PORTFOLIO PARTNERS INC, 485APOS, 1999-02-26

PORTFOLIO PARTNERS INC
485APOS, 1999-02-26

Previous: GLENBROOK LIFE VARIABLE LIFE SEPARATE ACCOUNT B, NSAR-U, 1999-02-26

Next: AAL VARIABLE LIFE ACCOUNT I, NSAR-U, 1999-02-26

As filed with the Securities and Exchange
Commission on February 26, 1999

Registration Nos. 333-32575
811-8319

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment
No. 3 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment
No. 3 [X]

PORTFOLIO PARTNERS, INC.
------------------------
(Exact name of registrant as specified in charter)

151 Farmington Avenue, RE4A
Hartford, CT 06156-8962
(Address of Principal Executive Offices) (Zip Code)
(860) 273-4686
--------------
J. Neil McMurdie, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue, RE4A, Hartford, CT 06156-8962
(Name and Address of Agent For Service)

It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[x] on May 3, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.

<PAGE>

PORTFOLIO PARTNERS, INC.

Portfolio Partners, Inc. (the Fund) is a mutual fund authorized to issue
multiple series of shares, each representing a diversified portfolio of
investments. Each series is individually called a Portfolio, and collectively
the series are called the Portfolios. Aetna Life Insurance and Annuity Company
(Aetna) serves as the Investment Adviser of each Portfolio, and each Portfolio
has a Subadviser. The Fund's five Portfolios (and their Subadvisers) are:

o MFS Emerging Equities Portfolio - (Subadviser: Massachusetts Financial
Services Company)

o MFS Research Growth Portfolio - (Subadviser: Massachusetts Financial Services
Company)

o MFS Value Equity Portfolio - (Subadviser: Massachusetts Financial Services
Company)

o Scudder International Growth Portfolio - (Subadviser: Scudder Kemper
Investments, Inc.)

o T. Rowe Price Growth Equity Portfolio - (Subadviser: T. Rowe Price
Associates, Inc.)

Each Portfolio's shares are offered only to insurance companies to fund benefits
under their variable annuity and variable life insurance contracts.

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

PROSPECTUS
May 3, 1999

<PAGE>

TABLE OF CONTENTS

Page

MFS Emerging Growth Portfolio.............................................. 3

MFS Research Growth Portfolio.............................................. 6

MFS Value Equity Portfolio................................................. 9

Scudder International Growth Portfolio..................................... 12

T. Rowe Price Growth Equity Portfolio...................................... 15

Additional Information About Investment Strategies and Risks............... 18

Management of the Portfolios............................................... 33

Shareholder Information.................................................... 36

Performance................................................................ 37

Financial Highlights....................................................... 38

[Appendix A]

2
<PAGE>

MFS EMERGING EQUITIES PORTFOLIO
Subadviser: Massachusetts Financial Services Company ("MFS")

Investment Objective

Long-term growth of capital

Principal Investment Strategies

The Portfolio invests primarily (at least 80% of its total assets) in common
stocks and related securities, such as preferred stock, convertible securities
and depositary receipts, of emerging growth companies. Emerging growth companies
are companies that MFS believes either are early in their life cycle but which
have the potential to become major enterprises, or are major enterprises whose
rates of earnings growth MFS believes will accelerate. The Portfolio's
investments may include securities traded in the over-the-counter markets.

MFS selects securities based upon fundamental analysis performed by the
Portfolio's portfolio manager and MFS' large group of equity research analysts.
MFS does not select securities based upon the type of industries in which their
issuers belong.

The Portfolio may invest in foreign securities and may have exposure to foreign
currencies through its investment in these securities, its direct holdings of
foreign currencies or through its use of foreign currency exchange contracts for
the purchase or sale of a fixed quantity of foreign currency at a future date.

Principal Risks of Investing in the Portfolio

As with any mutual fund, you could lose money on your investment in the
Portfolio. Your investment in the Portfolio is subject to the following
principal risks:

o Emerging Growth Risk: The Portfolio's performance is particularly sensitive
to changes in the value of emerging growth companies. Investments in
emerging growth companies may be subject to more abrupt or erratic market
movements and may involve greater risks than investments in more
established companies. A decline in the value of these types of securities
may result in a decline in the Portfolio's net asset value and the value of
your investment.

o Over the Counter Risk: Equity securities that are traded over the counter
may be more volatile than exchange-listed securities, and the Portfolio may
experience difficulty in purchasing or selling these securities at a fair
price.

3
<PAGE>

o Foreign Markets Risk: Investment in foreign securities involves additional
risks relating to political, social and economic developments abroad. Other
risks from these investments result from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.

o Currency Risk: The Portfolio's exposure to foreign currencies may cause the
value of the Portfolio to decline in the event that the U.S. dollar
strengthens against these currencies, or in the event that foreign
governments intervene in the currency markets.

Portfolio Performance

The bar chart and table below show how the Portfolio has performed in the past
and provide an indication of the risks of investing in the Portfolio. Both
assume that all dividends and distributions are reinvested in the Portfolio. How
the Portfolio has performed in the past doesn't necessarily show how it will
perform in the future.

[Bar Chart]
1998 29.67%
[End Bar Chart]

The best calendar quarter return during the period was 28.84% in the fourth
quarter of 1998; the worst was -16.21% in the third quarter of 1998.

Periods Ended December 31, 1998

<TABLE>
<CAPTION>
1 year Life of Portfolio
<S> <C> <C>
MFS Emerging Equities Portfolio 29.67% 28.21%
Russell 2000 Index -2.55% -1.32%
Lipper Mid Cap Fund Average 13.92% 13.61%
</TABLE>

In the table, the Portfolio's average annual total return for the 1 year period,
ending December 31, 1998, and for the life of the Portfolio are compared to the
Russell 2000 Index and the Lipper Mid Cap Fund Average. The Russell 2000 Index
is a value-weighted, unmanaged index of small capitalization stock performance.
The Lipper Mid Cap Fund Average is a composite index of the annual returns of
mutual funds that have an investment style similar to that of the Portfolio. The
Portfolio commenced operations on November 28, 1997.

4
<PAGE>

The performance information shown does not reflect the impact of the variable
annuity or variable life insurance contract charges. If these charges were
reflected, total returns would be lower.

Portfolio Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

Shareholder Transaction Expenses (fees you pay directly from your investment)

There are no fees or sales loads charged to your account when you buy or sell
Portfolio shares.

Annual Fund Operating Expenses (expenses that are deducted from Portfolio
assets)

<TABLE>
<S> <C>
Management Fees 0.68%
Other Expenses 0.13%
-----
Total Annual Fund Operating Expenses 0.81%
=====
</TABLE>

Example

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$83 $259 $450 $1,002
</TABLE>

5
<PAGE>

MFS RESEARCH GROWTH PORTFOLIO
Subadviser: Massachusetts Financial Services Company ("MFS")

Investment Objective

Long-term growth of capital and future income

Principal Investment Strategies

The Portfolio invests primarily (at least 65% of its total assets) in common
stocks and related securities, such as preferred stocks, convertible securities
and depositary receipts. The Portfolio focuses on companies that MFS believes
have favorable prospects for long-term growth, attractive valuations based on
current and expected earnings or cash flow, dominant or growing market share and
superior management. The Portfolio may invest in companies of any size. The
Portfolio's investments may also include securities traded on securities
exchanges or in the over-the-counter markets.

Principal Risks of Investing in the Portfolio

As with any mutual fund, you could lose money on your investment in the
Portfolio. Your investment in the Portfolio is subject to the following
principal risks:

o Market and Company Risk: The value of the securities in which the Portfolio
invests may decline due to changing economic, political or market
conditions, or due to the financial condition of the company which issued
the security. In addition, securities of growth companies may be more
volatile since such companies usually invest a high portion of their
earnings in their businesses and may lack the dividends of value companies,
which can cushion the security prices in a declining market.

6
<PAGE>

Portfolio Performance

[Bar Chart]

1998 23.00%

[End Bar Chart]

The best calendar quarter return during the period was 22.71% in the fourth
quarter of 1998; the worst was -15.07% in the third quarter of 1998.

Periods Ended December 31, 1998

<TABLE>
<CAPTION>
1 year Life of Portfolio
<S> <C> <C>
MFS Research Growth Portfolio 23.00% 20.76%
S&P 500 Index 28.72% 28.39%
Lipper Growth Fund Average 25.69% 25.49%
</TABLE>

In the table, the Portfolio's average annual total return for the 1 year period
ending December 31, 1998, and for the life of the Portfolio, are compared with
the S&P 500 Index and the Lipper Growth Fund Average. The S&P (Standard &
Poor's) 500 Index is an unmanaged index of 500 widely held stocks considered to
be representative of the stock market in general. The Lipper Growth Fund Average
is a composite index of the annual returns of mutual funds that have an
investment style similar to that of the Portfolio. The Portfolio commenced
operations on November 28, 1997.

The performance information shown does not reflect the impact of the variable
annuity or variable life insurance contract charges. If these charges were
reflected, total returns would be lower.

7
<PAGE>

Portfolio Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

Shareholder Transaction Expenses (fees you pay directly from your investment)
There are no fees or sales loads charged to your account when you buy or sell
Portfolio shares.

Annual Fund Operating Expenses (expenses that are deducted from Portfolio
assets)

<TABLE>
<S> <C>
Management Fees 0.70%
Other Expenses 0.15%
-----
Total Annual Fund Operating Expenses 0.85%
=====
</TABLE>

Example

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$87 $271 $471 $1,049
</TABLE>

8
<PAGE>

MFS VALUE EQUITY PORTFOLIO
Subadviser: Massachusetts Financial Services Company ("MFS")

Investment Objective

Capital appreciation

Principal Investment Strategies

The Portfolio invests primarily (at least 65% of its total assets) in common
stocks and related securities, such as preferred stock, convertible securities
and depositary receipts. The Portfolio focuses on companies that MFS believes
have favorable growth prospects and attractive valuations based on current and
expected earnings or cash flow. The Portfolio's investments may include
securities traded in the over-the-counter markets.

The Portfolio may invest in foreign securities (including emerging market
securities) and may have exposure to foreign currencies through its investment
in these securities, its direct holdings of foreign currencies or through its
use of foreign currency exchange contracts for the purchase or sale of a fixed
quantity of a foreign currency at a future date.

The Portfolio also may invest in debt securities issued by both U.S. and foreign
companies, including non-investment grade debt securities.

Principal Risks of Investing in the Portfolio

As with any mutual fund, you could lose money on your investment in the
Portfolio. Your investment in the Portfolio is subject to the following
principal risks:

9
<PAGE>

o Emerging Markets Risk: Emerging markets are generally defined as countries
in the initial stages of their industrialization cycles with low per capita
income. Investments in emerging markets securities involve all of the risks
of investments in foreign securities, and also have additional risks.

o Interest Rate Risk: The Portfolio's investment in debt securities involves
risks relating to interest rate movement. If interest rates go up, the
value of any debt securities held by the Portfolio will decline.

o Credit Risk: The Portfolio's investment in non-investment grade debt
securities involves credit risk because issuers of non-investment grade
securities are more likely to have difficulty making timely payments of
interest or principal.

Portfolio Performance

[Bar Chart]
1998 26.74%
[End Bar Chart]

The best calendar quarter return during the period was 24.67% in the fourth
quarter of 1998; the worst was -14.40% in the third quarter of 1998.

10
<PAGE>

Periods Ended December 31, 1998

<TABLE>
<CAPTION>
1 year Life of Portfolio
<S> <C> <C>
MFS Value Equity Portfolio 26.74% 28.54%
S&P 500 Index 28.72% 28.39%
Lipper Capital Appreciation
Fund Average 19.98% 20.06%
</TABLE>

In the table, the Portfolio's average annual total return for the 1 year period
ending December 31, 1998, and for the life of the Portfolio, are compared with
the S&P 500 Index and the Lipper Capital Appreciation Fund Average. The S&P
(Standard & Poor's) 500 Index is an unmanaged index of 500 widely held stocks
considered to be representative of the stock market in general. The Lipper
Capital Appreciation Fund Average is a composite index of the annual returns of
mutual funds that have an investment style similar to that of the Portfolio. The
Portfolio commenced operations on November 28, 1997.

The performance information shown does not reflect the impact of the variable
annuity or variable life insurance contract charges. If these charges were
reflected, total returns would be lower.

Portfolio Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

Shareholder Transaction Expenses (fees you pay directly from your investment)

There are no fees or sales loads charged to your account when you buy or sell
Portfolio shares.

Annual Fund Operating Expenses (expenses that are deducted from Portfolio
assets)

<TABLE>
<S> <C>
Management Fees 0.65%
Other Expenses 0.25%
-----
Total Annual Fund Operating Expenses 0.90%
=====
</TABLE>

Example

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your

11
<PAGE>

investment has a 5% return each year and that the Portfolio's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$92 $287 $498 $1,108
</TABLE>

SCUDDER INTERNATIONAL GROWTH PORTFOLIO
Subadviser: Scudder Kemper Investments, Inc. ("SKI")

Investment Objective

Long-term growth of capital

Principal Investment Strategies

The Portfolio invests primarily (at least 65% of its total assets) in the equity
securities of foreign companies that SKI believes have high growth potential.
The Portfolio will normally invest in securities of at least three different
countries other than the U.S. The Portfolio will focus on issuers located
primarily in Europe, Latin America, the emerging markets of the Pacific Basin
and Japan, but also may invest in select issues from elsewhere outside the U.S.
The Portfolio will invest in securities in both developed and developing
markets. The Portfolio will seek to invest in those companies that SKI believes
are best able to capitalize on the growth and changes taking place within and
between various regions of the world. Typically, these are companies with
leading or rapidly-developing business franchises, strong financial positions,
and high quality management capable of defining and implementing company
strategies to take advantage of local, regional or global market changes.

The Portfolio also may invest in debt securities issued by both U.S. and foreign
companies, including non-investment grade debt securities.

Principal Risks of Investing in the Portfolio

As with any mutual fund, you could lose money on your investment in the
Portfolio. Your investment in the Portfolio is subject to the following
principal risks:

12
<PAGE>

o Foreign Markets Risk: The Portfolio's investment in foreign securities
involves additional risks relating to political, social and economic
developments abroad. Other risks from these investments result from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject.

Portfolio Performance

[Bar Chart]
1998 19.09%
[End Bar Chart]

The best calendar quarter return during the period was 15.19% in the fourth
quarter of 1998; the worst was -14.45% in the third quarter of 1998.

13
<PAGE>

Periods Ended December 31, 1998

<TABLE>
<CAPTION>
1 year Life of Portfolio
<S> <C> <C>
Scudder International
Growth Portfolio 19.09% 20.98%
MSCI EAFE Index 20.00% 21.04%
Lipper International Investment
Objective Average 13.02% ____ %
</TABLE>

In the table, the Portfolio's average annual total return for the 1 year period
ending December 31, 1998, and for the life of the Portfolio, are compared with
the MSCI EAFE Index and the Lipper International Investment Objective Average.
The MSCI EAFE Index is an unmanaged index that includes securities traded on 16
exchanges in Europe, Australia and the Far East. The Lipper International
Investment Objective Average is a composite index of the annual returns of
mutual funds that have an investment style similar to that of the Portfolio. The
Portfolio commenced operations on November 28, 1997. Return information for the
MSCI EAFE Index and the Lipper International Investment Objective Average is
given for the one year period ending December 31, 1998, and the thirteen month
period ending December 31, 1998.

The performance information shown does not reflect the impact of the variable
annuity or variable life insurance contract charges. If these charges were
reflected, total returns would be lower.

Portfolio Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

Shareholder Transaction Expenses (fees you pay directly from your investment)
There are no fees or sales loads charged to your account when you buy or sell
Portfolio shares.

Annual Fund Operating Expenses (expenses that are deducted from Portfolio
assets)

<TABLE>
<S> <C>
Management Fees 0.80%
Other Expenses 0.20%
-----
Total Annual Fund Operating Expenses 1.00%
=====
</TABLE>

Example

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.

14
<PAGE>

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$102 $318 $552 $1,225
</TABLE>

T. ROWE PRICE GROWTH EQUITY PORTFOLIO
Subadviser: T. Rowe Price Associates, Inc. ("T. Rowe")

Investment Objective

Long-term capital growth, and secondarily, increasing dividend income

Principal Investment Strategies

The Portfolio invests primarily (at least 65% of its total assets) in the
securities of U.S. companies expected by T. Rowe to have superior earnings
growth. T. Rowe seeks companies with a lucrative niche in the economy that T.
Rowe believes will give them the ability to sustain earnings momentum even
during times of slow economic growth. T. Rowe normally looks for companies whose
dividends are expected to rise over time as earnings increase.

Principal Risks of Investing in the Portfolio

As with any mutual fund, you could lose money on your investment in the
Portfolio. Your investment in the Portfolio is subject to the following
principal risks:

15
<PAGE>

Portfolio Performance

[Bar Chart]
1998 27.60%
[End Bar Chart]

The best calendar quarter return during the period was 23.08% in the fourth
quarter of 1998; the worst was -11.03% in the third quarter of 1998.

Periods Ended December 31, 1998

<TABLE>
<CAPTION>
1 year Life of Portfolio
<S> <C> <C>
T. Rowe Price Growth Equity Portfolio 27.60% 30.19%
S&P 500 Index 28.57% 30.77%
Lipper Growth Fund Average 24.94% ______
</TABLE>

16
<PAGE>

The performance information shown does not reflect the impact of the variable
annuity or variable life insurance contract charges. If these charges were
reflected, total returns would be lower.

Portfolio Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.

Shareholder Transaction Expenses (fees you pay directly from your investment)
There are no fees or sales loads charged to your account when you buy or sell
Portfolio shares.

Annual Fund Operating Expenses (expenses that are deducted from Portfolio
assets)

<TABLE>
<S> <C>
Management Fees 0.60%
Other Expenses 0.15%
-----
Total Annual Fund Operating Expenses 0.75%
=====
</TABLE>

Example

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C>
$77 $240 $417 $930
</TABLE>

ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS

Temporary Defensive Investment Strategy

Each Portfolio may depart from its principal investment strategies by taking
temporary defensive positions in response to adverse market, economic or
political conditions. During these times, a Portfolio may not achieve its
investment goals.

17
<PAGE>

Active Trading Strategy

The MFS Emerging Equities Portfolio, MFS Research Growth Portfolio and the MFS
Value Equity Portfolio may engage in active trading to achieve their investment
goals. This may cause these Portfolios to realize higher capital gains as
compared to a fund with less active trading, which would increase your tax
liability. Frequent trading also increases transaction costs, which would lower
these Portfolios' performance.

MFS EMERGING EQUITIES PORTFOLIO

Principal Investment Strategies. The Portfolio's investment objective is long
term growth of capital. In order to achieve its investment objective, the
Portfolio invests primarily in common stocks and related securities, such as
preferred stocks, convertible securities and depositary receipts for those
securities, of emerging growth companies. Emerging growth companies are
companies which MFS believes either are:

o early in their life cycle but which have the potential to become major
enterprises, or

o major enterprises whose rates of earnings growth MFS believes will
accelerate because of special factors, such as rejuvenated management, new
products, changes in consumer demand, or basic changes in the economic
environment.

Emerging growth companies may be of any size, and MFS believes that these
companies have products, technologies, management, markets and opportunities
which will facilitate earnings growth, that, over time, is well above the growth
rate of the overall economy and the rate of inflation. The Portfolio's
investments in emerging growth companies may include securities listed on a
securities exchange or traded in the over-the-counter markets.

More information about the types of securities in which the Portfolio may invest
and the investment techniques and practices in which the Portfolio may engage
that are not principal investment strategies are discussed, together with their
risks, in the Fund's Statement of Additional Information (referred to as the
SAI), which you may obtain by contacting the Fund (see back cover for address
and phone number).

18
<PAGE>

daily based on changes in the value of the securities that the Portfolio holds.
Please note that there are many circumstances that are not described here which
could cause the value of your investment in the Portfolio to decline, and which
could prevent the Portfolio from achieving its objective.

The principal risks of investing in the Portfolio are:

o Market Risk: This is the risk that the price of a security held by the
Portfolio will fall due to changing economic, political or market
conditions or disappointing earnings results.

o Company Risk: Prices of securities react to the economic condition of the
company that issued the security. The Portfolio's equity investments in an
issuer may rise and fall based on the issuer's actual and anticipated
earnings, changes in management and the potential for takeovers and
acquisitions.

o Emerging Growth Risk: Prices of securities react to the economic condition
of the company that issued the security. The Portfolio's equity investments
in an issuer may rise and fall based on the issuer's actual and anticipated
earnings, changes in management and the potential for takeovers and
acquisitions. Investments in emerging growth companies may be subject to
more abrupt or erratic market movements and may involve greater risks than
investments in other more established companies. Emerging growth companies
often may:

> have limited product lines, markets and financial resources

> be dependent on management by one or a few key individuals

> have limited marketability when, for example, disappointing earnings
reports are announced.

o Over the Counter Risk: Over the counter (OTC) transactions involve risks in
addition to those associated with transactions in securities traded on
exchanges. OTC listed companies may have limited product lines, markets or
financial resources. Many OTC securities trade less frequently and in
smaller volume than exchange-listed securities. The values of these
securities may be more volatile than exchange-listed securities, and the
Portfolio may experience difficulty in establishing or closing out
positions in these stocks at prevailing market prices.

19
<PAGE>

o Foreign Markets and Currency Risk: Investing in foreign markets and
securities involves risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences
between the regulations to which U.S. and foreign issuers and markets are
subject. These risks may include:

> The seizure by the government of company assets, excessive taxation,
withholding taxes on dividends and interest, limitations on the use or
transfer of portfolio assets, and political or social instability.

> Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.

> Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.

> Foreign markets may be less liquid and more volatile than U.S.
markets.

> Foreign securities often trade in currencies other than the U.S.
dollar, and the Portfolio may directly hold foreign currencies and
purchase and sell foreign currencies through forward exchange
contracts. Changes in currency exchange rates will affect the
Portfolio's net asset value, the value of dividends and interest
earned, and gains and losses realized on the sale of securities. An
increase in the strength of the U.S. dollar relative to these other
currencies may cause the value of the Portfolio to decline. Certain
foreign currencies may be particularly volatile, and foreign
governments may intervene in the currency markets, causing a decline
in value or liquidity in the Portfolio's foreign currency holdings. By
entering into forward foreign currency exchange contracts, the
Portfolio may be required to forego the benefits of advantageous
changes in exchange rates and, in the case of forward contracts
entered into for the purpose of increasing return, the Portfolio may
sustain losses which will reduce its gross income. Forward foreign
currency exchange contracts involve the risk that the party with which
the Portfolio contracts may fail to perform its obligations to the
Portfolio.

MFS RESEARCH GROWTH PORTFOLIO

Principal Investment Strategies. The Portfolio's investment objective is
long-term growth of capital and future income. In order to achieve its
investment objective, the Portfolio invests primarily in common stocks and
related securities, such as preferred stocks, convertible securities

20
<PAGE>

and depositary receipts. The Portfolio focuses on companies that MFS believes
have favorable prospects for long-term growth, attractive valuations based on
current and expected earnings or cash flow, dominant or growing market share and
superior management. The Portfolio may invest in companies of any size. The
Portfolio's investments may include securities traded on securities exchanges or
in the over-the-counter markets.

A committee of investment research analysts selects portfolio securities for the
Portfolio. This committee includes investment analysts employed not only by MFS,
but also by MFS International (U.K.) Limited, a wholly-owned subsidiary of MFS.
The committee allocates the Portfolio's assets among various industries.
Individual analysts then select what they view as the securities best suited to
achieve the Portfolio's investment objective within their assigned industry
responsibility.

The Portfolio may invest in foreign equity securities, and may have exposure to
foreign currencies through its investment in these securities, its direct
holdings of foreign currencies or through its use of foreign currency exchange
contracts for the purchase or sale of a fixed quantity of foreign currency at a
future date.

Principal Risks. The principal risks of investing in the Portfolio and the
circumstances reasonably likely to cause the value of your investment in the
Portfolio to decline are described below. As with any non-money market mutual
fund, the share price of a Portfolio will change daily based on changes in the
value of the securities that the Portfolio holds. Please note that there are
many circumstances that are not described here which could cause the value of
your investment in the Portfolio to decline, and which could prevent the
Portfolio from achieving its objective.

The principal risks of investing in the Portfolio are:

o Market Risk: This is the risk that the price of a security held by the
Portfolio will fall due to changing economic, political or market
conditions or disappointing earnings results.

o Company Risk: Prices of securities react to the economic condition of the
company that issued the security. The Portfolio's equity investments in an
issuer may rise and

21
<PAGE>

fall based on the issuer's actual and anticipated earnings, changes in
management and the potential for takeovers and acquisitions.

o Over the Counter Risk: Over the counter (OTC) transactions involve risks in
addition to those associated with transactions in securities traded on
exchanges. OTC listed companies may have limited product lines, markets or
financial resources. Many OTC securities trade less frequently and in
smaller volume than exchange-listed securities. The values of these
securities may be more volatile than exchange- listed securities, and the
Portfolio may experience difficulty in establishing or closing out
positions in these securities at prevailing market prices.

> Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.

> Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.

> Foreign markets may be less liquid and more volatile than U.S.
markets.

22
<PAGE>

value or liquidity in the Portfolio's foreign currency holdings. By
entering into forward foreign currency exchange contracts, the Portfolio
may be required to forego the benefits of advantageous changes in exchange
rates and, in the case of forward contracts entered into for the purpose of
increasing return, the Portfolio may sustain losses which will reduce its
gross income. Forward foreign currency exchange contracts involve the risk
that the party with which the Portfolio contracts may fail to perform its
obligations to the Portfolio.

MFS VALUE EQUITY PORTFOLIO

Principal Investment Strategies. The Portfolio's investment objective is capital
appreciation. In order to achieve its investment objective, the Portfolio
invests primarily in common stocks and related securities, such as preferred
stocks, convertible securities and depositary receipts for those securities. The
Portfolio focuses on companies which MFS believes have favorable growth
prospects and attractive valuations based on current and expected earnings or
cash flow.

The Portfolio may invest in foreign securities (including emerging market
securities), and may have exposure to foreign currencies through its investment
in these securities, its direct holdings of foreign currencies or through its
use of foreign currency exchange contracts for the purchase or sale of a fixed
quantity of a foreign currency at a future date.

More information about the types of securities in which the Portfolio invests
and the investment techniques and practices in which the Portfolio may engage
that are not principal investment strategies are discussed, together with their
risks, in the Fund's Statement of Additional Information (referred to as the
SAI), which you may obtain by contacting the Fund (see back cover for address
and phone number).

The principal risks of investing in the Portfolio are:

<PAGE>

o Market Risk: This is the risk that the price of a security held by the
Portfolio will fall due to changing economic, political or market
conditions or disappointing earnings results.

> Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.

> Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.

> Foreign markets may be less liquid and more volatile than U.S.
markets.

24
<PAGE>

> Foreign securities often trade in currencies other than the U.S. dollar,
and the Portfolio may directly hold foreign currencies and purchase and
sell foreign currencies through forward exchange contracts. Changes in
currency exchange rates will affect the Portfolio's net asset value, the
value of dividends and interest earned, and gains and losses realized on
the sale of securities. An increase in the strength of the U.S. dollar
relative to these other currencies may cause the value of the Portfolio to
decline. Certain foreign currencies may be particularly volatile, and
foreign governments may intervene in the currency markets, causing a
decline in value or liquidity in the Portfolio's foreign currency holdings.
By entering into forward foreign currency exchange contracts, the Portfolio
may be required to forego the benefits of advantageous changes in exchange
rates and, in the case of forward contracts entered into for the purpose of
increasing return, the Portfolio may sustain losses which will reduce its
gross income. Forward foreign currency exchange contracts involve the risk
that the party with which the Portfolio contracts may fail to perform its
obligations to the Portfolio.

> All of the risks of investing in foreign securities as described above
are heightened by investing in emerging markets countries.

> The markets of emerging markets countries have been more volatile than
the markets of developed countries with more mature economies. These
markets often have provided higher rates of return, and significantly
greater risks, to investors.

SCUDDER INTERNATIONAL GROWTH PORTFOLIO

Principal Investment Strategies. The Portfolio's investment objective is long
term growth of capital. In order to achieve its investment objective, the
Portfolio invests primarily in foreign equity securities with prospects for
growth. The Portfolio invests in securities issued by companies, wherever
organized, that do business primarily outside the U.S., including emerging
market countries. The Portfolio intends to diversify investments among several
countries and to have represented, in substantial proportions, business
activities in not less than three countries. The Portfolio generally invests in
equity securities issued by established companies listed on foreign exchanges
that SKI believes have favorable characteristics. The Portfolio also may

25
<PAGE>

invest in debt securities. SKI will select debt securities on the basis of,
among other things, yield, credit quality, and the fundamental outlook for
currency and interest rate trends in different parts of the globe.

In selecting potential high growth industries and companies for investment, SKI
conducts regional, country, industry and company analyses in search of
investments likely to benefit from economic, political, industrial and other
changes occurring across developed and emerging markets outside of the U.S. SKI
relies heavily on fundamental analysis, supplemented by field research, in
evaluating investment opportunities. Regional and country analysis involves
evaluating such factors as projected levels of economic growth, changes in
interest rates and inflation, trade patterns, fluctuations in currencies and
political developments within and among nations. Understanding regional themes
enables SKI to identify the industries and companies most likely to benefit from
the political, social and economic changes taking place in a given region of the
world. Within a market, SKI looks for individual companies with leading or
rapidly-developing business franchises, strong financial positions, and high
quality management capable of defining and implementing company strategies to
take advantage of local, regional or global market changes.

The principal risks of investing in the Portfolio are:

o Market Risk: This is the risk that the price of a security held by the
Portfolio will fall due to changing economic, political or market
conditions or disappointing earnings results.

o Company Risk: Prices of securities react to the economic condition of the
company that issued the security. The Portfolio's equity investments in an
issuer may rise and

26
<PAGE>

fall based on the issuer's actual and anticipated earnings, changes in
management and the potential for takeovers and acquisitions.

> Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.

> Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.

> Foreign markets may be less liquid and more volatile than U.S.
markets.

