AETNA VARIABLE PORTFOLIOS INC
485APOS, 1999-02-10
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As filed with the Securities and Exchange                     File No. 333-05173
Commission on February 10, 1999                               File No. 811-7651

- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM N-1A

- --------------------------------------------------------------------------------
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                         Post-Effective Amendment No. 7

                                       and

         REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

                                 Amendment No. 8

                         AETNA VARIABLE PORTFOLIOS, INC.

             151 Farmington Avenue RE4A, Hartford, Connecticut 06156
                                 (860) 275-2032

                            Amy R. Doberman, Counsel
          10 State House Square SH11, Hartford, Connecticut 06103-3602
                     (Name and Address of Agent for Service)

- --------------------------------------------------------------------------------
It is proposed that this filing will become effective:



      X      on May 3, 1999 pursuant to paragraph (a)(1)
    -----



<PAGE>

{Front Cover}
                                                 Aetna Variable Portfolios, Inc.
                                                                      Prospectus


May 3, 1999


Aetna Growth VP (Growth)
Aetna International VP (International)
Aetna Small Company VP (Small Company)
Aetna Value Opportunity VP (Value Opportunity)
Aetna Real Estate Securities VP (Real Estate)
Aetna High Yield VP (High Yield)
Aetna Index Plus Bond VP (Index Plus Bond)
Aetna Index Plus Large Cap VP (Index Plus Large Cap)
Aetna Index Plus Mid Cap VP (Index Plus Mid Cap)
Aetna Index Plus Small Cap VP (Index Plus Small Cap)



The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Anyone
who represents to the contrary has committed a criminal offense.
<PAGE>


           TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                    Page
<S>                                                                                                                    <C>
The Portfolios'Investments..............................................................................................3
    Investment Objectives, Principal Investment Strategies and Risks, Investment Performance............................3
Portfolio Expenses.....................................................................................................17
Other Considerations...................................................................................................19
Management of the Portfolios...........................................................................................21
Investments in and Redemptions from the Portfolios.....................................................................24
    Other Information about Shareholder Accounts and Services..........................................................24
    Tax Information....................................................................................................24
Performance of Similarly Managed Accounts..............................................................................25
Financial Highlights...................................................................................................28
Additional Information.................................................................................................33
</TABLE>

                                       2
<PAGE>

The Portfolios' Investments

Investment Objectives, Principal Investment Strategies and Risks, Investment
Performance

o          Aetna Variable Portfolios, Inc. (Fund) consists of 10 separate
           portfolios (Portfolios). Below is a description of each Portfolio's
           investment objective, the principal investment strategies employed on
           behalf of each Portfolio, and the principal risks associated with
           investing in each Portfolio.
o          A performance bar chart is provided for each Portfolio. If a
           Portfolio has been in existence for at least two full calendar
           years, the bar chart shows changes in the Portfolio's performance
           from year to year. The fluctuation in returns illustrates each
           Portfolio's performance volatility. The chart is accompanied by the
           Portfolio's best and worst quarterly returns throughout the years
           noted in the bar chart.
o          A table for each Portfolio shows its average annual total return. The
           table also compares the Portfolio's performance to the performance of
           a broad-based securities market index. Each index is a widely
           recognized, unmanaged index of securities. A Portfolio's past
           performance is not necessarily an indication of how it will perform
           in the future.
o          Additional information on the Portfolios' investment strategies and
           risks is included, on page 19.
o          Aeltus Investment Management, Inc. (Aeltus) serves as investment
           adviser of the Portfolios.
o          Bradley, Foster & Sargent, Inc. (Bradley) serves as subadviser of
           Value Opportunity.

Shares of the Portfolios will rise and fall in value and you could lose money by
investing in them. There is no guaranty the Portfolios will achieve their
investment objectives. Shares of the Portfolios are not bank deposits and are
not guaranteed, endorsed or insured by any financial institution, the FDIC or
any other government agency.

Shares of the Portfolios are offered to insurance company separate accounts that
fund both annuity and life insurance contracts and to certain tax-qualified
retirement plans. Due to differences in tax treatment or other considerations,
the interests of various contract owners participating in the Portfolios and the
interests of qualified plans investing in the Portfolios might at some time be
in conflict. The Fund's Board of Directors (Board) will monitor the Fund for any
material conflicts and determine what action, if any, should be taken to resolve
these conflicts.

Aetna Growth VP (Growth)

Investment Objective Seeks growth of capital through investment in a diversified
portfolio consisting primarily of common stocks and securities convertible into
common stocks believed to offer growth potential.

Principal Investment Strategies Under normal market conditions, Growth invests
at least 65% of its total assets in common stocks.

In managing Growth, Aeltus:

                                       3
<PAGE>

        o  Tends to emphasize stocks of larger companies, although it may invest
           in companies of any size.
        o  Uses internally developed quantitative computer models to evaluate
           the financial characteristics (for example, earnings growth
           consistency, earnings momentum and price/earnings ratio) of
           approximately 1,000 companies. Aeltus analyzes these characteristics
           in an attempt to identify companies it believes have strong growth
           characteristics or demonstrate a positive trend in earnings
           estimates, but whose full value is not reflected in the stock price.
        o  Focuses on companies that it believes have strong, sustainable and
           improving earnings growth, and established market positions in a
           particular industry.

Principal Risks The principal risks of investing in Growth are those generally
attributable to stock investing. They include sudden and unpredictable drops in
the value of the market as a whole and periods of lackluster or negative
performance.

Growth-oriented stocks typically sell at relatively high valuations as compared
to other types of stocks. If a growth stock does not exhibit the consistent
level of growth expected, its price may drop sharply. Historically,
growth-oriented stocks have been more volatile than value-oriented stocks.

Investment Performance
<TABLE>
<CAPTION>
                                                   Years Ended December 31
                                                   -----------------------
Year-by-Year Return                                 1997           1998
<S>                                                 <C>            <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Growth                             %                            %                      December 17, 1996
S&P 500 Index*                     %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

                                       4
<PAGE>

- -----------
* The Standard & Poor's 500 Index is a value-weighted, unmanaged index of 500
widely held stocks that assumes the reinvestment of all dividends, and is
considered to be representative of the stock market in general.

Aetna International VP (International)

Investment Objective Seeks long-term capital growth primarily through investment
in a diversified portfolio of common stocks principally traded in countries
outside of the U.S. International will not target any given level of current
income.

Principal Investment Strategies Under normal market conditions, International
invests at least 65% of its total assets in securities principally traded in
three or more countries outside of North America. These securities may include
common stocks as well as securities convertible into common stocks.

In managing International, Aeltus:

        o  Diversifies the Portfolio by investing in a mix of stocks that it
           believes have the potential for long-term growth, as well as stocks
           that appear to be trading below their real value.
        o  Allocates assets among several geographic regions and individual
           countries, investing primarily in those areas that it believes have
           the greatest potential for growth as well as stable exchange rates.
        o  Invests primarily in established foreign securities markets.
        o  Typically invests in approximately 90 to 120 different securities at
           any one time, and looks to allocate no more than 3% of the
           Portfolio's total assets to a single security.
        o  Uses internally developed quantitative computer models to evaluate
           the financial characteristics of over 2,000 companies. Aeltus
           analyzes cash flows, earnings and dividends of each company, in an
           attempt to select companies with long-term sustainable growth
           characteristics.
        o  Employs currency hedging strategies to protect the Portfolio from
           adverse effects on the U.S. dollar.

Principal Risks The principal risks of investing in International are those
generally attributable to stock investing. They include sudden and unpredictable
drops in the value of the market as a whole and periods of lackluster or
negative performance.

Stocks of foreign companies present additional risks for U.S. investors,
including the following:

        o  Stocks of foreign companies tend to be less liquid and more volatile
           than their U.S. counterparts.
        o  Accounting standards and market regulations tend to be less
           standardized in certain foreign countries, and economic and political
           climates tend to be less stable.
        o  Stocks of foreign companies may be denominated in foreign currency.
           Exchange rate fluctuations may reduce or eliminate gains or create
           losses. A hedging strategy adds to the Portfolio's expenses and may
           not perform as expected.

                                       5
<PAGE>


Investment Performance
<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                   ----------------------
Year-by-Year Return                                      1998
<S>                                                      <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
International                      %                             %                     December 22, 1997
MSCI-EAFE Index*                   %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ----------
* The Morgan Stanley Capital International - Europe, Australia and Far-East
Index is a market value-weighted average of the performance of more than 900
securities listed on the stock market exchanges of countries in Europe,
Australia and the Far East.

Aetna Small Company VP (Small Company)

Investment Objective Seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stocks of companies with smaller market capitalizations.

Principal Investment Strategies Under normal market conditions, Small Company
invests at least 65% of its total assets in common stocks of
small-capitalization companies, defined as:

        o  The 2,000 smallest of the 3,000 largest U.S. companies (as measured
           by market capitalization).
        o  All companies not included above that are included in the Standard &
           Poor's SmallCap 600 Index.
        o  Currently the largest company in this group has a market
           capitalization of approximately $1.3 billion.

In managing Small Company, Aeltus:

        o  Invests in stocks that it believes have the potential for long-term
           growth, as well as those that appear to be trading below their real
           value.
        o  Uses internally developed quantitative computer models to evaluate
           financial characteristics (for example, changes in earnings, earnings
           estimates and price momentum) of over 2,000 companies. Aeltus
           analyzes these characteristics in an attempt to identify companies
           whose full value is not reflected in the stock price.

                                       6
<PAGE>


        o  Considers the potential of each company to create or take advantage
           of unique product opportunities, its potential to achieve long-term
           sustainable growth and the quality of its management.

Principal Risks The principal risks of investing in Small Company are those
generally attributable to stock investing. They include sudden and unpredictable
drops in the value of the market as a whole and periods of lackluster or
negative performance.

Other principal risks include:

        o  Stocks of smaller companies carry higher risks than stocks of larger
           companies. This is because smaller companies may lack the management
           experience, financial resources, product diversification and
           competitive strengths of larger companies.
        o  In many instances, the frequency and volume of trading in these
           stocks is substantially less than is typical of stocks of larger
           companies. As a result, the stocks of smaller companies may be
           subject to wider price fluctuations or may be less liquid.
        o  When selling a large quantity of a particular stock, the Portfolio
           may have to sell at a discount from quoted prices or may have to make
           a series of small sales over an extended period of time due to the
           more limited trading volume of smaller company stocks.
        o  Stocks of smaller companies can be particularly sensitive to expected
           changes in interest rates, borrowing costs and earnings.

Investment Performance
<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                   ----------------------
Year-by-Year Return                                      1998
<S>                                                      <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Small Company                      %                             %                     December 22, 1997
Russell 2000 Index*                %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ---------
* The Russell 2000 Index consists of the smallest 2,000 companies in the Russell
3000 Index and represents approximately 10% of the Russell 3000 total market
capitalization. The Russell 2000 Index assumes reinvestment of all dividends and
is unmanaged.

                                       7
<PAGE>


Aetna Value Opportunity VP (Value Opportunity)

Investment Objective Seeks growth of capital primarily through investment in a
diversified portfolio of common stocks and securities convertible into common
stock.

Principal Investment Strategies Under normal market conditions, Value
Opportunity invests at least 65% of its total assets in common stocks. In
managing Value Opportunity, Bradley tends to invest in larger companies it
believes are trading below their real value, although it may invest in companies
of any size. Bradley believes that Value Opportunity's investment objective can
best be achieved by investing in companies whose stock price has been
excessively discounted due to perceived problems. In searching for investments,
Bradley evaluates financial and other characteristics of companies, attempting
to find those companies that appear to possess a catalyst for positive change,
such as strong management, solid assets, or market position, rather than those
companies whose stocks are simply inexpensive. Bradley looks to sell a security
when company business fundamentals deviate from expectations or when stop-loss
levels are triggered.

Principal Risks The principal risks of investing in Value Opportunity are those
generally attributable to stock investing. They include sudden and unpredictable
drops in the value of the market as a whole and periods of lackluster or
negative performance.

Stocks that appear to be undervalued may never appreciate to the extent
expected. Further, because the prices of value-oriented stocks tend to correlate
more closely with economic cycles than growth-oriented stocks, they are more
sensitive to changing economic conditions, such as changes in interest rates,
corporate earnings and industrial production.

Investment Performance
<TABLE>
<CAPTION>
                                                   Years Ended December 31
                                                   -----------------------
Year-by-Year Return                                 1997           1998
<S>                                                 <C>            <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Value Opportunity                  %                             %                     December 13, 1996
S&P 500 Index*                     %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ---------
* The Standard & Poor's 500 Index is a value-weighted, unmanaged index of 500
widely held stocks that assumes the reinvestment of all dividends, and is
considered to be representative of the stock market in general.

                                       8
<PAGE>

Aetna Real Estate Securities VP (Real Estate)

Investment Objective Seeks maximum total return primarily through investment in
a diversified portfolio of equity securities of real estate companies, the
majority of which are real estate investment trusts (REITs).

Principal Investment Strategies Under normal market conditions, Real Estate
invests at least 65% of its total assets in stocks, convertible securities and
preferred stocks of companies principally engaged in the real estate industry.
These companies may invest in, among other things, shopping malls, healthcare
facilities, office parks and apartment communities, or may provide real estate
management and development services.

In selecting investments from a universe of equity securities of REITs and real
estate operating companies, Aeltus uses internally developed quantitative models
to forecast the returns of each security. Aeltus evaluates real estate companies
based on their earnings history and long-term growth prospects, analyst
estimates of future earnings, safety and growth in dividends, balance sheet
strength and quality of management. Aeltus also considers whether the securities
appear to be trading below their real value. Aeltus allocates assets among
property types and economic and geographic regions. Aeltus attempts to construct
Real Estate's portfolio so that the overall level of risk is not in excess of
its benchmark index, the National Association of Real Estate Investment Trusts
Equity (NAREIT) Index.

Principal Risks Concentrating in stocks of real estate-related companies
presents certain risks that are more closely associated with investing in real
estate directly than with investing in the stock market generally. Those risks
include:

        o  Periodic declines in the value of real estate, generally, or in the
           rents and other income generated by real estate.
        o  Periodic over-building, which creates gluts in the market, as well as
           changes in laws (such as zoning laws) that impair the property rights
           of real estate owners.
        o  Adverse developments in the real estate industry, which may have a
           greater impact on Real Estate than a portfolio that is more broadly
           diversified.

The performance of the Portfolio also may be adversely affected by sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. Although Real Estate is subject to the risks
generally attributable to stock investing, because the Portfolio has
concentrated its assets in one industry it may be subject to more abrupt swings
in value than would a fund that does not concentrate its assets in one industry.

Investment Performance
<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                   -----------------------
Year-by-Year Return                                      1998


                                       9
<PAGE>

<S>                                                                <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Real Estate                        %                             %                     December 15, 1997
NAREIT*                            %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ---------
* The NAREIT Index is a market weighted index of all tax-qualified REITs listed
on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National
Market System.

Aetna High Yield VP (High Yield)

Investment Objective Seeks high current income and growth of capital primarily
through investment in a diversified portfolio of fixed-income securities rated
lower than BBB- by Standard and Poor's (S&P) or lower than Baa3 by Moody's
Investors Service, Inc. (Moody's).

Principal Investment Strategies Under normal market conditions, High Yield
invests at least 65% of its total assets in high-yield, high-risk bonds
(high-yield bonds). High-yield bonds are bonds rated below investment grade in
terms of quality, and may include bonds of companies in default or bankruptcy.

In managing High Yield, Aeltus:

        o  Looks to meet the investment objective and reduce volatility by
           constructing a diversified portfolio consisting of securities with
           varying maturities and credit ratings. Aeltus, however, attempts to
           look beyond credit ratings to select investments that it believes
           offer opportunities for high income, growth and credit improvement.

        o  Uses a quantitative process for evaluating the financial criteria of
           issuers, such as cash flow and profitability.

        o  Evaluates other, less quantitative factors, such as market share,
           strength of management and management's equity stake in the company.

Principal Risks When the economy weakens, cash flows weaken, making it more
difficult for issuers to pay principal and interest. For all bonds, there is a
risk that an issuer will default. This risk is even greater with high-yield
bonds. Moreover, high-yield bonds, as a group, often decline in value when the
market anticipates or experiences a large number of issuers defaulting or
declaring bankruptcy.

                                       10
<PAGE>


Additional principal risks include:

        o The performance of High Yield may be affected by weak equity markets,
          when issuers of high-yield bonds generally find it difficult to reduce
          debt by replacing debt with equity.
        o Generally, when interest rates rise, bond prices fall, which may
          cause the value of the Portfolio's securities to fall as well.

Investment Performance
<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                   ----------------------
Year-by-Year Return                                      1998
<S>                                                      <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
High Yield                         %                             %                     December 10, 1997
Merrill Lynch High Yield Master
  Index*                           %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ---------
* The Merrill Lynch High Yield Master Index consists of issues which are in the
form of publicly placed nonconvertible, coupon-bearing US debt and must carry a
term to maturity of at least one year. In addition, issues must be rated by S&P
or by Moody's as less than investment grade but not in default.

Aetna Index Plus Bond VP (Index Plus Bond)

Investment Objective Seeks maximum total return, consistent with preservation of
capital, primarily through investment in a diversified portfolio of fixed-income
securities, which will be chosen to substantially replicate the characteristics
of the Lehman Brothers Aggregate Bond Index (LBAB), an unmanaged index comprised
of approximately 6,900 securities.

Principal Investment Strategies Index Plus Bond invests at least 90% of its
total assets in bonds, including U.S. Treasuries, corporate bonds and
mortgage-related securities.

In managing Index Plus Bond, Aeltus:

        o  Attempts to achieve a total return which, before deducting Portfolio
           expenses, exceeds that of the LBAB.

                                       11
<PAGE>


        o  Allocates assets among various sectors, as well as among individual
           securities, that it believes will outperform those in the LBAB, while
           underweighting those sectors and securities it believes will
           underperform.
        o  In determining which bonds to purchase, evaluates various criteria,
           such as the financial strength of the issuer and the issuer's
           potential for strong, sustained earnings growth as well as the
           potential for interest rates to rise or fall.

Aeltus expects that there will be a close correlation between the performance of
Index Plus Bond and that of the LBAB in both rising and falling markets.

Principal Risks The principal risks of investing in Index Plus Bond are those
generally attributable to bond investing. Generally, when interest rates rise,
bond prices fall. Bonds with longer maturities tend to be more sensitive to
changes in interest rates. For all bonds there is a risk that an issuer will
default.

The prices of mortgage-related securities, in addition to being sensitive to
changes in interest rates, also are sensitive to changes in the prepayment
patterns on the underlying instruments. If the principal on the underlying
mortgage notes is repaid faster than anticipated, which typically occurs in
times of low or declining interest rates, the price of the mortgage-related
security may fall.

The success of the Portfolio's strategy depends significantly on Aeltus' skill
in choosing investments, and in determining which sectors or securities to
overweight, underweight or avoid altogether.

Investment Performance
<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                   ----------------------
Year-by-Year Return                                       1998
<S>                                                       <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Index Plus Bond                    %                             %                     December 18, 1997
LBAB Index*                        %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ---------
* The Lehman Brothers Aggregate Bond Index (LBAB) is an unmanaged index
comprised of approximately 6,900 securities.

                                       12
<PAGE>


Aetna Index Plus Large Cap VP (Index Plus Large Cap)

Investment Objective Seeks to outperform the total return performance of the
Standard & Poor's 500 Composite Index (S&P 500), while maintaining a market
level of risk.

Principal Investment Strategies Index Plus Large Cap invests at least 80% of its
net assets in stocks included in the S&P 500 (other than Aetna Inc. common
stock). The S&P 500 is a stock market index comprised of common stocks of 500 of
the largest companies in the U.S. selected by S&P.

In managing Index Plus Large Cap, Aeltus attempts to achieve the Portfolio's
objective by overweighting those stocks in the S&P 500 that Aeltus believes will
outperform the index, and underweighting (or avoiding altogether) those stocks
that Aeltus believes will underperform the index. In determining stock
weightings, Aeltus uses internally developed quantitative computer models to
evaluate various criteria, such as the financial strength of each company and
its potential for strong, sustained earnings growth. At any one time, Aeltus
generally includes in Index Plus Large Cap approximately 400 of the stocks
included in the S&P 500. Although the Portfolio will not hold all the stocks in
the S&P 500, Aeltus expects that there will be a close correlation between the
performance of Index Plus Large Cap and that of the S&P 500 in both rising and
falling markets.

Principal Risks The principal risks of investing in Index Plus Large Cap are
those generally attributable to stock investing. These risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. The success of the Portfolio's strategy
depends significantly on Aeltus' skill in determining which securities to
overweight, underweight or avoid altogether.

Investment Performance
<TABLE>
<CAPTION>
                                                   Years Ended December 31
                                                   -----------------------
Year-by-Year Return                                 1997           1998
<S>                                                 <C>            <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Index Plus Large Cap               %                             %                     September 16, 1996
S&P 500 Index*                     %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

                                       13
<PAGE>


- ----------
* The Standard & Poor's 500 Index is a value-weighted, unmanaged index of 500
widely held stocks that assumes the reinvestment of all dividends, and is
considered to be representative of the stock market in general.

Aetna Index Plus Mid Cap VP (Index Plus Mid Cap)

Investment Objective Seeks to outperform the total return performance of the
Standard & Poor's MidCap 400 Index (S&P 400), while maintaining a market level
of risk.

Principal Investment Strategies Index Plus Mid Cap invests at least 80% of its
net assets in stocks included in the S&P 400. The S&P 400 is a stock market
index comprised of common stocks of 400 mid-capitalization companies in the U.S.
selected by S&P.

In managing Index Plus Mid Cap, Aeltus attempts to achieve the Portfolio's
objective by overweighting those stocks in the S&P 400 that Aeltus believes will
outperform the index, and underweighting (or avoiding altogether) those stocks
that Aeltus believes will underperform the index. In determining stock
weightings, Aeltus uses internally developed quantitative computer models to
evaluate various criteria, such as the financial strength of each issuer and its
potential for strong, sustained earnings growth. Although the Portfolio will not
hold all the stocks in the S&P 400, Aeltus expects that there will be a close
correlation between the performance of Index Plus Mid Cap and that of the S&P
400 in both rising and falling markets.

Principal Risks The principal risks of investing in Index Plus Mid Cap are those
generally attributable to stock investing. These risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance. In addition, stocks of medium sized
companies tend to be more volatile and less liquid than stocks of larger
companies.

The success of the Portfolio's strategy depends significantly on Aeltus' skill
in determining which securities to overweight, underweight or avoid altogether.

Investment Performance

<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                   ----------------------
Year-by-Year Return                                         1998
<S>                                                         <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Index Plus Mid Cap                 %                             %                     December 15, 1997
S&P 400 Index*                     %                           N/A
</TABLE>

                                       14
<PAGE>


The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ---------
* The Standard & Poor's MidCap 400 Index consists of 400 stocks chosen for
market size, liquidity and industry group representation. It is a
market-weighted index with each stock affecting the index in proportion to its
market value.

