss on investments 4.40 2.02 (0.84) 4.36 2.62 3.15
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.40 2.04 (0.83) 4.20 2.44 3.04
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.01) (0.02) - - - -
From net realized gains on investments (0.94) (0.06) (4.22) (3.42) (1.41) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.95) (0.08) (4.22) (3.42) (1.41) -
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.56 $ 12.11 $ 10.15 $ 15.20 $ 14.42 $ 13.39
====================================================================================================================================
Total Return 38.31% 20.16% (7.77)% 36.73% 19.02% 29.44%
Net assets, end of period (000's) $38,247 $16,269 $ 9,089 $ 7,077 $ 3,884 $ 1,285
Ratio of net expenses to
average net assets 1.37%(1) 1.48%(2) 1.63% 2.33% 2.20% 2.23%
Ratio of net investment income to
average net assets 0.03%(1) 0.18% 0.15% (1.17)% (1.26)% (0.89)%
Ratio of expenses before
reimbursement and waiver to
average net assets - 1.50% 1.74% - - 2.30%
Portfolio turnover rate 175.73% 231.94% 211.87% 150.43% 163.21% 156.43%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
58
<PAGE>
<TABLE>
SMALL COMPANY
-----------------------------------------------------------------------------------------------
Class B Class C
----------------------------------- ----------------------------------------------------------
<CAPTION>
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
----------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 12.37 $ 10.69 $ 12.32 $ 10.39 $ 12.11
----------------------------------- ----------------------------------------------------------
- (0.05)+ 0.01 (0.07)+ (0.02)+
4.45 1.73 4.42 2.07 (1.70)
----------------------------------- ----------------------------------------------------------
4.45 1.68 4.43 2.00 (1.72)
----------------------------------- ----------------------------------------------------------
- - - (0.01) -
(0.87) - (0.89) (0.06) -
----------------------------------- ----------------------------------------------------------
(0.87) - (0.89) (0.07) -
----------------------------------- ----------------------------------------------------------
$ 15.95 $ 12.37 $ 15.86 $ 12.32 $ 10.39
=================================== ==========================================================
37.68% 15.72% 37.65% 19.33% (14.21)%
$ 796 $ 129 $ 6,216 $ 1,893 $ 1,118
2.12%(1) 2.23%(1)(2) 2.12%(1) 2.23%(2) 2.30%(1)
(0.73)%(1) (0.57)%(1) (0.73)%(1) (0.57)% (0.52)%(1)
- 2.25%(1) - 2.25% 2.41%(1)
175.73% 231.94% 175.73% 231.94% 211.87%
</TABLE>
59
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
VALUE OPPORTUNITY
------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------------------------------------------- --------------------------------------
<CAPTION>
Period From Period From
Six Month February 2, 1998 Six Month March 1, 1999
Period Ended (Commencement Period Ended (Date of Initial
April 30, Year Ended of Operations) April 30, Public Offering)
2000 October 31, to October 31, 2000 to October 31,
(Unaudited) 1999 1998 (Unaudited) 1999
-------------------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.20 $ 9.97 $ 10.00 $ 13.14 $ 11.28
-------------------------------------------------------------------------------------------- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income - -+ 0.01+ (0.01) (0.06)+
Net realized and change in unrealized
gain or loss on investments 0.91 3.25 (0.04) 0.86 1.92
-------------------------------------------------------------------------------------------- --------------------------------------
Total from investment operations 0.91 3.25 (0.03) 0.85 1.86
-------------------------------------------------------------------------------------------- --------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.01) (0.02) - - -
From net realized gains on investments (0.85) - - (0.80) -
-------------------------------------------------------------------------------------------- --------------------------------------
Total distributions (0.86) (0.02) - (0.80) -
-------------------------------------------------------------------------------------------- --------------------------------------
Net asset value, end of period $ 13.25 $ 13.20 $ 9.97 $ 13.19 $ 13.14
============================================================================================ ======================================
Total Return 7.14% 32.57% (0.30)% 6.69% 16.49%
Net assets, end of period (000's) $ 5,129 $ 1,139 $ 464 $ 220 $ 188
Ratio of net expenses to
average net assets 1.35%(1) 1.35%(2) 1.35%(1) 2.10%(1) 2.10%(1)(2)
Ratio of net investment income to
average net assets 0.05%(1) (0.02)% 0.12%(1) (0.70)%(1) (0.77)%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets 2.00%(1) 2.77% 3.66%(1) 2.75%(1) 3.52%(1)
Portfolio turnover rate 94.90% 124.83% 132.45% 94.90% 124.83%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
60
<PAGE>
<TABLE>
<CAPTION>
VALUE OPPORTUNITY TECHNOLOGY
---------------------------------------------------- -----------------------------------------------------------------------
Class C Class A Class B Class C
---------------------------------------------------- -----------------------------------------------------------------------
<CAPTION>
Period From Period From Period From Period From
Six Month June 30, 1998 March 1, 2000 March 1, 2000 March 1, 2000
Period Ended (Date of Initial (Commencement (Commencement (Commencement
April 30, Year Ended Public Offering) of Operations) of Operations) of Operations)
2000 October 31, to October 31, to April 30, 2000 to April 30, 2000 to April 30, 2000
(Unaudited) 1999 1998 (Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 13.09 $ 9.95 $ 11.04 $ 10.00 $ 10.00 $ 10.00
---------------------------------------------------- -----------------------------------------------------------------------
(0.01) (0.09)+ (0.02)+ (0.01) (0.01) (0.01)
0.87 3.23 (1.07) 0.73 0.72 0.72
---------------------------------------------------- -----------------------------------------------------------------------
0.86 3.14 (1.09) 0.72 0.71 0.71
---------------------------------------------------- -----------------------------------------------------------------------
- - - - - -
(0.80) - - - - -
---------------------------------------------------- -----------------------------------------------------------------------
(0.80) - - - - -
---------------------------------------------------- -----------------------------------------------------------------------
$ 13.15 $ 13.09 $ 9.95 $ 10.72 $ 10.71 $ 10.71
==================================================== =======================================================================
6.74% 31.56% (9.88)% 7.20% 7.10% 7.10%
$ 416 $ 315 $ 95 $ 4,075 $ 1,985 $ 1,895
2.10%(1) 2.10%(2) 2.10%(1) 1.75%(1) 2.50%(1) 2.50%(1)
(0.70)%(1) (0.77)% (0.63)%(1) (0.98)%(1) (1.73)%(1) (1.73)%(1)
2.75%(1) 3.52% 4.41%(1) 3.60%(1) 4.35%(1) 4.35%(1)
94.90% 124.83% 132.45% 40.95% 40.95% 40.95%
</TABLE>
61
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
BALANCED
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.72 $ 12.83 $ 14.05 $ 13.49 $ 12.34 $ 10.62
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.21 0.29+ 0.29+ 0.23+ 0.20+ 0.23+
Net realized and change in unrealized
gain or loss on investments 0.86 1.52 1.01 2.03 1.79 1.91
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 1.81 1.30 2.26 1.99 2.14
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.19) (0.31) (0.24) (0.20) (0.27) (0.42)
From net realized gains on investments (0.54) (0.61) (2.28) (1.50) (0.57) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.73) (0.92) (2.52) (1.70) (0.84) (0.42)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.06 $ 13.72 $ 12.83 $ 14.05 $ 13.49 $ 12.34
====================================================================================================================================
Total Return 8.01% 14.48% 10.44% 18.64% 16.83% 18.32%
Net assets, end of period (000's) $33,674 $27,339 $ 7,544 $ 6,289 $ 3,783 $ 1,362
Ratio of net expenses to
average net assets 1.33%(1) 1.36% 1.44% 1.99% 2.07% 2.04%
Ratio of net investment income to
average net assets 1.92%(1) 2.13% 2.22% 1.68% 1.60% 2.61%
Ratio of expenses before
reimbursement and waiver to
average net assets - - - - - 2.07%
Portfolio turnover rate 116.31% 127.46% 84.55% 116.69% 117.88% 129.05%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
62
<PAGE>
<TABLE>
BALANCED
-----------------------------------------------------------------------------------------------
Class B Class C
----------------------------------- ----------------------------------------------------------
<CAPTION>
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
----------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 13.69 $ 13.00 $ 13.63 $ 12.80 $ 13.27
----------------------------------- ----------------------------------------------------------
0.21 0.13+ 0.15 0.19+ 0.07+
0.80 0.65 0.86 1.52 (0.54)
----------------------------------- ----------------------------------------------------------
1.01 0.78 1.01 1.71 (0.47)
----------------------------------- ----------------------------------------------------------
(0.14) (0.09) (0.14) (0.27) -
(0.54) - (0.54) (0.61) -
----------------------------------- ----------------------------------------------------------
(0.68) (0.09) (0.68) (0.88) -
----------------------------------- ----------------------------------------------------------
$ 14.02 $ 13.69 $ 13.96 $ 13.63 $ 12.80
=================================== ==========================================================
7.61% 6.02% 7.59% 13.64% (3.54)%
$ 595 $ 745 $ 1,594 $ 1,601 $ 216
2.08%(1) 2.11%(1) 2.08%(1) 2.11% 2.11%(1)
1.17%(1) 1.38%(1) 1.17%(1) 1.38% 1.55%(1)
- - - - 2.11%(1)
116.31% 127.46% 116.31% 127.46% 84.55%
</TABLE>
63
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
GROWTH AND INCOME
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.68 $ 15.22 $ 18.01 $ 15.69 $ 13.43 $ 11.08
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.05+ 0.06+ 0.03+ 0.08+ 0.12+
Net realized and change in unrealized
gain or loss on investments 1.19 3.25 0.51 4.99 3.08 2.31
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.21 3.30 0.57 5.02 3.16 2.43
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.03) (0.11) (0.04) (0.10) (0.14) (0.08)
From net realized gains on investments (3.00) (1.73) (3.32) (2.60) (0.76) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.03) (1.84) (3.36) (2.70) (0.90) (0.08)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.86 $ 16.68 $ 15.22 $ 18.01 $ 15.69 $ 13.43
====================================================================================================================================
Total Return 8.32% 22.67% 3.42% 36.49% 24.70% 21.90%
Net assets, end of period (000's) $82,696 $72,789 $23,603 $15,955 $ 6,638 $ 2,217
Ratio of net expenses to
average net assets 1.08%(1) 1.11% 1.20% 1.75% 1.83% 1.84%
Ratio of net investment income to
average net assets 0.05%(1) 0.31% 0.39% 0.18% 0.55% 1.14%
Ratio of expenses before
reimbursement and waiver to
average net assets - - - - - -
Portfolio turnover rate 102.45% 121.99% 160.48% 157.92% 106.09% 127.43%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
64
<PAGE>
<TABLE>
GROWTH AND INCOME
-----------------------------------------------------------------------------------------------
Class B Class C
----------------------------------- ----------------------------------------------------------
<CAPTION>
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
----------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 16.66 $ 15.41 $ 16.59 $ 15.22 $ 16.92
----------------------------------- ----------------------------------------------------------
(0.01) (0.05)+ (0.01) (0.07)+ (0.01)+
1.17 1.31 1.16 3.24 (1.69)
----------------------------------- ----------------------------------------------------------
1.16 1.26 1.15 3.17 (1.70)
----------------------------------- ----------------------------------------------------------
- (0.01) - (0.07) -
(2.97) - (2.97) (1.73) -
----------------------------------- ----------------------------------------------------------
(2.97) (0.01) (2.97) (1.80) -
----------------------------------- ----------------------------------------------------------
$ 14.85 $ 16.66 $ 14.77 $ 16.59 $ 15.22
=================================== ==========================================================
7.96% 8.17% 7.91% 21.68% (10.05)%
$ 923 $ 493 $ 2,259 $ 1,787 $ 569
1.83%(1) 1.86%(1) 1.83%(1) 1.86% 1.86%(1)
(0.70)%(1) (0.44)%(1) (0.70)%(1) (0.44)% (0.27)%(1)
- - - - -
102.45% 121.99% 102.45% 121.99% 160.48%
</TABLE>
65
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
BOND FUND
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.98 $ 10.37 $ 10.22 $ 10.09 $ 10.27 $ 9.58
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.28 0.54+ 0.57+ 0.54+ 0.62+ 0.56+
Net realized and change in unrealized
gain or loss on investments (0.29) (0.39) 0.15 0.13 (0.20) 0.66
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.01) 0.15 0.72 0.67 0.42 1.22
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.27) (0.54) (0.57) (0.54) (0.60) (0.53)
From net realized gains on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.27) (0.54) (0.57) (0.54) (0.60) (0.53)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.70 $ 9.98 $ 10.37 $ 10.22 $ 10.09 $ 10.27
====================================================================================================================================
Total Return (0.12)% 1.43% 7.27% 6.89% 4.27% 13.28%
Net assets, end of period (000's) $13,981 $11,963 $ 1,890 $ 1,006 $ 877 $ 7,340
Ratio of net expenses to
average net assets 1.00%(1) 1.00%(2) 1.05% 1.50% 1.50% 1.50%
Ratio of net investment income to
average net assets 5.68%(1) 5.27% 5.49% 5.32% 5.47% 5.91%
Ratio of expenses before
reimbursement and waiver to
average net assets 1.12%(1) 1.18% 1.27% 1.89% 1.91% 1.82%
Portfolio turnover rate 185.96% 174.14% 77.01% 48.56% 42.33% 56.99%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
66
<PAGE>
<TABLE>
BOND FUND
-----------------------------------------------------------------------------------------------
Class B Class C
----------------------------------- ----------------------------------------------------------
<CAPTION>
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
----------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9.98 $ 10.29 $ 9.97 $ 10.37 $ 10.31
----------------------------------- ----------------------------------------------------------
0.24 0.31+ 0.25 0.46+ 0.17+
(0.29) (0.32) (0.30) (0.39) 0.05
----------------------------------- ----------------------------------------------------------
(0.05) (0.01) (0.05) 0.07 0.22
----------------------------------- ----------------------------------------------------------
(0.23) (0.30) (0.23) (0.47) (0.16)
- - - - -
----------------------------------- ----------------------------------------------------------
(0.23) (0.30) (0.23) (0.47) (0.16)
----------------------------------- ----------------------------------------------------------
$ 9.70 $ 9.98 $ 9.69 $ 9.97 $ 10.37
=================================== ==========================================================
(0.49)% (0.11)% (0.49)% 0.66% 2.10%
$ 193 $ 195 $ 456 $ 1,052 $ 108
1.75%(1) 1.75%(1)(2) 1.75%(1) 1.75%(2) 1.75%(1)
4.93%(1) 4.52%(1) 4.93%(1) 4.52% 4.79%(1)
1.87%(1) 1.93%(1) 1.87%(1) 1.93% 1.97%(1)
185.96% 174.14% 185.96% 174.14% 77.01%
</TABLE>
67
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
AETNA GOVERNMENT FUND
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.86 $ 10.29 $ 9.99 $ 9.79 $ 10.00 $ 9.41
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.28 0.48+ 0.49+ 0.51+ 0.48+ 0.60+
Net realized and change in unrealized
gain or loss on investments (0.12) (0.45) 0.31 0.21 (0.13) 0.56
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.16 0.03 0.80 0.72 0.35 1.16
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.27) (0.46) (0.50) (0.52) (0.56) (0.57)
From net realized gains on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.27) (0.46) (0.50) (0.52) (0.56) (0.57)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.75 $ 9.86 $ 10.29 $ 9.99 $ 9.79 $ 10.00
====================================================================================================================================
Total Return 1.60% 0.34% 8.19% 7.67% 3.75% 12.60%
Net assets, end of period (000's) $10,124 $ 6,009 $ 875 $ 531 $ 526 $ 405
Ratio of net expenses to
average net assets 0.95%(1) 0.95%(2) 1.03% 1.45% 1.45% 1.51%
Ratio of net investment income to
average net assets 5.86%(1) 4.75% 4.88% 5.16% 4.96% 6.02%
Ratio of expenses before
reimbursement and waiver to
average net assets 1.26%(1) 1.72% 1.84% 2.45% 2.32% 2.11%
Portfolio turnover rate 54.41% 30.72% 181.08% 147.78% 50.48% 117.31%
</TABLE>
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000
to waive, all or a portion of its fees and/or to reimburse a portion of the
Funds' other expenses.
+ Per share data calculated using weighted average number of shares
outstanding throughout the period.
68
<PAGE>
<TABLE>
AETNA GOVERNMENT FUND
-----------------------------------------------------------------------------------------------
Class B Class C
----------------------------------- ----------------------------------------------------------
<CAPTION>
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
----------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 9.86 $ 10.12 $ 9.85 $ 10.29 $ 10.11
----------------------------------- ----------------------------------------------------------
0.25 0.27+ 0.24 0.40+ 0.15+
(0.13) (0.27) (0.12) (0.45) 0.17
----------------------------------- ----------------------------------------------------------
0.12 0.00 0.12 (0.05) 0.32
----------------------------------- ----------------------------------------------------------
(0.23) (0.26) (0.23) (0.39) (0.14)
- - - - -
----------------------------------- ----------------------------------------------------------
(0.23) (0.26) (0.23) (0.39) (0.14)
----------------------------------- ----------------------------------------------------------
$ 9.75 $ 9.86 $ 9.74 $ 9.85 $ 10.29
=================================== ==========================================================
1.22% 0.00% 1.24% (0.46)% 3.18%
$ 167 $ 152 $ 119 $ 124 $ 117
1.70%(1) 1.70%(1)(2) 1.70%(1) 1.70%(2) 1.70%(1)
5.11%(1) 4.00%(1) 5.11%(1) 4.00% 4.21%(1)
2.01%(1) 2.47%(1) 2.01%(1) 2.47 2.51%(1)
54.41% 30.72% 54.41% 30.72% 181.08%
</TABLE>
69
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
MONEY MARKET
------------------------------------------------------------------------------------------------------------------------------------
Class A
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Six Month
Period Ended
April 30, Year Ended Year Ended Year Ended Year Ended Year Ended
2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.05+ 0.05+ 0.05+ 0.05+ 0.06+
Net realized and change in unrealized
gain or loss on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.05 0.05 0.05 0.05 0.06
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.03) (0.05) (0.05) (0.05) (0.05) (0.06)
From net realized gains on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.05) (0.05) (0.05) (0.05) (0.06)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================================
Total Return 2.80% 4.88% 5.36% 5.49% 5.44% 5.95%
Net assets, end of period (000's) $178,267 $181,623 $161,456 $156,530 $119,849 $ 78,726
Ratio of net expenses to
average net assets 0.55%(1) 0.50% 0.48% 0.37% 0.30% 0.26%
Ratio of net investment income to
average net assets 5.54%(1) 4.79% 5.24% 5.31% 5.30% 5.79%
Ratio of expenses before
reimbursement and waiver to
average net assets 0.65%(1) 0.64% 0.72% 0.91% 0.93% 0.87%
Portfolio turnover rate - - - - - -
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000 to waive, all or a portion of its fees and/or to
reimburse a portion of the Funds' other expenses.
+ Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
MONEY MARKET
------------------------------------------------------------------------------
Class B Class C
---------------------------------- -------------------------------------------
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
---------------------------------- -------------------------------------------
<S> <C> <C> <C> <C>
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------------------------- -------------------------------------------
0.02 0.03+ 0.03 0.05+ 0.02+
- - - - -
---------------------------------- -------------------------------------------
0.02 0.03 0.03 0.05 0.02
---------------------------------- -------------------------------------------
(0.02) (0.03) (0.03) (0.05) (0.02)
- - - - -
---------------------------------- -------------------------------------------
(0.02) (0.03) (0.03) (0.05) (0.02)
---------------------------------- -------------------------------------------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================== ===========================================
2.29% 2.56% 2.80% 4.88% 1.75%
$ 174 $ 148 $7,697% $6,765 $ 916
1.55%(1) 1.50%(1) 0.55%(1) 0.50% 0.48%(1)
4.54%(1) 3.78%(1) 5.54%(1) 4.79% 5.24%(1)
1.65%(1) 1.64%(1) 0.65%(1) 0.64% 0.72%(1)
- - - - -
</TABLE>
71
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
INDEX PLUS LARGE CAP
-----------------------------------------------------------------------------------------------------------
Class A
-----------------------------------------------------------------------------------------------------------
Period From
Six Month February 3, 1997
Period Ended (Date of Initial
April 30, Year Ended Year Ended Public Offering)
2000 October 31, October 31, to October 31,
(Unaudited) 1999 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.36 $ 13.70 $ 12.36 $ 10.57
------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.07+ 0.09+ 0.02+
Net realized and change in unrealized
gain or loss on investments 1.50 3.84 2.56 1.77
------------------------------------------------------------------------------------------------------------
Total from investment operations 1.54 3.91 2.65 1.79
------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.06) (0.05) (0.09) -
From net realized gains on investments - (0.20) (1.22) -
------------------------------------------------------------------------------------------------------------
Total distributions (0.06) (0.25) (1.31) -
------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.84 $ 17.36 $ 13.70 $ 12.36
============================================================================================================
Total Return 8.90% 28.78% 23.09% 16.93%
Net assets, end of period (000's) $162,905 $81,908 $ 6,422 $ 1,833
Ratio of net expenses to
average net assets 0.91%(1) 0.95%(2) 0.99% 1.45%(1)
Ratio of net investment income to
average net assets 0.34%(1) 0.42% 0.67% 0.16%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets - 1.00% 1.46% 2.98%(1)
Portfolio turnover rate 56.26% 72.14 124.16% 82.31%
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000 to waive, all or a portion of its
fees and/or to reimburse a portion of the Funds' other expenses.
+ Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
INDEX PLUS LARGE CAP
-----------------------------------------------------------------------------------------------
Class B Class C
---------------------------------- -----------------------------------------------------------
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C>
$ 17.37 $ 15.68 $ 17.33 $ 13.74 $ 14.17
---------------------------------- -----------------------------------------------------------
(0.02) (0.04)+ (0.01) (0.01)+ 0.01+
1.49 1.73 1.52 3.85 (0.44)
---------------------------------- -----------------------------------------------------------
1.47 1.69 1.51 3.84 (0.43)
---------------------------------- -----------------------------------------------------------
- - (0.02) (0.05) -
- - - (0.20) -
---------------------------------- -----------------------------------------------------------
- - (0.02) (0.25) -
---------------------------------- -----------------------------------------------------------
$ 18.84 $ 17.37 $ 18.82 $ 17.33 $ 13.74
================================== ===========================================================
8.46% 10.78% 8.61% 28.17% (3.04)%
$ 28,773 $17,386 $46,106% $33,439 $ 910
1.66%(1) 1.70%(1)(2) 1.41%(1) 1.45%(2) 1.43%(1)
(0.41)%(1) (0.32)%(1) (0.16)%(1) (0.07)% 0.23%(1)
- 1.75%(1) - 1.50% 1.90%(1)
56.26% 72.14% 56.26 72.14% 124.16%
</TABLE>
73
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
INDEX PLUS MID CAP
-------------------------------------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------------------------------------------------- ----------------------------------
Period From Period From
Six Month February 3, 1998 Six Month March 1, 1999
Period Ended (Commencement Period Ended (Date of Initial
April 30, Year Ended of Operations) April 30, Public Offering)
2000 October 31, to October 31, 2000 to October 31,
(Unaudited) 1999 1998 (Unaudited) 1999
------------------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.66 $ 10.34 $ 10.00 $ 12.61 $ 11.23
------------------------------------------------------------------------------------------- ----------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.04+ 0.02+ (0.03) (0.04)+
Net realized and change in unrealized
gain or loss on investments 2.95 2.32 0.32 2.95 1.42
------------------------------------------------------------------------------------------- ----------------------------------
Total from investment operations 2.98 2.36 0.34 2.92 1.38
------------------------------------------------------------------------------------------- ----------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.05) (0.04) - - -
From net realized gains on investments (1.78) - - (1.76) -
------------------------------------------------------------------------------------------- ----------------------------------
Total distributions (1.83) (0.04) - (1.76) -
------------------------------------------------------------------------------------------- ----------------------------------
Net asset value, end of period $13.81 $ 12.66 $ 10.34 $ 13.77 $ 12.61
=========================================================================================== ==================================
Total Return 26.79% 22.81% 3.40% 26.29% 12.29%
Net assets, end of period (000's) $6,054 $ 3,434 $ 269 $ 698 $ 446
Ratio of net expenses to
average net assets 1.00%(1) 1.00%(2) 1.00%(1) 1.75%(1) 1.75%(1)(2)
Ratio of net investment income to
average net assets 0.12%(1) 0.30% 0.32%(1) (0.63)%(1) (0.45)%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets 1.66%(1) 2.03% 2.76%(1) 2.41%(1) 2.78%(1)
Portfolio turnover rate 77.22% 130.93 129.87% 77.22% 130.93%
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000 to waive, all or a portion of its fees and/or to
reimburse a portion of the Funds' other expenses.
+ Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
INDEX PLUS MID CAP INDEX PLUS SMALL CAP
------------------------------------------------- -------------------------------------------------
Class C Class A
------------------------------------------------- -------------------------------------------------
Period From Period From
Six Month June 30, 1998 Six Month February 3, 1998
Period Ended (Date of Initial Period Ended (Commencement
April 30, Year Ended Public Offering) April 30, Year Ended of Operations)
2000 October 31, to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 1998 (Unaudited) 1999 1998
------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12.59 $ 10.33 $ 10.92 $ 9.92 $ 8.86 $ 10.00
------------------------------------------------- -------------------------------------------------
(0.03) (0.02)+ (0.01)+ (0.02) -+ -+
2.96 2.31 (0.58) 1.07 1.07 (1.14)
------------------------------------------------- -------------------------------------------------
2.93 2.29 (0.59) 1.05 1.07 (1.14)
------------------------------------------------- -------------------------------------------------
- (0.03) - - (0.01) -
(1.78) - - - - -
------------------------------------------------- -------------------------------------------------
(1.78) (0.03) - - (0.01) -
------------------------------------------------- -------------------------------------------------
$ 13.74 $ 12.59 $ 10.33 $ 10.97 $ 9.92 $ 8.86
================================================= =================================================
26.50% 22.19% (5.40)% 10.58% 12.13% (11.40)%
$ 972 $ 516 $ 100 $ 2,916 $ 2,348 $ 349
1.50%(1) 1.50%(2) 1.50%(1) 1.00%(1) 1.00%(2) 1.00%(1)
(0.38)%(1) (0.20)% (0.18)%(1) (0.28)%(1) (0.02)% 0.00%(1)
2.16%(1) 2.53% 3.26%(1) 1.75%(1) 2.28% 2.88%(1)
77.22% 130.93% 129.87% 63.32% 85.28% 100.41%
</TABLE>
75
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
INDEX PLUS SMALL CAP
-----------------------------------------------------------------------------------------------------------------------------------
Class B Class C
------------------------------------------------------------------------------- ---------------------------------------------------
Period From Period From
Six Month March 1, 1999 Six Month June 30, 1998
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Public Offering) April 30, Year Ended Public Offering)
2000 to October 31, 2000 October 31, to October 31,
(Unaudited) 1999 (Unaudited) 1999 1998
------------------------------------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.88 $ 8.91 $ 9.87 $ 8.84 $ 10.62
------------------------------------------------------------------------------- ---------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (0.02) (0.05)+ (0.02) (0.05)+ (0.02)+
Net realized and change in unrealized
gain or loss on investments 1.03 1.02 1.04 1.08 (1.76)
------------------------------------------------------------------------------- ---------------------------------------------------
Total from investment operations 1.01 0.97 1.02 1.03 (1.78)
------------------------------------------------------------------------------- ---------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income - - - - -
From net realized gains on investments - - - - -
------------------------------------------------------------------------------- ---------------------------------------------------
Total distributions - - - - -
------------------------------------------------------------------------------- ---------------------------------------------------
Net asset value, end of period $10.89 $ 9.88 $10.89 $ 9.87 $ 8.84
=============================================================================== ===================================================
Total Return 10.22% 10.89% 10.33% 11.66% (16.76)%
Net assets, end of period (000's) $ 267 $ 193 $ 580 $ 589 $ 155
Ratio of net expenses to
average net assets 1.75%(1) 1.75%(1)(2) 1.50%(1) 1.50%(2) 1.50%(1)
Ratio of net investment income to
average net assets (1.03)%(1) (0.77)%(1) (0.78)%(1) (0.52)% (0.50)%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets 2.50%(1) 3.03%(1) 2.25%(1) 2.78% 3.38%(1)
Portfolio turnover rate 63.32% 85.28% 63.32% 85.28% 100.41%
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000 to waive, all or a portion of its fees and/or to
reimburse a portion of the Funds' other expenses.
+ Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
ASCENT
------------------------------------------------------------------------------------------------------------
Class A Class B
----------------------------------------------------------------- -----------------------------------------
Period From Period From
Six Month January 20, 1997 Six Month March 1, 1999
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Year Ended Year Ended Public Offering) April 30, Public Offering)
2000 October 31, October 31, to October 31, 2000 to October 31,
(Unaudited) 1999 1998 1997 (Unaudited) 1999
----------------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12.06 $ 11.09 $ 14.42 $ 12.50 $ 12.06 $ 11.21
----------------------------------------------------------------- -----------------------------------------
0.17 0.19+ 0.20+ 0.15+ 0.06 0.07+
1.08 1.26 (0.40) 1.77 1.15 0.78
----------------------------------------------------------------- -----------------------------------------
1.25 1.45 (0.20) 1.92 1.21 0.85
----------------------------------------------------------------- -----------------------------------------
(0.20) (0.17) (0.37) - (0.12) -
(0.89) (0.31) (2.76) - (0.89) -
----------------------------------------------------------------- -----------------------------------------
(1.09) (0.48) (3.13) - (1.01) -
----------------------------------------------------------------- -----------------------------------------
$ 12.22 $ 12.06 $ 11.09 $ 14.42 $ 12.26 $ 12.06
================================================================= =========================================
10.97% 13.35% (2.17)% 15.36% 10.55% 7.58%
$23,123 $16,252 $ 2,266 $ 886 $ 134 $ 116
1.25%(1) 1.45%(2) 1.53% 2.08%(1) 2.00%(1) 2.20%(1)(2)
1.67%(1) 1.61% 1.71% 1.11%(1) 0.92%(1) 0.86%(1)
1.39%(1) 1.51% 1.72% 2.35%(1) 2.14%(1) 2.26%(1)
118.42% 131.62% 105.08% 162.80% 118.42% 131.62%
</TABLE>
77
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
ASCENT
-----------------------------------------------------------------------------------------------------------
Class C
-----------------------------------------------------------------------------------------------------------
Period From
Six Month June 30, 1998
Period Ended (Date of Initial
April 30, Year Ended Public Offering)
2000 October 31, to October 31,
(Unaudited) 1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.03 $ 11.11 $ 12.49
-----------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.10+ 0.04+
Net realized and change in unrealized
gain or loss on investments 1.13 1.26 (1.42)
-----------------------------------------------------------------------------------------------------------
Total from investment operations 1.21 1.36 (1.38)
-----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.13) (0.13) -
From net realized gains on investments (0.89) (0.31) -
-----------------------------------------------------------------------------------------------------------
Total distributions (1.02) (0.44) -
-----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.22 $ 12.03 $ 11.11
===========================================================================================================
Total Return 10.55% 12.47% (11.05)%
Net assets, end of period (000's) $ 2,806 $ 2,626 $ 133
Ratio of net expenses to
average net assets 2.00%(1) 2.20%(2) 2.23%(1)
Ratio of net investment income to
average net assets
Ratio of expenses before 0.92%(1) 0.86% 1.01%(1)
reimbursement and waiver to
average net assets 2.14%(1) 2.26% 2.42%(1)
Portfolio turnover rate 118.42% 131.62% 105.08%
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000 to waive, all or a portion of its fees
and/or to reimburse a portion of the Funds' other expenses.
+ Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
CROSSROADS
------------------------------------------------------------------------------------------------------------------------
Class A Class B
-------------------------------------------------------------------- --------------------------------------------------
Period From Period From
Six Month January 20, 1997 Six Month March 1, 1999
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Year Ended Year Ended Public Offering) April 30, Public Offering)
2000 October 31, October 31, to October, 31 2000 to October 31,
(Unaudited) 1999 1998 1997 (Unaudited) 1999
-------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 11.67 $ 11.01 $ 13.22 $ 11.67 $ 11.68 $ 11.09
-------------------------------------------------------------------- -------------------------------------------------
0.23 0.27+ 0.27+ 0.30+ 0.09 0.12+
0.70 0.83 (0.37) 1.25 0.80 0.47
-------------------------------------------------------------------- -------------------------------------------------
0.93 1.10 (0.10) 1.55 0.89 0.59
-------------------------------------------------------------------- -------------------------------------------------
(0.27) (0.20) (0.41) - (0.19) -
(0.53) (0.24) (1.70) - (0.53) -
-------------------------------------------------------------------- -------------------------------------------------
(0.80) (0.44) (2.11) - (0.72) -
-------------------------------------------------------------------- -------------------------------------------------
$ 11.80 $ 11.67 $ 11.01 $ 13.22 $ 11.85 $ 11.68
==================================================================== =================================================
8.39% 10.10% (1.17)% 13.28% 7.97% 5.32%
$32,015 $15,389 $ 2,105 $ 547 $ 109 $ 105
1.20%(1) 1.45%(2) 1.52 % 2.11%(1) 1.95%(1) 2.20%(1)(2)
2.39%(1) 2.29% 2.33% 1.64%(1) 1.64%(1) 1.54%(1)
1.37%(1) 1.53% 1.68% 2.41%(1) 2.12%(1) 2.28%(1)
102.77% 124.90% 115.65% 161.75% 102.77% 124.90%
</TABLE>
79
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(for one outstanding share throughout each period)
<TABLE>
<CAPTION>
CROSSROADS
----------------------------------------------------------------------------------------------------
Class C
----------------------------------------------------------------------------------------------------
Period From
Six Month June 30, 1998
Period Ended (Date of Initial
April 30, Year Ended Public Offering)
2000 October 31, to October 31,
(Unaudited) 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 11.65 $ 11.04 $ 12.18
----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.10) 0.18+ 0.06+
Net realized and change in unrealized
gain or loss on investments 0.99 0.83 (1.20)
----------------------------------------------------------------------------------------------------
Total from investment operations 0.89 1.01 (1.14)
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.15) (0.16) -
From net realized gains on investments (0.53) (0.24) -
----------------------------------------------------------------------------------------------------
Total distributions (0.68) (0.40) -
----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.86 $ 11.65 $ 11.04
====================================================================================================
Total Return 7.97% 9.30% (9.36)%
Net assets, end of period (000's) $ 163 $ 127 $ 158
Ratio of net expenses to
average net assets 1.95%(1) 2.20%(2) 2.24%(1)
Ratio of net investment income to
average net assets 1.64%(1) 1.54% 1.61%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets 2.12%(1) 2.28% 2.40%(1)
Portfolio turnover rate 102.77% 124.90% 115.65%
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000 to waive, all or a portion of
its fees and/or to reimburse a portion of the Funds' other expenses.
+ Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
LEGACY
-----------------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------------------------- --------------------------------------
Period From Period From
Six Month January 20, 1997 Six Month March 1, 1999
Period Ended (Date of Initial Period Ended (Date of Initial
April 30, Year Ended Year Ended Public Offering) April 30, Public Offering)
2000 October 31, October 31, to October, 31 2000 to October 31,
(Unaudited) 1999 1998 1997 (Unaudited) 1999
------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10.48 $ 10.15 $ 12.09 $ 11.01 $ 10.49 $ 10.08
------------------------------------------------------------------- --------------------------------------
0.25 0.31+ 0.31+ 0.29+ 0.18 0.16+
0.44 0.46 (0.06) 0.79 0.48 0.25
------------------------------------------------------------------- --------------------------------------
0.69 0.77 0.25 1.08 0.66 0.41
------------------------------------------------------------------- --------------------------------------
(0.28) (0.22) (0.57) - (0.22) -
(0.34) (0.22) (1.62) - (0.34) -
------------------------------------------------------------------- --------------------------------------
(0.62) (0.44) (2.19) - (0.56) -
------------------------------------------------------------------- --------------------------------------
$ 10.55 $ 10.48 $ 10.15 $ 12.09 $ 10.59 $ 10.49
=================================================================== ======================================
6.94% 7.65% 2.29% 9.81% 6.51% 4.07%
$ 15,492 $10,371 $ 1,812 $ 481 $ 125 $ 123
1.15%(1) 1.45%(2) 1.53% 2.21%(1) 1.90%(1) 2.20%(1)(2)
3.45%(1) 2.98% 2.97% 2.39%(1) 2.70%(1) 2.23%(1)
1.49%(1) 1.70% 1.96% 2.50%(1) 2.24%(1) 2.45%(1)
76.25% 119.85% 115.12% 158.71% 76.25% 119.85%
</TABLE>
81
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(FOR ONE OUTSTANDING SHARE THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
LEGACY
----------------------------------------------------------------------------------------------------
Class C
----------------------------------------------------------------------------------------------------
Period From
Six Month June 30, 1998
Period Ended (Date of Initial
April 30, Year Ended Public Offering)
2000 October 31, to October 31,
(Unaudited) 1999 1998
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.46 $ 10.18 $ 10.72
----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.10 0.23+ 0.08+
Net realized and change in unrealized
gain or loss on investments 0.55 0.46 (0.62)
----------------------------------------------------------------------------------------------------
Total from investment operations 0.65 0.69 (0.54)
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.21) (0.19) -
From net realized gains on investments (0.34) (0.22) -
----------------------------------------------------------------------------------------------------
Total distributions (0.55) (0.41) -
----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.56 $ 10.46 $ 10.18
====================================================================================================
Total Return 6.50% 6.88% (5.04)%
Net assets, end of period (000's) $ 287 $ 304 $ 171
Ratio of net expenses to
average net assets 1.90%(1) 2.20%(2) 2.24%(1)
Ratio of net investment income to
average net assets 2.70%(1) 2.23% 2.26%(1)
Ratio of expenses before
reimbursement and waiver to
average net assets 2.24%(1) 2.45% 2.67%(1)
Portfolio turnover rate 76.25% 119.85% 115.12%
(1) Annualized.
(2) Aeltus has waived, and is contractually obligated through December 31, 2000 to waive, all or a portion
of its fees and/or to reimburse a portion of the Funds' other expenses.
+ Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
82
<PAGE>
ADDITIONAL INFORMATION
The SAI, which is incorporated by reference into this Prospectus, contains
additional information about the Funds. The Funds' most recent annual and
semiannual reports also contain information about the Funds' investments, as
well as a discussion of the market conditions and investment strategies that
significantly affected their performance during the past fiscal year.
You may request free of charge the current SAI or the most recent annual and
semiannual reports, or other information about the Funds, 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
Funds. 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 about the operations of the public reference room. You may obtain
copies of reports and other information about the Funds, 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.
83
<PAGE>
This page is intentionally blank.
84
<PAGE>
AETNA SERIES FUND, INC.
SUPPLEMENT DATED SEPTEMBER 28, 2000
THE INFORMATION IN THIS SUPPLEMENT FOR AETNA SERIES FUND, INC. SUPPLEMENTS AND
AMENDS THE INFORMATION CONTAINED IN THE CLASS I PROSPECTUS DATED MARCH 1, 2000
AND REPLACES THE SUPPLEMENTS DATED JUNE 30, 2000 AND AUGUST 2, 2000. THIS
SUPPLEMENT SHOULD BE READ WITH THE PROSPECTUS.
On July 28, 2000 at a shareholder meeting, the shareholders approved liquidation
of the following funds:
Aetna Mid Cap Fund (Mid Cap)
Aetna Real Estate Securities Fund (Real Estate)
Aetna High Yield Fund (High Yield)
Aetna Index Plus Bond Fund (Index Plus Bond)
The funds were liquidated on August 25, 2000. All information in the Class I
Prospectus regarding Mid Cap, Real Estate, High Yield and Index Plus Bond is
deleted.
The following replaces page 5 of the Class I Prospectus:
AETNA GROWTH FUND INVESTMENT PERFORMANCE
YEARS ENDED DECEMBER 31,
YEAR-BY-YEAR TOTAL RETURN 1994 1995 1996 1997 1998 1999
5.59% 34.30% 22.12% 22.75% 37.90% 35.09%
[GRAPHIC OMITTED]
[arrow up] BEST QUARTER:
fourth quarter 1998, up 23.31%
[arrow down] WORST QUARTER:
third quarter 1998, down 9.98%
AS OF DECEMBER 31, 1999
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE
Class I 35.09% 30.26% 25.82% 01/04/94
Russell 1000 Growth Index* 33.16% 32.39% 26.90% 01/03/94
S&P 500 Index** 21.04% 28.55% 23.54% 01/03/94
The performance table and bar chart provide an indication of the historical risk
of an investment in the Fund. All figures assume reinvestment of dividends and
distributions.
Growth changed its benchmark from the Standard & Poor's (S&P) 500 Index to the
Russell 1000 Growth Index because the Russell 1000 Growth Index emphasizes large
cap growth stocks, which are more indicative of the securities in which the Fund
invests.
----------
* The Russell 1000 Growth Index measures the performance of the 1,000 largest
companies in the Russell 3000 Index with higher price-to-book ratios and higher
forecasted growth values.
** The Standard & Poor's 500 Index is a value-weighted, unmanaged index of 500
widely held stocks and is considered to be representative of the stock market in
general.
<PAGE>
The fourth bullet in the section entitled "Aetna International Fund - Principal
Investment Strategies" on page 6 of the Class I Prospectus is deleted.
The following is added after the first paragraph in the section entitled
"Management of the Funds" on page 40 of the Class I Prospectus:
Aeltus is an indirect wholly owned subsidiary of Aetna Inc. (Aetna).
Aetna has entered into an agreement to sell certain of its
businesses, including Aeltus, to ING Groep N.V., an integrated
financial services provider (Transaction).
The Transaction is targeted to close by the end of 2000. 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 Funds' investment advisory agreements, which would
result in a termination of those agreements. Consequently, the Board
has approved a new advisory agreement for each Fund to take effect
upon consummation of the Transaction, subject to shareholder
approval. The new investment advisory agreements are the same as the
current agreements in all material respects, except for the date of
execution and termination. In the event that the Transaction is not
consummated, Aeltus will continue to provide services to each Fund
under the current investment advisory agreements.
The following is added after the first paragraph on page 41 of the Class I
Prospectus:
EAM is an affiliate of Aeltus. Accordingly, the Transaction would
constitute an assignment of Technology's subadvisory agreement, which
would result in a termination of that agreement. Consequently, the
Board has approved a new subadvisory agreement for Technology to take
effect upon consummation of the Transaction, subject to shareholder
approval. The new subadvisory agreement is the same as the current
subadvisory agreement in all material respects, except for the date
of execution and termination. In the event the Transaction is not
consummated, EAM will continue to provide services to Technology
under the current subadvisory agreement.
Effective April 1, 2000, the following replaced the section entitled "Management
of the Funds - Portfolio Management - Index Plus Mid Cap, Index Plus Small Cap"
on page 42 of the Class I Prospectus:
INDEX PLUS MID CAP, INDEX PLUS SMALL CAP Geoffrey A. Brod, Portfolio
Manager, Aeltus, and Hugh T. M. Whelan, Portfolio Manager, Aeltus,
serve as co-managers of Index Plus Mid Cap and Index Plus Small Cap.
Mr. Brod has managed each Fund since its inception in February 1998.
Mr. Whelan has been co-managing each Fund since April 2000, and
previously provided quantitative research in support of these Funds.
Prior thereto, Mr. Whelan was a quantitative portfolio manager in
Aeltus' fixed income group who specialized in selecting corporate
securities.
Effective June 30, 2000, the following replaced the first paragraph in the
section entitled "Investing in the Funds - Opening an Account and Eligibility
for Class I Shares - How to Open an Account" on page 43 of the Class I
Prospectus:
You may open an account either through the sponsor of your
employer-sponsored retirement plan or by yourself. If you are
investing through a retirement plan, please refer to your plan
materials. If you wish to open an account on your own, you must
submit a completed application to the Fund and, except as described
below, the initial investment must be a minimum of $250,000. You may
submit a completed and signed application along with your check to:
Aetna Series Fund, Inc.
c/o PFPC Inc.
P.O. Box 9681
Providence, RI 02940
2
<PAGE>
Effective June 30, 2000, the following replaced the section entitled "Investing
in the Funds - Opening an Account and Eligibility for Class I Shares - Class I
Eligibility" on page 43 of the Class I Prospectus:
Class I Shares are offered to:
o Certain retirement plans.
o Employees and retired employees of Aetna Inc. and its affiliates
(including members of employees' and retired persons' immediate
families, board members and trustees and their immediate
families).(1)
o Insurance companies (including separate accounts).(2)
o Registered investment companies.(2)
o Shareholders holding Select Class shares at the time such shares
were redesignated as Class I shares, and their immediate family
members, as long as they maintain a shareholder account.(1)
o Certain banks and trust companies investing on behalf of
clients.(2)
o Members of the Board.(1)
o NASD-registered representatives of Aeltus Capital, Inc. (ACI)
or any affiliated broker-dealer (including members of their
immediate families).(1)
o Certain broker-dealers, registered investment advisers, and
financial planners that have entered into a selling agreement with
ACI (or otherwise have an arrangement with a broker-dealer or
financial institution with respect to sales of Fund shares) on
behalf of clients who are charged an asset-based fee.(2)
o Certain executive deferred compensation plans.(2)
o Other groups as may be approved by the Board from time to time.
(1)not subject to the $250,000 minimum initial investment
(2)excludes Technology
Effective June 30, 2000, the following replaced the chart in the section
entitled "Investing in the Funds - How to Buy Shares" on page 43 of the Class I
Prospectus:
Generally, an initial investment in a Fund must be for a minimum of
$250,000. However, for those persons not subject to the $250,000
minimum (see above), an account may be opened with an initial
investment of $1,000 ($500 in the case of IRAs and Roth IRAs).
Additional investments may be made at any time provided they are for
a minimum of $100, except $50 in the case of systematic investments
or $500 in the case of wire transfers.
The following replaces the second paragraph in the section entitled "Investing
in the Funds - How to Sell Shares" on page 46 of the Class I Prospectus:
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 institution 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
notaries public cannot provide medallion signature guarantees.
All other references to "signature guarantee" in the section entitled "Investing
in the Funds - How to Sell Shares" on page 46 of the Class I Prospectus are
changed to "medallion signature guarantee".
The section entitled "Performance of Similarly Managed Funds - Private Account
Performance" on page 50 of the Class I Prospectus is deleted.
3
<PAGE>
The following replaces the section entitled "Financial Highlights" beginning on
page 52 of the Class I Prospectus:
FINANCIAL HIGHLIGHTS
(for one outstanding share throughout each period)
These highlights are intended to help you understand the Funds' performance for
the past 5 1/2 years (or since commencement of operations, if shorter). Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate an investor would have earned (or lost)
on an investment in each Fund (assuming reinvestment of all dividends and
distributions). The information through October 31, 1999 in these tables has
been audited by KPMG LLP, independent auditors, whose reports, along with the
Funds' Financial Statements for the year ended October 31, 1999, are included in
the Company's Annual Reports, which are available upon request. The unaudited
information, along with the Funds' Financial Statements for the period ended
April 30, 2000 are included in the Company's Semi-Annual Reports, which are
available upon request.
