<PAGE>
As filed with the Securities and Exchange File No. 33-88334
Commission on June 19, 1995 811-8934
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
______________________________________________________________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Pre-Effective Amendment No. 1
---
AETNA GENERATION PORTFOLIOS, INC.
---------------------------------
(Exact Name of Registrant as Specified in Charter)
151 Farmington Avenue, RE4C Hartford, Connecticut 06156
---------------------------------------------------------
(Address of Principal Executive Offices)
(203) 273-7834
--------------
(Registrant's Telephone Number, including Area Code)
______________________________________________________________________________
Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4C Hartford, Connecticut 06156
---------------------------------------------------------
(Name and Address of Agent for Service)
______________________________________________________________________________
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective on June 21, 1995.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of the securities being offered
under the Securities Act of 1933.
<PAGE>
AETNA GENERATION PORTFOLIOS, INC.
Cross-Reference Sheet
<TABLE>
<CAPTION>
Form N-1A
Item No. Caption in Prospectus
- -------- ---------------------
<S> <C>
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Description of the Generation
Portfolios; Investment Strategies;
Investment Techniques; Risk Factors
and Other Considerations; Investment
Restrictions
5. Management of the Fund Management of the Generation
Portfolios;
5A.Management's Discussion of Fund Not applicable
Performance
6. Capital Stock and Other Securities General Information;
Tax Matters
7. Purchase of Securities Being Offered Management of the Generation
Portfolios;
Net Asset Value;
Sale and Redemption of Shares
8. Redemption or Repurchase Sale and Redemption of Shares
9. Pending Legal Proceedings Not applicable
Caption in Statement of Additional
----------------------------------
Information
-----------
10.Cover Page Cover Page
11.Table of Contents Table of Contents
12.General Information and History General Information and History
13.Investment Objectives and Policies General Information and History;
Additional Investment Restrictions
and Policies of the Generation
Portfolios;
Description of Various Securities and
Investment Techniques
14.Management of the Fund Directors and Officers of the Company
15.Control Persons and Principal Control Persons and Principal
Holders of Securities Shareholders
16.Investment Advisory and Other The Investment Advisory Contract;
Services The Administrative Services Agreement
17.Brokerage Allocation and Other Brokerage Allocation and Trading
Practices Policies
18.Capital Stock and Other Securities Description of Shares; Voting Rights
19.Purchase, Redemption and Pricing Sale and Redemption of Shares;
of Securities Being Offered Net Asset Value
20.Tax Status Tax Status
</TABLE>
<PAGE>
<TABLE>
<S> <C>
21.Underwriters Not applicable
22.Calculation of Performance Data Not applicable
23.Financial Statements Financial Statements
</TABLE>
<PAGE>
AETNA GENERATION PORTFOLIOS, INC.
AETNA ASCENT VARIABLE PORTFOLIO
AETNA CROSSROADS VARIABLE PORTFOLIO
AETNA LEGACY VARIABLE PORTFOLIO
151 FARMINGTON AVENUE
HARTFORD, CT 06156-8962
1-800-525-4225
PROSPECTUS DATED: JUNE , 1995
Aetna Generation Portfolios, Inc. (the "Company") is an open-end diversified
management investment company authorized to issue multiple series of shares,
each representing a diversified portfolio of investments (individually, a
"Portfolio" and collectively, the "Generation Portfolios"). The Company
currently has three series authorized. The Company's shares are offered only to
insurance companies to fund benefits under their variable annuity contracts (VA
Contracts) and variable life insurance policies (VLI Policies). Each Portfolio
is an asset allocation fund, designed for Participants having different risk
tolerances. See "Description of the Generation Portfolios" and "Risk Factors
and Other Considerations."
This Prospectus sets forth concisely the information that a prospective
contract holder or policy holder ("Participant") should know before directing
an investment to a Portfolio and should be read and kept for future reference.
A Statement of Additional Information ("SAI") dated June , 1995 contains more
information about the Generation Portfolios. For a free copy of the SAI, call
1-800-525-4225 or write to Aetna Generation Portfolios, Inc., at the address
listed above. The SAI has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated into this Prospectus by reference.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the Company in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY BEFORE INVESTING AND RETAIN FOR FUTURE
REFERENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Company................................................................. 3
Description of the Generation Portfolios.................................... 3
Investment Strategies....................................................... 3
Investment Techniques....................................................... 6
Risk Factors and Other Considerations....................................... 9
Investment Restrictions..................................................... 10
Management of the Generation Portfolios..................................... 11
Sale and Redemption of Shares............................................... 12
Net Asset Value............................................................. 12
General Information......................................................... 12
Tax Matters................................................................. 12
Glossary of Investment Terms................................................ 14
Description of Corporate Bond Ratings....................................... 16
</TABLE>
2 Aetna Generation Portfolios, Inc.
<PAGE>
THE COMPANY
The Company is an open-end, management investment company, consisting of
multiple series. It currently has authorized three series, AETNA ASCENT
VARIABLE PORTFOLIO (Aetna Ascent), AETNA CROSSROADS VARIABLE PORTFOLIO (Aetna
Crossroads) and AETNA LEGACY VARIABLE PORTFOLIO (Aetna Legacy). The Company may
authorize additional series in the future. The Company is intended to serve as
one of the funding vehicles for VA Contracts and VLI Policies to be offered
through the separate accounts of insurance companies. The insurance companies
and not Participants are shareholders of the Company. See "General
Information."
The Company does not foresee any disadvantages to the Participants in funding
both VA Contracts and VLI Policies through the Generation Portfolios or in
offering the Generation Portfolios through more than one insurance company. The
Company's Board of Directors has agreed to monitor the Portfolios' activities
to identify any potentially material, irreconcilable conflicts and to take
appropriate action if necessary to resolve any conflicts which may arise.
DESCRIPTION OF THE GENERATION PORTFOLIOS
The Generation Portfolios are asset allocation funds that seek to maximize
long-term investment returns at varying levels of risk.
AETNA ASCENT'S investment objective is to provide capital appreciation. The
Portfolio is designed for Participants who have an investment horizon exceeding
15 years and who have a high level of risk tolerance.
AETNA CROSSROADS' investment objective is to provide total return (i.e., income
and capital appreciation, both realized and unrealized). The Portfolio is
designed for Participants who have an investment horizon exceeding 10 years or
who have a moderate level of risk tolerance.
AETNA LEGACY'S investment objective is to provide total return consistent with
preservation of capital. The Portfolio is designed for Participants who have an
investment horizon exceeding five years or who have a low level of risk
tolerance.
Each Portfolio's investment objective is fundamental and may not be changed
without the vote of a majority of the holders of that Portfolio's outstanding
shares. There can be no assurance that a Portfolio will meet its investment
objective. Each Portfolio is subject to investment policies and restrictions
described in this Prospectus and in the SAI, some of which are fundamental. No
fundamental investment policy or restriction may be changed without the
approval of a majority of the outstanding shares of that Portfolio.
INVESTMENT STRATEGIES
A glossary describing various investment terms used in this Prospectus starts
on page 14.
The Generation Portfolios each have specific asset allocation strategies, which
correspond to their respective investment objectives. Each strategy contains
unique asset allocation ranges and benchmark allocations for the seven asset
classes utilized by the Portfolios. The ranges show what is permissible for
allocations to each asset class in a given Portfolio. The Investment Adviser
may adjust the asset class mix of a Portfolio within the ranges. The benchmarks
describe a typical asset allocation strategy under neutral market conditions.
Benchmarks are also used by the Investment Adviser to monitor a "hypothetical
benchmark portfolio" consisting of the benchmark allocation in each comparative
index. Comparing the actual performance of each Generation Portfolio against
its respective "hypothetical benchmark portfolio" is useful in evaluating the
impact of ongoing asset allocation decisions.
Aetna Generation Portfolios, Inc. 3
<PAGE>
The allocation ranges, benchmarks and comparative indexes are as follows:
<TABLE>
<CAPTION>
AETNA AETNA AETNA
ASSET CLASS ASCENT CROSSROADS LEGACY COMPARATIVE INDEX
- ----------- ------ ---------- ------ -----------------
<S> <C> <C> <C>
EQUITIES
Large Capitalization Stocks
Range................. 0-60% 0-45% 0-30% Standard & Poor's 500 Stock Index
Benchmark............. 20% 15% 10%
Small Capitalization Stocks
Range................. 0-40% 0-30% 0-20% Russell 2000 Small Cap Stock Index
Benchmark............. 20% 15% 10%
International Stocks
Range................. 0-40% 0-30% 0-20% Morgan Stanley Capital International
Benchmark............. 20% 15% 10% Europe, Australia and Far East Index
Real Estate Stocks
Range................. 0-40% 0-30% 0-20% National Association Real Estate
Benchmark............. 20% 15% 10% Investment Trust Equity REIT Index
FIXED INCOME
U. S. Dollar Bonds
Range................. 0-30% 0-70% 0-100% Salomon Brothers Broad Investment
Benchmark............. 10% 25% 40% Grade Index
International Bonds
Range................. 0-20% 0-20% 0-20% Salomon Brothers Non-U.S. World
Benchmark............. 10% 10% 10% Government Bond Index
MONEY MARKET SECURITIES
Range................. 0-30% 0-30% 0-30% 91 Day T-Bill
Benchmark............. 0% 5% 10%
</TABLE>
In addition to investing within the asset allocation ranges, Aetna Crossroads
will invest no more than 60% of its assets in the following types of securities
and Aetna Legacy will invest no more than 35% of its assets in the following
types of securities: securities in the Small Capitalization Stock Class with
capitalization of less than $0.5 billion, securities in the U.S. Dollar Bond
Class that are below investment grade which are known as high risk, high-yield
securities or "junk bonds" (hereinafter, "high risk, high-yield securities"),
securities in the International Stock Class, and securities in the
International Bond Class. Aetna Ascent has no such restrictions. These
restrictions apply at the time of purchase of the particular securities and are
designed to limit the amount of risk assumed by each Portfolio.
The Generation Portfolios may also invest in options contracts, futures
contracts, and other derivative instruments which are described in greater
detail starting on page 7 and in the SAI.
The Investment Adviser will invest the assets of each Portfolio within the
specified ranges. The actual allocation of assets of each Portfolio may be
above or below the benchmark allocation at any given time, depending on the
Investment Adviser's ongoing evaluation of the expected returns and risks of
each asset class. For example, if the Investment Adviser believes, based on a
review of various economic and financial market factors, that the expected
return and risk for a particular asset class will be better than other classes,
the allocation of assets to that class may be higher than the benchmark
percentage.
Asset allocation strategies are supplemented by security selection decisions
within each asset class. Selection of particular securities will be based on
the Investment Adviser's evaluation of various factors including the particular
issuer or industry, the expected return from the investment, the price to
earnings ratio, dividend payments, yields and inflation factors. The following
describes the securities in each of
4 Aetna Generation Portfolios, Inc.
<PAGE>
the asset classes (some of these securities involve risks which are described
in "Risk Factors and Other Considerations"):
EQUITY SECURITIES
EACH PORTFOLIO MAY INVEST ITS ASSETS IN EQUITY SECURITIES THAT THE INVESTMENT
ADVISER BELIEVES HAVE THE POTENTIAL FOR CAPITAL APPRECIATION. THESE MAY INCLUDE
THE EQUITY SECURITIES OF LARGER, WIDELY-TRADED ISSUERS; SMALLER, LESS WELL-
KNOWN ISSUERS; FOREIGN ISSUERS; AND REAL ESTATE-RELATED ISSUERS. SECURITIES IN
THIS ASSET CLASS INCLUDE PREFERRED AND COMMON STOCKS, SECURITIES CONVERTIBLE
INTO STOCK, AND WARRANTS TO PURCHASE STOCK.
LARGE CAPITALIZATION STOCK CLASS. Issuers of equity securities in this class
generally have equity market capitalizations at the time of purchase of more
than $1 billion, are U.S. domiciled and their securities generally are widely
traded on U.S. exchanges.
SMALL CAPITALIZATION STOCK CLASS. Equity securities in this class are issued by
smaller, less well-known U.S. companies with equity market capitalization
generally less than $1.0 billion. These securities may involve greater risks
because their issuers may be untested in adverse market conditions, may have
limited product lines or financial resources, or their securities may trade
less frequently than those of larger-capitalized companies. As a result, the
prices of these securities may fluctuate more than prices of more widely-traded
securities of larger companies.
INTERNATIONAL STOCK CLASS. Equity securities in this class may be issued by
companies domiciled or engaged in business principally in countries outside of
the U.S. The Investment Adviser believes that investment in foreign securities
offers significant potential for long-term capital appreciation and affords
substantial opportunities for investment diversification. Each Portfolio may
invest in ordinary foreign shares, American Depositary Receipts ("ADRs"),
futures contracts or foreign stock indices and other derivative securities
within the limits set forth below. Investments in securities of foreign
companies and in securities denominated in foreign currencies involve certain
risks, which are described below under "Risk Factors and Other Considerations."
REAL ESTATE STOCK CLASS. Equity securities in this class include equity
securities of real estate investment trusts ("REITs"), real estate development
and real estate operating companies, and companies engaged in other real estate
related businesses. Each Portfolio will invest the real estate portion of its
portfolio primarily in equity REITs, which are trusts that sell shares 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 a geographic region, such as the Northeastern United States, or both.
FIXED INCOME SECURITIES
EACH PORTFOLIO MAY INVEST IN FIXED INCOME SECURITIES, INCLUDING OBLIGATIONS OF
THE U.S. AND FOREIGN GOVERNMENTS AS WELL AS OBLIGATIONS OF CORPORATIONS.
The value of fixed income securities fluctuates in response to changes in
interest rates. Generally, when interest rates fall, the value of fixed income
securities increases. Conversely, when interest rates rise, the value of fixed
income securities decreases. The amount of the increase or decrease in value is
affected by other factors, including the maturity of the security. Fixed income
securities are subject to various risks, including the creditworthiness of the
issuer and economic factors.
U.S. DOLLAR BONDS CLASS. Securities in this class consist of any fixed income
security denominated in U.S. dollars, including obligations of the U.S.
Government, debt securities issued by U.S. corporations and supranational
agencies and mortgage-backed securities.
U.S. Government Securities consist of direct obligations of the U.S.
Government, such as treasury bills, notes and bonds that are backed by the full
faith and credit of the United States, or obligations, such as notes and bonds
that are guaranteed by agencies and instrumentalities of the U.S. Government.
Securities of these agencies and instrumentalities are backed by either the
full faith and credit of the United States, the right of the issuer to borrow
from the U.S. Treasury, or the credit of the agency or
Aetna Generation Portfolios, Inc. 5
<PAGE>
Aetna Generation Portfolios, Inc.
instrumentality. Securities in this group also include repurchase agreements
collateralized by U.S. Government agency securities and zero coupon bonds. See
"Investment Techniques."
Corporate Bonds include investment grade debt securities, high risk, high-yield
securities, and mortgage-backed and other asset-backed securities which are
rated in the four highest categories by Standard & Poor's Corporation or
Moody's Investors Service, Inc. Corporate bonds may also include other debt
instruments with similar ratings by other nationally recognized statistical
rating organizations or other unrated debt securities which are considered by
the Investment Adviser to be of similar quality. High risk, high-yield
securities carry more risk than do investment grade debt securities. Each
Portfolio will not invest more than 15% of its assets in high risk, high-yield
securities.
Mortgage-backed securities are securities that represent part ownership of a
pool of mortgage loans where principal is scheduled to be paid back by the
borrower over the length of the loan or returned in a lump sum at maturity.
They consist of pass-through securities issued by the U.S. Government and
corporations. Payments of interest and principal on U.S. mortgage-backed
securities may be guaranteed by an agency or instrumentality of the United
States. These agencies and instrumentalities include, but are not limited to,
the Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. Private mortgage
pass-through securities are backed by pools of conventional fixed-rate or
adjustable-rate mortgage loans but are not guaranteed as to payment of interest
and/or principal by the issuer. Also included in this class are collateralized
mortgage obligations ("CMOs") and securities issued by real estate mortgage
investment conduits ("REMICs"). Additional information about CMOs and REMICs is
contained in the SAI. Mortgage-backed securities are subject to prepayment risk
resulting from early prepayment by individual homeowners.
INTERNATIONAL BOND CLASS includes debt securities denominated in currencies
other than the U.S. dollar. Generally, these securities are issued by foreign
corporations and foreign governments and are traded on foreign markets.
Investment in international debt securities that are denominated in foreign
currencies involve certain risks, which are described under "Risk Factors and
Other Considerations."
MONEY MARKET SECURITIES
EACH GENERATION PORTFOLIO MAY INVEST IN HIGH QUALITY MONEY MARKET OBLIGATIONS
THAT PRESENT MINIMAL CREDIT RISK.
Money market securities are short term instruments that are considered safe and
liquid, such as U.S. Treasury Bills, negotiable certificates of deposit,
banker's acceptances, and commercial paper. These securities may include
instruments that have variable interest rates which, in the opinion of the
Investment Adviser, will maintain a value at or close to the face value of the
security.
Each Portfolio may keep a portion of its assets in cash.
INVESTMENT TECHNIQUES
The Generation Portfolios may use the following investment techniques (see the
"Glossary of Investment Terms" for the definition of certain terms used below):
BORROWING. A Portfolio may borrow up to 5% of the value of its total assets for
temporary or emergency purposes. The Generation Portfolios do not intend to
borrow for leveraging purposes; but they have the authority to do so. A
Portfolio may borrow for leveraging purposes only if after the borrowing the
value of the Portfolio's net assets including amounts from the borrowings, is
equal to at least 300% of all outstanding borrowings. Leveraging can increase
the volatility of a Portfolio since it exaggerates the effects of changes in
the value of the securities purchased with the borrowed funds.
SECURITIES LENDING. A Portfolio may lend its portfolio securities; however, the
value of the loaned securities (together with all other assets that are loaned,
including those subject to repurchase agreements) may not exceed one-third of
the Portfolio's total assets. A Portfolio will not lend portfolio
6
<PAGE>
securities to affiliates. Though fully collateralized, lending portfolio
securities involves certain risks, including the possibility that the borrower
may become insolvent or default on the loan. In the event of a disparity
between the value of the loaned security and the collateral, there is the
additional risk that the borrower may fail to return the securities or provide
additional collateral.
REPURCHASE AGREEMENTS. Under a repurchase agreement, a Portfolio may acquire a
debt instrument for a relatively short period subject to an obligation by the
seller to repurchase and by the Portfolio to resell the instrument at a fixed
price and time.
The Generation Portfolios may enter into repurchase agreements with domestic
banks and broker-dealers. Such agreements, although fully collateralized,
involve the risk that the seller of the securities may fail to repurchase them.
In that event, a Portfolio may incur costs in liquidating the collateral or a
loss if the collateral declines in value. If the default on the part of the
seller is due to insolvency and the seller initiates bankruptcy proceedings,
the ability of a Portfolio to liquidate the collateral may be delayed or
limited.
The Board of Directors has established credit standards for repurchase
transactions entered into by the Generation Portfolios.
ASSET-BACKED SECURITIES. The Generation Portfolios may purchase securities
collateralized by a specified pool of assets, including, but not limited to,
credit card receivables, automobile loans, home equity loans, computer leases,
boat loans, mobile home loans, or recreational vehicles. These securities are
subject to prepayment risk. In periods of declining interest rates,
reinvestment of prepayment proceeds would be made at lower and less attractive
interest rates.
ZERO COUPON AND PAY-IN-KIND BONDS. The Generation Portfolios may invest in zero
coupon securities and pay-in-kind bonds. Zero coupon securities are debt
securities that pay no cash income but are sold at substantial discounts to
their value at maturity. Some zero coupon securities call for the commencement
of regular interest payments at a deferred date. Pay-in-kind bonds pay all or a
portion of their interest in the form of debt or equity securities. Zero coupon
securities and pay-in-kind bonds are subject to greater price fluctuations in
response to changes in interest rates than are ordinary interest-paying
instruments with similar maturities; the value of zero coupon securities and
pay-in-kind bonds appreciate more during periods of declining interest rates
and depreciate more during periods of rising interest rates.
BANK OBLIGATIONS. The Generation Portfolios may invest in obligations
(including banker's acceptances, time deposits and certificates of deposit)
issued by domestic banks. They may also invest in obligations of foreign banks
provided the issuing bank has a minimum of $5 billion in assets and a primary
capital ratio of at least 4.25%.
OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. A derivative is a financial
instrument, the value of which is "derived" from the performance of an
underlying asset (such as a security or index of securities). In addition to
futures and options, derivatives include, but are not limited to, forward
contracts, swaps, structured notes, and CMOs.
A Portfolio may engage in various strategies using derivatives including
managing its exposure to changing interest rates, securities prices and
currency exchange rates (collectively known as hedging strategies), or
increasing its investment return. For purposes other than hedging, a Portfolio
will invest no more than 5% of its total assets in derivatives which at the
time of purchase are considered by management to involve high risk to the
Portfolio. These would include inverse floaters, interest-only and principal-
only securities.
A Portfolio may buy and sell options contracts including index options and
options on foreign securities. There is no limit on the amount of a Portfolio's
total assets that may be subject to call options; however, writing a put option
requires the segregation of liquid assets to cover the contract. A Portfolio
will not
Aetna Generation Portfolios, Inc. 7
<PAGE>
Aetna Generation Portfolios, Inc.
write a put option if it will require more than 50% of the Portfolio's net
assets to be segregated to cover the put obligation nor will it write a put
option if after it is written more than 3% of the Portfolio's assets would
consist of put options.
Investments in futures contracts and related options with respect to foreign
currencies, fixed income securities and foreign stock indices may also be made
by a Portfolio. Although these investments are primarily made to hedge against
price fluctuations, in some cases, a Portfolio may buy a futures contract for
the purpose of increasing its exposure in a particular asset class or market
segment, which strategy may be considered speculative. This strategy is
typically used to manage better portfolio transaction costs. The aggregate
futures market prices of financial instruments required to be delivered or
purchased under open futures contracts may not exceed 30% of Aetna Legacy's
total assets, 60% of Aetna Crossroads' total assets, and 100% of Aetna Ascent's
total assets. With respect to futures contracts or related options that may be
entered into for speculative purposes, the aggregate initial margin for futures
contracts and premiums for options will not exceed 5% of a Portfolio's net
assets, after taking into account realized profits and unrealized losses on
such futures contracts.
A Portfolio may invest in forward contracts on foreign currency ("forward
exchange contracts"). These contracts may involve "cross-hedging," a technique
in which a Portfolio hedges with currencies which differ from the currency in
which the underlying asset is denominated.
The use of forward exchange contracts may reduce the gain that would otherwise
result from a change in the relationship between the U.S. dollar and a foreign
currency. In an attempt to limit their risk in forward exchange contracts, the
Generation Portfolios limit their exposure to the amount of their respective
assets denominated in the foreign currency being cross-hedged. Cross-hedging
entails a risk of loss on both the value of the security that is the basis of
the hedge and the currency contract that was used in the hedge. These risks are
described in greater detail in the SAI.
A Portfolio may also invest in interest rate swap transactions. Interest rate
swaps are subject to credit risks (if the other party fails to meet its
obligations) and also interest rate risks, because a Portfolio could be
obligated to pay more under its swap agreements than it receives under them as
a result of interest rate changes.
U.S. GOVERNMENT DERIVATIVES. A Portfolio may purchase separately traded
principal and interest components of certain U.S. Government securities
("Strips"). In addition, a Fund may acquire custodial receipts that represent
ownership in a U.S. Government security's future interest or principal
payments. These securities are known by such exotic names as TIGRS and CATS and
may be issued at a discount to face value. They are generally more volatile
than normal fixed income securities because interest payments are accrued
rather than paid out in regular installments.
SUPRANATIONAL AGENCIES. Each Portfolio may invest up to 10% of its net assets
in securities of supranational agencies such as: 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.
Securities of supranational agencies are not considered government securities
and are not supported directly or indirectly by the U.S. Government.
ILLIQUID AND RESTRICTED SECURITIES. A Portfolio may invest up to 15% of its
total assets in illiquid securities. Illiquid securities are securities that
are not readily marketable or cannot be disposed of promptly within seven days
in the ordinary course of business without taking a materially reduced price.
In addition, a Portfolio may invest in securities that are subject to legal or
contractual restrictions on resale, including securities purchased under Rule
144A and Section 4(2) of the Securities Act of 1933.
8
<PAGE>
Because of the absence of a trading market for illiquid and certain restricted
securities, it may take longer to liquidate these securities than it would
unrestricted, liquid securities. A Portfolio may realize less than the amount
originally paid by the Portfolio for the security. The Board of Directors has
established a policy concerning investments in restricted and illiquid
securities.
CASH OR CASH EQUIVALENTS. The Generation Portfolios reserve the right to
depart from their investment objectives temporarily by investing up to 100% of
their assets in cash or securities in the Money Market Class for defense
against potential market declines.
OTHER INVESTMENTS. Each Portfolio may use other investment techniques,
including "when-issued" and "delayed-delivery securities" and variable rate
instruments. A Portfolio will establish a segregated account in which it will
maintain liquid assets in an amount at least equal to the Portfolio's
commitments to purchase securities on a when-issued or delayed-delivery basis.
These techniques are described in the SAI.
RISK FACTORS AND OTHER CONSIDERATIONS
GENERAL CONSIDERATIONS. The different types of securities purchased and
investment techniques used by a Portfolio involve varying amounts of risk. For
example, equity securities are subject to a decline in the stock market or in
the value of the issuer, and preferred stocks have price risk and some
interest rate and credit risk. The value of 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,
on each debt security, the risk of principal and interest default is greater
with higher-yielding, lower-grade securities. High risk, high-yield securities
may provide a higher return but with added risk. In addition, foreign
securities have currency risk. Some of the risks involved in the securities
acquired by the Generation Portfolios are discussed in this section.
Additional discussion is contained above under "Investment Techniques" and in
the SAI.
PORTFOLIO TURNOVER.
Portfolio turnover refers to the frequency of portfolio transactions and the
percentage of portfolio assets being bought and sold in the aggregate during
the year. The Generation Portfolios do not intend to make a general practice
of short-term trading. It is anticipated that under normal market conditions
the average annual portfolio turnover rate for each Portfolio will not exceed
100%. A high turnover rate will result in increased brokerage commissions and
may increase taxable capital gains.
INTERNATIONAL SECURITIES.
Investments in securities of foreign issuers or securities denominated in
foreign currencies involve risks not present in domestic markets. Such risks
include: currency fluctuations and related currency conversion costs; less
liquidity; price or income volatility; less government supervision and
regulation of foreign stock exchanges, brokers and listed companies; possible
difficulty in obtaining and enforcing judgments against foreign entities;
adverse foreign political and economic developments; different accounting
procedures and auditing standards; the possible imposition of withholding
taxes on interest income payable on securities; the possible seizure or
nationalization of foreign assets; the possible establishment of exchange
controls or other foreign laws or restrictions which might adversely affect
the payment and transferability of principal, interest and dividends on
securities; higher transaction costs; possible settlement delays; and less
publicly available information about foreign issuers.
DEPOSITARY RECEIPTS. The Generation Portfolios can invest in both sponsored
and unsponsored depositary receipts. Unsponsored depositary receipts, which
are typically traded in the over-the-counter market, may be less liquid than
sponsored depositary receipts and therefore may involve more risk. In
addition, there may be less information available about issuers of unsponsored
depositary receipts.
The Generation Portfolios will generally acquire ADRs which are dollar
denominated, although their market price is subject to fluctuations of the
foreign currency in which the underlying securities are denominated. All
depositary receipts will be considered foreign securities for purposes of a
Portfolio's investment limitation concerning investment in foreign securities.
See the "Glossary of Investment Terms" and the SAI for more information.
Aetna Generation Portfolios, Inc. 9
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Aetna Generation Portfolios, Inc.
REAL ESTATE SECURITIES. A Portfolio's investments in real estate securities
may be subject to certain of the same risks associated with the direct
ownership of real estate. These risks include: declines in the value of real
estate; risks related to general and local economic conditions, overbuilding
and competition; increases in property taxes and operating expenses; and
variations in rental income. In addition, equity REITS may be dependent upon
management skill, may not be diversified, and may be subject to the risks of
obtaining adequate financing for projects on favorable terms. Equity REITS are
also subject to the possibility of failing to qualify for tax-free pass-
through of income under the Internal Revenue Code and failing to maintain
exemption from the Investment Company Act of 1940, as amended ("1940 Act").
HIGH RISK HIGH-YIELD SECURITIES. A Portfolio may invest in high risk, high-
yield securities, often called junk bonds. These securities tend to offer
higher yields than investment-grade bonds because of the additional risks
associated with them. These risks include: a lack of liquidity; an
unpredictable secondary market; a greater likelihood of default; increased
sensitivity to difficult economic and corporate developments; call provisions
which may adversely affect investment returns; and loss of the entire
principal and interest. Although junk bonds are high risk investments, the
Investment Adviser may purchase these securities if they are thought to offer
good value. This may happen if, for example, the rating agencies have, in the
Investment Adviser's opinion, misclassified the bonds or overlooked the
potential for the issuer's enhanced creditworthiness.
DERIVATIVES. The Portfolios may use derivative instruments as described above
under "Investment Techniques--Options, Futures and Other Derivative
Instruments." Derivatives can be volatile investments and involve certain
risks. A Portfolio may be unable to limit its losses by closing a position due
to lack of a liquid market or similar factors. Losses may also occur if there
is not a perfect correlation between the value of futures or forward contracts
and the related securities. The use of futures may involve a high degree of
leverage because of low margin requirements. As a result, small price
movements in futures contracts may result in immediate and potentially
unlimited gains or losses to a Portfolio. Leverage may exaggerate losses of
principal. The amount of gains or losses on investments in futures contracts
depends on the Investment Adviser's ability to predict correctly the direction
of stock prices, interest rates and other economic factors.
VARIABLE RATE INSTRUMENTS, WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS.
When-issued, delayed-delivery and variable rate instruments may be subject to
liquidity risks and risks of loss of principal due to market fluctuations.