Aetna Index Plus Small Cap VP (Index Plus Small Cap)

Investment Objective Seeks to outperform the total return performance of the
Standard and Poor's SmallCap 600 Index (S&P 600), while maintaining a market
level of risk.

Principal Investment Strategies Index Plus Small Cap invests at least 80% of its
net assets in stocks included in the S&P 600. The S&P 600 is a stock market
index comprised of common stocks of 600 small-capitalization companies in the
U.S. selected by S&P.

In managing Index Plus Small Cap, Aeltus attempts to achieve the Portfolio's
objective by overweighting those stocks in the S&P 600 that Aeltus believes will
outperform the index, and underweighting (or avoiding altogether) those stocks
that Aeltus believes will underperform the index. In determining stock
weightings, Aeltus uses internally developed quantitative computer models to
evaluate various criteria, such as the financial strength of each issuer and its
potential for strong, sustained earnings growth. Although the Portfolio will not
hold all the stocks in the S&P 600, Aeltus expects that there will be a close
correlation between the performance of Index Plus Small Cap and that of the S&P
600 in both rising and falling markets.

Principal Risks The principal risks of investing in Index Plus Small Cap are
those generally attributable to stock investing. These risks include sudden and
unpredictable drops in the value of the market as a whole and periods of
lackluster or negative performance.

Other principal risks include:

        o  Stocks of smaller companies carry higher risks than stocks of larger
           companies because smaller companies may lack the management
           experience, financial resources, product diversification, and
           competitive strengths of larger companies.
        o  In many instances, the frequency and volume of trading in these
           stocks is substantially less than is typical of stocks of larger
           companies. As a result, the stocks of smaller companies may be
           subject to wider price fluctuations.
        o  When selling a large quantity of a particular stock, the Portfolio
           may have to sell holdings at a discount from quoted prices or may
           have to make a series of small sales over an extended period of time
           due to the more limited trading volume of smaller company stocks.
        o  Stocks of smaller companies tend to be more volatile than stocks of
           larger companies and can be particularly sensitive to expected
           changes in interest rates, borrowing costs and earnings.

Finally, the success of the Portfolio's strategy depends significantly on
Aeltus' skill in determining which securities to overweight, underweight or
avoid altogether.

                                       15
<PAGE>


Investment Performance
<TABLE>
<CAPTION>
                                                   Year Ended December 31
                                                   ----------------------
Year-by-Year Return                                        1998
<S>                                                        <C>
Best Quarter          __ quarter, up __ %
Worst Quarter         __ quarter, down __ %
</TABLE>

<TABLE>
<CAPTION>
                                                   As of December 31, 1998
                                                   -----------------------
Average Annual Total Return      1 Year                   Since inception              Inception date
                                 ------                   ---------------              --------------
<S>                                <C>                         <C>                     <C>
Index Plus Small Cap               %                             %                     December 19, 1997
S&P 600 Index*                     %                           N/A
</TABLE>

The performance table and bar chart provide an indication of the historical risk
of an investment in the Portfolio.

- ---------------
* The Standard & Poor's SmallCap 600 Index consists of 600 stocks chosen for
market size, liquidity, and industry group representation. It is a
market-weighted index with each stock affecting the index in proportion to its
market value.

                                       16
<PAGE>



Portfolio Expenses

The following tables describe Portfolio expenses. Annual Portfolio Operating
Expenses are deducted from Portfolio assets every year, and are thus paid
indirectly by all Portfolio investors.

<TABLE>
<CAPTION>
                                                                  Shareholder Fees
                                               Maximum Sales                        Maximum Deferred Sales Charge
                                      Charge (Load) on Purchases (as a             (Load) (as a percentage of gross
                                     percentage of purchase price) (1)                  redemption proceeds) (2)
<S>                                                  <C>                                        <C>
Growth                                               None                                       None
International                                        None                                       None
Small Company                                        None                                       None
Value Opportunity                                    None                                       None
Real Estate                                          None                                       None
High Yield                                           None                                       None
Index Plus Bond                                      None                                       None
Index Plus Large Cap                                 None                                       None
Index Plus Mid Cap                                   None                                       None
Index Plus Small Cap                                 None                                       None
</TABLE>

(1) The Portfolios do not impose any sales charge (load) on reinvested dividends
    or exchanges.

(2) For investors who acquired Portfolio shares through an insurance company
    separate account, please refer to the applicable insurance contract for a
    description of sales charges which may apply.

Annual Portfolio Operating Expenses(1)
   (as a percentage of average daily net assets)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
                                             Distribution                          Total          Fee Waiver/
                              Management     (12b-1)                               Operating      Expense
                              Fee            Fee               Other Expenses      Expenses       Reimbursement       Net Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>            <C>               <C>                 <C>            <C>                 <C>
Growth                        %              None              %                   %              %                   %
International                 %              None              %                   %              %                   %
Small Company                 %              None              %                   %              %                   %
Value Opportunity             %              None              %                   %              %                   %
Real Estate                   %              None              %                   %              %                   %
High Yield                    %              None              %                   %              %                   %
Index Plus Bond               %              None              %                   %              %                   %
Index Plus Large Cap          %              None              %                   %              %                   %
Index Plus Mid Cap            %              None              %                   %              %                   %
Index Plus Small Cap          %              None              %                   %              %                   %
</TABLE>

(1)  Aeltus is contractually obligated through December 31, 1999 to waive all
     or a portion of its investment advisory fees and/or its administrative
     services fees for certain Portfolios and/or to reimburse a portion of those
     Portfolios' other expenses in order to ensure that the Portfolios' total
     operating expenses do not exceed the percentage of the Portfolios'
     average daily net assets reflected in the table under Net Expenses. Fee
     waiver/expense reimbursement obligations apply to each Portfolio.

The expenses shown above are based on the year ended December 31, 1998 and have
been restated to reflect changes in certain contractual arrangements.

                                       17
<PAGE>


Example

The following example is designed to help you compare the costs of investing in
the Portfolios with the costs of investing in other mutual funds. Using the
annual Portfolio operating expenses percentages above, you would pay the
following expenses on a $10,000 investment, assuming a 5% annual return and
redemption at the end of each of the periods shown:

<TABLE>
<CAPTION>
                                 1 Year*                   3 Years*                   5 Years*                         10 Years*

<S>                              <C>                       <C>                        <C>                              <C>
Growth                           $                         $                          $                                $
International
Small Company
Value Opportunity
Real Estate
High Yield
Index Plus Bond
Index Plus Large Cap
Index Plus Mid Cap
Index Plus Small Cap
</TABLE>

*  Aeltus is contractually obligated to waive fees and/or reimburse expenses
   through December 31, 1999. Therefore, all figures reflect a
   waiver/reimbursement for the first year of the period.

This example should not be considered an indication of prior or future expenses.
Actual expenses for the current year may be greater or less than those shown.

                                       18
<PAGE>

Other Considerations

In addition to the principal investments and strategies described above, the
Portfolios may also invest in other securities, engage in other practices, and
be subject to additional risks, as discussed below and in the Statement of
Additional Information (SAI).

Futures Contracts and Options  Each Portfolio may enter into futures contracts
and use options. The Portfolios primarily use futures contracts and options to
hedge against price fluctuations or increase exposure to a particular asset
class. To a limited extent, the Portfolios also may use these instruments for
speculation (investing for potential income or capital gain).

o    Futures contracts are agreements that obligate the buyer to buy and the
     seller to sell a specific quantity of securities at a specific price on a
     specific date.

o    Options are agreements that give the holder the right, but not the
     obligation, to purchase or sell a certain amount of securities or futures
     contracts during a specified period or on a specified date.

The main risk with futures contracts and options is that they can amplify a gain
or loss, potentially earning or losing substantially more money than the actual
cost of the instrument. In addition, while a hedging strategy can guard against
potential risks for a Portfolio as a whole, it adds to the Portfolio's expenses
and may reduce or eliminate potential gains. There is also a risk that a futures
contract or option intended as a hedge may not perform as expected.

Defensive Investing In response to unfavorable market conditions, each Portfolio
(except Index Plus Bond, Index Plus Large Cap, Index Plus Mid Cap and Index Plus
Small Cap) may make temporary investments that are not consistent with its
principal investment objective and policies.

Year 2000 As a healthcare and financial services enterprise, Aetna Inc.
(referred to collectively with its affiliates and subsidiaries as "Aetna"), is
dependent on computer systems and applications to conduct its business. Aetna
has developed and is currently executing a comprehensive risk-based plan
designed to make its mission-critical information technology ("IT") systems and
embedded systems Year 2000 ready. The plan for IT systems covers five stages
including (i) assessment, (ii) remediation, (iii) testing, (iv) implementation
and (v) Year 2000 approval. At year-end 1997, Aetna, including Aeltus, had
substantially completed the assessment stage. The remediation of
mission-critical IT systems was completed year-end 1998. Testing of all
mission-critical IT systems is underway with Year 2000 approval targeted for
completion by mid-1999. The costs of these efforts will not affect the
Portfolios.

Aeltus and the Portfolios also have relationships with broker-dealers, transfer
agents, custodians or other securities industry participants or other service
providers that are not affiliated with Aetna. Aetna, including Aeltus, has
initiated communication with its critical external relationships to determine
the extent to which Aetna may be vulnerable to such parties' failure to resolve
their own year 2000 issues. Aetna and Aeltus have assessed and are prioritizing
responses in an attempt to mitigate risks with respect to the failure of these
parties to be Year 2000 ready. There can be no assurance that failure of


                                       19
<PAGE>

third parties to complete adequate preparations in a timely manner, and any
resulting systems interruptions or other consequences, would not have an adverse
effect, directly or indirectly, on the Portfolios, including, without
limitation, their operation or the valuation of their assets.

In addition, the Year 2000 problem may adversely affect issuers in which a
Portfolio invests. For example, issuers may incur substantial costs to address
the problem. Aeltus and the Portfolios will continue to monitor developments
relating to this issue.

Risks of Conversion to Euro On January 1, 1999, 11 of the countries in the
European Monetary Union adopted the Euro as their official currency. However,
their original currencies (for example, the franc, the mark, and the lire) will
continue in use for cash transactions until January 1, 2002. After that date, it
is expected that only the Euro will be used in those countries. Although a
common currency is expected to confer some benefits in those markets, the
conversion to the new currency may affect issuers in which the Portfolios
invests, because of changes in the competitive environment from a consolidated
currency market, and greater operational costs from converting to the new
currency. This could depress the value of their stock. Any negative impact of
the conversion to the Euro would be most significant for International.

Portfolio Turnover Portfolio turnover refers to the frequency of portfolio
transactions and the percentage of portfolio assets being bought and sold during
the year. For the fiscal year ended December 31, 1998, Growth, International,
Small Company, Value Opportunity, High Yield, Index Plus Mid Cap and Index Plus
Small Cap each had a portfolio turnover rate in excess of 150%. A high portfolio
turnover rate increases a Portfolio's transaction costs.

                                       20
<PAGE>


Management of the Portfolios

Aeltus Investment Management, Inc., 10 State House Square, Hartford, Connecticut
06103-3602, serves as investment adviser to the Portfolios. Aeltus is
responsible for managing the assets of each Portfolio in accordance with its
investment objective and policies, subject to oversight by the Fund's Board of
Directors (Board). Aeltus has acted as adviser or subadviser to mutual funds
since 1994 and has managed institutional accounts since 1972.

Advisory Fees

        o  Listed below are the aggregate advisory fees paid by each Portfolio
           for its most recent fiscal year.

<TABLE>
<CAPTION>
                                                                 Aggregate Advisory Fees as a Percentage of Average
                 Portfolio Name                                  Net Assets for Year Ended December 31, 1998
                 --------------                                  --------------------------------------------------

<S>                                                                                   <C>
                 Growth                                                                   %
                 International                                                            %
                 Small Company                                                            %
                 Value Opportunity                                                        %
                 Real Estate                                                              %
                 High Yield                                                               %
                 Index Plus Bond                                                          %
                 Index Plus Large Cap                                                     %
                 Index Plus Mid Cap                                                       %
                 Index Plus Small Cap                                                     %
</TABLE>

On October 1, 1998, Bradley, Foster & Sargent, Inc., City Place II, 185 Asylum
Street, Hartford, Connecticut 06103, was appointed as subadviser to Value
Opportunity. While Bradley had not previously served as an investment adviser or
subadviser to a mutual fund, it has managed private client assets as well as
401(k), profit sharing and other retirement plan assets since 1994.

Bradley is responsible for making equity investment decisions for Value
Opportunity. Aeltus, as adviser, remains responsible for all other aspects of
managing Value Opportunity, including trade execution and cash management.
Aeltus pays Bradley a monthly subadvisory fee at an annual rate of 0.15% of
Value Opportunity's average daily net assets on the first $250 million of
assets, and 0.10% on assets above $250 million.

Portfolio Management The following people are primarily responsible for the
day-to-day management of the Portfolios.

Growth Kenneth H. Bragdon, Portfolio Manager, Aeltus, has been managing Growth
since July 1997. Previously, Mr. Bragdon co-managed the Portfolio. Mr. Bragdon
has been with the Aetna organization since 1978 and has 27 years of experience
in the investment business.

                                       21
<PAGE>

International Vince Fioramonti, Portfolio Manager, Aeltus, has been managing
International since its inception in December 1997. Mr. Fioramonti manages
international stocks and non-U.S. dollar government bonds for several Aetna
investment funds. Mr. Fioramonti joined Aetna in 1994 after serving as Vice
President of The Travelers Investment Management Company. He began his
investment career with Travelers in 1988.

Small Company Thomas DiBella, Portfolio Manager, Aeltus, has been managing Small
Company since its inception in December, 1996. Mr. DiBella joined Aeltus in 1991
and is currently responsible for the management of several small-capitalization
portfolios.

Value Opportunity Peter Canoni, Principal, Bradley, manages Value Opportunity.
Before joining Bradley, Mr. Canoni was a Managing Director of Aeltus and the
portfolio manager of Value Opportunity from its inception in December 1996
through August 3, 1998. Mr. Canoni had been with the Aetna organization since
1980 and has over 26 years of investment experience.

Real Estate Yaniv Tepper, Portfolio Manager, Aeltus, has been managing Real
Estate since its inception in December 1997. He has been managing real estate
securities for several investment funds managed by Aeltus since 1994, when he
joined Aeltus. He has over 10 years of experience in direct real estate and real
estate securities investments.

High Yield Gail Bruhn, Portfolio Manager, Aeltus, has been managing High Yield
since its inception in December 1997. Ms. Bruhn joined Aeltus in 1995 after
spending 12 years with CIGNA Investments. She currently manages high-yield
securities for several institutional accounts.

Index Plus Bond Christie Bull, Portfolio Manager, Aeltus, has been managing
Index Plus Bond since its inception in December 1997. Ms. Bull is also the
Director of Fixed Income Research for Aeltus. Ms. Bull has been with the Aetna
organization since 1979, and has been managing fixed-income securities for
several institutional accounts managed by Aeltus since 1993.

Index Plus Large Cap Geoffrey A. Brod, Portfolio Manager, Aeltus, has been
managing Index Plus Large Cap since its inception in September 1996. He has over
30 years of experience in quantitative applications and has over 11 years of
experience in equity investments. Mr. Brod has been with the Aetna organization
since 1966.

Index Plus Mid Cap, Index Plus Small Cap Geoffrey A. Brod, Portfolio Manager,
Aeltus, and Michael F. Farrell, Portfolio Manager, Aeltus, serve as co-managers
of Index Plus Mid Cap and Index Plus Small Cap. Mr. Brod served as the sole
manager of Index Plus Mid Cap and Index Plus Small Cap from each Portfolio's
inception in December 1997 through April 1999. Mr. Farrell has been with the
Aetna organization since 1991 and has been responsible for quantitative research
and development of equity models.


                                       22
<PAGE>


Administrator

The Fund has appointed Aeltus as administrator for each Portfolio. Aeltus has
responsibility for certain administrative and internal accounting and reporting
services, maintenance of relationships with third party service providers such
as the transfer agent and custodians, shareholder communications, calculation of
the net asset value (NAV) and other financial reports prepared for the
Portfolios. As administrator, Aeltus may contract with other entities to perform
certain administrative services.

Listed below are the fees each Portfolio pays Aeltus on an annual rate based on
average daily net assets of the Portfolio:

<TABLE>
<CAPTION>
      Administrative Fee                Portfolio Assets
      ------------------                ----------------
<S>                                     <C>
      0.075%                            On the first $5 billion
      0.050%                            On all assets over $5 billion
</TABLE>


                                       23
<PAGE>

Investments in and Redemptions from the Portfolios

Investors purchasing shares in connection with an insurance company contract or
policy should refer to the documents pertaining to the contract or policy for
information on how to direct investments in or redemptions from a Portfolio, and
any fees that may apply. Each Portfolio has authorized the insurance company to
receive purchase and redemption orders on its behalf.

Each Portfolio reserves the right to suspend the offering of shares, or to
reject any specific purchase order. Each Portfolio may suspend redemptions or
postpone payments when the New York Stock Exchange is closed or when trading is
restricted for any reason or under emergency circumstances as determined by the
Commission.

Investors purchasing shares in connection with an insurance company contract or
policy should refer to the documents pertaining to the contract or policy for
information on limitations and/or fees that may apply to making exchanges
between Portfolios. Notwithstanding the terms of any contract or policy, a
Portfolio may suspend or terminate your exchange privilege if you make more than
five exchanges out of a single Portfolio in any calendar year. Furthermore, a
Portfolio may refuse to accept any exchange request, especially if as a result
of the exchange, in Aeltus' judgment, it would be too difficult to invest
effectively in accordance with that Portfolio's investment objective.

Other Information about Shareholder Accounts and Services

Business Hours Each Portfolio is open on the same days as the New York Stock
Exchange (generally, Monday through Friday). Representatives are available from
8 a.m. to 8 p.m. eastern time on those days.

Net Asset Value The NAV of each Portfolio is determined as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. eastern
time).

In calculating the NAV securities are valued primarily by independent pricing
services using market quotations. Short-term debt securities maturing in less
than 60 days are valued using amortized cost. Securities for which market
quotations are not readily available are valued at their fair value, subject to
procedures adopted by the Board. With respect to any Portfolio that invests in
foreign securities, because those securities may be traded on markets that are
open on days when the Portfolio does not price its shares, the Portfolio's NAV
may change even though Portfolio shareholders may not be permitted to sell or
redeem Portfolio shares.

Tax Information

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 (Code), including requirements with respect to diversification
of assets, distribution of income and sources of income. As a regulated
investment company, a Portfolio generally will not be subject to tax on its
ordinary income and net realized capital gains.

                                       24
<PAGE>

Each Portfolio also intends to comply with the diversification requirements of
Section 817(h) of the Code for those investors who acquire Fund shares through
variable annuity contracts and variable life insurance policies so that those
contract owners and policy owners should not be subject to federal tax on
distributions of dividends and income from a Portfolio to the insurance company
separate accounts. Contract owners and policy owners should review the
prospectus for their contract or policy for information regarding the personal
tax consequences of purchasing a contract or policy.

Dividends and Distribution. Dividends are declared and paid semiannually.
Capital gains distributions, if any, are paid on an annual basis around the end
of the year, December 31. To comply with federal tax regulations, the Fund may
also pay an additional capital gains distribution, usually in June.

Both income dividends and capital gains distributions are paid by each Fund on a
per share basis. As a result, at the time of payment, the share price of the
Fund will be reduced by the amount of the payment.

Performance of Similarly Managed Accounts

Public Fund Performance

Small Company, Index Plus Large Cap and Growth are recently organized and do not
yet have long term performance records. However, these Portfolios have
investment objectives, policies and strategies substantially similar to separate
series of an investment company registered under the Investment Company Act of
1940 (1940 Act) whose shares are currently sold to the public (Public Fund) and
managed by Aeltus. Therefore, the performance of the Public Fund is provided
below. The performance of Small Company, Index Plus Large Cap and Growth will
vary over time and will not be identical to the past portfolio investments of
the Public Fund.

The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Portfolios to
calculate their own performance. All Public Fund performance data:

        o  Was calculated on a total return basis and includes all dividends and
           interest, accrued income and realized and unrealized gains and
           losses.
        o  Reflects the deduction of the historical fees and expenses paid by
           the series of the Public Fund, and not those paid by the Portfolios.
        o  Includes cash and cash equivalents.

The figures also do not reflect the deduction of any insurance fees or charges
that are imposed by an insurance company in connection with its sale of certain
contracts and policies. Investors should refer to the Contract or Policy
prospectus for information pertaining to insurance fees and charges. Had
insurance company fees and expenses been charged to the Public Fund, performance
would have been lower.

The following table shows average annual total returns for the period ended
March 31, 1999 for the Portfolios, the comparable Public Fund and their
respective benchmark indices. Investors should not consider the historical


                                       25
<PAGE>

performance of the series of the Public Fund to be an indication of the future
performance of the Portfolios.


<TABLE>
<CAPTION>
SMALL COMPANY
                                     1 YEAR            SINCE INCEPTION
<S>                                     <C>               <C>
Small Company                           %                  % (12/27/96)
Small Company, Class I                  %                 % (1/4/94)
Russell 2000 Growth Index               %                    N/A
</TABLE>


<TABLE>
<CAPTION>
INDEX PLUS LARGE CAP
                                     1 YEAR            SINCE INCEPTION
<S>                                     <C>              <C>
Index Plus Large Cap                    %                % (9/16/96)
Index Plus Large Cap, Class I           %                 % (12/10/96)
S&P 500 Index                           %                    N/A
</TABLE>


<TABLE>
<CAPTION>
GROWTH
                                     1 YEAR            SINCE INCEPTION
<S>                                     <C>               <C>
Growth                                  %                 % (12/13/96)
Growth, Class I                         %                 % (1/4/94)
S&P 500 Index                           %                    N/A
</TABLE>


Private Account Performance

Index Plus Large Cap, Value Opportunity, Growth, High Yield and Index Plus Bond
are recently organized and do not yet have long-term performance records.
However, these Portfolios have investment objectives, policies and strategies
substantially similar to those employed by Aeltus in managing accounts for
certain institutional investors (Private Accounts). Therefore, the performance
of these Private Accounts is provided below. Note that the Private Accounts,
unlike the Portfolios, are not subject to certain investment limitations,
diversification requirements and other restrictions imposed by the 1940 Act and
the Code which, if applicable, could have adversely affected the Private
Accounts' performance.

The Private Account Performance data, shown below, was calculated in accordance
with the standards established by the Association for Investment Management and
Research (AIMR). AIMR is a non-profit membership and educational organization
that, among other things, has formulated a set of performance presentation
standards for investment advisers. AIMR has not been involved in the preparation
or review of the performance shown.

All Private Account Performance data:

        o  Was calculated on a time-weighted total return basis and includes all
           dividends and interest, accrued income and realized and unrealized
           gains and losses.