<TABLE>
<CAPTION>
CLASS I SHARES GROWTH
------------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 22.54 $ 16.62 $ 17.02 $ 14.36 $ 13.75 $ 10.78
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.01) (0.01)* 0.01* 0.01* 0.03* 0.04*
Net realized and change in unrealized
gain or loss on investments 4.56 6.13 2.09 3.88 2.39 3.02
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.55 6.12 2.10 3.89 2.42 3.06
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income - - - (0.03) (0.05) (0.08)
From net realized gains on investments (3.08) (0.20) (2.50) (1.20) (1.76) (0.01)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.08) (0.20) (2.50) (1.23) (1.81) (0.09)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.01 $ 22.54 $ 16.62 $ 17.02 $ 14.36 $ 13.75
====================================================================================================================================
Total return 21.88% 37.09% 14.78% 28.95% 19.82% 28.79%
Net assets, end of period (000's) $261,051 $206,238 $128,667 $82,186 $45,473 $36,936
Ratio of net expenses to average net
assets 0.89%(1) 0.94% 1.00% 1.17% 1.28% 1.20%
Ratio of net investment income to
average net assets 0.01%(1) (0.04)% 0.07% 0.08% 0.20% 0.36%
Ratio of expenses before reimbursement
and waiver to average net assets - - - - - 1.30%
Portfolio turnover rate 96.46% 142.28% 170.46% 141.07% 144.19% 171.75%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES INTERNATIONAL
------------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.78 $ 11.87 $ 13.65 $ 11.79 $ 10.62 $ 11.56
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.04) 0.01* 0.02* 0.02* 0.03* 0.11*
Net realized and change in unrealized
gain or loss on investments 4.17 3.09 1.06 2.89 1.59 (0.09)
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.13 3.10 1.08 2.91 1.62 0.02
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income - (0.59) (0.40) (0.16) (0.19) (0.40)
From net realized gains on investments (1.59) (0.60) (2.46) (0.89) (0.26) (0.56)
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.59) (1.19) (2.86) (1.05) (0.45) (0.96)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.32 $ 13.78 $ 11.87 $ 13.65 $ 11.79 $ 10.62
====================================================================================================================================
Total return 31.28% 28.10% 10.22% 26.02% 15.61% (0.04)%
Net assets, end of period (000's) $66,892 $42,605 $34,556 $56,369 $45,786 $25,102
Ratio of net expenses to average net
assets 1.25%(1) 1.35% 1.48% 1.72% 2.17% 1.37%
Ratio of net investment income to
average net assets (0.27)%(1) 0.09% 0.15% 0.18% 0.40% 1.02%
Ratio of expenses before reimbursement
and waiver to average net assets 1.29%(1) 1.53% 1.67% - - 1.50%
Portfolio turnover rate 92.06% 175.71% 152.73% 194.41% 135.92% 32.91%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES SMALL COMPANY
------------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.46 $ 10.43 $ 15.55 $ 14.67 $ 13.52 $ 10.39
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.05* 0.09* (0.06)* (0.08)* -*
Net realized and change in unrealized
gain or loss on investments 4.52 2.08 (0.90) 4.45 2.64 3.15
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.54 2.13 (0.81) 4.39 2.56 3.15
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.04) (0.04) - - - (0.02)
From net realized gains on investments (0.94) (0.06) (4.31) (3.51) (1.41) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.98) (0.10) (4.31) (3.51) (1.41) (0.02)
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.02 $ 12.46 $ 10.43 $ 15.55 $ 14.67 $ 13.52
====================================================================================================================================
Total return 38.36% 20.54% (7.47)% 37.80% 19.78% 30.39%
Net assets, end of period (000's) $177,864 $51,423 $29,543 $22,661 $32,125 $33,511
Ratio of net expenses to average net
assets 1.12%(1) 1.23% 1.32% 1.58% 1.44% 1.41%
Ratio of net investment income to
average net assets 0.27%(1) 0.43% 0.46% 0.42)% (0.53)% (0.01)%
Ratio of expenses before reimbursement
and waiver to average net assets - 1.25% 1.43% - - 1.49%
Portfolio turnover rate 175.73% 231.94% 211.87% 150.43% 163.21% 156.43%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES VALUE OPPORTUNITY TECHNOLOGY
--------------------------------------------------------------------------------------------------- -------------------
Period From
Period From March 1, 2000
Six Month February 2, 1998 (Commencement of
Period Ended Year Ended (Commencement of Operations) to
April 30, 2000 October 31, Operations) to April 30, 2000
(Unaudited) 1999 October 31, 1998 (Unaudited)
--------------------------------------------------------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.24 $ 9.99 $ 10.00 $ 10.00
--------------------------------------------------------------------------------------------------- -------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.03* 0.03* (0.02)
Net realized and change in unrealized
gain or loss on investments 0.90 3.25 (0.04) 0.75
--------------------------------------------------------------------------------------------------- -------------------
Total from investment operations 0.92 3.28 (0.01) 0.73
--------------------------------------------------------------------------------------------------- -------------------
LESS DISTRIBUTIONS:
From net investment income (0.04) (0.03) - -
From net realized gains on investments (0.85) - - -
--------------------------------------------------------------------------------------------------- -------------------
Total distributions (0.89) (0.03) - -
--------------------------------------------------------------------------------------------------- -------------------
Net asset value, end of period $ 13.27 $ 13.24 $ 9.99 $ 10.73
=================================================================================================== ===================
Total return 7.18% 32.88% (0.10)% 7.30%
Net assets, end of period (000's) $4,082 $5,455 $4,625 $4,013
Ratio of net expenses to average net
assets 1.10%(1) 1.10% 1.10%(1) 1.50%(1)
Ratio of net investment income to
average net assets 0.30%(1) 0.23% 0.37%(1) (0.73)%(1)
Ratio of expenses before reimbursement
and waiver to average net assets 1.75%(1) 2.52% 3.41%(1) 3.35%(1)
Portfolio turnover rate 94.90% 124.83% 132.45% 40.95%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES BALANCED
------------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.74 $ 12.84 $ 14.09 $ 13.52 $ 12.36 $ 10.65
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.14 0.32* 0.33* 0.33* 0.31* 0.35*
Net realized and change in unrealized
gain or loss on investments 0.94 1.53 1.02 2.04 1.77 1.69
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.08 1.85 1.35 2.37 2.08 2.04
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.20) (0.34) (0.32) (0.30) (0.35) (0.33)
From net realized gains on investments (0.54) (0.61) (2.28) (1.50) (0.57) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.74) (0.95) (2.60) (1.80) (0.92) (0.33)
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.08 $ 13.74 $ 12.84 $ 14.09 $ 13.52 $ 12.36
====================================================================================================================================
Total return 8.11% 14.79% 10.81% 19.57% 17.63% 19.45%
Net assets, end of period (000's) $95,292 $98,717 $111,887 $105,813 $88,625 $83,941
Ratio of net expenses to average net
assets 1.08%(1) 1.11% 1.12% 1.24% 1.31% 1.27%
Ratio of net investment income to
average net assets 2.17%(1) 2.38% 2.54% 2.43% 2.42% 3.14%
Ratio of expenses before reimbursement
and waiver to average net assets - - - - - 1.30%
Portfolio turnover rate 116.31% 127.46% 84.55% 116.69% 117.88% 129.05%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES GROWTH AND INCOME
------------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.74 $ 15.26 $ 18.08 $ 15.74 $ 13.46 $ 11.11
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.09* 0.12* 0.15* 0.19* 0.21*
Net realized and change in unrealized
gain or loss on investments 1.21 3.26 0.51 5.00 3.09 2.27
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.23 3.35 0.63 5.15 3.28 2.48
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.05) (0.14) (0.13) (0.21) (0.24) (0.13)
From net realized gains on investments (3.00) (1.73) (3.32) (2.60) (0.76) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (3.05) (1.87) (3.45) (2.81) (1.00) (0.13)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.92 $ 16.74 $ 15.26 $ 18.08 $ 15.74 $ 13.46
====================================================================================================================================
Total return 8.41% 23.00% 3.80% 37.44% 25.69% 22.58%
Net assets, end of period (000's) $531,663 $558,913 $614,493 $595,969 $377,784 $356,803
Ratio of net expenses to average net
assets 0.83%(1) 0.86% 0.88% 1.00% 1.08% 1.10%
Ratio of net investment income to
average net assets 0.30%(1) 0.56% 0.71% 0.93% 1.35% 1.73%
Ratio of expenses before reimbursement
and waiver to average net assets - - - - - -
Portfolio turnover rate 102.45% 121.99% 160.48% 157.92% 106.09% 127.43%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES BOND
-----------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.98 $ 10.38 $ 10.22 $ 10.09 $ 10.27 $ 9.58
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.29 0.57* 0.60* 0.62* 0.65* 0.65*
Net realized and change in unrealized
gain or loss on investments (0.28) (0.41) 0.17 0.13 (0.15) 0.65
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.01 0.16 0.77 0.75 0.50 1.30
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.28) (0.56) (0.61) (0.62) (0.68) (0.61)
From net realized gains on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.28) (0.56) (0.61) (0.62) (0.68) (0.61)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.71 $ 9.98 $ 10.38 $ 10.22 $ 10.09 $ 10.27
====================================================================================================================================
Total return 0.10% 1.56% 7.72% 7.72% 5.09% 14.06%
Net assets, end of period (000's) $30,882 $34,268 $41,804 $34,080 $28,864 $32,778
Ratio of net expenses to average net
assets 0.75%(1) 0.75% 0.75% 0.75% 0.75% 0.79%
Ratio of net investment income to
average net assets 5.93%(1) 5.52% 5.79% 6.07% 6.16% 6.56%
Ratio of expenses before reimbursement
and waiver to average net assets 0.87%(1) 0.93% 0.97% 1.14% 1.16% 1.06%
Portfolio turnover rate 185.96% 174.14% 77.01% 48.56% 42.33% 56.99%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES AETNA GOVERNMENT FUND
------------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.86 $ 10.29 $ 9.99 $ 9.80 $ 10.01 $ 9.41
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.29 0.51* 0.53* 0.58* 0.56* 0.64*
Net realized and change in unrealized
gain or loss on investments (0.12) (0.45) 0.30 0.21 (0.13) 0.59
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.17 0.06 0.83 0.79 0.43 1.23
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.28) (0.49) (0.53) (0.60) (0.64) (0.63)
From net realized gains on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.28) (0.49) (0.53) (0.60) (0.64) (0.63)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.75 $ 9.86 $ 10.29 $ 9.99 $ 9.80 $ 10.01
====================================================================================================================================
Total return 1.74% 0.58% 8.54% 8.39% 4.43% 13.58%
Net assets, end of period (000's) $10,830 $9,808 $13,980 $10,217 $10,662 $19,154
Ratio of net expenses to average net
assets 0.70%(1) 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income to
average net assets 6.11%(1) 5.00% 5.21% 5.91% 5.67% 6.79%
Ratio of expenses before reimbursement
and waiver to average net assets 1.01%(1) 1.47% 1.51% 1.70% 1.57% 1.30%
Portfolio turnover rate 54.41% 30.72% 181.08% 147.78% 50.48% 117.31%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES MONEY MARKET
------------------------------------------------------------------------------------------------------------------------------------
Six Month
Period Ended Year Ended Year Ended Year Ended Year Ended Year Ended
April 30, 2000 October 31, October 31, October 31, October 31, October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.05* 0.05* 0.05* 0.05* 0.06*
Net realized and change in unrealized
gain or loss on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.03 0.05 0.05 0.05 0.05 0.06
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.03) (0.05) (0.05) (0.05) (0.05) (0.06)
From net realized gains on investments - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.05) (0.05) (0.05) (0.05) (0.06)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================================================================================
Total return 2.80% 4.88% 5.36% 5.49% 5.44% 5.95%
Net assets, end of period (000's) $247,280 $284,594 $276,024 $273,710 $323,281 $275,524
Ratio of net expenses to average net
assets 0.55%(1) 0.50% 0.48% 0.37% 0.30% 0.27%
Ratio of net investment income to
average net assets 5.54%(1) 4.79% 5.24% 5.31% 5.30% 5.78%
Ratio of expenses before reimbursement
and waiver to average net assets 0.65%(1) 0.64% 0.72% 0.81% 0.83% 0.88%
Portfolio turnover rate - - - - - -
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES INDEX PLUS LARGE CAP
-----------------------------------------------------------------------------------------------------------------------------
Period From
Six Month December 10, 1996
Period Ended Year Ended Year Ended (Commencement of
April 30, 2000 October 31, October 31, Operations) to
(Unaudited) 1999 1998 October 31, 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.48 $ 13.78 $ 12.43 $ 10.00
-----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.11* 0.13* 0.12*
Net realized and change in unrealized gain or
loss on investments 1.53 3.86 2.57 2.33
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.57 3.97 2.70 2.45
-----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.08) (0.07) (0.13) (0.02)
From net realized gains on investments - (0.20) (1.22) -
-----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.08) (0.27) (1.35) (0.02)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.97 $ 17.48 $ 13.78 $ 12.43
=============================================================================================================================
Total return 9.02% 29.05% 23.46% 24.49%
Net assets, end of period (000's) $167,133 $141,377 $31,671 $10,876
Ratio of net expenses to average net assets 0.66%(1) 0.70% 0.70% 0.70%(1)
Ratio of net investment income to average
net assets 0.59%(1) 0.67% 0.96% 1.15%(1)
Ratio of expenses before reimbursement
and waiver to average net assets - 0.75% 1.17% 1.95%(1)
Portfolio turnover rate 56.26% 72.14% 124.16% 82.31%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES INDEX PLUS MID CAP INDEX PLUS SMALL CAP
------------------------------------------------------------------------------------- --------------------------------------------
Period From Period From
February 3, February 3,
1998 1998
Six Month (Commence- (Commence-
Period Ended ment of Six Month Year ment) of
April 30, Year Ended Operations) Period Ended Ended Operations
2000 October 31, to October April 30, 2000 October to October
(Unaudited) 1999 31, 1998 (Unaudited) 31, 1999 31, 1998
------------------------------------------------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.70 $ 10.36 $ 10.00 $ 9.95 $ 8.87 $10.00
------------------------------------------------------------------------------------- --------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income - 0.07* 0.04* (0.01) 0.02* 0.02*
Net realized and change in unrealized
gain or loss on investments 2.99 2.32 0.32 1.08 1.08 (1.15)
------------------------------------------------------------------------------------- --------------------------------------------
Total from investment operations 2.99 2.39 0.36 1.07 1.10 (1.13)
------------------------------------------------------------------------------------- --------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.06) (0.05) - (0.01) (0.02) -
From net realized gains on
investments (1.78) - - - - -
------------------------------------------------------------------------------------- --------------------------------------------
Total distributions (1.84) (0.05) - (0.01) (0.02) -
------------------------------------------------------------------------------------- --------------------------------------------
Net asset value, end of period $ 13.85 $ 12.70 $ 10.36 $ 11.01 $ 9.95 $ 8.87
===================================================================================== ============================================
Total return 26.90% 23.14% 3.60% 10.81% 12.46% (11.30)%
Net assets, end of period (000's) $3,814 $6,806 $6,996 $4,878 $5,902 $5,862
Ratio of net expenses to average net
assets 0.75%(1) 0.75% 0.75%(1) 0.75%(1) 0.75% 0.75%(1)
Ratio of net investment income to
average net assets 0.37%(1) 0.55% 0.57%(1) (0.03)%(1) 0.22% 0.25%(1)
Ratio of expenses before
reimbursement and
waiver to average net assets 1.41%(1) 1.78% 2.51%(1) 1.50%(1) 2.03% 2.63%(1)
Portfolio turnover rate 77.22% 130.93% 129.87% 63.32% 85.28% 100.41%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES ASCENT
------------------------------------------------------------------------------------------------------------------------------------
Six Month Period From
Period Ended January 4, 1995
April 30, Year Ended Year Ended Year Ended Year Ended (Commencement of
2000 October 31, October 31, October 31, October 31, Operations) to
(Unaudited) 1999 1998 1997 1996 October 31, 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.14 $ 11.14 $ 14.48 $ 12.57 $ 11.67 $ 10.00
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.09 0.22* 0.24* 0.21* 0.21* 0.25*
Net realized and change in unrealized
gain or loss on investments 1.18 1.27 (0.41) 2.92 2.04 1.42
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.27 1.49 (0.17) 3.13 2.25 1.67
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.22) (0.18) (0.41) (0.25) (0.38) -
From net realized gains on investments (0.89) (0.31) (2.76) (0.97) (0.97) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.11) (0.49) (3.17) (1.22) (1.35) -
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.30 $ 12.14 $ 11.14 $ 14.48 $ 12.57 $ 11.67
====================================================================================================================================
Total return 11.06% 13.66% (1.90)% 26.59% 20.94% 16.70%
Net assets, end of period (000's) $43,828 $41,936 $38,012 $27,359 $25,752 $20,433
Ratio of net expenses to average net
assets 1.00%(1) 1.20% 1.24% 1.52% 1.73% 1.38%(1)
Ratio of net investment income to
average net assets 1.92%(1) 1.86% 2.00% 1.53% 1.69% 2.80%(1)
Ratio of expenses before reimbursement
and waiver to average net assets 1.14%(1) 1.26% 1.43% 1.61% - -
Portfolio turnover rate 118.42% 131.62% 105.08% 162.80% 104.84% 164.09%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES CROSSROADS
------------------------------------------------------------------------------------------------------------------------------------
Period From
Six Month January 4, 1995
Period Ended (Commencement
April 30, Year Ended Year Ended Year Ended Year Ended of Operations)
2000 October 31, October 31, October 31, October 31, to October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.76 $11.08 $ 13.29 $ 12.16 $ 11.53 $ 10.00
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.13 0.30* 0.31* 0.27* 0.25* 0.29*
Net realized and change in unrealized
gain or loss on investments 0.83 0.83 (0.37) 2.16 1.64 1.24
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.96 1.13 (0.06) 2.43 1.89 1.53
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.29) (0.21) (0.45) (0.30) (0.44) -
From net realized gains on investments (0.53) (0.24) (1.70) (1.00) (0.82) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.82) (0.45) (2.15) (1.30) (1.26) -
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.90 $ 11.76 $ 11.08 $ 13.29 $ 12.16 $ 11.53
====================================================================================================================================
Total return 8.56% 10.31% (0.87)% 21.65% 17.66% 15.30%
Net assets, end of period (000's) $52,652 $48,440 $37,620 $26,028 $22,947 $20,370
Ratio of net expenses to average net
assets 0.95%(1) 1.20% 1.24% 1.57% 1.74% 1.40%(1)
Ratio of net investment income to
average net assets 2.64%(1) 2.54% 2.61% 2.13% 2.18% 3.26%(1)
Ratio of expenses before reimbursement
and waiver to average net assets 1.12%(1) 1.28% 1.40% 1.66% - -
Portfolio turnover rate 102.77% 124.90% 115.65% 161.75% 107.40% 166.93%
(1) Annualized.
*Per share data calculated using weighted average number of shares outstanding throughout the period.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES LEGACY
------------------------------------------------------------------------------------------------------------------------------------
Period From
January 4, 1995
Six Month (Commencement
Period Ended Year Ended Year Ended Year Ended Year Ended of Operations)
April 30, 2000 October 31, October 31, October 31, October 31, to October 31,
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.57 $ 10.21 $ 12.15 $ 11.64 $ 11.41 $ 10.00
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.13 0.34* 0.35* 0.32* 0.29* 0.33*
Net realized and change in unrealized
gain or loss on investments 0.58 0.46 (0.07) 1.41 1.20 1.08
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.71 0.80 0.28 1.73 1.49 1.41
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.30) (0.22) (0.60) (0.33) (0.50) -
From net realized gains on investments (0.34) (0.22) (1.62) (0.89) (0.76) -
------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.64) (0.44) (2.22) (1.22) (1.26) -
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.64 $ 10.57 $ 10.21 $ 12.15 $ 11.64 $ 11.41
====================================================================================================================================
Total return 7.02% 7.99% 2.51% 15.94% 14.11% 14.10%
Net assets, end of period (000's) $26,972 $24,107 $22,352 $18,313 $22,326 $19,651
Ratio of net expenses to average net
assets 0.90%(1) 1.20% 1.24% 1.63% 1.73% 1.42%(1)
Ratio of net investment income to
average net assets 3.70%(1) 3.23% 3.26% 2.77% 2.62% 3.75%(1)
Ratio of expenses before reimbursement
and waiver to average net assets 1.24%(1) 1.45% 1.67% 1.75% - -
Portfolio turnover rate 76.25% 119.85% 115.12% 158.71% 91.62% 179.88%
</TABLE>
(1) Annualized.
* Per share data calculated using weighted average number of shares outstanding
throughout the period.
17
<PAGE>
AETNA SERIES FUND, INC.
AETNA INDEX PLUS PROTECTION FUND
PROSPECTUS
September 28, 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.
<PAGE>
TABLE OF CONTENTS
THE FUND'S INVESTMENTS 1
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RISKS 1
GUARANTEE PERIOD INVESTMENT OBJECTIVE,
PRINCIPAL INVESTMENT STRATEGIES AND RISKS 1
INDEX PLUS LARGE CAP PERIOD INVESTMENT OBJECTIVE,
PRINCIPAL INVESTMENT STRATEGIES AND RISKS 2
OTHER PRINCIPAL RISKS OF INVESTING IN THE FUND 3
FUND EXPENSES 4
OTHER CONSIDERATIONS 5
THE GUARANTEE 5
MANAGEMENT OF THE FUND 7
INVESTING IN THE FUND 8
OPENING AN ACCOUNT AND SELECTING A SHARE CLASS 8
HOW TO BUY SHARES 10
HOW TO SELL SHARES 10
TIMING OF PURCHASE AND REDEMPTION REQUESTS 11
OTHER INFORMATION ABOUT SHAREHOLDER ACCOUNTS AND SERVICES 12
DIVIDENDS AND DISTRIBUTIONS 13
TAX INFORMATION 13
ADDITIONAL INFORMATION 14
<PAGE>
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 (Board) 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.
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.
1
<PAGE>
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.
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 performance. The success of the
Fund's strategy depends significantly on
2
<PAGE>
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 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.
3
<PAGE>
FUND EXPENSES
The following tables describe the Fund's expenses. Shareholder Fees are paid
directly by shareholders. Annual Fund Operating Expenses are expressed as a
percentage of the Fund's average daily net assets, and are thus paid indirectly
by all Fund shareholders.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Maximum Deferred Sales
Charge (Load) on Purchases Charge (Load) (as a % of
(as a % of purchase price) gross redemption proceeds)
<S> <C> <C>
Class A 4.75% None
Class B None 5.00%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from Fund assets)
Distribution Total Fee Waiver/
Management and/or Other Operating Expense Net
Fee Service (12b-1) Fees Expenses Expenses Reimbursement Expenses
<S> <C> <C> <C> <C> <C> <C>
Class A 0.65% 0.25% 0.68% 1.58% 0.08% 1.50%
Class B 0.65% 1.00% 0.68% 2.33% 0.08% 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:
<TABLE>
<CAPTION>
1 Year* 3 Years* 5 Years*
<S> <C> <C> <C> <C>
Class A $620 $ 927 $1,255
Class B $728 $1,003 $1,405
</TABLE>
* 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.
4
<PAGE>
OTHER CONSIDERATIONS
In addition to the principal investment strategies and risks described above,
the Fund may also invest in other securities, engage in other practices, and be
subject to additional risks, as discussed below and in the Statement of
Additional Information (SAI).
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 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.
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
----------
YOUR GUARANTEED AMOUNT $19,088.10
==========
5
<PAGE>
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.
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.
6
<PAGE>
MANAGEMENT OF THE FUND
Aeltus, 10 State House Square, Hartford, Connecticut 06103-3602, serves as
investment adviser to the Fund. Aeltus is responsible for managing the assets of
the Fund in accordance with its investment 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., an integrated financial services provider (Transaction).
The Transaction is targeted to close by the end of 2000. Consummation of the
Transaction is subject to a number of contingencies, including regulatory
approvals, the approval of the shareholders of Aetna Inc., and other closing
conditions. Under the Investment Company Act of 1940, the Transaction may result
in a change in control of Aeltus and, therefore, may constitute an assignment of
the Fund's investment advisory agreement, which would result in a termination of
that agreement. Consequently, the Board has approved a new investment advisory
agreement, to take effect upon consummation of the Transaction. The new
investment advisory agreement is the same as the current agreement in all
material respects, except for the date of execution and termination. In the
event that the Transaction is not consummated, Aeltus will continue to provide
services to the Fund under the current investment advisory agreement.
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%
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.
7
<PAGE>
INVESTING IN THE FUND
OPENING AN ACCOUNT AND SELECTING A SHARE CLASS
HOW TO OPEN AN ACCOUNT You may open an account either through your investment
professional or through the sponsor of your employer-sponsored retirement plan.
If you are opening an account through your investment professional, he or she
will guide you through the process of investing in the Fund. If you are
investing through a retirement plan, please refer to your plan materials.
SELECTING A CLASS
CLASS A SHARES
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.
SALES CHARGES: CLASS A SHARES The table below shows the front-end sales charges
you will pay if you purchase Class A shares of the Company in any amount up to
$1 million.
<TABLE>
<CAPTION>
THIS % IS DEDUCTED WHICH EQUALS THIS %
FOR SALES CHARGES OF YOUR INVESTMENT
WHEN YOU INVEST THIS AMOUNT
<S> <C> <C> <C>
Under $50,000 4.75% 4.99%
$50,000 or more but under $100,000 4.50% 4.71%
$100,000 or more but under $250,000 3.50% 3.63%
$250,000 or more but under $500,000 2.50% 2.56%
$500,000 or more but under $1,000,000 2.00% 2.04%
</TABLE>
CLASS A SHARES SALES CHARGE WAIVERS The Fund waives the Class A front-end sales
charge for purchases made by certain types of shareholders. See the SAI or call
1-800-238-6254 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
of at least $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:
8
<PAGE>
<TABLE>
<CAPTION>
WHEN YOU INVEST THIS AMOUNT THIS % IS DEDUCTED FROM YOUR PROCEEDS
<S> <C> <C>
$1 million or more but under $3 million Year 1 - 1.00%
Year 2 - 0.50%
$3 million or more but under $20 million Year 1 - 0.50%
Year 2 - 0.50%
$20 million or greater Year 1 - 0.25%
Year 2 - 0.25%
</TABLE>
CLASS B SHARES
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 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
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.
9
<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 your
COURIER 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.
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.
10
<PAGE>
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
TELEPHONE provide 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.
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.
11
<PAGE>
OTHER INFORMATION ABOUT SHAREHOLDER ACCOUNTS AND SERVICES
BUSINESS HOURS The Fund is open on the same days as the New York Stock
Exchange (generally, Monday through Friday). Fund representatives are available
from 8:00 a.m. to 8:00 p.m. eastern time on those days.
NET ASSET VALUE The NAV of the Fund is determined as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. eastern time).
In calculating the NAV, securities are valued primarily by independent pricing
services using market quotations. Short-term debt securities maturing in 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.
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 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.
12
<PAGE>
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.
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.
13
<PAGE>
ADDITIONAL INFORMATION
The SAI, which is incorporated by reference into this Prospectus, contains
additional information about the Fund.
You may request free of charge the current SAI, or other information about the
Fund, by calling 1-800-238-6254 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.
14
<PAGE>
CLASS A, CLASS B, CLASS C AND CLASS I SHARES
AETNA SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 28, 2000
This Statement of Additional Information (Statement) is not a Prospectus and
should be read in conjunction with the Class A, Class B and Class C Prospectus
dated September 28, 2000 and the Class I Prospectus dated March 1, 2000 as
amended September 28, 2000 for Aetna Series Fund, Inc. (Company), for the
following funds (Funds). Capitalized terms not defined herein are used as
defined in the Prospectuses.
CAPITAL APPRECIATION FUNDS
Aetna Growth Fund (Growth)
Aetna International Fund (International)
Aetna Small Company Fund (Small Company)
Aetna Value Opportunity Fund (Value Opportunity)
Aetna Technology Fund (Technology)
GROWTH & INCOME FUNDS
Aetna Balanced Fund (Balanced)
Aetna Growth and Income Fund (Growth and Income)
INCOME FUNDS
Aetna Bond Fund (Bond Fund)
Aetna Government Fund
Aetna Money Market Fund (Money Market)
INDEX PLUS FUNDS
Aetna Index Plus Large Cap Fund (Index Plus Large Cap)
Aetna Index Plus Mid Cap Fund (Index Plus Mid Cap)
Aetna Index Plus Small Cap Fund (Index Plus Small Cap)
GENERATION FUNDS
Aetna Ascent Fund (Ascent)
Aetna Crossroads Fund (Crossroads)
Aetna Legacy Fund (Legacy)
The Funds' Financial Statements and the independent auditors' reports thereon,
included in the Company's Annual Reports, are incorporated herein by reference
in this Statement. A free copy of the Company's Annual Reports and each
Prospectus is available upon request by writing to: Aetna Series Fund, Inc., 10
State House Square, Hartford, Connecticut 06103-3602, or by calling:
1-800-238-6254.
1
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION...........................................................3
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES...............................4
INVESTMENT TECHNIQUES AND RISK FACTORS........................................6
DIRECTORS AND OFFICERS.......................................................20
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS...................................22
THE INVESTMENT ADVISORY AGREEMENTS...........................................23
THE SUBADVISORY AGREEMENT....................................................26
THE ADMINISTRATIVE SERVICES AGREEMENT........................................27
CUSTODIAN....................................................................29
TRANSFER AGENT...............................................................29
INDEPENDENT AUDITORS.........................................................29
PRINCIPAL UNDERWRITER........................................................30
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS..........................30
PURCHASE AND REDEMPTION OF SHARES............................................35
BROKERAGE ALLOCATION AND TRADING POLICIES....................................38
SHAREHOLDER ACCOUNTS AND SERVICES............................................40
NET ASSET VALUE..............................................................41
TAX STATUS...................................................................42
PERFORMANCE INFORMATION......................................................43
FINANCIAL STATEMENTS.........................................................49
2
<PAGE>
GENERAL INFORMATION
Incorporation The Company was incorporated under the laws of Maryland on June
17, 1991.
Series and Classes The Company currently offers multiple series, not all of
which are offered through this Statement and the corresponding Prospectuses. The
Board of Directors (Board) has the authority to subdivide each series into
classes of shares having different attributes so long as each share of each
class represents a proportionate interest in the series equal to each other
share in that series. Shares of each Fund currently are classified into four
classes: Class A, Class B, Class C and Class I. Each class of shares has the
same rights, privileges and preferences, except with respect to: (a) the effect
of sales charges, if any, for each class; (b) the distribution fees borne by
each class; (c) the expenses allocable exclusively to each class; (d) voting
rights on matters exclusively affecting a single class; and (e) the exchange
privilege of each class.
Capital Stock Fund shares are fully paid and nonassessable when issued. Fund
shares have no preemptive or conversion rights, except that each Fund's Class B
shares automatically convert to Class A shares after 8 years. Each share of a
Fund has the same rights to share in dividends declared by a Fund. Upon
liquidation of any Fund, shareholders in that Fund are entitled to share pro
rata in the net assets of the Fund available for distribution to shareholders.
Voting Rights Shareholders of each class are entitled to one vote for each full
share held (and fractional votes for fractional shares of each class held) and
will vote on the election of Directors and on other matters submitted to the
vote of shareholders. Generally, all shareholders have voting rights on all
matters except matters affecting only the interests of one Fund or one class of
shares. Voting rights are not cumulative, so that the holders of more than 50%
of the shares voting in the election of Directors can, if they choose to do so,
elect all the Directors, in which event the holders of the remaining shares will
be unable to elect any person as a Director.
The Company's 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 Articles provide for meetings of shareholders
to elect Directors at such times as may be determined by the Directors or as
required by the Investment Company Act of 1940, as amended (1940 Act). If
requested by the holders of at least 10% of the Company's outstanding shares,
the Company will hold a shareholder meeting for the purpose of voting on the
removal of one or more Directors and will assist with communication concerning
that shareholder meeting.
1940 Act Classification The Company is an open-end management investment
company, as that term is defined under the 1940 Act. Each Fund is a diversified
company, as that term is defined under the 1940 Act. The 1940 Act generally
requires that with respect to 75% of its total assets, a diversified company may
not invest more than 5% of its total assets in the securities of any one issuer.
As a matter of operating policy, Money Market may invest no more than 5% of its
total assets in the securities of any one issuer (as determined pursuant to Rule
2a-7 under the 1940 Act), except that Money Market may invest up to 25% of its
total assets in the first tier securities (as defined in Rule 2a-7) of a single
issuer for a period of up to three business days. Fundamental policy number (1),
as set forth below, would give Money Market the ability to invest, with respect
to 25% of its assets, more than 5% of its assets in any one issuer only in the
event Rule 2a-7 is amended in the future.