SPECIAL CONSIDERATIONS. The investment results of the Generation Portfolios
depend in part upon the Investment Adviser's ability to anticipate correctly
the relative performance of stocks, bonds and money market instruments. While
the Investment Adviser has substantial experience in managing all asset
classes, there can be no assurance that it will always allocate assets to the
best performing sectors. A Portfolio's performance would suffer if a major
proportion of its assets were allocated to stocks in a declining market or,
similarly, if a major portion of a Portfolio's assets were allocated to bonds
at a time of adverse interest rate movement.
INVESTMENT RESTRICTIONS
In addition to the restrictions discussed under "Investment Strategies" and
"Investment Techniques," a Portfolio will not concentrate its investments in
any one industry, except that a Portfolio 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 by the U.S.
Government, its agencies and instrumentalities.
Additionally, a Portfolio will not 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, its agencies or instrumentalities) or purchase more than
10% of the outstanding voting securities of any one issuer. This restriction
applies only to 75% of a Portfolio's total assets.
10
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Aetna Generation Portfolios, Inc.
MANAGEMENT OF THE GENERATION PORTFOLIOS
DIRECTORS. The operations of each Portfolio are managed under the direction of
the Board of Directors ("Directors"). The Directors set broad policies for the
Company and each Portfolio. Information about the Directors is found in the
SAI.
INVESTMENT ADVISER. Aetna Life Insurance and Annuity Company ("ALIAC" or the
"Investment Adviser"), serves as the Investment Adviser for each of the
Generation Portfolios. ALIAC is a Connecticut insurance corporation with its
principal offices at 151 Farmington Avenue, Hartford, Connecticut 06156, and is
registered with the SEC as an investment adviser. As of December 31, 1994,
ALIAC managed over $20.4 billion in assets. The Investment Adviser is a wholly-
owned subsidiary of Aetna Life and Casualty Company which, with affiliated
companies, comprises one of the world's leading providers of insurance and
financial services.
Under the terms of Investment Advisory Agreements between the Company and ALIAC
with respect to each of the Portfolios, ALIAC is, subject to the supervision of
the Directors, responsible for managing the assets of each Portfolio in
accordance with their respective investment objectives and policies as
described under "Description of the Generation Portfolios" and "Investment
Strategies." The Investment Adviser determines what securities and other
instruments are purchased and sold by each Portfolio and is responsible for
obtaining and evaluating financial data for each Portfolio. The Investment
Adviser furnishes all necessary facilities for, and pays the salaries and other
related costs of personnel engaged in providing investment advice to, the
Generation Portfolios. The Investment Adviser also pays any fees and expenses
for Directors and officers of the Generation Portfolios who are employees or
affiliated persons of the Investment Adviser. The Investment Adviser receives a
monthly fee at an annual rate of 0.50% of the average daily net assets of each
Portfolio for its services.
PORTFOLIO MANAGEMENT. KEVIN M. MEANS is the lead portfolio manager for the
Generation Portfolios and is responsible for determining the allocation of each
Portfolio's investments among the seven asset classes described under
"Investment Strategies."
The following individuals are responsible for the selection of securities for
the Generation Portfolios in each of the asset classes:
Mr. Means is also responsible for the selection of securities for the
Generation Portfolios in the Large Capitalization Stocks class. Mr. Means has
over eight years investment management experience. Before joining ALIAC in 1994
he was with INVESCO Capital Management, Inc.
VINCE FIORAMONTI, International Stocks and International Bonds, has over seven
years experience in the investment management business. He has been with ALIAC
since 1994 and was with The Travelers Investment Management Company from 1988
to 1994.
YANIV TEPPER, Real Estate Stocks, has been with ALIAC since 1994 and has been a
real estate consultant for Aetna since 1992.
DONALD TOWNSWICK, Small Capitalization Stocks, has three years experience in
the investment management business, with ALIAC since 1994 and with INVESCO
Capital Management, Inc. from 1992 to 1994. He was a management consultant for
Deloitte Touche from 1990 to 1992.
JEANNE WONG-BOEHM, U.S. Dollar Bonds and Money Market Instruments, has over 12
years experience in the investment management business with ALIAC.
ADMINISTRATOR ALIAC acts as administrator for each of the Portfolios and
performs certain administrative and internal accounting services, including
maintaining general ledger accounts, regulatory compliance, preparing financial
information for semiannual and annual reports, preparing and filing
registration statements with the SEC, calculating net asset values and
supervising the custodian. For these services, ALIAC receives an amount equal
to its allocable cost in providing such services and facilities to the
Generation Portfolios.
11
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FUND EXPENSES Each Portfolio bears the costs of its operations. Expenses
directly attributable to a Portfolio are charged to that Portfolio. Some
expenses are allocated proportionately among Portfolios based on the net assets
of each Portfolio and some expenses are allocated equally among Portfolios.
SALE AND REDEMPTION OF SHARES
Purchases and redemptions of shares may be made only by insurance companies for
their separate accounts at the direction of Participants. Please refer to the
prospectus for your contract or policy for information on how to direct
investments in or redemptions from a Portfolio and any fees that may apply.
Generally, insurance companies aggregate orders received from Participants
during a day and place an order to purchase or redeem the net number of shares
during the night. Orders are generally executed at the net asset value per
share ("NAV") determined at the end of the previous business day. The
Generation Portfolios reserve the right to suspend the offering of shares, or
to reject any specific purchase order. The Generation Portfolios may suspend
redemptions or postpone payments when the New York Stock Exchange is closed or
when trading is restricted for any reason (other than weekends or holidays) or
under emergency circumstances as determined by the SEC.
NET ASSET VALUE
The NAV of each Portfolio is determined as of 4:15 p.m. New York time on each
day that the New York Stock Exchange is open for trading. Each Portfolio's NAV
is computed by taking the total value of a Portfolio's securities, plus any
cash or other assets (including dividends and interest accrued but not
collected) and subtracting all liabilities (including accrued expenses), and
dividing the total by the number of shares outstanding. Portfolio securities
are valued primarily by independent pricing services, based on market
quotations. All other assets and restricted securities and other 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 Directors.
GENERAL INFORMATION
INCORPORATION The Company was incorporated under the laws of Maryland on
October 14, 1994.
CAPITAL STOCK The Company is authorized to issue two billion shares of capital
stock, par value $0.001 per share. All shares are nonassessable, transferable
and redeemable. There are no preemptive rights.
SHAREHOLDER MEETINGS The Company is not required and does not intend to hold
annual shareholder meetings. The Company's Articles of Incorporation provide
for meetings of shareholders to elect Directors at such times as may be
determined by the Directors or as required by the 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.
VOTING RIGHTS Each share of the Company is entitled to one vote for each full
share and fractional votes for fractional shares. Separate votes are taken by
Portfolio only if the matter affects or requires the vote of only that
Portfolio. The insurance companies holding the shares in their separate
accounts will generally request voting instructions from the Participants and
generally must vote the shares in proportion to the voting instructions
received. Participant voting rights are discussed in the prospectus for the
applicable VA Contract or VLI Policy.
TAX MATTERS
Each Portfolio intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), including requirements with respect to
diversification of assets, distribution of income and sources of income. As
12 Aetna Generation Portfolios, Inc.
<PAGE>
a regulated investment company, a Portfolio generally will not be subject to
tax on its ordinary income and net realized capital gains.
Each Portfolio also intends to comply with the diversification requirements of
Section 817(h) of the Code for variable annuity contracts so that the
Participants should not be subject to federal tax on distributions of dividends
and income from a Portfolio to the insurance company separate accounts.
Participants should review the prospectus for their VA Contract or VLI Policy
to determine the tax consequences to them of purchasing a contract or policy.
Aetna Generation Portfolios, Inc. 13
<PAGE>
GLOSSARY OF INVESTMENT TERMS
BANKER'S ACCEPTANCE A time draft drawn on and accepted by a bank, customarily
used by corporations as a means of effecting payment or financing payment for
traded goods, particularly in international markets.
CALL OPTION The right to buy a security, currency or stock index at a stated
price, or strike price, within a fixed period. A call option will be exercised
if the spot price rises above the strike price; if not, the option expires
worthless.
CERTIFICATES OF DEPOSIT Debt instruments with a fixed maturity drawn on a bank.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) Mortgage-backed bonds that separate
mortgage pools into various classes or tranches in a predetermined, specified
order such as short-, medium-, and long-term portions.
COMMERCIAL PAPER Short-term debt instruments issued by banks, corporations or
other borrowers with a maturity ranging from five to 270 days.
CONVERTIBLE SECURITIES Corporate securities (usually bonds or preferred stock)
that can be exchanged for a set number of shares of another security, usually
common stock.
DEPOSITARY RECEIPTS Negotiable certificates evidencing ownership of shares of a
non-U.S. corporation, government, or foreign subsidiary of a U.S. Corporation.
A U.S. bank typically issues depositary receipts, which are backed by ordinary
shares that remain on deposit with a custodian bank in the issuer's home
market. A depositary receipt can either be "sponsored" by the issuing company
or established without the involvement of the company, which is referred to as
"unsponsored."
FORWARD CONTRACTS A purchase or sale of a specific quantity of a commodity,
government security, foreign currency, or other financial instrument at the
current price, with delivery and settlement at a specified future date.
FUTURES CONTRACTS An agreement to buy or sell a specific amount of a commodity
or financial instrument at a particular price on a stipulated future date. A
futures contract obligates the buyer to purchase and the seller to sell, unlike
an option where one party can choose whether or not to exercise the option.
HIGH RISK HIGH-YIELD SECURITIES debt instruments rated BB or below by Standard
& Poor's Corporation or Ba or below by Moody's Investors Service, Inc., or
securities of comparable ratings by other agencies or, if unrated, considered
by the Investment Adviser to be of comparable quality. These securities are
often called "junk bonds" because of the greater possibility of default.
PREFERRED STOCK Stock which has a preference over common stock, whether as to
payment of dividends or to assets on liquidation. It ordinarily pays a fixed
dividend.
PRIMARY CAPITAL RATIO The ratio used to evaluate the credit worthiness of
foreign banks which is based on the ratio of total assets to the common and
preferred stock, loan loss reserves, minority interests and mandatory
convertibles.
PUT OPTION The right to sell a security, currency or stock index at a stated
price, or strike price, within a fixed period. A put option will be exercised
if the spot price falls below the strike price; if not, the option expires
worthless.
SWAP An exchange of one security for another. A swap may be executed to change
the maturities of a bond portfolio or the quality of the issues in a stock or
bond portfolio.
14 Aetna Generation Portfolios, Inc.
<PAGE>
VARIABLE RATE INSTRUMENTS An instrument the terms of which provide for the
adjustment of its interest rate on set dates and which can reasonably be
expected to have a market value close to par value.
WARRANTS A security, normally offered with bonds or preferred stock, that
entitles the holder to buy shares of stock at a prescribed price usually higher
than the market price at the date issued.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS When-issued is a transaction that
is made as of a current date, but conditioned on the actual issuance of a
security that is authorized but not yet issued. A delayed-delivery transaction
is one where both parties agree that the security will be delivered and the
transaction completed at a future date.
YANKEE BONDS A dollar denominated bond issued in the United States by foreign
corporations and banks. Similarly, Yankee CDs are issued in the U.S. by
branches and agencies of foreign banks.
Aetna Generation Portfolios, Inc. 15
<PAGE>
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
"AAA" RATING Bonds rated Aaa are judged to be of the best quality and carry the
smallest degree of investment risk. Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
"AA" RATING Bonds rated Aa are judged to be of high-quality by all standards.
Together with the Aaa group, they are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat greater than in Aaa securities.
"A" RATING Bonds rated A possess many favorable investment attributes and are
considered upper-medium-grade obligations. Factors relating to security of
principal and interest are considered adequate but elements may be present
which suggest possible impairment sometime in the future.
"BAA" RATING Bonds rated Baa are considered medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics.
"BA" RATING Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes this class of bond.
"B" RATING Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its rating category.
STANDARD & POOR'S CORPORATION
"AAA" RATING Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
"AA" RATING Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
"A" RATING Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
"BBB" RATING Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB" RATING Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, the bonds face major uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
16 Aetna Generation Portfolios, Inc.
<PAGE>
"B" RATING Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The ratings from "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Aetna Generation Portfolios, Inc. 17
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STATEMENT OF ADDITIONAL INFORMATION DATED: JUNE , 1995
AETNA GENERATION PORTFOLIOS, INC.
151 FARMINGTON AVENUE
HARTFORD, CONNECTICUT 06156-8962
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current prospectus for Aetna Generation Portfolios,
Inc. dated June , 1995. A free prospectus is available upon request by writing
to Aetna Generation Portfolios, Inc. at the address listed above or calling 1-
800-525-4225.
READ THE PROSPECTUS BEFORE YOU INVEST.
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History............................................ 2
Additional Investment Restrictions and Policies of the Generation Portfo-
lios...................................................................... 2
Description of Various Securities and Investment Techniques................ 4
Directors and Officers of the Company...................................... 18
Control Persons and Principal Shareholders ................................ 20
The Investment Advisory Contract........................................... 20
The Administrative Services Agreement...................................... 20
Custodian.................................................................. 20
Independent Auditors....................................................... 21
Brokerage Allocation and Trading Policies.................................. 21
Description of Shares...................................................... 22
Sale and Redemption of Shares.............................................. 22
Net Asset Value............................................................ 22
Tax Status................................................................. 22
Voting Rights.............................................................. 28
Financial Statements....................................................... S-1
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY
Aetna Generation Portfolios, Inc. (the "Company") was incorporated in 1994 in
Maryland. The Company is an open-end diversified management investment company.
The Company is authorized to issue multiple series of shares, each representing
a diversified portfolio of investments with different investment objectives,
policies and restrictions (individually, a "Portfolio" and collectively, the
"Generation Portfolios"). The Company currently has authorized three series:
Aetna Ascent Variable Portfolio (Aetna Ascent); Aetna Crossroads Variable
Portfolio (Aetna Crossroads); and Aetna Legacy Variable Portfolio (Aetna
Legacy).
The investment objective and general investment policies of each Portfolio are
described in the Prospectus.
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES OF THE GENERATION PORTFOLIOS
The investment policies and restrictions of the Generation Portfolios, set
forth below, are matters of fundamental policy for purposes of the Investment
Company Act of 1940 (the "1940 Act") and therefore cannot be changed, with
regard to a particular Portfolio, without the approval of a majority of the
outstanding voting securities of that Portfolio. This means the lesser of: (i)
67% of the shares of a Portfolio present at a shareholders' meeting if the
holders of more than 50% of the shares of that Portfolio then outstanding are
present in person or by proxy; or (ii) more than 50% of the outstanding voting
securities of a Portfolio.
As a matter of fundamental policy, none of the Generation Portfolios will:
(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
Portfolio's total assets. Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities are excluded from this
restriction;
(2) concentrate its investments in any one industry, except that a Portfolio
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, real estate stocks will be classified as separate industries
according to property type, such as apartment, retail, office and
industrial. This limitation will not, however, apply to securities issued
or guaranteed by the U.S. Government, its agencies and instrumentalities;
(3) make loans, except that, to the extent appropriate under its investment
program, a Portfolio may (a) purchase bonds, debentures or other debt
securities, including short-term obligations; (b) enter into repurchase
transactions; and (c) lend portfolio securities provided that the value of
such loaned securities does not exceed one-third of the Portfolio's total
assets;
(4) issue any senior security (as defined in the 1940 Act), except that (a) a
Portfolio may enter into commitments to purchase securities in accordance
with that Portfolio's investment program, including reverse repurchase
agreements, delayed delivery and when-issued securities, which may be
considered the issuance of senior securities; (b) a Portfolio 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; (c) a Portfolio may engage in short sales of
securities to the extent permitted in its investment program and other
restrictions; (d) the purchase or sale of futures contracts and related
options shall not be considered to involve the issuance of senior
securities; and (e) subject to fundamental restrictions, a Portfolio may
borrow money as authorized by the 1940 Act;
2 Aetna Generation Portfolios, Inc.
<PAGE>
(5) purchase real estate, interests in real estate or real estate limited
partnership interests except that: (a) to the extent appropriate under its
investment program, a Portfolio 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 (b) a
Portfolio may acquire real estate as a result of ownership of securities or
other interests (this could occur for example if a Portfolio holds a
security that is collateralized by an interest in real estate and the
security defaults);
(6) invest in commodity contracts, except that a Portfolio may, to the extent
appropriate under its investment program, purchase securities of companies
engaged in such activities; may enter into transactions in financial and
index futures contracts and related options; may engage in transactions on
a when-issued or forward commitment basis; and may enter into forward
currency contracts;
(7) borrow money, except that (a) a Portfolio may enter into certain futures
contracts and options related thereto; (b) a Portfolio may enter into
commitments to purchase securities in accordance with that Portfolio's
investment program, including delayed delivery and when-issued securities
and reverse repurchase agreements; (c) for temporary emergency purposes, a
Portfolio may borrow money in amounts not exceeding 5% of the value of its
total assets at the time the loan is made; and (d) for purposes of
leveraging, a Portfolio may borrow money from banks (including its
custodian bank) only if, immediately after such borrowing, the value of
that Portfolio'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 Portfolio's
assets fails to meet the 300% asset coverage requirement relative only to
leveraging, that Portfolio will, within three days (not including Sundays
and holidays), reduce its borrowings to the extent necessary to meet the
300% test; or
(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by a Portfolio,
that Portfolio may be deemed to be an underwriter under the provisions of
the Securities Act of 1933 (the "1933 Act").
The Company has also adopted certain other investment restrictions reflecting
the current investment practices of the Generation Portfolios which may be
changed by the Company's directors and without shareholder vote. Some of these
restrictions are described in the prospectus. In addition, none of the
Portfolios will:
(1) make short sales of securities, other than short sales "against the box,"
or purchase securities on margin except for short-term credits necessary
for clearance of portfolio transactions, provided that this restriction
will not be applied to limit the use of options, futures contracts and
related options, in the manner otherwise permitted by the investment
restrictions, policies and investment programs of each Portfolio, as
described here and in the prospectus;
(2) invest in companies for the purpose of exercising control or management;
(3) purchase the securities of any other investment company, except as
permitted under the 1940 Act;
(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; or
(5) invest more than 15% of its total 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 or
securities offered pursuant to Section 4(2) of
Aetna Generation Portfolios, Inc. 3
<PAGE>
the Securities Act of 1933, as amended, shall not be deemed illiquid solely
by reason of being unregistered. The Investment Adviser shall determine
whether a particular security is deemed to be liquid based on the trading
markets for the specific security and other factors.
Where a Portfolio's investment objective or policy restricts it to a specified
percentage of its total assets in any type of instrument, that percentage is
measured at the time of purchase. There will be no violation of any investment
policy or restriction if that restriction is complied with at the time the
relevant action is taken, notwithstanding a later change in the market value of
an investment, in net or total assets, in the securities rating of the
investment or any other change.
DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES
OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS
The Generation Portfolios may use derivative instruments as described in the
prospectus under "Investment Techniques." The following provides additional
information about these instruments.
FUTURES CONTRACTS--Each Portfolio may enter into futures contracts as described
in the prospectus. A Portfolio may enter into futures contracts which are
traded on national futures exchanges and are standardized as to maturity date
and underlying financial instrument. The futures exchanges and trading in the
United States are regulated under the Commodity Exchange Act by the Commodities
Futures Trading Commission (the "CFTC").
A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific commodity or financial
instrument(s) for a specified price at a designated date and time. 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 or commodities, those
contracts are usually closed out before the delivery date. Stock index futures
contracts do not contemplate actual future delivery and will be settled in cash
at expiration or closed out prior to expiration. Closing out an open futures
contract sale or purchase is effected by entering into an offsetting futures
contract purchase or sale, respectively, for the same aggregate amount of the
identical type of underlying instrument and the same delivery date. There can
be no assurance, however, that a Portfolio will be able to enter into an
offsetting transaction with respect to a particular contract at a particular
time. If a Portfolio 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, among other
things, by actual and anticipated changes in interest rates and equities
prices, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
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 United States futures exchanges limit the amount of fluctuation permitted
in interest rate futures contract prices during a single trading day, and, as
noted, temporary regulations limiting price fluctuations for stock index
futures contracts are also now in effect. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades
may be made on that day at a price beyond that limit. The daily limit governs
only price movement during a particular trading day and therefore does not
limit potential
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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 Portfolio 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 Portfolio with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in a Portfolio's futures contracts. A margin
deposit is intended to assure the Portfolio'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 margin
requirements, 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 Portfolio. These daily payments to and
from a Portfolio are called variation margin. At times of extreme price
volatility such as occurred during the week of October 19, 1987, intra-day
variation margin payments may be required. In computing daily net asset values,
each Portfolio will mark to market the current value of its open futures
contracts. Each Portfolio expects to earn interest income on its initial margin
deposits. Furthermore, in the case of a futures contract purchase, each
Portfolio has deposited in a segregated account money market instruments
sufficient to meet all futures contract initial margin requirements.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, small price movements in
futures contracts may result in immediate and potentially unlimited loss or
gain to a Portfolio relative to the size of the margin commitment. For example,
if at the time of purchase 10% of the value of the futures contract is
deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit before any
deduction for the transaction costs, if the contract were then closed out. A
15% decrease in the value of the futures contract would result in a loss equal
to 150% of the original margin deposit, if the contract were closed out. Thus,
a purchase or sale of a futures contract may result in losses in excess of the
amount initially invested in the futures contract. However, a Portfolio would
presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and sold it
after the decline.
A Portfolio can enter into options on futures contracts. See "Call and Put
Options" below. The risk involved in writing options on futures contracts or
market indices is that there could be an increase in the market value of such
contracts or indices. If that occurred, the option would be exercised and the
Portfolio involved 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 Portfolio's obligation might be more or less than the premium
received when it originally wrote the option. Further, the Portfolio might
occasionally not be able to close the option because of insufficient activity
in the options market.
CALL AND PUT OPTIONS--Each Generation Portfolio may write (sell) covered call
options and purchase put options and may purchase call and sell put options
including options on securities, indices and futures as discussed in the
prospectus and in this Section. 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
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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 Portfolio 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 the Investment Adviser.
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. To secure the writer's obligation to
deliver the underlying security, a writer of a call option is required to
deposit in escrow the underlying security or other assets in accordance with
the rules of the clearing corporations and of the exchanges. A Portfolio will
only write a call option on a security which it already owns and will not write
call options on when-issued securities.
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.
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.
To secure its obligation to pay for the underlying security, the writer of a
put generally must deposit in escrow liquid assets with a value equal to or
greater than the exercise price of the put option. The writer therefore
foregoes the opportunity of investing the segregated assets or writing calls
against those assets. A Portfolio may write put options on debt securities or
futures, only if such puts are covered by segregated liquid assets.
In writing puts, there is the risk that a writer may be required to buy the
underlying security at a disadvantageous price. Writing a put covered by
segregated liquid assets equal to the exercise of the put has the same economic
effect as writing a covered call option. 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; however, if the put is
exercised, 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, the writer may incur a loss, equal to the difference between the
exercise price and the current market value of the underlying instrument.
A Portfolio may purchase put options when the Investment Adviser 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 for
these purposes may be used to protect a Portfolio'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 Portfolio, 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 Portfolio 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 security covering
the call or put option will be maintained in a segregated account of a
Portfolio's custodian.
6 Aetna Generation Portfolios, Inc.
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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 Portfolio for writing call options will be recorded as a
liability in the statement of assets and liabilities of that Portfolio. 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 Portfolio when purchasing a put option will be recorded as an
asset in the statement of assets and liabilities of that Portfolio. 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 Portfolio 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
Portfolio 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 Portfolio will be able to effect a
closing transaction at a favorable price. If a Portfolio 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 Portfolio will pay brokerage commissions in connection with the
sale or purchase of options to close out previously established option
positions. Such brokerage commissions are normally higher as a percentage of
underlying asset values than those applicable to purchases and sales of
portfolio securities.
The exercise price of an option may be below, equal to, or above the current
market value of the underlying security at the time the option is written. From
time to time, a Portfolio may purchase an underlying security for delivery in
accordance with an exercise notice of a call option assignment, rather than
delivering such security from its portfolio. In such cases additional brokerage
commissions will be incurred.
A Portfolio will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option; however, any loss so incurred in a closing purchase
transaction may be partially or entirely offset by the premium received from a
simultaneous or subsequent sale of a different option. Also, because increases
in the market price of a call option will generally reflect increases in the
market price of the underlying security, any loss resulting from the repurchase
of a call option is likely to be offset in whole or in part by appreciation of
the underlying security owned by a Portfolio. Any profits from writing covered
call options are considered short-term gain for federal income tax purposes
and, when distributed by a Portfolio, are taxable as ordinary income.
FOREIGN FUTURES CONTRACTS AND FOREIGN OPTIONS--The Generation Porftolios 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
which trade foreign futures contracts or foreign options contracts
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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
United States futures exchanges. 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 Portfolio may write and purchase calls on
foreign currencies. A Portfolio 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 the event of rate fluctuations adverse to a Portfolio's
position, it would lose the premium it paid and transactions costs. A call
written on a foreign currency by a Portfolio is covered if the Portfolio 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 held in a segregated
account by its custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call may be written by a Portfolio on a foreign
currency to provide a hedge against a decline due to an expected adverse change
in the exchange rate in the U.S. dollar value of a security which the Portfolio
owns or has the right to acquire and which is denominated in the currency
underlying the option. This is a "cross-hedging" strategy. In such
circumstances, the Portfolio collateralizes the position by maintaining in a
segregated account with the Portfolio's custodian cash or U.S. Government
securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
FORWARD EXCHANGE CONTRACTS--Each Generation Portfolio 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 Portfolio
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. There is a risk
that use of forward exchange contracts may reduce the gain that would otherwise
result from a 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 Portfolio may also enter into a
forward exchange contract to sell a foreign currency which 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
the Investment Adviser 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 Portfolio may experience losses or gains on
both the underlying security and the cross currency hedge.
Each Portfolio may use forward exchange contracts to protect against
uncertainty in the level of future exchange rates. The use of forward exchange
contracts does not eliminate fluctuations in the prices of
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the underlying securities the Portfolio 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.
There is no limitation as to the percentage of a Portfolio's assets that may be
committed to forward exchange contracts. The Portfolios will not enter into a
"cross hedge," unless it is denominated in a currency or currencies that the
Investment Adviser believes will have price movements that tend to correlate
closely with the currency in which the investment being hedged is denominated.
The Generation Portfolios' custodian will place cash or U.S. Government
securities or other liquid high-quality debt securities in a separate account
of each Portfolio having a value equal to the aggregate amount of that
Portfolio's commitments under forward contracts entered into with respect to
position hedges and cross hedges. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Portfolio's commitments with respect to such contracts. As an
alternative to maintaining all or part of the separate account, a Portfolio may
purchase a call option permitting the Portfolio to purchase the amount of
foreign currency being hedged by a forward sale contract at a price no higher
than the forward contract price, or a Portfolio may purchase a put option
permitting the Portfolio to sell the amount of foreign currency subject to a
forward purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may result in poorer
overall performance for a Portfolio than if it had not entered into such
contracts.
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 Portfolio 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 Portfolio
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 Portfolio 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 Portfolio to sustain losses on these contracts and transactions
costs.
At or before the maturity of a forward exchange contract requiring a Portfolio
to sell a currency, the Portfolio 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 Portfolio will obtain, on the same
maturity date, the same amount of the currency that it is obligated to deliver.
Similarly, a Portfolio 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 Portfolio 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 Portfolio 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, a Portfolio must evaluate the
credit and performance risk of each particular counterparty under a forward
contract.
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Although the Generation Portfolios 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 Portfolios may convert foreign currency
from time to time, and investors should be aware of the costs of currency
conversion. 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 Portfolio at one rate, while offering a lesser rate of
exchange should the Portfolio desire to resell that currency to the dealer.
RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS--CFTC regulations
require that all short futures positions be entered into 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. 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 Portfolio's net assets, after taking into account realized
profits and unrealized losses on such futures contracts.
A Portfolio's ability to engage in the hedging transactions described herein
may be limited by the current federal income tax requirement that a Portfolio
derive less than 30% of its gross income from the sale or other disposition of
stock or securities held for less than three months.
INTEREST RATE SWAP TRANSACTIONS--Swap agreements entail both interest rate risk
and credit risk. There is a risk that, based on movements of interest rates in
the future, the payments made by a Portfolio under a swap agreement will have
been greater than those received by it. Credit risk arises from the possibility
that the counterparty will default. If the counterparty to an interest rate
swap defaults, a Portfolio's loss will consist of the net amount of contractual
interest payments that a Portfolio has not yet received. The Investment Adviser
will monitor the creditworthiness of counterparties to a Portfolio's interest
rate swap transactions on an ongoing basis. A Portfolio will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done between a
Portfolio 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."
ADDITIONAL RISK FACTORS IN USING DERIVATIVES--In addition to any risk factors
which may be described elsewhere in this section, or in the prospectus under
"Investment Techniques" and "Risk Factors and Other Considerations," the
following sets forth certain information regarding the potential risks
associated with a Portfolio's transactions in derivatives.
Risk of Imperfect Correlation--A Portfolio'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
Portfolio might not be successful and the Portfolio 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
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portfolio securities being hedged, which could result in losses both on the
hedging transaction and the portfolio securities. In such instances, the
Portfolio's overall return could be less than if the hedging transactions had
not been undertaken. Stock index futures or options based on a narrower index
of securities may present greater risk than options or futures based on a broad
market index, as a narrower index is more susceptible to rapid and extreme
fluctuations resulting from changes in the value of a small number of
securities. The Portfolio would, however, effect transactions in such futures
or options only for hedging purposes (or to close out open positions).
The trading of futures and options on indices involves the additional risk of
imperfect correlation between movements in the futures or option price and the
value of the underlying index. The anticipated spread between the prices may be
distorted due to differences in the nature of the markets, such as differences
in margin requirements, the liquidity of such markets and the participation of
speculators in the futures and options market. The purchase of an option on a
futures contract also involves the risk that changes in the value of the
underlying futures contract will not be fully reflected in the value of the
option purchased. The risk of imperfect correlation, however, generally tends
to diminish as the maturity date of the futures contract or termination date of
the option approaches. The risk incurred in purchasing an option on a futures
contract is limited to the amount of the premium plus related transaction
costs, although it may be necessary under certain circumstances to exercise the
option and enter into the underlying futures contract in order to realize a
profit. Under certain extreme market conditions, it is possible that a
Portfolio will not be able to establish hedging positions, or that any hedging
strategy adopted will be insufficient to completely protect the Portfolio.