27
<PAGE>

> All of the risks of investing in foreign securities as described above
are heightened by investing in emerging markets countries.

T. ROWE PRICE GROWTH EQUITY PORTFOLIO

Principal Investment Strategies. The Portfolio's investment objective is
long-term capital growth, and secondarily, increasing dividend income. In order
to achieve its investment strategy, the Portfolio invests primarily in the
securities of U.S. companies expected by T. Rowe to have superior earnings
growth. T. Rowe normally (but not always) invests in companies that pay
dividends that are expected to rise over time as earnings increase. T. Rowe
generally looks for companies with an above-average rate of earnings growth and
an ability to sustain earnings momentum even during times of slow economic
growth. T. Rowe believes that when a company's earnings grow faster than both
inflation and the overall economy, the market will eventually reward it with a
higher stock price.

The Portfolio may sell securities for a variety of reasons such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.

More information about the types of securities in which the Portfolio invests
and the

28
<PAGE>

investment techniques and practices in which the Portfolio may engage that are
not principal investment strategies are discussed, together with their risks, in
the Fund's Statement of Additional Information (referred to as the SAI), which
you may obtain by contacting the Fund (see back cover for address and phone
number).

The principal risks of investing in the Portfolio are:

o Market Risk: This is the risk that the price of a security held by a
Portfolio will fall due to changing economic, political or market
conditions or disappointing earnings results.

> The seizure by the government of company assets, excessive taxation,
withholding taxes on dividends and interest, limitations on the use
or transfer of portfolio assets, and political or social instability.

> Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against
foreign governments.

> Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may
be less public information about their operations.

> Foreign markets may be less liquid and more volatile than U.S.
markets.

> Foreign securities often trade in currencies other than the U.S.
dollar, and the Portfolio may directly hold foreign currencies and
purchase and sell

29
<PAGE>

foreign currencies through forward exchange contracts. Changes in currency
exchange rates will affect the Portfolio's net asset value, the value of
dividends and interest earned, and gains and losses realized on the sale of
securities. An increase in the strength of the U.S. dollar relative to
these other currencies may cause the value of the Portfolio to decline.
Certain foreign currencies may be particularly volatile, and foreign
governments may intervene in the currency markets, causing a decline in
value or liquidity in the Portfolio's foreign currency holdings. By
entering into forward foreign currency exchange contracts, the Portfolio
may be required to forego the benefits of advantageous changes in exchange
rates and, in the case of forward contracts entered into for the purpose of
increasing return, the Portfolio may sustain losses which will reduce its
gross income. Forward foreign currency exchange contracts involve the risk
that the party with which the Portfolio enters the contract may fail to
perform its obligations to the Portfolio.

MANAGEMENT OF THE PORTFOLIOS

Investment Adviser. Aetna Life Insurance and Annuity Company (the Adviser)
serves as the investment adviser for each of the Portfolios. The Adviser is a
Connecticut insurance corporation with its principal offices at 151 Farmington
Avenue, Hartford, Connecticut 06156, and is registered with the Securities and
Exchange Commission as an investment adviser. As of December 31, 1998, the
Adviser managed over $____ billion in assets. Aetna Life Insurance and Annuity
Company is an indirect, wholly-owned subsidiary of Aetna Inc.

The Adviser, subject to the supervision of the Board of Directors of the Fund
(the "Directors," each a "Director"), manages and oversees the Fund's day-to-day
operations and manages the investments of each Portfolio. The Adviser may
delegate to a subadviser the responsibility for day-to-day management of the
investments of each Portfolio, subject to the Adviser's oversight. For the
fiscal year ended December 31, 1998, the Adviser received advisory fees from
each Portfolio as a percentage of the average net assets of each Portfolio as
follows:

<TABLE>
<CAPTION>
Portfolio Fee
<S> <C>
MFS Emerging Equities Portfolio............... 0.68% of average daily net assets

MFS Research Growth Portfolio................. 0.70% of average daily net assets

MFS Value Equity Portfolio.................... 0.65% of average daily net assets

Scudder International Growth Portfolio........ 0.80% of average daily net assets

T. Rowe Price Growth Equity Portfolio......... 0.60% of average daily net assets
</TABLE>

30
<PAGE>

The Adviser is responsible for all of its own costs, including costs of the
Adviser's personnel, required to carry out its investment advisory duties.

Subadvisers. MFS Emerging Equities Portfolio, MFS Research Growth Portfolio and
MFS Value Equity Portfolio. The Adviser has engaged Massachusetts Financial
Services Company ("MFS"), 500 Boylston Street, Boston, Massachusetts 02116, as
Subadviser to MFS Emerging Equities, MFS Research Growth and MFS Value Equity
Portfolios. MFS has been engaged in the investment management business since
1924 and is a subsidiary of Sun Life of Canada (U.S.), which is a subsidiary of
Sun Life of Canada (U.S.) Holdings, Inc., which in turn is a wholly-owned
subsidiary of Sun Life Assurance Company of Canada. Net assets under management
of MFS and affiliated companies were approximately $___ billion as of December
31, 1998.

John W. Ballen, a Senior Vice President of MFS, is portfolio manager of MFS
Emerging Equities. Mr. Ballen has been employed as a portfolio manager by MFS
since 1984. Portfolio securities of MFS Research Growth are selected by a
committee of investment research analysts. This committee includes investment
analysts employed not only by MFS but also by MFS International (U.K.) Limited,
a wholly-owned subsidiary of MFS. MFS Research Growth's assets are allocated
among industries by the analysts acting together as a group. Individual analysts
are then responsible for selecting what they view as the securities best suited
to meet MFS Research Growth's investment objective within their assigned
industry responsibility. John F. Brennan, Jr., a Vice President of MFS, is
portfolio manager of MFS Value Equity. Mr. Brennan has been employed by MFS as a
portfolio manager since 1985.

Scudder International Growth Portfolio. The Adviser has engaged Scudder Kemper
Investments, Inc., ("SKI") a Delaware corporation, 345 Park Avenue, New York,
New York 10154 as Subadviser to Scudder International Growth Portfolio. On June
26, 1997, Scudder, Stevens & Clark ("SSC") entered into a Transaction Agreement
with Zurich Insurance Company ("Zurich"). Under the terms of the Agreement,
Zurich acquired a majority interest in SSC, and Zurich Kemper Investments, Inc.,
a Zurich subsidiary, became part of SKI with the resultant name change. SKI (and
its predecessor SSC) has been engaged in the investment management business
since 1919. SKI managed in excess of $280 billion as of December 31, 1998. SKI
provides investment management services for mutual fund investors, retirement
and pension plans, institutional and corporate clients, insurance companies, and
private family and individual accounts.

Scudder International Growth Portfolio is managed by a team of SKI
professionals, each of whom plays an important role. Co-lead Portfolio Managers
Irene T. Cheng and Carol L. Franklin joined SKI in 1993 and 1981, respectively.
Ms. Cheng is a Managing Director, International Equity Management for SKI and
Ms. Franklin is a Managing Director for SKI responsible for international equity
portfolio management and research of certain Western and Eastern European
markets.

31
<PAGE>

T. Rowe Price Growth Equity Portfolio. The Adviser has engaged T. Rowe Price
Associates, Inc. ("T. Rowe"), 100 East Pratt Street, Baltimore, Maryland 21202
as Subadviser to T. Rowe Price Growth Equity Portfolio. T. Rowe has been engaged
in the investment management business since 1937. T. Rowe and its affiliates
managed over $147 billion as of December 31, 1998. T. Rowe Price Growth Equity
Portfolio is managed by a committee. The committee chairman, Robert W. Smith,
has day-to-day responsibility for managing the T. Rowe Price Growth Equity
Portfolio and works with the committee in developing and executing its
investment program. Mr. Smith joined T. Rowe in 1992 as an equity analyst and
has managed the T. Rowe Price Growth Stock Fund since 1997, as well as the U.S.
stock portion of the T. Rowe Price Global Stock Fund since its inception in
1995.

Each Subadviser, subject to the supervision of the Adviser and the Directors, is
responsible for managing the assets of its respective Portfolio(s) in accordance
with the Portfolio's investment objective and policies. Each Subadviser pays the
salaries and other related costs of personnel engaged in providing investment
advice, including office space, facilities and equipment.

The Adviser has overall responsibility for monitoring the investment program
maintained by each Subadviser for compliance with applicable laws and
regulations and the respective Portfolio's investment objective.

The Adviser pays each Subadviser a fee at an annual rate based on the average
daily net asset value of each Portfolio. The Adviser pays the subadvisory fee
out of its advisory fee.

Year 2000 Readiness. 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 the Adviser, had
substantially completed the assessment stage. The remediation of
mission-critical IT systems was completed by 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 Fund.

The Adviser, its affiliates and the Fund also have relationships with investment
advisers, broker dealers, transfer agents, custodians or other securities
industry participants or other service providers that are not affiliated with
Aetna. Aetna, including the Adviser, 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 the Adviser 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 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 Fund, including, without limitation, its operation or the
valuation of its assets.

32
<PAGE>

SHAREHOLDER INFORMATION

Net Asset Value

The net asset value per share (NAV) of each Portfolio is determined as of the
later of 15 minutes following the close of the New York Stock Exchange or 4:15
p.m. on each day that the New York Stock Exchange is open for trading. The New
York Stock Exchange is generally open for trading every Monday through Friday,
except for national holidays. Each Portfolio's NAV is computed by taking the
total value of a Portfolio's securities, plus any cash or other assets
(including dividends and interest accrued but not collected) and subtracting all
liabilities (including accrued expenses), and dividing the total by the number
of shares outstanding. Portfolio securities are valued primarily by independent
pricing services, based on market quotations. Short-term debt instruments
maturing in less than 60 days are valued at amortized cost. Securities for which
market quotations are not readily available are valued at their fair value in
such manner as may be determined, from time to time, in good faith, by or under
the authority of the Directors.

Sometimes, the price of a security trading on a foreign stock exchange may be
affected by events that happen after that exchange closes. If this happens, the
fair value of the security may be determined using other factors and may not
reflect the security's last quoted price. In addition, foreign securities may
trade on days when shares of the Portfolios are not priced. As a result, the NAV
of a Portfolio holding these securities may change on days when you would not be
able to buy or sell Portfolio shares.

Purchase and Redemption of Shares

Purchases and redemptions of shares may be made only by insurance companies for
their separate accounts at the direction of variable annuity and variable life
insurance contractowners. Please refer to the prospectus for your contract or
policy for information on how to direct investments in or redemptions from a
Portfolio and any fees that may apply. Orders received by the insurance company
before the earlier of 4:00 p.m. or the close of regular trading on the New York
Stock Exchange will be priced at the NAV calculated that day, as described
above. The Portfolios reserve the right to suspend the offering of shares, or to
reject any specific purchase order. The Portfolios 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
Securities and Exchange Commission.

A potential for certain conflicts may exist between the interests of variable
annuity contractowners, variable life insurance contractowners. Aetna currently
does not foresee any disadvantage to owners of variable annuity contracts or
variable life insurance contracts arising from the fact that shares of a
Portfolio might be held by such entities. The Directors, however, will monitor
the Fund and the Portfolios in order to identify any material irreconcilable
conflicts

33
<PAGE>

of interest which may possibly arise, and to determine what action, if
any, should be taken in response to any such conflicts.

Tax Matters

Each Portfolio intends to qualify as a regulated investment company for federal
income tax purposes by satisfying the requirements under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), including requirements
with respect to diversification of assets, distribution of income and sources of
income. As a regulated investment company, a Portfolio generally will not be
subject to tax on its ordinary income and net realized capital gains. Each
Portfolio also intends to comply with the diversification requirements of
Section 817(h) of the Code for variable annuity and variable life insurance
contracts so that the owners of these contracts should not be subject to federal
tax on distributions of dividends and income from a Portfolio to the insurance
company separate accounts. Contract owners should review the prospectus for
their variable annuity or variable life insurance contract for information
regarding the tax consequences to them of purchasing a contract.

PERFORMANCE

Performance of Similarly Managed Mutual Funds. Each Portfolio is recently
organized and has only a short-term performance record. Each Portfolio, however,
has substantially the same investment objective, policies and strategies as one
or more existing mutual funds (Comparable Funds) that are either sold directly
to the public or through variable products, and that are advised by MFS, SKI or
T. Rowe, as the case may be. While the Portfolios are managed in a manner
similar to that of the Comparable Funds presented, investors should be aware
that the Portfolios are not the same funds and will not have the same
performance. Investments made by the Portfolios at any given time may not be the
same as those made by the Comparable Funds. Different performance will result
due to factors such as differences, in the cash flows into and out of the
Portfolios, different fees and expenses, and differences in portfolio size and
positions. Each Comparable Fund has its own prospectus and information about the
Comparable Funds may be obtained by calling Aetna at 1-800-525-4225.

The historical performance of the Comparable Funds is presented below. You
should not consider the performance of the Comparable Funds as an indication of
the future performance of a Portfolio. The performance figures shown below
reflect the deduction of the historical fees and expenses paid by each
Comparable Fund, and not those to be paid by the Portfolio. The figures do not
reflect the deduction of any insurance fees or charges that are imposed by the
insurance company in connection with its sale of variable annuity or variable
life insurance contracts. You should refer to the separate account prospectuses
describing the variable annuity or variable life insurance contracts for
information pertaining to these insurance fees and charges. The insurance
separate account fees will have a detrimental effect on the performance of the
Portfolios. The results shown below reflect the reinvestment of dividends and
distributions, and were calculated in the same manner that will be used by each
Portfolio to calculate its own performance.

34
<PAGE>

The following table shows average annual total returns of the Comparable
Funds for the stated periods ended December 31, 1998, as well as a comparison
with the performance of the applicable benchmark.(1)

<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
MFS Emerging Growth Fund (Class I)(2)..................24.82% 19.78% 20.14% 23.19%
(Model for MFS Emerging Equities)(3)
Russell 2000 Index.....................................(2.55) 11.58 11.87 12.92
Lipper Mid Cap Fund Index..............................13.92 15.89 15.20 17.00

MFS Research Fund (Class I)(2).........................23.32 22.92 20.81 18.53
(Model for MFS Research Growth)(3)
Lipper Growth Fund Index...............................25.69 23.67 19.82 17.21
S&P 500 Index..........................................28.72 28.28 24.09 19.22

MFS Capital Opportunities Fund
(formerly MFS Value Fund) (Class I)(2).................27.44 23.53 21.53 18.02
(Model for MFS Value Equity)(3)
Lipper Capital Appreciation Fund Index.................19.98 18.28 16.26 15.71
S&P 500 Index..........................................28.72 28.28 24.09 19.22

Scudder VLIF International Portfolio...................18.49 14.05 10.32 11.96
(Model for Scudder International Growth)
MSCI EAFE Index........................................20.00 9.00 9.19 5.54

Scudder International Fund.............................18.62 13.63 9.82 10.63
(Model for Scudder International Growth)
MSCI EAFE Index........................................20.00 9.00 9.19 5.54

T. Rowe Price Growth Stock Fund........................27.41% 25.20% 20.99% 17.70%
(Model for T. Rowe Price Growth Equity)
Lipper Growth Fund Index...............................25.69% 23.67% 19.82% 17.21%
S&P 500 Index..........................................28.72% 28.28% 24.09% 19.22%
</TABLE>

(1) The S&P 500 (Standard & Poor's 500) Index is a value-weighted,
unmanaged index of 500 widely held stocks considered to be representative
of the stock market in general. The Lipper Mutual Fund Indices are
unmanaged, net-asset-value-weighted indices of the largest qualifying
mutual funds within their respective investment objectives. The Russell
2000 Index is a value-weighted, unmanaged index of small capitalization
stocks. The Morgan Stanley Capital International-Europe, Australasia,

(2) MFS Emerging Growth Fund and MFS Research Fund commenced offering Class
I shares on January 2, 1997; MFS Capital Opportunities Fund commenced
offering Class I shares on January 3, 1997. For periods preceding those
dates, Class I performance was calculated by using the performance of the
oldest class of shares for each Comparable Fund (Class B for MFS Emerging
Growth Fund and Class A for MFS Research and MFS Capital Opportunities
Fund), adjusted to reflect that Class I shares have no front-end load or
contingent deferred sales charge. No adjustment was made for differences in
the internal expenses among classes.

(3) MFS also manages three series of the MFS Variable Insurance Trust (VIT)
with substantially similar investment objectives, policies and strategies
as the comparable Portfolio Partners Portfolios. The performance of these
funds was not included in the chart because each has a relatively short
track record. The one-year, three-year and since inception performance (as
of December 31, 1998) of the VIT--Emerging Growth Series and VIT-Research
Series funds is as follows: VIT--Emerging Growth Series: 34.16%, 24.16% and
26.55%, respectively (inception July 24, 1995); VIT--Research Series:
23.39%, 21.99% and 22.52%, respectively (inception July 26, 1995). The
one-year and since inception performance (as of December 31, 1998) of the
VIT-- Value Series is 26.80% and 26.33%, respectively (inception August 14,
1996).

35
<PAGE>

Far East (MSCI EAFE) Index is an unmanaged, market value-weighted average
of the performance of more than 900 securities listed on the stock
exchanges of countries in Europe, Australia and the Far East. All indices
assume reinvestment of all dividends. It is not possible to invest directly
in an index.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand each
Portfolio's financial performance for the period of its operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in a Portfolio. This information has been audited by KPMG
Peat Marwick LLP, independent auditors, whose report, along with the Fund's
financial statements, are included in the annual report, which is available upon
request without charge by calling 1-800-525-4225.

Portfolio Partners, Inc.
Financial Highlights
- --------------------------------------------------------------------------------

Selected data for a share outstanding for the period:

<TABLE>
<CAPTION>
MFS Emerging
Equities Portfolio
For the Year Ended
December 31, 1998
--------------------
<S> <C>
Net asset value, beginning of period ......... $ 42.91
----------
Income from investment operations:
Net investment income (loss) ................ (0.21)
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. 12.88
----------
Total income from investment
operations .............................. 12.67
----------
Less Distributions:
Net investment income ....................... (0.11)
Net realized gain on sale
of investments ............................. (0.03)
----------
Total distributions ...................... (0.14)
----------
Net asset value, end of period ............... $ 55.44
==========
Total return ................................. 29.67%
Net assets, end of period (000's) ............ $1,069,040
Ratio of total expenses to average net
assets ...................................... 0.81%
Ratio of net investment income to
average net assets .......................... (0.45)%
Portfolio turnover rate ...................... 4.64%

<CAPTION>
MFS Emerging MFS Research
Equities Portfolio Growth Portfolio
Period from Period from
November 28, 1997 MFS Research November 28, 1997
(commencement Growth Portfolio (commencement
of operations) For the Year Ended of operations)
to December 31, 1997 December 31, 1998 to December 31, 1997
---------------------- -------------------- ---------------------
<S> <C> <C> <C>
Net asset value, beginning of period ......... $ 43.39 $ 9.71 $ 9.89
---------- ------- ----------
Income from investment operations:
Net investment income (loss) ................ 0.09 0.02 --
Net realized and change in unrealized
gain (loss) on investments, futures,
foreign currency and forward
foreign currency exchange
contracts .................................. (0.57) 2.20 (0.18)
---------- ------- ----------
Total income from investment
operations .............................. (0.48) 2.22 (0.18)
---------- ------- ----------
Less Distributions:
Net investment income ....................... -- --* --
Net realized gain on sale
of investments ............................. -- -- --
---------- -------- ----------
Total distributions ...................... -- -- --
---------- -------- ----------
Net asset value, end of period ............... $ 42.91 $ 11.93 $ 9.71
========== ======== ==========
Total return ................................. (1.13)%(1) 23.00% (1.82)%(1)
Net assets, end of period (000's) ............ $ 768,108 $491,537 $ 399,548
Ratio of total expenses to average net
assets ...................................... 0.81%(2) 0.85% 0.85%(2)
Ratio of net investment income to
average net assets .......................... 2.31%(2) 0.23% 0.22%(2)
Portfolio turnover rate ...................... 0.07%(1) 97.51% 57.88%(1)
</TABLE>

(1) Not annualized.
(2) Annualized.
* Dividend on portfolio was less than $0.01.

<TABLE>
<CAPTION>
MFS Value
Equity Portfolio
Period from
MFS Value November 28, 1997 Scudder International
Equity Portfolio (commencement Growth Portfolio
For the Year Ended of operations) For the Year Ended
December 31, 1998 to December 31, 1997 December 31, 1998
- -------------------- ---------------------- -----------------------
<S> <C> <C>
$ 29.91 $ 29.49 $ 14.10
---------- --------- --------
0.05 0.05 0.13
7.94 0.37 2.56
----------- --------- --------
7.99 0.42 2.69
----------- --------- --------
(0.04) -- (0.03)
-- -- --
----------- --------- --------
(0.04) -- (0.03)
----------- --------- --------
$ 37.86 $ 29.91 $ 16.76
=========== ========= ========
26.74% 1.43%(1) 19.09%
$ 194,926 $ 134,508 $432,651
0.90% 0.90%(2) 1.00%
0.17% 1.98%(2) 0.83%
141.31% 12.06%(1) 68.85%

<CAPTION>
Scudder International T. Rowe Price Growth
Growth Portfolio Equity Portfolio
Period from Period from
November 28, 1997 T. Rowe Price Growth November 28, 1997
(commencement Equity Portfolio (commencement
of operations) For the Year Ended of operations)
to December 31, 1997 December 31, 1998 to December 31, 1997
- ----------------------- ---------------------- ---------------------
<C> <C> <C>
$ 13.88 $ 43.61 $ 42.74
--------- -------- ---------
-- 0.30 0.06
0.22 11.66 0.81
--------- -------- ---------
0.22 11.96 0.87
--------- -------- ---------
-- (0.17) --
-- (0.09) --
--------- --------- ---------
-- (0.26) --
--------- --------- ---------
$ 14.10 $ 55.31 $ 43.61
========= ========= =========
1.58%(1) 27.60% 2.03%(1)
$ 378,200 $521,484 $ 371,194
1.00%(2) 0.75% 0.75%(2)
0.12%(2) 0.65% 1.58%(2)
3.01%(1) 57.58% 2.94%(1)
</TABLE>

36
<PAGE>

PORTFOLIO PARTNERS, INC.
151 FARMINGTON AVENUE
HARTFORD, CT 06156-8962

For investors who want more information about the Fund, the following documents
are available free upon request:

o Statement of Additional Information ("SAI"): The SAI, dated May 3, 1999,
contains more detailed information about the Fund and is incorporated by
reference into (made legally a part of) this prospectus.

o Annual/Semi-Annual Reports: Additional information about the Fund's
investments is available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report you will find a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

For a free copy of the SAI or the Fund's annual and semi-annual reports call
1-800-525-4225, or write to Portfolio Partners, Inc., at the address listed
above.

The Securities and Exchange Commission maintains an Internet website
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information about the Fund You can also copy and review this
information at the SEC's Public Reference Room in Washington, DC, or can obtain
copies, upon payment of a duplicating fee, by writing the Public Reference
Section of the Securities and Exchange Commission, Washington, DC 20549-6009.
You can obtain information on the operation of the Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330.

Investment Company Act File No. 811-8319

<PAGE>

PORTFOLIO PARTNERS, INC.
151 Farmington Avenue
Hartford, Connecticut 06156-8962

MFS Emerging Equities Portfolio
MFS Research Growth Portfolio
MFS Value Equity Portfolio
Scudder International Growth Portfolio
T. Rowe Price Growth Equity Portfolio

Statement of Additional Information dated: May 3, 1999

This Statement of Additional Information ("Statement") is not a prospectus but
should be read in conjunction with the current prospectus for Portfolio
Partners, Inc. dated May 3, 1999 (the "Prospectus"). This Statement is
incorporated by reference in its entirety into the Prospectus, and the financial
statements for the Portfolios for the period ending December 31, 1998, are
incorporated by reference into this Statement. A free Prospectus is available
upon request by writing to Portfolio Partners, Inc. at the address listed above
or by calling 1-800-525-4225.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund History.................................................................... 2
Description of the Fund and Its Investments and Risks........................... 2
Description of Various Securities and Investment Policies and Practices ........ 4
Futures Contracts and Options on Futures Contracts.............................. 14
Risks Associated With Investing in Options, Futures and Forward Transactions.... 18
Management of the Fund.......................................................... 23
Control Persons and Principal Shareholders...................................... 24
Investment Advisory and Other Services.......................................... 25
Principal Underwriter........................................................... 27
Brokerage Allocation and Trading Policies....................................... 27
Description of Shares........................................................... 29
Voting Rights................................................................... 29
Net Asset Value................................................................. 29
Tax Status...................................................................... 30
Performance Information......................................................... 33
Financial Statements............................................................ 34
Appendix A...................................................................... 35
</TABLE>

<PAGE>

FUND HISTORY

Portfolio Partners, Inc. (the "Fund") was incorporated in 1997 in Maryland and
commenced operations on November 28, 1997.

DESCRIPTION OF THE FUND
AND ITS INVESTMENTS AND RISKS

The Fund is an open-end management investment company 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"). The Fund
currently has authorized five Portfolios: MFS Emerging Equities Portfolio ("MFS
Emerging Equities"); MFS Research Growth Portfolio ("MFS Research Growth"); MFS
Value Equity Portfolio ("MFS Value Equity"); Scudder International Growth
Portfolio ("Scudder International Growth"); and T. Rowe Price Growth Equity
Portfolio ("T. Rowe Price Growth Equity"). Much of the information contained in
this Statement expands on subjects discussed in the Prospectus. Capitalized
terms not defined herein are used as defined in the Prospectus.

The investment policies and restrictions of the Portfolios, set forth below, are
matters of fundamental policy for purposes of the Investment Company Act of 1940
(the "1940 Act"), and therefore cannot be changed, with regard to a particular
Portfolio, without the approval of a majority of the outstanding voting
securities of that Portfolio as defined by the 1940 Act. This means the lesser
of: (i) 67% of the shares of a Portfolio present at a shareholders' meeting if
the holders of more than 50% of the shares of that Portfolio then outstanding
are present in person or by proxy; or (ii) more than 50% of the outstanding
voting securities of a Portfolio.

As a matter of fundamental policy, no Portfolio will:

1. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent a
Portfolio from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities).

2. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Portfolio from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business).

3. Issue any senior security (as defined in the 1940 Act), except that (a) a
Portfolio may engage in transactions that may result in the issuance of senior
securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) a Portfolio may
acquire other securities, the acquisition of which may result in the issuance of
a senior security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; and (c) subject to the restrictions set forth
below, a Portfolio may borrow money as authorized by the 1940 Act.

4. Borrow money, except that (a) a Portfolio may enter into commitments to
purchase securities in accordance with its investment program, including
when-issued securities and reverse repurchase agreements, provided that the
total amount of any such borrowing does not exceed 33-1/3% of the Portfolio's
total assets; and (b) a Portfolio may borrow money in an amount not to exceed
33-1/3% of the value of its total assets at the time the loan is made.

5. Lend any security or make any other loan if, as a result, more than 33-1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of publicly issued debt securities or to repurchase
agreements.

6. Underwrite securities issued by others, except to the extent that a Portfolio
may be considered an underwriter within the meaning of the Securities Act of
1933 (the "1933 Act") in the disposition of restricted securities.

2
<PAGE>

7. Purchase the securities of an issuer if, as a result, more than 25% of its
total assets would be invested in the securities of companies whose principal
business activities are in the same industry. This limitation does not apply to
securities issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities.

With respect to MFS Emerging Equities, MFS Research Growth and MFS Value Equity
only:

8. No Portfolio will 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 program of the Portfolio.

9. With respect to 100% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities) if, as a result, (a) more than 5% of the
Portfolio's total assets would be invested in the securities of that issuer, or
(b) the Portfolio would hold more than 10% of the outstanding voting securities
of that issuer.

With respect to Scudder International Growth and T. Rowe Price Growth Equity
only:

10. With respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities) if, as a result, (a) more than 5% of the
Portfolio's total assets would be invested in the securities of that issuer, or
(b) the Portfolio would hold more than 10% of the outstanding voting securities
of that issuer.

The following restrictions are not fundamental and may be changed without
shareholder approval:

1. No Portfolio will invest more than 15% 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 at approximately the price at which a Portfolio has valued them. 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, securities offered pursuant to Section 4(2) of, or securities
otherwise subject to restrictions on resale under, the 1933 Act ("Restricted
Securities"), shall not be deemed illiquid solely by reason of being
unregistered. A Subadviser determines whether a particular security is deemed to
be liquid based on the trading markets for the specific security and other
factors.

2. No Portfolio will borrow for leverage purposes.

3. No Portfolio will make short sales of securities, other than short sales
"against the box." This restriction does not apply to transactions involving
options, futures contracts and related options, and other strategic
transactions.

4. No Portfolio will lend portfolio securities.

With respect to Scudder International Growth and T. Rowe Price Growth Equity
only:

5. No Portfolio will 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 program of the Portfolio.

General. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of a Portfolio's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset,
except in the case of borrowing (or other activities that may be deemed to
result in the issuance of a "senior security" under the 1940 Act). Accordingly,
any subsequent change in values, net assets or other circumstances will not be
considered when determining whether the investment complies

3
<PAGE>

with the Portfolio's investment policies and limitations. If the value of a
Portfolio's holdings of illiquid securities at any time exceeds the percentage
limitation applicable at the time of acquisition due to subsequent fluctuations
in value or other reasons, the Directors will consider what actions, if any, are
appropriate to maintain adequate liquidity. With respect to fundamental policy
number 7, industry classifications of domestic issuers for Scudder International
Growth and T. Rowe Price Growth Equity are determined in accordance with the
current Directory of Companies Filing Annual Reports with the Securities and
Exchange Commission. Industry classifications of foreign issuers for these
Portfolios are based on data provided by Bloomberg L.P. and other industry data
sources. All industry classifications for MFS Emerging Equities, MFS Research
Growth and MFS Value Equity have been selected by Massachusetts Financial
Services Company ("MFS"), the subadviser for those Portfolios. MFS believes the
industry characteristics it has selected are reasonable and not so broad that
the primary economic characteristics of the companies in a single class are
materially different. The industry classifications selected by MFS may be
changed from time to time to reflect changes in the marketplace.

DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT POLICIES AND PRACTICES

"When-Issued" Securities--Each Portfolio may purchase securities on a
"when-issued" or on a "forward delivery" basis. It is expected that, under
normal circumstances, a Portfolio will take delivery of such securities. When a
Portfolio commits to purchase a security on a "when-issued" or on a "forward
delivery" basis, it will set up procedures consistent with the applicable
interpretations of the Securities and Exchange Commission (the "SEC") concerning
such purchases. Since that policy currently recommends that an amount of a
Portfolio's assets equal to the amount of the purchase be held aside or
segregated to be used to pay for the commitment, a Portfolio will always have
cash, short-term money market instruments or other liquid securities sufficient
to fulfill any commitments or to limit any potential risk. However, although
such purchases will not be made for speculative purposes and SEC policies will
be adhered to, purchases of securities on such bases may involve more risk than
other types of purchases. For example, a Portfolio may have to sell assets which
have been set aside in order to meet redemptions. Also, if a Portfolio
determines it is necessary to sell the "when-issued" or "forward delivery"
securities before delivery, it may incur a loss because of market fluctuations
since the time the commitment to purchase such securities was made. When the
time comes to pay for "when-issued" or "forward delivery" securities, a
Portfolio will meet its obligations from the then-available cash flow on the
sale of securities, or, although it would not normally expect to do so, from the
sale of the "when-issued" or "forward delivery" securities themselves (which may
have a value greater or less than the Portfolio's payment obligation).

Corporate Asset-Backed Securities--MFS Emerging Equities and Scudder
International Growth may invest in corporate asset-backed securities. These
securities, issued by trusts and special purpose corporations, are backed by a
pool of assets, such as credit card and automobile loan receivables,
representing the obligations of a number of different parties.

Corporate asset-backed securities present certain risks. For instance, in the
case of credit card receivables, these securities may not have the benefit of
any security interest in the related collateral. Credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. Most issuers of automobile receivables permit the servicers to
retain possession of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related automobile
receivables. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of the automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities. The underlying
assets (e.g., loans) are also subject to prepayments which shorten the
securities' weighted average life and may lower their return.

Corporate asset-backed securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on underlying assets to make payments, the
securities may contain elements of credit support which fall into two
categories: (i) liquidity protection and (ii) protection against losses
resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to

4
<PAGE>

the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments on the underlying pool occurs in
a timely fashion. Protection against losses resulting from ultimate default
ensures payment through insurance policies or letters of credit obtained by the
issuer or sponsor from third parties. The Portfolio will not pay any additional
or separate fees for credit support. The degree of credit support provided for
each issue is generally based on historical information respecting the level of
credit risk associated with the underlying assets. Delinquency or loss in excess
of that anticipated or failure of the credit support could adversely affect the
return on an investment in such a security.

Repurchase Agreements--Each of the Portfolios may enter into repurchase
agreements with sellers that are member firms (or subsidiaries thereof) of the
New York Stock Exchange, members of the Federal Reserve System, recognized
primary U.S. Government securities dealers or institutions which the Subadviser
has determined to be of comparable creditworthiness. The securities that a
Portfolio purchases and holds through its agent are U.S. Government securities,
the values, including accrued interest, of which are equal to or greater than
the repurchase price agreed to be paid by the seller. The repurchase price may
be higher than the purchase price, the difference being income to a Portfolio,
or the purchase and repurchase prices may be same, with interest at a standard
rate due to the Portfolio together with the repurchase price on repurchase. In
either case, the income to a Portfolio is unrelated to the interest rate on the
U.S. Government securities.

The repurchase agreement provides that in the event the seller fails to pay the
price agreed upon on the agreed upon delivery date or upon demand, as the case
may be, a Portfolio will have the right to liquidate the securities. If, at the
time a Portfolio is contractually entitled to exercise its right to liquidate
the securities, the seller is subject to a proceeding under the bankruptcy laws
or its assets are otherwise subject to a stay order, the Portfolio's exercise of
its right to liquidate the securities may be delayed and result in certain
losses and costs to the Portfolio. The Fund has adopted and follows procedures
which are intended to minimize the risks of repurchase agreements. For example,
a Portfolio only enters into repurchase agreements after its Subadviser has
determined that the seller is creditworthy, and the Subadviser monitors the
seller's creditworthiness on an ongoing basis. Moreover, under such agreements,
the value, including accrued interest, of the securities (which are marked to
market every business day) is required to be greater than the repurchase price,
and the Portfolio has the right to make margin calls at any time if the value of
the securities falls below the agreed upon margin.

Loan Participations and Other Direct Indebtedness--MFS Emerging Equities and MFS
Value Equity may each invest up to 5% of their total assets in loan
participations and other direct indebtedness. The highly leveraged nature of
many such loan participations and other direct indebtedness may make such loan
participations especially vulnerable to adverse changes in economic or market
conditions. Loan participations and other direct indebtedness may not be in the
form of securities or may be subject to restrictions on transfer, and only
limited opportunities may exist to resell such instruments. As a result, a
Portfolio may be unable to sell such investments at an opportune time or may
have to resell them at less than fair market value.

In purchasing a loan, a Portfolio acquires some or all of the interest of a bank
or other lending institution in a loan to a corporate borrower. Many such loans
are secured, although some may be unsecured. Such loans may be in default at the
time of purchase. Loan participations and other direct indebtedness that are
fully secured offer a Portfolio more protection than an unsecured loan in the
event of non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan or other direct
indebtedness would satisfy the corporate borrower's obligation, or that the
collateral can be liquidated.

These loans and other direct indebtedness are made generally to finance internal
growth, mergers, acquisitions, stock repurchases, leveraged buyouts and other
corporate activities. Such loans and other direct indebtedness are typically
made by a syndicate of lending institutions, represented by an agent lending
institution which has negotiated and structured the loan and is responsible for
collecting interest, principal and other amounts due on its own behalf and on
behalf of the others in the syndicate, and for enforcing its and their other
rights against the borrower. Alternatively, such loans and other direct
indebtedness may be structured as a novation, pursuant to which a Portfolio
would assume all of the rights of the lending institution in a loan, or as an
assignment, pursuant to which the Portfolio would purchase an assignment of a
portion of a lender's interest in a loan or other direct indebtedness either
directly from the lender or through an intermediary. A Portfolio may also
purchase trade or

5
<PAGE>

other claims against companies, which generally represent money owed by the
company to a supplier of goods or services. These claims may also be purchased
at a time when the company is in default.

Certain of the loans and other direct indebtedness acquired by a Portfolio may
involve revolving credit facilities or other standby financing commitments which
obligate the Portfolio to pay additional cash on a certain date or on demand.
These commitments may have the effect of requiring a Portfolio to increase its
investment in a company at a time when the Portfolio might not otherwise decide
to do so (including at a time when the company's financial condition makes it
unlikely that such amounts will be repaid). To the extent that a Portfolio is
committed to advance additional funds, it will at all times hold and maintain in
a segregated account cash or other liquid securities in an amount sufficient to
meet such commitments.

A Portfolio's ability to receive payment of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loans and other direct
indebtedness which a Portfolio will purchase, the Subadviser will rely upon its
own (and not the original lending institution's) credit analysis of the
borrower. As a Portfolio may be required to rely upon another lending
institution to collect and pass on to the Portfolio amounts payable with respect
to the loan and to enforce the Portfolio's rights under the loan and other
direct indebtedness, an insolvency, bankruptcy or reorganization of the lending
institution may delay or prevent the Portfolio from receiving such amounts. In
such cases, a Portfolio will evaluate as well the creditworthiness of the
lending institution and will treat both the borrower and the lending institution
as an "issuer" of the loan for purposes of certain investment restrictions
pertaining to the diversification of the Portfolio's portfolio investments. The
highly leveraged nature of many such loans and other direct indebtedness may
make such loans and other direct indebtedness especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans and other
direct indebtedness may involve additional risk to the Portfolio. For example,
if a loan or other direct indebtedness is foreclosed, the Portfolio could become
part owner of any collateral, and would bear the costs and liabilities
associated with owning and disposing of the collateral. In addition, it is
conceivable that under emerging legal theories of lender liability, the
Portfolio could be held liable. It is unclear whether loans and other forms of
direct indebtedness offer securities law protections against fraud and
misrepresentation. In the absence of definitive regulatory guidance, the
Portfolio relies on the Subadviser's research in an attempt to avoid situations
where fraud and misrepresentation could adversely affect the Portfolio. In
addition, loans and other direct investments may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, the Portfolio
may be unable to sell such investments at an opportune time or may have to
resell them at less than fair market value. To the extent that the Subadviser
determines that any such investments are illiquid, the Portfolio will include
them in the investment limitations described below.

Foreign Securities--The Portfolios may invest in foreign securities (and foreign
currencies) as described in the Prospectus. Investing in foreign securities
generally presents a greater degree of risk than investing in domestic
securities. As a result of its investments in foreign securities, a Portfolio
may receive interest or dividend payments, or the proceeds of the sale or
redemption of such securities, in the foreign currencies in which such
securities are denominated. Under certain circumstances, such as where a
Subadviser believes that the applicable exchange rate is unfavorable at the time
the currencies are received or the Subadviser anticipates, for any other reason,
that the exchange rate will improve, a Portfolio may hold such currencies for an
indefinite period of time. A Portfolio may also hold foreign currency in
anticipation of purchasing foreign securities. While holding currencies will
permit the Portfolio to take advantage of favorable movements in the applicable
exchange rate, such strategy also exposes the Portfolio to risk of loss if
exchange rates move in a direction adverse to the Portfolio's position. Such
losses could reduce any profits or increase any losses sustained by a Portfolio
from the sale or redemption of securities and could reduce the dollar value of
interest or dividend payments received.

American Depositary Receipts--Each Portfolio may invest in ADRs, which are
certificates issued by a U.S. depository (usually a bank) that represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. ADRs may be sponsored or unsponsored. A sponsored
ADR is issued by a depository which has an exclusive relationship with the
issuer of the underlying security. An unsponsored ADR may be issued by any
number of U.S. depositories. Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications

6
<PAGE>

and other information to the ADR holders at the request of the issuer of the
deposited securities. The depository of an unsponsored ADR, on the other hand,
is under no obligation to distribute shareholder communications received from
the issuer of the deposited securities or to pass through voting rights to ADR
holders in respect of the deposited securities. A Portfolio may invest in either
type of ADR. Although the U.S. investor holds a substitute receipt of ownership
rather than direct stock certificates, the use of the depository receipts in the
United States can reduce costs and delays as well as potential currency exchange
and other difficulties. A Portfolio may purchase securities in local markets and
direct delivery of these ordinary shares to the local depository of an ADR agent
bank in the foreign country. Simultaneously, the ADR agents create a certificate
that settles at the Portfolio's custodian in five days. A Portfolio may also
execute trades on the U.S. markets using existing ADRs. A foreign issuer of the
security underlying an ADR is generally not subject to the same reporting
requirements in the United States as a domestic issuer. Accordingly the
information available to a U.S. investor will be limited to the information the
foreign issuer is required to disclose in its own country and the market value
of an ADR may not reflect undisclosed material information concerning the issuer
of the underlying security. ADRs may also be subject to exchange rate risks if
the underlying foreign securities are traded in foreign currency.

Warrants--The Portfolios (except the Scudder International Growth) may acquire
warrants. Warrants are pure speculation in that they have no voting rights, pay
no dividends, and have no rights with respect to the assets of the corporation
issuing them. Warrants basically are options to purchase equity securities at a
specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. Warrants differ
from call options in that warrants are issued by the issuer of the security
which may be purchased on their exercise, whereas call options may be written or
issued by anyone. The prices of warrants do not necessarily move parallel to the
prices of the underlying securities.

Zero Coupon, Deferred Interest and PIK Bonds--Fixed income securities that MFS
Value Equity may invest in include zero coupon bonds, deferred interest bonds
and bonds on which the interest is payable in kind ("PIK bonds"). Zero coupon
and deferred interest bonds are debt obligations which are issued at a discount
from face value. The discount approximates the total amount of interest the
bonds will accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting the market rate of the
security at the time of issuance. While zero coupon bonds do not require the
periodic payment of interest, deferred interest bonds provide for a period of
delay before the regular payment of interest begins. PIK bonds are debt
obligations which provide that the issuer thereof may, at its option, pay
interest on such bonds in cash or in the form of additional debt obligations.
Such investments benefit the issuer by mitigating its need for cash to meet debt
service, but also require a higher rate of return to attract investors who are
willing to defer receipt of such cash. Such investments may experience greater
volatility in market value than debt obligations that make regular payments of
interest. The Portfolio will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Portfolio's
distribution obligations.

Risk of Investing in Lower Rated Fixed-Income Securities--Certain of the
Portfolios may invest in lower rated fixed-income securities rated Baa by
Moody's Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings
Group ("S&P") or by Fitch IBCA, Inc. ("Fitch") and comparable unrated
securities. These securities, while normally exhibiting adequate protection
parameters, have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than in the case of higher grade fixed income
securities.

A Portfolio may also invest in high-yield, below investment grade fixed-income
securities, which are rated Ba or lower by Moody's or BB or lower by S&P or by
Fitch, or, if unrated, of comparable quality. No minimum rating standard is
required by the Portfolios. These securities are considered speculative and,
while generally providing greater income than investments in higher rated
securities, will involve greater risk of principal and income (including the
possibility of default or bankruptcy of the issuers of such securities) and may
involve greater volatility of price (especially during periods of economic
uncertainty or change) than securities in the higher rating categories and
because yields vary over time, no specific level of income can ever be assured.
High-yield, below investment grade fixed-income securities generally tend to
reflect economic changes (and the outlook for economic growth), short-term
corporate and industry developments and the market's perception of their credit
quality

7
<PAGE>

(especially during times of adverse publicity) to a greater extent than
higher rated securities which react primarily to fluctuations in the general
level of interest rates (although these lower rated fixed income securities are
also affected by changes in interest rates). In the past, economic downturns or
an increase in interest rates have, under certain circumstances, caused a higher
incidence of default by the issuers of these securities and may do so in the
future, especially in the case of highly leveraged issuers. The prices for these
securities may be affected by legislative and regulatory developments. The
market for these lower rated fixed income securities may be less liquid than the
market for investment grade fixed income securities. Furthermore, the liquidity
of these lower rated securities may be affected by the market's perception of
their credit quality. Therefore, the Subadviser's judgment may at times play a
greater role in valuing these securities than in the case of investment grade
fixed income securities, and it also may be more difficult during times of
certain adverse market conditions to sell these lower rated securities to meet
redemption requests or to respond to changes in the market. For a description of
the rating categories described above, see Appendix A.

While a Subadviser may refer to ratings issued by established credit rating
agencies, it is not the Portfolios' policy to rely exclusively on ratings issued
by these rating agencies, but rather to supplement such ratings with the
Subadviser's own independent and ongoing review of credit quality. To the extent
a Portfolio invests in these lower rated securities, the achievement of its
investment objective may be more dependent on the Subadviser's own credit
analysis than in the case of a fund investing in higher quality fixed income
securities. These lower rated securities may also include zero coupon bonds,
deferred interest bonds and PIK bonds which are described above.

Hybrid Instruments--T. Rowe Price Growth Equity and MFS Value Equity may invest
in hybrid instruments. Hybrid instruments (a type of potentially high-risk
derivative) combine the elements of futures contracts or options with those of
debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred
stock, depository share, trust certificate, certificate of deposit or other
evidence of indebtedness on which a portion of or all interest payments, and/or
the principal or stated amount payable at maturity, redemption or retirement, is
determined by reference to prices, changes in prices, or differences between
prices, of securities, currencies, intangibles, goods, articles or commodities
(collectively "Underlying Assets") or by another objective index, economic
factor or other measure, such as interest rates, currency exchange rates,
commodity indices, and securities indices (collectively "Benchmarks"). Thus,
Hybrid Instruments may take a variety of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of a currency or commodity or securities
index at a future point in time, preferred stock with dividend rates determined
by reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity.

Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, the Portfolio may wish to take advantage of expected
declines in interest rates in several European countries, but avoid the
transaction costs associated with buying and currency-hedging the foreign bond
positions. One solution would be to purchase a U.S. dollar-denominated Hybrid
Instrument whose redemption price is linked to the average three year interest
rate in a designated group of countries. The redemption price formula would
provide for payoffs of greater than par if the average interest rate was lower
than a specified level, and payoffs of less than par if rates were above the
specified level. Furthermore, the Portfolio could limit the downside risk of the
security by establishing a minimum redemption price so that the principal paid
at maturity could not be below a predetermined minimum level if interest rates
were to rise significantly. The purpose of this arrangement, known as a
structured security with an embedded put option, would be to give the Portfolio
the desired European bond exposure while avoiding currency risk, limiting
downside market risk, and lowering transactions costs. Of course, there is no
guarantee that the strategy would be successful and the Portfolio could lose
money if, for example, interest rates do not move as anticipated or credit
problems develop with the issuer of the Hybrid Instrument.

The risks of investing in Hybrid Instruments reflect a combination of the risks
of investing in securities, options, futures and currencies. Thus, an investment
in a Hybrid Instrument may entail significant risks that are not associated with
a similar investment in a traditional debt instrument that has a fixed principal
amount, is denominated in U.S. dollars or bears interest either at a fixed rate
or a floating rate determined by reference to a common, nationally published
Benchmark. The risks of a particular Hybrid Instrument will, of course, depend
upon

8
<PAGE>

the terms of the instrument, but may include, without limitation, the
possibility of significant changes in the Benchmarks or the prices of Underlying
Assets to which the instrument is linked. Such risks generally depend upon
factors which are unrelated to the operations or credit quality of the issuer of
the Hybrid Instrument and which may not be readily foreseen by the purchaser,
such as economic and political events, the supply and demand for the Underlying
Assets and interest rate movements. In recent years, various Benchmarks and
prices for Underlying Assets have been highly volatile, and such volatility may
be expected in the future. Reference is also made to the discussion of futures,
options, and forward contracts herein for a discussion of the risks associated
with such investments.

Hybrid Instruments are potentially more volatile and carry greater market risks
than traditional debt instruments. Depending on the structure of the particular
Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the
Hybrid Instrument and have an even more dramatic and substantial effect upon the
value of the Hybrid Instrument. Also, the prices of the Hybrid Instrument and
the Benchmark or Underlying Asset may not move in the same direction or at the
same time.

Hybrid Instruments may bear interest or pay preferred dividends at below market
(or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear
interest at above market rates but bear an increased risk of principal loss (or
gain). The latter scenario may result if "leverage" is used to structure the
Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured
so that a given change in a Benchmark or Underlying Asset is multiplied to
produce a greater value change in the Hybrid Instrument, thereby magnifying the
risk of loss as well as the potential for gain.

Hybrid Instruments may also carry liquidity risk since the instruments are often
"customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
Portfolio and the issuer of the Hybrid Instrument, the creditworthiness of the
counterparty or issuer of the Hybrid Instrument would be an additional risk
factor which the Portfolio would have to consider and monitor. Hybrid
Instruments also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the trading of commodity
futures by U.S. persons, the SEC, which regulates the offer and sale of
securities by and to U.S. persons, or any other governmental regulatory
authority.

The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of the Portfolio. Accordingly, each Portfolio will limit its investments in
Hybrid Instruments to 10% of total assets. However, because of their volatility,
it is possible that the Portfolio's investment in Hybrid Instruments will
account for more than 10% of its return (positive or negative).

The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the U.S. and
abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.

Swaps, Caps, Floors and Collars--Among the transactions into which Scudder
International Growth may enter are interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. The Portfolio expects
to enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolio intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream it may
be obligated to pay. Interest rate swaps involve the exchange by the Portfolio
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. A currency swap is an agreement to exchange
cash flows on a notional amount of two or more currencies

9
<PAGE>

based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the
Subadviser and the Portfolio believe such obligations do not constitute senior
securities under the 1940 Act, and, accordingly, will not treat them as being
subject to its borrowing restrictions. The Portfolio will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from a NRSRO or is determined to be of equivalent credit quality by the
Subadviser. If there is a default by the counterparty, the Portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments--Scudder International Growth and MFS Value Equity may
make investments in Eurodollar instruments. Eurodollar instruments are U.S.
dollar-denominated futures contracts or options thereon which are linked to the
London Interbank Offered Rate ("LIBOR"), although foreign currency-denominated
instruments are available from time to time. Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. Scudder International Growth might use Eurodollar
futures contracts and options thereon to hedge against changes in LIBOR, to
which many interest rate swaps and fixed income instruments are linked.

Options on Securities--MFS Emerging Equities, MFS Value Equity, Scudder
International Growth and T. Rowe Price Growth Equity may purchase and write
(sell) call and put options on securities. A Portfolio may sell options on
securities for the purpose of increasing its return on such securities and/or to
protect the value of its portfolio. MFS Emerging Equities, MFS Value Equity and
Scudder International Growth may only sell calls on securities if such calls are
"covered," as explained below. A Portfolio may also write combinations of put
and call options on the same security, known as "straddles." Such transactions
can generate additional premium income but also present increased risk.

A Portfolio may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the prices
of securities that the Portfolio wants to purchase at a later date. A Portfolio
may sell call and put options only if it takes certain steps to cover such
options or segregates assets, in accordance with regulatory requirements, as
described below.

A call option sold by a Portfolio is "covered" if the Portfolio owns the
security underlying the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is considered
offset, and thus held in accordance with regulatory requirements, if a Portfolio
holds a call on the same security and in the same principal amount as the call
sold when the exercise price of the call held (a) is equal to or less than the
exercise price of the call sold or (b) is greater than the exercise price of
the call sold if the difference is maintained by the Portfolio in liquid
securities in a segregated account with its custodian. If a put option is sold
by a Portfolio, the Portfolio will maintain liquid securities with a value equal
to the exercise price in a segregated account with its custodian, or else will
hold a put on the same security and in the same principal amount as the put sold
where the exercise price of the put held is equal to or greater than the
exercise price

10
<PAGE>

of the put sold or where the exercise price of the put held is less than the
exercise price of the put sold if the Portfolio maintains in a segregated
account with the custodian, liquid securities with an aggregate value equal to
the difference.

Effecting a closing transaction in the case of a sold call option will permit a
Portfolio to sell another call option on the underlying security with either a
different exercise price or expiration date or both, or in the case of a sold
put option will permit the Portfolio to sell another put option to the extent
that the exercise price thereof is secured by liquid securities in a segregated
account. Such transactions permit a Portfolio to generate additional premium
income, which will partially offset declines in the value of portfolio
securities or increases in the cost of securities to be acquired. Also,
effecting a closing transaction will permit the cash or proceeds from the
concurrent sale of any security subject to the option to be used for other
investments of a Portfolio, provided that another option on such security is not
sold. If the Portfolio desires to sell a particular security from its portfolio
on which it has sold a call option, it will effect a closing transaction in
connection with the option prior to or concurrent with the sale of the security.

A Portfolio will realize a profit from a closing transaction if the premium paid
in connection with the closing of an option sold by the Portfolio is less than
the premium received from selling the option, or if the premium received in
connection with the closing of an option by the Portfolio is more than the
premium paid for the original purchase. Conversely, a Portfolio will suffer a
loss if the premium paid or received in connection with a closing transaction is
more or less, respectively, than the premium received or paid in establishing
the option position. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option previously sold by the
Portfolio is likely to be offset in whole or in part by appreciation of the
underlying security owned by the Portfolio.

A Portfolio may sell options in connection with buy-and-write transactions; that
is, the Portfolio may purchase a security and then sell a call option against
that security. The exercise price of the call a Portfolio determines to sell
will depend upon the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is sold. Buy-and-write transactions
using in-the-money call options may be used when it is expected that the price
of the underlying security will decline moderately during the option period.
Buy-and-write transactions using out-of-the-money call options may be used when
it is expected that the premiums received from selling the call option plus the
appreciation in the market price of the underlying security up to the exercise
price will be greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such transactions, a
Portfolio's maximum gain will be the premium received by it for selling the
option, adjusted upwards or downwards by the difference between the Portfolio's
purchase price of the security and the exercise price, less related transaction
costs. If the options are not exercised and the price of the underlying security
declines, the amount of such decline will be offset in part, or entirely, by the
premium received.

The selling of put options is similar in terms of risk/return characteristics to
buy-and-write transactions. If the market price of the underlying security rises
or otherwise is above the exercise price, the put option will expire worthless
and the Portfolio's gain will be limited to the premium received. If the market
price of the underlying security declines or otherwise is below the exercise
price, a Portfolio may elect to close the position or retain the option until it
is exercised, at which time the Portfolio will be required to take delivery of
the security at the exercise price; the Portfolio's return will be the premium
received from the put option minus the amount by which the market price of the
security is below the exercise price, which could result in a loss.
Out-of-the-money, at-the-money and in-the-money put options may be used by a
Portfolio in the same market environments that call options are used in
equivalent buy-and-write transactions.

A Portfolio may also sell combinations of put and call options on the same
security, known as "straddles," with the same exercise price and expiration
date. By entering into a straddle, a Portfolio undertakes a simultaneous
obligation to sell and purchase the same security in the event that one of the
options is exercised. If the price of the security subsequently rises
sufficiently above the exercise price to cover the amount of the premium and
transaction costs, the call will likely be exercised and the Portfolio will be
required to sell the underlying security at a below market price. This loss may
be offset, however, in whole or in part, by the premiums received on the writing
of the call options. Conversely, if the price of the security declines by a
sufficient amount, the put will likely be exercised.

11
<PAGE>

Straddles will likely be effective, therefore, only where the price of the
security remains stable and neither the call nor the put is exercised. In those
instances where one of the options is exercised, the loss on the purchase or
sale of the underlying security may exceed the amount of the premiums received.

By selling a call option, a Portfolio limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise price
of the option. By selling a put option, a Portfolio assumes the risk that it may
be required to purchase the underlying security for an exercise price above its
then current market value, resulting in a capital loss unless the security
subsequently appreciates in value. The selling of options on securities will not
be undertaken by a Portfolio solely for hedging purposes, and could involve
certain risks which are not present in the case of hedging transactions.
Moreover, even where options are sold for hedging purposes, such transactions
constitute only a partial hedge against declines in the value of portfolio
securities or against increases in the value of securities to be acquired, up to
the amount of the premium.

A Portfolio may purchase options for hedging purposes or to increase its return.
Put options may be purchased to hedge against a decline in the value of
portfolio securities. If such decline occurs, the put options will permit a
Portfolio to sell the securities at the exercise price, or to close out the
options at a profit. By using put options in this way, the Portfolio will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and by transaction costs.

A Portfolio may purchase call options to hedge against an increase in the price
of securities that the Portfolio anticipates purchasing in the future. If such
increase occurs, the call option will permit the Portfolio to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Portfolio upon exercise of the option, and,
unless the price of the underlying security rises sufficiently, the option may
expire worthless to the Portfolio.

In certain instances, a Portfolio may enter into options on U.S. Treasury
securities which provide for periodic adjustment of the strike price and may
also provide for the periodic adjustment of the premium during the term of each
such option. Like other types of options, these transactions, which may be
referred to as "reset" options or "adjustable strike" options, grant the
purchaser the right to purchase (in the case of a "call"), or sell (in the case
of a "put"), a specified type and series of U.S. Treasury security at any time
up to a stated expiration date (or, in certain instances, on such date). In
contrast to other types of options, however, the price at which the underlying
security may be purchased or sold under a "reset" option is determined at
various intervals during the term of the option, and such price fluctuates from
interval to interval based on changes in the market value of the underlying
security. As a result, the strike price of a "reset" option, at the time of
exercise, may be less advantageous to the Portfolio than if the strike price had
been fixed at the initiation of the option. In addition, the premium paid for
the purchase of the option may be determined at the termination, rather than the
initiation, of the option. If the premium is paid at termination, the Portfolio
assumes the risk that (i) the premium may be less than the premium which would
otherwise have been received at the initiation of the option because of such
factors as the volatility in yield of the underlying Treasury security over the
term of the option and adjustments made to the strike price of the option, and
(ii) the option purchaser may default on its obligation to pay the premium at
the termination of the option.

Options on Stock Indices--MFS Emerging Equities, MFS Value Equity, Scudder
International Growth and T. Rowe Price Growth Equity may purchase and sell call
and put options on stock indices. A portfolio generally may sell options on
stock indices for the purpose of increasing gross income and to protect the
portfolio against declines in the value of securities they own or increases in
the value of securities to be acquired, although a Portfolio may also purchase
put or call options on stock indices in order, respectively, to hedge its
investments against a decline in value or to attempt to reduce the risk of
missing a market or industry segment advance. A Portfolio's possible loss in
either case will be limited to the premium paid for the option, plus related
transaction costs, although Scudder International Growth may sell options on
securities indices only to close out open positions.

In contrast to an option on a security, an option on a stock index provides the
holder with the right but not the obligation to make or receive a cash
settlement upon exercise of the option, rather than the right to purchase or
sell a security. The amount of this settlement is equal to (i) the amount, if
any, by which the fixed exercise price of the

12
<PAGE>

option exceeds (in the case of a call) or is below (in the case of a put) the
closing value of the underlying index on the date of exercise, multiplied by
(ii) a fixed "index multiplier."

A Portfolio may sell call options on stock indices if it owns securities whose
price changes, in the opinion of the Subadviser, are expected to be similar to
those of the underlying index, or if it has an absolute and immediate right to
acquire such securities without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other securities in its Portfolio. When a Portfolio
covers a call option on a stock index it has sold by holding securities, such
securities may not match the composition of the index and, in that event, the
Portfolio will not be fully covered and could be subject to risk of loss in the
event of adverse changes in the value of the index. A Portfolio may also sell
call options on stock indices if it holds a call on the same index and in the
same principal amount as the call sold when the exercise price of the call held
(a) is equal to or less than the exercise price of the call sold or (b) is
greater than the exercise price of the call sold if the difference is maintained
by the Portfolio in liquid securities in a segregated account with its
custodian. A Portfolio may sell put options on stock indices if it maintains
liquid securities with a value equal to the exercise price in a segregated
account with its custodian, or by holding a put on the same stock index and in
the same principal amount as the put sold when the exercise price of the put is
equal to or greater than the exercise price of the put sold if the difference is
maintained by the Portfolio in liquid securities in a segregated account with
its custodian. Put and call options on stock indices may also be covered in such
other manner as may be in accordance with the rules of the exchange on which, or
the counterparty with which, the option is traded and applicable laws and
regulations.