3
<PAGE>
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES
The investment objectives and certain investment policies of each Fund are
matters of fundamental policy for purposes of the 1940 Act and therefore cannot
be changed without the approval of a majority of the outstanding voting
securities of that Fund. This means the lesser of (a) 67% of the shares of a
Fund present at a shareholders' meeting if the holders of more than 50% of the
shares of that Fund then outstanding are present in person or by proxy; or (b)
more than 50% of the outstanding voting securities of the Fund.
As a matter of fundamental policy, a Fund will not:
(1) hold more than 5% of the value of its total assets in the securities of
any one issuer or hold more than 10% of the outstanding voting
securities of any one issuer. This restriction applies only to 75% of
the value of a Fund's total assets. Securities issued or guaranteed by
the U.S. Government, its agencies and instrumentalities are excluded
from this restriction;
(2) except for Technology, concentrate its investments in any one industry,
although a Fund may invest up to 25% of its total assets in securities
issued by companies principally engaged in any one industry. For
purposes of this restriction, finance companies will be classified as
separate industries according to the end user of their services, such
as automobile finance, computer finance and consumer finance. In
addition, for purposes of this restriction, for Ascent, Crossroads and
Legacy (collectively referred to as the "Generation Funds"), real
estate stocks will be classified as separate industries according to
property type, such as apartment, retail, office and industrial. This
limitation will not apply to any Fund's investment in securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Additionally for Money Market, investments in the following shall not
be subject to the 25% limitation: securities invested in, or repurchase
agreements for, U.S. Government securities, certificates of deposit,
bankers' acceptances, and securities of banks;
(3) make loans, except that, to the extent appropriate under its investment
program, a Fund may (i) purchase bonds, debentures or other debt
instruments, including short-term obligations; (ii) enter into
repurchase transactions; and (iii) lend portfolio securities provided
that the value of such loaned securities does not exceed one-third of
the Fund's total assets;
(4) issue any senior security (as defined in the 1940 Act), except that (i)
a Fund may enter into commitments to purchase securities in accordance
with that Fund's investment program, including reverse repurchase
agreements, delayed delivery and when-issued securities, which may be
considered the issuance of senior securities; (ii) a Fund may engage in
transactions that may result in the issuance of a senior security to
the extent permitted under applicable regulations, interpretations of
the 1940 Act or an exemptive order; (iii) a Fund (other than Money
Market) may engage in short sales of securities to the extent permitted
in its investment program and other restrictions; (iv) the purchase or
sale of futures contracts and related options shall not be considered
to involve the issuance of senior securities; and (v) subject to
certain fundamental restrictions set forth below, a Fund may borrow
money as authorized by the 1940 Act;
(5) purchase real estate, interests in real estate or real estate limited
partnership interests except that: (i) to the extent appropriate under
its investment program, a Fund may invest in securities secured by real
estate or interests therein or issued by companies, including real
estate investment trusts, which deal in real estate or interests
therein; or (ii) a Fund may acquire real estate as a result of
ownership of securities or other interests (this could occur for
example if a Fund holds a security that is collateralized by an
interest in real estate and the security defaults);
(6) invest in commodity contracts, except that a Fund may, to the extent
appropriate under its investment program, purchase securities of
companies engaged in such activities; may (other than Money Market)
enter into transactions in financial and index futures contracts and
related options; and may enter into forward currency contracts;
4
<PAGE>
(7) borrow money, except that (i) a Fund (other than Money Market) may
enter into certain futures contracts and options related thereto; (ii)
a Fund may enter into commitments to purchase securities in accordance
with that Fund's investment program, including delayed delivery and
when-issued securities and reverse repurchase agreements; (iii) for
temporary emergency purposes, a Fund may borrow money in amounts not
exceeding 5% of the value of its total assets at the time the loan is
made; and (iv) for purposes of leveraging, a Fund (other than Money
Market) may borrow money from banks (including its custodian bank) only
if, immediately after such borrowing, the value of that Fund's assets,
including the amount borrowed, less its liabilities, is equal to at
least 300% of the amount borrowed, plus all outstanding borrowings. If,
at any time, the value of that Fund's assets fails to meet the 300%
asset coverage requirement relative only to leveraging, that Fund will,
within three days (not including Sundays and holidays), reduce its
borrowings to the extent necessary to meet the 300% test;
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by a Fund, that
Fund may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (1933 Act).
The Board has adopted the following other investment restrictions which may be
changed by the Board and without shareholder vote. A Fund will not:
(1) except for Technology, make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment
programs of each Fund, as described in this Statement and in the
Prospectuses;
(2) except for International and the Generation Funds, invest more than 25%
of its total assets in securities or obligations of foreign issuers,
including marketable securities of, or guaranteed by, foreign
governments (or any instrumentality or subdivision thereof). Money
Market may only purchase foreign securities or obligations that are
U.S.-dollar denominated;
(3) invest in companies for the purpose of exercising control or
management;
(4) purchase interests in oil, gas or other mineral exploration programs;
however, this limitation will not prohibit the acquisition of
securities of companies engaged in the production or transmission of
oil, gas, or other minerals;
(5) invest more than 15% (10% for Money Market, Index Plus Large Cap, Index
Plus Mid Cap and Index Plus Small Cap) of its net assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days.
Securities that may be resold under Rule 144A under, or securities
offered pursuant to Section 4(2) of the 1933 Act, shall not be deemed
illiquid solely by reason of being unregistered. Aeltus Investment
Management, Inc. (Aeltus), the investment adviser, or Elijah Asset
Management, LLC (EAM), subadviser to Technology, shall determine
whether a particular security is deemed to be liquid based on the
trading markets for the specific security and other factors;
(6) invest more than 15% (10% for Index Plus Large Cap, Index Plus Mid Cap
and Index Plus Small Cap) of the total value of its assets in
high-yield bonds (securities rated below BBB- by Standard & Poor's
Corporation (S&P) or Baa3 by Moody's Investors Service, Inc. (Moody's),
or, if unrated, considered by Aeltus to be of comparable quality).
Where a Fund's investment objective or policy restricts it to holding or
investing a specified percentage of its assets in any type of instrument, that
percentage is measured at the time of purchase. There will be no violation of
any investment policy or restriction if that restriction is complied with at the
time the relevant action is taken,
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notwithstanding a later change in the market value of an investment, in net or
total assets, in the securities rating of the investment or any other change.
With respect to fundamental policy number (2), industry classifications are
determined in accordance with the classifications established by S&P, a division
of the McGraw-Hill Companies, except that the industry classifications for
Growth are determined in accordance with the classifications established by the
Frank Russell Corporation and the industry classifications for International
have been selected by Aeltus. Aeltus believes that the industry characteristics
it has selected are reasonable and not so broad that the primary economic
characteristics of the companies in a single class are materially different.
Industry classifications may be changed from time to time to reflect changes in
the market place.
Money Market will invest at least 95% of its total assets in high-quality
securities. High-quality securities are those receiving the highest short-term
credit rating by any two nationally recognized statistical rating organizations
(or one, if only one rating organization has rated the security) and meet
certain other conditions of Rule 2a-7 under the 1940 Act. High-quality
securities may also include unrated securities if Aeltus determines the security
to be of comparable quality.
The remainder of Money Market's assets will be invested in securities rated
within the two highest short term rating categories by any two nationally
recognized statistical rating organizations (or one, if only one rating
organization has rated the security) and unrated securities if Aeltus determines
the security to be of comparable quality. With respect to this group of
securities, Money Market generally may not, however, invest more than 1% of the
market value of its total assets or $1 million, whichever is greater, in the
securities or obligations of a single issuer.
INVESTMENT TECHNIQUES AND RISK FACTORS
Options, Futures and Other Derivative Instruments
Each Fund may use certain derivative instruments as a means of achieving its
investment objective. For purposes other than hedging, a Fund will invest no
more than 5% of its assets in derivatives that at the time of purchase are
considered by management to involve high risk to the Fund, such as inverse
floaters and interest-only and principal-only debt instruments.
Each Fund (except Money Market) may use the derivative instruments described
below and in the Prospectuses. Derivatives that may be used by a Fund (other
than Money Market) include forward contracts, swaps, structured notes, futures
and options. Each Fund may invest up to 30% of its assets in lower risk
derivatives for hedging purposes, or to gain additional exposure to certain
markets for investment purposes while maintaining liquidity to meet shareholder
redemptions and minimizing trading costs. Mortgage-related and asset-backed
securities other than those described in the preceding paragraph, STRIPS
(Separate Trading of Registered Interest and Principal of Securities) and
forward exchange contracts are not subject to this 30% limitation.
The following provides additional information about those derivative instruments
each Fund (except Money Market) may use.
Futures Contracts Each Fund may enter into futures contracts and options thereon
subject to the restrictions described below under "Additional Restrictions on
the Use of Futures and Option Contracts." A Fund may enter into futures
contracts or options thereon that are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
futures exchanges and trading in the U.S. are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission (CFTC).
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a financial instrument or a specific
stock market index for a specified price at a designated date, time, and place.
Brokerage fees are incurred when a futures contract is bought or sold and at
expiration, and margin deposits must be maintained.
Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments, those contracts are
usually closed out before the delivery date. Stock index futures contracts do
not contemplate actual future delivery and will be settled in cash at expiration
or closed out prior to expiration. Closing
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out an open futures contract sale or purchase is effected by entering into an
offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the identical type of underlying instrument and the same
delivery date. There can be no assurance, however, that a Fund will be able to
enter into an offsetting transaction with respect to a particular contract at a
particular time. If a Fund is not able to enter into an offsetting transaction,
it will continue to be required to maintain the margin deposits on the contract.
The prices of futures contracts are volatile and are influenced by, among other
things, actual and anticipated changes in interest rates and equity prices,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events. Small price movements in futures
contracts may result in immediate and potentially unlimited loss or gain to a
Fund relative to the size of the margin commitment. A purchase or sale of a
futures contract may result in losses in excess of the amount initially invested
in the futures contract.
When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the securities being
hedged can be only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
futures and for securities, including technical influences in futures trading,
and differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available for trading.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or stock market or interest rate trends.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
interest rate futures contract prices during a single trading day, and temporary
regulations limiting price fluctuations for stock index futures contracts are
also now in effect. The daily limit establishes the maximum amount that the
price of a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has been
reached in a particular type of contract, no trades may be made on that day at a
price beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses, because
the limit may prevent the liquidation of unfavorable positions. Futures contract
prices have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt liquidation of
futures positions and subjecting some persons engaging in futures transactions
to substantial losses.
Sales of futures contracts which are intended to hedge against a change in the
value of securities held by a Fund may affect the holding period of such
securities and, consequently, the nature of the gain or loss on such securities
upon disposition.
"Margin" is the amount of funds that must be deposited by a Fund with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in a Fund's futures contracts. A margin deposit
is intended to assure the Fund's performance of the futures contract. The margin
required for a particular futures contract is set by the exchange on which the
contract is traded and may be significantly modified from time to time by the
exchange during the term of the contract.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy the
margin requirement, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will promptly pay the excess to a Fund. These daily payments to and from
a Fund are called variation margin. At times of extreme price volatility,
intra-day variation margin payments may be required. In computing daily net
asset values, each Fund will mark-to-market the current value of its open
futures contracts. Each Fund expects to earn interest income on its initial
margin deposits.
When a Fund buys or sells a futures contract, unless it already owns an
offsetting position, it will designate cash and/or liquid securities having an
aggregate value at least equal to the full "notional" value of the futures
contract, thereby insuring that the leveraging effect of such futures contract
is minimized, in accordance with regulatory requirements.
A Fund can buy and write (sell) options on futures contracts. A Fund may
purchase and sell futures contracts and related options under the following
conditions: (a) the then-current aggregate futures market prices of financial
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instruments required to be delivered and purchased under open futures contracts
shall not exceed 30% of a Fund's total assets (100% in the case of Ascent and
60% in the case of Crossroads) at market value at the time of entering into a
contract and (b) no more than 5% of the assets, at market value at the time of
entering into a contract, shall be committed to margin deposits in relation to
futures contracts. See "Call and Put Options" below for additional restrictions.
Call and Put Options Each Fund may purchase and write (sell) call options and
put options on securities, indices and futures as discussed in the Prospectuses,
subject to the restrictions described in this section and under "Additional
Restrictions on the Use of Futures and Option Contracts." A call option gives
the holder (buyer) the right to buy and to obligate the writer (seller) to sell
a security or financial instrument at a stated price (strike price) at any time
until a designated future date when the option expires (expiration date). A put
option gives the holder (buyer) the right to sell and to obligate the writer
(seller) to purchase a security or financial instrument at a stated price at any
time until the expiration date. A Fund may write or purchase put or call options
listed on national securities exchanges in standard contracts or may write or
purchase put or call options with or directly from investment dealers meeting
the creditworthiness criteria of Aeltus (or EAM, in the case of Technology).
Each Fund, except the Generation Funds, is prohibited from having written call
options outstanding at any one time on more than 30% of its total assets. A Fund
will not write a put if it will require more than 50% of the Fund's net assets
to be designated to cover all put obligations. No Fund may buy put options if
more than 3% of its assets immediately following such purchase would consist of
put options. The Funds may purchase call and sell put options on equity
securities only to close out positions previously opened; the Generation Funds
are not subject to this restriction. No Fund will write a call option on a
security unless the call is "covered" (i.e., it already owns the underlying
security). Securities it "already owns" include any stock which it has the right
to acquire without any additional payment, at its discretion for as long as the
call remains outstanding. This restriction does not apply to the writing of
calls on securities indices or futures contracts. The Funds will not write call
options on when-issued securities. The Funds purchase call options on indices
primarily as a temporary substitute for taking positions in certain securities
or in the securities that comprise a relevant index. A Fund may also purchase
call options on an index to protect against increases in the price of securities
underlying that index that the Fund intends to purchase pending its ability to
invest in such securities in an orderly manner.
So long as the obligation of the writer of a call option continues, the writer
may be assigned an exercise notice by the broker-dealer through which such
option was settled, requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, by the exercise of the call option, or by
entering into an offsetting transaction.
When writing a call option, in return for the premium, the writer gives up the
opportunity to profit from the price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. If a call option expires unexercised, the writer will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security during the option
period. If the call option is exercised, the writer would realize a gain or loss
from the transaction depending on what it received from the call and what it
paid for the underlying security.
An option on an index (or a particular security) is a contract that gives the
purchaser of the option, in return for the premium paid, the right to receive
from the writer of the option cash equal to the difference between the closing
price of the index (or security) and the exercise price of the option, expressed
in dollars, times a specified multiple (the multiplier).
A Fund may write calls on securities indices and futures contracts provided that
it enters into an appropriate offsetting position or that it designates liquid
assets in an amount sufficient to cover the underlying obligation in accordance
with regulatory requirements. The risk involved in writing call options on
futures contracts or market indices is that a Fund would not benefit from any
increase in value above the exercise price. Usually, this risk can be eliminated
by entering into an offsetting transaction. However, the cost to do an
offsetting transaction and terminate the Fund's obligation might be more or less
than the premium received when it originally wrote the option. Further, a Fund
might occasionally not be able to close the option because of insufficient
activity in the options market.
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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 a Fund, the Fund will designate liquid securities
with a value equal to the exercise price, or else will hold an offsetting
position in accordance with regulatory requirements. In writing puts, there is
the risk that a writer may be required to buy the underlying security at a
disadvantageous price. The premium the writer receives from writing a put option
represents a profit, as long as the price of the underlying instrument remains
above the exercise price. If the put is exercised, however, the writer is
obligated during the option period to buy the underlying instrument from the
buyer of the put at the exercise price, even though the value of the investment
may have fallen below the exercise price. If the put lapses unexercised, the
writer realizes a gain in the amount of the premium. If the put is exercised,
the writer may incur a loss, equal to the difference between the exercise price
and the current market value of the underlying instrument.
A Fund may purchase put options when Aeltus (or EAM, in the case of Technology)
believes that a temporary defensive position is desirable in light of market
conditions, but does not desire to sell a portfolio security. The purchase of
put options may be used to protect a Fund's holdings in an underlying security
against a substantial decline in market value. Such protection is, of course,
only provided during the life of the put option when a Fund, as the holder of
the put option, is able to sell the underlying security at the put exercise
price regardless of any decline in the underlying security's market price. By
using put options in this manner, a Fund will reduce any profit it might
otherwise have realized in its underlying security by the premium paid for the
put option and by transaction costs.
The premium received from writing a call or put option, or paid for purchasing a
call or put option will reflect, among other things, the current market price of
the underlying security, the relationship of the exercise price to such market
price, the historical price volatility of the underlying security, the length of
the option period, and the general interest rate environment. The premium
received by a Fund for writing call options will be recorded as a liability in
the statement of assets and liabilities of that Fund. This liability will be
adjusted daily to the option's current market value. The liability will be
extinguished upon expiration of the option, by the exercise of the option, or by
entering into an offsetting transaction. Similarly, the premium paid by a Fund
when purchasing a put option will be recorded as an asset in the statement of
assets and liabilities of that Fund. This asset will be adjusted daily to the
option's current market value. The asset will be extinguished upon expiration of
the option, by selling an identical option in a closing transaction, or by
exercising the option.
Closing transactions will be effected in order to realize a profit on an
outstanding call or put option, to prevent an underlying security from being
called or put, or to permit the exchange or tender of the underlying security.
Furthermore, effecting a closing transaction will permit a Fund to write another
call option, or purchase another put option, on the underlying security with
either a different exercise price or expiration date or both. If a Fund desires
to sell a particular security from its portfolio on which it has written a call
option, or purchased a put option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that a Fund will be able to effect a closing transaction at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. A Fund will pay brokerage
commissions in connection with the sale or purchase of options to close out
previously established option positions. These brokerage commissions are
normally higher as a percentage of underlying asset values than those applicable
to purchases and sales of portfolio securities.
Foreign Futures Contracts and Foreign Options The Funds may engage in
transactions in foreign futures contracts and foreign options. Participation in
foreign futures contracts and foreign options transactions involves the
execution and clearing of trades on or subject to the rules of a foreign board
of trade. Neither the CFTC, the National Futures Association (NFA) nor any
domestic exchange regulates activities of any foreign boards of trade including
the execution, delivery and clearing of transactions, or has the power
to compel enforcement of the rules of a foreign board of trade or any applicable
foreign laws. Generally, the foreign transaction will be governed by applicable
foreign law. This is true even if the exchange is formally linked to a domestic
market so that a position taken on the
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market may be liquidated by a transaction on another market. Moreover, such laws
or regulations will vary depending on the foreign country in which the foreign
futures contracts or foreign options transaction occurs. Investors that trade
foreign futures contracts or foreign options contracts may not be afforded
certain of the protective measures provided by domestic exchanges, including the
right to use reparations proceedings before the CFTC and arbitration proceedings
provided by the NFA. In particular, funds received from customers for foreign
futures contracts or foreign options transactions may not be provided the same
protections as funds received for transactions on a U.S. futures exchange. The
price of any foreign futures contracts or foreign options contract and,
therefore, the potential profit and loss thereon, may be affected by any
variance in the foreign exchange rate between the time an order is placed and
the time it is liquidated, offset or exercised.
Options on Foreign Currencies Each Fund may write and purchase calls on foreign
currencies. A Fund may purchase and write puts and calls on foreign currencies
that are traded on a securities or commodities exchange or quoted by major
recognized dealers in such options for the purpose of protecting against
declines in the dollar value of foreign securities and against increases in the
dollar cost of foreign securities to be acquired. If a rise is anticipated in
the dollar value of a foreign currency in which securities to be acquired are
denominated, the increased cost of such securities may be partially offset by
purchasing calls or writing puts on that foreign currency. If a decline in the
dollar value of a foreign currency is anticipated, the decline in value of
portfolio securities denominated in that currency may be partially offset by
writing calls or purchasing puts on that foreign currency. In such
circumstances, the Fund collateralizes the position by designating cash and/or
liquid securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily. In the event of rate
fluctuations adverse to a Fund's position, it would lose the premium it paid and
transactions costs. A call written on a foreign currency by a Fund is covered if
the Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration specially designated)
upon conversion or exchange of other foreign currency held in its portfolio.
Additional Restrictions on the Use of Futures and Option Contracts CFTC
regulations require that to prevent a Fund from being a commodity pool the Funds
enter into all short futures for the purpose of hedging the value of securities
held, and that all long futures positions either constitute bona fide hedging
transactions, as defined in such regulations, or have a total value not in
excess of an amount determined by reference to certain cash and securities
positions maintained, and accrued profits on such positions. As evidence of its
hedging intent, each Fund expects that at least 75% of futures contract
purchases will be "completed"; that is, upon the sale of these long contracts,
equivalent amounts of related securities will have been or are then being
purchased by that Fund in the cash market. With respect to futures contracts or
related options that are entered into for purposes that may be considered
speculative, the aggregate initial margin for future contracts and premiums for
options will not exceed 5% of a Fund's net assets, after taking into account
realized profits and unrealized losses on such futures contracts.
Forward Exchange Contracts Each Fund may enter into forward contracts for
foreign currency (forward exchange contracts), which obligate the seller to
deliver and the purchaser to take a specific amount of a specified foreign
currency at a future date at a price set at the time of the contract. These
contracts are generally traded in the interbank market conducted directly
between currency traders and their customers. A Fund may enter into a forward
exchange contract in order to "lock in" the U.S. dollar price of a security
denominated in a foreign currency which it has purchased or sold but which has
not yet settled (a transaction hedge); or to lock in the value of an existing
portfolio security (a position hedge); or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
a foreign currency. Forward exchange contracts include standardized foreign
currency futures contracts which are traded on exchanges and are subject to
procedures and regulations applicable to futures. Each Fund may also enter into
a forward exchange contract to sell a foreign currency that differs from the
currency in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign currency of
the forward exchange contract and the foreign currency of the underlying
investment than between the U.S. dollar and the foreign currency of the
underlying investment. This technique is referred to as "cross hedging." The
success of cross hedging is dependent on many factors, including the ability of
Aeltus (or EAM, in the case of Technology) to correctly identify and monitor the
correlation between foreign currencies and the U.S. dollar. To the extent that
the correlation is not identical, a Fund may experience losses or gains on both
the underlying security and the cross currency hedge.
Each Fund may use forward exchange contracts to protect against uncertainty in
the level of future exchange rates.
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The use of forward exchange contracts does not eliminate fluctuations in the
prices of the underlying securities the Fund owns or intends to acquire, but it
does fix a rate of exchange in advance. In addition, although forward exchange
contracts limit the risk of loss due to a decline in the value of the hedged
currencies, at the same time they limit any potential gain that might result
should the value of the currencies increase.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase), if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transactions costs.
At or before the maturity of a forward exchange contract requiring a Fund to
sell a currency, the Fund may either sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the same maturity date, the same
amount of the currency that it is obligated to deliver. Similarly, a Fund may
close out a forward contract requiring it to purchase a specified currency by
entering into a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would realize a
gain or loss as a result of entering into such an offsetting forward contract
under either circumstance to the extent the exchange rate(s) between the
currencies involved moved between the execution dates of the first contract and
the offsetting contract.
The cost to a Fund of engaging in forward exchange contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. Because such
contracts are not traded on an exchange, Aeltus must evaluate the credit and
performance risk of each particular counterparty under a forward contract.
Although the Funds value their assets daily in terms of U.S. dollars, they do
not intend to convert their holdings of foreign currencies into U.S. dollars on
a daily basis. The Funds may convert foreign currency from time to time. Foreign
exchange dealers do not charge a fee for conversion, but they do seek to realize
a profit based on the difference between the prices at which they buy and sell
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Funds at one rate, while offering a lesser rate of exchange should the Funds
desire to resell that currency to the dealer.
Swap Transactions Each Fund may enter into interest rate swaps, currency swaps
and other types of swap agreements, including swaps on securities and indices.
Swap transactions are described in the Prospectuses. A Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done between a
Fund and that counterparty under that master agreement 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."
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Mortgage-Related Debt Securities
Money Market, Aetna Government Fund, Bond Fund, Growth and Income, Balanced, and
the Generation Funds may invest in mortgage-related debt securities,
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs). Federal mortgage-related securities include obligations
issued or guaranteed by the Government National Mortgage Association (GNMA), the
Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC). GNMA is a wholly owned corporate instrumentality of the
U.S., the securities and guarantees of which are backed by the full faith and
credit of the U.S. FNMA, a federally chartered and privately owned corporation,
and FHLMC, a federal corporation, are instrumentalities of the U.S. with
Presidentially appointed board members. The obligations of FNMA and FHLMC are
not explicitly guaranteed by the full faith and credit of the federal
government.
Pass-through mortgage-related securities are characterized by monthly payments
to the holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the security holders,
like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, often twenty or thirty years, the borrowers can, and typically do, repay
such loans sooner. Thus, the security holders frequently receive repayments of
principal, in addition to the principal that is part of the regular monthly
payment. A borrower is more likely to repay a mortgage bearing a relatively high
rate of interest. This means that in times of declining interest rates, some
higher yielding securities held by a Fund might be converted to cash, and the
Fund could be expected to reinvest such cash at the then prevailing lower rates.
The increased likelihood of prepayment when interest rates decline also limits
market price appreciation of mortgage-related securities. If a Fund buys
mortgage-related securities at a premium, mortgage foreclosures or mortgage
prepayments may result in losses of up to the amount of the premium paid since
only timely payment of principal and interest is guaranteed.
CMOs and REMICs are securities which are collateralized by mortgage pass-through
securities. Cash flows from underlying mortgages are allocated to various
classes or tranches in a predetermined, specified order. Each sequential tranche
has a "stated maturity"--the latest date by which the tranche can be completely
repaid, assuming no repayments--and has an "average life"--the average time to
receipt of a principal payment weighted by the size of the principal payment.
The average life is typically used as a proxy for maturity because the debt is
amortized, rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.
CMOs and REMICs are typically structured as "pass-through" securities. In these
arrangements, the underlying mortgages are held by the issuer, which then issues
debt collateralized by the underlying mortgage assets. The security holder thus
owns an obligation of the issuer and payment of interest and principal on such
obligations is made from payments generated by the underlying mortgage assets.
The underlying mortgages may or may not be guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. Government such as GNMA
or otherwise backed by FNMA or FHLMC. Alternatively, such securities may be
backed by mortgage insurance, letters of credit or other credit enhancing
features. Both CMOs and REMICs are issued by private entities. They are not
directly guaranteed by any government agency and are secured by the collateral
held by the issuer. CMOs and REMICs are subject to the type of prepayment risk
described above due to the possibility that prepayments on the underlying assets
will alter the cash flow.
