Is there an overlooked niche in the mutual fund world? Judging by the number of esoteric fund launches one would think not. Yet there may be. Today, Aeltus Investment Management launched a new fund that guarantees investors' principal. This is only the second fund to follow this general strategy. The last was launched in 1990.

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Aeltus, which dubbed the offering Aetna Principal Protection Fund I, hopes that the open-ended fund will take in $200 million in assets by the end of the fund's offering period in October. Meanwhile, MainStay Fund's Equity Index fund (MCSEX) which offers a similar guarantee has accumulated more than $1 billion in assets since it was launched in December of 1990.

Aeltus also has some experience in the guarantee area. Earlier this year it offered the GET E variable portfolio, an annuity with a similar guarantee. The success of the annuity product is part of the reason for the launch of the fund, according to Andrew Schwartz, a spokesperson for Aeltus.

"One reason we developed the product was because of the volatility in the market, which has been pronounced of late but has also been apparent for a while," Schwartz added. "We decided that this would be a good way for investors to stay in the market and protect their principal."

The Aetna fund offers a principal guarantee backed by MBIA to investors who buy the fund during its two-month offering period (from August 6, 1999 to October 5, 1999) and hold until October 6, 2004. For IRA transfers the offering period ends September 7. The fund pays an insurance premium to MBIA to achieve the guarantee.

Investors who redeem their shares prior to October 6 will not receive the guarantee, nor will investors who purchase shares after the offering period.

In contrast, shares in the MainStay fund may be purchased any time, but they must then be held for ten years to receive the principal guarantee (which includes the amount of the sales charge).

The Aetna fund also differs from the MainStay fund in that it is an actively-managed balanced fund (MainStay's is an S&P 500 index). The fund's charter allows Portfolio Strategist, Neil Kochen, to allocate up to 100% of the fund in either equities or fixed income investments. The equity portion of the portfolio is managed by Geoff Brod while the Aeltus Fixed Income Group manages the bond allocation.

Although the fund is open to any investor, Aeltus is targeting the fund at those seeking protection from market downturns -- either because they want to protect previous gains or because they need a more conservative portfolio.

"Someone who is getting close to retirement and still wants to participate in the market, and who needs to become a little less aggressive and protect some of those assets" is a good investor for the fund, said Schwartz.

The fund will be sold through Aetna's network of 150 brokers and independent brokers.

It has two share classes. Class "A" shares have a maximum sales charge of 4.75% and Class "B" sport a maximum deferred sales charge of 5.00% which decline over a five-year period.

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