A Portfolio will receive a premium from selling a put or call option, which
increases the Portfolio's gross income in the event the option expires
unexercised or is closed out at a profit. If the value of an index on which a
Portfolio has sold a call option falls or remains the same, the Portfolio will
realize a profit in the form of the premium received (less transaction costs)
that could offset all or a portion of any decline in the value of the securities
it owns. If the value of the index rises, however, the Portfolio will realize a
loss in its call option position, which will reduce the benefit of any
unrealized appreciation in the Portfolio's stock investments. By selling a put
option, the Portfolio assumes the risk of a decline in the index. To the extent
that the price changes of securities owned by the Portfolio correlate with
changes in the value of the index, selling covered put options on indices will
increase the Portfolio's losses in the event of a market decline, although such
losses will be offset in part by the premium received for selling the option.

A Portfolio may also purchase put options on stock indices to hedge its
investments against a decline in value. By purchasing a put option on a stock
index, the Portfolio will seek to offset a decline in the value of securities it
owns through appreciation of the put option. If the value of the Portfolio's
investments does not decline as anticipated, or if the value of the option does
not increase, the Portfolio's loss will be limited to the premium paid for the
option plus related transaction costs. The success of this strategy will largely
depend on the accuracy of the correlation between the changes in value of the
index and the changes in value of the Portfolio's security holdings.

The purchase of call options on stock indices may be used by a Portfolio to
attempt to reduce the risk of missing a broad market advance, or an advance in
an industry or market segment at a time when the Portfolio holds uninvested cash
or short-term debt securities awaiting investment. When purchasing call options
for this purpose, the Portfolio will also bear the risk of losing all or a
portion of the premium paid if the value of the index does not rise. The
purchase of call options on stock indices when the Portfolio is substantially
fully invested is a form of leverage, up to the amount of the premium and
related transaction costs, and involves risks of loss and of increased
volatility similar to those involved in purchasing calls on securities the
Portfolio owns.

The index underlying a stock index option may be a "broad-based" index, such as
the Standard & Poor's 500 Index or the New York Stock Exchange Composite Index,
the changes in value of which ordinarily will reflect movements in the stock
market in general. In contrast, certain options may be based on narrower market
indices, such as the Standard & Poor's 100 Index, or on indices of securities of
particular industry groups, such as those of oil and gas or technology
companies. A stock index assigns relative values to the stocks included in the
index and the index fluctuates with changes in the market values of the stocks
so included. The composition of the index is changed periodically.

13
<PAGE>

Yield Curve Options--MFS Value Equity may also enter into options on the
"spread," or yield differential, between two fixed income securities, in
transactions referred to as "yield curve" options. In contrast to other types of
options, a yield curve option is based on the difference between the yields of
designated securities, rather than the prices of the individual securities, and
is settled through cash payments. Accordingly, a yield curve option is
profitable to the holder if this differential widens (in the case of a call) or
narrows (in the case of a put), regardless of whether the yields of the
underlying securities increase or decrease.

Yield curve options may be used for the same purposes as other options on
securities. Specifically, the Portfolio may purchase or sell such options for
hedging purposes. For example, the Portfolio may purchase a call option on the
yield spread between two securities, if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an adverse
change in the yield spread between the two securities. The Portfolio may also
purchase or sell yield curve options for other than hedging purposes (i.e., in
an effort to increase its current income) if, in the judgment of the Subadviser,
the Portfolio will be able to profit from movements in the spread between the
yields of the underlying securities. The trading of yield curve options is
subject to all of the risks associated with the trading of other types of
options. In addition, however, such options present risk of loss even if the
yield of one of the underlying securities remains constant, if the spread moves
in a direction or to an extent which was not anticipated. Yield curve options
will be sold by the Portfolio only if the Portfolio holds another call (or put)
option on the spread between the same two securities and maintains in a
segregated account with its custodian liquid securities sufficient to cover the
Portfolio's net liability under the two options. Therefore, the Portfolio's
liability for such a covered option is generally limited to the difference
between the amount of the Portfolio's liability under the option sold by the
Portfolio less the value of the option held by the Portfolio. Yield curve
options may also be covered in such other manner as may be in accordance with
the requirements of the counterparty with which the option is traded and
applicable laws and regulations. Yield curve options are traded over-the-counter
and because they have been recently introduced, established trading markets for
these securities have not yet developed.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

MFS Emerging Equities, MFS Value Equity, Scudder International Growth and T.
Rowe Price Growth Equity may engage in the following types of transactions:

Futures Contracts--The Portfolios may enter into stock index futures contracts,
including futures contracts related to stock indices and interest rates among
others. Such investment strategies will be used for hedging purposes and for
non-hedging purposes, subject to applicable law. Purchases or sales of stock
index futures contracts for hedging purposes may be used to attempt to protect a
Portfolio's current or intended stock investments from broad fluctuations in
stock prices, to act as a substitute for an underlying investment, or to enhance
yield ("speculation").

A futures contract is a bilateral agreement providing for the purchase and sale
of a specified type and amount of a financial instrument or for the making and
acceptance of a cash settlement, at a stated time in the future for a fixed
price. By its terms, a futures contract provides for a specified settlement date
on which, in the case of stock index futures contracts, the difference between
the price at which the contract was entered into and the contract's closing
value is settled between the purchaser and seller in cash. Futures contracts
differ from options in that they are bilateral agreements, with both the
purchaser and the seller equally obligated to complete the transaction. Futures
contracts call for settlement only on the date and cannot be "exercised" at any
other time during their term.

The purchase or sale of a futures contract differs from the purchase or sale of
a security or the purchase of an option in that no purchase price is paid or
received. Instead, an amount of cash or cash equivalents, which varies but may
be as low as 5% or less of the value of the contract, must be deposited with the
broker as "initial margin." Subsequent payments to and from the broker, referred
to as "variation margin," are made on a daily basis as the value of the index or
instrument underlying the futures contract fluctuates, making positions in the
futures contract more or less valuable--a process known as "marking to the
market."

Purchases or sales of stock index futures contracts are used to attempt to
protect the Portfolio's current or intended stock investments from broad
fluctuations in stock prices. For example, a Portfolio may sell stock index
futures

14
<PAGE>

contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Portfolio's portfolio securities that
might otherwise result if such decline occurs, because the loss in value of
portfolio securities may be offset, in whole or part, by gains on the futures
position. When a Portfolio is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock index futures
contracts in order to gain rapid market exposure that may, in part or entirely,
offset increases in the cost of securities that the Portfolio intends to
purchase. As such purchases are made, the corresponding position in stock index
futures contracts will be closed out. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the futures position, but under usual market conditions, a long futures position
may be terminated without a related purchase of securities.

When a Portfolio buys or sells a futures contract, unless it already owns an
offsetting position, it will maintain in a segregated account held by the
custodian, 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.

Options on Futures Contracts--The Portfolios may purchase and sell options to
buy or sell futures contracts in which they may invest ("options on futures
contracts"). Such investment strategies will be used for hedging purposes and
for non-hedging purposes, subject to applicable law, except that Scudder
International Growth may utilize such strategies only for hedging purposes. Put
and call options on futures contracts may be traded by a Portfolio in order to
protect against declines in the values of portfolio securities or against
increases in the cost of securities to be acquired, to act as a substitute for
an underlying investment, or to enhance yield.

An option on a futures contract provides the holder with the right to enter into
a "long" position in the underlying futures contract, in the case of a call
option, or a "short" position in the underlying futures contract, in the case of
a put option, at a fixed exercise price up to a stated expiration date or, in
the case of certain options, on such date. Upon exercise of the option by the
holder, the contract market clearinghouse establishes a corresponding short
position for the writer of the option, in the case of a call option, or a
corresponding long position in the case of a put option. In the event that an
option is exercised, the parties will be subject to all the risks associated
with the trading of futures contracts. In addition, the seller of an option on a
futures contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.

A position in an option on a futures contract may be terminated by the purchaser
or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.

Options on futures contracts that are sold or purchased by a Portfolio on U.S.
exchanges are traded on the same contract market as the underlying futures
contract, and, like futures contracts, are subject to regulation by the CFTC and
the performance guarantee of the exchange clearinghouse. In addition, options on
futures contracts may be traded on foreign exchanges.

A Portfolio may sell call options on futures contracts only if it also (a)
purchases the underlying futures contract, (b) owns the instrument, or
instruments included in the index, underlying the futures contract, or (c) holds
a call on the same futures contract and in the same principal amount as the call
sold when the exercise price of the call held (i) is equal to or less than the
exercise price of the call sold or (ii) is greater than the exercise price of
the call sold if the difference is maintained by the Portfolio in liquid
securities in a segregated account with its custodian. A Portfolio may sell put
options on futures contracts only if it also (A) sells the underlying futures
contract, (B) segregates liquid securities in an amount equal to the value of
the security or index underlying the futures contract, or (C) holds a put on the
same futures contract and in the same principal amount as the put sold when the
exercise price of the put held is equal to or greater than the exercise price of
the put written or when the exercise price of the put held is less than the
exercise price of the put sold if the difference is maintained by the Portfolio
in liquid securities in a segregated account with its custodian. Upon the
exercise of a call option on a futures contract sold by a Portfolio, the
Portfolio will be required to sell the underlying futures contract which, if the
Portfolio has covered its obligation

15
<PAGE>

through the purchase of such contract, will serve to liquidate its futures
position. Similarly, where a put option on a futures contract sold by the
Portfolio is exercised, the Portfolio will be required to purchase the
underlying futures contract which, if the Portfolio has covered its obligation
through the sale of such contract, will close out its futures position.

The selling of a call option on a futures contract for hedging purposes
constitutes a partial hedge against declining prices of the securities or other
instruments required to be delivered under the terms of the futures contract. If
the futures price at expiration of the option is below the exercise price, the
Portfolio will retain the full amount of the option premium, less related
transaction costs, which provides a partial hedge against any decline that may
have occurred in the Portfolio's holdings. The selling of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities or other instruments required to be delivered under the terms of the
futures contract. If the futures price at expiration of the option is higher
than the exercise price, the Portfolio will retain the full amount of the option
premium, which provides a partial hedge against any increase in the price of
securities the Portfolio intends to purchase. If a put or call option the
Portfolio has sold is exercised, the Portfolio will incur a loss which will be
reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and the
changes in the value of its futures positions, the Portfolio's losses from
existing options on futures contracts may to some extent be reduced or increased
by changes in the value of portfolio securities.

A Portfolio may purchase options on futures contracts for hedging purposes
instead of purchasing or selling the underlying futures contracts. For example,
where a decrease in the value of portfolio securities is anticipated as a result
of a projected market-wide decline or changes in interest or exchange rates, the
Portfolio could, in lieu of selling futures contracts, purchase put options
thereon. In the event that such decrease occurs, it may be offset, in whole or
in part, by a profit on the option. Conversely, where it is projected that the
value of securities to be acquired by the Portfolio will increase prior to
acquisition, due to a market advance or changes in interest or exchange rates,
the Portfolio could purchase call options on futures contracts, rather than
purchasing the underlying futures contracts.

Forward Contracts on Foreign Currency--The Portfolios may enter into forward
foreign currency exchange contracts for hedging and non-hedging purposes.
Forward contracts may be used for hedging to attempt to minimize the risk to a
Portfolio from adverse changes in the relationship between the U.S. dollar and
foreign currencies. Each Portfolio intends to enter into forward contracts for
hedging purposes. In particular, a forward contract to sell a currency may be
entered into where the Portfolio seeks to protect against an anticipated
increase in the rate for a specific currency which could reduce the dollar value
of portfolio securities denominated in such currency. Conversely, a Portfolio
may enter into a forward contract to purchase a given currency to protect
against a projected increase in the dollar value of securities denominated in
such currency which the Portfolio intends to acquire. The Portfolio also may
enter into a forward contract in order to assure itself of a predetermined
exchange rate in connection with a security denominated in a foreign currency.
In addition, the Portfolio may enter into forward contracts for "cross hedging"
purposes; e.g., the purchase or sale of a forward contract on one type of
currency as a hedge against adverse fluctuations in the value of a second type
of currency.

If a hedging transaction in forward contracts is successful, the decline in the
value of portfolio securities or other assets or the increase in the cost of
securities or other assets to be acquired may be offset, at least in part, by
profits on the forward contract. Nevertheless, by entering into such forward
contracts, a Portfolio may be required to forgo all or a portion of the benefits
which otherwise could have been obtained from favorable movements in exchange
rates. The Portfolio will usually seek to close out positions in such contracts
by entering into offsetting transactions, which will serve to fix the
Portfolio's profit or loss based upon the value of the contracts at the time the
offsetting transaction is executed.

A Portfolio will also enter into transactions in forward contracts for other
than hedging purposes, which present greater profit potential but also involve
increased risk. For example, a Portfolio may purchase a given foreign currency
through a forward contract if, in the judgment of the Subadviser, the value of
such currency is expected to rise relative to the U.S. dollar. Conversely, the
Portfolio may sell the currency through a forward contract if the Subadviser
believes that its value will decline relative to the dollar.

16
<PAGE>

A Portfolio will profit if the anticipated movements in foreign currency
exchange rates occur which will increase its gross income. Where exchange rates
do not move in the direction or to the extent anticipated, however, the
Portfolio may sustain losses which will reduce its gross income. Such
transactions, therefore, could be considered speculative and could involve
significant risk of loss.

Each Portfolio has established procedures consistent with statements by the SEC
and its staff regarding the use of forward contracts by registered investment
companies, which require the use of segregated assets or "cover" in connection
with the purchase and sale of such contracts. In those instances in which the
Portfolio satisfies this requirement through segregation of assets, it will
maintain, in a segregated account, cash, cash equivalents or other liquid
securities, which will be marked to market on a daily basis, in an amount equal
to the value of its commitments under forward contracts. While these contracts
are not presently regulated by the CFTC, the CFTC may in the future assert
authority to regulate forward contracts. In such event the Portfolio's ability
to utilize forward contracts in the manner set forth above may be restricted.

A Portfolio may hold foreign currency received in connection with investments in
foreign securities when, in the judgment of the Subadviser, it would be
beneficial to convert such currency into U.S. dollars at a later date, based on
anticipated changes in the relevant exchange rate. A Portfolio may also hold
foreign currency in anticipation of purchasing foreign securities.

Options on Foreign Currencies--The Portfolios may purchase and sell options on
foreign currencies for hedging purposes in a manner similar to that in which
forward contracts will be utilized. For example, a decline in the dollar value
of a foreign currency in which portfolio securities are denominated will reduce
the dollar value of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions in the value of
portfolio securities, the Portfolio may purchase put options on the foreign
currency. If the value of the currency does decline, the Portfolio will have the
right to sell such currency for a fixed amount in dollars and will thereby
offset, in whole or in part, the adverse effect on its portfolio which otherwise
would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Portfolio may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to the Portfolio deriving from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Portfolio could sustain losses on transactions in
foreign currency options which would require it to forgo a portion or all of the
benefits of advantageous changes in such rates.

A Portfolio may sell options on foreign currencies for the same types of hedging
purposes. For example, where the Portfolio anticipates a decline in the dollar
value of foreign-denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, sell a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the diminution in value of portfolio securities will be
offset by the amount of the premium received.

As in the case of other types of options, however, the selling of an option on
foreign currency will constitute only a partial hedge, up to the amount of the
premium received, and the Portfolio could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby incurring losses.
The purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Portfolio's position, it may forfeit the entire amount of the
premium plus related transaction costs. As in the case of forward contracts,
certain options on foreign currencies are traded over-the-counter and involve
risks which may not be present in the case of exchange-traded instruments.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Portfolio could
sell a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the

17
<PAGE>

premium. Foreign currency options sold by the Portfolio will generally be
covered in a manner similar to the covering of other types of options. As in the
case of other types of options, however, the selling of a foreign currency
option will constitute only a partial hedge up to the amount of the premium, and
only if rates move in the expected direction. If this does not occur, the option
may be exercised and the Portfolio would be required to purchase or sell the
underlying currency at a loss which may not be offset by the amount of the
premium. Through the selling of options on foreign currencies, the Portfolio
also may be required to forgo all or a portion of the benefits which might
otherwise have been obtained from favorable movements in exchange rates.

RISKS ASSOCIATED WITH INVESTING IN OPTIONS, FUTURES AND FORWARD TRANSACTIONS

Risk of Imperfect Correlation of Hedging Instruments with a Portfolio's
Securities--A Portfolio's abilities effectively to hedge all or a portion of its
portfolio through transactions in options, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies depend on the
degree to which price movements in the underlying index or instrument correlate
with price movements in the relevant portion of the Portfolio's securities. In
the case of futures and options based on an index, the Portfolio will not
duplicate the components of the index, and in the case of futures and options on
fixed income securities, the portfolio securities that are being hedged may not
be the same type of obligation underlying such contract. The use of forward
contracts for cross-hedging purposes may involve greater correlation risks. As a
result, the correlation probably will not be exact. Consequently, the Portfolio
bears the risk that the price of the portfolio securities being hedged will not
move in the same amount or direction as the underlying index or obligation.

For example, if a Portfolio purchases a put option on an index and the index
decreases less than the value of the hedged securities, the Portfolio would
experience a loss that is not completely offset by the put option. It is also
possible that there may be a negative correlation between the index or
obligation underlying an option or futures contract in which the Portfolio has a
position and the portfolio securities the Portfolio is attempting to hedge,
which could result in a loss on both the portfolio and the hedging instrument.
In addition, a Portfolio may enter into transactions in forward contracts or
options on foreign currencies in order to hedge against exposure arising from
the currencies underlying such forwards. In such instances, the Portfolio will
be subject to the additional risk of imperfect correlation between changes in
the value of the currencies underlying such forwards or options and changes in
the value of the currencies being hedged.

It should be noted that stock index futures contracts or options based upon a
narrower index of securities, such as those of a particular industry group, may
present greater risk than options or futures based on a broad market index. This
is due to the fact that a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a small number of
securities. Nevertheless, where a Portfolio enters into transactions in options
or futures on narrow-based indices for hedging purposes, movements in the value
of the index should, if the hedge is successful, correlate closely with the
portion of the Portfolio's portfolio or the intended acquisitions being hedged.

The trading of futures contracts, options and forward contracts for hedging
purposes entails the additional risk of imperfect correlation between movements
in the futures or option price and the price of the underlying index or
obligation. The anticipated spread between the prices may be distorted due to
the differences in the nature of the markets, such as differences in margin
requirements, the liquidity of such markets and the participation of speculators
in the options, futures and forward markets. In this regard, trading by
speculators in options, futures and forward contracts has in the past
occasionally resulted in market distortions, which may be difficult or
impossible to predict, particularly near the expiration of contracts.

The trading of options on futures contracts also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option. The risk of imperfect correlation, however, generally
tends to diminish as the maturity date of the futures contract or expiration
date of the option approaches.

Further, with respect to options on securities, options on stock indices,
options on currencies and options on futures contracts, the Portfolio is subject
to the risk of market movements between the time that the option is exercised
and

18
<PAGE>

the time of performance thereunder. This could increase the extent of any loss
suffered by the Portfolio in connection with such transactions.

In selling a covered call option on a security, index or futures contract, a
Portfolio also incurs the risk that changes in the value of the instruments used
to cover the position will not correlate closely with changes in the value of
the option or underlying index or instrument. For example, where the Portfolio
sells a call option on a stock index and segregates securities, such securities
may not match the composition of the index, and the Portfolio may not be fully
covered. As a result, the Portfolio could be subject to risk of loss in the
event of adverse market movements.

The selling of options on securities, options on stock indices or options on
futures contracts constitutes only a partial hedge against fluctuations in value
of a Portfolio's portfolio. When a Portfolio sells an option, it will receive
premium income in return for the holder's purchase of the right to acquire or
dispose of the underlying obligation. In the event that the price of such
obligation does not rise sufficiently above the exercise price of the option, in
the case of a call, or fall below the exercise price, in the case of a put, the
option will not be exercised and the Portfolio will retain the amount of the
premium, less related transaction costs, which will constitute a partial hedge
against any decline that may have occurred in the Portfolio's portfolio holdings
or any increase in the cost of the instruments to be acquired.

When the price of the underlying obligation moves sufficiently in favor of the
holder to warrant exercise of the option, however, and the option is exercised,
the Portfolio will incur a loss which may only be partially offset by the amount
of the premium it received. Moreover, by selling an option, the Portfolio may be
required to forgo the benefits which might otherwise have been obtained from an
increase in the value of portfolio securities or other assets or a decline in
the value of securities or assets to be acquired.

In the event of the occurrence of any of the foregoing adverse market events,
the Portfolio's overall return may be lower than if it had not engaged in the
hedging transactions.

It should also be noted that a Portfolio may enter into transactions in options
(except for options on foreign currencies), futures contracts, options on
futures contracts and forward contracts not only for hedging purposes, but also
for non-hedging purposes intended to increase portfolio returns. Non-hedging
transactions in such investments involve greater risks and may result in losses
which may not be offset by increases in the value of portfolio securities or
declines in the cost of securities to be acquired. A Portfolio will only sell
covered options, such that liquid securities with an aggregate value equal to an
amount necessary to satisfy an option exercise will be segregated at all times,
unless the option is covered in such other manner as may be in accordance with
the rules of the exchange on which the option is traded and applicable laws and
regulations. Nevertheless, the method of covering an option employed by the
Portfolio may not fully protect it against risk of loss and, in any event, the
Portfolio could suffer losses on the option position which might not be offset
by corresponding portfolio gains.

A Portfolio also may enter into transactions in futures contracts, options on
futures contracts and forward contracts for other than hedging purposes, which
could expose the Portfolio to significant risk of loss if foreign currency
exchange rates do not move in the direction or to the extent anticipated. In
this regard, the foreign currency may be extremely volatile from time to time,
as discussed in the Prospectus and in this Statement, and the use of such
transactions for non-hedging purposes could therefore involve significant risk
of loss.

With respect to entering into straddles on securities, a Portfolio incurs the
risk that the price of the underlying security will not remain stable, that one
of the options sold will be exercised and that the resulting loss will not be
offset by the amount of the premiums received. Such transactions, therefore,
create an opportunity for increased return by providing the Portfolio with two
simultaneous premiums on the same security, but involve additional risk, since
the Portfolio may have an option exercised against it regardless of whether the
price of the security increases or decreases.

Risk of a Potential Lack of a Liquid Secondary Market--Prior to exercise or
expiration, a futures or option position can only be terminated by entering into
a closing purchase or sale transaction. This requires a secondary market for
such instruments on the exchange on which the initial transaction was entered
into. While a Portfolio will

19
<PAGE>

enter into options or futures positions 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 contracts at any specific time. In that event, it may
not be possible to close out a position held by the Portfolio, and the Portfolio
could be required to purchase or sell the instrument underlying an option, make
or receive a cash settlement or meet ongoing variation margin requirements.
Under such circumstances, if a Portfolio has insufficient cash available to meet
margin requirements, it will be necessary to liquidate portfolio securities or
other assets at a time when it is disadvantageous to do so. The inability to
close out options and futures positions, therefore, could have an adverse impact
on the Portfolio's ability effectively to hedge its portfolio, and could result
in trading losses.

The liquidity of a secondary market in the futures contract or option thereon
may be adversely affected by "daily price fluctuation limits," established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures or option positions and requiring
traders to make additional margin deposits. Prices have in the past moved the
daily limit on a number of consecutive trading days.

The trading of futures contracts and options is also subject to the risk of
trading halts, suspensions, exchange or clearinghouse equipment failures,
government intervention, insolvency of a brokerage firm or clearinghouse 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.

Margin--Because of low initial margin deposits made upon the opening of a
futures or forward position and the selling of an option, such transactions
involve substantial leverage. As a result, relatively small movements in the
price of the contract can result in substantial unrealized gains or losses.
Where a Portfolio enters into such transactions for hedging purposes, any losses
incurred in connection therewith should, if the hedging strategy is successful,
be offset, in whole or in part, by increases in the value of securities or other
assets held by the Portfolio or decreases in the prices of securities or other
assets the Portfolio intends to acquire. Where a Portfolio enters into such
transactions for other than hedging purposes, the margin requirements associated
with such transactions could expose the Portfolio to greater risk.

Trading and Position Limits--The exchanges on which futures and options are
traded may impose limitations governing the maximum number of positions on the
same side of the market and involving the same underlying instrument which may
be held by a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or different
exchanges or held or written in one or more accounts or through one or more
brokers). Further, the CFTC and the various contract markets have established
limits referred to as "speculative position limits" on the maximum net long or
net short position which any person may hold or control in a particular futures
or option contract. An exchange may order the liquidation of positions found to
be in violation of these limits and it may impose other sanctions or
restrictions. The Subadvisers do not believe that these trading and position
limits will have any adverse impact on the strategies for hedging the portfolio
of the Portfolios.

Risks of Options on Futures Contracts--The amount of risk a Portfolio assumes
when it purchases an option on a futures contract is the premium paid for the
option, plus related transaction costs. In order to profit from an option
purchased, however, it may be necessary to exercise the option and to liquidate
the underlying futures contract subject to the risks of the availability of a
liquid offset market described herein. The seller of an option on a futures
contract is subject to the risks of commodity futures trading, including the
requirement of initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate with movements
in the price underlying security, index, currency or futures contracts.

Risks of Transactions Related to Foreign Currencies and Transactions Not
Conducted on U.S. Exchanges--Transactions in forward contracts on foreign
currencies, as well as futures and options on foreign currencies and
transactions executed on foreign exchanges, are subject to all of the
correlation, liquidity and other risks outlined above. In addition, however,
such transactions are subject to the risk of governmental actions affecting
trading in or the prices of currencies underlying such contracts, which could
restrict or eliminate trading and could have a substantial adverse effect on the
value of positions held by a Portfolio. Further, the value of such positions
could be

20
<PAGE>

adversely affected by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies.

Further, unlike trading in most other types of instruments, there is no
systematic reporting of last sale information with respect to the foreign
currencies underlying contracts thereon. As a result, the available information
on which trading systems will be based may not be as complete as the comparable
data on which the Portfolio makes investment and trading decisions in connection
with other transactions. Moreover, because the foreign currency market is a
global, 24-hour market, events could occur in that market which will not be
reflected in the forward, futures or options markets until the following day,
thereby making it more difficult for the Portfolio to respond to such events in
a timely manner.

Settlements of exercises of over-the-counter forward contracts or foreign
currency options generally must occur within the country issuing the underlying
currency, which in turn requires traders to accept or make delivery of such
currencies in conformity with any U.S. or foreign restrictions and regulations
regarding the maintenance of foreign banking relationships, fees, taxes or other
charges.

Unlike transactions entered into by a Portfolio in futures contracts and
exchange-traded options, options on foreign currencies, forward contracts and
over-the-counter options on securities are not traded on contract markets
regulated by the CFTC or (with the exception of certain foreign currency
options) the SEC. To the contrary, such instruments are traded through financial
institutions acting as market-makers, although foreign currency options are also
traded on certain national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC regulation. In
an over-the-counter trading environment, many of the protections afforded to
exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option seller and a
trader of forward contracts could lose amounts substantially in excess of their
initial investments, due to the margin and collateral requirements associated
with such positions.

In addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of a
Portfolio's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Portfolio.
Where no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of over-the-counter contracts, and the Portfolio could be required to retain
options purchased or sold, or forward contracts entered into, until exercise,
expiration or maturity. This in turn could limit the Portfolio's ability to
profit from open positions or to reduce losses experienced, and could result in
greater losses.

Further, over-the-counter transactions are not subject to the guarantee of an
exchange clearinghouse, and the Portfolio will therefore be subject to the risk
of default by, or the bankruptcy of, the financial institution serving as its
counterparty. One or more of such institutions also may decide to discontinue
their role as market-makers in a particular currency or security, thereby
restricting the Portfolio's ability to enter into desired hedging transactions.
The Portfolio will enter into an over-the-counter transaction only with parties
whose creditworthiness has been reviewed and found satisfactory by the
Subadviser.

Options on securities, options on stock indexes, futures contracts, options on
futures contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the same
manner as those entered into on U.S. exchanges, and may be subject to different
margin, exercise, settlement or expiration procedures. As a result, many of the
risks of over-the-counter trading may be present in connection with such
transactions.

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a

21
<PAGE>

national securities exchange may be more readily available than in the
over-the-counter market, potentially permitting the Portfolio to liquidate open
positions at a profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.

Policies on the Use of Futures and Options on Futures Contracts--In order to
assure that a Portfolio will not be deemed to be a "commodity pool" for purposes
of the Commodity Exchange Act, regulations of the CFTC require that a Portfolio
enter into transactions in futures contracts and options on futures contracts
only (i) for bona fide hedging purposes (as defined in CFTC regulations), or
(ii) for non-hedging purposes, provided that the aggregate initial margin and
premiums on such non-hedging positions does not exceed 5% of the liquidation
value of the Portfolio's assets.

The staff of the SEC has taken the position that over-the-counter options and
assets used to cover sold over-the-counter options are illiquid and, therefore,
together with other illiquid securities held by a Portfolio, cannot exceed 15%
of a Portfolio's assets (the "SEC illiquidity ceiling"). Although the
Subadvisers may disagree with this position, each Subadviser intends to limit
the Portfolios' selling of over-the-counter options in accordance with the
following procedure. Except as provided below, MFS Emerging Growth and MFS Value
Equity intend to sell over-the-counter options only with primary U.S. Government
securities dealers recognized as such by the Federal Reserve Bank of New York.
Also, the contracts a Portfolio has in place with such primary dealers provide
that the Portfolio has the absolute right to repurchase an option it sells at a
maximum price to be calculated by a pre-determined formula. Each Portfolio will
treat all or a portion of the formula as illiquid for purposes of the SEC
illiquidity ceiling test. Each Portfolio may also sell over-the-counter options
with non-primary dealers, including foreign dealers (where applicable), and will
treat the assets used to cover these options as illiquid for purposes of such
SEC illiquidity ceiling test.