Asset-Backed Securities
Each Fund may invest in asset-backed securities. Asset-backed securities are
collateralized by short-term loans such as automobile loans, home equity loans,
equipment leases or credit card receivables. The payments from the collateral
are generally passed through to the security holder. As noted above with respect
to CMOs and REMICs, the average life for these securities is the conventional
proxy for maturity. Asset-backed securities may pay all interest and principal
to the holder, or they may pay a fixed rate of interest, with any excess over
that required to pay interest going either into a reserve account or to a
subordinate class of securities, which may be retained by the originator. The
originator or other party may guarantee interest and principal payments. These
guarantees often do not extend to the whole amount of principal, but rather to
an amount equal to a multiple of the historical loss experience of similar
portfolios.
Two varieties of asset-backed securities are CARs and CARDs. CARs are
securities, representing either ownership
12
<PAGE>
interests in fixed pools of automobile receivables, or debt instruments
supported by the cash flows from such a pool. CARDs are participations in fixed
pools of credit accounts. These securities have varying terms and degrees of
liquidity.
The collateral behind certain asset-backed securities (such as CARs and CARDs)
tends to have prepayment rates that do not vary with interest rates; the
short-term nature of the loans may also tend to reduce the impact of any change
in prepayment level. Other asset-backed securities, such as home equity
asset-backed securities, have prepayment rates that are sensitive to interest
rates. Faster prepayments will shorten the average life and slower prepayments
will lengthen it. Asset-backed securities may be pass-through, representing
actual equity ownership of the underlying assets, or pay-through, representing
debt instruments supported by cash flows from the underlying assets.
The coupon rate of interest on mortgage-related and asset-backed securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor. Actual yield may vary from the coupon rate, however, if such
securities are purchased at a premium or discount, traded in the secondary
market at a premium or discount, or to the extent that the underlying assets are
prepaid as noted above.
STRIPS (Separate Trading of Registered Interest and Principal of Securities)
Each Fund may invest in STRIPS. STRIPS are created by the Federal Reserve Bank
by separating the interest and principal components of an outstanding U.S.
Treasury or agency bond and selling them as individual securities. The market
prices of STRIPS generally are more volatile than the market prices of
securities with similar maturities that pay interest periodically and are likely
to respond to changes in interest rates to a greater degree than do non-zero
coupon securities having similar maturities and credit quality.
Additional Risk Factors in Using Derivatives
In addition to any risk factors which may be described elsewhere in this
section, or in the Prospectuses, the following sets forth certain information
regarding the potential risks associated with a Fund's transactions in
derivatives.
Risk of Imperfect Correlation A Fund's ability to hedge effectively all or a
portion of its portfolio through transactions in futures, options on futures or
options on securities and indexes depends on the degree to which movements in
the value of the securities or index underlying such hedging instrument
correlate with movements in the value of the assets being hedged. If the values
of the assets being hedged do not move in the same amount or direction as the
underlying security or index, the hedging strategy for a Fund might not be
successful and the Fund could sustain losses on its hedging transactions which
would not be offset by gains on its portfolio. It is also possible that there
may be a negative correlation between the security or index underlying a futures
or option contract and the portfolio securities being hedged, which could result
in losses both on the hedging transaction and the portfolio securities. In such
instances, the Fund's overall return could be less than if the hedging
transactions had not been undertaken.
Potential Lack of a Liquid Secondary Market Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund will establish a
futures or option position only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist for any
particular futures or option contract at any specific time. In such event, it
may not be possible to close out a position held by the Fund, which could
require the Fund to purchase or sell the instrument underlying the position,
make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures or option positions also could
have an adverse impact on the Fund's ability effectively to hedge its portfolio,
or the relevant portion thereof.
The trading of futures and options contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
13
<PAGE>
Risk of Predicting Interest Rate Movements Investments in futures contracts on
fixed income securities and related indices involve the risk that if Aeltus' (or
EAM's, in the case of Technology) judgment concerning the general direction of
interest rates is incorrect, a Fund's overall performance may be poorer than if
it had not entered into any such contract. For example, if a Fund has been
hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in its portfolio and interest rates
decrease instead, the Fund will lose part or all of the benefit of the increased
value of its bonds which have been hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell bonds from its portfolio to meet daily
variation margin requirements, possibly at a time when it may be disadvantageous
to do so. Such sale of bonds may be, but will not necessarily be, at increased
prices which reflect the rising market.
Trading and Position Limits Each contract market on which futures and option
contracts are traded has established a number of limitations governing the
maximum number of positions which may be held by a trader, whether acting alone
or in concert with others. The Company does not believe that these trading and
position limits will have an adverse impact on the hedging strategies regarding
the Funds.
Counterparty Risk With some derivatives, whether used for hedging or
speculation, there is also the risk that the counterparty may fail to honor its
contract terms, causing a loss for the Fund.
Funds' Investment in Equity and Debt Securities
Each Fund may invest in equity and debt securities (except that Aetna Government
Fund and Money Market may not invest in equity securities). Equity securities
are subject to a decline in the stock market or in the value of the issuing
company and preferred stocks have price risk and some interest rate and credit
risk. The value of fixed income or debt securities may be affected by changes in
general interest rates and in the creditworthiness of the issuer. Debt
securities with longer maturities (for example, over ten years) are more
affected by changes in interest rates and provide less price stability than
securities with short-term maturities (for example, one to ten years). Also, for
each debt security, there is a risk of principal and interest default which will
be greater with higher-yielding, lower-grade securities. International may hold
up to 10% of its total assets in long-term debt securities with an S&P or
Moody's rating of AA/Aa or above, or, if unrated, are considered by Aeltus to be
of comparable quality. Technology may only invest in investment grade debt
securities, which are debt securities with an S&P or Moody's rating of BBB/Baa
or above or, if unrated, are considered by EAM to be of comparable quality.
Balanced generally maintains at least 25% of its total assets in debt
securities.
Repurchase Agreements
Each Fund may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards approved by
the Board. Under a repurchase agreement, a Fund may acquire a debt instrument
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase and the Fund to resell the instrument at
a fixed price and time, thereby determining the yield during the Fund's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. Such underlying debt instruments serving as
collateral will meet the quality standards of a Fund. The market value of the
underlying debt instruments will, at all times, be equal to the dollar amount
invested. Repurchase agreements, although fully collateralized, involve the risk
that the seller of the securities may fail to repurchase them from a Fund. In
that event, the Fund may incur (a) disposition costs in connection with
liquidating the collateral, or (b) a loss if the collateral declines in value.
Also, if the default on the part of the seller is due to insolvency and the
seller initiates bankruptcy proceedings, a Fund's ability to liquidate the
collateral may be delayed or limited. Repurchase agreements maturing in more
than seven days will not exceed 10% of the total assets of a Fund.
14
<PAGE>
Variable Rate Demand and Floating Rate Instruments
Each Fund may invest in variable rate demand and floating rate instruments.
Variable rate demand instruments held by a Fund may have maturities of more than
one year, provided: (i) the Fund is entitled to the payment of principal at any
time, or during specified intervals not exceeding one year, upon giving the
prescribed notice (which may not exceed 30 days), and (ii) the rate of interest
on such instruments is adjusted at periodic intervals not to exceed one year. In
determining whether a variable rate demand instrument has a remaining maturity
of one year or less, each instrument will be deemed to have a maturity equal to
the longer of the period remaining until its next interest rate adjustment or
the period remaining until the principal amount can be recovered through demand.
A Fund will be able (at any time or during specified periods not exceeding one
year, depending upon the note involved) to demand payment of the principal of a
note. If an issuer of a variable rate demand note defaulted on its payment
obligation, a Fund might be unable to dispose of the note and a loss would be
incurred to the extent of the default. A Fund may invest in variable rate demand
notes only when the investment is deemed to involve minimal credit risk. The
continuing creditworthiness of issuers of variable rate demand notes held by a
Fund will also be monitored to determine whether such notes should continue to
be held. Variable and floating rate instruments with demand periods in excess of
seven days and which cannot be disposed of promptly within seven business days
and in the usual course of business without taking a reduced price will be
treated as illiquid securities.
Foreign Securities
All Funds may invest in foreign securities. Investments in securities of foreign
issuers involve certain risks not ordinarily associated with investments in
securities of domestic issuers. Such risks include fluctuations in exchange
rates, adverse foreign political and economic developments, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions. Because the Funds (other than Money Market) may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. In addition, with respect to certain
countries, there is the possibility of expropriation of assets, confiscatory
taxation, political or social instability, or diplomatic developments that could
adversely affect investments in those countries.
There may be less publicly available information about a foreign issuer than
about a U.S. company, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. issuers. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable U.S. issuers. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the U.S. The Company might have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in U.S.
courts. In addition, transactions in foreign securities may involve greater time
from the trade date until settlement than domestic securities transactions and
involve the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.
All these risks usually are higher in emerging markets, such as most countries
in Africa, Asia, Latin America and the Middle East, than in more established
markets, such as Western Europe.
Depositary receipts are typically dollar denominated, although their market
price is subject to fluctuations of the foreign currency in which the underlying
securities are denominated. Depositary receipts include: (a) American Depositary
Receipts (ADRs), which are typically designed for U.S. investors and held either
in physical form or in book entry form; (b) European Depositary Receipts (EDRs),
which are similar to ADRs but may be listed and traded on a European exchange as
well as in the U.S. (typically, these securities are traded on the Luxembourg
exchange in 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.
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<PAGE>
High-Yield Bonds
All Funds, except International, Technology, Aetna Government Fund and Money
Market, may invest in high-yield bonds, subject to the limits described above
and in the Prospectuses. High-yield bonds are fixed income securities that offer
a current yield above that generally available on debt securities rated in the
four highest categories by Moody's and S&P or other rating agencies, or, if
unrated, are considered to be of comparable quality by Aeltus. These securities
include:
(a) fixed rate corporate debt obligations (including bonds, debentures and
notes) rated below Baa3 by Moody's or BBB- by S&P;
(b) preferred stocks that have yields comparable to those of high-yielding debt
securities; and
(c) any securities convertible into any of the foregoing.
Debt obligations rated below Baa3/BBB- generally involve more risk of loss of
principal and income than higher-rated securities. Their yields and market
values tend to fluctuate more. Fluctuations in value do not affect the cash
income from the securities but are reflected in a Fund's net asset values. The
greater risks and fluctuations in yield and value occur, in part, because
investors generally perceive issuers of lower-rated and unrated securities to be
less creditworthy. Lower ratings, however, may not necessarily indicate higher
risks. In pursuing a Fund's objectives, Aeltus seeks to identify situations in
which Aeltus believes that future developments will enhance the creditworthiness
and the ratings of the issuer.
Some of the risks associated with high-yield bonds include:
Sensitivity to Interest Rate and Economic Changes High-yield bonds are more
sensitive to adverse economic changes or individual corporate developments but
generally less sensitive to interest rate changes than are investment grade
bonds. As a result, when interest rates rise, causing bond prices to fall, the
value of these securities may not fall as much as investment grade corporate
bonds. Conversely, when interest rates fall, these securities may underperform
investment grade corporate bonds.
Also, the financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability of
issuers of these securities to service their principal and interest payments, to
meet projected business goals and to obtain additional financing, than on more
creditworthy issuers. In addition, periods of economic uncertainty and changes
can be expected to result in increased volatility of market prices of these
securities and a Fund's net asset values. Furthermore, in the case of high-yield
bonds structured as zero coupon or pay-in-kind securities, their market prices
are affected to a greater extent by interest rate changes and thereby tend to be
more speculative and volatile than securities which pay interest periodically
and in cash.
Payment Expectations High-yield bonds present risks based on payment
expectations. For example, these securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Funds may have to replace the securities with a lower yielding
security, resulting in a decreased return for investors. In addition, there is a
higher risk of non-payment of interest and/or principal by issuers of these
securities than in the case of investment-grade bonds.
Liquidity and Valuation Risks Some issuers of high-yield bonds may be traded
among a limited number of broker-dealers rather than in a broad secondary
market. Many of these securities may not be as liquid as investment grade bonds.
The ability to value or sell these securities will be adversely affected to the
extent that such securities are thinly traded or illiquid. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
or increase the value and liquidity of these securities more than other
securities, especially in a thinly-traded market.
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
16
<PAGE>
economic or company conditions that affect a security's market value.
Although the ratings of recognized rating services such as Moody's and S&P are
considered, Aeltus primarily relies on its own credit analysis which includes a
study of existing debt, capital structure, ability to service debts and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. Thus the achievement of a Fund's
investment objective may be more dependent on Aeltus' own credit analysis than
might be the case for a fund which does not invest in these securities.
Zero Coupon and Pay-in-Kind Securities
Each Fund may invest in zero coupon securities and all Funds (except Money
Market) may invest in pay-in-kind securities. Zero coupon or deferred interest
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest (the "cash payment date") and therefore are issued
and traded at a discount from their face amounts or par value. The discount
varies, depending on the time remaining until maturity or cash payment date,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. The discount, in the absence of financial difficulties of
the issuer, decreases as the final maturity or cash payment date of the security
approaches. A pay-in-kind bond pays interest during the initial few years in
additional bonds rather than in cash. Later the bond may pay cash interest.
Pay-in-kind bonds are typically callable at about the time they begin paying
cash interest. The market prices of zero coupon and deferred interest securities
generally are more volatile than the market prices of securities with similar
maturities that pay interest periodically and are likely to respond to changes
in interest rates to a greater degree than do non-zero coupon securities having
similar maturities and credit quality.
The risks associated with lower-rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, a Fund may realize no return on its investment, because
these securities do not pay cash interest.
Convertibles
All Funds except Aetna Government Fund may invest in convertible securities. A
convertible bond or convertible preferred stock gives the holder the option of
converting these securities into common stock. Some convertible securities
contain a call feature whereby the issuer may redeem the security at a
stipulated price, thereby limiting the possible appreciation.
Real Estate Securities
All Funds except Aetna Government Fund may invest in real estate securities,
including interests in real estate investment trusts (REITs), real estate
development, real estate operating companies, and companies engaged in other
real estate related businesses. REITs are trusts that sell securities to
investors and use the proceeds to invest in real estate or interests in real
estate. A REIT may focus on a particular project, such as apartment complexes,
or geographic region, such as the Northeastern U.S., or both.
Risks of real estate securities include those risks that are more closely
associated with investing in real estate directly than with investing in the
stock market generally. Those risks include: periodic declines in the value of
real estate generally, or in the rents and other income generated by real
estate; periodic over-building, which creates gluts in the market, as well as
changes in laws (such as zoning laws) that impair the property rights of real
estate owners; and adverse developments in the real estate industry.
Equity Securities of Smaller Companies
All Funds other than Bond Fund, Aetna Government Fund and Money Market 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
17
<PAGE>
but there are additional risks associated with them. These risks include:
limited marketability; more abrupt or erratic market movements than securities
of larger capitalization companies; and less publicly available
information about the company and its securities. In addition, these companies
may be dependent on relatively few products or services, have limited financial
resources and lack of management depth, and may have less of a track record or
historical pattern of performance.
Supranational Agencies
Each Fund may invest up to 10% of its net assets in securities of supranational
agencies. These securities are not considered government securities and are not
supported directly or indirectly by the U.S. Government. Examples of
supranational agencies include, but are not limited to, the International Bank
for Reconstruction and Development (commonly referred to as the World Bank),
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization engaged
in cooperative economic activities; the European Coal and Steel Community, which
is an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions.
Borrowing
Each Fund may borrow up to 5% of the value of its total assets from a bank for
temporary or emergency purposes. The Funds may borrow for leveraging purposes
only if after the borrowing, the value of the Funds' net assets including
proceeds from the borrowings, is equal to at least 300% of all outstanding
borrowings. Leveraging can increase the volatility of a Fund since it
exaggerates the effects of changes in the value of the securities purchased with
the borrowed funds. The Funds do not intend to borrow for leveraging purposes,
except that they may invest in leveraged derivatives which have certain risks as
outlined above.
Bank Obligations
Each Fund may invest in obligations issued by domestic or foreign banks
(including banker's acceptances, commercial paper, bank notes, time deposits and
certificates of deposit).
Short Sales
Technology may seek to hedge investments or realize additional gains through
short sales. Short sales are transactions in which an unowned security is sold,
in anticipation of a decline in the market value of that security. To complete
such a transaction, the security must be borrowed to make delivery to the buyer.
The borrower (or short seller) then is obligated to replace the security
borrowed by purchasing it at the market price at or prior to the time of
replacement. The price at such time may be more or less than the price at which
the security was sold. Until the security is replaced, the borrower is required
to repay the lender any dividends or interest that accrue during the period of
the loan. The borrower may also be required to pay a premium, which would
increase the cost of the security sold. The net proceeds of the short sale will
be retained by the broker (or by the custodian in a special custody account), to
the extent necessary to meet margin requirements, until the short position is
closed out. There are also transaction costs incurred in effecting short sales.
A loss may be incurred as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
borrowed security is replaced. A gain will be realized if the security declines
in price between those dates. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of the premium, dividends, interest
or expenses required to be paid in connection with a short sale. An increase in
the value of a security sold short over the price at which it was sold short
will result in a loss, and there can be no assurance that the position may be
closed out at any particular time or at an acceptable price.
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<PAGE>
Maturity Policies
The average dollar-weighted maturity of securities in Money Market's portfolio
will not exceed ninety days. In addition, all investments in Money Market's
portfolio will have a maturity at the time of purchase, as defined under the
federal securities laws, of 397 calendar days or less.
Portfolio Turnover
The portfolio turnover rate for Balanced was significantly higher in 1999 than
in 1998 because of a change in portfolio managers for the small cap component,
which led to a reallocation of Fund assets. The portfolio turnover rate for Bond
Fund was significantly higher in 1999 than in 1998 because of a shift toward a
more active investment management process. The portfolio turnover rate for
Ascent was significantly higher in 1999 than in 1998 because of increased
volatility in the market for small and mid-cap stocks, increased volatility in
the quantitative rankings used in managing the Fund, and a shift toward a more
active investment management process with respect to fixed-income investments.
19
<PAGE>
DIRECTORS AND OFFICERS
The investments and administration of the Company are under the supervision of
the Board. The Directors and executive officers of the Company and their
principal occupations for the past five years are listed below. Those Directors
who are "interested persons," as defined in the 1940 Act, are indicated by an
asterisk (*). Directors and officers hold the same positions with other
investment companies in the same Fund Complex: Aetna Variable Fund, Aetna Income
Shares, Aetna Variable Encore Fund, Aetna Balanced VP, Inc., Aetna GET Fund,
Aetna Generation Portfolios, Inc. and Aetna Variable Portfolios, Inc.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST FIVE YEARS (AND
NAME, POSITION(S) HELD POSITIONS HELD WITH AFFILIATED PERSONS OR
ADDRESS AND AGE WITH THE COMPANY PRINCIPAL UNDERWRITERS OF THE COMPANY)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox* Director and President Director, Managing Director, Chief Operating
10 State House Square (Principal Executive Officer) Officer, Chief Financial Officer, Aeltus
Hartford, Connecticut Investment Management, Inc., April 1994 to
Age 45 present; Director, Managing Director, Chief
Operating Officer, Chief Financial Officer, Aeltus
Capital, Inc., February 1995 to present; Senior
Vice President-Operations, Aetna Life Insurance
and Annuity Company, March 1997 to December 1997.
--------------------------------------------------------------------------------------------------------------------
Wayne F. Baltzer Vice President Vice President, Aeltus Capital, Inc., May 1998 to
10 State House Square present; Vice President, Aetna Investment
Hartford, Connecticut Services, Inc., July 1993 to May 1998.
Age 56
--------------------------------------------------------------------------------------------------------------------
Daniel E. Burton Secretary Assistant General Counsel and Assistant
10 State House Square Secretary, Aeltus Investment Management, Inc.,
Hartford, Connecticut July 2000 to present; Assistant General Counsel
Age 33 and Assistant Secretary, Aeltus Capital, Inc.,
July 2000 to present; Assistant General Counsel
and Assistant Secretary, Aeltus Trust Company,
July 2000 to present; Counsel, Aetna Financial
Services Company, September 1997 to present;
Attorney, Securities and Exchange Commission,
August 1996 to August 1997; Associate, Kirkpatrick
& Lockhart LLP, September 1992 to August 1996.
--------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr. Director Director, Business and Economic Research Center,
3029 St. Johns Drive and Professor of Economics and Finance, Middle
Murfreesboro, Tennessee Tennessee State University, 1991 to present.
Age 59
--------------------------------------------------------------------------------------------------------------------
Stephanie A. DeSisto Vice President, Vice President, Mutual Fund Accounting, Aeltus
10 State House Square Treasurer and Chief Investment Management, Inc., November 1995 to
Hartford, Connecticut Financial Officer (Principal present; Director, Mutual Fund Accounting, Aetna
Age 46 Financial and Accounting Life Insurance and Annuity Company, August 1994
Officer) to November 1995.
--------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maria T. Fighetti Director Associate Commissioner For Contract Management
325 Piermont Road (1996-present), Manager/Attorney (1973-1996),
Closter, New Jersey Health Services, New York City Department of Mental
Age 57 Health, Mental Retardation and Alcohol Services.
--------------------------------------------------------------------------------------------------------------------
David L. Grove Director Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to present.
Armonk, New York
Age 82
--------------------------------------------------------------------------------------------------------------------
John Y. Kim* Director Director, President, Chief Executive Officer,
10 State House Square Chief Investment Officer, Aeltus Investment
Hartford, Connecticut Management, Inc., December 1995 to present;
Age 39 Director and President, Aeltus Capital, Inc.,
March 1996 to present; President, Aetna Life
Insurance and Annuity Company, May 2000 to
September 2000; Chief Investment Officer, Aetna
Life Insurance and Annuity Company, May 2000 to
present; Director, Aetna Life Insurance and
Annuity Company, February 1995 to September 2000;
Senior Vice President, Aetna Life Insurance and
Annuity Company, September 1994 to May 2000 and
September 2000 to present.
--------------------------------------------------------------------------------------------------------------------
Sidney Koch Director Financial Adviser, self-employed, January 1993 to
455 East 86th Street present.
New York, New York
Age 65
--------------------------------------------------------------------------------------------------------------------
Frank Litwin Vice President Managing Director, Aeltus Investment Management,
10 State House Square Inc., August 1997 to present; Managing Director,
Hartford, Connecticut Aeltus Capital, Inc., May 1998 to present; Vice
Age 50 President, Fidelity Investments Institutional
Services Company, April 1992 to August 1997.
--------------------------------------------------------------------------------------------------------------------
Corine T. Norgaard Director Dean of the Barney School of Business, University
556 Wormwood Hill of Hartford (West Hartford, CT), August 1996 to
Mansfield Center, Connecticut present; Professor, Accounting and Dean of the
Age 63 School of Management, SUNY Binghamton
(Binghamton, NY), August 1993 to August 1996.
--------------------------------------------------------------------------------------------------------------------
Richard G. Scheide Director Principal, LoBue Associates, Inc., October 1999 to
11 Lily Street present; Trust and Private Banking Consultant,
Nantucket, Massachusetts David Ross Palmer Consultants, July 1991 to present.
Age 71
--------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
During the year ended October 31, 1999, members of the Board who are also
directors, officers or employees of Aetna Inc. and its affiliates were not
entitled to any compensation from the Company. For the year ended October 31,
1999, the unaffiliated members of the Board received compensation in the amounts
included in the following table. None of these Directors was entitled to receive
pension or retirement benefits.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
TOTAL COMPENSATION FROM THE
NAME OF PERSON AGGREGATE COMPENSATION FROM COMPANY AND FUND COMPLEX
POSITION THE COMPANY PAID TO DIRECTORS
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corine Norgaard $10,103 $73,500
Director
--------------------------------------------------------------------------------------------------------------------
Sidney Koch 10,103 73,500
Director
--------------------------------------------------------------------------------------------------------------------
Maria T. Fighetti* 10,361 75,375
Director
--------------------------------------------------------------------------------------------------------------------
Richard G. Scheide 10,790 78,500
Director, Chairperson
Audit Committee
--------------------------------------------------------------------------------------------------------------------
10,790
David L. Grove* 78,500
Director
--------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr.** 10,361 75,375
Director, Chairperson
Contract Committee
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the year ended October 31, 1999, Ms. Fighetti and Dr. Grove deferred
$24,000 and $78,500, respectively, of their compensation from the Fund
Complex.
** Dr. DePrince replaced Dr. Grove as Chairperson of the Contract Committee as
of April 2000.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of August 31, 2000, Aetna Life Insurance and Annuity Company (Aetna), a
Connecticut corporation, and its affiliates had the following interest in the
Funds, through direct ownership or through one of Aetna's separate accounts:
<TABLE>
<CAPTION>
% Aetna and its affiliates
-----------------------------------------------------------------------------
Class I Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Aetna Bond Fund 51.82%
Aetna Government Fund 67.80%
Aetna Index Plus Large Cap Fund 41.57%
Aetna Index Plus Mid Cap Fund 1.56%
Aetna Index Plus Small Cap Fund 3.12%
Aetna International Fund 6.48%
Aetna Money Market Fund 47.63%
Aetna Small Company Fund 26.85%
Aetna Value Opportunity Fund 2.11%
Aetna Ascent Fund 80.00%
Aetna Crossroads Fund 77.33% 95.89%
Aetna Legacy 69.56% 91.81%
Aetna Growth Fund 15.05%
Aetna Growth and Income Fund 15.96%
Aetna Balanced Fund 27.32%
</TABLE>
22
<PAGE>
Shares of the Funds held beneficially by Aetna and its affiliates are voted in
the same proportion as shares held by non-Aetna shareholders of that Fund.
As of March 31, 2000, officers and Directors owned less than 1% of the
outstanding shares of any of the Funds.
Aeltus is a wholly owned subsidiary of Aetna. Aetna is registered with the
Commission as an investment adviser. Aetna is an indirect wholly owned
subsidiary of Aetna Retirement Services, Inc., which is in turn an indirect
wholly owned subsidiary of Aetna Inc. Aetna's principal office is located at 151
Farmington Avenue, Hartford, Connecticut 06156. Aetna 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. The transaction is targeted to
close by the end of 2000. Upon closing of the transaction, Aeltus will become an
indirect wholly owned subsidiary of ING.
THE INVESTMENT ADVISORY AGREEMENTS
The Company, on behalf of each Fund, has entered into investment advisory
agreements (Advisory Agreements) appointing Aeltus as the Investment Adviser of
each Fund. Under the Advisory Agreements and subject to the supervision of the
Board, Aeltus has responsibility for supervising all aspects of the operations
of each Fund including the selection, purchase and sale of securities. Under the
Advisory Agreements, Aeltus is given the right to delegate any or all of its
obligations to a subadviser. Aeltus is an indirect wholly owned subsidiary of
Aetna Inc., a publicly-owned holding company whose principal operating
subsidiaries engage in the health benefits, insurance and financial services
businesses in the U.S. and internationally.
The Advisory Agreements provide that Aeltus is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
Directors and officers of the Company and that each Fund is responsible for
payment of all other of its costs.