                                       26
<PAGE>


        o  Reflects the deduction of investment advisory fees and brokerage
           commissions paid by the Private Accounts, but does not reflect the
           deduction of custodial fees.
        o  Includes cash and cash equivalents.

The historical fees and expenses paid by the Private Accounts are significantly
lower than those paid by the corresponding Portfolio. Had Portfolio level
expenses been charged to the Private Accounts, performance would have been
lower.

The following table shows average annual total returns for the periods ended
March 31, 1999 for the Portfolios, the comparable Private Accounts and their
respective benchmark indices. Investors should not consider the historical
performance of the Private Accounts as an indication of the future performance
of a comparably managed Portfolio.

<TABLE>
<CAPTION>
INDEX PLUS LARGE CAP COMPOSITE
                                     1 YEAR           5 YEARS            SINCE INCEPTION
<S>                                    <C>              <C>                <C>
Index Plus Large Cap                   %                N/A                % (9/16/96)
Index Plus Large Cap Composite         %                 %                 % (10/1/91)
S&P 500 Stock Index                    %                 %                 % (10/1/91)
</TABLE>


<TABLE>
<CAPTION>
VALUE OPPORTUNITY COMPOSITE
                                     1 YEAR           5 YEARS            SINCE INCEPTION
<S>                                    <C>              <C>                <C>
Value Opportunity                      %                N/A                % (12/13/96)
Value Opportunity Composite            %                 %                  % (10/1/90)
S&P 500 Stock Index                    %                 %                  % (10/1/90)
</TABLE>


<TABLE>
<CAPTION>
GROWTH COMPOSITE
                                     1 YEAR           5 YEARS               10 YEARS                 SINCE INCEPTION
<S>                                    <C>              <C>                   <C>                      <C>
Growth                                 %                N/A                   N/A                      % (12/13/96)
Growth Composite                       %                 %                     %                           N/A
S&P 500 Stock Index                    %                 %                     %                           N/A
</TABLE>


<TABLE>
<CAPTION>
HIGH YIELD COMPOSITE
                                     1 YEAR           3 YEARS            SINCE INCEPTION
<S>                                    <C>              <C>               <C>
High Yield                             %                N/A               % (12/10/97)
High Yield Composite                   %                 %                 % (1/1/95)
Merrill Lynch High Yield Index         %                 %                 % (1/1/95)
</TABLE>


<TABLE>
<CAPTION>
INDEX PLUS BOND COMPOSITE
                                     1 YEAR           5 YEARS              10 YEARS                 SINCE INCEPTION
<S>                                    <C>              <C>                   <C>                     <C>
Index Plus Bond                        %                N/A                   N/A                     % (12/18/97)
Index Plus Bond Composite              %                 %                     %                          N/A
LBAB Index                             %                 %                     %                          N/A
</TABLE>


                                       27
<PAGE>

Financial Highlights

These highlights are intended to help you understand the Portfolios' performance
since commencement of operations. Certain information reflects financial results
for a single Portfolio share. The total returns in the tables represent the rate
an investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). The information in
these tables has been audited by _________________, independent auditors, whose
reports, along with the Portfolios' Financial Statements, are included in the
Portfolios' Annual Reports, which are available upon request.

<TABLE>
<CAPTION>
                                                              Growth                                         International
                                             ------------------------------------------------   ------------------------------------
                                             Year ended     Year ended        Period from            Year ended         Period from
                                             December       December          December 13,           December           December 22,
                                             31, 1998       31, 1997          1996 to                31, 1997           1996 to
                                             --------       --------          December 31,           --------           December 31,
                                                                              1996                                      1996
                                                                              ----                                      ----
<S>                                          <C>            <C>               <C>                    <C>                <C>
Net asset value, beginning of period

Income From Investment Operations:

Net investment income

Net realized and change in unrealized
gain or loss on investments

Total from investment operations

Less Distributions:

From net investment income

From net realized gains on investments

Total distributions

Net asset value, end of period

Total Return (does not reflect
applicable sales charges)

Net assets, end of period (000's)

Ratio of total expenses to average net
assets

Ratio of net investment income to
average net assets

Portfolio turnover rate
</TABLE>

(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.

                                       28
<PAGE>


<TABLE>
<CAPTION>
                                                          Small Company                                    Value Opportunity
                                             -----------------------------------------------   -------------------------------------
                                             Year ended     Year ended        Year ended             Year ended         Period from
                                             December       December          December               December           December   ,
                                             31, 1998       31, 1997          31, 1996               31, 1998           1997 to
                                             --------       --------          --------               --------           December 31,
                                                                                                                        1997
                                                                                                                        ----
<S>                                          <C>            <C>               <C>                    <C>                <C>
Net investment income

Net realized and change in unrealized
gain or loss on investments

Total from investment operations

Less Distributions:

From net investment income

From net realized gains on investments

Total distributions

Net asset value, end of period

Total Return (does not reflect
applicable sales charges)

Net assets, end of period (000's)

Ratio of total expenses to average net
assets

Ratio of net investment income to
average net assets

Portfolio turnover rate
</TABLE>

(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.

                                   29
<PAGE>


<TABLE>
<CAPTION>
                                                    Real Estate                              High Yield
                                             -------------------------------   ------------------------------------
                                             Year ended     Period from            Year ended         Period from
                                             December       December 15,           December           December 15,
                                             31, 1998       1997 to                31, 1998           1997 to
                                             --------       December 31,           --------           December 31,
                                                            1997                                      1997
                                                            ----                                      ----
<S>                                          <C>            <C>                    <C>                <C>
Net asset value, beginning of period

Income From Investment Operations:

Net investment income

Net realized and change in unrealized
gain or loss on investments

Total from investment operations

Less Distributions:

From net investment income

From net realized gains on investments

Total distributions

Net asset value, end of period

Total Return (does not reflect
applicable sales charges)

Net assets, end of period (000's)

Ratio of total expenses to average net
assets

Ratio of net investment income to
average net assets

Portfolio turnover rate
</TABLE>

(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.

                                       30
<PAGE>


<TABLE>
<CAPTION>
                                                    Index Plus Bond                                Index Plus Large Cap
                                             --------------------------------   ----------------------------------------------------
                                             Year ended     Period from            Year ended        Year ended         Period from
                                             December       December 18,           December          December           September
                                             31, 1998       1997 to                31, 1998          31, 1997           16, 1996 to
                                             --------       December 31,           --------          --------           December 31,
                                                            1998                                                        1996
                                                            ----                                                        ----
<S>                                          <C>            <C>                    <C>               <C>                <C>
Net asset value, beginning of period

Income From Investment Operations:

Net investment income

Net realized and change in unrealized
gain or loss on investments

Total from investment operations

Less Distributions:

From net investment income

From net realized gains on investments

Total distributions

Net asset value, end of period

Total Return (does not reflect
applicable sales charges)

Net assets, end of period (000's)

Ratio of total expenses to average net
assets

Ratio of net investment income to
average net assets

Portfolio turnover rate
</TABLE>

(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.


                                       31
<PAGE>



<TABLE>
<CAPTION>
                                                    Index Plus Mid Cap                  Index Plus Small Cap
                                             -------------------------------   ------------------------------------
                                             Year ended     Period from            Year ended         Period from
                                             December       December 15,           December           February 3,
                                             31, 1998       1997 to                31, 1998           1998 to
                                             --------       December 31,           --------           December 31,
                                                            1997                                      1998
                                                            ----                                      ----
<S>                                          <C>            <C>                    <C>                <C>
Net asset value, beginning of period

Income From Investment Operations:

Net investment income

Net realized and change in unrealized
gain or loss on investments

Total from investment operations

Less Distributions:

From net investment income

From net realized gains on investments

Total distributions

Net asset value, end of period

Total Return (does not reflect
applicable sales charges)

Net assets, end of period (000's)

Ratio of total expenses to average net
assets

Ratio of net investment income to
average net assets

Portfolio turnover rate
</TABLE>

(1) Annualized.
Per share data calculated using weighted average number of shares outstanding
throughout the period.


                                       32
<PAGE>

{Back Cover Page}

Additional Information

The SAI, which is incorporated by reference into this Prospectus, contains
additional information about the Portfolios. The most recent annual and
semi-annual reports also contain information about the Portfolios' investments,
as well as a discussion of the market conditions and investment strategies that
significantly affected their performance during the past fiscal year.

You may request free of charge the current SAI or the most recent annual and
semi-annual reports, or other information about the Portfolios, by calling
1-800-525-4225 or writing to:

                         Aetna Variable Portfolios, Inc.
                              151 Farmington Avenue
                        Hartford, Connecticut 06156-8962

The SEC also makes available to the public reports and information about the
Portfolios. Certain reports and information, including the SAI, are available on
the SEC's website (http://www.sec.gov) or at the SEC's public reference room in
Washington, D.C. You may call 1-800-SEC-0330 to get information about the
operations of the public reference room or you may write to Public Reference
Section, Washington, D.C. 20549-6009 to get information from the Public
Reference Section. The Public Reference Section will charge a duplicating fee
for copying and sending any information you request.

Investment Company Act File No. 811-7651

<PAGE>

                         AETNA VARIABLE PORTFOLIOS, INC.

                        AETNA GENERATION PORTFOLIOS, INC.

                        Aetna Variable Encore Fund d/b/a
                              AETNA MONEY MARKET VP

                             AETNA BALANCED VP, INC.

                            Aetna Income Shares d/b/a
                                  AETNA BOND VP

                            Aetna Variable Fund d/b/a
                           AETNA GROWTH AND INCOME VP

              Statement of Additional Information dated May 1, 1999

This Statement of Additional Information (Statement) is not a Prospectus and
should be read in conjunction with the current Prospectuses for Aetna Variable
Portfolios, Inc. (AVPI), Aetna Generation Portfolios, Inc. (AGPI), Aetna Money
Market VP ("Money Market"), Aetna Balanced VP, Inc. ("Balanced"), Aetna Bond VP
("Bond Fund"), and Aetna Growth and Income VP ("Growth and Income") (each a
"Fund" and collectively the "Funds"). Capitalized terms not defined herein are
used as defined in the Prospectuses. AVPI and AGPI each are 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 "Portfolios"). AVPI currently
has authorized ten Portfolios:

[bullet] Aetna High Yield VP (High Yield)

[bullet] Aetna Real Estate Securities VP (Real Estate)

[bullet] Aetna Value Opportunity VP (Value Opportunity)

[bullet] Aetna Growth VP (Growth)

[bullet] Aetna Small Company VP (Small Company)

[bullet] Aetna International VP (International)

[bullet] Aetna Index Plus Large Cap VP (Index Plus Large Cap)

[bullet] Aetna Index Plus Mid Cap VP (Index Plus Mid Cap)

[bullet] Aetna Index Plus Small Cap VP (Index Plus Small Cap)

[bullet] Aetna Index Plus Bond VP (Index Plus Bond)

AGPI currently has authorized three Portfolios:

[bullet] Aetna Ascent VP (Ascent)

[bullet] Aetna Crossroads VP (Crossroads)

[bullet] Aetna Legacy VP (Legacy)

The Financial Statements for each Fund or Portfolio and the independent
auditors' report thereon, included in each Fund's Annual Report, shall be
incorporated by reference in this Statement by amendment. A free copy of each
Fund's Annual Report and Prospectus is available upon request by writing to the
respective Fund at: 151 Farmington Avenue, Hartford, Connecticut 06156, or by
calling: (800) 367-7732.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                 <C>
GENERAL INFORMATION..................................................3
ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES......................4
INVESTMENT TECHNIQUES AND RISK FACTORS...............................7
TRUSTEES AND OFFICERS...............................................23
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS..........................26
INVESTMENT ADVISORY AGREEMENTS......................................26
THE SUBADVISORY AGREEMENT...........................................29
ADMINISTRATIVE SERVICES AGREEMENTS..................................29
CUSTODIAN...........................................................30
TRANSFER AGENT......................................................31
INDEPENDENT AUDITORS................................................31
PRINCIPAL UNDERWRITER...............................................31
PURCHASE AND REDEMPTION OF SHARES...................................31
BROKERAGE ALLOCATION AND TRADING POLICIES...........................31
NET ASSET VALUE.....................................................34
TAX STATUS..........................................................34
PERFORMANCE INFORMATION.............................................36
FINANCIAL STATEMENTS................................................38
</TABLE>


                                       2
<PAGE>

                               GENERAL INFORMATION

Organization  AVPI, AGPI and Balanced were incorporated in Maryland in 1996,
1994 and 1988, respectively.

Bond Fund, Money Market and Growth and Income were originally established as
Maryland corporations in 1973, 1974 and 1974, respectively. Each was converted
to a Massachusetts business trust on May 1, 1984. Each currently operates under
a Declaration of Trust (Declaration) dated January 25, 1984.

Capital Stock  Shares of each Fund or Portfolio have no preemptive or conversion
rights. Each share of a Fund or Portfolio has the same rights to share in
dividends declared by a Fund or Portfolio. Upon liquidation of any Fund or
Portfolio, shareholders in that Fund or Portfolio are entitled to share pro rata
in the net assets of the Fund or Portfolio available for distribution to
shareholders. Shares of each Fund or Portfolio are fully paid and nonassessable.

Shareholder Liability  Money Market, Bond Fund and Growth and Income each are
organized as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a business trust may, under certain circumstances, be held
personally liable as partners for the obligations of a Fund, which is not true
in the case of a corporation. The Declaration of each Fund provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of that Fund and that every written agreement, obligation,
instrument or undertaking made by that Fund shall contain a provision to the
effect that shareholders are not personally liable thereunder. With respect to
tort claims, contract claims where the provision referred to is omitted from the
undertaking, and claims for taxes and certain statutory liabilities in other
jurisdictions, a shareholder may be held personally liable to the extent that
claims are not satisfied by a Fund. However, upon payment of any such liability
the shareholder will be entitled to reimbursement from the general assets of the
Fund. The Board of Trustees intend to conduct the operations of each Fund, with
the advice of counsel, in such a way as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Fund.

Voting Rights  Shareholders of each Fund or Portfolio 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 or Trustees, as the case may be
(hereafter, Trustees) (to the extent hereinafter provided) and on other matters
submitted to the vote of shareholders. Participants who select a Fund for
investment through their variable annuity contract (VA Contract) or variable
life insurance policy (VLI Policy) are not the shareholders of the Fund. The
insurance companies who issue the separate accounts are the true shareholders,
but generally pass through voting to Participants as described in the prospectus
for the applicable VA Contract or VLI Policy. Once the initial Board of
Directors/Trustees (Board) is elected, no meeting of the shareholders for the
purpose of electing Trustees will be held unless and until such time as less
than a majority of the Trustees holding office have been elected by the
shareholders, or shareholders holding 10% or more of the outstanding shares
request such a vote. The Trustees then in office will call a shareholder meeting
for election of Trustees. Vacancies occurring between any such meeting shall be
filled as allowed by law, provided that immediately after filling any such
vacancy, at least two-thirds of the Trustees holding office have been elected by
the shareholders. Except as set forth above, the Trustees shall continue to hold
office and may appoint successor Trustees. Trustees of Money Market, Bond Fund
and Growth and Income may be removed from office (1) at any time

                                       3
<PAGE>

by two-thirds vote of the Trustees; (2) by a majority vote of Trustees where any
Trustee becomes mentally or physically incapacitated; (3) at a special meeting
of shareholders by a two-thirds vote of the outstanding shares; or (4) by
written declaration filed with Mellon Bank, N.A., the Fund's custodian, signed
by two-thirds of the Fund's shareholders. Trustees of AVPI, AGPI and Balanced
may be removed at any meeting of shareholders by the vote of a majority of all
shares entitled to vote. Any Trustee 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 Trustees can, if they choose to do so, elect
all the Trustees of a Fund, in which event the holders of the remaining shares
will be unable to elect any person as a Trustee.

1940 Act Classification Each Fund is an open-end management investment company,
as that term is defined under the Investment Company Act of 1940 (1940 Act).
Each Fund or Portfolio is a diversified company, as that term is defined under
the 1940 Act. The 1940 Act generally requires that with respect to 75% of its
total assets, a diversified company may not invest more than 5% of its total
assets in the securities of any one issuer. Money Market is subject to this
restriction with respect to 100% of its total assets.

                 ADDITIONAL INVESTMENT RESTRICTIONS AND POLICIES

The investment objectives and certain investment policies of each Fund or
Portfolio are matters of fundamental policy for purposes of the 1940 Act and
therefore cannot be changed without the approval of a majority of the
outstanding voting securities of that Fund or Portfolio. This means the lesser
of (a) 67% of the shares of a Fund or Portfolio present at a shareholders'
meeting if the holders of more than 50% of the shares of that Fund or Portfolio
then outstanding are present in person or by proxy; or (b) more than 50% of the
outstanding voting securities of the Fund or Portfolio.

As a matter of fundamental policy, a Fund or Portfolio will not:

(1)      hold more than 5% of the value of its total assets in the securities of
         any one issuer or hold more than 10% of the outstanding voting
         securities of any one issuer. This restriction applies only to 75%
         (100% in the case of Money Market) of the value of a Fund's or
         Portfolio's total assets. Securities issued or guaranteed by the U.S.
         Government, its agencies or instrumentalities are excluded from this
         restriction;

(2)      except for Real Estate, concentrate its investments in any one
         industry, although a Fund or 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, each Fund or
         Portfolio, except for Balanced, Bond Fund, and Growth and Income, will
         classify finance companies 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,
         Ascent, Crossroads and Legacy (Generation Portfolios) will classify
         real estate stocks as separate industries according to property type,
         such as apartment, retail, office and industrial. This limitation will
         not apply to any Fund's or Portfolio's investment in securities issued
         or guaranteed by the U.S. Government, its agencies or
         instrumentalities.

                                       4
<PAGE>

         Additionally for Generation Portfolios and Money Market, investments in
         the following shall not be subject to the 25% limitation: securities
         invested in, or repurchase agreements for, U.S. Government securities,
         certificates of deposit, bankers' acceptances, and securities of banks;

(3)      make loans, except that, to the extent appropriate under its investment
         program, a Fund or Portfolio may (i) purchase bonds, debentures or
         other debt instruments, including short-term obligations; (ii) enter
         into repurchase transactions; and (iii) lend portfolio securities
         provided that the value of such loaned securities does not exceed
         one-third of the Fund's or Portfolio's total assets;

(4)      issue any senior security (as defined in the 1940 Act), except that (i)
         a Fund or Portfolio may enter into commitments to purchase securities
         in accordance with that Fund's or Portfolio's investment program,
         including reverse repurchase agreements, delayed delivery and
         when-issued securities, which may be considered the issuance of senior
         securities; (ii) a Fund or 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; (iii) a Fund (other than Money Market) or Portfolio
         may engage in short sales of securities to the extent permitted in its
         investment program and other restrictions; (iv) the purchase or sale of
         futures contracts and related options shall not be considered to
         involve the issuance of senior securities; and (v) subject to certain
         fundamental restrictions set forth below, a Fund or Portfolio may
         borrow money as authorized by the 1940 Act;

(5)      except for Real Estate, purchase real estate, interests in real estate
         or real estate limited partnership interests except that: (i) to the
         extent appropriate under its investment program, a Fund or Portfolio
         (other than Money Market, Bond and High Yield) 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; and (ii) the Generation Portfolios 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 Fund or Portfolio may, to
         the extent appropriate under its investment program: (i) purchase
         securities of companies engaged in such activities; (ii) (other than
         Money Market) enter into transactions in financial and index futures
         contracts and related options; and (iii) enter into forward currency
         contracts;

(7)      borrow money, except that (i) a Fund (other than Money Market) or
         Portfolio may enter into certain futures contracts and options related
         thereto; (ii) a Fund or Portfolio may enter into commitments to
         purchase securities in accordance with that Fund's or Portfolio's
         investment program, including delayed delivery and when-issued
         securities and reverse repurchase agreements; (iii) for temporary
         emergency purposes, a Fund or Portfolio may borrow money in amounts not
         exceeding 5% of the value of its total assets at the time the loan is
         made; and (iv) for purposes of leveraging, a Fund (other than Money
         Market) or Portfolio may borrow money from banks (including its
         custodian bank) only if, immediately after such borrowing, the value of
         that Fund's or 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 Fund's
         or Portfolio's assets fails to


                                       5
<PAGE>

         meet the 300% asset coverage requirement relative only to leveraging,
         that Fund or Portfolio will, within three days (not including Sundays
         and holidays), reduce its borrowings to the extent necessary to meet
         the 300% test;

(8)      act as an underwriter of securities except to the extent that, in
         connection with the disposition of portfolio securities by a Fund or
         Portfolio, that Fund or Portfolio may be deemed to be an underwriter
         under the provisions of the Securities Act of 1933 (1933 Act).

The Board has adopted the following other investment restrictions which may be
changed by the Board and without shareholder vote. A Fund or Portfolio will not:

(1)      make short sales of securities, other than short sales "against the
         box," or purchase securities on margin except for short-term credits
         necessary for clearance of portfolio transactions, provided that this
         restriction will not be applied to limit the use of options, futures
         contracts and related options, in the manner otherwise permitted by the
         investment restrictions, policies and investment programs of each Fund
         or Portfolio as described in this Statement and in the Prospectuses;

(2)      except for International and the Generation Portfolios, invest more
         than 25% of its total assets in securities or obligations of foreign
         issuers, including marketable securities of, or guaranteed by, foreign
         governments (or any instrumentality or subdivision thereof). A Fund or
         Portfolio will invest in securities or obligations of foreign banks
         only if such banks have a minimum of $5 billion in assets and a primary
         capital ratio of at least 4.25%. Money Market may only purchase foreign
         securities or obligations that are U.S.-dollar denominated;

(3)      invest in companies for the purpose of exercising control or
         management;

(4)      purchase interests in oil, gas or other mineral exploration programs;
         however, this limitation will not prohibit the acquisition of
         securities of companies engaged in the production or transmission of
         oil, gas, or other minerals;

(5)      invest more than 15% (10% for Money Market, Index Plus Bond, Index Plus
         Large Cap, Index Plus Mid Cap and Index Plus Small Cap) of its net
         assets in illiquid securities. Illiquid securities are securities that
         are not readily marketable or cannot be disposed of promptly within
         seven days and in the usual course of business without taking a
         materially reduced price. Such securities include, but are not limited
         to, time deposits and repurchase agreements with maturities longer than
         seven days. Securities that may be resold under Rule 144A under, or
         securities offered pursuant to Section 4(2) of the 1933 Act, shall not
         be deemed illiquid solely by reason of being unregistered. Aeltus
         Investment Management, Inc. (Aeltus), the Funds' 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;

(6)      except for High Yield, invest more than 15% (10% for Index Plus Large
         Cap, Index Plus Mid Cap and Index Plus Small Cap) of the total value of
         its assets in high-yield bonds (securities rated below BBB- by Standard
         & Poor's Corporation (S&P) or Baa3 by Moody's Investors Service, Inc.
         (Moody's), or, if unrated, considered by Aeltus to be of comparable
         quality);

(7)      except for Index Plus Bond, Index Plus Large Cap, Index Plus Mid Cap
         and Index Plus Small Cap, invest in Securities issued by any entity
         listed in the Wall Street Journal's Quarterly "Corporate Performance
         Report" under the heading "Consumer, Noncyclical--Tobacco," or are
         otherwise determined by Aeltus to be primarily involved in the
         production or distribution of tobacco products.