The Generation Portfolios will purchase or sell futures contracts or options
for hedging purposes, only if, in the Investment Adviser's judgment, there is
expected to be a sufficient degree of correlation between movements in the
value of such instruments and changes in the value of the assets being hedged
for the hedge to be effective. There can be no assurance that the Investment
Adviser's judgment will be accurate.
Potential Lack of a Liquid Secondary Market--The ordinary spreads between
prices in the cash and futures markets, due to differences in the natures of
those markets, are subject to distortions. First, all participants in the
futures markets are subject to initial deposit and variation margin
requirements. This could require a Portfolio to post additional cash or cash
equivalents as the value of the position fluctuates. Rather than meeting
additional variation margin requirements, investors may close futures contracts
through offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures or
options market may be lacking. 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 Portfolio 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 Portfolio, which
could require the Portfolio 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 Portfolio's ability effectively to hedge its
portfolio, or the relevant portion thereof.
The liquidity of a secondary market in a futures contract or an option on a
futures contract may be adversely affected by "daily price fluctuation limits"
established by the exchanges, which limit the amount of fluctuation in the
price of a contract during a single trading day and prohibit trading beyond
such limits once they have been reached. 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.
Aetna Generation Portfolios, Inc. 11
<PAGE>
Risk of Predicting Interest Rate Movements--Investments in futures contracts on
fixed income securities and related indices involve the risk that if the
Investment Adviser's judgment concerning the general direction of interest
rates is incorrect, a Portfolio's overall performance may be poorer than if it
had not entered into any such contract. For example, if a Portfolio 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 Portfolio 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 Portfolio 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 Generation Portfolios.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards established
by the Company's Board of Directors. Under a repurchase agreement, a Portfolio
may acquire an underlying debt instrument for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase and the Portfolio to resell the instrument at a fixed price and
time, thereby determining the yield during the Portfolio'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 Portfolio. 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 Portfolio. In that
event, a Portfolio 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 Portfolio's ability to liquidate the
collateral may be delayed or limited. Under the 1940 Act, repurchase agreements
are considered loans by a Portfolio. Repurchase agreements maturing in more
than seven days will not exceed 10 percent of the total assets of a Portfolio.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments (including floating rate instruments) held by
a Portfolio may have maturities of more than one year, provided: (i) the
Portfolio 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 Portfolio 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 Portfolio might be unable to dispose of the note and
a loss would be incurred to the extent of the default. A Portfolio 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 Portfolio 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
that are subject to the Portfolio's policies and restrictions on illiquid
securities.
12 Aetna Generation Portfolios, Inc.
<PAGE>
SECURITIES LENDING
The Generation Portfolios can lend securities in its portfolio subject to the
following conditions: (a) the borrower will provide at least 100% collateral
throughout the life of the loan; (b) loans will be made subject to the rules of
the New York Stock Exchange; (c) the loan collateral will be either cash or
direct obligations of the U.S. government or agencies thereof; (d) cash
collateral will be invested only in highly liquid short-term investments; (e)
during the existence of a loan, a Portfolio will continue to receive any
distributions paid on the borrowed securities or amounts equivalent thereto;
and (f) no more than one-third of the net assets of a Portfolio will be on loan
at any one time. A loan may be terminated at any time by the borrower or lender
upon proper notice.
In the Investment Adviser's opinion, lending portfolio securities to qualified
broker-dealers affords a Portfolio a means of increasing the yield on its
portfolio. A Portfolio will be entitled either to receive a fee from the
borrower or to retain some or all of the income derived from its investment of
cash collateral. A Portfolio will continue to receive the interest or dividends
paid on any securities loaned, or amounts equivalent thereto. Although voting
rights will pass to the borrower of the securities, whenever a material event
affecting the borrowed securities is to be voted on, the Investment Adviser
will regain or direct the vote with respect to loaned securities.
The primary risk a Portfolio assumes in loaning securities is that the borrower
may become insolvent on a day on which the loaned security is rapidly
increasing in price. In such event, if the borrower fails to return the loaned
securities, the existing collateral might be insufficient to purchase back the
full amount of the security loaned, and the borrower would be unable to furnish
additional collateral. The borrower would be liable for any shortage, but a
Portfolio would be an unsecured creditor as to such shortage and might not be
able to recover all or any of it.
FOREIGN SECURITIES
Investments in foreign securities, including futures and options contracts,
offer potential benefits not available solely through investment in securities
of domestic issuers. Foreign securities offer the opportunity to invest in
foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the United
States, or to reduce fluctuations in portfolio value by taking advantage of
foreign stock markets that may not move in a manner parallel to U.S. markets.
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. Since the Generation
Portfolios 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. issuer, 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.
Aetna Generation Portfolios, Inc. 13
<PAGE>
Currently, direct investment in equity securities in China and Taiwan is
restricted, and investments may be made only through a limited number of
approved vehicles. At present this includes investment in listed and unlisted
investment companies, subject to limitations under the 1940 Act. Investment in
these closed-end funds may involve the payment of additional premiums to
acquire shares in the open-market and the yield of these securities will be
reduced by the operating expenses of such companies. In addition, an investor
should recognize that he will bear not only his proportionate share of the
expenses of the Generation Portfolio, but also indirectly bear similar expenses
of the underlying closed-end fund. Also, as a result of a Portfolio's policy of
investing in closed-end mutual funds, investors in the Portfolio may receive
taxable capital gains distributions to a greater extent than if he or she had
invested directly in the underlying closed-end fund.
Dividend and interest income from foreign securities may generally be subject
to withholding taxes by the country in which the issuer is located and may not
be recoverable by a Portfolio or its investors.
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.
MORTGAGE-RELATED DEBT SECURITIES
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 United States,
the securities and guarantees of which are backed by the full faith and credit
of the United States. FNMA, a federally chartered and privately owned
corporation, and FHLMC, a federal corporation, are instrumentalities of the
United States 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 which is part of the regular monthly
payment. A borrower is more likely to repay a mortgage which bears a relatively
high rate of interest. This means that in times of declining interest rates,
some higher yielding securities held by a Portfolio might be converted to cash,
and the Portfolio 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 Portfolio 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.
As noted in the Prospectuses, the Generation Portfolios may also invest in
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs). 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
14 Aetna Generation Portfolios, Inc.
<PAGE>
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 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.
ASSET-BACKED SECURITIES
Asset-backed securities are collateralized by short-term loans such as
automobile loans, computer leases, or credit card receivables. The payments
from the collateral are passed through to the security holder. As noted above
with respect to CMOs and REMICs, the average life for these securities is the
conventional proxy for maturity. Asset-backed securities may pay all interest
and principal to the holder, or they may pay a fixed rate of interest, with any
excess over that required to pay interest going either into a reserve account
or to a subordinate class of securities, which may be retained by the
originator. The originator may guarantee interest and principal payments. These
guarantees often do not extend to the whole amount of principal, but rather to
an amount equal to a multiple of the historical loss experience of similar
portfolios.
Other asset-backed securities are similar to CMOs and REMICs in structure and
operations. 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.
CMOs, REMICs and other asset-backed securities are subject to the type of
prepayment risk discussed above due to the possibility that prepayments on the
underlying assets will alter the cash flow. The collateral behind asset-backed
securities 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. 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.
HIGH RISK, HIGH-YIELD SECURITIES
The Generation Portfolios may invest in high risk high-yield securities ("junk
bonds"), which are fixed income securities that offer a current yield above
that generally available on higher quality debt securities. are regarded as
speculative and generally involve more risk of loss of principal and income
than higher-rated securities. Also 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 Portfolio's net asset value. The greater
risks and fluctuations in yield and value occur, in part, because investors
generally perceive issuers of lower-rated and unrated securities to be less
creditworthy. Lower ratings, however, may not necessarily indicate higher
risks. In pursuing a Portfolio's objectives, the Investment Adviser seeks to
identify situations in which the rating agencies have not fully perceived the
value of the security or in
Aetna Generation Portfolios, Inc. 15
<PAGE>
which the Investment Adviser believes that future developments will enhance the
creditworthiness and the ratings of the issuer.
The yields earned on high risk high-yield securities (junk bonds) generally are
higher than those of higher quality securities with the same maturities because
of the additional risks associated with them. These risks include:
(1) SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. High risk high-yield
securities (junk bonds) are more sensitive to adverse economic changes or
individual corporate developments but 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 because the prices of high risk high-yield securities (junk bonds)
tend not to rise as much as the prices of these other 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. Holders of these securities
could also be at greater risk because these securities are generally
unsecured and subordinated to senior debt holders and secured creditors.
If the issuer of a high risk high-yield security (junk bonds) owned by a
Portfolio defaults, the Portfolio may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of these
securities and a Portfolio's net asset value. Furthermore, in the case of
high risk high-yield securities (junk 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.
(2) PAYMENT EXPECTATIONS. High risk high-yield securities (junk 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 Portfolio may have to
replace the securities with a lower yielding security, resulting in a
decreased return for investors. Also, the value of these securities may
decrease in a rising interest rate market. 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.
(3) LIQUIDITY AND VALUATION RISKS. High risk high-yield securities (junk
bonds) are often traded among a small number of broker-dealers rather than
in a broad secondary market. Purchasers of these securities tend to be
institutions rather than individuals, a factor that further limits the
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.
(4) LIMITATIONS OF CREDIT RATINGS. The credit ratings assigned to high risk
high-yield securities (junk 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, the Investment Adviser 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 Portfolio's investment
objective may be more dependent on the Investment Adviser's own credit
analysis than might be the case for a fund which does not invest in these
securities.
16 Aetna Generation Portfolios, Inc.
<PAGE>
(5) LEGISLATION. Legislation may have a negative impact on the market for
high risk high-yield securities (junk bonds). As examples, legislation was
passed requiring federally-insured savings and loan associations to divest
themselves of their investments in these securities. There have been other
proposals designed to limit the use of, the tax treatment or other
advantages of, these securities. Any such proposals, if enacted, could have
a negative effect on the value of these assets.
ZERO COUPON AND PAY-IN-KIND SECURITIES
The Generation Portfolios may invest in zero coupon securities and pay-in-kind
securities. In addition, the Portfolios may invest in STRIPS (Separate Trading
of Registered Interest and Principal of Securities). Zero coupon or deferred
interest securities are debt obligations that do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest (the "cash payment date") and
therefore are issued and traded at a discount from their face amounts or par
value. The discount varies, depending on the time remaining until maturity or
cash payment date, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity or cash
payment date of the security approaches. STRIPS are created by the Federal
reserve bank by separating the interest and principal components of an
outstanding U.S. treasury bond and selling them as individual securities. The
market prices of zero coupon, STRIPS and deferred interest securities generally
are more volatile than the market prices of securities with similar maturities
that pay interest periodically and are likely to respond to changes in interest
rates to a greater degree than do non-zero coupon securities having similar
maturities and credit quality.
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 Portfolio may realize no return on its
investment, because these securities do not pay cash interest.
CONVERTIBLES
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.
WARRANTS
Warrants allow the holder to subscribe for new shares in the issuing company
within a specified time period, according to a predetermined formula governing
the number of shares per warrant and the price to be paid for those shares.
Warrants may be issued separately or in association with a new issue of bonds,
preferred stock, common stock or other securities.
Covered warrants allow the holder to purchase existing shares in the issuing
company, or in a company associated with the issuer, or in a company in which
the issuer has or may have a share stake which covers all or part of the
warrants' subscription rights.
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES
During any period that a Generation Portfolio has outstanding a commitment to
purchase securities on a when-issued or delayed-delivery basis, that Portfolio
will maintain a segregated account consisting of cash, U.S. Government
securities or other high-quality debt obligations with its custodian bank. To
the extent that the market value of securities held in this segregated account
falls below the amount that the Portfolio will be required to pay on
settlement, additional assets may be required to be added to the segregated
account. Such segregated accounts could affect the Portfolio's liquidity and
ability to manage its portfolio. When a Portfolio engages in when-issued or
delayed-delivery transactions, it is effectively relying on the seller of such
securities to consummate the trade; failure of the seller to do so may result
in the Portfolio's incurring a loss or missing an opportunity to invest
portfolios held in the segregated account more advantageously. A Portfolio will
not pay for securities purchased on a when-issued or delayed-delivery basis, or
start earning interest on such securities, until the securities are
Aetna Generation Portfolios, Inc. 17
<PAGE>
actually received. However, any security so purchased will be recorded as an
asset of the purchasing Portfolio at the time the commitment is made. Because
the market value of securities purchased on a when-issued or delayed-delivery
basis may increase or decrease prior to settlement as a result of changes in
interest rates or other factors, such securities will be subject to changes in
market value prior to settlement and a loss may be incurred if the value of the
security to be purchased declines prior to settlement.
PORTFOLIO TURNOVER
The Generation Portfolios' policy on portfolio turnover is discussed in the
prospectus.
DIRECTORS AND OFFICERS OF THE COMPANY
The investments and administration of the Generation Portfolios are under the
direction of the Board of Directors. The Directors and executive officers of
the Generation Portfolios 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 (*), and hold similar
positions with other investment companies in the same fund complex managed by
the Investment Adviser.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
--------------------- ---------------------- -------------------------------------------
<C> <C> <S>
Shaun P. Mathews* Director and President Senior Vice President, and Director of
151 Farmington Avenue ALIAC, March 1991 to present; Assistant
Hartford, Connecticut Vice President, Pension Operations, ALIAC,
Age 39 June 1989 to March 1991.
James C. Hamilton* Vice President Vice President, Treasurer and Director of
151 Farmington Avenue and Treasurer ALIAC, October 1988 to present.
Hartford, Connecticut
Age 53
John Y. Kim* Director and Senior Vice President and Director, ALIAC
151 Farmington Avenue Vice President Investments and Chief Investment Officer,
Hartford, Connecticut Aetna Life and Casualty Company, May 1994
Age 34 to present; Managing Director, Mitchell
Hutchins Institutional Investors, New
York, NY, September 1993 to April 1994;
Vice President of Investor Relations and
Senior Portfolio Manager, Aetna Life and
Casualty Company, October 1991 to August
1993; Fixed Income Portfolio Manager,
ALIAC, November 1989 to October 1991.
Susan E. Bryant Secretary Counsel, Aetna Life and Casualty Company,
151 Farmington Avenue March 1993 to present; General Counsel and
Hartford, Connecticut Corporate Secretary, First Investors
Age 47 Corporation, April 1991 to March 1993;
Administrator, Oklahoma Department of
Securities, March 1986 to April 1991;
President, North American Securities
Administrators Association, 1989 to 1990.
</TABLE>
18 Aetna Generation Portfolios, Inc.
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME, ADDRESS AND AGE WITH REGISTRANT PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
--------------------- ---------------- -------------------------------------------
<C> <C> <S>
Dominick J. Agostino* Director Director, Senior Vice President and Chief
151 Farmington Avenue Financial Officer of ALIAC, September 1994 to
Hartford, Connecticut present; President and Chief Operating
Age 48 Officer, Citicorp, North America, Inc., New
York, NY, December 1992 to September 1994;
Managing Director, Citibank, National
Association, New York, NY, August 1990 to
September 1994.
Morton Ehrlich Director Chairman and Chief Executive Officer,
1000 Venetian Way Integrated Management Corp. (an
Miami, Florida entrepreneurial company) and Universal
Age 60 Research Technologies, 1992 to Present;
Director and Chairman, Audit Committee,
National Bureau of Economic Research, 1985 to
1992; President, LIFECO, Travel Services
Corp., October 1988 to December 1991.
Maria T. Fighetti Director Manager/Attorney, Health Services, New York
325 Piermont Road City Department of Mental Health, Mental
Closter, New Jersey Retardation and Alcohol Services, 1973 to
Age 51 present.
David L. Grove Director Private Investor, Economic/Financial
5 The Knoll Consultant, December 1988 to Present.
Armonk, New York
Age 77
Daniel P. Kearney* Director Executive Vice President of Aetna Life and
151 Farmington Avenue Casualty Company, 1993 to Present; Group
Hartford, Connecticut Executive, Aetna Life and Casualty Company,
Age 56 1991 to 1993; Financial Consultant, Daniel P.
Kearney, Inc., 1990 to 1991.
Sidney Koch Director Financial Adviser, self-employed, January
455 East 86th Street 1993 to present; Financial Adviser, Daiwa
New York, New York Securities America, Inc., January 1988 to
Age 60 January 1993.
Corine T. Norgaard Director, Chair Professor, Accounting and Dean of the School
School of Management Audit Committee of Management, Binghamton University,
Binghamton University and Contract Binghamton, NY, July 1993 to present;
Binghamton, New York Committee Professor, Accounting, University of
Age 57 Connecticut, Storrs, Connecticut, September
1969 to June 1993; Director, The Advest
Group, Inc. (holding company for brokerage
firm).
Richard G. Scheide Director Trust and Private Banking Consultant, July
11 Lily Street 1992 to present; Consultant, Fleet Bank,
Nantucket, Massachusetts N.A., July 1991 to July 1992, Executive Vice
Age 66 President and Manager, Bank of New England,
N.A., June 1976 to July 1991.
</TABLE>
Aetna Generation Portfolios, Inc. 19
<PAGE>
It is estimated that the independent Directors of the Generation Portfolios
will be paid an aggregate not in excess of $30,000 from the Company for fiscal
year 1995. None of the independent Directors is entitled to retirement or other
benefits. Affiliated officers and Directors receive no compensation directly
from the Company; however, a portion of their salaries may be allocated to the
Company as part of ALIAC's administrative expense.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
Shares of the Generation Portfolios will be owned by insurance companies as
depositors of separate accounts which are used to fund variable annuity
contracts ("VA Contracts") and variable life insurance policies ("VLI
Policies"). It is currently expected that all shares will be held by separate
accounts of Aetna Life Insurance and Annuity Company ("ALIAC") and its
subsidiary, Aetna Insurance Company of America, Inc., on behalf of their
respective separate accounts. See "Voting Rights" below.
ALIAC is a wholly owned subsidiary of Aetna Life and Casualty Company and its
principal office is located at 151 Farmington Avenue, Hartford, Connecticut.
THE INVESTMENT ADVISORY CONTRACT
In 1994, the Company's Board of Directors approved an investment advisory
agreement (Advisory Agreement) between the Company and ALIAC for each of the
Generation Portfolios.
Under the Advisory Agreement, the Investment Adviser has responsibility for
managing the assets of the Generation Portfolios, subject to the supervision of
the Directors as described in the prospectus. For its services, the Investment
Adviser receives a monthly fee at an annual rate of 0.50% of the average daily
net assets of each Generation Portfolio.
Unless terminated earlier, upon approval of the Generation Portfolio's
shareholders the Advisory Agreement will remain in effect for one year.
Thereafter, it will remain in effect from year-to-year if approved annually by
a majority vote of the Directors, including a majority of the Directors who are
not "interested persons," cast in person at a meeting called for that purpose.
The Advisory Agreement may be terminated as to a particular Portfolio without
penalty at any time on sixty days' written notice by (i) the Directors, (ii) a
majority vote of the outstanding voting securities of that Portfolio, or (iii)
the Investment Adviser. The Advisory Agreement terminates automatically in the
event of its assignment.
The service mark of the Generation Portfolios and the name "Aetna" have been
adopted by the Company with the permission of Aetna Life and Casualty Company
and their continued use is subject to the right of Aetna Life and Casualty
Company to withdraw this permission in the event the Investment Adviser or
another subsidiary or affiliated corporation of Aetna Life and Casualty Company
should not be the investment adviser of the Generation Portfolios.
THE ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to an Administrative Services Agreement, between the Company and
ALIAC, ALIAC acts as administrator and provides certain administrative and
shareholder services necessary for Company operations and is responsible for
the supervision of other service providers. The services provided by ALIAC are
described in the prospectus. For its services, ALIAC receives an amount equal
to its allocable cost in providing such services and facilities to the
Generation Portfolios.
CUSTODIAN
Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, PA, 15258 serves as
custodian for the assets of the Generation Portfolios. The custodian does not
participate in determining the investment policies of a Portfolio or in
deciding which securities are purchased or sold by a Portfolio. A Generation
Portfolio, however, may invest in obligations of the custodian and may purchase
or sell securities from or to the custodian.
20 Aetna Generation Portfolios, Inc.
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INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, City Place II, Hartford, Connecticut 06103 serves as
independent auditors to the Generation Portfolios. KPMG Peat Marwick LLP
provides audit services, assistance and consultation in connection with SEC
filings.
BROKERAGE ALLOCATION AND TRADING POLICIES
Subject to the direction of the Directors, ALIAC has responsibility for making
the Generation Portfolios' investment decisions, for effecting the execution of
trades for the Generation Portfolios and for negotiating any brokerage
commissions thereon. It is the policy of ALIAC 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.
In implementing its trading policy, ALIAC may place a Portfolio's transactions
with such brokers or dealers and for execution in such markets as, in the
opinion of the Company, will lead to the best overall quality of execution for
the Portfolio.
ALIAC currently receives a variety of brokerage and research services from
brokerage firms in return for the execution by such brokerage firms of trades
in securities held by a Portfolio. 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
Portfolio and other investment companies, services related to the execution of
trades in a Portfolio's securities and advice as to the valuation of
securities. ALIAC considers the quantity and quality of such brokerage and
research services provided by a brokerage firm along with the nature and
difficulty of the specific transaction in negotiating commissions for trades in
a Portfolio's securities.
Consistent with securities laws and regulations, ALIAC 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.
ALIAC's 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 ALIAC's opinion as to which
services and which means of payment are in the long-term best interests of a
Portfolio. The Generation Portfolios have no present intention to effect any
brokerage transactions in portfolio securities with ALIAC or any affiliate of
the Generation Portfolios or ALIAC.
Certain officers of ALIAC also manage the securities portfolio of ALIAC's own
accounts. Further, ALIAC also acts as investment adviser to other investment
companies registered under the 1940 Act. ALIAC has adopted policies designed to
prevent disadvantaging the Portfolios in placing orders for the purchase and
sale of securities for the Generation Portfolios.
To the extent ALIAC desires to buy or sell the same publicly traded security at
or about the same time for more than one client, the purchases or sales will
normally be allocated as nearly as practicable on a pro rata basis in
proportion to the amounts to be purchased or sold by each, taking into
consideration the respective investment objectives of the clients, 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. Orders for different clients received at approximately the same
time may be bunched for purposes of placing trades, as authorized by regulatory
directives. Prices are averaged for those transactions.
Aetna Generation Portfolios, Inc. 21
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The Board of Directors has adopted a policy allowing trades to be made between
registered investment companies provided they meet the terms of Rule 17a-7
under the 1940 Act. Pursuant to this policy, a Portfolio may buy a security
from or sell another security to another registered investment company advised
by ALIAC.
The Board of Directors has also adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by, a
Portfolio. The Code allows trades to be made in securities that may be held by
a Portfolio, however, it prohibits a person from taking advantage of Portfolio
trades or from acting on inside information.
DESCRIPTION OF SHARES
The Articles of Incorporation authorize the Company to issue two billion shares
of common stock with a par value of $.001 per share. The shares are
nonassessable, transferable, redeemable and do not have pre-emptive rights or
cumulative voting rights. The shares may be issued as whole or fractional
shares and are uncertificated.
The shares may be issued in series or portfolios having separate assets and
separate investment objectives and policies. Upon liquidation of a portfolio,
its shareholders are entitled to share pro rata in the net assets of that
portfolio available for distribution to shareholders. Shares, when issued, will
be fully paid and nonassessable.
SALE AND REDEMPTION OF SHARES
Shares of a Portfolio are sold and redeemed at the net asset value next
determined after receipt of a purchase or redemption order in acceptable form
as described in the prospectus under "Sale and Redemption of Shares" and "Net
Asset Value."
NET ASSET VALUE
Securities of the Generation Portfolios are generally valued by independent
pricing services. The values for equity securities traded on registered
securities exchanges are based on the last sale price or, if there has been no
sale that day, at the mean of the last bid and asked price on the exchange
where the security is principally traded. Securities traded over the counter
(including long-term debt securities) are valued at the mean of the last bid
and asked price if current market quotations are not readily available. Short-
term debt securities which have a maturity date of more than sixty days will be
valued at the mean of the last bid and asked price obtained from principal
market makers. Long-term debt securities are valued at the mean of the last bid
and asked price of such securities obtained from a broker who is a market-maker
in the securities or a service providing quotations based upon the assessment
of market-makers in those securities.
Options are valued at the mean of the last bid and asked price on the exchange
where the option is primarily traded. Stock index futures contracts and
interest rate futures contracts are valued daily at a settlement price based on
rules of the exchange where the futures contract is primarily traded.
TAX STATUS
The following is only a summary of certain additional tax considerations
generally affecting each Generation Portfolio and its shareholders which are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of each Portfolio or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Generation Portfolio has elected to be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated
22 Aetna Generation Portfolios, Inc.
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investment company, a Portfolio is not subject to federal income tax on the
portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described in this section. Distributions by a Portfolio made
during the taxable year or, under specified circumstances, within twelve months
after the close of the taxable year, will be considered distributions of income
and gains of the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the
sale or other disposition of stock or securities or foreign currencies (to the
extent such currency gains are directly related to the regulated investment
company's principal business of investing in stock or securities) and other
income (including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement"); and (2) derive less than
30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less
than three months (the "Short-Short Gain Test"). For purposes of these
calculations, gross income includes tax-exempt income. However, foreign
currency gains, including those derived from options, futures and forwards,
will not in any event be characterized as Short-Short Gain if they are directly
related to the regulated investment company's investments in stock or
securities (or options or futures thereon). Because of the Short-Short Gain
Test, a Portfolio may have to limit the sale of appreciated securities that it
has held for less than three months. However, the Short-Short Gain Test will
not prevent a Portfolio from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding period
is disregarded for this purpose. Interest (including original issue discount)
received by a Portfolio at maturity or upon the disposition of a security held
for less than three months will not be treated as gross income derived from the
sale or other disposition of such security within the meaning of the Short-
Short Gain Test. However, income that is attributable to realized market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose.
In general, gain or loss recognized by a Portfolio on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including municipal obligations) purchased by
a Portfolio at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Portfolio held the
debt obligation. In addition, under the rules of Code Section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto (but only to the extent attributable
to changes in foreign currency exchange rates), and gain or loss recognized on
the disposition of a foreign currency forward contract, futures contract,
option or similar financial instrument, or of foreign currency itself, except
for regulated futures contracts or non-equity options subject to Code Section
1256 (unless the Portfolio elects otherwise), will generally be treated as
ordinary income or loss.
In general, for purposes of determining whether capital gain or loss recognized
by a Portfolio on the disposition of an asset is long-term or short-term, the
holding period of the asset may be affected if (1) the asset is used to close a
"short sale" (which includes for certain purposes the acquisition of a put
option) or is substantially identical to another asset so used, (2) the asset
is otherwise held by the Portfolio as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Portfolio
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (3) the asset is stock and the
Portfolio grants an in-the-money
Aetna Generation Portfolios, Inc. 23
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qualified covered call option with respect thereto. However, for purposes of
the Short-Short Gain Test, the holding period of the asset disposed of may be
reduced only in the case of clause (1) above. In addition, a Portfolio may be
required to defer the recognition of a loss on the disposition of an asset held
as part of a straddle to the extent of any unrecognized gain on the offsetting
position.
Any gain recognized by a Portfolio on the lapse of, or any gain or loss
recognized by a Portfolio from a closing transaction with respect to, an option
written by the Portfolio will be treated as a short-term capital gain or loss.
For purposes of the Short-Short Gain Test, the holding period of an option
written by a Portfolio will commence on the date it is written and end on the
date it lapses or the date a closing transaction is entered into. Accordingly,
a Portfolio may be limited in its ability to write options which expire within
three months and to enter into closing transactions at a gain within three
months of the writing of options.
Transactions that may be engaged in by a Portfolio (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes and
futures contracts) will be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are treated as if they are sold for their
fair market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under such contracts have not terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as of
such date. Any gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is taken into account for the taxable
year together with any other gain or loss that was previously recognized upon
the termination of Section 1256 contracts during that taxable year. Any capital
gain or loss for the taxable year with respect to Section 1256 contracts
(including any capital gain or loss arising as a consequence of the year-end
deemed sale of such contracts) is generally treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. A Portfolio, however, may
elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Portfolio
that are not Section 1256 contracts. The IRS has held in several private
rulings (and Treasury Regulations now provide) that gains arising from Section
1256 contracts will be treated for purposes of the Short-Short Gain Test as
being derived from securities held for not less than three months if the gains
arise as a result of a constructive sale under Code Section 1256.
A Portfolio may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If a Portfolio invests in a PFIC, it may elect to
treat the PFIC as a qualifying electing portfolio (a "QEF") in which event the
Portfolio will each year have ordinary income equal to its pro rata share of
the PFIC's ordinary earnings for the year and long-term capital gain equal to
its pro rata share of the PFIC's net capital gain for the year, regardless of
whether the Portfolio receives distributions of any such ordinary earnings or
capital gain from the PFIC. If a Portfolio does not (because it is unable to,
chooses not to or otherwise) elect to treat the PFIC as a QEF, then in general
(1) any gain recognized by the Portfolio upon sale or other disposition of its
interest in the PFIC or any excess distribution received by the Portfolio from
the PFIC will be allocated ratably over the Portfolio's holding period of its
interest in the PFIC, (2) the portion of such gain or excess distribution so
allocated to the year in which the gain is recognized or the excess
distribution is received shall be included in the Portfolio's gross income for
such year as ordinary income (and the distribution of such portion by the
Portfolio to shareholders will be taxable as an ordinary income dividend, but
such portion will not be subject to tax at the Portfolio level), (3) the
Portfolio shall be liable for tax on the portions of such gain or excess
distribution so allocated to prior years in an amount equal to, for each such
prior year, (i) the amount of gain or excess distribution allocated to such
prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year plus (ii) interest on the amount determined under
clause (i) for the period from the due date for filing a return for such prior
year until the date for filing a return for the year in which the gain is
recognized or the excess distribution is received at the rates and methods
applicable to underpayments of tax for such period, and (4) the distribution by
the Portfolio to shareholders of the portions of such gain or excess
distribution so allocated to prior years (net of the tax payable by the
Portfolio thereon) will again be taxable to the shareholders as an ordinary
income dividend.