Temporary Defensive Positions--During periods of unusual market conditions when
a Subadviser believes that investing for temporary defensive purposes is
appropriate, or in order to meet anticipated redemption requests, a Portfolio
may invest up to 100% of its assets in cash or cash equivalents including, but
not limited to, obligations of banks with assets of $1 billion or more
(including certificates of deposit, bankers' acceptances and repurchase
agreements), commercial paper, short-term notes, obligations issued or
guaranteed by the U.S. Government or any of its agencies, authorities or
instrumentalities and related repurchase agreements. Scudder International
Growth may, for temporary defensive purposes, invest all or a portion of its
assets in Canadian or U.S. Government obligations or currencies, or securities
of companies incorporated in and having their principal activities in Canada or
the U.S. In addition, Scudder International Growth may engage in strategic
transactions, which may include the use of derivatives.

The policies described above are not fundamental and may be changed without
shareholder approval.

22
<PAGE>

MANAGEMENT OF THE FUND

The investments and administration of the Fund are under the direction of the
Board of Directors. The Directors and executive officers of the Fund and their
principal occupations for the past five years are listed below.

<TABLE>
<CAPTION>
Principal Occupation(s) During Past
Five Years (and Positions held with
Affiliated Persons or Principal
Name, Address and Birthdate Position(s) Held with Fund Underwriter of the Fund)
- --------------------------- -------------------------- -----------------------------------
<S> <C> <C>
Laurie M. LeBlanc, CFP* Director and President Vice President, Aetna Life Insurance
151 Farmington Avenue and Annuity Company, January 1998 to
Hartford, Connecticut present; Vice President, Aetna
05/12/52 Retirement Services, Fund Strategy
and Management, December 1995 to
January 1998; Vice President,
Connecticut Mutual Financial
Services, Investment Products, July
1994 to December 1995; Vice
President, CIGNA Investments, Inc.
and CIGNA International Investment
Advisers, Ltd., October 1988 to July
1994.

John V. Boyer Director Executive Director, The Mark Twain
63 Penn Drive House Museum, 1989 to present.
West Hartford, Connecticut
07/19/53

Richard A. Johnson Director Retired for more than five years.
24 Sulgrave Road
West Hartford, Connecticut
03/22/36

Philip M. Markert Director Retired since March 1996; Division
164 Calhoun Street Executive, Citibank,
Washington, Connecticut Caribbean/Central America Region,
06/22/38 February 1964 to March 1996.

Martin T. Conroy* Director, Vice President, Chief Assistant Treasurer, Aetna
151 Farmington Avenue Financial Officer and Treasurer Retirement Holdings, Inc., September
Hartford, Connecticut 1997 to present; Assistant
01/11/40 Treasurer, Aetna Life Insurance and
Annuity Company, October 1991 to present.

Susan C. Mosher Secretary Director, Mutual Fund Administration
200 Clarendon Street - Legal Administration, Investors
Boston, Massachusetts Bank & Trust Company, 1995 -
1/29/55 present; Associate Counsel, 440
Financial Group of Worcester, Inc.,
1993 - 95.
</TABLE>

23
<PAGE>

*Interested person as defined by the 1940 Act.

Members of the Board of the Directors who are also directors, officers or
employees of Aetna Inc. or its affiliates are not entitled to any compensation
from the Fund. Members of the Board of Directors who are not affiliated with
Aetna or its subsidiaries are entitled to receive an annual retainer of $20,000
for service on the Board. In addition, each such member will receive a fee of
$2,500 per meeting for each regularly scheduled Board meeting; $2,500 for each
in-person Contract Committee meeting on any day on which a regular board meeting
is not scheduled; and $1,500 for each in-person committee meeting, other than a
Contract Committee meeting, on any day on which a regular Board meeting is not
scheduled. A Committee Chairperson fee of $1,500 each will be paid to the
Chairperson of the Valuation, Audit and Contract Committees. All of the above
fees are to be paid proportionately by each Portfolio based on the net assets of
the Portfolios as of the previous December 31.

The following table describes the compensation received by the Directors of the
Fund for the fiscal year ended December 31, 1998.

Compensation Table

<TABLE>
<CAPTION>
Total Compensation From Fund and
Name of Person, Position Aggregate Compensation From Fund Fund Complex Paid to Directors
- ------------------------ -------------------------------- ------------------------------
<S> <C> <C>
John V. Boyer, Director $39,833.34 $39,833.34

Richard A. Johnson, Director 39,833.34 39,833.34

Philip M. Markert, Director 39,833.34 39,833.34
</TABLE>

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS

Shares of the Portfolios will be owned by insurance companies as depositors of
separate accounts which are used to fund variable annuity contracts ("VA
Contracts") and variable life insurance contracts ("VLI Contracts"). Aetna and
its subsidiary, Aetna Insurance Company of America, Inc. may be deemed a control
person of the Fund in that certain of their separate accounts hold 100% of the
shares of each Portfolio of the Fund.

As of February 4, 1999, the following owned of record or, to the knowledge of
management, beneficially owned more than 5% of the outstanding shares of:

T. Rowe Price Growth Equity Portfolio--Aetna Life Insurance & Annuity Company
(ALIAC), c/o Aetna Retirement Plan Services, Treasury Services, 151 Farmington
Avenue, Hartford, Connecticut 06156 (95.26%)

MFS Emerging Equities Portfolio--Aetna Life Insurance & Annuity Company (ALIAC),
c/o Aetna Retirement Plan Services, Treasury Services, 151 Farmington Avenue,
Hartford, Connecticut 06156 (93.42%).

MFS Research Growth Portfolio--Aetna Life Insurance & Annuity Company (ALIAC),
c/o Aetna Retirement Plan Services, Treasury Services, 151 Farmington Avenue,
Hartford, Connecticut 06156 (93.45%).

MFS Value Equity Portfolio--Aetna Life Insurance & Annuity Company (ALIAC), c/o
Aetna Retirement Plan Services, Treasury Services, 151 Farmington Avenue,
Hartford, Connecticut 06156 (96.58%).

Scudder International Growth Portfolio--Aetna Life Insurance & Annuity Company
(ALIAC), c/o Aetna Retirement Plan Services, Treasury Services, 151 Farmington
Avenue, Hartford, Connecticut 06156 (95.42%).

24
<PAGE>

The Fund has no knowledge of any other owners of record of 5% or more of the
outstanding shares of a Portfolio. Shareholders owning more than 25% of the
outstanding shares of a Portfolio may take actions without the approval of other
investors in the Fund. See "Voting Rights" below.

Aetna is an indirect wholly owned subsidiary of Aetna Retirement Services, Inc.,
which is in turn an indirect wholly owned subsidiary of Aetna Inc. Aetna's
principal office is located at 151 Farmington Avenue, Hartford, Connecticut
06156.

The Directors and Officers of the Fund as a group owned less than 1% of the
outstanding shares of any Portfolio of the Fund as of February 4, 1999.

INVESTMENT ADVISORY AND OTHER SERVICES

Investment Advisory Agreement. Under the Investment Advisory Agreement and
subject to the direction of the Board of Directors of the Fund, Aetna has
responsibility, among other things, to (i) select the securities to be
purchased, sold or exchanged by each Portfolio, and place trades on behalf of
each Portfolio, or delegate such responsibility to one or more subadvisers; (ii)
supervise all aspects of the operations of the Portfolios; (iii) obtain the
services of, contract with, and provide instructions to custodians and/or
subcustodians of each Portfolio's securities, transfer agents, dividend paying
agents, pricing services and other service providers as are necessary to carry
out the terms of the Investment Advisory Agreement; (iv) monitor the investment
program maintained by each Subadviser for the Portfolios and the Subadvisers'
compliance programs to ensure that the Portfolio's assets are invested in
compliance with the Subadvisory Agreement and the Portfolio's investment
objectives and policies as adopted by the Board and described in the most
current effective amendment of the registration statement for the Portfolio, as
filed with the Commission under the 1933 Act and the 1940 Act ("Registration
Statement"); (v) review all data and financial reports prepared by each
Subadviser to assure that they are in compliance with applicable requirements
and meet the provisions of applicable laws and regulations; (vi) establish and
maintain regular communications with each Subadviser to share information it
obtains with each Subadviser concerning the effect of developments and data on
the investment program maintained by the Subadviser; (vii) oversee all matters
relating to the offer and sale of the Portfolios' shares, the Fund's corporate
governance, reports to the Board, contracts with all third parties on behalf of
the Portfolios for services to the Portfolios, reports to regulatory authorities
and compliance with all applicable rules and regulations affecting the
Portfolios' operations; and (viii) take other actions that appear to Aetna and
the Board to be necessary.

The Investment Advisory Agreement provides that Aetna shall pay (a) the
salaries, employment benefits and other related costs 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 (b)
any fees and expenses of all Directors, officers and employees, if any, of the
Fund who are employees of Aetna or an affiliated entity and any salaries and
employment benefits payable to those persons.

The Investment Advisory Agreement has an initial term of just under two years
and provides that it will remain in effect from year-to-year thereafter if
approved annually by a majority vote of the Directors, including a majority of
the Directors who are not "interested persons" as that term is defined in the
1940 Act, of the Fund or of Aetna, in person at a meeting called for that
purpose. The Investment Advisory Agreement may be terminated as to a particular
Portfolio without penalty at any time on sixty days' written notice by (i) the
Directors, (ii) a majority vote of the outstanding voting securities of that
Portfolio, or (iii) Aetna. The Investment Advisory Agreement terminates
automatically in the event of assignment.

Aetna receives a monthly fee from each Portfolio at an annual rate based on the
average daily net assets of each Portfolio as follows:

<TABLE>
<CAPTION>
Portfolio Fee
--------- ---
<S> <C>
MFS Emerging Equities ........... 0.70% on the first $500 million of average
daily net assets;
0.65% on assets over $500 million

MFS Research Growth ............. 0.70% on the first $500 million of average
daily net assets;
0.65% on assets over $500 million

MFS Value Equity ................ 0.65% of average daily net assets

Scudder International Growth .... 0.80% of average daily net assets

T. Rowe Price Growth Equity ..... 0.60% of average daily net assets
</TABLE>

For the fiscal year ended December 31, 1998, and for the period November 28,
1997 (commencement of operations) to December 31, 1997, the advisory fees for
the MFS Emerging Equities, MFS Research Growth, MFS Value Equity, Scudder
International Growth and T. Rowe Price Growth Equity amounted to $6,073,693 and
$482,568, $3,075,409 and $257,457, $1,073,994 and $79,213, $3,330,261 and
$282,965, and $2,643,704 and $202,630, respectively.

25
<PAGE>

Subadvisory Agreements. The Fund's Board of Directors approved subadvisory
agreements ("Subadvisory Agreements") between Aetna and Massachusetts Financial
Services Company ("MFS") with respect to MFS Emerging Equities, MFS Research
Growth and MFS Value Equity; with Scudder Kemper Investments, Inc. ("Scudder
Kemper") with respect to Scudder International Growth; and with T. Rowe Price
Associates, Inc. ("T. Rowe Price") with respect to T. Rowe Price Growth Equity.
Each Subadvisory Agreement remains in effect from year-to-year if approved
annually by a majority vote of the Directors, including a majority of the
Directors who are not "interested persons" of the Fund, Aetna or any Subadviser,
in person, at a meeting called for that purpose. Each Subadvisory Agreement may
be terminated without penalty at any time on sixty days' written notice by (i)
the Directors, (ii) a majority vote of the outstanding voting securities of the
respective Portfolio, (iii) Aetna, or (iv) the relevant Subadviser. Each
Subadvisory Agreement terminates automatically in the event of its assignment or
in the event of the termination of the Investment Advisory Agreement with Aetna.

Under each Subadvisory Agreement, the Subadviser supervises the investment and
reinvestment of cash and securities comprising the assets of the Portfolios.
Each Subadvisory Agreement also directs the Subadviser to (a) determine the
securities to be purchased or sold by the Portfolios, and (b) take any actions
necessary to carry out its investment subadvisory responsibilities.

Each Subadviser pays the salaries, employment benefits and other related costs
of personnel engaged in providing investment advice including office space,
facilities and equipment.

As compensation, Aetna pays each Subadviser a monthly fee as described below.
Aetna has certain obligations under the Subadvisory Agreements and retains
overall responsibility for monitoring the investment program maintained by the
Subadviser for compliance with applicable laws and regulations and each
Portfolio's respective investment objectives. In addition, Aetna will consult
with and assist the Subadviser in maintaining appropriate policies, procedures
and records and oversee matters relating to promotion, marketing materials and
reports by the Subadvisers to the Fund's Board of Directors.

<TABLE>
<S> <C>
MFS Emerging Equities....................... .40% on the first $300 million of aggregate
MFS Research Growth average daily net assets under management
MFS Value Equity .375% on the next $300 million
.35% on the next $300 million
.325% on the next $600 million
.25% on assets over $1.5 billion

Scudder International Growth................ .75% on the first $20 million of average daily net assets
.65% on the next $15 million
.50% on the next $65 million
.40% on the next $200 million
.30% on assets over $300 million

T. Rowe Price Growth Equity................. .40% on the first $500 million of average daily net assets
.375% on assets over $500 million
</TABLE>

For the fiscal year ended December 31, 1998 and the period November 28, 1997
(commencement of operations) to December 31, 1997, Aetna paid MFS $5,423,591 and
$446,631 on behalf of MFS Emerging Equities, MFS Research Growth and MFS Value
Equity, respectively. For the fiscal year ended December 31, 1998, and the
period November 28, 1997 (commencement of operations) to December 31, 1997,
Aetna paid Scudder Kemper $1,721,358 and $150,126 on behalf of Scudder
International Growth and T. Rowe Price $1,762,470 and $135,087 on behalf of T.
Rowe Price Growth Equity.

26
<PAGE>

The Administrative Services Agreement. Pursuant to an Administrative Services
Agreement, between the Fund and Aetna, Aetna has agreed to provide all
administrative services in support of the Portfolios and is responsible for the
supervision of the Fund's other service providers. Each Portfolio's costs and
fees are limited to its advisory fee and the administrative services charge. The
Administrative Services Agreement will remain in effect from year-to-year if
approved annually by a majority of the Directors. It may be terminated by either
party on sixty days' written notice. As compensation for its services, Aetna
receives a monthly fee from each Portfolio at an annual rate based on the
average daily net assets of each Portfolio as follows:

<TABLE>
<CAPTION>
Portfolio Fee
- --------- ---
<S> <C>
MFS Emerging Equities .......................... 0.13%
MFS Research Growth ............................ 0.15%
MFS Value Equity ............................... 0.25%
Scudder International Growth ................... 0.20%
T. Rowe Price Growth Equity .................... 0.15%
</TABLE>

For the period November 28, 1997 (commencement of operations of the Portfolios)
to December 31, 1997, the MFS Emerging Equities, MFS Research Growth, MFS Value
Equity, Scudder International Growth and T. Rowe Price Growth Equity Portfolios
paid Aetna $_____, $_____, $_____, $_____ and $_____, respectively, for such
administrative services.

For the fiscal year ended December 31, 1998, the MFS Emerging Equities, MFS
Research Growth, MFS Value Equity, Scudder International Growth and T. Rowe
Price Growth Equity Portfolios paid Aetna $1,164,739, $659,016, $413,075,
$832,612 and $660, 926, respectively, for such administrative services.

Custodian and Transfer Agent. Investors Bank & Trust Company ("Investors Bank"),
200 Clarendon Street, Boston, Massachusetts, serves as custodian and transfer
agent for the Fund. As custodian, Investors Bank holds cash, securities and
other assets of the Portfolios as required by the 1940 Act. Investors Bank does
not participate in determining the investment policies of a Portfolio or in
deciding which securities are purchased or sold by a Portfolio.

Independent Auditors. KPMG Peat Marwick LLP, 99 High Street, Boston,
Massachusetts 02110 serves as independent auditors to the Portfolios. KPMG Peat
Marwick LLP provides audit services, assistance and consultation in connection
with SEC filings.

PRINCIPAL UNDERWRITER

The Fund has entered into an Underwriting Agreement (the "Agreement") pursuant
to which Aetna, as agent, serves as principal underwriter for the continuous
offering of shares of the Portfolios. The Agreement may be continued from year
to year if approved annually by the Directors or by a vote of holders of a
majority of each Portfolio's shares, and by a vote of a majority of the
Directors who are not "interested persons" of Aetna, or the Fund, appearing in
person at a meeting called for the purpose of approving such Agreement. The
Agreement terminates automatically upon assignment, and may be terminated at any
time on sixty (60) days' written notice by the Directors or Aetna or by vote of
holders of a majority of a Portfolio's shares without the payment of any
penalty. The Underwriter has agreed to use its best efforts to solicit orders
for the purchase of shares of all the Portfolios, although it is not obligated
to sell any particular amount of shares. Aetna shall be responsible for any
costs of printing and distributing prospectuses and Statements necessary to
offer and sell the shares, and such other sales literature, reports, forms and
advertisements as it elects to prepare. The Fund shall be responsible for the
costs of registering the shares with the SEC and for the costs of preparing
prospectuses and Statements and such other documents as are required to maintain
the registration of the shares with the SEC. Aetna does not receive compensation
for providing services under the Agreement.

BROKERAGE ALLOCATION AND TRADING POLICIES

Subject to the direction of the Directors, Aetna and the Subadvisers have
responsibility for making the Portfolios' investment decisions, for effecting
the execution of trades for the Portfolios and for negotiating any brokerage
commissions thereof. It is the policy of Aetna and the Subadvisers to obtain the
best quality of execution available, giving attention to net price (including
commissions where applicable), execution capability (including the adequacy of a
brokerage firm's capital position), research and other services related to
execution; the relative priority given to these factors will depend on all of
the circumstances regarding a specific trade. In implementing

27
<PAGE>

their trading policy, Aetna and the Subadvisers may place a Portfolio's
transactions with such brokers or dealers and for execution in such markets as,
in the opinion of the Adviser or Subadvisers, will lead to the best overall
quality of execution for the Portfolio.

Aetna and the Subadvisers may receive a variety of brokerage and research
services from brokerage firms that execute trades on behalf of the Portfolios.
These services may benefit the Adviser and/or advisory clients other than the
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 Portfolio and other investment companies
and accounts, services related to the execution of trades in a Portfolio's
securities and advice as to the valuation of securities. Aetna and the
Subadvisers may consider the quantity and quality of such brokerage and research
services provided by a brokerage firm along with the nature and difficulty of
the specific transaction in negotiating commissions for trades in a 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.
Aetna's and the Subadvisers' 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 that are reasonable in relation to the value of the services
provided by the broker, taking into consideration research and other services
provided. When either Aetna or the Subadvisers believe that more than one broker
can provide best execution, preference may be given to brokers who provide
additional services to Aetna or the Subadvisers.

Consistent with securities laws and regulations, Aetna and the Subadvisers 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. Aetna's and the Subadvisers' judgment as to whether and how they will
obtain the specific brokerage and research services will be based upon their
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 Aetna's and the Subadvisers' opinion as to which services and which
means of payment are in the long-term best interests of a Portfolio. The
Portfolios have no present intention to effect any brokerage transactions in
portfolio securities through Aetna, the Subadvisers or any affiliate thereof. If
a Portfolio enters into a transaction with any such person in the future, the
transaction will comply with Rule 17e-1 under the 1940 Act. Certain officers of
Aetna and the Subadvisers also manage the securities portfolios of their own and
their affiliates. Further, Aetna and the Subadvisers also act as investment
adviser to other investment companies registered under the 1940 Act and other
client accounts.

To the extent Aetna or the Subadvisers desire to buy or sell the same publicly
traded security at or about the same time for more than one client, the
purchases or sales will normally be aggregated, and allocated as nearly as
practicable on a pro rata basis in proportion to the amounts to be purchased or
sold by each, taking into consideration the respective investment objectives of
the clients, the relative size of portfolio holdings of the same or comparable
securities, availability of cash for investment, and the size of their
respective investment commitments. Prices are averaged for those transactions.
In some cases, this procedure may adversely affect the size of the position
obtained for or disposed of by a Portfolio or the price paid or received by a
Portfolio.

The Board of Directors has adopted a policy allowing trades to be made between a
Portfolio and a registered investment company or series thereof that is an
affiliated person of the Portfolio (and certain noninvestment company affiliated
persons) provided the transactions meet the terms of Rule 17a-7 under the 1940
Act. Pursuant to this policy, a Portfolio may buy a security from or sell
another security to another registered investment company or private advisory
account advised by Aetna or by one of the Subadvisers. The Board of Directors,
Aetna and each Subadviser have also adopted Codes of Ethics governing personal
trading by persons who manage, or who have access to trading activity by, a
Portfolio. The Codes allow trades to be made in securities that may be held by a
Portfolio. However, they prohibit a person from taking advantage of Portfolio
trades or from acting on inside information.

During the fiscal year ended December 31, 1998, and the period November 28, 1997
(commencement of operations) to December 31, 1997 the aggregate amount of
brokerage commissions paid by the Portfolios was as

28
<PAGE>

follows: MFS Emerging Equities: $332,149 and $453,702; MFS Research Growth:
$984,339 and $433,626; MFS Value Equity: $642,245 and $214,636; Scudder
International Growth: $1,314,765 and $66,716; and T. Rowe Price Growth Equity:
$567,634 and $380,629.

DESCRIPTION OF SHARES

The Articles of Incorporation authorize the Fund to issue one billion shares of
common stock with a par value of $.001 per share. The shares are nonassessable,
transferable, redeemable and do not have pre-emptive rights or cumulative voting
rights. The shares may be issued as whole or fractional shares and are
uncertificated.

The shares may be issued in series or portfolios having separate assets and
separate investment objectives and policies. Upon liquidation of a Portfolio,
its shareholders are entitled to share pro rata in the net assets of that
portfolio available for distribution to shareholders.

VOTING RIGHTS

Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares held) and will vote in the election of Directors (to
the extent hereinafter provided) and on other matters submitted to the vote of
the shareholders. The shareholders of the Portfolios are the insurance companies
for their separate accounts using the Portfolios to fund VA Contracts and VLI
Contracts. The insurance company depositors of the separate accounts pass voting
rights attributable to shares held for VA Contracts and VLI Contracts through to
Contract owners as described in the prospectus for the applicable VA or VLI
Contract.

The Directors of the Fund shall continue to hold office until the Annual Meeting
of Shareholders next held after his/her election, or until his/her successor is
duly elected and qualified. No meeting of the shareholders for the purpose of
electing Directors will be held. However, Shareholders holding a majority of
outstanding shares may request a special meeting for the purpose of removing and
replacing a Director. Vacancies on the Board occurring between any such meetings
shall be filled by the remaining Directors. Any Director may also voluntarily
resign from office. Voting rights are not cumulative, so that the holders of
more than 50% of the shares voting in the election of Directors can, if they
choose to do so, elect all the Directors of the Fund, in which event the holders
of the remaining shares will be unable to elect any person as a Director.

Special shareholder meetings may be called when requested in writing by the
holders of not less than 50% of the outstanding voting shares of a Portfolio.
Any request must state the purposes of the proposed meeting.

The Articles may be amended if duly advised by a majority of the Directors and
approved by the affirmative vote of a majority of votes entitled to be cast.

NET ASSET VALUE

Securities of the Portfolios are generally valued by independent pricing
services. The values for equity securities traded on registered securities
exchanges are based on the last sale price or, if there has been no sale that
day, at the mean of the last bid and asked price on the exchange where the
security is principally traded. Securities traded over-the-counter are valued at
the last sale price or at the last bid price if there has been no sale that day.
Short-term debt securities that have a maturity date of more than sixty days
will be valued at the mean of the last bid and asked price obtained from
principal market makers. Long-term debt securities are valued at the mean of the
last bid and asked price of such securities obtained from a broker that is a
market-maker in the securities or a service providing quotations based upon the
assessment of market-makers in those securities.

Options are valued at the mean of the last bid and asked price on the exchange
where the option is primarily traded. Stock index futures contracts and interest
rate futures contracts are valued daily at a settlement price based on rules of
the exchange where the futures contract is primarily traded.

29
<PAGE>

TAX STATUS

The following is only a summary of certain additional tax considerations
generally affecting each Portfolio that are not described in the Prospectus. The
discussions below and in the Prospectus are not intended as substitutes for
careful tax planning.

Qualification as a Regulated Investment Company--Each Portfolio has elected to
be taxed as a regulated investment company under Subchapter M of the Code. As a
regulated investment company, a Portfolio is not subject to federal income tax
on the portion of its net investment income (i.e., taxable interest, dividends
and other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described in this section. Distributions by a Portfolio made
during the taxable year or, under specified circumstances, within twelve months
after the close of the taxable year, will be considered distributions of income
and gains of the taxable year and will therefore satisfy the Distribution
Requirement.

In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement").

30
<PAGE>

31
<PAGE>

In addition to satisfying the requirements described above, each Portfolio must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of a
Portfolio's taxable year, at least 50% of the value of the Portfolio's assets
must consist of cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
each of which the Portfolio has not invested more than 5% of the value of the
Portfolio's total assets in securities of such issuer and does not hold more
than 10% of the outstanding voting securities of such issuer), and no more than
25% of the value of its total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or of two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses. Generally, an option (call or put) with respect to
a security is treated as issued by the issuer of the security not the issuer of
the option. However, with regard to forward currency contracts, there does not
appear to be any formal or informal authority which identifies the issuer of
such instrument.

If for any taxable year a Portfolio does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits.

Qualification of Segregated Asset Accounts--Under Code Section 817(h), a
variable life insurance or annuity contract will not be treated as a life
insurance policy or annuity contract, respectively, under the Code, unless the
segregated asset account upon which such contract or policy is based is
"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 the
segregated asset account'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 each U.S. Government agency and instrumentality is considered a separate
issuer. As a safe harbor, a segregated asset 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. In addition, a segregated asset account with
respect to a variable life insurance contract is treated as adequately
diversified to the extent of its investment in securities issued by the United
States Treasury.

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 that the shares of such
regulated investment company are held only by insurance companies and certain
fund managers (a "Closed Fund"). It is intended that each Portfolio will be a
Closed Fund.

If the segregated asset account upon which a variable contract is based is not
"adequately diversified" under the foregoing rules for each calendar quarter,
then (a) the variable contract is not treated as a life insurance contract or
annuity contract under the Code for all subsequent periods during which such
account is not "adequately diversified" and (b) the holders of such contract
must include as ordinary income the "income on the contract" for

32
<PAGE>

each taxable year. Further, the income on a life insurance contract for all
prior taxable years is treated as received or accrued during the taxable year of
the policyholder in which the contract ceases to meet the definition of a "life
insurance contract" under the Code. The "income on the contract" is, generally,
the excess of (i) the sum of the increase in the net surrender value of the
contract during the taxable year and the cost of the life insurance protection
provided under the contract during the year, over (ii) the premiums paid under
the contract during the taxable year. In addition, if a Portfolio does not
constitute a Closed Fund, the holders of the contracts and annuities which
invest in the Portfolio through a segregated asset account may be treated as
owners of Portfolio shares and may be subject to tax on distributions made by
the Portfolio.

Excise Tax on Regulated Investment Companies--A 4% nondeductible excise tax is
generally imposed on a regulated investment company that fails to distribute in
each calendar year an amount equal to 98% of ordinary taxable income for the
calendar year and 98% of capital gain net income for the one-year period ended
on October 31 of such calendar year (or, at the election of a regulated
investment company having a taxable year ending November 30 or December 31, for
its taxable year (a "taxable year election")). 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.

No excise tax applies, however, to a regulated investment company whose sole
shareholders are segregated asset accounts (aside from up to $250,000 of shares
attributable to seed capital). The Portfolios should qualify for this exemption.

Each Portfolio intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that a Portfolio may in certain circumstances be required to
liquidate portfolio investments to make sufficient distributions to avoid excise
tax liability.

Effect of Future Legislation; Local Tax Considerations--The foregoing general
discussion of U.S. federal income tax consequences is based on the Code and the
Treasury Regulations issued thereunder as in effect on the date of this
Statement. Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.

Rules of state and local taxation often differ from the rules for U.S. federal
income taxation described above. Shareholders are urged to consult their tax
advisers as to the consequences of state and local tax rules affecting
investment in a Portfolio.

PERFORMANCE INFORMATION

Total return of a Portfolio for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $1,000 investment
in the Portfolio made at the beginning of each period, then calculating the
average annual compounded rate of return which would produce the same investment
return on the $1,000 investment over the same period. Total return for a period
of one year or less is equal to the actual investment return on a $1,000
investment in the Portfolio during that period. Total return calculations assume
that all Portfolio distributions are reinvested at net asset value on their
respective reinvestment dates.

The performance of the Portfolios is commonly measured as total return. An
average annual total rate of return ("T") may be computed by using the
redeemable value at the end of a specified period ("ERV") of a hypothetical
initial investment of $1,000 ("P") over a period of time ("n") according to the
formula:

P (1 + T) (n) = ERV

33
<PAGE>

Investors should not consider this performance data as an indication of the
future performance of any of the Portfolios.

The average annual total returns for the Portfolios for the one year period
ended December 31, 1998 were as follows: MFS Emerging Equities, 29.67%; MFS
Research Growth, 23.00%; MFS Value Equity, 26.74%; Scudder International Growth,
19.09%; and T. Rowe Price Growth Equity, 27.60%.

The performance of a Portfolio may, from time to time, be compared to that of
other mutual funds tracked by mutual fund rating services, to broad groups of
comparable mutual funds, or to unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.

Each Portfolio has the same investment objective and follows substantially the
same investment strategies as a mutual fund or funds whose shares are currently
sold to the public or through variable insurance products and is/are managed by
MFS, Scudder Kemper or T. Rowe Price, as applicable. The Prospectus contains
historical performance information of these similarly managed funds.
Advertisements for Portfolio Partners, Inc. may also include historical
performance of these similarly managed Funds, subject to regulatory approval.