                                       6
<PAGE>

Where a Fund's or Portfolio's investment objective or policy restricts it to
holding or investing a specified percentage of its assets in any type of
instrument, that percentage is measured at the time of purchase. There will be
no violation of any investment policy or restriction if that restriction is
complied with at the time the relevant action is taken, notwithstanding a later
change in the market value of an investment, in net or total assets, in the
securities rating of the investment or any other change.

                     INVESTMENT TECHNIQUES AND RISK FACTORS

Options, Futures and Other Derivative Instruments

Each Fund or Portfolio may use certain derivative instruments as a means of
achieving its investment objective. For purposes other than hedging, a Fund or
Portfolio will invest no more than 5% of its assets in derivatives, which at the
time of purchase are considered by management to involve high risk to the Fund
or Portfolio, such as inverse floaters and interest-only and principal-only
debt instruments.

Each Fund (except Money Market) or Portfolio may use the derivative instruments
described below and in the Prospectuses. Derivatives that may be used by a Fund
(other than Money Market) or Portfolio include forward contracts, swaps,
structured notes, futures and options. Each Fund or Portfolio may invest up to
30% of its assets in lower risk derivatives for hedging or to gain additional
exposure to certain markets for investment purposes while maintaining liquidity
to meet shareholder redemptions and minimizing trading costs. Forward exchange
contracts are not subject to this 30% limitation.

The following provides additional information about those derivative instruments
each Fund (except Money Market) may use.

Futures Contracts  Each Fund or Portfolio may enter into futures contracts and
options thereon subject to the restrictions described below under "Additional
Restrictions on the Use of Futures and Option Contracts." A Fund or Portfolio
may enter into futures contracts or options thereon that are traded on national
futures exchanges and are standardized as to maturity date and underlying
financial instrument. The futures exchanges and trading in the U.S. are
regulated under the Commodity Exchange Act by the Commodities Futures Trading
Commission (CFTC).

A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a financial instrument or a specific
stock market index for a specified price at a designated date, time, and place.
Brokerage fees are incurred when a futures contract is bought or sold and at
expiration, and margin deposits must be maintained.

Although interest rate futures contracts typically require actual future
delivery of and payment for the underlying instruments, those contracts are
usually closed out before the delivery date. Stock index futures contracts do
not contemplate actual future delivery and will be settled in cash at expiration
or closed out prior to expiration. Closing out an open futures contract sale or
purchase is effected by entering into an offsetting futures contract purchase or
sale, respectively, for the same aggregate amount of the identical type of
underlying instrument and the same delivery date. There can be no assurance,
however, that a Fund or

                                       7
<PAGE>

Portfolio will be able to enter into an offsetting transaction with respect to a
particular contract at a particular time. If a Fund or 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 equity prices,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events. Small price movements in futures
contracts may result in immediate and potentially unlimited loss or gain to a
Fund or Portfolio relative to the size of the margin commitment. A purchase or
sale of a futures contract may result in losses in excess of the amount
initially invested in the futures contract.

When using futures contracts as a hedging technique, at best, the correlation
between changes in prices of futures contracts and of the securities being
hedged can be only approximate. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand for
futures and for securities, including technical influences in futures trading,
and differences between the financial instruments being hedged and the
instruments underlying the standard futures contracts available for trading.
Even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or stock market or interest rate trends.

Most U.S. futures exchanges limit the amount of fluctuation permitted in
interest rate futures contract prices during a single trading day, and, 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
losses, because the limit may prevent the liquidation of unfavorable positions.
Futures contract prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some persons engaging in futures
transactions to substantial losses.

Sales of futures contracts which are intended to hedge against a change in the
value of securities held by a Fund or 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 Fund or Portfolio
with a commodities broker in a custodian account in order to initiate futures
trading and to maintain open positions in a Fund's or Portfolio's futures
contracts. A margin deposit is intended to assure the Fund's or 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 the
margin requirement, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit

                                       8
<PAGE>

exceeds the required margin, the broker will promptly pay the excess to a Fund
or Portfolio. These daily payments to and from a Fund or Portfolio are called
variation margin. At times of extreme price volatility, intra-day variation
margin payments may be required. In computing daily net asset values, each Fund
or Portfolio will mark-to-market the current value of its open futures
contracts. Each Fund or Portfolio expects to earn interest income on its initial
margin deposits.

When a Fund or Portfolio buys or sells a futures contract, unless it already
owns an offsetting position, it will designate cash and/or liquid securities
having an aggregate value at least equal to the full "notional" value of the
futures contract, thereby insuring that the leveraging effect of such futures
contract is minimized, in accordance with regulatory requirements.

A Fund or Portfolio can buy and write (sell) options on futures contracts. A
Fund or Portfolio may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures market
prices of financial instruments required to be delivered and purchased under
open futures contracts shall not exceed 30% of a Fund's or Portfolio's total
assets (100% in the case of Ascent and 60% in the case of Crossroads) at market
value at the time of entering into a contract and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall be
committed to margin deposits in relation to futures contracts. See "Call and Put
Options" below for additional restrictions.

Call and Put Options Each Fund or Portfolio may purchase and write (sell) call
options and put options on securities, indices and futures as discussed in the
Prospectuses, subject to the restrictions described in this section and under
"Additional Restrictions on the Use of Futures and Option Contracts." A call
option gives the holder (buyer) the right to buy and to obligate the writer
(seller) to sell a security or financial instrument at a stated price (strike
price) at any time until a designated future date when the option expires
(expiration date). A put option gives the holder (buyer) the right to sell and
to obligate the writer (seller) to purchase a security or financial instrument
at a stated price at any time until the expiration date. A Fund or 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 Aeltus.

Each Fund or Portfolio, except Generation Portfolios, is prohibited from having
written call options outstanding at any one time on more than 30% of its total
assets. A Fund or Portfolio will not write a put if it will require more than
50% of the Fund's or Portfolio's net assets to be designated to cover all put
obligations. No Fund or Portfolio may buy put options if more than 3% of its
assets immediately following such purchase would consist of put options. Each
Fund or Portfolio may purchase call and sell put options on equity securities
only to close out positions previously opened; the Generation Portfolios are not
subject to this restriction. No Fund or Portfolio will write a call option on a
security unless the call is "covered" (i.e., it already owns the underlying
security). Securities it "already owns" include any stock which it has the right
to acquire without any additional payment, at its discretion for as long as the
call remains outstanding. This restriction does not apply to the writing of
calls on securities indices or futures contracts. No Fund or Portfolio is
permitted to write call options on when-issued securities. The Funds and
Portfolios purchase call options primarily as a temporary substitute for taking
positions in certain securities or in the securities that comprise a relevant
index, particularly if Aeltus (or Bradley, in the case of Value Opportunity)
considers these instruments to be undervalued relative to the prices of
particular securities or of the securities

                                       9
<PAGE>

underlying that index. A Fund or Portfolio may also purchase call options on an
index to protect against increases in the price of securities underlying that
index that the Fund or Portfolio intends to purchase pending its ability to
invest in such securities in an orderly manner.

So long as the obligation of the writer of a call option continues, the writer
may be assigned an exercise notice by the broker-dealer through which such
option was settled, requiring the writer to deliver the underlying security
against payment of the exercise price. This obligation terminates upon the
expiration of the call option, by the exercise of the call option, or by
entering into an offsetting transaction.

When writing a call option, in return for the premium, the writer gives up the
opportunity to profit from the price increase in the underlying security above
the exercise price, but conversely retains the risk of loss should the price of
the security decline. If a call option expires unexercised, the writer will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security during the option
period. If the call option is exercised, the writer would realize a gain or loss
from the transaction depending on what it received from the call and what it
paid for the underlying security.

An option on an index (or a particular security) is a contract that gives the
purchaser of the option, in return for the premium paid, the right to receive
from the writer of the option cash equal to the difference between the closing
price of the index (or security) and the exercise price of the option, expressed
in dollars, times a specified multiple (the multiplier).

A Fund or Portfolio may write calls on securities indices and futures contracts
provided that it enters into an appropriate offsetting position or that it
designates liquid assets in an amount sufficient to cover the underlying
obligation in accordance with regulatory requirements. The risk involved in
writing call options on futures contracts or market indices is that a Fund or
Portfolio would not benefit from any increase in value above the exercise price.
Usually, this risk can be eliminated by entering into an offsetting transaction.
However, the cost to do an offsetting transaction and terminate the Fund's or
Portfolio's obligation might be more or less than the premium received when it
originally wrote the option. Further, a Fund or Portfolio might occasionally not
be able to close the option because of insufficient activity in the options
market.

In the case of a put option, as long as the obligation of the put writer
continues, it may be assigned an exercise notice by the broker-dealer through
which such option was sold, requiring the writer to take delivery of the
underlying security against payment of the exercise price. A writer has no
control over when it may be required to purchase the underlying security, since
it may be assigned an exercise notice at any time prior to the expiration date.
This obligation terminates earlier if the writer effects a closing purchase
transaction by purchasing a put of the same series as that previously sold.

If a put option is sold by a Fund or Portfolio, the Fund or Portfolio will
designate liquid securities with a value equal to the exercise price, or else
will hold an offsetting position in accordance with regulatory requirements. In
writing puts, there is the risk that a writer may be required to buy the
underlying security at a disadvantageous price. The premium the writer receives
from writing a put option represents a profit, as long as the price of the
underlying instrument remains above the exercise price. If the put is exercised,
however, the writer is obligated during the option period to buy the underlying
instrument from the buyer of the put at the exercise price, even though the
value of the investment may have fallen below the exercise


                                       10
<PAGE>

price. If the put lapses unexercised, the writer realizes a gain in the amount
of the premium. If the put is exercised, the writer may incur a loss, equal to
the difference between the exercise price and the current market value of the
underlying instrument.

A Fund or Portfolio may purchase put options when Aeltus (or Bradley, in the
case of Value Opportunity) believes that a temporary defensive position is
desirable in light of market conditions, but does not desire to sell a portfolio
security. The purchase of put options may be used to protect a Fund's or
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 Fund or 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 Fund or 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 premium received from writing a call or put option, or paid for purchasing a
call or put option will reflect, among other things, the current market price of
the underlying security, the relationship of the exercise price to such market
price, the historical price volatility of the underlying security, the length of
the option period, and the general interest rate environment. The premium
received by a Fund or Portfolio for writing call options will be recorded as a
liability in the statement of assets and liabilities of that Fund or 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 Fund or Portfolio when purchasing a put option will be
recorded as an asset in the statement of assets and liabilities of that Fund or
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 Fund or 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
Fund or 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 Fund or Portfolio will be
able to effect a closing transaction at a favorable price. If a Fund or
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 Fund or Portfolio will pay brokerage
commissions in connection with the sale or purchase of options to close out
previously established option positions. These brokerage commissions are
normally higher as a percentage of underlying asset values than those applicable
to purchases and sales of portfolio securities.

Foreign Futures Contracts and Foreign Options  Each Fund or Portfolio 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


                                       11
<PAGE>

the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign laws. Generally, the foreign transaction will be governed by
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures contracts or
foreign options transaction occurs. Investors that trade foreign futures
contracts or foreign options contracts may not be afforded certain of the
protective measures provided by domestic exchanges, including the right to use
reparations proceedings before the CFTC and arbitration proceedings provided by
the NFA. In particular, funds received from customers for foreign futures
contracts or foreign options transactions may not be provided the same
protections as funds received for transactions on U.S. futures exchange. The
price of any foreign futures contracts or foreign options contract and,
therefore, the potential profit and loss thereon, may be affected by any
variance in the foreign exchange rate between the time an order is placed and
the time it is liquidated, offset or exercised.

Options on Foreign Currencies Each Fund or Portfolio may write and purchase
calls on foreign currencies. A Fund or 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 such circumstances, the Fund or Portfolio collateralizes the position by
designating cash and/or liquid securities in an amount not less than the value
of the underlying foreign currency in U.S. dollars marked-to-market daily. In
the event of rate fluctuations adverse to a Fund's or Portfolio's position, it
would lose the premium it paid and transactions costs. A call written on a
foreign currency by a Fund or Portfolio is covered if the Fund or 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 specially designated) upon
conversion or exchange of other foreign currency held in its portfolio.

Additional Restrictions on the Use of Futures and Option Contracts  CFTC
regulations require that to prevent a Fund or Portfolio from being a commodity
pool, each Fund or Portfolio enter into all short futures for the purpose of
hedging the value of securities held, and that all long futures positions either
constitute bona fide hedging transactions, as defined in such regulations, or
have a total value not in excess of an amount determined by reference to certain
cash and securities positions maintained, and accrued profits on such positions.
As evidence of its hedging intent, each Fund or Portfolio expects that at least
75% of futures contract purchases will be "completed"; that is, upon the sale of
these long contracts, equivalent amounts of related securities will have been or
are then being purchased by that Fund or Portfolio in the cash market. With
respect to futures contracts or related options that are entered into for
purposes that may be considered speculative, the aggregate initial margin for
future contracts and premiums for options will not exceed 5% of a Fund's or
Portfolio's net assets, after taking into account realized profits and
unrealized losses on such futures contracts.

Forward Exchange Contracts Each Fund or 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 Fund or 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. Forward exchange contracts include standardized
foreign currency futures contracts which are traded on exchanges and are subject
to procedures and regulations applicable to futures. Each Fund or Portfolio may
also enter into a forward exchange contract to sell a foreign currency that
differs from the currency in which the underlying security is denominated. This
is done in the expectation that there is a greater correlation between the
foreign currency of the forward exchange contract and the foreign currency of
the underlying investment than between the U.S. dollar and the foreign currency
of the underlying investment This technique is referred to as "cross hedging."
The success of cross hedging is

                                       12
<PAGE>

dependent on many factors, including the ability of Aeltus to correctly identify
and monitor the correlation between foreign currencies and the U.S. dollar. To
the extent that the correlation is not identical, a Fund or Portfolio may
experience losses or gains on both the underlying security and the cross
currency hedge.

Each Fund or 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 the underlying
securities the Fund or 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.

The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date the forward contract
is entered into and the date it is sold. Accordingly, it may be necessary for a
Fund or 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 Fund or 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 Fund or
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
Fund or Portfolio to sustain losses on these contracts and transactions costs.

At or before the maturity of a forward exchange contract requiring a Fund or
Portfolio to sell a currency, the Fund or 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 Fund or Portfolio will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, a Fund or 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 Fund or 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 Fund or 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, Aeltus must evaluate the credit
and performance risk of each particular counterparty under a forward contract.

Although the Funds or 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 Funds or Portfolios may


                                       13
<PAGE>

convert foreign currency from time to time. Foreign exchange dealers do not
charge a fee for conversion, but they do seek to realize a profit based on the
difference between the prices at which they buy and sell various currencies.
Thus, a dealer may offer to sell a foreign currency to the Funds or Portfolios
at one rate, while offering a lesser rate of exchange should the Funds or
Portfolios desire to resell that currency to the dealer.

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 Fund or 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 Fund's or Portfolio's loss will consist of the
net amount of contractual interest payments that a Fund or Portfolio has not yet
received. Aeltus will monitor the creditworthiness of counterparties to a Fund's
or Portfolio's interest rate swap transactions on an ongoing basis. A Fund or
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 Fund or 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."

Mortgage-Related Debt Securities

Money Market, Balanced, Bond Fund, Growth and Income, Real Estate, High Yield,
Index Plus Bond, and Generation Portfolios may invest in mortgage-related debt
securities, collateralized mortgage obligations (CMOs) and real estate mortgage
investment conduits (REMICs). Federal mortgage-related securities include
obligations issued or guaranteed by the Government National Mortgage Association
(GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home
Loan Mortgage Corporation (FHLMC). GNMA is a wholly owned corporate
instrumentality of the U.S., the securities and guarantees of which are backed
by the full faith and credit of the U.S.. FNMA, a federally chartered and
privately owned corporation, and FHLMC, a federal corporation, are
instrumentalities of the U.S. with Presidentially appointed board members. The
obligations of FNMA and FHLMC are not explicitly guaranteed by the full faith
and credit of the federal government.

Pass-through mortgage-related securities are characterized by monthly payments
to the holder, reflecting the monthly payments made by the borrowers who
received the underlying mortgage loans. The payments to the security holders,
like the payments on the underlying loans, represent both principal and
interest. Although the underlying mortgage loans are for specified periods of
time, often twenty or thirty years, the borrowers can, and typically do, repay
such loans sooner. Thus, the security holders frequently receive repayments of
principal, in addition to the principal that is part of the regular monthly
payment. A borrower is more likely to repay a mortgage bearing a relatively high
rate of interest. This means that in times of declining interest rates, some
higher yielding securities held by a Fund or Portfolio might be converted to
cash, and the Fund or 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 Fund or 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.

                                       14
<PAGE>

CMOs and REMICs are securities which are collateralized by mortgage pass-through
securities. Cash flows from underlying mortgages are allocated to various
classes or tranches in a predetermined, specified order. Each sequential tranche
has a "stated maturity"--the latest date by which the tranche can be completely
repaid, assuming no repayments--and has an "average life"--the average time to
receipt of a principal payment weighted by the size of the principal payment.
The average life is typically used as a proxy for maturity because the debt is
amortized, rather than being paid off entirely at maturity, as would be the case
in a straight debt instrument.

CMOs and REMICs are typically structured as "pass-through" securities. In these
arrangements, the underlying mortgages are held by the issuer, which then issues
debt collateralized by the underlying mortgage assets. The security holder thus
owns an obligation of the issuer and payment of interest and principal on such
obligations is made from payments generated by the underlying mortgage assets.
The underlying mortgages may or may not be guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. Government such as GNMA
or otherwise backed by FNMA or FHLMC. Alternatively, such securities may be
backed by mortgage insurance, letters of credit or other credit enhancing
features. Both CMOs and REMICs are issued by private entities. They are not
directly guaranteed by any government agency and are secured by the collateral
held by the issuer. CMOs and REMICs are subject to the type of prepayment risk
described above due to the possibility that prepayments on the underlying assets
will alter the cash flow.

Asset-Backed Securities

Each Fund or Portfolio may invest in asset-backed securities. Asset-backed
securities are collateralized by short-term loans such as automobile loans, home
equity loans, or credit card receivables. The payments from the collateral are
generally passed through to the security holder. As noted above with respect to
CMOs and REMICs, the average life for these securities is the conventional proxy
for maturity. Asset-backed securities may pay all interest and principal to the
holder, or they may pay a fixed rate of interest, with any excess over that
required to pay interest going either into a reserve account or to a subordinate
class of securities, which may be retained by the originator. The originator may
guarantee interest and principal payments. These guarantees often do not extend
to the whole amount of principal, but rather to an amount equal to a multiple of
the historical loss experience of similar portfolios.

Two varieties of asset-backed securities are CARs and CARDs. CARs are
securities, representing either ownership interests in fixed pools of automobile
receivables, or debt instruments supported by the cash flows from such a pool.
CARDs are participations in fixed pools of credit accounts. These securities
have varying terms and degrees of liquidity.

The collateral behind certain asset-backed securities (such as CARs and CARDs)
tends to have prepayment rates that do not vary with interest rates; the
short-term nature of the loans may also tend to reduce the impact of any change
in prepayment level. Other asset-backed securities, such as home equity
asset-backed securities, have prepayment rates that are sensitive to interest
rates. Faster prepayments will shorten the average life and slower prepayments
will lengthen it. Asset-backed securities may be pass-through, representing
actual equity ownership of the underlying assets, or pay-through, representing
debt instruments supported by cash flows from the underlying assets.

The coupon rate of interest on mortgage-related and asset-backed securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, by the amount of the fees paid to the mortgage pooler, issuer, and/or
guarantor. Actual yield may vary from the coupon rate, however, if such
securities are purchased at a premium or discount, traded in the secondary
market at a premium or discount, or to the extent that the underlying assets are
prepaid as noted above.

                                       15
<PAGE>

Zero Coupon and Pay-in-Kind Securities

Each Fund or Portfolio may invest in zero coupon securities and each Fund,
except Money Market, or Portfolio may invest in pay-in-kind securities. In
addition, each Fund or Portfolio 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 Fund or Portfolio may realize no return on its investment,
because these securities do not pay cash interest.

Additional Risk Factors in Using Derivatives In addition to any risk factors
which may be described elsewhere in this section, or in the Prospectuses, the
following sets forth certain information regarding the potential risks
associated with a Fund's or Portfolio's transactions in derivatives.

                                       16
<PAGE>

Risk of Imperfect Correlation  A Fund's or 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 Fund
or Portfolio might not be successful and the Fund or 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 portfolio
securities being hedged, which could result in losses both on the hedging
transaction and the portfolio securities. In such instances, the Fund's or
Portfolio's overall return could be less than if the hedging transactions had
not been undertaken.

Potential Lack of a Liquid Secondary Market  Prior to exercise or expiration, a
futures or option position may be terminated only by entering into a closing
purchase or sale transaction, which requires a secondary market on the exchange
on which the position was originally established. While a Fund or 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 Fund or
Portfolio which could require the Fund or 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 Fund's or Portfolio's
ability effectively to hedge its portfolio, or the relevant portion thereof.

The trading of futures and options contracts also is subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of the brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.

Risk of Predicting Interest Rate Movements  Investments in futures contracts on
fixed income securities and related indices involve the risk that if Aeltus'
judgment concerning the general direction of interest rates is incorrect, the
overall performance of a Fund or Portfolio may be poorer than if it had not
entered into any such contract. For example, if a Fund or 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 Fund or 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 Fund or 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 Funds do not believe that these trading and
position limits will have an adverse impact on the hedging strategies regarding
the Funds or Portfolios.

Counterparty Risk With some derivatives, whether used for hedging or
speculation, there is also the risk that the counterparty may fail to honor its
contract terms, causing a loss for the Fund.

Investment in Equity and Debt Securities


                                       17
<PAGE>

Each Fund or Portfolio may invest in equity and debt securities (except that
Money Market may not invest in equity securities). Equity securities are subject
to a decline in the stock market or in the value of the issuing company and
preferred stocks have price risk and some interest rate and credit risk. The
value of fixed income or debt securities may be affected by changes in general
interest rates and in the creditworthiness of the issuer. Debt securities with
longer maturities (for example, over ten years) are more affected by changes in
interest rates and provide less price stability than securities with short-term
maturities (for example, one to ten years). Also, for each debt security, there
is a risk of principal and interest default which will be greater with
higher-yielding, lower-grade securities. International may hold up to 10% of its
total assets in long-term debt securities with an S&P or Moody's rating of AA/Aa
or above, or, if unrated, are considered by Aeltus to be of comparable quality.
Balanced generally maintains at least 25% of its total assets in debt
securities.