24 Aetna Generation Portfolios, Inc.
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Under recently proposed Treasury Regulations a Portfolio can elect to recognize
as gain the excess, as of the last day of its taxable year, of the fair market
value of each share of PFIC stock over the Portfolio's adjusted tax basis in
that share ("mark to market gain"). Such mark to market gain will be included
by the Portfolio as ordinary income, such gain will not be subject to the
Short-Short Gain Test, and the Portfolio's holding period with respect to such
PFIC stock commences on the first day of the next taxable year. If a Portfolio
makes such election in the first taxable year it holds PFIC stock, the
Portfolio will include ordinary income from any mark to market gain, if any,
and will not incur the tax described in the previous paragraph.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it has made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Portfolio must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and as to which the
Portfolio does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or of two
or more issuers which the Portfolio controls and which are engaged in the same
or similar trades or businesses or related trades or businesses. Generally, an
option (call or put) with respect to a security is treated as issued by the
issuer of the security not the issuer of the option. However, with regard to
forward currency contracts, there does not appear to be any formal or informal
authority which identifies the issuer of such instrument. For purposes of asset
diversification testing, obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government such as the Federal Agricultural
Mortgage Corporation, the Farm Credit System Financial Assistance Corporation,
a Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Government National Mortgage
Corporation, and the Student Loan Marketing Association are treated as U.S.
Government securities.
If for any taxable year a Portfolio 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 Portfolio's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
QUALIFICATION OF SEGREGATED ASSET ACCOUNTS
Under Code section 817(h), a segregated asset account upon which a variable
annuity contract or variable life insurance policy is based must be "adequately
diversified." A segregated asset account will be adequately diversified if it
satisfies one of two alternative tests set forth in the Treasury Regulations.
Specifically, the Treasury Regulations provide, that except as permitted by the
"safe harbor" discussed below, as of the end of each calendar quarter (or
within 30 days thereafter) no more than 55% of a Portfolios' total assets may
be represented by any one investment, no more than 70% by any two investments,
no more than 80% by any three investments and no more than 90% by any four
investments. For this purpose, all securities of the same issuer are considered
a single investment, and while each U.S. Government agency and instrumentality
is considered a separate issuer, a particular foreign government and its
agencies, instrumentalities and political subdivisions are
Aetna Generation Portfolios, Inc. 25
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considered the same issuer. As a safe harbor, a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other regulated investment companies.
For purposes of these alternative diversification tests, a segregated asset
account investing in shares of a regulated investment company will be entitled
to "look-through" the regulated investment company to its pro rata portion of
the regulated investment company's assets, provided the regulated investment
company satisfies certain conditions relating to the ownership of the shares.
EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on 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 (a "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.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Portfolio 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 Portfolio may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
PORTFOLIO DISTRIBUTIONS
Each Portfolio anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to the shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they may qualify for the 70% dividends-
received deduction for corporate shareholders to the extent discussed below.
The Generation Portfolios may either retain or distribute to the shareholders
its net capital gain for each taxable year. The Generation Portfolios currently
intend to distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to the shareholders
as long-term capital gain, regardless of the length of time the shareholders
have held shares or whether such gain was recognized by the Generation
Portfolio prior to the date on which the shareholder acquired the shares. The
Code provides, however, that under certain conditions only 50% of the capital
gain recognized upon a Generation Portfolio's disposition of "small business"
stock will be subject to tax.
If a Portfolio elects to retain its net capital gain, the Portfolio will be
taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. Where a Portfolio elects to retain its net
capital gain, it is expected that the Portfolio also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of its pro rata share of such gain, with the result
that each shareholder will be required to report its pro rata share of such
gain on its tax return as long-term capital gain, will receive a refundable tax
credit for its pro rata share of tax paid by the Portfolio on the gain, and
will increase the tax basis for its shares by an amount equal to the deemed
distribution less the tax credit.
26 Aetna Generation Portfolios, Inc.
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Ordinary income dividends paid by a Portfolio with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by a Portfolio from domestic corporations for the taxable
year. A dividend received by the Portfolio will not be treated as a qualifying
dividend (1) if it has been received with respect to any share of stock that
the Portfolio has held for less than 46 days (91 days in the case of certain
preferred stock), excluding for this purpose under the rules of Code Section
246(c) (3) and (4): (i) any day more than 45 days (or 90 days in the case of
certain preferred stock) after the date on which the stock becomes ex-dividend
and (ii) any period during which the Portfolio has an option to sell, is under
a contractual obligation to sell, has made and not closed a short sale of, is
the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or
has otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (2) to the extent that the
Portfolio is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar or
related property; or (3) to the extent the stock on which the dividend is paid
is treated as debt-financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (i) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Portfolio or (ii) by application
of Code Section 246(b) which in general limits the dividends-received deduction
to 70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items).
Alternative Minimum Tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate
of 28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess
of the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act of
1986, a tax is imposed for taxable years beginning after 1986 and before 1996
at the rate of 0.12% on the excess of a corporate taxpayer's AMTI (determined
without regard to the deduction for this tax and the AMT net operating loss
deduction) over $2 million. For purposes of the corporate AMT and the
environmental super fund tax (which are discussed above), the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's AMTI. However, corporate shareholders will generally be required
to take the full amount of any dividend received from a Generation Portfolio
into account (without a dividends-received deduction) in determining its
adjusted current earnings, which are used in computing an additional corporate
preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted
current earnings over its AMTI (determined without regard to this item and the
AMT net operating loss deduction)) includable in AMTI.
Investment income that may be received by a Portfolio from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle a Portfolio to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Portfolio's assets to be invested in various
countries is not known.
Distributions by a Portfolio that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions paid to shareholders are generally reinvested in additional
shares. Shareholders receiving a distribution in the form of additional shares
will be treated as receiving a distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment date. In
addition, if the net asset value at the time a shareholder purchases shares of
a Portfolio reflects undistributed net investment income or recognized capital
gain net income, or unrealized appreciation in the value of the assets of the
Portfolio, distributions of such amounts will be taxable to the
Aetna Generation Portfolios, Inc. 27
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shareholder in the manner described above, although such distributions
economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Portfolio into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Portfolio) on December
31 of such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
SALE OR REDEMPTION OF SHARES
Shareholders generally will recognize gain or loss on the sale or redemption of
shares of a Portfolio in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Portfolio within 30 days before or
after the sale or redemption. In general, any gain or loss arising from (or
treated as arising from) the sale or redemption of shares of a Portfolio will
be considered capital gain or loss and will be long-term capital gain or loss
if the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) (discussed above in connection
with the dividends-received deduction for corporations) generally will apply in
determining the holding period of shares.
TAX EFFECT ON PARTICIPANTS
Participants in VA Contracts and VLI Policies are taxed through prior ownership
of such contracts and policies, as described in one's prospectus for the
applicable contract or policy.
EFFECT OF FUTURE LEGISLATION; LOCAL TAX CONSIDERATIONS
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect
on the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies often
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Portfolio.
VOTING RIGHTS
Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares held) and will vote in the election of Directors
(to the extent hereinafter provided) and on other matters submitted to the vote
of the shareholders. The shareholders of the Portfolios are the insurance
companies for their separate accounts using the Portfolios to fund VA Contracts
and VLI Policies. The insurance companies generally pass through voting to
Participants as described in the prospectus for the applicable VA Contract or
VLI Policy.
Once the initial Board is elected, no meeting of the shareholders for the
purpose of electing Directors will be held unless and until such time as less
than a majority of the Directors holding office have been elected by the
shareholders, or shareholders holding 10% or more of the outstanding shares
request such a vote. The Directors then in office will call a shareholder
meeting for election of Directors. Vacancies occurring between any such
meetings shall be filled as allowed by law, provided that
28 Aetna Generation Portfolios, Inc.
<PAGE>
immediately after filling any such vacancy, at least two-thirds of the
Directors holding office have been elected by the shareholders.
Special shareholder meetings may be called when requested in writing by the
holders of not less than 10% of the outstanding voting shares of a Portfolio.
Any request must state the purposes of the proposed meeting.
Except as set forth above, the Directors shall continue to hold office and may
appoint successor Directors. Directors may be removed from office (1) at any
time by two-thirds vote of the Directors; (2) by a majority vote of Directors
where any Director becomes mentally or physically incapacitated; (3) at a
special meeting of shareholders by a two-thirds vote of the outstanding shares;
(4) by written declaration filed with Mellon Bank, N.A., the Generation
Portfolios' custodian, signed by two-thirds of a Generation Portfolio's
shareholders. Any Director may also voluntarily resign from office. 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 of the Generation Portfolios, in which event the holders of the
remaining shares will be unable to elect any person as a Director.
The Articles may be amended by an affirmative vote of a majority of the shares
at any meeting of shareholders or by written instrument signed by a majority of
the Directors and consented to by a majority of the shareholders. The Directors
may also amend the Articles without the vote or consent of shareholders if they
deem it necessary to conform the Articles to the requirements of applicable
federal laws or regulations or the requirements of the regulated investment
company provisions of the Internal Revenue Code of 1986, as amended, but the
Directors shall not be liable for failing to do so.
Aetna Generation Portfolios, Inc. 29
<PAGE>
AETNA GENERATION PORTFOLIOS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 15, 1995
<TABLE>
<CAPTION>
AETNA ASCENT AETNA CROSSROADS AETNA LEGACY
VARIABLE PORTFOLIO VARIABLE PORTFOLIO VARIABLE PORTFOLIO
------------------ ------------------ ------------------
<S> <C> <C> <C>
Assets:
Cash in bank.......... $100,000 $100,000 $100,000
-------- -------- --------
Total assets........ $100,000 $100,000 $100,000
-------- -------- --------
Net assets applicable to
outstanding capital
stock.................. $100,000 $100,000 $100,000
======== ======== ========
Represented by:
Capital stock-
authorized
2,000,000,000 shares
for all portfolios
$.001 par value,
issued and
outstanding 10,000
shares for each
portfolio............ $ 10 $ 10 $ 10
Additional paid-in
capital.............. 99,990 99,990 99,990
-------- -------- --------
Total representing net
assets applicable to
outstanding capital
stock.................. $100,000 $100,000 $100,000
======== ======== ========
Net asset value per
share of outstanding
capital stock.......... $ 10.00 $ 10.00 $ 10.00
======== ======== ========
</TABLE>
See accompanying notes to statements of assets and liabilities.
S-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholder
Aetna Generation Portfolios, Inc.:
We have audited the accompanying statements of assets and liabilities of
Aetna Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio and Aetna
Legacy Variable Portfolio, portfolios of Aetna Generation Portfolios, Inc.
("the Fund") as of June 15, 1995. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of cash held as of June 15, 1995 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of the
individual portfolios of Aetna Generation Portfolios, Inc. as of June 15, 1995
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
June 15, 1995
S-3
<PAGE>
PART C
OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits
- ------------------------------------------
(a) Financial Statements:
(1) Included in Part B:
Statement of Assets and Liabilities
as of June 15, 1995
Notes to Statement of Assets and
Liabilities as of June 15, 1995
Independent Auditors' Report
(b) Exhibits:
(1) Articles of Incorporation
(2) Bylaws
(3) Not applicable
(4) Not applicable
(5) Form of Advisory Agreement between Registrant and Aetna
Life Insurance and Annuity Company
(6) Form of Underwriting Agreement between Registrant and Aetna
Life Insurance and Annuity Company
(7) Not applicable
(8) Custodian Agreement
(9)(a) Form of Administrative Services Agreement
(9)(b) Form of License Agreement
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Not applicable
(13) Form of Agreement Concerning Initial Capital
(14) Not applicable
(15) Not applicable
(16) Not applicable
(17) Financial Data Schedule - Not applicable
(18) Power of Attorney
<PAGE>
Item 25. Persons Controlled by or Under Common Control
- -------- ---------------------------------------------
Registrant is a Maryland corporation for which separate financial
statements are or will be filed.
A diagram of all persons directly or indirectly under common control
with the Registrant is incorporated herein by reference to the
Registration Statement on Form N-4, File No. 33-88720, as filed with
the Securities and Exchange Commission on January 20, 1995.
Item 26. Number of Holders of Securities
- -------- -------------------------------
As of June 13, 1995 there was one (1) shareholder of the Registrant.
Item 27. Indemnification
- -------- ---------------
Article 9, Section (d) of the Registrant's Articles of Incorporation
provides for indemnification of directors and officers. In addition,
the Registrant's directors and officers are covered under a directors
and officers errors and omissions liability insurance policy issued by
Lloyds of London which expires in October, 1995.
Finally, reference is 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.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
--------------------------------------------------------------
<TABLE>
<CAPTION>
================================================================================
Name Positions and Offices Other Principal Position(s) Held
- ---- with Investment Adviser Since December 31, 1992 and
----------------------- --------------------------------
Addresses*
----------
- --------------------------------------------------------------------------------
<S> <C> <C>
Daniel P. Kearney Director, President Director, Aetna Property Services,
and Chairman of Inc. (since June 1994); Executive Vice
Investment Committee President, Aetna Life and Casualty
Company, The Aetna Casualty and Surety
Company, The Standard Fire Insurance
Company (since December 1993); Director,
Aetna Insurance Company of America
(since February 1993); Director and
Chairman, Aetna Realty Investors, Inc.
(since January 1992); Director of MBIA, Inc.
(since 1992); Executive Vice President, Aetna
Casualty & Surety Company of America, Aetna
Casualty Company of Connecticut, Aetna
Commercial Insurance Company, Aetna Excess
and Surplus Lines Company, Aetna Insurance
Company, Aetna Personal Security Insurance
Company, Farmington Casualty Company, The
Automobile Insurance Company of Hartford,
Connecticut (since August 1994) and Director
(April 1991 - August 1994); Director, Margaretten
Financial Corporation, Edison, New Jersey (1992 -
1994); Group Executive, Financial Division of
Aetna Life and Casualty Company (February 1991 -
December 1993).
Dominick J. Agostino Director, Senior Vice President and Chief Operating Officer,
President and Chief Citicorp, North America, Inc., New York, NY
Financial Officer (December 1992 - September 1994); Managing Director,
(Principal Accounting Citibank, National Association, New York, NY
and Financial Officer) (August 1990 - September 1994).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Christopher J. Burns Director and Senior Director, Aetna Investment Services, Inc. (since
Vice President, Life; September 1993); Director and Senior Vice President,
Member of Separate Aetna Insurance Company of America (1993 - 1994);
Account Investment Senior Vice President, North American Operations,
Committee Aetna International, Inc. (since 1993); Director,
Aetna International, Inc. (since 1992); Director
and member of Investment Committee, Aetna Life
Insurance Company of Canada (since 1992); Director,
Seguros Monterrey Aetna, S.A. (since 1992); Director,
Fianzas Monterrey Aetna S.A. (since 1992); Series "B"
Director, Valores Monterrey Aetna, S.A. de C.V.
(since 1992).
Laura R. Estes Director and Senior Director and Senior Vice President, Aetna Insurance
Vice President, ALIAC Company of America (1993 - 1994); Director, Aetna
Pensions; Member of Investment Services, Inc. (since 1993).
Executive Committee;
Chairman of Separate
Account Investment
Committee
John Y. Kim Director and Senior Chief Investment Officer, Aetna Life and Casualty
Vice President, ALIAC Company (since May 1994); Managing Director,
Investments Mitchell Hutchins Institutional Investors,
New York, NY (September 1993 - April 1994).
Shaun P. Mathews Director and Senior Director and Chief Operations Officer, Aetna
Vice President, Investment Services, Inc. (since February 1993);
Strategic Markets and Director and Senior Vice President, Aetna Insurance
Products Company of America (1993 - 1994); Vice President of
Aetna Life Insurance Company (since 1991).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Scott A. Striegel Director and Senior Vice President, Aetna Life Insurance Company (since
Vice President 1992); Director, Structured Benefits, Inc.,
Structured Benefits of Florida, Inc. (since 1994);
Director, Aetna Investment Services, Inc. (since July
1993); Senior Vice President (since 1992) and Director
(since June 1991) of Aetna Insurance Company of
America; Director and President, Aetna Life Assignment
Company (since 1993); Director, Aetna Casualty and
Surety Company, (since June 1991); President and Director,
Aetna Life & Casualty (Bermuda) Limited (since June 1991).
James C. Hamilton Director, Vice Chief Financial Officer, Aetna Investment Services,
President and Inc. (since 1993); Director, Vice President
Treasurer and Treasurer, Aetna Insurance Company of America
(since February 1993); Director, Aetna Private Capital,
Inc. (since November 1990); Vice President and Actuary
of Aetna Life Insurance Company (since 1988).
Gary G. Benanav Director Director, Gearhart Industries (since May 1985); Director,
Barnes Group, Inc., Bristol, CT, Executive Risk, Inc.,
Executive Re Indemnity Inc., Executive Re Specialty
Insurance Company and Executive Re Inc., Simsbury, CT
(since 1994); Director (since June 1992) and President
(since August 1994) of Aetna Casualty & Surety Company
of America, Aetna Casualty Company of Connecticut, Aetna
Commercial Insurance Company, Aetna Excess and Surplus
Lines Company, Aetna Insurance Company, Aetna Personal
Security Insurance Company, Farmington Casualty Company,
The Automobile Insurance Company of
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Gary G. Benanav Director Hartford, Connecticut; Director and Chairman, Farmington
Cont'd Holdings, Inc., Farmington Management, Inc. (since April
1994); Director and President of Aetna Casualty & Surety
Company of Illinois, Aetna Insurance Company of Illinois
(since March 1994); Executive Vice President,
Property/Casualty (since December 1993) and Group Executive
(1992 - 1993), Aetna Life and Casualty Company, Aetna Life
Insurance Company, The Aetna Casualty and Surety Company,
The Standard Fire Insurance Company; Director and President,
Aetna Investment Management (Bermuda) Holdings Limited
(since March 1993); Director, Chairman and Chief Executive
Officer, AE Five Incorporated (since March 1993); Director,
Aetna International (Australia) Pty. Limited, Aetna Financial
Services Limited, Aetna Investment Management (Australia)
Limited, Aetna Canada & Surety Company of Canada, Aetna
International Chile, S.A., Aetna Re-Insurance Company (U.K.)
Limited, (since 1992); Chief Executive Officer, Aetna
International, Inc. and Aetna Life Insurance Company of
America (since September 1992); Director and President,
AE Fourteen, Inc. (since July 1992); Director, Aetna National
Accounts U.K. Limited (since July 1992); Director, AE Insurance
(Cayman) Limited, The Aetna International Umbrella Fund
(since 1990); Director and Chairman, Aetna International,
Inc. (since August 1989); Director, President and Treasurer,
ALIAC Holdings, Inc. (since June 1989); Director, Aetna
International Fund Management, Inc.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Gary G. Benanav Director (since December 1988); Director, Aetna Investment
(Cont.) Management (F.E.) Holdings Limited (since March
1987); Director, Aetna Capital Management International
Limited (since August 1986); Director, Aetna (Netherlands)
Holdings B.V. (since September 1982); Director and President,
Aetna Insurance Company of America (1992 - 1994); Director,
Aetna Life Insurance Company of Canada (1989 - 1993);
Director, Administradora de Fondos de Pensiones Santa
Maria, S.A. (September 1989 - October 1993); Director,
Aetna (U.K.) Holdings Limited (October 1988 - June 1993);
Director, Aetna Financial Management International Limited
(August 1991 - June 1993); Director, Aetna Life Insurance
Company Limited (January 1990 - June 1993).
Robert E. Broatch Vice President and Senior Vice President, Finance (since December
Corporate Controller 1993), and Corporate Controller (since December
1988), Aetna Life and Casualty Company; Senior
Vice President, Finance, and Corporate Controller,
The Aetna Casualty and Surety Company, The Standard
Fire Insurance Company, The Automobile Insurance
Company of Hartford, Connecticut, Aetna Life
Insurance Company (since December 1993); Chairman,
Connecticut Policy and Economic Council, Inc. (since
May 1993).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Zoe Baird Senior Vice President Senior Vice President and General Counsel of Aetna
and General Counsel Life and Casualty Company (since April 1992); Senior
Vice President and General Counsel of Aetna Casualty
& Surety Company of America, Aetna Casualty
Company of Connecticut, Aetna Commercial Insurance
Company, Aetna Excess and Surplus Lines Company,
Aetna Insurance Company, Aetna Personal Security
Insurance Company, Farmington Casualty Company, The
Automobile Insurance Company of Hartford, Connecticut
(since August 1994); Director, Zurn Industries, Inc.,
Erie, Pennsylvania (since April 1993); Director, Southern
New England Telecommunication Corp. and Southern New
England Telephone Company, New Haven, CT (since November
1990).
Susan E. Schechter Counsel and Corporate Counsel, Aetna Life and Casualty Company (since
Secretary November 1993); Corporate Secretary and Counsel,
Aetna Life Assignment Company (since June 1994);
Associate Attorney, Steptoe & Johnson, Washington, D.C.
(September 1986 - October 1993).
Fred J. Franklin Vice President and Chief Operating Officer and General Counsel,
Chief Compliance Barclay Investments, Inc., Providence, RI (January
Officer 1991 - November 1993).
</TABLE>
* The principal business address of each person named is 151 Farmington
Avenue, Hartford, Connecticut 06156.
<PAGE>
Item 29. Principal Underwriters
- -------- ----------------------
(a) In addition to serving as the principal underwriter for the Registrant,
Aetna Life Insurance and Annuity Company (ALIAC) also acts as the
principal underwriter for Aetna Variable Fund; Aetna Income Shares;
Aetna Series Fund, Inc.; Variable Life Account B and Variable Annuity
Accounts B and C (separate accounts of ALIAC registered as unit
investment trusts), and Variable Annuity Account I (a separate account
of Aetna Insurance Company of America registered as a unit investment
trust). Additionally, ALIAC is the investment adviser for Aetna
Variable Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna
Investment Advisers Fund, Inc., Series B of Aetna GET Fund, Aetna
Series Fund, Inc. and Aetna Generation Portfolios, Inc. ALIAC is also
the depositor of Variable Life Account B and Variable Annuity Accounts
B and C.
(b)
Positions and Offices
Name and Principal with Principal Positions and Offices
Business Address* Underwriter with Registrant
------------------ --------------------- ---------------------
Daniel P. Kearney Director and President Director
Dominick J. Agostino Director, Senior Vice Director
President and Chief
Financial Officer
Christopher J. Burns Director and Senior Vice
President, Life
Laura R. Estes Director and Senior Vice
President, ALIAC Pensions
John Y. Kim Director and Senior Vice Director and Vice
President, ALIAC President
Investments
Shaun P. Mathews Director and Senior Director and President
Vice President, Strategic
Markets and Products
Scott A. Striegel Director and Senior Vice
President, ARPS and
Annuity
James C. Hamilton Director, Vice President Director, Vice
and Treasurer President and
Treasurer
Gary G. Benanav Director
Robert E. Broatch Senior Vice President
and Controller
Zoe Baird Senior Vice President
and General Counsel
<PAGE>
Fred J. Franklin Vice President and Chief
Compliance Officer
Susan E. Schechter Corporate Secretary and
Counsel
* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.
Item 30. Location of Accounts and Records
- -------- --------------------------------
The Registrant and its investment adviser, Aetna Life Insurance and
Annuity Company ("Company"), maintain, at the Company's Home Office
located at 151 Farmington Avenue, Hartford, Connecticut, 06156, physical
possession of each account, book or other document, as required by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder.
Item 31. Management Services
- -------- -------------------
Not applicable. All management-related service contracts have been
discussed in response to Item 16 of Part B.
Item 32. Undertakings
- -------- ------------
(a) The Registrant undertakes to file a post-effective
amendment, using financial statements which need not be certified,
within four to six months from the date Registrant commences operation.
(b) The Registrant undertakes to furnish to each person to whom
a prospectus is delivered a copy of the Fund's latest annual report to
shareholders, which contains certain performance information, upon
request and without charge.
<PAGE>
AETNA GENERATION PORTFOLIOS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
99 - B(1) Articles of Incorporation
99 - B(2) Bylaws
99 - B(5) Form of Advisory Agreement between
Registrant and Aetna Life Insurance and
Annuity Company
99 - B(6) Form of Underwriting Agreement between
Registrant and Aetna Life Insurance and
Annuity Company
99 - B(8) Custodian Agreement
99 - B(9)(a) Form of Administrative Services Agreement
99 - B(9)(b) Form of License Agreement
99 - B(10) Opinion and Consent of Counsel
99 - B(11) Consent of Independent Auditors
99 - B(13) Form of Agreement Concerning Initial Capital
99 - B(18) Power of Attorney
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, Aetna Generation Portfolios, Inc. (Registrant) has caused this Pre-
Effective Amendment No. 1 to the Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Hartford, and State of Connecticut, on the 19th day of June, 1995.
AETNA GENERATION PORTFOLIOS, INC.
---------------------------------
(Registrant)
By Shaun P. Mathews *
-------------------------------
Shaun P. Mathews
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective Amendment to the Registration Statement has been signed below
by the following persons on June 19, 1995 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
Shaun P. Mathews* Director and President
- ----------------------- (Principal Executive Officer)
Shaun P. Mathews
James C. Hamilton* Vice President and Treasurer
- ----------------------- (Principal Financial and Accounting Officer)
James C. Hamilton
Dominick J. Agostino* Director
- -----------------------
Dominick J. Agostino
Morton Ehrlich* Director
- -----------------------
Morton Ehrlich
Maria T. Fighetti* Director
- -----------------------
Maria T. Fighetti
David L. Grove* Director
- -----------------------
David L. Grove
Daniel P. Kearney* Director
- -----------------------
Daniel P. Kearney
John Y. Kim* Director and Vice President
- -----------------------
John Y. Kim
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Sidney Koch* Director
- -----------------------
Sidney Koch
Corine T. Norgaard* Director
- ------------------------
Corine T. Norgaard
Richard G. Scheide* Director
- ------------------------
Richard G. Scheide
</TABLE>
By: /s/ Susan E. Bryant
-------------------
* Susan E. Bryant
Attorney-in-Fact
<PAGE>
Exhibit 99-B(1)
ARTICLES OF INCORPORATION
OF
AETNA GENERATION PORTFOLIOS, INC.
The undersigned, Susan E. Bryant, whose post office address is 151 Farmington
Avenue, Hartford, CT 06156, being at least eighteen years of age, does under
and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations, hereby form a corporation.
FIRST: The name of the Corporation is AETNA GENERATION PORTFOLIOS, INC.
SECOND: The purpose for which the Corporation is formed is to act as an
open-end investment company of the management type registered as such with the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940 and to exercise and generally to enjoy all of the powers, rights and
privileges granted to, or conferred upon, corporations by the General Laws of
the State of Maryland now or hereafter in force.
THIRD: The post office address of the principal office and the office of the
resident agent of the Corporation in the State of Maryland is CSC-Lawyers
Incorporating Service Company, Suite 9E, 11 East Chase St., Baltimore, MD 21202,
which is a corporation organized and existing under the laws of the State of
Maryland.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is 2,000,000,000 shares of Capital Stock of the par value of
$0.001 per share, and of the aggregate par value of $2,000,000 (hereinafter
referred to as "Shares").
FIFTH: (a) The number of Directors of the Corporation shall be determined
by the Board of Directors in the manner provided by the By-Laws of the
Corporation but shall not be less than three (3).
(b) The names of the Directors who shall act until the first Annual
Meeting or until their successors are duly chosen and qualify are:
Shaun P. Mathews
Drew E. Lawton
John Y. Kim
State Department of Assessment
and Taxation
Approved For Record
10/14/94 10:21 a.m.
<PAGE>
SIXTH: The Board of Directors is empowered to authorize the issuance from
time to time of Shares of the Corporation, whether now or hereafter authorized;
provided, however, that the consideration per Share to be received by the
Corporation upon the issuance or sale of any Shares shall be the net asset value
per Share determined in accordance with the requirements of the Investment
Company Act of 1940 and the applicable rules and regulations of the Securities
and Exchange Commission (or any succeeding governmental authority) and in
conformity with generally accepted accounting practices and principles.
SEVENTH: The Shares may be issued in one or more series, and each series may
consist of one or more classes, all as the Board of Directors may determine.
Each series of Shares and each class of a series shall be issued upon such terms
and conditions, and shall confer upon its owners such rights as the Board of
Directors may determine, consistent with the requirements of the laws of the
State of Maryland and the Investment Company Act of 1940 and the applicable
rules and regulations of the Securities and Exchange Commission (or any
succeeding governmental authority), these Articles of Incorporation and the By-
Laws of this Corporation. In addition, the Board of Directors is hereby
expressly authorized to change the designation of any series or class, and to
increase or decrease the number of Shares of any series or class, but the number
of Shares of any series or class shall not be decreased by the Board of
Directors below the number of Shares then outstanding.
EIGHTH: (a) To the extent the Corporation has funds or property legally
available therefor, each Shareholder of the Corporation shall have the right at
such times as may be permitted by the Corporation, but no less frequently than
once each week, to require the Corporation to redeem all or any part of his or
her Shares at a redemption price equal to the net asset value per Share next
determined after the Shares are tendered for redemption; said determination of
the net asset value per Share to be made in accordance with the requirements of
the Investment Company Act of 1940 and the applicable rules and regulations of
the Securities and Exchange Commission (or any succeeding governmental
authority) and in conformity with generally accepted accounting practices and
principles.
Notwithstanding the foregoing, the Corporation may postpone payment or
deposit of the redemption price and may suspend the right of the Shareholders to
require the Corporation to redeem Shares pursuant to the applicable rules and
regulations, or any order, of the Securities and Exchange Commission.
(b) The Corporation shall have the right, exercisable at the discretion
of the Board of Directors, to redeem Shares of any Shareholder for their then
current net asset value per Share if at such time the Shareholder owns Shares
having an aggregate net asset value of less than the amount set forth in the
current Registration Statement of the Corporation filed with the Securities and
Exchange Commission.