Advisory Fees for each Fund are allocated to a particular class on the basis of
the net assets of that class in relation to the net assets of the Fund. Listed
below are the Advisory Fees that Aeltus is entitled to receive from each Fund at
an annual rate based on average daily net assets of each Fund:
<TABLE>
<CAPTION>
ADVISORY FEE ASSETS
CAPITAL APPRECIATION FUNDS
<S> <C> <C>
Growth 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
International 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.700% Over $2 billion
Small Company 0.850% On first $250 million
0.800% On next $250 million
0.775% On next $250 million
0.750% On next $1.25 billion
0.725% Over $2 billion
Value Opportunity 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Technology 1.050% On first $500 million
1.025% On next $500 million
1.000% Over $1 billion
GROWTH & INCOME FUNDS
Balanced 0.800% On first $500 million
0.750% On next $500 million
0.700% On next $1 billion
0.650% Over $2 billion
Growth and Income 0.700% On first $250 million
0.650% On next $250 million
0.625% On next $250 million
0.600% On next $1.25 billion
0.550% Over $2 billion
INCOME FUNDS
Bond Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
Aetna Government Fund 0.500% On first $250 million
0.475% On next $250 million
0.450% On next $250 million
0.425% On next $1.25 billion
0.400% Over $2 billion
Money Market 0.400% On first $500 million
0.350% On next $500 million
0.340% On next $1 billion
0.330% On next $1 billion
0.300% Over $3 billion
INDEX PLUS FUNDS
Index Plus Large Cap 0.450% On first $500 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Mid Cap 0.450% On first $500 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
Index Plus Small Cap 0.450% On first $500 million
0.425% On next $250 million
0.400% On next $1.25 billion
0.375% Over $2 billion
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
GENERATION FUNDS
<S> <C> <C>
Ascent Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
Crossroads Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
Legacy Fund 0.800% On first $500 million
0.775% On next $500 million
0.750% On next $500 million
0.725% On next $500 million
0.700% Over $2 billion
</TABLE>
For the years ended October 31, 1999, October 31, 1998 and October 31, 1997,
investment advisory fees were paid to Aetna (investment adviser to the Funds
prior to February 2, 1998) and Aeltus (for the period after February 2, 1998) as
follows:
Year Ended October 31, 1999
---------------------------
<TABLE>
<CAPTION>
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
------------ ------------- ------ ---------
<S> <C> <C> <C>
Growth 1,484,231 0 1,484,231
International 507,245 107,259 399,986
Small Company 488,647 12,768 475,879
Value Opportunity 43,946 43,946 0
Balanced 1,031,227 0 1,031,227
Growth and Income 4,374,490 0 4,374,490
Bond Fund 226,218 80,473 145,745
Aetna Government Fund 69,754 69,754 0
Money Market 1,844,102 658,067 1,186,035
Index Plus Large Cap 667,633 73,563 594,070
Index Plus Mid Cap 42,217 42,217 0
Index Plus Small Cap 35,558 35,558 0
Ascent 409,705 29,401 380,304
Crossroads 387,278 37,728 349,550
Legacy 242,377 77,162 165,215
Year Ended October 31, 1998
---------------------------
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
------------ ------------- ------ ---------
Growth 809,670 0 809,670
International 493,627 110,044 383,583
Small Company 298,442 40,629 257,813
Value Opportunity* 28,337 28,337 0
Balanced 955,035 0 955,035
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Growth and Income 4,429,415 0 4,429,415
Bond Fund 196,033 87,410 108,623
Aetna Government Fund 62,424 62,424 0
Money Market 1,701,171 1,041,156 660,015
Index Plus Large Cap 102,550 102,550 0
Index Plus Mid Cap** 25,868 25,868 0
Index Plus Small Cap** 24,996 24,996 0
Ascent 295,978 69,924 226,054
Crossroads 295,895 61,513 234,382
Legacy 174,700 94,604 80,096
Year Ended October 31, 1997
---------------------------
Total Investment Net Advisory
Company Name Advisory Fees Waiver Fees Paid
------------ ------------- ------ ---------
Growth 500,660 0 500,660
International 639,565 0 639,565
Small Company 238,340 0 238,340
Balanced 812,391 0 812,391
Growth and Income 3,385,694 0 3,385,694
Bond Fund 163,110 128,800 34,310
Aetna Government Fund 53,048 53,048 0
Money Market 1,782,769 1,782,769 0
Index Plus Large Cap*** 49,212 49,212 0
Ascent 202,834 21,845 180,989
Crossroads 186,369 19,968 166,401
Legacy 151,110 22,749 128,361
</TABLE>
*Value Opportunity commenced operations on February 2, 1998. Investment
Advisory Fees shown are for the period from February 2, 1998 to October 31,
1998.
**Index Plus Mid Cap and Index Plus Small Cap commenced operations on
February 3, 1998. Investment Advisory Fees shown are for the period from
February 3, 1998 to October 31, 1998.
***Index Plus Large Cap commenced operations on December 10, 1996. Investment
Advisory Fees shown are for the period from December 10, 1996 to October 31,
1997.
Bradley, Foster & Sargent, Inc. ("Bradley") served as subadviser of Value
Opportunity from October 1, 1998 through December 31, 1999. For the years ended
October 31, 1999 and October 31, 1998, Aeltus paid Bradley subadvisory fees of
$9,190 and $629, respectively. The subadvisory agreement was terminated as of
December 31, 1999.
THE SUBADVISORY AGREEMENT
Aeltus and the Company, on behalf of Technology, have entered into an agreement
(Subadvisory Agreement) with EAM effective March 1, 2000 appointing EAM as
subadviser of Technology. Aeltus owns 25% of the outstanding voting securities
of EAM.
The Subadvisory Agreement gives EAM broad latitude to select securities for
Technology consistent with the investment objective and policies of the Fund,
subject to Aeltus' oversight. The Agreement contemplates that EAM will be
responsible for all aspects of managing Technology, including trade execution.
However, the Agreement contemplates that Aeltus will be primarily responsible
for cash management.
For the services under the Subadvisory Agreement, EAM will receive an annual fee
payable monthly as described in the Prospectuses. Subadvisory fees are allocated
to a particular class on the basis of the net assets of that class in relation
to the net assets of Technology.
26
<PAGE>
THE ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Administrative Services Agreement, Aeltus acts as administrator
and provides certain administrative and shareholder services necessary for Fund
operations and is responsible for the supervision of other service providers.
The services provided by Aeltus include: (a) internal accounting services; (b)
monitoring regulatory compliance, such as reports and filings with the
Commission and state securities regulatory authorities; (c) preparing financial
information for proxy statements; (d) preparing semiannual and annual reports to
shareholders; (e) calculating net asset values; (f) preparation of certain
shareholder communications; (g) supervision of the custodians and transfer
agent; and (h) reporting to the Board.
For its services, Aeltus is entitled to receive from each Fund a fee at an
annual rate of 0.10% of its average daily net assets.
For the years ended October 31, 1999, October 31, 1998 and October 31, 1997,
administrative services fees were paid to Aeltus and Aetna (for the period
January 1, 1997 to April 30, 1998) as follows:
Year Ended October 31, 1999
---------------------------
<TABLE>
<CAPTION>
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
------------ ------------- ------ ------------------
<S> <C> <C> <C>
Growth 212,043 0 212,043
International 59,676 0 59,676
Small Company 57,488 0 57,488
Value Opportunity 6,278 6,278 0
Balanced 128,903 0 128,903
Growth and Income 660,028 0 660,028
Bond Fund 45,244 0 45,244
Aetna Government Fund 13,951 13,951 0
Money Market 461,026 0 461,026
Index Plus Large Cap 148,363 0 148,363
Index Plus Mid Cap 9,381 9,381 0
Index Plus Small Cap 7,902 7,902 0
Ascent 51,213 0 51,213
Crossroads 48,410 0 48,410
Legacy 30,297 0 30,297
Year Ended October 31, 1998
---------------------------
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
------------ ------------- ------ ------------------
Growth 149,789 0 149,789
International 82,614 0 82,614
Small Company 45,674 0 45,674
Value Opportunity* 4,048 4,048 0
Balanced 162,126 0 162,126
Growth and Income 903,105 0 903,105
Bond Fund 52,793 0 52,793
Aetna Government Fund 16,722 16,722 0
Money Market 586,393 0 586,393
Index Plus Large Cap 27,653 4,832 22,821
Index Plus Mid Cap** 5,748 5,748 0
Index Plus Small Cap** 5,555 5,555 0
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ascent 47,924 0 47,924
Crossroads 47,989 0 47,989
Legacy 28,950 0 28,950
</TABLE>
28
<PAGE>
Year Ended October 31, 1997
---------------------------
<TABLE>
<CAPTION>
Total Administrative Administrator Net Administrative
Company Name Services Fees Waiver Services Fees Paid
------------ ------------- ------ ------------------
<S> <C> <C> <C>
Growth 178,807 0 178,807
International 188,108 0 188,108
Small Company 70,100 0 70,100
Balanced 253,872 0 253,872
Growth and Income 1,228,819 0 1,228,819
Bond Fund 81,555 0 81,555
Aetna Government Fund 26,524 26,524 0
Money Market 1,094,798 175,308 919,490
Index Plus Large Cap*** 27,340 27,340 0
Ascent 63,386 0 63,386
Crossroads 58,240 0 58,240
Legacy 47,222 0 47,222
</TABLE>
*Value Opportunity commenced operations on February 2, 1998. Administrative
Services Fees shown are for the period from February 2, 1998 to October 31,
1998.
**Index Plus Mid Cap and Index Plus Small Cap commenced operations on February
3, 1998. Administrative Services Fees shown are for the period from February
3, 1998 to October 31, 1998.
***Index Plus Large Cap commenced operations on December 10, 1996.
Administrative Services Fees shown are for the period from December 10, 1996
to October 31, 1997.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258,
serves as custodian for the assets of all Funds except International. Brown
Brothers Harriman & Company, 40 Water Street, Boston, Massachusetts, 02109,
serves as custodian for the assets of International. Neither custodian
participates in determining the investment policies of a Fund nor in deciding
which securities are purchased or sold by a Fund. A Fund may, however, invest in
obligations of the custodian and may purchase or sell securities from or to the
custodian.
For portfolio securities which are purchased and held outside the U.S., Mellon
Bank, N.A. and Brown Brothers Harriman & Company have entered into sub-custodian
arrangements (which are designed to comply with Rule 17f-5 under the 1940 Act)
with certain foreign banks and clearing agencies.
TRANSFER AGENT
PFPC Inc., 4400 Computer Drive, Westborough, Massachusetts 01581, serves as the
transfer agent and dividend-paying agent to the Funds.
INDEPENDENT AUDITORS
KPMG LLP, CityPlace II, Hartford, Connecticut 06103 serves as independent
auditors to the Company. KPMG LLP provides audit services, assistance and
consultation in connection with Commission filings.
29
<PAGE>
PRINCIPAL UNDERWRITER
Shares of each Fund are offered on a continuous basis. Effective May 1, 1998,
the Company's Board approved a change in the Company's principal underwriter
from Aetna Investment Services, Inc. (AISI), 151 Farmington Avenue, Hartford,
Connecticut 06156, to Aeltus Capital, Inc. (ACI), 10 State House Square,
Hartford, Connecticut 06103-3602. ACI is a Connecticut corporation, and is a
wholly owned subsidiary of Aeltus and an indirect wholly owned subsidiary of
Aetna Inc. ACI has agreed to use its best efforts to distribute the shares as
the principal underwriter of the Funds pursuant to an Underwriting Agreement
between it and the Company.
ACI is an indirect wholly owned subsidiary of Aetna Inc. Aetna Inc. has entered
into an agreement to sell certain of its businesses, including ACI, to ING
Groep N.V., an integrated financial services provider.
The transaction is targeted to close by the end of 2000. Consummation of the
transaction is subject to a number of contingencies, including regulatory
approvals, the approval of the shareholders of Aetna Inc., and other closing
conditions. Under the Investment Company Act of 1940, the transaction may result
in a change in control of ACI and, therefore, may constitute an assignment of
the Fund's underwriting agreement, which would result in a termination of that
agreement. Consequently, the Board has approved a new underwriting agreement, to
take effect upon consummation of the transaction. The new underwriting agreement
is the same as the current agreement in all material respects, except for the
date of execution and termination. In the event that the transaction is not
consummated, ACI will continue to provide services to the Fund under the current
underwriting agreement.
DISTRIBUTION AND SHAREHOLDER SERVICING ARRANGEMENTS
Fund shares are distributed by ACI. With respect to Class A shares of the Funds
(other than Money Market), ACI is paid an annual distribution fee at the rate of
0.25% of the value of average daily net assets attributable to those shares
under a Distribution Plan adopted by the Company pursuant to Rule 12b-1 under
the 1940 Act ("Distribution Plan"). With respect to Class B shares of the Funds,
ACI is paid an annual distribution fee at the rate of 0.75% of the value of
average daily net assets attributable to those shares under a Distribution Plan.
With respect to Class C shares of the Funds (other than Money Market), ACI is
paid an annual distribution fee at the rate of 0.75% (0.50% for the Index Plus
Funds) of the value of average daily net assets attributable to those shares
under a Distribution Plan. The distribution fee for a specific class may be used
to cover expenses incurred in promoting the sale of that class of shares,
including (a) the costs of printing and distributing to prospective investors
Prospectuses, statements of additional information and sales literature; (b)
payments to investment professionals and other persons who provide support
services in connection with the distribution of shares; (c) overhead and other
distribution related expenses; and (d) accruals for interest on the amount of
the foregoing expenses that exceed distribution fees and contingent deferred
sales charges. The distribution fee for Class B shares may also be used to pay
the financing cost of accruing certain unreimbursed expenses. ACI may reallow
all or a portion of these fees to broker-dealers entering into selling
agreements with it, including its affiliates.
Class B and Class C shares each are also subject to a Shareholder Services Plan
adopted pursuant to Rule 12b-1. Under the Class B Shareholder Services Plan, ACI
is paid a servicing fee at an annual rate of 0.25% of the average daily net
assets of the Class B shares of each Fund. Under the Class C Shareholder
Services Plan, ACI is paid a servicing fee at an annual rate of 0.25% of the
average daily net assets of the Class C shares of each Fund except Money Market.
The Service Fee may be used by ACI to pay selling dealers and their agents for
servicing and maintaining shareholder accounts.
ACI is required to report in writing to the Board at least quarterly on the
amounts and purpose of any payment made under each Distribution or Shareholder
Services Plan and any related agreements, as well as to furnish the Board with
such other information as may reasonably be requested in order to enable the
Board to make an informed determination whether each Plan should be continued.
The terms and provisions of the Plans relating to required reports, term, and
approval are consistent with the requirements of Rule 12b-1.
Prior to February 2, 1998, with respect to Adviser Class (redesignated Class A)
shares, AISI received a Rule 12b-1 fee at the rate of 0.50% and a Shareholder
Service fee at the rate of 0.25% (0.10% for Money Market) of the value of
average daily net assets.
30
<PAGE>
For the years ended October 31, 1999, 1998 and 1997, Shareholder Services and
Distribution fees were paid to Aetna (principal underwriter of the Company prior
to August 1, 1997), AISI (for the period August 1, 1997 through April 30, 1998)
and ACI (for the period after May 1, 1998) as follows:
31
<PAGE>
Year Ended October 31, 1999
Company Name Total Underwriting Fees
------------ -----------------------
Growth $93,265
International 53,471
Small Company 47,171
Value Opportunity 4,741
Balanced 46,064
Growth and Income 123,267
Bond Fund 22,641
Aetna Government Fund 8,320
Money Market 1,192
Index Plus Large Cap 267,873
Index Plus Mid Cap 8,318
Index Plus Small Cap 7,896
Ascent 36,042
Crossroads 20,360
Legacy 16,944
Year Ended October 31, 1998
Company Name Total Underwriting Fees
------------ -----------------------
Growth $34,543
International 60,303
Small Company 29,313
Value Opportunity* 861
Balanced 24,151
Growth and Income 65,703
Bond Fund 4,918
Aetna Government Fund 2,207
Money Market 26,009
Index Plus Large Cap 12,230
Index Plus Mid Cap** 608
Index Plus Small Cap** 682
Ascent 5,795
Crossroads 5,009
Legacy 4,820
Year Ended October 31, 1997
Company Name Total Underwriting Fees
------------ -----------------------
Growth $49,657
International 166,514
Small Company 37,758
Balanced 37,922
Growth and Income 82,810
Bond Fund 5,949
Aetna Government Fund 3,948
Money Market 141,236
Index Plus Large Cap*** 4,683
Ascent**** 1,691
Crossroads**** 764
Legacy**** 823
*Value Opportunity commenced operations on February 2, 1998.
**Index Plus Mid Cap and Index Plus Small Cap commenced operations on February
3, 1998.
***Index Plus Large Cap commenced operations on December 10, 1996.
****Ascent, Crossroads and Legacy Class A Shares commenced operations on January
20, 1997.
32
<PAGE>
Fees in the amount of $658,067, $26,009 and $141,236, for the years ended
October 31, 1999, 1998, and 1997, respectively, were waived for Money Market.
The Distribution Plans and Shareholder Services Plans continue from year to
year, provided such continuance is approved annually by vote of the Board,
including a majority of Independent Directors. The Distribution Plans may not be
amended to increase the amount to be spent for the services provided by ACI
without shareholder approval. All amendments to the Distribution Plans must be
approved by the Board in the manner described above. The Distribution Plans may
be terminated at any time, without penalty, by vote of a majority of the
Independent Directors upon not more than thirty (30) days' written notice to any
other party to the Distribution Plans. All persons who are under common control
with the Funds could be deemed to have a financial interest in the Plans. No
other interested person of the Funds has a financial interest in the Plans.
For the year ended October 31, 1999, approximately $447,933, $611,129,
$1,201,749, $3,465,558 and $624,802 of the Company's total distribution expenses
were expended in connection with advertising, printing and mailing of
prospectuses to other than current shareholders, compensation to underwriters,
compensation to broker-dealers and compensation to sales personnel,
respectively.
Other Payments to Securities Dealers
Typically, the portion of the front-end sales charge on Class A shares shown in
the following tables is paid to your securities dealer. Your securities dealer
may, however, receive up to the entire amount of the front-end sales charge.
The following table applies to Growth, International, Small Company, Value
Opportunity, Technology, Balanced, Growth and Income and the Generation Funds:
<TABLE>
<CAPTION>
When you invest this amount Amount of sales charge typically reallowed to dealers as a
percentage of offering price
<S> <C>
Under $50,000 5.00%
$50,000 or more but under $100,000 3.75
$100,000 or more but under $250,000 2.75
$250,000 or more but under $500,000 2.00
$500,000 or more but under $1,000,000 1.75
The following table applies to Bond Fund and Aetna Government Fund:
When you invest this amount Amount of sales charge typically reallowed to dealers as a
percentage of offering price
Under $50,000 4.00%
$50,000 or more but under $100,000 3.75
$100,000 or more but under $250,000 2.75
$250,000 or more but under $500,000 1.75
$500,000 or more but under $1,000,000 1.25
</TABLE>
33
<PAGE>
The following table applies to Index Plus Large Cap, Index Plus Mid Cap and
Index Plus Small Cap (collectively referred to as the Index Plus Funds):
<TABLE>
<CAPTION>
When you invest this amount Amount of sales charge typically reallowed to dealers as a
percentage of offering price
<S> <C>
Under $50,000 2.50%
$50,000 or more but under $100,000 2.00
$100,000 or more but under $250,000 1.50
$250,000 or more but under $500,000 1.00
$500,000 or more but under $1,000,000 0.50
Securities dealers that sell Class A shares (other than shares of the Index Plus
Funds) in amounts of $1 million or more 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 0.50%
o on sales over $20 million 0.25%
Securities dealers that sell Class A shares of the Index Plus Funds in amounts
of $1 million or more may be entitled to receive the following commissions:
Commission
----------
o on sales of $1 million to $3 million 0.50%
o on sales over $3 million to $20 million 0.25%
o on sales over $20 million 0.25%
</TABLE>
For sales of Class B shares, your securities dealer is paid an up-front
commission equal to four percent (4%) of the amount sold. Beginning in the
thirteenth month after the sale is made, ACI uses the 0.25% servicing fee to
compensate securities dealers for providing personal services to accounts that
hold Class B shares, on a monthly basis.
For sales of Class C shares (other than Money Market), your securities dealer is
paid an up-front commission based on the amount sold. The up-front commission is
equal to one percent (1%) of the sales price, except that in the case of the
Index Plus Funds, the up-front commission is equal to 0.75%. This up-front
commission is an advance of the 0.25% servicing fee plus the 0.75% (0.50% in the
case of the Index Plus Funds) distribution fee for the first year. Beginning in
the thirteenth month after the sale is made, ACI uses the servicing fee and the
distribution fee to compensate securities dealers, on a monthly basis.
ACI or its affiliates may make payments in addition to those described above to
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.
In addition, Aeltus may make payments of up to 0.05% of a Fund's average daily
net assets to national broker-dealers who, as a result of an acquisition of a
member of the Company's selling group, agree to allow Fund shares to be made
available to their clients in a proprietary wrap account program, provided such
accounts are networked accounts.
ACI or its affiliates may, from time to time, also make payments to clearing
firms that offer networking services which make the Funds 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.
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<PAGE>
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.
Aeltus makes payments to AISI of 0.10% of total Money Market Class A assets held
in customer accounts that designate AISI as the selling broker-dealer.
ACI may make payments to affiliated and unaffiliated securities dealers that
engage in wholesaling efforts on behalf of the Company and the Funds. These
payments will not exceed 0.33% of the value of Fund shares sold as a result of
such wholesaling efforts. For the period July 1 through December 31, 2000, ACI
has agreed to pay AISI 0.48% 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 I shares of the Company are purchased and redeemed at the applicable net
asset value (NAV) next determined after a purchase or redemption order is
received, as described in the Prospectus. Class B and Class C shares of the
Company are purchased at the applicable NAV next determined after a purchase
order is received. Class B and Class C shares are redeemed at the applicable NAV
next determined less any applicable contingent deferred sales charge (CDSC)
after a redemption request is received, as described in the Prospectus. Class A
shares of the Company are purchased at the applicable NAV next determined after
a purchase order is received less any applicable front-end sales charge and
redeemed at the applicable NAV next determined adjusted for any applicable CDSC
after a redemption request is received, as described in the Prospectus.
Except as provided below, payment for shares redeemed will be made within seven
days (or the maximum period allowed by law, if shorter) after the redemption
request is received in proper form by the transfer agent. The right to redeem
shares may be suspended or payment therefore postponed for any period during
which (a) trading on the NYSE is restricted as determined by the Commission or
the NYSE is closed for other than weekends and holidays; (b) an emergency
exists, as determined by the Commission, as a result of which (i) disposal by a
Fund of securities owned by it is not reasonably practicable, or (ii) it is not
reasonably practicable for a Fund to determine fairly the value of its net
assets; or (c) the Commission by order so permits for the protection of
shareholders of a Fund.
Any written request to redeem shares in amounts in excess of $50,000 must bear
the signatures of all the registered holders of those shares. The signatures
must be guaranteed by a national or state bank, trust company or a member of a
national securities exchange. Information about any additional requirements for
shares held in the name of a corporation, partnership, trustee, guardian or in
any other representative capacity can be obtained from the transfer agent.
A Fund has the right to satisfy redemption requests by delivering securities
from its investment portfolio rather than cash when it decides that distributing
cash would not be in the best interests of shareholders. However, a Fund is
obligated to redeem its shares solely in cash up to an amount equal to the
lesser of $250,000 or 1% of its net assets for any one shareholder of a Fund in
any 90-day period. To the extent possible, the Fund will distribute readily
marketable securities, in conformity with applicable rules of the Commission. In
the event such redemption is requested by institutional investors, the Fund will
weigh the effects on nonredeeming shareholders in applying this policy.
Securities distributed to shareholders may be difficult to sell and may result
in additional costs to the shareholders.
Purchases and exchanges should be made for investment purposes only. The Funds
reserve the right to reject any specific purchase or exchange request. In the
event a Fund rejects an exchange request, neither the redemption nor the
purchase side of the exchange will be processed until the Fund receives further
redemption instructions.
The Funds are not designed for professional market timing organizations or other
entities using programmed or frequent exchanges. The Funds define a "market
timer" as an individual, or entity acting on behalf of one or more
35
<PAGE>
individuals, if (i) the individual or entity makes three or more exchange
requests out of any Fund per calendar year and (ii) any one of such exchange
requests represents shares equal in value to 1/2 of 1% or more of the Fund's net
assets at the time of the request. Accounts under common ownership or control,
including accounts administered by market timers, will be aggregated for
purposes of this definition.
Front-end Sales Charge Waivers
Front-end sales charges will not apply if you are buying Class A shares with
proceeds from the following sources:
1. Redemptions from any Aeltus-advised Fund if you:
o Originally paid a front-end sales charge on the shares and
o Reinvest the money within 60 days of the redemption date.
2. Redemptions from other mutual funds if you:
o Originally paid a front-end sales charge on the shares and
o Reinvest the money within 30 days of the redemption date.
The Fund's front-end sales charges will also not apply to Class A purchases by:
3. Employees of Aetna Inc. and its affiliates (including 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 their immediate families).
4. Investors who purchase Fund shares with redemption proceeds received in
connection with a distribution from a retirement plan investing either (1)
directly in any Fund or through an unregistered separate account sponsored
by Aetna or any affiliate thereof or (2) in a registered separate account
sponsored by Aetna or any affiliate thereof, but only if no deferred sales
charge is paid in connection with such distribution and the investor
receives the distribution in connection with a separation from service,
retirement, death or disability.
5. Certain trust companies and bank trust departments investing on behalf of
their clients.
6. Certain retirement plans that are sponsored by an employer and have plan
assets of $500,000 or more.
7. Broker-dealers, registered investment advisers and financial planners that
have entered into a selling agreement with ACI (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to
sales of fund shares) on behalf of clients.
8. Current employees of broker-dealers and financial institutions that have
entered into a selling agreement with ACI (or otherwise having an
arrangement with a broker-dealer or financial institution with respect to
sales of fund shares) and their immediate family members, as allowed by the
internal policies of their employer.
9. Registered investment companies.
10. Insurance companies (including separate accounts).
11. Shareholders of the Adviser Class at the time such shares were redesignated
as Class A shares.
12. Certain executive deferred compensation plans.
Contingent Deferred Sales Charge
Certain Class A shares, all Class B shares and all Class C shares (except for
Money Market) are subject to a CDSC, as described in the Prospectus. There is no
CDSC imposed on:
o redemptions of shares purchased through reinvestment of dividends or
capital gains distributions;
o shares purchased more than two years (in the case of Class A shares), six
years (in the case of Class B shares) or
36
<PAGE>
eighteen months (in the case of Class C shares) prior to the redemption;
and
o redemptions of Money Market Class A and Class C shares unless:
o those shares were purchased through an exchange from another Fund
within two years (in the case of Class A shares) or eighteen months
(in the case of Class C shares) prior to the redemption; and
o the original purchase of the shares exchanged was subject to a
CDSC.