Repurchase Agreements

Each Fund or Portfolio may enter into repurchase agreements with domestic banks
and broker-dealers meeting certain size and creditworthiness standards approved
by the Board. Under a repurchase agreement, a Fund or Portfolio may acquire a
debt instrument for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase and the Fund or Portfolio
to resell the instrument at a fixed price and time, thereby determining the
yield during the Fund's or 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 Fund or 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 Fund or Portfolio.
In that event, the Fund or 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 Fund's or
Portfolio's ability to liquidate the collateral may be delayed or limited.
Repurchase agreements maturing in more than seven days will not exceed 10% of
the total assets of a Fund or Portfolio.

Variable Rate Demand Instruments

Each Fund or Portfolio, except International, may invest in variable rate demand
instruments. Variable rate demand instruments (including floating rate
instruments) held by a Fund or Portfolio may have maturities of more than one
year, provided: (i) the Fund or 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 Fund or 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 Fund or
Portfolio might be unable to dispose of the note and a loss would be incurred to
the extent of the default. A Fund or Portfolio may invest in variable rate
demand notes only when the investment is deemed to involve minimal credit risk.
The continuing

                                       18
<PAGE>

creditworthiness of issuers of variable rate demand notes held by a Fund or
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.

Foreign Securities

Each Fund or Portfolio may invest in foreign securities. Investments in
securities of foreign issuers involve certain risks not ordinarily associated
with investments in securities of domestic issuers. Such risks include
fluctuations in exchange rates, adverse foreign political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Because each Fund (other than Money Market)
or Portfolio may invest in securities denominated or quoted in currencies other
than the U.S. dollar, changes in foreign currency exchange rates will affect the
value of securities in the portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. In addition,
with respect to certain countries, there is the possibility of expropriation of
assets, confiscatory taxation, political or social instability, or diplomatic
developments that could adversely affect investments in those countries.

There may be less publicly available information about a foreign issuer than
about a U.S. company, and foreign issuers may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those of U.S. issuers. Foreign securities markets, while growing in
volume, have, for the most part, substantially less volume than U.S. markets.
Securities of many foreign issuers are less liquid and their prices more
volatile than securities of comparable U.S. issuers. Transactional costs in
non-U.S. securities markets are generally higher than in U.S. securities
markets. There is generally less government supervision and regulation of
exchanges, brokers, and issuers than there is in the U.S. The Funds might have
greater difficulty taking appropriate legal action with respect to foreign
investments in non-U.S. courts than with respect to domestic issuers in U.S.
courts. In addition, transactions in foreign securities may involve greater time
from the trade date until settlement than domestic securities transactions and
involve the risk of possible losses through the holding of securities by
custodians and securities depositories in foreign countries.

All these risks usually are higher in emerging markets, such as most countries
in Africa, Asia, Latin America and the Middle East, than in more established
markets, such as Western Europe.

Depositary receipts are typically dollar denominated, although their market
price is subject to fluctuations of the foreign currency in which the underlying
securities are denominated. Depositary receipts include: (a) American Depositary
Receipts (ADRs), which are typically designed for U.S. investors and held either
in physical form or in book entry form; (b) European Depositary Receipts (EDRs),
which are similar to ADRs but may be listed and traded on a European exchange as
well as in the U.S. (typically, these securities are traded on the Luxembourg
exchange in Europe); and (c) Global Depositary Receipts (GDRs), which are
similar to EDRs although they may be held through foreign clearing agents such
as Euroclear and other foreign depositories. Depositary receipts denominated in
U.S. dollars will not be considered foreign securities for purposes of the
investment limitation concerning investment in foreign securities.


                                       19
<PAGE>

High-Yield Bonds

Each Fund, except Money Market, or Portfolio, except International, may invest
in high-yield bonds, subject to the limits described above and in the
Prospectuses. High-yield bonds are fixed income securities that offer a current
yield above that generally available on debt securities rated in the four
highest categories by Moody's and S&P or other rating agencies, or, if unrated,
are considered to be of comparable quality by Aeltus. These securities include:

(a)  fixed rate corporate debt obligations (including bonds, debentures and
     notes) rated below Baa3 by Moody's or BBB- by S&P;

(b)  preferred stocks that have yields comparable to those of high-yielding debt
     securities; and

(c)  any securities convertible into any of the foregoing.

Debt obligations rated below Baa3/BBB- generally involve more risk of loss of
principal and income than higher-rated securities. Their yields and market
values tend to fluctuate more. Fluctuations in value do not affect the cash
income from the securities but are reflected in the net asset value of a Fund or
a Portfolio. The greater risks and fluctuations in yield and value occur, in
part, because investors generally perceive issuers of lower-rated and unrated
securities to be less creditworthy. Lower ratings, however, may not necessarily
indicate higher risks. In pursuing a Fund's or Portfolio's objectives, Aeltus
seeks to identify situations in which Aeltus believes that future developments
will enhance the creditworthiness and the ratings of the issuer.

Some of the risks associated with high-yield bonds include:

Sensitivity to Interest Rate and Economic Changes  High-yield bonds are more
sensitive to adverse economic changes or individual corporate developments but
generally less sensitive to interest rate changes than are investment grade
bonds. As a result, when interest rates rise, causing bond prices to fall, the
value of these securities may not fall as much as investment grade corporate
bonds. Conversely, when interest rates fall, these securities may underperform
investment grade corporate bonds.

Also, the financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability of
issuers of these securities to service their principal and interest payments, to
meet projected business goals and to obtain additional financing, than on more
creditworthy issuers. In addition, periods of economic uncertainty and changes
can be expected to result in increased volatility of market prices of these
securities and the net asset value of a Fund or Portfolio. Furthermore, in the
case of high-yield bonds structured as zero coupon or pay-in-kind securities,
their market prices are affected to a greater extent by interest rate changes
and thereby tend to be more speculative and volatile than securities which pay
interest periodically and in cash.

Payment Expectations  High-yield bonds present risks based on payment
expectations. For example, these securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Funds or Portfolios, may have to replace the securities with a lower
yielding security, resulting in a decreased return for investors. In addition,
there is a higher risk of non-payment of interest and/or principal by issuers of
these securities than in the case of investment-grade bonds.

Liquidity and Valuation Risks  Some issuers of high-yield bonds may be traded
among a limited number of broker-dealers rather than in a broad secondary
market. Many of these securities may not be as liquid as investment grade bonds.
The ability to value or sell these securities will be adversely affected to the
extent

                                       20
<PAGE>

that such securities are thinly traded or illiquid. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
or increase the value and liquidity of these securities more than other
securities, especially in a thinly-traded market.

Limitations of Credit Ratings  The credit ratings assigned to high-yield bonds
may not accurately reflect the true risks of an investment. Credit ratings
typically evaluate the safety of principal and interest payments rather than the
market value risk of such securities. In addition, credit agencies may fail to
adjust credit ratings to reflect rapid changes in economic or company conditions
that affect a security's market value. Although the ratings of recognized rating
services such as Moody's and S&P are considered, Aeltus primarily relies on its
own credit analysis which includes a study of existing debt, capital structure,
ability to service debts and to pay dividends, the issuer's sensitivity to
economic conditions, its operating history and the current trend of earnings.
Thus the achievement of a Fund's or Portfolio's investment objective may be more
dependent on Aeltus' own credit analysis than might be the case for a fund which
does not invest in these securities.

Convertibles

Each Fund or Portfolio may invest in convertible securities. A convertible bond
or convertible preferred stock gives the holder the option of converting these
securities into common stock. Some convertible securities contain a call feature
whereby the issuer may redeem the security at a stipulated price, thereby
limiting the possible appreciation.

                                       21
<PAGE>

Real Estate Securities

Each Fund, except Money Market and Bond, or Portfolio, except High Yield, may
invest in real estate securities, including interests in real estate investment
trusts (REITs), real estate development, real estate operating companies, and
companies engaged in other real estate related businesses. REITs are trusts that
sell securities to investors and use the proceeds to invest in real estate or
interests in real estate. A REIT may focus on a particular project, such as
apartment complexes, or geographic region, such as the Northeastern U.S., or
both.

Equity Securities of Smaller Companies

Each Fund, other than Money Market and Bond Fund, or Portfolio, other than High
Yield and Index Plus Bond, may invest in equity securities issued by U.S.
companies with smaller market capitalizations. These companies may be in an
early developmental stage or may be older companies entering a new stage of
growth due to management changes, new technology, products or markets. The
securities of small-capitalization companies may also be undervalued due to poor
economic conditions, market decline or actual or unanticipated unfavorable
developments affecting the companies. Securities of small-capitalization
companies tend to offer greater potential for growth than securities of larger,
more established issuers but there are additional risks associated with them.
These risks include: limited marketability; more abrupt or erratic market
movements than securities of larger capitalization companies; and less publicly
available information about the company and its securities. In addition, these
companies may be dependent on relatively few products or services, have limited
financial resources and lack of management depth, and may have less of a track
record or historical pattern of performance.

Supranational Agencies

Each Fund or Portfolio, except Real Estate, International, Small Company and
Growth, may invest up to 10% of its net assets in securities of supranational
agencies. These securities are not considered government securities and are not
supported directly or indirectly by the U.S. Government. Examples of
supranational agencies include, but are not limited to, the International Bank
for Reconstruction and Development (commonly referred to as the World Bank),
which was chartered to finance development projects in developing member
countries; the European Community, which is a twelve-nation organization engaged
in cooperative economic activities; the European Coal and Steel Community, which
is an economic union of various European nations' steel and coal industries; and
the Asian Development Bank, which is an international development bank
established to lend funds, promote investment and provide technical assistance
to member nations in the Asian and Pacific regions.

Borrowing

Each Fund or Portfolio may borrow up to 5% of the value of its total assets from
a bank for temporary or emergency purposes. The Funds or Portfolios do not
intend to borrow, except that they may invest in leveraged derivatives which
have certain risks as outlined above. Each Fund or Portfolio may borrow for
leveraging purposes only if after the borrowing, the value of the Fund's or
Portfolio's net assets including

                                       22
<PAGE>

proceeds from the borrowings, is equal to at least 300% of all outstanding
borrowings. Leveraging can increase the volatility of a Fund or Portfolio since
it exaggerates the effects of changes in the value of the securities purchased
with the borrowed funds.

Bank Obligations

Each Fund or Portfolio may invest in obligations issued by domestic or foreign
banks (including banker's acceptances, commercial paper, bank notes, time
deposits and certificates of deposit) provided the issuing bank has a minimum of
$5 billion in assets and a primary capital ratio of at least 4.25%.

Portfolio Turnover

The portfolio turnover rate for Index Plus Large Cap was significantly higher in
1998 than in 1997 because of increased volatility in the quantitative rankings
used in managing the Portfolio. The portfolio turnover rate for Growth and
Income was significantly higher in 1998 than in 1997 because of an unusual
amount of market volatility and extreme divergence between the returns of
different market segments. The portfolio turnover rates for International, Real
Estate, High Yield, Index Plus Bond, Index Plus Mid Cap and Index Plus Small Cap
were significantly higher in 1998 than in 1997 because those Portfolios had only
commenced operations in December 1997.

                              TRUSTEES AND OFFICERS

The investments and administration of each Fund are under the supervision of its
Board. The Trustees and executive officers of each Fund and their principal
occupations for the past five years are listed below. Those Trustees who are
"interested persons," as defined in the 1940 Act, are indicated by an asterisk
(*). Trustees and officers hold the same positions with other investment
companies in the same Fund Complex: Aetna GET Fund and Aetna Series Fund, Inc.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
                                                                  Principal Occupation During Past Five Years (and
                                                                     Positions held with Affiliated Persons or
             Name,                      Position(s) Held                Principal Underwriters of the Fund)
        Address and Age                  with each Fund
- -----------------------------------------------------------------------------------------------------------------------
<S>                               <C>                            <C>
J. Scott Fox*                     Trustee and President          Director, Managing Director, Chief Operating
10 State House Square                                            Officer, Chief Financial Officer, Aeltus
Hartford, Connecticut                                            Investment Management, Inc., October 1997 to
Age 44                                                           present; Director and Senior Vice President,
                                                                 Aetna Life Insurance and Annuity Company, March
                                                                 1997 to February 1998; Director, Managing
                                                                 Director, Chief Operating Officer, Chief Financial
                                                                 Officer and Treasurer, Aeltus, April 1994 to March
                                                                 1997.
- -----------------------------------------------------------------------------------------------------------------------

                                       23
<PAGE>

Wayne F. Baltzer                  Vice President                 Vice President, Aeltus Capital, Inc., May 1998 to
10 State House Square                                            present.
Hartford, Connecticut
Age 55
- -----------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr.           Trustee                        Professor, Middle Tennessee State University,
3029 St. Johns Drive                                             1991 to present.
Murfreesboro, Tennessee
Age 57
- -----------------------------------------------------------------------------------------------------------------------
Amy R. Doberman                   Secretary                      General Counsel, Aeltus Investment Management, Inc.,
10 State House Square                                            February 1999 to present; Counsel, Aetna Life
Hartford, Connecticut                                            Insurance and Annuity Company, December 1996
Age 36                                                           to present; Attorney, Securities and Exchange
                                                                 Commission, March 1990 to November 1996.
- -----------------------------------------------------------------------------------------------------------------------
Maria T. Fighetti                 Trustee                        Manager/Attorney, Health Services, New York City
325 Piermont Road                                                Department of Mental Health, Mental Retardation
Closter, New Jersey                                              and Alcohol Services, 1973 to present.
Age 55
- -----------------------------------------------------------------------------------------------------------------------
David L. Grove                    Trustee                        Private Investor; Economic/Financial Consultant,
5 The Knoll                                                      December 1985 to present.
Armonk, New York
Age 80
- -----------------------------------------------------------------------------------------------------------------------
John Y. Kim*                      Trustee                        Director, President, Chief Executive Officer,
10 State House Square                                            Chief Investment Officer, Aeltus Investment
Hartford, Connecticut                                            Management, Inc., December 1995 to present;
Age 38                                                           Director, Aetna Life Insurance and Annuity
                                                                 Company, February 1995 to present; Senior Vice
                                                                 President, Aetna Life Insurance and Annuity
                                                                 Company, September 1994 to present.
- -----------------------------------------------------------------------------------------------------------------------
Sidney Koch                       Trustee                        Financial Adviser, self-employed, January 1993 to
455 East 86th Street                                             present.
New York, New York
Age 63
- -----------------------------------------------------------------------------------------------------------------------

                                       24
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------
Frank Litwin                      Vice President                 Managing Director, Aeltus Investment Management,
10 State House Square                                            Inc., August 1997 to present; Managing Director,
Hartford, Connecticut                                            Aeltus Capital, Inc., May 1998 to present; Vice
Age 49                                                           President, Fidelity Investments Institutional
                                                                 Services Company, April 1992 to August 1997.
- -----------------------------------------------------------------------------------------------------------------------
Shaun P. Mathews*                 Trustee                        Vice President/Senior Vice President, Aetna Life
151 Farmington Avenue                                            Insurance and Annuity Company, March 1991 to present;
Hartford, Connecticut                                            Director, Aetna Investment Services, Inc., July 1993 to
Age 43                                                           present; Senior Vice President, Aetna Investment
                                                                 Services, Inc., July 1993 to February 1999.
- -----------------------------------------------------------------------------------------------------------------------
Corine T. Norgaard                Trustee                        Dean of the Barney School of Business, University
556 Wormwood Hill                                                of Hartford (West Hartford, CT), August 1996 to
Mansfield Center, Connecticut                                    present; Professor, Accounting and Dean of the
Age 61                                                           School of Management, SUNY Binghamton
                                                                 (Binghamton, NY), August 1993 to August 1996
- -----------------------------------------------------------------------------------------------------------------------
Richard G. Scheide                Trustee                        Trust and Private Banking Consultant, David Ross
11 Lily Street                                                   Palmer Consultants, July 1991 to present.
Nantucket, Massachusetts
Age 69
- -----------------------------------------------------------------------------------------------------------------------
Stephanie A. DeSisto              Vice President,                Vice President, Mutual Fund Accounting, Aeltus
10 State House Square             Treasurer and Chief            Investment Management, Inc., November 1995 to
Hartford, Connecticut             Financial Officer              present; Director, Mutual Fund Accounting, Aetna
Age 45                                                           Life Insurance and Annuity Company, August 1994
                                                                 to November 1995; Assistant Vice President,
                                                                 Investors Bank & Trust, January 1993 to August
                                                                 1994.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

During the period ended December 31, 1998, members of the Board who are also
directors, officers or employees of Aetna Inc. and its affiliates were not
entitled to any compensation from the Funds. As of December 31, 1998, the
unaffiliated members of the Board received compensation in the amounts included
in the following table. None of these Trustees was entitled to receive pension
or retirement benefits.

                                       25
<PAGE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
                       Aggregate     Aggregate       Aggregate      Aggregate      Aggregate       Aggregate           Total
   Name of Person    Compensation   Compensation   Compensation   Compensation    Compensation    Compensation     Compensation
      Position        from Aetna     from Aetna     from Money    from Balanced  from Bond Fund   from Growth     from the Funds
                       Variable      Generation       Market                                       and Income    and Fund Complex
                      Portfolios,   Portfolios,                                                                  Paid to Trustees
                         Inc.           Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>            <C>            <C>            <C>            <C>            <C>
Corine Norgaard
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney Koch
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Maria T. Fighetti*
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Richard G. Scheide
Trustee, Chairperson
Audit Committee
- -----------------------------------------------------------------------------------------------------------------------------------
David L. Grove*
Trustee, Chairperson
Contract Committee
- -----------------------------------------------------------------------------------------------------------------------------------
Albert E. DePrince, Jr.
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


*During the fiscal year ended December 31, 1998, Ms. Fighetti and Dr. Grove
 deferred $__________ and $___________, respectively, of their compensation from
 the Fund Complex pursuant to this arrangement.

                   CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

As of January 31, 1999, Aetna and its affiliates owned (___%) shares of AVPI,
(___%) shares of AGPI, (___%) shares of Money Market, (___%) shares of Balanced,
(___%) shares of Bond Fund and (___%) shares of Growth and Income which were
allocated to variable annuity and variable life insurance separate accounts to
fund obligations under VA Contracts and VLI Policies. Contract holders in these
separate accounts are provided the right to direct the voting of Fund shares at
shareholder meetings. Aetna and its affiliates vote the shares that they own in
these separate accounts in accordance with contract holders' directions.
Undirected shares of a Fund or Portfolio will be voted for each account in the
same proportion as directed shares.

As of December 31, 1998, officers and Trustees owned less than 1% of the
outstanding shares of any of the Funds or Portfolios.

Aetna (like Aeltus) is an indirect wholly-owned subsidiary of Aetna Retirement
Services, Inc., which is in turn an indirect wholly-owned subsidiary of Aetna
Inc. Aetna's principal office is located at 151 Farmington Avenue, Hartford,
Connecticut 06156. Aetna is registered with the Commission as an investment
adviser.

                         INVESTMENT ADVISORY AGREEMENTS

Each Fund, on its own behalf or on behalf of its Portfolios, entered into an
investment advisory agreement(s) (Advisory Agreements) appointing Aeltus as the
Investment Adviser of the Fund or its Portfolios. Under the Advisory Agreements
and subject to the supervision of the Trustees of each Fund, Aeltus has
responsibility for supervising all aspects of the operations of each Fund or
Portfolio including the selection, purchase and sale of securities. Under the
Advisory Agreements, Aeltus is given the right to delegate any or all of its
obligations to a subadviser. Aeltus is an indirect wholly-owned subsidiary of
Aetna Inc., a publicly-owned

                                       26
<PAGE>
holding company whose principal operating subsidiaries engage in the health
benefits, insurance and financial services businesses in the U.S. and
internationally.

The Advisory Agreements provide that Aeltus is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
officers or Trustees of the Fund and that each Fund or Portfolio is responsible
for payment of all other of its costs.

Listed below are the Advisory Fees that Aeltus is entitled to receive from each
Fund or Portfolio at an annual rate based on average daily net assets of each
Fund or Portfolio.

<TABLE>
<CAPTION>
                                                    Advisory Fee
                    <S>                                 <C>
                    Ascent                              0.60%
                    Balanced                            0.50%
                    Bond Fund                           0.40%
                    Crossroads                          0.60%
                    Growth                              0.60%
                    Growth and Income                   0.50%
                    High Yield                          0.65%
                    Index Plus Bond                     0.30%
                    Index Plus Large Cap                0.35%
                    Index Plus Mid Cap                  0.40%
                    Index Plus Small Cap                0.40%
                    International                       0.85%
                    Legacy                              0.60%
                    Money Market                        0.25%
                    Real Estate                         0.75%
                    Small Company                       0.75%
                    Value Opportunity                   0.60%
</TABLE>

For the years ended December 31, 1998, 1997 and 1996, investment advisory fees
were paid to Aetna (investment adviser prior to May 1, 1998) and Aeltus (for the
period May 1, 1998 to December 31, 1998) as follows:

Year Ended December 31, 1998
- ----------------------------

<TABLE>
<CAPTION>
                                Total Investment               Net Advisory
                                  Advisory Fees      Waiver      Fees Paid
                                  -------------      ------      ---------
  <S>                              <C>                 <C>        <C>
  Ascent
  Balanced
  Bond Fund
  Crossroads
  Growth
  Growth and Income
  High Yield
  Index Plus Bond
  Index Plus Large Cap

                                       27
<PAGE>

  Index Plus Mid Cap
  Index Plus Small Cap
  International
  Legacy
  Money Market
  Real Estate
  Small Company
  Value Opportunity
</TABLE>

Year Ended December 31, 1997
- ----------------------------

<TABLE>
<CAPTION>
                                Total Investment               Net Advisory
                                  Advisory Fees      Waiver      Fees Paid
                                  -------------      ------      ---------
  <S>                              <C>                 <C>        <C>
  Ascent
  Balanced
  Bond Fund
  Crossroads
  Growth
  Growth and Income
  High Yield*
  Index Plus Bond*
  Index Plus Large Cap
  Index Plus Mid Cap*
  Index Plus Small Cap*
  International*
  Legacy
  Money Market
  Real Estate*
  Small Company
  Value Opportunity
</TABLE>

Year Ended December 31, 1996
- ----------------------------

<TABLE>
<CAPTION>
                                Total Investment               Net Advisory
                                  Advisory Fees      Waiver      Fees Paid
                                  -------------      ------      ---------
  <S>                              <C>                 <C>        <C>
  Ascent
  Balanced
  Bond Fund
  Crossroads
  Growth**
  Growth and Income
  Index Plus Large Cap**
  Legacy
  Money Market

                                       28
<PAGE>

  Small Company**
  Value Opportunity**
</TABLE>

 *High Yield, Index Plus Bond, Index Plus Mid Cap, Index Plus Small Cap,
  International, and Real Estate commenced operations on December 10, 1997,
  December 18, 1997, December 16, 1997, December 19, 1997, December 22,
  1997, and December 15, 1997, respectively.