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(c) Each Share is subject to redemption by the Corporation at the
redemption price computed in the manner set forth in subparagraph (a) of Article
SEVENTH of these Articles of Incorporation at any time if the Board of
Directors, in its sole discretion, determines that failure to so redeem may
result in the Corporation being classified as a personal holding company as
defined in the Internal Revenue Code of 1986, as it may be amended from time to
time (the "Code").
(d) Transfer of Shares will be recorded on the stock transfer records of
the Corporation at the request of the holders thereof at any time during normal
business hours of the Corporation unless the Board of Directors of the
Corporation determines, in its sole discretion, that allowing such transfer may
result in the Corporation being classified as a personal holding company as
defined in the Code.
NINTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
Directors and Shareholders:
(a) No Shareholder shall have any preemptive or preferential right of
subscription to any Shares of any class or series whether now or hereafter
authorized. The Board of Directors may issue Shares without offering the same
either in whole or in part to the Shareholders.
(b) The Corporation may enter into exclusive or non-exclusive contract(s)
for the sale of its Shares and may also enter into contracts, including but not
limited to investment advisory, management, custodial, transfer agency and
administrative services. The terms and conditions, methods of authorization,
renewal, amendment and termination of the aforesaid contracts shall be as
determined at the discretion of the Board of Directors; subject, however, to the
provisions of these Articles of Incorporation, the By-Laws of the Corporation,
applicable state law, and the Investment Company Act of 1940 and the rules and
regulations of the Securities and Exchange Commission thereunder.
(c) Subject to and in compliance with the provisions of the General Laws
of the State of Maryland respecting interested director transactions, the
Corporation may enter into a written underwriting contract, management contract
or contracts for research, advisory or administrative services with Aeltus
Investment Management, Inc., Aetna Life Insurance and Annuity Company or their
parents, affiliates or subsidiaries thereof, or their respective successors, or
otherwise do business with such corporations, notwithstanding the fact that one
or more of the Directors of the Corporation and some or all of its officers are,
have been, or may become directors, officers, employees or stockholders of
Aeltus Investment Management, Inc., Aetna Life Insurance and Annuity Company or
their parents, affiliates or subsidiaries or successors, and in the absence of
actual fraud the Corporation may deal freely with Aeltus Investment Management,
Inc., Aetna Life Insurance and Annuity Company or their parents, affiliates,
subsidiaries or successors, and neither such underwriting contract, management
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contract or contract for research, advisory or administrative services, nor any
other contract or transaction between the Corporation and Aeltus Investment
Management, Inc., Aetna Life Insurance and Annuity Company or their parents,
affiliates, subsidiaries or successors shall be invalidated or in any way
affected thereby, nor shall any Director or officer of the Corporation be liable
to the Corporation or to any Shareholder or creditor of the Corporation or to
any other person for any loss incurred under or by reason of any such contract
or transaction. Notwithstanding the foregoing, no officer or director or
underwriter or investment adviser of the Corporation shall be protected against
any liability to the Corporation or to its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
(d) The Corporation shall indemnify its officers, directors, employees
and agents, and any person who serves at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise as follows:
(i) Every person who is or has been a director, officer, employee or
agent of the Corporation, and persons who serve at the Corporation's
request as director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified by the Corporation to the fullest extent
permitted by law against liability and against all expenses
reasonably incurred or paid by him in connection with any debt,
claim, action, demand, suit, proceeding, judgment, decree, liability
or obligation of any kind in which he becomes involved as a party or
otherwise by virtue of his being or having been a director, officer,
employee or agent of the Corporation or of another corporation,
partnership, joint venture, trust or other enterprise at the request
of the Corporation, and against amounts paid or incurred by him in
the settlement thereof.
(ii) The words "claim," "action," "suit" or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal,
administrative, legislative, investigative or other, including
appeals), actual or threatened, and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and
other liabilities.
(iii) No indemnification shall be provided hereunder to a director,
officer, employee or agent against any liability to the Corporation
or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office.
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(iv) The rights of indemnification provided herein may be insured against
by policies maintained by the Corporation, shall be severable, shall
not affect any other rights to which any director, officer, employee
or agent may now or hereafter be entitled, shall continue as to a
person who has ceased to be such director, officer, employee, or
agent, and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(v) In the absence of a final decision on the merits by a court or other
body before which such proceeding was brought, an indemnification
payment will not be made, except as provided in subparagraph (vi) of
this paragraph (f), unless in the absence of such a decision, a
reasonable determination based upon a factual review has been made
(1) by a majority vote of a quorum of non-party Directors who are
not "interested" persons of the Corporation (as defined in the
Investment Company Act of 1940), or (2) by independent legal counsel
in a written opinion that the indemnitee was not liable for an act
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of duties.
(vi) The Corporation further undertakes that advancement of expenses
incurred in the defense of a proceeding (upon undertaking for
repayment unless it is ultimately determined that indemnification is
appropriate) against an officer, director or controlling person of
the Corporation will not be made absent the fulfillment of at least
one of the following conditions: (1) the indemnitee provides
security for his undertaking, (2) the Corporation is insured against
losses arising by reason of any lawful advances or (3) a majority of
a quorum of non-party Directors who are not "interested" persons or
independent legal counsel in a written opinion makes a factual
determination that there is a reason to believe the indemnitee will
be entitled to indemnification.
(e) The Board of Directors shall, subject to the General Laws of the
State of Maryland, have the power to determine, from time to time, whether and
to what extent and at what times and places and under what conditions and
regulations any accounts and books of the Corporation, or any of them, shall be
open to the inspection of Shareholders.
(f) Notwithstanding any provision of law requiring a greater proportion
than a majority of the votes of all classes of Shares entitled to be cast to
take or authorize any action, the Corporation may take or authorize any such
action upon the concurrence of a majority of the aggregate number of the votes
entitled to be cast thereon.
(g) The Corporation reserves the right from time to time to make any
amendment of its Articles of Incorporation now or hereafter authorized by law,
including any amendment which alters the rights, as expressly set forth in its
Articles of Incorporation, of any
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outstanding Shares, except that no action affecting the validity or
assessibility of such Shares shall be taken without the unanimous approval of
the outstanding Shares affected thereby.
(h) In addition to the powers and authority conferred upon them by the
Articles of Incorporation of the Corporation or By-Laws, the Board of Directors
may exercise all such powers and authority and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of applicable state law and the Articles of Incorporation and By-Laws
of the Corporation.
(i) The Board of Directors is expressly authorized to determine in
accordance with generally accepted accounting principles and practices what
constitutes net profits, earnings, surplus or net assets in excess of capital,
and to determine what accounting periods shall be used by the Corporation for
any purpose, whether annual or any other period, including daily; to set apart
from any funds of the Corporation such reserves for such purposes as it shall
determine and to abolish the same; to declare and pay dividends and
distributions in cash, securities or other property from surplus or any funds
legally available therefor, at such intervals (which may be as frequent as
daily) or on such other periodic basis, as it shall determine; to declare such
dividends or distributions by means of a formula or other method of
determination, at meetings held less frequently than the frequency of the
effectiveness of such declarations; to establish payment dates for dividends or
any other distributions on any basis, including dates occurring less frequently
than the effectiveness of declarations thereof; and to provide for the payment
of declared dividends on a date earlier or later than the specified payment date
in the case of Shareholders redeeming their entire ownership of Shares.
NINTH: The Corporation acknowledges that it is adopting its corporate name
through permission of Aetna Life and Casualty Company, a Connecticut
corporation, and agrees that Aetna Life and Casualty Company reserves to itself
and any successor to its business the right to withdraw from the Corporation the
use of the name "Aetna" and reserves to itself and any successor to its business
the right to grant the non-exclusive right to use the name "Aetna" or any
similar name to any other investment company or business enterprise.
TENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned has signed these Articles of Incorporation
on the 22nd day of September, 1994 and by her signature hereby acknowledges the
same to be her act and that, to the best of her knowledge, the matters and facts
set forth herein are true in all material respects under the penalties of
perjury.
/s/ Susan E. Bryant
-------------------------
Susan E. Bryant
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STATE OF CONNECTICUT )
) ss: Hartford
COUNTY OF HARTFORD )
I hereby certify that on September 22, 1994, before me, the subscriber, a
Notary Public of the State of Connecticut, in and for the County of Hartford,
personally appeared Susan E. Bryant, who acknowledged the foregoing Articles of
Incorporation to be her act.
WITNESS my hand and notarial seal or stamp the day and year last above
written.
/s/ Victoria A. Thibault
___________________________
Notary Public
Victoria A. Thibault
My Commission Expires: 6-30-99
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Exhibit 99-B(2)
AETNA GENERATION PORTFOLIOS, INC.
BY-LAWS
ARTICLE I
MEETING OF SHAREHOLDERS
Section 1. ANNUAL MEETINGS. An annual meeting of Shareholders shall be held
only in those years in which the election of Directors is required to be acted
on under the Investment Company Act of 1940. At each annual meeting, any other
proper business within the power of Shareholders may be transacted. An annual
meeting shall be held on a date and at a time designated by the Board of
Directors.
Section 2. SPECIAL MEETINGS. Special meetings of Shareholders may be called
by the President or by the Board of Directors; and shall be called by the
President, Secretary or any Director at the request in writing of the holders of
not less than 10% of the outstanding voting shares of the capital stock of the
Corporation (hereinafter, the outstanding voting shares of the capital stock of
the Corporation are referred to as "Shares"). Any such request shall state the
purposes of the proposed meeting.
Section 3. PLACE OF MEETINGS. All meetings of the Shareholders shall be
held at the office of the Corporation in Hartford, Connecticut, or at such other
place within or without the State of Maryland as may be fixed by the party or
parties making the call as stated in the notice thereof.
Section 4. NOTICE. Not less than ten or more than ninety days before the
date of every Annual or Special Meeting of Shareholders, the Secretary or an
Assistant Secretary shall give to each Shareholder of record notice of such
meeting by mail, telegraph, cable or radio. Such notice shall be deemed to have
been given when deposited in the mail or with a telegraph or cable office or
radio station for transmission to the Shareholder at his address appearing on
the books of the Corporation. It shall not be necessary to set forth the
business proposed to be transacted in the notice of any Annual Meeting, except
that any proposal to amend the Articles of Incorporation of the Corporation
shall be set forth in such notice. Notice of a Special Meeting shall state the
purpose or purposes for which it is called.
Section 5. QUORUM. At all meetings of the Shareholders (including meetings
of Shareholders of a particular series), the presence in person or by proxy of
Shareholders entitled to cast a majority in number of votes shall be necessary
to constitute a quorum for the transaction of business. In the absence of a
quorum at any meeting, a majority of those Shareholders present in person or by
proxy may adjourn the meeting from time to time to be held at the same place
without further notice other than by announcement until a quorum, as above
defined, shall be present, whereupon any business may be transacted
<PAGE>
which might have been transacted at the meeting originally called had the same
been held at the time so called.
Section 6. VOTING. At all meetings of Shareholders, each Shareholder shall
be entitled to one vote or fraction thereof for each Share standing in his name
on the books of the Corporation on the date for the determination of
Shareholders entitled to vote at such meeting. On any matter submitted to a
vote of Shareholders, all Shares of the Corporation then issued and outstanding
and entitled to vote shall be voted in the aggregate and not by class except
that (1) when otherwise expressly required by the Maryland General Corporation
Law or the Investment Company Act of 1940, as amended, Shares shall be voted by
individual class; and (2) only Shares of the respective portfolios are entitled
to vote on matters concerning only that portfolio.
Section 7. PROXIES. Any Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy, but no proxy which is dated
more than eleven months before the meeting named therein shall be accepted.
Every proxy shall be in writing subscribed by the Shareholder or his duly
authorized attorney and dated, but need not be sealed, witnessed or
acknowledged. All proxies shall be filed with and verified by the Secretary or
an Assistant Secretary of the Corporation or, if the meeting shall so decide, by
the Secretary of the Meeting.
Section 8. CONSENTS. Any action required or permitted to be taken at any
meeting of Shareholders may be taken without a meeting if a written consent,
setting forth such action, is signed by all the Shareholders entitled to vote on
the subject matter thereof, and such consent is filed with the records of the
Corporation.
ARTICLE II
BOARD OF DIRECTORS
Section 1. POWERS. The Board of Directors shall have control and management
of the affairs, business and properties of the Corporation. They shall have and
exercise in the name and on behalf of the Corporation all the rights and
privileges legally exercisable by the Corporation except as otherwise provided
by law, the Articles of Incorporation or these By-Laws.
Section 2. NUMBER, QUALIFICATIONS, MANNER OF ELECTION AND TERM OF OFFICE.
The number of directors of the Corporation shall be fixed from time to time by a
majority of the entire Board of Directors but shall be not less than three nor
more than twenty. Subject to the foregoing, the Board of Directors may from
time to time by a majority of the entire Board increase or decrease the number
of directors to such number as they deem expedient and fill the vacancies so
created. The term of office of a Director shall not be affected by any decrease
in the number of Directors made by the Board pursuant to the foregoing
authorization. Directors need not be Shareholders. Until
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the first Annual Meeting of Shareholders or until successors are duly elected
and qualify, the Board of Directors shall consist of the persons named as such
in the Articles of Incorporation. The members of the Board of Directors shall be
elected by the Shareholders at the Annual Meeting of Shareholders. Each Director
shall hold office until the Annual Meeting next held after his election or until
his successor shall be elected and qualified.
Section 3. PLACE OF MEETING. The Board of Directors may hold its meetings
at such place or places within or without the State of Maryland as the Board may
from time to time determine.
Section 4. ANNUAL MEETINGS. The Board of Directors shall meet for the
election of officers and any other business as promptly as possible after the
adjournment of the Annual Meeting of Shareholders.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such intervals and on such dates as the Board may from time to
time designate.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at such times and at such places as may be designated in the call of
such meeting. Special meetings shall be called by the Secretary or Assistant
Secretary at the request of the President or any Director.
Section 7. NOTICE. The Secretary or Assistant Secretary shall give notice
of each Annual, Regular or Special Meeting of the Board of Directors to each
member of the Board at least two days before the meeting by mail, telegram or
telephone to his last known address. It should not be necessary to state the
purpose or business to be transacted in the notice of any Annual or Regular
meeting. The notice of a Special Meeting shall state the purpose or purposes
for which it is called. Personal attendance at any meeting by a Director other
than to protest the validity of said meeting shall constitute a waiver of the
foregoing requirement of notice.
Section 8. CONDUCT OF MEETINGS AND BUSINESS. The Board of Directors may
adopt such rules and regulations for the conduct of their meetings and the
management of the affairs of the Corporation as they may deem proper and not
inconsistent with applicable law, the Articles of Incorporation of the
Corporation or these By-Laws.
Section 9. QUORUM. A majority of the total membership of the Board of
Directors shall constitute a quorum at any meeting of the Board of Directors.
The action of a majority of Directors present at any meeting at which a quorum
is present shall be the action of the Board of Directors unless the concurrence
of a greater proportion is required by applicable law, the Articles of
Incorporation of the Corporation or these By-Laws. In the absence of a quorum
at any meeting a majority of the Directors present may adjourn the meeting from
day to day or for such longer periods as they may designate without notice other
than by announcement at the meeting.
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Section 10. RESIGNATIONS. Any Director of the Corporation may resign at any
time by mailing or delivering, or transmitting by radio, telegraph or cable,
written notice to the President or to the Secretary of the Corporation. The
resignation of any Director shall take effect at the time specified therein and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 11. REMOVAL. At any meeting of Shareholders duly called for the
purpose, any Director may by the vote of a majority of all of the Shares
entitled to vote be removed from office. At the same meeting, the vacancy in
the Board of Directors may be filled by the election of a Director to serve for
the remainder of the term and until the election and qualification of his
successor.
Section 12. VACANCIES. Except as otherwise provided by the Investment
Company Act of 1940 or other applicable law, any vacancy occurring in the Board
of Directors for any cause other than by reason of an increase in the number of
Directors may be filled by a majority of the remaining members of the Board of
Directors although such majority is less than a quorum, and any vacancy
occurring by reason of an increase in the number of Directors may be filled by
action of a majority of the entire Board of Directors; provided, however, that
upon the death, resignation or removal during any consecutive period of twelve
months of more than one-half of the Directors holding office at the beginning of
such period, a Shareholders' Meeting shall be called for the purpose of electing
an entire new Board, including the vacancies filled pursuant to this Section of
the By-Laws. A Director elected by the Board to fill a vacancy shall be elected
to hold office until the next Annual Meeting of Shareholders or until his
successor is duly elected and qualified. Notwithstanding the foregoing, the
Shareholders may, at any time during the term of such director, elect to fill a
vacancy or elect some other person to fill said vacancy and thereupon the
election by the Board shall be superseded and the election by the Shareholders
shall be deemed a filling of the vacancy and not a removal and may be made at
any meeting called for such purpose.
Section 13. COMPENSATION OF DIRECTORS. The Directors may receive a stated
salary for their services as Directors, and by Resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed for attendance
at each Meeting. Nothing herein contained shall be construed to preclude any
Director from serving the Corporation in any other capacity, as an officer,
agent or otherwise, and receiving compensation therefor.
Section 14. TELEPHONE PARTICIPATION. Unless otherwise restricted by law,
the Articles of Incorporation of the Corporation or these By-Laws, any member of
the Board of Directors may participate in any meeting of the Board by conference
telephone or similar communications equipment whereby all persons participating
in the meeting can hear each other, and such participation shall constitute
presence in person at the meeting.
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Section 15. CONSENTS. Any action required or permitted to be taken at any
Annual, Regular or Special Meeting of the Board of Directors may be taken
without a meeting if a written consent, setting forth such action, is signed by
all members of the Board and such consent is filed with the minutes of
proceedings of the Board.
Section 16. POWER TO DECLARE DIVIDENDS. The Board of Directors is expressly
authorized to determine in accordance with generally accepted accounting
principles and practices what constitutes net profits, earnings, surplus or net
assets in excess of capital, and to determine what accounting periods shall be
used by the Corporation for any purpose, whether annual or any other period,
including daily; to set apart out of any funds of the Corporation such reserves
for such purposes as it shall determine and to abolish the same; to declare and
pay dividends and distributions on any series by means of a formula or other
method of determination, at meetings held less frequently than the frequency of
the effectiveness of such declarations; to establish payment dates for dividends
or any other distributions on any basis, including dates occurring less
frequently than the effectiveness of declarations thereof; and to provide for
the payment of declared dividends on a date earlier or later than the specified
payment date in the case of Shareholders redeeming their entire ownership of
shares.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT AND TERM OF OFFICE. The Board of Directors, by
resolution passed by a vote of at least a majority of the entire Board, may
appoint an Executive Committee, which shall consist of two (2) or more
Directors.
Section 2. VACANCIES. Vacancies occurring in the Executive Committee from
any cause shall be filled by the Board of Directors at any Meeting thereof by a
vote of the majority of the entire Board.
Section 3. REPORTS TO BOARD. All actions by the Executive Committee shall
be reported to the Board of Directors at its meeting next succeeding such
action.
Section 4. PROCEDURES. The Executive Committee shall fix its own rules of
procedure not inconsistent with these By-Laws or with any directions of the
Board of Directors. It shall meet at such times and places and upon such notice
as shall be provided by such rules or by resolution of the Board of Directors.
The presence of a majority shall constitute a quorum for the transaction of
business, and the vote of a majority of the members of the Committee present at
which a quorum is present shall be necessary for the taking of any action.
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Section 5. POWERS OF EXECUTIVE COMMITTEE. During the intervals between the
meetings of the Board of Directors, the Executive Committee, except as limited
by the By-Laws of the Corporation or by specific directions of the Board of
Directors, shall possess and may exercise all the powers of the Board of
Directors in the management and direction of the business and conduct of the
affairs of the Corporation in such manner as the Executive Committee shall deem
to be in the best interests of the Corporation, and shall have power to
authorize the Seal of the Corporation to be affixed to all instruments and
documents requiring same. Notwithstanding the foregoing, the Executive
Committee shall not have the power to elect Directors, increase or decrease the
number of Directors, elect or remove any officer, declare dividends, issue
shares or recommend to Shareholders any action requiring Shareholder approval.
Section 6. OTHER COMMITTEES. From time to time the Board of Directors may
appoint any other Committee or Committees for any purpose or purposes to the
extent lawful, which shall have such powers as shall be specified in the
resolution of appointment.
Section 7. COMPENSATION. The members of any duly appointed Committee shall
receive such compensation and/or fees as may be fixed from time to time by the
Board of Directors.
Section 8. TELEPHONE PARTICIPATION. Unless otherwise restricted by law, the
Articles of Incorporation or these By-Laws, any member of any Committee of the
Board may participate in any meeting of such Committee by conference telephone
or similar communications equipment whereby all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at the meeting.
Section 9. CONSENTS. Any action required or permitted to be taken at any
meeting of the Executive Committee or any other duly appointed Committee may be
taken without a meeting if a written consent, setting forth such action, is
signed by all members of such Committee and such consent is filed with the
minutes of the proceedings of such Committee.
ARTICLE IV
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall be the
President, one or more Vice Presidents, a Treasurer and a Secretary. The Board
of Directors shall elect or appoint such other officers or agents as the
business of the Corporation may require, including one or more Assistant Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. The same person may hold any two offices except those of President
and Vice President.
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Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The officers shall
be elected annually by the Board of Directors at its Annual Meeting following
the Annual Meeting of Shareholders, if an Annual Meeting of Shareholders is
held. Each officer shall hold office until the Annual Meeting in the next year
and until the election and qualification of his successor. Any vacancy in any
of the offices may be filled for the unexpired portion of the term by the Board
of Directors at any Regular or Special Meeting of the Board. The Board of
Directors may elect or appoint additional officers or agents at any Regular or
Special Meeting of the Board.
Section 3. REMOVAL. Any officer elected by the Board of Directors may be
removed with or without cause at any time upon a vote of the majority of the
entire Board of Directors. Any other employee of the Corporation may be removed
or dismissed at any time by the President.
Section 4. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors. Any such resignation shall take
effect at the date of receipt of each notice or at any later time specified
therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-Laws for
regular election or appointment to such office.
Section 6. PRESIDENT. The President shall be the chief executive officer of
the Corporation. The President shall, unless other provisions are made therefor
by the Board or Executive Committee, employ and define the duties of all
employees of the Corporation; have the power to discharge any such employees;
exercise general supervision over the affairs of the Corporation; and perform
such other duties as may be assigned from time to time by the Board of
Directors. In the absence of the President, an officer or Director appointed by
the President shall preside at all meetings of Shareholders.
Section 7. VICE PRESIDENT. The Vice President (or if more than one, the
senior Vice President) in the absence of the President shall perform all duties
and may exercise any of the powers of the President subject to the control of
the Board. Each Vice President shall perform such other duties as may be
assigned from time to time by the Board of Directors, the Executive Committee,
or the President.
Section 8. SECRETARY. The Secretary shall (i) keep or cause to be kept in
books provided for that purpose the Minutes of the Meetings of the Shareholders
and of the Board of Directors; (ii) see that all Notices are duly given in
accordance with the provisions of these By-Laws and as required by law; (iii) be
custodian of the records and of the Seal of the Corporation and see that the
Seal is affixed to all documents which have been duly authorized to be executed
on behalf of the Corporation under its seal; (iv) keep directly or through a
transfer agent a register of the post office address of each Shareholder and
make
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all proper changes in such register, retaining and filing his authority for
such entries; (v) see that the books, reports, statements, certificates and all
other documents and records required by law are properly kept and filed; and
(vi) in general perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned by the Board of Directors,
the Executive Committee, or the President.
Section 9. TREASURER. The Treasurer shall have supervision of the custody
of the funds and securities of the Corporation, subject to the Articles of
Incorporation of the Corporation and applicable law. The Treasurer shall submit
to the Annual Meeting of Shareholders a statement of the financial condition of
the Corporation and whenever required by the Board of Directors shall make and
render a statement of the accounts of the Corporation and such other statements
as may be required. The Treasurer shall cause to be kept in books of the
Corporation a full and accurate account of all moneys received and paid out for
the account of the Corporation and perform such other duties as may be from time
to time be assigned by the Board of Directors, the Executive Committee, or the
President.
Section 10. ASSISTANT VICE PRESIDENT. The Assistant Vice President or Vice
Presidents of the Corporation shall have such authority and perform such duties
as may be assigned to them by the Board of Directors, the Executive Committee,
or the President of the Corporation.
Section 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretary or Secretaries and the Assistant Treasurer or Treasurers of the
Corporation shall perform the duties of the Secretary and of the Treasurer,
respectively, in the absence of those officers and shall have such further
powers and perform such other duties as may be assigned to them, respectively,
by the Board of Directors, the Executive Committee or the President.
Section 12. SALARIES. The salaries of the officers shall be fixed from time
to time by the Board of Directors. No officer shall be prevented from receiving
such salary by reason of the fact that he is also a Director of the Corporation.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 1. REGISTER OF SHARES. A register of shares shall be kept at the
principal office of the Corporation or of any transfer agent duly appointed by
the Board of Directors and shall contain the names and addresses of all the
shareholders, the number of shares held by them and a record of all transfers
thereof. Fractional shares may be issued. Share certificates will not be
issued.
Section 2. TRANSFER OF SHARES. Shares shall be transferable on the books of
the Corporation by request of the holder thereof in person or by duly authorized
attorney.
8
<PAGE>
Section 3. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. The Board of
Directors may fix in advance a date as the record date for the purpose of
determining Shareholders entitled to notice of or to vote at any Meeting of
Shareholders or Shareholders entitled to receive payment of any dividend. Such
date shall in any case not be more than 60 days and, in case of a Meeting of
Shareholders, not less than 10 days prior to the date on which the particular
action is to be taken. In lieu of fixing a record date, the Board of Directors
may provide that the share transfer books of the Corporation shall be closed for
a stated period not to exceed in any case 20 days. If the share transfer books
are closed for the purpose of determining Shareholders entitled to notice of or
to vote at a Meeting of Shareholders, such books shall be closed for at least 10
days immediately preceding such meeting.
Section 4. TRANSFER AGENT; REGULATIONS. The Board of Directors shall have
power and authority to make all such rules and regulations as they may deem
expedient concerning the issuance and transfer of shares and may appoint a
Transfer Agent for that purpose.
ARTICLE VI
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. AGREEMENTS, ETC. The Board of Directors or the Executive
Committee may authorize any officer or officers or agent or agents of the
Corporation to enter into any Agreement or execute and deliver any instrument in
the name and on behalf of the Corporation, and such authority may be general or
confined to specific instances. Unless so authorized by the Board of Directors
or by the Executive Committee or these By-Laws, no officer, agent or employee
shall have any power or authority to bind the Corporation by any Agreement or
engagement, to pledge its credit, or to render it liable pecuniarily for any
purpose or to any amount.
Section 2. CHECKS, DRAFTS, ETC. All checks, drafts, or orders for the
payment of money, notes and other evidences of indebtedness shall be signed by
such officer or officers, employee or employees, or agent or agents as shall be
from time to time designated by the Board of Directors or the Executive
Committee, or as may be specified in or pursuant to the agreement between the
Corporation and the bank or trust company appointed as custodian, pursuant to
the provisions of the Articles of Incorporation of the Corporation.
Section 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES. All
endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Corporation or its nominee, or directions
for the transfer of securities belonging to the Corporation, shall be made by
such officer or officers, employee or employees, or agent or agents as may be
authorized by the Board of Directors or the Executive Committee.
9
<PAGE>
Section 4. EVIDENCE OF AUTHORITY. Anyone dealing with the Corporation shall
be fully justified in relying on a copy of a resolution of the Board of
Directors or of any Committee thereof empowered to act in the premises which is
certified as true by the Secretary or an Assistant Secretary under the Seal of
the Corporation.
Section 5. DESIGNATION OF A CUSTODIAN. The Corporation shall place and at
all times maintain in the custody of a Custodian all funds, securities and
similar investments owned by the Corporation, with the exception of securities
loaned under a properly authorized securities loan agreement. The Custodian
shall be a bank having not less than $5,000,000 aggregate capital, surplus and
undivided profits and shall be appointed from time to time by the Board of
Directors, which shall fix its remuneration.
Section 6. ACTION UPON TERMINATION OF A CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Board of Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a Special Meeting of the Shareholders to determine whether
the Corporation shall function without a custodian or shall be liquidated. If
so directed by vote of the holders of a majority of the outstanding Shares, the
Custodian shall deliver and pay over all property of the Corporation held by it
as specified in such vote.
Section 7. WHEN TO DETERMINE NET ASSET VALUE. The net asset value per Share
of the outstanding Shares shall be determined at such times as the Board of
Directors shall prescribe, provided that such net asset value shall be
determined at least weekly.
ARTICLE VII
MISCELLANEOUS
Section 1. SEAL. The Seal of the Corporation shall be a disk inscribed with
the words "AETNA GENERATION PORTFOLIOS, INC."
Section 2. WAIVER OF NOTICE. Whenever under the provisions of these By-Laws
or of any law, the Shareholders or Directors or members of the Executive
Committee or other Committee are authorized to hold any meeting after notice or
after the lapse of any prescribed period of time, such meeting may be held
without notice or without such lapse of time by the written waiver of notice
signed by every person entitled to notice, or if every person entitled to notice
shall be present at such meeting.
Section 3. BOOKS AND RECORDS. The books and records of the Corporation,
including the stock ledger or ledgers, may be kept in or outside the State of
Maryland at such office or agency of the Corporation as may from time to time be
determined by the Board of Directors.
10
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 1. BY THE DIRECTORS. The Board of Directors shall have the power,
at any Regular or Special Meeting, if notice thereof be included in the notice
of such Special Meeting, to alter, amend or repeal any By-Laws of the
Corporation and to make new By-Laws.
Section 2. BY THE SHAREHOLDERS. The Shareholders shall have the power, at
any Annual or Special Meeting if notice thereof be included in the notice of
such Special Meeting, to alter, amend or repeal any By-Laws of the Corporation
or to make new By-Laws.
11
<PAGE>
Exhibit 99-B(5)
FORM OF
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made by and between AETNA GENERATION PORTFOLIOS, INC., a
Maryland corporation (the "Company"), on behalf of its Aetna _____________
Variable Portfolio and AETNA LIFE INSURANCE AND ANNUITY COMPANY, a Connecticut
insurance corporation (the "Adviser"), as of the Date set forth below.