CDSC Waivers
The CDSC will be waived for:
o Exchanges to other Funds of the same class;
o Redemptions following the death or disability of the shareholder or
beneficial owner;
o Redemptions related to distributions from retirement plans or accounts
under Internal Revenue Section 403(b) after you attain age 70 1/2.
o Tax-free returns of excess contributions from employee benefit plans;
o Distributions from employee benefit plans, including those due to plan
termination or plan transfer; and
o Redemptions made in connection with the Automatic Cash Withdrawal Plan
(see Shareholder Services and Other Features), provided that
such redemptions:
o are limited annually to no more than 12% of the original account
value; o are made in equal monthly amounts, not to exceed 1% per
month; and
o the minimum account value at the time the Automatic Cash Withdrawal
Plan was initiated was no less than $10,000.
Letter of Intent
You may qualify for a reduced sales charge when you buy Class A shares (other
than Money Market), as described in the Prospectus. At any time, you may file
with the Company a signed shareholder application with the Letter of Intent
section completed. After the Letter of Intent is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter of Intent. Sales charge reductions are based
on purchases in more than one Fund and will be effective only after notification
to ACI that the investment qualifies for a discount. Your holdings in certain
Funds (other than Money Market shares) acquired within 90 days of the day the
Letter of Intent is filed will be counted towards completion of the Letter of
Intent and will be entitled to a retroactive downward adjustment in the sales
charge. Such adjustment will be made by the purchase of additional shares in an
equivalent amount.
Five percent (5%) of the amount of the total intended purchase will be held by
the transfer agent in escrow until you fulfill the Letter of Intent. If, at the
end of the 13-month period, you have not met the terms of the Letter of Intent
an amount of shares equal to the difference owed will be deducted from your
account. In the event of a total redemption of the account before fulfillment of
the Letter of Intent, the additional sales charge due will be deducted from the
proceeds of the redemption, and the balance will be forwarded to you.
If the Letter of Intent is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending on the amount actually
purchased during the period. The upward adjustment will be paid with shares
redeemed from your account.
Right of Accumulation/Cumulative Quantity Discount
A purchaser of Class A shares may qualify for a cumulative quantity discount by
combining a current purchase (or combined purchases as described above) with
certain other Class A shares (excluding Money Market) of the Funds already
owned. To determine if you may pay a reduced front-end sales charge, the amount
of your current purchase is added to the cost or current value, whichever is
higher, of your other Class A shares (excluding Money Market), as well as those
Class A shares (excluding Money Market) of your spouse and children under the
age of 21. If you are the sole owner of a company, you may also add any company
accounts, including retirement plan accounts invested in Class A shares
(excluding Money Market) of the Funds. Companies with one or more retirement
plans may add together the total plan assets invested in Class A shares
(excluding Money Market) of the Funds to determine the front-end sales charge
that applies.
37
<PAGE>
To qualify for the cumulative quantity discount on a purchase through an
investment dealer, when each purchase is made the investor or dealer must
provide the Company with sufficient information to verify that the purchase
qualifies for the privilege or discount. The shareholder must furnish this
information to the Company when making direct cash investments.
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the supervision of the Board, Aeltus (or EAM, in the case of
Technology) has responsibility for making investment decisions, for effecting
the execution of trades and for negotiating any brokerage commissions thereon.
It is Aeltus' and EAM's policy to obtain the best quality of execution
available, giving attention to net price (including commissions where
applicable), execution capability (including the adequacy of a firm's capital
position), research and other services related to execution. The relative
priority given to these factors will depend on all of the circumstances
regarding a specific trade. Aeltus (or EAM, in the case of Technology) may also
consider the sale of shares of the Funds and of other investment companies
advised by Aeltus as a factor in the selection of brokerage firms to execute the
Funds' portfolio transactions or in the designation of a portion of the
commissions charged on those transactions to be paid to other broker-dealers,
subject to Aeltus' and EAM's duty to obtain best execution.
Aeltus (or EAM, in the case of Technology) receives a variety of brokerage and
research services from brokerage firms in return for the execution by such
brokerage firms of trades on behalf of the Funds. These brokerage and research
services include, but are not limited to, quantitative and qualitative research
information and purchase and sale recommendations regarding securities and
industries, analyses and reports covering a broad range of economic factors and
trends, statistical data relating to the strategy and performance of the Funds
and other investment companies, services related to the execution of trades on
behalf of a Fund, the providing of equipment used to communicate research
information and specialized consultations with Company personnel with respect to
computerized systems and data furnished to the Funds as a component of other
research services. Aeltus and EAM consider the quantity and quality of such
brokerage and research services provided by a brokerage firm along with the
nature and difficulty of the specific transaction in negotiating commissions for
trades in a Fund's securities and may pay higher commission rates than the
lowest available when it is reasonable to do so in light of the value of the
brokerage and research services received generally or in connection with a
particular transaction. It is the policy of Aeltus and EAM, in selecting a
broker to effect a particular transaction, to seek to obtain "best execution,"
which means prompt and efficient execution of the transaction at the best
obtainable price with payment of commissions which are reasonable in relation to
the value of the services provided by the broker, taking into consideration
research and brokerage services provided.
Research services furnished by brokers through whom the Funds effect securities
transactions may be used by Aeltus in servicing all of its accounts; not all
such services will be used by Aeltus or EAM to benefit the Funds.
Consistent with federal law, Aeltus or EAM may obtain such brokerage and
research services regardless of whether they are paid for (1) by means of
commissions, or (2) by means of separate, non-commission payments. The judgment
of Aeltus and EAM, as to whether and how it will obtain the specific brokerage
and research services, will be based upon an analysis of the quality of such
services and the cost (depending upon the various methods of payment which may
be offered by brokerage firms) and will reflect Aeltus' or EAM's opinion as to
which services and which means of payment are in the long-term best interests of
the Funds.
Aeltus may buy or sell the same security at or about the same time for a Fund
and another advisory client of Aeltus, including clients in which affiliates of
Aeltus have an interest. EAM may also buy or sell the same security at or about
the same time for a Fund and another advisory client of EAM, including clients
in which affiliates of EAM have an interest. Either Aeltus or EAM, as the case
may be, normally will aggregate the respective purchases or sales, and then
allocate as nearly as practicable on a pro rata basis in proportion to the
amount to be purchased or sold. In 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 a Fund and
the other accounts, the relative size of portfolio holdings of the same or
comparable securities, availability of cash for investment, and the size of
their respective investment commitments. Prices are averaged for aggregated
trades.
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<PAGE>
Brokerage commissions were paid as follows:
<TABLE>
<CAPTION>
For Year Ended For Year Ended For Year Ended
Fund Name Oct. 31, 1999 Oct. 31, 1998 Oct. 31, 1997
--------- ------------- ------------- -------------
<S> <C> <C> <C>
Growth $462,377 $347,005 $170,182
International 497,419 428,858 907,087
Small Company 342,043 189,609 167,794
Value Opportunity* 16,153 15,334 N/A
Balanced 106,837 74,562 131,989
Growth and Income 1,575,747 2,363,653 1,908,594
Bond Fund 275 0 0
Aetna Government Fund 3,615 0 0
Money Market 0 0 0
Index Plus Large Cap** 278,464 44,831 15,942
Index Plus Mid Cap*** 11,440 19,919 N/A
Index Plus Small Cap*** 7,225 27,474 N/A
Ascent 145,421 125,071 113,789
Crossroads 106,481 100,787 79,184
Legacy 47,787 44,163 47,247
</TABLE>
* Value Opportunity commenced operations on February 2, 1998.
** Index Plus Large Cap commenced operations December 10, 1996.
*** Index Plus Mid Cap and Index Plus Small Cap commenced operations on
February 3, 1998.
For the year ended October 31, 1999, commissions in the amounts listed below
were paid with respect to portfolio transactions directed to certain brokers
because of research services:
Company Name Commissions Paid on Total Transactions
------------ --------------------------------------
Growth $68,688
International 27,324
Small Company 24,708
Value Opportunity 3,051
Balanced 8,287
Growth and Income 318,858
Index Plus Large Cap 131,819
Index Plus Mid Cap 0
Index Plus Small Cap 0
Ascent 21,389
Crossroads 15,008
Legacy 5,815
The Board has adopted a policy allowing trades to be made between affiliated
registered investment companies or series thereof provided such trades meet the
terms of Rule 17a-7 under the 1940 Act.
The Company, Aeltus and ACI, and EAM have adopted Codes of Ethics (in accordance
with Rule 17j-1 under the 1940 Act). The Codes of Ethics allow personnel subject
to the Codes to invest in securities, including securities that may be purchased
or held by a Fund. However, they are designed to prohibit a person from taking
advantage of a Fund's trades or from acting on inside information. Each of the
Codes of Ethics has been filed with and is available from the Securities and
Exchange Commission.
39
<PAGE>
SHAREHOLDER ACCOUNTS AND SERVICES
Systematic Investment
The Systematic Investment feature, using the EFT capability, allows you to make
automatic monthly investments in any Fund. On the application, you may select
the amount of money to be moved and the Fund in which it will be invested. In
order to elect EFT, you must first have established an account, subject to the
minimum amount specified in the Prospectuses. Thereafter, the minimum monthly
Systematic Investment is currently $50 per Fund, and we reserve the right to
increase that amount. EFT transactions will be effective 15 days following the
receipt by the Transfer Agent of your application. The Systematic Investment
feature and EFT capability will be terminated upon total redemption of your
shares. Payment of redemption proceeds will be held until a Systematic
Investment has cleared, which may take up to 12 calendar days.
Shareholder Information
The Fund's transfer agent will maintain your account information. Account
statements will be sent at least quarterly. A Form 1099 generally will also be
sent each year by January 31. Annual and semiannual reports will also be sent to
shareholders. The transfer agent may charge you a fee for special requests such
as historical transcripts of your account and copies of canceled checks.
Consolidated statements reflecting current values, share balances and
year-to-date transactions generally will be sent to you each quarter. All
accounts identified by the same social security number and address will be
consolidated. For example, you could receive a consolidated statement showing
your individual and IRA accounts. With the prior permission of the other
shareholders involved, you have the option of requesting that accounts
controlled by other shareholders be shown on one consolidated statement. For
example, information on your individual account, your IRA, your spouse's
individual account and your spouse's IRA may be shown on one consolidated
statement.
Automatic Cash Withdrawal Plan
A CDSC may be applied to withdrawals made under this plan. The Automatic Cash
Withdrawal Plan permits you to have payments of $100 or more automatically
transferred from a Fund to your designated bank account on a monthly basis. To
enroll in this plan, you must have a minimum balance of $10,000 in a Fund. Your
automatic cash withdrawals will be processed on a regular basis beginning on or
about the first day of the month. There may be tax consequences associated with
these transactions. Please consult your tax adviser.
Checkwriting Service
Checkwriting is available with Class A, Class C and Class I shares of Money
Market. If the amount of the check is greater than the value of your shares, the
check will be returned unpaid. In addition, checks written against shares
purchased by check or Systematic Investment during the preceding 12 calendar
days will be returned unpaid due to uncollected funds. You may select the
checkwriting service by indicating your election on the application or by
calling 1-800-367-7732. All notices with respect to checks must be given to the
transfer agent.
Cross Investing
Dividend Investing You may elect to have dividend and/or capital gains
distributions automatically invested in the same class of one other Fund.
Systematic Exchange You may establish an automatic exchange of shares from
one Fund to another. The exchange will occur on or about the 15th day of
each month and must be for a minimum of $50 per month. Because this
transaction is treated as an exchange, the policies related to the exchange
privilege apply. There may be tax consequences associated with these
exchanges. Please consult your tax adviser.
Cross investing may only be made in a Fund that has been previously established
with the minimum investment. To request information or to initiate a transaction
under either or both of these features, please call 1-800-367-7732.
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<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 guarantees 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 Funds are generally valued by independent pricing services
which have been approved by the Board. The values for equity securities traded
on registered securities exchanges (except as otherwise noted below) are based
on the last sale price or, if there has been no sale that day, at the mean of
the last bid and asked price on the exchange where the security is principally
traded. Securities traded over the counter are valued at the last sale price or,
if there has been no sale that day, at the mean of the last bid and asked price.
Readily marketable securities listed on a foreign securities exchange whose
operations are similar to those of the United States over-the-counter market are
valued at the mean of the current bid and asked prices as reported by
independent pricing sources. Fixed-income securities may be valued on the basis
of prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities. The prices provided by a pricing
service take into account many factors, including institutional size trading in
similar groups of securities and any developments related to specific
securities. Securities for which prices are not obtained from a pricing service
are valued based upon the assessment of market-makers in those securities. Debt
securities maturing in sixty days or less at the date of valuation, and all
securities in Money Market, will be valued using the "amortized cost" method of
valuation. This involves valuing an instrument at its cost and thereafter
assuming a constant amortization of premium or increase of discount. Options are
valued at the mean of the last bid and asked price on the exchange where the
option is primarily traded. Futures contracts are valued daily at a settlement
price based on rules of the exchange where the futures contract is primarily
traded. Securities for which market quotations are not readily available are
valued at their fair value in such manner as may be determined, from time to
time, in good faith, by or under the authority of, the Board.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of the New York Stock Exchange (NYSE).
The values of foreign securities used in computing the NAV of the shares of a
Fund are determined as of the earlier of such market close or the closing time
of the NYSE. Occasionally, events affecting the value of such securities may
occur between the times at which they are determined and the close of the NYSE,
or when the foreign market on which such securities trade is closed but the NYSE
is open, which will not be reflected in the computation of NAV. If during such
periods, events occur which materially affect the value of such securities, the
securities may be valued at their fair value in such manner as may be
determined, from time to time, in good faith, by or under the authority of, the
Board.
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<PAGE>
TAX STATUS
The following is only a limited discussion of certain additional tax
considerations generally affecting each Fund. No attempt is made to present a
detailed explanation of the tax treatment of each Fund and no explanation is
provided with respect to the tax treatment of any Fund shareholder. The
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended. If for any
taxable year a Fund does not qualify as a regulated investment company, all of
its taxable income (including its net capital gain) will be subject to tax at
regular corporate rates without any deduction for distributions to shareholders,
and such distributions will be taxable to the shareholders as ordinary dividends
to the extent of the Fund's current and accumulated earnings and profits.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on the undistributed income of a
regulated investment company that fails to distribute in each calendar year an
amount equal to 98% of ordinary taxable income for the calendar year and 98% of
capital gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having a
taxable year ending November 30 or December 31, for its taxable year (taxable
year election)). Tax-exempt interest on municipal obligations is not subject to
the excise tax. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.
Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
Foreign Investments
Investment income from foreign securities may be subject to foreign taxes
withheld at the source. It is impossible to determine the effective rate of
foreign tax in advance since the amount of a Fund's assets to be invested in
various countries is not known.
If more than 50% of International's total assets at the close of its fiscal year
consist of securities of foreign corporations, that Fund will be eligible to,
and may, file an election with the Internal Revenue Service (IRS) pursuant to
which shareholders will be required to include their pro rata portions of
foreign taxes paid by the Fund as income received by them. Shareholders may then
either deduct such pro rata portion in computing their taxable income or use
them as foreign tax credits against their U.S. income taxes. If International
makes such an election, it will report annually to each shareholder the amount
of foreign taxes to be included in income and then either deducted or credited.
Alternatively, if the amount of foreign taxes paid by International is not large
enough to warrant its making such an election, the Fund may claim the amount of
foreign taxes paid as a deduction against its own gross income. In that case
shareholders would not be required to include any amount of foreign taxes paid
by International in their income and would not be permitted either to deduct any
portion of foreign taxes from their own income or to claim any amount tax credit
for taxes paid by the Fund.
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<PAGE>
PERFORMANCE INFORMATION
Performance information for each class of shares including the yield and
effective yield of Money Market, the yield or dividend yield of Bond Fund and
Aetna Government Fund and the total return of all Funds, may appear in reports
or promotional literature to current or prospective shareholders.
Money Market Yield
Current yield for Money Market will be based on a recently ended seven-day
period, computed by determining the net change, exclusive of capital changes and
income other than investment income, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from that shareholder
account, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return. This base period
return is then multiplied by 365/7 with the resulting yield figure carried to at
least the nearest hundredth of one percent. Calculation of "effective yield"
begins with the same "base period return" used in the calculation of yield,
which is then annualized to reflect weekly compounding pursuant to the following
formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
The yield and effective yield for Money Market for the seven days ended October
31, 1999 were 5.21% and 5.34%, respectively.
30-Day Yield for Certain Non-Money Market Funds
Quotations of yield at the public offering price (POP) for Bond Fund and Aetna
Government Fund will be based on all investment income per share earned during a
particular 30-day period, less expenses accrued during the period (net
investment income), and will be computed by dividing net investment income by
the value of a share on the last day of the period, according to the following
formula:
YIELD = 2[(a - b + 1)(6) - 1]
-----
cd
Where:
a = dividends and interest earned during the period
b = the expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
d = the maximum POP per share on the last day of the period
For purposes of determining net investment income during the period (variable
"a" in the formula), interest earned on debt obligations held by the fund is
calculated each day during the period according to the formulas below, and then
added together for each day in the period:
o Certain mortgage-backed, asset-backed and CMO securities: Generally, interest
is computed by taking daily interest income (coupon rate times face value
divided by 360 or 365, as the case may be) adjusted by that day's pro-rata
share of the most recent paydown gain or loss from the security;
o Other debt obligations: Generally, interest is calculated by computing the
yield to maturity of each debt obligation held based on the market value of
the obligation (including current interest accrued) at the close of each day,
dividing the result by 360 and multiplying the quotient by the market value
of the obligation (including current accrued interest).
For purposes of this calculation, it is assumed that each month contains 30
days.
Undeclared earned income will be subtracted from the NAV per share (variable "d"
in the formula). Undeclared earned income is the net investment income which, at
the end of the base period, has not been declared as a dividend, but is
reasonably expected to be and is declared as a dividend shortly thereafter.
43
<PAGE>
For the 30-day period ended October 31, 1999:
<TABLE>
<CAPTION>
Yield (at POP)
-----------------------------------------------------------
Name of Fund Class A Class B Class C Class I
------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Bond Fund 5.29% 4.79% 4.77% 5.81%
Aetna Government Fund 5.17% 4.65% 4.67% 5.64%
</TABLE>
The Company may also from time to time include quotations of yield for Class A
that are not calculated according to the formula set forth above. Specifically,
the Company may include yield for Class A at the NAV per share on the last day
of the period, and not the maximum POP per share on the last day of the period.
In which case, variable "d" in the formula will be:
d = the NAV per share on the last day of the period.
For the 30-day period ended October 31, 1999:
Yield (at NAV)
Name of Fund Class A
--------------------- -------------------
Bond Fund 5.55%
Aetna Government Fund 5.43%
Dividend Yield
Bond Fund and Aetna Government Fund may quote a "dividend yield" for each class
of its shares. Dividend yield is based on the dividends paid on shares of a
class from net investment income.
To calculate dividend yield, the most recent dividend of a class declared is
multiplied by 12 (to annualize the yield) and divided by the current NAV. The
formula is shown below:
Dividend Yield = (Dividends paid x 12) / Net Asset Value
The Class A dividend yield may also be quoted with the public offering price
(POP) for Class A shares. The POP includes the maximum front-end sales charge.
The dividend yield for Class B shares and Class C shares is calculated without
considering the effect of contingent deferred sales charges.
The dividend yields for the 30-day dividend period ended October 31, 1999 were
as follows:
<TABLE>
<CAPTION>
Fund Class A (NAV) Class A (POP) Class B Class C
---- ------------- ------------- ------- -------
<S> <C> <C> <C> <C>
Bond Fund 5.05% 4.81% 4.33% 4.33%
Aetna Government Fund 4.98% 4.74% 4.22% 4.26%
</TABLE>
44
<PAGE>
Average Annual Total Return
Quotations of average annual total return for any Fund will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in a Fund over a period of one, five and ten years (or, if less, up
to the life of the Fund), calculated pursuant to the formula:
P(1 + T)(n) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = an average annual total return
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year period at the end of the 1, 5, or 10 year
period (or fractional portion thereof).
The Company may also from time to time include in such advertising a total
return figure for Class A, Class B and/or Class C that is not calculated
according to the formula set forth above.
Specifically, the Company may include performance for Class A that does not take
into account payment of the applicable front-end sales load, or the Company may
include performance for Class B or Class C that does not take into account the
imposition of the applicable CDSC.
All the following figures are based on actual investment performance.
In February 1998, the Funds redesignated Adviser Class shares as Class A shares.
For periods prior to the Class A inception date, Class A performance is
calculated by using the performance of Class I (formerly Select Class) shares
and deducting the Class A front-end sales load and internal fees and expenses of
the Adviser Class. In March 1999, the Funds introduced Class B shares. For
periods prior to the Class B inception date, Class B performance is calculated
using the performance of Class I (formerly Select Class) shares, and deducting
the internal fees and expenses applicable to the Class B shares. CDSC of 5.00%
applies for all Class B shares redeemed in the first year, declining to 1.00% on
Class B shares redeemed in the sixth year. No CDSC is charged thereafter. The
Class B returns without CDSC are net of fund expenses only, and do not deduct a
CDSC. In June 1998, the Funds introduced Class C shares. For periods prior to
the Class C inception date, Class C performance is calculated using the
performance of Class I (formerly Select Class) shares, and deducting the
internal fees and expenses applicable to the Class C shares. CDSC applies for
all Class C shares (except Money Market) redeemed prior to the end of the first
eighteen months of ownership. The 1-year Class C returns without CDSC are net of
fund expenses only, and do not deduct a CDSC. Neither a front-end sales load nor
a CDSC applies to Class A or Class C shares of Money Market.
Total Return Quotations as of October 31, 1999:
-----------------------------------------------
<TABLE>
<CAPTION>
CLASS I
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Money Market 4.88% 5.41% 4.82% 1/3/92
Aetna Government Fund 0.58% 7.01% 5.56% 1/4/94
Bond Fund 1.56% 7.15% 6.30% 1/3/92
Balanced 14.79% 16.40% 12.37% 1/3/92
Growth and Income 23.00% 22.01% 15.79% 1/3/92
Growth 37.09% 25.65% 23.21% 1/4/94
Index Plus Large Cap 29.05% N/A 26.71% 12/10/96
Small Company 20.54% 19.14% 16.99% 1/4/94
International 28.10% 15.55% 12.30% 1/3/92
Ascent Fund 13.66% N/A 15.36% 1/4/95
Crossroads Fund 10.31% N/A 13.02% 1/4/95
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Legacy Fund 7.99% N/A 11.23% 1/4/95
Index Plus Mid Cap 23.14% N/A 15.03% 2/3/98
Index Plus Small Cap 12.46% N/A -0.14% 2/3/98
Value Opportunity 32.88% N/A 17.65% 2/2/98
CLASS A (assuming payment of the front-end sales load)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Aetna Government Fund -4.43% 5.37% 4.07% 1/4/94
Bond Fund -3.39% 5.52% 4.99% 1/3/92
Balanced 7.89% 14.34% 10.79% 1/3/92
Growth and Income 15.61% 19.93% 14.23% 1/3/92
Growth 28.91% 23.49% 21.27% 1/4/94
Index Plus Large Cap 24.91% N/A 24.86% 12/10/96
Small Company 13.25% 17.08% 15.12% 1/4/94
International 20.41% 13.50% 10.72% 1/3/92
Ascent Fund 6.83% N/A 13.36% 1/4/95
Crossroads Fund 3.77% N/A 11.05% 1/4/95
Legacy Fund 1.46% N/A 9.29% 1/4/95
Index Plus Mid Cap 19.12% N/A 12.73% 2/3/98
Index Plus Small Cap 8.77% N/A -2.10% 2/3/98
Value Opportunity 24.95% N/A 13.44% 2/2/98
CLASS A (without payment of the front-end sales load)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Money Market 4.88% 5.41% 4.82% 1/3/92
Aetna Government Fund 0.34% 6.40% 4.95% 1/4/94
Bond Fund 1.43% 6.56% 5.64% 1/3/92
Balanced 14.48% 15.70% 11.63% 1/3/92
Growth and Income 22.67% 21.36% 15.09% 1/3/92
Growth 36.78% 24.96% 22.51% 1/4/94
Index Plus Large Cap 28.78% N/A 26.18% 12/10/96
Small Company 20.16% 18.48% 16.30% 1/4/94
International 27.76% 14.85% 11.56% 1/3/92
Ascent Fund 13.35% N/A 14.76% 1/4/95
Crossroads Fund 10.10% N/A 12.42% 1/4/95
Legacy Fund 7.65% N/A 10.64% 1/4/95
Index Plus Mid Cap 22.81% N/A 14.72% 2/3/98
Index Plus Small Cap 12.13% N/A -0.38% 2/3/98
Value Opportunity 32.57% N/A 17.36% 2/2/98
</TABLE>
46
<PAGE>
CLASS B (assuming payment of the CDSC)
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Money Market -1.16% 4.04% 3.79% 1/3/92
Aetna Government Fund -5.33% 5.62% 4.36% 1/4/94
Bond Fund -4.15% 5.79% 5.26% 1/3/92
Balanced 8.68% 15.03% 11.26% 1/3/92
Growth and Income 16.62% 20.59% 14.63% 1/3/92
Growth 30.82% 24.24% 21.93% 1/4/94
Index Plus Large Cap 22.87% N/A 24.79% 12/10/96
Small Company 14.36% 17.74% 15.73% 1/4/94
International 21.88% 14.22% 11.21% 1/3/92
Ascent Fund 7.45% N/A 13.96% 1/4/95
Crossroads Fund 4.28% N/A 11.63% 1/4/95
Legacy Fund 1.86% N/A 9.83% 1/4/95
Index Plus Mid Cap 16.85% N/A 11.72% 2/3/98
Index Plus Small Cap 6.30% N/A -3.50% 2/3/98
Value Opportunity 26.59% N/A 14.39% 2/2/98
CLASS B (without payment of the CDSC)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Money Market 3.84% 4.38% 3.79% 1/3/92
Aetna Government Fund -0.48% 5.94% 4.50% 1/4/94
Bond Fund 0.74% 6.10% 5.26% 1/3/92
Balanced 13.68% 15.26% 11.26% 1/3/92
Growth and Income 21.62% 20.78% 14.63% 1/3/92
Growth 35.82% 24.41% 21.99% 1/4/94
Index Plus Large Cap 27.87% N/A 25.47% 12/10/96
Small Company 19.36% 17.95% 15.82% 1/4/94
International 26.88% 14.45% 11.21% 1/3/92
Ascent Fund 12.45% N/A 14.21% 1/4/95
Crossroads Fund 9.28% N/A 11.90% 1/4/95
Legacy Fund 6.86% N/A 10.12% 1/4/95
Index Plus Mid Cap 21.85% N/A 13.82% 2/3/98
Index Plus Small Cap 11.30% N/A -1.20% 2/3/98
Value Opportunity 31.59% N/A 16.46% 2/2/98
</TABLE>
47
<PAGE>
CLASS C (assuming payment of the CDSC)
<TABLE>
<CAPTION>
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
<S> <C> <C> <C> <C>
Aetna Government Fund -1.41% 5.94% 4.51% 1/4/94
Bond Fund -0.30% 6.09% 5.25% 1/3/92
Balanced 12.64% 15.25% 11.25% 1/3/92
Growth and Income 20.68% 20.79% 14.64% 1/3/92
Growth 34.80% 24.40% 21.99% 1/4/94
Index Plus Large Cap 27.42% N/A 25.77% 12/10/96
Small Company 18.33% 17.94% 15.81% 1/4/94
International 26.01% 14.47% 11.22% 1/3/92
Ascent Fund 11.47% N/A 14.21% 1/4/95
Crossroads Fund 8.30% N/A 11.90% 1/4/95
Legacy Fund 5.88% N/A 10.12% 1/4/95
Index Plus Mid Cap 21.44% N/A 14.13% 2/3/98
Index Plus Small Cap 10.91% N/A -0.92% 2/3/98
Value Opportunity 30.56% N/A 16.44% 2/2/98
CLASS C (without payment of the CDSC)
FUND NAME 1 YEAR 5 YEARS SINCE INCEPTION INCEPTION DATE*
Money Market 4.88% 5.41% 4.82% 1/3/92
Aetna Government Fund -0.46% 5.94% 4.51% 1/4/94
Bond Fund 0.66% 6.09% 5.25% 1/3/92
Balanced 13.64% 15.25% 11.25% 1/3/92
Growth and Income 21.68% 20.79% 14.64% 1/3/92
Growth 35.80% 24.40% 21.99% 1/4/94
Index Plus Large Cap 28.17% N/A 25.77% 12/10/96
Small Company 19.33% 17.94% 15.81% 1/4/94
International 27.01% 14.47% 11.22% 1/3/92
Ascent Fund 12.47% N/A 14.21% 1/4/95
Crossroads Fund 9.30% N/A 11.90% 1/4/95
Legacy Fund 6.88% N/A 10.12% 1/4/95
Index Plus Mid Cap 22.19% N/A 14.13% 2/3/98
Index Plus Small Cap 11.66% N/A -0.92% 2/3/98
Value Opportunity 31.56% N/A 16.44% 2/2/98
</TABLE>
--------------------------
* The inception dates above represent the commencement of investment operations,
which may not coincide with the effective date of the post-effective amendment
to the registration statement through which the Funds were added.