**Growth, Index Plus Large Cap, Small Company, and Value Opportunity
  commenced operations on December 13, 1996, September 16, 1996, December
  27, 1996, and December 13, 1996, respectively.

                            THE SUBADVISORY AGREEMENT

Aeltus and AVPI, on behalf of Value Opportunity, have entered into an agreement
(Subadvisory Agreement) with Bradley effective October 1, 1998 appointing
Bradley as subadviser of Value Opportunity. Bradley is managed by its six
principals, Robert H. Bradley, Peter B. Canoni, Timothy H. Foster, Jeffrey G.
Marsted, J. Edward Roney, Jr., and Joseph D. Sargent.

The Subadvisory Agreement gives Bradley broad latitude to select equity
securities for Value Opportunity consistent with the investment objective and
policies of the Portfolio, subject to Aeltus' oversight. The Agreement
contemplates that Bradley will be responsible only for making equity investment
decisions. Aeltus remains responsible for all other aspects of managing and
administering Value Opportunity, including trade execution and cash management.

For the services under the Subadvisory Agreement, Aeltus pays Bradley a
subadvisory fee, to be paid monthly at an annual rate of 0.15% of the
Portfolio's average daily net assets on the first $250 million of assets, and
0.10% of the Portfolio's average daily net assets above $250 million.

For the three month period ended December 31, 1998, Aeltus paid Bradley
subadvisory fees of __________.

Aeltus has also retained Bradley to provide certain shareholder communication
services and marketing assistance with respect to Value Opportunity, through
December 31, 1999. The fee for these services is $13,000 per month and is paid
out of Aeltus' revenues, not the assets of the Portfolio.

                       ADMINISTRATIVE SERVICES AGREEMENTS

Pursuant to an Administrative Services Agreement with respect to each Fund,
Aeltus acts as administrator and provides certain administrative and shareholder
services necessary for Fund operations and is responsible for the supervision of
other service providers. The services provided by Aeltus include: (1) internal
accounting services; (2) monitoring regulatory compliance, such as reports and
filings with the Commission and state securities commissions; (3) preparing
financial information for proxy statements; (4) preparing semiannual and annual
reports to shareholders; (5) calculating NAV; (6) the preparation of certain
shareholder communications; (7) supervision of the custodians and transfer
agent; and (8) reporting to the Trustees.

Listed below are the fees that Aeltus is entitled to receive from each Fund or
Portfolio at an annual rate based on average daily net assets of each Fund or
Portfolio:

                                       29
<PAGE>

<TABLE>
<CAPTION>
              Administrative Fee                 Fund Assets
              ------------------                 -----------
                    <S>                    <C>
                    0.075%                 On the first $5 billion
                    0.050%                 On all assets over $5 billion
</TABLE>

For the years ended December 31, 1998, 1997 and 1996, administrative services
fees were paid to Aetna (administrator prior to May 1, 1998) and Aeltus (for the
period May 1, 1998 to December 31, 1998) as follows:

<TABLE>
<CAPTION>
                          1998        1997        1996
<S>                       <C>         <C>         <C>
Ascent
Balanced
Bond Fund
Crossroads
Growth*
Growth and Income
High Yield**                                       N/A
Index Plus Bond**                                  N/A
Index Plus Large Cap*
Index Plus Mid Cap**                               N/A
Index Plus Small Cap**                             N/A
International**                                    N/A
Legacy
Money Market
Real Estate**                                      N/A
Small Company*
Value Opportunity*
</TABLE>

 *Growth, Index Plus Large Cap, Small Company, and Value Opportunity
  commenced operations on December 13, 1996, September 16, 1996, December 27,
  1996, and December 13, 1996, respectively.

**High Yield, Index Plus Bond, Index Plus Mid Cap, Index Plus Small Cap,
  International, and Real Estate commenced operations on December 10, 1997,
  December 18, 1997, December 16, 1997, December 19, 1997, December 22, 1997,
  and December 15, 1997, respectively.

                                    CUSTODIAN

Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania, 15258,
serves as custodian for the assets of all Funds and Portfolios, except
International. Brown Brothers Harriman & Company, 40 Water Street, Boston,
Massachusetts, 02109, serves as custodian for the assets of International.
Neither custodian participates in determining the investment policies of a Fund
or Portfolio nor in deciding which securities are purchased or sold by a Fund or
Portfolio. A Fund or Portfolio may, however, invest in obligations of the
custodian and may purchase or sell securities from or to the custodian.

                                       30
<PAGE>

For portfolio securities which are purchased and held outside the U.S., Mellon
Bank, N.A. and Brown Brothers Harriman & Company have entered into sub-custodian
agreements (which are designed to comply with Rule 17f-5 under the 1940 Act)
with certain foreign banks or clearing agencies.

                                 TRANSFER AGENT

First Data Investor Services Group, Inc. 4400 Computer Drive, Westborough,
Massachusetts 01581 serves as the transfer agent and dividend-paying agent to
the Funds and Portfolios.

                              INDEPENDENT AUDITORS

_______________________, CityPlace II, Hartford, Connecticut 06103 serves as
independent auditors to the Funds. ______________ provides audit services,
assistance and consultation in connection with the Commission filings.

                              PRINCIPAL UNDERWRITER

Shares of the Funds and Portfolios, are offered on a continuous basis. Aetna has
agreed to use its best efforts to distribute the shares as the principal
underwriter of each Fund pursuant to Underwriting Agreements between it and the
Fund.

                        PURCHASE AND REDEMPTION OF SHARES

Shares of a Fund or Portfolio are purchased and redeemed at the NAV next
determined after receipt of a purchase or redemption order in acceptable form as
described in each Fund's prospectus.

The value of shares redeemed may be more or less than the shareholder's costs,
depending upon the market value of the portfolio securities at the time of
redemption. Payment for shares redeemed will be made by a Fund or Portfolio
within seven days or the maximum period allowed by law, if shorter, after the
redemption request is received by the Fund or by Aetna.

                    BROKERAGE ALLOCATION AND TRADING POLICIES

Subject to the supervision of each Fund's Trustees, Aeltus has responsibility
for making investment decisions, for effecting the execution of trades and for
negotiating any brokerage commissions thereon. It is Aeltus' policy to obtain
the best quality of execution available, giving attention to net price
(including commissions where applicable), execution capability (including the
adequacy of a firm's capital position), research and other services related to
execution. The relative priority given to these factors will depend on all of
the circumstances regarding a specific trade. Aeltus may also consider the sale
of shares of registered investment companies advised by Aeltus as a factor in
the selection of brokerage firms to execute the Funds' portfolio transactions,
subject to Aeltus' duty to obtain best execution.

                                       31
<PAGE>

Aeltus receives a variety of brokerage and research services from brokerage
firms in return for the execution by such brokerage firms of trades on behalf of
the Funds or Portfolios. These brokerage and research services include, but are
not limited to, quantitative and qualitative research information and purchase
and sale recommendations regarding securities and industries, analyses and
reports covering a broad range of economic factors and trends, statistical data
relating to the strategy and performance of the Funds or Portfolios and other
investment companies, services related to the execution of trades on behalf of a
Fund or Portfolio and advice as to the valuation of securities, the providing of
equipment used to communicate research information and specialized consultations
with Fund personnel with respect to computerized systems and data furnished to
the Funds or Portfolios as a component of other research services. Aeltus
considers the quantity and quality of such brokerage and research services
provided by a brokerage firm along with the nature and difficulty of the
specific transaction in negotiating commissions for trades in a Fund's or
Portfolio's securities and may pay higher commission rates than the lowest
available when it is reasonable to do so in light of the value of the brokerage
and research services received generally or in connection with a particular
transaction. Aeltus' policy in selecting a broker to effect a particular
transaction is to seek to obtain "best execution," which means prompt and
efficient execution of the transaction at the best obtainable price with payment
of commissions which are reasonable in relation to the value of the services
provided by the broker, taking into consideration research and brokerage
services provided. When the trader believes that more than one broker can
provide best execution, preference may be given to brokers that provide
additional services to Aeltus.

Research services furnished by brokers through whom the Funds or Portfolios
effect securities transactions may be used by Aeltus in servicing all of its
accounts; not all such services will be used by Aeltus to benefit the Funds or
Portfolios.

Consistent with federal law, Aeltus may obtain such brokerage and research
services regardless of whether they are paid for (1) by means of commissions, or
(2) by means of separate, non-commission payments. Aeltus' judgment as to
whether and how it will obtain the specific brokerage and research services will
be based upon its analysis of the quality of such services and the cost
(depending upon the various methods of payment which may be offered by brokerage
firms) and will reflect Aeltus' opinion as to which services and which means of
payment are in the long-term best interests of the Funds or Portfolios.

The Funds and Portfolios have not effected, and have no present intention of
effecting, any brokerage transactions in portfolio securities with Aeltus or any
other affiliated person of the Company.

A Fund or Portfolio and another advisory client of Aeltus or Aeltus itself, may
desire to buy or sell the same security at or about the same time. In such a
case, the purchases or sales will normally be aggregated, and then allocated as
nearly as practicable on a pro rata basis in proportion to the amounts to be
purchased or sold by each. In some cases the smaller orders will be filled
first. In determining the amounts to be purchased and sold, the main factors to
be considered are the respective investment objectives of a Fund or Portfolio
and the other accounts, the relative size of portfolio holdings of the same or
comparable securities, availability of cash for investment, and the size of
their respective investment commitments. Prices are averaged for aggregated
trades.

                                       32
<PAGE>

Brokerage commissions were paid as follows:

<TABLE>
<CAPTION>
                          1998        1997       1996
<S>                       <C>         <C>        <C>
Ascent
Balanced
Bond Fund
Crossroads
Growth*
Growth and Income
High Yield**                                     N/A
Index Plus Bond**                                N/A
Index Plus Large Cap*
Index Plus Mid Cap**                             N/A
Index Plus Small Cap**                           N/A
International**                                  N/A
Legacy
Money Market
Real Estate**                                    N/A
Small Company*
Value Opportunity*
</TABLE>

 *Growth, Index Plus Large Cap, Small Company, and Value Opportunity commenced
  operations on December 13, 1996, September 16, 1996, December 27, 1996, and
  December 13, 1996, respectively.

**High Yield, Index Plus Bond, Index Plus Mid Cap, Index Plus Small Cap,
  International, and Real Estate commenced operations on December 10, 1997,
  December 18, 1997, December 16, 1997, December 19, 1997, December 22, 1997,
  and December 15, 1997, respectively.

For the fiscal year ended December 31, 1998, commissions in the amounts listed
below were paid with respect to portfolio transactions directed to certain
brokers because of research services:

<TABLE>
<CAPTION>
Company Name                       Commissions Paid on Total Transactions
- ------------                       --------------------------------------
<S>                                               <C>
Growth
International
Small Company
Value Opportunity*
Balanced
Growth and Income
Real Estate*
Bond Fund
High Yield*
Money Market
Index Plus Bond**
Index Plus Large Cap
Index Plus Mid Cap***
Index Plus Small Cap***
Ascent
Crossroads
Legacy
</TABLE>

                                       33
<PAGE>

  *Value Opportunity, Real Estate and High Yield commenced operations on
   February 2, 1998.
 **Index Plus Bond commenced operations on February 4, 1998.
***Index Plus  Mid Cap and Index Plus Small Cap commenced operations on
   February 3, 1998.

The Board has adopted a policy allowing trades to be made between affiliated
registered investment companies or series thereof provided they meet the terms
of Rule 17a-7 under the 1940 Act.

The Board has also adopted a Code of Ethics governing personal trading by
persons who manage, or who have access to trading activity by, a Fund or
Portfolio. The Code of Ethics allows trades to be made in securities that may be
held by a Fund or Portfolio. However, it prohibits a person from taking
advantage of Fund or Portfolio trades or from acting on inside information.
Aeltus also has adopted a Code of Ethics, which the Board reviews annually.

                                 NET ASSET VALUE

Securities of the Funds or Portfolios are generally valued by independent
pricing services which have been approved by the Board. 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 are valued at the mean of the last bid and asked price
if current market quotations are not readily available. Short-term debt
securities that have a maturity date of more than sixty days and long-term debt
securities are valued at the mean of the last bid and asked price of such
securities obtained from a broker that is a market-maker in the securities or a
service providing quotations based upon the assessment of market-makers in those
securities. Short-term debt securities maturing in sixty days or less at the
date of purchase, and all securities in Money Market, will be valued using the
"amortized cost" method of valuation. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization of premium or increase of
discount. Options are valued at the mean of the last bid and asked price on the
exchange where the option is primarily traded. Futures contracts are valued
daily at a settlement price based on rules of the exchange where the futures
contract is primarily traded. Securities for which market quotations are not
readily available are valued at their fair value in such manner as may be
determined, from time to time, in good faith, by or under the authority of, the
Board.

                                   TAX STATUS

The following is only a limited discussion of certain additional tax
considerations generally affecting each Fund or Portfolio. No attempt is made to
present a detailed explanation of the tax treatment of each Fund or Portfolio
and no explanation is provided with respect to the tax treatment of any Fund or
Portfolio shareholder. The discussions here and in the Prospectuses are not
intended as substitutes for careful tax planning. Holders of VA Contracts or VLI
Policies must consult the prospectuses of their respective contracts or policies
for information concerning the federal income tax consequences of owning such VA
Contracts or VLI Policies.

Qualification as a Regulated Investment Company

Each Fund or Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Code. If for any taxable year a Fund or Portfolio does
not qualify as a regulated investment company, all

                                       34
<PAGE>

of its taxable income (including its net capital gain) will be subject to tax at
regular corporate rates without any deduction for distributions to shareholders,
and such distributions will be taxable to the shareholders as ordinary dividends
to the extent of the Fund's or 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 fund's 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 may be 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, U.S. 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.

Foreign Investments

Investment income from foreign securities may be subject to foreign taxes
withheld at the source. It is impossible to determine the effective rate of
foreign tax in advance since the amount of a Fund's or Portfolio's assets to be
invested in various countries is not known.

Excise Tax on Regulated Investment Companies

A 4% non-deductible excise tax is imposed on the undistributed income of a
regulated investment company that fails to distribute in each calendar year an
amount equal to 98% of ordinary taxable income for the calendar year and 98% of
capital gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having a
taxable year ending November 30 or December 31, for its taxable year (taxable
year election)). Tax-exempt interest on municipal obligations is not subject to
the excise tax. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company is
treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year.

                                       35
<PAGE>

Each Fund or 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 Fund or Portfolio may in certain circumstances be
required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability.

                             PERFORMANCE INFORMATION

Performance information for each Fund or Portfolio including the yield and
effective yield of Money Market, the yield of Bond Fund, High Yield and Index
Plus Bond and the total return of all Funds or Portfolios, may appear in reports
or promotional literature to current or prospective shareholders.

Money Market Yields

Current yield for Money Market will be based on a recently ended seven-day
period, computed by determining the net change, exclusive of capital changes and
income other than investment income, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from that shareholder
account, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return. This base period
return is then multiplied by 365/7 with the resulting yield figure carried to at
least the nearest hundredth of one percent. Calculation of "effective yield"
begins with the same "base period return" used in the calculation of yield,
which is then annualized to reflect weekly compounding pursuant to the following
formula:


              Effective Yield = [(Base Period Return + 1)(365/7)] - 1

The yield and effective yield for Money Market for the seven days ended March
31, 1999 were ____% and ____%, respectively.

30-Day Yield for Certain Non-Money Market Funds or Portfolios

Quotations of yield for Bond Fund, High Yield and Index Plus Bond will be based
on all investment income per share earned during a particular 30-day period,
less expenses accrued during the period (net investment income), and will be
computed by dividing net investment income by the value of a share on the last
day of the period, according to the following formula:

                     YIELD = 2[(a - b + 1)(6) - 1]
                                -----
                                 cd
Where:

a = dividends and interest earned during the period

b = the expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during the period

d = the maximum offering price per share on the last day of the period

                                       36
<PAGE>

For the purpose of determining net investment income earned during the period
(variable "a" in the formula), interest earned on debt obligations held by the
Fund or Portfolio is calculated by computing the yield to maturity of each
obligation held by the Fund or Portfolio based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each month, or, with respect to obligations purchased
during the month, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual and accrued interest). For purposes of this
calculation, it is assumed that each month contains 30 days.

The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted from time to time to reflect
changes in the market value of such debt obligations.

Undeclared earned income will be subtracted from the net asset value per share
(variable "d" in the formula). Undeclared earned income is the net investment
income which, at the end of the base period, has not been declared as a
dividend, but is reasonably expected to be and is declared as a dividend shortly
thereafter.

For the 30-day period ended March 31, 1999:

    Name of Fund                        Yield
    ------------                        -----

Bond Fund
High Yield
Index Plus Bond


Dividend Yield

Bond Fund, High Yield, Money Market and Index Plus Bond may quote a "dividend
yield" for each class of its shares. Dividend yield is based on the dividends
paid on shares during the actual dividend period from net investment income
during a stated period.

To calculate dividend yield, the dividends declared during a stated 30-day
period are added together and the sum is multiplied by 12 (to annualize the
yield) and divided by the net asset value on the last day of the dividend
period. The formula is shown below:

     Dividend Yield = (Dividends paid x 12)/Net Asset Value

The dividend yields for the 30-day dividend period ended March 31, 1999 were
as follows:

Fund                     Yield
- ----                     -----
Money Market
Bond Fund
High Yield
Index Plus Bond


Average Annual Total Return

Quotations of average annual total return for any Fund or Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Fund or Portfolio over a period of one, five and
ten years (or, if less, up to the life of the Fund or Portfolio), calculated
pursuant to the formula:

                           P(1 + T)(n)= ERV

Where:
P  =  a hypothetical initial payment of $1,000

T  =  an average annual total return

n  =  the number of years

ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
      beginning of the 1, 5, or 10 year period at the end of the 1, 5, or 10
      year period (or fractional portion thereof).

                                       37
<PAGE>

Total Return Quotations as of March 31, 1999

<TABLE>
<CAPTION>
   Fund Name              1 Year      5 Years    10 Years    Since Inception   Inception Date*
<S>                         <C>        <C>         <C>            <C>             <C>
Ascent                         %        N/A         N/A             %              7/5/95
Balanced                       %         %           %             N/A               N/A
Bond Fund                      %         %           %             N/A               N/A
Crossroads                     %        N/A         N/A             %               7/5/95
Growth                         %        N/A         N/A             %              12/13/96
Growth and Income              %         %           %             N/A               N/A
High Yield                     %        N/A         N/A             %              12/10/97
Index Plus Bond                %        N/A         N/A             %              12/18/97
Index Plus Large Cap           %        N/A         N/A             %              9/16/96
Index Plus Mid Cap             %        N/A         N/A             %              12/16/97
Index Plus Small Cap           %        N/A         N/A             %              12/19/97
International                  %         %          N/A             %              12/22/97
Legacy                         %        N/A         N/A             %               7/5/95
Money Market                   %         %           %             N/A               N/A
Real Estate                    %        N/A         N/A             %              12/15/97
Small Company                  %        N/A         N/A             %              12/27/96
Value Opportunity              %        N/A         N/A             %              12/13/96
</TABLE>

Performance information for a Fund or Portfolio may be compared, in reports and
promotional literature, to: (a) the Standard & Poor's 500 Stock Index, the
Russell 2000 Index, the Russell 3000 Index, Lehman Brothers Aggregate Bond
Index, Lehman Brothers Intermediate Government Bond Index, Merrill Lynch High
Yield Index, Salomon Brothers Broad Investment Grade Bond Index, Dow Jones
Industrial Average, or other indices (including, where appropriate, a blending
of indices) that measure performance of a pertinent group of securities widely
regarded by investors as representative of the securities markets in general;
(b) other groups of investment companies tracked by Morningstar or Lipper
Analytical Services, widely used independent research firms that rank mutual
funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria; and (c) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in a Fund or Portfolio.

                              FINANCIAL STATEMENTS

The Financial Statements and the independent auditors' reports thereon shall be
incorporated by reference in this Statement by amendment. The Funds' Annual
Reports are available upon request and without charge by calling (800) 367-7732.



                                             Statement of Additional Information


                                       38
<PAGE>


                                     PART C

                                OTHER INFORMATION

Item 23. Exhibits

         (a.1)    Articles of Incorporation (June 4, 1996)(1)
         (a.2)    Articles of Amendment (October 15, 1996)(2)
         (a.3)    Articles Supplementary (October 29, 1997)(3)
         (a.4)    Articles of Amendment (May 1, 1998)(4)
         (b)      Amended Bylaws(2)
         (c)      Instruments Defining Rights of Holders (set forth in the
                  Articles of Incorporation which are incorporated by
                  reference)(1)
         (d.1)    Investment Advisory Agreement between Aeltus
                  Investment Management, Inc. ("Aeltus") and Aetna
                  Variable Portfolios, Inc., on behalf of Aetna Value
                  Opportunity VP, Aetna Growth VP, Aetna Small Company
                  VP, Aetna Index Plus Large Cap VP, Aetna High Yield
                  VP, Aetna Index Plus Bond VP, Aetna Index Plus Mid
                  Cap VP, Aetna Index Plus Small Cap VP, Aetna
                  International VP and Aetna Real Estate Securities VP
         (d.2)    Subadvisory Agreement between Bradley, Foster &
                  Sargent, Inc. and Aetna Variable Portfolios, Inc., on
                  behalf of Aetna Value Opportunity VP(5)
         (e)      Underwriting Agreement between Aetna Variable
                  Portfolios, Inc. and Aetna Life Insurance and Annuity
                  Company(2)
         (f)      Directors' Deferred Compensation Plan(3)
         (g.1)    Custodian Agreement between Aetna Variable Portfolios,
                  Inc. and Mellon Bank, N.A. for Aetna Value Opportunity
                  VP, Aetna Growth VP, Aetna Index Plus Large Cap VP and
                  Aetna Small Company VP(2)
         (g.2)    Amendment to Custodian Agreement between Aetna
                  Variable Portfolios, Inc. and Mellon Bank, N.A. for
                  Aetna Index Plus Bond VP, Aetna Index Plus Mid Cap VP,
                  Aetna Index Plus Small Cap VP, Aetna High Yield VP and
                  Aetna Real Estate Securities VP(3)
         (g.3)    Custodian Agreement between Aetna Variable Portfolios,
                  Inc. and Brown Brothers Harriman & Co. for Aetna
                  International VP(4)
         (h.1)    Administrative Services Agreement between Aeltus and
                  Aetna Variable Portfolios, Inc., on behalf of Aetna
                  Value Opportunity VP, Aetna Growth VP, Aetna Small
                  Company VP, Aetna Index Plus Large Cap VP, Aetna
                  High Yield VP, Aetna Index Plus Bond VP, Aetna Index
                  Plus Mid Cap VP, Aetna Index Plus Small Cap VP,
                  Aetna International VP and Aetna Real Estate
                  Securities VP
         (h.2)    License Agreement(2)
         (i)      Opinion and Consent of Counsel
         (j)      Consent of Independent Auditors*
         (k)      Not applicable
         (l.1)    Agreement re:  Initial Contribution to Working Capital
                  for Aetna Value Opportunity VP, Aetna Growth VP, Aetna
                  Index Plus Large Cap VP and Aetna Small Company VP(2)

<PAGE>

         (l.2)    Agreement re:  Initial Contribution to Working Capital
                  for Aetna Index Plus Bond VP, Index Plus Mid Cap VP,
                  Index Plus Small Cap VP, Aetna High Yield VP, Aetna
                  Real Estate Securities VP and Aetna International VP(6)
         (m)      Not applicable
         (n)      Financial Data Schedule*
         (o)      Not applicable
         (p.1)    Power of Attorney (November 6, 1998)(7)
         (p.2)    Authorization for Signatures(6)

*To be filed
1.   Incorporated by reference to the Registration Statement on Form N-1A (File
     No. 333-05173), as filed electronically with the Securities and Exchange
     Commission on June 4, 1996.
2.   Incorporated by reference to Post-Effective Amendment No. 1 to
     Registration Statement on Form N-1A (File No. 333-05173), as filed
     electronically on March 7, 1997.
3.   Incorporated by reference to Post-Effective Amendment No. 3 to
     Registration Statement on Form N-1A (File No. 333-05173), as
     filed electronically on February 26, 1998.
4.   Incorporated by reference to Post-Effective Amendment No. 4 to
     Registration Statement on Form N-1A (File No. 333-05173), as filed
     electronically on April 27, 1998.
5.   Incorporated by reference to Post-Effective Amendment No. 6 to
     Registration Statement on Form N-1A (File No. 333-05173), as filed
     electronically on September 30, 1998.
6.   Incorporated by reference to Post-Effective Amendment No. 2 to
     Registration Statement on Form N-1A (File No. 333-05173), as filed
     electronically on September 26, 1997.
7.   Incorporated by reference to Post-Effective Amendment No. 29 to
     Registration Statement on Form N-1A (File No. 33-41694), as filed
     electronically on December 17, 1998.