R E C I T A L
- - - - - - -
WHEREAS, the Company is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and the rules and regulations promulgated thereunder;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages in
the business of acting as an investment adviser;
WHEREAS, the Company has established the Aetna ___________ Variable
Portfolio (the "Fund");
WHEREAS, the Company, on behalf of the Fund, and the Adviser desire to
enter into an agreement to provide for investment advisory and management
services for the Fund on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER
The Adviser is hereby appointed to serve as the investment adviser to the
Fund, to provide investment advisory services set forth below in Section II,
subject to the terms of this Agreement and the policies and control of the
Company's Board of Directors (the "Board"). The Adviser shall, for all purposes
herein, be deemed an independent contractor and shall have, unless otherwise
expressly provided or authorized, no authority to act for or represent the Fund
in any way or otherwise be deemed an agent of the Fund.
II. DUTIES OF THE ADVISER
In carrying out the terms of this Agreement, the Adviser shall provide the
following services:
<PAGE>
A. supervise all aspects of the operations of the Fund;
B. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund's
portfolio and whether concerning the individual issuers of the securities
included in the Fund's portfolio or the activities in which the issuers
engage, or with respect to securities that the Adviser considers desirable
for inclusion in the Fund's portfolio;
C. determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Board;
D. formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to the
Board;
E. give instructions to the custodian and/or sub-custodian of the Fund
appointed by the Board, as to deliveries of securities, transfers of
currencies and payments of cash for the account of the Fund, in relation to
the matters contemplated by this Agreement; and
F. take, on behalf of the Fund, all actions which appear to the Company
and the Fund necessary to carry into effect the purchase and sale of
securities for the Fund and the supervisory functions listed above,
including the placing of orders for the purchase and sale of securities for
the Fund.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADVISER
Adviser hereby represents and warrants to the Company as follows:
1. Due Incorporation and Organization. The Adviser is duly organized
----------------------------------
and is in good standing under the laws of the State of Connecticut and
is fully authorized to enter into this Agreement and carry out its
duties and obligations hereunder.
2. Registration. The Adviser is registered as an investment adviser
------------
with the Securities and Exchange Commission (the "SEC") under the
Advisers Act, and is registered or licensed as an investment adviser
under the laws of all jurisdictions in which its activities require it
to be so registered or licensed. The Adviser shall maintain such
registration or license in effect at all times during the term of this
Agreement.
3. Best Efforts. The Adviser at all times shall provide its best
------------
judgment and effort to the Fund in carrying out its obligations
hereunder.
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<PAGE>
B. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE COMPANY
The Company, on behalf of the Fund, hereby represents and
warrants to the Adviser as follows:
1. Due Incorporation and Organization. The Company has been duly
----------------------------------
incorporated under the laws of the State of Maryland and it is
authorized to enter into this Agreement and carry out its terms.
2. Registration. The Company is registered as an investment company
------------
with the SEC under the 1940 Act and shares of the Fund are registered
for offer and sale to the public under the Securities Act of 1933, as
amended (the "1933 Act") and all applicable state securities laws.
Such registrations will be kept in effect during the term of this
Agreement.
IV. DELEGATION OF RESPONSIBILITIES
A. APPOINTMENT OF SUBADVISER
Subject to the approval of the Board and the shareholders of the Fund,
the Adviser may enter into a Subadvisory Agreement to engage a subadviser
(the "Subadviser") to the Adviser with respect to the Fund.
B. DUTIES OF SUBADVISER
Under a Subadvisory Agreement, the SubAdviser shall:
1. provide the Adviser with such economic research and securities
analysis as the Adviser may from time to time consider necessary or
advisable in connection with the Adviser's performance of its duties
hereunder;
2. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Fund, and whether concerning the individual issuers whose securities
are included in the Fund or the activities in which such issuers
engage, or with respect to securities that the Subadviser considers
desirable for inclusion in the Fund's investment portfolio;
3. determine which issuers and securities shall be purchased, sold or
exchanged by the Fund or otherwise represented in the Fund's
investment portfolio and regularly report thereon to the Adviser and,
at the request of the Adviser, to the Board; and
-3-
<PAGE>
4. formulate and implement continuing programs for the purchase and
sale of the securities of such issuers and regularly report thereon to
the Adviser and, at the request of the Adviser, to the Board.
C. DUTIES OF THE ADVISER
In the event the Adviser delegates certain responsibilities
hereunder to a Subadviser, the Adviser shall, among other things:
1. monitor the investment program maintained by the Subadviser for
the Fund to ensure that the Fund's assets are invested in compliance
with the Subadvisory Agreement and the Fund's Registration Statement;
2. consult with and assist the Subadviser in maintaining appropriate
policies, procedures and records so that the Subadviser operates its
business and any investment program hereunder in compliance with
applicable laws;
3. establish and maintain periodic communications with the Subadviser
to share information it obtains with the Subadviser concerning the
effect of developments and data on the investment program maintained
by the Subadviser; and
4. oversee matters relating to Fund promotion, marketing materials
and the Subadviser's reports to the Board.
V. BROKER-DEALER RELATIONSHIPS
A. PORTFOLIO TRADES
The Adviser, at its own expense, shall place all orders for the purchase
and sale of portfolio securities for the Fund with brokers or dealers selected
by the Adviser, which may include brokers or dealers affiliated with the
Adviser. The Adviser shall use its best efforts to seek to execute portfolio
transactions at prices that are advantageous to the Fund and at commission rates
that are reasonable in relation to the benefits received.
B. SELECTION OF BROKER-DEALERS
In selecting broker-dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934, as amended) to the Fund and/or the other accounts over which the
Adviser or its affiliates exercise investment discretion. The Adviser is
authorized to pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the Fund that is
in excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines in good faith
that such amount of commission is reasonable in relation to the
-4-
<PAGE>
value of the brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular transaction
or the overall responsibilities that the Adviser and its affiliates have with
respect to accounts over which they exercise investment discretion. The Board
shall periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in relation
to the benefits received.
VI. CONTROL BY THE BOARD OF DIRECTORS
Any investment program undertaken by the Adviser pursuant to this
Agreement, as well as any other activities undertaken by the Adviser on behalf
of the Fund pursuant thereto, shall at all times be subject to any directives of
the Board.
VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Adviser shall
at all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Company, as the
same may be amended from time to time, under the 1933 Act and the 1940
Act;
C. the provisions of the Company's Articles of Incorporation, as
amended;
D. the provisions of the By-Laws of the Company, as amended; and
E. any other applicable provisions of state and federal law.
VIII. COMPENSATION
For the services to be rendered, the facilities furnished and the
expenses assumed by the Adviser, the Company, on behalf of the Fund, shall pay
to the Adviser an annual fee, payable monthly, equal to .50% of the average
daily net assets of the Fund. Except as hereinafter set forth, compensation
under this Agreement shall be calculated and accrued daily at the rate of 1/365
of the annual advisory fee applied to the daily net assets of the Fund. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above. Subject to the provisions of
Paragraph X hereof, payment of the Adviser's compensation for the preceding
month shall be made as promptly as possible. For so long as a Subadvisory
Agreement is in effect, the Company acknowledges on behalf of the Fund that the
Adviser will pay to the Subadviser, as compensation for acting as Subadviser to
the Fund, the fees specified in the Subadvisory Agreement.
-5-
<PAGE>
IX. EXPENSES
The expenses in connection with the management of the Fund shall be
allocable between the Fund and the Adviser as follows:
A. EXPENSES OF THE ADVISER
The Adviser shall pay:
1. The salaries, employment benefits and other related costs of
those of its personnel engaged in providing investment advice to the
Fund, including without limitation, office space, office equipment,
telephone and postage costs; and
2. Any fees and expenses of all directors of the Company who are
employees of the Adviser or an affiliated entity and any salaries and
employment benefits of officers of the Company who are affiliated
persons of the Adviser for acting as officers of the Company.
B. EXPENSES OF THE FUND
The Fund shall pay:
1. Investment advisory fees pursuant to this Agreement;
2. Brokers' commissions, issue and transfer taxes or other
transaction fees chargeable in connection with securities or other
investment transactions, including portions of commissions that may be
paid to reflect brokerage research services provided to the Adviser;
3. Fees and expenses of the Fund's independent public accountants
and outside legal counsel;
4. Expenses of printing and distributing proxies, proxy statements,
prospectuses and reports to shareholders of the Fund, except as such
expenses may be borne by any distributor of the Fund;
5. Interest and taxes;
6. The fees and expenses of those of the Company's directors who
are not "interested persons" (as defined in the 1940 Act) of the
Company or the Adviser;
7. Shareholders' meeting expenses;
-6-
<PAGE>
8. Administrator, transfer agent, custodian and dividend disbursing
agent fees and expenses;
9. Fees of dividend, accounting or pricing agents appointed by the
Fund;
10. Fees payable by the Company to the SEC or in connection with the
registration of shares of the Fund under the laws of any state or
territory of the United States or of the District of Columbia;
11. Fees and assessments of the Investment Company Institute or any
successor organization or other association memberships approved by
the Board;
12. Such nonrecurring or extraordinary expenses as may arise,
including organizational expenses, litigation affecting the Fund and
any indemnification by the Company of its officers, directors or
agents with respect thereto;
13. All other ordinary business expenses incurred in the operations
of the Fund unless specifically provided otherwise in this paragraph
IX;
14. All costs attributable to investor services, administering
shareholder accounts and handling shareholder relations (including,
without limitation, telephone and personnel expenses);
15. All expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares of the Fund
or in cash; and
16. Insurance premiums on property or personnel (including officers
and directors) of the Company which inure to its benefit.
X. EXPENSE LIMITATION
If, for any fiscal year, the total of all ordinary business expenses of the
Fund, including all investment advisory fees but excluding brokerage
commissions, distribution fees, taxes, interest and extraordinary expenses and
certain other excludable expenses, would exceed the most restrictive expense
limits imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are offered for sale (unless a waiver is obtained), the
Adviser shall reduce its advisory fee in order to reduce such excess expenses,
but will not be required to reimburse the Fund for any ordinary business
expenses which exceed the amount of its advisory fee for such fiscal year. The
amount of any such reduction is to be borne by the Adviser and shall be deducted
from the monthly management fee otherwise payable to the Adviser during such
fiscal year. For the purposes of this paragraph, the term "fiscal year" shall
exclude the portion of the current fiscal year which shall have elapsed prior to
the date hereof and shall include the portion of the then current fiscal year
which shall have elapsed at the date of termination of this Agreement.
-7-
<PAGE>
XI. ADDITIONAL SERVICES
Upon the request of the Board of Directors, the Adviser may perform
certain accounting, shareholder servicing or other administrative services on
behalf of the Fund that are not required by this Agreement. Such services will
be performed on behalf of the Fund and the Adviser may receive from the Fund
such reimbursement for costs or reasonable compensation for such services as may
be agreed upon between the Adviser and the Board on a finding by the Board that
the provision of such services by the Adviser is in the best interests of the
Fund and its shareholders. Payment or assumption by the Adviser of any Fund
expense that the Adviser is not otherwise required to pay or assume under this
Agreement shall not relieve the Adviser of any of its obligations to the Fund
nor obligate the Adviser to pay or assume any similar Fund expense on any
subsequent occasions. Such services may include, but are not limited to, (a) the
services of a principal financial officer of the Company (including applicable
office space, facilities and equipment) whose normal duties consist of
maintaining the financial accounts and books and records of the Company and the
Fund and the services (including applicable office space, facilities and
equipment) of any of the personnel operating under the direction of such
principal financial officer; (b) the services of staff to respond to shareholder
inquiries concerning the status of their accounts, providing assistance to
shareholders in exchanges among the investment companies managed or advised by
the Adviser, changing account designations or changing addresses, assisting in
the purchase or redemption of shares; or otherwise providing services to
shareholders of the Fund; and (c) such other administrative services as may be
furnished from time to time by the Adviser to the Company or the Fund at the
request of the Board.
XII. NON-EXCLUSIVITY
The services of the Adviser to the Fund are not to be deemed to be
exclusive, and the Adviser shall be free to render investment advisory or other
services to others (including other investment companies) and to engage in other
activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and directors of the
Adviser may serve as officers or directors of the Company, and that officers or
directors of the Company may serve as officers or directors of the Adviser to
the extent permitted by law; and that the officers and directors of the Adviser
are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
companies.
XIII. TERM
This Agreement shall become effective at the close of business on the
date hereof and shall remain in force and effect, subject to Paragraphs XIV and
XV hereof and approval by the Fund's shareholders, for a period of two years
from the date hereof.
-8-
<PAGE>
XIV. RENEWAL
Following the expiration of its initial two-year term, the Agreement shall
continue in force and effect from year to year, provided that such continuance
is specifically approved at least annually:
A. (1) by the Company's directors or (2) by the vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42) of the
1940 Act), and
B. by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Company), by votes cast in
person at a meeting specifically called for such purpose.
XV. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Company's directors or by vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act), or by the Adviser, on sixty (60) days' written notice to the other party.
The notice provided for herein may be waived by the party required to be
notified. This Agreement shall automatically terminate in the event of its
"assignment", as that term is defined in Section 2(a)(4) of the 1940 Act.
XVI. LIABILITY OF ADVISER AND INDEMNIFICATION
A. LIABILITY
In the absence of willful misfeasance, bad faith or negligence on the
part of the Adviser or its officers, directors or employees, or reckless
disregard by the Adviser of its duties under this Agreement, the Adviser
shall not be liable to the Company or to any shareholder of the Company for
any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of any security.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, negligence or
reckless disregard of obligations or duties hereunder on the part of the
Adviser or any officer, director or employee of the Adviser, to the extent
permitted by applicable law, the Company hereby agrees to indemnify and
hold the Adviser harmless from and against all claims, actions, suits and
proceedings at law or in equity, whether brought or asserted by a private
party or a governmental agency, instrumentality or entity of any kind,
relating to the sale, purchase, pledge of, advertisement of, or
solicitation of sales or purchases of any security (whether of the Fund or
otherwise) by the Company, its officers, directors, employees or agents in
alleged violation of applicable federal, state or foreign laws, rules or
regulations.
-9-
<PAGE>
XVII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Adviser and that of the
Company for this purpose shall be 151 Farmington Avenue, Hartford, Connecticut
06156.
XVIII. QUESTIONS OF INTERPRETATION
This Agreement shall be governed by the laws of the State of Connecticut.
Any question of interpretation of any term or provision of this Agreement having
a counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in the provisions of this Agreement is
revised by rule, regulation or order of the SEC, such provisions shall be deemed
to incorporate the effect of such rule, regulation or order.
XIX. SERVICE MARK
The service mark of the Company and the Fund and the name "Aetna" have
been adopted by the Company with the permission of Aetna Life and Casualty
Company and their continued use is subject to the right of Aetna Life and
Casualty Company to withdraw this permission in the event the Adviser or another
subsidiary or affiliated corporation of Aetna Life and Casualty Corporation
should not be the investment adviser of the Fund.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the 1st day of
January, 1995.
Attest: AETNA GENERATION
PORTFOLIOS, INC.
on behalf of its Aetna ___________
/s/ Susan E. Bryant Variable Portfolio series
By: /s/ Shaun P. Matthews
----------------------------------
Name: Shaun P. Matthews
----------------------------
Title: President
---------------------------
Attest: AETNA LIFE INSURANCE AND
ANNUITY COMPANY
/s/ Patricia Reid Rup By: /s/ James C. Hamilton
---------------------------------
Name: James C. Hamilton
---------------------------
Title: Vice President
--------------------------
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<PAGE>
Exhibit 99-B(6)
AETNA GENERATION PORTFOLIOS, INC.
UNDERWRITING AGREEMENT
This AGREEMENT, made this 1st day of January, 1995, by and between
Aetna Life Insurance and Annuity Company, Inc., a Connecticut corporation
("ALIAC" or "Underwriter"), and Aetna Generation Portfolios, Inc., a Maryland
corporation ("Company").
WHEREAS, the Company is an open-end management investment company
registered with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS the Company
has registered the shares of its common stock for offer and sale to the public
under the Securities Act of 1933, as amended ("1933 Act"), and in accordance
with the provisions of all applicable state securities laws (Blue Sky Laws); and
WHEREAS, the Company is offering and selling to the public distinct series
of shares of common stock, each corresponding to a distinct portfolio
("Series"); and
WHEREAS, the Company wishes to retain the Underwriter as exclusive
principal underwriter in connection with the offering and sale of the shares of
each Series as now exists and as hereafter may be established ("Shares")
including any new classes of shares that may be offered and sold and to furnish
certain other services to the Company as specified in this Agreement; and
WHEREAS, the Underwriter is willing to act as exclusive Underwriter and to
furnish such services on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties thereto agree as follows:
1. APPOINTMENT OF UNDERWRITER. The Company hereby appoints ALIAC and ALIAC
--------------------------
hereby accepts appointment as exclusive underwriter in connection with the
offering and sale of the shares of each Series as are now registered for sale
with the SEC and under Blue Sky Laws and such other Series and classes of shares
of Series as may hereafter be so registered. The Company authorizes the
Underwriter, as exclusive agent for the Company, upon the commencement of
operations of any Series and subject to applicable federal and state law and the
Articles of Incorporation and By-Laws of the Company: (a) to promote the
Series; (b) to solicit orders for the purchase of the Shares of the Series
subject to such terms and conditions as the Company may specify; and (c) to hold
itself available to receive orders for the purchase of the Shares of the Series
and to accept such orders on behalf of the Company as of the time of receipt of
such orders and promptly transmit such orders as are accepted to the Company and
its transfer agent. Purchase orders shall be deemed effective at the time and
in the manner set forth in the Registration Statement as it may be amended from
time to time. The Underwriter shall offer the Shares of each Series on an
agency or "best efforts" basis under which the Company shall only issue such
Shares as are actually sold. In connection with such sales
<PAGE>
and offers of sale, the Underwriter shall give only such information as is
permitted by applicable law, and the Company shall not be responsible in any way
for any other information, statements or representations given or made by the
Underwriter or its representatives or agents. The Company also shall permit the
Underwriter to use any list of shareholders of the Company or any Series or any
other list of investors which it obtains in connection with its provision of
services under this Agreement. The Company reserves the right at any time to
withdraw all offerings of the Shares of any or all Series by written notice to
the Underwriter at its principal office.
2. COMPANY OBLIGATIONS. The Company shall keep the Underwriter fully
-------------------
informed of its affairs and shall make available to Underwriter copies of all
information, financial statements, and other papers which Underwriter may
reasonably request for use in connection with the distribution of shares,
including, without limitation, certified copies of any financial statements
prepared for the Company by its independent public accountant and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of a Series as the
Underwriter may request, and the Company shall cooperate fully in the efforts of
the Underwriter to sell and arrange for the sale of the Shares and in the
performance of the Underwriter under this Agreement.
3. SALES TO DEALERS. The Underwriter, at its discretion, may enter into
----------------
agreements to sell shares to such registered and qualified retail dealers, as it
may select.
4. PUBLIC OFFERING PRICE. The public offering price of the Shares of each
---------------------
Series shall be the net asset value per share (as determined by the Company) of
the outstanding Shares of the Series, plus any applicable sales charge as
described in the Registration Statement of the Company. The Company shall
furnish (or arrange for another person to furnish) the Underwriter with a
quotation of public offering price on each business day.
5. COMPENSATION. As compensation for providing services under this contract
------------
the Underwriter shall retain the sales charge, if any, on purchases and
redemptions of Shares as set forth in the Registration Statement. The
Underwriter is authorized to collect the gross proceeds derived from the sale of
the Shares, remit the net asset value thereof to the Company upon receipt of the
proceeds and retain the sales charge, if any. The Underwriter may reallow any
or all of such sales charges to such dealers as it may from time to time
determine. Whether a sales charge shall be retained by the Underwriter shall be
determined in accordance with the Registration Statement. If applicable, the
Underwriter also shall receive from each Series or class thereof a distribution
and/or service fee at the rate and under the terms and conditions of the Service
and Distribution Plan ("Plan") adopted by the Company with respect to such
Series or class thereof, as such Plan is in effect from time to time, and
subject to any further limitations on such fee as the Board of Directors may
impose.
6. UNDERWRITER'S EXPENSES. The Underwriter, at no additional expense to the
----------------------
Company, shall print and distribute to prospective investors Prospectuses, and
shall print and distribute, upon request, to prospective investors Statements of
Additional
-2-
<PAGE>
Information, and may print and distribute such other sales literature, reports,
forms and advertisements in connection with the sale of the Shares as comply
with the applicable provisions of federal and state law.
7. COMPANY EXPENSES. The Company agrees at its own expense to register the
----------------
Shares with the SEC, state and other regulatory bodies, and to prepare and file
from time to time such Prospectuses, Statements of Additional Information,
amendments, reports and other documents as may be necessary to maintain the
Registration Statement. Each Series shall bear all expenses related to
preparing and typesetting such Prospectuses, Statements of Additional
Information, and other materials and such other expenses, including printing and
mailing expenses, related to such Series' communications with existing
shareholders of that Series.
8. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify, defend and
--------------------------
hold the Underwriter, its several officers and directors, and any person who
controls the Underwriter within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Underwriter, its officers or directors, or any such controlling person may
incur, under the 1933 Act or under common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Underwriter
against any liability to the Company or to the shareholders of a Series to which
the Underwriter would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under this Agreement.
9. INDEMNIFICATION BY UNDERWRITER. The Underwriter agrees to indemnify,
------------------------------
defend and hold the Company, its several officers and directors, and any person
who controls the Company within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigation or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith) which the
Company, its officers or directors, or any such controlling person may incur,
under the 1933 Act or under common law or otherwise, arising out of or based
upon any alleged untrue statement of a material fact contained in information
furnished in writing by the Underwriter to the Company for use in the
Registration Statement or arising out of or based upon any alleged omission to
state a material fact in connection with such information required to be stated
in the Registration Statement or necessary to make such information not
misleading. As used in this paragraph, the term "employee" shall not include a
corporate entity under contract to provide services to the Company or any
Series, or any employee of such a corporate entity, unless such person is
otherwise an employee of the Company.
-3-
<PAGE>
10. SHARE CERTIFICATES. The Company shall not issue certificates
------------------
representing Shares.
11. REPURCHASE OF SHARES. The Underwriter may at its sole discretion
--------------------
repurchase Shares offered by sale by the shareholders. Repurchase of Shares by
the Underwriter shall be at the net asset value next determined after a
repurchase order has been received. The Underwriter will receive no commission
or other remuneration for repurchasing Shares. At the end of each business day,
the Underwriter shall notify by telex or in writing, the Company and its
transfer agent, of the orders for repurchase of Shares received by the
Underwriter since the last such report, the amount to be paid for such Shares,
and the identity of the shareholders offering Shares for repurchase. Upon such
notice, the Company shall pay the Underwriter such amounts as are required by
the Underwriter for the repurchase of such Shares in cash or in the form of a
credit against moneys due the Company from the Underwriter as proceeds from the
sale of Shares. The Company reserves the right to suspend such repurchase right
upon written notice to the Underwriter. The Underwriter further agrees to act
as agent for the Company to receive and transmit promptly to the Company's
transfer agent shareholder requests for redemption of Shares.
12. STATUS OF UNDERWRITER AND OTHER PERSONS. The Underwriter is an
---------------------------------------
independent contractor and shall be agent for the Company only in respect to the
sale and redemption of the Shares. Any person, even though also an officer,
director, employee or agent of the Underwriter, who may be or become an officer,
director, employee or agent of the Company, shall be deemed, when rendering
services to the Company or acting in any business of the Company, to be
rendering such services to or acting solely for the Company and not as an
officer, director, employee or agent or one under the control or direction of
the Underwriter even though paid by the Underwriter.
13. NON-EXCLUSIVE SERVICES. The services of the Underwriter to the Company
----------------------
under this Agreement are not to be deemed exclusive, and the Underwriter shall
be free to render similar services or other services to others so long as its
services hereunder are not impaired thereby.
14. REPORTS OF UNDERWRITER. The Underwriter shall prepare reports for the
----------------------
Board of Directors on a quarterly basis showing such information concerning
expenditures related to this Agreement as from time to time shall be reasonably
requested by the Board.
15. DEFINITIONS. The terms "assignment," "interested person," and "majority
-----------
of the outstanding voting securities" shall have the meanings given to them by
Section 2(a) of the 1940 Act, subject to such exemptions as may be granted by
the Commission by any rule, regulation or order. Additionally, the term
"Registration Statement" shall mean the registration statement most recently
filed by the Company with the Commission and effective under the 1940 Act and
1933 Act, as such Registration Statement is amended by any amendments thereto at
the time in effect, and the terms "Prospectus" and "Statement of Additional
Information" shall mean, respectively, the form of prospectus and statement
-4-
<PAGE>
of additional information with respect to a Series filed by the Company as part
of the Registration Statement.
16. EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective upon
--------------------------
the date hereabove written, provided that, with respect to a Series, this
Agreement shall not take effect unless such action has first been approved by
vote of a majority of the Board of Directors and by vote of a majority of those
directors of the Company who are not interested persons of the Company and have
no direct or indirect financial interest in the operation of the Plan (if there
be a Plan) or in any agreements related thereto (all such directors collectively
being referred to herein as the "Independent Directors"), cast in person at a
meeting called for the purpose of voting on such action.
17. TERMINATION OF AGREEMENT. Unless sooner terminated as provided herein,
------------------------
the Agreement shall continue in effect for one year from the above written date.
Thereafter, if not terminated, this Agreement shall continue automatically for
successive periods of twelve months each, provided that such continuance is
specifically approved at least annually (a) by a vote of a majority of the
Independent Directors, cast in person at a meeting called for the purpose of
voting on such approval, and (b) by the Board of Directors or with respect to
any given series by vote of a majority of the outstanding voting securities of
such Series. Notwithstanding the foregoing, with respect to any Series, this
Agreement may be terminated at any time, without the payment of any penalty, by
vote of the Board of Directors, by vote of a majority of the Independent
Directors or by vote of a majority of the outstanding voting securities of such
Series on 60 days' written notice to the Underwriter or by the Underwriter at
any time, without the payment of any penalty, on 60 days' written notice to the
Company or such Series. Termination of this Agreement with respect to any given
Series or class thereof shall in no way affect the continued validity of this
Agreement or the performance thereunder with respect to any other Series or
class thereof. This Agreement will automatically terminate in the event of its
assignment.
18. AMENDMENTS. No provision of this Agreement may be changed, waived,
----------
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
19. APPLICABLE LAW. This Agreement shall be construed in accordance with the
--------------
laws of the State of Connecticut and the 1940 Act. To the extent that the
applicable laws of the State of Connecticut conflict with the applicable
provisions of the 1940 Act, however, the latter shall control.
20. NOTICE. Any notice required or permitted to be given by either party to
------
the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
21. MISCELLANEOUS. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be executed
by their officers thereunto duly authorized.
Attest: AETNA GENERATION PORTFOLIOS, INC.
/s/ Susan E. Bryant /s/ Shaun P. Mathews
By: _____________________________ By: _________________________
Shaun P. Mathews
Name: _______________________
President
Title: ______________________
Attest: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
/s/ Patricia Reid Rup /s/ James C. Hamilton
By: _____________________________ By: _________________________
James C. Hamilton
Name: _______________________
Vice President
Title: ______________________
-6-
<PAGE>
Exhibit 99-B(8)
________________________________________________________________________________
CUSTODIAN AGREEMENT
BETWEEN
MELLON BANK, N.A.
AND
AETNA GENERATION PORTFOLIOS, INC.
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Appointment.................................................1
2. Application of this Agreement...............................2
3. Delivery of Documents.......................................2
4. Definitions.................................................3
5. Delivery and Registration of the Property...................4
6. Receipt and Disbursement of Money...........................5
7. Receipt of Securities.......................................5
8. Subcustodian................................................6
9. Use of Book-Entry System....................................7
10. Instructions Consistent with Charter, Etc..................7
11. Transactions Not Requiring Instructions....................8
12. Transactions Requiring Instructions........................9
13. Segregated Accounts.......................................10
14. Securities Lending........................................11
15. Dividends and Distributions...............................12
16. Purchases of Securities...................................13
17. Sales of Securities.......................................13
18. Records...................................................14
19. Reports...................................................14
20. Cooperation with Accountants..............................15
21. Confidentiality...........................................15
22. Right to Receive Advice...................................15
</TABLE>
Page i
<PAGE>
<TABLE>
<S> <C>
23. Compensation..............................................16
24. Indemnification...........................................16
25. Responsibility of the Bank................................17
26. Collections...............................................18
27. Duration and Termination..................................19
28. Notices...................................................20
29. Further Actions...........................................21
30. Amendments................................................21
31. Counterparts..............................................21
32. Miscellaneous.............................................21
EXHIBIT A........................................Trust Agreement
</TABLE>
Page ii
<PAGE>
CUSTODIAN AGREEMENT
THIS AGREEMENT is made by and between AETNA GENERATION PORTFOLIOS, INC., a
Maryland corporation (the "Company") and MELLON BANK, N.A., a national banking
association (the "Bank").
W I T N E S S E T H :
WHEREAS, the Company intends to register as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company is authorized to issue one or more series of shares,
each of which represents a separate investment portfolio; and
WHEREAS the Company currently has authorized three series, entitled Aetna
Ascent Variable Portfolio, Aetna Crossroads Variable Portfolio, and Aetna Legacy
Variable Portfolio (each individually a "Fund" and collectively the "Funds");
and
WHEREAS, Aetna Life Insurance and Annuity Company ("Adviser") will serve as
investment adviser to the Funds pursuant to Investment Advisory Agreements
between the Company, on behalf of each of the Funds, and the Adviser; and
WHEREAS, the Adviser and the Company desire to retain the Bank to serve as
the custodian for each of the Funds and the Bank is willing to serve as
custodian for each of the Funds on the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Company hereby appoints the Bank to act as custodian of the
securities, cash and other property belonging to the Funds for the period and on
the terms set forth in this Agreement. The Bank accepts such appointment and
agrees to furnish the services set forth herein in return for the compensation
provided in paragraph 23 of this Agreement.