A Portfolio's investment results will vary from time to time depending upon
market conditions, the composition of its investment portfolio and its operating
expenses. The total return for a Portfolio should be distinguished from the rate
of return of a corresponding division of the insurance company's separate
account, which rate will reflect the deduction of additional insurance charges,
including mortality and expense risk charges, and will therefore be lower.
Accordingly, performance figures for a Portfolio will only be included in sales
literature if comparable performance figures for the corresponding division of
the separate account accompany the sales literature. VA and VLI Contract owners
should consult their contract and policy prospectuses, respectively, for further
information. Each Portfolio's results also should be considered relative to the
risks associated with its investment objectives and policies.

FINANCIAL STATEMENTS

The financial statements and independent auditors' report thereon for MFS
Emerging Equities, MFS Research Growth, MFS Value Equity, Scudder International
Growth and T. Rowe Price Growth Equity are incorporated by reference to the
Fund's Annual Report as of and for the period ended December 31, 1998, and have
been incorporated by reference into this Statement.

34
<PAGE>

APPENDIX A

DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates the issuer ranks in the lower end of its rating category.

STANDARD & POOR'S RATING GROUP

AAA -- Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

A -- Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.

35
<PAGE>

BB -- Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, the bonds face major uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

B -- Bonds rated B have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.

The ratings from "AA" to "B" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.

FITCH IBCA, INC.

AAA: Bonds considered to be investment grade and of the highest quality. The
obligor has an exceptionally strong ability to pay interest and repay principal
which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions, however, are more likely to
have adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.

BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

Plus (+) Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.

NR: Indicates that Fitch does not rate the specific issue.

Conditional: A conditional rating is premised on the successful completion of a
project or the occurrence of a specific event.

36
<PAGE>

Suspended: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.

Withdrawn: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.

FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive", indicating a potential
upgrade, "Negative", for potential downgrade, or "Evolving", where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.

<PAGE>
PART C: OTHER INFORMATION

ITEM 23. EXHIBITS

(a) Articles of Incorporation(1)

(b) By-laws(1)

(c) Instruments Defining Rights of Security Holders (set forth in the
Articles of Incorporation which are incorporated by reference)(1)

(d.1) Investment Advisory Agreement between Portfolio Partners, Inc. and
Aetna Life Insurance and Annuity Company ("Aetna")(2)

(d.2) Subadvisory Agreement between Aetna and Massachusetts Financial
Services Company(3)

(d.3) Subadvisory Agreement between Aetna and T. Rowe Price Associates,
Inc.(2)

(d.4) Subadvisory Agreement between Aetna and Scudder Kemper Investments,
Inc.(3)

(e) Underwriting Agreement between the Registrant and Aetna (2)

(f) Not Applicable

(g) Custodian Agreement(2)

(h.1) Administrative Services Agreement(2)

(h.2) Sub-Administration Agreement between Aetna and Investors Bank &
Trust Company(3)

(h.3) License Agreement between Aetna and T. Rowe Price Associates,
Inc.(1)

(i) Opinion and Consent of Counsel(3)

(j) Consent of Independent Auditors(3)

(k) Not Applicable

(l) Agreement re: Initial Contribution to Working Capital(1)

(m) Not Applicable

(n) Financial Data Schedule (filed herein as Exhibit 27)

(o) Not Applicable

(p.1) Powers of Attorney(1)

(p.2) Power of Attorney(2)

(p.3) Authorization for Signatures(3)

(1) Incorporated by reference to the Registrant's initial Registration
Statement on Form N-1A ("Registration Statement") (File No. 333-32575)
filed July 31, 1997.

(2) Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A (File No. 333-32575), as filed February
26, 1998.

(3) Filed herewith.
<PAGE>

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

Registrant is a Maryland Corporation for which separate financial statements are
filed. As of February 4, 1999, Aetna Life Insurance and Annuity Company
("Aetna") owned 100% of the Registrant's outstanding voting Securities.

Aetna is an indirect, wholly-owned subsidiary of Atna Inc.

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

ITEM 25. INDEMNIFICATION

Article Ninth, Section (d) of the Registrant's Articles of Incorporation
provides for indemnification of directors and officers. In addition, the
Registrant's officers and directors will be covered under a directors and
officers errors and omissions liability insurance policy issued by Gulf
Insurance Company.

Reference is also made to Section 2-418 of the Corporations and Associations
Article of the Annotated Code of Maryland which provides generally that (1) a
corporation may (but is not required to) indemnify its directors for judgments,
fines and expenses in proceedings in which the director is named a party solely
by reason of being a director, provided the director has not acted in bad faith,
dishonestly or unlawfully, and provided further that the director has not
received any "improper personal benefit"; and (2) that a corporation must
(unless otherwise provided in the corporation's charter or articles of
incorporation) indemnify a director if he or she is successful on the merits in
defending a suit against him or her by reason of being a director. The statutory
provisions are not exclusive; a corporation may provide greater indemnification
rights than those provided by statute.

Section XI.B of the Administrative Services Agreement, incorporated herein by
reference to Exhibit (h1) to the Registrant's Post-Effective Amendment No. 1 to
the Registration Statement on Form N-1A (File No. 333-32575), as filed on
February 26, 1998, provides for indemnification of the Administrator.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Aetna Life Insurance and Annuity Company ("Aetna") is an insurance company that
issues variable and fixed annuities and variable and universal life insurance
policies, and acts as principal underwriter and depositor for separate accounts
holding assets for variable contracts and policies. Aetna acts as the investment
adviser and principal underwriter for the Registrant (a management investment
company registered under the Investment Company Act of 1940, as amended (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).

The following table summarizes the business connections of the directors and
principal officers of the Investment Adviser.
<PAGE>

<TABLE>
<CAPTION>
Positions and Offices Other Principal Position(s) Held
Name with Investment Adviser Since Oct. 31, 1996/Addresses*
- ---- ----------------------- ------------------------------
<S> <C> <C>
Thomas J. McInerney Director and President Director and President (since October 1998)
- Aetna Investment Adviser Holding Company,
Inc., Aetna Retail Holding Company, Inc.,
Aetna Services Holding Company, Inc.;
Director (since February 1998) and
President (since April 1998) -- Aetna
Retirement Services, Inc.; Director (since
August 1997) and President (since September
1997) -- Aetna Life Insurance and Annuity
Company; Director and President (since
September 1997) -- Aetna Retirement
Holdings, Inc.; Director and President
(since September 1997) -- Aetna Insurance
Company of America; Executive Vice
President (since August 1997) -- Aetna
Inc.; Vice President, Strategic Planning
(March 1997 - August 1997) -- Aetna Inc.

Shaun Mathews Director and Senior Vice Director and Senior Vice President (since
President October 1998) - Aetna Investment Adviser
Holding Company, Inc.; Aetna Retail Holding
Company, Inc., Aetna Services Holding
Company, Inc.; Director (since December
1997) - Aetna Retirement Holdings, Inc.;
Director (since December 1996) - Aetna
Insurance Agency Holding Company, Inc.;
Director (since March 1991) and Senior Vice
President (since September 1997) - Aetna
Life Insurance and Annuity Company;
Director (since July 1993), President
(December 1998- February 1999) and Senior
Vice President (July 1993 - December 1998)
- Aetna Investment Services, Inc.; Director
and Senior Vice President (since September
1992) - Aetna Insurance Company of America.

Catherine H. Smith Director, Senior Vice President Director and Senior Vice President (since
and Chief Financial Officer October 1998) - Aetna Investment Adviser
Holding Company, Inc.; Aetna Services
Holding Company, Inc.; Director and Senior
Vice President (since October 1998) - Aetna
Retail Holding Company, Inc.; Director
(since March 1998) and Senior Vice
President (since February 1998) - Aetna
Retirement Holdings, Inc.; Director (since
March 1998) Aetna Insurance Company of
America; Director and Senior Vice President,
Business Strategy and Finance and Chief
Financial Officer (since March 1998) -
Aetna Life Insurance and Annuity Company;
Chief Financial Officer (since February
1998) - Aetna Retirement Services, Inc.;
Vice President, Strategy, Finance and
Administration, Financial Relations
(September 1996 - February 1998) - Aetna
Inc.

Robert D. Friedhoff Senior Vice President Director (March 2, 1998 - March 17, 1998)
and Senior Vice President (since February
1998) - Aetna Life Insurance and Annuity
Company; Managing Director (November 1997 -
January 1998) - Price Waterhouse, LLP.

John Y. Kim Senior Vice President Director (since April 1996), President,
Chief Executive Officer and Chief Investment
Officer (since November 1995) - Aeltus
Investment Management, Inc.; Director
(February 1995 - March 1998) - Aetna Life
Insurance and Annuity Company; Senior Vice
President (since September 1994) - Aetna
Life Insurance and Annuity Company.

Kirk P. Wickman Vice President, General Counsel Vice President, General Counsel and Corporate
and Corporate Secretary Secretary (since October 1998) - Aetna
Investment Adviser Holding Company, Inc.,
Aetna Retail Holding Company, Inc., Aetna
Services Holding Company, Inc.; Vice
President, General Counsel and Corporate
Secretary (since December 1996) - Aetna
Retirement Holdings, Inc.; Vice President,
General Counsel and Corporate Secretary
(since November 1996) - Aetna Life
Insurance and Annuity Company.

Therese Squillacote Vice President and Chief Vice President and Chief Compliance Officer
Compliance Officer (since February 1999) - Aetna Insurance
Company of America; Vice President and Chief
Compliance Officer (since December 1998) -
Aetna Life Insurance and Annuity Company; Vice
President and Chief Compliance Officer (since
December 1998) - Aetna Investment Services,
Inc.; Chief Compliance Officer (since December
1998) - Systematized Benefits Administrators,
Inc.; Vice President, Compliance (since March
1998) - Aetna Financial Services, Inc.;
Compliance Manager (May 1997 to December 1998)
- Aetna Life Insurance and Annuity Company;
Registered Principal (since July 1997) - Aetna
Investment Services, Inc

Deborah Koltenuk Vice President, Treasurer, and Vice President, Treasurer and Corporate
Corporate Controller Controller (since October 1998) - Aetna
Investment Adviser Holding Company, Inc.,
Aetna Retail Holding Company, Inc., Aetna
Services Holding Company, Inc.; Vice
President, Treasurer and Corporate Controller
(since April 1997) - Aetna Insurance Company
of America; Vice President, Treasurer and
Corporate Controller (since July 1996) -
Aetna Life Insurance and Annuity Company; The
Aetna Casualty and Surety Company and The
Standard Fire Insurance Company; Vice
President, Treasurer and Corporate Controller
(since September 1996) - Aetna Retirement
Holdings, Inc.
</TABLE>
<PAGE>

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

The following information relates to the Subadvisers of the Registrant.

Massachusetts Financial Services Company (MFS)
- ----------------------------------------------

MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds (except the Vertex Funds mentioned below):
Massachusetts Investors Trust, Massachusetts Investors Growth Stock Fund, MFS
Growth Opportunities Fund, MFS Government Securities Fund, MFS Government
Limited Maturity Fund, MFS Series Trust I (which has thirteen series: MFS
Managed Sectors Fund, MFS Cash Reserve Fund, MFS Global Asset Allocation Fund,
MFS Strategic Growth Fund, MFS Research Growth and Income Fund, MFS Core Growth
Fund, MFS Equity Income Fund, MFS Special Opportunities Fund, MFS Convertible
Securities Fund, MFS Blue Chip Fund, MFS New Discovery Fund, MFS Science and
Technology Fund and MFS Research International Fund), MFS Series Trust II (which
has four series: MFS Emerging Growth Fund, MFS Large Cap Growth Fund, MFS
Intermediate Income Fund and MFS Charter Income Fund), MFS Series Trust III
(which has three series: MFS High Income Fund, MFS Municipal High Income Fund
and MFS High Yield Opportunities Fund), MFS Series Trust IV (which has four
series: MFS Money Market Fund, MFS Government Money Market Fund, MFS Municipal
Bond Fund and MFS Mid Cap Growth Fund), MFS Series Trust V (which has five
series: MFS Total Return Fund, MFS Research Fund, MFS International
Opportunities Fund, MFS International Strategic Growth Fund and MFS
International Value Fund), MFS Series Trust VI (which has three series: MFS
Global Total Return Fund, MFS Utilities Fund and MFS Global Equity Fund), MFS
Series Trust VII (which has two series: MFS Global Governments Fund and MFS
Capital Opportunities Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS Global Growth Fund), MFS Series Trust IX (which
has five series: MFS Bond Fund, MFS Limited Maturity Fund, MFS Municipal Limited
Maturity Fund, MFS Research Bond Fund and MFS Intermediate Investment Grade Bond
Fund), MFS Series Trust X (which has seven series: MFS Government Mortgage Fund,
MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS International Growth
Fund, MFS International Growth and Income Fund, MFS Strategic Value Fund, MFS
Small Cap Value Fund and MFS Emerging Markets Debt Fund), MFS Series Trust XI
(which has four series: MFS Union Standard Equity Fund, Vertex All Cap Fund,
Vertex U.S. All Cap Fund and Vertex Contrarian Fund), and MFS Municipal Series
Trust (which has 16 series: MFS Alabama Municipal Bond Fund, MFS Arkansas
Municipal Bond Fund, MFS California Municipal Bond Fund, MFS Florida Municipal
Bond Fund, MFS Georgia Municipal Bond Fund, MFS Maryland Municipal Bond Fund,
MFS Massachusetts Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS
New York Municipal Bond Fund, MFS North Carolina Municipal Bond Fund, MFS
Pennsylvania Municipal Bond Fund, MFS South Carolina Municipal Bond Fund, MFS
Tennessee Municipal Bond Fund, MFS Virginia Municipal Bond Fund, MFS West
Virginia Municipal Bond Fund and MFS Municipal Income Fund) (the "MFS Funds").
The principal business address of each of the MFS Funds is 500 Boylston Street,
Boston, Massachusetts 02116.

MFS also serves as investment adviser of the following open-end
Funds: MFS Institutional Trust ("MFSIT") (which has ten series) and MFS Variable
Insurance Trust ("MVI") (which has thirteen series). The principal business
address of each of the aforementioned funds is 500 Boylston Street, Boston,
Massachusetts 02116.

In addition, MFS serves as investment adviser to the following
closed-end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.

Lastly, MFS serves as investment adviser to MFS/Sun Life Series
Trust ("MFS/SL") (which has 26 series), Money Market Variable Account, High
Yield Variable Account, Capital Appreciation Variable Account, Government
Securities Variable Account, World Governments Variable Account, Total Return
Variable Account and Managed Sectors Variable Account (collectively, the
"Accounts"). The principal business address of MFS/SL
<PAGE>

is 500 Boylston Street, Boston, Massachusetts 02116. The principal business
address of each of the aforementioned Accounts is One Sun Life Executive Park,
Wellesley Hills, Massachusetts 02181.

Vertex Investment Management, Inc., a Delaware corporation and a
wholly owned subsidiary of MFS, whose principal business address is 500 Boylston
Street, Boston, Massachusetts 02116 ("Vertex"), serves as investment adviser to
Vertex All Cap Fund, Vertex U.S. All Cap Fund and Vertex Contrarian Fund, each a
series of MFS Series Trust XI. The principal business address of the
aforementioned Funds is 500 Boylston Street, Boston, Massachusetts 02116.

MFS International Ltd. ("MIL"), a limited liability company
organized under the laws of Bermuda and a subsidiary of MFS, whose principal
business address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves
as investment adviser to and distributor for MFS American Funds known as the MFS
Funds after January 1999 (which will have 11 portfolios as of January 1999):
U.S. Equity Fund, U.S. Emerging Growth Fund, U.S. High Yield Bond Fund, U.S.
Dollar Reserve Fund, Charter Income Fund, U.S. Research Fund, U.S. Strategic
Growth Fund, Global Equity Fund, European Equity Fund and European Corporate
Bond Fund) (the "MIL Funds"). The MIL Funds are organized in Luxembourg and
qualify as an undertaking for collective investments in transferable securities
(UCITS). The principal business address of the MIL Funds is 47, Boulevard Royal,
L-2449 Luxembourg.

MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Governments Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
Global Growth Fund, MFS Meridian Money Market Fund, MFS Meridian Global Balanced
Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund, MFS Meridian
U.S. High Yield Fund, MFS Meridian Emerging Markets Debt Fund, MFS Meridian
Strategic Growth Fund and MFS Meridian Global Asset Allocation Fund and the MFS
Meridian Research International Fund (collectively the "MFS Meridian Funds").
Each of the MFS Meridian Funds is organized as an exempt company under the laws
of the Cayman Islands. The principal business address of each of the MFS
Meridian Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West
Indies.

MFS International (U.K.) Ltd. ("MIL-UK"), a private limited
company registered with the Registrar of Companies for England and Wales whose
current address is Eversheds, Senator House, 85 Queen Victoria Street, London,
England EC4V 4JL, is involved primarily in marketing and investment research
activities with respect to private clients and the MIL Funds and the MFS
Meridian Funds.

MFS Institutional Advisors (Australia) Ltd. ("MFSI-Australia"), a
private limited company organized under the Corporations Law of New South Wales,
Australia whose current address is Level 27, Australia Square, 264 George
Street, Sydney, NSW2000, Australia, is involved primarily in investment
management and distribution of Australian superannuation unit trusts and acts as
an investment adviser to institutional accounts.

MFS Holdings Australia Pty Ltd. ("MFS Holdings Australia"), a
private limited company organized pursuant to the Corporations Law of New South
Wales, Australia whose current address is Level 27, Australia Square, 264 George
Street, Sydney, NSW2000 Australia, and whose function is to serve primarily as a
holding company.

MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of
MFS, serves as distributor for the MFS Funds, MVI and MFSIT.

MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of
MFS, serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT and MVI.

MFS Institutional Advisors, Inc. ("MFSI"), a wholly owned
subsidiary of MFS, provides investment advice to substantial private clients.

MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary
of MFS, markets MFS products to retirement plans and provides administrative and
record keeping services for retirement plans.
<PAGE>

Massachusetts Investment Management Co., Ltd. (MIMCO), a wholly
owned subsidiary of MFS, is a corporation incorporated in Japan. MIMCO, whose
address is Kamiyacho-Mori Building, 3-20, Tranomon 4-chome, Minato-ku, Tokyo,
Japan, is involved in investment management activities.

MIMCO
-----

Jeffrey L. Shames, Arnold D. Scott and Mamoru Ogata are
Directors, Shaun Moran is the Representative Director, Joseph W. Dello Russo is
the Statutory Auditor, Robert DiBella is the President and Thomas B. Hastings is
the Assistant Statutory Auditor.

MFS
---

The Directors of MFS are Jeffrey L. Shames, Arnold D. Scott, John
W. Ballen, Kevin R. Parke, Thomas J. Cashman, Jr., Joseph W. Dello Russo,
William W. Scott, Donald A. Stewart and John D. McNeil. Mr. Shames is the
Chairman and Chief Executive Officer, Mr. Ballen is President and Chief
Investment Officer, Mr. Arnold Scott is a Senior Executive Vice President and
Secretary, Mr. William Scott, Mr. Cashman, Mr. Dello Russo and Mr. Parke are
Executive Vice Presidents (Mr. Parke is also Chief Equity Officer), Stephen E.
Cavan is a Senior Vice President, General Counsel and an Assistant Secretary,
Robert T. Burns is a Senior Vice President, Associate General Counsel and an
Assistant Secretary of MFS, and Thomas B. Hastings is a Vice President and
Treasurer of MFS.

Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS Growth Opportunities Fund
MFS Government Securities Fund
MFS Series Trust I
MFS Series Trust V
MFS Series Trust VI
MFS Series Trust X
MFS Government Limited Maturity Fund

Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley, Vice Presidents
of MFS, are the Assistant Treasurers, James R. Bordewick, Jr., Senior Vice
President and Associate General Counsel of MFS, is the Assistant Secretary.

MFS Series Trust II
-------------------

Leslie J. Nanberg, Senior Vice President of MFS, is a Vice
President, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant
Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.

<PAGE>

MFS Government Markets Income Trust
-----------------------------------
MFS Intermediate Income Trust
-----------------------------

MFS Series Trust III
--------------------

James T. Swanson, Robert J. Manning and Joan S. Batchelder,
Senior Vice Presidents of MFS, and Bernard Scozzafava, Vice President of MFS,
are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers, and James R. Bordewick, Jr. is the Assistant Secretary.

MFS Series Trust IV
-------------------
MFS Series Trust IX
-------------------

Robert A. Dennis and Geoffrey L. Kurinsky, Senior Vice Presidents
of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.

MFS Series Trust VII
--------------------

Leslie J. Nanberg and Stephen C. Bryant, Senior Vice Presidents
of MFS, are Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London
is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley are the
Assistant Treasurers and James R. Bordewick, Jr. is the Assistant Secretary.

MFS Series Trust VIII
---------------------

Jeffrey L. Shames, Leslie J. Nanberg and James T. Swanson and
John D. Laupheimer, Jr., a Senior Vice President of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and
James R. Bordewick, Jr. is the Assistant Secretary.

MFS Municipal Series Trust
--------------------------

Robert A. Dennis is Vice President, Geoffrey L. Schechter, Vice
President of MFS, is Vice President, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is the
Assistant Secretary.

MFS Variable Insurance Trust
----------------------------
MFS Series Trust XI
-------------------
MFS Institutional Trust
-----------------------

Jeffrey L. Shames is the President and Chairman, Stephen E. Cavan
is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M.
Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.

MFS Municipal Income Trust
--------------------------

Robert J. Manning is Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen M. Moynihan
and Mark E. Bradley are the Assistant Treasurers and James R. Bordewick, Jr. is
the Assistant Secretary.

MFS Multimarket Income Trust
----------------------------
MFS Charter Income Trust
------------------------
<PAGE>

Leslie J. Nanberg and James T. Swanson are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost, Ellen M. Moynihan and Mark E. Bradley are the Assistant Treasurers and
James R. Bordewick, Jr. is the Assistant Secretary.

MFS Special Value Trust
-----------------------

MFS/Sun Life Series Trust
-------------------------

John D. McNeil, Chairman and Director of Sun Life Assurance
Company of Canada, is the Chairman, Stephen E. Cavan is the Secretary, W. Thomas
London is the Treasurer, James O. Yost, Ellen M. Moynihan and Mark E. Bradley
are the Assistant Treasurers and James R. Bordewick, Jr. is the Assistant
Secretary.
<PAGE>

Money Market Variable Account
-----------------------------
High Yield Variable Account
---------------------------
Capital Appreciation Variable Account
-------------------------------------
Government Securities Variable Account
--------------------------------------
Total Return Variable Account
-----------------------------
World Governments Variable Account
----------------------------------
Managed Sectors Variable Account
--------------------------------

John D. McNeil is the Chairman, Stephen E. Cavan is the
Secretary, and James R. Bordewick, Jr. is the Assistant Secretary.

MIL Funds
---------

Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold
D. Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost, Ellen
M. Moynihan and Mark E. Bradley are the Assistant Treasurers and James R.
Bordewick, Jr. is the Assistant Secretary.

MFS Meridian Funds
------------------

Richard B. Bailey, John A. Brindle, Richard W. S. Baker, Arnold
D. Scott, Jeffrey L. Shames and William F. Waters are Directors, Stephen E.
Cavan is the Secretary, W. Thomas London is the Treasurer, James R. Bordewick,
Jr. is the Assistant Secretary and James O. Yost, Ellen M. Moynihan and Mark E.
Bradley are the Assistant Treasurers.

Vertex
------

Jeffrey L. Shames and Arnold D. Scott are the Directors, Jeffrey
L. Shames is the President, Kevin R. Parke and John W. Ballen are Executive Vice
Presidents, John F. Brennan, Jr., and John D. Laupheimer are Senior Vice
Presidents, Brian E. Stack is a Vice President, Joseph W. Dello Russo is the
Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is
the Secretary and Robert T. Burns is the Assistant Secretary.

MIL
---

Peter D. Laird is President and a Director, Arnold D. Scott,
Jeffrey L. Shames and Thomas J. Cashman, Jr. are Directors, Stephen E. Cavan is
a Director, Senior Vice President and the Clerk, Robert T. Burns is an Assistant
Clerk, Joseph W. Dello Russo, Executive Vice President and Chief Financial
Officer of MFS, is the Treasurer and Thomas B. Hastings is the Assistant
Treasurer.
<PAGE>

MIL-UK
------

Peter D. Laird is President and a Director, Thomas J. Cashman,
Arnold D. Scott and Jeffrey L. Shames are Directors, Stephen E. Cavan is a
Director and the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B.
Hastings is the Assistant Treasurer and Robert T. Burns is the Assistant
Secretary.

MFSI - Australia
----------------

Thomas J. Cashman, Jr. is President and a Director, Graham E.
Lenzer, John A. Gee and David Adiseshan are Directors, Stephen E. Cavan is the
Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, and Robert T. Burns is the Assistant Secretary.

MFS Holdings - Australia
------------------------

Jeffrey L. Shames is the President and a Director, Arnold D.
Scott, Thomas J. Cashman, Jr., and Graham E. Lenzer are Directors, Stephen E.
Cavan is the Secretary, Joseph W. Dello Russo is the Treasurer, Thomas B.
Hastings is the Assistant Treasurer, and Robert T. Burns is the Assistant
Secretary.

MFD
---

Arnold D. Scott and Jeffrey L. Shames are Directors, William W.
Scott, Jr., an Executive Vice President of MFS, is the President, Stephen E.
Cavan is the Secretary, Robert T. Burns is the Assistant Secretary, Joseph W.
Dello Russo is the Treasurer, and Thomas B. Hastings is the Assistant Treasurer.

MFSC
----

Arnold D. Scott and Jeffrey L. Shames are Directors, Joseph A.
Recomendes, a Senior Vice President and Chief Information Officer of MFS, is
Vice Chairman and a Director, Janet A. Clifford is the President, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer,
Stephen E. Cavan is the Secretary, and Robert T. Burns is the Assistant
Secretary.

MFSI
----

Thomas J. Cashman, Jr., Jeffrey L. Shames, and Arnold D. Scott
are Directors, Joseph J. Trainor is the President and a Director, Leslie J.
Nanberg is a Senior Vice President, a Managing Director and a Director, Kevin R.
Parke is the Executive Vice President and a Managing Director, George F.
Bennett, Jr., John A. Gee, Brianne Grady, Joseph A. Kosciuszek and Joseph J.
Trainor are Senior Vice Presidents and Managing Directors, Joseph W. Dello Russo
is the Treasurer, Thomas B. Hastings is the Assistant Treasurer and Robert T.
Burns is the Secretary.

RSI
---

Arnold D. Scott is the Chairman and a Director, Martin E.
Beaulieu is the President, William W. Scott, Jr. is a Director, Joseph W. Dello
Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer, Stephen
E. Cavan is the Secretary and Robert T. Burns is the Assistant Secretary.

In addition, the following persons, Directors or officers of MFS,
have the affiliations indicated:

<TABLE>
<S> <C>
Donald A. Stewart President and a Director, Sun Life Assurance Company of
Canada, Sun Life Centre, 150 King Street West, Toronto,
Ontario, Canada (Mr. Stewart is also an officer and/or
Director of various subsidiaries and affiliates of Sun
Life)

John D. McNeil Chairman, Sun Life Assurance Company of Canada, Sun Life
Centre, 150 King Street West, Toronto, Ontario, Canada
(Mr. McNeil is also an officer and/or Director of
various subsidiaries and affiliates of Sun Life)

Joseph W. Dello Russo Director of Mutual Fund Operations, The Boston Company,
Exchange Place, Boston, Massachusetts (until August, 1994)
</TABLE>
<PAGE>

Scudder Kemper Investments, Inc.

Scudder Kemper Investments, Inc. has stockholders and employees who are
denominated officers but do not as such have corporation-wide responsibilities.
Such persons are not considered officers for the purpose of this Item 26.

<TABLE>
<CAPTION>
<S> <C>
Name Business and Other Connections of Board of Directors
---- ----------------------------------------------------

Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.
(investment adviser)**

Lynn S. Birdsong Director and Corporate Vice President, Scudder Kemper Investments, Inc.
(investment adviser)**
Supervisory Director, The Latin America Income and Appreciation Fund N.V.
(investment company) +
Supervisory Director, The Venezuela High Income Fund N.V. (investment company) xx
Supervisory Director, Scudder Mortgage Fund (investment company)+
Supervisory Director, Scudder Floating Rate Funds for Mortgage Securities
I & II (investment company)+
Director, Scudder, Stevens & Clark (Luxembourg) S.A. (investment manager)#
Trustee, Scudder Funds Trust (investment company)*
President & Director, Scudder High Income Fund (investment company)**
Director, Canadian High Income Fund (investment company)#
Director, Hot Growth Companies Fund (investment company)#
President, The Japan Fund, Inc. (investment company)**
Supervisory Director, Sovereign High Yield Investment Company (investment company)+

Kathryn L. Quirk General Counsel & Secretary, Scudder Kemper Investments, Inc. (investment adviser)**
Vice President, Scudder Fund, Inc. (investment company)**
Vice President, Scudder Institutional Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder Global High Income Opportunities Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, The Korea Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Argentina Fund, Inc. (investment company)**
Vice President & Assistant Secretary, The Brazil Fund, Inc. (investment company)**
Vice President & Assistant Secretary, Scudder International Fund, Inc. (investment
company)**
Vice President & Assistant Secretary, Scudder Equity Trust (investment company)**
Vice President & Assistant Secretary, Scudder Securities Trust (investment company)*
Vice President & Assistant Secretary, Scudder Funds Trust (investment company)**
Vice President & Assistant Secretary, Scudder Global Fund, Inc.(investment company)**
Vice President & Assistant Secretary, Montgomery Street Income Securities, Inc.
(investment company)(o)
Vice President & Assistant Secretary, Scudder Mutual Funds, Inc.
(investment company)**
Vice President & Assistant Secretary, Scudder New Europe Fund, Inc.
(investment company)**
Vice President & Assistant Secretary, Scudder Variable Life Investment Fund
(investment company)*
Vice President & Assistant Secretary, Scudder Spain and Portugal Fund, Inc.
(investment company)**
Vice President & Secretary, AARP Growth Trust
(investment company)**
Vice President & Secretary, AARP Income Trust
(investment company)**
Vice President & Secretary, AARP Tax Free Income Trust
(investment company)**
Vice President & Secretary, AARP Cash Investment Funds
(investment company)**
Vice President, Scudder GNMA Fund
(investment company)*
Vice President & Secretary, The Japan Fund, Inc.
(investment company)**
Director, Vice President & Secretary, Scudder Fund Accounting Corporation
(in-house fund accounting agent)*
Senior Vice President, Scudder Investor Services, Inc.
(broker/dealer)*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation (
a real estate holding company)*
Vice President & Assistant Secretary, Scudder Precious Metals, Inc.(xxx)

Cornelia M. Small Director and Corporate Vice President, Scudder Kemper Investments, Inc.
(investment adviser)**
Vice President, Scudder Global Fund, Inc. (investment company)**
Vice President, AARP Cash Investment Funds (investment company)**
Vice President, AARP Growth Trust (investment company)**
Vice President, AARP Income Trust (investment company)**
Vice President, AARP Tax Free Income Trust (investment company)**

Edmond D. Villani Director, President & Chief Executive Officer, Scudder Kemper Investments, Inc.
(investment adviser)**
<PAGE>

Director, Scudder Realty Advisors, Inc. (realty investment adviser)(x)
Supervisory Director, Scudder Mortgage Fund (investment company)+
Director, Scudder, Stevens & Clark Japan, Inc. (investment adviser)###
Supervisory Director, Scudder Floating Rate Funds for Mortgage Securities & II
(investment company)+
Director, Indosuez High Yield Bond Fund (investment company) Luxembourg
Director, IBJ Global Investment Management S.A. (Luxembourg investment
management company) Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
<PAGE>

* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
++ Two Prudential Plaza, 180 N. Stetson Avenue, Chicago, IL
+++ 5 Industrial Way, Salem, NH
o 101 California Street, San Francisco, CA
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
+ John B. Gorsiraweg 6, Willemstad Curacao, Netherlands Antilles
xx De Ruyterkade 62, P.O. Box 812, Willemstad Curacao, Netherlands
Antilles
## 2 Boulevard Royal, Luxembourg
*** B1 2F3F 248 Section 3, Nan King East Road, Taipei, Taiwan
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
@ c/o Sinclair Hendersen Limited, 23 Cathedral Yard, Exeter, Devon

T. Rowe Price Associates, Inc. (T. Rowe Price)

Listed below are the Directors of T. Rowe Price who have other substantial
businesses, professions, vocations, or employment aside from that of Director of
T. Rowe Price:

James E. Halbkat, Jr., President of U.S. Monitor Corporation, a
provider of public response systems. Mr. Halbkat's address is
P.O. Box 23109, Hilton Head Island, South Carolina 29925.