<PAGE>

Item 24.      Persons Controlled by or Under Common Control

       Registrant is a Maryland corporation for which separate financial
       statements are filed. As of January 31, 1999, Aetna Life Insurance and
       Annuity Company (Aetna), and its affiliates, had the following interest
       in the portfolios of the Registrant, through direct ownership or through
       one of Aetna's separate accounts:

                                                              % Aetna

                Aetna Value Opportunity VP                       100%
                Aetna Growth VP                                  100%
                Aetna Index Plus Large Cap VP                    100%
                Aetna Small Company VP                           100%
                Aetna Index Plus Bond VP                         100%
                Aetna Index Plus Mid Cap VP                      100%
                Aetna Index Plus Small Cap VP                    100%
                Aetna International VP                           100%
                Aetna High Yield VP                              100%
                Aetna Real Estate Securities VP                  100%

       Aetna and Aetna Life Insurance Company are indirect wholly-owned
       subsidiaries of Aetna Inc.

       A list of all persons directly or indirectly under common control with
       the Registrant and a list which indicates the principal business of each
       such company referenced in the diagram are incorporated herein by
       reference to Item 26 of Post-Effective Amendment No. 2 to the
       Registration Statement on Form N-4 (File No. 333-56297), as filed
       electronically with the Securities and Exchange Commission on December
       14, 1998.

Item 25. Indemnification

       Article 10, Section (iv) of the Registrant's Articles of Incorporation,
       which are incorporated by reference to Exhibit (a.1) to the Registrant's
       Registration Statement on Form N-1A (File No. 333-05173), as filed
       electronically on June 4, 1996, provides for indemnification of directors
       and officers. In addition, the Registrant's officers and directors are
       covered under a directors and officers errors and omissions liability
       insurance policy issued by Gulf Insurance Company which expires October
       1, 1999.

       Section XI.B of the Administrative Services Agreement, filed herein as
       Exhibit (h.1) to Registrant's Registration Statement on Form N-1A (File
       No. 333-05173), provides for indemnification of the Administrator.

       Reference is also made to Section 2-418 of the Corporations and
       Associations Article of the Annotated Code of Maryland which provides
       generally that (1) a corporation may (but is not required to) indemnify
       its directors for judgments, fines and expenses in proceedings in which
       the director is named a party solely by reason of being a director,
       provided the director has not acted in

<PAGE>

       bad faith, dishonestly or unlawfully, and provided further that the
       director has not received any "improper personal benefit"; and (2) that a
       corporation must (unless otherwise provided in the corporation's charter
       or articles of incorporation) indemnify a director who is successful on
       the merits in defending a suit against him by reason of being a director
       for "reasonable expenses." The statutory provisions are not exclusive;
       i.e., a corporation may provide greater indemnification rights than those
       provided by statute.

Item 26.  Business and Other Connections of Investment Adviser

       The investment adviser, Aeltus Investment Management, Inc. ("Aeltus"), is
       registered as an investment adviser with the Securities and Exchange
       Commission. In addition to serving as investment adviser and
       administrator for the Registrant, Aeltus acts as investment adviser and
       administrator for Aetna Variable Fund, Aetna Income Shares, Aetna
       Variable Encore Fund, Aetna Balanced VP, Inc., Aetna GET Fund, Aetna
       Generation Portfolios, Inc., and Aetna Series Fund, Inc. (all management
       investment companies registered under the Investment Company Act of 1940
       (1940 Act)). It also acts as investment adviser to certain private
       accounts.

       The following table summarizes the business connections of the directors
       and principal officers of the investment adviser.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Name                           Positions and Offices            Other Principal Position(s) Held
                               with Investment Adviser          Since Oct. 31, 1996/Addresses*
- -------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                              <C>
John Y. Kim                    Director, President, Chief       Director (since February 1995) -- Aetna Life Insurance
                               Executive Officer, Chief         and Annuity Company; Senior Vice President (since
                               Investment Officer               September 1994) -- Aetna Life Insurance and Annuity
                                                                Company.

J. Scott Fox                   Director, Managing Director,     Vice President (since April 1997) -- Aetna Retirement
                               Chief Operating Officer, Chief   Services, Inc.; Director and Senior Vice President
                               Financial Officer                (March 1997 - February 1998) -- Aetna Life Insurance
                                                                and Annuity Company; Managing Director, Chief Operating
                                                                Officer, Chief Financial Officer, Treasurer (April 1994 -
                                                                March 1997) -- Aeltus Investment Management, Inc.

<PAGE>

Thomas J. McInerney            Director                         President (since August 1997) -- Aetna Retirement
                                                                Services, Inc.; Director and President (since September
                                                                1997) -- Aetna Life Insurance and Annuity Company;
                                                                Executive Vice President (since August 1997) -- Aetna
                                                                Inc.; Vice President, Strategy (March 1997 - August
                                                                1997) -- Aetna Inc.; Vice President, Marketing and
                                                                Sales (December 1996 - March 1997) -- Aetna U.S.
                                                                Healthcare; Vice President, National Accounts (April
                                                                1996 - December 1996) -- Aetna U.S. Healthcare.

Catherine H. Smith             Director                         Chief Financial Officer (since February 1998) -- Aetna
                                                                Retirement Services, Inc.; Director, Senior Vice
                                                                President and Chief Financial Officer (since February
                                                                1998) -- Aetna Life Insurance and Annuity Company; Vice
                                                                President, Strategy, Finance and Administration,
                                                                Financial Relations (September 1996 - February 1998) --
                                                                Aetna Inc.

Lennart A. Carlson             Managing Director, Fixed         Managing Director (since January 1996) -- Aeltus Trust
                               Income Investments               Company.

Steven C. Huber                Managing Director, Fixed         Managing Director (since August 1996) -- Aeltus Trust
                               Income Investments               Company.

Brian K. Kawakami              Vice President, Chief            Chief Compliance Officer & Director (since January
                               Compliance Officer               1996) -- Aeltus Trust Company; Chief Compliance Officer
                                                                (since August 1993) -- Aeltus Capital, Inc.

Neil Kochen                    Managing Director, Product       Managing Director (since April 1996) -- Aeltus Trust
                               Development                      Company; Managing Director (since August 1996) --
                                                                Aeltus Capital, Inc.

Frank Litwin                   Managing Director, Retail        Vice President, Strategic Marketing (April, 1992 -
                               Marketing and Sales              August, 1997) -- Fidelity Investments Institutional
                                                                Services Company.

Kevin M. Means                 Managing Director, Equity        Managing Director (since August 1996) -- Aeltus Trust
                               Investments                      Company.

<PAGE>

L. Charles Meythaler           Managing Director,               Director (since July 1997) -- Aeltus Trust Company;
                               Institutional Marketing          Managing Director (since June 1997) -- Aeltus Trust
                               and Sales                        Company; President (June 1993 - April 1997) -- New
                                                                England Investment Association.

Jeanne Wong-Boehm              Managing Director, Fixed         Managing Director (since August 1996) -- Aeltus Trust
                               Income Investments               Company.
</TABLE>

* Except with respect to Mr. McInerney and Ms. Smith, the principal business
  address of each person named is 10 State House Square, Hartford, Connecticut
  06103-3602. The address of Mr. McInerney and Ms. Smith is 151 Farmington
  Avenue, Hartford, Connecticut 06156.

For information regarding Bradley, Foster & Sargent, Inc. (Bradley), the
subadviser for Aetna Value Opportunity VP, reference is made to the section
entitled "Subadviser" in the Prospectus dated May 1, 1999 and the Statement of
Additional Information dated May 1, 1999. For information as to the business,
profession, vocation or employment of a substantial nature of each of the
officers of Bradley, reference is made to Bradley's current Form ADV (File No.
801-46616) filed under the Investment Advisers Act of 1940, incorporated herein
by reference.

Item 27. Principal Underwriters

     (a) In addition to serving as the principal underwriter for the Registrant,
         Aetna also acts as the principal underwriter for Aetna Variable Fund,
         Aetna Income Shares, Aetna Variable Encore Fund, Aetna Balanced VP,
         Inc., Aetna GET Fund and Aetna Generation Portfolios, Inc. and as
         investment adviser, principal underwriter and administrator for
         Portfolio Partners, Inc. (all management investment companies
         registered under the 1940 Act). Additionally, Aetna acts as the
         principal underwriter and depositor for Variable Annuity Account B of
         Aetna, Variable Annuity Account C of Aetna, Variable Annuity Account G
         of Aetna, and Variable Life Account B of Aetna (separate accounts of
         Aetna registered as unit investment trusts under the 1940 Act). Aetna
         is also the principal underwriter for Variable Annuity Account I of
         Aetna Insurance Company of America ("AICA") (a separate account of AICA
         registered as a unit investment trust under the 1940 Act).

     (b) The following are the directors and principal officers of the
         Underwriter:

<TABLE>
<CAPTION>
         Name and Principal                    Positions and Offices with Principal          Positions and Offices
         Business Address*                                 Underwriter                           with Registrant
         ------------------                    ------------------------------------          ---------------------
         <S>                                   <C>                                           <C>
         Thomas J. McInerney                   Director and President                        None
         Shaun P. Mathews                      Director and Senior Vice President            Director

<PAGE>

         Catherine H. Smith                    Director, Senior Vice President and Chief     None
                                               Financial Officer
         Robert D. Friedhoff                   Senior Vice President                         None
         Steven A. Haxton                      Senior Vice President                         None
         John Y. Kim                           Senior Vice President                         Director
         Deborah Koltenuk                      Vice President, Treasurer and Corporate       None
                                               Controller
         Therese Squillacote                   Vice President and Chief Compliance Officer   None
         Kirk P. Wickman                       Vice President, General Counsel and           None
                                               Corporate Secretary
</TABLE>

* Except with respect to Mr. Kim, the principal business address of all
  directors and officers listed is 151 Farmington Avenue, Hartford, Connecticut
  06156. Mr. Kim's address is 10 State House Square, Hartford, Connecticut
  06103-3602.

     (c) Not applicable

Item 28.     Location of Accounts and Records

       As required by Section 31(a) of the 1940 Act and the rules thereunder,
       the Registrant and its investment adviser, Aeltus, maintain physical
       possession of each account, book or other document, at 151 Farmington
       Avenue, Hartford, Connecticut 06156 and 10 State House Square, Hartford,
       Connecticut 06103-3602, respectively.

Item 29.     Management Services

       Not applicable.

Item 30.     Undertakings

       Insofar as indemnification for liability arising under the Securities Act
       of 1933 (1933 Act) may be permitted to directors, officers and
       controlling persons of the Registrant pursuant to the foregoing
       provisions, or otherwise, the Registrant has been advised that in the
       opinion of the Securities and Exchange Commission such indemnification is
       against public policy as expressed in the 1933 Act and is, therefore,
       unenforceable. In the event that a claim for indemnification against such
       liabilities (other than the payment by the Registrant of expenses
       incurred or paid by a director, officer or controlling person of the
       Registrant in the successful defense of any action, suit or proceeding)
       is asserted by such director, officer or controlling person in connection
       with the securities being registered, the Registrant will, unless in the
       opinion of its counsel the matter has been settled by controlling
       precedent, submit to a court of

<PAGE>

       appropriate jurisdiction the question of whether such indemnification by
       it is against public policy as expressed in the 1933 Act and will be
       governed by the final adjudication of such issue.
<PAGE>

                               SIGNATURES

Pursuant to the requirements of the Securities Act and the Investment Company
Act , Aetna Variable Portfolios, Inc. has duly caused this registration
statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Hartford and State of Connecticut on the 10th day of February, 1999.


                                           AETNA VARIABLE PORTFOLIOS, INC.
                                           ---------------------------------
                                           Registrant


                                           By:     J. Scott Fox*
                                           ---------------------------------
                                                   J. Scott Fox
                                                   President


Pursuant to the requirements of the Securities Act, this registration statement
has been signed below by the following persons in the capacities and on the
date(s) indicated.

<TABLE>
<CAPTION>
Signature                               Title                                                                    Date
- ---------                               -----                                                                    ----
<S>                                     <C>                                                           <C>

J. Scott Fox*                           President and Director
- -------------------------------------   (Principal Executive Officer)
J. Scott Fox                                                                                          )



Albert E. DePrince, Jr.*                Director                                                      )
- -------------------------------------
Albert E. DePrince, Jr.                                                                               )
                                                                                                      )


Maria T. Fighetti*                      Director                                                      )   February
- -------------------------------------
Maria T. Fighetti                                                                                     )   10, 1999
                                                                                                      )


David L. Grove*                         Director                                                      )
- -------------------------------------
David L. Grove                                                                                        )
                                                                                                      )


John Y. Kim*                            Director                                                      )
- -------------------------------------
John Y. Kim                                                                                           )
                                                                                                      )


Sidney Koch*                            Director                                                      )
- -------------------------------------
Sidney Koch                                                                                           )
                                                                                                      )


Shaun P. Mathews*                       Director                                                      )
- -------------------------------------
Shaun P. Mathews                                                                                      )
                                                                                                      )

<PAGE>

Corine T. Norgaard*                     Director                                                      )
- -------------------------------------
Corine T. Norgaard                                                                                    )


                                                                                                      )
Richard G. Scheide*                     Director                                                      )
- -------------------------------------
Richard G. Scheide                                                                                    )
                                                                                                      )


Stephanie A. DeSisto*                   Treasurer and Chief Financial Officer                         )
- -------------------------------------   (Principal Financial and Accounting Officer)                  )
Stephanie A. DeSisto
</TABLE>


By: /s/ Amy R. Doberman
    -------------------------------------
    *Amy R. Doberman
     Attorney-in-Fact

*Executed pursuant to Power of Attorney dated November 6, 1998 and filed with
 the Securities and Exchange Commission on December 17, 1998.


<PAGE>



                         Aetna Variable Portfolios, Inc.
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.       Exhibit                                                                                 Page

<S>               <C>                                                                                 <C>
99-(d.1)          Investment Advisory Agreement between Aeltus Investment Management, Inc.
                  ("Aeltus") and Aetna Variable Portfolios, Inc., on behalf of Aetna Value
                  Opportunity VP, Aetna Growth VP, Aetna Small Company VP, Aetna Index Plus
                  Large Cap VP, Aetna High Yield VP, Aetna Index Plus Bond VP, Aetna Index
                  Plus Mid Cap VP, Aetna Index Plus Small Cap VP, Aetna International VP,
                  and Aetna Real Estate Securities VP
                                                                                                      -------------

99-(h.1)          Administrative Services Agreement between Aeltus and Aetna
                  Variable Portfolios, Inc., on behalf of Aetna Value
                  Opportunity VP, Aetna Growth VP, Aetna Small Company VP,
                  Aetna Index Plus Large Cap VP, Aetna High Yield VP, Aetna
                  Index Plus Bond VP, Aetna Index Plus Mid Cap VP, Aetna
                  Index Plus Small Cap VP, Aetna International VP, and Aetna
                  Real Estate Securities VP
                                                                                                      -------------

99-(i)            Opinion and Consent of Counsel
                                                                                                      -------------
</TABLE>

                          INVESTMENT ADVISORY AGREEMENT


THIS AGREEMENT is made by and between AELTUS INVESTMENT MANAGEMENT, INC., a
Connecticut corporation (the "Adviser") and AETNA VARIABLE PORTFOLIOS, INC., a
Maryland corporation (the "Fund"), on behalf of its portfolio, Aetna Value
Opportunity VP (the "Portfolio"), with respect to the following recital of
facts:

                                  R E C I T A L
                                  - - - - - - -

WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940 (the "1940 Act"); and

WHEREAS, the Fund has established the Portfolio; and

WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940 (the "Advisers Act"), and is in the
business of acting as an investment adviser; and

WHEREAS, the Fund, on behalf of the Portfolio, and the Adviser desire to enter
into an agreement to provide for investment advisory and management services for
the Portfolio on the terms and conditions hereinafter set forth;

NOW THEREFORE, the parties agree as follows:


I.     APPOINTMENT AND OBLIGATIONS OF THE ADVISER

Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Directors (the "Board"), the Fund, on behalf of
the Portfolio, hereby appoints the Adviser to serve as the investment adviser to
the Portfolio, to provide the investment advisory services set forth below in
Section II. The Adviser agrees that, except as required to carry out its duties
under this Agreement or otherwise expressly authorized, it is acting as an
independent contractor and not as an agent of the Portfolio and has no authority
to act for or represent the Portfolio in any way.


II.    DUTIES OF THE ADVISER

In carrying out the terms of this Agreement, the Adviser shall do the following:

       1.     supervise all aspects of the operations of the Portfolio;

<PAGE>

       2.     select the securities to be purchased, sold or exchanged by the
              Portfolio or otherwise represented in the Portfolio's investment
              portfolio, place trades for all such securities and regularly
              report thereon to the Board;

       3.     formulate and implement continuing programs for the purchase and
              sale of securities and regularly report thereon to the Board;

       4.     obtain and evaluate pertinent information about significant
              developments and economic, statistical and financial data,
              domestic, foreign or otherwise, whether affecting the economy
              generally, the Portfolio, securities held by or under
              consideration for the Portfolio, or the issuers of those
              securities;

       5.     provide economic research and securities analyses as the Adviser
              considers necessary or advisable in connection with the Adviser's
              performance of its duties hereunder;

       6.     obtain the services of, contract with, and provide instructions to
              custodians and/or subcustodians of the Portfolio's securities,
              transfer agents, dividend paying agents, pricing services and
              other service providers as are necessary to carry out the terms of
              this Agreement; and

       7.     take any other actions which appear to the Adviser and the Board
              necessary to carry into effect the purposes of this Agreement.


III.   REPRESENTATIONS AND WARRANTIES

       A.     Representations and Warranties of the Adviser

       Adviser hereby represents and warrants to the Fund as follows:

              1.    Due Incorporation and Organization. The Adviser is duly
                    organized and is in good standing under the laws of the
                    State of Connecticut and is fully authorized to enter into
                    this Agreement and carry out its duties and obligations
                    hereunder.

              2.    Registration. The Adviser is registered as an investment
                    adviser with the Commission under the Advisers Act. The
                    Adviser shall maintain such registration in effect at all
                    times during the term of this Agreement.

              3.    Best Efforts. The Adviser at all times shall provide its
                    best judgment and effort to the Portfolio in carrying out
                    its obligations hereunder.

<PAGE>

       B.     Representations and Warranties of the Portfolio and the Fund

       The Fund, on behalf of the Portfolio, hereby represents and warrants to
the Adviser as follows:

              1.    Due Incorporation and Organization. The Fund has been duly
                    incorporated under the laws of the State of Maryland and it
                    is authorized to enter into this Agreement and carry out its
                    obligations hereunder.

              2.    Registration. The Fund is registered as an investment
                    company with the Commission under the 1940 Act and shares of
                    the Portfolio are registered or qualified for offer and sale
                    to the public under the Securities Act of 1933 and all
                    applicable state securities laws. Such registrations or
                    qualifications will be kept in effect during the term of
                    this Agreement.


IV.    DELEGATION OF RESPONSIBILITIES

Subject to the approval of the Board and the shareholders of the Portfolio, the
Adviser may enter into a Subadvisory Agreement to engage a subadviser to the
Adviser with respect to the Portfolio.


V.     BROKER-DEALER RELATIONSHIPS

       A.     Portfolio Trades

       The Adviser shall place all orders for the purchase and sale of portfolio
       securities for the Portfolio 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 Portfolio
       and at commission rates that are reasonable in relation to the benefits
       received.

       B.Selection of Broker-Dealers

       In selecting broker-dealers qualified to execute a particular
       transaction, brokers or dealers may be selected who also provide
       brokerage or research services (as those terms are defined in Section
       28(e) of the Securities Exchange Act of 1934) to the Adviser and/or the
       other accounts over which the Adviser or its affiliates exercise
       investment discretion. The Adviser may also select brokers or dealers to
       effect transactions for the Portfolio that provide payment for expenses
       of the Portfolio. The Adviser is authorized to pay a broker or dealer who
       provides such brokerage or research services or expenses, and that has
       provided assistance in the distribution of shares of the Portfolio to the
       extent permitted by law, a commission for executing a portfolio
       transaction for the Portfolio 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


<PAGE>

       reasonable in relation to the value of the brokerage or research services
       provided by such broker or dealer and is paid in compliance with Section
       28(e). This determination may be viewed in terms of either that
       particular transaction or the overall responsibilities that the Adviser
       and its affiliates have with respect to accounts over which they exercise
       investment discretion. The Board shall periodically review the
       commissions paid by the Portfolio to determine if the commissions paid
       over representative periods of time were reasonable in relation to the
       benefits received.


VI.    CONTROL BY THE BOARD

Any investment program undertaken by the Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Adviser on behalf of the
Portfolio pursuant thereto, shall at all times be subject to any directives of
the Board.


VII.   COMPLIANCE WITH APPLICABLE REQUIREMENTS

In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:

       1. all applicable provisions of the 1940 Act;

       2. the provisions of the current Registration Statement of the Fund;

       3. the provisions of the Fund's Articles of Incorporation, as amended;

       4. the provisions of the Bylaws of the Fund, as amended; and

       5. any other applicable provisions of state and federal law.