<PAGE>
(b) In connection with its appointment, the Bank hereby agrees to comply
with all relevant provisions of the 1940 Act and all applicable rules and
regulations thereunder.
(c) It is understood that each of the Funds represents a separate
investment portfolio of the Company and, accordingly, that the Bank shall
identify to each such Fund Property (as defined in paragraph 4 of this
Agreement) belonging to such Fund and in such reports, confirmations and notices
to the Company called for under this Agreement, shall identify the Fund to which
such report, confirmation or notice pertains.
2. APPLICATION OF THIS AGREEMENT
(a) It is expressly understood that the Company is entering into this
Agreement on behalf of each Fund individually and not jointly with any other
Fund. The responsibilities and benefits set forth in this Agreement shall refer
to each Fund severally and not jointly.
(b) Any breach of this Agreement regarding the Company with respect to
any Fund shall not create a right or obligation with respect to any other Fund.
(c) Under no circumstances shall the Bank have the right to set off
claims relating to a Fund by applying Property of any other Fund. No Fund shall
have the right of set off against the assets held by any other Fund.
(d) The business and contractual relationships created by this Agreement
and the consequences of such relationships relate solely to the particular Fund
to which such relationship was created. All Property held by the Bank on behalf
of a particular Fund shall relate solely to that particular Fund.
3. DELIVERY OF DOCUMENTS.
The Company has furnished the bank with copies properly certified or
authenticated of each of the following:
(a) Resolutions of the Company's Board of Directors authorizing the
appointment of the Bank as custodian of the securities, cash and other property
belonging to the Funds and approving this Agreement;
(b) Appendix A identifying and containing the signatures of the Company's
officers and/or officers of the Adviser authorized to issue Oral Instructions
and to sign Written Instructions, as hereinafter defined, on behalf of the
Funds;
Page 2
<PAGE>
(c) The Company's Articles of Incorporation as filed with the Department
of Assessments and Taxation of the State of Maryland and all amendments thereto
(such Articles of Incorporation, as presently in effect and as they shall from
time to time be amended, hereinafter called ("Charter");
(d) The Company's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, hereinafter
called ("By-Laws");
(e) The Investment Advisory Agreements currently in effect between each
of the Funds and its Adviser (the "Advisory Agreements"); and
(f) The most recent prospectus and statement of additional information
relating to shares of the Company's common stock ("Shares") (such prospectus and
statement of additional information as presently in effect and all amendments
and supplements thereto hereinafter called the "Prospectus").
The Company will furnish the Bank from item to time with copies, properly
certified or authenticated, of all amendments of or supplements to the forgoing,
if any.
4. DEFINITIONS.
(a) "Authorized Person" shall mean any of the officers of the Company or
-------------------
the Adviser (whether or not any such person is an officer or employee of the
Company): (i) who is duly authorized by the Board of Directors of the Company or
under the terms of the Advisory Agreement, the Charter or the By-Laws to act on
behalf of a Fund; and (ii) whose name is listed on the Certificate annexed
hereto as Appendix A or any amendment thereto as may be received by the Bank
from time to time.
(b) "Book-Entry System" shall mean the Federal Reserve Treasury book-
-------------------
entry system for United States and federal agency securities, its successor or
successors and its nominee or nominees and any book-entry system maintained by a
clearing agency registered with the Securities and Exchange Commission (the
"SEC") under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act")
and authorized to act as a depository for the Company's portfolio securities by
the Company's Board of Directors including, without limitation, Participants
Trust Company, Depository Trust Company,
Page 3
<PAGE>
CEDEL and Euroclear, and their respective successor or successors and nominee or
nominees.
(c) "Cash" or "Money" or "Monies" shall mean all uninvested funds (in
-----------------------------
the form of currency or checks) but shall not include funds represented by cash
equivalents such as repurchase agreements, certificates of deposit, Treasury
bills or notes, or similar instruments.
(d) "Oral Instructions" shall mean oral instructions actually received
-------------------
by the Bank from an Authorized Person or from a person reasonably believed by
the Bank to be an Authorized Person. The Company agrees to deliver to the Bank,
at the time and in the manner specified in paragraph 9(b) of this Agreement,
Written Instructions confirming Oral Instructions.
(e) "Property" shall mean:
----------
(i) any and all securities and other property which the Funds may
from time to time deposit, or cause to be deposited, with the
Bank or which the Bank may from time to time hold for the
Funds;
(ii) all income in respect of any such securities or other
property; (iii) all proceeds from the sale of any such
securities or other property; and
(iv) all proceeds from the sale of securities issued by the
Company which are received by the Bank from time to time from
or on behalf of the Company.
(f) "Written Instructions" shall mean written instructions delivered
----------------------
by hand (including Federal Express or other express courier), certified or
registered mail, return receipt requested, tested telegram, cable, telex or
facsimile sending device and received by the Bank and signed by an Authorized
Person and shall also include computer transmission with coded access as agreed
upon by the Bank and the Company.
5. DELIVERY AND REGISTRATION OF THE PROPERTY.
The Company will deliver or cause to be delivered to the Bank all securities
and all moneys owned by it, including cash received for the issuance of Shares,
at any time during the period of this Agreement. The Bank will not be
responsible for such securities and such moneys until actually received by it.
All securities delivered to the Bank (other than
Page 4
<PAGE>
in bearer form) shall be registered in the name of the Company or in the name of
a nominee of the Company or in the name of any nominee of the Bank (with or
without indication of fiduciary status), or in the name of any subcustodian or
any nominee of any such subcustodian appointed pursuant to paragraph 8 hereof or
shall be properly endorsed and in form for transfer satisfactory to the Bank.
6. RECEIPT AND DISBURSEMENT OF MONEY.
(a) Not less frequently than once on the afternoon of each business
day, all cash held in the custody account, other than cash required to settle
securities transactions on such business day, shall be transferred to the
trustee under a Trust Agreement of even date herewith between the Bank and the
Company and attached hereto as Exhibit A.
(b) The Bank shall make payments of cash to, or for the account of,
the Company from such cash only (i) for the purchase of securities for the Funds
as provided in paragraph 15 hereof; (ii) upon receipt of Written Instructions,
for the payment of interest, dividends, taxes, fees or expenses of the Funds;
(iii) upon receipt of Written Instructions, for payments in connection with the
conversion, exchange or surrender of securities owned or subscribed to by the
Funds and held by or to be delivered to the Bank; (iv) to a subcustodian
pursuant to paragraph 8 hereof; (v) for the redemption of Shares; (vi) for
payment of the amount of dividends received in respect of securities sold short
against the box; or (vii) upon receipt of Written Instructions, for other proper
Fund purposes. No payment pursuant to (i) above shall be made unless the Bank
has received a copy of the broker's or dealer's confirmation or the payee's
invoice, as appropriate.
(c) The Bank is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as custodian for the
account of the Funds.
7. RECEIPT OF SECURITIES
(a) Except as provided by paragraph 9 hereof, the Bank shall hold and
physically segregate in a separate account, identifiable at all times from those
of any other persons, firms, or corporations, all securities and non-cash
property received by it for the account of the Funds. All such securities and
non-cash property are to be held or disposed of by the Bank for the Funds
pursuant to the terms of this Agreement. In the absence of Written Instructions
accompanied by a certified resolution of the Company's Board of
Page 5
<PAGE>
Directors authorizing the transaction, the Bank shall have no power or authority
to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any
such securities and investments except in accordance with the express terms of
this Agreement. In no case may any director, officer, employee or agent of the
Company withdraw any securities.
(b) Where securities are transferred to a Fund account established
pursuant to paragraph 9 hereof, the Bank shall also by book-entry or otherwise
identify as belonging to the Fund the quantity of securities in a fungible bulk
of securities registered in the name of the Bank (or its nominee) or shown in
the Bank's account on the books of the Book-Entry System. The Bank shall
furnish the Company with reports relating to Property held for the Funds under
this Agreement in accordance with paragraph 19 hereof.
8. SUBCUSTODIAN.
The Bank may, at its own expense, enter into subcustodian agreements
with other banks or trust companies for the receipt of certain securities and
cash to be held by the Bank for the account of the Funds pursuant to this
Agreement, provided that each such bank or trust company has an aggregate
--------
capital, surplus and undivided profits, as shown by its last published report,
of not less than ten million dollars ($10,000,000); and provided further that
----------------
such bank or trust company agrees with the Bank to comply with all relevant
provisions of the 1940 Act and applicable rules and regulations thereunder. The
Bank shall remain responsible for the performance of all of its duties under
this Agreement and shall hold the Funds harmless from the acts and omissions,
under the standards of care applicable to the Bank under paragraph 25 hereof, of
any bank or trust company that it might choose pursuant to this paragraph 8 or
of the Book-Entry System.
9. USE OF BOOK-ENTRY SYSTEM.
The Company shall deliver to the Bank certified resolutions of the Board of
Directors of the Company approving, authorizing and instructing the Bank on a
continuous and on-going basis until instructed to the contrary by Oral or
Written Instructions actually received by the Bank (i) to deposit in the Book-
Entry System all securities belonging to the Funds and eligible for deposit
therein and (ii) to use the Book-Entry System to the extent possible in
connection with settlements of purchases and sales
Page 6
<PAGE>
of securities by the Funds, and deliveries and returns of securities loaned,
subject to repurchase agreements or used as collateral in connection with
borrowing. Without limiting the generality of such use, it is agreed that the
following provisions shall apply thereto:
(a) Securities and any cash of the Funds deposited in the Book-Entry
System will at all times be segregated from any assets and cash controlled by
the Bank in other than a fiduciary or custodian capacity but may be commingled
with other assets held in such capacities.
(b) All books and records maintained by the Bank which relate to the
Funds' participation in the Book-Entry System will at all times during the
Bank's regular business hours be open to the inspection of the Company's duly
authorized employees or agents, and the Company will be furnished with all
information in respect of the services rendered to it as it may require.
(c) The Bank will provide the Company with copies of any report
obtained by the Bank on the system of internal accounting control of the Book-
Entry System promptly after receipt of such a report by the Bank. The Bank will
also provide the Company with such reports on its own system of internal control
as the Company may reasonably request from time to time.
10. INSTRUCTIONS CONSISTENT WITH CHARTER, ETC.
(a) Unless otherwise provided in this Agreement, the Bank shall act
only upon Oral and Written Instructions. Although the Bank may know of the
provisions of the Charter and By-Laws, the Bank may assume that any Oral or
Written Instructions received hereunder are not in any way inconsistent with any
provisions of such Charter or By-Laws or any vote, resolution or proceeding of
the Company's shareholders, or of its board of directors, or of any committee
thereof.
(b) The Bank shall be entitled to rely upon any Oral Instructions and
any Written Instructions actually received by the Bank pursuant to this
Agreement. The Company agrees to forward to the Bank Written Instructions
confirming Oral Instructions in such manner that the Written Instructions are
received by the Bank by the close of business of the same day that such Oral
Instructions are given to the Bank. The Company agrees that the fact that such
confirming Written Instructions are not received by the Bank shall in no way
affect the validity of the transactions or enforceability of the transactions
authorized by the Company by giving Oral Instructions. The Company
Page 7
<PAGE>
agrees that the Bank shall incur no liability to the Company in acting upon Oral
Instructions given to the Bank hereunder concerning such transactions, provided
such instructions reasonably appear to the Bank to have been received from an
Authorized Person
11. TRANSACTIONS NOT REQUIRING INSTRUCTIONS.
In the absence of contrary Written Instructions, the Bank is authorized
to take the following actions:
(a) Collection of Income and Other Payments. The Bank shall, on behalf
---------------------------------------
of each Fund:
(i) collect and receive for the account of the Fund all income
and other payments and distributions, including (without limitation) stock
dividends, rights, bond coupons, option premiums and similar items, included or
to be included in the Property, and promptly advise the Fund of such receipt and
shall credit such income, as collected, to the Fund's custodian account;
(ii) endorse and deposit for collection, in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same day as
received;
(iii) receive and hold for the account of the Fund all securities
received as a distribution on the Fund's portfolio securities as a result of a
stock dividend, share split-up or reorganization, recapitalization, readjustment
or other rearrangement or distribution of rights or similar securities issued
with respect to any portfolio securities belonging to the Fund held by the Bank
hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or retired, or otherwise
become payable on the date such securities become payable; and
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other payments and
the endorsement for collection of checks, drafts, and other negotiable
instruments as described in paragraph 26 of this Agreement.
Page 8
<PAGE>
(b) Miscellaneous Transactions. In the following cases, the Bank
---------------------------
shall deliver or cause to be delivered Property against payment or other
consideration or written receipt therefor:
(i) for examination by a broker selling for the account of the
Fund in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities
for definitive securities; and
(iii) for transfer of securities into the name of the Fund or the
Bank or nominee of either, or for exchange of securities for a different number
of bonds, certificates, or other evidence, representing the same aggregate face
amount or number of units bearing the same interest rate, maturity date and call
provisions, if any; provided that, in any such case, the new securities are to
-------------
be delivered to the Bank.
12. TRANSACTIONS REQUIRING INSTRUCTIONS.
Upon receipt of Oral or Written Instructions and not otherwise, the
Bank, directly or through the use of the Book-Entry System, shall:
(a) execute and deliver to such persons as may be designated in such
Oral or Written Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Company as owner of any securities may
be exercised;
(b) deliver any securities held for a Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
(c) deliver any securities held for a Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of a Fund and take
such other steps as shall be stated in said Oral or Written Instructions to be
for the purpose of
Page 9
<PAGE>
effectuating any duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization;
(e) release securities belonging to a Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by such
Fund; provided, however, that securities shall be released only upon payment to
-------- -------
the Bank of the monies to be received by the Bank in accordance with such Oral
or Written Instructions, except that in cases where additional collateral is
required to secure a borrowing already made, in which case and subject to
receipt by the Bank of "Oral or Written Instructions," further securities may be
released for that purpose; and repay such loan upon redelivery to it of the
securities pledged or hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
(f) release and deliver securities owned by a Fund in connection with
any repurchase agreement entered into on behalf of a Fund, but only on receipt
of payment therefor; and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the securities; and
(g) otherwise transfer, exchange or deliver securities in accordance
with Oral or Written Instructions.
13. SEGREGATED ACCOUNTS.
(a) The Bank shall upon receipt of Written or Oral Instructions
establish and maintain a segregated account or accounts on its records for and
on behalf of each of the Funds, into which account or accounts may be
transferred cash and/or securities, including securities in the Book-Entry
System (i) for the purposes of compliance by the Company with the procedures
required by a securities or option exchange, provided such procedures comply
with the 1940 Act and Investment Company Act Release No. 10666 (April 18, 1979)
or any subsequent release or releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies, and (ii) for other
proper corporate purposes, but only, in the case of clause (ii), upon receipt of
Written Instructions.
(b) The Bank hereby acknowledges that the Company may require it to
enter into one or more third-party custodial agreements regarding the Funds'
purchases and
Page 10
<PAGE>
sales of futures contracts and options thereon, and that any such third-party
agreement with a futures commission merchant may contain any provisions which
the Company and the futures commission merchant reasonably deem necessary and
which do not subject the Bank to higher standards of care (except as may be
required by law) than does this Agreement.
14. SECURITIES LENDING.
(a) The Company may, from time to time, furnish the Bank with copies
of securities loan agreements (singly "Securities Loan Agreement" and
collectively "Securities Loan Agreements"), pursuant to which the Company may
lend securities of any Fund to the respective brokerage firms named therein
(singly the "Brokerage Firm" and collectively the "Brokerage Firms").
(b) In each such case, and until the Company shall have given the
Bank Written Instructions that such Securities Loan Agreement has terminated,
the Company authorizes the Bank, as its agent in connection with the lending of
securities from time to time upon receipt by the Bank of Oral or Written
Instructions: (i) to deliver to the Brokerage Firm named in the Securities Loan
Agreement specific securities held in the specified Fund, it being understood
that in each case the Bank will give prompt notice thereof to the Company; (ii)
to receive from the Brokerage Firm a certified or bank cashier's check, in
immediately available funds, or obligations of the U.S. Government in an amount
equal to the then current market value of the securities, as specified in such
Instructions.
(c) The Company will evaluate on a daily basis its rights and
obligations under each Securities Loan Agreement, such as marking to market, and
will demand that additional collateral be delivered to the Bank by the Brokerage
Firm under proper advice to the Bank, or shall give Oral or Written Instructions
to the Bank to release excess collateral to the Brokerage Firm.
(d) The Bank may, through its commercial, trust or other departments, be
a creditor for its own account, or represent in a fiduciary capacity other
creditors and/or customers, or any Brokerage Firm, even though any of such
interests may potentially be in conflict with those of the Company.
Page 11
<PAGE>
(e) The Company represents that it has the power and authority to lend
the securities in accordance with a Securities Loan Agreement and that such
lending as provided in such Securities Loan Agreement and as provided herein,
has been duly authorized by all necessary action, has received any required
regulatory approval and will not violate any law, regulation, Charter, By-law or
other instrument, restriction or provision applicable to the Company.
(f) With respect to acting as agent for the Company in connection with
the lending of securities to Brokerage Firms pursuant to Securities Loan
Agreements, the Bank shall have no duties or responsibilities except those
expressly set forth herein and the Company will indemnify the Bank against any
liability which it may incur in connection with such lending in accordance with
paragraph 24 hereof. The Bank shall have no responsibility in connection with
the present or future financial condition of any such Brokerage Firm or any
failure on the part of any such Brokerage Firm to return any such securities for
any reason whatsoever or to comply with any provision of any Securities Loan
Agreement or any failure on the part of any such Brokerage Firm to comply with
any law or regulation, all such risks being assumed by the Company.
15. DIVIDENDS AND DISTRIBUTIONS.
The Company shall furnish the Bank with appropriate evidence of action by
the Company's Board of Directors declaring and authorizing the payment of any
dividends and distributions. Upon receipt by the Bank of Written Instructions
with respect to dividends and distributions declared by the Company's Board of
Directors and payable to shareholders of a Fund and in conformance with
procedures mutually agreed upon by the Bank and the Company, the Bank shall pay
to the Fund's shareholders an amount equal to the amount indicated in said
Written Instructions as payable by such Fund to its shareholders.
16. PURCHASES OF SECURITIES.
Promptly after each decision to purchase securities by the Adviser, the
Company, through the Adviser, shall deliver to the Bank Written or Oral
Instructions specifying with respect to each such purchase: (a) the Fund for
which the purchase shall be made; (b) the name of the issuer and the title of
the securities; (c) the number of shares
Page 12
<PAGE>
or the principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; and (g) the name of the person from whom or the
broker through whom the purchase was made. Oral Instructions shall be confirmed
by Written Instructions. The Bank shall upon receipt of securities purchased by
or for the Fund pay out of the moneys held for the account of the Fund the total
amount payable to the person from whom or the broker through whom the purchase
was made, provided that the same conforms to the total amount payable as set
--------
forth in such Oral Instructions in accordance with current industry practices.
17. SALES OF SECURITIES
Promptly after each decision to sell securities by the Adviser or
exercise of an option written by the Company, the Company, through the Adviser,
shall deliver to the Bank Oral or Written Instructions, specifying with respect
to each such sale; (a) the Fund for which the sale shall be made; (b) the name
of the issuer and the title of the security; (c) the number of shares or
principal amount sold, and accrued interest, if any; (d) the date of sale and
settlement; (e) the sale price per unit; (f) the total amount payable to the
Fund upon such sale; and (g) the name of the broker through whom or the person
to whom the sale was made. The Bank shall deliver the securities upon receipt of
the total amount payable to the Fund upon such sale, provided that the same
--------
conforms to the total amount payable as set forth in such Oral Instructions in
accordance with current industry practice. Subject to the foregoing, the Bank
may accept payment in such form as shall be satisfactory to it, and may deliver
securities and arrange for payment in accordance with the customs prevailing
among dealers in securities.
18. RECORDS.
The books and records pertaining to the Funds which are in the possession
of the Bank shall be the property of the Funds. Such books and records shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws and regulations. The Company, or the Company's authorized
representatives, shall have access to such books and records at all times during
the Bank's normal business hours. Upon the reasonable request of the Company,
copies of any such books and records shall
Page 13
<PAGE>
be provided by the Bank to the Company or the authorized representative at the
Company's expense.
19. REPORTS.
(a) The Bank shall furnish the Company with the following reports:
(1) such periodic and special reports as the Company may reasonably
request;
(2) a daily report detailing all transactions (cash and securities)
that have been posted to each Fund's account. This report, which shall be in
such form as may be agreed upon by the Bank and the Company from time to time,
shall be received not later than the morning of the business day next following
the day to which the report relates;
(3) statements, at such intervals as the Company may reasonably
request but not less frequently than monthly, summarizing all transactions and
entries for the account of the Funds, listing the portfolio securities belonging
to the Funds with the adjusted average cost of each issue and the market value
at the end of such month, and stating the cash account of the Fund, including
disbursements;
(4) the reports to be furnished to the Company pursuant to Rule
17f-4 under the 1940 Act; and
(5) such other information as may be agreed upon from time to time
between the Company and the Bank.
(b) The Bank shall transmit promptly to the Company any proxy
statement, proxy materials, notice of a call or conversion or similar
communications received by it as custodian of the Property.
20. COOPERATION WITH ACCOUNTANTS.
The Bank shall cooperate with the Company's independent public
accountants and shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion, as such
may be required from time to time by the Company.
Page 14
<PAGE>
21. CONFIDENTIALITY.
The Bank agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Funds and their
prior, present, or potential shareholders, except, after prior notification to
and approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Bank may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Company.
22. RIGHT TO RECEIVE ADVICE.
(a) Advice of Company. If the Bank shall be in doubt as to any
-----------------
action to be taken or omitted by it, it may request, and shall receive, from the
Company directions or advice, including Oral or Written Instructions, where
appropriate.
(b) Advice of Counsel. If the Bank shall be in doubt as to any
-----------------
question of law involved in any action to be taken or omitted by the Bank, it
may request advice at its own cost from counsel of its own choosing (which may
be counsel for the Adviser, the Company or the Bank, at the option of the Bank).
(c) Conflicting Advice. In case of a conflict between directions,
------------------
advice or Oral or Written Instructions received by the Bank pursuant to
subparagraph (a) of this paragraph and advice received by the Bank pursuant to
subparagraph (b) of this paragraph, the Bank shall be entitled to rely on and
follow the advice received pursuant to the latter provision alone.
(d) Protection of the Bank. The Bank shall be protected in any
----------------------
action or inaction which it takes in reliance on any directions, advice or Oral
or Written Instructions received pursuant to subparagraphs (a) or (b) of this
paragraph which the Bank, after receipt of such directions, advice or Oral or
Written Instructions, in good faith believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be.
However, nothing in this paragraph shall be construed as imposing upon the Bank
any obligation (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
or Written Instructions when received, unless, under the terms of another
provision of this Agreement, the same is a condition to
Page 15
<PAGE>
the Bank's properly taking or omitting to take such action. Nothing in this
subsection shall excuse the Bank when an action or omission on the part of the
Bank constitutes willful misfeasance, bad faith, negligence or reckless
disregard by the Bank of any duties or obligations under this Agreement.
23. COMPENSATION.
As compensation for the services rendered by the Bank during the term
of this Agreement, the Company will pay to the Bank fees in accordance with the
fee schedule agreed upon from time to time in writing by the Bank and the
Company.
24. INDEMNIFICATION.
The Company, as sole owner of the Property, agrees to indemnify and hold
harmless the Bank and its nominees from all taxes, charges, expenses,
assessments, claims and liabilities and expenses, including reasonable
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing which the Bank takes or does or omits to take or do upon receipt
of Oral or Written Instructions or under this Agreement, provided, that neither
--------
the Bank nor any of its nominees shall be indemnified against any liability to
the Company or to its shareholders (or any expenses incident to such liability)
arising out of the Bank's or such nominees' own willful misfeasance, bad faith,
negligence or reckless disregard of its duties or responsibilities under this
Agreement.
25. RESPONSIBILITY OF THE BANK.
(a) In the performance of its duties hereunder, the Bank shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts to assure the accuracy and completeness of all services performed
under this Agreement. Except as provided in (b) below, the Bank shall be
responsible for all direct losses occasioned by the Bank's negligent failure to
perform its duties under this Agreement, including but not limited to losses
related to inaccuracies in the daily reports (upon which the Company and its
agents rely in calculating each Fund's net asset value and in determining
whether the Company and the Funds are in compliance with the 1940 Act and the
requirements of Subchapter M of the Internal Revenue Code of 1986 (as amended))
to be provided under paragraph 19 hereof or otherwise. However, the Bank shall
not be liable for any incidental, consequential or punitive damages.
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<PAGE>
(b) The Bank shall assume entire responsibility for loss occasioned
by robbery, burglary, fire, theft or mysterious disappearance irrespective of
whether such losses occur while such Property is in possession of the Bank or
the possession of one of the Bank's agents, nominees, depositories,
correspondents or subcustodians appointed pursuant to paragraph 8 hereof or any
Book-Entry System. In the event of any such loss, the Bank's liability shall be
limited to the replacement value thereof as of the date of the discovery of such
loss and the Bank, at the Company's option, shall make prompt replacement of
Property with like kind and quality or shall make prompt restitution to the Fund
for such loss. In addition, in the event of any loss of the Property due to any
other cause, unless the Bank can prove that it and its agents, nominees,
depositories and correspondents were not negligent and did not act with willful
misconduct, the Bank will be liable for such loss. Notwithstanding the
foregoing, the Bank shall not be liable for losses occurring by reason of acts
of civil or military authority, national emergencies, floods, acts of God,
insurrections, wars, riots or similar catastrophes.
(c) The Bank shall not have any duty or obligation to inquire (i)
into the validity or invalidity or authority or lack thereof of any Oral or
Written Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which the Bank reasonably believes
to be genuine; (ii) the validity or invalidity of the issuance of any securities
included or to be included in the Property, the legality or illegality of the
purchase of such securities, or the propriety or impropriety of the amount paid
therefor; (iii) the legality or illegality of the sale (or exchange) of any
Property or the propriety or impropriety of the amount for which such property
is sold (or exchanged); or (iv) whether any property at any time delivered to or
held by the Bank may properly be held by or for a Fund.
26. COLLECTIONS.
(a) All collections of monies or other property in respect, or which
are to become part, of the Property (but not the safekeeping thereof upon
receipt by the Bank) shall be at the sole risk of the Company, provided that the
--------
Bank agrees to the following procedures:
Page 17
<PAGE>
(i) upon maturity of any security held by a Fund, proceeds will be
credited and available for investment by the Fund on the maturity date;
(ii) with respect to sales of securities held by a Fund and
provided the Bank receives timely and accurate notification of any such sale,
sale proceeds will be credited and available for investment by the Fund on the
settlement date for transactions settled in Federal funds, and on the settlement
date plus one for transactions settled in clearinghouse funds;
(iii) with respect to income and principal from securities held by a
Fund, where the precise amount to be received is known prior to payable date,
such moneys will be credited to the Fund on the payable date and will be made
available to the Fund for investment on such date in cases where such moneys are
to be received in Federal funds or, in cases where such moneys are to be
received in clearinghouse funds, on the date following the payable date; and
(iv) with respect to any income and principal payment on securities
held by a Fund the amount of which is unknown either by the Bank or the Adviser,
such payments will be credited to the Fund upon receipt by the Bank, it being
understood that the Bank will make every effort to collect such payments as
quickly as possible.
(b) With respect to items referred to in (i), (ii) and (iii) above,
in any case where the Bank does not receive any payment due to a Fund within a
reasonable time after the Bank has made proper demands for the same, it shall so
notify the Company in writing, including copies of all demand letters, any
written responses thereto, and memoranda of all oral responses thereto and to
telephonic demands, and shall thereafter have the right to reverse the credit
previously posted to the Fund with respect to such item. The Bank shall not be
obliged to take legal action for collection of any unpaid item unless and until
reasonably indemnified to its satisfaction.
27. DURATION AND TERMINATION.
(a) This Agreement shall continue until termination by the Company on
60 days' written notice or by the Bank on 120 days' written notice. In the
event of such notice of termination, the Company's Board of Directors shall, by
resolution duly adopted, promptly appoint a successor custodian to serve upon
the terms set forth in this
Page 18
<PAGE>
Agreement. Upon termination hereof the Company shall pay to the Bank such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Bank for its reasonable costs, expenses and disbursements incurred
prior to such termination. The Bank shall have no lien, right of set-off, or
claim of any kind whatsoever against any Property of any of the Funds (including
records relating to the Funds maintained by the Bank) in the possession of the
Bank.
(b) If a successor custodian is appointed by the Company's Board of
Directors, the Bank shall, upon termination, deliver to such successor custodian
the records of the Bank with respect to the Funds and, duly endorsed and in form
for transfer, all securities then held hereunder and all funds or other
properties of the Funds deposited with or held by the Bank under this Agreement.
(c) In the event that no successor custodian is appointed within 90
days after the date of any such notice of termination by Bank, the Company will
promptly submit to the shareholders of each of the Funds the question whether
they wish to terminate the Fund or to function without a bank custodian, and the
Bank shall deliver the funds and property of the Funds to the Company only
pursuant to a certified copy of a resolution of the Company's Board of
Directors, signed by a majority of the Board of Directors of the Company in the
exercise of such power conferred upon the Company by the shareholders of the
Fund, such delivery to be made in accordance with such resolution.
(d) In the event the Bank is not notified of the appointment of a
successor custodian on or before the date of termination of this Agreement, the
Bank shall have the right to deliver to a bank or trust company of its own
selection (i) with significant experience in serving as a custodian for
registered investment companies; and (ii) having an aggregate capital, surplus,
and undivided profits, as shown by its last published report, of not less than
$10,000,000, all securities, records, and other properties then held by the Bank
to be held by such bank or trust company; provided that such bank or trust
--------
company agrees to serve as custodian for such securities, records and other
properties substantially in accordance with the terms hereof and in accordance
with its customary fee schedule for such services.
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<PAGE>
(e) In the event that securities, funds, and other properties remain
in the possession of the Bank after the date of termination hereof owing to
failure of the Board of Directors to appoint a successor custodian, the Bank
shall be entitled to fair compensation for its services during such period and
the provisions of this Agreement relating to the duties and obligations of the
Bank shall remain in full force and effect. If any Property remains in the
custody of the Bank pursuant to the preceding sentence for more than six months,
the Bank shall be entitled to receive a premium of one and one-half percent over
the fee to which it would otherwise be entitled for its services for each
succeeding month during which the Bank remains in possession of such property.