Richard L. Menschel, limited partner of the Goldman Sachs Group,
L.P. Mr. Menschel's address is 85 Broad Street, 2nd Floor, New
York, New York 10004.

Robert L. Strickland, Director, retired Chairman of Loew's
Companies, Inc., a retailer of specialty home supplies, and a
Director of Hannaford Bros., Co., a food retailer. Mr.
Strickland's address is 2000 W. First Street, Winston-Salem,
North Carolina 27104.

Phillip C. Walsh, retired Consultant to Cyprus Amax Minerals
Company, Englewood, Colorado. Mr. Walsh's address is Pleasant
Valley, Peapack, New Jersey 07977.

Ann Marie Whittemore, partner of the law firm of McGuire, Woods,
Battle and Boothe LLP and is a director of Owens & Minor, Inc.;
Fort James Corporation, and Albemarle Corporation. Mrs.
Whittemore's address is One James Center, Richmond, Virginia
23219.

With the exception of Messrs. Halbkat, Menschel, Strickland, Walsh, and Mrs.
Whittemore (listed above), all Directors of T. Rowe Price are employees of T.
Rowe Price. Listed below are the additional Directors and the principal
executive officer of T. Rowe Price:

James S. Riepe, M. David Testa, Henry H. Hopkins, James A. C.
Kennedy II, John H. Laporte, Jr., William T. Reynolds and Brian
C. Rogers

George A. Roche, Chairman of the Board and President of T. Rowe
Price.

The address of each of the above individuals is 100 East Pratt
Street, Baltimore, Maryland 21202.

ITEM 27. PRINCIPAL UNDERWRITER

(a) In addition to serving as the principal underwriter, investment adviser
and administrator 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. (formerly Aetna Investment Advisers
Fund, Inc.), Aetna Generation Portfolios, Inc., Aetna GET Fund and Aetna
Variable Portfolios, Inc. (all management investment companies registered
under the 1940 Act). Additionally, Aetna is 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 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:
<PAGE>

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

Shaun P. Mathews Director and Senior Vice President None

Catherine H. Smith Director, Senior Vice President and None
Chief Financial Officer

Robert D. Friedhoff Senior Vice President None

Steven A. Haxton Senior Vice President None

John Y. Kim Senior Vice President None

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. The
address of Mr. Kim is 10 State House Square, Hartford, Connecticut 06103-3602.

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, Aetna, maintain physical possession of
each account, book or other documents at its principal place of business located
at 151 Farmington Avenue Hartford, Connecticut 06156.

Shareholder records of direct shareholders are maintained by the transfer agent,
Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts
02116.

ITEM 29. MANAGEMENT SERVICES

Not Applicable.

ITEM 30. UNDERTAKINGS

Not Applicable.
<PAGE>

SIGNATURES

Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
Portfolio Partners, Inc. has duly caused this Post-Effective Amendment to be
signed on its behalf by the undersigned thereto duly authorized, in the City of
Hartford and State of Connecticut on the 26th day of February, 1999.

PORTFOLIO PARTNERS, INC.

By: /s/ Laurie M. LeBlanc*
----------------------

Laurie M. LeBlanc
President

Pursuant to the requirements of the Securities Act of 1933 this Post-Effective
Amendment No. 3 to the Registration Statement has been signed below by the
following persons on February 26, 1999 in the capacities indicated.

SIGNATURE TITLE

/s/ Laurie M. LeBlanc* Director and President
---------------------- (Principal Executive
Officer)
Laurie M. LeBlanc

/s/ Martin T. Conroy* Director, Vice President,
--------------------- Chief Financial Officer
and Treasurer
Martin T. Conroy

/s/ John V. Boyer* Director
------------------

John V. Boyer

/s/ Richard A. Johnson* Director
-----------------------

Richard A. Johnson

/s/ Philip M. Markert* Director
----------------------

Philip M. Markert

*By: /s/ Susan C. Mosher
- ------------------------

Susan C. Mosher
Attorney-in-Fact

(Executed pursuant to Powers of Attorney dated January 8, 1998 and
February 12, 1998 and filed with the Securities and Exchange Commission on
February 26, 1998).

<PAGE>

INDEX TO EXHIBITS
-----------------

Exhibit No. Title of Exhibit
- ----------- ----------------

(d.2) Subadvisory Agreement between Aetna and MFS
(d.4) Subadvisory Agreement between Aetna and Scudder Kemper
(h.2) Sub-Administration Agreement
(i) Opinion and Consent of Counsel
(j) Consent of Independent Auditors
27 Financial Data Schedule
(p.3) Authorization for Signatures

INVESTMENT SUBADVISORY AGREEMENT

Between

Aetna Life Insurance and Annuity Company

and

Massachusetts Financial Services Company

INVESTMENT SUBADVISORY AGREEMENT, made as of the 29th day of August, 1997,
between Aetna Life Insurance and Annuity Company (the "Adviser"), an insurance
corporation organized and existing under the laws of the State of Connecticut,
and Massachusetts Financial Services Company ("Subadviser"), a business trust
organized and existing under the laws of the State of Delaware.

WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated as
of the 25th day of August, 1997 ("Advisory Agreement") with Portfolio Partners,
Inc. ("Company"), which is engaged in business as an open-end management
investment company registered under the Investment Company Act of 1940 ("1940
Act"); and

WHEREAS, the Company is and will continue to be a series fund having two or more
investment portfolios, each with its own assets, investment objectives, policies
and restrictions; and

WHEREAS, the Company shareholders are and will be separate accounts maintained
by insurance companies for variable life insurance policies and variable annuity
contracts (the "Policies") under which income, gains, and losses, whether or not
realized, from assets allocated to such accounts are, in accordance with the
Policies, credited to or charged against such accounts without regard to other
income, gains, or losses of such insurance companies; and

WHEREAS, the Subadviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940 ("Advisers Act"); and

WHEREAS, the Board of Directors and the Adviser desire to retain the Subadviser
as subadviser for MFS Emerging Equities Portfolio, MFS Research Growth Portfolio
and MFS Value Equity Portfolio, portfolios of the Company (collectively, the
"Portfolios"), to furnish certain investment advisory services to the Adviser
and the Company and the Subadviser is willing to furnish such services;

NOW, THEREFORE, in consideration of the premises and mutual promises herein set
forth, the parties hereto agree as follows:

1
<PAGE>

1. Appointment. Adviser hereby appoints the Subadviser as its investment
Subadviser with respect to the Portfolios for the period and on the terms set
forth in this Agreement. The Subadviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.

2. Duties of the Subadviser

A. Investment Subadvisory Services. Subject to the supervision of the
Company's Board of Directors ("Board") and the Adviser, the Subadviser
shall act as the investment Subadviser and shall supervise and direct the
investments of each Portfolio in accordance with its investment
objective, policies, and restrictions as provided in the Company's
Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter
referred to as the "Prospectus"), and such other limitations as the
Company may impose by notice in writing to the Subadviser. The Subadviser
shall obtain and evaluate such information relating to the economy,
industries, businesses, securities markets, and individual securities as
it may deem necessary or useful in the discharge of its obligations
hereunder and shall formulate and implement a continuing program for the
management of the assets and resources of each Portfolio in a manner
consistent with each Portfolio's investment objective, policies, and
restrictions, and in compliance with the requirements applicable to
registered investment companies under applicable laws and those
requirements applicable to both regulated investment companies and
segregated asset accounts under Subchapters M and L of the Internal
Revenue Code of 1986, as amended ("Code"). To implement its duties, the
Subadviser is hereby authorized to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets on behalf of
each Portfolio; and

(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with
or through such brokers, dealers, underwriters or issuers as
the Subadviser may select.

B. Subadviser Undertakings. In all matters relating to the performance of
this Agreement, the Subadviser shall act in conformity with the Company's
Articles of Incorporation, By-Laws, and current Prospectus and with the
written instructions and directions of the Board and the Adviser.
The Subadviser hereby agrees to:

(i) regularly (but no less frequently than quarterly) report to
the Board and the Adviser (in such form as the Adviser and
Subadviser mutually agree) with respect to the implementation
of the investment program and, in addition, provide such
statistical information and special reports concerning the
Portfolios and/or important developments materially affecting
the investments held, or contemplated to be purchased, by the
Portfolios, as may reasonably be requested by the Board or the
Adviser and agreed to by the Subadviser, including attendance

2
<PAGE>

at Board meetings, as reasonably requested, to present such
information and reports to the Board;

(ii) consult with the Company's pricing agent regarding the
valuation of securities that are not registered for public
sale, not traded on any securities markets, or otherwise may
be deemed illiquid for purposes of the 1940 Act and for which
market quotations are not readily available;

(iii) provide any and all information, records and supporting
documentation about accounts the Subadviser manages that have
investment objectives, policies, and strategies substantially
similar to those employed by the Subadviser in managing the
Portfolios which may be reasonably necessary, under applicable
laws, to allow the Company or its agent to present historical
performance information concerning the Subadviser's similarly
managed accounts, for inclusion in the Company's Prospectus
and any other reports and materials prepared by the Company or
its agent, in accordance with regulatory requirements;

(iv) establish appropriate personal contacts with the Adviser and
the Company's Administrator in order to provide the Adviser
and Administrator with information as reasonably requested by
the Adviser or Administrator; and

(v) execute account documentation, agreements, contracts and other
documents as the Adviser shall be requested by brokers,
dealers, counterparties and other persons to execute in
connection with its management of the assets of the
Portfolios, provided that the Subadviser receives the express
agreement and consent of the Adviser and/or the Board to
execute such documentation, agreements, contracts and other
documents. In such respect, and only for this limited purpose,
the Subadviser shall act as the Adviser and/or the Portfolios'
agent and attorney-in-fact.

C. The Subadviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to
faithfully perform its duties under this Agreement; and (ii)
administrative facilities, including bookkeeping, clerical personnel and
equipment required for it to faithfully and fully perform its duties and
obligations under this Agreement.

D. The Subadviser will select brokers and dealers to effect all Portfolio
transactions subject to the conditions set forth herein. The Subadviser
will place all necessary orders with brokers, dealers, or issuers, and
will negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage transactions for the
Portfolios in accordance with such policies or practices as may be
established by the Board and the Adviser and described in the current
Prospectus as amended from time to time. In placing orders for the
purchase or sale of investments for the Portfolios, in the name of the
Portfolios or their nominees, the Subadviser shall use its best efforts
to obtain for the Portfolios the most favorable price and best execution
available, considering all of the

3
<PAGE>
circumstances, and shall maintain records adequate to demonstrate
compliance with this requirement.

Subject to the appropriate policies and procedures approved by the
Adviser and the Board, the Subadviser may, to the extent authorized by
Section 28(e) of the Securities Exchange Act of 1934, cause the Portfolio
to pay a broker or dealer that provides brokerage or research services to
the Subadviser, an amount of commission for effecting a portfolio
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the
Subadviser determines, in good faith, that such amount of commission is
reasonable in relationship to the value of such brokerage or research
services provided viewed in terms of that particular transaction or the
Subadviser's overall responsibilities to the Portfolio or its other
advisory clients. To the extent authorized by said Section 28(e) and the
Adviser and the Board, the Subadviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of such action. In addition, subject to
seeking the best execution available, the Subadviser may also consider
sales of shares of the Portfolio as a factor in the selection of brokers
and dealers.

E. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of a Portfolio as well as other
clients of the Subadviser, the Subadviser to the extent permitted by
applicable laws and regulations, and subject to the Adviser approval of
the Subadviser procedures, may, but shall be under no obligation to,
aggregate the orders for securities to be purchased or sold to attempt to
obtain a more favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Subadviser in the manner the Subadviser considers to
be the most equitable and consistent with its fiduciary obligations to
the Portfolios and to its other clients.

F. With respect to the provision of services by the Subadviser hereunder,
the Subadviser will maintain all accounts, books and records with respect
to each Portfolio as are required of an investment adviser of a
registered investment company pursuant to the 1940 Act and the Advisers
Act and the rules under both statutes.

G. The Subadviser and the Adviser acknowledge that the Subadviser is not
the compliance agent for the Portfolios, and does not have access to all
of the Company's books and records necessary to perform certain
compliance testing. However, to the extent that the Subadviser has agreed
to perform the services specified in this Agreement, the Subadviser shall
perform compliance testing with respect to the Portfolios based upon
information in its possession and upon information and written
instructions received from the Adviser or the Administrator and shall not
be held in breach of this Agreement so long as it performs in accordance
with such information and instructions. The Adviser or Administrator
shall promptly provide the Subadviser with copies of the Company's
current Prospectus and any written policies or procedures adopted by the
Board applicable to the Portfolios and any amendments or revisions
thereto.

4
<PAGE>

H. Unless the Adviser gives the Subadviser written instructions to the
contrary, the Subadviser shall use its good faith judgment in a manner
which it reasonably believes best serves the interests of a Portfolio's
shareholders to vote or abstain from voting all proxies solicited by or
with respect to the issuers of securities in which assets of the
Portfolio may be invested. The Adviser shall furnish the Subadviser with
any further documents, materials or information that the Subadviser may
reasonably request to enable it to perform its duties pursuant to this
Agreement.

I. Subadviser hereby authorizes Adviser to use Subadviser's name and any
applicable trademarks in the Company's Prospectus, as well as in any
advertisement or sales literature used by the Adviser or its agents to
promote the Company and/or to provide information to shareholders of the
Portfolios.

During the term of this Agreement, the Adviser shall furnish to the
Subadviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared for
distribution to shareholders of the Company or the public, which refer to
the Subadviser or its clients in any way, prior to the use thereof, and
the Adviser shall not use any such materials if the Subadviser reasonably
objects within three business days (or such other time as may be mutually
agreed) after receipt thereof. The Adviser shall ensure that materials
prepared by employees or agents of the Adviser or its affiliates that
refer to the Subadviser or its clients in any way are consistent with
those materials previously approved by the Subadviser.

3. Compensation of Subadviser. The Adviser will pay the Subadviser, with respect
to each Portfolio, the compensation specified in Appendix A to this Agreement.
Payments shall be made to the Subadviser on the second day of each month;
however, this advisory fee will be calculated based on the daily average value
of the aggregate assets of all Portfolios subject to the Subadviser's management
and accrued on a daily basis. Compensation for any partial period shall be
pro-rated based on the length of the period.

4. Liability of Subadviser. Neither the Subadviser nor any of its directors,
officers, employees or agents shall be liable to the Adviser or the Company for
any loss or expense suffered by the Adviser or the Company resulting from its
acts or omissions as Subadviser to the Portfolios, except for losses or expenses
to the Adviser or the Company resulting from willful misconduct, bad faith, or
gross negligence in the performance of, or from reckless disregard of, the
Subadviser's duties under this Agreement. Neither the Subadviser nor any of its
agents shall be liable to the Adviser or the Company for any loss or expense
suffered as a consequence of any action or inaction of other service providers
to the Company in failing to observe the instructions of the Adviser, provided
such action or inaction of such other service providers to the Company is not a
result of the willful misconduct, bad faith or gross negligence in the
performance of, or from reckless disregard of, the duties of the Subadviser
under this Agreement.

5. Non-Exclusivity. The services of the Subadviser to the Portfolios and the
Company are not to be deemed to be exclusive, and the Subadviser shall be free
to render investment advisory or other services to others (including other
investment companies) and to engage in other

5
<PAGE>

activities. It is understood and agreed that the directors, officers, and
employees of the Subadviser 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, trustees, or employees of any other
firm or corporation, including other investment companies.

6. Adviser Oversight and Cooperation with Regulators. The Adviser and Subadviser
shall cooperate with each other in providing records, reports and other
materials to regulatory and administrative bodies having proper jurisdiction
over the Company, the Adviser and the Subadviser, in connection with the
services provided pursuant to this Agreement; provided, however, that this
agreement to cooperate does not apply to the provision of information, reports
and other materials which either the Subadviser or Adviser reasonably believes
the regulatory or administrative body does not have the authority to request or
which is privileged or confidential information of the Subadviser or Adviser.

7. Records. The records relating to the services provided under this Agreement
required to be established and maintained by an investment adviser under
applicable law or those required by the Adviser or the Board of Directors for
the Subadviser to prepare and provide shall be the property of the Company and
shall be under its control; however, the Company shall permit the Subadviser to
retain such records (either in original or in duplicate form) as it shall
reasonably require. In the event of the termination of this Agreement, such
records shall promptly be returned to the Company by the Subadviser free from
any claim or retention of rights therein; provided however, that the Subadviser
may retain copies thereof. The Subadviser shall keep confidential any nonpublic
information concerning the Adviser or any Subadviser's duties hereunder and
shall disclose such information only if the Company has authorized such
disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities.

8. Duration of Agreement. This Agreement shall become effective with respect to
the Portfolios on the later of the date of its execution or the date of the
commencement of operations of the Portfolios. This Agreement will continue in
effect for a period of more than two years from the date of its execution only
so long as such continuance is specifically approved at least annually by the
Board, provided that in such event such continuance shall also be approved by
the vote of a majority of the Directors who are not "interested persons" (as
defined in the 1940 Act) ("Independent Directors") of any party to this
Agreement cast in person at a meeting called for the purpose of voting on such
approval or by a vote of a majority of the outstanding voting securities (as
determined in accordance with the 1940 Act).

9. Representations of Subadviser. The Subadviser represents, warrants, and
agrees as follows:

A. The Subadviser: (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or
the Advisers Act from performing the services contemplated by this
Agreement; (iii) has met, and will continue to meet for so long as this
Agreement remains in effect, any other applicable federal or state
requirements, or the applicable

6
<PAGE>

requirements of any regulatory or industry self-regulatory organization,
necessary to be met in order to perform the services contemplated by this
Agreement; (iv) has the authority to enter into and perform the services
contemplated by this Agreement; and (v) will immediately notify the
Adviser of the occurrence of any event that would disqualify the
Subadviser from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.

B. The Subadviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not already
done so, will provide the Adviser and the Company with a copy of such
code of ethics, together with evidence of its adoption.

C. The Subadviser has provided the Adviser and the Company with a copy of
its Form ADV as most recently filed with the SEC and hereafter will
furnish a copy of its annual amendment to the Adviser.

10. Provision of Certain Information by Subadviser. The Subadviser will promptly
notify the Adviser in writing of the occurrence of any of the following events:

A. the Subadviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the
Subadviser is required to be registered as an investment adviser in order
to perform its obligations under this Agreement;

B. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before
or by any court, public board, or body, involving the affairs of the
Company;

C. a controlling stockholder of the Subadviser or the portfolio manager
of a Portfolio changes or there is otherwise an actual change in control
or management of the Subadviser.

11. Provision of Certain Information by the Adviser. The Adviser will promptly
notify the Subadviser in writing of the occurrence of any of the following
events:

A. the Adviser fails to be registered as an investment adviser under the
Advisers Act or under the laws of any jurisdiction in which the Adviser
is required to be registered as an investment adviser in order to perform
its obligations under this Agreement;

B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before
or by any court, public board, or body, involving the affairs of the
Company;

C. a controlling stockholder of the Adviser changes or there is otherwise
an actual change in control or management of the Adviser.

7
<PAGE>

12. Termination of Agreement. Notwithstanding the foregoing, this Agreement may
be terminated at any time with respect to a Portfolio, without the payment of
any penalty, by vote of the Board or by a vote of a majority of the outstanding
voting securities of such Portfolio on 60 days' prior written notice to the
Subadviser. This Agreement may also be terminated by the Adviser: (i) on at
least 120 days' prior written notice to the Subadviser, without the payment of
any penalty; (ii) upon material breach by the Subadviser of any of the
representations and warranties, if such breach shall not have been cured within
a 20-day period after notice of such breach; or (iii) if the Subadviser becomes
unable to discharge its duties and obligations under this Agreement. The
Subadviser may terminate this Agreement at any time, without the payment of any
penalty, on at least 90 days' prior notice to the Adviser. This Agreement shall
terminate automatically in the event of its assignment or upon termination of
the Advisory Agreement between the Company and the Adviser.

13. Amendment of Agreement. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge,
or termination is sought, and no material amendment of this Agreement shall be
effective until approved by vote of a majority of the Independent Directors cast
in person at a meeting called for the purpose of such approval.

14. Miscellaneous.

A. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Maryland without giving effect to the conflicts
of laws principles thereof, and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable
provisions of the 1940 Act, the latter shall control.

B. Captions. The Captions contained in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.

C. Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties hereto and shall supersede any prior
agreements between the parties concerning management of the Portfolios
and all such prior agreements shall be deemed terminated upon the
effectiveness of this Agreement.

D. Interpretation. Nothing herein contained shall be deemed to require
the Company to take any action contrary to its Articles of Incorporation,
By-Laws, or any applicable statutory or regulatory requirement to which
it is subject or by which it is bound, or to relieve or deprive the Board
of its responsibility for and control of the conduct of the affairs of
the Company.

E. Definitions. 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

8
<PAGE>

any such court, by rules, releases or orders of the SEC validly issued
pursuant to the Act. As used in this Agreement, the terms "majority of
the outstanding voting securities," "affiliated person," "interested
person," "assignment," "broker," "investment adviser," "net assets,"
"sale," "sell," and "security" shall have the same meaning as such terms
have in the 1940 Act, subject to such exemptions as may be granted by
the SEC by any rule, release or order. Where the effect of a requirement
of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, release, or order of the
SEC, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, release, or order.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.

Aetna Life Insurance and Annuity Company

Attest: By: /s/Shaun P. Mathews
-----------------------------
Shaun P. Mathews
Vice President
/s/ Karen A. Peddle
-----------------------------
Karen A. Peddle
Assistant Secretary
Massachusetts Financial Services Company

Attest: By: /s/ Arnold D. Scott
-----------------------------
Arnold D. Scott
Senior Executive Vice President
/s/ James DesMarais
-----------------------------
James DesMarais
Vice President

<PAGE>

Appendix A

Fee Schedule*

MFS Emerging Equities .40% on the first $300 million of aggregate
MFS Research Growth average daily net assets under management
MFS Value Equity .375% on the next $300 million
.35% on the next $300 million
.325% on the next $600 million
.25% on assets over $1.5 billion

*Amended and approved by the Board of Directors of the Company on February 10,
1999, to be effective May 3, 1999.

INVESTMENT SUBADVISORY AGREEMENT

Between

Aetna Life Insurance and Annuity Company
and

Scudder Kemper Investments, Inc.

INVESTMENT SUBADVISORY AGREEMENT, made as of the 7th day of September, 1998,
between Aetna Life Insurance and Annuity Company (the "Adviser"), an insurance
corporation organized and existing under the laws of the State of Connecticut,
and Scudder Kemper Investments, Inc. ("Subadviser"), a corporation organized and
existing under the laws of Delaware.

WHEREAS, the Company is and will continue to be a series fund having two or more
investment portfolios, each with its own assets, investment objectives, policies
and restrictions; and

WHEREAS, the Board of Directors and the Adviser desire to retain the Subadviser
as subadviser for the Scudder International Growth Portfolio (the "Portfolio"),
a portfolio of the Company, to furnish certain investment advisory services to
the Adviser and the Company and the Subadviser is willing to furnish such
services;

NOW, THEREFORE, in consideration of the premises and mutual promises herein set
forth, the parties hereto agree as follows:

1. Appointment. Adviser hereby appoints the Subadviser as its investment
Subadviser with respect to the Portfolio for the period and on the terms set
forth in this Agreement. The Subadviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.

2. Duties of the Subadviser

<PAGE>

securities markets, and individual securities as it may deem necessary or useful
in the discharge of its obligations hereunder and shall formulate and implement
a continuing program for the management of the assets and resources of the
Portfolio in a manner consistent with the Portfolio's investment objective,
policies, and restrictions, and in compliance with the requirements applicable
to registered investment companies under applicable laws and those requirements
applicable to both regulated investment companies and segregated asset accounts
under Subchapters M and L of the Internal Revenue Code of 1986, as amended
("Code"). To implement its duties, the Subadviser is hereby authorized to:

(i) buy, sell, exchange, convert, lend, and otherwise trade in
any stocks, bonds, and other securities or assets on behalf of the Portfolio;
and

(ii) directly or through the trading desks of the Subadviser
or its affiliate place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or through such
brokers, dealers, underwriters or issuers as the Subadviser may select.

B. Subadviser Undertakings. In all matters relating to the performance
of this Agreement, the Subadviser shall act in conformity with the Company's
Articles of Incorporation, By-Laws, and current Prospectus and with the written
instructions and directions of the Board and the Adviser. The Subadviser hereby
agrees to:

(i) regularly (but no less frequently than quarterly) report
to the Board and the Adviser with respect to the implementation of the
investment program and, in addition, provide such statistical information and
special reports concerning the Portfolio and/or important developments
materially affecting the investments held, or contemplated to be purchased, by
the Portfolio, as may reasonably be requested by the Board or the Adviser and
agreed to by the Subadviser, including attendance at Board meetings, as
reasonably requested, to present such information and reports to the Board;

(ii) consult with the Company's pricing agent regarding the
valuation of securities that are not registered for public sale, not traded on
any securities markets, or otherwise may be deemed illiquid for purposes of the
1940 Act and for which market quotations are not readily available;

(iii) provide any and all information, records and supporting
documentation about accounts the Subadviser manages that have investment
objectives, policies, and strategies substantially similar to those employed by
the Subadviser in managing the Portfolio which may be reasonably necessary,
under applicable laws, to allow the Company or its agent to present historical
performance information concerning the Subadviser's similarly managed accounts,
for inclusion in the Company's Prospectus and any other reports and materials
prepared by the Company or its agent, in accordance with regulatory
requirements;

(iv) establish appropriate personal contacts with the Adviser
and the Company's Administrator in order to provide the Adviser and
Administrator with information as reasonably requested by the Adviser or
Administrator; and

(v) execute account documentation, agreements, contracts and
other documents as the Adviser shall be requested by brokers, dealers,
counterparties and other persons to execute in connection with its management of
the assets of the Portfolio, provided that the Subadviser receives the express
agreement and consent of the Adviser and/or the Board to execute such
documentation, agreements, contracts and other documents. In such respect, and
only for this limited purpose, the Subadviser shall act as the Adviser and/or
the Portfolio's agent and attorney-in-fact.

C. Adviser and Company Undertakings. To facilitate the Subadviser's
fulfillment of its obligations under this Agreement, the Adviser and the Company
will undertake the following:
<PAGE>

(i) the Adviser agrees promptly to provide the Subadviser with
all amendments or supplements to the Prospectus, the Company's Articles of
Incorporation, and By-Laws;

(ii) the Company and the Adviser each agrees, on an ongoing
basis, to notify the Subadviser expressly in writing of each change in the
fundamental and nonfundamental investment policies of the Portfolio;

(iii) the Adviser agrees to provide or cause to be provided to
the Subadviser with such assistance as may be reasonably requested by the
Subadviser in connection with its activities pertaining to the Portfolio under
this Agreement, including, without limitation, information concerning the
Portfolio, its available funds, or funds that may reasonably become available
for investment, and information as to the general condition of the Portfolio's
affairs;

(iv) the Adviser agrees to provide or cause to be provided to
the Subadviser on an ongoing basis, such information as is reasonably requested
by the Subadviser for performance by the Subadviser of its obligations under
this Agreement, and the Subadviser shall not be in breach of any term of this
Agreement or be deemed to have acted negligently if the Adviser fails to provide
or cause to be provided such requested information and the Subadviser relies on
the information most recently furnished to the Subadviser; and

(v) the Adviser will promptly provide the Subadviser with any
guidelines and procedures applicable to the Subadviser or the Portfolio adopted
from time to time by the Board and agrees to promptly provide the Subadviser
copies of all amendments thereto.

D. The Subadviser, at its expense, will furnish: (i) all necessary
investment and management facilities and investment personnel, including
salaries, expenses and fees of any personnel required for it to faithfully
perform its duties under this Agreement; and (ii) administrative facilities,
including bookkeeping, clerical personnel and equipment required for it to
faithfully and fully perform its duties and obligations under this Agreement.