VIII.  COMPENSATION

For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund, on behalf of the Portfolio, shall pay to the
Adviser an annual fee, payable monthly, equal to .60% of the average daily net
assets of the Portfolio. Except as hereinafter set forth, compensation under
this Agreement shall be calculated and accrued daily at the rate of 1/365 of
 .60% of the daily net assets of the Portfolio. If this Agreement becomes
effective subsequent to the first day of a month or terminates before the last
day of a month, compensation for that part of the month this Agreement is in
effect shall be prorated in a manner consistent with the calculation of the fees
set forth above. Subject to the provisions of Section X hereof, payment of the
Adviser's compensation for the preceding month shall be made as promptly as
possible.

<PAGE>

IX.    EXPENSES

The expenses in connection with the management of the Portfolio shall be
allocated between the Portfolio and the Adviser as follows:

       A.Expenses of the Adviser

       The Adviser shall pay:

              1.    the salaries, employment benefits and other related costs
                    and expenses of those of its personnel engaged in providing
                    investment advice to the Portfolio, including without
                    limitation, office space, office equipment, telephone and
                    postage costs; and

              2.    all fees and expenses of all directors, officers and
                    employees, if any, of the Fund who are employees of the
                    Adviser, including any salaries and employment benefits
                    payable to those persons.

       B.     Expenses of the Portfolio

       The Portfolio shall pay:

              1.    investment advisory fees pursuant to this Agreement;

              2.    brokers' commissions, issue and transfer taxes or other
                    transaction fees payable in connection with any transactions
                    in the securities in the Portfolio's investment portfolio or
                    other investment transactions incurred in managing the
                    Portfolio's assets, including portions of commissions that
                    may be paid to reflect brokerage research services provided
                    to the Adviser;

              3.    fees and expenses of the Portfolio's independent accountants
                    and legal counsel and the independent Directors' legal
                    counsel;

              4.    fees and expenses of any administrator, transfer agent,
                    custodian, dividend, accounting, pricing or disbursing agent
                    of the Portfolio;

              5.    interest and taxes;

              6.    fees and expenses of any membership in the Investment
                    Company Institute or any similar organization in which the
                    Board deems it advisable for the Fund to maintain
                    membership;

              7.    insurance premiums on property or personnel (including
                    officers and directors) of the Fund;

<PAGE>

              8.    all fees and expenses of the Company's directors, who are
                    not "interested persons" (as defined in the 1940 Act) of the
                    Fund or the Adviser;

              9.    expenses of preparing, printing and distributing proxies,
                    proxy statements, prospectuses and reports to shareholders
                    of the Portfolio, except for those expenses paid by third
                    parties in connection with the distribution of Portfolio
                    shares and all costs and expenses of shareholders' meetings;

              10.   all expenses incident to the payment of any dividend,
                    distribution, withdrawal or redemption, whether in shares of
                    the Portfolio or in cash;

              11.   costs and expenses (other than those detailed in paragraph 9
                    above) of promoting the sale of shares in the Portfolio,
                    including preparing prospectuses and reports to shareholders
                    of the Portfolio, provided, nothing in this Agreement shall
                    prevent the charging of such costs to third parties involved
                    in the distribution and sale of Portfolio shares;

              12.   fees payable by the Portfolio to the Commission or to any
                    state securities regulator or other regulatory authority for
                    the registration of shares of the Portfolio in any state or
                    territory of the United States or of the District of
                    Columbia;

              13.   all costs attributable to investor services, administering
                    shareholder accounts and handling shareholder relations,
                    (including, without limitation, telephone and personnel
                    expenses), which costs may also be charged to third parties
                    by the Adviser; and

              14.   any other ordinary, routine expenses incurred in the
                    management of the Portfolio's assets, and any nonrecurring
                    or extraordinary expenses, including organizational
                    expenses, litigation affecting the Portfolio and any
                    indemnification by the Fund of its officers, directors or
                    agents.

Notwithstanding the above, the Adviser may waive a portion or all of the fees it
is entitled to receive.

In addition, the Adviser may reimburse the Fund, on behalf of a Portfolio, for
expenses allocated to a Portfolio.

For fiscal year 1999, the Adviser has agreed to waive fees and reimburse
expenses so that the total annual operating expenses (excluding distribution
fees) do not exceed 0.80% of the average daily net assets.

<PAGE>

X.     ADDITIONAL SERVICES

Upon the request of the Board, the Adviser may perform certain accounting,
shareholder servicing or other administrative services on behalf of the
Portfolio that are not required by this Agreement. Such services will be
performed on behalf of the Portfolio and the Adviser may receive from the
Portfolio 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 Portfolio and its shareholders. Payment or assumption by the
Adviser of any Portfolio 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 Portfolio nor obligate the Adviser to pay or assume any
similar Portfolio expense on any subsequent occasions. Such services may
include, but are not limited to, (a) the services of a principal financial
officer of the Fund (including applicable office space, facilities and
equipment) whose normal duties consist of maintaining the financial accounts and
books and records of the Fund and the Portfolio 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 Portfolio; and
(c) such other administrative services as may be furnished from time to time by
the Adviser to the Fund or the Portfolio at the request of the Board.


XII.   NONEXCLUSIVITY

The services of the Adviser to the Portfolio are not to be deemed to be
exclusive, and the Adviser shall be free to render investment advisory or other
services to others (including other investment companies) and to engage in other
activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and directors of the Adviser
may serve as officers or directors of the Fund, and that officers or directors
of the Fund may serve as officers or directors of the Adviser to the extent
permitted by law; and that the officers and directors of the Adviser are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, directors
or trustees of any other firm or trust, including other investment companies.


XIII.  TERM

This Agreement shall become effective on January 1, 1999, and shall remain in
force and effect through December 31, 1999, unless earlier terminated under the
provisions of Article XV.

<PAGE>

XIV.   RENEWAL

Following the expiration of its initial term, the Agreement shall continue in
force and effect from year to year, provided that such continuance is
specifically approved at least annually:

              1.    a.     by the Board, or

                    b.     by the vote of a majority of the  Portfolio's
                           outstanding  voting  securities  (as defined in
                           Section 2(a)(42) of the 1940 Act), and

              2.    by the affirmative vote of a majority of the directors who
                    are not parties to this Agreement or interested persons of a
                    party to this Agreement (other than as a director of the
                    Fund), by votes cast in person at a meeting specifically
                    called for such purpose.


XV.    TERMINATION

This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Board or by vote of a majority of the Portfolio'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."


XVI.   LIABILITY

The Adviser shall be liable to the Fund and shall indemnify the Fund for any
losses incurred by the Fund, whether in the purchase, holding or sale of any
security or otherwise, to the extent that such losses resulted from an act or
omission on the part of the Adviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Adviser of its duties under this Agreement, in
connection with the services rendered by the Adviser hereunder.

XVII.  NOTICES

Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:

       if to the Fund, on behalf of the Portfolio:

       10 State House Square
       Hartford, Connecticut  06103
       Fax number 860/275-2158

<PAGE>

       if to the Adviser:

       10 State House Square
       Hartford, Connecticut  06103
       Fax number 860/275-4440


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 or orders of the
Commission issued pursuant to the 1940 Act, or contained in no-action and
interpretive positions taken by the Commission staff. In addition, where the
effect of a requirement of the 1940 Act reflected in the provisions of this
Agreement is revised by rule or order of the Commission, such provisions shall
be deemed to incorporate the effect of such rule or order.


XIX.   SERVICE MARK

The service mark of the Fund and the Portfolio and the name "Aetna" have been
adopted by the Fund with the permission of Aetna Services, Inc. (formerly known
as Aetna Life and Casualty Company) and their continued use is subject to the
right of Aetna Services, Inc. to withdraw this permission in the event the
Adviser or another affiliated corporation of Aetna Services, Inc.
should not be the investment adviser of the Portfolio.


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 18th day of December, 1998.


                                              Aeltus Investment Management, Inc.



                                              By: /s/John Y. Kim
Attest: /s/Katherine Cheng                    Name: John Y. Kim
Name: Katherine Cheng                         Title: President
Title: Assistant Secretary

<PAGE>

                                              Aetna Variable Portfolios, Inc.
                                                 on behalf of its portfolio,
                                                 Aetna Value Opportunity VP


                                              By: /s/J. Scott Fox
Attest: /s/Daniel E. Burton                   Name: J. Scott Fox
Name: Daniel E. Burton                        Title: President
Title: Assistant Secretary

<PAGE>

                         Investment Advisory Agreement
      Schedule Pursuant to Rule 483(d)(2) under the Securities Act of 1933

Investment Advisory Agreements have been entered into by Aetna Variable
Portfolios, Inc. on behalf of the following series in substantially the same
form and type as exhibit (d.1)-Investment Advisory Agreement, included herewith.

<TABLE>
<CAPTION>
                                                      Difference in                                 Difference in
Date                         Portfolio                 Compensation                                   Expenses
- ----                         ---------                -------------                                   --------
<S>                    <C>                        <C>                                         <C>

12/18/98               Aetna Growth VP            .60% of average daily net assets           Total annual operating
                                                                                               fees do not exceed
                                                                                             0.80% of average daily
                                                                                                   net assets

12/18/98               Aetna Small Company VP     .75% of average daily net assets           total annual operating
                                                                                               fees do not exceed
                                                                                             0.95% of average daily
                                                                                                    net assets

12/18/98               Aetna Index Plus Large     .35% of average daily net assets           total annual operating
                       Cap VP                                                                  fees do not exceed
                                                                                             0.55% of average daily
                                                                                                    net assets

12/18/98               Aetna High Yield VP        .65% of average daily net assets           total annual operating
                                                                                               fees do not exceed
                                                                                             0.80% of average daily
                                                                                                    net assets

12/18/98               Aetna Index Plus Bond VP   .30% of average daily net assets           total annual operating
                                                                                               fees do not exceed
                                                                                             0.45% of average daily
                                                                                                    net assets

12/18/98               Aetna Index Plus Mid       .40% of average daily net assets           total annual operating
                       Cap VP                                                                  fees do not exceed
                                                                                             0.60% of average daily
                                                                                                    net assets

12/18/98               Aetna Index Plus Small     .40% of average daily net assets           total annual operating
                       Cap VP                                                                  fees do not exceed
                                                                                             0.60% of average daily
                                                                                                    net assets

<PAGE>


12/18/98               Aetna International VP     .85% of average daily net assets           total annual operating
                                                                                               fees do not exceed
                                                                                             0.15% of average daily
                                                                                                    net assets

12/18/98               Aetna Real Estate          .75% of average daily net assets           total annual operating
                       Securities VP                                                           fees do not exceed
                                                                                             0.95% of average daily
                                                                                                    net assets

</TABLE>

                        ADMINISTRATIVE SERVICES AGREEMENT


         THIS AGREEMENT is made by and between AETNA VARIABLE PORTFOLIOS, INC.,
a Maryland Corporation (the "Fund"), on behalf of each of its portfolios, Aetna
Value Opportunity VP, Aetna Growth VP, Aetna Small Company VP, Aetna Index Plus
Large Cap VP, Aetna High Yield VP, Aetna Real Estate Securities VP, Aetna Mid
Cap VP, Aetna Index Plus Mid Cap VP, Aetna Index Plus Small Cap VP, Aetna Index
Plus Bond VP, and Aetna International VP (the "Portfolios"), and AELTUS
INVESTMENT MANAGEMENT, INC., a Connecticut corporation (the "Administrator"),
with respect to the following recital of facts:

                                  R E C I T A L

         WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940 (the "1940 Act");
and

         WHEREAS, the Administrator is registered as an investment adviser under
the Investment Advisers Act of 1940 (the "Advisers Act"), and engages in the
business of acting as an investment adviser and an administrator of investment
companies; and

         WHEREAS, the Fund has established the Portfolios; and

         WHEREAS, the Fund, on behalf of each of its Portfolios, and the
Administrator desire to enter into an agreement to provide for administrative
services for the Portfolios 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 agree as follows:


I.       APPOINTMENT AND OBLIGATIONS OF THE ADMINISTRATOR

         The Administrator is hereby appointed to serve as the Administrator to
the Portfolios, 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 Fund'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 Portfolios in any way or otherwise be
deemed an agent of the Portfolios.


II.      DUTIES OF THE ADMINISTRATOR

         In carrying out the terms of this Agreement, the Administrator shall:

<PAGE>

         A. provide office space, equipment and facilities (which may be the
Administrator's or its affiliates') for maintaining the Fund's organization, for
meetings of the Fund's Board and shareholders, and for performing administrative
services hereunder;

         B. supervise and manage all aspects of the Portfolios' operations
(other than investment advisory activities), 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. provide internal clerical and legal services, and stationery and
office supplies;

         D. provide accounting services, including:

                  1.     determining and arranging for the publication of the
                         net asset value of each Portfolio;

                  2.     preparing financial information for presentation to the
                         Fund's Board and management;

                  3.     preparing and monitoring the Fund's annual expense
                         budget, and establishing daily accruals;

                  4.     coordinating payment of fund expenses;

                  5.     calculating periodic dividend rates to be declared in
                         accordance with management guidelines;

                  6.     calculating total return information as defined in the
                         current prospectus and statement of additional
                         information;

                  7.     coordinating audit packages for use by independent
                         public accountants;

                  8.     responding to regulatory audits;

         E. provide non-investment related statistical and research data and
such other reports, evaluations and information as the Portfolios may request
from time to time;

         F. monitor each Portfolio's compliance with the current prospectus and
statement of additional information, the 1940 Act, the Internal Revenue Code and
other applicable laws and regulations;

         G. prepare, to the extent requested by the Fund, registration
statements, proxy statements and annual and semi-annual reports to shareholders;

                                       2
<PAGE>

         H. arrange for the printing and mailing (at the Portfolios' expense) of
proxy statements and other reports or other materials provided to the
Portfolios' shareholders;

         I. support outside auditors in preparing and filing all the Portfolios'
federal and state tax returns and required tax filings other than those required
to be made by the Portfolios' custodian and transfer agent;

         J. prepare periodic reports to and filings with the Securities and
Exchange Commission (the "SEC") and state Blue Sky authorities with the advice
of the Portfolios' counsel;

         K. maintain the Fund's existence, and during such times as the shares
of the Portfolios are publicly offered, maintain the registration and
qualification of the Portfolios' shares under federal and state law;

         L. keep and maintain the financial accounts and records of the
Portfolios;

         M. provide the Board on a regular basis with reports and analyses of
the Portfolios' operations and the operations of comparable investment
companies; and

         N. take any other actions which appear to the Administrator and the
Board necessary to carry into effect the purposes of this Agreement.


III.     REPRESENTATIONS AND WARRANTIES

         A. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR

               The Administrator hereby represents and warrants to the Fund 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
                           Portfolios in carrying out its obligations hereunder.

         B. REPRESENTATIONS AND WARRANTIES OF THE PORTFOLIOS AND THE FUND

               The Fund, on behalf of each of its Portfolios, hereby represents
and warrants to the Administrator as follows:

                                       3
<PAGE>

                  1.       Due Incorporation and Organization. The Fund has been
                           duly incorporated under the laws of the State of
                           Maryland and it is authorized to enter into this
                           Agreement and carry out its terms.

                  2.       Registration. The Fund is registered as an investment
                           company with the SEC under the 1940 Act and shares of
                           the Portfolios are registered or qualified for offer
                           and sale to the public under the Securities Act of
                           1933 (the "1933 Act"), and all applicable state
                           securities laws. Such registrations or qualifications
                           will be kept in effect during the term of this
                           Agreement.


IV. CONTROL BY THE BOARD OF DIRECTORS

         Any activities undertaken by the Administrator pursuant to this
Agreement on behalf of the Portfolios 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 Fund under the
            1933 Act and the 1940 Act;

         C. the provisions of the Fund's Articles of Incorporation, as amended;

         D. the provisions of the By-Laws of the Fund, 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.

                                       4
<PAGE>

VII. COMPENSATION

         For the services to be rendered, the facilities furnished and the
expenses assumed by the Administrator, the Fund, on behalf of each of its
Portfolios, shall pay to the Administrator an annual fee, payable monthly (in
arrears), based upon the following average daily net assets of each of its
Portfolios:

<TABLE>
<CAPTION>
                 Rate                      Net Assets
                 <S>                       <C>
                 .075%                     on the 1st $5 billion
                 .05%                      over $5 billion
</TABLE>

Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual administration
fee applied to the daily net assets of the Portfolios. 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.

Notwithstanding the above, the Administrator may waive a portion or all of the
fees it is entitled to receive. For fiscal year 1999, the Administrator has
agreed to waive fees so that the total annual operating expenses (excluding
distribution fees) do not exceed the percentage of the average daily net assets
outlined below for each Portfolio:

<TABLE>
<CAPTION>
            <S>                                           <C>
            Aetna Growth VP                               0.80%
            Aetna International VP                        1.15%
            Aetna Mid Cap VP                              0.95%
            Aetna Small Company VP                        0.95%
            Aetna Value Opportunity VP                    0.80%
            Aetna Real Estate Securities VP               0.95%
            Aetna High Yield VP                           0.80%
            Aetna Index Plus Bond VP                      0.45%
            Aetna Index Plus Large Cap VP                 0.55%
            Aetna Index Plus Mid Cap VP                   0.60%
            Aetna Index Plus Small Cap VP                 0.60%
</TABLE>

VIII.    NON-EXCLUSIVITY

         The services of the Administrator to the Portfolios 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
Fund, and that officers or directors of the Fund may serve as

                                       5
<PAGE>

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 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 on January 1, 1999, and shall
continue through December 31, 1999. Thereafter it shall continue for successive
annual periods, provided such continuance is specifically approved at least
annually:

         1.       a.  by the Board, or

                  b.  by the vote of a majority of the Portfolios'  outstanding
                      voting securities (as defined in Section 2(a)(42) of the
                      1940 Act), and

         2.       by the affirmative vote of a majority of the directors who are
                  not parties to this Agreement or interested persons of a party
                  to this Agreement (other than as a director of the Fund), by
                  votes cast in person at a meeting specifically called for such
                  purpose.

X.       TERMINATION

         This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Fund's directors or by vote of a majority of the
Portfolios' 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

         The Administrator shall be liable to the Fund and shall indemnify the
Fund for any losses incurred by the Fund, whether in the purchase, holding or
sale of any security or otherwise, to the extent that such losses resulted from
an act or omission on the part of the Administrator or its officers, directors
or employees, that is found to involve willful misfeasance, bad faith or
negligence, or reckless disregard by the Administrator of its duties under this
Agreement, in connection with the services rendered by the Administrator
hereunder.

         B. INDEMNIFICATION

         In the absence of willful misfeasance, bad faith, negligence or
reckless disregard of obligations or duties hereunder on the part of the
Administrator or any officer, director or employee of the

                                       6
<PAGE>

Administrator, to the extent permitted by applicable law, the Fund 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 Portfolios or
otherwise) by the Fund, its officers, directors, employees or agents in alleged
violation of applicable federal, state or foreign laws, rules or regulations.

XII. 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 for this
purpose shall be 10 State House Square, Hartford, Connecticut 06103, and the
address of the Fund for this purpose shall be 10 State House Square, Hartford,
Connecticut 06103.

XIII. 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 or orders
of the SEC issued pursuant to the 1940 Act, or contained in no-action and
interpretive positions taken by the SEC staff. In addition, where the effect of
a requirement of the 1940 Act reflected in the provisions of this Agreement is
revised by rule or order of the SEC, such provisions shall be deemed to
incorporate the effect of such rule or order.

XIV. SERVICE MARK

         The service mark of the Fund and the Portfolios and the name "Aetna"
have been adopted by the Fund with the permission of Aetna Services, Inc.
(formerly known as Aetna Life and Casualty Company) and their continued use is
subject to the right of Aetna Services, Inc. to withdraw this permission in the
event the Administrator or another subsidiary or affiliated corporation of Aetna
Services, Inc. should not be the Administrator of the Portfolios.


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the 18th day of
December, 1998.

                                        7
<PAGE>

                                       AETNA VARIABLE PORTFOLIOS, INC.
                                       on  behalf of each of its Portfolios,
                                           Aetna Value Opportunity VP
                                           Aetna Growth VP
                                           Aetna Small Company VP
                                           Aetna Index Plus Large Cap VP
                                           Aetna High Yield VP
                                           Aetna Real Estate Securities VP
                                           Aetna Mid Cap VP
                                           Aetna Index Plus Mid Cap VP
                                           Aetna Index Plus Small Cap VP
                                           Aetna Index Plus Bond VP
AELTUS INVESTMENT                          Aetna International VP
MANAGEMENT, INC.


By: /s/John Y. Kim                              By: /s/J. Scott Fox
Name: John Y. Kim                               Name: J. Scott Fox
Title: President                                Title: President

Attest:                                         Attest:

/s/Katherine Cheng                              /s/Daniel E. Burton
Name: Katherine Cheng                           Name: Daniel E. Burton
Title: Assistant Secretary                      Title: Assistant Secretary









                                       8




[Aetna Letterhead]
[Aetna Logo]
                                                Aetna Inc.
                                                10 State House Square
                                                Hartford, CT 06103-3602


                                                Amy R. Doberman
                                                Counsel
                                                Law Division, SH11
February 10, 1999                               Investments & Financial Services
                                                (860) 275-2032
                                                Fax:  (860) 275-2158


U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549

Attention: Filing Desk

Re:    Aetna Variable Portfolios, Inc.
       Post-Effective Amendment No. 7 to
       Registration Statement on Form N-1A
       (File No. 333-05173 and 811-7651)

Dear Sir or Madam:

The undersigned serves as counsel to Aeltus Investment Management, Inc., the
investment adviser to Aetna Variable Portfolios, Inc., a Maryland corporation
(the "Company"). It is my understanding that the Company has registered an
indefinite number of shares of beneficial interest under the Securities Act of
1933 (the "1933 Act") pursuant to Rule 24f-2 under the Investment Company Act of
1940 (the "1940 Act").

Insofar as it relates or pertains to the Company, I have reviewed the prospectus
and the Company's Registration Statement on Form N-1A, as amended to the date
hereof, filed with the Securities and Exchange Commission under the 1933 Act and
the 1940 Act, pursuant to which the Shares will be sold (the "Registration
Statement"). I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents and other instruments I have
deemed necessary or appropriate for the purpose of this opinion. For purposes of
such examination, I have assumed the genuineness of all signatures on original
documents and the conformity to the original of all copies.

I am admitted to practice law in Connecticut, Maryland and the District of
Columbia. My opinion herein as to Maryland law is based upon a limited inquiry
thereof that I have deemed appropriate under the circumstances.

<PAGE>

Based upon the foregoing, and assuming the securities are issued and sold in
accordance with the provisions of the Company's Articles of Incorporation and
the Registration Statement, I am of the opinion that the securities will when
sold be legally issued, fully paid and nonassessable.

I consent to the filing of this opinion as an exhibit to the Registration
Statement.


Sincerely,

/s/ Amy R. Doberman

Amy R. Doberman
Counsel



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