28. NOTICES.
All notices and other communications (collectively referred to as
"Notice" or "Notices" in this paragraph) under this Agreement (other than
Written or Oral Instructions as defined in this Agreement and as referred to in
paragraph 10(b)) must be in writing and will be deemed to have been duly given
or delivered when delivered by hand (including by Federal Express or similar
express courier) or three days after being mailed by prepaid registered or
certified mail, return receipt requested:
(a) if to the Bank, at the Bank's address, 1735 Market Street,
Philadelphia, Pennsylvania 19101-7899, marked for the attention of Donna Owens,
Trust Officer (or her successor);
(b) if to the Company, at the address of the Company, 151 Farmington
Avenue, Hartford, CT 06156, marked for the attention of the Company's Treasurer;
or
(c) to such other address as shall have been last designated by
Notice in accordance with this paragraph 28. All postage, cable, telegram,
telex and facsimile sending device charges arising from the sending of a Notice
hereunder shall be paid by the sender.
29. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
Page 20
<PAGE>
30. AMENDMENTS.
This Agreement or any part hereof may be changed or waived only by an
instrument in writing signed by the party against which enforcement of such
change or waiver is sought.
31. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
32. MISCELLANEOUS.
(a) This Agreement embodies the entire agreement and understanding
between the parties hereto, and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
--------
hereto may embody in one or more separate documents their agreement, if any,
with respect to delegated and/or Oral Instructions.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(c) This Agreement shall be deemed to be a contract made in Pennsylvania
and governed by Pennsylvania law.
(d) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
(e) This Agreement shall be binding and shall inure to the benefit of
the parties hereto and their respective successors, heirs, or assigns.
Page 21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below on this 8 day of May
---- -------
1995.
[SEAL] MELLON BANK, N.A.
Attest: /s/ Linda S. Jones By: /s/ Donna M. Owens
--------------------------- ---------------------------
Name: DONNA M. OWENS
-------------------------
Title: /s/ Asst. Vice Pres.
------------------------
[SEAL] AETNA GENERATION
PORTFOLIOS, INC.
Attest:/s/ M. T. Conroy By:/s/ James C Hamilton
--------------------------- ---------------------------
Name: James. C. Hamilton
-------------------------
Title: Vice President
------------------------
Page 22
<PAGE>
EXHIBIT A
TRUST AGREEMENT
THIS TRUST AGREEMENT is made between AETNA GENERATION PORTFOLIOS, INC., a
Maryland corporation (the "Company") as Settlor, and MELLON BANK, N.A., a
national banking association (the "Bank") as Trustee.
I. Background: The background of this Agreement is as follows:
----------
A. The Company is registered as an open-end, diversified
management investment company under the Investment
Company Act of 1940, as amended, and currently issues
three classes of shares, each of which represents a
separate investment portfolio;
B. The Company has retained the Bank to serve as the
Company's custodian under a Custodian Agreement of even
date herewith ("Custodian Agreement") for its series as
follows: Aetna Ascent Variable Portfolio, Aetna
Crossroads Variable Portfolio, and Aetna Legacy
Variable Portfolio, and for such additional series as
may from time to time be offered by the Company on the
terms set forth herein (each, a "Series"), and the Bank
is willing to serve as such; and
C. The Company intends to transfer to the Bank to hold as
trustee under this Agreement all the income and
principal cash balances which are transferred to it in
accordance with paragraph 6(a) of the Custodian
Agreement (the Bank in such capacity is hereinafter
referred to as the "Trustee"), and hereby directs the
Trustee to hold such cash balances in accordance with
the following terms.
II. Dispositive Terms: The Trustee shall invest and manage the income
-----------------
and principal cash balances of each Series in accordance with the provisions of
Article III hereof. Distributions to or from the trust shall be as directed from
time to time by the Company.
III. Management Provisions: The Trustee shall invest as it deems
---------------------
appropriate in any one or more money market demand accounts of the Bank or of
any other bank, provided the accounts are fully insured by the FDIC and any
excess above the insurance limit is collateralized by securities in accordance
with Regulation 9.10(b) of the Comptroller of the Currency, 12 CFR 9.10(b).
IV. Accounting: The Trustee will send the Company statements at
----------
least monthly showing the transactions in the trust. The Company must report any
errors to the Trustee, including the non-receipt of a statement, within 90 days
after the Company
<PAGE>
normally receives a statement. Otherwise, the Company, at the
Trustee's discretion, may be deemed to have accepted the transactions as stated.
V. Provisions Regarding the Trustee:
--------------------------------
A. The "Authorized Person" to act for the Company and the
methods of properly acting for each Series under this
Agreement shall be the same as specified in the
Custodian Agreement, as that may be amended from time
to time;
B. The fact that the Bank is Trustee and in such capacity
deposits trust assets in banking accounts of the Bank
shall not be deemed a conflict of interest. The Bank
may receive its usual charges or profits for that
service; and
C. The Trustee may resign upon 120 days' notice to the
Company; Settlor may terminate this Agreement at any
time. Immediately upon termination the Trustee shall
pay all trust assets held hereunder to the successor
custodian or to the Company in accordance with
paragraph 27 of the Custodian Agreement.
VI. Situs and Governing Law: The situs of this Trust shall be
-----------------------
in Pennsylvania, and all questions as to the construction, validity, effect or
administration of this trust shall be governed by Pennsylvania law.
VII. Rights Reserved: The Company reserves the right to revoke
---------------
this trust by writing delivered to the Trustee and to amend this trust with the
Trustee's approval.
Signed May 8 , 1995
-----------
AETNA GENERATION
ATTEST: PORTFOLIOS, INC.
/s/ M. T. Conroy By:/s/ James C. Hamilton
- ------------------------ -------------------------
Name: James C. Hamilton
-----------------------
Title: Vice President
----------------------
Page 2
<PAGE>
The foregoing trust was delivered, and is hereby accepted in Pennsylvania on
May 8 ,1995.
- -------
ATTEST: MELLON BANK, N.A.
/s/ Linda S. Jones By:/s/ Donna Owens
- ------------------------ -----------------------------
Name: DONNA M. OWENS
---------------------------
Title: Asst. Vice President
-------------------------
Page 3
<PAGE>
Exhibit 99-B(9)(a)
FORM OF
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made by and between AETNA _________________________,
a Maryland corporation (the "Company"), on behalf of AETNA LIFE INSURANCE AND
ANNUITY COMPANY, a Connecticut insurance corporation (the "Administrator"), with
respect to the following recital of facts:
R E C I T A L
- - - - - - -
WHEREAS, the Company is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations promulgated thereunder;
WHEREAS, the Administrator is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
engages in the business of acting as an investment adviser and an administrator
of investment companies;
WHEREAS, the Company has established the Fund; and
WHEREAS, the Company, on behalf of the Fund, and the Administrator desire
to enter into an agreement to provide for administrative services for the Fund
on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable considerations, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADMINISTRATOR
The Administrator is hereby appointed to serve as the Administrator to
the Fund, to provide the administrative services described herein and assume the
obligations set forth in Section II, subject to the terms of this Agreement and
the control of the Company's Board of Directors (the "Board"). The Administrator
shall, for all purposes herein, be deemed an independent contractor and shall
have, unless otherwise expressly provided or authorized, no authority to act for
or represent the Fund in any way or otherwise be deemed an agent of the Fund.
II. DUTIES OF THE ADMINISTRATOR
In carrying out the terms of this Agreement, the Administrator shall:
A. provide office space, equipment and facilities (which may be
the Administrator's of its affiliates') for maintaining the Company's
organization, for
<PAGE>
meetings of the Company's Board of Directors and shareholders, and for
performing administrative services hereunder;
B. supervise and manage all aspects of the Fund's operations (other than
investment advisory activities), and supervise relations with, and
monitor the performance of, custodians, depositories, transfer and
pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be
necessary and desirable by the Board;
C. determine and arrange for the publication of the net asset value of
the Fund;
D. provide non-investment related statistical and research data and such
other reports, evaluations and information as the Fund may request from
time to time;
E. provide internal clerical, accounting and legal services, and
stationery and office supplies;
F. prepare, to the extent requested by the Company, the Fund's
prospectus, statement of additional information, proxy statements and
annual and semi-annual reports to shareholders;
G. arrange for the printing and mailing (at the Fund's expense) of proxy
statements and other reports or other materials provided to the Fund's
shareholders;
H. prepare for execution and file all the Fund's federal and state tax
returns and required tax filings other than those required to be made by
the Fund's custodian and transfer agent;
I. prepare periodic reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky authorities with the
advice of the Fund's counsel;
J. maintain the Company's existence, and during such times as the shares
of the Fund are publicly offered, maintain the registration and
qualification of the Fund's shares under federal and state law;
K. keep and maintain the financial accounts and records of the Fund;
L. develop and implement, if appropriate, management and shareholder
services designed to enhance the value or convenience of the Fund as an
investment vehicle;
M. provide the Board on a regular basis with reports and analyses of the
Fund's operations and the operations of comparable investment companies;
-2-
<PAGE>
N. respond to inquiries from shareholders or participants of employee
benefit plans (for which the Administrator or any affiliate provides
recordkeeping) relating to the Fund, concerning, among other things,
exchanges among Funds, or refer any such inquiries to the Company's
officers or the Fund's transfer agent;
O. provide participant recordkeeping services for participants in
employee benefit plans for which the Administrator or any affiliate
provides recordkeeping services; and
P. provide such information as may be reasonably requested by a
shareholder representative of or a participant in an employee
benefit plan to comply with applicable federal or state laws.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator hereby represents and warrants to the Company as
follows:
1. Due Incorporation and Organization. The Administrator
-----------------------------------
is duly organized and is in good standing under the laws of the State
of Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.
2. Best Efforts. The Administrator at all times shall provide its
------------
best judgment and effort to the Fund in carrying out its obligations
hereunder.
B. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE COMPANY
The Company, on behalf of the Fund, hereby represents and warrants to
the Administrator as follows:
1. Due Incorporation and Organization. The Company has been duly
----------------------------------
incorporated under the laws of the State of Maryland and it is
authorized to enter into this Agreement and carry out its terms.
2. Registration. The Company is registered as an investment company
------------
with the SEC under the 1940 Act and shares of the Fund are registered
or qualified for offer and sale to the public under the Securities
Act of 1933, as amended (the "1933 Act"), and all applicable state
securities laws. Such registrations or qualifications will be kept in
effect during the term of this Agreement.
-3-
<PAGE>
IV. CONTROL BY THE BOARD OF DIRECTORS
Any activities undertaken by the Administrator pursuant to this Agreement
on behalf of the Fund shall at all times be subject to any directives of the
Board.
V. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the Administrator
shall at all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Company under the
1933 Act and the 1940 Act;
C. the provisions of the Company's Articles of Incorporation, as
amended;
D. the provisions of the By-Laws of the Company, as amended; and
E. any other applicable provisions of state and federal law.
VI. DELEGATION OF RESPONSIBILITIES
All services to be provided by the Administrator under this Agreement may
be furnished by any directors, officers or employees of the Administrator or by
any affiliates of the Administrator under the Administrator's supervision.
VII. COMPENSATION
For the services to be rendered, the facilities furnished and the
expenses assumed by the Administrator, the Company, on behalf of the Fund, shall
pay to the Administrator an amount equal to the Administrator's allocable cost
in providing such services and facilities, taking into account the
Administrator's cost of salaries, benefits and overhead..
VIII. NON-EXCLUSIVITY
The services of the Administrator to the Fund are not to be deemed to be
exclusive, and the Administrator shall be free to render administrative or other
services to others (including other investment companies) and to engage in other
activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and directors of the
Administrator may serve as officers or directors of the Company, and that
officers or directors of the Company may serve as officers or directors of the
Administrator to the extent permitted by law; and that the officers and
directors of the Administrator are not prohibited from engaging in any other
business activity or from
-4-
<PAGE>
rendering services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
companies.
IX. TERM
This Agreement shall become effective at the close of business on the
date hereof and shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by the
Company's directors who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of any such party, or by the vote of the
holders of a "majority" (as so defined) of the outstanding voting securities of
the Fund and by such vote of the directors.
X. TERMINATION
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Company's directors or by vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act), or by the Administrator, on sixty (60) days' written notice to the other
party.
XI. LIABILITY OF ADMINISTRATOR AND INDEMNIFICATION
A. LIABILITY
In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Administrator or its officers, directors or
employees, or reckless disregard by the Administrator of its duties under
this Agreement, the Administrator shall not be liable to the Company or
to any shareholder of the Company for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part of
the Administrator or any officer, director or employee of the
Administrator, to the extent permitted by applicable law, the Company
hereby agrees to indemnify and hold the Administrator harmless from and
against all claims, actions, suits and proceedings at law or in equity,
whether brought or asserted by a private party or a governmental agency,
instrumentality or entity of any kind, relating to the sale, purchase,
pledge of, advertisement of, or solicitation of sales or purchases of any
security (whether of the Fund or otherwise) by the Company, its officers,
directors, employees or agents in alleged violation of applicable
federal, state or foreign laws, rules or regulations.
-5-
<PAGE>
XII. MATERIALS FOR DISTRIBUTION TO SHAREHOLDERS
During the term of this Agreement, the Company shall furnish to the
Administrator at its principal office copies of all prospectuses, proxy
statements, reports to shareholders, sales literature and other material
referring to the Administrator that were prepared for distribution to
shareholders of the Company and to participants in employee benefit plans owning
interests in the Fund (prior to the public distribution of such materials). The
Company shall not use any such materials that refer to the Administrator if the
Administrator reasonably objects in writing within five business days (or such
other time as the parties may agree) after receipt thereof, unless prior to such
use the material is modified in a manner that is satisfactory to the
Administrator. Subsequent to the termination of this Agreement, the Company will
continue to furnish to the Administrator copies of such materials. The Company
shall also furnish or otherwise make available to the Administrator other
information relating to the business affairs of the Company as the Administrator
reasonably requests from time to time.
XIII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Administrator and that
of the Company for this purpose shall be 151 Farmington Avenue, Hartford,
Connecticut 06156.
XIV. QUESTIONS OF INTERPRETATIONS
This Agreement shall be governed by the laws of the State of Connecticut.
Any question of interpretation of any term or provision of this Agreement having
a counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in the provisions of this Agreement is
revised by rule, regulation or order of the SEC, such provisions shall be deemed
to incorporate the effect of such rule, regulation or order.
XV. SERVICE MARK
The service mark of the Company and the Fund and the name "Aetna" have
been adopted by the Company with the permission of Aetna Life and Casualty
Company and their continued use is subject to the right of Aetna Life and
Casualty Company to withdraw this permission in the event the Administrator or
another subsidiary or affiliated corporation of Aetna Life and Casualty
Corporation should not be the Administrator of the Fund.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the 1st day of January,
1995.
Attest: AETNA GENERATION PORTFOLIOS, INC.
on behalf of its Aetna __________
Variable Portfolio series
/s/ Susan E. Bryant /s/ Shaun P. Mathews
By: _____________________________ By: _________________________
Shaun P. Mathews
Name: _______________________
President
Title: ______________________
Attest: AETNA LIFE INSURANCE AND ANNUITY
COMPANY
/s/ Patricia Reid Rup /s/ James C. Hamilton
By: _____________________________ By: _________________________
James C. Hamilton
Name: _______________________
Vice President
Title: ______________________
-7-
<PAGE>
Administrative Services Agreement
Schedule of Parties
-------------------
Administrative Services Agreements have been entered into with the
following parties in substantially the same form and type as the exhibit
included herewith:
<TABLE>
<CAPTION>
Party Date
----- ----
<S> <C>
Aetna Ascent Variable Portfolio 1/1/95
Aetna Crossroads Variable Portfolio 1/1/95
Aetna Legacy Variable Portfolio 1/1/95
</TABLE>
<PAGE>
Exhibit 99-B(9)(b)
LICENSE AGREEMENT
-----------------
This Agreement, made at Hartford, Connecticut, this 8th day of November,
1994 by and between Aetna Life and Casualty Company, a Connecticut corporation
with its principal place of business at 151 Farmington Avenue, Hartford,
Connecticut, 06156 ("Licensor") and Aetna Generation Portfolios, Inc., a
Maryland corporation with its principal place of business at 151 Farmington
Avenue, Hartford, Connecticut 06156 ("Licensee").
WITNESSETH:
-----------
WHEREAS, Licensor either directly or by its affiliated companies has
adopted and is using and is the owner of the name "AETNA" and the associated
service marks and registrations listed on Schedule A hereto (collectively, the
"Licensed Service Marks"), which service marks have become valuable and
important in identifying the high quality of services rendered under the marks
by Licensor; and
WHEREAS, Licensee is a related company of Licensor by virtue of the
management of the assets of Licensee by Aetna Life Insurance and Annuity Company
and Aeltus Investment Management, Inc., both wholly-owned subsidiaries of
Licensor; and
WHEREAS, the parties deem it in the interest of each, and it is the
intention and desire of the parties, that Licensee be permitted to use the
Licensed Service Marks to identify the services of Licensee specified
hereinafter and that it be permitted to use the name of "Aetna" as a part of its
corporate or trade name; and
WHEREAS, both parties recognize the desire to maintain and preserve the
validity and integrity of the Licensed Service Marks;
NOW, THEREFORE, in consideration of their mutual promises and undertakings
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Licensor grants to Licensee and Licensee accepts a nonexclusive,
nontransferable license to use the Licensed Service Marks throughout the United
States and Canada in connection with and for identifying the investment
facilities provided by Licensee. The license granted in this paragraph 1
includes the grant of permission to Licensee to use the name "Aetna" as part of
its corporate or trade name as follows: Aetna Generation Portfolios, Inc. No
change in said corporate or trade name shall be made by Licensee except with the
prior written consent of Licensor.
2. Licensee agrees not to use any service marks other than the Licensed
Service Marks in connection with the services of Licensee listed in paragraph 1
hereof, either alone or in combination with the Licensed Service Marks.
<PAGE>
3. No right is granted to Licensee to use any other service mark of
Licensor not now or hereafter listed in Schedule A.
4. Licensor shall have the right to specify and control the nature and
quality of the services performed by Licensee under the Licensed Service Marks
and Licensee agrees to maintain, in the sole judgment of Licensor, the same high
quality of services as are maintained by Licensor. Licensee agrees that it will
use the Licensed Service Marks only in accordance with the performance and usage
standards established by Licensor, including, without limitation, corporate
identity and graphic standards as prescribed by Licensor. Licensee shall submit
to Licensor such evidence as Licensor may reasonably require to insure
Licensee's compliance with its obligations set forth herein. Licensor shall
have the right to inspect Licensee's business operations at any time during
Licensee's regular business hours in order to assure Licensor that Licensee is
observing the terms and conditions of this Agreement.
5. It is expressly stipulated that the use of the Licensed Service Marks
by Licensee shall inure to the benefit of Licensor and any registration of said
marks covering the services performed by Licensee under this Agreement shall be
registered in the name of Licensor, it being understood that the present license
will not in any way affect the ownership by Licensor of the Licensed Service
Marks, each of which shall continue to be the exclusive property of Licensor.
Licensee shall not at any time during the term of this Agreement do or cause to
be done any act contesting or in any way impairing or tending to impair
Licensor's entire right, title and interest in the Licensed Service Marks and
the registrations thereof.
6. Licensor shall have the right to control the form and manner in which
the Licensed Service Marks are used by Licensee upon or in connection with
advertisements, brochures, audio or visual presentations, or any other materials
used in the sale or advertising of Licensee's services. Licensee agrees, upon
request of Licensor, to furnish Licensor with specimens of all such materials
which are not or cease to be approved by Licensor.
7. Licensee shall not be deemed by virtue of this Agreement to be the
agent or legal representative of Licensor and shall not by virtue of this
Agreement have the right or authority to pledge the credit of or incur any
obligation, express or implied, on behalf of Licensor. Neither this Agreement
nor the use of the Licensed Service Marks by Licensee shall create, or be deemed
to create, any responsibility for liability on the part of Licensor for the acts
or omissions of Licensee. With the exception of suits for infringement of the
Licensed Service Marks, Licensee shall indemnify and hold Licensor harmless from
any loss, claim, damage, cost or expense of any kind, including reasonable
attorneys' fees and costs that arise in connection with Licensee's use of the
Licensed Service Marks.
8. The right to institute and prosecute actions for infringement of the
Licensed Service Marks is reserved exclusively to Licensor, and Licensor shall
have the right to join Licensee in any such actions as a formal party. Licensee
agrees to assist Licensor to the
2
<PAGE>
best of its ability and at Licensor's expense in any such action brought by
Licensor. It is understood, however, that Licensor is not obligated to institute
and prosecute any such actions in any case in which it, in its sole judgment,
may consider it inadvisable to do so.
9. Unless sooner terminated as hereinafter provided, this Agreement shall
continue in full force and effect for a period of one (1) year from its
effective date and shall automatically renew for successive one (1) year terms.
Licensor shall have the unrestricted right to cancel this Agreement, for any
reason or no reason, at any time upon written notice to Licensee.
10. This Agreement shall automatically terminate in the event that:
a) Licensee does not comply with any provision of this Agreement and the
breach is not remedied within twenty (20) days of written notice
thereof by Licensor;
b) Licensor is no longer able to specify or control, directly or
indirectly, the nature and quality of the services performed by
Licensee under this Agreement;
c) Licensee becomes subject to dissolution, liquidation, bankruptcy,
statutory reorganization, receivership, compulsory composition, or
similar proceedings, or if creditors of Licensee take over its
management, or if Licensee otherwise enters into any scheme or
composition with creditors, or makes an assignment for the benefit of
creditors, or if any significant part of Licensee's undertakings or
property are impounded or confiscated by action of any court or
government; or
d) Licensee attempts to assign, sublicense or otherwise transfer this
Agreement or any of Licensee's rights under this Agreement.
11. Licensee is granted no rights to use the Licensed Service Marks, other
than those rights specifically described and expressly granted in this
Agreement.
12. Neither this Agreement nor any rights hereunder may be assigned,
sublicensed or otherwise transferred by Licensee nor shall they inure to the
benefit of any trustee in bankruptcy, receiver or successor of Licensee, whether
by operation of law or otherwise, without the prior written consent of Licensor.
Any assignment, sublicense or transfer without such consent shall be null and
void.
13. Upon termination of this Agreement, Licensee shall immediately
discontinue all use of the Licensed Service Marks and shall not thereafter use
any names or marks which are similar or likely to cause confusion therewith.
3
<PAGE>
14. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all previous oral or
written agreements between the parties.
15. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Connecticut and the United States of
America.
IN WITNESS WHEREOF, the parties hereto by their duly authorized
representatives have executed this Agreement effective as of the date first
written above.
AETNA LIFE AND CASUALTY COMPANY
By /s/ Paige L. Falasco
-------------------------------
(Print or type name)
Title: Assistant Corporate Secretary
-----------------------------
AETNA GENERATION PORTFOLIOS, INC.
By: /s/ Shaun P. Mathews
------------------------------
(Print or type name)
Title: President
---------------------------
4
<PAGE>
SCHEDULE A
The following service marks and registrations are hereby licensed by Aetna
Life and Casualty Company (Licensor) to Aetna Generation Portfolios, Inc.
(Licensee) in accordance with the terms of the Agreement dated November 8, 1994
by and between Licensor and Licensee.
1. AETNA (word block design, without legend)
2. AETNA (word)
3. Registration No. 822,577, Class 102, issued January 17, 1967 in the
United States Patent Office.
5
<PAGE>
APPLICATION FOR LICENSE TO USE AETNA NAME
1. Name of entity to be Licensed (Licensee)
Aetna Generation Portfolios, Inc.
----------------------------------------------------------------------------
2. Name of person submitting application: Susan E. Bryant
------------------------------------
Phone Number: (203) 273-7834
--------------------------------------------------------------
3. Address of Licensee's principal place of business:
151 Farmington Avenue
----------------------------------------------------------------------------
Hartford, Connecticut 06156
----------------------------------------------------------------------------
4. State of Incorporation of filing: Maryland
-----------------------------------------
5. Type of entity - e.g., Corporation, Partnership: Corporation
--------------------------
6. Any other name under which Licensee operates: None
-----------------------------
7. Nature of Licensee's business Diversified open-end management investment
---------------------------------------------
company (mutual fund)
----------------------------------------------------------------------------
8. Does Licensee want to use the orange block logo? Yes
--------------------------
9. Does Licensee want to use the logo with the words "Aetna Life & Casualty"
beneath it? If so, explain briefly why. No
-----------------------------------
10. Trace ownership of Licensee back to Aetna Life and Casualty Company -Show
exact percentages of holdings of each Aetna affiliate in the ownership
chain.
At the date of this application, Licensee has not issued any shares of
----------------------------------------------------------------------
stock. It is anticipated that subsidiaries of Aetna Life and Casualty
----------------------------------------------------------------------
Company will provide initial capital to Licensee.
-------------------------------------------------
11. If Licensee will be doing any business out of the United States, what
has the Tax Section of the Law Department recommended as an annual
fee?
Not Applicable
----------------------------------------------------------------------------
6
<PAGE>
Exhibit 99(b)(10)
[LETTERHEAD OF AETNA APPEARS HERE]
June 13, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Aetna Generation Portfolios, Inc.
Registration Statement on Form N-1A
Prospectus Title: Aetna Generation Portfolios, Inc.
File No. 33-88334 and 811-8934
Dear Sirs:
As Counsel of Aetna Generation Portfolios, Inc. (the "Company"), I have
represented the Company in connection with the preparation and filing of a
Registration Statement on Form N-1A for the Company under the Securities Act of
1933 and the Investment Company Act of 1940 (the "Registration Statement"). In
connection with such representation, I have reviewed, in so far as it relates or
pertains to the Securities, the Company's Registration Statement, including the
prospectus, and relevant proceedings of the Board of Directors of the Company.
Based upon this review, and assuming the Securities issued are in accordance
with the provisions of the prospectus, I am of the opinion that the securities,
when issued, will have been validly issued, and will constitute a legal and
binding obligation of the Company.
I further consent to the use of this opinion as an exhibit to the Registration
Statement and to my being named under the caption "Legal Matters" therein.
Very truly yours,
/s/ Susan E. Bryant
- --------------------------
Susan E. Bryant
Counsel
Aetna Generation Portfolios, Inc.
<PAGE>
Exhibit 99-B(11)
Consent of Independent Auditors
The Board of Directors and Shareholder
Aetna Generation Portfolios, Inc.:
We consent to the use of our report dated June 15, 1995 included herein and to
the reference to our Firm under the heading "Independent Auditors" in the
Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
Hartford, Connecticut
June 19, 1995
<PAGE>
Exhibit 99(b)(13)
[LETTERHEAD OF AETNA APPEARS HERE]
June 9, 1995
The Board of Directors
Aetna Generation Portfolios, Inc.
151 Farmington Avenue
Hartford, CT 06156-8962
Ladies and Gentlemen:
Aetna Life Insurance and Annuity Company ("ALIAC") will provide on or before
June 13, 1995 a minimum of $100,000 of initial capital to each of the various
series ("Series") of Aetna Generation Portfolios, Inc. (the "Fund"), to enable
the Fund to meet the requirements of Section 14(a)(1) of the Investment Company
Act of 1940 prior to commencing a public offering of shares of its Series.
Form N-1A under the Securities Act of 1933 and the Investment Company Act of
1940 requires that there be filed with the Fund's registration statement, as an
exhibit, "copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the underwriter,
adviser, promoter or initial stockholders and written assurances from promoters
or initial stockholders that their purchases were made for investment purposes
without any present intention of redeeming or reselling;...."
This will advise you that, while there are no formal agreements or
understandings between the Fund and ALIAC in consideration for ALIAC's providing
the initial capital, ALIAC hereby assures you that its purchase of $100,000
worth of shares of each Series was made for investment purposes and that ALIAC
has no present intention of redeeming or reselling those shares. ALIAC does,
however, reserve the right to make additional investments in shares of the
Series and to redeem any or all of its shares, with regard to the possible
redemption in the future at a time and in a manner which would be consistent
with the Securities Act of 1933 and the Investment Company Act of 1940.
Sincerely,
/s/ Susan E. Schechter
Susan E. Schechter
Corporate Secretary and Counsel
Aetna Life Insurance and Annuity Company
<PAGE>
Exhibit 24(b)(18)
POWER OF ATTORNEY
We, the undersigned directors and officers of Aetna Generation Portfolios, Inc.,
hereby severally constitute and appoint Susan E. Bryant, Julie E. Rockmore and
Steven J. Lauwers, and each of them individually, our true and lawful attorneys,
with full power to them and each of them to sign for us, and in our names and in
the capacities indicated below, any and all amendments, including but not
limited to Pre-Effective and Post-Effective Amendments, to Registration
Statement No. 33-88334 filed with the Securities and Exchange Commission under
the Securities Act of 1933, hereby ratifying and confirming our signatures as
they may be signed by our said attorneys to any and all amendments to said
Registration Statement.
WITNESS our hands and common seal on this 27th day of April, 1995.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Shaun P. Mathews President and Director
- -------------------------------- (Principal Executive Officer)
Shaun P. Mathews
/s/ James C. Hamilton Vice President and Treasurer
- -------------------------------- (Principal Financial and Accounting Officer)
James C. Hamilton
/s/ Dominick J. Agostino Director
- --------------------------------
Dominick J. Agostino
/s/ Morton Ehrlich Director
- --------------------------------
Morton Ehrlich
/s/ Maria T. Fighetti Director
- --------------------------------
Maria T. Fighetti
/s/ David L. Grove Director
- --------------------------------
David L. Grove
/s/ Daniel P. Kearney Director
- --------------------------------
Daniel P. Kearney
/s/ John Y. Kim Director
- --------------------------------
John Y. Kim
/s/ Sidney Koch Director
- --------------------------------
Sidney Koch
/s/ Corine T. Norgaard Director
- --------------------------------
Corine T. Norgaard
/s/ Richard G. Scheide Director
- --------------------------------
Richard G. Scheide
</TABLE>