E. The Subadviser will select brokers and dealers to effect all
Portfolio transactions subject to the conditions set forth herein. The
Subadviser will place all necessary orders with brokers, dealers, or issuers,
and will negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage transactions for the
Portfolio in accordance with such policies or practices as may be established by
the Board and the Adviser and described in the current Prospectus as amended
from time to time. In placing orders for the purchase or sale of investments for
the Portfolio, in the name of the Portfolio or its nominees, the Subadviser
shall use its best efforts to obtain for the Portfolio the most favorable price
and best execution available, considering all of the circumstances, and shall
maintain such records as are required of an investment adviser under applicable
law.

Subject to the appropriate policies and procedures approved by the
Adviser and the Board, the Subadviser may, to the extent authorized by Section
28(e) of the Securities Exchange Act of 1934, cause the Portfolio to pay a
broker or dealer that provides brokerage or research services to the Subadviser,
an amount of commission for effecting a portfolio transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Subadviser determines, in good faith, that such amount
of commission is reasonable in relationship to the value of such brokerage or
research services provided viewed in terms of that particular transaction or the
Subadviser's overall responsibilities to the Portfolio or its other advisory
clients. To the extent authorized by said Section 28(e) and the Adviser and the
Board, the Subadviser shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
such action. In addition, subject to seeking the best execution available, the
Subadviser may also consider sales of shares of the Portfolio as a factor in the
selection of brokers and dealers.
<PAGE>

F. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other clients of
the Subadviser, the Subadviser to the extent permitted by applicable laws and
regulations, and subject to the Adviser approval of the Subadviser's procedures,
may, but shall be under no obligation to, aggregate the orders for securities to
be purchased or sold to attempt to obtain a more favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary obligations
to the Portfolio and to its other clients.

G. With respect to the provision of services by the Subadviser
hereunder, the Subadviser will maintain all accounts, books and records with
respect to the Portfolio as are required of an investment adviser of a
registered investment company pursuant to the 1940 Act and the Advisers Act and
the rules under both statutes.

H. The Subadviser and the Adviser acknowledge that the Subadviser is
not the compliance agent for the Portfolio, and does not have access to all of
the Company's books and records necessary to perform certain compliance testing.
However, to the extent that the Subadviser has agreed to perform the services
specified in Section 2A, the Subadviser shall perform compliance testing with
respect to the Portfolio based upon information in its possession and upon
information and written instructions received from the Adviser or the
Administrator.

I. Unless the Adviser gives the Subadviser written instructions to the
contrary, the Subadviser shall use its good faith judgment in a manner which it
reasonably believes best serves the interests of the Portfolio's shareholders to
vote or abstain from voting all proxies solicited by or with respect to the
issuers of securities in which assets of the Portfolio may be invested. The
Adviser shall furnish the Subadviser with any further documents, materials or
information that the Subadviser may reasonably request to enable it to perform
its duties pursuant to this Agreement.

J. Subadviser hereby authorizes Adviser to use Subadviser's name and
any applicable trademarks in the Company's Prospectus, as well as in any
advertisement or sales literature used by the Adviser or its agents to promote
the Company and/or to provide information to shareholders of the Portfolio. Upon
termination of this Agreement, the Adviser and the Company shall immediately
cease to use such name and trademarks, except as necessary to comply with
disclosure requirements under the federal securities laws.

During the term of this Agreement, the Adviser shall furnish to the
Subadviser at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature, or other material prepared for distribution
to shareholders of the Company or the public, which refer to the Subadviser or
its clients in any way, prior to the use thereof, and the Adviser shall not use
any such materials if the Subadviser reasonably objects within five business
days (or such other time as may be mutually agreed) after receipt thereof. The
Adviser shall ensure that materials prepared by employees or agents of the
Adviser or its affiliates that refer to the Subadviser or its clients in any way
are consistent with those materials previously approved by the Subadviser.
Subadviser will provide reasonable marketing support to Adviser in connection
with the promotion of the Portfolio.

3. Compensation of Subadviser. The Adviser will pay the Subadviser, with respect
to the Portfolio, the compensation specified in Appendix A to this Agreement.
Payments shall be made to the Subadviser on the second business day of each
month; however, this advisory fee will be calculated based on the daily average
value of the Portfolio's assets and accrued on a daily basis. Compensation for
any partial period shall be pro-rated based on the length of the period.

<PAGE>

to the Adviser or the Company resulting from willful misconduct, bad faith, or
gross negligence in the performance of, or from reckless disregard of, the
Subadviser's duties under this Agreement. Neither the Subadviser nor any of its
agents shall be liable to the Adviser or the Company for any loss or expense
suffered as a consequence of any action or inaction of other service providers
to the Company in failing to observe the instructions of the Adviser, provided
such action or inaction of such other service providers to the Company is not a
result of the willful misconduct, bad faith or gross negligence in the
performance of, or from reckless disregard of, the duties of the Subadviser
under this Agreement.

5. Non-Exclusivity. The services of the Subadviser to the Portfolio and the
Company are not to be deemed to be exclusive, and the Subadviser shall be free
to render investment advisory or other services to others (including other
investment companies) and to engage in other activities. It is understood and
agreed that the directors, officers, and employees of the Subadviser 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,
trustees, or employees of any other firm or corporation, including other
investment companies. Furthermore, the Company and the Adviser recognize that
the Subadviser may give advice, and take action, with respect to its other
clients that may differ from the advice given, or the time or nature of action
taken, with respect to the Portfolio.

6. Adviser Oversight and Cooperation with Regulators. The Subadviser shall
cooperate in providing records, reports and other materials relating to the
Company that are in its possession, at the request of the Adviser, and in
response to inquiries by regulatory and administrative bodies having proper
jurisdiction over the Company, in connection with the services provided pursuant
to this Agreement; provided, however, that this agreement to cooperate does not
apply to the provision of information, reports and other materials which the
Subadviser reasonably believes the regulatory or administrative body does not
have the authority to request or which is privileged or confidential information
of the Subadviser.

7. Records. The records relating to the services provided under this Agreement
required to be established and maintained by an investment adviser under
applicable law or those required by the Adviser or the Board of Directors for
the Subadviser to prepare and provide shall be the property of the Company and
shall be under its control; however, the Company shall permit the Subadviser to
retain such records (either in original or in duplicate form) as it shall
reasonably require in order to carry out its duties. In the event of the
termination of this Agreement, such records shall promptly be returned to the
Company by the Subadviser free from any claim or retention of rights therein.
The Subadviser shall keep confidential any information concerning the Adviser or
any Subadviser's duties hereunder and shall disclose such information only if
the Company has authorized such disclosure or if such disclosure is expressly
required or requested by applicable federal or state regulatory authorities.

8. Duration of Agreement. This Agreement is effective with respect to the
Portfolio as of December 31, 1997. This Agreement will remain in effect through
June 30, 1999, unless earlier terminated under the provisions of Section 12.
Following the expiration of its initial term, the Agreement shall continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the Board, provided that in such event such
continuance shall also be approved by the vote of a majority of the Directors
who are not "interested persons" (as defined in the 1940 Act) of any party to
this Agreement ("Independent Directors") cast in person at a meeting called for
the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities (as determined in accordance with the 1940 Act).

9. Representations of Subadviser. The Subadviser represents, warrants, and
agrees as follows:

A. The Subadviser: (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this Agreement
remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act
from performing the services contemplated by this Agreement; (iii) has met, and
will continue to meet for so long as this Agreement remains in effect, any other
applicable federal or

<PAGE>

state requirements, or the applicable requirements of any regulatory or industry
self-regulatory organization, necessary to be met in order to perform the
services contemplated by this Agreement; (iv) has the authority to enter into
and perform the services contemplated by this Agreement; and (v) will
immediately notify the Adviser of the occurrence of any event that would
disqualify the Subadviser from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.

B. The Subadviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and, if it has not already
done so, will provide the Adviser and the Company with a copy of such code of
ethics, together with evidence of its adoption.

C. The Subadviser has provided the Adviser and the Company with a copy
of its Form ADV as most recently filed with the SEC and hereafter will furnish a
copy of its annual amendment to the Adviser.

10. Provision of Certain Information by Subadviser. The Subadviser will promptly
notify the Adviser in writing of the occurrence of any of the following events:

A. the Subadviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Subadviser
is required to be registered as an investment adviser in order to perform its
obligations under this Agreement;

B. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Company;

C. a controlling stockholder of the Subadviser or the portfolio manager
of the Portfolio changes or there is otherwise an actual change in control or
management of the Subadviser.

11. Provision of Certain Information by the Adviser. The Adviser will promptly
notify the Subadviser in writing of the occurrence of any of the following
events:

A. the Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the Adviser is
required to be registered as an investment adviser in order to perform its
obligations under this Agreement;

B. the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry, or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Company;

C. a controlling stockholder of the Adviser changes or there is
otherwise an actual change in control or management of the Adviser.

12. Termination of Agreement. Notwithstanding the foregoing, this Agreement may
be terminated at any time, without the payment of any penalty, by vote of the
Board or by a vote of a majority of the outstanding voting securities of the
Portfolio on 60 days' prior written notice to the Subadviser. This Agreement may
also be terminated by the Adviser: (i) on at least 60 days' prior written notice
to the Subadviser, without the payment of any penalty; (ii) upon material breach
by the Subadviser of any of the representations and warranties, if such breach
shall not have been cured within a 20-day period after notice of such breach; or
(iii) if the Subadviser becomes unable to discharge its duties and obligations
under this Agreement. The Subadviser may terminate this Agreement at any time,
without the payment of any penalty, on at least 60 days' prior notice to the
Adviser. This Agreement shall terminate automatically in the event of its
assignment or upon termination of the Advisory Agreement between the Company and
the Adviser.

<PAGE>

14. Miscellaneous.

A. Governing Law. This Agreement shall be construed in accordance with the laws
of the State of Maryland without giving effect to the conflicts of laws
principles thereof, and the 1940 Act. To the extent that the applicable laws of
the State of Maryland conflict with the applicable provisions of the 1940 Act,
the latter shall control.

C. Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties hereto and shall supersede any prior agreements
between the parties concerning management of the Portfolio and all such prior
agreements shall be deemed terminated upon the effectiveness of this Agreement.

D. Interpretation. Nothing herein contained shall be deemed to require
the Company to take any action contrary to its Articles of Incorporation,
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of its
responsibility for and control of the conduct of the affairs of the Company.

E. Definitions. 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, releases or orders of the SEC validly issued pursuant to the Act. As
used in this Agreement, the terms "majority of the outstanding voting
securities," "affiliated person," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell," and "security" shall have
the same meaning as such terms have in the 1940 Act, subject to such exemptions
as may be granted by the SEC by any rule, release or order. Where the effect of
a requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, release, or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, release, or order.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.

Aetna Life Insurance and Annuity Company

By: /s/ Shaun P. Mathews
Shaun P. Mathews
Senior Vice President

Attest:

/s/ Rose-Marie DeRensis
Rose-Marie DeRensis
Assistant Corporate Secretary

Scudder Kemper Investments, Inc.

By: /s/ Cornelia M. Small
Cornelia M. Small
Managing Director

Attest:

By: /s/ John Lamb
John Lamb
Vice President

<PAGE>

Appendix A

Fee Schedule

<TABLE>
<S> <C>
Scudder International Growth .75% on the first $20 million of average daily net assets
.65% on the next $15 million
.50% on the next $65 million
.40% on the next $200 million
.30% on assets over $300 million
</TABLE>

SUB-ADMINISTRATION AGREEMENT

THIS SUB-ADMINISTRATION AGREEMENT is made as of August 11, 1997 by and between
AETNA LIFE INSURANCE AND ANNUITY COMPANY (ALIAC), a corporation organized under
the laws of the State of Connecticut (the "Administrator"), and INVESTORS BANK &
TRUST COMPANY, a Massachusetts trust company ("Investors Bank").

WHEREAS, the Administrator is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act"), and;

WHEREAS, the Administrator desires to retain Investors Bank to render certain
administrative services to the Administrator and Investors Bank is willing to
render such services;

NOW, THEREFORE, in consideration of the mutual covenants herein set forth, it is
agreed between the parties hereto as follows:

1. Appointment. The Administrator hereby appoints Investors Bank to act as
Sub-Administrator of Portfolio Partners, Inc. (the "Company") on the terms set
forth in this Agreement. Investors Bank accepts such appointment and agrees to
render the services herein set forth for the compensation herein provided.

2. Delivery of Documents. The Administrator has furnished Investors Bank with
copies properly certified or authenticated of each of the following:

(a) Resolutions of the Company's Board of Directors authorizing the
appointment of ALIAC as Administrator to provide certain administrative services
to the Company;

(b) The Company's incorporating documents filed with the State of
Maryland and all amendments thereto (the "Articles");

(d) The Company's agreements with all service providers which include
any investment advisory agreements, sub-investment advisory agreement, custody
agreements, distribution agreements and transfer agency agreements, if
applicable (collectively, the "Agreements");

(e) The Company's most recent Registration Statement on Form N-1A under
the Securities Act of 1933 and under the Investment Company Act of 1940 (the
"1940 Act") and all amendments thereto (the "Prospectus"); and

(f) Such other certificates, documents or opinion as may mutually be
deemed necessary or appropriate for Investors Bank in the proper performance of
its duties hereunder.

The Administrator will immediately furnish Investors Bank with copies
of all amendments of or supplements to the foregoing. Furthermore, the
Administrator will notify Investors Bank of its services under this Agreement.

3. Duties of Sub-Administrator. Subject to the supervision and direction of the
Administrator, Investors Bank, as Sub-Administrator, will assist in conducting
various aspects of the Company's administrative operations and undertakes to
perform the services described in Appendix B hereto. Investors Bank may, from
time to time, perform additional duties and functions which shall be set forth
in an amendment to such Appendix B executed by both parties. At such time, the
fee schedule included in Appendix A hereto shall be appropriately amended.

<PAGE>

In performing all services under this Agreement, Investors Bank shall
act in conformity with the Company's Articles and By-Laws and the 1940 Act, as
the same may be amended from time to time, and the investment objectives,
investment policies and other practices and policies set forth in the Company's
Prospectus, as the same may be amended from time to time. Notwithstanding any
item discussed herein, Investors Bank has no discretion over the Company's
assets or choice of investments and cannot be held liable for any problem
relating to such investments.

4. Duties of the Company.

(a) The Administrator agrees to make its legal counsel available to
Investors Bank for instruction with respect to any matter of law arising in
connection with Investors Bank's duties hereunder, and the Administrator further
agrees that Investors Bank shall be entitled to rely on such instruction without
further investigation on the part of Investors Bank.

5. Fees and Expenses.

(a) For the services to be rendered and the facilities to be furnished
by Investors Bank, as provided for in this Agreement, the Administrator will
compensate Investors Bank in accordance with the fee schedule attached as
Appendix A hereto. Such fees do not include out-of-pocket disbursements (as
delineated on the fee schedule or other expenses with the prior approval of the
Administrator) of Investors Bank for which Investors Bank shall be entitled to
bill separately and for which the Administrator shall reimburse Investors Bank.

(b) Investors Bank shall not be required to pay any expenses incurred
by the Company or the Administrator.

6. Limitation of Liability.

(a) Investors Bank, its directors, officers, employees and agents shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Company in connection with the performance of its obligations
and duties under this Agreement, except a loss resulting from willful
misfeasance, bad faith or negligence in the performance of such obligations and
duties, or by reason of its reckless disregard thereof. The Administrator will
indemnify Investors Bank, its directors, officers, employees and agents against
and hold it and them harmless from any and all losses, claims, damages,
liabilities or expenses (including legal fees and expenses) resulting from any
claim, demand, action or suit (i) arising out of the actions or omissions of the
Administrator, including, but not limited to, inaccurate Daily Sales Reports and
misidentification of Exempt Transactions; (ii) arising out of the offer or sale
of any securities of the Fund in violation of (x) any requirement under the
federal securities laws, (y) any requirement under the securities laws of any
state, or (z) any stop order or other determination or ruling by any federal or
state agency with respect to the offer or sale of such securities; or (iii) not
resulting from the willful misfeasance, bad faith or negligence of Investors
Bank in the performance of such obligations and duties or by reason of its
reckless disregard thereof.

(b) Investors Bank may apply to the Administrator at any time
for instructions and may consult counsel for the Company, or its own counsel,
and with accountants and other experts with respect to any matter arising in
connection with its duties hereunder, and Investors Bank shall not be liable or
accountable for any action taken or omitted by it in good faith in accordance
with such instruction, or with the opinion of such counsel, accountants, or
other experts. Investors Bank shall not be liable for any act or omission taken
or not taken in reliance upon any document, certificate or instrument which it
reasonably believes to be genuine and to be signed or presented by the proper
person or persons. Investors Bank shall not be held to have notice of any change
of authority of any officers, employees, or agents of the Fund until receipt of
written notice thereof has been received by Investors Bank from the Fund.
<PAGE>

(c) In the event Investors Bank is unable to perform, or is
delayed in performing, its obligations under the terms of this Agreement because
of acts of God, strikes, legal constraint, government actions, war, emergency
conditions, interruption of electrical power or other utilities, equipment or
transmission failure or damage reasonably beyond its control or other causes
reasonably beyond its control, Investors Bank shall not be liable to the Company
or Administration for any damages resulting from such failure to perform, delay
in performance, or otherwise from such causes.

(d) Notwithstanding anything to the contrary in this
Agreement, the liability of Investors Bank for any loss or damages directly or
indirectly suffered by the Company in connection with Investors Bank performance
of its obligations hereunder shall in no event exceed the amount of actual
damages caused as a result of Investors Bank's acts or omissions. In no event
shall Investors Bank be liable for special, incidental or consequential damages,
even if advised of the possibility of such damages.

7. Termination of Agreement.

(a) The term of this Agreement shall be three years commencing
upon the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms (each a "Renewal Term")
unless notice of non-renewal is delivered by the non-renewing party to the other
party no later than sixty days prior to the expiration of the Initial Term or
any Renewal Term, as the case may be.

(i) Either party hereto may terminate this Agreement
prior to the expiration of the Initial Term in the event the other party
violates any material provision of this Agreement, provided that the violating
party does not cure such violation within 90 days of receipt of written notice
from the non-violating party of such violation.

(ii) Either party may terminate this Agreement during
any Renewal Term upon sixty days written notice to the other party. Any
termination pursuant to this paragraph 7(a)(ii) shall be effective upon
expiration of such sixty days, provided, however, that the effective date of
such termination may be postponed, at the request of the Company or
Administrator, to a date not more than ninety days after delivery of the written
notice in order to give the Company and Administrator an opportunity to make
suitable arrangements for a successor administrator.

(b) At any time after the termination of this Agreement, the
Administrator may, upon written request, have reasonable access to the records
of Investors Bank relating to its performance of its duties as
Sub-Administrator.

8. Miscellaneous.

(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Administrator or Investor Bank
shall be sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.

To the Fund/Administrator:
Aetna Life Insurance and Annuity Company
151 Farmington Avenue
Hartford, CT 06156
Attn: M.T. Conroy, TS31

To Investors Bank:
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116

<PAGE>

Attention: Geoff O'Connell

(b) This Agreement shall extend to and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.

(c) This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts without regard to its conflict of laws
provisions.

(d) This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.

(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.

9. Confidentiality. All books, records, information and data pertaining
to the business of the other party which are exchanged or received pursuant to
the negotiation or the carrying out of this Agreement shall remain confidential,
and shall not be voluntarily disclosed to any other person, except as may be
required in the performance of duties hereunder or as otherwise required by law.

10. Use of Name. The Company shall not use the name of Investors Bank
or any of its affiliates in any prospectus, sales literature or other material
relating to the Fund in a manner not approved by Investors Bank prior thereto;
provided, however, that the approval of Investors Bank shall not be required for
any use of its name which merely refers in accurate and factual terms to its
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided further, that in no
event shall such approval be unreasonably withheld or delayed.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed and delivered by their duly authorized officers as of the date first
written above.

Aetna Life Insurance and Annuity Company

By: /s/ Deborah Koltenuk
Name: Deborah Koltenuk
Title: Vice President

Investors Bank & Trust Company

By: /s/ Michael Rogers
Name: Michael Rogers
Title: Executive Vice President

[Aetna Logo]

Aetna Inc.
151 Farmington Avenue
Hartford, CT 06156-3124

J. Neil McMurdie
Counsel
Law Division, RE4A
Investments & Financial Services
(860) 273-1672
February 26, 1999 Fax: (860) 723-0330

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

Attention: Filing Desk

Re: Portfolio Partners, Inc.
Post-Effective Amendment No. 3 to
Registration Statement on Form N-1A
(File No. 333-32575 and 811-8319)

Dear Sir or Madam:

The undersigned serves as counsel to Portfolio Partners, 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 Washington and do not purport to be an expert
on the laws of any other state. My opinion herein as to any other law is based
upon a limited inquiry thereof which I have deemed appropriate under the
circumstances

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/ J. Neil McMurdie
-----------------
J. Neil McMurdie
Counsel

Consent of Independent Auditors

The Board of Directors and Shareholders
Portfolio Partners, Inc.:

We consent to the use of our report dated January 29, 1999, incorporated by
reference herein and to the reference to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "INDEPENDENT AUDITORS"in the statement of
additional information.

/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Boston, Massachusetts
February 26, 1999

RESOLVED, that each of the following officers of Portfolio Partners, Inc. (the
"Fund")

President
Treasurer
Corporate Secretary
Assistant Corporate Secretary

(1) is hereby authorized to sign in the name of the Fund or any Portfolio or
Series of the Fund

(a) any written instrument which such officer is requested to
approve in the normal course of such officer's activities in
connection with the Fund's operations; and

(b) any other written instrument when specifically authorized by the
Board of Directors or the President of the Fund, and

(2) is further authorized (i) to delegate all or any part of the foregoing
authority to one or more officers, employees or agents of the Fund,
provided that each such delegation is in writing and a copy thereof is
filed with the corporate records of the Fund, or (ii) to designate any
attorney at law representing the Fund, to sign the name of the Fund or
any Portfolio or Series of the Fund on any document which the officer is
authorized to sign.

<ARTICLE> 6
<LEGEND>
This schedule contains summary financial
information extracted from Portfolio Partners, Inc.
financial statements at December 31, 1998
and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> MFS Emerging Equities Portfolio

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 838,646,196
<INVESTMENTS-AT-VALUE> 1,051,373,646
<RECEIVABLES> 11,152,384
<ASSETS-OTHER> 12,450,035
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,074,976,065
<PAYABLE-FOR-SECURITIES> 1,533,338
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,402,426
<TOTAL-LIABILITIES> 5,935,764
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 844,549,904
<SHARES-COMMON-STOCK> 19,282,157
<SHARES-COMMON-PRIOR> 17,899,936
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,762,947
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 212,727,450
<NET-ASSETS> 1,069,040,301
<DIVIDEND-INCOME> 957,402
<INTEREST-INCOME> 2,280,574
<OTHER-INCOME> 0
<EXPENSES-NET> (7,238,432)
<NET-INVESTMENT-INCOME> (4,000,456)
<REALIZED-GAINS-CURRENT> 17,886,341
<APPREC-INCREASE-CURRENT> 221,647,960
<NET-CHANGE-FROM-OPS> 235,533,845
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,021,457)
<DISTRIBUTIONS-OF-GAINS> (586,890)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 250,995,803
<NUMBER-OF-SHARES-REDEEMED> (185,597,540)
<SHARES-REINVESTED> 2,608,347
<NET-CHANGE-IN-ASSETS> 300,932,108
<ACCUMULATED-NII-PRIOR> 1,629,226
<ACCUMULATED-GAINS-PRIOR> (1,143,817)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,073,693
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,238,432
<AVERAGE-NET-ASSETS> 896,775,267
<PER-SHARE-NAV-BEGIN> 42.91
<PER-SHARE-NII> (0.21)
<PER-SHARE-GAIN-APPREC> 12.88
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 55.44
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 393,689,441
<INVESTMENTS-AT-VALUE> 490,838,549
<RECEIVABLES> 3,179,929
<ASSETS-OTHER> 5,752,479
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 499,770,957
<PAYABLE-FOR-SECURITIES> 6,709,597
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,524,083
<TOTAL-LIABILITIES> 8,233,680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 408,147,899
<SHARES-COMMON-STOCK> 41,184,587
<SHARES-COMMON-PRIOR> 41,145,690
<ACCUMULATED-NII-CURRENT> 982,830
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14,742,092)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 97,148,640
<NET-ASSETS> 491,537,277
<DIVIDEND-INCOME> 4,147,286
<INTEREST-INCOME> 592,559
<OTHER-INCOME> 0
<EXPENSES-NET> (3,734,425)
<NET-INVESTMENT-INCOME> 1,005,420
<REALIZED-GAINS-CURRENT> (10,117,749)
<APPREC-INCREASE-CURRENT> 99,935,450
<NET-CHANGE-FROM-OPS> 90,823,121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (103,709)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 86,437,903
<NUMBER-OF-SHARES-REDEEMED> (85,271,880)
<SHARES-REINVESTED> 103,709
<NET-CHANGE-IN-ASSETS> 91,989,144
<ACCUMULATED-NII-PRIOR> 103,342
<ACCUMULATED-GAINS-PRIOR> (4,646,566)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,075,409
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,734,425
<AVERAGE-NET-ASSETS> 439,213,833
<PER-SHARE-NAV-BEGIN> 9.71
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 2.20
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.93
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 153,151,164
<INVESTMENTS-AT-VALUE> 185,677,093
<RECEIVABLES> 6,585,504
<ASSETS-OTHER> 7,588,128
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 199,850,725
<PAYABLE-FOR-SECURITIES> 4,692,721
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 231,697
<TOTAL-LIABILITIES> 4,924,418
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 155,332,755
<SHARES-COMMON-STOCK> 5,148,169
<SHARES-COMMON-PRIOR> 4,497,589
<ACCUMULATED-NII-CURRENT> 279,417
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,846,742
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,467,393
<NET-ASSETS> 194,926,307
<DIVIDEND-INCOME> 1,317,062
<INTEREST-INCOME> 454,732
<OTHER-INCOME> 0
<EXPENSES-NET> (1,487,069)
<NET-INVESTMENT-INCOME> 284,725
<REALIZED-GAINS-CURRENT> 7,051,170
<APPREC-INCREASE-CURRENT> 30,600,702
<NET-CHANGE-FROM-OPS> 37,936,597
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (227,718)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,067,470
<NUMBER-OF-SHARES-REDEEMED> (20,585,921)
<SHARES-REINVESTED> 227,718
<NET-CHANGE-IN-ASSETS> 60,418,146
<ACCUMULATED-NII-PRIOR> 230,432
<ACCUMULATED-GAINS-PRIOR> (212,450)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,073,994
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,487,069
<AVERAGE-NET-ASSETS> 165,395,223
<PER-SHARE-NAV-BEGIN> 29.91
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 7.94
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 37.86
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 362,976,006
<INVESTMENTS-AT-VALUE> 419,094,655
<RECEIVABLES> 833,282
<ASSETS-OTHER> 18,502,165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 438,430,102
<PAYABLE-FOR-SECURITIES> 1,690,105
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,088,561
<TOTAL-LIABILITIES> 5,778,666
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 355,026,870
<SHARES-COMMON-STOCK> 25,816,698
<SHARES-COMMON-PRIOR> 26,828,266
<ACCUMULATED-NII-CURRENT> 2,628,450
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,847,846
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 54,148,270
<NET-ASSETS> 432,651,436
<DIVIDEND-INCOME> 6,380,121
<INTEREST-INCOME> 1,226,311
<OTHER-INCOME> 0
<EXPENSES-NET> (4,162,873)
<NET-INVESTMENT-INCOME> 3,443,559
<REALIZED-GAINS-CURRENT> 20,717,196
<APPREC-INCREASE-CURRENT> 48,292,548
<NET-CHANGE-FROM-OPS> 72,453,303
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (766,921)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 414,815,500
<NUMBER-OF-SHARES-REDEEMED> (432,817,544)
<SHARES-REINVESTED> 766,921
<NET-CHANGE-IN-ASSETS> 54,451,259
<ACCUMULATED-NII-PRIOR> 44,729
<ACCUMULATED-GAINS-PRIOR> 37,733
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,330,261
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,162,873
<AVERAGE-NET-ASSETS> 416,447,356
<PER-SHARE-NAV-BEGIN> 14.10
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 2.56
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.76
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 419,754,430
<INVESTMENTS-AT-VALUE> 519,193,949
<RECEIVABLES> 3,188,860
<ASSETS-OTHER> 3,053,464
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 525,436,273
<PAYABLE-FOR-SECURITIES> 3,621,057
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 331,703
<TOTAL-LIABILITIES> 3,952,760
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 408,550,006
<SHARES-COMMON-STOCK> 9,428,088
<SHARES-COMMON-PRIOR> 8,512,069
<ACCUMULATED-NII-CURRENT> 1,804,047
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,692,248
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 99,437,212
<NET-ASSETS> 521,483,513
<DIVIDEND-INCOME> 4,434,913
<INTEREST-INCOME> 1,731,809
<OTHER-INCOME> 0
<EXPENSES-NET> (3,304,630)
<NET-INVESTMENT-INCOME> 2,862,092
<REALIZED-GAINS-CURRENT> 10,771,577
<APPREC-INCREASE-CURRENT> 94,370,040
<NET-CHANGE-FROM-OPS> 108,003,709
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,582,874)
<DISTRIBUTIONS-OF-GAINS> (884,317)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 66,543,519
<NUMBER-OF-SHARES-REDEEMED> (24,257,325)
<SHARES-REINVESTED> 2,467,191
<NET-CHANGE-IN-ASSETS> 150,289,903
<ACCUMULATED-NII-PRIOR> 554,334
<ACCUMULATED-GAINS-PRIOR> 1,775,483
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,643,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,304,630
<AVERAGE-NET-ASSETS> 441,028,358
<PER-SHARE-NAV-BEGIN> 43.61
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 11.66
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> (0.09)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 55.31
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>