Performance information for a Fund may be compared, in reports and promotional
literature, to: (a) the Standard & Poor's 500 Stock Index, the Russell 2000
Index, the Russell 3000 Index, Lehman Brothers Aggregate Bond Index, Lehman
Brothers Intermediate Government Bond Index, Salmon Brothers Broad Investment
Grade Bond Index, Dow Jones Industrial Average, or other indices (including,
where appropriate, a blending of indices) that measure performance of a
pertinent group of securities widely regarded by investors as representative of
the securities markets in general; (b) other groups of investment companies
tracked by Morningstar or Lipper Analytical Services, widely used independent
research firms that rank mutual funds and other investment companies by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons who rank such investment companies on
overall performance or other criteria; and (c) the Consumer Price Index (measure
for inflation) to assess the real rate of return from an investment in a Fund.
From time to time, in reports or promotional literature, the Funds may discuss,
or provide quotes or commentary of their current portfolio managers,
strategists, and other investment personnel, with respect to: the economy;
securities
48
<PAGE>
markets; portfolio securities and their issuers; investment philosophies;
strategies; techniques and criteria used in the selection of securities to be
purchased or sold for the Funds; the Funds' portfolio holdings, including the
description or graphical representation of portfolio risk and other fundamental
data; the investment research and analysis process; the formulation of
investment recommendations; and the assessment and evaluation of credit,
interest rate, market and economic risks, and similar or related matters. The
Funds may also quote or reprint all or a portion of evaluations or
descriptions of fund performance and operations appearing in various independent
publications.
From time to time, the Funds may also advertise their performance showing the
cumulative value of an initial or periodic investment in the Funds in various
amounts over specified periods, with capital gain and dividend distributions
invested in additional shares or taken in cash, and with no adjustment for any
income taxes (if applicable) payable by shareholders.
From time to time sales materials and advertisements may include comparisons of
the cost of borrowing a specific amount of money at a given loan rate over a set
period of time to the cost of a monthly investment program, over the same time
period, which earns the same rate of return. The comparison may involve
historical rates of return on a given index, or may involve performance of any
of the Funds.
The Funds may also include in their advertising examples to illustrate basic
investment concepts, including but not limited to systematic investment, the
effects of compounding, and various tax related concepts, including tax deferred
growth and tax equivalent yield.
FINANCIAL STATEMENTS
The Financial Statements and the independent auditors' reports, thereon,
appearing in the Company's Annual Reports for the year ended October 31, 1999,
and the Financial Statements (unaudited) appearing in the Company's Semi-Annual
Reports for the periods ended April 30, 2000, are incorporated by reference in
this Statement. The Company's Annual and Semi-Annual Reports are available upon
request and without charge by calling 1-800-238-6254.
Statement of Additional Information
49
<PAGE>
AETNA SERIES FUND, INC.
AETNA INDEX PLUS PROTECTION FUND
Statement of Additional Information dated September 28, 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.
<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.............................................25
BROKERAGE ALLOCATION AND TRADING POLICIES.....................................27
SHAREHOLDER ACCOUNTS AND SERVICES.............................................30
NET ASSET VALUE...............................................................30
TAX STATUS....................................................................31
PERFORMANCE INFORMATION.......................................................33
<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.
The Fund may use forward exchange contracts to protect against uncertainty in
the level of future exchange rates.
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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 and
Pay-in-Kind 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. investors are concerned. In addition, with respect to certain countries,
there is the possibility of expropriation of
13
<PAGE>
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:
Sensitivity to Interest Rate and Economic Changes High-yield bonds are more
sensitive to adverse economic changes
14
<PAGE>
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 securities are also subject to the risk that in the
event of a default, the Fund may realize no return on its investment, because
15
<PAGE>
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
Illiquid Securities The Fund may invest in illiquid securities. Illiquid
securities are securities that are not readily
16
<PAGE>
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>
-------------------------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD PRINCIPAL OCCUPATION DURING PAST FIVE YEARS (AND POSITIONS HELD
ADDRESS AND AGE WITH EACH FUND WITH AFFILIATED PERSONS OR PRINCIPAL UNDERWRITERS OF THE FUND)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
J. Scott Fox* Director and President Director, Managing Director, Chief Operating Officer,
10 State House Square (Principal Executive Chief Financial Officer, Aeltus Investment Management,
Hartford, Connecticut Officer) Inc., April 1994 to present; Director, Managing Director,
Age 45 Chief Operating Officer, Chief Financial Officer, Aeltus
Capital, Inc., February 1995 to present; Senior Vice
President--Operations, Aetna Life Insurance and Annuity
Company, March 1997 to December 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
-------------------------------------------------------------------------------------------------------------------------------
Daniel E. Burton Secretary Assistant General Counsel and Assistant Secretary, Aeltus
10 State House Square Investment Management, Inc., July 2000 to present; Assistant
Hartford, Connecticut General Counsel and Assistant Secretary, Aeltus Capital, Inc.,
Age 33 July 2000 to present; Counsel, Aetna Financial Services Company,
September 1997 to present; Attorney, Securities and
Exchange Commission, August 1996 to August 1997; Associate,
Kirkpatrick & Lockhart LLP September 1992 to August 1996.
-------------------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr. Director Director, Business and Economic Research Center, and Professor
3029 St. Johns Drive of Economics and Finance, Middle Tennessee State University,
Murfreesboro, Tennessee 1991 to present.
Age 59
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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)
-------------------------------------------------------------------------------------------------------------------------------
Maria T. Fighetti Director Associate Commissioner for Contract Management (1996
325 Piermont Road to present), Manager/Attorney (1973 to 1996), Health Services,
Closter, New Jersey New York City Department of Mental Health, Mental Retardation
Age 57 and Alcohol Services.
-------------------------------------------------------------------------------------------------------------------------------
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, Aetna Life Insurance and
Annuity Company, May 2000 to September 2000; Chief
Investment Officer, Aetna Life Insurance and Annuity Company,
May 2000 to present; Director, Aetna Life Insurance
and Annuity Company, February 1995 to September
2000; Senior Vice President, Aetna Life Insurance
and Annuity Company, September 1994 to May 2000 and
September 2000 to present.
-------------------------------------------------------------------------------------------------------------------------------
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.
-------------------------------------------------------------------------------------------------------------------------------
Corine T. Norgaard Director Dean of the Barney School of Business, University of
556 Wormwood Hill Hartford (West Hartford, CT), August 1996 to present;
Mansfield Center, Professor, Accounting and Dean of the School of
Connecticut Management, SUNY Binghamton (Binghamton, NY),
Age 63 August 1993 to August 1996.
-------------------------------------------------------------------------------------------------------------------------------
Richard G. Scheide Director Principal, LoBue Associates Inc., October 1999 to present; Trust
11 Lily Street and Private Banking Consultant, David Ross Palmer Consultants,
Nantucket, Massachusetts July 1991 to present.
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.
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.
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<PAGE>
ACI 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., an integrated financial services provider (the "Transaction").
The Transaction is targeted to close by the end of 2000. Consummation of the
Transaction is subject to a number of contingencies, including regulatory
approvals, the approval of the shareholders of Aetna Inc., and other closing
conditions. Under the Investment Company Act of 1940, the Transaction may result
in a change in control of ACI and, therefore, may constitute an assignment of
the Fund's Underwriting Agreement, which would result in a termination of that
agreement. Consequently, the Board of Directors of the Fund has approved a new
Underwriting Agreement, to take effect upon consummation of the Transaction. The
new Underwriting Agreement is the same as the current agreement in all material
respects, except for the date of execution and termination. In the event that
the Transaction is not consummated, ACI will continue to provide services to the
Fund under the current Underwriting Agreement.
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.
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<PAGE>
Other Payments to Securities Dealers
Typically, the portion of the front-end sales charge on Class A shares shown in
the following tables is paid to your securities dealer. Your securities dealer
may, however, receive up to the entire amount of the front-end sales charge.
<TABLE>
<CAPTION>
When you invest this amount Amount of sales charge typically reallowed to dealers as a percentage
of offering price
<S> <C>
Under $50,000 4.00%
$50,000 or more, but under $100,000 3.75
$100,000 or more, but under $250,000 3.00
$250,000 or more, but under $500,000 2.00
$500,000 or more, but under $1,000,000 1.50
Securities dealers that sell Class A shares in amounts of $1 million or more 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%
</TABLE>
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.
In addition, Aeltus may make payments of up to 0.05% of the Fund's average daily
net assets to national broker-dealers who, as a result of an acquisition of a
member of the Company's selling group, agree to allow the Fund shares to be made
available to their clients in a proprietary wrap account program, provided such
accounts are networked accounts.
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
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<PAGE>
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.
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
25
<PAGE>
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.
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
26
<PAGE>
time, you may file with the Company a signed shareholder application with the
Letter of Intent section completed. After the Letter of Intent is filed, each
additional investment in the Fund (or in certain other series of the Company)
will be entitled to the sales charge applicable to the level of investment
indicated on the Letter of Intent. Sales charge reductions are based on
purchases in the Fund (and in certain other series of the Company) and will be
effective only after notification to ACI that the investment qualifies for a
discount. Your holdings in the Fund (and in certain other Series of the Company)
acquired within 90 days of the day the Letter of Intent is filed will be counted
towards completion of the Letter of Intent and will be entitled to a retroactive
downward adjustment in the sales charge. Such adjustment will be made by the
purchase of additional shares in certain other Series of the Company in an
equivalent amount.
Five percent (5%) of the amount of the total intended purchase will be held by
the transfer agent in escrow until you fulfill the Letter of Intent. If, at the
end of the 13-month period, you have not met the terms of the Letter of Intent
an amount of shares equal to the difference owed will be deducted from your
account. Such an adjustment will be made at NAV and will not be eligible for the
Guarantee. In the event of a total redemption of the account before fulfillment
of the Letter of Intent, the additional sales charge due will be deducted from
the proceeds of the redemption, and the balance will be forwarded to you.
If the Letter of Intent is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending on the amount actually
purchased during the period. The upward adjustment will be paid with shares
redeemed from your account.
Right of Accumulation/Cumulative Quantity Discount
A purchaser of Class A shares may qualify for a cumulative quantity discount by
combining a current purchase (or combined purchases as described above) with
certain other Class A shares of the Series already owned. To determine if you
may pay a reduced front-end sales charge, the amount of your current purchase is
added to the cost or current value, whichever is higher, of certain other Class
A shares you own, as well as certain Class A shares of your spouse and children
under the age of 21. If you are the sole owner of the Fund, you may also add any
other accounts, including retirement plan accounts invested in certain Class A
shares of the Company. Companies with one or more retirement plans may add
together the total plan assets invested in certain Class A shares of the Series
to determine the front-end sales charge that applies.
To qualify for the cumulative quantity discount on a purchase through an
investment dealer, when each purchase is made the investor or dealer must
provide the Company with sufficient information to verify that the purchase
qualifies for the privilege or discount. The shareholder must furnish this
information to the Company when making direct cash investments.
Additional Rights
The Fund retains certain rights, including the rights to: refuse orders to
purchase shares; vary its requirements for initial or additional investments,
reinvestments, retirement and employee benefit plans, sponsored arrangements and
similar programs; and change or discontinue its sales charge waivers and orders
acceptance practices.
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
27
<PAGE>
brokerage firms to execute the Fund's portfolio transactions or in the
designation of a portion of the commissions charged on those transactions to be
paid to other broker-dealers, subject to Aeltus' duty to obtain best execution.
Aeltus receives a variety of brokerage and research services from brokerage
firms in return for the execution by such brokerage firms of trades on behalf of
the Fund. These brokerage and research services include, but are not limited to,
quantitative and qualitative research information and purchase and sale
recommendations regarding securities and industries, analyses and reports
covering a broad range of economic factors and trends, statistical data relating
to the strategy and performance of the Fund and other investment companies,
services related to the execution of trades on behalf of the Fund and advice as
to the valuation of securities, the providing of equipment used to communicate
research information and specialized consultations with Fund personnel with
respect to computerized systems and data furnished to the Fund as a component of
other research services. Aeltus considers the quantity and quality of such
brokerage and research services provided by a brokerage firm along with the
nature and difficulty of the specific transaction in negotiating commissions for
trades in the Fund's securities and may pay higher commission rates than the
lowest available when it is reasonable to do so in light of the value of the
brokerage and research services received generally or in connection with a
particular transaction. Aeltus' policy in selecting a broker to effect a
particular transaction is to seek to obtain "best execution," which means prompt
and efficient execution of the transaction at the best obtainable price with
payment of commissions which are reasonable in relation to the value of the
services provided by the broker, taking into consideration research and
brokerage services provided. When the trader believes that more than one broker
can provide best execution, preference may be given to brokers that provide
additional services to Aeltus.
Research services furnished by brokers through whom the Fund effects securities
transactions may be used by Aeltus in servicing all of its accounts; not all
such services will be used by Aeltus to benefit the Fund.
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.
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.
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<PAGE>
SHAREHOLDER ACCOUNTS AND SERVICES
Shareholder Information
The Fund's transfer agent will maintain your account information. Account
statements will be sent at least quarterly. A Form 1099 generally will also be
sent each year by January 31. Annual and semiannual reports will also be sent to
shareholders. The transfer agent may charge you a fee for special requests such
as historical transcripts of your account and copies of canceled checks.
Consolidated statements reflecting current values, share balances and
year-to-date transactions generally will be sent to you each quarter. All
accounts identified by the same social security number and address will be
consolidated. For example, you could receive a consolidated statement showing
your individual and IRA accounts. With the prior permission of the other
shareholders involved, you have the option of requesting that accounts
controlled by other shareholders be shown on one consolidated statement. For
example, information on your individual account, your IRA, your spouse's
individual account and your spouse's IRA may be shown on one consolidated
statement.
Signature Guarantee
A signature guarantee is verification of the authenticity of the signature given
by certain authorized institutions. The Company requires a 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 guarantees 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
29
<PAGE>
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 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.
30
<PAGE>
The Fund intends to make sufficient distributions or deemed distributions of its
ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Taxes in Relation to the 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.
31
<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
32
<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 (September 13, 2000)
(a.13) Articles of Amendment (September 13, 2000)
(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) Form of 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. (June 22,
2000)(9)
(g.11) Amendment to Custodian Agreement - Mellon Bank, N.A. (September 12,
2000)
(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 for
IMPRESSNet(R)Services
(h.20) Amendment No. 8 to the Transfer Agency and Services Agreement
(h.21) Financial Guaranty Agreement among the Registrant, Aeltus and
MBIA(7)
(h.22) First Amendment to Financial Guaranty Agreement(11)
(h.23) Second Amendment to Financial Guaranty Agreement(16)
(h.24) Custodian Service Agreement among the Registrant, on behalf of
PPF I, MBIA, and Mellon Bank, N.A.(17)
(h.25) Custodian Monitoring Agreement among the Registrant, on behalf of
PPF I, MBIA, and Russell/Mellon Analytical Services, LLC
(Russell/Mellon)(17)
(h.26) Custodian Service Agreement among the Registrant, on behalf of
PPF II, MBIA, and Mellon Bank, N.A.(17)
(h.27) Custodian Monitoring Agreement among the Registrant, on behalf of
PPF II, MBIA, and Russell/Mellon Analytical Services, LLC
(Russell/Mellon)(17)
(h.28) Custodian Service Agreement among the Registrant, on behalf of
PPF III, MBIA, and Mellon Bank, N.A.(9)
(h.29) Custodian Monitoring Agreement among the Registrant, on behalf of
PPF III, MBIA, and Russell/Mellon Analytical Services, LLC
(Russell/Mellon)(9)
(h.30) Custodian Service Agreement among the Registrant, on behalf of
PPF IV, MBIA, and Mellon Bank, N.A.
(h.31) Custodian Monitoring Agreement among the Registrant, on behalf of
PPF IV, MBIA, and Russell/Mellon Analytical Services, LLC
(Russell/Mellon)
(h.32) Form of Custodian Service Agreement among the Registrant, on
behalf of IPPF, MBIA, and Mellon Bank, N.A.
(h.33) 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
<PAGE>
(k) Not applicable
(l) Initial Capital Agreement(14)
(m.1) Distribution Plan (Class A)(11)
(m.2) Distribution Plan (Class B)(11)
(m.3) Distribution Plan (Class C)(8)
(m.4) Distribution Plan (Brokerage Cash Reserves)(6)
(m.5) Shareholder Services Plan (Class A)(16)
(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(18)
(p.2) Aetna Mutual Funds Code of Ethics(18)
(p.3) Elijah Asset Management, LLC Code of Ethics(18)
(q.1) Power of Attorney (November 6, 1998)(14)
(q.2) Authorization for Signatures(19)
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.
<PAGE>
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.
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. 43 to
Registration Statement on Form N-1A (File No. 33-41694), as filed with the
SEC on August 29, 2000.
17. 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.
18. 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.
19. 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 August 31, 2000, Aetna Life Insurance and
Annuity Company (Aetna) and its affiliates had the following interest in
the series of the Registrant, through direct ownership or through one of
Aetna's separate accounts:
<TABLE>
<CAPTION>
% Aetna
----------------------------------------------------------------------------
Class I Class A Class B Class C
------- ------- ------- -------
<S> <C> <C> <C> <C>
Aetna Balanced Fund 27.32%
Aetna Bond Fund 51.82%
Aetna Government Fund 67.80%
Aetna Growth Fund 15.05%
Aetna Growth and Income Fund 15.96%
Aetna Index Plus Large Cap Fund 41.57%
Aetna Index Plus Mid Cap Fund 1.56%
Aetna Index Plus Small Cap Fund 3.12%
Aetna International Fund 6.48%
Aetna Money Market Fund 47.63%
Aetna Small Company Fund 26.85%
Aetna Value Opportunity Fund 2.11%
Aetna Ascent Fund 80.00%
Aetna Crossroads Fund 77.33% 95.89%
Aetna Legacy Fund 69.56% 91.81%
</TABLE>
Aetna is an indirect wholly owned subsidiary of Aetna Inc.
A list of persons directly or indirectly under common control with the
Registrant and a list which indicates the principal business of each such
company referenced in the diagram are incorporated herein by reference to
Item 26 of the Registration Statement on Form N-4 (File No. 33-75962), as
filed with the SEC on August 18, 2000.
As of August 31, 2000, Pershing Division of Donaldson, Lufkin & Jenrette
Securities Corporation, 1 Pershing Plaza, Jersey City, NJ 07399-0002,
owned of record 100% of Brokerage Cash Reserves.
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 January 16, 1998, provides for indemnification of directors and
officers. In addition, the Registrant's officers and directors are
covered under a directors and officers/errors and omissions liability
insurance policy issued by ICI Mutual Insurance Company, which expires
October 1, 2002.
<PAGE>
Section XI.B of the Administrative Services Agreement, incorporated
herein by reference to Exhibit (h.1) to Registrant's Registration
Statement on Form N-1A (File No. 33-41694), as filed on February 25,
1999, provides for indemnification of the Administrator.
Section 8 of the Underwriting Agreement, incorporated herein as Exhibit
(e.1) to Registrant's Statement on Form N-1A (File No. 33-41694), as
filed on July 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.
<PAGE>
The following table summarizes the business connections of the directors
and principal officers of the Investment Adviser.
<TABLE>
<CAPTION>
------------------------------ ----------------------------------- ----------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1997/Addresses*
------------------------------ ----------------------------------- -----------------------------------------------------------------
<S> <C> <C>
John Y. Kim Director, President, Chief President (May 2000 - September 2000) - Aetna; Director
Executive Officer, Chief (February 1995 - September 2000) - Aetna; Chief Investment
Investment Officer Officer (since May 2000) - Aetna; Director, President, Chief
Executive Officer, Chief Investment Officer (since May 1996) -
Aeltus Trust Company; Senior Vice President (September 1994 -
May 2000) and (since September 2000) - Aetna.
J. Scott Fox Director, Managing Director, Managing Director, Chief Operating Officer
Director, Chief Operating and Chief Financial Officer (since September 1997) -
Officer, Chief Financial Aeltus Trust Company; Director, Managing Director,
Officer Chief Operating Officer, Chief Financial Officer (since
November 1997) - Aeltus Capital, Inc.; Vice President (April
1997 - April 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) and (since September 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------ ----------------------------------- ----------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
with Investment Adviser Since Oct. 31, 1997/Addresses*
------------------------------ ----------------------------------- -----------------------------------------------------------------
<S> <C> <C>
Stephanie A. DeSisto Vice President Vice President (since April 2000) - Aeltus Trust
Company.
Michael Gioffre Assistant General Counsel General Counsel and Secretary (since July 2000) -
and Secretary Aeltus Capital, Inc.; General Counsel and
Secretary (since July 2000) - Aeltus Trust
Company; Assistant Secretary (September 1998 -
July 2000) - Aeltus Capital, Inc.; Assistant
Secretary (September 1998 - July 2000) - Aeltus
Trust Company.
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.
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 Income Managing Director (since June 1999) - Aeltus Trust
Investments Company.
</TABLE>
* Except with respect to Mr. McInerney and Ms. Smith, the principal
business address of each person named is 10 State House Square,
Hartford, Connecticut 06103-3602. The address of Mr. McInerney and Ms.
Smith is 151 Farmington Avenue, Hartford, Connecticut 06156.
For information regarding Elijah Asset Management, LLC (EAM), the subadviser for
Aetna Technology Fund, reference is made to the section entitled "Subadviser" in
the Class A, Class B and Class C Prospectus dated September 28, 2000, and the
Class I Prospectus dated March 1, 2000 as amended September 28, 2000, and the
Statement of Additional Information dated September 28, 2000. For information as
to the business, profession, vocation 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
(b) The following are the directors and principal officers of Aeltus
Capital, Inc., the principal underwriter of the Registrant:
<PAGE>
<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
Michael Gioffre Assistant General Counsel and Assistant Secretary
Secretary
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
----------------------
Not applicable.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Aetna Series Fund, Inc. certifies that it meets all of the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act of 1933 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
Hartford and State of Connecticut on the 27th day of September 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 ) September
------------------------------------------- ) 27, 2000
Maria T. Fighetti )
)
David L. Grove* Director )
------------------------------------------- )
David L. Grove )
)
John Y. Kim* Director )
------------------------------------------- )
John Y. Kim )
)
Sidney Koch* Director )
------------------------------------------- )
Sidney Koch )
)
Corine T. Norgaard* Director )
------------------------------------------- )
Corine T. Norgaard )
)
)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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/ Michael Gioffre
---------------------------------------------------
*Michael Gioffre
Attorney-in-Fact
*Executed pursuant to Power of Attorney dated November 6, 1998 and filed
with the Securities and Exchange Commission on December 17, 1998.
<PAGE>
Aetna Series Fund, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C>
99-(a.12) Articles Supplementary
------------------
99-(a.13) Articles of Amendment
------------------
99-(d.7) Form of Investment Advisory Agreement between Aeltus and the
Registrant, on behalf of Aetna Index Plus Protection Fund (IPPF)
------------------
99-(g.11) Amendment to Custodian Agreement - Mellon Bank, N.A.
------------------
99-(h.7) Amendment to Administrative Services Agreement between
Aeltus and the Registrant, on behalf of IPPF
------------------
99-(h.19) Amendment No. 8 to the Transfer Agency and Services
Agreement for IMPRESSNet(R) Services
------------------
99-(h.20) Amendment No. 8 to the Transfer Agency and Services
Agreement
------------------
99-(h.30) Custodian Service Agreement among the Registrant, on
behalf of PPF IV, MBIA, and Mellon Bank, N.A.
------------------
99-(h.31) Custodian Monitoring Agreement among the Registrant,
on behalf of PPF IV, MBIA, and Russell/Mellon Analytical
Services, LLC (Russell/Mellon)
------------------
99-(h.32) Form of Custodian Service Agreement among the Registrant,
on behalf of IPPF, MBIA, and Mellon Bank, N.A.
------------------
99-(h.33) Form of Custodian Monitoring Agreement among the Registrant,
on behalf of IPPF, MBIA, and Russell/Mellon Analytical
Services, LLC (Russell/Mellon)
------------------
99-(i) Opinion and Consent of Counsel
------------------
99-(j) Consent of Independent Auditors
------------------
</TABLE>
